Document ID: SEC-2015-1617-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2015-10-07T04:00Z

[Federal Register Volume 80, Number 194 (Wednesday, October 7, 2015)]
[Notices]
[Pages 60722-60724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25463]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76063; File No. SR-NYSEARCA-2015-81]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Several 
Rules to Address Certain Order Handling Obligations on the Part of Its 
Floor Brokers

October 1, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 16, 2015, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III 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 amend several rules to address certain 
order handling obligations on the part of its Floor Brokers. 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 amend several rules to address certain 
order handling obligations on the part of its Floor Brokers. 
Specifically, the Exchange is proposing to amend Rules 6.62, 6.46, and 
6.48 to clarify whether orders sent to Floor Brokers are considered 
``Held'' or ``Not Held''. This proposal would enable the Exchange to 
compete with options exchanges that have already implemented the types 
of changes being proposed here.\4\
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    \4\ See Securities and Exchange Act Release Nos. 75299 (June 25, 
2015), 80 FR 37700 (July 1, 2015) (Approval Order); 74990 (May 18, 
2015), 80 FR 29767 (May 22, 2015) (SR-CBOE-2015-047) (Notice). The 
Exchange notes that, unlike CBOE, the Exchange does not route 
certain electronic order to Floor Brokers. Therefore, the Exchange 
is not proposing rule text mirroring CBOE's rule in this regard.
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    Current Rule 6.62(f) defines whether orders sent to Floor Brokers 
are presumed to be ``Held'' or ``Not Held.'' \5\ A ``Not Held'' order 
generally is one where the customer gives the Floor Broker discretion 
in executing the order, both with respect to the time of execution and 
the price (though the customer may specify a limit price), and the 
Floor Broker works the order over a period of time to avoid market 
impact while seeking best execution of the order. A ``Held'' order 
generally is one where the customer seeks a prompt execution at the 
best currently available price or prices.
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    \5\ Rule 6.62(f) (Orders Defined) defines a ``Not Held Order'' 
as an order that is marked as ``not held'', ``NH'', or ``take 
time,'' or ``which bears any qualifying notation giving discretion 
as to the price or time at which such order is to be executed.''
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    The Exchange now proposes to establish in Rules 6.62(f), 6.46, and 
6.48 a different default status for orders sent to Floor Brokers 
because the Exchange believes that these provisions are intended to 
protect against a broker failing to properly represent and ultimately 
execute orders.\6\ Specifically the Exchange is proposing to amend Rule 
6.62(f) to provide that ``[a]n order entrusted to a Floor Broker will 
be considered a Not Held Order, unless otherwise specified by a Floor 
Broker's client.'' The Exchange is also proposing to add new Commentary 
.06 to Rule 6.46 (Responsibilities of Floor Brokers) and to add 
language to Rule 6.46 (Discretionary Transaction) that mirrors the 
language it proposes to add to Rule 6.62(f). The Exchange believes that 
these proposed changes, taken together, would result in a change to the 
default order handling obligations for orders sent to Floor Brokers 
(i.e., the Exchange would consider all orders sent to Floor Brokers to 
be ``Not Held'' by default).
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    \6\ The Exchange notes that at the time these rules were 
adopted, virtually all options orders (large or small and retail or 
professional) were handled by Floor Brokers. Given the discrete 
profile of orders handled by Floor Brokers today (generally large 
size orders and often multi-leg) it is reasonable for Floor Brokers 
to ``work'' orders that are entrusted to them because that is the 
reason a customer would utilize a Floor Broker in today's 
environment.
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    The Exchange notes that Rules 6.46 and 6.48 were based upon rules 
that were adopted prior to electronic trading and, therefore, did not 
contemplate the interaction between an electronic environment and a 
trading floor and have not been amended to specifically address that 
interaction. While it is clear that Floor Brokers have more discretion 
with regards to the manner in which they represent and execute orders 
on a trading floor than does a computer routing an order to the 
Exchange for execution, the bounds of the discretion have not been 
entirely clear. Rules 6.46 and 6.48, among others, set certain 
boundaries to a Floor Broker's discretion, but the Exchange believes 
the current marketplace, with electronic and floor trading, favors an 
amendment to those boundaries.
    Electronic and floor trading gives clients the choice between an 
Options Trading Permit (``OTP'') Holder or OTP Firm that routes orders 
to the Exchange electronically or an OTP Holder or OTP Firm that 
executes orders via a Floor Broker. The Exchange believes that clients 
are keenly aware that the differences between electronic and floor 
trading include at least the following factors: A computer cannot 
deviate from its programed instructions, whereas a Floor Broker can 
take into account the nuance of the marketplace, such as the makeup of 
a particular trading floor, the individuals on that trading floor, and 
how the electronic books interact with that environment. The Exchange 
believes that clients use Floor Brokers precisely because Floor Brokers 
can take into account the nuance of the marketplace (i.e., exercise a 
certain level of discretion) to potentially provide higher execution 
quality. The Exchange likewise believes that if a client did not want a 
Floor Broker to use their expertise in the execution of an order, the 
client would simply send orders to the Exchange electronically.
    Given that Floor Brokers have more discretion with regards to the 
manner in which they represent and execute orders than do computers 
executing electronic orders, the Exchange is proposing to

[[Page 60723]]

change certain boundaries related to that discretion. In particular, in 
recognition of the discretion implicit with the use of a Floor Broker, 
the Exchange seeks to provide notice to the marketplace that, unless 
otherwise specified by a Floor Broker's client, an order is deemed to 
be ``not held.'' The Exchange believes clients that choose to use Floor 
Brokers do so in order to utilize a Floor Broker's expertise in the 
execution of orders. This rule change would update Exchange rules by 
setting forth the presumptive discretion available to Floor Brokers in 
a manner consistent with modern market structure and the Floor Broker's 
role in the current trading environment. This filing also serves as 
notice to the investing community that orders sent to Floor Brokers 
will be deemed ``not held'' unless otherwise specified by the Floor 
Broker's client.
    In addition, the Exchange will announce the implementation of this 
rule change by Trader Update.
2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b) of the Act,\7\ in general, and furthers the objectives of 
Section 6(b)(5),\8\ in particular, in that it is designed 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 facilitation transactions 
in securities, to remove impediments to, and perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest. Additionally, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) \9\ requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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    In particular, the Exchange believes that it has articulated a 
reasonable basis for changing the current default presumption of 
whether a customer intends to provide a Floor Broker with the ability 
to exercise time and price discretion on its behalf as long as the 
order is not otherwise marked in a manner to suggest that the customer 
did not intend for its order to be treated as Not Held. Other than 
changing the default presumption to ``Not Held'' for most orders sent 
to Floor Brokers, the Exchange is not proposing to change any other 
order handling obligations applicable to Floor Brokers. The Exchange 
believes that its proposal is consistent with the Act and is designed 
to promote just and equitable principles of trade and remove 
impediments to and perfect the mechanism of a free and open market 
because it responds to an understanding of the changing role of Floor 
Brokers on the Exchange's Floor since it adopted Rule 6.48, and its 
understanding of how customers today use, and intend to continue to 
use, the services of Floor Brokers on the Exchange. In addition, the 
Exchange believes designating certain orders as ``not held'' is in the 
interest of facilitating transactions in securities and reflective of 
today's marketplace, which generally helps to protect investors and the 
public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that this proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
the proposed rule change will impose any burden on competition because 
the rule change adds clarity regarding the default orders handling 
obligations for orders sent to Floor Brokers, reflects the modern 
market structure, is consistent with the reasons customers utilize 
Floor Brokers, and will be applied equally to all OTP Holders and OTP 
Firms. To the extent that the proposed rule change will cause clients 
or brokers to choose the Exchange over other trading venues, market 
participants on other exchanges are welcome to become OTP Holders or 
OTP Firms and trade at the Exchange if they determine that this 
proposed rule change has made the Exchange more attractive or 
favorable. In addition, as noted above, the Exchange believes the 
proposed rule change is pro-competitive and would allow the Exchange to 
compete more effectively with other options exchanges that have already 
adopted similar rule changes.\10\
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    \10\ See supra n. 4.
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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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\14\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange stated that 
such a waiver would allow implementation of this proposed rule change 
without delay and enable the Exchange to compete with other option 
exchanges that changed the default order handling obligation for orders 
sent to Floor Brokers to ``Not Held.'' The Commission believes the 
waiver of the operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposed rule change to 
be operative upon filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 15 U.S.C. 78s(b)(2)(B).

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[[Page 60724]]

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-NYSEARCA-2015-81 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 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2015-81. 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 Section, 100 F Street 
NE., Washington, DC 20549-1090. 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-NYSEARCA-2015-81 and should be submitted 
on or before October 28, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25463 Filed 10-6-15; 8:45 am]
 BILLING CODE 8011-01-P