[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62745-62751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24642]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70637; File No. SR-NYSEArca-2013-92]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Amend NYSE Arca Equities Rules 7.31, 7.32,
7.37, and 7.38 in Order To Comprehensively Update Rules Related to the
Exchange's Order Types and Modifiers
October 9, 2013.
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 September 30, 2013, 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, 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.
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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 NYSE Arca Equities Rules 7.31, 7.32,
7.37, and 7.38 in order to comprehensively update rules related to the
Exchange's order types and modifiers. 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 NYSE Arca Equities Rules 7.31, 7.32,
7.37, and 7.38 \4\ in order to update its rules related to the
Exchange's order types and modifiers. Given the ever complex nature of
equities trading, the Exchange has undertaken a comprehensive review of
its rules related to order functionality to assure that its various
order types, which have been adopted and amended over the years,
accurately describe the functionality associated with those order
types, and more specifically, how different order types may
interact.\5\ Accordingly, the Exchange proposes these rule changes in
order to provide additional specificity and transparency to NYSE Arca
Equities ETP Holders regarding the operation of NYSE Arca Equities
order types and modifiers, to better align its rules with currently
available functionality, and to organize and define order types and
modifiers in a more intuitive manner.
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\4\ All references to rules in this filing are to the rules of
NYSE Arca Equities.
\5\ Commission staff has noted the increased complexity of the
equities markets. See Gregg E. Berman, Senior Advisor to the
Director of the Division of Trading and Markets, Market Structure:
What we Know, and What we Need to Know (Sept. 21, 2011) (``This is
because our present market structure is itself the product of
evolutionary advancements in regulations, technologies, products,
venues, news, investor sentiment, and probably even twitter. It is
not a simple mosaic of different actors operating in isolation. The
interdependencies of every participant and every system has led to
an exponential growth in complexity.'')
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The Exchange proposes to make specific rule changes as follows:
[[Page 62746]]
Rule 7.31(a)--Market Order
The Exchange proposes to amend Rule 7.31(a) to expressly provide
that Market Orders will not trade through the NBBO and that Market
Orders shall be rejected if there is no bid or offer. A Market Order is
an order to buy or sell a stated amount of a security that is to be
executed at the National Best Bid or Offer (``NBBO''). Therefore,
Market Orders will not trade through the NBBO, and the Exchange
believes expressly stating as such in its Rules will provide additional
specificity to Users. Additionally, Market Orders will be rejected if
there is no bid or offer because a Market Order cannot be executed
pursuant to the Users expectations--at the NBBO. The Exchange believes
it is appropriate to reject a Market Order when there is no bid or
offer because it assures that an unexecutable order will not be entered
into the Exchange's book.
Rule 7.31(c)--Time in Force Modifiers
The Exchange proposes to make the following changes with respect to
the description of Time in Force Modifiers:
The Exchange proposes to describe the functionality found
in Rule 7.31(c) as ``Modifiers,'' and as such, revise the title of Rule
7.31(c) to read ``Time in Force Modifiers.'' Similarly, the Exchange
proposes to revise the names and descriptions of the functionality
described in Rule 7.31(c) to reflect the usage of the term
``Modifiers'' rather than ``Orders.'' The Exchange believes that these
proposed rule changes more clearly describe the function of the time-
in-force instructions, i.e., that they are modifiers that can be used
with order types as opposed to distinct order types.
The Exchange proposes to amend Rule 7.31(c)(1) to clarify
that the Day Modifier cannot be combined with any other Time in Force
Modifier. As is the case today, an order type that is required to
include a Day Modifier cannot also have a Good Till Cancelled
(``GTC''), Good Till Date (``GTD''), Timed, Immediate-or-Cancel
(``IOC''), or Fill-or-Kill (``FOK'') Time in Force Modifier.
The Exchange proposes to move the description of the Timed
Modifier from its current location in Rule 7.31(q) to become new Rule
7.31(c)(2)(C). The Timed Modifier is used in conjunction with the GTD
Modifier in order to specify an exact time until which a limit order
will remain in effect, after which such order or the portion thereof
not executed is to be treated as cancelled. As such, the Exchange
believes it is appropriate to relocate the Timed Modifier to Rule
7.31(c) as a Time in Force Modifier.
The Exchange proposes to move the description of the IOC
Modifier from its current location in Rule 7.31(e) to become new Rule
7.31(c)(3). The Exchange also proposes to expand the description of the
IOC Modifier in Rule 7.31(c)(3) to provide that the IOC Modifier will
override any posting or routing instructions of orders that include the
IOC Modifier. This rule change makes clear to ETP Holders that Exchange
systems give priority to the IOC Modifier and ignore any other posting
and routing instructions submitted with the order. Additionally, the
Exchange proposes to specify that orders designated with an IOC
Modifier never route. Further, the Exchange proposes to delete the
subparagraphs under old Rule 7.31(e) as redundant. The determination as
to what away quotes will not be traded through is based on the order
type and not the IOC designation. Therefore, the Exchange believes it
is appropriate for Users to review the applicable order type
descriptions to determine which away quotes will be respected.
The Exchange proposes to move the description of the FOK
Modifier from its current location in current Rule 7.31(ll) to become
new Rule 7.31(c)(4). The Exchange believes that the FOK instructions on
an order are a time-in-force condition, and therefore it is more
intuitive to include this modifier with other time in force
descriptions.
Because the Exchange proposes to define the term ``IOC,''
the Exchange proposes to replace references to the term ``immediate or
cancel'' with the term ``IOC'' in Rules 7.31 and 7.37.\6\
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\6\ See proposed changes to Rules 7.31(h)(6), (h)(7), (s)(6),
(aa), and 7.37(d)(1) and (2).
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Rule 7.31(d)--Inside Limit Order
The Exchange proposes to amend Rule 7.31(d) to specify that an
Inside Limit Order may not be designated as a Discretionary Order and
will not trade through either the NBBO or Protected Quotations.\7\
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\7\ The NBBO includes quotes from a market that may not be
automated and therefore would not be a Protected Quotation pursuant
to Regulation NMS Rule 600(b)(57).
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An Inside Limit Order is a limit order routed to the market
participant with the best displayed price, and any unfilled portion
will not be routed to the next best price level until all quotes at the
current best bid or offer are exhausted. Once each current best bid or
offer is exhausted, Exchange systems reevaluate the next best displayed
price and route to that single price point and continue such assessment
at each new best displayed price level until the Inside Limit Order is
filled or no longer marketable. An Inside Limit Order is marketable
when priced to buy (sell) at or above (below) the NBBO for the
security. Therefore, the Inside Limit Order's functionality relies on a
single-price to determine when it is no longer marketable. A
Discretionary Order, however, is an order with two prices: a specified,
undisplayed price and a specified, displayed price. The Exchange
believes that it could cause confusion if Discretionary Orders were
combined with Inside Limit Orders because Users might not know whether
it is the limit price or the discretionary price which determines when
the Inside Limit Order is no longer marketable. Therefore, the Exchange
believes it is appropriate to reject Discretionary Orders when combined
with Inside Limit Orders to reduce confusion, thus prohibiting an order
combination which could result in an execution at odds with the
expectations of a User.
Additionally, the Exchange believes that it is appropriate to
specify that Inside Limit Orders will not trade through either the NBBO
or Protected Quotations. Inside Limit Orders are designed to execute
against the best displayed price level, whether or not quotes at such
level are automatic or manual. As such, Inside Limit Orders will
respect the NBBO and Protected Quotations, routing to away markets as
necessary.
Rule 7.31(h)(2)--Discretionary Order
The Exchange proposes to amend Rule 7.31(h)(2) to specify that
Discretionary Orders designated IOC and sell short Discretionary Orders
shall be rejected.
Similar to why a Discretionary Order and an Inside Limit Order
cannot be combined, the Exchange believes it is appropriate to reject a
Discretionary Order designated IOC in order to reduce confusion
regarding whether the order's functionality is based on the limit price
or the discretionary price. A limit order designated IOC will execute
in whole or in part as soon as such order is received at prices better
than its limit price; adding a discretionary price only serves to add
confusion as to whether the IOC will execute at prices better than its
limit price or at prices better than its discretionary price. As such,
the Exchange believes it is appropriate to reject Discretionary Orders
designated IOC, thus prohibiting an order combination which could
result in an execution at odds with the expectations of a User.
Additionally, Exchange systems currently do not accept sell short
[[Page 62747]]
Discretionary Orders because of the complexity of offering such
functionality, and the Exchange believes that it will provide
transparency in its rules to specify that such orders will be rejected.
Rule 7.31(h)(2)(A)--Passive Discretionary Order
A previous rule change filed with the Commission inadvertently
deleted portions of the definition of a Passive Discretionary Order.\8\
The Exchange proposes to amend Rule 7.31(h)(2)(A) to correct the
inadvertent deletion and to provide that a Passive Discretionary Order
will route to an away market if marketable upon entry. Additionally,
the Exchange proposes to delete Rule 7.31(h)(2)(A)(i) as there no
longer is a distinction in how Passive Discretionary Orders are treated
between Exchange-listed and non-Exchange-listed securities.
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\8\ See Securities Exchange Act Release No. 63584 (Dec. 21,
2010), 75 FR 81685 (Dec. 28, 2010).
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Rule 7.31(h)(2)(B)--Discretion Limit Order
The Exchange proposes to amend Rule 7.31(h)(2)(B) to insert
language that was inadvertently deleted by a filing previously made
with the Commission to provide that a Discretionary Order may be
designated as a Discretion Limit Order.\9\ The inserted language
conforms the first sentence of Rule 7.31(h)(2)(B) with the first
sentence of Rule 7.31(h)(2)(A), which describes a Passive Discretionary
Order.
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\9\ See id.
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Rule 7.31(h)(3)--Reserve Order
The Exchange proposes to amend Rule 7.31(h)(3) to specify that
Reserve Orders cannot be combined with an order type that could never
be displayed on the Corporation and must be in round lots. A Reserve
Order is a limit order with a portion of the size displayed and with a
reserve portion of the size (``reserve size'') that is not displayed on
the Corporation. Therefore, the description of a Reserve Order
contemplates a displayed portion. If an order type is never displayed
on the Corporation, then it will not have the displayed portion
required by the Reserve Order description. As a result, such order
types are incompatible with a Reserve Order, and their combination with
a Reserve Order is rejected. Additionally, because of its original
design, Exchange systems currently do not accept Reserve Orders not
entered in round lots, and the Exchange believes that it will provide
transparency in its rules to specify that Reserve Orders not entered in
round lots would be rejected.
Rule 7.31(h)(4)--Passive Liquidity Order
The Exchange proposes to amend Rule 7.31(h)(4) to specify that
Passive Liquidity (``PL'') Orders must be designated as Inside Limit
Orders. Exchange systems require that a PL Order must be designated as
an Inside Limit Order or it will be rejected. A PL Order is entered by
ETP Holders into Exchange systems by using two order tags, one for the
order type and one for an execution instruction. The order type tag for
PL Orders is the same as that for an Inside Limit Order. The execution
instruction tag is one specifically for PL Orders. If the execution
instruction tag specifically for PL Orders is not combined with an
Inside Limit Order, then Exchange systems reject such an order. Thus,
the combination is required to ensure proper entry of a PL Order, and
the rule change is meant to add transparency to the order entry
process. With the order entry for PL Orders designed in this manner,
the combination of PL Orders with Inside Limit Orders permits PL Orders
to respect not only protected quotations, but also manual quotations in
its functionality.\10\ A PL Order is designed to permit passive
interaction with incoming orders; thus, the Exchange believes that
respecting manual quotations, in addition to protected quotations, is
consistent with the passive nature of a PL Order.
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\10\ An Inside Limit Order is defined as ``[a] Limit Order, if
routed away pursuant to Rule 7.37(d), will be routed to the market
participant with the best displayed price.'' See Rule 7.31(d)
(emphasis added).
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Additionally, the Exchange proposes to amend Rule 7.31(h)(4) to
specify that PL Orders designated IOC shall be rejected. The Exchange
believes it is appropriate to reject a PL Order designated IOC because
an IOC designation would be inconsistent with the nature of a PL Order.
A PL Order is designed to permit passive interaction with incoming
orders; however, an IOC designation is seeking immediately available
liquidity and then cancelling. As a result, the combination is
incompatible and the Exchange believes it is appropriate to reject a PL
Order designated IOC.
Rule 7.31(h)(5)--Mid-Point Passive Liquidity Order (``MPL Order'')
The Exchange proposes to amend Rule 7.31(h)(5) to clarify that MPL
Orders entered without a limit price shall be rejected. MPL Orders are
limit orders and therefore must be entered with a limit price. If a
User fails to include a limit price with its MPL Order, the MPL Order
will be rejected.
Additionally, in order to use consistent language in its rules, the
Exchange proposes to change language referring to a ``No Midpoint
Execution'' designator in the MPL Order description to a ``No Midpoint
Execution'' Modifier.
Rule 7.31(i)--Directed Order; Rule 7.31(j)--Directed Fill
The Exchange proposes to delete Rules 7.31(i) and (j), as the
Directed Order and Directed Fill are order types no longer available to
Users on Exchange systems and thus should be removed from the rule. The
Exchange also proposes to eliminate references in other rules to
Directed Orders and Directed Fills.\11\
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\11\ See NYSE Arca Equities Rules 7.31(h)(4), (v), (w);
7.38(a)(1).
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Rule 7.31(k)--Q Orders
The Exchange proposes to amend Rule 7.31(k)(4) to clarify that, in
addition to being rejected when designated as an Intermarket Sweep
Order, a Q Order will be rejected if it is marketable or is an odd lot.
Both of these rejections reflect the fact that Q Orders are designed to
be used by Market Makers to satisfy their obligation to maintain
continuous, two-sided interest in securities in which they are
registered to trade. As such, Q Orders are meant to act as a means to
post quotes, and trades are to occur against them. Therefore, the
Exchange believes it is appropriate to reject Q Orders that are
marketable upon entry since such orders would be taking liquidity
rather than providing liquidity. Additionally, a Market Maker's
obligation to maintain continuous, two-sided interest requires that the
interest ``shall have a displayed size of at least one normal unit of
trading (or a larger multiple thereof).'' \12\ In order to satisfy this
requirement, the Exchange believes it is appropriate to reject Q Orders
that do not have a displayed size of at least one round lot.
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\12\ See NYSE Arca Equities Rule 7.23(a)(1)(A).
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Rule 7.31(n)--Do Not Reduce; Rule 7.31(o)--Do Not Increase
For consistency, the Exchange proposes to describe the ``Do Not
Reduce'' and ``Do Not Increase'' functionality as ``Modifiers'' rather
than ``orders.'' The Exchange believes that the use of the term
``Modifier'' more accurately describes the functionality, since these
modifiers can be added to any order type.
[[Page 62748]]
Rule 7.31(p)--Fill-or-Return; Rule 7.31(r)--Fill-or-Return Plus
The Exchange proposes to delete Rules 7.31 (p) and (r), as the
Fill-or-Return Order and Fill-or-Return Plus Order are order types not
available to Users on Exchange systems and thus should be removed from
the rule. The Exchange also proposes to eliminate references in other
rules to the Fill-or-Return or Fill-or-Return Plus functionality.\13\
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\13\ See NYSE Arca Equities Rules 7.32; 7.37(d)(1)-(2).
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Rule 7.31(t)--Auction-Only Order
The Exchange proposes to amend Rule 7.31(t) to specify that, in
addition to being incompatible with a GTC designation, an Auction-Only
order cannot be designated as a discretionary order. A Discretionary
Order is an order with a specified, undisplayed price, in addition to a
specified, displayed price. Thus, a Discretionary Order contains two
different prices. The Exchange believes permitting a Discretionary
Order to combine with an Auction-Only order may cause confusion
regarding the price at which the order would participate in the auction
process. Therefore, the Exchange believes it is appropriate to reject
such a combination, thus prohibiting an order combination which could
result in an execution at odds with the expectations of a User.
The Exchange also proposes to move the descriptions of a Market-on-
Close Order (``MOC'') and a Limit-on-Close Order (``LOC'') from their
current locations in Rules 7.31(dd) and (ee), respectively, to new
subparagraphs (3) and (4), respectively, of Rule 7.31(t). The Exchange
believes that because MOC and LOC Orders are a form of Auction-only
Orders, it is more logical to include these order types with other
Auction-only order types. The Exchange also proposes to amend the
descriptions of MOC and LOC Orders to conform them to the descriptions
of Limit-on-Open and Market-on-Open Orders.
Rule 7.31(u)--Cleanup Order
The Exchange proposes to delete Rule 7.31(u), as Cleanup Orders are
not available to Users on Exchange systems and thus should be removed
from the rule.
Rule 7.31(v)--NOW Order
The Exchange proposes to amend Rule 7.31(v) to specify that
combining a NOW Order with another order type will override the posting
or routing instructions of the order with which it is combined. This
rule change makes clear to ETP Holders that Exchange systems give
priority to the NOW Order and ignore any other posting and routing
instructions submitted with the order.
In order to conform its rule set, the Exchange also proposes to
amend the description of a NOW Order such that it is described as a
``Limit Order'' rather than a ``Limited Price Order.''
Rule 7.31(x)--Primary Only (``PO'') Order
The Exchange proposes to amend Rule 7.31(x) to specify that, in
addition to being incompatible with a GTC designation, a PO Order
cannot be designated as a Reserve Order. A Reserve Order is a limit
order with a portion of the size displayed, and with a reserve portion
of the size that is not displayed, on the Exchange. Therefore, the
Reserve Order's functionality is dependent on being on the Exchange. A
PO Order, however, is a market or limit order that is routed to the
primary market and will never have a size displayed on the Exchange. As
a result, the Exchange believes it is appropriate to specify that a PO
Order may not be combined with a Reserve Order because the two orders
are incompatible.
Rule 7.31(z)--Midpoint Directed Fill
The Exchange proposes to delete Rule 7.31(z), as Midpoint Directed
Fills are not available to Users on Exchange systems and thus should be
removed from the rule.
Rule 7.31(cc)--Pegged Orders
The Exchange proposes to amend Rule 7.31(cc) to specify that Pegged
Orders may be entered only during the Core Trading Session.
Additionally, the Exchange is clarifying that Pegged Orders will be
rejected where an NBBO does not exist at time of entry or where the
Pegged Order is to sell short during a Short Sale Period.\14\
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\14\ Rule 7.16(f)(ii) provides that Exchange systems ``shall not
execute or display a short sale order with respect to a covered
security at a price that is less than or equal to the current
national best bid if the price of that security decreases by 10% or
more . . . .'' Once triggered, this Short Sale Price Test, pursuant
to Rule 7.16(f)(iv), will remain in effect until the close of
trading on the next trading day (the ``Short Sale Period'').
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The Exchange believes it is appropriate to reject a Pegged Order
where an NBBO does not exist because Pegged Orders are limit orders to
buy or sell at a displayed price set to track the current bid or ask of
the NBBO. If no NBBO exists, then a Pegged Order cannot function
properly. Further, because a Pegged Order is rejected where an NBBO
does not exist, Exchange systems will reject a Pegged Order entered
outside of the Core Trading Session. Additionally, Exchange systems
reject a sell short Pegged Order during a Short Sale Period because of
the complexity of offering such functionality, and the Exchange
believes it will provide clarity to ETP Holders to specify that such
orders are rejected.
The Exchange also proposes to add subparagraphs (1) and (2) to Rule
7.31(cc) to specifically describe the two variations of Pegged Orders
available to Users: Market Pegged and Primary Pegged. A Market Pegged
Order is a buy order that is pegged to the National Best Offer or a
sell order that is pegged to the National Best Bid. Because a Market
Pegged Order is tracking the contra-side NBB or NBO, an offset value is
required to avoid locking the market. A Primary Pegged Order is a buy
order that is pegged to the NBB or a sell order that is pegged to the
NBO. An offset value is permitted, but not required, on a Primary
Pegged Order. Additionally, the Exchange is proposing to amend Rule
7.31(cc) to clarify that the offset value for Pegged Orders may be
specified up to two decimals. The Exchange notes that the Primary and
Market Pegged Orders are not new or novel, and the proposed revisions
to the Exchange rule are consistent with the operation of pegging
functionality at other markets.\15\
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\15\ See Nasdaq Rule 4751(f)(4); BATS Rule 11.9(c)(8); NYSE Rule
13.
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Rule 7.31(gg)--Don't Arb Me Modifier
The Exchange proposes to delete Rule 7.31(gg), as the Don't Arb Me
Modifier is not available to Users on Exchange systems and thus should
be removed from the rule.
Rule 7.31(hh)--Proactive if Locked Modifier
The Exchange proposes to amend Rule 7.31(hh) to clarify that the
Proactive if Locked Modifier may be used in conjunction with order
types other than Reserve Orders. Under current Rule 7.31(hh), the
Proactive if Locked Modifier is described as a Proactive if Locked
Reserve Order, and its description is tailored to the modifier's
combination with a Reserve Order. The Exchange proposes to amend the
description to make clear that the Proactive if Locked Modifier is not
limited to use with only a Reserve Order, and may be combined with a
limit order to cause the limit order to be routed to another market
center in instances where the other market center has locked the order
and the locking market has not resolved the locked market situation in
a timely manner.
[[Page 62749]]
Rule 7.31(jj)--Intermarket Sweep Order (``ISO'')
The Exchange proposes to amend Rule 7.31(jj) to clarify that an ISO
is never routed to an away market and may trade through a Protected
Quotation. Although the Exchange's reference to the requirements of
Regulation NMS provides Users with sufficient information to understand
the ISO functionality, the Exchange believes that the amended language
will provide additional clarity to Users.
Additionally, the Exchange proposes to amend Rule 7.31(jj) to
clarify that when designated ISO, an order will not be rejected or
cancelled even though it would lock, cross, or be marketable against an
away market. Several Exchange order types will be rejected or cancelled
if they were to lock, cross, or be marketable against an away market;
however, marking such orders as ISOs will cause the combination to be
accepted by Exchange systems. The restriction against locking,
crossing, or being marketable against away markets, and thus rejecting
the order, generally relates to the fact that such orders would be
violating the restrictions found in Regulation NMS as locking,
crossing, or trading through Protected Quotations. Because the ISO
designation signifies that the User is complying with SEC Rule 611 of
Regulation NMS with respect to ISOs--routing ISOs to better-priced
Protected Quotations for the full displayed size--the concerns are no
longer applicable, and therefore, the Exchange will not cancel or
reject such orders when designated ISO.
Rule 7.31(kk)--Primary Sweep Order (``PSO'')
The Exchange proposes to amend Rule 7.31(kk) to update the
description of PSOs. Currently, Rule 7.31(kk)(1) describes the process
by which PSOs are routed to NYSE; however, such process is also
applicable to PSOs routed to NYSE MKT. As such, the Exchange proposes
to amend Rule 7.31(kk)(1) to include NYSE MKT.
Rule 7.31(mm)--Post No Preference Blind (``PNPB'')
The Exchange proposes to amend Rule 7.31(mm) to clarify that a PNPB
Order is an PNP Order that is placed undisplayed on the NYSE Arca book
at the price of the contra-quote of the PBBO if the order would lock or
cross a protected quotation. The current rule text references the term
``displayed,'' however, that term is intended to modify the Protected
Best Bid or Protected Best Offer. The Exchange proposes to amend the
rule text to make clear that a PNPB order is undisplayed if it is
priced at or through the PBBO. The proposed rule change does not change
the functionality of the PNPB Order.
The Exchange proposes to further amend Rule 7.31(mm) to clarify
that a PNPB Order combined with an Add Liquidity Only (``ALO'') Order
will not be cancelled if it is marketable against the PBBO. Currently,
Rule 7.31(nn)(1) states that an ALO Order will be rejected where, at
time of entry, the ALO Order is marketable. This restriction is
designed to prevent (1) the order from locking or crossing an away
quote and (2) the order from taking liquidity rather than being a
provider of liquidity. However, an ALO Order, when combined with a PNPB
Order will not be rejected when it is marketable against the NBBO. An
ALO Order that is combined with a PNPB Order may be marketable against
the NBBO upon arrival. However, pursuant to the order instructions
associated with a PNPB Order, if the PNPB ALO Order is marketable
against the PBBO, it is placed undisplayed in the NYSE Arca book and
therefore would not lock or cross an away quote. Additionally, because
the order is undisplayed, it can rest in Exchange systems as a
liquidity provider, despite being marketable against away quotes. A
PNPB ALO Order would still be rejected if it would be marketable
against liquidity resting in Exchange systems.
Rule 7.31(nn)--ALO Order
The Exchange proposes to amend Rule 7.31(nn) to clarify that an ALO
Order must be designated as either a PNP or MPL Order. The Exchange
notes that the reference to PNP Orders includes all types of PNP
Orders, including PNPB Orders. An ALO Order is a limit order that is
accepted and placed in the NYSE Arca book only where the order adds
liquidity. ALO Orders do not route to away market centers. Such
functionality is accomplished by designating the ALO Order as a PNP
Order. As described in Rule 7.31(w), a PNP Order is a limit order to
buy or sell that is to be executed in whole or part on the Corporation,
without routing any portion of the order to another market center. An
ALO Order can also be designated as an MPL Order, an order type
combination whose functionality has previously been described by the
Exchange.\16\ The Exchange also proposes to delete the rule language
stating that an ALO Order may not be designated as GTC. Because an ALO
Order must be designated with a Day Modifier and no other Time in Force
Modifiers may be combined with the Day Modifier, the Exchange believes
that it is unnecessary to also state that an ALO may not be designated
as GTC.
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\16\ See Securities Exchange Act Release No. 67652 (Aug. 14,
2012), 77 FR 50189 (Aug. 20, 2012).
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The Exchange also proposes to amend Rule 7.31(nn)(3) to explicitly
provide that an MPL-ALO Order may lock another MPL or MPL-ALO Order and
not be rejected. Currently, Rule 7.31(nn)(3) states that ``ALO Orders
will ignore MPL Orders and proceed to be placed in the NYSE Arca Book .
. . .'' For clarity, the Exchange is amending this provision to state
that an ALO Order, designated as MPL and therefore undisplayed, will be
accepted even if it is at the same price level as a contra-side MPL or
MPL-ALO Order.\17\
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\17\ A User may designate an MPL or MPL-ALO Order as eligible to
interact with an arriving marketable MPL-ALO Order. If so
designated, the two orders will execute and the arriving marketable
MPL-ALO will be designated as the liquidity provider.
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Supplementary Material .01--Order Type and Modifier Combination
The Exchange proposes to add Supplementary Material .01 to Rule
7.31 in order to provide guidance to Users as to the possible order
type combinations available and how to interpret Rule 7.31 to aid in
determining what order type combinations will be accepted.
Specifically, Supplementary Material .01 will provide the general
proposition that, unless the terms of a proposed combination are
inconsistent, Users are generally able to combine order types and
modifiers. Additionally, the explicit rules that the Exchange has
developed to aid Users are meant to provide guidance, but not provide
an exhaustive list, of the permissible and impermissible order type and
modifier combinations.
Given the number of order types and modifiers, the number of
potential order type and modifier combinations is too numerous to
effectively describe every possible combination without producing an
unwieldy rule. The revisions appearing in this proposed rule change are
meant to provide additional clarity as to combinations NYSE Arca
reasonably believes that Users, in practice, enter. In addition,
Supplementary Material .01 is designed to provide Users with the
general rule for deciding when order types and modifiers may be
combined.
Supplementary Material .02--Incoming/Resting Functionality
The Exchange proposes to add Supplementary Material .02 to Rule
7.31
[[Page 62750]]
to provide additional guidance to Users as to certain order type
combinations. Specifically, Supplementary Material .02 will provide
that if two order types are combined that include instructions for
operation on arrival and for how the order operates while resting on
the Exchange's book, the instructions governing functionality while
incoming will be operative upon arrival. Further, functionality
governing how the order operates while resting on the Exchange's book
will govern any remaining balance of the order that is not executed
upon arrival. While such functionality may be intuitive, the Exchange
believes it is appropriate to explicitly state such functionality in
order to ensure that its rules are clear and properly interpreted by
Users.
Rule 7.32--Order Entry
The Exchange proposes to amend Rule 7.32 to specify that orders
with a size greater than one million shares shall be rejected. Exchange
systems currently do not accept orders with a size greater than one
million shares, and the Exchange believes that it will provide
transparency in its rules to specify that orders with a size greater
than one million shares would be rejected.
Rule 7.38--Odd and Mixed Lots
The Exchange proposes to amend Rule 7.38(a)(2) to clarify that
specific language in the descriptions of individual order types
override the general rule that mixed lot orders may be any order type
supported by the Exchange. Rule 7.38(a)(2) currently provides that
mixed lot orders submitted by Users to the NYSE Arca Marketplace may be
any order type supported by the NYSE Arca Marketplace. The Exchange
believes explicitly stating that specific language in the individual
order types is controlling will provide guidance to those Users who may
be confused by the broad language in Rule 7.38(a)(2).
Technical Amendments
The Exchange proposes to make technical amendments to various
provisions in Rules 7.31 and 7.37. Specifically, the Exchange proposes
to conform its usage of abbreviations such that common abbreviations
for order types and modifiers will be inserted throughout Rules 7.31
and 7.37 where appropriate.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \18\ of
the Act, in general, and furthers the objectives of Section
6(b)(5),\19\ in particular, in that it is designed to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and national market
system, and in general, to protect investors and the public interest,
and not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change will foster
cooperation and coordination with persons engaged in regulating
transactions in securities because the specificity, transparency, and
more intuitive descriptions and organization will assist regulators to
understand how the affected order types and modifiers are being used by
market participants. As such, the proposed rule change will help
regulators in the identification of any potential misuse by market
participants.
The Exchange believes that the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
national market system because, by providing specificity and
transparency, the proposed rule change will provide greater clarity
with respect to the use and potential use of the functionality. With
greater clarity regarding what a specific order type or modifier does
and its proper use, greater competitive forces can be brought to bear
on, and help to foster the proper functioning of, the market.
The Exchange believes that the proposed rule change will protect
investors and the public interest. The increased transparency and
specificity resulting from the proposed rule change will enable
investors and the public to understand the tools available to the
agents handling their orders as well as those available to professional
market participants who may be competing with their orders.
Finally, the Exchange believes that the proposed rule change is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. By enhancing transparency, specificity, and
clarity, the proposed rule change will reduce any potentially
discriminatory or unfair use of Exchange functionality. By providing
the functionality, making it available to the public, and providing
clear explanations to help facilitate a complete understanding of the
functionality, the proposed rule change will reduce any discriminatory
or unfair use by a subset of the market.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. In fact, the Exchange believes
that the proposed rule change will increase competition between market
participants by providing greater transparency and specificity to
market participants who may wish to take advantage of the functionality
offered by the Exchange. The greater transparency and specificity will
allow market participants to utilize the tools made available by the
Exchange to accomplish their trading strategies and investment goals in
an efficient manner. An increase in the knowledge of market
participants regarding the functionality offered by the Exchange can
only serve to improve the competition in the marketplace by creating a
more transparent trading environment.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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:
[[Page 62751]]
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-2013-92 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-2013-92. 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-2013-92 and should
be submitted on or before November 12, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24642 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P