
[Federal Register Volume 77, Number 130 (Friday, July 6, 2012)]
[Notices]
[Pages 40129-40132]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16522]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67318; File No. SR-NYSEMKT-2012-13]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Rule Change, as Modified by Amendment No. 1 Thereto, (1) Amending Rule 
13--Equities To Establish New Order Types, (2) Amending Rule 115A--
Equities To Delete Obsolete Text and To Clarify and Update the 
Description of the Allocation of Market and Limit Interest in Opening 
and Reopening Transactions, (3) Amending Rule 123C--Equities To Include 
Better-Priced G Orders in the Allocation of Orders in Closing 
Transactions, and (4) Making Other Technical and Conforming Changes

June 29, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on June 15, 2012, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule 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 13--Equities to establish 
new order types, (2) amend Rule 115A--Equities to delete obsolete text 
and to clarify and update the description of the allocation of market 
and limit interest in opening and reopening transactions, (3) amend 
Rule 123C--Equities to include better-priced G orders in the allocation 
of orders in closing transactions, and (4) make other technical and 
conforming changes. 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.

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to (1) amend Rule 13--Equities to establish 
new order types, (2) amend Rule 115A--Equities to delete obsolete text 
and to clarify and update the description of the allocation of market 
and limit interest in opening and reopening transactions, (3) amend 
Rule 123C--Equities to include better-priced G orders \4\ in the 
allocation of

[[Page 40130]]

orders in closing transactions, and (4) make other technical and 
conforming changes.
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    \4\ A G order is a proprietary order represented pursuant to 
Section 11(a)(1)(G) of the Securities Exchange Act of 1934 (the 
``Act''). Section 11(a)(1) of the Act generally prohibits a member 
of a national securities exchange from effecting transactions on 
that exchange for its own account, the account of an associated 
person, or any account over which it or an associated person 
exercises discretion. See 15 U.S.C. 78k(a)(1). Subsection (G) of 
Section 11(a)(1) provides an exemption allowing an exchange member 
to have its own floor broker execute a proprietary transaction (``G 
order''). A g-Quote is an electronic method for Floor brokers to 
represent G orders. The Exchange proposes to amend Rule 13--Equities 
to define a ``G order'' as the term is currently used in Rule 
123C(7)--Equities, and the Exchange proposes to add it to Rule 
115A--Equities.
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Rule 13--Equities Order Type Amendments
    The Exchange proposes to amend Rule 13--Equities to delete the At 
the Opening and At the Opening Only order types \5\ and replace them 
with Market ``On-the-Open'' (``MOO'') and Limit ``On-the-Open'' 
(``LOO'') order types, terminologies commonly used by other exchanges 
\6\ and variations of the Market ``At-the-Close'' (``MOC'') and Limit 
``At-the-Close'' (``LOC'') order types already offered by the 
Exchange.\7\ Under current Rule 13--Equities, At the Opening and At the 
Opening Only orders can execute after the security opens on a quote, 
which is why the current definition includes provisions relating to 
routing such interest to an away market. The Exchange wishes to 
preclude such interest from executing after opening on a quote, or 
routing to an away market, and as such, the new MOO and LOO order 
definitions would specifically provide that such order types 
automatically cancel if the security opens either on a quote or a 
trade.
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    \5\ Under current Rule 13--Equities, these orders are market or 
limited price orders that are to be executed on the opening trade of 
the stock on the Exchange or, if the Exchange opens the stock on a 
quote, the opening trade in the stock on another market center to 
which such order or part thereof has been routed in compliance with 
Regulation NMS; any such order or portion thereof not so executed is 
treated as cancelled. An At the Opening or At the Opening Only order 
that seeks the possibility of an Exchange-only opening execution 
must be marked as a Regulation NMS-compliant Immediate or Cancel 
(``IOC'') order. An order so marked, or part thereof, is immediately 
and automatically cancelled if it is not executed on the opening 
trade of the stock on the Exchange or compliance with Regulation NMS 
requires all or part of such order to be routed to another market 
center.
    \6\ See, e.g., NYSE Arca Equities Rule 7.31(t)(1) and (2); 
NASDAQ Rule 4752(a)(3) and (4); and BATS Exchange Rule 11.23(a)(14) 
and (16).
    \7\ See Rule 13--Equities.
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    A MOO would be defined as a market order in a security that is to 
be executed in its entirety on the opening or reopening trade of the 
security on the Exchange; it would be immediately and automatically 
cancelled if the security opened on a quote or if it were not executed 
due to tick restrictions. A LOO order would be defined as a limit order 
in a security that is to be executed on the opening or reopening trade 
of the security on the Exchange. A LOO order, or a part thereof, would 
immediately and automatically cancel if by its terms it were not 
marketable at the opening price, if it were not executed on the opening 
trade of the security on the Exchange, or if the security opened on a 
quote. Both MOO and LOO orders could be entered before the open to 
participate on the opening trade or during a trading halt or pause to 
participate on a reopening trade.
    The Exchange also proposes to add a new paragraph (c) in the 
definition of IOC orders to provide for a new order type, an IOC-
Minimum Trade Size (``MTS'') order (``IOC-MTS order''), which would be 
defined as any IOC order, including an intermarket sweep order, that 
includes an MTS instruction.\8\ For each incoming IOC-MTS order, 
Exchange systems would evaluate whether contra-side displayable and 
non-displayable interest on Exchange systems could meet the MTS and 
reject such incoming IOC-MTS order if Exchange contra-side volume could 
not do so. An Exchange IOC order with an MTS could result in an 
execution in an away market. For example, assume that the Exchange best 
bid or offer is $10.05-$10.07 with 500 shares offered. A buy Exchange 
IOC-MTS market order for 500 shares arrives, and because the Exchange 
can fill it, the incoming Exchange IOC-MTS order would be accepted. 
However, if the current best protected offer is $10.06 on another 
market for 200 shares, the Exchange would route 200 shares of the 
incoming Exchange IOC-MTS to Nasdaq and execute the balance of 300 
shares at $10.07. The Exchange would reject any IOC-MTS orders if the 
security were not open for trading, if it were halted or paused, or if 
auto-execution were suspended.
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    \8\ A minimum trade size instruction is currently available to 
Floor brokers for d-quotes under NYSE Rule 70.25(d)--Equities. 
Nasdaq also offers a Minimum Quantity Order, which is a non-
displayed order that will not execute unless a specified minimum 
quantity of shares can be obtained.
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    The Exchange proposes non-substantive amendments to its Immediate 
or Cancel definition as well, including adding the short-form term 
``IOC'' to the rule, redesignating existing paragraphs (c) and (d) as 
(d) and (e) respectively, and conforming existing rule text to provide 
that only an IOC order without an MTS could be entered before the 
Exchange opening for participation in the opening trade or when auto 
execution is suspended, which includes during a trading pause or halt.
    The Exchange proposes, as a technical and conforming amendments to 
Rule 13--Equities, to delete the definition of Time Order because this 
relates to a Floor broker order that historically would have been held 
by the specialist on behalf of the Floor broker and converted to a 
market or limit order at a specified time. In connection with both the 
Hybrid Market initiative and the Exchange's New Market Model, this 
order type is now obsolete and can no longer be used by Floor brokers.
Rule 115A--Equities Opening Allocation
    The Exchange proposes to amend Rule 115A--Equities, which addresses 
orders at the opening or in unusual situations. Currently, the Rule 
contains no text but has Supplementary Material .10, which addresses 
queries to the Display Book before an opening; Supplementary Material 
.20, which addresses the arranging of an opening or price by a 
Designated Market Maker (``DMM''); and Supplementary Material .30, 
which addresses certain functions of Exchange systems with respect to 
orders at the opening.
    The Exchange proposes to redesignate Supplementary Material .10 as 
Rule 115A(a)--Equities but does not propose any change to the text of 
this provision.
    The Exchange proposes to add new Rule 115A(b)--Equities, which 
would address the allocation of orders on opening and reopening trades 
and delete in its entirety the text of Supplementary Material .20 and 
.30. Most of the current text of Supplementary Material .20 and .30 is 
obsolete in that it describes DMM functions that have not been 
performed since the second phase of the New Market Model was launched 
in 2008.\9\ DMMs no longer hold orders. As such, the Exchange proposes 
to delete all of the text relating to those functions. Supplementary 
Material .30 also contains text describing Exchange systems that is 
either outdated or covered by Rule 15--Equities, and as such, also 
would be deleted.
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    \9\ See Securities Exchange Act Release No. 59022 (Nov. 26, 
2008), 73 FR 73683 (Dec. 3, 2008) (SR-NYSEALTR-2008-10).
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    A few of the current provisions of Supplementary Material .20 
continue to be applicable following adoption of the New Market Model. 
Current paragraphs 2(a), (b), and (c) of Supplementary Material .20 
address the allocation and precedence of certain orders in openings and 
reopenings. Paragraph 2(a) provides that a limited price order to buy 
(sell)

[[Page 40131]]

that is at a higher (lower) price than the security is to be opened or 
reopened is treated as a market order, and market orders have 
precedence over limited orders. Paragraph 2(b) provides that when the 
price on a limited price order is the same as the price at which the 
stock is to be opened or reopened, it may not be possible to execute a 
limited price order at such price. Paragraph 2(c) requires a DMM to see 
that each market order the DMM holds participates in the opening 
transaction, and if the order is for an amount larger than one round 
lot, the size of the bid that is accepted or the offer that is taken 
establishing the opening or reopening price is the amount that a market 
order is entitled to participate in at the opening or reopening.
    The Exchange proposes to move these concepts concerning the 
allocation and precedence of orders in openings and reopenings to 
proposed Rule 115A(b)--Equities; further clarify and update the text to 
better reflect the Exchange's current practices; and expressly address 
the treatment of MOOs, LOOs, tick-sensitive market orders, Floor broker 
interest manually entered by DMMs, and G orders. Proposed Rule 
115A(b)--Equities would provide that when arranging an opening or 
reopening price, except as provided for in proposed Rule 115A(b)(2)--
Equities, which is described below, market interest would be guaranteed 
to participate in the opening or reopening transaction and have 
precedence over (i) limit interest that is priced equal to the opening 
or reopening price of a security and (ii) DMM interest. For purposes of 
the opening or reopening transaction, market interest would include (i) 
market and MOO orders, (ii) tick-sensitive market and MOO orders to buy 
(sell) that are priced higher (lower) than the opening or reopening 
price, (iii) limit interest to buy (sell) that is priced higher (lower) 
than the opening or reopening price, and (iv) Floor broker interest 
entered manually by the DMM.
    For purposes of the opening or reopening transaction, limit 
interest would include (i) limited-priced interest, including e-Quotes, 
LOO orders, and G orders; and (ii) tick-sensitive market and MOO orders 
that are priced equal to the opening or reopening price of a security. 
Limit interest that is priced equal to the opening or reopening price 
of a security and DMM interest would not be guaranteed to participate 
in the opening or reopening transaction. In addition, G orders that are 
priced equal to the opening or reopening price of a security would 
yield to all other limit interest priced equal to the opening or 
reopening price of a security except DMM interest.
    The Exchange also proposes to include in the rule more specificity 
of the circumstances of when a security may open on a quote, and what 
would happen to odd-lot sized orders in such scenario. Proposed Rule 
115A(b)(2)--Equities would provide that if the aggregate quantity of 
MOO and market orders on at least one side of the market equals one 
round lot or more, the security must open on a trade. If the aggregate 
quantity of MOO and market orders on each side of the market equals 
less than one round lot or is zero, the security could open on a quote. 
If a security opens on a quote, odd-lot market orders would 
automatically execute in a trade immediately following the open on a 
quote and odd-lot MOOs would immediately and automatically cancel. MOO 
and market orders subject to tick restrictions that either cannot 
participate at an opening or reopening price or are priced equal to the 
opening or reopening price would not be included in the aggregate 
quantity of MOO and market orders.
Rule 123C--Equities Closing Allocation
    The Exchange proposes to amend Rule 123C--Equities to include 
better-priced G orders in the list of orders that must be allocated in 
whole or part in closing transactions. G orders on the Exchange yield 
priority and parity to other non-G orders, other than CO Orders.\10\ 
However, Section 11(a)(1)(G) of the Act does not require better-priced 
G orders to yield.
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    \10\ See supra note 4.
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    Currently, Rule 123C(7)(a)--Equities sets forth six order types 
that must be included in the closing transaction in the following 
order: (1) MOC orders that do not have tick restrictions, (2) MOC 
orders that have tick restrictions that limit the execution of the MOC 
to a price better than the price of the closing transaction, (3) Floor 
broker interest entered manually by the DMM, (4) limit orders better 
priced than the closing price, (5) LOC orders that do not have tick 
restrictions better priced than the closing transaction, and (6) LOC 
orders better priced than the closing transaction that have tick 
restrictions that are capable of being executed based on the closing 
price. Rule 123C(7)(b)--Equities provides that the following interest 
may be used to offset a closing imbalance in the following order: (1) 
Limit orders represented in the Display Book with a price equal to the 
closing price, (2) LOC orders with a price equal to the closing price, 
(3) MOC orders that have tick restrictions that limit the execution of 
the MOC to the price of the closing transaction, (4) LOC orders that 
have tick restrictions that are capable of being executed based on the 
closing price and the price of such limit order is equal to the price 
of the closing transaction, (5) G orders, and (6) Closing Only orders.
    The Exchange proposes to amend Rule 123C(7)(a)--Equities to add G 
orders that are better priced than the closing price as the last type 
of order that must be included in the closing transaction and to make a 
conforming change to Rule 123C(7)(b)--Equities to reference G orders 
priced equal to the closing price as being eligible to be used to 
offset a closing imbalance with the same priority as the current Rule 
reflects. Rule 123C(7)(b)(i)--Equities also would be clarified by 
adding that DMM interest, as well as limit orders represented in the 
Display Book with a price equal to the closing price, are the first 
types of interest that may be used to offset a closing imbalance.\11\
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    \11\ The New York Stock Exchange LLC, upon which rules the 
Exchange equities rules are based, has noted in prior rule filings 
that DMM interest would be treated in such a manner. See, e.g., 
Securities Exchange Act Release No. 60974 (Nov. 9, 2009) 74 FR 59299 
(Nov. 17, 2009) (SR-NYSE-2009-111) (``After the `must execute 
interest' is satisfied, then any limit orders represented in Display 
Book at the closing price may be used to offset the remaining 
imbalance. It should be noted that DMM interest, including better-
priced DMM interest entered into the Display Book prior to the 
closing transaction, eligible to participate in the closing 
transaction is always included in the hierarchy of execution as if 
it were interest equal to the price of the closing transaction.'').
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    The Exchange notes that in amending Rules 115A--Equities and 123C--
Equities to include better-priced G orders in the allocation of orders 
in opening, reopening, and closing transactions, G orders priced at the 
opening, reopening, or closing price will still yield priority and 
parity to other non-G orders, other than CO Orders at the close, as 
required by Section 11(a) of the Act. The Exchange further notes that 
there is no requirement under the Act that better-priced G orders 
yield. The Exchange believes that including better-priced G orders in 
the required allocation for opening, reopening, and closing 
transactions will encourage member organizations to provide price 
improvement and liquidity on the Exchange. Moreover, for opening and 
reopening transactions, if better-priced G orders are not included in 
the ``has to go'' interest, immediately following the opening, such 
better-priced G orders will automatically be quoted, which, assuming it 
is sell G order interest, could result in an opening transaction, and 
then a sell quote that is below the opening price.

[[Page 40132]]

    Because these are technology-based changes, the Exchange will 
announce the implementation schedule via Trader Update.
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, in that it 
is 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, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
The Exchange believes that deleting the At the Opening and At the 
Opening Only order types and creating new MOO and LOO order types 
provide more clarity about how opening orders are processed, and in 
particular that automatically canceling such orders when the Exchange 
opens on quote will create efficiencies and also remove impediments to 
a free and open market. The Exchange further believes that offering a 
new order type, an IOC-MTS, will offer investors new trading 
opportunities on the Exchange. The LOO, MOO, and IOC-MTS orders are 
similar to orders that have already been approved by the 
Commission.\14\
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See supra notes 6 and 8.
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    The Exchange believes that amending Rule 115A--Equities to delete 
obsolete text and to clarify and update the description of the 
allocation of market and limit interest in openings and reopenings and 
address the treatment of additional order types will add transparency 
and clarity to the Exchange's rules, thereby promoting just and 
equitable principles of trade and removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system.
    The Exchange believes that the proposed changes to Rule 123C--
Equities and related proposed change concerning the treatment of 
better-priced G orders in Rule 115A--Equities will promote just and 
equitable principles of trade and remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
that the proposed changes also are consistent with Section 11(a)(1)(G) 
of the Act. As discussed above, G Orders priced at the opening, 
reopening, or closing price will continue to yield, as required by 
Section 11(a). Moreover, the Exchange believes that for the opening and 
reopening transactions, including better-priced G interest as ``has-to-
go'' interest will encourage member organizations to provide price 
improvement and liquidity at the Exchange. The Exchange further 
believes that amending Rule 123C(7)(b)(i)--Equities to expressly 
provide for the treatment of DMM interest in offsetting a closing 
imbalance will add transparency and clarity to the Exchange's rules, 
thereby promoting just and equitable principles of trade and removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system.
    Finally, the technical changes to remove obsolete references in 
Rule 13--Equities also will add transparency and clarity to the 
Exchange's rules, thereby promoting just and equitable principles of 
trade and removing impediments to and perfecting the mechanism of a 
free and open market and a national market system.

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.

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 within such longer period (i) as the Commission may 
designate up to 90 days of such date 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2012-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2012-13. 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 publicly available. All 
submissions should refer to File Number SR-NYSEMKT-2012-13 and should 
be submitted on or before July 27, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16522 Filed 7-5-12; 8:45 am]
BILLING CODE 8011-01-P


