Self-Regulatory Organizations; NYSE Amex LLC; Order Granting Approval of a Proposed Rule Change Amending NYSE Amex Rule 476A To Update Its “List of Equities Rule Violations and Fines Applicable Thereto”

I. Introduction

On February 16, 2012, NYSE Amex LLC (“Exchange” or “NYSE Amex”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, a proposed rule change to amend NYSE Amex Rule 476A to update its “List of Equities Rule Violations and Fines Applicable Thereto.” The proposed rule change was published for comment in the Federal Register on March 5, 2012. The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change.

II. Description

By way of background, NYSE Amex Rule 476 governs disciplinary proceedings involving charges against members, member organizations, principal executives, approved persons, employees, or others for violations of the federal securities laws, Exchange rules and agreements with the Exchange, and other offenses listed in the rule.

NYSE Amex Rule 476A, “Imposition of Fines for Minor Violation(s) of Rules,” provides that, in lieu of commencing a disciplinary proceeding under Rule 476, the Exchange may (subject to specified requirements) “impose a fine, not to exceed $5,000, on any member, member organization, principal executive, approved person, or registered or non-registered employee of a member or member organization, for any violation of a rule of the Exchange, which violation the Exchange shall have determined is minor in nature.” The provisions of Rule 476A are known as the Exchange's Minor Rule Violation Plan.

According to the Exchange, the “summary fines” under Rule 476A provide a meaningful sanction for rule violations when the violation calls for stronger discipline than an admonition or cautionary letter, but the facts and circumstances of the violation do not warrant initiation of a formal disciplinary proceeding under Rule 476. A “List of Equities Rule Violations and Fines Applicable Thereto” (“Rule 476A List”) is appended as Part 1A of the Supplementary Material to the rule.

In the instant proposal, NYSE Amex proposes to amend the Rule 476A List to: (i) Make technical, non-substantive changes to conform the list to previously-approved changes in Exchange rules, (ii) update the rules relating to conduct by Designated Market Makers (“DMMs”), and (iii) add rules relating to conduct by DMMs, as follows:

Proposed Non-Substantive Changes to Rule 476A List

The Exchange proposes to update the Rule 476A List by updating the title of a rule, updating references to rules that have been renumbered or harmonized with a Financial Industry Regulatory Authority (“FINRA”) rule, deleting references to rules that have been deleted, updating the descriptions of rules that have been amended, harmonizing the Rule 476A List with the list in the New York Stock Exchange (“NYSE”) Minor Rule Violation Plan, and fixing a typographical error.

Proposed Updates to Rule 476A List for DMM Conduct Rules

The current Rule 476A List includes certain rules that govern DMM conduct (e.g., NYSE Amex Equities Rules 104(a)(1)(A) and 104.10). The Exchange proposes to update the Rule 476A List with current rules governing DMM conduct. In particular, under the proposed rule change, the list would be amended to include, more expansively, “Rule 104—NYSE Amex Equities requirements for the dealings and responsibilities of DMMs,” as well as “Rule 123D—NYSE Amex Equities requirements for DMMs relating to openings, re-openings, delayed openings, trading halts, and tape indications.” Thus, additional elements of Rule 104, as well as Rule 123D, would be included in the Minor Rule Violation Plan, as further detailed below.

Rule 104

NYSE Amex Equities Rule 104 requires DMMs registered in one or more securities traded on the Exchange 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, by contributing liquidity when lack of price continuity and depth, or disparity between supply and demand exists or is reasonably to be anticipated.

The Rule 476A List currently includes the following elements of Rule 104:

• Rule 104(a)(1)(A), which requires DMMs to maintain a bid or an offer at the National Best Bid and National Best Offer (“inside”) at least 10% of the trading day for securities in which the DMM unit is registered that have a consolidated average daily volume of less than one million shares, and at least 5% for securities in which the DMM unit is registered that have a consolidated average daily volume equal to or greater than one million shares; and
• Rule 104.10, which is described in the Rule 476A List as relating to “Functions of DMM.” Rule 104.10 refers to a former rule relating to certain subject matters that, according to the Exchange, continue to be covered in the current Rule 104. NYSE Amex currently does not have a Rule 104.10.

The proposed rule change would, instead, include a single reference in the Rule 476A List identifying “Rule 104—NYSE Amex Equities requirements for the dealings and responsibilities of DMMs” as subject to the Minor Rule Violation Plan. The proposed rule change would have the effect of adding to the Rule 476A List Rules 104(b), (c), (d), and (e), as well as Rule 104(a)(1)(B), the rule that governs the DMM's new pricing obligations, which were implemented by all equities markets on December 6, 2010.

Rule 123D

The Exchange also proposes to include a reference to delayed openings, which is addressed in NYSE Amex Equities Rule 123D, in the Rule 476A List to harmonize the Rule 476A List with the list in the NYSE Minor Rule Violation Plan as existed at the time the Notice was filed with the Commission. Further, consistent with a recent NYSE filing, the Exchange proposes to expand the reference to Rule 123D to include other elements of that rule (e.g., openings, re-openings, trading halts, and tape indications) as being eligible under the Exchange's Minor Rule Violation Plan. The effect of the change would be to include additional requirements of DMMs set forth in Rule 123D—relating to openings, re-openings, trading halts, and tape indications—in the Minor Rule Violation Plan.

III. Discussion and Commission Findings

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. In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act because expanding the list of DMM obligations that are subject to the Minor Rule Violation Plan should afford the Exchange increased flexibility in carrying out its supervisory responsibilities, and, in doing so, help to meet the aim of protecting investors and the public interest.

The Commission also believes that the proposed rule change is consistent with Sections 6(b)(1) and 6(b)(6) of the Act, which require that an exchange enforce compliance with, and have rules that provide appropriate discipline for violations of, the Act, the rules and regulations thereunder, and Exchange rules. As an initial matter, the proposed rule change will further these objectives through its clarification of the list of Exchange rule violations that are subject to NYSE Amex Rule 476A by updating rule titles and rule references, deleting references to rules that have been deleted, updating descriptions of rules that have been amended, and fixing a typographical error.

Further, the Commission recognizes that the proposed rule change will render violations of DMM obligations under Rule 104 that were not previously on the Rule 476A List, as well as violations of DMM obligations under Rule 123D, as eligible for treatment as minor violations. However, the Commission notes that designating a rule as subject to the Minor Rule Violation Plan does not signify that violation of the rule will always be deemed a minor violation. As noted by the Exchange, Rule 476A preserves the Exchange's discretion to seek formal discipline, as warranted, when transgressions of rules designated as eligible for the Minor Rule Violation Plan are found to be more serious. Thus, the Exchange will remain able to require, on a case-by-case basis, formal disciplinary action for any particular violation. Therefore, the Commission believes that the proposed rule change will not compromise the Exchange's ability to seek more stringent sanctions for the more serious violations of Rules 104 and 123D.

In addition, because NYSE Amex Rule 476A provides procedural rights to a person fined under the rule, entitling the person to contest the fine and receive a full disciplinary proceeding, the Commission believes that NYSE Amex Rule 476A, as amended by this proposed rule change, will provide a fair procedure for the disciplining of Exchange members and persons associated with members, consistent with Sections 6(b)(7) and 6(d)(1) of the Act.

Finally, the Commission finds that the proposed rule change is consistent with the public interest, the protection of investors, or is otherwise in furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2) under the Act, which governs minor rule violation plans. The Commission believes that the proposed changes to NYSE Amex Rule 476A will strengthen the Exchange's ability to carry out its oversight and enforcement responsibilities as a self-regulatory organization, in cases where full disciplinary proceedings are unsuitable in view of the nature of a particular violation.

In approving this proposed rule change, the Commission emphasizes that in no way should the amendment of the rule be seen as minimizing the importance of compliance with Exchange rules and all other rules subject to the imposition of fines under NYSE Amex Rule 476A. The Commission believes that the violation of any self-regulatory organization's rules, as well as Commission rules, is a serious matter. However, NYSE Amex Rule 476A provides a reasonable means of addressing rule violations that do not rise to the level of requiring formal disciplinary proceedings, while providing greater flexibility in handling certain violations. The Commission expects that the Exchange will continue to conduct surveillance with due diligence and make a determination based on its findings, on a case by-case basis, of whether a violation requires formal disciplinary action under NYSE Amex Rule 476.

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-NYSEAmex-2012-10) be, and hereby is, approved.