Document ID: SEC-2014-1996-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-11-28T05:00Z

[Federal Register Volume 79, Number 229 (Friday, November 28, 2014)]
[Notices]
[Pages 70907-70909]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28078]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73665; File No. SR-NYSEArca-2014-133]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.1A 
To Adopt a Definition of ``Professional Customer'' on the Exchange

November 21, 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 November 17, 2014, NYSE Arca, Inc. (``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission 
(``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 Rule 6.1A (Definitions and 
References--OX) to adopt a definition of ``Professional Customer'' 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 the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend Rule 6.1A (Definitions and 
References--OX) to include a definition of ``Professional Customer'' 
and to amend Commentary .03 of Rule 6.69 to specify how all 
Professional Customer orders should be marked.
    As proposed, the new term, ``Professional Customer'' would be 
defined in Exchange Rule 6.1A(a)(4A), as a person or entity that (i) is 
not a broker or 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). In connection with this new definition, 
the Exchange proposes to add to Commentary of Rule 6.69 the origin code 
OTP Holders would be required to use to properly represent orders of a 
``Professional Customer.'' \4\ To determine whether an order is a 
Professional Customer order, OTP Holders would be required to review 
their customers' activity on at least a quarterly basis to determine 
whether orders that are not for the account of a broker or dealer 
should be represented as Customer orders or Professional Customer 
orders.\5\
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    \4\ The Exchange intends to require firms to identify 
Professional Customer orders submitted electronically to the system 
by identifying them with the number ``8'' in the customer type 
field--a mandatory field required for order entry. Manual orders 
submitted outside the electronic system would be marked with an 
origin code ``PC.''
    \5\ Orders for any customer that had an average of more than 390 
orders per day during any month of a calendar quarter must be 
represented as Professional Customer orders for the next calendar 
quarter. OTP Holders would be required to conduct a quarterly review 
and make any appropriate changes to the way in which they are 
representing orders within five business days after the end of each 
calendar quarter. While members only would be required to review 
their accounts on a quarterly basis, if during a quarter the 
Exchange identifies a customer for which orders are being 
represented as Customer orders but that has averaged more than 390 
orders per day during a month, the Exchange would notify the OTP 
Holder and the OTP Holder would be required to change the manner in 
which it is representing the customer's orders within five business 
days.

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[[Page 70908]]

    The Exchange believes that identifying Professional Customer 
accounts based upon the average number of orders entered in qualified 
accounts is an appropriate, objective approach that will reasonably 
distinguish such persons and entities from non-professional, retail 
investors or market participants. The Exchange believes that the 
proposed threshold of 390 orders per day on average over a calendar 
month far exceeds the number of orders that are entered by retail 
investors in a single day and therefore is an appropriate threshold for 
identifying non-retail Customers.\6\ In addition, basing the standard 
on the number of orders that are entered in listed options for a 
qualified account(s) assures that Professional Customer account holders 
cannot inappropriately avoid the purpose of the rule by spreading their 
trading activity over multiple exchanges, and using an average number 
over a calendar month will prevent gaming of the 390 order threshold. 
The Exchange also proposes to make corresponding changes to Rule 6.69 
regarding the marking of orders.
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    \6\ In approving a similar filing of the International 
Securities Exchange, LLC (``ISE''), the Commission referenced 
statements made by ISE that 390 orders is equal to the total number 
of orders that a person would place in a day if that person entered 
one order every minute from market open to market close. Many of the 
largest retail-oriented electronic brokers offer lower commission 
rates to customers they define as ``active traders.'' Publicly 
available information from the Web sites of Charles Schwab, 
Fidelity, TD Ameritrade and OptionsXpress all define ``active 
trader'' as someone who executes only a few options trades per 
month. The highest required trading activity to qualify as an active 
trader among these four firms was 35 trades per quarter. See note 14 
of Securities Exchange Act Release No. 59287 (January 23, 2009), 74 
FR 5694, 5695 (January 30, 2009) (which also notes that a study of 
one of the largest retail-oriented options brokerage firms indicated 
that on a typical trading day, options orders were entered with 
respect to 5,922 different customer accounts. There was only one 
order entered with respect to 3,765 of the 5,922 different customer 
accounts on this day, and there were only 17 customer accounts with 
respect to which more than ten orders were entered. The highest 
number of orders entered with respect to any one account over the 
course of an entire week was 27).
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    The Professional Customer definition proposed by the Exchange, 
including the 390 orders per day threshold, is similar to designations 
that have been adopted by all other options exchanges.\7\ The Exchange 
is not proposing at this time to revise any order execution or 
processing rules, including its priority rules, to change the treatment 
of Professional Customers.\8\ Instead, Professional Customer orders 
will be treated as Customer orders under Exchange rules for all 
purposes, except those related to order marking.\9\ As the only options 
Exchange to have not yet adopted the Professional Customer definition, 
the Exchange's proposal will allow OTP Holders to mark their 
Professional Customer orders similarly regardless of whether the order 
is placed on the Exchange or another options exchange. Moreover, with 
the proposed Professional Customer designation in place, the Exchange's 
rules will facilitate cross-market initiatives (such as harmonizing 
rules relating to Obvious Errors).
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    \7\ See BATS Exchange, Inc. (``BATS'') Rule 16.1(a)(45), Boston 
Options Exchange LLC (``BOX'') Rule 100(a)(5), NASDAQ OMX BX, Inc. 
(``BX'') Chapter I, Section 1(a)(49), Chicago Board Options 
Exchange, Incorporated, (``CBOE'') Rule 1.1(ggg), C2 Options 
Exchange, Incorporated (``C2'') Rule 1.1, the International 
Securities Exchange, LLC (``ISE'') Rule 100(a)(37A), Miami 
International Securities Exchange, LLC (``MIAX'') Rule 100, the 
Nasdaq Stock Market LLC on behalf of the NASDAQ Options Market 
(``NOM'') Chapter I, Section 1(a)(48), NYSE MKT LLC on behalf of 
NYSE Amex Options (``NYSE Amex Options'') Rule 900.2NY(18A), NASDAQ 
OMX PHLX, Inc. (``PHLX'') Rule 1000(b)(14), and Topaz Exchange, LLC 
(d/b/a ISE Gemini) (``Topaz'') Rule 100(a)(37A).
    \8\ The Exchange's proposed definition of Professional Customer 
is the same as in the rules of BATS and NOM. In addition, like the 
Exchange's proposal, BATS and NOM do not treat Professional 
Customers differently than Customers for purposes of execution or 
processing. See Securities Exchange Act Release Nos. 65500 (October 
6, 2011), 76 FR 63686 (October 13, 2011) (SR-BATS-2011-041) and 
63028 (October 1, 2010), 75 FR 62443 (October 8, 2010) (SR-NASDAQ-
2010-099).
    \9\ While the Exchange is not proposing to change the priority 
rules applicable to orders of Professional Customers, it may, in the 
future, propose to change its rules to differentiate between 
Professional Customer orders and other orders for purposes of 
priority or fees. The Exchange would not implement such changes 
until proposed rule changes were appropriately filed with the 
Commission and effective under Commission rules.
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    The Exchange will announce by Trader Update when it will implement 
this proposed rule change and when the functionality to support the 
marking of Professional Customer orders is available. In order to 
provide sufficient time for OTP Holders to prepare any system changes, 
the date of implementation shall be no sooner than 30 calendar days 
after the publication of the Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \10\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\11\ in particular, in that it is designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change, by defining 
Professional Customer, will remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system, by 
providing consistent regulation for OTP Holders that are members of 
other SROs with analogous rules, thus allowing market participants to 
route orders to all markets using the same capacity. Further, the 
Exchange believes that, by harmonizing its rules with every other 
options market to add the term Professional Customer, it will promote 
just and equitable principles of trade by better allowing the market 
participants to be treated similarly across exchanges. In requiring 
market participants to identify their orders, the Exchange believes it 
promotes just and equitable principles of trade by allowing it a better 
understanding of the trading activity on its market.
    Finally, the Exchange believes that amending Rule 6.69 to conform 
with the addition of the Professional Customer designation will protect 
investors and the public interest by providing guidance to OTP Holders 
regarding the marking of Professional Customer orders.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is not 
designed to address any aspect of competition, whether between the 
Exchange and its competitors, or among market participants. Instead, 
the proposed rule change is designed to adopt a category of market 
participant on the same terms as that of every other options exchange.

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 \12\ and Rule

[[Page 70909]]

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 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)(iii) thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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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 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) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 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 No. SR-NYSEArca-2014-133 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2014-133. 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 such filing also will be available for inspection 
and copying at the principal offices 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-2014-133, and 
should be submitted on or before December 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28078 Filed 11-26-14; 8:45 am]
BILLING CODE 8011-01-P