
[Federal Register Volume 78, Number 249 (Friday, December 27, 2013)]
[Notices]
[Pages 79046-79047]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30966]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71166; File No. SR-NYSEArca-2013-142]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Offer Risk 
Management Tools Designed To Allow ETP Holders To Monitor and Address 
Exposure to Risk

December 20, 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 on December 12, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 offer risk management tools designed to 
allow ETP Holders to monitor and address exposure to risk. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In order to assist ETP Holders' efforts to manage their risk level, 
the Exchange proposes to offer risk management tools designed to allow 
ETP Holders to monitor and address exposure to risk.
    On October 2, 2012, the Commission conducted a roundtable entitled 
``Technology and Trading: Promoting Stability in Today's Markets'' (the 
``Roundtable'').\4\ While a number of issues were discussed at the 
Roundtable, a large amount of time was devoted to discussing ``kill-
switches,'' a mechanism that would deactivate trading when certain 
thresholds were met. Panelists and commenters on the Roundtable's 
topics generally supported a kill-switch mechanism that would permit 
market centers to terminate a firm's trading activity if such activity 
was posing a threat to market integrity. But there was concern that 
firms would ``be reluctant to systemically cut themselves off from the 
market'' \5\ and therefore, any kill-switch-triggering threshold would 
be set by the firm at a conservative level such that the automated 
disconnect would not occur when actually needed. At the same time 
though, the ability to detect unusual behavior would be invaluable to a 
firm in assessing whether an error was causing an unwanted buildup in 
risk.
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    \4\ See Securities Exchange Act Release No. 67802 (Sept. 7, 
2012), 77 FR 56697 (Sept. 13, 2012) (File No. 4-652). A webcast of 
the Roundtable is available at www.sec.gov/news/otherwebcasts/2012/ttr100212.shtml.
    \5\ See Transcript of Roundtable, Sections 0151-0152 (Oct. 2, 
2012) (remarks of Lou Steinberg, TD Ameritrade).
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    To address the concerns raised during the Roundtable, the Exchange 
proposes to offer optional risk management tools for its ETP Holders 
that would facilitate, among other things, blocking of an ETP Holder's 
orders if certain thresholds were met. As proposed, the risk management 
tools seek to balance the conflicting viewpoints raised during the 
Roundtable by providing risk monitoring services that grant discretion 
to the ETP Holder to define pre-set risk thresholds. The tools are 
designed to act as a backstop for ETP Holders' risk controls by 
providing them with the ability to take action to more effectively 
manage their risk levels with respect to orders at the Exchange.
    The risk management tools will provide ETP Holders with the ability 
to segment activity into risk groups and to monitor exposure in real 
time as trades execute. ETP Holders may also take certain actions in 
response to an unwanted buildup in risk levels, such as bulk blocking 
or bulk cancelling orders by risk group. Additionally, ETP Holders may 
define risk limits that may be adjusted intraday and elect to have the 
Exchange take action based on these pre-set limits, such as sending 
alerts as exposure limits are approached and breached or automatically 
blocking orders upon a breach. The tools are meant to be supplemental, 
acting as a backstop for an ETP Holder's internal monitoring and 
procedures related to risk management. The Exchange does not guarantee 
that the tools will be sufficiently comprehensive to meet all of an ETP 
Holder's needs, and the tools are not designed to be the sole means of 
risk control. Moreover, the use of the Exchange's risk management tools 
will not automatically constitute compliance with Exchange or federal 
rules.
    As noted above, the proposed risk management tools will be optional 
for ETP Holders. The Exchange will not provide preferential treatment 
to ETP Holders using the Exchange-offered risk management tools and 
will not charge a fee for use of the risk management tools. Should the 
Exchange determine to charge a fee for use of the risk management 
tools, such fee will be proposed through a subsequent rule filing.
    The Exchange will be phasing in its risk management tools as the 
technology supporting the functionality is being implemented and will 
announce by Trader Update when specific risk management tools will be 
available. The Exchange intends to make available the ability to 
segment activity into risk groups, define risk limits, and enter bulk 
block and bulk cancel messages during the first rollout.\6\ Additional 
functionality, such as allowing ETP Holders to elect to have the 
Exchange take automated action based on pre-set limits, will be phased 
in over subsequent months.
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    \6\ The Exchange expects the first rollout to begin in the first 
quarter of 2014.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\7\ in general, and Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed to foster 
cooperation and coordination

[[Page 79047]]

with persons 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 and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will foster 
cooperation and coordination with persons facilitating transactions in 
securities because the Exchange will provide alerts to ETP Holders when 
their trading reaches certain thresholds. As such, the Exchange will 
help ETP Holders monitor their risk levels and provide tools for the 
firms to take action. Additionally, the Exchange believes that the 
proposed rule change will remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the tools will provide ETP Holders with the ability to self-
manage their levels of risk while providing an alert system that will 
help to ensure that ETP Holders are aware of developing issues. As 
such, the Exchange believes that the tools will provide a means to 
address potentially market-impacting events, helping to ensure the 
proper functioning of the market.
    Further, the Exchange believes that the proposed rule change is 
designed to protect investors and the public interest because the tools 
are a form of impact mitigation that will aid ETP Holders in minimizing 
their risk exposure and reduce the potential for disruptive, market-
wide events. The Exchange understands that firms test their trading 
systems in order to identify and mitigate latent defects. The proposed 
tools will serve as a back stop for ETP Holders to assist them in 
identifying any such issues. The Exchange believes the risk management 
tools will assist ETP Holders in managing their financial exposure 
which, in turn, could enhance the integrity of trading on the 
securities markets and help to assure the stability of the financial 
system.
    Finally, the Exchange believes that the proposed rule change does 
not unfairly discriminate among the Exchange's ETP Holders because use 
of the risk management tools is optional and is not a prerequisite for 
participation on the Exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. In fact, the 
Exchange believes that the proposal will have a positive effect on 
competition because, by providing ETP Holders with additional means to 
monitor and control risk, the proposal will increase confidence in the 
proper functioning of the markets. The Exchange believes the risk 
management tools will assist ETP Holders in managing their financial 
exposure which, in turn, could enhance the integrity of trading on the 
securities markets and help to assure the stability of the financial 
system. As a result, the level of competition should increase as public 
confidence in the markets is solidified.

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 foregoing 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) \10\ 
thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 satisfied this requirement.
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comment

    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-NYSEArca-2013-142 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-NYSEArca-2013-142. 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-NYSEArca-2013-142 and should 
be submitted on or before January 17, 2014.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30966 Filed 12-26-13; 8:45 am]
BILLING CODE 8011-01-P


