81 FR 81210 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 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
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 222 (November 17, 2016)
Federal Register Volume 81, Issue 222 (November 17, 2016)
| Page Range | 81210-81213 | |
| FR Document | 2016-27593 |
[Federal Register Volume 81, Number 222 (Thursday, November 17, 2016)] [Notices] [Pages 81210-81213] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-27593] [[Page 81210]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79283; File No. SR-NYSEMKT-2016-99] Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 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 November 10, 2016. Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, on October 27, 2016, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III 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 Rule 104--Equities to delete subsection (g)(i)(A)(III) prohibiting Designated Market Makers (``DMM'') 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. 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Rule 104--Equities (``Rule 104'') to delete subsection (g)(i)(A)(III), which prohibits DMMs with a long (short) position in a security from making a purchase (sale) in such security during the last ten minutes prior to the close of trading that results in a new high (low) price on the Exchange in that security for that day. Background Rule 104 sets forth the obligations of Exchange DMMs. Under Rule 104(a), DMMs registered in one or more securities traded on the Exchange are required to engage in a course of dealings for their own account to assist in the maintenance of a fair and orderly market insofar as reasonably practicable. Rule 104(a) also enumerates the specific responsibilities and duties of a DMM, including: (1) Maintenance of a continuous two-sided quote, which mandates that each DMM maintain a bid or an offer at the National Best Bid (``NBB'') and National Best Offer (``NBO,'' together the ``NBBO'') for a certain percentage of the trading day,\4\ and (2) the facilitation of, among other things, openings, re-openings, and the close of trading for the DMM's assigned securities, all of which may include supplying liquidity as needed.\5\ Rule 104(f) imposes an affirmative obligation on DMMs to maintain, insofar as reasonably practicable, a fair and orderly market on the Exchange in assigned securities, including maintaining price continuity with reasonable depth and trading for the DMM's own account when lack of price continuity, lack of depth, or disparity between supply and demand exists or is reasonably to be anticipated. --------------------------------------------------------------------------- \4\ See Rule 104(a)(1). \5\ See id. at (2)-(3). Rule 104(e) further provides that DMM units must provide contra-side liquidity as needed for the execution of odd-lot quantities eligible to be executed as part of the opening, reopening, and closing transactions but that remain unpaired after the DMM has paired all other eligible round lot sized interest. --------------------------------------------------------------------------- Rule 104(g) governs transactions by DMMs. NYSE Rule 104(g) provides that transactions on the Exchange by a DMM for the DMM's account must be effected in a reasonable and orderly manner in relation to the condition of the general market and the market in the particular stock. Rule 104(g) describes certain permitted transactions, including neutral transactions and Non-Conditional Transactions, as defined therein. Rule 104(g)(i)(A)(III) provides that, except as otherwise permitted by Rule 104, during the last ten minutes prior to the close of trading, a DMM with a long or short position in a security is prohibited from making a purchase or sale in such security that results in a new high or low price, respectively, on the Exchange for the day at the time of the DMM's transaction (``Prohibited Transactions''). Finally, Rule 104(h) addresses DMM transactions in securities that establish or increase the DMM's position. Rule 104(h)(ii) permits certain ``Conditional Transactions'' \6\ without restriction as to price if they are followed by appropriate re-entry on the opposite side of the market commensurate with the size of the DMM's transaction.\7\ This requirement assures that if a DMM establishes or increases a long position by buying from the Exchange best offer, which would likely be the new high price, or establishes or increases a short position by selling to the Exchange best bid, which would likely be the new low price, such transaction would be followed by the DMM quoting on the opposite side of the last transaction in order to dampen the impact of that transaction on the market. --------------------------------------------------------------------------- \6\ Rule 104(h)(i) defines a Conditional Transaction as a DMM 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. A DMM reaches across the market when the DMM buys from the Exchange offer or sells to the Exchange bid. \7\ The Exchange's re-entry obligations for Conditional Transactions are set forth in Rule 104(h)(iii). However, Rule 104(h)(iv) permits certain other Conditional Transactions without restriction as to price, and Rule 104(i) provides that re-entry obligations following such Conditional Transactions would be the same as the re-entry obligations for Non-Conditional Transactions pursuant to Rule 104(g). --------------------------------------------------------------------------- Proposed Rule Change The Exchange proposes to delete subsection (g)(i)(A)(III) of Rule 104.\8\ As discussed below, in today's electronic [[Page 81211]] marketplace where specialists have become DMMs and control of pricing decisions has moved away from market participants on the Exchange trading Floor,\9\ retaining a prohibition designed to prevent specialists from setting a price in the final ten minutes of trading in a security in which the specialist had a position is no longer necessary. Eliminating the prohibition would not weaken existing safeguards against DMMs inappropriately influencing or manipulating the close because existing DMM obligations, including the obligation not to destabilize the market when buying or selling to increase a position or reaching across the market, would govern DMM trading during the final ten minutes of trading. Specifically, to the extent a Prohibited Transaction is also a Conditional Transaction, with the elimination of Prohibited Transactions, the obligation to re-enter the market following a Conditional Transaction, which is designed to ensure that DMMs do not inappropriately influence or manipulate the close, would become applicable in the last ten minutes of trading for such transactions,\10\ thereby achieving the same goal without an outright prohibition. --------------------------------------------------------------------------- \8\ The principles embodied in Rule 104 are based on New York Stock Exchange LLC (``NYSE'') Rule 104. On October 1, 2008, the Commission approved the Exchange's rule proposal to establish new membership, member firm conduct, and equity trading rules that were based on the existing NYSE rules to reflect that equities trading on the Exchange would be supported by the NYSE's trading system. See Securities Exchange Act Release Nos. 58705 (Oct. 1, 2008), 73 FR 58995 (Oct. 8. 2008) (SR-Amex-2008-63) (approval order) and 59022 (Nov. 26, 2008), 73 FR 73683 (Dec. 3, 2008) (SR-NYSEALTR-2008-10) (amending equity rules to conform to NYSE New Market Model Pilot rules) (``Release No. 59022''). Because the Exchange's rules are based on existing NYSE rules, the Exchange believes that pre-October 1, 2008 NYSE rule filings provide relevant guidance concerning Exchange equity rules. \9\ See, e.g., Securities Exchange Act Release No. 56209 (August 6, 2007), 72 FR 45290, 45291 (August 13, 2007) (SR-NYSE-2007-65) (noting in connection with the NYSE trading Floor that changes in the marketplace have included, among other things, ``the decentralization of control of pricing decisions away from the specialist and Floor broker''). \10\ Currently, Conditional Transactions by DMMs during the last ten minutes of trading that establish a new high or low price on the Exchange are prohibited under Rule 104 (g)(i)(A)(III). --------------------------------------------------------------------------- In 2006, the Commission approved the NYSE's ``hybrid market'' under which Exchange systems assumed the function of matching and executing electronically-entered orders, but specialists remained the responsible broker-dealer for orders on the Exchange's limit order book.\11\ Rule 104(g)(III), adopted at the same time, was intended to prevent NYSE specialists from setting the closing price.\12\ However, specialists were permitted to effect transactions during the last ten minutes of trading that resulted in a new high or low for the day in order to match another market's better bid or offer or to bring the price of the security into parity with an underlying or related security or asset.\13\ This exception was considered appropriate because in those situations an independent party and not the specialist had set the price.\14\ --------------------------------------------------------------------------- \11\ See Securities Exchange Act Release No. 53539 (March 22, 2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05). \12\ See Securities Exchange Act Release No. 54860 (December 1, 2006), 71 FR 71221 (December 8, 2006) (SR-NYSE-2006-76) (``Release No. 54860''). At the time, Prohibited Transactions were set forth in Supplementary Material .10 of NYSE Rule 104. \13\ See id., 71 FR at 71223. \14\ See id. at 71229. --------------------------------------------------------------------------- With the increasing automation of trading and the accompanying decentralization of pricing decisions away from specialists, in 2008, the NYSE and the Exchange proposed and the Commission approved its New Market Model, which transformed specialists into DMMs, who are no longer agents for the Exchange's limit order book and whose trading activity on the Exchange is limited to proprietary trading.\15\ Nevertheless, the Exchange retained the obligations set forth in Rule 104(g) and (h), even though Regulation NMS was implemented prior to the Exchange proposing the New Market Model. --------------------------------------------------------------------------- \15\ See Securities Exchange Act Release No. 58845(October 24, 2008), 73 FR 64379, 64381 (October 29, 2008) (SR-NYSE-2008-46). See also Release No. 59022, supra note 8. --------------------------------------------------------------------------- In light of these developments, Rule 104(g)(i)(A)(III) has lost its original purpose and utility. The rationale behind preventing specialists from setting the price of a security on the Exchange in the final ten minutes of trading was to prevent specialists from inappropriately influencing the price of a security at the close to advantage a specialist's proprietary position.\16\ In today's fragmented marketplace, 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 such security. For example, a new high or low price on the Exchange may not be the new high or low for a security because prices may be higher or lower in away markets, where the majority of intra-day trading in NYSEMKT-listed securities takes place. Indeed, 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, which happen very quickly and over which the DMM has no control. In short, since DMMs do not have the ability to direct or influence trading or control intra-day prices as specialists had before the implementation of Regulation NMS, Prohibited Transactions are anachronistic. --------------------------------------------------------------------------- \16\ See Release No. 54860, 71 FR at 71229. --------------------------------------------------------------------------- Moreover, although Prohibited Transactions would be eliminated, DMMs would still have the obligation under Rule 104 to ensure that they do not destabilize the market when they are buying or selling to increase a position or reaching across the market during the final ten minutes of trading. As noted, DMMs have affirmative obligations under Rule 104(a) to engage in a course of dealings for their own account to assist in the maintenance of a fair and orderly market insofar as reasonably practicable. Specifically, Rule 104(f)(ii) sets forth the DMM's obligation to act as reasonably necessary to ensure appropriate depth and maintain reasonable price variations between transactions (also known as price continuity) and prevent unexpected variations in trading. Further, under Rule 123D(a), openings and reopenings must be fair and orderly, reflecting the DMM's professional assessment of market conditions at the time, and appropriate consideration of the balance of supply and demand as reflected by orders represented in the market. The Exchange supplies DMMs with suggested Depth Guidelines for each security in which a DMM is registered, and DMMs are expected to quote and trade with reference to the Depth Guidelines.\17\ --------------------------------------------------------------------------- \17\ See Rule 104(f)(iii). --------------------------------------------------------------------------- Further, the DMM's affirmative obligation includes obligations to re-enter the market when reaching across to execute against available interest. Under Rule 104(h), DMMs that engage in Conditional Transactions must follow up with appropriate re-entry on the opposite side of the market commensurate with the size of the DMM's transaction.\18\ The Exchange issues guidelines, called price participation points (``PPP''), that identify the price at or before which a DMM is expected to re-enter the market after effecting a conditional transaction.\19\ Currently, a Conditional Transaction that is also a Prohibited Transaction would not be permitted in the last ten minutes of trading. With the proposed deletion of Rule 104(g)(i)(A)(III), what is currently defined as a Prohibited Transaction would be permitted, however, such transactions would be subject to re-entry obligations associated with Conditional Transactions. As such, in lieu of Rule 104(g)(i)(A)(III), in the last ten minutes of trading, DMMs would instead be subject to affirmative obligations specified under Rule 104(h). --------------------------------------------------------------------------- \18\ See Rule 104(h)(iii). Immediate re-entry is required after certain Conditional Transactions. \19\ See NYSE Rule 104(h)(iii)(A). --------------------------------------------------------------------------- Finally, DMM pricing decisions at the close would remain subject to specific DMM obligations with respect to the quality of the markets in securities to which they are assigned. In general, as noted above, transactions on the [[Page 81212]] Exchange by a DMM for the DMM's account must be effected in a reasonable and orderly manner in relation to the condition of the general market and the market in the particular stock, and DMMs must refrain from causing or exacerbating excessive price movements. DMM trading activity on the Exchange is actively surveiled for compliance with each of these obligations. The Exchange currently employs a suite of surveillances for trading by DMMs and other market participants in and around the close of trading. The Exchange believes that the existing DMM obligations and the Exchange's regulatory program for reviewing DMM trading provides an appropriate framework in today's market structure for ensuring that DMMs are not establishing a price to benefit their own account. For all of the foregoing reasons, the Exchange believes that retaining Prohibited Transactions is no longer necessary. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,\20\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\21\ in particular, because it is designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest. --------------------------------------------------------------------------- \20\ 15 U.S.C. 78f(b). \21\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- In particular, the Exchange believes that eliminating Rule 104(g)(III) would remove impediments to and perfect the mechanism of a free and open market and a national market system by permitting DMMs to enter trades in the last ten minutes of trading that establish a new high or low in a security even though the DMM has a position in that security. As proprietary traders without the ability to direct or influence trading or control the quote, restricting DMM trading in the final ten minutes of trading is no longer necessary. The Exchange believes that eliminating Prohibited Transactions would not be inconsistent with the public interest and the protection of investors because DMM trading decisions going into the closing trade would continue to be evaluated from the perspective of their obligations to the marketplace, including the obligation to arrange a fair and orderly close, as set forth in Exchange rules. Further, the Exchange believes that eliminating Rule 104(g)(i)(A)(III) would not be inconsistent with the public interest and the protection of investors because existing safeguards would remain in place to ensure that DMMs do not inappropriately influence or manipulate the close, thereby establishing substantially the same result without an outright prohibition. As noted above, DMM trading would remain subject to Exchange rules, including the obligation to maintain a fair and orderly market under Rule 104. More specifically, in lieu of the obligations associated with Rule 104(g)(i)(A)(III), in the last ten minutes of trading the DMMs would be subject to the reentry obligations associated with Conditional Transactions. Accordingly, during that period, DMMs would have an obligation to reenter the market if their trading both reaches across the market and increases or establishes a position. For the foregoing reasons, the Exchange believes that the proposal is consistent with 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 that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not intended to address competitive issues but rather to eliminate redundant approvals of manual trades on its trading Floor. 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 Within 45 days of the date of publication of this notice in the Federal Register or up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. 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 CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. 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 Number SR-NYSEMKT-2016-99. 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-2016- 99 and should be submitted on or before December 8, 2016. [[Page 81213]] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\22\ --------------------------------------------------------------------------- \22\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-27593 Filed 11-16-16; 8:45 am] BILLING CODE 8011-01-P
![81210 Federal Register / Vol. 81, No. 222 / Thursday, November 17, 2016 / Notices
SECURITIES AND EXCHANGE of the most significant parts of such permitted transactions, including
COMMISSION statements. neutral transactions and Non-
Conditional Transactions, as defined
A. Self-Regulatory Organization’s
[Release No. 34–79283; File No. SR– therein. Rule 104(g)(i)(A)(III) provides
Statement of the Purpose of, and the
NYSEMKT–2016–99] that, except as otherwise permitted by
Statutory Basis for, the Proposed Rule
Rule 104, during the last ten minutes
Self-Regulatory Organizations; NYSE Change
prior to the close of trading, a DMM
MKT LLC; Notice of Filing of Proposed 1. Purpose with a long or short position in a
Rule Change Amending Rule 104— The Exchange proposes to amend security is prohibited from making a
Equities To Delete Subsection Rule 104—Equities (‘‘Rule 104’’) to purchase or sale in such security that
(g)(i)(A)(III) Prohibiting Designated delete subsection (g)(i)(A)(III), which results in a new high or low price,
Market Makers From Establishing a prohibits DMMs with a long (short) respectively, on the Exchange for the
New High (Low) Price on the Exchange position in a security from making a day at the time of the DMM’s
in a Security the DMM Has a Long purchase (sale) in such security during transaction (‘‘Prohibited Transactions’’).
(Short) Position During the Last Ten the last ten minutes prior to the close of Finally, Rule 104(h) addresses DMM
Minutes Prior to the Close of Trading trading that results in a new high (low) transactions in securities that establish
price on the Exchange in that security or increase the DMM’s position. Rule
November 10, 2016.
for that day. 104(h)(ii) permits certain ‘‘Conditional
Pursuant to Section 19(b)(1) 1 of the Transactions’’ 6 without restriction as to
Securities Exchange Act of 1934 Background price if they are followed by appropriate
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3 Rule 104 sets forth the obligations of re-entry on the opposite side of the
notice is hereby given that, on October Exchange DMMs. Under Rule 104(a), market commensurate with the size of
27, 2016, NYSE MKT LLC (‘‘Exchange’’ DMMs registered in one or more the DMM’s transaction.7 This
or ‘‘NYSE MKT’’) filed with the securities traded on the Exchange are requirement assures that if a DMM
Securities and Exchange Commission required to engage in a course of establishes or increases a long position
(‘‘Commission’’) the proposed rule dealings for their own account to assist by buying from the Exchange best offer,
change as described in Items I, II, and in the maintenance of a fair and orderly which would likely be the new high
III below, which Items have been market insofar as reasonably practicable. price, or establishes or increases a short
prepared by the self-regulatory Rule 104(a) also enumerates the specific position by selling to the Exchange best
organization. The Commission is responsibilities and duties of a DMM, bid, which would likely be the new low
publishing this notice to solicit including: (1) Maintenance of a price, such transaction would be
comments on the proposed rule change continuous two–sided quote, which followed by the DMM quoting on the
from interested persons. mandates that each DMM maintain a bid opposite side of the last transaction in
I. Self-Regulatory Organization’s or an offer at the National Best Bid order to dampen the impact of that
Statement of the Terms of Substance of (‘‘NBB’’) and National Best Offer transaction on the market.
the Proposed Rule Change (‘‘NBO,’’ together the ‘‘NBBO’’) for a Proposed Rule Change
certain percentage of the trading day,4
The Exchange proposes to amend and (2) the facilitation of, among other The Exchange proposes to delete
Rule 104—Equities to delete subsection things, openings, re-openings, and the subsection (g)(i)(A)(III) of Rule 104.8 As
(g)(i)(A)(III) prohibiting Designated close of trading for the DMM’s assigned discussed below, in today’s electronic
Market Makers (‘‘DMM’’) from securities, all of which may include
establishing a new high (low) price on supplying liquidity as needed.5 Rule
6 Rule 104(h)(i) defines a Conditional Transaction
the Exchange in a security the DMM has as a DMM transaction in a security that establishes
104(f) imposes an affirmative obligation or increases a position and reaches across the
a long (short) position during the last on DMMs to maintain, insofar as market to trade as the contra-side to the Exchange
ten minutes prior to the close of trading. reasonably practicable, a fair and published bid or offer. A DMM reaches across the
The proposed rule change is available orderly market on the Exchange in market when the DMM buys from the Exchange
on the Exchange’s Web site at offer or sells to the Exchange bid.
assigned securities, including 7 The Exchange’s re-entry obligations for
www.nyse.com, at the principal office of maintaining price continuity with Conditional Transactions are set forth in Rule
the Exchange, and at the Commission’s reasonable depth and trading for the 104(h)(iii). However, Rule 104(h)(iv) permits certain
Public Reference Room. DMM’s own account when lack of price other Conditional Transactions without restriction
as to price, and Rule 104(i) provides that re-entry
II. Self-Regulatory Organization’s continuity, lack of depth, or disparity obligations following such Conditional
Statement of the Purpose of, and between supply and demand exists or is Transactions would be the same as the re-entry
reasonably to be anticipated. obligations for Non-Conditional Transactions
Statutory Basis for, the Proposed Rule pursuant to Rule 104(g).
Change Rule 104(g) governs transactions by 8 The principles embodied in Rule 104 are based
DMMs. NYSE Rule 104(g) provides that on New York Stock Exchange LLC (‘‘NYSE’’) Rule
In its filing with the Commission, the transactions on the Exchange by a DMM 104. On October 1, 2008, the Commission approved
self-regulatory organization included for the DMM’s account must be effected the Exchange’s rule proposal to establish new
statements concerning the purpose of, in a reasonable and orderly manner in membership, member firm conduct, and equity
and basis for, the proposed rule change trading rules that were based on the existing NYSE
relation to the condition of the general rules to reflect that equities trading on the Exchange
and discussed any comments it received market and the market in the particular would be supported by the NYSE’s trading system.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
on the proposed rule change. The text stock. Rule 104(g) describes certain See Securities Exchange Act Release Nos. 58705
of those statements may be examined at (Oct. 1, 2008), 73 FR 58995 (Oct. 8. 2008) (SR–
Amex–2008–63) (approval order) and 59022 (Nov.
the places specified in Item IV below. 4 See Rule 104(a)(1). 26, 2008), 73 FR 73683 (Dec. 3, 2008) (SR–
The Exchange has prepared summaries, 5 See id. at (2)–(3). Rule 104(e) further provides NYSEALTR–2008–10) (amending equity rules to
set forth in sections A, B, and C below, that DMM units must provide contra-side liquidity conform to NYSE New Market Model Pilot rules)
as needed for the execution of odd-lot quantities (‘‘Release No. 59022’’). Because the Exchange’s
eligible to be executed as part of the opening, rules are based on existing NYSE rules, the
1 15 U.S.C.78s(b)(1). reopening, and closing transactions but that remain Exchange believes that pre-October 1, 2008 NYSE
2 15 U.S.C. 78a. unpaired after the DMM has paired all other eligible rule filings provide relevant guidance concerning
3 17 CFR 240.19b–4. round lot sized interest. Exchange equity rules.
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![Federal Register / Vol. 81, No. 222 / Thursday, November 17, 2016 / Notices 81213
For the Commission, by the Division of 19, 2016, FINRA extended the time respondents were filing prehearing
Trading and Markets, pursuant to delegated period in which the Commission must motions routinely and repetitively in an
authority.22 approve the proposed rule change, effort to delay scheduled hearing
Brent J. Fields, disapprove the proposed rule change, or sessions on the merits, increase
Secretary. institute proceedings to determine investors’ costs, and intimidate less
[FR Doc. 2016–27593 Filed 11–16–16; 8:45 am] whether to approve or disapprove the sophisticated investors.
BILLING CODE 8011–01–P proposed rule change to November 15, Among other requirements, the Codes
2016.6 On October 31, 2016, FINRA require parties to file prehearing
responded to the comment letters motions to dismiss in writing,
SECURITIES AND EXCHANGE received in response to the Notice.7 This separately from the answer, and only
COMMISSION order approves the proposed rule after they file the answer.10 The full
change. panel of arbitrators must decide a
[Release No. 34–79285; File No. SR–FINRA–
motion to dismiss,11 and the panel must
2016–030] II. Description of the Proposed Rule hold a hearing on the motion unless the
Change 8 parties waive the hearing.12 If a panel
Self-Regulatory Organizations;
Financial Industry Regulatory Background grants a motion to dismiss, the decision
Authority, Inc.; Order Approving In 2009, FINRA amended the Codes to must be unanimous, and must be
Proposed Rule Change To Amend Rule adopt FINRA Rules 12504 and 13504 accompanied by a written
12504 of the Code of Arbitration (Motions to Dismiss), and to amend explanation.13
Procedure for Customer Disputes and Under the Codes, arbitrators cannot
FINRA Rules 12206 and 13206 (Time
Rule 13504 of the Code of Arbitration act upon a motion prior to the
Limits), to establish procedures limiting
Procedure for Industry Disputes conclusion of the non-moving party’s
motions to dismiss in arbitration.9 A
Relating to Motions To Dismiss in case in chief unless the arbitrators
motion to dismiss is a request made to
Arbitration determine that: (1) The non-moving
the arbitrators to remove a party or some
party previously released the claim in
or all claims raised by a party filing a
November 10, 2016. dispute by a signed settlement or
claim. If the arbitrators grant a motion
written release,14 (2) the moving party
I. Introduction to dismiss before a hearing is held (a
was not associated with the account,
On August 3, 2016, Financial Industry prehearing motion), the party bringing
security, or conduct at issue,15 or (3) a
Regulatory Authority, Inc. (‘‘FINRA’’) the claim loses the opportunity to have
claim is not eligible for arbitration
his or her arbitration case heard in
filed with the Securities and Exchange because it does not meet the six-year
whole or in part by the arbitrators. The
Commission (‘‘Commission’’), pursuant time limit for submitting a claim.16
procedures set forth in the Codes
to Section 19(b)(1) of the Securities Furthermore, the Codes impose
significantly limit the use of motions to
Exchange Act of 1934 (‘‘Exchange sanctions against parties for engaging in
dismiss because FINRA believed that
Act’’) 1 and Rule 19b–4 thereunder,2 a abusive practices. For instance, if the
proposed rule change to amend Rules arbitrators deny a motion to dismiss
President & General Counsel, Financial Services
12504 of the Code of Arbitration Institute (Sept. 7, 2016) (‘‘FSI Letter’’); Hugh prior to the conclusion of the non-
Procedure for Customer Disputes Berkson, President, Public Investors Arbitration Bar moving party’s case in chief, the
(‘‘Customer Code’’) and Rule 13504 of Association (Sept. 7, 2016) (‘‘PIABA Letter’’); and arbitrators must assess forum fees
William A. Jacobson, Esq., Clinical Professor of associated with hearing the motion
the Code of Arbitration Procedure for Law, Cornell Law School, Director, Cornell
Industry Disputes (‘‘Industry Code’’ and, Securities Law Clinic, and Arjun A. Ajjegowda, against the moving party.17 Moreover, if
together with the Customer Code, Student, Cornell Law School (Sept. 7, 2016) they find the motion to be frivolous,
‘‘Codes’’).3 The proposed rule change (‘‘Cornell Letter’’). The comment letters are they must award reasonable costs and
available on FINRA’s Web site at http:// attorneys’ fees to a party that opposed
would allow arbitrators to act upon a www.finra.org, at the principal office of FINRA, at
motion to dismiss a party or claim prior the Commission’s Web site at https://www.sec.gov/ the motion.18 In addition, the arbitrators
to the conclusion of a party’s case in comments/sr-finra-2016–029/finra2016029.shtml, may issue sanctions under the Codes if
chief if the arbitrators determine that the and at the Commission’s Public Reference Room. they determine that a party filed a
6 See Letter from Margo A. Hassan, Associate
non-moving party previously brought a motion under the rule in bad faith.19
Chief Counsel, FINRA, to Lourdes Gonzalez,
claim regarding the same dispute Assistant Chief Counsel—Sales Practices, Division Proposed Rule Change
against the same party, and the dispute of Trading and Markets, Securities and Exchange
was fully and finally adjudicated on the Commission, dated September 19, 2016. FINRA is proposing to amend the
merits and memorialized in an order,
7 See Letter from Margo A. Hassan, Associate Codes to add an additional ground for
Chief Counsel, FINRA, to Brent J. Fields, Secretary,
judgment, award, or decision. Securities and Exchange the Commission, dated 10 See
The proposed rule change was FINRA Rules 12504(a)(2) and 13504(a)(2).
October 31, 2016 (‘‘FINRA Letter’’). The FINRA 11 See FINRA Rules 12504(a)(4) and 13504(a)(4).
published for comment in the Federal Letter is available on FINRA’s Web site at http:// 12 See FINRA Rules 12504(a)(5) and 13504(a)(5).
Register on August 17, 2016.4 The www.finra.org, at the principal office of FINRA, at 13 See FINRA Rules 12504(a)(7) and 13504(a)(7).
the Commission’s Web site at https://www.sec.gov/
public comment period closed on comments/sr-finra-2016–029/finra2016029.shtml,
14 See FINRA Rules 12504(a)(6)(A) and
September 7, 2016. The Commission and at the Commission’s Public Reference Room. 13504(a)(6)(A).
received four (4) comment letters on the 8 The subsequent description of the proposed rule 15 See FINRA Rules 12504(a)(6)(B) and
proposed amendments.5 On September change is substantially excerpted from FINRA’s 13504(a)(6)(B).
16 See FINRA Rules 12206 and 13206 (Time
description in the Notice. See Notice, 81 FR at
asabaliauskas on DSK3SPTVN1PROD with NOTICES
22 17 54889–54889. Limits), which provide that no claim shall be
CFR 200.30–3(a)(12). 9 See Exchange Act Release No. 59189 (Dec. 31, eligible for submission to arbitration where six
1 15 U.S.C. 78s(b)(1).
2008), 74 FR 731 (Jan. 7, 2009) (Order Approving years have elapsed from the occurrence or event
2 17 CFR 240.19b–4. giving rise to the claim.
Proposed Rule Change, As Modified by Amendment
3 See File No. SR–FINRA–2016–030. 17 See FINRA Rules 12504(a)(9) and 13504(a)(9).
No. 1 Thereto, Relating to Amendment to the Code
4 See Exchange Act Release No. 78553 (Aug. 11, 18 See FINRA Rules 12504(a)(10) and
of Arbitration Procedure for Customer Disputes and
2016); 81 FR at 54888 (Aug. 17, 2016) (‘‘Notice’’). the Code of Arbitration Procedure for Industry 13504(a)(10).
5 See Letters from Steven B. Caruso, Maddox Disputes to Address Motions to Dismiss and to 19 See FINRA Rules 12504(a)(11) and
Hargett Caruso, P.C. (Aug. 11, 2016) (‘‘Caruso Amend the Eligibility rule related to Dismissals) 13504(a)(11); see also FINRA Rules 12212 and
Letter’’); David T. Bellaire, Esq., Executive Vice (File No. SR–FINRA–2007–021) (‘‘2009 Order’’). 13212 (Sanctions) relating to available sanctions.
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Document Created: 2016-11-17 03:00:10
Document Modified: 2016-11-17 03:00:10
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| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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