[Federal Register Volume 84, Number 92 (Monday, May 13, 2019)]
[Notices]
[Page 20914]
[FR Doc No: 2019-09799]

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SECURITIES AND EXCHANGE COMMISSION

Proposed Collection; Comment Request

Upon Written Request Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736

Extension:
    Rule 12d1-3, SEC File No. 270-116, OMB Control No. 3235-0109

    Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange
Commission (``Commission'') is soliciting comments on the collection of
information summarized below. The Commission plans to submit this
existing collection of information to the Office of Management and
Budget for extension and approval.
    Exchange Act Rule 12d1-3 (17 CFR 240.12d1-3) requires a
certification that a security has been approved by an exchange for
listing and registration pursuant to Section 12(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78l(d)) to be filed with the
Commission. The information required under Rule 12d1-3 must be filed
with the Commission and is publicly available. We estimate that it
takes approximately one-half hour per response to provide the
information required under Rule 12d1-3 and that the information is
filed by approximately 688 respondents for a total annual reporting
burden of 344 hours (0.5 hours per response x 688 responses).
    Written comments are invited on: (a) Whether this proposed
collection of information is necessary for the performance of the
functions of the agency, including whether the information will have
practical utility; (b) the accuracy of the agency's estimate of the
burden imposed by the collection of information; (c) ways to enhance
the quality, utility, and clarity of the information collected; and (d)
ways to minimize the burden of the collection of information on
respondents, including through the use of automated collection
techniques or other forms of information technology. Consideration will
be given to comments and suggestions submitted in writing within 60
days of this publication.
    An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number.
    Please direct your written comment to Charles Riddle, Acting
Director/Chief Information Officer, Securities and Exchange Commission,
c/o Candace Kenner, 100 F Street NE, Washington, DC 20549 or send an
email to<EMAIL_ADDRESS>
    Dated: May 8, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09799 Filed 5-10-19; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: November 5, 2007 (Volume 72, Number 213)]
[Notices]
[Page 62504-62506]
[DOCID:fr05no07-85]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56711; File No. SR-NYSE-2007-83]

 Self-Regulatory Organizations; New York Stock Exchange LLC;
Order Granting Approval of Proposed Rule Change Relating to NYSE Rule
104.10 (``Dealings by Specialists'')

October 26, 2007.
    On September 14, 2007, the New York Stock Exchange LLC (``NYSE'' 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 (i) extend the duration of its pilot program
applicable to ``Conditional Transactions'' as defined in NYSE Rule
104.10 (``Dealings by Specialists'') to March 31, 2008 \3\; (ii) remove
the ``active securities'' \4\ limitation on Conditional Transactions
that establish or increase a specialist's position and reach across the
market to transact with the NYSE's published quote; and (iii) make
certain conforming changes to NYSE Rule 104.10(5). The proposed rule
change was published for comment in the Federal Register on September
25, 2007.\5\ The Commission received no comments on the proposal. This
order approves the proposed rule change.
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    \1\ 15 U.S.C 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ A ``Conditional Transaction'' is defined as a specialist
transaction in an active 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. See NYSE Rule 104.10(6)(ii)
(which is renumbered pursuant to this proposal as NYSE Rule
106.10(6)(i)).
    \4\ Original NYSE Rule 104.10(6)(i) defines ``active
securities'' as: (a) Securities comprising the S&P 500 Index; (b)
securities traded on the Exchange during the first five trading days
following their initial public offering; and (c) securities that
have been designated as ``active'' by a Floor Official pursuant to
the parameters set forth in the rule. In general, a governing Floor
Official may designate a security as ``active'' by determining,
among other things, that the security in question has exhibited
substantially greater than normal trading volume and is likely to
continue to sustain such higher volume during the remainder of the
trading session.
    \5\ See Securities Exchange Act Release No. 56455 (September 18,
2007), 72 FR 54499 (``Notice'').
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I. Description of the Proposal

    NYSE Rule 104 governs specialist dealings and includes, among other
things, restrictions upon specialists' ability to trade as dealer in
the stocks in which he or she is registered. Under NYSE Rule 104(a),
specialists are not permitted to effect transactions on the Exchange
for their proprietary accounts in any security in which the specialist
is registered, ``unless such dealings are reasonably necessary to
permit such specialist to maintain a fair and orderly market * * *.''
This restriction is known as the ``negative obligation.'' In
particular, NYSE Rules 104.10(5) and (6) expand upon the negative
obligation with respect to specific types of proprietary transactions.
    In December 2006, as part of extensive amendments to its specialist
stabilization rules, the Exchange implemented a pilot program allowing
specialists to execute transactions in active securities that establish
or increase a position and reach across the market to trade as the
contra-side to the Exchange published bid or offer (Conditional
Transactions) without restriction as to price or Floor Official
approval, provided that the specialist appropriately re-enters on the
opposite side of the market in a size commensurate with the
specialist's Conditional Transaction.\6\ NYSE issued guidelines called
``Price Participation Points'' (``PPPs'') that identify the price at or
before which a specialist is expected to re-enter the market after
effecting one or more Conditional Transactions. PPPs are minimum
guidelines only and compliance with them does not guarantee that a
specialist is meeting its obligations. Under the pilot program, certain
Conditional Transactions require the specialist to immediately re-
enter, or re-enter as the specialist's next available quoting or
trading action, regardless of the PPP.\7\ For example, immediate re-
entry may be required based on the price and/or volume of the
specialist's Conditional Transaction(s) in reference to the market in
the security at the time of such trading. The fact that there may have
been one or more independent trades following the specialist's
Conditional Transaction does not, by itself, eliminate the need for
immediate re-entry when otherwise appropriate. In addition, immediate
re-entry is required after a Conditional Transaction: (a) Of 10,000
shares or more or a quantity of stock with a market value of $200,000
or more; and (b) which exceeds 50% of the published bid or offer size
(as relevant).\8\
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    \6\ See Securities Exchange Act Release No. 54860 (December 1,
2006), 71 FR 71221 (December 8, 2006) (SR-NYSE-2006-76). The
operation of the pilot was subsequently extended two times, first
until September 30, 2007 and then until the earlier of (i) December
31, 2007 or (ii) the approval by the Commission of this proposed
rule change. See Securities Exchange Act Release Nos. 55995 (June
29, 2007), 72 FR 37288 (July 9, 2007) (SR-NYSE-2007-58); and 56554
(September 27, 2007), 72 FR 56419 (October 3, 2007) (SR-NYSE-2007-
84).
    \7\ See NYSE Rule 106.10(6)(iv) (which is renumbered pursuant to
the proposal as NYSE Rule 106.10(6)(iii)).
    \8\ See NYSE Rule 106.10(6)(iv)(c)(I) and (II) (which are
renumbered pursuant to the proposal as NYSE Rule
106.10(6)(iii)(c)(I) and (II)).
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    Specialists currently are not permitted to establish or increase a
position in ``inactive securities'' \9\ by reaching across the market
to purchase the offer at a price that is above the last sale price on
the Exchange or sell to the bid at a price that below the last sale
price on the Exchange, unless such specialist trade is reasonably
necessary to render the specialist's position adequate to the immediate
and reasonably anticipated needs of the market and approved by a Floor
Official. Further, for inactive securities, specialists currently are
not permitted to purchase more than 50% of the stock offered at a price
that is equal to the last sale price when the last sale price was
higher than the last differently priced regular way sale, unless such
trade is approved by a Floor Official. Specialists must re-enter the
market when reasonably necessary after effecting such trades.\10\
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    \9\ ``Inactive securities'' are securities that do not fall
within NYSE's definition of active securities. See supra note 4.
    \10\ See NYSE Rule 106.10(5)(b)(I).
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    The Exchange is now proposing to extend its pilot program
applicable to Conditional Transactions to March 31, 2008 and remove the
``active securities'' restriction included in the pilot, enabling
specialists to execute Conditional Transactions in all securities
traded on the NYSE.\11\ The Exchange will continue to apply its PPP
guidelines, and specialists will continue to be required to meet the
re-entry obligations of NYSE Rule 104.10(6). In

addition, specialists will continue to be subject to their negative
obligation.
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    \11\ During the pilot, the restrictions currently in effect for
inactive securities pursuant to NYSE Rule 106.10(5)(b) will be
suspended.
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II. Discussion and Commission Findings

    After careful consideration, 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 \12\ and, in particular, the requirements of Section 6 of the
Act.\13\ Specifically, the Commission finds that the proposed rule
change is consistent with Section 6(b)(5) of the Act,\14\ which
requires, among other things, that the rules of a national securities
exchange be designed to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, and 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. Finally, the Commission believes the proposal is consistent
with the principles set forth in Section 11A of the Act \15\ and the
requirements of Rule 11b-1 under the Act.\16\
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    \12\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78k-1.
    \16\ 17 CFR 240.11b-1.
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    Specialists' dealer activities are governed, in part, by the
negative and affirmative trading obligations. Rule 11b-1 under the Act
requires exchanges that permit members to register as specialists to
have rules governing specialists' dealer transactions so that their
proprietary trades conform to the negative and affirmative obligations.
The negative obligations as set forth in Rule 11b-1 under the Act
require that a specialist's dealings be restricted, so far as
practicable, to those reasonably necessary to permit a fair and orderly
market.\17\ The affirmative obligation as set forth in Rule 11b-1 under
the Act requires a specialist to engage in a course of dealings for its
own account to assist in the maintenance, so far as practicable, of a
fair and orderly market.\18\ NYSE has adopted these obligations in its
Rule 104, which includes restrictions on when specialists may effect
certain transactions.
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    \17\ 17 CFR 240.11b-1(a)(2)(iii).
    \18\ 17 CFR 240.11b-1(a)(2)(ii).
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    In connection with the Commission's approval of amendments to the
Exchange's stabilization rules, including the implementation of
Exchange's current pilot program for Conditional Transactions, the
Commission eliminated the trade-by-trade standard previously applied to
specialist trades for the purpose of determining whether such trade was
``reasonably necessary'' in accordance with the negative
obligation.\19\ The Commission noted that increased automation and
competition--both within the Hybrid Market and in the markets
generally--are significant factors, among others, that affect the
ability of specialists to make trade-by-trade analysis regarding their
negative obligation, and found that permitting specialists to consider
the reasonable necessity of their transactions under negative
obligations without a transaction-by-transaction test was appropriate
and consistent with the Act. The Commission emphasized, however, that
specialists must continue to comply with the negative obligation, and
assess their need to trade and limit their proprietary trades to those
reasonably necessary to allow the specialists to maintain a fair and
orderly market.\20\
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    \19\ See Securities Exchange Act Release No. 54860, supra note
6, at 71228. Previously, specialists were required to comply with
the negative obligation on a transaction-by-transaction basis
pursuant to a 1937 Commission interpretation known as the
``Saperstein Interpretation.'' See Securities Exchange Act Release
No. 1117, 1937 SEC LEXIS 357 (March 30, 1937). See also Securities
Exchange Act Release No. 54860, supra note 6, at 71227 for a
discussion of the Saperstein Interpretation. Specifically, in the
Saperstein Interpretation, the Commission stated that the negative
obligation ``prohibits all transactions for the account of a
specialist, excepting only such transactions as are properly a part
of a course of dealings reasonably necessary to permit the
specialist to maintain a fair and orderly market * * *.'' Further,
the interpretation stated that each transaction by a specialist for
its own account must meet the test of reasonable necessity, making
clear that a specialist must comply with the rule on a transaction-
by-transaction basis. See Securities Exchange Act Release No. 1117,
supra, at 3-4.
    \20\ See Securities Exchange Act Release No. 54860, supra note
6, at 71228.
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    NYSE is now proposing to (i) extend the duration of its pilot
program applicable to Conditional Transactions to March 31, 2008; (ii)
remove the ``active securities'' limitation on Conditional Transactions
that establish or increase a specialist's position and reach across the
market to transact with the NYSE's published quote; and (iii) make
certain conforming changes to NYSE Rule 104.10(5). NYSE specialists
would remain subject to the negative obligation and would be required
to appropriately re-enter the market after a Conditional Transaction is
executed and, for certain Conditional Transactions, the specialist must
re-enter immediately following the trade. In addition, the Exchange's
PPP guidelines would continue to apply.
    NYSE believes that the specialists are critical to its market
structure, and that they perform an important function in the
marketplace. Specifically, NYSE believes that, by committing capital,
specialists provide market depth, lower market volatility, and reduce
overall execution costs for investors. NYSE also believes that
specialists bridge gaps between supply and demand, and help to maintain
a fair and orderly market. Furthermore, the Exchange believes that
advances in technology have virtually obviated the specialists' time
and place advantage, and states that the rate of trading participation
by specialists in specialist stocks has been significantly reduced. As
a result, the Exchange believes that the basis for concern over
specialist conflicts of interest (and the consequent ability of
specialists to trade to the detriment of the public) is also
diminished. NYSE highlights that the proposal does not in any way
reduce the obligations imposed on its specialists pursuant to NYSE Rule
104 to re-enter a transaction on the opposite side of the market or
alter their negative obligation. The Exchange believes that these
factors support their proposal to extend the ability of the specialist
to effect Conditional Transactions to all securities, and that
providing specialists such ability would allow them to more effectively
meet their affirmative and negative obligations by giving them the
tools to better manage the inventory of their account.\21\
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    \21\ In addition, the Exchange provided data which it contends
evidences that the original stabilization pilot had no discernable
adverse impact on liquidity or market quality. See Securities
Exchange Act Release No. 56455, supra note 5 at 54501-2. See also
Appendices 3A, 3B, and 3C, which are available at the Commission's
Web site at http://www.sec.gov/rules/sro/nyse/2007/34-56455appendix3.pdf
.

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    NYSE has committed to provide the Commission with statistics
related to market quality, specialist trading activity, and sample
statistics on an ongoing monthly basis.\22\ The

Commission believes that this data will be important in helping it
analyze the impact of this proposed rule change, and in determining
whether to extend the operation of this rule or to approve this rule on
a permanent basis.
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    \22\ Specifically, the Exchange has agreed to provide sample
statistics, including the daily Consolidated Tape volume in shares,
daily number of trades, daily high-low volatility in basis points,
and daily close price in dollars. In addition, the Exchange will
calculate the specialist profit on round-trip Hit Bid and Take Offer
(``HB/TO'') executions, by measuring the specialist profit on HB/TO
activity by taking the round-trip trading profits for all HB/TO
trades where the specialist executes an offsetting trade within 30
seconds. In cases where the volume of the offsetting execution is
less than the size of the HB/TO execution, the calculation will only
include profits realized within the 30-second window. The Exchange
will further calculate the quote-based specialist re-entry ratio,
and each re-entry price level will be categorized and reported
separately. The categories will be in cent intervals at 0, 1, 2, 3,
4, and 5 or more cents. The time window for these calculations will
also be in 30 seconds. Finally, the Exchange has agreed to provide
the Commission with data related to the average realized spread on
specialist HB/TO executions using the formula set forth in Rule 605
of Regulation NMS under the Act. 17 CFR 242.605. Specifically, the
average realized spread should be a share-weighted average of
realized spreads. For specialist buys, the spread will be double the
amount of the difference between the execution price and the
midpoint of the consolidated best bid and offer five minutes after
the time of HB/TO execution. For specialist sells, the spread will
be double the amount of the difference between the midpoint of the
consolidated best bid and offer five minutes after the time of HB/TO
execution and the execution price. The Exchange has also committed
to maintain average measures for each stock-day during a particular
month in order to provide such information to the Commission upon
request.
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    The Commission continues to believe that the provisions governing
Conditional Transactions may reflect an appropriate balance between the
needs of specialists and other market participants in today's fast
moving markets.\23\ The Commission notes that specialists continue to
be subject to the negative obligation, which requires that their
proprietary trading be limited to that reasonably necessary to maintain
a fair and orderly market. In approving the expansion of the pilot
program beyond active securities, the Commission continues to recognize
the potential conflicts of interest presented when a specialist engages
in aggressive trading activity such as reaching across the market to
trade with the NYSE bid or offer while increasing its position,
particularly in the case of less liquid securities. Also, the proposed
rule change represents a further shift in the role and obligations of
specialists at the Exchange. As such, the Commission is approving the
proposed expansion of the scope of the pilot, enabling specialists to
execute Conditional Transactions in all securities traded on the NYSE,
and the proposed extension of the duration of the pilot until March 31,
2008.
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    \23\ See Securities Exchange Act Release No. 54860, supra note
6, at 71229.
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    The Commission emphasizes that the extension of the pilot to all
securities in no way relieves specialists of their obligations under
federal securities laws or NYSE rules. A specialist's ability to effect
proprietary transactions remains limited under the Act and the
Exchange's rules and specialists must still determine whether their
transactions are reasonably necessary. The Commission notes that the
Exchange is obligated to surveil its specialists to ensure their
compliance with the Act and NYSE rules, and the Exchange has stated
that NYSE Regulation believes that it has appropriate surveillance
procedures in place to surveil for compliance with the negative
obligations.
    For the reasons discussed above, the Commission finds that the
proposed rule change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\24\ that the proposed rule change (SR-NYSE-2007-83), be and hereby
is, approved on a temporary basis until March 31, 2008.
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    \24\ 15 U.S.C. 78s(b)(2).
    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\25\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-21633 Filed 11-2-07; 8:45 am]

BILLING CODE 8011-01-P