[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21457-21460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08321]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69295; File No. SR-NYSE-2013-27]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending NYSE Rule 1000

April 4, 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 April 2, 2013, 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 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 phase out the functionality associated 
with liquidity replenishment points (``LRPs'') to coincide with the 
implementation of the Limit Up--Limit Down Plan (the ``Plan'') by 
adding language to NYSE Rule 1000 that, beginning on April 8, 2013, 
LRPs will no longer be in effect for Tier 1 NMS Stocks, and on the 
earlier of August 1, 2013 or such date as Phase II of the Limit Up--
Limit Down Plan is implemented, LRPs will no longer be in effect for 
all NMS Stocks. The text of the proposed rule change is

[[Page 21458]]

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, 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 phase out the functionality associated 
with LRPs to coincide with the implementation of the Plan by amending 
Rule 1000 to provide that, beginning on April 8, 2013, LRPs will no 
longer be in effect for Tier 1 NMS Stocks, and beginning on the earlier 
of August 1, 2013 or such date as Phase II of the Limit Up--Limit Down 
Plan is implemented, LRPs will no longer be in effect for all NMS 
stocks.
    The LRP mechanism was approved in 2006 to address market volatility 
on the Exchange.\4\ Specifically, the Exchange uses LRPs, which are 
triggered by rapid price movements over a short period of time, to 
moderate volatility in a security by temporarily converting the 
electronic market for the security into an auction market to afford new 
trading interests the opportunity to add liquidity. The Exchange 
additionally believes that LRPs were effective in moderating some of 
the impact from the events of May 6, 2010, for NYSE trading customers 
as evidenced by the lack of erroneous trades on the Exchange. LRPs also 
served as the basis for the Plan,\5\ as well as the implementation of 
the short sale circuit breakers. Indeed, for many years, LRPs have been 
a key selling point of the Exchange to both investors and listed 
companies who, like the Exchange, believe that stable prices further 
the purposes of protecting investors against unnecessary price swings 
thereby enhancing investor confidence in the U.S. securities markets. 
LRPs have delivered concrete benefits to public investors in the many 
erroneous or aberrant trades they have prevented, and have allowed the 
Exchange to communicate in an orderly way with issuers during periods 
of market stress.
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    \4\ See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05).
    \5\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (``LULD Release'').
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    Nevertheless, the Exchange proposes to phase out LRPs as a result 
of the scheduled implementation of the Plan, which was adopted in 
response to the market disruption of May 6, 2010. Specifically, in 
addressing comments focused on the relationship between the Plan and 
exchange-specific volatility mechanisms--such as the NYSE's LRPs--the 
Commission stated that it was ``aware of the potential for unnecessary 
complexity that could result if the Plan were adopted, and exchange-
specific volatility mechanisms were retained'' and ``[t]o this end, the 
Commission expects that upon implementation of the Plan, such exchange-
specific volatility mechanisms would be discontinued by the respective 
exchanges.'' \6\
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    \6\ Id. at n. 182 (emphasis added).
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    Although the Exchange understands the need for industry-wide 
responses to address extraordinary volatility events such as the market 
disruption that occurred on May 6, 2010, the Exchange does not agree 
that such initiatives should come at the expense of existing investor 
protection mechanisms, particularly without any impact analysis, 
because such initiatives can have unintended consequences to the 
detriment of investors and the marketplace as a whole. In light of the 
fact that only potential concerns were noted and there is no evidence 
of systemic problems that would be caused by simultaneously operating 
the Plan and LRPs, the Exchange continues to believe that data could 
have been collected during the Plan pilot period and would have served 
as an excellent testing ground to determine if both the Limit Up--Limit 
Down bands as well as the LRP bands could function effectively 
together. The Exchange believes that only after such careful monitoring 
could an informed determination be made that accurately assesses 
whether the functionalities were redundant or conflicting so as to 
warrant continuing with one or the other, or both. The Plan pilot 
period could also have afforded the Commission and the Exchange the 
ability to compile and analyze data that would contribute to the making 
of an informed decision with respect to the merits of both programs.
    Indeed, there is nothing particularly complex about how LRPs would 
have operated alongside the Plan. As the LRP bands are generally 
narrower than the Limit Up--Limit Down bands, LRPs might have continued 
to serve their current purpose of creating a temporary auction market 
buffer to rapid and extraordinary price movements occurring in the 
electronic market. They would have been triggered within Limit Up--
Limit Down bands, would have applied only to the Exchange, and trading 
on away markets could have continued to occur because the NYSE 
quotation is not protected during an LRP. Moreover, the Exchange 
believes that any incremental complexity the LRPs would have added to 
the operation of the Plan would have been outweighed substantially by 
their proven effectiveness in minimizing rapid price movements that are 
driven by erroneous orders.
    Furthermore, the Exchange wishes to respectfully, but strenuously, 
object not only to the substance of the Commission's decision to 
effectively insist that the Exchange abandon LRPs, but also the policy 
implications of the decision. From a policy perspective, the 
Commission's required removal of LRPs would seem to embody an effort to 
force markets ``into a single mold'' \7\ for purposes of addressing 
extraordinary volatility, and to obstruct the development of 
``subsystems within the national market system,'' objectives which are 
inconsistent with the 1975 Act Amendments.\8\
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    \7\ See H.R. Rep. No. 94-123, at 51 (1975) (emphasis added) 
(``The objective is to enhance competition and to allow economic 
force, interacting within a fair regulatory field, to arrive at 
appropriate variations of practices and services. Neither the 
markets themselves nor the broker-dealer participant in these 
markets should be forced into a single mold. Market centers should 
compete and evolve according to their own natural genius and all 
actions to compel uniformity must be measured and justified as 
necessary to accomplish the salient purposes of the Securities 
Exchange Act, assure the maintenance of fair and orderly markets and 
to provide price protection for the orders of investors.'').
    \8\ See S. Rep. No. 94-75 (1975). While there is no disputing 
that Congress intended to grant broad and discretionary market 
oversight powers to the Commission, it is also important to 
recognize the intended limits of that discretion. The Senate 
Committee Report sheds particular light on those limits with respect 
to uniformity of structure: ``This is not to say that it is the goal 
of the legislation to ignore or eliminate distinctions between 
exchange markets and over-the-counter markets or other inherent 
differences or variations in components of a national market system. 
Some present distinctions may tend to disappear in a national market 
system, but it is not the intention of the bill to force all markets 
for all securities into a single mold. Therefore, in implementing 
the bill's objectives, the SEC would have the power to classify 
markets, firms, and securities in any manner it deems necessary or 
appropriate in the public interest or for the protection of 
investors and to facilitate the development of subsystems within the 
national market system.'' See id. at 7 (emphasis added).

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[[Page 21459]]

    Nevertheless, the Exchange proposes to phase out \9\ the LRP 
functionality for securities as they are covered by the Plan in 
coordination with the Plan's Phase I and Phase II implementation 
timelines.\10\ LRPs will remain in place for any securities not covered 
by the Plan.
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    \9\ The Exchange would note that the suspension, rather than the 
elimination thereof, of LRPs for the duration of the pilot period 
would not be put before the Commission for consideration.
    \10\ See, e.g., Securities Exchange Act Release No. 68785 
(January 31, 2013), 78 FR 8646 (February 6, 2013) (SR-NYSEArca-2013-
06).
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    As such, the Exchange proposes to add rule language that, beginning 
on April 8, 2013, LRPs will no longer be in effect for Tier 1 NMS 
Stocks, and on the earlier of August 1, 2013 or such date as Phase II 
of the Limit Up--Limit Down Plan is implemented, LRPs will no longer be 
in effect for all NMS Stocks. In order to accommodate the phasing out 
process, prior to the implementation of Phase II of the Plan, the 
Exchange will file a separate rule proposal deleting the references to 
LRP functionality in NYSE Rules 60, 79A, 104, 128, and 1000. The 
Exchange will apprise members and member organizations of the dates of 
the discontinuation of the LRP functionality via an Information 
Memorandum. The Exchange plans to revisit the merits of discontinuing 
the LRP functionality after the initial Plan pilot period has ended and 
may file to reincorporate the LRP functionality at that time as well.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act,\11\ in general, and 
Section 6(b)(5) of the Act,\12\ in particular, in that it is designed 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism for a free and open market and a national 
market system. However, the Exchange is discontinuing the LRP 
functionality and deleting corresponding rule references to implement 
changes that the Commission has requested and expects as reflected in 
the LULD Release. Moreover, the related Information Memorandum to 
members and member organizations would provide advance notice to NYSE 
members and member organizations that the Exchange would cease offering 
the LRP functionality in furtherance of the Commission's expectations.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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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 a burden on competition because the Exchange is discontinuing 
the LRP functionality to fulfill the Commission's expectations. In this 
respect, the Exchange notes that because Commission expects all 
exchanges to discontinue their respective volatility mechanisms, there 
should be no burden on competition because all exchanges as well as 
their members and issuers would be similarly situated.

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 \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
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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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ 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 designate an operative date of April 8, 2013. The 
Commission believes that waiving the operative delay and designating 
April 8, 2013 as the operative date of the proposed rule change is 
consistent with the protection of investors and the public interest 
because such waiver would allow the proposed rule change to be 
operative on the initial date of Plan operations. Accordingly, the 
Commission hereby grants the Exchange's request and designates an 
operative date of April 8, 2013.\17\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For purposes only of waiving the operative delay, the 
Commission has 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 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-2013-27 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-2013-27. 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

[[Page 21460]]

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 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 publicly available. All 
submissions should refer to File Number SR-NYSE-2013-27 and should be 
submitted on or before May 1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08321 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P