[Federal Register Volume 76, Number 66 (Wednesday, April 6, 2011)]
[Notices]
[Pages 19171-19173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8122]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64158; File No. SR-NSX-2011-03]
Self-Regulatory Organizations; National Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Enable the Use of a Replace Message To Modify the Display Quantity of a
Reserve Order, and Certain Other Conforming Changes to Exchange Rules
March 31, 2011.
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 March 30, 2011, National Stock Exchange, Inc. 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
National Stock Exchange, Inc. (``NSX[supreg]'' or ``Exchange'') is
proposing to enable a Replace Message to be used to modify the display
quantity of a Reserve Order (as defined in Rule 11.11(c)(2)), and
proposes certain other conforming changes to its rules.
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 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
With this rule change, the Exchange is proposing to enable the
Replace Message under NSX Rule 11.11(d) to be used to modify the
display quantity of a Reserve Order (as defined in Rule 11.11(c)(2)).
In addition, certain conforming modifications to the text and
interpretation of Rule 11.14(a)(2) are proposed.
The proposed rule change would allow the Exchange's current
``Cancel/Replace'' order modifier functionality under Rule 11.11(d) to
apply to the display quantity of Reserve Orders (such field being Tag
111 \3\). Currently, the Cancel/Replace functionality under Rule
11.11(d)(iii) allows only an adjustment to an order's price and
quantity. As applied to Reserve Orders, the Exchange's trading system
currently allows a Replace Message to be used to adjust only the
reserve quantity, but not the display quantity. The proposed rule
change would allow ETP Holders the ability to use the Replace Message
to also adjust the display quantity of Reserve Orders (the Tag 111
field). Under the proposed rule change, the Replace Message could
adjust both the display and non-display portion of a Reserve Order,
including where the aggregate size of the order remains unchanged.
Accordingly, the instant rule filing proposes to add an explanatory
``Interpretation and Policy'' to Rule 11.11(d) to clarify that the term
``quantity term'' in Rule 11.11(d)(iii) shall include either, or both,
the display and non-display portion of a Reserve Order, including in
cases where the aggregate size of the Reserve Order is not changed. The
identical use of the Replace Message to adjust the Tag 111 field is
similarly offered by at least one other exchange.\4\
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\3\ Tag 111, also known as Max Floor, is a standard FIX
protocol.
\4\ See DirectEdge (EDGA and EDGX) Rule 11.5(e) and DirectEdge
FIX Specifications Version 1.11 (http://www.directedge.com/Portals/0/docs/Direct%20Edge%20Next%20Gen%20FIX%20Manual.pdf ), at section
3.6.2 (providing that the Cancel/Replace functionality may be used
to modify tag 111 (the displayed quantity of a Reserve Order)). The
Exchange notes that, unlike the text of the cancel/replace rules of
DirectEdge, the use of the Replace Message to adjust Tag 111 under
the instant rule filing is proposed to be reflected in an
Interpretation and Policy to NSX Rule 11.11(e) and not only in the
Exchange's FIX specification.
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The instant rule change also proposes to modify the language of NSX
Rule 11.14 (Priority of Orders) with respect to how the use of cancel/
replace affects an order's priority. The instant rule filing modifies
Rule 11.14(a)(2) to provide that, where the quantity of an order has
been reduced pursuant to a Replace Message, such order maintains price/
time priority. This constitutes no changes to current Exchange system
practice and is consistent with the trading systems of other
markets.\5\ An Interpretation and Policy is also proposed to be added
to rule 11.14 to clarify how a Reserve Order's priority is impacted by
quantity adjustments (to either the display or the non-display portion)
through use of a Replace Message. Specifically, Interpretation and
Policy .01 provides that a Replace Message's size decrement of a
Reserve Order's display quantity (Tag 111) will not affect the order's
priority only if total order size remains the same or decreases.
Similarly, a Replace Message size decrement of a Reserve Order's total
quantity will not affect the order's priority only if the display
quantity also remains constant or decreases. Any increase in size of
either the display portion or the total size of a Reserve Order will
result in a new timestamp and cause that order to lose time priority.
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\5\ BATS (BZX and BYX) Rule 11.12(a)(3). See also DirectEdge
(EDGA and EDGX) Rule 11.8(a)(4); Arca Rule 7.36(a)(3); and CBOE Rule
52.1(e).
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The following chart summarizes the above-described impact on a
Reserve Order's time priority, if any, due to the use of a Replace
Message to adjust the quantity.
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Display qty (Tag Display qty (Tag
111) increases 111) decreases Display qty (Tag 111) same
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Total Order Qty Increases....... Lose Book Priority. Lose Book Priority. Lose Book Priority.
Total Order Qty Decreases....... Lose Book Priority. Maintain Book Maintain Book Priority.
Priority.
Total Order Qty Same............ Lose Book Priority. Maintain Book n/a.
Priority..
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[[Page 19172]]
The following examples illustrate the effect on a Reserve Order's
time priority, if any, due to the use of a Replace Message to adjust
the quantity. Each example assumes ETP Holder A has a first-in-time
priority resting Reserve Order to sell 1000 shares total, with a
display quantity of 500 (denoted as ``1000/500'').
Example 1 (Tag 111 Increases, Total Order Increases):
ETP Holder A submits a Replace Message to adjust quantity to 1100/
600.
Example 1 Result: The order loses time priority because display
quantity is increased.
Example 2 (Tag 111 Increases, Total Order Decreases):
ETP Holder A submits a Replace Message to adjust quantity to 900/
600.
Example 2 Result: The order loses time priority because display
quantity is increased, notwithstanding that total quantity is
decreased.
Example 3 (Tag 111 Increases, Total Order Remains Same):
ETP Holder A submits a Replace Message to adjust quantity to 1000/
600.
Example 3 Result: The order loses time priority because display
quantity is increased, notwithstanding that total quantity remains the
same.
Example 4 (Tag 111 Decreases, Total Order Increases):
ETP Holder A submits a Replace Message to adjust quantity to 1100/
300.
Example 4 Result: The order loses time priority because total
quantity is increased, notwithstanding that display quantity is
decreased.
Example 5 (Tag 111 Decreases, Total Order Decreases):
ETP Holder A submits a Replace Message to adjust quantity to 800/
400.
Example 5 Result: The order's time priority is maintained because
display quantity is decreased and total quantity is not increased.
Example 6 (Tag 111 Decreases, Total Order Remains Same):
ETP Holder A submits a Replace Message to adjust quantity to 1000/
400.
Example 6 Result: The order's time priority is maintained because
display quantity is decreased and total quantity is not increased.
Example 7 (Tag 111 Remains Same, Total Order Increases):
ETP Holder A submits a Replace Message to adjust quantity to 1100/
500.
Example 7 Result: The order loses time priority because total
quantity is increased, notwithstanding that display quantity remains
the same.
Example 8 (Tag 111 Remains Same, Total Order Decreases):
ETP Holder A submits a Replace Message to adjust quantity to 900/
500.
Example 8 Result: The order's time priority is maintained because
display quantity remains the same and total quantity is decreased.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) of the Act,\6\ in general, and
Section 6(b)(5) of the Act,\7\ in particular, in that it is designed,
among other things, to promote clarity, transparency and full
disclosure, in so doing, to prevent fraudulent and manipulative acts
and practices, 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 an order modifier
that is currently in use elsewhere within the national market system
and by clarifying order priority.\8\ Moreover, the proposed rule change
is not discriminatory in that it applies equally to those ETP Holders
that choose to utilize such functionality.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ See supra, footnotes 2 and 3 [sic].
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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 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, it has become
effective pursuant to 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6)
thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 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.
NSX has satisfied this requirement.
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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.
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-2011-03 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-2011-03. 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 such 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
[[Page 19173]]
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-2011-03 and should be submitted on
or before April 27, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8122 Filed 4-5-11; 8:45 am]
BILLING CODE 8011-01-P