
[Federal Register Volume 77, Number 173 (Thursday, September 6, 2012)]
[Notices]
[Pages 54939-54942]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21901]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67759; File No. SR-NYSE-2012-38]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Rule 107B To Change the Existing Supplemental Liquidity 
Provider Monthly Volume Requirement in All Assigned SLP Securities and 
Amend the Exchange's Price List To Specify the Applicable Percentage of 
NYSE CADV for the Monthly Volume Requirement

August 30, 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 August 28, 2012, New York Stock Exchange LLC (the ``Exchange'' 
or ``NYSE'') 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 to (i) amend Rule 107B to change the existing 
Supplemental Liquidity Provider (``SLP'') monthly volume requirement in 
all assigned SLP securities (``monthly volume requirement'') from an 
average daily volume (``ADV'') of more than 10 million shares to an ADV 
that is a specified percentage of consolidated ADV (``CADV'') in all 
NYSE-listed securities (``NYSE CADV'') and (ii) amend the Exchange's 
Price List to specify the applicable percentage of NYSE CADV for the 
monthly volume requirement. The Exchange is proposing that these 
changes become operative on September 1, 2012. The text of the proposed 
rule change is available on the Exchange's Web site at www.nyse.com, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

[[Page 54940]]

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 is proposing to (i) amend Rule 107B \3\ to change the 
existing SLP monthly volume requirement from an ADV of more than 10 
million shares to an ADV that is a specified percentage of NYSE CADV 
and (ii) amend the Exchange's Price List to specify the applicable 
percentage of NYSE CADV for the monthly volume requirement. The 
Exchange is proposing that these changes become operative on September 
1, 2012.
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    \3\ Rule 107B operates pursuant to a pilot program that is in 
effect until January 31, 2013. See Securities Exchange Act Release 
No. 58877 (October 29, 2008), 73 FR 65904 (November 5, 2008) (SR-
NYSE-2008-108). See also Securities Exchange Act Release No. 67493 
(July 25, 2012), 77 FR 45388 (July 31, 2012) (SR-NYSE-2012-27).
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    An SLP is a member organization that electronically enters orders 
or quotes from off the Floor of the Exchange into the systems and 
facilities of the Exchange and is obligated to maintain a bid or an 
offer at the National Best Bid (``NBB'') or the National Best Offer 
(``NBO'') in each assigned security in round lots averaging at least 
10% of the trading day (the ``percentage quoting requirement''). In 
addition, for all assigned SLP securities, an SLP is required to 
satisfy a monthly volume requirement by adding liquidity of an ADV of 
more than 10 million shares on a monthly basis.\4\ An SLP can either be 
a proprietary trading unit of a member organization (``SLP-Prop'') or a 
registered market maker at the Exchange (``SLMM'').
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    \4\ See Rule 107B(a).
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    An SLP that fails to satisfy the applicable percentage quoting 
requirement provided in Rule 107B(a) would be subject to certain non-
regulatory penalties imposed by the Exchange, including, for example, 
having its SLP status revoked.\5\ However, an SLP that fails to satisfy 
the monthly volume requirement would not be subject to a non-regulatory 
penalty, but instead could fail to qualify for the credits available to 
SLPs. Because, unlike the applicable percentage quoting requirement, 
the monthly volume requirement only has an impact with respect to the 
credits available to SLPs, the Exchange believes that it is more 
appropriate to include the applicable monthly volume requirement in the 
Price List, rather than in Rule 107B.
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    \5\ See Rule 107B(k).
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    The Exchange therefore proposes to amend Rule 107B(a) to change the 
current monthly volume requirement of adding liquidity of an ADV of 
more than 10 million ADV shares in all assigned SLP securities to 
specify instead that the monthly volume requirement would be based on a 
specified percentage of NYSE CADV. The Exchange believes that a monthly 
volume requirement based on a percentage of NYSE CADV, rather than a 
fixed volume requirement, is more appropriate because it would 
reasonably assure that the monthly volume requirement is consistent 
relative to fluctuations in market volume over time. In particular, in 
August 2010, when the Exchange adopted the current monthly volume 
requirement,\6\ NYSE CADV was 4.039 billion shares. In contrast, NYSE 
CADV for July 2012 was 3.484 billion shares.
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    \6\ See Securities Exchange Act Release No. 62791 (August 30, 
2010), 75 FR 54411 (September 7, 2010) (SR-NYSE-2010-60).
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    Accordingly, the Exchange proposes to change references in Rule 
107B, generally, from ``10 million shares'' to ``a specified percentage 
of CADV in all NYSE-listed securities, as set forth in the Exchange's 
Price List.'' The Exchange also proposes to amend the Price List to 
specify that the applicable percentage of NYSE CADV will be 0.22%. In 
this regard, the following three credit rates would apply to SLPs: \7\
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    \7\ The Exchange notes that the only aspect of the SLP credits 
in the Price List that would change is replacing the 10 million 
share ADV reference with the 0.22% of NYSE CADV reference (e.g., the 
credit rates would remain the same as they currently are). SLP 
execution of securities with a per share price of $1.00 or more at 
the close would continue to be free.
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    1. [sic] $0.0015 per share (or $0.0010 per share if a Non-Displayed 
Reserve Order) when adding liquidity to the Exchange in securities with 
a per share price of $1.00 or more, if the SLP does not qualify for the 
higher credit set forth in paragraph 2, below.
    2. [sic] $0.0021 per share (or $0.0016 per share if a Non-Displayed 
Reserve Order) when adding liquidity to the Exchange in securities with 
a per share price of $1.00 or more if the SLP (i) meets the 10% average 
or more quoting requirement in the assigned security pursuant to Rule 
107B \8\ and (ii) adds liquidity for all assigned SLP securities in the 
aggregate of an ADV of more than 0.22% of NYSE CADV.\9\
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    \8\ As is currently the case, quotes of an SLP-Prop and an SLMM 
of the same member organization are not aggregated for purposes of 
this calculation.
    \9\ As is currently the case, this calculation includes shares 
of both an SLP-Prop and an SLMM of the same member organization.
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    3. [sic] $0.005 per share when adding liquidity to the Exchange in 
securities with a per share price of less than $1.00 if the SLP (i) 
meets the 10% average or more quoting requirement in an assigned 
security pursuant to Rule 107B and (ii) adds liquidity of an ADV of 
more than 0.22% of NYSE CADV for all assigned SLP securities in the 
aggregate.
    Finally, the Exchange proposes to amend the description of the 
method of calculation of the monthly volume requirement in Rule 107B(h) 
in order to reflect the use of a specified percentage of NYSE CADV. 
Specifically, it will provide that to calculate the ADV, the aggregated 
liquidity an SLP provides in all of its assigned SLP securities each 
month should be divided by the number of trading days in the applicable 
month, and then the ADV figure should be divided by the NYSE CADV 
during the month.
2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b) of the Securities Exchange Act of 1934 (the ``Act''),\10\ 
in general, and furthers the objectives of Section 6(b)(5) of the 
Act,\11\ 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to, and perfect the mechanisms of, a 
free and open market and a national market system and, in general, to 
protect investors and the public interest and because it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that the proposed change 
promotes just and equitable principles of trade because, by basing the 
monthly volume requirement on a percentage of NYSE CADV, the SLP 
requirement to add liquidity to the market would track actual 
consolidated trading volumes. Accordingly, in months with lower trading 
volumes, a monthly volume

[[Page 54941]]

requirement that tracks the actual consolidated volume would reasonably 
assure that SLPs add sufficient liquidity relative to the market, 
without the monthly volume requirement being too burdensome for SLPs. 
Conversely, during months when trading volumes are generally higher 
across all markets, the proposed change would result in SLPs being 
required to increase the liquidity they add to the market, thereby 
reasonably assuring that SLPs are engaging in trading activity that is 
meaningful and consistent with the purpose of the SLP credits.
    Similarly, the Exchange believes that the proposed change will 
protect investors and the public interest because it will result in the 
level of trading activity that is required of SLPs in order to qualify 
for the increased credit being at a level that is reflective of trading 
activity across the markets at any given point in time, as opposed to 
the current monthly volume requirement that is a fixed number of shares 
and therefore does not account for fluctuations in market volume over 
the course of different months. Finally, the Exchange believes that the 
proposed change does not permit unfair discrimination among customers, 
issuers, brokers or dealers because it would apply to all member 
organizations that operate as an SLP. In this regard, SLPs are required 
to satisfy certain quoting requirements that contribute to the quality 
of the Exchange's market throughout the trading day, which other member 
organizations are not required to satisfy.
    Additionally, the Exchange believes that the proposed change will 
remove impediments to, and perfect the mechanisms of, a free and open 
market and a national market system because by relocating the specified 
percentage of NYSE CADV to the Price List, member organizations will 
only need to go to a single source to identify both what the credit 
would be, and the monthly volume requirement for such credit.
    The Exchange further believes that the proposed change is 
consistent with, and furthers the objectives of, Section 6(b)(4) of the 
Act \12\ because it provides for the equitable allocation of reasonable 
dues, fees, and other charges among its members and issuers and other 
persons using its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers.
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    \12\ 15 U.S.C. 78f(b)(4).
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    Specifically, the Exchange believes that the proposed change is 
reasonable, because the proposed monthly volume requirement of 0.22% of 
NYSE CADV is consistent with a level of activity on the Exchange that 
is believed to be commensurate with the existing monthly volume 
requirement of 10 million shares, as was contemplated when the current 
monthly volume requirement was added in August 2010. The Exchange 
further believes that the proposed change is reasonable because it 
would continue to encourage SLPs to send additional orders to the 
Exchange for execution in order to qualify for an incrementally higher 
credit for such executions that add liquidity on the Exchange. In this 
regard, the Exchange believes the proposed change may incentivize SLPs 
to increase the orders sent directly to the Exchange and therefore 
provide liquidity that supports the quality of price discovery, 
promotes market transparency and is reasonably related to an exchange's 
market quality that is associated with higher volumes. Finally, the 
Exchange believes that the proposed change is reasonable because it 
would include the actual monthly volume requirement details within the 
Price List, where the monthly volume requirement actually has a direct 
impact (i.e., qualifying for the increased credit is determined by 
whether the SLP satisfies the monthly volume requirement), as opposed 
to Rule 107B, where the monthly volume requirement does not have a 
direct impact (i.e., the non-regulatory penalties are not determined by 
the SLP's activity across all assigned securities).
    The Exchange also believes that the proposed change is equitable 
and not unfairly discriminatory because it would apply equally and 
uniformly to all member organizations that operate as SLPs. Moreover, 
the Exchange believes that the proposed change is equitable and not 
unfairly discriminatory because a monthly volume requirement that is a 
percentage of NYSE CADV is fluid, and can therefore account for 
increases or decreases in overall trading activity across all markets, 
whereas the existing fixed monthly volume requirement is static. In 
this regard, the Exchange notes that a fixed monthly volume 
requirement, like the one that is currently in place, may become easier 
to achieve during more active trading months and, conversely, may 
become more difficult to reach during less active trading months. 
Accordingly, the proposed change may enable more SLPs to qualify for 
the increased credit in the Price List during months when overall 
activity across all markets is lower than normal. Similarly, during 
months when trading activity is higher, and the monthly volume 
requirement is therefore more difficult to reach, the proposed change 
would result in SLPs continuing to be required to engage in meaningful 
activity to qualify for the credit.

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 foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it 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)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest. The proposal will take overall liquidity trends into account 
when determining monthly volume requirements applicable to SLPs by 
shifting to a percentage based on NYSE CADV. The Exchange has 
represented that SLPs are currently being held to a higher relative 
volume requirement than was intended when the Exchange adopted the 10 
million fixed monthly volume requirement in 2010. Waiving the operative 
delay will allow this proposal, which the Exchange believes imposes a 
more appropriate volume requirement for SLPs, to become effective 
immediately and operative on September 1, 2012. Therefore, the

[[Page 54942]]

Commission designates the proposal operative on September 1, 2012.\15\
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    \15\ 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-NYSE-2012-38 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-2012-38. 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, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the 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 available publicly. All 
submissions should refer to File Number SR-NYSE-2012-38 and should be 
submitted on or before September 27, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21901 Filed 9-5-12; 8:45 am]
BILLING CODE 8011-01-P


