80 FR 36024 - Self-Regulatory Organizations; NYSEMKT LLC.; Order Disapproving Proposed Rule Change To Remove the Exchange's Quote Mitigation Plan as Provided in Exchange Rule 970.1NY
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 120 (June 23, 2015)
Federal Register Volume 80, Issue 120 (June 23, 2015)
| Page Range | 36024-36028 | |
| FR Document | 2015-15340 |
[Federal Register Volume 80, Number 120 (Tuesday, June 23, 2015)] [Notices] [Pages 36024-36028] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-15340] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-75190; File No. SR-NYSEMKT-2014-86] Self-Regulatory Organizations; NYSEMKT LLC.; Order Disapproving Proposed Rule Change To Remove the Exchange's Quote Mitigation Plan as Provided in Exchange Rule 970.1NY June 17, 2015. I. Introduction On October 2, 2014, NYSE MKT LLC, (``NYSE MKT'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to remove the Exchange's quote mitigation plan as provided by NYSE MKT Rule 970.1NY. The proposed rule change was published for comment in the Federal Register on October 21, 2014.\3\ On December 2, 2014, pursuant to section 19(b)(2) of the Act,\4\ the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.\5\ On January 8, 2015, the Exchange submitted a comment letter in further support of its proposal.\6\ On January 16, 2015, the Commission issued an Order Instituting Proceedings to Determine Whether to Approve or Disapprove the proposed rule change.\7\ On February 27, 2015 and June 4, 2015, the Exchange submitted comment letters in further support of its proposal.\8\ No additional comment letters were submitted. This order disapproves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 73367 (October 15, 2014), 79 FR 63009 (``Notice''). \4\ 15 U.S.C. 78s(b)(2). \5\ See Securities Exchange Act Release No. 73718, 79 FR 72748 (December 8, 2014). The Commission designated January 19, 2015, as the date by which it should approve, disapprove, or institute proceedings to determine whether to approve or disapprove the proposed rule change. \6\ See Letter from Elizabeth King, Secretary & General Counsel, Exchange, to Kevin O'Neill, Deputy Secretary, Commission, dated January 8, 2015 (``NYSE MKT Letter 1'') available at http://www.sec.gov/comments/sr-nysemkt-2014-86/nysemkt201486-1.pdf. \7\ See Securities and Exchange Release No. 74087, 80 FR 3697 (January 23, 2015) (Order Instituting Proceedings to Determine Whether to Approve or Disapprove a Proposal Rule Change to Remove the Exchange's Quote Mitigation Plan as Provided by Exchange Rule 970.1NY) (``OIP''). \8\ See Letters from Elizabeth King, Secretary & General Counsel, Exchange, to Kevin O'Neill, Deputy Secretary, Commission, dated February 27, 2015 (``NYSE MKT Letter 2'') available at http://www.sec.gov/comments/sr-nysemkt-2014-86/nysemkt201486-2.pdf and to Brent Fields, Secretary, Commission, dated June 4, 2015 (``NYSE MKT Letter 3'') available at http://www.sec.gov/comments/sr-nysemkt-2014-86/nysemkt201486-3.pdf. --------------------------------------------------------------------------- II. Description of the Proposal In 2007, the Exchange adopted a quote mitigation plan in connection with the Options Penny Pilot Program (``Penny Pilot'').\9\ The Exchange's quote mitigation plan consisted of several different strategies used together to mitigate quotes.\10\ In 2009, the Exchange adopted the quote mitigation plan used by NYSE Arca.\11\ According to the Exchange, the quote mitigation plan was designed to reduce the number of quotation messages sent by the Exchange to the Options Price Reporting Authority (``OPRA'') by only submitting [[Page 36025]] quote messages for ``active'' series.\12\ The Exchange defines active series under the quote mitigation plan in Exchange Rule 970.1NY as: (i) Series that have traded on any options exchange in the previous 14 calendar days; or (ii) series that are solely listed on the Exchange; or (iii) series that have been trading ten days or less; or (iv) series for which the Exchange has received an order.\13\ In addition, under the Exchange's quote mitigation plan, the Exchange may define a series as active on an intraday basis if: (i) the series trades at any options exchange; (ii) the Exchange receives an order in the series; or (iii) the Exchange receives a request for quote from a customer in that series.\14\ --------------------------------------------------------------------------- \9\ See Securities and Exchange Release No. 55162 (January 24, 2007), 72 FR 4738 (February 1, 2007) (Order Granting Approval of SR- Amex-2006-106) (``Quote Mitigation Approval Order''). In this Order, the Commission approved a proposed rule change to amend the American Stock Exchange LLC (n/k/a NYSE MKT) rules to (i) permit thirteen options classes to be quoted in pennies on a pilot basis and (ii) adopt various quote mitigation strategies. In approving the Penny Pilot, the Commission analyzed data provided by the options exchanges to assess the potential impact the Penny Pilot would have on, among other things, the increase in quotation message traffic. The Exchange subsequently adopted the quote mitigation plan used by NYSE Arca. See Securities and Exchange Release No. 59472 (February 27, 2009), 74 FR 9843 (March 6, 2009) (SR-ALTR-2008-14) (``Quote Mitigation Approval Order No. 2''). \10\ See Order Granting Approval of SR-Amex-2006-106, supra note 9, at 4739. \11\ See Quote Mitigation Approval Order No. 2, supra note 9. \12\ See Notice, supra note 3, at 63009. \13\ See Exchange Rule 970.1NY, and Notice, supra note 3, at 63009. \14\ See Exchange Rule 970.1NY. --------------------------------------------------------------------------- The Exchange proposes to remove its quote mitigation plan from its rules by deleting Exchange Rule 970.1NY.\15\ The Exchange states that its quote mitigation plan is no longer necessary primarily for three reasons. First, the Exchange states that its incorporation of select provisions of the Options Listing Procedures Plan (``OLPP'') \16\ in Exchange Rule 903A serves to reduce the potential for excess quoting because the OLPP limits the number of options series eligible to be listed, which, according to the Exchange, reduces the number of options series a market maker would be obligated to quote.\17\ Second, the Exchange states its view that Exchange Rule 925.1NY Commentary .01, which removes certain options series from market makers' continuous quoting obligations, reduces the number of quote messages that the Exchange sends to OPRA.\18\ The Exchange states that reliance on the OLPP, via Exchange Rule 903A, and the refined market maker quoting obligations, pursuant to Commentary .01 to Exchange Rule 925.1NY, is sufficient as a quote mitigation plan.\19\ Third, the Exchange states that both the Exchange's systems capacity and OPRA's systems capacity are more than sufficient to accommodate any additional increase in quote message traffic that might be sent to OPRA as a result of the deletion of the quote mitigation plan.\20\ The Exchange represents that it continually assesses its capacity needs and ensures that the capacity that it requests from OPRA is sufficient and compliant with the requirements established in the OPRA Capacity Guidelines.\21\ --------------------------------------------------------------------------- \15\ See Notice, supra note 3, at 63010. In addition, the Exchange proposes to amend paragraphs (b)(1) and (b)(2) of Exchange Rule 970NY (Firm Quotes) to delete references to the ``Quote Mitigation Plan.'' Id. \16\ See Amendment to Plan for the Purpose of Developing and Implementing Procedures Designed to Facilitate the Listing and Trading of Standardized Options Submitted Pursuant to Section 11A(a)(3)(B) of the Securities Exchange Act available at http://www.theocc.com/clearing/industry-services/olpp.jsp (providing for the most current OLPP). See also Securities and Exchange Release No. 44521 (July 6, 2001), 66 FR 36809 (July 13, 2001) (order approving the OLPP). \17\ See Notice, supra note 3, at 63009. See also Securities and Exchange Release No. 61978 (April 23, 2010), 75 FR 22886 (April 30, 2010) (NYSEAmex-2010-39) (in which the Exchange adopted select provisions of the OLPP into Exchange Rule 903A). \18\ Commentary .01 to Exchange Rule 925.1NY provides that Exchange market makers continuous quoting obligations do not apply ``to adjusted option series, and series with a time to expiration of nine months or greater, for options on equities and Exchange Traded Fund Shares, and series with a time to expiration of twelve months or greater for Index options.'' See also Notice, supra note 3, at 63009-10. \19\ See Notice, supra note 3, at 63010. The Exchange states its view that limiting the number of options series listed on the Exchange is preferable to suppressing the quotes of inactive options series, as required under current Exchange Rule 970.1NY, because all quotes sent by Exchange market makers are actionable even if not displayed. See id. \20\ See Notice, supra note 3, at 63010. \21\ See id. --------------------------------------------------------------------------- The Exchange further represents that it has in place certain measures that act as additional safeguards against excessive quoting.\22\ According to the Exchange, these safeguards include monitoring and alerting market makers disseminating an unusual number of quotes, a business plan designed to ensure that new listings are actively traded,\23\ and a ratio threshold fee designed to encourage the efficient use of orders.\24\ --------------------------------------------------------------------------- \22\ See id. \23\ See id. (citing to Commentary .09(b) to Exchange Rule 915). \24\ See id. (citing to NYSE Amex Options Fee Schedule, available at, https://www.theice.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf). --------------------------------------------------------------------------- III. Summary of Comment Letters NYSE MKT submitted three comment letters in which it: (1) supports its position that Rule 903A of the OLPP together with the current exceptions from a market maker's continuous quoting obligations for certain options series would be sufficient as a quote mitigation plan,\25\ (2) provides additional information to support its argument that relying on the OLPP requirements in Rule 903A would suffice as a quote mitigation plan; and (3) supports its argument that the Exchange and OPRA have sufficient capacity to accommodate an increase in quote message traffic resulting from elimination of the Exchange's quote mitigation plan.\26\ --------------------------------------------------------------------------- \25\ See NYSE MKT Letter 1, supra note 6, at 1. See also NYSE MKT Letter 2, supra note 8, at 1-2. The Exchange also supplies an actual illustration of how the Rule results in quote mitigation. Id. at 2. \26\ See NYSE MKT Letter 1 supra note 6. --------------------------------------------------------------------------- The Exchange states that at least one other options exchange primarily relies on the OLPP requirements in Rule 903A as a quote mitigation plan. \27\ The Exchange explains that OLPP Rule 903A puts a restriction on the range of permissible strike prices based on the price of the underlying security.\28\ The Exchange states its view that reliance on the OLPP requirements is consistent with the Act and would sufficiently limit the number of options series listed on the Exchange.\29\ --------------------------------------------------------------------------- \27\ See NYSE MKT Letter 1, supra note 6, at 1-2. The comment letter further notes that the Miami International Securities Exchange, LLC (``MIAX'') stated in a response to comments on a proposed rule change relating to increasing the number of options series associated with Short Term Options Series that it was not using a quote mitigation strategy, but instead employs a listing policy that mitigates the number of classes and series listed on its exchange by not listing illiquid options classes and products that are not already trading on another market. (See NYSE MKT Letter 1, supra note 6, at 2 (citing Letter to Elizabeth Murphy, Secretary, U.S. Securities Exchange Commission, from Brian O'Neill, VP and Senior Counsel, MIAX, dated June 2, 2013, available at http://www.sec.gov/comments/sr-miax-2013-23/miax201323-2.pdf)). NYSE MKT notes that it has a similar policy designed to help ensure that the Exchange does not list options that generate quote volume without providing the benefit of trading volume. See NYSE MKT Letter 1, supra note 6, at 2 and 4. \28\ See NYSE MKT Letter 2, supra note 8, at 1-2. \29\ See NYSE MKT Letter 1, supra note 6, at 1. --------------------------------------------------------------------------- Next, the Exchange argues that eliminating its quote mitigation plan is consistent with the Act because refined market maker quoting obligations currently in place on the Exchange, which exempt certain options series from market makers' continuous quoting obligations, reduce the universe of series in which a market maker is required to quote.\30\ The Exchange notes that these refined obligations were adopted following implementation of its quote mitigation plan,\31\ and believes that as a result, market makers do not need to quote in approximately 5,000 options series, thereby decreasing quote message traffic.\32\ --------------------------------------------------------------------------- \30\ See NYSE MKT Letter 1, supra note 6, at 3. \31\ Id. \32\ Id. --------------------------------------------------------------------------- The Exchange argues that it has sufficient capacity to handle quoting in all options series, including quotes in those series that are inactive and not currently disseminated pursuant to the Exchange's quote mitigation plan.\33\ In support of this statement, the Exchange explains that although quotes in inactive series do not generate quote traffic from NYSE MKT, the Exchange [[Page 36026]] must nonetheless receive and process quotes in such series, and perform additional processing to suppress quotes in these series to comply with their quote mitigation plan.\34\ The Exchange states that because it is already processing the quotes it suppresses, it is ``confident that its own systems capacity is more than sufficient to accommodate any increase in the traffic that might be sent to OPRA.'' \35\ The Exchange notes that in its requests for capacity submitted to the Independent Systems Capacity Advisory (``ISCA'') (which OPRA uses to ensure overall aggregate capacity), NYSE MKT assumes that (1) options series that are inactive at that time could become active in the future, thereby increasing overall message traffic sent to OPRA, and (2) that all options series that it lists, including those without continuous quoting obligations for market makers, will generate message traffic to OPRA.\36\ The Exchange further states its belief that OPRA also would be able to accommodate any increase in quote message traffic resulting from NYSE MKT no longer suppressing quotes in inactive series.\37\ --------------------------------------------------------------------------- \33\ See NYSE MKT Letter 1, supra note 6, at 2. \34\ Id. \35\ Id. \36\ See NYSE MKT Letter 1, supra note 6, at 2-3. \37\ See NYSE MKT Letter 1, supra note 6, at 1-2. --------------------------------------------------------------------------- The Exchange further argues that eliminating its quote mitigation plan is consistent with the Act because the Exchange actively monitors market maker quoting activity and alerts market makers to heightened levels of quoting activity, which could result from systems issues or an incorrectly set parameter that generates erroneous quotes.\38\ The Exchange notes that NYSE MKT's requests for capacity to the ISCA are adjusted to account for ``some level'' of erroneous quoting.\39\ --------------------------------------------------------------------------- \38\ See NYSE MKT Letter 1, supra note 6, at 3-4. \39\ Id. at 4. --------------------------------------------------------------------------- The Exchange also states that the landscape regarding quote message traffic and capacity has changed since the adoption of the Penny Pilot.\40\ NYSE MKT represents that in January 2007, using the quote mitigation plan currently in place on the Exchange, 15% of quotes received by the NYSE Arca, were not sent to OPRA, compared to 4.3% received by the Exchange as of April 2015.\41\ The Exchange also states that at the time the Penny Pilot was adopted, OPRA's total capacity was set to 359,000 messages per seconds (``mps''), and that by July 2015, OPRA's peak capacity is anticipated to be 42,100,000 mps.\42\ In addition, the Exchange states, based on peak message traffic figures on the Exchange for one day in May 2015,\43\ that if the quotes the Exchange suppressed on that day had been sent to OPRA, industry quotes published by OPRA would have increased by no more than 1.5%, and that this would use less than .05% of total OPRA capacity.\44\ --------------------------------------------------------------------------- \40\ See NYSE MKT Letter 3, supra note 8, at 2. \41\ Id. Although the Exchange had not yet adopted its current quote mitigation plan in January 2007, it provided data from NYSE Arca from this time period for comparative purposes. Id. \42\ Id. \43\ Id. The Exchange represents that as of Friday May 29, 2015, peak message traffic for the Exchange was 3,121,570 mps, measured over a 100 millisecond period. Based on this, the Exchange believes that if the highest percentage of quotes suppressed by the Exchange during this period (6.7%) had been published at the same rate as quotes the Exchange had not suppressed during this time, the mps rate would instead be 3,330,715. Id. \44\ Id. --------------------------------------------------------------------------- IV. Discussion Under section 19(b)(2)(C) of the Act, the Commission shall approve a proposed rule change of a self-regulatory organization if the Commission finds that such proposed rule change is consistent with the requirements of the Act, and the rules and regulations thereunder that are applicable to such organization.\45\ The Commission shall disapprove a proposed rule change if it does not make such a finding.\46\ Rule 700(b)(3) of the Commission's Rules of Practice states that the ``burden to demonstrate that a proposed rule change is consistent with the [Act] . . . is on the self-regulatory organization that proposed the rule change'' and that a ``mere assertion that the proposed rule change is consistent with those requirements . . . is not sufficient.'' \47\ --------------------------------------------------------------------------- \45\ 15 U.S.C. 78s(b)(2)(C)(i). \46\ 15 U.S.C. 78s(b)(2)(C)(i); see also 17 CFR 201.700(b)(3) and note 47 infra, and accompanying text. \47\ 17 CFR 201.700(b)(3). The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding. See id. Any failure of a self-regulatory organization to provide the information solicited by Form 19b-4 may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the rules and regulations issued thereunder that are applicable to the self-regulatory organization. Id. --------------------------------------------------------------------------- After careful consideration, the Commission cannot find that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\48\ In particular, the Commission cannot find that the proposed rule change is consistent with section 6(b)(5) of the Act,\49\ which requires that the rules of a national securities exchange be designed, among other things, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and to protect investors and the public interest. --------------------------------------------------------------------------- \48\ In disapproving the proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). \49\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- In conjunction with the adoption of the Penny Pilot in 2007 that permitted the options exchanges to quote certain options series in one and five cent increments, and in response to a letter sent by the then Chairman of the Commission,\50\ the options exchanges, including NYSE MKT, adopted quote mitigation plans.\51\ The Commission emphasized the importance of options exchanges' quote mitigation strategies in connection with the Penny Pilot in its orders approving an expansion of the Penny Pilot in 2007. In those orders, the Commission noted that options exchanges participating in the Penny Pilot would continue to use quote mitigation strategies.\52\ Likewise, when the Commission approved NYSE Arca's proposal to again expand the Penny Pilot in 2009, the Commission reiterated that the NYSE Arca would retain and continue to employ its quote mitigation strategy.\53\ --------------------------------------------------------------------------- \50\ In a letter sent to the options exchanges on June 7, 2006, encouraging the implementation of a penny pilot program, then Chairman Cox noted that quoting options in pennies would increase quote message traffic, which the systems of exchanges, market data vendors, and securities firms must be able to manage, and for that reason, quoting options in pennies would begin in a small number of options. To assist in managing the anticipated increase in quote traffic, Chairman Cox asked that the options exchanges include a workable quote mitigation strategy in any proposal to allow quoting in pennies. See Commission Press Release 2006-91, ``SEC Chairman Cox Urges Options Exchanges to Start Limited Penny Quoting,'' June 7, 2006. \51\ See Quote Mitigation Approval Order, supra note 9. \52\ See Securities Exchange Act Release No. 56568, 72 FR 56422 (October 3, 2007) (SR-NYSEArca-2007-88); 56567 (September 27, 2007), 72 FR 56307 (October 3, 2007) (Amex-2007-96); 56565 (September 27, 2007), 72 FR 56403 (October 3, 2007) (CBOE-2007-98); 56564 (September 27, 2007), 72 FR 56412 (October 3, 2007) (ISE-2007-74); 56563 (September 27, 2007), 72 FR 56429 (October 3, 2007) (Phlx- 2007-62); and 56566 (September 27, 2007), 72 FR 56400 (October 3, 2007) (BSE-2007-40). \53\ See Securities Exchange Act Release No. 60711, 74 FR 49419 (September 28, 2009) (SR-NYSEArca-2009-44). See also Securities Exchange Act Nos. 60373 (October 23, 2009), 74 FR 56675 (November 2, 2009) (Phlx-2009-91); 60864 (October 22, 2009), 74 FR 55876 (October 29, 2009) (CBOE-2009-076); 60865 (October 22, 2009), 74 FR 55880 ((ISE-2009-82); 60886 (October 27, 2009), 74 56897 (November 3, 2009); 60874 (October 23, 2009), 74 FR 56682 (November 2, 2009) (NASDAQ-2009-091); and 61106 (December 3, 2009), 74 FR 65193 (December 9, 2009) (NYSEAmex-2009-74). --------------------------------------------------------------------------- [[Page 36027]] In approving NYSE MKT's proposal in February 2007, the Commission stated that because it expected that the Penny Pilot would increase quote message traffic, the Commission also approved the Exchange's proposal to reduce the number of quotations it disseminates.\54\ In 2009, the Commission approved NYSE MKT's implementation of a quote mitigation strategy identical to that in place on NYSE Arca.\55\ --------------------------------------------------------------------------- \54\ See Quote Mitigation Approval Order, supra note 9, at 4740. \55\ See Quote Mitigation Approval Order No. 2, supra note 9. --------------------------------------------------------------------------- In 2007 and 2009, the Commission approved rule changes expanding the number of classes eligible to participate in the Penny Pilot.\56\ In so approving, the Commission reviewed data provided by the options exchanges, including data relating to OPRA's capacity to process the increase in quotes resulting from the expansion of the Penny Pilot and the effectiveness of its quote mitigation plan.\57\ In approving each of these expansions, the Commission noted that it relied, in part, on the Exchange's representation that it would continue to use its quote mitigation plan to suppress certain quotation traffic that would otherwise be sent to OPRA.\58\ The Commission also relied on data provided by the options exchanges to support representations that capacity was not a concern, and that the quote mitigation plans in place were successful.\59\ --------------------------------------------------------------------------- \56\ The Commission approved thirteen classes to participate in the Penny Pilot on January 24, 2007. See Quote Mitigation Approval Order, supra note 9. On September 27, 2007, the Commission approved an expansion of the Penny Pilot, which raised the number of participating classes to 63. See Securities Exchange Act Release No. 56567, 72 FR 56396 (October 3, 2007) (Amex-2007-96) (Order Approving Expansion 1). On September 23, 2009, the Commission approved another expansion, raising the number of participating classes to 363. See Securities Exchange Act Release No. 60711, 74 FR 49419 (September 28, 2009) (NYSEArca-2009-44) (Order Approving Expansion 2). NYSE MKT filed a proposed rule change for immediate effectiveness, copying the expansion approved by the Commission in NYSE Arca-2009-44. See Securities Exchange Act Release No. 61106 (December 3, 2009), 74 FR 65193 (December 9, 2009)(Notice of Filing and Immediate Effectiveness of NYSEAmex-2009-74). \57\ See Order Approving Expansion 1 and Order Approving Expansion 2, supra note 56, at 56398 and 49422-23, respectively. \58\ Id. \59\ See Order Approving Expansion 2, supra note 56, at 49422. For example, in the order approving Expansion 2, the Commission noted that on June 2, 2009, the sustained message traffic peak of 852,350 messages per second reported by OPRA is still well below the OPRA's current message per second capacity limit of 2,050,000. Id. --------------------------------------------------------------------------- As noted above, the Exchange believes that its quote mitigation plan is no longer necessary because: (1) The Exchange has incorporated select provisions of the OLPP in Exchange Rule 903A, which the Exchange believes limits the number of series eligible to be traded; (2) current Exchange Rule 925.1 NY Commentary .01 removes certain options series from market makers' continuous quoting obligations, which the Exchange believes reduces the number of quote messages that the Exchange sends to OPRA; and (3) both the system capacity at the Exchange and at OPRA are more than sufficient to accommodate any additional increase in quote message traffic that might be disseminated if NYSE MKT's quote mitigation plan is eliminated. However, the Exchange has not provided the Commission with sufficient data regarding potential changes in quote message traffic if the Commission approves its proposal. For example, the Exchange does not provide sufficient data about the number of quote messages that its quote mitigation plan currently suppresses relative to capacity at OPRA. Specifically, the Exchange provided data from May 29, 2015 that purports to show that if all quote messages suppressed by the Exchange were instead sent to OPRA, industry quotes published by OPRA would increase by no more than 1.5%. The Exchange asserts that this increase would use less than .05% of total OPRA capacity across all option exchanges. Importantly, however, the Exchange does not provide data that shows the excess capacity between peak quote message traffic sent from all options exchanges and OPRA's Peak Capacity for the May 29, 2015 sample. If peak quote message traffic sent to OPRA by all the options exchanges was at or approached OPRA's Peak Capacity, then potentially even a small increase in quote message traffic from one exchange could result in OPRA's capacity being exceeded. In addition, the Exchange does not provide data or analysis demonstrating the potential impact the Exchange's proposal would have on market participants who consume the OPRA and/or the Exchange's quotation message feeds.\60\ Nor does the Exchange quantify the number or percentage of quote messages that have been and would continue to be suppressed as a result of the implementation of Exchange Rule 903A \61\ or current Exchange Rule 925.1NY Commentary .01.\62\ The Commission notes that the Exchange's comment letter stated its belief that as a result of refined quoting obligations, market makers do not need to quote in approximately 5,000 options series, and that this has resulted in a decrease in message traffic,\63\ however, the Exchange did not provide data to quantify the decrease in message traffic for the Commission to consider. Absent sufficient information and data of this type, the Commission is not able to adequately evaluate the Exchange's assertion that ``reliance on the OLPP, via Rule 903A, together with the refined market maker obligation, pursuant to Commentary .01 to Rule 925.1NY, is sufficient as a quote mitigation strategy [[Page 36028]] and obviates the need for Rule 970.1.'' \64\ Other information or data may also be helpful for the Commission's consideration of the proposed rule change. Without sufficient supporting data and analysis, the Commission is not able to adequately assess the impact of NYSE MKT's proposed rule change to eliminate its quote mitigation plan and make a determination that the proposed rule change is consistent with the Act. --------------------------------------------------------------------------- \60\ See Order Approving Expansion 2, supra note 56, at 49421 (The Commission noted that several commenters expressed concerns that increased quotation message traffic imposes costs on exchanges and other market participants to process and store the additional quotations and they questioned the ability of market systems to effectively handle the increased quote message traffic that would likely result from the expansion of the Penny Pilot to 363 classes. In approving the expansion, the Commission noted that NYSE Arca ``had adopted and [would] continue to utilize quote mitigate strategies that should continue to mitigate the expected increase in quotation traffic.'') Id. at 49422-23. \61\ In 2009, the OLPP Participants, including NYSE MKT, represented that the new strategy they were proposing as Amendment No. 3 to the OLPP (which was subsequently codified as Rule 903A on the Exchange's rulebook) would be ``an additional strategy'' to be used to address overall capacity concerns in the industry. See Securities Exchange Act Release No. 60365 (July 22, 2009), 74 FR 37266 (July 28, 2009) (Notice of Filing of Amendment No. 3 to the OLPP proposing uniform standards to the range of options series exercise prices available for trading). Although it was anticipated that the exercise price limitation bands set forth in Amendment No. 3 would also have the attendant benefit of further reducing increases in quote message traffic, nothing in the language in the exchanges' OLPP filings suggest that the methodology set forth in Amendment No. 3 (to limit the number of options series available for trading) was intended to replace the options exchanges' quote mitigation strategies, nor does the language in those filings suggest that it was contemplated at the time that the options exchanges would eliminate their existing exchange-specific quote mitigation strategies. \62\ While NYSE MKT stated in its proposed rule change to adopt Commentary .01 to Exchange Rule 925.1NY that the burden of continuous quoting in adjusted series is counter to efforts to mitigate the number of quotes collected and disseminated, and that the proposal would further the goal of quote mitigation, this was not a basis given for the proposed rule change, and the Exchange did not provide any data on what the impact of the proposal on quote volume would be. See Securities Exchange Act Release No. 65209 (August 26, 2011), 76 FR 54518 (September 1, 2011) (NYSEAmex-2011- 61). Additionally, the Commission did not consider the potential impact of the proposal on quote mitigation as a basis for approving the elimination of continuous quoting obligation in certain series. See Securities Exchange Act Release No. 65572 (October 14, 2011), 76 FR 65310 (October 20, 2011) (NYSEAmex-2011-61). \63\ See NYSE MKT Letter 1, supra note 6, at 3. \64\ See Notice, supra note 3, at 63010. --------------------------------------------------------------------------- Given the limitations in the data provided by NYSE MKT, as described above, the Commission cannot find a sufficient basis to conclude that the proposal is consistent with the Act. The Commission notes, however, that the Penny Pilots for each of the options exchanges are anticipated to be extended for an additional year, until June 30, 2016. In connection with any future requests to extend the Penny Pilots after that date, the Commission intends to require each exchange to submit detailed information to allow for permanent approval or disapproval by the Commission. Such proposals should, among other things, provide detailed data and analysis to support the efficacy, or any proposed modification or elimination, of any exchanges' quote mitigation plan.\65\ --------------------------------------------------------------------------- \65\ In reviewing the quote mitigation plans in this manner, the Commission would be able to consider the market-wide impact of any proposed modification to or elimination of an exchange's quote mitigation practices. --------------------------------------------------------------------------- For the foregoing reasons, the Commission does not believe that NYSE MKT has met its burden to demonstrate that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder, including that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.\66\ --------------------------------------------------------------------------- \66\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- IV. Conclusion For the reasons set forth above, the Commission does not believe that NYSE MKT has met its burden to demonstrate that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange, and in particular, section 6(b)(5) of the Act. It is therefore ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (SR-NYSEMKT-2014-86) be, and hereby is, disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\67\ --------------------------------------------------------------------------- \67\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2015-15340 Filed 6-22-15; 8:45 am] BILLING CODE 8011-01-P
![36024 Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices
III. Date of Effectiveness of the Reference Room, 100 F Street NE., On January 8, 2015, the Exchange
Proposed Rule Change and Timing for Washington, DC 20549, on official submitted a comment letter in further
Commission Action business days between the hours of support of its proposal.6 On January 16,
The foregoing rule change has become 10:00 a.m. and 3:00 p.m. Copies of such 2015, the Commission issued an Order
effective pursuant to Section 19(b)(3)(A) filing will also be available for Instituting Proceedings to Determine
of the Act 16 and paragraph (f) of Rule inspection and copying at the principal Whether to Approve or Disapprove the
19b–4 17 thereunder. At any time within office of the Exchange. All comments proposed rule change.7 On February 27,
60 days of the filing of the proposed rule received will be posted without change; 2015 and June 4, 2015, the Exchange
change, the Commission summarily may the Commission does not edit personal submitted comment letters in further
temporarily suspend such rule change if identifying information from support of its proposal.8 No additional
it appears to the Commission that such submissions. You should submit only comment letters were submitted. This
action is necessary or appropriate in the information that you wish to make order disapproves the proposed rule
public interest, for the protection of available publicly. All submissions change.
investors, or otherwise in furtherance of should refer to File Number SR–CBOE–
2015–058 and should be submitted on II. Description of the Proposal
the purposes of the Act. If the
Commission takes such action, the or before July 14, 2015. In 2007, the Exchange adopted a
Commission will institute proceedings For the Commission, by the Division of quote mitigation plan in connection
to determine whether the proposed rule Trading and Markets, pursuant to delegated with the Options Penny Pilot Program
change should be approved or authority.18 (‘‘Penny Pilot’’).9 The Exchange’s quote
disapproved. Brent J. Fields, mitigation plan consisted of several
Secretary. different strategies used together to
IV. Solicitation of Comments mitigate quotes.10 In 2009, the Exchange
[FR Doc. 2015–15338 Filed 6–22–15; 8:45 am]
Interested persons are invited to BILLING CODE 8011–01–P
adopted the quote mitigation plan used
submit written data, views, and by NYSE Arca.11 According to the
arguments concerning the foregoing, Exchange, the quote mitigation plan was
including whether the proposed rule SECURITIES AND EXCHANGE designed to reduce the number of
change is consistent with the Act. COMMISSION quotation messages sent by the
Comments may be submitted by any of Exchange to the Options Price Reporting
the following methods: [Release No. 34–75190; File No. SR– Authority (‘‘OPRA’’) by only submitting
NYSEMKT–2014–86]
Electronic Comments proceedings to determine whether to approve or
Self-Regulatory Organizations;
• Use the Commission’s Internet disapprove the proposed rule change.
comment form (http://www.sec.gov/ NYSEMKT LLC.; Order Disapproving 6 See Letter from Elizabeth King, Secretary &
rules/sro.shtml); or Proposed Rule Change To Remove the General Counsel, Exchange, to Kevin O’Neill,
Exchange’s Quote Mitigation Plan as Deputy Secretary, Commission, dated January 8,
• Send an email to rule-comments@ 2015 (‘‘NYSE MKT Letter 1’’) available at http://
sec.gov. Please include File Number SR– Provided in Exchange Rule 970.1NY
www.sec.gov/comments/sr-nysemkt-2014-86/
CBOE–2015–058 on the subject line. June 17, 2015. nysemkt201486-1.pdf.
7 See Securities and Exchange Release No. 74087,
Paper Comments I. Introduction 80 FR 3697 (January 23, 2015) (Order Instituting
• Send paper comments in triplicate On October 2, 2014, NYSE MKT LLC,
Proceedings to Determine Whether to Approve or
Disapprove a Proposal Rule Change to Remove the
to Secretary, Securities and Exchange (‘‘NYSE MKT’’ or ‘‘Exchange’’) filed Exchange’s Quote Mitigation Plan as Provided by
Commission, 100 F Street NE., with the Securities and Exchange Exchange Rule 970.1NY) (‘‘OIP’’).
Washington, DC 20549–1090. Commission (‘‘Commission’’), pursuant
8 See Letters from Elizabeth King, Secretary &
General Counsel, Exchange, to Kevin O’Neill,
All submissions should refer to File to section 19(b)(1) of the Securities Deputy Secretary, Commission, dated February 27,
Number SR–CBOE–2015–058. This file Exchange Act of 1934 (‘‘Act’’) 1 and Rule 2015 (‘‘NYSE MKT Letter 2’’) available at http://
number should be included on the 19b–4 thereunder,2 a proposed rule www.sec.gov/comments/sr-nysemkt-2014-86/
subject line if email is used. To help the change to remove the Exchange’s quote nysemkt201486-2.pdf and to Brent Fields,
Commission process and review your Secretary, Commission, dated June 4, 2015 (‘‘NYSE
mitigation plan as provided by NYSE MKT Letter 3’’) available at http://www.sec.gov/
comments more efficiently, please use MKT Rule 970.1NY. The proposed rule comments/sr-nysemkt-2014-86/nysemkt201486-
only one method. The Commission will change was published for comment in 3.pdf.
post all comments on the Commission’s the Federal Register on October 21, 9 See Securities and Exchange Release No. 55162
Internet Web site (http://www.sec.gov/ (January 24, 2007), 72 FR 4738 (February 1, 2007)
2014.3 On December 2, 2014, pursuant (Order Granting Approval of SR–Amex–2006–106)
rules/sro.shtml). Copies of the to section 19(b)(2) of the Act,4 the (‘‘Quote Mitigation Approval Order’’). In this Order,
submission, all subsequent Commission designated a longer period the Commission approved a proposed rule change
amendments, all written statements within which to approve the proposed to amend the American Stock Exchange LLC (n/k/
with respect to the proposed rule a NYSE MKT) rules to (i) permit thirteen options
rule change, disapprove the proposed classes to be quoted in pennies on a pilot basis and
change that are filed with the rule change, or institute proceedings to (ii) adopt various quote mitigation strategies. In
Commission, and all written determine whether to approve or approving the Penny Pilot, the Commission
communications relating to the disapprove the proposed rule change.5 analyzed data provided by the options exchanges to
proposed rule change between the assess the potential impact the Penny Pilot would
have on, among other things, the increase in
Commission and any person, other than 18 17 CFR 200.30–3(a)(12). quotation message traffic. The Exchange
mstockstill on DSK4VPTVN1PROD with NOTICES
those that may be withheld from the 1 15 U.S.C. 78s(b)(1). subsequently adopted the quote mitigation plan
public in accordance with the 2 17 CFR 240.19b–4.
used by NYSE Arca. See Securities and Exchange
3 See Securities Exchange Act Release No. 73367 Release No. 59472 (February 27, 2009), 74 FR 9843
provisions of 5 U.S.C. 552, will be
(October 15, 2014), 79 FR 63009 (‘‘Notice’’). (March 6, 2009) (SR–ALTR–2008–14) (‘‘Quote
available for Web site viewing and 4 15 U.S.C. 78s(b)(2). Mitigation Approval Order No. 2’’).
printing in the Commission’s Public 5 See Securities Exchange Act Release No. 73718, 10 See Order Granting Approval of SR–Amex–
79 FR 72748 (December 8, 2014). The Commission 2006–106, supra note 9, at 4739.
16 15 U.S.C. 78s(b)(3)(A). designated January 19, 2015, as the date by which 11 See Quote Mitigation Approval Order No. 2,
17 17 CFR 240.19b–4(f). it should approve, disapprove, or institute supra note 9.
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![36026 Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices
must nonetheless receive and process to 359,000 messages per seconds Commission cannot find that the
quotes in such series, and perform (‘‘mps’’), and that by July 2015, OPRA’s proposed rule change is consistent with
additional processing to suppress quotes peak capacity is anticipated to be section 6(b)(5) of the Act,49 which
in these series to comply with their 42,100,000 mps.42 In addition, the requires that the rules of a national
quote mitigation plan.34 The Exchange Exchange states, based on peak message securities exchange be designed, among
states that because it is already traffic figures on the Exchange for one other things, to prevent fraudulent and
processing the quotes it suppresses, it is day in May 2015,43 that if the quotes the manipulative acts and practices, to
‘‘confident that its own systems capacity Exchange suppressed on that day had promote just and equitable principles of
is more than sufficient to accommodate been sent to OPRA, industry quotes trade, to remove impediments to and
any increase in the traffic that might be published by OPRA would have perfect the mechanism of a free and
sent to OPRA.’’ 35 The Exchange notes increased by no more than 1.5%, and open market and a national market
that in its requests for capacity that this would use less than .05% of system, and to protect investors and the
submitted to the Independent Systems total OPRA capacity.44 public interest.
Capacity Advisory (‘‘ISCA’’) (which In conjunction with the adoption of
IV. Discussion
OPRA uses to ensure overall aggregate the Penny Pilot in 2007 that permitted
capacity), NYSE MKT assumes that (1) Under section 19(b)(2)(C) of the Act, the options exchanges to quote certain
options series that are inactive at that the Commission shall approve a options series in one and five cent
time could become active in the future, proposed rule change of a self- increments, and in response to a letter
thereby increasing overall message regulatory organization if the sent by the then Chairman of the
traffic sent to OPRA, and (2) that all Commission finds that such proposed Commission,50 the options exchanges,
options series that it lists, including rule change is consistent with the including NYSE MKT, adopted quote
those without continuous quoting requirements of the Act, and the rules mitigation plans.51 The Commission
obligations for market makers, will and regulations thereunder that are emphasized the importance of options
generate message traffic to OPRA.36 The applicable to such organization.45 The exchanges’ quote mitigation strategies in
Exchange further states its belief that Commission shall disapprove a connection with the Penny Pilot in its
OPRA also would be able to proposed rule change if it does not make orders approving an expansion of the
accommodate any increase in quote such a finding.46 Rule 700(b)(3) of the Penny Pilot in 2007. In those orders, the
message traffic resulting from NYSE Commission’s Rules of Practice states Commission noted that options
MKT no longer suppressing quotes in that the ‘‘burden to demonstrate that a exchanges participating in the Penny
inactive series.37 proposed rule change is consistent with Pilot would continue to use quote
The Exchange further argues that the [Act] . . . is on the self-regulatory mitigation strategies.52 Likewise, when
eliminating its quote mitigation plan is organization that proposed the rule the Commission approved NYSE Arca’s
consistent with the Act because the change’’ and that a ‘‘mere assertion that proposal to again expand the Penny
Exchange actively monitors market the proposed rule change is consistent Pilot in 2009, the Commission reiterated
maker quoting activity and alerts market with those requirements . . . is not that the NYSE Arca would retain and
makers to heightened levels of quoting sufficient.’’ 47 continue to employ its quote mitigation
activity, which could result from After careful consideration, the
strategy.53
systems issues or an incorrectly set Commission cannot find that the
parameter that generates erroneous proposed rule change is consistent with impact on efficiency, competition, and capital
quotes.38 The Exchange notes that NYSE the requirements of the Act and the formation. 15 U.S.C. 78c(f).
MKT’s requests for capacity to the ISCA rules and regulations thereunder 49 15 U.S.C. 78f(b)(5).
are adjusted to account for ‘‘some level’’ applicable to a national securities 50 In a letter sent to the options exchanges on June
of erroneous quoting.39 exchange.48 In particular, the 7, 2006, encouraging the implementation of a penny
The Exchange also states that the pilot program, then Chairman Cox noted that
quoting options in pennies would increase quote
landscape regarding quote message 42 Id.
message traffic, which the systems of exchanges,
traffic and capacity has changed since 43 Id. The Exchange represents that as of Friday
market data vendors, and securities firms must be
the adoption of the Penny Pilot.40 NYSE May 29, 2015, peak message traffic for the Exchange able to manage, and for that reason, quoting options
was 3,121,570 mps, measured over a 100 in pennies would begin in a small number of
MKT represents that in January 2007, millisecond period. Based on this, the Exchange options. To assist in managing the anticipated
using the quote mitigation plan believes that if the highest percentage of quotes increase in quote traffic, Chairman Cox asked that
currently in place on the Exchange, 15% suppressed by the Exchange during this period the options exchanges include a workable quote
of quotes received by the NYSE Arca, (6.7%) had been published at the same rate as mitigation strategy in any proposal to allow quoting
quotes the Exchange had not suppressed during this in pennies. See Commission Press Release 2006–91,
were not sent to OPRA, compared to time, the mps rate would instead be 3,330,715. Id. ‘‘SEC Chairman Cox Urges Options Exchanges to
4.3% received by the Exchange as of 44 Id.
Start Limited Penny Quoting,’’ June 7, 2006.
April 2015.41 The Exchange also states 45 15 U.S.C. 78s(b)(2)(C)(i). 51 See Quote Mitigation Approval Order, supra
that at the time the Penny Pilot was 46 15 U.S.C. 78s(b)(2)(C)(i); see also 17 CFR note 9.
adopted, OPRA’s total capacity was set 201.700(b)(3) and note 47 infra, and accompanying 52 See Securities Exchange Act Release No. 56568,
text. 72 FR 56422 (October 3, 2007) (SR–NYSEArca–
47 17 CFR 201.700(b)(3). The description of a 2007–88); 56567 (September 27, 2007), 72 FR 56307
34 Id.
35 Id.
proposed rule change, its purpose and operation, its (October 3, 2007) (Amex–2007–96); 56565
36 See
effect, and a legal analysis of its consistency with (September 27, 2007), 72 FR 56403 (October 3,
NYSE MKT Letter 1, supra note 6, at 2– applicable requirements must all be sufficiently 2007) (CBOE–2007–98); 56564 (September 27,
3. detailed and specific to support an affirmative 2007), 72 FR 56412 (October 3, 2007) (ISE–2007–
37 See NYSE MKT Letter 1, supra note 6, at 1– Commission finding. See id. Any failure of a self- 74); 56563 (September 27, 2007), 72 FR 56429
mstockstill on DSK4VPTVN1PROD with NOTICES
2. regulatory organization to provide the information (October 3, 2007) (Phlx–2007–62); and 56566
38 See NYSE MKT Letter 1, supra note 6, at 3– solicited by Form 19b-4 may result in the (September 27, 2007), 72 FR 56400 (October 3,
4. Commission not having a sufficient basis to make 2007) (BSE–2007–40).
39 Id.
at 4. an affirmative finding that a proposed rule change 53 See Securities Exchange Act Release No. 60711,
40 SeeNYSE MKT Letter 3, supra note 8, at 2. is consistent with the Act and the rules and 74 FR 49419 (September 28, 2009) (SR–NYSEArca–
41 Id. Although the Exchange had not yet adopted regulations issued thereunder that are applicable to 2009–44). See also Securities Exchange Act Nos.
its current quote mitigation plan in January 2007, the self-regulatory organization. Id. 60373 (October 23, 2009), 74 FR 56675 (November
it provided data from NYSE Arca from this time 48 In disapproving the proposed rule change, the 2, 2009) (Phlx–2009–91); 60864 (October 22, 2009),
period for comparative purposes. Id. Commission has considered the proposed rule’s 74 FR 55876 (October 29, 2009) (CBOE–2009–076);
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![Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices 36027
In approving NYSE MKT’s proposal As noted above, the Exchange quantify the number or percentage of
in February 2007, the Commission believes that its quote mitigation plan is quote messages that have been and
stated that because it expected that the no longer necessary because: (1) The would continue to be suppressed as a
Penny Pilot would increase quote Exchange has incorporated select result of the implementation of
message traffic, the Commission also provisions of the OLPP in Exchange Exchange Rule 903A 61 or current
approved the Exchange’s proposal to Rule 903A, which the Exchange believes Exchange Rule 925.1NY Commentary
reduce the number of quotations it limits the number of series eligible to be .01.62 The Commission notes that the
disseminates.54 In 2009, the traded; (2) current Exchange Rule 925.1 Exchange’s comment letter stated its
Commission approved NYSE MKT’s NY Commentary .01 removes certain belief that as a result of refined quoting
implementation of a quote mitigation options series from market makers’ obligations, market makers do not need
strategy identical to that in place on continuous quoting obligations, which to quote in approximately 5,000 options
NYSE Arca.55 the Exchange believes reduces the
In 2007 and 2009, the Commission series, and that this has resulted in a
number of quote messages that the
approved rule changes expanding the decrease in message traffic,63 however,
Exchange sends to OPRA; and (3) both
number of classes eligible to participate the Exchange did not provide data to
the system capacity at the Exchange and
in the Penny Pilot.56 In so approving, at OPRA are more than sufficient to quantify the decrease in message traffic
the Commission reviewed data provided accommodate any additional increase in for the Commission to consider. Absent
by the options exchanges, including quote message traffic that might be sufficient information and data of this
data relating to OPRA’s capacity to disseminated if NYSE MKT’s quote type, the Commission is not able to
process the increase in quotes resulting mitigation plan is eliminated. However, adequately evaluate the Exchange’s
from the expansion of the Penny Pilot the Exchange has not provided the assertion that ‘‘reliance on the OLPP, via
and the effectiveness of its quote Commission with sufficient data Rule 903A, together with the refined
mitigation plan.57 In approving each of regarding potential changes in quote market maker obligation, pursuant to
these expansions, the Commission message traffic if the Commission Commentary .01 to Rule 925.1NY, is
noted that it relied, in part, on the approves its proposal. sufficient as a quote mitigation strategy
Exchange’s representation that it would For example, the Exchange does not
continue to use its quote mitigation plan provide sufficient data about the traffic that would likely result from the expansion
to suppress certain quotation traffic that number of quote messages that its quote of the Penny Pilot to 363 classes. In approving the
would otherwise be sent to OPRA.58 The mitigation plan currently suppresses expansion, the Commission noted that NYSE Arca
Commission also relied on data ‘‘had adopted and [would] continue to utilize quote
relative to capacity at OPRA. mitigate strategies that should continue to mitigate
provided by the options exchanges to Specifically, the Exchange provided the expected increase in quotation traffic.’’) Id. at
support representations that capacity data from May 29, 2015 that purports to 49422–23.
was not a concern, and that the quote show that if all quote messages 61 In 2009, the OLPP Participants, including
mitigation plans in place were suppressed by the Exchange were NYSE MKT, represented that the new strategy they
successful.59 were proposing as Amendment No. 3 to the OLPP
instead sent to OPRA, industry quotes (which was subsequently codified as Rule 903A on
published by OPRA would increase by the Exchange’s rulebook) would be ‘‘an additional
60865 (October 22, 2009), 74 FR 55880 ((ISE–2009– strategy’’ to be used to address overall capacity
82); 60886 (October 27, 2009), 74 56897 (November no more than 1.5%. The Exchange
concerns in the industry. See Securities Exchange
3, 2009); 60874 (October 23, 2009), 74 FR 56682 asserts that this increase would use less Act Release No. 60365 (July 22, 2009), 74 FR 37266
(November 2, 2009) (NASDAQ–2009–091); and than .05% of total OPRA capacity across (July 28, 2009) (Notice of Filing of Amendment No.
61106 (December 3, 2009), 74 FR 65193 (December all option exchanges. Importantly, 3 to the OLPP proposing uniform standards to the
9, 2009) (NYSEAmex–2009–74). range of options series exercise prices available for
54 See Quote Mitigation Approval Order, supra however, the Exchange does not provide
trading). Although it was anticipated that the
note 9, at 4740. data that shows the excess capacity exercise price limitation bands set forth in
55 See Quote Mitigation Approval Order No. 2, between peak quote message traffic sent Amendment No. 3 would also have the attendant
supra note 9. from all options exchanges and OPRA’s benefit of further reducing increases in quote
56 The Commission approved thirteen classes to
Peak Capacity for the May 29, 2015 message traffic, nothing in the language in the
participate in the Penny Pilot on January 24, 2007. exchanges’ OLPP filings suggest that the
See Quote Mitigation Approval Order, supra note sample. If peak quote message traffic methodology set forth in Amendment No. 3 (to limit
9. On September 27, 2007, the Commission sent to OPRA by all the options the number of options series available for trading)
approved an expansion of the Penny Pilot, which exchanges was at or approached OPRA’s was intended to replace the options exchanges’
raised the number of participating classes to 63. See Peak Capacity, then potentially even a quote mitigation strategies, nor does the language in
Securities Exchange Act Release No. 56567, 72 FR those filings suggest that it was contemplated at the
56396 (October 3, 2007) (Amex–2007–96) (Order small increase in quote message traffic time that the options exchanges would eliminate
Approving Expansion 1). On September 23, 2009, from one exchange could result in their existing exchange-specific quote mitigation
the Commission approved another expansion, OPRA’s capacity being exceeded. strategies.
raising the number of participating classes to 363. In addition, the Exchange does not 62 While NYSE MKT stated in its proposed rule
See Securities Exchange Act Release No. 60711, 74 change to adopt Commentary .01 to Exchange Rule
FR 49419 (September 28, 2009) (NYSEArca–2009– provide data or analysis demonstrating
925.1NY that the burden of continuous quoting in
44) (Order Approving Expansion 2). NYSE MKT the potential impact the Exchange’s adjusted series is counter to efforts to mitigate the
filed a proposed rule change for immediate proposal would have on market number of quotes collected and disseminated, and
effectiveness, copying the expansion approved by participants who consume the OPRA that the proposal would further the goal of quote
the Commission in NYSE Arca–2009–44. See mitigation, this was not a basis given for the
Securities Exchange Act Release No. 61106 and/or the Exchange’s quotation
proposed rule change, and the Exchange did not
(December 3, 2009), 74 FR 65193 (December 9, message feeds.60 Nor does the Exchange provide any data on what the impact of the
2009)(Notice of Filing and Immediate Effectiveness proposal on quote volume would be. See Securities
of NYSEAmex–2009–74). below the OPRA’s current message per second Exchange Act Release No. 65209 (August 26, 2011),
mstockstill on DSK4VPTVN1PROD with NOTICES
57 See Order Approving Expansion 1 and Order
capacity limit of 2,050,000. Id. 76 FR 54518 (September 1, 2011) (NYSEAmex–
Approving Expansion 2, supra note 56, at 56398 60 See Order Approving Expansion 2, supra note 2011–61). Additionally, the Commission did not
and 49422–23, respectively. 56, at 49421 (The Commission noted that several consider the potential impact of the proposal on
58 Id. quote mitigation as a basis for approving the
commenters expressed concerns that increased
59 See Order Approving Expansion 2, supra note quotation message traffic imposes costs on elimination of continuous quoting obligation in
56, at 49422. For example, in the order approving exchanges and other market participants to process certain series. See Securities Exchange Act Release
Expansion 2, the Commission noted that on June 2, and store the additional quotations and they No. 65572 (October 14, 2011), 76 FR 65310 (October
2009, the sustained message traffic peak of 852,350 questioned the ability of market systems to 20, 2011) (NYSEAmex–2011–61).
messages per second reported by OPRA is still well effectively handle the increased quote message 63 See NYSE MKT Letter 1, supra note 6, at 3.
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![36028 Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices
and obviates the need for Rule 970.1.’’ 64 For the Commission, by the Division of for the Consolidated Audit Trail
Other information or data may also be Trading and Markets, pursuant to delegated (‘‘Selection Plan’’).3 Amendment No. 1
helpful for the Commission’s authority.67 was published for comment in the
consideration of the proposed rule Brent J. Fields, Federal Register on February 11, 2015.4
change. Without sufficient supporting Secretary. The Commission received one comment
data and analysis, the Commission is [FR Doc. 2015–15340 Filed 6–22–15; 8:45 am] letter 5 and the SROs submitted a
not able to adequately assess the impact BILLING CODE 8011–01–P response to that comment letter.6 This
of NYSE MKT’s proposed rule change to order approves Amendment No. 1 to the
eliminate its quote mitigation plan and Selection Plan.
make a determination that the proposed SECURITIES AND EXCHANGE
COMMISSION II. Background and Description of the
rule change is consistent with the Act.
Given the limitations in the data Proposal
[Release No. 34–75192; File No. 4–668]
provided by NYSE MKT, as described A. Background
above, the Commission cannot find a Joint Industry Plan; Order Approving On July 11, 2012, the Commission
sufficient basis to conclude that the Amendment No. 1 to the National adopted Rule 613 to require the SROs to
proposal is consistent with the Act. The Market System Plan Governing the jointly submit an NMS plan to create,
Commission notes, however, that the Process of Selecting a Plan Processor implement, and maintain a consolidated
Penny Pilots for each of the options and Developing a Plan for the audit trail (‘‘CAT NMS Plan’’).7 In
exchanges are anticipated to be Consolidated Audit Trail by BATS response, the SROs engaged in a request
extended for an additional year, until Exchange, Inc., BATS–Y Exchange, for proposal (‘‘RFP’’) process to help
June 30, 2016. In connection with any Inc., BOX Options Exchange LLC, C2 them develop an NMS Plan proposal
future requests to extend the Penny Options Exchange, Incorporated, and to solicit bids (‘‘Bids’’) for the role
Pilots after that date, the Commission Chicago Board Options Exchange, of Plan Processor 8 to build, operate,
intends to require each exchange to Incorporated, Chicago Stock administer, and maintain the
submit detailed information to allow for Exchange, Inc., EDGA Exchange, Inc., consolidated audit trail.9 The Selection
permanent approval or disapproval by EDGX Exchange, Inc., Financial Plan, which was approved by the
the Commission. Such proposals Industry Regulatory Authority, Inc., Commission on February 21, 2014, sets
should, among other things, provide International Securities Exchange, forth the process by which the
detailed data and analysis to support the LLC, ISE Gemini, LLC, Miami Participants will review, evaluate, and
efficacy, or any proposed modification International Securities Exchange LLC, narrow down the Bids, and ultimately
or elimination, of any exchanges’ quote NASDAQ OMX BX, Inc., NASDAQ OMX select the Plan Processor, following
mitigation plan.65 PHLX LLC, The NASDAQ Stock Market Commission approval of the CAT NMS
For the foregoing reasons, the
LLC, National Stock Exchange, Inc., Plan.10 Currently, the Participants have
Commission does not believe that NYSE
New York Stock Exchange LLC, NYSE narrowed the universe of Bids received
MKT has met its burden to demonstrate
MKT LLC, and NYSE Arca, Inc. to a set of six ‘‘Shortlisted Bidders.’’
that the proposed rule change is Under the Selection Plan, a Shortlisted
consistent with the requirements of the June 17, 2015. Bidder is only eligible to revise its Bid
Act and the rules and regulations following Commission approval of the
thereunder, including that the rules of I. Introduction
CAT NMS Plan and approval of a
an exchange be designed to promote just On December 12, 2014, BATS
majority of the Selection Committee.11
and equitable principles of trade, to Exchange, Inc., BATS–Y Exchange, Inc.,
Additionally, the Participants are not
remove impediments to and perfect the BOX Options Exchange LLC, C2 Options
permitted to narrow the set of
mechanism of a free and open market Exchange, Incorporated, Chicago Board
and a national market system, and, in Options Exchange, Incorporated, 3 The Selection Plan is an NMS Plan approved by
general, to protect investors and the Chicago Stock Exchange, Inc., EDGA the Commission pursuant to Section 11A of the Act
public interest.66 Exchange, Inc., EDGX Exchange, Inc., and Rule 608 thereunder. See Securities Exchange
Financial Industry Regulatory Act Release No. 71596 (Feb. 21, 2014), 79 FR 11152
IV. Conclusion Authority, Inc., International Securities
(Feb. 27, 2014) (‘‘Order Approving Selection Plan’’);
see also Securities Exchange Act Release No. 70892
For the reasons set forth above, the Exchange, LLC, ISE Gemini, LLC, Miami (Nov. 15, 2013), 78 FR 69910 (Nov. 21, 2013)
Commission does not believe that NYSE International Securities Exchange LLC, (‘‘Notice of Selection Plan’’).
MKT has met its burden to demonstrate NASDAQ OMX BX, Inc., NASDAQ 4 See Securities Exchange Act Release No. 74223
(Feb. 6, 2015), 80 FR 7654 (‘‘Notice of Amendment
that the proposed rule change is OMX PHLX LLC, The NASDAQ Stock No. 1’’).
consistent with the requirements of the Market LLC, National Stock Exchange, 5 See letter to Brent J. Fields, Secretary,
Act and the rules and regulations Inc., New York Stock Exchange LLC, Commission, from Manisha Kimmel, Managing
thereunder applicable to a national NYSE MKT LLC, and NYSE Arca, Inc. Director, Financial Information Forum (‘‘FIF’’),
dated March 13, 2015 (‘‘FIF Letter’’).
securities exchange, and in particular, (collectively, ‘‘SROs’’ or ‘‘Participants’’) 6 See letter to Brent J. Fields, Secretary,
section 6(b)(5) of the Act. filed with the Securities and Exchange Commission, from the SROs, dated March 27, 2015
It is therefore ordered, pursuant to Commission (‘‘Commission’’ or ‘‘SEC’’) (‘‘SRO Response Letter’’).
section 19(b)(2) of the Act, that the pursuant to section 11A of the 7 Securities Exchange Act Release No. 67457 (July
proposed rule change (SR–NYSEMKT– Securities Exchange Act of 1934 18, 2012), 77 FR 45722 (Aug. 1, 2012).
8 Unless otherwise noted, capitalized terms are
2014–86) be, and hereby is, (‘‘Act’’),1 and Rule 608 thereunder,2 an used as defined in Rule 613, in the Selection Plan,
mstockstill on DSK4VPTVN1PROD with NOTICES
disapproved. amendment (‘‘Amendment No. 1’’) to or in this Order.
the National Market System (‘‘NMS’’) 9 See Notice of Amendment No. 1, supra note 4,
64 See Notice, supra note 3, at 63010. Plan Governing the Process of Selecting at 7655.
65 Inreviewing the quote mitigation plans in this 10 See Order Approving Selection Plan, supra
manner, the Commission would be able to consider
a Plan Processor and Developing a Plan
note 3.
the market-wide impact of any proposed 11 See id. at 11154. The Selection Committee is
67 17 CFR 200.30–3(a)(12).
modification to or elimination of an exchange’s composed of one senior officer from each SRO and
quote mitigation practices. 1 15 U.S.C. 78k–1. is charged with evaluating the Bids and selecting
66 15 U.S.C. 78f(b)(5). 2 17 CFR 242.608. the Plan Processor. Id. at 11153.
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Document Created: 2018-02-22 11:15:12
Document Modified: 2018-02-22 11:15:12
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
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