[Federal Register Volume 78, Number 219 (Wednesday, November 13, 2013)]
[Notices]
[Pages 68113-68115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27041]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70817; File No. SR-NYSEArca-2013-115]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To 
Adopt Commentary .03 to Rule 6.91 To Limit the Volume of Complex Orders 
by a Single OTP Holder or OTP Firm 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 Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') 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 second full 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 6.91, 
which was reserved, a Complex Order Table Cap, to limit the volume of 
complex orders by a single OTP Holder or OTP Firm 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 6.91, 
which was reserved, a Complex Order Table Cap, to limit the volume of 
complex orders entered by a single OTP Holder or OTP Firm 
(collectively, ``OTPs'') 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 OTP from utilizing more than a 
specified percentage of the complex order table during the trading day.
    Rule 6.91 governs trading of ``Complex Orders'' \4\ on the NYSE 
Arca

[[Page 68114]]

System (``Electronic Complex Orders''). Rule 6.91(a)(2)(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 6.91(a)(2)(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\ NYSE Arca Options Rule 6.62(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\ NYSE Arca Options Rule 6.91(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\ NYSE Arca Options Rule 6.1(b)(37) defines the Consolidated 
Book as ``the Exchange's electronic book of limit orders for the 
accounts of Public 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 6.76. There is no limit to the size of 
orders or quotes that may be entered into the Consolidated Book.''
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    Rule 6.91(a)(2)(iv) currently provides that OTPs 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 6.91 does not impose 
any cap on the volume of Electronic Complex Orders entered by OTPs.
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    \7\ Under Rules 6.91(a)(2)(i), (a)(2)(ii) and (a)(2)(iv), 
incoming orders or quotes, or those residing in the Consolidated 
Book, that execute against Electronic Complex Orders are allocated 
pursuant to Rule 6.76A.
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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 OTPs under normal operating conditions. However, that capacity 
is not unlimited.\8\ Thus, if an OTP 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 OTP. If this were to happen, 
the Exchange would have to reject all subsequent Electronic Complex 
Orders--from all OTPs--exceeding the total capacity of the complex 
order table on that trading day. Under current Rule 6.91, there is no 
limitation to the number of Electronic Complex Orders that a single OTP 
may submit, which, as explained above, could result in a single OTP 
utilizing the entire capacity of the complex order table. Thus, the 
Exchange is proposing to adopt as Commentary .03 to Rule 6.91 a cap to 
prevent an OTP 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 14 million legs 
throughout the trading day.
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    Pursuant to proposed Commentary .03 to Rule 6.91, if an OTP 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 OTP's Electronic Complex Orders for the remainder of 
the trading day. Prior to breaching the Complex Order Table Cap, the 
OTP would receive a warning to signal a potential breach. Specifically, 
when an OTP utilizes more than ``n%-x'' of the complex order table, the 
OTP's Electronic Complex Orders would be rejected until such time that 
the OTP 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 OTP submits orders in excess of ``n%'' of the 
complex order table), all Electronic Complex Orders submitted by that 
OTP would be rejected for the remainder of the trading day. The 
Exchange would not reject any Electronic Complex Orders until after an 
OTP had breached either the warning threshold (i.e., ``n%-x'') or the 
Cap. Thus, for example, if an OTP 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 OTP for the remainder of the trading day. 
Unless determined otherwise by the Exchange and announced to OTPs 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 OTP 
Holders and OTP Firms.
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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 OTPs via Trader Update. Temporary 
modifications to the percentages applicable to the Cap would be 
completed at the Exchange level. OTPs will not have to make any 
adjustments to proprietary systems to accommodate such modifications.
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    \10\ See Exchange Rule 6.8.04.
    \11\ See Exchange Rule 6.37.
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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 OTPs combined is less than 40%. Because under normal operating 
conditions all OTPs combined utilize less than 40% of the complex order 
table, the Exchange believes that setting the Cap for a single OTP at 
60% would ensure that 40% of the complex order table--which is 
typically sufficient to accommodate all OTP's orders--would remain 
accessible to the balance of OTPs and would not unfairly deny these 
OTPs access to the market. Moreover, the Exchange believes that a 
single OTP 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

[[Page 68115]]

Exchange to prevent any single OTP 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 OTP 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 OTPs' Electronic Complex Orders. By rejecting an OTP's Electronic 
Complex Orders when that OTP'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 OTPs. The Cap would 
provide the ancillary benefit of reducing the risk that options orders 
submitted in error or otherwise by a single OTP 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 OTP that has 
exceeded the Cap, thereby allowing the Exchange to accommodate 
Electronic Complex Orders from all other OTPs.
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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 OTP access to the market. Under normal 
operating conditions, the Electronic Complex Orders of all OTPs 
combined does not exceed 40% of the complex order table. Therefore, the 
Exchange believes that setting the Cap for a single OTP at 60% would 
ensure that 40% of the complex order table--which is typically 
sufficient to accommodate all OTP's orders--would remain accessible to 
the balance of OTPs and would not unfairly deny these OTPs access to 
the market. Moreover, the Exchange believes that a single OTP 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 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-NYSEArca-2013-115 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-NYSEArca-2013-115. 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-NYSEArca-2013-115, and should be 
submitted on or before December 4, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-27041 Filed 11-12-13; 8:45 am]
BILLING CODE 8011-01-P