
[Federal Register Volume 81, Number 136 (Friday, July 15, 2016)]
[Notices]
[Pages 46131-46133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16715]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78284; File No. SR-NYSEARCA-2016-49]


Self-Regulatory Organizations; NYSE Arca, Inc.; 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 
6.64 With Respect To Opening Trading in an Options Series

July 11, 2016.

I. Introduction

    On March 23, 2016, NYSE Arca, Inc. (``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 6.64 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\ The Commission received one 
comment letter on the proposed rule change.\4\ 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.\5\ On July 8, 2016, the Exchange submitted Amendment 
No. 1 to the proposed rule change.\6\ 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. 77539 (April 6, 
2016), 81 FR 21639 (``Notice'').
    \4\ See letter from Anonymous, dated May 3, 2016. The letter was 
generally supportive of the proposed rule change.
    \5\ See Securities Exchange Act Release No. 77912 (May 25, 
2016), 81 FR 35105 (June 1, 2016).
    \6\ See Letter to Brent J. Fields, Secretary, Commission, from 
Martha Redding, Associate General Counsel, Assistant Secretary, NYSE 
Arca, LLC dated July 11, 2016. As more fully described below, in 
Amendment No. 1 the Exchange proposes additional modifications to 
Rule 6.64(c) to clarify and detail how the Exchange would determine 
the opening price upon dissemination of an NBBO from OPRA. Amendment 
No. 1 to the proposed rule change is also available on the 
Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2016-49/nysearca201649.shtml.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    Exchange Rule 6.64 sets forth the OX automated opening process.\7\ 
Current Rule 6.64(b) 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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    \7\ See Exchange Rule 6.64. The term ``OX'' refers to the 
Exchange's electronic order delivery, execution and reporting system 
for designated option issues through which orders and quotes of 
Users are consolidated for execution and/or display. See Exchange 
Rule 6.1A(a)(13) (defining ``OX'').
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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 OX Book that were not executed during the Auction 
Process, other than Opening Only orders, shall become eligible for the 
Core Trading Session immediately after the conclusion of the Auction 
Process.
    (D) The OX 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 
6.37(b)(1)(A)-(E).
    (E) If the OX System does not open a series with an Auction 
Process, the OX 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 6.37A(b)(4).\8\
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    \8\ See Exchange Rule 6.64(b)(A)-(E).
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    In addition, Rule 6.64(c) provides for how the OX System will 
determine the opening price of a series when an Auction Process is 
conducted.\9\ Specifically, current Rule 6.64(c) states, in part, that 
the ``opening price of a series will be the price, as determined by OX, 
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 OX 
Book.'' \10\
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    \9\ See Notice and current Exchange Rule 6.64(c).
    \10\ See current Exchange Rule 6.64(c).
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    The Exchange proposes several changes to Exchange Rule 6.64 and the 
OX opening process. The proposed changes would also affect the process 
of re-opening an options series after a trading halt.\11\
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    \11\ See Exchange Rule 6.64(d), 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 6.64(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.\12\ Further, the Exchange 
proposes to specify that the opening process will occur at or after 
9:30 a.m. Eastern Time.\13\
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    \12\ See proposed Rule 6.64(b).
    \13\ See id.
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    The Exchange also proposes to modify Exchange Rule 6.64(b)(E) so 
that if the OX 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

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instead require an initial uncrossed NBBO disseminated by OPRA.\14\ 
According to the Exchange, OPRA disseminates an NBBO based on 
information collected from the exchanges.\15\ Thus, the Exchange 
states, NYSE Arca'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.\16\
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    \14\ See proposed Rule 6.64(b)(E).
    \15\ See Notice, supra note 3, at 21640.
    \16\ See Notice, supra note 3, at 21640.
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    In addition, the Exchange proposes to amend Rule 6.64(c). As noted, 
current Rule 6.64(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 OX 
Book.'' The Exchange originally proposed to modify Rule 6.64(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.\17\ 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.'' \18\ 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.\19\
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    \17\ Specifically, the Exchange proposed to delete from current 
Rule 6.64(c) the words ``if any, or the midpoint of the best quotes 
and offers in the OX Book.''
    \18\ See Notice supra note 3 at 21640.
    \19\ See id.
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    In Amendment No. 1, the Exchange proposes further modifications to 
Rule 6.64(c) to clarify and detail how the Exchange would determine the 
opening price upon dissemination of an NBBO from OPRA. Under proposed 
Rule 6.64(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.'' \20\ In addition, in Amendment No. 1 the 
Exchange proposes to specify further the circumstances under which the 
System would use midpoint pricing.\21\ In particular, proposed Rule 
6.64(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 6.64(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.\22\ In connection with these proposed 
modifications, the Exchange further proposes to delete language in 
current Rule 6.64(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.\23\
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    \20\ See Amendment No. 1 and proposed Rule 6.64(c).
    \21\ See Amendment No. 1 and proposed Rule 6.64(c).
    \22\ See Amendment No. 1 and proposed Rule 6.64(c).
    \23\ See Amendment No. 1 and proposed Rule 6.64(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.\24\
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    \24\ See proposed Rule 6.64(b)(F); see also Notice, supra note 
3, at 21640. For a more detailed description of the original 
proposed rule change, see Notice, supra note 3.
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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.\25\ 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,\26\ 
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. 
As noted above, the Commission received one comment letter regarding 
the proposal, expressing support.\27\
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    \25\ 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).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ See supra note 4.
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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.\28\
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    \28\ See Notice, supra note 3, at 21640.
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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.\29\ 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.\30\
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    \29\ See supra note 14 and accompanying text.
    \30\ See Notice, supra note 3, at 21640.
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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.\31\ 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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    \31\ See supra note 21 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,

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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.\32\
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    \32\ 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-NYSEARCA-2016-49 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-NYSEARCA-2016-49. 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-NYSEARCA-2016-49 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,\33\ to approve the proposed rule change, 
as modified by Amendment No. 1 on an accelerated basis.
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    \33\ 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,\34\ that the proposed rule change (SR-NYSEArca-2016-49), 
as modified by Amendment No. 1 thereto, be, and it hereby is, approved 
on an accelerated basis.
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    \34\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-16715 Filed 7-14-16; 8:45 am]
 BILLING CODE 8011-01-P


