
[Federal Register Volume 77, Number 221 (Thursday, November 15, 2012)]
[Notices]
[Pages 68188-68191]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27717]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68185; File No. SR-NYSE-2012-57]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Deleting NYSE Rules 95(c) and 
(d) and Related Supplementary Material

November 8, 2012.
    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, on October 26, 2012, New York Stock Exchange LLC (the 
``Exchange'' or ``NYSE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
self-regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 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 delete NYSE Rules 95(c) and (d) and 
related Supplementary Material. 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 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 95(c) and (d) and 
related Supplementary Material concerning restrictions on the ability 
of a Floor broker to engage in intra-day trading.\4\
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    \4\ The Exchange notes that parallel changes are proposed to be 
made to the rules of NYSE MKT LLC. See SR-NYSEMKT-2012-58.
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Background
    Rule 95(c) provides that:
    If a Floor broker acquires a position for an account during a 
particular trading session while representing at the same time, on 
behalf of that account, market or limit orders at the minimum variation 
on both sides of the market, the broker may liquidate or cover the 
position established during that trading session only pursuant to a new 
order (a liquidating order) which must be time-recorded upstairs and 
upon receipt on the trading Floor.
    As a related matter, Rule 95(d) requires that a Floor broker must 
execute the liquidating order entered pursuant to Rule 95(c) before the 
Floor broker can execute any other order for the same account on the 
same side of the market as that liquidating order. The Supplementary 
Material sets forth

[[Page 68189]]

examples illustrating the operation of Rules 95(c) and (d) along with 
examples indicating the type of buy and sell orders that a member may 
and may not represent for the same customer at the same time pursuant 
to Rule 95.
    The Exchange adopted Rules 95(c) and (d) and related Supplementary 
Material .20 and .30 in 1994.\5\ As noted in that filing, the Exchange 
adopted the rule to address ``intra-day trading'' by Floor brokers, the 
practice whereby a market participant places orders on both sides of 
the market and attempts to garner the spread by buying at the bid and 
selling at the offer. In particular, Rule 95(c) was meant to address 
situations where a Floor broker may have been perceived as having an 
advantage over other market participants, such as individual investors, 
because the Floor broker could trade on both sides of the market 
without leaving the Crowd.\6\ Requiring the Floor broker to obtain a 
new liquidating order was designed, therefore, to reduce the immediacy 
with which a Floor broker could react to changing market conditions on 
behalf of an intra-day trading account by requiring him or her to leave 
the Crowd in order to receive a new liquidating order. The restriction 
was meant to ``enhance investors' confidence in the fairness and 
orderliness of the Exchange market.'' \7\ The Commission specifically 
noted that the intra-day trading strategy employed by professionals 
``provide[d] the perception that public customer orders [were] being 
disadvantaged by the time and place advantage of intra-day traders.'' 
\8\ Notably, some public customers who used Floor brokers strongly 
criticized the restrictions of Rule 95(c) and (d) as favoring 
specialists because specialists were not subject to the 
restrictions.\9\ As discussed below, the Exchange believes that the 
current prevalence of virtually instantaneous and fully automated 
executions both on and off the floor have diminished substantially any 
such advantage and rendered the new liquidating order requirements 
obsolete.
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    \5\ Securities Exchange Act Release No. 34363 (July 13, 1994), 
59 FR 36808 (July 19, 1994) (``Rule 95(c) Adopting Release'').
    \6\ Rule 95(c)'s requirement that a liquidating order be ``new'' 
effectively required that a Floor broker leave the Crowd before 
entering a liquidating order (selling what had been bought, for 
example) because there was no way for the Floor broker to receive 
the new order (or otherwise communicate with a customer) from the 
Crowd.
    \7\ Rule 95(c) Adopting Release at 36809.
    \8\ Id. at 36810.
    \9\ See, e.g., Letter from Daniel P. Barry, to Ms. Luka-Hopson, 
Branch Chief, Division of Market Regulation, Securities and Exchange 
Commission, dated November 11, 1993 (arguing that the proposed 
amendment to Rule 95 unfairly singled out ``the small public 
investor'' in its application of intra-day trading restrictions to 
Floor brokers alone).
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Proposed Rule Change
    The Exchange proposes to delete NYSE Rules 95(c) and (d) and 
related Supplementary Material as outdated in today's market structure 
and an unnecessary restriction on the ability of Floor brokers to 
represent orders on behalf of their customers.
    The Exchange believes that the rationale and approach underlying 
current Rules 95(c) and (d) no longer exists in today's trading 
environment. At the time Rules 95(c) and (d) were adopted, orders 
entered in the specialist's book experienced greater latency than did 
orders handled by Floor brokers. In particular, neither immediate limit 
order display nor auto execution existed at that time and, as a result, 
``book'' orders could not be executed until the specialist manually 
executed them. Floor brokers in 1994, in other words, could stand at 
the point of sale and trade more quickly because of that position. 
Currently, incoming electronic orders are executed automatically in 
microseconds, and ``book'' orders receive immediate limit order 
display. Moreover, the passage of Floor broker orders through Floor 
systems today adds an additional layer of latency relative to the prior 
context. While the rationale for Rules 95(c) and (d) was that Floor 
broker customers could ``crowd-out small customer limit orders and 
delay or prevent their execution,'' \10\ in the current market 
structure, it is more likely that electronic order flow would ``crowd-
out'' Floor broker customer orders.
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    \10\ Rule 95(c) Adopting Release at 38611.
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    Additionally, since adopting the rule, the equities markets in 
general, and the Exchange in particular, have undergone market 
structure changes that obviate the need for this rule-based restriction 
on how a Floor broker represents orders on behalf of customers. For 
example, the Commission adopted Regulation NMS in 2005 \11\ and in 
2006, the Exchange adopted its ``Hybrid Market'' structure in part to 
meet the requirements of Regulation NMS that were implemented in July 
2007.\12\ Since that time, the Exchange has undergone a dramatic shift 
``from a floor-based auction market with limited automated order 
interaction to a more automated market with limited floor-based auction 
market availability.'' \13\
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    \11\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 Fed. Reg. 37496 (June 29, 2005) (``NMS Adopting 
Release'').
    \12\ See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 Fed. Reg. 16353 (March 31, 2006).
    \13\ Id.
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    Specifically, the changing role of the Floor broker can be seen in 
both the overall reduction in the Exchange's market share in its listed 
securities, as well as the decline in the Floor broker's share of 
Exchange volume and increased reliance on automatic execution. Prior to 
the adoption of the Hybrid Market, the Exchange had about an 80% market 
share in its listed securities and approximately 25% of that volume was 
from Floor broker transactions. Within a year of the approval of the 
Hybrid Market, automatic execution accounted for 82% of NYSE volume and 
Floor broker executions declined to 11% of overall Exchange volume.\14\ 
Currently, the Exchange has approximately a 21% market share in its 
listed securities, and of that volume, Floor broker transactions 
represent approximately 9.8% of Exchange total volume. Less than 1% of 
those Floor broker transactions are represented in a manual, auction 
format. Furthermore, the average speed of execution has increased 
substantially to micro-second timing, which has significantly reduced 
the opportunities for Floor brokers to engage in manual transactions.
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    \14\ See Technology squeezes out real, live traders, USA Today 
(July 12, 2007), available at http://www.usatoday.com/money/markets/2007-07-11-nyse-traders_N.htm.
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    In addition, trading strategies have evolved since the enactment of 
Rule 95(c). Today one third of all equity trading takes place off-
exchange and over 1,200 securities have more than 50% of their volume 
traded off-exchange, an increase of 143% in less than two years. Among 
other changes, off-Floor participants regularly engage in buy and sell 
side trading strategies, i.e., ``intra-day trading.'' In today's micro-
second market, there is no longer a competitive advantage to being on 
the trading Floor when engaging in the type of intra-day trading 
addressed by Rules 95(c) and (d). Rather, due to the increase in the 
speed of trading, the increased fragmentation of the equity markets, 
and the dissemination of market information available to off-Floor 
participants, many off-Floor participants are able to synthesize market 
information across multiple markets faster than a Floor broker can do 
so from their physical presence on the Exchange trading Floor. 
Accordingly, to the extent there may still be a time and place 
advantage for Floor brokers by virtue of their presence on the Trading 
Floor, the Exchange believes that the type of information available to 
Floor brokers is no longer

[[Page 68190]]

the type of information that would provide Floor brokers with an 
advantage in connection with intra-day trading.
    As a result of the above-discussed changes, Rules 95(c) and (d) are 
no longer operating to place Floor brokers on equal footing as other 
market participants, but instead are placing them at a disadvantage to 
other participants in the largely automatic market that has developed 
in the almost twenty years since the restrictions were put in place. 
Therefore, the Exchange believes it is appropriate to delete Rules 
95(c) and (d) and related Supplementary Material. By deleting a trading 
restriction that was adopted in response to a specific market structure 
that has fundamentally changed since 2005, the Exchange believes that 
the proposed rule changes will serve to place Floor brokers on a more 
equal footing with other market participants utilizing automatic 
executions.
    Furthermore, the Exchange notes that the manner that the current 
rule requires a Floor broker to comply with the rule is based on an 
auction market model where a rule-based speed bump that required a 
Floor broker to obtain a new time-stamped order from a customer was 
feasible.\15\ In today's market structure, where Floor brokers compete 
with off-Floor participants that are entering orders on a micro-second 
basis on both the buy and sell side of the market, such a speed bump is 
not only a disadvantage to Floor brokers, but also does not serve its 
original purpose. In particular, the 1994 approval order notes that 
part of the rationale of implementing the speed bump for Floor brokers 
was to protect the public. However, even though the trading 
restrictions enacted by the 1994 rule changes will no longer be in 
effect, the public will still be protected. Floor brokers, through 
their normal course of business, act as agents for customers and, 
pursuant to Exchange and Commission rules, are required to act in the 
best interests of their customers.
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    \15\ The Exchange notes that Exchange systems are not currently 
configured to accept the ``BC'' and ``SLQ'' order markings specified 
in Rule 95(c), as these are markings that were required to be 
included on manual order tickets that were completed by hand by a 
Floor broker rather than instructions submitted with electronic 
orders that customers transmit electronically to Floor brokers.
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    In additional to the above-referenced changes, the Exchange 
proposes to delete Supplementary Material .20 and .30 to Rule 95, which 
were added as part of the addition of paragraphs (c) and (d) to Rule 95 
in 1994. The Exchange proposes to keep Supplementary Material .10 to 
Rule 95.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act,\16\ in general, and 
Section 6(b)(5) of the Act,\17\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism for a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. In particular, the proposed rule 
change would further the ability of Floor brokers to carry out their 
Trading Floor functions and, as a result, is designed to remove 
impediments to and perfect the mechanism of a free and open market 
through the efficient operation of the Exchange, specifically by 
placing Floor brokers on equal footing with other market participants 
utilizing automatic executions.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The fundamental changes that the Exchange has undergone in the 
roughly twenty years since the adoption of Rules 95(c) and (d) have 
left the underlying rationale behind their adoption obsolete. The 
significant increase in market speed and the reduced role of Floor 
brokers have largely eliminated the concerns that Rules 95(c) and (d) 
were intended to address. By deleting a trading restriction that was 
adopted in response to a specific market structure that has 
fundamentally changed since 2005, the Exchange believes that the 
proposed rule changes will serve to place Floor brokers on a more equal 
footing with other market participants utilizing automatic executions.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2012-57 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-2012-57. 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 business days 
between the hours of 10 a.m. and 3 p.m., located at 100 F Street NE., 
Washington, DC 20549-1090. Copies of the filing will also be available 
for inspection and copying at the NYSE'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

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information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2012-57 and should be submitted on 
or before December 6, 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. 2012-27717 Filed 11-14-12; 8:45 am]
BILLING CODE 8011-01-P


