
[Federal Register Volume 82, Number 34 (Wednesday, February 22, 2017)]
[Notices]
[Pages 11379-11381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03398]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80043; File No. SR-NYSEMKT-2016-99]


Self-Regulatory Organizations; NYSE MKT LLC; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Amending Rule 104--Equities To Delete Subsection 
(g)(i)(A)(III) Prohibiting Designated Market Makers From Establishing a 
New High (Low) Price on the Exchange in a Security the DMM Has a Long 
(Short) Position During the Last Ten Minutes Prior to the Close of 
Trading

February 15, 2017.

I. Introduction

    On October 27, 2016, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') 
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 
amending Rule 104--Equities to delete subsection (g)(i)(A)(III), which 
prohibits Designated Market Makers (``DMMs'') from establishing, during 
the last ten minutes of trading before the close, a new high (low) 
price for the day on the Exchange in a security in which the DMM has a 
long (short) position (``Rule 104(g)(i)(A)(III) Prohibition''). The 
proposed rule change was published for comment in the Federal Register 
on November 17, 2016.\3\
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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. 79283 (Nov. 10, 
2016), 81 FR 81210 (Nov. 17, 2016) (``Notice'').
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    On December, 20, 2016, the Commission extended to February 15, 
2017, the time period in which to approve the proposal, disapprove the 
proposal, or institute proceedings to determine whether to approve or 
disapprove the proposal.\4\ The Commission has received no comments on 
the proposal. This order institutes proceedings under Section 
19(b)(2)(B) of the Act to determine whether to approve or disapprove 
the proposal.
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    \4\ See Securities Exchange Act Release No. 79611 (Dec. 20, 
2016), 81 FR 95205 (Dec. 27, 2016).
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II. Description of the Proposal

    Currently, under Exchange Rule 104--Equities (g)(i)(A)(III), a DMM 
with a long (short) position in a security cannot, during the last ten 
minutes before the close of trading, make a purchase (sale) in that 
security that results in a new high (low) price on the Exchange for 
that day.\5\ The Exchange proposes to remove this prohibition from its 
rulebook.
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    \5\ See Exchange Rule 104--Equities (g)(i)(A)(III). Exchange 
Rule 104--Equities (g)(i)(A)(III)(2) provides two exceptions to this 
general prohibition.
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    The Exchange asserts that, in light of developments in the equity 
markets and in the Exchange's own trading model, Rule 104(g)(i)(A)(III) 
has lost its original purpose and utility.\6\ Specifically, the 
Exchange asserts that, in today's electronic marketplace, where DMMs 
have replaced specialists, and control of pricing decisions has moved 
away from market participants on the Exchange trading floor, the 
purpose behind the Rule 104(g)(i)(A)(III) Prohibition is no longer 
necessary, and eliminating the prohibition would not eliminate other 
existing safeguards that prevent DMMs from inappropriately influencing 
or manipulating the close.\7\
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    \6\ See Notice, 81 FR at 81211.
    \7\ See id. at 81211-81212.
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    The Exchange argues that the rationale behind preventing 
specialists from setting the price of a security on the Exchange in the 
final ten minutes of

[[Page 11380]]

trading was to prevent specialists from inappropriately influencing the 
price of a security at the close to advantage a specialist's 
proprietary position.\8\ In today's fragmented marketplace, according 
to the Exchange, a new high or low price for a security on the Exchange 
in the last ten minutes of trading does not have a significant effect 
on the market price for that security, because a new high or low price 
on the Exchange may not be the new high or low for a security--prices 
may be higher or lower in away markets, where the majority of intra-day 
trading in NYSEMKT-listed securities takes place--and because any 
advantage to a DMM by establishing a new high or low on the Exchange 
during the last ten minutes can rapidly evaporate following trades in 
away markets. Because DMMs do not have the ability to direct or 
influence trading, or to control intra-day prices, that specialists had 
before the implementation of Regulation NMS, the Exchange asserts, the 
Rule 104(g)(i)(A)(III) Prohibition is anachronistic.\9\
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    \8\ See id. at 81211.
    \9\ See id.
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III. Proceedings To Determine Whether To Disapprove SR-NYSEMKT-2016-99 
and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \10\ to determine whether the proposal should be 
disapproved. Institution of such proceedings is appropriate at this 
time in view of the legal and policy issues raised by the proposal, as 
discussed below. Institution of disapproval 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 on the proposal.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act,\11\ which 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. In addition, Section 6(b)(5) of the 
Act prohibits the rules of an exchange from being designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b)(5).
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    The Rule 104(g)(i)(A)(III) Prohibition was originally approved as 
part of the New York Stock Exchange LLC (``NYSE'') pilot program called 
the ``New Market Model \12\ which was subsequently incorporated into 
the Exchange's rulebook.\13\ As the Commission stated when approving 
the NYSE proposal to conduct the New Market Model pilot, ``[w]e 
carefully review trading rule proposals that seek to offer special 
advantages to market makers. Although an exchange may reward such 
participants for the benefits they provide to the exchange's market, 
such rewards must not be disproportionate to the services provided.'' 
\14\ In 2015, when the Commission approved the NYSE's proposal to make 
the New Market Model permanent,\15\ the Commission noted the Rule 
104(g)(i)(A)(III) Prohibition,\16\ among many aspects of the New Market 
Model, and reiterated that the pilot program had been conducted, among 
other reasons, to seek ``further evidence that the benefits proposed 
for DMMs are not disproportionate to their obligations.'' \17\
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    \12\ See Securities Exchange Act Release No. 58845 (Oct. 24, 
2008), 73 FR 64379 (Oct. 29, 2008) (SR-NYSE-2008-46) (approving NYSE 
New Market Model pilot program) (``NMM Pilot Approval Order'').
    \13\ See Securities Exchange Act Release No. 59022 (Nov. 26, 
2008), 73 FR 63683 (Dec. 3, 2008) (NYSEALTR-2008-10) (amending 
equity rules to conform to NYSE NMM pilot rules).
    \14\ See NMM Pilot Approval Order, 73 FR at 64388.
    \15\ See Securities Exchange Act Release No. 75578 (Jul. 31, 
2015), 80 FR 47008 (Aug. 6, 2015) (SR-NYSE-2015-26) (``NMM Approval 
Order''). See also Securities Exchange Act Release No. 75952 (Sep. 
18, 2015), 80 FR 57645 (Sep. 24, 2015) (SR-NYSEMKT-2015-64) (notice 
of filing and immediate effectiveness of proposed rule change to 
make permanent the rules of the New Market Model pilot).
    \16\ See NMM Approval Order, 80 FR at 47010.
    \17\ See id. at 47013.
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    Under the proposal, the Exchange seeks to eliminate the Rule 
104(g)(i)(A)(III) Prohibition--an obligation imposed on DMMs--thereby 
altering the existing set of obligations and benefits of DMM status. 
Accordingly, the Commission seeks public comment on whether the 
Exchange's proposal would maintain an appropriate balance between the 
benefits and obligations of being a DMM on the Exchange and whether the 
obligations of DMMs under remaining Exchange rules are reasonably 
designed to prevent DMMs from inappropriately influencing or 
manipulating the close in light of DMMs' special responsibility for 
closing auctions under Exchange rules.

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 
proposal. In particular, the Commission invites the written views of 
interested persons concerning whether the proposal is inconsistent with 
Section 6(b)(5) 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.\18\
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    \18\ 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 proposal 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 proposal should be disapproved by March 
15, 2017. Any person who wishes to file a rebuttal to any other 
person's submission must file that rebuttal by March 29, 2017.
    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-2016-99 on the subject line.

Paper Comments

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

All submissions should refer to File Numbers SR-NYSEMKT-2016-99. The 
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

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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 proposal that 
are filed with the Commission, and all written communications relating 
to the proposal 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-NYSEMKT-2016-99 and should 
be submitted on or before March 15, 2017. Rebuttal comments should be 
submitted by March 29, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03398 Filed 2-21-17; 8:45 am]
 BILLING CODE 8011-01-P


