
[Federal Register Volume 80, Number 109 (Monday, June 8, 2015)]
[Notices]
[Pages 32420-32423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13871]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75096; File No. SR-NYSEArca 2015-43]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending Rule 6.91(c), Electronic Complex Order 
Auction Process Removing the Limitation on Who Can Respond to a COA and 
Provide a Response Time Interval of at Least 500 Milliseconds; and Rule 
6.47A, Order Exposure Requirements-OX To Add Use of the COA for a User 
To Satisfy the Order Exposure Requirement in Rule 6.47A and Delete the 
Reference in Rule 6.91(c) to the Order Exposure Requirements--OX Being 
Separate From the Duration of the COA Response Time Interval

June 2, 2015.
    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 May 21, 2015, 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, II, 
and III below, which Items have been prepared by the Exchange. 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: (1) Amend Rule 6.91(c) (Electronic 
Complex Order Auction (``COA'') Process) to remove the limitation on 
who can respond to a COA and to provide a Response Time Interval of at 
least 500 milliseconds; and (2) amend Rule 6.47A (Order Exposure 
Requirements-OX) to add use of the COA as a means for a User to satisfy 
the Order Exposure Requirement in Rule 6.47A and delete the reference 
in Rule 6.91(c) to the Order Exposure Requirements -OX being separate 
from the duration of the COA Response Time Interval.
    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.

[[Page 32421]]

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 Exchange 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 these 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
Participation in and Minimum Response Time Interval for the COA
    The Exchange operates COA, which allows an entering OTP Holder to 
initiate an auction for eligible Electronic Complex Orders (``COA-
eligible orders'').\4\ Upon receiving a COA-eligible order, and the 
direction from the entering OTP Holder that an auction be initiated, 
the Exchange sends an automated request for response message (``RFR'') 
to all OTP Holders who subscribe to RFR messages.\5\ OTP Holders that 
are eligible to participate in a COA may respond to an RFR message 
(``RFR Responses'') indicating the price and the number of contracts 
they would be willing trade in the COA. RFR Responses must be submitted 
during the Response Time Interval (``RTI''), the duration of which is 
determined by the Exchange, but may not exceed one (1) second.\6\
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    \4\ The Exchange may determine, on a class by class basis, which 
Electronic Complex Orders are eligible for a COA based on 
marketability (defined as a number of ticks from the current 
market), size, and Complex Order origin type. See Rule 6.91(c)(1).
    \5\ RFR messages identify the component series, size and side of 
the market of the order and any contingencies. See Rule 6.91(c)(2).
    \6\ See Rule 6.91(c)(3) (stating, in part,``[t]he Exchange will 
determine the length of the Response Time Interval; provided, 
however, that the duration shall not exceed one (1) second.'').
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    Rule 6.91(c)(4) currently provides that each Market Maker with an 
appointment in the relevant option class, and each OTP Holder acting as 
agent for orders resting at the top of the Consolidated Book in the 
relevant options series may submit RFR Responses during the RTI. The 
Exchange proposes to amend Rule 6.91(c)(4) to provide that any OTP 
Holder may submit RFR Responses during the RTI. The Exchange believes 
that the proposed amendment may increase participation in COAs, which 
would foster greater competition and provide additional price 
improvement opportunities for COA-eligible orders exposed during the 
COA. In addition, the Exchange believes the proposed amendment is fair 
and reasonable and would benefit market participants because it would 
enable the Exchange to better compete with option exchanges that permit 
all members to participate in electronic auctions for crossing 
transactions that are similar to the COA.\7\
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    \7\ See, e.g., ISE Rule 723(a) (Price Improvement Orders may be 
entered by all Members for their own account or for the account of a 
Public Customer in one-cent increments at the same price as the 
Crossing Transaction or at an improved price for the Agency Order, 
and for any size up to the size of the Agency Order); NYSE MKT Rule 
971.1(c)(2)(C) (allowing any ATP Holder to respond to an RFR in a 
Customer Best Execution (``CUBE'') Auction for single-legged 
transactions on the Exchange) (NYSE Amex Options is the options 
trading facility of NYSE MKT LLC). The Exchange believes that 
although ISE Rule 723(a) and NYSE Amex Rule 971.1NY relate to 
electronic crossing transactions and provide for a guaranteed 
execution, these electronic auction mechanisms are analogous to the 
COA as they are designed to attract liquidity to the exchange and 
provide opportunities for price improvement.
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    As noted above, the duration of a COA is determined by the 
Exchange, but may not exceed one (1) second. Currently, the Exchange 
has not established a minimum duration for the RTI. The Exchange 
believes it is important to establish a minimum duration for the RTI to 
ensure that orders entered into a COA are exposed for a sufficient time 
period to allow the opportunity for participating OTP Holders to 
provide RFR Responses. Accordingly, the Exchange is proposing to 
establish a minimum of 500 milliseconds as the length of time the 
Exchange may determine for the RTI, with the maximum length of time 
continuing to be one (1) second.\8\
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    \8\ See proposed Rule 6.91(c)(3) (providing that ``the that the 
duration [of the RTI] shall not be less than 500 milliseconds and 
shall not exceed one (1) second.'').
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    The Exchange believes that a minimum of 500 milliseconds is a 
sufficient time to submit RFR Responses and would encourage competition 
among participants, thereby enhancing the potential for price 
improvement for orders in the COA.\9\ The proposed 500 millisecond 
minimum for the RTI is comparable to the response time interval in the 
NYSE Amex Options CUBE Auction for single-leg orders, which 
disseminates an RFR message for an auction lasting a random period of 
time of between 500 and 750 milliseconds.\10\ In addition, BOX Options 
Exchange LLC (``BOX'')'s Complex Order Price Improvement Period 
(``COPIP''), like the Exchange's COA, is designed to offer price 
improvement to complex orders, and is only 100 milliseconds in 
length.\11\ Although both the CUBE and the COPIP relate to electronic 
crossing transactions and provide for a guaranteed execution, the 
Exchange believes the CUBE and COPIP are analogous to the COA as they 
are designed to attract liquidity and provide opportunities for price 
improvement.
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    \9\ In May 2015, to determine whether the proposed RTI would 
provide sufficient time to respond to a COA, the Exchange conducted 
a survey of ATP Holders to determine whether their firms ``could 
respond to an auction lasting 100 milliseconds.'' Of the ATP Holders 
that have electronic access to the Exchange and are able to submit 
responses to a COA (the ``Relevant ATP Holders''), thirteen (13) 
responded the survey. Of the thirteen (13) Relevant ATP Holders, ten 
(10)--or 77%--said that they could respond to an auction lasting 100 
milliseconds. Thus, the Exchange believes that the proposed RTI 
duration of at least 500 milliseconds would provide a meaningful 
opportunity for participants on the Exchange to respond to a COA 
while at the same time facilitating the prompt execution of orders.
    \10\ See NYSE MKT Rule 971.1NY(c)(2)(B).
    \11\ See Box Rule 7245(f)(1).
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Amendment to Order Exposure Requirements
    In addition, the Exchange proposes to amend Rule 6.47A by adding 
that use of the COA is a means for a User to satisfy the Order Exposure 
Requirement in Rule 6.47A. Exchange Rule 6.47A prohibits Users (i.e., 
OTP Holders) \12\ from trading as principal with orders they represent 
as agent unless the order exposure requirements under the rule are met. 
The order exposure requirements are designed to enhance opportunities 
for competition among market participants.\13\ Specifically, a User may 
only trade as principal with an order it represents as agent if:
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    \12\ A ``User'' is ``any OTP Holder, OTP Firm or Sponsored 
Participant that is authorized to obtain access to OX pursuant to 
Rule 6.2A.'' See Rule 6.1A(19). The term ``Sponsored Participant'' 
refers to a person that has entered into a sponsorship arrangement 
with a Sponsoring OTP Firm pursuant to Rule 6.2A. See Rule 6.1A(16).
    \13\ See Rule 6.47A Commentary .01 (``Rule 6.47A prevents a User 
from executing agency orders to increase its economic gain from 
trading against the order without first giving other trading 
interest on the Exchange an opportunity to either trade with the 
agency order or to trade at the execution price when the User was 
already bidding or offering on the book.'').
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     The agency order is first exposed on the Exchange for at 
least one (1) second; or
     The User has been bidding or offering on the Exchange for 
at least one (1) second prior to receiving an agency order that is 
executable against such bid or offer.

[[Page 32422]]

    The Exchange proposes to amend Rule 6.47A to also permit a User who 
utilizes the COA pursuant to Rule 6.91(c) to submit a principal order 
during the RTI to trade against an order it represents as agent.\14\ As 
described above, the Exchange is proposing a minimum duration for the 
RTI of 500 milliseconds. RTIs would thus last for at least 500 
milliseconds and no more than one (1) second, as determined by the 
Exchange.\15\
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    \14\ See proposed Rule 6.47A(iii). The Exchange also proposes to 
add semi-colons to separate the subparts of Rule 6.47A, in lieu of 
``or'', which the Exchange believes would simplify the rule.
    \15\ See proposed Rule 6.91(c)(3).
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    As stated above, the Exchange believes that a COA with an RTI of at 
least 500 milliseconds is a sufficient length of time to permit OTP 
Holders to respond to a RFR and enhance opportunities for competition 
among participants, increasing the likelihood for price improvement for 
the COA-eligible order in the COA. Accordingly, the Exchange proposes 
to amend Rule 6.47A to state that a User may execute as principal an 
order that the User represents as agent if the User avails itself of 
COA pursuant to Rule 6.91(c). Thus, an Electronic Complex Order subject 
to a COA would not be subject to the one-second order exposure 
requirement of Rule 6.47A. This exclusion from the one-second order 
exposure requirement is consistent with the treatment of orders in the 
NYSE Amex Options CUBE Auction, which has a minimum duration of 500 
milliseconds, as is proposed for COA.\16\ This proposed exception is 
also consistent with the treatment of similar orders entered in the BOX 
Complex Order Price Improvement Period.\17\ Consistent with Rule 6.47A 
Commentary .01, OTP Holders shall only use COA where there is a genuine 
intention to execute bona fide transactions.
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    \16\ See NYSE MKT Rule 935NY(iii). See also supra n. 10.
    \17\ See BOX IM-7140-2; see also Box Rule 7245(f)(1).
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    The Exchange also proposes to delete rule text from Rule 
6.91(c)(3), which provides that ``[t]he obligations of Rule 6.47A, 
Order Exposure Requirements -OX, are separate from the duration of the 
Response Time Interval.'' The Exchange is proposing to delete this text 
because it would no longer be accurate with the proposed changes to 
Rule 6.47A described above.
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''),\18\ 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.
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    \18\ 15 U.S.C. 78f(b).
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    The Exchange believes that the proposed rule change to amend Rule 
6.91(c)(4) to provide that any OTP Holder may submit an RFR Response 
during an RTI would remove impediments to and perfect the mechanism of 
a free and open market and a national market system because it could 
result in increased participation in the COA process, which should 
increase competition within a COA, potentially offering greater price 
improvement opportunities to the COA-eligible order. The Exchange notes 
that at least two other options exchanges allow all members to 
participate in electronic auctions similar to the COA.\19\
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    \19\ See supra n. 7.
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    The Exchange believes the proposed minimum of 500 milliseconds for 
a RTI within a COA promotes just and equitable principles of trade and 
removes impediments to a free and open market because it allow [sic] 
sufficient time for OTP Holders participating in a COA to submit RFR 
Responses and would encourage competition among participants, thereby 
enhancing the potential for price improvement for orders in the COA to 
the benefit of investors and public interest. The Exchange believes the 
proposed rule change is not unfairly discriminatory because it 
establishes a minimum exposure period applicable to COA-eligible 
orders, which would be the same for all OTP Holders participating in a 
COA. In addition, the proposed minimum of 500 millisecond [sic] is 
consistent with the NYSE Amex Options CUBE Auction and is comparable to 
BOX's Complex Order Price Improvement Period, which similar to the 
Exchange's COA, is designed to offer price improvement to complex 
orders, and is only 100 milliseconds in length.\20\
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    \20\ See supra nn. 10, 12.
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    The Exchange believes the proposal to allow Users who utilize the 
COA to enter an order as principal to potentially execute against an 
order it represents as agent promotes just and equitable principles of 
trade because the proposed minimum of 500 milliseconds for the RTI 
would provide ample time for participants in the COA to respond and 
would encourage competition and opportunities for price improvement, to 
the benefit of investors and the public interest. In addition, 
exempting Electronic Complex Orders subject to a COA from the one-
second order exposure requirement of Rule 6.47A is consistent with the 
treatment of orders in the NYSE Amex Options CUBE Auction as well as 
the treatment of similar orders entered in the BOX Complex Order Price 
Improvement Period.\21\ Additionally, the Exchange believes the 
proposed exemption from Rule 6.47A would reduce market risk for OTP 
Holders responding to COA-eligible orders by providing timely 
executions of these orders.
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    \21\ See supra nn. 16, 17.
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    Accordingly, for foregoing reasons, the Exchange believes the 
proposed change is consistent with the Act.

(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 
proposal to allow all OTP Holders to participate in the COA process 
should increase the level of competition within COAs, which will 
increase opportunities to trade for all participants on the Exchange 
and may increase opportunities for COA-eligible orders to receive price 
improvement. The Exchange also believes that this proposed expansion 
would enable the Exchange to better compete with other options 
exchanges that already offer all participants the ability to 
participate in electronic auctions.\22\ The Exchange believes the 
proposed 500 millisecond minimum for a RTI is pro-competitive as it 
would afford OTP Holders sufficient time to respond to a COA and 
enhance opportunities for price improvement while encouraging timely 
executions. The Exchange believes that the proposed limited exception 
to Rule 6.47A would enable the Exchange to better compete with other 
options exchanges that already exempt market participants from the one-
second order exposure requirements when utilizing certain price 
improvement and auction mechanisms.\23\ Accordingly, the proposed rule 
change would also serve to promote regulatory clarity and consistency, 
thereby reducing burdens on the marketplace and facilitating investor 
protection.
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    \22\ See supra n. 7.
    \23\ See supra nn. 16, 17.

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[[Page 32423]]

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2015-43 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-NYSEArca-2015-43. 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 will also 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-NYSEArca-2015-43 and should 
be submitted on or before June 29, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-13871 Filed 6-5-15; 8:45 am]
 BILLING CODE 8011-01-P


