Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Adopting Rules Related to Qualified Contingent Cross Orders, 16021-16024 [2011-6750]
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Federal Register / Vol. 76, No. 55 / Tuesday, March 22, 2011 / Notices
Rule 104 and similarly delete the
requirement for an annual certification.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,10 in general, and
further the objectives of Section 6(b)(5)
of the Act,11 in particular, in that they
are 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
Exchange believes that the proposed
rule change supports the objectives of
the Act by permitting greater and more
effective communication between
DMMs and DMM unit’s on the Floor
and their upstairs offices, while at the
same time providing for a more robust
audit trail that would enable FINRA to
enhance the regulatory program
associated with reviewing DMM
communications from the Trading
Floor. The Exchange believes that these
regulatory enhancements will benefit
the market by protecting investors and
the public interest.
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
No written comments were solicited
or received with respect to the proposed
rule change.
srobinson on DSKHWCL6B1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 12 and Rule
19b–4(f)(6) thereunder.13 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
10 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
12 15 U.S.C. 78s(b)(3)(A)(iii).
13 17 CFR 240.19b–4(f)(6).
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 14 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),15 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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:
17:11 Mar 21, 2011
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will 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–NYSE–
2011–10 and should be submitted on or
before April 12, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–6708 Filed 3–21–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–NYSE–2011–10 on the
subject line.
[Release No. 34–64086; File No. SR–
NYSEArca–2011–09]
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSE–2011–10. 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 (https://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
March 17, 2011.
11 15
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Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Adopting Rules Related
to Qualified Contingent Cross Orders
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March
14, 2011, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. 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 the Substance
of the Proposed Rule Change
The Exchange proposes to adopt rules
related to Qualified Contingent Cross
Orders (‘‘QCCs’’). The text of the
16 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
14 17
15 17
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CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
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Federal Register / Vol. 76, No. 55 / Tuesday, March 22, 2011 / Notices
proposed rule change is available at the
Exchange, the Exchange’s Web site at
https://www.nyse.com, 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, the
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to adopt
rules related to QCCs. The proposed
rule change is based on an International
Securities Exchange (‘‘ISE’’) proposal
recently approved by the Securities and
Exchange Commission (‘‘Commission’’).4
srobinson on DSKHWCL6B1PROD with NOTICES
Background
The Exchange is currently a party to
the Options Order Protection and
Locked/Crossed Market Plan
(‘‘Distributive Linkage Plan’’),5 and has
implemented Exchange rules in
conjunction with that plan (the
‘‘Distributive Linkage Rules’’).6 Similar
to Regulation NMS under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’
or ‘‘Act’’), the Distributive Linkage Plan
requires, among other things, that the
Exchange establish, maintain and
enforce written policies and procedures
that are reasonably designed to prevent
4 See Securities Exchange Act Release No. 62523
(July 16, 2010), 75 FR 43211 (July 23, 2010) (SR–
ISE–2010–73) (‘‘ISE Proposal’’). See also Securities
Exchange Act Release No. 63955 (February 24,
2011), 76 FR 11533 (March 2, 2011) (SR–ISE–2010–
73) (‘‘ISE Approval’’). The Exchange notes that
letters commenting on the ISE Proposal were
submitted on its behalf by the Exchange’s parent
company, NYSE Euronext. See e.g., letters dated
August 9, 2010 and October 21, 2010 from Janet L.
McGinness, Senior Vice President—Legal &
Corporate Secretary, Legal & Government Affairs,
NYSE Euronext (‘‘NYSE Euronext Comment
Letters’’).
5 See Securities Exchange Act Release No. 60405
(July 30, 2009), 74 FR 39362 (August 6, 2009) (File
No. 4–546).
6 See Securities Exchange Act Release No. 60527
(August 18, 2009), 74 FR 43178 (August 26, 2009)
(SR–NYSEArca–2009–45).
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17:11 Mar 21, 2011
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‘‘Trade-Throughs.’’ 7 A Trade-Through is
a transaction in an options series at a
price that is inferior to the best price
available in the market.8
The Distributive Linkage Plan
replaced the Plan for the Purpose of
Creating and Operating an Intermarket
Option Linkage (‘‘Old Linkage Plan’’),
and the Distributive Linkage Rules
replaced the then-existing NYSE Arca
rules implementing the Old Linkage
Plan (the ‘‘Old Linkage Rules’’). The Old
Linkage Plan and the Old Linkage Rules
provided a limited Trade-Through
exemption for ‘‘Block Trades,’’ defined
to be trades of 500 or more contracts
with a premium value of at least
$150,000.9 However, as with Regulation
NMS, the Distributive Linkage Plan does
not provide a Block Trade exemption.
The ISE Proposal stated that the loss
of the Block Trade exemption, among
other things, adversely affects the ability
of its members to effect large trades that
are tied to stock,10 and therefore
proposed the QCC as a limited
substitute for the Block Trade
exemption. While our views with
respect to the potential impact that the
ISE Proposal may have on market
structure remain unchanged,11 we
nonetheless are proposing to adopt rules
related to QCCs based on those
approved for ISE. In particular, we
believe that such a rule change would
permit the Exchange to remain
competitive with ISE, and the other
options exchanges that may also adopt
rules for QCCs, by making QCCs
available to OTP Holders and their
customers through the Exchange.
Discussion
While Regulation NMS does not
provide a block trade exemption from
trade-through liability for stocks, the
Commission, by order, has provided
trade-through relief for ‘‘Qualified
Contingent Trades’’ (‘‘QCTs’’).12 The
QCT Release provides an exemption
from trade-through liability in the
equity market for multi-component,
fully-hedged trades where one order is
contingent on the execution of one or
more additional orders. Building on this
concept, and as approved for ISE, the
7 Section
5(a) of the Distributive Linkage Plan.
2(21) of the Distributive Linkage Plan.
9 Old Linkage Plan Sections 2(3) and 8(c)(i)(C);
and former NYSE Arca Options Rule 6.94(d)(2).
10 See ISE Proposal at 43212.
11 See NYSE Euronext Comment Letters, supra
note 1 [sic].
12 See Securities Exchange Act Release No. 57620
(April 4, 2008), 73 FR 19271 (April 9, 2008) (the
‘‘QCT Release’’). That release superseded a release
initially granting the Qualified Contingent Trade
exemption. See Securities Exchange Act Release
No. 54389 (August 31, 2006), 71 FR 52829
(September 7, 2006).
8 Section
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Exchange proposes that when an NYSE
Arca OTP Holder effects a QCT trade in
a Regulation NMS Stock, that OTP
Holder be permitted to cross the options
leg of the trade on the Exchange
immediately upon entry if the order is
for at least 1,000 contracts, is part of a
QCT, is executed at a price at least equal
to the national best bid or offer
(‘‘NBBO’’), and there are no Customer
Orders on the Exchange’s Consolidated
Book at the same price.13
The QCC would permit OTP Holders
to provide their customers a net price
for the entire trade, and then allow the
OTP Holder to execute the options leg
of the trade on NYSE Arca at a price at
least equal to the NBBO while using the
QCT exemption to effect the trade in the
equities leg at a price necessary to
achieve the net price.14 Under the
proposal, the Exchange would not
permit the options component of a
stock-option order to trade through the
NBBO.15 However, there are times when
the quotation spread for the option on
the Exchange would not permit an
execution of the options component
13 We propose to define a QCC trade substantively
identical to the Commission’s definition in the QCT
release as well as that in the ISE Proposal. A QCC
trade must meet the following conditions: (i) At
least one component must be an NMS Stock; (ii) all
the components must be effected with a product
price contingency that either has been agreed to by
all the respective counterparties or arranged for by
a broker-dealer as principal or agent; (iii) the
execution of one component must be contingent
upon the execution of all other components at or
near the same time; (iv) the specific relationship
between the component orders (e.g., the spread
between the prices of the component orders) must
be determined by the time the contingent order is
placed; (v) the component orders must bear a
derivative relationship to one another, represent
different classes of shares of the same issuer, or
involve the securities of participants in mergers or
with intentions to merge that have been announced
or cancelled; and (vi) the transaction must be fully
hedged (without regard to any prior existing
position) as a result of other components of the
contingent trade. Consistent with the QCT Release
and the ISE Proposal, OTP Holders must
demonstrate that the transaction is fully hedged
using reasonable risk-valuation methodologies. See
QCT Release, supra note 9 [sic], at footnote 9.
14 NYSE Arca will adopt policies and procedures
to ensure that OTP Holders use the Qualified
Contingent Cross Order properly. First, we will
require OTP Holders to properly mark all Qualified
Contingent Cross Orders as such. In addition,
FINRA, on behalf of NYSE Arca, will implement an
examination and surveillance program to assess
OTP Holder compliance with the requirements
applicable to Qualified Contingent Cross Orders,
including the requirement that the stock leg of the
transaction be executed at or near the same time as
the options leg.
15 While the QCC would not provide exposure for
price improvement for the options leg of a stockoption order, the options leg must be executed at
the NBBO or better. The Commission has
previously approved crossing transactions with no
opportunity for price improvement. See e.g., ISE
Rule 721(a) and Chicago Board Options Exchange
(‘‘CBOE’’) Rule 6.74A, Interpretations and Policies
.08.
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Federal Register / Vol. 76, No. 55 / Tuesday, March 22, 2011 / Notices
srobinson on DSKHWCL6B1PROD with NOTICES
between the Exchange BBO, particularly
in options that trade in increments
greater than $0.01. In those cases, the
Exchange proposes to permit an
execution of the options component at
a price that matches the Exchange BBO.
Moreover, under the proposal, the
Exchange would not permit the
execution of a QCC at the same price as
a Customer Order on the Consolidated
Book. In such a case, the QCC will be
rejected.16
Furthermore, under this proposal, the
Exchange would only permit QCCs to be
submitted electronically from off the
Floor through the NYSE Arca System. In
this regard, an OTP Holder located on
the Floor of the Exchange would not be
allowed to enter QCCs into the NYSE
Arca System, or otherwise effect them in
open outcry. In this way, our proposal
provides for the same means to effect
QCCs on the Exchange as that of the ISE.
We plan to file a separate proposed rule
change to address effecting QCCs in
open outcry on the Floor of the
Exchange.
To provide a mechanism for the
Exchange to surveil for whether QCCs
were entered from off of the Floor, the
Exchange proposes to adopt
Commentary .01 to Rule 6.90. This
provision would require OTP Holders to
maintain books and records
demonstrating that each Qualified
Contingent Cross Order was routed to
the NYSE Arca System from off of the
Floor. Any Qualified Contingent Cross
Order that does not have a
corresponding record required by this
provision would be deemed to have
been entered from on the Floor in
violation of Rule 6.90.
The Exchange’s proposal addresses
the mechanics of executing the stock
and options components of a net-price
transaction. The Exchange believes that
it is necessary that it provide OTP
Holders and their customers with the
same trading capabilities available on
other exchanges with respect to QCCs,
including the change proposed herein,
which would permit OTP Holders to
execute the options legs of their
customers’ large complex orders on the
Exchange.
The Exchange also proposes a minor
non-substantive correction to the
numbering convention within NYSE
Arca Options Rule 6.62.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with Section
16 The Commission has previously approved the
rejection of crossing transactions when there is a
priority customer order on the book at the same
price. See e.g., ISE Rule 721(a); and CBOE Rule
6.74A, Interpretations and Policies .08.
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17:11 Mar 21, 2011
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6(b) of the Act 17 in general, and furthers
the objectives of Section 6(b)(5) of the
Act,18 in that it is designed to promote
just and equitable principles of trade,
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The proposed rules are
consistent with the protection of
investors in that they are designed to
prevent Trade-Throughs. In addition,
the proposed rule change would
promote a free and open market by
permitting the Exchange to compete
with ISE for these types of orders. In
this regard, competition would result in
benefits to the investing public, whereas
a lack of competition would serve to
limit the choices that the public has for
execution of their options business.
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. Instead, the
proposed rule change would prevent the
otherwise significant burden on
competition that would arise if ISE were
permitted to implement QCCs without a
similar functionality being made
available to market participants across
all U.S. markets for listed options,
including OTP Holders on the
Exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 19 and Rule
19b-4(f)(6) thereunder.20 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
17 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
19 15 U.S.C. 78s(b)(3)(A)(iii).
20 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Commission has waived this
requirement.
18 15
PO 00000
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16023
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2011–09 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington DC
20549–1090.
All submissions should refer to File
Number SR–NYSEArca-2011–09. 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 (https://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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
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Federal Register / Vol. 76, No. 55 / Tuesday, March 22, 2011 / Notices
a.m. and 3 p.m. Copies of such filing
also will 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 No. SR–NYSEArca2011–09 and should be submitted on or
before April 12, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–6750 Filed 3–21–11; 8:45 am]
BILLING CODE 8011–01–P
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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to adopt
rules related to QCCs. The proposed
rule change is based on an International
Securities Exchange (‘‘ISE’’) proposal
recently approved by the Securities and
Exchange Commission (‘‘Commission’’).4
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64085; File No. SR–
NYSEAmex–2011–14]
Self-Regulatory Organizations; NYSE
Amex LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Adopting Rules Related
to Qualified Contingent Cross Orders
March 17, 2011.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 14,
2011, NYSE Amex LLC (the ‘‘Exchange’’
or ‘‘NYSE Amex’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
srobinson on DSKHWCL6B1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt rules
related to Qualified Contingent Cross
Orders (‘‘QCCs’’). The text of the
proposed rule change is available at the
Exchange, the Commission’s Public
Reference Room, and https://
www.nyse.com.
21 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Background
The Exchange is currently a party to
the Options Order Protection and
Locked/Crossed Market Plan
(‘‘Distributive Linkage Plan’’),5 and has
implemented Exchange rules in
conjunction with that plan (the
‘‘Distributive Linkage Rules’’).6 Similar
to Regulation NMS under the Securities
Exchange Act of 1934 (‘‘Exchange Act or
‘‘Act’’), the Distributive Linkage Plan
requires, among other things, that the
Exchange establish, maintain and
enforce written policies and procedures
that are reasonably designed to prevent
‘‘Trade-Throughs.’’ 7 A Trade-Through is
a transaction in an options series at a
price that is inferior to the best price
available in the market.8
4 See Securities Exchange Act Release No. 62523
(July 16, 2010), 75 FR 43211 (July 23, 2010) (SR–
ISE–2010–73) (‘‘ISE Proposal’’). See also Securities
Exchange Act Release No. 63955 (February 24,
2011), 76 FR 11533 (March 2, 2011) (SR–ISE–2010–
73) (‘‘ISE Approval’’). The Exchange notes that
letters commenting on the ISE Proposal were
submitted on its behalf by the Exchange’s parent
company, NYSE Euronext. See e.g., letters dated
August 9, 2010 and October 21, 2010 from Janet L.
McGinness, Senior Vice President—Legal &
Corporate Secretary, Legal & Government Affairs,
NYSE Euronext (‘‘NYSE Euronext Comment
Letters’’).
5 See Securities Exchange Act Release No. 60405
(July 30, 2009), 74 FR 39362 (August 6, 2009) (File
No. 4–546).
6 See Securities Exchange Act Release No. 60526
(August 18, 2009), 74 FR 43185 (August 26, 2009)
(SR–NYSEAmex–2009–19).
7 Section 5(a) of the Distributive Linkage Plan.
8 Section 2(21) of the Distributive Linkage Plan.
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The Distributive Linkage Plan
replaced the Plan for the Purpose of
Creating and Operating an Intermarket
Option Linkage (‘‘Old Linkage Plan’’),
and the Distributive Linkage Rules
replaced the then-existing NYSE Amex
rules implementing the Old Linkage
Plan (the ‘‘Old Linkage Rules’’). The Old
Linkage Plan and the Old Linkage Rules
provided a limited Trade-Through
exemption for ‘‘Block Trades,’’ defined
to be trades of 500 or more contracts
with a premium value of at least
$150,000.9 However, as with Regulation
NMS, the Distributive Linkage Plan does
not provide a Block Trade exemption.
The ISE Proposal stated that the loss
of the Block Trade exemption, among
other things, adversely affects the ability
of its members to effect large trades that
are tied to stock,10 and therefore
proposed the QCC as a limited
substitute for the Block Trade
exemption. While our views with
respect to the potential impact that the
ISE Proposal may have on market
structure remain unchanged,11 we
nonetheless are proposing to adopt rules
related to QCCs based on those
approved for ISE. In particular, we
believe that such a rule change would
permit the Exchange to remain
competitive with ISE, and the other
options exchanges that may also adopt
rules for QCCs, by making QCCs
available to ATP Holders and their
customers through the Exchange.
Discussion
While Regulation NMS does not
provide a block trade exemption from
trade-through liability for stocks, the
Commission, by order, has provided
trade-through relief for ‘‘Qualified
Contingent Trades’’ (‘‘QCTs’’).12 The
QCT Release provides an exemption
from trade-through liability in the
equity market for multi-component,
fully-hedged trades where one order is
contingent on the execution of one or
more additional orders. Building on this
concept, and as approved for ISE, the
Exchange proposes that when an NYSE
Amex ATP Holder effects a QCT trade
in a Regulation NMS Stock, that ATP
Holder be permitted to cross the options
leg of the trade on the Exchange
immediately upon entry if the order is
9 Old Linkage Plan Sections 2(3) and 8(c)(i)(C);
and former NYSE Amex Options Rule 991NY.
10 See ISE Proposal at 43212.
11 See NYSE Euronext Comment Letters, supra
note 1[sic].
12 See Securities Exchange Act Release No. 57620
(April 4, 2008), 73 FR 19271 (April 9, 2008) (the
‘‘QCT Release’’). That release superseded a release
initially granting the Qualified Contingent Trade
exemption. See Securities Exchange Act Release
No. 54389 (August 31, 2006), 71 FR 52829
(September 7, 2006).
E:\FR\FM\22MRN1.SGM
22MRN1
]]>Agencies
[Federal Register Volume 76, Number 55 (Tuesday, March 22, 2011)]
[Notices]
[Pages 16021-16024]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-6750]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64086; File No. SR-NYSEArca-2011-09]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Adopting Rules
Related to Qualified Contingent Cross Orders
March 17, 2011.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 14, 2011, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to adopt rules related to Qualified
Contingent Cross Orders (``QCCs''). The text of the
[[Page 16022]]
proposed rule change is available at the Exchange, the Exchange's Web
site at https://www.nyse.com, 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, the self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to adopt rules related to QCCs. The
proposed rule change is based on an International Securities Exchange
(``ISE'') proposal recently approved by the Securities and Exchange
Commission (``Commission'').\4\
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\4\ See Securities Exchange Act Release No. 62523 (July 16,
2010), 75 FR 43211 (July 23, 2010) (SR-ISE-2010-73) (``ISE
Proposal''). See also Securities Exchange Act Release No. 63955
(February 24, 2011), 76 FR 11533 (March 2, 2011) (SR-ISE-2010-73)
(``ISE Approval''). The Exchange notes that letters commenting on
the ISE Proposal were submitted on its behalf by the Exchange's
parent company, NYSE Euronext. See e.g., letters dated August 9,
2010 and October 21, 2010 from Janet L. McGinness, Senior Vice
President--Legal & Corporate Secretary, Legal & Government Affairs,
NYSE Euronext (``NYSE Euronext Comment Letters'').
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Background
The Exchange is currently a party to the Options Order Protection
and Locked/Crossed Market Plan (``Distributive Linkage Plan''),\5\ and
has implemented Exchange rules in conjunction with that plan (the
``Distributive Linkage Rules'').\6\ Similar to Regulation NMS under the
Securities Exchange Act of 1934 (``Exchange Act'' or ``Act''), the
Distributive Linkage Plan requires, among other things, that the
Exchange establish, maintain and enforce written policies and
procedures that are reasonably designed to prevent ``Trade-Throughs.''
\7\ A Trade-Through is a transaction in an options series at a price
that is inferior to the best price available in the market.\8\
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\5\ See Securities Exchange Act Release No. 60405 (July 30,
2009), 74 FR 39362 (August 6, 2009) (File No. 4-546).
\6\ See Securities Exchange Act Release No. 60527 (August 18,
2009), 74 FR 43178 (August 26, 2009) (SR-NYSEArca-2009-45).
\7\ Section 5(a) of the Distributive Linkage Plan.
\8\ Section 2(21) of the Distributive Linkage Plan.
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The Distributive Linkage Plan replaced the Plan for the Purpose of
Creating and Operating an Intermarket Option Linkage (``Old Linkage
Plan''), and the Distributive Linkage Rules replaced the then-existing
NYSE Arca rules implementing the Old Linkage Plan (the ``Old Linkage
Rules''). The Old Linkage Plan and the Old Linkage Rules provided a
limited Trade-Through exemption for ``Block Trades,'' defined to be
trades of 500 or more contracts with a premium value of at least
$150,000.\9\ However, as with Regulation NMS, the Distributive Linkage
Plan does not provide a Block Trade exemption.
---------------------------------------------------------------------------
\9\ Old Linkage Plan Sections 2(3) and 8(c)(i)(C); and former
NYSE Arca Options Rule 6.94(d)(2).
---------------------------------------------------------------------------
The ISE Proposal stated that the loss of the Block Trade exemption,
among other things, adversely affects the ability of its members to
effect large trades that are tied to stock,\10\ and therefore proposed
the QCC as a limited substitute for the Block Trade exemption. While
our views with respect to the potential impact that the ISE Proposal
may have on market structure remain unchanged,\11\ we nonetheless are
proposing to adopt rules related to QCCs based on those approved for
ISE. In particular, we believe that such a rule change would permit the
Exchange to remain competitive with ISE, and the other options
exchanges that may also adopt rules for QCCs, by making QCCs available
to OTP Holders and their customers through the Exchange.
---------------------------------------------------------------------------
\10\ See ISE Proposal at 43212.
\11\ See NYSE Euronext Comment Letters, supra note 1 [sic].
---------------------------------------------------------------------------
Discussion
While Regulation NMS does not provide a block trade exemption from
trade-through liability for stocks, the Commission, by order, has
provided trade-through relief for ``Qualified Contingent Trades''
(``QCTs'').\12\ The QCT Release provides an exemption from trade-
through liability in the equity market for multi-component, fully-
hedged trades where one order is contingent on the execution of one or
more additional orders. Building on this concept, and as approved for
ISE, the Exchange proposes that when an NYSE Arca OTP Holder effects a
QCT trade in a Regulation NMS Stock, that OTP Holder be permitted to
cross the options leg of the trade on the Exchange immediately upon
entry if the order is for at least 1,000 contracts, is part of a QCT,
is executed at a price at least equal to the national best bid or offer
(``NBBO''), and there are no Customer Orders on the Exchange's
Consolidated Book at the same price.\13\
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\12\ See Securities Exchange Act Release No. 57620 (April 4,
2008), 73 FR 19271 (April 9, 2008) (the ``QCT Release''). That
release superseded a release initially granting the Qualified
Contingent Trade exemption. See Securities Exchange Act Release No.
54389 (August 31, 2006), 71 FR 52829 (September 7, 2006).
\13\ We propose to define a QCC trade substantively identical to
the Commission's definition in the QCT release as well as that in
the ISE Proposal. A QCC trade must meet the following conditions:
(i) At least one component must be an NMS Stock; (ii) all the
components must be effected with a product price contingency that
either has been agreed to by all the respective counterparties or
arranged for by a broker-dealer as principal or agent; (iii) the
execution of one component must be contingent upon the execution of
all other components at or near the same time; (iv) the specific
relationship between the component orders (e.g., the spread between
the prices of the component orders) must be determined by the time
the contingent order is placed; (v) the component orders must bear a
derivative relationship to one another, represent different classes
of shares of the same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been
announced or cancelled; and (vi) the transaction must be fully
hedged (without regard to any prior existing position) as a result
of other components of the contingent trade. Consistent with the QCT
Release and the ISE Proposal, OTP Holders must demonstrate that the
transaction is fully hedged using reasonable risk-valuation
methodologies. See QCT Release, supra note 9 [sic], at footnote 9.
---------------------------------------------------------------------------
The QCC would permit OTP Holders to provide their customers a net
price for the entire trade, and then allow the OTP Holder to execute
the options leg of the trade on NYSE Arca at a price at least equal to
the NBBO while using the QCT exemption to effect the trade in the
equities leg at a price necessary to achieve the net price.\14\ Under
the proposal, the Exchange would not permit the options component of a
stock-option order to trade through the NBBO.\15\ However, there are
times when the quotation spread for the option on the Exchange would
not permit an execution of the options component
[[Page 16023]]
between the Exchange BBO, particularly in options that trade in
increments greater than $0.01. In those cases, the Exchange proposes to
permit an execution of the options component at a price that matches
the Exchange BBO. Moreover, under the proposal, the Exchange would not
permit the execution of a QCC at the same price as a Customer Order on
the Consolidated Book. In such a case, the QCC will be rejected.\16\
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\14\ NYSE Arca will adopt policies and procedures to ensure that
OTP Holders use the Qualified Contingent Cross Order properly.
First, we will require OTP Holders to properly mark all Qualified
Contingent Cross Orders as such. In addition, FINRA, on behalf of
NYSE Arca, will implement an examination and surveillance program to
assess OTP Holder compliance with the requirements applicable to
Qualified Contingent Cross Orders, including the requirement that
the stock leg of the transaction be executed at or near the same
time as the options leg.
\15\ While the QCC would not provide exposure for price
improvement for the options leg of a stock-option order, the options
leg must be executed at the NBBO or better. The Commission has
previously approved crossing transactions with no opportunity for
price improvement. See e.g., ISE Rule 721(a) and Chicago Board
Options Exchange (``CBOE'') Rule 6.74A, Interpretations and Policies
.08.
\16\ The Commission has previously approved the rejection of
crossing transactions when there is a priority customer order on the
book at the same price. See e.g., ISE Rule 721(a); and CBOE Rule
6.74A, Interpretations and Policies .08.
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Furthermore, under this proposal, the Exchange would only permit
QCCs to be submitted electronically from off the Floor through the NYSE
Arca System. In this regard, an OTP Holder located on the Floor of the
Exchange would not be allowed to enter QCCs into the NYSE Arca System,
or otherwise effect them in open outcry. In this way, our proposal
provides for the same means to effect QCCs on the Exchange as that of
the ISE. We plan to file a separate proposed rule change to address
effecting QCCs in open outcry on the Floor of the Exchange.
To provide a mechanism for the Exchange to surveil for whether QCCs
were entered from off of the Floor, the Exchange proposes to adopt
Commentary .01 to Rule 6.90. This provision would require OTP Holders
to maintain books and records demonstrating that each Qualified
Contingent Cross Order was routed to the NYSE Arca System from off of
the Floor. Any Qualified Contingent Cross Order that does not have a
corresponding record required by this provision would be deemed to have
been entered from on the Floor in violation of Rule 6.90.
The Exchange's proposal addresses the mechanics of executing the
stock and options components of a net-price transaction. The Exchange
believes that it is necessary that it provide OTP Holders and their
customers with the same trading capabilities available on other
exchanges with respect to QCCs, including the change proposed herein,
which would permit OTP Holders to execute the options legs of their
customers' large complex orders on the Exchange.
The Exchange also proposes a minor non-substantive correction to
the numbering convention within NYSE Arca Options Rule 6.62.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act \17\ in general, and furthers the objectives of
Section 6(b)(5) of the Act,\18\ in that it is designed to promote just
and equitable principles of trade, remove impediments to and perfect
the mechanisms of a free and open market and a national market system
and, in general, to protect investors and the public interest. The
proposed rules are consistent with the protection of investors in that
they are designed to prevent Trade-Throughs. In addition, the proposed
rule change would promote a free and open market by permitting the
Exchange to compete with ISE for these types of orders. In this regard,
competition would result in benefits to the investing public, whereas a
lack of competition would serve to limit the choices that the public
has for execution of their options business.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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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. Instead, the proposed rule
change would prevent the otherwise significant burden on competition
that would arise if ISE were permitted to implement QCCs without a
similar functionality being made available to market participants
across all U.S. markets for listed options, including OTP Holders on
the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\19\ 15 U.S.C. 78s(b)(3)(A)(iii).
\20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission has waived this requirement.
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2011-09 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2011-09. 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 (https://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 Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10
[[Page 16024]]
a.m. and 3 p.m. Copies of such filing also will 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 No. SR-NYSEArca-2011-09 and should be
submitted on or before April 12, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-6750 Filed 3-21-11; 8:45 am]
BILLING CODE 8011-01-P
