[Federal Register Volume 81, Number 169 (Wednesday, August 31, 2016)]
[Notices]
[Pages 60038-60049]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20880]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78673; File No. SR-NYSEMKT-2016-79]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Its Rules 
Relating to Pre-Opening Indications and Opening Procedures

August 25, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on August 16, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and 
II, below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules relating to pre-opening 
indications and opening procedures to promote greater efficiency and 
transparency at the open of trading on the Exchange. The proposed rule 
change is available on the Exchange's Web site at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its rules relating to pre-opening 
indications and opening procedures to promote greater efficiency and 
transparency at the open of trading on the Exchange. In particular, the 
Exchange proposes to:
     Make changes to the rules related to the pre-opening 
indication process by:
    [cir] Amending Rules 15--Equities (``Rule 15'') and 123D--Equities 
(``Rule 123D'') to consolidate the requirements for publication of pre-
open indications in a single rule (Rule 15);
    [cir] changing the conditions in which a Designated Market Maker 
(``DMM'') is required to publish a pre-opening indication in a security 
to an anticipated 5% move from a security's reference price and, during 
extreme market-wide volatility, an anticipated 10% from a security's 
reference price; and
    [cir] providing for the CEO of the Exchange to temporarily suspend 
the requirement to publish pre-opening indications.
     Make changes to Rule 123D related to the opening process 
by:
    [cir] Incorporating all procedures relating to openings, other than 
pre-opening indications, in Rule 123D; and
    [cir] Specifying that DMMs may effect an opening of a security 
electronically within specified percentage and volume parameters, which 
would be doubled during extreme market-wide volatility; and
    [cir] providing for the CEO of the Exchange to temporarily suspend 
price and volume limitations for a DMM automated open or the 
requirement for prior Floor Approval before opening or reopening a 
security.
     Delete Rule 48--Equities (``Rule 48'').
     Make conforming changes to Rules 80C--Equities (``Rule 
80C'') and 9217.
    The Exchange believes that the proposed changes will enhance 
transparency regarding the Exchange's opening process by specifying new 
parameters for how the opening at the Exchange would be effectuated on 
trading days experiencing extreme market-wide volatility, which would 
include both additional information before the open through the use of 
new parameters for pre-opening indications and expanded ability for 
DMMs to effectuate an opening electronically. The proposed rule changes 
are designed to preserve the Exchange's existing model, which values 
human touch when opening securities with significant price or volume 
disparity, while at the same time promoting automated measures to have 
as many securities open as close to 9:30 a.m. as feasible, even during 
extreme market-wide volatility.
    These proposed changes are based on recent amendments to the rules 
of the New York Stock Exchange LLC (``NYSE'').\4\
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    \4\ See Securities Exchange Act Release No. 78228 (July 5, 
2016), 81 FR 44907 (July 11, 2016) (SR-NYSE-2016-24) (``NYSE 
Approval Order''); and Securities Exchange Act Release No. 78512 
(August 9, 2016) (SR-NYSE-2016-53) (Notice of Filing).
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Background
    The Exchange's current pre-opening procedures are outlined in Rules 
15 (Pre-Opening Indications), 48 (Exemptive Relief--Extreme Market 
Volatility Condition), and 123D (Openings and Halts in Trading).
    Rule 15(a) provides that if the opening transaction in a security 
will be at a price that represents a change of more than the 
``applicable price change'' specified in the Rule,\5\ the DMM arranging 
the opening transaction or the Exchange shall issue a pre-opening 
indication (``Rule 15 Indication''), which represents a price range in 
which a security is anticipated to open.
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    \5\ In current Rule 15, other than for certain American 
Depositary Receipts (``ADRs''), the ``applicable price change'' is 
measured from a security's last reported sale price on the Exchange, 
the security's offering price in the case of an initial public 
offering (``IPO''), or the security's last reported sale price on 
the market from which it is being transferred. For an ADR where the 
trading day of the underlying security in the primary foreign market 
for the ADR concludes after the previous day's trading in the U.S. 
has ended, the ``applicable price change'' is measured from closing 
price of the primary foreign market. For an ADR where the primary 
foreign market on which the underlying security is open for trading 
at the time of the opening of the Exchange, the ``applicable price 
change'' is measured from parity with the last sale price of the 
underlying security.
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    A Rule 15 Indication is published on the Exchange's proprietary 
data feeds only and includes the security and the price range within 
which the DMM anticipates the opening transaction will occur, and would 
include any orally-represented Floor broker interest for the open. The 
applicable price ranges for determining whether to publish a Rule 15 
Indication are based on five different price buckets and are expressed 
in dollar and percentage parameters:

[[Page 60039]]



------------------------------------------------------------------------
                                                            Applicable
                 Exchange closing price                    price change
                                                            (more than)
------------------------------------------------------------------------
Under $20.00............................................           $0.50
$20-$49.99..............................................           $1.00
$50.00-$99.99...........................................           $2.00
$100-$500...............................................           $5.00
Above $500..............................................            1.5%
------------------------------------------------------------------------

    Rule 123D also mandates that pre-opening indications be published 
if the opening price would result in a significant price change from 
the previous close or if the opening is delayed past 10:00 a.m. Eastern 
Time (``Rule 123D Mandatory Indication''). The DMM is responsible for 
publishing the Rule 123D Mandatory Indication and, when determining the 
price range for the indication, takes into consideration Floor broker 
interest that has been orally entered and what, at a given time, the 
DMM anticipates the dealer participation in the opening transaction 
would be. Rule 123D Mandatory Indications are published to the 
Consolidated Tape and proprietary data feeds. The applicable price 
ranges for determining whether an opening price would be a 
``significant'' price change requiring a Rule 123D Mandatory Indication 
are based on three price buckets and are expressed in a mixture of 
dollar (1 point = one dollar) and percentage parameters:

------------------------------------------------------------------------
                                             Price change  (equal to or
       Previous NYSE  closing price                 greater than)
------------------------------------------------------------------------
Under $10.00..............................  1 point.
$10-$99.99................................  the lesser of 10% or 3
                                             points.
$100 and Over.............................  5 points.
------------------------------------------------------------------------

    Rule 48 provides that a ``qualified Exchange officer'' \6\ can 
invoke an extreme market volatility condition at the open (or reopen of 
trading following a market-wide halt of securities) during which time 
the Exchange can suspend the requirements of Rules 15 and 123D, and in 
particular, the requirement to publish pre-opening indications. Rule 
48, which was first adopted by NYSE, is intended to be invoked only in 
those situations where the potential for extreme market volatility 
would likely impair Floor-wide operations at the Exchange by impeding 
the fair and orderly opening or reopening securities.\7\
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    \6\ A ``qualified Exchange officer'' means the Chief Executive 
Officer of ICE, or his or her designee, or the Chief Regulatory 
Officer of the Exchange, or his or her designee.
    \7\ See Securities Exchange Act Release No. 56920 (December 6, 
2007), 72 FR 70915 (December 13, 2007) (SR-NYSE-2007-111) (``NYSE 
Rule 48 Notice of Filing'').
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    Finally, Rule 123D, which in addition to setting forth requirements 
for certain pre-opening indications, also specifies procedures relating 
to openings, including that it is the responsibility of each DMM to 
ensure that securities open as close to the opening bell as possible 
and that securities can be opened on a trade or a quote. The rule 
further provides that openings may be effectuated manually or 
electronically.
Proposed Rule Change
    The Exchange proposes to amend Rules 15, 48, and 123D to introduce 
greater efficiency and transparency into its opening process by, among 
other things, consolidating its rules regarding pre-opening indications 
into a single rule (Rule 15), introducing a new, single percentage 
parameter for the publication of pre-opening indications that would 
double on volatile trading days, and consolidating opening procedures 
into Rule 123D, including specifying parameters of when a DMM may 
effect an opening electronically, and consolidating the procedures of 
Rule 48 into Rules 15 and 123D, as applicable. The Exchange also 
proposes conforming changes to Rules 80C and 9217.
Pre-Opening Indications
    The Exchange proposes to make changes to the pre-opening indication 
process. The Exchange would consolidate the requirements relating to 
pre-opening indications into Rule 15(a)-(f). Because the Exchange 
proposes all new rule text in Rule 15(a)-(f), the Exchange proposes to 
delete paragraphs (a) and (b) of current Rule 15, re-number Rule 15(c) 
as Rule 15(g), delete rule text in Rule 123D(b) relating to mandatory 
indications, and amend the title of Rule 15 to add the phrase ``and 
Opening Order Imbalance Information'' so that the rule would be titled 
``Pre-Opening Indications and Opening Order Imbalance Information.'' In 
amending Rule 15, the Exchange would establish new conditions for when 
DMMs are required to publish pre-opening indications.
    Proposed Rule 15(a), entitled ``Pre-Opening Indications,'' would 
provide that a pre-opening indication would include the security and 
the price range within which the opening price is anticipated to occur. 
This proposed rule text is based on the last clause of the first 
sentence of current Rule 15(a), which provides that a pre-opening 
indication includes the security and the price range within which the 
opening transaction is anticipated to occur. Proposed Rule 15(a) would 
further provide that a pre-opening indication would be published via 
the securities information processor (``SIP'') and proprietary data 
feeds. This proposed rule text is based on the way in which Rule 123D 
Mandatory Indications are currently published to both the SIP and 
proprietary data feeds. The Exchange proposes to use the term 
``securities information processor'' instead of ``Consolidated Tape'' 
to use the term more commonly used in the industry.\8\
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    \8\ See, e.g., Supplementary Material .01 to Rule 19--Equities.
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    Proposed Rule 15(b), entitled ``Conditions for Publishing a Pre-
Open Indication,'' would set forth the conditions in which a DMM is 
required to publish a pre-opening indication.
     Proposed Rule 15(b)(1) would provide that a DMM will 
publish a pre-opening indication before a security opens if the opening 
transaction on the Exchange is anticipated to be at a price that 
represents a change of more than the ``Applicable Price Range,'' as 
defined in proposed Rule 15(d), from a specified ``Reference Price,'' 
as defined in proposed Rule 15(c), before the security opens. The 
procedures for publishing a pre-opening indication would be described 
in Rule 15(e). This proposed rule text is based on current Rule 15(a), 
which uses the term ``applicable price range'' and describes the 
reference prices used for purposes of current Rule 15(a). The Exchange 
proposes to define the ``Reference Price'' and ``Applicable Price 
Range'' in proposed Rules 15(c) and (d), described below. The 
requirement for DMMs to publish pre-opening indications is based on 
current Rule 15(a), which provides that the DMM shall issue a pre-
opening indication if the conditions set forth in the rule are met.
     Proposed Rule 15(b)(2) would specify that when making a 
determination of what the opening transaction price would be, the DMM 
will take into consideration all interest eligible to participate in 
the opening transaction, including electronically-entered orders, the 
DMM's own interest, and any interest represented orally in the crowd. 
This proposed rule text would be new and is designed to promote 
transparency in Exchange rules that all interest eligible to 
participate in the opening transaction is considered when publishing a 
pre-opening indication.
     Proposed Rule 15(b)(3) would provide that if a DMM is 
unable to publish a pre-opening indication for one or more securities 
due to a systems or technical issue, the Exchange may publish the pre-
opening indication. This proposed rule text is based in part on current 
Rule 15(a), which provides that

[[Page 60040]]

either the DMM or the Exchange shall publish a pre-opening indication. 
The Exchange proposes a substantive difference to provide that the 
Exchange ``may'' rather than ``shall'' publish a pre-opening 
indication. As set forth in current Rule 123D(a)(5), which was added 
after the applicable rule text in Rule 15(a),\9\ if a DMM is 
unavailable to open a security and the Exchange opens trading, the 
Exchange will not publish a pre-opening indication. Because the 
Exchange is not obligated to publish pre-opening indications in such 
scenario, the Exchange proposes to make Rule 15(b)(3) consistent with 
that rule.
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    \9\ See Securities Exchange Act Release No. 76292 (Oct. 28, 
2015), 80 FR 67830 (Nov. 3, 2015) (SR-NYSEMKT-2015-81).
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    Proposed Rule 15(c), entitled ``Reference Price,'' would provide in 
paragraph (1) that the Reference Price for a security (other than an 
American Depository Receipt (``ADR'')) for purposes of the proposed 
rule would be:
     The security's last reported sale price on the Exchange 
(proposed Rule 15(c)(1)(A));
     in the case of an IPO, the security's offering price 
(proposed Rule 15(c)(1)(B)); or
     the security's last reported sale price on the securities 
market from which the security is being transferred to the Exchange, on 
the security's first day of trading on the Exchange (proposed Rule 
15(c)(1)(C)).
    This proposed rule text is based on current Rule 15(a).\10\
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    \10\ See supra note 5.
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    Proposed Rule 15(c)(2) would provide that the Reference Price for 
ADRs for purposes of the proposed rule would be:
     The closing price of the security underlying the ADR in 
the primary foreign market in such security when the trading day of the 
primary foreign market concludes (proposed Rule 15(c)(2)(A)); or
     based on parity with the last sale price of the security 
underlying the ADR in the primary foreign market for such security when 
the trading day of the primary foreign market is open for trading at 
the time of the opening on the Exchange (proposed Rule 15(c)(2)(B)).
    This proposed rule text is based on current Rule 15(b), with non-
substantive differences for clarity and to use the defined term 
``Reference Price'' in the proposed rule text.\11\ Proposed Rule 
15(c)(3) would further provide that the Reference Price for reopening a 
security following a halt would be the security's last reported sale 
price on the Exchange. The Exchange proposes to specify the Reference 
Price for reopening following a halt because the Reference Price would 
be the same for all securities, including ADRs, which would be trading 
on the Exchange.
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    \11\ The seventh paragraph of Rule 123D(b), which the Exchange 
proposes to delete, similarly describes the reference price to be 
used for a foreign-listed security.
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    Proposed Rule 15(d) would set forth the Applicable Price Ranges for 
determining whether a DMM is required to disseminate a pre-opening 
indication. The Exchange proposes to eliminate the current price 
buckets in Rules 15 and 123D and instead use a single percentage 
parameter as the Applicable Price Range for all securities, regardless 
of price of the security. As proposed, except during extreme market-
wide volatility as set forth in proposed Rule 15(d)(2), a DMM would be 
required to publish a pre-opening indication if a security is expected 
to open at a price more than 5% away from the Reference Price. The 
Exchange believes that the proposed 5% parameter applicable to all 
securities would simplify and streamline the Exchange's rules regarding 
required pre-opening indications by having a single percentage 
parameter that would be applied across all securities, rather than 
having different price buckets and percentage parameter ranges to 
track. The Exchange further believes that the proposed single 
percentage parameter would result in a similar number of pre-opening 
indications as are currently published pursuant to Rule 123D, while at 
the same time simplifying the process for DMMs.
    For example, using trade data on NYSE for the month of October 
2015, which was a month of relative trading stability and volumes, 
current Rule 123D Mandatory Indication parameters required indications 
for 15 securities on an average daily basis, which represents 
approximately 0.46% of the securities traded on the Exchange.\12\ 
Applying the proposed new percentage parameter of 5% to the same 
October 2015 NYSE trade data, NYSE DMMs would have been required, on 
average, to publish 33 pre-opening indications, which represents 1.01% 
of securities that trade on NYSE. The Exchange believes that the 
incremental increase in number of pre-opening indications that would 
have been published pursuant to the proposed new single percentage 
parameter would promote transparency in the opening of securities.\13\
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    \12\ Because NYSE MKT currently uses the same equities trading 
platform as NYSE, and because NYSE has a larger number of securities 
trading than NYSE MKT, the Exchange believes the NYSE data is 
representative of how the changes would impact NYSE MKT. 
Accordingly, all data reference points in this proposed rule change 
are based on NYSE data.
    \13\ For purposes of this analysis, the Exchange compared the 
proposed new percentage parameters against only the current Rule 
123D Mandatory Indications because these indications are more widely 
distributed via the SIP to market participants, and therefore more 
likely to be relied upon for purposes of assessing the opening price 
of a security on the Exchange. In addition, unlike Rule 15 
Indications, a DMM is required to update Rule 123D Mandatory 
Indications, and thus this form of pre-opening indication is more 
likely to track to the actual opening price of a security.
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    Under current rules, the Exchange may suspend the requirement to 
publish pre-opening indications if a market-wide extreme market 
volatility condition is declared under Rule 48. This rule was adopted, 
in part, because of the manual nature of publishing pre-opening 
indications, and if DMMs were required to publish Rule 123D Mandatory 
Indications for multiple securities, it could delay the opening process 
and result in a large number of securities opening past 9:30 a.m. 
Eastern Time.\14\ Historically, the Exchange has declared such a 
condition if, before the opening of trading, the E-mini S&P 500 Futures 
are plus or minus 2% from the prior day's closing price of the E-mini 
S&P 500 Futures. However, based on the events of the week of August 24, 
2015, when the Exchange declared extreme market volatility conditions 
on August 24, 25, and 26, the Exchange appreciates that the absence of 
any pre-opening indications may leave a void in the information 
available for market participants to assess the price at which a 
security may open. Yet, because market-wide volatility would cause the 
price of most or all securities to move significantly away from the 
last sale price on the Exchange, the Exchange believes that the 5% 
price move appropriate for ``normal'' trading days would result in a 
DMM being required to disseminate more pre-opening indications than is 
feasible.
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    \14\ See NYSE Rule 48 Notice of Filing, supra note 7 at 70916.
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    Accordingly, the Exchange proposes to amend its rules to provide 
that on trading days with extreme market-wide volatility, the 
Applicable Price Range would be 10%, or double the Applicable Price 
Range on regular trading days. Specifically, proposed Rule 15(d)(2) 
would provide that, if as of 9:00 a.m. Eastern Time (``ET''), the E-
mini S&P 500 Futures are plus or minus 2% from the prior day's closing 
price of the E-mini S&P 500 Futures, when reopening trading following a 
market-wide trading halt under Rule 80B, or if the Exchange determines 
that it is necessary or appropriate for the maintenance of a fair and 
order market, a DMM would be

[[Page 60041]]

required to publish a pre-opening indication in a security if the price 
of that security is expected to open at a price more than 10% away from 
the Reference Price. By proposing to specify the conditions in which 
the Applicable Price Range would be 10%, the Exchange would promote 
transparency in Exchange rules so that market participants will know 
when the double-wide percentage parameter would be applied. Because the 
standard for extreme market-wide volatility would be specified in the 
rule, the Exchange would not need to provide separate notification on a 
trading day when the double-wide percentages would be applicable.
    By proposing to specify in its rules that the Applicable Price 
Range would be 10%, rather than 5%, when the market is more volatile, 
the Exchange would require DMMs to disseminate pre-opening indications 
in those securities experiencing the greatest price movement. Under 
current rules, the Exchange's only option when the overall market is 
volatile is to lift the requirement for pre-opening indications under 
Rule 48. The Exchange also proposes to use the 10% percentage parameter 
when reopening securities following a market-wide trading halt under 
Rule 80B. The Exchange believes that widening the parameters for pre-
opening indications following a market-wide trading halt would be 
appropriate because the reason for the trading halt was market-wide 
volatility, and thus the reopening of securities would face similar 
pricing pressure as circumstances when there is pre-opening extreme 
market-wide volatility. The Exchange also proposes that it would have 
the authority to use the 10% Applicable Price Range when it is 
necessary or appropriate for the maintenance of a fair and orderly 
market. For example, if the E-mini S&P 500 Futures were not plus or 
minus 2% as of 9:00 a.m., but moved to that level between 9:00 and 
9:30, it may be appropriate, for the maintenance of a fair and orderly 
market, to use widened percentage parameters.
    To determine the percentage parameter that would be appropriate for 
trading days with extreme market-wide volatility, the Exchange reviewed 
NYSE trading data from August 24, 25, and 26, 2015 and assessed how 
many Rule 123D Mandatory Indications would have been required under the 
NYSE rules in place at that time, and how many pre-opening indications 
would have been required if a 5% and 10% percentage parameter were used 
on those days. Taking for example August 24, 2015, as set forth on 
Table 1 below, the NYSE data show that, had the NYSE not invoked Rule 
48 lifting the requirement to publish Rule 123D Mandatory Indications, 
there would have been 638 securities (19% of securities) for which NYSE 
DMMs would have been required to publish Rule 123D Mandatory 
Indications. As set forth in Table 2 below, a 5% percentage parameter 
would have required 1,460 pre-opening indications (44% of securities) 
on NYSE on August 24, 2015, more than twice as many as under the 
current parameters. As noted above, the Exchange believes that this 
would be too many pre-opening indications for DMMs to process on a 
trading day without impacting their ability to timely open their 
assigned securities.
    By contrast, as set forth in Table 2 below, a 10% percentage 
parameter would have required pre-opening indications in 278 securities 
(8.4% of securities) on NYSE on August 24, 2015. While this number is 
still higher than the number of pre-opening indications that would have 
been published on NYSE on an average trading day in October using the 
5% percentage parameter (see above), the Exchange believes that it 
strikes the appropriate balance between providing additional pre-
opening information to investors and enabling the DMM's to timely open 
their assigned securities. As set forth in more detail in Tables 1 and 
2 below, August 24 represents an outlier, even for days when there has 
been extreme market-wide volatility. For other days in 2015 when the 
NYSE declared an extreme market-wide volatility under Rule 48, as set 
forth in Tables 1 and 2 below, applying a 10% parameter would not 
materially change the number of pre-opening indications being 
published.
[GRAPHIC] [TIFF OMITTED] TN31AU16.001

    Proposed Rule 15(e), entitled ``Procedures for publishing a pre-
opening indication,'' would set forth proposed procedures a DMM would 
use when publishing a pre-opening indication. As discussed below, these 
procedures are based on existing procedures currently set forth in Rule 
123D, with specified differences.
    Proposed Rule 15(e)(1) would provide that publication of pre-
opening

[[Page 60042]]

indications requires the supervision and approval of a Floor 
Governor.\15\ This proposed rule change is based on the sixth paragraph 
of Rule 123D(b). The Exchange proposes a substantive change in that the 
proposed rule would require the supervision and approval of a Floor 
Governor, rather than supervision and approval of a Floor Official, as 
set forth in the current rule. The Exchange would also eliminate the 
requirement in Rule 123D that if a situation involves a bank or 
brokerage stock, the approval of an Executive Floor Governor is 
required, and if an Executive Floor Governor is unavailable, a Floor 
Governor or Senior Floor Governor's approval is required. The Exchange 
believes that requiring Floor Governor approval for all securities 
would involve the appropriate review by an experienced Floor official, 
while at the same time simplifying the approval process to require a 
single category of Floor Official to approve a pre-opening indication 
regardless of the type of security.\16\
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    \15\ Rule 46--Equities describes the different categories of 
Floor Officials, which are Floor Officials, Senior Floor Officials, 
Executive Floor Officials, Floor Governors, and Executive Floor 
Governors. Floor Governors are generally more senior members of the 
Trading Floor or qualified Exchange employees and are also empowered 
to perform any duty of a Floor Official.
    \16\ The Exchange would also be deleting the 14th through 16th 
paragraphs of Rule 123D(b) regarding Floor Official approval for 
``tape indications,'' which are Rule 123D Mandatory Indications. The 
Exchange believes that proposed Rule 15(e)(1) simplifies the 
approval process and obviates the need for this Rule 123D rule text.
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    Proposed Rule 15(e)(2) would provide that a pre-opening indication 
must be updated if the opening transaction would be at a price outside 
of a published pre-opening indication. Proposed Rule 15(e)(3) would 
further require that if a pre-opening indication is a spread wider than 
$1.00, the DMM should undertake best efforts to publish an updated pre-
opening indication of $1.00 or less before opening the security, as may 
be appropriate for the specific security. Proposed Rules 15(e)(2) and 
(e)(3) are based, in part, on the second and third bullet points 
following the ninth paragraph of Rule 123D(b),\17\ but with new rule 
text to simplify the requirements regarding updating pre-opening 
indications. With respect to proposed Rule 15(e)(3), for higher-priced 
securities, a pre-opening indication wider than $1.00 may be 
appropriate and it may not be necessary to narrow such indication any 
further, particularly since Opening Imbalance Information pursuant to 
Rule 15(c) (proposed Rule 15(g)) would also be disseminated regarding 
the security.
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    \17\ The second bullet following the ninth paragraph of Rule 
123D(b) requires that the number of indications should increase in 
proportion to the anticipated disparity in the opening or reopening 
price, with increasingly definitive, ``telescoped'' indications when 
an initial narrow indication spread is impractical. The third bullet 
provides for similar requirements following a non-regulatory halt, 
and specifically that a final indication with a one point (one 
dollar) spread would be appropriate.
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    Proposed Rule 15(e)(4) would provide that, after publication of a 
pre-opening indication, the DMM must wait for the following minimum 
specified periods before opening a security:
     Proposed Rule 15(e)(4)(A) would provide that, when using 
the 5% Applicable Price Range specified in proposed Rule 15(d)(1), a 
minimum of three minutes must elapse between publication of the first 
indication and a security's opening. The rule would further provide 
that, if more than one indication has been published, a security may be 
opened one minute after the last published indication provided that at 
least three minutes have elapsed from the dissemination of the first 
indication. These first two sentences of proposed Rule 15(e)(4)(A) are 
based on rule text set forth in the twelfth and thirteenth paragraphs 
of current Rule 123D(b). Proposed Rule 15(e)(4)(A) would further 
provide that the DMM may open a security less than the required wait 
times after the publication of a pre-opening indication if the 
imbalance is paired off at a price within the Applicable Price Range. 
This proposed exception to the three-minute waiting requirement is new 
and is because the Exchange believes that, if equilibrium in price has 
been reached at a price within the Applicable Price Range, i.e., at a 
price that would not have required a pre-opening indication in the 
first instance, there is no reason to require the DMM to further delay 
the opening of the security in an effort to attract offsetting 
interest.
     Proposed Rule 15(e)(4)(B) would provide that, when using 
the 10% Applicable Price Range specified in Proposed Rule 15(d)(2), a 
minimum of one minute must elapse between publication of the first 
indication and a security's opening and that if more than one 
indication has been published, a security may be opened without waiting 
any additional time. As discussed above, proposed Rule 15(d)(2) would 
provide for new percentage parameters for trading days with extreme 
market-wide volatility. Based on the analysis of NYSE trade data for 
August 24, 2015, even with the new percentage parameters, there is the 
potential for 278 pre-opening indications to be required on NYSE on an 
extremely volatile trading day. Because these pre-opening indications 
would be manually published by the DMM, the Exchange believes that 
eliminating additional wait times would enable the DMMs to facilitate a 
speedy opening for a security that has been subject to a pre-opening 
indication on days with extreme market-wide volatility.
    Proposed Rule 15(e)(5) would provide that, if trading is halted for 
a non-regulatory order imbalance, a pre-opening indication must be 
published as soon as practicable after the security is halted. This 
proposed rule text is based on the first sentence of the third bulleted 
paragraph following the ninth paragraph in Rule 123D(b), with a 
proposed substantive difference that a pre-opening indication should be 
published ``as soon as practicable,'' rather than ``immediately,'' 
after a security is halted. The Exchange believes that the proposed 
approach provides for more flexibility for the DMM to assess the order 
imbalance and publish a pre-opening indication that takes into 
consideration all applicable factors.
    Proposed Rule 15(e)(6) would set forth the requirements for pre-
opening indications when reopening a security following a trading pause 
under Rule 80C.\18\ Proposed Rule 15(e)(6)(A) would provide that a pre-
opening indication may be published without prior Floor Governor 
approval. Proposed Rule 15(e)(6)(B) would provide that a pre-opening 
indication would not need to be updated before reopening the security, 
and the security may be reopened outside of any prior indication. 
Lastly, proposed Rule15(e)(6)(C) would provide that the reopening is 
not subject to the minimum waiting time requirements in Proposed Rule 
15(e)(4). Proposed Rules 15(e)(6)(A)-(C) are based on Rule 
80C(b)(2)(A), with non-substantive differences to use different rule 
text cross-references.
---------------------------------------------------------------------------

    \18\ Rule 80C sets forth the Exchange's rules to comply with the 
requirements of the Plan to Address Extraordinary Market Volatility 
submitted to the Commission pursuant to Rule 608 of Regulation NMS 
under the Act known as the Limit Up/Limit Down (``LULD'') Plan.
---------------------------------------------------------------------------

    Proposed Rule 15(f), entitled ``Temporary Suspension of Pre-Opening 
Indications,'' would provide in proposed Rule 15(f)(1) that if the CEO 
of the Exchange determines that a Floor-wide event is likely to impact 
the ability of DMMs to arrange for a fair and orderly opening or 
reopening and that absent such relief, operation of the Exchange is 
likely to be impaired, the CEO of the Exchange may temporarily suspend 
the requirement to publish pre-opening indications under Rule 15 prior

[[Page 60043]]

to opening or reopening a security following a market-wide trading 
halt.\19\
---------------------------------------------------------------------------

    \19\ Pursuant to Rule 1--Equities, the CEO of the Exchange may 
formally designate one or more qualified employees of 
Intercontinental Exchange, Inc. (``ICE'') to act in place of any 
person named in a rule as having authority to act under such rule in 
the event the named person in the rule is unavailable to administer 
that rule.
---------------------------------------------------------------------------

    Proposed Rule 15(f) is based in part on Rule 48, which provides 
that a qualified Exchange officer may declare an extreme market 
volatility condition and temporarily suspend the requirements for pre-
opening indications.\20\ Because the Exchange would be specifying new 
percentage parameters for pre-opening indications on trading days with 
market-wide volatility, the Exchange does not believe that it needs 
Rule 48 in its current form. While the Exchange expects that its other 
proposed changes to DMMs' requirements related to pre-opening 
indications will make it unlikely that a complete suspension of pre-
opening indications would be required, the Exchange believes it would 
be prudent for the CEO of the Exchange to retain the authority to 
temporarily suspend the requirements to make pre-opening indications 
for events that it cannot currently predict. Accordingly, rather than 
refer to extreme market-wide volatility as in current Rule 48, proposed 
Rule 15(f)(1) would refer to a Floor-wide event that could impact the 
fair and orderly opening or reopening of securities more generally.
---------------------------------------------------------------------------

    \20\ Rule 48(d) defines a ``qualified Exchange officer'' for 
purposes of Rule 48 as the CEO of ICE, or his or her designee, or 
the Chief Regulatory Officer (``CRO'') of the Exchange, or his or 
her designee. The Exchange proposes to streamline its rules to 
specify that only the CEO of the Exchange would have the authority 
to temporarily suspend the requirement for pre-opening indications. 
However, pursuant to Rule 1--Equities, the CEO could delegate this 
authority to other qualified ICE employees.
---------------------------------------------------------------------------

    Proposed Rule 15(f)(2), which is based on Rule 48(c)(1)(A), would 
specify the range of factors that the CEO of the Exchange would be 
required to consider in making any determination to temporarily suspend 
the requirement for pre-opening indications.\21\ In addition, similar 
to Rule 48(c)(1)(B) and 48(c)(1)(C), which requires the qualified 
Exchange officer to take its review ``in consultation with relevant 
Exchange regulatory and operational employees that are officers of the 
Exchange, as appropriate'' and to inform Commission staff as promptly 
as practicable, proposed Rules 15(f)(2)(B) and (C) would require the 
CEO to notify the CRO of the Exchange in making a determination under 
proposed Rule 15(f)(1) and inform Commission staff as promptly as 
practicable that pre-opening indications under Rule 15 have been 
temporarily suspended. Proposed Rule 15(f)(3), which is based on Rule 
48(c)(4), would provide that a temporary suspension under Rule 15(f) 
would be in effect only for the trading day on which it was 
declared.\22\ Finally, proposed Rule 15(f)(4) would provide that 
notwithstanding a temporary suspension of the requirement to publish 
pre-opening indications in a security under Rule 15, a DMM or the 
Exchange may publish a pre-opening indication for one or more 
securities. This proposed rule text, which is based in part on Rule 
48(c)(5), would allow a DMM or the Exchange to publish a pre-opening 
indication, even if the rule were suspended.\23\ Unlike Rule 48(c)(5), 
which specifies conditions when the DMM should still publish a pre-
opening indication, proposed Rule 15(f)(3) would not require pre-
opening indications, but rather, would allow them to be published even 
if the rule were temporarily suspended.
---------------------------------------------------------------------------

    \21\ As provided for in Rule 48(c)(1)(A), these factors include 
volatility in the previous day's trading session, trading in foreign 
markets before the open, substantial activity in the futures market 
before the open, the volume of pre-opening indications of interest, 
evidence of pre-opening significant order imbalances across the 
market, government announcements, news and corporate events, and 
such other market conditions that could impact Floor-wide trading 
conditions.
    \22\ Rule 48(c)(4) provides that that a declaration of an 
extreme market volatility condition under Rule 48 shall be in effect 
only for the particular opening or reopen for the trading session on 
the particular day that the extreme market volatility condition if 
determined to exist.
    \23\ Rule 48(c)(5) provides that a declaration of an extreme 
market volatility condition shall not relieve DMMs from the 
obligation to make pre-opening indications in situations where the 
opening of a security is delayed for reasons unrelated to the 
extreme market volatility condition.
---------------------------------------------------------------------------

    Because the Exchange has added new subsections to Rule 15, the 
Exchange proposes to renumber Rule 15(c) as Rule 15(g) and to add a 
header to this subsection of rule entitled ``Opening Order Imbalance 
Information.'' In addition to re-designating the rule from Rule 15(c) 
to Rule 15(g), the Exchange proposes non-substantive differences to re-
number the subsections of proposed Rule 15(g) to use the same numbering 
convention as proposed for proposed Rule 15(a)-(f), delete the phrase 
``the provisions of'' in proposed Rule 15(g)(2)(B), and remove the 
reference to subparagraph (b) by deleting the phrase ``or (b).''
    The Exchange also proposes a substantive difference to change Rule 
15(c)(3)(iii) (re-numbered as proposed Rule 15(g)(3)(C)) to increase 
the frequency with which the Exchange disseminates Order Imbalance 
Information \24\ beginning at 9:20 a.m. ET. Currently, under Rule 
15(c)(3)(iii), Order Imbalance Information is disseminated 
approximately every 15 seconds between 9:20 a.m. ET and the opening of 
trading in that security. The Exchange proposes to disseminate Order 
Imbalance Information approximately every 5 seconds between 9:20 a.m. 
ET and the opening of trading in that security. The Exchange believes 
that increasing the frequency with which Order Imbalance Information is 
disseminated would provide market participants with additional updated 
pre-opening information, thus promoting transparency for the opening 
transaction.\25\
---------------------------------------------------------------------------

    \24\ Order Imbalance Information reflects real-time order 
imbalances that accumulate prior to the opening transaction on the 
Exchange and the price at which interest eligible to participate in 
the opening transaction may be executed in full. Order Imbalance 
Information disseminated pursuant to Rule 15(c) includes all 
interest eligible for execution in the opening transaction of the 
security in Exchange systems, i.e., electronic interest, including 
Floor broker electronic interest, entered into Exchange systems 
prior to the opening. Order Imbalance Information is disseminated on 
the Exchange's proprietary data feeds. See Rule 15(c)(1).
    \25\ The Exchange also proposes to amend Rule 80C(b)(2)(A) to 
provide that the Order Imbalance Information disseminated during a 
Trading Pause would also be in approximately 5 second increments. 
The Exchange also proposes a non-substantive amendment to this rule 
text and to Rule 80C(b)(2) to add ``-Equities'' to the internal rule 
reference.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to add new Supplementary Material 
.10 to Rule 15 providing that, unless otherwise specified in the 
proposed Rule,\26\ references to an opening transaction include a 
reopening transaction following a trading halt or pause in a security. 
Currently, Rule 123D Mandatory Indications are required for both 
openings and reopenings. Because proposed Rule 15 indications would 
similarly be required for openings and reopenings following a halt or 
pause, the Exchange proposes to add Supplementary Material .10 to Rule 
15.
---------------------------------------------------------------------------

    \26\ See, e.g., proposed Rules 15(d)(2) (referring only to 
reopenings following a market-wide trading halt under Rule 80B) and 
15(e)(6) (specifying different procedures when reopening trading 
following a trading pause).
---------------------------------------------------------------------------

DMM Automated Openings
    As noted above, the process for publishing either Rule 15 
Indications or Rule 123D Mandatory Indications is manual, and is 
generally followed by the DMM effecting the opening of a security 
manually rather than electronically. Consistent with this approach, the 
Exchange currently systemically blocks DMMs from opening a security 
electronically if the opening price would be outside of price

[[Page 60044]]

parameters that are based on the price buckets and applicable price 
ranges specified in Rule 15(a). The Exchange similarly blocks DMMs from 
electronically opening a security if size of the opening transaction 
would be a significant volume, which similarly would indicate the 
potential need for manual oversight of the opening process.
    Because the DMM is not obligated to open a security electronically, 
the Exchange has not historically specified in its rules the parameters 
for when the DMM may effect an opening electronically.\27\ However, 
following the events of the week of August 24, 2015, the Exchange 
believes that specifying in Exchange rules the conditions in which a 
DMM is permitted to open a security electronically would provide 
greater transparency in Exchange rules. The Exchange therefore proposes 
to amend Rule 123D(a) to specify when a DMM may effect an opening 
electronically.
---------------------------------------------------------------------------

    \27\ Rule 123D does not require DMMs to open a security 
electronically; a DMM may determine that in the particular 
circumstances for a security, manually opening the security may be 
warranted, even if the price would be within the Applicable Price 
Range. For example, if a Floor broker has represented an order in 
the Crowd, the DMM will open a security manually.
---------------------------------------------------------------------------

    In specifying parameters for when a DMM may effectuate an opening 
electronically, the Exchange proposes to adopt parameters and 
requirements that would be structured similarly to the proposed 
parameters for new Rule 15 pre-opening indications, as discussed above. 
Because Rule 123D(a)(1) is applicable to reopenings, the Exchange 
proposes to add to Rule 123D(a) that unless otherwise specified, 
references to an open or opening in Rule 123D(a) also mean a reopening 
following a trading halt or pause in a security. This proposed rule 
text is based on the last sentence of Rule 123D(a)(2).\28\ As proposed, 
this text would be applicable to Rules 123D(a)(1) and (a)(2) in 
addition to Rules 123D(a)(3)-(6), as currently provided for in Rule 
123D(a)(2). The Exchange proposes to delete the last sentence of Rule 
123D(a)(2) as duplicative of the proposed new rule text. The Exchange 
also proposes to add language to paragraph (1) of Rule 123D(a) to 
provide for DMM responsibilities regarding the reopening process. As 
proposed, Rule 123D(a)(1) would explicitly state that it is the 
responsibility of each DMM to ensure that registered securities open as 
close to the end of a halt or pause, while at the same time not unduly 
hasty, particularly when at a price disparity from the last price on 
the Exchange.
---------------------------------------------------------------------------

    \28\ See Rule 123D(a)(2) (``Unless otherwise specified, 
references to an open or opening in paragraphs (a)(3)-(a)(6) of this 
Rule also mean a reopening following a trading halt or pause.''). 
See also proposed Supplementary Material .10 to Rule 15--Equities 
(``Unless otherwise specified in this Rule, references to an opening 
transaction include a reopening transaction following a trading halt 
or pause in a security.'')
---------------------------------------------------------------------------

    The Exchange proposes new subsection numbering to Rule 123D(a)(1) 
to break out the third and fourth sentences of current Rule 123D(a)(1) 
to be proposed Rules 123D(a)(1)(A) and (B).\29\ The Exchange proposes 
to add to proposed Rule 123D(a)(1)(B) that Exchange systems would not 
permit a DMM to open a security electronically if a DMM has manually 
entered Floor interest. This is how Exchange systems currently function 
and is similar to Rule 123C.10--Equities regarding when a DMM may close 
a security electronically.
---------------------------------------------------------------------------

    \29\ The Exchange also proposes a non-substantive amendment to 
change the term ``stock'' to ``security'' and to fix a typographical 
error to add the letter ``m'' before the word ``may.''
---------------------------------------------------------------------------

    The Exchange proposes to set forth the parameters for when a DMM 
may effect an opening electronically in new proposed Rules 
123D(a)(1)(B)(i), (ii), and (iii):
     Proposed Rule 123D(a)(1)(B)(i) would provide that except 
under the conditions set forth in Rules 123D(a)(1)(B)(ii) and (iii), a 
DMM may not effect an opening electronically if; (a) the opening (but 
not reopening) transaction would be at a price more than 4% away from 
the Official Closing Price, as defined in Rule 123C(1)(e)--Equities, 
(b) the reopening transaction would be at a price more than 4% away 
from the last sale price on the Exchange; or (c) the matched volume for 
the opening transaction would be more than (1) 150,000 shares for 
securities with an average opening volume of 100,000 shares or fewer in 
the previous calendar quarter; or (2) 500,000 shares for securities 
with an average opening volume of over 100,000 shares in the previous 
calendar quarter. For purposes of this Rule, the calendar quarters will 
be based on a January 1 to December 31 calendar year.
     The Exchange believes that when reopening a security, the 
Official Closing Price from the prior day would no longer be a relevant 
reference price because the security has already opened for trading. 
Rather, because the security has been subject to a halt or pause before 
reopening, the Exchange believes that using the last sale price on the 
Exchange would be more representative of the most recent price of a 
security. A reopening price that would be more than 4% away from the 
last Exchange sale price demonstrates a level of price movement in a 
security during the halt or pause that warrants the manual price 
discovery process for the reopening. If the reopening price were to be 
within 4% away from the last Exchange sale price, that security likely 
has not experienced as much price movement, and therefore an electronic 
reopening may be more appropriate.
     Proposed Rule 123D(a)(1)(B)(ii) would provide that if as 
of 9:00 a.m. ET, the E-mini S&P 500 Futures are plus or minus 2% from 
the prior day's closing price of the E-mini S&P 500 Futures, or if the 
Exchange determines that it is necessary or appropriate for the 
maintenance of a fair and order market, a DMM could effect an opening 
electronically if the opening transaction would be at a price of up to 
8% away from the Official Closing Price, as defined in Proposed Rule 
123C(1)(e)--Equities, (for openings, but not reopenings) or the last 
sale price on the Exchange (for reopenings), without any volume 
limitations.
     Proposed Rule 123D(a)(1)(B)(iii) would provide that when 
reopening a security following a trading pause under Rule 80C or a 
market-wide halt under Rule 80B--Equities, if a pre-opening indication 
has been published in a security under Rule 15--Equities, a DMM may not 
reopen such security electronically if the reopening transaction would 
be at a price outside of the last-published pre-opening indication.
     The Exchange believes that because price volatility was 
likely the cause of such trading pause or halt, if the DMM publishes a 
pre-opening indication in a security for a reopening following such 
trading pause or halt, the reopening price should be within such pre-
opening indication price range, regardless of whether the security is 
reopened manually or electronically. If the price moves away from the 
last pre-opening indication, the DMM should publish a new pre-opening 
indication to provide notice of the new price range.\30\ Because the 
DMM would need to reopen a security within such price indication range, 
the Exchange believes it is appropriate to prohibit a DMM from 
reopening electronically if the reopening price were to be outside of 
the last-published pre-opening indication.
---------------------------------------------------------------------------

    \30\ See proposed Rule 15(e)(2) (a pre-opening indication must 
be updated if the opening transaction would be at a price outside of 
a published pre-opening indication).
---------------------------------------------------------------------------

    Similar to the new Applicable Price Ranges for pre-opening 
indications proposed in Rule 15(d) above, the

[[Page 60045]]

Exchange proposes to use a single percentage parameter for all 
securities, regardless of price. The Exchange also proposes to double 
those percentage parameters on days with extreme market-wide 
volatility, and would use the same standard for determining whether 
there is market-wide volatility as is proposed in Rule 15(d)(2), 
described above. Because the Exchange continues to believe that, if a 
pre-opening indication has been published, a security is better served 
if a DMM effects a manual opening, the Exchange proposes to apply 
percentage parameters to DMM automated openings that are tighter than 
the requirements for publishing a pre-opening indication. In other 
words, if a pre-opening indication would be required under proposed 
Rule 15, the DMM would not be permitted to effect an opening 
electronically. To achieve this goal, the Exchange proposes that the 
percentage parameter on a regular trading day for DMM automated opens 
should be one percent lower than the percentage parameter for pre-
opening indications on a regular trading day. And as with pre-opening 
indications, on a day with extreme market-wide volatility, the 
applicable percentage would be doubled.
    The Exchange believes that the proposed conditions for when a DMM 
may effect an opening electronically would reduce the number of manual 
openings and enable more securities to open closer to 9:30 a.m. ET, 
both on regular trading days and on extremely volatile trading days 
such as August 24, 2015.
    Tables 3 through 5 below illustrate how many securities would not 
be eligible for a DMM to effect an opening electronically when applying 
the current and proposed percentage and volume parameters to NYSE trade 
data from October 2015 and NYSE trade data from August 24, 2015.
[GRAPHIC] [TIFF OMITTED] TN31AU16.002

    For example, as set forth in Table 3, using current price 
parameters and a 100,000 share volume parameter, in October 2015, 94 
securities (13.4% of securities) on NYSE on average each day were not 
eligible to be opened by the DMM electronically. As demonstrated in 
Table 4, using the proposed 4% price and tiered volume parameters, a 
comparable 47 securities (1.7% of securities) on NYSE on average in 
October would not have been eligible to be opened by the DMM 
electronically.
    With respect to the proposed volume parameters, the Exchange 
believes that having a parameter tied to higher-than-average opening 
volume in a security would better reflect whether opening 
electronically would be appropriate. For example, as the data show in 
Table 4, on NYSE, there were 74 securities averaging daily opening 
volume over 100,000 shares in the previous quarter (3Q15) and three of 
those securities had opening volume of over 500,000 shares on an 
average daily basis in October. The Exchange believes that if a 
security has a higher-than-average opening volume on a quarterly basis 
without any corresponding price dislocation, then the volume of shares 
trading on the opening for such securities is not representative of any 
volatility for that security, but rather, is a regular state of affairs 
that does not require a high-touch opening managed by a DMM on the 
trading Floor. Rather, such securities would benefit from being 
available for the DMM to open electronically in order to promote a fair 
and orderly opening at or near the open of trading. The Exchange 
further believes that securities with an average daily volume of over 
500,000 shares at the open are the types of securities that most 
warrant the

[[Page 60046]]

DMM's high touch. Specifically, such large-sized openings are likely to 
be indicative of block-sized trades participating in the opening. The 
Exchange's high-touch model allows for greater price discovery for such 
securities by leveraging the Exchange's Floor broker agency community 
to solicit block-sized interest to participate in the opening.
    As with pre-opening indications, the Exchange proposes to double 
the percentage parameter on trading days with extreme market-wide 
volatility and eliminate the volume parameter. As illustrated in Table 
5, doubling the percentage parameter and eliminating the volume 
parameters would allow DMMs to open most NYSE securities electronically 
even during extreme market-wide volatility. As NYSE trade data from 
August 24, 2015 set forth in Table 3 illustrates, the current 
percentage parameters restricted DMMs from opening 1,753 securities 
electronically, which represents 58.4% of securities on NYSE.\31\ As 
set forth in Table 5, applying the proposed 8% percentage parameter 
would have allowed DMMs to open all but 573 securities electronically, 
which represents 19.1% of the securities traded on NYSE.
---------------------------------------------------------------------------

    \31\ On August 24, 2015, DMMs also chose not to open securities 
electronically, even if they would have been priced within the 
current price parameters.
---------------------------------------------------------------------------

    The Exchange also proposes to add a new paragraph (c) to Rule 123D 
entitled ``Temporary Suspension of DMM Automated Opening Limitations or 
Floor Official Approval.'' Similar to proposed Rule 15(f), if the CEO 
of the Exchange determines that a Floor-wide event is likely to have an 
impact on the ability of DMMs to arrange for a fair and orderly opening 
or reopening following a market-wide trading halt at the Exchange and 
that, absent relief, the operation of the Exchange is likely to be 
impaired, the CEO of the Exchange may temporarily suspend the 
prohibition on a DMM opening a security electronically if the opening 
transaction would be more than the price or volume parameters specified 
in proposed Rule 123D(a)(1)(B). This would be a new suspension 
authority that relates to the proposed new price and volume parameters 
for when a DMM may open a security electronically. The Exchange 
believes that having this temporary suspension authority would be 
appropriate for situations if the DMM is unable to open a security 
manually, either due to unavailability of 11 Wall Street facilities or 
because of systems or technical issues with Floor-based tools for 
manually opening a security.
    Proposed Rule 123D(c) would also provide that if the CEO of the 
Exchange determines that a Floor-wide event is likely to have an impact 
on the ability of DMMs to arrange for a fair and orderly opening or 
reopening following a market-wide trading halt at the Exchange, and 
that absent relief, the operation of the Exchange is likely to be 
impaired, the CEO of the Exchange may temporarily suspend (i) the 
prohibition on a DMM opening a security electronically if the opening 
transaction will be more than the price or volume parameters specified 
in proposed Rule 123D(a)(1)(B); or (ii) the need under Rule 123D(b) for 
prior Floor Official approval to open or reopen a security following a 
market-wide trading halt. This proposed rule change is similar to 
authority in current Rule 48, which permits a qualified Exchange 
officer to temporarily suspend the need for prior Floor Official or 
prior NYSE Floor operations approval to open or reopen a security 
following a market-wide trading halt. While the Exchange expects that 
its other proposed changes to Rule 123D would make it unlikely that a 
complete suspension of prior Floor Official approval would be required, 
the Exchange believes it would be prudent for the CEO of the Exchange 
to retain the authority temporarily suspend such requirements for 
events that it cannot currently predict. The Exchange also proposes a 
new temporary suspension that correlates to the proposed new price and 
volume parameters for when a DMM may open a security electronically. 
The Exchange expects that this relief would be required if 11 Wall 
Street facilities were unavailable and DMMs would be required to open 
all securities remotely, and thus electronically.
    Proposed Rule 123D(c)(2)-(3) are nearly identical to proposed Rule 
15(f)(1)-(3), as described in greater detail above, with changes only 
to address that this proposed rule relates to the temporary suspension 
of the requirements for specified paragraphs of Rule 123D. Proposed 
Rule 123D(c)(2)-(3) is based on the same provisions of Rule 48 that 
proposed Rule 15(f)(2)-(4) is based on, which is discussed in greater 
detail above.
    The miscellaneous and technical amendments proposed to Rule 123D 
are as follows:
     The Exchange proposes to amend Rule 123D(a)(5) (Pre-
Opening Information) to change the citation to Rule 15(c) to 15(g) 
based on the proposed changes to Rule 15, described above, and delete 
the word ``either'' and the references to Rule 123D.
     The Exchange proposes to delete the phrase ``Halts in 
Trading'' from the heading of Rule 123D(b).
     Also in Rule 123D(b), the Exchange proposes to delete the 
text relating to the dissemination of mandatory indications beginning 
with the sentence ``If an unusual situation exists, such as a large 
order imbalance, tape indications should be disseminated, including 
multiple indications if appropriate with the supervision of a Floor 
Official'' through and including the sentence ``An Executive Floor 
Governor or Floor Governor should be consulted in any case where there 
is not complete agreement among the Floor Officials participating in 
the discussion.'' This rule text all pertains to Rule 123D Mandatory 
indications, which, as discussed above, would be governed by proposed 
Rule 15.
     The Exchange proposes to add a new heading (d) entitled 
``Halts in Trading'' before the sentence ``Once trading has commenced, 
trading may only be halted with the approval of a Floor Governor or two 
Floor Officials'' in current Rule 123D(b) and change current heading 
(c) (Equipment Changeover) to (e).
     Finally, in current Rule 123D(c) (proposed Rule 123D(e)), 
to reflect that all information relating to pre-opening indications, 
including the Applicable Price Ranges and Reference Prices, are now 
described in Rule 15, the Exchange proposes to delete the phrase ``a 
significant order imbalance (one which would result in a price change 
from the last sale of one point or more for stocks under $10, the 
lesser of 10% or three points for $10--$99.99 and five points if $100 
or more--unless a Floor Governor deems circumstances warrant a lower 
parameter) develops'' and add the phrase ``a pre-opening indication 
would be required to be published'' in its place.
Rule 48
    The Exchange proposes to delete Rule 48 in its entirety. As 
discussed above, the Exchange is proposing changes to Rules 15 and 123D 
that it believes will allow DMMs to publish pre-opening indications in 
a manageable number of securities, even on days of high volatility, 
which would promote transparency regarding opening prices at the 
Exchange. In addition, and as described above, the Exchange is 
incorporating into Rules 15 and 123D authority for the CEO of the 
Exchange to temporarily suspend the requirement to publish pre-opening 
indications, the pricing and volume limitations for a

[[Page 60047]]

DMM to open a security electronically, and for a DMM to obtain Floor 
Official approval under Rule 123D(b) when opening or reopening a 
security, if the CEO of the Exchange determines that such relief is 
necessary to the ability of DMMs to open the securities and to the 
operation of the Exchange. Accordingly, the Exchange believes that the 
Rule 48 is no longer necessary.
Conforming and Technical Amendments--Rules 80C and 9217
Rule 80C
    The Exchange proposes conforming amendments Rule 80C(b)(2), which 
governs a Trading Pause under the LULD Plan.
    First, Rule 80C(b)(2) requires that the Exchange re-open the 
security in a manner similar to the procedures set forth in Rule 123D 
following a Trading Pause (as defined therein). The Exchange proposes 
to add a reference to Rule 15 to Rule 80C(b)(2), so that the 
requirement to re-open would be in a manner similar to Rules 15 and 
123D.
    Second, the Exchange proposes to delete subdivision (A) of Rule 
80C(b)(2) in its entirety and mark the deleted text as ``Reserved.'' As 
noted above, the requirements for reopening a security following a 
trading pause set forth in Rule 80C would be codified in proposed Rule 
15(d)(6).
Rule 9217
    The Exchange also proposes to amend Rule 9217, which sets forth the 
list of rules under which a member organization or covered person may 
be subject to a fine under a minor rule violation plan as set forth in 
Rule 9216(b). Rule 9217 permits a summary fine for violations of Rule 
123D requirements for DMMs relating to openings, reopenings, delayed 
openings, trading halts, and tape indications. The Exchange proposes to 
delete the clause ``tape indications'' to reflect elimination of 
mandatory indications from Rule 123D. The Exchange believes this 
proposed change would add transparency and clarity to the Exchange's 
rules.
* * * * *
    Because of the technology changes associated with the proposed rule 
change, the Exchange will announce by Trader Update the implementation 
date of the changes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\32\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\33\ in particular, because it 
is designed to 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 protect investors and the public interest.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that streamlining and consolidating pre-
opening indications into a single rule (Rule 15) from two (Rules 15 and 
123D) would remove impediments to and perfect the mechanism of a free 
and open market because it would set forth in a single rule the 
requirements for pre-opening indications, thereby promoting 
transparency by using consistent terminology for rules governing 
equities trading and ensuring that members, regulators, and the public 
can more easily navigate the Exchange's rulebook.
    The Exchange believes that adopting new single-wide (5% change) and 
double-wide (10% change if S&P 500 futures move 2%) percentage 
parameters for the publication of pre-opening indications would remove 
impediments to and perfect the mechanism of a free and open market by 
requiring issuance of more pre-opening indications than currently 
during times of market stress, thereby increasing the amount of 
information available in the pre-market and improving the quality of 
price discovery at the opening. The proposed rule therefore promotes 
just and equitable principles of trade because it would expand the 
amount of pre-opening information available to the marketplace, thereby 
promoting transparency. For the same reasons, the proposal is also 
designed to protect investors as well as the public interest.
    The Exchange believes that amending Rule 123D to specify when a DMM 
may effect an opening electronically would remove impediments to and 
perfect the mechanism of a free and open market by promoting 
transparency in Exchange rules regarding under what circumstances a DMM 
may effect an opening electronically. The Exchange believes that the 
proposed parameters for when a DMM may open a security electronically, 
which would be 4% on regular trading days and doubled to 8% in times of 
market stress, would remove impediments to and perfect the mechanism of 
a free and open market by reducing the number of manual openings and 
enabling more securities to open closer to 9:30 a.m. ET on extremely 
volatile trading days, thereby providing customers and the investing 
public with greater certainty of a timely open in circumstances of 
extreme market stress. The Exchange further believes that the proposal 
would advance the efficiency and transparency of the opening process, 
thereby fostering accurate price discovery at the open of trading. For 
the same reasons, the proposal is also designed to protect investors as 
well as the public interest.
    The Exchange believes that using the last Exchange sale price as a 
reference price for reopenings would promote just and equitable 
principles of trade and remove impediments to and perfect the mechanism 
of a free and open market and a national market system because using 
the last sale price on the Exchange would be more representative of the 
most recent price of a security from before the halt or pause. In 
addition, the Exchange believes that if a security were to reopen more 
than 4% (or 8% on a more volatile trading day) from that reference 
price, such reopening would likely benefit from the manual price 
discovery process. The Exchange also believes that it would remove 
impediments to and perfect the mechanism of a free and open market to 
provide that a DMM may reopen a security electronically if the 
reopening transaction would be at a price outside of the last-published 
pre-opening indication when reopening a security following a trading 
pause under Rule 80C or a market-wide halt under Rule 80B and a pre-
opening indication has been published under Rule 15.
    The Exchange believes that deleting Rule 48 and moving the 
applicable provisions to Rules 15 and 123D would remove impediments to 
and perfect the mechanism of a free and open market by reducing 
reliance on Rule 48 during extremely volatile trading days. Rather, as 
proposed, the need for the CEO of the Exchange to temporarily suspend 
either pre-opening indications or the need for prior Floor Official 
approval before opening or reopening a security would be under more 
narrow circumstances of when a Floor-wide event would impair the 
Exchange's ability to conduct a fair and orderly open or reopening. As 
discussed above, the proposed amendments to Rule 15 and 123D to provide 
for parameters on days with extreme market-wide volatility would 
obviate the need for the current Rule 48 ability to lift the 
requirements for pre-opening indications or prior Floor Official 
approval during extreme market-wide volatility. The Exchange further 
believes that the proposal would advance the efficiency and 
transparency of the opening process, thereby fostering accurate price 
discovery at the open of trading. For the same reasons, the

[[Page 60048]]

proposal is also designed to protect investors as well as the public 
interest.
    The Exchange believes that making corresponding conforming changes 
to Rules 80C and 9217 would remove impediments to and perfects the 
mechanism of a free and open market by reducing potential confusion and 
adding transparency and clarity to the Exchange's rules, thereby 
ensuring that members, regulators and the public can more easily 
navigate and understand the Exchange's rulebook.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not intended to address competitive issues but rather promote greater 
efficiency and transparency at the open of trading on the Exchange. The 
Exchange believes the proposed rule change will ease a burden on 
competition by providing for similar standards for the opening process 
on the Exchange as have been approved for the NYSE, which currently 
operates on the same trading platform as the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \34\ and Rule 19b-4(f)(6) thereunder.\35\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \36\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\37\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange believes 
that waiver of the operative delay is consistent with the protection of 
investors and the public interest because the proposed rule change is 
based on the approved rules of the NYSE and immediate effectiveness 
would enable the Exchange to implement changes to its rules that are 
designed to promote efficiency and transparency in the opening process. 
It would also enable the Exchange to implement the proposed changes to 
its opening process at the same time as similar changes are being 
implemented on the NYSE, which the Exchange believes would promote the 
protection of investors and the public interest. In addition, because 
the technology is ready for both this proposed rule change and the 
changes described in the NYSE Approval Order, the Exchange believes 
that waiver of the operative delay will allow for the Exchange to 
implement the approved changes to the opening process, without delay, 
at the same time that it implements the same changes to the NYSE rules. 
The Commission believes that the proposed rule change is consistent 
with the protection of investors and the public interest, because the 
proposal is reasonably designed to promote efficiency and transparency 
in the opening process, and because it would allow the proposal to be 
implemented concurrently with the parallel changes to the NYSE rules 
that have already been approved by the Commission. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal operative upon filing.\38\
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    \36\ 17 CFR 240.19b-4(f)(6).
    \37\ 17 CFR 240.19b-4(f)(6)(iii).
    \38\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \39\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \39\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEMKT-2016-79 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2016-79. 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

[[Page 60049]]

available publicly. All submissions should refer to File Number SR-
NYSEMKT-2016-79 and should be submitted on or before September 21, 
2016.
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    \40\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20880 Filed 8-30-16; 8:45 am]
 BILLING CODE 8011-01-P