[Federal Register Volume 81, Number 10 (Friday, January 15, 2016)]
[Notices]
[Pages 2276-2282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00645]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76869; File No. SR-NYSEArca-2015-86]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, and Notice of Filing and Order 
Granting Accelerated Approval of Amendment Nos. 1 and 3 Thereto, 
Relating to Auctions for Pillar, the Exchange's New Trading Technology 
Platform

January 11, 2016.

I. Introduction

    On September 22, 2015, NYSE Arca, Inc. (``Exchange'' or ``Arca'') 
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 
adopt new equity trading rules relating to auctions for Pillar, the 
Exchange's new trading technology platform. The proposed rule change 
was published for comment in the Federal

[[Page 2277]]

Register on October 13, 2015.\3\ The Commission received no comments on 
the proposed rule change. On November 20, 2015, 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 approve or disapprove the proposed rule 
change.\4\ On December 22, 2015, the Exchange filed Amendment No. 1 to 
the proposed rule change.\5\ On January 7, 2016, the Exchange filed 
Amendment No. 3 to the proposed rule change.\6\ The Commission is 
publishing this notice to solicit comment on Amendment Nos. 1 and 3 
from interested persons, and is approving the proposed rule change, as 
modified by Amendment Nos. 1 and 3, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76085 (October 6, 
2015), 80 FR 61513 (``Notice'').
    \4\ See Securities Exchange Act Release No. 76493, 80 FR 74169 
(November 27, 2015).
    \5\ In Amendment No. 1, the Exchange: (i) Amends proposed Rule 
7.35P(h) to provide that the rule would address how orders would be 
handled not only in the transition to continuous trading following 
an auction, but also when transitioning from one trading session to 
the next trading session; (ii) amends proposed Rule 7.35P(h)(3)(B) 
to provide that, before continuous trading following a prior trading 
session or an auction begins, the display price and working price of 
orders would be adjusted as provided for in Rule 7.31P, and that 
when transitioning to continuous trading, the display price and 
working price of Day ISOs would be adjusted in the same manner as 
Arca Only Orders until the Day ISO is either traded in full or 
displayed at its limit price; and (iii) provides additional 
discussions related to certain proposed rules.
    \6\ Amendment No. 3 superseded Amendment No. 2 in its entirety. 
In Amendment No. 3, the Exchange: (i) Specifies the percentages for 
the Auction Collar thresholds; (ii) removes the reference to the 
Trading Halt Auction in the definition of Auction Collar; (iii) 
states that the Exchange would provide prior notice to ETP Holders 
if additional UTP Securities are to be designated as Auction-
Eligible Securities; (iv) includes cross-references to Rule 7.16P in 
Commentary .01 to proposed Rule 7.35P to clarify where certain terms 
are defined; and (v) provides additional discussions related to 
certain proposed rules.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Exchange proposes to adopt Rule 7.35P, which relates to 
auctions for Pillar, the Exchange's new trading technology platform. 
The Exchange also proposes to amend existing definitions in Rule 
1.1.\7\
---------------------------------------------------------------------------

    \7\ The Exchange proposes to amend Rules 1.1(r) and (s) to 
specify that the definition of ``Imbalance'' and ``Indicative Match 
Price'' in those rules would be applicable only for auctions 
conducted on the current trading platform. The Exchange states that 
these changes would remove impediments to and perfect the mechanism 
of a fair and orderly market because they would not make any 
substantive changes, but rather are designed to reduce confusion by 
specifying that Rules 1.1(r) and (s) would be applicable to auctions 
on the current trading platform only. See Notice at 61525.
---------------------------------------------------------------------------

A. Background

    The Exchange represents that Pillar is an integrated trading 
technology platform designed to use a single specification for 
connecting to the equities and options markets operated by Arca and its 
affiliates, New York Stock Exchange LLC (``NYSE'') and NYSE MKT LLC 
(``NYSE MKT'').\8\ On April 30, 2015, the Exchange filed the first rule 
filing relating to the implementation of Pillar, which adopted rules 
relating to Trading Sessions, Order Ranking and Display, and Order 
Execution.\9\ On July 7, 2015, the Exchange filed the second rule 
filing relating to the implementation of Pillar, which adopted rules 
relating to Orders and Modifiers and the Retail Liquidity Program.\10\ 
On July 1, 2015, the Exchange filed the third rule filing relating to 
the implementation of Pillar, which adopted rules relating to Trading 
Halts, Short Sales, Limit Up-Limit Down, and Odd Lots and Mixed 
Lots.\11\
---------------------------------------------------------------------------

    \8\ See Notice at 61513.
    \9\ See Securities Exchange Act Release No. 74951 (May 13, 
2015), 80 FR 28721 (May 19, 2015) (SR-NYSEArca-2015-38) (``Pillar I 
Filing''). The Commission approved the Pillar I Filing on July 20, 
2015. See Securities Exchange Act Release No. 75494 (July 20, 2015), 
80 FR 44170 (July 24, 2015).
    \10\ See Securities Exchange Act Release No. 75497 (July 21, 
2015), 80 FR 45022 (July 28, 2015) (SR-NYSEArca-2015-56) (``Pillar 
II Filing''). The Commission approved the Pillar II Filing on 
October 26, 2015. See Securities Exchange Act Release No. 76267 
(October 26, 2015), 80 FR 66951 (October 30, 2015).
    \11\ See Securities Exchange Act Release No. 75467 (July 16, 
2015), 80 FR 43515 (July 22, 2015) (SR-NYSEArca-2015-58) (``Pillar 
III Filing''). The Commission approved the Pillar III Filing on 
October 20, 2015. See Securities Exchange Act Release No. 76198 
(October 20, 2015), 80 FR 65274 (October 26, 2015). See also 
Securities Exchange Act Release No. 76198A (October 28, 2015), 80 FR 
67822 (November 3, 2015).
---------------------------------------------------------------------------

    This filing is the fourth set of proposed rule changes to support 
Pillar implementation. As proposed, the new rule governing trading on 
Pillar would have the same numbering as the current rule, but with the 
modifier ``P'' appended to the rule number. Specifically, Rule 7.35, 
which governs auctions, would remain unchanged and continue to apply to 
any trading in symbols on the current trading platform. Proposed Rule 
7.35P would govern auctions for trading in symbols migrated to the 
Pillar platform.

B. Proposed Modifications

    As stated in the Notice, the Exchange proposes new Rule 7.35P to 
describe auctions on Pillar, which would be based on Rule 7.35 and 
Rules 1.1(r) and (s).\12\ The Exchange states that auctions on Pillar 
would function similarly to auctions on the current trading 
platform.\13\ According to the Exchange, proposed Rule 7.35P would use 
Pillar terminology and include both substantive and non-substantive 
differences and clarifications from the current rule text.\14\ The 
proposed changes that are more substantive in nature are noted in 
Section III below and are discussed in the Notice.
---------------------------------------------------------------------------

    \12\ See Notice at 61513.
    \13\ See Notice at 61513-14.
    \14\ See Notice at 61514.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\15\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\16\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, 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 are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission notes that, in the proposal, the Exchange states its 
belief that proposed Rule 7.35P, together with rules from the three 
previous Pillar filings, would remove impediments to and perfect the 
mechanism of a free and open market because they would promote 
transparency by using consistent terminology for rules governing 
equities trading, thereby ensuring that members, regulators, and the 
public can more easily navigate the Exchange's rulebook and better 
understand how equity trading would be conducted on Pillar.\17\ The 
Exchange also states that the proposed use of Pillar terminology would 
promote consistency in the Exchange's rulebook regarding how the 
Exchange would process orders during an auction.\18\ Moreover, the 
Exchange states that adding new rules with the modifier ``P'' to denote 
the rules that would be

[[Page 2278]]

operative for Pillar would remove impediments to and perfect the 
mechanism of a free and open market by providing transparency regarding 
which rules govern trading once a symbol has been migrated to 
Pillar.\19\
---------------------------------------------------------------------------

    \17\ See Notice at 61525.
    \18\ See id.
    \19\ See id.
---------------------------------------------------------------------------

    The Commission also notes that, with respect to the substantive 
differences between proposed Rule 7.35P and the current rules, the 
Exchange states that they would remove impediments to and perfect the 
mechanism of a fair and orderly market.\20\ In particular, the Exchange 
proposes to make several changes that are more substantive in nature, 
which include:
---------------------------------------------------------------------------

    \20\ See id.
---------------------------------------------------------------------------

Definitions
    Auction-Eligible Security: The Exchange proposes a new definition 
for the term ``Auction-Eligible Security.'' \21\ According to the 
Exchange, as with the current rule, all securities for which the 
Exchange is the primary listing market would be Auction-Eligible 
Securities.\22\ However, for Pillar, the Exchange would designate UTP 
Securities \23\ that would be Auction-Eligible Securities for the Early 
Open Auction, the Core Open Auction, and the Closing Auction.\24\ 
According to the Exchange, this approach would support the initiatives 
of the Exchange, NYSE, and the NASDAQ Stock Market LLC (``Nasdaq'') to 
increase resiliency by having auctions on Arca serve as a backup to 
either NYSE or Nasdaq if one of those markets is unable to conduct an 
auction.\25\
---------------------------------------------------------------------------

    \21\ See proposed Rule 7.35P(a)(1).
    \22\ See Notice at 61515.
    \23\ The term ``UTP Security'' means a security that is listed 
on a national securities exchange other than the Exchange and that 
trades on the NYSE Arca Marketplace pursuant to unlisted trading 
privileges. See Rule 1.1(ii).
    \24\ See Notice at 61515. According to the Exchange, consistent 
with Rule 7.18P(b), for the Trading Halt Auction, Auction-Eligible 
Securities means securities for which Arca is the primary listing 
market. See id.
    \25\ See id.
---------------------------------------------------------------------------

    Auction Imbalance Information: The Exchange proposes to define 
``Auction Imbalance Information'' to mean the information that is 
disseminated by the Corporation \26\ for an auction.\27\ As proposed, 
Auction Imbalance Information would be updated at least every second 
(unless there is no change to the information), rather than on a real-
time basis.\28\ According to the Exchange, by updating Auction 
Imbalance Information on a one-second basis, ETP Holders that are 
interested in entering offsetting interest during an Auction Imbalance 
Freeze would have greater certainty of the Imbalance in effect at the 
time of order entry.\29\
---------------------------------------------------------------------------

    \26\ The term ``Corporation'' means NYSE Arca Equities, Inc. See 
Rule 1.1(k).
    \27\ See proposed Rule 7.35P(a)(4).
    \28\ See proposed Rule 7.35P(a)(4)(A).
    \29\ See Amendment No. 1.
---------------------------------------------------------------------------

    Auction NBBO: The Exchange proposes to define ``Auction NBBO'' to 
mean an NBBO that is used for purposes of pricing an auction. As 
proposed, an NBBO is an Auction NBBO when (i) there is an NBB above 
zero and NBO for the security and (ii) the NBBO is not crossed.\30\ In 
addition, for the Core Open Auction, an NBBO is an Auction NBBO when 
the midpoint of the NBBO, when multiplied by a designated percentage, 
is greater than or equal to the spread of that NBBO.\31\ According to 
the Exchange, this approach would promote transparency regarding how 
the Exchange determines pricing for its auctions.\32\ Moreover, 
according to the Exchange, the proposed method for determining the 
Auction NBBO for the Core Open Auction is designed to validate whether 
an NBBO bears a relation to the value of the security.\33\
---------------------------------------------------------------------------

    \30\ See proposed Rule 7.35P(a)(5).
    \31\ See id. The designated percentage would be determined by 
the Corporation from time to time upon prior notice to ETP Holders. 
See id.
    \32\ See Notice at 61516 and 61526.
    \33\ See Notice at 61516.
---------------------------------------------------------------------------

    Auction Ranking: The Exchange proposes to define ``Auction 
Ranking'' to mean how orders on the side of an Imbalance would be 
ranked for allocation in an Auction. Specifically, orders on the side 
of the Imbalance would be ranked in price-time priority under Rule 
7.36P(c)-(g) consistent with the priority ranking associated with each 
order, provided that: (i) MOO and MOC Orders would be ranked Priority 
1--Market Orders; (ii) LOO and LOC Orders would be ranked Priority 2--
Display Orders; and (iii) the limit price of Limit, LOO, and LOC orders 
would be used for ranking purposes.\34\ According to the Exchange, the 
only order ranked Priority 3--Non-Display Orders that would be eligible 
to participate in an auction would be the non-displayed quantity of a 
Reserve Order.\35\ The Exchange states that the proposed approach would 
promote transparency in Exchange rules by consolidating into a single 
location how orders would be ranked for auctions.\36\ The Exchange also 
states that using the same methodology to rank and allocate orders on 
the side of the Imbalance for all auctions based on the priority 
ranking described in Rule 7.36P would promote consistency in how the 
Exchange would rank orders on Pillar, whether for continuous trading or 
for auctions.\37\ In addition, during a Short Sale Period (as defined 
in Rule 7.16P(f)(4)), for purposes of pricing an auction and ranking 
orders for allocation in an auction, sell short Market Orders that are 
adjusted to a Permitted Price (as defined in Rule 7.16P(f)(5)(A)) would 
be processed as Limit Orders ranked Priority 2--Display Orders, and 
would not be included in the Market Imbalance.\38\ The Exchange states 
that, once adjusted to a Permitted Price, a sell short Market Order has 
a price and such price could be used for purposes of determining the 
price of the auction.\39\ As such, the Exchange believes that it is 
appropriate to treat these re-priced Market Orders as Limit Orders for 
purposes of determining allocation in an auction, and that this 
approach would promote transparency by processing all orders that have 
a price similarly in an auction.\40\
---------------------------------------------------------------------------

    \34\ See proposed Rule 7.35P(a)(6).
    \35\ See Notice at note 29.
    \36\ See Notice at 61526.
    \37\ See id.
    \38\ See proposed Rule 7.35P, Commentary .01(a). As proposed, 
sell short orders that are included in the Auction Imbalance 
Information, but are not eligible for continuous trading before the 
applicable auction, would be adjusted to a Permitted Price as the 
NBB moves both up and down. See proposed Rule 7.35P, Commentary 
.01(b). The Exchange states that continuously re-pricing sell short 
orders consistent with Rule 7.16P(f)(5), even though they are not 
yet eligible to trade, would provide greater transparency regarding 
the price at which such orders would be included in the Auction 
Imbalance Information. See Notice at 61525 and Amendment No. 1.
    \39\ See Notice at 61525 and Amendment No. 1.
    \40\ See Notice at 61526.
---------------------------------------------------------------------------

    Market Orders: The Exchange proposes that, for purposes of Rule 
7.35P, unless otherwise specified, the term ``Market Orders'' would 
include MOO Orders (for the Core Open Auction and Trading Halt Auction) 
and MOC Orders (for the Closing Auction).\41\ According to the 
Exchange, consistent with Rule 7.31P(c)(2), the term ``Market Orders'' 
in proposed Rule 7.35P would include MOO Orders for the Trading Halt 
Auction.\42\ Also, the Exchange states that because unexecuted Market 
Orders that are held at a Trading Collar or NBBO would be eligible to 
participate in the Closing Auction and would be included in Closing 
Auction Imbalance Information, proposed Rule 7.35P would refer to 
Market Orders generally for the Closing Auction, which would include 
MOC Orders.\43\
---------------------------------------------------------------------------

    \41\ See proposed Rule 7.35P(a).
    \42\ See Notice at 61514-15.
    \43\ See Notice at 61515.
---------------------------------------------------------------------------

    Market Imbalance: As proposed, the term ``Market Imbalance'' would 
mean the imbalance of any remaining buy (sell) Market Orders that are 
not matched for trading in an auction against any interest, and not 
just Market Orders not matched for trading against

[[Page 2279]]

other Market Orders.\44\ The Exchange states its belief that the 
proposed approach would provide transparency regarding the volume of 
Market Orders not paired up against any interest.\45\
---------------------------------------------------------------------------

    \44\ See proposed Rule 7.35P(a)(7)(B).
    \45\ See Notice at 61517.
---------------------------------------------------------------------------

    Indicative Match Price: As proposed, the term ``Indicative Match 
Price'' would mean the best price at which the maximum volume of 
shares, including the non-displayed quantity of Reserve Orders, is 
tradable in the applicable auction, subject to the Auction Collars.\46\ 
If there are two or more prices at which the maximum volume of shares 
is tradable, the Indicative Match Price would be the price closest to 
the ``Auction Reference Price'' (provided that the Indicative Match 
Price would not be lower (higher) than the price of an order to buy 
(sell) ranked Priority 2 that was eligible to participate in the 
auction).\47\ If the Matched Volume for an auction consists of Market 
Orders only, the Indicative Match Price would be: (i) for the Core open 
Auction, the Auction Reference Price; (ii) for the Closing Auction, the 
midpoint of the Auction NBBO as of the time the auction is conducted, 
provided that if the Auction NBBO is locked, the locked price, and if 
there is no Auction NBBO, the Auction Reference Price; and (iii) for 
the Trading Halt Auction, the Auction Reference Price.\48\ In addition, 
if there is a BBO but no Matched Volume, the Indicative Match Price and 
Total Imbalance for the Auction Imbalance Information would be the side 
of the BBO that has the higher volume, and if the volume of BB equals 
the volume of BO, the BB.\49\ As proposed, if there is no Matched 
Volume and Market Orders on only one side of the market, the Indicative 
Match Price would be zero.\50\
---------------------------------------------------------------------------

    \46\ See proposed Rule 7.35P(a)(8). As proposed, the Indicative 
Match Price would be determined for all securities in the same 
manner, regardless of whether the Exchange is the primary listing 
market for a security or the security is a UTP Security. See Notice 
at 61514. The Exchange states that this would promote clarity and 
transparency in Exchange rules and streamline how auctions would be 
processed. See Notice at 61526.
    \47\ See proposed Rule 7.35P(a)(8)(A). If there are two prices 
at which the maximum volume of shares is tradable and both prices 
are equidistant to the Auction Reference Price, the Indicative Match 
Price would be the Auction Reference Price. See proposed Rule 
7.35P(a)(8)(B).
    \48\ See proposed Rule 7.35P(a)(8)(C).
    \49\ See proposed Rule 7.35P(a)(8)(D). According to the 
Exchange, while there would be no Matched Volume, the Indicative 
Match Price would be a benchmark price that could attract more 
interest for participation in the auction, thereby promoting price 
discovery. See Notice at 61526.
    \50\ See proposed Rule 7.35P(a)(8)(E).
---------------------------------------------------------------------------

    Auction Reference Price: The Auction Reference Price for the Core 
Open Auction would be the midpoint of an Auction NBBO or, if the 
Auction NBBO is locked, the locked price. If there is no Auction NBBO, 
the Exchange would use the prior trading day's Official Closing 
Price.\51\ The Exchange states its belief that using the midpoint of 
the Auction NBBO for the Core Open Auction would better reflect the 
most recent value of the security, as compared to a closing price from 
the prior trading day.\52\ The Auction Reference Price for the Trading 
Halt Auction and the Closing Auction would be the last consolidated 
round-lot price of that trading day and, if none, the prior trading 
day's Official Closing Price.\53\ The Exchange states that the Auction 
Reference Price for the Trading Halt Auction and the Closing Auction is 
based on Rule 1.1(s), with additional specificity that it would be a 
last consolidated round-lot price of that trading day, and to specify 
the reference price if there were no last consolidated round-lot trades 
that day.\54\ The Exchange states its belief that the last consolidated 
round-lot price prior to a Trading Halt Auction would reflect the most 
recent value for a security, and that the last consolidated round-lot 
price would be representative of the value of the security going into 
the Closing Auction.\55\ With respect to the IPO Auction, the Exchange 
proposes that the Auction Reference Price would be zero, unless the 
Corporation is provided with a price for the security.\56\ The Exchange 
states that it proposes to use zero (unless the Corporation is provided 
with a price for the security) because there would not be any prior 
trading in that security.\57\
---------------------------------------------------------------------------

    \51\ See proposed Rule 7.35P(a)(8).
    \52\ See Amendment No. 1.
    \53\ See proposed Rule 7.35P(a)(8).
    \54\ See Notice at 61518.
    \55\ See Amendment No. 1.
    \56\ See proposed Rule 7.35P(a)(8).
    \57\ See Notice at 61518. As with the current rule, the Auction 
Reference Price for the Early Open Auction would be the prior day's 
Official Closing Price. See proposed Rule 7.35P(a)(8).
---------------------------------------------------------------------------

    Auction Collar: The Exchange proposes to define ``Auction Collar'' 
to mean the price collar thresholds for the Indicative Match Price for 
the Core Open Auction and Closing Auction.\58\ As proposed, the Auction 
Collar would be based on a price that is a specified percentage away 
from the Auction Reference Price.\59\ An Indicative Match Price that is 
equal to or outside the Auction Collar would be adjusted to be one 
minimum price variation (``MPV'') inside the Auction Collar, and orders 
eligible to participate in the applicable auction would trade at the 
collared Indicative Match Price.\60\ According to the Exchange, if the 
Auction Collars are based on the clearly erroneous execution thresholds 
(which is currently the case for the Core Open Auction), pricing an 
auction one MPV inside the Auction Collar would potentially prevent an 
auction from being a clearly erroneous execution.\61\ Under the 
proposal, the specified percentages for the Auction Collar would 
be:\62\
---------------------------------------------------------------------------

    \58\ See proposed Rule 7.35P(a)(10) and Amendment No. 3.
    \59\ See proposed Rule 7.35P(a)(10)(A).
    \60\ See proposed Rule 7.35P(a)(10)(B).
    \61\ See Notice at 61526.
    \62\ See proposed Rule 7.35P(a)(10) and Amendment No. 3. These 
thresholds are the same as the current price collar thresholds for 
the Market Order Auction and the Closing Auction.

------------------------------------------------------------------------
                                             Core open        Closing
         Auction reference price            auction (%)     auction (%)
------------------------------------------------------------------------
$25.00 or less..........................              10               5
Greater than $25.00 but less than or                   5               2
 equal to $50.00........................
Greater than $50.00.....................               3               1
------------------------------------------------------------------------

Early Open Auction
    Similar to the Core Open Auction, the non-displayed quantity of 
Reserve Orders eligible to participate in the Early Open Auction would 
not be included in the Matched Volume or Total Imbalance until the 
Early Open Auction Imbalance Freeze begins.\63\
---------------------------------------------------------------------------

    \63\ See proposed Rule 7.35P(b)(1) and discussion below 
regarding the Core Open Auction.
---------------------------------------------------------------------------

    There would not be any order entry or cancellation restrictions 
during the one-minute Auction Imbalance Freeze before the Early Open 
Auction. According to the Exchange, there is not any trading occurring 
before the Early Open Auction, and therefore the risk to manipulate 
market prices before the Early Open Auction is minimal.\64\ The 
Exchange also notes that, because an

[[Page 2280]]

Early Open Auction would occur at 4:00 a.m. Eastern Time, which is well 
before regular market hours, the Exchange generally does not receive 
sufficient buying and selling interest to warrant conducting such an 
auction in the vast majority of Exchange-listed securities.\65\ The 
Exchange notes that, because it generally conducts an Early Open 
Auction in fewer than 20 securities on a given trading day, the need 
for order entry or cancellation restrictions in advance of such 
auctions is abated.\66\
---------------------------------------------------------------------------

    \64\ See Notice at 61526.
    \65\ See Amendment No. 1.
    \66\ See id.
---------------------------------------------------------------------------

Core Open Auction
    As proposed, the non-displayed quantity of Reserve Orders eligible 
to participate in the Core Open Auction would not be included in the 
Matched Volume, Total Imbalance, or Market Imbalance until the Core 
Open Auction Imbalance Freeze begins.\67\ The Exchange states its 
belief that it is appropriate to exclude the volume of the non-
displayed portion of Reserve Orders until the Core Open Auction 
Imbalance Freeze begins because it reduces the potential for market 
participants to identify the volume of interest that is intended to be 
non-displayed.\68\ The Exchange also states its belief that it is 
appropriate to include this information once the Core Open Auction 
Imbalance Freeze begins so that market participants can have greater 
certainty of the full size of the Imbalance in order to assess whether 
to enter offsetting interest and to promote transparency regarding the 
pricing of an auction.\69\
---------------------------------------------------------------------------

    \67\ See proposed Rule 7.35P(c)(1).
    \68\ See Amendment No. 1. According to the Exchange, the 
Indicative Match Price would include the volume of the non-displayed 
portion of Reserve Orders at all times because that data point only 
provides pricing information, and not volume of shares eligible to 
trade. See id.
    \69\ See Amendment No. 3. Also, according to the Exchange, 
because the proposed rule would specify that reserve interest would 
be included in specified Auction Imbalance Information, ETP Holders 
that enter these orders would be on notice that certain information 
about the reserve quantity of their orders would be included in the 
information provided in advance of an auction. See id.
---------------------------------------------------------------------------

    As proposed, the Core Open Auction Imbalance Freeze would be five 
seconds, instead of one minute.\70\ According to the Exchange, this 
shorter Freeze period would provide additional time for market 
participants to enter orders for the Core Open Auction without 
restriction, thereby promoting price discovery for the auction.\71\ The 
Exchange also states its belief that, with today's faster technology, 
five seconds provides sufficient time for industry participants to 
respond to a published Imbalance and enter offsetting interest, if 
applicable.\72\
---------------------------------------------------------------------------

    \70\ See proposed Rule 7.35P(c)(3). However, similar to the 
current rule, the Exchange would reject requests to cancel and 
requests to cancel and replace MOO and LOO Orders beginning one 
minute before the scheduled time for the Core Open Auction. See 
proposed Rule 7.35P(c)(2).
    \71\ See Notice at 61521 and 61526.
    \72\ See Amendment No. 1.
---------------------------------------------------------------------------

    Under the proposal, because of the shorter Freeze period, MOO and 
LOO Orders entered during the Freeze would be rejected regardless of 
side.\73\ The Exchange states its belief that rejecting all MOO and LOO 
Orders would remove the potential for such orders to impact the 
Imbalance.\74\ As proposed, during the Freeze, the Exchange would 
accept Market Orders (other than MOO Orders) and Limit Orders 
designated for the Core Trading Session on both sides of the market, 
but such orders would be eligible to participate in the auction only to 
offset the Imbalance that remains after all orders entered before the 
Freeze are allocated in the Core Open Auction.\75\ The Exchange states 
that this approach would eliminate the possibility for these orders to 
create or increase an Imbalance.\76\ The Exchange also states that it 
proposes to process Market Orders (other than MOO Orders) and Limit 
Orders differently from MOO and LOO Orders because Market Orders (other 
than MOO Orders) and Limit Orders would not expire at the end of the 
auction.\77\ Therefore, rather than rejecting these orders upon entry, 
they would be accepted and would be eligible to be offsetting interest 
for the auction.\78\ If these orders do not participate in the Core 
Open Auction, they would become eligible to participate in the Core 
Trading Session.\79\ As proposed, during the Freeze, requests to cancel 
and requests to cancel and replace Market Orders (other than MOO 
Orders) and Limit Orders designated for the Core Trading Session only 
would be accepted but would not be processed until after the Core Open 
Auction concludes.\80\ All other order instructions would be accepted 
during the Freeze.\81\
---------------------------------------------------------------------------

    \73\ See proposed Rule 7.35P(c)(3)(A).
    \74\ See Notice at 61526.
    \75\ See proposed Rule 7.35P(c)(3)(B).
    \76\ See Notice at 61526.
    \77\ See Notice at 61521.
    \78\ See id.
    \79\ See id.
    \80\ See proposed Rule 7.35P(c)(3)(C).
    \81\ See proposed Rule 7.35P(c)(3)(D).
---------------------------------------------------------------------------

Closing Auction
    As with the Core Open Auction, the non-displayed quantity of 
Reserve Orders eligible to participate in the Closing Auction would not 
be included in the Matched Volume, Total Imbalance, or Market Imbalance 
until the Closing Auction Imbalance Freeze begins.\82\
---------------------------------------------------------------------------

    \82\ See proposed Rule 7.35P(d)(1).
---------------------------------------------------------------------------

    As proposed, the Exchange would conduct a Closing Auction in Pillar 
even if there are only Market Orders eligible to participate in the 
Closing Auction.\83\ According to the Exchange, this proposal would 
increase the potential for market participants that have entered MOC 
Orders to receive an execution in an auction that is priced based on 
the prevailing value of the security.\84\
---------------------------------------------------------------------------

    \83\ See discussion above regarding the determination of 
Indicative Match Price where the Matched Volume for an auction 
consists of Market Orders only.
    \84\ See Notice at 61526. The Exchange states that the midpoint 
of the Auction NBBO in effect as of the scheduled time of the 
Closing Auction as bound by Auction Collars that would be based on 
the last consolidated round-lot price of that trading day would 
reflect the most recent quoting activity and price in a stock. See 
Amendment No. 3. In addition, the Exchange states that pricing an 
auction with only Market Orders on both sides of the market based on 
the midpoint of an uncrossed NBBO is not novel. See id.
---------------------------------------------------------------------------

Trading Halt Auction
    As proposed, a Trading Halt Auction would be conducted to re-open 
trading in an Auction-Eligible Security following a halt or pause of 
trading in that security in the Early Trading Session, Core Trading 
Session, or Late Trading Session, as applicable.\85\ As proposed, 
during a trading halt or pause in an Auction-Eligible Security, entry 
and cancellation of orders eligible to participate in the Trading Halt 
Auction would be processed as provided for in Rule 7.18P(c).\86\
---------------------------------------------------------------------------

    \85\ See proposed Rule 7.35P(e).
    \86\ See proposed Rule 7.35P(e)(3).
---------------------------------------------------------------------------

    Under current Rule 7.35(f)(3)(C), the Corporation, if it deems such 
action necessary, will disseminate the time, prior to the time that 
orders are matched pursuant to the Trading Halt Auction, at which 
orders may no longer be cancelled. The Exchange states that, on the 
current trading platform, it has not invoked this authority, and it 
proposes to not include it in the Pillar rules.\87\
---------------------------------------------------------------------------

    \87\ See Amendment No. 1.
---------------------------------------------------------------------------

IPO Auction
    As proposed, an IPO Auction would be conducted during the Core 
Trading Session on the first day of trading for any security, including 
a Derivative Securities Product,\88\ for which Arca is

[[Page 2281]]

the primary listing market, excluding transfers.\89\ As proposed, an 
IPO Auction would follow the processing rules of a Core Open Auction, 
provided that NYSE Arca Marketplace would specify the time that an IPO 
Auction would be conducted.\90\ Also, there would be no Auction 
Imbalance Freeze, Auction Collars, or restrictions on the entry or 
cancellation of orders for an IPO Auction.\91\ According to the 
Exchange, because an IPO Auction would not be set at a specific time, 
nor would there be any trading in the security before the IPO Auction, 
the Exchange does not believe that an Auction Imbalance Freeze or 
Auction Collars would assist in the price discovery process or would be 
necessary to prevent fraudulent and manipulative acts and 
practices.\92\ Moreover, according to the Exchange, because the time of 
an IPO Auction may change, the Exchange does not believe that there 
needs to be any restrictions on the entry or cancellation of orders 
before an IPO Auction.\93\ The Exchange states that if there is an 
Imbalance going into an IPO Auction, the Exchange could extend the time 
for the IPO Auction in order to attract additional offsetting interest 
or allow ETP Holders to cancel orders that are on the side of the 
Imbalance.\94\ Finally, an IPO Auction would not be conducted if there 
are only Market Orders on both sides of the market.\95\ According to 
the Exchange, if there are only Market Orders on both sides of the 
market, the Exchange has the flexibility to change the time in order to 
attract more interest for the auction.\96\
---------------------------------------------------------------------------

    \88\ The Exchange notes that although the first day of trading 
of a Derivative Securities Product may not technically be an initial 
public offering, it proposes to use the term IPO as signifying that 
this would be the auction on the first day of trading of a new 
listing on the Exchange. See Notice at 61523.
    \89\ See proposed Rule 7.35P(f).
    \90\ See proposed Rule 7.35P(f)(1).
    \91\ See proposed Rule 7.35P(f)(2).
    \92\ See Notice at 61523.
    \93\ See id.
    \94\ See Amendment No. 1.
    \95\ See proposed Rule 7.35P(f)(3).
    \96\ See Notice at 61523-24.
---------------------------------------------------------------------------

Auction Processing Period
    As proposed, new orders, requests to cancel, and requests to cancel 
and replace an order that are received during the Auction Processing 
Period \97\ would be accepted but would not be processed until after 
the auction concludes.\98\ The Exchange states its belief that it is 
appropriate to wait to process such new order instructions until after 
the auction processing concludes in order to provide certainty 
regarding the timing and pricing of an auction.\99\ Moreover, as 
proposed, a request to cancel and replace an order that was entered 
during the Auction Processing Period for an order that was also entered 
during the Auction Processing Period would be rejected.\100\
---------------------------------------------------------------------------

    \97\ The Exchange proposes to define ``Auction Processing 
Period'' to mean the period during which the applicable auction is 
being processed. See proposed Rule 7.35P(a)(2).
    \98\ See proposed Rule 7.35P(g).
    \99\ See Amendment No. 1.
    \100\ See proposed Rule 7.35P(g).
---------------------------------------------------------------------------

Transition to Continuous Trading
    As proposed, after auction processing concludes, including if there 
is no Matched Volume and an auction is not conducted, or when 
transitioning from one trading session to another, orders that are no 
longer eligible to trade would expire.\101\ Orders that are designated 
for a trading session and that were received during a prior trading 
session or during the Auction Processing Period and that did not 
participate in the auction would become eligible to trade.\102\ Also, 
before continuous trading following a prior trading session or an 
auction begins, any order instructions received during either the 
Auction Imbalance Freeze or Auction Processing Period that were not 
processed would be processed.\103\ The display price and working price 
of orders would be adjusted based on the PBBO or NBBO as provided in 
Rule 7.31P.\104\ Moreover, when transitioning to continuous trading, 
the display price and working price of Day ISOs would be adjusted in 
the same manner as Arca Only Orders until the Day ISO is either traded 
in full or displayed at its limit price.\105\
---------------------------------------------------------------------------

    \101\ See proposed Rule 7.35P(h)(1) and Amendment No. 1.
    \102\ See proposed Rule 7.35P(h)(2) and Amendment No. 1.
    \103\ See proposed Rule 7.35P(h)(3)(A) and Amendment No. 1.
    \104\ See proposed Rule 7.35P(h)(3)(B) and Amendment No. 1.
    \105\ See proposed Rule 7.35P(h)(3)(B) and Amendment No. 1. The 
Exchange states its belief that this proposed treatment of Day ISO 
orders would be consistent with the original terms of the order. See 
Amendment No. 1.
---------------------------------------------------------------------------

    As proposed, if orders eligible to trade in the next trading 
session are marketable, such orders would trade and/or route based on 
price-time priority of individual orders, as provided in Rule 
7.37P.\106\ According to the Exchange, if such orders are marketable, 
they would trade or route, as applicable, rather than publishing a 
locked or crossed quote from the NYSE Arca Book.\107\ After marketable 
orders have traded or routed, the NYSE Arca Marketplace would publish a 
quote for the next trading session.\108\
---------------------------------------------------------------------------

    \106\ See proposed Rule 7.35(h)(3)(C) and Amendment No. 1.
    \107\ See Amendment No. 1.
    \108\ See proposed Rule 7.35(h)(3)(D).
---------------------------------------------------------------------------

    Based on the Exchange's representations, the Commission believes 
that the proposed rule change does not raise any novel regulatory 
considerations and should provide greater specificity with respect to 
the functionality available on the Exchange as symbols are migrated to 
the Pillar platform. For these reasons, the Commission believes that 
the proposal should help prevent fraudulent and manipulative acts and 
practices, 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, protect investors and the 
public interest.

IV. Accelerated Approval of Amendment Nos. 1 and 3

    As noted above, in Amendment No. 1, the Exchange: (i) Amends 
proposed Rule 7.35P(h) to provide that the rule would address how 
orders would be handled not only in the transition to continuous 
trading following an auction, but also when transitioning from one 
trading session to the next trading session; (ii) amends proposed Rule 
7.35P(h)(3)(B) to provide that, before continuous trading following a 
prior trading session or an auction begins, the display price and 
working price of orders would be adjusted as provided for in Rule 
7.31P, and that when transitioning to continuous trading, the display 
price and working price of Day ISOs would be adjusted in the same 
manner as Arca Only Orders until the Day ISO is either traded in full 
or displayed at its limit price; and (iii) provides additional 
discussions related to certain proposed rules. In addition, in 
Amendment No. 3, the Exchange: (i) Specifies the percentages for the 
Auction Collar thresholds; (ii) removes the reference to the Trading 
Halt Auction in the definition of Auction Collar; (iii) states that the 
Exchange would provide prior notice to ETP Holders if additional UTP 
Securities are to be designated as Auction-Eligible Securities; (iv) 
includes cross-references to Rule 7.16P in Commentary .01 to proposed 
Rule 7.35P to clarify where certain terms are defined; and (v) provides 
additional discussions related to certain proposed rules. The 
Commission believes that the changes proposed in Amendment Nos. 1 and 3 
do not raise novel regulatory issues and provide further discussions 
regarding the proposed rules governing Pillar. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\109\ to approve the proposed

[[Page 2282]]

rule change, as modified by Amendment Nos. 1 and 3, on an accelerated 
basis.
---------------------------------------------------------------------------

    \109\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Solicitation of Comments on Amendment Nos. 1 and 3

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment Nos. 1 
and 3 are 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-NYSEArca-2015-86 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-NYSEArca-2015-86. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2015-86 and should 
be submitted on or before February 5, 2016.

VI. Conclusion

    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Act,\110\ that the proposed rule change (SR-NYSEArca-2015-86), as 
modified by Amendment Nos. 1 and 3, be, and hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \110\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\111\
---------------------------------------------------------------------------

    \111\ 17 CFR 200.30-3(a)(12).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00645 Filed 1-14-16; 8:45 am]
BILLING CODE 8011-01-P