
[Federal Register Volume 78, Number 34 (Wednesday, February 20, 2013)]
[Notices]
[Pages 11928-11930]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03820]



[[Page 11928]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68923; File Nos. SR-NYSE-2012-57; SR-NYSEMKT-2012-58]


Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE 
MKT LLC; Order Instituting Proceedings To Determine Whether To Approve 
or Disapprove Proposed Rule Changes Deleting NYSE Rules 95(c) and (d) 
and NYSE MKT Rules 95(c) and (d)--Equities and Related Supplementary 
Material

February 13, 2013.

I. Introduction

    On October 26, 2012, the New York Stock Exchange LLC (``NYSE'') and 
NYSE MKT LLC (``NYSE MKT'') (collectively, the ``Exchanges''), each 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ proposed rule changes 
(``Proposals'') to delete NYSE Rules 95(c) and (d) and related 
Supplementary Material and NYSE MKT Rules 95(c) and (d)--Equities and 
related Supplementary Material, respectively. The Proposals were 
published for comment in the Federal Register on November 15, 2012.\3\ 
The Commission received no comment letters on the Proposals.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68185 (November 8, 
2012), 77 FR 68188 (November 15, 2012) (SR-NYSE-2012-57) (``NYSE 
Notice''); Release No. 68186 (November 8, 2012), 77 FR 68191 (SR-
NYSEMKT-2012-58) (``NYSE MKT Notice'').
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    On December 21, 2012, the Commission extended the time period in 
which to either approve, disapprove, or to institute proceedings to 
determine whether to disapprove the Proposals, to February 13, 2013.\4\ 
This order institutes proceedings under Section 19(b)(2)(B) of the Act 
to determine whether to approve or disapprove the Proposals.
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    \4\ See Securities Exchange Act Release No. 68522 (December 21, 
2012), 77 FR 77160 (December 31, 2012) (SR-NYSE-2012-57); Release 
No. 68521 (December 21, 2012), 77 FR 77152 (SR-NYSEMKT-2012-58).
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II. Description of the Proposals

    The Exchanges propose to delete NYSE Rules 95(c) and (d) and 
related Supplementary Material, and NYSE MKT Rules 95(c) and (d)--
Equities and related Supplementary Material concerning restrictions on 
the ability of a Floor broker to engage in intra-day trading.\5\ 
Currently, NYSE Rule 95(c) states that if a Floor broker acquires a 
position for an account during a particular trading session, while at 
the same time on behalf of that same account, representing market or 
limit orders at the minimum variation on both sides of the market, the 
Floor broker may liquidate or cover the position only pursuant to a new 
order, which must be time-recorded upstairs and upon receipt on the 
Floor.\6\
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    \5\ As noted by NYSE MKT, NYSE MKT Rule 95--Equities is an 
almost identical version of NYSE Rule 95, and was adopted at the 
time of acquisition of The Amex Membership Corporation by NYSE 
Euronext. See NYSE MKT Notice, 77 FR at 68191. NYSE MKT stated that 
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. Id. Given that the NYSE and NYSE MKT 
rules are virtually identical, and that the rationale for the 
adoption of the rules is the same, references to the text of NYSE 
Rule 95 in this order and the rationale for its adoption, unless 
otherwise noted, apply equally to NYSE MKT Rule 95--Equities.
    \6\ See NYSE Rule 95(c). NYSE Rule 95(c) further provides that 
all liquidating orders must be marked as ``BC'' when covering a 
short position, or ``SLQ'' when liquidating a long position.
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    NYSE Rule 95(d) defines an account as any account in which the same 
person or persons is directly or indirectly interested.\7\ NYSE Rule 
95(d) further states that a Floor broker representing an order to 
liquidate or cover a position, which was established during the same 
trading session at a time when the broker represented orders at the 
minimum variation on both sides of the market for the same account, 
must execute that liquidating or covering order before any other order 
on the same side of the market for that account.\8\ NYSE Rule 95 
Supplementary Material .20 and .30 sets forth examples applicable to 
NYSE Rule 95(c) and (d).
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    \7\ See NYSE Rule 95(d).
    \8\ See NYSE Rule 95(d).
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    NYSE adopted NYSE Rule 95(c) and (d) and related Supplementary 
Material .20 and .30 in 1994 to address ``intra-day trading'' by Floor 
brokers.\9\ Intra-day trading occurs when 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. According to NYSE, 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.\10\ 
NYSE stated that requiring the Floor broker to obtain a new liquidating 
order was designed 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.\11\ The restriction was meant to 
``enhance investors' confidence in the fairness and orderliness of the 
Exchange market.'' \12\ In approving this proposal, the Commission 
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.'' 
\13\
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    \9\ See Securities Exchange Act Release No. 34363 (July 13, 
1994), 59 FR 36808 (July 19, 1994) (``Rule 95(c) Adopting 
Release''). NYSE Rule 95(c) provides that, ``[i]f 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 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 
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.
    \10\ See NYSE Notice, 77 FR at 68189. The NYSE states that 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. See 
id., 77 FR at 68189 n.6.
    \11\ See NYSE Notice, 77 FR at 68189.
    \12\ Rule 95(c) Adopting Release at 36809.
    \13\ Id. at 36810.
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    NYSE contends that NYSE Rules 95(c) and (d) and related 
Supplementary Material are outdated in today's market structure and an 
unnecessary restriction on the ability of Floor brokers to represent 
orders on behalf of their customers and, therefore, should be 
deleted.\14\
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    \14\ See NYSE Notice, 77 FR 68189.
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    According to NYSE, in 1994, orders entered in the NYSE specialist's 
book experienced greater latency than did orders handled by Floor 
brokers. At that time, the NYSE specialist's book orders could not be 
executed until the specialist manually executed them, and Floor brokers 
could stand at the point of sale and trade more quickly than 
specialists.\15\ NYSE represents that with the current marketplace, 
incoming electronic orders are executed automatically in microseconds, 
and ``book'' orders receive immediate limit order display. As a result, 
NYSE argues that the rationale for NYSE Rules 95(c) and (d) with 
respect to how Floor broker customers could ``crowd out small

[[Page 11929]]

customer limit orders and delay or prevent their execution,'' \16\ no 
longer applies in the current market structure.\17\
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    \15\ See id.
    \16\ Rule 95(c) Adopting Release at 38611.
    \17\ See NYSE Notice, 77 FR 68189. NYSE also argues that, since 
adopting the rule, the equities markets in general, and NYSE 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 NYSE 
adopted its ``Hybrid Market'' structure in part to meet the 
requirements of Regulation NMS that were implemented in July 2007. 
The NYSE states that, since it 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.'' See id.
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    NYSE also argues that the market structure and trading strategies 
have evolved since the enactment of NYSE Rule 95(c). For example, off-
Floor participants regularly engage in buy and sell side trading 
strategies (i.e.,''intra-day trading)'' so that, according to NYSE, in 
today's micro-second market there is no longer a competitive advantage 
to being on the Floor when engaging in the type of intra-day trading 
addressed by NYSE Rules 95(c) and (d).\18\ Rather, in the view of NYSE, 
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 could while located on the 
Floor.\19\ Accordingly, NYSE claims, to the extent there may still be a 
time and place advantage for Floor brokers by virtue of their presence 
on the Floor, 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.\20\
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    \18\ See id.
    \19\ See NYSE Notice, 77 FR at 68189.
    \20\ See id. at 68189-68190.
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    As a result of these changes, NYSE contends that NYSE Rules 95(c) 
and (d) are no longer operating to place Floor brokers on equal footing 
with other market participants, but instead are placing them at a 
disadvantage in the largely automatic market that has developed in the 
almost twenty years since the restrictions were put in place.\21\ NYSE 
believes that deleting NYSE Rules 95(c) and (d) and the related 
Supplementary Materials would place Floor brokers on a more equal 
footing with other market participants utilizing automatic executions.
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    \21\ See id., 77 FR at 68190.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2012-57 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act to determine whether the Proposals should be 
approved or disapproved. Institution of such proceedings is appropriate 
at this time in view of the legal and policy issues raised by the 
Proposals that are discussed below. Institution of these proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described in greater 
detail below, the Commission seeks and encourages interested persons to 
provide additional comment to inform the Commission's analysis of 
whether to approve or disapprove the Proposals.
    Pursuant to Section 19(b)(2)(B), the Commission is providing notice 
of the grounds for disapproval under consideration. In particular, 
Section 6(b)(5) of the Act \22\ requires that the rules of an exchange 
be designed, among other things, to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
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; and are not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers. 
Section 6(b)(8) of the Act \23\ requires that the rules of an exchange 
do not impose any burden on competition not necessary or appropriate in 
furtherance of the Act.
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    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 15 U.S.C. 78f(b)(8).
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    The Proposals would delete rules originally designed to ensure that 
Floor brokers, and by extension their customers, did not have an unfair 
advantage over other market participants through ``intra-day trading,'' 
where the trader seeks to garner the spread by both buying at the bid 
and selling at the offer. If the Exchanges were to eliminate Rule 
95(c), there would no longer be a requirement that, when a Floor broker 
is representing orders at the minimum variation on both sides of the 
market for the same account and acquires a position for that account, 
the Floor broker obtain a new order to liquidate or cover a position 
established during that trading session. One of the original 
justifications for adopting this ``speed bump'' in 1994 was that Floor 
brokers, by virtue of their presence on the NYSE Floor, could have a 
time and place advantage over other market participants because they 
could trade on both sides of the market without leaving the Crowd.
    In their Proposals, the Exchanges argue, among other things, that 
the automation of the markets in the intervening years, including the 
increased speed of trading on the Exchanges and elsewhere, along with 
the fragmentation of the equity markets and the wide dissemination of 
market information to off-Floor participants, have substantially 
reduced Floor brokers' time and place advantage and left the rationale 
underlying Rules 95(c) and (d) obsolete. In fact, the Exchanges take 
the position that, ``[i]n 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'' that is addressed by Rules 
95(c) and (d).\24\ Accordingly, in the Exchanges' view, the Proposals 
would ``serve to place Floor brokers on a more equal footing with other 
market participants utilizing automatic executions.'' \25\
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    \24\ See NYSE Notice, 77 FR at 68189; NYSE MKT Notice, 77 FR at 
68192.
    \25\ See NYSE Notice, 77 FR at 68190; NYSE MKT Notice, 77 FR at 
68192.
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    Although the Commission acknowledges that increased automation and 
other market structure changes are likely to have substantially reduced 
the time and place advantage historically enjoyed by those on the floor 
of the Exchanges, the Commission is concerned that elimination of the 
Rule 95(c) restriction on Floor brokers in connection with intra-day 
trading, as contemplated by the Proposals, may not be consistent with 
the Act in light of other benefits currently conferred by the Exchanges 
upon Floor brokers. For example, under the Exchanges' rules, a Floor 
broker is entitled to a potentially preferential ``parity'' allocation 
of shares of an Exchange execution, as compared with off-Floor market 
participants that place orders on the Exchanges' respective books.\26\ 
Accordingly, a customer of a Floor broker engaged in intra-day trading, 
through an algorithmic proprietary trading strategy or otherwise, may 
have an advantage over market participants pursuing

[[Page 11930]]

similar strategies directly on the Exchanges' respective books, by 
virtue of the Floor broker's parity status. The restrictions contained 
in Rules 95(c) and (d) today may serve to help counterbalance those 
advantages.
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    \26\ See NYSE Rule 72(c)(ii) (``For the purpose of share 
allocation in an execution, each single Floor broker, the DMM and 
orders collectively represented in Exchange systems (referred to 
herein as ``Book Participant'') shall constitute individual 
participants. The orders represented in the Book Participant in 
aggregate shall constitute a single participant and will be 
allocated shares among such orders by means of time priority with 
respect to entry.''); see also NYSE MKT Rule 72(c)(ii) (same).
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    The Commission therefore believes that questions are raised as to 
whether the Proposals are consistent with (1) the requirements of 
Section 6(b)(5) of the Act, including whether they would not be 
designed to permit unfair discrimination, or would promote just and 
equitable principles of trade, or protect investors and the public 
interest; and (2) the requirements of Section 6(b)(8) of the Act, 
including whether they would impose an unnecessary or inappropriate 
burden on competition.

IV. Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data and arguments with respect to the 
concerns identified above, as well as any others they may have with the 
Proposals. In particular, the Commission invites the written views of 
interested persons concerning whether the Proposals are inconsistent 
with Section 6(b)(5), Section 6(b)(8) or any other provision of the 
Act, or the rules and regulation thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval which would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\27\
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    \27\ Section 19(b) (2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular Proposals by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views and 
arguments regarding whether the Proposals should be disapproved by 
March 13, 2013. Any person who wishes to file a rebuttal to any other 
person's submission must file that rebuttal by March 27, 2013.
    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 and 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-NYSE-2012-57 and SR-
NYSEMKT-2012-58. These file numbers 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 Proposals that 
are filed with the Commission, and all written communications relating 
to the Proposals 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 such filings also will be available 
for inspection and copying at the principal office of the Exchanges. 
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-2012-57 
and SR-NYSEMKT-2012-58 and should be submitted on or before March 13, 
2013. Rebuttal comments should be submitted by March 27, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03820 Filed 2-19-13; 8:45 am]
BILLING CODE 8011-01-P


