[Federal Register Volume 77, Number 240 (Thursday, December 13, 2012)]
[Notices]
[Pages 74247-74249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30047]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68382; File No. SR-NYSEARCA-2012-136]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
And Immediate Effectiveness of Proposed Rule Change to Allow for the
Split-Price Priority Provisions to Apply to Open Outcry Trading of
Cabinet Trades
December 7, 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 30, 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 Exchange. 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 Options Rule 6.80 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
Statutory Basis for, Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 6.80 to provide that the split-
price priority provisions in Rule 6.75(h) apply to accommodation trades
(``cabinet trades'') in open outcry.\3\
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\3\ See Rule 6.75(h). Rule 6.75(h) regarding priority on split-
price transaction occurring in open outcry specifically provides the
following: (1) If an OTP Holder or OTP Firm purchases (sells) one or
more option contracts of a particular series at a particular price
or prices, the OTP Holder or OTP Firm must, at the next lower
(higher) price at which another OTP Holder or OTP Firm bids
(offers), have priority in purchasing (selling) up to the equivalent
number of option contracts of the same series that the OTP Holder or
OTP Firm purchased (sold) at the higher (lower) price or prices,
provided that the OTP Holder or OTP Firm'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 OTP Holder or OTP Firm 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 OTP Holders or
OTP Firms 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 6.75(h)(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 OTP Holders' or OTP Firms' orders at a particular
price; customer limit orders in the Consolidated Book also have
precedence over OTP Holders' or OTP Firms' 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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[[Page 74248]]
An ``accommodation'' or ``cabinet'' trade refers to trades in
listed options on the Exchange that are worthless or not 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 6.80 Accommodation Transactions
(Cabinet Trades),\4\ which provides that cabinet trading shall be
conducted in accordance with other Exchange rules, except as otherwise
provided in Rule 6.80, and sets forth specific procedures for engaging
in cabinet trading. Pursuant to Rule 6.80(a), the Exchange designates
options issues as eligible for cabinet trading pursuant to Rule 6.80.
Such designations are made pursuant to requests from market
participants.
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\4\ Rule 6.80 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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Current Rule 6.80 provides for both manual and electronic cabinet
trading--with manual cabinet trading pursuant to Rule 6.80(b) and
electronic cabinet trading pursuant to Rule 6.80(c). Rule 6.80(b)(3)
expressly provides that the split-price priority provisions otherwise
applicable to open outcry trading pursuant to Rule 6.75(f) do not apply
to open outcry trading in cabinet trades. Because split-price priority
provisions are only applicable to open outcry trading, 6.80(c), which
governs electronic trading of cabinet trading, does not include this
provision.
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.\5\ In addition, NYSE MKT recently filed for
immediate effectiveness a proposed rule change to allow split-price
priority for open outcry trading of cabinet trades.\6\
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\5\ 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.
\6\ See Securities Exchange Act Release No. 68128 (November 1,
2012), 77 FR 68186 (November 15, 2012) [sic] (SR-NYSEMKT-2012-55).
See also NYSE MKT Rule 968NY.
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Accordingly, the Exchange therefore proposes to delete the language
from Rule 6.80(3) that states that the split-price priority provisions
of 6.75(h) 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 6.80, 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''),\7\ in general, and furthers the objectives of Section 6(b)(5)
of the Act,\8\ 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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\7\ 15 U.S.C. 78f(b).
\8\ 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, 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.
Self-Regulatory Organization's Statement on Comment 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 foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and 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. 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.
[[Page 74249]]
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-NYSEARCA-2012-136 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.
All submissions should refer to File Number SR-NYSEARCA-2012-136. 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 such filing also will be available
for inspection and copying at the principal office of NYSE Arca. 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-2012-136 and should
be submitted on or before January 3, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30047 Filed 12-12-12; 8:45 am]
BILLING CODE 8011-01-P