Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE MKT LLC; Order Granting Approval to Proposed Rule Changes, as Modified by Amendment No. 1, (1) Amending NYSE Rule 13 and NYSE MKT Rule 13-Equities to Establish New Order Types, (2) Amending NYSE Rule 115A and NYSE MKT Rule 115A-Equities to Delete Obsolete Text and to Clarify and Update the Description of The Allocation of Market and Limit Interest in Opening and Reopening Transactions, (3) Amending NYSE Rule 123C and NYSE MKT Rule 123C-Equities to Include Better-Priced G Orders in The Allocation of Orders in Closing Transactions, and (4) Making Other Technical and Conforming Changes, 51596-51599 [2012-20839]
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51596
Federal Register / Vol. 77, No. 165 / Friday, August 24, 2012 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67686; File Nos. SR–NYSE–
2012–19; SR–NYSEMKT–2012–13]
Self-Regulatory Organizations; New
York Stock Exchange LLC; NYSE MKT
LLC; Order Granting Approval to
Proposed Rule Changes, as Modified
by Amendment No. 1, (1) Amending
NYSE Rule 13 and NYSE MKT Rule
13—Equities to Establish New Order
Types, (2) Amending NYSE Rule 115A
and NYSE MKT Rule 115A—Equities to
Delete Obsolete Text and to Clarify and
Update the Description of The
Allocation of Market and Limit Interest
in Opening and Reopening
Transactions, (3) Amending NYSE Rule
123C and NYSE MKT Rule 123C—
Equities to Include Better-Priced G
Orders in The Allocation of Orders in
Closing Transactions, and (4) Making
Other Technical and Conforming
Changes
August 17, 2012.
I. Introduction
On June 15, 2012, New York Stock
Exchange LLC (‘‘NYSE’’) and NYSE
MKT LLC (‘‘NYSE MKT’’ and together
with NYSE, the ‘‘Exchanges’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 proposed rule
changes to (1) amend NYSE Rule 13 and
NYSE MKT Rule 13—Equities
(hereinafter referred to collectively as
‘‘Rule 13’’) to establish new order types,
(2) amend NYSE Rule 115A and NYSE
MKT Rule 115A—Equities (hereinafter
referred to collectively as ‘‘Rule 115A’’)
to delete obsolete text and to clarify and
update the description of the allocation
of market and limit interest in opening
and reopening transactions, (3) amend
NYSE Rule 123C and NYSE MKT Rule
123C—Equities (hereinafter referred to
collectively as ‘‘Rule 123C’’) to include
better-priced G orders in the allocation
of orders in closing transactions, and (4)
make other technical and conforming
changes. On June 27, 2012, the
Exchanges filed Amendment No. 1 to
their proposals. The proposed rule
changes, as modified by Amendment
No. 1, were published for comment in
the Federal Register on July 6, 2012.3
The Commission received no comments
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release Nos. 67317
(June 29, 2012), 77 FR 40133 (SR–NYSE–2012–19)
and 67318 (June 29, 2012), 77 FR 40129 (SR–
NYSEMKT–2012–13) (hereinafter referred to
collectively as ‘‘Notices’’).
2 17
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on the proposals. This order approves
the proposed rule changes as modified
by Amendment No. 1.
II. Description of the Proposals
The Exchanges propose to (1) amend
Rule 13 to establish new order types, (2)
amend Rule 115A to delete obsolete text
and to clarify and update the
description of the allocation of market
and limit interest in opening and
reopening transactions, (3) amend Rule
123C to include better-priced G orders
in the allocation of orders in closing
transactions, and (4) make other
technical and conforming changes.
Amendments to Order Type Definitions
Under Rule 13
The Exchanges propose deleting and
replacing two types of opening orders
currently defined in Rule 13 to stop
opening orders from executing when a
security opens on a quote or routing to
an away market.
The orders the Exchanges propose to
delete are ‘‘At the Opening or At the
Opening Only’’ orders. These order
types currently are defined in Rule 13
as market or limit orders which are to
be executed on the opening trade of the
stock on one of the Exchanges, or if one
of the Exchanges opens the stock on a
quote, the opening trade in the stock on
another market center to which such
order or part thereof has been routed in
compliance with Regulation NMS.
Under the current definition, any such
order or portion thereof not so executed
is to be treated as cancelled.
Furthermore, all or part of such orders
that seek the possibility of an NYSE- or
NYSE MKT-only opening execution,
and that are marked as a Regulation
NMS-compliant Immediate or Cancel
(‘‘IOC’’) order, are immediately and
automatically cancelled if they are not
executed on the opening trade of the
stock on one of the Exchanges or if
compliance with Regulation NMS
would require all or part of such order
to be routed to another market center.
The Exchanges propose to replace ‘‘At
the Opening or At the Opening Only’’
orders with two new order types:
Market ‘‘On-the-Open’’ (‘‘MOO’’) and
Limit ‘‘On-the-Open’’ (‘‘LOO’’) orders. A
MOO order would be defined as a
market order in a security that is to be
executed in its entirety on the opening
or reopening trade of the security on the
Exchange; it would be immediately and
automatically cancelled if the security
opened on a quote or not executed due
to tick restrictions. A LOO order would
be defined as a limit order in a security
that is to be executed on the opening or
reopening trade of the security on the
Exchange. A LOO order, or a part
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thereof, would immediately and
automatically cancel if by its terms it
were not marketable at the opening
price, if it were not executed on the
opening trade of the security on the
Exchange, or if the security opened on
a quote. Both MOO and LOO orders
could be entered before the open to
participate on the opening trade or
during a trading halt or pause to
participate on a reopening trade.
The Exchanges also propose to add
new order type to IOC Orders in Rule
13, the ‘‘Immediate or Cancel Minimum
Trade Size’’ order (‘‘IOC MTS order’’).
As proposed, any IOC order, including
an intermarket sweep order, may
include a minimum trade size (‘‘MTS’’)
instruction.4 For each incoming IOC–
MTS order, Exchange systems will
evaluate whether contra-side
displayable and non-displayable interest
on Exchange systems can meet the MTS
instruction and will reject such
incoming IOC–MTS order if Exchange
contra-side volume cannot satisfy the
MTS instruction. An IOC MTS order
could result in an execution in an away
market. The Exchanges would reject any
IOC–MTS orders if the security is not
open for trading or when auto-execution
is suspended.
In conjunction with the substantive
amendments described above, the
Exchanges propose to make technical
and conforming changes to the
Immediate or Cancel order definition in
Rule 13. The Exchanges would make
conforming changes throughout the
definition to provide that only an IOC
order without an MTS instruction could
be entered before the Exchange opening
for participation in the opening trade or
when auto execution is suspended,
which includes during a trading pause
or halt. In addition, NYSE proposes to
delete existing paragraph (e) from its
Immediate or Cancel order definition
because the paragraph’s references to
commitments to trade received on the
Floor through the Intermarket Trading
System are no longer relevant, as the
Intermarket Trading System was
decommissioned in 2007.
Lastly, the Exchanges propose to
delete several obsolete provisions of
Rule 13. They propose to delete the
definition of Time Order because this
order typically related to a Floor broker
order that historically would have been
held by the specialist on behalf of the
Floor broker and converted to a market
or limit order at a specified time. The
Exchange notes that this order can no
4 A minimum trade size instruction currently is
available to Floor brokers for d-quotes under NYSE
Rule 70.25(d) and NYSE MKT Rule 70.25(d)—
Equities.
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Federal Register / Vol. 77, No. 165 / Friday, August 24, 2012 / Notices
longer be used by Floor brokers. Also,
NYSE proposes to delete the definition
of Auction Market Order 5 because this
order type was never implemented, and
to amend the definition of Auto Ex
Order to remove a reference to the
Automated Bond System, which is no
longer operational.
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Rule 115A—Opening Allocation
The Exchanges propose to amend
Rule 115A, which addresses orders at
the opening or in unusual situations. In
its existing form, the Rule has no main
text but has Supplementary Material
.10, which addresses queries to the
Display Book before an opening;
Supplementary Material .20, which
addresses the arranging of an opening or
price by a Designated Market Maker
(‘‘DMM’’); and Supplementary Material
.30, which addresses certain functions
of Exchange systems with respect to
orders at the opening.
The Exchanges propose to redesignate what is now Supplementary
Material .10 as paragraph (a) as the main
text of Rule 115A. The Exchanges
further propose to add new paragraph
(b) to Rule 115A to address the process
of arranging a price and the allocation
of orders on opening and reopening
trades. Proposed Rule 115A(b) would
provide that when arranging an opening
or reopening price, except as provided
for in proposed Rule 115A(b)(2), which
concerns opening a security on a quote
and is described below, market interest 6
would be guaranteed to participate in
the opening or reopening transaction
and have precedence over (i) limit
interest 7 that is priced equal to the
opening or reopening price of a security
and (ii) DMM interest.8 In addition, G
orders that are priced equal to the
opening or reopening price of a security
5 See Securities Exchange Act Release No. 53539
(March 22, 2006), 71 FR 16353 (March 31, 2006)
(SR–NYSE–2004–05) (Order Approving Proposed
Rule Change to Establish a Hybrid Market)
(describing the addition of the proposed Auction
Market Order type).
6 For purposes of the opening or reopening
transaction, market interest would include (i)
market and MOO orders, (ii) tick-sensitive market
and MOO orders to buy (sell) that are priced higher
(lower) than the opening or reopening price, (iii)
limit interest to buy (sell) that is priced higher
(lower) than the opening or reopening price, and
(iv) Floor broker interest entered manually by the
DMM. See proposed Rule 115A(b)(1)(A).
7 For purposes of the opening or reopening
transaction, limit interest would include (i) limitedpriced interest, including e-Quotes, LOO orders,
and G orders; and (ii) tick-sensitive market and
MOO orders that are priced equal to the opening
or reopening price of a security. See proposed Rule
115A(b)(1)(B).
8 Limit interest that is priced equal to the opening
or reopening price of a security and DMM interest
would not be guaranteed to participate in the
opening or reopening transaction. See proposed
Rule 115A(b)(1)(C).
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would yield to all other limit interest
priced equal to the opening or
reopening price of a security except
DMM interest.
Proposed Rule 115A(b)(2) would
clarify the circumstances surrounding
when a security could open on a quote.
As proposed, Rule 115A(b)(2) would
provide that if the aggregate quantity of
MOO and market orders on at least one
side of the market equals one round lot
or more, the security must open on a
trade. If the aggregate quantity of MOO
and market orders on each side of the
market equals less than one round lot or
is zero, the security could open on a
quote. If a security opens on a quote,
odd-lot market orders would
automatically execute in a trade
immediately following the open on a
quote and odd-lot MOOs would
immediately and automatically cancel.
MOO and market orders subject to tick
restrictions that either cannot
participate at an opening or reopening
price or are priced equal to the opening
or reopening price would not be
included in the aggregate quantity of
MOO and market orders.
Finally, the Exchanges propose to
delete Supplementary Material .20 and
.30. The Exchanges state that much of
the content of these provisions has been
obsolete since the second phase of the
New Market Model was launched in
2008.9 For instance, the Exchanges note
that some of the language in these
provisions relates to DMMs holding
orders, but DMMs no longer hold
orders. Similarly, the Exchanges note
that some of the language in
Supplementary Material .30 describes
systems of the Exchanges that are either
outdated or otherwise covered by Rule
15, which deals with Pre-Opening
Indications.
The Exchanges point out that to the
extent certain concepts in
Supplementary Material .20 are still
relevant or applicable, they are
incorporated into proposed new
paragraph 115A(b), described above. For
instance, current paragraphs 2(a), (b),
and (c) of Supplementary Material .20
address the allocation and precedence
of certain orders in openings and
reopenings. Paragraph 2(a) provides that
a limited price order to buy (sell) that
is at a higher (lower) price than the
security is to be opened or reopened is
treated as a market order, and market
orders have precedence over limited
orders. Substantially similar language
appears in proposed paragraph
9 See Securities Exchange Act Release Nos. 58845
(Oct. 24, 2008), 73 FR 73683) (Oct. 29, 2008) (SR–
NYSE–2008–46); 59022 (Nov. 26, 2008), 73 FR
73683 (Dec. 3, 2008) (SR–NYSEALTR–2008–10).
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51597
115A(b)(1)(A)(iii). Paragraph 2(b)
provides that when the price on a
limited price order is the same as the
price at which the stock is to be opened
or reopened, it may not be possible to
execute a limited price order at such
price, and substantially similar language
appears in proposed paragraph
115A(b)(1)(C). Paragraph 2(c) requires a
DMM to see that each market order the
DMM holds participates in the opening
transaction, and if the order is for an
amount larger than one round lot, the
size of the bid that is accepted or the
offer that is taken establishing the
opening or reopening price is the
amount that a market order is entitled
to participate in at the opening or
reopening. This concept is contained in
proposed paragraph 115A(b).
Rule 123C—Closing Allocation and ‘‘G
Orders’’
The Exchanges propose to amend
Rules 13 and 123C as those rules relate
to G orders. First, the Exchanges
propose to add the phrase ‘‘G orders’’ as
a formal definitional term to an existing
order type found in Rule 13. Paragraph
(g) of the Auto Ex Order definition in
Rule 13 currently describes ‘‘an order
entered pursuant to Subsection (G) of
Section 11(a)(1) of the Securities
Exchange Act of 1934.’’ The Exchanges
explain in their Notices that this
definition is meant to include
proprietary orders of members of the
Exchanges when those orders are
executed by one of the members’ floor
brokers.10 While the Auto Ex order type
described in paragraph (g) was
commonly referred to by the Exchanges
as a ‘‘G order’’ and referred to as such
elsewhere in the Exchanges’ rules, it
was not officially defined as such in the
Exchanges’ order type rules. The
Exchanges now propose to add to the
end of paragraph (g) of the Auto Ex
Order definition a parenthetical phrase
noting that such orders will be officially
defined as ‘‘G orders.’’
The Exchanges also propose to amend
Rule 123C to include better-priced G
orders in the list of orders that must be
allocated in whole or part in closing
transactions. Currently, Rule 123C(7)(a)
sets forth six order types that must be
included in the closing transaction in
10 In a previous filing, NYSE MKT’s predecessor
described G orders as ‘‘orders for an Exchange
member’s own account where the member meets a
business mix test that requires it to be primarily
engaged in the business of underwriting and
distributing securities, selling securities to
customers, and/or acting as a broker and provided
more than 50% of its gross revenues is derived from
such businesses and related activities.’’ See
Securities Exchange Act Release No. 63972 (Feb. 25,
2011), 76 FR 12202 (Mar. 4, 2011) (SR–
NYSEAMEX–2011–09).
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the following order: (1) MOC orders that
do not have tick restrictions, (2) MOC
orders that have tick restrictions that
limit the execution of the MOC to a
price better than the price of the closing
transaction, (3) Floor broker interest
entered manually by the DMM, (4) limit
orders better priced than the closing
price, (5) LOC orders that do not have
tick restrictions better priced than the
closing transaction, and (6) LOC orders
better priced than the closing
transaction that have tick restrictions
that are capable of being executed based
on the closing price (‘‘must execute’’
list). Once all of the ‘‘must execute’’
interest listed in Rule 123C(7)(a) has
been satisfied, Rule 123C(7)(b) provides
that the following interest may be used
to offset a closing imbalance in the
following order: (1) Limit orders
represented in the Display Book with a
price equal to the closing price, (2) LOC
orders with a price equal to the closing
price, (3) MOC orders that have tick
restrictions that limit the execution of
the MOC to the price of the closing
transaction, (4) LOC orders that have
tick restrictions that are capable of being
executed based on the closing price and
the price of such limit order is equal to
the price of the closing transaction, (5)
G orders, and (6) Closing Only orders
(‘‘may execute’’ list).
The Exchanges propose to amend
Rule 123C(7)(a) to add G orders that are
priced better than the closing price as
the last type of order that must be
included in the closing transaction. In
conjunction with this change, the
Exchanges also propose to make a
conforming change to the reference to G
orders in paragraph 5 of Rule
123(C)(7)(b) (the ‘‘may execute’’ list of
interest). Under the proposals, language
would be added to paragraph 5 of Rule
123(C)(7)(b) to make clear that the G
orders included in the ‘‘may execute’’
list of interest are those G orders with
a price equal to the closing price—to be
distinguished from the G orders priced
better than the closing price that are
being added to the list of ‘‘must
execute’’ interest in 123(C)(7)(a).
Finally, the Exchanges propose one
more change to the ‘‘may execute’’ list
of interest. The Exchanges propose to
amend Rule 123C(7)(b)(i) to add that
DMM interest, as well as limit orders
represented in the Display Book with a
price equal to the closing price, are the
first types of interest that may be used
to offset a closing imbalance. According
to the Exchanges, this is intended to be
a clarifying change because they have
noted before in prior rule filings that
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DMM interest would be treated in such
a manner.11
III. Discussion and Commission’s
Findings
After carefully considering the
proposed rule changes, as modified by
Amendment No.1, the Commission
finds that they are consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange.12 In
particular, the Commission finds that
the proposals are consistent with
Section 6(b) of the Act.13 Specifically,
the Commission believes that the
proposed rule changes do not impose
any burden on competition not
necessary or appropriate in furtherance
of the Act and are designed to promote
just and equitable principles of trade, to
prevent fraudulent and manipulative
acts, and, in general, to protect investors
and the public interest.14
The Exchanges’ proposals to delete
‘‘At the Opening or At the Opening
Only’’ orders, and to replace them with
MOO and LOO orders, are intended to
make clear that such opening orders
will not execute when a security opens
on a quote, and that they will not be
routed to away markets. The
Commission finds that the proposed
MOO and LOO order type definitions
are clear and transparent as to when
such orders will be immediately and
automatically cancelled; in the case of a
MOO order, if the security opens on a
quote or if it is not executed due to tick
restrictions, and in the case of a LOO
order, if it is not marketable at the
opening price, it is not executed on the
opening trade of a security, or if the
security opens on a quote. The
Commission notes that the MOO and
LOO order types proposed by the
Exchanges are variations of Market ‘‘AtThe-Close’’ (‘‘MOC’’) and Limit ‘‘AtThe-Close’’ (‘‘LOC’’) orders already
offered by the Exchanges.15 In addition,
the proposed MOO and LOO order types
11 See, e.g., Securities Exchange Act Release No.
60974 (Nov. 9, 2009) 74 FR 59299 (Nov. 17, 2009)
(SR–NYSE–2009–111) (‘‘After the ‘must execute
interest’ is satisfied, then any limit orders
represented in Display Book at the closing price
may be used to offset the remaining imbalance. It
should be noted that DMM interest, including
better-priced DMM interest entered into the Display
Book prior to the closing transaction, eligible to
participate in the closing transaction is always
included in the hierarchy of execution as if it were
interest equal to the price of the closing
transaction.’’).
12 In approving the proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
13 15 U.S.C. 78(f)(b).
14 15 U.S.C. 78(f)(b)(5).
15 See Rule 13.
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are similar in concept and terminology
to orders offered by other exchanges.16
The Commission finds that the other
proposed amendments to Rule 13 are
also consistent with the requirements of
the Act. The Exchanges’ proposed new
IOC MTS order type will offer market
participants added functionality and
additional trading opportunities similar
to what is offered in other trading
venues.17 The Exchanges’ proposed
non-substantive and technical
conforming changes are consistent with
the requirements of the Act because
they clarify the rule text for ease of
reference and delete obsolete language.
In addition, the Commission finds
that the Exchanges’ proposed revision of
Rule 115A is consistent with the
requirements of the Act. The proposals
would specify how market interest
would participate in the opening or
reopening transaction and how market
interest would have precedence over
limit interest priced equal to the
opening price or reopening price of a
security and DMM interest. The
Commission believes that the proposal
should ensure that market interest,
except as provided in Rule 115A(b)(2),
would be guaranteed to participate in
openings or reopenings.
The Commission also finds that the
proposals would delete duplicative and
obsolete language in Rule 115A, which
should bring clarity to the Exchanges’
rules. Similarly, the Commission finds
that amending Rule 123C(7)(b)(i) to
expressly provide for the treatment of
DMM interest in offsetting a closing
imbalance will add transparency and
clarity to the Exchange’s rules, thereby
promoting just and equitable principles
of trade.
Lastly, the Commission believes that
the Exchanges’ proposed changes to
Rule 123C are consistent with the
requirements of the Act, and in
particular Section 11(a) of the Act.
Section 11(a)(1) of the Act prohibits a
member of a national securities
exchange from effecting transactions on
that exchange for its own account, the
account of an associated person, or any
account over which it or an associated
person exercises discretion, unless an
exception applies. Subsection (G) of
Section 11(a)(1) provides an exemption
from the general prohibition set forth in
Section 11(a)(1) for any transaction for
a member’s own account, provided that:
(i) Such member is primarily engaged in
certain underwriting, distribution, and
16 See, e.g., NYSE Arca Equities Rule 7.31(t)(1)
and (2); NASDAQ Rule 4752(a)(3) and (4); and
BATS Exchange Rule 11.23(a)(14) and (16).
17 See, e.g., Nasdaq Stock Market Rule 4751(e)(5)
(defining ‘‘Minimum Quantity Orders’’).
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other activities; and (ii) the transaction
is effected in compliance with the rules
of the Commission, which, at a
minimum, assure that the transaction is
not inconsistent with the maintenance
of fair and orderly markets and yields
priority, parity and precedence in
execution to orders for the account of
persons who are not members or
associated with members of the
exchange.18 In addition, Rule 11a1–1(T)
under the Act specifies that a
transaction effected on a national
securities exchange for the account of a
member which meets the requirements
of Section 11(a)(1)(G)(i) of the Act is
deemed, in accordance with the
requirements of Section 11(a)(1)(G)(ii),
to be not inconsistent with the
maintenance of fair and orderly markets
and to yield priority, parity, and
precedence in execution to orders for
the account of non-members or persons
associated with non-members of the
exchange, if such transaction is effected
in compliance with certain
requirements.19
Under the proposals, the Exchanges
would add G orders priced better than
the closing price to the list of ‘‘must
execute’’ interest to be allocated in
whole or part at the close. Only G orders
priced better than the closing price
would be eligible to execute as part of
the ‘‘must execute’’ interest, and then
only after execution of all other ‘‘must
execute’’ interest.20
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18 See
15 U.S.C. 78k(a)(1)(G).
19 Rule 11a1–1(T)(a)(1)–(3) provides that each of
the following requirements must be met: (1) A
member must disclose that a bid or offer for its
account is for its account to any member with
whom such bid or offer is placed or to whom it is
communicated, and any member through whom
that bid or offer is communicated must disclose to
others participating in effecting the order that it is
for the account of a member; (2) immediately before
executing the order, a member (other than the
specialist in such security) presenting any order for
the account of a member on the exchange must
clearly announce or otherwise indicate to the
specialist and to other members then present for the
trading in such security on the exchange that he is
presenting an order for the account of a member;
and (3) notwithstanding rules of priority, parity,
and precedence otherwise applicable, any member
presenting for execution a bid or offer for its own
account or for the account of another member must
grant priority to any bid or offer at the same price
for the account of a person who is not, or is not
associated with, a member, irrespective of the size
of any such bid or offer or the time when entered.
See 17 CFR 240.11a1–1(T)(a)(1)–(3).
20 In its proposal, the Exchanges note that Section
11(a)(1)(G) of the Act does not require better-priced
G orders to yield. See Notices, 77 FR at 40135 and
40131. See also 17 CFR 240.11a1–1(T)(a)(3), which
requires that a ‘‘member presenting for execution a
bid or offer for its own account or for the account
of another member shall grant priority to any bid
or offer at the same price for the account of a person
who is not, or is not associated with, a member
irrespective of the size of any such bid or offer or
the time when entered.’’ The priority of G orders
with a price equal to the closing price in relation
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The Commission believes that it is
consistent with the requirements of the
Act for G orders priced better than the
closing price to execute before ‘‘may
execute’’ interest priced equal to the
closing price. Such G orders could offer
contra-side interest a chance at price
improvement if executed prior to the
close. Further, because the rules will
require G orders priced better than the
closing price to yield to all other eligible
orders priced better than the closing
price, the Commission believes that the
proposal, with respect to such priority,
is consistent with Section 11(a)(1)(G) of
the Act21 and Rule 11a1–1(T)(a)(3)
thereunder.22
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,23 that the
proposed rule changes (SR–NYSE–
2012–19 and SR–NYSEMKT–2012–13),
as modified by Amendment No. 1, be,
and hereby are, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–20839 Filed 8–23–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67696; File No. SR–ICC–
2012–12]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Filing of
Proposed Rule Change To Amend
Schedule 502 of the ICE Clear Credit
Rules To Provide for Clearing of
Additional Single Name Investment
Grade CDS Contracts
August 20, 2012.
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 August 9,
to other ‘‘may execute’’ interest will remain
unchanged under the proposal.
21 15 U.S.C. 78k(a)(1)(G).
22 17 CFR 240.11a1–1(T). The Commission notes
that this exemption is available only for orders for
the account of Exchange members. The Commission
also reminds the Exchanges and their members that,
in addition to yielding priority to non-member
orders at the same price, members submitting ‘‘G
orders’’ must also meet the other requirements
under section 11(a)(1)(G) and Rule 11a1–1(T) to
effect transactions for their own accounts in
reliance on this exception (or satisfy the
requirements of another exception).
23 15 U.S.C. 78s(b)(2).
24 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
51599
2012, ICE Clear Credit LLC (‘‘ICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared primarily by ICC.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of proposed rule change
is to provide for the clearance of the
following twenty additional investment
grade Standard North American
Corporate Single Name CDS contracts:
Nucor Corporation; V.F. Corporation;
The Procter & Gamble Company; Encana
Corporation; Weatherford International
Ltd.; Chevron Corporation; Nexen Inc.;
Energy Transfer Partners, L.P.; Apache
Corporation; Kimco Realty Corporation;
Prudential Financial, Inc.; Prologis, L.P.;
HCP, Inc.; Lincoln National
Corporation; The Travelers Companies,
Inc.; Textron Financial Corporation;
Textron Inc.; The Williams Companies,
Inc.; Pacific Gas and Electric Company;
and Starwood Hotels & Resorts
Worldwide, Inc. (the ‘‘Additional Single
Names’’).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, ICC
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. ICC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.3
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
As with the Standard North American
Corporate Single Names currently
cleared, ICC plans to provide for the
clearance of contracts with a
restructuring type of no restructuring,
standardized maturity dates up to the
10-year tenor and both standardized
coupons. One of the Additional Single
Names (Starwood Hotels & Resorts
Worldwide, Inc.) was recently added by
Markit as one of the one hundred
3 The Commission has modified the text of the
summaries prepared by ICC.
E:\FR\FM\24AUN1.SGM
24AUN1
]]>Agencies
[Federal Register Volume 77, Number 165 (Friday, August 24, 2012)]
[Notices]
[Pages 51596-51599]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20839]
[[Page 51596]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67686; File Nos. SR-NYSE-2012-19; SR-NYSEMKT-2012-13]
Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE
MKT LLC; Order Granting Approval to Proposed Rule Changes, as Modified
by Amendment No. 1, (1) Amending NYSE Rule 13 and NYSE MKT Rule 13--
Equities to Establish New Order Types, (2) Amending NYSE Rule 115A and
NYSE MKT Rule 115A--Equities to Delete Obsolete Text and to Clarify and
Update the Description of The Allocation of Market and Limit Interest
in Opening and Reopening Transactions, (3) Amending NYSE Rule 123C and
NYSE MKT Rule 123C--Equities to Include Better-Priced G Orders in The
Allocation of Orders in Closing Transactions, and (4) Making Other
Technical and Conforming Changes
August 17, 2012.
I. Introduction
On June 15, 2012, New York Stock Exchange LLC (``NYSE'') and NYSE
MKT LLC (``NYSE MKT'' and together with NYSE, the ``Exchanges'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ proposed rule changes to (1) amend
NYSE Rule 13 and NYSE MKT Rule 13--Equities (hereinafter referred to
collectively as ``Rule 13'') to establish new order types, (2) amend
NYSE Rule 115A and NYSE MKT Rule 115A--Equities (hereinafter referred
to collectively as ``Rule 115A'') to delete obsolete text and to
clarify and update the description of the allocation of market and
limit interest in opening and reopening transactions, (3) amend NYSE
Rule 123C and NYSE MKT Rule 123C--Equities (hereinafter referred to
collectively as ``Rule 123C'') to include better-priced G orders in the
allocation of orders in closing transactions, and (4) make other
technical and conforming changes. On June 27, 2012, the Exchanges filed
Amendment No. 1 to their proposals. The proposed rule changes, as
modified by Amendment No. 1, were published for comment in the Federal
Register on July 6, 2012.\3\ The Commission received no comments on the
proposals. This order approves the proposed rule changes as modified by
Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release Nos. 67317 (June 29,
2012), 77 FR 40133 (SR-NYSE-2012-19) and 67318 (June 29, 2012), 77
FR 40129 (SR-NYSEMKT-2012-13) (hereinafter referred to collectively
as ``Notices'').
---------------------------------------------------------------------------
II. Description of the Proposals
The Exchanges propose to (1) amend Rule 13 to establish new order
types, (2) amend Rule 115A to delete obsolete text and to clarify and
update the description of the allocation of market and limit interest
in opening and reopening transactions, (3) amend Rule 123C to include
better-priced G orders in the allocation of orders in closing
transactions, and (4) make other technical and conforming changes.
Amendments to Order Type Definitions Under Rule 13
The Exchanges propose deleting and replacing two types of opening
orders currently defined in Rule 13 to stop opening orders from
executing when a security opens on a quote or routing to an away
market.
The orders the Exchanges propose to delete are ``At the Opening or
At the Opening Only'' orders. These order types currently are defined
in Rule 13 as market or limit orders which are to be executed on the
opening trade of the stock on one of the Exchanges, or if one of the
Exchanges opens the stock on a quote, the opening trade in the stock on
another market center to which such order or part thereof has been
routed in compliance with Regulation NMS. Under the current definition,
any such order or portion thereof not so executed is to be treated as
cancelled. Furthermore, all or part of such orders that seek the
possibility of an NYSE- or NYSE MKT-only opening execution, and that
are marked as a Regulation NMS-compliant Immediate or Cancel (``IOC'')
order, are immediately and automatically cancelled if they are not
executed on the opening trade of the stock on one of the Exchanges or
if compliance with Regulation NMS would require all or part of such
order to be routed to another market center.
The Exchanges propose to replace ``At the Opening or At the Opening
Only'' orders with two new order types: Market ``On-the-Open''
(``MOO'') and Limit ``On-the-Open'' (``LOO'') orders. A MOO order would
be defined as a market order in a security that is to be executed in
its entirety on the opening or reopening trade of the security on the
Exchange; it would be immediately and automatically cancelled if the
security opened on a quote or not executed due to tick restrictions. A
LOO order would be defined as a limit order in a security that is to be
executed on the opening or reopening trade of the security on the
Exchange. A LOO order, or a part thereof, would immediately and
automatically cancel if by its terms it were not marketable at the
opening price, if it were not executed on the opening trade of the
security on the Exchange, or if the security opened on a quote. Both
MOO and LOO orders could be entered before the open to participate on
the opening trade or during a trading halt or pause to participate on a
reopening trade.
The Exchanges also propose to add new order type to IOC Orders in
Rule 13, the ``Immediate or Cancel Minimum Trade Size'' order (``IOC
MTS order''). As proposed, any IOC order, including an intermarket
sweep order, may include a minimum trade size (``MTS'') instruction.\4\
For each incoming IOC-MTS order, Exchange systems will evaluate whether
contra-side displayable and non-displayable interest on Exchange
systems can meet the MTS instruction and will reject such incoming IOC-
MTS order if Exchange contra-side volume cannot satisfy the MTS
instruction. An IOC MTS order could result in an execution in an away
market. The Exchanges would reject any IOC-MTS orders if the security
is not open for trading or when auto-execution is suspended.
---------------------------------------------------------------------------
\4\ A minimum trade size instruction currently is available to
Floor brokers for d-quotes under NYSE Rule 70.25(d) and NYSE MKT
Rule 70.25(d)--Equities.
---------------------------------------------------------------------------
In conjunction with the substantive amendments described above, the
Exchanges propose to make technical and conforming changes to the
Immediate or Cancel order definition in Rule 13. The Exchanges would
make conforming changes throughout the definition to provide that only
an IOC order without an MTS instruction could be entered before the
Exchange opening for participation in the opening trade or when auto
execution is suspended, which includes during a trading pause or halt.
In addition, NYSE proposes to delete existing paragraph (e) from its
Immediate or Cancel order definition because the paragraph's references
to commitments to trade received on the Floor through the Intermarket
Trading System are no longer relevant, as the Intermarket Trading
System was decommissioned in 2007.
Lastly, the Exchanges propose to delete several obsolete provisions
of Rule 13. They propose to delete the definition of Time Order because
this order typically related to a Floor broker order that historically
would have been held by the specialist on behalf of the Floor broker
and converted to a market or limit order at a specified time. The
Exchange notes that this order can no
[[Page 51597]]
longer be used by Floor brokers. Also, NYSE proposes to delete the
definition of Auction Market Order \5\ because this order type was
never implemented, and to amend the definition of Auto Ex Order to
remove a reference to the Automated Bond System, which is no longer
operational.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 53539 (March 22,
2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05) (Order
Approving Proposed Rule Change to Establish a Hybrid Market)
(describing the addition of the proposed Auction Market Order type).
---------------------------------------------------------------------------
Rule 115A--Opening Allocation
The Exchanges propose to amend Rule 115A, which addresses orders at
the opening or in unusual situations. In its existing form, the Rule
has no main text but has Supplementary Material .10, which addresses
queries to the Display Book before an opening; Supplementary Material
.20, which addresses the arranging of an opening or price by a
Designated Market Maker (``DMM''); and Supplementary Material .30,
which addresses certain functions of Exchange systems with respect to
orders at the opening.
The Exchanges propose to re-designate what is now Supplementary
Material .10 as paragraph (a) as the main text of Rule 115A. The
Exchanges further propose to add new paragraph (b) to Rule 115A to
address the process of arranging a price and the allocation of orders
on opening and reopening trades. Proposed Rule 115A(b) would provide
that when arranging an opening or reopening price, except as provided
for in proposed Rule 115A(b)(2), which concerns opening a security on a
quote and is described below, market interest \6\ would be guaranteed
to participate in the opening or reopening transaction and have
precedence over (i) limit interest \7\ that is priced equal to the
opening or reopening price of a security and (ii) DMM interest.\8\ In
addition, G orders that are priced equal to the opening or reopening
price of a security would yield to all other limit interest priced
equal to the opening or reopening price of a security except DMM
interest.
---------------------------------------------------------------------------
\6\ For purposes of the opening or reopening transaction, market
interest would include (i) market and MOO orders, (ii) tick-
sensitive market and MOO orders to buy (sell) that are priced higher
(lower) than the opening or reopening price, (iii) limit interest to
buy (sell) that is priced higher (lower) than the opening or
reopening price, and (iv) Floor broker interest entered manually by
the DMM. See proposed Rule 115A(b)(1)(A).
\7\ For purposes of the opening or reopening transaction, limit
interest would include (i) limited-priced interest, including e-
Quotes, LOO orders, and G orders; and (ii) tick-sensitive market and
MOO orders that are priced equal to the opening or reopening price
of a security. See proposed Rule 115A(b)(1)(B).
\8\ Limit interest that is priced equal to the opening or
reopening price of a security and DMM interest would not be
guaranteed to participate in the opening or reopening transaction.
See proposed Rule 115A(b)(1)(C).
---------------------------------------------------------------------------
Proposed Rule 115A(b)(2) would clarify the circumstances
surrounding when a security could open on a quote. As proposed, Rule
115A(b)(2) would provide that if the aggregate quantity of MOO and
market orders on at least one side of the market equals one round lot
or more, the security must open on a trade. If the aggregate quantity
of MOO and market orders on each side of the market equals less than
one round lot or is zero, the security could open on a quote. If a
security opens on a quote, odd-lot market orders would automatically
execute in a trade immediately following the open on a quote and odd-
lot MOOs would immediately and automatically cancel. MOO and market
orders subject to tick restrictions that either cannot participate at
an opening or reopening price or are priced equal to the opening or
reopening price would not be included in the aggregate quantity of MOO
and market orders.
Finally, the Exchanges propose to delete Supplementary Material .20
and .30. The Exchanges state that much of the content of these
provisions has been obsolete since the second phase of the New Market
Model was launched in 2008.\9\ For instance, the Exchanges note that
some of the language in these provisions relates to DMMs holding
orders, but DMMs no longer hold orders. Similarly, the Exchanges note
that some of the language in Supplementary Material .30 describes
systems of the Exchanges that are either outdated or otherwise covered
by Rule 15, which deals with Pre-Opening Indications.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release Nos. 58845 (Oct. 24,
2008), 73 FR 73683) (Oct. 29, 2008) (SR-NYSE-2008-46); 59022 (Nov.
26, 2008), 73 FR 73683 (Dec. 3, 2008) (SR-NYSEALTR-2008-10).
---------------------------------------------------------------------------
The Exchanges point out that to the extent certain concepts in
Supplementary Material .20 are still relevant or applicable, they are
incorporated into proposed new paragraph 115A(b), described above. For
instance, current paragraphs 2(a), (b), and (c) of Supplementary
Material .20 address the allocation and precedence of certain orders in
openings and reopenings. Paragraph 2(a) provides that a limited price
order to buy (sell) that is at a higher (lower) price than the security
is to be opened or reopened is treated as a market order, and market
orders have precedence over limited orders. Substantially similar
language appears in proposed paragraph 115A(b)(1)(A)(iii). Paragraph
2(b) provides that when the price on a limited price order is the same
as the price at which the stock is to be opened or reopened, it may not
be possible to execute a limited price order at such price, and
substantially similar language appears in proposed paragraph
115A(b)(1)(C). Paragraph 2(c) requires a DMM to see that each market
order the DMM holds participates in the opening transaction, and if the
order is for an amount larger than one round lot, the size of the bid
that is accepted or the offer that is taken establishing the opening or
reopening price is the amount that a market order is entitled to
participate in at the opening or reopening. This concept is contained
in proposed paragraph 115A(b).
Rule 123C--Closing Allocation and ``G Orders''
The Exchanges propose to amend Rules 13 and 123C as those rules
relate to G orders. First, the Exchanges propose to add the phrase ``G
orders'' as a formal definitional term to an existing order type found
in Rule 13. Paragraph (g) of the Auto Ex Order definition in Rule 13
currently describes ``an order entered pursuant to Subsection (G) of
Section 11(a)(1) of the Securities Exchange Act of 1934.'' The
Exchanges explain in their Notices that this definition is meant to
include proprietary orders of members of the Exchanges when those
orders are executed by one of the members' floor brokers.\10\ While the
Auto Ex order type described in paragraph (g) was commonly referred to
by the Exchanges as a ``G order'' and referred to as such elsewhere in
the Exchanges' rules, it was not officially defined as such in the
Exchanges' order type rules. The Exchanges now propose to add to the
end of paragraph (g) of the Auto Ex Order definition a parenthetical
phrase noting that such orders will be officially defined as ``G
orders.''
---------------------------------------------------------------------------
\10\ In a previous filing, NYSE MKT's predecessor described G
orders as ``orders for an Exchange member's own account where the
member meets a business mix test that requires it to be primarily
engaged in the business of underwriting and distributing securities,
selling securities to customers, and/or acting as a broker and
provided more than 50% of its gross revenues is derived from such
businesses and related activities.'' See Securities Exchange Act
Release No. 63972 (Feb. 25, 2011), 76 FR 12202 (Mar. 4, 2011) (SR-
NYSEAMEX-2011-09).
---------------------------------------------------------------------------
The Exchanges also propose to amend Rule 123C to include better-
priced G orders in the list of orders that must be allocated in whole
or part in closing transactions. Currently, Rule 123C(7)(a) sets forth
six order types that must be included in the closing transaction in
[[Page 51598]]
the following order: (1) MOC orders that do not have tick restrictions,
(2) MOC orders that have tick restrictions that limit the execution of
the MOC to a price better than the price of the closing transaction,
(3) Floor broker interest entered manually by the DMM, (4) limit orders
better priced than the closing price, (5) LOC orders that do not have
tick restrictions better priced than the closing transaction, and (6)
LOC orders better priced than the closing transaction that have tick
restrictions that are capable of being executed based on the closing
price (``must execute'' list). Once all of the ``must execute''
interest listed in Rule 123C(7)(a) has been satisfied, Rule 123C(7)(b)
provides that the following interest may be used to offset a closing
imbalance in the following order: (1) Limit orders represented in the
Display Book with a price equal to the closing price, (2) LOC orders
with a price equal to the closing price, (3) MOC orders that have tick
restrictions that limit the execution of the MOC to the price of the
closing transaction, (4) LOC orders that have tick restrictions that
are capable of being executed based on the closing price and the price
of such limit order is equal to the price of the closing transaction,
(5) G orders, and (6) Closing Only orders (``may execute'' list).
The Exchanges propose to amend Rule 123C(7)(a) to add G orders that
are priced better than the closing price as the last type of order that
must be included in the closing transaction. In conjunction with this
change, the Exchanges also propose to make a conforming change to the
reference to G orders in paragraph 5 of Rule 123(C)(7)(b) (the ``may
execute'' list of interest). Under the proposals, language would be
added to paragraph 5 of Rule 123(C)(7)(b) to make clear that the G
orders included in the ``may execute'' list of interest are those G
orders with a price equal to the closing price--to be distinguished
from the G orders priced better than the closing price that are being
added to the list of ``must execute'' interest in 123(C)(7)(a).
Finally, the Exchanges propose one more change to the ``may
execute'' list of interest. The Exchanges propose to amend Rule
123C(7)(b)(i) to add that DMM interest, as well as limit orders
represented in the Display Book with a price equal to the closing
price, are the first types of interest that may be used to offset a
closing imbalance. According to the Exchanges, this is intended to be a
clarifying change because they have noted before in prior rule filings
that DMM interest would be treated in such a manner.\11\
---------------------------------------------------------------------------
\11\ See, e.g., Securities Exchange Act Release No. 60974 (Nov.
9, 2009) 74 FR 59299 (Nov. 17, 2009) (SR-NYSE-2009-111) (``After the
`must execute interest' is satisfied, then any limit orders
represented in Display Book at the closing price may be used to
offset the remaining imbalance. It should be noted that DMM
interest, including better-priced DMM interest entered into the
Display Book prior to the closing transaction, eligible to
participate in the closing transaction is always included in the
hierarchy of execution as if it were interest equal to the price of
the closing transaction.'').
---------------------------------------------------------------------------
III. Discussion and Commission's Findings
After carefully considering the proposed rule changes, as modified
by Amendment No.1, the Commission finds that they are consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\12\ In particular, the
Commission finds that the proposals are consistent with Section 6(b) of
the Act.\13\ Specifically, the Commission believes that the proposed
rule changes do not impose any burden on competition not necessary or
appropriate in furtherance of the Act and are designed to promote just
and equitable principles of trade, to prevent fraudulent and
manipulative acts, and, in general, to protect investors and the public
interest.\14\
---------------------------------------------------------------------------
\12\ In approving the proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\13\ 15 U.S.C. 78(f)(b).
\14\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------
The Exchanges' proposals to delete ``At the Opening or At the
Opening Only'' orders, and to replace them with MOO and LOO orders, are
intended to make clear that such opening orders will not execute when a
security opens on a quote, and that they will not be routed to away
markets. The Commission finds that the proposed MOO and LOO order type
definitions are clear and transparent as to when such orders will be
immediately and automatically cancelled; in the case of a MOO order, if
the security opens on a quote or if it is not executed due to tick
restrictions, and in the case of a LOO order, if it is not marketable
at the opening price, it is not executed on the opening trade of a
security, or if the security opens on a quote. The Commission notes
that the MOO and LOO order types proposed by the Exchanges are
variations of Market ``At-The-Close'' (``MOC'') and Limit ``At-The-
Close'' (``LOC'') orders already offered by the Exchanges.\15\ In
addition, the proposed MOO and LOO order types are similar in concept
and terminology to orders offered by other exchanges.\16\
---------------------------------------------------------------------------
\15\ See Rule 13.
\16\ See, e.g., NYSE Arca Equities Rule 7.31(t)(1) and (2);
NASDAQ Rule 4752(a)(3) and (4); and BATS Exchange Rule 11.23(a)(14)
and (16).
---------------------------------------------------------------------------
The Commission finds that the other proposed amendments to Rule 13
are also consistent with the requirements of the Act. The Exchanges'
proposed new IOC MTS order type will offer market participants added
functionality and additional trading opportunities similar to what is
offered in other trading venues.\17\ The Exchanges' proposed non-
substantive and technical conforming changes are consistent with the
requirements of the Act because they clarify the rule text for ease of
reference and delete obsolete language.
---------------------------------------------------------------------------
\17\ See, e.g., Nasdaq Stock Market Rule 4751(e)(5) (defining
``Minimum Quantity Orders'').
---------------------------------------------------------------------------
In addition, the Commission finds that the Exchanges' proposed
revision of Rule 115A is consistent with the requirements of the Act.
The proposals would specify how market interest would participate in
the opening or reopening transaction and how market interest would have
precedence over limit interest priced equal to the opening price or
reopening price of a security and DMM interest. The Commission believes
that the proposal should ensure that market interest, except as
provided in Rule 115A(b)(2), would be guaranteed to participate in
openings or reopenings.
The Commission also finds that the proposals would delete
duplicative and obsolete language in Rule 115A, which should bring
clarity to the Exchanges' rules. Similarly, the Commission finds that
amending Rule 123C(7)(b)(i) to expressly provide for the treatment of
DMM interest in offsetting a closing imbalance will add transparency
and clarity to the Exchange's rules, thereby promoting just and
equitable principles of trade.
Lastly, the Commission believes that the Exchanges' proposed
changes to Rule 123C are consistent with the requirements of the Act,
and in particular Section 11(a) of the Act. Section 11(a)(1) of the Act
prohibits a member of a national securities exchange from effecting
transactions on that exchange for its own account, the account of an
associated person, or any account over which it or an associated person
exercises discretion, unless an exception applies. Subsection (G) of
Section 11(a)(1) provides an exemption from the general prohibition set
forth in Section 11(a)(1) for any transaction for a member's own
account, provided that: (i) Such member is primarily engaged in certain
underwriting, distribution, and
[[Page 51599]]
other activities; and (ii) the transaction is effected in compliance
with the rules of the Commission, which, at a minimum, assure that the
transaction is not inconsistent with the maintenance of fair and
orderly markets and yields priority, parity and precedence in execution
to orders for the account of persons who are not members or associated
with members of the exchange.\18\ In addition, Rule 11a1-1(T) under the
Act specifies that a transaction effected on a national securities
exchange for the account of a member which meets the requirements of
Section 11(a)(1)(G)(i) of the Act is deemed, in accordance with the
requirements of Section 11(a)(1)(G)(ii), to be not inconsistent with
the maintenance of fair and orderly markets and to yield priority,
parity, and precedence in execution to orders for the account of non-
members or persons associated with non-members of the exchange, if such
transaction is effected in compliance with certain requirements.\19\
---------------------------------------------------------------------------
\18\ See 15 U.S.C. 78k(a)(1)(G).
\19\ Rule 11a1-1(T)(a)(1)-(3) provides that each of the
following requirements must be met: (1) A member must disclose that
a bid or offer for its account is for its account to any member with
whom such bid or offer is placed or to whom it is communicated, and
any member through whom that bid or offer is communicated must
disclose to others participating in effecting the order that it is
for the account of a member; (2) immediately before executing the
order, a member (other than the specialist in such security)
presenting any order for the account of a member on the exchange
must clearly announce or otherwise indicate to the specialist and to
other members then present for the trading in such security on the
exchange that he is presenting an order for the account of a member;
and (3) notwithstanding rules of priority, parity, and precedence
otherwise applicable, any member presenting for execution a bid or
offer for its own account or for the account of another member must
grant priority to any bid or offer at the same price for the account
of a person who is not, or is not associated with, a member,
irrespective of the size of any such bid or offer or the time when
entered. See 17 CFR 240.11a1-1(T)(a)(1)-(3).
---------------------------------------------------------------------------
Under the proposals, the Exchanges would add G orders priced better
than the closing price to the list of ``must execute'' interest to be
allocated in whole or part at the close. Only G orders priced better
than the closing price would be eligible to execute as part of the
``must execute'' interest, and then only after execution of all other
``must execute'' interest.\20\
---------------------------------------------------------------------------
\20\ In its proposal, the Exchanges note that Section
11(a)(1)(G) of the Act does not require better-priced G orders to
yield. See Notices, 77 FR at 40135 and 40131. See also 17 CFR
240.11a1-1(T)(a)(3), which requires that a ``member presenting for
execution a bid or offer for its own account or for the account of
another member shall grant priority to any bid or offer at the same
price for the account of a person who is not, or is not associated
with, a member irrespective of the size of any such bid or offer or
the time when entered.'' The priority of G orders with a price equal
to the closing price in relation to other ``may execute'' interest
will remain unchanged under the proposal.
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The Commission believes that it is consistent with the requirements
of the Act for G orders priced better than the closing price to execute
before ``may execute'' interest priced equal to the closing price. Such
G orders could offer contra-side interest a chance at price improvement
if executed prior to the close. Further, because the rules will require
G orders priced better than the closing price to yield to all other
eligible orders priced better than the closing price, the Commission
believes that the proposal, with respect to such priority, is
consistent with Section 11(a)(1)(G) of the Act\21\ and Rule 11a1-
1(T)(a)(3) thereunder.\22\
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\21\ 15 U.S.C. 78k(a)(1)(G).
\22\ 17 CFR 240.11a1-1(T). The Commission notes that this
exemption is available only for orders for the account of Exchange
members. The Commission also reminds the Exchanges and their members
that, in addition to yielding priority to non-member orders at the
same price, members submitting ``G orders'' must also meet the other
requirements under section 11(a)(1)(G) and Rule 11a1-1(T) to effect
transactions for their own accounts in reliance on this exception
(or satisfy the requirements of another exception).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule changes (SR-NYSE-2012-19 and SR-
NYSEMKT-2012-13), as modified by Amendment No. 1, be, and hereby are,
approved.
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\23\ 15 U.S.C. 78s(b)(2).
\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20839 Filed 8-23-12; 8:45 am]
BILLING CODE 8011-01-P
