[Federal Register Volume 82, Number 63 (Tuesday, April 4, 2017)]
[Notices]
[Pages 16447-16449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06565]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80330; File No. SR-NYSEMKT-2017-08]
Self-Regulatory Organizations; NYSE MKT LLC; Order Approving
Proposed Rule Change To Amend Rule 925.1NY Regarding Market Maker
Quotations, Including To Adopt a Market Maker Light Only Quotation
March 29, 2017.
I. Introduction
On February 10, 2017, NYSE MKT LLC (the ``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 Rule
925.1NY regarding Market Maker Quotations, including to adopt a Market
Maker Light Only Quotation. The proposed rule change was published for
comment in the Federal Register on February 27, 2017.\3\ The Commission
received no comment letters on the proposed rule change. This order
approves the proposed rule change.
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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. 80073 (February 21,
2017), 82 FR 11952 (``Notice'').
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II. Description of the Proposed Rule Change
The Exchange proposes to amend Rule 925.1NY(a), which provides that
a Market Maker may enter quotes in the option issues included in its
appointment, to define a Market Maker ``quote,'' add a new quote type,
and specify how such quotes would be processed when a series is open
for trading.
First, the Exchange proposes to define a Market Maker quote to
provide that ``[t]he term `quote' or `quotation' means a bid or offer
entered by a Market Maker that updates the Market Maker's previous bid
or offer, if any.'' \4\
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\4\ See proposed Rule 925.1NY(a)(1). The Exchange notes that its
proposed definition is identical or substantially similar to related
definitions on other options exchanges. See, e.g., International
Securities Exchange, LLC Rule 100(a)(42); BOX Options Exchange LLC
Rule 100(a)(55). The Exchange also proposes to modify the current
definition of ``Quote with Size'' to include a cross reference to
the proposed definition of ``quotation.'' See proposed Rule
900.2NY(65).
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[[Page 16448]]
Second, the Exchange proposes to add a Market Maker Light Only
Quotation (``MMLO'') to provide Market Makers the option to designate
incoming quotes to trade solely with displayed interest on the
Consolidated Book.\5\ This proposed change would allow Market Makers to
designate quotes as MMLO to prevent such quotes from trading with
undisplayed liquidity upon arrival. Once an MMLO is added to the
Consolidated Book, the MMLO designation would no longer apply and any
unexecuted portion could trade with displayed and undisplayed interest.
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\5\ See proposed Rule 925.1NY(a)(2). The Exchange noted that
this proposed functionality for Market Maker quotations is
comparable to functionality on another options exchange for orders.
See Notice, supra note 3, at 11953 n.9. See also NYSE Arca, Inc.
(``NYSE Arca'') Rule 6.62(v) (defining Post No Preference Light
Orders as non-routable orders that are only eligible to execute
against displayed liquidity). The Exchange further noted that NYSE
Arca previously offered, and later eliminated, a Post No Preference
Light Only Quotation (``PNPLO''), which, like the MMLO, allowed
Market Makers to designate certain quotations to only interact with
displayed liquidity. See Notice, supra note 3, at 11953 n.10. See
also Securities Exchange Act Release Nos. 67252 (June 25, 2012), 77
FR 38879 (June 29, 2012) (SR-NYSEArca-2012-05) (order approving
adoption of PNPLO for Penny Pilot issues only); 68339 (December 3,
2012), 77 FR 73109 (December 7, 2012) (SR-NYSEArca-2012-130)
(extending the PNPLO to non-Penny Pilot issues); 69641 (May 28,
2013), 78 FR 33134 (June 3, 2013) (SR-NYSEArca-2013-51) (eliminating
reference to the PNPLO).
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Finally, the Exchange proposes to modify the processing of Market
Maker quotations, including MMLOs, in a manner that aligns with the
Options Order Protection And Locked/Crossed Market Plan (``Plan''), to
which the Exchange is a party.\6\ Specifically, as proposed, an
incoming quotation would only trade against contra-side interest in the
Consolidated Book at prices that would not trade through interest on
another Market Center.\7\ Any untraded size of an incoming quote would
be added to the Consolidated Book, unless it locks or crosses interest
on another Market Center or if the quote is an MMLO and locks or
crosses undisplayed interest.\8\ The proposed rule would further state
that when such quantity of an incoming quote is cancelled (as opposed
to being rejected outright), the Exchange would also cancel the Market
Maker's current quote on the opposite side of the market. According to
the Exchange, this would allow the Market Maker to refresh both its bid
and offer simultaneously, as both sides of the Market Maker's quote
residing on the Consolidated Book would be cancelled.\9\ Additionally,
the Exchange would reject an incoming quotation if it locks or crosses
interest on another Market Center and if it cannot trade with interest
in the Consolidated Book at prices that do not trade through another
Market Center.\10\ The Exchange also proposes to reject an incoming
MMLO if it locks or crosses undisplayed interest and cannot trade with
displayed interest in the Consolidated Book at prices that do not trade
through another Market Center.\11\ The proposed rule would further
state that when an incoming quote is rejected outright (as opposed to
being cancelled after a partial fill), the Exchange would also cancel
the Market Maker's current quote on the same side of the market.\12\
According to the Exchange, this treatment recognizes that the Market
Maker unsuccessfully attempted to update its bid or offer price, and
the cancellation would allow the Market Maker to refresh that side of
its quote.\13\ The Exchange also proposes to specify that, when a
series is open for trading, a quote will trade only against interest in
the Consolidated Book and will not route.\14\
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\6\ See Plan, dated April 14, 2009, available at, http://www.optionsclearing.com/components/docs/clearing/services/options_order_protection_plan.pdf. See also Securities Exchange Act
Release No. 60405 (July 30, 2009), 74 FR 39362 (August 6, 2009)
(File No. 4-546) (order approving the Plan). The Plan establishes
various obligations for participating exchanges, including that
Market Makers should ``reasonably avoid displaying, and shall not
engage in a pattern or practice of displaying, any quotations that
lock or cross'' the best bid or offer on another Market Center. See
Plan, supra, at Section 6(c).
\7\ See proposed Rule 925.1NY(a)(3)(A). See also Rule
900.2NY(36) (defining Market Center as ``a national securities
exchange that has qualified for participation in the Options
Clearing Corporation pursuant to the provisions of the rules of the
Options Clearing Corporation'').
\8\ See proposed Rule 925.1NY(a)(3)(B)(i).
\9\ See Notice, supra note 3, at 11953.
\10\ See proposed Rule 925.1NY(a)(3)(C)(i).
\11\ See proposed Rule 925.1NY(a)(3)(C)(ii).
\12\ See proposed Rule 925.1NY(a)(3)(C).
\13\ See Notice, supra note 3, at 11953.
\14\ See proposed Rule 925.1NY(a)(3)(D).
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According to the Exchange, the implementation of the proposed rule
change will be no later than 30 days after its approval, and will be
announced by Trader Update.\15\
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\15\ See Notice, supra note 3, at 11954.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \16\
and the rules and regulations thereunder applicable to a national
securities exchange.\17\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\18\
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
regulating, clearing, settling, processing information with respect to,
and 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 and that the rules not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\16\ 15 U.S.C. 78f.
\17\ 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).
\18\ 15 U.S.C. 78f(b)(5).
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The Exchange noted that its proposal to add the definition of
Market Maker quotes will provide additional clarity and transparency to
Exchange rules.\19\ The Exchange further stated that it is difficult
for Market Makers to account for undisplayed liquidity in their quoting
models. The Exchange believes that its proposal to adopt the MMLO
functionality would therefore provide Market Makers with increased
control over their exposure, and thus may encourage more aggressive
liquidity provision, resulting in more trading opportunities and
tighter spreads.\20\ According to the Exchange, this would improve
overall market quality and improve competition on the Exchange to the
benefit of all market participants.\21\ Finally, the Exchange stated
that its proposal to amend the treatment of Market Maker quotations
would assist Market Makers in maintaining a fair and orderly market,
would encourage increased liquidity provision on the Exchange, and is
consistent with Exchange's obligations under the Plan in that it avoids
trading through better prices on other exchanges and is designed to
avoid locking and crossing markets.\22\ In particular, the Exchange
noted that the proposed rules with respect to the treatment of Market
Maker quotations would enable Market Makers to simultaneously update
both sides of their resting quote when one side of the quote received a
partial fill but was subsequently cancelled, and to leave
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undisturbed valid opposite-side interest where one side of a quote is
rejected and not booked.\23\ This proposal does not relieve a Market
Maker of its continuous quoting, or firm quote, obligations pursuant to
Rules 925.1NY and 970NY, respectively. For these reasons, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act and the rules and regulations thereunder
applicable to a national securities exchange.
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\19\ See Notice, supra note 3, at 11954.
\20\ See id.
\21\ See id.
\22\ See id.
\23\ See id.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\24\ that the proposed rule change (SR-NYSEMKT-2017-08) be, and
hereby is, approved.
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\24\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06565 Filed 4-3-17; 8:45 am]
BILLING CODE 8011-01-P