[Federal Register Volume 80, Number 15 (Friday, January 23, 2015)]
[Notices]
[Pages 3687-3689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01108]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74088; File No. SR-NYSEArca-2014-117]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change To Remove the Exchange's Quote Mitigation Plan as Provided
by Commentary .03 to Exchange Rule 6.86
January 16, 2015.
I. Introduction
On October 2, 2014, NYSE Arca, Inc., (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to remove the Exchange's quote mitigation plan as
provided by Commentary .03 to NYSE Arca Rule 6.86. The proposed rule
change was published for comment in the Federal Register on October 21,
2014.\3\ On December 2, 2014, pursuant to Section 19(b)(2) of the
Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On January 8, 2015, the Exchange submitted a
letter in further support of the proposal.\6\ The Commission received
no comments on the proposal. This order institutes proceedings under
Section 19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 73362 (October 15,
2014), 79 FR 62983 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 73720, 79 FR 72747
(December 8, 2014). The Commission designated January 19, 2014, as
the date by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change.
\6\ See Letter from Elizabeth King, Secretary & General Counsel,
Exchange, to Kevin O'Neill, Deputy Secretary, Commission, dated
January 8, 2015 (``NYSE Arca Letter'') available at http://www.sec.gov/comments/sr-nysearca-2014-117/nysearca2014117.shtml.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal
In 2007, the Exchange adopted a quote mitigation plan in connection
with the Penny Pilot Program.\8\ According to the Exchange, the quote
mitigation plan was designed to reduce the number of quotation messages
sent by the Exchange to the Options Price Reporting Authority
(``OPRA'') by only submitting quote messages for ``active'' series.\9\
The Exchange defines active series under the quote mitigation plan in
Commentary .03 to Exchange Rule 6.86 as: (i) Series that have traded on
any options exchange in the previous 14 calendar days; or (ii) series
that are solely listed on the Exchange; or (iii) series that have been
trading ten days or less, or; (iv) series for which the Exchange has
received an order.\10\ In addition, under the Exchange's quote
mitigation plan, the Exchange may define a series as active on an
intraday basis if: (i) The series trades at any options exchange; (ii)
the Exchange receives an order in the series; or (iii) the Exchange
receives a request for quote from a customer in that series.\11\
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\8\ See Securities and Exchange Release No. 55156 (January 23,
2007), 72 FR 4759 (February 1, 2007) (Order Granting Approval of SR-
NYSEArca-2006-73) (``Quote Mitigation Approval Order''). The Penny
Pilot Program permitted certain options classes to be quoted in
pennies. See id.
\9\ See Notice, supra note 3, at 62983.
\10\ See Exchange Rule 6.86, Commentary .03, and Notice, supra
note 3, at 62983.
\11\ See id.
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The Exchange proposes to remove its quote mitigation plan from its
rules by deleting Commentary .03 to Exchange Rule 6.86.\12\ The
Exchange believes that its quote mitigation plan is no longer necessary
primarily for three reasons. First, the Exchange states that its
[[Page 3688]]
incorporation of select provisions of the Options Listing Procedures
Plan (``OLPP'') \13\ in Exchange Rule 6.4A serves to reduce the
potential for excess quoting because the OLPP limits the number of
options series eligible to be listed, which, according to the Exchange,
reduces the number of options series a market maker would be obligated
to quote.\14\ Second, the Exchange states its view that Exchange Rule
6.37B Commentary .01, which removes certain options series from market
makers' continuous quoting obligations, reduces the number of quote
message traffic that the Exchange sends to OPRA.\15\ The Exchange
states that reliance on the OLPP, via Exchange Rule 6.4A, and the
refined market maker quoting obligations, pursuant to Commentary .01 to
Exchange Rule 6.37B, is sufficient as a quote mitigation plan.\16\
Third, the Exchange states that both its systems capacity and OPRA's
systems capacity are more than sufficient to accommodate any additional
increase in quote traffic that might be sent to OPRA as a result of the
deletion of the quote mitigation strategy.\17\ The Exchange represents
that it continually assesses its capacity needs and ensures that the
capacity that it requests from OPRA is sufficient and compliant with
the requirements established in the OPRA Capacity Guidelines.\18\
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\12\ In addition, the Exchange proposes to amend paragraphs
(b)(1) and (b)(2) of Exchange Rule 6.86 to delete references to the
``Quote Mitigation Plan,'' which refer to the quote mitigation plan
set forth in Commentary .03 to Exchange Rule 6.86. See Notice, supra
note 3, at 62984.
\13\ See Amendment to Plan for the Purpose of Developing and
Implementing Procedures Designed to Facilitate the Listing and
Trading of Standardized Options Submitted Pursuant to Section
11A(a)(3)(B) of the Securities Exchange Act available at http://www.theocc.com/clearing/industry-services/olpp.jsp (providing for
the most current OLPP). See also Securities and Exchange Release No.
44521 (July 6, 2001), 66 FR 36809 (July 13, 2001) (order approving
the OLPP).
\14\ See Notice, supra note 3, at 62984. See also Securities and
Exchange Release No. 61977 (April 23, 2010), 75 FR 22884 (April 30,
2010) (in which the Exchange adopted select provisions of the OLPP
into Exchange Rule 6.4A).
\15\ Commentary .01 to Exchange Rule 6.37B provides that
Exchange market makers continuous quoting obligations do not apply
``to adjusted option series, and series with a time to expiration of
nine months or greater, for options on equities and Exchange Traded
Fund Shares, and series with a time to expiration of twelve months
or greater for Index options.'' See also Notice, supra note 3, at
62984.
\16\ See id. The Exchange states its view that limiting the
number of options series listed on the Exchange is preferable to
suppressing the quotes of inactive options series, as required under
current Exchange Rule 6.86, because all quotes sent by Exchange
market makers are actionable even if not displayed. See id.
\17\ See Notice, supra note 3, at 62984.
\18\ See id.
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The Exchange represents that it has in place certain measures that
the Exchange believes serve as additional safeguards against excessive
quoting.\19\ According to the Exchange, these safeguards include
monitoring and alerting market makers disseminating an unusual number
of quotes, a business plan designed to ensure that new listings are
actively traded,\20\ and a ratio threshold fee designed to encourage
the efficient use of orders.\21\
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\19\ See id.
\20\ See id. at n.13 (citing to NYSE Arca Options Listing Policy
Statement, available at, http://www.nyse.com/pdfs/TraderNoticeArcaLOPSChanges092713.pdf).
\21\ See id. at n.14 (citing to NYSE Arca Options Fee Schedule,
available at, https://www.theice.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf).
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The Exchange proposes to announce the implementation date of the
proposed rule change by Trader Update and publish such announcement no
later than 60 days following the effective date of this proposal.\22\
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\22\ See id. at 62984.
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III. Proceedings to Determine Whether To Approve or Disapprove SR-
NYSEArca-2014-117 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \23\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change, as discussed below.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as described in greater detail below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change.
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\23\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\24\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to the consistency
of the proposed rule change, as supplemented by the NYSE Arca
Letter,\25\ with Section 6(b)(5) of the Act, which require that the
rules of a national securities exchange be designed, among other
things, to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to 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; and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.\26\
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\24\ Id. Section 19(b)(2)(B) of the Exchange Act also provides
that proceedings to determine whether to disapprove a proposed rule
change must be concluded within 180 days of the date of publication
of notice of the filing of the proposed rule change. See id. The
time for conclusion of the proceedings may be extended for up to 60
days if the Commission finds good cause for such extension and
publishes its reasons for so finding. See id.
\25\ See NYSE Arca Letter, supra note 6.
\26\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
concerns identified above, as well as any other concerns they may have
with the proposed rule change. Although there do not appear to be any
issues relevant to approval or disapproval which would be facilitated
by an oral presentation of views, data, and arguments, the Commission
will consider, pursuant to Rule 19b-4, any request for an opportunity
to make an oral presentation.\27\ Interested persons are invited to
submit written data, views, and arguments regarding whether the
proposal should be approved or disapproved by February 13, 2015. Any
person who wishes to file a rebuttal to any other person's submission
must file that rebuttal by February 27, 2015.
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\27\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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The Commission invites the written views of interested persons
concerning whether the proposal is consistent with Section 6(b)(5) \28\
or any other provision of the Act, or the rules and regulations
thereunder. The Commission asks that commenters address the sufficiency
and merit of the Exchange's statements in support of the proposed rule
change, in addition to any other comments they may wish to submit about
the proposed rule change. In particular, the Commission seeks comment
on the following:
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\28\ Id.
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1. As described above, the Exchange adopted its quote mitigation
plan as provided in Commentary .03 to Exchange Rule 6.86 in connection
with its adoption of the Penny Pilot Program, which permits quoting of
certain options series in certain increments.\29\ The Commission has
previously noted
[[Page 3689]]
that the Penny Pilot Program has contributed to an increase in
quotation message traffic from the options markets.\30\ In approving
the extension and expansion of the Penny Pilot Program in 2009, the
Commission relied, in part, on the Exchange's representation that it
would continue to use quote mitigation strategies that would continue
to mitigate quotation traffic sent to OPRA.\31\
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\29\ See supra note 8 and accompanying text.
\30\ See Securities and Exchange Release No. 60711 (September
23, 2009), 74 FR 49419, 49422 (September 28, 2009) (Order Granting
Partial Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment Nos. 1 and 3 thereto, Amending NYSE Arca Rule 6.72 and
Expanding the Penny Pilot Program).
\31\ See id. The Commission stated: ``While the Commission
anticipates that NYSE Arca's proposed expansion of the Pilot Program
will contribute to further increases in quotation message traffic,
the Commission believes that NYSE Arca's proposal is sufficiently
limited such that it is unlikely to increase quotation message
traffic beyond the capacity of market participants' systems and
disrupt the timely receipt of quote information. NYSE Arca has
proposed to roll out the additional 300 classes over time, in groups
of 75 classes each quarter beginning on October 26, 2009. The
Commission further notes that a June 2, 2009 sustained message
traffic peak of 852,350 messages per second reported by OPRA is
still well below OPRA's current messages per second capacity limit
of 2,050,000. Moreover, NYSE Arca has adopted and will continue to
utilize quote mitigation strategies that should continue to mitigate
the expected increase in quotation traffic.'' Id.
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As noted above, the Exchange believes that its quote mitigation
strategy is no longer necessary because: (1) The Exchange has
incorporated select provisions of the OLPP in Exchange Rule 6.4A, which
the Exchange believes limits the number of series eligible to be
listed; (2) current Exchange Rule 6.37B Commentary .01 removes certain
options series from market makers' continuous quoting obligations,
which the Exchange believes reduces the number of quote messages that
the Exchange sends to OPRA; and (3) both the Exchange's systems
capacity and OPRA's systems capacity are more than sufficient to
accommodate any additional increase in quote traffic that might be sent
to OPRA as a result of the deletion of the quote mitigation
strategy.\32\ Do commenters believe that reliance on the Exchange's
current rules and the existing systems capacity of the Exchange and
OPRA are sufficient or insufficient means to mitigate quote message
traffic from the Exchange to OPRA? Please explain.
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\32\ See supra notes 13-18 and accompanying text.
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2. What are commenters' views on the impact, if any, that might
result from the Exchange's proposal to remove its current quote
mitigation plan as provided in Commentary .03 to Exchange Rule 6.86?
For example, what are commenters' views on the impact the Exchange's
proposal would have, if any, on OPRA's system capacity? Please explain.
Or, what are commenters' views on the impact the Exchange's proposal
would have on market participants using OPRA and/or the Exchange's
quotation message feeds? Please explain.
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-2014-117 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-2014-117. 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 filings 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-2014-117 and should
be submitted on or before February 13, 2015. Rebuttal comments should
be submitted by February 27, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(57).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-01108 Filed 1-22-15; 8:45 am]
BILLING CODE 8011-01-P