[Federal Register Volume 77, Number 138 (Wednesday, July 18, 2012)]
[Notices]
[Pages 42349-42350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17420]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67421; File No. SR-NYSEAmex-2012-31]


Self-Regulatory Organizations; NYSE Amex LLC; Order Approving a 
Proposed Rule Change Defining a Primary Specialist in Each Options 
Class and Modifying the Specialist Entitlement Accordingly

July 12, 2012.

I. Introduction

    On May 11, 2012, NYSE Amex LLC (the ``Exchange'' or ``NYSE Amex'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
define a Primary Specialist in each options class and modify the 
Specialist entitlement. The proposed rule change was published for 
comment in the Federal Register on May 31, 2012.\3\ The Commission 
received no comment letters on the proposal. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 67057 (May 24, 2012), 77 
FR 32157 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend Rules 964NY and 964.2NY to define 
Primary Specialists, and to modify the order allocation entitlement 
amongst Specialist Pool participants.
    Rule 964NY sets forth the priority for the allocation of incoming 
orders to resting interest at a particular price in the NYSE Amex 
System. Under the current rule, the priority for the allocation of 
incoming orders at the same price is as follows: (1) resting Customer 
orders; (2) Directed Order Market Makers, provided they satisfy the 
criteria to be eligible to receive a Directed Order; (3) the Specialist 
Pool (for non-Directed Orders); and (4) non-Customer interest (on a 
size pro-rata basis). As currently provided in Rule 964NY(b)(2)(C) and 
Rule 964.2NY, the Specialist and e-Specialists in each class compete in 
the Specialist Pool on a size pro-rata basis, and do not compete for 
the allocation of non-Directed Orders of five contracts or fewer.\4\ 
Such orders are allocated on a rotating basis (i.e., a round robin) to 
a Specialist or e-Specialist in the Specialist Pool.
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    \4\ Under the rule, the Specialist's pro-rata allocation may 
receive additional weighting as determined by the Exchange.
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    The Exchange now proposes to designate a Primary Specialist from 
amongst the Specialist Pool participants. According to the Exchange, 
the Primary Specialist will be determined using objective evaluation of 
the relative quote performance of each Specialist and e-Specialist. The 
evaluation will be conducted on a quarterly basis and would include one 
or more of the following factors: time and size at the NBBO, average 
quote width, average quote size, and the relative share of electronic 
volume in a given class of options.\5\ The Exchange will issue a 
Regulatory Bulletin at least five business days prior to each 
evaluation period with the evaluation criteria, including the relative 
weighting of each factor.
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    \5\ The first evaluation period may be longer or shorter than a 
calendar quarter, depending on Commission approval of the proposed 
rule change.
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    Under the proposed rule change, the Primary Specialist (instead of 
the Specialist) would receive any additional weighting in the size pro 
rata allocation amongst Specialist Pool participants. This additional 
weighting would be determined by the Exchange, as is currently the 
case. Additionally, under the proposal, rather than a round robin 
allocation of non-Directed Orders for five contracts or fewer, all such 
orders would be allocated to the Primary Specialist after any 
allocation to Customers, not to exceed the size of the Primary 
Specialist's quote, provided the Primary Specialist is quoting at the 
NBBO. If the Primary Specialist's quote size is less than the order of 
five contracts or fewer, any remaining contracts after the Primary 
Specialist receives its allocation will be allocated in accordance with 
Rule 964NY(b)(2)(D) (i.e., size pro rata). In addition, as is the case 
under the current rule for the Specialist Pool, if the Primary 
Specialist is not quoting at the NBBO at the time the order for five or 
fewer contracts arrives, then the order will be executed in accordance 
with the provision of Rule 964NY(b)(2)(D).\6\
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    \6\ The Exchange is also proposing to correct a typographical 
error in Rule 964.2NY(b)(3)(A) by changing the word ``on'' to 
``one.''
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    The Exchange stated that it will not implement this proposal until 
it has notified ATP Holders via Regulatory Bulletin regarding the rule 
change. The Exchange plans to issue notice announcing the compliance 
date of the rule change within 90 days from the effective date of the 
rule change.\7\
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    \7\ See Notice, supra note 3, at 32158.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\9\ in that it is designed to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transaction in 
securities, to remove impediments and perfect the mechanisms of a free 
and open market, and, in general, to protect investors and the public 
interest.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission closely scrutinizes exchange rule proposals to adopt 
or amend participation guarantees where such guarantees would rise to a 
level that could have a material adverse impact on quote competition 
within a particular exchange.\10\ As noted by the Exchange, the 
proposed rule change is intended to enhance quote competition

[[Page 42350]]

among the Specialist Pool participants by creating a quarterly contest 
designed to measure the quote performance of Specialists and 
eSpecialists. The Exchange states that the determination of the winner 
of this quarterly contest will be based on objective evaluation of the 
relative quote performance of each Specialist and eSpecialist and the 
evaluation criteria will be announced in advance of each evaluation 
period. The Exchange notes that enhanced quote competition should lead 
to narrower spreads and more liquid markets, thereby benefiting 
investors. Further, notes the Exchange, narrower spreads and more 
liquid markets should attract more order flow to the exchange, 
enhancing price discovery and generally benefiting all participants on 
the Exchange. For these reasons, the Commission believes that the 
proposed rule change is consistent with the Act.
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    \10\ See Securities Exchange Act Release No. 44641 (August 2, 
2001), 66 FR 41643 (August 8, 2001) (SR-ISE-2001-17), at 41644-
41645; see also Securities Exchange Act Release No. 51818 (June 10, 
2005), 70 FR 35146 (June 16, 2005) (SR-ISE-2005-18), at 35149.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSEAmex-2012-31) be, and it 
hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17420 Filed 7-17-12; 8:45 am]
BILLING CODE 8011-01-P