
[Federal Register Volume 77, Number 204 (Monday, October 22, 2012)]
[Notices]
[Pages 64571-64572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25879]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68056; File No. SR-NSX-2012-16]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend its Rules To Clarify the Handling of Zero Displayed Reserve 
Orders During Crossed Markets and To Add a Definition of a Primary Peg 
Order

October 16, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 10, 2012, National Stock Exchange, Inc. (``Exchange'' 
or ``NSX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. 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\ 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 is proposing to modify the text of Exchange Rule 
11.11, 11.14 and 11.15 to (1) clarify that the Exchange's trading 
system (the ``System'' \3\) will not execute a Zero Display Reserve 
Order when the national best bid is priced higher than the national 
best offer (i.e., a crossed market), and (2) add a definition of a 
Primary Peg Order under Rule 11.11 (c)(2)(A).
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    \3\ The ``System'' refers to ``the electronic securities 
communications and trading facility designated by the Board through 
which orders of Users are consolidated for ranking and execution.'' 
See Exchange Rule 1.5.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nsx.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 Exchange 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 these 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 is proposing to amend its rules to clarify that the 
System will not execute Zero Display Reserve Orders during a crossed 
market. A Zero Display Reserve Order is a Reserve Order for which the 
entire order size remains hidden or undisplayed.
    Exchange Rule 11.15(a)(iv) sets forth the manner in which Zero 
Display Reserve Orders are executed. Currently, the System will not 
execute a Zero Display Reserve Order during a crossed market. The 
Exchange is proposing to amend Rules 11.11(c)(2)(A) and 11.11(c)(2)(D), 
11.14(a)(4) and Rule 11.15(a)(iv) in order to provide that (i) Zero 
Display Reserve Orders will not execute during crossed markets, and 
(ii) such Zero Display Reserve Orders will be eligible for execution 
when the market uncrosses (i.e., the protected bid is priced lower than 
the protected offer). The Exchange will make other clarifying edits to 
similar rules in an effort to maintain clear and cohesive Exchange 
rules.
    Exchange Rule 11.15(a)(iv) currently provides that a Zero Display 
Reserve Order designated as a Post Only Order which is marketable upon 
entry, but not executed pursuant to Rule 11.11(c)(5)(B), is ranked in 
the NSX Book and ``matched for execution in accordance with Rule 
11.15.'' The Exchange proposes to amend the language in Rule 
11.15(a)(iv) to explicitly provide that Zero Display Reserve Orders 
will not execute during a crossed market. The Exchange is also 
proposing to add language to Rule 11.15(a)(iv) to clarify that these 
orders, if not cancelled during this period, will be executed when the 
protected bid is priced lower than the protected offer.
    The Exchange sets forth the execution priority for Reserve Orders, 
including Zero Display Reserve Orders, in Rule 11.14. Under this rule, 
Reserve Orders have time priority over Zero Display Reserve Orders. The 
time priority among Zero Display Reserve Orders at the same price is 
established by several factors including whether the order has a 
Minimum Execution Quantity Instruction.\4\ The Exchange is proposing to 
amend Rule 11.14(a)(4) to clarify that each Zero Display Reserve Order 
will retain its time priority when the System does not execute the 
order during a crossed market.
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    \4\ See Exchange Rule 11.14(a)(4).
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    These clarifying amendments provide Equity Trading Permit (``ETP'') 
holders with additional information regarding how the System executes 
Reserve Orders and Zero Display Reserve Orders. The Exchange further 
proposes to clarify this notion in Rule 11.11(c)(2)(D) by referencing 
the execution process for Zero Display Reserve Orders set forth in 
11.15(a)(iv). Currently, Rule 11.11(c)(2)(D) notifies ETP Holders that 
Zero Display Reserve Orders will not be eligible for routing to away 
Trading Centers. By adding the

[[Page 64572]]

proposed language, ETP Holders will also be on notice that such orders 
will not be eligible for execution when the market is crossed.\5\ In 
addition, as a clarifying change, in an attempt to make Exchange rules 
more consistent, the Exchange is proposing to capitalize ``Trading 
Center'' as the term is defined in Rule 2.11.\6\
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    \5\ ETP holders have expressed to the Exchange their preference 
that their Zero Reserve
    Display Orders not be executed when the market is crossed 
because it would result in inferior execution. In addition, other 
exchanges do not execute similar orders where the market is crossed. 
See CBOE Rule 51.8(g)(10).
    \6\ See Exchange Rule 2.11.
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    Finally, the Exchange proposes to make some clarifying 
modifications to the Zero Display Reserve Order Rules in Exchange Rule 
11.11(c)(2)(A). Namely, the Exchange is proposing to clarify the 
Exchange's language addressing Zero Display Reserve Orders, in general, 
by adding the definition of a ``Primary Peg''. In the proposed 
language, a Primary Peg is ``a pegged Zero Display Reserve Order that 
tracks the inside quote of the same side of the market.'' This order 
type is currently offered by the Exchange, and the Exchange is, 
therefore, proposing to modify this Rule to make clear that the Primary 
Peg Order type is available to users. The Exchange also proposes to add 
this language to clarify to ETP Holders all modifiers that may be used 
in the NSX System with respect to Zero Display Reserve Orders.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6 of the Act),\7\ and the rules and regulations thereunder and, 
in particular, the requirements of Section 6(b) of the Act.\8\ 
Specifically, the Exchange believes the modification of Rule 11.11, 
11.14, and 11.15 furthers the objective of Section 6(b)(5) of the Act 
because it clearly explains how the Exchange handles Zero Display 
Reserve Orders when the protected bid is priced higher than the 
protected offer in NMS stock. Furthermore, incorporating a definition 
of the Primary Peg Order type will provide ETP Holders clarity as to 
how those orders are to be handled by the Exchange. Accordingly, the 
Exchange believes that the proposed rule change promotes just and 
equitable principles of trade, will remove impediments to, and perfect 
the mechanism of a free and open market and a national market system 
and, in general, protects investors and the public interest.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b).
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    The proposed rule change provides transparency and certainty with 
respect to how certain orders are executed on the Exchange. In so 
doing, the proposed rule change promotes the maintenance of a fair and 
orderly market, the protection of investors and the protection of the 
public interest, consistent with the Act and the rules promulgated 
thereunder.

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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Changes and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19-
4(f)(6)(iii) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-NSX-2012-16 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-NSX-2012-16. 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 such 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 publicly available. All 
submissions should refer to File Number SR-NSX-2012-16 and should be 
submitted on or before November 13, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25879 Filed 10-19-12; 8:45 am]
BILLING CODE 8011-01-P


