[Federal Register Volume 79, Number 18 (Tuesday, January 28, 2014)]
[Notices]
[Pages 4517-4519]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-01512]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71367; File No. SR-NYSEArca-2014-03]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca 
Equities Rule 7.31(b)(2) To Specify That the Exchange Would Not Apply 
Limit Order Price Protection To Limit Orders Entered Before Core 
Trading Hours That Are Designated for the Core Trading Session or the 
Market Order Auction

January 22, 2014.
    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 January 9, 2014, 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 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 NYSE Arca Equities Rule 7.31(b)(2) 
to specify that the Exchange would not apply limit order price 
protection to limit orders entered before Core Trading Hours that are 
designated for the Core Trading Session or the Market Order Auction. 
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, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend NYSE Arca Equities Rule 
7.31(b)(2) to specify that the Exchange would not apply limit order 
price protection to limit orders entered before Core Trading Hours that 
are designated for the Core Trading Session or the Market Order 
Auction. The Exchange also proposes to add a descriptive heading of 
``Limit Order Price Protection'' to Rule 7.31(b)(2).
    Pursuant to Rule 7.31(b)(2), a limit order will be rejected if it 
is priced a specified percentage away from the contra-side national 
best bid (``NBB'') or national best offer (``NBO''), i.e., a limit 
order price protection. The specified percentage is equal to the 
corresponding ``numerical guideline'' percentage set forth in paragraph 
(c)(1) of Rule 7.10 (Clearly Erroneous Executions) for the Core Trading 
Session. As set forth in Rule 7.34, the Exchange operates three 
sessions: The Opening Session, the Core Trading Session, and the Late 
Trading Session. The limit order price protection features set forth in 
Rule 7.31(b)(2) are currently applicable to limit orders entered during 
all three sessions.
    During the Opening Session, the Exchange accepts limit orders that 
are designated for the Core Trading Session. Limit orders designated 
for the Core Trading Session are not eligible to participate in the 
Opening Session, but are eligible to participate in the Market

[[Page 4518]]

Order Auction.\4\ The Exchange also accepts Auction-only Limit Orders 
during the Opening Session, and these limit orders are similarly not 
eligible for execution during the Opening Session, but are eligible to 
participate in the Market Order Auction.
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    \4\ See NYSE Arca Equities Rule 7.34(d)(1)(G)(ii).
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    Currently, limit orders entered during the Opening Session that are 
designated for the Core Trading Session or the Market Order Auction are 
evaluated upon arrival of whether they are priced a specified 
percentage away of the then-applicable NBB or NBO and rejected if 
priced outside such parameters. For example, if a limit order 
designated for the Core Trading Session is entered at 7:30 a.m. 
Eastern, which is two hours before the Core Trading Session begins, it 
will be evaluated based on the NBB or NBO at 7:30 a.m. Eastern of 
whether it should be rejected, even though it would not be eligible to 
execute at that time.
    The Exchange does not believe that the original purpose of the 
price protection feature, which is to reject orders that are priced so 
far away from the prevailing quote in the market that they could cause 
significant price dislocation,\5\ is served by rejecting an order that 
is not eligible to execute at the time of arrival. Specifically, the 
Exchange does not believe that rejecting limit orders designated for 
the Core Trading Session or Market Order Auction based on the then-
applicable NBB or NBO would prevent significant price dislocation 
because such orders would not have been eligible to execute at that NBB 
or NBO. Rather, the NBB or NBO could have moved by the time such orders 
are eligible to execute, and therefore rejecting such orders before 
they are eligible to execute would have denied such orders the 
opportunity to execute.
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    \5\ See Securities Exchange Act Release No. 64847 (July 12, 
2011), 76 FR 41844 (July 15, 2011) (SR-NYSEArca-2011-45). The limit 
order price protection feature also mitigates the potential for 
clearly erroneous executions to occur.
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    Instead, the Exchange believes that orders designated for the Core 
Trading Session or the Market Order Auction should be accepted by 
Exchange systems and not subject to the limit order price protection 
upon arrival so that such orders may populate the Exchange's book in 
advance of the Core Trading Session. In particular, the Exchange 
believes that allowing all eligible limit orders to participate in the 
Market Order Auction would promote the objective of price discovery by 
ensuring that all interest intended for such Auction, regardless of the 
NBB or NBO at time of arrival, would be eligible to be considered for 
the Auction. Accordingly, the Exchange proposes to amend Rule 
7.31(b)(2) to specify that that the Exchange would not apply limit 
order price protection to limit orders entered before Core Trading 
Hours that are designated for the Core Trading Session or the Market 
Order Auction.
    The Exchange will announce by Trader Update the implementation date 
of the proposed change.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Securities Exchange Act of 1934 (the ``Act''),\6\ which requires 
the rules of an exchange to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanism of a free and 
open market and a national market system and, in general, to protect 
investors and the public interest. The Exchange believes that the 
proposed rule removes impediments to and perfects the mechanism of a 
free and open market and a national market system because it would 
assure that all interest that is designated to participate in the Core 
Trading Session or the Market Order Auction and that is entered during 
the Opening Session would be eligible to participate and would not be 
rejected based on an NBB or NBO that is in effect upon arrival. The 
Exchange further believes that the proposal will protect investors and 
the public interest because there will be additional liquidity 
available for either the Core Trading Session or Market Order Auction, 
thereby expanding the opportunities for executions.
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    \6\ 15 U.S.C. 78f(b)(5).
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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 does not 
believe that the proposal raises any competitive issues because it 
simply assures that interest that is entered before Core Trading Hours 
and that is designated for the Core Trading Session or the Market Order 
Auction, and thus are [sic] not eligible to execute in the Opening 
Session, would not be rejected based on an NBB or NBO at the time of 
arrival.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) 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, the proposed rule change 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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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). 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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    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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) of the Act \11\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \11\ 15 U.S.C. 78s(b)(2)(B).
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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

[[Page 4519]]

     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2014-03 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-2014-03. 
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 the 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 Number SR-
NYSEArca-2014-03 and should be submitted on or before February 18, 
2014.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01512 Filed 1-27-14; 8:45 am]
BILLING CODE 8011-01-P