[Federal Register Volume 81, Number 134 (Wednesday, July 13, 2016)]
[Notices]
[Pages 45323-45325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16479]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78238; File No. SR-NYSEMKT-2016-13]


Self-Regulatory Organizations; NYSE MKT LLC; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change, as Modified by Amendment No. 1, To Amend Rule 955NY(c) by 
Revising the Clearing Member Requirement for Entering an Order Into the 
Electronic Order Capture System

July 7, 2016.

I. Introduction

    On March 22, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 
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 
amend Rule 955NY(c) to change the timing for recording the name of the 
Clearing Member \3\ in the Electronic Order Capture system (``EOC''). 
On March 29, 2016,\4\ the Exchange filed Amendment No. 1 to the 
proposed rule change. The Commission published the proposed rule 
change, as modified by Amendment No. 1, for comment in the Federal 
Register on April 11, 2016.\5\ The Commission received no comments on 
the proposed rule change. On May 25, 2016 the Commission extended the 
time 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 to 
July 10, 2016.\6\ The Commission did not receive any comments on the 
proposed rule change. This order institutes proceedings under section 
19(b)(2)(B) of the Act \7\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1 
thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Rule 900.2NY defines ``Clearing Member'' as an Exchange ATP 
Holder which has been admitted to membership in the Options Clearing 
Corporation pursuant to the provisions of the Rules of the Options 
Clearing Corporation.
    \4\ The Commission notes that the amendment date of March 30, 
2016 in the SR-NYSEMKT-2016-13 Notice is incorrect and the proper 
date is March 29, 2016.
    \5\ See Securities Exchange Act Release No. 34-77518 (April 5, 
2016), 81 FR 21415 (``Notice''). Amendment No. 1 was included in the 
Notice and provided the clarification that the CMTA Information and 
the name of the clearing ATP Holder would be entered into the EOC 
``as the events occur and/or during trade reporting procedures which 
may occur after the representation and execution of the order.''
    \6\ See Securities Exchange Act Release No. 34-77910 (May 25, 
2016), 81 FR 35098 (June 1, 2016).
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal, as Modified by Amendment No. 1

    The Exchange proposes to amend Rule 955NY(c) by revising the timing 
for an ATP holder to record the name of the Clearing Member in the 
EOC.\8\ In 2000, the Commission issued an order, which required the 
Exchange, in coordination with other exchanges, to ``design and 
implement a consolidated options audit trail system (`COATS'),'' that 
would ``enable the options exchanges to reconstruct markets promptly, 
effectively surveil them and enforce order handling, firm quote, trade 
reporting and other rules.'' \9\ The Commission Order requires the 
Exchange to incorporate into the audit trail all non-electronic orders 
``such that the audit trail provides an accurate, time-sequenced record 
of electronic and other orders, quotations and transactions on such 
respondent exchange, beginning with the receipt of an order by such 
respondent exchange and further documenting the life of the order 
through the process of execution, partial execution, or cancellation of 
that order, which audit trail shall be readily retrievable in the 
common computer format.'' \10\ To comply with the Commission Order, the 
Exchange developed the EOC system for ATP holders.\11\
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    \8\ See Notice, supra note 5, 81 FR at 21415.
    \9\ See Section IV.B.e.(v) of the Commission's Order Instituting 
Public Administrative Proceedings Pursuant to sections 19(h)(1) of 
the Securities Exchange Act of 1934, Making Findings and Imposing 
Remedial Sanctions (``Commission Order''), Securities Exchange Act 
Release No. 43268 (September 11, 2000) and Administrative Proceeding 
File No. 3-10282.
    \10\ See id.
    \11\ See Notice, supra note 5, 81 FR at 21415.
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    The EOC is the Exchange's floor-based electronic audit trail and 
order tracking system that provides an accurate time-sequenced record 
of all orders and transactions represented on the Exchange's trading 
floor.\12\ Rule 955NY(c) sets forth the EOC entry requirements and 
requires every ATP holder that receives an order for execution on the 
Exchange to ``immediately, prior to representation in the trading 
crowd, record the details of the order (including any modification of 
the terms of the order or cancellation of the order) into the EOC, 
unless such order has been entered into the Exchange's other electronic 
order processing facilities.'' \13\ The pre-trade EOC requirements 
under current Rule 955NY(c)(1) include ``the name of the clearing ATP 
Holder.'' \14\ Rule 955NY(c)(1) further states that ``[t]he remaining 
elements prescribed in Rule 956NY and any additional information with 
respect to the order shall be recorded as the events occur and/or 
during trade reporting procedures which may occur after the 
representation and execution of the order.'' \15\
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    \12\ See id.; see also Rule 955NY(c).
    \13\ See Rule 955NY(c).
    \14\ See Rule 955NY(c)(1)(vii).
    \15\ See Rule 955NY(c)(1); see also Rule 956NY(a) (Record of 
Orders) (requiring that ATP Holders maintain a record of each order 
that includes that the following data elements: (1) CMTA Information 
and the name of the clearing ATP Holder; (2) options symbol, 
expiration month, exercise price and type of options; (3) side of 
the market and order type; (4) quantity of options; (5) limit or 
stop price or special conditions; (6) opening or closing 
transaction; (7) time in force; (8) account origin code; and (9) 
whether the order was solicited or unsolicited).
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    The Exchange proposes to amend Rule 955NY(c)(1) to allow an ATP 
Holder to record the name of the Clearing Member in the EOC ``as the 
events occur and/or during trade reporting procedures'' rather than 
prior to representation of the order in the trading crowd.\16\ The 
Exchange states that because the identity of the firm through which 
each trade will clear is not always initially provided when an order is 
presented, Floor Brokers waiting to receive this information and enter 
it into the EOC are delayed in representing and executing an order.\17\ 
The Exchange represents that the proposal would amend only the timing 
for the recording of the Clearing Member in the EOC while still 
maintaining the requirement to record the Clearing Member in the EOC 
for audit trail purposes.\18\ According to the Exchange, Floor Brokers 
would continue to be required to maintain proper order records, as part 
of each trade record, including the identity of the clearing ATP 
Holder, and would continue to be required to give up the responsible 
Clearing Member on each trade as part of each trade record.\19\
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    \16\ See Notice, supra note 5, 81 FR at 21415-16.
    \17\ See id. at 21416.
    \18\ See id.
    \19\ See Notice, supra note 5, 81 FR at 21416; see also Rule 
956NY(a).
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEMKT-2016-13 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to section

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19(b)(2)(B) of the Act \20\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described in greater detail below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change.
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    \20\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding. See id.
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    Pursuant to section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings because the proposal raises 
important issues that warrant further public comment and Commission 
consideration. Specifically, the Commission is instituting proceedings 
to allow for additional analysis of, and input from commenters with 
respect to, the proposed rule change's consistency with section 6(b)(5) 
of the Act,\21\ which requires that the rules of a national securities 
exchange be designed, among other things, to prevent fraudulent and 
manipulative acts and practices, 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.
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    \21\ 15 U.S.C. 78f(b)(5).
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    Under the Exchange's current rules, a floor broker must record the 
name of the Clearing Member in the EOC prior to representing an order 
on the floor. As discussed above,\22\ the Exchange developed the EOC 
and created the pre-trade Clearing Member requirement in response to 
the Commission Order. The Exchange justifies the proposed elimination 
of the pre-trade clearing requirement by stating that ``Floor Brokers 
have told the Exchange that the identity of the firm through which each 
trade will clear is not always initially provided when an order is 
presented and that waiting to receive this information and enter it 
into EOC can delay the representation and execution of an order. In 
today's trading environment of rapidly moving markets and the need to 
execute an order and hedge a trade in real or near real time, even a 
slight delay can prove to be detrimental to the handling of an order.'' 
\23\ The Exchange further states that the ``proposed change to 
eliminate the Give Up Requirement prior to execution of each trade 
would not impair the Exchange's ability to comply with the [Commission] 
Order. Specifically, the EOC would still provide an accurate, time-
sequenced record beginning with the receipt of an order and document 
the life of the order through the process of execution, partial 
execution, or cancellation. Entry of information pursuant to the Give 
Up Requirement would occur after the order had been represented and 
executed in the Trading Crowd. Thus, only the timing of the disclosure 
of such information would be affected by this proposal.'' \24\
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    \22\ See supra note 9.
    \23\ See Notice, supra note 5, 81 FR at 21416.
    \24\ See id.
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    The Exchange, however, does not explain why the identity of the 
Clearing Member may not be provided when an order is presented to a 
Floor Broker, how frequently this occurs, or why it is burdensome to 
identify the Clearing Member in advance. As a result, the Exchange does 
not appear to offer a credible justification for proposing to incur the 
risk of delaying the recording of this important information into the 
EOC. The Commission accordingly believes the proposal, as modified by 
Amendment No. 1, raises questions as to whether it consistent with the 
requirements of section 6(b)(5) of the Act, including whether the 
proposal is designed to prevent fraudulent and manipulative acts and 
practices, 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.

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposed rule change. In particular, the Commission invites 
the written views of interested persons concerning whether the 
proposal, as modified by Amendment No. 1, is consistent with sections 
6(b)(5) \25\ or any other provision of the Act, or the rules and 
regulations thereunder. Although there does not appear to be any issue 
relevant to approval or disapproval which would be facilitated by an 
oral presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4 under the Act,\26\ any request for an 
opportunity to make an oral presentation.\27\ Interested persons are 
invited to submit written data, views, and arguments regarding whether 
the proposal should be approved or disapproved by August 3, 2016. Any 
person who wishes to file a rebuttal to any other person's submission 
must file that rebuttal by August 17, 2016. In light of the concerns 
raised by the proposed rule change, as discussed above, the Commission 
invites additional comment on the proposed rule change as the 
Commission continues its analysis of the proposed rule change's 
consistency with sections 6(b)(5) and 6(b)(8),\28\ or any other 
provision of the Act, or the rules and regulations thereunder. The 
Commission asks that commenters address the sufficiency and merit of 
the Exchange's statements in support of the proposed rule change, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
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    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 17 CFR 240.19b-4.
    \27\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Act Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
    \28\ 15 U.S.C. 78f(b)(5), (b)(8).
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    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 No. SR-NYSEMKT-2016-13 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-NYSEMKT-2016-13. 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

[[Page 45325]]

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 No. SR-NYSEMKT-2016-13, and should be 
submitted by August 3, 2016. Rebuttal comments should be submitted by 
August 17, 2016.
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    \29\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Brent J. Fields,
Secretary.
[FR Doc. 2016-16479 Filed 7-12-16; 8:45 am]
 BILLING CODE 8011-01-P