[Federal Register Volume 78, Number 25 (Wednesday, February 6, 2013)]
[Notices]
[Pages 8630-8633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02640]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68801; File No. SR-NYSEMKT-2013-11]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 128--
Equities, Which Governs Clearly Erroneous Executions, Extending the 
Effective Date of the Pilot Until September 30, 2013 and Adopting New 
Paragraph (i) to Rule 128-Equities in Connection With the Upcoming 
Operation of the Plan To Address Extraordinary Market Volatility 
Pursuant to Rule 608 of Regulation NMS Under the Act

February 1, 2013.
    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 January 30, 2013, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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 Rule 128--Equities, which governs 
clearly erroneous executions, to extend the effective date of the pilot 
by which portions of such Rule operate until September 30, 2013. The 
pilot is currently scheduled to expire on February 4, 2013. The 
Exchange also proposes to adopt new paragraph (i) to Rule 128--Equities 
in connection with the upcoming operation of the Plan to Address 
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS 
under the Act (the ``Limit Up-Limit Down Plan'' or ``Plan'').\4\ The 
text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
the Commission's Public Reference Room.
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    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').

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[[Page 8631]]

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 Rule 128--Equities, which governs 
clearly erroneous executions, to extend the effective date of the pilot 
by which portions of such Rule operate, until September 30, 2013. The 
pilot is currently scheduled to expire on February 4, 2013.\5\ The 
Exchange also proposes to add new paragraph (i) to Rule 128--Equities 
in connection with the upcoming implementation of the Limit Up-Limit 
Down Plan.
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    \5\ See Securities Exchange Act Release No. 62886 (September 10, 
2010), 75 FR 56613 (September 16, 2010) (SR-NYSEAmex-2010-60). See 
also Securities Exchange Act Release Nos. 63480 (December 9, 2010), 
75 FR 78333 (December 15, 2010) (SR-NYSEAmex-2010-116); 64233 (April 
7, 2011), 76 FR 20736 (April 13, 2011) (SR-NYSEAmex-2011-24); 65066 
(August 9, 2011), 76 FR 50506 (August 15, 2011) (SR-NYSEAmex-2011-
58); 66137 (January 11, 2012), 77 FR 2587 (January 18, 2012) (SR-
NYSEAmex-2011-106); and 67567 (August 1, 2012), 77 FR 47136 (August 
7, 2012) (SR-NYSEMKT-2012-28).
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    On September 10, 2010, the Commission approved, on a pilot basis, 
market-wide amendments to exchanges' rules for clearly erroneous 
executions to set forth clearer standards and curtail discretion with 
respect to breaking erroneous trades. In connection with this pilot 
initiative, the Exchange amended Rule 128(c), (e)(2), (f), and (g)--
Equities. The amendments provide for uniform treatment of clearly 
erroneous execution reviews (1) in Multi-Stock Events \6\ involving 
twenty or more securities, and (2) in the event transactions occur that 
result in the issuance of an individual security trading pause by the 
primary market and subsequent transactions that occur before the 
trading pause is in effect on the Exchange.\7\ The amendments also 
eliminated appeals of certain rulings made in conjunction with other 
exchanges with respect to clearly erroneous transactions and limited 
the Exchange's discretion to deviate from Numerical Guidelines set 
forth in the Rule in the event of system disruptions or malfunctions.
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    \6\ Terms not defined herein are defined in Rule 128--Equities.
    \7\ Separately, the Exchange has proposed to extend the 
effective date of the trading pause pilot under Rule 80C--Equities, 
which requires to the Exchange to pause trading in an individual 
security listed on the Exchange if the price moves by a specified 
percentage as compared to prices of that security in the preceding 
five-minute period during a trading day. See Securities Exchange Act 
Release No. 68744 (January 28, 2013) (SR-NYSEMKT-2012-04) [sic].
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    If the pilot were not extended, the prior versions of paragraphs 
(c), (e)(2), (f), and (g) of Rule 128--Equities would be in effect, and 
the Exchange would have different rules than other exchanges and 
greater discretion in connection with breaking clearly erroneous 
transactions. The Exchange believes the benefits to market participants 
from the more objective clearly erroneous executions rule should 
continue on a pilot basis through September 30, 2013, which is the date 
that the Exchange anticipates that the phased implementation of the 
Limit Up-Limit Down Plan will be complete. As explained in further 
detail below, although the Limit Up-Limit Down Plan is intended to 
prevent executions that would need to be nullified as clearly 
erroneous, the Exchange believes that certain protections should be 
maintained while the industry gains initial experience operating with 
the Limit Up-Limit Down Plan, including the provisions of Rule 128--
Equities that currently operate as a pilot.
Proposed Limit Up-Limit Down Provision to Rule 128--Equities
    The Exchange proposes to adopt new paragraph (i) to Rule 128--
Equities, to provide that the existing provisions of Rule 128--Equities 
will continue to apply to all Exchange transactions, including 
transactions in securities subject to the Plan, other than as set forth 
in proposed paragraph (i). Accordingly, other than as proposed below, 
the Exchange proposes to maintain and continue to apply the Clearly 
Erroneous Execution standards in the same way that it does today. 
Notably, this means that the Exchange might nullify transactions that 
occur within the price bands disseminated pursuant to the Limit Up-
Limit Down Plan to the extent such transactions qualify as clearly 
erroneous under existing criteria. As an example, assume that a Tier 1 
security pursuant to the Plan has a reference price pursuant to both 
the Plan and Rule 128--Equities of $100.00. The lower pricing band 
under the Plan would be $95.00 and the upper pricing band under the 
Plan would be $105.00. An execution could occur on the Exchange in this 
security at $96.00, as this is within the Plan's pricing bands. 
However, if subjected to review as potentially clearly erroneous, the 
Exchange would nullify an execution at $96.00 as clearly erroneous 
because it exceeds the 3% threshold that is in place pursuant to Rule 
128(c)(1)--Equities for securities priced above $50.00 (i.e., with a 
reference price of $100.00, any transactions at or below $97.00 or 
above $103.00 could be nullified as clearly erroneous). Accordingly, 
this proposal maintains the status quo with respect to reviews of 
Clearly Erroneous Executions and the application of objective numerical 
guidelines by the Exchange. The proposal does not increase the 
discretion afforded to the Exchange in connection with reviews of 
Clearly Erroneous Executions.
    The Limit Up-Limit Down Plan is designed to prevent executions from 
occurring outside of dynamic price bands disseminated to the public by 
a single plan processor as defined in the Limit Up-Limit Down Plan.\8\ 
The possibility remains that the Exchange could experience a technology 
or systems problem with respect to the implementation of the price 
bands disseminated pursuant to the Plan. To address such possibilities, 
the Exchange proposes to adopt language to make clear that if an 
Exchange technology or systems issue results in any transaction 
occurring outside of the price bands disseminated pursuant to the Plan, 
an Officer of the Exchange or senior level employee designee, acting on 
his or her own motion or at the request of a third party, shall review 
and declare any such trades null and void. Absent extraordinary 
circumstances, any such action of the Officer of the Exchange or other 
senior level employee designee shall be taken in a timely fashion, 
generally within thirty (30) minutes of the detection of the erroneous 
transaction. When extraordinary circumstances exist, any such action of 
the Officer of the Exchange or other senior level employee designee 
must be taken by no later than the start of regular trading hours \9\ 
on the trading day following the date on which the execution(s) under 
review occurred. Although the Exchange will act as

[[Page 8632]]

promptly as possible and the proposed objective standard (i.e., whether 
an execution occurred outside the band) should make it feasible to 
quickly make a determination, there may be circumstances in which 
additional time may be needed for verification of facts or coordination 
with outside parties, including the single plan processor responsible 
for disseminating the price bands and other market centers. 
Accordingly, the Exchange believes it necessary to maintain some 
flexibility to make a determination outside of the thirty (30) minute 
guideline. In addition, the Exchange proposes that a transaction that 
is nullified pursuant to new paragraph (i) would be appealable in 
accordance with the provisions of Rule 128(e)(2)--Equities. In 
addition, the Exchange proposes to make clear that in the event that a 
single plan processor experiences a technology or systems problem that 
prevents the dissemination of price bands, the Exchange would make the 
determination of whether to nullify transactions based on Rule 128(a)-
(h)--Equities.
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    \8\ See Limit Up-Limit Down Release, supra note 4.
    \9\ Regular trading hours commence at 9:30 a.m. Eastern Time. 
See Rule 51(a)--Equities.
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    The Exchange believes that cancelling trades that occur outside of 
the price bands disseminated pursuant to the Plan is consistent with 
the purpose and intent of the Plan, as such transactions are not 
intended to occur in the first place. If transactions do occur outside 
of the price bands and no exception applies--which necessarily would be 
caused by a technology or systems issue--then the Exchange believes the 
appropriate result is to nullify such transactions.
 2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \10\ of 
the Act, in general, and furthers the objectives of Section 6(b)(5) 
\11\ in particular 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 mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest. The Exchange believes that the pilot program promotes 
just and equitable principles of trade in that it promotes transparency 
and uniformity across markets concerning review of transactions as 
clearly erroneous. More specifically, the Exchange believes that the 
extension of the pilot would promote just and equitable principles of 
trade because it would help assure that the determination of whether a 
clearly erroneous trade has occurred will be based on clear and 
objective criteria. Additionally, resolution of the incident will occur 
promptly through a transparent process, which the Exchange believes 
would protect investors and the public interest. The proposed rule 
change would also foster cooperation and coordination with persons 
engaged in facilitating transactions in securities and to remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system because it would help assure consistent 
results in handling erroneous trades across the U.S. markets, thus 
furthering fair and orderly markets, the protection of investors and 
the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    Although the Limit Up-Limit Down Plan will be operational during 
the same time period as the proposed extended pilot, the Exchange 
believes that maintaining the pilot for at least through the phased 
implementation of the Plan is operational will help to protect against 
unanticipated consequences. To that end, the extension will allow the 
Exchange to determine whether Rule 128--Equities is necessary once the 
Plan is operational and, if so, whether improvements can be made. 
Further, the Exchange believes it consistent with the protection of 
investors and the public interest to adopt objective criteria to 
nullify transactions that occur outside of the Plan's price bands when 
such transactions should not have been executed but were due to a 
systems or technology issue.

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. To the contrary, the 
Exchange believes that the Financial Industry Regulatory Authority and 
other national securities exchanges are also filing similar proposals, 
and thus, that the proposal will help to ensure consistent rules across 
market centers.

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

    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 for 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 \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed under Rule 19b-4(f)(6)\14\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii)\15\ 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.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the pilot program to continue uninterrupted, thereby 
avoiding the investor confusion that could result from a temporary 
interruption in the pilot program. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the 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

[[Page 8633]]

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-NYSEMKT-2013-11 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-NYSEMKT-2013-11. 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 10:00 a.m. and 
3:00 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-NYSEMKT-2013-11 and should 
be submitted on or before February 27, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02640 Filed 2-5-13; 8:45 am]
BILLING CODE 8011-01-P