
[Federal Register Volume 80, Number 60 (Monday, March 30, 2015)]
[Notices]
[Pages 16707-16710]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-07135]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74571; File No. SR-NYSEMKT-2015-19]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 13--
Equities Relating to Pegging Interest

March 24, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on March 17, 2015, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') 
filed with the Securities and Exchange Commission (``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 Rule 13--Equities (Orders and 
Modifiers) relating to pegging interest. 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 13--Equities (``Rule 13'') 
relating to pegging interest to provide that if the protected best bid 
or offer (``PBBO'') is not within the range of the pegging interest, 
the pegging interest would peg to the ``next best-priced available 
displayable interest,'' rather than the ``next best-priced available 
interest.'' This amendment would therefore exclude non-displayed 
interest from consideration as part of the ``next best-priced available 
interest'' under the rule.
Background
    Under current Rule 13, pegging interest pegs to prices based on (i) 
a PBBO, which may be available on the Exchange or an away market, or 
(ii) interest that establishes a price on the Exchange.\4\ In addition, 
pegging interest will peg only within a price range specified by the 
floor broker submitting the order. Thus, if the PBBO is not within the 
specified price range of the pegging interest, the pegging interest 
will instead peg to the next available best-priced interest that is 
within the specified price range.\5\ For example, if pegging interest 
to buy 100 shares has a specified price range up to $10.00, but the 
best protected bid (``PBB'') of 100 shares is $10.01, then such pegging 
interest could not peg to the $10.01 PBB because it is not within the 
specified price range of the pegging interest. The pegging interest 
would instead peg to

[[Page 16708]]

the next available best-priced interest within the specified price 
range of up to $10.00.\6\
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    \4\ See paragraph (a)(3) to Rule 13 governing pegging interest.
    \5\ See paragraph (a)(4) to Rule 13 governing pegging interest.
    \6\ See paragraph (a)(4)(A) to Rule 13 governing pegging 
interest. Similarly, if pegging interest would peg to a price that 
would lock or cross the Exchange best offer or bid, the pegging 
interest would instead peg to the next available best-priced 
interest that would not lock or cross the Exchange best bid or 
offer. See paragraph (c)(1) to Rule 13 governing pegging interest.
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    The ``next available best-priced interest'' concept in the current 
rule was originally expressed in a different fashion (when pegging was 
based on the Exchange's BBO, rather than the PBBO), but the basic 
functionality has always been the same. Specifically, when the pegging 
interest was introduced in 2006 on the New York Stock Exchange LLC 
(``NYSE''), if the Exchange BBO was higher (lower) than the price limit 
on the pegging interest to buy (sell), the pegging interest would peg 
to the highest (lowest) price at which there was other interest within 
the pegging price range.\7\ In 2008, the NYSE introduced Non-Displayed 
Reserve Orders, without changing the underlying functionality of 
pegging interest to exclude the prices of such orders from the 
evaluation of what constitutes the highest (lowest) price at which 
there is other interest available within the range of the pegging 
interest.\8\ In 2011, the Exchange amended the rule governing pegging 
interest to make a non-substantive change to the rule text to use the 
term ``next available best-priced non-pegging interest'' to describe 
the highest (lowest) priced interest in the Exchange Book or a 
protected bid or offer on an away market to which pegging interest to 
buy (sell) could peg.\9\ Accordingly, the next available best-priced 
interest for pegging interest to buy (sell) is the next highest 
(lowest)-priced buy (sell) interest within Exchange systems or an away 
market protected quote that is available for an execution at any given 
time. That interest could be same-side non-marketable displayable 
interest or same-side non-marketable non-displayable interest.
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    \7\ On October 1, 2008, the Commission approved the Exchange's 
rule proposal to establish new membership, member firm conduct, and 
equity trading rules that were based on the existing NYSE rules to 
reflect that equities trading on the Exchange would be supported by 
the NYSE's trading system. See Securities Exchange Act Release No. 
58705 (Oct. 1, 2008), 73 FR 58995 (Oct. 8, 2008) (SR-Amex-2008-63) 
(approval order). Because the Exchange's rules are based on the 
existing NYSE rules, the Exchange believes that pre-October 1, 2008 
NYSE rule filings provide guidance concerning Exchange equity rules. 
See Securities Exchange Act Release No. 54577 (Oct. 5, 2006), 71 FR 
60208, 60210-11 (Oct. 12, 2006) (SR-NYSE-2006-36) (``Pegging 
Approval Order'') (order approving, among other things, introduction 
of pegging functionality for Floor brokers, including ``if the 
Exchange best bid is higher than the ceiling price of a pegging buy-
side e-Quote or d-Quote, the e-Quote or d-Quote would remain at its 
quote price or the highest price at which there is other interest 
within its pegging price range, whichever is higher (consistent with 
the limit price of the order underlying the e-Quote or d-Quote). 
Similarly, if the Exchange best offer is lower than the floor price 
of a pegging sell-side e-Quote or d-Quote, the e-Quote or d-Quote 
would remain at its quote price or the lowest price at which there 
is other interest within its pegging price range, whichever is lower 
(consistent with the limit price of the order underlying the e-Quote 
or d-Quote).'' (emphasis added)).
    \8\ See Securities Exchange Act Release No. 59022 (Nov. 26, 
2008), 73 FR 73683 (Dec. 3, 2008) (SR-NYSEALTR-2008-10) (introducing 
Non-Display Reserve Orders).
    \9\ See Securities Exchange Act Release No. 66032 (Dec. 22, 
2011), 76 FR 82009 (Dec. 29, 2011) (SR-NYSEAmex-2011-99) (``Because 
the next available best-priced non-pegging interest may be on an 
away market, the Exchange further proposes to amend paragraph (vii) 
to Supplementary Material .26 to specify that the non-pegging 
interest against which pegging interest pegs may either be available 
on the Exchange or may be a protected bid or offer on an away 
market.'') (``2011 Pegging Filing''); see also Securities Exchange 
Act Release No. 68305 (Nov. 28, 2012), 77 FR 71853, 71857 (Dec. 4, 
2012) (SR-NYSEMKT-2012-67) (amending Exchange rule governing pegging 
to, among other things, consolidate rule text from separate parts of 
the then-existing rule in a streamlined format, including use of the 
term ``next available best-priced interest'') (``2012 Pegging 
Filing'').
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    Taking the above example, assume that the next price points on the 
Exchange's book priced below the $10.01 PBB are a Non-Display Reserve 
Order to buy 100 for $9.99 and a Limit Order to buy 100 for $9.98. 
Because the Non-Display Reserve Order is the next available best-priced 
interest within the specified price range, the pegging interest would 
peg to the $9.99 price of the Non-Display Reserve Order.
Proposed Rule Change
    The Exchange proposes to revise its rule to limit the type of 
interest to which pegging interest would peg if the PBBO is not within 
the specified price range of the pegging interest. As proposed, if the 
PBBO is not within the specified price range, the pegging interest 
would only peg to the next available best-priced displayable interest. 
The term ``displayable'' is defined in Rule 72(a)(i) as that portion of 
interest that could be published as, or as part of, the Exchange BBO 
and includes non-marketable odd-lot and round-lot orders.
    Using the above example, under the proposed change, the pegging 
interest to buy would instead peg to the Limit Order to buy for $9.98, 
and not the higher-priced Non-Display Reserve Order to buy for $9.99.
    The Exchange also proposes to make a conforming change to paragraph 
(c)(1) of Rule 13 to provide that if pegging interest would peg to a 
price that is locking or crossing the Exchange best bid or offer, the 
pegging interest would instead peg to the next available best-priced 
displayable interest that would not lock or cross the Exchange best bid 
or offer.
    Currently, under any circumstance when pegging interest cannot peg 
to the PBBO, whether because of a price restriction or if the PBBO does 
not meet a minimum size designation, pegging interest pegs instead to 
the next available best-priced interest. For example, pursuant to 
paragraph (c)(5) of Rule 13 governing pegging interest, the Exchange 
offers an optional feature whereby pegging interest may be designated 
with a minimum size of same-side volume to which such pegging interest 
would peg. If the PBBO does not meet the optional minimum size 
designation, the pegging interest pegs to the next available best-
priced interest, without regard to size.\10\ Accordingly, the Exchange 
also proposes to make a related change to current paragraph (c)(5) 
(which is being renumbered as paragraph (b)(4)) to
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    \10\ When the NYSE adopted this feature in 2006, it only 
considered the NYSE BBO for purposes of determining whether the size 
condition was met, and specifically excluded pegging interest that 
was pegging to the NYSE BBO. See Pegging Approval Order, supra, n. 7 
at 60211. The Exchange now evaluates the minimum size requirement 
based on the PBBO instead of the Exchange BBO. See 2012 Pegging 
Filing, supra, n. 9 at 71858.
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     specify that, if the PBBO does not meet a minimum size 
requirement specified by the pegging interest, the pegging interest 
pegs to the next available best-priced interest, without regard to 
size, and
     modify current functionality so that only displayable 
interest may be pegged to in such circumstances.\11\
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    \11\ The Exchange also proposes to delete the clause ``which may 
not be the PBB or PBO'' in current paragraph (c)(5), which is rule 
text that related to when primary pegging interest had an optional 
offset feature, in which case the minimum quantity would not have 
been evaluated against the PBBO because primary pegging interest 
with an offset would not have pegged to the PBBO. The Exchange did 
not implement the offset functionality and previously filed a rule 
change to delete the rule text relating to the optional offset. See 
Securities Exchange Act Release No. 71898 (April 8, 2014), 79 FR 
20957 (April 14, 2014) (SR-NYSEMKT-2014-27) (amending rules 
governing pegging interest to conform to functionality that is 
available at the Exchange).
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    The Exchange also proposes non-substantive amendments to delete 
references to ``reserved'' paragraphs of the rule and renumber the rule 
accordingly.
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce by Trader Update when this 
change will be

[[Page 16709]]

implemented, which will be within 30 days of the effective date of this 
filing.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\12\ in general, and furthers the objectives of Section 
6(b)(5),\13\ 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, 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. Specifically, the proposed change is 
intended to respond to the concern raised by the Commission \14\ that 
the current rule permitting pegging to prices of non-displayable same-
side non-marketable interest could potentially allow the user of the 
pegging interest to ascertain the presence of hidden liquidity at those 
price levels. Eliminating that functionality to respond to the 
Commission concern (along with conforming changes in the relevant rule) 
is, therefore, consistent with the Act. Similarly, the Exchange 
believes that specifying in its rules how the Exchange treats pegging 
interest that cannot peg to the PBBO, whether because of a price or 
size restriction, would remove impediments to and perfect the mechanism 
of a free and open market because it would provide transparency 
regarding the Exchange's pegging functionality.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See Securities Exchange Act Release No. 74298 (Feb. 18, 
2015), 80 FR 9770, 9772-73 (Feb. 24, 2015) (SR-NYSEMKT-2014-95) 
(Order instituting proceedings to determine whether to approve or 
disapprove a proposed rule change to Rule 13).
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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. The proposed change is not 
intended to address any competitive issues but rather to specify and 
amend the functionality associated with pegging interest to respond to 
concerns raised regarding current functionality.

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)(iii) 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). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and 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. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\19\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange asserts that 
such a waiver is consistent with the protection of investors and the 
public interest because it would permit the Exchange to implement the 
proposed change as soon as the technology supporting the change is 
available, because it would respond to the Commission concerns that the 
current rule could potentially allow the user of pegging interest to 
ascertain the presence of hidden liquidity, and because it would 
provide transparency regarding the pegging functionality. The 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest. Accordingly, 
the Commission hereby waives the 30-day operative delay and designates 
the proposal operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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.\21\
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    \21\ 15 U.S.C. 78s(b)(3)(C).
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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-2015-19 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2015-19. 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

[[Page 16710]]

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-2015-19 and should 
be submitted on or before April 20, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(59).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-07135 Filed 3-27-15; 8:45 am]
 BILLING CODE 8011-01-P


