
[Federal Register Volume 77, Number 71 (Thursday, April 12, 2012)]
[Notices]
[Pages 22032-22034]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8782]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66758; File No. SR-NYSE-2012-05]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change Amending NYSE Rule 476A To 
Update its ``List of Exchange Rule Violations and Fines Applicable 
Thereto Pursuant to Rule 476A''

April 6, 2012.

I. Introduction

    On February 7, 2012, New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend NYSE Rule 476A to update its ``List of 
Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule 
476A.'' The proposed rule change was published for comment in the 
Federal Register on February 24, 2012.\3\ The Commission received no 
comment letters on the proposed rule change. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 66421 (February 17, 
2012), 77 FR 11181 (``Notice'').
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II. Description

    By way of background, NYSE Rule 476 governs disciplinary 
proceedings involving charges against members, member organizations, 
principal

[[Page 22033]]

executives, approved persons, employees, or others for violations of 
the federal securities laws, Exchange rules and agreements with the 
Exchange, and other offenses listed in the rule.
    NYSE Rule 476A, ``Imposition of Fines for Minor Violation(s) of 
Rules,'' provides that, in lieu of commencing a disciplinary proceeding 
under Rule 476, the Exchange may (subject to specified requirements) 
``impose a fine, not to exceed $5,000, on any member, member 
organization, allied member, approved person, or registered or non-
registered employee of a member or member organization, for any 
violation of a rule of the Exchange, which violation the Exchange shall 
have determined is minor in nature.'' \4\ The provisions of Rule 476A 
are known as the Exchange's Minor Rule Violation Plan.
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    \4\ NYSE Rule 476A(a).
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    According to the Exchange, the ``summary fines'' under Rule 476A 
provide a meaningful sanction for rule violations when the violation 
calls for stronger discipline than an admonition or cautionary letter, 
but the facts and circumstances of the violation do not warrant 
initiation of a formal disciplinary proceeding under Rule 476. A ``List 
of Exchange Rule Violations and Fines Applicable Thereto Pursuant to 
Rule 476A'' (``Rule 476A List'') is appended as Supplementary Material 
to the rule.
    In the instant proposal, the NYSE proposes to amend the Rule 476A 
List to: (i) Make technical, non-substantive changes to conform the 
list to previously-approved changes in Exchange rules,\5\ (ii) update 
the rules relating to conduct by Designated Market Makers (``DMMs''), 
and (iii) add rules relating to conduct by DMMs, as follows:
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    \5\ In addition to these technical changes to the Rule 476A 
List, which are described below, the proposed rule change would 
amend Rule 476A(a) by replacing the term ``allied member'' with the 
term ``principal executive,'' to be consistent with a prior rule 
change eliminating the category of ``allied member'' on the 
Exchange. See Securities Exchange Act Release No. 58549 (September 
15, 2008), 73 FR 54444 (September 19, 2008) (SR-NYSE-2008-80). See 
also NYSE Rule 476, which uses the term ``principal executive.''
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Proposed Non-Substantive Changes to Rule 476A List

    The Exchange proposes to update the Rule 476A List to conform it to 
approved changes to Exchange rules by updating the titles of certain 
rules, updating references to rules that have been renumbered or 
harmonized with a Financial Industry Regulatory Authority (``FINRA'') 
rule, deleting references to rules that have been deleted, updating the 
descriptions of rules that have been amended, and fixing a 
typographical error.\6\
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    \6\ For a more detailed description of these proposed non-
substantive changes, see Notice, supra note 3.
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Proposed Updates to Rule 476A List for DMM Conduct Rules

    The current Rule 476A List includes certain specific rules that 
govern DMM conduct (e.g., NYSE Rules 104(a)(1)(A) and 104.10), as well 
as a category designated as ``Exchange policies regarding procedures to 
be followed in delayed opening situations,'' which refers to policies 
relating to DMM conduct included in NYSE Rule 123D. The Exchange 
proposes generally to update the Rule 476A List with current rules 
governing DMM conduct. In particular, under the proposed rule change, 
the list would be amended to include, more expansively, ``Rule 104 
requirements for the dealings and responsibilities of DMMs'' and ``Rule 
123D requirements for DMMs relating to openings, re-openings, delayed 
openings, trading halts, and tape indications.'' Thus, additional 
elements of Rules 104 and 123D would be included in the Minor Rule 
Violation Plan, as further detailed below.

Rule 104

    NYSE Rule 104 requires DMMs registered in one or more securities 
traded on the Exchange to engage in a course of dealings for their own 
account to assist in the maintenance of a fair and orderly market, 
insofar as reasonably practicable, by contributing liquidity when lack 
of price continuity and depth, or disparity between supply and demand 
exists or is reasonably to be anticipated.\7\
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    \7\ NYSE Rule 104 currently operates on a pilot basis, set to 
end on July 31, 2012. The Exchange stated its belief that the Rule 
476A List should reference those rules that are currently 
operational, even if operating on a pilot basis.
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    The Rule 476A List currently includes the following elements of 
Rule 104:
     Rule 104(a)(1)(A), which requires DMMs to maintain a bid 
or an offer at the National Best Bid and National Best Offer 
(``inside'') at least 15% of the trading day for securities in which 
the DMM unit is registered that have a consolidated average daily 
volume of less than one million shares, and at least 10% for securities 
in which the DMM unit is registered that have a consolidated average 
daily volume equal to or greater than one million shares; and
     Rule 104.10, which is described in the Rule 476A List as 
relating to ``Functions of DMM.'' This description does not relate to 
the rule currently denominated as Rule 104.10, which was adopted when 
the Exchange adopted the New Market Model,\8\ but to a former rule 
relating to certain subject matters that, according to the Exchange, 
continue to be covered in the current Rule 104.
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    \8\ See Securities Exchange Act Release No. 58845 (October 24, 
2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-46).
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    The proposed rule change would, instead, include a single reference 
in the Rule 476A List identifying ``Rule 104 requirements for the 
dealings and responsibilities of DMMs'' as subject to the Minor Rule 
Violation Plan. The proposed rule change would have the effect of 
adding to the Rule 476A List Rules 104(b), (c), (d), and (e),\9\ as 
well as Rule 104(a)(1)(B), the rule that governs the DMM's new pricing 
obligations, which were implemented by all equities markets on December 
6, 2010.\10\
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    \9\ See Notice, supra note 3 at 11182-83 for a full description 
of the elements of Rule 104 that, under the proposal, would be 
included in the Minor Rule Violation Plan. The Exchange states that 
other elements of Rule 104 (i.e., Rule 104(j) and supplementary 
material .05 and .10) are not related to DMM obligations, but rather 
reflect operational aspects of the Exchange. See id. at note 11. The 
Exchange notes that, in a separate filing, it has proposed to delete 
NYSE Rule 104(a)(6). See Securities Exchange Act Release No. 65736 
(November 10, 2011), 76 FR 71399 (November 17, 2011) (SR-NYSE-2011-
56). The Commission instituted proceedings to determine whether to 
disapprove SR-NYSE-2011-56. See Securities Exchange Act Release No. 
66397 (February 15, 2012), 77 FR 10586 (February 22, 2012).
    \10\ See Securities Exchange Act Release No. 63255 (November 5, 
2010), 75 FR 69484 (November 12, 2010) (SR-NYSE-2010-69).
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Rule 123D

    The Rule 476A List currently provides that ``violations of Exchange 
policies regarding procedures to be followed in delayed opening 
situations'' are eligible for summary fines under the Minor Rule 
Violation Plan. According to the Exchange, such Exchange policies are 
codified in Rule 123D. Accordingly, the Exchange proposes to delete 
``violations of Exchange policies regarding procedures to be followed 
in delayed opening situations'' and replace it with ``Rule 123D 
requirements for DMMs relating to openings, re-openings, delayed 
openings, trading halts, and tape indications.'' The effect of this 
change would be to include other requirements of DMMs set forth in Rule 
123D--relating to openings, re-openings, trading halts, and tape 
indications--in the Minor Rule Violation Plan.

[[Page 22034]]

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.\11\ In 
particular, the Commission believes that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \12\ because expanding the 
list of DMM obligations that are subject to the Minor Rule Violation 
Plan should afford the Exchange increased flexibility in carrying out 
its supervisory responsibilities, and, in doing so, help to meet the 
aim of protecting investors and the public interest.
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    \11\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission also believes that the proposed rule change is 
consistent with Sections 6(b)(1) and 6(b)(6) of the Act,\13\ which 
require that an exchange enforce compliance with, and have rules that 
provide appropriate discipline for violations of, the Act, the rules 
and regulations thereunder, and Exchange rules. As an initial matter, 
the proposed rule change will further these objectives through its 
clarification of the list of Exchange rule violations that are subject 
to NYSE Rule 476A by updating rule titles and rule references, deleting 
references to rules that have been deleted, updating descriptions of 
rules that have been amended, and fixing a typographical error.
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    \13\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(6).
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    Further, the Commission recognizes that the proposed rule change 
will render violations of DMM obligations under Rule 104 \14\ and Rule 
123D that were not previously on the Rule 476A List as now eligible for 
treatment as minor violations. However, the Commission notes that 
designating a rule as subject to the Minor Rule Violation Plan does not 
signify that violation of the rule will always be deemed a minor 
violation. As noted by the Exchange, Rule 476A preserves the Exchange's 
discretion to seek formal discipline, as warranted, when transgressions 
of rules designated as eligible for the Minor Rule Violation Plan are 
found to be more serious. Thus, the Exchange will remain able to 
require, on a case-by-case basis, formal disciplinary action for any 
particular violation. Therefore, the Commission believes that the 
proposed rule change will not compromise the Exchange's ability to seek 
more stringent sanctions for the more serious violations of Rules 104 
and 123D.
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    \14\ The Commission believes that it is appropriate to include 
in NYSE Rule 476A references to rules that are currently operating 
on a pilot basis.
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    In addition, because NYSE Rule 476A provides procedural rights to a 
person fined under the rule, entitling the person to contest the fine 
and receive a full disciplinary proceeding,\15\ the Commission believes 
that NYSE Rule 476A, as amended by this proposed rule change, will 
provide a fair procedure for the disciplining of Exchange members and 
persons associated with members, consistent with Sections 6(b)(7) and 
6(d)(1) of the Act.\16\
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    \15\ See NYSE Rule 476A(d).
    \16\ 15 U.S.C. 78f(b)(7) and 15 U.S.C. 78f(d)(1).
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    Finally, the Commission finds that the proposed rule change is 
consistent with the public interest, the protection of investors, or is 
otherwise in furtherance of the purposes of the Act, as required by 
Rule 19d-1(c)(2) under the Act,\17\ which governs minor rule violation 
plans. The Commission believes that the proposed changes to NYSE Rule 
476A will strengthen the Exchange's ability to carry out its oversight 
and enforcement responsibilities as a self-regulatory organization, in 
cases where full disciplinary proceedings are unsuitable in view of the 
nature of a particular violation.
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    \17\ 17 CFR 240.19d-1(c)(2).
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    In approving this proposed rule change, the Commission emphasizes 
that in no way should the amendment of the rule be seen as minimizing 
the importance of compliance with NYSE rules and all other rules 
subject to the imposition of fines under NYSE Rule 476A. The Commission 
believes that the violation of any self-regulatory organization's 
rules, as well as Commission rules, is a serious matter. However, NYSE 
Rule 476A provides a reasonable means of addressing rule violations 
that do not rise to the level of requiring formal disciplinary 
proceedings, while providing greater flexibility in handling certain 
violations. The Commission expects that the Exchange will continue to 
conduct surveillance with due diligence and make a determination based 
on its findings, on a case by-case basis, of whether a violation 
requires formal disciplinary action under Rule 476.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSE-2012-05) be, and hereby 
is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8782 Filed 4-11-12; 8:45 am]
BILLING CODE 8011-01-P


