Document ID: SEC-2014-0100-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-01-21T05:00Z

[Federal Register Volume 79, Number 13 (Tuesday, January 21, 2014)]
[Notices]
[Pages 3429-3431]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00982]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71293; File No. SR-NYSEArca-2014-02]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending Its Rules in Order To Clarify the 
Applicability and Functionality of Certain Order Types on the Exchange

January 14, 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 8, 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, 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 its rules in order to clarify the 
applicability and functionality of certain order types on the Exchange. 
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 proposes to amend Rule 6.62 (Certain Types of Orders 
Defined), by revising the definitions of certain order types. The 
Exchange is not proposing to change or alter any obligations, rights, 
policies or practices enumerated within its rules. Rather, this 
proposal is designed to reduce any potential investor confusion as 
[sic] the functionality and applicability of certain order types 
presently available on the NYSE Arca.
Background
    In reviewing its rules, the Exchange has determined that certain 
order type definitions are outdated and need revising, while others do 
not fully explain the functionality and applicability of the order type 
they are attempting to define. Accordingly, the Exchange now proposes 
to amend such definitions so as to reduce any potential investor 
confusion as to the functionality and applicability of certain option 
order types available on NYSE Arca.
Proposed Changes to Order Type Definitions
    Rule 6.62(a) Market Order. A Market Order is an order to buy or 
sell a stated number of options contracts and is to be executed at the 
best price obtainable when the order reaches the Exchange. The order 
may be executed at the best possible price at the Exchange or by 
routing the order to another Exchange displaying the best price. In the 
event the Exchange receives a Market Order in a particular series and 
there is no National Best Bid (``NBB'') and no National Best Offer 
(``NBO'') (collectively ``NBBO'') being disseminated by OPRA for that 
series at the time the order is received, an

[[Page 3430]]

execution cannot take place. The lack of an NBBO means that there is no 
trading interest on the Exchange or any other exchange where that 
series may be listed which could be indicative of a systems issue, or 
some other unusual activity. If this occurs during Core Trading 
Hours,\4\ the Exchange believes that it is preferable to reject the 
order back to the submitting OTP Holder instead of having the order 
remain unexecuted for an indeterminable amount of time. A Market Order 
that gets rejected back to a submitting OTP Holder contains a message 
code explaining the reason for the reject.
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    \4\ See NYSE Arca Rule 6.1A(a)(3).
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    Additionally, the Exchange proposes to amend Rule 6.62(a) in order 
to describe what occurs when the Exchange receives a Market Order to 
buy (sell) and there is an NBB (NBO) but no NBO (NBB) being 
disseminated by OPRA. Unlike the lack of an NBBO as described above, 
the dissemination of just an NBB or just a NBO is not necessarily 
indicative of unusual activity, therefore the Exchange will not reject 
orders in these situations. Instead, the order will be processed 
pursuant to Rule 6.60(a)--Trade Collar Protection. By processing using 
collar protection, the Market Order is afforded an execution 
opportunity coupled with price protection.
    The Exchange now proposes to codify in Rule 6.62(a) that: (1) If 
there is no NBBO being disseminated at the time a Market Order is 
received by the Exchange, the order will be rejected, and (2) if 
Exchange receives a Market Order to buy (sell) and there is an NBB 
(NBO) but no NBO (NBB) being disseminated at the time, the order will 
be processed pursuant to Rule 6.60(a)--Trade Collar Protection.
    In addition, the Exchange proposes to clarify that those Market 
Orders that are entered before the opening of trading will be eligible 
for trading during the Opening Auction Process.
    Rule 6.62(c) Inside Limit Order. An Inside Limit Order is an order 
type designed to route away to the market participant or participants 
with the best displayed price. Any unfilled portion of the order will 
not be routed to the next best price level until all quotes at the 
current best bid or offer are exhausted.
    Due to a lack of demand for Inside Limit Orders, the Exchange plans 
to decommission the functionality supporting this order type. The 
Exchange does not intend to re-introduce it at any time in the future. 
Accordingly, the Exchange proposes to delete Rule 6.62(c) and reserve 
the rule number for future use.
    Rule 6.62(d)(1)-(2) Stop Orders and Stop Limit Orders. A Stop Order 
is an order that becomes a Market Order when the market for a 
particular option contract reaches a specified price. A Stop Limit 
Order is an order that becomes a Limit Order when the market for a 
particular option contract reaches a specified price (also known as the 
``triggering event''). Stop Orders and Stop Limit Orders (collectively 
``Stop Orders'') track the price of an option and are generally used to 
limit losses as prices move up, or down. ``Sell'' Stop Orders may be 
triggered as the price falls, and ``buy'' Stop Orders may be triggered 
as the price rises. Accordingly, the specified price for a ``buy'' Stop 
Order must be above the price the option is trading at the time the 
order is entered, and the specified priced for a ``sell'' Stop Order 
must be at a price less than the option is trading at the time the 
order is entered. Stop Orders entered with a specified price above 
(below) the price the option is trading for at the time of entry are 
rejected back to submitting OTP Holder with message code explaining the 
reason for the reject.
    The Exchange now proposes to add clarifying text to Rules 
6.62(d)(1) and (2) stating that Stop and Stop Limit Orders entered with 
a specified price above the bid (below the offer) in the option series 
at the time the order is entered will be rejected.
    Rule 6.62(d)(5) Stock Contingency Order. The execution of a Stock 
Contingency Order is contingent upon the last sale price of the 
underlying stock traded at the primary marketplace. Stock Contingency 
Orders are handled by Floor Brokers and are not supported by the 
System. The Exchange proposes to amend Rule 6.62(d)(5) to clarify that 
Stock Contingency Orders are only eligible for open outcry trading.
    Rule 6.62(d)(6) Tracking Order. A Tracking Order is an undisplayed 
Limit Order that is eligible for execution in the Working Order Process 
against orders equal to or less than the size of the Tracking Order. A 
Tracking Order is only executable at a price matching the NBBO. If a 
Tracking Order is executed but not exhausted, the remaining portion of 
the order shall be cancelled, without routing the order to another 
market center or market participant. A Tracking Order shall not trade-
through the NBBO. Tracking Orders only have standing if contra-side 
interest in the System would otherwise be routed to another market 
center at the NBBO.
    Due to a lack of demand for Tracking Orders, the Exchange plans to 
decommission the functionality supporting this order type. The Exchange 
does not intend to re-introduce it at any time in the future. 
Accordingly, the Exchange proposes to delete Rule 6.62(d)(6).
    Rule 6.62(g) One-cancels-the-other (OCO) Order. A One-cancels-the-
other Order consists of two or more orders treated as a unit. The 
execution of any one of the orders causes the others to be cancelled. 
``One cancels the other'' is an instruction given to a Floor Broker 
when handling multiple orders for a single OTP Holder. The Exchange 
proposes to amend Rule 6.62(g) to clarify that OCOs are only available 
for open outcry trading.
    Rule 6.62(i) Single Stock Future (``SSF'')/Option Order. An SSF/
Option Order is an order to buy or sell a stated number of units of a 
single stock future or a security convertible into a single stock 
future (``convertible SSF'') coupled with a purchase or sale of options 
overlying the same security as the SSF. SSF/Option Orders are handled 
by Floor Brokers who execute the options portion of the order in open 
outcry on the floor of the Exchange and routes a SSF order to a third 
party broker for execution on a futures exchange. The Exchange proposes 
to amend Rule 6.62(i) to clarify that SSF/Option Orders are only 
available for open outcry trading.
    Rule 6.62(o) Now Order. A Now Order is a Limit Order that is to be 
executed in whole or in part on the Exchange, and the portion not so 
executed shall be routed pursuant to Rule 6.76A only to one or more NOW 
Recipients for immediate execution. NOW Orders that are not marketable 
when submitted to NYSE Arca are cancelled.
    NOW Orders are determined to be marketable if an execution can take 
place either on NYSE Arca or by routing the order to an away market 
center that is at the NBBO. The Exchange now proposes to amend Rule 
6.62(o) to clarity that a NOW Order that is not marketable against the 
NBBO (which would be inclusive of the NYSE Arca and other markets) will 
be rejected.
    Rule 6.62(r) Opening Only Order. The Exchange proposes to correct 
minor typographical errors in the rule text but make no substantive 
changes to the rule itself.
    Rule 6.62(t) Liquidity Adding Order. A Liquidity Adding Order 
(``LAO'') is a limit order which is to be accepted only if it is not 
executable at the time of receipt. Orders with the liquidity adding 
instruction will not be routed if marketable against the NBBO, but will 
be rejected. LAO will only be accepted if the order is not executable 
at the time of receipt. LAOs are cancelled upon the conclusion of Core 
Trading, therefore the System does not accept LAOs with

[[Page 3431]]

a time in force of GTC. The Exchange proposes to clarify in the rule 
text that LAOs may only be entered with a time-in-force of Day. In 
addition, the Exchange proposes to correct minor typographical errors 
in the rule text.
    The Exchange plans to issue a Trader Update announcing the changes 
to order types proposed by this rule filing. The Trader Update will be 
distributed to all OTP Holders and OTP Firms upon the approval date of 
the rule change.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ in particular, in that, deleting obsolete and/or 
outdated rules, correcting inaccurate language, and enhancing the 
descriptions as to the functionality of certain order types will add 
transparency and clarity to the Exchange's rules.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that clarifying the definitions 
of Market Orders, Stop Orders, NOW Orders and LAOs removes impediments 
to and perfects the mechanism of a free and open market by helping to 
ensure that investors better understand the functionality of certain 
orders types available for trading on the Exchange. Additionally, the 
Exchange believes that specifying that Stock Contingency Orders, SSF/
Option Orders and OCO Orders are only for trading in open outcry will 
help to protect investors and the public interest by reducing potential 
confusion when routing orders to NYSE Arca. Lastly, the Exchange 
believes that deleting definitions applicable to Inside Limit Orders 
and Tracking Orders provides clarity to Exchange rules by eliminating 
outdated and obsolete functionality.
    The Exchange further believes that the proposal removes impediments 
to and perfects the mechanism of a free and open market by ensuring 
that members, regulators and the public can more easily navigate the 
Exchange's rulebook and better understand the order types available for 
trading on the Exchange.

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 proposed change is not 
designed to address any competitive issue but rather revise incomplete 
or inaccurate rule text or remove language pertaining to unavailable 
functionality in the Exchange's rulebook, thereby reducing confusion 
and making the Exchange's rules easier to understand and navigate.

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 (i) as the Commission may 
designate up to 90 days of such date 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
    (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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2014-02 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-2014-02. 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-2014-02 and should 
be submitted on or before February 11, 2014.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00982 Filed 1-17-14; 8:45 am]
BILLING CODE 8011-01-P