[Federal Register Volume 77, Number 236 (Friday, December 7, 2012)]
[Notices]
[Pages 73109-73111]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29566]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68339; File No. SR-NYSEArca-2012-130]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca
Rule 6.62(cc) Making Available the Post No Preference Light Only
Quotation to Options Classes Not Participating in the Penny Pilot
December 3, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on November 20, 2012, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') 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\ 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 NYSE Arca Rule 6.62(cc) to make
available the Post No Preference Light Only Quotation (``PNPLO
Quotation'') to options classes not participating in the penny pilot
(``non-Penny Pilot Issues''). The text of the proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 6.62(cc) to make available the
Post No Preference Light Only Quotation (``PNPLO Quotation'') to non-
Penny Pilot Issues.
A PNPLO Quotation is an electronic Market Maker quotation that,
upon initial entry into the NYSE Arca System, is only eligible to
execute against displayed liquidity on the Consolidated Book.\3\ A
PNPLO Quotation is similar to the Post No Preference Light Order
(``PNP-Light Order'') under NYSE Arca Options Rule 6.62(v), which is a
non-routable order type that is only eligible to execute against
displayed liquidity. The PNPLO Quotation was recently approved by the
Commission in June of 2012 \4\ and provides a useful tool for Market
Markers to provide quotations in the market. Upon entry of a PNPLO
Quotation, the NYSE Arca System automatically removes the pre-existing
quotation(s) of a Market Maker, as it does upon the entry of any other
quotation, regardless of the acceptance or rejection of the PNPLO
Quotation by the NYSE Arca System.\5\ The PNPLO Quotation also provides
Market Makers with greater control over the circumstances in which
their quotations interact with contra-side trading interest on the
Exchange by preventing interaction with non-displayed liquidity. The
increase in control afforded by the PNPLO Quotation is desirable from
the perspective of Market Makers because it is difficult for them to
account for non-displayed liquidity in their quoting models.
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\3\ See Exchange Rule 6.62(cc). In this regard, a PNPLO
Quotation is similar to the Post No Preference Light Order (``PNP-
Light Order'') under NYSE Arca Options Rule 6.62(v), which is a non-
routable order type that is only eligible to execute against
displayed liquidity. A PNPLO Quotation that, upon entry, would
execute exclusively against non-displayed liquidity on the
Consolidated Book is immediately rejected by the NYSE Arca System.
Additionally, a PNPLO Quotation that, upon entry, would execute
against both displayed and non-displayed liquidity on the
Consolidated Book immediately executes only against the displayed
liquidity, but not against the non-displayed liquidity, and any
remaining size of the PNPLO Quotation will be immediately rejected
by the NYSE Arca System. Furthermore, a PNPLO Quotation that, upon
entry, would execute exclusively against displayed liquidity on the
Consolidated Book immediately executes against the displayed
liquidity and any remaining size of the PNPLO Quotation is placed on
the Consolidated Book and treated like a standard Market Maker
quotation. Lastly, a PNPLO Quotation that would not execute against
either displayed or non-displayed liquidity is placed in the
Consolidated Book and treated as a standard Market Maker quotation.
\4\ See Securities Exchange Act Release No. 67252 (June 25,
2012), 77 FR 38879 (June 29, 2012) (Order approving PNPLO Quotation)
(``Order''). See also Securities Exchange Act Release No. 66937 (May
7, 2012), 77 FR 27820 (May 11, 2012) (``Notice'').
\5\ Accordingly, in the event that a PNPLO Quotation is rejected
by the NYSE Arca System, the Market Maker is required to re-enter a
quotation for purposes of satisfying any applicable quoting
obligations under NYSE Arca Options Rule 6.37B. See Notice, 77 FR at
27821.
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Currently, the PNPLO Quotation is only available for options
classes participating in the Penny Pilot Program. Market Makers may
only submit PNPLO Quotation orders for options classes in the Penny
Pilot Program. The Exchange now proposes to allow the use of the PNPLO
Quotation by Market Makers for quoting in non-Penny classes as well.
In the initial Notice, the Exchange stated that Market Makers on
NYSE Arca in penny pilot issues receive post liquidity credits for
electronic
[[Page 73110]]
executions against their quotes that are resting in the Consolidated
Book, and are charged take liquidity fees when their quotes execute
against resting liquidity in the Consolidated Book.\6\ The Exchange
also stated that Market Makers consider these fees when calculating
their quotes, and they may provide a wider quote than they otherwise
would if they believe there is a chance that they would be charged a
take liquidity fee for submitting a quote that executes against non-
displayed liquidity (instead of receiving a post liquidity credit for
executions against a resting quote).\7\ The Exchange further stated
that by eliminating the risk of incurring additional fees, the PNPLO
Quotation may lead Markets Makers to provide narrower quotes on the
Exchange, which in turn would benefit investors.\8\
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\6\ See Notice, 77 FR at 27821.
\7\ See id.
\8\ See id.
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On October 25, 2012, the Exchange filed for immediate effectiveness
a proposed rule change to provide Post-Take pricing for electronic
transactions in all non-Penny issues.\9\ The Exchange believes that the
same reasons in support of the PNPLO Quotation for Penny classes are
now valid for non-Penny classes. The Exchange believes that with the
new Post-Take pricing for electronic transactions in non-Penny classes,
Market Makers in non-Penny classes would also benefit from the PNPLO
Quotation functionality. Market Makers on the Exchange, whether they
quote in Penny classes or non-Penny classes, will benefit from the
functionality that the PNPLO Quotation provides. Market Markers in non-
Penny classes would benefit from the ability upon entry of a PNPLO
Quotation, the NYSE Arca System automatically removing the pre-existing
quotation(s) of a Market Maker, as it does upon the entry of any other
quotation, regardless of the acceptance or rejection of the PNPLO
Quotation by the NYSE Arca System. Market Markers in non-Penny classes
would also benefit from the greater control that the PNPLO Quotation
provides over the circumstances in which their quotations interact with
contra-side trading interest on the Exchange by preventing interaction
with non-displayed liquidity. Market Markers in non-Penny classes would
also benefit from the greater control afforded by the PNPLO Quotation
because it is difficult for them to account for non-displayed liquidity
in their quoting models.
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\9\ See Securities Exchange Act Release No. 68179 (November 8,
2012), 77 FR 68163 (November 15, 2012) (SR-NYSEArca-2012-121).
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The Exchange sees no reason to continue to treat equally positioned
Market Makers differently by making the PNPLO Quotation functionality
available based on whether they are quoting in Penny classes versus
non-Penny classes. The Exchange notes that all market participants,
including Market Makers, already have the ability to avoid trading with
non-displayed liquidity by entering PNP-Light Orders, which have
existed on the Exchange since 2009.\10\ PNP-Light Order is available
equally to all participants whether they chose to trade in Penny or
non-Penny classes. The Exchange also notes that market participants
that enter non-displayed liquidity (i.e., orders with reserve size) are
choosing not to have the full size of their trading interest displayed,
which is in contrast to the Commission's encouragement of a market
structure in which trading interest is displayed,\11\ and accordingly
do not receive all of the benefits with respect to that non-displayed
liquidity that are afforded to displayed liquidity.\12\
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\10\ The Exchange notes that it adopted the PNP-Light Order type
pursuant to Section 19(b)(3)(A) of the Exchange Act, and that the
rule filing adopting that order type was not abrogated. See
Securities Exchange Act Release 59603 (March 19, 2009), 74 FR 13279
(March 26, 2009) (SR-NYSEArca-2009-21) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change by NYSE Arca, Inc.)
Amending Rule 6.62 to Provide Additional Order Types).
\11\ See, e.g., Securities Exchange Act Release No. 60684
(September 18, 2009), 74 FR 48632, 48636 (September 23, 2011) [sic]
(File No. S7-21-09) (Proposed Elimination of Flash Order Exception
from Rule 602 of Regulation NMS) (``The Commission long has
emphasized the need to encourage displayed liquidity in the form of
publicly displayed limit orders.'').
\12\ In this regard, the Exchange notes that non-displayed
liquidity is not afforded trade-through protection under Section 5
of the Options Order Protection and Locked/Crossed Market Plan. See,
e.g., Securities Exchange Act Release No. 60405 (July 30, 2009), 74
FR 39362 (August 6, 2009) (File No. 4-546).
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The Exchange notes that the Commission also has found that the
current Rule was not unfairly discriminatory.\13\ The Exchange believes
that the proposal only makes the functionality even less discriminatory
by allowing equally positioned Market Makers to be offered the same
functionality.
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\13\ See Order, 77 FR at 38880. Specifically, the Commission
stated that the ``Commission also believes that the proposed rule
change is not unfairly discriminatory. Currently, market
participants including Market Makers can achieve functionality
similar to the PNPLO Quotation through use of the PNP-Light Order,
which is a non-routable order type that is only eligible to execute
against displayed liquidity. The Exchange is proposing a similar
functionality for use by Market Makers when quoting. The PNPLO
Quotation would be available for use by all Market Makers quoting in
the penny pilot classes on the Exchange.''
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The Exchange will announce the implementation date of the proposed
rule change in a Trader Update to be published no later than 90 days
following the date of filing. The implementation date will be no later
than 90 days following publication of the Trader Update announcing the
date of filing.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \14\ of
the Act, in general, and furthers the objectives of Section
6(b)(5),\15\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, to
remove impediments to and perfect the mechanism 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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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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Like the existing Price Improving Quote and the existing PNPLO
Quotation for Penny classes, the proposed PNPLO Quotation would provide
a Market Maker with the ability to control its interactions with
contra-side liquidity.\16\ Specifically, upon initial entry, a PNPLO
Quotation would not be eligible to interact with non-displayed
liquidity. In this regard, the Exchange understands that a Market
Maker's quoting algorithm can take into account existing liquidity in
the marketplace, but may not be able to accurately account for the risk
of interacting with non-displayed liquidity. As noted, Market Makers on
NYSE Arca in Penny Pilot issues receive post liquidity credits for
electronic executions against their quotes that are resting in the
Consolidated Book, and are charged take liquidity fees when their
quotes execute against resting liquidity in the Consolidated Book.
Market Makers consider these fees when calculating their quotes, and
they may provide a wider quote than they otherwise would if they
believe there is a chance that they would be charged a take liquidity
fee for submitting a quote that executes against non-displayed
liquidity (instead of receiving a post liquidity credit for executions
against a resting quote). As noted, the PNP-Light Order is available
equally to all participants whether they chose to trade
[[Page 73111]]
in Penny or non-Penny classes. Accordingly, the proposal would permit
Market Makers to eliminate from their quoting decisions the risk of
incurring interaction with non-displayed liquidity, and therefore may
result in narrower quote widths, which would increase the quality of
the Exchange's market and thereby benefit investors.
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\16\ See supra note 4.
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The Exchange believes that allowing Market Makers to use the PNPLO
Quotation for non-Penny classes is just, equitable and not unfairly
discriminatory. For example, the PNPLO Quotation treats all similarly
situated market participants the same in that it would be available for
use by all Market Makers on the Exchange. Moreover, the Exchange notes
that all market participants, including Market Makers, already have the
ability to avoid trading with non-displayed liquidity by entering PNP-
Light Orders, which have existed on the Exchange since 2009.\17\ The
Exchange also notes that market participants that enter non-displayed
liquidity (i.e., orders with reserve size) are choosing not to have the
full size of their trading interest displayed, which is in contrast to
the Commission's encouragement of a market structure in which trading
interest is displayed,\18\ and accordingly do not receive all of the
benefits with respect to that non-displayed liquidity that are afforded
to displayed liquidity.\19\ The Exchange notes that the Commission also
has found that the current Rule was not unfairly discriminatory.\20\
The Exchange believes that the proposal only makes the functionality
even less discriminatory by allowing equally positioned Market Makers
to be offered the same functionality. For the forgoing reasons, the
Exchange believes that the proposal is not unfairly discriminatory.
Overall, the Exchange believes that the proposal protects investors and
the public interest because it may contribute to more aggressive
quoting by Market Makers and may lead to more displayed liquidity on
the Exchange, which, in turn, should increase the quality of the
Exchange's market and benefit investors.
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\17\ The Exchange notes that it adopted the PNP-Light Order type
pursuant to Section 19(b)(3)(A) of the Exchange Act, and that the
rule filing adopting that order type was not abrogated. See
Securities Exchange Act Release 59603 (March 19, 2009), 74 FR 13279
(March 26, 2009) (SR-NYSEArca-2009-21) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change by NYSE Arca, Inc.
Amending Rule 6.62 to Provide Additional Order Types).
\18\ See, e.g., Securities Exchange Act Release No. 60684
(September 18, 2009), 74 FR 48632, 48636 (September 23, 2011) [sic]
(File No. S7-21-09) (Proposed Elimination of Flash Order Exception
from Rule 602 of Regulation NMS) (``The Commission long has
emphasized the need to encourage displayed liquidity in the form of
publicly displayed limit orders.'').
\19\ In this regard, the Exchange notes that non-displayed
liquidity is not afforded trade-through protection under Section 5
of the Options Order Protection and Locked/Crossed Market Plan. See,
e.g., Securities Exchange Act Release No. 60405 (July 30, 2009), 74
FR 39362 (August 6, 2009) (File No. 4-546).
\20\ See Order, 77 FR at 38880.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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
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 \21\ and Rule 19b-
4(f)(6)(iii) thereunder.\22\ 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.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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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 rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2012-130 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-NYSEArca-2012-130. 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-NYSEArca-2012-130 and should
be submitted on or before December 28, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29566 Filed 12-6-12; 8:45 am]
BILLING CODE 8011-01-P