
[Federal Register Volume 77, Number 75 (Wednesday, April 18, 2012)]
[Notices]
[Pages 23298-23300]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9287]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66795; File No. SR-NYSEAmex-2012-21]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt Recent 
Changes to FINRA Rules 7440 and 7450, and To Adopt Recent Changes to 
FINRA Rule 5320 by Amending Supplementary Material .02 to NYSE Amex 
Equities Rule 5320 To Require that Member Organizations Report to the 
Order Audit Trail System Information Barriers Put Into Place by the 
Member Organization in Reliance on Supplementary Material .02 to NYSE 
Amex Equities Rule 5320

April 12, 2012.
    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 April 2, 2012, NYSE Amex LLC (``Exchange'' or ``NYSE Amex'') 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 Substance 
of the Proposed Rule Change

    The Exchange proposes (i) to adopt recent changes to Financial 
Industry Regulatory Authority, Inc. (``FINRA'') Rules 7440 and 7450, 
which the Exchange has incorporated by reference in its own rules, and 
(ii) adopt recent changes to FINRA Rule 5320 by amending Supplementary 
Material .02 to NYSE Amex Equities Rule 5320 to require that member 
organizations report to the Order Audit Trail System (``OATS'') 
information barriers put into place by the member organization in 
reliance on Supplementary Material .02 to NYSE Amex Equities Rule 5320. 
The text of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, the Commission's Web site at 
www.sec.gov, and 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to (i) adopt recent changes to FINRA Rules 
7440 and 7450, which the Exchange has incorporated by reference in its 
own rules, and (ii) adopt recent changes to FINRA Rule 5320 by amending 
Supplementary Material .02 to NYSE Amex Equities Rule 5320 to require 
that member organizations report to OATS information barriers put into 
place by the member organizations in reliance on Supplementary Material 
.02 to NYSE Amex Equities Rule 5320.\3\
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    \3\ The Exchange's affiliate, the New York Stock Exchange LLC, 
has filed a substantially similar rule filing. See SR-NYSE-2012-09 
filed April 2, 2012.
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    FINRA recently received Commission approval of changes to the order 
recording and transmission requirements of the OATS rules in FINRA 
Rules 7440 and 7450.\4\ First, FINRA amended FINRA Rule 7440 to require 
FINRA members relying on the no-knowledge exception in Supplementary 
Material .02 to FINRA Rule 5320 (Prohibition Against Trading Ahead of 
Customer Orders) to report information to OATS regarding the 
information barriers adopted by the member in reliance on the 
exception--FINRA also added this requirement under Supplementary 
Material .02 to FINRA Rule 5320. Second, FINRA amended FINRA Rule 7440 
to extend, to all OATS-eligible securities, the existing requirement to 
reflect on OATS reports a customer's instruction regarding display of 
the customer's limit orders--the requirement previously applied only to 
limit orders involving NMS stocks. Finally, FINRA amended FINRA Rule 
7450 to codify the specific time by which OATS reports must be 
transmitted to FINRA.
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    \4\ See Securities Exchange Act Release No. 66021 (December 21, 
2011), 76 FR 81551 (December 28, 2011) (SR-FINRA-2011-63) [sic].
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    The Exchange recently adopted the NYSE Amex Equities Rule 7400 
Series, which consists of NYSE Amex Equities Rules 7410 through 7470 
and is based substantially on the FINRA Rule 7400 Series.\5\ In this 
regard, NYSE Amex Equities Rules 7440 and 7450 incorporate by reference 
the order data recording and transmission requirements of FINRA Rules 
7440 and 7450, respectively, by requiring member organizations and 
associated persons to comply with FINRA Rules 7440 and 7450 as if those 
rules were part of the Exchange's rules. Accordingly, the Exchange 
hereby proposes to adopt the changes to FINRA Rules 7440 and 7450 that 
were approved pursuant to SR-FINRA-2011-063. \6\
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    \5\ See Securities Exchange Act Release No. 65524 (October 7, 
2011), 76 FR 64151 (October 17, 2011) (SR-NYSEAmex-2011-74).
    \6\ The Exchange notes that the approved changes to FINRA Rules 
7440 and 7450 that the Exchange proposes to adopt would be 
applicable only to Exchange member organization [sic] that are also 
FINRA members. In particular, the changes relate to cross-references 
to FINRA Rule 5320, and for the Exchange, to NYSE Amex Equities Rule 
5320, which is not applicable to Proprietary Trading Firms, as 
defined in NYSE Amex Equities Rule 7410(p), because they do not have 
customers and therefore do not need to maintain information 
barriers.
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    The Exchange also recently adopted NYSE Amex Equities Rule 5320, 
which is substantially the same as FINRA Rule 5320 and prohibits 
trading ahead of customer orders with certain exceptions, including 
large order and institutional account exceptions, a no-knowledge 
exception, a riskless principal exception, an intermarket sweep order 
exception, and odd lot and bona fide error transaction exceptions.\7\ 
The Exchange hereby proposes to adopt as Supplementary Material .02(b) 
to NYSE Amex Equities Rule 5320 the same language that was approved 
pursuant to SR-FINRA-2011-063 as Supplementary Material .02(c) to FINRA 
Rule 5320.\8\ Specifically, if a member organization implements and 
utilizes appropriate information barriers in reliance on the no-
knowledge exception

[[Page 23299]]

provided under Supplementary Material .02 to NYSE Amex Equities Rule 
5320, the member organization must uniquely identify such information 
barriers as prescribed in FINRA Rule 7440(b)(19).
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    \7\ See Securities Exchange Act Release No. 65165 (August 18, 
2011), 76 FR 53009 (August 24, 2011) (SR-NYSEAmex-2011-59).
    \8\ For consistency with Exchange rules, the Exchange proposes 
to change references from ``members'' in Supplementary Material 
.02(c) to FINRA Rule 5320 to ``member organizations'' in proposed 
Supplementary Material .02(b) to NYSE Amex Equities Rule 5320. The 
Exchange also proposes to designate the existing text of 
Supplementary Material .02 to NYSE Amex Equities Rule 5320 as 
paragraph (a) thereto.
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    The no-knowledge exception in Supplementary Material .02 to NYSE 
Amex Equities Rule 5320 provides that if a member organization 
implements and uses an effective system of internal controls--such as 
appropriate information barriers--that operate to prevent one trading 
unit from obtaining knowledge of customer orders held by a separate 
trading unit, that other trading unit may trade in a proprietary 
capacity at prices that would satisfy the customer orders held by the 
separate, walled-off trading unit. Through the use of OATS, FINRA will 
be able to ascertain, on an automated basis, those member organizations 
claiming the no-knowledge exception.\9\ This will reduce the potential 
for ``false positive'' alerts by allowing FINRA to account for the 
existence of information barriers when running automated surveillance 
patterns designed to identify inappropriate trading ahead of customer 
orders. These new requirements should substantially reduce the number 
of ``false positives'' that are identified through automated 
surveillance patterns by permitting FINRA to account for information 
barriers when trading ahead may otherwise be indicated.
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    \9\ All Exchange member organizations that are subject to NYSE 
Amex Equities Rule 5320 are also FINRA members, and FINRA reviews 
compliance with that rule pursuant to an allocation plan under Rule 
17d-2 of the Securities Exchange Act of 1934.
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    The Exchange proposes to implement the changes proposed herein on 
the same date that FINRA implements the changes approved pursuant to 
SR-FINRA-2011-063, thereby eliminating the potential for different 
regulatory requirements between common members.\10\
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    \10\ FINRA has announced that it will implement the changes on 
April 16, 2012. See http://www.finra.org/Industry/Compliance/MarketTransparency/OATS/OATSReport/P125612.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\11\ in general, and 
furthers the objectives of Section 6(b)(5),\12\ in particular, because 
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, 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. Specifically, 
the proposed rule change would remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
providing greater harmonization among NYSE Rules, NYSE Amex Equities 
rules, and FINRA Rules of similar substance and purpose. This would 
result in less burdensome and more efficient regulatory compliance, 
which would foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and promote the protection of 
investors and the public interest. The changes proposed herein are also 
designed to prevent fraudulent and manipulative acts and practices and 
to promote just and equitable principles of trade by ensuring that 
FINRA Rules incorporated by reference in the NYSE Amex Equities Rules 
and rules that are common among NYSE, NYSE Amex Equities, and FINRA 
remain consistent after amendments to the particular FINRA Rules.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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

    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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \15\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6) permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requests 
that the Commission waive the 30-day operative delay so that the 
proposed rule change may become effective on the same date that FINRA 
implements the changes to FINRA Rules 7440, 7450, and 5320.\16\ The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
and, therefore, designates the proposal operative upon filing.\17\ 
Waiving the 30-day operative delay will enable the Exchange to 
implement the proposed rule change on the same day that FINRA 
implements the changes to its rules on which the proposed rule change 
is based, thereby eliminating the potential for different regulatory 
requirements for members of both FINRA and the Exchange.
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ FINRA has announced that it will implement the changes on 
April 16, 2012. See supra note 10.
    \17\ For purposes only of waiving the 30-day operative delay, 
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 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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEAmex-2012-21 on the subject line.

[[Page 23300]]

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-2012-21. This 
file number should be included on the subject line if email 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 New York Stock 
Exchange LLC's principal office and on its Internet Web site at 
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-
NYSEAmex-2012-21, and should be submitted on or before May 9, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-9287 Filed 4-17-12; 8:45 am]
BILLING CODE 8011-01-P


