[Federal Register Volume 80, Number 35 (Monday, February 23, 2015)]
[Notices]
[Pages 9496-9499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-03537]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74281; File No. SR-NYSE-2015-06]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Adopting New Rule 124 to 
Conduct a Midday Auction and Amending Rule 104 to Codify the Obligation 
of Designated Market Makers to Facilitate the Midday Auction

February 17, 2015.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on February 2, 2015, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 adopt new Rule 124 to conduct a daily 
single-priced auction at a specified time in lower-volume securities 
(``Midday Auction'') and amend Rule 104 to codify the obligation of 
Designated Market Makers (``DMM'') to facilitate the Midday Auction. 
The text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.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 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 proposes to adopt new Rule 124 to conduct a daily 
Midday Auction and amend Rule 104 to reflect that the DMM's obligation 
to facilitate reopenings includes the Midday Auction.
    The Exchange proposes to adopt new Rule 124 to conduct a Midday 
Auction in a subset of NYSE-listed securities that have a consolidated 
average daily trading volume (``CADV'') of 1,000,000 shares or less and 
have been designated by the Exchange (the ``Midday Auction Stocks''). 
The Midday Auction is intended to consolidate volume, including orders 
of larger blocks of stock, for price discovery purposes in lower-volume 
securities to provide market participants with a single-priced 
execution intraday to supplement the existing opening and closing 
auctions.\4\ The Exchange believes the proposed parameters for which 
stocks would be eligible to participate is reasonably designed to 
include those stocks that would benefit from such price discovery. The 
Exchange further believes that providing the Exchange with the ability 
to designate which stocks within those parameters are eligible for the 
Midday Auction is appropriate because it would provide the Exchange 
with the ability to add or remove stocks depending on the individual 
trading characteristics of a stock. As proposed, the Exchange would 
update the list of Midday Auction Stocks at least quarterly.\5\
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    \4\ The Exchange notes that NYSE-listed securities with a CADV 
of 1,000,000 shares or less represent approximately 16 percent of 
the consolidated volume of all NYSE-listed securities.
    \5\ See Proposed Rule 124(a)(1).
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    The Exchange proposes to conduct one Midday Auction in each Midday 
Auction Stock per trading day.\6\ The Midday Auction would not be 
conducted on trading days the Exchange is scheduled to close before 
4:00 p.m. ET or if the security is halted, paused, suspended, or not 
opened for trading at the time of the Midday Auction.\7\ For example, 
if during the pause preceding the Midday Auction (described below), a 
pause pursuant to the Plan to Address Extraordinary Market Volatility 
(``LULD Plan'') \8\ or regulatory halt were triggered, the Exchange 
would not conduct a Midday Auction and instead would reopen the 
security pursuant to the procedures for reopening following a LULD Plan 
pause or regulatory halt.
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    \6\ See Proposed Rule 124(a)(3).
    \7\ See Proposed Rule 124(a)(2).
    \8\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (File no. 4-631).
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    Beginning at a time specified by the Exchange between 11 a.m. ET 
and 2 p.m. ET,\9\ the Exchange would pause trading on the Exchange only 
in the Midday Auction Stocks for five minutes in order to provide 
market participants with an opportunity to enter interest intended for 
the auction (the ``Midday Auction Pause'').\10\ During the Midday 
Auction Pause, the Exchange would suspend automatic executions and 
publish a zero quote on both the public and proprietary data feeds.\11\
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    \9\ The Exchange proposes to specify the time of the Midday 
Auction Pause by Trader Update.
    \10\ See Proposed Rule 124(b). Under Rule 104(a)(1)(B)(ii), the 
DMM's quoting obligations are suspended during a trading pause and 
do not re-commence until after the first regular way transaction on 
the primary listing market in the security following such pause. The 
Exchange believes that DMMs would also be relieved of their quoting 
obligations pursuant to Rule 104(a)(1)(B)(ii) during the Midday 
Auction Pause.
    \11\ See id. Because the Midday Auction would be intended to 
occur daily at the same time in specified securities, the Exchange 
believes that the publication of a zero quote condition would signal 
to the market that the Midday Auction Pause has begun. The Exchange 
therefore does not propose, nor does it believe it necessary, to 
disseminate an indication over the Consolidated Quote System or 
Consolidated Tape that a security is in a Midday Auction Pause.

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[[Page 9497]]

    In order to maximize the interest eligible to participate in the 
Midday Auction, during the Midday Auction Pause, the Exchange would 
maintain resting orders on the Exchange's book that are eligible to 
participate in a reopening.\12\ The Exchange would also accept new 
orders that are eligible to participate in the Midday Auction.\13\ The 
Exchange notes that Market-on-Open (``MOO'') and Limit-on-Open 
(``LOO'') Orders, which are existing order types available for openings 
and reopenings, would be accepted during the Midday Auction Pause. The 
Exchange would also accept and process cancellations of new and resting 
orders during the Midday Auction Pause,\14\ which is how the Exchange 
processes orders during a trading halt or LULD Plan pause.
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    \12\ See Proposed Rule 124(b)(1).
    \13\ See Proposed Rule 124(b)(2).
    \14\ See Proposed Rule 124(b)(3).
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    Because a Midday Auction Stock would be paused on the Exchange 
only, during the Midday Auction Pause, the Exchange proposes to 
continue re-pricing sell short orders, including MOO and LOO Orders, 
consistent with Rule 440B(e) (Short Sales).\15\ The Exchange also 
proposes to continuously re-price and/or cancel orders, including MOO 
and LOO Orders, consistent with Rule 80C(a)(5).\16\ In addition, in 
order to attract contra-side interest, during a Midday Auction Pause, 
the Exchange would publish Order Imbalance Information as defined in 
Rule 15(c) \17\ approximately every five seconds.\18\
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    \15\ See Proposed Rule 124(b)(4).
    \16\ See Proposed Rule 124(b)(5).
    \17\ Order Imbalance Information reflects real-time order 
imbalances that accumulate prior to the opening or reopening 
transaction on the Exchange and the price at which interest eligible 
to participate in an opening or reopening transaction may be 
executed in full. Order Imbalance Information disseminated pursuant 
to Rule 15(c) includes all interest eligible for execution in the 
opening or reopening transaction of a security in Exchange systems. 
See Rule 15(c)(1).
    \18\ See Proposed Rule 124(b)(6).
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    At the end of the Midday Auction Pause, the Exchange proposes to 
conduct the Midday Auction by reopening the Midday Auction Stocks at a 
single equilibrium price in the same manner as in Rule 123D (Openings 
and Halts in Trading) for reopenings, with two exceptions. Accordingly, 
as with reopenings following a regulatory halt or LULD Plan pause, the 
DMM registered in the security would be responsible for facilitating 
the Midday Auction in a manner similar to how an opening or reopening 
would be conducted. This includes the DMM supplying liquidity as 
needed, as provided for in Rule 104(a)(2), and conducting the Midday 
Auction either manually or electronically, as provided for in Rule 
123D(1).\19\ Rule 104(a)(2) sets forth the DMM's obligation to 
facilitate openings and reopenings for each of the securities in which 
the DMM is registered as required under Exchange rules, which may 
include providing liquidity as needed. To specify that the DMM has a 
similar obligation for the Midday Auction, the Exchange proposes to 
amend Rule 104(a)(2) by adding the clause ``including the Midday 
Auction'' following ``reopenings.''
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    \19\ See Proposed Rule 124(c).
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    The first proposed exception to Rule 123D is based on the manner 
that the Exchange reopens securities following a LULD Plan pause, as 
set forth in Rule 80C(b)(2)(A). As currently the case for reopenings 
pursuant to Rule 80C(b)(2)(A), the Exchange proposes that for Midday 
Auctions, indications may be published to the Consolidated Tape, but 
they are not required. In addition, prior Floor Official approval is 
not required and if an indication is published, it would not need to be 
updated before the Midday Auction and the Midday Auction may occur 
outside of any prior indication. Moreover, a Midday Auction would not 
be subject to the requirements that (i) a minimum of three minutes must 
elapse between the first indication and the Midday Auction, or (ii) if 
more than one indication is published, a minimum of one minute must 
elapse before the Midday Auction.\20\
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    \20\ See Proposed Rule 123(c)(1).
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    The second proposed exception to Rule 123D would be that the Midday 
Auction would not execute at a price outside of the LULD Price Bands, 
as provided for in Rule 80C(a)(4).\21\ Although the LULD Plan provides 
that reopenings are not subject to the Plan,\22\ the Exchange believes 
that because trading in Midday Auction Stocks would be continuing on 
other markets, the Midday Auction should execute consistent with the 
Price Bands in effect at the time of the Midday Auction. As noted 
above, to facilitate a Midday Auction priced consistent with the LULD 
Price Bands, the Exchange would be re-pricing both market and limit 
interest that is eligible to participate in the Midday Auction.
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    \21\ See Proposed Rule 124(c)(2). The Exchange will be 
submitting separately a request for exemptive relief pursuant to 
Rule 611(d) of Regulation NMS that the Midday Auction be exempted 
from the requirements of Rule 611 of Regulation NMS, 17 CFR 242.600 
et seq., because it operates, in substance, in the same way as a 
single-priced reopening transaction, which is an existing exception 
to the Order Protection Rule under Rule 611(b)(3).
    \22\ See LULD Plan, supra note 8 at section VI(A)(1).
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    Because the Midday Auction is intended to be conducted the same as 
a reopening pursuant to Rule 123D (except as provided for in the two 
exceptions), the Exchange proposes to specify that orders would 
participate in the Midday Auction in the same manner that such orders 
would participate in openings or reopenings. The Exchange further 
proposes to specify that orders that are not eligible to participate in 
openings or reopenings pursuant to Exchange rule would not participate 
in the Midday Auction.\23\
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    \23\ See Proposed Rule 124(d).
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    Generally, the Exchange expects that DMMs would facilitate the 
Midday Auction electronically as close to the end of the Midday Auction 
Pause as feasible. However, if there is a significant imbalance or 
Floor broker crowd interest, the DMM would have the ability, as is the 
case today with all Exchange auctions, to manually conduct the Midday 
Auction to provide greater opportunity for equilibrium in any imbalance 
of orders. The Exchange proposes that if there is a significant 
imbalance in a Midday Auction Stock at the end of the Midday Auction 
Pause, with the approval of a Floor Governor or two Floor Officials, 
the Midday Auction Pause may be converted to an order imbalance 
halt.\24\ In practice, this would provide the DMMs with flexibility to 
conduct a Midday Auction manually, but convert to an order imbalance 
halt if attracting offsetting interest would delay the Midday Auction. 
The benefit of converting to an order imbalance halt is that it would 
signal to the public that there is an order imbalance in a symbol, and 
provide the DMM with the ability to reopen the security pursuant to 
Rule 123D, without either of the above-described exceptions applicable 
to the Midday Auction.\25\ In such case, the reopening would not be 
subject to the LULD Price Bands, and as proposed, orders re-priced 
pursuant to proposed Rule 124(b)(6) would be re-filed according to the 
original order instructions and the security would be

[[Page 9498]]

reopened pursuant to the procedures set forth in Rule 123D.\26\
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    \24\ See Proposed Rule 123(e). The Exchange notes that the 
current procedure for invoking a trading halt requires the approval 
of a Floor Governor or two Floor Officials. See Rule 123D(1) (``Once 
trading has commenced, trading may only be halted with the approval 
of a Floor Governor or two Floor Officials.'')
    \25\ The Exchange notes that when it halts a security for an 
order imbalance halt, which is a non-regulatory halt, the Exchange 
disseminates via the public data feeds that a symbol is subject to 
an order imbalance halt. See Consolidated Tape System CTS Output 
Multicast Interface Specification, at 95, 141, and 142, available at 
https://www.ctaplan.com/.
    \26\ See Proposed Rule 124(e).
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    Because of the technology changes associated with the proposed rule 
change, the Exchange proposes to announce the implementation date via 
Trader Update.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\27\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\28\ 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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed Midday Auction would 
perfect the mechanism of a free and open market and a national market 
system and, in general, protect investors and the public interest 
because it would provide opportunity for price discovery and an intra-
day execution for thinly-traded securities. More specifically, the 
Exchange believes that the proposed Midday Auction would provide 
investors with an intra-day price discovery mechanism during which 
potential trading volumes may be consolidated, thereby providing more 
certainty of an execution opportunity during the trading day. In 
addition, because volume would be consolidated for the auction, 
investors with large blocks of stock could use the Midday Auction to 
execute those orders without impacting the price of the stock, which 
could occur if a large order were entered during continuous, intra-day 
trading. As proposed, the Exchange would make the Midday Auction 
available for Exchange-listed securities with a CADV of 1,000,000 
shares or less, which represent approximately 16% of all NYSE-listed 
securities by consolidated volume, and that have been designated by the 
Exchange. The Exchange believes that making the Midday Auction 
available for symbols with a CADV of 1,000,000 shares or less is 
appropriate because symbols with this volume of trading are more likely 
to have wider spreads and less certainty of an intraday execution.
    The Exchange further believes that designating the list of Midday 
Auction Stocks from within this category, and updating the list at 
least quarterly, would perfect the mechanism of a free and open market 
and a national market system because it would provide the Exchange with 
the ability to add or remove stocks from eligibility for the Midday 
Auction depending on the trading characteristics of an individual 
security. For example, a security with a CADV of 1,000,000 shares or 
less may have tight spreads and regular intraday trading opportunities; 
such a symbol would be less likely to benefit from a Midday Auction.
    Similarly, the Exchange believes that providing the Exchange with 
discretion of when the Midday Auction Pause period would begin, 
provided it is between 11 a.m. ET and 2 p.m. ET, would perfect the 
mechanism of a free and open market and a national market system 
because it would enable the Exchange to change when the Midday Auction 
occurs in order to respond to market events. The Exchange believes that 
the proposed window for the Midday Auction is designed to be a period 
after the opening and before the closing when additional price 
discovery for a Midday Auction Stock would be warranted. The Exchange 
notes that as proposed, regardless of the time, it would conduct only 
one Midday Auction per day in Midday Auction Stocks. The Exchange 
further notes that it would provide advance notice of the timing of the 
Midday Auction by Trader Update.
    The Exchange believes that the proposed Midday Auction Pause would 
perfect the mechanism of a free and open market and national market 
system because it is designed to pause intra-day trading only on the 
Exchange to provide investors with time to enter interest for the 
Midday Auction, including MOO and LOO Orders. The Exchange notes that 
the proposed five-minute period for the Midday Auction Pause is based 
on the time frame for a LULD Plan pause. Because the Midday Auction is 
intended for similar purpose to a LULD Pause, i.e., to consolidate 
volume for price discovery purposes, the Exchange believes that the 
proposed five-minute period is appropriate and consistent with the Act. 
The Exchange notes that the proposed Midday Auction Pause would pause 
trading only on the Exchange and therefore investors would continue to 
have intra-day executions opportunities on other markets during the 
Midday Auction Pause.
    The Exchange further believes that the proposed Midday Auction, 
which would be conducted in the same manner as set forth in the 
reopening procedures in Rule 123D, would perfect the mechanism of a 
free and open market and national market system because the Exchange 
would use an established auction process for the Midday Auction. 
Specifically, as proposed, the DMM assigned to a Midday Auction Stock 
would be responsible for facilitating the Midday Auction in a manner 
similar to how an opening or reopening would be conducted. This 
includes the DMM supplying liquidity as needed, as provided for in Rule 
104(a)(2), and conducting the Midday Auction either manually or 
electronically, as provided for in Rule 123D(1). In addition, the 
Exchange would process orders during the Midday Auction in a manner 
similar to how orders are handled during a trading halt or LULD trading 
pause, including accepting MOO and LOO Orders to participate in the 
Midday Auction. The Exchange would also publish Order Imbalance 
Information during a Midday Auction Pause, thereby providing investors 
and the public with information about the pricing of the Midday 
Auction. The Exchange would also follow established procedures for 
publishing indications during a Midday Auction Pause that are based on 
how indications may be published during LULD trading pauses pursuant to 
Rule 80C(b)(2)(A). The Exchange believes that replicating established 
reopening processes for the Midday Auction would provide transparency 
and certainty to investors and the public who are already familiar with 
the Exchange's auction process for openings and reopenings.
    The Exchange also believes that the proposal to price a Midday 
Auction consistent with the LULD price bands in effect at the time of 
the auction would perfect the mechanism of a free and open market and 
national market system because it would assure that the Midday Auction 
would not be priced outside of the established parameters for trading 
in that security at a given time. In particular, because trading in a 
Midday Auction Stock would be paused only on the Exchange, the Exchange 
believes it is appropriate to maintain deference to the prices that are 
occurring on other markets and price the Midday Auction consistent with 
the Price Bands.
    The Exchange notes that if there is a significant imbalance in a 
Midday Auction Stock, the Midday Auction Pause could be converted to an 
order

[[Page 9499]]

imbalance halt with the approval of a Floor Governor or two Floor 
Officials, which is the existing process for invoking a halt on the 
Exchange pursuant to Rule 123D. The Exchange believes that invoking an 
order imbalance halt, which would similarly halt trading on the 
Exchange only, would be appropriate because it would provide notice to 
the public of an order imbalance in a stock and an opportunity for the 
price discovery process to continue consistent with Rule 123D, 
including the requirement for publishing indications. The Exchange 
believes that for a significant order imbalance, using the existing 
reopening process rather than a Midday Auction would perfect the 
mechanism of a free and open market and national market system and 
protect investors and the public interest because it would provide an 
opportunity for greater price discovery that would not be restricted by 
LULD Price Bands.

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. The proposed Midday 
Auction would only pause trading on the Exchange and would not prevent 
market participants from directing order flow in Midday Auction Stocks 
to other markets and trading venues during the auction. The proposed 
Midday Auction would also be available to all market participants on 
the Exchange each day at the same time. Further, the Exchange believes 
that by providing an additional opportunity to execute orders in 
thinly-traded securities hours before the close of trading, the 
proposed rule change would further the price discovery process and 
enhance competition.

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 45 days of the date of publication of this notice in the 
Federal Register, or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#097b7c656c246a6664646c677d7a497a6c6a276e667f"><span class="__cf_email__" data-cfemail="750700191058161a1818101b0106350610165b121a03">[email protected]</span></a>. Please include 
File Number SR-NYSE-2015-06 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2015-06. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-NYSE-2015-06 and should be submitted on or before March 
16, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-03537 Filed 2-20-15; 8:45 am]
BILLING CODE 8011-01-P


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