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(1) The provisions of this rule shall apply to all member organizations seeking to operate a DMM unit at the Exchange and any approved person that may provide services to a DMM unit.
For purposes of this Rule, the following terms shall be defined as provided.
(1) "DMM unit" means a trading unit within a member organization that is approved pursuant to Rule 103 to act as a DMM unit.
(2) "DMM securities" means any securities allocated to the DMM unit pursuant to Rule 103B or other applicable rules.
(3) "DMM rules" means any rules that govern DMM or DMM unit conduct or trading.
(4) "Floor-based non-public order" any order, whether expressed electronically or verbally, or any information regarding a reasonably imminent non-public transaction or series of transactions entered or intended for entry or execution on the Exchange and which is not publicly available on a real-time basis via an Exchange-provided datafeed, such as NYSE OpenBook® or otherwise not publicly available. Non-public orders include order information at the opening, re-openings, the close, and order information in Exchange systems that is not available via NYSE OpenBook®.
(5) "Investment banking department" means any department or division, whether or not specifically identified as such, that performs any investment banking services on behalf of a member organization.
(6) "Research department" means any department or division, whether or not specifically identified as such, that is responsible for preparing the substance of a research report on behalf of a member organization.
(7) "Related products" means any derivative instrument that is related to a DMM security, including options, warrants, hybrid securities, single-stock futures, security-based swap agreement, a forward contract, or any other instrument that is exercisable into or whose price is based upon or derived from a security traded at the Exchange.
(c) Operation of a DMM unit.
(1) A member organization will be permitted to operate a DMM unit provided that the member organization has obtained prior written approval from the Exchange.
(2) A member organization seeking approval to operate a DMM unit pursuant to this rule must maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of such member organization's business, (i) to prevent the misuse of material, non-public information by such member organizations or persons associated with such member organization and (ii) to ensure compliance with applicable federal laws and regulations and with Exchange rules. For purposes of this Rule, conduct constituting the misuse of material, non-public information includes, but is not limited to:
(A) Trading in any securities issued by a corporation, or in any related product, while in possession of material-non-public information concerning the issuer; or
(B) Trading in a security or related product, while in possession of material non-public information concerning imminent transactions in the security or related product; or
(C) Disclosing to another person or entity any material, non-public information involving a corporation whose shares are publicly traded or an imminent transaction in an underlying security or related product for the purpose of facilitating the possible misuse of such material, non-public information.
(3) Restrictions on trading for member organizations operating a DMM unit.
(A) A member organization shall protect against the misuse of Floor-based non-public order information. Only Floor-based employees of the DMM unit and individuals responsible for the direct supervision of the DMM unit's Floor-based operations may have access to Floor-based non-public order information.
(B) While on the Trading Floor of the Exchange, employees of the DMM unit:
(i) except as provided for in Rule 36.30, may trade only DMM securities and only on or through the systems and facilities of the Exchange as permitted by Exchange rules.
(ii) except as provided for in Rules 36.30, may not communicate with individuals or systems responsible for making trading decisions for related products or for away-market trading in their assigned DMM securities.
(iii) shall not have access to customer information or the DMM unit's position in related products.
(C) When a Floor-based employee of a DMM unit moves to a location off of the Trading Floor of the Exchange or if any person that provides risk management oversight or supervision of the Floor-based operations of the DMM unit is aware of Floor-based non-public order information, he or she shall not (1) make such information available to customers, (2) make such information available to individuals or systems responsible for making trading decisions in DMM securities in away markets or related products, or (3) use any such information in connection with making trading decisions in DMM securities in away markets or related products.
(D) A DMM unit may make available to a Floor broker associated or affiliated with an approved person or member organization any information that the DMM would be permitted to provide under Exchange rules to an unaffiliated Floor broker.
(4) Any proprietary interest entered into Exchange systems by the DMM unit in DMM securities must be identifiable as DMM unit interest, unless such proprietary interest is for the purposes of facilitating the execution of an order received from a customer (whether the DMM's own customer or the customer of another broker-dealer) and is on a riskless principal basis, or on a principal basis to provide price improvement to the customer (a "customer-driven order"). A DMM unit must use a unique mnemonic that identifies to the Exchange its customer-driven orders in DMM securities. A mnemonic used to identify a DMM's customer-driven orders in DMM securities may not be used for trading activity at the Exchange in DMM securities that are not customer-driven orders, but may be used for trading activities in securities not assigned to the DMM.
(5) The member organization must provide the Exchange with real-time net position information in DMM securities by the DMM unit and any independent trading unit of which it is part at such times and in the manner prescribed by the Exchange.
(6) The DMM unit may not operate as a specialist or market maker on the Exchange or the NYSE MKT LLC equities or options trading floors in related products, unless specifically permitted in Exchange rules.
(7) The member organization shall maintain information barriers between the DMM unit and any investment banking or research departments of the member organization. No DMM or DMM unit may be directly supervised or controlled by an individual associated with an approved person or the member organization who is assigned to any investment banking or research departments.
(d) The rules, fees or credits applicable to DMM quoting or trading activity will apply only to a DMM unit's quoting or trading in its DMM securities for its own account that has been identified as DMM interest. Customer-driven orders for the account of a DMM unit that have not been identified as DMM interest will not be subject to DMM rules or be eligible for any fees or credits applicable to DMM quoting or trading activity and may not be aggregated with interest that has been identified as DMM interest for purposes of any DMMrelated fees or credits or DMM quoting obligations specified in Rule 104(a).
(e) Failure to Maintain Confidentiality
(1) In the event that a DMM unit receives from the member organization or approved person non-public information about a security that is allocated to the DMM unit, that DMM unit shall promptly communicate that fact to the person responsible for compliance with the securities laws and regulations within the DMM unit (compliance officer) and shall seek a determination from such compliance officer as to whether the DMM should cease acting as a DMM in the security involved.
(A) If the compliance officer determines that the DMM should temporarily cease acting as a DMM in the security:
(i) The DMM shall transfer the responsibility to act as a DMM in such security to another member who is registered as a DMM and who is not in possession of the information so received;
(ii) The compliance officer shall immediately notify the Exchange when (1) a determination is made that another DMM should act as a DMM in such security, and (2) when the compliance officer determines that the DMM who regularly handles the security can resume acting as a DMM for that security.
(iii) The compliance officer shall be responsible for determining when it is appropriate for the DMM to resume acting as DMM in the security involved.
(iv) The compliance officer shall take such actions as may be necessary to ensure that the transfer of the security to another member who is registered as a DMM is conducted in a "neutral" manner so that there is no communication of the information that had been received by the DMM who, as a consequence of receiving such information, was required to cease acting as a DMM for that security.
(v) The compliance officer shall maintain a written record of each request from a DMM for a determination of whether to cease acting as a DMM in a security. Such record shall include a description of the information received by the DMM, an indication when and from whom the information was received, when the compliance officer was consulted on the matter, when the compliance officer made a determination on the matter, the determination of whether to cease acting as a DMM in a security, the basis for such determination, the time at which the DMM resumed acting as a DMM in the security involved, and such other information as the Exchange may from time to time require.
(f) Reporting Obligations
(1) The member organization or approved person associated with a DMM unit shall report to the Exchange, on a monthly "after the fact" basis and on such form and in such specific detail as the Exchange may prescribe, information regarding material investment banking activities in which it has been engaged (e.g., underwriting, tender offers, mergers, acquisitions, recapitalizations, etc.), and material research reports, recommendations, etc., pertaining to any security that has been allocated to a DMM unit pursuant to Rule 103B.
(2) A DMM unit shall report to the Exchange on a monthly "after the fact" basis and on such form and in such specific detail as the Exchange may prescribe, information regarding determinations pursuant to section (e)(1) of this Rule by a compliance officer that a DMM shall not be required to cease acting as a DMM in a security.
(3) A DMM unit shall promptly report to the Exchange any failure to maintain the confidentiality of Floor-based non-public order information, as required by section(c) of this Rule.
(4) In the event a DMM unit, member organization, or approved person becomes aware of any trading activity that may be a result of a breach of (i) the DMM unit's internal controls or surveillances as required by section (c) of this Rule, or (ii) the requirement to maintain the confidentiality of Floor-based non-public order information, as required by section (c) of this Rule, the DMM unit, member organization, or approved person shall:
(A) Promptly conduct an internal investigation into any such actual or potential breach to determine whether such breach occurred and if there was a breach, how such breach occurred;
(B) Promptly take any and all necessary remedial measures to prevent and detect such breaches from recurring; and
(C) On a quarterly basis, for any ongoing internal investigation required by section (f)(4)(A) of this Rule, report in writing to the Exchange:
(i) The commencement of the internal investigation;
(ii) The quarterly progress of each open investigation (report by the 15th day of the month following the quarter); and
(iii) The completion of the investigation, including the methodology and results of the investigation, remedial actions taken, any internal disciplinary action taken, and any referral of the matter to the Exchange, another self-regulatory organization, the Securities and Exchange Commission or another Federal agency.
(g) Any failure by the DMM unit to maintain confidentiality of Floor-based non-public order information or any breach of any internal controls established to protect such information, may result in the imposition of appropriate regulatory sanctions, including a withdrawal of the registration of one or more securities of the DMM unit or the withdrawal of the approval to operate a DMM unit.
Adopted: August 7, 2008 (NYSE-2008-45).
Amended: October 24, 2008 (NYSE-2008-46); December 10, 2008 (NYSE-2008-127); October 7, 2011 (NYSE-2011-49); July 3, 2014 (NYSE-2014-12); April 26, 2016 (NYSE-2016-16).