[Federal Register Volume 77, Number 216 (Wednesday, November 7, 2012)]
[Notices]
[Pages 66888-66890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-27212]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68128; File No. SR-NYSEMKT-2012-55]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule 968NY To
Allow for the Split-Price Priority Provisions To Apply to Open Outcry
Trading of Cabinet Trades
November 1, 2012.
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 October 19, 2012, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 968NY to allow for the split-
price priority provisions to apply to open outcry trading of cabinet
trades. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 968NY to provide that the
split-price priority provisions in Rule 963NY(f) apply to accommodation
trades (``cabinet trades'') in open outcry.\4\
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\4\ See Rule 963NY(f). Rule 963NY(f) regarding priority on
split-price transaction occurring in open outcry specifically
provides the following: (1) If an ATP Holder purchases (sells) one
or more option contracts of a particular series at a particular
price or prices, the ATP Holder must, at the next lower (higher)
price at which another ATP Holder bids (offers), have priority in
purchasing (selling) up to the equivalent number of option contracts
of the same series that the ATP Holder purchased (sold) at the
higher (lower) price or prices, provided that the ATP Holder's bid
(offer) is made promptly and continuously and that the purchase
(sale) so effected represents the opposite side of a transaction
with the same order or offer (bid) as the earlier purchase or
purchases (sale or sales). This paragraph only applies to
transactions effected in open outcry; (2) If an ATP Holder purchases
(sells) fifty or more option contracts of a particular series at a
particular price or prices, he/she shall, at the next lower (higher)
price have priority in purchasing (selling) up to the equivalent
number of option contracts of the same series that he/she purchased
(sold) at the higher (lower) price or prices, but only if his/her
bid (offer) is made promptly and the purchase (sale) so effected
represents the opposite side of the transaction with the same order
or offer (bid) as the earlier purchase or purchases (sale or sales).
The Exchange may increase the ``minimum qualifying order size''
above 100 contracts for all products. Announcements regarding
changes to the minimum qualifying order size shall be made via an
Exchange Bulletin. This paragraph only applies to transactions
effected in open outcry; (3) If the bids or offers of two or more
ATP Holder are both entitled to priority in accordance with
subsections (1) or (2), it shall be afforded them, insofar as
practicable, on an equal basis.; (4) Except for the provisions set
forth in Rule 963NY(f)(2), the priority afforded by this rule is
effective only insofar as it does not conflict with Customer limit
orders represented in the Consolidated Book. Such orders have
precedence over ATP Holders' orders at a particular price; Customer
limit orders in the Consolidated Book also have precedence over ATP
Holders' orders that are not superior in price by at least the MPV.;
and (5) Floor Brokers are able to achieve split price priority in
accordance with paragraphs (1) and (2) above.
Example: Market quote is $1.00-1.20, with customer interest in
the book at the offer price. Floor Broker announces a market order
to buy 100 contracts. Market Maker A (``MM-A'') is alone in
responding ``Sell 50 at $1.15 and 50 at $1.20'' (for an equivalent
net price of $1.175).
Because MM-A is willing to sell contracts at the lower price of
$1.15, MM-A then has priority over all orders in the Book and
trading crowd at the next higher price, in this case 1.20, for an
equal number of contracts. The priority afforded by this provision
allows MM-A to trade ahead of any like priced Customer orders in the
Book.
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An ``accommodation'' or ``cabinet'' trade refers to trades in
listed options on the Exchange that are worthless or not
[[Page 66889]]
actively traded. Cabinet trading provides a way for market participants
to effect transactions in such options at a minimal cost. Cabinet
trading is conducted in accordance with Rule 968NY Accommodation
Transactions (Cabinet Trades),\5\ which provides that cabinet trading
shall be conducted in accordance with other Exchange rules, except as
otherwise provided in Rule 968NY, and sets forth specific procedures
for engaging in cabinet trading. Pursuant to Rule 968NY(a), the
Exchange designates options issues as eligible for cabinet trading
pursuant to Rule 968NY. Such designations are made pursuant to requests
from market participants.
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\5\ Rule 968NY currently provides for cabinet transactions to
occur via open outcry at a cabinet price of a $1 per option contract
in any options series open for trading in the Exchange, except that
the Rule is not applicable to trading in option classes
participating in the Penny Pilot Program. Under the procedures, bids
and offers (whether opening or closing a position) at a price of $1
per option contract may be represented in the trading crowd by a
Floor Broker or by a Market Maker or provided in response to a
request by a Trading Official, a Floor Broker or a Market Maker, but
must yield priority to all resting orders in the Cabinet (those
orders held by the Trading Official, and which resting cabinet
orders may be closing only). So long as both the buyer and the
seller yield to orders resting in the cabinet book, opening cabinet
bids can trade with opening cabinet offers at $1 per option
contract.
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In March 2009, NYSE Amex adopted a new rule set governing the
trading of options.\6\ Much of the new rule set was based on the rules
of NYSE Arca Inc. (``NYSE Arca''). In conjunction with the filing of
the new rule set, the Exchange filed a separate proposal deleting many
out-of-date and/or obsolete rules.\7\ Included as part of this filing
was the deletion of former American Stock Exchange Rule 959-
Accommodation Transactions, which contained provisions governing both
cabinet trading and position transfers. However, when filing the new
rule set the Exchange inadvertently failed to include new rules
governing cabinet trading. In July, 2009, the Exchange added a new rule
governing trading of cabinet orders.\8\ Instead of copying the cabinet
trading rules of Chicago Board Options Exchange, Incorporated
(``CBOE'') or NASDAQ OMX PHLX LLC (``PHLX''), the Exchange chose to
copy-cat the language of the existing NYSE Arca cabinet trade rule,
which included a restriction that prevented the application of the
split-price priority provisions to manual cabinet trading. In contrast,
neither CBOE nor PHLX have a similar restriction on cabinet trades, and
allow for split-price priority for cabinet trades on the trading
floor.\9\ The Exchange did not understand the implication of not
choosing to copy the cabinet trading rules of CBOE or PHLX at that
time.
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\6\ See Securities Exchange Act Release No. 59472 (February 27,
2009), 74 FR 9843 (March 6, 2009) (order approving NYSEALTR-2008-14,
as amended).
\7\ See Securities Exchange Act Release No. 59454 (February 25,
2009), 74 FR 9461 (March 4, 2009) (notice of filing and immediate
effectiveness of NYSEALTR-2009-17).
\8\ See Securities Exchange Act Release No. 60296 (July 13,
2009), 74 FR 35217 (July 20, 2009) (SR-NYSE-Amex-2009-37).
\9\ See CBOE Rules 6.54 and 6.47; NASDAQ OMX PHLX Rule 1059.
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Prior to the adoption of the present NYSE Amex trading system, all
cabinet trading on the NYSE Amex was done on a manual basis. Therefore,
previous Amex Stock Exchange Rule 959(a) dealt only with cabinet
trading in open outcry. However, current Rule 968NY provides for both
manual and electronic cabinet trading--with manual cabinet trading
pursuant to Rule 968NY(b) and electronic cabinet trading pursuant to
Rule 968NY(c). Rule 968NY(b)(3) expressly provides that the split-price
priority provisions otherwise applicable to open outcry trading
pursuant to Rule 963NY(f) do not apply to open outcry trading in
cabinet trades.\10\ Because split-price priority provisions are only
applicable to open outcry trading, Rule 968NY(c), which governs
electronic trading of cabinet trading, does not include this provision.
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\10\ This limitation did not exist in the previous American
Stock Exchange Rule Amex 959(a) that dealt only with cabinet trading
in open outcry. See Securities Exchange Act Release No. 59454
(February 25, 2009), 74 FR 9461 (March 4, 2009) (SR-NYSEALTR-2009-
17).
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The Exchange believes that split-price priority provisions should
apply to open outcry cabinet trading, and that the existing restriction
unnecessarily limits the ability of market participants to manually
trade cabinet orders on the floor. The current restriction
unnecessarily restricts business by not making available certain prices
which are available on other exchanges. Split-price priority in open
outcry trading of cabinet trades provides an extra incentive for market
participants to both price improve and facilitate the efficient trading
of options contracts that are worthless or not actively trading. The
Exchange notes that neither CBOE nor PHLX have a similar restriction on
cabinet trades, and allow for split-price priority for cabinet trades
on the trading floor.\11\
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\11\ See CBOE Rules 6.54 and 6.47; PHLX Rule 1059. CBOE and PHLX
both conduct their cabinet trading via open out-cry. Split-price
priority is available for open out-cry trading on both CBOE and
PHLX, with no restriction for cabinet trades. In addition, until
March 2009, when the Exchange deleted former American Stock Exchange
(``Amex'') rules that were deemed obsolete, the Exchange permitted
split-price priority for open outcry cabinet trades. See Securities
Exchange Act Release No. 59454 (February 25, 2009), 74 FR 9461
(March 4, 2009) (notice of filing and immediate effectiveness of
NYSEALTR-2009-17) (deleting, in part, Amex Rule 959--Accommodation
Transactions).
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Accordingly, the Exchange therefore proposes to delete the language
from Rule 968NY(b)(3) that states that the split-price priority
provisions of Rule 963NY shall not apply. The Exchange believes that
providing market participants the ability to have split-price priority
when trading cabinet orders in open outcry will help facilitate the
trading of options positions that are worthless or not actively traded.
The Exchange believes that the proposal should lead to more aggressive
quoting by trading crowd participants on the floor, which in turn could
lead to better executions. A trading crowd participant might be willing
to trade at a better price for a portion of an order if they were
assured of trading with the balance of the order at the next price
increment. As a result, Floor Brokers representing orders in the
trading crowd might receive better-priced executions. The Exchange
notes that cabinet trades are infrequent in nature and that, even
though the Exchange Rules provide that cabinet trades may be traded
electronically, the Exchange has not designated any options issues to
trade electronically pursuant to Rule 968NY, because market
participants have never requested to do so. Thus, the fact that split-
price priority is available for manual and not electronic, will have no
impact on ongoing electronic cabinet trading.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (the
``Act''),\12\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\13\ in particular, in that it is designed to
promote just and equitable principles of trade, remove impediments to
and perfect the mechanisms of a free and open market and a national
market system and, in general, to protect investors and the public
interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that allowing for the split-pricing priority
provisions to apply to open outcry trading of cabinet trades will
better facilitate the trading of options contracts that are worthless
or not actively traded. The proposed change is designed to promote just
and equitable principles of trade,
[[Page 66890]]
remove impediments to and perfect the mechanisms of a free and open
market and a national market system, by aligning the Exchange's Rules
with the rules on other options exchanges that conduct manual cabinet
trading.
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.
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 \14\ and Rule 19b-4(f)(6) thereunder.\15\
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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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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.
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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEMKT-2012-55 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2012-55.
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 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 offices of NYSE MKT. 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-2012-55, and should be submitted
on or before November 28, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27212 Filed 11-6-12; 8:45 am]
BILLING CODE 8011-01-P