81 FR 21415 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule 955NY(c) by Revising the Clearing Member Requirements for Entering an Order Into the Electronic Order Capture System (“EOC”)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 69 (April 11, 2016)

[Federal Register Volume 81, Number 69 (Monday, April 11, 2016)]
[Notices]
[Pages 21415-21417]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-08179]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77518; File No. SR-NYSEMKT-2016-13]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule 
955NY(c) by Revising the Clearing Member Requirements for Entering an 
Order Into the Electronic Order Capture System (``EOC'')

April 5, 2016.
    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 March 22, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. On March 30, 2016, the Exchange filed Amendment No. 1 to 
the proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as modified by Amendment 
No. 1, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 955NY(c) by revising the 
requirements for entering an order into the Electronic Order Capture 
System (``EOC''). The proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Exchange Rule 955NY(c) by revising 
the requirements for entering an order into the EOC. Specifically, the 
Exchange proposes to eliminate the pre-trade EOC requirement that ATP 
Holders give up the name of the Clearing Member \4\ responsible for 
clearing each trade before representing a trade in open outcry. \5\
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    \4\ Rule 900.2NY defines ``Clearing Member'' as an Exchange ATP 
Holder which has been admitted to membership in the Options Clearing 
Corporation pursuant to the provisions of the Rules of the Options 
Clearing Corporation.
    \5\ In Amendment No. 1, the Exchange clarified that it is 
proposing to amend the timing in which Clearing Member information 
will be entered into the EOC. More specifically, the Exchange noted 
that Rule 955NY(c)(1) requires the other items included in Rule 
956NY(a), including the ``CMTA Information and the name of the 
clearing OTP Holder or Firm,'' to be included in the EOC ``as the 
events occur and/or during trade reporting procedures which may 
occur after the representation and execution of the order.''
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    The EOC is the Exchange's floor-based electronic audit trail and 
order tracking system that provides an accurate time-sequenced record 
of all orders and transactions entered and executed on the floor of the 
Exchange.\6\ This process, commonly referred to as the 
``systemization'' of an order, is composed of the contractual terms of 
an order that are required to be disclosed in order to effect a trade. 
The EOC was developed to comply with an order of the Commission, which 
required that the Exchange, in coordination with other exchanges, 
``design and implement a consolidated options audit trail system 
(`COATS'),'' that would ``enable the options exchanges to reconstruct 
markets promptly, effectively surveil them and enforce order handling, 
firm quote, trade reporting and other rules.'' \7\ In particular, the 
Exchange was required incorporate into the audit trail all non-
electronic orders ``such that the audit trail provides an accurate, 
time-sequenced record of electronic and other orders, quotations and 
transactions on such respondent exchange, beginning with the receipt of 
an order by such respondent exchange and further documenting the life 
of the order through the process of execution, partial execution, or 
cancellation of that order, which audit trail shall be readily 
retrievable in the common computer format.'' \8\
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    \6\ This system includes the electronic communications interface 
between booth terminals and the Floor Broker work stations.
    \7\ See Section IV.B.e.(v) of the Commission's Order Instituting 
Public Administrative Proceedings Pursuant to Sections 19(h)(1) of 
the Securities Exchange Act of 1934, Making Findings and Imposing 
Remedial Sanctions (the ``Order''). See Securities Exchange Act 
Release No. 43268 (September 11, 2000) and Administrative Proceeding 
File No. 3-10282.
    \8\ See id.
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    Current Rule 955NY(c) sets forth the EOC entry requirements and 
mandates that every ATP Holder that receives an order for execution on 
the Exchange ``must immediately, prior to representation in the trading 
crowd, record the details of the order (including any modification of 
the terms of the order or cancellation of the order) into the EOC, 
unless such order has been entered into the Exchange's other electronic 
order processing facilities (e.g., orders sent electronically through 
the Exchange's Member Firm Interface).'' \9\ Among other pre-trade EOC 
requirements under current Rule 955NY(c)(1), every ATP Holder must 
provide ``the name of the clearing ATP Holder'' (the ``Give Up 
Requirement'') \10\ Rule 955NY(c)(1) also provides that ``[t]he 
remaining elements prescribed in Rule 956NY and any additional 
information with respect to the order shall be recorded as the events 
occur and/or during trade reporting procedures which may occur after 
the representation and execution of the order.'' \11\
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    \9\ See Rule 955NY(c).
    \10\ See Rule 955NY(c)(1)(vii). Rule 955NY(c)(1) also requires 
the following data points to be entered upon receipt of an order: 
(i) The option symbol; (ii) the expiration date of the option; (iii) 
the exercise price; (iv) buy or sell with applicable limit or stop 
price or special instructions; (v) call or put; (vi) the quantity of 
contracts; as well as such other information as may be required by 
the Exchange from time to time. Rule 955NY(c)(1) also provides that 
the Exchange may also require additional information if needed and 
provides that the remaining data elements prescribed in Rule 956NY 
[see infra n. 10] are to be recorded as the events occur and/or 
during trade reporting procedures. The Exchange proposes to add the 
words ``in the EOC'' to Rule 955NY(c)(1) to make clear where the 
additional information would be recorded. See proposed Rule 
955NY(c)(1).
    \11\ See Rule 955NY (c)(1). The Exchange notes that one such 
element prescribed in Rule 956NY(a) to be recorded by each ATP 
Holder is ``CMTA Information and the name of the clearing ATP 
Holder,'' and therefore, per Rule 955NY(c)(1), this information 
would still be disclosed ``as the events occur and/or during trade 
reporting procedures which may occur after the representation and 
execution of the order.'' Id. See also Rule 956NY(a) (Record of 
Orders) (requiring that ATP Holders maintain a record of each order 
that includes that the following data elements: (1) CMTA Information 
and the name of the clearing ATP Holder; (2) options symbol, 
expiration month, exercise price and type of options; (3) side of 
the market and order type; (4) quantity of options; (5) limit or 
stop price or special conditions; (6) opening or closing 
transaction; (7) time in force; (8) account origin code; and (9) 
whether the order was solicited or unsolicited.) See also Rule 957NY 
(Reporting Duties), infra n. 12.

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[[Page 21416]]

    Pursuant to the proposed rule change, ATP Holders would no longer 
be subject to the pre-trade Give Up Requirement. Floor Brokers have 
told the Exchange that the identity of the firm through which each 
trade will clear is not always initially provided when an order is 
presented and that waiting to receive this information and enter it 
into EOC can delay the representation and execution of an order. In 
today's trading environment of rapidly moving markets and the need to 
execute an order and hedge a trade in real or near real time, even a 
slight delay can prove to be detrimental to the handling of an order. 
The proposed change to eliminate the Give Up Requirement prior to 
execution of each trade would not impair the Exchange's ability to 
comply with the Order. Specifically, the EOC would still provide an 
accurate, time-sequenced record beginning with the receipt of an order 
and document the life of the order through the process of execution, 
partial execution, or cancellation. Entry of information pursuant to 
the Give Up Requirement would occur after the order had been 
represented and executed in the Trading Crowd.\12\ Thus, only the 
timing of the disclosure of such information would be affected by this 
proposal.
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    \12\ See id.; see also Commentary .01 to Rule 957NY (providing 
that for each transaction executed on the Options Floor, the 
responsible ATP Holder will immediately report, among other 
information, both its assigned broker initial code and the name of 
the contra clearing member).
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    The Exchange notes that, similar to a filing it submitted in 
2013,\13\ the proposed rule change relates only to the system entry 
requirements for floor-based orders and would not change rules 
governing the record of orders (Rule 956NY). Floor Brokers would 
continue to be required to maintain proper order records, as part of 
each trade record, including the identity of the clearing ATP 
Holder.\14\ In that regard, Floor Brokers would continue to be required 
to give up the responsible Clearing Member on each trade as part of 
each trade record.\15\
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    \13\ See Securities and Exchange Act Release 69081 (March 8, 
2013), 78 FR 16332, 16333 (March 14, 2013) (SR-NYSEMKT-2013-16) 
(noting that ``[b]ecause the CMTA information, the opening/closing 
designation, the account origin code, the time if force and whether 
an order was solicited or unsolicited are not contractual terms of a 
trade itself nor are they required data elements pursuant to the 
Exchange's order format requirements, the Exchange does not believe 
this information needs to be entered into the EOC prior to an order 
being represented in the Trading Crowd, but may be entered 
contemporaneously upon the receipt of such information, even if that 
occurs after the order had been represented and executed in the 
Trading Crowd'').
    \14\ The Exchange notes that another exchange has made 
modifications to its rules related to the Order. See Securities 
Exchange Act Release No. 63071 (October 8, 2010), 75 FR 63876, 
63877-78 (October 18, 2010) (SR-Phlx-2010-139) (immediately 
effective filing to amend language related to the timing of the 
entry of clearing information, noting in relevant part that ``[t]he 
clearing information, which is the contra-side clearing information, 
is not required to be entered pursuant to COATS. Rather, this 
information facilitates the identification of the trade for 
clearing.''). The Exchange notes that the Philadelphia Stock 
Exchange proposed these changes to its rules without solicitation of 
the exchanges that were subject to the Order, including the 
Exchange. Accordingly, the Exchange believes that exchanges' changes 
to their rules put in place to comply with the Order are 
appropriately effected pursuant to the provisions of Section 
19(b)(1) of the Act and Rule 19b-4 thereunder. See 15 U.S.C. 
78s(b)(1); 17 CFR 240.19b-4.
    \15\ See supra nn. 11, 12. In addition, the Exchange notes that 
this proposal would not change rules governing trade reporting 
requirements (Rule 957NY) (i.e., that ``[t]ransactions not reported 
to [the Options Pricing Reporting Authority] within 90 seconds after 
the execution will be designated as (`late,'' per Rule 957(a)). The 
Exchange also notes that last year it revised and detailed the 
process in which an ATP Holder ``gives up'' or selects a Clearing 
Member responsible for the clearance of an Exchange transaction (the 
``Give Up Process''). See Securities and Exchange Act Release 75642 
(August 7, 2015), 80 FR 48594 (August 13, 2015) (SR-NYSEMKT-2015-55) 
(revising the Exchange's Give Up Process through modifications to 
Rules 960, 961 and 954NY).
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2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b) of the Act,\16\ in general, and furthers the objectives of 
Section 6(b)(5),\17\ 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) \18\ requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
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    Specifically, the proposed change to order entry requirements for 
the EOC (i.e., eliminating the pre-trade Give Up) is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities by ensuring that the terms of an order continue to be 
properly systematized prior to the order being represented in the 
Trading Crowd. The proposed change to eliminate the Give Up Requirement 
prior to execution of each trade would not impair the Exchange's 
ability to comply with the Order. Specifically, the EOC would still 
provide an accurate, time-sequenced record of electronic and other 
orders, quotations and transactions, beginning with the receipt of the 
order and documenting the life of the order through the process of 
execution, partial execution, or cancellation.\19\
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    \19\ See supra n. 7.
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    The proposal is also designed to prevent fraudulent and 
manipulative acts and practices, by ensuring that the Exchange is 
continues to meet its obligation to create and maintain a time-
sequenced record of orders, quotations and transactions on the 
Exchange. This proposal does not alter--or, as stated above, impair, 
the Exchange's obligation to incorporate into its audit trail all non-
electronic orders to provide an accurate, time-sequenced record of 
electronic and other orders, quotations and transactions that documents 
the life of the order from receipt through the execution, partial 
execution, or cancellation.\20\ Moreover, the proposed change merely 
removes the Give Up Requirement from pre-trade systemization, it does 
not alter that give ups must be disclosed as part of the Give Up 
Process and as part of trade reporting on the Exchange.\21\ 
Accordingly, nothing in this proposal would alter the Exchange's 
obligations pursuant to, or ability to comply with, the Order. The 
Exchange notes that it has previously modified the non-contractual data 
elements required pursuant to Rule 955NY(c) (i.e., not mandated by the 
Order).\22\
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    \20\ Id.
    \21\ See supra nn. 11, 12, 15.
    \22\ See supra n. 13.
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    Finally, the Exchange believes that the proposed change would 
reduce the burden on Floor Brokers to enter order information prior to 
representation which would, in turn, promote just and equitable 
principles of trade and remove impediments to and perfect the mechanism 
of a free and open market by reducing the delay in representation and 
execution of an order on the Exchange.

[[Page 21417]]

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 proposed rule change would 
reduce the burden on Floor Brokers that have reported that the identity 
of the firm through which each trade will clear is not always initially 
provided when an order is presented and that waiting to receive this 
information and enter it into EOC can delay the representation and 
execution of an order. By reducing Floor Brokers' burden on order entry 
compliance, the Exchange believes the proposal will improve the 
competitiveness of Exchange Floor Brokers, by enabling more timely 
executions of open outcry trades and promoting competition for order 
flow among market participants and the options exchanges.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-NYSEMKT-2016-13 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-NYSEMKT-2016-13. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NYSEMKT-2016-13, and should be 
submitted on or before May 2, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Robert W. Errett,
Deputy Secretary.
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    \23\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-08179 Filed 4-8-16; 8:45 am]
 BILLING CODE 8011-01-P