
[Federal Register Volume 77, Number 221 (Thursday, November 15, 2012)]
[Notices]
[Pages 68191-68193]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27718]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68186; File No. SR-NYSEMKT-2012-58]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change Deleting NYSE MKT Rules 95(c) and (d)--Equities 
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, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to delete NYSE MKT Rules 95(c) and (d)--
Equities 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 MKT Rules 95(c)--Equities and 
(d)--Equities and related Supplementary Material concerning 
restrictions on the ability of a Floor broker to engage in intra-day 
trading.\4\
---------------------------------------------------------------------------

    \4\ The Exchange notes that parallel changes are proposed to be 
made to the rules of New York Stock Exchange LLC. See SR-NYSE-2012-
57.
---------------------------------------------------------------------------

Background
    NYSE MKT Rule 95(c)--Equities 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, NYSE MKT Rule 95(d)--Equities requires that a 
Floor broker must execute the liquidating order entered pursuant to 
NYSE MKT Rule 95(c)--Equities 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 examples 
illustrating the operation of NYSE MKT Rules 95(c)--Equities and (d)--
Equities 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 NYSE MKT Rule 95--Equities.
    The New York Stock Exchange LLC (``NYSE'') adopted NYSE Rules 95(c) 
and (d) and related Supplementary Material .20 and .30 in 1994.\5\ NYSE 
MKT Rule 95--Equities, an almost identical version of NYSE Rule 95, was 
adopted at the time of acquisition of The Amex Membership Corporation 
by NYSE Euronext.\6\ Implicit in its mirroring, the rationale for the 
adoption of NYSE MKT Rules 95(c)--Equities and (d)--Equities was the 
same as the rationale for the adoption of NYSE Rules 95(c) and (d) in 
1994. As noted in the NYSE filing, the NYSE 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, NYSE 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.\7\ 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.'' \8\ 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.'' \9\ Notably, some 
public customers who used Floor brokers strongly criticized the 
restrictions of NYSE Rules 95(c) and (d) as favoring specialists 
because specialists were not subject to the restrictions.\10\ 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.
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 34363 (July 13, 1994), 
59 FR 36808 (July 19, 1994) (``NYSE Rule 95(c) Adopting Release'').
    \6\ See Securities Exchange Act Release No. 58705 (October 1, 
2008), 73 FR 58995 (October 8, 2008); Securities Exchange Act 
Release No. 58265 (July 30, 2008), 73 FR 46075 (August 7, 2008) (SR-
Amex-2008-63).
    \7\ NYSE 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.
    \8\ NYSE Rule 95(c) Adopting Release at 36809.
    \9\ Id. at 36810.
    \10\ 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).

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

[[Page 68192]]

Proposed Rule Change
    The Exchange proposes to delete NYSE MKT Rules 95(c)--Equities and 
(d)--Equities 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 NYSE MKT Rules 95(c)--Equities and (d)--Equities no longer 
exists in today's trading environment. At the time NYSE 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 NYSE Rules 95(c) 
and (d), and therefore also NYSE MKT Rules 95(c)--Equities and (d)--
Equities, was that Floor broker customers could ``crowd-out small 
customer limit orders and delay or prevent their execution,'' \11\ in 
the current market structure, it is more likely that electronic order 
flow would ``crowd-out'' Floor broker customer orders.
---------------------------------------------------------------------------

    \11\ Rule 95(c) Adopting Release at 38611.
---------------------------------------------------------------------------

    Additionally, since the adoption of NYSE Rules 95(c) and (d), 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 
\12\ and in 2006, the NYSE adopted its ``Hybrid Market'' structure in 
part to meet the requirements of Regulation NMS that were implemented 
in July 2007.\13\ Since that time, the NYSE, and because NYSE MKT has 
the same trading platform, 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.'' \14\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``NMS Adopting Release'').
    \13\ See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 FR 16353 (March 31, 2006).
    \14\ Id.
---------------------------------------------------------------------------

    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 NYSE 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.\15\ 
Currently, the NYSE MKT has approximately a 14% market share in its 
listed securities, and of that volume, Floor broker transactions 
represent approximately 5% 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.
---------------------------------------------------------------------------

    \15\ 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.
---------------------------------------------------------------------------

    In addition, trading strategies have evolved since the enactment of 
NYSE 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 NYSE MKT Rules 95(c)--Equities and (d)--Equities. 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 
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, NYSE MKT Rules 95(c)--
Equities and (d)--Equities 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 NYSE MKT Rules 95(c)--Equities and (d)--
Equities 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.\16\ 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 for NYSE Rules 
95(c) and (d) 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 first 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.
---------------------------------------------------------------------------

    \16\ 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.
---------------------------------------------------------------------------

    In additional to the above-referenced changes, the Exchange 
proposes to delete Supplementary Material .20 and

[[Page 68193]]

.30 to NYSE MKT Rule 95--Equities. The Exchange proposes to keep 
Supplementary Material .10 to NYSE MKT Rule 95--Equities.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act,\17\ in general, and 
Section 6(b)(5) of the Act,\18\ 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.
---------------------------------------------------------------------------

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

    The fundamental changes that have occurred in the roughly twenty 
years since the adoption of NYSE Rules 95(c) and (d) have left the 
underlying rationale behind their adoption obsolete, and subsequently, 
the rationale behind NYSE MKT Rules 95(c)--Equities and (d)--Equities 
is also obsolete. The significant increase in market speed and the 
reduced role of Floor brokers have largely eliminated the concerns that 
NYSE MKT Rules 95(c)--Equities and (d)--Equities were intended to 
address. By deleting a trading restriction that was originally 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-NYSEMKT-2012-58 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-NYSEMKT-2012-58. 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 Exchange'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-NYSEMKT-2012-58 and should be submitted 
on or before December 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27718 Filed 11-14-12; 8:45 am]
BILLING CODE 8011-01-P


