
[Federal Register Volume 79, Number 189 (Tuesday, September 30, 2014)]
[Notices]
[Pages 58842-58844]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23225]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73204; File No. SR-NYSEArca-2014-105]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca 
Equities Rule 7.31 To Amend the Functionality Relating To Post No 
Preference Blind Orders To Display Such Orders One Minimum Price 
Variation Below the Best Protected Offer for Bids and Above the Best 
Protected Bid for Offers

September 24, 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 September 11, 2014, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the functionality relating to Post 
No Preference Blind (``PNP Blind'') orders to display such orders one 
minimum price variation below the best protected offer for bids and 
above the best protected bid for offers. 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 is proposing to amend Rule 7.31(mm) to amend the 
functionality relating to PNP Blind orders to display such orders one 
minimum price variation (``MPV'') below the best protected offer 
(``PBO'') for bids and above the best protected bid (``PBB'') for 
offers. All other functionality of PNP Blind orders would remain the 
same.
    Pursuant to Rule 7.31(mm), a PNP Blind order is a PNP order that is 
placed undisplayed in the NYSE Arca book at the price of the contra-
quote of the PBBO if the order would lock or cross a protected 
quotation. The rule provides that where the PBBO moves away from the 
price of the PNP Blind, but the prices continue to overlap, the limit 
price of the PNP Blind remains un-displayed and its tradeable price is 
adjusted to the contra side of the best protected offer or best 
protected bid. Where the PBBO moves away from the price of the PNP 
Blind and the prices no longer overlap, the PNP Blind converts to a 
displayed PNP limit order. Where the PBBO moves into the price of the 
PNP Blind, the PNP Blind adjusts its tradeable price to the contra side 
of the best protected offer or best protected bid. PNP Blind orders are 
governed by the Exchange's Display Order Process set forth in Rule 
7.36. Marketable contra orders execute first against PNP Blind orders, 
only at superior prices, then the rest of the book. Multiple PNP Blind 
orders, in un-displayed status, are treated in time priority, 
regardless of the price of the order. A PNP Blind order that is 
combined with an ALO order is not cancelled if it is marketable against 
the PBBO.
    The Exchange is proposing to amend Rule 7.31(mm) to provide for PNP 
Blind orders to be displayed. The Exchange would continue to price and 
execute PNP Blind orders at the price of the contra-quote of the PBBO. 
As proposed, the Exchange would also display PNP Blind orders one MPV 
below the PBO (for bids) and one MPV above the PBB (for offers).\4\ As 
with current functionality, PNP Blind orders would continue to be re-
priced if the PBBO moves. As proposed, each time the PNP Blind order is 
repriced to reflect a change in the contra-quote PBBO, the PNP Blind 
order would also be re-displayed at one MPV below the updated PBO (for 
bids) and one MPV above the updated PBB (for offers).\5\
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    \4\ Pursuant to NYSE Arca Equities Rule 7.6, Commentary .03, the 
MPV for quoting and entry of orders on the Exchange is $0.01, with 
the exception of securities that are priced less than $1.00, for 
which the MPV for order entry is $0.0001.
    \5\ The Exchange notes that the proposed change would not alter 
how the Exchange would treat PNP Blind orders to sell short that are 
entered during a Short Sale Period pursuant to Rule 
7.16(f)(v)(D)(ii). Pursuant to that rule, during a Short Sale 
Period, PNP Blind orders to sell short are both re-priced and 
displayed at a Permitted Price, which is one MPV above the NBB.
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    In order to reflect the new functionality for PNP Blind orders, the 
Exchange proposes to revise Rule 7.31(mm) to adopt rule text similar to 
rule text of other markets that offer similar functionality.\6\ As 
proposed, amended Rule 7.31(mm) would provide that a PNP Blind order is 
a PNP order that, if, at the time of entry, would create a violation of 
Rule 610(d) of Regulation NMS by locking or crossing the protected 
quotation of an external market or would cause a violation of Rule 611 
of Regulation NMS would be priced to the current PBO (for bids) or to 
the current PBB (for offers) and displayed by the Exchange at one MPV 
below the current PBO (for bids) or above the current PBB (for offers). 
Although the rule text is changing, as noted above, the only change to 
the functionality associated with PNP Blind orders is the new display 
function. The Exchange believes that the proposed new rule text 
provides transparency regarding the amended PNP Blind order 
functionality because it makes clear both how it would be priced for 
execution and at what price it would be displayed. The proposed rule 
text also makes clear that the re-pricing and re-displaying is to 
prevent both locking or crossing a protected quotation of an external 
market, in violation of Rule 610(d) of Regulation NMS, and trading 
through a protected quotation, in violation of Rule 611 of Regulation 
NMS.
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    \6\ See Nasdaq Stock Market LLC (``Nasdaq'') Rule 4751(d)(8) and 
(10) and BATS Exchange, Inc. (``Bats'') Rules 11.9(c)(6) and 
(g)(2)(E) [sic].
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    The Exchange notes that including explicit cross-references to 
Regulation NMS is similar to the rule text governing Nasdaq's Price to 
Comply Order, which similarly provides that Nasdaq reprices orders that 
if, at the time of entry, the order would create a violation of Rule 
610(d) of Regulation NMS by locking or crossing the protected quotation 
of an external market or would cause a violation of Rule 611 of 
Regulation NMS.\7\ The rule text describing how the re-pricing and

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re-display function would operate for PNP Blind orders is also similar 
to the rule text governing Nasdaq's Post-Only Orders, which provides 
that Nasdaq would price such non-routable orders that lock or cross an 
external market's protected quotations to the current PBO or the 
current PBB and display such orders one MPV below the current PBO (for 
bids) or above the current PBB (for offers).\8\
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    \7\ See Nasdaq Rule 4751(d)(8) [sic].
    \8\ See Nasdaq Rule 4751(d)(10) [sic]. The rule text is also 
similar the how display-price sliding functionality is described in 
Bats rules. See, e.g., Bats Rule 11.9(g)(2)(A) [sic].
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    Proposed amended Rule 7.31(mm)(1) describes how a PNP Blind Order 
would be re-displayed and re-priced if the PBBO moves. As proposed, if 
the PBO (PBB) re-prices higher (lower), a PNP Blind order to buy (sell) 
would be re-priced to the updated PBO (PBB) and re-displayed one MPV 
below (above) the updated PBO (PBB) until it reaches its limit price. 
This proposed rule text is consistent with current Rule 7.31(mm)(1), 
which provides that PNP Blind orders will be re-priced when the PBBO 
moves ``away from the price''. The proposed new rule text differs from 
the current rule in order to incorporate the new display function for 
PNP Blind orders, described above.\9\ The Exchange notes that because 
PNP Blind orders would now be displayed, there is no need to re-price 
the PNP Blind Order if the price of the PBBO moves ``into the price'' 
of the PNP Blind Order, i.e., locks or crosses the displayed price, as 
set forth in current Rule 7.31(mm)(3). Rather, because the PNP Blind 
Order would be displayed, the Exchange proposes that if the PBO (PBB) 
re-prices to be equal to or lower (higher) than the last displayed 
price of a PNP Blind order, the PNP Blind order would remain priced and 
displayed at its last displayed price. As such, a PNP Blind Order would 
stand its ground at its displayed price, which would also become the 
price at which it would execute if the opposite side PBBO locks or 
crosses the displayed price of the PNP Blind order.\10\ Finally, 
consistent with current Rule 7.31(mm)(2), but with revised rule text, 
if the PBBO changes such that a PNP Blind order would not lock or cross 
the PBBO of an external market, the order would be displayed as a PNP 
limit order.\11\
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    \9\ The proposed rule is consistent with functionality on Nasdaq 
and Bats. See Nasdaq Rule 4751(d)(8) [sic] and Bats Rules 
11.9(g)(1)(B) and (C).
    \10\ The Exchange notes that this proposed functionality is 
consistent with Bats price-sliding rules. See Bats Rule 
11.9(g)(1)(B) and (C).
    \11\ See, e.g., Bats Rule 11.9(g)(2)(B) [sic].
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    The remainder of the proposed rule text is not new rule text, but 
rather current Rule 7.31(mm)(4) language moved to amended Rule 
7.31(mm)(2), with non-substantive revisions. The proposed revised rule 
text provides that PNP Blind orders are governed by the Exchange's 
Display Order Process set forth in Rule 7.36. Marketable contra orders 
will execute first against PNP Blind orders, only at superior prices, 
then the rest of the book. All PNP Blind orders that are re-priced and 
re-displayed will retain their priority as compared to other PNP Blind 
orders based upon the time such orders were initially received by the 
Exchange, regardless of the price of the order.
    For an illustration of how the new functionality would operate, 
consider the following examples:

Example 1:

    PBBO is $20.05 x $20.07
    PNP Blind order to buy is entered with a price of $20.07.

    Because the PNP Blind order to buy would lock the $20.07 PBO, the 
PNP Blind order is displayed at $20.06 and priced to execute at the PBO 
price of $20.07. As a result, the PBBO would update to $20.06 x $20.07. 
An incoming limit order to sell with a limit price of $20.05 would 
interact with the PNP Blind order at $20.07.

Example 2:

    PBBO is $20.05 x $20.07
    PNP Blind order to buy is entered with a price of $20.08

    As in Example 1, the PNP Blind order is displayed at $20.06 and 
priced to execute at the PBO price of $20.07. As a result, the PBBO 
updates to $20.06 x $20.07. Assume the PBO of $20.07 is cleared on an 
away market and the PBO changes to $20.08. The price of the PNP Blind 
order shifts to be displayed at $20.07 and is re-priced to the new PBO 
of $20.08. Assume the away PBO changes again to $20.07. The PNP Blind 
order would stand its ground at $20.07 and would be eligible to execute 
at $20.07. If the PBO changes again to $20.09, the PNP Blind would be 
displayed and priced at $20.08, which is its limit price. Once 
displayed at its limit price, the PNP Blind order converts to a 
straight PNP limit order and would not re-price.

Example 3:

    PBBO is $20.05 x $20.07 (100 x 200)
    PNP Blind order T1 to buy 1000 shares is entered with a price of 
$20.08
    PBBO moves to $20.06 x $20.07 (1000 x 200)
    PBO clears on away market, PBBO updates to $20.07 x $20.08 (1000 x 
800)
    T2 limit to buy 1200 shares entered with a price of $20.08

    When the Exchange receives T2, it routes and executes 800 shares 
with the $20.08 PBO, thereby clearing out the PBO, and the residual of 
400 shares rests on the Exchange's book at $20.08. The PNP Blind T1 
Order would no longer be locking a $20.08 PBO, so it would also post to 
the Arca Book at $20.08. If the Exchange were to receive a market order 
to sell 200 shares, it would execute against T2 only. The Exchange 
believes that this priority allocation is consistent with the 
Exchange's price-time priority model, set forth in Rule 7.36, because 
T2 was the first to be priced at $20.08 and therefore has time priority 
at that price over T1.
    The Exchange will announce the implementation date of the systems 
functionality associated with the proposed rule change by Trader Update 
to be published no later than 30 days following the effective date. The 
implementation date will be no later than 30 days following the 
issuance of the Trader Update.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5),\13\ in particular, in that it is designed to promote just and 
equitable principles of trade, to remove impediments to, and perfect 
the mechanism of a free and open market and, in general, to protect 
investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that adding a display function to PNP Blind 
orders will remove impediments to and perfect the mechanism of a free 
and open market because the proposed rule change encourages the display 
of liquidity consistent with Regulation NMS. The Exchange is not 
modifying the current price-sliding functionality associated with PNP 
Blind orders, which, to avoid locking or crossing the external PBBO in 
violation of Rule 610(d) of Regulation NMS or trading through in 
violation of Rule 611 of Regulation NMS, re-prices PNP Blind orders to 
the contra-quote of the PBBO without displaying the order at that 
price. The Exchange's proposal to add a display function is consistent 
with these goals by displaying buy (sell) PNP Blind orders one MPV 
below (above) the PBO (PBB). By displaying such interest at a price 
inferior to the contra PBBO, the Exchange will not lock or cross an 
away market, but will put market participants on notice of available 
liquidity at the

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Exchange. If a market participant responds to such displayed liquidity, 
they would receive an execution at a better price than what was 
displayed because the PNP Blind orders are eligible to execute at more 
aggressive prices. The Exchange notes that the proposed display 
functionality is consistent with the rules of other markets.

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 the 
proposed changes to the PNP Blind orders will enhance order execution 
opportunities for investors. Further, the Exchange believes the changes 
will enhance competition between the Exchange and other exchanges that 
currently offer similar order types, i.e., non-routable orders that are 
priced and execute at the contra-quote of the PBBO, but are displayed 
one MPV inferior to the contra-quote PBBO.\14\
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    \14\ See supra nn. 6, 8, 9, and 10.
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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 \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
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) thereunder.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6). 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) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 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-NYSEArca-2014-105 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-NYSEArca-2014-105. 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 also will 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-NYSEArca-2014-105 and should be submitted on or before 
October 21, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23225 Filed 9-29-14; 8:45 am]
BILLING CODE 8011-01-P


