[Federal Register Volume 79, Number 78 (Wednesday, April 23, 2014)]
[Notices]
[Pages 22741-22743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09210]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71966; File No. SR-NYSEMKT-2014-35]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule 900.3NY
(Orders Defined) To Remove the Size Restriction on Contra-Party
Participation on a Qualified Contingent Cross Order
April 17, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on April 14, 2014, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'')
filed with the Securities and Exchange Commission (``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 900.3NY (Orders Defined) to
remove the size restriction on contra-party participation on 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this rule filing is to amend Rule 900.3NY to remove
the size restriction on contra-party participation on a QCC Order. The
proposed rule change, which mirrors a recently adopted rule by the
International Securities Exchange (``ISE''),\4\ would expand the
availability of QCC Orders by permitting multiple contra-parties on a
QCC Order, each of which may consist of an order for less than 1,000
contracts; provided however, that the originating QCC Order is a single
order that meets the 1,000 contract minimum (as well as the other
requirements of a QCC Order), as discussed below.\5\ The proposed
change is intended to allow the Exchange to compete fairly and equally
with other options exchanges, including the ISE, that have recently
adopted similar rule changes.\6\
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\4\ See Securities Exchange Act Release No. 71863 (April 3,
2014) (SR-ISE-2014-72).
\5\ In the case of mini options, the minimum size is 10,000
contracts.
\6\ See supra n. 4.
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Rule 900.3NY(y) provides that a QCC Order must be comprised of an
order to
[[Page 22742]]
buy or sell at least 1,000 contracts \7\ that is identified as being
part of a qualified contingent trade,\8\ coupled with a contra-side
order to buy or sell an equal number of contracts. As Qualified
Contingent Cross Trades, 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.\9\ In addition, QCC Orders that cannot be executed when entered
will automatically cancel.\10\ Finally, QCC Orders may only be entered
in the regular trading increments applicable to the options class under
Rule 960NY (Trading Differentials).
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\7\ In the case of mini options, the minimum size is 10,000
contracts.
\8\ 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.4 (citing
Securities Exchange Act Release No. 57620 (April 4, 2008), 73 FR
19271 (April 9, 2008)).
\9\ See Rule 985NY (Qualified Contingent Cross Trade).
\10\ Id.
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The Exchange adopted the QCC Order type on March 17, 2011.\11\ On
March 19, 2014, the Exchange submitted for immediate effectiveness a
filing, which amended Rule 900.3(y) to specify that a QCC Order could
have multiple contra-parties, so long as each contra-side order met the
minimum size requirements of 1,000 contacts, or 10,000 contracts for
mini-options.\12\
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\11\ See Securities Exchange Act Release No. 64085 (March 17,
2011), 76 FR 16024 (March 22, 2011) (SR-NYSEAmex-2011-14).
\12\ See Securities and Exchange Act Release No. 71817 (March
27, 2014) (SR-NYSEMKT-2014-23), 79 FR 18601 (April 2, 2014). The
Exchange notes that the operative date for this rule change is April
21, 2014. To ensure that the instant proposal may be implemented
without delay, Exhibit 5 to the instant proposal reflects not only
the instant proposal but also the rule text changes that would not
have otherwise been operative until April 21, 2014.
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As discussed above, the Exchange now proposes to amend Rule
900.3(y) to remove the size limitation placed on each contra-party to a
QCC Order.\13\ The Exchange is proposing this change for competitive
reasons, as it will allow the Exchange to compete fairly and equally
with other option exchanges that have similarly amended their rules,
including ISE.\14\ The Exchange does not propose to remove the size
requirement on the originating order of a QCC Order.
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\13\ Per proposed Rule 900.3(y): ``A Qualified Contingent Cross
Order is comprised of an originating order to buy or sell at least
1,000 contracts, or 10,000 mini-options contracts, that is
identified as being part of a qualified contingent trade, as that
term is defined in Commentary .01 below, coupled with a contra-side
order or orders totaling an equal number of contracts.''
\14\ See supra n. 4.
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In connection with this proposal, the Exchange represents that it
will track and monitor QCC Orders to determine which is the originating
side of the order and which is the contra-side(s) of the order to
ensure that ATP Holders are complying with the minimum 1,000 contract
size requirement on the originating side of the QCC Order. In this
regard, the Exchange will monitor whether ATP Holders are aggregating
multiple orders to meet the 1,000 contract minimum on the originating
side of the trade in violation of the requirements of the rule. The
rule requires that the originating side of the trade consist of one
party who is submitting a QCC Order for at least 1,000 contracts. The
Exchange represents that it will enforce compliance with this portion
of the rule by checking to see if an ATP Holder breaks up the
originating side of the order in a post trade allocation to different
Clearing Members, allocating less than 1,000 contracts to a party or
multiple parties. For example, an ATP Holder enters a QCC Order into
the system for 1,500 contracts and receives an execution. Subsequent to
the execution, the ATP Holder allocates the originating side of the
order to two different clearing firms on a post trade allocation basis,
thereby allocating 500 contracts to one Clearing Member and 1,000
contracts to another Clearing Member. The Exchange states that this
type of transaction would not meet the requirements of a QCC Order
under the current rule. With regard to order entry, the Exchange notes
that ATP Holders must designate orders entered in the system as either
the originating side or the contra-side(s). The Exchange will monitor
order entries to ensure that ATP Holders are properly entering QCC
Orders into the system.
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 removes the size restriction
placed on each contra-party to a QCC Order, but leaves unchanged the
minimum size requirement for the originating order, the Exchange
believes that the proposal should 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,\15\ for QCC Orders. In
addition, the proposed rule change will be beneficial to market
participants because allowing multiple parties of any size on the
contra-side of a QCC Order should foster competition for filling QCC
Orders and thereby result in potentially better prices.
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\15\ Id.
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Furthermore, the Exchange believes that the proposed rule change
should improve the utility of the QCC Order without raising novel
regulatory issues, because the proposal does not impact the fundamental
aspects of the QCC Order type. Rather, the proposal merely permits
multiple contra-parties, regardless of size, on one side, while
preserving the 1,000 contract minimum on the originating QCC Order.
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 remove
the size requirement of at least 1,000 contracts (or, in the case of
mini-options, 10,000 contracts), as described above, 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
[[Page 22743]]
like the ISE that have already implement similar rule changes.\16\
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\16\ 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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\
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 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.\19\
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\21\ 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 Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest, as it will help
eliminate investor confusion and promote competition among the option
exchanges.\22\ Therefore, the Commission designates the proposed rule
change to be operative upon filing.
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\20\ 17 CFR 240.19b-4(f)(6).
\21\ 17 CFR 240.19b-4(f)(6)(iii).
\22\ 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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The Commission notes that, given the differing requirements as
between the originating side and contra-side for QCC Orders, it is
essential that the Exchange be able to clearly identify and monitor--
throughout the life of a QCC Order, beginning at time of order entry on
the Exchange through the post-trade allocation process--each side of
the QCC Order and ensure that the requirements of the order type are
being satisfied including, importantly, those relating to the
originating side. The Commission believes this to be critical so that
the Exchange can ensure that market participants are not able to
circumvent the requirements of the QCC Order (as amended by this
proposed rule change), each of which the Commission continues to
believe are critical to ensuring that the QCC Order is narrowly
drawn.\23\ Further, the Commission notes that the Exchange has made
certain representations regarding its enforcement and surveillance of
its ATP Holders' use of QCC Orders, including, for example, not only at
the time of order entry, but through the post-trade allocation process
as well.
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\23\ The Commission expects the Exchange to have the capability
to enable it to surveil that such requirements are being met. Though
the Exchange has stated its ability to do so, if the Exchange is not
able to have such monitoring at any point in time, the Commission
would expect the Exchange to take other steps to ensure that the QCC
Order cannot be improperly used. For example, if the Exchange were
not able to identify and monitor which side of a QCC Order is the
originating order, the Commission would expect that it would require
that both sides of the QCC Order meet the more stringent
requirements of the originating side, i.e., that it be for a single
order for at least 1,000 contracts.
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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) \24\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\24\ 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-2014-35 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2014-35. 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-2014-35, and should
be submitted on or before May 14, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09210 Filed 4-22-14; 8:45 am]
BILLING CODE 8011-01-P