
[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40248-40250]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15932]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69874; File No. SR-NSX-2013-13]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Exchange Rule 11.11 to Automatically Prevent Entry of Zero 
Display Reserve Orders Marked ``Sell Short''

June 27, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 26, 2013, National Stock Exchange, Inc. (``NSX[supreg]'' 
or the ``Exchange'') 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 11.11 (Orders and 
Modifiers) to add new subparagraph (c)(2)(E), which addresses the 
manner in which the Exchange's Trading System (the ``System'') will 
handle a sell short Zero Display Reserve Order \3\ entered by an 
Exchange User \4\ in a security that subsequently becomes subject to a 
short sale price test restriction under Rule 201 of Regulation SHO \5\ 
of the Act. The rule amendment and accompanying technology change 
address a System limitation that causes a sell short Zero Display 
Reserve Order to be executed at or below the national best bid during a 
period that the security is subject to the short sale price test 
restriction. Accordingly, the Exchange has determined to amend Rule 
11.11 by adding new subparagraph (c)(2)(E) which will provide that the 
Exchange's System will automatically reject the entry of a Zero Display 
Reserve Order marked as ``sell short.'' The Exchange has stated that 
the present rule amendment is a temporary measure intended to address 
Rule 201 Regulation SHO compliance with regard to Zero Display Reserve 
Orders. The Exchange has further stated that it intends to make 
subsequent permanent modifications to the System that will eliminate 
the need to automatically reject all Zero Display Reserve Orders marked 
``sell short.'' Accordingly, the Exchange will seek Commission approval 
of a proposal to replace subparagraph (c)(2)(E) by August 30, 2013, the 
date by which the Exchange anticipates the permanent modifications to 
the System will be ready to implement, and to propose any other rule 
amendments necessary to further address the Exchange's Rule 201 
Regulation SHO compliance.
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    \3\Under Exchange Rule 11.11(c)(2), a Reserve Order is defined 
as a limit order with a portion of the quantity displayed (``display 
quantity'') and with a reserve portion of the quantity (``reserve 
quantity'') that is not displayed. Rule 11.11(c)(2)(A) provides, in 
relevant part, that a Reserve Order can be entered with a display 
quntity of zero, in which case the Reserve Order will be known as 
``Zero Display Reserve Order.''
    \4\ NSX Rule 1.5 defines the term ``User'' as any ETP Holder or 
Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.9.
    \5\ 17 CFR 242.201. See Securities Exchange Act Release No. 
61595 (February 26, 2010), 75 FR 11232 (March 10, 2010) (``Rule 201 
Adopting Release'') and Securities Exchange Act Release No. 63247 
(Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010). See also Division of 
Trading and Markets: Responses to Frequently Asked Questions 
Concerning Rule 201 of Regulation SHO, January 20, 2011 at http://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm (``Rule 201 
FAQs''). Rule 201 applies to any ``trading center'' as defined in 
Rule 201(a)(9) of Regulation SHO that executes or displays a short 
sale order in a covered security.
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    The text of the proposed rule change is available on the Exchange's 
Web site at www.nsx.com, at the Exchange's principal office, and at the 
Commission's Public Reference Room.

[[Page 40249]]

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 is proposing to amend Rule 11.11 to add new 
subparagraph (c)(2)(E), which will provide that the Exchange will 
automatically block the entry by Users of Zero Display Reserve Orders 
marked ``sell short.'' All such orders will be rejected back to the 
entering User. The rule amendment and accompanying changes to the 
System will automatically reject the entry of such orders and thereby 
prevent a subsequent execution of such orders at or below the national 
best bid during a time period that the security is the subject of a 
short sale price test restriction.
    Rule 201(b)(1)(i) of Regulation SHO requires trading centers,\6\ 
including the Exchange, to establish, maintain and enforce written 
policies and procedures reasonably designed to prevent the execution or 
display of a short sale order of a covered security at a price that is 
less than or equal to the current national best bid if the price of 
that covered security decreases by 10% or more from such security's 
closing price on the listing market at the close of regular trading 
hours on the prior day. Rule 201(b)(1)(ii) of Regulation SHO provides 
that trading centers must establish, maintain and enforce written 
policies and procedure reasonably designed to enforce the short sale 
price test restriction for the remainder of the trading day and the 
following day, when a national best bid for the covered security is 
calculated and disseminated on a current and continuing basis by a plan 
processor pursuant to an effective national market system plan.
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    \6\ For purposes of Regulation SHO, the term ``trading center'' 
has the same meaning as in Rule 600(b)(78) of Regulation NMS, which 
defines a ``trading center'' as ``. . . a national securities 
exchange or national securities association that operates an SRO 
trading facility, an alternative trading system, an exchange market 
maker, an OTC market maker, or any other broker or dealer that 
executes orders internally by trading as principal or crossing 
orders as agent.''
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    Rule 201(b)(1)(iii)(A) of Regulation SHO provides that a trading 
center's written policies and procedures must be reasonably designed to 
permit the execution of a displayed short sale order of a covered 
security by a trading center if, at the time of initial display of the 
short sale order, the order was at a price above the current national 
best bid.\7\
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    \7\ The second exception, not relevant for purposes of this 
filing, requires the trading center to have policies and procedures 
permitting the execution of an order in a covered security marked 
``short exempt'' without regard to whether the order is at a price 
that is less than or equal to the current national best bid.
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    Exchange Rule 11.11(c)(2)(A) provides that a User may enter a 
Reserve Order with a display quantity of zero, in which case the 
Reserve Order will be known as a Zero Display Reserve Order. Because no 
order designated by a User as a Zero Display Reserve Order ever becomes 
displayed, any such order marked ``sell short'' does not qualify for 
the exception under Rule 201(b)(1)(iii)(A) of Regulation SHO.
    Recently, the Exchange became aware of a System limitation that 
permits the execution of a sell short Zero Display Reserve Order at or 
below the national best bid while the covered security was in a short 
sale price test restriction. The operation of the System in these 
circumstances is not consistent with Rule 201(b) of Regulation SHO.
    Accordingly, the Exchange has determined to amend Rule 11.11 by 
adding new subparagraph(c)(2)(E) which will provide that the Exchange's 
System will automatically reject the entry of a Zero Display Reserve 
Order marked as ``sell short.'' The Exchange has stated that the 
present rule amendment is a temporary measure intended to address Rule 
201 Regulation SHO compliance with regard to Zero Display Reserve 
Orders. The Exchange has further stated that it intends to make 
subsequent permanent modifications to the System that will eliminate 
the need to automatically reject all Zero Display Reserve Orders marked 
``sell short.'' Accordingly, the Exchange will seek Commission approval 
of a proposal to replace subparagraph (c)(2)(E) by August 30, 2013, the 
date by which the Exchange anticipates the permanent modifications to 
the System will be ready to implement, and to propose any other rule 
amendments necessary to further address the Exchange's Rule 201 
Regulation SHO compliance.
2. Statutory Basis
    The proposed rule change to provide that the System will 
automatically reject the entry of Zero Display Reserve orders marked 
``sell short'' is consistent with Section 6(b) \8\ of the Act and, 
specifically with Rule 201 of Regulation SHO. Because such orders are 
not displayed, they are not within the exception under Rule 
201(b)(1)(iii)(A) discussed above. The rule amendment will address Rule 
201 of Regulation SHO compliance by preventing the execution or display 
of a short sale order of a covered security at an impermissible price 
when the short sale price restriction is in effect. In this regard, the 
amendment will further the purposes of the Act and specifically Rule 
201 of Regulation SHO.
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    \8\ 15 U.S.C. 78f(b).
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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 
for the furtherance of the Act. The Exchange plans to issue written 
notification of the rule amendment to all Users, advising them that all 
Zero Display Reserve Orders marked ``sell short'' will be rejected by 
the System. Users can assess the impact of the rule amendment on their 
order entry strategies and practices, and determine whether to send 
orders to another execution venue.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
The proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder because the 
proposed rule change (i) Does not significantly affect the

[[Page 40250]]

protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) does not become 
operative prior to 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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 requested a waiver of this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative prior to 30 days from the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\12\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \11\ Id.
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has requested the Commission to waive the 30-day 
operative delay, as well as the 5-day pre-filing requirement, so that 
the proposed rule change may become effective and operative upon 
filing. The Commission believes that waiving the 30-day operative delay 
and the 5-day pre-filing requirement is consistent with the protection 
of investors and the public interest. The Exchange, as a trading 
center, is required under Regulation SHO to establish, maintain and 
enforce written policies and procedures reasonably designed to prevent 
the execution of sell short orders of covered securities subject to the 
short sale price test restriction at or below the current national best 
bid. Because the rule amendment is designed to address this requirement 
under Rule 201, the Commission agrees to waive the operative delay and 
pre-filing requirement. Accordingly, the Commission grants the 
Exchange's request and designates the proposal effective upon 
filing.\13\
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    \13\ For purposes of only 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 such 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 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-NSX-2013-13 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 No. SR-NSX-2013-13. This file 
number should be included in the subject line if email is used. To help 
the Commission process and review 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 a.m. and 3 
p.m. eastern time. Copies of such filings will also 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-NSX-2013-13 and should be 
submitted on or before July 24, 2013.

    For the Commission by the Division of Trading and Markets, 
pursuant to the delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15932 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P


