
[Federal Register Volume 78, Number 25 (Wednesday, February 6, 2013)]
[Notices]
[Pages 8677-8680]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02642]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68804; File No. SR-NYSE-2013-11]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending NYSE Rule 128, Which Governs Clearly Erroneous Executions, 
Extending the Effective Date of the Pilot Until September 30, 2013 and 
Adopting New Paragraph (i) to NYSE Rule 128 in Connection With the 
Upcoming Operation of the Plan To Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS Under the Act

February 1, 2013.
    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 January 30, 2013, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II 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 amend NYSE Rule 128, which governs clearly 
erroneous executions, to extend the effective date of the pilot by 
which portions of such Rule operate until September 30, 2013. The pilot 
is currently scheduled to expire on February 4, 2013. The Exchange also 
proposes to adopt new paragraph (i) to NYSE Rule 128 in connection with 
the upcoming operation of the Plan to Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the 
``Limit Up-Limit Down Plan'' or ``Plan'').\4\ 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.
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    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
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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 amend NYSE Rule 128, which governs clearly 
erroneous executions, to extend the effective date of the pilot by 
which portions of such Rule operate, until September 30, 2013. The 
pilot is currently scheduled to expire on February 4, 2013.\5\ The 
Exchange also proposes to add new paragraph (i) to NYSE Rule 128 in 
connection with the upcoming implementation of the Limit Up-Limit Down 
Plan.
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    \5\ See Securities Exchange Act Release No. 62886 (September 10, 
2010), 75 FR 56613 (September 16, 2010) (SR-NYSE-2010-47). See also 
Securities Exchange Act Release Nos. 63479 (December 9, 2010), 75 FR 
78274 (December 15, 2010) (SR-NYSE-2010-80); 64232 (April 7, 2011), 
76 FR 20735 (April 13, 2011) (SR-NYSE-2011-17); 65064 (August 9, 
2011), 76 FR 50505 (August 15, 2011) (SR-NYSE-2011-41); 66136 
(January 11, 2012), 77 FR 2589 (January 18, 2012) (SR-NYSE-2011-69); 
and 67555 (August 1, 2012), 77 FR 47154 (August 7, 2012) (SR-NYSE-
2012-32).
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    On September 10, 2010, the Commission approved, on a pilot basis, 
market-wide amendments to exchanges' rules for clearly erroneous 
executions to set forth clearer standards and curtail discretion with 
respect to breaking erroneous trades. In connection with this pilot 
initiative, the Exchange amended NYSE Rule 128(c), (e)(2), (f), and 
(g). The amendments provide for uniform treatment of clearly erroneous 
execution reviews (1) in Multi-Stock Events \6\ involving twenty or 
more securities, and (2) in the event transactions occur that result in 
the issuance of an individual security trading pause by the primary 
market and subsequent transactions that occur before the trading pause 
is in effect on

[[Page 8678]]

the Exchange.\7\ The amendments also eliminated appeals of certain 
rulings made in conjunction with other exchanges with respect to 
clearly erroneous transactions and limited the Exchange's discretion to 
deviate from Numerical Guidelines set forth in the Rule in the event of 
system disruptions or malfunctions.
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    \6\ Terms not defined herein are defined in NYSE Rule 128.
    \7\ Separately, the Exchange has proposed to extend the 
effective date of the trading pause pilot under NYSE Rule 80C, which 
requires to the Exchange to pause trading in an individual security 
listed on the Exchange if the price moves by a specified percentage 
as compared to prices of that security in the preceding five-minute 
period during a trading day. See Securities Exchange Act Release No. 
68745 (January 28, 2013) (SR-NYSE-2012-05) [sic].
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    If the pilot were not extended, the prior versions of paragraphs 
(c), (e)(2), (f), and (g) of NYSE Rule 128 would be in effect, and the 
NYSE would have different rules than other exchanges and greater 
discretion in connection with breaking clearly erroneous transactions. 
The Exchange believes the benefits to market participants from the more 
objective clearly erroneous executions rule should continue on a pilot 
basis through September 30, 2013, which is the date that the Exchange 
anticipates that the phased implementation of the Limit Up-Limit Down 
Plan will be complete. As explained in further detail below, although 
the Limit Up-Limit Down Plan is intended to prevent executions that 
would need to be nullified as clearly erroneous, the Exchange believes 
that certain protections should be maintained while the industry gains 
initial experience operating with the Limit Up-Limit Down Plan, 
including the provisions of Rule 128 that currently operate as a pilot.
Proposed Limit Up-Limit Down Provision to NYSE Rule 128
    The Exchange proposes to adopt new paragraph (i) to NYSE Rule 128, 
to provide that the existing provisions of NYSE Rule 128 will continue 
to apply to all Exchange transactions, including transactions in 
securities subject to the Plan, other than as set forth in proposed 
paragraph (i). Accordingly, other than as proposed below, the Exchange 
proposes to maintain and continue to apply the Clearly Erroneous 
Execution standards in the same way that it does today. Notably, this 
means that the Exchange might nullify transactions that occur within 
the price bands disseminated pursuant to the Limit Up-Limit Down Plan 
to the extent such transactions qualify as clearly erroneous under 
existing criteria. As an example, assume that a Tier 1 security 
pursuant to the Plan has a reference price pursuant to both the Plan 
and Rule 128 of $100.00. The lower pricing band under the Plan would be 
$95.00 and the upper pricing band under the Plan would be $105.00. An 
execution could occur on the Exchange in this security at $96.00, as 
this is within the Plan's pricing bands. However, if subjected to 
review as potentially clearly erroneous, the Exchange would nullify an 
execution at $96.00 as clearly erroneous because it exceeds the 3% 
threshold that is in place pursuant to Rule 128(c)(1) for securities 
priced above $50.00 (i.e., with a reference price of $100.00, any 
transactions at or below $97.00 or above $103.00 could be nullified as 
clearly erroneous). Accordingly, this proposal maintains the status quo 
with respect to reviews of Clearly Erroneous Executions and the 
application of objective numerical guidelines by the Exchange. The 
proposal does not increase the discretion afforded to the Exchange in 
connection with reviews of Clearly Erroneous Executions.
    The Limit Up-Limit Down Plan is designed to prevent executions from 
occurring outside of dynamic price bands disseminated to the public by 
a single plan processor as defined in the Limit Up-Limit Down Plan.\8\ 
The possibility remains that the Exchange could experience a technology 
or systems problem with respect to the implementation of the price 
bands disseminated pursuant to the Plan. To address such possibilities, 
the Exchange proposes to adopt language to make clear that if an 
Exchange technology or systems issue results in any transaction 
occurring outside of the price bands disseminated pursuant to the Plan, 
an Officer of the Exchange or senior level employee designee, acting on 
his or her own motion or at the request of a third party, shall review 
and declare any such trades null and void. Absent extraordinary 
circumstances, any such action of the Officer of the Exchange or other 
senior level employee designee shall be taken in a timely fashion, 
generally within thirty (30) minutes of the detection of the erroneous 
transaction. When extraordinary circumstances exist, any such action of 
the Officer of the Exchange or other senior level employee designee 
must be taken by no later than the start of regular trading hours \9\ 
on the trading day following the date on which the execution(s) under 
review occurred. Although the Exchange will act as promptly as possible 
and the proposed objective standard (i.e., whether an execution 
occurred outside the band) should make it feasible to quickly make a 
determination, there may be circumstances in which additional time may 
be needed for verification of facts or coordination with outside 
parties, including the single plan processor responsible for 
disseminating the price bands and other market centers. Accordingly, 
the Exchange believes it necessary to maintain some flexibility to make 
a determination outside of the thirty (30) minute guideline. In 
addition, the Exchange proposes that a transaction that is nullified 
pursuant to new paragraph (i) would be appealable in accordance with 
the provisions of Rule 128(e)(2). In addition, the Exchange proposes to 
make clear that in the event that a single plan processor experiences a 
technology or systems problem that prevents the dissemination of price 
bands, the Exchange would make the determination of whether to nullify 
transactions based on Rule 128(a)-(h).
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    \8\ See Limit Up-Limit Down Release, supra note 4.
    \9\ Regular trading hours commence at 9:30 a.m. Eastern Time. 
See NYSE Rule 51(a).
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    The Exchange believes that cancelling trades that occur outside of 
the price bands disseminated pursuant to the Plan is consistent with 
the purpose and intent of the Plan, as such transactions are not 
intended to occur in the first place. If transactions do occur outside 
of the price bands and no exception applies--which necessarily would be 
caused by a technology or systems issue--then the Exchange believes the 
appropriate result is to nullify such transactions.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \10\ of 
the Act, in general, and furthers the objectives of Section 6(b)(5) 
\11\ in particular in that 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. The Exchange believes that the pilot program promotes 
just and equitable principles of trade in that it promotes transparency 
and uniformity across markets concerning review of transactions as 
clearly erroneous. More specifically, the Exchange believes that the 
extension of the pilot would promote just and equitable principles of 
trade because it would help assure that

[[Page 8679]]

the determination of whether a clearly erroneous trade has occurred 
will be based on clear and objective criteria. Additionally, resolution 
of the incident will occur promptly through a transparent process, 
which the Exchange believes would protect investors and the public 
interest. The proposed rule change would also foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and to remove impediments to, and perfect the mechanism of, 
a free and open market and a national market system because it would 
help assure consistent results in handling erroneous trades across the 
U.S. markets, thus furthering fair and orderly markets, the protection 
of investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    Although the Limit Up-Limit Down Plan will be operational during 
the same time period as the proposed extended pilot, the Exchange 
believes that maintaining the pilot for at least through the phased 
implementation of the Plan is operational will help to protect against 
unanticipated consequences. To that end, the extension will allow the 
Exchange to determine whether NYSE Rule 128 is necessary once the Plan 
is operational and, if so, whether improvements can be made. Further, 
the Exchange believes it consistent with the protection of investors 
and the public interest to adopt objective criteria to nullify 
transactions that occur outside of the Plan's price bands when such 
transactions should not have been executed but were due to a systems or 
technology issue.

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. To the contrary, the 
Exchange believes that the Financial Industry Regulatory Authority and 
other national securities exchanges are also filing similar proposals, 
and thus, that the proposal will help to ensure consistent rules across 
market centers.

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 for 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 \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed under Rule 19b-4(f)(6)\14\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \15\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the pilot program to continue uninterrupted, thereby 
avoiding the investor confusion that could result from a temporary 
interruption in the pilot program. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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-2013-11 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-2013-11. 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-2013-11 and should be 
submitted on or before February 27, 2013.


[[Page 8680]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02642 Filed 2-5-13; 8:45 am]
BILLING CODE 8011-01-P


