SIFMA Letter on Proposal to Amend Rule 1000 (with Barrentine Comment)

On May 31, 2013, the NYSE filed a rule proposal to revise the manner by which the Exchange will phase out its liquidity replenishment points ("LRPs") functionality in connection with the implementation of the Limit Up/Limit Down Plan (the "Plan"). LRPs are predetermined price points that moderate volatility by temporarily converting the NYSE's electronic market to an auction market when an LPR is reached and residual interest of the executing order would result in a locked or crossed market or the bid or offer is quoted beyond the revised LRP in that security.

Barrentine Comment: The NYSE, at the direction of the SEC, had "reluctantly" eliminated LRPs for securities subject to the Limit Up/Limit Down Plan. See Securities Exchange Act Release No. 69295 (April 4, 2013), 78 FR 21457 (April 10, 2013) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Rule 1000). The NYSE had criticized the SEC for ending the LRP program without performing an impact analysis. For its part, the SEC believed that multiple volatility curbs operating together could create investor confusion and, therefore, directed that the NYSE eliminate LRP as the Limit Up/Limit Down Plan took effect.Subsequently, there have been several occurrences of sharp price declines during the open and close period that, during Phase I of the Plan, are not covered by the Limit Up/Limit Down price bands and therefore are not effectively covered by the Plan. The NYSE's proposal would reinstate the LRP functionality during Phase I of the Plan during such periods as are not covered by the Plan's price bands.Notwithstanding that the proposal has not yet been published by the SEC, SIFMA has filed a comment in favor of reinstatement which noted that, while it had previously stated that there existed the potential for market complexity if multiple exchange-specific volatility mechanisms were put into effect, it now believes that, during Phase I of the Plan, such concerns were outweighed by the likelihood that reinstatement could reduce the likelihood of sharp price movements during the open and close.

See: Letter.See also: Rule Proposal.