
[Federal Register: December 28, 2009 (Volume 74, Number 247)]
[Notices]               
[Page 68643-68644]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28de09-98]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61177; File No. SR-NYSE-2009-105]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change Relating to the Designation of NYSE 
Arca, Inc., as the NYSE's Alternative Trading Facility in an Emergency

December 16, 2009.

I. Introduction

    On October 13, 2009, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposal to adopt NYSE Rule 49, ``Emergency Powers,'' to allow a 
qualified NYSE officer to designate the NYSE's corporate affiliate, 
NYSE Arca, Inc. (``NYSE Arca'') to receive and process bids and offers 
in NYSE-listed securities and to execute orders in NYSE-listed 
securities on behalf of the NYSE in the event that an emergency 
condition prevents the NYSE from operating normally.\3\ The proposed 
rule change was published for comment in the Federal Register on 
November 12, 2009.\4\ The Commission received no comments regarding the 
proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission today is approving a companion proposal by 
NYSE Arca that allows NYSE Arca to serve as the NYSE's alternative 
trading facility in the event of an emergency condition. See 
Securities Exchange Act Release No. 61178 (order approving File No. 
SR-NYSE Arca-2009-90) (``NYSE Arca Order'').
    \4\ See Securities Exchange Act Release No. 60922 (November 3, 
2009), 74 FR 58341 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    The NYSE proposes to adopt NYSE Rule 49 to provide a qualified NYSE 
officer with the authority to declare an emergency condition with 
respect to trading on or through the systems and facilities of the 
NYSE.\5\ An emergency condition will not be declared under NYSE Rule 49 
unless: (i) There exists a regional or national emergency that would 
prevent the NYSE from operating normally; and (ii) such declaration is 
necessary so that the securities markets in general, and the NYSE's 
systems and facilities, including the Trading Floor, in particular, may 
continue to operate in a manner consistent with the protection of 
investors and in pursuit of the public interest.\6\ For purposes of 
NYSE Rule 49, an ``emergency'' is an emergency as defined in Section 
12(k)(7) of the Act,\7\ and the NYSE's authority under NYSE Rule 49 is 
intended to be invoked only in the event of such an emergency.\8\ The 
NYSE will make reasonable efforts to contact the Commission prior to 
taking action under NYSE Rule 49.\9\
---------------------------------------------------------------------------

    \5\ For purposes of NYSE Rule 49, a ``qualified Exchange 
officer'' is the NYSE Euronext Chief Executive Officer or his or her 
designee, or the NYSE Regulation, Inc. Chief Executive Officer or 
his or her designee. If these individuals are unable to act due to 
incapacitation, the most senior surviving officer of NYSE Euronext 
or NYSE Regulation, Inc. will be a ``qualified Exchange officer'' 
for purposes of NYSE Rule 49. See NYSE Rule 49(a)(3)(ii).
    \6\ See NYSE Rule 49(a)(2).
    \7\ 15 U.S.C. 78l(k)(7).
    \8\ See NYSE Rule 49(a)(3)(i) and Notice, supra note 4, at note 
5 and accompanying text.
    \9\ See NYSE Rule 49(c)(1).
---------------------------------------------------------------------------

    In the event that an emergency condition is declared with respect 
to trading on or through the NYSE's systems and facilities, the NYSE 
may designate its corporate affiliate, NYSE Arca, to receive and 
process bids and offers in NYSE-listed securities and to execute orders 
in NYSE-listed securities on behalf of the NYSE.\10\ Thus, the NYSE 
would use NYSE Arca as the execution engine for NYSE trades and would 
ensure that these trades are executed in compliance with Regulation NMS 
under the Act.\11\ Under NYSE Rule 49, quotes or orders for NYSE-listed 
securities entered or executed on or through the systems and facilities 
of NYSE Arca would be reported to the Consolidated Quotation System or 
the Consolidated Tape as quotations or executions, respectively, made 
on or through the systems and facilities of the NYSE.\12\ Bids and 
offers entered pursuant to NYSE Rule 49 would be deemed to be bids and 
offers of the NYSE.\13\
---------------------------------------------------------------------------

    \10\ See NYSE Rule 49(b)(1).
    \11\ See Notice, supra note 4, at note 9.
    \12\ See NYSE Rule 49(b)(2)(ii). Accordingly, for the duration 
of the emergency condition, trades in NYSE-listed securities would 
print as ``N'' trades on the Consolidated Tape and quotes would be 
designated as NYSE quotes in the Consolidated Quotation System, 
notwithstanding the fact that they were processed on or through the 
systems and facilities of NYSE Arca. See Notice, supra note 4, at 
note 14 and accompanying text.
    \13\ See NYSE Rule 49(b)(3)(i).
---------------------------------------------------------------------------

    NYSE members and Sponsored Participants would be permitted to enter 
quotations and to execute orders on or through the systems and 
facilities of NYSE Arca regardless of whether they were members or 
sponsored participants of NYSE Arca when the emergency condition was 
declared.\14\ NYSE members registered as Designated Market Makers 
(``DMMs'') that are designated as temporary members of NYSE Arca in 
accordance with the NYSE Arca Equities Rules (``NYSE Arca Rules'') \15\ 
would not be considered DMMs for the duration of the designation, but 
would be considered ``Market Makers'' pursuant to NYSE Arca Rules for 
the purpose of trading Exchange-listed securities on and through the 
systems and facilities of NYSE Arca.\16\
---------------------------------------------------------------------------

    \14\ See NYSE Rule 49(b)(3)(i)(A). As described in greater 
detail in the Notice, supra note 4, NYSE Arca will provide temporary 
membership and/or access to NYSE members and Sponsored Participants 
that are not already NYSE Arca members or sponsored participants 
when the emergency condition is declared. Similarly, the NYSE may 
designate NYSE Arca members that are not members of the NYSE at the 
time the emergency condition is declared as temporary members of the 
NYSE, and may authorize temporary access for sponsored participants 
of NYSE Arca that do not have sponsored access to the NYSE. The 
temporary memberships or access will be valid only until regular 
trading resumes on the NYSE's systems and facilities. See NYSE Rule 
49(b)(3)(ii) and (iii).
    \15\ See NYSE Arca Rule 2.100(b)(3)(i)(C) (approved in the NYSE 
Arca Order, supra note 3).
    \16\ See NYSE Rule 49(b)(3)(i)(B). According to the NYSE, NYSE 
Arca is not able to support DMMs operating in the same manner as 
they operate on the NYSE because of differences between the systems 
of the NYSE and NYSE Arca. The NYSE notes that DMMs will not have 
access to orders on the NYSE Arca system different from that of 
other market participants. DMMs designated as Market Makers under 
the NYSE Arca Rules will be obligated to meet the requirements of 
those rules. See Notice, supra note 4, at note 13 and accompanying 
text.
---------------------------------------------------------------------------

    All trades in Exchange-listed securities entered or executed on or 
through the systems and facilities of

[[Page 68644]]

NYSE Arca would be subject to NYSE Arca Rules governing trading, and 
such rules would be considered NYSE rules for the purposes of such 
transactions, except that: (1) NYSE rules governing member firm 
conduct, including membership requirements and net capital 
requirements, will continue to apply to NYSE members and Sponsored 
Participants; and (2) NYSE listing requirements for all listed 
securities will continue to apply.\17\
---------------------------------------------------------------------------

    \17\ See NYSE Rule 49(b)(4).
---------------------------------------------------------------------------

    NYSE Arca would conduct surveillance of trading in NYSE-listed 
securities on or through the systems and facilities of NYSE Arca on 
behalf of the NYSE.\18\ NYSE members would remain subject to the NYSE's 
jurisdiction for any disciplinary action related to the trading of 
NYSE-listed securities on or through the facilities of NYSE Arca.\19\
---------------------------------------------------------------------------

    \18\ See NYSE Rule 49(b)(5)(i).
    \19\ See NYSE Rule 49(b)(5)(ii).
---------------------------------------------------------------------------

    The authority granted pursuant to NYSE Rule 49 would remain 
operative for up to 10 calendar days from the date the NYSE invokes 
such authority, and the NYSE may terminate actions taken pursuant to 
the rule at any time.\20\ The NYSE may request an extension of this 
initial 10-day period for a specified amount of time by filing a 
proposed rule change with the Commission pursuant to Section 19(b)(2) 
of the Act, and the Commission must approve the NYSE's proposal before 
any such extension could take effect.\21\
---------------------------------------------------------------------------

    \20\ See NYSE Rule 49(c)(2) and (3). The NYSE will provide 
adequate prior notice to members, Sponsored Participants, and 
investors regarding its intention to terminate any action taken 
under the rule. See NYSE Rule 49(c)(3).
    \21\ Id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\22\ In 
particular, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\23\ which requires, in part, that the rules 
of a national securities exchange be designed to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------

    \22\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposal is reasonably designed to 
permit the NYSE to continue to operate in the event of an emergency, as 
defined in Section 12(k)(7) of the Act, by allowing the NYSE to 
designate its corporate affiliate, NYSE Arca, to receive and process 
quotations in NYSE-listed securities and to execute orders in NYSE-
listed securities on behalf of the NYSE in the event of such an 
emergency.\24\ The NYSE would invoke its authority under NYSE Rule 49 
only in an emergency, as defined in Section 12(k)(7) of the Act.\25\ 
The NYSE will make reasonable efforts to consult with the Commission 
prior to taking action under NYSE Rule 49.\26\ Any action taken under 
NYSE Rule 49 would be operative for up to 10 calendar days from the 
date that the NYSE invokes its authority under the rule, and the NYSE 
may terminate action taken under the rule at any time.\27\ To extend an 
action taken pursuant to NYSE Rule 49 beyond the initial 10-calendar 
day period, the NYSE must file a proposed rule change with the 
Commission pursuant to Section 19(b)(2) under the Act, and the 
Commission would need to approve such an extension before it could take 
effect.\28\ In addition, the Commission could, at any time, exercise 
its authority under Section 12(k)(2) of the Act \29\ to terminate an 
action taken by the NYSE under NYSE Rule 49.
---------------------------------------------------------------------------

    \24\ The Commission previously has approved proposals by other 
national securities exchanges to establish back-up trading 
arrangements. See, e.g., Securities Exchange Act Release Nos. 51717 
(May 19, 2005), 70 FR 30160 (May 25, 2005) (File No. SR-CBOE-2004-
59) (approving proposal by the Chicago Board Options Exchange, 
Incorporated to enter into back-up trading arrangements with other 
exchanges); 51926 (June 27, 2005), 70 FR 38232 (July 1, 2005) (File 
No. SR-Phlx-2004-65) (approving proposal by the Philadelphia Stock 
Exchange (``Phlx'') to enter into back-up trading arrangements with 
other exchanges); 40088 (June 12, 1998), 63 FR 33426 (June 18, 1998) 
(File No. SR-Phlx-98-25) (approving the trading of Dell options 
listed on the Phlx at the American Stock Exchange on a temporary 
basis); and 27365 (October 19, 1989), 54 FR 43511 (October 25, 1989) 
(File Nos. SR-Amex-89-26; CBOE-89-21; PSE-89-28; and Phlx-89-52) 
(approving proposals to trade options listed on the Pacific Stock 
Exchange on other exchanges following an earthquake).
    \25\ See NYSE Rule 49(a)(1) and (3). See also note 8, supra, and 
accompanying text.
    \26\ See NYSE Rule 49(c)(1).
    \27\ See NYSE Rule 49(c)(2) and (3). The NYSE will provide 
adequate prior notice to members, Sponsored Participants, and 
investors of its intention to terminate any action taken pursuant to 
NYSE Rule 49. See NYSE Rule 49(c).
    \28\ See NYSE Rule 49(c)(2).
    \29\ 15 U.S.C. 78l(k)(2).
---------------------------------------------------------------------------

    NYSE Rule 49 also addresses surveillance and the disciplinary 
procedures that would apply in the event that NYSE Arca serves as the 
NYSE's alternative trading facility, as provided in the rule. In 
particular, NYSE Arca would conduct surveillance of trading in 
Exchange-listed securities on behalf of the NYSE.\30\ NYSE members and 
member organizations would remain subject to the NYSE's jurisdiction 
for any disciplinary actions related to the trading of NYSE-listed 
securities on or through the systems and facilities of NYSE Arca, and 
violations of NYSE Arca's rules would be referred to the NYSE for 
prosecution according to the NYSE's disciplinary rules.\31\
---------------------------------------------------------------------------

    \30\ See NYSE Rule 49(b)(5)(i).
    \31\ See NYSE Rule 49(b)(5)(ii).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change (File No. SR-NYSE-2009-105) is 
approved.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30596 Filed 12-24-09; 8:45 am]

BILLING CODE 8011-01-P
