[Federal Register Volume 76, Number 28 (Thursday, February 10, 2011)]
[Notices]
[Pages 7604-7607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2925]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63832; File No. SR-NSX-2011-01]
Self-Regulatory Organizations; National Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Expand Use of Self Trade Prevention Order Modifiers
February 3, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 28, 2011, National Stock Exchange, Inc. filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Exchange has designated the proposed
rule change as constituting a non-controversial rule change under Rule
19b-4(f)(6) under the Act,\3\ which renders the proposal effective upon
filing with the Commission. 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.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
National Stock Exchange, Inc. (``NSX[supreg]'' or the ``Exchange'')
proposes to allow the Self Trade Prevention order modifier to be used
in conjunction with Zero Display Reserve Orders.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.nsx.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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed
[[Page 7605]]
any comments it received on the proposed rule change. The text of these
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 Self Trade Prevention (``STP'') modifier under NSX Rule
11.11(c)(1) allows an ETP Holder to submit orders that may avoid
trading against other orders of the same ETP Holder. Currently, Rule
11.11(c)(1)(D) excludes the use of the STP Modifier with Zero Display
Reserve Orders (as defined in Rule 11.11(c)(2)(A)). In the instant rule
change, the Exchange proposes to allow the use of the STP modifier with
Zero Display Reserve Orders. The proposed changes are more fully
discussed below.
Background
As more fully discussed in the rule filing pursuant to which this
order modifier was introduced,\4\ the ``Self Trade Prevention''
modifier is instructions designed to prevent two orders with the same
designated Unique Identifier (as defined below) from executing against
each other. The ETP Holder elects at the time an STP modified order is
submitted whether the new order, an existing order (which must also
have been submitted with an STP modifier) or both orders will be
cancelled (or rejected, as applicable) instead of otherwise
interacting.
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\4\ Securities Exchange Act Release No. 61781 (March 25, 2010),
75 FR 16540 (April 1, 2010) (SR-NSX-2010-02).
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Three STP modifiers can be set at one of three identification
levels: the market participant level (pursuant to the ``MPID''), the
FIX session level (pursuant to ``FIX Session ID'') or an ETP Holder's
user level (pursuant to the ``Party ID'') (any such identifier, a
``Unique Identifier'').\5\ The STP instruction on the incoming order
controls the interaction between two orders marked with STP modifiers
from the same Unique Identifier. As further described in the rule
filing pursuant to which the STP modifier became available,\6\ the
three STP modifiers are ``STP Reject Newest (``STPN'')'', STP Cancel
Oldest (``STPO''), and STP Cancel Both (``STPB'').
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\5\ Each ETP Holder is issued a unique MPID identifier that
allows the Exchange to determine the ETP Holder for each order and/
or execution. The FIX Session ID is unique to each physical
connection between the Exchange and an ETP Holder. The Party ID
identifies a unique user of an ETP Holder.
\6\ See supra, footnote 3.
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An incoming order marked with the STPN modifier will not execute
against opposite side resting interest marked with any STP modifier
originating from the same Unique Identifier. The incoming order marked
with the STPN modifier will be rejected. The resting order marked with
an STP modifier, which otherwise would have interacted with the
incoming order from the same Unique Identifier, will remain on the NSX
Book. An incoming order marked with the STPO modifier will not execute
against opposite side resting interest marked with any STP modifier
originating from the same Unique Identifier. The resting order marked
with the STP modifier, which otherwise would have interacted with the
incoming order by the same Unique Identifier, will be cancelled. The
incoming order marked with the STPO modifier will remain on the NSX
Book. An incoming order marked with the STPB modifier will not execute
against opposite side resting interest marked with any STP modifier
originating from the same Unique Identifier. The entire size of both
orders will be rejected or cancelled, as applicable.
STP modifiers are intended to prevent interaction between the same
Unique Identifier. STP modifiers must be present on both the buy and
the sell order in order to prevent a trade from occurring and to effect
a cancel and/or reject instruction.
Use of STP Modifiers With Zero Display Reserve Orders
The instant rule change proposes to delete paragraph (D) of NSX
Rule 11.11(c)(1), which currently prohibits the use of the STP Modifier
in connection with Zero Display Reserve Orders. At the time of the
implementation of Rule 11.11(c)(1), Zero Display Reserve Orders were
made unavailable in connection with the use of the STP modifier because
of technical challenges regarding identification of the ``old'' versus
the ``new'' Zero Display Reserve Order for STP purposes under certain
circumstances. Since that time, the Exchange has modified the system to
recognize, for purposes of the STP modifier and consistent with all
other order combinations, the original timestamp of a Zero Display
Reserve Order as definitive for purposes of identifying the ``old''
versus ``new'' order in the context of STP modifiers.
The following are examples of how the STP modifier operates in
connection with various types of Zero Display Reserve Orders.\7\ Each
example assumes the national best bid/offer is 20.00/20.10 and that ETP
Holder A's STP modifiers pertain to the same Unique Identifier.
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\7\ Other examples of how orders with the STP modifier operate
are contained in the Exchange's rule filing proposing approval of
the modifier. See supra, footnote 3.
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Example 1: Interaction of Two Zero Display Reserve Orders
ETP Holder A enters a Zero Display Reserve Order to buy 500 shares
@ 20.05 with an STP--Cancel Old (``STPO'') modifier. Thereafter, ETP
Holder A enters a Zero Display Reserve Order to sell 500 shares @
20.05, also with an STPO modifier.
Example 1 Result: The first order is cancelled because the STP
instruction on the incoming order controls the interaction between two
orders marked with STP modifiers from the same Unique Identifier. The
second order to sell 500 @ 20.05 will remain on the book.
Example 2: Interaction of a Zero Display Reserve Order (Pegged to
Primary) and a Limit Order
ETP Holder A enters a Zero Display Reserve Order to sell, pegged to
track the national best offer (``Pegged to Primary'') under Rule
11.11(c)(2)(A) (which order will track the best offer), with an STPO
modifier. Subsequently, ETP Holder A enters a limit order to buy for
20.05 with a STPO modifier. Thereafter, the market moves and the best
offer becomes 20.05.
Example 2 Result: The first order is cancelled. The second order to
buy for 20.05 will remain on the book.\8\
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\8\ Absent operation of the STP modifier, entry of the second
order would have caused the Zero Display Reserve Order to `flip'
(i.e., change from liquidity provider to a liquidity taker) and
interact with the limit order bid; however, since both are STP
orders of the same ETP Holder with the same Unique Identifiers, the
two orders will not execute. Rather, the Zero Display Reserve Order,
as the ``old'' (resting) order based on its earlier timestamp, will
be cancelled back to the client consistent with the instructions of
the new STP modified order.
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Example 3: Interaction of a Zero Display Reserve Order and a Zero
Display Reserve Order (Midpoint Peg/Post Only)
ETP Holder A enters a Zero Display Reserve Order to buy 500 shares
@ 20.09, with an STPO modifier. Thereafter, ETP Holder A enters a Zero
Display Reserve Order (Midpoint Peg) under Rule 11.11(c)(2)(A) (which
will track the midpoint), Post Only, to sell 500 shares, with an STPO
modifier.
Example 3 Result: The Zero Display Reserve Order (Midpoint Peg/Post
Only) will post to the book. The first order, the Zero Display Reserve
Order to buy, will
[[Page 7606]]
be cancelled back to the client \9\ consistent with the STPO
instructions on the second order.
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\9\ Absent operation of the STP modifier, the first order will
flip and execute against the second order.
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Example 4: Interaction of a Zero Display Reserve Order and a Zero
Display Reserve Order (Market Peg/Post Only)
ETP Holder A enters a Zero Display Reserve Order to buy 500 shares
@ 20.00, with an STPO modifier. Thereafter, ETP Holder A enters a Zero
Display Reserve Order (Market Peg) under Rule 11.11(c)(2)(A) (which
will track the bid), Post Only, to sell 500 shares, with an STPO
modifier.
Example 4 Result: The Zero Display Reserve Order (Market Peg/Post
Only) will post to the book. The first order, the Zero Display Reserve
Order to buy, will be cancelled back to the client \10\ consistent with
the STPO instructions on the second order.
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\10\ Absent operation of the STP modifier, the first order will
flip and execute against the second order.
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Additional Discussion
The Exchange believes that expanding the STP functionality to Zero
Display Reserve Orders will allow ETP Holders to better manage order
flow and prevent undesirable executions with themselves or the
potential for (or the appearance of) ``wash sales'' that may occur as a
result of the velocity of trading in today's high speed marketplace.
Many ETP Holders have multiple connections into the Exchange due to
capacity and speed related demands. Orders routed by the same ETP
Holder via different connections or in different capacities may, in
certain circumstances, trade against each other. The availability of
STP modifiers for use in conjunction with Zero Display Reserve Orders
provide ETP Holders the opportunity to prevent these potentially
undesirable trades occurring under the same Unique Identifier on both
the buy and sell side of the execution.
The Exchange notes that the STP modifiers do not alleviate, or
otherwise exempt, broker-dealers from their best execution obligations.
Broker-dealers using the STP modifiers on agency orders will be
obligated to execute those agency orders at the same price, or a better
price than they would have received had the orders been executed on the
Exchange. Finally, the Exchange notes that expanding the STP modifier
to use with Zero Display Reserve Orders will streamline certain
regulatory functions by reducing inadvertent self-trade executions that
would otherwise be captured by Exchange generated wash trading
surveillance reports when orders are executed under the same Unique
Identifier. The Exchange has developed a surveillance program to
identify the use of the STP modifier on agency orders, in connection
with Zero Display Reserve Orders and otherwise, and to surveil such
orders for potential misuse. For these reasons, the Exchange believes
the use of STP modifiers with the Zero Display Reserve Order offers ETP
Holders enhanced order processing functionality that may prevent
potentially undesirable executions without negatively impacting broker-
dealer best execution obligations.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) of the Act,\11\ in general, and
furthers the objectives of Section 6(b)(5) \12\ in particular in that
it is designed, among other things, 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 advances these objectives by making available to ETP
Holders that use Zero Display Reserve Orders an order modifier that is
currently in use elsewhere within the national market system \13\ and
by allowing firms to better manage order flow and prevent undesirable
executions against themselves.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
\13\ See BATS Rule 11.9(f)(1), (2) and (4).
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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 Exchange Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, 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) \14\ of the Act and Rule 19b-4(f)(6)
thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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. Id.
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At any time within 60 days of the filing of such 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.
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-NSX-2011-01 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-NSX-2011-01. 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 website (http://www.sec.gov/rules/sro.shtml). Copies of the submission,\16\ 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
[[Page 7607]]
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, 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-NSX-2011-01 and should be submitted on or before March
3, 2011.
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\16\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-2925 Filed 2-9-11; 8:45 am]
BILLING CODE 8011-01-P