
[Federal Register Volume 78, Number 237 (Tuesday, December 10, 2013)]
[Notices]
[Pages 74210-74212]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29381]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70978; File No. SR-NYSEMKT-2013-96]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 925NY To 
Eliminate the Requirement That Market Makers Comply With the Bid-Ask 
Differential Requirements Specified in Rule 925NY(b)(4)(A)-(E) When 
Electronically Bidding and Offering on the Exchange System During the 
Opening Auction Process

December 4, 2013.
    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 November 20, 2013, 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, II, 
and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 925NY to eliminate the 
requirement that Market Makers comply with the bid-ask differential 
requirements specified in Rule 925NY(b)(4)(A)-(E) when electronically 
bidding and offering on the Exchange system during the opening auction 
process (``Auction''). 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 925NY(b)(5) to eliminate the 
requirement that Market Makers, when electronically bidding and 
offering on the Exchange system (``System'') \4\ during an Auction, 
must comply with the bid-ask differentials specified in Rule 
925NY(b)(4)(A)-(E) and instead make the bid-ask differential specified

[[Page 74211]]

in Rule 925NY(b)(5) applicable at all times, including during an 
Auction.
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    \4\ The term ``Exchange System'' refers to the Exchange's 
electronic order delivery, execution and reporting system through 
which orders and quotes for listed options are consolidated for 
execution and/or display. See NYSE MKT Options Rule 900.2NY(48).
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    Current Rule 925NY(b)(5) provides that options traded on the System 
during core trading hours may be quoted with a difference not to exceed 
$5 between the bid and offer regardless of the price of the bid 
(``standard-width quote''), except with respect to an Auction, in which 
case Rule 925NY(b)(4) governs bidding and offering quote differentials. 
Rule 925NY(b)(4)(A)-(E) set out Auction bid-ask differentials that vary 
depending on the price of the bid. Under Rule 925NY(b)(4)(A)-(E), the 
quote widths may not be more than: $0.25 if the bid is less than $2; 
$0.40 if the bid is at least $2 but does not exceed $5; $0.50 if the 
bid is more than $5 but does not exceed $10; $0.80 if the bid is more 
than $10 but does not exceed $20; and $1 if the bid is more than $20. 
The Exchange now proposes to replace the varying narrow-width bid-ask 
differentials that apply to Market Maker quotations during an Auction 
with the $5 quote differential that is in place at all other times.
    The Exchange notes that the narrow-width bid-ask differentials 
applicable to Market Maker quotations during an Auction, which the 
current proposal would replace, were previously deleted from Rule 925NY 
in 2010,\5\ and reinstituted in 2011.\6\ The Exchange found that at 
times the absence of more narrow quotes during an Auction prevented 
series from opening promptly, and could unnecessarily delay the 
execution of orders. At that time, the Exchange believed that setting a 
narrower differential for Auction quotes would expedite the opening of 
all option series on the Exchange promptly after the opening of the 
underlying security.
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    \5\ See Securities Exchange Act Release No. 62248 (June 9, 
2010), 75 FR 34194 (June 16, 2010) (SR-NYSEAmex-2010-51).
    \6\ See Securities Exchange Act Release No. 63746 (January 20, 
2011), 75 FR 4961 (Jan. 27, 2011) (SR-NYSEAmex-2011-05).
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    The Exchange now believes, however, that the rationales \7\ under 
which it first eliminated the narrow-width quoting obligations for 
Auctions in 2010 are once again evident to such an extent that the 
narrow-width quoting obligations are no longer necessary for Auctions, 
and thus the Exchange proposes to eliminate them again. The Exchange no 
longer has the concerns it had in 2011 regarding potential delays, both 
in the opening of series and in the execution of orders. In particular, 
the Exchange's 2012 amendment to Rule 952NY allows for series to open 
on the wider, standard-width quote when an Auction is not to take 
place,\8\ which is currently the case in a majority of series openings 
on the Exchange.
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    \7\ The obligation for Market Makers to provide opening quotes 
at the widths described in Rule 925NY(b)(4)(A)-(E) had been adapted 
from the era when the Exchange conducted open outcry rotations, had 
only open outcry quotes available to respond to an order, and did 
not disseminate Firm Quotes. Further, an open outcry opening 
rotation only required a response from a single Market Maker. The 
opening market represented the firm quote for all Market Makers in a 
trading crowd, and any such Market Maker could be held to fill 
orders at the quoted market. The original intent of maintaining the 
obligation for Market Makers to submit narrow, traditional bid-ask 
quotations was to encourage a narrower aggregated Exchange market 
during the opening auction. This was especially necessary as NYSE 
MKT was often the first market to open a series, there was not 
necessarily an accurate National Best Bid/Offer (``NBBO'') 
available, and the Exchange did not have a systemically enforced 
narrow-width bid-ask differential applicable to the auction process. 
Since the time of the original introduction of the System, however, 
NYSE MKT has instituted increased functionality to define price 
parameters during the auction process.
    \8\ See Securities Exchange Act Release No. 68383 (Dec. 7, 
2012), 77 FR 74258 (Dec. 13, 2012) (SR-NYSEMKT-2012-72).
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    Additionally, it is no longer necessary to require Market Makers to 
submit narrow, traditional bid-ask quotations to encourage a narrower 
Exchange market during the auction process, as was the original intent 
of the limitations on bid-ask differentials. Since the time of the 
original introduction of the System, the Exchange has instituted 
increased functionality to define price parameters during the auction 
process. The system will not conduct an Auction in a series until one 
of two conditions is met: (i) A Market Maker submits a narrow-width 
quote, or (ii) a narrow-width NBBO is received from OPRA. This is a 
systemic solution which renders the rules-based narrow bid-ask 
differential moot. Further, in light of the lowering of the Lead Market 
Maker quoting obligation to 90% in 2008,\9\ there is no requirement for 
a Market Maker to submit a quotation for an Auction, and thus the 
Auction quote-width requirement imposes limits on a non-existent 
obligation.
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    \9\ See Securities Exchange Act Release No. 59472 (Feb. 27, 
2009) 74 FR 9843 (Mar. 6, 2009) (SR-NYSEAltr-2008-14).
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    Finally, the opening auction parameters described in Rule 952NY, 
under which an Auction will not be conducted unless the composite NYSE 
MKT bid-ask is within an acceptable range (identical to the bid-ask 
parameters pursuant to Rule 925NY(b)(4)(A)-(E)) would remain in effect 
under the Exchange's current proposal.
    The Exchange thus believes that the current proposal is appropriate 
and further notes that the proposal would more closely align the 
Exchange's rules with the rules of other options exchanges that do not 
require narrow-width quotes during an opening auction. Neither BATS 
Exchange, Inc. (``BATS'') nor NASDAQ Stock Market LLC (``NOM'') imposes 
narrow-width quote requirements during an opening auction.\10\
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    \10\ See BATS Rule 22.5; NOM Rules Chapter VII, Sections 5-6.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ in particular, because 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change is designed to remove impediments to, and 
perfect the mechanism of a free and open market and a national market 
system by setting price parameters for the opening Auction rather than 
relying on a restriction that does not have obligatory performance. The 
wider quote differential requirement for openings when an Auction is 
conducted will implement a less burdensome quoting obligation in a way 
that benefits market participants and enables them to safely execute 
their orders on the Exchange because the proposal maintains the price 
protection parameters established under Rule 952NY. This will reduce 
the likelihood of disadvantageous pricing for orders executed during an 
Auction, which also contributes to the protection of investors and the 
public interest generally. The Exchange believes that by maintaining 
these price protection parameters within the Auction process, rather 
than just as a requirement for submitted quotes, Customers and other 
market participants will continue to be afforded a level of price 
protection on executions that occur during an Auction. The proposed 
rule is also designed to promote just and equitable principles of trade 
because it would permit Market Makers to provide opening quotes more 
consistent with those provided by market makers on other options 
exchanges.\13\
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    \13\ See note 10, supra.

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[[Page 74212]]

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 not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that the proposal will result in the Exchange operating in a 
more efficient way. The adoption of a less burdensome quoting 
obligation on NYSE MKT Market Makers during the auction process will 
allow them to compete more effectively with their counterparts on other 
options exchanges that are similarly not subject to a narrow-width bid-
ask differential applicable during auctions. In addition, the proposed 
rule change is pro-competitive on both an inter-market and intra-market 
basis in that it is not only designed to help the Exchange compete more 
effectively with other options exchanges with similar rules, but could 
also lead to increased participation by a greater number of Market 
Makers on the Exchange during the auction process because of the more 
flexible quoting obligations it would impose.

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.
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    \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.
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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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 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-NYSEMKT-2013-96 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-2013-96. 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., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-2013-96 and should be submitted on or before 
December 31, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29381 Filed 12-9-13; 8:45 am]
BILLING CODE 8011-01-P


