
[Federal Register Volume 76, Number 131 (Friday, July 8, 2011)]
[Notices]
[Pages 40413-40415]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17122]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64793; File No. SR-NYSE-2011-31]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Exchange Rule 1000(a)(iv) To Provide for a Different Liquidity 
Replenishment Point Value Range During the First Day of Trading of an 
Initial Public Offering on the Exchange

July 1, 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 June 28, 2011, New York Stock Exchange LLC (``NYSE'' or the 
``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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 1000(a)(iv) to provide 
for a different liquidity replenishment point (``LRP'') value range 
during the first day of trading of an initial public offering (``IPO'') 
on the Exchange. The text of the

[[Page 40414]]

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 Exchange 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 these 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 aspects 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 to amend Exchange Rule 1000(a)(iv) to provide 
for a different LRP value range during the first day of trading of an 
IPO on the Exchange. Specifically, the Exchange proposes to add 
proposed Rule 1000(a)(iv)(E) to provide that on the first day of 
trading of an IPO, the LRP value shall be the greater of $2.00 or the 
LRP value range that would be applicable based on the offering price of 
the IPO.
I. Background
    Pursuant to NYSE Rule 1000(a)(iv), LRPs are pre-determined price 
points that function to moderate volatility in a particular security, 
improve price continuity, and foster market quality by temporarily 
converting the electronic market to an auction market and permitting 
new trading interest to add liquidity.\3\
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    \3\ See also NYSE Rules 60(e)(i).
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    Pursuant to Exchange Rule 60, Autoquote is suspended when an LRP is 
reached, i.e., when the unfilled balance of an incoming automatically 
executing order is able to trade at a price above (below) the LRP, or 
if the incoming interest would create a locked or crossed market. 
Autoquote resumes after a manual trade or when the lock or cross is 
cleared.\4\
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    \4\ See NYSE Rule 60(d)(i)(C).
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    LRPs are calculated by adding and subtracting a value to the 
security's last sale price. The LRP values are based on an examination 
of trading data and vary based on the security's NYSE average daily 
volume (``ADV''), price, and volatility. The values used to calculate 
the LRPs' range do not change intraday and are disseminated daily by 
the Exchange on its Web site.
II. Modification to LRP Value Ranges
    The Exchange proposes to amend NYSE Rule 1000(a)(iv) to provide for 
a different LRP value range during the first day of trading of an IPO 
on the Exchange. Specifically, the Exchange proposes to provide that 
for the first day of trading of an IPO on the Exchange, the LRP value 
will be the greater of $2.00 or the LRP value that would be applicable 
based on the offering price.
    The Exchange currently uses the offering price of an IPO, as set by 
the investment bank syndicate the night before the first day of 
trading, to determine the LRP value range in that security. However, 
trading prices on the first day of an IPO can often be volatile, both 
compared to the offering price as well as intra-day. As a result, using 
the offering price to determine the LRP value range may be inconsistent 
with the actual trading prices, resulting in more frequent triggering 
of LRPs than is typical on the Exchange, thus unnecessarily limiting 
automatic execution of orders on the first day of trading.
    For example, for the May 19, 2011, IPO of LinkedIn Corp. (LNKD), 
the offering price was set the night before at $45 per share and based 
on that price and pursuant to Rule 1000(a)(iv)(C), the Exchange set the 
LRP value for the security at $0.70 for the first day of trading. 
Notwithstanding the offering price, the opening price for LNKD at the 
Exchange was $83.00 and the stock reached a trading high of $122.70 
during the first day of trading, closing at $94.25. LNKD therefore 
traded at prices throughout the day that would have otherwise warranted 
a higher LRP value and as a result, there was a greater occurrence of 
LRPs being reached than would have otherwise occurred on a regular 
trading day. The first day of trading in LNKD is illustrative of the 
type of volatility and price fluctuations that can occur on the first 
day of trading of an IPO.
    The Exchange proposes to widen the LRP values for the first day of 
trading of an IPO in order to reflect that the first day of trading of 
an IPO generally differs from regular trading days in that there is 
often greater volume and volatility, with wider price fluctuations. As 
proposed, the LRP value range would be the greater of $2.00 or the LRP 
value range that would be applicable based on the IPO's offering price. 
For example, if the IPO's offering price were priced above $150, the 
LRP value range could be $4.00 rather than $2.00.
    The Exchange believes that widening the LRP value ranges for the 
first day of trading of an IPO would allow for more continuous 
automatic executions of securities before hitting an LRP. While the 
purpose of the LRP is to dampen volatility and to provide market 
participants with time to react, the Exchange believes that the 
proposed amendment is necessary to lessen artificial limitations on 
trading. If an LRP is triggered too frequently, such as when the price 
of a security increases during the trading day well beyond the LRP 
value that has been assigned to that security for the day, trading in 
the security may be overly restrained. As such, the NYSE believes that 
allowing for an expanded value range on the first day of trading of an 
IPO will better facilitate the natural trading of a particular 
security.
2. Statutory Basis
    The basis under the Act for these proposed rule changes are the 
requirement under Section 6(b)(5) \5\ that an Exchange have rules that 
are designed 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 proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \6\ in that it 
seeks to assure economically efficient execution of securities 
transactions, make it practicable for brokers to execute investors' 
orders in the best market and provide an opportunity for investors' 
orders to be executed without the participation of a dealer. The 
Exchange's proposal to provide flexibility in setting the LRP range on 
the first day of trading for an IPO is intended to provide for faster 
executions of securities by limiting the amount of time automatic 
executions are suspended when an LRP is triggered.
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    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78k-1(a)(1).
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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.

[[Page 40415]]

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.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of 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 fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6)\10\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\11\ 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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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay so that the proposal may become operative upon filing. 
The Commission hereby grants that request. The proposed wider LRP 
values may facilitate trading by limiting the amount of time automatic 
executions are suspended when an LRP is triggered. Waiving the 30-day 
operative delay will enable this change to be implemented immediately 
so that the wider LRP values will be available for the next IPO that 
takes place on the Exchange. Therefore, the Commission believes 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.\12\
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    \12\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 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:

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-2011-31 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-2011-31. 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 on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also 
will be available for inspection and copying at the principal offices 
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-
NYSE-2011-31, and should be submitted on or before July 29, 2011.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17122 Filed 7-7-11; 8:45 am]
BILLING CODE 8011-01-P


