Document ID: SEC-2016-0534-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2016-03-29T04:00Z

[Federal Register Volume 81, Number 60 (Tuesday, March 29, 2016)]
[Notices]
[Pages 17527-17529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06999]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77435; File No. SR-NYSEMKT-2016-41]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Rule 964.2NY 
Regarding the Participation Entitlement Formula for Specialists and e-
Specialists

March 23, 2016.
    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 March 21, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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 Rule 964.2NY regarding the participation 
entitlement formula for Specialists and e-Specialists. 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 changes to Rule 964.2NY regarding the 
participation entitlement formula for Specialists and e-Specialists as 
described below.\4\
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    \4\ A Specialist is ``an individual or entity that has been 
deemed qualified by the Exchange for the purpose of making 
transactions on the Exchange in accordance with the provisions of 
Rule 920NY [Market Makers], and who meets the qualification 
requirements of Rule 927NY(b) [Specialists]. Each Specialist must be 
registered with the Exchange as a Market Maker. Any ATP Holder 
registered as a Market Maker with the Exchange is eligible to be 
qualified as a Specialist. See Rule 900.2NY(76). Rule 923NY(b) also 
provides that ``[t]he Exchange may designate e-Specialists in an 
option class in accordance with Rule 927.4NY[e-Specialists].'' Id.
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    Rule 964NY sets forth the priority for the allocation of incoming 
orders to resting interest at a particular price in the System,\5\ 
which includes the allocation to the Specialist Pool.\6\ Rule 964.2NY 
sets forth the participant entitlement formula applicable to the 
Specialist Pool and provides that, on a quarterly basis, the Exchange 
will determine a Primary Specialist in each option class.
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    \5\ The term ``System'' refers to the Exchange's electronic 
order delivery, execution and reporting system through which orders 
and quotes for listed options are consolidated for execution and/or 
display. See Rule 900.2NY(48) (defining ``Exchange System'' or 
``System'').
    \6\ The Specialist Pool refers to the aggregated size of the 
best bid and best offer, in a given series, amongst the Specialist 
and e-Specialists that match in price. See Rule 900.2NY(75).
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    To select the Primary Specialist, the Exchange objectively 
evaluates the relative quote performance of each Specialist and e-
Specialist focusing on one or more of the following optional factors: 
time and size at the NBBO, average quote width, average quote size, and 
the relative share of electronic volume in a given class of options 
(the Primary Specialist Criteria'').\7\ Per current Rule 964.2NY(a), 
the Exchange will publish the Primary Specialist Criteria, including 
the relative weighting of each factor, by Regulatory Bulletin at least 
5 business days prior to an evaluation period. The Exchange adopted the 
quarterly contest for Primary Specialist in 2012 to enhance quote 
competition among the Specialist Pool participants.\8\
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    \7\ See Rule 964.2NY(a). The Primary Specialist's size pro-rata 
participation in the Specialist Pool also receives additional 
weighting amongst Specialist Pool participants, which is determined 
by the Exchange and announced via Regulatory Bulletin. See Rule 
964.2NY(b)(3)(A).
    \8\ See Securities Exchange Release No. 34-67421 (July 12, 
2012), 77 FR 42349 (July 18, 2012) (SR-NYSEAmex-2012-31) (approval 
order).
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    The Exchange proposes to modify the Primary Specialist Criteria to 
include the electronic volumes from resting quotes and orders in the 
Consolidated Book \9\ for each Specialist and e-Specialist. While the 
current Primary Specialist Criteria includes ``electronic volume,'' 
this can be composed of liquidity-taking volume. The Exchange believes 
the new criterion would enable the Exchange to better account for the 
liquidity-making volume of each Specialist and e-Specialist. The 
Exchange believes this proposal also provides the Exchange the ability 
to reward Specialists and e-Specialists that contribute significant 
volumes through market making activity. The Exchange believes that 
having the ability to reward such participants would incentivize 
Specialist Pool Participants to increase their posted volume on the 
Exchange, which benefits other market participants through the 
improvement of the price and size of the displayed market.
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    \9\ The Consolidated Book is ``the Exchange's electronic book of 
limit orders for the accounts of Customers and broker-dealers, and 
Quotes with Size. All orders and Quotes with Size that are entered 
into the Book will be ranked and maintained in accordance with the 
rules of priority as provided in Rule 964NY.'' See Rule 900.2NY(14).
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    The Exchange also proposes at this time to make a procedural change 
for announcements regarding the Primary Specialist Criteria and any 
additional weighting to the Primary Specialist amongst the Specialist 
Pool. Presently the Exchange issues Regulatory Bulletins when making 
such announcements. Going forward, the Exchange proposes to issue a 
Trader Update in lieu of a Regulatory Bulletin. Regulatory Bulletins 
generally contain information regarding legal and regulatory matters 
while Trader Updates deal with issues such as trading, systems changes 
and real-time market

[[Page 17528]]

announcements. The Exchange believes that it is more appropriate to 
make announcements regarding the Primary Specialist via Trader Update. 
Trader Updates, like Regulatory Bulletins, are electronically 
distributed to ATP Holders and posted on the Exchange's Web site. 
Accordingly, the Exchange proposes to amend current Rule 964.2NY(a) and 
(b)(3)(A) by replacing reference to ``Regulatory Bulletin'' with 
``Trader Update.'' Thus, for example, the Exchange will publish the 
Primary Specialist Criteria, including the relative weighting of each 
factor, by Trader Update at least 5 business days prior to an 
evaluation period.\10\
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    \10\ See proposed Rule 964.2NY(a).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \11\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5),\12\ in 
particular, in that it is designed 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    As noted by the Exchange, the proposed rule change would promote 
just and equitable principles of trade as it is intended to enhance 
quote competition among the Specialist Pool participants by enabling 
the Exchange to include liquidity-making electronic volume among the 
objective factors considered in the Primary Specialist Criteria. The 
Exchange believes this proposal also provides the Exchange the ability 
to reward Specialists and e-Specialists who contribute significant 
volumes through market making activity. The Exchange believes that 
having the ability to reward such participants would incentivize 
Specialist Pool Participants to increase their posted volume on the 
Exchange, which benefits other market participants through the 
improvement of the price and size of the displayed market. The proposal 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because enhanced quote 
competition should lead to narrower spreads and more liquid markets, 
which should attract more order flow to the Exchange, thereby 
benefiting investors.
    Finally, the replacement of references to Regulatory Bulletin with 
references to Trader Updates, would foster cooperation and coordination 
with persons engaged in facilitating transactions in securities as 
Trader Updates deal with issues such as trading, systems changes and 
real-time market announcements and are electronically distributed to 
ATP Holders and posted on the Exchange's Web site.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed change is 
designed to enhance quote competition among Specialist Pool 
participants and would not have any adverse impact on quote competition 
within the Exchange. In addition, the proposal permits the Exchange to 
consider an additional objective factor in determining the Primary 
Specialist. Should the Exchange decide to use such a factor, it would 
announce the modified Primary Specialist Criteria in advance of the 
evaluation period. As is the case today, Specialists Pool participants 
would have ample notice of the modified Primary Specialist Criteria and 
could opt to modify their market making activities to better compete 
for the Primary Specialist designation.

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

    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 for 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 \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and 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. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
states that this waiver would enable the Exchange to apply the proposed 
modified Primary Specialist Criteria for the second quarter starting 
April 1, 2016. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. As stated in the filing, the Exchange believes that 
the proposed rule change would promote quote competition among the 
Specialist Pool participants by enabling the Exchange to consider 
liquidity-making electronic volume among the objective factors 
considered in the Primary Specialist Criteria. The waiver of the 
operative delay will enable the Exchange to apply the proposed modified 
Primary Specialist Criteria for the second quarter starting April 1, 
2016, and to announce the modified Primary Specialist Criteria by 
Trader Update at least five days before the start of the April 1st 
evaluation period, to help ensure that Specialists and e-Specialists 
are given ample notice of the proposed change. The Exchange notes that 
while the modified Primary Specialist Criteria would be announced for 
the second quarter, starting April 1st, the actual evaluation would not 
be conducted until the start of the third quarter (i.e., July 1, 2016). 
Accordingly, the Commission designates the proposed rule change to be 
operative upon filing.\17\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ 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 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

[[Page 17529]]

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-NYSEMKT-2016-41 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2016-41. 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-NYSEMKT-2016-41, and should 
be submitted on or before April 19, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-06999 Filed 3-28-16; 8:45 am]
 BILLING CODE 8011-01-P