[Federal Register Volume 79, Number 219 (Thursday, November 13, 2014)]
[Notices]
[Pages 67485-67488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26841]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73544; File No. SR-NYSEMKT-2014-14]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change Amending Rule 967NY To Enhance the Functionality 
of the Trade Collar Protection Mechanism

November 6, 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 24, 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 amend Rule 967NY to enhance the 
functionality of the trade collar protection mechanism. 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 967NY(a) to clarify and 
conform with the functionality of the trade collar protection mechanism 
in use on the Exchange. The Exchange's amendment is to specify (a) how 
marketable Limit Orders behave when received in a wide market, (b) how 
subsequently-arriving Market Orders effect collared orders, and (c) the 
values associated with a Trading Collar. The Exchange also seeks to 
make non-substantive wording changes to Rule 967NY(a).

Background

    Pursuant to Rule 967NY(a), the Exchange applies a ``Trade Collar 
Protection'' mechanism that prevents the immediate execution of certain 
orders at prices outside of a specified parameter (referred to as a 
``Trading Collar'').\4\ Pursuant to Rule 967NY(a)(3), the Trade Collar 
Protection mechanism is not available for quotes or for orders with 
execution conditions IOC, AON, FOK and NOW.
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    \4\ The Exchange adopted Rule 967NY governing Trade Collar 
Protection in 2013. See, Exchange Rule 967NY (Securities Exchange 
Act Release No. 70037) (July 25, 2013), 78 FR 46399 (July 31, 2013) 
(NYSEMKT-2013-62).
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    Trading Collars are determined by the Exchange on a class-by-class 
basis and, unless announced otherwise via Trader Update, are the same 
value as the bid-ask differential guidelines established pursuant to 
Rule 925NY(b)(4), as set forth in Rule 967NY(a)(2). For example, Rule 
925NY(b)(4) sets the bid-ask differential for an option priced less 
than $2.00 at $0.25. For any option that has a bid less than $2.00, the 
Trading Collar will be $0.25. Accordingly, if the National Best Bid and 
Offer (``NBBO'') for XYZ is $0.75 bid and $1.75 offer, certain orders 
the Exchange receives will be subject to a $0.25 Trading Collar.\5\ If 
necessary to preserve a fair and orderly market, the Exchange may, with 
the approval of two Trading Officials,\6\ widen or narrow the Trading 
Collar for one or more option series.
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    \5\ The bid-ask differential changes as the price increases. 
Rule 925NY(b)(4) sets the bid-ask differential at no more than $0.40 
where the bid is $2.00 or more but does not exceed $5.00. 
Accordingly, if the NBBO for XYZ is $3.00 bid and $3.50 offer, 
certain orders the Exchange receives will be subject to a $0.40 
Trading Collar Protection.
    \6\ A Trading Official, as defined by Rule 900.2NY(82) is an 
officer or employee of the Exchange. Trading Officials are not 
affiliated with ATP Holders.
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    Trade Collar Protection applies to two scenarios. First, pursuant 
to Rule 967NY(a)(1)(i), Trade Collar Protection prevents executions of 
certain orders when the difference between the National Best Offer 
(``NBO'') and the National Best Bid (``NBB'') is greater than one 
Trading Collar. Second, pursuant to Rule 967NY(a)(1)(ii), Trade Collar 
Protection prevents the execution of the balance of an eligible buy 
order if it were to execute at a price that is the NBO plus a Trading 
Collar (or a price that is the NBB minus a Trading Collar for an 
eligible sell order).
    Pursuant to Rule 967NY(a)(1)(i), if the difference between the NBO 
and the NBB is greater than one Trading Collar, the Exchange will 
prevent execution or routing of certain orders. Instead, pursuant to 
Rule 967NY(a)(4)(A), the Exchange will display the order at a price 
equal to the NBO minus one Trading Collar for sell orders or the NBB 
plus one Trading Collar for buy orders (the ``collared order''). The 
Exchange will then attempt to execute or route the collared order to 
buy (sell) against any contra interest priced within one Trading Collar 
above (below) the displayed price of the collared order.\7\ As set 
forth in Rule 967NY(a)(4)(C)(iii), should market conditions prevent the 
order from trading or recalculating for a period of one second, the 
order will improve its displayed price by an amount equal to an 
additional Trading Collar.
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    \7\ See, Rule 967NY(a)(4)(B).
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    The collared order will re-price before the expiration of one 
second as a result of certain changes in the market. Pursuant to Rule 
967NY(a)(4)(C)(i), an update to the NBBO (based on another market 
center or a quote or order on the Exchange) that improves the same side 
of the market as the collared order will cause the collared order to be 
redisplayed at the same price as the updated NBBO. In accordance with 
Rule 967NY(a)(4)(C)(ii), a Limit Order (which is not an IOC Order, AON 
Order, FOK Order or NOW Order) on the same side of the market priced 
better than one Trading Collar from the collared order will also become 
subject to Trade Collar Protection and will cause the collared order to 
improve by one Trading Collar (which will redisplay at the new price 
and additional size of the new Limit Order).\8\
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    \8\ Rule 967NY(a)(4)(C)(iv) states that a new Market Order on 
the same side as a collared order will not cause the order subject 
to Trade Collar Protection to be recalculated (but will redisplay 
with the additional size of the new Market Order).

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[[Page 67486]]

    As set forth in Rule 967NY(a)(1)(ii), when the difference between 
the NBB and NBO is within the bid-ask differential guidelines, orders 
execute against the NBB or NBO, but Trade Collar Protection prevents 
execution of the balance of certain order at prices that are a Trading 
Collar above the NBO for buy orders (or at prices that are a Trading 
Collar below the NBB for sell orders). Essentially, the Exchange will 
permit the immediate execution of a Market Order or a marketable Limit 
Order (together a ``marketable order'') up to a Trading Collar away 
from the NBBO. Pursuant to Rule 967NY(a)(5), the balance of the 
partially executed order will be subject to Trade Collar Protection and 
will display at the last sale price. However, if there is an 
opportunity for trading within one Trading Collar of the last sale 
price, the order will continue to be displayed at the NBB (NBO) 
established at the time of the initial execution. Once subject to Trade 
Collar Protection, the order will follow the re-pricing mechanism 
described above.
Proposed Change
    The Exchange seeks to clarify and correct Rule 967NY so as to 
conform to current functionality. Pursuant to the language of Rule 
967NY(a)(1)(i), the Exchange will prevent the immediately [sic] 
execution of ``Market Orders or marketable Limit Orders'' if the width 
of the bid-ask differential of the NBBO is greater than one Trading 
Collar. However, during wide market conditions, the Exchange only 
prevents the immediate execution of Market Orders. Orders with limit 
prices that are executable against the NBB or NBO, regardless of the 
width of the bid-ask differential of the NBBO, immediately execute.\9\ 
The Exchange believes that Market Orders need this additional level of 
protection as such orders do not suggest that the submitting market 
participant is aware of the market (or the dislocation associated 
therewith). Conversely, the Exchange believes that an order with a 
limit price evidences specific interest at which the submitting market 
participant is willing to trade. While marketable Limit Orders are 
immediately executable in situations where the bid-ask differential of 
the NBBO is greater than one Trading Collar, they nonetheless remain 
subject to the protections of the Limit Order Filter of 967NY(b).
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    \9\ Rule 967NY(a)(4)(C)(ii) and 967NY(b) explain two scenarios 
where marketable Limit Orders might not immediately execute: (1) 
When there is already a collared order or (2) when the Limit Order 
is priced significantly through the contra-side BBO.
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    The Exchange also seeks to delete 967NY(a)(4)(C)(iv), which states 
that a Market Order that arrives while another order is being displayed 
due to Trade Collar Protection will join the collared order and display 
at the same price. While the Exchange believes this behavior beneficial 
to the market, it has not yet deployed the functionality. While it 
intends to incorporate such an enhancement in the near future, the 
Exchange is deleting (a)(4)(C)(iv) in order for its rules to comply 
with current functionality. Market Orders that arrive while another 
order is displayed due to Trade Collar Protection will behave in the 
same manner as later-arriving marketable Limit Orders. Specifically, 
the later-arriving Market Order will join the already collared order 
and both will display at a price one Trading Collar above (below) the 
previous displayed price. The Exchange intends to make another filing 
to re-establishing the language of (a)(4)(C)(iv) once the functionality 
is available.
    The Exchange also proposes to amend Rule 967NY(a) to add language 
that clarifies the current operation of the trading collar mechanism. 
In particular, the Exchange proposes to delete the reference to Rule 
925NY(b)(4) and instead codify the values of the Trading Collar 
directly in Rule 967NY(a). Rule 925NY(b)(4) sets the bid-ask 
differentials based exclusively on the bid price. The trading collar 
mechanism employs the same values for determining the Trading Collar. 
However, while those values are based upon the NBB for buy orders, the 
value of the Trading Collar for sell orders is based upon the NBO. The 
Exchange uses the NBB for buy orders because it believes that a market 
participant who is looking to buy would derive its price off of what 
other market participants are willing to pay (i.e. the prevailing bid). 
Similarly, the Exchange uses the NBO for sell orders because it 
believes that a market participant who is looking to sell would derive 
its price off of what other market participants are willing to sell 
(i.e. the prevailing offer). Accordingly, the Exchange proposes new 
sections (a)(2)(A) and (a)(2)(B) to Rule 967NY, which specifies the 
values based upon whether the order subject to Trade Collar Protection 
is to buy or sell.
    As an example, the NBBO for XYZ is $1.00 bid and $6.00 offer. Based 
upon Rule 967NY's reference to Rule 925NY(b)(4), it could be 
interpreted that the Trading Collar would be $0.25 regardless of 
whether the Exchange received an order to buy or sell (based upon the 
bid being less than $2.00). However, collared sell orders currently 
derive their Trading Collar and display price from the NBO. 
Accordingly, a Market Order to buy would display at $1.25 (i.e., the 
$1.00 NBB plus the $0.25 Trading Collar (based upon the NBB being less 
than $2.00)) and would attempt to execute against any contra interest 
(on any market) priced $1.50 or less (i.e., $1.25 bid plus the $0.25 
Trading Collar). However, a Market Order to sell would display at $5.50 
(i.e., the $6.00 NBO minus the $0.50 Trading Collar (based upon the NBO 
being more than $5.00 but does not exceed $10.00)) and would attempt to 
execute against any contra interest (on any market) priced $5.00 or 
greater (i.e., $5.50 offer minus the $0.50 Trading Collar).
    As a further example, the NBBO for XYZ is $1.45 x 200 bid and $2.10 
x 200 offer with a $0.05 MPV. If the Exchange receives a market order 
to buy 100 contracts, the Trading Collar would be $0.25 (pursuant to 
new section (a)(2)(B)(i)). Accordingly, the order will be displayed at 
$1.70 (i.e., $1.45 bid plus the $0.25 Trading Collar). For a period of 
one second, the Exchange will attempt to execute the buy order against 
any contra interest (on any market) priced $1.95 or less (i.e., $1.70 
plus the $0.25 Trading Collar). Under Rule 967NY(a)(4)(C)(iii), at the 
expiration of one second, the Exchange will attempt to redisplay the 
market buy order subject to Trade Collar Protection at $1.95 (i.e., 
$1.70 plus the $0.25 Trading Collar). However, since the $2.10 NBO 
represents contra interest priced $2.20 or less (i.e. $1.95 plus the 
$0.25 Trading Collar), the market buy order would execute its 100 
contracts against the NBO at $2.10. In comparison, in the same market 
for XYZ, if the Exchange receives a market order to sell 100 contracts, 
the Trading Collar would be $0.40 (pursuant to new section 
(a)(2)(B)(ii)). Accordingly, the Exchange will attempt to display the 
market sell order at $1.70 (i.e., $2.10 offer minus the $0.40 Trading 
Collar). However, since the $1.45 NBB represents contra interest priced 
$1.45 or greater, (i.e. $1.70 minus the $0.25 Trading Collar), the 
market sell order would execute its 100 contracts against the NBB at 
$1.45.
    The Exchange also proposes to amend Rule 967NY(a) to strike the 
extraneous term ``inbound'' from the rule, which could cause confusion 
as to when Trade Collar Protection is available because the trade 
collar mechanism continues to apply to resting orders. In addition, the 
Exchange proposes to delete the reference in 967NY(a)(3) to the 
cancellation of IOC Orders, AON Orders, FOK Orders and NOW Orders if 
not immediately executed, as such is not the behavior of AON Orders. 
The

[[Page 67487]]

Exchange also proposes to capitalize the term ``limit order'' as used 
in Rule 967NY(a)(4)(D) to conform with its use in the rest of the rule. 
Finally, the Exchange proposes to make non-substantive changes to Rule 
967NY(a)(4)(C)(i) and (ii) to better clarify behavior in situations 
where there already exists an already collared order.
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''), in general, and 
furthers the objectives of Section 6(b)(5) \10\ 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 proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \11\ of the Act 
in that it seeks to assure fair competition among brokers and dealers 
and among exchange markets. The Exchange believes that the proposed 
rule amendments relating to the behavior of Limit Orders in a wide 
market and the effect on Market Orders on already collared orders 
assist with the maintenance of fair and orderly markets and protects 
investors by correcting inaccurate language and clarifying existing 
functionality so that market participants better understand how the 
Exchange handles certain orders in times of market dislocation. The 
Exchange also believes that it promotes just and equitable principles 
of trade to allow marketable Limit Orders received in a wide market to 
immediately execute against contra-side interest before receiving Trade 
Collar Protection because Limit Orders provide evidence of prices for 
which market participants are willing to trade. Accordingly, to the 
extent contra-side interest exists at the NBBO, the Exchange believes 
it is appropriate to permit such executions before providing Trade 
Collar Protection for potential subsequent executions at inferior 
prices. Furthermore, the Exchange believes that it assists in the fair 
and orderly market to have Market Orders advance an already collared 
order in the same fashion as marketable Limit Orders as both are 
subsequent orders representing executable interest. The Exchange 
believes that its proposal to clarify that Trading Collar values are 
based upon the NBB for buy orders and the NBO for sell orders removes 
impediments to and perfects the mechanism of a free and open market by 
basing the Trading Collar upon the benchmark from which a market 
participant would most likely derive its price. The Exchange recognizes 
that there could be potential market conditions that result in 
different Trading Collar values depending on whether the order 
submitted is to buy or sell. However, the Exchange believes that any 
such differences are outweighed by meeting the expectations of market 
participants who submit buy orders based upon the price of the 
prevailing NBB and sell orders based upon the price of the prevailing 
NBO. Further, the Exchange believes that clearly setting forth these 
benchmarks removes impediments to and perfects the mechanism of a free 
and open market by ensuring that market participants better understand 
the functionality of the trade collar mechanism on the Exchange and the 
execution opportunities afforded their orders in certain market 
conditions. The Exchange also believes that making non-substantive 
wording changes enhances the description of Trade Collar Protection 
will add transparency and clarity to the Exchange's rules.
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    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1).
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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 clarity relating to how 
the Exchange systems provides protection from anomalous executions. 
Thus, the Exchange does not believe the proposal creates any 
significant impact 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

    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-2014-14 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2014-14. 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-2014-14, and should 
be submitted on or before December 4, 2014.


[[Page 67488]]


    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. 2014-26841 Filed 11-12-14; 8:45 am]
BILLING CODE 8011-01-P