[Federal Register Volume 79, Number 8 (Monday, January 13, 2014)]
[Notices]
[Pages 2234-2237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-00344]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71245; File No. SR-NYSEMKT-2013-107]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule
123C(7)(b)--Equities To Provide That G Orders With a Price Equal to the
Closing Price Are the Last Interest Eligible To Be Used to Offset A
Closing Imbalance
January 7, 2014.
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 December 26, 2013, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') filed with the Securities and Exchange Commission (the
``SEC'' or ``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 Rule 123C(7)(b)--Equities to provide
that G orders with a price equal to the closing price are the last
interest eligible to be used to offset a closing imbalance. 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,
[[Page 2235]]
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 Rule 123C(7)(b)--Equities to modify
the hierarchy of pending interests that may be used to offset a closing
imbalance, specifically by switching the priority in the execution of
CO orders with G orders with a price equal to the closing price.
Background
Rule 123C--Equities (``Rule 123C'') sets forth the closing
procedures for trading in stock on the Exchange. Rule 123C(7) sets
forth the order of execution of pending interest on the close. Rule
123C(7)(a) lists the pending interest that must be executed or
cancelled as part of the closing transaction. Rule 123C(7)(b) sets
forth the execution hierarchy of the pending interest that may be used
to offset a closing imbalance. Currently, Rule 123C(7)(b) provides that
the following order of execution for pending interest may be used to
offset a closing imbalance:
(i) Limit orders represented in the Display Book with a price equal
to the closing price and DMM interest;
(ii) LOC orders with a price equal to the closing price;
(iii) MOC orders that have tick restrictions that limit the
execution of the MOC to the price of the closing transaction;
(iv) LOC orders that have tick restrictions that are capable of
being executed based on the closing price and the price of such limit
order is equal to the price of the closing transaction;
(v) G orders with a price equal to the closing price; and
(vi) CO orders.
A ``G order'' is an order entered for a member's own account or an
account in which the member has an interest, as permitted under Section
11(a)(1)(G) of the Act.\4\ A ``CO order'' is a conditional-instruction
limit-type order that is eligible to participate in the closing
transaction only when there is an imbalance of orders to be executed on
the opposite side of the market from the CO order. A CO order may be
used in the closing transaction only to offset an imbalance and may not
add to or flip an imbalance. The CO order is defined in Rule 13--
Equities. The creation of the CO order was approved by the SEC in
2009.\5\ An ``LOC order'' is a limit at-the-close order, and an ``MOC
order'' is a market at-the-close order.
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\4\ 15 U.S.C. 78k(a)(1)(G). See also Rule 13--Equities (defining
a ``G order'' as an order entered pursuant to Subsection (G) of
Section 11(a)(1) of the Act).
\5\ See Securities Exchange Act Release No. 61244 (Dec. 28,
2009), 75 FR 479 (January 5, 2010) (File No. SR-NYSEAmex-2009-81).
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Exchange's Approval Request
The current execution hierarchy of pending interest that may be
used to offset a closing imbalance was approved by the SEC in 2009.\6\
In November 2009, the Exchange filed proposed amendments with the SEC
to modify its closing procedures as well as to make conforming changes
to other rules.\7\ In the filing, the Exchange proposed, among other
things, to add subsection (b)(vi) to Rule 123C(7) that would include a
new type of customer order, called a CO order, to the list of orders
that may be executed when there is an imbalance at the close of the
market.\8\ In proposed Rule 123C(7)(b), CO orders were listed as the
final order type in the sequence of transactions that may be executed
to offset an imbalance.\9\ G orders were expressly identified as taking
priority over CO orders in the closing rotation.\10\
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\6\ See id.
\7\ See Securities Exchange Act Release No. 60973 (Nov. 9,
2009), 74 FR 59308 (Nov. 17, 2009) (File No. SR-NYSEAmex-2009-81).
\8\ See id.
\9\ See id. at 59314.
\10\ Id.
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The proposal described in detail the mechanics of how the CO order
type would operate.\11\ It proposed that CO orders would be contingent
on an imbalance on the opposite side of the market when the market
closed.\12\ If no imbalance existed, these orders would not be
activated and would be cancelled.\13\ The Exchange further stated that
the execution of CO orders would never add to, or result in, a flip of
the imbalance to the other side of the market.\14\ Rather, if the
aggregate number of shares comprising outstanding CO orders was larger
than the number of shares required to offset the imbalance, only the
amount of shares necessary to correct any actual imbalance in full
would be triggered and executed.\15\
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\11\ See id.
\12\ See id.
\13\ See id.
\14\ See id.
\15\ See id.
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Significantly, the Exchange explained that, until all other orders
have been considered and until an imbalance can be calculated, CO
orders are not active orders.\16\ Because of the contingent nature of
the order type, CO orders were to be executed after all other types of
orders have been executed, including G orders.\17\ The CO orders were
meant to supplement, not supplant, any existing orders on the book to
provide additional liquidity in the event of an imbalance.\18\ As the
Exchange explicitly stated in it proposal:
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\16\ See id.
\17\ See id.
\18\ See id.
The CO order will not be guaranteed to participate in the
closing transaction. CO orders will be eligible to participate in
the closing transaction when there is an imbalance of orders to be
executed on the opposite side of the market from the CO order and
there is no other interest remaining to trade at the closing price.
This order type must yield to all other eligible interest (emphasis
added).\19\
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\19\ Id.
The Exchange proposal also detailed the benefits of this new order
type. The proposal explained how the addition of CO orders would
provide an added opportunity for investors to take advantage of closing
prices and would encourage greater customer participation in the
market.\20\ Specifically, the Exchange noted that CO orders:
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\20\ See id. at 59317.
[W]ill add greater efficiency to the closing process by
providing an additional source of liquidity to offset an imbalance
going into the closing transaction. The proposed modifications will
provide investors with a more accurate depiction of the market
interest prior to the closing transaction thereby allowing them to
make better informed trading decisions.\21\
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\21\ Id.
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SEC's Approval Order
In December 2009, the SEC issued an order approving amended Rule
123C(7)(b) in the form proposed by the Exchange.\22\ In its approval
order, the SEC reiterated the mechanics of CO orders as described by
the Exchange in its proposal.\23\ More significantly, however, the SEC
explicitly acknowledged and approved the timing and priority of
execution of CO orders.\24\
[[Page 2236]]
The SEC explicitly stated that CO orders would be executed after all
other orders, including G orders.\25\ The SEC approval order stated:
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\22\ See Securities Exchange Act Release No. 61244 (Dec. 28,
2009), 75 FR 479 (January 5, 2010) (File No. SR-NYSEAmex-2009-81).
\23\ See id. at 481.
\24\ See id. at 481-482.
\25\ See id. at 481.
The Exchange further proposes to create a CO order type, which
would provide all market participants an additional method to offset
an order imbalance at the close. The CO order would not be
guaranteed to participate in the closing transaction. CO orders
would only be eligible to participate in the closing transaction
when there is an imbalance of orders to be executed on the opposite
side of the market from the CO order and there is no other interest
remaining to trade at the closing price. CO orders must yield to all
other eligible interest (emphasis added).\26\
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\26\ Id. at 481.
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The SEC approval order further stated:
If there is an imbalance at the close and the price of the
closing transaction is at or within the limit of the CO order, the
CO order would be eligible to participate in the closing
transaction, subject to strict time priority of receipt in Exchange
systems among such eligible CO orders and after yielding to all
other interest in the closing execution, including MOCs, marketable
LOCs, ``G'' orders, DMM interest, and at-priced LOCs (emphasis
added).\27\
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\27\ Id. at 481.
The SEC endorsed the Exchange's assertion that CO orders are
beneficial to investors and to the marketplace.\28\ The SEC stated in
the approval order, ``[t]he creation of the CO order provides an
additional source of liquidity to offset an imbalance going into the
closing transaction, and thus should increase the greater efficiency of
the closing process.'' \29\
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\28\ See id. at 482.
\29\ Id.
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The SEC found the amendments to Rule 123C, including the addition
of CO orders and the execution priority, to be ``consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.'' \30\ In support of this
determination, the Commission stated that it:
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\30\ Id.
[B]elieves that these proposed modifications are consistent with
the Act because, taken as a whole, they should enhance the
efficiency and transparency of the closing transaction and provide
customers with a more accurate depiction of market conditions prior
to the closing transaction, and therefore allow them to make better-
informed trading decisions.\31\
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\31\ Id.
Subsequently, the SEC staff questioned whether the priority of
execution of orders at the close was consistent with Section 11(a) of
the Act and the rules promulgated thereunder. In particular, the SEC
staff questioned whether G orders should take priority over CO orders.
The Exchange began discussions with the SEC staff regarding a potential
exemption from Section 11(a) of the Act or no-action relief for the
limited purposes of priority of the CO order type on the close. After
significant discussion with the SEC staff, the Exchange determined that
rather than seek such an exemption or no-action relief, it would file a
proposed rule change to change the order of execution in the closing
rotation.
Proposed Rule Change
The Exchange now proposes to modify the hierarchy of interests that
may be used to offset a closing imbalance, specifically by switching
the positions in the hierarchy of G orders with a price equal to the
closing price and CO orders. Accordingly, under the Exchange's proposed
amendment to Rule 123C(7)(b), CO orders will be moved up in the
execution hierarchy and G orders would give up execution priority to
all other order types. The amended rule would allow execution in the
following execution hierarchy to offset a closing imbalance:
(i) Limit orders represented in the Display Book with a price equal
to the closing price and DMM interest;
(ii) LOC orders with a price equal to the closing price;
(iii) MOC orders that have tick restrictions that limit the
execution of the MOC to the price of the closing transaction;
(iv) LOC orders that have tick restrictions that are capable of
being executed based on the closing price and the price of such limit
order is equal to the price of the closing transaction;
(v) CO orders; and
(vi) G orders with a price equal to the closing price.
The Exchange believes that Rule 123C(7)(b), as proposed, would
continue to provide Exchange participants with control of and
flexibility with respect to the handling of their orders to be executed
in the closing transaction. The Exchange also believes that the
proposed change to the hierarchy of interest that may be used to offset
a closing imbalance would help ensure that G orders yield priority,
parity and precedence to CO orders. The Exchange also notes its
continued belief that the CO order type provides an important source of
liquidity to offset an imbalance going into the closing transaction,
and thus increases the efficiency of the closing process. The Exchange
believes that the proposed modification to the hierarchy balances the
requirement that G orders yield priority, parity and precedence to all
non-G orders, with the important goal of preserving the role that CO
orders play in increasing the efficiency of the closing process.
Because of the technology changes associated with this proposed
rule change, the Exchange will announce by Trader Update when it will
implement the proposed change.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\32\ in general, and furthers the objectives of Section 6(b)(5) of
the Act,\33\ in particular, in that it is designed to ``prevent
fraudulent and manipulative acts and practices,'' ``promote just and
equitable principals of trade,'' ``remove impediments to and perfect
the mechanism of a free and open market and a national market system''
and ``protect investors and the public interest.''
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\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed modification to the
execution hierarchy of pending interest that may be used to offset a
closing imbalance would continue to advance the efficiency and
transparency of the closing transaction and continue to provide
customers with information regarding the hierarchy of interest that may
be used to offset a closing imbalance, which would continue to allow
customers to make better informed decisions. In addition, the Exchange
believes that the proposed reordering is consistent with the Act as it
would help ensure that G orders yield priority, parity and precedence
in execution to CO orders, consistent with Section 11(a)(1)(G) of the
Act.\34\
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\34\ 15 U.S.C. 78k(a)(1)(G).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change would not impose any burden on competition
not necessary or appropriate in furtherance of the purposes of the Act
because the proposal to modify the hierarchy of interest that may be
used to offset a closing imbalance would help ensure that G orders
yield priority, parity and precedence in execution to CO orders,
consistent with Section 11(a)(1)(G) of the Act.\35\ At the same time,
the proposal would preserve the important benefits that CO orders
provide as an additional source of liquidity to offset
[[Page 2237]]
an imbalance going into the closing transaction.
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\35\ 15 U.S.C. 78k(a)(1)(G).
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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
Because the foregoing 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 for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \36\ and Rule 19b-4(f)(6) \37\
thereunder.
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 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 the 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 to
determine whether the proposed rule should be approved or 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 Number SR-NYSEMKT-2013-107 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-NYSEMKT-2013-107. 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-NYSEMKT-2013-107 and should
be submitted on or before February 3, 2014. For the Commission, by the
Division of Trading and Markets, pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00344 Filed 1-10-14; 8:45 am]
BILLING CODE 8011-01-P