[Federal Register Volume 79, Number 28 (Tuesday, February 11, 2014)]
[Notices]
[Pages 8223-8225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-02875]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71487; File No. SR-NYSEMKT-2014-15]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule 13--
Equities To Modify the Manner by Which MPL-ALO Orders Trade When
Triggered by Arriving Interest
February 5, 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 January 31, 2014, 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 Rule 13--Equities to modify the
manner by which MPL-ALO Orders trade when triggered by arriving
interest. 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 is proposing to amend Rule 13--Equities (``Rule 13'')
to modify the manner by which MPL-ALO Orders trade when triggered by
arriving interest.
The Exchange recently amended Rule 13 to add a new Midpoint Passive
Liquidity Order (``MPL Order''), which is an undisplayed limit order
that would automatically execute at the mid-point of the protected best
bid (``PBB'') and the protected best offer (``PBO''). An MPL Order
could interact with any incoming order, including another MPL Order,
and could execute at prices out to four decimal places.\4\
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\4\ See Securities Exchange Act Release No. 71329 (Jan. 16,
2014), 79 FR 3904 (Jan. 23, 2014) (SR-NYSEMKT-2013-84) (Order
approving the MPL Order).
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Pursuant to paragraph (e) of Rule 13 governing MPL Orders, users
may designate an MPL Order with an add-liquidity-only (``ALO'')
modifier (``MPL-ALO Order''). An MPL-ALO Order would not execute on
arrival, even if marketable, but would remain non-displayed in the book
until triggered to trade by arriving contra-side marketable interest.
For example, if there is a buy MPL Order ``A'' for 100 shares resting
on the book when a sell MPL-ALO Order ``B'' for 100 shares arrives,
even though B is marketable against A, both A and B remain undisplayed
in the book until B is triggered to trade.\5\
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\5\ The Exchange notes that this example would work the same if
A were undisplayed non-MPL reserve interest eligible to trade at the
same price as B.
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The rule currently provides that an MPL-ALO Order would only be
eligible to trade against incoming contra-side interest and would not
interact with contra-side interest resting on the book.
[[Page 8224]]
Accordingly, if B is triggered to trade by an arriving buy MPL Order
``C'' for 100 shares, the rule provides that B would not trade with A.
Rather, B would only trade with the arriving interest, C. The Exchange
believes that it is appropriate, however, that when a resting MPL-ALO
is triggered to trade, it should be eligible to trade with both the
arriving interest that triggered the MPL-ALO Order and any resting
contra-side interest that was present before the MPL-ALO Order arrived.
The Exchange believes that permitting the MPL-ALO to interact with both
arriving and resting contra-side interest is consistent with the
Exchange's current allocation model, set forth in Rule 72, which
considers all interest at a price point on parity by agent.\6\ It would
also ensure that any resting interest that arrived before the
triggering interest could participate in the execution.
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\6\ Paragraph (a) of Rule 13 governing MPL Orders already
specifies that MPL Orders are allocated on parity by agent
consistent with Rule 72--Equities.
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Accordingly, the Exchange proposes to amend paragraph (e) of Rule
13 governing MPL Orders and delete the sentence, ``An MPL-ALO Order is
only eligible to trade against incoming contra-side interest, and will
ignore contra-side interest resting in the NYSE book'' and replace it
with the following new rule text:
If triggered to trade, an MPL-ALO Order will be eligible to
trade with both arriving and resting contra-side interest, but will
not trade with a contra-side MPL-ALO Order. If an MPL-ALO Order
trades with resting interest, the MPL-ALO Order will be considered
the liquidity providing order.
As proposed, using the example above, when C arrives and triggers B
to trade, B would be eligible to trade with both A and C. Consistent
Rule 72(c)(viii)--Equities, which provides that shares will be
allocated in round lots, and Rule 72(c)(viii)(A)--Equities, which
provides that an allocation wheel for each security begins with the
participant whose interest is entered or retained first on a time
basis, because B is seeking an execution of 100 shares and A was
entered before C, B would execute with A only. Although the arrival of
C triggered the MPL-ALO Order, consistent with the Exchange's
allocation model, it would not receive an execution.
The Exchange notes that if the execution size were larger than a
round lot, C could receive an execution. Modifying the example above,
if A were for 1000 shares, B were for 600 shares, and C were for 1000
shares, assuming A and C are different participants on the parity
wheel, B would execute 300 shares with A and 300 shares with C.
Accordingly, both A and C would get an execution opportunity.
The Exchange notes that an MPL-ALO Order is always a liquidity
providing order. Accordingly, the Exchange proposes to amend the rule
to specify that if an MPL-ALO Order trades with resting interest, the
MPL-ALO Order will be considered the liquidity providing order.
Finally, because an MPL-ALO Order is always a liquidity providing
order, contra-side MPL-ALO Orders would never interact.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \7\ of the
Act, in general, and furthers the objectives of Section 6(b)(5),\8\ 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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\7\ 15 U.S.C. 78f(b).
\8\ 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 modification to the manner that an
MPL-ALO Order interacts with both arriving and resting interest is
designed to harmonize the treatment of MPL-ALO Orders with the
Exchange's existing allocation rules. Specifically, Rule 72--Equities
already provides that interest at a price point is allocated on parity
by agent. The Exchange believes it is appropriate to apply this
allocation model consistently across all executions at the Exchange,
and not exclude any interest because of sequencing of orders. As such,
a resting MPL-ALO Order, when triggered to trade, would be eligible to
trade with both arriving interest that triggered the trade, as well as
any resting interest that may have been present when the MPL-ALO Order
arrived. The Exchange further believes that the proposed rule change
promotes just and equitable principles of trade and protects investors
and the public interest because it ensures that all interest eligible
to interact with an MPL-ALO Order based on price would be considered
for an execution opportunity once that MPL-ALO Order has been triggered
to trade, consistent with existing Rule 72--Equities.
The Exchange further believes that amending the rule text to be
clear that MPL-ALO Orders would not interact with other MPL-ALO Orders
removes impediments to and perfects the mechanism of a free and open
market because it provides transparency in Exchange rules regarding the
operation of MPL-ALO Orders. This aspect of the proposed rule change
also promotes just and equitable principles of trade because it ensures
that two orders designed to be liquidity providing will not execute
against one another. Finally, the Exchange believes that amending the
rule text to clarify that if an MPL-ALO Order trades with resting
interest, the MPL-Order would be considered the liquidity providing
order removes impediments to and perfects the mechanism of a free and
open market because it provides transparency in Exchange rules
regarding which interest would be considered liquidity providing in
such a scenario.
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 changes to the MPL-ALO Order will enhance order execution
opportunities for member organizations by ensuring that MPL-ALO Orders
would be eligible to interact with all interest available at a price
point, consistent with existing Exchange rules governing order
allocation.
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 \9\ and Rule 19b-4(f)(6) thereunder.\10\
Because the 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 from the date on which it was filed, or such shorter time as the
[[Page 8225]]
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)
thereunder.\11\
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of 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.
\11\ 17 CFR 240.19b-4(f)(6)(iii).
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A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange stated that
it believes that waiver of the 30-day operative delay is appropriate
because the Commission has already approved the adoption of the new MPL
Order type. In addition, the Exchange stated that it has not yet
implemented the MPL Order out of concern that the existing rule text
would limit the opportunities for execution. By waiving the operative
delay, the Exchange would be able to expeditiously make MPL Orders,
including MPL-ALO Orders, available to member organizations in a manner
that is consistent with existing Rule 72, thereby enhancing order
execution opportunities for all member organizations. Thus, the
Exchange believes that the proposed rule change would protect investors
and the public interest because it would enable all interest that is
eligible to interact at a price point to be considered for a trade with
an MPL-ALO Order. For these reasons, the Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest. Therefore, the Commission designates
the proposed rule change to be operative upon filing.\14\
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\12\ 17 CFR 240.19b-4(f)(6).
\13\ 17 CFR 240.19b-4(f)(6)(iii).
\14\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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) \15\
of the Act to determine whether the proposed rule should be approved or
disapproved.
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\15\ 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-NYSEMKT-2014-15 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-2014-15. 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-2014-15 and should
be submitted on or before March 4, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02875 Filed 2-10-14; 8:45 am]
BILLING CODE 8011-01-P