[Federal Register Volume 79, Number 89 (Thursday, May 8, 2014)]
[Notices]
[Pages 26470-26473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10538]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72084; File No. SR-NYSEMKT-2014-42]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule 980NY To
Adopt Rules Governing an Opening Auction Process for Electronic Complex
Orders and To Amend and Reorganize Existing Rules Specifying Available
Electronic Complex Order Types and Modifiers
May 2, 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 April 28, 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 980NY (Electronic Complex Order
Trading) to adopt rules governing an opening auction process for
Electronic Complex Orders and to amend and reorganize existing rules
specifying available Electronic Complex Order types and modifiers. 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 proposes to amend Rule 980NY (Electronic Complex Order
Trading) to adopt rules governing an opening auction process for
Electronic Complex Orders and to amend and reorganize existing rules
specifying order types and modifiers applicable to Electronic Complex
Orders.
[[Page 26471]]
Opening Auction Process for Electronic Complex Orders
The Exchange is proposing to amend Rule 980NY(c) by establishing
subsection (i) to describe how orders would be handled by the Complex
Matching Engine (``CME'') during a new opening auction process for
Electronic Complex Orders that would allow the Exchange to offer
eligible trading interest at a single-price opening. Currently, there
is no single-price opening. Rather, the CME begins processing each
Electronic Complex Order in the Consolidated Book based on price/time
priority after all of the individual component option series that make
up a complex order strategy have opened. By adopting the proposed
opening auction process for the CME, the Exchange is seeking to
maximize both price discovery and execution opportunities for
participants utilizing Electronic Complex Orders. The Chicago Board
Options Exchange (``CBOE'') recently adopted similar rules to describe
how their Complex Order Book (``COB'') functions at the opening of
trading.\4\ The Exchange notes that the proposed changes to Rule 980NY
regarding the new opening auction process for Electronic Complex Orders
are substantially similar in all material respects to those of the
CBOE.\5\
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\4\ See Securities Exchange Act Release No.68844 (February 6,
2013), 78 FR 9953 (February 12, 2013) (SR-CBOE-2013-007).
\5\ See CBOE Rule 6.53C.11(b), which provision was one of
several discussed in CBOE's recent filing (see id.). The Exchange
notes, however, that this filing differs from the CBOE's recent
filing (see id.) in that it provides specificity about the market
clearing price and cross-references existing Exchange rules
regarding auction pricing (see infra n. 6).
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Pursuant to proposed Rule 980NY(c)(i)(A), Electronic Complex Orders
would not participate in opening auctions for individual component
option series legs conducted pursuant to Rule 952NY(b). The Exchange
further proposes to provide that the CME would not begin processing
Electronic Complex Orders until all of the individual component option
series legs that make up a complex order strategy have opened. The
intent of this paragraph is to make clear to market participants that
an Electronic Complex Order is not eligible to trade until such time
that all option series associated with that order have opened for
trading. The CME will not execute any transactions in Electronic
Complex Orders involving un-opened option series.
Pursuant to proposed Rule 980NY(c)(i)(B), the CME would use an
opening auction process if there are Electronic Complex Orders on both
sides of the Consolidated Book that are marketable against each other
and that are priced within the derived Complex National Best Bid and
Offer (``Complex NBBO'').\6\ The resulting execution would occur at a
market clearing price that is inside the derived Complex NBBO and that
matches Electronic Complex Orders with each other to the extent
marketable.\7\ In determining priority, the CME would give priority to
Electronic Complex Orders whose net price is better than the market
clearing price first, and then to Electronic Complex Orders at the
market clearing price.\8\
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\6\ The derived Complex NBBO will be derived by using the best
prices for the individual leg markets comprising the Electronic
Complex Order as disseminated by OPRA, that when aggregated create a
derived NBBO for that same strategy.
\7\ The ``market clearing price'' for Electronic Complex Orders
is similar to the ``opening price'' for an individual series as
described in Rule 952NY(c). Specifically, the market clearing price
for an Electronic Complex Order will be the price, as determined by
the System, at which the most volume can be traded at or nearest to
the midpoint of the initial uncrossed derived Complex NBBO. Midpoint
pricing will not occur if such price would result in the violation
of the limit price of the Electronic Complex Order(s) involved.
Instead, the market clearing price would be the limit price of the
order(s) at which the most volume can be traded. Because listed
options may not be priced in sub-penny increments nor will the OCC
clear options at sub-penny prices, if the calculated midpoint price
results in a sub-penny price, the market clearing price will round
down to the nearest even penny (i.e., a calculated midpoint price of
$1.005 will round to $1.00). The Exchange notes that CBOE, which is
also subject to the same restrictions on sub-penny pricing of listed
options, did not disclose in their filing (see supra n. 3) whether
it would round the market clearing price (up or down) to the nearest
whole cent if mid-point pricing resulted in a sub-penny market
clearing price.
\8\ The Exchange notes that Electronic Complex Orders residing
in the Consolidated Book at the opening of trading that are not
marketable against other Electronic Complex Orders do not
participate in the auction process. As is the case today, these
orders will automatically execute against individual orders or
quotes residing in the Consolidated Book after the CME opens,
provided the Electronic Complex Order can be executed in full (or in
a permissible ratio) by the orders or quotes in the Consolidated
Book. See current Rule 980NY(c)(ii) which the Exchange is proposing
to renumber as Rule 980NY(c)(ii)(B). The Exchange notes that this
functionality is similar to CBOE Rule 6.53C.11(a), which the CBOE
discussed in its recent filing. See supra n. 3.
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Example 1
This example will show how the CME would conduct an opening auction
where the market clearing price is at the midpoint of the derived
Complex NBBO.
Assume the derived Complex NBBO for a given complex order strategy
is $1.10-$1.20 (midpoint = 1.15). Assume there are four Electronic
Complex Orders in the Consolidated Book for the same strategy; two buy
orders and two sell orders, each order represents 100 units of the same
strategy. The first sell order is priced at $1.11 and the second sell
order is priced at $1.13. The first buy order can pay 1.19 and the
second can pay $1.17. When the CME opens, (at a market clearing price
nearest the mid-point where the most volume can trade) the $1.11 sell
order for 100 units will execute against the $1.19 buy order for 100
units and the $1.13 sell order for 100 units will execute against the
$1.17 buy order for 100 units (orders are ranked and executed based on
price priority). This would result in all volume trading at a single
market clearing price of $1.15, which in this example is the exact mid-
point price of the derived Complex NBBO.
Example 2
This example will show how the CME would conduct an opening auction
where the market clearing price is not equal to the midpoint of the
derived Complex NBBO.
Assume the derived Complex NBBO for a given complex order strategy
is $1.10-$1.20 (midpoint = 1.15). Assume there are three Electronic
Complex Orders in the Consolidated Book, all for the same complex order
strategy. The first order is a sell order priced at $1.19 for 20 units,
the second order is a sell order priced at $1.18 for 10 units, and the
third order is a buy order paying $1.19 for 50 units. When the CME
opens, 30 units of the buy order would trade against the two sell
orders, with the $1.18 sell order for 10 units having first priority
followed by the $1.19 sell order for 20 units (orders are ranked and
executed based on price priority). Because the market clearing price in
this example could not equal the midpoint ($1.15), as that price would
violate the limit price of both sell orders, the market clearing price
would be $1.19, as that is the price at which the most volume could
trade. This would result in the CME conducting the auction at the
market clearing price of $1.19. In this example, the remaining 20 units
of the buy order would be subject to processing under Rule 980NY (e.g.,
remain in the Consolidated Book if not marketable against the
individual orders and quotes in the Consolidated Book or other
Electronic Complex Orders in the Consolidated Book, or execute if
marketable subject to the applicable priority and price-check
parameters).
The opening auction process of the CME as described in proposed
Rule 980NY(c)(i)(B) is consistent with the
[[Page 26472]]
opening auction process for Electronic Complex Orders at the CBOE.\9\
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\9\ See CBOE Rule 6.53C.11(b).
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The Exchange is proposing to adopt Rule 980NY(c)(i)(C) to explain
that Electronic Complex Orders that are not executed during the opening
auction process are eligible to trade during Core Trading against the
individual quotes and orders residing in the Consolidated Book of the
same series that comprise the complex order strategy. The processing of
Electronic Complex Orders during Core Trading is done in accordance
with Rules 980NY(c)(i)-(iii), which the Exchange is proposing to
renumber as Rules 980NY(c)(ii)(A)-(C).
Consistent with the foregoing changes, the Exchange also proposes
to re-number the remaining subsections of Rule 980NY(c)(i)-(iii) under
a new section heading, ``Execution of Complex Orders During Core
Trading,'' with no changes to the substance of the rule text.
Additionally, the Exchange is proposing to amend the text of Rule
980NY(c) by deleting the representation that Electronic Complex Orders
will be executed at the best available price available. Because
existing and proposed rules explain precisely how Electronic Complex
Orders are priced (i.e. at a market clearing price during an opening
auction process, or at the prices of the individual orders and quotes
in the Consolidated Book during Core Trading), the reference to ``the
best available price'' is superfluous. The proposed resulting language
of Rule 980NY(c) would be consistent with rules describing how
Electronic Complex Orders are traded on NYSE Arca.\10\
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\10\ See NYSE Arca Rule 6.91(a)(2).
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Order Types and Contingencies Applicable to Electronic Complex Orders
The Exchange also proposes to amend and reorganize Rule 980NY(d),
which explains order types, contingencies and modifiers applicable to
Electronic Complex Orders, as follows:
The CME presently accepts only Limit Orders \11\ and Limit
Orders designated as PNP Plus.\12\ The Exchange proposes to amend Rule
980NY(d) to codify this functionality. As proposed, Rule 980NY(d)(1)
would state that Limit Orders and Limit Orders designated as PNP Plus
are valid types of Electronic Complex Orders. Complex Limit Orders and
Complex Limit Orders designated as PNP Plus are processed in the same
manner as a similarly marked single-leg order.
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\11\ See NYSE MKT Rule 900.3NY(b).
\12\ See NYSE MKT Rule 900.3NY(w).
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Proposed Rule 980NY(d)(2) would provide that Electronic
Complex Orders may be designated as Fill-or-Kill (``FOK'') \13\ and
All-or-None (``AON'').\14\ The use of FOK or AON contingency is
consistent with complex order trading at other options exchanges.\15\
Electronic Complex Orders with a FOK or AON contingency would be
processed in the same manner as a similarly marked single-leg order.
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\13\ See NYSE MKT Rule 900.3NY(l).
\14\ See NYSE MKT Rule 900.3NY(d)(4).
\15\ See CBOE Rule 6.53C(b) and NYSE Arca Rule 6.91(b).
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Currently, the Rule 980NY(d) provides that Electronic
Complex Orders may be entered as IOC \16\ or Day,\17\ and the Exchange
now proposes making the Good-til-Cancel (``GTC'') \18\ modifier
available for Electronic Complex Orders. As proposed, Rule 980NY(d)(3)
would provide that Electronic Complex Order may be entered as IOC, Day,
or GTC.\19\ The use of GTC as a time-in-force is consistent with
complex orders trading at other option exchanges.\20\ Electronic
Complex Orders marked IOC, Day or GTC would be processed in the same
manner as similarly marked single-leg orders.
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\16\ See NYSE MKT Rule 900.3NY(k).
\17\ See NYSE MKT Rule 900.3NY(m).
\18\ See NYSE MKT Rule 900.3NY(n).
\19\ See NYSE MKT Rule 900.3NY(n).
\20\ See CBOE Rule 6.53C(c)(iii) and NYSE Arca Rule 6.91(b).
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Implementation
The Exchange will implement the proposed rule changes described
above upon the implementation of technology updates applicable to the
CME. The Exchange will announce the implementation date of the proposed
rule change by Trader Update.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\21\ in general and furthers the objectives of Section 6(b)(5) of the
Act \22\ in particular in that it should promote just and equitable
principles of trade, serve to 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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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes the proposed rule governing the
opening auction process via the CME for Electronic Complex Orders
increases opportunities for all types of market participants (e.g.,
public customers, broker-dealers and market-makers) to participate in
trading with Electronic Complex Orders. This participation may promote
liquidity and result in better prices for customers throughout the
trading day, including when the CME opens, which, in turn, protects
investors and advances public interest.
The Exchange also believes that codifying the available types of
orders eligible to be entered as Electronic Complex Orders,
reorganizing the variations of Electronic Complex Order types available
on the Exchange and listing those in a clear and precise structure,
will remove impediments to and perfect the mechanism of a free and open
market. In addition, adopting the GTC, FOK and AON designations will
further serve to remove impediments to a free an open market and a
national market system by affording market participants on NYSE Amex
Options similar investment choices to what is available at other market
centers.\23\
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\23\ See supra nn. 14, 19.
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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. As noted above, the Exchange
believes that expanding the variations of order types via contingencies
and modifiers will encourage more Electronic Complex Orders to the
Exchange, which is pro-competitive. Further the planned enhancement to
provide a single price open, if possible, within the CME increases
opportunities for all types of market participants (e.g., public
customers, broker-dealers and market-makers) to participate in the
trading of complex orders. This participation may promote liquidity and
result in better prices for customers throughout the trading day,
including when the CME opens. The Exchange does not believe that the
changes proposed by this filing imposes any burden on other Exchanges
as the most substantive change proposed, that being the complex order
opening auction, is similar to functionality that is already available
on at least one competing options Exchange.\24\ The Exchange has found
that when multiple Exchanges introduce similar functionality, other
Exchanges move to enhance their own systems and product offerings which
are generally beneficial to all investors.
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\24\ See supra nn. 3, 8.
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[[Page 26473]]
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 \25\ and Rule 19b-4(f)(6) thereunder.\26\
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.\27\
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\25\ 15 U.S.C. 78s(b)(3)(A)(iii).
\26\ 17 CFR 240.19b-4(f)(6).
\27\ 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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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) \28\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\28\ 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-2014-42 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-2014-42. 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 at 100 F Street NE.,
Washington, DC 20549-1090 on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such 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-2014-42, and should be submitted on or before May 29, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10538 Filed 5-7-14; 8:45 am]
BILLING CODE 8011-01-P