
[Federal Register Volume 81, Number 136 (Friday, July 15, 2016)]
[Notices]
[Pages 46144-46147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16723]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78283; File No. SR-NYSEMKT-2016-42]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Amendment No. 1 and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Modified by Amendment No. 1, To Amend Rule 952NY With 
Respect to Opening Trading in an Options Series

July 11, 2016.

I. Introduction

    On March 23, 2016, NYSE MKT LLC (``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 amend Exchange 
Rule 952NY regarding the process for opening trading in an options 
series. The proposed rule change was published for comment in the 
Federal Register on April 12, 2016.\3\ On May 25, 2016, the Commission 
extended the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to disapprove the proposed rule change to July 11, 
2016.\4\ On July 8, 2016, the Exchange submitted Amendment No. 1 to the 
proposed rule change.\5\ The Commission received no comment letters on 
the proposed rule change. The Commission is publishing this notice to 
solicit comment on Amendment No. 1 to the proposed rule change from 
interested persons and is approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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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. 77540 (April 6, 
2016), 81 FR 21623 (``Notice'').
    \4\ See Securities Exchange Act Release No. 77911 (May 25, 
2016), 81 FR 35115 (June 1, 2016).
    \5\ See Letter to Brent J. Fields, Secretary, Commission, from 
Martha Redding, Associate General Counsel, Assistant Secretary, NYSE 
MKT, LLC dated July 11, 2016. As more fully described below, in 
Amendment No. 1 the Exchange proposes additional modifications to 
Rule 952NY(c) to clarify and detail how the Exchange would determine 
the opening price upon dissemination of an NBBO from OPRA.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    Exchange Rule 952NY sets forth the Exchange System's automated 
opening process.\6\ Current Rule 952NY(b)

[[Page 46145]]

provides that, after the primary market for the underlying security 
disseminates an opening trade or an opening quote, the Exchange will 
open the related option series automatically based on the following 
principles and procedures:
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    \6\ See Exchange Rule 952NY. The term ``System'' refers to the 
Exchange's electronic order delivery, execution and reporting system 
through which orders and quotes for listed options are consolidated 
for execution and/or display. See Exchange Rule 900.2NY(48) 
(defining ``Exchange System'' or ``System'').
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    (A) The system will determine a single price at which a particular 
option series will be opened.
    (B) Orders and quotes in the system will be matched up with one 
another based on price-time priority; provided, however, that Orders 
will have priority over Market Maker quotes at the same price.
    (C) Orders in the System Book that were not executed during the 
Auction Process shall become eligible for the Core Trading Session 
immediately after the conclusion of the Auction Process.
    (D) The System will not conduct an Auction Process if the bid-ask 
differential for that series is not within an acceptable range. For the 
purposes of this rule, an acceptable range shall mean within the bid-
ask differential guidelines established pursuant to Rule 952NY(b)(4).
    (E) If the System does not open a series with an Auction Process, 
the System shall open the series for trading after receiving 
notification of an initial NBBO disseminated by OPRA for the series or 
on a Market Maker quote, provided that the bid-ask differential does 
not exceed the bid-ask differential specified under Rule 
952NY(b)(5).\7\
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    \7\ See Exchange Rule 952NY(b)(A)-(E).
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    In addition, Rule 952NY(c) provides for how the System will 
determine the opening price of a series when an Auction Process is 
conducted.\8\ Specifically, current Rule 952NY(c) states, in part, that 
the ``opening price of a series will be the price, as determined by the 
System, at which the greatest number of contracts will trade at or 
nearest to the midpoint of the initial uncrossed NBBO disseminated by 
OPRA, if any, or the midpoint of the best quote bids and quote offers 
in the System Book.'' \9\
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    \8\ See Notice and current Exchange Rule 952NY(c).
    \9\ See current Exchange Rule 952NY(c).
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    The Exchange proposes several changes to Exchange Rule 952NY and 
the System opening process. The proposed changes would also affect the 
process of re-opening an options series after a trading halt.\10\
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    \10\ See Exchange Rule 952NY(a), which provides that the 
Exchange will follow the same procedures in opening after a trading 
halt as the procedures followed for the opening of the trading day.
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    First, the Exchange proposes to amend Exchange Rule 952NY(b) so 
that trading in an options series will be opened automatically once the 
primary market for the underlying security disseminates both a quote 
and a trade that is at or within the quote.\11\ Further, the Exchange 
proposes to specify that the opening process will occur at or after 
9:30 a.m. Eastern Time.\12\
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    \11\ See proposed Rule 952NY(b).
    \12\ See id.
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    The Exchange also proposes to modify Exchange Rule 952NY(b)(E) so 
that if the System does not open a series with an Auction Process, 
trading in an options series could no longer open on a local Market 
Maker quote, but would instead require an initial uncrossed NBBO 
disseminated by OPRA.\13\ According to the Exchange, OPRA disseminates 
an NBBO based on information collected from the exchanges.\14\ Thus, 
the Exchange states, NYSE MKT's local Market Maker quotes would be 
disseminated back to the Exchange from OPRA and may or may not be at 
the same price as the NBBO.\15\
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    \13\ See proposed Rule 952NY(b)(E).
    \14\ See Notice, supra note 3, at 21624.
    \15\ See Notice, supra note 3, at 21624.
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    In addition, the Exchange proposes to amend Rule 952NY(c). As 
noted, current Rule 952NY(c) provides that if there is no initial 
uncrossed NBBO disseminated by OPRA, the System instead determines an 
opening price that is ``at the midpoint of the best quotes and offers 
in the System Book.'' The Exchange originally proposed to modify Rule 
952NY(c) by eliminating this language so that the rule would no longer 
provide that the opening price of a series could be determined by 
reference to the best quote bids and offers in the System Book.\16\ 
Thus, as originally proposed, the opening price of a series would be 
the price, as determined by the System, at which the greatest number of 
contracts will trade ``at or nearest to the midpoint of the initial 
uncrossed NBBO disseminated by OPRA.'' \17\ As more fully set forth in 
the Notice, the Exchange stated that the original proposed modification 
was a conforming change that was necessary because the Exchange would 
no longer open solely on a local Market Maker quote.\18\
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    \16\ Specifically, the Exchange proposed to delete from current 
952NY(c) the words ``if any, or the midpoint of the best quotes and 
offers in the System Book.''
    \17\ See Notice supra note 3 at 21624.
    \18\ See id.
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    In Amendment No. 1, the Exchange proposes further modifications to 
Rule 952NY(c) to clarify and detail how the Exchange would determine 
the opening price upon dissemination of an NBBO from OPRA. Under 
proposed 952NY(c), as modified by Amendment No. 1, ``[t]he opening 
price of a series will be the price, as determined by the System, at 
which the greatest number of contracts will trade at a price at or 
between the NBBO disseminated by OPRA.'' \19\ In addition, in Amendment 
No. 1 the Exchange proposes to specify further the circumstances under 
which the System would use midpoint pricing.\20\ In particular, 
proposed Rule 952NY(c), as modified by Amendment No. 1, would specify 
what would happen if there is a tie and the same number of contracts 
can trade at multiple prices. Specifically, proposed Rule 952NY(c), as 
modified by Amendment No. 1, would provide that if the same number of 
contracts can trade at multiple prices, the opening price is the price 
at which the greatest number of contracts can trade that is ``at or 
nearest to the midpoint'' of the NBBO disseminated by OPRA. The rule 
would further specify that (i) if one of such prices is equal to the 
price of any Limit Order(s) in the Consolidated Book, the opening price 
will be the same price as the Limit Order(s) with the greatest size 
and, if the same size, the highest price; and (ii) if there is a tie 
between price levels and no Limit Orders exist at either of the prices, 
the Exchange would use the higher price.\21\ In connection with these 
proposed modifications, the Exchange further proposes to delete 
language in current Rule 952NY(c) referring to pricing by reference to 
the best quotes bids and offers in the System. According to the 
Exchange, the language proposed to be deleted is superfluous, as the 
Exchange would no longer use Market Maker quotes to determine the 
opening price.\22\
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    \19\ See Amendment No. 1 and proposed Rule 952NY(c).
    \20\ See Amendment No. 1 and proposed Rule 952NY(c).
    \21\ See Amendment No. 1 and proposed Rule 952NY(c).
    \22\ See Amendment No. 1 and proposed Rule 952NY(c).
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    Finally, the Exchange proposes a new provision to permit the 
Exchange to deviate from the standard manner of the Auction Process, 
including adjusting the timing of the Auction Process in any option 
class, when the Exchange believes it to be necessary in the interest of 
a fair and orderly market.\23\
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    \23\ See proposed Rule 952NY(b)(F); see also Notice, supra note 
3, at 21624. For a more detailed description of the original 
proposed rule change, see Notice, supra note 3.

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[[Page 46146]]

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\24\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\25\ 
which requires, among other things, that the rules of a national 
securities exchange be 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.
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    \24\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
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    The Commission believes the Exchange's proposal to require both a 
disseminated quote and a trade within the quote in an underlying 
security before opening trading in the related options series, instead 
of either one or the other, is reasonably designed ensure that the 
underlying security has been opened pursuant to a robust price 
discovery process before the overlying option begins trading.\26\
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    \26\ See Notice, supra note 3, at 21624.
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    The Exchange proposes that if it does not open a series with an 
Auction Process, it will open the series for trading after receiving 
notification of an initial uncrossed NBBO disseminated by OPRA.\27\ The 
Exchange represents that opening an options series for trading after 
receiving an uncrossed NBBO from OPRA, rather than based on a local 
Market Maker quote, will eliminate ambiguity as to the source of the 
information for each options series and should lead to more accurate 
prices on the Exchange.\28\
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    \27\ See supra note 13 and accompanying text.
    \28\ See Notice, supra note 3, at 21624.
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    Further, the Exchange proposes that if it does open a series with 
an Auction Process, the opening price of a series will be the price, as 
determined by the System, at which the greatest number of contracts 
will trade at a price at or between the NBBO disseminated by OPRA. The 
Exchange further proposes to specify how the System will determine an 
opening price if the same number of contracts can trade at multiple 
prices.\29\ The Commission believes the proposed process for how the 
System will determine an opening price for an option series at or 
between the NBBO disseminated by OPRA, and the circumstances under 
which System would use midpoint pricing, should result in an opening 
price that is related to the current market for an option and is 
therefore reasonably designed to protect investors and the public 
interest.
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    \29\ See supra note 20 and accompanying text.
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    In addition, the Commission believes it is appropriate to allow the 
Exchange the discretion to deviate from the standard manner of the 
Auction Process, as the proposal provides, when it believes it is 
necessary in the interests of a fair and orderly market. The Commission 
believes that the ability to exercise such discretion can be important 
in situations when, for example, the primary market for an options 
class is unable to open due to a systems or technical issue or if some 
other unanticipated circumstance arises. The Commission notes that it 
has previously approved provisions of this kind as consistent with the 
Act.\30\
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    \30\ See, e.g., Securities Exchange Act Release No. 71651 (March 
5, 2014), 79 FR 13693 (March 11, 2014) (SR-BATS-2014-003).
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    The Commission further believes that the proposed rule change will 
provide transparency and enhance investors' understanding of the 
operation of the Exchange's opening process. For these reasons, the 
Commission believes that the proposed rule change, as modified by 
Amendment No. 1, is consistent with the Act.

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to the proposed rule change is consistent with the Exchange 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-2016-42 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2016-42. 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 also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEMKT-2016-42 and should 
be submitted by August 5, 2016.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register. As discussed above, Amendment No. 1 clarifies how the 
Exchange would determine the opening price upon dissemination of an 
NBBO from OPRA, an in particular specifies the circumstances in which 
``at or nearest to the midpoint'' pricing is utilized during the 
Auction Process. Furthermore, the Commission believes it is appropriate 
to have these changes incorporated into the rules of the Exchange 
concurrently with the changes discussed in the original filing.
    Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Exchange Act,\31\ to approve the proposed rule change, 
as modified by

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Amendment No. 1 on an accelerated basis.
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    \31\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Exchange Act,\32\ that the proposed rule change (SR-NYSEMKT-2016-42), 
as modified by Amendment No. 1 thereto, be, and it hereby is, approved 
on an accelerated basis.
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    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Robert W. Errett,
Deputy Secretary.
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    \33\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-16723 Filed 7-14-16; 8:45 am]
 BILLING CODE 8011-01-P


