81 FR 94437 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change Amending Rule 971.1NY and To Make Permanent the Aspects of Customer Best Execution Auction That Are Subject to a Pilot
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 247 (December 23, 2016)
Federal Register Volume 81, Issue 247 (December 23, 2016)
| Page Range | 94437-94440 | |
| FR Document | 2016-30945 |
[Federal Register Volume 81, Number 247 (Friday, December 23, 2016)] [Notices] [Pages 94437-94440] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-30945] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION (Release No. 34-79599; File No. SR-NYSEMKT-2016-120] Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change Amending Rule 971.1NY and To Make Permanent the Aspects of Customer Best Execution Auction That Are Subject to a Pilot December 19, 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 December 16, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') filed with the Securities and Exchange Commission (``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. --------------------------------------------------------------------------- \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 971.1NY and to make permanent the aspects of Customer Best Execution Auction (``CUBE'') that are subject to a pilot, as amended. 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 Rule 971.1NY to make permanent the aspects of Customer Best Execution Auction (``CUBE'') that are subject to a pilot. Currently, the provisions of Rule 971.1NY that govern execution of CUBE Orders of fewer than 50 contracts are operating on a pilot basis.\4\ The Exchange proposes to make these provisions permanent and introduce an additional scenario when the Exchange would reject a CUBE Order for fewer than 50 contracts. --------------------------------------------------------------------------- \4\ See Commentary .01 to Rule 971.1NY and Rules 971.1NY(b)(1)(B) and (b)(8). --------------------------------------------------------------------------- Background Rule 971.1NY sets forth an electronic crossing mechanism for single-leg [[Page 94438]] orders with a price improvement auction on the Exchange, referred to as the CUBE (or the ``CUBE Auction'').\5\ The CUBE Auction, which was approved in April 2014, is designed to provide price improvement for paired orders of any size.\6\ Two aspects of the CUBE were approved on a pilot basis--Rule 971.1NY(b)(1)(B), which establishes the permissible range of executions for CUBE Auctions for fewer than 50 contracts; and Rule 971.1NY(b)(8), which establishes that the minimum size for a CUBE Auction is one contract (together, the ``CUBE Pilot''). --------------------------------------------------------------------------- \5\ See generally Rule 971.1NY (Electronic Cross Transactions). \6\ See Securities Exchange Act Release No. 72025 (April 25, 2014), 79 FR 24779 (May 1, 2014) (NYSEMKT-2014-17) (the ``CUBE Approval Order''). --------------------------------------------------------------------------- To commence an Auction, an ATP Holder (``Initiating Participant'') may electronically submit for execution a limit order it represents as agent on behalf of a public customer, broker dealer, or any other entity (``CUBE Order''). The Initiating Participant would agree to guarantee the execution of the CUBE Order by submitting a contra-side order representing principal interest or interest it has solicited to trade with the CUBE Order at a specified price (the ``single stop price'') or by utilizing auto-match or auto-match limit.\7\ --------------------------------------------------------------------------- \7\ See Rule 971.1NY(c)(1)(A)-(C). In addition, CUBE provides for the automatic execution, under certain conditions, of a crossing transaction where there is a public customer order in the same options series on each side. --------------------------------------------------------------------------- Rule 971.1NY(b)(1) sets forth the permissible range of executions for a CUBE Order.\8\ Pursuant to the CUBE Pilot, a CUBE Order for fewer than 50 contracts is subject to tighter ranges of execution than larger CUBE Orders to maximize price improvement.\9\ Specifically, if the CUBE Order is for fewer than 50 contracts, the range of permissible execution will be equal to or better than the National Best Bid/Offer (``NBBO''), provided that such price must be at least one cent better than any displayed interest in the Exchange's Consolidated Book.\10\ --------------------------------------------------------------------------- \8\ Subject to specified exceptions, a CUBE Order to buy (sell) may execute at prices equal to or between the initiating price as the upper (lower) bound and the National Best Bid (``NBB'') (National Best Offer (``NBO'')) as the lower (upper) bound. See Rule 971.1NY(b). \9\ See Rule 971.1NY(b)(1)(B). See also Rule 971.1NY(b)(8) (also part of the CUBE Pilot, providing that the minimum size for a CUBE Auction is one contract). \10\ See Rule 971.1NY(b)(1)(B). --------------------------------------------------------------------------- The CUBE Pilot was initially approved for a one-year pilot, and has since been extended for three subsequent years.\11\ Pursuant to Commentary .01 to Rule 971.1NY, the CUBE Pilot would, if not amended or made permanent, end on January 18, 2017.\12\ --------------------------------------------------------------------------- \11\ See CUBE Approval Order, supra, note 6. The CUBE Pilot was subsequently extended, most recently until January 18, 2017, to align the expiration of the pilot period with that of other competing options exchange that offer electronic price improvement auctions similar to the CUBE. See Securities Exchange Act Release Nos. 74695 (April 9, 2015), 80 FR 20274 (April 15, 2015) (SR- NYSEMKT-2015-28); 75460 (July 15, 2015), 80 FR 43141 (July 21, 2015) (SR-NYSEMKT-2015-48); 78324 (July 14, 2016), 81 FR 47196 (July 20, 2016) (SR-NYSEMKT-2016-69). \12\ In connection with the CUBE Pilot, the Exchange has provided specified data to the Commission to provide supporting evidence that, among other things, there is meaningful competition for all size orders and that there is an active and liquid market functioning on the Exchange outside of the CUBE Auction. See CUBE Approval Order, supra note 6, 79 FR at 24785-86, fn. 94-95; Commentary .01 to Rule 971.1NY. See also Securities Exchange Act Release No. 78324 (July 14, 2016), 81 FR 47196 (July 20, 2016) (SR- NYSEMKT-2016-69). --------------------------------------------------------------------------- Proposal To Make CUBE Pilot Permanent The Exchange implemented the CUBE Auction to provide an electronic crossing mechanism for single-leg orders with a price improvement auction to create tighter markets and ensure that each order receives the best possible price. The Exchange believes that the CUBE Pilot attracts order flow and promotes competition and price improvement opportunities for CUBE Orders of fewer than 50 contracts. The Exchange therefore proposes to make permanent the CUBE Pilot before it expires on January 18, 2017. In connection with the proposal to make the CUBE Pilot permanent, the Exchange proposes to modify Rule 971.1NY to introduce an additional scenario when a CUBE Order for fewer than 50 contracts would either be rejected or require price improvement. Currently, Rule 971.1NY(b)(6) provides that CUBE Orders for fewer than 50 contracts that are submitted when the BBO is $0.01 wide will be rejected. The Exchange proposes to amend this rule to provide that CUBE Orders for fewer than 50 contracts entered when the NBBO is $0.01 wide would be rejected unless they are guaranteed a penny of price improvement. To reflect this change, the Exchange proposes to amend Rule 971.NY(b)(6) to provide that CUBE Orders for fewer than 50 contracts would be rejected when (A) the BBO is $0.01 wide (i.e., the current requirement); or (B) the NBBO is $0.01 wide, unless the Initiating Participant guarantees the execution of the CUBE Order to buy (sell) at a price that is equal to the NBO minus one cent (NBB plus one cent), utilizing a single stop price, auto-match, or auto-match limit as specified in paragraphs (c)(1)(A)-(C) of Rule 971.1NY. Accordingly, as proposed, the Exchange would reject a CUBE Order for fewer than 50 contracts when the NBBO is $0.01 wide unless the Initiating Participant guarantees a penny of price improvement.\13\ --------------------------------------------------------------------------- \13\ The proposal would not alter the separate price improvement requirement set forth in Rule 971.1NY(b)(1)(B), which establishes the range of permissible execution prices for CUBE Orders of fewer than 50 contracts will be equal to or better than the NBBO and at least one cent better than any displayed interest in the Exchange's Consolidated Book. See also Rule 971.1NY(b)(2)-(9) (delineating reasons CUBE Orders would be rejected, none of which would be altered by this proposal). --------------------------------------------------------------------------- The Exchange believes this proposal would further the goal of the CUBE Auction, as the CUBE Order would be ``guaranteed an execution price of at least NBBO at the time the CUBE Auction commences and, moreover, would be given an opportunity for price improvement beyond the NBBO by being exposed to ATP Holders during the CUBE Auction.'' \14\ The proposal would guarantee price improvement in penny-wide markets by requiring the Initiating Participant to guarantee to improve the contra-side NBBO when the spread is $0.01 wide at the time the CUBE Order for fewer than 50 contracts is submitted--such that the Initiating Participant would agree to buy at the bid or sell at the offer. --------------------------------------------------------------------------- \14\ See CUBE Approval Order, supra note 6 at 79 FR 24779, at 24787. --------------------------------------------------------------------------- In connection with the proposal to make permanent the CUBE Pilot (i.e., Rules 971.1NY(b)(1)(B) and 971.1NY(b)(8)), the Exchange proposes to delete Commentary .01 to Rule 971.1NY, which describes the CUBE Pilot and the Exchange's associated obligation to produce data, to hold this paragraph as ``Reserved.'' \15\ --------------------------------------------------------------------------- \15\ See proposed Commentary .01 to Rule 971.1NY. The Exchange notes that it would retain the text of Rules 971.1NY(b)(1)(B) and 971.1NY(b)(8). --------------------------------------------------------------------------- The Exchange has analyzed the data gathered during the CUBE Pilot (the ``CUBE Data'') and believes the CUBE Data indicates that there is meaningful competition in CUBE Auctions for all size orders, regardless of the size of the order or the bid/ask differential of the NBBO.\16\ Specifically, between January and June 2015, a total of 4,493,429 contracts were executed in CUBE Auctions. Market Makers and other participants submitted competitive bids and offers during the CUBE Auction's Response Time Interval, indicating interest in participating in CUBE [[Page 94439]] Auction trades. In addition, the Exchange believes the allocation of orders executed in CUBE Auctions--either at a single price or multiple prices--supports competitive bidding and offering. --------------------------------------------------------------------------- \16\ See Exhibit 3 (summary of the CUBE Data from January--June 2015). --------------------------------------------------------------------------- The Exchange also believes that the CUBE Data reveals that there is an active and liquid market functioning on the Exchange outside of the CUBE Auction,\17\ Competitive bidding and offering occurs outside of CUBE Auction and participants can submit bids/offers at improved prices or join a bid or offer (thus improving liquidity at that price) regardless of the bid/ask differential of the NBBO. --------------------------------------------------------------------------- \17\ From January 2015 through June 2015, the Exchange executed a total of 152,193,516 contracts outside of CUBE Auctions, which the Exchange believes is indicative of an active and liquid market functioning on the Exchange outside of the CUBE Auctions. --------------------------------------------------------------------------- Although the Exchange continues to believe that the CUBE Auction provides opportunities for price improvement of CUBE Orders (i.e., the agency order) with a size of less than 50 contracts when the NBBO has a bid/ask differential of $0.01 (e.g.because the market conditions may change during the CUBE Auction), the data have not demonstrated significant price improvement in this narrow circumstance. Between January and June 2015, a total of 171,822 contracts were executed in CUBE Auctions for fewer than 50 contracts when the NBBO had a bid/ask differential of $0.01. Only 1,660 of those contracts received price improvement of $0.01. Thus, consistent with the Exchange's view that price improvement auctions should provide improvement, particularly for small orders, the Exchange is proposing to require that Initiating Participants guarantee price improvement for CUBE Orders for 50 or fewer contracts in such market conditions. Further, the Exchange notes that CUBE Auctions for fewer than 50 contracts have served as a valuable tool in providing price improvement when the NBBO has a bid/ask differential of greater than $0.01. For example, for CUBE Auctions of this size, the CUBE Data indicates that when the NBBO has a bid/ask differential between $0.02 and $0.05, contracts executed in CUBE Auctions received on average a price improvement of $0.0114. In wider markets (i.e., bid/ask differentials greater than $0.05), contracts executed in CUBE Auctions received, on average, price improvement of more than $0.0759. In the CUBE Approval Order, the Commission stated that ``the Exchange's proposal [for the CUBE Pilot] should provide small customer orders with the opportunity for price improvement in a manner that is consistent with the Act.'' \18\ --------------------------------------------------------------------------- \18\ See CUBE Approval Order, supra note 6, 79 FR at 24787. --------------------------------------------------------------------------- Based on a review of the CUBE Data, the Exchange believes that the CUBE Auction, as modified herein, would allow the Exchange to continue to provide meaningful competition for all size orders--including small orders--as well as to continue to offer an active and liquid market outside of the CUBE Auction. Thus, the Exchange believes it would be beneficial to customers and to the options market to make the CUBE Pilot permanent, as amended. Once permanent, the CUBE Auction would continue to accept orders of fewer than 50 contracts, provided such Orders comply with the modified CUBE rules, which should continue to attract small orders and promote competition and price improvement opportunities for such CUBE Orders. Implementation Because of the technology changes associated with the proposed amendment to Rule 971.1NY(b)(6), the Exchange proposes to announce the implementation of the proposed change to the CUBE rules as well as the change to make the CUBE Pilot permanent, via Trader Update. Pending approval of this proposal by the Commission, the changes would be implemented prior to the expiration of the CUBE Pilot (i.e., before January 18, 2017). 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \19\ in general, and furthers the objectives of Section 6(b)(5) of the Act \20\ in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78f(b). \20\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes the proposal to make permanent the CUBE Pilot would remove impediments to and perfect the mechanism of a free and open market and a national market system because the CUBE Pilot, together with the proposal to amend CUBE herein, are reasonably designed to create tighter markets and ensure that each order receives the best possible price, which benefits investors by increasing competition thereby maximizing opportunities for price improvement. In particular, the proposal to require that Initiating Participants guarantee improvement of $0.01 (by buying at the bid or selling at the offer) on CUBE Orders for fewer than 50 contracts that are submitted when the NBBO is $0.01 wide in order to participate in the CUBE promotes just and equitable principles of trade as it would ensure that small orders receive at least minimal price improvement, which may encourage the submission and execution of more orders of fewer than 50 contracts in CUBE, thus providing an increased probability of price improvement for smaller orders. The proposal to make permanent the CUBE Pilot would also allow the applicable rules (Rules 971.1NY(b)(1)(B) and 971.1NY(b)(8) to remain in effect, which would add certainty to Exchange rules and avoid any potential investor confusion that could result from a suspension or temporary interruption in the CUBE Pilot. Because the CUBE Pilot is applicable to all CUBE Orders for fewer than 50 contracts, and the requirement that the minimum size of the CUBE Auction is one contract, the proposal to make the Pilot permanent merely acts to maintain status quo on the Exchange, which promotes just and equitable principles of trade and removes impediments to, and perfects the mechanism of, a free and open market and a national market system. The Exchange believes the proposed rule changes promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system because price improvement auctions are widely recognized by market participants as invaluable, both as a tool to access liquidity and a mechanism to help meet their best execution obligations. The Exchange believes the proposed rule changes would further the ability of market participants to carry out these strategies. Finally, the Exchange believes that it is subject to significant competitive forces, as described below in the Exchange's statement regarding the burden on competition. For these reasons, the Exchange believes that the proposal is consistent with the Act. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that making the [[Page 94440]] CUBE Pilot permanent would continue to foster competition among liquidity providers and maintain execution quality on the Exchange. The CUBE Auction for small orders, as modified herein, would continue to operate to create tighter markets and ensure that each order receives the best possible price, which benefits investors by increasing competition thereby maximizing opportunities for price improvement. The Exchange notes that it operates in a highly competitive market in which market participants can easily direct their orders to competing venues. In such an environment, the Exchange must continually review, and consider adjusting the services it offers and the requirements it imposes to remain competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed rule change reflects this competitive environment. 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 up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic 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-2016-120 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-NYSEMKT-2016-120. 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-2016-120 and should be submitted on or before January 13, 2017. --------------------------------------------------------------------------- \21\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\21\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-30945 Filed 12-22-16; 8:45 am] BILLING CODE 8011-01-P
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C. Self-Regulatory Organization’s All submissions should refer to File notice is hereby given that on December
Statement on Comments on the Number SR–C2–2016–024. This file 16, 2016, NYSE MKT LLC (the
Proposed Rule Change Received From number should be included on the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
Members, Participants, or Others subject line if email is used. To help the the Securities and Exchange
The Exchange neither solicited nor Commission process and review your Commission (‘‘Commission’’) the
comments more efficiently, please use proposed rule change as described in
received comments on the proposed
only one method. The Commission will Items I, II, and III below, which Items
rule change.
post all comments on the Commission’s have been prepared by the self-
III. Date of Effectiveness of the Internet Web site (http://www.sec.gov/ regulatory organization. The
Proposed Rule Change and Timing for rules/sro.shtml). Copies of the Commission is publishing this notice to
Commission Action submission, all subsequent solicit comments on the proposed rule
Because the foregoing proposed rule amendments, all written statements change from interested persons.
change does not: (i) Significantly affect with respect to the proposed rule
I. Self-Regulatory Organization’s
the protection of investors or the public change that are filed with the
Statement of the Terms of Substance of
interest; (ii) impose any significant Commission, and all written
the Proposed Rule Change
communications relating to the
burden on competition; and (iii) become The Exchange proposes to amend
proposed rule change between the
operative for 30 days from the date on Rule 971.1NY and to make permanent
Commission and any person, other than
which it was filed, or such shorter time the aspects of Customer Best Execution
those that may be withheld from the
as the Commission may designate, it has Auction (‘‘CUBE’’) that are subject to a
public in accordance with the
become effective pursuant to Section pilot, as amended. The proposed rule
provisions of 5 U.S.C. 552, will be
19(b)(3)(A) of the Act 12 and Rule 19b– change is available on the Exchange’s
available for Web site viewing and
4(f)(6) thereunder.13 Web site at www.nyse.com, at the
printing in the Commission’s Public
At any time within 60 days of the principal office of the Exchange, and at
Reference Room, 100 F Street NE.,
filing of the proposed rule change, the the Commission’s Public Reference
Washington, DC 20549 on official
Commission summarily may business days between the hours of Room.
temporarily suspend such rule change if 10:00 a.m. and 3:00 p.m. Copies of the
it appears to the Commission that such II. Self-Regulatory Organization’s
filing also will be available for Statement of the Purpose of, and
action is: (1) Necessary or appropriate in inspection and copying at the principal
the public interest; (2) for the protection Statutory Basis for, the Proposed Rule
office of the Exchange. All comments Change
of investors; or (3) otherwise in received will be posted without change;
furtherance of the purposes of the Act. the Commission does not edit personal In its filing with the Commission, the
If the Commission takes such action, the identifying information from self-regulatory organization included
Commission shall institute proceedings submissions. You should submit only statements concerning the purpose of,
to determine whether the proposed rule information that you wish to make and basis for, the proposed rule change
change should be approved or available publicly. All submissions and discussed any comments it received
disapproved. should refer to File Number SR–C2– on the proposed rule change. The text
IV. Solicitation of Comments 2016–024 and should be submitted on of those statements may be examined at
or before January 13, 2017. the places specified in Item IV below.
Interested persons are invited to The Exchange has prepared summaries,
submit written data, views, and For the Commission, by the Division of
set forth in sections A, B, and C below,
arguments concerning the foregoing, Trading and Markets, pursuant to delegated
authority.14 of the most significant parts of such
including whether the proposed rule statements.
Eduardo A. Aleman,
change is consistent with the Act.
Comments may be submitted by any of Assistant Secretary. A. Self-Regulatory Organization’s
the following methods: [FR Doc. 2016–30938 Filed 12–22–16; 8:45 am] Statement of the Purpose of, and the
BILLING CODE 8011–01–P Statutory Basis for, the Proposed Rule
Electronic Comments Change
• Use the Commission’s Internet 1. Purpose
comment form (http://www.sec.gov/ SECURITIES AND EXCHANGE
COMMISSION The Exchange proposes to amend
rules/sro.shtml); or
Rule 971.1NY to make permanent the
• Send an email to rule-comments@ (Release No. 34–79599; File No. SR– aspects of Customer Best Execution
sec.gov. Please include File Number SR– NYSEMKT–2016–120]
Auction (‘‘CUBE’’) that are subject to a
C2-2016–024 on the subject line.
Self-Regulatory Organizations; NYSE pilot. Currently, the provisions of Rule
Paper Comments MKT LLC; Notice of Filing of Proposed 971.1NY that govern execution of CUBE
• Send paper comments in triplicate Rule Change Amending Rule 971.1NY Orders of fewer than 50 contracts are
to Secretary, Securities and Exchange and To Make Permanent the Aspects of operating on a pilot basis.4 The
Commission, 100 F Street NE., Customer Best Execution Auction That Exchange proposes to make these
Washington, DC 20549–1090. Are Subject to a Pilot provisions permanent and introduce an
additional scenario when the Exchange
12 15 U.S.C. 78s(b)(3)(A).
December 19, 2016. would reject a CUBE Order for fewer
mstockstill on DSK3G9T082PROD with NOTICES
13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– Pursuant to Section 19(b)(1) 1 of the than 50 contracts.
4(f)(6) requires a self-regulatory organization to give Securities Exchange Act of 1934 (the
the Commission written notice of its intent to file ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 Background
the proposed rule change, along with a brief Rule 971.1NY sets forth an electronic
description and the text of the proposed rule
change, at least five business days prior to the date
14 17 CFR 200.30–3(a)(12). crossing mechanism for single-leg
1 15 U.S.C. 78s(b)(1).
of filing of the proposed rule change, or such
2 15 U.S.C. 78a.
shorter time as designated by the Commission. The 4 See Commentary .01 to Rule 971.1NY and Rules
Exchange has satisfied this requirement. 3 17 CFR 240.19b–4. 971.1NY(b)(1)(B) and (b)(8).
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Auction trades. In addition, the provide small customer orders with the competition thereby maximizing
Exchange believes the allocation of opportunity for price improvement in a opportunities for price improvement. In
orders executed in CUBE Auctions— manner that is consistent with the particular, the proposal to require that
either at a single price or multiple Act.’’ 18 Initiating Participants guarantee
prices—supports competitive bidding Based on a review of the CUBE Data, improvement of $0.01 (by buying at the
and offering. the Exchange believes that the CUBE bid or selling at the offer) on CUBE
The Exchange also believes that the Auction, as modified herein, would Orders for fewer than 50 contracts that
CUBE Data reveals that there is an active allow the Exchange to continue to are submitted when the NBBO is $0.01
and liquid market functioning on the provide meaningful competition for all wide in order to participate in the CUBE
Exchange outside of the CUBE size orders—including small orders—as promotes just and equitable principles
Auction,17 Competitive bidding and well as to continue to offer an active and of trade as it would ensure that small
offering occurs outside of CUBE Auction liquid market outside of the CUBE orders receive at least minimal price
and participants can submit bids/offers Auction. Thus, the Exchange believes it improvement, which may encourage the
at improved prices or join a bid or offer would be beneficial to customers and to submission and execution of more
(thus improving liquidity at that price) the options market to make the CUBE orders of fewer than 50 contracts in
regardless of the bid/ask differential of Pilot permanent, as amended. Once CUBE, thus providing an increased
the NBBO. permanent, the CUBE Auction would probability of price improvement for
Although the Exchange continues to continue to accept orders of fewer than smaller orders.
believe that the CUBE Auction provides 50 contracts, provided such Orders The proposal to make permanent the
opportunities for price improvement of comply with the modified CUBE rules, CUBE Pilot would also allow the
CUBE Orders (i.e., the agency order) which should continue to attract small applicable rules (Rules 971.1NY(b)(1)(B)
with a size of less than 50 contracts orders and promote competition and and 971.1NY(b)(8) to remain in effect,
when the NBBO has a bid/ask price improvement opportunities for which would add certainty to Exchange
differential of $0.01 (e.g.because the such CUBE Orders. rules and avoid any potential investor
market conditions may change during confusion that could result from a
the CUBE Auction), the data have not Implementation suspension or temporary interruption in
demonstrated significant price Because of the technology changes the CUBE Pilot. Because the CUBE Pilot
improvement in this narrow associated with the proposed is applicable to all CUBE Orders for
circumstance. Between January and amendment to Rule 971.1NY(b)(6), the fewer than 50 contracts, and the
June 2015, a total of 171,822 contracts Exchange proposes to announce the requirement that the minimum size of
were executed in CUBE Auctions for implementation of the proposed change the CUBE Auction is one contract, the
fewer than 50 contracts when the NBBO to the CUBE rules as well as the change proposal to make the Pilot permanent
had a bid/ask differential of $0.01. Only to make the CUBE Pilot permanent, via merely acts to maintain status quo on
1,660 of those contracts received price Trader Update. Pending approval of this the Exchange, which promotes just and
improvement of $0.01. Thus, consistent proposal by the Commission, the equitable principles of trade and
with the Exchange’s view that price changes would be implemented prior to removes impediments to, and perfects
improvement auctions should provide the expiration of the CUBE Pilot (i.e., the mechanism of, a free and open
improvement, particularly for small before January 18, 2017). market and a national market system.
orders, the Exchange is proposing to The Exchange believes the proposed
require that Initiating Participants 2. Statutory Basis rule changes promote just and equitable
guarantee price improvement for CUBE The Exchange believes that its principles of trade, remove
Orders for 50 or fewer contracts in such proposal is consistent with Section 6(b) impediments to and perfect the
market conditions. of the Act 19 in general, and furthers the mechanism of a free and open market
Further, the Exchange notes that objectives of Section 6(b)(5) of the Act 20 and a national market system because
CUBE Auctions for fewer than 50 in particular, in that it is designed to price improvement auctions are widely
contracts have served as a valuable tool prevent fraudulent and manipulative recognized by market participants as
in providing price improvement when acts and practices, to promote just and invaluable, both as a tool to access
the NBBO has a bid/ask differential of equitable principles of trade, to remove liquidity and a mechanism to help meet
greater than $0.01. For example, for impediments to and perfect the their best execution obligations. The
CUBE Auctions of this size, the CUBE mechanism of a free and open market Exchange believes the proposed rule
Data indicates that when the NBBO has and a national market system, and, in changes would further the ability of
a bid/ask differential between $0.02 and general, to protect investors and the market participants to carry out these
$0.05, contracts executed in CUBE public interest. strategies.
Auctions received on average a price The Exchange believes the proposal to Finally, the Exchange believes that it
improvement of $0.0114. In wider make permanent the CUBE Pilot would is subject to significant competitive
markets (i.e., bid/ask differentials remove impediments to and perfect the forces, as described below in the
greater than $0.05), contracts executed mechanism of a free and open market Exchange’s statement regarding the
in CUBE Auctions received, on average, and a national market system because burden on competition. For these
price improvement of more than the CUBE Pilot, together with the reasons, the Exchange believes that the
$0.0759. proposal to amend CUBE herein, are proposal is consistent with the Act.
In the CUBE Approval Order, the reasonably designed to create tighter
Commission stated that ‘‘the Exchange’s B. Self-Regulatory Organization’s
mstockstill on DSK3G9T082PROD with NOTICES
markets and ensure that each order Statement on Burden on Competition
proposal [for the CUBE Pilot] should receives the best possible price, which
The Exchange does not believe that
benefits investors by increasing
17 From January 2015 through June 2015, the the proposed rule change will impose
Exchange executed a total of 152,193,516 contracts any burden on competition not
18 See CUBE Approval Order, supra note 6, 79 FR
outside of CUBE Auctions, which the Exchange
believes is indicative of an active and liquid market at 24787. necessary or appropriate in furtherance
functioning on the Exchange outside of the CUBE 19 15 U.S.C. 78f(b). of the purposes of the Act. The
Auctions. 20 15 U.S.C. 78f(b)(5). Exchange believes that making the
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![94440 Federal Register / Vol. 81, No. 247 / Friday, December 23, 2016 / Notices
CUBE Pilot permanent would continue Paper Comments SECURITIES AND EXCHANGE
to foster competition among liquidity COMMISSION
providers and maintain execution • Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities [Release No. 34–79603; File No. SR–
quality on the Exchange. The CUBE BatsBYX–2016–41]
Auction for small orders, as modified and Exchange Commission, 100 F Street
herein, would continue to operate to NE., Washington, DC 20549–1090. Self-Regulatory Organizations; Bats
create tighter markets and ensure that All submissions should refer to File BYX Exchange, Inc.; Notice of Filing
each order receives the best possible Number SR–NYSEMKT–2016–120. This and Immediate Effectiveness of a
price, which benefits investors by file number should be included on the Proposed Rule Change To Amend Rule
increasing competition thereby 11.9, Orders and Modifiers, and Rule
subject line if email is used. To help the
maximizing opportunities for price 11.13, Order Execution and Routing,
Commission process and review your
improvement. To Enhance the Exchange’s Midpoint
The Exchange notes that it operates in comments more efficiently, please use
only one method. The Commission will Routing Functionality
a highly competitive market in which
market participants can easily direct post all comments on the Commission’s December 19, 2016.
their orders to competing venues. In Internet Web site (http://www.sec.gov/ Pursuant to Section 19(b)(1) of the
such an environment, the Exchange rules/sro.shtml). Copies of the Securities Exchange Act of 1934 (the
must continually review, and consider submission, all subsequent ‘‘Act’’),1 and Rule 19b–4 thereunder,2
adjusting the services it offers and the amendments, all written statements notice is hereby given that on December
requirements it imposes to remain with respect to the proposed rule 16, 2016, Bats BYX Exchange, Inc. (the
competitive with other exchanges. For change that are filed with the ‘‘Exchange’’ or ‘‘BYX’’) filed with the
the reasons described above, the Commission, and all written Securities and Exchange Commission
Exchange believes that the proposed communications relating to the (the ‘‘Commission’’) the proposed rule
rule change reflects this competitive proposed rule change between the change as described in Items I, II, and
environment. Commission and any person, other than III below, which Items have been
those that may be withheld from the prepared by the Exchange. The
C. Self-Regulatory Organization’s Exchange has designated this proposal
Statement on Comments on the public in accordance with the
provisions of 5 U.S.C. 552, will be as a ‘‘non-controversial’’ proposed rule
Proposed Rule Change Received From change pursuant to Section 19(b)(3)(A)
Members, Participants, or Others available for Web site viewing and
printing in the Commission’s Public of the Act 3 and Rule 19b–4(f)(6)(iii)
No written comments were solicited thereunder,4 which renders it effective
Reference Room, 100 F Street NE.,
or received with respect to the proposed upon filing with the Commission. The
Washington, DC 20549, on official
rule change. Commission is publishing this notice to
business days between the hours of
III. Date of Effectiveness of the solicit comments on the proposed rule
10:00 a.m. and 3:00 p.m. Copies of the
Proposed Rule Change and Timing for change from interested persons.
filing also will be available for
Commission Action inspection and copying at the principal I. Self-Regulatory Organization’s
Within 45 days of the date of office of the Exchange. All comments Statement of the Terms of the Substance
publication of this notice in the Federal received will be posted without change; of the Proposed Rule Change
Register or up to 90 days (i) as the the Commission does not edit personal The Exchange filed a proposal to
Commission may designate if it finds identifying information from amend Rule 11.9, Orders and Modifiers,
such longer period to be appropriate submissions. You should submit only and Rule 11.13, Order Execution and
and publishes its reasons for so finding information that you wish to make Routing, to enhance the Exchange’s
or (ii) as to which the self-regulatory available publicly. All submissions midpoint routing functionality.
organization consents, the Commission should refer to File Number SR– The text of the proposed rule change
will: NYSEMKT–2016–120 and should be is available at the Exchange’s Web site
(A) By order approve or disapprove submitted on or before January 13, 2017. at www.bats.com, at the principal office
the proposed rule change, or of the Exchange, and at the
(B) institute proceedings to determine For the Commission, by the Division of
Commission’s Public Reference Room.
whether the proposed rule change Trading and Markets, pursuant to delegated
should be disapproved. authority.21 II. Self-Regulatory Organization’s
Eduardo A. Aleman, Statement of the Purpose of, and
IV. Solicitation of Comments Statutory Basis for, the Proposed Rule
Assistant Secretary.
Interested persons are invited to Change
[FR Doc. 2016–30945 Filed 12–22–16; 8:45 am]
submit written data, views, and In its filing with the Commission, the
BILLING CODE 8011–01–P
arguments concerning the foregoing, Exchange included statements
including whether the proposed rule concerning the purpose of and basis for
change is consistent with the Act. the proposed rule change and discussed
Comments may be submitted by any of any comments it received on the
the following methods: proposed rule change. The text of these
Electronic Comments statements may be examined at the
mstockstill on DSK3G9T082PROD with NOTICES
places specified in Item IV below. The
• Use the Commission’s Internet Exchange has prepared summaries, set
comment form (http://www.sec.gov/ forth in Sections A, B, and C below, of
rules/sro.shtml); or
• Send an email to rule-comments@ 1 15 U.S.C. 78s(b)(1).
sec.gov. Please include File Number SR– 2 17 CFR 240.19b–4.
NYSEMKT–2016–120 on the subject 3 15 U.S.C. 78s(b)(3)(A).
line. 21 17 CFR 200.30–3(a)(12). 4 17 CFR 240.19b–4(f)(6)(iii).
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Document Created: 2016-12-23 12:28:59
Document Modified: 2016-12-23 12:28:59
| 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 | 81 FR 94437 |
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