Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 62223 

13 15 U.S.C. 78s(b)(3)(A). 

14 17 CFR 240.19b–4(f)(2). 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3NYSE 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. 

4See 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’’). 

5See Securities Exchange Act Release Nos. 72893 

(Aug. 21, 2014), 79 FR 51208 (Aug. 27, 2014) and 

72894 (Aug. 21, 2014), 79 FR 51208. 

data to determine if the data would 

further its business needs. 

The fee waiver has operated on a pilot 

basis for two years, and FINRA has not 

experienced problems with its 

implementation or administration. 

FINRA believes that permanently 

adopting the Pilot, with the same 

conditions under which it has been 

operating, preserves these potential 

benefits for all professionals that 

participate in a free trial of a vendor 

data product that includes real-time 

TRACE transaction data. Any 

professional that tests data products 

during a free trial would be eligible for 

and would benefit from the concurrent 

FINRA fee waiver, consistent with the 

previously discussed conditions 

applicable to eligibility for the fee 

waiver program. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The fee 

waiver program does not unfairly 

discriminate between or among 

professionals and members (or other 

end-users) in that the waiver would be 

available to any person that participates 

in a vendor’s free trial that includes 

real-time TRACE transaction data, 

subject to the conditions described 

above. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 13 and paragraph (f)(2) of Rule 

19b–4 thereunder.14 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. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or 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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FINRA–2014–043 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549. 

All submissions should refer to File 

Number SR–FINRA–2014–043. 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 such 

filing also will be available for 

inspection and copying at the principal 

office of FINRA. 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–FINRA– 

2014–043 and should be submitted on 

or before November 6, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–24546 Filed 10–15–14; 8:45 am] 

BILLING CODE 8011–01–P 

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 


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6See 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. 

7See 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. 

8See NYSE Rule 13 and NYSE MKT Rule 13— 

Equities for the definition of MPL orders. MPL 

orders are currently available with the ALO 

modifier. 

9The 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. 

10See 17 CFR 242.610(d). 

11A ‘‘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. 

12See NYSE Rule 70(f)(II) and NYSE MKT Rule 

70(f)(II)—Equities. 

13See 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). 

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. 

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. 

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 ‘‘bestpriced 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, NonDisplay 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 nondisplayed 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, NonDisplayed Reserve Orders, Non-Display 

Reserve e-Quotes, and odd-lot sized buy 

interest, as well as protected bids on 

away markets, but not including nondisplayed buy interest that is priced 

based on the PBBO. 

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 redisplayed one MPV above the new bestpriced 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 bestpriced 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 repriced 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

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 


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14Each 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’).’’ 15See note 6, supra. 16Both 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. 

17See DCM Letter at 3–4. The commenter did not 

define ‘‘traditional orders.’’ 

18See Response Letter I at 4. 

19See 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)). 

20See DCM Letter at 4. 

21See Response Letter I at 4. 

22 Id. 

23See 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. 

24See Response Letter I at 5. 

25See Response Letter I at 4. 

26See DCM Letter at 5. 

27See Tradebook Letter I at 4–5. 

28See 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. 

29See 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. 

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 bestpriced sell interest (for bids) or bestpriced 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 nonMPL 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

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

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

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

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 costprohibitive 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

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

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 


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30See 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-a`-vis 

other exchanges. See Tradebook Letter II at 3. 

31See 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. 

32See Response Letter I at 6; see also NMS 

Guidance, supra note 29. 

33See Response Letter I at 7; Response Letter II 

at 3. 

34See Response Letter I at 7. The Commission 

notes that NYSE MKT Rule 19—Equities contains 

the same provisions as NYSE Rule 19. 

35See Response Letter I at 7; Response Letter II 

at 3. 

36See Response Letter II at 3. 

37 Id. 

38The 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)). 

39See Response Letter I at 7–8 (emphasis in 

original). 

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). 

42See, 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). 

43See NMS Guidance, supra note 29 (Response to 

Question 3.01, ‘‘Handling Unexecuted Portions of 

ISOs’’). 

44 Id. 

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

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

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

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. 

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. 

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 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 62227 

45See 17 CFR 242.610(d). 

46See NYSE Rule 19; NYSE MKT Rule 19— 

Equities. 

47 15 U.S.C. 78s(b)(2). 

48 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release No. 71176 

(Dec. 23, 2013), 78 FR 79524 (Dec. 30, 2013) (SR– 

NYSEArca–2013–107). 

5RPIs not designated as MPL Orders would 

alternatively need to be designated as a Passive 

Liquidity (‘‘PL’’) Order. 

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

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. 

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. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.48

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–24547 Filed 10–15–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73329; File No. SR– 

NYSEARCA–2014–115] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending NYSE Arca 

Retail Liquidity Program and NYSE 

Arca Equities Rule 7.44 To Provide 

That Retail Price Improvement Orders 

That Are Not Priced Better Than the 

Best Protected Bid or Best Protected 

Offer Will Not Be Rejected Upon Entry 

October 9, 2014. 

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 October 

1, 2014, NYSE Arca, Inc. (‘‘Exchange’’ or 

‘‘NYSE Arca’’) 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

NYSE Arca Equities Rule 7.44 to 

provide that Retail Price Improvement 

Orders that are not priced better than 

the best protected bid or best protected 

offer will not be rejected upon entry. 

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 is proposing to amend 

NYSE Arca Equities Rule 7.44 (‘‘Rule 

7.44’’) to provide that Retail Price 

Improvement Orders (‘‘RPI’’) that are 

not priced better than the best protected 

bid (‘‘PBB’’) or best protected offer 

(‘‘PBO’’) will not be rejected upon entry. 

Rule 7.44 sets forth the Exchange’s 

pilot Retail Liquidity Program (the 

‘‘Program’’).4 Under the Program, ETP 

Holders are able to provide price 

improvement to Retail Orders, as 

defined in Rule 7.44(a)(3) and (k), by 

submitting an RPI, which is nondisplayed liquidity in NYSE Arca-listed 

securities and UTP Securities, excluding 

NYSE-listed (Tape A) securities, that is 

priced more aggressively than the PBBO 

by at least $0.001 per share and that is 

identified as an RPI in a manner 

prescribed by the Exchange. RPIs are 

entered at a single limit price, rather 

than being pegged to the PBBO; 

however, RPIs can be designated as a 

Mid-Point Passive Liquidity (‘‘MPL’’) 

Order, in which case the order will reprice as the PBBO changes.5 RPIs 

remain non-displayed and only execute 

against Retail Orders. 

Rule 7.44(a)(4) currently provides that 

an order that is identified as an RPI but 

is not priced better than the PBB or PBO 

will be rejected upon entry. The 

Exchange proposes to amend Rule 

7.44(a)(4) to permit entry of RPI’s that 

are not priced better than the PBB or 

PBO. The Exchange believes that by 

accepting all RPIs, regardless of price, 

the Exchange will expand the interest 

that would be available to provide price 

improvement for Retail Orders, 

particularly if the PBB or PBO moves 

such that an RPI that otherwise would 

have been rejected could become priceimproving interest. 

To effect this change, the Exchange 

proposes to delete the third sentence of 

Rule 7.44(a)(4) that provides for such 

inferior-priced RPIs to be rejected upon 

entry. The Exchange further proposes to 

amend the fourth sentence of Rule 

7.44(a)(4) to conform the rule text to this 

proposed change. Specifically, the 

current rule text provides that ‘‘[a] 

previously entered RPI that becomes 

priced at or inferior to the PBBO will 

not be eligible to interact with incoming 


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