Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To (1) Change How Orders Would Be Processed When the Protected Best Bid (“PBB”) Is Higher Than the Protected Best Offer (“PBO”) (The “PBBO”) in Certain Circumstances, and (2) Adopt a Limit Order Price Protection Mechanism, 95699-95703 [2016-31302]
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Federal Register / Vol. 81, No. 249 / Wednesday, December 28, 2016 / Notices
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
BatsBZX–2016–87 and should be
submitted on or before January 18, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–31298 Filed 12–27–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79640; File No. SR–
NYSEMKT–2016–117]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To (1) Change How
Orders Would Be Processed When the
Protected Best Bid (‘‘PBB’’) Is Higher
Than the Protected Best Offer (‘‘PBO’’)
(The ‘‘PBBO’’) in Certain
Circumstances, and (2) Adopt a Limit
Order Price Protection Mechanism
sradovich on DSK3GMQ082PROD with NOTICES
December 21, 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 December
12, 2016, NYSE MKT LLC (the
42 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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‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to (1) change
how orders would be processed when
the protected best bid (‘‘PBB’’) is higher
than the protected best offer (‘‘PBO’’)
(the ‘‘PBBO’’) in certain circumstances,
and (2) adopt a limit order price
protection mechanism. 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 (1) change
how orders would be processed when
the PBB is higher than the PBO in
certain circumstances, and (2) adopt a
limit order price protection mechanism.
Processing of Orders When the PBBO Is
Crossed (Rules 13—Equities, 70—
Equities, 76—Equities and 1000—
Equities)
Currently, when the PBB is priced
higher than the PBO in a security (i.e.,
the PBBO is crossed), buy and sell
orders trade on the Exchange without
regard to price and without routing,
consistent with the exception to the
Order Protection Rule enumerated in
Rule 611(b)(4) of Regulation NMS
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95699
(‘‘Rule 611(b)(4)’’).4 In certain
circumstances as described herein, the
Exchange proposes to no longer avail
itself of this exception to the Order
Protection Rule.5 In those
circumstances, rather than trading
through a protected quotation when the
PBBO is crossed, routable orders may
instead be routed to protected
quotations. In order to implement this
change, the Exchange proposes to
amend the following rules:
Rule 13—Equities
Market Order
Rule 13(a)(1)—Equities provides that
a Market Order that is eligible for
automatic executions is an unpriced
order to buy or sell a stated amount of
a security that is to be traded at the best
price obtainable without trading
through the NBBO. Rule 13(a)(1)(B)(i)—
Equities provides that when the
Exchange is open for continuous
trading, a Market Order will be rejected
on arrival, or cancelled if resting, if
there is no contra-side NBBO or if the
best protected quotations are or become
crossed.
The Exchange proposes to no longer
reject or cancel Market Orders when the
PBBO is crossed. To effectuate this
change, the Exchange proposes to delete
the phrase ‘‘or if the best protected
quotations are or become crossed’’ in
Rule 13(a)(1)(B)(i)—Equities. As a result
of this proposed change, if a Market
Order arrives when the PBBO is crossed,
the Exchange would process the Market
Order in the same way as when the
NBBO is crossed under the current
rule.6
Routing to Protected Quotations
The Exchange proposes to amend the
Rule 13—Equities to specify
circumstances when the Exchange
would make order handling decisions
based on a protected quotation. The
Exchange proposes to make these
changes because, in the circumstances
described below, the Exchange would
no longer avail itself of the exception to
the Order Protection Rule specified in
Rule 611(b)(4), and therefore the
Exchange would include protected
4 17 CFR 242.611(b)(4). See also Rule 15A—
Equities (Order Protection Rule).
5 For example, assume if the Exchange has a
displayed bid of $10.00 and another market crosses
that bid with a protected offer of $9.99. Currently,
if the Exchange receives a marketable order to buy,
it will trade on the Exchange at prices higher than
$9.99. Once the Exchange no longer avails itself of
the exception in Rule 611(b)(4), unless otherwise
specified in Exchange rules as described in this
proposed rule change, arriving routable interest to
buy that is marketable on the Exchange would
instead first route to that protected offer.
6 See Rule 13(a)(1)(B)(ii)—Equities.
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quotations for order handling purposes
even when the PBBO is crossed.
First, the Exchange proposes to
amend the definition of Exchange IOC
Order to reflect that, when the PBBO is
crossed, the Exchange would route such
orders to other markets if an execution
on the Exchange would trade through a
protected quotation in compliance with
Regulation NMS. Rule 13(b)(2)(B)—
Equities defines an Exchange IOC Order
as a Limit Order designated Immediate
or Cancel (‘‘IOC’’) that will be
automatically executed against the
displayed quotation up to its full size
and sweep the Exchange book, as
provided in Rule 1000 to the extent
possible, with portions of the order
routed to other markets if necessary in
compliance with Regulation NMS and
the portion not so executed will be
immediately and automatically
cancelled. As such, currently an
Exchange IOC Order is only routed to a
protected quotation unless the
exception in Rule 611(b)(4) applies.
Because the Exchange proposes to route
an Exchange IOC Order to other markets
if an execution on the Exchange would
trade through a protected quotation, i.e.,
in circumstances when the PBBO is
crossed, the Exchange would revise the
rule text to read ‘‘with portions of the
order routed to other markets if an
execution would trade through a
protected quotation, in compliance with
Regulation NMS. The portion of the
order not so executed will be
immediately and automatically
cancelled.’’
Second, the Exchange proposes to
amend the definition of ‘‘best-priced sell
interest’’ and ‘‘best-priced buy interest,’’
which are terms used for purposes of
determining where to display and rank
a Limit Order designated with an Add
Liquidity Only (‘‘ALO’’) Modifier.
Supplementary Material .10 of Rule
13—Equities provides that, for purposes
of the Rule, the term ‘‘best-priced sell
interest’’ refers to the lowest priced sell
interest against which incoming buy
interest would be required to execute
with and/or route to, including
Exchange displayed offers, Non-Display
Reserve Orders, Non- Display Reserve eQuotes, odd-lot sized sell interest,
unexecuted Market Orders, and
protected offers on away markets and
that the term ‘‘best-priced buy interest’’
refers to the highest priced buy interest
against which incoming sell interest
would be required to execute with and/
or route to, including Exchange
displayed bids, Non-Display Reserve
Orders, Non- Display Reserve e-Quotes,
odd-lot sized buy interest, unexecuted
Market Orders, and protected bids on
away markets, but does not include non-
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displayed buy interest that is priced
based on the PBBO.7
Because the Exchange currently avails
itself of the exception in Rule 611(b)(4)
when the PBBO is crossed, the
Exchange does not include protected
bids or offers in the determination of
‘‘best-priced sell interest’’ or ‘‘bestpriced buy interest.’’ With the proposed
change, in the circumstances when the
Exchange no longer avails itself of this
exception, the Exchange would consider
all protected quotations, including
when the PBBO is crossed. To reflect
this change, the Exchange proposes the
following amendments to
Supplementary Material .10 to Rule
13—Equities.8
• In the first clause defining ‘‘bestpriced sell interest,’’ the Exchange
proposes to delete ‘‘with and/or route
to’’ after ‘‘execute,’’ add the word ‘‘and’’
before ‘‘unexecuted Market Orders’’ and
add the phrase ‘‘the lowest-priced’’
before ‘‘protected offers on away
markets.’’ The proposed change would
clarify that best-priced sell interest can
mean either the lowest-priced sell
interest against which incoming buy
interest would execute with on the
Exchange or the lowest-priced protected
offer, which can be a protected offer on
an away market.
• In the second clause defining ‘‘bestpriced buy interest,’’ the Exchange
would delete ‘‘with and/or route’’ after
‘‘execute,’’ add the word ‘‘and’’ before
‘‘unexecuted Market Orders,’’ and add
‘‘the highest-priced’’ before ‘‘protected
bids on away markets.’’ The proposed
change would clarify that best-priced
buy interest can mean either the lowestpriced buy interest against which
incoming sell interest would execute
with on the Exchange or the lowestpriced protected bid, which can be a
protected bid on an away market.
Pegging Interest
Rule 13(f)(1)—Equities defines
pegging interest and provides that
pegging interest pegs to prices based on
(i) a PBBO, which may be available on
the Exchange or an away market, or (ii)
interest that establishes a price on the
Exchange. If the PBBO is not within the
specified price range of the pegging
interest, the pegging interest will
instead peg to the next available bestpriced displayable interest that is within
7 The Exchange also proposes a non-substantive
change to add a colon after Supplementary Material
in the heading.
8 Since the terms defined in Supplementary
Material .10 are only used for Limit Orders
designated ALO, the Exchange proposes to replace
‘‘this Rule’’ after ‘‘For purposes of’’ with
‘‘displaying and ranking a Limit Order with an Add
Liquidity Only (ALO) modifier’’.
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the specified price range, which may be
on the Exchange or the protected bid or
offer of another market.9 Rule
13(f)(1)(B)(i)—Equities further provides
that pegging interest to buy (sell) will
not peg to a price that is locking or
crossing the Exchange best offer (bid),
but instead will peg to the next available
best-priced displayable interest that
would not lock or cross the Exchange
best offer (bid).
To avoid routing pegging interest
when the PBBO is locked or crossed, the
Exchange proposes to specify that the
Exchange would not peg to a locking or
crossing PBBO and would instead peg to
the next-available best-priced
displayable interest that would not lock
or cross either the Exchange’s BBO or
the PBBO. To effect this change, the
Exchange proposes to amend Rule
13(f)(1)(B)(i)—Equities to provide that
pegging interest to buy (sell) will not
peg to the PBB (PBO) if the PBBO is
locked or crossed or to a price that is
locking or crossing the Exchange best
offer (bid), but instead would peg to the
next available best-priced displayable
interest that would not lock or cross the
Exchange best offer (bid) or the PBO
(PBB).
Rule 70—Equities
Rule 70—Equities governs the
execution of Floor broker interest,
including g-Quotes. G-Quotes are an
electronic method for Floor brokers to
represent orders that yield priority,
parity and precedence based on size to
displayed and non-displayed orders on
the Exchange’s book, in compliance
with Section 11(a)(1)(G) of the Act (the
‘‘G Rule’’).10
Because the proposed change to how
the Exchange would operate when the
PBBO is crossed would result in
routable orders being routed to a crossed
PBBO, the Exchange proposes to revise
the behavior of g-Quotes to limit the
circumstances when such orders would
route. While the G Rule only requires G
orders to yield to orders on the
Exchange, the Exchange does not
believe that a G order should trade on
9 See Rule 13(f)(1)(A)(iv)(a) & (f)(1)(A)(iii)—
Equities.
10 Section 11(a)(1) of the Act, 15 U.S.C. 78k(a)(1),
generally prohibits a member of a national
securities exchange from effecting transactions on
that exchange for its own account, the account of
an associated person, or any account over which it
or an associated person exercises discretion.
Subsection (G) of Section 11(a)(1) provides an
exemption from this prohibition, allowing an
exchange member to have its own floor broker
execute a proprietary order, also known as a ‘‘G
order,’’ provided such order yields priority, parity,
and precedence. Under the G Rule, G orders are not
required to yield to other orders that are for the
account of a member, e.g., Designated Market Maker
(‘‘DMM’’) interest or other g-Quotes.
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another market before resting displayed
interest on the Exchange trades and to
which, absent routing of the G order,
would be yielded priority by the G order
under the G Rule. Accordingly, the
Exchange proposes to restrict a g-Quote
from routing to a protected quotation
ahead of displayed orders on the
Exchange at the same price. To effect
this change, the Exchange proposes to
add a new subsection (iii) to Rule
70(a)—Equities that would provide that
a g-Quote to buy (sell) that would be
required to route on arrival would be
cancelled when there is resting
displayable interest that is not a g-Quote
or DMM interest to buy (sell) at the
same or higher (lower) price as the gQuote.
Further, the Exchange proposes to
amend subsection (a)(ii) of
Supplementary Material .25 to Rule
70—Equities to specify that
discretionary instructions for Floor
broker d-Quotes11 are unavailable when
the PBBO is crossed. To effectuate this
change, the Exchange proposes to delete
the phrase ‘‘at all times’’ following
‘‘Discretionary instructions are active’’
and add the phrase ‘‘unless the PBBO is
crossed’’ following ‘‘during the trading
day.’’ 12
Rule 76—Equities
Rule 76—Equities governs the
execution of manual ‘‘cross’’ or
‘‘crossing’’ orders by Floor brokers on
the Exchange trading Floor.
Supplementary Material .10 of Rule
76—Equities permits Floor Brokers to
enter a cross transaction into their hand
held device (‘‘HHD’’) and describes the
operation by the Exchange of a quote
minder function that monitors protected
bids and offers to determine when the
limit price assigned to the proposed
crossed transaction is such that the
orders may be executed consistent with
Regulation NMS Rule 611.
The Exchange proposes to amend
Supplementary Material .10 of Rule
76—Equities to specify that quote
minder would be unavailable to Floor
brokers when the PBBO is crossed by
adding the sentence ‘‘Quote minder will
not monitor protected bids and offers
when the PBBO is crossed’’ to the end
of the Rule. The proposed change to
Rule 76.10—Equities is consistent with
the proposed change, described above,
that the Exchange would route orders
even if the PBBO is crossed. Because
11 D-Quotes enable Floor brokers to enter
discretionary instructions as to the price at which
the d-Quote may trade and the number of shares to
which the discretionary price instructions apply.
12 The Exchange also proposes to add
‘‘reopening’’ after ‘‘at the opening’’ and before ‘‘and
closing transactions’’ in Rule 70.25(a)(ii)—Equities.
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Rule 76—Equities governs crossing
orders at a single price on the Exchange,
the Exchange believes this proposed
change makes clear that the Exchange
would not permit a crossing order to be
executed when the PBBO is crossed.
Rule 1000—Equities
Rule 1000—Equities provides for
automatic executions by Exchange
systems. The Exchange proposes to add
new Supplementary Material .10 to
specify how DMM interest would be
processed when the PBBO is crossed
and there is same side resting
displayable interest that is locking or
crossing the contra-side PBBO. Similar
to the proposed amendment described
above relating to g-Quotes, the Exchange
does not believe that DMM interest
should have an opportunity to trade on
another market ahead of displayed
orders on the Exchange.
To effect this change, the proposed
amendment would provide that DMM
interest that would be required to route
on arrival would be cancelled when
there is same side resting displayable
buy (sell) interest (that is not a g-Quote
or DMM interest to buy (sell)) that is
locking or crossing the PBO (PBB).
Similarly, the Exchange proposes to
specify that certain DMM interest that
would increase the displayed quantity
of the similarly-entered resting DMM
interest would be rejected when the
resting DMM interest is locked or
crossed by a protected away quote.13
Limit Order Price Protection (Rules
13—Equities and 1000—Equities)
The Exchange proposes to amend
Rule 13—Equities to introduce limit
order price protection, which would
result in Limit Orders with prices too far
away from the prevailing quote to be
rejected on arrival. The proposed rule is
based on NYSE Arca Equities, Inc,
(‘‘NYSE Arca Equities’’) Rule
7.31(a)(2)(B).
As proposed, the Exchange would
reject limit orders that are priced a
specified percentage away from the
contra side national best bid (‘‘NBB’’) or
national best offer (‘‘NBO’’), as defined
in Rule 600(b)(42) of Regulation NMS.
As the Exchange receives limit orders,
Exchange systems will check the price
of the limit order against the contra-side
NBB or NBO at the time of the order
entry to determine whether the limit
order is within the specified percentage.
As proposed, the specified percentage
would be equal to the corresponding
‘‘numerical guideline’’ percentages set
forth in paragraph (c)(1) of Rule 1000—
13 See
PO 00000
Rule 104(b)—Equities &1000—Equities.
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95701
Equities (Automatic Executions) that are
used to calculate Trading Collars.14
Proposed Rule 13(a)(2)(A)—Equities
would provide that a Limit Order to buy
(sell) would be rejected if it is priced at
or above (below) a specified percentage
away from the NBO (NBB). Proposed
Rule 13(a)(2)(A)(i)—Equities would
further provide if the NBB or the NBO
is greater than $0.00 up to and including
$25.00, the specified percentage would
be 10%; if the NBB or NBO is greater
than $25.00 up to and including $50.00,
the specified percentage would be 5%;
and if the NBB or NBO is greater than
$50.00, the specified percentage would
be 3%. For example, if the NBB is
$26.00, a sell order priced at or below
$24.70, which is 5% below the NBB,
would be rejected. Likewise, if the NBO
is $55.00, a buy order priced at or above
$56.65, which is 3% above the NBO,
would be rejected.
Proposed Rule 13(a)(2)(A)(i)—Equities
would further provide that if the NBBO
is crossed, the Exchange would use the
Exchange Best Offer (‘‘BO’’) instead of
the NBO for buy orders and the
Exchange Best Bid (‘‘BB’’) instead of the
NBB for sell orders. The proposed Rule
would further provide that if the NBBO
is crossed and there is no BO (BB), Limit
Order Price Protection will not be
applied to an incoming Limit Order to
buy (sell). Further, proposed Rule
13(a)(2)(A)(i)—Equities would provide,
like current NYSE Arca Rule
7.31(a)(2)(B), that Limit Order Price
Protection will not be applied to an
incoming Limit Order to buy (sell) if
there is no NBO (NBB). Further, if the
specified percentage for both buy and
sell orders are not in the minimum price
variation (‘‘MPV’’) for the security, as
defined in Supplemental Material .10 to
Rule 62—Equities, they would be
rounded down to the nearest price at the
applicable MPV. This proposed rule text
is based on current Rule 1000(c)(1)—
Equities, governing Trading Collars.
Proposed Rule 13(a)(2)(A)(ii)—
Equities would provide that Limit Order
Price Protection would be applicable
only when automatic executions are in
effect. This rule would further provide
that Limit Order Price Protection would
not be applicable (a) before a security
opens for trading or during a halt or
pause; (b) during a trading suspension;
(c) to incoming Auction-Only Orders;
14 The NYSE Arca Equities limit order price
protection mechanism uses the ‘‘numerical
guideline’’ percentage set forth in Rule 7.10(c)(1)
(Clearly Erroneous Executions) for its Core Trading
Session. See NYSE Arca Equities Rule 7.31(a)(2)(B).
The Exchange’s proposal would use the same
numerical guidelines, but rather than cross
referencing another rule, the Exchange proposes to
enumerate the specified percentages in proposed
Rule 13(a)(2)(A).
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and (d) to high-priced securities, as
defined in Rule 1000(a)(iii)—Equities.
Finally, in connection with the
introduction of the proposed Limit
Order Price Protection mechanism, the
Exchange proposes to amend Rule
1000(c)—Equities and (c)(ii)—Equities
to delete references to marketable limit
orders. Accordingly, Trading Collars
specified in Rule 1000(c)—Equities
would be applicable to Market Orders
only, and pricing protections in
proposed Rule 13(a)(2)(A)—Equities
would be applicable to Limit Orders.
The Exchange believes that the Limit
Order Protection mechanism would
prevent the entry of supermarketable
limit orders, i.e., limit orders that in
essence act like market orders because
they are priced so far away from the
prevailing market price, that could
cause significant price dislocation in the
market. The Exchange also believes that
the mechanism would further serve to
mitigate the potential for clearly
erroneous executions to occur. The
Exchange believes that the proposed
treatment of limit orders serves as an
additional safeguard that could help
limit potential harm from extreme price
volatility by preventing executions that
could occur at a price significantly away
from the contra side national best bid or
national best offer.
*
*
*
*
*
Because of the technology changes
associated with this rule proposal, the
Exchange will announce the
implementation date in a Trader
Update. The Exchange currently
anticipates implementing the proposed
changes no later than March 31, 2017.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,15 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,16 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. Specifically, while the
Exchange is entitled to avail itself of the
exception to Rule 611(b)(4) to the Order
Protection Rule, the Exchange believes
that trading or routing based on the
PBBO, even when it is crossed, may
result in additional order execution
opportunities to trade at prevailing
prices in the market. Accordingly, as a
general matter, taking into consideration
15 15
16 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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all protected quotations for purposes of
the price at which to trade or route an
order on the Exchange, even when the
PBBO is crossed, would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange believes that the
proposed changes to modify current
order behavior that is based on Rule
611(b)(4) would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because they are designed to
reflect changes to how such orders
would be processed when the PBBO is
crossed in a manner consistent with the
original intent of such orders.
• The Exchange believes the
proposed amendment to Rule 13—
Equities governing Market Orders would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would promote transparency that a
Market Order would be accepted when
the PBBO is crossed, and thus may route
when the PBBO is crossed.
• The Exchange believes the
proposed amendments to Rule 13—
Equities definition of an Exchange IOC
Order clarifying that the Exchange
would route to a protected quotation
when the PBBO is crossed would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would provide specificity regarding the
reason why an order may be routed,
thereby promoting transparency in
Exchange rules. The Exchange further
believes that specifying that
Supplementary Material .10 relates to
the displaying and ranking of Limit
Orders designated ALO would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system by adding
clarity and transparency to the
Exchange’s rules.
• The proposed amendments to Rules
70—Equities and 1000—Equities to
cancel g-Quotes that would otherwise be
required to route to away markets ahead
of resting displayable interest and reject
DMM interest that would increase the
displayed quantity of similarly-entered
resting DMM interest when that resting
interest is locked or crossed by a
protected away quote would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and
protect investors and the public because
it would provide priority to previouslydisplayed orders not only for execution
opportunities on the Exchange, but also
on other markets.
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• The proposed amendment to Rule
76—Equities relating to crossing orders
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would provide
transparency that crossing orders, which
are designed to trade on the Exchange
as a single-priced transaction, would not
be eligible to trade if the PBBO is
crossed.
The Exchange believes that the
proposed Limit Order Protection
mechanism would remove impediments
to and perfect the mechanism of a free
and open market and a national market
system by rejecting orders that are
priced too far away from the prevailing
market. The Exchange believes that the
proposed rule would ensure that limit
orders would not cause the price of a
security to move beyond prices that
could otherwise be determined to be a
clearly erroneous execution, thereby
protecting investors from receiving
executions away from the prevailing
prices at any given time.
Finally, the Exchange’s proposal to
make non-substantive changes to the
text of Supplementary Material .10 of
Rule 13—Equities and to Rule
70.25(a)—Equities adds clarity and
transparency to Exchange rules and
reduces potential investor confusion,
which would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system.
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 change would not impose any
burden on competition because it would
align how the Exchange operates when
the PBBO is crossed with how other
equity exchanges function when the
PBBO is crossed. Moreover, the
proposed rule changes would specify
how orders would be processed when
the PBBO is crossed, thereby promoting
transparency and efficiency to the
benefit of all market participants, and
the adoption of a limit order protection
mechanism that is based on the rules of
another exchange. The Exchange
believes that the proposed rule change
will serve to promote regulatory clarity
and consistency, thereby reducing
burdens on competition in the
marketplace and facilitating investor
protection.
E:\FR\FM\28DEN1.SGM
28DEN1
Federal Register / Vol. 81, No. 249 / Wednesday, December 28, 2016 / Notices
Electronic Comments
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 17 and Rule
19b–4(f)(6) thereunder.18 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 19 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),20 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 21 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
sradovich on DSK3GMQ082PROD with NOTICES
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:
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEMKT–2016–117 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–NYSEMKT–2016–117. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEMKT–2016–117 and should be
submitted on or before January 18, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–31302 Filed 12–27–16; 8:45 am]
17 15
U.S.C. 78s(b)(3)(A)(iii).
18 17 CFR 240.19b–4(f)(6).
19 17 CFR 240.19b–4(f)(6).
20 17 CFR 240.19b–4(f)(6)(iii).
21 15 U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
18:54 Dec 27, 2016
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79641; File No. SR–
NASDAQ–2016–179]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Delay the
Implementation of the Limit Order
Protection
December 21, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
20, 2016, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III, below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to delay the
implementation of the Limit Order
Protection or ‘‘LOP’’ for members
accessing the Nasdaq Market Center.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposal is to
delay the implementation of the
Exchange’s mechanism to protect
against erroneous Limit Orders, which
are entered into the Nasdaq Market
1 15
22 17
Jkt 241001
PO 00000
CFR 200.30–3(a)(12).
Frm 00149
Fmt 4703
Sfmt 4703
95703
2 17
E:\FR\FM\28DEN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
28DEN1
]]>Agencies
[Federal Register Volume 81, Number 249 (Wednesday, December 28, 2016)]
[Notices]
[Pages 95699-95703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31302]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79640; File No. SR-NYSEMKT-2016-117]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To (1) Change How
Orders Would Be Processed When the Protected Best Bid (``PBB'') Is
Higher Than the Protected Best Offer (``PBO'') (The ``PBBO'') in
Certain Circumstances, and (2) Adopt a Limit Order Price Protection
Mechanism
December 21, 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 December 12, 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, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (1) change how orders would be processed
when the protected best bid (``PBB'') is higher than the protected best
offer (``PBO'') (the ``PBBO'') in certain circumstances, and (2) adopt
a limit order price protection mechanism. 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 (1) change how orders would be processed
when the PBB is higher than the PBO in certain circumstances, and (2)
adopt a limit order price protection mechanism.
Processing of Orders When the PBBO Is Crossed (Rules 13--Equities, 70--
Equities, 76--Equities and 1000--Equities)
Currently, when the PBB is priced higher than the PBO in a security
(i.e., the PBBO is crossed), buy and sell orders trade on the Exchange
without regard to price and without routing, consistent with the
exception to the Order Protection Rule enumerated in Rule 611(b)(4) of
Regulation NMS (``Rule 611(b)(4)'').\4\ In certain circumstances as
described herein, the Exchange proposes to no longer avail itself of
this exception to the Order Protection Rule.\5\ In those circumstances,
rather than trading through a protected quotation when the PBBO is
crossed, routable orders may instead be routed to protected quotations.
In order to implement this change, the Exchange proposes to amend the
following rules:
---------------------------------------------------------------------------
\4\ 17 CFR 242.611(b)(4). See also Rule 15A--Equities (Order
Protection Rule).
\5\ For example, assume if the Exchange has a displayed bid of
$10.00 and another market crosses that bid with a protected offer of
$9.99. Currently, if the Exchange receives a marketable order to
buy, it will trade on the Exchange at prices higher than $9.99. Once
the Exchange no longer avails itself of the exception in Rule
611(b)(4), unless otherwise specified in Exchange rules as described
in this proposed rule change, arriving routable interest to buy that
is marketable on the Exchange would instead first route to that
protected offer.
---------------------------------------------------------------------------
Rule 13--Equities
Market Order
Rule 13(a)(1)--Equities provides that a Market Order that is
eligible for automatic executions is an unpriced order to buy or sell a
stated amount of a security that is to be traded at the best price
obtainable without trading through the NBBO. Rule 13(a)(1)(B)(i)--
Equities provides that when the Exchange is open for continuous
trading, a Market Order will be rejected on arrival, or cancelled if
resting, if there is no contra-side NBBO or if the best protected
quotations are or become crossed.
The Exchange proposes to no longer reject or cancel Market Orders
when the PBBO is crossed. To effectuate this change, the Exchange
proposes to delete the phrase ``or if the best protected quotations are
or become crossed'' in Rule 13(a)(1)(B)(i)--Equities. As a result of
this proposed change, if a Market Order arrives when the PBBO is
crossed, the Exchange would process the Market Order in the same way as
when the NBBO is crossed under the current rule.\6\
---------------------------------------------------------------------------
\6\ See Rule 13(a)(1)(B)(ii)--Equities.
---------------------------------------------------------------------------
Routing to Protected Quotations
The Exchange proposes to amend the Rule 13--Equities to specify
circumstances when the Exchange would make order handling decisions
based on a protected quotation. The Exchange proposes to make these
changes because, in the circumstances described below, the Exchange
would no longer avail itself of the exception to the Order Protection
Rule specified in Rule 611(b)(4), and therefore the Exchange would
include protected
[[Page 95700]]
quotations for order handling purposes even when the PBBO is crossed.
First, the Exchange proposes to amend the definition of Exchange
IOC Order to reflect that, when the PBBO is crossed, the Exchange would
route such orders to other markets if an execution on the Exchange
would trade through a protected quotation in compliance with Regulation
NMS. Rule 13(b)(2)(B)--Equities defines an Exchange IOC Order as a
Limit Order designated Immediate or Cancel (``IOC'') that will be
automatically executed against the displayed quotation up to its full
size and sweep the Exchange book, as provided in Rule 1000 to the
extent possible, with portions of the order routed to other markets if
necessary in compliance with Regulation NMS and the portion not so
executed will be immediately and automatically cancelled. As such,
currently an Exchange IOC Order is only routed to a protected quotation
unless the exception in Rule 611(b)(4) applies. Because the Exchange
proposes to route an Exchange IOC Order to other markets if an
execution on the Exchange would trade through a protected quotation,
i.e., in circumstances when the PBBO is crossed, the Exchange would
revise the rule text to read ``with portions of the order routed to
other markets if an execution would trade through a protected
quotation, in compliance with Regulation NMS. The portion of the order
not so executed will be immediately and automatically cancelled.''
Second, the Exchange proposes to amend the definition of ``best-
priced sell interest'' and ``best-priced buy interest,'' which are
terms used for purposes of determining where to display and rank a
Limit Order designated with an Add Liquidity Only (``ALO'') Modifier.
Supplementary Material .10 of Rule 13--Equities provides that, for
purposes of the Rule, the term ``best-priced sell interest'' refers to
the lowest priced sell interest against which incoming buy interest
would be required to execute with and/or route to, including Exchange
displayed offers, Non-Display Reserve Orders, Non- Display Reserve e-
Quotes, odd-lot sized sell interest, unexecuted Market Orders, and
protected offers on away markets and that the term ``best-priced buy
interest'' refers to the highest priced buy interest against which
incoming sell interest would be required to execute with and/or route
to, including Exchange displayed bids, Non-Display Reserve Orders, Non-
Display Reserve e-Quotes, odd-lot sized buy interest, unexecuted Market
Orders, and protected bids on away markets, but does not include non-
displayed buy interest that is priced based on the PBBO.\7\
---------------------------------------------------------------------------
\7\ The Exchange also proposes a non-substantive change to add a
colon after Supplementary Material in the heading.
---------------------------------------------------------------------------
Because the Exchange currently avails itself of the exception in
Rule 611(b)(4) when the PBBO is crossed, the Exchange does not include
protected bids or offers in the determination of ``best-priced sell
interest'' or ``best-priced buy interest.'' With the proposed change,
in the circumstances when the Exchange no longer avails itself of this
exception, the Exchange would consider all protected quotations,
including when the PBBO is crossed. To reflect this change, the
Exchange proposes the following amendments to Supplementary Material
.10 to Rule 13--Equities.\8\
---------------------------------------------------------------------------
\8\ Since the terms defined in Supplementary Material .10 are
only used for Limit Orders designated ALO, the Exchange proposes to
replace ``this Rule'' after ``For purposes of'' with ``displaying
and ranking a Limit Order with an Add Liquidity Only (ALO)
modifier''.
---------------------------------------------------------------------------
In the first clause defining ``best-priced sell
interest,'' the Exchange proposes to delete ``with and/or route to''
after ``execute,'' add the word ``and'' before ``unexecuted Market
Orders'' and add the phrase ``the lowest-priced'' before ``protected
offers on away markets.'' The proposed change would clarify that best-
priced sell interest can mean either the lowest-priced sell interest
against which incoming buy interest would execute with on the Exchange
or the lowest-priced protected offer, which can be a protected offer on
an away market.
In the second clause defining ``best-priced buy
interest,'' the Exchange would delete ``with and/or route'' after
``execute,'' add the word ``and'' before ``unexecuted Market Orders,''
and add ``the highest-priced'' before ``protected bids on away
markets.'' The proposed change would clarify that best-priced buy
interest can mean either the lowest-priced buy interest against which
incoming sell interest would execute with on the Exchange or the
lowest-priced protected bid, which can be a protected bid on an away
market.
Pegging Interest
Rule 13(f)(1)--Equities defines pegging interest and provides that
pegging interest pegs to prices based on (i) a PBBO, which may be
available on the Exchange or an away market, or (ii) interest that
establishes a price on the Exchange. If the PBBO is not within the
specified price range of the pegging interest, the pegging interest
will instead peg to the next available best-priced displayable interest
that is within the specified price range, which may be on the Exchange
or the protected bid or offer of another market.\9\ Rule
13(f)(1)(B)(i)--Equities further provides that pegging interest to buy
(sell) will not peg to a price that is locking or crossing the Exchange
best offer (bid), but instead will peg to the next available best-
priced displayable interest that would not lock or cross the Exchange
best offer (bid).
---------------------------------------------------------------------------
\9\ See Rule 13(f)(1)(A)(iv)(a) & (f)(1)(A)(iii)--Equities.
---------------------------------------------------------------------------
To avoid routing pegging interest when the PBBO is locked or
crossed, the Exchange proposes to specify that the Exchange would not
peg to a locking or crossing PBBO and would instead peg to the next-
available best-priced displayable interest that would not lock or cross
either the Exchange's BBO or the PBBO. To effect this change, the
Exchange proposes to amend Rule 13(f)(1)(B)(i)--Equities to provide
that pegging interest to buy (sell) will not peg to the PBB (PBO) if
the PBBO is locked or crossed or to a price that is locking or crossing
the Exchange best offer (bid), but instead would peg to the next
available best-priced displayable interest that would not lock or cross
the Exchange best offer (bid) or the PBO (PBB).
Rule 70--Equities
Rule 70--Equities governs the execution of Floor broker interest,
including g-Quotes. G-Quotes are an electronic method for Floor brokers
to represent orders that yield priority, parity and precedence based on
size to displayed and non-displayed orders on the Exchange's book, in
compliance with Section 11(a)(1)(G) of the Act (the ``G Rule'').\10\
---------------------------------------------------------------------------
\10\ Section 11(a)(1) of the Act, 15 U.S.C. 78k(a)(1), generally
prohibits a member of a national securities exchange from effecting
transactions on that exchange for its own account, the account of an
associated person, or any account over which it or an associated
person exercises discretion. Subsection (G) of Section 11(a)(1)
provides an exemption from this prohibition, allowing an exchange
member to have its own floor broker execute a proprietary order,
also known as a ``G order,'' provided such order yields priority,
parity, and precedence. Under the G Rule, G orders are not required
to yield to other orders that are for the account of a member, e.g.,
Designated Market Maker (``DMM'') interest or other g-Quotes.
---------------------------------------------------------------------------
Because the proposed change to how the Exchange would operate when
the PBBO is crossed would result in routable orders being routed to a
crossed PBBO, the Exchange proposes to revise the behavior of g-Quotes
to limit the circumstances when such orders would route. While the G
Rule only requires G orders to yield to orders on the Exchange, the
Exchange does not believe that a G order should trade on
[[Page 95701]]
another market before resting displayed interest on the Exchange trades
and to which, absent routing of the G order, would be yielded priority
by the G order under the G Rule. Accordingly, the Exchange proposes to
restrict a g-Quote from routing to a protected quotation ahead of
displayed orders on the Exchange at the same price. To effect this
change, the Exchange proposes to add a new subsection (iii) to Rule
70(a)--Equities that would provide that a g-Quote to buy (sell) that
would be required to route on arrival would be cancelled when there is
resting displayable interest that is not a g-Quote or DMM interest to
buy (sell) at the same or higher (lower) price as the g-Quote.
Further, the Exchange proposes to amend subsection (a)(ii) of
Supplementary Material .25 to Rule 70--Equities to specify that
discretionary instructions for Floor broker d-Quotes\11\ are
unavailable when the PBBO is crossed. To effectuate this change, the
Exchange proposes to delete the phrase ``at all times'' following
``Discretionary instructions are active'' and add the phrase ``unless
the PBBO is crossed'' following ``during the trading day.'' \12\
---------------------------------------------------------------------------
\11\ D-Quotes enable Floor brokers to enter discretionary
instructions as to the price at which the d-Quote may trade and the
number of shares to which the discretionary price instructions
apply.
\12\ The Exchange also proposes to add ``reopening'' after ``at
the opening'' and before ``and closing transactions'' in Rule
70.25(a)(ii)--Equities.
---------------------------------------------------------------------------
Rule 76--Equities
Rule 76--Equities governs the execution of manual ``cross'' or
``crossing'' orders by Floor brokers on the Exchange trading Floor.
Supplementary Material .10 of Rule 76--Equities permits Floor Brokers
to enter a cross transaction into their hand held device (``HHD'') and
describes the operation by the Exchange of a quote minder function that
monitors protected bids and offers to determine when the limit price
assigned to the proposed crossed transaction is such that the orders
may be executed consistent with Regulation NMS Rule 611.
The Exchange proposes to amend Supplementary Material .10 of Rule
76--Equities to specify that quote minder would be unavailable to Floor
brokers when the PBBO is crossed by adding the sentence ``Quote minder
will not monitor protected bids and offers when the PBBO is crossed''
to the end of the Rule. The proposed change to Rule 76.10--Equities is
consistent with the proposed change, described above, that the Exchange
would route orders even if the PBBO is crossed. Because Rule 76--
Equities governs crossing orders at a single price on the Exchange, the
Exchange believes this proposed change makes clear that the Exchange
would not permit a crossing order to be executed when the PBBO is
crossed.
Rule 1000--Equities
Rule 1000--Equities provides for automatic executions by Exchange
systems. The Exchange proposes to add new Supplementary Material .10 to
specify how DMM interest would be processed when the PBBO is crossed
and there is same side resting displayable interest that is locking or
crossing the contra-side PBBO. Similar to the proposed amendment
described above relating to g-Quotes, the Exchange does not believe
that DMM interest should have an opportunity to trade on another market
ahead of displayed orders on the Exchange.
To effect this change, the proposed amendment would provide that
DMM interest that would be required to route on arrival would be
cancelled when there is same side resting displayable buy (sell)
interest (that is not a g-Quote or DMM interest to buy (sell)) that is
locking or crossing the PBO (PBB). Similarly, the Exchange proposes to
specify that certain DMM interest that would increase the displayed
quantity of the similarly-entered resting DMM interest would be
rejected when the resting DMM interest is locked or crossed by a
protected away quote.\13\
---------------------------------------------------------------------------
\13\ See Rule 104(b)--Equities &1000--Equities.
---------------------------------------------------------------------------
Limit Order Price Protection (Rules 13--Equities and 1000--Equities)
The Exchange proposes to amend Rule 13--Equities to introduce limit
order price protection, which would result in Limit Orders with prices
too far away from the prevailing quote to be rejected on arrival. The
proposed rule is based on NYSE Arca Equities, Inc, (``NYSE Arca
Equities'') Rule 7.31(a)(2)(B).
As proposed, the Exchange would reject limit orders that are priced
a specified percentage away from the contra side national best bid
(``NBB'') or national best offer (``NBO''), as defined in Rule
600(b)(42) of Regulation NMS. As the Exchange receives limit orders,
Exchange systems will check the price of the limit order against the
contra-side NBB or NBO at the time of the order entry to determine
whether the limit order is within the specified percentage. As
proposed, the specified percentage would be equal to the corresponding
``numerical guideline'' percentages set forth in paragraph (c)(1) of
Rule 1000--Equities (Automatic Executions) that are used to calculate
Trading Collars.\14\
---------------------------------------------------------------------------
\14\ The NYSE Arca Equities limit order price protection
mechanism uses the ``numerical guideline'' percentage set forth in
Rule 7.10(c)(1) (Clearly Erroneous Executions) for its Core Trading
Session. See NYSE Arca Equities Rule 7.31(a)(2)(B). The Exchange's
proposal would use the same numerical guidelines, but rather than
cross referencing another rule, the Exchange proposes to enumerate
the specified percentages in proposed Rule 13(a)(2)(A).
---------------------------------------------------------------------------
Proposed Rule 13(a)(2)(A)--Equities would provide that a Limit
Order to buy (sell) would be rejected if it is priced at or above
(below) a specified percentage away from the NBO (NBB). Proposed Rule
13(a)(2)(A)(i)--Equities would further provide if the NBB or the NBO is
greater than $0.00 up to and including $25.00, the specified percentage
would be 10%; if the NBB or NBO is greater than $25.00 up to and
including $50.00, the specified percentage would be 5%; and if the NBB
or NBO is greater than $50.00, the specified percentage would be 3%.
For example, if the NBB is $26.00, a sell order priced at or below
$24.70, which is 5% below the NBB, would be rejected. Likewise, if the
NBO is $55.00, a buy order priced at or above $56.65, which is 3% above
the NBO, would be rejected.
Proposed Rule 13(a)(2)(A)(i)--Equities would further provide that
if the NBBO is crossed, the Exchange would use the Exchange Best Offer
(``BO'') instead of the NBO for buy orders and the Exchange Best Bid
(``BB'') instead of the NBB for sell orders. The proposed Rule would
further provide that if the NBBO is crossed and there is no BO (BB),
Limit Order Price Protection will not be applied to an incoming Limit
Order to buy (sell). Further, proposed Rule 13(a)(2)(A)(i)--Equities
would provide, like current NYSE Arca Rule 7.31(a)(2)(B), that Limit
Order Price Protection will not be applied to an incoming Limit Order
to buy (sell) if there is no NBO (NBB). Further, if the specified
percentage for both buy and sell orders are not in the minimum price
variation (``MPV'') for the security, as defined in Supplemental
Material .10 to Rule 62--Equities, they would be rounded down to the
nearest price at the applicable MPV. This proposed rule text is based
on current Rule 1000(c)(1)--Equities, governing Trading Collars.
Proposed Rule 13(a)(2)(A)(ii)--Equities would provide that Limit
Order Price Protection would be applicable only when automatic
executions are in effect. This rule would further provide that Limit
Order Price Protection would not be applicable (a) before a security
opens for trading or during a halt or pause; (b) during a trading
suspension; (c) to incoming Auction-Only Orders;
[[Page 95702]]
and (d) to high-priced securities, as defined in Rule 1000(a)(iii)--
Equities.
Finally, in connection with the introduction of the proposed Limit
Order Price Protection mechanism, the Exchange proposes to amend Rule
1000(c)--Equities and (c)(ii)--Equities to delete references to
marketable limit orders. Accordingly, Trading Collars specified in Rule
1000(c)--Equities would be applicable to Market Orders only, and
pricing protections in proposed Rule 13(a)(2)(A)--Equities would be
applicable to Limit Orders.
The Exchange believes that the Limit Order Protection mechanism
would prevent the entry of supermarketable limit orders, i.e., limit
orders that in essence act like market orders because they are priced
so far away from the prevailing market price, that could cause
significant price dislocation in the market. The Exchange also believes
that the mechanism would further serve to mitigate the potential for
clearly erroneous executions to occur. The Exchange believes that the
proposed treatment of limit orders serves as an additional safeguard
that could help limit potential harm from extreme price volatility by
preventing executions that could occur at a price significantly away
from the contra side national best bid or national best offer.
* * * * *
Because of the technology changes associated with this rule
proposal, the Exchange will announce the implementation date in a
Trader Update. The Exchange currently anticipates implementing the
proposed changes no later than March 31, 2017.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\15\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\16\ 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.
Specifically, while the Exchange is entitled to avail itself of the
exception to Rule 611(b)(4) to the Order Protection Rule, the Exchange
believes that trading or routing based on the PBBO, even when it is
crossed, may result in additional order execution opportunities to
trade at prevailing prices in the market. Accordingly, as a general
matter, taking into consideration all protected quotations for purposes
of the price at which to trade or route an order on the Exchange, even
when the PBBO is crossed, would remove impediments to and perfect the
mechanism of a free and open market and a national market system.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed changes to modify current
order behavior that is based on Rule 611(b)(4) would remove impediments
to and perfect the mechanism of a free and open market and a national
market system because they are designed to reflect changes to how such
orders would be processed when the PBBO is crossed in a manner
consistent with the original intent of such orders.
The Exchange believes the proposed amendment to Rule 13--
Equities governing Market Orders would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because it would promote transparency that a Market Order would
be accepted when the PBBO is crossed, and thus may route when the PBBO
is crossed.
The Exchange believes the proposed amendments to Rule 13--
Equities definition of an Exchange IOC Order clarifying that the
Exchange would route to a protected quotation when the PBBO is crossed
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would provide
specificity regarding the reason why an order may be routed, thereby
promoting transparency in Exchange rules. The Exchange further believes
that specifying that Supplementary Material .10 relates to the
displaying and ranking of Limit Orders designated ALO would remove
impediments to and perfect the mechanism of a free and open market and
a national market system by adding clarity and transparency to the
Exchange's rules.
The proposed amendments to Rules 70--Equities and 1000--
Equities to cancel g-Quotes that would otherwise be required to route
to away markets ahead of resting displayable interest and reject DMM
interest that would increase the displayed quantity of similarly-
entered resting DMM interest when that resting interest is locked or
crossed by a protected away quote would remove impediments to and
perfect the mechanism of a free and open market and a national market
system and protect investors and the public because it would provide
priority to previously-displayed orders not only for execution
opportunities on the Exchange, but also on other markets.
The proposed amendment to Rule 76--Equities relating to
crossing orders would remove impediments to and perfect the mechanism
of a free and open market and a national market system because it would
provide transparency that crossing orders, which are designed to trade
on the Exchange as a single-priced transaction, would not be eligible
to trade if the PBBO is crossed.
The Exchange believes that the proposed Limit Order Protection
mechanism would remove impediments to and perfect the mechanism of a
free and open market and a national market system by rejecting orders
that are priced too far away from the prevailing market. The Exchange
believes that the proposed rule would ensure that limit orders would
not cause the price of a security to move beyond prices that could
otherwise be determined to be a clearly erroneous execution, thereby
protecting investors from receiving executions away from the prevailing
prices at any given time.
Finally, the Exchange's proposal to make non-substantive changes to
the text of Supplementary Material .10 of Rule 13--Equities and to Rule
70.25(a)--Equities adds clarity and transparency to Exchange rules and
reduces potential investor confusion, which would remove impediments to
and perfect the mechanism of a free and open market and a national
market system.
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 change would
not impose any burden on competition because it would align how the
Exchange operates when the PBBO is crossed with how other equity
exchanges function when the PBBO is crossed. Moreover, the proposed
rule changes would specify how orders would be processed when the PBBO
is crossed, thereby promoting transparency and efficiency to the
benefit of all market participants, and the adoption of a limit order
protection mechanism that is based on the rules of another exchange.
The Exchange believes that the proposed rule change will serve to
promote regulatory clarity and consistency, thereby reducing burdens on
competition in the marketplace and facilitating investor protection.
[[Page 95703]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\20\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\21\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEMKT-2016-117 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-NYSEMKT-2016-117. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEMKT-2016-117 and should
be submitted on or before January 18, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31302 Filed 12-27-16; 8:45 am]
BILLING CODE 8011-01-P
