[Federal Register Volume 80, Number 103 (Friday, May 29, 2015)]
[Notices]
[Pages 30747-30752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12968]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75038; File No. SR-NYSE-2015-06]


Self-Regulatory Organizations; New York Stock Exchange, LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, 
Adopting New NYSE Rule 124 To Conduct a Midday Auction and Amending 
NYSE Rule 104 To Codify the Obligation of Designated Market Makers To 
Facilitate the Midday Auction

May 22, 2015.

I. Introduction

    On February 2, 2015, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to institute a daily, single-price auction during 
the trading day in certain lower-volume securities (``Midday Auction'') 
and to amend NYSE Rule 104 to address the responsibilities and duties 
of Designated Market Makers (``DMMs'') to facilitate the Midday 
Auction. The proposed rule change was published in the Federal Register 
on February 23, 2015.\3\ The Commission has received one comment letter 
on the proposal.\4\ On April 6, 2015, pursuant to Section 19(b)(2) of 
the Act,\5\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\6\ On May 20,

[[Page 30748]]

2015, the Exchange filed Amendment No. 1 to the proposed rule 
change.\7\ The Commission is publishing this notice to solicit comments 
on Amendment No. 1 from interested persons and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74281 (Feb. 17, 
2015), 80 FR 9496 (``Notice''). In the Notice, the Exchange stated 
its intention to submit a request for exemptive relief, pursuant to 
Rule 611(d) of Regulation NMS, 17 CFR 242.611(d), from the 
requirements of Rule 611 of Regulation NMS. See Notice, 80 FR at 
9497 n.21. In Amendment No. 1, see infra, note 7, the Exchange 
stated that it will no longer submit a request for exemptive relief 
because the Exchange believes that the proposed Midday Auction fits 
within the exception provided by Rule 611(b)(3) of Regulation NMS, 
17 CFR 242.611(b)(3). See infra, Section III.
    \4\ See Letter from Theodore R. Lazo, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association, to Brent J. Fields, Secretary, Commission (Mar. 20, 
2015).
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 74648, 80 FR 19385 
(Apr. 10, 2015). The Commission designated May 24, 2015, as the date 
by which it should approve, disapprove, or institute proceedings to 
determine whether to disapprove the proposed rule change.
    \7\ Amendment No. 1 is publicly available on the Exchange's Web 
site at: https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-filings/filings/2015/NYSE%202015-06,%20Pt.Am.%201.pdf. In Amendment 
No. 1, the Exchange proposes to: (1) Allow a member organization to 
designate an order to cancel at the beginning of the Midday Auction 
Pause (see, infra, note 12 and the accompanying text for the 
definition of Midday Auction Pause); (2) allow a member organization 
to designate an order to route to an away market quote that locks or 
crosses the previously displayed price of the order, during the 
Midday Auction Pause, in which case the returned quantity of a 
routed order would also route; (3) have the Exchange cancel, during 
the Midday Auction Pause, resting and arriving Non-Displayed Reserve 
Orders and Non-Display Reserve e-Quotes, which the Exchange 
specifies are not eligible to participate in the Midday Auction; (4) 
clarify that only orders that are eligible to participate in the 
Midday Auction would continue to be repriced during the Midday 
Auction Pause; and (5) prevent the Midday Auction from executing at 
a price outside of the Limit-Up-Limit-Down Bands or the Exchange's 
Trading Collars (see, infra, note 33 and the accompanying text), 
whichever is lower (for a buy imbalance) or higher (for a sell 
imbalance). Furthermore, the Exchange proposes to make a technical 
change to Exhibit 5 to correct an errant cross reference in Proposed 
NYSE Rule 124(e). The Exchange also proposes to add additional text 
to the filing to explain the revisions contained in Amendment No. 1, 
to further explain other aspects of the proposed rule change, and to 
remove from the filing text stating that the Exchange intends to 
submit separately a request for exemptive relief pursuant to Rule 
611(d) of Regulation NMS.
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II. Description of the Proposal, as Modified by Amendment No. 1

    The Exchange proposes to adopt new NYSE Rule 124 to conduct a daily 
Midday Auction in certain lower-volume securities. Under the proposal, 
the Exchange would conduct one Midday Auction per trading day \8\ for 
each security that the Exchange designates as a Midday Auction Stock. 
Only NYSE-listed securities that have a consolidated average daily 
trading volume (``CADV'') of 1,000,000 shares or less would be eligible 
to be designated as a Midday Auction Stock.\9\
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    \8\ See Proposed NYSE Rule 124(a)(3).
    \9\ See Proposed NYSE Rule 124(a). The Exchange has represented 
that approximately 16 percent of the consolidated volume of all 
NYSE-listed securities consists of NYSE-listed securities with a 
CADV of 1,000,000 shares or less. See Notice, 80 FR at 9496 n.4.
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    The Exchange proposes to update the list of Midday Auction Stocks 
at least quarterly.\10\ The Exchange would not conduct a Midday Auction 
on trading days when the Exchange is scheduled to close before 4:00 
p.m. ET, and the Exchange would not conduct a Midday Auction in a 
Midday Auction Stock if that stock is halted, paused, suspended, or not 
opened at the time of the Midday Auction.\11\
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    \10\ See Proposed NYSE Rule 124(a)(1).
    \11\ See Proposed NYSE Rule 124(a)(2). In the Notice, the 
Exchange represents that, if trading for a Midday Auction Stock is 
halted, paused, suspended, or not opened at the time of the Midday 
Auction, the Exchange would not conduct a Midday Auction for that 
security. See Notice, 80 FR at 9496. Instead, under those 
circumstances, the Exchange would reopen trading for that security 
pursuant to the applicable procedures, such as those for a reopening 
following a National Market System Plan to Address Extraordinary 
Market Volatility (``LULD Plan'') pause or following a regulatory 
halt. See id.; see also Securities Exchange Act Release No. 68876 
(Feb. 8, 2013), 78 FR 10643 (Feb. 14, 2013) (SR-NYSE-2013-09) 
(Notice of filing and immediate effectiveness of proposed rule 
change to establish Exchange rules to comply with the requirements 
of the LULD Plan).
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    To initiate the Midday Auction, the Exchange would pause trading in 
Midday Auction Stocks on the Exchange for five minutes (``Midday 
Auction Pause'') by suspending automatic executions and publishing a 
zero quote.\12\ The Midday Auction Pause would occur between 11:00 a.m. 
ET and 2:00 p.m. ET at a time specified by the Exchange and 
communicated to market participants in advance through a Trader 
Update.\13\ The Exchange has stated that the Midday Auction Pause is 
intended to provide market participants with an opportunity to enter 
interest intended for the auction.\14\
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    \12\ See Proposed NYSE Rule 124(b). The Exchange has represented 
that it would publish a zero quote on both the public and 
proprietary data feeds. See Notice, 80 FR at 9496.
    \13\ See Proposed NYSE Rule 124(b); see also Notice, 80 FR at 
9496 n.9.
    \14\ See Notice, 80 FR at 9496.
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    During the Midday Auction Pause, the Exchange would: (i) Maintain 
resting orders on the Exchange's book that would be eligible to 
participate in the Midday Auction; (ii) accept new orders that would be 
eligible to participate in the Midday Auction, including Market On-the-
Open orders (``MOO Orders'') \15\ and Limit On-the-Open orders (``LOO 
Orders''); \16\ (iii) cancel resting and arriving Non-Displayed Reserve 
Orders \17\ and Non-Display Reserve e-Quotes,\18\ which are not 
eligible to participate in the Midday Auction; \19\ (iv) accept and 
process cancellations of new and resting orders; \20\ (v) continue to 
re-price sell short orders, including MOO Orders and LOO Orders, 
consistent with NYSE Rule 440B(e), which is the NYSE rule governing 
short sales; (vi) continue to re-price and/or cancel orders eligible to 
participate in the Midday Auction,\21\ including MOO Orders and LOO 
Orders, consistent with NYSE Rule 80C(a)(5); \22\ (vii) publish Order 
Imbalance Information, as defined in NYSE Rule 15(c),\23\ approximately 
every five seconds during the Midday Auction Pause until the Midday 
Auction Stock reopens; (viii) cancel resting and arriving orders 
designated to cancel at the start of the Midday Auction Pause; \24\ and 
(ix) route orders designated to route if the order becomes locked or 
crossed by an away market quote and to route the returned quantity of a 
routed order.\25\
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    \15\ Under the Exchange's rules, an MOO Order is ``a market 
order in a security that is to be executed in its entirety on the 
opening or reopening trade of the security on the Exchange. A MOO 
order will be immediately and automatically cancelled if the 
security opens on a quote or if it is not executed due to tick 
restrictions. MOO orders can be entered before the open to 
participate on the opening trade or during a trading halt or pause 
to participate on a reopening trade.'' See NYSE Rule 13.
    \16\ Under the Exchange's rules, an LOO Order is ``a limit order 
in a security that is to be executed on the opening or reopening 
trade of the security on the Exchange. A LOO order, or part thereof, 
will be immediately and automatically cancelled if by its terms it 
is not marketable at the opening price, it is not executed on the 
opening trade of the security on the Exchange, or if the security 
opens on a quote. LOO orders can be entered before the open to 
participate on the opening trade or during a trading halt or pause 
to participate on a reopening trade.'' See NYSE Rule 13.
    \17\ Under Exchange Rules, a Non-Displayed Reserve Order is a 
limit order that is not displayed, but remains available for 
potential execution against all incoming automatically executing 
orders until executed in full or cancelled. See NYSE Rule 13.
    \18\ Under Exchange Rules, ``e-Quotes'' are broker agency 
interest files that a Floor Broker places within the Exchange's 
Display Book with respect to orders the Floor Broker is 
representing. See NYSE Rule 70(a). A Reserve e-Quote is an e-Quote 
with reserve interest. See NYSE Rule 70(f). A Non-Display Reserve e-
Quote is a Reserve e-Quote without a displayable portion. See NYSE 
Rule 70(f)(ii).
    \19\ See Amendment No. 1, supra note 7.
    \20\ The Exchange has represented that it processes orders in 
the same manner during a trading halt or a pause pursuant to the 
LULD Plan. See Notice, 80 FR at 9497.
    \21\ See Amendment No. 1, supra note 7.
    \22\ NYSE Rule 80C(a)(5) sets forth the LULD rules for the 
repricing and cancellation of trading interests.
    \23\ Order Imbalance Information disseminated by Exchange 
systems prior to the opening transaction is the data feed 
disseminated by Exchange systems of real-time order imbalances that 
accumulate prior to the opening transaction on the Exchange and of 
the price at which interest eligible to participate in the opening 
transaction may be executed in full. Order Imbalance Information 
includes all interest eligible for execution in the opening 
transaction of the security in Exchange systems. See NYSE Rule 
15(c)(1). Order Imbalance Information is disseminated on the 
Exchange's proprietary data feeds. See Securities Exchange Act 
Release No. 74837 (Apr. 29, 2015), 80 FR 25741, 25741 n.4 (May 5, 
2015) (SR-NYSE-2015-19).
    \24\ See Amendment No. 1, supra note 7.
    \25\ See id. See also Proposed NYSE Rule 124(b)(1)-(9).
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    At the end of the Midday Auction Pause, the Exchange would conduct 
the Midday Auction.\26\ DMMs registered in

[[Page 30749]]

each Midday Auction Security would be responsible for facilitating the 
Midday Auction for that security, by providing liquidity as needed 
(under NYSE Rule 104(a)(2)) \27\ and, under NYSE Rule 123D(1),\28\ by 
conducting the Midday Auction either manually or electronically.\29\
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    \26\ See Proposed NYSE Rule 124(c).
    \27\ NYSE Rule 104(a)(2) sets forth a DMM's responsibilities and 
duties to facilitate openings and reopenings for each of the 
securities in which the DMM is registered under Exchange rules. See 
NYSE Rule 104(a)(2). NYSE Rule 104(a)(2) also requires DMMs to 
supply liquidity on the opening and reopening, as needed, for each 
security in which the DMM is registered. See id. The Exchange is 
proposing to add these liquidity provisions for Midday Auctions to 
the DMM's responsibilities and duties under NYSE Rule 104(a)(2).
    \28\ NYSE Rule 123D(1) provides that openings may be effectuated 
manually or electronically. See NYSE Rule 123D(1).
    \29\ See Notice, 80 FR at 9497.
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    The Midday Auction would reopen the Midday Auction Stocks at a 
single equilibrium price in the same manner as set forth in NYSE Rule 
123D (Openings and Halts in Trading), with two exceptions.\30\ The 
first proposed exception to NYSE Rule 123D would conform the Midday 
Auction to the way in which the Exchange reopens securities following a 
LULD Plan pause, as set forth in NYSE Rule 80C(b)(2)(A).\31\ NYSE Rule 
123D(1) requires the dissemination of an ``indication'' (i.e., an 
indication of anticipated price) in connection with any delayed 
opening, and all indications pursuant to NYSE Rule 123D require the 
supervision and approval of an Exchange Floor Official. During a Midday 
Auction Pause, as with an LULD Pause, indications would be permitted, 
but not required, and prior approval by Exchange officials would not be 
required before publishing an indication. If an indication were 
published, it would not need to be updated before the Midday Auction, 
and the Midday Auction would be permitted to occur outside of any prior 
indication. Furthermore, as with reopenings after a LULD Pause, a 
Midday Auction would not be subject to the NYSE Rule 123D requirements 
that: (i) A minimum of three minutes must elapse between the first 
indication and a stock's reopening; or (ii) if more than one indication 
is published, a minimum of one minute must elapse before a stock's 
reopening.\32\
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    \30\ See Proposed NYSE Rule 124(c).
    \31\ See Notice, 80 FR at 9497.
    \32\ See Proposed NYSE Rule 124(c)(1). See NYSE Rule 123D(1) 
(``Generally, a minimum of three minutes must elapse between the 
first indication and a stock's opening as measured by the time the 
indication appears on the PDU. However, when more than one 
indication is disseminated, a stock may open one minute after the 
last indication provided that at least three minutes must have 
elapsed from the dissemination of the first indication.''). An 
indication published pursuant to NYSE Rule 123D is published to the 
Consolidated Tape. See Securities Exchange Act Release No. 74837 
(Apr. 29, 2015), 80 FR 25741, 25741 n.5 (May 5, 2015) (SR-NYSE-2015-
19).
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    The second proposed exception to NYSE Rule 123D would provide that 
the Midday Auction would not execute at a price outside (i) the LULD 
Price Bands in effect at the time of the Midday Auction, as provided 
for in NYSE Rule 80C(a)(4), or (ii) the Exchange's Trading Collars, as 
provided for in NYSE Rule 1000(c)(i), whichever price threshold is 
lower (for a buy imbalance) or higher (for a sell imbalance) at the 
time of the Midday Auction.\33\
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    \33\ See Proposed NYSE Rule 124(c)(2); see also Amendment No. 1, 
supra note 7.
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    Orders would participate in the Midday Auction in the same way they 
would participate in openings or reopenings, subject to the two 
exceptions explained above.\34\ Additionally, as noted above, the 
Exchange would cancel resting and arriving Non-Displayed Reserve Orders 
and Non-Display Reserve e-Quotes during the Midday Auction pause.\35\ 
Orders that are not eligible to participate in openings or reopenings 
pursuant to NYSE rules would not participate in the Midday Auction.\36\ 
Finally, if there were a significant imbalance in a Midday Auction 
Stock at the end of the Midday Auction Pause, the Midday Auction Pause 
could, with the approval of a Floor Governor or two Floor Officials, be 
converted to an order imbalance halt.\37\ If a Midday Auction Pause 
were converted into an order imbalance halt, each order that had been 
re-priced would be re-filed according to the order's original 
instructions, and the security would be reopened pursuant to the 
procedures set forth in NYSE Rule 123D.\38\
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    \34\ See Proposed NYSE Rule 124(d).
    \35\ See supra, note 19 and the accompanying text. The Exchange 
also proposes to continue to re-price sell short orders, including 
MOO and LOO Orders, consistent with NYSE Rule 440B(e), see Proposed 
NYSE Rule 124(b)(5), and to continue to re-price and/or cancel 
orders eligible to participate in the Midday Auction, including MOO 
and LOO Orders, consistent with the LULD Plan, see Proposed NYSE 
Rule 124(b)(6).
    \36\ See Proposed NYSE Rule 124(d).
    \37\ See Proposed NYSE Rule 124(e).
    \38\ See Proposed NYSE Rule 124(e).
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III. Summary of Comment Letter and NYSE's Response

    The Commission has received one comment letter on the Exchange's 
proposal. The commenter asserts that broad-based, significant changes 
to equity market structure should be conducted through the Commission 
rulemaking process, not through a single exchange's rulemaking process. 
The commenter argues that the Commission should carry out market 
structure changes in a manner designed to benefit the entire market, 
rather than approving a self-regulatory organization rulemaking 
proposal that is designed to improve the market share for a single 
market participant.
    Further, the commenter states that the proposal should not be 
approved before both the Exchange and the Commission confirm that a 
member firm that relies on NYSE's displayed book for compliance with 
the limit order display requirement of Rule 604 of Regulation NMS 
(``Limit Order Display Rule''),\39\ and whose order is blacked out 
during the Midday Auction Pause, would still be considered to be in 
compliance with the Limit Order Display Rule.
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    \39\ 17 CFR 242.604.
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    Finally, the commenter objects to the Exchange's statement that it 
will request an exemption under Rule 611(d) of Regulation NMS \40\ for 
the Midday Auction process. The commenter asserts that the Midday 
Auction should be designed so that it operates within and in compliance 
with existing regulatory requirements. The commenter argues that, if 
the Commission determines that periodic intraday auctions are a 
beneficial way to improve trading quality in lower-volume securities, 
the Commission should apply the same rules or relief for those auctions 
to all market participants. The commenter asserts that the Midday 
Auction does not qualify for an exemption from Rule 611 of Regulation 
NMS because the Midday Auction would be substantially different than 
the operation of a single-priced reopening transaction. The commenter 
states that a single-priced reopening transaction, as the term is used 
in Rule 611 of Regulation NMS, is a price discovery event on a single 
venue that generally occurs when the entire market has halted trading 
in that security to address unusual market, operational, or regulatory 
situations. The commenter states that the single-priced reopening 
transaction exception under Rule 611 of Regulation NMS would not be 
applicable to a daily auction mechanism whose purpose is to increase 
the market share of a single exchange.
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    \40\ 17 CFR 242.611(d).
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    In Amendment No. 1, the Exchange responds that, to address the 
commenter's concerns regarding the Limit Order Display Rule and a 
member organization's best-execution requirements, it has amended the 
proposal. First, the Exchange has amended the proposal to allow a 
member organization to designate an

[[Page 30750]]

order not to participate in the Midday Auction (by designating that 
order to cancel at the beginning of the Midday Auction Pause). The 
Exchange has further amend the proposal to allow a member organization 
to designate an order to route to an away market quote that locks or 
crosses the previously displayed price of the order during the Midday 
Auction Pause. To further address concerns regarding execution 
opportunities during the Midday Auction Pause, the Exchange has amended 
the proposal to cancel Non-Displayed Reserve Orders and Non-Display 
Reserve e-Quotes resting on the Exchange's book during the Midday 
Auction Pause and to reject Non-Displayed Reserve Orders and Non-
Display Reserve e-Quotes entered during the Midday Auction Pause.
    With respect to the applicability of Rule 611 of Regulation NMS, 
the Exchange states in Amendment No. 1 that it will not be submitting a 
request for exemptive relief. The Exchange states its belief that the 
exception under Rule 611(b)(3) of Regulation NMS \41\ would apply to 
the single-priced trade at the conclusion of the Midday Auction 
conducted pursuant to proposed NYSE Rule 124, because the Midday 
Auction would result in a single-priced reopening transaction after a 
trading halt conducted pursuant to Exchange rules and, thus, would be 
excepted from the Order Protection Rule pursuant to Rule 611(b)(3) 
under Regulation NMS.
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    \41\ See 17 CFR 242.611(b)(3) (providing an exception from the 
Order Protection Rule under Rule 611 of Regulation NMS when the 
``transaction that constituted the trade-through was a single-priced 
opening, reopening, or closing transaction by the trading center'').
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IV. Discussion and Commission Findings

    After careful review and consideration of the Exchange's proposal 
and the comment letter, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange.\42\ In particular, 
the Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\43\ which requires, among other things, 
that the rules of a national securities exchange be designed 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, 
and that the rules of a national securities exchange not be designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers.
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    \42\ In approving this proposed rule change, as amended, the 
Commission notes that it has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \43\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal, as modified by Amendment 
No. 1, is reasonably designed to potentially improve market quality in 
thinly traded securities, including securities issued by small-to-
medium-sized issuers, by aggregating intra-day liquidity on the 
Exchange through an auction process. The Midday Auction would be 
limited to NYSE-listed stocks that have a consolidated average daily 
trading volume of 1,000,000 shares or less, and it would provide market 
participants with a new alternative for seeking liquidity in these 
stocks. Market participants could participate in the Midday Auction, 
but they would also be free to route orders to participate in 
continuous trading on other competing exchanges and trading venues.
    The commenter argues that broad-based, significant changes to 
equity market structure should be conducted through Commission 
rulemaking and not through a single exchange's self-regulatory 
organization rulemaking process. The question before the Commission, 
however, is whether the Exchange's proposal is consistent with the Act. 
If the Commission finds that the Exchange's proposal is consistent with 
the Act, the Commission must approve the proposal,\44\ and, if the 
Commission is unable to find that the Exchange's proposal is consistent 
with the Act, the Commission must disapprove the proposal.\45\
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    \44\ See 15 U.S.C. 78s(b)(2)(C)(i) (``The Commission shall 
approve a proposed rule change of a self-regulatory organization if 
it finds that such proposed rule change is consistent with the 
requirements of this chapter and the rules and regulations issued 
under this chapter that are applicable to such organization.'').
    \45\ See 15 U.S.C. 78s(b)(2)(C)(ii) (``The Commission shall 
disapprove a proposed rule change of a self-regulatory organization 
if it does not make a finding described in clause (i) [i.e., that 
the proposed rule change is consistent with the Act].'').
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    As noted above, the Exchange has proposed an alternative means of 
aggregating intra-day liquidity--adapting an existing auction mechanism 
to function during the trading day--and the Commission believes that 
the Act permits exchanges to experiment with new trading mechanisms, so 
long as those mechanisms are consistent with the Act and the 
regulations thereunder. The mere fact that a single exchange proposes, 
consistent with the Act, to operate differently from another exchange, 
or even all other exchanges, or that it seeks to gain market share from 
its competitors by doing so, does not mean that the exchange's proposed 
rule change constitutes a broad-based change to equity market structure 
that should only be accomplished by Commission rulemaking. The current 
equity market structure features, and the Act permits, fierce 
competition among numerous national securities exchanges, alternative 
trading systems, and other trading venues, each of which seeks to gain 
market share by differentiating itself through offering, among other 
things, different order types, data products, and trading fees and 
rebates. The Commission believes that the Exchange's proposal fits 
comfortably within the bounds of existing competition between trading 
venues and that it is consistent with the Act.
    The commenter has also raised questions with respect to Exchange 
member firms' obligations under the Limit Order Display Rule. The 
Exchange has responded to these questions, and broader best-execution 
concerns, by filing Amendment No. 1, which would: (1) Allow a member 
organization to designate an order to cancel at the beginning of the 
Midday Auction Pause; (2) allow a member organization to designate an 
order to route to an away market quote that locks or crosses the 
previously displayed price of that order during the Midday Auction 
Pause; and (3) cancel resting and arriving Non-Displayed Reserve Orders 
and Non-Display Reserve e-Quotes during the Midday Auction Pause.
    The Commission notes that the proposal, as modified by Amendment 
No. 1, would allow Exchange member organizations to affirmatively opt 
out of participating in the Midday Auction by designating orders to be 
canceled at the start of the Midday Auction Pause and to conditionally 
opt out of the Midday Auction by designating an order to route to away 
markets that lock or cross the order during the Midday Auction Pause. 
The Commission believes that the operation of the Midday Auction, 
including the Midday Auction Pause, would not conflict with the ability 
of member organizations to comply with their obligations under the 
Limit Order Display Rule \46\ or their best-execution obligations to 
their customers.
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    \46\ The Commission notes that Rule 604(b)(5) under Regulation 
NMS, 17 CFR 242.604(b)(5), exempts from the requirements of the 
Limit Order Display Rule any customer limit order that is delivered 
immediately upon receipt to a national securities exchange or 
national securities association-sponsored system, or an electronic 
communications network that complies with the requirements of Sec.  
242.602(b)(5)(ii) with respect to that order.

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[[Page 30751]]

    Finally, the commenter asserts that the Midday Auction does not 
qualify for an exemption from the requirements of Rule 611 of 
Regulation NMS because the Midday Auction would be substantially 
different from the operation of a single-priced reopening transaction. 
The commenter argues that the Rule 611 exception for reopening auctions 
was intended to apply in very specific, limited circumstances to 
address unusual market, operational, or regulatory situations, not to 
permit daily auction mechanism whose purpose is to increase the market 
share of a single exchange.
    In response, the Exchange has clarified that it will not be 
submitting a request for exemptive relief under Rule 611 of Regulation 
NMS because it believes that the Midday Auction would qualify for the 
single-priced reopening exception of Rule 611(b)(3). The Exchange 
explains, in Amendment No. 1, that ``the single-priced trade at the 
conclusion of the Midday Auction is a single-priced reopening 
transaction after a trading halt conducted pursuant to Exchange rules 
and would be excepted under paragraph (b)(3) of Rule 611 under 
Regulation NMS from the trade-through requirements under Rule 611.'' 
\47\
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    \47\ Amendment No. 1, supra note 7.
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    The Commission agrees that the proposal falls within the exception 
for single-priced reopening transactions pursuant to Rule 611(b)(3) of 
Regulation NMS.\48\ Pursuant to Rule 611(a) under Regulation NMS,\49\ 
the Order Protection Rule requires a trading center to have written 
policies and procedures reasonably designed to prevent trade-throughs 
on that trading center of protected quotations in NMS stocks.\50\ Rule 
611(b)(3) under Regulation NMS excepts from the Order Protection Rule a 
single-priced opening, reopening, or closing transaction by the trading 
center.\51\ In adopting Regulation NMS, the Commission directly 
addressed concerns that a trading center might attempt to use the Rule 
611(b)(3) exception to halt trading and then reopen solely to enable it 
to trade-through other trading centers.\52\ The Commission therefore 
specified in the Regulation NMS Adopting Release that the exception 
provided by Rule 611(b)(3) applies ``only to single-priced reopenings 
and therefore requires that a trading center conduct, pursuant to its 
rules or written procedures, a formalized and transparent process for 
executing orders during reopening after a trading halt that involves 
the queuing and ultimate execution of multiple orders at a single 
equilibrium price.'' \53\ Neither the text of Rule 611(b)(3), nor the 
Commission's discussion in the Regulation NMS Adopting Release, 
requires that the relevant trading halt be a market-wide regulatory 
halt or that it necessarily address unusual market, operational, or 
regulatory situations.
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    \48\ 17 CFR 242.611(b)(3).
    \49\ 17 CFR 242.611(a).
    \50\ A trade-through occurs when one trading center executes an 
order at a price that is inferior to the price of a protected 
quotation displayed by another trading center. See Securities 
Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37501 
(June 29, 2005) (File No. S7-10-04) (``Regulation NMS Adopting 
Release''). An ``NMS stock'' means any security or class of 
securities, other than an option, for which transaction reports are 
collected, processed, and made available pursuant to an effective 
transaction reporting plan. See 17 CFR 242.600(b)(46), (47).
    \51\ See 17 CFR 242.611(b)(3).
    \52\ See Regulation NMS Adopting Release, 70 FR at 37520.
    \53\ See Regulation NMS Adopting Release, 70 FR at 37521. In 
addition, the Commission stated that the trading center must have 
formally declared a trading halt, pursuant to its rules or written 
procedures, to fall within the Rule 611(b)(3) exception. Id.
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    As proposed, the Midday Auction would be conducted once per day, 
pursuant to Exchange rules and at a time that would be publicly 
announced in advance. The Midday Auction would halt trading on the 
Exchange in Midday Auction Securities for five minutes to allow market 
participants an opportunity to enter, cancel, or modify trading 
interest. During this five-minute pause, the Exchange would publish 
Order Imbalance Information, and would be permitted to publish 
``indications,'' to attract liquidity. At the conclusion of the five-
minute pause, the Exchange would reopen each of the Midday Auction 
Stocks, executing the queued orders at a single equilibrium price in 
the same manner as NYSE Rule 123D reopenings.
    The Commission believes that the proposal is not designed to permit 
the Exchange to declare a trading halt merely to be able to circumvent 
the operation of the Order Protection Rule upon reopening. Instead, the 
Exchange has proposed a formalized and transparent process for the 
Midday Auction that would involve the queuing and execution of multiple 
orders at a single equilibrium price, pursuant to a trading halt 
declared pursuant to its own rules. The Commission therefore believes 
that the proposal falls within the exception for single-priced 
reopenings pursuant to Rule 611(b)(3) of Regulation NMS.\54\
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    \54\ See 17 CFR 242.611(b)(3).
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    For the above reasons, the Commission finds that the proposal, as 
modified by Amendment No. 1, is consistent with the requirements of the 
Act.

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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-NYSE-2015-06 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-NYSE-2015-06. 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-NYSE-2015-06 and should be 
submitted on or before June 19, 2015.

[[Page 30752]]

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register. As discussed above, in Amendment No. 1, the Exchange proposes 
to: (1) Allow a member organization to designate an order to cancel at 
the beginning of the Midday Auction Pause; (2) allow a member 
organization to designate an order to route to an away market quote 
that locks or crosses the previously displayed price of the order 
during the Midday Auction Pause, in which case the returned quantity of 
a routed order would also route; (3) have the Exchange cancel, during 
the Midday Auction Pause, resting and arriving Non-Displayed Reserve 
Orders and Non-Display Reserve e-Quotes, which the Exchange specifies 
are not eligible to participate in the Midday Auction; (4) clarify that 
only orders that are eligible to participate in the Midday Auction 
would continue to be repriced during the Midday Auction Pause; (5) 
prevent the Midday Auction from executing at a price outside of the 
LULD Bands or the Exchange's Trading Collars, whichever is lower (for a 
buy imbalance) or higher (for a sell imbalance). Furthermore, the 
Exchange proposes to make a technical change to Exhibit 5 to correct an 
errant cross reference in Proposed NYSE Rule 124(e). The Exchange has 
also added additional text to the filing to explain the revisions 
contained in Amendment No. 1, further explained other aspects of the 
proposed rule change, and removed from the filing text stating that the 
Exchange intends to submit separately a request for exemptive relief 
pursuant to Rule 611(d) of Regulation NMS.
    The Commission believes that Amendment No. 1 provides market 
participants with the option to opt out of the Midday Auction, provides 
that non-displayed orders would not participate in the Midday Auction, 
and addresses the price limitations within which the Midday Auction 
would occur. In particular, the Commission believes that permitting 
member organizations to designate orders to cancel when the Midday 
Auction Pause begins, or to route when an order becomes locked or 
crossed by an away market quote during the Midday Auction Pause, should 
provide Exchange member organizations with appropriate options to help 
them comply with their best-execution duties to their customers. 
Furthermore, the Commission believes that providing for the 
cancellation or rejection of non-displayed orders during the Midday 
Auction Pause provides clarity as to how the Exchange intends the 
proposed auction to operate in regard to order execution. Additionally, 
the Commission believes that limiting the Midday Auction execution 
price to the lower (for a buy imbalance) or higher (for a sell 
imbalance) of the Exchange's LULD Band or Trading Collar Band, at the 
time of the Midday Auction, should mitigate the risk of an execution at 
prices that are too far away from the prevailing price of a given 
security in continuous trading on other national securities exchanges 
and trading venues. Finally, the Commission believes that the 
Exchange's proposed technical revisions, and additional explanation 
regarding the proposal, will provide market participants more clarity 
regarding how the proposed rule is intended to operate.
    The Commission finds that Amendment No. 1 is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\55\ to approve the proposed rule change, as modified by Amendment 
No. 1, on an accelerated basis.
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    \55\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Act,\56\ the proposed rule change, as modified by Amendment No. 1, (SR-
NYSE-2015-06) be, and hereby is, approved on an accelerated basis.
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    \56\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\57\
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    \57\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12968 Filed 5-28-15; 8:45 am]
 BILLING CODE 8011-01-P