Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Trading a Class of Options Without Designating a Lead Market Maker, 29568-29569 [E7-10208]

Download as PDF 29568 Federal Register / Vol. 72, No. 102 / Tuesday, May 29, 2007 / Notices SECURITIES AND EXCHANGE COMMISSION the most significant aspects of such statements. [Release No. 34–55789; File No. SRNYSEArca-2007–34] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Trading a Class of Options Without Designating a Lead Market Maker May 21, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b-4 thereunder,2 notice is hereby given that on April 3, 2007, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by the Exchange. On May 2, 2007, NYSE Arca filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comment on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NYSE Arca is proposing to modify Exchange Rules 6.35, 6.38, 6.92, and 6.93 to allow an option issue to trade without designating a Lead Market Maker (‘‘LMM’’). In those options without an LMM, the Exchange will designate a Market Maker as the sender of a Principal Acting as Agent (‘‘P/A’’) Order 3 through the Options Intermarket Linkage (‘‘Linkage’’). II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of sroberts on PROD1PC70 with NOTICES 1 15 U.S.C 78s(b)(1). 2 17 CFR 240.19b-4 3 Section 2(16)(a) of the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage (‘‘Linkage Plan’’) defines a P/A Order as an order for the principal account of a market maker that is authorized to represent customer orders, reflecting the terms of a related unexecuted customer order for which the market maker is acting as agent. VerDate Aug<31>2005 20:45 May 25, 2007 Jkt 211001 1. Purpose The proposed rule changes would allow the Exchange to trade a class of options without designating an LMM, yet still meet the requirements of the Linkage Plan.4 An LMM designation on the Exchange obligates a Market Maker to a 99% quoting requirement in all appointed series of an underlying class,5 in return for up to a 40% guaranteed allocation on trades executed on the Exchange when the LMM is quoting at the national best bid or offer (‘‘NBBO’’).6 The Exchange states that, in large part, LMMs are designated in option classes to foster liquidity. The Exchange believes that certain highly liquid, highly active options classes, however, have sufficient participation by OTP Holders 7 that there is no need for an LMM. In not designating an LMM in certain option issues, orders would be processed in price/time priority, meaning any market participant, regardless of status, may gain priority by improving the market. The Exchange believes that this change to price/time order execution will create more competition and liquidity in the selected option issues. To accommodate the Linkage Plan, the Exchange proposes modifications to its Rules 6.35, 6.38, 6.92, and 6.93 to allow for the designation of an Exchange Market Maker, assigned on a rotating basis, as the responsible Intermarket Linkage Market Maker (‘‘IMM’’) on outbound P/A Orders.8 Under the terms of the Linkage Plan as applied in the NYSE Arca rules,9 the LMM currently is 4 On July 28, 2000, the Commission approved Linkage proposed by Amex, CBOE, and ISE. See Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). Subsequently, Phlx, Pacific Exchange, Inc. (n/k/a NYSE Arca), and BSE joined the Linkage Plan. See Securities Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70851 (November 28, 2000); 43574 (November 16, 2000), 65 FR 70850 (November 28, 2000); and 49198 (February 5, 2004), 69 FR 7029 (February 12, 2004). 5 NYSE Arca Rule 6.37B(b). 6 NYSE Arca Rule 6.76B(a)(1)(A)(i). 7 See NYSE Arca Rule 1.1(q) for the definition of ‘‘OTP Holder.’’ 8 The IMM will be selected from the pool of all Market Makers who have been appointed in the particular class. Market Makers requesting appointment in the underlying class will need to agree to participate in the rotation of IMM assignment. 9 Telephone conversation between Peter Armstrong, Managing Director, Options, Office of PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 the responsible party on outbound P/A Orders sent through the Linkage. Although the Exchange intends to rely solely on the use of its outbound routing broker to access away markets when the Exchange is not at the NBBO, there may be instances when the Exchange’s routing broker is not available because of system malfunctions. As a result, the Exchange proposes that designated IMMs be responsible for outbound P/A Orders sent through the Linkage. The IMM would be required to submit prior written instructions to the Exchange for routing of any P/A Orders the IMM may send through the Exchange to the Linkage. Under Section 2(16)(a) of the Linkage Plan, however, a P/A Order may be routed to another exchange only through the principal account of a market maker that is authorized to represent customer orders, ‘‘reflecting the terms of a related unexecuted Customer order for which the Market Maker is acting as agent.’’ Market Makers on the Exchange other than LMMs, however, are not permitted to act as an agent on behalf of an order submitted to the Exchange, so as to avoid any appearance of a conflict of interest.10 In order to comply with the Linkage Plan, therefore, the Exchange proposes to amend Exchange Rule 6.38(a) to provide an exception for Market Makers acting as an IMM for the purpose of settling P/A Orders sent to away markets pursuant to Exchange Rules 6.92 and 6.93. This proposed exception is limited to Market Makers acting in the capacity of an IMM strictly for the purpose of settling P/A Orders sent over the Linkage. The proposed exception does not confer any other rights or create any other obligations to any Market Maker. The Exchange also proposes to amend Exchange Rule 6.93 to clarify that the Exchange will be responsible for the receipt, processing, and execution of inbound Linkage orders received from other Participant exchanges. Inbound Linkage orders sent to NYSE Arca are routed directly to the trading system for immediate automatic execution; any remaining unexecuted portion, or any order not executable because a quote is no longer available, will be immediately the General Counsel, NYSE Group, Inc., and Timothy C. Fox, Special Counsel, Division of Market Regulation, Commission, on May 16, 2007. 10 See Exchange Rule 6.38(b)(1), which provides that Market Makers other than LMMs are restricted from acting as a principal and an agent in the same issue on the same business day. See also Exchange Rule 6.38(b)(5), which provides Market Makers are restricted from acting as a floor broker in options covering the same underlying security to which its primary appointment extends. E:\FR\FM\29MYN1.SGM 29MYN1 Federal Register / Vol. 72, No. 102 / Tuesday, May 29, 2007 / Notices returned by the Exchange to the originating away market. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Act 11 in general and furthers the objectives of Section 6(b)(5) 12 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanisms of a free and open market and a national market system. B. Self-Regulatory Organization’s Statement on Burden on Competition 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. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. sroberts on PROD1PC70 with NOTICES IV. Solicitation of Comments 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: • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2007–34 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–55788; File No. SR–OCC– 2006–19] • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Close-Out Netting Procedures All submissions should refer to File Number SR–NYSEArca–2007–34. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro/shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2007–34 and should be submitted on or before June 19, 2007. May 21, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.13 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–10208 Filed 5–25–07; 8:45 am] BILLING CODE 8010–01–P Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 notice is hereby given that on October 10, 2006, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) and on May 15, 2007, amended the proposed rule change as described in Items I, II, and III below, which items have been prepared primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would amend OCC’s By-Laws and Rules to provide for close-out netting procedures to be followed in the highly unlikely event that OCC becomes insolvent or otherwise defaults on its clearing obligations. The proposed rule would clarify the impact of transactions between OCC and its Clearing Members on the capital requirements applicable to Clearing Members and other affiliated entities on a consolidated basis. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements.2 1 15 U.S.C. 78f(b) 12 15 U.S.C. 78f(b)(5). 11 15 VerDate Aug<31>2005 20:45 May 25, 2007 U.S.C. 78s(b)(1). Commission has modified parts of these statements. 2 The 13 17 Jkt 211001 29569 PO 00000 CFR 200.30–3(a)(12). Frm 00088 Fmt 4703 Sfmt 4703 E:\FR\FM\29MYN1.SGM 29MYN1

Agencies

[Federal Register Volume 72, Number 102 (Tuesday, May 29, 2007)]
[Notices]
[Pages 29568-29569]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10208]



[[Page 29568]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55789; File No. SR-NYSEArca-2007-34]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change and Amendment No. 1 Thereto Relating to Trading 
a Class of Options Without Designating a Lead Market Maker

May 21, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 3, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been substantially prepared by the Exchange. On May 2, 2007, 
NYSE Arca filed Amendment No. 1 to the proposed rule change. The 
Commission is publishing this notice to solicit comment on the proposed 
rule change, as amended, from interested persons.
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    \1\ 15 U.S.C 78s(b)(1).
    \2\ 17 CFR 240.19b-4
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca is proposing to modify Exchange Rules 6.35, 6.38, 6.92, 
and 6.93 to allow an option issue to trade without designating a Lead 
Market Maker (``LMM''). In those options without an LMM, the Exchange 
will designate a Market Maker as the sender of a Principal Acting as 
Agent (``P/A'') Order \3\ through the Options Intermarket Linkage 
(``Linkage'').
---------------------------------------------------------------------------

    \3\ Section 2(16)(a) of the Plan for the Purpose of Creating and 
Operating an Intermarket Option Linkage (``Linkage Plan'') defines a 
P/A Order as an order for the principal account of a market maker 
that is authorized to represent customer orders, reflecting the 
terms of a related unexecuted customer order for which the market 
maker is acting as agent.
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule changes would allow the Exchange to trade a class 
of options without designating an LMM, yet still meet the requirements 
of the Linkage Plan.\4\
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    \4\ On July 28, 2000, the Commission approved Linkage proposed 
by Amex, CBOE, and ISE. See Securities Exchange Act Release No. 
43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). Subsequently, 
Phlx, Pacific Exchange, Inc. (n/k/a NYSE Arca), and BSE joined the 
Linkage Plan. See Securities Exchange Act Release Nos. 43573 
(November 16, 2000), 65 FR 70851 (November 28, 2000); 43574 
(November 16, 2000), 65 FR 70850 (November 28, 2000); and 49198 
(February 5, 2004), 69 FR 7029 (February 12, 2004).
---------------------------------------------------------------------------

    An LMM designation on the Exchange obligates a Market Maker to a 
99% quoting requirement in all appointed series of an underlying 
class,\5\ in return for up to a 40% guaranteed allocation on trades 
executed on the Exchange when the LMM is quoting at the national best 
bid or offer (``NBBO'').\6\ The Exchange states that, in large part, 
LMMs are designated in option classes to foster liquidity. The Exchange 
believes that certain highly liquid, highly active options classes, 
however, have sufficient participation by OTP Holders \7\ that there is 
no need for an LMM. In not designating an LMM in certain option issues, 
orders would be processed in price/time priority, meaning any market 
participant, regardless of status, may gain priority by improving the 
market. The Exchange believes that this change to price/time order 
execution will create more competition and liquidity in the selected 
option issues.
---------------------------------------------------------------------------

    \5\ NYSE Arca Rule 6.37B(b).
    \6\ NYSE Arca Rule 6.76B(a)(1)(A)(i).
    \7\ See NYSE Arca Rule 1.1(q) for the definition of ``OTP 
Holder.''
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    To accommodate the Linkage Plan, the Exchange proposes 
modifications to its Rules 6.35, 6.38, 6.92, and 6.93 to allow for the 
designation of an Exchange Market Maker, assigned on a rotating basis, 
as the responsible Intermarket Linkage Market Maker (``IMM'') on 
outbound P/A Orders.\8\ Under the terms of the Linkage Plan as applied 
in the NYSE Arca rules,\9\ the LMM currently is the responsible party 
on outbound P/A Orders sent through the Linkage. Although the Exchange 
intends to rely solely on the use of its outbound routing broker to 
access away markets when the Exchange is not at the NBBO, there may be 
instances when the Exchange's routing broker is not available because 
of system malfunctions. As a result, the Exchange proposes that 
designated IMMs be responsible for outbound P/A Orders sent through the 
Linkage. The IMM would be required to submit prior written instructions 
to the Exchange for routing of any P/A Orders the IMM may send through 
the Exchange to the Linkage.
---------------------------------------------------------------------------

    \8\ The IMM will be selected from the pool of all Market Makers 
who have been appointed in the particular class. Market Makers 
requesting appointment in the underlying class will need to agree to 
participate in the rotation of IMM assignment.
    \9\ Telephone conversation between Peter Armstrong, Managing 
Director, Options, Office of the General Counsel, NYSE Group, Inc., 
and Timothy C. Fox, Special Counsel, Division of Market Regulation, 
Commission, on May 16, 2007.
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    Under Section 2(16)(a) of the Linkage Plan, however, a P/A Order 
may be routed to another exchange only through the principal account of 
a market maker that is authorized to represent customer orders, 
``reflecting the terms of a related unexecuted Customer order for which 
the Market Maker is acting as agent.'' Market Makers on the Exchange 
other than LMMs, however, are not permitted to act as an agent on 
behalf of an order submitted to the Exchange, so as to avoid any 
appearance of a conflict of interest.\10\ In order to comply with the 
Linkage Plan, therefore, the Exchange proposes to amend Exchange Rule 
6.38(a) to provide an exception for Market Makers acting as an IMM for 
the purpose of settling P/A Orders sent to away markets pursuant to 
Exchange Rules 6.92 and 6.93. This proposed exception is limited to 
Market Makers acting in the capacity of an IMM strictly for the purpose 
of settling P/A Orders sent over the Linkage. The proposed exception 
does not confer any other rights or create any other obligations to any 
Market Maker.
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    \10\ See Exchange Rule 6.38(b)(1), which provides that Market 
Makers other than LMMs are restricted from acting as a principal and 
an agent in the same issue on the same business day. See also 
Exchange Rule 6.38(b)(5), which provides Market Makers are 
restricted from acting as a floor broker in options covering the 
same underlying security to which its primary appointment extends.
---------------------------------------------------------------------------

    The Exchange also proposes to amend Exchange Rule 6.93 to clarify 
that the Exchange will be responsible for the receipt, processing, and 
execution of inbound Linkage orders received from other Participant 
exchanges. Inbound Linkage orders sent to NYSE Arca are routed directly 
to the trading system for immediate automatic execution; any remaining 
unexecuted portion, or any order not executable because a quote is no 
longer available, will be immediately

[[Page 29569]]

returned by the Exchange to the originating away market.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\11\ in general and furthers the objectives of Section 6(b)(5) \12\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b)
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    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:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2007-34 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2007-34. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro/shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEArca-2007-34 and should be submitted on or before 
June 19, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-10208 Filed 5-25-07; 8:45 am]
BILLING CODE 8010-01-P