Document ID: SEC-2014-1692-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2014-10-07T04:00Z

[Federal Register Volume 79, Number 194 (Tuesday, October 7, 2014)]
[Notices]
[Pages 60560-60563]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23848]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73284; File No. SR-NYSEMKT-2014-84]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Exchange Rule 
900.2NY To Codify the Terms Complex BBO and Complex NBBO and To Amend 
Exchange Rule 900.3NY(w) To Revise the Definition of a PNP Plus Order

October 1, 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 September 24, 2014, 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 amend Exchange Rule 900.2NY to codify the 
terms Complex BBO and Complex NBBO and to amend Exchange Rule 
900.3NY(w) to revise the definition of a PNP Plus order. The text of 
the proposed rule change is available on the Exchange's Web site at 
www.nyse.com,

[[Page 60561]]

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 Rule 900.2NY to adopt definitions 
for the terms Complex BBO and Complex NBBO. Additionally, the Exchange 
proposes to amend Rule 900.3NY(w) by revising the definition of PNP 
Plus orders, to specify that the order type is available solely for 
Electronic Complex Orders,\4\ and describe the processing of an 
Electronic Complex Order designated as PNP Plus.
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    \4\ See Rule 980NY
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Complex BBO and Complex NBBO
    The term BBO is defined in Exchange Rule 900.2NY(7) as the best bid 
or offer on the System,\5\ and the term NBBO is defined in Exchange 
Rule 900.2NY(41) as the national best bid or offer. In both cases the 
best bid and offer represents the best price available in an individual 
option series as disseminated by either the Exchange (in the case of 
the BBO) or the Options Price Reporting Authority (``OPRA'') (in the 
case of the NBBO). Unlike bids and offers for each individual option 
series, derived bids and offers for Complex Orders are not disseminated 
by either the Exchange or OPRA.
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    \5\ ``System'' refers to the Exchange's electronic order 
delivery, execution and reporting system for options through which 
orders and quotes are consolidated for execution and/or display.
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    Even though there is not a published bid or offer for every complex 
order strategy, there are situations where it is necessary to derive a 
(theoretical) bid or offer for a particular strategy.\6\ In order to 
derive the best bid or best offer for a given complex order strategy 
the Exchange takes the best bid and best offer in the individual leg 
markets comprising the complex order strategy, that when aggregated 
create either a derived Complex BBO or derived Complex NBBO for that 
same strategy. The Exchange uses the best quotes available on the 
Exchange in each component series (as shown in the System) to create 
the Complex BBO and the best quotes available nationally in each 
component series (as disseminated by OPRA) to establish the Complex 
NBBO. When deriving the Complex BBO or Complex NBBO the Exchange only 
factors in the best prices available in the individual leg markets and 
does not take into consideration prices of individual Complex Orders 
that may be resting on the Exchange or in another exchange's complex 
order book (spread book, contingency book).
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    \6\ For example, the Complex Matching Engine utilizes a Complex 
NBBO when establishing the acceptable price range applicable to the 
opening auction process for Electronic Complex Orders. See Rule 
980NY(c)(i)(B).
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    The Exchange proposes to add definitions of the terms Complex BBO 
and Complex NBBO in Rule 900.2NY. The term ``Complex BBO'' would be 
defined in Rule 900.2NY(7)(ii) as the BBO for a given complex order 
strategy as derived from the best bid on the System and best offer on 
the System for each individual component series of a Complex Order. The 
term ``Complex NBBO'' would be defined in Rule 900.2NY(41)(ii) as the 
NBBO for a given complex order strategy as derived from the national 
best bid and national best offer for each individual component series 
of a Complex Order.
    An example of how the Complex BBO and Complex NBBO is derived for a 
given strategy is shown below;

Jan 20 calls BBO 2.00 x 2.20 NBBO 2.05-2.20
Jan 25 calls BBO 1.00 x 1.20 NBBO 1.05-1.20

    To derive the bid side of the Complex BBO for the Jan 20/25 call 
spread using the markets available on the Exchange, the Exchange takes 
the best bid in the Jan 20 calls coupled with the best offer in the Jan 
25 calls. The result is an .80 bid (2.00-1.20 = .80). To derive the 
offer side of the Complex BBO for the same call spread the Exchange 
take [sic] the best offer in the Jan 20 calls coupled with the best bid 
in the Jan 25 calls. The result is an offer of 1.20 (2.20-1.00 = 1.20). 
In this example, the resulting Complex BBO is .80-1.20.
    To derive the bid side of the Complex NBBO for the Jan 20/25 call 
spread using the markets as disseminated by OPRA, the Exchange takes 
the national best bid in the Jan 20 calls coupled with the national 
best offer in the Jan 25 calls. This results in an .85 bid (2.05-1.20 = 
.85). To derive the offer side of the Complex NBBO for the same call 
spread the Exchange take [sic] the national best offer in the Jan 20 
calls coupled with the national best bid in the Jan 25 calls. This 
results in an offer of 1.15 (2.20-1.05 = 1.15). In this example, the 
resulting Complex NBBO is .85-1.15.
PNP Plus
    As defined in Rule 900.3NY(w) an order designated as PNP Plus is a 
limit order that is automatically re-priced by the Exchange to a price 
that is one minimum price variation (``MPV'') higher (lower) than the 
NBBO bid (offer) if it were to lock or cross the NBBO. The re-priced 
order is then posted in the Consolidated Book. PNP Plus orders continue 
to be re-priced and re-posted in the Consolidated Book, with each 
change in the NBBO, until such time as the NBBO has moved to a price 
where the original limit price of the PNP Plus order no longer locks or 
crosses the NBBO, at which time the PNP Plus order will revert to the 
original limit price of such order. Orders designated as PNP Plus are 
ranked in the Consolidated Book pursuant to Rule 964NY and assigned a 
new price time priority as of the time of each reposting. Because an 
order designated as PNP Plus would be posted at a price that is higher 
(lower) that [sic] the best contra-side market, by designating an order 
as PNP Plus, a market participant could guarantee that if its order 
were to be executed, it would be executed at a price that is better 
than the disseminated contra-side market Complex BBO. Accordingly, PNP 
Plus provides ATP Holders with additional processing capability to 
control the circumstances under which their orders are executed. The 
Exchange notes that the PNP Plus designation is currently not operable 
for single-leg orders nor does the Exchange intend to introduce such 
functionality in the near future. However, ATP Holders are able to and 
do use the PNP Plus designation when submitting Electronic Complex 
Orders. Accordingly, the Exchange is proposing to amend the definition 
of the PNP Plus order type and to make it applicable solely to 
Electronic Complex Orders.
    In addition, the revised rule would explain that the net debit/
credit price \7\ of an Electronic Complex Order designated as PNP Plus 
is re-priced

[[Page 60562]]

based on the Complex BBO for the same complex order strategy. An 
Electronic Complex Order designated as PNP Plus would follow existing 
PNP Plus processing in that the order will be automatically be [sic] 
re-priced by the Exchange to a price that is one MPV lower (higher) 
than the displayed contra-side market for buy (sell) orders if it were 
to lock or cross that market. However, because the leg prices of an 
Electronic Complex Order are bound by the best bid or offer on the 
Exchange and not the national best bid or offer \8\ as is the case with 
single-leg orders, when re-pricing an Electronic Complex Order 
designated as PNP Plus, the order would be re-priced one MPV lower 
(higher) than the Complex BBO if it were to lock or cross the Complex 
BBO.
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    \7\ Bids and offers for Electronic Complex Orders are entered 
based on the net debit/credit of prices of the individual component 
series comprising the complex order strategy.
    \8\ See Rule 980NY(c).
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    Accordingly, as amended, Rule 900.3NY(w) would state that an 
Electronic Complex Order designated as PNP Plus is automatically re-
priced by the Exchange to an MPV higher (for sell orders) than the 
Complex BBO bid for that same Complex Order strategy or at an MPV lower 
(for buy orders) than the Complex BBO offer for that same Complex Order 
strategy for any unexecuted portion of the order that would otherwise 
lock or cross the Complex BBO. The Exchange notes that because bids and 
offers for Electronic Complex Orders are priced on a net debit/credit 
basis and may be expressed in any decimal price, and the legs(s) of an 
Electronic Complex Order may be executed in one cent increments 
regardless of the MPV otherwise applicable to the individual legs of 
the order,\9\ the MPV applicable to Electronic Complex Order designated 
as PNP Plus will always be .01 cent. The re-priced order would then be 
posted in the Consolidated Book pursuant to Rule 980NY(b).
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    \9\ See Rule 980NY Commentary .01.
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    Finally, the Exchange proposes to change the existing cross 
reference in Rule 900.3NY(w) from Rule 964NY to 980NY(b). This is a 
non-substantive change as both rules call for orders to be ranked 
according to price/time priority with orders on behalf of Customers 
being ranked ahead of same price orders for non-Customers. The Exchange 
believes Rule 980NY(b) is the more appropriate rule to reference 
because it is specific to Electronic Complex Orders. For the purposes 
of ranking in the Consolidated Book, Electronic Complex Order 
designated as PNP Plus shall initially be ranked based on their 
original time of entry and will be assigned a new price time priority 
as of the time of each reposting. From there, with the exception of the 
use of the Complex BBO as opposed to the NBBO, all other PNP Plus 
functionality remains unchanged.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)(5) of the Securities Exchange Act of 1934 (the ``Act''),\10\ which 
requires the rules of an exchange to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest. The Exchange believes 
that the proposed rule change would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because it would provide transparency in Exchange rules that the PNP 
Plus is a designation applicable to Electronic Complex Orders. The 
Exchange further believes that revising the PNP Plus definition to 
describe how an Electronic Complex Order designated as PNP Plus is re-
price [sic] based off the Complex BBO and not the NBBO would align the 
rule with existing functionality and rules governing Electronic Complex 
Orders.
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    \10\ 15 U.S.C. 78f(b).
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    The Exchange also believes that [sic] proposed rule change would 
perfect the mechanism of a free and open market because by revising the 
PNP Plus order type to make the designation available solely for 
Electronic Complex Orders, and not for single leg orders, the rule 
would clearly describe the applicability of the PNP Plus order type and 
eliminate any suggestion of an order type for which there is no 
demonstrated demand and is not supported by Exchange systems.
    The Exchange also believes that defining the terms Complex BBO and 
Complex NBBO will help to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, in 
general because it would provide all market participants with 
additional clarity in how the Exchange calculates the Complex BBO and 
Complex NBBO in connection with the processing of Complex Orders
    In addition, 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 
orders 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 would 
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 an existing 
a [sic] rule, that can be seen as inaccurate or incomplete, by 
accurately describing functionality applicable to the PNP Plus order 
type and describing the processing of an Electronic Complex Order 
designated as PNP Plus, thereby reducing confusion and making the 
Exchange's rules easier to understand and navigate. Also, adopting 
Complex BBO and Complex NBBO as defined terms is intended to add 
clarity into Exchange rules regarding the methodology of how a Complex 
BBO and a Complex NBBO is derived and therefore does not raise any 
competitive concerns.

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) thereunder.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \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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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if

[[Page 60563]]

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) \14\ of the Act 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-NYSEMKT-2014-84 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-2014-84. 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 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-NYSEMKT-2014-84 and should be submitted on or before 
October 28, 2014.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-23848 Filed 10-6-14; 8:45 am]
BILLING CODE 8011-01-P