
[Federal Register Volume 79, Number 89 (Thursday, May 8, 2014)]
[Notices]
[Pages 26470-26473]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-10538]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72084; File No. SR-NYSEMKT-2014-42]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 980NY To 
Adopt Rules Governing an Opening Auction Process for Electronic Complex 
Orders and To Amend and Reorganize Existing Rules Specifying Available 
Electronic Complex Order Types and Modifiers

May 2, 2014.
    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 April 28, 2014, 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 and II 
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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 980NY (Electronic Complex Order 
Trading) to adopt rules governing an opening auction process for 
Electronic Complex Orders and to amend and reorganize existing rules 
specifying available Electronic Complex Order types and modifiers. 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 980NY (Electronic Complex Order 
Trading) to adopt rules governing an opening auction process for 
Electronic Complex Orders and to amend and reorganize existing rules 
specifying order types and modifiers applicable to Electronic Complex 
Orders.

[[Page 26471]]

Opening Auction Process for Electronic Complex Orders
    The Exchange is proposing to amend Rule 980NY(c) by establishing 
subsection (i) to describe how orders would be handled by the Complex 
Matching Engine (``CME'') during a new opening auction process for 
Electronic Complex Orders that would allow the Exchange to offer 
eligible trading interest at a single-price opening. Currently, there 
is no single-price opening. Rather, the CME begins processing each 
Electronic Complex Order in the Consolidated Book based on price/time 
priority after all of the individual component option series that make 
up a complex order strategy have opened. By adopting the proposed 
opening auction process for the CME, the Exchange is seeking to 
maximize both price discovery and execution opportunities for 
participants utilizing Electronic Complex Orders. The Chicago Board 
Options Exchange (``CBOE'') recently adopted similar rules to describe 
how their Complex Order Book (``COB'') functions at the opening of 
trading.\4\ The Exchange notes that the proposed changes to Rule 980NY 
regarding the new opening auction process for Electronic Complex Orders 
are substantially similar in all material respects to those of the 
CBOE.\5\
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    \4\ See Securities Exchange Act Release No.68844 (February 6, 
2013), 78 FR 9953 (February 12, 2013) (SR-CBOE-2013-007).
    \5\ See CBOE Rule 6.53C.11(b), which provision was one of 
several discussed in CBOE's recent filing (see id.). The Exchange 
notes, however, that this filing differs from the CBOE's recent 
filing (see id.) in that it provides specificity about the market 
clearing price and cross-references existing Exchange rules 
regarding auction pricing (see infra n. 6).
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    Pursuant to proposed Rule 980NY(c)(i)(A), Electronic Complex Orders 
would not participate in opening auctions for individual component 
option series legs conducted pursuant to Rule 952NY(b). The Exchange 
further proposes to provide that the CME would not begin processing 
Electronic Complex Orders until all of the individual component option 
series legs that make up a complex order strategy have opened. The 
intent of this paragraph is to make clear to market participants that 
an Electronic Complex Order is not eligible to trade until such time 
that all option series associated with that order have opened for 
trading. The CME will not execute any transactions in Electronic 
Complex Orders involving un-opened option series.
    Pursuant to proposed Rule 980NY(c)(i)(B), the CME would use an 
opening auction process if there are Electronic Complex Orders on both 
sides of the Consolidated Book that are marketable against each other 
and that are priced within the derived Complex National Best Bid and 
Offer (``Complex NBBO'').\6\ The resulting execution would occur at a 
market clearing price that is inside the derived Complex NBBO and that 
matches Electronic Complex Orders with each other to the extent 
marketable.\7\ In determining priority, the CME would give priority to 
Electronic Complex Orders whose net price is better than the market 
clearing price first, and then to Electronic Complex Orders at the 
market clearing price.\8\
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    \6\ The derived Complex NBBO will be derived by using the best 
prices for the individual leg markets comprising the Electronic 
Complex Order as disseminated by OPRA, that when aggregated create a 
derived NBBO for that same strategy.
    \7\ The ``market clearing price'' for Electronic Complex Orders 
is similar to the ``opening price'' for an individual series as 
described in Rule 952NY(c). Specifically, the market clearing price 
for an Electronic Complex Order will be the price, as determined by 
the System, at which the most volume can be traded at or nearest to 
the midpoint of the initial uncrossed derived Complex NBBO. Midpoint 
pricing will not occur if such price would result in the violation 
of the limit price of the Electronic Complex Order(s) involved. 
Instead, the market clearing price would be the limit price of the 
order(s) at which the most volume can be traded. Because listed 
options may not be priced in sub-penny increments nor will the OCC 
clear options at sub-penny prices, if the calculated midpoint price 
results in a sub-penny price, the market clearing price will round 
down to the nearest even penny (i.e., a calculated midpoint price of 
$1.005 will round to $1.00). The Exchange notes that CBOE, which is 
also subject to the same restrictions on sub-penny pricing of listed 
options, did not disclose in their filing (see supra n. 3) whether 
it would round the market clearing price (up or down) to the nearest 
whole cent if mid-point pricing resulted in a sub-penny market 
clearing price.
    \8\ The Exchange notes that Electronic Complex Orders residing 
in the Consolidated Book at the opening of trading that are not 
marketable against other Electronic Complex Orders do not 
participate in the auction process. As is the case today, these 
orders will automatically execute against individual orders or 
quotes residing in the Consolidated Book after the CME opens, 
provided the Electronic Complex Order can be executed in full (or in 
a permissible ratio) by the orders or quotes in the Consolidated 
Book. See current Rule 980NY(c)(ii) which the Exchange is proposing 
to renumber as Rule 980NY(c)(ii)(B). The Exchange notes that this 
functionality is similar to CBOE Rule 6.53C.11(a), which the CBOE 
discussed in its recent filing. See supra n. 3.
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Example 1
    This example will show how the CME would conduct an opening auction 
where the market clearing price is at the midpoint of the derived 
Complex NBBO.
    Assume the derived Complex NBBO for a given complex order strategy 
is $1.10-$1.20 (midpoint = 1.15). Assume there are four Electronic 
Complex Orders in the Consolidated Book for the same strategy; two buy 
orders and two sell orders, each order represents 100 units of the same 
strategy. The first sell order is priced at $1.11 and the second sell 
order is priced at $1.13. The first buy order can pay 1.19 and the 
second can pay $1.17. When the CME opens, (at a market clearing price 
nearest the mid-point where the most volume can trade) the $1.11 sell 
order for 100 units will execute against the $1.19 buy order for 100 
units and the $1.13 sell order for 100 units will execute against the 
$1.17 buy order for 100 units (orders are ranked and executed based on 
price priority). This would result in all volume trading at a single 
market clearing price of $1.15, which in this example is the exact mid-
point price of the derived Complex NBBO.
Example 2
    This example will show how the CME would conduct an opening auction 
where the market clearing price is not equal to the midpoint of the 
derived Complex NBBO.
    Assume the derived Complex NBBO for a given complex order strategy 
is $1.10-$1.20 (midpoint = 1.15). Assume there are three Electronic 
Complex Orders in the Consolidated Book, all for the same complex order 
strategy. The first order is a sell order priced at $1.19 for 20 units, 
the second order is a sell order priced at $1.18 for 10 units, and the 
third order is a buy order paying $1.19 for 50 units. When the CME 
opens, 30 units of the buy order would trade against the two sell 
orders, with the $1.18 sell order for 10 units having first priority 
followed by the $1.19 sell order for 20 units (orders are ranked and 
executed based on price priority). Because the market clearing price in 
this example could not equal the midpoint ($1.15), as that price would 
violate the limit price of both sell orders, the market clearing price 
would be $1.19, as that is the price at which the most volume could 
trade. This would result in the CME conducting the auction at the 
market clearing price of $1.19. In this example, the remaining 20 units 
of the buy order would be subject to processing under Rule 980NY (e.g., 
remain in the Consolidated Book if not marketable against the 
individual orders and quotes in the Consolidated Book or other 
Electronic Complex Orders in the Consolidated Book, or execute if 
marketable subject to the applicable priority and price-check 
parameters).
    The opening auction process of the CME as described in proposed 
Rule 980NY(c)(i)(B) is consistent with the

[[Page 26472]]

opening auction process for Electronic Complex Orders at the CBOE.\9\
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    \9\ See CBOE Rule 6.53C.11(b).
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    The Exchange is proposing to adopt Rule 980NY(c)(i)(C) to explain 
that Electronic Complex Orders that are not executed during the opening 
auction process are eligible to trade during Core Trading against the 
individual quotes and orders residing in the Consolidated Book of the 
same series that comprise the complex order strategy. The processing of 
Electronic Complex Orders during Core Trading is done in accordance 
with Rules 980NY(c)(i)-(iii), which the Exchange is proposing to 
renumber as Rules 980NY(c)(ii)(A)-(C).
    Consistent with the foregoing changes, the Exchange also proposes 
to re-number the remaining subsections of Rule 980NY(c)(i)-(iii) under 
a new section heading, ``Execution of Complex Orders During Core 
Trading,'' with no changes to the substance of the rule text.
    Additionally, the Exchange is proposing to amend the text of Rule 
980NY(c) by deleting the representation that Electronic Complex Orders 
will be executed at the best available price available. Because 
existing and proposed rules explain precisely how Electronic Complex 
Orders are priced (i.e. at a market clearing price during an opening 
auction process, or at the prices of the individual orders and quotes 
in the Consolidated Book during Core Trading), the reference to ``the 
best available price'' is superfluous. The proposed resulting language 
of Rule 980NY(c) would be consistent with rules describing how 
Electronic Complex Orders are traded on NYSE Arca.\10\
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    \10\ See NYSE Arca Rule 6.91(a)(2).
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Order Types and Contingencies Applicable to Electronic Complex Orders
    The Exchange also proposes to amend and reorganize Rule 980NY(d), 
which explains order types, contingencies and modifiers applicable to 
Electronic Complex Orders, as follows:
     The CME presently accepts only Limit Orders \11\ and Limit 
Orders designated as PNP Plus.\12\ The Exchange proposes to amend Rule 
980NY(d) to codify this functionality. As proposed, Rule 980NY(d)(1) 
would state that Limit Orders and Limit Orders designated as PNP Plus 
are valid types of Electronic Complex Orders. Complex Limit Orders and 
Complex Limit Orders designated as PNP Plus are processed in the same 
manner as a similarly marked single-leg order.
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    \11\ See NYSE MKT Rule 900.3NY(b).
    \12\ See NYSE MKT Rule 900.3NY(w).
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     Proposed Rule 980NY(d)(2) would provide that Electronic 
Complex Orders may be designated as Fill-or-Kill (``FOK'') \13\ and 
All-or-None (``AON'').\14\ The use of FOK or AON contingency is 
consistent with complex order trading at other options exchanges.\15\ 
Electronic Complex Orders with a FOK or AON contingency would be 
processed in the same manner as a similarly marked single-leg order.
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    \13\ See NYSE MKT Rule 900.3NY(l).
    \14\ See NYSE MKT Rule 900.3NY(d)(4).
    \15\ See CBOE Rule 6.53C(b) and NYSE Arca Rule 6.91(b).
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     Currently, the Rule 980NY(d) provides that Electronic 
Complex Orders may be entered as IOC \16\ or Day,\17\ and the Exchange 
now proposes making the Good-til-Cancel (``GTC'') \18\ modifier 
available for Electronic Complex Orders. As proposed, Rule 980NY(d)(3) 
would provide that Electronic Complex Order may be entered as IOC, Day, 
or GTC.\19\ The use of GTC as a time-in-force is consistent with 
complex orders trading at other option exchanges.\20\ Electronic 
Complex Orders marked IOC, Day or GTC would be processed in the same 
manner as similarly marked single-leg orders.
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    \16\ See NYSE MKT Rule 900.3NY(k).
    \17\ See NYSE MKT Rule 900.3NY(m).
    \18\ See NYSE MKT Rule 900.3NY(n).
    \19\ See NYSE MKT Rule 900.3NY(n).
    \20\ See CBOE Rule 6.53C(c)(iii) and NYSE Arca Rule 6.91(b).
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Implementation
    The Exchange will implement the proposed rule changes described 
above upon the implementation of technology updates applicable to the 
CME. The Exchange will announce the implementation date of the proposed 
rule change by Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\21\ in general and furthers the objectives of Section 6(b)(5) of the 
Act \22\ in particular in that it should promote just and equitable 
principles of trade, serve to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
protect investors and the public interest.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes the proposed rule governing the 
opening auction process via the CME for Electronic Complex Orders 
increases opportunities for all types of market participants (e.g., 
public customers, broker-dealers and market-makers) to participate in 
trading with Electronic Complex Orders. This participation may promote 
liquidity and result in better prices for customers throughout the 
trading day, including when the CME opens, which, in turn, protects 
investors and advances public interest.
    The Exchange also believes that codifying the available types of 
orders eligible to be entered as Electronic Complex Orders, 
reorganizing the variations of Electronic Complex Order types available 
on the Exchange and listing those in a clear and precise structure, 
will remove impediments to and perfect the mechanism of a free and open 
market. In addition, adopting the GTC, FOK and AON designations will 
further serve to remove impediments to a free an open market and a 
national market system by affording market participants on NYSE Amex 
Options similar investment choices to what is available at other market 
centers.\23\
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    \23\ See supra nn. 14, 19.
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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 Act. As noted above, the Exchange 
believes that expanding the variations of order types via contingencies 
and modifiers will encourage more Electronic Complex Orders to the 
Exchange, which is pro-competitive. Further the planned enhancement to 
provide a single price open, if possible, within the CME increases 
opportunities for all types of market participants (e.g., public 
customers, broker-dealers and market-makers) to participate in the 
trading of complex orders. This participation may promote liquidity and 
result in better prices for customers throughout the trading day, 
including when the CME opens. The Exchange does not believe that the 
changes proposed by this filing imposes any burden on other Exchanges 
as the most substantive change proposed, that being the complex order 
opening auction, is similar to functionality that is already available 
on at least one competing options Exchange.\24\ The Exchange has found 
that when multiple Exchanges introduce similar functionality, other 
Exchanges move to enhance their own systems and product offerings which 
are generally beneficial to all investors.
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    \24\ See supra nn. 3, 8.

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[[Page 26473]]

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 \25\ and Rule 19b-4(f)(6) thereunder.\26\ 
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.\27\
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    \25\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 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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    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) \28\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \28\ 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-2014-42 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2014-42. 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 at 100 F Street NE., 
Washington, DC 20549-1090 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 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-2014-42, and should be submitted on or before May 29, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10538 Filed 5-7-14; 8:45 am]
BILLING CODE 8011-01-P


