[Federal Register Volume 82, Number 63 (Tuesday, April 4, 2017)]
[Notices]
[Pages 16443-16445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06564]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80329; File No. SR-NYSEArca-2017-17]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change To Amend Rule 6.37B Regarding Market Maker 
Quotations, Including To Adopt a Market Maker Light Only Quotation

March 29, 2017.

I. Introduction

    On February 10, 2017, NYSE Arca, Inc. (the ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend Rule 
6.37B regarding Market Maker Quotations, including to adopt a Market 
Maker Light Only Quotation. The proposed rule change was published for 
comment in the Federal Register on February 27, 2017.\3\ The Commission 
received no comment letters on the proposed rule change. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80072 (February 21, 
2017), 82 FR 11964 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.37B(a), which provides that a 
Market Maker may enter quotes in the option issues included in its 
appointment, to define a Market Maker ``quote,'' add a new quote type, 
and specify how such quotes would be processed when a series is open 
for trading.
    First, the Exchange proposes to define a Market Maker quote to 
provide that ``[t]he term `quote' or `quotation' means a bid or offer 
entered by a Market Maker

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that updates the Market Maker's previous bid or offer, if any.'' \4\
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    \4\ See proposed Rule 6.37B(a)(1). The Exchange notes that its 
proposed definition is identical or substantially similar to related 
definitions on other options exchanges. See, e.g., International 
Securities Exchange, LLC Rule 100(a)(42); BOX Options Exchange LLC 
Rule 100(a)(55). The Exchange also proposes to modify the current 
definition of ``Quote with Size'' to include a cross reference to 
the proposed definition of ``quotation.'' See proposed Rule 
6.1(b)(33).
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    Second, the Exchange proposes to add a Market Maker Light Only 
Quotation (``MMLO'') to provide Market Makers the option to designate 
incoming quotes to trade solely with displayed interest on the 
Consolidated Book.\5\ This proposed change would allow Market Makers to 
designate quotes as MMLO to prevent such quotes from trading with 
undisplayed liquidity upon arrival. Once an MMLO is added to the 
Consolidated Book, the MMLO designation would no longer apply and any 
unexecuted portion could trade with displayed and undisplayed interest.
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    \5\ See proposed Rule 6.37B(a)(2). The Exchange noted that this 
proposed functionality for Market Maker quotations is comparable to 
functionality Market Makers may currently employ for orders. See 
Notice, supra note 3, at 11964-65, 11964 n.9. See also Rule 6.62(v) 
(defining Post No Preference Light Orders as non-routable orders 
that are only eligible to execute against displayed liquidity). The 
Exchange further noted that it previously offered, and later 
eliminated, a Post No Preference Light Only Quotation (``PNPLO''), 
which, like the MMLO, allowed Market Makers to designate certain 
quotations to only interact with displayed liquidity. See Notice, 
supra note 3, at 11965 n.10. See also Securities Exchange Act 
Release Nos. 67252 (June 25, 2012), 77 FR 38879 (June 29, 2012) (SR-
NYSEArca-2012-05) (order approving adoption of PNPLO for Penny Pilot 
issues only); 68339 (December 3, 2012), 77 FR 73109 (December 7, 
2012) (SR-NYSEArca-2012-130) (extending the PNPLO to non-Penny Pilot 
issues); 69641 (May 28, 2013), 78 FR 33134 (June 3, 2013) (SR-
NYSEArca-2013-51) (eliminating reference to the PNPLO).
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    Finally, the Exchange proposes to modify the processing of Market 
Maker quotations, including MMLOs, in a manner that aligns with the 
Options Order Protection And Locked/Crossed Market Plan (``Plan''), to 
which the Exchange is a party.\6\ Specifically, as proposed, an 
incoming quotation would only trade against contra-side interest in the 
Consolidated Book at prices that would not trade through interest on 
another Market Center.\7\ Any untraded size of an incoming quote would 
be added to the Consolidated Book, unless it locks or crosses interest 
on another Market Center or if the quote is an MMLO and locks or 
crosses undisplayed interest.\8\ The proposed rule would further state 
that when such quantity of an incoming quote is cancelled (as opposed 
to being rejected outright), the Exchange would also cancel the Market 
Maker's current quote on the opposite side of the market. According to 
the Exchange, this would allow the Market Maker to refresh both its bid 
and offer simultaneously, as both sides of the Market Maker's quote 
residing on the Consolidated Book would be cancelled.\9\ Additionally, 
the Exchange would reject an incoming quotation if it locks or crosses 
interest on another Market Center and if it cannot trade with interest 
in the Consolidated Book at prices that do not trade through another 
Market Center.\10\ The Exchange also proposes to reject an incoming 
MMLO if it locks or crosses undisplayed interest and cannot trade with 
displayed interest in the Consolidated Book at prices that do not trade 
through another Market Center.\11\ The proposed rule would further 
state that when an incoming quote is rejected outright (as opposed to 
being cancelled after a partial fill), the Exchange would also cancel 
the Market Maker's current quote on the same side of the market.\12\ 
According to the Exchange, this treatment recognizes that the Market 
Maker unsuccessfully attempted to update its bid or offer price, and 
the cancellation would allow the Market Maker to refresh that side of 
its quote.\13\ The Exchange also proposes to specify that, when a 
series is open for trading, a quote will trade only against interest in 
the Consolidated Book and will not route.\14\
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    \6\ See Plan, dated April 14, 2009, available at, http://www.optionsclearing.com/components/docs/clearing/services/options_order_protection_plan.pdf. See also Securities Exchange Act 
Release No. 60405 (July 30, 2009), 74 FR 39362 (August 6, 2009) 
(File No. 4-546) (order approving the Plan). The Plan establishes 
various obligations for participating exchanges, including that 
Market Makers should ``reasonably avoid displaying, and shall not 
engage in a pattern or practice of displaying, any quotations that 
lock or cross'' the best bid or offer on another Market Center. See 
Plan, supra, at Section 6(c).
    \7\ See proposed Rule 6.37B(a)(3)(A). See also Rule 6.1A(6) 
(defining Market Center as ``a national securities exchange that has 
qualified for participation in the Options Clearing Corporation 
pursuant to the provisions of the rules of the Options Clearing 
Corporation'').
    \8\ See proposed Rule 6.37B(a)(3)(B)(i).
    \9\ See Notice, supra note 3, at 11965.
    \10\ See proposed Rule 6.37B(a)(3)(C)(i).
    \11\ See proposed Rule 6.37B(a)(3)(C)(ii).
    \12\ See proposed Rule 6.37B(a)(3)(C).
    \13\ See Notice, supra note 3, at 11965.
    \14\ See proposed Rule 6.37B(a)(3)(D).
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    According to the Exchange, the implementation of the proposed rule 
change will be no later than 30 days after its approval, and will be 
announced by Trader Update.\15\
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    \15\ See Notice, supra note 3, at 11965.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \16\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\17\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\18\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest and that the rules not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \16\ 15 U.S.C. 78f.
    \17\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange noted that its proposal to add the definition of 
Market Maker quotes will provide additional clarity and transparency to 
Exchange rules.\19\ The Exchange further stated that it is difficult 
for Market Makers to account for undisplayed liquidity in their quoting 
models. The Exchange believes that its proposal to adopt the MMLO 
functionality would therefore provide Market Makers with increased 
control over their exposure, and thus may encourage more aggressive 
liquidity provision, resulting in more trading opportunities and 
tighter spreads.\20\ According to the Exchange, this would improve 
overall market quality and improve competition on the Exchange to the 
benefit of all market participants.\21\ Finally, the Exchange stated 
that its proposal to amend the treatment of Market Maker quotations 
would assist Market Makers in maintaining a fair and orderly market, 
would encourage increased liquidity provision on the Exchange, and is 
consistent with Exchange's obligations under the Plan in that it avoids 
trading through better prices on other exchanges and is designed to 
avoid locking and crossing

[[Page 16445]]

markets.\22\ In particular, the Exchange noted that the proposed rules 
with respect to the treatment of Market Maker quotations would enable 
Market Makers to simultaneously update both sides of their resting 
quote when one side of the quote received a partial fill but was 
subsequently cancelled, and to leave undisturbed valid opposite-side 
interest where one side of a quote is rejected and not booked.\23\ This 
proposal does not relieve a Market Maker of its continuous quoting, or 
firm quote, obligations pursuant to Rules 6.37B and 6.86, respectively. 
For these reasons, the Commission finds that the proposed rule change 
is consistent with Section 6(b)(5) of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.
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    \19\ See Notice, supra note 3, at 11966.
    \20\ See id.
    \21\ See id.
    \22\ See id.
    \23\ See id.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\24\ that the proposed rule change (SR-NYSEArca-2017-17) be, and 
hereby is, approved.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06564 Filed 4-3-17; 8:45 am]
BILLING CODE 8011-01-P