Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchange proposes to (i) amend Rule 107B to change the existing Supplemental Liquidity Provider ("SLP") monthly volume requirement in all assigned SLP securities ("monthly volume requirement") from an average daily volume ("ADV") of more than 10 million shares to an ADV that is a specified percentage of consolidated ADV ("CADV") in all NYSE-listed securities ("NYSE CADV") and (ii) amend the Exchange's Price List to specify the applicable percentage of NYSE CADV for the monthly volume requirement. The Exchange is proposing that these changes become operative on September 1, 2012. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included
The Exchange is proposing to (i) amend Rule 107B
An SLP is a member organization that electronically enters orders or quotes from off the Floor of the Exchange into the systems and facilities of the Exchange and is obligated to maintain a bid or an offer at the National Best Bid ("NBB") or the National Best Offer ("NBO") in each assigned security in round lots averaging at least 10% of the trading day (the "percentage quoting requirement"). In addition, for all assigned SLP securities, an SLP is required to satisfy a monthly volume requirement by adding liquidity of an ADV of more than 10 million shares on a monthly basis.
An SLP that fails to satisfy the applicable percentage quoting requirement provided in Rule 107B(a) would be subject to certain non-regulatory penalties imposed by the Exchange, including, for example, having its SLP status revoked.
The Exchange therefore proposes to amend Rule 107B(a) to change the current monthly volume requirement of adding liquidity of an ADV of more than 10 million ADV shares in all assigned SLP securities to specify instead that the monthly volume requirement would be based on a specified percentage of NYSE CADV. The Exchange believes that a monthly volume requirement based on a percentage of NYSE CADV, rather than a fixed volume requirement, is more appropriate because it would reasonably assure that the monthly volume requirement is consistent relative to fluctuations in market volume over time. In particular, in August 2010, when the Exchange adopted the current monthly volume requirement,
Accordingly, the Exchange proposes to change references in Rule 107B, generally, from "10 million shares" to "a specified percentage of CADV in all NYSE-listed securities, as set forth in the Exchange's Price List." The Exchange also proposes to amend the Price List to specify that the applicable percentage of NYSE CADV will be 0.22%. In this regard, the following three credit rates would apply to SLPs:
1. [sic] $0.0015 per share (or $0.0010 per share if a Non-Displayed Reserve Order) when adding liquidity to the Exchange in securities with a per share price of $1.00 or more, if the SLP does not qualify for the higher credit set forth in paragraph 2, below.
2. [sic] $0.0021 per share (or $0.0016 per share if a Non-Displayed Reserve Order) when adding liquidity to the Exchange in securities with a per share price of $1.00 or more if the SLP (i) meets the 10% average or more quoting requirement in the assigned security pursuant to Rule 107B
3. [sic] $0.005 per share when adding liquidity to the Exchange in securities with a per share price of less than $1.00 if the SLP (i) meets the 10% average or more quoting requirement in an assigned security pursuant to Rule 107B and (ii) adds liquidity of an ADV of more than 0.22% of NYSE CADV for all assigned SLP securities in the aggregate.
Finally, the Exchange proposes to amend the description of the method of calculation of the monthly volume requirement in Rule 107B(h) in order to reflect the use of a specified percentage of NYSE CADV. Specifically, it will provide that to calculate the ADV, the aggregated liquidity an SLP provides in all of its assigned SLP securities each month should be divided by the number of trading days in the applicable month, and then the ADV figure should be divided by the NYSE CADV during the month.
The Exchange believes that the proposed change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the "Act"),
Specifically, the Exchange believes that the proposed change promotes just and equitable principles of trade because, by basing the monthly volume requirement on a percentage of NYSE CADV, the SLP requirement to add liquidity to the market would track actual consolidated trading volumes. Accordingly, in months with lower trading volumes, a monthly volume
Similarly, the Exchange believes that the proposed change will protect investors and the public interest because it will result in the level of trading activity that is required of SLPs in order to qualify for the increased credit being at a level that is reflective of trading activity across the markets at any given point in time, as opposed to the current monthly volume requirement that is a fixed number of shares and therefore does not account for fluctuations in market volume over the course of different months. Finally, the Exchange believes that the proposed change does not permit unfair discrimination among customers, issuers, brokers or dealers because it would apply to all member organizations that operate as an SLP. In this regard, SLPs are required to satisfy certain quoting requirements that contribute to the quality of the Exchange's market throughout the trading day, which other member organizations are not required to satisfy.
Additionally, the Exchange believes that the proposed change will remove impediments to, and perfect the mechanisms of, a free and open market and a national market system because by relocating the specified percentage of NYSE CADV to the Price List, member organizations will only need to go to a single source to identify both what the credit would be, and the monthly volume requirement for such credit.
The Exchange further believes that the proposed change is consistent with, and furthers the objectives of, Section 6(b)(4) of the Act
Specifically, the Exchange believes that the proposed change is reasonable, because the proposed monthly volume requirement of 0.22% of NYSE CADV is consistent with a level of activity on the Exchange that is believed to be commensurate with the existing monthly volume requirement of 10 million shares, as was contemplated when the current monthly volume requirement was added in August 2010. The Exchange further believes that the proposed change is reasonable because it would continue to encourage SLPs to send additional orders to the Exchange for execution in order to qualify for an incrementally higher credit for such executions that add liquidity on the Exchange. In this regard, the Exchange believes the proposed change may incentivize SLPs to increase the orders sent directly to the Exchange and therefore provide liquidity that supports the quality of price discovery, promotes market transparency and is reasonably related to an exchange's market quality that is associated with higher volumes. Finally, the Exchange believes that the proposed change is reasonable because it would include the actual monthly volume requirement details within the Price List, where the monthly volume requirement actually has a direct impact (
The Exchange also believes that the proposed change is equitable and not unfairly discriminatory because it would apply equally and uniformly to all member organizations that operate as SLPs. Moreover, the Exchange believes that the proposed change is equitable and not unfairly discriminatory because a monthly volume requirement that is a percentage of NYSE CADV is fluid, and can therefore account for increases or decreases in overall trading activity across all markets, whereas the existing fixed monthly volume requirement is static. In this regard, the Exchange notes that a fixed monthly volume requirement, like the one that is currently in place, may become easier to achieve during more active trading months and, conversely, may become more difficult to reach during less active trading months. Accordingly, the proposed change may enable more SLPs to qualify for the increased credit in the Price List during months when overall activity across all markets is lower than normal. Similarly, during months when trading activity is higher, and the monthly volume requirement is therefore more difficult to reach, the proposed change would result in SLPs continuing to be required to engage in meaningful activity to qualify for the credit.
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.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not significantly affect the protection of investors or the public interest, does not impose any significant burden on competition, and, by its terms, does not 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
The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest. The proposal will take overall liquidity trends into account when determining monthly volume requirements applicable to SLPs by shifting to a percentage based on NYSE CADV. The Exchange has represented that SLPs are currently being held to a higher relative volume requirement than was intended when the Exchange adopted the 10 million fixed monthly volume requirement in 2010. Waiving the operative delay will allow this proposal, which the Exchange believes imposes a more appropriate volume requirement for SLPs, to become effective immediately and operative on September 1, 2012. Therefore, the
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.
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:
* Use the Commission's Internet comment form (
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.