[Federal Register Volume 79, Number 63 (Wednesday, April 2, 2014)]
[Notices]
[Pages 18599-18601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07353]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71818; File No. SR-NYSEARCA-2014-27]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.62
To Specifically Address the Number and Size of Contra-Parties To a
Qualified Contingent Cross Order
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 March 19, 2014, 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 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 6.62 (Certain Types of Orders
Defined) to specifically address the number and size of contra-parties
to a Qualified Contingent Cross Order (``QCC Order''). 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 purpose of this rule filing is to amend Rule 6.62 to
specifically address the number and size of contra-parties to a QCC
Order. The proposed rule change, which mirrors a recently adopted rule
by the International Securities Exchange (``ISE''),\4\ is intended to
accommodate multiple contra-parties, so long as each contra-side order
meets the minimum size requirements as discussed below.
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\4\ See Securities Exchange Act Release No. 71182 (December, 24,
2013), 78 FR 79721 (December 31, 2013) (SR-ISE-2013-71).
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The Exchange adopted the QCC Order type on March 17, 2011.\5\ Under
current Rule 6.62(bb), a QCC Order must be comprised of an order to buy
or sell at least 1,000 contracts \6\ that is identified as being part
of a qualified contingent trade,\7\ coupled with a contra-side order to
buy or sell an equal number of contracts. As Qualified Contingent
Crosses, QCC Orders are automatically executed upon entry provided that
the execution (i) is not at the same price as a Customer Order in the
Consolidated Book and (ii) is at or between the NBBO.\8\ In addition,
QCC Orders that cannot be executed when entered will automatically
cancel.\9\ Finally, QCC
[[Page 18600]]
Orders may only be entered in the regular trading increments applicable
to the options class under Rule 6.72 (Trading Differentials).
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\5\ See Securities Exchange Act Release No. 64086 (March 17,
2011), 76 FR 16021 (March 22, 2011) (SR-NYSEArca-2011-09).
\6\ In the case of mini options, the minimum size is 10,000
contracts.
\7\ A ``qualified contingent trade'' must meet the following
conditions: (i) At least one component must be an NMS Stock; (ii)
all the components must be effected with a product price contingency
that either has been agreed to by all the respective counterparties
or arranged for by a broker-dealer as principal or agent; (iii) the
execution of one component must be contingent upon the execution of
all other components at or near the same time; (iv) the specific
relationship between the component orders (e.g., the spread between
the prices of the component orders) must be determined by the time
the contingent order is placed; (v) the component orders must bear a
derivative relationship to one another, represent different classes
of shares of the same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been
announced or cancelled; and (vi) the transaction must be fully
hedged (without regard to any prior existing position) as a result
of other components of the contingent trade. In addition, ATP
Holders must demonstrate that the transaction is fully hedged using
reasonable risk-valuation methodologies. See supra n.5 (citing
Securities Exchange Act Release No. 57620 (April 4, 2008), 73 FR
19271 (April 9, 2008)).
\8\ See Rule 6.90 (Qualified Contingent Crosses).
\9\ Id.
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As discussed above, to remain competitive with other options
exchanges,\10\ the Exchange proposes to amend its rules to provide that
a QCC Order must involve a single order for at least 1,000 contracts on
the originating side, but that the contra-side order may be comprised
of multiple orders, which in the aggregate equal the size of the
originating order, so long as each of the contra-side orders is for at
least 1,000 contracts.\11\
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\10\ See supra n. 4.
\11\ In the case of mini options, the minimum size is 10,000
contracts.
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For instance, as proposed, a 5,000 contract originating QCC Order
to buy could be coupled with a contra-side order comprised of two
different sell orders of 2,500 contracts each. Similarly, as proposed,
a 5,000 contract originating QCC Order to buy could be coupled with a
contra-side order comprised of two different sell orders, one for 4,000
contracts and one for 1,000 contracts. In the above examples, each sell
(contra-side) order needs to be for a minimum of 1,000 contracts,
provided that the total of all sell (contra-side) orders equals the
size of the originating order and that originating order is at least
1,000 contracts.
Accordingly, the Exchange is proposing to amend the definition of
QCC Order, as contained in current Rule 6.62(bb), to provide that an
originating order to buy or sell at least 1,000 contracts coupled with
a contra-side order or orders totaling an equal number of contracts is
permitted, so long as each contra-side order is for at least 1,000
contracts.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act in general, and furthers the objectives of
Section 6(b)(5) of the Act, in that it is designed to promote just and
equitable principles of trade, remove impediments to and perfect the
mechanisms of a free and open market and a national market system and,
in general, to protect investors and the public interest. Specifically,
because the proposal provides that a QCC Order permits multiple contra-
parties, it should afford members and participants more certainty and,
therefore, provide more opportunity to participate in QCC trades,
consistent with the key principles behind the QCC Order.
The Exchange believes the proposed rule change is consistent with
Section 6(b)(8) of the Act, as it will enable the Exchange to compete
with other options exchanges, including the ISE,\12\ for QCC Orders
involving multiple parties, including where there are multiple contra-
parties. The Exchange believes that this would be beneficial to
participants because allowing multiple contra-parties of at least 1,000
contracts should foster competition for filling one side of a QCC Order
and thereby result in potentially better prices, as opposed to only
allowing one contra-party and, thereby requiring that contra-party to
do a larger size order which could result in a worse price for the
trade.
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\12\ See supra n.4.
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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 that is not necessary or appropriate
in furtherance of the purposes of the Act. In fact, the proposal is
intended to relieve a burden on competition, which results from
different exchanges interpreting their rules differently. Among the
options exchanges, the Exchange believes that the proposal to allow
multiple contra-parties of at least 1,000 contracts should foster
competition for filling the contra-side of a QCC order and thereby
result in potentially better prices for such orders. In addition, the
proposal will enable the Exchange to more effectively compete with
other option exchanges like the ISE that have already implement similar
rule changes.\13\
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\13\ Id.
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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 \14\ and Rule 19b-4(f)(6) \15\
thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\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 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-NYSEARCA-2014-27 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-2014-27. 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
[[Page 18601]]
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-2014-27 and should
be submitted on or before April 23, 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. 2014-07353 Filed 4-1-14; 8:45 am]
BILLING CODE 8011-01-P