81 FR 95658 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to (1) Change How Orders Would be Processed When the Protected Best Bid (“PBB”) Is Higher Than the Protected Best Offer (“PBO”) (The “PBBO”) in Certain Circumstances, and (2) Adopt a Limit Order Price Protection Mechanism

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 249 (December 28, 2016)

Page Range		95658-95663
FR Document		2016-31300
Federal Register, Volume 81 Issue 249 (Wednesday, December 28, 2016)
[Federal Register Volume 81, Number 249 (Wednesday, December 28, 2016)]
[Notices]
[Pages 95658-95663]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-31300]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79638; File No. SR-NYSE-2016-85]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
(1) Change How Orders Would be Processed When the Protected Best Bid 
(``PBB'') Is Higher Than the Protected Best Offer (``PBO'') (The 
``PBBO'') in Certain Circumstances, and (2) Adopt a Limit Order Price 
Protection Mechanism

December 21, 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 12, 2016, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') 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.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to (1) change how orders would be processed 
when the protected best bid (``PBB'') is higher than the protected best 
offer (``PBO'') (the ``PBBO'') in certain circumstances, and (2) adopt 
a limit order price protection mechanism. 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

[[Page 95659]]

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 (1) change how orders would be processed 
when the PBB is higher than the PBO in certain circumstances, and (2) 
adopt a limit order price protection mechanism.

Processing of Orders When the PBBO Is Crossed (Rules 13, 70, 76 and 
1000)

    Currently, when the PBB is priced higher than the PBO in a security 
(i.e., the PBBO is crossed), buy and sell orders trade on the Exchange 
without regard to price and without routing, consistent with the 
exception to the Order Protection Rule enumerated in Rule 611(b)(4) of 
Regulation NMS (``Rule 611(b)(4)'').\4\ In certain circumstances as 
described herein, the Exchange proposes to no longer avail itself of 
this exception to the Order Protection Rule.\5\ In those circumstances, 
rather than trading through a protected quotation when the PBBO is 
crossed, routable orders may instead be routed to protected quotations. 
In order to implement this change, the Exchange proposes to amend the 
following rules:
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    \4\ 17 CFR 242.611(b)(4). See also Rule 15A (Order Protection 
Rule).
    \5\ For example, assume if the Exchange has a displayed bid of 
$10.00 and another market crosses that bid with a protected offer of 
$9.99. Currently, if the Exchange receives a marketable order to 
buy, it will trade on the Exchange at prices higher than $9.99. Once 
the Exchange no longer avails itself of the exception in Rule 
611(b)(4), unless otherwise specified in Exchange rules as described 
in this proposed rule change, arriving routable interest to buy that 
is marketable on the Exchange would instead first route to that 
protected offer.
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Rule 13
Market Order
    Rule 13(a)(1) provides that a Market Order that is eligible for 
automatic executions is an unpriced order to buy or sell a stated 
amount of a security that is to be traded at the best price obtainable 
without trading through the NBBO. Rule 13(a)(1)(B)(i) provides that 
when the Exchange is open for continuous trading, a Market Order will 
be rejected on arrival, or cancelled if resting, if there is no contra-
side NBBO or if the best protected quotations are or become crossed.
    The Exchange proposes to no longer reject or cancel Market Orders 
when the PBBO is crossed. To effectuate this change, the Exchange 
proposes to delete the phrase ``or if the best protected quotations are 
or become crossed'' in Rule 13(a)(1)(B)(i). As a result of this 
proposed change, if a Market Order arrives when the PBBO is crossed, 
the Exchange would process the Market Order in the same way as when the 
NBBO is crossed under the current rule.\6\
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    \6\ See Rule 13(a)(1)(B)(ii).
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Routing to Protected Quotations
    The Exchange proposes to amend the Rule 13 to specify circumstances 
when the Exchange would make order handling decisions based on a 
protected quotation. The Exchange proposes to make these changes 
because, in the circumstances described below, the Exchange would no 
longer avail itself of the exception to the Order Protection Rule 
specified in Rule 611(b)(4), and therefore the Exchange would include 
protected quotations for order handling purposes even when the PBBO is 
crossed.
    First, the Exchange proposes to amend the definition of NYSE IOC 
Order to reflect that, when the PBBO is crossed, the Exchange would 
route such orders to other markets if an execution on the Exchange 
would trade through a protected quotation in compliance with Regulation 
NMS. Rule 13(b)(2)(B) defines an NYSE IOC Order as a Limit Order 
designated Immediate or Cancel (``IOC'') that will be automatically 
executed against the displayed quotation up to its full size and sweep 
the Exchange book, as provided in Rule 1000 to the extent possible, 
with portions of the order routed to other markets if necessary in 
compliance with Regulation NMS and the portion not so executed will be 
immediately and automatically cancelled. As such, currently an NYSE IOC 
Order is only routed to a protected quotation unless the exception in 
Rule 611(b)(4) applies. Because the Exchange proposes to route an NYSE 
IOC Order to other markets if an execution on the Exchange would trade 
through a protected quotation, i.e., in circumstances when the PBBO is 
crossed, the Exchange would revise the rule text to read ``with 
portions of the order routed to other markets if an execution would 
trade through a protected quotation, in compliance with Regulation NMS. 
The portion of the order not so executed will be immediately and 
automatically cancelled.''
    Second, the Exchange proposes to amend the definition of ``best-
priced sell interest'' and ``best-priced buy interest,'' which are 
terms used for purposes of determining where to display and rank a 
Limit Order designated with an Add Liquidity Only (``ALO'') Modifier. 
Supplementary Material .10 of Rule 13 provides that, for purposes of 
the Rule, the term ``best-priced sell interest'' refers to the lowest 
priced sell interest against which incoming buy interest would be 
required to execute with and/or route to, including Exchange displayed 
offers, Non-Display Reserve Orders, Non-Display Reserve e-Quotes, odd-
lot sized sell interest, unexecuted Market Orders, and protected offers 
on away markets and that the term ``best-priced buy interest'' refers 
to the highest priced buy interest against which incoming sell interest 
would be required to execute with and/or route to, including Exchange 
displayed bids, Non-Display Reserve Orders, Non-Display Reserve e-
Quotes, odd-lot sized buy interest, unexecuted Market Orders, and 
protected bids on away markets, but does not include non-displayed buy 
interest that is priced based on the PBBO.
    Because the Exchange currently avails itself of the exception in 
Rule 611(b)(4) when the PBBO is crossed, the Exchange does not include 
protected bids or offers in the determination of ``best-priced sell 
interest'' or ``best-priced buy interest.'' With the proposed change, 
in the circumstances when the Exchange no longer avails itself of this 
exception, the Exchange would consider all protected quotations, 
including when the PBBO is crossed. To reflect this change, the 
Exchange proposes the following amendments to Supplementary Material 
.10 to Rule 13.\7\
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    \7\ Since the terms defined in Supplementary Material .10 are 
only used for Limit Orders designated ALO, the Exchange proposes to 
replace ``this Rule'' after ``For purposes of'' with ``displaying 
and ranking a Limit Order with an Add Liquidity Only (ALO) 
modifier''.
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     In the first clause defining ``best-priced sell 
interest,'' the Exchange proposes to delete ``with and/or route to'' 
after ``execute,'' add the word ``and'' before ``unexecuted Market 
Orders'' and add the phrase ``the lowest-priced'' before ``protected 
offers on away markets.'' The proposed change would clarify that best-
priced sell interest can mean either the lowest-priced sell interest 
against which incoming buy interest would execute with on the Exchange 
or the lowest-priced protected

[[Page 95660]]

offer, which can be a protected offer on an away market.
     In the second clause defining ``best-priced buy 
interest,'' the Exchange would delete ``with and/or route'' after 
``execute,'' add the word ``and'' before ``unexecuted Market Orders,'' 
and add ``the highest-priced'' before ``protected bids on away 
markets.'' \8\ The proposed change would clarify that best-priced buy 
interest can mean either the lowest-priced buy interest against which 
incoming sell interest would execute with on the Exchange or the 
lowest-priced protected bid, which can be a protected bid on an away 
market.
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    \8\ The Exchange also proposes two non-substantive changes to 
Supplementary Material .10 of Rule 13 to add spaces between 
``lowest'' and ``priced'' and ``highest'' and ``priced,'' both of 
which currently appear as one word in the Rule.
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Pegging Interest
    Rule 13(f)(1) defines pegging interest and provides that pegging 
interest pegs to prices based on (i) a PBBO, which may be available on 
the Exchange or an away market, or (ii) interest that establishes a 
price on the Exchange. If the PBBO is not within the specified price 
range of the pegging interest, the pegging interest will instead peg to 
the next available best-priced displayable interest that is within the 
specified price range, which may be on the Exchange or the protected 
bid or offer of another market.\9\ Rule 13(f)(1)(B)(i) further provides 
that pegging interest to buy (sell) will not peg to a price that is 
locking or crossing the Exchange best offer (bid), but instead will peg 
to the next available best-priced displayable interest that would not 
lock or cross the Exchange best offer (bid).
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    \9\ See Rule 13(f)(1)(A)(iv)(a) & (f)(1)(A)(iii).
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    To avoid routing pegging interest when the PBBO is locked or 
crossed, the Exchange proposes to specify that the Exchange would not 
peg to a locking or crossing PBBO and would instead peg to the next-
available best-priced displayable interest that would not lock or cross 
either the Exchange's BBO or the PBBO. To effect this change, the 
Exchange proposes to amend Rule 13(f)(1)(B)(i) to provide that pegging 
interest to buy (sell) will not peg to the PBB (PBO) if the PBBO is 
locked or crossed or to a price that is locking or crossing the 
Exchange best offer (bid), but instead would peg to the next available 
best-priced displayable interest that would not lock or cross the 
Exchange best offer (bid) or the PBO (PBB).
Rule 70
    Rule 70 governs the execution of Floor broker interest, including 
g-Quotes. G-Quotes are an electronic method for Floor brokers to 
represent orders that yield priority, parity and precedence based on 
size to displayed and non-displayed orders on the Exchange's book, in 
compliance with Section 11(a)(1)(G) of the Act (the ``G Rule'').\10\
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    \10\ Section 11(a)(1) of the Act, 15 U.S.C. 78k(a)(1), generally 
prohibits a member of a national securities exchange from effecting 
transactions on that exchange for its own account, the account of an 
associated person, or any account over which it or an associated 
person exercises discretion. Subsection (G) of Section 11(a)(1) 
provides an exemption from this prohibition, allowing an exchange 
member to have its own floor broker execute a proprietary order, 
also known as a ``G order,'' provided such order yields priority, 
parity, and precedence. Under the G Rule, G orders are not required 
to yield to other orders that are for the account of a member, e.g., 
Designated Market Maker (``DMM'') interest or other g-Quotes.
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    Because the proposed change to how the Exchange would operate when 
the PBBO is crossed would result in routable orders being routed to a 
crossed PBBO, the Exchange proposes to revise the behavior of g-Quotes 
to limit the circumstances when such orders would route. While the G 
Rule only requires G orders to yield to orders on the Exchange, the 
Exchange does not believe that a G order should trade on another market 
before resting displayed interest on the Exchange trades and to which, 
absent routing of the G order, would be yielded priority by the G order 
under the G Rule. Accordingly, the Exchange proposes to restrict a g-
Quote from routing to a protected quotation ahead of displayed orders 
on the Exchange at the same price. To effect this change, the Exchange 
proposes to add a new subsection (iii) to Rule 70(a) that would provide 
that a g-Quote to buy (sell) that would be required to route on arrival 
would be cancelled when there is resting displayable interest that is 
not a g-Quote or DMM interest to buy (sell) at the same or higher 
(lower) price as the g-Quote.
    Further, the Exchange proposes to amend subsection (a)(ii) of 
Supplementary Material .25 to Rule 70 to specify that discretionary 
instructions for Floor broker d-Quotes \11\ are unavailable when the 
PBBO is crossed. To effectuate this change, the Exchange proposes to 
delete the phrase ``at all times'' following ``Discretionary 
instructions are active'' and add the phrase ``unless the PBBO is 
crossed'' following ``during the trading day.'' \12\
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    \11\ D-Quotes enable Floor brokers to enter discretionary 
instructions as to the price at which the d-Quote may trade and the 
number of shares to which the discretionary price instructions 
apply.
    \12\ The Exchange also proposes to add ``reopening'' after ``at 
the opening'' and before ``and closing transactions'' in Rule 
70.25(a)(ii).
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    Finally, the Exchange proposes a technical amendment to correct a 
number sequence error in current subsections (iv) through (viii) of 
Rule 70.25(a). Subsection (iv) currently follows subsection (ii), which 
the Exchange proposes to re-number (iii). The remaining subsections (v) 
through (viii) would be re-numbered (iv) through (vii).
Rule 76
    Rule 76 governs the execution of manual ``cross'' or ``crossing'' 
orders by Floor brokers on the Exchange trading Floor. Supplementary 
Material .10 of Rule 76 permits Floor Brokers to enter a cross 
transaction into their hand held device (``HHD'') and describes the 
operation by the Exchange of a quote minder function that monitors 
protected bids and offers to determine when the limit price assigned to 
the proposed crossed transaction is such that the orders may be 
executed consistent with Regulation NMS Rule 611.
    The Exchange proposes to amend Supplementary Material .10 of Rule 
76 to specify that quote minder would be unavailable to Floor brokers 
when the PBBO is crossed by adding the sentence ``Quote minder will not 
monitor protected bids and offers when the PBBO is crossed'' to the end 
of the Rule. The proposed change to Rule 76.10 is consistent with the 
proposed change, described above, that the Exchange would route orders 
even if the PBBO is crossed. Because Rule 76 governs crossing orders at 
a single price on the Exchange, the Exchange believes this proposed 
change makes clear that the Exchange would not permit a crossing order 
to be executed when the PBBO is crossed.
Rule 1000
    Rule 1000 provides for automatic executions by Exchange systems. 
Supplementary Material .10 is currently marked ``Reserved.'' The 
Exchange proposes to delete the word ``Reserved'' and add new text to 
specify how DMM interest would be processed when the PBBO is crossed 
and there is same side resting displayable interest that is locking or 
crossing the contra-side PBBO. Similar to the proposed amendment 
described above relating to g-Quotes, the Exchange does not believe 
that DMM interest should have an opportunity to trade on another market 
ahead of displayed orders on the Exchange.
    To effect this change, the proposed amendment would provide that 
DMM interest that would be required to route on arrival would be 
cancelled when there is same side resting displayable

[[Page 95661]]

buy (sell) interest (that is not a g-Quote or DMM interest to buy 
(sell)) that is locking or crossing the PBO (PBB). Similarly, the 
Exchange proposes to specify that certain DMM interest that would 
increase the displayed quantity of the similarly-entered resting DMM 
interest would be rejected when the resting DMM interest is locked or 
crossed by a protected away quote.\13\
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    \13\ See Rule 104(b) &1000.
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Limit Order Price Protection (Rules 13 and 1000)

    The Exchange proposes to amend Rule 13 to introduce limit order 
price protection, which would result in Limit Orders with prices too 
far away from the prevailing quote to be rejected on arrival. The 
proposed rule is based on NYSE Arca Equities, Inc, (``NYSE Arca 
Equities'') Rule 7.31(a)(2)(B).
    As proposed, the Exchange would reject limit orders that are priced 
a specified percentage away from the contra side national best bid 
(``NBB'') or national best offer (``NBO''), as defined in Rule 
600(b)(42) of Regulation NMS. As the Exchange receives limit orders, 
Exchange systems will check the price of the limit order against the 
contra-side NBB or NBO at the time of the order entry to determine 
whether the limit order is within the specified percentage. As 
proposed, the specified percentage would be equal to the corresponding 
``numerical guideline'' percentages set forth in paragraph (c)(1) of 
Rule 1000 (Automatic Executions) that are used to calculate Trading 
Collars.\14\
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    \14\ The NYSE Arca Equities limit order price protection 
mechanism uses the ``numerical guideline'' percentage set forth in 
Rule 7.10(c)(1) (Clearly Erroneous Executions) for its Core Trading 
Session. See NYSE Arca Equities Rule 7.31(a)(2)(B). The Exchange's 
proposal would use the same numerical guidelines, but rather than 
cross referencing another rule, the Exchange proposes to enumerate 
the specified percentages in proposed Rule 13(a)(2)(A).
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    Proposed Rule 13(a)(2)(A) would provide that a Limit Order to buy 
(sell) would be rejected if it is priced at or above (below) a 
specified percentage away from the NBO (NBB). Proposed Rule 
13(a)(2)(A)(i) would further provide if the NBB or the NBO is greater 
than $0.00 up to and including $25.00, the specified percentage would 
be 10%; if the NBB or NBO is greater than $25.00 up to and including 
$50.00, the specified percentage would be 5%; and if the NBB or NBO is 
greater than $50.00, the specified percentage would be 3%. For example, 
if the NBB is $26.00, a sell order priced at or below $24.70, which is 
5% below the NBB, would be rejected. Likewise, if the NBO is $55.00, a 
buy order priced at or above $56.65, which is 3% above the NBO, would 
be rejected.
    Proposed Rule 13(a)(2)(A)(i) would further provide that if the NBBO 
is crossed, the Exchange would use the Exchange Best Offer (``BO'') 
instead of the NBO for buy orders and the Exchange Best Bid (``BB'') 
instead of the NBB for sell orders. The proposed Rule would further 
provide that if the NBBO is crossed and there is no BO (BB), Limit 
Order Price Protection will not be applied to an incoming Limit Order 
to buy (sell). Further, proposed Rule 13(a)(2)(A)(i) would provide, 
like current NYSE Arca Rule 7.31(a)(2)(B), that Limit Order Price 
Protection will not be applied to an incoming Limit Order to buy (sell) 
if there is no NBO (NBB). Further, if the specified percentage for both 
buy and sell orders are not in the minimum price variation (``MPV'') 
for the security, as defined in Supplemental Material .10 to Rule 62, 
they would be rounded down to the nearest price at the applicable MPV. 
This proposed rule text is based on current Rule 1000(c)(1), governing 
Trading Collars.
    Proposed Rule 13(a)(2)(A)(ii) would provide that Limit Order Price 
Protection would be applicable only when automatic executions are in 
effect. This rule would further provide that Limit Order Price 
Protection would not be applicable (a) before a security opens for 
trading or during a halt or pause; (b) during a trading suspension; (c) 
to incoming Auction-Only Orders; and (d) to high-priced securities, as 
defined in Rule 1000(a)(iii).
    Finally, in connection with the introduction of the proposed Limit 
Order Price Protection mechanism, the Exchange proposes to amend Rule 
1000(c) and (c)(ii) to delete references to marketable limit orders. 
Accordingly, Trading Collars specified in Rule 1000(c) would be 
applicable to Market Orders only, and pricing protections in proposed 
Rule 13(a)(2)(A) would be applicable to Limit Orders.
    The Exchange believes that the Limit Order Protection mechanism 
would prevent the entry of supermarketable limit orders, i.e., limit 
orders that in essence act like market orders because they are priced 
so far away from the prevailing market price, that could cause 
significant price dislocation in the market. The Exchange also believes 
that the mechanism would further serve to mitigate the potential for 
clearly erroneous executions to occur. The Exchange believes that the 
proposed treatment of limit orders serves as an additional safeguard 
that could help limit potential harm from extreme price volatility by 
preventing executions that could occur at a price significantly away 
from the contra side national best bid or national best offer.
* * * * *
    Because of the technology changes associated with this rule 
proposal, the Exchange will announce the implementation date in a 
Trader Update. The Exchange currently anticipates implementing the 
proposed changes no later than March 31, 2017.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\16\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
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, and protect investors and the public interest. 
Specifically, while the Exchange is entitled to avail itself of the 
exception to Rule 611(b)(4) to the Order Protection Rule, the Exchange 
believes that trading or routing based on the PBBO, even when it is 
crossed, may result in additional order execution opportunities to 
trade at prevailing prices in the market. Accordingly, as a general 
matter, taking into consideration all protected quotations for purposes 
of the price at which to trade or route an order on the Exchange, even 
when the PBBO is crossed, would remove impediments to and perfect the 
mechanism of a free and open market and a national market system.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed changes to modify current 
order behavior that is based on Rule 611(b)(4) would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because they are designed to reflect changes to how such 
orders would be processed when the PBBO is crossed in a manner 
consistent with the original intent of such orders.
     The Exchange believes the proposed amendment to Rule 13 
governing Market Orders would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would promote transparency that a Market Order would be 
accepted when the PBBO is crossed, and thus may route when the PBBO is 
crossed.
     The Exchange believes the proposed amendments to the Rule 
13 definition of an NYSE IOC Order

[[Page 95662]]

clarifying that the Exchange would route to a protected quotation when 
the PBBO is crossed would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would provide specificity regarding the reason why an order 
may be routed, thereby promoting transparency in Exchange rules. The 
Exchange further believes that specifying that Supplementary Material 
.10 relates to the displaying and ranking of Limit Orders designated 
ALO would remove impediments to and perfect the mechanism of a free and 
open market and a national market system by adding clarity and 
transparency to the Exchange's rules.
     The proposed amendments to Rules 70 and 1000 to cancel g-
Quotes that would otherwise be required to route to away markets ahead 
of resting displayable interest and reject DMM interest that would 
increase the displayed quantity of similarly-entered resting DMM 
interest when that resting interest is locked or crossed by a protected 
away quote would remove impediments to and perfect the mechanism of a 
free and open market and a national market system and protect investors 
and the public because it would provide priority to previously-
displayed orders not only for execution opportunities on the Exchange, 
but also on other markets.
     The proposed amendment to Rule 76 relating to crossing 
orders would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because it would provide 
transparency that crossing orders, which are designed to trade on the 
Exchange as a single-priced transaction, would not be eligible to trade 
if the PBBO is crossed.
    The Exchange believes that the proposed Limit Order Protection 
mechanism would remove impediments to and perfect the mechanism of a 
free and open market and a national market system by rejecting orders 
that are priced too far away from the prevailing market. The Exchange 
believes that the proposed rule would ensure that limit orders would 
not cause the price of a security to move beyond prices that could 
otherwise be determined to be a clearly erroneous execution, thereby 
protecting investors from receiving executions away from the prevailing 
prices at any given time.
    Finally, the Exchange's proposal to make non-substantive changes to 
the text of Supplementary Material .10 of Rule 13 and to Rule 70.25(a) 
adds clarity and transparency to Exchange rules and reduces potential 
investor confusion, which would remove impediments to and perfect the 
mechanism of a free and open market and a national market system.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed change would 
not impose any burden on competition because it would align how the 
Exchange operates when the PBBO is crossed with how other equity 
exchanges function when the PBBO is crossed. Moreover, the proposed 
rule changes would specify how orders would be processed when the PBBO 
is crossed, thereby promoting transparency and efficiency to the 
benefit of all market participants, and the adoption of a limit order 
protection mechanism that is based on the rules of another exchange. 
The Exchange believes that the proposed rule change will serve to 
promote regulatory clarity and consistency, thereby reducing burdens on 
competition in 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\20\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2016-85 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-NYSE-2016-85. 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

[[Page 95663]]

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-NYSE-2016-85 and should be submitted on or before 
January 18, 2017.
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Eduardo A. Aleman
Assistant Secretary.
[FR Doc. 2016-31300 Filed 12-27-16; 8:45 am]
 BILLING CODE 8011-01-P
95658 Federal Register / Vol. 81, No. 249 / Wednesday, December 28, 2016 / Notices

system, and, in general to protect to determine whether the proposed rule For the Commission, by the Division of
investors and the public interest, by should be approved or disapproved. Trading and Markets, pursuant to delegated
permitting the Exchange additional time authority.12
to implement the LOP in accordance IV. Solicitation of Comments Eduardo A. Aleman,
with the Exchange’s processes. The Assistant Secretary.
Interested persons are invited to
Exchange’s proposal does not submit written data, views, and [FR Doc. 2016–31297 Filed 12–27–16; 8:45 am]
significantly affect the protection of arguments concerning the foregoing, BILLING CODE 8011–01–P
investors or the public interest because
including whether the proposed rule
this proposal does not modify the
change is consistent with the Act. SECURITIES AND EXCHANGE
manner in which LOP operates, only the
Comments may be submitted by any of COMMISSION
implementation date is impacted. The
Exchange will provide advance notice to the following methods:
[Release No. 34–79638; File No. SR–NYSE–
members with respect to the new date. Electronic Comments 2016–85]
B. Self-Regulatory Organization’s • Use the Commission’s Internet
Statement on Burden on Competition Self-Regulatory Organizations; New
comment form (http://www.sec.gov/ York Stock Exchange LLC; Notice of
The Exchange does not believe that rules/sro.shtml); or Filing and Immediate Effectiveness of
the proposed rule change will impose • Send an email to rule-comments@ Proposed Rule Change to (1) Change
any burden on competition not sec.gov. Please include File Number SR– How Orders Would be Processed
necessary or appropriate in furtherance When the Protected Best Bid (‘‘PBB’’)
Phlx–2016–124 on the subject line.
of the purposes of the Act. The Is Higher Than the Protected Best
Exchange’s proposal does not impose Paper Comments Offer (‘‘PBO’’) (The ‘‘PBBO’’) in Certain
any significant burden on competition Circumstances, and (2) Adopt a Limit
because LOP will apply to all PSX • Send paper comments in triplicate Order Price Protection Mechanism
market participants in a uniform to Brent J. Fields, Secretary, Securities
manner once implemented. and Exchange Commission, 100 F Street December 21, 2016.
NE., Washington, DC 20549–1090. Pursuant to Section 19(b)(1) 1 of the
C. Self-Regulatory Organization’s Securities Exchange Act of 1934 (the
Statement on Comments on the All submissions should refer to File
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
Proposed Rule Change Received From Number SR–Phlx–2016–124. This file notice is hereby given that on December
Members, Participants, or Others number should be included on the 12, 2016, New York Stock Exchange
No written comments were either subject line if email is used. To help the LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
solicited or received. Commission process and review your with the Securities and Exchange
comments more efficiently, please use Commission (‘‘Commission’’) the
III. Date of Effectiveness of the only one method. The Commission will proposed rule change as described in
Proposed Rule Change and Timing for post all comments on the Commission’s Items I, II, and III below, which Items
Commission Action Internet Web site (http://www.sec.gov/ have been prepared by the self-
Because the foregoing proposed rule rules/sro.shtml). Copies of the regulatory organization. The
change does not: (i) Significantly affect submission, all subsequent Commission is publishing this notice to
the protection of investors or the public amendments, all written statements solicit comments on the proposed rule
interest; (ii) impose any significant with respect to the proposed rule change from interested persons.
burden on competition; and (iii) become change that are filed with the
operative for 30 days from the date on I. Self-Regulatory Organization’s
Commission, and all written Statement of the Terms of Substance of
which it was filed, or such shorter time communications relating to the
as the Commission may designate, it has the Proposed Rule Change
proposed rule change between the
become effective pursuant to Section Commission and any person, other than The Exchange proposes to (1) change
19(b)(3)(A)(iii) of the Act 10 and those that may be withheld from the how orders would be processed when
subparagraph (f)(6) of Rule 19b–4 public in accordance with the the protected best bid (‘‘PBB’’) is higher
thereunder.11 than the protected best offer (‘‘PBO’’)
provisions of 5 U.S.C. 552, will be
At any time within 60 days of the (the ‘‘PBBO’’) in certain circumstances,
available for Web site viewing and
filing of the proposed rule change, the and (2) adopt a limit order price
printing in the Commission’s Public
Commission summarily may protection mechanism. The proposed
Reference Room, 100 F Street NE., rule change is available on the
temporarily suspend such rule change if
it appears to the Commission that such Washington, DC 20549, on official Exchange’s Web site at www.nyse.com,
action is: (i) Necessary or appropriate in business days between the hours of at the principal office of the Exchange,
the public interest; (ii) for the protection 10:00 a.m. and 3:00 p.m. Copies of the and at the Commission’s Public
of investors; or (iii) otherwise in filing also will be available for Reference Room.
furtherance of the purposes of the Act. inspection and copying at the principal
office of the Exchange. All comments II. Self-Regulatory Organization’s
If the Commission takes such action, the Statement of the Purpose of, and
Commission shall institute proceedings received will be posted without change;
the Commission does not edit personal Statutory Basis for, the Proposed Rule
Change
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10 15 U.S.C. 78s(b)(3)(A)(iii). identifying information from
11 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– submissions. You should submit only In its filing with the Commission, the
4(f)(6) requires a self-regulatory organization to give information that you wish to make self-regulatory organization included
the Commission written notice of its intent to file
the proposed rule change at least five business days available publicly. All submissions
12 17 CFR 200.30–3(a)(12).
prior to the date of filing of the proposed rule should refer to File Number SR–Phlx– 1 15
change, or such shorter time as designated by the U.S.C.78s(b)(1).
2016–124 and should be submitted on 2 15 U.S.C. 78a.
Commission. The Exchange has satisfied this
requirement. or before January 18, 2017. 3 17 CFR 240.19b–4.

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statements concerning the purpose of, be rejected on arrival, or cancelled if order not so executed will be
and basis for, the proposed rule change resting, if there is no contra-side NBBO immediately and automatically
and discussed any comments it received or if the best protected quotations are or cancelled.’’
on the proposed rule change. The text become crossed. Second, the Exchange proposes to
of those statements may be examined at The Exchange proposes to no longer amend the definition of ‘‘best-priced sell
the places specified in Item IV below. reject or cancel Market Orders when the interest’’ and ‘‘best-priced buy interest,’’
The Exchange has prepared summaries, PBBO is crossed. To effectuate this which are terms used for purposes of
set forth in sections A, B, and C below, change, the Exchange proposes to delete determining where to display and rank
of the most significant parts of such the phrase ‘‘or if the best protected a Limit Order designated with an Add
statements. quotations are or become crossed’’ in Liquidity Only (‘‘ALO’’) Modifier.
Rule 13(a)(1)(B)(i). As a result of this Supplementary Material .10 of Rule 13
A. Self-Regulatory Organization’s proposed change, if a Market Order provides that, for purposes of the Rule,
Statement of the Purpose of, and the arrives when the PBBO is crossed, the the term ‘‘best-priced sell interest’’
Statutory Basis for, the Proposed Rule Exchange would process the Market refers to the lowest priced sell interest
Change Order in the same way as when the against which incoming buy interest
1. Purpose NBBO is crossed under the current would be required to execute with and/
rule.6 or route to, including Exchange
The Exchange proposes to (1) change
how orders would be processed when Routing to Protected Quotations displayed offers, Non-Display Reserve
the PBB is higher than the PBO in Orders, Non-Display Reserve e-Quotes,
The Exchange proposes to amend the
certain circumstances, and (2) adopt a odd-lot sized sell interest, unexecuted
Rule 13 to specify circumstances when
limit order price protection mechanism. Market Orders, and protected offers on
the Exchange would make order
away markets and that the term ‘‘best-
Processing of Orders When the PBBO Is handling decisions based on a protected
priced buy interest’’ refers to the highest
Crossed (Rules 13, 70, 76 and 1000) quotation. The Exchange proposes to
priced buy interest against which
make these changes because, in the
Currently, when the PBB is priced incoming sell interest would be required
circumstances described below, the
higher than the PBO in a security (i.e., to execute with and/or route to,
Exchange would no longer avail itself of
the PBBO is crossed), buy and sell including Exchange displayed bids,
the exception to the Order Protection
orders trade on the Exchange without Rule specified in Rule 611(b)(4), and Non-Display Reserve Orders, Non-
regard to price and without routing, therefore the Exchange would include Display Reserve e-Quotes, odd-lot sized
consistent with the exception to the protected quotations for order handling buy interest, unexecuted Market Orders,
Order Protection Rule enumerated in purposes even when the PBBO is and protected bids on away markets, but
Rule 611(b)(4) of Regulation NMS crossed. does not include non-displayed buy
(‘‘Rule 611(b)(4)’’).4 In certain First, the Exchange proposes to interest that is priced based on the
circumstances as described herein, the amend the definition of NYSE IOC PBBO.
Exchange proposes to no longer avail Order to reflect that, when the PBBO is Because the Exchange currently avails
itself of this exception to the Order crossed, the Exchange would route such itself of the exception in Rule 611(b)(4)
Protection Rule.5 In those orders to other markets if an execution when the PBBO is crossed, the
circumstances, rather than trading on the Exchange would trade through a Exchange does not include protected
through a protected quotation when the protected quotation in compliance with bids or offers in the determination of
PBBO is crossed, routable orders may Regulation NMS. Rule 13(b)(2)(B) ‘‘best-priced sell interest’’ or ‘‘best-
instead be routed to protected defines an NYSE IOC Order as a Limit priced buy interest.’’ With the proposed
quotations. In order to implement this Order designated Immediate or Cancel change, in the circumstances when the
change, the Exchange proposes to (‘‘IOC’’) that will be automatically Exchange no longer avails itself of this
amend the following rules: executed against the displayed exception, the Exchange would consider
quotation up to its full size and sweep all protected quotations, including
Rule 13 the Exchange book, as provided in Rule when the PBBO is crossed. To reflect
Market Order 1000 to the extent possible, with this change, the Exchange proposes the
portions of the order routed to other following amendments to
Rule 13(a)(1) provides that a Market
markets if necessary in compliance with Supplementary Material .10 to Rule 13.7
Order that is eligible for automatic
Regulation NMS and the portion not so • In the first clause defining ‘‘best-
executions is an unpriced order to buy
executed will be immediately and priced sell interest,’’ the Exchange
or sell a stated amount of a security that
automatically cancelled. As such, proposes to delete ‘‘with and/or route
is to be traded at the best price
currently an NYSE IOC Order is only to’’ after ‘‘execute,’’ add the word ‘‘and’’
obtainable without trading through the
routed to a protected quotation unless before ‘‘unexecuted Market Orders’’ and
NBBO. Rule 13(a)(1)(B)(i) provides that
the exception in Rule 611(b)(4) applies. add the phrase ‘‘the lowest-priced’’
when the Exchange is open for
Because the Exchange proposes to route before ‘‘protected offers on away
continuous trading, a Market Order will
an NYSE IOC Order to other markets if markets.’’ The proposed change would
4 17 CFR 242.611(b)(4). See also Rule 15A (Order an execution on the Exchange would clarify that best-priced sell interest can
Protection Rule). trade through a protected quotation, i.e., mean either the lowest-priced sell
5 For example, assume if the Exchange has a
in circumstances when the PBBO is interest against which incoming buy
displayed bid of $10.00 and another market crosses interest would execute with on the
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crossed, the Exchange would revise the
that bid with a protected offer of $9.99. Currently, Exchange or the lowest-priced protected
if the Exchange receives a marketable order to buy, rule text to read ‘‘with portions of the
it will trade on the Exchange at prices higher than order routed to other markets if an
$9.99. Once the Exchange no longer avails itself of execution would trade through a 7 Since the terms defined in Supplementary

the exception in Rule 611(b)(4), unless otherwise protected quotation, in compliance with Material .10 are only used for Limit Orders
specified in Exchange rules as described in this designated ALO, the Exchange proposes to replace
proposed rule change, arriving routable interest to Regulation NMS. The portion of the ‘‘this Rule’’ after ‘‘For purposes of’’ with
buy that is marketable on the Exchange would ‘‘displaying and ranking a Limit Order with an Add
instead first route to that protected offer. 6 See Rule 13(a)(1)(B)(ii). Liquidity Only (ALO) modifier’’.

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95660 Federal Register / Vol. 81, No. 249 / Wednesday, December 28, 2016 / Notices

offer, which can be a protected offer on Quotes. G-Quotes are an electronic Finally, the Exchange proposes a
an away market. method for Floor brokers to represent technical amendment to correct a
• In the second clause defining ‘‘best- orders that yield priority, parity and number sequence error in current
priced buy interest,’’ the Exchange precedence based on size to displayed subsections (iv) through (viii) of Rule
would delete ‘‘with and/or route’’ after and non-displayed orders on the 70.25(a). Subsection (iv) currently
‘‘execute,’’ add the word ‘‘and’’ before Exchange’s book, in compliance with follows subsection (ii), which the
‘‘unexecuted Market Orders,’’ and add Section 11(a)(1)(G) of the Act (the ‘‘G Exchange proposes to re-number (iii).
‘‘the highest-priced’’ before ‘‘protected Rule’’).10 The remaining subsections (v) through
bids on away markets.’’ 8 The proposed Because the proposed change to how (viii) would be re-numbered (iv) through
change would clarify that best-priced the Exchange would operate when the (vii).
buy interest can mean either the lowest- PBBO is crossed would result in
priced buy interest against which Rule 76
routable orders being routed to a crossed
incoming sell interest would execute PBBO, the Exchange proposes to revise Rule 76 governs the execution of
with on the Exchange or the lowest- the behavior of g-Quotes to limit the manual ‘‘cross’’ or ‘‘crossing’’ orders by
priced protected bid, which can be a circumstances when such orders would Floor brokers on the Exchange trading
protected bid on an away market. route. While the G Rule only requires G Floor. Supplementary Material .10 of
orders to yield to orders on the Rule 76 permits Floor Brokers to enter
Pegging Interest a cross transaction into their hand held
Exchange, the Exchange does not
Rule 13(f)(1) defines pegging interest device (‘‘HHD’’) and describes the
believe that a G order should trade on
and provides that pegging interest pegs operation by the Exchange of a quote
another market before resting displayed
to prices based on (i) a PBBO, which minder function that monitors protected
interest on the Exchange trades and to
may be available on the Exchange or an bids and offers to determine when the
which, absent routing of the G order,
away market, or (ii) interest that limit price assigned to the proposed
would be yielded priority by the G order
establishes a price on the Exchange. If crossed transaction is such that the
under the G Rule. Accordingly, the
the PBBO is not within the specified orders may be executed consistent with
Exchange proposes to restrict a g-Quote
price range of the pegging interest, the Regulation NMS Rule 611.
from routing to a protected quotation
pegging interest will instead peg to the The Exchange proposes to amend
next available best-priced displayable ahead of displayed orders on the Supplementary Material .10 of Rule 76
interest that is within the specified price Exchange at the same price. To effect to specify that quote minder would be
range, which may be on the Exchange or this change, the Exchange proposes to unavailable to Floor brokers when the
the protected bid or offer of another add a new subsection (iii) to Rule 70(a) PBBO is crossed by adding the sentence
market.9 Rule 13(f)(1)(B)(i) further that would provide that a g-Quote to ‘‘Quote minder will not monitor
provides that pegging interest to buy buy (sell) that would be required to protected bids and offers when the
(sell) will not peg to a price that is route on arrival would be cancelled PBBO is crossed’’ to the end of the Rule.
locking or crossing the Exchange best when there is resting displayable The proposed change to Rule 76.10 is
offer (bid), but instead will peg to the interest that is not a g-Quote or DMM consistent with the proposed change,
next available best-priced displayable interest to buy (sell) at the same or described above, that the Exchange
interest that would not lock or cross the higher (lower) price as the g-Quote. would route orders even if the PBBO is
Exchange best offer (bid). Further, the Exchange proposes to crossed. Because Rule 76 governs
To avoid routing pegging interest amend subsection (a)(ii) of crossing orders at a single price on the
when the PBBO is locked or crossed, the Supplementary Material .25 to Rule 70 Exchange, the Exchange believes this
Exchange proposes to specify that the to specify that discretionary instructions proposed change makes clear that the
Exchange would not peg to a locking or for Floor broker d-Quotes 11 are Exchange would not permit a crossing
crossing PBBO and would instead peg to unavailable when the PBBO is crossed. order to be executed when the PBBO is
the next-available best-priced To effectuate this change, the Exchange crossed.
displayable interest that would not lock proposes to delete the phrase ‘‘at all
or cross either the Exchange’s BBO or times’’ following ‘‘Discretionary Rule 1000
the PBBO. To effect this change, the instructions are active’’ and add the Rule 1000 provides for automatic
Exchange proposes to amend Rule phrase ‘‘unless the PBBO is crossed’’ executions by Exchange systems.
13(f)(1)(B)(i) to provide that pegging following ‘‘during the trading day.’’ 12 Supplementary Material .10 is currently
interest to buy (sell) will not peg to the marked ‘‘Reserved.’’ The Exchange
PBB (PBO) if the PBBO is locked or 10 Section 11(a)(1) of the Act, 15 U.S.C. 78k(a)(1),
proposes to delete the word ‘‘Reserved’’
generally prohibits a member of a national and add new text to specify how DMM
crossed or to a price that is locking or securities exchange from effecting transactions on
crossing the Exchange best offer (bid), that exchange for its own account, the account of interest would be processed when the
but instead would peg to the next an associated person, or any account over which it PBBO is crossed and there is same side
available best-priced displayable or an associated person exercises discretion. resting displayable interest that is
Subsection (G) of Section 11(a)(1) provides an locking or crossing the contra-side
interest that would not lock or cross the exemption from this prohibition, allowing an
Exchange best offer (bid) or the PBO exchange member to have its own floor broker PBBO. Similar to the proposed
(PBB). execute a proprietary order, also known as a ‘‘G amendment described above relating to
order,’’ provided such order yields priority, parity, g-Quotes, the Exchange does not believe
Rule 70 and precedence. Under the G Rule, G orders are not that DMM interest should have an
required to yield to other orders that are for the
Rule 70 governs the execution of
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account of a member, e.g., Designated Market Maker opportunity to trade on another market
Floor broker interest, including g- (‘‘DMM’’) interest or other g-Quotes. ahead of displayed orders on the
11 D-Quotes enable Floor brokers to enter Exchange.
8 The Exchange also proposes two non- discretionary instructions as to the price at which To effect this change, the proposed
substantive changes to Supplementary Material .10 the d-Quote may trade and the number of shares to amendment would provide that DMM
of Rule 13 to add spaces between ‘‘lowest’’ and which the discretionary price instructions apply.
‘‘priced’’ and ‘‘highest’’ and ‘‘priced,’’ both of 12 The Exchange also proposes to add interest that would be required to route
which currently appear as one word in the Rule. ‘‘reopening’’ after ‘‘at the opening’’ and before ‘‘and on arrival would be cancelled when
9 See Rule 13(f)(1)(A)(iv)(a) & (f)(1)(A)(iii). closing transactions’’ in Rule 70.25(a)(ii). there is same side resting displayable

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buy (sell) interest (that is not a g-Quote $56.65, which is 3% above the NBO, could occur at a price significantly away
or DMM interest to buy (sell)) that is would be rejected. from the contra side national best bid or
locking or crossing the PBO (PBB). Proposed Rule 13(a)(2)(A)(i) would national best offer.
Similarly, the Exchange proposes to further provide that if the NBBO is * * * * *
specify that certain DMM interest that crossed, the Exchange would use the Because of the technology changes
would increase the displayed quantity Exchange Best Offer (‘‘BO’’) instead of associated with this rule proposal, the
of the similarly-entered resting DMM the NBO for buy orders and the Exchange will announce the
interest would be rejected when the Exchange Best Bid (‘‘BB’’) instead of the implementation date in a Trader
resting DMM interest is locked or NBB for sell orders. The proposed Rule Update. The Exchange currently
crossed by a protected away quote.13 would further provide that if the NBBO anticipates implementing the proposed
is crossed and there is no BO (BB), Limit changes no later than March 31, 2017.
Limit Order Price Protection (Rules 13 Order Price Protection will not be
and 1000) applied to an incoming Limit Order to 2. Statutory Basis
The Exchange proposes to amend buy (sell). Further, proposed Rule The Exchange believes that the
Rule 13 to introduce limit order price 13(a)(2)(A)(i) would provide, like proposed rule change is consistent with
protection, which would result in Limit current NYSE Arca Rule 7.31(a)(2)(B), Section 6(b) of the Act,15 in general, and
Orders with prices too far away from the that Limit Order Price Protection will furthers the objectives of Section 6(b)(5)
prevailing quote to be rejected on not be applied to an incoming Limit of the Act,16 in particular, because it is
arrival. The proposed rule is based on Order to buy (sell) if there is no NBO designed to prevent fraudulent and
NYSE Arca Equities, Inc, (‘‘NYSE Arca (NBB). Further, if the specified manipulative acts and practices,
Equities’’) Rule 7.31(a)(2)(B). percentage for both buy and sell orders promote just and equitable principles of
As proposed, the Exchange would are not in the minimum price variation trade, remove impediments to and
reject limit orders that are priced a (‘‘MPV’’) for the security, as defined in perfect the mechanism of a free and
specified percentage away from the Supplemental Material .10 to Rule 62, open market and a national market
contra side national best bid (‘‘NBB’’) or they would be rounded down to the system, and protect investors and the
national best offer (‘‘NBO’’), as defined nearest price at the applicable MPV. public interest. Specifically, while the
in Rule 600(b)(42) of Regulation NMS. This proposed rule text is based on Exchange is entitled to avail itself of the
As the Exchange receives limit orders, current Rule 1000(c)(1), governing exception to Rule 611(b)(4) to the Order
Exchange systems will check the price Trading Collars. Protection Rule, the Exchange believes
of the limit order against the contra-side Proposed Rule 13(a)(2)(A)(ii) would that trading or routing based on the
NBB or NBO at the time of the order provide that Limit Order Price PBBO, even when it is crossed, may
entry to determine whether the limit Protection would be applicable only result in additional order execution
order is within the specified percentage. when automatic executions are in effect. opportunities to trade at prevailing
As proposed, the specified percentage This rule would further provide that prices in the market. Accordingly, as a
Limit Order Price Protection would not general matter, taking into consideration
would be equal to the corresponding
be applicable (a) before a security opens all protected quotations for purposes of
‘‘numerical guideline’’ percentages set
for trading or during a halt or pause; (b) the price at which to trade or route an
forth in paragraph (c)(1) of Rule 1000
during a trading suspension; (c) to order on the Exchange, even when the
(Automatic Executions) that are used to
incoming Auction-Only Orders; and (d) PBBO is crossed, would remove
calculate Trading Collars.14
to high-priced securities, as defined in impediments to and perfect the
Proposed Rule 13(a)(2)(A) would
Rule 1000(a)(iii). mechanism of a free and open market
provide that a Limit Order to buy (sell) Finally, in connection with the
would be rejected if it is priced at or and a national market system.
introduction of the proposed Limit The Exchange believes that the
above (below) a specified percentage Order Price Protection mechanism, the proposed changes to modify current
away from the NBO (NBB). Proposed Exchange proposes to amend Rule order behavior that is based on Rule
Rule 13(a)(2)(A)(i) would further 1000(c) and (c)(ii) to delete references to 611(b)(4) would remove impediments to
provide if the NBB or the NBO is greater marketable limit orders. Accordingly, and perfect the mechanism of a free and
than $0.00 up to and including $25.00, Trading Collars specified in Rule open market and a national market
the specified percentage would be 10%; 1000(c) would be applicable to Market system because they are designed to
if the NBB or NBO is greater than $25.00 Orders only, and pricing protections in reflect changes to how such orders
up to and including $50.00, the proposed Rule 13(a)(2)(A) would be would be processed when the PBBO is
specified percentage would be 5%; and applicable to Limit Orders. crossed in a manner consistent with the
if the NBB or NBO is greater than The Exchange believes that the Limit original intent of such orders.
$50.00, the specified percentage would Order Protection mechanism would • The Exchange believes the
be 3%. For example, if the NBB is prevent the entry of supermarketable proposed amendment to Rule 13
$26.00, a sell order priced at or below limit orders, i.e., limit orders that in governing Market Orders would remove
$24.70, which is 5% below the NBB, essence act like market orders because impediments to and perfect the
would be rejected. Likewise, if the NBO they are priced so far away from the mechanism of a free and open market
is $55.00, a buy order priced at or above prevailing market price, that could and a national market system because it
cause significant price dislocation in the would promote transparency that a
13 See Rule 104(b) &1000. market. The Exchange also believes that Market Order would be accepted when
14 The NYSE Arca Equities limit order price the mechanism would further serve to
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protection mechanism uses the ‘‘numerical
the PBBO is crossed, and thus may route
guideline’’ percentage set forth in Rule 7.10(c)(1)
mitigate the potential for clearly when the PBBO is crossed.
(Clearly Erroneous Executions) for its Core Trading erroneous executions to occur. The • The Exchange believes the
Session. See NYSE Arca Equities Rule 7.31(a)(2)(B). Exchange believes that the proposed proposed amendments to the Rule 13
The Exchange’s proposal would use the same treatment of limit orders serves as an
numerical guidelines, but rather than cross
definition of an NYSE IOC Order
referencing another rule, the Exchange proposes to
additional safeguard that could help
enumerate the specified percentages in proposed limit potential harm from extreme price 15 15 U.S.C. 78f(b).
Rule 13(a)(2)(A). volatility by preventing executions that 16 15 U.S.C. 78f(b)(5).

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95662 Federal Register / Vol. 81, No. 249 / Wednesday, December 28, 2016 / Notices

clarifying that the Exchange would which would remove impediments to the date of the filing. However, pursuant
route to a protected quotation when the and perfect the mechanism of a free and to Rule 19b4(f)(6)(iii),20 the Commission
PBBO is crossed would remove open market and a national market may designate a shorter time if such
impediments to and perfect the system. action is consistent with the protection
mechanism of a free and open market of investors and the public interest.
B. Self-Regulatory Organization’s At any time within 60 days of the
and a national market system because it
would provide specificity regarding the Statement on Burden on Competition filing of such proposed rule change, the
reason why an order may be routed, The Exchange does not believe that Commission summarily may
thereby promoting transparency in the proposed rule change will impose temporarily suspend such rule change if
Exchange rules. The Exchange further any burden on competition that is not it appears to the Commission that such
believes that specifying that necessary or appropriate in furtherance action is necessary or appropriate in the
Supplementary Material .10 relates to of the purposes of the Act. The public interest, for the protection of
the displaying and ranking of Limit proposed change would not impose any investors, or otherwise in furtherance of
Orders designated ALO would remove burden on competition because it would the purposes of the Act. If the
impediments to and perfect the align how the Exchange operates when Commission takes such action, the
mechanism of a free and open market the PBBO is crossed with how other Commission shall institute proceedings
and a national market system by adding equity exchanges function when the under Section 19(b)(2)(B) 21 of the Act to
clarity and transparency to the PBBO is crossed. Moreover, the determine whether the proposed rule
Exchange’s rules. proposed rule changes would specify change should be approved or
• The proposed amendments to Rules how orders would be processed when disapproved.
70 and 1000 to cancel g-Quotes that the PBBO is crossed, thereby promoting
would otherwise be required to route to transparency and efficiency to the IV. Solicitation of Comments
away markets ahead of resting benefit of all market participants, and Interested persons are invited to
displayable interest and reject DMM the adoption of a limit order protection submit written data, views, and
interest that would increase the mechanism that is based on the rules of arguments concerning the foregoing,
displayed quantity of similarly-entered another exchange. The Exchange including whether the proposed rule
resting DMM interest when that resting believes that the proposed rule change change is consistent with the Act.
interest is locked or crossed by a will serve to promote regulatory clarity Comments may be submitted by any of
protected away quote would remove and consistency, thereby reducing the following methods:
impediments to and perfect the burdens on competition in the
mechanism of a free and open market Electronic Comments
marketplace and facilitating investor
and a national market system and protection. • Use the Commission’s Internet
protect investors and the public because comment form (http://www.sec.gov/
it would provide priority to previously- C. Self-Regulatory Organization’s rules/sro.shtml); or
displayed orders not only for execution Statement on Comments on the • Send an email to rule-comments@
opportunities on the Exchange, but also Proposed Rule Change Received From sec.gov. Please include File Number SR–
on other markets. Members, Participants, or Others NYSE–2016–85 on the subject line.
• The proposed amendment to Rule No written comments were solicited Paper Comments
76 relating to crossing orders would or received with respect to the proposed
remove impediments to and perfect the rule change. • Send paper comments in triplicate
mechanism of a free and open market to Brent J. Fields, Secretary, Securities
and a national market system because it III. Date of Effectiveness of the and Exchange Commission, 100 F Street
would provide transparency that Proposed Rule Change and Timing for NE., Washington, DC 20549–1090.
crossing orders, which are designed to Commission Action All submissions should refer to File
trade on the Exchange as a single-priced The Exchange has filed the proposed Number SR–NYSE–2016–85. This file
transaction, would not be eligible to rule change pursuant to Section number should be included on the
trade if the PBBO is crossed. 19(b)(3)(A)(iii) of the Act 17 and Rule subject line if email is used. To help the
The Exchange believes that the 19b–4(f)(6) thereunder.18 Because the Commission process and review your
proposed Limit Order Protection proposed rule change does not: (i) comments more efficiently, please use
mechanism would remove impediments Significantly affect the protection of only one method. The Commission will
to and perfect the mechanism of a free investors or the public interest; (ii) post all comments on the Commission’s
and open market and a national market impose any significant burden on Internet Web site (http://www.sec.gov/
system by rejecting orders that are competition; and (iii) become operative rules/sro.shtml). Copies of the
priced too far away from the prevailing prior to 30 days from the date on which submission, all subsequent
market. The Exchange believes that the it was filed, or such shorter time as the amendments, all written statements
proposed rule would ensure that limit Commission may designate, if with respect to the proposed rule
orders would not cause the price of a consistent with the protection of change that are filed with the
security to move beyond prices that investors and the public interest, the Commission, and all written
could otherwise be determined to be a proposed rule change has become communications relating to the
clearly erroneous execution, thereby effective pursuant to Section 19(b)(3)(A) proposed rule change between the
protecting investors from receiving of the Act and Rule 19b–4(f)(6)(iii) Commission and any person, other than
sradovich on DSK3GMQ082PROD with NOTICES

executions away from the prevailing thereunder. those that may be withheld from the
prices at any given time. A proposed rule change filed under public in accordance with the
Finally, the Exchange’s proposal to Rule 19b–4(f)(6) 19 normally does not provisions of 5 U.S.C. 552, will be
make non-substantive changes to the become operative prior to 30 days after available for Web site viewing and
text of Supplementary Material .10 of printing in the Commission’s Public
Rule 13 and to Rule 70.25(a) adds clarity 17 15 U.S.C. 78s(b)(3)(A)(iii).
and transparency to Exchange rules and 18 17 CFR 240.19b–4(f)(6). 20 17 CFR 240.19b–4(f)(6)(iii).
reduces potential investor confusion, 19 17 CFR 240.19b–4(f)(6). 21 15 U.S.C. 78s(b)(2)(B).

VerDate Sep<11>2014 18:54 Dec 27, 2016 Jkt 241001 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 E:\FR\FM\28DEN1.SGM 28DEN1
Document Created: 2016-12-28 02:16:59
Document Modified: 2016-12-28 02:16:59
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 95658