[Federal Register Volume 78, Number 245 (Friday, December 20, 2013)]
[Notices]
[Pages 77183-77185]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30270]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71085; File No. SR-NYSEMKT-2013-99]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rules 104--
Equities and 123C--Equities To Specify That Closings May Be Effectuated 
Manually or Electronically

December 16, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 3, 2013, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. 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\ 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 Rules 104--Equities and 123C--
Equities to specify that closings may be effectuated manually or 
electronically. 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.

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 amend Rules 104--Equities (``Rule 104'') and 
123C--Equities (``Rule 123C'') to specify that closings may be 
effectuated manually or electronically.\3\ Rule 104(a)(3) currently 
provides that designated market makers (``DMM'') have the 
responsibility, among other things, to facilitate the close of trading 
for each of the securities in which the DMM is registered as required 
by Exchange rules (including Rule 123C), which may include supplying 
liquidity as needed. Rule 104(b) further provides that DMM units shall 
have the ability to employ algorithms for quoting and trading 
consistent with Exchange and SEC regulations. As such, DMM units at the 
Exchange all use algorithms to engage in quoting and trading activity 
at the Exchange.
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    \3\ Rule 104 is operating on a pilot basis as part of the 
Exchange's New Market Model pilot and is in effect until January 31, 
2014. See Securities Exchange Act Release No. 69812 (June 20, 2013), 
78 FR 38766 (June 27, 2013) (SR-NYSEMKT-2013-51).
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    Rule 123D(1)--Equities specifies that openings may be effectuated 
manually or electronically. Accordingly, the Exchange currently 
provides DMM units with functionality to open a security, either on a 
trade or on a quote, algorithmically. The Exchange is in the process of 
making a technological change to enable DMM units to use algorithms to 
close a security as well, i.e., to effectuate a close electronically. 
The Exchange believes that such functionality would be consistent with 
current Rule 104(b) because the rule already permits algorithms to 
engage in quoting or trading activity. However, for the avoidance of 
doubt, the Exchange proposes to amend Rule 123C to add supplementary 
material that parallels the current Rule 123D(1)--Equities rule 
provision governing the manner by which openings are effectuated to 
similarly provide that closings may be effectuated manually or 
electronically.
    To assure that certain non-displayed interest that is eligible to 
participate in manual transactions is included in the opening 
transaction, Rule 104(a)(2) currently provides that the DMM and DMM 
unit algorithms will have access to aggregate order information in 
order to comply with their requirement to facilitate the opening.\4\ 
Because such non-displayed interest is also eligible to participate in 
the closing transaction, the Exchange would similarly provide aggregate 
order information to the DMM and DMM unit algorithm in order for the 
DMM algorithm to close the security electronically. Accordingly, the 
Exchange proposes to amend Rule 104(a)(3) to add that DMM and DMM unit 
algorithms will have access to aggregate order information in order to 
comply with their requirement to facilitate the close of trading as 
required by Exchange rules. The proposed additional rule text mirrors 
the current rule text in Rule 104(a)(2).
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    \4\ Minimum Display Reserve interest, which includes Minimum 
Display Reserve Orders pursuant to Rule 13--Equities and Floor 
broker interest designated as reserve interest pursuant to Rule 70--
Equities, is eligible to participate in manual executions, which 
include the open and close. Exchange systems include all interest 
eligible to participate in the opening transaction in the aggregate 
order information available for execution at a price point when the 
DMM facilitates a manual transaction. See Securities Exchange Act 
Release No. 34-58184 (July 17, 2008), 73 FR 42853 at 42868 (July 23, 
2008) (SR-NYSE-2008-45) (The Exchange's equity trading rules are 
based on the rules of the New York Stock Exchange LLC). See also 
Rule 115--Equities (providing that the aggregated interest of 
Minimum Display Reserve Orders may be included in the information a 
DMM may provide to an inquiry from a Floor broker conducting a 
market probe in the normal course of business).
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    Rule 104(b)(iii) provides that the DMM unit's system employing 
algorithms will have access only to publicly-available information. 
However, as noted above, certain non-displayed interest must be 
included in the opening or closing transaction. Currently, in order to 
both include such interest in an opening that is effectuated 
electronically and meet the Rule 104(b)(iii) requirements, the Exchange 
delivers aggregate order information that includes such non-displayed 
interest to DMM unit algorithms in a format that is accessible only for 
the purpose of the opening transaction. Stated otherwise, such 
information is not made available to the DMM algorithms that engage in 
intraday quoting and trading activity. The Exchange proposes to use 
similar mechanisms to deliver aggregate order information necessary for 
DMM units to effectuate a closing transaction electronically so that it 
is similarly restricted in its use and availability. In order to 
provide additional transparency in Exchange rules, the Exchange 
proposes to amend Rule 104(b)(iii) to add a qualifying statement that 
except as provided for in Rule 104(a)(2) and proposed Rule 104(a)(3), 
which as described above are of limited purpose, the DMM unit's system 
employing algorithms will not have access to order

[[Page 77184]]

information that is not publicly available.
    The Exchange notes that Rules 104(b)(i) and (v) require all 
functions performed by a DMM unit's algorithm operate consistent with 
Exchange and SEC regulations and this proposed rule change maintains 
that requirement. For example, if there is interest represented in the 
trading crowd that must be included in the closing transaction pursuant 
to Rule 123C(7)(a)(iii), the DMM would need to use a manner of closing 
the security that assures that such interest is properly represented in 
the closing transaction.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\5\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\6\ 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, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The Exchange believes that the 
proposed rule change would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it provides clarity of under what circumstances a DMM unit may 
employ algorithms. The current rule already specifies that a DMM unit 
may use algorithms to engage in quoting and trading activity. Exchange 
rules also specify that such algorithms may be used to effectuate an 
opening electronically. The proposed rule change will provide 
transparency that DMM unit algorithms may also be used to effectuate a 
closing electronically. The Exchange further believes that the proposed 
rule changes to Rules 104(a)(3) and 104(b)(iii) provide further 
transparency regarding the manner by which information is made 
available to DMM units for the purpose of facilitating a closing 
transaction, which is consistent with current rules and practice 
regarding what information is made available to DMM units for the 
purpose of facilitating an opening transaction electronically. The 
Exchange believes that the proposed changes promote just and equitable 
principles of trade because the provision of such order information to 
DMM units assures that all electronically-entered interest that is 
eligible to participate in an opening or closing transaction would 
participate if such a transaction were to be effectuated 
electronically, while at the same time maintaining protections afforded 
to non-public order information.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Exchange further notes that the proposed change removes 
impediments to and perfects the mechanism of a free and open market and 
a national market system because it provides greater flexibility for 
DMMs to operate remotely if the Exchange cannot open its lower 
Manhattan physical location. Currently, if the Exchange needs to close 
its physical location, as it did on October 29 and 30, 2012 during 
Superstorm Sandy, the Exchange cannot operate because the opening and 
closing transactions require manual intervention by a DMM located on 
the Trading Floor, even when opening a security electronically. The 
Exchange is currently in the process of developing technology for such 
functions to be performed remotely by DMM units. The Exchange believes 
that the proposed rule change, which provides DMM units with the 
authority to effectuate a closing transaction either manually or 
electronically, will enable the Exchange to proceed with its disaster 
recovery plans to enable full remote access operations of the Exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues but rather is designed 
to specify in Exchange rules that a DMM unit may use algorithms to 
effectuate a closing transaction electronically. Because there are no 
other market participants on the Exchange with the responsibilities and 
duties specified in Rule 104 to facilitate a closing transaction, the 
manner by which such responsibility is discharged does not create a 
competitive issue with any other market participant. The Exchange 
further notes that the manner by which information would be provided to 
the DMM unit in order to facilitate a closing transaction 
electronically is consistent with current rules and practice regarding 
what information is made available to DMM units for the purpose of 
facilitating an opening transaction electronically, including that such 
information would be restricted in its use and availability for 
intraday trading by the DMM unit.

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 \7\ and Rule 19b-4(f)(6) thereunder.\8\ 
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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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 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) \9\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \9\ 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 Number SR-NYSEMKT-2013-99 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary,

[[Page 77185]]

Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2013-99. 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 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-NYSEMKT-2013-99 and should 
be submitted on or before January 10, 2014.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30270 Filed 12-19-13; 8:45 am]
BILLING CODE 8011-01-P