Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca Options Rule 6.64 (OX Trading Auctions) With Respect to Opening Trading in an Options Series, 71469-71471 [2012-28987]

Download as PDF Federal Register / Vol. 77, No. 231 / Friday, November 30, 2012 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68290; File No. SR– NYSEArca–2012–126] 1. Purpose Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca Options Rule 6.64 (OX Trading Auctions) With Respect to Opening Trading in an Options Series November 26, 2012. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that, on November 12, 2012, 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 Substance of the Proposed Rule Change The Exchange proposes to amend NYSE Arca Options Rule 6.64 (OX Trading Auctions) with respect to opening trading in an options series. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. wreier-aviles on DSK5TPTVN1PROD with NOTICES 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. 1 15 2 17 15:17 Nov 29, 2012 Current Opening Process Currently, Rule 6.64 describes the process pursuant to which the the [sic] OX System opens an option series. Pursuant to the procedures described in Rule 6.64(b) and (c), after the primary market for the underlying security disseminates the opening trade or opening quote, the OX System conducts an ‘‘Auction Process’’ to open a series whereby the OX System determines a single price at which a series may be opened by looking either to: (i) The midpoint of the initial uncrossed NBBO disseminated by the Options Price Reporting Authority (‘‘OPRA’’), or (ii) the midpoint of the best quotes or orders in the OX Book. If the bid-ask differential for a series is not within an acceptable range, the OX system will not open the series for trading. For purposes of this rule, the acceptable range means the bid-ask differential guidelines specified in Rule 6.37(b)(1)(A)–(E) (‘‘narrow-width 3 The term ‘‘OX’’ refers to the Exchange’s electronic order delivery, execution and reporting system through which orders and quotes for listed options are consolidated for execution and/or display. See NYSE Arca Options Rule 6.1A(a)(13). U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Mar<15>2010 The Exchange proposes to amend Rule 6.64 to provide for how the OX System 3 may open an options series for trading when there are no executable orders and/or quotes and the bid-ask differential of the NBBO disseminated by Options Price Reporting Authority (‘‘OPRA’’) or a Market Maker quote does not exceed the bid-ask differential specified under Rule 6.37A(b)(4). The Exchange’s Rules are currently silent on how the OX System opens an options series when it does not conduct an auction. The proposed rule change will clarify that the Exchange opens an option series when there are no executable orders and/or quotes to match up in the OX System, which is currently based on the bid-ask differentials that are within the acceptable range defined in Rule 6.37(b)(1)(A)–(E) (‘‘open a series on a quote’’), and will also amend the current process to provide that the bid-ask differential to allow for the OX System to open a series on a quote would be based on the bid-ask differentials specified in Rule 6.37A(b)(4), which are wider than the bid-ask differential that allows for the OX System to open via an auction during the Auction Process. Jkt 229001 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 71469 quotes’’).4 Assuming the bid-ask differential is within the acceptable range, the OX System matches up orders and quotes in the system based on pricetime priority and executes the orders that are matched at the midpoint pricing. Any orders in the OX Book that are not executed in the Auction Process become eligible for the Core Trading Session immediately after the conclusion of the Auction Process. In addition, although not currently specified in the rule, if the bid-ask differential is within the acceptable range, but there are no orders or quotes to be matched up with one another, the OX System will open the series for trading on a disseminated quote, at which point any unexecuted orders in the OX Book during the Auction Process become eligible for the Core Trading Session. If the bid-ask differential is not within the acceptable range, the Exchange will not open that series for trading until the OX System either receives a narrow-width NBBO from OPRA or a Market Maker submits a narrow-width quote. Proposed Change to Opening Process The Exchange proposes to amend Rule 6.64 both to specify that the OX System may open a series on a quote when there are no executable orders and/or quotes and to amend the rule to provide a different bid-ask differential for opening a series on a quote. As noted above, the Exchange currently uses the narrow-width quote bid-ask differential for determining both whether to open with an auction (when there are executable orders and/or quotes) or with a quote (when there are no executable orders and/or quotes). In codifying the process for opening a series on a quote, the Exchange proposes to adopt the bidask differential specified under Rule 6.37A(b)(4) instead of the narrow-width quotes.5 Rule 6.37A(b)(4) provides that options traded on OX during Core Trading Hours may be quoted with a difference not to exceed $5 between the bid and offer regardless of the price of the bid (‘‘standard-width quote’’). As proposed, 4 See NYSE Arca Options Rule 6.37(b)(1). The bigask [sic] guidelines specified in Rule 6.37(b)(1)(A)– (E) that are required to open a series are narrower than the $5 wide bid-ask differential for options traded on OX during Core Trading Hours. See also NYSE Arca Options Rule 6.37A(b)(4). Rule 6.37A(b)(4) provides that options traded on OX during Core Trading Hours may be quoted with a difference not to exceed $5 between the bid and offer regardless of the price of the bid. 5 Currently, if there are executable orders and/or quotes and the options series does not meet the narrow-width quote bid-ask differential, but does meet the standard-width quote differential, the Exchange will not open the options series for trading. See Rule 6.64(b)(D). E:\FR\FM\30NON1.SGM 30NON1 wreier-aviles on DSK5TPTVN1PROD with NOTICES 71470 Federal Register / Vol. 77, No. 231 / Friday, November 30, 2012 / Notices if there are no executable orders and/or quotes, but the OX System either receives a standard-width quote NBBO from OPRA in that series or a Market Maker submits a standard-width quote in the option series, the Exchange shall open the series on a quote. The proposed change will align the requirements to open the unopened series on a quote with the existing Market Marker quoting requirements during Core Trading Hours. While the Exchange believes that narrow-width quoting requirements are beneficial for opening auctions pursuant to the Auction Process in the OX System, the Exchange believes that the continued application of the narrowwidth quoting requirement when there are no executable quotes and/or orders to conduct an auction has the opposite effect and prevents series from opening promptly and thus unnecessarily delays the execution of orders on the Exchange. The Exchange believes that setting a wider quote differential requirement for opening on a quote would expedite the opening of all options series on the Exchange promptly after the opening of the underlying security. The Exchange believes that market participants will benefit by having the ability to execute orders on the Exchange without unnecessary delay. In addition, applying the standard-width quote bidask differential for opening a series on a quote is consistent with the quoting requirements that are applicable during Core Trading Hours. The Exchange further believes that applying the standard-width quote for determining when to open a series on a quote is appropriate because it would more closely align the Exchange’s rules with the rules of other option exchanges with respect to opening a series. Other options exchanges have the ability to open a series for trading when there are no executable orders and/or quotes to conduct an auction. Both BOX Options Exchange (‘‘BOX’’) and NASDAQ Options Market (‘‘NOM’’), allow for the opening of series without conducting an opening auction. Neither BOX nor NOM require any bid-ask differential to be met prior to opening series for trading on a quote. Specifically, on BOX, the BOX system attempts to conduct an opening match (similar to Auction Process) to determine a single price at which a particular option series will be opened.6 During, the ‘‘Pre-Opening Phase’’ on BOX, narrow bid-ask differentials are required in a similar manner to the Exchange. However, if the BOX system is not able to determine an opening price, the option series will 6 See BOX Rule 7070(e). VerDate Mar<15>2010 15:17 Nov 29, 2012 Jkt 229001 nevertheless move from the ‘‘PreOpening Phase’’ to the continuous trading phase and the option series will be open for trading. When the option series move from Pre-Opening Phase to the continuous trading phase, there is no requirement for a bid-ask differential to be met. Market makers on BOX would only be required to meet the $5 bid-ask differential in the option series if and when they ever decided to quote.7 Similarly, NOM has no bid-ask differential requirements to open a series if an ‘‘Opening Cross’’ (similar to Trading Auction) cannot be initiated because there are no opening quotes or orders that lock or cross each other.8 Specifically, if an Opening Cross cannot be initiated because there are no opening quotes or orders that lock or cross each other, the option series will open for trading on NOM.9 Market makers on NOM would only be required to meet the $5 bid-ask differentials in the option series if and when they ever decided to quote.10 Both, BOX and NOM could open options series and disseminate a protected quotation without the benefit of Market Maker quotation to facilitate price discovery. By contrast, currently, if the options series does not meet the narrow-width quotes, the series will not open at all on the Exchange, which differs from BOX and NOM. As noted above, neither BOX nor NOM require any bid-ask differential to be met prior to opening series for trading on a quote. The current inability of the Exchange to open a series without executable quotes and/or orders subject to a standardwidth quote requirement puts the Exchange at a competitive disadvantage to other options exchanges that do not have that similar restriction. By not opening the option series, the Exchange cannot display orders on its Consolidated Book and thus has no protected quotation in the options series. Until the options series officially opens for trading, the Exchange cannot route out orders on its Consolidated Book pursuant to Linkage, nor can it have a protected quote that draws trading interest from other options markets. The Exchange believes that the delay in execution of orders on the Exchange in this situation is unnecessary and harmful to market participants. The Exchange’s proposal would provide for the ability to open a option series on a quote in a similar 7 See BOX Rule 7070(f). See also BOX Rule 8040, which sets forth BOX market maker quoting obligations. 8 See NOM Chapter VI, Section 8(c)(1). 9 See id. 10 See NOM Chapter VII, Section 6(d). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 fashion as both BOX and NOM, but in a more prudent and conservative manner that the Exchange believes better protects investors and other market participants. The Exchange believes that having a bid-ask differential requirement to open a series is beneficial for opening series and helps ensure there is a sufficient quoted market in the options series, whether it is via NBBO from OPRA or Market Maker generated quote, prior to opening of the series on the Exchange to facilitate transactions in securities on the Exchange. To clarify that Rule 6.64 governs the opening process, which includes both trading auctions and opening on a quote, the Exchange also proposes to amend the title of the rule by deleting the phrase ‘‘Trading Auction’’ and replacing it with ‘‘Opening Process.’’ In addition, the Exchange proposes to clarify that the term ‘‘Auction Process’’ refers to the opening procedures set forth in Rule 6.64(b)(A)–(D), when the Exchange opens an options series for trading when there are orders and/or quotes that can be matched at a single price point. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’),11 in general, and furthers the objectives of Section 6(b)(5) of the Act,12 in particular, because it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The proposed rule change is designed to remove impediments to, and perfect the mechanism of, a free and open market and a national market system because it would permit the Exchange to open a series when there are not sufficient orders or quotes to conduct an auction after receiving notification from OPRA that an NBBO has been established for the series or on a Market Maker quote, provided that the bid-ask differential of the NBBO does not exceed the standard-quote width bid-ask differential. The wider quote differential requirement for openings when an Auction Process is not conducted will expedite the opening of all options series on the Exchange promptly after the opening of the underlying security, and thus remove impediments to and 11 15 12 15 E:\FR\FM\30NON1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 30NON1 Federal Register / Vol. 77, No. 231 / Friday, November 30, 2012 / Notices perfect the mechanism of a free and open market in a way that benefits market participants and enables them to execute their orders on the Exchange. The proposed rule change contributes to the protection of investors and the public interest by maintaining the narrow-width quote bid-ask differentials for the Auction Process, which provides price protection for customers and other market participants when they have executable orders and quotes prior to the opening of a series on the Exchange. The proposal would provide fair and orderly means to open a series when the Exchange does not have sufficient executable quotes and/or orders to conduct an Auction Process and would reasonably ensure that the Exchange does not open the series at a price that is beyond the price at which Market Makers are permitted to quote for the series during the Core Trading Session, which also contributes to the protection of investors and the public interest, generally. The proposed rule change is also designed to promote just and equitable principles of trade because it would permit the Exchange to open a series in a manner that is more consistent with the opening of individual series on other option exchanges.13 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. wreier-aviles on DSK5TPTVN1PROD with NOTICES 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 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 for 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 14 and Rule 19b-4(f)(6)(iii) 13 See 14 15 supra notes 6 and 8. U.S.C. 78s(b)(3)(A). VerDate Mar<15>2010 15:17 Nov 29, 2012 Jkt 229001 thereunder.15 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 email to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2012–126 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–2012–126. This file number should be included on the subject line if email 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 10:00 a.m. and 3:00 p.m. Copies of the 15 17 CFR 240.19b–4(f)(6). As required under Rule 19b-4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of 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. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 71471 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– NYSEArca–2012–126 and should be submitted on or before December 21, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–28987 Filed 11–29–12; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION Interagency Task Force on Veterans Small Business Development; Notice of Meeting U.S. Small Business Administration. ACTION: Notice of open Federal Interagency Task Force meeting. AGENCY: The SBA is issuing this notice to announce the location, date, time, and agenda for its public meeting of the Interagency Task Force on Veterans Small Business Development. The meeting will be open to the public. DATES: Friday, December 7, 2012, from 9:00 a.m. to 12:00 Noon in the Eisenhower Conference Room, Side A, located on the 2nd floor. ADDRESSES: U.S. Small Business Administration, 409 3rd Street SW., Washington, DC 20416. SUPPLEMENTARY INFORMATION: Pursuant to section 10(a)(2) of the Federal Advisory Committee Act (5 U.S.C., Appendix 2), SBA announces the meeting of the Interagency Task Force on Veterans Small Business Development. The Task Force is established pursuant to Executive Order 13540 and focused on coordinating the efforts of Federal agencies to improve capital, business development opportunities and preestablished Federal contracting goals for small business concerns owned and controlled by veterans (VOB’s) and service-disabled veterans (SDVOSB’S). Moreover, the Task Force shall coordinate administrative and regulatory activities and develop proposals relating to ‘‘six focus areas’’: SUMMARY: 16 17 E:\FR\FM\30NON1.SGM CFR 200.30–3(a)(12). 30NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 231 (Friday, November 30, 2012)]
[Notices]
[Pages 71469-71471]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28987]

[[Page 71469]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68290; File No. SR-NYSEArca-2012-126]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca
Options Rule 6.64 (OX Trading Auctions) With Respect to Opening Trading
in an Options Series

November 26, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on November 12, 2012, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend NYSE Arca Options Rule 6.64 (OX
Trading Auctions) with respect to opening trading in an options series.
The text of the proposed rule change is available on the Exchange's Web
site at www.nyse.com, at the principal office of the Exchange, 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 Exchange proposes to amend Rule 6.64 to provide for how the OX
System \3\ may open an options series for trading when there are no
executable orders and/or quotes and the bid-ask differential of the
NBBO disseminated by Options Price Reporting Authority (``OPRA'') or a
Market Maker quote does not exceed the bid-ask differential specified
under Rule 6.37A(b)(4). The Exchange's Rules are currently silent on
how the OX System opens an options series when it does not conduct an
auction. The proposed rule change will clarify that the Exchange opens
an option series when there are no executable orders and/or quotes to
match up in the OX System, which is currently based on the bid-ask
differentials that are within the acceptable range defined in Rule
6.37(b)(1)(A)-(E) (``open a series on a quote''), and will also amend
the current process to provide that the bid-ask differential to allow
for the OX System to open a series on a quote would be based on the
bid-ask differentials specified in Rule 6.37A(b)(4), which are wider
than the bid-ask differential that allows for the OX System to open via
an auction during the Auction Process.
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\3\ The term ``OX'' refers to the Exchange's electronic order
delivery, execution and reporting system through which orders and
quotes for listed options are consolidated for execution and/or
display. See NYSE Arca Options Rule 6.1A(a)(13).
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Current Opening Process
Currently, Rule 6.64 describes the process pursuant to which the
the [sic] OX System opens an option series. Pursuant to the procedures
described in Rule 6.64(b) and (c), after the primary market for the
underlying security disseminates the opening trade or opening quote,
the OX System conducts an ``Auction Process'' to open a series whereby
the OX System determines a single price at which a series may be opened
by looking either to: (i) The midpoint of the initial uncrossed NBBO
disseminated by the Options Price Reporting Authority (``OPRA''), or
(ii) the midpoint of the best quotes or orders in the OX Book. If the
bid-ask differential for a series is not within an acceptable range,
the OX system will not open the series for trading. For purposes of
this rule, the acceptable range means the bid-ask differential
guidelines specified in Rule 6.37(b)(1)(A)-(E) (``narrow-width
quotes'').\4\ Assuming the bid-ask differential is within the
acceptable range, the OX System matches up orders and quotes in the
system based on price-time priority and executes the orders that are
matched at the midpoint pricing. Any orders in the OX Book that are not
executed in the Auction Process become eligible for the Core Trading
Session immediately after the conclusion of the Auction Process.
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\4\ See NYSE Arca Options Rule 6.37(b)(1). The big-ask [sic]
guidelines specified in Rule 6.37(b)(1)(A)-(E) that are required to
open a series are narrower than the $5 wide bid-ask differential for
options traded on OX during Core Trading Hours. See also NYSE Arca
Options Rule 6.37A(b)(4). Rule 6.37A(b)(4) provides that options
traded on OX during Core Trading Hours may be quoted with a
difference not to exceed $5 between the bid and offer regardless of
the price of the bid.
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In addition, although not currently specified in the rule, if the
bid-ask differential is within the acceptable range, but there are no
orders or quotes to be matched up with one another, the OX System will
open the series for trading on a disseminated quote, at which point any
unexecuted orders in the OX Book during the Auction Process become
eligible for the Core Trading Session. If the bid-ask differential is
not within the acceptable range, the Exchange will not open that series
for trading until the OX System either receives a narrow-width NBBO
from OPRA or a Market Maker submits a narrow-width quote.
Proposed Change to Opening Process
The Exchange proposes to amend Rule 6.64 both to specify that the
OX System may open a series on a quote when there are no executable
orders and/or quotes and to amend the rule to provide a different bid-
ask differential for opening a series on a quote. As noted above, the
Exchange currently uses the narrow-width quote bid-ask differential for
determining both whether to open with an auction (when there are
executable orders and/or quotes) or with a quote (when there are no
executable orders and/or quotes). In codifying the process for opening
a series on a quote, the Exchange proposes to adopt the bid-ask
differential specified under Rule 6.37A(b)(4) instead of the narrow-
width quotes.\5\
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\5\ Currently, if there are executable orders and/or quotes and
the options series does not meet the narrow-width quote bid-ask
differential, but does meet the standard-width quote differential,
the Exchange will not open the options series for trading. See Rule
6.64(b)(D).
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Rule 6.37A(b)(4) provides that options traded on OX during Core
Trading Hours may be quoted with a difference not to exceed $5 between
the bid and offer regardless of the price of the bid (``standard-width
quote''). As proposed,

[[Page 71470]]

if there are no executable orders and/or quotes, but the OX System
either receives a standard-width quote NBBO from OPRA in that series or
a Market Maker submits a standard-width quote in the option series, the
Exchange shall open the series on a quote. The proposed change will
align the requirements to open the unopened series on a quote with the
existing Market Marker quoting requirements during Core Trading Hours.
While the Exchange believes that narrow-width quoting requirements
are beneficial for opening auctions pursuant to the Auction Process in
the OX System, the Exchange believes that the continued application of
the narrow-width quoting requirement when there are no executable
quotes and/or orders to conduct an auction has the opposite effect and
prevents series from opening promptly and thus unnecessarily delays the
execution of orders on the Exchange. The Exchange believes that setting
a wider quote differential requirement for opening on a quote would
expedite the opening of all options series on the Exchange promptly
after the opening of the underlying security. The Exchange believes
that market participants will benefit by having the ability to execute
orders on the Exchange without unnecessary delay. In addition, applying
the standard-width quote bid-ask differential for opening a series on a
quote is consistent with the quoting requirements that are applicable
during Core Trading Hours.
The Exchange further believes that applying the standard-width
quote for determining when to open a series on a quote is appropriate
because it would more closely align the Exchange's rules with the rules
of other option exchanges with respect to opening a series. Other
options exchanges have the ability to open a series for trading when
there are no executable orders and/or quotes to conduct an auction.
Both BOX Options Exchange (``BOX'') and NASDAQ Options Market
(``NOM''), allow for the opening of series without conducting an
opening auction. Neither BOX nor NOM require any bid-ask differential
to be met prior to opening series for trading on a quote. Specifically,
on BOX, the BOX system attempts to conduct an opening match (similar to
Auction Process) to determine a single price at which a particular
option series will be opened.\6\ During, the ``Pre-Opening Phase'' on
BOX, narrow bid-ask differentials are required in a similar manner to
the Exchange. However, if the BOX system is not able to determine an
opening price, the option series will nevertheless move from the ``Pre-
Opening Phase'' to the continuous trading phase and the option series
will be open for trading. When the option series move from Pre-Opening
Phase to the continuous trading phase, there is no requirement for a
bid-ask differential to be met. Market makers on BOX would only be
required to meet the $5 bid-ask differential in the option series if
and when they ever decided to quote.\7\ Similarly, NOM has no bid-ask
differential requirements to open a series if an ``Opening Cross''
(similar to Trading Auction) cannot be initiated because there are no
opening quotes or orders that lock or cross each other.\8\
Specifically, if an Opening Cross cannot be initiated because there are
no opening quotes or orders that lock or cross each other, the option
series will open for trading on NOM.\9\ Market makers on NOM would only
be required to meet the $5 bid-ask differentials in the option series
if and when they ever decided to quote.\10\ Both, BOX and NOM could
open options series and disseminate a protected quotation without the
benefit of Market Maker quotation to facilitate price discovery.
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\6\ See BOX Rule 7070(e).
\7\ See BOX Rule 7070(f). See also BOX Rule 8040, which sets
forth BOX market maker quoting obligations.
\8\ See NOM Chapter VI, Section 8(c)(1).
\9\ See id.
\10\ See NOM Chapter VII, Section 6(d).
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By contrast, currently, if the options series does not meet the
narrow-width quotes, the series will not open at all on the Exchange,
which differs from BOX and NOM. As noted above, neither BOX nor NOM
require any bid-ask differential to be met prior to opening series for
trading on a quote. The current inability of the Exchange to open a
series without executable quotes and/or orders subject to a standard-
width quote requirement puts the Exchange at a competitive disadvantage
to other options exchanges that do not have that similar restriction.
By not opening the option series, the Exchange cannot display orders on
its Consolidated Book and thus has no protected quotation in the
options series. Until the options series officially opens for trading,
the Exchange cannot route out orders on its Consolidated Book pursuant
to Linkage, nor can it have a protected quote that draws trading
interest from other options markets. The Exchange believes that the
delay in execution of orders on the Exchange in this situation is
unnecessary and harmful to market participants. The Exchange's proposal
would provide for the ability to open a option series on a quote in a
similar fashion as both BOX and NOM, but in a more prudent and
conservative manner that the Exchange believes better protects
investors and other market participants. The Exchange believes that
having a bid-ask differential requirement to open a series is
beneficial for opening series and helps ensure there is a sufficient
quoted market in the options series, whether it is via NBBO from OPRA
or Market Maker generated quote, prior to opening of the series on the
Exchange to facilitate transactions in securities on the Exchange.
To clarify that Rule 6.64 governs the opening process, which
includes both trading auctions and opening on a quote, the Exchange
also proposes to amend the title of the rule by deleting the phrase
``Trading Auction'' and replacing it with ``Opening Process.'' In
addition, the Exchange proposes to clarify that the term ``Auction
Process'' refers to the opening procedures set forth in Rule
6.64(b)(A)-(D), when the Exchange opens an options series for trading
when there are orders and/or quotes that can be matched at a single
price point.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (the
``Act''),\11\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\12\ in particular, because it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is designed to remove impediments to, and
perfect the mechanism of, a free and open market and a national market
system because it would permit the Exchange to open a series when there
are not sufficient orders or quotes to conduct an auction after
receiving notification from OPRA that an NBBO has been established for
the series or on a Market Maker quote, provided that the bid-ask
differential of the NBBO does not exceed the standard-quote width bid-
ask differential. The wider quote differential requirement for openings
when an Auction Process is not conducted will expedite the opening of
all options series on the Exchange promptly after the opening of the
underlying security, and thus remove impediments to and

[[Page 71471]]

perfect the mechanism of a free and open market in a way that benefits
market participants and enables them to execute their orders on the
Exchange.
The proposed rule change contributes to the protection of investors
and the public interest by maintaining the narrow-width quote bid-ask
differentials for the Auction Process, which provides price protection
for customers and other market participants when they have executable
orders and quotes prior to the opening of a series on the Exchange.
The proposal would provide fair and orderly means to open a series
when the Exchange does not have sufficient executable quotes and/or
orders to conduct an Auction Process and would reasonably ensure that
the Exchange does not open the series at a price that is beyond the
price at which Market Makers are permitted to quote for the series
during the Core Trading Session, which also contributes to the
protection of investors and the public interest, generally. The
proposed rule change is also designed to promote just and equitable
principles of trade because it would permit the Exchange to open a
series in a manner that is more consistent with the opening of
individual series on other option exchanges.\13\
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\13\ See supra notes 6 and 8.
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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.

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

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 for 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 \14\ and Rule 19b-
4(f)(6)(iii) thereunder.\15\ 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.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of 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.
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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 email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2012-126 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-2012-126. This
file number should be included on the subject line if email 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
10:00 a.m. and 3:00 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-NYSEArca-2012-126 and should
be submitted on or before December 21, 2012.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28987 Filed 11-29-12; 8:45 am]
BILLING CODE 8011-01-P

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