[Federal Register Volume 75, Number 237 (Friday, December 10, 2010)]
[Notices]
[Pages 77031-77032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31097]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63440; File No. SR-NYSEArca-2010-112]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca 
Equities Rules 7.31(k) and 7.23(a)(1) To Modify Certain Characteristics 
of the Q Order and Clarify the Interest Eligible for Satisfaction of a 
Market Maker's Two-Sided Obligation

December 6, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on December 3, 2010, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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 Rules 7.31(k) and 
7.23(a)(1) to modify certain characteristics of the Q Order and clarify 
the interest eligible for satisfaction of a Market Maker's Two-Sided 
Obligation, respectively. 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 Rules 7.31(k) and 
7.23(a)(1) to modify certain characteristics of the Q Order and clarify 
the interest eligible for satisfaction of a Market Maker's Two-Sided 
Obligation, respectively.
    A Market Maker is currently able to satisfy its Two-Sided 
Obligation \3\ by instructing the NYSE Arca Marketplace to enter a Q 
Order on its behalf either (1) at the last price and size entered by 
the Market Maker during the previous trading day, including or 
excluding reserve size, or (2) at a specified percentage from the best 
bid or offer.\4\ Currently, upon execution, a Q Order entered with 
reserve size pursuant to NYSE Arca Equities Rule 7.31(k)(1)(A)(1) will 
automatically repost with the original display size and $10 below 
(above) the original bid (offer).\5\ This particular automatic 
reposting could result in a Q Order with a price that is significantly 
worse than the published National Best Bid or Offer (``NBBO''). 
Moreover, depending on the price of the security at issue, the 
automatic reposting could result in a Market Maker posting a Q Order at 
a price that is not in compliance with the new Market Maker pricing 
obligations set forth in amended NYSE Arca Equities Rule 7.23(a)(1)(B), 
which are to be implemented on December 6, 2010.
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    \3\ See NYSE Arca Equities Rule 7.23(a)(1).
    \4\ See NYSE Arca Equities 7.31(k)(1)(A)(1)-(2).
    \5\ See NYSE Arca Equities Rule 7.31(k)(1)(B)(1). If the Market 
Maker specifies a reserve size for the Q Order, it will not 
automatically repost once the reserve size is exhausted.
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    Accordingly, the Exchange proposes to delete the text of NYSE Arca 
Equities Rule 7.31(k)(1)(B)(1) in its entirety \6\ and delete the text 
``entered without reserve size'' from NYSE Arca Equities Rule 
7.31(k)(1)(B)(2) to provide that a Market Maker, upon execution of its 
Q Order entered with reserve size, would be responsible for immediately 
posting a new Q order, rather than the Q order automatically reposting 
$10 below (above) the original bid (offer). The Exchange notes that 
Market Makers are currently required to post a new Q order upon 
execution of Q orders entered without reserve size. Requiring the same 
of Q orders originally entered with reserve size would encourage Q 
order prices that bear a closer relationship to the NBBO than the 
current $10 above/below reposting price, thus promoting fair and 
orderly markets and the protection of investors and reducing the risk 
of executions at illogical prices.
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    \6\ The Exchange proposes the place NYSE Arca Equities Rule 
7.31(k)(1)(B)(1) in `Reserve' for possible use at a later date.
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    The Exchange previously represented to the Commission, in filing 
SR-NYSEArca-2010-83, that it would submit a filing with the changes 
proposed herein, including a proposed implementation date of Monday, 
December 6, 2010, consistent with the implementation date for the new 
Market Maker pricing obligations.\7\
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    \7\ See Securities Exchange Act Release No. 63255 (November 5, 
2010), 75 FR 69484 (November 12, 2010) (SR-NYSEArca-2010-83).
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    The Exchange further proposes clarifying revisions to recently 
amended Rule 7.23(a)(1). In filing SR-NYSEArca-2010-83, the Exchange 
noted that Market Makers would use Q orders to meet the new Two-Sided 
Obligation under Rule 7.23(a)(1).\8\ The Exchange proposes to amend 
Rule 7.23(a)(1) to delete the requirement that Market Makers 
exclusively use Q orders to meet their Two-Sided Obligation. Rule 
7.23(a)(1) would continue to require that Market Makers identify to the 
Exchange the interest that is being used to satisfy the Two-Sided 
Obligation. While Market Makers may continue to use Q orders to satisfy 
the Two-Sided Obligation, the Exchange believes that Market Makers 
should be permitted to use other types of interest to satisfy this 
obligation, provided that the interest is displayed and identified to 
the Exchange. The proposed revision to Rule 7.23(a)(1) is consistent 
with the rules adopted by other exchanges.\9\
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    \8\ Id.
    \9\ See, e.g., Nasdaq Rule 4613.
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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. Specifically, 
the Exchange believes that the change

[[Page 77032]]

proposed herein would encourage Market Maker Q order prices that bear a 
closer relationship to the NBBO, thus promoting fair and orderly 
markets and the protection of investors and reducing the risk of 
executions at illogical prices. The Exchange also believes that the 
change propose herein would provide Market Makers with a more 
appropriate level of flexibility with which to satisfy their Two-Sided 
Obligation by permitting interest other than Q order interest to be 
identified to the Exchange as meeting such obligation.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). When filing a proposed rule change 
pursuant to Rule 19b-4(f)(6) under the Act, an exchange is required 
to give the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the date 
of filing of the proposed rule change, or such shorter time as 
designated by the Commission. The Commission notes that the Exchange 
has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\14\ 
However, Rule 19b-4(f)(6) \15\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. NYSE Arca has requested that the 
Commission waive the 30-day operative delay.
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ Id.
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    The Commission has considered NYSE Arca's request to waive the 30-
day operative delay. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest, as it will enable the Exchange to implement the 
proposed change consistent with the implementation date for the new 
market maker pricing obligations.\16\
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    \16\ For the purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 Number SR-NYSEArca-2010-112 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 Number SR-NYSEArca-2010-112. 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 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 the 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 Number SR-
NYSEArca-2010-112 and should be submitted on or before January 3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31097 Filed 12-9-10; 8:45 am]
BILLING CODE 8011-01-P