[Federal Register Volume 80, Number 109 (Monday, June 8, 2015)]
[Notices]
[Pages 32420-32423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13871]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75096; File No. SR-NYSEArca 2015-43]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Amending Rule 6.91(c), Electronic Complex Order
Auction Process Removing the Limitation on Who Can Respond to a COA and
Provide a Response Time Interval of at Least 500 Milliseconds; and Rule
6.47A, Order Exposure Requirements-OX To Add Use of the COA for a User
To Satisfy the Order Exposure Requirement in Rule 6.47A and Delete the
Reference in Rule 6.91(c) to the Order Exposure Requirements--OX Being
Separate From the Duration of the COA Response Time Interval
June 2, 2015.
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 May 21, 2015, 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, II,
and III below, which Items have been prepared by the Exchange. 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: (1) Amend Rule 6.91(c) (Electronic
Complex Order Auction (``COA'') Process) to remove the limitation on
who can respond to a COA and to provide a Response Time Interval of at
least 500 milliseconds; and (2) amend Rule 6.47A (Order Exposure
Requirements-OX) to add use of the COA as a means for a User to satisfy
the Order Exposure Requirement in Rule 6.47A and delete the reference
in Rule 6.91(c) to the Order Exposure Requirements -OX being separate
from the duration of the COA Response Time Interval.
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 32421]]
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 Exchange 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 these 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
Participation in and Minimum Response Time Interval for the COA
The Exchange operates COA, which allows an entering OTP Holder to
initiate an auction for eligible Electronic Complex Orders (``COA-
eligible orders'').\4\ Upon receiving a COA-eligible order, and the
direction from the entering OTP Holder that an auction be initiated,
the Exchange sends an automated request for response message (``RFR'')
to all OTP Holders who subscribe to RFR messages.\5\ OTP Holders that
are eligible to participate in a COA may respond to an RFR message
(``RFR Responses'') indicating the price and the number of contracts
they would be willing trade in the COA. RFR Responses must be submitted
during the Response Time Interval (``RTI''), the duration of which is
determined by the Exchange, but may not exceed one (1) second.\6\
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\4\ The Exchange may determine, on a class by class basis, which
Electronic Complex Orders are eligible for a COA based on
marketability (defined as a number of ticks from the current
market), size, and Complex Order origin type. See Rule 6.91(c)(1).
\5\ RFR messages identify the component series, size and side of
the market of the order and any contingencies. See Rule 6.91(c)(2).
\6\ See Rule 6.91(c)(3) (stating, in part,``[t]he Exchange will
determine the length of the Response Time Interval; provided,
however, that the duration shall not exceed one (1) second.'').
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Rule 6.91(c)(4) currently provides that each Market Maker with an
appointment in the relevant option class, and each OTP Holder acting as
agent for orders resting at the top of the Consolidated Book in the
relevant options series may submit RFR Responses during the RTI. The
Exchange proposes to amend Rule 6.91(c)(4) to provide that any OTP
Holder may submit RFR Responses during the RTI. The Exchange believes
that the proposed amendment may increase participation in COAs, which
would foster greater competition and provide additional price
improvement opportunities for COA-eligible orders exposed during the
COA. In addition, the Exchange believes the proposed amendment is fair
and reasonable and would benefit market participants because it would
enable the Exchange to better compete with option exchanges that permit
all members to participate in electronic auctions for crossing
transactions that are similar to the COA.\7\
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\7\ See, e.g., ISE Rule 723(a) (Price Improvement Orders may be
entered by all Members for their own account or for the account of a
Public Customer in one-cent increments at the same price as the
Crossing Transaction or at an improved price for the Agency Order,
and for any size up to the size of the Agency Order); NYSE MKT Rule
971.1(c)(2)(C) (allowing any ATP Holder to respond to an RFR in a
Customer Best Execution (``CUBE'') Auction for single-legged
transactions on the Exchange) (NYSE Amex Options is the options
trading facility of NYSE MKT LLC). The Exchange believes that
although ISE Rule 723(a) and NYSE Amex Rule 971.1NY relate to
electronic crossing transactions and provide for a guaranteed
execution, these electronic auction mechanisms are analogous to the
COA as they are designed to attract liquidity to the exchange and
provide opportunities for price improvement.
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As noted above, the duration of a COA is determined by the
Exchange, but may not exceed one (1) second. Currently, the Exchange
has not established a minimum duration for the RTI. The Exchange
believes it is important to establish a minimum duration for the RTI to
ensure that orders entered into a COA are exposed for a sufficient time
period to allow the opportunity for participating OTP Holders to
provide RFR Responses. Accordingly, the Exchange is proposing to
establish a minimum of 500 milliseconds as the length of time the
Exchange may determine for the RTI, with the maximum length of time
continuing to be one (1) second.\8\
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\8\ See proposed Rule 6.91(c)(3) (providing that ``the that the
duration [of the RTI] shall not be less than 500 milliseconds and
shall not exceed one (1) second.'').
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The Exchange believes that a minimum of 500 milliseconds is a
sufficient time to submit RFR Responses and would encourage competition
among participants, thereby enhancing the potential for price
improvement for orders in the COA.\9\ The proposed 500 millisecond
minimum for the RTI is comparable to the response time interval in the
NYSE Amex Options CUBE Auction for single-leg orders, which
disseminates an RFR message for an auction lasting a random period of
time of between 500 and 750 milliseconds.\10\ In addition, BOX Options
Exchange LLC (``BOX'')'s Complex Order Price Improvement Period
(``COPIP''), like the Exchange's COA, is designed to offer price
improvement to complex orders, and is only 100 milliseconds in
length.\11\ Although both the CUBE and the COPIP relate to electronic
crossing transactions and provide for a guaranteed execution, the
Exchange believes the CUBE and COPIP are analogous to the COA as they
are designed to attract liquidity and provide opportunities for price
improvement.
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\9\ In May 2015, to determine whether the proposed RTI would
provide sufficient time to respond to a COA, the Exchange conducted
a survey of ATP Holders to determine whether their firms ``could
respond to an auction lasting 100 milliseconds.'' Of the ATP Holders
that have electronic access to the Exchange and are able to submit
responses to a COA (the ``Relevant ATP Holders''), thirteen (13)
responded the survey. Of the thirteen (13) Relevant ATP Holders, ten
(10)--or 77%--said that they could respond to an auction lasting 100
milliseconds. Thus, the Exchange believes that the proposed RTI
duration of at least 500 milliseconds would provide a meaningful
opportunity for participants on the Exchange to respond to a COA
while at the same time facilitating the prompt execution of orders.
\10\ See NYSE MKT Rule 971.1NY(c)(2)(B).
\11\ See Box Rule 7245(f)(1).
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Amendment to Order Exposure Requirements
In addition, the Exchange proposes to amend Rule 6.47A by adding
that use of the COA is a means for a User to satisfy the Order Exposure
Requirement in Rule 6.47A. Exchange Rule 6.47A prohibits Users (i.e.,
OTP Holders) \12\ from trading as principal with orders they represent
as agent unless the order exposure requirements under the rule are met.
The order exposure requirements are designed to enhance opportunities
for competition among market participants.\13\ Specifically, a User may
only trade as principal with an order it represents as agent if:
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\12\ A ``User'' is ``any OTP Holder, OTP Firm or Sponsored
Participant that is authorized to obtain access to OX pursuant to
Rule 6.2A.'' See Rule 6.1A(19). The term ``Sponsored Participant''
refers to a person that has entered into a sponsorship arrangement
with a Sponsoring OTP Firm pursuant to Rule 6.2A. See Rule 6.1A(16).
\13\ See Rule 6.47A Commentary .01 (``Rule 6.47A prevents a User
from executing agency orders to increase its economic gain from
trading against the order without first giving other trading
interest on the Exchange an opportunity to either trade with the
agency order or to trade at the execution price when the User was
already bidding or offering on the book.'').
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The agency order is first exposed on the Exchange for at
least one (1) second; or
The User has been bidding or offering on the Exchange for
at least one (1) second prior to receiving an agency order that is
executable against such bid or offer.
[[Page 32422]]
The Exchange proposes to amend Rule 6.47A to also permit a User who
utilizes the COA pursuant to Rule 6.91(c) to submit a principal order
during the RTI to trade against an order it represents as agent.\14\ As
described above, the Exchange is proposing a minimum duration for the
RTI of 500 milliseconds. RTIs would thus last for at least 500
milliseconds and no more than one (1) second, as determined by the
Exchange.\15\
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\14\ See proposed Rule 6.47A(iii). The Exchange also proposes to
add semi-colons to separate the subparts of Rule 6.47A, in lieu of
``or'', which the Exchange believes would simplify the rule.
\15\ See proposed Rule 6.91(c)(3).
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As stated above, the Exchange believes that a COA with an RTI of at
least 500 milliseconds is a sufficient length of time to permit OTP
Holders to respond to a RFR and enhance opportunities for competition
among participants, increasing the likelihood for price improvement for
the COA-eligible order in the COA. Accordingly, the Exchange proposes
to amend Rule 6.47A to state that a User may execute as principal an
order that the User represents as agent if the User avails itself of
COA pursuant to Rule 6.91(c). Thus, an Electronic Complex Order subject
to a COA would not be subject to the one-second order exposure
requirement of Rule 6.47A. This exclusion from the one-second order
exposure requirement is consistent with the treatment of orders in the
NYSE Amex Options CUBE Auction, which has a minimum duration of 500
milliseconds, as is proposed for COA.\16\ This proposed exception is
also consistent with the treatment of similar orders entered in the BOX
Complex Order Price Improvement Period.\17\ Consistent with Rule 6.47A
Commentary .01, OTP Holders shall only use COA where there is a genuine
intention to execute bona fide transactions.
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\16\ See NYSE MKT Rule 935NY(iii). See also supra n. 10.
\17\ See BOX IM-7140-2; see also Box Rule 7245(f)(1).
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The Exchange also proposes to delete rule text from Rule
6.91(c)(3), which provides that ``[t]he obligations of Rule 6.47A,
Order Exposure Requirements -OX, are separate from the duration of the
Response Time Interval.'' The Exchange is proposing to delete this text
because it would no longer be accurate with the proposed changes to
Rule 6.47A described above.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b)(5) of the Securities Exchange Act of 1934 (the ``Act''),\18\ which
requires the rules of an exchange 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.
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\18\ 15 U.S.C. 78f(b).
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The Exchange believes that the proposed rule change to amend Rule
6.91(c)(4) to provide that any OTP Holder may submit an RFR Response
during an RTI would remove impediments to and perfect the mechanism of
a free and open market and a national market system because it could
result in increased participation in the COA process, which should
increase competition within a COA, potentially offering greater price
improvement opportunities to the COA-eligible order. The Exchange notes
that at least two other options exchanges allow all members to
participate in electronic auctions similar to the COA.\19\
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\19\ See supra n. 7.
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The Exchange believes the proposed minimum of 500 milliseconds for
a RTI within a COA promotes just and equitable principles of trade and
removes impediments to a free and open market because it allow [sic]
sufficient time for OTP Holders participating in a COA to submit RFR
Responses and would encourage competition among participants, thereby
enhancing the potential for price improvement for orders in the COA to
the benefit of investors and public interest. The Exchange believes the
proposed rule change is not unfairly discriminatory because it
establishes a minimum exposure period applicable to COA-eligible
orders, which would be the same for all OTP Holders participating in a
COA. In addition, the proposed minimum of 500 millisecond [sic] is
consistent with the NYSE Amex Options CUBE Auction and is comparable to
BOX's Complex Order Price Improvement Period, which similar to the
Exchange's COA, is designed to offer price improvement to complex
orders, and is only 100 milliseconds in length.\20\
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\20\ See supra nn. 10, 12.
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The Exchange believes the proposal to allow Users who utilize the
COA to enter an order as principal to potentially execute against an
order it represents as agent promotes just and equitable principles of
trade because the proposed minimum of 500 milliseconds for the RTI
would provide ample time for participants in the COA to respond and
would encourage competition and opportunities for price improvement, to
the benefit of investors and the public interest. In addition,
exempting Electronic Complex Orders subject to a COA from the one-
second order exposure requirement of Rule 6.47A is consistent with the
treatment of orders in the NYSE Amex Options CUBE Auction as well as
the treatment of similar orders entered in the BOX Complex Order Price
Improvement Period.\21\ Additionally, the Exchange believes the
proposed exemption from Rule 6.47A would reduce market risk for OTP
Holders responding to COA-eligible orders by providing timely
executions of these orders.
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\21\ See supra nn. 16, 17.
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Accordingly, for foregoing reasons, the Exchange believes the
proposed change is consistent with the Act.
(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. The Exchange believes the
proposal to allow all OTP Holders to participate in the COA process
should increase the level of competition within COAs, which will
increase opportunities to trade for all participants on the Exchange
and may increase opportunities for COA-eligible orders to receive price
improvement. The Exchange also believes that this proposed expansion
would enable the Exchange to better compete with other options
exchanges that already offer all participants the ability to
participate in electronic auctions.\22\ The Exchange believes the
proposed 500 millisecond minimum for a RTI is pro-competitive as it
would afford OTP Holders sufficient time to respond to a COA and
enhance opportunities for price improvement while encouraging timely
executions. The Exchange believes that the proposed limited exception
to Rule 6.47A would enable the Exchange to better compete with other
options exchanges that already exempt market participants from the one-
second order exposure requirements when utilizing certain price
improvement and auction mechanisms.\23\ Accordingly, the proposed rule
change would also serve to promote regulatory clarity and consistency,
thereby reducing burdens on the marketplace and facilitating investor
protection.
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\22\ See supra n. 7.
\23\ See supra nn. 16, 17.
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[[Page 32423]]
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2015-43 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2015-43. 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 will also 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-2015-43 and should
be submitted on or before June 29, 2015.
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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-13871 Filed 6-5-15; 8:45 am]
BILLING CODE 8011-01-P