
[Federal Register Volume 78, Number 60 (Thursday, March 28, 2013)]
[Notices]
[Pages 19047-19049]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07179]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69212; File No. SR-NSX-2013-10]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Provide the Ability To Prevent Zero Display Reserve Orders From 
Executing in a Locked Market

March 22, 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 March 18, 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.
---------------------------------------------------------------------------

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

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

    The Exchange is proposing to amend Exchange Rules 11.11, 11.14, and 
11.15 to: (i) Provide Users\3\ with the ability to instruct the 
Exchange not to execute a Zero Display Reserve Order \4\ when the 
protected bid is equal to the protected offer (i.e., a locked market); 
(ii) clarify that a Zero Display Reserve Order will be eligible for 
execution after the market is no longer locked; and (iii) clarify that 
a Zero Display Reserve Order will retain time priority if it is not 
executed during a locked market. The Exchange also proposes to make a 
ministerial change to Rule 11.11(c)(2)(A). The Exchange has designated 
this proposal as non-controversial and provided the Commission with the 
notice required by Rule 19b-4(f)(6)(iii) under the Act.\5\
---------------------------------------------------------------------------

    \3\ In sum, Exchange Rule 1.5 defines the term ``user'' as ``any 
ETP Holder or Sponsored Participant who is authorized to obtain 
access to the System pursuant to Rule 11.9.''
    \4\ Under Exchange Rule 11.11(c)(2)(A), a ``Zero Display Reserve 
Order'' is a ``Reserve Order with zero display quantity.'' Under 
Exchange Rule 11.11(c)(2), a ``Reserve Order'' is a ``limit order 
with a portion of the quantity displayed (``display quantity'') and 
with a reserve portion of the quantity (``reserve quantity'') that 
is not displayed.''
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    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
    On October 10, 2012, the Exchange filed a proposed rule change for 
immediate effectiveness with the Commission to amend Rules 
11.11(c)(2)(A), 11.11(c)(2)(D), 11.14(a)(4) and Rule 11.15(a)(iv) to 
clarify that the Exchange will not execute a Zero Display Reserve Order 
when a protected bid is priced higher than a protected offer (i.e., a 
crossed market).\6\ The Exchange now proposes to expand upon this rule 
change to amend its Rules to allow ETP Holders to instruct the 
Exchange, on an order-by-order basis, not to execute a Zero Display 
Reserve Order during a locked market. Specifically, the Exchange 
proposes to amend Rules 11.11(c)(2)(D), 11.14(a)(4) and Rule 
11.15(a)(iv) to: (i) Provide Users with the ability to instruct the 
Exchange not to execute a Zero Display Reserve Order during a locked 
market; (ii) clarify that a Zero Display Reserve Order will be eligible 
for execution after the market is no longer locked; and (iii) clarify 
that a Zero Display Reserve Order will retain time priority if it is 
not executed during a locked market. The Exchange also proposes to make 
a ministerial change to Rule 11.11(c)(2)(A).
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 68056 (October 16, 
2012), 77 FR 64571 (October 22, 2012) (SR-NSX-2012-16).
---------------------------------------------------------------------------

    Users enter Zero Display Reserve Orders to either access 
undisplayed liquidity at or between the Protected Best Bid and Offer 
(``BBO'') \7\ or post undisplayed liquidity on the NSX Book. Users post 
Zero Display Reserve Orders to the NSX Book to avoid potential negative 
market impact that could result from publicly displaying their trading 
interest.\8\ The Exchange believes that a locked market is, at times, 
the result of stale quotations that are disseminated by the securities 
information processor (``SIP''), and not always reflective of a fair 
and orderly market.\9\ Investors may not receive the best price 
available if their orders are executed during a locked market when the 
locked market is the result of a stale quote. In fact, an investor may 
receive a worse price if its

[[Page 19048]]

Zero Display Reserve Order, specifically when pegged to the BBO,\10\ is 
executed during a locked market rather than if the System waited for 
the first unlocked market. The Commission also stated that it believes 
that repeated or continual locking or crossing of a market may raise 
concerns about the orderliness and efficiency of the markets.\11\ 
Therefore, the Exchange proposes to amend Rules 11.11, 11.14, and 11.15 
to provide Users the ability when entering a Zero Display Reserve Order 
to instruct the Exchange, on an order-by-order basis, not to execute an 
order during a locked market.
---------------------------------------------------------------------------

    \7\ Under Exchange Rule 1.5, the ``Protected BBO'' is defined as 
the better of the ``(a) Protected NBBO or (b) [t]he displayed Top of 
Book.'' Orders that may be posted to the NSX Book at or between the 
Protected BBO are a Zero Display Reserve Order with a limit price, a 
Market Peg Zero Display Reserve Order, and a Midpoint Peg Zero 
Display Reserve Order. 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) and a ``Midpoint Peg Zero 
Display Reserve Order'' is a ``pegged Zero Display Reserve Order 
that tracks the midpoint'' of the Protected BBO.''
    \8\ Under Exchange Rule 11.14(a)(4), the Exchange notes that a 
displayed order maintains time priority ahead of an undisplayed 
order, such as a Zero Display Reserve Order, at the same price.
    \9\ See also footnote 432 to Securities Exchange Act Release No. 
51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (Regulation NMS 
Adopting Release).
    \10\ See supra note 7.
    \11\ See Securities Exchange Act Release No. 49325 (February 26, 
2004), 69 FR 11126 (March 9, 2004) (Regulation NMS Proposing 
Release).
---------------------------------------------------------------------------

Exchange Rule 11.11(c)(2)(D)
    First, the Exchange proposes to amend Rule 11.11(c)(2)(D) to allow 
ETP Holders to indicate when entering a Zero Display Reserve Order that 
the order not be eligible for execution during a locked market. 
Exchange Rule 11.11(c)(2)(D) would also be amended to state that a Zero 
Display Reserve Order that is not eligible for execution during a 
locked market would remain posted on the NSX Book while the protected 
bid is priced lower than the protected offer (i.e., unlocked market), 
or the order is cancelled by the ETP Holder.
Exchange Rule 11.14
    Exchange Rule 11.14(a)(4) sets forth the execution priority for 
Reserve Orders, including Zero Display Reserve Orders. 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.\12\ Under the proposed 
amendment to Rules 11.11(c)(2)(A) and 11.15(a)(iv), a Zero Display 
Reserve Order that contains an instruction from the User not to execute 
during a locked market will, unless cancelled by the User, be posted to 
the NSX Book and executed when the market is no longer locked. The 
Exchange proposes to amend Rule 11.14(a)(4) to state that each Zero 
Display Reserve Order posted to the NSX Book during a locked market 
will retain its time priority as set forth in Rule 11.14(a)(4).
---------------------------------------------------------------------------

    \12\ See Exchange Rule 11.14(a)(4).
---------------------------------------------------------------------------

Exchange Rule 11.15
    Exchange Rule 11.15(a)(iv) currently provides that a Zero Display 
Reserve Order designated as a Post Only Order \13\ 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.'' Under Exchange Rule 11.15(a)(iv)(B), the Exchange will not 
execute a Zero Display Reserve Order in an NMS Stock \14\ during a 
crossed market. The Exchange proposes to amend Rule 11.15(a)(iv)(B) to 
now allow Users to indicate when entering a Zero Display Reserve Order 
that the order is not eligible for execution during a locked market. 
The Exchange will resume executing Zero Display Reserve Orders against 
incoming marketable contra-side orders once the market is no longer 
locked. As discussed above, Zero Display Reserve Orders that are not 
executed during a locked market will retain time priority in accordance 
with Rule 11.14(a)(4). A User's request to cancel or replace a Zero 
Display Reserve Order during this period will be handled pursuant to 
Rule 11.11(9)(d).
---------------------------------------------------------------------------

    \13\ Under Exchange Rule 11.11(c)(5), a ``Post Only Order'' is a 
``limit order that is to be posted on the Exchange and not routed 
away to another trading center.''
    \14\ ``NMS Stock'' shall have the same definition as under Rule 
600(b)(47) of Regulation NMS under the Exchange Act.
---------------------------------------------------------------------------

Exchange Rule 11.11(c)(2)(A)
    The Exchange also proposed to make a ministerial change to Rule 
11.11(c)(2)(A). In part, Rule 11.11(c)(2)(A) states that ``[a] pegged 
Zero Display Reserve Order may have an optional limit price (``Cap'') 
beyond which the order shall not be executed.'' The Exchange simply 
proposes to amend this sentence to remove ``Cap'' as a defined term as 
it is not referenced elsewhere in the Exchange's Rules. In doing so, 
the Exchange does not propose to alter the operation or its 
interpretation of the Rule.
2. Statutory Basis
    The Exchange believes that the proposed changes to Rules 
11.11(c)(2)(D), 11.14(a)(4) and Rule 11.15(a)(iv) are consistent with 
the provisions of Section 6(b) of the Act,\15\ in general, and Section 
6(b)(5) of the Act,\16\ in particular. The proposed rule change 
provides an ETP Holder flexibility by allowing them to choose that its 
Zero Display Reserve Order not be executed during a locked market. Zero 
Display Reserve Orders that are not eligible to be executed during a 
locked market will, unless cancelled by the User, be posted to the NSX 
Book, retain their time priority while posted to the NSX Book, and be 
eligible for execution once the market is no longer locked. Certain 
Users of the Zero Display Reserve Orders have indicated that executing 
orders during a locked market may harm investors. These market 
participants believe that a locked market is the result of stale 
quotations that are disseminated by the SIP, and not reflective of a 
fair and orderly market.\17\ Investors may not receive the best price 
available if their orders are executed during a locked market because 
the locked market is a stale quote. In addition, an investor may 
receive a worse price if its order is executed during a locked market 
rather than if the System waited for the first unlocked market. The 
Commission also stated that it believes that repeated or continual 
locking or crossing of a market may raise concerns about the 
orderliness and efficiency of the markets.\18\ Therefore, the Exchange 
believes the proposed rule change promotes just and equitable 
principles of trade, removes impediments to, and perfect the mechanism 
of, a free and open market and a national market system.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ See Regulation NMS Adopting Release, supra note 9.
    \18\ See Regulation NMS Proposing Release, supra note 11.
---------------------------------------------------------------------------

    The Exchange also believes the proposed change to Rule 
11.11(c)(2)(A) is consistent with the provisions of Section 6(b)(5) of 
the Act \19\ because it promotes just and equitable principles of trade 
by simplifying the Exchange's Rules. The Exchange proposes to remove an 
incorrect reference as a defined term which is not referenced elsewhere 
in the Exchange's Rules. In doing so, the Exchange does not propose to 
alter the operation or its interpretation of the Rule.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 allowing ETP Holder flexibility to choose that its Zero 
Display Reserve Order not be executed during a locked market will 
enhance order execution opportunities for ETP Holders on the NSX. 
Certain Users of the Zero Display Reserve Orders have indicated that 
executing orders during a locked market may harm investors. These 
market participants believe that a locked market is the result of stale 
quotations that are disseminated by the

[[Page 19049]]

SIP, and not reflective of a fair and orderly market.\20\ Investors may 
not receive the best price available if their orders are executed 
during a locked market because the locked market is a stale quote. In 
addition, an investor may receive a worse price if its order is 
executed during a locked market rather than if the System waited for 
the first unlocked market. The Commission also stated that it believes 
that repeated or continual locking or crossing of a market may raise 
concerns about the orderliness and efficiency of the markets.\21\ 
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.
---------------------------------------------------------------------------

    \20\ See Regulation NMS Adopting Release, supra note 9.
    \21\ See Regulation NMS Proposing Release, supra note 11.
---------------------------------------------------------------------------

    Lastly, the amendments to Exchange Rule 11.11(c)(2)(A) merely 
simplifies the Exchange Rules by removing an incorrect reference as a 
defined term which is not referenced elsewhere. 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 \22\ and Rule 19b-
4(f)(6)(iii) thereunder.\23\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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.
---------------------------------------------------------------------------

    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 provide Users with the ability 
to instruct the Exchange not to execute a Zero Display Reserve Order 
when the protected bid is equal to the protected offer without delay. 
The Commission notes that the rule change affecting treatment of 
undisplayed orders during a locked market on NSX raises no novel issues 
and is similar to the treatment of undisplayed orders during a locked 
market on another exchange.\24\ For this reason, the Commission waives 
the operative delay and designates the proposed rule change to be 
operative upon filing.\25\
---------------------------------------------------------------------------

    \24\ See SR-NSX-2013-07, Items 7 and 8. See also CBSX Rule 
51.8(g)(10)-(13).
    \25\ 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).
---------------------------------------------------------------------------

    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) \26\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-2013-10 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-2013-10. 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 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-2013-10, and should be submitted on or before April 
18, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07179 Filed 3-27-13; 8:45 am]
BILLING CODE 8011-01-P


