80_FR_34833 80 FR 34717 - Self-Regulatory Organizations; New York Stock Exchange, LLC; Notice of Filing of Proposed Rule Change Making Permanent the Rules of the New Market Model Pilot and the Supplemental Liquidity Providers Pilot

80 FR 34717 - Self-Regulatory Organizations; New York Stock Exchange, LLC; Notice of Filing of Proposed Rule Change Making Permanent the Rules of the New Market Model Pilot and the Supplemental Liquidity Providers Pilot

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 116 (June 17, 2015)

Page Range34717-34727
FR Document2015-14827

Federal Register, Volume 80 Issue 116 (Wednesday, June 17, 2015)
[Federal Register Volume 80, Number 116 (Wednesday, June 17, 2015)]
[Notices]
[Pages 34717-34727]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-14827]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75153; File No. SR-NYSE-2015-26]


Self-Regulatory Organizations; New York Stock Exchange, LLC; 
Notice of Filing of Proposed Rule Change Making Permanent the Rules of 
the New Market Model Pilot and the Supplemental Liquidity Providers 
Pilot

June 11, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on June 4, 2015, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
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 make permanent the rules of the New Market 
Model Pilot and the Supplemental Liquidity Providers Pilot. 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 make permanent the rules of New Market 
Model Pilot (``NMM Pilot'') and the Supplemental Liquidity Providers 
Pilot (``SLP Pilot,'' collectively ``Pilots''). The Pilots are 
currently scheduled to expire upon the earlier of July 31, 2015 or 
Securities and Exchange Commission (``SEC'' or ``Commission'') approval 
to make the Pilots permanent.\4\
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    \4\ See Securities Exchange Act Nos. 73919 (December 23, 2014), 
79 FR 78930 (December 31, 2014) (SR-NYSE-2014-71) (``NMM Pilot 
extension filing''); 73945 (December 24, 2014), 80 FR 58 (January 2, 
2015) (SR-NYSE-2014-72) (``SLP Pilot extension filing'').
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Background
    In October 2008, the NYSE implemented significant changes to its 
market rules, execution technology, and the rights and obligations of 
its market participants, all of which were designed to improve 
execution quality on the Exchange. Certain of the enhanced market model 
changes were implemented through the NMM Pilot.\5\ Specifically, and as 
described in greater detail below, Rules 72, 104 and the provisions of 
Rule 1000 relating to the Capital Commitment Schedule are the pilot 
rules associated with the NMM Pilot.
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    \5\ See Securities Exchange Act No. 58845 (October 24, 2008), 73 
FR 64379 (October 29, 2008) (SR-NYSE-2008-46) (``NMM Pilot Approval 
Order'').
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    As part of the NMM Pilot, NYSE eliminated the function of 
specialists on the Exchange and created a new category of market 
participant, the Designated Market Maker (``DMM'').\6\ DMMs, like 
specialists, have affirmative obligations to make an orderly market, 
including continuous quoting requirements and obligations to re-enter 
the market when reaching across to execute against trading interest. 
Unlike specialists, DMMs have a minimum quoting requirement \7\ in 
their assigned securities and no longer have negative obligations. DMMs 
are also no longer agents for public customer orders.\8\ DMM 
obligations under the NMM Pilot are set forth in Rule 104.
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    \6\ See Rule 103.
    \7\ See Rule 104.
    \8\ See Rule 60; see also Rules 104 and 1000.
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    In addition, the Exchange implemented a system change that allowed 
a DMM to create a schedule of additional non-displayed liquidity at 
various price points where the DMM is willing to interact with interest 
and provide price improvement to orders in the Exchange's system. This 
schedule is known as the DMM Capital Commitment Schedule (``CCS'') and 
is set forth in Rule 1000. CCS provides the Exchange systems, formerly 
referred to as the ``Display Book[reg]'' \9\ with the amount of shares 
that the DMM is willing to trade at price points outside,

[[Page 34718]]

at, and inside the Exchange Best Bid or Best Offer (``BBO''). CCS 
interest is separate and distinct from other DMM interest in that it is 
generally interest of last resort.
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    \9\ The Exchange's Display Book system is an order management 
and execution facility. The Display Book system receives and 
displays orders to the DMMs, contains the order information, and 
provides a mechanism to execute and report transactions and publish 
the results to the Consolidated Tape. The Display Book system is 
connected to a number of other Exchange systems for the purposes of 
comparison, surveillance, and reporting information to customers and 
other market data and national market systems. Because the Exchange 
has retired the actual system referred to as the ``Display Book,'' 
but not the functionality associated with the Display Book, the 
Exchange proposes to replace all references to the term ``Display 
Book'' in Rules 104 and 1000 with references either to the term (i) 
``Exchange systems'' when use of the term refers to the Exchange 
systems that receive and execute orders, or (ii) ``Exchange book'' 
when use of the term refers to the interest that has been entered 
and ranked in Exchange systems.
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    The NMM Pilot further modified the priority of trading interest, 
set forth in Rule 72, which rewards displayed orders that establish the 
BBO by giving such orders priority in execution against incoming 
orders. During the operation of the NMM Pilot, an order or portion 
thereof that establishes priority, retains that priority until such 
order or portion of such order is exhausted. Where no one order has 
established priority, shares are distributed among all market 
participants on parity.
    In addition, the NMM Pilot modified how orders are allocated among 
market participants. Before the NMM Pilot, the Exchange operated on a 
parity allocation model whereby executed orders were allocated on 
parity among market participants, which included each Floor broker and 
the orders collectively represented in Exchange systems. Because 
specialists on the Exchange had both agency obligations to public 
customer orders and negative obligations, their executions yielded to 
public customer orders. Under the NMM Pilot, because DMMs do not have 
either agency obligations or negative obligations, DMMs are an 
individual market participant eligible for allocation under the 
Exchange's parity allocation. Accordingly, for purposes of share 
allocation in an execution, Rule 72(c)(ii) provides that each Floor 
broker, the DMM, and orders collectively represented in Exchange 
systems (i.e., ``Book Participant'') \10\ constitute individual 
participants for purposes of parity allocation of executed orders.
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    \10\ The orders represented in the Book Participant in aggregate 
constitute a single participant.
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    In connection with the DMM Pilot, the NYSE established the SLP 
Pilot, which established SLPs as a new class of market participants to 
supplement the liquidity provided by DMMs.\11\ Rule 107B governs the 
SLP Pilot.
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    \11\ See Securities Exchange Act No. 58877 (October 29, 2008), 
73 FR 65904 (November 5, 2008) (SR-NYSE-2008-108) (Notice of 
Filing'' [sic]).
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    The Pilots were originally scheduled to end on October 1, 2009, or 
such earlier time as the Commission determined to make the Pilots' 
rules permanent. The Exchange filed to extend the operation of the 
Pilots on several occasions in order to prepare this rule filing.\12\
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    \12\ See NMM pilot extension filing and SLP pilot extension 
filing, supra n. 3 [sic].
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Description of Pilot Rules That Would Become Permanent
Rule 104
    Current Rule 104, as amended since 2008, sets forth DMM 
obligations. Under Rule 104(a), DMMs registered in one or more 
securities traded on the Exchange are required to engage in a course of 
dealings for their own account to assist in the maintenance of a fair 
and orderly market insofar as reasonably practicable. The 
responsibilities and duties of a DMM include:
     Assisting the Exchange by providing liquidity as needed to 
provide a reasonable quotation and by maintaining continuous two-sided 
quotes with a displayed size of at least one round lot that meets 
certain metrics as set forth in the rule;
     Facilitating openings and re-openings in assigned 
securities, which may include supplying liquidity as needed; and
     Facilitating the close of trading for assigned securities, 
which may include supplying liquidity as needed.\13\
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    \13\ In 2015, the Exchange eliminated liquidity replenishment 
points (``LRP'') and the ``gap'' quote procedures and amended Rule 
104(a) to eliminate the former DMM obligations to facilitate trading 
when an LRP was reached or the gap quote procedure was being used. 
See Securities Exchange Act Release No. 74063 (Jan. 15, 2015), 80 FR 
3269 (Jan. 22, 2015) (Notice of Filing).
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    The Rule 104(a)(1) quoting requirements applicable to DMMs are two-
fold. First, with respect to maintaining a continuous two-sided quote 
with reasonable size, DMM units must maintain a bid or an offer at the 
National Best Bid (``NBB'') and National Best Offer (``NBO'') 
(collectively, ``inside'') at least 15% of the trading day for 
securities in which the DMM unit is registered with a consolidated 
average daily volume (``CADV'') of less than one million shares (``Less 
Active Securities''), and at least 10% for securities in which the DMM 
is registered with a CADV equal to or greater than one million shares 
(``More Active Securities'').\14\ These DMM quoting obligations set 
forth in Rule 104(a)(1)(A) are unique to the Exchange. Second, DMM 
units are subject to the two-sided quoting obligations set forth in 
Rule 104(a)(1)(B), which are the pricing obligations applicable to all 
equity market makers market-wide to maintain a bid and offer a 
designated percentage away from the NBB and NBO at all times.\15\
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    \14\ In 2009, the Exchange amended Rule 104(a)(1) to increase 
the amount of time that a DMM unit must maintain a bid and offer at 
the inside from 10% to 15% for Less Active Securities and from 5% to 
10% for More Active Securities. See Securities Exchange Act Release 
No. 60595 (August 31, 2009), 74 FR 46261 (September 8, 2009) (SR-
NYSE-2009-91) (Notice of Filing) (``DMM quoting requirement 
filing''). In 2011, the Exchange amended Rule 104(a)(1) to specify 
that the quoting percentage would be based on the consolidated 
average daily volume of a security, rather than the average daily 
volume of the security on the Exchange. See Securities Exchange Act 
Release No. 65865 (December 2, 2011), 76 FR 76799 (December 8, 2011) 
(SR-NYSE-2011-58) (Notice of Filing).
    \15\ See Securities Exchange Act Release No. 63255 (November 5, 
2010), 75 FR 69484 (November 12, 2010) (SR-NYSE-2010-69) (Notice of 
Filing).
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    Under Rule 104(b), DMM units are permitted to use algorithms for 
quoting and trading consistent with NYSE and SEC rules. Exchange 
systems enforce the proper sequencing of incoming orders and 
algorithmically-generated messages. Except as provided for in the rule, 
the DMM unit's system employing algorithms has access to information 
with respect to orders entered on the Exchange, Floor Broker agency 
interest files or reserve interest, to the extent such information is 
publicly available. DMM unit algorithms receive the same information 
with respect to orders entered on the Exchange, Floor Broker agency 
interest files or reserve interest as is disseminated to the public by 
the Exchange and receive such information no sooner than it is 
available to other market participants.\16\ A DMM unit's algorithm may 
submit trading interest via CCS interest in accordance with Rule 1000.
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    \16\ In 2013, the Exchange amended Rules 104 and 123C to specify 
that closings may be effectuated manually or electronically. See 
Securities Exchange Act Release No. 71086 (December 16, 2013), 78 FR 
77186 (December 20, 2013) (SR-NYSE-2013-79) (Notice of Filing). As 
part of that filing, the Exchange amended Rules 104(a)(3) and 104(b) 
to provide that the DMM algorithm would have access to aggregate 
order information relating to Reserve Interest eligible to 
participate in a manual execution.
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    Under Rule 104(c), a DMM unit may maintain reserve interest 
consistent with Exchange rules governing Reserve Orders. Such reserve 
interest is eligible for execution in manual transactions.
    Under Rule 104(d), a DMM unit may provide algorithmically generated 
price improvement to all or part of an incoming order that can be 
executed at or within the BBO through the use of CCS interest. Any 
orders eligible for execution in the Exchange's book at the price of 
the DMM unit's interest trade on parity with such interest, as does any 
displayed interest representing a d-Quote enabling such interest to 
trade at the same price as the DMM unit's interest.
    Under Rule 104(e), DMM units must provide contra-side liquidity as 
needed for the execution of odd-lot quantities that are eligible to be 
executed as part of the opening, re-opening, and closing transactions 
but remain unpaired after

[[Page 34719]]

the DMM has paired all other eligible round lot sized interest.
    Rule 104(f) sets forth the functions of DMMs. First, any member who 
expects to act as a DMM in any listed stock must be registered as a DMM 
in accordance with Rule 103. Second, a DMM must maintain, insofar as 
reasonably practicable, a fair and orderly market on the Exchange in 
the stocks in which he or she is so acting. Third, the Exchange 
supplies DMMs with suggested Depth Guidelines for each security in 
which a DMM is registered, and DMMs are expected to quote and trade 
with reference to the Depth Guidelines. Finally, DMMs are designated as 
market makers on the Exchange for all purposes under the Act and the 
rules and regulations thereunder.
    Rule 104(g) governs transactions by DMMs. Transactions on the 
Exchange by a DMM for the DMM's account must be effected in a 
reasonable and orderly manner in relation to the condition of the 
general market and the market in the particular stock. Rule 104(g) 
describes certain permitted transactions, including neutral 
transactions and non-conditional transactions, but prohibits certain 
other transactions. Specifically, except as otherwise permitted by Rule 
104, during the last ten minutes prior to the close of trading, a DMM 
with a long (short) position in a security is prohibited from making a 
purchase (sale) in such security that results in a new high (low) price 
on the Exchange for the day at the time of the DMM's transaction.
    Rule 104(h) addresses DMM transactions in securities that establish 
or increase the DMM's position. A ``Conditional Transaction'' is a 
DMM's transaction in a security that establishes or increases a 
position and reaches across the market to trade as the contra-side to 
the Exchange-published bid or offer. Certain Conditional Transactions 
may be made by a DMM without restriction as to price if they are 
followed by appropriate re-entry on the opposite side of the market 
commensurate with the size of the DMM's transaction. The Exchange 
issues guidelines, called price participation points (``PPP''), that 
identify the price at or before which a DMM is expected to re-enter the 
market after effecting a Conditional Transaction. Immediate re-entry is 
required after certain Conditional Transactions. However, certain other 
Conditional Transactions may be made without restriction as to price 
and Rule 104(i) provides that the re-entry obligations following such 
Conditional Transactions would be the same as the re-entry obligations 
for non-conditional transactions,'' as set forth in Rule 104(g).
    Rule 104(j), which was added in 2013,\17\ permits a DMM to perform 
the following Trading Floor functions:
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    \17\ See Securities Exchange Act Release No. 71175 (December 23, 
2013), 78 FR 79534 (December 30, 2013) (SR-NYSE-2013-21) (Order 
approving adoption of Rule 104(j)).
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     Maintain order among Floor brokers manually trading at the 
DMM's assigned panel;
     Bring Floor brokers together to facilitate trading, which 
may include the DMM as a buyer or seller;
     Assist a Floor broker with respect to an order by 
providing information regarding the status of a Floor broker's orders, 
helping to resolve errors or questioned trades, adjusting errors, and 
cancelling or inputting Floor broker agency interest on behalf of a 
Floor broker; and
     Research the status of orders or questioned trades on his 
or her own initiative or at the request of the Exchange or a Floor 
broker when a Floor broker's handheld device is not operational, when 
there is activity indicating that a potentially erroneous order was 
entered or a potentially erroneous trade was executed, or when there 
otherwise is an indication that improper activity may be occurring.
    The rule also permits the Exchange to make systems available to a 
DMM at the post that display the following information about securities 
in which the DMM is registered: (A) Aggregated buying and selling 
interest; (B) the price and size of any individual order or Floor 
broker agency interest file and the entering and clearing firm 
information for such order, except that the display excludes any order 
or portion thereof that a market participant has elected not to display 
to a DMM; and (C) post-trade information. A DMM may not use any such 
information in a manner that would violate Exchange rules or federal 
securities laws or regulations. The DMM may provide market information 
that is available to the DMM at the post to (i) respond to an inquiry 
from a Floor broker in the normal course of business or (ii) visitors 
to the Trading Floor for the purpose of demonstrating methods of 
trading. However, a Floor broker may not submit an inquiry pursuant to 
this provision by electronic means and the DMM may not use electronic 
means to transmit market information to a Floor broker in response to a 
Floor broker's inquiry pursuant to this provision.
    Rule 104(k) provides that in the event of an emergency, such as the 
absence of the DMM, or when the volume of business in the particular 
stock or stocks is so great that it cannot be handled by the DMMs 
without assistance, a Floor Governor may authorize a member of the 
Exchange who is not registered as a DMM in such stock to act as 
temporary DMM for that day only.
Rule 1000
    The provisions of current Rule 1000 relating to CCS, as amended 
since 2008, and which are operating as part of the NMM Pilot, are set 
forth sections (d)-(g) of Rule 1000.
    Rule 1000(d) provides that for each security in which it is 
registered, a DMM unit may place within Exchange systems a pool of 
liquidity to be available to fill or partially fill \18\ incoming 
orders in automatic executions, which is CCS. CCS is designed to be a 
DMM unit's commitment to trade a specified number of shares at 
specified price points in reaction to incoming contra-side interest. As 
noted above, CCS interest is used to trade at the BBO, at prices better 
than the BBO, and at prices outside the BBO. CCS interest supplements 
displayed and non-displayed interest of the DMM in Exchange systems. 
CCS interest must be for a minimum of one round lot of a security and 
entered at price points that are at, inside, or away from the BBO.
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    \18\ The original NMM Pilot permitted CCS to participate only if 
it would fill an incoming order. In 2009, the Exchange amended Rule 
1000 to provide that Exchange systems would access CCS interest to 
participate in executions when the incoming order would only be 
partially executed. See Securities Exchange Act Release No. 60671 
(September 15, 2009), 74 FR 48327 (September 22, 2009) (SR-NYSE-
2009-71) (``CCS Partial Fill Approval Order'').
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    Rule 1000(e) governs executions at and outside the BBO, and 
specifies how CCS interest would interact with such executions. For 
executions at the BBO, CCS interest would yield to all other interest 
at that price point. For executions outside the BBO, i.e., sweeps, Rule 
1000(e)(iii) specifies how CCS interest could participate to provide 
price improvement to the residual of an order that sweeps. As provided 
for in the rule, if an order is not executed at full at the Exchange 
BBO, Exchange systems will calculate the unfilled volume of the contra-
side order and review the additional displayed and non-displayed 
interest, including CCS interest and protected quotes on away markets, 
to determine the price at which the remaining volume of the contra-side 
order can be executed in full (the ``completion price''). Exchange 
systems will evaluate the price at which the maximum volume of CCS 
interest exists to trade, and execute the incoming order one

[[Page 34720]]

minimum price variation (as the term is defined in Rule 62) better than 
that price, which is how CCS provides price improvement. If an order 
cannot be executed in full because of the order's limit price, or 
because of an immediate-or-cancel time-in-force, CCS interest is 
available to partially fill the incoming order.
    Rule 1000(f) specifies how CCS interest may provide price 
improvement inside the BBO with interest arriving in the Exchange 
market that:
     Will be eligible to trade at or through the BBO;
     Will be eligible to trade at the price of interest in 
Exchange systems representing non-displayable reserve interest of 
Reserve Orders and Floor broker agency interest files reserve interest 
(``hidden interest'') or MPL Orders; or
     Will be eligible to route to away market interest for 
execution if [sic] the total volume of CCS interest, plus d-Quote 
interest in Floor broker agency interest files, plus any interest 
represented by hidden interest, would be sufficient to fully complete 
the arriving interest at a price inside the BBO. In such an instance, 
the Exchange systems determine the price point inside the BBO at which 
the maximum volume of CCS interest trades, taking into account the 
volume, if any, available from d-Quotes and hidden interest. The 
arriving interest is executed at that price, with all interest (CCS, d-
Quote, hidden interest) trading on parity.
    Under Rule 1000(g), CCS interest may trade with non-marketable \19\ 
interest where such non-marketable interest betters the BBO (or cancels 
in the case of an arriving IOC order) if the incoming interest may be 
executed in full by all interest available in the Exchange's book, 
including CCS interest and d-quotes. Such trade takes place at the 
limit price of the arriving non-marketable interest. All interest 
trading with the incoming interest trades on parity.
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    \19\ ``Non-marketable'' means trading interest (i.e., 
displayable and non-displayable) that is at a price higher than the 
current Exchange bid (but below the current Exchange offer) or lower 
than the current Exchange offer (but above the current Exchange 
bid), including better bids and offers on other market centers. See 
Rule 1000(g)(1).
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Rule 72
    The priority of bids and offers and allocation of executions is 
governed by Rule 72, as amended since 2008. Under Rule 72(a), when a 
bid or offer, including pegging interest,\20\ is established as the 
only displayable \21\ bid or offer made at a particular price and such 
bid or offer is the only displayable interest when such price is or 
becomes the BBO (the ``setting interest''), such setting interest is 
entitled to priority for allocation of executions at that price as 
described in the rule, subject to the provisions below:
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    \20\ In 2012, the Exchange amended Rule 72(a) to specify that 
pegging interest may be considered setting interest. See Securities 
Exchange Act Release No. 68302 (November 27, 2012), 77 FR 71658 
(December 3, 2012) (SR-NYSE-2012-65) (Notice of Filing) (``Pegging 
filing'').
    \21\ As used in this rule, the term ``displayable'' means that 
portion of interest that could be published as, or as part of, the 
BBO, including pegging interest. Displayable odd-lot orders are 
published as part of the BBO if, when aggregated with other interest 
available for execution at that price point, the sum of the odd-lot 
order and other interest available at that price point would be 
equal to or greater than a round lot. The term ``displayed 
interest'' includes that part of an order that is published as, or 
as part of, the BBO, which may include one or more odd-lot orders.
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    (A) Odd-lot orders, including aggregated odd-lot orders that are 
displayable, are not eligible to be setting interest.\22\
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    \22\ In 2010, the Exchange amended its rules, including Rule 72, 
to incorporate the receipt and execution of odd-lot interest in the 
round-lot market and decommission the former Odd Lot System. See 
Securities Exchange Act Release No. 62578 (July 27, 2010), 75 FR 
45185 (August 2, 2010) (SR-NYSE-2010-43 and SR-NYSEAmex-2010-53) 
(``Odd-lot Approval Order'').
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    (B) If at the time displayable interest of a round lot or greater 
becomes the BBO, there is other displayable interest of a round lot or 
greater, including aggregated odd-lot orders that are equal to or 
greater than a round lot, at the price that becomes the BBO, no 
interest is considered to be a setting interest, and, therefore, there 
is no priority established.
    (C) If at the time displayable interest of a round lot or greater 
becomes the BBO, there is other displayable interest, the sum of which 
is less than a round lot, at the price that becomes the BBO, the 
displayable interest of a round lot or greater is considered the only 
displayable bid or offer at that price point and is therefore 
established as the setting interest.
    (D) If executions decrement the setting interest to an odd-lot 
size, a round lot or partial round lot order that joins such remaining 
odd-lot size order is not eligible to be the setting interest.
    (E) If as a result of cancellation, interest is or becomes the 
single displayable interest of a round lot or greater at the BBO, it 
becomes the setting interest.
    (F) Only the portion of setting interest that is or has been 
published in the BBO is entitled to priority allocation of an 
execution. That portion of setting interest that is designated as 
reserve interest and therefore not displayed at the BBO (or not 
displayable if it becomes the BBO) is not eligible for priority 
allocation of an execution irrespective of the price of such reserve 
interest or the time it is accepted into Exchange systems. However, if, 
following an execution of part or all of setting interest, such setting 
interest is replenished from any reserve interest, the replenished 
volume of such setting interest is entitled to priority if the setting 
interest is still the only interest at the BBO.
    (G) If non-pegging interest becomes the BBO, it is considered the 
setting interest even if pegging interest is pegging to such non-
pegging interest, and it retains its priority even if subsequently 
joined at that price by a pegging interest.
    Under Rule 72(b), once priority is established by the setting 
interest, such setting interest retains that priority for any execution 
at that price when that price is at the BBO. If executions decrement 
the setting interest to an odd-lot size, such remaining portion of the 
setting interest retains its priority for any execution at that price 
when that price is the BBO. For any execution of setting interest that 
occurs when the price of the setting interest is not the BBO, the 
setting interest does not have priority and is executed on parity.
    Priority of setting interest is not retained after the close of 
trading on the Exchange or following the resumption of trading in a 
security after a trading halt in such security has been invoked 
pursuant to Rule 123D or following the resumption of trading after a 
trading halt invoked pursuant to the provisions of Rule 80B. Priority 
of the setting interest is not retained on any portion of the priority 
interest that is routed to an away market and is returned unexecuted 
unless such priority interest is greater than a round lot and the only 
other interest at the price point is odd-lot orders, the sum of which 
is less than a round lot.
    Under Rule 72(c), executions are allocated as follows. An 
automatically executing order trades first with the displayed bid 
(offer) and, if there is insufficient displayed volume to fill the 
order, trades next with reserve interest. All reserve interest trades 
on parity. For the purpose of share allocation in an execution, each 
single Floor broker, the DMM and orders collectively represented in 
Exchange systems (referred to as ``Book Participant'') constitute 
individual participants. The orders represented in the Book Participant 
in aggregate constitute a single participant and are allocated

[[Page 34721]]

shares among such orders by means of time priority with respect to 
entry.
    In any execution at the BBO, a participant who is the setting 
interest receives 15% of the volume of such executed amount or a 
minimum of one round lot, whichever is greater, until such setting 
interest has received a complete execution of its eligible priority 
interest. Setting interest that is decremented to an odd-lot size 
receives 15% of the volume of such incoming interest rounded up to the 
size of the setting interest, or the size of the incoming interest, 
whichever is less. Following the allocation of an execution to setting 
interest as provided above, the remainder of the executed volume is 
allocated to each participant on parity. The participant with the 
priority interest (the setting interest) is included in such parity 
allocation. If there is no setting interest for an execution at the 
BBO, allocation of the executed volume is on parity by participant 
except as otherwise set forth in the rule. When an execution occurs at 
the BBO, interest that is displayed in the BBO is allocated before any 
interest that is not displayed. In allocating an execution that 
involves setting interest, whether such execution takes place at the 
BBO or otherwise, the volume allocated to the setting interest is 
allocated to the interest in the setting interest that is entitled to 
priority first.
    Shares are allocated in round lots or the size of the order if less 
than a round lot. If the number of shares to be executed at a price 
point is insufficient to allocate round lots to all the participants 
eligible to receive an execution at that price point, or the size of 
the order if less than a round lot, Exchange systems create an 
allocation wheel of the eligible participants at that price point and 
the available round lot shares are distributed to the participants in 
turn. If an odd-lot sized portion of the incoming order remains after 
allocating all eligible round lots, the remaining shares are allocated 
to the next eligible participant in less than a round lot. On each 
trading day, the allocation wheel for each security is set to begin 
with the participant whose interest is entered or retained first on a 
time basis. Thereafter, participants are added to the wheel as their 
interest joins existing interest at a particular price point. If a 
participant cancels interest and then rejoins, that participant joins 
as the last position on the wheel at that time. If an odd-lot 
allocation completely fills the interest of a participant, the wheel 
moves to the next participant. The allocation wheel also moves to the 
next participant where Exchange systems execute remaining displayable 
odd-lot interest prior to replenishing the displayable quantity of a 
participant.
    When an execution occurs outside the BBO, the interest that is 
displayable is allocated before any interest that is non-displayable 
(i.e., reserve interest). All interest that is displayable is on parity 
among individual participants' displayable interest. All interest that 
is non-displayable is on parity among individual participants' non-
displayable interest. Incoming orders eligible for execution at price 
points between the BBO trade with all available interest at the price. 
All NYSE interest available to participate in the execution (e.g., d-
quotes, s-quotes, Reserve Orders, and CCS interest) trade on parity.
    DMM interest added intra-day to participate in a verbal transaction 
with a Floor broker or during a slow quote is allocated shares only 
after all other interest eligible for execution at the price point is 
executed in full. DMM interest added at the time of the slow quote or 
when verbally trading with a Floor broker not executed during the 
transaction is cancelled.\23\ However, s-Quotes, if any, representing 
DMM interest present at the price point prior to the verbal transaction 
with a Floor broker or during a slow quote receive an allocation on 
parity as described above. An order that is modified to reduce the size 
of the order retains the time stamp of original order entry. An order 
modified in any other way, such as increasing the size or changing the 
price of the order, receives a new time stamp.\24\
---------------------------------------------------------------------------

    \23\ When the Exchange adopted the NMM Pilot in 2008, all DMM 
interest was on parity. In 2009, the Exchange amended Rule 72 to add 
new subsection (c)(xi) to the rule to remove parity for DMM interest 
that verbal transactions with a Floor broker or during a slow quote. 
See Securities Exchange Act Release No. 60287 (July 10, 2009), 74 FR 
34817 (July 17, 2009) (SR-NYSE-2009-69) (Notice of Filing).
    \24\ See Pegging Filing, supra n. 18 [sic] (amending Rule 72(c) 
to specify how order modifications impact the time stamp of an 
order).
---------------------------------------------------------------------------

    Under Rule 72(d), when a member has an order to buy and an order to 
sell an equivalent amount of the same security, and both orders are 
``block'' orders (i.e., at least 10,000 shares or a quantity of stock 
having a market value of $200,000 or more, whichever is less) and are 
not for the account of such member or member organization, an account 
of an associated person, or an account with respect to which the 
member, member organization, or associated person thereof exercises 
investment discretion, then the member may ``cross'' those orders at a 
price at or within the BBO.\25\ The member's bid or offer is entitled 
to priority at such cross price, irrespective of pre-existing displayed 
bids or offers on the Exchange at that price. The member must follow 
the crossing procedures of Rule 76, and another member may trade with 
either the bid or offer side of the cross transaction only to provide a 
price which is better than the cross price as to all or part of such 
bid or offer. A member who is providing a better price to one side of 
the cross transaction must trade with all other displayed market 
interest on the Exchange at that price before trading with any part of 
the cross transaction. Following a transaction at the improved price, 
the member with the agency cross transaction must follow the crossing 
procedures of Rule 76 and complete the balance of the cross. No member 
may break up the proposed cross transaction, in whole or in part, at 
the cross price. No DMM may effect a proprietary transaction to provide 
price improvement to one side or the other of a cross transaction 
effected pursuant Rule 72(d). A transaction effected at the cross price 
in reliance on this provision is printed as ``stopped stock.'' When a 
member effects a transaction under this provision, the member must, as 
soon as practicable after the trade is completed, complete 
documentation of the trade as the Exchange requires.
---------------------------------------------------------------------------

    \25\ In 2011, the Exchange amended Rule 72(d) regarding agency 
cross transactions to (i) change the minimum size of a block order 
under the rule from 25,000 to 10,000 shares or a quantity of stock 
having a market value of $200,000 or more, whichever is less, and 
(ii) conform Rule 72(d) to Rule 90 to permit a Floor broker to 
represent a Rule 72(d) crossing transaction on behalf of an 
unaffiliated member or member organization. See Securities Exchange 
Act Release No. 64334 (April 25, 2011), 76 FR 24078 (April 29, 2011) 
(SR-NYSE-2011-18) (Notice of Filing).
---------------------------------------------------------------------------

Rule 107B
    Rule 107B, as amended, governs the SLP Pilot. Under current Rule 
107B(a), an SLP is defined as a member organization that electronically 
enters proprietary orders or quotes from off the Floor of the Exchange 
into the systems and facilities of the Exchange and is obligated to 
maintain a bid or an offer at the National Best Bid (``NBB'') or the 
National Best Offer (``NBO'') in each assigned security in round lots 
averaging at least 10% of the trading day and for all assigned SLP 
securities \26\ and to add liquidity of an ADV of more than a specified 
percentage of

[[Page 34722]]

consolidated average daily volume (``CADV'') in all NYSE-listed 
securities, as set forth in the Exchange's Price List, on a monthly 
basis.\27\ An SLP can be either a proprietary trading unit of a member 
organization (``SLP-Prop'') or a registered market maker at the 
Exchange (``SLMM'').\28\
---------------------------------------------------------------------------

    \26\ The SLP Pilot originally required an SLP to maintain a bid 
and/or offer at the NBB or NBO averaging at least 5% of the trading 
day. Effective September 25, 2010, the Exchange increased this 
quoting requirement to require SLPs to maintain a bid and/or offer 
at the NBB or NBO at least 10% of the trading day. See Securities 
Exchange Act Release No. 62791 (August 30, 2010) 75 FR 54411 
(September 7, 2010) (SR-NYSE-2010-60) (Notice of Filing) (``SLP 2010 
Filing'').
    \27\ In the SLP 2010 Filing, the Exchange introduced a monthly 
volume requirement for SLPs of an average daily volume (``ADV'') of 
more than 10 million shares. See SLP 2010 Filing, supra n. 26. 
Effective September 1, 2012, the Exchange amended the monthly volume 
requirement to require instead that SLPs meet an ADV that is a 
specified percentage of the NYSE CADV and amended the Exchange's 
Price List to specify the applicable percentage of NYSE CADV for the 
monthly volume requirement. See Securities Exchange Act Release No. 
67759 (August 30, 2012), 77 FR 54939 (September 6, 2012) (SR-NYSE-
2012-38) (Notice of Filing).
    \28\ The SLP Pilot was originally available only for a 
proprietary trading unit of a member organization. In 2012, the 
Exchange amended Rule 107B to add a class of SLPs that are 
registered as market makers on the Exchange and subject to the 
market-wide equity market maker quoting obligations. See Securities 
Exchange Act Release No. 67154 (June 7, 2012), 77 FR 35455 (June 13, 
2012) (SR-NYSE-2012-10) (Approval Order).
---------------------------------------------------------------------------

    Under Rule 107B(b), when an SLP posts liquidity on the Exchange and 
such liquidity is executed against an inbound order, the SLP receives a 
financial rebate for that executed transaction as set forth in the 
Exchange's Price List, subject to the non-regulatory penalty provision 
described in Rule 107B(k).\29\ The SLP receives credit toward the 
financial rebate for executions of displayed and non-displayed 
liquidity (e.g., reserve and dark orders) posted in round lots in its 
assigned securities only.
---------------------------------------------------------------------------

    \29\ In the SLP 2010 Filing, the Exchange modified the non-
regulatory penalties to align them to the changes in the quoting and 
volume requirements for SLPs. See SLP 2010 Filing, supra no. 26. The 
Exchange proposes a non-substantive amendment to Rule 107B(b) to 
correct the cross-reference in the Rule from subparagraph (j) to 
subparagraph (k).
---------------------------------------------------------------------------

    Under Rule 107B(c), to qualify as an SLP-Prop, a member 
organization must have:
    (1) Adequate technology to support electronic trading through the 
systems and facilities of the Exchange;
    (2) mnemonics that identify to the Exchange SLP-Prop trading 
activity in assigned SLP securities;
    (3) adequate trading infrastructure and staff to support SLP 
trading activity;
    (4) quoting and volume performance that demonstrates an ability to 
meet the 10% average quoting requirement in each assigned security and 
the ADV requirement of more than a specified percentage of CADV in all 
NYSE-listed securities for all assigned SLP securities on a monthly 
basis;
    (5) a disciplinary history that is consistent with just and 
equitable business practices; and
    (6) the business unit of the member organization acting as an SLP-
Prop must have in place adequate information barriers between the SLP-
Prop unit and the member organization's customer, research, and 
investment banking business.
    A member organization may register as an SLMM in one or more 
securities traded on the Exchange in order to assist in the maintenance 
of a fair and orderly market insofar as reasonably practicable. To 
qualify as an SLMM, a member organization must meet the all of the 
requirements for an SLP-Prop set forth above, except item (2) relating 
to mnemonics. If approved as an SLMM, the member organization must (i) 
maintain continuous, two-sided trading interest in assigned securities 
(``Two-Sided Obligation'') and meet certain pricing obligations as set 
forth in the rule; (ii) maintain minimum net capital in accordance with 
SEC Rule 15c3-1; and (iii) maintain unique mnemonics specifically 
dedicated to SLMM activity, which may not be used for trading in 
securities other than SLP securities assigned to the SLMM.
    Rule 107B(e) sets forth the application process for SLPs. If an 
applicant is disapproved or disqualified, such applicant may request an 
appeal of such disapproval or disqualification by the SLP Panel as 
provided in the rule and/or reapply for SLP status three months after 
the month in which the applicant received the disapproval or 
disqualification notice. Rule 107B(f) describes how an SLP may 
voluntarily withdraw from such status.
    Rule 107B(g) and (h) set forth the calculations for determining 
whether an SLP is meeting its 10% quoting requirement and monthly 
volume requirement. An SLP may post non-displayed liquidity; however, 
such liquidity is not counted as credit toward the 10% quoting 
requirement. In addition, tick sensitive orders (i.e., ``Sell Plus'', 
``Buy Minus'' and ``Buy Minus Zero Plus'') do not count as credit 
toward the 10% quoting requirement.
    Rule 107B(i) governs the assignment of securities to SLPs. Rule 
107B(j) provides that SLPs may only enter orders electronically from 
off the Floor of the Exchange and may only enter such orders directly 
into Exchange systems and facilities designated for this purpose. SLMM 
quotes and orders may be for the account of the SLMM in either a 
proprietary or principal capacity on behalf of affiliated or 
unaffiliated persons and SLP-Prop orders must only be for the 
proprietary account of the SLP-Prop member organization. Rule 107B(k) 
sets forth non-regulatory penalties that apply if an SLP fails to meet 
its quoting requirements and sets forth procedures for reapplication. 
Rule 107B(l) sets forth provisions for appealing non-regulatory 
penalties.
Rationale for Making Pilots Permanent
    The Exchange adopted the NMM Pilot in part to adapt the Exchange's 
model to the equities market environment in place in 2008. At that 
time, the more electronic market had fundamentally altered the 
Exchange's traditional trading environment, in which price discovery 
had taken place largely, and almost exclusively, on the Floor of the 
Exchange. As the trading information that was previously only available 
on the Floor of the Exchange shifted to become widely available via 
electronic means, together with increased fragmentation in the market, 
the Exchange believed that the NMM Pilot would provide a more robust 
trading model on the Floor where market participants could compete on 
more equal footing relative to their responsibilities to the 
market.\30\ With the NMM Pilot, the Exchange would continue to provide 
a quality market that maintains both a competitive market maker 
responsible for providing liquidity to the market and the element of 
human judgment that is particularly valuable in less liquid securities, 
re-openings, and closings. The Exchange sought, and believes it has 
attained, the appropriate balance among market participants that 
retains a role for liquidity providers responsible for maintaining fair 
and orderly markets, i.e., DMMs, together with agents on the Floor and 
off-Floor participants. The Exchange adopted the SLP Pilot to encourage 
an additional pool of liquidity at the Exchange.
---------------------------------------------------------------------------

    \30\ See Securities Exchange Act Release No. 58184 (July 17, 
2009 [sic]), 73 FR 42853 (July 23, 2008) (NMM Pilot Filing).
---------------------------------------------------------------------------

    As noted in the NMM Pilot approval order, the Commission had 
concerns regarding certain aspects of the Exchange's proposal and 
approved it on a pilot basis. The Commission further stated that before 
it would decide to make the NMM Pilot permanent, the Exchange must 
provide data and analysis on the impact of the NMM Pilot. The metrics 
requested by the Commission include: (i) DMM time at the NBBO by 
security; (ii) the effective spread by security; (iii) the DMM volume 
broken out by DMM interest type (e.g., CCS, s-Quote); (iv) the average 
depth at the NBBO by market participant (DMMs, Floor brokers, and 
orders represented in the Exchange's book); (v) the ratio of (i) shares 
not executed in Exchange systems due to

[[Page 34723]]

DMM execution due to (ii) the shares executed by the DMM; and (vi) 
effective spread for (a) orders that involve DMM liquidity provisions 
and (b) orders that are executed without DMM liquidity (for similar 
order size categories).\31\ In compliance with this requirement, the 
Exchange has been providing the above-described metrics to the 
Commission's Division of Trading and Markets and Office of Economic and 
Risk Analysis on a monthly basis.
---------------------------------------------------------------------------

    \31\ See NMM Pilot Approval Order, supra n. 5 at 64387.
---------------------------------------------------------------------------

    Since adopting the NMM Pilot, the Exchange believes that the 
equities market has continued to undergo significant changes that 
require a fresh look at the basis for whether the NMM Pilot should be 
approved on a permanent basis. Rather than looking at the specific 
metrics identified above, the Exchange believes that looking more 
holistically at the Exchange's performance relative to the equities 
market in general demonstrates the continued value of the NMM and SLP 
Pilots and basis for permanent approval of the pilots. In particular, 
the continued impact of Regulation NMS, which had been in effect for 
only one year when the Exchange filed for the NMM Pilot, together with 
additional technological advancements and competitive forces since 2008 
have fundamentally altered the way the market functions and how market 
participants interact. Some of the major developments include the 
significant rise in off-exchange trading from 22% in 2009 to 34% in 
2014; the proliferation of over 50 trading venues, including four 
additional registered equities exchanges since October 2008; and the 
increasing segmentation of client order flow onto private dark 
markets.\32\
---------------------------------------------------------------------------

    \32\ In a speech on October 2, 2013, Chair Mary Jo White noted 
that ``[a] steadily increasing percentage of trading occurs in 
`dark' venues, which now appear to execute more than half of the 
orders of long-term investors,'' Mary Jo White, Chair, Securities 
and Exchange Commission, Speech at Securities Traders Association 
80th Annual Market Structure Conference (Oct. 2, 2013) (available at 
http://www.sec.gov/News/Speech/Detail/Speech/1370539857459#.VNoXc_nF_AQ). The Commission also noted the 
fragmentation of the equities markets in its 2010 Concept Release on 
Equity Market Structure. See Securities Exchange Act Release No. 
61358, 75 FR 3594 (Jan. 21, 2010). See also, Staff of the Division 
of Trading and Markets, Commission, Equity Market Structure 
Literature Review, Part I: Market Fragmentation, Oct. 7, 2013, 
(available at: http://www.sec.gov/marketstructure/research/fragmentation-lit-review-100713.pdf) and Tuttle, Laura, Alternative 
Trading Systems: Description of ATS Trading in National Market 
System Stocks (available at http://www.sec.gov/marketstructure/research/alternative-trading-systems-march-2014.pdf.)
---------------------------------------------------------------------------

    The Exchange believes that the shifts in market share of traded 
volume among venues demonstrate the robust competition among markets. 
In particular, the following chart shows a snapshot of how market share 
of traded volume on registered exchanges has declined since 2009 and 
shifted to the TRF, which reports transactions that occur off of 
registered exchanges.\33\
---------------------------------------------------------------------------

    \33\ The market share percentages set forth in Table 1 are based 
on trades reported to the Consolidated Tape Association and via 
Crossing Session II on the Exchange pursuant to Rule 902(a)(iii).

                                                                            Table 1--Tape A Market Share Developments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  NYSE      FINRA
                          F                             NYSE      Arca      TRI *    Nasdaq    Nasdaq    Nasdaq    BATS Z    BATS Y    EDGA *    EDGX **  ISE  (%)  NSX  (%)  CHX  (%)    CBSX
                                                         (%)       (%)       (%)       (%)     BX  (%)  PSX  (%)     (%)       (%)       (%)       (%)                                     (%)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2009................................................      25.0      13.4      22.5      15.5       1.9       0.0       8.5       0.0       0.0      10.4       1.9       0.6       0.3       0.1
2010................................................      24.4      11.9      27.3      13.6       3.6       0.1       7.5       0.2       2.0       7.6       0.8       0.5       0.3       0.1
2011................................................      24.3      10.5      29.8      13.3       2.3       0.7       6.9       2.3       3.6       5.5       0.0       0.5       0.2       0.1
2012................................................      21.4      10.0      32.3      12.8       2.6       0.7       7.5       3.1       2.4       6.3       0.0       0.3       0.3       0.4
2013................................................      22.1       8.4      35.3      11.6       2.3       0.5       7.1       1.9       2.8       6.9       0.0       0.4       0.4       0.4
2014................................................      22.4       8.3      34.7      13.1       2.4       0.4       6.8       3.0       2.5       5.9       0.0       0.1       0.4       0.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes ADF and adjusted for EDGA/EDGX launch.
* EDGA and EDGX are combined into EDGX for Jan. 2009 through July 2010, as Direct Edge didn't break them out prior to receiving exchange status.

    While these statistics demonstrate that all exchanges, including 
the Exchange, have faced challenges in the last six years, the Exchange 
believes that the NMM and SLP Pilots have enabled the Exchange to 
remain competitive during this period. As demonstrated in the chart 
above, notwithstanding the competing market forces, the Exchange's 
market share has remained relatively stable.
    The Exchange further notes that it adopted the NMM and SLP Pilots 
during a period of high trading volumes. Since the global financial 
crisis of 2008-2009, there has been a significant drop in volume and 
volatility in cash equities markets. A case in point, Tape A CADV fell 
41% from 5.64 billion in 2009 to 3.33 billion shares in 2014. 
Additionally, the VIX volatility index, which is an industry-standard 
measure of market volatility, fell from a daily average of 31.5% in 
2009 to 14.2 in 2014.

                 Table 2--Tape A Volume and VIX[supreg]
------------------------------------------------------------------------
                                                      CADV   VIX[supreg]
------------------------------------------------------------------------
2009..............................................     5.68       31.5
2010..............................................     4.87       22.6
2011..............................................     4.37       24.3
2012..............................................     3.66       17.8
2013..............................................     3.40       14.2
2014..............................................     3.39       14.2
------------------------------------------------------------------------

    As overall trading volume and volatility falls, the demand for the 
liquidity continuously provided by market makers' [sic] falls, which 
leads to thinner profit margins for market makers. This impact can be 
demonstrated, in part, by the significant changes in the firms 
operating as DMMs since the Exchange adopted the NMM Pilot. In October 
2008, the Exchange had six firms operating as specialists: Bank of 
America Corp. (``BAC''), Barclays Capital, Inc. (``Barclays''), Bear 
Wagner Specialists, LLC (``Bear Wagner''), Goldman, Sachs and Co 
(``Goldman Sachs,'' operating Spear, Leads & Kellogg, LLC), Kellogg 
Specialist Group (``Kellogg), and LaBranche & Company (``Labranche''). 
Six years later, only one of those firms still operates as a DMM, 
Barclays. Below are key changes within the NYSE DMM universe:
     In March 2009, Barclays acquired Bear Wagner's DMM 
business, with Bear Wagner exiting the business.
     In January 2010, Barclays acquired LaBranche's DMM 
business, with LaBranche exiting the business.
     In February 2010, Getco Securities, LLC (``Getco'') became 
an NYSE DMM.
     In December 2010, Knight Capital Group, Inc. (``Knight'') 
acquired Kellogg's NYSE and NYSE MKT DMM business, with Kellogg exiting 
the business.
     In November 2011, Getco acquired BAC's DMM business, with 
BAC exiting the business.
     In December 2011, J. Streicher & Co, an NYSE MKT DMM, 
became an NYSE DMM.
     In April 2012, Virtu Financial (``Virtu'') became a NYSE 
DMM (in

[[Page 34724]]

2011, Virtu entered the DMM business by acquiring Cohen Capital Group, 
an NYSE MKT DMM).
     In November 2012, Brendan Cryan & Co, an NYSE MKT DMM, 
became an NYSE DMM.
     In July 2013, Knight and Getco merged to become KCG 
Americas.
     In August 2014, IMC Financial Markets acquired Goldman's 
DMM business, with Goldman exiting the business.
    In this challenging environment, the Exchange believes that the 
operation of the NMM Pilot has helped the Exchange better serve the 
needs of investors by maintaining high market-quality standards. 
Specifically, the NMM Pilot allowed the Exchange's former specialists 
to compete in today's fully electronic trading environment, continuing 
to provide contribute to market quality. Moreover, while there has been 
turnover in who comprises the DMM community, the Exchange believes that 
the operation of the NMM Pilot has been instrumental in attracting new 
entrants to the business as the former specialists have exited.\34\
---------------------------------------------------------------------------

    \34\ The Exchange notes that in 2008, it also amended its rules 
governing the operation of DMMs, in particular, Rule 98, to enable 
specialists, and now DMMs, to better integrate their NYSE market-
making operations with market-making activities on other markets. 
See Securities Exchange Act Release No. 58328 (Aug. 7, 2008), 73 FR 
48260 (Aug. 18, 2008) (SR-NYSE-2008-45) (Approval Order); see also 
Securities Exchange Act Release No. 72534 (July 3, 2014), 79 FR 
39019 (July 9, 2014) (SR-NYSE-2014-12) (Order approving amendments 
to Rule 98 to adopt a principles-based approach to prohibit the 
misuse of material non-public information).
---------------------------------------------------------------------------

    With respect to how DMMs operate, the Exchange believes that the 
NMM Pilot strikes the appropriate balance between DMM benefits and 
obligations. Importantly, while DMMs do not need to yield to orders on 
the Book, under the NMM Pilot, DMMs continue to be subject to Exchange-
specific affirmative obligations to maintain a fair and orderly market 
that are not imposed on any other cash equity market participant. These 
obligations include maintaining a quote at the inside a specified 
percentage of the day,\35\ supplying liquidity as needed to facilitate 
openings and closings,\36\ maintaining price continuity with reasonable 
depth in all of their registered securities,\37\ and re-entering the 
market if taking liquidity to increase a trading position.\38\ 
Similarly, the SLP Pilot has created a separate class of liquidity 
providers at the Exchange, with differing incentives, to supplement the 
liquidity provided by the DMMs, which further supports the Exchange's 
market quality.
---------------------------------------------------------------------------

    \35\ See NYSE Rule 104(a)(1)(A).
    \36\ See NYSE Rule 104(a)(2)-(3).
    \37\ See NYSE Rule 104(f)(ii).
    \38\ See NYSE Rule 104(h).
---------------------------------------------------------------------------

    The Exchange believes that by operating under its NMM and SLP 
Pilots, it offers a diverse and unique population of market 
participants, including DMMs, SLPs, Floor brokers, and other off-Floor 
market participants, that allow it to more effectively compete for 
order flow, with superior market quality. The Exchange believes that an 
important market quality measure is how much liquidity an exchange 
provides. In today's fragmented equity model, the market quality of 
displayed venues varies widely. The Exchange believes, however, that it 
continues to be a leader in liquidity providing among registered 
exchanges, which is due to the ongoing operation of the NMM and SLP 
Pilots.
    The chart below highlights six key market-quality metrics that 
measure best price and liquidity in Exchange-listed securities. Best 
prices are measured by assessing Exchange bid/ask spreads, percentage 
of time at best prices, and percentage time alone at the best prices. 
Liquidity is measured by looking at market share, most displayed shares 
at the best prices, and percentage of time at the best prices with the 
greatest displayed size. As set forth in the table below, the Exchange 
ranks first in each of these metrics.

                                 NYSE-Listed Securities (Tape A)--December 2014
----------------------------------------------------------------------------------------------------------------
                                         All securities (equal weighted)
-----------------------------------------------------------------------------------------------------------------
                                                   Average
                                       Market       quoted     Displayed                % Time best     % Time
                                       share        spread     shares at    % Time at     price &      alone at
                                      (volume       (time         NBBO         NBBO       largest        NBBO
                                     weighted)    weighted)                                 size
----------------------------------------------------------------------------------------------------------------
NYSE..............................         23.4         48.5       1071.9         74.0         45.8         19.6
Nasdaq............................         13.6        311.6        451.6         47.3         17.5          4.2
NYSE Arca.........................          8.0        710.4        409.6         42.9         12.0          3.0
BZX...............................          7.7        463.8        294.3         31.2          6.7          1.5
EDGX..............................          5.0        382.1        326.6         29.5          9.4          3.1
BYX...............................          3.6        551.1        107.7         21.2          2.5          0.6
Nasdaq BX.........................          1.8         68.7         59.2         15.7          2.0          0.2
EDGA..............................          2.8        850.6         94.9         19.2          2.0          0.3
----------------------------------------------------------------------------------------------------------------

    The Exchange notes that DMMs and SLPs have been important 
contributors to the Exchange's performance, particularly at setting the 
NBBO. For example, during September 2014, DMMs and SLPs (including 
SLMMs) accounted for over 38% of the liquidity-providing volume on the 
Exchange. In addition, during 2014, DMMs have averaged quoting at the 
inside almost 30% of the time and DMMs provided an average of 14.6% of 
the Exchange's size. In 2014, 8.3% of DMM volume executed was from 
quotes that improved the NBBO at the time the quote was entered. This 
represents an improvement since 2009, when only 2.7% of DMM volume 
improved the NBBO.
    The Exchange believes that key changes to the NMM Pilot support the 
continued operation of the pilot in the ever-changing equities 
environment. For example, as noted above, in 2009, the Exchange amended 
Rule 104(a)(1) to increase the amount of time that a DMM unit must 
maintain a bid and offer at the inside from 10% to 15% for Less Active 
Securities and from 5% to 10% for More Active Securities.\39\ During 
the same period, the Exchange also amended Rule 1000 to permit CCS to 
provide a partial fill to an incoming order.\40\
---------------------------------------------------------------------------

    \39\ See DMM quoting requirement filing, supra n. 14.
    \40\ See CCS Partial Fill Approval Order, supra n. 18.
---------------------------------------------------------------------------

    After the DMM's quoting requirement was increased, DMM share of 
intraday provide activity increased, from 18.82% in July 2009, before 
the quoting change,

[[Page 34725]]

to 20.03% in September 2009. The Exchange noted a concurrent decline in 
DMM CCS volume during this same time from 9.32% to 6.94% of DMM 
activity. The Exchange believes that the decrease in CCS activity was 
related to a corresponding increase in the DMM displayed quoting 
activity. During the same period, the Exchange experienced a drop in 
NYSE shares routed to away markets from 7.8% in July 2009 to 7.1% in 
September 2009, to 6.6 in October 2009. The Exchange believes that the 
decline in shares routed away is attributable in part to both to the 
increased quoting requirement, because DMMs represented the best quote 
in the market more frequently, and the ability for CCS to partially 
fill incoming orders, thereby obviating the need to route such orders 
to away markets. Accordingly, the Exchange believes that these changes 
to the NMM Pilot contributed to the ongoing market quality at the 
Exchange.
    SLPs likewise represent a substantial share of the Exchange's 
intraday liquidity-providing volume. Participation in the SLP Pilot has 
grown steadily since inception. When first launched, only 497 symbols 
were covered by an SLP. By the end of September 2014, nearly every 
Exchange symbol, including operating companies, preferred stocks, 
warrants, rights and all other issue types, had at least one SLP 
quoting in it. In December 2014, approximately 45% of these symbols had 
at least one SLP quoting at the inside at least 10% of the time.
    Through December 2014, SLPs represented 25.2% of liquidity-
providing execution. The Exchange notes that SLPs have been a solid 
contributor to liquidity in less-active issues, and now account for 
13.3% of the liquidity-providing volume in issues outside of the 
Exchange's 1,000 most active issues.
    The following chart shows both the increase in number of symbols 
assigned to SLPs during the course of the pilot, and the number of SLP 
symbols in which at least one SLP is at the NBB or NBO at least 10% of 
the time. The first two columns represent a count of all SLP/symbol 
pairs where the average time at the NBB or NBO (referred to in the 
chart as NBBO) was 10%. For example, if symbol XYZ were assigned to 
three SLPs, of which two met the 10% NBBO quoting requirement, the 
count for ``Total'' column would be three, and the count for the ``NBBO 
>10%'' column would be two. The right two columns show the number of 
distinct symbols that are covered by and reached 10% NBBO by at least 
one SLP.

                                             SLP Symbols and Quoting
----------------------------------------------------------------------------------------------------------------
                                                                                     Distinct      Distinct NBBO
                                                       Total         NBBO>10%         symbols          >10%
----------------------------------------------------------------------------------------------------------------
Dec-08..........................................             501             332             497             335
Dec-09..........................................           4,328           2,864           1,242           1,199
Dec-10..........................................           6,509           4,079           1,404           1,302
Dec-11..........................................           6,599           3,293           1,478           1,019
Dec-12..........................................           7,971           3,340           1,909           1,377
Dec-13..........................................          10,352           2,845           3,218           1,125
Dec-14..........................................           8,572           3,458           3,262           1,481
----------------------------------------------------------------------------------------------------------------

    The Exchange notes that notwithstanding the significant changes the 
U.S. equities market has undergone since 2008, the statistics the 
Exchange committed to track in connection with the NMM Pilot 
demonstrate that the pilot rules have been effective at improving the 
Exchange's effective spread on marketable orders, the percentage of 
time that the DMMs quote at the NBBO and the percentage of DMM 
participation in total trading volume. Specifically,
     Effective spreads on all marketable orders, which ranged 
from 10 to 18.5 basis points from August to December 2008, have 
remained below 10 basis points since September 2009 and ranged from 6.7 
to 8.2 basis points from November 2013 to November 2014. Effective 
spreads have declined for all order size categories from 100-9999 
shares.
     The percentage of time that DMMs were quoting at the NBBO, 
which ranged from 9.9% to 19% from August to December 2008, have 
exceeded 20% since that time and ranged from 31.3% to 39.2% in the 
period from November 2013 to November 2014.
    For these reasons, the Exchange believes that the Pilots' rules, as 
amended, should be made permanent. The Exchange also proposes to delete 
Rule 104T, which is the pre-NMM Pilot version of Rule 104. Rule 104T 
remains in the Exchange's rule book, but is not operational. With 
permanent approval of current Rule 104, the need to retain Rule 104T is 
mooted. The Exchange also proposes to delete Supplementary Material to 
Rule 104, and related reference to that Supplementary Material in Rule 
104(a)(2), because that rule text was intended to be in effect only 
through October 30, 2009.\41\ Finally, the Exchange proposes to replace 
the reference to ``NYSE Regulation's Division of Market Surveillance'' 
in Rule 104(k) with a reference to the Exchange. Pursuant to Rule 0, 
references to the Exchange may mean references to NYSE Regulation or 
FINRA, which performs certain regulatory services to the Exchange 
pursuant to a Regulatory Services Agreement.
---------------------------------------------------------------------------

    \41\ See Securities Exchange Act Release No. 60573 (Aug. 26, 
2009), 74 FR 45500 (Sept. 2, 2009) (SR-NYSE-2009-86) (Notice of 
Filing).
---------------------------------------------------------------------------

    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and the Exchange is not aware of 
any problems that member organizations would have in complying with the 
proposed rule change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\42\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\43\ in particular, because 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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair

[[Page 34726]]

discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78f(b).
    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change is consistent with 
these principles because it seeks to make permanent Pilots and 
associated rule changes that were previously approved by the Commission 
as pilots, that the Exchange has subsequently provided data and 
analysis to the Commission, and that this data and analysis, as well as 
the further analysis in this filing, clearly shows that the Pilots have 
operated as intended and are consistent with the Act.
    The Exchange also believes the proposed rule change is designed to 
facilitate transactions in securities and to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system because making the Pilots permanent would provide market 
participants with a trading venue that encourages the addition of 
liquidity, facilitates the trading of larger orders more efficiently, 
and operates to reward aggressive liquidity providers. The monthly 
statistics provided by the Exchange to the Commission staff over more 
than five years demonstrate that the NMM Pilot has improved market 
quality by numerous measures. Similarly, the Exchange believes the data 
show that the SLP program has appropriately rewarded aggressive 
liquidity providers in the market. The Exchange believes that making 
both of these Pilots permanent would encourage the additional 
utilization of, and interaction with, the NYSE and provide customers 
with the premier venue for price discovery, liquidity, competitive 
quotes, and price improvement.
    In addition, the Exchange believes that making the NMM and SLP 
Pilots permanent would promote just and equitable principles of trade 
and remove impediments to and perfect the mechanism of a free and open 
market because the rules strike the appropriate balance between the 
obligations and benefits of the Exchange's market participants. For 
example, while DMMs no longer have agency responsibilities to the Book, 
they retain a number of affirmative obligations that are unique to the 
Exchange, including meeting Exchange-only quoting requirements, 
supplying liquidity as needed when facilitating openings and closings, 
and maintaining depth and continuity in their listed securities. Given 
these obligations, the Exchange believes it is appropriate to classify 
DMMs as a separate participant in the parity allocation wheel. The 
Exchange notes that it has been operating under this model since 2009, 
and the above-cited market statistics demonstrate that within the 
highly competitive cash equities market, the Exchange's model, 
including DMM parity, has enabled the Exchange to maintain execution 
quality for all investors on the Exchange.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition. For these reasons, the Exchange 
believes that the proposal is consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\44\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Exchange believes that making the Pilots 
permanent would continue to foster competition among liquidity 
providers and maintain execution quality on the Exchange. The Exchange 
believes that the data supplied to the Commission and experience gained 
over more than six years have demonstrated the efficacy of the Pilots, 
and as such, they should be made permanent. Finally, the Exchange notes 
that it operates in a highly competitive market in which market 
participants can easily direct their orders to competing venues, 
including off-exchange venues. In such an environment, the Exchange 
must continually review, and consider adjusting the services it offers 
and the requirements it imposes to remain competitive with other U.S. 
equity exchanges. For the reasons described above, the Exchange 
believes that the proposed rule change reflects this competitive 
environment.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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 such longer period up to 90 days (i) as the 
Commission may designate 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-NYSE-2015-26 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-NYSE-2015-26. 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 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-NYSE-2015-26, 
and should be submitted on or before July 8, 2015.


[[Page 34727]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
---------------------------------------------------------------------------

    \45\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-14827 Filed 6-16-15; 8:45 am]
 BILLING CODE 8011-01-P



                                                                                   Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices                                                    34717

                                                    All submissions should refer to File                    notice is hereby given that on June 4,                 the rights and obligations of its market
                                                    Number SR–EDGX–2015–26. This file                       2015, New York Stock Exchange LLC                      participants, all of which were designed
                                                    number should be included on the                        (‘‘NYSE’’ or the ‘‘Exchange’’) filed with              to improve execution quality on the
                                                    subject line if email is used. To help the              the Securities and Exchange                            Exchange. Certain of the enhanced
                                                    Commission process and review your                      Commission (‘‘SEC’’ or ‘‘Commission’’)                 market model changes were
                                                    comments more efficiently, please use                   the proposed rule change as described                  implemented through the NMM Pilot.5
                                                    only one method. The Commission will                    in Items I and II below, which Items                   Specifically, and as described in greater
                                                    post all comments on the Commission’s                   have been prepared by the Exchange.                    detail below, Rules 72, 104 and the
                                                    Internet Web site (http://www.sec.gov/                  The Commission is publishing this                      provisions of Rule 1000 relating to the
                                                    rules/sro.shtml). Copies of the                         notice to solicit comments on the                      Capital Commitment Schedule are the
                                                    submission, all subsequent                              proposed rule change from interested                   pilot rules associated with the NMM
                                                    amendments, all written statements                      persons.                                               Pilot.
                                                    with respect to the proposed rule                                                                                 As part of the NMM Pilot, NYSE
                                                                                                            I. Self-Regulatory Organization’s                      eliminated the function of specialists on
                                                    change that are filed with the
                                                                                                            Statement of the Terms of Substance of                 the Exchange and created a new
                                                    Commission, and all written
                                                                                                            the Proposed Rule Change                               category of market participant, the
                                                    communications relating to the
                                                    proposed rule change between the                           The Exchange proposes to make                       Designated Market Maker (‘‘DMM’’).6
                                                    Commission and any person, other than                   permanent the rules of the New Market                  DMMs, like specialists, have affirmative
                                                    those that may be withheld from the                     Model Pilot and the Supplemental                       obligations to make an orderly market,
                                                    public in accordance with the                           Liquidity Providers Pilot. The text of the             including continuous quoting
                                                    provisions of 5 U.S.C. 552, will be                     proposed rule change is available on the               requirements and obligations to re-enter
                                                    available for Web site viewing and                      Exchange’s Web site at www.nyse.com,                   the market when reaching across to
                                                    printing in the Commission’s Public                     at the principal office of the Exchange,               execute against trading interest. Unlike
                                                    Reference Room, 100 F Street NE.,                       and at the Commission’s Public                         specialists, DMMs have a minimum
                                                    Washington, DC 20549, on official                       Reference Room.                                        quoting requirement 7 in their assigned
                                                    business days between the hours of                      II. Self-Regulatory Organization’s                     securities and no longer have negative
                                                    10:00 a.m. and 3:00 p.m. Copies of the                  Statement of the Purpose of, and                       obligations. DMMs are also no longer
                                                    filing will also be available for                       Statutory Basis for, the Proposed Rule                 agents for public customer orders.8
                                                    inspection and copying at the principal                 Change                                                 DMM obligations under the NMM Pilot
                                                    office of the Exchange. All comments                                                                           are set forth in Rule 104.
                                                    received will be posted without change;                    In its filing with the Commission, the                 In addition, the Exchange
                                                    the Commission does not edit personal                   self-regulatory organization included                  implemented a system change that
                                                    identifying information from                            statements concerning the purpose of,                  allowed a DMM to create a schedule of
                                                    submissions. You should submit only                     and basis for, the proposed rule change                additional non-displayed liquidity at
                                                    information that you wish to make                       and discussed any comments it received                 various price points where the DMM is
                                                    available publicly. All submissions                     on the proposed rule change. The text                  willing to interact with interest and
                                                    should refer to File Number SR–EDGX–                    of those statements may be examined at                 provide price improvement to orders in
                                                    2015–26 and should be submitted on or                   the places specified in Item IV below.                 the Exchange’s system. This schedule is
                                                    before July 8, 2015.                                    The Exchange has prepared summaries,                   known as the DMM Capital
                                                                                                            set forth in sections A, B, and C below,               Commitment Schedule (‘‘CCS’’) and is
                                                      For the Commission, by the Division of                of the most significant parts of such
                                                    Trading and Markets, pursuant to delegated                                                                     set forth in Rule 1000. CCS provides the
                                                                                                            statements.                                            Exchange systems, formerly referred to
                                                    authority.15
                                                    Robert W. Errett,                                       A. Self-Regulatory Organization’s                      as the ‘‘Display Book®’’ 9 with the
                                                    Deputy Secretary.                                       Statement of the Purpose of, and the                   amount of shares that the DMM is
                                                                                                            Statutory Basis for, the Proposed Rule                 willing to trade at price points outside,
                                                    [FR Doc. 2015–14823 Filed 6–16–15; 8:45 am]
                                                    BILLING CODE 8011–01–P
                                                                                                            Change
                                                                                                                                                                      5 See Securities Exchange Act No. 58845 (October

                                                                                                            1. Purpose                                             24, 2008), 73 FR 64379 (October 29, 2008) (SR–
                                                                                                                                                                   NYSE–2008–46) (‘‘NMM Pilot Approval Order’’).
                                                    SECURITIES AND EXCHANGE                                    The Exchange proposes to make                          6 See Rule 103.

                                                    COMMISSION                                              permanent the rules of New Market                         7 See Rule 104.

                                                                                                            Model Pilot (‘‘NMM Pilot’’) and the                       8 See Rule 60; see also Rules 104 and 1000.
                                                    [Release No. 34–75153; File No. SR–NYSE–                Supplemental Liquidity Providers Pilot                    9 The Exchange’s Display Book system is an order
                                                    2015–26]                                                (‘‘SLP Pilot,’’ collectively ‘‘Pilots’’). The          management and execution facility. The Display
                                                                                                                                                                   Book system receives and displays orders to the
                                                                                                            Pilots are currently scheduled to expire
                                                    Self-Regulatory Organizations; New                                                                             DMMs, contains the order information, and
                                                                                                            upon the earlier of July 31, 2015 or                   provides a mechanism to execute and report
                                                    York Stock Exchange, LLC; Notice of
                                                                                                            Securities and Exchange Commission                     transactions and publish the results to the
                                                    Filing of Proposed Rule Change                                                                                 Consolidated Tape. The Display Book system is
                                                                                                            (‘‘SEC’’ or ‘‘Commission’’) approval to
                                                    Making Permanent the Rules of the                                                                              connected to a number of other Exchange systems
                                                                                                            make the Pilots permanent.4                            for the purposes of comparison, surveillance, and
                                                    New Market Model Pilot and the
                                                    Supplemental Liquidity Providers Pilot                  Background                                             reporting information to customers and other
                                                                                                                                                                   market data and national market systems. Because
                                                                                                              In October 2008, the NYSE
asabaliauskas on DSK5VPTVN1PROD with NOTICES




                                                    June 11, 2015.                                                                                                 the Exchange has retired the actual system referred
                                                                                                            implemented significant changes to its                 to as the ‘‘Display Book,’’ but not the functionality
                                                       Pursuant to Section 19(b)(1) 1 of the                                                                       associated with the Display Book, the Exchange
                                                    Securities Exchange Act of 1934                         market rules, execution technology, and                proposes to replace all references to the term
                                                    (‘‘Act’’),2 and Rule 19b–4 thereunder,3                                                                        ‘‘Display Book’’ in Rules 104 and 1000 with
                                                                                                               4 See Securities Exchange Act Nos. 73919            references either to the term (i) ‘‘Exchange systems’’
                                                      15 17
                                                                                                            (December 23, 2014), 79 FR 78930 (December 31,         when use of the term refers to the Exchange systems
                                                            CFR 200.30–3(a)(12).                            2014) (SR–NYSE–2014–71) (‘‘NMM Pilot extension         that receive and execute orders, or (ii) ‘‘Exchange
                                                      1 15 U.S.C.78s(b)(1).
                                                                                                            filing’’); 73945 (December 24, 2014), 80 FR 58         book’’ when use of the term refers to the interest
                                                      2 15 U.S.C. 78a.
                                                                                                            (January 2, 2015) (SR–NYSE–2014–72) (‘‘SLP Pilot       that has been entered and ranked in Exchange
                                                      3 17 CFR 240.19b–4.                                   extension filing’’).                                   systems.



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                                                    34718                        Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices

                                                    at, and inside the Exchange Best Bid or                 Description of Pilot Rules That Would                  Second, DMM units are subject to the
                                                    Best Offer (‘‘BBO’’). CCS interest is                   Become Permanent                                       two-sided quoting obligations set forth
                                                    separate and distinct from other DMM                    Rule 104                                               in Rule 104(a)(1)(B), which are the
                                                    interest in that it is generally interest of                                                                   pricing obligations applicable to all
                                                    last resort.                                               Current Rule 104, as amended since                  equity market makers market-wide to
                                                                                                            2008, sets forth DMM obligations. Under                maintain a bid and offer a designated
                                                       The NMM Pilot further modified the                   Rule 104(a), DMMs registered in one or
                                                    priority of trading interest, set forth in                                                                     percentage away from the NBB and NBO
                                                                                                            more securities traded on the Exchange                 at all times.15
                                                    Rule 72, which rewards displayed                        are required to engage in a course of                     Under Rule 104(b), DMM units are
                                                    orders that establish the BBO by giving                 dealings for their own account to assist               permitted to use algorithms for quoting
                                                    such orders priority in execution against               in the maintenance of a fair and orderly               and trading consistent with NYSE and
                                                    incoming orders. During the operation                   market insofar as reasonably practicable.              SEC rules. Exchange systems enforce the
                                                    of the NMM Pilot, an order or portion                   The responsibilities and duties of a                   proper sequencing of incoming orders
                                                    thereof that establishes priority, retains              DMM include:                                           and algorithmically-generated messages.
                                                    that priority until such order or portion                  • Assisting the Exchange by                         Except as provided for in the rule, the
                                                    of such order is exhausted. Where no                    providing liquidity as needed to provide               DMM unit’s system employing
                                                    one order has established priority,                     a reasonable quotation and by                          algorithms has access to information
                                                    shares are distributed among all market                 maintaining continuous two-sided                       with respect to orders entered on the
                                                    participants on parity.                                 quotes with a displayed size of at least               Exchange, Floor Broker agency interest
                                                       In addition, the NMM Pilot modified                  one round lot that meets certain metrics               files or reserve interest, to the extent
                                                    how orders are allocated among market                   as set forth in the rule;                              such information is publicly available.
                                                    participants. Before the NMM Pilot, the                    • Facilitating openings and re-                     DMM unit algorithms receive the same
                                                    Exchange operated on a parity                           openings in assigned securities, which                 information with respect to orders
                                                    allocation model whereby executed                       may include supplying liquidity as                     entered on the Exchange, Floor Broker
                                                    orders were allocated on parity among                   needed; and                                            agency interest files or reserve interest
                                                    market participants, which included                        • Facilitating the close of trading for             as is disseminated to the public by the
                                                    each Floor broker and the orders                        assigned securities, which may include                 Exchange and receive such information
                                                    collectively represented in Exchange                    supplying liquidity as needed.13                       no sooner than it is available to other
                                                    systems. Because specialists on the                        The Rule 104(a)(1) quoting                          market participants.16 A DMM unit’s
                                                    Exchange had both agency obligations to                 requirements applicable to DMMs are                    algorithm may submit trading interest
                                                    public customer orders and negative                     two-fold. First, with respect to                       via CCS interest in accordance with
                                                    obligations, their executions yielded to                maintaining a continuous two-sided                     Rule 1000.
                                                    public customer orders. Under the                       quote with reasonable size, DMM units                     Under Rule 104(c), a DMM unit may
                                                    NMM Pilot, because DMMs do not have                     must maintain a bid or an offer at the                 maintain reserve interest consistent
                                                    either agency obligations or negative                   National Best Bid (‘‘NBB’’) and National               with Exchange rules governing Reserve
                                                    obligations, DMMs are an individual                     Best Offer (‘‘NBO’’) (collectively,                    Orders. Such reserve interest is eligible
                                                    market participant eligible for allocation              ‘‘inside’’) at least 15% of the trading day            for execution in manual transactions.
                                                                                                            for securities in which the DMM unit is                   Under Rule 104(d), a DMM unit may
                                                    under the Exchange’s parity allocation.
                                                                                                            registered with a consolidated average                 provide algorithmically generated price
                                                    Accordingly, for purposes of share
                                                                                                            daily volume (‘‘CADV’’) of less than one               improvement to all or part of an
                                                    allocation in an execution, Rule 72(c)(ii)
                                                                                                            million shares (‘‘Less Active                          incoming order that can be executed at
                                                    provides that each Floor broker, the
                                                                                                            Securities’’), and at least 10% for                    or within the BBO through the use of
                                                    DMM, and orders collectively
                                                                                                            securities in which the DMM is                         CCS interest. Any orders eligible for
                                                    represented in Exchange systems (i.e.,
                                                                                                            registered with a CADV equal to or                     execution in the Exchange’s book at the
                                                    ‘‘Book Participant’’) 10 constitute
                                                                                                            greater than one million shares (‘‘More                price of the DMM unit’s interest trade
                                                    individual participants for purposes of
                                                                                                            Active Securities’’).14 These DMM                      on parity with such interest, as does any
                                                    parity allocation of executed orders.
                                                                                                            quoting obligations set forth in Rule                  displayed interest representing a d-
                                                       In connection with the DMM Pilot,                    104(a)(1)(A) are unique to the Exchange.               Quote enabling such interest to trade at
                                                    the NYSE established the SLP Pilot,                                                                            the same price as the DMM unit’s
                                                    which established SLPs as a new class                      13 In 2015, the Exchange eliminated liquidity
                                                                                                                                                                   interest.
                                                    of market participants to supplement                    replenishment points (‘‘LRP’’) and the ‘‘gap’’ quote      Under Rule 104(e), DMM units must
                                                                                                            procedures and amended Rule 104(a) to eliminate
                                                    the liquidity provided by DMMs.11 Rule                  the former DMM obligations to facilitate trading       provide contra-side liquidity as needed
                                                    107B governs the SLP Pilot.                             when an LRP was reached or the gap quote               for the execution of odd-lot quantities
                                                       The Pilots were originally scheduled                 procedure was being used. See Securities Exchange      that are eligible to be executed as part
                                                                                                            Act Release No. 74063 (Jan. 15, 2015), 80 FR 3269      of the opening, re-opening, and closing
                                                    to end on October 1, 2009, or such                      (Jan. 22, 2015) (Notice of Filing).
                                                    earlier time as the Commission                             14 In 2009, the Exchange amended Rule 104(a)(1)
                                                                                                                                                                   transactions but remain unpaired after
                                                    determined to make the Pilots’ rules                    to increase the amount of time that a DMM unit
                                                                                                                                                                     15 See Securities Exchange Act Release No. 63255
                                                    permanent. The Exchange filed to                        must maintain a bid and offer at the inside from
                                                                                                            10% to 15% for Less Active Securities and from 5%      (November 5, 2010), 75 FR 69484 (November 12,
                                                    extend the operation of the Pilots on                   to 10% for More Active Securities. See Securities      2010) (SR–NYSE–2010–69) (Notice of Filing).
                                                    several occasions in order to prepare
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                                                                                                            Exchange Act Release No. 60595 (August 31, 2009),        16 In 2013, the Exchange amended Rules 104 and

                                                    this rule filing.12                                     74 FR 46261 (September 8, 2009) (SR–NYSE–2009–         123C to specify that closings may be effectuated
                                                                                                            91) (Notice of Filing) (‘‘DMM quoting requirement      manually or electronically. See Securities Exchange
                                                                                                            filing’’). In 2011, the Exchange amended Rule          Act Release No. 71086 (December 16, 2013), 78 FR
                                                      10 The orders represented in the Book Participant
                                                                                                            104(a)(1) to specify that the quoting percentage       77186 (December 20, 2013) (SR–NYSE–2013–79)
                                                    in aggregate constitute a single participant.           would be based on the consolidated average daily       (Notice of Filing). As part of that filing, the
                                                      11 See Securities Exchange Act No. 58877
                                                                                                            volume of a security, rather than the average daily    Exchange amended Rules 104(a)(3) and 104(b) to
                                                    (October 29, 2008), 73 FR 65904 (November 5, 2008)      volume of the security on the Exchange. See            provide that the DMM algorithm would have access
                                                    (SR–NYSE–2008–108) (Notice of Filing’’ [sic]).          Securities Exchange Act Release No. 65865              to aggregate order information relating to Reserve
                                                      12 See NMM pilot extension filing and SLP pilot       (December 2, 2011), 76 FR 76799 (December 8,           Interest eligible to participate in a manual
                                                    extension filing, supra n. 3 [sic].                     2011) (SR–NYSE–2011–58) (Notice of Filing).            execution.



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                                                                                 Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices                                                      34719

                                                    the DMM has paired all other eligible                   re-entry obligations for non-conditional               is so great that it cannot be handled by
                                                    round lot sized interest.                               transactions,’’ as set forth in Rule 104(g).           the DMMs without assistance, a Floor
                                                       Rule 104(f) sets forth the functions of                 Rule 104(j), which was added in                     Governor may authorize a member of
                                                    DMMs. First, any member who expects                     2013,17 permits a DMM to perform the                   the Exchange who is not registered as a
                                                    to act as a DMM in any listed stock must                following Trading Floor functions:                     DMM in such stock to act as temporary
                                                    be registered as a DMM in accordance                       • Maintain order among Floor brokers                DMM for that day only.
                                                    with Rule 103. Second, a DMM must                       manually trading at the DMM’s assigned
                                                                                                                                                                   Rule 1000
                                                    maintain, insofar as reasonably                         panel;
                                                    practicable, a fair and orderly market on                  • Bring Floor brokers together to                      The provisions of current Rule 1000
                                                    the Exchange in the stocks in which he                  facilitate trading, which may include                  relating to CCS, as amended since 2008,
                                                    or she is so acting. Third, the Exchange                the DMM as a buyer or seller;                          and which are operating as part of the
                                                    supplies DMMs with suggested Depth                         • Assist a Floor broker with respect to             NMM Pilot, are set forth sections (d)–(g)
                                                    Guidelines for each security in which a                 an order by providing information                      of Rule 1000.
                                                    DMM is registered, and DMMs are                         regarding the status of a Floor broker’s                  Rule 1000(d) provides that for each
                                                                                                            orders, helping to resolve errors or                   security in which it is registered, a
                                                    expected to quote and trade with
                                                                                                            questioned trades, adjusting errors, and               DMM unit may place within Exchange
                                                    reference to the Depth Guidelines.
                                                                                                            cancelling or inputting Floor broker                   systems a pool of liquidity to be
                                                    Finally, DMMs are designated as market
                                                                                                            agency interest on behalf of a Floor                   available to fill or partially fill 18
                                                    makers on the Exchange for all purposes
                                                                                                            broker; and                                            incoming orders in automatic
                                                    under the Act and the rules and
                                                                                                               • Research the status of orders or                  executions, which is CCS. CCS is
                                                    regulations thereunder.
                                                                                                            questioned trades on his or her own                    designed to be a DMM unit’s
                                                       Rule 104(g) governs transactions by                                                                         commitment to trade a specified number
                                                    DMMs. Transactions on the Exchange                      initiative or at the request of the
                                                                                                            Exchange or a Floor broker when a Floor                of shares at specified price points in
                                                    by a DMM for the DMM’s account must                                                                            reaction to incoming contra-side
                                                    be effected in a reasonable and orderly                 broker’s handheld device is not
                                                                                                            operational, when there is activity                    interest. As noted above, CCS interest is
                                                    manner in relation to the condition of                                                                         used to trade at the BBO, at prices better
                                                    the general market and the market in the                indicating that a potentially erroneous
                                                                                                            order was entered or a potentially                     than the BBO, and at prices outside the
                                                    particular stock. Rule 104(g) describes                                                                        BBO. CCS interest supplements
                                                    certain permitted transactions,                         erroneous trade was executed, or when
                                                                                                            there otherwise is an indication that                  displayed and non-displayed interest of
                                                    including neutral transactions and non-                                                                        the DMM in Exchange systems. CCS
                                                    conditional transactions, but prohibits                 improper activity may be occurring.
                                                                                                               The rule also permits the Exchange to               interest must be for a minimum of one
                                                    certain other transactions. Specifically,                                                                      round lot of a security and entered at
                                                    except as otherwise permitted by Rule                   make systems available to a DMM at the
                                                                                                            post that display the following                        price points that are at, inside, or away
                                                    104, during the last ten minutes prior to                                                                      from the BBO.
                                                    the close of trading, a DMM with a long                 information about securities in which
                                                                                                                                                                      Rule 1000(e) governs executions at
                                                    (short) position in a security is                       the DMM is registered: (A) Aggregated
                                                                                                                                                                   and outside the BBO, and specifies how
                                                    prohibited from making a purchase                       buying and selling interest; (B) the price
                                                                                                                                                                   CCS interest would interact with such
                                                    (sale) in such security that results in a               and size of any individual order or Floor
                                                                                                                                                                   executions. For executions at the BBO,
                                                    new high (low) price on the Exchange                    broker agency interest file and the                    CCS interest would yield to all other
                                                    for the day at the time of the DMM’s                    entering and clearing firm information                 interest at that price point. For
                                                    transaction.                                            for such order, except that the display                executions outside the BBO, i.e.,
                                                       Rule 104(h) addresses DMM                            excludes any order or portion thereof                  sweeps, Rule 1000(e)(iii) specifies how
                                                    transactions in securities that establish               that a market participant has elected not              CCS interest could participate to
                                                    or increase the DMM’s position. A                       to display to a DMM; and (C) post-trade                provide price improvement to the
                                                    ‘‘Conditional Transaction’’ is a DMM’s                  information. A DMM may not use any                     residual of an order that sweeps. As
                                                    transaction in a security that establishes              such information in a manner that                      provided for in the rule, if an order is
                                                    or increases a position and reaches                     would violate Exchange rules or federal                not executed at full at the Exchange
                                                    across the market to trade as the contra-               securities laws or regulations. The DMM                BBO, Exchange systems will calculate
                                                    side to the Exchange-published bid or                   may provide market information that is                 the unfilled volume of the contra-side
                                                    offer. Certain Conditional Transactions                 available to the DMM at the post to (i)                order and review the additional
                                                    may be made by a DMM without                            respond to an inquiry from a Floor                     displayed and non-displayed interest,
                                                    restriction as to price if they are                     broker in the normal course of business                including CCS interest and protected
                                                    followed by appropriate re-entry on the                 or (ii) visitors to the Trading Floor for              quotes on away markets, to determine
                                                    opposite side of the market                             the purpose of demonstrating methods                   the price at which the remaining
                                                    commensurate with the size of the                       of trading. However, a Floor broker may                volume of the contra-side order can be
                                                    DMM’s transaction. The Exchange                         not submit an inquiry pursuant to this                 executed in full (the ‘‘completion
                                                    issues guidelines, called price                         provision by electronic means and the                  price’’). Exchange systems will evaluate
                                                    participation points (‘‘PPP’’), that                    DMM may not use electronic means to                    the price at which the maximum
                                                    identify the price at or before which a                 transmit market information to a Floor                 volume of CCS interest exists to trade,
                                                    DMM is expected to re-enter the market                  broker in response to a Floor broker’s                 and execute the incoming order one
                                                    after effecting a Conditional                           inquiry pursuant to this provision.
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                                                    Transaction. Immediate re-entry is                         Rule 104(k) provides that in the event                18 The original NMM Pilot permitted CCS to

                                                    required after certain Conditional                      of an emergency, such as the absence of                participate only if it would fill an incoming order.
                                                                                                            the DMM, or when the volume of                         In 2009, the Exchange amended Rule 1000 to
                                                    Transactions. However, certain other                                                                           provide that Exchange systems would access CCS
                                                    Conditional Transactions may be made                    business in the particular stock or stocks             interest to participate in executions when the
                                                    without restriction as to price and Rule                                                                       incoming order would only be partially executed.
                                                                                                              17 See Securities Exchange Act Release No. 71175     See Securities Exchange Act Release No. 60671
                                                    104(i) provides that the re-entry                       (December 23, 2013), 78 FR 79534 (December 30,         (September 15, 2009), 74 FR 48327 (September 22,
                                                    obligations following such Conditional                  2013) (SR–NYSE–2013–21) (Order approving               2009) (SR–NYSE–2009–71) (‘‘CCS Partial Fill
                                                    Transactions would be the same as the                   adoption of Rule 104(j)).                              Approval Order’’).



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                                                    34720                        Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices

                                                    minimum price variation (as the term is                 established as the only displayable 21                  interest and therefore not displayed at
                                                    defined in Rule 62) better than that                    bid or offer made at a particular price                 the BBO (or not displayable if it
                                                    price, which is how CCS provides price                  and such bid or offer is the only                       becomes the BBO) is not eligible for
                                                    improvement. If an order cannot be                      displayable interest when such price is                 priority allocation of an execution
                                                    executed in full because of the order’s                 or becomes the BBO (the ‘‘setting                       irrespective of the price of such reserve
                                                    limit price, or because of an immediate-                interest’’), such setting interest is                   interest or the time it is accepted into
                                                    or-cancel time-in-force, CCS interest is                entitled to priority for allocation of                  Exchange systems. However, if,
                                                    available to partially fill the incoming                executions at that price as described in                following an execution of part or all of
                                                    order.                                                  the rule, subject to the provisions below:              setting interest, such setting interest is
                                                       Rule 1000(f) specifies how CCS                          (A) Odd-lot orders, including                        replenished from any reserve interest,
                                                    interest may provide price improvement                  aggregated odd-lot orders that are                      the replenished volume of such setting
                                                    inside the BBO with interest arriving in                displayable, are not eligible to be setting             interest is entitled to priority if the
                                                    the Exchange market that:                               interest.22                                             setting interest is still the only interest
                                                       • Will be eligible to trade at or                       (B) If at the time displayable interest              at the BBO.
                                                    through the BBO;                                        of a round lot or greater becomes the                      (G) If non-pegging interest becomes
                                                       • Will be eligible to trade at the price             BBO, there is other displayable interest                the BBO, it is considered the setting
                                                    of interest in Exchange systems                         of a round lot or greater, including                    interest even if pegging interest is
                                                    representing non-displayable reserve                    aggregated odd-lot orders that are equal                pegging to such non-pegging interest,
                                                    interest of Reserve Orders and Floor                    to or greater than a round lot, at the                  and it retains its priority even if
                                                    broker agency interest files reserve                    price that becomes the BBO, no interest                 subsequently joined at that price by a
                                                    interest (‘‘hidden interest’’) or MPL                   is considered to be a setting interest,                 pegging interest.
                                                    Orders; or                                              and, therefore, there is no priority                       Under Rule 72(b), once priority is
                                                       • Will be eligible to route to away                  established.                                            established by the setting interest, such
                                                    market interest for execution if [sic] the                 (C) If at the time displayable interest              setting interest retains that priority for
                                                    total volume of CCS interest, plus d-                   of a round lot or greater becomes the                   any execution at that price when that
                                                    Quote interest in Floor broker agency                   BBO, there is other displayable interest,               price is at the BBO. If executions
                                                    interest files, plus any interest                       the sum of which is less than a round                   decrement the setting interest to an odd-
                                                    represented by hidden interest, would                   lot, at the price that becomes the BBO,                 lot size, such remaining portion of the
                                                    be sufficient to fully complete the                     the displayable interest of a round lot or              setting interest retains its priority for
                                                    arriving interest at a price inside the                 greater is considered the only                          any execution at that price when that
                                                    BBO. In such an instance, the Exchange                  displayable bid or offer at that price                  price is the BBO. For any execution of
                                                    systems determine the price point                       point and is therefore established as the               setting interest that occurs when the
                                                    inside the BBO at which the maximum                     setting interest.                                       price of the setting interest is not the
                                                    volume of CCS interest trades, taking                      (D) If executions decrement the                      BBO, the setting interest does not have
                                                    into account the volume, if any,                        setting interest to an odd-lot size, a                  priority and is executed on parity.
                                                    available from d-Quotes and hidden                      round lot or partial round lot order that                  Priority of setting interest is not
                                                    interest. The arriving interest is                      joins such remaining odd-lot size order                 retained after the close of trading on the
                                                    executed at that price, with all interest               is not eligible to be the setting interest.             Exchange or following the resumption
                                                    (CCS, d-Quote, hidden interest) trading                    (E) If as a result of cancellation,                  of trading in a security after a trading
                                                    on parity.                                              interest is or becomes the single                       halt in such security has been invoked
                                                       Under Rule 1000(g), CCS interest may                 displayable interest of a round lot or                  pursuant to Rule 123D or following the
                                                    trade with non-marketable 19 interest                   greater at the BBO, it becomes the                      resumption of trading after a trading
                                                    where such non-marketable interest                      setting interest.                                       halt invoked pursuant to the provisions
                                                    betters the BBO (or cancels in the case                    (F) Only the portion of setting interest
                                                                                                                                                                    of Rule 80B. Priority of the setting
                                                    of an arriving IOC order) if the incoming               that is or has been published in the BBO
                                                                                                                                                                    interest is not retained on any portion
                                                    interest may be executed in full by all                 is entitled to priority allocation of an
                                                                                                                                                                    of the priority interest that is routed to
                                                    interest available in the Exchange’s                    execution. That portion of setting
                                                                                                                                                                    an away market and is returned
                                                    book, including CCS interest and d-                     interest that is designated as reserve
                                                                                                                                                                    unexecuted unless such priority interest
                                                    quotes. Such trade takes place at the                                                                           is greater than a round lot and the only
                                                    limit price of the arriving non-                        setting interest. See Securities Exchange Act
                                                                                                            Release No. 68302 (November 27, 2012), 77 FR            other interest at the price point is odd-
                                                    marketable interest. All interest trading               71658 (December 3, 2012) (SR–NYSE–2012–65)              lot orders, the sum of which is less than
                                                    with the incoming interest trades on                    (Notice of Filing) (‘‘Pegging filing’’).                a round lot.
                                                    parity.                                                   21 As used in this rule, the term ‘‘displayable’’
                                                                                                                                                                       Under Rule 72(c), executions are
                                                                                                            means that portion of interest that could be
                                                    Rule 72                                                 published as, or as part of, the BBO, including         allocated as follows. An automatically
                                                                                                            pegging interest. Displayable odd-lot orders are        executing order trades first with the
                                                       The priority of bids and offers and                  published as part of the BBO if, when aggregated        displayed bid (offer) and, if there is
                                                    allocation of executions is governed by                 with other interest available for execution at that     insufficient displayed volume to fill the
                                                    Rule 72, as amended since 2008. Under                   price point, the sum of the odd-lot order and other
                                                                                                                                                                    order, trades next with reserve interest.
                                                    Rule 72(a), when a bid or offer,                        interest available at that price point would be equal
                                                                                                            to or greater than a round lot. The term ‘‘displayed    All reserve interest trades on parity. For
                                                    including pegging interest,20 is                        interest’’ includes that part of an order that is       the purpose of share allocation in an
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                                                                                                            published as, or as part of, the BBO, which may         execution, each single Floor broker, the
                                                      19 ‘‘Non-marketable’’ means trading interest (i.e.,   include one or more odd-lot orders.
                                                    displayable and non-displayable) that is at a price       22 In 2010, the Exchange amended its rules,           DMM and orders collectively
                                                    higher than the current Exchange bid (but below the     including Rule 72, to incorporate the receipt and       represented in Exchange systems
                                                    current Exchange offer) or lower than the current       execution of odd-lot interest in the round-lot market   (referred to as ‘‘Book Participant’’)
                                                    Exchange offer (but above the current Exchange          and decommission the former Odd Lot System. See         constitute individual participants. The
                                                    bid), including better bids and offers on other         Securities Exchange Act Release No. 62578 (July 27,
                                                    market centers. See Rule 1000(g)(1).                    2010), 75 FR 45185 (August 2, 2010) (SR–NYSE–
                                                                                                                                                                    orders represented in the Book
                                                      20 In 2012, the Exchange amended Rule 72(a) to        2010–43 and SR–NYSEAmex–2010–53) (‘‘Odd-lot             Participant in aggregate constitute a
                                                    specify that pegging interest may be considered         Approval Order’’).                                      single participant and are allocated


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                                                                                 Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices                                                     34721

                                                    shares among such orders by means of                    replenishing the displayable quantity of                The member’s bid or offer is entitled to
                                                    time priority with respect to entry.                    a participant.                                          priority at such cross price, irrespective
                                                       In any execution at the BBO, a                          When an execution occurs outside the                 of pre-existing displayed bids or offers
                                                    participant who is the setting interest                 BBO, the interest that is displayable is                on the Exchange at that price. The
                                                    receives 15% of the volume of such                      allocated before any interest that is non-              member must follow the crossing
                                                    executed amount or a minimum of one                     displayable (i.e., reserve interest). All               procedures of Rule 76, and another
                                                    round lot, whichever is greater, until                  interest that is displayable is on parity               member may trade with either the bid
                                                    such setting interest has received a                    among individual participants’                          or offer side of the cross transaction
                                                    complete execution of its eligible                      displayable interest. All interest that is              only to provide a price which is better
                                                    priority interest. Setting interest that is             non-displayable is on parity among                      than the cross price as to all or part of
                                                    decremented to an odd-lot size receives                 individual participants’ non-displayable                such bid or offer. A member who is
                                                    15% of the volume of such incoming                      interest. Incoming orders eligible for                  providing a better price to one side of
                                                    interest rounded up to the size of the                  execution at price points between the                   the cross transaction must trade with all
                                                    setting interest, or the size of the                    BBO trade with all available interest at                other displayed market interest on the
                                                    incoming interest, whichever is less.                   the price. All NYSE interest available to               Exchange at that price before trading
                                                    Following the allocation of an execution                participate in the execution (e.g., d-                  with any part of the cross transaction.
                                                    to setting interest as provided above, the              quotes, s-quotes, Reserve Orders, and                   Following a transaction at the improved
                                                    remainder of the executed volume is                     CCS interest) trade on parity.                          price, the member with the agency cross
                                                    allocated to each participant on parity.                   DMM interest added intra-day to                      transaction must follow the crossing
                                                    The participant with the priority                       participate in a verbal transaction with                procedures of Rule 76 and complete the
                                                    interest (the setting interest) is included             a Floor broker or during a slow quote is                balance of the cross. No member may
                                                    in such parity allocation. If there is no               allocated shares only after all other                   break up the proposed cross transaction,
                                                    setting interest for an execution at the                interest eligible for execution at the                  in whole or in part, at the cross price.
                                                    BBO, allocation of the executed volume                  price point is executed in full. DMM                    No DMM may effect a proprietary
                                                    is on parity by participant except as                   interest added at the time of the slow                  transaction to provide price
                                                    otherwise set forth in the rule. When an                quote or when verbally trading with a                   improvement to one side or the other of
                                                    execution occurs at the BBO, interest                   Floor broker not executed during the                    a cross transaction effected pursuant
                                                    that is displayed in the BBO is allocated               transaction is cancelled.23 However, s-                 Rule 72(d). A transaction effected at the
                                                    before any interest that is not displayed.              Quotes, if any, representing DMM                        cross price in reliance on this provision
                                                    In allocating an execution that involves                interest present at the price point prior               is printed as ‘‘stopped stock.’’ When a
                                                    setting interest, whether such execution                to the verbal transaction with a Floor                  member effects a transaction under this
                                                    takes place at the BBO or otherwise, the                broker or during a slow quote receive an                provision, the member must, as soon as
                                                    volume allocated to the setting interest                allocation on parity as described above.                practicable after the trade is completed,
                                                    is allocated to the interest in the setting             An order that is modified to reduce the                 complete documentation of the trade as
                                                    interest that is entitled to priority first.            size of the order retains the time stamp                the Exchange requires.
                                                       Shares are allocated in round lots or                of original order entry. An order
                                                                                                                                                                    Rule 107B
                                                    the size of the order if less than a round              modified in any other way, such as
                                                    lot. If the number of shares to be                      increasing the size or changing the price                  Rule 107B, as amended, governs the
                                                    executed at a price point is insufficient               of the order, receives a new time                       SLP Pilot. Under current Rule 107B(a),
                                                    to allocate round lots to all the                       stamp.24                                                an SLP is defined as a member
                                                    participants eligible to receive an                        Under Rule 72(d), when a member has                  organization that electronically enters
                                                    execution at that price point, or the size              an order to buy and an order to sell an                 proprietary orders or quotes from off the
                                                    of the order if less than a round lot,                  equivalent amount of the same security,                 Floor of the Exchange into the systems
                                                    Exchange systems create an allocation                   and both orders are ‘‘block’’ orders (i.e.,             and facilities of the Exchange and is
                                                    wheel of the eligible participants at that              at least 10,000 shares or a quantity of                 obligated to maintain a bid or an offer
                                                    price point and the available round lot                 stock having a market value of $200,000                 at the National Best Bid (‘‘NBB’’) or the
                                                    shares are distributed to the participants              or more, whichever is less) and are not                 National Best Offer (‘‘NBO’’) in each
                                                    in turn. If an odd-lot sized portion of the             for the account of such member or                       assigned security in round lots
                                                    incoming order remains after allocating                 member organization, an account of an                   averaging at least 10% of the trading day
                                                    all eligible round lots, the remaining                  associated person, or an account with                   and for all assigned SLP securities 26
                                                    shares are allocated to the next eligible               respect to which the member, member                     and to add liquidity of an ADV of more
                                                    participant in less than a round lot. On                organization, or associated person                      than a specified percentage of
                                                    each trading day, the allocation wheel                  thereof exercises investment discretion,
                                                                                                            then the member may ‘‘cross’’ those                     25,000 to 10,000 shares or a quantity of stock
                                                    for each security is set to begin with the                                                                      having a market value of $200,000 or more,
                                                    participant whose interest is entered or                orders at a price at or within the BBO.25               whichever is less, and (ii) conform Rule 72(d) to
                                                    retained first on a time basis. Thereafter,                23 When the Exchange adopted the NMM Pilot in
                                                                                                                                                                    Rule 90 to permit a Floor broker to represent a Rule
                                                    participants are added to the wheel as                                                                          72(d) crossing transaction on behalf of an
                                                                                                            2008, all DMM interest was on parity. In 2009, the      unaffiliated member or member organization. See
                                                    their interest joins existing interest at a             Exchange amended Rule 72 to add new subsection          Securities Exchange Act Release No. 64334 (April
                                                    particular price point. If a participant                (c)(xi) to the rule to remove parity for DMM interest   25, 2011), 76 FR 24078 (April 29, 2011) (SR–NYSE–
                                                    cancels interest and then rejoins, that                 that verbal transactions with a Floor broker or         2011–18) (Notice of Filing).
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                                                                                                            during a slow quote. See Securities Exchange Act          26 The SLP Pilot originally required an SLP to
                                                    participant joins as the last position on               Release No. 60287 (July 10, 2009), 74 FR 34817          maintain a bid and/or offer at the NBB or NBO
                                                    the wheel at that time. If an odd-lot                   (July 17, 2009) (SR–NYSE–2009–69) (Notice of            averaging at least 5% of the trading day. Effective
                                                    allocation completely fills the interest of             Filing).                                                September 25, 2010, the Exchange increased this
                                                    a participant, the wheel moves to the                      24 See Pegging Filing, supra n. 18 [sic] (amending
                                                                                                                                                                    quoting requirement to require SLPs to maintain a
                                                    next participant. The allocation wheel                  Rule 72(c) to specify how order modifications           bid and/or offer at the NBB or NBO at least 10%
                                                                                                            impact the time stamp of an order).                     of the trading day. See Securities Exchange Act
                                                    also moves to the next participant where                   25 In 2011, the Exchange amended Rule 72(d)          Release No. 62791 (August 30, 2010) 75 FR 54411
                                                    Exchange systems execute remaining                      regarding agency cross transactions to (i) change the   (September 7, 2010) (SR–NYSE–2010–60) (Notice of
                                                    displayable odd-lot interest prior to                   minimum size of a block order under the rule from       Filing) (‘‘SLP 2010 Filing’’).



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                                                    34722                        Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices

                                                    consolidated average daily volume                          (6) the business unit of the member                 meet its quoting requirements and sets
                                                    (‘‘CADV’’) in all NYSE-listed securities,               organization acting as an SLP-Prop must                forth procedures for reapplication. Rule
                                                    as set forth in the Exchange’s Price List,              have in place adequate information                     107B(l) sets forth provisions for
                                                    on a monthly basis.27 An SLP can be                     barriers between the SLP-Prop unit and                 appealing non-regulatory penalties.
                                                    either a proprietary trading unit of a                  the member organization’s customer,
                                                                                                                                                                   Rationale for Making Pilots Permanent
                                                    member organization (‘‘SLP-Prop’’) or a                 research, and investment banking
                                                    registered market maker at the Exchange                 business.                                                 The Exchange adopted the NMM Pilot
                                                    (‘‘SLMM’’).28                                              A member organization may register                  in part to adapt the Exchange’s model to
                                                       Under Rule 107B(b), when an SLP                      as an SLMM in one or more securities                   the equities market environment in
                                                    posts liquidity on the Exchange and                     traded on the Exchange in order to assist              place in 2008. At that time, the more
                                                    such liquidity is executed against an                   in the maintenance of a fair and orderly               electronic market had fundamentally
                                                    inbound order, the SLP receives a                       market insofar as reasonably practicable.              altered the Exchange’s traditional
                                                    financial rebate for that executed                      To qualify as an SLMM, a member                        trading environment, in which price
                                                    transaction as set forth in the                         organization must meet the all of the                  discovery had taken place largely, and
                                                    Exchange’s Price List, subject to the                   requirements for an SLP-Prop set forth                 almost exclusively, on the Floor of the
                                                    non-regulatory penalty provision                        above, except item (2) relating to                     Exchange. As the trading information
                                                    described in Rule 107B(k).29 The SLP                    mnemonics. If approved as an SLMM,                     that was previously only available on
                                                    receives credit toward the financial                    the member organization must (i)                       the Floor of the Exchange shifted to
                                                    rebate for executions of displayed and                  maintain continuous, two-sided trading                 become widely available via electronic
                                                    non-displayed liquidity (e.g., reserve                  interest in assigned securities (‘‘Two-                means, together with increased
                                                    and dark orders) posted in round lots in                Sided Obligation’’) and meet certain                   fragmentation in the market, the
                                                    its assigned securities only.                           pricing obligations as set forth in the                Exchange believed that the NMM Pilot
                                                       Under Rule 107B(c), to qualify as an                 rule; (ii) maintain minimum net capital                would provide a more robust trading
                                                    SLP-Prop, a member organization must                    in accordance with SEC Rule 15c3–1;                    model on the Floor where market
                                                    have:                                                   and (iii) maintain unique mnemonics                    participants could compete on more
                                                       (1) Adequate technology to support                   specifically dedicated to SLMM activity,               equal footing relative to their
                                                    electronic trading through the systems                  which may not be used for trading in                   responsibilities to the market.30 With
                                                    and facilities of the Exchange;                         securities other than SLP securities                   the NMM Pilot, the Exchange would
                                                       (2) mnemonics that identify to the                   assigned to the SLMM.                                  continue to provide a quality market
                                                    Exchange SLP-Prop trading activity in                      Rule 107B(e) sets forth the application             that maintains both a competitive
                                                    assigned SLP securities;                                process for SLPs. If an applicant is                   market maker responsible for providing
                                                       (3) adequate trading infrastructure                  disapproved or disqualified, such                      liquidity to the market and the element
                                                    and staff to support SLP trading activity;              applicant may request an appeal of such                of human judgment that is particularly
                                                       (4) quoting and volume performance                   disapproval or disqualification by the                 valuable in less liquid securities, re-
                                                    that demonstrates an ability to meet the                SLP Panel as provided in the rule and/                 openings, and closings. The Exchange
                                                    10% average quoting requirement in                      or reapply for SLP status three months                 sought, and believes it has attained, the
                                                    each assigned security and the ADV                      after the month in which the applicant                 appropriate balance among market
                                                    requirement of more than a specified                    received the disapproval or                            participants that retains a role for
                                                    percentage of CADV in all NYSE-listed                   disqualification notice. Rule 107B(f)                  liquidity providers responsible for
                                                    securities for all assigned SLP securities              describes how an SLP may voluntarily                   maintaining fair and orderly markets,
                                                    on a monthly basis;                                     withdraw from such status.
                                                       (5) a disciplinary history that is                                                                          i.e., DMMs, together with agents on the
                                                                                                               Rule 107B(g) and (h) set forth the                  Floor and off-Floor participants. The
                                                    consistent with just and equitable                      calculations for determining whether an
                                                    business practices; and                                                                                        Exchange adopted the SLP Pilot to
                                                                                                            SLP is meeting its 10% quoting                         encourage an additional pool of
                                                                                                            requirement and monthly volume                         liquidity at the Exchange.
                                                      27 In the SLP 2010 Filing, the Exchange
                                                                                                            requirement. An SLP may post non-                         As noted in the NMM Pilot approval
                                                    introduced a monthly volume requirement for SLPs
                                                    of an average daily volume (‘‘ADV’’) of more than       displayed liquidity; however, such                     order, the Commission had concerns
                                                    10 million shares. See SLP 2010 Filing, supra n. 26.    liquidity is not counted as credit toward              regarding certain aspects of the
                                                    Effective September 1, 2012, the Exchange amended       the 10% quoting requirement. In                        Exchange’s proposal and approved it on
                                                    the monthly volume requirement to require instead       addition, tick sensitive orders (i.e., ‘‘Sell
                                                    that SLPs meet an ADV that is a specified                                                                      a pilot basis. The Commission further
                                                    percentage of the NYSE CADV and amended the             Plus’’, ‘‘Buy Minus’’ and ‘‘Buy Minus                  stated that before it would decide to
                                                    Exchange’s Price List to specify the applicable         Zero Plus’’) do not count as credit                    make the NMM Pilot permanent, the
                                                    percentage of NYSE CADV for the monthly volume          toward the 10% quoting requirement.                    Exchange must provide data and
                                                    requirement. See Securities Exchange Act Release           Rule 107B(i) governs the assignment
                                                    No. 67759 (August 30, 2012), 77 FR 54939                                                                       analysis on the impact of the NMM
                                                    (September 6, 2012) (SR–NYSE–2012–38) (Notice of        of securities to SLPs. Rule 107B(j)                    Pilot. The metrics requested by the
                                                    Filing).                                                provides that SLPs may only enter                      Commission include: (i) DMM time at
                                                      28 The SLP Pilot was originally available only for    orders electronically from off the Floor               the NBBO by security; (ii) the effective
                                                    a proprietary trading unit of a member organization.    of the Exchange and may only enter
                                                    In 2012, the Exchange amended Rule 107B to add                                                                 spread by security; (iii) the DMM
                                                    a class of SLPs that are registered as market makers
                                                                                                            such orders directly into Exchange                     volume broken out by DMM interest
                                                    on the Exchange and subject to the market-wide          systems and facilities designated for this             type (e.g., CCS, s-Quote); (iv) the average
                                                    equity market maker quoting obligations. See            purpose. SLMM quotes and orders may
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                                                    Securities Exchange Act Release No. 67154 (June 7,                                                             depth at the NBBO by market
                                                                                                            be for the account of the SLMM in either               participant (DMMs, Floor brokers, and
                                                    2012), 77 FR 35455 (June 13, 2012) (SR–NYSE–
                                                    2012–10) (Approval Order).                              a proprietary or principal capacity on                 orders represented in the Exchange’s
                                                      29 In the SLP 2010 Filing, the Exchange modified      behalf of affiliated or unaffiliated                   book); (v) the ratio of (i) shares not
                                                    the non-regulatory penalties to align them to the       persons and SLP-Prop orders must only                  executed in Exchange systems due to
                                                    changes in the quoting and volume requirements for      be for the proprietary account of the
                                                    SLPs. See SLP 2010 Filing, supra no. 26. The
                                                    Exchange proposes a non-substantive amendment
                                                                                                            SLP-Prop member organization. Rule                        30 See Securities Exchange Act Release No. 58184

                                                    to Rule 107B(b) to correct the cross-reference in the   107B(k) sets forth non-regulatory                      (July 17, 2009 [sic]), 73 FR 42853 (July 23, 2008)
                                                    Rule from subparagraph (j) to subparagraph (k).         penalties that apply if an SLP fails to                (NMM Pilot Filing).



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                                                                                   Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices                                                                    34723

                                                    DMM execution due to (ii) the shares                          permanent basis. Rather than looking at                          developments include the significant
                                                    executed by the DMM; and (vi) effective                       the specific metrics identified above, the                       rise in off-exchange trading from 22% in
                                                    spread for (a) orders that involve DMM                        Exchange believes that looking more                              2009 to 34% in 2014; the proliferation
                                                    liquidity provisions and (b) orders that                      holistically at the Exchange’s                                   of over 50 trading venues, including
                                                    are executed without DMM liquidity                            performance relative to the equities                             four additional registered equities
                                                    (for similar order size categories).31 In                     market in general demonstrates the                               exchanges since October 2008; and the
                                                    compliance with this requirement, the                         continued value of the NMM and SLP                               increasing segmentation of client order
                                                    Exchange has been providing the above-                        Pilots and basis for permanent approval                          flow onto private dark markets.32
                                                    described metrics to the Commission’s                         of the pilots. In particular, the                                   The Exchange believes that the shifts
                                                    Division of Trading and Markets and                           continued impact of Regulation NMS,                              in market share of traded volume among
                                                    Office of Economic and Risk Analysis                          which had been in effect for only one                            venues demonstrate the robust
                                                    on a monthly basis.                                           year when the Exchange filed for the                             competition among markets. In
                                                       Since adopting the NMM Pilot, the                          NMM Pilot, together with additional                              particular, the following chart shows a
                                                    Exchange believes that the equities                           technological advancements and                                   snapshot of how market share of traded
                                                    market has continued to undergo                               competitive forces since 2008 have                               volume on registered exchanges has
                                                    significant changes that require a fresh                      fundamentally altered the way the                                declined since 2009 and shifted to the
                                                    look at the basis for whether the NMM                         market functions and how market                                  TRF, which reports transactions that
                                                    Pilot should be approved on a                                 participants interact. Some of the major                         occur off of registered exchanges.33
                                                                                                          TABLE 1—TAPE A MARKET SHARE DEVELOPMENTS
                                                                              NYSE          FINRA                  Nasdaq       Nasdaq
                                                                     NYSE                             Nasdaq                                    BATS Z        BATS Y     EDGA *    EDGX **      ISE        NSX       CHX        CBSX
                                                        F                     Arca           TRI *                   BX          PSX
                                                                      (%)                              (%)                                       (%)            (%)       (%)        (%)        (%)        (%)       (%)         (%)
                                                                               (%)            (%)                   (%)          (%)

                                                    2009    ......     25.0      13.4          22.5        15.5          1.9            0.0            8.5         0.0       0.0       10.4        1.9        0.6        0.3        0.1
                                                    2010    ......     24.4      11.9          27.3        13.6          3.6            0.1            7.5         0.2       2.0        7.6        0.8        0.5        0.3        0.1
                                                    2011    ......     24.3      10.5          29.8        13.3          2.3            0.7            6.9         2.3       3.6        5.5        0.0        0.5        0.2        0.1
                                                    2012    ......     21.4      10.0          32.3        12.8          2.6            0.7            7.5         3.1       2.4        6.3        0.0        0.3        0.3        0.4
                                                    2013    ......     22.1       8.4          35.3        11.6          2.3            0.5            7.1         1.9       2.8        6.9        0.0        0.4        0.4        0.4
                                                    2014    ......     22.4       8.3          34.7        13.1          2.4            0.4            6.8         3.0       2.5        5.9        0.0        0.1        0.4        0.1
                                                      * Includes ADF and adjusted for EDGA/EDGX launch.
                                                      * EDGA and EDGX are combined into EDGX for Jan. 2009 through July 2010, as Direct Edge didn’t break them out prior to receiving exchange status.


                                                       While these statistics demonstrate                         TABLE 2—TAPE A VOLUME AND VIX®                                   Specialist Group (‘‘Kellogg), and
                                                    that all exchanges, including the                                                                                              LaBranche & Company (‘‘Labranche’’).
                                                    Exchange, have faced challenges in the                                                                    CADV       VIX®      Six years later, only one of those firms
                                                    last six years, the Exchange believes that                                                                                     still operates as a DMM, Barclays. Below
                                                                                                                  2009   ..................................     5.68       31.5    are key changes within the NYSE DMM
                                                    the NMM and SLP Pilots have enabled                           2010   ..................................     4.87       22.6
                                                    the Exchange to remain competitive                            2011   ..................................     4.37       24.3
                                                                                                                                                                                   universe:
                                                    during this period. As demonstrated in                        2012   ..................................     3.66       17.8       • In March 2009, Barclays acquired
                                                    the chart above, notwithstanding the                          2013   ..................................     3.40       14.2    Bear Wagner’s DMM business, with Bear
                                                    competing market forces, the Exchange’s                       2014   ..................................     3.39       14.2    Wagner exiting the business.
                                                    market share has remained relatively                                                                                              • In January 2010, Barclays acquired
                                                    stable.                                                          As overall trading volume and                                 LaBranche’s DMM business, with
                                                                                                                  volatility falls, the demand for the                             LaBranche exiting the business.
                                                       The Exchange further notes that it                         liquidity continuously provided by                                  • In February 2010, Getco Securities,
                                                    adopted the NMM and SLP Pilots                                market makers’ [sic] falls, which leads                          LLC (‘‘Getco’’) became an NYSE DMM.
                                                    during a period of high trading volumes.                      to thinner profit margins for market                                • In December 2010, Knight Capital
                                                    Since the global financial crisis of 2008–                    makers. This impact can be                                       Group, Inc. (‘‘Knight’’) acquired
                                                    2009, there has been a significant drop                       demonstrated, in part, by the significant                        Kellogg’s NYSE and NYSE MKT DMM
                                                    in volume and volatility in cash equities                     changes in the firms operating as DMMs                           business, with Kellogg exiting the
                                                    markets. A case in point, Tape A CADV                         since the Exchange adopted the NMM                               business.
                                                    fell 41% from 5.64 billion in 2009 to                         Pilot. In October 2008, the Exchange                                • In November 2011, Getco acquired
                                                    3.33 billion shares in 2014.                                  had six firms operating as specialists:                          BAC’s DMM business, with BAC exiting
                                                    Additionally, the VIX volatility index,                       Bank of America Corp. (‘‘BAC’’),                                 the business.
                                                    which is an industry-standard measure                         Barclays Capital, Inc. (‘‘Barclays’’), Bear                         • In December 2011, J. Streicher & Co,
                                                    of market volatility, fell from a daily                       Wagner Specialists, LLC (‘‘Bear                                  an NYSE MKT DMM, became an NYSE
                                                    average of 31.5% in 2009 to 14.2 in                           Wagner’’), Goldman, Sachs and Co                                 DMM.
                                                    2014.                                                         (‘‘Goldman Sachs,’’ operating Spear,                                • In April 2012, Virtu Financial
                                                                                                                  Leads & Kellogg, LLC), Kellogg                                   (‘‘Virtu’’) became a NYSE DMM (in
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                                                      31 See NMM Pilot Approval Order, supra n. 5 at              http://www.sec.gov/News/Speech/Detail/Speech/                    research/fragmentation-lit-review-100713.pdf) and
                                                    64387.                                                        1370539857459#.VNoXc_nF_AQ). The Commission                      Tuttle, Laura, Alternative Trading Systems:
                                                      32 In a speech on October 2, 2013, Chair Mary Jo            also noted the fragmentation of the equities markets             Description of ATS Trading in National Market
                                                    White noted that ‘‘[a] steadily increasing percentage         in its 2010 Concept Release on Equity Market                     System Stocks (available at http://www.sec.gov/
                                                    of trading occurs in ‘dark’ venues, which now                 Structure. See Securities Exchange Act Release No.               marketstructure/research/alternative-trading-
                                                    appear to execute more than half of the orders of             61358, 75 FR 3594 (Jan. 21, 2010). See also, Staff               systems-march-2014.pdf.)
                                                    long-term investors,’’ Mary Jo White, Chair,                  of the Division of Trading and Markets,                            33 The market share percentages set forth in Table

                                                    Securities and Exchange Commission, Speech at                 Commission, Equity Market Structure Literature                   1 are based on trades reported to the Consolidated
                                                    Securities Traders Association 80th Annual Market             Review, Part I: Market Fragmentation, Oct. 7, 2013,              Tape Association and via Crossing Session II on the
                                                    Structure Conference (Oct. 2, 2013) (available at             (available at: http://www.sec.gov/marketstructure/               Exchange pursuant to Rule 902(a)(iii).



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                                                    34724                                  Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices

                                                    2011, Virtu entered the DMM business                                          With respect to how DMMs operate,                      population of market participants,
                                                    by acquiring Cohen Capital Group, an                                       the Exchange believes that the NMM                        including DMMs, SLPs, Floor brokers,
                                                    NYSE MKT DMM).                                                             Pilot strikes the appropriate balance                     and other off-Floor market participants,
                                                       • In November 2012, Brendan Cryan                                       between DMM benefits and obligations.                     that allow it to more effectively compete
                                                    & Co, an NYSE MKT DMM, became an                                           Importantly, while DMMs do not need                       for order flow, with superior market
                                                    NYSE DMM.                                                                  to yield to orders on the Book, under the                 quality. The Exchange believes that an
                                                                                                                               NMM Pilot, DMMs continue to be                            important market quality measure is
                                                       • In July 2013, Knight and Getco
                                                                                                                               subject to Exchange-specific affirmative                  how much liquidity an exchange
                                                    merged to become KCG Americas.
                                                                                                                               obligations to maintain a fair and                        provides. In today’s fragmented equity
                                                       • In August 2014, IMC Financial                                         orderly market that are not imposed on                    model, the market quality of displayed
                                                    Markets acquired Goldman’s DMM                                             any other cash equity market                              venues varies widely. The Exchange
                                                    business, with Goldman exiting the                                         participant. These obligations include                    believes, however, that it continues to
                                                    business.                                                                  maintaining a quote at the inside a                       be a leader in liquidity providing among
                                                       In this challenging environment, the                                    specified percentage of the day,35                        registered exchanges, which is due to
                                                    Exchange believes that the operation of                                    supplying liquidity as needed to                          the ongoing operation of the NMM and
                                                    the NMM Pilot has helped the Exchange                                      facilitate openings and closings,36                       SLP Pilots.
                                                    better serve the needs of investors by                                     maintaining price continuity with                            The chart below highlights six key
                                                    maintaining high market-quality                                            reasonable depth in all of their                          market-quality metrics that measure best
                                                    standards. Specifically, the NMM Pilot                                     registered securities,37 and re-entering                  price and liquidity in Exchange-listed
                                                    allowed the Exchange’s former                                              the market if taking liquidity to increase                securities. Best prices are measured by
                                                    specialists to compete in today’s fully                                    a trading position.38 Similarly, the SLP                  assessing Exchange bid/ask spreads,
                                                    electronic trading environment,                                            Pilot has created a separate class of                     percentage of time at best prices, and
                                                    continuing to provide contribute to                                        liquidity providers at the Exchange,                      percentage time alone at the best prices.
                                                    market quality. Moreover, while there                                      with differing incentives, to supplement                  Liquidity is measured by looking at
                                                    has been turnover in who comprises the                                     the liquidity provided by the DMMs,                       market share, most displayed shares at
                                                    DMM community, the Exchange                                                which further supports the Exchange’s                     the best prices, and percentage of time
                                                    believes that the operation of the NMM                                     market quality.                                           at the best prices with the greatest
                                                    Pilot has been instrumental in attracting                                     The Exchange believes that by                          displayed size. As set forth in the table
                                                    new entrants to the business as the                                        operating under its NMM and SLP                           below, the Exchange ranks first in each
                                                    former specialists have exited.34                                          Pilots, it offers a diverse and unique                    of these metrics.

                                                                                                                NYSE-LISTED SECURITIES (TAPE A)—DECEMBER 2014
                                                                                                                                             All securities (equal weighted)

                                                                                                                                                               Average
                                                                                                                                                  Market        quoted          Displayed                       % Time           % Time
                                                                                                                                                  share                                          % Time at
                                                                                                                                                                spread          shares at                     best price &       alone at
                                                                                                                                                 (volume                                          NBBO
                                                                                                                                                                 (time           NBBO                         largest size        NBBO
                                                                                                                                                weighted)      weighted)

                                                    NYSE ...............................................................................               23.4           48.5          1071.9             74.0            45.8            19.6
                                                    Nasdaq .............................................................................               13.6          311.6           451.6             47.3            17.5             4.2
                                                    NYSE Arca .......................................................................                   8.0          710.4           409.6             42.9            12.0             3.0
                                                    BZX ..................................................................................              7.7          463.8           294.3             31.2             6.7             1.5
                                                    EDGX ...............................................................................                5.0          382.1           326.6             29.5             9.4             3.1
                                                    BYX ..................................................................................              3.6          551.1           107.7             21.2             2.5             0.6
                                                    Nasdaq BX .......................................................................                   1.8           68.7            59.2             15.7             2.0             0.2
                                                    EDGA ...............................................................................                2.8          850.6            94.9             19.2             2.0             0.3



                                                      The Exchange notes that DMMs and                                         In 2014, 8.3% of DMM volume executed                      increase the amount of time that a DMM
                                                    SLPs have been important contributors                                      was from quotes that improved the                         unit must maintain a bid and offer at the
                                                    to the Exchange’s performance,                                             NBBO at the time the quote was entered.                   inside from 10% to 15% for Less Active
                                                    particularly at setting the NBBO. For                                      This represents an improvement since                      Securities and from 5% to 10% for More
                                                    example, during September 2014,                                            2009, when only 2.7% of DMM volume                        Active Securities.39 During the same
                                                    DMMs and SLPs (including SLMMs)                                            improved the NBBO.                                        period, the Exchange also amended Rule
                                                    accounted for over 38% of the liquidity-                                     The Exchange believes that key                          1000 to permit CCS to provide a partial
                                                    providing volume on the Exchange. In                                       changes to the NMM Pilot support the                      fill to an incoming order.40
                                                    addition, during 2014, DMMs have                                           continued operation of the pilot in the                      After the DMM’s quoting requirement
                                                    averaged quoting at the inside almost                                      ever-changing equities environment. For                   was increased, DMM share of intraday
                                                    30% of the time and DMMs provided an                                       example, as noted above, in 2009, the                     provide activity increased, from 18.82%
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                                                    average of 14.6% of the Exchange’s size.                                   Exchange amended Rule 104(a)(1) to                        in July 2009, before the quoting change,
                                                      34 The Exchange notes that in 2008, it also                              Order); see also Securities Exchange Act Release             36 SeeNYSE Rule 104(a)(2)–(3).
                                                    amended its rules governing the operation of                               No. 72534 (July 3, 2014), 79 FR 39019 (July 9, 2014)         37 SeeNYSE Rule 104(f)(ii).
                                                    DMMs, in particular, Rule 98, to enable specialists,                       (SR–NYSE–2014–12) (Order approving                          38 See NYSE Rule 104(h).
                                                    and now DMMs, to better integrate their NYSE                               amendments to Rule 98 to adopt a principles-based           39 See DMM quoting requirement filing, supra n.
                                                    market-making operations with market-making
                                                                                                                               approach to prohibit the misuse of material non-          14.
                                                    activities on other markets. See Securities Exchange
                                                    Act Release No. 58328 (Aug. 7, 2008), 73 FR 48260                          public information).                                        40 See CCS Partial Fill Approval Order, supra n.
                                                                                                                                 35 See NYSE Rule 104(a)(1)(A).
                                                    (Aug. 18, 2008) (SR–NYSE–2008–45) (Approval                                                                                          18.



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                                                                                        Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices                                                                          34725

                                                    to 20.03% in September 2009. The                                          to the ongoing market quality at the                              the liquidity-providing volume in issues
                                                    Exchange noted a concurrent decline in                                    Exchange.                                                         outside of the Exchange’s 1,000 most
                                                    DMM CCS volume during this same                                              SLPs likewise represent a substantial                          active issues.
                                                    time from 9.32% to 6.94% of DMM                                           share of the Exchange’s intraday
                                                                                                                                                                                                  The following chart shows both the
                                                    activity. The Exchange believes that the                                  liquidity-providing volume.
                                                                                                                                                                                                increase in number of symbols assigned
                                                    decrease in CCS activity was related to                                   Participation in the SLP Pilot has grown
                                                                                                                                                                                                to SLPs during the course of the pilot,
                                                    a corresponding increase in the DMM                                       steadily since inception. When first
                                                                                                                              launched, only 497 symbols were                                   and the number of SLP symbols in
                                                    displayed quoting activity. During the
                                                    same period, the Exchange experienced                                     covered by an SLP. By the end of                                  which at least one SLP is at the NBB or
                                                    a drop in NYSE shares routed to away                                      September 2014, nearly every Exchange                             NBO at least 10% of the time. The first
                                                    markets from 7.8% in July 2009 to 7.1%                                    symbol, including operating companies,                            two columns represent a count of all
                                                    in September 2009, to 6.6 in October                                      preferred stocks, warrants, rights and all                        SLP/symbol pairs where the average
                                                    2009. The Exchange believes that the                                      other issue types, had at least one SLP                           time at the NBB or NBO (referred to in
                                                    decline in shares routed away is                                          quoting in it. In December 2014,                                  the chart as NBBO) was 10%. For
                                                    attributable in part to both to the                                       approximately 45% of these symbols                                example, if symbol XYZ were assigned
                                                    increased quoting requirement, because                                    had at least one SLP quoting at the                               to three SLPs, of which two met the
                                                    DMMs represented the best quote in the                                    inside at least 10% of the time.                                  10% NBBO quoting requirement, the
                                                    market more frequently, and the ability                                      Through December 2014, SLPs                                    count for ‘‘Total’’ column would be
                                                    for CCS to partially fill incoming orders,                                represented 25.2% of liquidity-                                   three, and the count for the ‘‘NBBO
                                                    thereby obviating the need to route such                                  providing execution. The Exchange                                 >10%’’ column would be two. The right
                                                    orders to away markets. Accordingly,                                      notes that SLPs have been a solid                                 two columns show the number of
                                                    the Exchange believes that these                                          contributor to liquidity in less-active                           distinct symbols that are covered by and
                                                    changes to the NMM Pilot contributed                                      issues, and now account for 13.3% of                              reached 10% NBBO by at least one SLP.

                                                                                                                                        SLP SYMBOLS AND QUOTING
                                                                                                                                                                                                                      Distinct       Distinct NBBO
                                                                                                                                                                                  Total       NBBO>10%                symbols             >10%

                                                    Dec–08   .............................................................................................................              501                332                 497             335
                                                    Dec–09   .............................................................................................................            4,328              2,864               1,242           1,199
                                                    Dec–10   .............................................................................................................            6,509              4,079               1,404           1,302
                                                    Dec–11   .............................................................................................................            6,599              3,293               1,478           1,019
                                                    Dec–12   .............................................................................................................            7,971              3,340               1,909           1,377
                                                    Dec–13   .............................................................................................................           10,352              2,845               3,218           1,125
                                                    Dec–14   .............................................................................................................            8,572              3,458               3,262           1,481



                                                       The Exchange notes that                                                  For these reasons, the Exchange                                   The Exchange notes that the proposed
                                                    notwithstanding the significant changes                                   believes that the Pilots’ rules, as                               change is not otherwise intended to
                                                    the U.S. equities market has undergone                                    amended, should be made permanent.                                address any other issues and the
                                                    since 2008, the statistics the Exchange                                   The Exchange also proposes to delete                              Exchange is not aware of any problems
                                                    committed to track in connection with                                     Rule 104T, which is the pre-NMM Pilot                             that member organizations would have
                                                    the NMM Pilot demonstrate that the                                        version of Rule 104. Rule 104T remains                            in complying with the proposed rule
                                                    pilot rules have been effective at                                        in the Exchange’s rule book, but is not                           change.
                                                    improving the Exchange’s effective                                        operational. With permanent approval                              2. Statutory Basis
                                                    spread on marketable orders, the                                          of current Rule 104, the need to retain
                                                    percentage of time that the DMMs quote                                    Rule 104T is mooted. The Exchange also                               The Exchange believes that the
                                                    at the NBBO and the percentage of                                         proposes to delete Supplementary                                  proposed rule change is consistent with
                                                    DMM participation in total trading                                        Material to Rule 104, and related                                 Section 6(b) of the Act,42 in general, and
                                                    volume. Specifically,                                                     reference to that Supplementary                                   furthers the objectives of Section 6(b)(5)
                                                       • Effective spreads on all marketable                                  Material in Rule 104(a)(2), because that                          of the Act,43 in particular, because it is
                                                    orders, which ranged from 10 to 18.5                                      rule text was intended to be in effect                            designed to prevent fraudulent and
                                                    basis points from August to December                                      only through October 30, 2009.41                                  manipulative acts and practices, to
                                                    2008, have remained below 10 basis                                        Finally, the Exchange proposes to                                 promote just and equitable principles of
                                                    points since September 2009 and ranged                                    replace the reference to ‘‘NYSE                                   trade, to foster cooperation and
                                                    from 6.7 to 8.2 basis points from                                         Regulation’s Division of Market                                   coordination with persons engaged in
                                                    November 2013 to November 2014.                                           Surveillance’’ in Rule 104(k) with a                              regulating, clearing, settling, processing
                                                    Effective spreads have declined for all                                   reference to the Exchange. Pursuant to                            information with respect to, and
                                                                                                                              Rule 0, references to the Exchange may                            facilitating transactions in securities, to
                                                    order size categories from 100–9999
                                                                                                                                                                                                remove impediments to, and perfect the
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                                                    shares.                                                                   mean references to NYSE Regulation or
                                                                                                                              FINRA, which performs certain                                     mechanisms of, a free and open market
                                                       • The percentage of time that DMMs                                     regulatory services to the Exchange                               and a national market system and, in
                                                    were quoting at the NBBO, which                                           pursuant to a Regulatory Services                                 general, to protect investors and the
                                                    ranged from 9.9% to 19% from August                                       Agreement.                                                        public interest and because it is not
                                                    to December 2008, have exceeded 20%                                                                                                         designed to permit unfair
                                                    since that time and ranged from 31.3%                                       41 See Securities Exchange Act Release No. 60573
                                                    to 39.2% in the period from November                                      (Aug. 26, 2009), 74 FR 45500 (Sept. 2, 2009) (SR–                  42 15   U.S.C. 78f(b).
                                                    2013 to November 2014.                                                    NYSE–2009–86) (Notice of Filing).                                  43 15   U.S.C. 78f(b)(5).



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                                                    34726                        Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices

                                                    discrimination between customers,                       market statistics demonstrate that                         (A) By order approve or disapprove
                                                    issuers, brokers, or dealers.                           within the highly competitive cash                       the proposed rule change, or
                                                       The Exchange believes the proposed                   equities market, the Exchange’s model,                     (B) institute proceedings to determine
                                                    rule change is consistent with these                    including DMM parity, has enabled the                    whether the proposed rule change
                                                    principles because it seeks to make                     Exchange to maintain execution quality                   should be disapproved.
                                                    permanent Pilots and associated rule                    for all investors on the Exchange.
                                                    changes that were previously approved                      Finally, the Exchange believes that it                IV. Solicitation of Comments
                                                    by the Commission as pilots, that the                   is subject to significant competitive                      Interested persons are invited to
                                                    Exchange has subsequently provided                      forces, as described below in the                        submit written data, views, and
                                                    data and analysis to the Commission,                    Exchange’s statement regarding the                       arguments concerning the foregoing,
                                                    and that this data and analysis, as well                burden on competition. For these                         including whether the proposed rule
                                                    as the further analysis in this filing,                 reasons, the Exchange believes that the                  change is consistent with the Act.
                                                    clearly shows that the Pilots have                      proposal is consistent with the Act.                     Comments may be submitted by any of
                                                    operated as intended and are consistent                                                                          the following methods:
                                                                                                            B. Self-Regulatory Organization’s
                                                    with the Act.
                                                       The Exchange also believes the                       Statement on Burden on Competition                       Electronic Comments
                                                    proposed rule change is designed to                       In accordance with Section 6(b)(8) of                    • Use the Commission’s Internet
                                                    facilitate transactions in securities and               the Act,44 the Exchange believes that the                comment form (http://www.sec.gov/
                                                    to remove impediments to, and perfect                   proposed rule change would not impose                    rules/sro.shtml); or
                                                    the mechanisms of, a free and open                      any burden on competition that is not                      • Send an email to rule-
                                                    market and a national market system                     necessary or appropriate in furtherance                  comments@sec.gov. Please include File
                                                    because making the Pilots permanent                     of the purposes of the Act. The                          Number SR–NYSE–2015–26 on the
                                                    would provide market participants with                  Exchange believes that making the                        subject line.
                                                    a trading venue that encourages the                     Pilots permanent would continue to
                                                    addition of liquidity, facilitates the                  foster competition among liquidity                       Paper Comments
                                                    trading of larger orders more efficiently,              providers and maintain execution                            • Send paper comments in triplicate
                                                    and operates to reward aggressive                       quality on the Exchange. The Exchange                    to Brent J. Fields, Secretary, Securities
                                                    liquidity providers. The monthly                        believes that the data supplied to the                   and Exchange Commission, 100 F Street
                                                    statistics provided by the Exchange to                  Commission and experience gained over                    NE., Washington, DC 20549–1090.
                                                    the Commission staff over more than                     more than six years have demonstrated                    All submissions should refer to File
                                                    five years demonstrate that the NMM                     the efficacy of the Pilots, and as such,                 Number SR–NYSE–2015–26. This file
                                                    Pilot has improved market quality by                    they should be made permanent.                           number should be included on the
                                                    numerous measures. Similarly, the                       Finally, the Exchange notes that it                      subject line if email is used. To help the
                                                    Exchange believes the data show that                    operates in a highly competitive market                  Commission process and review your
                                                    the SLP program has appropriately                       in which market participants can easily                  comments more efficiently, please use
                                                    rewarded aggressive liquidity providers                 direct their orders to competing venues,                 only one method. The Commission will
                                                    in the market. The Exchange believes                    including off-exchange venues. In such                   post all comments on the Commission’s
                                                    that making both of these Pilots                        an environment, the Exchange must                        Internet Web site (http://www.sec.gov/
                                                    permanent would encourage the                           continually review, and consider                         rules/sro.shtml). Copies of the
                                                    additional utilization of, and interaction              adjusting the services it offers and the                 submission, all subsequent
                                                    with, the NYSE and provide customers                    requirements it imposes to remain                        amendments, all written statements
                                                    with the premier venue for price                        competitive with other U.S. equity
                                                    discovery, liquidity, competitive quotes,                                                                        with respect to the proposed rule
                                                                                                            exchanges. For the reasons described                     change that are filed with the
                                                    and price improvement.                                  above, the Exchange believes that the
                                                       In addition, the Exchange believes                                                                            Commission, and all written
                                                                                                            proposed rule change reflects this                       communications relating to the
                                                    that making the NMM and SLP Pilots                      competitive environment.
                                                    permanent would promote just and                                                                                 proposed rule change between the
                                                    equitable principles of trade and remove                C. Self-Regulatory Organization’s                        Commission and any person, other than
                                                    impediments to and perfect the                          Statement on Comments on the                             those that may be withheld from the
                                                    mechanism of a free and open market                     Proposed Rule Change Received From                       public in accordance with the
                                                    because the rules strike the appropriate                Members, Participants, or Others                         provisions of 5 U.S.C. 552, will be
                                                    balance between the obligations and                                                                              available for Web site viewing and
                                                                                                              No written comments were solicited
                                                    benefits of the Exchange’s market                                                                                printing in the Commission’s Public
                                                                                                            or received with respect to the proposed
                                                    participants. For example, while DMMs                                                                            Reference Room, 100 F Street NE.,
                                                                                                            rule change.
                                                    no longer have agency responsibilities                                                                           Washington, DC 20549 on official
                                                    to the Book, they retain a number of                    III. Date of Effectiveness of the                        business days between the hours of
                                                    affirmative obligations that are unique                 Proposed Rule Change and Timing for                      10:00 a.m. and 3:00 p.m. Copies of the
                                                    to the Exchange, including meeting                      Commission Action                                        filing also will be available for
                                                    Exchange-only quoting requirements,                        Within 45 days of the date of                         inspection and copying at the principal
                                                    supplying liquidity as needed when                      publication of this notice in the Federal                offices of the Exchange. All comments
                                                    facilitating openings and closings, and                 Register, or such longer period up to 90                 received will be posted without change;
asabaliauskas on DSK5VPTVN1PROD with NOTICES




                                                    maintaining depth and continuity in                     days (i) as the Commission may                           the Commission does not edit personal
                                                    their listed securities. Given these                    designate if it finds such longer period                 identifying information from
                                                    obligations, the Exchange believes it is                to be appropriate and publishes its                      submissions. You should submit only
                                                    appropriate to classify DMMs as a                       reasons for so finding or (ii) as to which               information that you wish to make
                                                    separate participant in the parity                      the self-regulatory organization                         available publicly. All submissions
                                                    allocation wheel. The Exchange notes                    consents, the Commission will:                           should refer to File Number SR–NYSE–
                                                    that it has been operating under this                                                                            2015–26, and should be submitted on or
                                                    model since 2009, and the above-cited                     44 15   U.S.C. 78f(b)(8).                              before July 8, 2015.


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                                                                                   Federal Register / Vol. 80, No. 116 / Wednesday, June 17, 2015 / Notices                                                  34727

                                                      For the Commission, by the Division of                7000. CLEARING, TRANSACTION AND                        requirements.5 Under Rule 7470, at a
                                                    Trading and Markets, pursuant to delegated              ORDER DATA REQUIREMENTS, AND                           minimum, members must meet the
                                                    authority.45                                            FACILITY CHARGES                                       following criteria to be eligible to
                                                    Robert W. Errett,                                       *      *      *       *      *                         request an exemption from the OATS
                                                    Deputy Secretary.                                                                                              recording and reporting requirements
                                                    [FR Doc. 2015–14827 Filed 6–16–15; 8:45 am]
                                                                                                            7400. ORDER AUDIT TRAIL SYSTEM                         for manual orders: (1) the member and
                                                                                                            *      *      *       *      *                         current control affiliates and associated
                                                    BILLING CODE 8011–01–P
                                                                                                                                                                   persons of the member have not been
                                                                                                            7470. Exemption to the Order Recording                 subject within the last five years to any
                                                                                                            and Data Transmission Requirements                     final disciplinary action, and within the
                                                    SECURITIES AND EXCHANGE
                                                    COMMISSION                                                (a) through (b) No Change.                           last ten years to any disciplinary action
                                                                                                              (c) This Rule shall be in effect until               involving fraud; (2) the member has
                                                                                                            July 10, 2019[2015].                                   annual revenues of less than $2 million;
                                                    [Release No. 34–75160; File No. SR–FINRA–                                                                      (3) the member does not conduct any
                                                    2015–016]                                               *     *    *     *     *
                                                                                                                                                                   market making activities in any security
                                                                                                            II. Self-Regulatory Organization’s                     subject to the OATS Rules; (4) the
                                                    Self-Regulatory Organizations;                                                                                 member does not execute principal
                                                                                                            Statement of the Purpose of, and
                                                    Financial Industry Regulatory                                                                                  transactions with its customers (with
                                                                                                            Statutory Basis for, the Proposed Rule
                                                    Authority, Inc.; Notice of Filing and                                                                          limited exceptions for principal
                                                                                                            Change
                                                    Immediate Effectiveness of a Proposed                                                                          transactions executed pursuant to error
                                                    Rule Change Relating to Exemptions                        In its filing with the Commission,
                                                                                                                                                                   corrections); and (5) the member does
                                                    From the Order Audit Trail System                       FINRA included statements concerning
                                                                                                                                                                   not conduct clearing or carrying
                                                    Recording and Reporting                                 the purpose of and basis for the
                                                                                                                                                                   activities for other firms.6 An exemption
                                                    Requirements                                            proposed rule change and discussed any
                                                                                                                                                                   granted by FINRA pursuant to Rule
                                                                                                            comments it received on the proposed
                                                    June 11, 2015.                                                                                                 7470 is for a maximum of two years;
                                                                                                            rule change. The text of these statements
                                                                                                                                                                   however, a member that continues to
                                                       Pursuant to Section 19(b)(1) of the                  may be examined at the places specified                meet the criteria may request
                                                    Securities Exchange Act of 1934                         in Item IV below. FINRA has prepared                   subsequent exemptions at or prior to the
                                                    (‘‘Act’’) 1 and Rule 19b–4 thereunder,2                 summaries, set forth in sections A, B,                 expiration of a grant of exemptive
                                                    notice is hereby given that on June 10,                 and C below, of the most significant                   relief.7
                                                    2015, Financial Industry Regulatory                     aspects of such statements.                               Rule 7470 also includes a sunset
                                                    Authority, Inc. (‘‘FINRA’’) filed with the              A. Self-Regulatory Organization’s                      provision. As initially adopted, the
                                                    Securities and Exchange Commission                      Statement of the Purpose of, and                       exemptive provision expired as of July
                                                    (‘‘SEC’’ or ‘‘Commission’’) the proposed                Statutory Basis for, the Proposed Rule                 10, 2011, which was five years from the
                                                    rule change as described in Items I, II,                Change                                                 original effective date of the rule.8 In
                                                    and III below, which Items have been                                                                           2011, FINRA filed a proposed rule
                                                    prepared by FINRA. FINRA has                            1. Purpose                                             change to extend the sunset provision
                                                    designated the proposed rule change as                     The OATS Rules impose obligations                   until July 10, 2015, noting that FINRA
                                                    constituting a ‘‘non-controversial’’ rule               on FINRA members to record in                          adopted this exemptive authority so that
                                                    change under paragraph (f)(6) of Rule                   electronic form and report to FINRA on                 it would have the ability to grant relief
                                                    19b–4 under the Act,3 which renders                     a daily basis certain information with                 to members that meet certain criteria in
                                                    the proposal effective upon receipt of                  respect to orders originated, received,                situations where, for example, the
                                                    this filing by the Commission. The                      transmitted, modified, canceled, or                    reporting of order information would be
                                                    Commission is publishing this notice to                 executed by members relating to OTC                    unduly burdensome for the member or
                                                    solicit comments on the proposed rule                   equity securities and NMS stocks. OATS                 where temporary relief from the OATS
                                                    change from interested persons.                         captures this order information and                    Rules, in the form of additional time to
                                                                                                            integrates it with quote and transaction               achieve compliance, would permit the
                                                    I. Self-Regulatory Organization’s                                                                              members to avoid unnecessary expense
                                                    Statement of the Terms of Substance of                  information to create a time-sequenced
                                                                                                            record of orders, quotes, and                          or hardship.9 FINRA noted that these
                                                    the Proposed Rule Change                                                                                       concerns continued to be present for
                                                                                                            transactions. This information is then
                                                       FINRA is proposing to amend Rule                     used by FINRA staff to conduct                         many firms and concluded it was
                                                    7470 to extend for four years FINRA’s                   surveillance and investigations of                     appropriate to allow firms that have
                                                    ability to exempt certain members from                  member firms for violations of FINRA                   received an exemption from OATS to
                                                    the recording and reporting                             rules and federal securities laws and                  continue to rely on their current
                                                    requirements of the Order Audit Trail                   regulations.                                           exemption (or request an additional
                                                    System (‘‘OATS’’) Rules (‘‘OATS                            On September 28, 2005, the SEC                      two-year exemption) until the scope and
                                                    Rules’’) for manual orders received by                  approved amendments to the OATS
                                                                                                                                                                      5 See Securities Exchange Act Release No. 53580
                                                    the member.                                             Rules that, among other things, gave
                                                                                                                                                                   (March 30, 2006), 71 FR 17529 (April 6, 2006). In
                                                       Below is the text of the proposed rule               FINRA the authority to grant exemptive                 2006, the exemptive provision was also relocated
                                                    change. Proposed new language is in                     relief from the OATS reporting                         from NASD Rule 6955(d) to NASD Rule 6958. As
asabaliauskas on DSK5VPTVN1PROD with NOTICES




                                                    italics; proposed deletions are in                      requirements for manual orders.4 In                    of December 15, 2008, NASD Rule 6958 was
                                                                                                            2006, FINRA’s exemptive authority was                  renumbered as FINRA Rule 7470. See FINRA
                                                    brackets.                                                                                                      Regulatory Notice 08–57 (October 2008).
                                                                                                            expanded to include the authority to                      6 See Rule 7470(a).
                                                    *     *     *     *     *                               exempt manual orders received by                          7 See Rule 7470(b).
                                                                                                            members from the OATS recording                           8 See Securities Exchange Act Release No. 52521
                                                      45 17 CFR 200.30–3(a)(12).                                                                                   (September 28, 2005), 70 FR 57909 (October 4,
                                                      1 15 U.S.C. 78s(b)(1).                                  4 See Securities Exchange Act Release No. 52521      2005).
                                                      2 17 CFR 240.19b–4.
                                                                                                            (September 28, 2005), 70 FR 57909 (October 4,             9 See Securities Exchange Act Release No. 64717
                                                      3 17 CFR 240.19b–4(f)(6).                             2005).                                                 (June 21, 2011), 76 FR 37384 (June 27, 2011).



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Document Created: 2015-12-15 14:23:36
Document Modified: 2015-12-15 14:23:36
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation80 FR 34717 

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