[Federal Register Volume 79, Number 178 (Monday, September 15, 2014)]
[Notices]
[Pages 55038-55040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21872]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73026; File No. SR-NYSEArca-2014-97]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Rule 
6.60(b) To Enhance the Functionality of the Limit Order Filter

September 9, 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 August 28, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.60(b) to enhance the 
functionality of the Limit Order Filter. 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 Rule 6.60(b) to enhance the 
functionality of the Limit Order Filter in use on the Exchange. The 
Exchange's enhancement is designed to help maintain a fair and orderly 
market by providing limit orders received before the opening of trading 
the same protection those orders are afforded during Core Trading 
Hours.
    As set forth in proposed Rule 6.60(b), the Exchange currently 
employs a filter for incoming limit orders, pursuant to which the 
Exchange rejects limit orders priced a specified percentage away from 
the NBB or NBO. As the Exchange receives limit orders, the Exchange 
System will check the price of the limit order against the contra-side 
NBB or NBO at the time of order entry to determine whether the limit 
order is within the specified percentage.\4\ If the limit order is 
priced outside of the specified percentage, the limit order will be 
rejected. As this filter relies on an NBBO at the time of Exchange 
receipt of the order, it is only available after the Exchange has 
opened a series.
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    \4\ Pursuant to Rule 6.60(b), unless determined otherwise by the 
Exchange and announced to OTP Holders via Trader Update, the 
specified percentage will be 100% for the contra-side NBB or NBO 
priced at or below $1.00 and 50% for contra-side NBB or NBO priced 
above $1.00.
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    The Exchange proposes to amend Rule 6.60(b) to expand the 
functionality of the Limit Order Filter to protect limit orders 
received prior to the opening of trading. As proposed, for limit orders 
received before the opening of trading, the Limit Order Filter would 
operate immediately before conducting a Trading Auction (as set forth 
in Rule 6.64). The enhancement is designed to provide the same level of 
protection to market participants who enter limit

[[Page 55039]]

orders before the open as it does for those who enter limit orders 
during Core Trading. The Exchange believes that using the best bids and 
offers available immediately before conducting the Trading Auction 
helps assure an accurate state of the market.
    Pursuant to Rule 6.64(a), a Trading Auction is the process by which 
trading is initiated in a specified options class. Pursuant to 
6.64(b)(D), prior to conducting the Auction Process, the Exchange 
system must have market maker quotes or an NBBO that creates a bid-ask 
differential that does not exceed those specified under Rules 
6.37(b)(1)(A)-(E). Immediately, prior to conducting the Auction 
Process, the Exchange will use the contra-side bid or offer of this 
bid-ask differential as the parameters for the Limit Order Filter being 
applied to limit orders received before the open of trading. The 
Exchange will announce the implementation date of this change through a 
Trader Update.
    For example, assume the Exchange receives a sell order with a limit 
of $2.00 at 9:00:00 a.m. Eastern (which is before the open). If the 
Exchange is about to open that series at 9:30:02 a.m. where the best 
available bid is $4.00, because the $2.00 sell order is 50% below the 
bid, that limit order would be rejected immediately before the series 
opens. Likewise, if the Exchange is about to open a series in which the 
best available offer at $0.75, a buy order received pre-open with a 
limit price at or above $1.50 (which is 100% above the offer) would be 
rejected. In both these [sic] scenarios, orders that otherwise may 
cause price dislocation would be rejected before they could cause such 
harm to the market.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \5\ of the 
Act, in general, and furthers the objectives of Section 6(b)(5),\6\ 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 general, to 
protect investors and the public interest. The Exchange believes that 
this proposal meets these requirements because it would assist with the 
maintenance of a fair and orderly market by helping to mitigate the 
potential risks associated with the entry of limit orders before the 
opening that ultimately are priced a specified percentage away from the 
prevailing contra-side market existing at the open. The Exchange 
believes that a limit order priced a specified percentage away from the 
prevailing contra-side market existing at the open is evidence of a 
market participant error. By rejecting such an order, the Exchange 
believes it is promoting just and equitable principles of trade by 
preventing potential price dislocation that could result through 
subsequent executions during Core Trading of the balance of the 
aggressively priced limit order. The proposed rule change would 
therefore remove impediments to and perfect the mechanism of a free and 
open market and national market system by ensuring that an existing 
price protection, i.e., the Limit Order Filter, would be applicable to 
all limit orders, regardless of when they are entered.
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    \5\ 15 U.S.C. 78f(b).
    \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 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 anomalous executions. Thus, the Exchange does not believe the 
proposal creates any significant burden 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ Because 
the foregoing 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 for 30 
days from the date on which it is filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \10\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. In support 
of its request, the Exchange states that the protections offered by 
this proposal are designed to contribute to a fair and orderly market 
and enhance the protection of investors by offering a level of price 
protection to pre-open limit orders that is not presently available. 
The Exchange states that waiving the 30-day delayed operative date will 
enable all market participants to benefit from the price protection 
offered by this proposal without delay. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposed rule change 
operative upon filing.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of 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 the 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 to 
determine whether the proposed rule should be approved or 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

[[Page 55040]]

     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2014-97 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2014-97. 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 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 Number SR-NYSEArca-2014-97, and should 
be submitted on or before October 6, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21872 Filed 9-12-14; 8:45 am]
BILLING CODE 8011-01-P