Self-Regulatory Organizations; NYSE Amex LLC; Order Approving a Proposed Rule Change Relating to Complex Orders, 80553-80556 [2010-32089]
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Federal Register / Vol. 75, No. 245 / Wednesday, December 22, 2010 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CME–2010–01 on the
subject line.
Paper Comments
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63558; File No. SR–
NYSEAmex–2010–100]
Self-Regulatory Organizations; NYSE
Amex LLC; Order Approving a
Proposed Rule Change Relating to
Complex Orders
December 16, 2010.
srobinson on DSKHWCL6B1PROD with NOTICES
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
I. Introduction
On October 20, 2010, NYSE Amex
LLC (‘‘NYSE Amex’’ or the ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
All submissions should refer to File
Exchange Act of 1934 (the ‘‘Act’’),1 and
Number SR–CME–2010–01. This file
Rule 19b–4 thereunder,2 a proposed rule
number should be included on the
change to: (i) Add to Rule 900.3NY(h) a
subject line if e-mail is used. To help the
definition of ‘‘Stock/Complex Order;’’
Commission process and review your
(ii) revise Rule 963NY(d) to update the
comments more efficiently, please use
only one method. The Commission will provisions governing open outcry
post all comments on the Commission’s trading of Complex Orders and Stock/
option Orders and apply these
Internet Web site (https://www.sec.gov/
provisions to Stock/Complex Orders;
rules/sro.shtml). Copies of the
(iii) delete Rule 963.1NY; (iv) add Rule
submission, all subsequent
980NY(e) to establish an electronic
amendments, all written statements
Complex Order Auction (‘‘COA’’); and
with respect to the proposed rule
(v) revise other provisions of Rule
change that are filed with the
980NY to include Stock/Complex
Commission, and all written
Orders. The proposed rule change was
communications relating to the
published for comment in the Federal
proposed rule change between the
Register on November 2, 2010.3 The
Commission and any person, other than
Commission received no comments
those that may be withheld from the
regarding the proposal. This order
public in accordance with the
approves the proposed rule change.
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
II. Description of the Proposal
the Commission’s Public Reference
A. Definition of Stock/Complex Order
Room, 100 F Street, NE., Washington,
The proposal amends Rule
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m. 900.3NY(h) to add a definition of
Copies of the filing also will be available ‘‘Stock/Complex Order.’’ Rule
900.3NY(h)(2) defines a ‘‘Stock/Complex
for inspection and copying at the
Order’’ as the purchase or sale of a
principal office of the Exchange.4 All
Complex Order, as defined in Rule
comments received will be posted
900.3NY(e), coupled with an order to
without change; the Commission does
buy or sell a stated number of units of
not edit personal identifying
an underlying stock or a security
information from submissions. You
convertible into the underlying stock
should submit only information that
you wish to make available publicly. All (‘‘convertible security’’) representing
either (A) the same number of units of
submissions should refer to File
the underlying stock or convertible
Number SR–CME–2010–01 and should
security as are represented by the
be submitted on or before January 12,
options leg of the Complex Order with
2011.
the least number of options contracts, or
For the Commission, by the Division of
(B) the number of units of the
Trading and Markets, pursuant to delegated
underlying stock necessary to create a
authority.5
delta neutral position, but in no case in
Florence E. Harmon,
a ratio greater than eight options
Deputy Secretary.
contracts per unit of trading of the
[FR Doc. 2010–32086 Filed 12–21–10; 8:45 am]
underlying stock or convertible security
BILLING CODE 8011–01–P
established for that series by the
4 The text of the proposed rule change is available
on the Commission’s Web site at https://
www.sec.gov.
5 17 CFR 200.30–3(a)(12).
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 63187
(October 27, 2010), 75 FR 67424 (‘‘Notice’’).
2 17
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80553
Clearing Corporation, as represented by
the options leg of the Complex Order
with the least number of options
contracts.
B. Revisions To Open Outcry Rules
The proposal revises paragraph (d) of
Rule 963NY, ‘‘Priority and Order
Allocation Procedures—Open Outcry,’’
to update the provisions governing the
trading of Complex Orders Stock/option
Orders in open outcry. Rule 963NY(d),
as amended, will also apply to Stock/
Complex Orders trading in open outcry.
According to the Exchange, the changes
to Rule 963NY(d) streamline and update
the text of Rule 963NY(d), but do not
alter the Exchange’s existing procedures
for trading Complex Orders or Stock/
option Orders, or the priority of
quotations and orders. The Exchange
notes that the Rule 963NY(d), as
amended, is based on Chicago Board
Options Exchange, Incorporated
(‘‘CBOE’’) Rule 6.45(e).4
Under Rule 963(d), as amended,
Complex Orders, as defined in Rule
900.3NY(e), and Stock/Complex Orders,
as defined in Rule 900.3(h)(2), may be
executed at a net debit or credit with
another ATP Holder without giving
priority to equivalent bids (offers) in the
individual series legs that are
represented in the Trading Crowd or
Customer limit orders in the
Consolidated Book, provided that at
least one options leg of the order betters
the corresponding Customer bid (offer)
in the Consolidated Book by at least one
minimum trading increment, as defined
in Rule 960NY (i.e., $0.10, $0.50, or
$0.01, as applicable), or a $0.01
increment, as determined by the
Exchange on a class-by-class basis.
Stock/option Orders, as defined in Rule
900.3(h)(1), have priority over
equivalent bids (offers) of the trading
crowd, but not over equivalent
Customer bids (offers) in the
Consolidated Book.
In addition, Rule 963NY(d) provides
that bids and offers for Complex Orders,
Stock/option Orders, and Stock/
4 CBOE Rule 6.45(e) states that ‘‘A complex order
as defined in Rule 6.42.01 may be executed at a net
debit or credit price with another Trading Permit
Holder without giving priority to equivalent bids
(offers) in the individual series legs that are
represented in the trading crowd or in the public
customer limit order book provided at least one leg
of the order betters the corresponding bid (offer) in
the public customer limit order book by at least one
minimum trading increment as defined in Rule 6.42
(i.e., $0.10, $0.05 or $0.01, as applicable) or a $0.01
increment, which increment shall be determined by
the Exchange on a class-by-class basis. Stock-option
orders and security future-option orders, as defined
in Rule 1.1(ii)(a) and Rule 1.1(zz)(a), respectively,
have priority over bids (offers) of the trading crowd
but not over bids (offers) in the public customer
limit order book.’’
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Complex Orders may be expressed in
$0.01 increments regardless of the
minimum increment otherwise
applicable to the individual legs of the
order.
The Exchange also proposes to delete
Rule 963.1NY, ‘‘Complex Order
Transactions—Open Outcry.’’ According
to the Exchange, Rule 963NY(d)
describes priority for all Complex
Orders and Stock/option Orders. The
Exchange states that Rule 963.1NY
describes procedures for executing
Complex Orders in open outcry, but
does not describe any execution
priority, obligation, or privilege that is
not already described in other rules. In
addition, Rule 963.1NY describes
procedures only for Complex Orders
with two options legs, rather than for all
Complex Orders. The Exchange notes,
further, that Rule 963.1NY(f) describes a
narrow circumstance, relating to a
Locked Book Market, that was more
appropriate when an Order Book
Official maintained the Public Customer
Book. According to the Exchange, Rule
963NY(d), as amended, addresses this
and similar circumstances more clearly.
Accordingly, the Exchange proposes to
delete Rule 963.1NY.
C. Electronic COA
As described more fully in the
Notice,5 the Exchange proposes to adopt
Rule 980NY(e), which establishes an
electronic request for responses COA for
Complex Orders, Stock/option Orders,
and Stock/Complex Orders (‘‘Electronic
Complex Orders’’). The Exchange states
that the COA is similar to the electronic
complex order auction provided for in
CBOE Rule 6.53(d), with a priority
change based on Nasdaq OMX Phlx, Inc.
Rule 1080, Commentary .08(e)(vi)(A)(2).
Electronic Complex Orders processed
through the Exchange’s COA may be
executed without consideration to
prices of the same complex orders that
might be available on other exchanges.6
The Exchange may determine, on a
class-by-class basis, the Electronic
Complex Orders that are eligible for a
COA (‘‘COA-eligible orders’’), based on
the order’s marketability, size, number
of series, and order origin type (i.e.,
Customer, broker-dealer that is not a
Market-Maker or options exchange
specialist, and/or Market-Maker or
options exchange specialist).7 Upon
receipt of a COA-eligible order, and
direction from the entering ATP Holder
that an auction be initiated, the
Exchange will send an RFR message to
ATP Holders that subscribe to RFR
5 See
note 3, supra.
Rule 980NY(e)(1).
7 See Rule 980NY(e)(1)(A).
6 See
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messages.8 The RFR message will
identify the component series, the size
of the order and any contingencies, but
not the side of the market.9
Each Market-Maker with an
appointment in the relevant option
class, and each ATP Holder acting as
agent for orders resting at the top of the
Consolidated Book in the relevant
option series, may submit responses to
the RFR message (‘‘RFR Responses’’)
during the Response Time Interval.10
RFR Responses, which may be
submitted in $0.01 increments, will be
ranked and displayed in the
Consolidated Book.11 The Exchange will
determine the length of the Response
Time Interval, which will not exceed
one second.12 The obligations of Rule
935NY, ‘‘Order Exposure Requirements,’’
are separate from the duration of the
Response Time Interval.13
RFR Responses may be modified, but
may not be withdrawn, at any time prior
to the end of the Response Time
Interval.14 At the end of the Response
Time Interval, RFR Responses are firm
with respect to the COA-eligible order,
and RFR Responses that exceed the size
of the COA-eligible order are also firm
with respect to other incoming COAeligible orders and RFR Responses that
are received during the Response Time
Interval.15 Any RFR Responses that are
not accepted in full or in a permissible
ratio will expire at the end of the
Response Time Interval.16
At the conclusion of the Response
Time Interval, a COA-eligible order will
be executed in whole or in part against
the best priced contra side interest.17 At
the same net price, a COA-eligible order
will execute first against individual
orders and quotes in the leg markets
resting in the Consolidated Book prior
to the initiation of the COA, provided
that the COA-eligible order can be
executed in full, or in a permissible
ratio, by orders and quotes in the
Consolidated Book; second, against
Customer Electronic Complex Orders
resting in the Consolidated Book before,
8 See
Rule 980NY(e)(2).
9 Id.
10 See
Rule 980NY(e)(4).
11 Id.
12 See
Rule 980NY(e)(3).
Rule 935NY provides that: ‘‘With respect to
orders routed to the NYSE Amex System, Users may
not execute as principal orders they represent as
agent unless (i) agency orders are first exposed on
the Exchange for at least one (1) second or (ii) the
User has been bidding or offering on the Exchange
for at least one (1) second prior to receiving an
agency order that is executable against such bid or
offer.’’
14 See Rule 980NY(e)(7).
15 Id.
16 Id.
17 See Rule 980NY(e)(5) and (6).
13 Id.
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or that are received during, the
Response Time Interval, and Customer
RFR Responses, allocated on a size pro
rata basis as defined in Rule
964NY(b)(3); and third, against nonCustomer Electronic Complex Orders
resting in the Consolidated Book or
placed in the Consolidated Book during
the Response Time Interval, and nonCustomer RFR Responses, allocated on
a size pro rata basis as defined in Rule
964NY(b)(3).18 Individual orders and
quotes in the leg markets that cause the
derived Complex Best Bid/Offer to be
improved during the COA and match
the best RFR Responses and/or
Electronic Complex Orders received
during the Response Time Interval will
be filled after Electronic Complex
Orders and RFR Responses at the same
net price.19 Any unexecuted portion of
a COA-eligible order will be placed in
the Consolidated Book or, if marketable,
will initiate another COA.20
The COA rules also address the
handling of unrelated Electronic
Complex Orders received during a
COA,21 and the effect of a change in the
best bid or offer in the leg markets.22
A pattern or practice of submitting
unrelated orders that cause a COA to
conclude early, or the dissemination to
third parties of information related to
COA-eligible orders, will be deemed
18 See
Rule 980NY(e)(6)(A)–(C).
Rule 980NY(e)(6)(D).
20 See Rule 980NY(e)(5).
21 Incoming Electronic Complex Orders received
during the Response Time Interval that are on the
opposite side of the market from, and marketable
against, the COA-eligible order will be ranked and
executed in price/time priority with RFR Responses
by account type, as provided in Rule 980NY(e)(6),
and any remaining balance of the initiating COAeligible order or the incoming Electronic Complex
Order will be placed in the Consolidated Book.
Incoming COA-eligible orders received during the
Response Time Interval that are one the same side
of the market and at a price that is equal to the price
of the original COA-eligible order will join the
COA, and a message with the updated size will be
published. The incoming order(s) and the initiating
COA-eligible order will be ranked and executed in
price/time priority, and any remaining balance of
the initiating order or the incoming order(s) will be
placed in the Consolidated Book. Similarly, an
incoming COA-eligible order on the same side of
the market as the original COA-eligible order with
a price that is worse than the price of the original
COA-eligible order will join the COA, and will be
ranked and executed with the initiating COAeligible order in price/time priority. An incoming
COA-eligible order on the same side of the market
as the original COA-eligible order with a price that
is better than the price of the original COA-eligible
order will cause the auction to end, and the
initiating COA-eligible order will be executed in
accordance with Rule 980NY(e)(6). The COAeligible order that caused the auction to end will
then be executed, and any unexecuted portion will
either be placed in the Consolidated Book or, if
marketable, will initiate another COA. See Rule
980NY(e)(8).
22 See Rule 980NY(e)(9).
19 See
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conduct inconsistent with just and
equitable principles of trade.23
srobinson on DSKHWCL6B1PROD with NOTICES
D. Additional Changes
The proposal modifies Rule 980NY,
Commentary .02 to provide that at least
one leg of an Electronic Complex Order
must trade at a price that is a least $0.01
better than the corresponding Customer
bid or offer in the Consolidated Book if
the Exchange has designated the options
class as eligible for COAs. The proposal
also amends Rule 980NY, Commentary
.03(a) to require the execution of the
stock component of a Stock/Complex
Order to be consistent with the rules of
the stock execution venue. In addition,
the proposal revises Rule 980NY,
Commentary .03(c) to establish the
execution sequence for Stock/Complex
Orders submitted to the Exchange’s
Complex Matching Engine (‘‘CME’’). The
proposal also amends Rule 980NY,
Commentary .03(d), to provide that the
requirement to trade with existing
Customer interest at the Exchange’s best
bid (offer) before executing the options
legs of a Stock/Complex Order will
apply only if there are Customer orders
at the best bid (offer) for each of the
options legs of the Stock/Complex
Order.
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.24 In particular, the
Commission finds that the proposal is
consistent with Section 6(b)(5) of the
Act,25 which requires, in part, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, 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. The
Commission finds that the proposal is
designed to facilitate the trading of
Complex Orders, Stock/option Orders,
and Stock/Complex Orders on the
Exchange.
Rule 900.3NY(h)(2) defines a new
order type, the Stock/Complex Order,
that could provide market participants
with flexibility by permitting orders
composed of an underlying stock or
23 See
Rule 980NY(e), Commentary .04.
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).
25 15 U.S.C. 78f(b)(5).
24 In
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convertible security and multiple
options legs. As discussed above, a
Stock/Complex Order must be
comprised of a Complex Order, as
defined in Rule 900.3NY(e), and a stock
leg.26 Under the proposal, the options
legs of a Stock/Complex Order must (a)
satisfy the conditions in the definition
of Complex Order; 27 and (b) at least one
options leg of a Complex Order or a
Stock/Complex Order must trade at a
price that is better than the
corresponding Customer bid or offer for
the same series.28 Accordingly, the
priority provisions applicable to Stock/
Complex Orders are consistent with the
priority provisions applicable to
Complex Orders.
Rule 963NY(d), as amended, sets forth
the procedures and priority
requirements for Complex Orders,
Stock/option Orders, and Stock/
Complex Orders trading in open outcry.
As described more fully above, Rule
963NY(d) states that Complex Orders
and Stock/Complex Orders may be
executed at a net debt or credit with
another ATP Holder without giving
priority to equivalent bids (offers) in the
individual series legs that are
represented in the Trading Crowd or
Customer limit orders in the
Consolidated Book, provided that at
least one options leg of the order betters
the corresponding Customer bid (offer)
by at least one minimum trading
increment or by a $0.01 increment, as
applicable. Stock/option Orders have
priority over equivalent bids (offers) in
the Trading Crowd, but not over
equivalent Customer bids (offers) in the
Consolidated Book. The Commission
notes that Rule 963NY(d), as amended,
is substantially similar to CBOE Rule
6.45(e). According to the Exchange, the
proposal streamlines and updates Rule
963NY(d), but does not substantively
alter the procedures or priorities for
trading Complex Order and Stock/
option Orders in open outcry.
The proposal also applies the
priorities and procedures in Rule
963NY(d) to Stock/Complex Orders. The
Commission believes that it is
reasonable to apply these procedures
and priorities to Stock/Complex Orders
to provide consistent treatment of
Complex Orders, which are comprised
26 See
Rule 900.3NY(h)(2).
Rule 900.3NY(e). Specifically, Rule
900.3NY(e) states that a Complex Order is an order
involving the simultaneous purchase and/or sale of
two or more different option series in the same
underlying security, for the same account, in a ratio
that is equal to or greater than one-to-three (.333)
and less than or equal to three-to-one (3.00) and for
the purpose of executing a particular investment
strategy.
28 See Rules 963NY(d) and 980NY, Commentary
.02.
27 See
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80555
of multiple options legs, and Stock/
Complex Orders, which are comprised
of multiple options legs and the
underlying stock or convertible security.
The Commission believes, further, that
the changes to Rule 963NY(d), together
with the deletion of Rule 963.1NY,
which has become outdated, should
help to assure that the Exchange’s rules
clearly describe the procedures and
priorities for executing Complex Orders,
Stock/Complex Orders, and Stock/
option Orders in open outcry.
The Commission believes that the
electronic COA provided in new Rule
980NY(e) could facilitate the trading of
Complex Orders, Stock/Complex
Orders, and Stock/option Orders and
provide price improvement
opportunities for these orders. As
described more fully above, Market
Makers with an appointment in the
relevant options class and ATP Holders
acting as agent for orders resting at the
top of the Consolidated Book will be
able to submit RFR Responses. At the
conclusion of a COA, the auctioned
order may execute against individual
orders or quotes, Customer Electronic
Complex Orders or RFR Responses, or
non-Customer Electronic Complex
Orders or RFR Responses, as provided
in Rule 980NY(e)(6). The Commission
notes that the Exchange’s COA is
substantially similar to the electronic
complex order auction provided under
CBOE Rule 6.53C(d).
The proposal revises Rule 980NY,
Commentary .02, to provide that, for
options classes designated as eligible for
COAs, at least one leg of an Electronic
Complex Order must trade at a price
that is better than the corresponding
Customer bids or offers in the same
series in the Consolidated Book by at
least $0.01. The Commission believes
that the $0.01 price improvement
requirement is appropriate in this
circumstance in light of the price
competition for Electronic Complex
Orders driven by the Consolidated Book
and the availability of the COA.
In addition, the Commission notes
that the changes to Rule 980NY,
Commentary .03, relating to the
electronic trading of Stock/Complex
Orders, are consistent with the
treatment in CBOE Rule 6.53C,
Commentary .06, of orders composed of
stock and multiple options legs. The
requirement in Rule 980NY,
Commentary .03(a) that the stock leg of
a Stock/Complex Order be executed
consistent with the rules of the stock
execution venue is consistent with the
requirement in CBOE Rule 6.53C,
Commentary .06(a), that the stock leg of
an order be executed consistent with the
order execution rules of the CBOE Stock
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Exchange. The execution sequence for
Stock/Complex Orders in Rule 980NY,
Commentary .03(b) for orders submitted
to the Exchange’s CME is consistent
with the execution sequence set forth in
CBOE Rule 6.53C, Commentary .06(c),
and the requirement in Rule 980NY,
Commentary .03(d) to trade with
Customer orders only if there are
Customer orders at the Exchange’s best
quote for each of the options legs of a
Stock/Complex Order is consistent with
CBOE Rule 6.53C, Commentary .06(f).
Rule 980NY, Commentary .04
provides that a pattern or practice of
submitting unrelated orders that cause a
COA to conclude early will be deemed
conduct inconsistent with just and
equitable principles of trade, as will the
dissemination to third parties of
information related to COA-eligible
orders. These provisions, which are
comparable to CBOE Rule 6.53C,
Commentary .05, will require the
Exchange to surveil for, and should help
to deter, potential abuses of the COA
process. Finally, the Commission notes
that the order exposure obligations in
Rule 935NY apply to orders submitted
to a COA, and that these order exposure
obligations are separate from the
duration of the Response Time
Interval.29
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,30 that the
proposed rule change (File No. SR–
NYSEAmex–2010–100) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–32089 Filed 12–21–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
srobinson on DSKHWCL6B1PROD with NOTICES
[Release No. 34–63561; File No. SR–FINRA–
2010–066]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Update a CrossReference in FINRA Rule 2232
(Customer Confirmations)
December 16, 2010.
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 December
13, 2010, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) (f/k/a
National Association of Securities
Dealers, Inc. (‘‘NASD’’)) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
‘‘constituting a stated policy, practice, or
interpretation with respect to the
meaning, administration, or
enforcement of an existing rule’’ under
Section 19(b)(3)(A)(i) of the Act 3 and
Rule 19b–4(f)(1) thereunder,4 which
renders the proposal effective upon
receipt of this filing by the Commission.
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
FINRA is proposing to update a
certain cross-reference in FINRA Rule
2232 (Customer Confirmations) to
reflect changes adopted in the
consolidated FINRA rulebook.
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA, on the Commission’s
Web site at https://www.sec.gov, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA 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. FINRA 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
FINRA is in the process of developing
a new consolidated rulebook
1 15
29 See
Rule 980NY(e)(3) and note 13, supra.
30 15 U.S.C. 78s(b)(2).
31 17 CFR 200.30–3(a)(12).
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Jkt 223001
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(i).
4 17 CFR 240.19b–4(f)(1).
2 17
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
(‘‘Consolidated FINRA Rulebook’’).5 As
part of that process, the SEC recently
approved the adoption of FINRA Rule
2232 (Customer Confirmations) in the
Consolidated FINRA Rulebook.6
The proposed rule change updates a
certain cross-reference in FINRA Rule
2232 to reflect recent changes adopted
in the Consolidated FINRA Rulebook,
specifically, the transfer of the
definition of ‘‘direct participation
program’’ from former FINRA Rule 6642
to current FINRA Rule 6420.7
FINRA has filed the proposed rule
change for immediate effectiveness. The
implementation date of FINRA Rule
2232 will be June 17, 2011.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,8 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes the
proposed rule change will provide
greater clarity to members and the
public regarding FINRA’s rules.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in 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
Written comments were neither
solicited nor received.
5 The current FINRA rulebook consists of (1)
FINRA Rules; (2) NASD Rules; and (3) rules
incorporated from NYSE (‘‘Incorporated NYSE
Rules’’) (together, the NASD Rules and Incorporated
NYSE Rules are referred to as the ‘‘Transitional
Rulebook’’). While the NASD Rules generally apply
to all FINRA members, the Incorporated NYSE
Rules apply only to those members of FINRA that
are also members of the NYSE (‘‘Dual Members’’).
The FINRA Rules apply to all FINRA members,
unless such rules have a more limited application
by their terms. For more information about the
rulebook consolidation process, see Information
Notice, March 12, 2008 (Rulebook Consolidation
Process).
6 See Securities Exchange Act Release No. 63150
(October 21, 2010), 75 FR 66173 (October 27, 2010)
(Order Approving Proposed Rule Change; File No.
SR–FINRA–2009–058).
7 See Securities Exchange Act Release No. 61819
(March 31, 2010), 75 FR 17806 (April 7, 2010)
(Order Approving Proposed Rule Change; File No.
SR–FINRA–2009–061).
8 15 U.S.C. 78o–3(b)(6).
E:\FR\FM\22DEN1.SGM
22DEN1
]]>Agencies
[Federal Register Volume 75, Number 245 (Wednesday, December 22, 2010)]
[Notices]
[Pages 80553-80556]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32089]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63558; File No. SR-NYSEAmex-2010-100]
Self-Regulatory Organizations; NYSE Amex LLC; Order Approving a
Proposed Rule Change Relating to Complex Orders
December 16, 2010.
I. Introduction
On October 20, 2010, NYSE Amex LLC (``NYSE Amex'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to: (i) Add to Rule 900.3NY(h) a definition of
``Stock/Complex Order;'' (ii) revise Rule 963NY(d) to update the
provisions governing open outcry trading of Complex Orders and Stock/
option Orders and apply these provisions to Stock/Complex Orders; (iii)
delete Rule 963.1NY; (iv) add Rule 980NY(e) to establish an electronic
Complex Order Auction (``COA''); and (v) revise other provisions of
Rule 980NY to include Stock/Complex Orders. The proposed rule change
was published for comment in the Federal Register on November 2,
2010.\3\ The Commission received no comments regarding the proposal.
This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 63187 (October 27,
2010), 75 FR 67424 (``Notice'').
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II. Description of the Proposal
A. Definition of Stock/Complex Order
The proposal amends Rule 900.3NY(h) to add a definition of ``Stock/
Complex Order.'' Rule 900.3NY(h)(2) defines a ``Stock/Complex Order''
as the purchase or sale of a Complex Order, as defined in Rule
900.3NY(e), coupled with an order to buy or sell a stated number of
units of an underlying stock or a security convertible into the
underlying stock (``convertible security'') representing either (A) the
same number of units of the underlying stock or convertible security as
are represented by the options leg of the Complex Order with the least
number of options contracts, or (B) the number of units of the
underlying stock necessary to create a delta neutral position, but in
no case in a ratio greater than eight options contracts per unit of
trading of the underlying stock or convertible security established for
that series by the Clearing Corporation, as represented by the options
leg of the Complex Order with the least number of options contracts.
B. Revisions To Open Outcry Rules
The proposal revises paragraph (d) of Rule 963NY, ``Priority and
Order Allocation Procedures--Open Outcry,'' to update the provisions
governing the trading of Complex Orders Stock/option Orders in open
outcry. Rule 963NY(d), as amended, will also apply to Stock/Complex
Orders trading in open outcry. According to the Exchange, the changes
to Rule 963NY(d) streamline and update the text of Rule 963NY(d), but
do not alter the Exchange's existing procedures for trading Complex
Orders or Stock/option Orders, or the priority of quotations and
orders. The Exchange notes that the Rule 963NY(d), as amended, is based
on Chicago Board Options Exchange, Incorporated (``CBOE'') Rule
6.45(e).\4\
---------------------------------------------------------------------------
\4\ CBOE Rule 6.45(e) states that ``A complex order as defined
in Rule 6.42.01 may be executed at a net debit or credit price with
another Trading Permit Holder without giving priority to equivalent
bids (offers) in the individual series legs that are represented in
the trading crowd or in the public customer limit order book
provided at least one leg of the order betters the corresponding bid
(offer) in the public customer limit order book by at least one
minimum trading increment as defined in Rule 6.42 (i.e., $0.10,
$0.05 or $0.01, as applicable) or a $0.01 increment, which increment
shall be determined by the Exchange on a class-by-class basis.
Stock-option orders and security future-option orders, as defined in
Rule 1.1(ii)(a) and Rule 1.1(zz)(a), respectively, have priority
over bids (offers) of the trading crowd but not over bids (offers)
in the public customer limit order book.''
---------------------------------------------------------------------------
Under Rule 963(d), as amended, Complex Orders, as defined in Rule
900.3NY(e), and Stock/Complex Orders, as defined in Rule 900.3(h)(2),
may be executed at a net debit or credit with another ATP Holder
without giving priority to equivalent bids (offers) in the individual
series legs that are represented in the Trading Crowd or Customer limit
orders in the Consolidated Book, provided that at least one options leg
of the order betters the corresponding Customer bid (offer) in the
Consolidated Book by at least one minimum trading increment, as defined
in Rule 960NY (i.e., $0.10, $0.50, or $0.01, as applicable), or a $0.01
increment, as determined by the Exchange on a class-by-class basis.
Stock/option Orders, as defined in Rule 900.3(h)(1), have priority over
equivalent bids (offers) of the trading crowd, but not over equivalent
Customer bids (offers) in the Consolidated Book.
In addition, Rule 963NY(d) provides that bids and offers for
Complex Orders, Stock/option Orders, and Stock/
[[Page 80554]]
Complex Orders may be expressed in $0.01 increments regardless of the
minimum increment otherwise applicable to the individual legs of the
order.
The Exchange also proposes to delete Rule 963.1NY, ``Complex Order
Transactions--Open Outcry.'' According to the Exchange, Rule 963NY(d)
describes priority for all Complex Orders and Stock/option Orders. The
Exchange states that Rule 963.1NY describes procedures for executing
Complex Orders in open outcry, but does not describe any execution
priority, obligation, or privilege that is not already described in
other rules. In addition, Rule 963.1NY describes procedures only for
Complex Orders with two options legs, rather than for all Complex
Orders. The Exchange notes, further, that Rule 963.1NY(f) describes a
narrow circumstance, relating to a Locked Book Market, that was more
appropriate when an Order Book Official maintained the Public Customer
Book. According to the Exchange, Rule 963NY(d), as amended, addresses
this and similar circumstances more clearly. Accordingly, the Exchange
proposes to delete Rule 963.1NY.
C. Electronic COA
As described more fully in the Notice,\5\ the Exchange proposes to
adopt Rule 980NY(e), which establishes an electronic request for
responses COA for Complex Orders, Stock/option Orders, and Stock/
Complex Orders (``Electronic Complex Orders''). The Exchange states
that the COA is similar to the electronic complex order auction
provided for in CBOE Rule 6.53(d), with a priority change based on
Nasdaq OMX Phlx, Inc. Rule 1080, Commentary .08(e)(vi)(A)(2).
Electronic Complex Orders processed through the Exchange's COA may be
executed without consideration to prices of the same complex orders
that might be available on other exchanges.\6\
---------------------------------------------------------------------------
\5\ See note 3, supra.
\6\ See Rule 980NY(e)(1).
---------------------------------------------------------------------------
The Exchange may determine, on a class-by-class basis, the
Electronic Complex Orders that are eligible for a COA (``COA-eligible
orders''), based on the order's marketability, size, number of series,
and order origin type (i.e., Customer, broker-dealer that is not a
Market-Maker or options exchange specialist, and/or Market-Maker or
options exchange specialist).\7\ Upon receipt of a COA-eligible order,
and direction from the entering ATP Holder that an auction be
initiated, the Exchange will send an RFR message to ATP Holders that
subscribe to RFR messages.\8\ The RFR message will identify the
component series, the size of the order and any contingencies, but not
the side of the market.\9\
---------------------------------------------------------------------------
\7\ See Rule 980NY(e)(1)(A).
\8\ See Rule 980NY(e)(2).
\9\ Id.
---------------------------------------------------------------------------
Each Market-Maker with an appointment in the relevant option class,
and each ATP Holder acting as agent for orders resting at the top of
the Consolidated Book in the relevant option series, may submit
responses to the RFR message (``RFR Responses'') during the Response
Time Interval.\10\ RFR Responses, which may be submitted in $0.01
increments, will be ranked and displayed in the Consolidated Book.\11\
The Exchange will determine the length of the Response Time Interval,
which will not exceed one second.\12\ The obligations of Rule 935NY,
``Order Exposure Requirements,'' are separate from the duration of the
Response Time Interval.\13\
---------------------------------------------------------------------------
\10\ See Rule 980NY(e)(4).
\11\ Id.
\12\ See Rule 980NY(e)(3).
\13\ Id. Rule 935NY provides that: ``With respect to orders
routed to the NYSE Amex System, Users may not execute as principal
orders they represent as agent unless (i) agency orders are first
exposed on the Exchange for at least one (1) second or (ii) the User
has been bidding or offering on the Exchange for at least one (1)
second prior to receiving an agency order that is executable against
such bid or offer.''
---------------------------------------------------------------------------
RFR Responses may be modified, but may not be withdrawn, at any
time prior to the end of the Response Time Interval.\14\ At the end of
the Response Time Interval, RFR Responses are firm with respect to the
COA-eligible order, and RFR Responses that exceed the size of the COA-
eligible order are also firm with respect to other incoming COA-
eligible orders and RFR Responses that are received during the Response
Time Interval.\15\ Any RFR Responses that are not accepted in full or
in a permissible ratio will expire at the end of the Response Time
Interval.\16\
---------------------------------------------------------------------------
\14\ See Rule 980NY(e)(7).
\15\ Id.
\16\ Id.
---------------------------------------------------------------------------
At the conclusion of the Response Time Interval, a COA-eligible
order will be executed in whole or in part against the best priced
contra side interest.\17\ At the same net price, a COA-eligible order
will execute first against individual orders and quotes in the leg
markets resting in the Consolidated Book prior to the initiation of the
COA, provided that the COA-eligible order can be executed in full, or
in a permissible ratio, by orders and quotes in the Consolidated Book;
second, against Customer Electronic Complex Orders resting in the
Consolidated Book before, or that are received during, the Response
Time Interval, and Customer RFR Responses, allocated on a size pro rata
basis as defined in Rule 964NY(b)(3); and third, against non-Customer
Electronic Complex Orders resting in the Consolidated Book or placed in
the Consolidated Book during the Response Time Interval, and non-
Customer RFR Responses, allocated on a size pro rata basis as defined
in Rule 964NY(b)(3).\18\ Individual orders and quotes in the leg
markets that cause the derived Complex Best Bid/Offer to be improved
during the COA and match the best RFR Responses and/or Electronic
Complex Orders received during the Response Time Interval will be
filled after Electronic Complex Orders and RFR Responses at the same
net price.\19\ Any unexecuted portion of a COA-eligible order will be
placed in the Consolidated Book or, if marketable, will initiate
another COA.\20\
---------------------------------------------------------------------------
\17\ See Rule 980NY(e)(5) and (6).
\18\ See Rule 980NY(e)(6)(A)-(C).
\19\ See Rule 980NY(e)(6)(D).
\20\ See Rule 980NY(e)(5).
---------------------------------------------------------------------------
The COA rules also address the handling of unrelated Electronic
Complex Orders received during a COA,\21\ and the effect of a change in
the best bid or offer in the leg markets.\22\
---------------------------------------------------------------------------
\21\ Incoming Electronic Complex Orders received during the
Response Time Interval that are on the opposite side of the market
from, and marketable against, the COA-eligible order will be ranked
and executed in price/time priority with RFR Responses by account
type, as provided in Rule 980NY(e)(6), and any remaining balance of
the initiating COA-eligible order or the incoming Electronic Complex
Order will be placed in the Consolidated Book. Incoming COA-eligible
orders received during the Response Time Interval that are one the
same side of the market and at a price that is equal to the price of
the original COA-eligible order will join the COA, and a message
with the updated size will be published. The incoming order(s) and
the initiating COA-eligible order will be ranked and executed in
price/time priority, and any remaining balance of the initiating
order or the incoming order(s) will be placed in the Consolidated
Book. Similarly, an incoming COA-eligible order on the same side of
the market as the original COA-eligible order with a price that is
worse than the price of the original COA-eligible order will join
the COA, and will be ranked and executed with the initiating COA-
eligible order in price/time priority. An incoming COA-eligible
order on the same side of the market as the original COA-eligible
order with a price that is better than the price of the original
COA-eligible order will cause the auction to end, and the initiating
COA-eligible order will be executed in accordance with Rule
980NY(e)(6). The COA-eligible order that caused the auction to end
will then be executed, and any unexecuted portion will either be
placed in the Consolidated Book or, if marketable, will initiate
another COA. See Rule 980NY(e)(8).
\22\ See Rule 980NY(e)(9).
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A pattern or practice of submitting unrelated orders that cause a
COA to conclude early, or the dissemination to third parties of
information related to COA-eligible orders, will be deemed
[[Page 80555]]
conduct inconsistent with just and equitable principles of trade.\23\
---------------------------------------------------------------------------
\23\ See Rule 980NY(e), Commentary .04.
---------------------------------------------------------------------------
D. Additional Changes
The proposal modifies Rule 980NY, Commentary .02 to provide that at
least one leg of an Electronic Complex Order must trade at a price that
is a least $0.01 better than the corresponding Customer bid or offer in
the Consolidated Book if the Exchange has designated the options class
as eligible for COAs. The proposal also amends Rule 980NY, Commentary
.03(a) to require the execution of the stock component of a Stock/
Complex Order to be consistent with the rules of the stock execution
venue. In addition, the proposal revises Rule 980NY, Commentary .03(c)
to establish the execution sequence for Stock/Complex Orders submitted
to the Exchange's Complex Matching Engine (``CME''). The proposal also
amends Rule 980NY, Commentary .03(d), to provide that the requirement
to trade with existing Customer interest at the Exchange's best bid
(offer) before executing the options legs of a Stock/Complex Order will
apply only if there are Customer orders at the best bid (offer) for
each of the options legs of the Stock/Complex Order.
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.\24\ In
particular, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\25\ which requires, in part, that the rules
of a national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, 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. The Commission
finds that the proposal is designed to facilitate the trading of
Complex Orders, Stock/option Orders, and Stock/Complex Orders on the
Exchange.
---------------------------------------------------------------------------
\24\ 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).
\25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Rule 900.3NY(h)(2) defines a new order type, the Stock/Complex
Order, that could provide market participants with flexibility by
permitting orders composed of an underlying stock or convertible
security and multiple options legs. As discussed above, a Stock/Complex
Order must be comprised of a Complex Order, as defined in Rule
900.3NY(e), and a stock leg.\26\ Under the proposal, the options legs
of a Stock/Complex Order must (a) satisfy the conditions in the
definition of Complex Order; \27\ and (b) at least one options leg of a
Complex Order or a Stock/Complex Order must trade at a price that is
better than the corresponding Customer bid or offer for the same
series.\28\ Accordingly, the priority provisions applicable to Stock/
Complex Orders are consistent with the priority provisions applicable
to Complex Orders.
---------------------------------------------------------------------------
\26\ See Rule 900.3NY(h)(2).
\27\ See Rule 900.3NY(e). Specifically, Rule 900.3NY(e) states
that a Complex Order is an order involving the simultaneous purchase
and/or sale of two or more different option series in the same
underlying security, for the same account, in a ratio that is equal
to or greater than one-to-three (.333) and less than or equal to
three-to-one (3.00) and for the purpose of executing a particular
investment strategy.
\28\ See Rules 963NY(d) and 980NY, Commentary .02.
---------------------------------------------------------------------------
Rule 963NY(d), as amended, sets forth the procedures and priority
requirements for Complex Orders, Stock/option Orders, and Stock/Complex
Orders trading in open outcry. As described more fully above, Rule
963NY(d) states that Complex Orders and Stock/Complex Orders may be
executed at a net debt or credit with another ATP Holder without giving
priority to equivalent bids (offers) in the individual series legs that
are represented in the Trading Crowd or Customer limit orders in the
Consolidated Book, provided that at least one options leg of the order
betters the corresponding Customer bid (offer) by at least one minimum
trading increment or by a $0.01 increment, as applicable. Stock/option
Orders have priority over equivalent bids (offers) in the Trading
Crowd, but not over equivalent Customer bids (offers) in the
Consolidated Book. The Commission notes that Rule 963NY(d), as amended,
is substantially similar to CBOE Rule 6.45(e). According to the
Exchange, the proposal streamlines and updates Rule 963NY(d), but does
not substantively alter the procedures or priorities for trading
Complex Order and Stock/option Orders in open outcry.
The proposal also applies the priorities and procedures in Rule
963NY(d) to Stock/Complex Orders. The Commission believes that it is
reasonable to apply these procedures and priorities to Stock/Complex
Orders to provide consistent treatment of Complex Orders, which are
comprised of multiple options legs, and Stock/Complex Orders, which are
comprised of multiple options legs and the underlying stock or
convertible security. The Commission believes, further, that the
changes to Rule 963NY(d), together with the deletion of Rule 963.1NY,
which has become outdated, should help to assure that the Exchange's
rules clearly describe the procedures and priorities for executing
Complex Orders, Stock/Complex Orders, and Stock/option Orders in open
outcry.
The Commission believes that the electronic COA provided in new
Rule 980NY(e) could facilitate the trading of Complex Orders, Stock/
Complex Orders, and Stock/option Orders and provide price improvement
opportunities for these orders. As described more fully above, Market
Makers with an appointment in the relevant options class and ATP
Holders acting as agent for orders resting at the top of the
Consolidated Book will be able to submit RFR Responses. At the
conclusion of a COA, the auctioned order may execute against individual
orders or quotes, Customer Electronic Complex Orders or RFR Responses,
or non-Customer Electronic Complex Orders or RFR Responses, as provided
in Rule 980NY(e)(6). The Commission notes that the Exchange's COA is
substantially similar to the electronic complex order auction provided
under CBOE Rule 6.53C(d).
The proposal revises Rule 980NY, Commentary .02, to provide that,
for options classes designated as eligible for COAs, at least one leg
of an Electronic Complex Order must trade at a price that is better
than the corresponding Customer bids or offers in the same series in
the Consolidated Book by at least $0.01. The Commission believes that
the $0.01 price improvement requirement is appropriate in this
circumstance in light of the price competition for Electronic Complex
Orders driven by the Consolidated Book and the availability of the COA.
In addition, the Commission notes that the changes to Rule 980NY,
Commentary .03, relating to the electronic trading of Stock/Complex
Orders, are consistent with the treatment in CBOE Rule 6.53C,
Commentary .06, of orders composed of stock and multiple options legs.
The requirement in Rule 980NY, Commentary .03(a) that the stock leg of
a Stock/Complex Order be executed consistent with the rules of the
stock execution venue is consistent with the requirement in CBOE Rule
6.53C, Commentary .06(a), that the stock leg of an order be executed
consistent with the order execution rules of the CBOE Stock
[[Page 80556]]
Exchange. The execution sequence for Stock/Complex Orders in Rule
980NY, Commentary .03(b) for orders submitted to the Exchange's CME is
consistent with the execution sequence set forth in CBOE Rule 6.53C,
Commentary .06(c), and the requirement in Rule 980NY, Commentary .03(d)
to trade with Customer orders only if there are Customer orders at the
Exchange's best quote for each of the options legs of a Stock/Complex
Order is consistent with CBOE Rule 6.53C, Commentary .06(f).
Rule 980NY, Commentary .04 provides that a pattern or practice of
submitting unrelated orders that cause a COA to conclude early will be
deemed conduct inconsistent with just and equitable principles of
trade, as will the dissemination to third parties of information
related to COA-eligible orders. These provisions, which are comparable
to CBOE Rule 6.53C, Commentary .05, will require the Exchange to
surveil for, and should help to deter, potential abuses of the COA
process. Finally, the Commission notes that the order exposure
obligations in Rule 935NY apply to orders submitted to a COA, and that
these order exposure obligations are separate from the duration of the
Response Time Interval.\29\
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\29\ See Rule 980NY(e)(3) and note 13, supra.
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\30\ that the proposed rule change (File No. SR-NYSEAmex-2010-100)
is approved.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------
\31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32089 Filed 12-21-10; 8:45 am]
BILLING CODE 8011-01-P
