Document ID: SEC-2013-1824-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-10-22T04:00Z

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62745-62751]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24642]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70637; File No. SR-NYSEArca-2013-92]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Amend NYSE Arca Equities Rules 7.31, 7.32, 
7.37, and 7.38 in Order To Comprehensively Update Rules Related to the 
Exchange's Order Types and Modifiers

October 9, 2013.
    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 30, 2013, 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 NYSE Arca Equities Rules 7.31, 7.32, 
7.37, and 7.38 in order to comprehensively update rules related to the 
Exchange's order types and modifiers. 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 NYSE Arca Equities Rules 7.31, 7.32, 
7.37, and 7.38 \4\ in order to update its rules related to the 
Exchange's order types and modifiers. Given the ever complex nature of 
equities trading, the Exchange has undertaken a comprehensive review of 
its rules related to order functionality to assure that its various 
order types, which have been adopted and amended over the years, 
accurately describe the functionality associated with those order 
types, and more specifically, how different order types may 
interact.\5\ Accordingly, the Exchange proposes these rule changes in 
order to provide additional specificity and transparency to NYSE Arca 
Equities ETP Holders regarding the operation of NYSE Arca Equities 
order types and modifiers, to better align its rules with currently 
available functionality, and to organize and define order types and 
modifiers in a more intuitive manner.
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    \4\ All references to rules in this filing are to the rules of 
NYSE Arca Equities.
    \5\ Commission staff has noted the increased complexity of the 
equities markets. See Gregg E. Berman, Senior Advisor to the 
Director of the Division of Trading and Markets, Market Structure: 
What we Know, and What we Need to Know (Sept. 21, 2011) (``This is 
because our present market structure is itself the product of 
evolutionary advancements in regulations, technologies, products, 
venues, news, investor sentiment, and probably even twitter. It is 
not a simple mosaic of different actors operating in isolation. The 
interdependencies of every participant and every system has led to 
an exponential growth in complexity.'')
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    The Exchange proposes to make specific rule changes as follows:

[[Page 62746]]

Rule 7.31(a)--Market Order
    The Exchange proposes to amend Rule 7.31(a) to expressly provide 
that Market Orders will not trade through the NBBO and that Market 
Orders shall be rejected if there is no bid or offer. A Market Order is 
an order to buy or sell a stated amount of a security that is to be 
executed at the National Best Bid or Offer (``NBBO''). Therefore, 
Market Orders will not trade through the NBBO, and the Exchange 
believes expressly stating as such in its Rules will provide additional 
specificity to Users. Additionally, Market Orders will be rejected if 
there is no bid or offer because a Market Order cannot be executed 
pursuant to the Users expectations--at the NBBO. The Exchange believes 
it is appropriate to reject a Market Order when there is no bid or 
offer because it assures that an unexecutable order will not be entered 
into the Exchange's book.
Rule 7.31(c)--Time in Force Modifiers
    The Exchange proposes to make the following changes with respect to 
the description of Time in Force Modifiers:
     The Exchange proposes to describe the functionality found 
in Rule 7.31(c) as ``Modifiers,'' and as such, revise the title of Rule 
7.31(c) to read ``Time in Force Modifiers.'' Similarly, the Exchange 
proposes to revise the names and descriptions of the functionality 
described in Rule 7.31(c) to reflect the usage of the term 
``Modifiers'' rather than ``Orders.'' The Exchange believes that these 
proposed rule changes more clearly describe the function of the time-
in-force instructions, i.e., that they are modifiers that can be used 
with order types as opposed to distinct order types.
     The Exchange proposes to amend Rule 7.31(c)(1) to clarify 
that the Day Modifier cannot be combined with any other Time in Force 
Modifier. As is the case today, an order type that is required to 
include a Day Modifier cannot also have a Good Till Cancelled 
(``GTC''), Good Till Date (``GTD''), Timed, Immediate-or-Cancel 
(``IOC''), or Fill-or-Kill (``FOK'') Time in Force Modifier.
     The Exchange proposes to move the description of the Timed 
Modifier from its current location in Rule 7.31(q) to become new Rule 
7.31(c)(2)(C). The Timed Modifier is used in conjunction with the GTD 
Modifier in order to specify an exact time until which a limit order 
will remain in effect, after which such order or the portion thereof 
not executed is to be treated as cancelled. As such, the Exchange 
believes it is appropriate to relocate the Timed Modifier to Rule 
7.31(c) as a Time in Force Modifier.
     The Exchange proposes to move the description of the IOC 
Modifier from its current location in Rule 7.31(e) to become new Rule 
7.31(c)(3). The Exchange also proposes to expand the description of the 
IOC Modifier in Rule 7.31(c)(3) to provide that the IOC Modifier will 
override any posting or routing instructions of orders that include the 
IOC Modifier. This rule change makes clear to ETP Holders that Exchange 
systems give priority to the IOC Modifier and ignore any other posting 
and routing instructions submitted with the order. Additionally, the 
Exchange proposes to specify that orders designated with an IOC 
Modifier never route. Further, the Exchange proposes to delete the 
subparagraphs under old Rule 7.31(e) as redundant. The determination as 
to what away quotes will not be traded through is based on the order 
type and not the IOC designation. Therefore, the Exchange believes it 
is appropriate for Users to review the applicable order type 
descriptions to determine which away quotes will be respected.
     The Exchange proposes to move the description of the FOK 
Modifier from its current location in current Rule 7.31(ll) to become 
new Rule 7.31(c)(4). The Exchange believes that the FOK instructions on 
an order are a time-in-force condition, and therefore it is more 
intuitive to include this modifier with other time in force 
descriptions.
     Because the Exchange proposes to define the term ``IOC,'' 
the Exchange proposes to replace references to the term ``immediate or 
cancel'' with the term ``IOC'' in Rules 7.31 and 7.37.\6\
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    \6\ See proposed changes to Rules 7.31(h)(6), (h)(7), (s)(6), 
(aa), and 7.37(d)(1) and (2).
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Rule 7.31(d)--Inside Limit Order
    The Exchange proposes to amend Rule 7.31(d) to specify that an 
Inside Limit Order may not be designated as a Discretionary Order and 
will not trade through either the NBBO or Protected Quotations.\7\
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    \7\ The NBBO includes quotes from a market that may not be 
automated and therefore would not be a Protected Quotation pursuant 
to Regulation NMS Rule 600(b)(57).
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    An Inside Limit Order is a limit order routed to the market 
participant with the best displayed price, and any unfilled portion 
will not be routed to the next best price level until all quotes at the 
current best bid or offer are exhausted. Once each current best bid or 
offer is exhausted, Exchange systems reevaluate the next best displayed 
price and route to that single price point and continue such assessment 
at each new best displayed price level until the Inside Limit Order is 
filled or no longer marketable. An Inside Limit Order is marketable 
when priced to buy (sell) at or above (below) the NBBO for the 
security. Therefore, the Inside Limit Order's functionality relies on a 
single-price to determine when it is no longer marketable. A 
Discretionary Order, however, is an order with two prices: a specified, 
undisplayed price and a specified, displayed price. The Exchange 
believes that it could cause confusion if Discretionary Orders were 
combined with Inside Limit Orders because Users might not know whether 
it is the limit price or the discretionary price which determines when 
the Inside Limit Order is no longer marketable. Therefore, the Exchange 
believes it is appropriate to reject Discretionary Orders when combined 
with Inside Limit Orders to reduce confusion, thus prohibiting an order 
combination which could result in an execution at odds with the 
expectations of a User.
    Additionally, the Exchange believes that it is appropriate to 
specify that Inside Limit Orders will not trade through either the NBBO 
or Protected Quotations. Inside Limit Orders are designed to execute 
against the best displayed price level, whether or not quotes at such 
level are automatic or manual. As such, Inside Limit Orders will 
respect the NBBO and Protected Quotations, routing to away markets as 
necessary.
Rule 7.31(h)(2)--Discretionary Order
    The Exchange proposes to amend Rule 7.31(h)(2) to specify that 
Discretionary Orders designated IOC and sell short Discretionary Orders 
shall be rejected.
    Similar to why a Discretionary Order and an Inside Limit Order 
cannot be combined, the Exchange believes it is appropriate to reject a 
Discretionary Order designated IOC in order to reduce confusion 
regarding whether the order's functionality is based on the limit price 
or the discretionary price. A limit order designated IOC will execute 
in whole or in part as soon as such order is received at prices better 
than its limit price; adding a discretionary price only serves to add 
confusion as to whether the IOC will execute at prices better than its 
limit price or at prices better than its discretionary price. As such, 
the Exchange believes it is appropriate to reject Discretionary Orders 
designated IOC, thus prohibiting an order combination which could 
result in an execution at odds with the expectations of a User.
    Additionally, Exchange systems currently do not accept sell short

[[Page 62747]]

Discretionary Orders because of the complexity of offering such 
functionality, and the Exchange believes that it will provide 
transparency in its rules to specify that such orders will be rejected.
Rule 7.31(h)(2)(A)--Passive Discretionary Order
    A previous rule change filed with the Commission inadvertently 
deleted portions of the definition of a Passive Discretionary Order.\8\ 
The Exchange proposes to amend Rule 7.31(h)(2)(A) to correct the 
inadvertent deletion and to provide that a Passive Discretionary Order 
will route to an away market if marketable upon entry. Additionally, 
the Exchange proposes to delete Rule 7.31(h)(2)(A)(i) as there no 
longer is a distinction in how Passive Discretionary Orders are treated 
between Exchange-listed and non-Exchange-listed securities.
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    \8\ See Securities Exchange Act Release No. 63584 (Dec. 21, 
2010), 75 FR 81685 (Dec. 28, 2010).
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Rule 7.31(h)(2)(B)--Discretion Limit Order
    The Exchange proposes to amend Rule 7.31(h)(2)(B) to insert 
language that was inadvertently deleted by a filing previously made 
with the Commission to provide that a Discretionary Order may be 
designated as a Discretion Limit Order.\9\ The inserted language 
conforms the first sentence of Rule 7.31(h)(2)(B) with the first 
sentence of Rule 7.31(h)(2)(A), which describes a Passive Discretionary 
Order.
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    \9\ See id.
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Rule 7.31(h)(3)--Reserve Order
    The Exchange proposes to amend Rule 7.31(h)(3) to specify that 
Reserve Orders cannot be combined with an order type that could never 
be displayed on the Corporation and must be in round lots. A Reserve 
Order is a limit order with a portion of the size displayed and with a 
reserve portion of the size (``reserve size'') that is not displayed on 
the Corporation. Therefore, the description of a Reserve Order 
contemplates a displayed portion. If an order type is never displayed 
on the Corporation, then it will not have the displayed portion 
required by the Reserve Order description. As a result, such order 
types are incompatible with a Reserve Order, and their combination with 
a Reserve Order is rejected. Additionally, because of its original 
design, Exchange systems currently do not accept Reserve Orders not 
entered in round lots, and the Exchange believes that it will provide 
transparency in its rules to specify that Reserve Orders not entered in 
round lots would be rejected.
Rule 7.31(h)(4)--Passive Liquidity Order
    The Exchange proposes to amend Rule 7.31(h)(4) to specify that 
Passive Liquidity (``PL'') Orders must be designated as Inside Limit 
Orders. Exchange systems require that a PL Order must be designated as 
an Inside Limit Order or it will be rejected. A PL Order is entered by 
ETP Holders into Exchange systems by using two order tags, one for the 
order type and one for an execution instruction. The order type tag for 
PL Orders is the same as that for an Inside Limit Order. The execution 
instruction tag is one specifically for PL Orders. If the execution 
instruction tag specifically for PL Orders is not combined with an 
Inside Limit Order, then Exchange systems reject such an order. Thus, 
the combination is required to ensure proper entry of a PL Order, and 
the rule change is meant to add transparency to the order entry 
process. With the order entry for PL Orders designed in this manner, 
the combination of PL Orders with Inside Limit Orders permits PL Orders 
to respect not only protected quotations, but also manual quotations in 
its functionality.\10\ A PL Order is designed to permit passive 
interaction with incoming orders; thus, the Exchange believes that 
respecting manual quotations, in addition to protected quotations, is 
consistent with the passive nature of a PL Order.
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    \10\ An Inside Limit Order is defined as ``[a] Limit Order, if 
routed away pursuant to Rule 7.37(d), will be routed to the market 
participant with the best displayed price.'' See Rule 7.31(d) 
(emphasis added).
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    Additionally, the Exchange proposes to amend Rule 7.31(h)(4) to 
specify that PL Orders designated IOC shall be rejected. The Exchange 
believes it is appropriate to reject a PL Order designated IOC because 
an IOC designation would be inconsistent with the nature of a PL Order. 
A PL Order is designed to permit passive interaction with incoming 
orders; however, an IOC designation is seeking immediately available 
liquidity and then cancelling. As a result, the combination is 
incompatible and the Exchange believes it is appropriate to reject a PL 
Order designated IOC.
Rule 7.31(h)(5)--Mid-Point Passive Liquidity Order (``MPL Order'')
    The Exchange proposes to amend Rule 7.31(h)(5) to clarify that MPL 
Orders entered without a limit price shall be rejected. MPL Orders are 
limit orders and therefore must be entered with a limit price. If a 
User fails to include a limit price with its MPL Order, the MPL Order 
will be rejected.
    Additionally, in order to use consistent language in its rules, the 
Exchange proposes to change language referring to a ``No Midpoint 
Execution'' designator in the MPL Order description to a ``No Midpoint 
Execution'' Modifier.
Rule 7.31(i)--Directed Order; Rule 7.31(j)--Directed Fill
    The Exchange proposes to delete Rules 7.31(i) and (j), as the 
Directed Order and Directed Fill are order types no longer available to 
Users on Exchange systems and thus should be removed from the rule. The 
Exchange also proposes to eliminate references in other rules to 
Directed Orders and Directed Fills.\11\
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    \11\ See NYSE Arca Equities Rules 7.31(h)(4), (v), (w); 
7.38(a)(1).
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Rule 7.31(k)--Q Orders
    The Exchange proposes to amend Rule 7.31(k)(4) to clarify that, in 
addition to being rejected when designated as an Intermarket Sweep 
Order, a Q Order will be rejected if it is marketable or is an odd lot. 
Both of these rejections reflect the fact that Q Orders are designed to 
be used by Market Makers to satisfy their obligation to maintain 
continuous, two-sided interest in securities in which they are 
registered to trade. As such, Q Orders are meant to act as a means to 
post quotes, and trades are to occur against them. Therefore, the 
Exchange believes it is appropriate to reject Q Orders that are 
marketable upon entry since such orders would be taking liquidity 
rather than providing liquidity. Additionally, a Market Maker's 
obligation to maintain continuous, two-sided interest requires that the 
interest ``shall have a displayed size of at least one normal unit of 
trading (or a larger multiple thereof).'' \12\ In order to satisfy this 
requirement, the Exchange believes it is appropriate to reject Q Orders 
that do not have a displayed size of at least one round lot.
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    \12\ See NYSE Arca Equities Rule 7.23(a)(1)(A).
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Rule 7.31(n)--Do Not Reduce; Rule 7.31(o)--Do Not Increase
    For consistency, the Exchange proposes to describe the ``Do Not 
Reduce'' and ``Do Not Increase'' functionality as ``Modifiers'' rather 
than ``orders.'' The Exchange believes that the use of the term 
``Modifier'' more accurately describes the functionality, since these 
modifiers can be added to any order type.

[[Page 62748]]

Rule 7.31(p)--Fill-or-Return; Rule 7.31(r)--Fill-or-Return Plus
    The Exchange proposes to delete Rules 7.31 (p) and (r), as the 
Fill-or-Return Order and Fill-or-Return Plus Order are order types not 
available to Users on Exchange systems and thus should be removed from 
the rule. The Exchange also proposes to eliminate references in other 
rules to the Fill-or-Return or Fill-or-Return Plus functionality.\13\
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    \13\ See NYSE Arca Equities Rules 7.32; 7.37(d)(1)-(2).
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Rule 7.31(t)--Auction-Only Order
    The Exchange proposes to amend Rule 7.31(t) to specify that, in 
addition to being incompatible with a GTC designation, an Auction-Only 
order cannot be designated as a discretionary order. A Discretionary 
Order is an order with a specified, undisplayed price, in addition to a 
specified, displayed price. Thus, a Discretionary Order contains two 
different prices. The Exchange believes permitting a Discretionary 
Order to combine with an Auction-Only order may cause confusion 
regarding the price at which the order would participate in the auction 
process. Therefore, the Exchange believes it is appropriate to reject 
such a combination, thus prohibiting an order combination which could 
result in an execution at odds with the expectations of a User.
    The Exchange also proposes to move the descriptions of a Market-on-
Close Order (``MOC'') and a Limit-on-Close Order (``LOC'') from their 
current locations in Rules 7.31(dd) and (ee), respectively, to new 
subparagraphs (3) and (4), respectively, of Rule 7.31(t). The Exchange 
believes that because MOC and LOC Orders are a form of Auction-only 
Orders, it is more logical to include these order types with other 
Auction-only order types. The Exchange also proposes to amend the 
descriptions of MOC and LOC Orders to conform them to the descriptions 
of Limit-on-Open and Market-on-Open Orders.
Rule 7.31(u)--Cleanup Order
    The Exchange proposes to delete Rule 7.31(u), as Cleanup Orders are 
not available to Users on Exchange systems and thus should be removed 
from the rule.
Rule 7.31(v)--NOW Order
    The Exchange proposes to amend Rule 7.31(v) to specify that 
combining a NOW Order with another order type will override the posting 
or routing instructions of the order with which it is combined. This 
rule change makes clear to ETP Holders that Exchange systems give 
priority to the NOW Order and ignore any other posting and routing 
instructions submitted with the order.
    In order to conform its rule set, the Exchange also proposes to 
amend the description of a NOW Order such that it is described as a 
``Limit Order'' rather than a ``Limited Price Order.''
Rule 7.31(x)--Primary Only (``PO'') Order
    The Exchange proposes to amend Rule 7.31(x) to specify that, in 
addition to being incompatible with a GTC designation, a PO Order 
cannot be designated as a Reserve Order. A Reserve Order is a limit 
order with a portion of the size displayed, and with a reserve portion 
of the size that is not displayed, on the Exchange. Therefore, the 
Reserve Order's functionality is dependent on being on the Exchange. A 
PO Order, however, is a market or limit order that is routed to the 
primary market and will never have a size displayed on the Exchange. As 
a result, the Exchange believes it is appropriate to specify that a PO 
Order may not be combined with a Reserve Order because the two orders 
are incompatible.
Rule 7.31(z)--Midpoint Directed Fill
    The Exchange proposes to delete Rule 7.31(z), as Midpoint Directed 
Fills are not available to Users on Exchange systems and thus should be 
removed from the rule.
Rule 7.31(cc)--Pegged Orders
    The Exchange proposes to amend Rule 7.31(cc) to specify that Pegged 
Orders may be entered only during the Core Trading Session. 
Additionally, the Exchange is clarifying that Pegged Orders will be 
rejected where an NBBO does not exist at time of entry or where the 
Pegged Order is to sell short during a Short Sale Period.\14\
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    \14\ Rule 7.16(f)(ii) provides that Exchange systems ``shall not 
execute or display a short sale order with respect to a covered 
security at a price that is less than or equal to the current 
national best bid if the price of that security decreases by 10% or 
more . . . .'' Once triggered, this Short Sale Price Test, pursuant 
to Rule 7.16(f)(iv), will remain in effect until the close of 
trading on the next trading day (the ``Short Sale Period'').
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    The Exchange believes it is appropriate to reject a Pegged Order 
where an NBBO does not exist because Pegged Orders are limit orders to 
buy or sell at a displayed price set to track the current bid or ask of 
the NBBO. If no NBBO exists, then a Pegged Order cannot function 
properly. Further, because a Pegged Order is rejected where an NBBO 
does not exist, Exchange systems will reject a Pegged Order entered 
outside of the Core Trading Session. Additionally, Exchange systems 
reject a sell short Pegged Order during a Short Sale Period because of 
the complexity of offering such functionality, and the Exchange 
believes it will provide clarity to ETP Holders to specify that such 
orders are rejected.
    The Exchange also proposes to add subparagraphs (1) and (2) to Rule 
7.31(cc) to specifically describe the two variations of Pegged Orders 
available to Users: Market Pegged and Primary Pegged. A Market Pegged 
Order is a buy order that is pegged to the National Best Offer or a 
sell order that is pegged to the National Best Bid. Because a Market 
Pegged Order is tracking the contra-side NBB or NBO, an offset value is 
required to avoid locking the market. A Primary Pegged Order is a buy 
order that is pegged to the NBB or a sell order that is pegged to the 
NBO. An offset value is permitted, but not required, on a Primary 
Pegged Order. Additionally, the Exchange is proposing to amend Rule 
7.31(cc) to clarify that the offset value for Pegged Orders may be 
specified up to two decimals. The Exchange notes that the Primary and 
Market Pegged Orders are not new or novel, and the proposed revisions 
to the Exchange rule are consistent with the operation of pegging 
functionality at other markets.\15\
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    \15\ See Nasdaq Rule 4751(f)(4); BATS Rule 11.9(c)(8); NYSE Rule 
13.
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Rule 7.31(gg)--Don't Arb Me Modifier
    The Exchange proposes to delete Rule 7.31(gg), as the Don't Arb Me 
Modifier is not available to Users on Exchange systems and thus should 
be removed from the rule.
Rule 7.31(hh)--Proactive if Locked Modifier
    The Exchange proposes to amend Rule 7.31(hh) to clarify that the 
Proactive if Locked Modifier may be used in conjunction with order 
types other than Reserve Orders. Under current Rule 7.31(hh), the 
Proactive if Locked Modifier is described as a Proactive if Locked 
Reserve Order, and its description is tailored to the modifier's 
combination with a Reserve Order. The Exchange proposes to amend the 
description to make clear that the Proactive if Locked Modifier is not 
limited to use with only a Reserve Order, and may be combined with a 
limit order to cause the limit order to be routed to another market 
center in instances where the other market center has locked the order 
and the locking market has not resolved the locked market situation in 
a timely manner.

[[Page 62749]]

Rule 7.31(jj)--Intermarket Sweep Order (``ISO'')
    The Exchange proposes to amend Rule 7.31(jj) to clarify that an ISO 
is never routed to an away market and may trade through a Protected 
Quotation. Although the Exchange's reference to the requirements of 
Regulation NMS provides Users with sufficient information to understand 
the ISO functionality, the Exchange believes that the amended language 
will provide additional clarity to Users.
    Additionally, the Exchange proposes to amend Rule 7.31(jj) to 
clarify that when designated ISO, an order will not be rejected or 
cancelled even though it would lock, cross, or be marketable against an 
away market. Several Exchange order types will be rejected or cancelled 
if they were to lock, cross, or be marketable against an away market; 
however, marking such orders as ISOs will cause the combination to be 
accepted by Exchange systems. The restriction against locking, 
crossing, or being marketable against away markets, and thus rejecting 
the order, generally relates to the fact that such orders would be 
violating the restrictions found in Regulation NMS as locking, 
crossing, or trading through Protected Quotations. Because the ISO 
designation signifies that the User is complying with SEC Rule 611 of 
Regulation NMS with respect to ISOs--routing ISOs to better-priced 
Protected Quotations for the full displayed size--the concerns are no 
longer applicable, and therefore, the Exchange will not cancel or 
reject such orders when designated ISO.
Rule 7.31(kk)--Primary Sweep Order (``PSO'')
    The Exchange proposes to amend Rule 7.31(kk) to update the 
description of PSOs. Currently, Rule 7.31(kk)(1) describes the process 
by which PSOs are routed to NYSE; however, such process is also 
applicable to PSOs routed to NYSE MKT. As such, the Exchange proposes 
to amend Rule 7.31(kk)(1) to include NYSE MKT.
Rule 7.31(mm)--Post No Preference Blind (``PNPB'')
    The Exchange proposes to amend Rule 7.31(mm) to clarify that a PNPB 
Order is an PNP Order that is placed undisplayed on the NYSE Arca book 
at the price of the contra-quote of the PBBO if the order would lock or 
cross a protected quotation. The current rule text references the term 
``displayed,'' however, that term is intended to modify the Protected 
Best Bid or Protected Best Offer. The Exchange proposes to amend the 
rule text to make clear that a PNPB order is undisplayed if it is 
priced at or through the PBBO. The proposed rule change does not change 
the functionality of the PNPB Order.
    The Exchange proposes to further amend Rule 7.31(mm) to clarify 
that a PNPB Order combined with an Add Liquidity Only (``ALO'') Order 
will not be cancelled if it is marketable against the PBBO. Currently, 
Rule 7.31(nn)(1) states that an ALO Order will be rejected where, at 
time of entry, the ALO Order is marketable. This restriction is 
designed to prevent (1) the order from locking or crossing an away 
quote and (2) the order from taking liquidity rather than being a 
provider of liquidity. However, an ALO Order, when combined with a PNPB 
Order will not be rejected when it is marketable against the NBBO. An 
ALO Order that is combined with a PNPB Order may be marketable against 
the NBBO upon arrival. However, pursuant to the order instructions 
associated with a PNPB Order, if the PNPB ALO Order is marketable 
against the PBBO, it is placed undisplayed in the NYSE Arca book and 
therefore would not lock or cross an away quote. Additionally, because 
the order is undisplayed, it can rest in Exchange systems as a 
liquidity provider, despite being marketable against away quotes. A 
PNPB ALO Order would still be rejected if it would be marketable 
against liquidity resting in Exchange systems.
Rule 7.31(nn)--ALO Order
    The Exchange proposes to amend Rule 7.31(nn) to clarify that an ALO 
Order must be designated as either a PNP or MPL Order. The Exchange 
notes that the reference to PNP Orders includes all types of PNP 
Orders, including PNPB Orders. An ALO Order is a limit order that is 
accepted and placed in the NYSE Arca book only where the order adds 
liquidity. ALO Orders do not route to away market centers. Such 
functionality is accomplished by designating the ALO Order as a PNP 
Order. As described in Rule 7.31(w), a PNP Order is a limit order to 
buy or sell that is to be executed in whole or part on the Corporation, 
without routing any portion of the order to another market center. An 
ALO Order can also be designated as an MPL Order, an order type 
combination whose functionality has previously been described by the 
Exchange.\16\ The Exchange also proposes to delete the rule language 
stating that an ALO Order may not be designated as GTC. Because an ALO 
Order must be designated with a Day Modifier and no other Time in Force 
Modifiers may be combined with the Day Modifier, the Exchange believes 
that it is unnecessary to also state that an ALO may not be designated 
as GTC.
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    \16\ See Securities Exchange Act Release No. 67652 (Aug. 14, 
2012), 77 FR 50189 (Aug. 20, 2012).
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    The Exchange also proposes to amend Rule 7.31(nn)(3) to explicitly 
provide that an MPL-ALO Order may lock another MPL or MPL-ALO Order and 
not be rejected. Currently, Rule 7.31(nn)(3) states that ``ALO Orders 
will ignore MPL Orders and proceed to be placed in the NYSE Arca Book . 
. . .'' For clarity, the Exchange is amending this provision to state 
that an ALO Order, designated as MPL and therefore undisplayed, will be 
accepted even if it is at the same price level as a contra-side MPL or 
MPL-ALO Order.\17\
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    \17\ A User may designate an MPL or MPL-ALO Order as eligible to 
interact with an arriving marketable MPL-ALO Order. If so 
designated, the two orders will execute and the arriving marketable 
MPL-ALO will be designated as the liquidity provider.
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Supplementary Material .01--Order Type and Modifier Combination
    The Exchange proposes to add Supplementary Material .01 to Rule 
7.31 in order to provide guidance to Users as to the possible order 
type combinations available and how to interpret Rule 7.31 to aid in 
determining what order type combinations will be accepted. 
Specifically, Supplementary Material .01 will provide the general 
proposition that, unless the terms of a proposed combination are 
inconsistent, Users are generally able to combine order types and 
modifiers. Additionally, the explicit rules that the Exchange has 
developed to aid Users are meant to provide guidance, but not provide 
an exhaustive list, of the permissible and impermissible order type and 
modifier combinations.
    Given the number of order types and modifiers, the number of 
potential order type and modifier combinations is too numerous to 
effectively describe every possible combination without producing an 
unwieldy rule. The revisions appearing in this proposed rule change are 
meant to provide additional clarity as to combinations NYSE Arca 
reasonably believes that Users, in practice, enter. In addition, 
Supplementary Material .01 is designed to provide Users with the 
general rule for deciding when order types and modifiers may be 
combined.
Supplementary Material .02--Incoming/Resting Functionality
    The Exchange proposes to add Supplementary Material .02 to Rule 
7.31

[[Page 62750]]

to provide additional guidance to Users as to certain order type 
combinations. Specifically, Supplementary Material .02 will provide 
that if two order types are combined that include instructions for 
operation on arrival and for how the order operates while resting on 
the Exchange's book, the instructions governing functionality while 
incoming will be operative upon arrival. Further, functionality 
governing how the order operates while resting on the Exchange's book 
will govern any remaining balance of the order that is not executed 
upon arrival. While such functionality may be intuitive, the Exchange 
believes it is appropriate to explicitly state such functionality in 
order to ensure that its rules are clear and properly interpreted by 
Users.
Rule 7.32--Order Entry
    The Exchange proposes to amend Rule 7.32 to specify that orders 
with a size greater than one million shares shall be rejected. Exchange 
systems currently do not accept orders with a size greater than one 
million shares, and the Exchange believes that it will provide 
transparency in its rules to specify that orders with a size greater 
than one million shares would be rejected.
Rule 7.38--Odd and Mixed Lots
    The Exchange proposes to amend Rule 7.38(a)(2) to clarify that 
specific language in the descriptions of individual order types 
override the general rule that mixed lot orders may be any order type 
supported by the Exchange. Rule 7.38(a)(2) currently provides that 
mixed lot orders submitted by Users to the NYSE Arca Marketplace may be 
any order type supported by the NYSE Arca Marketplace. The Exchange 
believes explicitly stating that specific language in the individual 
order types is controlling will provide guidance to those Users who may 
be confused by the broad language in Rule 7.38(a)(2).
Technical Amendments
    The Exchange proposes to make technical amendments to various 
provisions in Rules 7.31 and 7.37. Specifically, the Exchange proposes 
to conform its usage of abbreviations such that common abbreviations 
for order types and modifiers will be inserted throughout Rules 7.31 
and 7.37 where appropriate.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \18\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\19\ in particular, in that it is designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and national market 
system, and in general, to protect investors and the public interest, 
and not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will foster 
cooperation and coordination with persons engaged in regulating 
transactions in securities because the specificity, transparency, and 
more intuitive descriptions and organization will assist regulators to 
understand how the affected order types and modifiers are being used by 
market participants. As such, the proposed rule change will help 
regulators in the identification of any potential misuse by market 
participants.
    The Exchange believes that the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
national market system because, by providing specificity and 
transparency, the proposed rule change will provide greater clarity 
with respect to the use and potential use of the functionality. With 
greater clarity regarding what a specific order type or modifier does 
and its proper use, greater competitive forces can be brought to bear 
on, and help to foster the proper functioning of, the market.
    The Exchange believes that the proposed rule change will protect 
investors and the public interest. The increased transparency and 
specificity resulting from the proposed rule change will enable 
investors and the public to understand the tools available to the 
agents handling their orders as well as those available to professional 
market participants who may be competing with their orders.
    Finally, the Exchange believes that the proposed rule change is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. By enhancing transparency, specificity, and 
clarity, the proposed rule change will reduce any potentially 
discriminatory or unfair use of Exchange functionality. By providing 
the functionality, making it available to the public, and providing 
clear explanations to help facilitate a complete understanding of the 
functionality, the proposed rule change will reduce any discriminatory 
or unfair use by a subset of the market.

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

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. In fact, the Exchange believes 
that the proposed rule change will increase competition between market 
participants by providing greater transparency and specificity to 
market participants who may wish to take advantage of the functionality 
offered by the Exchange. The greater transparency and specificity will 
allow market participants to utilize the tools made available by the 
Exchange to accomplish their trading strategies and investment goals in 
an efficient manner. An increase in the knowledge of market 
participants regarding the functionality offered by the Exchange can 
only serve to improve the competition in the marketplace by creating a 
more transparent trading environment.

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:

[[Page 62751]]

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-2013-92 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-2013-92. 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-2013-92 and should 
be submitted on or before November 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24642 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P