[Federal Register Volume 75, Number 123 (Monday, June 28, 2010)]
[Notices]
[Pages 36749-36752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-15541]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62332; File No. SR-NYSEAmex-2010-60]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Proposed Rule Change Amending NYSE Amex Equities Rule 128 Relating to 
Clearly Erroneous Executions

June 21, 2010.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on June 17, 2010, NYSE Amex LLC (the ``Exchange'' or ``NYSE 
Amex'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Amex Equities Rule 128 relating 
to clearly erroneous executions. The text of the proposed rule change 
is available at the Exchange, the Commission's Web site at http://www.sec.gov, the Commission's Public Reference Room, and http://www.nyse.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend NYSE Amex Equities Rule 128, 
entitled Clearly Erroneous Executions for NYSE Amex Equities. First, 
the Exchange proposes replacing existing paragraph (c)(2) of Rule 128, 
entitled ``Unusual Circumstances and Joint Market Rulings'' with a new 
paragraph, entitled ``Multi-Stock Events Involving Twenty or More 
Securities.'' Second, the Exchange proposes replacing existing 
paragraph (c)(4) of Rule 128, entitled ``Numerical Guidelines 
Applicable to Volatile Market Opens'' with a new paragraph, entitled 
``Individual Security Trading Pauses.'' Third, the Exchange is 
proposing changes to existing paragraphs (f) and (g) of Rule 128 to 
eliminate the ability of the Exchange to deviate from the Numerical 
Guidelines contained in paragraph (c)(1) (other than under limited 
circumstances set forth in paragraph (f)) when deciding which 
transactions will be reviewed by the Exchange as potentially clearly 
erroneous. Finally, the Exchange proposes modifications to paragraphs 
(c)(1), (c)(3), and (e) of Rule 128

[[Page 36750]]

consistent with the proposed changes to paragraphs (c)(2) and (c)(4).
    The Exchange is proposing the rule changes described below in 
consultation with other markets and Commission staff to provide for 
uniform treatment: (1) Of clearly erroneous execution reviews in Multi-
Stock Events involving twenty or more securities; and (2) in the event 
transactions occur that result in the issuance of an individual 
security trading pause by the primary market and subsequent 
transactions that occur before the trading pause is in effect on the 
Exchange. The Exchange has also proposed additional changes to Rule 128 
that reduce the ability of the Exchange to deviate from the objective 
standards set forth in the Rule in those circumstances. The proposed 
changes are described in further detail below.
    As proposed, the provisions of paragraphs (c), (e)(2), (f), and (g) 
of Rule 128, as amended pursuant to this filing, would be in effect 
during a pilot period set to end on December 10, 2010. If the pilot is 
not either extended or approved permanent by December 10, 2010, the 
prior versions of paragraphs (c), (e)(2), (f), and (g) of Rule 128 
would be in effect.
Revised Paragraph (c)(2) Related to Multi-Stock Events Involving Twenty 
or More Securities
    The Exchange proposes to eliminate the majority of existing 
paragraph (c)(2), which provides flexibility to the Exchange to use 
different Numerical Guidelines or Reference Prices in various ``Unusual 
Circumstances.'' The Exchange proposes to replace this paragraph with 
new language that would apply to Multi-Stock Events involving twenty or 
more securities whose executions occurred within a period of five 
minutes or less. The revised paragraph would retain language making 
clear that during Multi-Stock Events involving twenty or more 
securities, the number of affected transactions may be such that 
immediate finality is necessary to maintain a fair and orderly market 
and to protect investors and the public interest. Accordingly, in such 
circumstances, decisions made by the Exchange in consultation with 
other markets could not be appealed.
    Further, as proposed, in connection with reviews of Multi-Stock 
Events involving twenty or more securities, the Exchange may use a 
Reference Price other than consolidated last sale in its review of 
potentially clearly erroneous executions. With the exception of those 
securities under review that are subject to an individual security 
trading pause as described in proposed paragraph (c)(4), and to ensure 
consistent application across market centers when proposed paragraph 
(c)(2) is invoked, the Exchange will promptly coordinate with the other 
market centers to determine the appropriate review period, which may be 
greater than the period of five minutes or less that triggered 
application of proposed paragraph (c)(2), as well as select one or more 
specific points in time prior to the transactions in question and use 
transaction prices at or immediately prior to the one or more specific 
points in time selected as the Reference Price. The Exchange will 
nullify as clearly erroneous all transactions that are at prices equal 
to or greater than 30% away from the Reference Price in each affected 
security during the review period selected by the Exchange and other 
markets consistent with the proposed paragraph (c)(2).
    Because the Exchange and other market centers are adopting 
different threshold and standards to handle large-scale market events, 
which would include events occurring during times of high volatility at 
the beginning of regular trading hours, the Exchange proposes deletion 
of paragraph (c)(4) (``Numerical Guidelines Applicable to Volatile 
Market Opens'') of the existing rule. The Exchange believes that this 
provision is no longer necessary, and if maintained, could result in 
extremely high Numerical Guidelines (up to 90%) in certain 
circumstances.
Revised Paragraph (c)(4) Related to Individual Security Trading Pauses
    The Commission has just approved the Exchange's filing to adopt 
Rule 80C permitting the primary listing market to invoke a trading 
pause for an individual security if the price of such security moves 
10% or more from a sale in a preceding five-minute period.\4\ This rule 
is currently a pilot and is applicable to securities included in the 
S&P 500 Index.
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    \4\ See Securities Exchange Act Release No. 62252 (June 10, 
2010), 75 FR 34186 (June 16, 2010) (SR-NYSEAmex-2010-46).
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    As described above, the Exchange is proposing to eliminate existing 
paragraph (c)(4) (``Numerical Guidelines Applicable to Volatile Market 
Opens''). The Exchange proposes adopting a rule, numbered as (c)(4) 
following such elimination, which will provide for uniform treatment of 
clearly erroneous execution reviews in the event transactions occur 
that result in the issuance of an individual security trading pause by 
the primary listing market and subsequent transactions that occur 
before the trading pause is in effect on the Exchange. The proposed 
rule change is necessary to provide greater certainty of the clearly 
erroneous Reference Price for transactions that trigger a trading pause 
(the ``Trigger Trade'') and subsequent transactions occurring between 
the time of the Trigger Trade and the time the trading pause message is 
received by the Exchange from the single plan processor responsible for 
consolidation and dissemination of information for the security and put 
into effect on the Exchange, especially under highly volatile and 
active market conditions.
    The Exchange proposes to revise paragraph (c)(4) of NYSE Amex 
Equities Rule 128 to allow the Exchange to use the price that triggered 
a trading pause in an individual security (the ``Trading Pause Trigger 
Price'') as the Reference Price for clearly erroneous execution reviews 
of a Trigger Trade and transactions that occur immediately after a 
Trigger Trade but before a trading pause is in effect on the Exchange. 
As proposed, the phrase ``Trading Pause Trigger Price'' shall mean the 
price that triggered a trading pause in any security subject to Rule 
80C. The Trading Pause Trigger Price reflects a price calculated by the 
primary listing market over a rolling five-minute period and may differ 
from the execution price of a transaction that triggered a trading 
pause. The Exchange proposes to make clear in the text that the 
proposed standards in paragraph (c)(4) apply regardless of whether the 
security at issue is part of a Multi-Stock Event involving five or more 
securities as described in proposed paragraphs (c)(1) and (c)(2).
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    \5\ Regular Trading Hours are defined in NYSE Amex Equities Rule 
51 as the time 9:30 a.m. and 4 p.m. Eastern Time. An individual 
stock trading pause could be issued based on a Trigger Trade that 
occurs at any time between 9:45 a.m. and 3:35 p.m. Pacific Eastern 
Time. See NYSE Amex Equities Rule 80C.
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Revision to Paragraph (e)
    As proposed, the Numerical Guidelines set forth in NYSE Amex 
Equities Rule 128(c)(1), other than those Numerical Guidelines 
applicable to Multi-Stock Events, would apply to reviews of Trigger 
Trades and subsequent transactions. The Exchange proposes to review, on 
its own motion pursuant to paragraph (g) of the Rule, all transactions 
that trigger a trading pause and subsequent transactions occurring 
before the trading pause is in effect on the Exchange. Because the 
proposed rules for trading pauses would only apply within Regular 
Trading Hours,\5\ an execution would be reviewed and

[[Page 36751]]

nullified as clearly erroneous if it exceeds the following thresholds:

------------------------------------------------------------------------
                                          Numerical guidelines (subject
                                            transaction's % difference
       Reference price or product         from the trading pause trigger
                                                      price)
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Greater than $0.00 up to and including   10
 $25.00.
Greater than $25.00 up to and including  5
 $50.00.
Greater than $50.00....................  3
Leveraged ETF/ETN securities...........  Regular Trading Hours Numerical
                                          Guidelines multiplied by the
                                          leverage multiplier (i.e.,
                                          2x).
------------------------------------------------------------------------

    As further proposed, in conducting this review, and notwithstanding 
anything to the contrary contained in paragraph (c)(1), where a trading 
pause was triggered by a price decline (rise), the Exchange would limit 
its review to transactions that executed at a price lower (higher) than 
the Trading Pause Trigger Price.
    The Exchange further proposes to amend paragraph (e) to provide 
that when rulings are made in conjunction with one or more market 
centers, the number of the affected transactions is similarly such that 
immediate finality is necessary to maintain a fair and orderly market 
and to protect investors and the public interest and, hence, are also 
non-appealable. This provision ensures that in the case of joint market 
rulings, even for situations involving less than 20 securities, such 
rulings are not appealable. This is consistent with current paragraph 
(c)(2) of the Rule, which is proposed to be deleted.
Revisions to Paragraphs (f) and (g)
    Consistent with other proposals made in this filing, the Exchange 
proposes modifying paragraphs (f) and (g) to eliminate the ability of 
an Exchange official to deviate from the Numerical Guidelines contained 
in the Rule other than under very limited circumstances set forth in 
paragraph (f).
    Current paragraph (f) provides an officer of the Exchange the 
ability on his or her own motion, to review and rule on executions that 
result from ``any disruption or a malfunction in the use or operation 
of any electronic communications and trading facilities of the 
Exchange, or extraordinary market conditions or other circumstances in 
which the nullification of transactions may be necessary for the 
maintenance of a fair and orderly market or the protection of investors 
and the public interest exist.'' Without modification, the language 
``extraordinary market conditions or other circumstances * * *'' would 
leave the Exchange with broad discretion to deviate from the Numerical 
Guidelines set forth in paragraph (c)(1). Thus, the Exchange proposes 
narrowing the scope of paragraph (f) so that it only permits the 
Exchange to nullify transactions consistent with that paragraph 
(including at a lower Numerical Guideline) if there is a disruption or 
malfunction in the operation of the Exchange's system. For the same 
reason, the Exchange proposes eliminating the words ``use or'' from the 
language in paragraph (f) to make clear that the provision only applies 
to a disruption or malfunction of the Exchange's system (and not of an 
Exchange user's systems).
    Paragraph (g) gives an officer of the Exchange the ability on his 
or her own motion to review transactions as potentially clearly 
erroneous. Consistent with the goal of achieving more objective and 
standard results, the Exchange proposes deleting language in existing 
paragraph (g) that would allow the Exchange to deviate from the 
Numerical Guidelines contained in paragraph (c)(1). In addition, the 
Exchange proposes to make clear that any Officer of the Exchange 
reviewing transactions on his or her own motion must follow the 
guidelines set forth in proposed paragraph (c)(4), if applicable. 
Accordingly, the Exchange proposes to modify paragraph (g) to state 
that an officer must rely on paragraphs (c)(1)-(4) of Rule 128 when 
reviewing transactions on his or her own motion.
Additional Conforming Revisions to Paragraphs (c)(1) and (c)(3)
    Based on proposed paragraph (c)(2), the Exchange has proposed 
certain conforming changes to paragraphs (c)(1) and (c)(3) of the 
existing Rule, as described below.
    Under current NYSE Amex Equities Rule 128, a transaction may be 
found to be clearly erroneous only if the price of the transaction to 
buy (sell) that is the subject of the complaint is greater than (less 
than) the Reference Price by an amount that equals or exceeds the 
Numerical Guidelines set forth in paragraph (c)(1) of the Rule. The 
``Reference Price'' is currently defined as ``the consolidated last 
sale immediately prior to the execution(s) under review except for in 
Unusual Circumstances as described in paragraph (c)(2)'' of Rule 128. 
The Exchange proposes modifying paragraph (c)(1) consistent with the 
changes described above such that the Exchange shall use the 
consolidated last sale immediately prior to the execution(s) under 
review as the Reference Price except for: (A) Multi-Stock Events 
involving twenty or more securities, as described in proposed paragraph 
(c)(2); (B) transactions not involving a Multi-Stock Event as described 
in proposed paragraph (c)(2) that trigger a trading pause and 
subsequent transactions, as described in proposed paragraph (c)(4), in 
which case the Reference Price shall be determined in accordance with 
that paragraph (c)(4); and (C) in other circumstances, such as, for 
example, relevant news impacting a security or securities, periods of 
extreme market volatility, sustained illiquidity, or widespread system 
issues, where use of a different Reference Price is necessary for the 
maintenance of a fair and orderly market and the protection of 
investors and the public interest. The Exchange also proposes modifying 
paragraph (c)(1) to reduce uncertainty as to the applicability of the 
Numerical Guidelines, by requiring a finding that an execution was 
clearly erroneous if such execution exceeds the Numerical Guidelines, 
subject to the Additional Factors included in paragraph (c)(3). 
Finally, the Exchange proposes revising the existing description for 
Multi-Stock Events that is contained on the Numerical Guidelines chart 
to make clear that different Numerical Guidelines apply for Multi-Stock 
Events involving five or more, but fewer than twenty, securities whose 
executions occurred within a period of five minutes or less. In 
addition, the Exchange proposes adding to the Numerical Guidelines 
chart a row that contains the Numerical Guidelines (30%) for Multi-
Stock Events involving twenty or more securities whose executions 
occurred within a period of five minutes or less.
    In addition, the Exchange proposes clarifying paragraph (c)(3) to 
make clear that the additional factors set forth in that paragraph are 
not intended to provide any discretion to an Exchange

[[Page 36752]]

official to deviate from the guidelines that apply to Multi-Stock 
Events or to transactions in securities subject to individual security 
trading pauses.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Securities Exchange Act of 1934 (the ``Act''),\6\ which requires 
the rules of an exchange to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanism of a free and 
open market and a national market system and, in general, to protect 
investors and the public interest. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \7\ of the Act 
in that it seeks to assure fair competition among brokers and dealers 
and among exchange markets. The Exchange believes that the proposed 
rule meets these requirements in that it promotes transparency and 
uniformity across markets concerning reviews of potentially clearly 
erroneous executions in various contexts, including reviews in the 
context of a Multi-Stock Event involving twenty or more securities and 
reviews resulting from a Trigger Trade and any executions occurring 
immediately after a Trigger Trade but before a trading pause is in 
effect on the Exchange. Further, the Exchange believes that the 
proposed changes enhance the objectivity of decisions made by the 
Exchange with respect to clearly erroneous executions.
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File No. SR-NYSEAmex-2010-60 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-NYSEAmex-2010-60. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission,\8\ all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NYSEAmex-2010-60 and should be 
submitted on or before July 19, 2010.
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    \8\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15541 Filed 6-25-10; 8:45 am]
BILLING CODE 8010-01-P