[Federal Register Volume 81, Number 136 (Friday, July 15, 2016)]
[Notices]
[Pages 46131-46133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16715]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78284; File No. SR-NYSEARCA-2016-49]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule
6.64 With Respect To Opening Trading in an Options Series
July 11, 2016.
I. Introduction
On March 23, 2016, NYSE Arca, Inc. (``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 amend Exchange
Rule 6.64 regarding the process for opening trading in an options
series. The proposed rule change was published for comment in the
Federal Register on April 12, 2016.\3\ The Commission received one
comment letter on the proposed rule change.\4\ On May 25, 2016, the
Commission extended the time 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
to July 11, 2016.\5\ On July 8, 2016, the Exchange submitted Amendment
No. 1 to the proposed rule change.\6\ The Commission is publishing this
notice to solicit comment on Amendment No. 1 to the proposed rule
change from interested persons and is approving the proposed rule
change, as modified by Amendment No. 1, on an accelerated basis.
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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. 77539 (April 6,
2016), 81 FR 21639 (``Notice'').
\4\ See letter from Anonymous, dated May 3, 2016. The letter was
generally supportive of the proposed rule change.
\5\ See Securities Exchange Act Release No. 77912 (May 25,
2016), 81 FR 35105 (June 1, 2016).
\6\ See Letter to Brent J. Fields, Secretary, Commission, from
Martha Redding, Associate General Counsel, Assistant Secretary, NYSE
Arca, LLC dated July 11, 2016. As more fully described below, in
Amendment No. 1 the Exchange proposes additional modifications to
Rule 6.64(c) to clarify and detail how the Exchange would determine
the opening price upon dissemination of an NBBO from OPRA. Amendment
No. 1 to the proposed rule change is also available on the
Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2016-49/nysearca201649.shtml.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
Exchange Rule 6.64 sets forth the OX automated opening process.\7\
Current Rule 6.64(b) provides that, after the primary market for the
underlying security disseminates an opening trade or an opening quote,
the Exchange will open the related option series automatically based on
the following principles and procedures:
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\7\ See Exchange Rule 6.64. The term ``OX'' refers to the
Exchange's electronic order delivery, execution and reporting system
for designated option issues through which orders and quotes of
Users are consolidated for execution and/or display. See Exchange
Rule 6.1A(a)(13) (defining ``OX'').
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(A) The system will determine a single price at which a particular
option series will be opened.
(B) Orders and quotes in the system will be matched up with one
another based on price-time priority; provided, however, that Orders
will have priority over Market Maker quotes at the same price.
(C) Orders in the OX Book that were not executed during the Auction
Process, other than Opening Only orders, shall become eligible for the
Core Trading Session immediately after the conclusion of the Auction
Process.
(D) The OX System will not conduct an Auction Process if the bid-
ask differential for that series is not within an acceptable range. For
the purposes of this rule, an acceptable range shall mean within the
bid-ask differential guidelines established pursuant to Rule
6.37(b)(1)(A)-(E).
(E) If the OX System does not open a series with an Auction
Process, the OX System shall open the series for trading after
receiving notification of an initial NBBO disseminated by OPRA for the
series or on a Market Maker quote, provided that the bid-ask
differential does not exceed the bid-ask differential specified under
Rule 6.37A(b)(4).\8\
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\8\ See Exchange Rule 6.64(b)(A)-(E).
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In addition, Rule 6.64(c) provides for how the OX System will
determine the opening price of a series when an Auction Process is
conducted.\9\ Specifically, current Rule 6.64(c) states, in part, that
the ``opening price of a series will be the price, as determined by OX,
at which the greatest number of contracts will trade at or nearest to
the midpoint of the initial uncrossed NBBO disseminated by OPRA, if
any, or the midpoint of the best quote bids and quote offers in the OX
Book.'' \10\
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\9\ See Notice and current Exchange Rule 6.64(c).
\10\ See current Exchange Rule 6.64(c).
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The Exchange proposes several changes to Exchange Rule 6.64 and the
OX opening process. The proposed changes would also affect the process
of re-opening an options series after a trading halt.\11\
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\11\ See Exchange Rule 6.64(d), which provides that the Exchange
will follow the same procedures in opening after a trading halt as
the procedures followed for the opening of the trading day.
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First, the Exchange proposes to amend Exchange Rule 6.64(b) so that
trading in an options series will be opened automatically once the
primary market for the underlying security disseminates both a quote
and a trade that is at or within the quote.\12\ Further, the Exchange
proposes to specify that the opening process will occur at or after
9:30 a.m. Eastern Time.\13\
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\12\ See proposed Rule 6.64(b).
\13\ See id.
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The Exchange also proposes to modify Exchange Rule 6.64(b)(E) so
that if the OX System does not open a series with an Auction Process,
trading in an options series could no longer open on a local Market
Maker quote, but would
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instead require an initial uncrossed NBBO disseminated by OPRA.\14\
According to the Exchange, OPRA disseminates an NBBO based on
information collected from the exchanges.\15\ Thus, the Exchange
states, NYSE Arca's local Market Maker quotes would be disseminated
back to the Exchange from OPRA and may or may not be at the same price
as the NBBO.\16\
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\14\ See proposed Rule 6.64(b)(E).
\15\ See Notice, supra note 3, at 21640.
\16\ See Notice, supra note 3, at 21640.
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In addition, the Exchange proposes to amend Rule 6.64(c). As noted,
current Rule 6.64(c) provides that if there is no initial uncrossed
NBBO disseminated by OPRA, the System instead determines an opening
price that is ``at the midpoint of the best quotes and offers in the OX
Book.'' The Exchange originally proposed to modify Rule 6.64(c) by
eliminating this language so that the rule would no longer provide that
the opening price of a series could be determined by reference to the
best quote bids and offers in the System Book.\17\ Thus, as originally
proposed, the opening price of a series would be the price, as
determined by the System, at which the greatest number of contracts
will trade ``at or nearest to the midpoint of the initial uncrossed
NBBO disseminated by OPRA.'' \18\ As more fully set forth in the
Notice, the Exchange stated that the original proposed modification was
a conforming change that was necessary because the Exchange would no
longer open solely on a local Market Maker quote.\19\
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\17\ Specifically, the Exchange proposed to delete from current
Rule 6.64(c) the words ``if any, or the midpoint of the best quotes
and offers in the OX Book.''
\18\ See Notice supra note 3 at 21640.
\19\ See id.
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In Amendment No. 1, the Exchange proposes further modifications to
Rule 6.64(c) to clarify and detail how the Exchange would determine the
opening price upon dissemination of an NBBO from OPRA. Under proposed
Rule 6.64(c), as modified by Amendment No. 1, ``[t]he opening price of
a series will be the price, as determined by the System, at which the
greatest number of contracts will trade at a price at or between the
NBBO disseminated by OPRA.'' \20\ In addition, in Amendment No. 1 the
Exchange proposes to specify further the circumstances under which the
System would use midpoint pricing.\21\ In particular, proposed Rule
6.64(c), as modified by Amendment No. 1, would specify what would
happen if there is a tie and the same number of contracts can trade at
multiple prices. Specifically, proposed Rule 6.64(c), as modified by
Amendment No. 1, would provide that if the same number of contracts can
trade at multiple prices, the opening price is the price at which the
greatest number of contracts can trade that is ``at or nearest to the
midpoint'' of the NBBO disseminated by OPRA. The rule would further
specify that (i) if one of such prices is equal to the price of any
Limit Order(s) in the Consolidated Book, the opening price will be the
same price as the Limit Order(s) with the greatest size and, if the
same size, the highest price; and (ii) if there is a tie between price
levels and no Limit Orders exist at either of the prices, the Exchange
would use the higher price.\22\ In connection with these proposed
modifications, the Exchange further proposes to delete language in
current Rule 6.64(c) referring to pricing by reference to the best
quotes bids and offers in the System. According to the Exchange, the
language proposed to be deleted is superfluous, as the Exchange would
no longer use Market Maker quotes to determine the opening price.\23\
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\20\ See Amendment No. 1 and proposed Rule 6.64(c).
\21\ See Amendment No. 1 and proposed Rule 6.64(c).
\22\ See Amendment No. 1 and proposed Rule 6.64(c).
\23\ See Amendment No. 1 and proposed Rule 6.64(c).
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Finally, the Exchange proposes a new provision to permit the
Exchange to deviate from the standard manner of the Auction Process,
including adjusting the timing of the Auction Process in any option
class, when the Exchange believes it to be necessary in the interest of
a fair and orderly market.\24\
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\24\ See proposed Rule 6.64(b)(F); see also Notice, supra note
3, at 21640. For a more detailed description of the original
proposed rule change, see Notice, supra note 3.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\25\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\26\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
facilitating transactions in securities, 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.
As noted above, the Commission received one comment letter regarding
the proposal, expressing support.\27\
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\25\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\26\ 15 U.S.C. 78f(b)(5).
\27\ See supra note 4.
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The Commission believes the Exchange's proposal to require both a
disseminated quote and a trade within the quote in an underlying
security before opening trading in the related options series, instead
of either one or the other, is reasonably designed ensure that the
underlying security has been opened pursuant to a robust price
discovery process before the overlying option begins trading.\28\
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\28\ See Notice, supra note 3, at 21640.
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The Exchange proposes that if it does not open a series with an
Auction Process, it will open the series for trading after receiving
notification of an initial uncrossed NBBO disseminated by OPRA.\29\ The
Exchange represents that opening an options series for trading after
receiving an uncrossed NBBO from OPRA, rather than based on a local
Market Maker quote, will eliminate ambiguity as to the source of the
information for each options series and should lead to more accurate
prices on the Exchange.\30\
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\29\ See supra note 14 and accompanying text.
\30\ See Notice, supra note 3, at 21640.
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Further, the Exchange proposes that if it does open a series with
an Auction Process, the opening price of a series will be the price, as
determined by the System, at which the greatest number of contracts
will trade at a price at or between the NBBO disseminated by OPRA. The
Exchange further proposes to specify how the System will determine an
opening price if the same number of contracts can trade at multiple
prices.\31\ The Commission believes the proposed process for how the
System will determine an opening price for an option series at or
between the NBBO disseminated by OPRA, and the circumstances under
which System would use midpoint pricing, should result in an opening
price that is related to the current market for an option and is
therefore reasonably designed to protect investors and the public
interest.
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\31\ See supra note 21 and accompanying text.
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In addition, the Commission believes it is appropriate to allow the
Exchange the discretion to deviate from the standard manner of the
Auction Process,
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as the proposal provides, when it believes it is necessary in the
interests of a fair and orderly market. The Commission believes that
the ability to exercise such discretion can be important in situations
when, for example, the primary market for an options class is unable to
open due to a systems or technical issue or if some other unanticipated
circumstance arises. The Commission notes that it has previously
approved provisions of this kind as consistent with the Act.\32\
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\32\ See, e.g., Securities Exchange Act Release No. 71651 (March
5, 2014), 79 FR 13693 (March 11, 2014) (SR-BATS-2014-003).
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The Commission further believes that the proposed rule change will
provide transparency and enhance investors' understanding of the
operation of the Exchange's opening process. For these reasons, the
Commission believes that the proposed rule change, as modified by
Amendment No. 1, is consistent with the Act.
IV. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to the proposed rule change is consistent with the Exchange 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-2016-49 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-2016-49. 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-NYSEARCA-2016-49 and should
be submitted by August 5, 2016.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of notice of Amendment No. 1 in the Federal
Register. As discussed above, Amendment No. 1 clarifies how the
Exchange would determine the opening price upon dissemination of an
NBBO from OPRA, an in particular specifies the circumstances in which
``at or nearest to the midpoint'' pricing is utilized during the
Auction Process. Furthermore, the Commission believes it is appropriate
to have these changes incorporated into the rules of the Exchange
concurrently with the changes discussed in the original filing.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Exchange Act,\33\ to approve the proposed rule change,
as modified by Amendment No. 1 on an accelerated basis.
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\33\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the
Exchange Act,\34\ that the proposed rule change (SR-NYSEArca-2016-49),
as modified by Amendment No. 1 thereto, be, and it hereby is, approved
on an accelerated basis.
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\34\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-16715 Filed 7-14-16; 8:45 am]
BILLING CODE 8011-01-P