Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change To Amend Rule 952NY With Respect to Opening Trading in an Options Series, 21623-21626 [2016-08304]

Download as PDF Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Notices mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange proposes to adopt an Early Trading Session and three new TIF instructions and to make related changes to its rules as discussed above.34 The Commission believes that the proposed rules would provide Users with additional options for trading on the Exchange. The Commission notes that the proposed Early Trading Session hours are similar to those of other exchanges 35 and that the proposed TIF instructions would offer functionality similar to existing functionality available on the Exchange and other exchanges which allows Members to select when their orders become eligible for execution.36 The Commission notes that the Exchange has represented that it would subject orders that are eligible for execution as of the start of the PreOpening Session to all of the Exchange’s standard regulatory checks, as it currently does with all orders upon entry.37 Specifically, the Exchange will subject such orders to checks for compliance with, including but not limited to, Regulation NMS,38 Regulation SHO,39 and relevant Exchange rules. Moreover, the Exchange reminds its Members of their regulatory obligations when submitting an order with one of the proposed TIF instructions.40 In particular, the Exchange states that Members must comply with the Market Access Rule,41 which requires, among other things, pretrade controls and procedures that are reasonably designed to assure compliance with Exchange trading rules and Commission rules pursuant to Regulation SHO and Regulation NMS. The Exchange also notes that a Member’s procedures must be 34 See supra section II. example, NYSE Arca, Inc. operates an Opening Session that starts at 4:00 a.m. Eastern Time and ends at 9:30 a.m. Eastern Time and Nasdaq Stock Market LLC operates a pre-market session that also opens at 4:00 a.m. and ends at 9:30 a.m. Eastern Time. See NYSE Arca Rule 7.34(a)(1); Nasdaq Rule 4701(g); see also Securities Exchange Act Release No. 60605 (September 1, 2009), 74 FR 46277 (September 8, 2009) (SR–CHX–2009–13) (adopting bifurcated post-trading session on the Chicago Stock Exchange, Inc.). 36 Specifically, on the Exchange, Users may enter an order starting at 6:00 a.m. Eastern Time with a TIF of Regular Hours Only, which designates that the order only be eligible for execution during Regular Trading Hours, which begin at 9:30 a.m. Eastern Time. See Exchange Rule 11.6(q)(6); see also NASDAQ Rule 4703(a)(7). 37 See Amendment No. 1, supra note 4. 38 See 17 CFR 242.600–613. 39 See 17 CFR 242.200–204. 40 See Notice, supra note 5, at 8802. 41 See 17 CFR 240.15c3–5. asabaliauskas on DSK3SPTVN1PROD with NOTICES 35 For VerDate Sep<11>2014 17:18 Apr 11, 2016 Jkt 238001 reasonably designed to ensure compliance with the applicable regulatory requirements, not just at the time the order is routed to the Exchange, but also at the time the order becomes eligible for execution.42 The Commission further notes the Exchange’s discussion of the best execution obligations of Members utilizing the proposed TIF instructions.43 Specifically, the Exchange states that a Member’s best execution obligations may include cancelling an order when market conditions deteriorate and could result in an inferior execution or informing customers if the execution of their order may be delayed intentionally while the Member utilizes reasonable diligence to ascertain the best market for the security.44 The Exchange further notes that Members will maintain the ability to cancel or modify the terms of an order utilizing any of the proposed TIF instructions at any time, including during the time from when the order is routed to the Exchange until the start of the Pre-Opening Session. As a result, the Exchange states that a Member who utilizes the proposed TIF instructions, but later determines that market conditions favor execution during the Early Trading Session, can cancel the order residing at the Exchange and enter a separate order to execute during the Early Trading Session.45 IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act 46 that the proposed rule change (SR–EDGA–2016– 02), as modified by Amendment No. 1, be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.47 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–08301 Filed 4–11–16; 8:45 am] BILLING CODE 8011–01–P 21623 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77540; File No. SR– NYSEMKT–2016–42] Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change To Amend Rule 952NY With Respect to Opening Trading in an Options Series April 6, 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 23, 2016, NYSE MKT LLC (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 952NY (Opening Process) with respect to opening trading in an options series. 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 42 See Notice, supra note 5, at 8802. id. at 8801–02. 44 Id. at 8802 n.45. 45 Id. at. 8801. 46 15 U.S.C. 78s(b)(2). 47 17 CFR 200.30–3(a)(12). 43 See PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 The Exchange is proposing changes to Rule 952NY with respect to opening 1 15 U.S.C.78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 E:\FR\FM\12APN1.SGM 12APN1 21624 Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Notices trading in an option series as described below. Opening Process asabaliauskas on DSK3SPTVN1PROD with NOTICES Rule 952NY describes the process pursuant to which the System 4 opens an option series. Paragraphs (b) and (c) of Rule 952NY provide that, after the primary market for the underlying security disseminates the opening trade or opening quote, the System then conducts an ‘‘Auction Process’’ to open a series whereby the System determines a single price at which a series may be opened by looking to: (i) The midpoint of the initial uncrossed NBBO disseminated by the Options Price Reporting Authority (‘‘OPRA’’), if any, or (ii) the midpoint of the best quotes or orders in the System Book. If the bid-ask differential for a series is not within an acceptable range, the System will not conduct an Auction Process.5 For purposes of this rule, the acceptable range means the bid-ask differential guidelines specified in Rule 925NY(b)(4).6 Assuming the bid-ask differential is within the acceptable range, the System matches up orders and quotes based on price-time priority 7 and executes the orders that are matched at the midpoint pricing.8 Any orders in the System that are not executed in the Auction Process become eligible for the Core Trading Session immediately after the conclusion of the Auction Process. If the System does not open a series with an Auction Process, the System shall open the series for trading after receiving notification of an initial NBBO disseminated by OPRA for the series or on a Market Maker quote, provided that the bid-ask differential does not exceed the bid-ask differential specified under Rule 925NY(b)(5).9 4 The term ‘‘System’’ refers to the Exchange’s electronic order delivery, execution and reporting system through which orders and quotes for listed options are consolidated for execution and/or display. See Rule 900.2NY(48) (defining ‘‘Exchange System’’ or ‘‘System’’). 5 The Auction bid-ask differentials are known in common parlance as ‘‘legal-width quotes.’’ 6 See Rule 925NY(b)(4). The bid-ask guidelines specified in Rule 925NY(b)(4) that are required to open a series are narrower than the $5 wide bidask differential for options traded on the System during Core Trading Hours. 7 Orders will have priority over Market Maker quotes at the same price. See Rule 952NY(b)(B). 8 See Rule 952NY(b)(B). The Exchange notes that the word Order appears capitalized in this paragraph and, because it is not a defined term, the Exchange proposes the non-substantive change of eliminating the capitalization. 9 See Rule 925NY(b)(5). Rule 925NY(b)(5) provides that options traded on the System during Core Trading Hours may be quoted with a difference not to exceed $5 between the bid and offer regardless of the price of the bid. VerDate Sep<11>2014 17:18 Apr 11, 2016 Jkt 238001 Proposed Modifications to the Opening Process First, the Exchange proposes to change Rule 952NY(b) regarding how the System determines when to start the Auction Process. Current paragraph (b) of the Rule provides that ‘‘[a]fter the primary market for the underlying security disseminates the opening trade or the opening quote, the related option series will be opened automatically.’’ However, because it is possible that either an opening quote or opening trade alone may not accurately reflect the state of the market, the Exchange proposes to specify that an option series will be opened automatically, ‘‘once the primary market for the underlying security disseminates a quote and a trade that is at or within the quote.’’ 10 The Exchange believes the proposed change makes clear that the Exchange would only open a series automatically after it receives a quote in the underlying security and a trade in that security at or between the disseminated quote rather than simply upon receipt of either an ‘‘opening trade or opening quote.’’ The Exchange believes that waiting to open trading in an option series until there has been both a disseminated quote and trade in the underlying security would help to augment the Auction Process by ensuring that an underlying security has been opened pursuant to a robust price discovery process before opening the overlying options for trading. The Exchange believes that the proposed change would provide market participants with greater certainty as to the true state of the market at the opening of the trading day and should lead to more accurate prices on the Exchange.11 Next, the Exchange proposes to modify Rule 952NY(b)(E), which currently provides, in relevant part, that ‘‘[i]f the System does not open a series with an Auction Process, the System shall open the series for trading after receiving notification of an initial NBBO disseminated by OPRA for the series or on a Market Maker quote.’’ 12 However, the Exchange has determined that it would no longer open on a local Market Maker quote but would require that 10 See proposed Rule 952NY(b). The Exchange also proposes to clarify that ‘‘[a]t or after 9:30 a.m. Eastern Time,’’ i.e., when the market opens, the Exchange would initiate the Opening Process for all series associated with the underlying security. See id. 11 The Exchange notes that it would not open, for example if the first disseminated quote in the underlying security is $50.50 bid, $50.75 ask, and the first trade in the underlying had been executed for $50.00. The Exchange would, however open if the first trade in the underlying was $50.50. 12 See Rule 952NY(b)(E). PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 Market Maker quotes, like the NBBO, come from OPRA. Thus, the Exchange proposes to open after receiving an ‘‘initial uncrossed NBBO from ORRA’’ and to delete rule text related to opening on a Market Maker quote.13 The Exchange notes that OPRA disseminates to each exchange the NBBO as well as the top of book for each exchange, such that the Exchange’s market maker quote would be disseminated back to the Exchange as the BBO—and could be, but is not necessarily, the NBBO. Because OPRA disseminates this information to all exchanges at the same time, the Exchange believes the proposal to open only after receiving an uncrossed NBBO from OPRA would eliminate any ambiguity as to the source of the information used to open each series and should lead to more accurate prices on the Exchange. In connection with the proposed changes to Rule 952NY(b), the Exchange likewise proposes to strike from Rule 952NY(c) reference to ‘‘the midpoint of the best quote bids and quote offers in the System Book’’ as it relates to the Exchange determining the opening price for options issues designated for trading on the System.14 The Exchange believes this conforming change is necessary given that the Exchange would no longer open solely on a Market Maker quote and therefore this information would not form the basis of the opening price of a series. As proposed, the opening price of a series would be the price ‘‘at which the greatest number of contracts will trade at or nearest to the midpoint of the initial uncrossed NBBO disseminated by OPRA.’’ 15 The Exchange believes this change adds transparency and internal consistency to the rule text. Finally, the Exchange proposes new paragraph (F) to Rule 952NY(c) to provide the Exchange with discretion to deviate from the standard Opening Process where it is necessary in the interests of a fair and orderly market.16 13 See proposed Rule 952NY(b)(E) (providing that ‘‘[i]f the System does not open a series with an Auction Process, the System shall open the series for trading after receiving notification of an initial uncrossed NBBO disseminated by OPRA for the series, provided that the bid-ask differential does not exceed the bid-ask differential specified under Rule 925NY(b)(5).’’ 14 Current Rule 952NY(c) provides, in relevant part, that the opening price of a series will be the price ‘‘at which the greatest number of contracts will trade at or nearest to the midpoint of the initial uncrossed NBBO disseminated by OPRA, if any, or the midpoint of the best quote bids and quote offers in the System Book.’’ 15 See proposed Rule 952NY(c). 16 See proposed Rule 952NY(b)(F) (providing that ‘‘[t]he Exchange may deviate from the standard manner of the Auction Process, including adjusting the timing of the Auction Process in any option E:\FR\FM\12APN1.SGM 12APN1 Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Notices This proposed rule change is based on the rules of other options exchanges.17 Similar to how other markets operate, the Exchange believes it may be appropriate, in the interest of a fair and orderly market, to open trading even if the conditions specified in Rule 952NY(b) are not met. For example, if the primary market is unable to open due to a systems or technical issue, but trading in the underlying security is otherwise unaffected, the Exchange believes it would be appropriate to open trading in any options series overlying such securities. Further, proposed Rule 952NY(b)(F) would provide the Exchange with discretion to manage the Opening Process in the event of unanticipated circumstances occurring around 9:30 a.m. Eastern Time or a halt being lifted. asabaliauskas on DSK3SPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) 18 of the Securities Exchange Act of 1934 (the ‘‘Act’’), in general, and furthers the objectives of Section 6(b)(5), 19 in particular, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. Specifically, the proposed change to Rule 952NY(b) would clarify that the Exchange would only open a series automatically after it receives a quote in the underlying security and a trade in that security at or between the disseminated quote—as opposed to automatically opening on either an opening quote or an opening trade alone per the current rule text, which may not always accurately reflect the state of the market. The Exchange believes this added transparency would promote just and equitable principles of trade and remove impediments to, and perfect the mechanism of, a free and open market and a national market system to the benefit of market participants. Further, the Exchange believes that waiting to open trading in an option series until there has been both a disseminated quote and trade in the underlying class, when it believes it is necessary in the interests of a fair and orderly market’’). 17 See e.g., BATS Exchange, Inc. (‘‘BATS’’) Rule 21.7(c) (Market Opening Procedures) (‘‘The Exchange may deviate from the standard manner of the Opening Process, including adjusting the timing of the Opening Process in any option class, when it believes it is necessary in the interests of a fair and orderly market’’). 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:18 Apr 11, 2016 Jkt 238001 security would protect investors and the public interest because it would help to augment the Auction Process by ensuring that an underlying security has been opened pursuant to a robust price discovery process before opening the overlying options for trading. Moreover, this proposed change would promote just and equitable principles of trade to the benefit of investors and the public interest because it would provide market participants with greater certainty as to the true state of the market at the opening of the trading day and should lead to more accurate prices on the Exchange. The Exchange also believes that specifying that, to open a series, the Exchange would require an initial uncrossed NBBO disseminated by OPRA would promote just and equitable principles of trade as the change is designed to protect investors and the public interest. The Exchange notes that OPRA disseminates to each exchange the NBBO as well as the top of book for each exchange, such that the Exchange’s market maker quote would be disseminated back to the Exchange as the BBO—and could be, but is not necessarily, the NBBO. Because OPRA disseminates this information to all exchanges at the same time, the Exchange believes the proposal to open only after receiving an uncrossed NBBO from OPRA would eliminate any ambiguity as to the source of the information for each series and should lead to more accurate prices on the Exchange. Similarly, the Exchange believes the conforming change to Rule 952NY(c), which strikes reference to quote bids and quote offers in the OX Book [sic] for purposes of determining an opening price, likewise would promote just and equitable principles of trade as it would add transparency and internal consistency to Exchange rules, which would make them easier for market participants to navigate. Finally, the Exchange believes the proposal to permit the Exchange to open options trading when such opening is in the interests of a fair and orderly market (even if the conditions set forth in the rule are not met), is consistent with the protection of investors and the public interest because the proposed changes would allow the Exchange to open trading in options contracts in a fair and orderly manner. Specifically, the Exchange believes that the proposed changes would reduce potential delays in opening an option series that may prevent the Exchange from displaying and/or routing orders on its Consolidated Book and may also prevent the Exchange from PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 21625 disseminating a protected quote that draws trading interest from other options markets. Thus, the Exchange believes that the proposed changes would allow the Exchange to open options series faster and more efficiently, thereby reducing any delay in execution of orders on the Exchange that may be unnecessary and harmful to market participants. The Exchange also notes that this proposed rule change is based on the rules of other options exchanges.20 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed change is not designed to address any competitive issue but rather to add specificity and transparency to Exchange rules, thereby reducing confusion and making the Exchange’s rules easier to understand and navigate. The Exchange believes that the proposed rule change would serve to promote regulatory clarity and consistency, thereby reducing burdens on the marketplace and facilitating investor protection. 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. 20 See E:\FR\FM\12APN1.SGM supra n. 17. 12APN1 21626 Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–77548; File No. SR– NASDAQ–2015–161] • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEMKT–2016–42 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. asabaliauskas on DSK3SPTVN1PROD with NOTICES All submissions should refer to File Number SR–NYSEMKT–2016–42. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEMKT–2016–42 and should be submitted on or before May 3, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–08304 Filed 4–11–16; 8:45 am] BILLING CODE 8011–01–P 21 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:18 Apr 11, 2016 Jkt 238001 Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 3 Thereto, Relating to the Listing and Trading of the Shares of the First Trust RiverFront Dynamic Europe ETF, First Trust RiverFront Dynamic Asia Pacific ETF, First Trust RiverFront Dynamic Emerging Markets ETF, and First Trust RiverFront Dynamic Developed International ETF of First Trust Exchange-Traded Fund III April 6, 2016. I. Introduction On December 22, 2015, The NASDAQ Stock Market LLC (‘‘Exchange’’ or ‘‘Nasdaq’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade the shares of the First Trust RiverFront Dynamic Europe ETF (‘‘Europe Fund’’); First Trust RiverFront Dynamic Asia Pacific ETF (‘‘Asia Pacific Fund’’); First Trust RiverFront Dynamic Emerging Markets ETF (‘‘Emerging Markets Fund’’); and First Trust RiverFront Dynamic Developed International ETF (‘‘Developed International Fund’’). The proposed rule change was published for comment in the Federal Register on January 8, 2016.3 On January 8, 2016, the Exchange filed Amendment No. 1 to the proposed rule change.4 On February 18, 2016, the Exchange filed Amendment No. 2 to the proposed rule change.5 On February 19, 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 76817 (January 4, 2016), 81 FR 978 (‘‘Notice’’). 4 In Amendment No. 1, the Exchange clarified the proposed rule change by providing additional information regarding the currencies, and instruments that provide exposure to such currencies, in which each Fund will invest. Because Amendment No. 1 to the proposed rule change does not materially alter the substance of the proposed rule change or raise novel regulatory issues, Amendment No. 1 is not subject to notice and comment (Amendment No. 1 is available at: http:// www.sec.gov/comments/sr-nasdaq-2015-161/ nasdaq2015161-1.pdf). 5 In Amendment No. 2, the Exchange expanded the application of the Alternative Criteria (as discussed below) so that they will apply on a continual basis. Because Amendment No. 2 does not materially alter the substance of the proposed rule change or raise novel regulatory issues, Amendment No. 2 is not subject to notice and comment (Amendment No. 2 is available at: http: //www.sec.gov/comments/sr-nasdaq-2015-161/ nasdaq2015161-2.pdf). 2 17 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 2016, pursuant to Section 19(b)(2) of the Act,6 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.7 On April 5, 2016, the Exchange filed Amendment No. 3 to the proposed rule change.8 The Commission received no comments on the proposed rule change. This order grants approval of the proposed rule change, as modified by Amendment Nos. 1, 2, and 3 thereto. II. Exchange’s Description of the Proposal The Exchange proposes to list and trade the shares (‘‘Shares’’) of the Europe Fund, Asia Pacific Fund, Emerging Markets Fund, and Developed International Fund (individually, ‘‘Fund,’’ and collectively, ‘‘Funds’’) under Nasdaq Rule 5735, which governs the listing and trading of Managed Fund Shares on the Exchange. Each Fund, which will be a series of First Trust Exchange-Traded Fund III (‘‘Trust’’), will be an actively managed exchangetraded fund (‘‘ETF’’). The Shares will be offered by the Trust,9 which was established as a Massachusetts business trust on January 9, 2008. The Trust is registered with the Commission as an investment company and has filed a registration statement on Form N–1A with the Commission.10 First Trust Advisors L.P. will be the investment adviser (‘‘Adviser’’) to the 6 15 U.S.C. 78s(b)(2). Securities Exchange Act Release No. 77192, 81 FR 9575 (February 25, 2016). 8 In Amendment No. 3 to the proposed rule change, the Exchange clarified that: (a) All statements and representations made in the proposal regarding the description of the portfolios, limitations on portfolio holdings or reference assets, or the applicability of Exchange rules and surveillance procedures shall constitute continued listing requirements for listing the Shares on the Exchange; (b) the issuer will advise the Exchange of any failure by the Funds to comply with the continued listing requirements; (c) pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements; and (d) if a Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq 5800 Series. Because Amendment No. 3 to the proposed rule change does not materially alter the substance of the proposed rule change or raise unique or novel regulatory issues, Amendment No. 3 is not subject to notice and comment (Amendment No. 3 is available at: http://www.sec.gov/comments/srnasdaq-2015-161/nasdaq2015161-3.pdf). 9 According to the Exchange, the Trust has obtained certain exemptive relief under the Investment Company Act of 1940 (‘‘1940 Act’’). See Investment Company Act Release No. 28468 (October 27, 2008) (File No. 812–13477). 10 See Post-Effective Amendment No. 29 to Registration Statement on Form N–1A for the Trust, dated November 19, 2015 (File Nos. 333–176976 and 811–22245) (‘‘Registration Statement’’). 7 See E:\FR\FM\12APN1.SGM 12APN1

Agencies

[Federal Register Volume 81, Number 70 (Tuesday, April 12, 2016)]
[Notices]
[Pages 21623-21626]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08304]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77540; File No. SR-NYSEMKT-2016-42]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change To Amend Rule 952NY With Respect to Opening 
Trading in an Options Series

April 6, 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 23, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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 Rule 952NY (Opening Process) with 
respect to opening trading in an options series. 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 is proposing changes to Rule 952NY with respect to 
opening

[[Page 21624]]

trading in an option series as described below.
Opening Process
    Rule 952NY describes the process pursuant to which the System \4\ 
opens an option series. Paragraphs (b) and (c) of Rule 952NY provide 
that, after the primary market for the underlying security disseminates 
the opening trade or opening quote, the System then conducts an 
``Auction Process'' to open a series whereby the System determines a 
single price at which a series may be opened by looking to: (i) The 
midpoint of the initial uncrossed NBBO disseminated by the Options 
Price Reporting Authority (``OPRA''), if any, or (ii) the midpoint of 
the best quotes or orders in the System Book. If the bid-ask 
differential for a series is not within an acceptable range, the System 
will not conduct an Auction Process.\5\ For purposes of this rule, the 
acceptable range means the bid-ask differential guidelines specified in 
Rule 925NY(b)(4).\6\ Assuming the bid-ask differential is within the 
acceptable range, the System matches up orders and quotes based on 
price-time priority \7\ and executes the orders that are matched at the 
midpoint pricing.\8\
---------------------------------------------------------------------------

    \4\ The term ``System'' refers to the Exchange's electronic 
order delivery, execution and reporting system through which orders 
and quotes for listed options are consolidated for execution and/or 
display. See Rule 900.2NY(48) (defining ``Exchange System'' or 
``System'').
    \5\ The Auction bid-ask differentials are known in common 
parlance as ``legal-width quotes.''
    \6\ See Rule 925NY(b)(4). The bid-ask guidelines specified in 
Rule 925NY(b)(4) that are required to open a series are narrower 
than the $5 wide bid-ask differential for options traded on the 
System during Core Trading Hours.
    \7\ Orders will have priority over Market Maker quotes at the 
same price. See Rule 952NY(b)(B).
    \8\ See Rule 952NY(b)(B). The Exchange notes that the word Order 
appears capitalized in this paragraph and, because it is not a 
defined term, the Exchange proposes the non-substantive change of 
eliminating the capitalization.
---------------------------------------------------------------------------

    Any orders in the System that are not executed in the Auction 
Process become eligible for the Core Trading Session immediately after 
the conclusion of the Auction Process. If the System does not open a 
series with an Auction Process, the System shall open the series for 
trading after receiving notification of an initial NBBO disseminated by 
OPRA for the series or on a Market Maker quote, provided that the bid-
ask differential does not exceed the bid-ask differential specified 
under Rule 925NY(b)(5).\9\
---------------------------------------------------------------------------

    \9\ See Rule 925NY(b)(5). Rule 925NY(b)(5) provides that options 
traded on the System during Core Trading Hours may be quoted with a 
difference not to exceed $5 between the bid and offer regardless of 
the price of the bid.
---------------------------------------------------------------------------

Proposed Modifications to the Opening Process
    First, the Exchange proposes to change Rule 952NY(b) regarding how 
the System determines when to start the Auction Process. Current 
paragraph (b) of the Rule provides that ``[a]fter the primary market 
for the underlying security disseminates the opening trade or the 
opening quote, the related option series will be opened 
automatically.'' However, because it is possible that either an opening 
quote or opening trade alone may not accurately reflect the state of 
the market, the Exchange proposes to specify that an option series will 
be opened automatically, ``once the primary market for the underlying 
security disseminates a quote and a trade that is at or within the 
quote.'' \10\ The Exchange believes the proposed change makes clear 
that the Exchange would only open a series automatically after it 
receives a quote in the underlying security and a trade in that 
security at or between the disseminated quote rather than simply upon 
receipt of either an ``opening trade or opening quote.'' The Exchange 
believes that waiting to open trading in an option series until there 
has been both a disseminated quote and trade in the underlying security 
would help to augment the Auction Process by ensuring that an 
underlying security has been opened pursuant to a robust price 
discovery process before opening the overlying options for trading. The 
Exchange believes that the proposed change would provide market 
participants with greater certainty as to the true state of the market 
at the opening of the trading day and should lead to more accurate 
prices on the Exchange.\11\
---------------------------------------------------------------------------

    \10\ See proposed Rule 952NY(b). The Exchange also proposes to 
clarify that ``[a]t or after 9:30 a.m. Eastern Time,'' i.e., when 
the market opens, the Exchange would initiate the Opening Process 
for all series associated with the underlying security. See id.
    \11\ The Exchange notes that it would not open, for example if 
the first disseminated quote in the underlying security is $50.50 
bid, $50.75 ask, and the first trade in the underlying had been 
executed for $50.00. The Exchange would, however open if the first 
trade in the underlying was $50.50.
---------------------------------------------------------------------------

    Next, the Exchange proposes to modify Rule 952NY(b)(E), which 
currently provides, in relevant part, that ``[i]f the System does not 
open a series with an Auction Process, the System shall open the series 
for trading after receiving notification of an initial NBBO 
disseminated by OPRA for the series or on a Market Maker quote.'' \12\ 
However, the Exchange has determined that it would no longer open on a 
local Market Maker quote but would require that Market Maker quotes, 
like the NBBO, come from OPRA. Thus, the Exchange proposes to open 
after receiving an ``initial uncrossed NBBO from ORRA'' and to delete 
rule text related to opening on a Market Maker quote.\13\ The Exchange 
notes that OPRA disseminates to each exchange the NBBO as well as the 
top of book for each exchange, such that the Exchange's market maker 
quote would be disseminated back to the Exchange as the BBO--and could 
be, but is not necessarily, the NBBO. Because OPRA disseminates this 
information to all exchanges at the same time, the Exchange believes 
the proposal to open only after receiving an uncrossed NBBO from OPRA 
would eliminate any ambiguity as to the source of the information used 
to open each series and should lead to more accurate prices on the 
Exchange.
---------------------------------------------------------------------------

    \12\ See Rule 952NY(b)(E).
    \13\ See proposed Rule 952NY(b)(E) (providing that ``[i]f the 
System does not open a series with an Auction Process, the System 
shall open the series for trading after receiving notification of an 
initial uncrossed NBBO disseminated by OPRA for the series, provided 
that the bid-ask differential does not exceed the bid-ask 
differential specified under Rule 925NY(b)(5).''
---------------------------------------------------------------------------

    In connection with the proposed changes to Rule 952NY(b), the 
Exchange likewise proposes to strike from Rule 952NY(c) reference to 
``the midpoint of the best quote bids and quote offers in the System 
Book'' as it relates to the Exchange determining the opening price for 
options issues designated for trading on the System.\14\ The Exchange 
believes this conforming change is necessary given that the Exchange 
would no longer open solely on a Market Maker quote and therefore this 
information would not form the basis of the opening price of a series. 
As proposed, the opening price of a series would be the price ``at 
which the greatest number of contracts will trade at or nearest to the 
midpoint of the initial uncrossed NBBO disseminated by OPRA.'' \15\ The 
Exchange believes this change adds transparency and internal 
consistency to the rule text.
---------------------------------------------------------------------------

    \14\ Current Rule 952NY(c) provides, in relevant part, that the 
opening price of a series will be the price ``at which the greatest 
number of contracts will trade at or nearest to the midpoint of the 
initial uncrossed NBBO disseminated by OPRA, if any, or the midpoint 
of the best quote bids and quote offers in the System Book.''
    \15\ See proposed Rule 952NY(c).
---------------------------------------------------------------------------

    Finally, the Exchange proposes new paragraph (F) to Rule 952NY(c) 
to provide the Exchange with discretion to deviate from the standard 
Opening Process where it is necessary in the interests of a fair and 
orderly market.\16\

[[Page 21625]]

This proposed rule change is based on the rules of other options 
exchanges.\17\ Similar to how other markets operate, the Exchange 
believes it may be appropriate, in the interest of a fair and orderly 
market, to open trading even if the conditions specified in Rule 
952NY(b) are not met. For example, if the primary market is unable to 
open due to a systems or technical issue, but trading in the underlying 
security is otherwise unaffected, the Exchange believes it would be 
appropriate to open trading in any options series overlying such 
securities. Further, proposed Rule 952NY(b)(F) would provide the 
Exchange with discretion to manage the Opening Process in the event of 
unanticipated circumstances occurring around 9:30 a.m. Eastern Time or 
a halt being lifted.
---------------------------------------------------------------------------

    \16\ See proposed Rule 952NY(b)(F) (providing that ``[t]he 
Exchange may deviate from the standard manner of the Auction 
Process, including adjusting the timing of the Auction Process in 
any option class, when it believes it is necessary in the interests 
of a fair and orderly market'').
    \17\ See e.g., BATS Exchange, Inc. (``BATS'') Rule 21.7(c) 
(Market Opening Procedures) (``The Exchange may deviate from the 
standard manner of the Opening Process, including adjusting the 
timing of the Opening Process in any option class, when it believes 
it is necessary in the interests of a fair and orderly market'').
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \18\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5), \19\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the proposed change to Rule 952NY(b) would clarify 
that the Exchange would only open a series automatically after it 
receives a quote in the underlying security and a trade in that 
security at or between the disseminated quote--as opposed to 
automatically opening on either an opening quote or an opening trade 
alone per the current rule text, which may not always accurately 
reflect the state of the market. The Exchange believes this added 
transparency would promote just and equitable principles of trade and 
remove impediments to, and perfect the mechanism of, a free and open 
market and a national market system to the benefit of market 
participants. Further, the Exchange believes that waiting to open 
trading in an option series until there has been both a disseminated 
quote and trade in the underlying security would protect investors and 
the public interest because it would help to augment the Auction 
Process by ensuring that an underlying security has been opened 
pursuant to a robust price discovery process before opening the 
overlying options for trading. Moreover, this proposed change would 
promote just and equitable principles of trade to the benefit of 
investors and the public interest because it would provide market 
participants with greater certainty as to the true state of the market 
at the opening of the trading day and should lead to more accurate 
prices on the Exchange.
    The Exchange also believes that specifying that, to open a series, 
the Exchange would require an initial uncrossed NBBO disseminated by 
OPRA would promote just and equitable principles of trade as the change 
is designed to protect investors and the public interest. The Exchange 
notes that OPRA disseminates to each exchange the NBBO as well as the 
top of book for each exchange, such that the Exchange's market maker 
quote would be disseminated back to the Exchange as the BBO--and could 
be, but is not necessarily, the NBBO. Because OPRA disseminates this 
information to all exchanges at the same time, the Exchange believes 
the proposal to open only after receiving an uncrossed NBBO from OPRA 
would eliminate any ambiguity as to the source of the information for 
each series and should lead to more accurate prices on the Exchange.
    Similarly, the Exchange believes the conforming change to Rule 
952NY(c), which strikes reference to quote bids and quote offers in the 
OX Book [sic] for purposes of determining an opening price, likewise 
would promote just and equitable principles of trade as it would add 
transparency and internal consistency to Exchange rules, which would 
make them easier for market participants to navigate.
    Finally, the Exchange believes the proposal to permit the Exchange 
to open options trading when such opening is in the interests of a fair 
and orderly market (even if the conditions set forth in the rule are 
not met), is consistent with the protection of investors and the public 
interest because the proposed changes would allow the Exchange to open 
trading in options contracts in a fair and orderly manner. 
Specifically, the Exchange believes that the proposed changes would 
reduce potential delays in opening an option series that may prevent 
the Exchange from displaying and/or routing orders on its Consolidated 
Book and may also prevent the Exchange from disseminating a protected 
quote that draws trading interest from other options markets. Thus, the 
Exchange believes that the proposed changes would allow the Exchange to 
open options series faster and more efficiently, thereby reducing any 
delay in execution of orders on the Exchange that may be unnecessary 
and harmful to market participants. The Exchange also notes that this 
proposed rule change is based on the rules of other options 
exchanges.\20\
---------------------------------------------------------------------------

    \20\ See supra n. 17.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed change is not 
designed to address any competitive issue but rather to add specificity 
and transparency to Exchange rules, thereby reducing confusion and 
making the Exchange's rules easier to understand and navigate. The 
Exchange believes that the proposed rule change would serve to promote 
regulatory clarity and consistency, thereby reducing burdens on the 
marketplace and facilitating investor protection.

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.

[[Page 21626]]

Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2016-42 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2016-42. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEMKT-2016-42 and should 
be submitted on or before May 3, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08304 Filed 4-11-16; 8:45 am]
BILLING CODE 8011-01-P