[Federal Register Volume 78, Number 224 (Wednesday, November 20, 2013)]
[Notices]
[Pages 69734-69737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27761]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70881; File No. SR-NSX-2013-20]
Self-Regulatory Organizations; National Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending Exchange Rule 11.11 Regarding the Entry and Execution of Zero
Display Reserve Orders Marked ``Sell Short''
November 14, 2013.
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 4, 2013, National Stock Exchange, Inc.
(``NSX[supreg]'' or the ``Exchange'') 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 substantially
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 the
Substance of the Proposed Rule Change
The Exchange has filed the proposed rule change to amend
subparagraph (c)(2)(E) of Rule 11.11 (Orders and Modifiers) regarding
the manner in which the Exchange's Trading System (the ``System'') \3\
handles Zero Display Reserve Orders \4\ marked ``sell short'' entered
by Exchange Users \5\ in a security that is the subject of a short sale
price test restriction under Rule 201 of Regulation SHO \6\ pursuant to
the Act. The proposed amendment removes a requirement that the System
will reject all Zero Display Reserve Orders marked
[[Page 69735]]
``sell short'' entered by Users \7\ and describes the System
functionality for handling sell short Zero Display Reserve Orders
during a short sale price test restriction.
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\3\ NSX Rule 1.5 defines the term ``System'' to mean the
electronic securities communications and trading facility designated
by the Board through which orders of Users are consolidated for
ranking and execution.
\4\ Under Exchange Rule 11.11(c)(2), a Reserve Order is defined
as a limit order with a portion of the quantity displayed (``display
quantity'') and with a reserve portion of the quantity that is not
displayed. Rule 11.11(c)(2)(A) provides, in relevant part, that a
Reserve Order can be entered with a displayed quantity of zero, in
which case the Reserve Order will be known as a ``Zero Display
Reserve Order.''
\5\ NSX Rule 1.5 defines the term ``User'' to mean any ETP
Holder or Sponsored Participant who is authorized to obtain access
to the System pursuant to Rule 11.9 (Access).
\6\ 17 CFR 242.201. See Securities Exchange Act Release No.
61595 (February 26, 2010), 75 FR 11232 (March 10, 2010) and
Securities Exchange Act Release No. 63247 (Nov. 4, 2010), 75 FR
68702 (Nov. 9, 2010).
\7\ On June 27, 2013, the Exchange filed with the Commission,
for immediate effectiveness, an amendment to Rule 11.11 to add
subparagraph (c)(2)(E) and the Exchange implemented a System block
to automatically reject all sell short Zero display Reserve Orders.
The amendment to add subparagraph (c)(2)(E) to Rule 11.11, and the
accompanying technology change, address a System limitation that
could allow a sell short Zero Display Reserve Order to be executed
at or below the national best bid during the period that the
security is subject to the short sale price test restriction under
Rule 201 of regulation SHO. See Exchange Act Release No. 34-69874
(June 27, 2013); 78 FR 40248 (July 3, 2013); SR-NSX-2013-13.
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The text of the proposed rule change is available on the Exchange's
Web site at www.nsx.com, at the Exchange's principal office, 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 statutory 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
Rule 201(b)(1)(i) of Regulation SHO requires trading centers,\8\
including the Exchange, to establish, maintain and enforce written
policies and procedures reasonably designed to prevent the execution or
display of a short sale order of a covered security \9\ at a price that
is less than or equal to the current national best bid if the price of
that covered security decreases by 10% or more from such security's
closing price on the listing market at the close of regular trading
hours on the prior day. Rule 201(b)(1)(ii) of Regulation SHO requires
trading centers to establish, maintain and enforce written policies and
procedures reasonably designed to impose the short sale price test
restriction for the remainder of the trading day and the following day,
when a national best bid for the security is calculated and
disseminated on a current and continuing basis by a plan processor
pursuant to an effective national market system plan. Rule
201(b)(1)(iii)(A) further requires that a trading center's written
policies and procedures must be reasonably designed to permit the
execution of a displayed short sale order of a covered security if, at
the time of initial display of the short sale order, the order was at a
price above the current national best bid.\10\
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\8\ For purposes of Regulation SHO, the term ``trading center''
has the same meaning as in Rule 600(b)(78) of Regulation NMS, which
defines a ``trading center'' as ``. . . a national securities
exchange or national securities association that operates an SRO
trading facility, an alternative trading system, an exchange market
maker, an OTC market maker, or any other broker or dealer that
executes orders internally by trading as principal or crossing
orders as agent.'' 17 CFR 242.201(a)(9).
\9\ Rule 201(a)(1) defines a ``covered security'' as any NMS
stock as defined in Rule 600(b)(47) of Regulation NMS under the Act.
17 CFR 242.201(a)(1).
\10\ Rule 201(b)(1)(iii)(B) further provides that a trading
center's written policies and procedures must be reasonably designed
to permit the execution or display of a short sale order of a
covered security marked ``short exempt'' without regard to whether
the order is at a price that is less than or equal to the current
national best bid. This provision of Rule 201 is not relevant here.
17 CFR 242.201(b)(1)(iii)(B).
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The Exchange amended Rule 11.11 to add subparagraph (c)(2)(E) to
comply with the requirement of Rule 201(b)(1) that it establish,
maintain and enforce written policies and procedures reasonably
designed to prevent the execution or display of a short sale order of a
covered security at a price that is less than or equal to the current
national best bid during the short sale price test restriction.
Subparagraph (c)(2)(E) and accompanying changes to the System operate
to automatically prevent the entry of all sell short Zero Display
Reserve Orders and thereby prevent a subsequent execution of a sell
short Zero Display Reserve Order at a price equal to or below the
current national best bid during a short sale price test restriction in
the subject security. These changes were implemented as temporary
measures to address a System limitation that permitted the execution of
a sell short Zero Display Reserve Order during a short sale price test
restriction at a price equal to or below the current national best bid.
No order or part of an order designated by a User as a Zero Display
Reserve Order ever becomes displayed and, accordingly, a Zero Display
Reserve Order marked ``sell short'' does not qualify for the exception
under Rule 201(b)(1)(iii)(A) that would permit its execution at a price
equal to or below the current national best bid if, at the time of
initial display of the short sale order, the order was at a price above
the current national best bid.
The Exchange has completed the development of new System
functionality that will ensure that a sell short Zero Display Reserve
Order will not be executed at a price at or below the current national
best bid during the short sale price test restriction.\11\ The Exchange
proposes to amend subparagraph (c)(2)(E) of Rule 11.11 to describe the
manner in which the System will handle sell short Zero Display Reserve
Orders during the period in which the short sale price test restriction
of Rule 201 of Regulation SHO is in effect with respect to a security
traded on the Exchange. Proposed new subparagraph (c)(2)(E)(i) provides
that a Zero Display Reserve Order, other than a Market Peg Zero Display
Reserve Order (one of three types of ``pegging'' instructions that can
be added to a Zero Display Reserve Order, the others being a Midpoint
Peg and a Primary Peg),\12\ entered by a User in such security and
marked ``sell short'' will be matched for execution at a price above
the current national best bid to the extent possible and any remaining
unexecuted portion will be canceled by the System if at a price at or
below the current national best bid.
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\11\ The new System functionality was not released into
production pending the filing of the proposed rule amendment to
eliminate the requirement of Rule 11.11(c)(2)(E) that the System
automatically block the entry of all sell short Zero Display Reserve
Orders.
\12\ Under Exchange Rule 11.11(c)(2)(A), a Zero Display Reserve
Order may be set or ``pegged'' to: Track the buy side of the
Protected Best Bid or Offer (``PBBO''), which is defined in Exchange
Rule 1.5 as the better of the protected national best bid or offer
(``NBBO'') or the displayed Top of Book on the NSX; or the sell side
of the PBBO, or the midpoint of the PBBO. A pegged Zero Display
Reserve Order which tracks the inside quote on the opposite side of
the market is defined as a Market Peg; a pegged Zero Display Reserve
Order that tracks the midpoint is defined as a Midpoint Peg; and a
pegged Zero Display Reserve Order that tracks the inside quote of
the same side of the market is called a Primary Peg.
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A sell short Market Peg Zero Display Reserve Order tracks the
Protected Best Bid, which is the better of the national best bid or the
best bid on the NSX Book.\13\ If executed at a price equal to or below
the current national best bid during the short sale price test
restriction, such an execution would violate Rule 201 of Regulation SHO
which requires an execution to occur at
[[Page 69736]]
a price above the current national best bid. Proposed subparagraph
(c)(2)(E)(ii) states that a Market Peg Zero Display Reserve Order
marked ``sell short'' entered in a security for which the short sale
price test restriction is in effect will be rejected by the System. The
Exchange has determined that it will not accept new sell short Market
Peg Zero Display Reserve Orders in a security for which the short sale
price test restriction of Rule 201 of Regulation SHO is in effect.
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\13\ Exchange Rule 1.5 defines the term ``Protected NBBO'' as
``. . . the national best bid or offer that is a protected
quotation.'' The term ``Protected BBO'' is defined as ``the better
of . . . [t]he Protected NBBO or . . . [t]he Displayed Top of
Book.'' Thus, the Protected Best Bid to which a sell short Market
Peg Zero Display Reserve Order tracks is the current protected
national best bid or the best-ranked buy order on the NSX Book.
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Proposed subparagraph (c)(2)(E)(iii) explains that a sell short
Market Peg Zero Display Reserve Order resting on the NSX Book tracks
the Protected Best Bid and, if matched for execution during a short
sale price test restriction in that security, it will be executed only
to the extent that the Protected Best Bid is above the current national
best bid and the sell short order can be executed, in whole or in part,
at a price above the current national best bid in compliance with Rule
201 of Regulation SHO. Any such order or portion of such order will be
canceled by the System if at a price at or below the current national
best bid.
Accordingly, upon this proposed rule amendment becoming effective,
the Exchange will discontinue the automatic block to the entry of all
Zero Display Reserve Orders marked ``sell short'' and release the
System modifications that will enforce the Exchange's written policies
and procedures regarding the handling of sell short Zero Display
Reserve Orders during the short sale price test restriction.
2. Statutory Basis
The Exchange believes that the proposed amendment to Rule
11.11(c)(2)(E) to eliminate the requirement that the System will reject
the entry of Zero Display Reserve Orders marked ``sell short,'' thereby
allowing the removal of the automated block preventing the entry of
such orders, and describe the manner in which the System will process
sell short Zero Display Reserve Orders, is consistent with the
provisions of Section 6(b) \14\ of the Act, with Section 6(b)(5) \15\
thereunder, and with Rule 201.
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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 submits that these amendments further the purposes of
Section 6(b)(5) of the Act in that they promote just and equitable
principles of trade and operate to remove impediments to and perfect
the mechanism of a free and open market and national market system. As
a trading center, the Exchange is required by Rule 201 to establish,
maintain and enforce written policies and procedures reasonably
designed to prevent the execution or display of a short sale order of a
covered security at a price that is less than or equal to the current
national best bid if the price of that covered security decreases by
10% or more from the covered security's closing price as determined by
the listing market for the covered security as of the end of regular
trading hours on the prior day; and to impose this requirement for the
remainder of the day and the following day when a national best bid for
the covered security is calculated and disseminated on a current and
continuing basis by a plan processor pursuant to an effective national
market system plan.
The Exchange submits that the permanent modifications it will make
to the System upon this filing becoming effective will provide that,
during a short sale price test restriction, sell short Zero Display
Reserve Orders will be accepted and executed only to the extent that
such orders can be executed at a price above the current national best
bid, and will be rejected by the System if at a price at or below the
current national best bid. The Exchange, however, has determined to
reject any new Market Peg Zero Display Reserve Orders marked ``sell
short'' entered in a security for which the short sale price test
restriction is in effect.
The Exchange's proposal further provides that any sell short Zero
Display Reserve Orders resting on the NSX Book, if matched for
execution at a price at or below the current national best bid during
the short sale price test restriction in that security, will only
execute in whole or in part to the extent possible at a price or prices
above the current national best bid and any remaining unexecuted
portion will be canceled by the System if at a price at or below the
current national best bid. The proposed amendment specifically states
that, with respect to a sell short Market Peg Zero Display Reserve
Order resting on the NSX Book, which tracks to the Protected Best Bid,
such an order or portion of an order will be executed during a short
sale price test restriction only to the extent that the Protected Best
Bid is above the current national best bid and the sell short order can
be fully or partially executed at a price above the current national
best bid in compliance with Rule 201 of Regulation SHO.
The Exchange believes that this System functionality will assure
that sell short Zero Display Reserve Orders, which are not displayed,
will only be executed at a price above the current national best bid.
The Exchange submits that the proposed amendment and the new System
functionality are consistent with its obligations as a trading center
pursuant to Rule 201 and that, in this regard, the proposed rule
amendment will further the purposes of the Act and specifically Rule
201.
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
for the furtherance of the Act. The proposed amendment will remove a
System block to the entry of all Zero Display Reserve Orders marked
``sell short.'' The implementation of the automatic block was
necessitated by a limitation in the System that did allow the execution
of a sell short Zero Display Reserve Order in a covered security at a
price at or below the current national best bid during the short sale
price test restriction. This System limitation was not consistent with
the Exchange's obligations as a trading center to establish, maintain
and enforce written policies and procedures reasonably designed to
prevent the execution of a short sale order of a covered security at a
price that is less than or equal to the current national best bid
during the short sale price restriction.
By determining to automatically block the entry of all sell short
Zero Display Reserve Orders until permanent modifications to the System
could be made, the Exchange was limiting the use of an approved order
type to fulfill its obligations as a trading center under Rule 201 of
Regulation SHO.
In its proposal to amend subparagraph (c)(2)(E) of Rule 11.11 to
permit the removal of the automatic block, the Exchange submits that it
is restoring the ability of Users to fully use the Zero Display Reserve
Order, including entering such orders marked ``sell short.'' Moreover,
the Exchange's proposed amendment to subparagraph (c)(2)(E) to describe
the new System functionality with respect to sell short Zero Display
Reserve Orders provides transparency to Users, their customers and the
investing public as to how these orders will be processed by the
System. The Exchange believes that these factors do not represent any
burden on competition that is not necessary or appropriate for purposes
of the Act and, in fact, can operate to enhance competition by
restoring full functionality to the use of Zero Display Reserve Orders.
[[Page 69737]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \16\ and Rule 19b-4(f)(6) thereunder \17\
to be immediately effective because the proposed rule change (i) does
not significantly affect the protection of investors or the public
interest; (ii) does not impose any significant burden on competition;
and (iii) does not become operative prior to 30 days from the date on
which it was filed, or such shorter time as the Commission may
designate, if consistent with the protection of investors and the
public interest; provided that the self-regulatory organization has
given the Commission written notice of its intent to file the proposed
rule change at least five business days prior to the filing date of the
proposed rule change.\18\
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\16\ 15 U.S.C. 78s(b)(3)(A)(iii).
\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days from the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange requests
that the Commission waive the 30-day operative delay so that the
proposed rule change may become effective and operative upon filing
with the Commission pursuant to Section 19(b)(3)(A)(iii) of the Act and
Rule 19b-4(f)(6) thereunder.
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\19\ Id.
\20\ 17 CFR 240.19b-4(f)(6)(iii).
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In support of its request, the Exchange has stated that, as a
trading center, it is required under Regulation SHO to establish,
maintain and enforce written policies and procedures reasonably
designed to prevent the execution or display of sell short orders of
covered securities at prices at or below the current national best bid
if the short sale price restriction is in effect for the covered
security. A waiver of the 30-day operative delay period will enable the
Exchange to immediately deploy the System changes to ensure that a sell
short Zero Display Reserve Order will be not be executed at a price at
or below the current national best bid during the short sale price test
restriction. The Exchange submits that, under these circumstances, the
waiver of the 30-day operative delay is consistent with the protection
of investors and the public interest.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the Exchange, as a trading center, to comply with its
requirements under Rule 201 of Regulation SHO. For this reason, the
Commission waives the 30-day operative delay and designates the
proposal effective upon filing.\21\
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\21\ For purposes of only 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 Act.
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-NSX-2013-20 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 No. SR-NSX-2013-20. This file
number should be included in the subject line if email is used. To help
the Commission process and review 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 a.m. and 3
p.m. Copies of such filings will also 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 number SR-NSX-2013-20 and should be submitted on
or before December 11, 2013.
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\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to the delegated authority.\22\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27761 Filed 11-19-13; 8:45 am]
BILLING CODE 8011-01-P