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]

Download as PDF 6258 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: mstockstill on DSK4VPTVN1PROD with NOTICES 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. VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 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). E:\FR\FM\03FEN1.SGM 03FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices 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). VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 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. PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 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). E:\FR\FM\03FEN1.SGM 03FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 6260 Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices 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 VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 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 PO 00000 Note No. 7. Frm 00117 Fmt 4703 Sfmt 4703 E:\FR\FM\03FEN1.SGM 03FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices 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). VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 6261 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 03FEN1 6262 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 03FEN1

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]


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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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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
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