
[Federal Register Volume 80, Number 15 (Friday, January 23, 2015)]
[Notices]
[Pages 3697-3699]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01107]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74087; File No. SR-NYSEMKT-2014-86]


Self-Regulatory Organizations; NYSE MKT LLC; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To Remove the Exchange's Quote Mitigation Plan as Provided 
by Exchange Rule 970.1NY

January 16, 2015.

I. Introduction

    On October 2, 2014, NYSE MKT LLC, (``NYSE MKT'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
remove the Exchange's quote mitigation plan as provided by NYSE MKT 
Rule 970.1NY. The proposed rule change was published for comment in the 
Federal Register on October 21, 2014.\3\ On December 2, 2014, pursuant 
to Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On January 8, 2015, the 
Exchange submitted a letter in further support of the proposal.\6\ The 
Commission received no comments on the proposal. This order institutes 
proceedings under Section 19(b)(2)(B) of the Act \7\ to determine 
whether to approve or disapprove the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 73367 (October 15, 
2014), 79 FR 63009 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 73718, 79 FR 72748 
(December 8, 2014). The Commission designated January 19, 2014, as 
the date by which it should approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.
    \6\ See Letter from Elizabeth King, Secretary & General Counsel, 
Exchange, to Kevin O'Neill, Deputy Secretary, Commission, dated 
January 8, 2015 (``NYSE MKT Letter'') available at http://www.sec.gov/comments/sr-nysemkt-2014-86/nysemkt201486-1.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

    In 2007, the Exchange adopted a quote mitigation plan in connection 
with the Penny Pilot Program.\8\ According to the Exchange, the quote 
mitigation plan was designed to reduce the number of quotation messages 
sent by the Exchange to the Options Price Reporting Authority 
(``OPRA'') by only submitting quote messages for ``active'' series.\9\ 
The Exchange defines active series under the quote mitigation plan in 
Exchange Rule 970.1NY as: (i) Series that have traded on any options 
exchange in the previous 14 calendar days; or (ii) series that are 
solely listed on the Exchange; or (iii) series that have been trading 
ten days or less, or; (iv) series for which the Exchange has received 
an order.\10\ In addition, under the Exchange's quote mitigation plan, 
the Exchange may define a series as active on an intraday basis if: (i) 
The series trades at any options exchange; (ii) the Exchange receives 
an order in the series; or (iii) the Exchange receives a request for 
quote from a customer in that series.\11\
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    \8\ See Securities and Exchange Release No. 55162 (January 24, 
2007), 72 FR 4738 (February 1, 2007) (Order Granting Approval of SR-
Amex-2006-106) (``Quote Mitigation Approval Order'').
    \9\ See Notice, supra note 3, at 63009.
    \10\ See Exchange Rule 970.1NY, and Notice, supra note 3, at 
63009.
    \11\ See id.
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    The Exchange proposes to remove its quote mitigation plan from its 
rules by deleting Exchange Rule 970.1NY.\12\ The Exchange believes that 
its quote mitigation plan is no longer necessary primarily for three 
reasons. First, the Exchange states that its incorporation of select 
provisions of the Options Listing Procedures Plan (``OLPP'') \13\ in 
Exchange Rule 903A serves to reduce the potential for excess quoting 
because the OLPP limits the number of options series eligible to be 
listed, which, according to the Exchange, reduces the number of options 
series a market maker would be obligated to quote.\14\ Second, the 
Exchange states its view that Exchange Rule 925.1NY Commentary .01, 
which removes certain options series from market makers' continuous 
quoting obligations, reduces the number of quote message traffic that 
the

[[Page 3698]]

Exchange sends to OPRA.\15\ The Exchange states that reliance on the 
OLPP, via Exchange Rule 930A, and the refined market maker quoting 
obligations, pursuant to Commentary .01 to Exchange Rule 925.1NY, is 
sufficient as a quote mitigation plan.\16\ Third, the Exchange states 
that both its systems capacity and OPRA's systems capacity are more 
than sufficient to accommodate any additional increase in quote traffic 
that might be sent to OPRA as a result of the deletion of the quote 
mitigation strategy.\17\ The Exchange represents that it continually 
assesses its capacity needs and ensures that the capacity that it 
requests from OPRA is sufficient and compliant with the requirements 
established in the OPRA Capacity Guidelines.\18\
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    \12\ In addition, the Exchange proposes to amend paragraphs 
(b)(1) and (b)(2) of Exchange Rule 970NY (Firm Quotes) to delete 
references to the ``Quote Mitigation Plan.'' See Notice, supra note 
3, at 63010.
    \13\ See Amendment to Plan for the Purpose of Developing and 
Implementing Procedures Designed to Facilitate the Listing and 
Trading of Standardized Options Submitted Pursuant to Section 
11A(a)(3)(B) of the Securities Exchange Act available at http://www.theocc.com/clearing/industry-services/olpp.jsp (providing for 
the most current OLPP). See also Securities and Exchange Release No. 
44521 (July 6, 2001), 66 FR 36809 (July 13, 2001) (order approving 
the OLPP).
    \14\ See Notice, supra note 3, at 63009. See also Securities and 
Exchange Release No. 61978 (April 23, 2010), 75 FR 22886 (April 30, 
2010) (in which the Exchange adopted select provisions of the OLPP 
into Exchange Rule 903A).
    \15\ Commentary .01 to Exchange Rule 925.1NY provides that 
Exchange market makers continuous quoting obligations do not apply 
``to adjusted option series, and series with a time to expiration of 
nine months or greater, for options on equities and Exchange Traded 
Fund Shares, and series with a time to expiration of twelve months 
or greater for Index options.'' See also Notice, supra note 3, at 
63010.
    \16\ See id. The Exchange states its view that limiting the 
number of options series listed on the Exchange is preferable to 
suppressing the quotes of inactive options series, as required under 
current Exchange Rule 970.1NY, because all quotes sent by Exchange 
market makers are actionable even if not displayed. See id.
    \17\ See Notice, supra note 3, at 63010.
    \18\ See id.
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    The Exchange represents that it has in place certain measures that 
the Exchange believes serve as additional safeguards against excessive 
quoting.\19\ According to the Exchange, these safeguards include 
monitoring and alerting market makers disseminating an unusual number 
of quotes, a business plan designed to ensure that new listings are 
actively traded,\20\ and excessive bandwidth utilization fees designed 
to encourage the efficient quoting.\21\
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    \19\ See id.
    \20\ See id. at n.13 (citing to Commentary .09(b) to Exchange 
Rule 915).
    \21\ See id. at n.14 (citing to NYSE Amex Options Fee Schedule, 
available at, https://www.theice.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf).
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    The Exchange proposes to announce the implementation date of the 
proposed rule change by Trader Update and publish such announcement no 
later than 60 days following the effective date of this proposal.\22\
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    \22\ See Notice, supra note 3, at 63010.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEMKT-2014-86 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \23\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described in greater detail below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change.
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    \23\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\24\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to the consistency 
of the proposed rule change, as supplemented by the NYSE MKT 
Letter,\25\ with Section 6(b)(5) of the Act, which require that the 
rules of a national securities exchange be designed, among other 
things, to prevent fraudulent and manipulative acts and practices, 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; and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.\26\
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    \24\ Id. Section 19(b)(2)(B) of the Exchange Act also provides 
that proceedings to determine whether to disapprove a proposed rule 
change must be concluded within 180 days of the date of publication 
of notice of the filing of the proposed rule change. See id. The 
time for conclusion of the proceedings may be extended for up to 60 
days if the Commission finds good cause for such extension and 
publishes its reasons for so finding. See id.
    \25\ See NYSE MKT Letter, supra note 6.
    \26\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposed rule change. Although there do not appear to be any 
issues relevant to approval or disapproval which would be facilitated 
by an oral presentation of views, data, and arguments, the Commission 
will consider, pursuant to Rule 19b-4, any request for an opportunity 
to make an oral presentation.\27\ Interested persons are invited to 
submit written data, views, and arguments regarding whether the 
proposal should be approved or disapproved by February 13, 2015. Any 
person who wishes to file a rebuttal to any other person's submission 
must file that rebuttal by February 27, 2015.
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    \27\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    The Commission invites the written views of interested persons 
concerning whether the proposal is consistent with Section 6(b)(5) \28\ 
or any other provision of the Act, or the rules and regulations 
thereunder. The Commission asks that commenters address the sufficiency 
and merit of the Exchange's statements in support of the proposed rule 
change, in addition to any other comments they may wish to submit about 
the proposed rule change. In particular, the Commission seeks comment 
on the following:
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    \28\ Id.
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    1. As described above, the Exchange adopted its quote mitigation 
plan as provided in Exchange Rule 970.1NY in connection with its 
adoption of the Penny Pilot Program, which permits quoting of certain 
options series in certain increments.\29\ The Commission has previously 
noted that the Penny Pilot Program has contributed to an increase in 
quotation message traffic from the options markets.\30\ In approving 
the extension and expansion of the Penny Pilot Program in 2009 by the 
Exchange's affiliated exchange, NYSE Arca, Inc., the Commission relied, 
in part, on the NYSE Arca's representation that it would continue to 
use quote mitigation strategies that would continue to mitigate 
quotation traffic sent to OPRA.\31\
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    \29\ See supra note 8 and accompanying text.
    \30\ See Securities and Exchange Release No. 60711 (September 
23, 2009), 74 FR 49419, 49422 (September 28, 2009) (Order Granting 
Partial Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment Nos. 1 and 3 thereto, Amending NYSE Arca Rule 6.72 and 
Expanding the Penny Pilot Program).
    \31\ See id. The Commission stated: ``While the Commission 
anticipates that NYSE Arca's proposed expansion of the Pilot Program 
will contribute to further increases in quotation message traffic, 
the Commission believes that NYSE Arca's proposal is sufficiently 
limited such that it is unlikely to increase quotation message 
traffic beyond the capacity of market participants' systems and 
disrupt the timely receipt of quote information. NYSE Arca has 
proposed to roll out the additional 300 classes over time, in groups 
of 75 classes each quarter beginning on October 26, 2009. The 
Commission further notes that a June 2, 2009 sustained message 
traffic peak of 852,350 messages per second reported by OPRA is 
still well below OPRA's current messages per second capacity limit 
of 2,050,000. Moreover, NYSE Arca has adopted and will continue to 
utilize quote mitigation strategies that should continue to mitigate 
the expected increase in quotation traffic.'' Id. The Exchange 
extended and expanded its participation the Penny Pilot Program and 
made other changes to its Penny Pilot Program consistent with the 
changes proposed by its affiliate exchange, NYSE Arca, Inc. See 
Securities and Exchange Release No. 61106 (December 3, 2009), 74 FR 
65193 (December 9, 2009) (citing Securities and Exchange Release No. 
60711 (September 23, 2009), 74 FR 49419 (September 28, 2009)).

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[[Page 3699]]

    As noted above, the Exchange believes that its quote mitigation 
strategy is no longer necessary because: (1) The Exchange has 
incorporated select provisions of the OLPP in Exchange Rule 930A, which 
the Exchange believes limits the number of series eligible to be 
listed; (2) current Exchange Rule 925.1NY Commentary .01 removes 
certain options series from market makers' continuous quoting 
obligations, which the Exchange believes reduces the number of quote 
messages that the Exchange sends to OPRA; and (3) both the Exchange's 
systems capacity and OPRA's systems capacity are more than sufficient 
to accommodate any additional increase in quote traffic that might be 
sent to OPRA as a result of the deletion of the quote mitigation 
strategy.\32\ Do commenters believe that reliance on the Exchange's 
current rules and the existing systems capacity of the Exchange and 
OPRA are sufficient or insufficient means to mitigate quote message 
traffic from the Exchange to OPRA? Please explain.
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    \32\ See supra notes 13-18 and accompanying text.
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    2. What are commenters' views on the impact, if any, that might 
result from the Exchange's proposal to remove its current quote 
mitigation plan as provided in Exchange Rule 970.1NY? For example, what 
are commenters' views on the impact the Exchange's proposal would have, 
if any, on OPRA's system capacity? Please explain. Or, what are 
commenters' views on the impact the Exchange's proposal would have on 
market participants using OPRA and/or the Exchange's quotation message 
feeds? Please explain.
    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-2014-86 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-2014-86. 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 such filings 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-2014-86 and should 
be submitted on or before February 13, 2015. Rebuttal comments should 
be submitted by February 27, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(57).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-01107 Filed 1-22-15; 8:45 am]
BILLING CODE 8011-01-P


