[Federal Register Volume 79, Number 178 (Monday, September 15, 2014)]
[Notices]
[Pages 55038-55040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21872]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73026; File No. SR-NYSEArca-2014-97]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Rule
6.60(b) To Enhance the Functionality of the Limit Order Filter
September 9, 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 August 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 6.60(b) to enhance the
functionality of the Limit Order Filter. 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 6.60(b) to enhance the
functionality of the Limit Order Filter in use on the Exchange. The
Exchange's enhancement is designed to help maintain a fair and orderly
market by providing limit orders received before the opening of trading
the same protection those orders are afforded during Core Trading
Hours.
As set forth in proposed Rule 6.60(b), the Exchange currently
employs a filter for incoming limit orders, pursuant to which the
Exchange rejects limit orders priced a specified percentage away from
the NBB or NBO. As the Exchange receives limit orders, the Exchange
System will check the price of the limit order against the contra-side
NBB or NBO at the time of order entry to determine whether the limit
order is within the specified percentage.\4\ If the limit order is
priced outside of the specified percentage, the limit order will be
rejected. As this filter relies on an NBBO at the time of Exchange
receipt of the order, it is only available after the Exchange has
opened a series.
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\4\ Pursuant to Rule 6.60(b), unless determined otherwise by the
Exchange and announced to OTP Holders via Trader Update, the
specified percentage will be 100% for the contra-side NBB or NBO
priced at or below $1.00 and 50% for contra-side NBB or NBO priced
above $1.00.
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The Exchange proposes to amend Rule 6.60(b) to expand the
functionality of the Limit Order Filter to protect limit orders
received prior to the opening of trading. As proposed, for limit orders
received before the opening of trading, the Limit Order Filter would
operate immediately before conducting a Trading Auction (as set forth
in Rule 6.64). The enhancement is designed to provide the same level of
protection to market participants who enter limit
[[Page 55039]]
orders before the open as it does for those who enter limit orders
during Core Trading. The Exchange believes that using the best bids and
offers available immediately before conducting the Trading Auction
helps assure an accurate state of the market.
Pursuant to Rule 6.64(a), a Trading Auction is the process by which
trading is initiated in a specified options class. Pursuant to
6.64(b)(D), prior to conducting the Auction Process, the Exchange
system must have market maker quotes or an NBBO that creates a bid-ask
differential that does not exceed those specified under Rules
6.37(b)(1)(A)-(E). Immediately, prior to conducting the Auction
Process, the Exchange will use the contra-side bid or offer of this
bid-ask differential as the parameters for the Limit Order Filter being
applied to limit orders received before the open of trading. The
Exchange will announce the implementation date of this change through a
Trader Update.
For example, assume the Exchange receives a sell order with a limit
of $2.00 at 9:00:00 a.m. Eastern (which is before the open). If the
Exchange is about to open that series at 9:30:02 a.m. where the best
available bid is $4.00, because the $2.00 sell order is 50% below the
bid, that limit order would be rejected immediately before the series
opens. Likewise, if the Exchange is about to open a series in which the
best available offer at $0.75, a buy order received pre-open with a
limit price at or above $1.50 (which is 100% above the offer) would be
rejected. In both these [sic] scenarios, orders that otherwise may
cause price dislocation would be rejected before they could cause such
harm to the market.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \5\ of the
Act, in general, and furthers the objectives of Section 6(b)(5),\6\ 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. The Exchange believes that
this proposal meets these requirements because it would assist with the
maintenance of a fair and orderly market by helping to mitigate the
potential risks associated with the entry of limit orders before the
opening that ultimately are priced a specified percentage away from the
prevailing contra-side market existing at the open. The Exchange
believes that a limit order priced a specified percentage away from the
prevailing contra-side market existing at the open is evidence of a
market participant error. By rejecting such an order, the Exchange
believes it is promoting just and equitable principles of trade by
preventing potential price dislocation that could result through
subsequent executions during Core Trading of the balance of the
aggressively priced limit order. The proposed rule change would
therefore remove impediments to and perfect the mechanism of a free and
open market and national market system by ensuring that an existing
price protection, i.e., the Limit Order Filter, would be applicable to
all limit orders, regardless of when they are entered.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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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 not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes the
proposal will provide market participants with additional protection
from anomalous executions. Thus, the Exchange does not believe the
proposal creates any significant burden on competition.
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) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ 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 from the date on which it is filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\9\
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6).
\9\ 17 CFR 240.19b-4(f)(6). 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.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \10\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ permits the
Commission to 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. In support
of its request, the Exchange states that the protections offered by
this proposal are designed to contribute to a fair and orderly market
and enhance the protection of investors by offering a level of price
protection to pre-open limit orders that is not presently available.
The Exchange states that waiving the 30-day delayed operative date will
enable all market participants to benefit from the price protection
offered by this proposal without delay. The Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest. Therefore, the Commission hereby
waives the operative delay and designates the proposed rule change
operative upon filing.\12\
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\10\ 17 CFR 240.19b-4(f)(6).
\11\ 17 CFR 240.19b-4(f)(6)(iii).
\12\ For purposes only of waiving the 30-day operative delay,
the Commission has 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 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
[[Page 55040]]
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2014-97 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-2014-97. 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 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-2014-97, and should
be submitted on or before October 6, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21872 Filed 9-12-14; 8:45 am]
BILLING CODE 8011-01-P