[Federal Register Volume 76, Number 43 (Friday, March 4, 2011)]
[Notices]
[Pages 12161-12163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4891]



[[Page 12161]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63973; File No. SR-NYSE-2011-07]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Exchange Rule 1600 (New York Block Exchange \SM\) To Add 
Provisions on Short Sales in Order To Implement the Provisions of Rule 
201 of Regulation SHO Under the Securities Exchange Act of 1934

February 25, 2011.
    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 February 24, 2011, New York Stock Exchange LLC (``NYSE'' 
or the ``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 substantially 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 Exchange Rule 1600 (New York Block 
Exchange \SM\) (``NYBX'' or the ``Facility'') to add provisions on 
short sales in order to implement the provisions of Rule 201 of 
Regulation SHO (``Rule 201'') \4\ under the Act which, if triggered, 
imposes a restriction on the prices at which securities may be sold 
short (``Short Sale Price Test''). Among other things, Rule 201 
requires trading centers to establish, maintain and enforce written 
policies and procedures reasonably designed to prevent the execution or 
display of a short sale order of a covered security at a price that is 
less than or equal to the current national best bid if the price of a 
covered security decreases by 10% or more from the covered security's 
closing price as determined by the listing market for the covered 
security as of the end of regular trading hours on the prior day.\5\ 
The proposed rule amendment would establish the protocols for the 
handling of short sale orders by the Exchange, as a trading center, in 
the event the Short Sale Price Test is triggered by a listing market 
(including the NYSE), including establishing what types of short sale 
orders will be re-priced to achieve a permitted price, in accordance 
with Rule 201, during the period in which a Short Sale Price Test is in 
effect (``Short Sale Period''). Amended Rule 1600 would also establish 
the Facility's procedures regarding the execution and display of 
permissible orders during the Short Sale Period, and the execution of 
orders marked ``short exempt.'' Finally, the proposed rule amendment 
would also establish NYBX procedures for the execution, routing to the 
NYSE Display Book (``DBK'') or routing to other automated trading 
centers of orders, if the listing market has lifted the Short Sale 
Price Test before the Short Sale Period has ended.\6\ The text of the 
proposed rule change is available at the Exchange, the Commission's 
Public Reference Room, and http://www.nyse.com.
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    \4\ 17 CFR 242.201.
    \5\ 17 CFR 242.201(b)(1)(i).
    \6\ The proposed rule amendment would establish the duration of 
the Short Sale Price Test. See infra note 21 and accompanying text. 
In addition, the proposed rule amendment would provide for an 
Exchange determination that a Short Sale Price Test has been 
triggered for covered securities for which the Exchange is the 
listing market.
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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
    On February 26, 2010, the Commission adopted amendments to Rule 201 
of Regulation SHO.\7\ Among other things, the amendments establish a 
short sale-related circuit breaker that, if triggered with respect to a 
covered security,\8\ imposes a short sale price test.\9\ Amended Rule 
201 became effective on May 10, 2010 and the compliance date for the 
Rule is February 28, 2011.\10\
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    \7\ Amendments to Regulation SHO, Securities Exchange Act 
Release No. 61595 (Feb. 26, 2010), 75 FR 11232 (Mar. 10, 2010) 
(``Rule 201 Adopting Release''). In the Rule 201 Adopting Release, 
the Commission also adopted amendments to Rule 200(g) of Regulation 
SHO to include a ``short exempt'' marking requirement. 17 CFR 
242.200(g).
    \8\ The term ``covered security'' shall have the same meaning as 
in Rule 201 of Regulation SHO. Rule 201(a)(1) defines the term 
``covered security'' to mean any ``NMS stock'' as defined under Rule 
600(b)(47) of Regulation NMS. Rule 600(b)(47) of Regulation NMS 
defines an ``NMS stock'' as ``any NMS security other than an 
option.'' Rule 600(b)(46) of Regulation NMS defines an ``NMS 
security'' as ``any security or class of securities for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan, or an effective 
national market system plan for reporting transactions in listed 
options.'' 17 CFR 242.201(a)(1); 17 CFR 242.600(b)(47); and 17 CFR 
242.600(b)(46).
    \9\ 17 CFR 242.201(b).
    \10\ Rule 201 Adopting Release, 75 FR 11232. The Rule 201 
compliance date, originally set for November 10, 2010, was extended 
to February 28, 2011 in Securities Exchange Act Release No. 63247 
(Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010). The May 10th effective 
date and February 28th compliance date also apply to amended Rule 
200(g).
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    Rule 201(b) requires that trading centers,\11\ including the NYSE, 
establish, maintain, and enforce written policies and procedures 
reasonably designed to prevent the execution or display of a short sale 
order of a covered security at a price that is less than or equal to 
the current national best bid \12\ if the price of that covered 
security decreases by 10% or more from the covered security's closing 
price as determined by the listing market \13\ for the covered security 
as of the end of regular trading hours on the prior day (``Trigger 
Price'').\14\ In addition, Rule 201(b) requires that trading centers 
establish, maintain, and enforce written policies and procedures 
reasonably designed to impose the Short Sale Price Test for the 
remainder of the day and the following day when a national best bid for 
the covered security is calculated and disseminated on a current and 
continuing basis by a plan processor

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pursuant to an effective national market system plan.\15\
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    \11\ Rule 201(a)(9) states that the term ``trading center'' 
shall have the same meaning as in Rule 600(b)(78) of Regulation NMS. 
Rule 600(b)(78) defines a ``trading center'' as ``a national 
securities exchange or national securities association that operates 
an SRO trading facility, an alternative trading system, an exchange 
market maker, an OTC market maker, or any other broker or dealer 
that executes orders internally by trading as principal or crossing 
orders as agent.'' 17 CFR 242.600(b)(78).
    \12\ The term ``national best bid'' shall have the same meaning 
as in Rule 201 of Regulation SHO. Rule 201(a)(4) states that such 
term shall have the same meaning as in Rule 600(b)(42) of Regulation 
NMS. 17 CFR 242.201(a)(4); 17 CFR 242.600(b)(42).
    \13\ The term ``listing market'' shall have the same meaning as 
in Rule 201 of Regulation SHO. Rule 201(a)(3) defines the term 
``listing market'' to have the same meaning as the term ``listing 
market'' as defined in the effective transaction reporting plan for 
the covered security. 17 CFR 242.201(a)(3). See also 17 CFR 
242.201(a)(2).
    \14\ 17 CFR 242.201(b)(1)(i).
    \15\ 17 CFR 242.201(b)(1)(ii). In addition, if the price of a 
covered security declines intra-day by at least 10% on a day on 
which the security is already subject to the short sale price test 
restriction of Rule 201, the restriction will be re-triggered and, 
therefore, will continue in effect for the remainder of that day and 
the following day. See Rule 201 Adopting Release, 75 FR 11232, 
11253, n. 290. Rule 201 does not place any limit on the frequency or 
number of times the circuit breaker can be re-triggered with respect 
to a particular stock. Division of Trading and Markets, Responses to 
Frequently Asked Questions Concerning Rule 201 of Regulation SHO, at 
Q&A 2.2 (``T&M FAQs'').
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    In the Rule 201 Adopting Release, the Commission stated that it was 
appropriate to adopt a short sale-related circuit breaker because, when 
triggered, it will prevent short selling, including potentially 
manipulative or abusive short selling, from driving down further the 
price of a security that has already experienced a significant intra-
day price decline, and will facilitate the ability of long sellers to 
sell first upon such a decline.\16\ The Commission further stated that 
this approach establishes a narrowly-tailored Rule that strikes an 
appropriate balance between its goal of preventing potential short sale 
abuses and the need to limit impediments to the normal operations of 
the market,\17\ and as such, the Rule will help address the erosion of 
investor confidence in markets generally.\18\ For these reasons, the 
Exchange seeks to amend its short sale rule to comply with the 
Commission's amendment of Rule 201.
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    \16\ Rule 201 Adopting Release, 75 FR 11232.
    \17\ Rule 201 Adopting Release, 75 FR 11232, 11252.
    \18\ Id.
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    Paragraph (d)(5)(B) of the proposed rule makes clear that, in 
compliance with Rule 201, in the event a covered security experiences a 
decrease in price of 10% or more, as determined by the listing market 
for the security, from the security's closing price on the listing 
market as of the end of regular trading hours on the prior day, the 
Facility will not execute or display a short sale order with respect to 
that security at a price that is less than or equal to the current 
national best bid.
    Where the Exchange is the listing market for a covered security, 
Exchange systems will determine, in accordance with NYSE Rule 
440B(c),\19\ whether the short sale price test restrictions of Rule 201 
have been triggered (i.e., whether a transaction in a covered security 
has occurred at a Trigger Price) and will notify the single plan 
processor responsible for consolidation of information for the covered 
security pursuant to Rule 603(b) of Regulation NMS.\20\
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    \19\ References are to revised Exchange Rule 440B, as proposed 
to be amended in a separate rule filing to, among other things, 
establish procedures for determining when the Short Sale Price Test 
is triggered for covered securities for which the Exchange is the 
listing market. See SR-NYSE-2011-05.
    \20\ 17 CFR 242.201(b)(3). See also Rule 201(a)(6) of Regulation 
SHO, which defines the term ``plan processor'' to have the same 
meaning as in Rule 600(b)(55) of Regulation NMS. 17 CFR 
242.201(a)(6); 17 CFR 242.600(b)(55). The single plan processors are 
``exclusive processors'' as defined under Section 3(a)(22) of the 
Act. 15 U.S.C. 78c(a)(22).
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    Once a Short Sale Price Test is triggered by the listing market, 
the Short Sale Price Test will remain in effect until the close of 
trading on the next trading day.\21\ If the listing market lifts the 
Short Sale Price Test before the Short Sale Period ends pursuant to the 
listing market's rules,\22\ the Facility will execute, route to the DBK 
or route to other automated trading centers \23\ in accordance with 
Rule 1600(d)(1), without regard to the Short Sale Price Test.
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    \21\ Proposed Rule 1600(d)(5)(D). The Short Sale Price Test will 
remain in effect at all times when quotation information and the 
national best bid is collected, processed and disseminated. This may 
extend beyond regular trading hours. T&M FAQs, supra note 15, at Q&A 
2.1.
    \22\ For example, Exchange Rule 440B, as proposed to be amended 
in SR-NYSE-2011-05, provides that the Exchange may lift the Short 
Sale Price Test if it determines that the Test was triggered by a 
``clearly erroneous'' transaction. See proposed NYSE Rule 
440B(d)(1).
    \23\ Exchange Rule 1600(b)(2)(A) provides that the term 
``automated trading center'' shall have the meaning set forth in 
Rule 600(b)(4) of Regulation NMS. 17 CFR 242.600(b)(4).
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    During the Short Sale Period, short sale orders that are limited to 
the national best bid or lower and short sale market orders will be re-
priced by the Facility one minimum price increment above the current 
national best bid (``Permitted Price'') to permit their execution at a 
price that is compliant with the Short Sale Price Test before being 
executed, routed to the DBK or rerouted to other automated trading 
centers,\24\ unless, on an order-by-order basis, the NYBX User \25\ has 
requested that an order be cancelled back to the User.\26\ Consistent 
with Rule 201,\27\ the Permitted Price for securities for which the 
national best bid is $1 or more is $.01 above the national best bid; 
the Permitted Price for securities for which the national best bid is 
below $1 is $.0001 above the national best bid.\28\ To reflect declines 
in the national best bid, the Facility will continue to re-price a 
short sale order at the lowest Permitted Price down to the order's 
original limit price.
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    \24\ The price of such orders, as re-priced, will be used as the 
limit order price for purposes of calculating any Minimum Triggering 
Volume Quantity (``MTV'') applicable to such orders. See Exchange 
Rule 1600(b)(2)(E) and (c)(3)(B)(ii)(I). See proposed Rule 
1600(d)(5)(H).
    \25\ Exchange Rule 1600(b)(2)(J) (defining the term ``User'').
    \26\ Id.
    \27\ Rule 201 Adopting Release, 75 FR 11232, 11247.
    \28\ See 17 CFR 242.612.
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    With respect to NYBX pegging orders during the Short Sale Period, 
New York Block Exchange Market Pegging Orders, as defined in Rule 
1600(c)(2)(A)(iii), to sell short at the national best bid will be re-
priced, as described above, one minimum price increment above the 
current national best bid. In addition, during the Short Sale Period, 
any type of NYBX pegging order, as defined in Rule 1600(c)(2)(A) or 
Rules 1600(c)(2)(A)(i)-(iii), to sell short that contains an 
instruction to peg plus or minus the Exchange's minimum price variation 
will be rejected by Exchange systems.
    As permitted by Rule 201, during the Short Sale Period, the 
Facility will execute, route to the DBK or route to other automated 
trading centers, in accordance with Rule 1600(d)(1), orders marked 
``short exempt'' without regard to whether the order is at a Permitted 
Price.\29\ The Facility will also accept orders marked ``short exempt'' 
at any time when such systems are open for order entry, regardless of 
whether the Short Sale Price Test has been triggered.\30\
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    \29\ 17 CFR 242.201(b)(1)(iii)(B).
    \30\ 17 CFR 242.200(g)(2). Under Rule 200(g)(2), an order may be 
marked ``short exempt'' if the broker-dealer had a reasonable basis 
for believing that the order meets one of the exceptions specified 
in Rule 201(d) of Regulation SHO or if it is entered during a Short 
Sale Period and meets the conditions specified in Rule 201(c) of 
Regulation SHO. See 17 CFR 242.201(d); 17 CFR 242.201(c); T&M FAQs, 
supra note 15, at Q&As 4.2, 5.4 and 5.5.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\31\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\32\ in particular, in that it is designed to, among 
other things, prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. The proposal is designed to 
implement the provisions of Rule 201 of Regulation SHO with respect to 
the operation of the Facility by establishing, maintaining and 
enforcing written policies and procedures reasonably designed to 
prevent the execution or display of a short sale order of a covered 
security in violation of the short sale price test restrictions 
established in that rule. To

[[Page 12163]]

that end, the proposed rule change will, among other things, establish 
the Facility's procedures regarding the execution, routing to the DBK 
and routing to other automated trading centers of permissible orders 
during the Short Sale Period, and the execution of orders marked 
``short exempt.''
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    \31\ 15 U.S.C. 78f(b).
    \32\ 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \33\ and Rule 19b-4(f)(6) thereunder.\34\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \35\ and Rule 19b-
4(f)(6)(iii) thereunder.\36\
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    \33\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \36\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \37\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\38\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission hereby 
grants the request.\39\ Waiving the 30-day operative delay will allow 
the Exchange to implement the proposed amendments by February 28, 2011, 
which, as noted by the Exchange, is the compliance date for amendments 
to Regulation SHO under the Act. By waiving the operative delay, the 
Exchange will be able to comply with the amendments to Regulation SHO 
by February 28, 2011. Therefore, the Commission believes it is 
consistent with the protection of investors and the public interest to 
waive the 30-day operative delay and designates the proposal as 
operative upon filing.
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    \37\ 17 CFR 240.19b-4(f)(6).
    \38\ 17 CFR 240.19b-4(f)(6)(iii).
    \39\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such 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-NYSE-2011-07 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-NYSE-2011-07. 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 20549-1090. Copies of the filing will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at http://www.nyse.com. 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-NYSE-2011-07 and should be submitted on 
or before March 25, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4891 Filed 3-3-11; 8:45 am]
BILLING CODE 8011-01-P