[Federal Register Volume 77, Number 176 (Tuesday, September 11, 2012)]
[Notices]
[Pages 55888-55889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22243]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67785; File No. SR-NYSEArca-2012-48]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change Amending NYSE Arca Equities Rule 7.31(h) To Add a 
PL Select Order

September 5, 2012.

I. Introduction

    On May 22, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 NYSE Arca Equities Rule 7.31(h) to add a PL Select Order. The 
proposed rule change was published for comment in the Federal Register 
on June 8, 2012.\3\ A designation of a longer period for Commission 
action was published in the Federal Register on July 26, 2012.\4\ The 
Commission received no comment letters regarding the proposed rule 
change. This order approves 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. 67101 (June 4, 
2012), 77 FR 34115 (``Notice'').
    \4\ See Securities Exchange Act Release No. 67475 (July 20, 
2012), 77 FR 43879 (Notice of Designation of a Longer Period for 
Commission Action on Proposed Rule Change Amending NYSE Arca 
Equities Rule 7.31(h) To Add a PL Select Order Type).
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II. Description of the Proposal

    The Exchange proposes to amend NYSE Arca Equities Rule 7.31(h) to 
add a PL Select Order. The PL Select Order would be a subset of a 
Passive Liquidity (``PL'') Order.\5\ NYSE Arca Equities Rule 7.31(h)(7) 
would define the PL Select Order as a PL Order that would not interact 
with an incoming order that: (i) Has an immediate-or-cancel (``IOC'') 
time in force condition,\6\ (ii) is an ISO,\7\ or (iii) is larger than 
the size of the PL Select Order. The PL Select Order

[[Page 55889]]

would otherwise, except for the specified restrictions on trading with 
certain incoming orders, operate as a PL Order and retain its standing 
in execution priority among PL Orders. In the instances when an 
incoming order meets one of the PL Select Order restrictions, the PL 
Select Order would not interact with the incoming order and could be 
traded through.
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    \5\ See NYSE Arca Equities Rule 7.31(h)(4).
    \6\ See NYSE Arca Equities Rule 7.31(e).
    \7\ See NYSE Arca Equities Rule 7.31(jj).
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    The Exchange believes that the restrictions on trading with 
incoming IOC or ISO orders would enable Users \8\ to designate that 
their PL Orders would not trade with interest that would never become 
displayed or passive liquidity on the Exchange. The Exchange believes 
that the final restriction would serve to attract larger-sized PL 
Orders because the User would not have to risk having the PL Select 
Order being swept up by larger-sized contra interest, thereby obviating 
the primary purpose of the PL Order types: to provide price 
improvement.
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    \8\ See Arca Equities Rule 1.1(yy) (defining the term ``User'').
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    The Exchange further proposes that upon notice to ETP Holders, the 
Corporation \9\ may suspend the entry of PL Select Orders. If such 
provision is invoked, Users may continue to submit PL Orders, but would 
not be able to enter PL Select Orders and all open PL Select Orders on 
the NYSE Arca trading book would be cancelled back to the User. The 
Exchange believes that it is appropriate to be able to suspend the 
entry of PL Select Orders in circumstances where the volume of orders 
creates an issue with the ability of the Exchange to timely process 
inbound orders to the Exchange.
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    \9\ See Arca Equities Rule 1.1(k) (defining the term 
``Corporation'').
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    Because of the related technology changes that this proposed rule 
change would require, the Exchange proposes to announce the initial 
implementation date via Trader Update.

III. Discussion and Commission Findings

    After careful review, the Commission finds 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.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ 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 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; and are not designed to permit unfair discrimination 
between customers, issuers, brokers or dealers.
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    \10\ 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).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission finds the instant proposed rule change to be 
consistent with the Act. The Commission notes that the Exchange 
believes that the proposed rule change should allow PL Select Order 
users to avoid interacting with market participants that are submitting 
orders primarily for the purpose of probing for or ``pinging'' hidden 
interest on the NYSE Arca book as opposed to adding liquidity to the 
market. The Exchange also indicates that the probing or ``pinging'' 
interest that PL Select Orders would avoid is more likely to come from 
professional traders than non-professional traders. In addition, the 
Exchange believes that use of the PL Select Order could attract 
displayed liquidity that would be eligible for execution against PL 
Select Orders or posting on the NYSE Arca book if not executed by PL 
Select Orders or other resting liquidity.
    The Commission notes further that the Exchange believes that, 
because PL Select Orders would not interact with larger-sized incoming 
interest, market participants could be incentivized to use PL Select 
Orders to provide price improvement opportunities, thereby promoting 
more favorable executions for the benefit of public customers. In 
addition, the Exchange believes that market participants also could be 
incentivized to route more aggressively priced, displayable interest to 
the Exchange because of an increased likelihood of receiving price 
improvement.
    Based on the Exchange's statements, the Commission believes that 
the proposed rule change is consistent with Section 6(b)(5) of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSEArca-2012-48) be, and it 
hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
 [FR Doc. 2012-22243 Filed 9-10-12; 8:45 am]
BILLING CODE 8011-01-P