
[Federal Register Volume 76, Number 63 (Friday, April 1, 2011)]
[Notices]
[Pages 18278-18280]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-7654]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64136; File No. SR-NYSE-2011-11]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending NYSE Rule 440B to Modify the Exchange's Procedures for 
Handling Short Sale Orders During a Period When the Short Sale Price 
Test Restrictions of Rule 201 of Regulation SHO are In Effect

March 28, 2011.
    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 March 25, 2011, 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 substantially 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 amend NYSE Rule 440B (Short Sales) to 
modify the Exchange's procedures for handling short sale orders during 
a period when the short sale price test restrictions of Rule 201 of 
Regulation SHO (``Rule 201'') \4\ are in effect (``Short Sale 
Period''). The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://www.nyse.com.
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    \4\ 17 CFR 242.201.
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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
    On February 26, 2010, the Commission adopted amendments to Rule 201 
of Regulation SHO under the Act.\5\ In order to implement the 
provisions of revised Rule 201, the Exchange amended NYSE Rule 440B 
(Short Sales) to (1) Establish procedures for the Exchange, as a 
listing market, to determine that the short sale price test 
restrictions of Rule 201 have been triggered for a covered security, 
(2) establish the protocols for the handling of short sale orders by 
the Exchange, as a trading center, in the event the short sale price 
test restrictions of Rule 201 are triggered, including establishing 
what types of short sale orders will be re-priced to achieve a 
``Permitted Price'' (as defined and calculated in Rule 440B(e)), in 
accordance with Rule 201, during a Short Sale Period, (3) establish the 
Exchange's procedures regarding the execution and display of 
permissible orders during a Short Sale Period, and the execution and 
display of orders marked ``short exempt'' during such a period, (4) 
establish the Exchange's procedures regarding the permissible execution 
price of short sale orders in single-priced opening, re-opening and 
closing transactions during a Short Sale Period, and (5) provide that, 
during a Short Sale Period, Exchange systems will not execute or 
display a short sale order with respect to that security at a price 
that is less than or equal to the current national best bid (except as 
otherwise provided by Rule 440B and consistent with Rule 201).\6\
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    \5\ See Securities Exchange Act Release No. 61595 (February 26, 
2010), 75 FR 11232 (March 10, 2010) (File No. S7-08-09; Amendments 
to Regulation SHO) (``Rule 201 Adopting Release''). In the Rule 201 
Adopting Release, the Commission also adopted amendments to Rule 
200(g) of Regulation SHO to include a ``short exempt'' marking 
requirement. 17 CFR 242.200(g).
    \6\ See Securities Exchange Act Release No. 63977 (February 25, 
2010), 76 FR 12165 (March 4, 2011) (SR-NYSE-2011-05).
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    Under Rule 440B(e), during a Short Sale Period, short sale orders 
that are limited to the national best bid or lower and short sale 
market orders will be re-priced by Exchange systems one minimum price 
increment above the current national best bid to permit their execution 
at a price that is compliant with the short sale price test 
restrictions of Rule 201. Consistent with Rule 201,\7\ the Permitted 
Price for securities for which the national best bid is $1 or more is 
$.01 above the national best bid; the Permitted Price for securities 
for which the national best bid is below $1 is $.0001 above the 
national best bid.\8\
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    \7\ See Rule 201 Adopting Release at 11247.
    \8\ 17 CFR 242.612.
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    Among other things, Rule 440B(f) implements Rule 201(b)(1)(iii)(A), 
which provides that a trading center must have policies and procedures 
reasonably designed to permit the execution of a displayed short sale 
order of a covered security if, at the time of the initial display of 
the short sale order, the order was at a price above the current 
national best bid. Rule 440B(f) specifically provides that the Exchange 
will execute and display a short sale order without regard to price if, 
at the time of the initial display of the short sale order, the order 
was at a price above the then current national best bid.
    The Exchange proposes to amend Rule 440B(e) to provide for how

[[Page 18279]]

Exchange systems will treat short sale orders that are not marked 
``short exempt'' during a Short Sale Period, i.e., displayed short sale 
orders pursuant to Rule 440B(f) or non-marketable displayable or non-
displayed short sale orders that Exchange systems have not yet re-
priced pursuant to Rule 440B(e), and that would be required to be 
routed to a protected bid pursuant to Regulation NMS, which, by 
definition, would be the national best bid or lower. An example of a 
situation where Exchange systems would otherwise be required to route 
to the national best bid includes the following: (1) A short sale order 
is displayed pursuant to Rule 440B(f), (2) the Exchange enters a 
``slow'' state, for example, if the Exchange reaches a liquidity 
replenishment point pursuant to Exchange Rule 1000, and (3) when the 
Exchange resumes ``fast'' trading, the previously displayed short sale 
order crosses the national best bid.\9\ In such scenario, pursuant to 
Regulation NMS, the Exchange would be required to route such previously 
displayed short sale order to be executed against the national best 
bid.
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    \9\ The Exchange enters a ``slow'' trading state, or ``Non-Firm 
Mode'' when, pursuant to Rule 602(a)(3)(i) of Regulation NMS and 
Exchange Rule 60(c)(ii)(A) and (B), the Exchange quotation is not 
available for automatic execution. The Exchange resumes a ``fast'' 
trading state, or ``Normal Mode'' when the Exchange is open for 
trading and collects, processes, and makes available to quotation 
vendors the highest bid and the lowest offer, and the quotation 
size, in compliance with Rule 602(a) of Regulation NMS and Exchange 
Rule 60(c)(i).
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    The Exchange proposes to address how Exchange systems will treat 
short sale orders that have been displayed pursuant to Rule 440B(f) or 
that are not yet marketable and therefore have not yet been re-priced, 
and that would otherwise be required to be routed to an away market. 
For such scenarios, the Exchange proposes that rather than route such 
short sale orders to the national best bid, the Exchange will instead 
re-price such short sale orders to a Permitted Price, as provided for 
in Rule 440B(e). In particular, the proposed amendment to Rule 440B 
would add new subparagraph (e)(2), which would provide that, during a 
Short Sale Period, Exchange systems will not route to an away market 
short sale orders that have been displayed pursuant to Rule 440B(f) or 
that have not yet been re-priced consistent with Rule 440B(e) and 
instead will re-price such orders to a Permitted Price. In addition, 
the proposed amendment would renumber existing subparagraph (e)(2) as 
(e)(3). The Exchange further proposes to amend Rule 440B(e)(3) to 
provide that Exchange systems will not route the DMM interest 
identified in that subparagraph and will instead cancel such interest. 
Accordingly, if Exchange systems would otherwise route such DMM 
interest to an away market in compliance with Regulation NMS, during a 
Short Sale Period, Exchange systems will instead cancel such DMM short 
sale interest rather than route it.
    The Exchange also proposes a clarifying amendment to Rule 440B(g) 
to specify that if a short sale order has been marked ``short exempt,'' 
Exchange systems will display, execute, and route such order without 
regard to whether the order is at a Permitted Price.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ in particular, in that it is designed to, among 
other things, prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. The proposal is designed to 
implement the provisions of Rule 201 of Regulation SHO by refining the 
Exchange's written policies and procedures reasonably designed to 
prevent the execution or display of a short sale order of a covered 
security in violation of the short sale price test restrictions 
established in that rule. To that end, the proposed rule change will 
establish the Exchange's procedures regarding handling of short sale 
orders during a Short Sale Period that might otherwise be routed to 
away markets.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
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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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6)\14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ 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 waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission hereby 
grants the request.\16\ Waiving the 30-day operative delay will allow 
the Exchange to handle short sale orders during a Short Sale Period 
that might otherwise be routed to an away market in a manner that is 
consistent with Rule 201. Therefore, the Commission believes that it is 
consistent with the protection of investors and the public interest to 
waive the 30-day operative delay and designates the proposal as 
operative upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 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:

[[Page 18280]]

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-NYSE-2011-11 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-2011-11. 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 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 20549-1090. Copies of the filing will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at http://www.nyse.com. 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-NYSE-2011-11 and should be submitted on 
or before April 22, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7654 Filed 3-31-11; 8:45 am]
BILLING CODE 8011-01-P


