[Federal Register Volume 78, Number 20 (Wednesday, January 30, 2013)]
[Notices]
[Page 6385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01971]
[[Page 6385]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68725; File No. SR-NYSEARCA-2012-133]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change Amending NYSE Arca Equities Rule 7.31(h)(7) To
Permit PL Select Orders To Interact With Incoming Orders Larger Than
the Size of the PL Select Order
January 24, 2013.
I. Introduction
On November 27, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend NYSE Arca Equities Rule 7.31(h)(7) to
permit PL Select Orders to interact with incoming orders larger than
the size of the PL Select Order. The proposed rule change was published
for comment in the Federal Register on December 14, 2012.\3\ The
Commission received no comment letters regarding the proposed rule
change. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 68385 (December 7,
2012), 77 FR 74528 (December 14, 2012) (SR-NYSEARCA-2012-133)
(``Notice'').
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II. Description of the Proposal
The Exchange proposes to amend NYSE Arca Equities Rule 7.31(h)(7)
to permit PL Select Orders to interact with incoming orders larger than
the size of the PL Select Order. Currently the PL Select Order type
does not interact with incoming orders that: (i) Have an immediate-or-
cancel (``IOC'') time in force condition,\4\ (ii) is an ISO,\5\ or
(iii) is larger than the size of the PL Select Order.\6\
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\4\ See NYSE Arca Equities Rule 7.31(e).
\5\ See NYSE Arca Equities Rule 7.31(jj).
\6\ See Securities Exchange Act Release No. 67785 (Sept. 5,
2012), 77 FR 55888 (September 11, 2012) (SR-NYSEArca-2012-48)
(``Approval Order'').
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The Exchange has identified an unintended consequence related to
the implementation of PL Select Orders. Specifically, as described in
greater detail in the Notice,\7\ in certain instances an incoming
Adding Liquidity Only Order (``ALO Order'') is unable to post to the
NYSE Arca Book as required by NYSE Arca Equities Rule 7.31(nn) \8\ if
there is a resident, contra-side PL Select Order.\9\ For example, if an
ETP Holder has entered a PL Select Order to sell shares and the
Exchange receives a larger incoming buy order at the same price,
because the arriving buy order is larger than the resting PL Select
Order, the PL Select Order (unlike a regular PL order) would not
execute against the arriving buy order and would remain undisplayed on
the Arca Book. Further, an incoming ALO Order to buy at the same price,
which is seeking to add to the existing bid would be rejected. In such
scenario, an ETP Holder seeking to add liquidity to the Arca Book with
an ALO order would be unable to do so, even though there is resting
interest posted at the same price.
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\7\ See Notice, supra note 3.
\8\ See NYSE Arca Equities Rule 7.31(nn).
\9\ See Notice, 77 FR at 74528.
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The Exchange proposes to amend NYSE Arca Equities Rule 7.31(h)(7)
to delete the requirement that prohibits PL Select Order interaction
with larger-sized, incoming orders.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\10\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\11\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, 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; and are not designed to permit unfair discrimination
between customers, issuers, brokers or dealers.
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\10\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\11\ 15 U.S.C. 78f(b)(5).
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The Commission finds the proposed rule change to be consistent with
the Act. The Commission notes that the Exchange continues to believe
that its rationale for preventing PL Select Orders from interacting
with incoming orders larger in size remains valid. In this regard, the
Exchange continues to believe that preventing executions with larger-
sized incoming interest would incentivize Users to route PL Select
Orders to the Exchange because such orders would remain available to
provide price improvement and would not be ``swept'' by such larger-
sized incoming orders. In addition, the Exchange believes that because
such PL Select Orders would remain available to provide price
improvement, it could similarly incentivize Users to route displayable
interest to the Exchange because the likelihood of receiving price
improvement could increase.
The Commission notes that the Exchange believes, however, that the
potential for liquidity-posting interest to be rejected, albeit rare,
outweighs the Exchange's stated benefit of allowing the PL Select Order
not interact with incoming orders that are larger in size than the PL
Select Order. In addition, the Commission notes that the Exchange has
represented that institutional investors have raised concerns to the
Exchange that PL Select Orders currently may bypass trading interest
entered on behalf of institutional investors by not executing against
larger-sized orders. In this regard, the Commission notes that the
Exchange states that its goal is not to prevent the interaction of
legitimate trading interest, and to the extent there is a perception
that this may be the case, the Exchange believes that the restriction
on PL Select Orders should be lifted.
Based on the Exchange's statements, the Commission believes that
removing the restriction on PL Select Order as proposed and thereby
allowing ALO Orders to post to the Arca Book, as intended, NYSE Arca
should help to ensure that trading interest is able to interact on its
market in an efficient manner.
Accordingly, the Commission believes that the proposed rule change
is consistent with Section 6(b)(5) of the Act.\12\
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\12\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSEARCA-2012-133) be, and
it hereby is, approved.
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\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01971 Filed 1-29-13; 8:45 am]
BILLING CODE 8011-01-P