[Federal Register Volume 78, Number 31 (Thursday, February 14, 2013)]
[Notices]
[Pages 10678-10682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-03388]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68875; File No. SR-NYSEMKT-2013-05]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Exchange Rule 
80C--Equities To Establish Rules To Comply With the Requirements of the 
Plan To Address Extraordinary Market Volatility Submitted to the 
Commission Pursuant to Rule 608 of Regulation NMS

February 8, 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 25, 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 Exchange Rule 80C--Equities to 
establish rules to comply with the requirements of the Plan to Address 
Extraordinary Market Volatility submitted to the Commission pursuant to 
Rule 608 of Regulation NMS. 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, on the Commission's Web site at http://www.sec.gov, and at the Commission's Public Reference Room.

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 10679]]

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
    The Exchange proposes to amend Exchange Rule 80C--Equities to 
establish rules to comply with the requirements of the Plan to Address 
Extraordinary Market Volatility submitted to the Commission pursuant to 
Rule 608 of Regulation NMS under the Act (the ``Plan''). The Exchange 
proposes to adopt the changes for a pilot period that coincides with 
the pilot period for the Plan, which is currently scheduled as a one-
year pilot to begin on April 8, 2013.
Background
    Since May 6, 2010, when the markets experienced excessive 
volatility in an abbreviated time period, i.e., the ``flash crash,'' 
the equities exchanges and FINRA have implemented market-wide measures 
designed to restore investor confidence by reducing the potential for 
excessive market volatility. Among the measures adopted include pilot 
plans for stock-by-stock trading pauses \4\ and related changes to the 
equities market clearly erroneous execution rules \5\ and more 
stringent equities market maker quoting requirements.\6\ On May 31, 
2012, the Commission approved the Plan, as amended, on a one-year pilot 
basis.\7\ In addition, the Commission approved changes to the equities 
market-wide circuit breaker rules on a pilot basis to coincide with the 
pilot period for the Plan.\8\
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    \4\ See, e.g., Exchange Rule 80C.
    \5\ See, e.g., Exchange Rule 128.
    \6\ See, e.g., Exchange Rule 104(a)(1)(B).
    \7\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving, 
on a Pilot Basis, the National Market System Plan To Address 
Extraordinary Market Volatility).
    \8\ See Securities Exchange Act Release No. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129).
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    The Plan is designed to prevent trades in individual NMS Stocks 
from occurring outside of specified Price Bands.\9\ As described more 
fully below, the requirements of the Plan are coupled with Trading 
Pauses to accommodate more fundamental price moves (as opposed to 
erroneous trades or momentary gaps in liquidity). All trading centers 
in NMS Stocks, including both those operated by Participants and those 
operated by members of Participants, are required to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with the requirements specified in the 
Plan.\10\ As set forth in more detail in the Plan, Price Bands 
consisting of a Lower Price Band and an Upper Price Band for each NMS 
Stock are calculated by the Processors.\11\ When the National Best Bid 
(Offer) is below (above) the Lower (Upper) Price Band, the Processors 
shall disseminate such National Best Bid (Offer) with an appropriate 
flag identifying it as unexecutable. When the National Best Bid (Offer) 
is equal to the Upper (Lower) Price Band, the Processors shall 
distribute such National Best Bid (Offer) with an appropriate flag 
identifying it as a Limit State Quotation.\12\ All trading centers in 
NMS Stocks must maintain written policies and procedures that are 
reasonably designed to prevent the display of offers below the Lower 
Price Band and bids above the Upper Price Band for NMS Stocks. 
Notwithstanding this requirement, the Processor shall display an offer 
below the Lower Price Band or a bid above the Upper Price Band, but 
with a flag that it is non-executable. Such bids or offers shall not be 
included in the National Best Bid or National Best Offer 
calculations.\13\
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    \9\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \10\ The Exchange is a Participant in the Plan.
    \11\ See Section (V)(A) of the Plan.
    \12\ See Section VI(A) of the Plan.
    \13\ See Section VI(A)(3) of the Plan.
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    Trading in an NMS Stock immediately enters a Limit State if the 
National Best Offer (Bid) equals but does not cross the Lower (Upper) 
Price Band.\14\ Trading for an NMS stock exits a Limit State if, within 
15 seconds of entering the Limit State, all Limit State Quotations were 
executed or canceled in their entirety. If the market does not exit a 
Limit State within 15 seconds, then the Primary Listing Exchange would 
declare a five-minute trading pause pursuant to Section VII of the LULD 
Plan, which would be applicable to all markets trading the 
security.\15\ In addition, the Plan defines a Straddle State as when 
the National Best Bid (Offer) is below (above) the Lower (Upper) Price 
Band and the NMS Stock is not in a Limit State. For example, assume the 
Lower Price Band for an NMS Stock is $9.50 and the Upper Price Band is 
$10.50, such NMS stock would be in a Straddle State if the National 
Best Bid were below $9.50, and therefore non-executable, and the 
National Best Offer were above $9.50 (including a National Best Offer 
that could be above $10.50). If an NMS Stock is in a Straddle State and 
trading in that stock deviates from normal trading characteristics, the 
Primary Listing Exchange may declare a trading pause for that NMS 
Stock.
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    \14\ See Section VI(B)(1) of the Plan.
    \15\ The primary listing market would declare a trading pause in 
an NMS Stock; upon notification by the primary listing market, the 
Processor would disseminate this information to the public. No 
trades in that NMS Stock could occur during the trading pause, but 
all bids and offers may be displayed. See Section VII(A) of the 
Plan.
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Proposed Amendment to Rule 80C--Equities
    The Exchange is required by the Plan to establish, maintain, and 
enforce written policies and procedures that are reasonably designed to 
comply with the limit up-limit down and trading pause requirements 
specified in the Plan. In response to the new Plan, the Exchange 
proposes to amend its Rules accordingly.
    The Exchange proposes to add Rule 80C(a) to define that ``Plan'' 
means the Plan to Address Extraordinary Market Volatility Submitted to 
the Securities and Exchange Commission Pursuant to Rule 608 of 
Regulation NMS under the Securities Exchange Act of 1934, Exhibit A to 
Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 
(June 6, 2012), as it may be amended from time to time. The Exchange 
proposes to add Rule 80C(a)(2) to state that the Exchange is a 
Participant in, and subject to the applicable requirements of, the 
Plan, which establishes procedures to address extraordinary volatility 
in NMS Stocks. In addition, proposed Rule 80C(a) provides that all 
capitalized terms not otherwise defined in this Rule shall have the 
meanings set forth in the Plan or Exchange rules, as applicable.
    The Exchange proposes to add Rule 80C(a)(3) to provide that member 
organizations shall comply with the applicable provisions of the Plan. 
The Exchange believes that this requirement will help ensure the 
compliance by its members with the provisions of the Plan as required 
pursuant to Section II(B) of the Plan.\16\
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    \16\ See Section II(B) of the Plan.
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    The Exchange proposes to add Rule 80C(a)(4) to provide that 
Exchange systems shall not display or execute buy (sell) interest above 
(below) the Upper (Lower) Price Bands, unless such interest is 
specifically exempted under the Plan. The Exchange believes that this 
requirement is reasonably designed to help ensure the compliance with 
the

[[Page 10680]]

limit up-limit down and trading pause requirements specified in the 
Plan, by preventing executions outside the Price Bands as required 
pursuant to Section VI(A)(1) of the Plan.\17\
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    \17\ See Section VI(A)(1) of the Plan.
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    The Exchange proposes Rules regarding the treatment of certain 
trading interest on the Exchange in order to prevent executions outside 
the Price Bands and to comply with the new LULD Plan. In particular, 
the Exchange proposes to add Rule 80C(a)(5) that provides that Exchange 
systems shall reprice and/or cancel buy (sell) interest that is priced 
or could be executed above (below) the Upper (Lower) Price Band. Any 
interest that is repriced pursuant to this Rule shall retain its time 
stamp of original order entry. Specifically, the Exchange proposes the 
following provisions regarding the repricing and/or canceling of 
certain trading interest:
     Market Orders. If a market order cannot be fully executed 
at or within the Price Bands, Exchange systems shall display the 
unexecuted portion of the buy (sell) market order at the Upper (Lower) 
Price Band.\18\
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    \18\ If market participants do not want to have their orders 
repriced to the Price Band, market Participants may cancel the 
unexecuted portion of the order or submit such order as an IOC 
order.
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     Limit-Priced Interest. Both displayable and non-
displayable incoming limit-priced interest to buy (sell) that is priced 
above (below) the Upper (Lower) Price Band shall be repriced to the 
Upper (Lower) Price Band. Exchange systems shall also reprice resting 
limit-priced interest to buy (sell) to the Upper (Lower) Price Band if 
Price Bands move and the price of resting limit-priced interest to buy 
(sell) moves above (below) the Upper (Lower) Price Band. If the Price 
Bands move and the original limit price of repriced interest is at or 
within the Price Bands, Exchange systems shall reprice such interest to 
its original limit price.\19\
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    \19\ See id.
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     IOC Orders. If an IOC order cannot be fully executed at or 
within the Price Bands, Exchange systems shall cancel any unexecuted 
portion of the IOC Order.
     DMM Interest. Exchange systems shall cancel DMM Interest 
to buy (sell) that is entered manually or via DMM-specific order entry 
methodology if such interest is priced above (below) the Upper (Lower) 
Price Band. DMM Interest to buy (sell) that is entered via the same 
order entry methodology as off-Floor interest shall be repriced 
pursuant to paragraph (a)(5)(B) of this Rule.
     Market Pegging Interest. Market Pegging Interest to buy 
(sell) shall peg to the specified pegging price or the Upper (Lower) 
Price Band, whichever is lower (higher).
     Sell Short Orders. During a Short Sale Price Test, as set 
forth in Rule 440B(b), short sale orders priced below the Lower Price 
Band shall be repriced to the higher of the Lower Price Band or the 
Permitted Price, as defined in Rule 440B(e).\20\
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    \20\ Since there is no Permitted Price for short sale exempt 
orders, short sale exempt orders are treated the same as other 
orders under this Rule.
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     Floor Broker Cross Function. Exchange systems shall not 
execute orders crossed pursuant to the process provided for in 
Supplementary Material .10 to Rule 76, if the price of the proposed 
cross transaction is outside of the Price Bands.
     Original Order Instructions. Any interest repriced 
pursuant to Exchange Rule 80C(a) shall return to its original order 
instructions for purposes of the re-opening transaction following a 
Trading Pause.
    The Exchange believes these provisions are reasonably designed to 
prevent executions outside the Price Bands as required by the limit up-
limit down and trading pause requirements specified in the Plan. The 
Exchange believes that allowing trading interest that would otherwise 
execute outside the Prices Bands to reprice and keep its original time 
stamp, helps ensure that trading interest retains its priority while 
preventing executions in violation with the limit up-limit down and 
trading pause requirements. The Exchange notes that retention of an 
original timestamp when interest is repriced occurs only under the 
operation of this Rule in order to prevent executions outside the Price 
Bands and to comply with the new LULD Plan and in no other 
circumstances.\21\ To the extent that repricing of trading interest is 
not practical due to systems restrictions such as in the case of the 
DMM Interest that is entered manually or via DMM-specific order entry 
methodology, the Exchange proposes to cancel the trading interest in 
order to prevent executions outside the Price Bands. The Exchange will 
not reprice a Floor Broker Cross that would execute outside the Price 
Bands, because such orders are intended to be crossed at the entered 
price or not at all. Instead, the Exchange will return the unexecuted 
orders to the Floor Broker. The Exchange believes that adding certainty 
to the treatment and priority of trading interest in these situations 
will encourage market participants to continue to provide liquidity to 
the Exchange and thus promote a fair and orderly market.
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    \21\ The Exchange notes repricing of trading interest under 
ordinary circumstances outside of this Rule may be different than 
pursuant to the proposed Rule. For example, repricing of Market 
Pegging Interest and Sell Short Orders under ordinary circumstances 
would receive a new time stamp after repricing.
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    The Exchange proposes Rule 80C(a)(6) that provides that the 
Exchange systems shall not route buy (sell) interest to an away market 
displaying a sell (buy) quote that is above (below) the Upper (Lower) 
Price Band. The Exchange believes that this provision is reasonably 
designed to prevent an execution outside the Price Bands in a manner 
that promotes compliance with the limit up-limit down and trading pause 
requirements specified in the Plan.
    In addition, the Exchange proposes Rule 80C(a)(7) that provides 
that the Exchange may declare a Trading Pause for a NMS Stock listed on 
the Exchange when (i) the National Best Bid (Offer) is below (above) 
the Lower (Upper) Price Band and the NMS Stock is not in a Limit State; 
and (ii) trading in that NMS Stock deviates from normal trading 
characteristics. An Exchange Floor Official may declare such Trading 
Pause during a Straddle State if such Trading Pause would support the 
Plan's goal to address extraordinary market volatility.\22\ The 
Exchange believes that this provision is reasonably designed to comply 
with Section VII(A)(2) of the Plan.\23\
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    \22\ The Exchange will develop written policies and procedures 
to determine when to declare a Trading Pause in such circumstances.
    \23\ See Section VII(A)(2) of the Plan.
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    Consistent with the Plan's requirements for the Exchange to 
establish, maintain, and enforce policies and procedures that are 
reasonably designed to comply with the trading pause requirements 
specified in the Plan, the Exchanges also proposes to amend the Rules 
regarding Trading Pauses to correspond with the LULD Plan. The Exchange 
proposes to provide that during Phase 1 of the Plan, a Trading Pause in 
Tier 1 NMS Stocks subject to the requirements of the Plan, shall be 
subject to Plan requirements and Exchange Rule 80C(b)(2); a Trading 
Pause in Tier 1 NMS Stocks not yet subject to the requirements of the 
Plan shall be subject to the requirements in paragraphs (b)(1)-(5) of 
this Rule; and a Trading Pause in Tier 2 NMS Stocks shall be subject to 
the requirements set forth in Exchange Rule 80C(b)(1)(B)-(5). The 
proposed change will allow the Trading Pause requirements in Exchange 
Rule 80C(b)(1) to continue to

[[Page 10681]]

apply to Tier 1 NMS Stocks during the beginning of Phase I until they 
are subject to the Plan requirements. Once the Plan has been fully 
implemented and all NMS Stocks are subject to the Plan, a Trading Pause 
under the Plan shall be subject to Exchange Rule 80C(b)(2). These 
proposed changes are designed to comply with Section VIII of the Plan 
to ensure implementation of the Plan's requirements.\24\
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    \24\ See Section VIII of the Plan.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \25\ in general, and furthers the objectives of 
Section 6(b)(5),\26\ in particular, in that it is designed to promote 
just and equitable principles of trade, 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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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
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    The proposal promotes just and equitable principles of trade and 
removes impediments to, and perfects the mechanism of, a free and open 
market and a national market system by ensuring that the Exchange 
systems will not display or execute trading interest outside the Price 
Bands as required by the limit up-limit down and trading pause 
requirements specified in the Plan.
    The proposal will also ensure that the trading interest on the 
Exchange is either repriced to maintain priority or canceled in a 
manner that promotes just and equitable principles of trade and removes 
impediments to, and perfects the mechanism of, a free and open market 
and a national market system. Specifically, the proposal will help 
allow market participants to continue to trade NMS Stocks within Price 
Bands in compliance with the Plan with certainty on how certain orders 
and trading interest will be treated. Thus, reducing uncertainty 
regarding the treatment and priority of trading interest with the Price 
Bands should help encourage market participants to continue to provide 
liquidity during times of extraordinary market volatility that occur 
during Regular Trading Hours.
    The proposal also promotes just and equitable principles of trade 
and removes impediments to, and perfects the mechanism of, a free and 
open market and a national market system by ensuring that orders in NMS 
Stocks are not routed to other exchanges in situations where an 
execution may occur outside Price Bands, and thereby is reasonably 
designed to prevent an execution outside the Price Bands in a manner 
that promotes compliance with the limit up-limit down and trading pause 
requirements specified in the Plan.

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. The proposed changes are 
being made to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to comply with the limit up-
limit down and trading pause requirements specified in the Plan, of 
which other equities exchanges are also Participants of. Other 
competing equity exchanges are subject to the same limit up-limit down 
and trading pause requirements specified in the Plan. Thus, the 
proposed changes will not impose any burden on competition while 
providing certainty of treatment and execution of trading interest on 
the Exchange to market participants during periods of extraordinary 
volatility in NMS stock while in compliance with the limit up-limit 
down and trading pause requirements specified in the Plan.

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 \27\ and Rule 19b-4(f)(6) thereunder.\28\ 
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.
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    \27\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \28\ 17 CFR 240.19b-4(f)(6).
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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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) of the Act \29\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \29\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-NYSEMKT-2013-05 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 No. SR-NYSEMKT-2013-05. 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 such

[[Page 10682]]

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 No. SR-NYSEMKT-2013-05 and should be submitted on or before March 
7, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03388 Filed 2-13-13; 8:45 am]
BILLING CODE 8011-01-P