[Federal Register Volume 77, Number 240 (Thursday, December 13, 2012)]
[Notices]
[Pages 74247-74249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30047]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68382; File No. SR-NYSEARCA-2012-136]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
And Immediate Effectiveness of Proposed Rule Change to Allow for the 
Split-Price Priority Provisions to Apply to Open Outcry Trading of 
Cabinet Trades

December 7, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on November 30, 2012, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') 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 Exchange. 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Options Rule 6.80 to allow 
for the split-price priority provisions to apply to open outcry trading 
of cabinet trades. The text of 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, Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 6.80 to provide that the split-
price priority provisions in Rule 6.75(h) apply to accommodation trades 
(``cabinet trades'') in open outcry.\3\
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    \3\ See Rule 6.75(h). Rule 6.75(h) regarding priority on split-
price transaction occurring in open outcry specifically provides the 
following: (1) If an OTP Holder or OTP Firm purchases (sells) one or 
more option contracts of a particular series at a particular price 
or prices, the OTP Holder or OTP Firm must, at the next lower 
(higher) price at which another OTP Holder or OTP Firm bids 
(offers), have priority in purchasing (selling) up to the equivalent 
number of option contracts of the same series that the OTP Holder or 
OTP Firm purchased (sold) at the higher (lower) price or prices, 
provided that the OTP Holder or OTP Firm's bid (offer) is made 
promptly and continuously and that the purchase (sale) so effected 
represents the opposite side of a transaction with the same order or 
offer (bid) as the earlier purchase or purchases (sale or sales). 
This paragraph only applies to transactions effected in open outcry; 
(2) If an OTP Holder or OTP Firm purchases (sells) fifty or more 
option contracts of a particular series at a particular price or 
prices, he/she shall, at the next lower (higher) price have priority 
in purchasing (selling) up to the equivalent number of option 
contracts of the same series that he/she purchased (sold) at the 
higher (lower) price or prices, but only if his/her bid (offer) is 
made promptly and the purchase (sale) so effected represents the 
opposite side of the transaction with the same order or offer (bid) 
as the earlier purchase or purchases (sale or sales). The Exchange 
may increase the ``minimum qualifying order size'' above 100 
contracts for all products. Announcements regarding changes to the 
minimum qualifying order size shall be made via an Exchange 
Bulletin. This paragraph only applies to transactions effected in 
open outcry; (3) If the bids or offers of two or more OTP Holders or 
OTP Firms are both entitled to priority in accordance with 
subsections (1) or (2), it shall be afforded them, insofar as 
practicable, on an equal basis; (4) Except for the provisions set 
forth in Rule 6.75(h)(2), the priority afforded by this rule is 
effective only insofar as it does not conflict with customer limit 
orders represented in the Consolidated Book. Such orders have 
precedence over OTP Holders' or OTP Firms' orders at a particular 
price; customer limit orders in the Consolidated Book also have 
precedence over OTP Holders' or OTP Firms' orders that are not 
superior in price by at least the MPV; and (5) Floor Brokers are 
able to achieve split price priority in accordance with paragraphs 
(1) and (2) above.
    Example: Market quote is $1.00-1.20, with customer interest in 
the book at the offer price. Floor Broker announces a market order 
to buy 100 contracts. Market Maker A (``MM-A'') is alone in 
responding ``Sell 50 at $1.15 and 50 at $1.20'' (for an equivalent 
net price of $1.175).
    Because MM-A is willing to sell contracts at the lower price of 
$1.15, MM-A then has priority over all orders in the Book and 
trading crowd at the next higher price, in this case 1.20, for an 
equal number of contracts. The priority afforded by this provision 
allows MM-A to trade ahead of any like priced customer orders in the 
Book.

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[[Page 74248]]

    An ``accommodation'' or ``cabinet'' trade refers to trades in 
listed options on the Exchange that are worthless or not actively 
traded. Cabinet trading provides a way for market participants to 
effect transactions in such options at a minimal cost. Cabinet trading 
is conducted in accordance with Rule 6.80 Accommodation Transactions 
(Cabinet Trades),\4\ which provides that cabinet trading shall be 
conducted in accordance with other Exchange rules, except as otherwise 
provided in Rule 6.80, and sets forth specific procedures for engaging 
in cabinet trading. Pursuant to Rule 6.80(a), the Exchange designates 
options issues as eligible for cabinet trading pursuant to Rule 6.80. 
Such designations are made pursuant to requests from market 
participants.
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    \4\ Rule 6.80 currently provides for cabinet transactions to 
occur via open outcry at a cabinet price of a $1 per option contract 
in any options series open for trading in the Exchange, except that 
the Rule is not applicable to trading in option classes 
participating in the Penny Pilot Program. Under the procedures, bids 
and offers (whether opening or closing a position) at a price of $1 
per option contract may be represented in the trading crowd by a 
Floor Broker or by a Market Maker or provided in response to a 
request by a Trading Official, a Floor Broker or a Market Maker, but 
must yield priority to all resting orders in the Cabinet (those 
orders held by the Trading Official, and which resting cabinet 
orders may be closing only). So long as both the buyer and the 
seller yield to orders resting in the cabinet book, opening cabinet 
bids can trade with opening cabinet offers at $1 per option 
contract.
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    Current Rule 6.80 provides for both manual and electronic cabinet 
trading--with manual cabinet trading pursuant to Rule 6.80(b) and 
electronic cabinet trading pursuant to Rule 6.80(c). Rule 6.80(b)(3) 
expressly provides that the split-price priority provisions otherwise 
applicable to open outcry trading pursuant to Rule 6.75(f) do not apply 
to open outcry trading in cabinet trades. Because split-price priority 
provisions are only applicable to open outcry trading, 6.80(c), which 
governs electronic trading of cabinet trading, does not include this 
provision.
    The Exchange believes that split-price priority provisions should 
apply to open outcry cabinet trading, and that the existing restriction 
unnecessarily limits the ability of market participants to manually 
trade cabinet orders on the floor. The current restriction 
unnecessarily restricts business by not making available certain prices 
which are available on other exchanges. Split-price priority in open 
outcry trading of cabinet trades provides an extra incentive for market 
participants to both price improve and facilitate the efficient trading 
of options contracts that are worthless or not actively trading. The 
Exchange notes that neither CBOE nor PHLX have a similar restriction on 
cabinet trades, and allow for split-price priority for cabinet trades 
on the trading floor.\5\ In addition, NYSE MKT recently filed for 
immediate effectiveness a proposed rule change to allow split-price 
priority for open outcry trading of cabinet trades.\6\
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    \5\ See CBOE Rules 6.54 and 6.47; PHLX Rule 1059. CBOE and PHLX 
both conduct their cabinet trading via open out-cry. Split-price 
priority is available for open out-cry trading on both CBOE and 
PHLX, with no restriction for cabinet trades.
    \6\ See Securities Exchange Act Release No. 68128 (November 1, 
2012), 77 FR 68186 (November 15, 2012) [sic] (SR-NYSEMKT-2012-55). 
See also NYSE MKT Rule 968NY.
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    Accordingly, the Exchange therefore proposes to delete the language 
from Rule 6.80(3) that states that the split-price priority provisions 
of 6.75(h) shall not apply. The Exchange believes that providing market 
participants the ability to have split-price priority when trading 
cabinet orders in open outcry will help facilitate the trading of 
options positions that are worthless or not actively traded. The 
Exchange believes that the proposal should lead to more aggressive 
quoting by trading crowd participants on the floor, which in turn could 
lead to better executions. A trading crowd participant might be willing 
to trade at a better price for a portion of an order if they were 
assured of trading with the balance of the order at the next price 
increment. As a result, Floor Brokers representing orders in the 
trading crowd might receive better-priced executions. The Exchange 
notes that cabinet trades are infrequent in nature and that, even 
though the Exchange Rules provide that cabinet trades may be traded 
electronically, the Exchange has not designated any options issues to 
trade electronically pursuant to Rule 6.80, because market participants 
have never requested to do so. Thus, the fact that split-price priority 
is available for manual and not electronic, will have no impact on 
ongoing electronic cabinet trading.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\7\ in general, and furthers the objectives of Section 6(b)(5) 
of the Act,\8\ in particular, in that it is designed to promote just 
and equitable principles of trade, remove impediments to and perfect 
the mechanisms 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that allowing for the split-pricing priority 
provisions to apply to open outcry trading of cabinet trades will 
better facilitate the trading of options contracts that are worthless 
or not actively traded. The proposed change is designed to promote just 
and equitable principles of trade, remove impediments to and perfect 
the mechanisms of a free and open market and a national market system, 
by aligning the Exchange's Rules with the rules on other options 
exchanges that conduct manual cabinet trading.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

Self-Regulatory Organization's Statement on Comment 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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of 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.
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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.

[[Page 74249]]

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 [email protected]. Please include 
File Number SR-NYSEARCA-2012-136 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEARCA-2012-136. 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 NYSE Arca. 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-2012-136 and should 
be submitted on or before January 3, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30047 Filed 12-12-12; 8:45 am]
BILLING CODE 8011-01-P