Document ID: SEC-2015-1165-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2015-07-14T04:00Z

[Federal Register Volume 80, Number 134 (Tuesday, July 14, 2015)]
[Notices]
[Pages 41123-41125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17176]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75398; File No. SR-NYSEMKT-2015-46]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 995NY by 
Deleting the Prohibition on ATP Holders From Entering Customer Limit 
Orders To Buy and Sell the Same Option Series, for the Account or 
Accounts of the Same or Related Beneficial Owner

July 8, 2015.
    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 June 26, 2015, 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 Rule 995NY by deleting the 
prohibition on ATP Holders from entering Customer limit orders to buy 
and sell the same option series, for the account or accounts of the 
same or related beneficial owner. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 995NY--Prohibited Conduct. 
Specifically, the Exchange is proposing to eliminate subparagraph (b) 
prohibiting ATP Holders, while acting as agent, from entering Customer 
limit orders in the same option series, for the account or accounts of 
the same or related beneficial owner, in such a manner that the 
Customer or beneficial owner(s) effectively is operating as a market 
maker by holding itself out as willing to buy and sell such option 
contract on a regular or continuous basis.
Background
    The Exchange adopted Rule 995NY(b) in 2009, when it implemented a 
new electronic trading platform for NYSE Amex Options (f/k/a American 
Stock Exchange).\4\ Rule 995NY(b) replaced former Rule 934.\5\ The 
Exchange adopted Rule 934 in 2001 to restrict the entry of certain 
option limit orders.\6\ At that time, the Exchange's business model 
depended on Specialists and registered options traders (collectively 
``Market Maker'') for competition and liquidity. Market Makers operated 
primarily on the trading Floor with limited ability to conduct 
electronic trading. By contrast, Customers had access to certain 
benefits such as automatic execution, priority of bids and offers, and 
firm-quote guarantees, that were not offered to Market Makers. In 
addition, the Exchange did not distinguish Professional Customers, who 
are more likely to be able to take advantage of such automated systems, 
as a separate category of Customer. For these reasons, Rule 934 was 
designed to prevent Customers from obtaining an unfair advantage by 
acting in a market maker-like capacity, while having priority over the 
Specialists and registered traders by virtue of their Customer status.
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    \4\ See Securities and Exchange Act Release No. 59472 (February 
27, 2009), 74 FR 9843 (March 6, 2009) (SR-NYSEALTR-2008-14) 
(Approval Order).
    \5\ See Securities and Exchange Act Release No. 59454 (February 
25, 2009). 74 FR 9461 (March 4, 2009) (SR-NYSEAmex-2009-17) (Notice 
of Filing of Proposal to Delete Certain Rules Governing the Trading 
of Listed Options).
    \6\ See Securities and Exchange Act Release No. 43948 (February 
7, 2001), 66 FR 10539 (February 15, 2001) (SR-Amex-2001-03) (Notice 
of Filing).
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Proposal
    The Exchange proposes to delete Rule 995NY(b) as it is no longer 
necessary. Specifically, the Exchange believes that the advances in 
electronic trading that have occurred since 2001, combined with the 
addition of the Professional Customer designation, have eliminated the 
need to restrict how Customers enter limit orders at the Exchange.
    Specifically, since 2009, the Exchange has operated an electronic 
trading model that affords all market participants, including both 
Floor and off-Floor Market Makers, access to automated trading systems. 
With such access, Market Makers have developed sophisticated trading 
systems that enable them to compete with the type of automated trading 
systems that were generally available only to non-Market Makers, 
including Customers, in 2001.
    In addition, in 2010, the Exchange added the Professional Customer 
designation, which is aimed at differentiating those Customers who 
engage in computerized or ``high frequency'' trading from the 
traditional retail investor.\7\ Pursuant to Rule 900.2NY(18A), a 
Professional Customer (i) is not a Broker/Dealer in securities, and 
(ii) places more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). Professional 
Customers retain the status of Customer, however,

[[Page 41124]]

they are treated in the same manner as a Broker Dealer for the purposes 
of certain Exchange rules, including but not limited to Rule 964NY 
(Display, Priority and Order Allocation--Trading Systems), Rule 971.1NY 
(Electronic Cross Transactions), Rule 980NY(b) (Electronic Complex 
Order Trading), and Rule 995NY(b)(Prohibited Conduct--Limit Orders). By 
being treated as Broker Dealers, Professional Customers are not 
entitled to preferential treatment generally afforded to Customers 
under these rules. Professional Customers were the type of Customer 
that the Exchange was concerned about in 2001 when adopting Rule 934 
(now Rule 995NY(b)). Because Professional Customers are not subject to 
the rules that Rule 934 (now Rule 995NY(b)) was designed to address, 
the Exchange believes that the concerns that supported adoption of Rule 
934 in 2001 are no longer present.
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    \7\ See Securities and Exchange Act Release No. 61629 (March 2, 
2010), 75 FR 10851 (March 9, 2010) (SR-NYSEAmex-2010-18) (Notice of 
Filing).
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    At least five other options exchanges, including BOX Options 
Exchange LLC (``BOX''), NASDAQ OMX BX Inc. (``BX''), NASDAQ Stock 
Market LLC (``NOM''), BATS Exchange Inc. (``BATS'') and NYSE Arca Inc. 
(``NYSE Arca'') do not have rules prohibiting Customers from entering 
limit orders to buy and sell the same option series for the account or 
accounts of the same or related beneficial owner. In addition, each of 
the aforementioned exchanges has adopted similar rules as NYSE Amex 
Options governing the treatment of orders entered by Professional 
Customers. The Exchange notes that NOM and BX, like the Exchange, also 
afford priority to Customer orders.\8\ Accordingly, eliminating the 
restriction on Customers entering limit orders by deleting Rule 
995NY(b) would not be novel. Rather, by deleting the rule, Customers 
that trade on more than one exchange would be subject to similar rules 
governing their trading activity.
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    \8\ See BX Rule Chapter VI Section 10(1)(C)(1)(a) and 
10(1)(C)(2), and NOM Rule Chapter VI Section 10(1)(C)(2)(i) [sic].
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    The Exchange also proposes to delete the reference to Rule 995NY(b) 
found in Rule 900.2NY(18A), as that rule cite would no longer be 
necessary with the proposed elimination of the rule.
Implementation
    The Exchange proposes to announce the implementation of the 
proposed rule change via Trader Update, to be published no later than 
thirty (30) days following the effectiveness of this proposal. The 
implementation date will be no later than thirty (30) days following 
publication of the Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\9\ in general, and furthers the objectives of Section 6(b)(5),\10\ 
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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    First, the limitation on how Customers could enter orders was 
adopted almost fifteen years ago when the Exchange operated a Floor-
based open outcry auction model, with limited access to automated 
trading systems by Market Makers. Since that time, Market Maker systems 
have developed into highly efficient sophisticated trading platforms 
able to compete with market professionals and Customers alike. Second, 
the adoption of the Professional Customer designation has all but 
eliminated the ability of high-frequency traders to act like Market 
Makers, while at the same time realizing the benefits of Customer 
priority and preferential order allocation. Market Makers are no longer 
at a competitive disadvantage to Customers when it comes to automated 
trading, as was the case when the prohibition was first adopted.\11\ As 
such, the Exchange believes the current prohibition is no longer 
needed, and could even be seen as counter-productive. Accordingly, the 
Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market by 
removing a limitation on how Customers enter limit orders that is no 
longer necessary in today's market structure.
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    \11\ Supra n.6.
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    In addition, the Exchange believes that the removal of the 
limitation on Customer orders will more freely permit the entry of 
orders by market participants, including retail investors, resulting in 
more orders on the Exchange and therefore increase liquidity on the 
Exchange, which would benefit all market participants. Lastly, removing 
the prohibition is competitive vis-[agrave]-vis other options exchanges 
that do not have similar prohibitions in place to what the Exchange is 
proposing to delete with this filing. By promoting competition, the 
proposal may also lead to tighter, more efficient markets to the 
benefit of market participants, including public investors, that engage 
in trading and hedging 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. To the contrary, removing 
the prohibition on order entry found in Rule 995(b) further promotes 
competition on the Exchange, which should lead to tighter, more 
efficient markets to the benefit of market participants including 
public investors that engage in trading and hedging on the Exchange, 
and thereby make the Exchange a desirable market vis-[agrave]-vis other 
options exchanges. In addition, the Exchange believes that the proposed 
rule change is pro-competitive because it would align the Exchange's 
rules with the rules of other markets, including BOX, BX, NOM, BATS and 
NYSE Arca, thereby enabling Customers that trade on more than one 
exchange to be subject to similar rules governing their trading 
activity.

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) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 the proposed rule 
change, the

[[Page 41125]]

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 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-2015-46 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-2015-46. 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 20549-1090, on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of the filing will also 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-2015-46 and should 
be submitted on or before August 4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17176 Filed 7-13-15; 8:45 am]
 BILLING CODE 8011-01-P