81 FR 86033 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca Equities Rule 5.1(c) Regarding the Requirements for the Listing of Securities That Are Issued by the Exchange or Any of Its Affiliates

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 229 (November 29, 2016)

[Federal Register Volume 81, Number 229 (Tuesday, November 29, 2016)]
[Notices]
[Pages 86033-86036]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-28635]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79376; File No. SR-NYSEARCA-2016-147]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca 
Equities Rule 5.1(c) Regarding the Requirements for the Listing of 
Securities That Are Issued by the Exchange or Any of Its Affiliates

November 22, 2016.
    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 November 10, 2016, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 5.1(c) 
regarding the requirements for the listing of securities that are 
issued by the Exchange or any of its affiliates. 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.

[[Page 86034]]

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 NYSE Arca Equities Rule 5.1(c) 
(Listing of an Affiliate or Entity that Operates and/or Owns a Trading 
System or Facility of the Corporation) (``Rule 5.1(c)'') regarding the 
requirements for the listing of securities that are issued by the 
Exchange or any of its affiliates. The proposed changes are based on 
Rule 497 of the Exchange's affiliate New York Stock Exchange LLC 
(``NYSE'') and Rule 497-Equities of the Exchange's affiliate NYSE MKT 
LLC (``NYSE MKT'') (together, ``Rule 497'').\4\ The Exchange proposes 
to amend Rule 5.1(c) to be substantially similar to Rule 497, thereby 
expanding the Rule 5.1(c) requirements.
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    \4\ NYSE Rule 497 and NYSE MKT Rule 497-Equities are 
substantially similar. See Securities Exchange Act Release Nos. 
79130 (October 21, 2016), 81 FR 74847 (October 27, 2016) (SR-NYSE-
2016-67) and 79132 (October 21, 2016), 81 FR 74851 (October 27, 
2016) (SR-NYSEMKT-2016-94).
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    Rule 5.1(c) provides that if a ``security of an affiliate of the 
Corporation or any entity that operates and/or owns a trading system or 
facility of the Corporation'' is listed pursuant to the rules of NYSE 
Arca Equities, then NYSE Arca Equities shall: \5\
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    \5\ Rule 5.1(c).
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     File monthly reports with the Securities and Exchange 
Commission (``Commission'') regarding its monitoring of the issuer's 
compliance with listing standards and trading in the security;
     have an independent accounting firm conduct an annual 
review of compliance with listing standards and provide a copy of the 
review to the Commission; and
     notify any non-compliant issuer and provide the Commission 
with information regarding the non-compliance and plan of remediation.
    Rule 497 sets forth similar reporting requirements regarding 
securities issued by the Exchange's ultimate parent, Intercontinental 
Exchange, Inc. (``ICE''), and its affiliates. However, Rule 497 goes 
further in its requirements than Rule 5.1(c) in several ways.
    First, in its first sentence, Rule 5.1(c) states that securities 
``of an affiliate of the Corporation or any entity that operates and/or 
owns a trading system or facility of the Corporation'' \6\ are subject 
to its requirements. However, Rule 5.1(c) does not define what 
constitutes an ``affiliate of the Corporation.'' By contrast, Rule 497 
provides the relevant criteria in its definition of ``ICE Affiliate'':
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    \6\ Id.

    ``ICE Affiliate'' means ICE and any entity that directly or 
indirectly, through one or more intermediaries, controls, is 
controlled by, or is under common control with ICE, where 
``control'' means that one entity possesses, directly or indirectly, 
voting control of the other entity either through ownership of 
capital stock or other equity securities or through majority 
representation on the board of directors or other management body of 
such entity.\7\
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    \7\ NYSE Rule 497(a)(1) and NYSE MKT Rule 497--Equities(a)(1). 
ICE is the Exchange's ultimate parent. Unlike Rule 5.1(c), under 
Rule 497 an entity that operates and/or owns a trading system or 
facility of the relevant exchange would not be an ICE Affiliate 
unless it meets the definition's control requirements.

    A second, substantive difference between the rules is that, unlike 
Rule 5.1(c), Rule 497 applies not just to securities issued by ICE 
Affiliates, but also to any listed option on such securities, as set 
forth in the definition of ``Affiliate Security.'' \8\ Also unlike Rule 
5.1(c), Rule 497 has pre-listing requirements that must be met before 
any Affiliate Security can be listed, including pre-listing approval by 
the relevant Regulatory Oversight Committee (each, a ``ROC'') of the 
board of directors.\9\ Finally, Rule 497 requires quarterly, not 
monthly reports, and both the quarterly and annual reports must be 
provided to the relevant ROC.\10\
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    \8\ NYSE Rule 497(a)(2) and NYSE MKT Rule 497--Equities(a)(2).
    \9\ NYSE Rule 497(b) and NYSE MKT Rule 497--Equities(b).
    \10\ NYSE Rule 497(c)(1)-(2) and NYSE MKT Rule 497--
Equities(c)(1)-(2).
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    The Exchange proposes to include the definitions of ``ICE 
Affiliate'' and ``Affiliate Security'' in revised Rule 5.1(c), adding 
them as a new sub-paragraph (a), together with a definition of ``NYSE 
Arca Equities, Inc.'' stating that it is a wholly owned subsidiary of 
ICE. A new sub-paragraph (b) would incorporate the Rule 497 pre-listing 
requirements. The existing reporting requirements would be included as 
sub-paragraphs (c)(1)-(c)(3), the text of which would be revised 
consistent with Rule 497.
    As a result of such changes, under the proposed Rule 5.1(c), prior 
to listing any security issued by an ICE Affiliate or a new class of 
options on a security issued by an ICE Affiliate, Exchange regulatory 
staff would be required to make a finding that the security or option 
class satisfied the Exchange's rules for listing, and the Exchange's 
ROC would be required to approve such finding. Throughout the continued 
listing and trading of the Affiliate Security on the Exchange, NYSE 
Arca Equities would prepare quarterly reports and have annual reviews 
conducted by an independent accounting firm, providing copies of both 
reports to the Commission and the Exchange's ROC. Finally, if an 
Affiliate Security were not in compliance with listing standards, 
Exchange regulatory staff would notify the issuer, request a plan of 
compliance, and provide the Commission with information regarding the 
non-compliance and plan of compliance.
    Rule 497 requires that the quarterly report describe the monitoring 
of the Affiliate Security's compliance with applicable listing 
standards, including the Affiliate Security's compliance with both the 
minimum share price requirement and the quantitative listing 
requirements. Because NYSE Arca Equities requirements differ from those 
of NYSE and NYSE MKT, proposed Rule 5.1(c)(1) would include ``bid price 
requirement'' in place of ``minimum share price requirement'' \11\ and 
``quantitative and qualitative maintenance requirements'' in place of 
``quantitative listing requirements.'' \12\ Proposed Rule 5.1(c) would 
also differ from Rule 497 in that it would refer to the Corporation as 
well as the Exchange.
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    \11\ See NYSE Arca Equities Rule 5.5(b)(4) (Common Stock--Select 
Market Companies, Equity Securities and Similar Issues) (maintenance 
requirement of a share bid price of at least $3) and NYSE Arca 
Equities Rule 5.5(h)(4) (Common Stock--Development Stage Companies) 
(maintenance requirement of a share bid price of at least $1).
    \12\ The NYSE Arca Equities rules regarding maintenance 
requirements provide that the Exchange may consider qualitative 
factors in determining whether maintenance requirements have been 
met. See NYSE Arca Equities Rule 5.5(b).02; NYSE Arca Equities NYSE 
Arca Equities Rule 5.5(g)(1)(C) (Unit Investment Trusts (``UITs'')); 
Rule 5.5(g)(2)(a) (Investment Company Units); NYSE Arca Equities 
Rule 5.5(h).02 and NYSE Arca Equities Rule 5.5(l) (Other Reasons for 
Suspending or Delisting).
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    Finally, the Exchange notes that the proposed Rule 5.1(c) would be 
consistent with Bats BZX Exchange, Inc. (``BZX'') Rule 14.3 regarding 
requirements for the listing of securities listed by BZX or any of its 
affiliates.\13\
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    \13\ See Securities Exchange Act Release No. 77639 (April 18, 
2016), 81 FR 23768 (April 22, 2016) (SR-BatsBZX-2016-08).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act \14\ in general, and Section 
6(b)(5) \15\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and

[[Page 86035]]

equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that the proposed rule change 
would remove impediments to, and perfect the mechanism of a free and 
open market and a national market system and, in general, protect 
investors and the public interest by requiring heightened oversight of 
the listing and trading on the Exchange of Affiliate Securities and 
related reporting to the Commission and the ROC. The proposed changes 
would help protect against concerns that the Exchange will not 
effectively enforce its rules with respect to the listing and trading 
of such securities. The proposed defined terms would add clarity 
regarding what entities would be considered to be an affiliate and what 
securities fall within the scope of the rule. Expanding Rule 5.1(c) to 
incorporate Exchange-listed options on any security issued by an ICE 
Affiliate and require pre-listing requirements would strengthen the 
rule's requirements. In addition, the proposed changes would enhance 
reporting requirements by requiring NYSE Arca Equities to provide 
copies of both the annual and quarterly reports to the Commission and 
the Exchange's ROC. For these reasons, the Exchange believes that the 
proposed amendments to Rule 5.1(c) would continue to eliminate any 
perception of a potential conflict of interest if an ICE Affiliate 
seeks to list a security on the Exchange.
    The proposed changes will provide greater harmonization between 
NYSE Arca Equities, NYSE and NYSE MKT rules of similar purpose, 
resulting in more comparable and consistent information being provided 
to the Commission and ROCs. As such, the proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.

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 Exchange Act. The proposed rule 
change is not intended to address competitive issues but rather provide 
market participants with additional specificity and transparency 
regarding the Exchange's controls that are in place to address the 
potential conflicts of interest that may arise in the listing of 
Affiliate Securities on the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the 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, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \18\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
notes that the proposed rule change would amend Rule 5.1(c) to be 
substantially similar to Rule 497 of its affiliates NYSE and NYSE MKT, 
which would result in enhancing the Rule 5.1(c) requirements. The 
Exchange believes that the proposed rule change would provide market 
participants with additional specificity and transparency regarding the 
Exchange's controls that are in place to address the potential 
conflicts of interest that may arise in the listing of Affiliate 
Securities on the Exchange. The Commission believes that waiver of the 
operative delay is consistent with the protection of investors and the 
public interest because it will allow the Exchange to implement the 
proposed changes to Rule 5.1(c) without delay. Therefore, the 
Commission hereby waives the operative delay and designates the 
proposal operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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 Comments

     Use 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-NYSEARCA-2016-147 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-NYSEARCA-2016-147. 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

[[Page 86036]]

available for Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEARCA-2016-147, and should be submitted on or before 
December 20, 2016.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-28635 Filed 11-28-16; 8:45 am]
BILLING CODE 8011-01-P