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[Federal Register Volume 79, Number 200 (Thursday, October 16, 2014)]
[Notices]
[Pages 62223-62227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24547]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73333; File Nos. SR-NYSE-2014-32 and SR-NYSEMKT-2014-
56]

Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE 
MKT, Inc.; Order Approving Proposed Rule Changes Amending Exchange Rule 
13 To Make the Add Liquidity Only Modifier Available for Limit Orders, 
and Make the Day Time-In-Force Condition and Add Liquidity Only 
Modifier Available for Intermarket Sweep Orders

October 9, 2014.

I. Introduction

    On June 27, 2014, New York Stock Exchange LLC (``NYSE'') and NYSE 
MKT LLC (``NYSE MKT'') (each an ``Exchange'' and together the 
``Exchanges'') each filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its Rule 13 to allow an Add Liquidity 
Only (``ALO'') modifier for day limit orders and to allow the day time-
in-force condition and ALO modifier for Intermarket Sweep Orders 
(``ISO'').\3\ The proposed rule changes were published for comment in 
the Federal Register on July 11, 2014.\4\ On August 21, 2014, the 
Commission extended the time period in which to approve, disapprove, or 
institute proceedings to determine whether to disapprove the proposed 
rule changes to October 9, 2014.\5\ The Commission received three 
comment letters from two

[[Page 62224]]

commenters on the NYSE Notice.\6\ On September 30 and October 8, 2014, 
NYSE submitted letters responding to the comment letters.\7\ This order 
approves the proposed rule changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NYSE MKT designates its Rule 13 as ``Rule 13--Equities.'' 
All references to NYSE MKT rules in this order are to its equities 
rules, whether or not the ``--Equities'' designation is included in 
the reference.
    \4\ See Securities Exchange Act Release Nos. 72548 (July 7, 
2014), 79 FR 40183 (``NYSE Notice'') and 72547 (July 7, 2014), 79 FR 
40169 (``NYSE MKT Notice'').
    \5\ See Securities Exchange Act Release Nos. 72893 (Aug. 21, 
2014), 79 FR 51208 (Aug. 27, 2014) and 72894 (Aug. 21, 2014), 79 FR 
51208.
    \6\ See Letter from Haim Bodek, Managing Principal, Decimus 
Capital Markets, LLC, to Commission, dated September 15, 2014 (``DCM 
Letter''); and Letters from Richard A. Tierney III, President and 
Chief Executive Officer, Bloomberg Tradebook LLC, and Gary Stone, 
Chief Strategy Officer, Bloomberg Tradebook LLC, to Brent J. Fields, 
Secretary, Commission, dated September 22, 2014 (``Tradebook Letter 
I'') and October 6, 2014 (``Tradebook Letter II''). The Commission 
notes that these comment letters address the NYSE proposal only. 
However, since the NYSE and NYSE MKT proposals are nearly identical, 
the Commission will treat the comment letters as addressing both the 
NYSE and the NYSE MKT proposals.
    \7\ See Letter from Martha Redding, Chief Counsel, New York 
Stock Exchange, to Kevin M. O'Neill, Deputy Secretary, Commission, 
dated September 30, 2014 (``Response Letter I''); and Letter from 
Martha Redding, Chief Counsel, New York Stock Exchange, to Kevin M. 
O'Neill, Deputy Secretary, Commission, dated October 8, 2014 
(``Response Letter II''). NYSE noted that the Response Letters were 
submitted in support of both the NYSE and NYSE MKT proposals.
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II. Description of the Proposals

A. ALO Modifier for Day Limit Orders

    Currently, only mid-point passive liquidity (``MPL'') orders are 
available with the ALO modifier on the Exchanges.\8\ The Exchanges 
propose to allow the use of the ALO modifier for day limit orders.\9\ 
As proposed, a limit order on either Exchange designated with the ALO 
modifier would not route and would not remove liquidity from the 
Exchange's book. Limit orders designated with an ALO modifier would be 
able to participate in the open or close, but the ALO modifier would be 
disregarded. A limit order with an ALO modifier would be required to 
represent at least one displayable round lot.
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    \8\ See NYSE Rule 13 and NYSE MKT Rule 13--Equities for the 
definition of MPL orders. MPL orders are currently available with 
the ALO modifier.
    \9\ The following interest would not be eligible for the ALO 
modifier: (1) DMM interest entered via the Capital Commitment 
Schedule; (2) d-Quotes; (3) Sell ``Plus--Buy Minus'' Orders; (4) 
Non-Display Reserve Orders or Non-Display Reserve e-Quotes; (5) 
Retail Orders or Retail Price Improvement Orders; or (6) High-priced 
securities. These terms and order types are defined in NYSE Rule 
1000(a)(vi) and NYSE MKT Rule 1000(a)(vi)--Equities.
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    If, at the time of entry, a limit order with the ALO modifier were 
marketable against Exchange interest or would lock or cross a protected 
quotation in violation of Rule 610(d) of Regulation NMS (``Rule 
610(d)''),\10\ the Exchange receiving the order would re-price and 
display the order at one minimum price variation (``MPV'') below the 
``best-priced sell interest'' (for bids) or above the ``best-priced buy 
interest'' (for offers). The term ``best-priced sell interest'' refers 
to the lowest-priced sell interest against which incoming buy interest 
would be required to execute with or route to, including the receiving 
Exchange's displayed offers, Non-Display Reserve Orders,\11\ Non-
Display Reserve e-Quotes,\12\ and odd-lot sized sell interest, as well 
as protected offers on away markets, but not including non-displayed 
sell interest that is priced based on the protected best bid or offer 
(``PBBO''). The term ``best-priced buy interest'' refers to the 
highest-priced buy interest against which incoming sell interest would 
be required to execute with or route to, including the receiving 
Exchange's displayed bids, Non-Displayed Reserve Orders, Non-Display 
Reserve e-Quotes, and odd-lot sized buy interest, as well as protected 
bids on away markets, but not including non-displayed buy interest that 
is priced based on the PBBO.
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    \10\ See 17 CFR 242.610(d).
    \11\ A ``Non Displayed Reserve Order'' is a limit order that is 
not displayed, but remains available for potential execution against 
all incoming automatically executing orders until executed in full 
or cancelled. See NYSE Rule 13 and NYSE MKT Rule 13--Equities.
    \12\ See NYSE Rule 70(f)(II) and NYSE MKT Rule 70(f)(II)--
Equities.
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    If, while an ALO limit order to buy is pending, the best-priced 
sell interest is re-priced higher, the ALO limit order would be re-
priced and re-displayed one MPV below the new best-priced sell 
interest, up to the limit price of the ALO order. If, while an ALO 
limit order to sell is pending, the best-priced buy interest is re-
priced lower, the ALO limit order would be re-priced and re-displayed 
one MPV above the new best-priced buy interest, down to the limit price 
of the ALO order. An ALO limit order would not be re-priced if it is 
displayed at its limit price or if the best-priced sell interest is re-
priced lower (for bids) or if the best-priced buy interest is re-priced 
higher (for offers). Each time an ALO limit order is re-priced and re-
displayed, that order would receive a new time stamp.
    Limit orders designated with the ALO modifier would not be priced 
based on resting opposite-side MPL Orders, which are triggered to trade 
at the midpoint of the PBBO by arriving interest. Limit orders 
designated with the ALO modifier would not trigger opposite-side MPL 
Orders to trade.
    Pegging interest to buy (sell) that is designated with the ALO 
modifier would not peg to a price that would result in execution before 
displaying and would instead peg one MPV below (above) the undisplayed 
Exchange sell (buy) interest against which it would have otherwise 
executed.

B. Day Time-in-Force Designation and ALO Modifier for ISOs

    An ISO is currently defined in NYSE Rule 13 and NYSE MKT Rule 13--
Equities as a limit order designated for automatic execution that meets 
the following requirements: (i) It is identified as an ISO in the 
manner prescribed by the Exchange; and (ii) simultaneously with the 
routing of an ISO to the Exchange, one or more additional limit orders, 
as necessary, are routed to execute against the full displayed size of 
any protected bid, in the case of a limit order to sell, or the full 
displayed size of any protected offer, in the case of a limit order to 
buy, and these additional orders are identified as ISOs. Currently, 
each Exchange immediately and automatically executes an ISO upon 
arrival, and the portion not so executed will be immediately and 
automatically cancelled.
    Each Exchange proposes to define an ISO as a limit order designated 
for automatic execution in a particular security that is never routed 
to an away market, may trade through a protected bid or offer, and will 
not be rejected or cancelled if it would lock, cross, or be marketable 
against an away market, provided that it is identified as an ISO and 
that, simultaneously with the routing of the ISO to the Exchange, one 
or more additional limit orders, as necessary, are routed to execute 
against the full displayed size of any protected bid or offer.\13\
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    \13\ See NYSE Rule 19(d)(3) (permitting the display of a 
quotation that locks or crosses a protected quotation if the locking 
or crossing quotation was an automated quotation and if the member 
of the Exchange displaying the automated quotation simultaneously 
routed an intermarket sweep order to execute against the full 
displayed size of any locked or crossed protected quotation); NYSE 
MKT Rule 19(d)(3)--Equities (same).
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    Each Exchange proposes to allow ISOs to operate with a day time-in-
force condition (``Day ISO''). A Day ISO, if marketable upon arrival, 
would be immediately and automatically executed against the displayed 
bid (offer) up to its full size in accordance with and to the extent 
provided by each Exchange's Rules 1000 to 1004, which address automatic 
executions of orders, and would then sweep the Display Book, as 
provided in each Exchange's Rule 1000(d)(iii). The remaining unexecuted 
portion, if any, of a Day ISO would be posted to the Exchange's book at 
its limit price and would be permitted to lock or cross a protected 
quotation that was displayed at the time of arrival of the Day ISO. A 
Day ISO would be required to represent a minimum of one displayable 
round lot. Day ISOs would

[[Page 62225]]

be available for Minimum Display Reserve Orders and Minimum Display 
Reserve e-Quotes.
    Each Exchange also proposes to allow a Day ISO to be designated 
with an ALO modifier. If, after being posted, a Day ISO would lock or 
cross a protected quotation in violation of Rule 610(d) of Regulation 
NMS, each Exchange would re-price and re-display the Day ISO consistent 
with the proposed ALO modifier for day limit orders. Any such re-
pricing would be based on the best-priced sell interest (for bids) or 
best-priced buy interest (for offers), and a Day ISO would receive a 
new timestamp each time that it was re-priced.
    A Day ISO designated with an ALO modifier that is marketable 
against Exchange interest upon arrival would be re-priced and displayed 
one MPV below the receiving Exchange's best-priced non-MPL Order sell 
interest (for bids) or above the Exchange's best-priced non-MPL Order 
buy interest (for offers). After being displayed on the Exchange's 
book, a Day ISO designated ALO would be re-priced and re-displayed 
consistent with the proposed ALO modifier.
    Each Exchange proposes to specify that IOC ISOs and Day ISOs are 
not available for Sell ``Plus''--Buy ``Minus'' Orders or Non-Display 
Reserve Orders or for Non-Display Reserve e-Quotes and that IOC ISOs 
are not available for high-priced securities, as defined in each 
Exchange's Rule 1000(a)(vi).\14\
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    \14\ Each Exchange also proposes to change certain references in 
its rules from ``Intermarket Sweep Order'' to ``ISO.'' Each Exchange 
further proposes to define the existing form of an ISO as an ``ISO 
designated IOC (`IOC ISO').''
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III. Summary of Comments and the Exchanges' Response

    As noted above, the Commission received three comment letters from 
two commenters on the proposed rule changes.\15\ The commenters 
generally raised three broad concerns regarding the proposals and urged 
the Commission to disapprove the filings.\16\
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    \15\ See note 6, supra.
    \16\ Both commenters also raised broader issues, arguing that 
the increasing complexity of market structure, the proliferation of 
order types, and the alleged use by other exchanges of a Day ISO 
order type without Commission approval should be considered by the 
Commission in determining whether to approve or disapprove the 
Exchanges' filings. See DCM Letter at 7-8; Tradebook Letter at 8-9. 
The Commission notes that its obligation with respect to the 
Exchanges' proposals is to determine whether they are consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.
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A. ALO Modifier Would Provide Queue Priority and Encourage Orders That 
Are Not Bona Fide

    The first commenter expressed concern that the ALO modifier would 
provide queue priority over ``traditional orders'' because ALO orders, 
unlike ``traditional orders,'' would automatically re-price to a more 
aggressive price when permissible.\17\ The Exchanges responded that the 
ALO modifier would be available to all member organizations, including 
those that represent agency interest.\18\ The Exchanges also noted that 
a limit order designated ALO would receive a new time stamp each time 
it is re-priced and re-displayed, which the Exchanges believe is 
consistent with current Exchange rules that provide that an order that 
is modified to change the price of the order shall receive a new time 
stamp.\19\
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    \17\ See DCM Letter at 3-4. The commenter did not define 
``traditional orders.''
    \18\ See Response Letter I at 4.
    \19\ See NYSE Notice, supra note 4, at 40185, and NYSE MKT 
Notice, supra note 4, at 40171. See also Response Letter I at 4-5 
(providing examples of how re-pricing and the assignment of new time 
stamps would work and citing NYSE Rule 72(c)).
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    This commenter also stated its belief that the ALO modifier would 
encourage the submission of ``overly aggressive'' orders that are not 
bona fide, that ``do not reflect the true economics of a security,'' 
and whose primary function appears to ``unfairly preference such orders 
for rebate capture at the most aggressive price possible.'' \20\ The 
Exchanges responded that aggressively priced orders ``improve the 
public quote and provide better prices to contra-side interest'' and 
stated that these are precisely the type of orders they are trying to 
promote.\21\ Additionally, Exchanges disagreed with the commenter's 
belief that these types of orders are not bona fide because, according 
to the Exchanges, a member bears the risk of its order being re-priced 
to its limit price and being executed at that price.\22\
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    \20\ See DCM Letter at 4.
    \21\ See Response Letter I at 4.
    \22\ Id.
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B. The ALO Modifier Would Allow the Detection of Hidden Orders

    The first commenter stated its belief that participants could use 
limit orders with the ALO modifier to detect hidden orders at the 
Exchanges by analyzing price-sliding confirmation messages. This 
commenter argued that, unlike comparable order types at other 
exchanges, an order with the ALO modifier is permitted to ``forward-
tick price-slide to establish prices when the hidden order on the 
contra-side is canceled, thereby leaking information about this hidden 
order.'' \23\ The Exchanges responded that, because of the minimum 
display quantity requirement for limit orders with the ALO modifier and 
the related risk of a round-lot execution, it would be cost-prohibitive 
to use this functionality to probe for hidden interest.\24\ The 
Exchanges further argued that the benefit associated with the proposed 
functionality (i.e., displayed liquidity at the Exchanges that is 
available to provide price improvement to incoming orders) outweighs 
the potential cost that a market participant could determine the 
existence, though not the depth, of hidden interest at a price.\25\
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    \23\ See DCM Letter at 4. The commenter also expressed its 
belief that the ALO modifier is inadequately disclosed to market 
participants. The Exchanges responded that the proposed rule text 
provided full disclosure.
    \24\ See Response Letter I at 5.
    \25\ See Response Letter I at 4.
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C. The Day ISO and Day ISO ALO Order Types Are Inconsistent With Rule 
610 of Regulation NMS

    The first commenter expressed its belief that the proposed Day ISO 
ALO would encourage orders that lock or cross protected quotations, 
because the order type is designed to be accepted by the Exchanges at 
aggressive prices in conditions where high-frequency traders actually 
lock or cross away markets or appear to lock or cross away markets, 
thus defeating the intended purpose of ISOs to be ``routed to execute'' 
in such conditions.\26\
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    \26\ See DCM Letter at 5.
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    The second commenter stated its belief that Day ISO and Day ISO ALO 
order types would violate Rule 610(d) of Regulation NMS.\27\ This 
commenter argued that ensuring compliance with the prohibition against 
locking and crossing markets pursuant to Rule 610(d) is solely a self-
regulatory organization (``SRO'') obligation,\28\ and that only an SRO 
is allowed to ``ship and post'' (i.e., transmit an order to attempt to 
execute against a displayed quotation while posting a quotation that 
could lock or cross the displayed quotation).\29\ This commenter 
further stated its belief that the Exchanges are improperly attempting 
to transfer to member firms the obligations of the Exchanges to 
reasonably avoid locking and crossing quotations, arguing that the

[[Page 62226]]

receipt of an ISO does not absolve the Exchanges from the 
responsibility of checking the market before posting any remaining 
portion of that ISO.\30\ And this commenter asserted that the 
Exchanges' treatment of reserve interest creates a ``systemic violation 
of Rule 610,'' arguing that the proposed Day ISOs would not actually 
clear certain protected quotes because they would not interact with 
reserve interest behind the displayed portion of the protected 
quote.\31\
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    \27\ See Tradebook Letter I at 4-5.
    \28\ See Tradebook Letter I at 5. This commenter argued that 
Regulation NMS prohibits an SRO from considering as cleared a 
protected quote in existence at the time a Day ISO arrives at the 
SRO. See id.
    \29\ See Tradebook Letter II at 6. The commenter believes that 
this interpretation is consistent with the Regulation NMS guidance 
on Rules 610 and 611 set forth in Question 5.02 in Responses to 
Frequently Asked Questions Concerning Rule 611 and 610 of Regulation 
NMS (``NMS Guidance''), available at http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm#sec5.
    \30\ See Tradebook Letter II at 6. The commenter further stated 
its belief that the Commission should evaluate the proposal based on 
whether it is consistent with the requirements of the Act, and not 
rely on the Exchange's response that the Exchanges would be at a 
competitive disadvantage vis-[agrave]-vis other exchanges. See 
Tradebook Letter II at 3.
    \31\ See Tradebook Letter I at 6-8. This commenter asserts that 
certain exchanges update displayed interest with remaining reserve 
interest on an ``instantaneous'' basis and that, therefore, the 
Exchanges should not be able to post a Day ISO order that would lock 
or cross a replenished protected quote.
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    The Exchanges responded that the proposed order functionalities are 
consistent with approved rules on other exchanges, as well as Rule 
610(d) and the NMS Guidance issued by the Commission's Division of 
Trading and Markets.\32\ The Exchanges argued that there is not an 
absolute prohibition on exchanges displaying locking or crossing 
quotations, provided that the resulting locked or crossed market is 
consistent with an approved exception to Rule 610(d).\33\ The Exchanges 
stated that their Rule 19 has long included several exceptions 
permitting locking or crossing quotations, such as the ISO exception, 
and the receipt of an ISO signals that such an order qualifies for an 
exception, consistent with Rule 610(d).\34\ The Exchanges stated that 
inherent in the ISO exception to their respective rules against locking 
and crossing quotations is that an ISO would be displayed, and thus 
could lock or cross a protected quotation.\35\
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    \32\ See Response Letter I at 6; see also NMS Guidance, supra 
note 29.
    \33\ See Response Letter I at 7; Response Letter II at 3.
    \34\ See Response Letter I at 7. The Commission notes that NYSE 
MKT Rule 19--Equities contains the same provisions as NYSE Rule 19.
    \35\ See Response Letter I at 7; Response Letter II at 3.
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    The Exchanges also responded that the NMS Guidance does not support 
the second commenter's argument that the reference to ``market 
participants'' in the response to Question 5.02 of the NMS Guidance 
(ISO Exception to SRO Lock/Cross Rules) refers only to SROs and that, 
therefore, only SROs have the ability to ``ship and post.'' \36\ The 
Exchanges further argued that such an interpretation would not only 
call into question the current use of ISOs by broker-dealers,\37\ but 
would be inconsistent with the Commission's past approval of a rule 
filing by another exchange.\38\ With respect to the reserve portion of 
protected quotes, the Exchanges argued that the unexecuted portion of a 
Day ISO would be posted on the Exchanges' books ``at its limit price 
and would lock or cross a protected quotation that was displayed at the 
time of the arrival of the Day ISO.'' \39\
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    \36\ See Response Letter II at 3.
    \37\ Id.
    \38\ The Exchanges cite the Commission's approval of an NYSE 
Arca rule filing that provides for the display of the remaining 
balance of an ISO that is not marked ``immediate or cancel.'' See 
Response Letter I at 6 (citing Securities Exchange Act Release No. 
54549 (Sept. 29, 2006), 71 FR 59179 (Oct. 6, 2006) (SR-NYSEArca-
2006-49)).
    \39\ See Response Letter I at 7-8 (emphasis in original).
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IV. Discussion and Commission Findings

    After carefully considering the proposals, the comments submitted, 
and the Exchanges' responses to the comments, the Commission finds that 
the proposed rule changes are consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\40\ In particular, the Commission finds that the 
proposals are consistent with Section 6(b)(5) of the Act,\41\ which 
requires, among other things, that the Exchanges' rules be designed 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.
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    \40\ In approving the proposals, the Commission has considered 
the proposed rules' impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \41\ 15 U.S.C. 78f(b)(5).
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    The Commission does not believe that the ALO modifier for limit 
orders would provide unjustified queue priority or that it would 
encourage the submission of orders that are not bona fide. Limit orders 
with the ALO modifier will be fully executable at the prices at which 
they are priced and re-priced and are therefore bona fide orders. In 
addition, limit orders with the ALO modifier will receive queue 
priority only at the prices for which they are fully executable, which 
is a justifiable means of assigning queue priority that is commonly 
used by exchanges. Moreover, the Commission notes that the Exchanges 
would assign a new time stamp (and thus new time priority) on such 
orders whenever they are re-priced and re-displayed, which would 
prevent these orders from stepping in front of orders that are already 
on the Exchanges' order books, and that the ALO order modifier would be 
available for day limit orders submitted by any exchange member. The 
ALO modifier for day limit orders is designed to be used to provide 
liquidity on the Exchanges at aggressive prices, rather than to remove 
liquidity, and the Commission notes that the proposals would require 
that limit orders with the ALO modifier represent at least one round 
lot, which should promote orders that are not of insignificant odd-lot 
size. Thus, the Commission believes that these proposals have the 
potential to allow market participants to aggressively compete with 
each other to offer better prices to contra-side trading interest.
    The Commission also believes that the requirement that an ALO limit 
order have a minimum size of one round lot should reduce the economic 
incentives for a submitting firm to attempt to use this order type to 
detect the presence of hidden interest on the Exchanges. The Commission 
also notes that, unlike hidden orders, the ALO limit order is designed 
to provide displayed liquidity to the market and thereby contribute to 
public price discovery--an objective that is fully consistent with the 
Act.\42\ Accordingly, the Exchanges have determined to offer an order 
type that promotes displayed liquidity, while adding the minimum size 
requirement in an effort to minimize the potential for the order type 
to be used to detect the existence of undisplayed interest.
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    \42\ See, e.g., Section 11A(a)(1)(C)(iii) and (iv) of the 
Exchange Act (objectives for the national market system include 
assuring the availability of information with respect to quotations 
in securities and the practicability of brokers executing investors' 
orders in the best market).
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    The Commission also finds that the proposed Day ISO and Day ISO ALO 
order types are consistent with Rule 610(d) of Regulation NMS. The NMS 
Guidance previously issued by Commission's Division of Trading and 
Markets clearly contemplates that not all ISOs would be immediate-or-
cancel orders.\43\ The NMS Guidance provides that, if a trading center 
chooses not to cancel the portion of ISOs that cannot be executed 
immediately, ``its rules will need to address appropriately the 
subsequent handling of the unexecuted portions.'' \44\ More generally, 
Rule 610 of Regulation NMS requires, among other

[[Page 62227]]

things, that each SRO adopt, maintain, and enforce written rules that 
prohibit its members from engaging in a pattern or practice of 
displaying quotations that lock or cross protected quotations.\45\
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    \43\ See NMS Guidance, supra note 29 (Response to Question 3.01, 
``Handling Unexecuted Portions of ISOs'').
    \44\ Id.
    \45\ See 17 CFR 242.610(d).
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    The Exchanges have adopted rules pursuant to Rule 610, and their 
rules include an ISO exception.\46\ Under the ISO exception, market 
participants are permitted to ``ship and post.'' The exchanges have not 
proposed to amend this exception. Under the Exchanges' proposed 
amendments to their rules, the Day ISO subjected to an Exchange would 
be immediately executed against the Exchange's displayed quote, and 
then the remainder, if any, would be posted to the book, where it may 
lock or cross a protected quotation that is displayed at the time the 
Day ISO arrives. Under the ``ship and post'' exception, the market 
participants submitting the Day ISO would have to send one or more 
additional ISOs to execute against the protected quotations on other 
exchanges that would be locked or crossed, and thus, the Day ISO is 
consistent with Rule 610 of Regulation NMS. The Day ISO with the ALO 
modifier would function in a similar manner as the day limit order with 
the ALO modifier and the Day ISO, including re-pricing and re-
displaying.
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    \46\ See NYSE Rule 19; NYSE MKT Rule 19--Equities.
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    For the reasons discussed above, the Commission finds that the 
Exchanges' proposals are consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\47\ that the proposed rule changes SR-NYSE-2014-32 and SR-NYSEMKT-
2014-56, be and hereby are, approved.
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    \47\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24547 Filed 10-15-14; 8:45 am]
BILLING CODE 8011-01-P
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