[Federal Register Volume 76, Number 101 (Wednesday, May 25, 2011)]
[Notices]
[Pages 30415-30417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-12875]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64521; File No. SR-NYSEAmex-2011-34]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Proposed Rule Change Amending NYSE Amex Equities Rule 70.40(3) To 
Permit Member Organizations to Engage in Proprietary Trading From Their 
Approved Booth Premises in Certain OTC Bulletin Board and OTC Markets 
Securities

May 19, 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 May 11, 2011, 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 and II 
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 70.40(3) to 
permit member organizations to engage in proprietary trading from their 
approved booth premises in certain OTC Bulletin Board (``OTCBB'') and 
OTC Markets \4\ securities. The text of the proposed rule change is 
available at the Exchange, at http://www.nyse.com, at the Commission's 
Public Reference Room, and on the Commission's Web site at http://www.sec.gov.
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    \4\ The OTCBB and OTC Markets Group Inc. each operate electronic 
quotation systems for broker-dealers to trade unlisted securities. 
The marketplaces operated by OTC Markets Group Inc. include OTCQX, 
OTCQB and OTC Pink.
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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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Amex Equities Rule 70.40(3) to 
permit member organizations to engage in proprietary trading from their 
approved booth premises in certain OTCBB and OTC Markets securities.\5\
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    \5\ The Exchange's affiliate, New York Stock Exchange LLC 
(``NYSE''), has proposed to adopt the same rule. See SR-NYSE-2010-
22.
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    In June 2007, the New York Stock Exchange LLC (``NYSE'') adopted 
NYSE Rule 70.40, which permits a member organization to operate its 
booth premises on the NYSE Floor in a manner similar to its 
``upstairs'' office, thereby allowing member organizations to access 
other markets and trade a wider array of products from their booth 
premises and thus operate more efficiently and competitively.\6\ At the 
time that NYSE Rule 70.40 was adopted, it included certain conditions 
and limitations on such trading, including that only trading on behalf 
of customers would be permitted. In October 2008, the Exchange adopted 
NYSE Amex Equities Rule 70.40, which is identical to NYSE Rule 
70.40.\7\ As such, NYSE Rule Amex Equities 70.40(3) prohibits member 
organizations approved to operate booth premises pursuant to such Rule 
from effecting any transaction from their approved booth premises for 
their own account, the account of an associated person, or an account 
with respect to which they or an associated person thereof exercise 
investment discretion on the Exchange.
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    \6\ See Securities Exchange Act Release 55908 (June 14, 2007), 
72 FR 34056 (June 20, 2007) (SR-NYSE-2007-51) (notice of filing and 
immediate effectiveness of proposed rule change permitting member 
organizations to operate booth as upstairs office). Under NYSE Rule 
70.40, only Floor brokers may conduct activity from booth premises.
    \7\ See Securities Exchange Act Release No. 58705 (October 1, 
2008), 73 FR 58995 (October 8, 2008) (SR-Amex-2008-63) (Order 
Granting Approval of Proposed Rule Change to Establish New 
Membership, Member Firm Conduct, and Equity Trading Rules Following 
the Exchange's Acquisition by NYSE Euronext). Under NYSE Amex 
Equities Rule 70.40, only Floor brokers may conduct activity from 
booth premises.
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    After more than two years of experience with NYSE Amex Equities 
Rule 70.40, member organizations have requested that certain types of 
proprietary trading be permitted under the Rule, and the Exchange has 
determined that it is appropriate to do so. Therefore, the Exchange 
proposes to revise NYSE Amex Equities Rule 70.40(3) to permit member 
organizations to effect transactions in the common, preferred, and debt 
securities of an operating company that is quoted on the OTC Bulletin 
Board or OTC Markets (an ``OTC Security'') from their approved booth 
premises for their own account, the account of an associated person, or 
an account with respect to which they or an associated person thereof 
exercise investment discretion, except that such member organizations 
could not effect such transactions in an OTC Security that is related 
to a security listed or traded on the Exchange or NYSE.\8\ Because 
trading would be limited to the common, preferred, and debt securities 
of an operating company, a member organization could not trade in an 
index-based or derivative security (e.g.,

[[Page 30416]]

a right or warrant) that is quoted on the OTCBB or OTC Markets.
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    \8\ Since the merger of NYSE and NYSE Amex in 2008, the 
exchanges have conducted equity trading from the same Trading Floor, 
and NYSE Amex has conducted options trading in rooms adjacent the 
Trading Floor. See Securities Exchange Act Release No. 58673 
(September 29, 2008) (SR-Amex-2008-62 and SR-NYSE-2008-60), 73 FR 
57707 (October 3, 2008), and NYSE Rule 6A.
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    Under the proposed rule change, an OTC Security would be considered 
related to a security listed or traded on the Exchange or NYSE \9\ if:
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    \9\ Securities listed on The NASDAQ Stock Market are traded on 
the Exchange pursuant to unlisted trading privileges and thus would 
be considered a security traded on the Exchange under the proposed 
rule change. See Rules 500--525--NYSE Amex Equities.(a) The OTC 
Security is issued by an issuer of a security that is listed or 
traded on the Exchange or NYSE or that underlies an NYSE Amex 
option, or an affiliate of such issuer;
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    (b) The OTC Security is subject to a corporate action that 
relates to the issuer of a security that is listed or traded on the 
Exchange or NYSE or that underlies an NYSE Amex option, or an 
affiliate of such issuer;
    (c) The OTC Security is issued by an issuer of a security that 
is a component of a narrow-based security index \10\ that is linked 
to a security that listed or traded on the Exchange or NYSE or that 
underlies an Amex option; or
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    \10\ For purposes of the proposed rule, the definition of 
narrow-based security index would be the same as the definition in 
Section 3(a)(55) of the Securities Exchange Act of 1934 (the 
``Act'').
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    (d) The OTC Security is issued by a foreign issuer or is a 
depositary receipt (or the equivalent thereof) for such a security, 
and a security issued by such foreign issuer or a depositary receipt 
(or the equivalent thereof) for such a security is listed or traded 
on the Exchange or NYSE or underlies an NYSE Amex option.

    Under the proposed rule, a corporate action would be any action by 
an issuer of an OTC Security or a security listed or traded on the 
Exchange or NYSE that causes a relationship between the price of the 
OTC Security and the price of the security that is listed or traded on 
the Exchange or NYSE or that underlies an NYSE Amex option, such as the 
announcement of a merger, acquisition, joint venture, spinoff, 
dissolution, bankruptcy filing or other similar type of event involving 
the issuers.
    The Exchange believes that an NYSE Amex member organization would 
not have any type of time, place, or information advantage with respect 
to the proposed proprietary trading activity that could create a 
potential issue or conflict with respect to the federal securities laws 
or Exchange rules. A member organization's proprietary transactions in 
OTC Securities would receive the same treatment as any other investor's 
transactions in such securities. Consistent with the permitted customer 
trading under current NYSE Amex Equities Rule 70.40, the Exchange would 
deem the proposed proprietary transactions to be off-Floor or 
``upstairs'' transactions for purposes of its Rules.\11\
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    \11\ Because the transactions would be (1) solely in securities 
not listed or admitted to unlisted trading privileges on NYSE Amex 
or NYSE, and (2) deemed initiated from off the Floor of NYSE Amex, 
NYSE Amex does not believe that Section 11(a) of the Act or the 
rules thereunder would be implicated by the proposed rule change.
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    The Exchange believes that member organizations face increased 
competition as a result of changes in the structure of securities 
markets and are continually searching for ways to operate more 
efficiently.\12\ The proposed rule change would allow member 
organizations to expand the types of activities that can be conducted 
from booth premises and more efficiently use member organization staff.
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    \12\ See supra note 6.
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    At the same time, the proposed proprietary transactions in OTC 
Securities would remain subject to all of the other provisions of NYSE 
Amex Equities Rule 70.40. First, a member organization would have to 
obtain approval from NYSE Regulation, Inc. (``NYSER'') to engage in 
proprietary OTC Securities trading from booth premises.\13\
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    \13\ NYSE Amex Equities Rule 70.40(1).
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    Second, all such transactions would be subject to the regulatory 
requirements that apply to ``upstairs'' trading, including registration 
requirements and audit trail requirements applicable to those markets 
and supervision requirements under NYSE Amex Equities Rule 342.\14\
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    \14\ NYSE Amex Equities Rule 70.40(4) and (5).
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    Finally, a member organization would be required to adopt and 
implement comprehensive written procedures governing the conduct and 
supervision of proprietary trading in OTC Securities handled through 
the booth and the staff responsible for such activities; such 
procedures must be reasonably designed to ensure that the member 
organization would be trading in compliance with the requirements of 
NYSE Amex Equities Rule 70.40, including that it is not effecting 
transactions from booth premises in OTC Securities that are related to 
securities listed or traded on the Exchange or NYSE. A member 
organization would be required to obtain NYSER approval of such written 
procedures before such trading commences.\15\ A member organization 
would be required to regularly review such procedures and compliance 
therewith, and obtain approval from NYSER of any subsequent changes to 
such procedures.\16\
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    \15\ If a member organization had already obtained approval to 
operate a booth premises under NYSE Amex Equities Rule 70.40, it 
would still be required to update its written procedures to address 
proprietary trading in OTC Securities and obtain NYSER approval 
under NYSE Amex Equities Rule 70.40(7).
    \16\ NYSE Amex Equities Rule 70.40(6) and (7).
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    At a minimum, such written procedures must require the member 
organization to exercise due diligence before commencing trading in an 
OTC Security from the booth premises pursuant to this Rule to ensure 
that such trading is in compliance with the requirements of this Rule 
and that the member organization has procedures to monitor its trading 
activity in order to remain in compliance. A member organization must 
have supervisory systems in place that produce records sufficient to 
reconstruct, in a time-sequenced manner, all orders with respect to 
which the member organization is trading from the booth premises under 
this Rule. The member organization must be able to demonstrate which 
OTC Security transactions were effected from the booth premises (as 
compared to off-Floor trading, if applicable). If the member 
organization could not demonstrate which trading is from the booth 
premises, the Exchange would presume that all such trading was effected 
from the booth premises.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ 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 
proposed rule change provides member organizations with a means to 
remain competitive in view of changes in the markets by permitting 
Floor brokers to engage in proprietary trading in certain OTC 
Securities from their booth premises. Such trading offers member 
organizations no time, place, or information advantage but permits them 
to more fully utilize booth staff and thereby operate their booth 
premises more efficiently in conjunction with upstairs trading. The 
permitted proprietary trading activity in OTC Securities would remain 
subject to robust, existing regulatory requirements that serve to 
foster just and equitable principles of trade.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).

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[[Page 30417]]

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 up to 90 days (i) As the 
Commission may designate 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 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 Number SR-NYSEAmex-2011-34 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-Amex-2011-34. 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-
NYSEAmex-2011-34 and should be submitted on or before June 15, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-12875 Filed 5-24-11; 8:45 am]
BILLING CODE 8011-01-P