[Federal Register Volume 75, Number 185 (Friday, September 24, 2010)]
[Notices]
[Pages 58462-58464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23969]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62946; File No. SR-NYSEArca-2010-83]


 Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of a Proposed Rule Change Amending NYSE Arca Equities Rule 7.23 To 
Adopt Pricing Obligations for ETP Holders Who Are Registered as Market 
Makers

September 20, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 17, 2010, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. 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\ 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 Arca Equities Rule 7.23 to 
adopt pricing obligations for ETP Holders who are registered as Market 
Makers. The text of the proposed rule change is available at the 
Exchange, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Arca Equities Rule 7.23 to 
adopt pricing obligations for Market Makers. Under the proposal, the 
Exchange will require Market Makers to continuously maintain two-sided 
Q Order trading interest within a Designated Percentage \3\ from the 
National Best Bid and National Best Offer (``NBBO'') for each security 
in which they are registered. These pricing obligations are intended to 
eliminate trade executions against Market Maker placeholder Q Orders 
traditionally priced far away from the inside market, commonly known as 
``stub quotes.'' They are also intended to augment and work in 
conjunction with Trading Pauses in individual securities due to 
extraordinary market volatility, which are already in place on a pilot 
basis for stocks in the S&P 500[reg] Index and the Russell 1000[reg] 
Index, under Exchange Rule 7.11.\4\
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    \3\ The term Designated Percentage is defined in proposed Rule 
7.23(a)(1)(B)(iii).
    \4\ See Securities Exchange Act Release No. 62252 (June 10, 
2010), 75 FR 34186 (June 16, 2010) (SR-NYSEArca-2010-41). See also 
Securities Exchange Act Release No. 62884 (September 10, 2010), 75 
FR 56618 (September 16, 2010) (SR-NYSEArca-2010-61). See also Rule 
7.11.

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[[Page 58463]]

    Under the proposal, the Exchange will require Market Makers to 
enter and maintain Q Orders priced no more than the Designated 
Percentage away from the NBBO. Permissible Q Orders are determined by 
the individual character of the security, the time of day in which the 
Q Order is entered, and other factors which are summarized below.
    For purposes of the proposed rule, Designated Percentage shall mean 
the Threshold Move as defined under Rule 7.11 less two (2) percentage 
points. Because the Threshold Move across all exchanges is currently 
10%, a Market Maker's Q Order in a security may not be more than 8% 
away from NBBO. Once a permissible Q Order is entered, it may rest 
without adjustment until such time as it is more than the Defined Limit 
away from the NBBO. For purposes of the proposed rule, the Designated 
Limit shall mean the Threshold Move as defined under Rule 7.11 less 
one-half percentage point (i.e., 9.5%). If the Market Maker's resting 
interest exceeds the Defined Limit, the Market Maker must enter new 
interest at a price not more than the Designated Percentage of 8% away 
from the NBBO (or identify to the Corporation current resting interest 
that satisfies the Market Maker's obligation). For times during the 
trading day when a Trading Pause is not in effect under Rule 7.11 
(e.g., before 6:45 a.m. and after 12:35 p.m. Pacific Time), the 
Designated Percentage calculation will assume a trigger percentage of 
22%. Therefore, a Market Maker must maintain a Q Order no further than 
20% away from the NBBO and the Q Order may rest without adjustment 
until it is more than 21.5% from the NBBO. In the absence of an NBBO, 
the above calculations will remain the same, but will use the last 
reported sale from the single plan processor responsible for 
consolidation of information for the security pursuant to Rule 603 of 
Regulation NMS.\5\
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    \5\ 17 CFR 240.603.
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    For securities that are not subject to Trading Pauses, the 
Designated Percentage will assume a trigger percentage of 32% and apply 
the same 2% reduction. Thus, Market Makers registered in those 
securities shall be required to maintain Q Order interest no more than 
30% away from NBBO. As with securities subject to Trading Pauses, once 
a permissible Q Order is entered it may rest without adjustment until 
such time as it becomes more than the Defined Limit away from the NBBO 
(31.5%), whereupon the Market Maker must enter new interest at a price 
not more than the Designated Percentage of 30% away from the NBBO (or 
identify to the Corporation current resting interest that satisfies the 
Market Maker's obligation). The Exchange proposes that these 
requirements shall apply to NMS stocks (as defined in Rule 600 under 
Regulation NMS) \6\ during the trading day.
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    \6\ 17 CFR 240.600.
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    Nothing in the proposal shall preclude a Market Maker from entering 
Q Order interest at price levels that are closer to the NBBO than the 
levels required under the proposal.
    The Exchange also proposes to amend Rule 7.31 (Orders and 
Modifiers) with regards to Q Orders. A Q Order is a limit order 
submitted to the NYSE Arca Marketplace by a Market Maker, and 
designated by a Market Maker as a ``Q Order'' through such means as the 
Corporation shall specify.\7\ Market Makers utilize Q Orders to satisfy 
their obligation to maintain continuous, two-sided interest in 
securities in which they are registered to trade. The proposed 
amendment to Rule 7.23 requires that the ``standard Q,'' which is 
currently defined as having a price of $0.01 bid and 2 times the 
previous day's close for the offer, be eliminated as an available order 
type.\8\ The Exchange proposes to reserve this subsection for possible 
future use.\9\
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    \7\ See Rule 7.31(k)(1).
    \8\ See Rule 7.31(k)(1)(A)(3).
    \9\ The Exchange represents that within 90 days from the date of 
this filing it will submit a proposed rule change with the 
Commission to either remove the text of Rule 7.31(k)(1)(A)(4), which 
states that a ``Q Order entered with reserve size * * * will 
automatically repost with the original display size and $10 below 
the original bid or $10 above the original offer, but never below 
$0.01,'' or amend such text so that a Q Order entered with reserve 
size will repost with a price consistent with the Designated 
Percentage proposed herein.
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    The Exchange also proposes to include language at the end of Rule 
7.31(k) stating that ``nothing in [the] Rule shall be construed to 
relieve a Market Maker of any of its obligations pursuant to Rule 
7.23.'' The Exchange believes that the addition of this rule text will 
make clear that, while certain Q Orders may be submitted and/or repost 
with prices that are beyond the Designated Percentages and Defined 
Limits, respectively, proposed in Rule 7.23, Market Makers shall remain 
obligated to satisfy their Two-Sided Obligation, as proposed in Rule 
7.23(a)(1).
    The Exchange also proposes to make certain non-substantive 
stylistic changes to Rule 7.23(a)(2)-(a)(5). These proposed changes do 
not alter the substance or form of the existing rule text.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\10\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\11\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, 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 Exchange 
believes that the proposed rule change also is consistent with the 
principles of Section 11A(a)(1) \12\ of the Act in that it seeks to 
assure fair competition among brokers and dealers and among exchange 
markets. The Exchange believes the proposed rule change meets these 
requirements in that it promotes transparency and uniformity concerning 
pricing obligations across markets for certain market participants.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 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 45 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 or disapprove such 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

[[Page 58464]]

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 Number SR-NYSEArca-2010-83 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2010-83. 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, 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 inspection 
and copying 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 publicly available. All 
submissions should refer to File Number SR-NYSEArca-2010-83 and should 
be submitted on or before October 15, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23969 Filed 9-23-10; 8:45 am]
BILLING CODE 8010-01-P