[Federal Register Volume 83, Number 13 (Friday, January 19, 2018)]
[Notices]
[Pages 2823-2825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00855]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82498; File No. SR-NYSEAMER-2017-26]
Self-Regulatory Organizations; NYSE American LLC; Order Approving
a Proposed Rule Change To Amend Rule 971.1NY To Amend the Duration of a
Customer Best Execution Auction
January 12, 2018.
I. Introduction
On November 17, 2017, NYSE American LLC (``Exchange'' or ``NYSE
American'') 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 971.1NY (Electronic Cross
Transactions) to modify the parameters for the duration of a Customer
Best Execution (``CUBE'') Auction. The proposed rule change was
published for comment in the Federal Register on December 4, 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. 82162 (November 28,
2017), 82 FR 57322 (``Notice'').
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II. Description of the Proposed Rule Change
CUBE is a process by which an ATP Holder may electronically submit
for execution an order it represents as agent (``CUBE Order'') against
principal interest or against any other order it represents as
agent.\4\ When the Exchange receives a valid CUBE Order for auction
processing, a Request for Responses (``RFR'') detailing the series, the
side of the market, the size of the CUBE Order, and the limit price of
the CUBE Order is sent to all ATP Holders that subscribe to receive RFR
messages. Currently, the amount of time given to ATP Holders to respond
with competing interest to trade against the CUBE Order (``Response
Time Interval'') is randomly set by the CUBE mechanism for each auction
but cannot be shorter than 500 milliseconds or longer than 750
milliseconds, unless the auction is concluded early.\5\ The Exchange
proposes to revise the Response Time Interval to provide that the
duration of a CUBE Auction shall be a random period of time within
parameters
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designated by the Exchange, which parameters shall be no less than 100
milliseconds and no more than one second.\6\ The proposal would require
the Exchange to announce in advance, by Trader Update, any changes to
the parameters.\7\
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\4\ See Exchange Rule 971.1NY.
\5\ See Exchange Rule 971.1NY(c)(4)(A)-(F) (providing the
scenarios that would result in the early termination of a CUBE
Auction).
\6\ The Exchange states that its proposal is consistent with
exposure periods permitted in similar mechanisms on other options
exchanges. See Notice, supra note 3, at 57323 n.5.
\7\ See id. at 57323.
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The Exchange states that the proposed rule change, among other
things, would provide investors with more timely execution of their
option orders while ensuring that there is an adequate exposure of
orders in the CUBE mechanism; could provide more CUBE Orders an
opportunity for price improvement by reducing market risk for ATP
Holders that participate in CUBE Auctions; would give the Exchange
flexibility in establishing the optimal duration of CUBE Auctions; and
would encourage competition and thereby enhance the potential for price
improvement.\8\
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\8\ See id. at 57324.
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To substantiate that its members can receive, process, and
communicate a response back to the Exchange within 100 milliseconds
(the shortest possible duration of the Response Time Interval), the
Exchange states that it surveyed all ATP Holders that responded to a
CUBE Auction broadcast in the three months prior to the filing of this
proposed rule change.\9\ According to the Exchange, each ATP Holder it
surveyed indicated that it can receive, process, and communicate a
response back to the Exchange within 100 milliseconds.\10\ The Exchange
further states that it has analyzed its capacity and represents that it
has the necessary systems capacity to handle the potential additional
traffic associated with the additional transactions that may occur with
the implementation of the proposed reduction of the Response Time
Interval to no less than 100 milliseconds.\11\ The Exchange further
represents that its system will be able to sufficiently maintain an
audit trail for order and trade information with the reduction in the
Response Time Interval.\12\
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\9\ See id. at 57323.
\10\ See id.
\11\ See id.
\12\ See id.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\13\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\14\ which
requires, among other things, that the rules of a national securities
exchange be designed to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating 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 not be designed to permit unfair discrimination between customers,
issuers, brokers, or dealers. The Commission also finds that the
proposed rule change is consistent with Section 6(b)(8) of the Act,\15\
which requires that the rules of an exchange not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\13\ 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).
\14\ 15 U.S.C. 78f(b)(5).
\15\ 15 U.S.C. 78f(b)(8).
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The Commission believes that, as NYSE American maintains,
permitting the Exchange to designate an exposure time period of as
short as100 milliseconds in the CUBE Auction is consistent with the
Commission's past approval of rules of options exchanges that govern
the duration of their electronic auctions. These rules provide for a
period of as short as 100 milliseconds for market participants to
submit responses to an auction announcement before the auction
ends.\16\ Similarly, the Commission has approved rules allowing options
exchanges to set an exposure period of up to one second.\17\
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\16\ See Securities Exchange Act Release Nos. 76301 (October 29,
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (establishing
an exposure period for Nasdaq BX's options price improvement
mechanism (``PRISM'') of no less than 100 milliseconds and no more
than one second); 77557 (April 7, 2016), 81 FR 21935 (April 13,
2016) (SR-Phlx-2016-40) (amending the exposure period for Nasdaq
Phlx's Price Improvement XL (``PIXL'') to be no less than 100
milliseconds and no more than one second); 79733 (January 4, 2017),
82 FR 3055 (January 10, 2017) (SR-ISE-2016-26) (amending the
exposure period for Nasdaq ISE's Price Improvement Mechanism
(``PIM'') to be no less than 100 milliseconds and no more than one
second); 80738 (May 22, 2017), 82 FR 24417 (May 26, 2017) (SR-CBOE-
2017-029) (amending the exposure periods for CBOE's Automated
Improvement Mechanism (``AIM'') and Solicitation Auction Mechanism
(``SAM'') to be no less than 100 milliseconds and no more than one
second); and 80940 (June 15, 2017), 82 FR 28369 (June 21, 2017) (SR-
MIAX-2017-16) (amending the exposure periods for MIAX's Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism
to be no less than 100 milliseconds and no more than one second).
See also the rules as codified at NASDAQ Phlx Rule
1080(n)(ii)(A)(4), NASDAQ BX Options Rules Chapter VI, Section
9(ii)(A)(3), Nasdaq ISE Rule 716, Supplementary Material .04, Nasdaq
ISE Rule 723(c)(1), CBOE Rule 6.74A(b)(1)(C), CBOE Rule
6.74B(b)(1)(C), MIAX Rule 515A(a)(2)(i)(C), and MIAX Rule
515A(b)(2)(i)(C).
\17\ See supra note 16.
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The Commission notes that the fact that, in CUBE, a Response Time
Interval is separately and randomly set by the auction mechanism for
each individual auction (provided that no auction can be longer or
shorter than specified limits) is not unique with respect to the
instant proposal.\18\ The feature of CUBE that randomly sets a Response
Time Interval for each auction--which is unique in contrast to
electronic auction mechanisms at other options exchanges--has been a
component of CUBE since approval of the Exchange's Rule governing the
CUBE \19\ and is consistent with the mechanism's current functionality.
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\18\ Currently, for example, the Response Time Interval for each
individual auction is randomly set by the CUBE mechanism, but it is
not possible for the mechanism to set a duration that is shorter
than 500 milliseconds or longer than 750 milliseconds.
\19\ See Exchange Rule 971.1NY(c)(2)(B). See also Securities
Exchange Act Release No. 72025 (April 25, 2014), 79 FR 24779, 24782,
24787 (May 1, 2017) (SR-NYSEMKT-2014-17) (order approving a proposed
rule change to adopt the CUBE Auction).
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The Exchange's proposal revises how the minimum and maximum time
lengths for the randomly-set Response Time Interval for each CUBE
Auction would be established. Currently, Exchange Rule 971.1NY sets the
minimum and maximum: no less than 500 milliseconds and no more than 750
milliseconds. Under the proposal, the Exchange is granted the
discretion to establish the minimum and maximum possible durations of
an auction and change them from time to time (with adequate notice to
market participants). However, that discretion itself is restricted
under the proposal. The Exchange would not be permitted to establish
the limits in a way that would allow even a randomly-set Response Time
Interval to be shorter than 100 milliseconds or longer than one second.
The Commission thus notes that, under the proposed parameters, the
exposure period for an order submitted to a CUBE Auction could never be
shorter than the exposure period of any other options exchange's
electronic auction.
Accordingly, for the reasons discussed above, the Commission
believes that the Exchange's proposal is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the
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proposed rule change (SR-NYSEAMER-2017-26) be, and hereby is, approved.
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\20\ 15 U.S.C. 78s(b)(2).
\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00855 Filed 1-18-18; 8:45 am]
BILLING CODE 8011-01-P