[Federal Register Volume 78, Number 219 (Wednesday, November 13, 2013)]
[Notices]
[Pages 68111-68113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27040]



[[Page 68111]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70816; File No. SR-NYSEMKT-2013-86]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Adopt 
Commentary .03 to Rule 980NY To Limit the Volume of Complex Orders by a 
Single ATP Holder During the Trading Day

November 6, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 28, 2013, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. On November 5, 2013, the 
Exchange filed Amendment No. 1 to the proposal.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1 thereto, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange proposed to delete the 
phrase ``at any given time'' located on page six of the Form 19b-4 
and in the last paragraph on page 14 of the Exhibit 1 to the Form 
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 is proposing to adopt as Commentary .03 to Rule 980NY, 
which was reserved, a Complex Order Table Cap, to limit the volume of 
complex orders by a single ATP Holder during the trading day. 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 the 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to adopt as Commentary .03 to Rule 980NY, 
which was reserved, a Complex Order Table Cap, to limit the volume of 
complex orders entered by a single ATP Holder during the trading day. 
The Exchange believes that the Complex Order Table Cap would help 
maintain a fair and orderly market because it is a system protection 
tool designed to assist the Exchange in preventing any single ATP 
Holder from utilizing more than a specified percentage of the complex 
order table during the trading day.
    Rule 980NY governs trading of ``Complex Orders'' \4\ on the NYSE 
MKT System (``Electronic Complex Orders''). Rule 980NY(c)(i) currently 
provides that Electronic Complex Orders accepted in the Exchange's 
Complex Matching Engine (``CME'') \5\ are executed automatically 
against other Electronic Complex Orders in the Consolidated Book,\6\ 
unless individual orders or quotes in the Consolidated Book can execute 
against incoming Electronic Complex Orders, subject to specified 
conditions, in which case such individual orders and quotes have 
priority. Rule 980NY(c)(ii) currently provides that Electronic Complex 
Orders in the CME that are not marketable against other Electronic 
Complex Orders automatically execute against individual quotes or 
orders in the Consolidated Book, provided that the Electronic Complex 
Orders can be executed in full or in a permissible ratio by the 
individual quotes or orders.
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    \4\ Rule 900.3NY(e) defines an Complex Order as ``any order 
involving the simultaneous purchase and/or sale of two or more 
different option series in the same underlying security, for the 
same account, in a ratio that is equal to or greater than one-to-
three (.333) and less than or equal to three-to-one (3.00) and for 
the purpose of executing a particular investment strategy.''
    \5\ Rule 980NY(a) defines the CME as ``the mechanism in which 
Electronic Complex Orders are executed against each other or against 
individual quotes and orders in the Consolidated Book.''
    \6\ Rule 900.2NY(14) defines the Consolidated Book as ``the 
Exchange's electronic book of limit orders for the accounts of 
Customers and broker-dealers, and Quotes with Size. All orders and 
Quotes with Size that are entered into the Book will be ranked and 
maintained in accordance with the rules of priority as provided in 
Rule 964NY.''
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    Rule 980NY(c)(iii) currently provides that ATP Holders have the 
ability to view the Electronic Complex Orders in the Consolidated Book 
via an electronic interface and may submit orders to the CME to trade 
against orders in the Consolidated Book.\7\ Current Rule 980NY does not 
impose any cap on the volume of Electronic Complex Orders entered by 
ATP Holders.
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    \7\ Under Rules 980NY(c)(i)-(iii), incoming orders or quotes, or 
those residing in the Consolidated Book, that execute against 
Electronic Complex Orders are allocated pursuant to Rule964NY.
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    The Exchange ranks and tracks Electronic Complex Orders in the 
Consolidated Book in a ``complex order table.'' The complex order table 
has sufficient capacity (i.e., the maximum allowable Electronic Complex 
Orders during the trading day) to accept all Complex Orders submitted 
by all ATP Holders under normal operating conditions. However, that 
capacity is not unlimited.\8\ Thus, if an ATP Holder were to experience 
a systems malfunction that led to the entry of an inordinate number of 
Electronic Complex Orders, the entire capacity of the complex order 
table could potentially be utilized solely by that one ATP Holder. If 
this were to happen, the Exchange would have to reject all subsequent 
Electronic Complex Orders--from all ATP Holders--exceeding the total 
capacity of the complex order table on that trading day. Under current 
Rule 980NY, there is no limitation to the number of Electronic Complex 
Orders that a single ATP Holder may submit, which, as explained above, 
could result in a single ATP Holder utilizing the entire capacity of 
the complex order table. Thus, the Exchange is proposing to adopt as 
Commentary .03 to Rule 980NY a cap to prevent an ATP Holder from 
utilizing more than a specified percentage of the complex order table 
during the trading day (the ``Complex Order Table Cap'' or ``Cap'').
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    \8\ The complex order table currently has the capacity to hold 
Electronic Complex Orders containing up to 16 million legs 
throughout the trading day.
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    Pursuant to proposed Commentary .03 to Rule 980NY, if an ATP Holder 
exceeds the Complex Order Table Cap by submitting orders that comprise 
more than ``n%'' of the capacity of the complex order table, the 
Exchange would reject that ATP Holder's Electronic Complex Orders for 
the remainder of the trading day. Prior to breaching the Complex Order 
Table Cap, the ATP Holder would receive a warning to signal a potential 
breach. Specifically, when an ATP Holder utilizes more than ``n%-x'' of 
the complex order table, the ATP Holder's Electronic Complex Orders 
would be rejected until such time that the ATP

[[Page 68112]]

Holder has notified the Exchange to re-enable the submission of 
Electronic Complex Orders.
    If, however, the Complex Order Table Cap is breached (i.e., the ATP 
Holder submits orders in excess of ``n%'' of the complex order table), 
all Electronic Complex Orders submitted by that ATP Holder would be 
rejected for the remainder of the trading day. The Exchange would not 
reject any Electronic Complex Orders until after an ATP Holder had 
breached either the warning threshold (i.e., ``n%-x'') or the Cap. 
Thus, for example, if an ATP Holder submits an Electronic Complex Order 
that, once accepted, breaches the Cap, the Exchange would accept that 
order in its entirety and then would reject all subsequent Electronic 
Complex Orders from that ATP Holder for the remainder of the trading 
day. Unless determined otherwise by the Exchange and announced to ATP 
Holders via Trader Update, the specified percentage (i.e., ``n% [sic]) 
would be no less than 60%, and ``n%-x'' would be no less than 40%.\9\
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    \9\ Trader Updates are disseminated electronically to all ATP 
Holders.
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    While the Exchange does not currently anticipate having to adjust 
the proposed Cap, the Exchange recognizes that under certain market 
conditions (e.g., extreme volatility) or in unforeseen circumstances 
(e.g., unusual influx of market participants) the specified percentages 
prescribed by the Exchange may be overly restrictive at times and there 
could be situations where the Exchange may need to temporarily reduce 
the percentages applicable to the Cap to accommodate these situations. 
Thus, the Exchange proposes that in the interest of a fair and orderly 
market, the applicable percentages may be temporarily modified by a 
Trading Official to a percentage lower than prescribed. The Trading 
Officials are presently authorized to make similar determinations 
regarding such matters as position limits \10\ and quote-width 
differentials.\11\ Permitting a Trading Official to temporarily modify 
the percentages applicable to the Cap is consistent with their ability 
to recommend and enforce rules and regulations relating to trading, 
access, order, decorum, health, safety and welfare on the Exchange 
which contributes to the Exchange's obligation to maintain a fair and 
orderly market. If a Trading Official were to temporarily modify the 
percentages applicable to the Cap, the Exchange would contemporaneously 
announce the new settings to all ATP Holders via Trader Update. 
Temporary modifications to the percentages applicable to the Cap would 
be completed at the Exchange level. ATP Holders will not have to make 
any adjustments to proprietary systems to accommodate such 
modifications.
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    \10\ See Exchange Rule 904.05.
    \11\ See Exchange Rules 925NY(b)(5) and 925NY(c).
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    At present, the Exchange estimates that, on average, during the 
trading day, the volume of orders populating the complex order table 
from all ATP Holders combined is less than 40%. Because under normal 
operating conditions all ATP Holders combined utilize less than 40% of 
the complex order table, the Exchange believes that setting the Cap for 
a single ATP Holder at 60% would ensure that 40% of the complex order 
table--which is typically sufficient to accommodate all ATP Holder's 
orders--would remain accessible to the balance of ATP Holders and would 
not unfairly deny these ATP Holders access to the market. Moreover, the 
Exchange believes that a single ATP Holder would only exceed the Cap 
(or receive a warning of a near breach) in the event of a bona fide 
problem (e.g., a system error or malfeasance).
    The Exchange believes that the Complex Order Table Cap would 
improve the efficiency of the Electronic Complex Order process and help 
maintain a fair and orderly market because it is designed as a system 
protection tool that will enable the Exchange to prevent any single ATP 
Holder from utilizing more than a specified percentage of the complex 
order table during the trading day.

Implementation

    The Exchange will announce the implementation date of the proposed 
rule change by Trader Update to be published no later than 60 days 
following approval. The implementation date will be no later than 60 
days following the issuance of the Trader Update.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5),\13\ in particular, in that it is designed to promote just and 
equitable principles of trade, to remove impediments to, and perfect 
the mechanism of a free and open market and, in general, to protect 
investors and the public interest. The Exchange believes that providing 
the Complex Order Table Cap removes impediments to, and perfects the 
mechanism of a free and open market because it would provide the 
Exchange with a system protection tool designed to assist in addressing 
the risk that a single ATP Holder could--either intentionally or 
inadvertently and erroneously--utilize the entire complex order table, 
effectively shutting out from the market for the remainder of the 
trading day all other ATP Holders' Electronic Complex Orders. By 
rejecting an ATP Holder's Electronic Complex Orders when that ATP 
Holder's orders encroach upon or exceed the Cap, the Exchange would 
ensure that the complex order table could fairly accommodate Electronic 
Complex Orders from all ATP Holders. The Cap would provide the 
ancillary benefit of reducing the risk that options orders submitted in 
error or otherwise by a single ATP Holder could clog the complex order 
table, potentially foreclosing the execution of valid orders. Thus, the 
Exchange believes that the Complex Order Table Cap would protect 
investors and the public interests because the Cap would ensure the 
optimal functioning of the complex order table by disabling the 
submission of Electronic Complex Orders of a single ATP Holder that has 
exceeded the Cap, thereby allowing the Exchange to accommodate 
Electronic Complex Orders from all other ATP Holders.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    In addition, the Exchange believes that the implementation of the 
Cap would not unfairly deny any ATP Holder access to the market. Under 
normal operating conditions, the Electronic Complex Orders of all ATP 
Holders combined does not exceed 40% of the complex order table. 
Therefore, the Exchange believes that setting the Cap for a single ATP 
Holder at 60% would ensure that 40% of the complex order table--which 
is typically sufficient to accommodate all ATP Holder's orders--would 
remain accessible to the balance of ATP Holders and would not unfairly 
deny these ATP Holders access to the market. Moreover, the Exchange 
believes that a single ATP Holder would only exceed the Cap (or receive 
a warning of a near breach) in the event of a bono [sic] fide problem 
(e.g., a system error or malfeasance).

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. The Exchange believes the 
proposal will provide market participants with additional protection 
from erroneous executions. Thus, the Exchange does not

[[Page 68113]]

believe the proposal creates any significant impact on competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 [email protected]. Please include 
File Number SR-NYSEMKT-2013-86 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 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2013-86. 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 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 offices 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-2013-86, and should be submitted 
on or before December 4, 2013.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-27040 Filed 11-12-13; 8:45 am]
BILLING CODE 8011-01-P