
[Federal Register Volume 79, Number 77 (Tuesday, April 22, 2014)]
[Notices]
[Pages 22558-22561]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09076]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71952; File No. SR-NYSEMKT-2014-32]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Proposes To Amend 
Certain of Its NYSE MKT Equities Rule Series (500 through 525) To 
Permit Additional Securities To Be Admitted to Dealings on the Exchange 
Pursuant to a Grant of Unlisted Trading Privileges

April 16, 2014.
    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 April 4, 2014, 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 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.
---------------------------------------------------------------------------

    \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 amend certain of its NYSE MKT Equities 
Rule Series (500 through 525) to permit additional securities to be 
admitted to dealings on the Exchange pursuant to a grant of unlisted 
trading privileges. Additionally, the Exchange proposes to amend 
Supplementary Material .20 to Rule 103--Equities to apply a uniform 
minimum net capital standard to Designated Market Maker (``DMM'') 
units, regardless of the type of security in which the DMM unit is 
registered. 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, at the Commission's Public Reference Room, and on the 
Commission's Web site at www.sec.gov.

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 certain of its NYSE MKT Equities 
Rule Series (500 through 525) (the ``500 series rules'') to permit 
additional securities to be admitted to dealings on the Exchange 
pursuant to a grant of unlisted trading privileges. Additionally, the 
Exchange proposes to amend Supplementary Material .20 to NYSE MKT Rule 
103--Equities to apply a uniform minimum net capital standard to DMM 
units,\4\ regardless of the type of security in which the DMM unit is 
registered.
---------------------------------------------------------------------------

    \4\ DMM unit is defined as ``any member organization, 
aggregation unit within a member organization, or division or 
department within an integrated proprietary aggregation unit of a 
member organization that (i) has been approved by NYSE Regulation 
pursuant to NYSE MKT Rule 98(c)--Equities, (ii) is eligible for 
allocations under Rule 103B--Equities as a DMM unit in a security 
listed or traded on the Exchange, and (iii) has met all registration 
and qualification requirements for DMM units assigned to such 
unit.'' See Rule 98(b)(2)--Equities.
---------------------------------------------------------------------------

Amendments to 500 Series Rules
    Securities admitted to trade on the Exchange pursuant to a grant of 
unlisted trading privileges are subject to a pilot program (the ``UTP 
Pilot Program'') set forth in the 500 series rules.\5\ The current UTP 
Pilot Program is limited to securities listed on the Nasdaq Stock 
Exchange (``Nasdaq Securities''), and includes only a single Exchange 
Traded Fund, the Invesco PowerShares QQQTM (the 
``QQQTM'').\6\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 62479 (July 9, 
2010), 75 FR 41264 (July 15, 2010) (SR-NYSEAmex-2010-31).
    \6\ The UTP Pilot Program is currently scheduled to expire on 
the earlier of Commission approval to make the pilot permanent or 
July 31, 2014. See Securities Exchange Act Release No. 71363 (Jan. 
21, 2014), 79 FR 4373 (Jan. 27, 2014) (SR-NYSEMKT-2014-01).
---------------------------------------------------------------------------

    The Exchange proposes to amend certain of the 500 series rules to 
expand the UTP Pilot Program beyond Nasdaq Securities and replace the 
term ``Nasdaq Securities'' with the term ``UTP Securities,'' which 
would be admitted to trading on the Exchange pursuant to a grant of 
unlisted trading privileges. As proposed, amended Rule 501(b)--Equities 
\7\ would define ``UTP Security''

[[Page 22559]]

to mean any security not listed on the Exchange that (i) is designated 
as an ``eligible security'' under the ``UTP Plan,'' discussed below, 
and (ii) has been admitted to dealings on the Exchange pursuant to a 
grant of unlisted trading privileges in accordance with Section 12(f) 
of the Act.\8\
---------------------------------------------------------------------------

    \7\ As discussed in detail below, the scope of Exchange Traded 
Funds eligible to trade on the Exchange pursuant to a grant of 
unlisted trading privileges would be expanded beyond the 
QQQTM. Thus, current Rule 501(b)--Equities would be 
deleted and current paragraphs (c) through (g) of Rule 501--Equities 
would be redesignated as paragraphs (b) through (d) of Rule 501--
Equities, and certain of those redesignated paragraphs would be 
amended, as indicated in this filing.
    \8\ Section 12(a) of the Act generally prohibits the trading on 
a national securities exchange of any security that is not listed on 
that exchange. Subject to certain limitations, however, Section 
12(f) excludes from this restriction securities traded pursuant to 
unlisted trading privileges that are listed and registered on 
another national securities exchange, otherwise registered under 
Section 12 of the Act, or that would be required to be so registered 
except for a specified exemption from registration. 15 U.S.C. 78l; 
Securities Exchange Act Release No. 43217 (Aug. 29, 2000), 65 FR 
53560 (Sept. 5, 2000).
---------------------------------------------------------------------------

    In addition to Nasdaq Securities, the new definition of UTP 
Securities would include certain ``Exchange Traded Products'' 
(``ETPs''). For purposes of this filing, ETPs include Exchange Traded 
Funds (``ETFs'') \9\; Exchange Traded Notes (``ETNs'') \10\; Exchange 
Traded Vehicles (``ETVs'') \11\; or any other security, other than a 
single equity option or a security futures product, whose value is 
based, in whole or in part, upon the performance of, or interest in, an 
underlying instrument.
---------------------------------------------------------------------------

    \9\ An ETF is an open-end management investment company under 
the Investment Company Act of 1940 that has received certain 
exemptive relief from the Commission to allow secondary market 
trading in the ETF shares. An ETF typically holds a portfolio of 
securities that is intended to provide results that, before fees and 
expenses, generally correspond to the price and yield performance of 
an underlying benchmark index or an investment objective, or that, 
rather than seek to track the performance of an underlying index, 
are managed according to the investment objective of the ETF's 
investment advisor.
    \10\ An ETN is a senior unsecured debt obligation designed to 
track the total return of an underlying index, benchmark or 
strategy, minus investor fees. ETNs are registered under the 
Securities Act of 1933 and are redeemable to the issuer.
    \11\ An ETV tracks the underlying performance of an asset or 
index, allowing the investors exposure to underlying assets such as 
futures contracts, commodities, and currencies without trading 
futures or taking physical delivery of the underlying asset. An ETV 
is traded intraday like an ETF. An ETV is an open-end trust or 
partnership unit that is registered under the Securities Act of 
1933.
---------------------------------------------------------------------------

    As proposed, New Rule 501(b)(3)--Equities, would exclude from the 
definition of UTP Security any ETP that has one or more component 
securities that trade either on the Exchange or on the New York Stock 
Exchange, LLC (the ``NYSE''). However, consistent with current 500 
Series Rules, proposed new Rule 501(b)(3)--Equities would permit the 
QQQTM, an ETF, to continue to trade on the Exchange on an 
unlisted trading privileges basis, subject to the continuation of 
certain restrictions.\12\
---------------------------------------------------------------------------

    \12\ See Rule 504(b)(5)--Equities. The Exchange proposes to 
replace the reference to ``ETF'' and ``Exchange Traded Fund'' in 
Rule 504(b)(5)--Equities with ``QQQTM'' because the only 
ETF that would be subject to the requirements of that rule would be 
the QQQTM.
---------------------------------------------------------------------------

    The Exchange proposes to amend the definition of UTP Plan under 
Rule 501(f)--Equities to reflect the expanded scope of the UTP Pilot 
Program. The current rule \13\ applies only to Nasdaq Securities and, 
therefore, the definition of UTP Plan is limited to the Joint Self-
Regulatory Organization Plan Governing the Collection, Consolidation 
and Dissemination of Quotation and Transaction Information for Nasdaq-
listed Securities Traded on Exchanges on an Unlisted Trading Privilege 
Basis (the ``Nasdaq Plan''). Amended Rule 501(f)--Equities would define 
the UTP Plan as comprising the Nasdaq Plan for Nasdaq Securities, plus 
the Consolidated Tape Association Plan for the Dissemination of Last 
Sale Prices of Transactions in Eligible Securities (``CTA Plan''), 
which would apply to all securities other than Nasdaq Securities that 
trade on the Exchange on an unlisted trading privileges basis, 
including ETPs listed on NYSE Arca, Inc.\14\
---------------------------------------------------------------------------

    \13\ Rule 501(g)--Equities has been redesignated as Rule 
501(f)--Equities.
    \14\ See Securities Exchange Act Release No. 10787 (May 10, 
1974), 39 FR 17799 (May 20, 1974) (declaring the CTA Plan 
effective). The Nasdaq Plan provides for the collection, processing, 
and dissemination of last sale and quotation data with respect to 
Nasdaq Securities trading on participant exchanges on an unlisted 
trading privileges basis. See Securities Exchange Act Release No. 
70429 (Sept. 17, 2013), 78 FR 58352 (Sept. 23, 2013). The CTA Plan 
provides for the collection, processing, and dissemination of last 
sale data for non-Nasdaq Securities trading on participant exchanges 
on an unlisted trading privileges basis. See Securities Exchange Act 
Release No. 70010 (July 19, 2013), 78 FR 44984 (July 25, 2013) (SR-
CTA/CQ-2013-04).
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 509(a)(2)--Equities with 
respect to a DMM's obligations to maintain price continuity with 
reasonable depth under Rules 104(f)(ii) and (iii) and 104(h)(ii) and 
(iii)(A)--Equities. The obligations are set out in Depth Guidelines and 
Price Participation Points (``PPPs''), which are implemented by the 
Exchange. The Exchange issues Depth Guidelines for each security in 
which a DMM is registered, and a DMM is expected to quote and trade 
with reference to such guidelines.\15\ PPPs serve as guidelines that 
identify the price at or before which a DMM unit is expected to re-
enter the market after a ``Conditional Transaction.'' \16\
---------------------------------------------------------------------------

    \15\ Rule 104(f)(iii)--Equities.
    \16\ Rule 104(h)(iii)(A)--Equities. A ``Conditional 
Transaction'' is a DMM's transaction in a security that establishes 
or increases a position and reaches across the market to trade as 
the contra-side to the Exchange-published bid or offer. Rule 
104(h)(i)--Equities.
---------------------------------------------------------------------------

    The Depth Guidelines and PPPs, as described in Rules 104(f)(ii) and 
(iii) and 104(h)(ii) and (iii)(A)--Equities, would apply to UTP 
Securities; however, the Exchange would determine when implementation 
of the provisions would occur, and in any case it would not be until at 
least six months after the Commission's approval of this filing. The 
phased implementation would give the Exchange time to gather data to 
develop and phase in appropriate guidelines for UTP Securities.\17\
---------------------------------------------------------------------------

    \17\ For similar reasons, the Exchange implemented depth 
guidelines under the current UTP Pilot Program six months after 
approval of those rule changes. See supra note 5.
---------------------------------------------------------------------------

    The Exchange proposes to amend the following rules to change 
references from ``Nasdaq Securities'' to ``UTP Securities'': Rules 500, 
501,\18\ 502, 504, 506, 508,\19\ 509, 511, 512, 515, 516, and 518--
Equities. The Exchange also proposes to amend Rules 510 and 522--
Equities to change references from ``Exchange Traded Fund'' to ``ETP.''
---------------------------------------------------------------------------

    \18\ In addition to the other amendments to Rule 501--Equities 
identified in this filing, a reference to trading pauses under the 
LULD Pilot Program was added to situations in which the market for a 
UTP Security could be manual or ``slow.''
    \19\ Rule 508(b)(2)--Equities also added a reference to trading 
pauses under the LULD Pilot Program to situations in which the 
market for a UTP Security could be manual or ``slow.''
---------------------------------------------------------------------------

    The Exchange believes that the proposed amendments to the 500 
Series rules would encourage the additional utilization of, and 
interaction with, the Exchange, and provide market participants with 
improved price discovery, increased liquidity, more competitive quotes, 
and greater price improvement for UTP Securities. A DMM in each UTP 
Security would be required to facilitate trading, which would supply 
liquidity as needed. By allowing a broader set of securities to be 
traded on the Exchange under the UTP Pilot Program, the proposed 
revision gives market participants more flexibility in deciding on 
which venue to trade UTP Securities, consistent with trading needs of 
such participants.
Amendments to DMM Unit Minimum Capital Requirements
    The Exchange proposes to amend Supplementary Material .20 to Rule 
103--Equities to apply a uniform minimum net capital standard to DMM 
units, regardless of the type of security

[[Page 22560]]

in which the DMM unit is registered. Under the current version of 
Supplementary Material .20, each DMM unit, other than those registered 
in Structured Products,\20\ must maintain tentative net capital in the 
amount of the greater of $1,000,000 or an amount sufficient to assume a 
position of sixty trading units of each security in which the DMM unit 
is registered. DMM units that are registered in Structured Products, 
however, must maintain tentative net capital in the amount of the 
greater of $500,000 for each Structured Product or $1,000,000.
---------------------------------------------------------------------------

    \20\ Rule 123D(4)--Equities defines ``Structured Products'' as 
``securities listed pursuant to Sections 104 (Bonds and Debentures), 
106 (Currency and Index Warrants), or 107 (Other Securities) of the 
Company Guide or pursuant to Rules 1000-AEMI and 1001 et seq. 
(Portfolio Depositary Receipts), 1000A-AEMI and 1001A et seq. (Index 
Fund Shares), 1000B et seq. (Managed Fund Shares), 1200-AEMI and 
1201 et seq. (Trading of Trust Issued Receipts), 1200A-AEMI and 
1201A et seq. (Commodity-Based Trust Shares), 1400 et seq. (Trading 
of Paired Trust Shares), 1500-AEMI and 1501 et seq. (Trading of 
Partnership Units), or 1600 et seq. (Trading of Trust Units).'' ETPs 
fall within the definition of Structured Products.
---------------------------------------------------------------------------

    The Exchange proposes to eliminate the distinction between DMM 
units registered in Structured Products and DMM units registered in 
other securities. The revised version of Supplementary Material .20 
eliminates the special net capital requirement applicable to DMM units 
registered in Structured Products, requiring all DMM units to maintain 
tentative net capital in the amount of the greater of $1,000,000 or an 
amount sufficient to assume a position of sixty trading units of each 
security in which the DMM is registered.
    The Exchange does not believe that DMMs registered in Structured 
Products should be treated differently from DMMs registered in other 
securities for net capital purposes. The purpose of the net capital 
requirement is to ensure that DMM units maintain sufficient liquidity 
to carry out their obligations to maintain an orderly market in their 
assigned securities during periods of market stress. The Exchange 
believes that the uniform minimum net capital standard will be adequate 
to support the liquidity needs of DMM units to meet their obligations 
to the market during periods of market stress. Thus, the Exchange 
proposes to eliminate disparate treatment for DMM units registered in 
Structured Products with respect to net capital requirements.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange. In particular, 
the Exchange believes that the proposal is consistent with (i) Section 
6(b) of the Act,\21\ in general, and furthers the objectives of Section 
6(b)(5),\22\ in particular, in that it is designed 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; (ii) Section 
11A(a)(1) of the Act,\23\ in that it seeks to ensure the economically 
efficient execution of securities transactions and fair competition 
among brokers and dealers and among exchange markets; and (iii) Section 
12(f) of the Act,\24\ which governs the trading of securities pursuant 
to unlisted trading privileges consistent with the maintenance of fair 
and orderly markets, the protection of investors and the public 
interest, and the impact of extending the existing markets for such 
securities.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 15 U.S.C. 78k-1(a)(1).
    \24\ 15 U.S.C. 78l(f).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market 
because expanding the number of securities available to trade on the 
Exchange on an unlisted trading privileges basis will enhance 
intermarket competition for such securities. Specifically, the Exchange 
believes that expanding the set of securities covered by the UTP Pilot 
Program would encourage the additional utilization of, and interaction 
with, the Exchange, thereby providing market participants with 
additional price discovery, increased liquidity, more competitive 
quotes, and potentially greater price improvement for UTP Securities. 
The Exchange also believes that eliminating disparate treatment of DMM 
units registered in Structured Products for net capital purposes will 
remove impediments to and perfect the mechanism of a free and open 
market because a uniform minimum net capital standard will equalize the 
net capital requirements for a DMM registered in Structured Products as 
compared with other securities.
    Finally, the Exchange believes that the proposed elimination of 
disparate treatment of DMM units registered in Structured Products for 
net capital purposes in favor of a uniform net capital requirement 
applicable to all DMM units is designed to protect investors and the 
public interest and promote just and equitable principles of trade. The 
Exchange believes the proposed rule change will protect investors and 
the public interest because the uniform standard will adequately 
support the liquidity needs of DMM units to enable them to meet their 
obligations during times of market stress.\25\ Further, the proposed 
rule change will promote just and equitable principles of trade because 
the Exchange does not believe that DMM units registered in Structured 
Products should be treated differently from DMM units registered in 
other securities.
---------------------------------------------------------------------------

    \25\ Additionally, the Exchange notes that the net capital 
requirements of Rule 103--Equities are in addition to the net 
capital requirements applicable to all broker-dealers pursuant Rule 
15c3-1, promulgated under the Act.
---------------------------------------------------------------------------

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 not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Exchange 
believes that expanding the set of securities permitted to be traded on 
the Exchange pursuant to unlisted trading privileges will promote 
competition in the trading of UTP Securities by providing an additional 
market for the trading of such securities, and thereby provide market 
participants with opportunities for improved price discovery, increased 
liquidity through additional market making, more competitive quotes, 
and greater price improvement. Additionally, the Exchange believes that 
eliminating disparate treatment of Structured Products for net capital 
purposes will not impose any burden on competition because DMM units 
registered in Structured Products and DMM units registered in other 
securities will be required to meet the same minimum net capital 
standard.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \26\ and Rule 19b-

[[Page 22561]]

4(f)(6) thereunder.\27\ 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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
and Rule 19b-4(f)(6) thereunder.\28\
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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 satisfied this requirement.
    \28\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings under Section 19(b)(2)(B) \29\ 
of the Act to determine whether the proposed rule should be approved or 
disapproved.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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-2014-32 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2014-32. 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-NYSEMKT-2014-32 and should 
be submitted on or before May 13, 2014.
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09076 Filed 4-21-14; 8:45 am]
BILLING CODE 8011-01-P


