[Federal Register Volume 81, Number 83 (Friday, April 29, 2016)]
[Notices]
[Pages 25748-25750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09975]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77701; File No. SR-NYSE-2016-30]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Amending the Definition of
``Block'' for Purposes of Rule 72(d) and the Size of a Proposed Cross
Transaction Eligible for the Cross Function in Rule 76
April 25, 2016.
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 12, 2016, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') 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 Substance
of the Proposed Rule Change
The Exchange proposes to amend the definition of ``block'' for
purposes of Rule 72(d) and the size of a proposed cross transaction
eligible for the Cross Function in Rule 76. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the definition of ``block'' for
purposes of Rule 72(d) and the size of a proposed cross transaction
eligible for the Cross Function in Rule 76. Under Rule 72(d), when a
member \4\ has an order to buy and an order to sell an equivalent
amount of the same security, and both orders are ``block'' orders, the
member may cross those orders at a price at or within the Exchange best
bid or offer and does not have to break up the cross transaction to
trade with any bids or offers previously displayed at the Exchange best
bid or offer, including any interest with priority. For purposes of
Rule 72(d), a ``block'' is at least 10,000 shares or a quantity of
stock having a market value of $200,000 or more, whichever is less.
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\4\ The reference to ``member'' in Rule 72(d) and this rule
proposal means only Floor Broker members. Designated Market Makers
(``DMMs''), while members of the Exchange, do not have any agency
relationships, and are therefore not able to effect this type of
transaction.
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Further, Rule 76 governs the execution of ``cross'' or ``crossing''
orders by Floor Brokers. Rule 76 applies only to manual transactions
executed at the point of sale on the trading floor and provides that
when a member has an order to buy and an order to sell the same
security that can be crossed at the same price, the member is required
to announce to the trading crowd the proposed cross by offering the
security at a price that is higher than his or her bid by a minimum
variation permitted in the security before crossing the orders. Any
other member, including the DMM, can break up the announced bid and
offer by trading with either side of the proposed cross transaction.
Supplementary [sic] .10 to Rule 76 provides for a ``Cross Function''
that Floor brokers may use to monitor compliance with Rule 611 of
Regulation NMS. To be eligible for this Cross Function, the proposed
cross transaction must be for at least 10,000 shares or a quantity of
stock having a market value of $200,000 or more.
The Exchange proposes to amend the permissible size of a crossing
transaction permitted under Rule 72(d) and Supplementary Material .10
to Rule 76 to be at least 5,000 shares or a quantity of stock having a
market value of $100,000 or more, whichever is less. The Exchange's
proposed definition of block size would more closely align with how a
block-sized transaction is
[[Page 25749]]
defined in other SEC rules and other exchanges' rules.\5\ For example,
SEC Rule 10b-18 (Purchases of certain equity securities by the issuer
and others) includes in the definition of a block a quantity of stock
that is at least 5,000 shares and has a purchase price of at least
$50,000.\6\ Additionally, Financial Industry Regulatory Authority, Inc.
(``FINRA'') defines a block-sized order as being 10,000 shares or more,
unless such orders are less than $100,000 in value.\7\ The CBOE Stock
Exchange (``CBSX'') Rule 52.11 also permits a cross of two orders so
long as the crossing transaction is of at least 5,000 shares and is for
a principal amount of at least $100,000.\8\ More recently, in approving
the National Market System Plan to Implement a Tick Size Pilot Program
(``Tick Size Pilot''),\9\ the SEC approved a modified definition of
``block size'' such that an order of at least 5,000 shares or with a
market value of at least $100,000 would be considered a block size for
purposes the Tick Size Pilot. In approving the Tick Size Pilot, the
Commission noted that among all NMS securities, trades with at least
10,000 shares or with a market value of at least $200,000 constitute
just 0.24 percent of all trades, 13.04 percent of traded share volume
and 16.27 percent of traded dollar volume.\10\ The Exchange believes
modifying the definition of a block order in its rules would likely
result in a greater number of large size orders being executed on the
Exchange.
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\5\ For purposes of Regulation NMS, a ``block size'' with
respect to an order means it is: (i) Of at least 10,000 shares or
(ii) for a quantity of stock having a market value of at least
$200,000. See 17 CFR 242.600(a)(9). The term ``block size'' is used
in Regulation NMS in the definition of an OTC Market Marker, 17 CFR
242.600(a)(52), and in an exception to specialists' and OTC Market
Makers' obligation to display customer limit orders, 17 CFR
242.604(b)(4). The definition of ``block size'' in Regulation NMS is
the same as the Exchange's current definition of ``block'' for
purposes of Rule 72(d) and the size of a proposed cross transaction
eligible for the Cross Function in Rule 76. The Exchange's proposal
to change its rules does not change the definition of ``block size''
as used in Regulation NMS.
\6\ See 17 CFR 240.10b-18(a)(5)(ii).
\7\ See FINRA Rule 5320, Supplementary Material .01.
\8\ See CBSX Rule 52.11 Facilitation of Orders and Crossing
Trades, Chapter LII--Trading Rules and Processing of Orders. In
September 2006, the Commission approved rules governing the trading
of non-option securities traded on the Chicago Board Options
Exchange, Inc. (``CBOE''), including CBSX Rule 52.11. See Securities
Exchange Act Release No. 54422 (September 11, 2006), 71 FR 54537
(September 15, 2006) (Approving SR-CBOE-2004-21). The Commission
also approved modifications to CBOE's non-option trading rules to
conform those rules to aspects of Regulation NMS. See Securities
Exchange Act Release No. 54526 (September 27, 2006), 71 FR 58646
(October 4, 2006) (Approving SR-CBOE-2006-70). Although CBSX has
ceased trading operations, the CBSX rules are incorporated into the
rules of the CBOE.
\9\ See Securities Exchange Act Release No. 34-74892 (May 6,
2015), 80 FR 27514 (May 13, 2015) File No. 4-657 (Order Approving
the National Market System Plan To Implement a Tick Size Pilot
Program by BATS Exchange, Inc. BATS-Y Exchange, Inc., Chicago Stock
Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial
Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX
PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC,
NYSE MKT LLC, and NYSE Arca, Inc., as Modified by the Commission,
for a Two-Year Period) (``Tick Size Approval Order).
\10\ See Tick Size Approval Order at 27541.
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The Exchange believes the proposed rule change would promote
increased trading by institutions as they are most frequent
participants of block-sized trading on the Exchange. If an institution
is able to execute in larger sizes, the contra party to the execution
is less likely to be a participant that reacts to short term changes in
the stock price and as such the price impact to the stock could be less
acute when larger individual executions are obtained by the
institution.\11\ As a consequence of this concern, large size orders
are often executed away from the Exchange in dark pools or via broker-
dealer internalization.
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\11\ The Commission has long recognized this concern: ``Another
type of implicit transaction cost reflected in the price of a
security is short-term price volatility caused by temporary
imbalances in trading interest. For example, a significant implicit
cost for large investors [sic] is the price impact that their large
trades can have on the market. Indeed, disclosure of these large
orders can reduce the likelihood of their being filled.'' See
Securities Exchange Act Release No. 42450 (February 23, 2000), 65 FR
10577 (February 28, 2000) (SR-NYSE-99-48).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\12\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\13\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
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 protect investors and the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would attract more order flow to
the Exchange that is currently trading on less transparent venues that
contribute less to price discovery and price competition than
executions and quotes that occur on lit markets. Such new order flow
will further enhance the depth and liquidity on the Exchange, which
supports just and equitable principles of trade. Specifically, as
required under Rule 76, any proposed crossing transaction, including a
transaction using the Cross Function or a cross that meets the
requirements of Rule 72(d), must be announced in the Crowd before
trading, thus providing an opportunity for other market participants,
including other Floor brokers or the designated market maker, to
participate in the proposed crossing transaction. By reducing the size
of a block transaction, the Exchange believes that additional order
flow may be routed to Floor brokers and thus be subject to such
exposure requirements on the Trading Floor.
The Exchange believes that modifying the definition of block orders
to lower the thresholds would be consistent with the public interest
and the protection of investors because the Exchange is proposing to
align the definition of block orders to current SEC and other exchange
rules which the Exchange expects will result in increased participation
of large-sized orders on the Exchange.
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. Specifically, the proposed
change will align the definition of a ``block'' with current SEC and
other exchange rules, thereby promoting its competitiveness with dark
pools where such large-sized orders currently trade in more frequency
than on lit markets. As a consequence, the proposed change will promote
competition among the many trading venues, which, in turn, will
decrease the 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
Within 45 days of the date of publication of this notice in the
Federal Register or such longer period 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
[[Page 25750]]
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-NYSE-2016-30 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-NYSE-2016-30. 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 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-NYSE-2016-30 and should be
submitted on or before May 20, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-09975 Filed 4-28-16; 8:45 am]
BILLING CODE 8011-01-P