[Federal Register Volume 77, Number 1 (Tuesday, January 3, 2012)]
[Notices]
[Pages 145-147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-33625]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66059; File No. SR-NYSE-2011-67]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Extending for an Additional 12 Months the Pilot Program That Provides 
an Exception to NYSE Rule 2B by Permitting the Exchange's Equity 
Ownership Interest in BIDS Holdings L.P.

December 27, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 16, 2011, the 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 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 extend for an additional 12 months the 
January 22, 2012 expiration date of the pilot program that provides an 
exception to NYSE Rule 2B by permitting the Exchange's equity ownership 
interest in BIDS Holdings L.P. (``BIDS''). 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On January 22, 2009, the Securities and Exchange Commission 
(``SEC'' or ``Commission'') approved the governance structure proposed 
by the Exchange with respect to the New York Block Exchange (``NYBX''), 
an electronic trading facility of the Exchange for NYSE-listed 
securities that was established by means of a joint venture between the 
Exchange and BIDS.\3\ The governance structure that was approved is 
reflected in the Limited Liability Company Agreement of New York Block 
Exchange LLC (the ``Company''), the entity that owns and operates NYBX. 
Under the governance structure approved by the Commission, the Exchange 
and BIDS each own a 50% economic interest in the Company. In addition, 
the Exchange, through its wholly-owned subsidiary NYSE Market, Inc., 
owns less than 10% of the aggregate limited partnership interest in 
BIDS. BIDS is the parent company of BIDS Trading, L.P. (``BIDS 
Trading''), which became a member of the Exchange in connection with 
the establishment of NYBX.
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    \3\ See Securities Exchange Act Release No. 59281 (January 22, 
2009), 74 FR 5014 (January 28, 2009) (order approving SR-NYSE-2008-
120) (``Approval Order'').
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    The foregoing ownership arrangements would violate NYSE Rule 2B 
without an exception from the Commission.\4\ First, the Exchange's 
indirect ownership interest in BIDS Trading violates the prohibition in 
Rule 2B against the Exchange maintaining an ownership interest in a 
member organization. Second, BIDS Trading is an affiliate of an 
affiliate of the Exchange,\5\ which violates the prohibition in Rule 2B 
against a member of the Exchange having such status. Consequently, in 
the Approval Order, the Commission permitted an exception to these two 
potential violations of NYSE Rule 2B, subject to a number of 
limitations and conditions. One of the conditions for Commission 
approval was that the proposed exception from NYSE Rule 2B to permit 
NYSE's indirect ownership/interest in BIDS Trading and BIDS Trading's 
affiliation with the Company (which is an affiliate of NYSE) would be 
for a pilot period of 12 months.\6\
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    \4\ NYSE Rule 2B provides, in relevant part, that: ``[w]ithout 
prior SEC approval, the Exchange or any entity with which it is 
affiliated shall not, directly or indirectly, acquire or maintain an 
ownership interest in a member organization. In addition, a member 
organization shall not be or become an affiliate of the Exchange, or 
an affiliate of any affiliate of the Exchange. * * * The term 
affiliate shall have the meaning specified in Rule 12b-2 under the 
Act.''
    \5\ Specifically, the Company is an affiliate of the Exchange, 
and BIDS Trading is an affiliate of the Company based on their 
common control by BIDS. The affiliation in each case is the result 
of the 50% ownership interest in the Company by each of the Exchange 
and BIDS.
    \6\ See Approval Order, 74 FR at 5018.
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    In discussing the pilot basis of the exception to NYSE Rule 2B, the 
Approval Order noted that the pilot period ``will provide NYSE and the 
Commission an opportunity to assess whether there might be any adverse 
consequences of the exception and whether a permanent exception is 
warranted.'' \7\ The original 12-month pilot period expired on January 
22, 2010 and was extended for two additional 12 month periods to 
January 22, 2012.\8\ While the Exchange believes that the experience to 
date operating under the exception to Rule 2B fully justifies making 
the exception permanent, the Exchange now seeks to extend the ending 
date for the pilot program for another 12 months to January 22, 2013

[[Page 146]]

to allow additional time, if necessary, for the Commission to obtain 
and review the information it needs in order to make its determination 
regarding any adverse consequences of the exception and whether a 
permanent exception is warranted. During the proposed extension of the 
pilot program period, the Exchange's current indirect ownership 
interest in BIDS Trading \9\ and BIDS Trading's affiliation with the 
Company would continue to be permitted.
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    \7\ Id. at 5019.
    \8\ The original twelve month period was first extended by a 
rule filing made by the Exchange on January 11, 2010 and noticed in 
a release by the Commission dated January 22, 2010. See Securities 
Exchange Act Release No. 61409 (January 22, 2010), 75 FR 4889 
(January 29, 2010) (File No. SR-NYSE-2010-04). The Exchange filed 
the proposed rule change for the second extension with the 
Commission on December 9, 2010, which was noticed in a release by 
the Commission dated December 14, 2010. See Securities Exchange Act 
Release No. 34-63545 (December 14, 2010), 75 FR 80088 (December 21, 
2010) (File No. SR-NYSE-2010-82).
    \9\ Another condition for the exception to NYSE Rule 2B 
specified in the Approval Order was that the Exchange's equity 
interest in BIDS must remain less than 9%, absent prior Commission 
approval of any increase. See id. at 5018. Subsequently, the 
Commission approved a proposal by the Exchange to slightly increase 
the ceiling on its equity ownership in BIDS to less than 10%, and 
that will be the applicable limitation during the extension of the 
pilot period. See Securities Exchange Act Release No. 61257 
(December 30, 2009), 75 FR 500 (January 5, 2010) (order approving 
SR-NYSE-2009-116).
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    If the Commission should determine prior to the end of the extended 
pilot period that a permanent exception to NYSE Rule 2B is warranted, 
the Exchange would have the option of submitting a proposed rule change 
to accomplish this and simultaneously terminate the pilot program.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \10\ of 
the Act,\11\ in general, and furthers the objectives of Section 6(b)(1) 
\12\ of the Act, which requires a national securities exchange to be so 
organized and have the capacity to carry out the purposes of the Act 
and to comply, and to enforce compliance by its members and persons 
associated with its members, with the provisions of the Act. The 
proposed rule change is also consistent with, and furthers the 
objectives of, Section 6(b)(5) \13\ of the Act, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78.
    \12\ 15 U.S.C. 78f(b)(1).
    \13\ 15 U.S.C. 78f(b)(5).
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    In the Approval Order, the Commission determined that the proposed 
exception from NYSE Rule 2B to permit NYSE's indirect ownership 
interest in BIDS Trading and BIDS Trading's affiliation with the 
Company was consistent with the Act, including Section 6(b)(5) 
thereof.\14\ As the basis for its determination, the Commission cited 
the specific limitations and conditions listed in the Approval Order to 
which its approval of the exception to NYSE Rule 2B was subject,\15\ 
stating: ``These conditions appear reasonably designed to mitigate 
concerns about potential conflicts of interest and unfair competitive 
advantage. * * * These conditions appear reasonably designed to promote 
robust and independent regulation of BIDS. * * * The Commission 
believes that, taken together, these conditions are reasonably designed 
to mitigate potential conflicts between the Exchange's commercial 
interest in BIDS and its regulatory responsibilities with respect to 
BIDS.'' \16\ Because these same limitations and conditions will 
continue to be applicable during the additional extension of the pilot 
period, other than the ending date of the pilot period and the 
aforementioned small increase in the ceiling on the Exchange's equity 
interest in BIDS, the Exchange believes that the exception from NYSE 
Rule 2B described above will continue to be consistent with the Act 
during that extension.
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    \14\ See Approval Order, 74 FR at 5018-5019.
    \15\ Id. at 5018.
    \16\ Id. at 5019.
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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 \17\ and Rule 19b-4(f)(6) thereunder.\18\ 
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 and Rule 19b-
4(f)(6)(iii) thereunder.\19\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's 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 Exchange has satisfied this 
requirement.
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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 email to [email protected]. Please include 
File Number SR-NYSE-2011-67 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-2011-67. This file 
number should be included on the subject line if email 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

[[Page 147]]

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 Number SR-NYSE-2011-67 and should be submitted on or before 
January 24, 2012.


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-33625 Filed 12-30-11; 8:45 am]
BILLING CODE 8011-01-P