[Federal Register Volume 78, Number 233 (Wednesday, December 4, 2013)]
[Notices]
[Pages 72968-72971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28973]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70956; File No. SR-NYSE-2013-71]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Amending NYSE Rules 13, 70.25, 
107C and 1000 To Adopt a New Order Type Called a Midpoint Passive 
Liquidity Order

November 27, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on November 18, 2013, New York Stock Exchange LLC (``NYSE'' 
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 prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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: (1) NYSE Rule 13 to adopt a new 
order type called a Midpoint Passive Liquidity (``MPL'') Order; (2) 
NYSE Rule 1000 to specify that MPL Orders may interact with Capital 
Commitment Schedule (``CCS'') interest; (3) NYSE Rule 70.25 to permit 
d-Quotes to be designated with a midpoint modifier in order to set the 
discretionary price to the midpoint of the PBBO; and (4) NYSE Rule 107C 
to incorporate the new MPL Order into the Retail Liquidity Program.
    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, on 
the Commission's Web site at www.sec.gov, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend: (1) NYSE Rule 13 to adopt a new 
order type called an MPL Order; (2) NYSE Rule 1000 to specify that MPL 
Orders may interact with CCS interest; (3) NYSE Rule 70.25 to permit d-
Quotes to be designated with a midpoint modifier in order to set the 
discretionary price to the midpoint of the PBBO; and (4) NYSE Rule 107C 
to incorporate the new MPL Order into the Retail Liquidity Program.
Proposed MPL Order
    As proposed, an MPL Order would be defined as an undisplayed limit 
order that would automatically execute at the mid-point of the 
protected best bid (``PBB'') and the protective best offer (``PBO'') 
(collectively, ``PBBO''). An MPL Order would interact with any incoming 
order, including another MPL Order, and could execute at prices out to 
four decimal places. Such an order would not be eligible to trade if it 
would trade at a price below $1.00 or if the execution price would be 
out to five decimal places above $1.00. An MPL Order could not be 
designated as Good Till Cancelled (``GTC''). An MPL Order

[[Page 72969]]

would not execute if the market was locked or crossed. When the market 
unlocked or uncrossed, the Exchange would execute all eligible MPL 
Orders and other hidden interest eligible to execute at the midpoint of 
the PBBO.\4\ MPL Orders would be allocated consistent with Rule 72. An 
MPL Order's time priority would be based on its time of entry into 
Exchange systems and would not reset when an MPL Order's price shifted 
due to changes in the PBBO. For example, consider an MPL Order to buy 
entered when the PBBO was $10.01 by $10.05 and therefore was eligible 
to trade at $10.03. The MPL Order's time priority would be based on 
when the order was originally entered, even if the PBBO shifted to 
$10.03 by $10.05 and the MPL Order was eligible to trade at $10.04.
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    \4\ The other hidden interest at the Exchange eligible to 
execute at the midpoint after the market unlocked or uncrossed would 
be Non-Displayed Reserve Orders pursuant to Rule 13 and Floor-broker 
interest without a published quantity pursuant to Rules 70(e) and 
(f)(i). Such interest would execute only if the midpoint of the PBBO 
was in whole pennies. An MPL Order designated with an Add Liquidity 
Only (``ALO'') Modifier, as described below, would not participate 
in the execution when the market unlocked or uncrossed.
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    An MPL Order could include a Minimum Triggering Volume (``MTV'') 
and would not be eligible to trade unless the aggregated contra-side 
quantity of all interest marketable at the midpoint of the PBBO was 
equal to or greater than the MPL Order's MTV. There would not be a 
guaranteed trade size based on the MTV. Exchange systems would enforce 
an MTV restriction even if the unexecuted portion of an MPL Order with 
an MTV was less than the MTV.\5\ An MPL Order that included an MTV 
would be rejected if it also included a Self Trade Prevention (``STP'') 
Modifier.
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    \5\ For example, if an MPL Order to buy for 1,000 shares with an 
MTV of 500 shares received a partial execution of 800 shares, 
Exchange systems would enforce the MTV of 500 shares on a subsequent 
execution even though the leaves quantity of the MPL Order (200 
shares) is less than the MTV.
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    As proposed, STP Modifiers could be used with MPL Orders; however, 
whether an MPL Order with an STP Modifier would be cancelled would 
depend on what type of order was on the contra-side. Consistent with 
Rule 13 governing STP Modifiers, an MPL Order with an STP Modifier 
would not execute against either another MPL Order or a non-MPL Order 
with an STP Modifier with the same market participant identifier 
(``MPID''). The Exchange would follow the rules set forth for 
cancelling an MPL Order (i.e., whether the incoming or resting MPL 
Order gets cancelled) if the contra-side order with the same MPID was 
another MPL Order. However, the Exchange would not cancel an MPL Order 
with an STP Modifier when the contra-side order with the same MPID was 
a non-MPL Order. Instead, if an MPL Order with an STP Modifier and a 
non-MPL Order with an STP Modifier with the same MPID would participate 
in the same trade, the MPL Order would not participate in the execution 
and would be maintained in Exchange systems.
    Further, as proposed, Users could designate an MPL Order with an 
ALO Modifier (``MPL-ALO Order''). An MPL-ALO Order would not execute on 
arrival, even if marketable, but would remain non-displayed in the NYSE 
book until triggered to trade by arriving marketable interest; however, 
an incoming non-marketable MPL-ALO Order could trigger a discretionary 
trade.\6\ An MPL-ALO Order would be only eligible to trade against 
incoming contra-side interest, and would ignore contra-side interest 
resting in the NYSE book. A resting MPL-ALO Order would not be eligible 
to trade when arriving, same-side interest triggered a trade with 
contra-side interest. An MPL-ALO Order must be at least one round lot.
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    \6\ An MPL-ALO Order triggering a discretionary trade would be 
the ``liquidity provider,'' and the triggered discretionary order 
would be the ``liquidity taker.''
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    Because an MPL Order would not be eligible for manual executions, 
including openings, re-openings, or closing transactions, MPL Orders 
would not be available to be designated as Limit ``On-the-Open'' 
(``LOO'') or Limit ``At-the-Close'' (``LOC'') Orders. The Exchange 
believes it is appropriate to not permit such a combination because the 
midpoint concept is not compatible with single-priced transactions that 
occur during the openings, re-openings, or closing transactions. As 
fully undisplayed interest, MPL Orders would not be visible to the DMM 
on the Floor under any circumstances.
    As proposed, MPL Orders would be available for any participant at 
the Exchange, unless specifically noted otherwise. DMM interest entered 
via the CCS pursuant to Rule 1000 would not be permitted to be 
designated as MPL Orders. The CCS is a liquidity schedule setting forth 
various price points at which the DMM is willing to interact with 
incoming orders. The CCS informs the Display Book of the number of 
shares that the DMM is willing to trade at price points outside, at, 
and inside the Exchange Best Bid or Offer. CCS interest will either 
execute at the price at which the full size of the order can be 
satisfied (the ``completion price'') or at the next price that is one 
minimum price variation (``MPV'') or more higher (in the case of an 
order to sell) or lower (in the case of an order to buy). Therefore, 
because MPL Orders are priced at the midpoint of the PBBO and could be 
priced less than one MPV above or below the completion price, the 
Exchange believes it is appropriate that CCS interest cannot be 
designated as an MPL Order.
    While CCS interest cannot be designated as an MPL Order, CCS 
interest would be eligible to interact with MPL Orders at the midpoint 
of the PBBO, including sub-penny executions. Currently, CCS interest is 
eligible to trade inside the Exchange BBO when eligible to trade at the 
price of interest representing non-displayable reserve interest of 
Reserve Orders and Floor broker agency interest files reserve interest. 
The Exchange is proposing to expand this list by amending Rule 
1000(f)(1)(B) to include MPL Orders. Therefore, CCS interest would also 
be eligible to trade inside the Exchange BBO when eligible to trade at 
the price of interest representing MPL Orders.
    The Exchange proposes to specify that MPL Orders would not be 
available for d-Quotes. As described below, the Exchange proposes to 
amend Rule 70.25 to specify how a midpoint modifier would be made 
available for d-Quotes. MPL Orders would not be available for pegging 
interest. Pegging interest is set to track the PBB or the PBO as the 
PBBO changes. The offset value for pegging interest is the specified 
amount by which the price of the pegging interest differs from the 
price of the interest to which it pegs. MPL Orders, on the other hand, 
would always be priced at the midpoint of the PBBO. Thus, the Exchange 
believes that the MPL Order and pegging interest are incompatible and 
would not permit pegging interest to be designated as an MPL Order.
    Additionally, MPL Orders would not be available to be entered for 
high-priced securities. High-priced securities are securities with a 
closing price, or if the security did not trade, the closing bid price 
on the Exchange on the immediate previous trading day, of $10,000 or 
more.\7\ Such securities are not available for automatic execution. 
Because MPL Orders are not eligible for manual executions, MPL Orders 
would not be available for these high-priced securities.
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    \7\ See NYSE Rule 1000(a)(vi).
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    As further proposed, MPL Orders would not be available for Retail 
Orders or Retail Price Improvement Interest, as defined in Rule 107C. 
As noted below, MPL Orders could interact with incoming Retail Orders.

[[Page 72970]]

D-Quotes Designated With a Midpoint Modifier
    The Exchange proposes to make a midpoint modifier available for d-
Quotes. A d-Quote is an e-Quote with discretionary instructions, 
allowing Floor brokers to set a price range within which they are 
willing to initiate or participate in a trade. The discretion is used, 
as necessary, to initiate or participate in a trade with an incoming 
order capable of trading at a price within the discretionary range. As 
proposed, a d-Quote with a midpoint modifier would have a discretionary 
range up to the midpoint of the PBBO.\8\
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    \8\ For clarity, the Exchange notes that the MPL Order and the 
midpoint modifier are completely distinct functionality. An MPL 
Order would always be priced at the midpoint of the PBBO and would 
execute at such price. A d-Quote designated with a midpoint modifier 
would use its discretion to execute up to the midpoint but could 
execute at a less aggressive price. As such, a d-Quote with a 
midpoint modifier would operate as a d-Quote that updated with 
changes in the PBBO to set the discretionary price range to the 
midpoint of the PBBO.
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    For example, assume the PBBO is 10.01 x 10.04, and a Floor broker 
entered a sell d-Quote with a midpoint modifier and a floor price of 
10.02. Because the midpoint of the PBBO is 10.025, which is above the 
10.02 floor price, that d-Quote to sell would not execute at the 10.02 
floor price while the PBBO is 10.01 x 10.04. If a limit order to buy 
priced at 10.03 entered the market, the d-Quote would use one cent of 
its price discretion and initiate a trade at 10.03. Additionally, if 
the order to buy was an MPL Order, the d-Quote would use all of its 
price discretion and initiate a trade at 10.025. However, if the limit 
order to buy were priced at 10.02, the d-Quote would not exercise 
discretion since the price of the limit order was outside the 
discretionary range of the d-Quote, even though the floor price of the 
d-Quote is within the limit order's price.
    Assume the same facts as above, except the PBBO has shifted to 9.99 
x 10.03. Because the midpoint (10.01) is below the floor price, the d-
Quote with a midpoint modifier would be eligible to execute at its 
floor price. As a result, if an incoming limit order to buy were priced 
at 10.02, the d-Quote would be eligible to use its price discretion to 
initiate a trade at 10.02. However, if the limit order to buy were 
priced at 10.01, because the floor of the discretionary price range for 
the d-Quote is 10.02, the d-Quote would not initiate a trade with that 
buy order priced at 10.01.
    In order to accommodate the use of a midpoint modifier, the 
Exchange is proposing to amend Rule 70.25(b)(ii), which states that the 
minimum price range for a d-Quote is the minimum price variation set 
forth in Exchange Rule 62. Rule 62 sets the minimum price variation to 
$0.01 for stocks priced greater than $1.00. However, with the midpoint 
modifier, a d-Quote can have a minimum price variation of $0.005. 
Therefore, the Exchange is proposing to amend this restriction by 
excepting d-Quotes with a midpoint modifier.
Incorporation of MPL Orders Into Retail Liquidity Program
    As proposed, MPL Orders would be available to interact with Retail 
Orders within the Retail Liquidity Program (the ``Program''). The 
Program, which is a pilot program, is designed to attract retail order 
flow to the Exchange, and allows such order flow to receive potential 
price improvement. Under the Program, Retail Liquidity Providers 
(``RLPs'') are able to provide potential price improvement in the form 
of a non-displayed order that is priced better than the PBBO, called a 
Retail Price Improvement Order (``RPI''). Retail Member Organizations 
(``RMOs'') can submit a Retail Order to the Exchange, which interacts, 
to the extent possible, with available contra-side RPIs.
    Pursuant to Rule 107C(k), Retail Orders may be designated as Type 
1, Type 2, or Type 3. A Type 1 Retail Order interacts with available 
contra-side RPIs and does not interact with other available contra-side 
interest in Exchange systems or route to other markets. A Type 2 Retail 
Order interacts with available contra-side RPIs and any remaining 
portion of the Retail Order is executed as a Regulation NMS-compliant 
Immediate or Cancel Order pursuant to NYSE Rule 13. A Type 3 Retail 
Order interacts first with available contra-side RPIs and any remaining 
portion of the Retail Order is executed as an NYSE Immediate or Cancel 
Order pursuant to Rule 13.
    The Exchange proposes to amend Rules 107C(k) and (l) to permit all 
Retail Orders to interact with, in addition to available contra-side 
RPIs, available contra-side MPL Orders. When determining the price to 
execute a Retail Order, Exchange systems would consider all eligible 
RPIs and MPL Orders. If the only interest was MPL Orders, the Retail 
Order would execute at the midpoint of the PBBO. If the only interest 
was RPIs, then the execution would occur at the price level that 
completes the incoming order's execution. If both RPIs and MPL Orders 
were present, Exchange systems would evaluate at what price level the 
incoming Retail Order could be executed in full (``clean-up price''). 
If the clean-up price was equal to the midpoint of the PBBO, RPIs would 
receive priority over MPL Orders, and Retail Orders would execute 
against both RPIs and MPL Orders at the midpoint. If the clean-up price 
was worse than the midpoint of the PBBO, the Retail Order would execute 
first with the MPL Orders at the midpoint of the PBBO and any remaining 
quantity of the Retail Order would execute with the RPIs at the clean-
up price. If the clean-up price was better than the midpoint of the 
PBBO, then the Retail Order would execute against the RPIs at the 
clean-up price and would ignore the MPL Orders.
    The following example illustrates the incorporation of MPL Orders 
into the Program:

PBBO for security DEF is $10.00-10.01
RLP 1 enters a Retail Price Improvement Order to buy DEF at $10.006 for 
500.
RLP 2 enters a Retail Price Improvement Order to buy DEF at $10.005 for 
500.
MPL 1 enters an MPL Order to buy DEF at $10.01 for 1000.
RLP 3 enters a Retail Price Improvement Order to buy DEF at $10.002 for 
1000.

    An incoming Retail Order to sell DEF for 2,500 arrives. The clean-
up price is $10.002. Because the midpoint of the PBBO is priced better 
than the clean-up price, the Retail Order executes with MPL 1 for 1000 
shares at $10.005. The Retail Order then executes at $10.002 against 
RLP 1's bid for 500, because it is the best-priced bid, then against 
RLP 2's bid for 500 because it is the next best-priced bid and then RLP 
3 receives an execution for 500 of its bid for 1000, at which point the 
entire size of the Retail Order to sell 2,500 is depleted.
    Assume the same facts above. An incoming Retail Order to sell DEF 
for 1,000 arrives. The clean-up price is $10.005. Because the clean-up 
price is equal to the midpoint of the PBBO, RPIs will receive priority 
over MPL Orders. As a result, the Retail Order executes first against 
RLP 1's bid for 500, because it is the best-priced bid, then against 
RLP 2's bid for 500 because it is the next best-priced bid, at which 
point the entire size of the Retail Order to sell 1,000 is depleted.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \9\ of the 
Act, in general, and furthers the objectives of Section 6(b)(5),\10\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system and, in

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general, to protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposal is designed to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the introduction of the MPL Order on 
the Exchange will increase competition, not only between market 
participants, but also between exchanges offering similar 
functionality. The MPL Order will enable Members to enter an order that 
is not displayed publicly but is to be executed at the midpoint of the 
PBBO. The Exchange believes this order type will enhance order 
execution opportunities on the Exchange and help provide Members with 
flexibility in executing transactions that meet the specific 
requirements of the order type. MPL Orders will allow for additional 
opportunities for investors to interact with orders priced at the 
midpoint of the PBBO, thus providing price improving liquidity to 
investors. The MPL Order will offer market participants added 
functionality and additional trading opportunities similar to what is 
offered in other trading venues.
    Additionally, the Exchange believes that the MPL Order definition 
is clear and transparent, thus ensuring the conditions under which an 
MPL Order will be executed, accepted by Exchange systems, or rejected, 
and therefore is designed to promote just and equitable principles of 
trade.
    The Exchange believes the incorporation of the MPL Order into the 
Retail Liquidity Program will further the objectives of the Program and 
is therefore designed to protect investors and the public interest. The 
Program was designed to increase competition among execution venues, 
encourage additional liquidity, and offer the potential for price 
improvement to retail investors. By including MPL Orders as available 
contra-side interest for Retail Orders, the proposal creates additional 
incentives to attract retail order flow to the exchange environment and 
ensures that retail investors benefit from the better prices afforded 
by MPL Orders.

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 
proposed MPL Order will enhance order execution opportunities for 
member organizations. Further, the Exchange believes the MPL Order will 
enhance competition between the Exchange and other exchanges that 
currently offer similar order types by offering investors another 
option to access liquidity at the midpoint of the PBBO.
    Additionally, by incorporating MPL Orders into the Retail Liquidity 
Program, the proposal will promote competition for retail order flow 
among execution venues, and will benefit retail investors by creating 
additional price improvement opportunities for their order flow. 
Because the MPL Order is priced at the midpoint of the PBBO, any Retail 
Order that executes against the MPL Order will be receiving price 
improvement. As such, the proposal enhances the Program and its 
objectives by creating additional incentives to attract retail order 
flow to the exchange environment, while helping to ensure that retail 
investors benefit from the better prices that Members submitting MPL 
Orders are willing to provide.

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 up to 90 days (i) as the 
Commission may designate 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 No. SR-NYSE-2013-71 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-NYSE-2013-71. 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 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 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 No. SR-NYSE-2013-71 and should be 
submitted on or before December 26, 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. 2013-28973 Filed 12-3-13; 8:45 am]
BILLING CODE 8011-01-P