[Federal Register Volume 75, Number 137 (Monday, July 19, 2010)]
[Notices]
[Pages 41914-41916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-17490]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62485; File No. SR-NYSEArca-2010-67]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Establish
Trading Collars for Market Orders
July 13, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on July 9, 2010, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') 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 Exchange. 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\ 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 NYSE Arca Equities Rule 7.31 to add
trading collars for market orders at the Exchange. The text of the
proposed rule change is available at the Exchange's principal office,
the Commission's Web site at http://www.sec.gov, the Commission's
Public Reference Room, and http://www.nyse.com.
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 is proposing to amend NYSE Arca Equities Rule 7.31(a),
governing Market Orders, to add trading collars that would prevent a
market order from trading more than a certain percentage away from a
calculated reference price that would be continuously updated based on
market activity. The proposed trading collars are distinct from the
five-minute trading pauses pursuant to NYSE Arca Equities Rule 7.11
that, as a consequence of recent extreme market volatility, will now be
issued by listing markets if the transaction price of a security moves
ten percent or more from a price in the preceding five-minute period.
The Exchange believes that the proposed trading collars will serve as
an additional safeguard that could help limit potential harm from
extreme price volatility such as that recently experienced on May 6,
2010 by preventing executions that occur a specified percentage away
from the last sale in the first place.
Under the proposed rule change, during Core Trading Hours, a market
order to buy (sell) will not execute or route to another market center
at a price above (below) the Trading Collar. As proposed, Trading
Collars will apply only to market orders and not limit orders.
As proposed, the Trading Collar will be based on a price that is a
specified percentage away from the consolidated last sale price, which
can be a price either reported on the Consolidated Tape or the UTP
Trade Data Feed, depending on which market the security is listed. The
upper boundary of the Trading Collar will be calculated by increasing
the consolidated last sale price by a specific percentage, and the
lower boundary will be calculated by decreasing the consolidated last
sale price by the same specified percentage.
The numerical percentage proposed to be used in the Trading Collar
price calculations will be equal to the appropriate ``numerical
guideline'' percentage set forth in paragraph (c)(1) of NYSE Arca
Equity Rule 7.10 (Clearly Erroneous Executions) for the Core Trading
Session, as applied to the Consolidated Last Sale Price. The current
values of those percentages for various price ranges are indicated in
the following table, but the percentages for Trading Collars will
automatically be adjusted to match any future changes in the numerical
guidelines in NYSE Arca Equity Rule 7.10. The Exchange notes that
leveraged ETF/ETN securities will follow the 10%, 5%, and 3% percentage
guidelines below, and will not be multiplied by a leverage multiplier,
as provided for in NYSE Arca Equity Rule 7.10 for leveraged ETF/ETN
securities.
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Collar price
Consolidated last sale price percentage
deviation
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$25.00 or less.......................................... 10
Above $25.00 to (and including) $50.00.................. 5
Above $50.00............................................ 3
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The Exchange believes that the numerical guidelines applicable for
clearly erroneous executions provide an appropriate threshold for
determining whether to trigger a Trading Collar. These numerical
guidelines have already been vetted through the notice and comment
process as appropriate thresholds for when an execution may be found to
be clearly erroneous. As proposed, because the Trading Collar will be
based on an execution that is outside of a price that is already
established as appropriate for being considered an erroneous execution,
the Trading Collar will provide for a mechanism to prevent such clearly
erroneous executions in the first instance.
Collar prices will be continuously calculated and published for all
securities traded on the Exchange regardless of listing market. A
trading halt in a security will zero out the collar values, and
calculations will restart with the first print after trading resumes.
Market orders will interact with the Trading Collars on a given
equity security in the following manner. A market order to sell will
not execute at a price below the bottom Trading Collar price, but will
execute at prices equal to or above it, including prices displayed by
other automated markets that involve the routing of volume from the
order to the other markets. Similarly, a market order to buy will not
execute at a price above the top Trading Collar price but will execute
at prices equal to or below it, including prices displayed by other
automated markets that involve the routing of volume from the order to
the other markets.
Exchange systems will hold market orders, or portions thereof, that
become restricted by the Trading Collar (unless marked immediate-or-
cancel) until (i) additional opportunities for execution consistent
with the Trading Collar become available, either on the Exchange or on
other markets, or (ii) a new Trading Collar is calculated based on a
new consolidated last sale price, and the remaining portion of the
order is then able to execute at prices consistent with the new Trading
Collar. If there are multiple market orders that become restricted by
the collar price, they will be ranked in time priority.
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The following example illustrates the operation of the Trading
Collar:
Consolidated last sale price of XYZ Corp. is 40.00.
Bottom Trading Collar price is 38.00 (5% below 40.00).
Market Evaluation (Buy Orders):
NYSE Arca 2000 shares at 39.00.
NYSE Arca 2000 shares at 38.60.
NYSE Arca 1000 shares at 38.40.
BATS 1000 shares at 38.20.
NYSE Arca 1000 shares at 38.00.
NYSE Arca 2000 shares at 37.50.
NYSE Arca 1000 shares at 37.00.
Assume arrival of an order to Sell 10,000 shares at Market.
Results:
2000 shares execute on NYSE Arca at 39.00.
2000 shares execute on NYSE Arca at 38.60.
1000 shares execute on NYSE Arca at 38.40.
1000 shares routed to BATS and execute there at 38.20.
1000 shares execute on NYSE Arca at 38.00.
The Sell Order is then restricted by the bottom Trading Collar and
cannot execute below 38.00.
Next, assume the first trade above at 39.00 is printed to the tape
and becomes the new consolidated last sale price. Bottom collar price
is now 37.05 (5% below 39.00).
Results:
2000 shares execute on NYSE Arca at 37.50.
The Sell Order is then restricted by the new bottom Trading Collar
and cannot execute below 37.05.
Next, assume the second trade above at 38.60 is printed to the tape
and becomes the new consolidated last sale price. Bottom collar price
is now 36.67 (5% below 38.60).
Results:
1000 shares execute on NYSE Arca at 37.00, completing the
order.
The Trading Collar for the security will continue to adjust as each
of the remaining executions above (as well as any executions in the
security on other markets) is printed to the tape and becomes the new
consolidated last sale price.
2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Securities Exchange Act of 1934 (the ``Act''),\3\ which requires
the rules of an exchange to promote just and equitable principles of
trade, to remove impediments to and perfect the mechanism of a free and
open market and a national market system and, in general, to protect
investors and the public interest. The proposed rule change also is
designed to support the principles of Section 11A(a)(1) \4\ of the Act
in that it seeks to assure fair competition among brokers and dealers
and among exchange markets. The Exchange believes that the proposed
rule meets these requirements in that it ensures that market orders
will not cause the price of a security to move beyond prices that could
otherwise be determined to be a clearly erroneous execution, thereby
protecting investors from receiving executions away from the prevailing
prices at any given time.
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\3\ 15 U.S.C. 78f(b)(5).
\4\ 15 U.S.C. 78k-1(a)(1).
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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.
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
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 for 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 \5\ and Rule 19b-
4(f)(6) thereunder.\6\
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\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
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
Commission has waived the five-day pre-filing requirement.
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Commission believes that waiving the 30-day operative delay
is consistent with the protection of investors and the public interest,
because it will allow the Exchange to implement immediately a measure
designed to reduce market volatility, and because the proposal is
generally consistent with the rules of other exchanges.\7\ Therefore,
the Commission designates the proposed rule change as operative upon
filing.\8\
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\7\ See BATS Rule 11.9(a)(2) and NYSE Arca Equities Rule 7.10.
\8\ For purposes only of waiving the 30-day operative delay, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 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 may summarily abrogate 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.
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 e-mail to [email protected]. Please include
File Number SR-NYSEArca-2010-67 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2010-67. This
file number should be included on the subject line if e-mail 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
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Reference Room, on official business days between the hours of 10 a.m.
and 3 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2010-67 and should
be submitted on or before August 9, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17490 Filed 7-16-10; 8:45 am]
BILLING CODE 8011-01-P