
[Federal Register Volume 78, Number 20 (Wednesday, January 30, 2013)]
[Notices]
[Page 6385]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01971]



[[Page 6385]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68725; File No. SR-NYSEARCA-2012-133]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change Amending NYSE Arca Equities Rule 7.31(h)(7) To 
Permit PL Select Orders To Interact With Incoming Orders Larger Than 
the Size of the PL Select Order

January 24, 2013.

I. Introduction

    On November 27, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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 NYSE Arca Equities Rule 7.31(h)(7) to 
permit PL Select Orders to interact with incoming orders larger than 
the size of the PL Select Order. The proposed rule change was published 
for comment in the Federal Register on December 14, 2012.\3\ The 
Commission received no comment letters regarding the proposed rule 
change. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68385 (December 7, 
2012), 77 FR 74528 (December 14, 2012) (SR-NYSEARCA-2012-133) 
(``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to amend NYSE Arca Equities Rule 7.31(h)(7) 
to permit PL Select Orders to interact with incoming orders larger than 
the size of the PL Select Order. Currently the PL Select Order type 
does not interact with incoming orders that: (i) Have an immediate-or-
cancel (``IOC'') time in force condition,\4\ (ii) is an ISO,\5\ or 
(iii) is larger than the size of the PL Select Order.\6\
---------------------------------------------------------------------------

    \4\ See NYSE Arca Equities Rule 7.31(e).
    \5\ See NYSE Arca Equities Rule 7.31(jj).
    \6\ See Securities Exchange Act Release No. 67785 (Sept. 5, 
2012), 77 FR 55888 (September 11, 2012) (SR-NYSEArca-2012-48) 
(``Approval Order'').
---------------------------------------------------------------------------

    The Exchange has identified an unintended consequence related to 
the implementation of PL Select Orders. Specifically, as described in 
greater detail in the Notice,\7\ in certain instances an incoming 
Adding Liquidity Only Order (``ALO Order'') is unable to post to the 
NYSE Arca Book as required by NYSE Arca Equities Rule 7.31(nn) \8\ if 
there is a resident, contra-side PL Select Order.\9\ For example, if an 
ETP Holder has entered a PL Select Order to sell shares and the 
Exchange receives a larger incoming buy order at the same price, 
because the arriving buy order is larger than the resting PL Select 
Order, the PL Select Order (unlike a regular PL order) would not 
execute against the arriving buy order and would remain undisplayed on 
the Arca Book. Further, an incoming ALO Order to buy at the same price, 
which is seeking to add to the existing bid would be rejected. In such 
scenario, an ETP Holder seeking to add liquidity to the Arca Book with 
an ALO order would be unable to do so, even though there is resting 
interest posted at the same price.
---------------------------------------------------------------------------

    \7\ See Notice, supra note 3.
    \8\ See NYSE Arca Equities Rule 7.31(nn).
    \9\ See Notice, 77 FR at 74528.
---------------------------------------------------------------------------

    The Exchange proposes to amend NYSE Arca Equities Rule 7.31(h)(7) 
to delete the requirement that prohibits PL Select Order interaction 
with larger-sized, incoming orders.

III. Discussion and Commission 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.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ 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 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 are not designed to permit unfair discrimination 
between customers, issuers, brokers or dealers.
---------------------------------------------------------------------------

    \10\ 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).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds the proposed rule change to be consistent with 
the Act. The Commission notes that the Exchange continues to believe 
that its rationale for preventing PL Select Orders from interacting 
with incoming orders larger in size remains valid. In this regard, the 
Exchange continues to believe that preventing executions with larger-
sized incoming interest would incentivize Users to route PL Select 
Orders to the Exchange because such orders would remain available to 
provide price improvement and would not be ``swept'' by such larger-
sized incoming orders. In addition, the Exchange believes that because 
such PL Select Orders would remain available to provide price 
improvement, it could similarly incentivize Users to route displayable 
interest to the Exchange because the likelihood of receiving price 
improvement could increase.
    The Commission notes that the Exchange believes, however, that the 
potential for liquidity-posting interest to be rejected, albeit rare, 
outweighs the Exchange's stated benefit of allowing the PL Select Order 
not interact with incoming orders that are larger in size than the PL 
Select Order. In addition, the Commission notes that the Exchange has 
represented that institutional investors have raised concerns to the 
Exchange that PL Select Orders currently may bypass trading interest 
entered on behalf of institutional investors by not executing against 
larger-sized orders. In this regard, the Commission notes that the 
Exchange states that its goal is not to prevent the interaction of 
legitimate trading interest, and to the extent there is a perception 
that this may be the case, the Exchange believes that the restriction 
on PL Select Orders should be lifted.
    Based on the Exchange's statements, the Commission believes that 
removing the restriction on PL Select Order as proposed and thereby 
allowing ALO Orders to post to the Arca Book, as intended, NYSE Arca 
should help to ensure that trading interest is able to interact on its 
market in an efficient manner.
    Accordingly, the Commission believes that the proposed rule change 
is consistent with Section 6(b)(5) of the Act.\12\
---------------------------------------------------------------------------

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

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NYSEARCA-2012-133) be, and 
it hereby is, approved.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01971 Filed 1-29-13; 8:45 am]
BILLING CODE 8011-01-P


