
[Federal Register Volume 78, Number 51 (Friday, March 15, 2013)]
[Notices]
[Pages 16544-16547]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05986]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69098; File No. SR-NYSEMKT-2013-21]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 13--
Equities To Add Two Self-Trade Prevention Modifiers That May Be Used by 
Certain Market Participants

March 11, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on February 26, 2013, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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 proposes to amend Rule 13--Equities to add two self-
trade prevention (``STP'') modifiers that may be used by certain market 
participants. 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 amend Rule 13--Equities to add two STP 
modifiers that may be used by certain market participants. The proposed 
STP modifiers are designed to prevent two orders from the same market 
participant identifier (``MPID'') assigned to a member organization 
from executing against each other. Use of the STP modifiers is optional 
and would not be automatically implemented by the Exchange. Rather, a 
member organization can choose to add a STP modifier on eligible 
orders. The STP modifier on the incoming order would determine the 
interaction between two orders marked with STP modifiers and whether 
the incoming or the resting order would cancel. Both the buy and the 
sell order would have to include an STP modifier in order to prevent a 
trade from occurring and to effect a cancel instruction. The Exchange 
notes that an incoming order with an STP modifier will execute against 
all available opposite-side interest in Exchange systems, displayed or 
non-displayed, pursuant to Rule 72--Equities, and will be evaluated for 
cancellation by Exchange systems only to the extent that it would 
execute against opposite-side interest with an STP modifier with the 
same MPID.
    The Exchange proposes to add two types of STP modifiers, STP Cancel 
Newest (``STPN'') and STP Cancel Oldest (``STPO''), as discussed in 
detail below. As proposed, the STP modifiers would be available for 
limit orders sent to the matching engine by off-Floor participants, 
except limit orders marked GTC or MTS-IOC.\3\ Market orders, stop 
orders, GTCs and MTS-IOC, and orders sent to Floor brokers from off 
Floor participants with STP modifiers will be rejected.\4\ In addition, 
because of the

[[Page 16545]]

manual nature of opening, reopening, and closing single-priced 
auctions, STP modifiers would not be active during these transactions. 
The Exchange will not reject orders with STP modifiers sent 
specifically for execution on the opening or closing auction,\5\ but 
such modifiers will be ignored. Moreover, limit orders accepted prior 
to the opening or during the trading day with valid STP modifiers could 
be executed during a single-priced auction transaction irrespective of 
such modifiers. The STP modifiers will not be active for Retail Price 
Improvement Orders (``RPI'') and will also be ignored. Specifically, 
STP modifiers will not be active for Type 1 designated Retail Orders in 
all situations and will be ignored. In addition, STP modifiers will not 
be active for Type 2 and Type 3 designated Retail Orders when they 
first interact with contra-side RPIs, however once they enter the 
Exchange's system to be executed as an Immediate or Cancel Order--
normal processing of the STP modifier will occur. Finally, since 
Exchange systems currently monitor to ensure that DMM interest, which 
is all proprietary, does not trade with itself--STP modifiers will not 
be made available for DMM interest.
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    \3\ The STP modifiers would be available for orders entered in 
either an agency or principal capacity, though the Exchange 
anticipates that the STP modifiers would be used primarily by member 
organizations trading on a proprietary basis as a tool to prevent 
potential inadvertent ``wash sales.''
    \4\ The Exchange notes that it intends to expand availability of 
STP modifiers to a wider range of order types. The Exchange will 
file a subsequent 19b-4 rule filing at that time.
    \5\ I.e., Market on Open, Limit on Open, Market on Close, Limit 
on Close and Closing Only orders.
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Proposed STPN Modifier
    As proposed, an incoming order marked with the STPN modifier would 
not execute against opposite-side resting interest marked with either 
an STPN or STPO modifier with the same MPID.\6\ Such incoming order 
marked with the STPN modifier would be cancelled back to the 
originating member organization. The resting order marked with one of 
the STP modifiers, which otherwise would have interacted with the 
incoming order, would remain in Exchange systems. After executing with 
any non-STP opposite-side interest, Exchange systems would cancel the 
remaining balance of the incoming STPN order that would execute against 
the opposite-side resting order with the same MPID with an STP 
modifier. If an STPN could execute at multiple price points, the 
incoming STPN would execute at the multiple prices until it reaches a 
price point where there is resting opposite-side STP interest. At the 
price point where there is opposite-side STP interest, the incoming 
STPN order would execute against any available non-STP interest, 
displayed or undisplayed, and the balance, if any, of the incoming STPN 
order would cancel.
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    \6\ Incoming order refers to: (1) Orders that have arrived at 
the Exchange, including those orders that have been routed to an 
away market and returned to the Exchange unexecuted, and (2) orders 
that are repriced because of tick sensitive instructions, or the 
operation of Limit Up/Limit Down price bands or Short Sale 
Restrictions.
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    For purposes of these examples, assume that the orders are always 
with the same MPID and that the Exchange best bid and offer is $22.00-
$22.03.

    STPN Example 1: An STPO order to buy 500 shares at $22.00 is 
resting interest in Exchange systems. Subsequently, an STPN order to 
sell 500 shares at $22.00 is entered into Exchange systems.
    STPN Result 1: The incoming STPN sell order for 500 shares at 
$22.00 would cancel back to the originating member organization. The 
resting STPO buy order for 500 shares at $22.00 would remain in 
Exchange systems.
    STPN Example 2: Exchange systems have the following resting 
interest: A Non-Displayed Reserve Order \7\ to buy 100 shares at 
$22.01 (B1), an STPN order to buy 100 shares at $22.00 (B2) with 
priority at the quote, an order to buy 200 shares at $22.00 (B3), a 
non-displayed reserve eQuote to buy 200 shares (B4), for a total of 
500 shares (300 quoted, 200 in reserve) to buy at $22.00. 
Subsequently, an incoming STPN order to sell 700 shares at $22.00 is 
entered (S).
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    \7\ A Non-Displayed Reserve Order is a limit order that is not 
displayed, but remains available for potential execution against all 
incoming automatically executing orders until executed in full or 
cancelled. See NYSE MKT Rule 13--Equities.
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    STPN Result 2: S would execute against B1 for 100 shares at 
$22.01, leaving 600 shares of S. Although B2 has priority at the 
bid, it would be bypassed because it has an STP modifier with the 
same MPID. S would then execute against B3 for 200 shares at $22.00, 
leaving 400 shares of S. S would then execute against B4 for 200 
shares at $22.00. Because the remaining 200 shares of S has an STP 
modifier from a matching MPID of B2's 100 shares, those remaining 
200 shares of S would be cancelled back to the originating member 
organization. B2 for 100 shares at $22.00 would not execute and 
would remain on Exchange systems.
Proposed STPO Modifier
    As proposed, an incoming order marked with the STPO modifier would 
not execute against opposite-side resting interest marked with either 
an STPN or STPO modifier with the same MPID. Such resting order marked 
with either of the STP modifiers, which otherwise would have interacted 
with the incoming order, would be cancelled back to the originating 
member organization. The incoming order marked with the STPO modifier 
would remain on Exchange systems. Exchange systems would cancel all 
opposite-side resting interest with the same MPID having an STP 
modifier at each price point that the incoming STPO order is eligible 
to execute. If the incoming STPO order is an immediate or cancel 
(``IOC'') order, and if there is any unfilled balance of the incoming 
STPO IOC, both the resting STP interest and the remainder of the STPO 
IOC at that price point would cancel.
    For purposes of these examples, assume that the orders are always 
contain the same MPID and that the Exchange best bid and offer is 
$22.00-$22.03.

    STPO Example 1: An STPO order to buy 500 shares at $22.00 is 
resting interest in Exchange systems. Subsequently, an STPO order to 
sell 500 shares at $22.00 is entered into Exchange systems.
    STPO Result 1: The resting STPO buy order for 500 shares at 
$22.00 would cancel back to the originating member organization. The 
incoming STPO sell order for 500 shares at $22.00 would be entered 
in Exchange systems.
    STPO Example 2: Exchange systems have the following resting 
interest: A Non-Display Reserve Order to buy 100 shares at $22.02 
(B1); a Non-Display Reserve Order to buy 100 shares at $22.01 (B2) 
and a Non-Display Reserve Order STPN order to buy 100 shares at 
$22.01(B3), for a total of 200 shares to buy at $22.01; an STPN 
order to buy 500 shares at $22.00 (B4) and an order to buy 200 
shares at $22.00 (B5), for a total of 700 shares to buy at $22.00. 
Subsequently, an STPO order to sell 500 shares at $22.00 is entered 
into Exchange systems (S).
    STPO Result 2: S would execute against B1 for 100 shares at 
$22.02, leaving 400 shares of S. S would then execute against B2 for 
100 shares at $22.01, leaving 300 shares of S. At $22.01, because it 
has an STP modifier from a matching MPID, B3 would cancel back to 
the originating member organization. S would next execute against 
B5, leaving 100 shares of the STPO sell order. Because the remaining 
100 shares of the S has an STP modifier from a matching MPID of B4, 
the entire 500 shares of B4 would be cancelled back to the 
originating member organization. The 100 unexecuted shares of the 
incoming S would be entered in Exchange systems as resting interest.
    STPO Example 3: Assume the same trading scenario as STPO Example 
2, except that the incoming S order to sell 500 shares at $22.00 is 
also an IOC order.
    STPO Result 3: The same executions and cancellations as in STPO 
Result 2 would occur. After executing against B5, the remaining 
balance of S would cancel because there is no more opposite-side 
non-STP interest. Accordingly, at the $22.00 price point, both the 
entire amount of B4 and the remaining balance of S (100 shares) 
would cancel.

    Because of the technology changes associated with this rule 
proposal, the Exchange will announce the implementation date of the STP 
modifiers in a Trader Update to be published no later than 90 days 
after the publication of the notice in the Federal Register. The 
implementation date will be no later than 90 days following publication 
of the Trader Update

[[Page 16546]]

announcing publication of the notice in the Federal Register.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \8\ of the Securities Exchange Act 
of 1934 (the ``Act''), in general, and furthers the objectives of 
Section 6(b)(5) \9\ 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 adding 
STP functionality would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because it would 
allow firms to better manage order flow and prevent unintended 
executions with themselves or the potential for ``wash sales'' that may 
occur as a result of the velocity of trading in today's high-speed 
marketplace. Commonly, member organizations have multiple connections 
into the Exchange due to capacity and speed-related demands. Orders 
routed by member organizations via different connections may, in 
certain circumstances, inadvertently trade against each other. The new 
STP modifiers would provide member organizations with the opportunity 
to prevent these unintended trades from occurring. The Exchange notes 
that the STP modifiers would not alleviate, or otherwise exempt, 
broker-dealers from their best execution obligations.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    At this time, the Exchange proposes to offer the STP modifiers for 
orders entered by off-Floor participants only. The Exchange believes 
that the proposal to not make available STP modifiers to DMM interest 
is consistent with just and equitable principles of trade and not 
unfairly discriminatory because there is no need for the STP modifier 
for DMM interest in that Exchange systems already monitor to ensure 
that DMM interest, which is all proprietary, does not trade with 
itself. In addition, the Exchange notes that the technology supporting 
the proposed STP modifiers is not currently compatible with the Floor 
broker systems, but is actively working to develop the technology to 
extend STP modifiers to Floor brokers. The Exchange does not believe it 
should delay the deployment of the STP modifiers for other market 
participants while it performs the technical modifications required for 
the use of STP modifiers for Floor brokers.

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. The Exchange believes that 
the proposal will would provide member organizations with the 
opportunity to prevent unintended self-trades from occurring. The 
Exchange notes that it operates in a highly competitive market in which 
market participants can readily direct order flow to competing venues 
who offer similar functionality. Many competing venues offer similar 
functionality to market participants. To this end, the Exchange is 
proposing a market enhancement to provide greater protections from 
inadvertent executions, and encourage market participants to trade on 
the Exchange. The Exchange believes the proposed rule change is pro-
competitive because it would enable the Exchange to provide member 
organizations with functionality that is similar to that of other 
exchanges.

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

    Because the foregoing proposed rule 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, provided that the self-regulatory 
organization has given 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 proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and 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. The 
Exchange has satisfied this requirement.
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    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-2013-21 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-2013-21. 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.,

[[Page 16547]]

Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the 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 available publicly. All 
submissions should refer to File Number SR-NYSEMKT-2013-21 and should 
be submitted on or before April 5, 2013

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary .
[FR Doc. 2013-05986 Filed 3-14-13; 8:45 am]
BILLING CODE 8011-01-P


