
[Federal Register Volume 81, Number 139 (Wednesday, July 20, 2016)]
[Notices]
[Pages 47196-47198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17095]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78324; File No. SR-NYSEMKT-2016-69]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Extending the Pilot 
Period Applicable to the Customer Best Execution Auction per Rule 
971.1NY

July 14, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on July 8, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to extend the pilot period applicable to the 
Customer Best Execution Auction (``CUBE''), per Rule 971.1NY, until 
January 18, 2017. The proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to extend the pilot period applicable to 
certain aspects of the Customer Best Execution--or CUBE--Auction, which 
is currently set to expire on July 18, 2016, until January 18, 2017.
Background
    Rule 971.1NY sets forth an electronic crossing mechanism for 
single-leg orders with a price improvement auction on the Exchange, 
referred to as the CUBE Auction.\4\ The CUBE Auction, which was 
approved in April 2014, is designed to provide price improvement for 
paired orders of any size.\5\ Two aspects of the CUBE were approved on 
a pilot basis--Rule 971.1NY(b)(1)(B), which establishes the permissible 
range of executions for CUBE Auctions for fewer than 50 contracts; and 
Rule 971.1NY(b)(8), which establishes that the minimum size for a CUBE 
Auction is one contract (together, the ``CUBE Pilot'').
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    \4\ See generally Rule 971.1NY (Electronic Cross Transactions).
    \5\ See Securities Exchange Act Release No. 72025 (April 25, 
2014), 79 FR 24779 (May 1, 2014) (NYSEMKT-2014-17) (the ``CUBE 
Approval Order'').
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    An ATP Holder may initiate a CUBE Auction by electronically 
submitting for execution a limit order it represents as agent on behalf 
of a public customer, broker dealer, or any other entity (``CUBE 
Order'') against principal interest or against any other order it 
represents as agent, provided the initiating ATP Holder complies with 
Rule 971.1NY.\6\ Rule 971.1NY(b)(1) sets forth the permissible range of 
executions for a CUBE Order.\7\ Pursuant to the CUBE Pilot, a CUBE 
Order for fewer than 50 contracts is subject to tighter ranges of 
execution than larger CUBE Orders to maximize price improvement.\8\ 
Specifically, if the CUBE Order is for fewer than 50 contracts, the 
range of permissible execution will be equal to or better than the 
National Best Bid/Offer (``NBBO''), provided that such price must be at 
least one cent better than any displayed interest in the Exchange's 
Consolidated Book.\9\
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    \6\ In addition, CUBE provides for the automatic execution, 
under certain conditions, of a crossing transaction where there is a 
public customer order in the same options series on each side.
    \7\ Subject to specified exceptions, a CUBE Order to buy (sell) 
may execute at prices equal to or between the initiating price as 
the upper (lower) bound and the National Best Bid (``NBB'') 
(National Best Offer (``NBO'')) as the lower (upper) bound. See Rule 
971.1NY(b).
    \8\ See Rule 971.1NY(b)(1)(B). Rule 971.1NY(b)(8), also subject 
to the pilot period, provides that the minimum size for a CUBE 
Auction is one contract.
    \9\ See Rule 971.1NY(b)(1)(B).
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    The CUBE Pilot was initially approved for a one-year pilot, and has 
since been extended for two subsequent years.\10\ Pursuant to 
Commentary .01 to Rule 971.1NY, the CUBE Pilot would, if not amended, 
end on July 18, 2016. In connection with the CUBE Pilot, the Exchange 
agreed to submit certain data to provide supporting evidence that, 
among other things, there is meaningful competition for all size orders 
and that

[[Page 47197]]

there is an active and liquid market functioning on the Exchange 
outside of the CUBE Auction. \11\
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    \10\ See CUBE Approval Order, supra, n. 5. The CUBE Pilot was 
subsequently extended, most recently until July 18, 2016, in order 
to align the expiration of the pilot period with that of other 
competing options exchange that offer electronic price improvement 
auctions similar to the CUBE. See Securities Exchange Act Release 
Nos. 74695 (April 9, 2015), 80 FR 20274 (April 15, 2015) (SR-
NYSEMKT-2015-28); 75460 (July 15, 2015), 80 FR 43140 (July 21, 2015) 
(SR-NYSEMKT-2015-48).
    \11\ See CUBE Approval Order, supra n. 5, at 79 FR 24779, at 
24785-86, fn. 94-95. See also Commentary .01 to Rule 971.1NY.
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Proposal To Extend the Operation of the CUBE Pilot
    The Exchange implemented the CUBE Auction to provide an electronic 
crossing mechanism for single-leg orders with a price improvement 
auction. The CUBE Pilot was designed to create tighter markets and 
ensure that each order receives the best possible price. The Exchange 
believes that the CUBE Pilot attracts order flow and promotes 
competition and price improvement opportunities for CUBE Orders of 
fewer than 50 contracts. The Exchange believes that extending the pilot 
period is appropriate because it will allow the Exchange and the 
Commission additional time to analyze data regarding the CUBE Pilot 
that the Exchange has committed to provide.\12\ As such, the Exchange 
believes that it is appropriate to extend the current operation of the 
Pilot. Through this filing, the Exchange seeks to amend Commentary .01 
to Rule 971.1NY and extend the current pilot period until January 18, 
2017.\13\ The Exchange notes that it would retain the text of Rules 
971.1NY(b)(1)(B) and 971.1NY(b)(8). In further support of this proposed 
rule change, the Exchange would continue to submit to the Commission 
detailed data from, and analysis of, the CUBE Pilot. Further, in 
January 2016, the Exchange provided the Commission certain additional 
requested data regarding trading in the CUBE Auction for the six (6) 
month period from January 1, 2015 through June 30, 2015 and agreed to 
make a summary of this data provided publicly available.
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    \12\ Id.
    \13\ See proposed Commentary .01 to Rule 971.1NY.
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    The Exchange continues to believe that there remains meaningful 
competition for all size orders and that there is an active and liquid 
market functioning on the Exchange outside of the CUBE Auction. The 
Exchange believes the additional data will substantiate the Exchange's 
belief and provide further evidence in support of permanent approval of 
the CUBE Pilot.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ in particular, in that it is designed 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that extending the pilot period is consistent 
with these principles because the CUBE Pilot is reasonably designed to 
create tighter markets and ensure that each order receives the best 
possible price, which benefits investors by increasing competition 
thereby maximizing opportunities for price improvement. The proposed 
extension would allow the CUBE Pilot to continue uninterrupted, thereby 
avoiding any potential investor confusion that could result from a 
temporary interruption in the CUBE Pilot. Because the CUBE Pilot is 
applicable to all CUBE Orders for fewer than 50 contracts, and to the 
requirement that the minimum size of the CUBE Auction is one contract, 
the proposal to extend the pilot merely acts to maintain status quo on 
the Exchange, which promotes just and equitable principles of trade and 
removes impediments to, and perfects the mechanism of, a free and open 
market and a national market system. The extension of the pilot period 
will allow the Commission and the Exchange to continue to monitor the 
CUBE Pilot to ascertain whether there is meaningful competition for all 
size orders and whether there is an active and liquid market 
functioning on the Exchange outside of the CUBE Auction.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change simply 
extends an established pilot program for an additional period and would 
allow for further analysis of the CUBE Pilot. In addition, the proposed 
extension would allow the CUBE Pilot to continue uninterrupted, thereby 
avoiding any potential investor confusion that could result from a 
temporary interruption in the CUBE Pilot. Thus, the proposal would also 
serve to promote regulatory clarity and consistency, thereby reducing 
burdens on the marketplace and facilitating investor protection.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\ A proposed rule 
change filed under Rule 19b-4(f)(6) normally does not become operative 
prior to 30 days after the date of filing.\18\ Rule 19b-4(f)(6)(iii), 
however, permits the Commission to designate a shorter time if such 
action is consistent with the protection of investors and the public 
interest.\19\
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    \16\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ Id.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiver of the operative delay is 
consistent with the protection of investors and the public interest 
because such waiver will allow the pilot program to continue without 
interruption. The Commission has therefore determined to waive the 30-
day operative delay and designate the proposed rule change as operative 
upon filing with the Commission.\20\
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    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the

[[Page 47198]]

Commission takes such action, the Commission shall institute 
proceedings under Section 19(b)(2)(B) of the Act \21\ to determine 
whether the proposed rule change should be approved or disapproved.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-NYSEMKT-2016-69 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 No. SR-NYSEMKT-2016-69. 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 such 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 No. SR-NYSEMKT-2016-69, and should be 
submitted on or before August 10, 2016.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-17095 Filed 7-19-16; 8:45 am]
 BILLING CODE 8011-01-P


