Document ID: SEC-2014-1188-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-07-16T04:00Z

[Federal Register Volume 79, Number 136 (Wednesday, July 16, 2014)]
[Notices]
[Pages 41613-41616]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16653]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72591; File No. SRNYSEArca-2014-75]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending NYSE Arca Equities Rules 7.6, 7.11, 
7.16, 7.31, 7.34, 7.35, 7.37 and 7.65 To Eliminate Certain Order Types, 
Modifiers and Related References

July 10, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the

[[Page 41614]]

``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, 
on June 27, 2014, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s (b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rules 7.6, 7.11, 
7.16, 7.31, 7.34, 7.35, 7.37 and 7.65 to eliminate certain order types, 
modifiers and related references. 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 7.6, 7.11, 
7.16, 7.31, 7.34, 7.35, 7.37 and 7.65 \4\ to eliminate certain order 
types, modifiers and related references. The Exchange proposes to 
eliminate the order types and modifiers specified below in order to 
streamline its rules and reduce complexity among its order type 
offerings.\5\ The Exchange also proposes to eliminate references in 
Rules 7.6, 7.34 and 7.35 to the Midpoint Directed Fill and Cleanup 
Order, which were recently deleted.\6\
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    \4\ All references to rules in this filing are to the rules of 
NYSE Arca Equities.
    \5\ See Mary Jo White, Chair, Securities and Exchange 
Commission, Speech at the Sandler O'Neill & Partners, L.P. Global 
Exchange and Brokerage Conference (June 5, 2014) (available at 
www.sec.gov/News/Speech/Detail/Speech/1370542004312#.U5HI-fmwJiw).
    \6\ See Securities Act Release No. 71331 (January 16, 2014), 79 
FR 3907 (January 23, 2014) (SR-NYSEArca-2013-92).
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Elimination of Five Working Orders (Rule 7.31(h))
    The Exchange proposes to eliminate, and thus delete from its rules, 
five Working Orders (and certain related combinations), which are 
orders, defined in Rule 7.31(h), with a conditional or undisplayed 
price and/or size.
    First, the Exchange proposes to eliminate Passive Discretionary 
Orders, which are Discretionary Orders that may route to an away market 
if marketable upon arrival, but otherwise will not route and will not 
trade through a protected quotation. To reflect this elimination, the 
Exchange proposes to delete the following:
     Rule 7.31(h)(2)(A), which defines the order type;
     Rule 7.37(b)(2)(A)(iv),\7\ which governs the determination 
of a Passive Discretionary Order's execution price; and
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    \7\ The Exchange also proposes to renumber current Rule 
7.37(b)(2)(A)(v) as Rule 7.37(b)(2)(A)(iv).
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     the references to Passive Discretionary Orders in Rules 
7.11(a)(6), 7.11(a)(6)(C), and 7.37(b)(2)(C).\8\
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    \8\ A Passive Discretionary Order can be used in combination 
with a Reserve Order, defined in Rule 7.31(h)(3), as a limit order 
with a portion of the size displayed and with a reserve portion of 
the size (known as a ``reserve size'') that is undisplayed on the 
Exchange. In eliminating Passive Discretionary Orders, the Exchange 
will no longer accept this combination, also known as a Passive 
Discretionary Reserve Order.
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    Second, the Exchange proposes to eliminate Discretion Limit Orders. 
As defined in Rule 7.31(h)(2)(B), if the discretionary price of a 
Discretion Limit Order can be matched against trading interest in the 
NYSE Arca Book, then such order will be executed at the discretionary 
price or better. If the discretionary price of a Discretion Limit Order 
can be matched against a Protected Quotation, it would be routed but 
only if the displayed share size of the Discretion Limit Order is equal 
to or less than the displayed share size of the away market 
participant. To effect this elimination, the Exchange proposes to 
delete Rule 7.31(h)(2)(B) and references to Discretion Limit Orders in 
Rules 7.11(a)(6) and 7.11(a)(6)(C).
    Third, the Exchange proposes to eliminate Sweep Reserve Orders, 
which provides for routing the displayed portion of a Reserve Order if 
the displayed price of a Sweep Reserve Order is marketable against an 
away market participant(s). Based on User instructions, the order may 
be routed (1) serially as component orders, such that each component 
corresponds to the displayed size, or (2) only once in its entirety, 
including both the displayed and reserve portions. To effect this 
elimination, the Exchange proposes to delete Rule 7.31(h)(3)(A) and 
delete the references to Sweep Reserve Orders in Rule 7.31(h)(3)(C) and 
in Rule 7.11(a)(6)(C).\9\
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    \9\ A Sweep Reserve Order can be entered with a discretionary 
price (known as a Sweep Reserve with Discretion Order) as well as an 
inside limit price (known as an Inside Limit Sweep Reserve). In 
deleting Sweep Reserve Orders, the Exchange will also no longer 
accept these combinations.
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    Fourth, the Exchange proposes to eliminate Random Reserve Orders, 
which have a random reserve value (expressed in share quantity) that, 
as a range of round lots, will vary the displayed size of the Reserve 
Order. To effect this elimination, the Exchange proposes to delete Rule 
7.31(h)(3)(B) and references to the Random Reserve Order in Rule 
7.11(a)(6)(C).
    Finally, the Exchange proposes to eliminate PL Select Orders, which 
are Passive Liquidity Orders designated as a PL Select Order to buy or 
sell a stated amount of a security at a specified, undisplayed price. A 
PL Select Order retains its standing in execution priority among 
Passive Liquidity Orders but does not interact with incoming orders 
that (1) have an IOC time in force condition, or (2) are Intermarket 
Sweep Orders (``ISO''). An incoming PL Select Order that is marketable 
will execute against all available contra-side interest without 
restrictions. To effect this elimination, the Exchange proposes to 
delete Rule 7.31(h)(7).
Amendment of Cross Order (Rule 7.31(s))
    The Exchange proposes to amend the Cross Order Rule to provide that 
the Exchange will only accept Cross Orders with an Immediate or Cancel 
(``IOC'') designation. To effect this change, the Exchange proposes to 
amend the definition of Cross Order in Rule 7.31(s), which defines a 
Cross Order as a two-sided order with instructions to match the 
identified buy-side with the identified sell-side at a specified price, 
also known as the ``cross price,'' to add the clause ``designated IOC'' 
to clarify that only a Cross Order with such a designation can be 
entered on the Exchange. Consistent with the current operation of an 
IOC Cross Order, currently defined in Rule 7.31(aa), the

[[Page 41615]]

Exchange proposes to amend Rule 7.31(s) to provide that Cross Orders 
that would lock or cross the PBBO or the BBO would be rejected.\10\
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    \10\ As described below, the Exchange proposes to delete the IOC 
Cross Order set forth in Rule 7.31(aa).
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    In connection with this amendment, the Exchange proposes to move 
text from Rule 7.31(aa)(1)-(3), which governs the operation of an IOC 
Cross Order, to Rule 7.31(s) and delete Rules 7.31(s)(1)-(5) as moot 
for the proposed revised definition of a Cross Order, which must be 
designated IOC and does not route.
    The Exchange also proposes to delete Rule 7.16(f)(v)(G), which 
provides that short sale cross orders priced at or below the current 
national best bid will be rejected during the Short Sale Period as 
defined in Rule 7.16(f)(iv). This provision is also moot since a Cross 
Order with an IOC designation cannot execute at or below the current 
national best bid.
Elimination of Six Cross Order Types
    The Exchange also proposes to eliminate the following six 
separately-defined Cross Orders.
    First, the Exchange proposes to eliminate the Midpoint Cross Order, 
which is a Cross Order priced at the midpoint of the PBBO that will be 
rejected when a locked or crossed market of Protected Quotations exists 
in that security. To effect this elimination, the Exchange proposes to 
delete Rule 7.31(y), which defines the Midpoint Cross Order, and delete 
commentary .04 to Rule 7.6 that includes a reference to Midpoint Cross 
Orders.
    Second, the Exchange proposes to eliminate the IOC Cross Order. By 
amending Rule 7.31(s) as described above, the Exchange no longer needs 
to separately define an IOC Cross Order. To effect this elimination, 
the Exchange proposes to delete Rule 7.31(aa), which describes the IOC 
Cross Order.
    Third, the Exchange proposes to eliminate the Post No Preference 
(PNP) Cross Order, which is a Cross Order that is to be executed in 
whole or in part on the Exchange with any portion not so executed 
canceled, without routing any portion of the PNP Cross Order to another 
market center. To effect this elimination, the Exchange proposes to 
delete Rule 7.31(bb).
    Fourth, the Exchange proposes to eliminate the Cross-and-Post 
Order, which is a Cross Order or PNP Cross Order to be executed in 
whole or in part on the Exchange where any unexecuted portion will be 
displayed in the NYSE Arca Book at the cross price. To effect this 
elimination, the Exchange proposes to delete Rule 7.31(ff) and, as 
noted above, delete the references to Cross and Post Order in Rules 
7.31(s)(3) and 7.31(s)(5)(B). The Exchange also proposes to delete 
references to the PNP Cross and Post Orders in Rules 7.37(d)(1) and 
7.37(d)(2) governing order execution.
    Fifth, the Exchange proposes to eliminate the Portfolio Crossing 
Service (PCS) Order. A PCS Order is an order to buy or sell a group of 
securities, which group includes no fewer than 15 securities having a 
total market value of $1 million or more. Each individual component of 
a PCS Order resembles a Cross Order, as defined by Rule 7.31(s), but 
must also include a unique basket number identifying it as a PCS Order 
eligible for entry into the Portfolio Crossing Service pursuant to Rule 
7.65. To effect this elimination, the Exchange proposes to delete Rule 
7.31(ii), describing the PCS Order, and Rule 7.65, which governs the 
entry of such orders into the PCS. The Exchange also proposes to remove 
the reference to the PCS in Rule 7.34(g).
    Finally, the Exchange proposes to eliminate the Day Cross Order, 
which is a Cross Order accompanied by a Day Modifier. To effect this 
elimination, the Exchange proposes, as noted above, to restrict entry 
of Cross Orders to those with an IOC designation by amending Rule 
7.31(s). A Cross Order with a Day Modifier would thus be rejected.
Additional Order Deletion and Amendment
    The Exchange proposes to eliminate the following additional order 
types and modifiers.
    First, the Exchange proposes to eliminate the Market to Limit (MTL) 
Order, which is an un-priced order that, upon receipt, is immediately 
assigned a limit price equal to the contra NBBO price. To effect this 
elimination, the Exchange proposes to delete Rule 7.31(rr).
    Second, the Exchange proposes to amend the definition of an 
Auction-Only Order to provide that the Exchange will only accept the 
Auction-Only Orders specified in Rule 7.31(t). An Auction Only Order is 
currently defined as a limit or market order to be executed during the 
next auction following entry of the order and, if not executed in the 
auction that it participates in, the balance is cancelled. To effect 
this change, the Exchange proposes to amend Rule 7.31(t) to specify 
that the only auction-only orders that can be entered on the Exchange 
are the separately-defined Limit-on-Open Orders (``LOO Order''), 
Market-on-Open Orders (``MOO Order''), Limit-on-Close Orders (``LOC''), 
and Market-on-Close Orders (``MOC''). The Exchange also proposes to 
replace the references to Auction-Only Limit with LOO in Rule 7.35, and 
delete the references to Auction Only Limit Orders in Rule 
7.35(f)(3)(E).
    Third, the Exchange proposes to amend the definition of a NOW Order 
to provide that NOW Orders with a Reserve modifier would no longer be 
accepted. A NOW Order is a Limit Order that is executed in whole or in 
part on the Exchange with any unexecuted portion routed pursuant to 
Rule 7.37(d) for immediate execution. If any portion of the routed 
order is not immediately executed, it will be canceled. To effect this 
change, the Exchange proposes to amend the definition of a NOW Order in 
Rule 7.31(v) to provide that NOW Orders entered with a Reserve modifier 
would be rejected.
    Fourth, the Exchange proposes that Market Orders with a NOW or IOC 
modifier would no longer be accepted. Rule 7.31(a) defines a Marker 
Order as an order to buy or sell a stated amount of a security that is 
to be executed at the NBBO when the order reaches the Exchange. To 
effect this change, the Exchange proposes to eliminate the reference to 
market orders in the definition of the IOC modifier in Rule 7.31(c)(3), 
thereby limiting the use of the IOC modifier to limit orders. A Market 
Order entered with an IOC limitation would therefore be rejected. 
Similarly, the Exchange proposes to amend the definition of a NOW Order 
to provide that NOW Orders entered with a Market modifier would be 
rejected.
    Finally, the Exchange proposes to modify the Mid-Point Liquidity 
(``MPL'') Order to eliminate the use of a Fill or Kill (``FOK'') 
modifier with an MPL Order. An MPL Order is a Passive Liquidity Order 
priced at the midpoint of the PBBO. To effect this change, the Exchange 
proposes to amend the definition of an MPL Order in Rule 7.31(h)(5) to 
provide that an MPL Order entered with a FOK modifier would be 
rejected.
References to Deleted Order Types in Rule 7.6, Rule 7.34 and Rule 7.35
    The Exchange proposes to delete commentary .04 to Rule 7.6 
governing Trading Differentials. The commentary provides an exception 
for Midpoint Cross Orders and Midpoint Directed Fills. As described 
above, the Exchange is eliminating the Midpoint Cross Order.

[[Page 41616]]

The Directed Fill order type was recently eliminated.\11\
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    \11\ See supra note 6.
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    Similarly, Cleanup Orders were recently eliminated.\12\ The 
Exchange accordingly proposes to delete references to Cleanup Orders in 
Rule 7.34(b)(2), which provides that Market Makers may, at their 
discretion, maintain a Cleanup Order for any securities in which they 
are registered for each Market Order Auction. The Exchange also 
proposes to delete the references to Cleanup Orders in Rule 
7.35(c)(2)(A)(1)(v) and Rule 7.35(f)(3)(B).
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    \12\ See id.
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    Because of the technology changes associated with the proposed rule 
change, the Exchange proposes to announce the implementation date of 
the elimination of the order types via Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\13\ in general, and furthers the objectives of Section 
6(b)(5),\14\ 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. Specifically, the Exchange 
believes that eliminating the Passive Discretionary Order, Discretion 
Limit Order, Sweep Reserve Order, Random Reserve Order, PL Select 
Order, Auction-Only Order, Cross-and-Post Order, Day Cross Order, 
Midpoint Cross Order, PNP Cross Order, IOC Cross Order and PCS Order 
removes impediments to and perfects a national market system by 
simplifying functionality and complexity of its order types. The 
Exchange believes that eliminating these order types and modifiers 
would not be inconsistent with the public interest and the protection 
of investors because investors will not be harmed and in fact would 
benefit from the removal of complex functionality. The Exchange further 
believes that deleting corresponding references to deleted order types 
also 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. Similarly, the 
Exchange believes that removing cross-references to the Midpoint 
Directed Fill and Cleanup Order order types, which the Exchange 
recently eliminated in a separate rule filing,\15\ would remove 
impediments to and perfect the mechanism of a free and open market 
because it would reduce potential confusion that may result from having 
such cross references in the Exchange's rulebook. Removing such 
obsolete cross references will also further the goal of transparency 
and add clarity to the Exchange's rules.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ See supra note 6.
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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. The proposed change is not 
designed to address any competitive issue but rather would remove 
obsolete cross-references and remove complex functionality, thereby 
reducing confusion and making the Exchange's rules easier to understand 
and navigate.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
Electronic Comments
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2014-75 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-NYSEArca-2014-75. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2014-75 and should 
be submitted on or before August 6, 2014.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16653 Filed 7-15-14; 8:45 am]
BILLING CODE 8011-01-P