Document ID: SEC-2014-0154-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-01-28T05:00Z

[Federal Register Volume 79, Number 18 (Tuesday, January 28, 2014)]
[Notices]
[Pages 4515-4517]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01511]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71366; File No. SR-NYSEArca-2014-01]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca 
Equities Rule 7.31 To Add a Minimum Execution Size Designation for 
Tracking Orders and MPL-IOC Orders

January 22, 2014.
    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 January 10, 2014, 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 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 NYSE Arca Equities Rule 7.31 to add 
a minimum execution size designation for Tracking Orders and MPL-IOC 
Orders. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend NYSE Arca Equities Rule 7.31 to 
add a minimum execution size designation for Tracking Orders and MPL-
IOC Orders.
    A Tracking Order is an undisplayed, priced round lot order that is 
eligible for execution in the Tracking Order Process \4\ against orders 
equal to or less than the aggregate size of Tracking Order interest 
available at that price. For example, if a Tracking Order to buy is 
entered for 1,000 shares and a sell order enters the Tracking Order 
Process for 1,200 shares at the same price, the sell order would not 
execute against the buy Tracking Order because it is larger than the 
size of the buy Tracking Order.
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    \4\ See NYSE Arca Equities Rules 7.31(f) and 7.37(c) (Order 
Execution). The Tracking Order Process is available during Core 
Trading Hours only, during which orders may be matched and executed 
in the Tracking Order Process as follows: If an order has not been 
executed in its entirety pursuant to the Directed Order, Display 
Order or Working Order processes, the NYSE Arca Marketplace shall 
match and execute any remaining part of the order in the Tracking 
Order Process in price/time priority, except that (1) any portion of 
an order received from another market center or market participant 
shall be cancelled immediately, and (2) an incoming ISO order shall 
not interact with the Tracking Order Process.
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    An MPL Order is a type of Working Order that has conditional or 
undisplayed price and/or size. As set forth in NYSE Arca Equities Rule 
7.31(h)(5), an MPL Order is a Passive Liquidity Order that is priced at 
the midpoint of the PBBO and does not trade through a Protected 
Quotation. An MPL Order has a minimum order entry size of one share and 
Users may specify a minimum executable size for an MPL Order, which 
must be no less than one share. If an MPL Order has a specified minimum 
executable size, it will execute against an incoming order that meets 
the minimum executable size and is priced at or better than the 
midpoint of the PBBO. If the leaves quantity becomes less than the 
minimum size, the minimum executable size restriction will no longer be 
enforced on executions.
    As set forth in NYSE Arca Equities Rule 7.31(h)(6), an MPL-IOC 
Order is an MPL Order priced at the midpoint of the PBBO when entered 
that follows the time-in-force instructions of an immediate-or-cancel 
order. An MPL-IOC Order follows the same execution and priority rules 
as an MPL Order, provided, however, (i) an MPL-IOC Order shall have a 
minimum order entry size of one round lot, (ii) Users may not specify a 
minimum executable size for an MPL-IOC Order, and (iii) if the market 
is locked or crossed, the MPL-IOC Order will cancel.
    The Exchange proposes to amend Rule 7.31(f) to add optional 
functionality so that the ETP Holder may designate a minimum execution 
size for a Tracking Order. For example, if an ETP Holder that submits a 
Tracking Order to buy for 1,000 shares sets a minimum quantity of 200 
shares, that Tracking Order will only execute against eligible contra-
side interest that is 200 to 1,000 shares in size at the same price. As 
proposed, if the Tracking Order with a minimum size requirement is 
executed but not exhausted and the remaining portion of the Tracking 
Order is less than the minimum size requirement, the Exchange would 
cancel the Tracking Order. So if the Tracking Order for 1,000 shares 
has a minimum quantity of 200 shares, and receives an execution of 900 
shares, because the remaining portion (100 shares) is less than the 
minimum execution quantity, it would be cancelled.
    The Exchange also proposes to amend NYSE Arca Equities Rule 
7.31(h)(6) to delete that Users may not specify a minimum executable 
size for an MPL-IOC Order. As proposed, an MPL-IOC Order will operate 
in the same manner as a regular MPL Order with respect to the ability 
to specify a minimum executable size. Because such order also includes 
the immediate-or-cancel time-in-force condition, if the contra-side 
available liquidity does not meet the minimum executable size 
designated for the MPL-IOC Order, the MPL-IOC Order will immediately 
cancel. The Exchange is proposing to make this change because it now 
has the technological capability to enable Users to specify a minimum 
executable size for MPL-IOC Orders, thereby reducing one of the 
differences between regular MPL Orders and MPL-IOC Orders.
    The Exchange believes that providing ETP Holders with the option to 
designate a minimum quantity for additional non-displayed order types 
will promote the entry of liquidity at the Exchange because ETP Holders 
entering such orders will be assured of obtaining a larger-sized 
execution. With respect to Tracking Orders, the Exchange believes that 
the proposed rule change could attract ETP Holders that are seeking 
larger executions to enter Tracking Orders because by designating a

[[Page 4516]]

minimum quantity, the submitting ETP Holder would be assured that they 
are not traded against by smaller-sized interest. As noted above, the 
Exchange notes that it already provides for similar functionality for 
MPL Orders.\5\ The one difference between the proposed functionality 
for Tracking Orders and the existing minimum quantity feature for MPL 
Orders is that if a Tracking Order is reduced below the size of the 
minimum quantity, the Tracking Order will cancel. The Exchange believes 
that this difference is appropriate because at the Exchange, Tracking 
Orders are passive liquidity of last resort at the Exchange. If an ETP 
Holder seeks to add passive liquidity that does not cancel if it is 
reduced below the minimum quantity designation, that ETP Holder could 
enter an MPL Order, which is another form of non-displayed liquidity, 
with a minimum quantity.
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    \5\ See NYSE Arca Equities Rule 7.31(h)(5).
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    The Exchange also proposes to clarify Rule 7.31(f) to specify that 
STP modifiers, as defined in Rule 7.31(qq), are ignored for Tracking 
Orders. The Exchange notes that the Exchange makes STP modifiers 
available to ETP Holders on an optional basis. If, however, an ETP 
Holder designates a Tracking Order with an STP modifier, Exchange 
systems will ignore that modifier when processing the order. The 
Exchange notes that this is current functionality and proposes to 
update the rule to provide transparency regarding how order types and 
optional modifiers interact. The Exchange further notes that the 
functionality associated with STP modifiers was added after the 
Tracking Order process was implemented and the two functions are not 
currently technologically compatible.
    The Exchange will announce by Trader Update the implementation date 
of the proposed change to add a minimum execution size designation for 
Tracking Orders and MPL-IOC Orders.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\6\ in general, and 
furthers the objectives of Section 6(b)(5),\7\ in particular, in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposal would remove impediments to 
and perfect the mechanism of a free and open market and protect 
investors and the public interest because it would provide an incentive 
for ETP Holders seeking larger-sized executions both to post liquidity 
at the Exchange using these features and to route larger-sized orders 
to the Exchange because of the potential for an execution against such 
liquidity. While interest with a minimum execution quantity will not 
execute against arriving smaller-sized contra interest, the Exchange 
does not believe that this will permit unfair discrimination among 
customers, brokers, or dealers because a size designation does not 
discriminate against a particular ETP Holder. Rather, the proposed 
functionality would be available to all ETP Holders. The Exchange 
further believes that adding an optional minimum quantity would remove 
impediments to and perfect the mechanism of a free and open market 
system because the proposed functionality is similar to existing 
functionality available to ETP Holders with the MPL Order type, which 
also permits an ETP Holder to designate a minimum execution quantity. 
The proposed functionality is also similar to functionality available 
at the NASDAQ Stock Market LLC (``Nasdaq'') \8\ and the New York Stock 
Exchange LLC (``NYSE'').\9\ The Exchange further believes that the 
proposal removes impediments to and perfects a national market system 
by offering the minimum execution quantity option differently for 
Tracking Orders and for MPL-IOC orders. Specifically, Tracking Orders 
are non-displayed passive liquidity of last resort at the Exchange that 
an order may execute against before being routed to another market. The 
Exchange believes it is appropriate to provide an option for ETP 
Holders seeking to provide such liquidity to not only designate a 
minimum execution quantity, but for such orders to cancel if through 
executions, the leaves quantity is smaller than the ETP Holder-
designated minimum execution quantity.
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    \8\ See Nasdaq Rule 4751(d)(5) (defining a ``Minimum Quantity 
Order'' as a Non-Displayed Order that will not execute unless a 
specified minimum quantity of shares can be obtained).
    \9\ See NYSE Rule 13 (defining the ``IOC-MTS Order'' as an 
immediate or cancel order that may include a minimum trade size 
instruction).
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    The Exchange believes that adding specificity to Rule 7.31(f) that 
STP modifiers are ignored for Tracking Order [sic] removes impediments 
to and perfects the mechanism of a free and open market by providing 
transparency of when STP modifier protection is not available. The 
Exchange notes that use of STP modifiers is optional and that ETP 
Holders that enter Tracking Orders should be aware that they have 
entered such interest and therefore can undertake measures other than 
STP modifiers to prevent wash sales.

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. The Exchange believes that 
the proposed amendment will not impose any burdens on competition 
because the proposal would extend the availability of an existing 
functionality--the optional minimum execution quantity--to an [sic] 
additional non-displayed liquidity-providing order types, the Tracking 
Order and the MPL-IOC Orders. The Exchange further notes that Nasdaq 
already offers similar functionality for its non-displayed orders.

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 \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.

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[[Page 4517]]

    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) of the Act \14\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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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-2014-01 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-NYSEArca-2014-01. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. 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-2014-01 and should 
be submitted on or before February 18, 2014.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01511 Filed 1-27-14; 8:45 am]
BILLING CODE 8011-01-P