81 FR 21623 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change To Amend Rule 952NY With Respect to Opening Trading in an Options Series
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 70 (April 12, 2016)
Federal Register Volume 81, Issue 70 (April 12, 2016)
| Page Range | 21623-21626 | |
| FR Document | 2016-08304 |
[Federal Register Volume 81, Number 70 (Tuesday, April 12, 2016)] [Notices] [Pages 21623-21626] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-08304] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77540; File No. SR-NYSEMKT-2016-42] Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change To Amend Rule 952NY With Respect to Opening Trading in an Options Series April 6, 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 23, 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C.78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 952NY (Opening Process) with respect to opening trading in an options series. 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 is proposing changes to Rule 952NY with respect to opening [[Page 21624]] trading in an option series as described below. Opening Process Rule 952NY describes the process pursuant to which the System \4\ opens an option series. Paragraphs (b) and (c) of Rule 952NY provide that, after the primary market for the underlying security disseminates the opening trade or opening quote, the System then conducts an ``Auction Process'' to open a series whereby the System determines a single price at which a series may be opened by looking to: (i) The midpoint of the initial uncrossed NBBO disseminated by the Options Price Reporting Authority (``OPRA''), if any, or (ii) the midpoint of the best quotes or orders in the System Book. If the bid-ask differential for a series is not within an acceptable range, the System will not conduct an Auction Process.\5\ For purposes of this rule, the acceptable range means the bid-ask differential guidelines specified in Rule 925NY(b)(4).\6\ Assuming the bid-ask differential is within the acceptable range, the System matches up orders and quotes based on price-time priority \7\ and executes the orders that are matched at the midpoint pricing.\8\ --------------------------------------------------------------------------- \4\ The term ``System'' refers to the Exchange's electronic order delivery, execution and reporting system through which orders and quotes for listed options are consolidated for execution and/or display. See Rule 900.2NY(48) (defining ``Exchange System'' or ``System''). \5\ The Auction bid-ask differentials are known in common parlance as ``legal-width quotes.'' \6\ See Rule 925NY(b)(4). The bid-ask guidelines specified in Rule 925NY(b)(4) that are required to open a series are narrower than the $5 wide bid-ask differential for options traded on the System during Core Trading Hours. \7\ Orders will have priority over Market Maker quotes at the same price. See Rule 952NY(b)(B). \8\ See Rule 952NY(b)(B). The Exchange notes that the word Order appears capitalized in this paragraph and, because it is not a defined term, the Exchange proposes the non-substantive change of eliminating the capitalization. --------------------------------------------------------------------------- Any orders in the System that are not executed in the Auction Process become eligible for the Core Trading Session immediately after the conclusion of the Auction Process. If the System does not open a series with an Auction Process, the System shall open the series for trading after receiving notification of an initial NBBO disseminated by OPRA for the series or on a Market Maker quote, provided that the bid- ask differential does not exceed the bid-ask differential specified under Rule 925NY(b)(5).\9\ --------------------------------------------------------------------------- \9\ See Rule 925NY(b)(5). Rule 925NY(b)(5) provides that options traded on the System during Core Trading Hours may be quoted with a difference not to exceed $5 between the bid and offer regardless of the price of the bid. --------------------------------------------------------------------------- Proposed Modifications to the Opening Process First, the Exchange proposes to change Rule 952NY(b) regarding how the System determines when to start the Auction Process. Current paragraph (b) of the Rule provides that ``[a]fter the primary market for the underlying security disseminates the opening trade or the opening quote, the related option series will be opened automatically.'' However, because it is possible that either an opening quote or opening trade alone may not accurately reflect the state of the market, the Exchange proposes to specify that an option series will be opened automatically, ``once the primary market for the underlying security disseminates a quote and a trade that is at or within the quote.'' \10\ The Exchange believes the proposed change makes clear that the Exchange would only open a series automatically after it receives a quote in the underlying security and a trade in that security at or between the disseminated quote rather than simply upon receipt of either an ``opening trade or opening quote.'' The Exchange believes that waiting to open trading in an option series until there has been both a disseminated quote and trade in the underlying security would help to augment the Auction Process by ensuring that an underlying security has been opened pursuant to a robust price discovery process before opening the overlying options for trading. The Exchange believes that the proposed change would provide market participants with greater certainty as to the true state of the market at the opening of the trading day and should lead to more accurate prices on the Exchange.\11\ --------------------------------------------------------------------------- \10\ See proposed Rule 952NY(b). The Exchange also proposes to clarify that ``[a]t or after 9:30 a.m. Eastern Time,'' i.e., when the market opens, the Exchange would initiate the Opening Process for all series associated with the underlying security. See id. \11\ The Exchange notes that it would not open, for example if the first disseminated quote in the underlying security is $50.50 bid, $50.75 ask, and the first trade in the underlying had been executed for $50.00. The Exchange would, however open if the first trade in the underlying was $50.50. --------------------------------------------------------------------------- Next, the Exchange proposes to modify Rule 952NY(b)(E), which currently provides, in relevant part, that ``[i]f the System does not open a series with an Auction Process, the System shall open the series for trading after receiving notification of an initial NBBO disseminated by OPRA for the series or on a Market Maker quote.'' \12\ However, the Exchange has determined that it would no longer open on a local Market Maker quote but would require that Market Maker quotes, like the NBBO, come from OPRA. Thus, the Exchange proposes to open after receiving an ``initial uncrossed NBBO from ORRA'' and to delete rule text related to opening on a Market Maker quote.\13\ The Exchange notes that OPRA disseminates to each exchange the NBBO as well as the top of book for each exchange, such that the Exchange's market maker quote would be disseminated back to the Exchange as the BBO--and could be, but is not necessarily, the NBBO. Because OPRA disseminates this information to all exchanges at the same time, the Exchange believes the proposal to open only after receiving an uncrossed NBBO from OPRA would eliminate any ambiguity as to the source of the information used to open each series and should lead to more accurate prices on the Exchange. --------------------------------------------------------------------------- \12\ See Rule 952NY(b)(E). \13\ See proposed Rule 952NY(b)(E) (providing that ``[i]f the System does not open a series with an Auction Process, the System shall open the series for trading after receiving notification of an initial uncrossed NBBO disseminated by OPRA for the series, provided that the bid-ask differential does not exceed the bid-ask differential specified under Rule 925NY(b)(5).'' --------------------------------------------------------------------------- In connection with the proposed changes to Rule 952NY(b), the Exchange likewise proposes to strike from Rule 952NY(c) reference to ``the midpoint of the best quote bids and quote offers in the System Book'' as it relates to the Exchange determining the opening price for options issues designated for trading on the System.\14\ The Exchange believes this conforming change is necessary given that the Exchange would no longer open solely on a Market Maker quote and therefore this information would not form the basis of the opening price of a series. As proposed, the opening price of a series would be the price ``at which the greatest number of contracts will trade at or nearest to the midpoint of the initial uncrossed NBBO disseminated by OPRA.'' \15\ The Exchange believes this change adds transparency and internal consistency to the rule text. --------------------------------------------------------------------------- \14\ Current Rule 952NY(c) provides, in relevant part, that the opening price of a series will be the price ``at which the greatest number of contracts will trade at or nearest to the midpoint of the initial uncrossed NBBO disseminated by OPRA, if any, or the midpoint of the best quote bids and quote offers in the System Book.'' \15\ See proposed Rule 952NY(c). --------------------------------------------------------------------------- Finally, the Exchange proposes new paragraph (F) to Rule 952NY(c) to provide the Exchange with discretion to deviate from the standard Opening Process where it is necessary in the interests of a fair and orderly market.\16\ [[Page 21625]] This proposed rule change is based on the rules of other options exchanges.\17\ Similar to how other markets operate, the Exchange believes it may be appropriate, in the interest of a fair and orderly market, to open trading even if the conditions specified in Rule 952NY(b) are not met. For example, if the primary market is unable to open due to a systems or technical issue, but trading in the underlying security is otherwise unaffected, the Exchange believes it would be appropriate to open trading in any options series overlying such securities. Further, proposed Rule 952NY(b)(F) would provide the Exchange with discretion to manage the Opening Process in the event of unanticipated circumstances occurring around 9:30 a.m. Eastern Time or a halt being lifted. --------------------------------------------------------------------------- \16\ See proposed Rule 952NY(b)(F) (providing that ``[t]he Exchange may deviate from the standard manner of the Auction Process, including adjusting the timing of the Auction Process in any option class, when it believes it is necessary in the interests of a fair and orderly market''). \17\ See e.g., BATS Exchange, Inc. (``BATS'') Rule 21.7(c) (Market Opening Procedures) (``The Exchange may deviate from the standard manner of the Opening Process, including adjusting the timing of the Opening Process in any option class, when it believes it is necessary in the interests of a fair and orderly market''). --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) \18\ of the Securities Exchange Act of 1934 (the ``Act''), in general, and furthers the objectives of Section 6(b)(5), \19\ in particular, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. --------------------------------------------------------------------------- \18\ 15 U.S.C. 78f(b). \19\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Specifically, the proposed change to Rule 952NY(b) would clarify that the Exchange would only open a series automatically after it receives a quote in the underlying security and a trade in that security at or between the disseminated quote--as opposed to automatically opening on either an opening quote or an opening trade alone per the current rule text, which may not always accurately reflect the state of the market. The Exchange believes this added transparency would promote just and equitable principles of trade and remove impediments to, and perfect the mechanism of, a free and open market and a national market system to the benefit of market participants. Further, the Exchange believes that waiting to open trading in an option series until there has been both a disseminated quote and trade in the underlying security would protect investors and the public interest because it would help to augment the Auction Process by ensuring that an underlying security has been opened pursuant to a robust price discovery process before opening the overlying options for trading. Moreover, this proposed change would promote just and equitable principles of trade to the benefit of investors and the public interest because it would provide market participants with greater certainty as to the true state of the market at the opening of the trading day and should lead to more accurate prices on the Exchange. The Exchange also believes that specifying that, to open a series, the Exchange would require an initial uncrossed NBBO disseminated by OPRA would promote just and equitable principles of trade as the change is designed to protect investors and the public interest. The Exchange notes that OPRA disseminates to each exchange the NBBO as well as the top of book for each exchange, such that the Exchange's market maker quote would be disseminated back to the Exchange as the BBO--and could be, but is not necessarily, the NBBO. Because OPRA disseminates this information to all exchanges at the same time, the Exchange believes the proposal to open only after receiving an uncrossed NBBO from OPRA would eliminate any ambiguity as to the source of the information for each series and should lead to more accurate prices on the Exchange. Similarly, the Exchange believes the conforming change to Rule 952NY(c), which strikes reference to quote bids and quote offers in the OX Book [sic] for purposes of determining an opening price, likewise would promote just and equitable principles of trade as it would add transparency and internal consistency to Exchange rules, which would make them easier for market participants to navigate. Finally, the Exchange believes the proposal to permit the Exchange to open options trading when such opening is in the interests of a fair and orderly market (even if the conditions set forth in the rule are not met), is consistent with the protection of investors and the public interest because the proposed changes would allow the Exchange to open trading in options contracts in a fair and orderly manner. Specifically, the Exchange believes that the proposed changes would reduce potential delays in opening an option series that may prevent the Exchange from displaying and/or routing orders on its Consolidated Book and may also prevent the Exchange from disseminating a protected quote that draws trading interest from other options markets. Thus, the Exchange believes that the proposed changes would allow the Exchange to open options series faster and more efficiently, thereby reducing any delay in execution of orders on the Exchange that may be unnecessary and harmful to market participants. The Exchange also notes that this proposed rule change is based on the rules of other options exchanges.\20\ --------------------------------------------------------------------------- \20\ See supra n. 17. --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed change is not designed to address any competitive issue but rather to add specificity and transparency to Exchange rules, thereby reducing confusion and making the Exchange's rules easier to understand and navigate. The Exchange believes that the proposed rule change would serve to promote regulatory clarity and consistency, thereby reducing burdens on the marketplace and facilitating investor protection. 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 up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. [[Page 21626]] Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-NYSEMKT-2016-42 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSEMKT-2016-42. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSEMKT-2016-42 and should be submitted on or before May 3, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\21\ --------------------------------------------------------------------------- \21\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-08304 Filed 4-11-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Notices 21623
mechanism of a free and open market reasonably designed to ensure SECURITIES AND EXCHANGE
and a national market system, and, in compliance with the applicable COMMISSION
general, to protect investors and the regulatory requirements, not just at the
public interest. [Release No. 34–77540; File No. SR–
time the order is routed to the Exchange,
The Exchange proposes to adopt an NYSEMKT–2016–42]
but also at the time the order becomes
Early Trading Session and three new eligible for execution.42 Self-Regulatory Organizations; NYSE
TIF instructions and to make related
The Commission further notes the MKT LLC; Notice of Filing of Proposed
changes to its rules as discussed
Exchange’s discussion of the best Rule Change To Amend Rule 952NY
above.34 The Commission believes that
the proposed rules would provide Users execution obligations of Members With Respect to Opening Trading in an
with additional options for trading on utilizing the proposed TIF Options Series
the Exchange. The Commission notes instructions.43 Specifically, the April 6, 2016.
that the proposed Early Trading Session Exchange states that a Member’s best Pursuant to Section 19(b)(1) 1 of the
hours are similar to those of other execution obligations may include Securities Exchange Act of 1934 (the
exchanges 35 and that the proposed TIF cancelling an order when market ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
instructions would offer functionality conditions deteriorate and could result notice is hereby given that, on March
similar to existing functionality in an inferior execution or informing 23, 2016, NYSE MKT LLC (the
available on the Exchange and other customers if the execution of their order ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
exchanges which allows Members to may be delayed intentionally while the the Securities and Exchange
select when their orders become eligible Member utilizes reasonable diligence to Commission (the ‘‘Commission’’) the
for execution.36 ascertain the best market for the proposed rule change as described in
The Commission notes that the security.44 The Exchange further notes Items I and II below, which Items have
Exchange has represented that it would
that Members will maintain the ability been prepared by the self-regulatory
subject orders that are eligible for
to cancel or modify the terms of an organization. The Commission is
execution as of the start of the Pre-
order utilizing any of the proposed TIF publishing this notice to solicit
Opening Session to all of the Exchange’s
instructions at any time, including comments on the proposed rule change
standard regulatory checks, as it
during the time from when the order is from interested persons.
currently does with all orders upon
entry.37 Specifically, the Exchange will routed to the Exchange until the start of I. Self-Regulatory Organization’s
subject such orders to checks for the Pre-Opening Session. As a result, Statement of the Terms of Substance of
compliance with, including but not the Exchange states that a Member who the Proposed Rule Change
limited to, Regulation NMS,38 utilizes the proposed TIF instructions,
The Exchange proposes to amend
Regulation SHO,39 and relevant but later determines that market
Rule 952NY (Opening Process) with
Exchange rules. Moreover, the Exchange conditions favor execution during the
respect to opening trading in an options
reminds its Members of their regulatory Early Trading Session, can cancel the series. The proposed rule change is
obligations when submitting an order order residing at the Exchange and enter available on the Exchange’s Web site at
with one of the proposed TIF a separate order to execute during the www.nyse.com, at the principal office of
instructions.40 In particular, the Early Trading Session.45 the Exchange, and at the Commission’s
Exchange states that Members must
IV. Conclusion Public Reference Room.
comply with the Market Access Rule,41
which requires, among other things, pre- II. Self-Regulatory Organization’s
It is therefore ordered, pursuant to
trade controls and procedures that are Statement of the Purpose of, and
reasonably designed to assure Section 19(b)(2) of the Act 46 that the
Statutory Basis for, the Proposed Rule
compliance with Exchange trading rules proposed rule change (SR–EDGA–2016– Change
and Commission rules pursuant to 02), as modified by Amendment No. 1,
be, and it hereby is, approved. In its filing with the Commission, the
Regulation SHO and Regulation NMS.
self-regulatory organization included
The Exchange also notes that a For the Commission, by the Division of statements concerning the purpose of,
Member’s procedures must be Trading and Markets, pursuant to delegated and basis for, the proposed rule change
authority.47
34 See supra section II.
and discussed any comments it received
35 For
Robert W. Errett, on the proposed rule change. The text
example, NYSE Arca, Inc. operates an
Opening Session that starts at 4:00 a.m. Eastern Deputy Secretary. of those statements may be examined at
Time and ends at 9:30 a.m. Eastern Time and [FR Doc. 2016–08301 Filed 4–11–16; 8:45 am] the places specified in Item IV below.
Nasdaq Stock Market LLC operates a pre-market The Exchange has prepared summaries,
session that also opens at 4:00 a.m. and ends at 9:30 BILLING CODE 8011–01–P
a.m. Eastern Time. See NYSE Arca Rule 7.34(a)(1); set forth in sections A, B, and C below,
Nasdaq Rule 4701(g); see also Securities Exchange of the most significant parts of such
Act Release No. 60605 (September 1, 2009), 74 FR statements.
46277 (September 8, 2009) (SR–CHX–2009–13)
(adopting bifurcated post-trading session on the A. Self-Regulatory Organization’s
Chicago Stock Exchange, Inc.). Statement of the Purpose of, and the
36 Specifically, on the Exchange, Users may enter
an order starting at 6:00 a.m. Eastern Time with a
Statutory Basis for, the Proposed Rule
asabaliauskas on DSK3SPTVN1PROD with NOTICES
TIF of Regular Hours Only, which designates that Change
the order only be eligible for execution during
Regular Trading Hours, which begin at 9:30 a.m. 1. Purpose
Eastern Time. See Exchange Rule 11.6(q)(6); see 42 See Notice, supra note 5, at 8802. The Exchange is proposing changes to
also NASDAQ Rule 4703(a)(7).
37 See Amendment No. 1, supra note 4.
43 See id. at 8801–02. Rule 952NY with respect to opening
44 Id. at 8802 n.45.
38 See 17 CFR 242.600–613.
45 Id. at. 8801. 1 15
39 See 17 CFR 242.200–204. U.S.C.78s(b)(1).
46 15 U.S.C. 78s(b)(2). 2 15
40 See Notice, supra note 5, at 8802. U.S.C. 78a.
41 See 17 CFR 240.15c3–5. 47 17 CFR 200.30–3(a)(12). 3 17 CFR 240.19b–4.
VerDate Sep<11>2014 17:18 Apr 11, 2016 Jkt 238001 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 E:\FR\FM\12APN1.SGM 12APN1](https://thefederalregister.org/doc/81_FR_21693/page/1.svg)
![21624 Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Notices
trading in an option series as described Proposed Modifications to the Opening Market Maker quotes, like the NBBO,
below. Process come from OPRA. Thus, the Exchange
First, the Exchange proposes to proposes to open after receiving an
Opening Process ‘‘initial uncrossed NBBO from ORRA’’
change Rule 952NY(b) regarding how
Rule 952NY describes the process the System determines when to start the and to delete rule text related to opening
pursuant to which the System 4 opens Auction Process. Current paragraph (b) on a Market Maker quote.13 The
an option series. Paragraphs (b) and (c) of the Rule provides that ‘‘[a]fter the Exchange notes that OPRA disseminates
of Rule 952NY provide that, after the primary market for the underlying to each exchange the NBBO as well as
primary market for the underlying security disseminates the opening trade the top of book for each exchange, such
or the opening quote, the related option that the Exchange’s market maker quote
security disseminates the opening trade
series will be opened automatically.’’ would be disseminated back to the
or opening quote, the System then
However, because it is possible that Exchange as the BBO—and could be,
conducts an ‘‘Auction Process’’ to open
either an opening quote or opening but is not necessarily, the NBBO.
a series whereby the System determines
trade alone may not accurately reflect Because OPRA disseminates this
a single price at which a series may be
the state of the market, the Exchange information to all exchanges at the same
opened by looking to: (i) The midpoint time, the Exchange believes the
of the initial uncrossed NBBO proposes to specify that an option series
will be opened automatically, ‘‘once the proposal to open only after receiving an
disseminated by the Options Price uncrossed NBBO from OPRA would
Reporting Authority (‘‘OPRA’’), if any, primary market for the underlying
security disseminates a quote and a eliminate any ambiguity as to the source
or (ii) the midpoint of the best quotes or of the information used to open each
trade that is at or within the quote.’’ 10
orders in the System Book. If the bid-ask series and should lead to more accurate
The Exchange believes the proposed
differential for a series is not within an prices on the Exchange.
change makes clear that the Exchange
acceptable range, the System will not In connection with the proposed
would only open a series automatically
conduct an Auction Process.5 For after it receives a quote in the changes to Rule 952NY(b), the Exchange
purposes of this rule, the acceptable underlying security and a trade in that likewise proposes to strike from Rule
range means the bid-ask differential security at or between the disseminated 952NY(c) reference to ‘‘the midpoint of
guidelines specified in Rule quote rather than simply upon receipt of the best quote bids and quote offers in
925NY(b)(4).6 Assuming the bid-ask either an ‘‘opening trade or opening the System Book’’ as it relates to the
differential is within the acceptable quote.’’ The Exchange believes that Exchange determining the opening price
range, the System matches up orders waiting to open trading in an option for options issues designated for trading
and quotes based on price-time series until there has been both a on the System.14 The Exchange believes
priority 7 and executes the orders that disseminated quote and trade in the this conforming change is necessary
are matched at the midpoint pricing.8 underlying security would help to given that the Exchange would no
Any orders in the System that are not augment the Auction Process by longer open solely on a Market Maker
executed in the Auction Process become ensuring that an underlying security has quote and therefore this information
eligible for the Core Trading Session been opened pursuant to a robust price would not form the basis of the opening
immediately after the conclusion of the discovery process before opening the price of a series. As proposed, the
Auction Process. If the System does not overlying options for trading. The opening price of a series would be the
open a series with an Auction Process, Exchange believes that the proposed price ‘‘at which the greatest number of
the System shall open the series for change would provide market contracts will trade at or nearest to the
trading after receiving notification of an participants with greater certainty as to midpoint of the initial uncrossed NBBO
the true state of the market at the disseminated by OPRA.’’ 15 The
initial NBBO disseminated by OPRA for
opening of the trading day and should Exchange believes this change adds
the series or on a Market Maker quote,
lead to more accurate prices on the transparency and internal consistency to
provided that the bid-ask differential
Exchange.11 the rule text.
does not exceed the bid-ask differential Next, the Exchange proposes to Finally, the Exchange proposes new
specified under Rule 925NY(b)(5).9 modify Rule 952NY(b)(E), which paragraph (F) to Rule 952NY(c) to
currently provides, in relevant part, that provide the Exchange with discretion to
4 The term ‘‘System’’ refers to the Exchange’s
‘‘[i]f the System does not open a series deviate from the standard Opening
electronic order delivery, execution and reporting
system through which orders and quotes for listed with an Auction Process, the System Process where it is necessary in the
options are consolidated for execution and/or shall open the series for trading after interests of a fair and orderly market.16
display. See Rule 900.2NY(48) (defining ‘‘Exchange receiving notification of an initial NBBO
System’’ or ‘‘System’’). disseminated by OPRA for the series or 13 See proposed Rule 952NY(b)(E) (providing that
5 The Auction bid-ask differentials are known in
on a Market Maker quote.’’ 12 However, ‘‘[i]f the System does not open a series with an
common parlance as ‘‘legal-width quotes.’’ Auction Process, the System shall open the series
6 See Rule 925NY(b)(4). The bid-ask guidelines the Exchange has determined that it for trading after receiving notification of an initial
specified in Rule 925NY(b)(4) that are required to would no longer open on a local Market uncrossed NBBO disseminated by OPRA for the
open a series are narrower than the $5 wide bid- Maker quote but would require that series, provided that the bid-ask differential does
ask differential for options traded on the System not exceed the bid-ask differential specified under
during Core Trading Hours. 10 See proposed Rule 952NY(b). The Exchange Rule 925NY(b)(5).’’
7 Orders will have priority over Market Maker 14 Current Rule 952NY(c) provides, in relevant
also proposes to clarify that ‘‘[a]t or after 9:30 a.m.
quotes at the same price. See Rule 952NY(b)(B). part, that the opening price of a series will be the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Eastern Time,’’ i.e., when the market opens, the
8 See Rule 952NY(b)(B). The Exchange notes that
Exchange would initiate the Opening Process for all price ‘‘at which the greatest number of contracts
the word Order appears capitalized in this series associated with the underlying security. See will trade at or nearest to the midpoint of the initial
paragraph and, because it is not a defined term, the id. uncrossed NBBO disseminated by OPRA, if any, or
Exchange proposes the non-substantive change of 11 The Exchange notes that it would not open, for the midpoint of the best quote bids and quote offers
eliminating the capitalization. example if the first disseminated quote in the in the System Book.’’
15 See proposed Rule 952NY(c).
9 See Rule 925NY(b)(5). Rule 925NY(b)(5) underlying security is $50.50 bid, $50.75 ask, and
provides that options traded on the System during the first trade in the underlying had been executed 16 See proposed Rule 952NY(b)(F) (providing that
Core Trading Hours may be quoted with a for $50.00. The Exchange would, however open if ‘‘[t]he Exchange may deviate from the standard
difference not to exceed $5 between the bid and the first trade in the underlying was $50.50. manner of the Auction Process, including adjusting
offer regardless of the price of the bid. 12 See Rule 952NY(b)(E). the timing of the Auction Process in any option
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![Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Notices 21625
This proposed rule change is based on security would protect investors and the disseminating a protected quote that
the rules of other options exchanges.17 public interest because it would help to draws trading interest from other
Similar to how other markets operate, augment the Auction Process by options markets. Thus, the Exchange
the Exchange believes it may be ensuring that an underlying security has believes that the proposed changes
appropriate, in the interest of a fair and been opened pursuant to a robust price would allow the Exchange to open
orderly market, to open trading even if discovery process before opening the options series faster and more
the conditions specified in Rule overlying options for trading. Moreover, efficiently, thereby reducing any delay
952NY(b) are not met. For example, if this proposed change would promote in execution of orders on the Exchange
the primary market is unable to open just and equitable principles of trade to that may be unnecessary and harmful to
due to a systems or technical issue, but the benefit of investors and the public market participants. The Exchange also
trading in the underlying security is interest because it would provide notes that this proposed rule change is
otherwise unaffected, the Exchange market participants with greater based on the rules of other options
believes it would be appropriate to open certainty as to the true state of the exchanges.20
trading in any options series overlying market at the opening of the trading day
such securities. Further, proposed Rule and should lead to more accurate prices B. Self-Regulatory Organization’s
952NY(b)(F) would provide the on the Exchange. Statement on Burden on Competition
Exchange with discretion to manage the The Exchange also believes that The Exchange does not believe that
Opening Process in the event of specifying that, to open a series, the the proposed rule change would impose
unanticipated circumstances occurring Exchange would require an initial any burden on competition that is not
around 9:30 a.m. Eastern Time or a halt uncrossed NBBO disseminated by necessary or appropriate in furtherance
being lifted. OPRA would promote just and equitable of the purposes of the Act. The
principles of trade as the change is proposed change is not designed to
2. Statutory Basis designed to protect investors and the address any competitive issue but rather
The Exchange believes the proposed public interest. The Exchange notes that to add specificity and transparency to
rule change is consistent with Section OPRA disseminates to each exchange Exchange rules, thereby reducing
6(b) 18 of the Securities Exchange Act of the NBBO as well as the top of book for confusion and making the Exchange’s
1934 (the ‘‘Act’’), in general, and each exchange, such that the Exchange’s rules easier to understand and navigate.
furthers the objectives of Section market maker quote would be The Exchange believes that the
6(b)(5), 19 in particular, in that it is disseminated back to the Exchange as proposed rule change would serve to
designed to promote just and equitable the BBO—and could be, but is not promote regulatory clarity and
principles of trade, to foster cooperation necessarily, the NBBO. Because OPRA consistency, thereby reducing burdens
and coordination with persons engaged disseminates this information to all on the marketplace and facilitating
in facilitating transactions in securities, exchanges at the same time, the investor protection.
and to remove impediments to and Exchange believes the proposal to open
perfect the mechanism of a free and only after receiving an uncrossed NBBO C. Self-Regulatory Organization’s
open market and a national market from OPRA would eliminate any Statement on Comments on the
system. ambiguity as to the source of the Proposed Rule Change Received From
Specifically, the proposed change to information for each series and should Members, Participants, or Others
Rule 952NY(b) would clarify that the lead to more accurate prices on the
Exchange would only open a series No written comments were solicited
Exchange. or received with respect to the proposed
automatically after it receives a quote in Similarly, the Exchange believes the
the underlying security and a trade in rule change.
conforming change to Rule 952NY(c),
that security at or between the which strikes reference to quote bids III. Date of Effectiveness of the
disseminated quote—as opposed to and quote offers in the OX Book [sic] for Proposed Rule Change and Timing for
automatically opening on either an purposes of determining an opening Commission Action
opening quote or an opening trade alone price, likewise would promote just and
per the current rule text, which may not equitable principles of trade as it would Within 45 days of the date of
always accurately reflect the state of the add transparency and internal publication of this notice in the Federal
market. The Exchange believes this consistency to Exchange rules, which Register or within such longer period
added transparency would promote just would make them easier for market up to 90 days (i) as the Commission may
and equitable principles of trade and participants to navigate. designate if it finds such longer period
remove impediments to, and perfect the Finally, the Exchange believes the to be appropriate and publishes its
mechanism of, a free and open market proposal to permit the Exchange to open reasons for so finding or (ii) as to which
and a national market system to the options trading when such opening is in the self-regulatory organization
benefit of market participants. Further, the interests of a fair and orderly market consents, the Commission will:
the Exchange believes that waiting to (even if the conditions set forth in the (A) By order approve or disapprove
open trading in an option series until rule are not met), is consistent with the the proposed rule change, or
there has been both a disseminated protection of investors and the public (B) institute proceedings to determine
quote and trade in the underlying interest because the proposed changes whether the proposed rule change
would allow the Exchange to open should be disapproved.
class, when it believes it is necessary in the trading in options contracts in a fair and
asabaliauskas on DSK3SPTVN1PROD with NOTICES
interests of a fair and orderly market’’). IV. Solicitation of Comments
17 See e.g., BATS Exchange, Inc. (‘‘BATS’’) Rule
orderly manner. Specifically, the
21.7(c) (Market Opening Procedures) (‘‘The Exchange believes that the proposed Interested persons are invited to
Exchange may deviate from the standard manner of changes would reduce potential delays submit written data, views, and
the Opening Process, including adjusting the timing in opening an option series that may arguments concerning the foregoing,
of the Opening Process in any option class, when prevent the Exchange from displaying including whether the proposed rule
it believes it is necessary in the interests of a fair
and orderly market’’). and/or routing orders on its change is consistent with the Act.
18 15 U.S.C. 78f(b). Consolidated Book and may also
19 15 U.S.C. 78f(b)(5). prevent the Exchange from 20 See supra n. 17.
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![21626 Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Notices
Comments may be submitted by any of SECURITIES AND EXCHANGE 2016, pursuant to Section 19(b)(2) of the
the following methods: COMMISSION Act,6 the Commission designated a
longer period within which to approve
Electronic Comments [Release No. 34–77548; File No. SR–
the proposed rule change, disapprove
NASDAQ–2015–161]
• Use the Commission’s Internet the proposed rule change, or institute
comment form (http://www.sec.gov/ Self-Regulatory Organizations; The proceedings to determine whether to
NASDAQ Stock Market LLC; Order disapprove the proposed rule change.7
rules/sro.shtml); or
Granting Approval of Proposed Rule On April 5, 2016, the Exchange filed
• Send an email to rule-comments@ Change, as Modified by Amendment Amendment No. 3 to the proposed rule
sec.gov. Please include File Number SR– Nos. 1, 2, and 3 Thereto, Relating to change.8 The Commission received no
NYSEMKT–2016–42 on the subject line. the Listing and Trading of the Shares comments on the proposed rule change.
of the First Trust RiverFront Dynamic This order grants approval of the
Paper Comments
Europe ETF, First Trust RiverFront proposed rule change, as modified by
• Send paper comments in triplicate Dynamic Asia Pacific ETF, First Trust Amendment Nos. 1, 2, and 3 thereto.
to Secretary, Securities and Exchange RiverFront Dynamic Emerging Markets II. Exchange’s Description of the
Commission, 100 F Street NE., ETF, and First Trust RiverFront Proposal
Washington, DC 20549–1090. Dynamic Developed International ETF
of First Trust Exchange-Traded Fund III The Exchange proposes to list and
All submissions should refer to File trade the shares (‘‘Shares’’) of the
Number SR–NYSEMKT–2016–42. This April 6, 2016. Europe Fund, Asia Pacific Fund,
file number should be included on the Emerging Markets Fund, and Developed
I. Introduction
subject line if email is used. To help the International Fund (individually,
On December 22, 2015, The NASDAQ ‘‘Fund,’’ and collectively, ‘‘Funds’’)
Commission process and review your
Stock Market LLC (‘‘Exchange’’ or under Nasdaq Rule 5735, which governs
comments more efficiently, please use
‘‘Nasdaq’’) filed with the Securities and the listing and trading of Managed Fund
only one method. The Commission will Exchange Commission (‘‘Commission’’), Shares on the Exchange. Each Fund,
post all comments on the Commission’s pursuant to Section 19(b)(1) of the which will be a series of First Trust
Internet Web site (http://www.sec.gov/ Securities Exchange Act of 1934 (‘‘Act’’ Exchange-Traded Fund III (‘‘Trust’’),
rules/sro.shtml). Copies of the or Exchange Act’’) 1 and Rule 19b–4 will be an actively managed exchange-
submission, all subsequent thereunder,2 a proposed rule change to traded fund (‘‘ETF’’). The Shares will be
amendments, all written statements list and trade the shares of the First offered by the Trust,9 which was
with respect to the proposed rule Trust RiverFront Dynamic Europe ETF established as a Massachusetts business
change that are filed with the (‘‘Europe Fund’’); First Trust RiverFront trust on January 9, 2008. The Trust is
Commission, and all written Dynamic Asia Pacific ETF (‘‘Asia Pacific registered with the Commission as an
communications relating to the Fund’’); First Trust RiverFront Dynamic investment company and has filed a
proposed rule change between the Emerging Markets ETF (‘‘Emerging registration statement on Form N–1A
Commission and any person, other than Markets Fund’’); and First Trust with the Commission.10
those that may be withheld from the RiverFront Dynamic Developed First Trust Advisors L.P. will be the
public in accordance with the International ETF (‘‘Developed investment adviser (‘‘Adviser’’) to the
provisions of 5 U.S.C. 552, will be International Fund’’). The proposed rule
available for Web site viewing and change was published for comment in 6 15 U.S.C. 78s(b)(2).
printing in the Commission’s Public the Federal Register on January 8, 7 See Securities Exchange Act Release No. 77192,
2016.3 On January 8, 2016, the Exchange 81 FR 9575 (February 25, 2016).
Reference Room, 100 F Street NE., 8 In Amendment No. 3 to the proposed rule
filed Amendment No. 1 to the proposed
Washington, DC 20549, on official change, the Exchange clarified that: (a) All
rule change.4 On February 18, 2016, the statements and representations made in the
business days between the hours of
Exchange filed Amendment No. 2 to the proposal regarding the description of the portfolios,
10:00 a.m. and 3:00 p.m. Copies of the proposed rule change.5 On February 19, limitations on portfolio holdings or reference assets,
filing also will be available for or the applicability of Exchange rules and
inspection and copying at the principal surveillance procedures shall constitute continued
1 15 U.S.C. 78s(b)(1). listing requirements for listing the Shares on the
office of the Exchange. All comments 2 17 CFR 240.19b–4. Exchange; (b) the issuer will advise the Exchange
received will be posted without change; 3 See Securities Exchange Act Release No. 76817 of any failure by the Funds to comply with the
the Commission does not edit personal (January 4, 2016), 81 FR 978 (‘‘Notice’’). continued listing requirements; (c) pursuant to its
4 In Amendment No. 1, the Exchange clarified the obligations under Section 19(g)(1) of the Act, the
identifying information from proposed rule change by providing additional Exchange will monitor for compliance with the
submissions. You should submit only information regarding the currencies, and continued listing requirements; and (d) if a Fund is
information that you wish to make instruments that provide exposure to such not in compliance with the applicable listing
currencies, in which each Fund will invest. Because requirements, the Exchange will commence
available publicly. All submissions Amendment No. 1 to the proposed rule change does delisting procedures under the Nasdaq 5800 Series.
should refer to File Number SR– not materially alter the substance of the proposed Because Amendment No. 3 to the proposed rule
NYSEMKT–2016–42 and should be rule change or raise novel regulatory issues, change does not materially alter the substance of
Amendment No. 1 is not subject to notice and the proposed rule change or raise unique or novel
submitted on or before May 3, 2016. regulatory issues, Amendment No. 3 is not subject
comment (Amendment No. 1 is available at: http://
For the Commission, by the Division of www.sec.gov/comments/sr-nasdaq-2015-161/ to notice and comment (Amendment No. 3 is
available at: http://www.sec.gov/comments/sr-
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Trading and Markets, pursuant to delegated nasdaq2015161-1.pdf).
5 In Amendment No. 2, the Exchange expanded nasdaq-2015-161/nasdaq2015161-3.pdf).
authority.21 9 According to the Exchange, the Trust has
the application of the Alternative Criteria (as
Robert W. Errett, discussed below) so that they will apply on a obtained certain exemptive relief under the
continual basis. Because Amendment No. 2 does Investment Company Act of 1940 (‘‘1940 Act’’). See
Deputy Secretary. Investment Company Act Release No. 28468
not materially alter the substance of the proposed
[FR Doc. 2016–08304 Filed 4–11–16; 8:45 am] rule change or raise novel regulatory issues, (October 27, 2008) (File No. 812–13477).
Amendment No. 2 is not subject to notice and 10 See Post-Effective Amendment No. 29 to
BILLING CODE 8011–01–P
comment (Amendment No. 2 is available at: http: Registration Statement on Form N–1A for the Trust,
//www.sec.gov/comments/sr-nasdaq-2015-161/ dated November 19, 2015 (File Nos. 333–176976
21 17 CFR 200.30–3(a)(12). nasdaq2015161-2.pdf). and 811–22245) (‘‘Registration Statement’’).
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Document Created: 2016-04-12 00:46:33
Document Modified: 2016-04-12 00:46:33
| 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 | 81 FR 21623 |
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