
[Federal Register Volume 81, Number 189 (Thursday, September 29, 2016)]
[Notices]
[Pages 67036-67038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23495]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78917; File No. SR-NYSEMKT-2016-68]


Self-Regulatory Organizations; NYSE MKT LLC; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 and 
Partial Amendment No. 2, Amending Exchange Rule 49 Regarding the 
Exchange's: (1) Emergency Powers; (2) Disaster Recovery Plans; and (3) 
Backup Systems and Mandatory Testing

September 23, 2016.

I. Introduction

    On July 29, 2016, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') 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\ a proposed rule change to amend 
Exchange Rule 49--Equities (``Rule 49'') to establish a Disaster 
Recovery Facility and to move the text of Exchange Rule 438--Equities 
(``Rule 438'') to proposed Exchange Rule 49. The Exchange further 
proposes to amend Exchange Rule 0--Equities (``Rule 0'') and Rule 431--
Equities (Exchange Backup Systems and Mandatory Testing) (``Rule 431'') 
to specify that Exchange Rule 431 would govern Exchange Backup Systems 
and Mandatory Testing for Exchange ATP Holders only. On August 1, 2016, 
the Exchange filed Amendment No. 1 to its proposal.\3\ On August 11, 
2016, the proposed rule change, as modified by Amendment No. 1, was 
published for comment in the Federal Register.\4\ On September 19, 
2016, the Exchange filed Partial Amendment No. 2, to its proposal.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced the proposal in its entirety.
    \4\ See Securities Exchange Act Release No. 78483 (August 5, 
2016), 81 FR 53176 (SR-NYSEMKT-2016-68).
    \5\ Amendment No. 2 partially amended the proposal to add 
additional text to proposed Exchange Rule 49, specifying that member 
organizations of the Exchange that are currently required to 
participate in testing of the Exchange's business continuity and 
disaster recovery plans under current Exchange Rule 438 and proposed 
Exchange Rule 49(b)(N) would also be required to test the Exchange's 
proposed disaster recovery plans. Partial Amendment No. 2 is 
available at: https://www.sec.gov/comments/sr-nysemkt-2016-68/nysemkt201668-2.pdf. Because Amendment No. 2 does not materially 
alter the substance of the proposed rule change or raise unique or 
novel regulatory issues, Amendment No. 2 is not subject to notice 
and comment.
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    The Commission did not receive any comments on the proposal. This 
order approves the proposal, as modified by Amendment No. 1 and Partial 
Amendment No. 2.

II. Description of the Proposed Rule Changes, as Modified by Amendment 
No. 1 and Partial Amendment No. 2

    The Exchange proposes to amend Exchange Rule 49 by removing the 
current text relating to the Exchange's Emergency Powers and replacing 
it with new text regarding the Exchange's Business Continuity and 
Disaster Recovery Plan, and by moving the text in Exchange Rule 438 
regarding Mandatory Testing to Rule 49.\6\ The

[[Page 67037]]

Exchange also proposes to amend Exchange Rule 51--Equities (``Rule 
51'') to govern the circumstances under which the Exchange's CEO may 
determine to have the Exchange trade securities on its Disaster 
Recovery Facility.
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    \6\ Because the Exchange would not implement amended Exchange 
Rule 49(a) until after an opportunity to test its procedures with 
Exchange member organizations, the Exchange proposes to retain 
current NYSE MKT Rule 49 on its rulebook. The Exchange would delete 
current Exchange Rule 49 through a separate proposed rule change to 
establish the operative date of amended Exchange Rule 49(a). In 
addition to filing the separate proposed rule change, the Exchange 
will announce via Trader Update the operative date of proposed Rule 
49(a).
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A. Current NYSE MKT Rule 49

    Exchange Rule 49(a) sets forth the Exchange's emergency powers, 
which grant a qualified Exchange officer the authority to declare an 
emergency condition with respect to trading on or through the 
Exchange's systems and facilities of the Exchange, and designates NYSE 
Arca, Inc. (``NYSE Arca'') to perform certain functions on behalf of, 
and at the direction of, the Exchange in the event of an emergency 
condition. Exchange Rule 49(a) also describes when an Emergency 
Condition may be declared and defines the terms ``emergency'' and 
``qualified Exchange officer.''
    Under Exchange Rule 49, once an emergency condition is declared, 
the Exchange shall halt all trading on its systems and facilities, 
purge any unexecuted orders as soon as practicable, and prevent those 
orders from routing to NYSE Arca.\7\ Beginning the next trading day 
following the declaration of an emergency condition, NYSE Arca, on 
behalf of and at the direction of the Exchange, shall disseminate the 
official opening, re-opening, and closing trades of Exchange-listed 
securities to the Consolidated Tape as messages of the Exchange, and 
also disseminate certain other notifications for Exchange-listed 
securities to the Consolidated Quotation System as messages of the 
Exchange.\8\ In addition, bids and offers for Exchange-listed 
securities entered on or through the systems and facilities of NYSE 
Arca during the emergency condition shall be reported to the 
Consolidated Quotation System as bids and offers of NYSE Arca, except 
that the opening quote shall be reported to the Consolidated Quotation 
System as a bid or offer of both the Exchange and NYSE Arca, and any 
re-opening quote shall be reported to the Consolidated Quotation System 
as a bid or offer of the Exchange only.\9\
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    \7\ See Current Exchange Rule 49(b)(1)(A) and (B).
    \8\ See Current Exchange Rule 49(b)(2)(A).
    \9\ See Current Exchange Rule 49(b)(2)(B).
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    Members and member organizations of the Exchange who wish to trade 
Exchange-listed securities during an emergency condition are 
responsible for having a contingency plan for connecting to NYSE 
Arca.\10\ All trading of Exchange-listed securities during an emergency 
condition on or through NYSE Arca shall be subject to NYSE Arca 
Equities Rules.\11\ Before declaring an emergency condition, the 
qualified Exchange officer shall make a reasonable effort to consult 
with the Commission.\12\ An emergency condition may remain in effect 
for up to 10 calendar days from the date it is invoked.\13\ The 
Exchange has represented that, to date, it has not invoked Exchange 
Rule 49.\14\
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    \10\ See Current Exchange Rule 49(b)(3).
    \11\ See Current Exchange Rule 49(b)(4). However, the Exchange's 
listing requirements shall remain applicable. See Current Exchange 
Rule 49(b)(4).
    \12\ See Current Exchange Rule 49(c)(1).
    \13\ See Current Exchange Rule 49(c)(2).
    \14\ See Notice, supra note 3, at 53177.
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B. Proposed Amendments to Exchange Rules

    The Exchange proposes to adopt new business continuity and disaster 
recovery plans for use on the Disaster Recovery Facility to be 
maintained by the Exchange. Under the proposed business continuity and 
disaster recovery plans, if the Exchange trades securities on its 
Disaster Recovery Facility, then:

1. The 11 Wall Street facilities will not be available for 
trading.\15\
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    \15\ See Proposed Exchange Rule 49(a)(2)(A). The Exchange states 
that, because the trading systems in the Exchange's Disaster 
Recovery Facility would not have connectivity to designated market 
maker (``DMM'') and Floor broker trading systems, the Exchange would 
operate as a fully electronic exchange when operating out of its 
Disaster Recovery Facility, even if 11 Wall Street facilities were 
not impacted.
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2. Consistent with the Exchange's business continuity plan, opening 
and reopening auctions of Exchange-traded securities traded on the 
Disaster Recovery Facility would be subject to Rule 123D(a)(2)-(6)--
Equities and closing auctions would be subject to Supplementary 
Material .10 to Rule 123C--Equities.\16\
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    \16\ See Proposed Exchange Rule 49(a)(2)(B). The Exchange states 
that, because there would be no Trading Floor or DMM connectivity, 
the Exchange would facilitate all openings, reopenings, and 
closings.
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3. Any unexecuted Exchange-traded securities orders entered into the 
Exchange's systems prior to commencing trading on the Disaster 
Recovery Facility would be deemed canceled and would be purged from 
the Exchange's systems.\17\
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    \17\ See Proposed Exchange Rule 49(a)(2)(C). The Exchange states 
that the orders would have to be canceled because, depending on the 
scope of the disruption, the Exchange may be unable to transmit 
cancellation messages for unexecuted orders.
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4. Member organizations registered as DMMs would not be subject to 
any DMM obligations or benefits under Exchange rules while 
securities trade on the Disaster Recovery Facility.\18\
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    \18\ See Proposed Exchange Rule 49(a)(2)(D). See also Exchange 
Rule 103B(I)--Equities (quoting requirements for allocation process 
of listed securities) and Rule 104--Equities (Dealings and 
Responsibilities of DMMs). According to the Exchange, DMMs would not 
be subject to any such obligations or benefits because the Exchange 
would not maintain systems that support DMM quoting at its Disaster 
Recovery Facility. Therefore, DMMs that route orders to the Disaster 
Recovery Facility would trade in a manner similar to other market 
participants that electronically enter orders at the Exchange, and 
DMMs would be subject to the same fees and credits applicable to 
non-DMM transactions.

    The Disaster Recovery Facility and the revised business continuity 
and disaster recovery plans would allow the Exchange to no longer 
designate NYSE Arca as its backup facility but instead operate as a 
fully electronic exchange on its own facilities under its own trading 
rules, with its own order book and with quotes and trades publicly 
reported as quotes and trades of the Exchange, rather than as quotes 
and trades of NYSE Arca. Member organizations wishing to trade on the 
Exchange's Disaster Recovery Facility would be responsible for having 
contingency plans for establishing connectivity to that facility and 
changing routing instructions for their order entry systems to send 
bids and offers in Exchange-traded securities to that facility.\19\ The 
proposed rule change would also require member organizations to 
participate in scheduled functional and performance testing of the 
Exchange's business continuity and disaster recovery plans in the 
manner and frequency specified by the Exchange, which shall not be less 
than once every 12 months.\20\
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    \19\ See Proposed Exchange Rule 49(a)(3).
    \20\ See Proposed Exchange Rule 49(b)(N).
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    The Exchange also proposes to delete certain current Rule 49 text 
that will be rendered obsolete or unnecessary by the proposal. This 
text includes certain terms, references to NYSE Arca, limits on the 
operative period for emergency powers, and notifications to the 
Commission.\21\ In addition the Exchange has proposed non-substantive 
conforming changes to Exchange Rules 49(b)(N), 431, and 438, to update 
numbering and cross-references.\22\ The Exchange also proposes to amend 
Exchange Rule 51 to govern the

[[Page 67038]]

circumstances under which the Exchange's Chief Executive Officer 
(``CEO'') may determine to have the Exchange trade securities on its 
Disaster Recovery Facility.\23\ Finally, the Exchange proposes to amend 
Rule 431 to delete references to the terms ``member,'' ``member 
organization,'' and ``designated market maker'' and use the term ``ATP 
Holder'' because Rule 431 would pertain only to options trading. 
Additionally the Exchange proposes to amend Rule 0 to remove the 
reference to Rule 431 as being applicable to equities trading.
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    \21\ The Commission notes that, under Regulation SCI, the 
Exchange would be required to notify the Commission of any ``SCI 
event,'' such as a systems disruption that caused the Exchange to 
use its Disaster Recovery Facility. See 17 CFR 242.1002(b)(1).
    \22\ The Exchange proposes to designate this paragraph of 
proposed Exchange Rule 49(b)(N) with an ``N'' to distinguish it from 
current Exchange Rule 49(b), as both would be operative at the same 
time.
    \23\ The Exchange proposes to amend Exchange Rule 51(b) to 
provide the Exchange's CEO with the authority to determine whether 
to use the Exchange's Disaster Recovery Facility. The Exchange also 
proposes to make a conforming amendment to Exchange Rule 51(c) to 
specify that the CEO shall take any of the actions described in 
Exchange Rule 51(b) only when such action is deemed necessary or 
appropriate for the maintenance of a fair and orderly market, or the 
protection of investors of otherwise in the public interest, due to 
extraordinary circumstances.
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III. Discussion and Commission Findings

    After careful review of the proposal, as modified by Amendment Nos. 
1 and No. 2, the Commission finds 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.\24\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\25\ which 
requires, among other things, that the rules of a national securities 
exchange be 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.
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    \24\ In approving these proposed rule changes, the Commission 
has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
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    Under amended Exchange Rule 49, the Exchange would maintain its own 
Disaster Recovery Facility to continue Exchange operations when 
necessary without substantial disruption to member organizations. This 
Disaster Recovery Facility would allow the Exchange to no longer 
designate NYSE Arca as its backup facility but instead operate as a 
fully electronic exchange on its own facilities, under its own trading 
rules, with its own order book and with quotes and trades publicly 
reported under the Exchange's own reporting symbol. The proposed rule 
change would also require member organizations to participate in 
scheduled functional and performance testing of the Exchange's business 
continuity and disaster recovery plans in the manner and frequency 
specified by the Exchange, which shall not be less than once every 12 
months.\26\
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    \26\ See Proposed Exchange Rule 49(b)(N).
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    Under the proposal, the Exchange CEO would be authorized to make a 
determination for the Exchange to trade securities on the Disaster 
Recovery Facility only when the CEO deems such action to be necessary 
or appropriate for the maintenance of a fair and orderly market, or for 
the protection of investors or otherwise in the public interest, due to 
extraordinary circumstances. The Exchange CEO must notify the Exchange 
board of directors as soon as feasible if the CEO makes a determination 
to use the Disaster Recovery Facility.
    The Commission believes that the proposal is reasonably designed to 
permit the Exchange to continue to operate in the event of an emergency 
by using a secondary data center located in a geographically diverse 
location to open, trade, and close Exchange-listed securities. 
Accordingly, the Commission believes that the proposal is designed to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and to protect investors and the 
public interest, and the Commission therefore finds that the proposed 
rule change is consistent with the requirements of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (SR-NYSEMKT-2016-68), as 
modified by Amendments No. 1 and Partial Amendment No. 2, be, and 
hereby is, approved.
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    \27\ 15 U.S.C. 78s(b)(2).

    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)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-23495 Filed 9-28-16; 8:45 am]
 BILLING CODE 8011-01-P


