[Federal Register Volume 78, Number 249 (Friday, December 27, 2013)]
[Notices]
[Pages 79053-79055]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30965]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71165; File No. SR-NYSEMKT-2013-102]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Offer Risk 
Management Tools Designed To Allow Member Organizations To Monitor and 
Address Exposure to Risk

December 20, 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 December 12, 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 offer risk management tools designed to 
allow equity member organizations to monitor and address exposure to 
risk. 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.

[[Page 79054]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In order to assist equity member organizations' efforts to manage 
their risk level, the Exchange proposes to offer risk management tools 
designed to allow member organizations to monitor and address exposure 
to risk. These tools are designed for the Exchange's equity trading 
market and are identical to the tools that will be offered by the New 
York Stock Exchange LLC.
    On October 2, 2012, the Commission conducted a roundtable entitled 
``Technology and Trading: Promoting Stability in Today's Markets'' (the 
``Roundtable'').\4\ While a number of issues were discussed at the 
Roundtable, a large amount of time was devoted to discussing ``kill-
switches,'' a mechanism that would deactivate trading when certain 
thresholds were met. Panelists and commenters on the Roundtable's 
topics generally supported a kill-switch mechanism that would permit 
market centers to terminate a firm's trading activity if such activity 
was posing a threat to market integrity. But there was concern that 
firms would ``be reluctant to systemically cut themselves off from the 
market'' \5\ and therefore, any kill-switch-triggering threshold would 
be set by the firm at a conservative level such that the automated 
disconnect would not occur when actually needed. At the same time 
though, the ability to detect unusual behavior would be invaluable to a 
firm in assessing whether an error was causing an unwanted buildup in 
risk.
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    \4\ See Securities Exchange Act Release No. 67802 (Sept. 7, 
2012), 77 FR 56697 (Sept. 13, 2012) (File No. 4-652). A webcast of 
the Roundtable is available at www.sec.gov/news/otherwebcasts/2012/ttr100212.shtml.
    \5\ See Transcript of Roundtable, Sections 0151-0152 (Oct. 2, 
2012) (remarks of Lou Steinberg, TD Ameritrade).
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    To address the concerns raised during the Roundtable, the Exchange 
proposes to offer optional risk management tools for its member 
organizations that would facilitate, among other things, blocking of a 
member organization's orders if certain thresholds were met. As 
proposed, the risk management tools seek to balance the conflicting 
viewpoints raised during the Roundtable by providing risk monitoring 
services that grant discretion to the member organizations to define 
pre-set risk thresholds. The tools are designed to act as a backstop 
for member organizations' risk controls by providing them with the 
ability to take action to more effectively manage their risk levels 
with respect to orders at the Exchange.
    The risk management tools will provide member organizations with 
the ability to segment activity into risk groups and to monitor 
exposure in real time as trades execute. Member organizations may also 
take certain actions in response to an unwanted buildup in risk levels, 
such as bulk blocking or bulk cancelling orders by risk group. 
Additionally, member organizations may define risk limits that may be 
adjusted intraday and elect to have the Exchange take action based on 
these pre-set limits, such as sending alerts as exposure limits are 
approached and breached or automatically blocking orders upon a breach. 
The tools are meant to be supplemental, acting as a backstop for a 
member organization's internal monitoring and procedures related to 
risk management. The Exchange does not guarantee that the tools will be 
sufficiently comprehensive to meet all of a member organization's 
needs, and the tools are not designed to be the sole means of risk 
control. Moreover, the use of the Exchange's risk management tools will 
not automatically constitute compliance with Exchange or federal rules.
    As noted above, the proposed risk management tools will be optional 
for member organizations. The Exchange will not provide preferential 
treatment to member organizations using the Exchange-offered risk 
management tools and will not charge a fee for use of the risk 
management tools. Should the Exchange determine to charge a fee for use 
of the risk management tools, such fee will be proposed through a 
subsequent rule filing.
    The Exchange will be phasing in its risk management tools as the 
technology supporting the functionality is being implemented and will 
announce by Trader Update when specific risk management tools will be 
available. The Exchange intends to make available the ability to 
segment activity into risk groups, define risk limits, and enter bulk 
block and bulk cancel messages during the first rollout.\6\ Additional 
functionality, such as allowing member organizations to elect to have 
the Exchange take automated action based on pre-set limits, will be 
phased in over subsequent months.
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    \6\ The Exchange expects the first rollout to begin in the first 
quarter of 2014.
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 2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\7\ in general, and Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed to foster 
cooperation and coordination with persons 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 and not to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will foster 
cooperation and coordination with persons facilitating transactions in 
securities because the Exchange will provide alerts to member 
organizations when their trading reaches certain thresholds. As such, 
the Exchange will help member organizations monitor their risk levels 
and provide tools for the firms to take action. Additionally, the 
Exchange believes that the proposed rule change will remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because the tools will provide member organizations with 
the ability to self-manage their levels of risk while providing an 
alert system that will help to ensure that member organizations are 
aware of developing issues. As such, the Exchange believes that the 
tools will provide a means to address potentially market-impacting 
events, helping to ensure the proper functioning of the market.
    Further, the Exchange believes that the proposed rule change is 
designed to protect investors and the public interest because the tools 
are a form of impact mitigation that will aid member organizations in 
minimizing their risk exposure and reduce the potential for disruptive, 
market-wide events. The Exchange understands that firms test their 
trading systems in order to identify and mitigate latent defects. The 
proposed tools will serve as a back stop for member organizations to 
assist them in identifying any such issues. The Exchange believes the 
risk management tools will assist member organizations in managing 
their financial exposure which, in turn, could enhance the integrity of 
trading on the securities markets and help to assure the stability of 
the financial system.
    Finally, the Exchange believes that the proposed rule change does 
not unfairly discriminate among the Exchange's member organizations 
because use of the risk management tools is optional and is not a

[[Page 79055]]

prerequisite for participation on the Exchange.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. In fact, the 
Exchange believes that the proposal will have a positive effect on 
competition because, by providing member organizations with additional 
means to monitor and control risk, the proposal will increase 
confidence in the proper functioning of the markets. The Exchange 
believes the risk management tools will assist member organizations in 
managing their financial exposure which, in turn, could enhance the 
integrity of trading on the securities markets and help to assure the 
stability of the financial system. As a result, the level of 
competition should increase as public confidence in the markets is 
solidified.

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 foregoing 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) \10\ 
thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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-2013-102 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-2013-102. 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-2013-102 and should 
be submitted on or before January 17, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30965 Filed 12-26-13; 8:45 am]
BILLING CODE 8011-01-P