Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change to Amend its Rules by Revising the Order of Priority of Bids and Offers When Executing Orders in Open Outcry, 6258-6262 [2014-02141]
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Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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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–
BX–2014–004 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–BX–2014–004. 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–BX–
2014–004 and should be submitted on
or before February 24, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–02136 Filed 1–31–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71425; File No. SR–
NYSEArca–2014–04]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change to Amend its Rules by
Revising the Order of Priority of Bids
and Offers When Executing Orders in
Open Outcry
January 28, 2014.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on January
15, 2014, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend its
rules by revising the order of priority of
bids and offers when executing orders
in open outcry. 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.
19 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
Commission. The Exchange has satisfied this
requirement.
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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 its
rules governing the priority of bids and
offers on the Consolidated Book by
revising the order of priority of bids and
offers for orders in open outcry.
Specifically, the Exchange proposes to
afford priority to bids and offers
represented by Market Makers and Floor
Brokers (‘‘Crowd Participants’’) over
certain equal-priced bids and offers of
non–Customers 4 on the Consolidated
Book 5 during the execution of an order
in open outcry on the floor of the
Exchange.
Current Rule 6.75(a) provides that any
bids displayed on the Consolidated
Book have priority over same-priced
bids represented in open outcry. Such
priority is also described in Rule 6.47,
which governs crossing orders in open
outcry. Floor Broker crossing
transactions, as defined in Rule 6.47,
may not trade ahead of equal and betterpriced bids or offers on the
Consolidated Book.
Because of the priority afforded to the
Consolidated Book, Crowd Participants
who have negotiated a large transaction
ultimately may not participate in the
execution. Crowd Participants could
negotiate a transaction with an
understanding of the make-up of bids
and offers on the Consolidated Book at
the beginning of open outcry. However,
as the trade is executed, the
Consolidated Book could update with
newly-arriving electronically-entered
4 A non-Customer is a market participant who
does not meet the definition of Customer as defined
in paragraph (c)(6) of Rule 15c3–1 under the
Securities Exchange Act of 1934, as amended. See
Rule 6.1(b)(29).
5 The term ‘‘Consolidated Book’’ means the
Exchange’s electronic book of limit orders for the
accounts of Public Customers and broker-dealers,
and Quotes with Size. See Rule 6.1(b)(37).
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bids and offers that have priority. Given
the speed at which quotes can flicker in
the Consolidated Book, Crowd
Participants who have agreed to a
transaction in open outcry do not know
if they will actually participate on the
trade until after execution.
In order to provide greater
opportunity for bids and offers of Crowd
Participants to participate in an open
outcry transaction and therefore
promote larger-sized negotiated
transactions, the Exchange proposes to
restructure its priority rules. As
proposed, bids and offers of Crowd
Participants would have priority over
equal-priced bids and offers of nonCustomers on the Consolidated Book
that are ranked in time priority behind
any equal-priced Customer bids and
offers on the Consolidated Book. As
proposed, equal-priced Customer
interest would continue to be afforded
priority over Crowd Participants in the
execution of an open outcry transaction.
In addition, consistent with the existing
price/time priority presently applicable
to bids and offers on the Consolidated
Book, equal-priced non-Customer bids
and offers ranked in time priority ahead
of Customer interest will also be
afforded priority over Crowd
Participants in the execution of an open
outcry transaction. The Exchange
believes the proposed rule change
strikes the appropriate balance between
encouraging larger negotiated
transactions in open outcry while at the
same time protecting Customer interest
on the Consolidated Book, and any
interest that has time priority over such
protected Customer interest.
To effect this proposed revision to its
priority rules, the Exchange proposes to
amend its rules as follows:
Rule 6.75. Priority and Order
Allocation Procedures—Open Outcry.
Rule 6.75(a) presently states that the
highest bid shall have priority but
where two or more bids for the same
option contract represent the highest
price and one such bid is displayed on
the Consolidated Book, such bid shall
have priority over any bid at the post
(i.e., the trading crowd). The Exchange
proposes to amend Rule 6.75(a) by
limiting the priority of bids in the
Consolidated Book over bids in the
trading crowd to just those bids for
Customers along with non-Customers
that are ranked in time priority ahead of
such Customers.
The Exchange notes that the changes
made to subsection (a) dealing with the
priority of ‘‘bids’’ will also effect a
corresponding change to the meaning of
subsection (b) dealing with ‘‘offers’’,
although there will be no change to the
rule text in subsection (b).
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Rule 6.76. Order Ranking and
Display—OX. Rule 6.76 governs order
ranking, display and allocation of orders
on the OX system. The Exchange is
proposing new subparagraph (d)
outlining the priority of bids and offers
on the Consolidated Book against orders
executed via open outcry in the Trading
Crowd. The proposed text provides a
step-by step-description of the order of
priority afforded bids and offers of both
Customers and non-Customers on the
Consolidated Book. The priority
described in proposed subparagraph (d)
is consistent with the proposed changes
to Rule 6.75.
The Exchange also proposes to
include language in subparagraph (d)
specifying certain OTP Holder
obligations under Section 11(a) of the
Act. Specifically, pursuant to Section
11(a)(1)(G) of the Exchange Act and
Rule 11a1–1(T) thereunder (the ‘‘G
Rule’’), OTP Holders may effect
transactions on the Trading Floor for its
own account [sic], the account of an
associated person, or an account with
respect to which it or an associated
person has investment discretion
provided that such transaction yields
priority in execution to orders for the
account of persons who are not OTP
Holders or associated with OTP
Holders. The proposed rule text will
confirm that notwithstanding the
proposed change to the priority rules
governing open outcry trading, an OTP
Holder effecting a transaction on the
Trading Floor for its own account, the
account of an associated person, or an
account with respect to which it or an
associated person has investment
discretion pursuant to the ‘‘G Rule’’
must still yield priority to all equalpriced bids or offers on the
Consolidated Book.6 The proposed rule
text is based on the rules of the Chicago
Board Options Exchange, Inc. (‘‘CBOE’’)
and NYSE MKT LLC (‘‘NYSE MKT’’) on
behalf of NYSE Amex Options.7
The Exchange believes that including
a description of open outcry priority
procedures in Rule 6.76 will serve as a
useful cross reference to the priority
procedures of Rule 6.75. Including such
a cross reference is consistent with
6 The Exchange notes that at this time, none of the
OTP Holders that currently operate on the
Exchange’s Trading Floor as Floor Brokers enter
orders for their own account, the account of an
associated person, or an account with respect to
which it or an associated person has investment
discretion. The Exchange notes, however, that
FINRA, on behalf of NYSE Regulation, monitors
whether Floor Brokers comply with Section 11(a) of
the Act.
7 See CBOE Rule 6.45A(b)(i)(D) and NYSE MKT
Rule 910NY.
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6259
similar rule structure by the CBOE and
NYSE MKT.8
Rule 6.47. Crossing Orders—OX. Rule
6.47 outlines the procedures used when
a Floor Broker attempts to cross two
orders in open outcry. Under current
rules, Floor Brokers must trade against
all equal-priced Customer and nonCustomer bids and offers on the
Consolidated Book before effecting a
cross transaction in the Trading Crowd.
The Exchange proposes to make
applicable changes to Rule 6.47 to
conform the priority rules applicable to
open outcry cross transactions to the
proposed changes to Rule 6.75(b) [sic].
Accordingly, the Exchange proposes to
amend the procedures for each crossing
scenario described in Rule 6.47 by
stating that Floor Brokers, when
crossing two orders in open outcry,
must yield priority to equal and betterpriced Customer bids or offers on the
Consolidated Book along with any nonCustomer bids and offers ranked ahead
of such Customers bids and offers.
Pursuant to these proposed rule
changes, Floor Brokers would continue
to be required to trade against equal and
better-priced Customer bids and offers
on the Consolidated Book along with
bids and offers of non-Customers that
are ranked ahead of such Customers
before attempting a cross transaction.
Consistent with the proposed change to
Rule 6.75(a), Floor Brokers would not be
required to trade against equal-priced
non-Customer bids and offers that are
ranked behind such Customer and nonCustomer bids and offers. The Exchange
believes that affording priority to Crowd
Participants ahead of such nonCustomer interest on the Consolidated
Book will create an increased incentive
for block-sized transactions on the
Trading Floor.
Examples
The revised priority and order allocation
procedures would be applied as follows.
Ranking of bids on the Consolidated Book
(assume this for all examples)
Customer #1—$1.00 bid × 100
Non-Customer #1—$1.00 bid × 50
Customer #2—$1.00 bid × 100
Non-Customer #2—$1.00 bid × 200
Non-Customer #3—$1.00 bid × 100
Example 1
A Floor Broker enters the trading crowd
with an order to sell 1000 contracts and after
calling for a market, Crowd Participants
respond with a collective bid of $1.00 for
1000 contracts. Under current rules, the Floor
Broker would be required to execute against
all five bids on the Consolidated Book for a
total of 550 contracts, thereby limiting the
Crowd Participants to 450 contracts.
8 See CBOE Rule 6.45A(b) and NYSE MKT Rule
964NY(e).
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Pursuant to the proposed revised order of
priority, the Floor Broker would execute the
order as follows:
Customer #1—100 contracts
Non-Customer #1—50 contracts
Customer #2—100 contracts
Trading Crowd—750 contracts
As such, the Floor Broker would execute
750 contracts with Crowd Participants
instead of 450 contracts. Consistent with
proposed changes to Rule 6.75(a), the Floor
Broker yielded priority to all equal-priced
Customer interest (Customers #1 and #2),
along with bids of non-Customers ranked
ahead of such equal priced Customers (nonCustomer #1). After affording priority to such
bids on the Consolidated Book, the Floor
Broker executed the balance of the order
against bids from participants in the trading
crowd. Because there was sufficient size to
execute the entire balance of the order in the
Trading Crowd, there is no further allocation
to the non-Customers ranked behind
Customer interest on the Consolidated Book.
Example 2
A Floor Broker enters the trading crowd
with an order to sell 1300 contracts and a
contra order to buy 500 contracts. After
calling for a market, Crowd Participants
respond with a bid of $1.00 for 500 contracts.
The Floor Broker then announces his intent
to execute a Non-Facilitation Cross at $1.00
pursuant to Rule 6.47(a). Under current rules,
the Floor Broker would be required to
execute against all five bids on the
Consolidated Book for a total of 550
contracts, thereby limiting the Crowd
Participants and the Floor Broker cross order
to an aggregate of 750 contracts. Pursuant to
the proposed revised order of priority, the
Floor Broker would execute his sell order as
follows:
Customer #1—100 contracts
Non-Customer #1—50 contracts
Customer #2—100 contracts
Trading Crowd—500 contracts
Broker Cross—500 contracts
Non-customer—#2 50 contracts
Consistent with proposed changes to Rule
6.75(a), the Floor Broker yielded priority to
all equal-priced Customer interest
(Customers #1 and #2), along with bids of
non-Customers ranked ahead of those equalpriced Customers (non-Customer #1). After
affording priority to such bids on the
Consolidated Book, the Floor Broker traded
with members of the trading crowd and then
crossed his sell order against his contra-side
buy order. The Floor Broker then traded the
balance of his sell order against the nonCustomer bids that were ranked behind
Customer interest on the Consolidated Book.
The non-Customer bids were executed
pursuant to their ranking on the Consolidated
Book based on time priority.
Example 3
A Floor Broker enters the trading crowd
with an Agency Order to sell 1000 contracts
and a buy order for the proprietary account
of an OTP Firm to facilitate the entire size
of the Agency Order (’’Facilitation Order’’).
After calling for a market, Crowd Participants
respond with a bid of $1.00 for 1000
contracts. The Floor Broker then announces
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his intent to execute a Facilitation Cross at
$1.00 pursuant to Rule 6.47(b). Under current
rules, the Floor Broker would be required to
first execute against all five bids on the
Consolidated Book for a total of 550
contracts, leaving 450 contracts to be
allocated between the Facilitation Order and
the trading crowd. Of the 450 remaining
contracts, the Facilitation Order would be
allocated 180 contracts (40% of 450) with
270 going to the trading crowd. Pursuant to
the proposed revised order of priority, the
Floor Broker would execute his sell order as
follows:
Customer #1—100 contracts
Non-Customer #1—50 contracts
Customer #2—100 contracts
Firm Facilitation—300 contracts
Trading Crowd—450 contracts
Consistent with proposed changes to Rule
6.75(a), the Floor Broker yielded priority to
all equal-priced Customer bids (Customers #1
and #2), along with bids of non-Customers
ranked ahead of those equal-priced
Customers (non-Customer #1). After affording
priority to such bids on the Consolidated
Book, the Floor Broker was left with 750
contracts. The Facilitation order is entitled to
participate on 40% of the balance of the
Agency Order (300 contracts) and the balance
of 450 contracts would be allocated to
members of the trading crowd.
The Exchange believes that providing
greater opportunity for large-sized
orders to execute in open outcry while
also protecting Customer interest will
encourage participants to send more
liquidity to Floor Brokers, thereby
resulting in a larger pool of liquidity on
the Exchange that would not otherwise
be available electronically. The
Exchange further believes that the
proposed change in priority will
provide an incentive for Crowd
Participants, including Floor-based
Market Makers, to provide deeper
liquidity when participating in open
outcry transactions as there will be
greater certainty of an execution. The
Exchange notes that affording priority to
Crowd Participants over non-Customers
is not a new or novel idea. Other hybrid
markets such as the CBOE and NYSE
Amex Options afford Crowd
Participants priority over non-Customer
electronic bids and offers on their
respective market.9 The only
substantive difference between the
priority procedures being proposed in
this filing and those presently in place
at the CBOE and NYSE Amex Options
is that the Exchange proposes to afford
priority to bids and offers of nonCustomers on the Consolidated Book,
ranked ahead of any equal-priced
Customers on the Consolidated Book,
over members of the trading crowd. On
the CBOE and NYSE Amex Options,
crowd participants have priority over all
equal priced non-Customers in the
Consolidated Book.
Non-Substantive Rule Changes
The Exchange is also proposing to
make non-substantive changes to
existing rule text contained in Rules
6.47 and 6.75. Currently, the terms
‘‘Book’’ and ‘‘Consolidated Book’’ are
both used in Rule 6.47 when referring
to the Exchange’s electronic book of
limit orders for the accounts of Public
Customers and broker-dealers, and
Quotes with Size. The Exchange now
proposes to standardize the rule
language by replacing ‘‘Book’’ with the
defined term ‘‘Consolidated Book’’.10 In
addition, Rules 6.47 and 6.75 currently
use the terms ‘‘in’’ and ‘‘on’’ when
referring to orders, quotes or bids and
offers contained on/in the Consolidated
Book. The Exchange now proposes to
standardize the rule language by
replacing ‘‘in’’ with ‘‘on’’ whenever
referring to orders, quotes and bids and
offers on the Consolidated Book.
Implementation
The Exchange will announce the
implementation date of the proposed
rule change by Trader Update to be
published no later than 90 days
following approval. The implementation
date will be no later than 90 days
following the issuance of the Trader
Update.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) 11 of the
Securities Exchange Act of 1934 (the
‘‘Act’’), in general, and furthers the
objectives of Section 6(b)(5),12 in
particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system. The
Exchange believes that the proposed
rule change will remove impediments to
and perfect the mechanism of a free and
open market by restructuring relative
priorities between bids and offers made
on the floor compared to non-Customers
in the Consolidated Book in order to
provide an incentive both for Floor
Brokers to represent orders in open
outcry and for Floor-based Market
Makers to participate in open outcry
transactions. The Exchange believes that
10 See
NYSE Arca Rule 6.1(b)(37).
U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(5).
11 15
9 Supra
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the negotiated nature of open outcry
transactions lends itself to larger-sized
transactions than the liquidity that is
generally available electronically and
the proposed rule change would
encourage greater participation in such
open outcry trading by reducing the
potential that a negotiated transaction
would be broken up. The Exchange
therefore believes that affording priority
to Crowd Participants ahead of certain
non-Customer interest on the
Consolidated Book creates an
opportunity for increased participation
on open outcry transactions, which
should result in larger-sized negotiated
transactions, while at the same time
protecting Customer interest. The
Exchange believes that this in turn will
lead to greater competition for orders
creating a more robust open outcry
market, which should benefit investors
who choose to send orders to the
Exchange. The Exchange further
believes that protecting non-Customer
interest on the Consolidated Book that
is ranked ahead of Customer interest is
consistent with just and equitable
principles of trade because it maintains
the Exchange’s existing price/time
priority rules by protecting interest that
has time priority over Customer interest
that has priority.
In addition, the proposed rule change
is consistent with Section 11A(a)(1)(C)
of the Act,13 in which Congress found
that it is in the public interest and
appropriate for the protection of
investors and the maintenance of fair
and orderly markets to assure, among
other things, the economically efficient
execution of securities transactions. The
Exchange notes that the proposed rule
change is also consistent with Section
11(a) of the Act and the rules
thereunder. The Exchange believes that
affording priority to OTP Holders
present in the trading crowd over
certain electronic non-Customer orders
raises no novel issues under Section
11(a) and the rules thereunder from a
compliance, surveillance or
enforcement perspective. In other
words, OTP Holders on the Floor are
currently required to comply and are
subject to review for compliance with
Section 11(a), and the rules thereunder,
when executing transactions in open
outcry and notwithstanding the
proposed rule change, they will still be
required to comply with Section 11(a)
and the rules thereunder. For example,
in cases where an OTP Holder acting as
a Floor Broker is trading for his own
account and attempts to execute a
transaction at the same price as one or
more orders on the Consolidated Book,
13 15
U.S.C. 78k–1(a)(1)(C).
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the Floor Broker, if he can rely on no
exception other than the ‘‘G’’ exception
(Section 11(a)(1)(G); Rule 11a1–1(T)),
must, in addition to complying with the
other requirements of the ‘‘G’’
exemption, yield to all orders in the
Consolidated Book at the same price if
the Floor Broker has no ability to
determine that an order in the
Consolidated Book is not the order of a
non-OTP Holder.14
The restrictions set forth in NYSE
Arca Rule 6.76(d)(4) would not limit in
any way the obligation of OTP Holders,
while acting as a Floor Broker or
otherwise, to comply with Section 11(a)
or the rules thereunder. For example,
Floor Brokers cannot avoid or
circumvent their obligations under
Section 11(a) when executing a
transaction on the floor simply by
transferring that order to another OTP
Holder on the floor or to an OTP Holder
off the floor of the Exchange. OTP
Holders must ensure compliance with
Section 11(a) and the rules thereunder,
including by relying upon an exemption
such as those listed above.
`
competitive disadvantage vis-a-vis other
Exchanges that operate a trading floor.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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. The
Commission solicits comment on the
impact of NYSE Arca’s proposal to
revise its priority scheme with respect
to non-Customer orders on the
Exchange’s Consolidated Book during
the execution of an order in open outcry
on the Exchange’s floor. Commenters
are invited to address the impact, if any,
of the proposed rule change on
competition on the Exchange’s floor and
on its Consolidated Book, including the
impact, if any, on market participants’
incentives to post interest on the
Consolidated Book, and the reasons for
any such view. In the Notice, the
Exchange argues that the proposal
would create an opportunity for
increased crowd participation in open
outcry transactions and would lead to
greater competition for orders brought to
the Exchange’s floor. Commenters are
invited to address these arguments.
Further, in the Notice, the Exchange
states that the proposal will more
closely align the Exchange’s rules with
those of other exchanges operating a
hybrid market. Commenters also are
invited to provide their views on the
differences and/or similarities between
NYSE Arca’s proposal and the pertinent
CBOE and NYSE MKT priority rules and
how, if at all, the overall priority
structure of the three exchanges (public
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. The
Exchange believes that competition for
participation in open outcry
transactions will be enhanced by
allowing the Crowd Participants to
compete at price points that were
previously unavailable because of nonCustomer orders on the Consolidated
Book, thereby promoting competition by
encouraging participation in large-sized
negotiated transactions. In addition,
because this proposal seeks to adopt
rules that are more closely aligned with
those of other Exchanges [sic] operating
a hybrid market, the Exchange does not
believe that the proposed rule changes
will create an undue burden on other
markets. Rather, the Exchange believes
that not approving this proposed rule
change would place the Exchange at a
14 The Exchange notes that only orders that are
represented by a Floor Broker are eligible for
crossing via the Solicited Order procedures. If the
Floor Broker represents an order for its own
account, the account of an associated person, or an
account with respect to which it or an associated
person has investment discretion, the member order
must satisfy the requirements of Section 11(a) of the
Act and the rules thereunder. The Exchange has
previously represented that OTP Holders (members)
may not rely on the exception found in Section
11(a)(1)(G) of the Act when utilizing the Solicited
Order procedures. See Securities Exchange Act
Release No. 54238 (July 28, 2006) 71 FR 44758,
44763 at n.43 (August 7, 2006).
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
E:\FR\FM\03FEN1.SGM
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Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices
customer/pro rata in comparison to
price/time) impacts their view.
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-2014–04 on the subject line.
mstockstill on DSK4VPTVN1PROD with NOTICES
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-2014–04. 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 20549–1090, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca-2014–04, and should be
submitted on or before February 24,
2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–02141 Filed 1–31–14; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71418; File No. SR–
NASDAQ–2014–008]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Inbound
Routing of Options Orders
January 28, 2014.
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 January
15, 2014, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III, below, which Items
have been prepared by the Exchange.
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 permit the
NASDAQ Options Market (‘‘NOM’’) to
receive inbound orders in options
routed through Nasdaq Execution
Services, LLC (‘‘NES’’) from affiliated
exchanges, as described in detail below.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the filing is to permit
the receipt of inbound orders routed
from affiliated exchanges in options
through NES. The Exchange filed a
proposed rule change to use NES rather
than Nasdaq Options Services LLC
BILLING CODE 8011–01–P
1 15
15 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
20:46 Jan 31, 2014
2 17
Jkt 232001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00119
Fmt 4703
Sfmt 4703
(‘‘NOS’’) for the outbound routing of
options orders and the Exchange also
updated its equities and options rules to
reflect the use of a third party
unaffiliated routing broker.3
Now, the Exchange proposes to
continue to receive orders from its
affiliated exchanges. Specifically, the
Exchange proposes to receive options
orders, through NES directly from the
options market of NASDAQ OMX PHLX
LLC (‘‘PHLX’’) 4 as well as from
NASDAQ OMX BX, Inc. (‘‘BX’’),5 under
the same terms and conditions as NOS
currently does. BX and PHLX have filed
to use NES for outbound routing,6 as
well as to receive options orders routed
from PHLX through NES.7
NOS and NES are broker-dealers and
members of NASDAQ, PHLX and BX.
Currently, NOS provides all options
routing functions for BX Options, PHLX,
and NOM. BX, NASDAQ, NOM, PHLX,
NES and NOS are affiliates.8
Accordingly, the affiliate relationship
between NASDAQ and NOS, its
member, raises the issue of an
exchange’s affiliation with a member of
such exchange. Specifically, in
connection with prior filings, the
Commission has expressed concern that
the affiliation of an exchange with one
of its members raises the potential for
unfair competitive advantage and
potential conflicts of interest between
an exchange’s self-regulatory obligations
and its commercial interests.9 Similarly,
under this proposal, the affiliate
relationship between NASDAQ and NES
raises this issue.
Recognizing that the Commission has
previously expressed concern regarding
the potential for conflicts of interest in
instances where a member firm is
affiliated with an exchange of which it
is a member, the Exchange previously
proposed, and the Commission
approved, limitations and conditions on
3 See
SR–NASDAQ–2014–007.
Exchange Act Release No. 58135 (July
10, 2008), 73 FR 40898 (July 16, 2008) (SR–
NASDAQ–2008–061).
5 Securities Exchange Act Release No. 67256
(June 26, 2012), 77 FR 39277 (July 2, 2012) (SR–BX–
2012–030).
6 See SR–BX–2014–003 and SR–Phlx–2014–004.
7 See SR–BX–2014–004 and SR–Phlx–2014–005.
8 See Securities Exchange Act Release Nos. 58324
(August 7, 2008), 73 FR 46936 (August 12, 2008)
(SR–BSE–2008–02; SR–BSE–2008–23; SR–BSE–
2008–25; SR–BSECC–2008–01) (order approving
NASDAQ OMX’s acquisition of BX); and 58179
(July 17, 2008), 73 FR 42874 (July 23, 2008) (order
approving NASDAQ OMX’s acquisition of PHLX).
9 See Securities Exchange Act Release Nos. 59153
(December 23, 2008), 73 FR 80485 (December 31,
2008) (SR–NASDAQ–2008–098); and 62736 (August
17, 2010), 75 FR 51861 (August 23, 2010) (SR–
NASDAQ–2010–100). See also Securities Exchange
Act Release No. 58135 (July 10, 2008), 73 FR 40898
(July 16, 2008)(SR–NASDAQ–2008–061)(Permitting
NOS to be affiliated with PHLX).
4 Securities
E:\FR\FM\03FEN1.SGM
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Agencies
[Federal Register Volume 79, Number 22 (Monday, February 3, 2014)]
[Notices]
[Pages 6258-6262]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02141]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71425; File No. SR-NYSEArca-2014-04]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change to Amend its Rules by Revising the Order of
Priority of Bids and Offers When Executing Orders in Open Outcry
January 28, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 15, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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 by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend its rules by revising the order of
priority of bids and offers when executing orders in open outcry. 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 its rules governing the priority of
bids and offers on the Consolidated Book by revising the order of
priority of bids and offers for orders in open outcry. Specifically,
the Exchange proposes to afford priority to bids and offers represented
by Market Makers and Floor Brokers (``Crowd Participants'') over
certain equal-priced bids and offers of non-Customers \4\ on the
Consolidated Book \5\ during the execution of an order in open outcry
on the floor of the Exchange.
---------------------------------------------------------------------------
\4\ A non-Customer is a market participant who does not meet the
definition of Customer as defined in paragraph (c)(6) of Rule 15c3-1
under the Securities Exchange Act of 1934, as amended. See Rule
6.1(b)(29).
\5\ The term ``Consolidated Book'' means the Exchange's
electronic book of limit orders for the accounts of Public Customers
and broker-dealers, and Quotes with Size. See Rule 6.1(b)(37).
---------------------------------------------------------------------------
Current Rule 6.75(a) provides that any bids displayed on the
Consolidated Book have priority over same-priced bids represented in
open outcry. Such priority is also described in Rule 6.47, which
governs crossing orders in open outcry. Floor Broker crossing
transactions, as defined in Rule 6.47, may not trade ahead of equal and
better-priced bids or offers on the Consolidated Book.
Because of the priority afforded to the Consolidated Book, Crowd
Participants who have negotiated a large transaction ultimately may not
participate in the execution. Crowd Participants could negotiate a
transaction with an understanding of the make-up of bids and offers on
the Consolidated Book at the beginning of open outcry. However, as the
trade is executed, the Consolidated Book could update with newly-
arriving electronically-entered
[[Page 6259]]
bids and offers that have priority. Given the speed at which quotes can
flicker in the Consolidated Book, Crowd Participants who have agreed to
a transaction in open outcry do not know if they will actually
participate on the trade until after execution.
In order to provide greater opportunity for bids and offers of
Crowd Participants to participate in an open outcry transaction and
therefore promote larger-sized negotiated transactions, the Exchange
proposes to restructure its priority rules. As proposed, bids and
offers of Crowd Participants would have priority over equal-priced bids
and offers of non-Customers on the Consolidated Book that are ranked in
time priority behind any equal-priced Customer bids and offers on the
Consolidated Book. As proposed, equal-priced Customer interest would
continue to be afforded priority over Crowd Participants in the
execution of an open outcry transaction. In addition, consistent with
the existing price/time priority presently applicable to bids and
offers on the Consolidated Book, equal-priced non-Customer bids and
offers ranked in time priority ahead of Customer interest will also be
afforded priority over Crowd Participants in the execution of an open
outcry transaction. The Exchange believes the proposed rule change
strikes the appropriate balance between encouraging larger negotiated
transactions in open outcry while at the same time protecting Customer
interest on the Consolidated Book, and any interest that has time
priority over such protected Customer interest.
To effect this proposed revision to its priority rules, the
Exchange proposes to amend its rules as follows:
Rule 6.75. Priority and Order Allocation Procedures--Open Outcry.
Rule 6.75(a) presently states that the highest bid shall have priority
but where two or more bids for the same option contract represent the
highest price and one such bid is displayed on the Consolidated Book,
such bid shall have priority over any bid at the post (i.e., the
trading crowd). The Exchange proposes to amend Rule 6.75(a) by limiting
the priority of bids in the Consolidated Book over bids in the trading
crowd to just those bids for Customers along with non-Customers that
are ranked in time priority ahead of such Customers.
The Exchange notes that the changes made to subsection (a) dealing
with the priority of ``bids'' will also effect a corresponding change
to the meaning of subsection (b) dealing with ``offers'', although
there will be no change to the rule text in subsection (b).
Rule 6.76. Order Ranking and Display--OX. Rule 6.76 governs order
ranking, display and allocation of orders on the OX system. The
Exchange is proposing new subparagraph (d) outlining the priority of
bids and offers on the Consolidated Book against orders executed via
open outcry in the Trading Crowd. The proposed text provides a step-by
step-description of the order of priority afforded bids and offers of
both Customers and non-Customers on the Consolidated Book. The priority
described in proposed subparagraph (d) is consistent with the proposed
changes to Rule 6.75.
The Exchange also proposes to include language in subparagraph (d)
specifying certain OTP Holder obligations under Section 11(a) of the
Act. Specifically, pursuant to Section 11(a)(1)(G) of the Exchange Act
and Rule 11a1-1(T) thereunder (the ``G Rule''), OTP Holders may effect
transactions on the Trading Floor for its own account [sic], the
account of an associated person, or an account with respect to which it
or an associated person has investment discretion provided that such
transaction yields priority in execution to orders for the account of
persons who are not OTP Holders or associated with OTP Holders. The
proposed rule text will confirm that notwithstanding the proposed
change to the priority rules governing open outcry trading, an OTP
Holder effecting a transaction on the Trading Floor for its own
account, the account of an associated person, or an account with
respect to which it or an associated person has investment discretion
pursuant to the ``G Rule'' must still yield priority to all equal-
priced bids or offers on the Consolidated Book.\6\ The proposed rule
text is based on the rules of the Chicago Board Options Exchange, Inc.
(``CBOE'') and NYSE MKT LLC (``NYSE MKT'') on behalf of NYSE Amex
Options.\7\
---------------------------------------------------------------------------
\6\ The Exchange notes that at this time, none of the OTP
Holders that currently operate on the Exchange's Trading Floor as
Floor Brokers enter orders for their own account, the account of an
associated person, or an account with respect to which it or an
associated person has investment discretion. The Exchange notes,
however, that FINRA, on behalf of NYSE Regulation, monitors whether
Floor Brokers comply with Section 11(a) of the Act.
\7\ See CBOE Rule 6.45A(b)(i)(D) and NYSE MKT Rule 910NY.
---------------------------------------------------------------------------
The Exchange believes that including a description of open outcry
priority procedures in Rule 6.76 will serve as a useful cross reference
to the priority procedures of Rule 6.75. Including such a cross
reference is consistent with similar rule structure by the CBOE and
NYSE MKT.\8\
---------------------------------------------------------------------------
\8\ See CBOE Rule 6.45A(b) and NYSE MKT Rule 964NY(e).
---------------------------------------------------------------------------
Rule 6.47. Crossing Orders--OX. Rule 6.47 outlines the procedures
used when a Floor Broker attempts to cross two orders in open outcry.
Under current rules, Floor Brokers must trade against all equal-priced
Customer and non-Customer bids and offers on the Consolidated Book
before effecting a cross transaction in the Trading Crowd. The Exchange
proposes to make applicable changes to Rule 6.47 to conform the
priority rules applicable to open outcry cross transactions to the
proposed changes to Rule 6.75(b) [sic]. Accordingly, the Exchange
proposes to amend the procedures for each crossing scenario described
in Rule 6.47 by stating that Floor Brokers, when crossing two orders in
open outcry, must yield priority to equal and better-priced Customer
bids or offers on the Consolidated Book along with any non-Customer
bids and offers ranked ahead of such Customers bids and offers.
Pursuant to these proposed rule changes, Floor Brokers would
continue to be required to trade against equal and better-priced
Customer bids and offers on the Consolidated Book along with bids and
offers of non-Customers that are ranked ahead of such Customers before
attempting a cross transaction. Consistent with the proposed change to
Rule 6.75(a), Floor Brokers would not be required to trade against
equal-priced non-Customer bids and offers that are ranked behind such
Customer and non-Customer bids and offers. The Exchange believes that
affording priority to Crowd Participants ahead of such non-Customer
interest on the Consolidated Book will create an increased incentive
for block-sized transactions on the Trading Floor.
Examples
The revised priority and order allocation procedures would be
applied as follows.
Ranking of bids on the Consolidated Book (assume this for all
examples)
Customer 1--$1.00 bid x 100
Non-Customer 1--$1.00 bid x 50
Customer 2--$1.00 bid x 100
Non-Customer 2--$1.00 bid x 200
Non-Customer 3--$1.00 bid x 100
Example 1
A Floor Broker enters the trading crowd with an order to sell
1000 contracts and after calling for a market, Crowd Participants
respond with a collective bid of $1.00 for 1000 contracts. Under
current rules, the Floor Broker would be required to execute against
all five bids on the Consolidated Book for a total of 550 contracts,
thereby limiting the Crowd Participants to 450 contracts.
[[Page 6260]]
Pursuant to the proposed revised order of priority, the Floor Broker
would execute the order as follows:
Customer 1--100 contracts
Non-Customer 1--50 contracts
Customer 2--100 contracts
Trading Crowd--750 contracts
As such, the Floor Broker would execute 750 contracts with Crowd
Participants instead of 450 contracts. Consistent with proposed
changes to Rule 6.75(a), the Floor Broker yielded priority to all
equal-priced Customer interest (Customers 1 and
2), along with bids of non-Customers ranked ahead of such
equal priced Customers (non-Customer 1). After affording
priority to such bids on the Consolidated Book, the Floor Broker
executed the balance of the order against bids from participants in
the trading crowd. Because there was sufficient size to execute the
entire balance of the order in the Trading Crowd, there is no
further allocation to the non-Customers ranked behind Customer
interest on the Consolidated Book.
Example 2
A Floor Broker enters the trading crowd with an order to sell
1300 contracts and a contra order to buy 500 contracts. After
calling for a market, Crowd Participants respond with a bid of $1.00
for 500 contracts. The Floor Broker then announces his intent to
execute a Non-Facilitation Cross at $1.00 pursuant to Rule 6.47(a).
Under current rules, the Floor Broker would be required to execute
against all five bids on the Consolidated Book for a total of 550
contracts, thereby limiting the Crowd Participants and the Floor
Broker cross order to an aggregate of 750 contracts. Pursuant to the
proposed revised order of priority, the Floor Broker would execute
his sell order as follows:
Customer 1--100 contracts
Non-Customer 1--50 contracts
Customer 2--100 contracts
Trading Crowd--500 contracts
Broker Cross--500 contracts
Non-customer--2 50 contracts
Consistent with proposed changes to Rule 6.75(a), the Floor
Broker yielded priority to all equal-priced Customer interest
(Customers 1 and 2), along with bids of non-
Customers ranked ahead of those equal-priced Customers (non-Customer
1). After affording priority to such bids on the
Consolidated Book, the Floor Broker traded with members of the
trading crowd and then crossed his sell order against his contra-
side buy order. The Floor Broker then traded the balance of his sell
order against the non-Customer bids that were ranked behind Customer
interest on the Consolidated Book. The non-Customer bids were
executed pursuant to their ranking on the Consolidated Book based on
time priority.
Example 3
A Floor Broker enters the trading crowd with an Agency Order to
sell 1000 contracts and a buy order for the proprietary account of
an OTP Firm to facilitate the entire size of the Agency Order
(''Facilitation Order''). After calling for a market, Crowd
Participants respond with a bid of $1.00 for 1000 contracts. The
Floor Broker then announces his intent to execute a Facilitation
Cross at $1.00 pursuant to Rule 6.47(b). Under current rules, the
Floor Broker would be required to first execute against all five
bids on the Consolidated Book for a total of 550 contracts, leaving
450 contracts to be allocated between the Facilitation Order and the
trading crowd. Of the 450 remaining contracts, the Facilitation
Order would be allocated 180 contracts (40% of 450) with 270 going
to the trading crowd. Pursuant to the proposed revised order of
priority, the Floor Broker would execute his sell order as follows:
Customer 1--100 contracts
Non-Customer 1--50 contracts
Customer 2--100 contracts
Firm Facilitation--300 contracts
Trading Crowd--450 contracts
Consistent with proposed changes to Rule 6.75(a), the Floor
Broker yielded priority to all equal-priced Customer bids (Customers
1 and 2), along with bids of non-Customers ranked
ahead of those equal-priced Customers (non-Customer 1).
After affording priority to such bids on the Consolidated Book, the
Floor Broker was left with 750 contracts. The Facilitation order is
entitled to participate on 40% of the balance of the Agency Order
(300 contracts) and the balance of 450 contracts would be allocated
to members of the trading crowd.
The Exchange believes that providing greater opportunity for large-
sized orders to execute in open outcry while also protecting Customer
interest will encourage participants to send more liquidity to Floor
Brokers, thereby resulting in a larger pool of liquidity on the
Exchange that would not otherwise be available electronically. The
Exchange further believes that the proposed change in priority will
provide an incentive for Crowd Participants, including Floor-based
Market Makers, to provide deeper liquidity when participating in open
outcry transactions as there will be greater certainty of an execution.
The Exchange notes that affording priority to Crowd Participants over
non-Customers is not a new or novel idea. Other hybrid markets such as
the CBOE and NYSE Amex Options afford Crowd Participants priority over
non-Customer electronic bids and offers on their respective market.\9\
The only substantive difference between the priority procedures being
proposed in this filing and those presently in place at the CBOE and
NYSE Amex Options is that the Exchange proposes to afford priority to
bids and offers of non-Customers on the Consolidated Book, ranked ahead
of any equal-priced Customers on the Consolidated Book, over members of
the trading crowd. On the CBOE and NYSE Amex Options, crowd
participants have priority over all equal priced non-Customers in the
Consolidated Book.
---------------------------------------------------------------------------
\9\ Supra Note No. 7.
---------------------------------------------------------------------------
Non-Substantive Rule Changes
The Exchange is also proposing to make non-substantive changes to
existing rule text contained in Rules 6.47 and 6.75. Currently, the
terms ``Book'' and ``Consolidated Book'' are both used in Rule 6.47
when referring to the Exchange's electronic book of limit orders for
the accounts of Public Customers and broker-dealers, and Quotes with
Size. The Exchange now proposes to standardize the rule language by
replacing ``Book'' with the defined term ``Consolidated Book''.\10\ In
addition, Rules 6.47 and 6.75 currently use the terms ``in'' and ``on''
when referring to orders, quotes or bids and offers contained on/in the
Consolidated Book. The Exchange now proposes to standardize the rule
language by replacing ``in'' with ``on'' whenever referring to orders,
quotes and bids and offers on the Consolidated Book.
---------------------------------------------------------------------------
\10\ See NYSE Arca Rule 6.1(b)(37).
---------------------------------------------------------------------------
Implementation
The Exchange will announce the implementation date of the proposed
rule change by Trader Update to be published no later than 90 days
following approval. The implementation date will be no later than 90
days following the issuance of the Trader Update.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \11\ of
the Securities Exchange Act of 1934 (the ``Act''), in general, and
furthers the objectives of Section 6(b)(5),\12\ in particular, in that
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanisms of a free and open market and a national market system.
The Exchange believes that the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market by
restructuring relative priorities between bids and offers made on the
floor compared to non-Customers in the Consolidated Book in order to
provide an incentive both for Floor Brokers to represent orders in open
outcry and for Floor-based Market Makers to participate in open outcry
transactions. The Exchange believes that
[[Page 6261]]
the negotiated nature of open outcry transactions lends itself to
larger-sized transactions than the liquidity that is generally
available electronically and the proposed rule change would encourage
greater participation in such open outcry trading by reducing the
potential that a negotiated transaction would be broken up. The
Exchange therefore believes that affording priority to Crowd
Participants ahead of certain non-Customer interest on the Consolidated
Book creates an opportunity for increased participation on open outcry
transactions, which should result in larger-sized negotiated
transactions, while at the same time protecting Customer interest. The
Exchange believes that this in turn will lead to greater competition
for orders creating a more robust open outcry market, which should
benefit investors who choose to send orders to the Exchange. The
Exchange further believes that protecting non-Customer interest on the
Consolidated Book that is ranked ahead of Customer interest is
consistent with just and equitable principles of trade because it
maintains the Exchange's existing price/time priority rules by
protecting interest that has time priority over Customer interest that
has priority.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In addition, the proposed rule change is consistent with Section
11A(a)(1)(C) of the Act,\13\ in which Congress found that it is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure, among other things,
the economically efficient execution of securities transactions. The
Exchange notes that the proposed rule change is also consistent with
Section 11(a) of the Act and the rules thereunder. The Exchange
believes that affording priority to OTP Holders present in the trading
crowd over certain electronic non-Customer orders raises no novel
issues under Section 11(a) and the rules thereunder from a compliance,
surveillance or enforcement perspective. In other words, OTP Holders on
the Floor are currently required to comply and are subject to review
for compliance with Section 11(a), and the rules thereunder, when
executing transactions in open outcry and notwithstanding the proposed
rule change, they will still be required to comply with Section 11(a)
and the rules thereunder. For example, in cases where an OTP Holder
acting as a Floor Broker is trading for his own account and attempts to
execute a transaction at the same price as one or more orders on the
Consolidated Book, the Floor Broker, if he can rely on no exception
other than the ``G'' exception (Section 11(a)(1)(G); Rule 11a1-1(T)),
must, in addition to complying with the other requirements of the ``G''
exemption, yield to all orders in the Consolidated Book at the same
price if the Floor Broker has no ability to determine that an order in
the Consolidated Book is not the order of a non-OTP Holder.\14\
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\13\ 15 U.S.C. 78k-1(a)(1)(C).
\14\ The Exchange notes that only orders that are represented by
a Floor Broker are eligible for crossing via the Solicited Order
procedures. If the Floor Broker represents an order for its own
account, the account of an associated person, or an account with
respect to which it or an associated person has investment
discretion, the member order must satisfy the requirements of
Section 11(a) of the Act and the rules thereunder. The Exchange has
previously represented that OTP Holders (members) may not rely on
the exception found in Section 11(a)(1)(G) of the Act when utilizing
the Solicited Order procedures. See Securities Exchange Act Release
No. 54238 (July 28, 2006) 71 FR 44758, 44763 at n.43 (August 7,
2006).
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The restrictions set forth in NYSE Arca Rule 6.76(d)(4) would not
limit in any way the obligation of OTP Holders, while acting as a Floor
Broker or otherwise, to comply with Section 11(a) or the rules
thereunder. For example, Floor Brokers cannot avoid or circumvent their
obligations under Section 11(a) when executing a transaction on the
floor simply by transferring that order to another OTP Holder on the
floor or to an OTP Holder off the floor of the Exchange. OTP Holders
must ensure compliance with Section 11(a) and the rules thereunder,
including by relying upon an exemption such as those listed above.
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. The Exchange believes that
competition for participation in open outcry transactions will be
enhanced by allowing the Crowd Participants to compete at price points
that were previously unavailable because of non-Customer orders on the
Consolidated Book, thereby promoting competition by encouraging
participation in large-sized negotiated transactions. In addition,
because this proposal seeks to adopt rules that are more closely
aligned with those of other Exchanges [sic] operating a hybrid market,
the Exchange does not believe that the proposed rule changes will
create an undue burden on other markets. Rather, the Exchange believes
that not approving this proposed rule change would place the Exchange
at a competitive disadvantage vis-[agrave]-vis other Exchanges that
operate a trading floor.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. The Commission solicits comment on
the impact of NYSE Arca's proposal to revise its priority scheme with
respect to non-Customer orders on the Exchange's Consolidated Book
during the execution of an order in open outcry on the Exchange's
floor. Commenters are invited to address the impact, if any, of the
proposed rule change on competition on the Exchange's floor and on its
Consolidated Book, including the impact, if any, on market
participants' incentives to post interest on the Consolidated Book, and
the reasons for any such view. In the Notice, the Exchange argues that
the proposal would create an opportunity for increased crowd
participation in open outcry transactions and would lead to greater
competition for orders brought to the Exchange's floor. Commenters are
invited to address these arguments. Further, in the Notice, the
Exchange states that the proposal will more closely align the
Exchange's rules with those of other exchanges operating a hybrid
market. Commenters also are invited to provide their views on the
differences and/or similarities between NYSE Arca's proposal and the
pertinent CBOE and NYSE MKT priority rules and how, if at all, the
overall priority structure of the three exchanges (public
[[Page 6262]]
customer/pro rata in comparison to price/time) impacts their view.
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-2014-04 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-2014-04. 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 20549-1090, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSEArca-2014-04, and should be submitted on or before February 24,
2014.
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\15\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02141 Filed 1-31-14; 8:45 am]
BILLING CODE 8011-01-P