80 FR 60722 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Several Rules to Address Certain Order Handling Obligations on the Part of Its Floor Brokers

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 194 (October 7, 2015)

Page Range		60722-60724
FR Document		2015-25463

Federal Register, Volume 80 Issue 194 (Wednesday, October 7, 2015)

[Federal Register Volume 80, Number 194 (Wednesday, October 7, 2015)]
[Notices]
[Pages 60722-60724]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-25463]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76063; File No. SR-NYSEARCA-2015-81]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Several
Rules to Address Certain Order Handling Obligations on the Part of Its
Floor Brokers

October 1, 2015.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 16, 2015, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend several rules to address certain
order handling obligations on the part of its Floor Brokers. 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 amend several rules to address certain
order handling obligations on the part of its Floor Brokers.
Specifically, the Exchange is proposing to amend Rules 6.62, 6.46, and
6.48 to clarify whether orders sent to Floor Brokers are considered
``Held'' or ``Not Held''. This proposal would enable the Exchange to
compete with options exchanges that have already implemented the types
of changes being proposed here.\4\
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\4\ See Securities and Exchange Act Release Nos. 75299 (June 25,
2015), 80 FR 37700 (July 1, 2015) (Approval Order); 74990 (May 18,
2015), 80 FR 29767 (May 22, 2015) (SR-CBOE-2015-047) (Notice). The
Exchange notes that, unlike CBOE, the Exchange does not route
certain electronic order to Floor Brokers. Therefore, the Exchange
is not proposing rule text mirroring CBOE's rule in this regard.
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Current Rule 6.62(f) defines whether orders sent to Floor Brokers
are presumed to be ``Held'' or ``Not Held.'' \5\ A ``Not Held'' order
generally is one where the customer gives the Floor Broker discretion
in executing the order, both with respect to the time of execution and
the price (though the customer may specify a limit price), and the
Floor Broker works the order over a period of time to avoid market
impact while seeking best execution of the order. A ``Held'' order
generally is one where the customer seeks a prompt execution at the
best currently available price or prices.
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\5\ Rule 6.62(f) (Orders Defined) defines a ``Not Held Order''
as an order that is marked as ``not held'', ``NH'', or ``take
time,'' or ``which bears any qualifying notation giving discretion
as to the price or time at which such order is to be executed.''
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The Exchange now proposes to establish in Rules 6.62(f), 6.46, and
6.48 a different default status for orders sent to Floor Brokers
because the Exchange believes that these provisions are intended to
protect against a broker failing to properly represent and ultimately
execute orders.\6\ Specifically the Exchange is proposing to amend Rule
6.62(f) to provide that ``[a]n order entrusted to a Floor Broker will
be considered a Not Held Order, unless otherwise specified by a Floor
Broker's client.'' The Exchange is also proposing to add new Commentary
.06 to Rule 6.46 (Responsibilities of Floor Brokers) and to add
language to Rule 6.46 (Discretionary Transaction) that mirrors the
language it proposes to add to Rule 6.62(f). The Exchange believes that
these proposed changes, taken together, would result in a change to the
default order handling obligations for orders sent to Floor Brokers
(i.e., the Exchange would consider all orders sent to Floor Brokers to
be ``Not Held'' by default).
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\6\ The Exchange notes that at the time these rules were
adopted, virtually all options orders (large or small and retail or
professional) were handled by Floor Brokers. Given the discrete
profile of orders handled by Floor Brokers today (generally large
size orders and often multi-leg) it is reasonable for Floor Brokers
to ``work'' orders that are entrusted to them because that is the
reason a customer would utilize a Floor Broker in today's
environment.
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The Exchange notes that Rules 6.46 and 6.48 were based upon rules
that were adopted prior to electronic trading and, therefore, did not
contemplate the interaction between an electronic environment and a
trading floor and have not been amended to specifically address that
interaction. While it is clear that Floor Brokers have more discretion
with regards to the manner in which they represent and execute orders
on a trading floor than does a computer routing an order to the
Exchange for execution, the bounds of the discretion have not been
entirely clear. Rules 6.46 and 6.48, among others, set certain
boundaries to a Floor Broker's discretion, but the Exchange believes
the current marketplace, with electronic and floor trading, favors an
amendment to those boundaries.
Electronic and floor trading gives clients the choice between an
Options Trading Permit (``OTP'') Holder or OTP Firm that routes orders
to the Exchange electronically or an OTP Holder or OTP Firm that
executes orders via a Floor Broker. The Exchange believes that clients
are keenly aware that the differences between electronic and floor
trading include at least the following factors: A computer cannot
deviate from its programed instructions, whereas a Floor Broker can
take into account the nuance of the marketplace, such as the makeup of
a particular trading floor, the individuals on that trading floor, and
how the electronic books interact with that environment. The Exchange
believes that clients use Floor Brokers precisely because Floor Brokers
can take into account the nuance of the marketplace (i.e., exercise a
certain level of discretion) to potentially provide higher execution
quality. The Exchange likewise believes that if a client did not want a
Floor Broker to use their expertise in the execution of an order, the
client would simply send orders to the Exchange electronically.
Given that Floor Brokers have more discretion with regards to the
manner in which they represent and execute orders than do computers
executing electronic orders, the Exchange is proposing to

[[Page 60723]]

change certain boundaries related to that discretion. In particular, in
recognition of the discretion implicit with the use of a Floor Broker,
the Exchange seeks to provide notice to the marketplace that, unless
otherwise specified by a Floor Broker's client, an order is deemed to
be ``not held.'' The Exchange believes clients that choose to use Floor
Brokers do so in order to utilize a Floor Broker's expertise in the
execution of orders. This rule change would update Exchange rules by
setting forth the presumptive discretion available to Floor Brokers in
a manner consistent with modern market structure and the Floor Broker's
role in the current trading environment. This filing also serves as
notice to the investing community that orders sent to Floor Brokers
will be deemed ``not held'' unless otherwise specified by the Floor
Broker's client.
In addition, the Exchange will announce the implementation of this
rule change by Trader Update.
2. Statutory Basis
The Exchange believes that the proposed change is consistent with
Section 6(b) of the Act,\7\ in general, and furthers the objectives of
Section 6(b)(5),\8\ in particular, in that it is designed 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 facilitation transactions
in securities, to remove impediments to, and perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \9\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ Id.
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In particular, the Exchange believes that it has articulated a
reasonable basis for changing the current default presumption of
whether a customer intends to provide a Floor Broker with the ability
to exercise time and price discretion on its behalf as long as the
order is not otherwise marked in a manner to suggest that the customer
did not intend for its order to be treated as Not Held. Other than
changing the default presumption to ``Not Held'' for most orders sent
to Floor Brokers, the Exchange is not proposing to change any other
order handling obligations applicable to Floor Brokers. The Exchange
believes that its proposal is consistent with the Act and is designed
to promote just and equitable principles of trade and remove
impediments to and perfect the mechanism of a free and open market
because it responds to an understanding of the changing role of Floor
Brokers on the Exchange's Floor since it adopted Rule 6.48, and its
understanding of how customers today use, and intend to continue to
use, the services of Floor Brokers on the Exchange. In addition, the
Exchange believes designating certain orders as ``not held'' is in the
interest of facilitating transactions in securities and reflective of
today's marketplace, which generally helps to protect investors and the
public interest.

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

The Exchange does not believe that this proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
the proposed rule change will impose any burden on competition because
the rule change adds clarity regarding the default orders handling
obligations for orders sent to Floor Brokers, reflects the modern
market structure, is consistent with the reasons customers utilize
Floor Brokers, and will be applied equally to all OTP Holders and OTP
Firms. To the extent that the proposed rule change will cause clients
or brokers to choose the Exchange over other trading venues, market
participants on other exchanges are welcome to become OTP Holders or
OTP Firms and trade at the Exchange if they determine that this
proposed rule change has made the Exchange more attractive or
favorable. In addition, as noted above, the Exchange believes the
proposed rule change is pro-competitive and would allow the Exchange to
compete more effectively with other options exchanges that have already
adopted similar rule changes.\10\
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\10\ See supra n. 4.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

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

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

The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\14\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange stated that
such a waiver would allow implementation of this proposed rule change
without delay and enable the Exchange to compete with other option
exchanges that changed the default order handling obligation for orders
sent to Floor Brokers to ``Not Held.'' The Commission believes the
waiver of the operative delay is consistent with the protection of
investors and the public interest. Therefore, the Commission hereby
waives the operative delay and designates the proposed rule change to
be operative upon filing.\15\
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\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4(f)(6)(iii).
\15\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\16\ 15 U.S.C. 78s(b)(2)(B).

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[[Page 60724]]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEARCA-2015-81 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEARCA-2015-81. 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 Section, 100 F Street
NE., Washington, DC 20549-1090. Copies of the filing will also be
available for inspection and copying at the NYSE's principal office and
on its Internet Web site at www.nyse.com. All comments received will be
posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEARCA-2015-81 and should be submitted
on or before October 28, 2015.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25463 Filed 10-6-15; 8:45 am]
BILLING CODE 8011-01-P

Federal Register / Vol. 80, No. 194 / Wednesday, October 7, 2015 / Notices 60723

change certain boundaries related to Exchange believes that its proposal is 19(b)(3)(A)(iii) of the Act 11 and Rule
that discretion. In particular, in consistent with the Act and is designed 19b–4(f)(6) thereunder.12 Because the
recognition of the discretion implicit to promote just and equitable principles proposed rule change does not: (i)
with the use of a Floor Broker, the of trade and remove impediments to and Significantly affect the protection of
Exchange seeks to provide notice to the perfect the mechanism of a free and investors or the public interest; (ii)
marketplace that, unless otherwise open market because it responds to an impose any significant burden on
specified by a Floor Broker’s client, an understanding of the changing role of competition; and (iii) become operative
order is deemed to be ‘‘not held.’’ The Floor Brokers on the Exchange’s Floor prior to 30 days from the date on which
Exchange believes clients that choose to since it adopted Rule 6.48, and its it was filed, or such shorter time as the
use Floor Brokers do so in order to understanding of how customers today Commission may designate, if
utilize a Floor Broker’s expertise in the use, and intend to continue to use, the consistent with the protection of
execution of orders. This rule change services of Floor Brokers on the investors and the public interest, the
would update Exchange rules by setting Exchange. In addition, the Exchange proposed rule change has become
forth the presumptive discretion believes designating certain orders as effective pursuant to Section 19(b)(3)(A)
available to Floor Brokers in a manner ‘‘not held’’ is in the interest of of the Act and Rule 19b–4(f)(6)(iii)
consistent with modern market facilitating transactions in securities and thereunder.
structure and the Floor Broker’s role in reflective of today’s marketplace, which
the current trading environment. This generally helps to protect investors and A proposed rule change filed under
filing also serves as notice to the the public interest. Rule 19b–4(f)(6) 13 normally does not
investing community that orders sent to become operative prior to 30 days after
Floor Brokers will be deemed ‘‘not B. Self-Regulatory Organization’s the date of the filing. However, pursuant
held’’ unless otherwise specified by the Statement on Burden on Competition to Rule 19b4(f)(6)(iii),14 the Commission
Floor Broker’s client. The Exchange does not believe that may designate a shorter time if such
In addition, the Exchange will this proposed rule change would action is consistent with the protection
announce the implementation of this impose any burden on competition not of investors and the public interest. The
rule change by Trader Update. necessary or appropriate in furtherance Exchange has asked the Commission to
2. Statutory Basis of the purposes of the Act. The waive the 30-day operative delay so that
Exchange does not believe the proposed the proposal may become operative
The Exchange believes that the immediately upon filing. The Exchange
rule change will impose any burden on
proposed change is consistent with stated that such a waiver would allow
competition because the rule change
Section 6(b) of the Act,7 in general, and implementation of this proposed rule
adds clarity regarding the default orders
furthers the objectives of Section change without delay and enable the
handling obligations for orders sent to
6(b)(5),8 in particular, in that it is Exchange to compete with other option
Floor Brokers, reflects the modern
designed to promote just and equitable exchanges that changed the default
market structure, is consistent with the
principles of trade, to foster cooperation order handling obligation for orders sent
reasons customers utilize Floor Brokers,
and coordination with persons engaged to Floor Brokers to ‘‘Not Held.’’ The
and will be applied equally to all OTP
in regulating, clearing, settling, Commission believes the waiver of the
Holders and OTP Firms. To the extent
processing information with respect to, operative delay is consistent with the
that the proposed rule change will cause
and facilitation transactions in protection of investors and the public
clients or brokers to choose the
securities, to remove impediments to, interest. Therefore, the Commission
Exchange over other trading venues,
and perfect the mechanism of a free and hereby waives the operative delay and
market participants on other exchanges
open market and, in general, to protect designates the proposed rule change to
are welcome to become OTP Holders or
investors and the public interest. be operative upon filing.15
OTP Firms and trade at the Exchange if
Additionally, the Exchange believes the
they determine that this proposed rule At any time within 60 days of the
proposed rule change is consistent with
change has made the Exchange more filing of such proposed rule change, the
the Section 6(b)(5) 9 requirement that
attractive or favorable. In addition, as Commission summarily may
the rules of an exchange not be designed
noted above, the Exchange believes the temporarily suspend such rule change if
to permit unfair discrimination between
proposed rule change is pro-competitive it appears to the Commission that such
customers, issuers, brokers, or dealers.
In particular, the Exchange believes and would allow the Exchange to action is necessary or appropriate in the
that it has articulated a reasonable basis compete more effectively with other public interest, for the protection of
for changing the current default options exchanges that have already investors, or otherwise in furtherance of
presumption of whether a customer adopted similar rule changes.10 the purposes of the Act. If the
intends to provide a Floor Broker with C. Self-Regulatory Organization’s Commission takes such action, the
the ability to exercise time and price Statement on Comments on the Commission shall institute proceedings
discretion on its behalf as long as the Proposed Rule Change Received From under Section 19(b)(2)(B) 16 of the Act to
order is not otherwise marked in a Members, Participants, or Others determine whether the proposed rule
manner to suggest that the customer did change should be approved or
not intend for its order to be treated as No written comments were solicited disapproved.
Not Held. Other than changing the or received with respect to the proposed
rule change.
asabaliauskas on DSK5VPTVN1PROD with NOTICES

default presumption to ‘‘Not Held’’ for 11 15 U.S.C. 78s(b)(3)(A)(iii).
most orders sent to Floor Brokers, the III. Date of Effectiveness of the 12 17 CFR 240.19b–4(f)(6).
13 17 CFR 240.19b–4(f)(6).
Exchange is not proposing to change Proposed Rule Change and Timing for 14 17 CFR 240.19b–4(f)(6)(iii).
any other order handling obligations Commission Action 15 For purposes only of waiving the 30-day
applicable to Floor Brokers. The operative delay, the Commission has also
The Exchange has filed the proposed
considered the proposed rule’s impact on
7 15 U.S.C. 78f(b). rule change pursuant to Section efficiency, competition, and capital formation. See
8 15 U.S.C. 78f(b)(5). 15 U.S.C. 78c(f).
9 Id. 10 See supra n. 4. 16 15 U.S.C. 78s(b)(2)(B).

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Document Created: 2015-12-15 08:48:59
Document Modified: 2015-12-15 08:48:59

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 60722