[Federal Register Volume 79, Number 89 (Thursday, May 8, 2014)]
[Notices]
[Pages 26482-26485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10539]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72085; File No. SR-NYSEArca-2014-53]
Self-Regulatory Organizations; NYSE Arca Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.91
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 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 6.91 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.
[[Page 26483]]
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 6.91 (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.
Opening Auction Process for Electronic Complex Orders
The Exchange is proposing to amend Rule 6.91(a)(2) 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 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
6.91(a) 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 6.91(a)(2)(i)(A), Electronic Complex
Orders would not participate in opening auctions for individual
component option series legs conducted pursuant to Rule 6.64. 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 6.91(a)(2)(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 6.64(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 and the OCC will
not clear options at sub-penny prices, if the calculated midpoint
price results in a sub-penny price, the market clearing price will
be rounded 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 6.91(a)(2)(ii), which the Exchange is
proposing to renumber as Rule 6.91(a)(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 buy order 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 strategy. The
first order is a sell order priced at $1.19 for 20 units,
[[Page 26484]]
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 6.91 (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 applicable priority and price-check parameters).
The opening auction process of the CME as described in proposed
Rule 6.91(a)(2)(i)(B) is consistent with the opening auction process
for Electronic Complex Orders at the CBOE.\9\
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\9\ See supra nn. 3, 4.
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The Exchange is also proposing to adopt Rule 6.91(a)(2)(i)(C) to
explain how 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 series that comprise the complex order strategy. The
processing of Electronic Complex Orders during Core Trading is done in
accordance with Rules 6.91(a)(2)(i)-(iii), which the Exchange is
proposing to renumber as Rules 6.91(a)(2)(ii)(A)-(C).
Consistent with the foregoing changes, the Exchange also proposes
to re-number the remaining subsections of Rule 6.91(a)(i)-(iv) under a
new section heading, ``Execution of Complex Orders During Core
Trading,'' with no changes to the substance of the rule text.
Order Types and Contingencies Applicable to Electronic Complex Orders
The Exchange also proposes to amend and reorganize Rule 6.91(b),
which explains the order types, contingencies and modifiers currently
applicable to Electronic Complex Orders, as follows:
The CME presently accepts only Limit Orders and Limit
Orders designated as PNP Plus. The Exchange proposes to amend Rule
6.91(b) to codify this functionality. As proposed, Rule 6.91(b)(1)
would state that Limit Orders \10\ and Limit Orders designated as PNP
Plus \11\ 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 similarly marked single leg orders.
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\10\ See NYSE Arca Rule 6.62(b).
\11\ See NYSE Arca Rule 6.62(y).
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Rule 6.91(b) provides that Electronic Complex Orders may
be designated as Fill-or-Kill (``FOK'') \12\ and All-or-None
(``AON'').\13\ The Exchange proposes to reorganize these contingencies
under proposed Rule 6.91(b)(2). Electronic Complex Orders with a FOK or
AON contingency are processed in the same manner as similarly marked
single-leg orders.
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\12\ See NYSE Arca Rule 6.62(l).
\13\ See NYSE Arca Rule 6.62(d)(4).
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Rule 6.91(b) provides that Electronic Complex Orders may
be entered with a time-in-force of IOC,\14\ Day,\15\ or Good-til-Cancel
(``GTC'').\16\ The Exchange proposes to reorganize these under proposed
Rule 6.91(b)(3). Electronic Complex Orders with a time-in-force of IOC,
Day or GTC are processed in the same manner as a similarly marked
single leg orders.
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\14\ See NYSE Arca Rule 6.62(k).
\15\ See NYSE Arca Rule 6.62(m).
\16\ See NYSE Arca Rule 6.62(n).
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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
\17\ in general and furthers the objectives of Section 6(b)(5) of the
Act \18\ 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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\17\ 15 U.S.C. 78f(b).
\18\ 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.
In addition, the Exchange believes that codifying the available
types of orders eligible to be entered as Electronic Complex Orders and
reorganizing the variations of Electronic Complex Order types (e.g.,
expanded contingencies and modifiers) available to market participants
and listing those in a clear and precise structure will remove
impediments to and perfect the mechanism of a free and open market.
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.\19\ 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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\19\ See supra nn. 3,4.
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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
[[Page 26485]]
19(b)(3)(A)(iii) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\
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.\22\
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\20\ 15 U.S.C. 78s(b)(3)(A)(iii).
\21\ 17 CFR 240.19b-4(f)(6).
\22\ 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) \23\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\23\ 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-NYSEArca-2014-53 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-NYSEArca-2014-53. 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-
NYSEArca-2014-53, and should be submitted on or before May 29, 2014
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10539 Filed 5-7-14; 8:45 am]
BILLING CODE 8011-01-P