[Federal Register Volume 77, Number 43 (Monday, March 5, 2012)]
[Notices]
[Pages 13159-13162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5205]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66481; File No. SR-NYSEAmex-2012-10]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Proposed Rule Change Amending NYSE Amex Rule 476A To Update Its ``List 
of Equities Rule Violations and Fines Applicable Thereto''

February 28, 2012.
    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 16, 2012, 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 Rule 476A to update its 
``List of Equities Rule Violations and Fines Applicable Thereto.'' The 
text of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and 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,

[[Page 13160]]

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 Rule 476A to update its 
``List of Equities Rule Violations and Fines Applicable Thereto'' 
(``Rule 476A List'') to (i) make technical, non-substantive changes to 
conform the list to previously-approved changes in Exchange rules, (ii) 
update the rules relating to conduct by Designated Market Makers 
(``DMM''); and (iii) add rules relating to conduct by DMMs.
Background
    Under the Exchange's Minor Rule Violation Plan, NYSE Amex Rule 476A 
(``Rule 476A''), the Exchange may impose a fine, not to exceed $5,000, 
on any member, member organization, principal executive, approved 
person or registered or non-registered employee of a member or member 
organization for a minor violation of certain specified Exchange rules 
(a ``summary fine''). Summary fines provide a meaningful sanction for 
rule violations when the violation calls for stronger discipline than 
an admonition or cautionary letter, but the facts and circumstances of 
the violation do not warrant initiation of a formal disciplinary 
proceeding under Rule 476.
Proposed Non-Substantive Changes to Rule 476A List
    The Exchange proposes the following non-substantive changes to 
update the Rule 476A List, as follows:

 Update the title of NYSE Amex Equities Rule 105
 Update rule references that have been renumbered or harmonized 
with a FINRA rule: NYSE Amex Equities Rules 72(b) to 72(d); 79A.30 to 
79A.20; 103.12 to 103.11; and 346(b) to 3270
 Delete references to rules that have been deleted: NYSE Amex 
Equities Rules 104.12 (DMM investment account rule); 123A.30 
(percentage orders); 304(h)(2) (reporting rule violation); 346(c), (e), 
and (f) (Limitations on member organization employment and failure to 
obtain Exchange approval rule violations); 421 (reporting rule 
violation); 440F (reporting rule violation); and 440G (reporting rule 
violation) \4\
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    \4\ The Exchange also proposes to fix a typographical error in 
the entry concerning Rule 343--NYSE Amex Equities and replace the 
term ``officer'' with ``office.''
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 Further harmonize the list with the NYSE Minor Rule Violation 
Plan (``NYSE MRVP''), upon which the Rule 476A List is based, by adding 
a [sic] violations not currently included in the Exchange's list: Rule 
123C--NYSE Amex Equities--Failure to adhere to entry and cancellation 
procedures for limit-at-the-close and market-at-the-close orders; and 
Rule 15--NYSE Amex Equities (Pre-Opening Indications)
 Update the description to rules that have been amended: NYSE 
Amex Equities Rules 411(b) (replacing the description to reflect the 
amended rule); and 345(a)--NYSE Amex Equities (deleting the reference 
to Securities Trader Supervisor)
Proposed Updates to Rule 476A List for DMM Conduct Rules
    The current Rule 476A List includes rules that govern DMM conduct, 
e.g., NYSE Amex Equities Rules 104(a)(1)(A) and 104.10. The Exchange 
proposes to update the Rule 476A List with current rules governing DMM 
conduct, and, in conformance with the existing NYSE MRVP, add NYSE Amex 
Equities Rule 123D (``Rule 123D'') to the Rule 476A List. The Exchange 
further proposes to expand the references to NYSE Amex Equities Rules 
104 (``Rule 104'') and 123D to add new elements to the Rule 476A List.
    The Exchange believes that the updates proposed below will provide 
the Exchange with sufficient flexibility to address DMM failure to meet 
their obligations. The Exchange recognizes that DMMs may, for many 
reasons, fail to meet their affirmative obligations as prescribed under 
Rules [sic] 104 or duties under Rule 123D. In some circumstances, 
formal disciplinary measures in accordance with Rule 476 are warranted. 
However, in other instances, formal discipline may be unwarranted, and 
the Exchange believes that the addition of these Rules to Rule 476A 
List will provide a more flexible and appropriate tool to enforce 
potential failure by DMMs to adhere to the requirements set forth in 
those rules, while preserving the Exchange's discretion to seek formal 
discipline under the appropriate circumstances. The Exchange believes 
that the proposed updated rule references cover the same subject matter 
as are already addressed in the Rule 476A List, albeit in outdated 
references. In addition, the Exchange believes it is also appropriate 
to add new elements relating to Rule [sic] 104 and 123D to the Rule 
476A List.
Rule 104
    Rule 104 requires, inter alia, DMMs registered in one or more 
securities traded on the Exchange to engage in a course of dealings for 
their own account to assist in the maintenance of a fair and orderly 
market, insofar as reasonably practicable, by contributing liquidity 
when lack of price continuity and depth, or disparity between supply 
and demand exists or is reasonably to be anticipated.\5\
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    \5\ Rule 104 currently operates on a pilot basis, set to end on 
July 31, 2012. The Exchange believes that the Rule 476A List should 
reference those rules that are currently operational, even if 
operating on a pilot basis.
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    The Rule 476A List currently includes Rule 104(a)(1)(A), which 
requires DMMs to maintain a bid or an offer at the National Best Bid 
and National Best Offer (``inside'') at least 10% of the trading day 
for securities in which the DMM unit is registered with a consolidated 
average daily volume of less than one million shares, and at least 5% 
for securities in which the DMM unit is registered with a consolidated 
average daily volume equal to or greater than one million shares.
    The Rule 476A List also includes an outdated reference to Rule 
104.10. When the Exchange adopted the New Market Model, it adopted 
current Rule 104 (on a pilot basis), which does not include a rule 
reference of 104.10 that is the same as the former Rule 104.10.\6\ 
However, the subject matter formerly covered in Rule 104.10 continues 
in the current Rule 104. For example, the text of former Rules 
104.10(5) and (6) has been moved in substantially similar form to 
current Rules 104(g), (h), and (i).
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    \6\ See Exchange Act Release No. 59022 (Nov. 26, 2008), 73 FR 
73683 (Dec. 3, 2008) (SR-NYSEALTR-2008-10) (adopting the NYSE New 
Market Model rules at the Exchange).
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    More generally, although the Exchange has deleted former Rule 
104.10(1)--(3), the subject matter of those rules has been carried 
forward in various sections of current Rule 104. For example, former 
Rule 104.10 specified the functions of DMMs, including the maintenance, 
in so far as reasonably practicable, of a fair and orderly market. This 
topic is now covered by Rules 104(a) and (f).
    More specifically, former Rule 104.10(1) stated that the 
maintenance of a fair and orderly market implies the maintenance of 
price continuity with reasonable depth and the minimizing of the 
effects of temporary disparity between supply and demand. This subject 
matter is now covered in Rule

[[Page 13161]]

104(f)(ii). Former Rule 104.10(2) concerned a DMM trading for his or 
her own account when there is [sic] lack of price continuity, lack of 
depth, or disparity between supply and demand exists or is reasonably 
to be anticipated. This subject matter is similarly covered in Rule 
104(f)(ii). Finally, former Rule 104.10(3) provided that DMM dealings 
for his own account must constitute a course of dealings reasonably 
calculated to contribute to the maintenance of price continuity with 
reasonable depth, and to minimizing the effects of temporary disparity 
between supply and demand. This is similarly covered in Rule 
104(f)(ii). The Exchange further believes that Rule 104(f)(iii), which 
provides more details about Depth Guidelines, is also related to former 
Rule 104.10(3). In particular, the Exchange was publishing Depth 
Guidelines when Rule 104.10 was in effect and the only change in the 
New Market Model's version of the rule is to codify this aspect of DMM 
obligations.
    The Exchange also believes that the subject matter of former Rules 
104.10(1)-(3) is now covered in current Rules 104(a)(2)-(5). Current 
Rules 104(a)(2)-(5) describe with specificity how a DMM can meet his or 
her responsibilities and duties to maintain a fair and orderly market, 
including facilitating openings and re-openings, the close of trading, 
trading when a liquidity replenishment point is reached, and trading 
when a ``gap'' quote procedure is being used. These rule provisions 
simply provide detail of how a DMM is to meet its fair and orderly 
obligation. These were functions that specialists formerly performed 
when they were subject to former Rule 104.10(1)-(3), the difference now 
being that these functions have been codified in the rule text.
    The Exchange further proposes to add to the Rule 476A List Rules 
104(b), (c), (d), and (e). The Exchange believes that, similar to Rule 
104(a), (f), (g), (h), and (i), the requirements applicable to DMMs in 
Rules 104(b), (c), (d), and (e) relate to the functions of the DMMs. 
Because these are DMM obligations for which potential violations can 
range in severity, including these elements of Rule 104 in the Rule 
476A List is consistent with the current inclusion of other aspects of 
Rule 104.
    In addition, the Exchange believes it is appropriate to add Rule 
104(a)(1)(B) to the Rule 476A List. Rule 104(a)(1)(B) governs the DMM's 
new pricing obligations, which were implemented by all equities markets 
on December 6, 2010.\7\ Accordingly, this provision was not previously 
included in the Minor Rule Violation Plan. The Exchange believes it is 
appropriate to add this element of Rule 104 to the Minor Rule Violation 
Plan to provide greater flexibility with respect to the type of 
disciplinary measures that may be invoked if there were a violation of 
this rule. For example, a potential situation that may warrant a 
summary fine rather than formal disciplinary action could be if a DMM 
fails to maintain a quote consistent with Rule 104(a)(1)(B), but which 
does not result in any harm to the market.
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    \7\ See Exchange Act Release No. 63255 (Nov. 5, 2010), 75 FR 
69484 (Nov. 12, 2010) (SR-NYSEAmex-2010-96).
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    As noted above, summary fines provide the Exchange with flexibility 
to impose an appropriate level of discipline for violations that are 
more serious than an admonition letter, but for which the facts and 
circumstances do not warrant formal discipline. The Exchange believes 
that providing flexibility for violations related to the DMM's new 
pricing obligations and Rules 104(b), (c), (d), and (e) is in keeping 
with the spirit of the existing Rule 476A List, which already includes 
DMM conduct rules.
    To reflect these changes, the Exchange proposes to include a single 
reference to ``Rule 104-NYSE Amex Equities requirements for the 
dealings and responsibilities of DMMs'' to the Rule 476A List, which 
would include all of the subsections of Rule 104 as described above.\8\ 
The Exchange further notes that these summary fines may be imposed, as 
applicable, on either an individual DMM, or the DMM unit, as specified 
in the subsections to Rule 104.
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    \8\ The Exchange notes that it has separately proposed to delete 
NYSE Amex Equities Rule 104(a)(6). See Securities Exchange Act 
Release No. 65735 (Nov. 10, 2011) (SR-NYSEAmex-2011-86). The 
Exchange further notes that other elements of Rule 104, i.e., Rule 
104(j) and supplementary material .05, are not related to DMM 
obligations, but rather reflect operational aspects of the Exchange.
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Rule 123D
    The Exchange also proposes to include a reference relating to 
delayed openings in the Rule 476A list, which is consistent with the 
existing NYSE MRVP. The Exchange further proposes to expand the 
reference to Rule 123D and include other elements of that rule as being 
eligible under the Exchange's Minor Rule Violation Plan.
    The NYSE MRVP currently provides that ``violations of Exchange 
policies regarding procedures to be followed in delayed opening 
situations'' are eligible for summary fines under the Minor Rule 
Violation Plan. Such policies are codified in both NYSE Rule 123D and 
NYSE Amex Equities Rule 123D. The Exchange proposes to add the 
requirements of DMMs that are set forth in Rule 123D relating not only 
to delayed openings, but also to openings, re-openings, trading halts, 
and tape indications to the Rule 476A List. The Exchange believes that 
the additional flexibility of determining the appropriate level of 
discipline for DMM violations of Rule 123D conforms to the purpose of 
the existing Rule 476A List. In particular, the Exchange notes that 
adding Rule 123D in its entirety as it relates to DMM conduct is 
consistent both with the NYSE's proposed rules and with the inclusion 
of NYSE Rule 15 in the NYSE MRVP, which similarly governs DMM's conduct 
with respect to pre-opening indications and which, as discussed above, 
is being proposed to be added to the Rule 476A List.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with, and further the objectives of, Section 6(b)(5) of the Securities 
Exchange Act of 1934, as amended,\9\ (the ``Act''), in that they are 
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 changes also further the objectives of 
Section 6(b)(6),\10\ in that they provide for appropriate discipline 
for violations of provisions of the Act, the rules and regulations 
thereunder, and Exchange rules and regulations.
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(6).
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    The Exchange believes that the proposed rule changes are designed 
to prevent fraudulent and manipulative acts and practices because they 
will provide the Exchange with greater regulatory flexibility to 
enforce the DMM requirements set forth in NYSE Amex Equities Rules 104 
and 123D in a more informal manner while also preserving the Exchange's 
discretion to seek formal discipline for more serious transgressions as 
warranted. In addition, the proposed rule change removes impediments to 
and perfects the mechanism of a free and open market by updating the 
Minor Rule Violation Plan by updating rule cite references, deleting 
references to obsolete rules, and for DMM-related rules, both updating 
the rule references to reflect

[[Page 13162]]

the current rules that govern the topics currently identified in 
outdated rule references in the Minor Rule Violation Plan as well as 
adding additional elements of the rules governing DMM conduct.

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 
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-NYSEAmex-2012-10 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-NYSEAmex-2012-10. 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 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-2012-10 and should 
be submitted on or before March 26, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5205 Filed 3-2-12; 8:45 am]
BILLING CODE 8011-01-P