
[Federal Register Volume 76, Number 200 (Monday, October 17, 2011)]
[Notices]
[Pages 64154-64157]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26670]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65523; File No. SR-NYSE-2011-49]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Deleting NYSE Rules 132A, 132B, and 132C, Adopting the Text of the 
FINRA Rule 7400 Series, the Order Audit Trail System (``OATS'') Rules, 
and Making Certain Conforming Changes

October 7, 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 September 30, 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 prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-
4(f)(6) \5\ thereunder. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to delete NYSE Rules 132A, 132B, and 132C, 
adopt the text of the FINRA Rule 7400 Series, the Order Audit Trail 
System (``OATS'') Rules, and make certain conforming changes. The text 
of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and http://www.nyse.com.

[[Page 64155]]

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 delete NYSE Rules 132A, 132B, and 132C 
(relating to the Exchange's ``Order Tracking System'' or ``OTS''), 
adopt the text of the FINRA Rules 7400 Series, the OATS Rules, and make 
certain conforming changes. The Exchange proposes this rule filing in 
order to prevent the imposition of duplicative regulatory burdens on 
Exchange member organizations that are also members of FINRA (``Dual 
Members''). By adopting OATS, Dual Members will need to use only a 
single system for recording order audit trail information, and will 
only need to submit such information both for FINRA and Exchange OATS 
requirements to FINRA, and will not need to make separate OATS 
submissions to the Exchange.\6\
---------------------------------------------------------------------------

    \6\ The proposed rule change would also require NYSE member 
organizations that are not members of FINRA, which all meet the 
definition of a Proprietary Trading Firm in proposed Rule 7410(p) 
and which must currently comply with OTS, to also meet certain OATS 
requirements. However, all NYSE non-FINRA members are currently 
already a member [sic] of The NASDAQ Stock Market, Inc. (``NASDAQ'') 
and therefore are already subject to substantially similar OATS 
requirements by virtue of the NASDAQ membership. See NASDAQ Rule 
6950 Series. Moreover, all such non-FINRA NYSE member organizations 
have been receiving notices from the Exchange concerning upcoming 
OATS requirements. See infra note 10.
---------------------------------------------------------------------------

Background
    The Commission has recently approved amendments to the FINRA Rule 
7400 Series to extend the OATS recording and reporting requirements to 
all NMS stocks and to exclude certain firms that have limited trading 
activities.\7\ The FINRA Rule 7400 Series imposes obligations on FINRA 
members to record in electronic form and report to FINRA, on a daily 
basis, certain information with respect to orders originated, received, 
transmitted, modified, canceled, or executed by members in OTC equity 
securities and equity securities listed and traded on NASDAQ. This 
information is used by FINRA staff to conduct surveillance and 
investigations of member firms for violations of FINRA rules and 
federal securities laws.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 63311 (November 12, 
2010), 75 FR 70757 (November 18, 2010) (SR-FINRA-2010-044) (``FINRA 
Adopting Release'').
---------------------------------------------------------------------------

    By extending the OATS requirements to all NMS stocks, all NYSE, 
NYSE Amex LLC, and NYSE Arca, Inc.-listed securities will become 
subject to the OATS requirement beginning October 17, 2011. As noted by 
FINRA in its rule proposal, by capturing OATS information for all NMS 
stocks, FINRA will be able to expand its existing surveillance patterns 
to conduct more comprehensive cross-market surveillance,\8\ which is in 
furtherance of the Exchange's outsourcing of its surveillance and other 
regulatory functions to FINRA pursuant to a Regulatory Services 
Agreement.
---------------------------------------------------------------------------

    \8\ Id. at 70758.
---------------------------------------------------------------------------

    The Exchange currently requires its member organizations to 
maintain order information pursuant to Rule 132B, which is its OTS 
rule. While the type of information required to be maintained pursuant 
to OTS is substantially similar to the OATS requirements, member 
organizations are required to maintain different systems to meet the 
OTS and OATS requirements. Currently, Dual Members use OATS for NASDAQ-
listed securities and OTS for NYSE- and NYSE Amex Equities-listed 
securities, and there is no duplication.
Proposed Rule Change
    Beginning October 17, 2011, Dual Members will become subject to the 
new FINRA OATS requirements by virtue of their status as FINRA members. 
Accordingly, by that date, Dual Members will need to update their 
existing OATS systems to accommodate all NMS stocks, including NYSE-
listed securities.\9\ The Exchange proposes to harmonize its order 
tracking rules with the FINRA OATS requirements in order to prevent 
regulatory duplication for Dual Members. In particular, the Exchange's 
proposal to adopt the OATS requirements will not require Dual Members 
to program their OATS systems any differently than they are already 
required to do so as a result of the FINRA OATS expansion. Moreover, 
because FINRA provides regulatory services on behalf of the Exchange, 
Dual Members would only need to report OATS information to FINRA once, 
both to meet the FINRA and proposed Exchange OATS requirements.
---------------------------------------------------------------------------

    \9\ FINRA has been actively working with all of its members, 
including Dual Members, to provide technical specifications for 
FINRA members to update their OATS systems to be compliant by the 
October 17, 2011 deadline. See e.g., http://www.finra.org/Industry/Compliance/MarketTransparency/OATS/TechnicalSpecifications/.
---------------------------------------------------------------------------

    With respect to NYSE member organizations that are not members of 
FINRA, currently, all such member organizations are already members of 
NASDAQ, which has certain OATS obligations for proprietary trading 
firms under the NASDAQ Rule 6950 Series. The proposed OATS obligations 
for NYSE member organizations that are not FINRA members are 
substantially similar to the existing NASDAQ OATS requirements for the 
same firms.
    The information required to be reported for member organizations 
under OATS will be identical to the information required to be reported 
under OTS. As with OTS, the information captured by OATS will continue 
to be reported to FINRA and will be used for regulatory purposes only.
    Because the FINRA OATS requirements will now capture the same type 
of information as the Exchange's OTS rules, the Exchange proposes to 
replace its OTS rules with the OATS requirements by adopting the text 
of the FINRA Rule 7400 Series as the NYSE Rule 7400 Series, with 
certain changes.\10\ The Exchange believes that by retiring OTS and 
adopting the OATS rules, the Exchange will further promote cross-market 
surveillance, reduce duplicative regulatory burdens for Dual Members, 
and enhance FINRA's ability to conduct surveillance and investigations 
for the Exchange under the Regulatory Services Agreement.\11\
---------------------------------------------------------------------------

    \10\ See FINRA Adopting Release at 70758 (noting the expectation 
that Exchange would retire OTS upon the expansion of OATS to all NMS 
securities). In anticipation of both FINRA's expansion of its OATS 
requirements to all NMS stocks, including NYSE-listed securities, as 
well as this proposed rule change, the Exchange has been issuing 
notifications to member organizations regarding the transition to 
OATS. Specifically, the Exchange has provided and continues to 
provide member organizations with details of technological changes 
that they would need to make both [sic] to comply with the OATS 
requirements. See e.g., NYSE Euronext Trader Updates dated June 7 
and September 1, 2011, available at http://markets.nyx.com/nyse/trader-updates/view/9760, and http://markets.nyx.com/nyse/trader-updates/view/10099, respectively.
    \11\ The Exchange further notes that the proposed rule change 
would exempt from the OATS requirements those orders received by 
firms that waived into FINRA membership pursuant to NASD IM-l013-l 
or IM-l013-2 and that limit their business operations to ``permitted 
floor activities.'' Although these orders would not be required to 
be reported to OATS under the proposed rule change, much of the 
information regarding these orders once they are routed to the 
Exchange would be captured by the Exchange's Front End Systemic 
Capture System (``FESC'') pursuant to NYSE Rule 123(e). 
Consequently, information about the order would either be captured 
by FESC or be reported to OATS. FINRA's existing surveillances 
already review certain Floor broker trading activity based on FESC 
data and not OTS data; therefore, the change to OATS will not impact 
these Floor broker surveillances.

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

[[Page 64156]]

    The proposed NYSE Rule 7400 Series consists of NYSE Rules 7410 
through 7470. Proposed NYSE Rule 7410 includes certain definitions to 
harmonize the NYSE Rule 7400 Series with the FINRA Rule 7400 Series. 
Proposed NYSE Rule 7410 will include all of the definitions of FINRA 
Rule 7410, with a few additions. In particular, FINRA Rule 7410(g) and 
(m) cross reference Exchange rules for the definitions of index 
arbitrage and program trading. Because the Exchange will be deleting 
the rules that include those definitions, the Exchange proposes to move 
the definitions, unchanged, from Rule 132B.10 to proposed NYSE Rule 
7410(g) and (m). In addition, similar to NASDAQ Rule 6951(n), the 
Exchange proposes to add a definition of a proprietary trading firm in 
NYSE Rule 7410(p). Finally, for clarity, the Exchange proposes to add a 
definition of ``Exchange System,'' to mean the service provided by the 
Exchange that provides for the automated execution and reporting of 
transactions in NMS stocks.
    Proposed NYSE Rule 7420 establishes the applicability of the rule 
to all member organizations and their associated persons and all 
executed or unexecuted orders for all NMS stocks traded on the 
Exchange. To harmonize fully with the FINRA requirements, the Exchange 
proposes to add Supplementary Material .01 with the definition of 
``associated person,'' which is not currently defined under the NYSE 
rules.
    Proposed NYSE Rule 7430, which is substantially the same as FINRA 
Rule 7430, requires member organizations to synchronize and maintain 
their business clocks that are used for purposes of recording the date 
and time of any event that must be recorded pursuant to the NYSE rules 
with reference to a time source designated by the Exchange.
    Proposed NYSE Rule 7440, which is based on Nasdaq Rule 6954, 
incorporates the FINRA Rule 7440 order data recording requirements. 
FINRA Rule 7440 requires members to record specified order information, 
including order origination and receipt information and order 
transmittal information, in a format specified by FINRA. Proposed NYSE 
Rule 7440 makes clear that pursuant to NYSE Rule 0 and the Exchange's 
Regulatory Services Agreement with FINRA, FINRA will continue to 
capture order information on behalf of the Exchange and that FINRA 
Rules 7420 through 7460 will be construed as NYSE Rules 7420 through 
7460 for compliance purposes. As such, complying with FINRA Rule 7440 
and submitting OATS reports to FINRA will meet the requirements of 
proposed NYSE Rule 7440; Dual Members will not need to make separate 
submissions to the Exchange. Proposed NYSE Rule 7440 requires member 
organizations to assign and enter a unique order identifier to all 
orders that are electronically transmitted to the Exchange System. 
Member organizations already use such unique order identifiers when 
submitting orders to the Exchange and such unique order identifiers 
will be linked to work with OATS data; thus, the proposed rule change 
would not impose new or different requirements than currently exist.
    As with proposed NYSE Rule 7440, proposed NYSE Rule 7450 requires 
member organizations to comply with the FINRA Rule 7450 order data 
transmission requirements as if FINRA Rule 7450 were part of the 
Exchange's rules. Accordingly, Dual Members who meet the FINRA order 
data submission requirements will also be meeting the Exchange order 
data transmission requirements. Similar to Nasdaq Rule 6955, proposed 
NYSE Rule 7450 will require Proprietary Trading Firms to comply with 
the order data transmission requirements only when they receive a 
request from the Exchange, i.e., FINRA, to submit order information.
    Proposed NYSE Rule 7460, which is substantially the same as FINRA 
Rule 7460, states that a violation of the OATS Rules is a violation of 
NYSE Rule 2010.
    Finally, proposed NYSE Rule 7470 establishes the exemptions to the 
order recording and data transmission requirements for manual orders if 
the exemption is consistent with the protection of investors and the 
public interest, subject to certain criteria. The exemption is limited 
to a period of two years; however, subsequent exemptions may be 
requested. This proposed rule is also substantially the same as FINRA 
Rule 7470.
    The Exchange proposes several technical changes to FINRA's OATS 
rule text. First, for consistency with Exchange rules, the Exchange 
proposes to (i) change all references from ``members'' to ``member 
organizations'' and from ``FINRA'' or ``NASDAQ'' to ``the Exchange,'' 
\12\ respectively, (ii) add or modify the definitions for ``Exchange 
System,'' ``Proprietary Trading Firm,'' ``associated person,'' ``Index 
Arbitrage'' and ``Program Trading,'' as described above and (iii) 
delete references to ``OTC equity security,'' which do [sic] not trade 
at the Exchange and thus is a moot reference. Second, rather than adopt 
the full text of FINRA Rules 7440 and 7450, which detail the recording 
of order information and order data transmission requirements, the 
Exchange modeled its proposed Rules 7440 and 7450 on NASDAQ's Rules 
6954 and 6955, which instead cross-reference such requirements.\13\ 
Third, consistent with a recent FINRA rule filing, the Exchange has 
adopted the July 10, 2015 extension date in NYSE Rule 7470.\14\ 
Finally, the Exchange proposes to delete its OTS requirements as set 
forth in NYSE Rules 132A,\15\ 132B, and 132C and make conforming 
amendments in NYSE Rules 70, 98, 123, and 1600 which contain references 
to NYSE Rule 132B.
---------------------------------------------------------------------------

    \12\ The Exchange notes that pursuant to NYSE Rule 0, references 
to the ``Exchange'' in its rules may also refer to FINRA. The 
Exchange will advise member organizations via an Information Memo 
whether a reference to the Exchange in the proposed Rule 7400 Series 
will require a member organization to report directly to the 
Exchange or to FINRA on the Exchange's behalf. However, the Exchange 
anticipates that all OATS reporting will be submitted directly to 
FINRA, on behalf of the Exchange. To the extent that the Exchange or 
any of its facilities collect OATS data on behalf of member 
organizations, such information will be used for regulatory purposes 
only.
    \13\ See Securities Exchange Act Release No. 53128 (Jan. 13, 
2006), 71 FR 3550 (Jan. 23, 2006) (File No. 10-131).
    \14\ See Securities Exchange Act Release No. 64717 (June 21, 
2011), 76 FR 37384 (June 27, 2011) (SR-FINRA-2011-029).
    \15\ NYSE Rule 132A (Synchronization of Member Business Clocks) 
is being replaced by proposed Rule 7430 (Synchronization of Member 
Organization Business Clocks).
---------------------------------------------------------------------------

    The Exchange proposes to implement the NYSE Rule 7400 Series at the 
same time that FINRA implements its Rule 7400 Series amendments.\16\
---------------------------------------------------------------------------

    \16\ FINRA has announced that it will begin to phase-in the new 
recording and reporting requirements under its Rule 7400 Series 
beginning on October 17, 2011. See SR-FINRA-2011-055. FINRA also has 
announced that members may elect to report all NMS stocks beginning 
on October 17, 2011; however, only those securities required to be 
reported within each phase will be subject to all OATS matching 
processing, with all NMS stocks being reported by November 28, 2011. 
See http://www.finra.org/Industry/Compliance/MarketTransparency/OATS/OATSReport/P124073. Until a security is phased-in in accordance 
with FINRA's schedule, NYSE member organizations must continue to 
comply with OTS Rules. In other words, NYSE member organizations may 
not use OATS for all securities on October 17, 2011.
---------------------------------------------------------------------------

2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the

[[Page 64157]]

Securities Exchange Act of 1934 (the ``Act''),\17\ in general, and 
furthers the objectives of Section 6(b)(5),\18\ in particular, in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
Specifically, the Exchange believes that the proposed rule change 
supports the objectives of the Act by providing greater harmonization 
between NYSE Rules and FINRA Rules of similar purpose, resulting in 
less burdensome and more efficient regulatory compliance. In 
particular, Dual Members will no longer need to maintain separate 
systems for reporting order audit trail information to the Exchange and 
FINRA. Rather, beginning October 17, 2011, Dual Members will only need 
to maintain a single system, OATS, and report all such OATS information 
directly to FINRA, thereby reducing their regulatory burden. The 
changes that Dual Members will be required to make for the FINRA OATS 
requirements will meet the requirements of the Exchange's proposed 
adoption of OATS. To the extent the Exchange has proposed changes that 
differ from the FINRA version of the Rules, such changes are generally 
technical in nature and do not change the substance of the proposed 
NYSE Rules.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    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 for 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 \19\ and Rule 19b-
4(f)(6)(iii) \20\ thereunder.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6)(iii). Rule 19b-4(f)(6)(iii) requires 
a self-regulatory organization to give the Commission 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 satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\22\ 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 is waiving 
the 30-day operative period.\23\ The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest as the waiver will allow the 
Exchange's OATS requirements to be in place on the same date as the new 
FINRA OATS requirements. Further, the Commission notes that the 
proposed rule change is consistent with FINRA and Nasdaq rules 
previously approved by the Commission. The Commission, therefore, 
designates the proposed rule change to be operative upon filing with 
the Commission.
---------------------------------------------------------------------------

    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ For purposes only of waiving the operative delay of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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.

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-2011-49 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-2011-49. 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, 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 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 availablepublicly. All 
submissions should refer to File Number SR-NYSE-2011-49 and should be 
submitted on or before November 7, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26670 Filed 10-14-11; 8:45 am]
BILLING CODE 8011-01-P


