[Federal Register Volume 78, Number 233 (Wednesday, December 4, 2013)]
[Notices]
[Pages 72965-72968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28972]
[[Page 72965]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70955; File No. SR-NYSEMKT-2013-84]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of
Proposed Rule Change Amending NYSE MKT Rules 13--Equities, 70.25--
Equities, 107C--Equities and 1000--Equities To Adopt a New Order Type
Called a Midpoint Passive Liquidity Order
November 27, 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 November 18, 2013, 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: (1) NYSE MKT Rule 13--Equities to
adopt a new order type called a Midpoint Passive Liquidity (``MPL'')
Order; (2) NYSE MKT Rule 1000--Equities to specify that MPL Orders may
interact with Capital Commitment Schedule (``CCS'') interest; (3) NYSE
MKT Rule 70.25--Equities to permit d-Quotes to be designated with a
midpoint modifier in order to set the discretionary price to the
midpoint of the PBBO; and (4) NYSE MKT Rule 107C--Equities to
incorporate the new MPL Order into the Retail Liquidity Program. 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, on the
Commission's Web site at www.sec.gov, 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 is proposing to amend: (1) NYSE MKT Rule 13--Equities
to adopt a new order type called an MPL Order; (2) NYSE MKT Rule 1000--
Equities to specify that MPL Orders may interact with CCS interest; (3)
NYSE MKT Rule 70.25--Equities to permit d-Quotes to be designated with
a midpoint modifier in order to set the discretionary price to the
midpoint of the PBBO; and (4) NYSE MKT Rule 107C--Equities to
incorporate the new MPL Order into the Retail Liquidity Program.
Proposed MPL Order
As proposed, an MPL Order would be defined as an undisplayed limit
order that would automatically execute at the mid-point of the
protected best bid (``PBB'') and the protective best offer (``PBO'')
(collectively, ``PBBO''). An MPL Order would interact with any incoming
order, including another MPL Order, and could execute at prices out to
four decimal places. Such an order would not be eligible to trade if it
would trade at a price below $1.00 or if the execution price would be
out to five decimal places above $1.00. An MPL Order could not be
designated as Good Till Cancelled (``GTC''). An MPL Order would not
execute if the market was locked or crossed. When the market unlocked
or uncrossed, the Exchange would execute all eligible MPL Orders and
other hidden interest eligible to execute at the midpoint of the
PBBO.\4\ MPL Orders would be allocated consistent with Rule 72--
Equities. An MPL Order's time priority would be based on its time of
entry into Exchange systems and would not reset when an MPL Order's
price shifted due to changes in the PBBO. For example, consider an MPL
Order to buy entered when the PBBO was $10.01 by $10.05 and therefore
was eligible to trade at $10.03. The MPL Order's time priority would be
based on when the order was originally entered, even if the PBBO
shifted to $10.03 by $10.05 and the MPL Order was eligible to trade at
$10.04.
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\4\ The other hidden interest at the Exchange eligible to
execute at the midpoint after the market unlocked or uncrossed would
be Non-Displayed Reserve Orders pursuant to Rule 13--Equities and
Floor-broker interest without a published quantity pursuant to Rules
70(e) and (f)(i)--Equities. Such interest would execute only if the
midpoint of the PBBO was in whole pennies. An MPL Order designated
with an Add Liquidity Only (``ALO'') Modifier, as described below,
would not participate in the execution when the market unlocked or
uncrossed.
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An MPL Order could include a Minimum Triggering Volume (``MTV'')
and would not be eligible to trade unless the aggregated contra-side
quantity of all interest marketable at the midpoint of the PBBO was
equal to or greater than the MPL Order's MTV. There would not be a
guaranteed trade size based on the MTV. Exchange systems would enforce
an MTV restriction even if the unexecuted portion of an MPL Order with
an MTV was less than the MTV.\5\ An MPL Order that included an MTV
would be rejected if it also included a Self Trade Prevention (``STP'')
Modifier.
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\5\ For example, if an MPL Order to buy for 1,000 shares with an
MTV of 500 shares received a partial execution of 800 shares,
Exchange systems would enforce the MTV of 500 shares on a subsequent
execution even though the leaves quantity of the MPL Order (200
shares) is less than the MTV.
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As proposed, STP Modifiers could be used with MPL Orders; however,
whether an MPL Order with an STP Modifier would be cancelled would
depend on what type of order was on the contra-side. Consistent with
Rule 13--Equities governing STP Modifiers, an MPL Order with an STP
Modifier would not execute against either another MPL Order or a non-
MPL Order with an STP Modifier with the same market participant
identifier (``MPID''). The Exchange would follow the rules set forth
for cancelling an MPL Order (i.e., whether the incoming or resting MPL
Order gets cancelled) if the contra-side order with the same MPID was
another MPL Order. However, the Exchange would not cancel an MPL Order
with an STP Modifier when the contra-side order with the same MPID was
a non-MPL Order. Instead, if an MPL Order with an STP Modifier and a
non-MPL Order with an STP Modifier with the same MPID would participate
in the same trade, the MPL Order would not participate in the execution
and would be maintained in Exchange systems.
Further, as proposed, Users could designate an MPL Order with an
ALO Modifier (``MPL-ALO Order''). An MPL-ALO Order would not execute on
arrival, even if marketable, but would remain non-displayed in the NYSE
MKT book until triggered to trade by arriving marketable interest;
however, an incoming non-marketable MPL-ALO Order could trigger a
discretionary
[[Page 72966]]
trade.\6\ An MPL-ALO Order would be only eligible to trade against
incoming contra-side interest, and would ignore contra-side interest
resting in the NYSE MKT book. A resting MPL-ALO Order would not be
eligible to trade when arriving, same-side interest triggered a trade
with contra-side interest. An MPL-ALO Order must be at least one round
lot.
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\6\ An MPL-ALO Order triggering a discretionary trade would be
the ``liquidity provider,'' and the triggered discretionary order
would be the ``liquidity taker.''
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Because an MPL Order would not be eligible for manual executions,
including openings, re-openings, or closing transactions, MPL Orders
would not be available to be designated as Limit ``On-the-Open''
(``LOO'') or Limit ``At-the-Close'' (``LOC'') Orders. The Exchange
believes it is appropriate to not permit such a combination because the
midpoint concept is not compatible with single-priced transactions that
occur during the openings, re-openings, or closing transactions. As
fully undisplayed interest, MPL Orders would not be visible to the DMM
on the Floor under any circumstances.
As proposed, MPL Orders would be available for any participant at
the Exchange, unless specifically noted otherwise. DMM interest entered
via the CCS pursuant to Rule 1000 would not be permitted to be
designated as MPL Orders. The CCS is a liquidity schedule setting forth
various price points at which the DMM is willing to interact with
incoming orders. The CCS informs the Display Book of the number of
shares that the DMM is willing to trade at price points outside, at,
and inside the Exchange Best Bid or Offer. CCS interest will either
execute at the price at which the full size of the order can be
satisfied (the ``completion price'') or at the next price that is one
minimum price variation (``MPV'') or more higher (in the case of an
order to sell) or lower (in the case of an order to buy). Therefore,
because MPL Orders are priced at the midpoint of the PBBO and could be
priced less than one MPV above or below the completion price, the
Exchange believes it is appropriate that CCS interest cannot be
designated as an MPL Order.
While CCS interest cannot be designated as an MPL Order, CCS
interest would be eligible to interact with MPL Orders at the midpoint
of the PBBO, including sub-penny executions. Currently, CCS interest is
eligible to trade inside the Exchange BBO when eligible to trade at the
price of interest representing non-displayable reserve interest of
Reserve Orders and Floor broker agency interest files reserve interest.
The Exchange is proposing to expand this list by amending Rule
1000(f)(1)(B) to include MPL Orders. Therefore, CCS interest would also
be eligible to trade inside the Exchange BBO when eligible to trade at
the price of interest representing MPL Orders.
The Exchange proposes to specify that MPL Orders would not be
available for d-Quotes. As described below, the Exchange proposes to
amend Rule 70.25--Equities to specify how a midpoint modifier would be
made available for d-Quotes. MPL Orders would not be available for
pegging interest. Pegging interest is set to track the PBB or the PBO
as the PBBO changes. The offset value for pegging interest is the
specified amount by which the price of the pegging interest differs
from the price of the interest to which it pegs. MPL Orders, on the
other hand, would always be priced at the midpoint of the PBBO. Thus,
the Exchange believes that the MPL Order and pegging interest are
incompatible and would not permit pegging interest to be designated as
an MPL Order.
As further proposed, MPL Orders would not be available for Retail
Orders or Retail Price Improvement Interest, as defined in Rule 107C--
Equities. As noted below, MPL Orders could interact with incoming
Retail Orders.
D-Quotes Designated With a Midpoint Modifier
The Exchange proposes to make a midpoint modifier available for d-
Quotes. A d-Quote is an e-Quote with discretionary instructions,
allowing Floor brokers to set a price range within which they are
willing to initiate or participate in a trade. The discretion is used,
as necessary, to initiate or participate in a trade with an incoming
order capable of trading at a price within the discretionary range. As
proposed, a d-Quote with a midpoint modifier would have a discretionary
range up to the midpoint of the PBBO.\7\
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\7\ For clarity, the Exchange notes that the MPL Order and the
midpoint modifier are completely distinct functionality. An MPL
Order would always be priced at the midpoint of the PBBO and would
execute at such price. A d-Quote designated with a midpoint modifier
would use its discretion to execute up to the midpoint but could
execute at a less aggressive price. As such, a d-Quote with a
midpoint modifier would operate as a d-Quote that updated with
changes in the PBBO to set the discretionary price range to the
midpoint of the PBBO.
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For example, assume the PBBO is 10.01 x 10.04, and a Floor broker
entered a sell d-Quote with a midpoint modifier and a floor price of
10.02. Because the midpoint of the PBBO is 10.025, which is above the
10.02 floor price, that d-Quote to sell would not execute at the 10.02
floor price while the PBBO is 10.01 x 10.04. If a limit order to buy
priced at 10.03 entered the market, the d-Quote would use one cent of
its price discretion and initiate a trade at 10.03. Additionally, if
the order to buy was an MPL Order, the d-Quote would use all of its
price discretion and initiate a trade at 10.025. However, if the limit
order to buy were priced at 10.02, the d-Quote would not exercise
discretion since the price of the limit order was outside the
discretionary range of the d-Quote, even though the floor price of the
d-Quote is within the limit order's price.
Assume the same facts as above, except the PBBO has shifted to 9.99
x 10.03. Because the midpoint (10.01) is below the floor price, the d-
Quote with a midpoint modifier would be eligible to execute at its
floor price. As a result, if an incoming limit order to buy were priced
at 10.02, the d-Quote would be eligible to use its price discretion to
initiate a trade at 10.02. However, if the limit order to buy were
priced at 10.01, because the floor of the discretionary price range for
the d-Quote is 10.02, the d-Quote would not initiate a trade with that
buy order priced at 10.01.
In order to accommodate the use of a midpoint modifier, the
Exchange is proposing to amend Rule 70.25(b)(ii)--Equities, which
states that the minimum price range for a d-Quote is the minimum price
variation set forth in Exchange Rule 62--Equities. Rule 62--Equities
sets the minimum price variation to $0.01 for stocks priced greater
than $1.00. However, with the midpoint modifier, a d-Quote can have a
minimum price variation of $0.005. Therefore, the Exchange is proposing
to amend this restriction by excepting d-Quotes with a midpoint
modifier.
Incorporation of MPL Orders Into Retail Liquidity Program
As proposed, MPL Orders would be available to interact with Retail
Orders within the Retail Liquidity Program (the ``Program''). The
Program, which is a pilot program, is designed to attract retail order
flow to the Exchange, and allows such order flow to receive potential
price improvement. Under the Program, Retail Liquidity Providers
(``RLPs'') are able to provide potential price improvement in the form
of a non-displayed order that is priced better than the PBBO, called a
Retail Price Improvement Order (``RPI''). Retail Member Organizations
(``RMOs'') can submit a Retail Order to the Exchange, which interacts,
to the extent possible, with available contra-side RPIs.
[[Page 72967]]
Pursuant to Rule 107C(k)--Equities, Retail Orders may be designated
as Type 1, Type 2, or Type 3. A Type 1 Retail Order interacts with
available contra-side RPIs and does not interact with other available
contra-side interest in Exchange systems or route to other markets. A
Type 2 Retail Order interacts with available contra-side RPIs and any
remaining portion of the Retail Order is executed as a Regulation NMS-
compliant Immediate or Cancel Order pursuant to NYSE MKT Rule 13--
Equities. A Type 3 Retail Order interacts first with available contra-
side RPIs and any remaining portion of the Retail Order is executed as
an Exchange Immediate or Cancel Order pursuant to Rule 13--Equities.
The Exchange proposes to amend Rules 107C(k) and (l)--Equities to
permit all Retail Orders to interact with, in addition to available
contra-side RPIs, available contra-side MPL Orders. When determining
the price to execute a Retail Order, Exchange systems would consider
all eligible RPIs and MPL Orders. If the only interest was MPL Orders,
the Retail Order would execute at the midpoint of the PBBO. If the only
interest was RPIs, then the execution would occur at the price level
that completes the incoming order's execution. If both RPIs and MPL
Orders were present, Exchange systems would evaluate at what price
level the incoming Retail Order could be executed in full (``clean-up
price''). If the clean-up price was equal to the midpoint of the PBBO,
RPIs would receive priority over MPL Orders, and Retail Orders would
execute against both RPIs and MPL Orders at the midpoint. If the clean-
up price was worse than the midpoint of the PBBO, the Retail Order
would execute first with the MPL Orders at the midpoint of the PBBO and
any remaining quantity of the Retail Order would execute with the RPIs
at the clean-up price. If the clean-up price was better than the
midpoint of the PBBO, then the Retail Order would execute against the
RPIs at the clean-up price and would ignore the MPL Orders.
The following example illustrates the incorporation of MPL Orders
into the Program:
PBBO for security DEF is $10.00--10.01
RLP 1 enters a Retail Price Improvement Order to buy DEF at $10.006 for
500.
RLP 2 enters a Retail Price Improvement Order to buy DEF at $10.005 for
500.
MPL 1 enters an MPL Order to buy DEF at $10.01 for 1000.
RLP 3 enters a Retail Price Improvement Order to buy DEF at $10.002 for
1000.
An incoming Retail Order to sell DEF for 2,500 arrives. The clean-
up price is $10.002. Because the midpoint of the PBBO is priced better
than the clean-up price, the Retail Order executes with MPL 1 for 1000
shares at $10.005. The Retail Order then executes at $10.002 against
RLP 1's bid for 500, because it is the best-priced bid, then against
RLP 2's bid for 500 because it is the next best-priced bid and then RLP
3 receives an execution for 500 of its bid for 1000, at which point the
entire size of the Retail Order to sell 2,500 is depleted.
Assume the same facts above. An incoming Retail Order to sell DEF
for 1,000 arrives. The clean-up price is $10.005. Because the clean-up
price is equal to the midpoint of the PBBO, RPIs will receive priority
over MPL Orders. As a result, the Retail Order executes first against
RLP 1's bid for 500, because it is the best-priced bid, then against
RLP 2's bid for 500 because it is the next best-priced bid, at which
point the entire size of the Retail Order to sell 1,000 is depleted.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \8\ of the
Act, in general, and furthers the objectives of Section 6(b)(5),\9\ in
particular, in that it is designed to promote just and equitable
principles of trade, 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposal is designed to remove
impediments to and perfect the mechanism of a free and open market and
a national market system because the introduction of the MPL Order on
the Exchange will increase competition, not only between market
participants, but also between exchanges offering similar
functionality. The MPL Order will enable Members to enter an order that
is not displayed publicly but is to be executed at the midpoint of the
PBBO. The Exchange believes this order type will enhance order
execution opportunities on the Exchange and help provide Members with
flexibility in executing transactions that meet the specific
requirements of the order type. MPL Orders will allow for additional
opportunities for investors to interact with orders priced at the
midpoint of the PBBO, thus providing price improving liquidity to
investors. The MPL Order will offer market participants added
functionality and additional trading opportunities similar to what is
offered in other trading venues.
Additionally, the Exchange believes that the MPL Order definition
is clear and transparent, thus ensuring the conditions under which an
MPL Order will be executed, accepted by Exchange systems, or rejected,
and therefore is designed to promote just and equitable principles of
trade.
The Exchange believes the incorporation of the MPL Order into the
Retail Liquidity Program will further the objectives of the Program and
is therefore designed to protect investors and the public interest. The
Program was designed to increase competition among execution venues,
encourage additional liquidity, and offer the potential for price
improvement to retail investors. By including MPL Orders as available
contra-side interest for Retail Orders, the proposal creates additional
incentives to attract retail order flow to the exchange environment and
ensures that retail investors benefit from the better prices afforded
by MPL Orders.
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. The Exchange believes the
proposed MPL Order will enhance order execution opportunities for
member organizations. Further, the Exchange believes the MPL Order will
enhance competition between the Exchange and other exchanges that
currently offer similar order types by offering investors another
option to access liquidity at the midpoint of the PBBO.
Additionally, by incorporating MPL Orders into the Retail Liquidity
Program, the proposal will promote competition for retail order flow
among execution venues, and will benefit retail investors by creating
additional price improvement opportunities for their order flow.
Because the MPL Order is priced at the midpoint of the PBBO, any Retail
Order that executes against the MPL Order will be receiving price
improvement. As such, the proposal enhances the Program and its
objectives by creating additional incentives to attract retail order
flow to the exchange environment, while helping to ensure that retail
investors benefit from the better prices that Members submitting MPL
Orders are willing to provide.
[[Page 72968]]
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 up to 90 days (i) as the
Commission may designate 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:
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 No. SR-NYSEMKT-2013-84 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 No. SR-NYSEMKT-2013-84. 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 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 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 No. SR-NYSEMKT-2013-84 and should be
submitted on or before December 26, 2013.
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\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28972 Filed 12-3-13; 8:45 am]
BILLING CODE 8011-01-P