[Federal Register Volume 78, Number 237 (Tuesday, December 10, 2013)]
[Notices]
[Pages 74208-74210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29380]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70977; File No. SR-NYSEARCA-2013-129]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.37A
To Eliminate the Requirement That Market Makers Comply With the Bid-Ask
Differential Requirements Specified in Rule 6.37(b)(1)(A)-(F) When
Electronically Bidding and Offering on the Exchange System During the
Opening Auction Process
December 4, 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 20, 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 Rule 6.37A to eliminate the
requirement that Market Makers comply with the bid-ask differential
requirements specified in Rule 6.37(b)(1)(A)-(F) when electronically
bidding and offering on the Exchange system during the opening auction
process (``Auction''). 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 6.37A(b)(4) to eliminate the
requirement that Market Makers, when electronically bidding and
offering on the OX system (``System'') \4\ during an Auction, must
comply with the bid-ask differentials specified in Rule 6.37(b)(1)(A)-
(F) and instead make the bid-ask differential specified in Rule
6.37A(b)(4) applicable at all times, including during an Auction.
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\4\ The term ``OX'' refers to the Exchange's electronic order
delivery, execution and reporting system through which orders and
quotes for listed options are consolidated for execution and/or
display. See NYSE Arca Options Rule 6.1A(a)(13).
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Current Rule 6.37A(b)(4) provides that options traded on the System
during core trading hours may be quoted with a difference not to exceed
$5 between the bid and offer regardless of the price of the bid
(``standard-width quote''), except with respect to an Auction, in which
case Rule 6.37A(b)(6) governs bidding and offering quote differentials.
Rule 6.37(b)(1)(A)-(F) set out Auction bid-ask differentials that vary
depending on the price of the bid. Under Rule 6.37(b)(1)(A)-(F), the
quote widths may not be more than: $0.25 if the bid is less than $2;
$0.40 if the bid is at least $2 but does not exceed $5; $0.50 if the
bid is more than $5 but does not exceed $10; $0.80 if the bid is more
than $10 but does not exceed $20; and $1 if the bid is more than $20.
The Exchange now proposes to replace the varying narrow-width bid-ask
differentials that apply to Market Maker quotations during an Auction
with the $5 quote differential that is in place at all other times.
The Exchange notes that the narrow-width bid-ask differentials
applicable to Market Maker quotations during an Auction, which the
current proposal would replace, were previously deleted from Rule 6.37A
in 2010,\5\ and reinstituted in 2011.\6\ The Exchange found that at
times the absence of more narrow quotes during an Auction prevented
series from opening promptly, and could unnecessarily delay the
execution of orders. At that time, the Exchange believed that setting
[[Page 74209]]
a narrower differential for Auction quotes would expedite the opening
of all option series on the Exchange promptly after the opening of the
underlying security.
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\5\ See Securities Exchange Act Release No. 62019 (Apr. 30,
2010), 75 FR 25889 (May 10, 2010) (SR-NYSEArca-2010-16).
\6\ See Securities Exchange Act Release No. 63747 (January 20,
2011), 75 FR 4965 (Jan. 27, 2011) (SR-NYSEArca-2011-03).
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The Exchange now believes, however, that the rationales \7\ under
which it first eliminated the narrow-width quoting obligations for
Auctions in 2010 are once again evident to such an extent that the
narrow-width quoting obligations are no longer necessary for Auctions,
and thus the Exchange proposes to eliminate them again. The Exchange no
longer has the concerns it had in 2011 regarding potential delays, both
in the opening of series and in the execution of orders. In particular,
the Exchange's 2012 amendment to Rule 6.64 allows for series to open on
the wider, standard-width quote when an Auction is not to take
place,\8\ which is currently the case in a majority of series openings
on the Exchange.
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\7\ The obligation for Market Makers to provide opening quotes
at the widths described in Rule 6.37(b)(1)(A)-(F) had been adapted
from the era when the Exchange conducted open outcry rotations, had
only open outcry quotes available to respond to an order, and did
not disseminate Firm Quotes. Further, an open outcry opening
rotation only required a response from a single Market Maker. The
opening market represented the firm quote for all Market Makers in a
trading crowd, and any such Market Maker could be held to fill
orders at the quoted market. The original intent of maintaining the
obligation for Market Makers to submit narrow, traditional bid-ask
quotations was to encourage a narrower aggregated Exchange market
during the opening auction. This was especially necessary as NYSE
Arca was often the first market to open a series, there was not
necessarily an accurate National Best Bid/Offer (``NBBO'')
available, and the Exchange did not have a systemically enforced
narrow-width bid-ask differential applicable to the auction process.
Since the time of the original introduction of the System, however,
NYSE Arca has instituted increased functionality to define price
parameters during the auction process.
\8\ See Securities Exchange Act Release No. 68290 (Nov. 26,
2012), 77 FR 71469 (Nov. 30, 2012) (SR-NYSEArca-2012-126).
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Additionally, it is no longer necessary to require Market Makers to
submit narrow, traditional bid-ask quotations to encourage a narrower
Exchange market during the auction process, as was the original intent
of the limitations on bid-ask differentials. Since the time of the
original introduction of the System, the Exchange has instituted
increased functionality to define price parameters during the auction
process. The system will not conduct an Auction in a series until one
of two conditions is met: (i) A Market Maker submits a narrow-width
quote, or (ii) a narrow-width NBBO is received from OPRA. This is a
systemic solution which renders the rules-based narrow bid-ask
differential moot. Further, in light of the lowering of the Lead Market
Maker quoting obligation to 90% in 2008,\9\ there is no requirement for
a Market Maker to submit a quotation for an Auction, and thus the
Auction quote-width requirement imposes limits on a non-existent
obligation.
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\9\ See Securities Exchange Act Release No. 57186 (Jan. 22,
2008) 73 FR 4931 (January 28, 2008) (SR-NYSEArca-2007-121).
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Finally, the opening auction parameters described in Rule 6.64,
under which an Auction will not be conducted unless the composite NYSE
Arca bid-ask is within an acceptable range (identical to the bid-ask
parameters pursuant to Rule 6.37(b)(1)(A)-(F)) would remain in effect
under the Exchange's current proposal.
The Exchange thus believes that the current proposal is appropriate
and further notes that the proposal would more closely align the
Exchange's rules with the rules of other options exchanges that do not
require narrow-width quotes during an opening auction. Neither BATS
Exchange, Inc. (``BATS'') nor NASDAQ Stock Market LLC (``NOM'') imposes
narrow-width quote requirements during an opening auction.\10\
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\10\ See BATS Rule 22.5; NOM Rules Chapter VII, Sections 5-6.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\12\ in particular, because it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to, and perfect the mechanism of
a free and open market and a national market system.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is designed to remove impediments to, and
perfect the mechanism of a free and open market and a national market
system by setting price parameters for the opening Auction rather than
relying on a restriction that does not have obligatory performance. The
wider quote differential requirement for openings when an Auction is
conducted will implement a less burdensome quoting obligation in a way
that benefits market participants and enables them to safely execute
their orders on the Exchange because the proposal maintains the price
protection parameters established under Rule 6.64. This will reduce the
likelihood of disadvantageous pricing for orders executed during an
Auction, which also contributes to the protection of investors and the
public interest generally. The Exchange believes that by maintaining
these price protection parameters within the Auction process, rather
than just as a requirement for submitted quotes, Customers and other
market participants will continue to be afforded price protection on
executions occurring during an Auction. The proposed rule is also
designed to promote just and equitable principles of trade because it
would permit Market Makers to provide opening quotes more consistent
with those provided by market makers on other options exchanges.\13\
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\13\ See note 10, supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, the Exchange
believes that the proposal will result in the Exchange operating in a
more efficient way. The adoption of a less burdensome quoting
obligation on NYSE Arca Market Makers during the auction process will
allow them to compete more effectively with their counterparts on other
options exchanges that are similarly not subject to a narrow-width bid-
ask differential applicable during auctions. In addition, the proposed
rule change is pro-competitive on both an inter-market and intra-market
basis in that it is not only designed to help the Exchange compete more
effectively with other options exchanges with similar rules, but could
also lead to increased participation by a greater number of Market
Makers on the Exchange during the auction process because of the more
flexible quoting obligations it would impose.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\
Because the
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proposed rule change does not: (i) Significantly affect the protection
of investors or the public interest; (ii) impose any significant burden
on competition; and (iii) become operative prior to 30 days from the
date on which it was filed, or such shorter time as the Commission may
designate, if consistent with the protection of investors and the
public interest, the proposed rule change has become effective pursuant
to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\16\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEARCA-2013-129 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-2013-129. 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 will also be available
for inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. 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-2013-129 and should be submitted on or before
December 31, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29380 Filed 12-9-13; 8:45 am]
BILLING CODE 8011-01-P