
[Federal Register Volume 80, Number 142 (Friday, July 24, 2015)]
[Notices]
[Pages 44168-44170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-18129]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75493; File Nos. SR-NYSEArca-2015-43; SR-NYSEMKT-2015-
41]


Self-Regulatory Organizations; NYSEArca, Inc.; NYSEMKT LLC; Order 
Approving Proposed Rule Changes Relating to the Complex Order Auction 
Process and Order Exposure Requirements

July 20, 2015.

I. Introduction

    On May 21, 2015, NYSE Arca, Inc. (``NYSE Arca'') and NYSE MKT LLC 
(``NYSE MKT'') (each, an ``Exchange'' and, together, the ``Exchanges'') 
filed with the Securities and Exchange Commission (the ``Commission''), 
pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ proposed rule changes 
to amend NYSE Arca Rules 6.47A and 6.91(c) and NYSE MKT Rules 935NY and 
980NY(e), respectively, to (1) allow Users to utilize the Complex Order 
Auction (``COA'') to satisfy the order exposure requirements of Rules 
NYSE Arca Rule 6.47A and NYSE MKT Rule 935NY; (2) allow any OTP Holder 
or ATP Holder, as applicable, to participate in a COA; and (3) provide 
for a COA Response Time Interval of no less than 500 milliseconds.\4\ 
The proposed rule changes were published for comment in the in the 
Federal Register on June 8, 2014.\5\ The Commission received no

[[Page 44169]]

comment letters regarding the proposals. This order approves the 
proposed rule changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ An OTP Holder is the holder of an Options Trading Permit 
issued by NYSE Arca. See NYSE Arca Rules 1.1(p) and (q). Under NYSE 
Arca's rules, a User is any OTP Holder, OTP Firm, or Sponsored 
Participant that is authorized to obtain access to OX, NYSE Arca's 
electronic order delivery, execution and reporting system for 
designated option issues, pursuant to NYSE Arca Rule 6.2A. See NYSE 
Arca Rules 6.1A(13) and 6.1A(19). An ATP Holder is the holder of an 
Amex Trading Permit issued by NYSE MKT. See NYSE MKT Rules 
900.2NY(4) and (5). Under NYSE MKT's rules, a User is any ATP Holder 
that is authorized to obtain access to the System pursuant to NYSE 
MKT Rule 902.1NY. See NYSE MKT Rule 900.2NY(87).
    \5\ See Securities Exchange Act Release Nos. 75096 (June 2, 
2015), 80 FR 32420 (``NYSE Arca Notice''); and 75095 (June 2, 2015), 
80 FR 32427 (``NYSE MKT Notice'').
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II. Description of the Proposals

    NYSE Arca and NYSE MKT each operate a COA auction process, which 
allow an entering trading permit holder to initiate an auction for an 
eligible complex order.\6\ At the commencement of a COA auction, an 
Exchange sends an automated request for response message (``RFR'') to 
all trading permit holders that subscribe to RFR messages.\7\ During 
the Response Time Interval, trading permit holders that are eligible to 
respond to a COA may respond to an RFR message, indicating the price 
and number of contracts they would be willing to trade in the COA.\8\ 
Under the current rules, the Exchanges may determine the length of the 
Response Time Interval, which has no minimum duration and will not 
exceed one second.\9\
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    \6\ Each Exchange may determine, on a class-by-class basis, 
which electronic orders are eligible for a COA, based on 
marketability (defined as a number of ticks away from the current 
market), size, number of series, and complex order origin types 
(i.e., Customers, broker-dealers that are not Market-Makers or 
specialists on an options exchange, and/or Market-Makers or 
specialists on an options exchange). See NYSE Arca Rule 6.91(c)(1) 
and NYSE MKT Rule 980NY(e)(1).
    \7\ The RFR message identifies the component series, size, and 
side of the market of the order being auctioned, and any 
contingencies. See NYSE Arca Rule 6.91(c)(2) and NYSE MKT Rule 
980NY(e)(2).
    \8\ See NYSE Arca Rules 6.91(c)(3) and (4) and NYSE MKT Rules 
980NY(e)(3) and (e)(4). See also NYSE Arca Notice, 80 FR at 32421 
and NYS MKT Notice, 80 FR at 32427.
    \9\ See NYSE Arca Rule 6.91(c)(3) and NYSE MKT Rule 980NY(e)(3).
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    The Exchanges' order exposure rules currently prohibit Users from 
executing as principal orders they represent as agent unless certain 
conditions are satisfied.\10\ NYSE Arca Rule 6.47A provides that Users 
may not execute as principal orders they represent as agent unless (i) 
the agency orders are first exposed on NYSE Arca for at least one 
second; or (ii) the User has been bidding or offering on NYSE Arca for 
at least one second prior to receiving an agency order that is 
executable against such bid or offer. NYSE MKT Rule 935NY provides that 
Users may not execute as principal orders they represent as agent 
unless (i) the agency orders are first exposed on NYSE MKT for at least 
one second; (ii) the User has been bidding or offering on NYSE MKT for 
at least one second prior to receiving the agency order that is 
executable against such bid or offer; or (iii) the User utilizes the 
NYSE Amex Options Customer Best Execution (``CUBE'') auction.\11\ The 
Exchanges propose to amend their rules to add the use of the COA as a 
means for a User to satisfy the order exposure requirements.\12\ Thus, 
an electronic complex order subject to a COA would not be subject to 
the one-second order exposure requirements of NYSE Arca Rule 6.47A or 
NYSE MKT Rule 935NY, and a User that utilizes the COA pursuant to NYSE 
Arca Rule 6.91(c) or NYSE MKT Rule 980NY(e) would be able to submit a 
principal order during the Response Time Interval to trade against an 
order it represents as agent.\13\ The Exchanges note that this 
exclusion from the order exposure requirement is consistent with the 
treatment of orders in the CUBE Auction, which, like the COA, has a 
minimum duration of 500 milliseconds, and with the treatment of orders 
in the BOX Options Exchange's Complex Order Price Improvement Period 
(``COPIP'') auction.\14\ In addition, the Exchanges note that, 
consistent with NYSE Arca Rule 6.47A, Commentary .01, and NYSE MKT Rule 
935NY, Commentary .01, trading permit holders may only use the COA 
where there is a genuine intention to execute bona fide 
transactions.\15\
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    \10\ See NYSE Arca Rule 6.47A and NYSE MKT Rule 935NY.
    \11\ See NYSE Arca Rule 6.47A; and NYSE MKT Rule 935NY.
    \12\ The proposals also make conforming changes to NYSE Arca 
Rule 6.91(c)(3) and NYSE MKT Rule 980NY(e)(3) to delete sentences 
stating that the obligations of NYSE Arca Rule 6.47A and 935NY are 
separate from the duration of the Response Time Interval.
    \13\ See NYSE Arca Notice, 80 FR at 32422 and NYSE MKT Notice, 
80 FR at 32428.
    \14\ See NYSE Arca Notice, 80 FR at 32422; and NYSE MKT Notice, 
80 FR at 32428.
    \15\ See NYSE Arca Notice, 80 FR at 32422; and NYSE MKT Notice, 
80 FR at 32428.
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    Currently, only market makers with an appointment in the relevant 
options class, and trading permit holders acting as agent for orders 
resting at the top of the Consolidated Book in the relevant options 
series, may submit RFR Responses.\16\ The Exchanges propose to amend 
their rules to allow any trading permit holder to submit an RFR 
Response. The Exchanges believe that this could increase participation 
in COAs, which could foster greater competition and provide additional 
price improvement opportunities for COA-eligible orders.\17\ In 
addition, the Exchanges believe that this change would benefit market 
participants by enabling the Exchanges to better compete with options 
exchanges that permit all members to participate in electronic auctions 
for crossing transactions that are similar to the COA.\18\
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    \16\ See NYSE Arca Rule 6.91(c)(4) and NYSE MKT Rule 
980NY(e)(4).
    \17\ See NYSE Arca Notice, 80 FR at 32421; and NYSE MKT Notice, 
80 FR at 32428.
    \18\ See, e.g., ISE Rule 723(a).
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    The Exchanges also propose to revise their rules to provide that 
the Response Time Interval will not be less than 500 milliseconds. The 
maximum possible duration of the Response Time Interval will continue 
to be one second. The Exchanges believe that it is important to 
establish a minimum duration for the Response Time Interval to assure 
that orders entered into a COA are exposed for a sufficient time period 
to allow auction participants to submit RFR Responses.\19\
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    \19\ See NYSE Arca Notice, 80 FR at 32421 and NYSE MKT Notice, 
80 FR at 32428.
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    Each Exchange surveyed its trading permit holders to determine 
whether the proposed minimum Response Time Interval would provide 
sufficient time to respond to a COA.\20\ Based on the survey 
responses--in which 77% of the respondents indicated that they would be 
able to respond to an auction lasting 100 milliseconds--the Exchanges 
believe that the proposed Response Time Interval duration of at least 
500 milliseconds would provide a meaningful opportunity for Exchange 
participants to respond to a COA and, at the same time, facilitate the 
prompt execution of orders.\21\ In addition, the Exchanges believe that 
a minimum Response Time Interval of 500 milliseconds would provide 
sufficient time to submit RFR Responses and would encourage competition 
among participants, thereby enhancing the potential for price 
improvement in the COA.\22\ The Exchanges note that the 500 millisecond 
minimum duration is comparable to the response time interval for the 
CUBE Auction for single-leg orders, which disseminates an RFR message 
for an auction lasting for a random period of time of between 500 and 
750 milliseconds.\23\ The Exchanges note, further, that the BOX Options 
Exchange's COPIP auction lasts for only 100 milliseconds.\24\ Although 
both the CUBE and the COPIP, unlike the COA, are auctions of paired 
orders that provide for a guaranteed execution, the

[[Page 44170]]

Exchanges believe that the CUBE and COPIP are analogous to the COA in 
that they are designed to attract liquidity and provide opportunities 
for price improvement.\25\
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    \20\ In May 2015, NYSE Arca and NYSE MKT surveyed their 
respective trading permit holders to determine whether they could 
respond to an auction lasting 100 milliseconds. Of the trading 
permit holders that have electronic access to NYSE Arca and NYSE 
MKT, and are able to submit responses to a COA, 13 responded to the 
surveys. In both surveys, ten respondents (77%) said that they could 
respond to an auction lasting 100 milliseconds. See NYSE Arca 
Notice, 80 FR at 32421; and NYSE MKT Notice, 80 FR at 32428.
    \21\ See NYSE Arca Notice, 80 FR at 32421; and NYSE MKT Notice, 
80 FR at 32428.
    \22\ See id.
    \23\ See NYSE MKT Rule 971.1NY(c)(2)(B).
    \24\ See Box Rule 7245(f)(1).
    \25\ See NYSE Arca Notice, 80 FR at 32421; and NYSE MKT Notice, 
80 FR at 32428.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
changes are consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\26\ In 
particular, the Commission finds that the proposed rule changes are 
consistent with section 6(b)(5) of the Act,\27\ which requires that the 
rules of the 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.
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    \26\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \27\ 15 U.S.C. 78(b)(5).
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    Users trading as principal on the Exchanges may not trade with 
orders they represent as agent unless the one-second order exposure 
requirements of NYSE Arca Rule 6.47A or NYSE MKT Rule 935NY, as 
applicable, are satisfied. The proposals amend NYSE Arca Rule 6.47A and 
NYSE MKT Rule 935NY to allow Users to utilize the COA to satisfy the 
order exposure requirements.\28\ Thus, an electronic complex order 
subject to a COA would not be subject to the one-second order exposure 
requirements of NYSE Arca Rule 6.47A or NYSE MKT Rule 935NY, and a User 
that utilizes the COA pursuant to NYSE Arca Rule 6.91(c) or NYSE MKT 
Rule 980NY(e) would be able to submit a principal order during the 
Response Time Interval to trade against an order it represents as 
agent.\29\ The proposals also amend NYSE Arca Rule 6.91(c)(4) and NYSE 
MKT Rule 980NY(e)(4) to allow all trading permit holders--rather than 
only market makers in the relevant options class and trading permit 
holders representing orders at the top of the Consolidated Book in the 
relevant series--to respond to a COA. Finally, the proposals amend NYSE 
Arca Rule 6.91(c)(3) and NYSE MKT Rule 980NY(e)(3) to establish a 
minimum duration of 500 milliseconds for the Response Time 
Interval.\30\
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    \28\ The proposals also make conforming changes to NYSE Arca 
Rule 6.91(c)(3) and NYSE MKT Rule 980NY(e)(3) to delete sentences 
stating that the obligations of NYSE Arca Rule 6.47A and 935NY are 
separate from the duration of the Response Time Interval.
    \29\ See NYSE Arca Notice, 80 FR at 32422 and NYSE MKT Notice, 
80 FR at 32428.
    \30\ The rules will continue to provide that the Response Time 
Interval will not exceed one second.
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    The Commission believes that the changes establishing a minimum 
duration for the Response Time Interval and providing for expanded 
participation in the COA could enhance competition in the COA. As noted 
above, each Exchange surveyed its trading permit holders to determine 
whether they would be able to respond to a COA auction lasting 100 
milliseconds. According to the Exchanges, 77% of the survey respondents 
indicated that they would be able to respond to an auction lasting 100 
milliseconds.\31\ Based on the Exchanges' statements, the Commission 
believes that establishing a minimum duration of 500 milliseconds for 
the Response Time Interval should provide market participants with an 
opportunity to compete for exposed bids and offers in a COA auction 
while facilitating the prompt execution of orders in the COA.\32\ In 
addition, allowing all trading permit holders to submit RFR Responses 
could result in greater participation and increased competition in the 
COA, potentially leading to greater opportunities for price improvement 
for orders submitted to a COA. Accordingly, the Commission believes 
that it is consistent with the Act to allow Users to utilize the COA to 
satisfy the order exposure requirements of NYSE Arca Rule 6.47A and 
NYSE MKT Rule 935NY.
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    \31\ See notes 20-21, supra, and accompanying text.
    \32\ The Commission notes that it has previously approved 500-
millisecond response periods for other auctions, as well as a 
response period of 100 milliseconds for BOX's COPIP auction. See ISE 
Rules 716, Supplementary Material .04 (providing 500 milliseconds to 
submit Responses in the Block Order Mechanism, the Facilitation 
Mechanism, and the Solicited Order Mechanism); and 723(c)(1) 
(establishing a 500-millisecond exposure period for the Price 
Improvement Mechanism); and BOX Rule 7245(f)(1).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\33\ that the proposed rule changes (File Nos. SR-NYSEArca-2015-43 
and SR-NYSEMKT-2015-41) are approved.
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    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-18129 Filed 7-23-15; 8:45 am]
 BILLING CODE 8011-01-P


