Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 980NY To Adopt Rules Governing an Opening Auction Process for Electronic Complex Orders and To Amend and Reorganize Existing Rules Specifying Available Electronic Complex Order Types and Modifiers, 26470-26473 [2014-10538]
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Federal Register / Vol. 79, No. 89 / Thursday, May 8, 2014 / Notices
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SECURITIES AND EXCHANGE
COMMISSION
Charles Mierzwa,
Chief of Information Resources Management.
May 2, 2014.
[FR Doc. 2014–10531 Filed 5–7–14; 8:45 am]
BILLING CODE 7905–01–P
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Time
(minutes)
[Release No. 34–72084; File No. SR–
NYSEMKT–2014–42]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Rule 980NY To
Adopt Rules Governing an Opening
Auction Process for Electronic
Complex Orders and To Amend and
Reorganize Existing Rules Specifying
Available Electronic Complex Order
Types and Modifiers
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 April 28,
2014, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Rule 980NY (Electronic Complex Order
Trading) to adopt rules governing an
opening auction process for Electronic
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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1
8
1
13
14
Complex Orders and to amend and
reorganize existing rules specifying
available Electronic Complex Order
types and modifiers. The text of the
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 980NY (Electronic Complex Order
Trading) to adopt rules governing an
opening auction process for Electronic
Complex Orders and to amend and
reorganize existing rules specifying
order types and modifiers applicable to
Electronic Complex Orders.
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Opening Auction Process for Electronic
Complex Orders
The Exchange is proposing to amend
Rule 980NY(c) by establishing
subsection (i) to describe how orders
would be handled by the Complex
Matching Engine (‘‘CME’’) during a new
opening auction process for Electronic
Complex Orders that would allow the
Exchange to offer eligible trading
interest at a single-price opening.
Currently, there is no single-price
opening. Rather, the CME begins
processing each Electronic Complex
Order in the Consolidated Book based
on price/time priority after all of the
individual component option series that
make up a complex order strategy have
opened. By adopting the proposed
opening auction process for the CME,
the Exchange is seeking to maximize
both price discovery and execution
opportunities for participants utilizing
Electronic Complex Orders. The
Chicago Board Options Exchange
(‘‘CBOE’’) recently adopted similar rules
to describe how their Complex Order
Book (‘‘COB’’) functions at the opening
of trading.4 The Exchange notes that the
proposed changes to Rule 980NY
regarding the new opening auction
process for Electronic Complex Orders
are substantially similar in all material
respects to those of the CBOE.5
Pursuant to proposed Rule
980NY(c)(i)(A), Electronic Complex
Orders would not participate in opening
auctions for individual component
option series legs conducted pursuant to
Rule 952NY(b). The Exchange further
proposes to provide that the CME would
not begin processing Electronic
Complex Orders until all of the
individual component option series legs
that make up a complex order strategy
have opened. The intent of this
paragraph is to make clear to market
participants that an Electronic Complex
Order is not eligible to trade until such
time that all option series associated
with that order have opened for trading.
The CME will not execute any
transactions in Electronic Complex
Orders involving un-opened option
series.
Pursuant to proposed Rule
980NY(c)(i)(B), the CME would use an
opening auction process if there are
4 See Securities Exchange Act Release No.68844
(February 6, 2013), 78 FR 9953 (February 12, 2013)
(SR–CBOE–2013–007).
5 See CBOE Rule 6.53C.11(b), which provision
was one of several discussed in CBOE’s recent filing
(see id.). The Exchange notes, however, that this
filing differs from the CBOE’s recent filing (see id.)
in that it provides specificity about the market
clearing price and cross-references existing
Exchange rules regarding auction pricing (see infra
n. 6).
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Electronic Complex Orders on both
sides of the Consolidated Book that are
marketable against each other and that
are priced within the derived Complex
National Best Bid and Offer (‘‘Complex
NBBO’’).6 The resulting execution
would occur at a market clearing price
that is inside the derived Complex
NBBO and that matches Electronic
Complex Orders with each other to the
extent marketable.7 In determining
priority, the CME would give priority to
Electronic Complex Orders whose net
price is better than the market clearing
price first, and then to Electronic
Complex Orders at the market clearing
price.8
Example #1
This example will show how the CME
would conduct an opening auction
where the market clearing price is at the
midpoint of the derived Complex
NBBO.
Assume the derived Complex NBBO
for a given complex order strategy is
$1.10–$1.20 (midpoint = 1.15). Assume
there are four Electronic Complex
Orders in the Consolidated Book for the
same strategy; two buy orders and two
6 The derived Complex NBBO will be derived by
using the best prices for the individual leg markets
comprising the Electronic Complex Order as
disseminated by OPRA, that when aggregated create
a derived NBBO for that same strategy.
7 The ‘‘market clearing price’’ for Electronic
Complex Orders is similar to the ‘‘opening price’’
for an individual series as described in Rule
952NY(c). Specifically, the market clearing price for
an Electronic Complex Order will be the price, as
determined by the System, at which the most
volume can be traded at or nearest to the midpoint
of the initial uncrossed derived Complex NBBO.
Midpoint pricing will not occur if such price would
result in the violation of the limit price of the
Electronic Complex Order(s) involved. Instead, the
market clearing price would be the limit price of the
order(s) at which the most volume can be traded.
Because listed options may not be priced in subpenny increments nor will the OCC clear options
at sub-penny prices, if the calculated midpoint
price results in a sub-penny price, the market
clearing price will round down to the nearest even
penny (i.e., a calculated midpoint price of $1.005
will round to $1.00). The Exchange notes that
CBOE, which is also subject to the same restrictions
on sub-penny pricing of listed options, did not
disclose in their filing (see supra n. 3) whether it
would round the market clearing price (up or down)
to the nearest whole cent if mid-point pricing
resulted in a sub-penny market clearing price.
8 The Exchange notes that Electronic Complex
Orders residing in the Consolidated Book at the
opening of trading that are not marketable against
other Electronic Complex Orders do not participate
in the auction process. As is the case today, these
orders will automatically execute against individual
orders or quotes residing in the Consolidated Book
after the CME opens, provided the Electronic
Complex Order can be executed in full (or in a
permissible ratio) by the orders or quotes in the
Consolidated Book. See current Rule 980NY(c)(ii)
which the Exchange is proposing to renumber as
Rule 980NY(c)(ii)(B). The Exchange notes that this
functionality is similar to CBOE Rule 6.53C.11(a),
which the CBOE discussed in its recent filing. See
supra n. 3.
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26471
sell orders, each order represents 100
units of the same strategy. The first sell
order is priced at $1.11 and the second
sell order is priced at $1.13. The first
buy order can pay 1.19 and the second
can pay $1.17. When the CME opens, (at
a market clearing price nearest the midpoint where the most volume can trade)
the $1.11 sell order for 100 units will
execute against the $1.19 buy order for
100 units and the $1.13 sell order for
100 units will execute against the $1.17
buy order for 100 units (orders are
ranked and executed based on price
priority). This would result in all
volume trading at a single market
clearing price of $1.15, which in this
example is the exact mid-point price of
the derived Complex NBBO.
Example #2
This example will show how the CME
would conduct an opening auction
where the market clearing price is not
equal to the midpoint of the derived
Complex NBBO.
Assume the derived Complex NBBO
for a given complex order strategy is
$1.10–$1.20 (midpoint = 1.15). Assume
there are three Electronic Complex
Orders in the Consolidated Book, all for
the same complex order strategy. The
first order is a sell order priced at $1.19
for 20 units, the second order is a sell
order priced at $1.18 for 10 units, and
the third order is a buy order paying
$1.19 for 50 units. When the CME
opens, 30 units of the buy order would
trade against the two sell orders, with
the $1.18 sell order for 10 units having
first priority followed by the $1.19 sell
order for 20 units (orders are ranked and
executed based on price priority).
Because the market clearing price in this
example could not equal the midpoint
($1.15), as that price would violate the
limit price of both sell orders, the
market clearing price would be $1.19, as
that is the price at which the most
volume could trade. This would result
in the CME conducting the auction at
the market clearing price of $1.19. In
this example, the remaining 20 units of
the buy order would be subject to
processing under Rule 980NY (e.g.,
remain in the Consolidated Book if not
marketable against the individual orders
and quotes in the Consolidated Book or
other Electronic Complex Orders in the
Consolidated Book, or execute if
marketable subject to the applicable
priority and price-check parameters).
The opening auction process of the
CME as described in proposed Rule
980NY(c)(i)(B) is consistent with the
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opening auction process for Electronic
Complex Orders at the CBOE.9
The Exchange is proposing to adopt
Rule 980NY(c)(i)(C) to explain that
Electronic Complex Orders that are not
executed during the opening auction
process are eligible to trade during Core
Trading against the individual quotes
and orders residing in the Consolidated
Book of the same series that comprise
the complex order strategy. The
processing of Electronic Complex
Orders during Core Trading is done in
accordance with Rules 980NY(c)(i)–(iii),
which the Exchange is proposing to
renumber as Rules 980NY(c)(ii)(A)–(C).
Consistent with the foregoing
changes, the Exchange also proposes to
re-number the remaining subsections of
Rule 980NY(c)(i)–(iii) under a new
section heading, ‘‘Execution of Complex
Orders During Core Trading,’’ with no
changes to the substance of the rule text.
Additionally, the Exchange is
proposing to amend the text of Rule
980NY(c) by deleting the representation
that Electronic Complex Orders will be
executed at the best available price
available. Because existing and
proposed rules explain precisely how
Electronic Complex Orders are priced
(i.e. at a market clearing price during an
opening auction process, or at the prices
of the individual orders and quotes in
the Consolidated Book during Core
Trading), the reference to ‘‘the best
available price’’ is superfluous. The
proposed resulting language of Rule
980NY(c) would be consistent with
rules describing how Electronic
Complex Orders are traded on NYSE
Arca.10
emcdonald on DSK67QTVN1PROD with NOTICES
Order Types and Contingencies
Applicable to Electronic Complex
Orders
The Exchange also proposes to amend
and reorganize Rule 980NY(d), which
explains order types, contingencies and
modifiers applicable to Electronic
Complex Orders, as follows:
• The CME presently accepts only
Limit Orders 11 and Limit Orders
designated as PNP Plus.12 The Exchange
proposes to amend Rule 980NY(d) to
codify this functionality. As proposed,
Rule 980NY(d)(1) would state that Limit
Orders and Limit Orders designated as
PNP Plus are valid types of Electronic
Complex Orders. Complex Limit Orders
and Complex Limit Orders designated
as PNP Plus are processed in the same
9 See
CBOE Rule 6.53C.11(b).
NYSE Arca Rule 6.91(a)(2).
11 See NYSE MKT Rule 900.3NY(b).
12 See NYSE MKT Rule 900.3NY(w).
10 See
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manner as a similarly marked single-leg
order.
• Proposed Rule 980NY(d)(2) would
provide that Electronic Complex Orders
may be designated as Fill-or-Kill
(‘‘FOK’’) 13 and All-or-None (‘‘AON’’).14
The use of FOK or AON contingency is
consistent with complex order trading at
other options exchanges.15 Electronic
Complex Orders with a FOK or AON
contingency would be processed in the
same manner as a similarly marked
single-leg order.
• Currently, the Rule 980NY(d)
provides that Electronic Complex
Orders may be entered as IOC 16 or
Day,17 and the Exchange now proposes
making the Good-til-Cancel (‘‘GTC’’) 18
modifier available for Electronic
Complex Orders. As proposed, Rule
980NY(d)(3) would provide that
Electronic Complex Order may be
entered as IOC, Day, or GTC.19 The use
of GTC as a time-in-force is consistent
with complex orders trading at other
option exchanges.20 Electronic Complex
Orders marked IOC, Day or GTC would
be processed in the same manner as
similarly marked single-leg orders.
Implementation
The Exchange will implement the
proposed rule changes described above
upon the implementation of technology
updates applicable to the CME. The
Exchange will announce the
implementation date of the proposed
rule change by Trader Update.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the Act 21
in general and furthers the objectives of
Section 6(b)(5) of the Act 22 in particular
in that it should promote just and
equitable principles of trade, serve to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and
protect investors and the public interest.
Specifically, the Exchange believes
the proposed rule governing the opening
auction process via the CME for
Electronic Complex Orders increases
opportunities for all types of market
participants (e.g., public customers,
broker-dealers and market-makers) to
13 See
NYSE MKT Rule 900.3NY(l).
NYSE MKT Rule 900.3NY(d)(4).
15 See CBOE Rule 6.53C(b) and NYSE Arca Rule
6.91(b).
16 See NYSE MKT Rule 900.3NY(k).
17 See NYSE MKT Rule 900.3NY(m).
18 See NYSE MKT Rule 900.3NY(n).
19 See NYSE MKT Rule 900.3NY(n).
20 See CBOE Rule 6.53C(c)(iii) and NYSE Arca
Rule 6.91(b).
21 15 U.S.C. 78f(b).
22 15 U.S.C. 78f(b)(5).
14 See
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participate in trading with Electronic
Complex Orders. This participation may
promote liquidity and result in better
prices for customers throughout the
trading day, including when the CME
opens, which, in turn, protects investors
and advances public interest.
The Exchange also believes that
codifying the available types of orders
eligible to be entered as Electronic
Complex Orders, reorganizing the
variations of Electronic Complex Order
types available on the Exchange and
listing those in a clear and precise
structure, will remove impediments to
and perfect the mechanism of a free and
open market. In addition, adopting the
GTC, FOK and AON designations will
further serve to remove impediments to
a free an open market and a national
market system by affording market
participants on NYSE Amex Options
similar investment choices to what is
available at other market centers.23
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. As noted
above, the Exchange believes that
expanding the variations of order types
via contingencies and modifiers will
encourage more Electronic Complex
Orders to the Exchange, which is procompetitive. Further the planned
enhancement to provide a single price
open, if possible, within the CME
increases opportunities for all types of
market participants (e.g., public
customers, broker-dealers and marketmakers) to participate in the trading of
complex orders. This participation may
promote liquidity and result in better
prices for customers throughout the
trading day, including when the CME
opens. The Exchange does not believe
that the changes proposed by this filing
imposes any burden on other Exchanges
as the most substantive change
proposed, that being the complex order
opening auction, is similar to
functionality that is already available on
at least one competing options
Exchange.24 The Exchange has found
that when multiple Exchanges introduce
similar functionality, other Exchanges
move to enhance their own systems and
product offerings which are generally
beneficial to all investors.
23 See
24 See
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supra nn. 14, 19.
supra nn. 3, 8.
08MYN1
Federal Register / Vol. 79, No. 89 / Thursday, May 8, 2014 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEMKT–2014–42 on the
subject line.
No written comments were solicited
or received with respect to the proposed
rule change.
Paper Comments
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 25 and Rule
19b–4(f)(6) thereunder.26 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.27
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 28 of the Act to
determine whether the proposed rule
change 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:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
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All submissions should refer to File
Number SR–NYSEMKT–2014–42. 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 at 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–
NYSEMKT–2014–42, and should be
submitted on or before May 29, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–10538 Filed 5–7–14; 8:45 am]
U.S.C. 78s(b)(3)(A)(iii).
26 17 CFR 240.19b–4(f)(6).
27 17 CFR 240.19b–4(f)(6)(iii). As required under
Rule 19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
28 15 U.S.C. 78s(b)(2)(B).
VerDate Mar<15>2010
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72086; File No. SR–EDGX–
2014–05]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Designation
of Longer Period for Commission
Action on Proposed Rule Change To
Adopt a New Order Type Called the
Mid-Point Discretionary Order
May 2, 2014.
On March 7, 2014, EDGX Exchange,
Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend its rules to add a new
order type called the Mid-Point
Discretionary Order and to reflect the
priority of Mid-Point Discretionary
Orders. The proposed rule change was
published for comment in the Federal
Register on March 25, 2014.3 The
Commission received no comment
letters.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether these
proposed rule changes should be
disapproved. The 45th day for this filing
is May 9, 2014.
The Commission is extending the 45day time period for Commission action
on the proposed rule change. The
Commission finds that it is appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider and take action on the
Exchange’s proposed rule change.
Accordingly, pursuant to Section
19(b)(2)(A)(ii)(I) of the Act 5 and for the
reasons stated above, the Commission
designates June 23, 2014, as the date by
which the Commission should either
approve or disapprove, or institute
proceedings to determine whether to
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 71747
(March 19, 2014), 79 FR 16401.
4 15 U.S.C. 78s(b)(2).
5 15 U.S.C. 78s(b)(2)(A)(ii)(I).
2 17
29 17
PO 00000
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 79, Number 89 (Thursday, May 8, 2014)]
[Notices]
[Pages 26470-26473]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-10538]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72084; File No. SR-NYSEMKT-2014-42]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule 980NY To
Adopt Rules Governing an Opening Auction Process for Electronic Complex
Orders and To Amend and Reorganize Existing Rules Specifying Available
Electronic Complex Order Types and Modifiers
May 2, 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 April 28, 2014, NYSE MKT LLC (the ``Exchange'' or ``NYSE
MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 980NY (Electronic Complex Order
Trading) to adopt rules governing an opening auction process for
Electronic Complex Orders and to amend and reorganize existing rules
specifying available Electronic Complex Order types and modifiers. The
text of the proposed rule change is available on the Exchange's Web
site at www.nyse.com, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 980NY (Electronic Complex Order
Trading) to adopt rules governing an opening auction process for
Electronic Complex Orders and to amend and reorganize existing rules
specifying order types and modifiers applicable to Electronic Complex
Orders.
[[Page 26471]]
Opening Auction Process for Electronic Complex Orders
The Exchange is proposing to amend Rule 980NY(c) by establishing
subsection (i) to describe how orders would be handled by the Complex
Matching Engine (``CME'') during a new opening auction process for
Electronic Complex Orders that would allow the Exchange to offer
eligible trading interest at a single-price opening. Currently, there
is no single-price opening. Rather, the CME begins processing each
Electronic Complex Order in the Consolidated Book based on price/time
priority after all of the individual component option series that make
up a complex order strategy have opened. By adopting the proposed
opening auction process for the CME, the Exchange is seeking to
maximize both price discovery and execution opportunities for
participants utilizing Electronic Complex Orders. The Chicago Board
Options Exchange (``CBOE'') recently adopted similar rules to describe
how their Complex Order Book (``COB'') functions at the opening of
trading.\4\ The Exchange notes that the proposed changes to Rule 980NY
regarding the new opening auction process for Electronic Complex Orders
are substantially similar in all material respects to those of the
CBOE.\5\
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\4\ See Securities Exchange Act Release No.68844 (February 6,
2013), 78 FR 9953 (February 12, 2013) (SR-CBOE-2013-007).
\5\ See CBOE Rule 6.53C.11(b), which provision was one of
several discussed in CBOE's recent filing (see id.). The Exchange
notes, however, that this filing differs from the CBOE's recent
filing (see id.) in that it provides specificity about the market
clearing price and cross-references existing Exchange rules
regarding auction pricing (see infra n. 6).
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Pursuant to proposed Rule 980NY(c)(i)(A), Electronic Complex Orders
would not participate in opening auctions for individual component
option series legs conducted pursuant to Rule 952NY(b). The Exchange
further proposes to provide that the CME would not begin processing
Electronic Complex Orders until all of the individual component option
series legs that make up a complex order strategy have opened. The
intent of this paragraph is to make clear to market participants that
an Electronic Complex Order is not eligible to trade until such time
that all option series associated with that order have opened for
trading. The CME will not execute any transactions in Electronic
Complex Orders involving un-opened option series.
Pursuant to proposed Rule 980NY(c)(i)(B), the CME would use an
opening auction process if there are Electronic Complex Orders on both
sides of the Consolidated Book that are marketable against each other
and that are priced within the derived Complex National Best Bid and
Offer (``Complex NBBO'').\6\ The resulting execution would occur at a
market clearing price that is inside the derived Complex NBBO and that
matches Electronic Complex Orders with each other to the extent
marketable.\7\ In determining priority, the CME would give priority to
Electronic Complex Orders whose net price is better than the market
clearing price first, and then to Electronic Complex Orders at the
market clearing price.\8\
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\6\ The derived Complex NBBO will be derived by using the best
prices for the individual leg markets comprising the Electronic
Complex Order as disseminated by OPRA, that when aggregated create a
derived NBBO for that same strategy.
\7\ The ``market clearing price'' for Electronic Complex Orders
is similar to the ``opening price'' for an individual series as
described in Rule 952NY(c). Specifically, the market clearing price
for an Electronic Complex Order will be the price, as determined by
the System, at which the most volume can be traded at or nearest to
the midpoint of the initial uncrossed derived Complex NBBO. Midpoint
pricing will not occur if such price would result in the violation
of the limit price of the Electronic Complex Order(s) involved.
Instead, the market clearing price would be the limit price of the
order(s) at which the most volume can be traded. Because listed
options may not be priced in sub-penny increments nor will the OCC
clear options at sub-penny prices, if the calculated midpoint price
results in a sub-penny price, the market clearing price will round
down to the nearest even penny (i.e., a calculated midpoint price of
$1.005 will round to $1.00). The Exchange notes that CBOE, which is
also subject to the same restrictions on sub-penny pricing of listed
options, did not disclose in their filing (see supra n. 3) whether
it would round the market clearing price (up or down) to the nearest
whole cent if mid-point pricing resulted in a sub-penny market
clearing price.
\8\ The Exchange notes that Electronic Complex Orders residing
in the Consolidated Book at the opening of trading that are not
marketable against other Electronic Complex Orders do not
participate in the auction process. As is the case today, these
orders will automatically execute against individual orders or
quotes residing in the Consolidated Book after the CME opens,
provided the Electronic Complex Order can be executed in full (or in
a permissible ratio) by the orders or quotes in the Consolidated
Book. See current Rule 980NY(c)(ii) which the Exchange is proposing
to renumber as Rule 980NY(c)(ii)(B). The Exchange notes that this
functionality is similar to CBOE Rule 6.53C.11(a), which the CBOE
discussed in its recent filing. See supra n. 3.
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Example 1
This example will show how the CME would conduct an opening auction
where the market clearing price is at the midpoint of the derived
Complex NBBO.
Assume the derived Complex NBBO for a given complex order strategy
is $1.10-$1.20 (midpoint = 1.15). Assume there are four Electronic
Complex Orders in the Consolidated Book for the same strategy; two buy
orders and two sell orders, each order represents 100 units of the same
strategy. The first sell order is priced at $1.11 and the second sell
order is priced at $1.13. The first buy order can pay 1.19 and the
second can pay $1.17. When the CME opens, (at a market clearing price
nearest the mid-point where the most volume can trade) the $1.11 sell
order for 100 units will execute against the $1.19 buy order for 100
units and the $1.13 sell order for 100 units will execute against the
$1.17 buy order for 100 units (orders are ranked and executed based on
price priority). This would result in all volume trading at a single
market clearing price of $1.15, which in this example is the exact mid-
point price of the derived Complex NBBO.
Example 2
This example will show how the CME would conduct an opening auction
where the market clearing price is not equal to the midpoint of the
derived Complex NBBO.
Assume the derived Complex NBBO for a given complex order strategy
is $1.10-$1.20 (midpoint = 1.15). Assume there are three Electronic
Complex Orders in the Consolidated Book, all for the same complex order
strategy. The first order is a sell order priced at $1.19 for 20 units,
the second order is a sell order priced at $1.18 for 10 units, and the
third order is a buy order paying $1.19 for 50 units. When the CME
opens, 30 units of the buy order would trade against the two sell
orders, with the $1.18 sell order for 10 units having first priority
followed by the $1.19 sell order for 20 units (orders are ranked and
executed based on price priority). Because the market clearing price in
this example could not equal the midpoint ($1.15), as that price would
violate the limit price of both sell orders, the market clearing price
would be $1.19, as that is the price at which the most volume could
trade. This would result in the CME conducting the auction at the
market clearing price of $1.19. In this example, the remaining 20 units
of the buy order would be subject to processing under Rule 980NY (e.g.,
remain in the Consolidated Book if not marketable against the
individual orders and quotes in the Consolidated Book or other
Electronic Complex Orders in the Consolidated Book, or execute if
marketable subject to the applicable priority and price-check
parameters).
The opening auction process of the CME as described in proposed
Rule 980NY(c)(i)(B) is consistent with the
[[Page 26472]]
opening auction process for Electronic Complex Orders at the CBOE.\9\
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\9\ See CBOE Rule 6.53C.11(b).
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The Exchange is proposing to adopt Rule 980NY(c)(i)(C) to explain
that Electronic Complex Orders that are not executed during the opening
auction process are eligible to trade during Core Trading against the
individual quotes and orders residing in the Consolidated Book of the
same series that comprise the complex order strategy. The processing of
Electronic Complex Orders during Core Trading is done in accordance
with Rules 980NY(c)(i)-(iii), which the Exchange is proposing to
renumber as Rules 980NY(c)(ii)(A)-(C).
Consistent with the foregoing changes, the Exchange also proposes
to re-number the remaining subsections of Rule 980NY(c)(i)-(iii) under
a new section heading, ``Execution of Complex Orders During Core
Trading,'' with no changes to the substance of the rule text.
Additionally, the Exchange is proposing to amend the text of Rule
980NY(c) by deleting the representation that Electronic Complex Orders
will be executed at the best available price available. Because
existing and proposed rules explain precisely how Electronic Complex
Orders are priced (i.e. at a market clearing price during an opening
auction process, or at the prices of the individual orders and quotes
in the Consolidated Book during Core Trading), the reference to ``the
best available price'' is superfluous. The proposed resulting language
of Rule 980NY(c) would be consistent with rules describing how
Electronic Complex Orders are traded on NYSE Arca.\10\
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\10\ See NYSE Arca Rule 6.91(a)(2).
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Order Types and Contingencies Applicable to Electronic Complex Orders
The Exchange also proposes to amend and reorganize Rule 980NY(d),
which explains order types, contingencies and modifiers applicable to
Electronic Complex Orders, as follows:
The CME presently accepts only Limit Orders \11\ and Limit
Orders designated as PNP Plus.\12\ The Exchange proposes to amend Rule
980NY(d) to codify this functionality. As proposed, Rule 980NY(d)(1)
would state that Limit Orders and Limit Orders designated as PNP Plus
are valid types of Electronic Complex Orders. Complex Limit Orders and
Complex Limit Orders designated as PNP Plus are processed in the same
manner as a similarly marked single-leg order.
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\11\ See NYSE MKT Rule 900.3NY(b).
\12\ See NYSE MKT Rule 900.3NY(w).
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Proposed Rule 980NY(d)(2) would provide that Electronic
Complex Orders may be designated as Fill-or-Kill (``FOK'') \13\ and
All-or-None (``AON'').\14\ The use of FOK or AON contingency is
consistent with complex order trading at other options exchanges.\15\
Electronic Complex Orders with a FOK or AON contingency would be
processed in the same manner as a similarly marked single-leg order.
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\13\ See NYSE MKT Rule 900.3NY(l).
\14\ See NYSE MKT Rule 900.3NY(d)(4).
\15\ See CBOE Rule 6.53C(b) and NYSE Arca Rule 6.91(b).
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Currently, the Rule 980NY(d) provides that Electronic
Complex Orders may be entered as IOC \16\ or Day,\17\ and the Exchange
now proposes making the Good-til-Cancel (``GTC'') \18\ modifier
available for Electronic Complex Orders. As proposed, Rule 980NY(d)(3)
would provide that Electronic Complex Order may be entered as IOC, Day,
or GTC.\19\ The use of GTC as a time-in-force is consistent with
complex orders trading at other option exchanges.\20\ Electronic
Complex Orders marked IOC, Day or GTC would be processed in the same
manner as similarly marked single-leg orders.
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\16\ See NYSE MKT Rule 900.3NY(k).
\17\ See NYSE MKT Rule 900.3NY(m).
\18\ See NYSE MKT Rule 900.3NY(n).
\19\ See NYSE MKT Rule 900.3NY(n).
\20\ See CBOE Rule 6.53C(c)(iii) and NYSE Arca Rule 6.91(b).
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Implementation
The Exchange will implement the proposed rule changes described
above upon the implementation of technology updates applicable to the
CME. The Exchange will announce the implementation date of the proposed
rule change by Trader Update.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\21\ in general and furthers the objectives of Section 6(b)(5) of the
Act \22\ in particular in that it should promote just and equitable
principles of trade, serve to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
protect investors and the public interest.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes the proposed rule governing the
opening auction process via the CME for Electronic Complex Orders
increases opportunities for all types of market participants (e.g.,
public customers, broker-dealers and market-makers) to participate in
trading with Electronic Complex Orders. This participation may promote
liquidity and result in better prices for customers throughout the
trading day, including when the CME opens, which, in turn, protects
investors and advances public interest.
The Exchange also believes that codifying the available types of
orders eligible to be entered as Electronic Complex Orders,
reorganizing the variations of Electronic Complex Order types available
on the Exchange and listing those in a clear and precise structure,
will remove impediments to and perfect the mechanism of a free and open
market. In addition, adopting the GTC, FOK and AON designations will
further serve to remove impediments to a free an open market and a
national market system by affording market participants on NYSE Amex
Options similar investment choices to what is available at other market
centers.\23\
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\23\ See supra nn. 14, 19.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. As noted above, the Exchange
believes that expanding the variations of order types via contingencies
and modifiers will encourage more Electronic Complex Orders to the
Exchange, which is pro-competitive. Further the planned enhancement to
provide a single price open, if possible, within the CME increases
opportunities for all types of market participants (e.g., public
customers, broker-dealers and market-makers) to participate in the
trading of complex orders. This participation may promote liquidity and
result in better prices for customers throughout the trading day,
including when the CME opens. The Exchange does not believe that the
changes proposed by this filing imposes any burden on other Exchanges
as the most substantive change proposed, that being the complex order
opening auction, is similar to functionality that is already available
on at least one competing options Exchange.\24\ The Exchange has found
that when multiple Exchanges introduce similar functionality, other
Exchanges move to enhance their own systems and product offerings which
are generally beneficial to all investors.
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\24\ See supra nn. 3, 8.
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[[Page 26473]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \25\ and Rule 19b-4(f)(6) thereunder.\26\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\27\
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\25\ 15 U.S.C. 78s(b)(3)(A)(iii).
\26\ 17 CFR 240.19b-4(f)(6).
\27\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \28\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\28\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEMKT-2014-42 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2014-42. 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 at 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-
NYSEMKT-2014-42, and should be submitted on or before May 29, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10538 Filed 5-7-14; 8:45 am]
BILLING CODE 8011-01-P
