Document ID: SEC-2010-1682-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2010-11-02T04:00Z

[Federal Register: November 2, 2010 (Volume 75, Number 211)]
[Notices]               
[Page 67424-67427]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02no10-114]                         

[[Page 67424]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63187; File No. SR-NYSEAmex-2010-100]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NYSE Amex LLC Amending Rule 900.3NY(h) To Define Stock/
Complex Orders, Rule 963NY(d) To Update and Clarify the Priority of 
Complex Orders, Eliminate Rule 963.1NY, and Amend Rule 980NY To 
Establish a Complex Order Auction

October 27, 2010.
    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 October 20, 2010, NYSE Amex LLC (the ``Exchange'' or 
``NYSE Amex'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the 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 Rule 900.3NY(h) to define Stock/
Complex Orders, amend Rule 963NY(d) to update and clarify the priority 
of Complex Orders, eliminate Rule 963.1NY, and amend Rule 980NY to 
establish a Complex Order Auction. The text of the proposed rule change 
is available on the Exchange's Web site at http://www.nyse.com, on the 
Commission's Web site at http://www.sec.gov, at 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to update and streamline the rules 
governing open outcry trading of Complex Orders, including the 
definition of a Stock/Complex Order, and to adopt new rules to provide 
for a Complex Order Auction (``COA'') in the Electronic Complex Order 
rules. The filing also clarifies the minimum trading and quoting 
increment permissible for Complex Orders.
Stock/Complex Orders
    NYSE Amex proposes to amend Rule 900.3NY(h) to define Stock/Complex 
Orders as orders for the purchase or sale of a Complex Order coupled 
with an order to buy or sell a stated number of units of an underlying 
stock or a security convertible into the underlying stock 
(``convertible security'') representing either the same number of units 
of the underlying stock or convertible security as are represented by 
the options leg of the Complex Order with the least number of 
contracts, or (B) the number of units of the underlying stock necessary 
to create a delta neutral position, but in no case in a ratio greater 
than 8 options contracts per unit of trading of the underlying stock or 
convertible security established for that series by the Clearing 
Corporation, as represented by the options leg of the Complex Order 
with the least number of options contracts.
Revision to Complex Order Open Outcry Rules
    NYSE Amex proposes to amend Rule 963NY(d) and to delete Rule 
963.1NY. The Exchange proposes to adopt a provision based on Chicago 
Board Options Exchange (``CBOE'') Rule 6.45(e) to describe the priority 
of Complex Orders in open outcry. The new language does not change the 
process of executing a Complex Order or alter the priority of quotes 
and orders; rather, it streamlines and updates the rule text.
    Currently, when executing a Complex Order, contra sided complex 
trading interest in the Trading Crowd has priority over individual 
orders and quotes in the leg markets at the same net debit or credit 
price, except when individual Customer orders in the Consolidated Book 
are present in all of the leg markets. When there are Customer orders 
present in all legs at the same net debit or credit price, the Complex 
Order must first trade with the individual Customer orders, and may 
then trade against complex trading interest in the crowd. Complex 
Orders trading against contra side complex trading interest in the 
Trading Crowd must otherwise trade at least one leg at a price that is 
at least one minimum price variation better than individual Customer 
orders in the Consolidated Book.\4\
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    \4\ Stock/options orders may not trade at the same price as a 
Customer order in the option leg, unless satisfying the Customer 
order first, even though the Customer order cannot satisfy all the 
terms of the Stock/option order.
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    The proposed rule change will not alter these procedures or 
priorities.
    In addition, the Exchange is clarifying that Stock/Complex Orders 
(involving two or more options legs and a stock leg) may be executed at 
a net debit or credit price with another ATP Holder without giving 
priority to equivalent bids (offers) in the individual series legs that 
are represented in the Trading Crowd or Customer limit orders in the 
Consolidated Book, provided at least one options leg of the order 
betters the corresponding Customer bid (offer) in the Consolidated Book 
by at least one minimum trading increment.
    NYSE Amex also proposes to eliminate Rule 963.1NY. The proposed 
Rule 963NY(d) describes priority for all Complex Orders and Stock/
option orders, while Rule 963.1NY only describes the procedures for 
executing complex transactions; it does not define or describe any 
execution priority, obligation, or privilege that was not already 
described in other rules. Additionally, those procedures did not lay 
out procedures for all complex transactions; it narrowly described only 
simple Complex Orders with two option legs. The proposed rule change 
specifically eliminates the description of a ``locked book market'' in 
Rule 963.1NY(f). This provision, which was based on NYSE Arca Rule 
6.75, Commentary .01(f), was a description of a narrow circumstance, 
and was more appropriate when the Public Customer Book was maintained 
by an Order Book Official. At that time, the Order Book had priority to 
trade at a given price if it held an order. Paragraph (f) described a 
situation where the Order Book had orders at all of the prices where a 
Complex Order might trade, but the orders in the leg markets could not 
satisfy the terms of the Complex Order. The proposed new language 
addresses this and similar circumstances in a more clear manner.

[[Page 67425]]

Complex Order Auction
    Additionally, the Exchange proposes to adopt rules establishing a 
Complex Order Auction, based on rules approved for use by the CBOE. 
CBOE Rule 6.53(d) describes the process for a Complex Order RFR 
Auction. NYSE Amex proposes a similar auction under Rule 980NY, with 
one priority change based on NASDAQ OMX PHLX (``Phlx'') Rule 1080 
Commentary .08(e)(vi)(A)(2).
    Proposed paragraph (d) of Rule 980NY will describe the COA process. 
The proposed rule change will give the Exchange the authority to 
determine, on a class by class basis, which incoming orders are 
eligible for a COA based on marketability (defined as a number of ticks 
from the current market), size, and Complex Order type (``COA-eligible 
orders'').\5\
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    \5\ For example, the Exchange could determine that a complex 
order with two option legs is eligible for a COA to the extent they 
are less than two ticks away from the ``top of the book'', which 
would be the best price considering the net prices available among 
Complex Orders in the Consolidated Book and the individual component 
legs in the Consolidated Book. All pronouncements, including changes 
hereto, regarding COA eligibility and Response Time Intervals will 
be announced to ATP Holders via Regulatory Circular.
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    Upon receiving a COA-eligible order and a request by the ATP Holder 
representing the order that it be COA'd, the Exchange will send an RFR 
message to ATP Holders with an interface connection to NYSE Amex that 
have elected to receive such RFR messages. This RFR message will 
identify the component series, the size of the COA eligible order and 
any contingencies, if applicable. However, the RFR will not identify 
the side of the market (i.e., whether the COA-eligible order is to buy 
or sell).
    Market Makers with an appointment in the relevant options class, 
and ATP Holders acting as agent for orders resting at the top of the 
Consolidated Book in the relevant options series, may electronically 
submit responses (``RFR Responses''), and modify, but not withdraw the 
RFR response at any time during the request response time interval (the 
``Response Time Interval''). RFR responses must be in a permissible 
ratio, and may be expressed on a net price basis in a one cent 
increment. In addition, RFR Responses will be visible to those who have 
subscribed to RFRs. The applicable Response Time Interval will be 
determined by the Exchange on a class by class basis, and, in any 
event, will not exceed one second. Proposed Rule 980NY(e)(3) also 
clarifies that the obligations of Rule 935NY, Order Exposure 
Requirements, are separate from the duration of the Response Time 
Interval.
    When the Response Time Interval expires, the COA-eligible order 
will be executed and allocated to the extent it is marketable, or route 
to the Consolidated Book to the extent it is not marketable. If 
executed, the rules of trading priority will provide that the COA-
eligible order be executed based first on net price, and, at the same 
price:
    (i) Pre-existing interest in the leg markets: Individual orders and 
quotes in the leg markets resting in the Consolidated Book prior to the 
initiation of a COA will have first priority to trade against a COA-
eligible order;
    (ii) Customer Complex interest received during the Auction: 
Customer Electronic Complex Orders resting in the Consolidated Book 
before, or that are received during, the Response Time Interval and 
Customer RFR Responses shall collectively have second priority to trade 
against a COA-eligible order. The allocation of a COA-eligible order 
against the Customer Electronic Complex Orders resting in the 
Consolidated Book shall be on a Size Pro Rata basis;
    (iii) Non-Customer Complex trading interest: Non-Customer interest, 
comprised of Electronic Complex Orders resting in the Consolidated 
Book, Electronic Complex Orders placed in the Consolidated Book during 
the Response Time Interval, and RFR Responses, will collectively have 
third priority. The allocation of COA-eligible orders against these 
contra sided orders will be on a Size Pro Rata basis;
    (iv) Trading Interest that improves the derived Complex Best Bid/
Offer. Individual orders and quotes in the leg markets that cause the 
derived Complex Best Bid/Offer to be improved during the COA, and which 
match the best RFR Response and/or Complex Orders received during the 
Response Time Interval, will be filled after Complex Orders and RFR 
Responses at the same net price.\6\ Allocations within the first 
category above (individual orders and quotes in the leg markets in the 
Consolidated Book) shall be in time, with Customer orders having 
priority ahead of non-customer orders and quotes at the same price. 
Allocations within the second category above (Customer Electronic 
Complex Orders resting in the Consolidated Book and Customer RFR 
responses) shall be based on a Size Pro Rata basis when multiple 
Customer Complex Orders or RFR responses exist at the same price. 
Allocations within the third category (non-Customer Electronic Complex 
Orders in the Consolidated Book and non-Customer RFR responses) shall 
be based on a Size Pro Rata basis when multiple non-Customer interests 
exist at the same price. Allocations among the fourth category 
(individual orders or quotes in the leg markets that cause the derived 
BBO to be improved) shall be filled on a Customer order/size pro rata 
basis.
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    \6\ See Securities Exchange Act Release No. 58361 (August 14, 
2008) 73 FR 49529 (August 21, 2008) (approving SR-Phlx-2008-50).
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    The following is an example of a COA: assume the Exchange's derived 
complex market, based on individual series orders and quotes in the 
Consolidated Book, is offered at $1.15 for 20 contracts. In addition, 
assume a Customer Electronic Complex Order resting in the Consolidated 
Book is offered at $1.15 for five contracts and two non-Customer orders 
resting in the Consolidated Book are offered at $1.15 for five 
contracts each (for a total of 10 contracts). A COA eligible order is 
then received to buy the complex strategy 100 times paying $1.15. COA 
will auction the order. An RFR message is sent to subscribers 
indicating the Complex Order series and the size of 100 contracts (but 
not the side of the market). The Response Time Interval for submitting 
RFR Responses will be for no more than one second. Before the 
conclusion of the Response Time Interval, the following RFR Responses 
on the other side are received: Customer RFR Responses to sell five at 
$1.14 and five at $1.15; and non-Customer RFR Responses to sell 15 at a 
price of $1.13, 35 at a price of $1.14, and 100 at a price of $1.15. 
The execution of the COA eligible order will proceed as follows:
     15 contracts get filled at $1.13 (against non-Customer RFR 
Responses).
     40 contracts get filled at $1.14 (five contracts against 
Customer RFR Responses, then 35 contracts against non-Customer RFR 
Responses); and
     45 contracts get filled at $1.15 (20 contracts against the 
individual series legs in the Consolidated Book, then 10 contracts 
against Customer Electronic Complex Orders in the Consolidated Book and 
Customer RFR Responses allocated on a Size Pro Rata basis. The non-
Customer interest is allocated on a Size Pro Rata basis as follows: 1 
contract ((5/110) x 15) for each of the non-Customer Electronic Complex 
Orders resting in the Consolidated Book before the COA began, and 13 
contracts ((100/110) x 15) against the non-Customer RFR Response.
    The proposed rule change also describes the handing of unrelated 
incoming Electronic Complex Orders that may be received prior to the 
expiration of the COA. Specifically, the proposed rule change provides 
the following:

[[Page 67426]]

     An incoming Electronic Complex Order received prior to the 
expiration of the Response Time Interval for a pending COA (the 
``original COA'') that is on the opposite side of the original COA 
eligible order and is marketable against the starting price of the 
original COA eligible order will be ranked in price time with RFR 
Responses by account type. The original COA-eligible order will be 
executed and allocated as described in proposed subparagraph (e)(6) of 
Rule 980NY. Any remaining balance of either the initiating COA eligible 
order or the incoming Electronic Complex order will be placed in the 
Consolidated Book and ranked as described in subparagraph (b) of Rule 
980NY.
     Incoming COA-eligible orders that are received prior to 
the expiration of the Response Time Interval for the original COA that 
are on the same side of the market, that are price [sic] equal to the 
original COA-eligible order will join the COA. A message with the 
updated size will be published. The new order will be ranked and 
executed with the initiating COA-eligible order in price time order. 
Any remaining balance of either the initiating COA eligible order and/
or the incoming Electronic Complex order will be placed in the 
Consolidated Book and ranked as described in subparagraph (b) of Rule 
980NY.
     Incoming COA-eligible orders received during the Response 
Time Interval for the original COA-eligible order that are on the same 
side of the market, and that are priced worse than the initiating 
order, will join the COA. The new order(s) will be ranked and executed 
with the initiating COA-eligible order in price time order. Any 
remaining balance of either the initiating COA eligible order and/or 
the incoming Electronic Complex order(s) will be placed in the 
Consolidated Book and ranked as described in subparagraph (b) of Rule 
980NY.
     An incoming COA eligible order that is received prior to 
the expiration of the Response Time Interval for the original COA that 
is on the same side of the market and at a better price than the 
original COA eligible order, will cause the auction to end. The 
initiating COA-eligible order will be executed in accordance with 
subparagraph (e)(6). The COA-eligible order that caused the auction to 
end will then be executed in accordance with subparagraph (e)(6), and 
any unexecuted portion will either be (i) placed in the Consolidated 
Book, or (ii) if marketable, initiate another COA.
    Proposed Commentary .04 states that a pattern or practice of 
submitting unrelated orders that cause a COA to conclude early will be 
deemed conduct inconsistent with just and equitable principles of 
trade. Dissemination of information related to COA-eligible orders to 
third parties will also be deemed as conduct inconsistent with just and 
equitable principles of trade.
    Finally, NYSE Amex is proposing the RFR Responses can be modified 
but not withdrawn at any time before the end of the Response Time 
Interval. RFR Responses are firm only with respect to COA-eligible 
orders and RFR Responses received during the Response Time Interval. 
Any RFR response not accepted to trade, either in whole or in a 
permissible ratio, would expire at the end of the Response Time 
Interval and would not be eligible to trade with the Consolidated Book.
Complex Order Minimum Increments
    NYSE Amex is proposing to revise and clarify the minimum increments 
that are permissible for bids and offers on Complex Orders. The 
Exchange believes these changes will facilitate the orderly execution 
of Complex Orders in open outcry and via the Consolidated Book and the 
COA mechanism. With respect to minimum increments, currently Rules 
963.1NY and 980NY provide that the Complex Orders may generally be 
expressed in any increments regardless of the minimum increment 
otherwise appropriate to the individual legs of the order. Thus, for 
example, a Complex Order could be entered at a net debit or credit 
price of $1.03 even though the standard minimum increment for the 
individual series is generally $0.05 or $0.10. The Exchange is 
proposing to clarify in Rule 963NY and 980NY that Complex Orders 
entered onto the Exchange, and/or resting in the Consolidated Book may 
be expressed on a net price basis in a multiple of the minimum 
increment (i.e., $0.01, $0.05, or $0.10, as applicable) or in a one-
cent increment as determined by the Exchange on a class-by-class basis.
    NYSE Amex represents that any Customer Electronic Complex Orders 
entered to the NYSE Amex System must comply with the order exposure 
requirements of Rule 935NY, which prohibits an order entry firm from 
executing as principal against an order it represents as agent, unless 
the agency order is first exposed on the Exchange for at least one (1) 
second, or the order entry firm has been bidding or offering on the 
Exchange for at least one (1) second prior to receiving an agency order 
that is executable against such bid or offer.
    NYSE Amex notes that all components of a Complex Order, a Stock/
option order, or a Stock/Complex Order must be entered into the NYSE 
Amex System and displayed at a total or net debit or credit, and that 
all components of a Complex Order, a Stock/option order, or a Stock/
Complex Order, including the stock component of a Stock/option order or 
Stock/Complex Order, must be traded as a complete package.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
and furthers the objectives of Section 6(b)(5) of the Act, in that it 
is designed to promote just and equitable principles of trade, 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. In particular, investors will have greater 
opportunities to manage risk with the Exchange defining Stock/Complex 
Orders, by the Exchange revising the coverage of Rule 963(d) to clarify 
its applicability, and with the removal of ambiguity by deleting Rule 
963.1NY. The proposed adoption of rules governing a Complex Order 
Auction will facilitate the execution of Complex Orders while providing 
opportunities for price improvement.

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 Act.

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

[[Page 67427]]

    (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

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEAmex-2010-100 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEAmex-2010-100. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing will also be available for 
inspection and copying at the Exchange's principal office. 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 publicly available. All 
submissions should refer to File Number SR-NYSEAmex-2010-100 and should 
be submitted on or before November 23, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27659 Filed 11-1-10; 8:45 am]
BILLING CODE 8011-01-P