
[Federal Register Volume 78, Number 45 (Thursday, March 7, 2013)]
[Notices]
[Pages 14867-14870]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05238]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69009; File No. SR-NSX-2013-07]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt a New Order Type Called the Midpoint-Seeker Order and Amend Rule 
11.3(c) Regarding Rounding of Sub-Penny Midpoint Executions

February 28, 2013.
    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 February 27, 2013, National Stock Exchange, Inc. 
(``NSX[supreg]'' or the ``Exchange'') 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 
comment 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 amend: (1) NSX Rule 11.3(c) to clarify 
how the NSX System may execute certain types of undisplayed orders that 
are pegged to the midpoint between the Protected BBO in subpennies; and 
(2) NSX Rule 11.11(c), entitled ``Orders and Modifiers'' to adopt a new 
order type called a Midpoint-Seeker Order. 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: (1) NSX Rule 11.3(c) to clarify 
how the NSX System may execute certain types of undisplayed orders that 
are pegged to the midpoint between the Protected Best Bid or Offer 
(``BBO'') \3\ in subpennies; and (2) NSX Rule 11.11(c), entitled 
``Orders and Modifiers'' to adopt a new order type called a Midpoint-
Seeker Order.
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    \3\ Exchange Rule 1.5. ``Protected BBO'' is defined as ``the 
better of the following: (a) [t]he Protected NBBO or (b) [t]he 
displayed Top of Book.''
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Rounding of Midpoint Orders
    The Exchange proposes to amend NSX Rule 11.3(c) to clarify how the 
NSX System may execute certain types of Zero Display Reserve Orders \4\ 
that are pegged to the midpoint between the Protected BBO in 
subpennies. NSX Rule 11.3(c) provides that a Zero Display Reserve Order 
that is pegged at the midpoint of the Protected BBO may be executed in 
subpennies, if necessary, to obtain a midpoint price. The Exchange is 
proposing to amend Rule 11.3(c) in order to clarify how the System 
rounds executions in securities priced less than $1.00 per share 
resulting from a Zero Display Reserve Order pegged at the midpoint to 
the nearest permissible

[[Page 14868]]

trading increment.\5\ The System rounds the execution price up when the 
Zero Display Reserve Order pegged at the midpoint posted to the NSX 
Book is on the buy-side, and rounds the execution price down when the 
Zero Display Reserve Order pegged at the midpoint posted on the NSX 
Book is on the sell-side. For example, the Protected BBO is 0.8731 by 
0.9998, and there is a buy order on the NSX Book which is a Zero 
Display Reserve Order pegged at the midpoint, which is 0.93645, an 
impermissible trading increment. An incoming order to sell will execute 
against the Zero Display Reserve Order at 0.9365 because the System 
will round the execution price from 0.93645 up to nearest permissible 
trading increment.
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    \4\ Under Exchange Rule 11.11(c)(2)(A), a ``Zero Display Reserve 
Order'' is a ``Reserve Order with zero display quantity.''
    \5\ Under Exchange Rule 11.3(a), the minimum pricing increments 
are to be no smaller than $0.01 if priced equal to or greater than 
$1.00 per share or $0.0001 if priced less than $1.00 per share.
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    This clarifying amendment will provide ETP Holders with additional 
information on how the System rounds the execution price for Zero 
Display Reserve Orders that are pegged to the midpoint between the 
Protected BBO.
Proposed Midpoint-Seeker Order
    The proposed Midpoint-Seeker Order is an Immediate-or-Cancel 
(``IOC'') \6\ order that would allow Equity Trading Permit (``ETP'') 
\7\ Holders the ability to execute against undisplayed orders that are 
posted on the NSX Book \8\ at a price equal to or better than the 
midpoint between the Protected BBO. A Midpoint-Seeker Order will only 
execute through the Exchange's automatic execution mode (``Auto-Ex'') 
\9\ against undisplayed orders posted on the NSX Book priced equal to 
or better than the midpoint between the Protected BBO. The undisplayed 
orders against which the Midpoint-Seeker Order will execute include 
the: (i) Zero Display Reserve Order \10\ entered with a limit price, 
(ii) Market Peg Zero Display Reserve Order; \11\ and (iii) Midpoint Peg 
Zero Display Reserve Order.\12\ A Midpoint Seeker order may include an 
optional limit price cap beyond which the order shall not execute 
(i.e., an execution at a price lower for an order to sell or higher for 
an order to buy than a specified price). Under no circumstances will a 
Midpoint-Seeker Order execute against a displayed order or an order 
that is at a price which is inferior to the midpoint between the 
Protected BBO.
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    \6\ Under Exchange Rule 11.11(b)(1), an ``Immediate-or-Cancel 
Order'' is a ``limit order that is to be executed in whole or in 
part as soon as such order is received, and the portion not so 
executed'' is to be cancelled.
    \7\ In sum, Exchange Rule 1.5 defines the term ``ETP'' as an 
Equity Trading Permit issued by the Exchange for effecting approved 
securities transactions on the Exchange's Trading Facilities.
    \8\ Exchange Rule 1.5. ``NSX Book'' is defined as ``System's 
electronic file of orders.''
    \9\ NSX trading rules provide for a price-time priority market 
with two modes of order interaction: (1) Auto-Ex, and (2) Order 
Delivery. The Exchange's two modes of order interaction are 
described in NSX Rule 11.13(b).
    \10\ Under Exchange Rule 11.11(c)(2), a ``Reserve Order'' is a 
limit order with a portion of the quantity displayed with a reserve 
portion of the quantity that is not displayed.'' Exchange Rule 
11.11(c)(2)(A), defines a ``Zero Display Reserve Order'' as a 
Reserve Order with zero display quantity.
    \11\ Under Exchange Rule 11.11(c)(2)(A), a ``Market Peg Zero 
Display Reserve Order'' is a ``pegged Zero Display Reserve Order 
which tracks the opposite side of the market'' (e.g., the buy-side 
of the Protected BBO for a sell order or the sell-side of the 
Protected BBO for a buy order).
    \12\ Under Exchange Rule 11.11(c)(2)(A), a ``Midpoint Peg Zero 
Display Reserve Order'' is a ``pegged Zero Display Reserve Order 
that tracks the midpoint'' of the Protected BBO.''
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    The System will execute a Midpoint-Seeker Order at the midpoint 
between the Protected BBO in $0.005 increments if the security is 
priced at or above $1 \13\ and $0.0001 increments if the security is 
priced below $1.\14\ As explained above under the proposed changes to 
Rule 11.3(c), if interest resting on the NSX Book at the midpoint 
between the Protected BBO is not at a tradable increment, the Exchange 
will either round up for a Midpoint-Seeker Order to sell or round down 
for a Midpoint-Seeker Order to buy to the nearest tradable increment. 
The Midpoint-Seeker Order will execute against undisplayed posted 
orders on the NSX Book that are priced at or better than the midpoint 
between the Protected BBO. As an IOC order, the Midpoint-Seeker Order 
will execute only against the number of shares of undisplayed liquidity 
available on the NSX Book. Shares of an undisplayed posted order that 
remain after interacting with a Midpoint-Seeker Order will remain on 
the NSX Book. As an IOC order, any unexecuted portion of a Midpoint-
Seeker Order will be treated as cancelled (i) after interacting with 
available undisplayed posted orders or (ii) when there are no 
undisplayed posted orders priced equal to or better than the midpoint 
between the Protected BBO.
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    \13\ See Exchange Rule 11.3(a)(i) which prohibits, in sum, 
minimum pricing increments smaller than $0.01 for bids, offers, 
orders, or indications of interest priced equal to or greater than 
$1.00 per share. Under 11.3(c), an undisplayed order that is pegged 
to the midpoint of the Protected BBO in accordance with Rule 
11.11(c)(2) may be executed in sub-pennies if necessary to obtain a 
midpoint price.
    \14\ See Exchange Rule 11.3(a)(ii) which prohibits, in sum, 
minimum pricing increments smaller than $0.0001 for bids, offers, 
orders, or indications of interest priced less than $1.00 per share.
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    Like other IOC orders, a Midpoint-Seeker Order will never be routed 
to an away market. A Midpoint-Seeker Order will also be treated as 
cancelled when the Protected BBO is locked or crossed. A Midpoint-
Seeker Order cannot be combined with any other order type or order type 
modifier offered by the Exchange.
    The below examples illustrate the functionality of the Midpoint-
Seeker Order. All orders posted on the NSX Book are undisplayed.
Example 1
    The Protected NBBO \15\ is 10.00 by 11.00 and the Exchange has 
received a Midpoint- Seeker Order to sell 300 shares. NSX Book contains 
no undisplayed orders.
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    \15\ Exchange Rule 1.5. ``Protected NBBO'' is defined as ``the 
national best bid or offer that is a protected quotation.''
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    Result: The System will cancel the incoming Midpoint-Seeker Order 
to sell 300 shares in its entirety because there are no undisplayed 
posted orders on the NSX Book priced equal to or better than the 
midpoint between the Protected BBO.
Example 2
    The Protected BBO is 10.00 by 11.00 and the Exchange has received a 
Midpoint-Seeker Order to sell 300 shares.

------------------------------------------------------------------------
     Buy orders resting on NSX book                 Order type
------------------------------------------------------------------------
11.00 (100 shares).....................  Market Peg Zero Display Reserve
                                          Order
10.70 (100 shares).....................  Zero Display Reserve Order with
                                          Limit Price
10.50 (100 shares).....................  Midpoint Peg Zero Display
                                          Reserve Order
------------------------------------------------------------------------

    There are no sell orders posted to the NSX Book priced at the 
Protected BBO or better that could execute against the Market Peg Zero 
Display Reserve Order at 11.00.

[[Page 14869]]

    Result: The incoming Midpoint-Seeker Order to sell 300 shares will 
execute against the Market Peg Zero Display Order at 11.00, the Zero 
Display Reserve Order at 10.70 and the Midpoint Peg Zero Display Order 
at 10.50. These executions are subject to the Exchange Rule 11.14(a) 
regarding price/time priority.
Example 3
    The Protected BBO is 10.00 by 11.00 and the Exchange has received a 
Midpoint-Seeker Order to sell 300 shares.

------------------------------------------------------------------------
     Buy orders resting on NSX book                 Order type
------------------------------------------------------------------------
11.00 (100 shares).....................  Market Peg Zero Display Reserve
                                          Order
10.50 (100 shares).....................  Midpoint Peg Zero Display
                                          Reserve Order
10.40 (100 shares).....................  Zero Display Reserve Order with
                                          Limit Price
------------------------------------------------------------------------

    There are no sell orders posted to the NSX Book priced at the 
Protected BBO or better that could execute against the Market Peg Zero 
Display Reserve Order at 11.00.
    Result: The incoming Midpoint-Seeker Order to sell 300 shares will 
execute against the Market Peg Zero Display Order at 11.00 and the 
Midpoint Peg Zero Display Order at 10.50. The System will cancel the 
remaining 100 shares of the Midpoint-Seeker because the Zero Display 
Reserve order at 10.40 is at a price inferior to the midpoint between 
the Protected BBO and last in price priority pursuant to Exchange Rule 
11.14(a).
Example 4: Sub-Dollar Security
    The Protected BBO is 0.8731 by 0.9998. The midpoint between the 
Protected BBO is 0.93645. For purposes of this example, the only 
interest posted to the NSX Book is a Midpoint Peg Zero Display Order to 
buy. A Midpoint-Seeker Order to sell is submitted. As discussed above 
under the proposed changes to Exchange Rule 11.3(c), the System rounds 
the price of the Midpoint Peg Zero Display Order to buy up to the 
nearest permissible trading increment of 0.9365. The Midpoint-Seeker 
Order will execute against the Midpoint Peg Zero Display order at 
0.9365.
Example 5: Sub-Dollar Security
    The Protected BBO is 0.8731 by 0.9998. The midpoint between the 
Protected BBO is 0.93645. For purposes of this example, the only 
interest posted to the NSX Book is a Midpoint Peg Zero Display Order to 
sell. A Midpoint-Seeker Order to buy is submitted. As discussed above 
under the proposed changes to Exchange Rule 11.3(c), the System rounds 
the Midpoint Peg Zero Display Order to sell down to the nearest 
permissible trading increment of 0.9364. The Midpoint-Seeker Order 
executes against the Midpoint Peg Zero Display Order at 0.9364.
2. Statutory Basis
    The Exchange believes that the proposed clarification to Exchange 
Rule 11.3(c) is consistent with the provisions of Section 6(b) of the 
Act,\16\ in general, and Section 6(b)(5) of the Act,\17\ in particular, 
in that it is designed to promote just and equitable principles of 
trade, remove impediments to, and perfect the mechanism of, a free and 
open market and a national market system. The amendments to NSX Rule 
11.3(c) do not alter the Exchange's current rounding methodology. They 
simply clarify for ETP Holders how the Exchange's System may round an 
execution price resulting from a Zero Display Reserve Order that is 
pegged to the midpoint between the Protected BBO that results in an 
impermissible trading increment, thereby enhancing market transparency 
thereby promoting just and equitable principles of trade, removing 
impediments to, and perfecting the mechanism of, a free and open market 
and a national market system.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes the proposed Midpoint-Seeker Order is 
consistent with Section 6(b) of the Exchange Act \18\ and furthers the 
objective of Section 6(b)(5) of the Exchange Act \19\ because it is to 
designed 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. The Midpoint-Seeker Order will enable ETP Holders to 
enter an order that is not displayed publicly but is to be executed at 
the midpoint between the Protected BBO or better and only take 
liquidity. The Exchange believes this order type will enhance order 
execution opportunities on the NSX and help provide ETP Holders with 
flexibility in executing transactions that meet the specific 
requirements of the order type. The Midpoint-Seeker Order will allow 
for additional opportunities for investors to interact with orders 
priced at or better than the midpoint between the BBO which promotes 
just and equitable principles of trade and removes impediments to and 
perfects the mechanism of a free and open market and national market 
system.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C 78f(b)(5).
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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 Exchange Act. The Exchange 
believes the proposed Midpoint-Seeker Order will enhance order 
execution opportunities for ETP Holders on the NSX. The Exchange does 
not believe the proposed rule change will impose a burden on 
competition amongst ETP Holders that use Auto-Ex and those that use the 
Exchange's Order Delivery mode of interaction (``Order Delivery 
Users'').\20\ ETP Holders may use the Midpoint-Seeker Order to remove 
liquidity on the NSX Book at the midpoint of the Protected BBO or 
better. Orders entered via Auto-Ex that are posted to the NSX Book 
execute immediately when matched against a marketable incoming contra-
side Midpoint-Seeker Orders entered via Auto-Ex. Conversely, Order 
Delivery Users only add liquidity to the NSX Book though the use of 
``Post Only'' orders, which is not a liquidity taker. The NSX System 
rejects marketable ``Post Only'' orders, and will not route them away. 
Therefore, an Order Delivery User would not utilize the proposed 
Midpoint Seeker Order. In addition, an Order Delivery User is 
prohibited from posting an undisplayed midpoint order on the NSX Book, 
and, as a result, could not be matched against an incoming contra-side 
Midpoint-Seeker Order entered via Auto-Ex. Nonetheless, an Order 
Deliver User is able to submit orders via Auto-Ex, including the 
proposed Midpoint-Seeker, but not in their capacity as an Order 
Delivery User. Furthermore, the Exchange believes the Midpoint Seeker 
order should enhance competition

[[Page 14870]]

between it and other exchanges that currently offer similar order types 
by offer investors another option to access liquidity at the Midpoint 
between the Protected BBO or better. Therefore, 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 Exchange Act.
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    \20\ See NSX Rule 11.13(b).
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    Lastly, the amendments to Exchange Rule 11.3(c) merely clarify for 
ETP Holder the Exchange's current rounding methodology. Therefore, the 
Exchange does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or in furtherance of the 
Exchange 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 Change and Timing for 
Commission Action

    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 for 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 \21\ and Rule 19b-
4(f)(6)(iii) thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6)(iii). 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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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest. 
Such waiver would allow the Exchange to offer an order type that is 
similar to other exchanges without delay. The Commission notes that the 
rule change to adopt the Midpoint-Seeker is based on and similar to 
CBSX Rule 51.8(g)(13).\23\ For this reason, the Commission waives the 
operative delay and designates the proposed rule change to be operative 
upon filing.\24\
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    \23\ See SR-NSX-2013-07, Item 7.
    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 15 U.S.C. 78s(b)(2)(B).
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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-2013-07 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-2013-07. 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 website (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 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 available publicly. All submissions should refer to File Number 
SR-NSX-2013-07, and should be submitted on or before March 28, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05238 Filed 3-6-13; 8:45 am]
BILLING CODE 8011-01-P


