
[Federal Register Volume 77, Number 216 (Wednesday, November 7, 2012)]
[Notices]
[Pages 66888-66890]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27212]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68128; File No. SR-NYSEMKT-2012-55]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 968NY To 
Allow for the Split-Price Priority Provisions To Apply to Open Outcry 
Trading of Cabinet Trades

 November 1, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on October 19, 2012, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 968NY to allow for the split-
price priority provisions to apply to open outcry trading of cabinet 
trades. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 968NY to provide that the 
split-price priority provisions in Rule 963NY(f) apply to accommodation 
trades (``cabinet trades'') in open outcry.\4\
---------------------------------------------------------------------------

    \4\ See Rule 963NY(f). Rule 963NY(f) regarding priority on 
split-price transaction occurring in open outcry specifically 
provides the following: (1) If an ATP Holder purchases (sells) one 
or more option contracts of a particular series at a particular 
price or prices, the ATP Holder must, at the next lower (higher) 
price at which another ATP Holder bids (offers), have priority in 
purchasing (selling) up to the equivalent number of option contracts 
of the same series that the ATP Holder purchased (sold) at the 
higher (lower) price or prices, provided that the ATP Holder's bid 
(offer) is made promptly and continuously and that the purchase 
(sale) so effected represents the opposite side of a transaction 
with the same order or offer (bid) as the earlier purchase or 
purchases (sale or sales). This paragraph only applies to 
transactions effected in open outcry; (2) If an ATP Holder purchases 
(sells) fifty or more option contracts of a particular series at a 
particular price or prices, he/she shall, at the next lower (higher) 
price have priority in purchasing (selling) up to the equivalent 
number of option contracts of the same series that he/she purchased 
(sold) at the higher (lower) price or prices, but only if his/her 
bid (offer) is made promptly and the purchase (sale) so effected 
represents the opposite side of the transaction with the same order 
or offer (bid) as the earlier purchase or purchases (sale or sales). 
The Exchange may increase the ``minimum qualifying order size'' 
above 100 contracts for all products. Announcements regarding 
changes to the minimum qualifying order size shall be made via an 
Exchange Bulletin. This paragraph only applies to transactions 
effected in open outcry; (3) If the bids or offers of two or more 
ATP Holder are both entitled to priority in accordance with 
subsections (1) or (2), it shall be afforded them, insofar as 
practicable, on an equal basis.; (4) Except for the provisions set 
forth in Rule 963NY(f)(2), the priority afforded by this rule is 
effective only insofar as it does not conflict with Customer limit 
orders represented in the Consolidated Book. Such orders have 
precedence over ATP Holders' orders at a particular price; Customer 
limit orders in the Consolidated Book also have precedence over ATP 
Holders' orders that are not superior in price by at least the MPV.; 
and (5) Floor Brokers are able to achieve split price priority in 
accordance with paragraphs (1) and (2) above.
    Example: Market quote is $1.00-1.20, with customer interest in 
the book at the offer price. Floor Broker announces a market order 
to buy 100 contracts. Market Maker A (``MM-A'') is alone in 
responding ``Sell 50 at $1.15 and 50 at $1.20'' (for an equivalent 
net price of $1.175).
    Because MM-A is willing to sell contracts at the lower price of 
$1.15, MM-A then has priority over all orders in the Book and 
trading crowd at the next higher price, in this case 1.20, for an 
equal number of contracts. The priority afforded by this provision 
allows MM-A to trade ahead of any like priced Customer orders in the 
Book.
---------------------------------------------------------------------------

    An ``accommodation'' or ``cabinet'' trade refers to trades in 
listed options on the Exchange that are worthless or not

[[Page 66889]]

actively traded. Cabinet trading provides a way for market participants 
to effect transactions in such options at a minimal cost. Cabinet 
trading is conducted in accordance with Rule 968NY Accommodation 
Transactions (Cabinet Trades),\5\ which provides that cabinet trading 
shall be conducted in accordance with other Exchange rules, except as 
otherwise provided in Rule 968NY, and sets forth specific procedures 
for engaging in cabinet trading. Pursuant to Rule 968NY(a), the 
Exchange designates options issues as eligible for cabinet trading 
pursuant to Rule 968NY. Such designations are made pursuant to requests 
from market participants.
---------------------------------------------------------------------------

    \5\ Rule 968NY currently provides for cabinet transactions to 
occur via open outcry at a cabinet price of a $1 per option contract 
in any options series open for trading in the Exchange, except that 
the Rule is not applicable to trading in option classes 
participating in the Penny Pilot Program. Under the procedures, bids 
and offers (whether opening or closing a position) at a price of $1 
per option contract may be represented in the trading crowd by a 
Floor Broker or by a Market Maker or provided in response to a 
request by a Trading Official, a Floor Broker or a Market Maker, but 
must yield priority to all resting orders in the Cabinet (those 
orders held by the Trading Official, and which resting cabinet 
orders may be closing only). So long as both the buyer and the 
seller yield to orders resting in the cabinet book, opening cabinet 
bids can trade with opening cabinet offers at $1 per option 
contract.
---------------------------------------------------------------------------

    In March 2009, NYSE Amex adopted a new rule set governing the 
trading of options.\6\ Much of the new rule set was based on the rules 
of NYSE Arca Inc. (``NYSE Arca''). In conjunction with the filing of 
the new rule set, the Exchange filed a separate proposal deleting many 
out-of-date and/or obsolete rules.\7\ Included as part of this filing 
was the deletion of former American Stock Exchange Rule 959-
Accommodation Transactions, which contained provisions governing both 
cabinet trading and position transfers. However, when filing the new 
rule set the Exchange inadvertently failed to include new rules 
governing cabinet trading. In July, 2009, the Exchange added a new rule 
governing trading of cabinet orders.\8\ Instead of copying the cabinet 
trading rules of Chicago Board Options Exchange, Incorporated 
(``CBOE'') or NASDAQ OMX PHLX LLC (``PHLX''), the Exchange chose to 
copy-cat the language of the existing NYSE Arca cabinet trade rule, 
which included a restriction that prevented the application of the 
split-price priority provisions to manual cabinet trading. In contrast, 
neither CBOE nor PHLX have a similar restriction on cabinet trades, and 
allow for split-price priority for cabinet trades on the trading 
floor.\9\ The Exchange did not understand the implication of not 
choosing to copy the cabinet trading rules of CBOE or PHLX at that 
time.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 59472 (February 27, 
2009), 74 FR 9843 (March 6, 2009) (order approving NYSEALTR-2008-14, 
as amended).
    \7\ See Securities Exchange Act Release No. 59454 (February 25, 
2009), 74 FR 9461 (March 4, 2009) (notice of filing and immediate 
effectiveness of NYSEALTR-2009-17).
    \8\ See Securities Exchange Act Release No. 60296 (July 13, 
2009), 74 FR 35217 (July 20, 2009) (SR-NYSE-Amex-2009-37).
    \9\ See CBOE Rules 6.54 and 6.47; NASDAQ OMX PHLX Rule 1059.
---------------------------------------------------------------------------

    Prior to the adoption of the present NYSE Amex trading system, all 
cabinet trading on the NYSE Amex was done on a manual basis. Therefore, 
previous Amex Stock Exchange Rule 959(a) dealt only with cabinet 
trading in open outcry. However, current Rule 968NY provides for both 
manual and electronic cabinet trading--with manual cabinet trading 
pursuant to Rule 968NY(b) and electronic cabinet trading pursuant to 
Rule 968NY(c). Rule 968NY(b)(3) expressly provides that the split-price 
priority provisions otherwise applicable to open outcry trading 
pursuant to Rule 963NY(f) do not apply to open outcry trading in 
cabinet trades.\10\ Because split-price priority provisions are only 
applicable to open outcry trading, Rule 968NY(c), which governs 
electronic trading of cabinet trading, does not include this provision.
---------------------------------------------------------------------------

    \10\ This limitation did not exist in the previous American 
Stock Exchange Rule Amex 959(a) that dealt only with cabinet trading 
in open outcry. See Securities Exchange Act Release No. 59454 
(February 25, 2009), 74 FR 9461 (March 4, 2009) (SR-NYSEALTR-2009-
17).
---------------------------------------------------------------------------

    The Exchange believes that split-price priority provisions should 
apply to open outcry cabinet trading, and that the existing restriction 
unnecessarily limits the ability of market participants to manually 
trade cabinet orders on the floor. The current restriction 
unnecessarily restricts business by not making available certain prices 
which are available on other exchanges. Split-price priority in open 
outcry trading of cabinet trades provides an extra incentive for market 
participants to both price improve and facilitate the efficient trading 
of options contracts that are worthless or not actively trading. The 
Exchange notes that neither CBOE nor PHLX have a similar restriction on 
cabinet trades, and allow for split-price priority for cabinet trades 
on the trading floor.\11\
---------------------------------------------------------------------------

    \11\ See CBOE Rules 6.54 and 6.47; PHLX Rule 1059. CBOE and PHLX 
both conduct their cabinet trading via open out-cry. Split-price 
priority is available for open out-cry trading on both CBOE and 
PHLX, with no restriction for cabinet trades. In addition, until 
March 2009, when the Exchange deleted former American Stock Exchange 
(``Amex'') rules that were deemed obsolete, the Exchange permitted 
split-price priority for open outcry cabinet trades. See Securities 
Exchange Act Release No. 59454 (February 25, 2009), 74 FR 9461 
(March 4, 2009) (notice of filing and immediate effectiveness of 
NYSEALTR-2009-17) (deleting, in part, Amex Rule 959--Accommodation 
Transactions).
---------------------------------------------------------------------------

    Accordingly, the Exchange therefore proposes to delete the language 
from Rule 968NY(b)(3) that states that the split-price priority 
provisions of Rule 963NY shall not apply. The Exchange believes that 
providing market participants the ability to have split-price priority 
when trading cabinet orders in open outcry will help facilitate the 
trading of options positions that are worthless or not actively traded. 
The Exchange believes that the proposal should lead to more aggressive 
quoting by trading crowd participants on the floor, which in turn could 
lead to better executions. A trading crowd participant might be willing 
to trade at a better price for a portion of an order if they were 
assured of trading with the balance of the order at the next price 
increment. As a result, Floor Brokers representing orders in the 
trading crowd might receive better-priced executions. The Exchange 
notes that cabinet trades are infrequent in nature and that, even 
though the Exchange Rules provide that cabinet trades may be traded 
electronically, the Exchange has not designated any options issues to 
trade electronically pursuant to Rule 968NY, because market 
participants have never requested to do so. Thus, the fact that split-
price priority is available for manual and not electronic, will have no 
impact on ongoing electronic cabinet trading.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (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 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that allowing for the split-pricing priority 
provisions to apply to open outcry trading of cabinet trades will 
better facilitate the trading of options contracts that are worthless 
or not actively traded. The proposed change is designed to promote just 
and equitable principles of trade,

[[Page 66890]]

remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, by aligning the Exchange's Rules 
with the rules on other options exchanges that conduct manual cabinet 
trading.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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-NYSEMKT-2012-55 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-2012-55. 
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 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 offices of NYSE MKT. 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-NYSEMKT-2012-55, and should be submitted 
on or before November 28, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27212 Filed 11-6-12; 8:45 am]
BILLING CODE 8011-01-P


