[Federal Register Volume 79, Number 203 (Tuesday, October 21, 2014)]
[Notices]
[Pages 63009-63011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24953]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73367; File No. SR-NYSEMKT-2014-86]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change Modifying Its Quote Mitigation Plan and Amending 
Rule 970NY and Rule 970.1NY

October 15, 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 October 2, 2014, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III 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 modify its quote mitigation plan and to 
amend Rule 970NY (Firm Quotes) and Rule 970.1NY(Quote Mitigation). 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 modify its quote mitigation plan and 
to amend Rule 970NY (Firm Quotes) and Rule 970.1NY (Quote Mitigation). 
As discussed below, the Exchange believes the modified quote mitigation 
plan will adequately accommodate the number of quotations sent to the 
Exchange and the message traffic that the Exchange sends to the Options 
Price Reporting Authority (``OPRA'').
Rule 970.1NY
    In connection with the adoption of the Penny Pilot Program, the 
Exchange adopted a quote mitigation plan designed to reduce the number 
of quotations generated by the Exchange for all options traded on the 
Exchange, not just issues included in the Penny Pilot Program.\4\ The 
current plan reduces the number of messages the Exchange sends to OPRA 
by only submitting quote messages for ``active'' series. Rule 970.1NY 
defines active series as: (i) The series has traded on any options 
exchange in the previous 14 calendar days; or, (ii) the series is 
solely listed on the Exchange; or (iii) the series has been trading ten 
days or less, or; (iv) the Exchange has an order in the series. 
Alternatively, the Exchange may define a series as active on an 
intraday basis if: (i) The series trades at any options exchange; (ii) 
the Exchange receives an order in the series; or (iii) the Exchange 
receives a request for quote from a Customer in that series.
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    \4\ See Securities and Exchange Release No. 59472 (February 29, 
2009), 74 FR 9843 (March 6, 2009) (SR-ALTR-2008-14); see also 
Securities and Exchange Release No. 55162 (January 24, 2007), 72 FR 
4738 (February 1, 2007) (SR-Amex-2006-106) (original quote 
mitigation proposal).
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    The Exchange believes it no longer needs the quote mitigation 
provided by Rule 970.1NY because rules adopted since Rule 970.1NY 
provide sufficient quote mitigation.
Current Market Structure and Controls on the Exchange
    In 2010, the Exchange incorporated select provisions of the Options 
Listing Procedures Plan (``OLPP'') in Rule 903A as a quote mitigation 
strategy.\5\
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    \5\ See Securities and Exchange Release No. 61978 (April 23, 
2010), 75 FR 22886 (April 30, 2010) (SR-NYSEAmex-2010-3). See also 
OLPP, available at, http://www.theocc.com/clearing/industry-services/olpp.jsp.
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    The OLPP is a national market system plan that, among other things, 
sets forth procedures governing the listing of new options series. From 
the OLPP, the Exchange incorporated in Rule 903A ``applied uniform 
standards to the range of options series exercise (or strike) prices 
available for trading on the [Exchange] as a quote mitigation 
strategy.'' \6\ In approving the OLPP provisions, subsequently 
incorporated in Rule 903A, the Commission indicated that ``adopting 
uniform standards to the range of options series exercise (or strike) 
prices available for trading on the [Exchange] should reduce the number 
of option series available for trading, and thus should reduce 
increases in the options quote message traffic because market 
participants will not be submitting quotes in those series.'' \7\
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    \6\ Rule 903A codified Amendment No. 3 to the OLPP. See 
Securities and Exchange Release No. 60531 (August 19, 2009), 74 FR 
43173 (File No. 4-443). See also Rule 903A.
    \7\ Id., 74 FR at 43174.
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    One year after adopting select provisions of the OLPP, the Exchange 
refined the quoting obligations applicable to Market Makers as a quote 
mitigation strategy.\8\ Specifically, the Exchange adopted Commentary 
.01 to Rule 925.1NY, which states that Specialists' and Market Makers' 
continuous quoting obligations ``shall not apply to Market Makers with 
respect to adjusted option series, and series

[[Page 63010]]

with a time to expiration of nine months or greater, for options on 
equities and Exchange Traded Fund Shares, and series with a time to 
expiration of twelve months or greater for Index options.'' \9\ Because 
there are no Market Maker quoting obligations associated with adjusted 
options series, there is a reduction in quote traffic that is sent to 
OPRA. Indeed, in approving Commentary .01 to Rule 925.1NY, the 
Commission noted, ``. . . the Exchange's proposal would reduce the 
burden on market makers to submit continuous quotes that the Exchange 
may not submit to OPRA.'' \10\
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    \8\ See Securities and Exchange Release No. 65572 (October 14, 
2011), 76 FR 65310 (October 20, 2011) (NYSEAmex-2011-61).
    \9\ An ``adjusted series'' is ``an option series wherein, as a 
result of a corporate action by the issuer of the underlying 
security, one option contract in the series represents the delivery 
of other than 100 shares of underlying stock or Exchange-Traded Fund 
Shares.'' See Commentary .01 to Rule 925.1NY.
    \10\ See supra n. 8, 79 FR at 65311.
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    The Exchange believes that reliance on the OLPP, via Rule 903A, 
together with the refined Market Maker quoting obligations, pursuant to 
Commentary .01 to Rule 925.1NY, is sufficient as a quote mitigation 
strategy and obviates the need for Rule 970.1NY. The Exchange believes 
that limiting the number of series listed on the Exchange is preferable 
to suppressing quotes of inactive series, as required under current 
Rule 970.1NY, because all quotes sent by Market Makers are actionable 
even if not displayed.
    The Exchange believes that both its own systems capacity and OPRA's 
systems capacity are more than sufficient to accommodate any additional 
increase in quote traffic that might be sent to OPRA as a result of the 
deletion of Rule 970.1NY. The Exchange has already successfully 
conducted testing to ensure that its internal systems are equipped to 
handle any increase in quote traffic as a result of the proposed rule 
change. Further, the Exchange continually assesses its capacity needs 
and ensures that the capacity that it requests from OPRA is not only 
sufficient but also compliant with the requirements established in the 
OPRA Capacity Guidelines.\11\ In submitting its capacity requests, the 
Exchange has factored in the impact on capacity if all series currently 
subject to Rule 970.1NY were to become active and therefore sent to 
OPRA.\12\
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    \11\ See the OPRA Capacity Guidelines, available here, http://www.opradata.com/pdf/capacity_guidelines.pdf.
    \12\ OPRA has delegated certain functions pertaining to planning 
the capacity of the OPRA System to an Independent System Capacity 
Advisor (``ISCA'') that ``may provide less than all of the capacity 
that has been requested if it determines (a) that the capacity 
requests of one or more of the parties are unreasonable, or (b) that 
it is not reasonable to develop or maintain a System that has 
capacity sufficient to satisfy the requests of the parties.'' See 
id. The Exchange has never been informed by the ISCA that the 
capacity it has requested cannot be met for any reason, including 
because the ISCA had deemed the request to be unreasonable. Thus, 
the Exchange believes that any increase in quote traffic that might 
be sent to OPRA as a result of the current proposal should not 
impact any other exchange's capacity at OPRA.
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    In addition, the Exchange has in place the following measures that 
it believes serve as additional safeguards against excessive quoting:

--Monitoring: The Exchange actively monitors the quotation activity of 
its Market Makers. When the Exchange detects that a Market Maker is 
disseminating an unusual number of quotes, the Exchange contacts that 
Market Maker and alerts it to such activity. Such monitoring may reveal 
that the Market Maker may have internal system issues or has 
incorrectly set system parameters that were not immediately apparent. 
Alerting a Market Maker to the heightened levels of activity will 
usually result in a change that reduces the number of quotes sent to 
the Exchange by the Market Maker.
--New Listings: The Exchange has a business plan with respect to the 
listing of options on new underlying securities that is designed to 
help ensure that any new listings are sufficiently active to avoid 
listing options on underlying securities that generate quote volume 
without the offsetting benefit of trading volume.\13\
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    \13\ See Commentary .09(b) to Rule 15.
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--Excessive Bandwidth Utilization Fees: The Exchange imposes Excessive 
Bandwidth Utilization Fees, which are designed to encourage efficient 
quoting.\14\ The Excessive Bandwidth Utilization Fees are comprised of 
Order To Trade Ratio Fees and Messages to Contracts Traded Ratio 
Fees.\15\
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    \14\ See NYSE Amex Options fee schedule, available here, https://www.theice.com/publicdos/nyse/market/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf.
    \15\ Id.

    In connection with the foregoing, the Exchange proposes to amend 
paragraphs (b)(1) and (b)(2) of Rule 970NY to delete references to the 
``Quote Mitigation Plan,'' which refer to the plan set forth in Rule 
970.1NY. In addition, the Exchange proposes to delete Rule 970.1NY in 
its entirety, as it contains a discussion of the current quote 
mitigation plan.
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 the effective date of this filing. The implementation date 
will be no later than 60 days following the issuance of the Trader 
Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\16\ in general and furthers the objectives of Section 6(b)(5) of the 
Act \17\ in particular in that it should promote just and equitable 
principles of trade, serve to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
protect investors and the public interest.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed modifications to the quote 
mitigation plan, including the continued reliance on Rule 903A and 
Commentary .01 to Rule 925.1NY, together with the other safeguards 
mentioned above, would promote just and equitable principles of trade, 
serve to remove impediments to and perfect the mechanism of a free and 
open market as it would increase transparency and enhance price 
discovery as all Market Maker quotes would be reflected in the market. 
Specifically, the Exchange believes that deleting Rule 970.1NY will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it will enable all 
actionable Market Maker quotes to be displayed, including in inactive 
series. The Exchange believes this would also protect investors and the 
public interest because available Market Maker liquidity in all series 
would be publicly displayed, thereby putting investors on notice of 
such liquidity. The Exchange further believes that the market structure 
initiatives adopted in recent years serve to reduce the potential for 
excessive quoting because the OLPP limits the number of series eligible 
to be listed, which reduces the number of series for which a Market 
Maker would be obligated to quote, and therefore reduces quote traffic.
    As discussed above, the Exchange believes that both its own systems 
capacity and OPRA's systems capacity are more than sufficient to 
accommodate any additional increase in quote traffic that might be sent 
to OPRA as a result of the proposed rule change.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose

[[Page 63011]]

any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, as discussed 
above, the Exchange believes that any increase in quote traffic that 
might be sent to OPRA as a result of the proposed rule change should 
not impact any other exchange's capacity at OPRA.\18\
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    \18\ See supra. n. 12.
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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-NYSEMKT-2014-86 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-NYSEMKT-2014-86. 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-NYSEMKT-2014-86, and should 
be submitted on or before November 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24953 Filed 10-20-14; 8:45 am]
BILLING CODE 8011-01-P