
[Federal Register Volume 80, Number 120 (Tuesday, June 23, 2015)]
[Notices]
[Pages 36024-36028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15340]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75190; File No. SR-NYSEMKT-2014-86]


Self-Regulatory Organizations; NYSEMKT LLC.; Order Disapproving 
Proposed Rule Change To Remove the Exchange's Quote Mitigation Plan as 
Provided in Exchange Rule 970.1NY

June 17, 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 
approve or disapprove the proposed rule change.\5\ On January 8, 2015, 
the Exchange submitted a comment letter in further support of its 
proposal.\6\ On January 16, 2015, the Commission issued an Order 
Instituting Proceedings to Determine Whether to Approve or Disapprove 
the proposed rule change.\7\ On February 27, 2015 and June 4, 2015, the 
Exchange submitted comment letters in further support of its 
proposal.\8\ No additional comment letters were submitted. This order 
disapproves the proposed rule change.
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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, 2015, as 
the date by which it should approve, disapprove, or institute 
proceedings to determine whether to approve or 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 1'') available at http://www.sec.gov/comments/sr-nysemkt-2014-86/nysemkt201486-1.pdf.
    \7\ See Securities and Exchange Release No. 74087, 80 FR 3697 
(January 23, 2015) (Order Instituting Proceedings to Determine 
Whether to Approve or Disapprove a Proposal Rule Change to Remove 
the Exchange's Quote Mitigation Plan as Provided by Exchange Rule 
970.1NY) (``OIP'').
    \8\ See Letters from Elizabeth King, Secretary & General 
Counsel, Exchange, to Kevin O'Neill, Deputy Secretary, Commission, 
dated February 27, 2015 (``NYSE MKT Letter 2'') available at http://www.sec.gov/comments/sr-nysemkt-2014-86/nysemkt201486-2.pdf and to 
Brent Fields, Secretary, Commission, dated June 4, 2015 (``NYSE MKT 
Letter 3'') available at http://www.sec.gov/comments/sr-nysemkt-2014-86/nysemkt201486-3.pdf.
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II. Description of the Proposal

    In 2007, the Exchange adopted a quote mitigation plan in connection 
with the Options Penny Pilot Program (``Penny Pilot'').\9\ The 
Exchange's quote mitigation plan consisted of several different 
strategies used together to mitigate quotes.\10\ In 2009, the Exchange 
adopted the quote mitigation plan used by NYSE Arca.\11\ 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

[[Page 36025]]

quote messages for ``active'' series.\12\ 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.\13\ 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.\14\
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    \9\ 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''). In this Order, 
the Commission approved a proposed rule change to amend the American 
Stock Exchange LLC (n/k/a NYSE MKT) rules to (i) permit thirteen 
options classes to be quoted in pennies on a pilot basis and (ii) 
adopt various quote mitigation strategies. In approving the Penny 
Pilot, the Commission analyzed data provided by the options 
exchanges to assess the potential impact the Penny Pilot would have 
on, among other things, the increase in quotation message traffic. 
The Exchange subsequently adopted the quote mitigation plan used by 
NYSE Arca. See Securities and Exchange Release No. 59472 (February 
27, 2009), 74 FR 9843 (March 6, 2009) (SR-ALTR-2008-14) (``Quote 
Mitigation Approval Order No. 2'').
    \10\ See Order Granting Approval of SR-Amex-2006-106, supra note 
9, at 4739.
    \11\ See Quote Mitigation Approval Order No. 2, supra note 9.
    \12\ See Notice, supra note 3, at 63009.
    \13\ See Exchange Rule 970.1NY, and Notice, supra note 3, at 
63009.
    \14\ See Exchange Rule 970.1NY.
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    The Exchange proposes to remove its quote mitigation plan from its 
rules by deleting Exchange Rule 970.1NY.\15\ The Exchange states 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'') \16\ 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.\17\ 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 messages that the 
Exchange sends to OPRA.\18\ The Exchange states that reliance on the 
OLPP, via Exchange Rule 903A, and the refined market maker quoting 
obligations, pursuant to Commentary .01 to Exchange Rule 925.1NY, is 
sufficient as a quote mitigation plan.\19\ Third, the Exchange states 
that both the Exchange's systems capacity and OPRA's systems capacity 
are more than sufficient to accommodate any additional increase in 
quote message traffic that might be sent to OPRA as a result of the 
deletion of the quote mitigation plan.\20\ 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.\21\
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    \15\ See Notice, supra note 3, at 63010. 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.'' Id.
    \16\ 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).
    \17\ See Notice, supra note 3, at 63009. See also Securities and 
Exchange Release No. 61978 (April 23, 2010), 75 FR 22886 (April 30, 
2010) (NYSEAmex-2010-39) (in which the Exchange adopted select 
provisions of the OLPP into Exchange Rule 903A).
    \18\ 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 
63009-10.
    \19\ See Notice, supra note 3, at 63010. 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.
    \20\ See Notice, supra note 3, at 63010.
    \21\ See id.
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    The Exchange further represents that it has in place certain 
measures that act as additional safeguards against excessive 
quoting.\22\ 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,\23\ and a ratio threshold fee designed to encourage 
the efficient use of orders.\24\
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    \22\ See id.
    \23\ See id. (citing to Commentary .09(b) to Exchange Rule 915).
    \24\ See id. (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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III. Summary of Comment Letters

    NYSE MKT submitted three comment letters in which it: (1) supports 
its position that Rule 903A of the OLPP together with the current 
exceptions from a market maker's continuous quoting obligations for 
certain options series would be sufficient as a quote mitigation 
plan,\25\ (2) provides additional information to support its argument 
that relying on the OLPP requirements in Rule 903A would suffice as a 
quote mitigation plan; and (3) supports its argument that the Exchange 
and OPRA have sufficient capacity to accommodate an increase in quote 
message traffic resulting from elimination of the Exchange's quote 
mitigation plan.\26\
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    \25\ See NYSE MKT Letter 1, supra note 6, at 1. See also NYSE 
MKT Letter 2, supra note 8, at 1-2. The Exchange also supplies an 
actual illustration of how the Rule results in quote mitigation. Id. 
at 2.
    \26\ See NYSE MKT Letter 1 supra note 6.
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    The Exchange states that at least one other options exchange 
primarily relies on the OLPP requirements in Rule 903A as a quote 
mitigation plan. \27\ The Exchange explains that OLPP Rule 903A puts a 
restriction on the range of permissible strike prices based on the 
price of the underlying security.\28\ The Exchange states its view that 
reliance on the OLPP requirements is consistent with the Act and would 
sufficiently limit the number of options series listed on the 
Exchange.\29\
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    \27\ See NYSE MKT Letter 1, supra note 6, at 1-2. The comment 
letter further notes that the Miami International Securities 
Exchange, LLC (``MIAX'') stated in a response to comments on a 
proposed rule change relating to increasing the number of options 
series associated with Short Term Options Series that it was not 
using a quote mitigation strategy, but instead employs a listing 
policy that mitigates the number of classes and series listed on its 
exchange by not listing illiquid options classes and products that 
are not already trading on another market. (See NYSE MKT Letter 1, 
supra note 6, at 2 (citing Letter to Elizabeth Murphy, Secretary, 
U.S. Securities Exchange Commission, from Brian O'Neill, VP and 
Senior Counsel, MIAX, dated June 2, 2013, available at http://www.sec.gov/comments/sr-miax-2013-23/miax201323-2.pdf)). NYSE MKT 
notes that it has a similar policy designed to help ensure that the 
Exchange does not list options that generate quote volume without 
providing the benefit of trading volume. See NYSE MKT Letter 1, 
supra note 6, at 2 and 4.
    \28\ See NYSE MKT Letter 2, supra note 8, at 1-2.
    \29\ See NYSE MKT Letter 1, supra note 6, at 1.
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    Next, the Exchange argues that eliminating its quote mitigation 
plan is consistent with the Act because refined market maker quoting 
obligations currently in place on the Exchange, which exempt certain 
options series from market makers' continuous quoting obligations, 
reduce the universe of series in which a market maker is required to 
quote.\30\ The Exchange notes that these refined obligations were 
adopted following implementation of its quote mitigation plan,\31\ and 
believes that as a result, market makers do not need to quote in 
approximately 5,000 options series, thereby decreasing quote message 
traffic.\32\
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    \30\ See NYSE MKT Letter 1, supra note 6, at 3.
    \31\ Id.
    \32\ Id.
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    The Exchange argues that it has sufficient capacity to handle 
quoting in all options series, including quotes in those series that 
are inactive and not currently disseminated pursuant to the Exchange's 
quote mitigation plan.\33\ In support of this statement, the Exchange 
explains that although quotes in inactive series do not generate quote 
traffic from NYSE MKT, the Exchange

[[Page 36026]]

must nonetheless receive and process quotes in such series, and perform 
additional processing to suppress quotes in these series to comply with 
their quote mitigation plan.\34\ The Exchange states that because it is 
already processing the quotes it suppresses, it is ``confident that its 
own systems capacity is more than sufficient to accommodate any 
increase in the traffic that might be sent to OPRA.'' \35\ The Exchange 
notes that in its requests for capacity submitted to the Independent 
Systems Capacity Advisory (``ISCA'') (which OPRA uses to ensure overall 
aggregate capacity), NYSE MKT assumes that (1) options series that are 
inactive at that time could become active in the future, thereby 
increasing overall message traffic sent to OPRA, and (2) that all 
options series that it lists, including those without continuous 
quoting obligations for market makers, will generate message traffic to 
OPRA.\36\ The Exchange further states its belief that OPRA also would 
be able to accommodate any increase in quote message traffic resulting 
from NYSE MKT no longer suppressing quotes in inactive series.\37\
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    \33\ See NYSE MKT Letter 1, supra note 6, at 2.
    \34\ Id.
    \35\ Id.
    \36\ See NYSE MKT Letter 1, supra note 6, at 2-3.
    \37\ See NYSE MKT Letter 1, supra note 6, at 1-2.
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    The Exchange further argues that eliminating its quote mitigation 
plan is consistent with the Act because the Exchange actively monitors 
market maker quoting activity and alerts market makers to heightened 
levels of quoting activity, which could result from systems issues or 
an incorrectly set parameter that generates erroneous quotes.\38\ The 
Exchange notes that NYSE MKT's requests for capacity to the ISCA are 
adjusted to account for ``some level'' of erroneous quoting.\39\
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    \38\ See NYSE MKT Letter 1, supra note 6, at 3-4.
    \39\ Id. at 4.
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    The Exchange also states that the landscape regarding quote message 
traffic and capacity has changed since the adoption of the Penny 
Pilot.\40\ NYSE MKT represents that in January 2007, using the quote 
mitigation plan currently in place on the Exchange, 15% of quotes 
received by the NYSE Arca, were not sent to OPRA, compared to 4.3% 
received by the Exchange as of April 2015.\41\ The Exchange also states 
that at the time the Penny Pilot was adopted, OPRA's total capacity was 
set to 359,000 messages per seconds (``mps''), and that by July 2015, 
OPRA's peak capacity is anticipated to be 42,100,000 mps.\42\ In 
addition, the Exchange states, based on peak message traffic figures on 
the Exchange for one day in May 2015,\43\ that if the quotes the 
Exchange suppressed on that day had been sent to OPRA, industry quotes 
published by OPRA would have increased by no more than 1.5%, and that 
this would use less than .05% of total OPRA capacity.\44\
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    \40\ See NYSE MKT Letter 3, supra note 8, at 2.
    \41\ Id. Although the Exchange had not yet adopted its current 
quote mitigation plan in January 2007, it provided data from NYSE 
Arca from this time period for comparative purposes. Id.
    \42\ Id.
    \43\ Id. The Exchange represents that as of Friday May 29, 2015, 
peak message traffic for the Exchange was 3,121,570 mps, measured 
over a 100 millisecond period. Based on this, the Exchange believes 
that if the highest percentage of quotes suppressed by the Exchange 
during this period (6.7%) had been published at the same rate as 
quotes the Exchange had not suppressed during this time, the mps 
rate would instead be 3,330,715. Id.
    \44\ Id.
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IV. Discussion

    Under section 19(b)(2)(C) of the Act, the Commission shall approve 
a proposed rule change of a self-regulatory organization if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act, and the rules and regulations thereunder that 
are applicable to such organization.\45\ The Commission shall 
disapprove a proposed rule change if it does not make such a 
finding.\46\ Rule 700(b)(3) of the Commission's Rules of Practice 
states that the ``burden to demonstrate that a proposed rule change is 
consistent with the [Act] . . . is on the self-regulatory organization 
that proposed the rule change'' and that a ``mere assertion that the 
proposed rule change is consistent with those requirements . . . is not 
sufficient.'' \47\
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    \45\ 15 U.S.C. 78s(b)(2)(C)(i).
    \46\ 15 U.S.C. 78s(b)(2)(C)(i); see also 17 CFR 201.700(b)(3) 
and note 47 infra, and accompanying text.
    \47\ 17 CFR 201.700(b)(3). The description of a proposed rule 
change, its purpose and operation, its effect, and a legal analysis 
of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative 
Commission finding. See id. Any failure of a self-regulatory 
organization to provide the information solicited by Form 19b-4 may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with 
the Act and the rules and regulations issued thereunder that are 
applicable to the self-regulatory organization. Id.
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    After careful consideration, the Commission cannot find that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\48\ In particular, the Commission cannot find that 
the proposed rule change is consistent with section 6(b)(5) of the 
Act,\49\ which requires 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 to protect 
investors and the public interest.
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    \48\ In disapproving the proposed rule change, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \49\ 15 U.S.C. 78f(b)(5).
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    In conjunction with the adoption of the Penny Pilot in 2007 that 
permitted the options exchanges to quote certain options series in one 
and five cent increments, and in response to a letter sent by the then 
Chairman of the Commission,\50\ the options exchanges, including NYSE 
MKT, adopted quote mitigation plans.\51\ The Commission emphasized the 
importance of options exchanges' quote mitigation strategies in 
connection with the Penny Pilot in its orders approving an expansion of 
the Penny Pilot in 2007. In those orders, the Commission noted that 
options exchanges participating in the Penny Pilot would continue to 
use quote mitigation strategies.\52\ Likewise, when the Commission 
approved NYSE Arca's proposal to again expand the Penny Pilot in 2009, 
the Commission reiterated that the NYSE Arca would retain and continue 
to employ its quote mitigation strategy.\53\
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    \50\ In a letter sent to the options exchanges on June 7, 2006, 
encouraging the implementation of a penny pilot program, then 
Chairman Cox noted that quoting options in pennies would increase 
quote message traffic, which the systems of exchanges, market data 
vendors, and securities firms must be able to manage, and for that 
reason, quoting options in pennies would begin in a small number of 
options. To assist in managing the anticipated increase in quote 
traffic, Chairman Cox asked that the options exchanges include a 
workable quote mitigation strategy in any proposal to allow quoting 
in pennies. See Commission Press Release 2006-91, ``SEC Chairman Cox 
Urges Options Exchanges to Start Limited Penny Quoting,'' June 7, 
2006.
    \51\ See Quote Mitigation Approval Order, supra note 9.
    \52\ See Securities Exchange Act Release No. 56568, 72 FR 56422 
(October 3, 2007) (SR-NYSEArca-2007-88); 56567 (September 27, 2007), 
72 FR 56307 (October 3, 2007) (Amex-2007-96); 56565 (September 27, 
2007), 72 FR 56403 (October 3, 2007) (CBOE-2007-98); 56564 
(September 27, 2007), 72 FR 56412 (October 3, 2007) (ISE-2007-74); 
56563 (September 27, 2007), 72 FR 56429 (October 3, 2007) (Phlx-
2007-62); and 56566 (September 27, 2007), 72 FR 56400 (October 3, 
2007) (BSE-2007-40).
    \53\ See Securities Exchange Act Release No. 60711, 74 FR 49419 
(September 28, 2009) (SR-NYSEArca-2009-44). See also Securities 
Exchange Act Nos. 60373 (October 23, 2009), 74 FR 56675 (November 2, 
2009) (Phlx-2009-91); 60864 (October 22, 2009), 74 FR 55876 (October 
29, 2009) (CBOE-2009-076); 60865 (October 22, 2009), 74 FR 55880 
((ISE-2009-82); 60886 (October 27, 2009), 74 56897 (November 3, 
2009); 60874 (October 23, 2009), 74 FR 56682 (November 2, 2009) 
(NASDAQ-2009-091); and 61106 (December 3, 2009), 74 FR 65193 
(December 9, 2009) (NYSEAmex-2009-74).

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[[Page 36027]]

    In approving NYSE MKT's proposal in February 2007, the Commission 
stated that because it expected that the Penny Pilot would increase 
quote message traffic, the Commission also approved the Exchange's 
proposal to reduce the number of quotations it disseminates.\54\ In 
2009, the Commission approved NYSE MKT's implementation of a quote 
mitigation strategy identical to that in place on NYSE Arca.\55\
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    \54\ See Quote Mitigation Approval Order, supra note 9, at 4740.
    \55\ See Quote Mitigation Approval Order No. 2, supra note 9.
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    In 2007 and 2009, the Commission approved rule changes expanding 
the number of classes eligible to participate in the Penny Pilot.\56\ 
In so approving, the Commission reviewed data provided by the options 
exchanges, including data relating to OPRA's capacity to process the 
increase in quotes resulting from the expansion of the Penny Pilot and 
the effectiveness of its quote mitigation plan.\57\ In approving each 
of these expansions, the Commission noted that it relied, in part, on 
the Exchange's representation that it would continue to use its quote 
mitigation plan to suppress certain quotation traffic that would 
otherwise be sent to OPRA.\58\ The Commission also relied on data 
provided by the options exchanges to support representations that 
capacity was not a concern, and that the quote mitigation plans in 
place were successful.\59\
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    \56\ The Commission approved thirteen classes to participate in 
the Penny Pilot on January 24, 2007. See Quote Mitigation Approval 
Order, supra note 9. On September 27, 2007, the Commission approved 
an expansion of the Penny Pilot, which raised the number of 
participating classes to 63. See Securities Exchange Act Release No. 
56567, 72 FR 56396 (October 3, 2007) (Amex-2007-96) (Order Approving 
Expansion 1). On September 23, 2009, the Commission approved another 
expansion, raising the number of participating classes to 363. See 
Securities Exchange Act Release No. 60711, 74 FR 49419 (September 
28, 2009) (NYSEArca-2009-44) (Order Approving Expansion 2). NYSE MKT 
filed a proposed rule change for immediate effectiveness, copying 
the expansion approved by the Commission in NYSE Arca-2009-44. See 
Securities Exchange Act Release No. 61106 (December 3, 2009), 74 FR 
65193 (December 9, 2009)(Notice of Filing and Immediate 
Effectiveness of NYSEAmex-2009-74).
    \57\ See Order Approving Expansion 1 and Order Approving 
Expansion 2, supra note 56, at 56398 and 49422-23, respectively.
    \58\ Id.
    \59\ See Order Approving Expansion 2, supra note 56, at 49422. 
For example, in the order approving Expansion 2, the Commission 
noted that on June 2, 2009, the sustained message traffic peak of 
852,350 messages per second reported by OPRA is still well below the 
OPRA's current message per second capacity limit of 2,050,000. Id.
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    As noted above, the Exchange believes that its quote mitigation 
plan is no longer necessary because: (1) The Exchange has incorporated 
select provisions of the OLPP in Exchange Rule 903A, which the Exchange 
believes limits the number of series eligible to be traded; (2) current 
Exchange Rule 925.1 NY 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 system capacity at the Exchange and at OPRA 
are more than sufficient to accommodate any additional increase in 
quote message traffic that might be disseminated if NYSE MKT's quote 
mitigation plan is eliminated. However, the Exchange has not provided 
the Commission with sufficient data regarding potential changes in 
quote message traffic if the Commission approves its proposal.
    For example, the Exchange does not provide sufficient data about 
the number of quote messages that its quote mitigation plan currently 
suppresses relative to capacity at OPRA. Specifically, the Exchange 
provided data from May 29, 2015 that purports to show that if all quote 
messages suppressed by the Exchange were instead sent to OPRA, industry 
quotes published by OPRA would increase by no more than 1.5%. The 
Exchange asserts that this increase would use less than .05% of total 
OPRA capacity across all option exchanges. Importantly, however, the 
Exchange does not provide data that shows the excess capacity between 
peak quote message traffic sent from all options exchanges and OPRA's 
Peak Capacity for the May 29, 2015 sample. If peak quote message 
traffic sent to OPRA by all the options exchanges was at or approached 
OPRA's Peak Capacity, then potentially even a small increase in quote 
message traffic from one exchange could result in OPRA's capacity being 
exceeded.
    In addition, the Exchange does not provide data or analysis 
demonstrating the potential impact the Exchange's proposal would have 
on market participants who consume the OPRA and/or the Exchange's 
quotation message feeds.\60\ Nor does the Exchange quantify the number 
or percentage of quote messages that have been and would continue to be 
suppressed as a result of the implementation of Exchange Rule 903A \61\ 
or current Exchange Rule 925.1NY Commentary .01.\62\ The Commission 
notes that the Exchange's comment letter stated its belief that as a 
result of refined quoting obligations, market makers do not need to 
quote in approximately 5,000 options series, and that this has resulted 
in a decrease in message traffic,\63\ however, the Exchange did not 
provide data to quantify the decrease in message traffic for the 
Commission to consider. Absent sufficient information and data of this 
type, the Commission is not able to adequately evaluate the Exchange's 
assertion that ``reliance on the OLPP, via Rule 903A, together with the 
refined market maker obligation, pursuant to Commentary .01 to Rule 
925.1NY, is sufficient as a quote mitigation strategy

[[Page 36028]]

and obviates the need for Rule 970.1.'' \64\ Other information or data 
may also be helpful for the Commission's consideration of the proposed 
rule change. Without sufficient supporting data and analysis, the 
Commission is not able to adequately assess the impact of NYSE MKT's 
proposed rule change to eliminate its quote mitigation plan and make a 
determination that the proposed rule change is consistent with the Act.
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    \60\ See Order Approving Expansion 2, supra note 56, at 49421 
(The Commission noted that several commenters expressed concerns 
that increased quotation message traffic imposes costs on exchanges 
and other market participants to process and store the additional 
quotations and they questioned the ability of market systems to 
effectively handle the increased quote message traffic that would 
likely result from the expansion of the Penny Pilot to 363 classes. 
In approving the expansion, the Commission noted that NYSE Arca 
``had adopted and [would] continue to utilize quote mitigate 
strategies that should continue to mitigate the expected increase in 
quotation traffic.'') Id. at 49422-23.
    \61\ In 2009, the OLPP Participants, including NYSE MKT, 
represented that the new strategy they were proposing as Amendment 
No. 3 to the OLPP (which was subsequently codified as Rule 903A on 
the Exchange's rulebook) would be ``an additional strategy'' to be 
used to address overall capacity concerns in the industry. See 
Securities Exchange Act Release No. 60365 (July 22, 2009), 74 FR 
37266 (July 28, 2009) (Notice of Filing of Amendment No. 3 to the 
OLPP proposing uniform standards to the range of options series 
exercise prices available for trading). Although it was anticipated 
that the exercise price limitation bands set forth in Amendment No. 
3 would also have the attendant benefit of further reducing 
increases in quote message traffic, nothing in the language in the 
exchanges' OLPP filings suggest that the methodology set forth in 
Amendment No. 3 (to limit the number of options series available for 
trading) was intended to replace the options exchanges' quote 
mitigation strategies, nor does the language in those filings 
suggest that it was contemplated at the time that the options 
exchanges would eliminate their existing exchange-specific quote 
mitigation strategies.
    \62\ While NYSE MKT stated in its proposed rule change to adopt 
Commentary .01 to Exchange Rule 925.1NY that the burden of 
continuous quoting in adjusted series is counter to efforts to 
mitigate the number of quotes collected and disseminated, and that 
the proposal would further the goal of quote mitigation, this was 
not a basis given for the proposed rule change, and the Exchange did 
not provide any data on what the impact of the proposal on quote 
volume would be. See Securities Exchange Act Release No. 65209 
(August 26, 2011), 76 FR 54518 (September 1, 2011) (NYSEAmex-2011-
61). Additionally, the Commission did not consider the potential 
impact of the proposal on quote mitigation as a basis for approving 
the elimination of continuous quoting obligation in certain series. 
See Securities Exchange Act Release No. 65572 (October 14, 2011), 76 
FR 65310 (October 20, 2011) (NYSEAmex-2011-61).
    \63\ See NYSE MKT Letter 1, supra note 6, at 3.
    \64\ See Notice, supra note 3, at 63010.
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    Given the limitations in the data provided by NYSE MKT, as 
described above, the Commission cannot find a sufficient basis to 
conclude that the proposal is consistent with the Act. The Commission 
notes, however, that the Penny Pilots for each of the options exchanges 
are anticipated to be extended for an additional year, until June 30, 
2016. In connection with any future requests to extend the Penny Pilots 
after that date, the Commission intends to require each exchange to 
submit detailed information to allow for permanent approval or 
disapproval by the Commission. Such proposals should, among other 
things, provide detailed data and analysis to support the efficacy, or 
any proposed modification or elimination, of any exchanges' quote 
mitigation plan.\65\
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    \65\ In reviewing the quote mitigation plans in this manner, the 
Commission would be able to consider the market-wide impact of any 
proposed modification to or elimination of an exchange's quote 
mitigation practices.
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    For the foregoing reasons, the Commission does not believe that 
NYSE MKT has met its burden to demonstrate that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder, including that the rules of an exchange be 
designed 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.\66\
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    \66\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    For the reasons set forth above, the Commission does not believe 
that NYSE MKT has met its burden to demonstrate that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and in particular, section 6(b)(5) of the Act.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSEMKT-2014-86) be, and hereby is, 
disapproved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\67\
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    \67\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-15340 Filed 6-22-15; 8:45 am]
 BILLING CODE 8011-01-P


