[Federal Register Volume 75, Number 60 (Tuesday, March 30, 2010)]
[Notices]
[Pages 15758-15760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-6992]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61759; File No. SR-NYSEArca-2010-16]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Amending Rule 6.37A and Rule 6.64
March 23, 2010.
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 March 11, 2010, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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 Rule 6.37A and Rule 6.64. The text
of the proposed rule change is available on the Commission's Web site
at http://www.sec.gov. A copy of this filing is available on the
Exchange's Web site at http://www.nyse.com, at the Exchange's principal
office 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to: (i) Amend the bid-
ask differentials for Market Maker quotations outlined in Rule
6.37A(b)(4), and (ii) amend Rule 6.64(b) by establishing guidelines for
the use of bid-ask parameters in the OX System to be used during the
opening auction process (``Auction'').\4\
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\4\ An Auction is the process by which trading is initiated in a
specified options class on NYSE Arca. Auctions are conducted
automatically by the OX system, NYSE Arca's electronic system for
order handling, execution and reporting.
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Currently, Rule 6.37A(b)(4) specifies the bid-ask differential
requirements applicable to Market Maker quotations when electronically
bidding and offering on the OX System during an Auction. With respect
to bidding and
[[Page 15759]]
offering during an Auction, the bid-ask differentials \5\ vary
depending on the price of the bid. Rule 6.37A(b)(4)(A)-(E) states that
the quote widths shall not be more than: $0.25 if the bid is less than
$2; $0.40 where the bid is at least $2 but does not exceed $5; $0.50
where the bid is more than $5 but does not exceed $10; $0.80 where the
bid is more than $10 but does not exceed $20; and $1 where the bid is
more than $20. With respect to electronic quoting on the OX System,
after an Auction, the bid-ask differential requirement is $5. The
Exchange now proposes to replace the applicable bid-ask differentials
for Market Maker quoting obligations during an Auction, with the $5
quote differential that is in place at all other times.
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\5\ The Auction bid-ask differentials are known in common
parlance as ``legal-width quotes''.
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The obligation for market makers to provide opening quotes at the
widths described in 6.37A(b)(4)(A)-(E) had been adapted from the era
when the Exchange conducted open outcry opening rotations, had only
open outcry quotes available to respond to an order, and did not
disseminate Firm Quotes. Further, an open outcry opening rotation only
required a response from a single Market Maker. The opening quote
represented the quote of any Market Maker who did not respond vocally
to the Order Book Official, and any such Market Maker could be held to
fill orders at that quoted market.
With the advent of electronic quote submission, a Market Maker was
required to submit an electronic quote to participate in the opening
process. Originally, electronic openings in options were designed to
mimic open outcry opening rotations, with trading systems gathering
opening electronic quotes for a brief period of time after the
underlying security opened.
The original intent of maintaining the obligation for Market Makers
to submit narrow, traditional bid-ask requirements for OX was to
encourage a narrower aggregated Exchange market during the opening
auction. This was especially necessary as NYSE Arca was often the first
market to open a series, and there was not necessarily an accurate
National Best Bid/Offer available, and OX did not require a ``legal
width'' NBBO quote to open a series.
Since the time of the original introduction of the OX System,
however, NYSE Arca has instituted increased functionality to define
price parameters during the auction process. The system will not
conduct an auction in a series until one of two conditions is met: (i)
A market maker submits a legal width quote, or (ii) a legal width NBBO
is received from OPRA. This is a systemic solution which renders the
rules based quoting obligation moot.
At the introduction of the OX system for NYSE Arca in the fall of
2006, the quoting obligation for all Market Makers other than Lead
Market Makers was set at 60%. In January 2008, with the approval of
NYSEArca-2007-121,\6\ the Lead Market Maker quoting obligation was
lowered to 90%. With these reduced obligations, there is no requirement
for a Market Maker to submit a quotation for an opening auction. The
auction quote width requirement thus imposes limits on a non-existent
obligation.
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\6\ Exchange Act Release No. 57186 (January 22, 2008) FR73-4931
[sic] (January 28, 2008).
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In this regard, the Exchange notes that the market structure on
NYSE Arca creates strong incentives for competing Market Makers to
disseminate competitive prices for the opening. To ensure that orders
executed during an Auction are not subject to disadvantageous pricing,
NYSE Arca proposes to establish parameters for the opening auction as
described in Rule 6.64. Pursuant to this proposed rule change, the OX
System will not conduct an Auction in a given series unless the
composite NYSE Arca bid-ask (``BBO'') \7\ is within an acceptable
range. For the purposes of the Auction, an acceptable range will be the
bid-ask parameters pursuant to Rule 6.37(b)(1)(A)-(E). The Exchange
notes that these bid-ask differentials are identical to the existing
legal width differentials for Market Maker Auction quotations which
this filing proposes to delete. The Exchange feels that by establishing
price protection parameters within the Auction process of the OX
System, rather than just as a requirement for submitted quotes,
Customers and other market participants will be afforded a higher level
of price protection than they presently have on NYSE Arca. The Exchange
notes that this proposed change is for trading on the Exchange's
electronic trading platform, and does not in any way affect the bid-ask
differentials applicable to open-outcry trading.
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\7\ The composite BBO may be made up an individual market maker
quote, a combination of different market maker quotes where one
quote represents the bid and another represents the offer, or a
combination of market maker quotes and limited orders in the
Consolidated Book.
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The Exchange also proposes at this time a minor change to Rule
6.87-Obvious Errors and Catastrophic Errors. Rule 6.87(b)(2)(B)
presently contains a reference to bid-ask differentials pursuant to
Rule 6.37A(b)(4)-(5). Due to the proposed changes contained in this
filing related to the bid-ask differentials of Rule 6.37A(b)(4)-(5),
the Exchange proposes to now reference the bid-ask differentials
contained in Rule 6.37(b)(1)(A)-(E). The bid-ask differentials of each
rule are identical, therefore the change will not alter in any way the
methods used by the Exchange when making Obvious Error determinations.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \8\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \9\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and a national market system by
setting price parameters for the opening Auction rather than rely on a
restriction that does not have obligatory performance.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
[[Page 15760]]
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-2010-16 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-2010-16. 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 Reference Room, 100 F
Street, NE., Washington, DC 20549, 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-2010-16 and should be submitted on or before April 20, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6992 Filed 3-29-10; 8:45 am]
BILLING CODE 8011-01-P