
[Federal Register Volume 79, Number 193 (Monday, October 6, 2014)]
[Notices]
[Pages 60223-60225]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23704]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73267; File No. SR-NYSEArca-2014-108]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Exchange 
Rule 6.1A To Codify the Terms Complex BBO and Complex NBBO and To Amend 
Rule 6.62(y) To Revise the Definition of a PNP Plus Order

September 30, 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 17, 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 Exchange Rule 6.1A to codify the 
terms Complex BBO and Complex NBBO and to amend Rule 6.62(y) to revise 
the definition of a PNP Plus order. 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 6.1A to adopt definitions for 
the terms Complex BBO and Complex NBBO. Additionally, the Exchange 
proposes to amend Rule 6.62(y) by revising the definition of PNP Plus 
orders, to specify that the order type is available solely for 
Electronic Complex Orders,\4\ and to describe the processing of an 
Electronic Complex Order designated as PNP Plus.
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    \4\ See Rule 6.91.
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Complex BBO and Complex NBBO
    The term BBO is defined in Exchange Rule 6.1A(a)(2) as the best bid 
or offer on OX,\5\ and the term NBBO is defined in Exchange Rule 
6.1A(a)(11) as the national best bid or offer. In both cases the best 
bid and offer represents the best price available in an individual 
option series as disseminated by either the Exchange (in the case of 
the BBO) or the Options Price Reporting Authority (``OPRA'') (in the 
case of the NBBO). Unlike bids and offers for each individual option 
series, derived bids and offers for Complex Orders are not disseminated 
by either the Exchange or OPRA.
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    \5\ OX is the Exchange's electronic order delivery, execution 
and reporting system for options through which orders and quotes are 
consolidated for execution and/or display. See Rule 6.1A(a)(13).
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    Even though there is not a published bid or offer for every complex 
order strategy, there are situations where it is necessary to derive a 
(theoretical) bid or offer for a particular strategy.\6\ In order to 
derive the best bid or best offer for a given complex order strategy 
the Exchange takes the best bid and best offer in the individual leg 
markets comprising the complex order strategy, that when aggregated 
create either a derived Complex BBO or derived Complex NBBO for that 
same strategy. The Exchange uses the best quotes available on the 
Exchange in each component series (as shown in OX) to create the 
Complex BBO and the best quotes available nationally in each component 
series (as disseminated by

[[Page 60224]]

OPRA) to establish the Complex NBBO. When deriving the Complex BBO or 
Complex NBBO the Exchange only factors in the best prices available in 
the individual leg markets and does not take into consideration prices 
of individual Complex Orders that may be resting on the Exchange or in 
another exchange's complex order book (spread book, contingency book).
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    \6\ For example, the Complex Matching Engine utilizes a Complex 
NBBO when establishing the acceptable price range applicable to the 
opening auction process for Electronic Complex Orders. See Rule 
6.91(a)(2)(i)(B).
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    The Exchange proposes to add definitions of the terms Complex BBO 
and Complex NBBO in Rule 6.1A. The term ``Complex BBO'' would be 
defined in Rule 6.1A(a)(2)(ii) as the BBO for a given complex order 
strategy as derived from the best bid on OX and best offer on OX for 
each individual component series of a Complex Order. The term ``Complex 
NBBO'' would be defined in Rule 6.1A(a)(11)(ii) as the NBBO for a given 
complex order strategy as derived from the national best bid and 
national best offer for each individual component series of a Complex 
Order.
    An example of how the Complex BBO and Complex NBBO is derived for a 
given strategy is shown below;

Jan 20 calls BBO 2.00 x 2.20 NBBO 2.05-2.20
Jan 25 calls BBO 1.00 x 1.20 NBBO 1.05-1.20

    To derive the bid side of the Complex BBO for the Jan 20/25 call 
spread using the markets available on the Exchange, the Exchange takes 
the best bid in the Jan 20 calls coupled with the best offer in the Jan 
25 calls. The result is an .80 bid (2.00-1.20 = .80). To derive the 
offer side of the Complex BBO for the same call spread the Exchange 
take the best offer in the Jan 20 calls coupled with the best bid in 
the Jan 25 calls. The result is an offer of 1.20 (2.20-1.00 = 1.20). In 
this example, the resulting Complex BBO is .80-1.20.
    To derive the bid side of the Complex NBBO for the Jan 20/25 call 
spread using the markets as disseminated by OPRA, the Exchange takes 
the national best bid in the Jan 20 calls coupled with the national 
best offer in the Jan 25 calls. This results in an .85 bid (2.05-1.20 = 
.85). To derive the offer side of the Complex NBBO for the same call 
spread the Exchange take the national best offer in the Jan 20 calls 
coupled with the national best bid in the Jan 25 calls. This results in 
an offer of 1.15 (2.20-1.05=1.15). In this example, the resulting 
Complex NBBO is .85-1.15.
PNP Plus
    As defined in Rule 6.62(y), an order designated as PNP Plus is a 
limit order that is automatically re-priced by the Exchange to a price 
that is one minimum price variation (``MPV'') higher (lower) than the 
NBBO bid (offer) if it were to lock or cross the NBBO. The re-priced 
order is then posted in the Consolidated Book. PNP Plus orders continue 
to be re-priced and re-posted in the Consolidated Book with each change 
in the NBBO until such time as the NBBO has moved to a price where the 
original limit price of the PNP Plus order no longer locks or crosses 
the NBBO, at which time the PNP Plus order will revert to the original 
limit price of such order. Orders designated as PNP Plus are ranked in 
the Consolidated Book pursuant to Rule 6.76 and assigned a new price 
time priority as of the time of each reposting. Because an order 
designated as PNP Plus would be posted at a price that is higher 
(lower) that [sic] the best contra-side market, by designating an order 
as PNP Plus, a market participant could guarantee that if its order 
were to be executed, it would be executed at a price that is better 
than the disseminated contra-side market. Accordingly, PNP Plus 
provides OTP Holders with additional processing capability to control 
the circumstances under which their orders are executed. The Exchange 
notes that the PNP Plus order type is currently not operable for 
single-leg orders, nor does the Exchange intend to introduce such 
functionality in the near future. OTP Holders are able to and do use 
the PNP Plus designation when submitting Electronic Complex Orders. 
Accordingly, the Exchange is proposing to amend the definition of the 
PNP Plus order type to make it applicable solely to Electronic Complex 
Orders.
    In addition, the revised rule would explain that the net debit/
credit price \7\ of an Electronic Complex Order designated as PNP Plus 
is re-priced based on the Complex BBO for the same complex order 
strategy. An Electronic Complex Order designated as PNP Plus would 
follow existing PNP Plus processing in that the order will be 
automatically re-priced by the Exchange to a price that is one MPV 
lower (higher) than the displayed contra-side market for buy orders 
(sell orders) if it were to lock or cross that market. However, because 
the leg prices of an Electronic Complex Order are bound by the best bid 
or offer on the Exchange and not the national best bid or offer \8\ as 
is the case with single-leg orders, when re-pricing an Electronic 
Complex Order designated as PNP Plus, the order would be re-priced one 
MPV lower (higher) than the Complex BBO if it were to lock or cross the 
Complex BBO.
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    \7\ Bids and offers for Electronic Complex Orders are entered 
based on the net debit/credit of prices of the individual component 
series comprising the complex order strategy.
    \8\ See Rule 6.91(a)(2).
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    Accordingly, as amended, Rule 6.62(y) would state that an 
Electronic Complex Order designated as PNP Plus is automatically re-
priced by the Exchange to an MPV higher (for sell orders) than the 
Complex BBO bid for that same Complex Order strategy or at an MPV lower 
(for buy orders) than the Complex BBO offer for that same Complex Order 
strategy for any unexecuted portion of the Electronic Complex Order 
designated as PNP Plus that would otherwise lock or cross the Complex 
BBO. The Exchange notes that because bids and offers for Electronic 
Complex Orders are priced on a net debit/credit basis and may be 
expressed in any decimal price, and the legs(s) of an Electronic 
Complex Order may be executed in one cent increments regardless of the 
MPV otherwise applicable to the individual legs of the order,\9\ the 
MPV applicable to an Electronic Complex Order designated as PNP Plus 
will always be $0.01 cent. The re-priced order would then be posted in 
the Consolidated Book pursuant to Rule 6.91(a)(1).
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    \9\ See Rule 6.91 Commentary .01.
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    Finally, the Exchange proposes to change the existing cross 
reference in Rule 6.62(y) from Rule 6.76 to 6.91(a)(1). This is a non-
substantive change as both rules call for orders to be ranked according 
to price/time priority. The Exchange believes Rule 6.91(a)(1) is the 
more appropriate rule to reference because it is specific to Electronic 
Complex Orders. For the purposes of ranking in the Consolidated Book, 
Electronic Complex Orders designated as PNP Plus shall initially be 
ranked based on their original time of entry and assigned a new price/
time priority as of the time of each re-posting. From there, with the 
exception of the use of the Complex BBO rather than the NBBO, all other 
PNP Plus functionality remains unchanged.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)(5) of the Securities Exchange Act of 1934 (the ``Act''),\10\ which 
requires the rules of an exchange to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest. The Exchange believes 
that the proposed rule change would

[[Page 60225]]

remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it would provide 
transparency in Exchange rules that the PNP Plus is a designation 
applicable to Electronic Complex Orders. The Exchange further believes 
that revising the PNP Plus definition to describe how an Electronic 
Complex Order designated as PNP Plus is re-price [sic] based off the 
Complex BBO and not the NBBO would align the rule with existing 
functionality and rules governing Electronic Complex Orders.
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    \10\ 15 U.S.C. 78f(b).
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    The Exchange also believes that [sic] proposed rule change would 
perfect the mechanism of a free and open market because by revising the 
PNP Plus order type to make the designation available solely for 
Electronic Complex Orders, and not for single leg orders, the rule 
would clearly describe the applicability of the PNP Plus order type and 
eliminate any suggestion of an order type for which there is no 
demonstrated demand and is not supported by Exchange systems.
    The Exchange also believes that defining the terms Complex BBO and 
Complex NBBO will help to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, in 
general because it would provide all market participants with 
additional clarity in how the Exchange calculates the Complex BBO and 
Complex NBBO in connection with the processing of Complex Orders.
    In addition, the Exchange believes that the proposal would remove 
impediments to and perfect the mechanism of a free and open market by 
ensuring that members, regulators and the public can more easily 
navigate the Exchange's rulebook and better understand the orders types 
available for trading on the Exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed change is not 
designed to address any competitive issue but rather revise an existing 
a [sic] rule, that can be seen as inaccurate or incomplete, by 
accurately describing functionality applicable to the PNP Plus order 
type and describing the processing of an Electronic Complex Order 
designated as PNP Plus, thereby reducing confusion and making the 
Exchange's rules easier to understand and navigate. Also, adopting 
Complex BBO and Complex NBBO as defined terms is intended to add 
clarity into Exchange rules regarding the methodology of how a Complex 
BBO and a Complex NBBO is derived and therefore does not raise any 
competitive concerns.

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 \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
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.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 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) \14\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 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-2014-108 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-2014-108. 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-2014-108 and should be submitted on or before 
October 27, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2014-23704 Filed 10-3-14; 8:45 am]
BILLING CODE 8011-01-P


