
[Federal Register Volume 76, Number 55 (Tuesday, March 22, 2011)]
[Notices]
[Pages 16026-16029]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-6707]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64089; File No. SR-NYSEAmex-2011-16]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Amex 
Equities Rule 36 To Permit Written Communications To Be Sent 
Electronically Between the Designated Market Maker Unit's Post Location 
on The Floor and the DMM Unit's Off-Floor Offices and to Persons 
Permitted To Provide Non-Trading Related Services to the DMM Under NYSE 
Amex Equities Rule 98

March 17, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on March 11, 2011, NYSE Amex LLC (the ``Exchange'' or ``NYSE 
Amex'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by NYSE Amex. 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 NYSE Amex Equities Rule 36 to permit 
written communications to be sent electronically between the Designated 
Market Maker (``DMM'') unit's post location on the Floor and the DMM 
unit's off-Floor offices and to persons permitted to provide non-
trading related services to the DMM under NYSE Amex Equities Rule 98. 
The text of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and http://www.nyse.com.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Amex Equities Rule 36 to (i) 
expand the persons with whom DMM unit personnel on the Exchange Floor 
may communicate to include persons providing ``non-trading related 
services'' (as defined in NYSE Amex Equities Rule 98) to the DMM Unit; 
and (ii) to expand the means of permissible communication to include 
written electronic communications between the DMM unit's \3\ post 
location on the Floor and specified off-Floor personnel.\4\ The 
Exchange believes that expanding the persons with whom and the means by 
which DMMs \5\ on the Floor of the Exchange may communicate will both 
allow DMMs to operate more efficiently and enhance the audit trail 
associated with DMM communications, thus strengthening the regulatory 
program associated with reviewing such communications.
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    \3\ ``DMM unit'' means any member organization, aggregation unit 
within a member organization, or division or department within an 
integrated proprietary aggregation unit of a member organization 
that (i) has been approved by NYSE Regulation pursuant to NYSE Amex 
Equities Rule 98(c), (ii) is eligible for allocations under NYSE 
Amex Equities Rule 103B as a DMM unit in a security listed on the 
Exchange, and (iii) has met all registration and qualification 
requirements for DMM units assigned to such unit.
    \4\ The Exchange notes that its affiliate, New York Stock 
Exchange LLC (``NYSE''), has proposed parallel changes its rules. 
See SR-NYSE-2011-10.
    \5\ ``DMM'' means any individual qualified to act as a DMM on 
the Floor of the Exchange.
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Current NYSE Amex Equities Rule 36

    NYSE Amex Equities Rule 36 broadly provides that no member or 
member

[[Page 16027]]

organization shall establish or maintain any telephonic or electronic 
communication between the Floor and any other location without Exchange 
approval. Rule 36.30 provides a limited exception for DMM units. 
Specifically, the Rule provides that:

    [w]ith the approval of the Exchange, a DMM unit may maintain a 
telephone line at its stock trading post location to the off-Floor 
offices of the DMM unit or the unit's clearing firm. Such telephone 
connection shall not be used for the purpose of transmitting to the 
Floor orders for the purchase or sale of securities, but may be used 
to enter options or futures hedging orders through the unit's off-
Floor office or the unit's clearing firm, or through a member (on 
the floor) of an options or futures exchange as permitted under 
Rules 98--NYSE Amex Equities and 105--NYSE Amex Equities.

    All DMM units currently have Exchange-approved telephone 
connections between the Trading Floor post locations and the off-Floor 
offices of the DMM unit. On behalf of NYSE Regulation, FINRA regularly 
examines DMM units for compliance with Rule 36.30, and in particular, 
whether the DMM unit has appropriate policies and procedures governing 
the use of such telephone lines and to confirm that the telephone lines 
only connect to the approved locations.

Proposed Amendments to NYSE Amex Equities Rule 36

    The Exchange proposes to amend Supplementary Material .30 to update 
the rule to reflect how DMM units are permitted to operate pursuant to 
NYSE Amex Equities Rule 98. Specifically, Rule 98(e) permits a DMM unit 
to share non-trading related services with its member organization or 
approved person. Pursuant to Rule 98(e), when sharing such non-trading 
related services, the DMM unit and approved person must have written 
procedures and guidelines to protect non-public order information to 
ensure that such information is not used for any purpose other than to 
provide non-trading related services to the DMM unit.
    The Exchange believes that because Rule 98(e) sets forth 
protections for non-public order information, Rule 36.30 should be 
amended to permit DMM units on the Trading Floor to maintain specified 
telephone and other permitted communication devices (as discussed more 
fully below) to persons providing non-trading related services 
permitted under Rule 98. This will enable DMM units to permit their 
Floor-based personnel to communicate directly with persons providing 
operational support services, such as a technology help desk that may 
be located within an approved person.
    The Exchange further proposes to amend NYSE Amex Equities Rule 36 
to add Supplementary Material .31 that would permit a DMM unit to 
install and maintain certain written electronic communication 
applications. Specifically, proposed Supplementary Material .31(a) 
would permit a DMM unit, with the approval of the Exchange and subject 
to the conditions set forth in Supplementary Material .31, to establish 
and maintain a wired or wireless device capable of sending and 
receiving written communications electronically through an Exchange-
approved connection (a ``Permitted Communications Device'').\6\
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    \6\ Except as provided in Rule 36, no other type of 
communication application may be used by a DMM or DMM unit to 
communicate between the DMM unit's post location on the Floor and 
the off-Floor offices of the DMM unit and any other location, and 
the use of cell phones, Blackberrys, and similar devices by DMM's 
while on the Trading Floor would continue to be prohibited.
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    Except as specified in the amendment to Supplementary Material .30, 
the proposed addition of Supplementary Material .31 would not alter in 
any way the universe of off-Floor individuals with whom Floor-based 
personnel may communicate or the content of such communications; 
rather, it would only expand the means by which such communications may 
be transmitted. Accordingly, under proposed Supplementary Material 
.31(b), DMM units would be permitted to connect Floor-based personnel 
via the Permitted Communications Device to persons with whom they are 
otherwise permitted to communicate pursuant to Rules 36.30 and 98, 
i.e., certain personnel in the off-Floor offices of the DMM unit, the 
DMM unit's clearing operations, and persons who are permitted to 
provide non-trading related services to the DMM unit under Rule 98. 
Once connected, the on-Floor and off-Floor personnel would be permitted 
to use the Permitted Communications Device for two-way written 
electronic communications.
    The Exchange further notes that nothing in proposed Supplementary 
Material .31 would alter the obligations of a DMM unit to meet existing 
requirements under Rule 98 to, among other things, protect non-public 
order information and maintain appropriate information barriers in 
accordance with Rule 98. Because DMM units would continue to be subject 
to Rule 98, while on the Floor, DMM unit personnel could not use the 
Permitted Communications Device to communicate with off-Floor personnel 
in violation of Rule 98. For example, DMM units will continue to be 
subject to provisions of Rule 98 governing restrictions on 
communications with off-Floor individuals or systems responsible for 
making trading decisions in related products.\7\
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    \7\ See, e.g., NYSE Amex Equities Rules 98(d)(2)(B)(iii) and 
(f)(1)(A)(ii).
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    A DMM unit would be obligated to program its communications system 
so that a Permitted Communications Device would not operate in a manner 
that enables written electronic communications to or from any location 
or individual other than as described in the proposed Supplementary 
Material. Among other things, the DMM unit would be required to program 
its communications system to ensure that messages cannot be forwarded 
to individuals with whom Floor personnel are not permitted to 
communicate. As part of the approval process, DMM units would need to 
identify to the Exchange who would have access to the Permitted 
Communications Devices and the basis for why any proposed off-Floor 
persons are permitted to communicate with individuals located on the 
Trading Floor.
    Under proposed Supplementary Material .31(c), a DMM unit's member 
organization would be required to maintain records of all written 
communications sent from or to the DMM unit's Floor-based employees via 
the Permitted Communications Device in accordance with NYSE Amex 
Equities Rule 440 and SEC Rule 17a-4(b)(4) and in such format as may be 
prescribed by the Exchange.
    Under proposed Supplementary Material .31(d), a DMM unit's member 
organization would be required to establish policies and procedures 
reasonably designed to ensure that use of the Permitted Communications 
Device is consistent with all SEC rules and Exchange rules, policies 
and procedures. In particular, pursuant to NYSE Amex Equities Rule 342, 
DMM units would be required to implement appropriate procedures of 
supervision and control and to provide for the review of the written 
electronic communications sent to and from the DMM unit's post location 
on the Floor via the Permitted Communications Device. Among other 
things, the written procedures should address the regulatory 
requirements associated with the program, including what measures the 
DMM unit will follow to ensure that only those individuals permitted to 
communicate via the Permitted Communications Device have access to it.
    The Exchange believes that allowing DMM units to use a Permitted

[[Page 16028]]

Communications Device would provide an effective way for DMMs to 
communicate with their member organization and promote more efficient 
supervision, compliance, and operations. For example, a DMM unit could 
use a Permitted Communications Device to obtain permission from senior 
management to exceed risk limits to facilitate a block trade or 
otherwise meet an affirmative obligation, to more quickly correct a 
technological issue with the DMM unit's algorithms, to meet business 
continuity obligations by providing an additional means of 
communication in the event of a wide-ranging telephone outage or other 
Exchange system outage, and to confirm that a stock could be borrowed 
to cover a short position.
    The Exchange further believes that the use of such written 
communications and the related retention requirements not only would 
enable the DMM unit to monitor communications to and from the Floor, 
but also would enable FINRA to enhance its regulatory program 
associated with reviewing such communications. In particular, FINRA 
would be able to review the e-mail system operating the connections 
between the Trading Floor and off-Floor locations and related written 
supervisory procedures. The regulatory program would be further 
strengthened because with the use of auditable written electronic 
communications, FINRA would also be able to review both the content of 
communications and the parties to such communications. The Exchange 
believes that the enhanced regulatory program associated with the more 
robust audit trail would benefit the markets by providing a better 
manner by which to review DMM compliance with Federal and Exchange 
rules.
    Finally, the Exchange proposes a technical change to Rule 36.30 to 
conform Rule 36 to NYSE Amex Equities Rule 104, which does not include 
a requirement that DMM units annually certify their algorithms.\8\ 
Because Rule 104 does not include a requirement that DMM units annually 
certify their algorithms, the Exchange proposes to amend Rule 36 to 
similarly delete the requirement for an annual certification.
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    \8\ The Exchange's rules are based on NYSE rules, including the 
NYSE's New Market Model rule changes. See 59022 (Nov. 26, 2008), 73 
FR 73683 (Dec. 3, 2008) (SR-NYSEALTR-2008-10). The NYSE included the 
relevant provision to Rule 36.30 in connection with the Hybrid 
Market changes to Rule 104, when the then specialist algorithm had 
an advance ``look'' at incoming orders. See Securities Exchange Act 
Release No. 53539 (March 22, 2006), 71 FR 16353 (March 31, 2006) 
(SR-NYSE-2004-05). In connection with the adoption of the New Market 
Model, the NYSE eliminated the algorithmic order-by-order look, 
which rendered the need for an annual certification moot and the 
NYSE deleted the requirement for an annual certification in Rule 
104. See Securities Exchange Act Release No. 58845 (Oct. 24, 2008), 
73 FR 64379 (Oct. 29. 2008) (SR-NYSE-2008-46).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and further the objectives 
of Section 6(b)(5) of the Act,\10\ in particular, in that they are 
designed to prevent fraudulent and manipulative acts and practices, 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. The Exchange believes that the proposed rule change supports 
the objectives of the Act by permitting greater and more effective 
communication between DMMs and DMM unit's on the Floor and their 
upstairs offices, while at the same time providing for a more robust 
audit trail that would enable FINRA to enhance the regulatory program 
associated with reviewing DMM communications from the Trading Floor. 
The Exchange believes that these regulatory enhancements will benefit 
the market by protecting investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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 \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
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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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6)\13\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\14\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEAmex-2011-16 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-NYSEAmex-2011-16. This 
file number should be included on the subject line if e-mail 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 16029]]

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 a.m. and 3 
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-NYSEAmex-2011-16 and should be submitted 
on or before April 12, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-6707 Filed 3-21-11; 8:45 am]
BILLING CODE 8011-01-P


