Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 2, Amending Its Rules Relating to Pre-Opening Indications and Opening Procedures To Promote Greater Efficiency and Transparency at the Open of Trading on the Exchange, 20030-20040 [2016-07838]
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operative delay and designates the
proposal operative on April 4, 2016.43
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 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
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:
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Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2016–52 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–NYSEARCA–2016–52. 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.,
43 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEARCA–2016–52, and should be
submitted on or before April 27, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–07831 Filed 4–5–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77491; File No. SR–NYSE–
2016–24]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 2,
Amending Its Rules Relating to PreOpening Indications and Opening
Procedures To Promote Greater
Efficiency and Transparency at the
Open of Trading on the Exchange
March 31, 2016.
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 March
31, 2016, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II, below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules relating to pre-opening indications
and opening procedures to promote
greater efficiency and transparency at
the open of trading on the Exchange.
44 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
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This Amendment No. 2 supersedes the
original filing in its entirety. 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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
rules relating to pre-opening indications
and opening procedures to promote
greater efficiency and transparency at
the open of trading on the Exchange. In
particular, the Exchange proposes to:
• Make changes to the rules related to
the pre-opening indication process by:
Æ Amending Rules 15 and 123D to
consolidate the requirements for
publication of pre-open indications in a
single rule (Rule 15);
Æ changing the conditions in which a
Designated Market Maker (‘‘DMM’’) is
required to publish a pre-opening
indication in a security to an anticipated
5% move from a security’s reference
price and, during extreme market-wide
volatility, an anticipated 10% from a
security’s reference price; and
Æ providing for the CEO of the
Exchange to temporarily suspend the
requirement to publish pre-opening
indications.
• Make changes to Rule 123D related
to the opening process by:
Æ Incorporating all procedures
relating to openings, other than preopening indications, in Rule 123D; and
Æ Specifying that DMMs may effect
an opening of a security electronically
within specified percentage and volume
parameters, which would be doubled
during extreme market-wide volatility;
and
Æ providing for the CEO of the
Exchange to temporarily suspend price
and volume limitations for a DMM
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automated open or the requirement for
prior Floor Approval before opening or
reopening a security.
• Delete Rule 48
• Make conforming changes to Rules
80C, 124 and 9217.
The Exchange believes that the
proposed changes will enhance
transparency regarding the Exchange’s
opening process by specifying new
parameters for how the opening at the
Exchange would be effectuated on
trading days experiencing extreme
market-wide volatility, which would
include both additional information
before the open through the use of new
parameters for pre-opening indications
and expanded ability for DMMs to
effectuate an opening electronically.
The proposed rule changes are designed
to preserve the Exchange’s existing
model, which values human touch
when opening securities with
significant price or volume disparity,
while at the same time promoting
automated measures to have as many
securities open as close to 9:30 a.m. as
feasible, even during extreme marketwide volatility.
Background
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The Exchange’s current pre-opening
procedures are outlined in Rules 15
(Pre-Opening Indications), 48
(Exemptive Relief—Extreme Market
Volatility Condition), and 123D
(Openings and Halts in Trading).
Rule 15(a) provides that if the opening
transaction in a security will be at a
price that represents a change of more
than the ‘‘applicable price change’’
specified in the Rule,4 the DMM
arranging the opening transaction or the
Exchange shall issue a pre-opening
indication (‘‘Rule 15 Indication’’),
which represents a price range in which
a security is anticipated to open.
A Rule 15 Indication is published on
the Exchange’s proprietary data feeds
only and includes the security and the
price range within which the DMM
anticipates the opening transaction will
occur, and would include any orally4 In current Rule 15, other than for certain
American Depositary Receipts (‘‘ADRs’’), the
‘‘applicable price change’’ is measured from a
security’s last reported sale price on the Exchange,
the security’s offering price in the case of an initial
public offering (‘‘IPO’’), or the security’s last
reported sale price on the market from which it is
being transferred. For an ADR where the trading
day of the underlying security in the primary
foreign market for the ADR concludes after the
previous day’s trading in the US has ended, the
‘‘applicable price change’’ is measured from closing
price of the primary foreign market. For an ADR
where the primary foreign market on which the
underlying security is open for trading at the time
of the opening of the Exchange, the ‘‘applicable
price change’’ is measured from parity with the last
sale price of the underlying security.
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represented Floor broker interest for the
open. The applicable price ranges for
determining whether to publish a Rule
15 Indication are based on five different
price buckets and are expressed in
dollar and percentage parameters:
Applicable
price change
(more than)
Exchange closing price
Under $20.00 ........................
$20–$49.99 ...........................
$50.00–$99.99 ......................
$100–$500 ............................
Above $500 ..........................
$0.50
$1.00
$2.00
$5.00
1.5%
Rule 123D also mandates that preopening indications be published if the
opening price would result in a
significant price change from the
previous close or if the opening is
delayed past 10:00 a.m. Eastern Time
(‘‘Rule 123D Mandatory Indication’’).
The DMM is responsible for publishing
the Rule 123D Mandatory Indication
and, when determining the price range
for the indication, takes into
consideration Floor broker interest that
has been orally entered and what, at a
given time, the DMM anticipates the
dealer participation in the opening
transaction would be. Rule 123D
Mandatory Indications are published to
the Consolidated Tape and proprietary
data feeds. The applicable price ranges
for determining whether an opening
price would be a ‘‘significant’’ price
change requiring a Rule 123D
Mandatory Indication are based on three
price buckets and are expressed in a
mixture of dollar (1 point = one dollar)
and percentage parameters:
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orderly opening or reopening
securities.6
Finally, Rule 123D, which in addition
to setting forth requirements for certain
pre-opening indications, also specifies
procedures relating to openings,
including that it is the responsibility of
each DMM to ensure that securities
open as close to the opening bell as
possible and that securities can be
opened on a trade or a quote. The rule
further provides that openings may be
effectuated manually or electronically.
Proposed Rule Change
The Exchange proposes to amend
Rules 15, 48, and 123D to introduce
greater efficiency and transparency into
its opening process by, among other
things, consolidating its rules regarding
pre-opening indications into a single
rule (Rule 15), introducing a new, single
percentage parameter for the publication
of pre-opening indications that would
double on volatile trading days, and
consolidating opening procedures into
Rule 123D, including specifying
parameters of when a DMM may effect
an opening electronically, and
consolidating the procedures of Rule 48
into Rules 15 and 123D, as applicable.
The Exchange also proposes conforming
changes to Rules 80C, 124 and 9217.
Rule 48 provides that a ‘‘qualified
Exchange officer’’ 5 can invoke an
extreme market volatility condition at
the open (or reopen of trading following
a market-wide halt of securities) during
which time the Exchange can suspend
the requirements of Rules 15 and 123D,
and in particular, the requirement to
publish pre-opening indications. Rule
48 is intended to be invoked only in
those situations where the potential for
extreme market volatility would likely
impair Floor-wide operations at the
Exchange by impeding the fair and
Pre-Opening Indications
The Exchange proposes to make
changes to the pre-opening indication
process. The Exchange would
consolidate the requirements relating to
pre-opening indications into Rule 15(a)–
(f). Because the Exchange proposes all
new rule text in Rule 15(a)–(f), the
Exchange proposes to delete paragraphs
(a) and (b) of current Rule 15, re-number
Rule 15(c) as Rule 15(g), delete rule text
in Rule 123D(b) relating to mandatory
indications, and amend the title of Rule
15 to add the phrase ‘‘and Opening
Order Imbalance Information’’ so that
the rule would be titled ‘‘Pre-Opening
Indications and Opening Order
Imbalance Information.’’ In amending
Rule 15, the Exchange would establish
new conditions for when DMMs are
required to publish pre-opening
indications.
Proposed Rule 15(a), entitled ‘‘PreOpening Indications,’’ would provide
that a pre-opening indication would
include the security and the price range
within which the opening price is
anticipated to occur. This proposed rule
text is based on the last clause of the
first sentence of current Rule 15(a),
which provides that a pre-opening
5 A ‘‘qualified Exchange officer’’ means the Chief
Executive Officer of ICE, or his or her designee, or
the Chief Regulatory Officer of the Exchange, or his
or her designee.
6 See Securities Exchange Act Release No. 56920
(December 6, 2007), 72 FR 70915 (December 13,
2007) (SR–NYSE–2007–111) (‘‘Rule 48 Notice of
Filing’’).
Previous NYSE
closing price
Price change
(equal to or
greater than)
Under $10.00 ...........
$10—$99.99 ............
1 point.
the lesser of 10% or 3
points.
5 points.
$100 and Over .........
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indication includes the security and the
price range within which the opening
transaction is anticipated to occur.
Proposed Rule 15(a) would further
provide that a pre-opening indication
would be published via the securities
information processor (‘‘SIP’’) and
proprietary data feeds. This proposed
rule text is based on the way in which
Rule 123D Mandatory Indications are
currently published to both the SIP and
proprietary data feeds. The Exchange
proposes to use the term ‘‘securities
information processor’’ instead of
‘‘Consolidated Tape’’ to use the term
more commonly used in the industry.7
Proposed Rule 15(b), entitled
‘‘Conditions for Publishing a Pre-Open
Indication,’’ would set forth the
conditions in which a DMM is required
to publish a pre-opening indication.
• Proposed Rule 15(b)(1) would
provide that a DMM will publish a preopening indication before a security
opens if the opening transaction on the
Exchange is anticipated to be at a price
that represents a change of more than
the ‘‘Applicable Price Range,’’ as
defined in proposed Rule 15(d), from a
specified ‘‘Reference Price,’’ as defined
in proposed Rule 15(c), before the
security opens. The procedures for
publishing a pre-opening indication
would be described in Rule 15(e). This
proposed rule text is based on current
Rule 15(a), which uses the term
‘‘applicable price range’’ and describes
the reference prices used for purposes of
current Rule 15(a). The Exchange
proposes to define the ‘‘Reference Price’’
and ‘‘Applicable Price Range’’ in
proposed Rules 15(c) and (d), described
below. The requirement for DMMs to
publish pre-opening indications is
based on current Rule 15(a), which
provides that the DMM shall issue a preopening indication if the conditions set
forth in the rule are met.
• Proposed Rule 15(b)(2) would
specify that when making a
determination of what the opening
transaction price would be, the DMM
will take into consideration all interest
eligible to participate in the opening
transaction, including electronicallyentered orders, the DMM’s own interest,
and any interest represented orally in
the crowd. This proposed rule text
would be new and is designed to
promote transparency in Exchange rules
that all interest eligible to participate in
the opening transaction is considered
when publishing a pre-opening
indication.
• Proposed Rule 15(b)(3) would
provide that if a DMM is unable to
publish a pre-opening indication for one
7 See,
e.g., Supplementary Material .01 to Rule 19.
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or more securities due to a systems or
technical issue, the Exchange may
publish the pre-opening indication. This
proposed rule text is based in part on
current Rule 15(a), which provides that
either the DMM or the Exchange shall
publish a pre-opening indication. The
Exchange proposes a substantive
difference to provide that the Exchange
‘‘may’’ rather than ‘‘shall’’ publish a preopening indication. As set forth in
current Rule 123D(a)(5), which was
added after the applicable rule text in
Rule 15(a),8 if a DMM is unavailable to
open a security and the Exchange opens
trading, the Exchange will not publish
a pre-opening indication. Because the
Exchange is not obligated to publish
pre-opening indications in such
scenario, the Exchange proposes to
make Rule 15(b)(3) consistent with that
rule.
Proposed Rule 15(c), entitled
‘‘Reference Price,’’ would provide in
paragraph (1) that the Reference Price
for a security (other than an American
Depository Receipt (‘‘ADR’’)) for
purposes of the proposed rule would be:
• The security’s last reported sale
price on the Exchange (proposed Rule
15(c)(1)(A));
• in the case of an IPO, the security’s
offering price (proposed Rule
15(c)(1)(B)); or
• the security’s last reported sale
price on the securities market from
which the security is being transferred
to the Exchange, on the security’s first
day of trading on the Exchange
(proposed Rule 15(c)(1)(C)).
This proposed rule text is based on
current Rule 15(a).9
Proposed Rule 15(c)(2) would provide
that the Reference Price for ADRs for
purposes of the proposed rule would be:
• The closing price of the security
underlying the ADR in the primary
foreign market in such security when
the trading day of the primary foreign
market concludes (proposed Rule
15(c)(2)(A)); or
• based on parity with the last sale
price of the security underlying the ADR
in the primary foreign market for such
security when the trading day of the
primary foreign market is open for
trading at the time of the opening on the
Exchange (proposed Rule 15(c)(2)(B)).
This proposed rule text is based on
current Rule 15(b), with non-substantive
differences for clarity and to use the
defined term ‘‘Reference Price’’ in the
proposed rule text.10 Proposed Rule
8 See Securities Exchange Act Release No. 76290
(Oct. 28, 2015), 80 FR 67822 (Nov. 3, 2015) (SR–
NYSE–2015–49).
9 See supra note 4.
10 The seventh paragraph of Rule 123D(b), which
the Exchange proposes to delete, similarly describes
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15(c)(3) would further provide that the
Reference Price for reopening a security
following a halt would be the security’s
last reported sale price on the Exchange.
The Exchange proposes to specify the
Reference Price for reopening following
a halt because the Reference Price
would be the same for all securities,
including ADRs, which would be
trading on the Exchange.
Proposed Rule 15(d) would set forth
the Applicable Price Ranges for
determining whether a DMM is required
to disseminate a pre-opening indication.
The Exchange proposes to eliminate the
current price buckets in Rules 15 and
123D and instead use a single
percentage parameter as the Applicable
Price Range for all securities, regardless
of price of the security. As proposed,
except during extreme market-wide
volatility as set forth in proposed Rule
15(d)(2), a DMM would be required to
publish a pre-opening indication if a
security is expected to open at a price
more than 5% away from the Reference
Price. The Exchange believes that the
proposed 5% parameter applicable to all
securities would simplify and
streamline the Exchange’s rules
regarding required pre-opening
indications by having a single
percentage parameter that would be
applied across all securities, rather than
having different price buckets and
percentage parameter ranges to track.
The Exchange further believes that the
proposed single percentage parameter
would result in a similar number of preopening indications as are currently
published pursuant to Rule 123D, while
at the same time simplifying the process
for DMMs.
For example, using trade data for the
month of October 2015, which was a
month of relative trading stability and
volumes, current Rule 123D Mandatory
Indication parameters required
indications for 15 securities on an
average daily basis, which represents
approximately 0.46% of the securities
traded on the Exchange. Applying the
proposed new percentage parameter of
5% to the same October 2015 trade data,
DMMs would have been required, on
average, to publish 33 pre-opening
indications, which represents 1.01% of
securities that trade on the Exchange.
The Exchange believes that the
incremental increase in number of preopening indications that would have
been published pursuant to the
proposed new single percentage
parameter would promote transparency
the reference price to be used for a foreign-listed
security.
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in the opening of securities at the
Exchange.11
Under current rules, the Exchange
may suspend the requirement to publish
pre-opening indications if a marketwide extreme market volatility
condition is declared under Rule 48.
This rule was adopted, in part, because
of the manual nature of publishing preopening indications, and if DMMs were
required to publish Rule 123D
Mandatory Indications for multiple
securities, it could delay the opening
process and result in a large number of
securities opening past 9:30 a.m. Eastern
Time.12 Historically, the Exchange has
declared such a condition if, before the
opening of trading, the E-mini S&P 500
Futures are plus or minus 2% from the
prior day’s closing price of the E-mini
S&P 500 Futures. However, based on the
events of the week of August 24, 2015,
when the Exchange declared extreme
market volatility conditions on August
24, 25, and 26, the Exchange appreciates
that the absence of any pre-opening
indications may leave a void in the
information available for market
participants to assess the price at which
a security may open. Yet, because
market-wide volatility would cause the
price of most or all securities to move
significantly away from the last sale
price on the Exchange, the Exchange
believes that the 5% price move
appropriate for ‘‘normal’’ trading days
would result in a DMM being required
to disseminate more pre-opening
indications than is feasible.
Accordingly, the Exchange proposes
to amend its rules to provide that on
trading days with extreme market-wide
volatility, the Applicable Price Range
would be 10%, or double the Applicable
Price Range on regular trading days.
Specifically, proposed Rule 15(d)(2)
would provide that, if as of 9:00 a.m.
Eastern Time (‘‘ET’’), the E-mini S&P
11 For purposes of this analysis, the Exchange
compared the proposed new percentage parameters
against only the current Rule 123D Mandatory
Indications because these indications are more
widely distributed via the SIP to market
participants, and therefore more likely to be relied
upon for purposes of assessing the opening price of
a security on the Exchange. In addition, unlike Rule
15 Indications, a DMM is required to update Rule
123D Mandatory Indications, and thus this form of
pre-opening indication is more likely to track to the
actual opening price of a security.
12 See Rule 48 Notice of Filing, supra note 6 at
70916.
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500 Futures are plus or minus 2% from
the prior day’s closing price of the Emini S&P 500 Futures, when reopening
trading following a market-wide trading
halt under Rule 80B, or if the Exchange
determines that it is necessary or
appropriate for the maintenance of a fair
and order market, a DMM would be
required to publish a pre-opening
indication in a security if the price of
that security is expected to open at a
price more than 10% away from the
Reference Price. By proposing to specify
the conditions in which the Applicable
Price Range would be 10%, the
Exchange would promote transparency
in Exchange rules so that market
participants will know when the
double-wide percentage parameter
would be applied. Because the standard
for extreme market-wide volatility
would be specified in the rule, the
Exchange would not need to provide
separate notification on a trading day
when the double-wide percentages
would be applicable.
By proposing to specify in its rules
that the Applicable Price Range would
be 10%, rather than 5%, when the
market is more volatile, the Exchange
would require DMMs to disseminate
pre-opening indications in those
securities experiencing the greatest
price movement. Under current rules,
the Exchange’s only option when the
overall market is volatile is to lift the
requirement for pre-opening indications
under Rule 48. The Exchange also
proposes to use the 10% percentage
parameter when reopening securities
following a market-wide trading halt
under Rule 80B. The Exchange believes
that widening the parameters for preopening indications following a marketwide trading halt would be appropriate
because the reason for the trading halt
was market-wide volatility, and thus the
reopening of securities would face
similar pricing pressure as
circumstances when there is preopening extreme market-wide volatility.
The Exchange also proposes that it
would have the authority to use the
10% Applicable Price Range when it is
necessary or appropriate for the
maintenance of a fair and orderly
market. For example, if the E-mini S&P
500 Futures were not plus or minus 2%
as of 9:00 a.m., but moved to that level
between 9:00 and 9:30, it may be
appropriate, for the maintenance of a
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20033
fair and orderly market, to use widened
percentage parameters.
To determine the percentage
parameter that would be appropriate for
trading days with extreme market-wide
volatility, the Exchange reviewed
trading data from August 24, 25, and 26,
2015 and assessed how many Rule 123D
Mandatory Indications would have been
required under current rules, and how
many pre-opening indications would
have been required if a 5% and 10%
percentage parameter were used on
those days. Taking for example August
24, 2015, as set forth on Table 1 below,
the data show that, had the Exchange
not invoked Rule 48 lifting the
requirement to publish Rule 123D
Mandatory Indications, there would
have been 638 securities (19% of
securities) for which DMMs would have
been required to publish Rule 123D
Mandatory Indications. As set forth in
Table 2 below, a 5% percentage
parameter would have required 1,460
pre-opening indications (44% of
securities) on August 24, 2015, more
than twice as many as under the current
parameters. As noted above, the
Exchange believes that this would be
too many pre-opening indications for
DMMs to process on a trading day
without impacting their ability to timely
open their assigned securities.
By contrast, as set forth in Table 2
below, a 10% percentage parameter
would have required pre-opening
indications in 278 securities (8.4% of
securities) on August 24, 2015. While
this number is still higher than the
number of pre-opening indications that
would have been published on an
average trading day in October using the
5% percentage parameter (see above),
the Exchange believes that it strikes the
appropriate balance between providing
additional pre-opening information to
investors and enabling the DMM’s to
timely open their assigned securities. As
set forth in more detail in Tables 1 and
2 below, August 24 represents an
outlier, even for days when there has
been extreme market-wide volatility.
For other days in 2015 when the
Exchange declared an extreme marketwide volatility under Rule 48, as set
forth in Tables 1 and 2 below, applying
a 10% parameter would not materially
change the number of pre-opening
indications being published.
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Proposed Rule 15(e), entitled
‘‘Procedures for publishing a preopening indication,’’ would set forth
proposed procedures a DMM would use
when publishing a pre-opening
indication. As discussed below, these
procedures are based on existing
procedures currently set forth in Rule
123D, with specified differences.
Proposed Rule 15(e)(1) would provide
that publication of pre-opening
indications requires the supervision and
approval of a Floor Governor.13 This
proposed rule change is based on the
sixth paragraph of Rule 123D(b). The
Exchange proposes a substantive change
in that the proposed rule would require
the supervision and approval of a Floor
Governor, rather than supervision and
approval of a Floor Official, as set forth
in the current rule. The Exchange would
also eliminate the requirement in Rule
123D that if a situation involves a bank
or brokerage stock, the approval of an
Executive Floor Governor is required,
and if an Executive Floor Governor is
unavailable, a Floor Governor or Senior
Floor Governor’s approval is required.
The Exchange believes that requiring
Floor Governor approval for all
securities would involve the appropriate
review by an experienced Floor official,
while at the same time simplifying the
approval process to require a single
category of Floor Official to approve a
pre-opening indication regardless of the
type of security.14
13 Rule 46 describes the different categories of
Floor Officials, which are Floor Officials, Senior
Floor Officials, Executive Floor Officials, Floor
Governors, and Executive Floor Governors. Floor
Governors are generally more senior members of the
Trading Floor or qualified Exchange employees and
are also empowered to perform any duty of a Floor
Official.
14 The Exchange would also be deleting the 14th
through 16th paragraphs of Rule 123D(b) regarding
Floor Official approval for ‘‘tape indications,’’
which are Rule 123D Mandatory Indications. The
Exchange believes that proposed Rule 15(e)(1)
simplifies the approval process and obviates the
need for this Rule 123D rule text.
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Proposed Rule 15(e)(2) would provide
that a pre-opening indication must be
updated if the opening transaction
would be at a price outside of a
published pre-opening indication.
Proposed Rule 15(e)(3) would further
require that if a pre-opening indication
is a spread wider than $1.00, the DMM
should undertake best efforts to publish
an updated pre-opening indication of
$1.00 or less before opening the
security, as may be appropriate for the
specific security. Proposed Rules
15(e)(2) and (e)(3) are based, in part, on
the second and third bullet points
following the ninth paragraph of Rule
123D(b),15 but with new rule text to
simplify the requirements regarding
updating pre-opening indications. With
respect to proposed Rule 15(e)(3), for
higher-priced securities, a pre-opening
indication wider than $1.00 may be
appropriate and it may not be necessary
to narrow such indication any further,
particularly since Opening Imbalance
Information pursuant to Rule 15(c)
(proposed Rule 15(g)) would also be
disseminated regarding the security.
Proposed Rule 15(e)(4) would provide
that, after publication of a pre-opening
indication, the DMM must wait for the
following minimum specified periods
before opening a security:
• Proposed Rule 15(e)(4)(A) would
provide that, when using the 5%
Applicable Price Range specified in
proposed Rule 15(d)(1), a minimum of
three minutes must elapse between
publication of the first indication and a
security’s opening. The rule would
further provide that, if more than one
15 The second bullet following the ninth
paragraph of Rule 123D(b) requires that the number
of indications should increase in proportion to the
anticipated disparity in the opening or reopening
price, with increasingly definitive, ‘‘telescoped’’
indications when an initial narrow indication
spread is impractical. The third bullet provides for
similar requirements following a non-regulatory
halt, and specifically that a final indication with a
one point (one dollar) spread would be appropriate.
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indication has been published, a
security may be opened one minute
after the last published indication
provided that at least three minutes
have elapsed from the dissemination of
the first indication. These first two
sentences of proposed Rule 15(e)(4)(A)
are based on rule text set forth in the
twelfth and thirteenth paragraphs of
current Rule 123D(b). Proposed Rule
15(e)(4)(A) would further provide that
the DMM may open a security less than
the required wait times after the
publication of a pre-opening indication
if the imbalance is paired off at a price
within the Applicable Price Range. This
proposed exception to the three-minute
waiting requirement is new and is
because the Exchange believes that, if
equilibrium in price has been reached at
a price within the Applicable Price
Range, i.e., at a price that would not
have required a pre-opening indication
in the first instance, there is no reason
to require the DMM to further delay the
opening of the security in an effort to
attract offsetting interest.
• Proposed Rule 15(e)(4)(B) would
provide that, when using the 10%
Applicable Price Range specified in
Proposed Rule 15(d)(2), a minimum of
one minute must elapse between
publication of the first indication and a
security’s opening and that if more than
one indication has been published, a
security may be opened without waiting
any additional time. As discussed
above, proposed Rule 15(d)(2) would
provide for new percentage parameters
for trading days with extreme marketwide volatility. Based on the analysis of
trade data for August 24, 2015, even
with the new percentage parameters,
there is the potential for 278 preopening indications to be required on an
extremely volatile trading day. Because
these pre-opening indications would be
manually published by the DMM, the
Exchange believes that eliminating
additional wait times would enable the
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Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices
DMMs to facilitate a speedy opening for
a security that has been subject to a preopening indication on days with
extreme market-wide volatility.
Proposed Rule 15(e)(5) would provide
that, if trading is halted for a nonregulatory order imbalance, a preopening indication must be published
as soon as practicable after the security
is halted. This proposed rule text is
based on the first sentence of the third
bulleted paragraph following the ninth
paragraph in Rule 123D(b), with a
proposed substantive difference that a
pre-opening indication should be
published ‘‘as soon as practicable,’’
rather than ‘‘immediately,’’ after a
security is halted. The Exchange
believes that the proposed approach
provides for more flexibility for the
DMM to assess the order imbalance and
publish a pre-opening indication that
takes into consideration all applicable
factors.
Proposed Rule 15(e)(6) would set
forth the requirements for pre-opening
indications when reopening a security
following a trading pause under Rule
80C.16 Proposed Rule 15(e)(6)(A) would
provide that a pre-opening indication
may be published without prior Floor
Governor approval. Proposed Rule
15(e)(6)(B) would provide that a preopening indication would not need to
be updated before reopening the
security, and the security may be
reopened outside of any prior
indication. Lastly, proposed
Rule15(e)(6)(C) would provide that the
reopening is not subject to the minimum
waiting time requirements in Proposed
Rule 15(e)(4). Proposed Rules
15(e)(6)(A)–(C) are based on Rule
80C(b)(2)(A), with non-substantive
differences to use different rule text
cross-references.
Proposed Rule 15(f), entitled
‘‘Temporary Suspension of Pre-Opening
Indications,’’ would provide in
proposed Rule 15(f)(1) that if the CEO of
the Exchange determines that a Floorwide event is likely to impact the ability
of DMMs to arrange for a fair and
orderly opening or reopening and that
absent such relief, operation of the
Exchange is likely to be impaired, the
CEO of the Exchange may temporarily
suspend the requirement to publish preopening indications under Rule 15 prior
to opening or reopening a security
following a market-wide trading halt.17
16 Rule 80C sets forth the Exchange’s rules to
comply with the requirements of the Plan to
Address Extraordinary Market Volatility submitted
to the Commission pursuant to Rule 608 of
Regulation NMS under the Act known as the Limit
Up/Limit Down (‘‘LULD’’) Plan.
17 Pursuant to Rule 1, the CEO of the Exchange
may formally designate one or more qualified
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Proposed Rule 15(f) is based in part
on Rule 48, which provides that a
qualified Exchange officer may declare
an extreme market volatility condition
and temporarily suspend the
requirements for pre-opening
indications.18 Because the Exchange
would be specifying new percentage
parameters for pre-opening indications
on trading days with market-wide
volatility, the Exchange does not believe
that it needs Rule 48 in its current form.
While the Exchange expects that its
other proposed changes to DMMs’
requirements related to pre-opening
indications will make it unlikely that a
complete suspension of pre-opening
indications would be required, the
Exchange believes it would be prudent
for the CEO of the Exchange to retain
the authority to temporarily suspend the
requirements to make pre-opening
indications for events that it cannot
currently predict. Accordingly, rather
than refer to extreme market-wide
volatility as in current Rule 48,
proposed Rule 15(f)(1) would refer to a
Floor-wide event that could impact the
fair and orderly opening or reopening of
securities more generally.
Proposed Rule 15(f)(2), which is based
on Rule 48(c)(1)(A), would specify the
range of factors that the CEO of the
Exchange would be required to consider
in making any determination to
temporarily suspend the requirement for
pre-opening indications.19 In addition,
similar to Rule 48(c)(1)(B) and
48(c)(1)(C), proposed Rules 15(f)(2)(B)
and (C) would require the CEO to
consult with the CRO of the Exchange
in making a determination under
proposed Rule 15(f)(1) and inform
Commission staff as promptly as
practicable that pre-opening indications
under Rule 15 have been temporarily
suspended. Proposed Rule 15(f)(3),
employees of Intercontinental Exchange, Inc.
(‘‘ICE’’) to act in place of any person named in a
rule as having authority to act under such rule in
the event the named person in the rule is
unavailable to administer that rule.
18 Rule 48(d) defines a ‘‘qualified Exchange
officer’’ for purposes of Rule 48 as the CEO of ICE,
or his or her designee, or the Chief Regulatory
Officer (‘‘CRO’’) of the Exchange, or his or her
designee. The Exchange proposes to streamline its
rules to specify that only the CEO of the Exchange
would have the authority to temporarily suspend
the requirement for pre-opening indications.
However, pursuant to Rule 1, the CEO could
delegate this authority to other qualified ICE
employees.
19 As provided for in Rule 48(c)(1)(A), these
factors include volatility in the previous day’s
trading session, trading in foreign markets before
the open, substantial activity in the futures market
before the open, the volume of pre-opening
indications of interest, evidence of pre-opening
significant order imbalances across the market,
government announcements, news and corporate
events, and such other market conditions that could
impact Floor-wide trading conditions.
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which is based on Rule 48(c)(4), would
provide that a temporary suspension
under Rule 15(f) would be in effect only
for the trading day on which it was
declared.20 Finally, proposed Rule
15(f)(4) would provide that
notwithstanding a temporary
suspension of the requirement to
publish pre-opening indications in a
security under Rule 15, a DMM or the
Exchange may publish a pre-opening
indication for one or more securities.
This proposed rule text, which is based
in part on Rule 48(c)(5), would allow a
DMM or the Exchange to publish a preopening indication, even if the rule
were suspended.21 Unlike Rule 48(c)(5),
which specifies conditions when the
DMM should still publish a pre-opening
indication, proposed Rule 15(f)(3)
would not require pre-opening
indications, but rather, would allow
them to be published even if the rule
were temporarily suspended.
Because the Exchange has added new
subsections to Rule 15, the Exchange
proposes to renumber Rule 15(c) as Rule
15(g) and to add a header to this
subsection of rule entitled ‘‘Opening
Order Imbalance Information.’’ In
addition to re-designating the rule from
Rule 15(c) to Rule 15(g), the Exchange
proposes non-substantive differences to
re-number the subsections of proposed
Rule 15(g) to use the same numbering
convention as proposed for proposed
Rule 15(a)–(f), delete the phrase ‘‘the
provisions of’’ in proposed Rule
15(g)(2)(B), and remove the reference to
subparagraph (b) by deleting the phrase
‘‘or (b).’’
The Exchange also proposes a
substantive difference to change Rule
15(c)(3)(iii) (re-numbered as proposed
Rule 15(g)(3)(C)) to increase the
frequency with which the Exchange
disseminates Order Imbalance
Information 22 beginning at 9:20 a.m.
20 Rule 48(c)(4) provides that that a declaration of
an extreme market volatility condition under Rule
48 shall be in effect only for the particular opening
or reopen for the trading session on the particular
day that the extreme market volatility condition if
determined to exist.
21 Rule 48(c)(5) provides that a declaration of an
extreme market volatility condition shall not relieve
DMMs from the obligation to make pre-opening
indications in situations where the opening of a
security is delayed for reasons unrelated to the
extreme market volatility condition.
22 Order Imbalance Information reflects real-time
order imbalances that accumulate prior to the
opening transaction on the Exchange and the price
at which interest eligible to participate in the
opening transaction may be executed in full. Order
Imbalance Information disseminated pursuant to
Rule 15(c) includes all interest eligible for
execution in the opening transaction of the security
in Exchange systems, i.e., electronic interest,
including Floor broker electronic interest, entered
into Exchange systems prior to the opening. Order
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Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices
DMM Automated Openings
As noted above, the process for
publishing either Rule 15 Indications or
Rule 123D Mandatory Indications is
manual, and is generally followed by
the DMM effecting the opening of a
security manually rather than
electronically. Consistent with this
approach, the Exchange currently
systemically blocks DMMs from
opening a security electronically if the
opening price would be outside of price
parameters that are based on the price
buckets and applicable price ranges
specified in Rule 15(a). The Exchange
similarly blocks DMMs from
electronically opening a security if size
of the opening transaction would be a
significant volume, which similarly
would indicate the potential need for
manual oversight of the opening
process.
Because the DMM is not obligated to
open a security electronically, the
Exchange has not historically specified
in its rules the parameters for when the
DMM may effect an opening
electronically.24 However, following the
events of the week of August 24, 2015,
the Exchange believes that specifying in
Exchange rules the conditions in which
a DMM is permitted to open a security
electronically would provide greater
transparency in Exchange rules. The
Exchange therefore proposes to amend
Rule 123D(a) to specify when a DMM
may effect an opening electronically.
In specifying parameters for when a
DMM may effectuate an opening
electronically, the Exchange proposes to
adopt parameters and requirements that
would be structured similarly to the
proposed parameters for new Rule 15
pre-opening indications, as discussed
above. To effect this change, the
Exchange proposes new subsection
numbering to Rule 123D(a)(1) to break
out the third and fourth sentences of
current Rule 123D(a)(1) to be proposed
Rules 123D(a)(1)(A) and (B).25 The
Exchange proposes to add to proposed
Rule 123D(a)(1)(B) that Exchange
systems would not permit a DMM to
open a security electronically if a DMM
has manually entered Floor interest.
This is how Exchange systems currently
function and is similar to Rule 123C.10
regarding when a DMM may close a
security electronically.
The Exchange proposes to set forth
the parameters for when a DMM may
effect an opening electronically in new
proposed Rules 123D(a)(1)(B)(i) and (ii):
• Proposed Rule 123D(a)(1)(B)(i)
would provide that except under the
conditions set forth in Rule
123D(a)(1)(B)(ii), a DMM may not effect
an opening electronically if the opening
transaction would be at a price more
than 4% away from the Official Closing
Price, as defined in Rule 123C(1)(e), or
the matched volume for the opening
transaction would be more than (a)
150,000 shares for securities with an
average opening volume of 100,000
shares or fewer in the previous calendar
quarter; or (b) 500,000 shares for
securities with an average opening
volume of over 100,000 shares in the
previous calendar quarter. For purposes
of this Rule, the calendar quarters will
be based on a January 1 to December 31
calendar year.
• Proposed Rule 123D(a)(1)(B)(ii)
would provide that if as of 9:00 a.m. ET,
the E-mini S&P 500 Futures are plus or
minus 2% from the prior day’s closing
price of the E-mini S&P 500 Futures, or
if the Exchange determines that it is
necessary or appropriate for the
maintenance of a fair and order market,
a DMM could effect an opening
electronically if the opening transaction
would be at a price of up to 8% away
from the Official Closing Price, as
defined in Proposed Rule 123C(1)(e),
without any volume limitations.
Similar to the new Applicable Price
Ranges for pre-opening indications
proposed in Rule 15(d) above, the
Exchange proposes to use a single
percentage parameter for all securities,
regardless of price. The Exchange also
proposes to double those percentage
parameters on days with extreme
market-wide volatility, and would use
the same standard for determining
whether there is market-wide volatility
as is proposed in Rule 15(d)(2),
described above. Because the Exchange
continues to believe that, if a preopening indication has been published,
a security is better served if a DMM
effects a manual opening, the Exchange
proposes to apply percentage
parameters to DMM automated openings
that are tighter than the requirements for
publishing a pre-opening indication. In
other words, if a pre-opening indication
would be required under proposed Rule
15, the DMM would not be permitted to
effect an opening electronically. To
achieve this goal, the Exchange
proposes that the percentage parameter
on a regular trading day for DMM
automated opens should be one percent
lower than the percentage parameter for
pre-opening indications on a regular
trading day. And as with pre-opening
indications, on a day with extreme
market-wide volatility, the applicable
percentage would be doubled.
The Exchange believes that the
proposed conditions for when a DMM
may effect an opening electronically
would reduce the number of manual
openings and enable more securities to
open closer to 9:30 a.m. ET, both on
regular trading days and on extremely
volatile trading days such as August 24,
2015.
Tables 3 through 5 below illustrate
how many securities would not be
eligible for a DMM to effect an opening
electronically when applying the
current and proposed percentage and
volume parameters to trade data from
October 2015 and trade data from
August 24, 2015.
Imbalance Information is disseminated on the
Exchange’s proprietary data feeds. See Rule
15(c)(1).
23 See, e.g., proposed Rules 15(d)(2) (referring
only to reopenings following a market-wide trading
halt under Rule 80B) and 15(e)(6) (specifying
different procedures when reopening trading
following a trading pause).
24 Rule 123D does not require DMMs to open a
security electronically; a DMM may determine that
in the particular circumstances for a security,
manually opening the security may be warranted,
even if the price would be within the Applicable
Price Range. For example, if a Floor broker has
represented an order in the Crowd, the DMM will
open a security manually.
25 The Exchange also proposes a non-substantive
amendment to change the term ‘‘stock’’ to
‘‘security.’’
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ET. Currently, under Rule 15(c)(3)(iii),
Order Imbalance Information is
disseminated approximately every 15
seconds between 9:20 a.m. ET and the
opening of trading in that security. The
Exchange proposes to disseminate Order
Imbalance Information approximately
every 5 seconds between 9:20 a.m. ET
and the opening of trading in that
security. The Exchange believes that
increasing the frequency with which
Order Imbalance Information is
disseminated would provide market
participants with additional updated
pre-opening information, thus
promoting transparency for the opening
transaction.
Finally, the Exchange proposes to add
new Supplementary Material .10 to Rule
15 providing that, unless otherwise
specified in the proposed Rule,23
references to an opening transaction
include a reopening transaction
following a trading halt or pause in a
security. Currently, Rule 123D
Mandatory Indications are required for
both openings and reopenings. Because
proposed Rule 15 indications would
similarly be required for openings and
reopenings following a halt or pause,
the Exchange proposes to add
Supplementary Material .10 to Rule 15.
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For example, as set forth in Table 3,
using current price parameters and a
100,000 share volume parameter, in
October 2015, 94 securities (13.4% of
securities) on average each day were not
eligible to be opened by the DMM
electronically. As demonstrated in Table
4, using the proposed 4% price and
tiered volume parameters, a comparable
47 securities (1.7% of securities) on
average in October would not have been
eligible to be opened by the DMM
electronically.
With respect to the proposed volume
parameters, the Exchange believes that
having a parameter tied to higher-thanaverage opening volume in a security
would better reflect whether opening
electronically would be appropriate. For
example, as the data show in Table 4,
there were 74 securities averaging daily
opening volume over 100,000 shares in
the previous quarter (3Q15) and three of
those securities had opening volume of
over 500,000 shares on an average daily
basis in October. The Exchange believes
that if a security has a higher-thanaverage opening volume on a quarterly
basis without any corresponding price
dislocation, then the volume of shares
trading on the opening for such
securities is not representative of any
volatility for that security, but rather, is
a regular state of affairs that does not
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require a high-touch opening managed
by a DMM on the trading Floor. Rather,
such securities would benefit from
being available for the DMM to open
electronically in order to promote a fair
and orderly opening at or near the open
of trading.
As with pre-opening indications, the
Exchange proposes to double the
percentage parameter on trading days
with extreme market-wide volatility and
eliminate the volume parameter. As
illustrated in Table 5, doubling the
percentage parameter and eliminating
the volume parameters would allow
DMMs to open most securities
electronically even during extreme
market-wide volatility. As trade data
from August 24, 2015 set forth in Table
3 illustrates, the current percentage
parameters restricted DMMs from
opening 1,753 securities electronically,
which represents 58.4% of securities.26
As set forth in Table 5, applying the
proposed 8% percentage parameter
would have allowed DMMs to open all
but 573 securities electronically, which
represents 19.1% of the securities
traded on the Exchange.
26 On August 24, 2015, DMMs also chose not to
open securities electronically, even if they would
have been priced within the current price
parameters.
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The Exchange also proposes to add a
new paragraph (c) to Rule 123D entitled
‘‘Temporary Suspension of DMM
Automated Opening Limitations or
Floor Official Approval.’’ Similar to
proposed Rule 15(f), if the CEO of the
Exchange determines that a Floor-wide
event it likely to have an impact on the
ability of DMMs to arrange for a fair and
orderly opening or reopening following
a market-wide trading halt at the
Exchange and that, absent relief, the
operation of the Exchange is likely to be
impaired, the CEO of the Exchange may
temporarily suspend the prohibition on
a DMM opening a security electronically
if the opening transaction would be
more than the price or volume
parameters specified in proposed Rule
123D(a)(1)(B). This would be a new
suspension authority that relates to the
proposed new price and volume
parameters for when a DMM may open
a security electronically. The Exchange
believes that having this temporary
suspension authority would be
appropriate for situations if the DMM is
unable to open a security manually,
either due to unavailability of 11 Wall
Street facilities or because of systems or
technical issues with Floor-based tools
for manually opening a security.
Proposed Rule 123D(c) would also
provide that if the CEO of the Exchange
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determines that a Floor-wide event is
likely to have an impact on the ability
of DMMs to arrange for a fair and
orderly opening or reopening following
a market-wide trading halt at the
Exchange, and that absent relief, the
operation of the Exchange is likely to be
impaired, the CEO of the Exchange may
temporarily suspend (i) the prohibition
on a DMM opening a security
electronically if the opening transaction
will be more than the price or volume
parameters specified in proposed Rule
123D(a)(1)(B); or (ii) the need under
Rule 123D(b) for prior Floor Official
approval to open or reopen a security
following a market-wide trading halt.
This proposed rule change is similar to
authority in current Rule 48, which
permits a qualified Exchange officer to
temporarily suspend the need for prior
Floor Official or prior NYSE Floor
operations approval to open or reopen a
security following a market-wide
trading halt. While the Exchange
expects that its other proposed changes
to Rule 123D would make it unlikely
that a complete suspension of prior
Floor Official approval would be
required, the Exchange believes it
would be prudent for the CEO of the
Exchange to retain the authority
temporarily suspend such requirements
for events that it cannot currently
predict. The Exchange also proposes a
new temporary suspension that
correlates to the proposed new price
and volume parameters for when a
DMM may open a security
electronically. The Exchange expects
that this relief would be required if 11
Wall Street facilities were unavailable
and DMMs would be required to open
all securities remotely, and thus
electronically.
Proposed Rule 123D(c)(2)–(3) are
nearly identical to proposed Rule
15(f)(1)–(3), as described in greater
detail above, with changes only to
address that this proposed rule relates to
the temporary suspension of the
requirements for specified paragraphs of
Rule 123D. Proposed Rule 123D(c)(2)–
(3) is based on the same provisions of
Rule 48 that proposed Rule 15(f)(2)–(4)
is based on, which is discussed in
greater detail above.
The miscellaneous and technical
amendments proposed to Rule 123D are
as follows:
• The Exchange proposes to amend
Rule 123D(a)(5) (Pre-Opening
Information) to change the citation to
Rule 15(c) to 15(g) based on the
proposed changes to Rule 15, described
above, and delete the word ‘‘either’’ and
the references to Rule 123D.
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• The Exchange proposes to delete
the phrase ‘‘Halts in Trading’’ from the
heading of Rule 123D(b).
• Also in Rule 123D(b), the Exchange
proposes to delete the text relating to
the dissemination of mandatory
indications beginning with the sentence
‘‘If an unusual situation exists, such as
a large order imbalance, tape indications
should be disseminated, including
multiple indications if appropriate with
the supervision of a Floor Official’’
through and including the sentence ‘‘An
Executive Floor Governor or Floor
Governor should be consulted in any
case where there is not complete
agreement among the Floor Officials
participating in the discussion.’’ This
rule text all pertains to Rule 123D
Mandatory indications, which, as
discussed above, would be governed by
proposed Rule 15.
• The Exchange proposes to add a
new heading (c) entitled ‘‘Halts in
Trading’’ before the sentence ‘‘Once
trading has commenced, trading may
only be halted with the approval of a
Floor Governor or two Floor Officials’’
in current Rule 123D(b) and change
current headings (c) (Equipment
Changeover) and (d) of Rule 123D to (d)
and (e), respectively.
• Finally, in current Rule 123D(c)
(Proposed Rule 123D(e)), to reflect that
all information relating to pre-opening
indications, including the Applicable
Price Ranges and Reference Prices, are
now described in Rule 15, the Exchange
proposes to delete the phrase ‘‘a
significant order imbalance (one which
would result in a price change from the
last sale of one point or more for stocks
under $10, the lesser of 10% or three
points for $10—$99.99 and five points
if $100 or more—unless a Floor
Governor deems circumstances warrant
a lower parameter) develops’’ and add
the phrase ‘‘a pre-opening indication
would be required to be published’’ in
its place.
Rule 48
The Exchange proposes to delete Rule
48 in its entirety. As discussed above,
the Exchange is proposing changes to
Rules 15 and 123D that it believes will
allow DMMs to publish pre-opening
indications in a manageable number of
securities, even on days of high
volatility, which would promote
transparency regarding opening prices
at the Exchange. In addition, and as
described above, the Exchange is
incorporating into Rules 15 and 123D
authority for the CEO of the Exchange
to temporarily suspend the requirement
to publish pre-opening indications, the
pricing and volume limitations for a
DMM to open a security electronically,
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and for a DMM to obtain Floor Official
approval under Rule 123D(b) when
opening or reopening a security, if the
CEO of the Exchange determines that
such relief is necessary to the ability of
DMMs to open the securities and to the
operation of the Exchange. Accordingly,
the Exchange believes that the Rule 48
is no longer necessary.
Conforming and Technical
Amendments—Rules 80C, 124 and 9217
Rule 80C
The Exchange proposes conforming
amendments Rule 80C(b)(2), which
governs a Trading Pause under the
LULD Plan.
First, Rule 80C(b)(2) requires that the
Exchange re-open the security in a
manner similar to the procedures set
forth in Rule 123D following a Trading
Pause (as defined therein). The
Exchange proposes to add a reference to
Rule 15 to Rule 80C(b)(2), so that the
requirement to re-open would be in a
manner similar to Rules 15 and 123D.
Second, the Exchange proposes to
delete subdivision (A) of Rule 80C(b)(2)
in its entirety and mark the deleted text
as ‘‘Reserved.’’ As noted above, the
requirements for reopening a security
following a trading pause set forth in
Rule 80C would be codified in proposed
Rule 15(d)(6).
Rule 124
The Exchange proposes to amend
subsection (c)(1) of Rule 124 (Midday
Auction), describing the reopening
process for the Midday Auction in the
same manner as in Rule 123D for
reopenings, by adding ‘‘pre-opening’’
before the word ‘‘indication’’ in four
places and deleting the reference ‘‘to the
Consolidated Tape’’ in the first
sentence.
Rule 9217
The Exchange also proposes to amend
Rule 9217, which sets forth the list of
rules under which a member
organization or covered person may be
subject to a fine under a minor rule
violation plan as set forth in Rule
9216(b). Rule 9217 permits a summary
fine for violations of Rule 123D
requirements for DMMs relating to
openings, reopenings, delayed openings,
trading halts, and tape indications. The
Exchange proposes to delete the clause
‘‘tape indications’’ to reflect elimination
of mandatory indications from Rule
123D. The Exchange believes this
proposed change would add
transparency and clarity to the
Exchange’s rules.
*
*
*
*
*
Because of the technology changes
associated with the proposed rule
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
change, the Exchange will announce by
Trader Update the implementation date
of the changes.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,27 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,28 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices,
promote just and equitable principles of
trade, 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.
The Exchange believes that
streamlining and consolidating preopening indications into a single rule
(Rule 15) from two (Rules 15 and 123D)
would remove impediments to and
perfect the mechanism of a free and
open market because it would set forth
in a single rule the requirements for preopening indications, thereby promoting
transparency by using consistent
terminology for rules governing equities
trading and ensuring that members,
regulators, and the public can more
easily navigate the Exchange’s rulebook.
The Exchange believes that adopting
new single-wide (5% change) and
double-wide (10% change if S&P 500
futures move 2%) percentage
parameters for the publication of preopening indications would remove
impediments to and perfect the
mechanism of a free and open market by
requiring issuance of more pre-opening
indications than currently during times
of market stress, thereby increasing the
amount of information available in the
pre-market and improving the quality of
price discovery at the opening. The
proposed rule therefore promotes just
and equitable principles of trade
because it would expand the amount of
pre-opening information available to the
marketplace, thereby promoting
transparency. For the same reasons, the
proposal is also designed to protect
investors as well as the public interest.
The Exchange believes that amending
Rule 123D to specify when a DMM may
effect an opening electronically would
remove impediments to and perfect the
mechanism of a free and open market by
promoting transparency in Exchange
rules regarding under what
circumstances a DMM may effect an
opening electronically. The Exchange
believes that the proposed parameters
for when a DMM may open a security
electronically, which would be 4% on
27 15
28 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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regular trading days and doubled to 8%
in times of market stress, would remove
impediments to and perfect the
mechanism of a free and open market by
reducing the number of manual
openings and enabling more securities
to open closer to 9:30 a.m. ET on
extremely volatile trading days, thereby
providing customers and the investing
public with greater certainty of a timely
open in circumstances of extreme
market stress. The Exchange further
believes that the proposal would
advance the efficiency and transparency
of the opening process, thereby fostering
accurate price discovery at the open of
trading. For the same reasons, the
proposal is also designed to protect
investors as well as the public interest.
The Exchange believes that deleting
Rule 48 and moving the applicable
provisions to Rules 15 and 123D would
remove impediments to and perfect the
mechanism of a free and open market by
reducing reliance on Rule 48 during
extremely volatile trading days. Rather,
as proposed, the need for the CEO of the
Exchange to temporarily suspend either
pre-opening indications or the need for
prior Floor Official approval before
opening or reopening a security would
be under more narrow circumstances of
when a Floor-wide event would impair
the Exchange’s ability to conduct a fair
and orderly open or reopening. As
discussed above, the proposed
amendments to Rule 15 and 123D to
provide for parameters on days with
extreme market-wide volatility would
obviate the need for the current Rule 48
ability to lift the requirements for preopening indications or prior Floor
Official approval during extreme
market-wide volatility. The Exchange
further believes that the proposal would
advance the efficiency and transparency
of the opening process, thereby fostering
accurate price discovery at the open of
trading. For the same reasons, the
proposal is also designed to protect
investors as well as the public interest.
The Exchange believes that making
corresponding conforming changes to
Rules 80C, 124 and 9217 would remove
impediments to and perfects the
mechanism of a free and open market by
reducing potential confusion and
adding transparency and clarity to the
Exchange’s rules, thereby ensuring that
members, regulators and the public can
more easily navigate and understand the
Exchange’s rulebook.
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
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20039
of the purposes of the Act. The
proposed rule change is not intended to
address competitive issues but rather
promote greater efficiency and
transparency at the open of trading on
the Exchange.
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
up to 90 days (i) as the Commission may
designate 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.
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–
NYSE–2016–24 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2016–24. 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
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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–NYSE–
2016–24 and should be submitted on or
before April 27, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–07838 Filed 4–5–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77483; File No. SR–NSX–
2016–01]
Self-Regulatory Organizations;
National Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change To Adopt
Exchange Rule 11.26 To Implement the
Regulation NMS Plan To Implement a
Tick Size Pilot Program
asabaliauskas on DSK3SPTVN1PROD with NOTICES
March 31, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 29,
2016, National Stock Exchange, Inc.
(‘‘NSX’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change, as described
in Items I and II below, which Items
have been substantially prepared by the
Exchange. The Exchange has designated
this proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
1 15
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17:54 Apr 05, 2016
Jkt 238001
19b–4(f)(6)(iii) 4 thereunder, which
renders it effective upon filing with the
Commission. 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 filed a proposal to
adopt Exchange Rule 11.26 to
implement the Regulation NMS Plan to
Implement a Tick Size Pilot Program
(the ‘‘Plan’’). Specifically, the Exchange
has proposed Rule 11.26(b) to set forth
the requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan. The
proposed rule change is substantially
similar to proposed rule changes
recently approved or published by the
Commission for the Bats BZX Exchange,
Inc. f/k/a BATS Exchange, Inc. (‘‘BZX’’)
to adopt BZX Rule 11.27(b) which also
sets forth requirements for the collection
and transmission of data pursuant to
Appendices B and C of the Plan.5 The
Exchange has designated this proposal
as ‘‘non-controversial’’ and provided the
Commission with the notice required by
Rule 19b–4(f)(6)(iii) under the Act.6
The text of the proposed rule change
is available at the Exchange’s Web site
at www.nsx.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
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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On August 25, 2014, NYSE Group,
Inc., on behalf of BZX, Chicago Stock
4 17
CFR 240.19b–4(f)(6)(iii).
Securities Exchange Act Release Nos. 77105
(February 10, 2016), 81 FR 8112 (February 17, 2016)
(order approving SR–BATS–2015–102); and 77310
(March 7, 2016) (notice for comment and immediate
effectivesness of SR–BATS–2016–27).
6 17 CFR 240.19b–4(f)(6)(iii).
5 See
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Exchange, Inc., Bats EDGA Exchange,
Inc., Bats EDGX Exchange, Inc.,
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), NASDAQ
OMX BX, Inc., NASDAQ OMX PHLX
LLC, the Nasdaq Stock Market LLC,
New York Stock Exchange LLC
(‘‘NYSE’’), NYSE MKT LLC, and NYSE
Arca, Inc. (collectively ‘‘Participants’’),
filed with the Commission, pursuant to
Section 11A of the Act 7 and Rule 608
of Regulation NMS thereunder,8 the
Plan to Implement a Tick Size Pilot
Program (‘‘Pilot’’).9 The Participants
filed the Plan to comply with an order
issued by the Commission on June 24,
2014.10 The Plan 11 was published for
comment in the Federal Register on
November 7, 2014 and was thereafter
approved by the Commission, as
modified, on May 6, 2015.12 On
November 6, 2015, the Commission
granted the Participants an exemption
from implementing the Plan until
October 3, 2016.13 On March 3, 2016,
the Commission noticed an amendment
to the Plan adding NSX as a
Participant.14
The Plan is designed to allow the
Commission, market participants, and
the public to study and assess the
impact of increment conventions on the
liquidity and trading of the common
stocks of small-capitalization
companies. Each Participant is required
to comply, and to enforce compliance
by its member organizations, as
applicable, with the provisions of the
Plan. As is described more fully below,
the proposed rules would require ETP
Holders 15 to comply with the
applicable data collection requirements
of the Plan.16
7 15
U.S.C. 78k–1.
CFR 242.608.
9 See Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014.
10 See Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
11 Unless otherwise specified, capitalized terms
used in this rule filing are based on the defined
terms of the Plan.
12 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015) (File No.
4–657) (‘‘Approval Order’’).
13 See Securities Exchange Act Release No. 76382
(November 6, 2015), 80 FR 70284 (November 13,
2015) (File No. 4–657) (Order Granting Exemption
From Compliance With the National Market System
Plan To Implement a Tick Size Pilot Program).
14 See Securities Exchange Act Release No. 77277
(March 3, 2016), 81 FR 12162 (March 8, 2016).
15 An ‘‘ETP Holder’’ is a registrant of NSX to
which NSX has issued an ETP. An ‘‘ETP’’ is defined
as the term ‘‘ETP’’ is defined, in relevant part, as
‘‘. . . an Equity Trading Permit issued by the
Exchange for effecting approved securities
transactions on the Exchange’s trading
facilities . . . .’’ See Exchange Rule 1.5.E(1).
16 The Exchange proposes Interpretations and
Policies .11 to Rule 11.26 to provide that the Rule
8 17
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]]>Agencies
[Federal Register Volume 81, Number 66 (Wednesday, April 6, 2016)]
[Notices]
[Pages 20030-20040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07838]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77491; File No. SR-NYSE-2016-24]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
2, Amending Its Rules Relating to Pre-Opening Indications and Opening
Procedures To Promote Greater Efficiency and Transparency at the Open
of Trading on the Exchange
March 31, 2016.
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 March 31, 2016, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') 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.
---------------------------------------------------------------------------
\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 Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules relating to pre-opening
indications and opening procedures to promote greater efficiency and
transparency at the open of trading on the Exchange. This Amendment No.
2 supersedes the original filing in its entirety. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its rules relating to pre-opening
indications and opening procedures to promote greater efficiency and
transparency at the open of trading on the Exchange. In particular, the
Exchange proposes to:
Make changes to the rules related to the pre-opening
indication process by:
[cir] Amending Rules 15 and 123D to consolidate the requirements
for publication of pre-open indications in a single rule (Rule 15);
[cir] changing the conditions in which a Designated Market Maker
(``DMM'') is required to publish a pre-opening indication in a security
to an anticipated 5% move from a security's reference price and, during
extreme market-wide volatility, an anticipated 10% from a security's
reference price; and
[cir] providing for the CEO of the Exchange to temporarily suspend
the requirement to publish pre-opening indications.
Make changes to Rule 123D related to the opening process
by:
[cir] Incorporating all procedures relating to openings, other than
pre-opening indications, in Rule 123D; and
[cir] Specifying that DMMs may effect an opening of a security
electronically within specified percentage and volume parameters, which
would be doubled during extreme market-wide volatility; and
[cir] providing for the CEO of the Exchange to temporarily suspend
price and volume limitations for a DMM
[[Page 20031]]
automated open or the requirement for prior Floor Approval before
opening or reopening a security.
Delete Rule 48
Make conforming changes to Rules 80C, 124 and 9217.
The Exchange believes that the proposed changes will enhance
transparency regarding the Exchange's opening process by specifying new
parameters for how the opening at the Exchange would be effectuated on
trading days experiencing extreme market-wide volatility, which would
include both additional information before the open through the use of
new parameters for pre-opening indications and expanded ability for
DMMs to effectuate an opening electronically. The proposed rule changes
are designed to preserve the Exchange's existing model, which values
human touch when opening securities with significant price or volume
disparity, while at the same time promoting automated measures to have
as many securities open as close to 9:30 a.m. as feasible, even during
extreme market-wide volatility.
Background
The Exchange's current pre-opening procedures are outlined in Rules
15 (Pre-Opening Indications), 48 (Exemptive Relief--Extreme Market
Volatility Condition), and 123D (Openings and Halts in Trading).
Rule 15(a) provides that if the opening transaction in a security
will be at a price that represents a change of more than the
``applicable price change'' specified in the Rule,\4\ the DMM arranging
the opening transaction or the Exchange shall issue a pre-opening
indication (``Rule 15 Indication''), which represents a price range in
which a security is anticipated to open.
---------------------------------------------------------------------------
\4\ In current Rule 15, other than for certain American
Depositary Receipts (``ADRs''), the ``applicable price change'' is
measured from a security's last reported sale price on the Exchange,
the security's offering price in the case of an initial public
offering (``IPO''), or the security's last reported sale price on
the market from which it is being transferred. For an ADR where the
trading day of the underlying security in the primary foreign market
for the ADR concludes after the previous day's trading in the US has
ended, the ``applicable price change'' is measured from closing
price of the primary foreign market. For an ADR where the primary
foreign market on which the underlying security is open for trading
at the time of the opening of the Exchange, the ``applicable price
change'' is measured from parity with the last sale price of the
underlying security.
---------------------------------------------------------------------------
A Rule 15 Indication is published on the Exchange's proprietary
data feeds only and includes the security and the price range within
which the DMM anticipates the opening transaction will occur, and would
include any orally-represented Floor broker interest for the open. The
applicable price ranges for determining whether to publish a Rule 15
Indication are based on five different price buckets and are expressed
in dollar and percentage parameters:
------------------------------------------------------------------------
Applicable
Exchange closing price price change
(more than)
------------------------------------------------------------------------
Under $20.00............................................ $0.50
$20-$49.99.............................................. $1.00
$50.00-$99.99........................................... $2.00
$100-$500............................................... $5.00
Above $500.............................................. 1.5%
------------------------------------------------------------------------
Rule 123D also mandates that pre-opening indications be published
if the opening price would result in a significant price change from
the previous close or if the opening is delayed past 10:00 a.m. Eastern
Time (``Rule 123D Mandatory Indication''). The DMM is responsible for
publishing the Rule 123D Mandatory Indication and, when determining the
price range for the indication, takes into consideration Floor broker
interest that has been orally entered and what, at a given time, the
DMM anticipates the dealer participation in the opening transaction
would be. Rule 123D Mandatory Indications are published to the
Consolidated Tape and proprietary data feeds. The applicable price
ranges for determining whether an opening price would be a
``significant'' price change requiring a Rule 123D Mandatory Indication
are based on three price buckets and are expressed in a mixture of
dollar (1 point = one dollar) and percentage parameters:
------------------------------------------------------------------------
Price change (equal to or
Previous NYSE closing price greater than)
------------------------------------------------------------------------
Under $10.00............................. 1 point.
$10--$99.99.............................. the lesser of 10% or 3
points.
$100 and Over............................ 5 points.
------------------------------------------------------------------------
Rule 48 provides that a ``qualified Exchange officer'' \5\ can
invoke an extreme market volatility condition at the open (or reopen of
trading following a market-wide halt of securities) during which time
the Exchange can suspend the requirements of Rules 15 and 123D, and in
particular, the requirement to publish pre-opening indications. Rule 48
is intended to be invoked only in those situations where the potential
for extreme market volatility would likely impair Floor-wide operations
at the Exchange by impeding the fair and orderly opening or reopening
securities.\6\
---------------------------------------------------------------------------
\5\ A ``qualified Exchange officer'' means the Chief Executive
Officer of ICE, or his or her designee, or the Chief Regulatory
Officer of the Exchange, or his or her designee.
\6\ See Securities Exchange Act Release No. 56920 (December 6,
2007), 72 FR 70915 (December 13, 2007) (SR-NYSE-2007-111) (``Rule 48
Notice of Filing'').
---------------------------------------------------------------------------
Finally, Rule 123D, which in addition to setting forth requirements
for certain pre-opening indications, also specifies procedures relating
to openings, including that it is the responsibility of each DMM to
ensure that securities open as close to the opening bell as possible
and that securities can be opened on a trade or a quote. The rule
further provides that openings may be effectuated manually or
electronically.
Proposed Rule Change
The Exchange proposes to amend Rules 15, 48, and 123D to introduce
greater efficiency and transparency into its opening process by, among
other things, consolidating its rules regarding pre-opening indications
into a single rule (Rule 15), introducing a new, single percentage
parameter for the publication of pre-opening indications that would
double on volatile trading days, and consolidating opening procedures
into Rule 123D, including specifying parameters of when a DMM may
effect an opening electronically, and consolidating the procedures of
Rule 48 into Rules 15 and 123D, as applicable. The Exchange also
proposes conforming changes to Rules 80C, 124 and 9217.
Pre-Opening Indications
The Exchange proposes to make changes to the pre-opening indication
process. The Exchange would consolidate the requirements relating to
pre-opening indications into Rule 15(a)-(f). Because the Exchange
proposes all new rule text in Rule 15(a)-(f), the Exchange proposes to
delete paragraphs (a) and (b) of current Rule 15, re-number Rule 15(c)
as Rule 15(g), delete rule text in Rule 123D(b) relating to mandatory
indications, and amend the title of Rule 15 to add the phrase ``and
Opening Order Imbalance Information'' so that the rule would be titled
``Pre-Opening Indications and Opening Order Imbalance Information.'' In
amending Rule 15, the Exchange would establish new conditions for when
DMMs are required to publish pre-opening indications.
Proposed Rule 15(a), entitled ``Pre-Opening Indications,'' would
provide that a pre-opening indication would include the security and
the price range within which the opening price is anticipated to occur.
This proposed rule text is based on the last clause of the first
sentence of current Rule 15(a), which provides that a pre-opening
[[Page 20032]]
indication includes the security and the price range within which the
opening transaction is anticipated to occur. Proposed Rule 15(a) would
further provide that a pre-opening indication would be published via
the securities information processor (``SIP'') and proprietary data
feeds. This proposed rule text is based on the way in which Rule 123D
Mandatory Indications are currently published to both the SIP and
proprietary data feeds. The Exchange proposes to use the term
``securities information processor'' instead of ``Consolidated Tape''
to use the term more commonly used in the industry.\7\
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\7\ See, e.g., Supplementary Material .01 to Rule 19.
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Proposed Rule 15(b), entitled ``Conditions for Publishing a Pre-
Open Indication,'' would set forth the conditions in which a DMM is
required to publish a pre-opening indication.
Proposed Rule 15(b)(1) would provide that a DMM will
publish a pre-opening indication before a security opens if the opening
transaction on the Exchange is anticipated to be at a price that
represents a change of more than the ``Applicable Price Range,'' as
defined in proposed Rule 15(d), from a specified ``Reference Price,''
as defined in proposed Rule 15(c), before the security opens. The
procedures for publishing a pre-opening indication would be described
in Rule 15(e). This proposed rule text is based on current Rule 15(a),
which uses the term ``applicable price range'' and describes the
reference prices used for purposes of current Rule 15(a). The Exchange
proposes to define the ``Reference Price'' and ``Applicable Price
Range'' in proposed Rules 15(c) and (d), described below. The
requirement for DMMs to publish pre-opening indications is based on
current Rule 15(a), which provides that the DMM shall issue a pre-
opening indication if the conditions set forth in the rule are met.
Proposed Rule 15(b)(2) would specify that when making a
determination of what the opening transaction price would be, the DMM
will take into consideration all interest eligible to participate in
the opening transaction, including electronically-entered orders, the
DMM's own interest, and any interest represented orally in the crowd.
This proposed rule text would be new and is designed to promote
transparency in Exchange rules that all interest eligible to
participate in the opening transaction is considered when publishing a
pre-opening indication.
Proposed Rule 15(b)(3) would provide that if a DMM is
unable to publish a pre-opening indication for one or more securities
due to a systems or technical issue, the Exchange may publish the pre-
opening indication. This proposed rule text is based in part on current
Rule 15(a), which provides that either the DMM or the Exchange shall
publish a pre-opening indication. The Exchange proposes a substantive
difference to provide that the Exchange ``may'' rather than ``shall''
publish a pre-opening indication. As set forth in current Rule
123D(a)(5), which was added after the applicable rule text in Rule
15(a),\8\ if a DMM is unavailable to open a security and the Exchange
opens trading, the Exchange will not publish a pre-opening indication.
Because the Exchange is not obligated to publish pre-opening
indications in such scenario, the Exchange proposes to make Rule
15(b)(3) consistent with that rule.
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\8\ See Securities Exchange Act Release No. 76290 (Oct. 28,
2015), 80 FR 67822 (Nov. 3, 2015) (SR-NYSE-2015-49).
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Proposed Rule 15(c), entitled ``Reference Price,'' would provide in
paragraph (1) that the Reference Price for a security (other than an
American Depository Receipt (``ADR'')) for purposes of the proposed
rule would be:
The security's last reported sale price on the Exchange
(proposed Rule 15(c)(1)(A));
in the case of an IPO, the security's offering price
(proposed Rule 15(c)(1)(B)); or
the security's last reported sale price on the securities
market from which the security is being transferred to the Exchange, on
the security's first day of trading on the Exchange (proposed Rule
15(c)(1)(C)).
This proposed rule text is based on current Rule 15(a).\9\
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\9\ See supra note 4.
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Proposed Rule 15(c)(2) would provide that the Reference Price for
ADRs for purposes of the proposed rule would be:
The closing price of the security underlying the ADR in
the primary foreign market in such security when the trading day of the
primary foreign market concludes (proposed Rule 15(c)(2)(A)); or
based on parity with the last sale price of the security
underlying the ADR in the primary foreign market for such security when
the trading day of the primary foreign market is open for trading at
the time of the opening on the Exchange (proposed Rule 15(c)(2)(B)).
This proposed rule text is based on current Rule 15(b), with non-
substantive differences for clarity and to use the defined term
``Reference Price'' in the proposed rule text.\10\ Proposed Rule
15(c)(3) would further provide that the Reference Price for reopening a
security following a halt would be the security's last reported sale
price on the Exchange. The Exchange proposes to specify the Reference
Price for reopening following a halt because the Reference Price would
be the same for all securities, including ADRs, which would be trading
on the Exchange.
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\10\ The seventh paragraph of Rule 123D(b), which the Exchange
proposes to delete, similarly describes the reference price to be
used for a foreign-listed security.
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Proposed Rule 15(d) would set forth the Applicable Price Ranges for
determining whether a DMM is required to disseminate a pre-opening
indication. The Exchange proposes to eliminate the current price
buckets in Rules 15 and 123D and instead use a single percentage
parameter as the Applicable Price Range for all securities, regardless
of price of the security. As proposed, except during extreme market-
wide volatility as set forth in proposed Rule 15(d)(2), a DMM would be
required to publish a pre-opening indication if a security is expected
to open at a price more than 5% away from the Reference Price. The
Exchange believes that the proposed 5% parameter applicable to all
securities would simplify and streamline the Exchange's rules regarding
required pre-opening indications by having a single percentage
parameter that would be applied across all securities, rather than
having different price buckets and percentage parameter ranges to
track. The Exchange further believes that the proposed single
percentage parameter would result in a similar number of pre-opening
indications as are currently published pursuant to Rule 123D, while at
the same time simplifying the process for DMMs.
For example, using trade data for the month of October 2015, which
was a month of relative trading stability and volumes, current Rule
123D Mandatory Indication parameters required indications for 15
securities on an average daily basis, which represents approximately
0.46% of the securities traded on the Exchange. Applying the proposed
new percentage parameter of 5% to the same October 2015 trade data,
DMMs would have been required, on average, to publish 33 pre-opening
indications, which represents 1.01% of securities that trade on the
Exchange. The Exchange believes that the incremental increase in number
of pre-opening indications that would have been published pursuant to
the proposed new single percentage parameter would promote transparency
[[Page 20033]]
in the opening of securities at the Exchange.\11\
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\11\ For purposes of this analysis, the Exchange compared the
proposed new percentage parameters against only the current Rule
123D Mandatory Indications because these indications are more widely
distributed via the SIP to market participants, and therefore more
likely to be relied upon for purposes of assessing the opening price
of a security on the Exchange. In addition, unlike Rule 15
Indications, a DMM is required to update Rule 123D Mandatory
Indications, and thus this form of pre-opening indication is more
likely to track to the actual opening price of a security.
---------------------------------------------------------------------------
Under current rules, the Exchange may suspend the requirement to
publish pre-opening indications if a market-wide extreme market
volatility condition is declared under Rule 48. This rule was adopted,
in part, because of the manual nature of publishing pre-opening
indications, and if DMMs were required to publish Rule 123D Mandatory
Indications for multiple securities, it could delay the opening process
and result in a large number of securities opening past 9:30 a.m.
Eastern Time.\12\ Historically, the Exchange has declared such a
condition if, before the opening of trading, the E-mini S&P 500 Futures
are plus or minus 2% from the prior day's closing price of the E-mini
S&P 500 Futures. However, based on the events of the week of August 24,
2015, when the Exchange declared extreme market volatility conditions
on August 24, 25, and 26, the Exchange appreciates that the absence of
any pre-opening indications may leave a void in the information
available for market participants to assess the price at which a
security may open. Yet, because market-wide volatility would cause the
price of most or all securities to move significantly away from the
last sale price on the Exchange, the Exchange believes that the 5%
price move appropriate for ``normal'' trading days would result in a
DMM being required to disseminate more pre-opening indications than is
feasible.
---------------------------------------------------------------------------
\12\ See Rule 48 Notice of Filing, supra note 6 at 70916.
---------------------------------------------------------------------------
Accordingly, the Exchange proposes to amend its rules to provide
that on trading days with extreme market-wide volatility, the
Applicable Price Range would be 10%, or double the Applicable Price
Range on regular trading days. Specifically, proposed Rule 15(d)(2)
would provide that, if as of 9:00 a.m. Eastern Time (``ET''), the E-
mini S&P 500 Futures are plus or minus 2% from the prior day's closing
price of the E-mini S&P 500 Futures, when reopening trading following a
market-wide trading halt under Rule 80B, or if the Exchange determines
that it is necessary or appropriate for the maintenance of a fair and
order market, a DMM would be required to publish a pre-opening
indication in a security if the price of that security is expected to
open at a price more than 10% away from the Reference Price. By
proposing to specify the conditions in which the Applicable Price Range
would be 10%, the Exchange would promote transparency in Exchange rules
so that market participants will know when the double-wide percentage
parameter would be applied. Because the standard for extreme market-
wide volatility would be specified in the rule, the Exchange would not
need to provide separate notification on a trading day when the double-
wide percentages would be applicable.
By proposing to specify in its rules that the Applicable Price
Range would be 10%, rather than 5%, when the market is more volatile,
the Exchange would require DMMs to disseminate pre-opening indications
in those securities experiencing the greatest price movement. Under
current rules, the Exchange's only option when the overall market is
volatile is to lift the requirement for pre-opening indications under
Rule 48. The Exchange also proposes to use the 10% percentage parameter
when reopening securities following a market-wide trading halt under
Rule 80B. The Exchange believes that widening the parameters for pre-
opening indications following a market-wide trading halt would be
appropriate because the reason for the trading halt was market-wide
volatility, and thus the reopening of securities would face similar
pricing pressure as circumstances when there is pre-opening extreme
market-wide volatility. The Exchange also proposes that it would have
the authority to use the 10% Applicable Price Range when it is
necessary or appropriate for the maintenance of a fair and orderly
market. For example, if the E-mini S&P 500 Futures were not plus or
minus 2% as of 9:00 a.m., but moved to that level between 9:00 and
9:30, it may be appropriate, for the maintenance of a fair and orderly
market, to use widened percentage parameters.
To determine the percentage parameter that would be appropriate for
trading days with extreme market-wide volatility, the Exchange reviewed
trading data from August 24, 25, and 26, 2015 and assessed how many
Rule 123D Mandatory Indications would have been required under current
rules, and how many pre-opening indications would have been required if
a 5% and 10% percentage parameter were used on those days. Taking for
example August 24, 2015, as set forth on Table 1 below, the data show
that, had the Exchange not invoked Rule 48 lifting the requirement to
publish Rule 123D Mandatory Indications, there would have been 638
securities (19% of securities) for which DMMs would have been required
to publish Rule 123D Mandatory Indications. As set forth in Table 2
below, a 5% percentage parameter would have required 1,460 pre-opening
indications (44% of securities) on August 24, 2015, more than twice as
many as under the current parameters. As noted above, the Exchange
believes that this would be too many pre-opening indications for DMMs
to process on a trading day without impacting their ability to timely
open their assigned securities.
By contrast, as set forth in Table 2 below, a 10% percentage
parameter would have required pre-opening indications in 278 securities
(8.4% of securities) on August 24, 2015. While this number is still
higher than the number of pre-opening indications that would have been
published on an average trading day in October using the 5% percentage
parameter (see above), the Exchange believes that it strikes the
appropriate balance between providing additional pre-opening
information to investors and enabling the DMM's to timely open their
assigned securities. As set forth in more detail in Tables 1 and 2
below, August 24 represents an outlier, even for days when there has
been extreme market-wide volatility. For other days in 2015 when the
Exchange declared an extreme market-wide volatility under Rule 48, as
set forth in Tables 1 and 2 below, applying a 10% parameter would not
materially change the number of pre-opening indications being
published.
[[Page 20034]]
[GRAPHIC] [TIFF OMITTED] TN06AP16.010
Proposed Rule 15(e), entitled ``Procedures for publishing a pre-
opening indication,'' would set forth proposed procedures a DMM would
use when publishing a pre-opening indication. As discussed below, these
procedures are based on existing procedures currently set forth in Rule
123D, with specified differences.
Proposed Rule 15(e)(1) would provide that publication of pre-
opening indications requires the supervision and approval of a Floor
Governor.\13\ This proposed rule change is based on the sixth paragraph
of Rule 123D(b). The Exchange proposes a substantive change in that the
proposed rule would require the supervision and approval of a Floor
Governor, rather than supervision and approval of a Floor Official, as
set forth in the current rule. The Exchange would also eliminate the
requirement in Rule 123D that if a situation involves a bank or
brokerage stock, the approval of an Executive Floor Governor is
required, and if an Executive Floor Governor is unavailable, a Floor
Governor or Senior Floor Governor's approval is required. The Exchange
believes that requiring Floor Governor approval for all securities
would involve the appropriate review by an experienced Floor official,
while at the same time simplifying the approval process to require a
single category of Floor Official to approve a pre-opening indication
regardless of the type of security.\14\
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\13\ Rule 46 describes the different categories of Floor
Officials, which are Floor Officials, Senior Floor Officials,
Executive Floor Officials, Floor Governors, and Executive Floor
Governors. Floor Governors are generally more senior members of the
Trading Floor or qualified Exchange employees and are also empowered
to perform any duty of a Floor Official.
\14\ The Exchange would also be deleting the 14th through 16th
paragraphs of Rule 123D(b) regarding Floor Official approval for
``tape indications,'' which are Rule 123D Mandatory Indications. The
Exchange believes that proposed Rule 15(e)(1) simplifies the
approval process and obviates the need for this Rule 123D rule text.
---------------------------------------------------------------------------
Proposed Rule 15(e)(2) would provide that a pre-opening indication
must be updated if the opening transaction would be at a price outside
of a published pre-opening indication. Proposed Rule 15(e)(3) would
further require that if a pre-opening indication is a spread wider than
$1.00, the DMM should undertake best efforts to publish an updated pre-
opening indication of $1.00 or less before opening the security, as may
be appropriate for the specific security. Proposed Rules 15(e)(2) and
(e)(3) are based, in part, on the second and third bullet points
following the ninth paragraph of Rule 123D(b),\15\ but with new rule
text to simplify the requirements regarding updating pre-opening
indications. With respect to proposed Rule 15(e)(3), for higher-priced
securities, a pre-opening indication wider than $1.00 may be
appropriate and it may not be necessary to narrow such indication any
further, particularly since Opening Imbalance Information pursuant to
Rule 15(c) (proposed Rule 15(g)) would also be disseminated regarding
the security.
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\15\ The second bullet following the ninth paragraph of Rule
123D(b) requires that the number of indications should increase in
proportion to the anticipated disparity in the opening or reopening
price, with increasingly definitive, ``telescoped'' indications when
an initial narrow indication spread is impractical. The third bullet
provides for similar requirements following a non-regulatory halt,
and specifically that a final indication with a one point (one
dollar) spread would be appropriate.
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Proposed Rule 15(e)(4) would provide that, after publication of a
pre-opening indication, the DMM must wait for the following minimum
specified periods before opening a security:
Proposed Rule 15(e)(4)(A) would provide that, when using
the 5% Applicable Price Range specified in proposed Rule 15(d)(1), a
minimum of three minutes must elapse between publication of the first
indication and a security's opening. The rule would further provide
that, if more than one indication has been published, a security may be
opened one minute after the last published indication provided that at
least three minutes have elapsed from the dissemination of the first
indication. These first two sentences of proposed Rule 15(e)(4)(A) are
based on rule text set forth in the twelfth and thirteenth paragraphs
of current Rule 123D(b). Proposed Rule 15(e)(4)(A) would further
provide that the DMM may open a security less than the required wait
times after the publication of a pre-opening indication if the
imbalance is paired off at a price within the Applicable Price Range.
This proposed exception to the three-minute waiting requirement is new
and is because the Exchange believes that, if equilibrium in price has
been reached at a price within the Applicable Price Range, i.e., at a
price that would not have required a pre-opening indication in the
first instance, there is no reason to require the DMM to further delay
the opening of the security in an effort to attract offsetting
interest.
Proposed Rule 15(e)(4)(B) would provide that, when using
the 10% Applicable Price Range specified in Proposed Rule 15(d)(2), a
minimum of one minute must elapse between publication of the first
indication and a security's opening and that if more than one
indication has been published, a security may be opened without waiting
any additional time. As discussed above, proposed Rule 15(d)(2) would
provide for new percentage parameters for trading days with extreme
market-wide volatility. Based on the analysis of trade data for August
24, 2015, even with the new percentage parameters, there is the
potential for 278 pre-opening indications to be required on an
extremely volatile trading day. Because these pre-opening indications
would be manually published by the DMM, the Exchange believes that
eliminating additional wait times would enable the
[[Page 20035]]
DMMs to facilitate a speedy opening for a security that has been
subject to a pre-opening indication on days with extreme market-wide
volatility.
Proposed Rule 15(e)(5) would provide that, if trading is halted for
a non-regulatory order imbalance, a pre-opening indication must be
published as soon as practicable after the security is halted. This
proposed rule text is based on the first sentence of the third bulleted
paragraph following the ninth paragraph in Rule 123D(b), with a
proposed substantive difference that a pre-opening indication should be
published ``as soon as practicable,'' rather than ``immediately,''
after a security is halted. The Exchange believes that the proposed
approach provides for more flexibility for the DMM to assess the order
imbalance and publish a pre-opening indication that takes into
consideration all applicable factors.
Proposed Rule 15(e)(6) would set forth the requirements for pre-
opening indications when reopening a security following a trading pause
under Rule 80C.\16\ Proposed Rule 15(e)(6)(A) would provide that a pre-
opening indication may be published without prior Floor Governor
approval. Proposed Rule 15(e)(6)(B) would provide that a pre-opening
indication would not need to be updated before reopening the security,
and the security may be reopened outside of any prior indication.
Lastly, proposed Rule15(e)(6)(C) would provide that the reopening is
not subject to the minimum waiting time requirements in Proposed Rule
15(e)(4). Proposed Rules 15(e)(6)(A)-(C) are based on Rule
80C(b)(2)(A), with non-substantive differences to use different rule
text cross-references.
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\16\ Rule 80C sets forth the Exchange's rules to comply with the
requirements of the Plan to Address Extraordinary Market Volatility
submitted to the Commission pursuant to Rule 608 of Regulation NMS
under the Act known as the Limit Up/Limit Down (``LULD'') Plan.
---------------------------------------------------------------------------
Proposed Rule 15(f), entitled ``Temporary Suspension of Pre-Opening
Indications,'' would provide in proposed Rule 15(f)(1) that if the CEO
of the Exchange determines that a Floor-wide event is likely to impact
the ability of DMMs to arrange for a fair and orderly opening or
reopening and that absent such relief, operation of the Exchange is
likely to be impaired, the CEO of the Exchange may temporarily suspend
the requirement to publish pre-opening indications under Rule 15 prior
to opening or reopening a security following a market-wide trading
halt.\17\
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\17\ Pursuant to Rule 1, the CEO of the Exchange may formally
designate one or more qualified employees of Intercontinental
Exchange, Inc. (``ICE'') to act in place of any person named in a
rule as having authority to act under such rule in the event the
named person in the rule is unavailable to administer that rule.
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Proposed Rule 15(f) is based in part on Rule 48, which provides
that a qualified Exchange officer may declare an extreme market
volatility condition and temporarily suspend the requirements for pre-
opening indications.\18\ Because the Exchange would be specifying new
percentage parameters for pre-opening indications on trading days with
market-wide volatility, the Exchange does not believe that it needs
Rule 48 in its current form. While the Exchange expects that its other
proposed changes to DMMs' requirements related to pre-opening
indications will make it unlikely that a complete suspension of pre-
opening indications would be required, the Exchange believes it would
be prudent for the CEO of the Exchange to retain the authority to
temporarily suspend the requirements to make pre-opening indications
for events that it cannot currently predict. Accordingly, rather than
refer to extreme market-wide volatility as in current Rule 48, proposed
Rule 15(f)(1) would refer to a Floor-wide event that could impact the
fair and orderly opening or reopening of securities more generally.
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\18\ Rule 48(d) defines a ``qualified Exchange officer'' for
purposes of Rule 48 as the CEO of ICE, or his or her designee, or
the Chief Regulatory Officer (``CRO'') of the Exchange, or his or
her designee. The Exchange proposes to streamline its rules to
specify that only the CEO of the Exchange would have the authority
to temporarily suspend the requirement for pre-opening indications.
However, pursuant to Rule 1, the CEO could delegate this authority
to other qualified ICE employees.
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Proposed Rule 15(f)(2), which is based on Rule 48(c)(1)(A), would
specify the range of factors that the CEO of the Exchange would be
required to consider in making any determination to temporarily suspend
the requirement for pre-opening indications.\19\ In addition, similar
to Rule 48(c)(1)(B) and 48(c)(1)(C), proposed Rules 15(f)(2)(B) and (C)
would require the CEO to consult with the CRO of the Exchange in making
a determination under proposed Rule 15(f)(1) and inform Commission
staff as promptly as practicable that pre-opening indications under
Rule 15 have been temporarily suspended. Proposed Rule 15(f)(3), which
is based on Rule 48(c)(4), would provide that a temporary suspension
under Rule 15(f) would be in effect only for the trading day on which
it was declared.\20\ Finally, proposed Rule 15(f)(4) would provide that
notwithstanding a temporary suspension of the requirement to publish
pre-opening indications in a security under Rule 15, a DMM or the
Exchange may publish a pre-opening indication for one or more
securities. This proposed rule text, which is based in part on Rule
48(c)(5), would allow a DMM or the Exchange to publish a pre-opening
indication, even if the rule were suspended.\21\ Unlike Rule 48(c)(5),
which specifies conditions when the DMM should still publish a pre-
opening indication, proposed Rule 15(f)(3) would not require pre-
opening indications, but rather, would allow them to be published even
if the rule were temporarily suspended.
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\19\ As provided for in Rule 48(c)(1)(A), these factors include
volatility in the previous day's trading session, trading in foreign
markets before the open, substantial activity in the futures market
before the open, the volume of pre-opening indications of interest,
evidence of pre-opening significant order imbalances across the
market, government announcements, news and corporate events, and
such other market conditions that could impact Floor-wide trading
conditions.
\20\ Rule 48(c)(4) provides that that a declaration of an
extreme market volatility condition under Rule 48 shall be in effect
only for the particular opening or reopen for the trading session on
the particular day that the extreme market volatility condition if
determined to exist.
\21\ Rule 48(c)(5) provides that a declaration of an extreme
market volatility condition shall not relieve DMMs from the
obligation to make pre-opening indications in situations where the
opening of a security is delayed for reasons unrelated to the
extreme market volatility condition.
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Because the Exchange has added new subsections to Rule 15, the
Exchange proposes to renumber Rule 15(c) as Rule 15(g) and to add a
header to this subsection of rule entitled ``Opening Order Imbalance
Information.'' In addition to re-designating the rule from Rule 15(c)
to Rule 15(g), the Exchange proposes non-substantive differences to re-
number the subsections of proposed Rule 15(g) to use the same numbering
convention as proposed for proposed Rule 15(a)-(f), delete the phrase
``the provisions of'' in proposed Rule 15(g)(2)(B), and remove the
reference to subparagraph (b) by deleting the phrase ``or (b).''
The Exchange also proposes a substantive difference to change Rule
15(c)(3)(iii) (re-numbered as proposed Rule 15(g)(3)(C)) to increase
the frequency with which the Exchange disseminates Order Imbalance
Information \22\ beginning at 9:20 a.m.
[[Page 20036]]
ET. Currently, under Rule 15(c)(3)(iii), Order Imbalance Information is
disseminated approximately every 15 seconds between 9:20 a.m. ET and
the opening of trading in that security. The Exchange proposes to
disseminate Order Imbalance Information approximately every 5 seconds
between 9:20 a.m. ET and the opening of trading in that security. The
Exchange believes that increasing the frequency with which Order
Imbalance Information is disseminated would provide market participants
with additional updated pre-opening information, thus promoting
transparency for the opening transaction.
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\22\ Order Imbalance Information reflects real-time order
imbalances that accumulate prior to the opening transaction on the
Exchange and the price at which interest eligible to participate in
the opening transaction may be executed in full. Order Imbalance
Information disseminated pursuant to Rule 15(c) includes all
interest eligible for execution in the opening transaction of the
security in Exchange systems, i.e., electronic interest, including
Floor broker electronic interest, entered into Exchange systems
prior to the opening. Order Imbalance Information is disseminated on
the Exchange's proprietary data feeds. See Rule 15(c)(1).
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Finally, the Exchange proposes to add new Supplementary Material
.10 to Rule 15 providing that, unless otherwise specified in the
proposed Rule,\23\ references to an opening transaction include a
reopening transaction following a trading halt or pause in a security.
Currently, Rule 123D Mandatory Indications are required for both
openings and reopenings. Because proposed Rule 15 indications would
similarly be required for openings and reopenings following a halt or
pause, the Exchange proposes to add Supplementary Material .10 to Rule
15.
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\23\ See, e.g., proposed Rules 15(d)(2) (referring only to
reopenings following a market-wide trading halt under Rule 80B) and
15(e)(6) (specifying different procedures when reopening trading
following a trading pause).
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DMM Automated Openings
As noted above, the process for publishing either Rule 15
Indications or Rule 123D Mandatory Indications is manual, and is
generally followed by the DMM effecting the opening of a security
manually rather than electronically. Consistent with this approach, the
Exchange currently systemically blocks DMMs from opening a security
electronically if the opening price would be outside of price
parameters that are based on the price buckets and applicable price
ranges specified in Rule 15(a). The Exchange similarly blocks DMMs from
electronically opening a security if size of the opening transaction
would be a significant volume, which similarly would indicate the
potential need for manual oversight of the opening process.
Because the DMM is not obligated to open a security electronically,
the Exchange has not historically specified in its rules the parameters
for when the DMM may effect an opening electronically.\24\ However,
following the events of the week of August 24, 2015, the Exchange
believes that specifying in Exchange rules the conditions in which a
DMM is permitted to open a security electronically would provide
greater transparency in Exchange rules. The Exchange therefore proposes
to amend Rule 123D(a) to specify when a DMM may effect an opening
electronically.
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\24\ Rule 123D does not require DMMs to open a security
electronically; a DMM may determine that in the particular
circumstances for a security, manually opening the security may be
warranted, even if the price would be within the Applicable Price
Range. For example, if a Floor broker has represented an order in
the Crowd, the DMM will open a security manually.
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In specifying parameters for when a DMM may effectuate an opening
electronically, the Exchange proposes to adopt parameters and
requirements that would be structured similarly to the proposed
parameters for new Rule 15 pre-opening indications, as discussed above.
To effect this change, the Exchange proposes new subsection numbering
to Rule 123D(a)(1) to break out the third and fourth sentences of
current Rule 123D(a)(1) to be proposed Rules 123D(a)(1)(A) and (B).\25\
The Exchange proposes to add to proposed Rule 123D(a)(1)(B) that
Exchange systems would not permit a DMM to open a security
electronically if a DMM has manually entered Floor interest. This is
how Exchange systems currently function and is similar to Rule 123C.10
regarding when a DMM may close a security electronically.
---------------------------------------------------------------------------
\25\ The Exchange also proposes a non-substantive amendment to
change the term ``stock'' to ``security.''
---------------------------------------------------------------------------
The Exchange proposes to set forth the parameters for when a DMM
may effect an opening electronically in new proposed Rules
123D(a)(1)(B)(i) and (ii):
Proposed Rule 123D(a)(1)(B)(i) would provide that except
under the conditions set forth in Rule 123D(a)(1)(B)(ii), a DMM may not
effect an opening electronically if the opening transaction would be at
a price more than 4% away from the Official Closing Price, as defined
in Rule 123C(1)(e), or the matched volume for the opening transaction
would be more than (a) 150,000 shares for securities with an average
opening volume of 100,000 shares or fewer in the previous calendar
quarter; or (b) 500,000 shares for securities with an average opening
volume of over 100,000 shares in the previous calendar quarter. For
purposes of this Rule, the calendar quarters will be based on a January
1 to December 31 calendar year.
Proposed Rule 123D(a)(1)(B)(ii) would provide that if as
of 9:00 a.m. ET, the E-mini S&P 500 Futures are plus or minus 2% from
the prior day's closing price of the E-mini S&P 500 Futures, or if the
Exchange determines that it is necessary or appropriate for the
maintenance of a fair and order market, a DMM could effect an opening
electronically if the opening transaction would be at a price of up to
8% away from the Official Closing Price, as defined in Proposed Rule
123C(1)(e), without any volume limitations.
Similar to the new Applicable Price Ranges for pre-opening
indications proposed in Rule 15(d) above, the Exchange proposes to use
a single percentage parameter for all securities, regardless of price.
The Exchange also proposes to double those percentage parameters on
days with extreme market-wide volatility, and would use the same
standard for determining whether there is market-wide volatility as is
proposed in Rule 15(d)(2), described above. Because the Exchange
continues to believe that, if a pre-opening indication has been
published, a security is better served if a DMM effects a manual
opening, the Exchange proposes to apply percentage parameters to DMM
automated openings that are tighter than the requirements for
publishing a pre-opening indication. In other words, if a pre-opening
indication would be required under proposed Rule 15, the DMM would not
be permitted to effect an opening electronically. To achieve this goal,
the Exchange proposes that the percentage parameter on a regular
trading day for DMM automated opens should be one percent lower than
the percentage parameter for pre-opening indications on a regular
trading day. And as with pre-opening indications, on a day with extreme
market-wide volatility, the applicable percentage would be doubled.
The Exchange believes that the proposed conditions for when a DMM
may effect an opening electronically would reduce the number of manual
openings and enable more securities to open closer to 9:30 a.m. ET,
both on regular trading days and on extremely volatile trading days
such as August 24, 2015.
Tables 3 through 5 below illustrate how many securities would not
be eligible for a DMM to effect an opening electronically when applying
the current and proposed percentage and volume parameters to trade data
from October 2015 and trade data from August 24, 2015.
[[Page 20037]]
[GRAPHIC] [TIFF OMITTED] TN06AP16.011
For example, as set forth in Table 3, using current price
parameters and a 100,000 share volume parameter, in October 2015, 94
securities (13.4% of securities) on average each day were not eligible
to be opened by the DMM electronically. As demonstrated in Table 4,
using the proposed 4% price and tiered volume parameters, a comparable
47 securities (1.7% of securities) on average in October would not have
been eligible to be opened by the DMM electronically.
With respect to the proposed volume parameters, the Exchange
believes that having a parameter tied to higher-than-average opening
volume in a security would better reflect whether opening
electronically would be appropriate. For example, as the data show in
Table 4, there were 74 securities averaging daily opening volume over
100,000 shares in the previous quarter (3Q15) and three of those
securities had opening volume of over 500,000 shares on an average
daily basis in October. The Exchange believes that if a security has a
higher-than-average opening volume on a quarterly basis without any
corresponding price dislocation, then the volume of shares trading on
the opening for such securities is not representative of any volatility
for that security, but rather, is a regular state of affairs that does
not require a high-touch opening managed by a DMM on the trading Floor.
Rather, such securities would benefit from being available for the DMM
to open electronically in order to promote a fair and orderly opening
at or near the open of trading.
As with pre-opening indications, the Exchange proposes to double
the percentage parameter on trading days with extreme market-wide
volatility and eliminate the volume parameter. As illustrated in Table
5, doubling the percentage parameter and eliminating the volume
parameters would allow DMMs to open most securities electronically even
during extreme market-wide volatility. As trade data from August 24,
2015 set forth in Table 3 illustrates, the current percentage
parameters restricted DMMs from opening 1,753 securities
electronically, which represents 58.4% of securities.\26\ As set forth
in Table 5, applying the proposed 8% percentage parameter would have
allowed DMMs to open all but 573 securities electronically, which
represents 19.1% of the securities traded on the Exchange.
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\26\ On August 24, 2015, DMMs also chose not to open securities
electronically, even if they would have been priced within the
current price parameters.
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The Exchange also proposes to add a new paragraph (c) to Rule 123D
entitled ``Temporary Suspension of DMM Automated Opening Limitations or
Floor Official Approval.'' Similar to proposed Rule 15(f), if the CEO
of the Exchange determines that a Floor-wide event it likely to have an
impact on the ability of DMMs to arrange for a fair and orderly opening
or reopening following a market-wide trading halt at the Exchange and
that, absent relief, the operation of the Exchange is likely to be
impaired, the CEO of the Exchange may temporarily suspend the
prohibition on a DMM opening a security electronically if the opening
transaction would be more than the price or volume parameters specified
in proposed Rule 123D(a)(1)(B). This would be a new suspension
authority that relates to the proposed new price and volume parameters
for when a DMM may open a security electronically. The Exchange
believes that having this temporary suspension authority would be
appropriate for situations if the DMM is unable to open a security
manually, either due to unavailability of 11 Wall Street facilities or
because of systems or technical issues with Floor-based tools for
manually opening a security.
Proposed Rule 123D(c) would also provide that if the CEO of the
Exchange
[[Page 20038]]
determines that a Floor-wide event is likely to have an impact on the
ability of DMMs to arrange for a fair and orderly opening or reopening
following a market-wide trading halt at the Exchange, and that absent
relief, the operation of the Exchange is likely to be impaired, the CEO
of the Exchange may temporarily suspend (i) the prohibition on a DMM
opening a security electronically if the opening transaction will be
more than the price or volume parameters specified in proposed Rule
123D(a)(1)(B); or (ii) the need under Rule 123D(b) for prior Floor
Official approval to open or reopen a security following a market-wide
trading halt. This proposed rule change is similar to authority in
current Rule 48, which permits a qualified Exchange officer to
temporarily suspend the need for prior Floor Official or prior NYSE
Floor operations approval to open or reopen a security following a
market-wide trading halt. While the Exchange expects that its other
proposed changes to Rule 123D would make it unlikely that a complete
suspension of prior Floor Official approval would be required, the
Exchange believes it would be prudent for the CEO of the Exchange to
retain the authority temporarily suspend such requirements for events
that it cannot currently predict. The Exchange also proposes a new
temporary suspension that correlates to the proposed new price and
volume parameters for when a DMM may open a security electronically.
The Exchange expects that this relief would be required if 11 Wall
Street facilities were unavailable and DMMs would be required to open
all securities remotely, and thus electronically.
Proposed Rule 123D(c)(2)-(3) are nearly identical to proposed Rule
15(f)(1)-(3), as described in greater detail above, with changes only
to address that this proposed rule relates to the temporary suspension
of the requirements for specified paragraphs of Rule 123D. Proposed
Rule 123D(c)(2)-(3) is based on the same provisions of Rule 48 that
proposed Rule 15(f)(2)-(4) is based on, which is discussed in greater
detail above.
The miscellaneous and technical amendments proposed to Rule 123D
are as follows:
The Exchange proposes to amend Rule 123D(a)(5) (Pre-
Opening Information) to change the citation to Rule 15(c) to 15(g)
based on the proposed changes to Rule 15, described above, and delete
the word ``either'' and the references to Rule 123D.
The Exchange proposes to delete the phrase ``Halts in
Trading'' from the heading of Rule 123D(b).
Also in Rule 123D(b), the Exchange proposes to delete the
text relating to the dissemination of mandatory indications beginning
with the sentence ``If an unusual situation exists, such as a large
order imbalance, tape indications should be disseminated, including
multiple indications if appropriate with the supervision of a Floor
Official'' through and including the sentence ``An Executive Floor
Governor or Floor Governor should be consulted in any case where there
is not complete agreement among the Floor Officials participating in
the discussion.'' This rule text all pertains to Rule 123D Mandatory
indications, which, as discussed above, would be governed by proposed
Rule 15.
The Exchange proposes to add a new heading (c) entitled
``Halts in Trading'' before the sentence ``Once trading has commenced,
trading may only be halted with the approval of a Floor Governor or two
Floor Officials'' in current Rule 123D(b) and change current headings
(c) (Equipment Changeover) and (d) of Rule 123D to (d) and (e),
respectively.
Finally, in current Rule 123D(c) (Proposed Rule 123D(e)),
to reflect that all information relating to pre-opening indications,
including the Applicable Price Ranges and Reference Prices, are now
described in Rule 15, the Exchange proposes to delete the phrase ``a
significant order imbalance (one which would result in a price change
from the last sale of one point or more for stocks under $10, the
lesser of 10% or three points for $10--$99.99 and five points if $100
or more--unless a Floor Governor deems circumstances warrant a lower
parameter) develops'' and add the phrase ``a pre-opening indication
would be required to be published'' in its place.
Rule 48
The Exchange proposes to delete Rule 48 in its entirety. As
discussed above, the Exchange is proposing changes to Rules 15 and 123D
that it believes will allow DMMs to publish pre-opening indications in
a manageable number of securities, even on days of high volatility,
which would promote transparency regarding opening prices at the
Exchange. In addition, and as described above, the Exchange is
incorporating into Rules 15 and 123D authority for the CEO of the
Exchange to temporarily suspend the requirement to publish pre-opening
indications, the pricing and volume limitations for a DMM to open a
security electronically, and for a DMM to obtain Floor Official
approval under Rule 123D(b) when opening or reopening a security, if
the CEO of the Exchange determines that such relief is necessary to the
ability of DMMs to open the securities and to the operation of the
Exchange. Accordingly, the Exchange believes that the Rule 48 is no
longer necessary.
Conforming and Technical Amendments--Rules 80C, 124 and 9217
Rule 80C
The Exchange proposes conforming amendments Rule 80C(b)(2), which
governs a Trading Pause under the LULD Plan.
First, Rule 80C(b)(2) requires that the Exchange re-open the
security in a manner similar to the procedures set forth in Rule 123D
following a Trading Pause (as defined therein). The Exchange proposes
to add a reference to Rule 15 to Rule 80C(b)(2), so that the
requirement to re-open would be in a manner similar to Rules 15 and
123D.
Second, the Exchange proposes to delete subdivision (A) of Rule
80C(b)(2) in its entirety and mark the deleted text as ``Reserved.'' As
noted above, the requirements for reopening a security following a
trading pause set forth in Rule 80C would be codified in proposed Rule
15(d)(6).
Rule 124
The Exchange proposes to amend subsection (c)(1) of Rule 124
(Midday Auction), describing the reopening process for the Midday
Auction in the same manner as in Rule 123D for reopenings, by adding
``pre-opening'' before the word ``indication'' in four places and
deleting the reference ``to the Consolidated Tape'' in the first
sentence.
Rule 9217
The Exchange also proposes to amend Rule 9217, which sets forth the
list of rules under which a member organization or covered person may
be subject to a fine under a minor rule violation plan as set forth in
Rule 9216(b). Rule 9217 permits a summary fine for violations of Rule
123D requirements for DMMs relating to openings, reopenings, delayed
openings, trading halts, and tape indications. The Exchange proposes to
delete the clause ``tape indications'' to reflect elimination of
mandatory indications from Rule 123D. The Exchange believes this
proposed change would add transparency and clarity to the Exchange's
rules.
* * * * *
Because of the technology changes associated with the proposed rule
[[Page 20039]]
change, the Exchange will announce by Trader Update the implementation
date of the changes.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\27\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\28\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, 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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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that streamlining and consolidating pre-
opening indications into a single rule (Rule 15) from two (Rules 15 and
123D) would remove impediments to and perfect the mechanism of a free
and open market because it would set forth in a single rule the
requirements for pre-opening indications, thereby promoting
transparency by using consistent terminology for rules governing
equities trading and ensuring that members, regulators, and the public
can more easily navigate the Exchange's rulebook.
The Exchange believes that adopting new single-wide (5% change) and
double-wide (10% change if S&P 500 futures move 2%) percentage
parameters for the publication of pre-opening indications would remove
impediments to and perfect the mechanism of a free and open market by
requiring issuance of more pre-opening indications than currently
during times of market stress, thereby increasing the amount of
information available in the pre-market and improving the quality of
price discovery at the opening. The proposed rule therefore promotes
just and equitable principles of trade because it would expand the
amount of pre-opening information available to the marketplace, thereby
promoting transparency. For the same reasons, the proposal is also
designed to protect investors as well as the public interest.
The Exchange believes that amending Rule 123D to specify when a DMM
may effect an opening electronically would remove impediments to and
perfect the mechanism of a free and open market by promoting
transparency in Exchange rules regarding under what circumstances a DMM
may effect an opening electronically. The Exchange believes that the
proposed parameters for when a DMM may open a security electronically,
which would be 4% on regular trading days and doubled to 8% in times of
market stress, would remove impediments to and perfect the mechanism of
a free and open market by reducing the number of manual openings and
enabling more securities to open closer to 9:30 a.m. ET on extremely
volatile trading days, thereby providing customers and the investing
public with greater certainty of a timely open in circumstances of
extreme market stress. The Exchange further believes that the proposal
would advance the efficiency and transparency of the opening process,
thereby fostering accurate price discovery at the open of trading. For
the same reasons, the proposal is also designed to protect investors as
well as the public interest.
The Exchange believes that deleting Rule 48 and moving the
applicable provisions to Rules 15 and 123D would remove impediments to
and perfect the mechanism of a free and open market by reducing
reliance on Rule 48 during extremely volatile trading days. Rather, as
proposed, the need for the CEO of the Exchange to temporarily suspend
either pre-opening indications or the need for prior Floor Official
approval before opening or reopening a security would be under more
narrow circumstances of when a Floor-wide event would impair the
Exchange's ability to conduct a fair and orderly open or reopening. As
discussed above, the proposed amendments to Rule 15 and 123D to provide
for parameters on days with extreme market-wide volatility would
obviate the need for the current Rule 48 ability to lift the
requirements for pre-opening indications or prior Floor Official
approval during extreme market-wide volatility. The Exchange further
believes that the proposal would advance the efficiency and
transparency of the opening process, thereby fostering accurate price
discovery at the open of trading. For the same reasons, the proposal is
also designed to protect investors as well as the public interest.
The Exchange believes that making corresponding conforming changes
to Rules 80C, 124 and 9217 would remove impediments to and perfects the
mechanism of a free and open market by reducing potential confusion and
adding transparency and clarity to the Exchange's rules, thereby
ensuring that members, regulators and the public can more easily
navigate and understand the Exchange's rulebook.
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 proposed rule change is
not intended to address competitive issues but rather promote greater
efficiency and transparency at the open of trading on the Exchange.
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 up to 90 days (i) as the
Commission may designate 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. 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-NYSE-2016-24 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2016-24. 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
[[Page 20040]]
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-NYSE-2016-24 and should be
submitted on or before April 27, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
Robert W. Errett,
Deputy Secretary.
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\29\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-07838 Filed 4-5-16; 8:45 am]
BILLING CODE 8011-01-P
