82 FR 8465 - Self-Regulatory Organizations; NYSE MKT LLC; Order Granting Accelerated Approval of a Proposed Rule Change To Amend NYSE MKT Rule 971.1NY and Make Permanent the Aspects of Customer Best Execution Auction That Are Subject to a Pilot
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 15 (January 25, 2017)
Federal Register Volume 82, Issue 15 (January 25, 2017)
| Page Range | 8465-8467 | |
| FR Document | 2017-01609 |
[Federal Register Volume 82, Number 15 (Wednesday, January 25, 2017)] [Notices] [Pages 8465-8467] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-01609] [[Page 8465]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79830; File No. SR-NYSEMKT-2016-120] Self-Regulatory Organizations; NYSE MKT LLC; Order Granting Accelerated Approval of a Proposed Rule Change To Amend NYSE MKT Rule 971.1NY and Make Permanent the Aspects of Customer Best Execution Auction That Are Subject to a Pilot January 18, 2017. I. Introduction On December 16, 2016, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') filed with the Securities and Exchange Commission (``Commission''), pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend certain eligibility requirements of NYSE MKT Rule 971.1NY (``Rule 971.1NY'') that govern its Customer Best Execution Auction (``CUBE'' or ``CUBE Auction'') and to make permanent the provisions of Rule 971.1NY that currently operate on a pilot basis. The proposed rule change was published for comment in the Federal Register on December 23, 2016.\3\ The Commission received no comments regarding the proposal. This order approves the proposed rule change on an accelerated basis. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 79599 (December 19, 2016), 81 FR 94437 (``Notice''). --------------------------------------------------------------------------- II. Description of the Proposal CUBE is an electronic crossing mechanism for single-leg orders that is designed to provide the opportunity for price improvement for paired orders of any size.\4\ To commence a CUBE Auction, an ATP Holder (``Initiating Participant'') may electronically submit for execution a limit order that it represents as agent on behalf of a public customer, broker dealer, or any other entity (``CUBE Order''). The Initiating Participant agrees to guarantee the execution of the CUBE Order by submitting a contra-side order representing principal interest or interest that it has solicited to trade with the CUBE Order at a specified price (``single stop price'') or by utilizing the auto-match or auto-match limit features set forth in Rule 971.1NY.\5\ --------------------------------------------------------------------------- \4\ See Rule 971.1NY. See also Securities Exchange Act Release No. 72025 (April 25, 2014), 79 FR 24779 (May 1, 2014) (NYSEMKT-2014- 17). \5\ See Rule 971.1NY(c)(1)(A)-(C). --------------------------------------------------------------------------- Two aspects of the CUBE were approved by the Commission on a pilot basis (``CUBE Pilot''): (1) Rule 971.1NY(b)(1)(B), which establishes the permissible range of executions for CUBE Auctions for fewer than 50 contracts; \6\ and (2) Rule 971.1NY(b)(8), which establishes the minimum size for a CUBE Auction as one contract. In connection with the CUBE Pilot, the Exchange has provided certain data to the Commission to provide supporting evidence that, among other things, there is meaningful competition for all size orders within the CUBE Auction and that there is an active and liquid market functioning on the Exchange outside of the CUBE Auction.\7\ The CUBE Pilot is currently set to expire on January 18, 2017.\8\ --------------------------------------------------------------------------- \6\ Rule 971.1NY(b)(1) sets forth the permissible range of executions for a CUBE Order. Generally, a CUBE Order for 50 or more contracts may be executed at a price equal to or better than the National Best Bid and Offer (``NBBO'') on the contra side of the market and equal to or better than the NBBO on its own side of the market as long as there is no Customer order in the Exchange's Consolidated Book at that price on that side. See Rule 971.1NY(a) and (b)(1)(A). Pursuant to the CUBE Pilot, a CUBE Order for fewer than 50 contracts is subject to a tighter range of permissible executions. Specifically, if the CUBE Order is for fewer than 50 contracts, the execution price must be at least $0.01 better than any displayed interest in the Exchange's Consolidated Book. See Rule 971.1NY(a) and (b)(1)(B). \7\ See Commentary .01 to Rule 971.1NY. \8\ See Securities Exchange Act Release No. 78324 (July 14, 2016), 81 FR 47196 (July 20, 2016) (SR-NYSEMKT-2016-69). --------------------------------------------------------------------------- As described more fully below, the Exchange proposes to amend Rule 971.1NY to provide that CUBE Orders for fewer than 50 contracts entered when the NBBO is $0.01 wide will be rejected, unless the Initiating Participant guarantees the CUBE Order price improvement. With this proposed modification to CUBE Auctions for fewer than 50 contracts, the Exchange proposes that the CUBE Pilot be made permanent. In support of its proposal, the Exchange has provided the Commission with data for CUBE executions for the period from January through June 2015 (``CUBE Data''),\9\ as analyzed in summary below. --------------------------------------------------------------------------- \9\ See Exhibit 3 to SR-NYSEMKT-2016-120. --------------------------------------------------------------------------- A. Modification of CUBE Eligibility Requirements The Exchange proposes to modify Rule 971.1NY to require price improvement for CUBE Orders for fewer than 50 contracts when the NBBO is $0.01 wide. Currently, Rule 971.1NY(b)(6) provides that CUBE Orders for fewer than 50 contracts that are submitted when the Exchange best bid and offer (``BBO'') is $0.01 wide will be rejected. This requirement will be retained. The Exchange, however, proposes to amend Rule 971.1NY(b)(6) to add that CUBE Orders for fewer than 50 contracts entered when the NBBO is $0.01 wide also will be rejected (i.e., whether or not the Exchange BBO is the same as the NBBO)--unless the Initiating Participant guarantees the execution of the CUBE Order to buy (sell) at a price that is equal to the NBO minus $0.01 (NBB plus $0.01), utilizing a single stop price, auto-match, or auto-match limit as specified in Rule 971.1NY(c)(1)(A)-(C).\10\ --------------------------------------------------------------------------- \10\ The proposal would not alter the separate price improvement requirement set forth in Rule 971.1NY(b)(1)(B), which, read in conjunction with Rule 971.1NY(a), establishes that the range of permissible execution prices for CUBE Orders of fewer than 50 contracts would be equal to or better than the NBBO and at least $0.01 better than any displayed interest in the Exchange's Consolidated Book. --------------------------------------------------------------------------- Although the Exchange continues to believe that the CUBE Auction provides opportunities for price improvement of CUBE Orders of fewer than 50 contracts when the NBBO has a bid/ask differential of $0.01, the Exchange states that the data have not demonstrated significant price improvement in this narrow circumstance.\11\ The Exchange notes that 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. According to the Exchange, 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 price improvement, particularly for small orders, the Exchange is proposing to require that Initiating Participants guarantee price improvement for CUBE Orders for fewer than 50 contracts when the NBBO is $0.01 wide; otherwise, the CUBE Order will be rejected. --------------------------------------------------------------------------- \11\ See Notice, supra note 3 at 94439. See also Exhibit 3 to SR-NYSEMKT-2016-120. --------------------------------------------------------------------------- B. Making the CUBE Pilot Permanent The Exchange has analyzed the CUBE Data and believes that it 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.\12\ Specifically, between January and June 2015, a total of 4,493,429 contracts were executed in CUBE Auctions. According to the Exchange, Market Makers and other participants submitted competitive bids and offers during the CUBE Auction's Response Time Interval, and thereby indicated interest in participating in CUBE Auction trades. In addition, the Exchange believes that the allocation of orders executed in CUBE Auctions (either at a single price [[Page 8466]] or multiple prices) supports competitive bidding and offering. --------------------------------------------------------------------------- \12\ See Notice, supra note 3 at 94439. --------------------------------------------------------------------------- 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.\13\ The Exchange points out that competitive bidding and offering occurs outside of the 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. --------------------------------------------------------------------------- \13\ From January 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 CUBE Auctions. --------------------------------------------------------------------------- As discussed above, the Exchange continues to believe that the CUBE Auction provides opportunities for price improvement of CUBE Orders of fewer than 50 contracts when the NBBO has a bid/ask differential of $0.01 (for one reason, because the market conditions may change during the CUBE Auction). However, because the data have not demonstrated significant price improvement in this circumstance,\14\ the Exchange has proposed to require that Initiating Participants guarantee price improvement for CUBE Orders for fewer than 50 contracts when the NBBO has a bid/ask differential of $0.01. --------------------------------------------------------------------------- \14\ See Notice, supra note 3 at 94439. --------------------------------------------------------------------------- The Exchange believes, however, 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. The Exchange notes that, for CUBE Auctions of fewer than 50 contracts, 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, price improvement of $0.0114, and, 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.\15\ --------------------------------------------------------------------------- \15\ See id. See also Exhibit 3 to SR-NYSEMKT-2016-120. --------------------------------------------------------------------------- Based on its analysis of the CUBE Data, including the data regarding CUBE Auctions where the NBBO spread is $0.01, the Exchange believes that the CUBE Auction, as modified by the proposed revision to Rule 971.1NY(b)(6), 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.\16\ Thus, the Exchange believes that it would be beneficial to customers and to the options market to make permanent the CUBE Pilot, with the modification for CUBE Auctions of fewer than 50 contracts where the NBBO spread is $0.01. Once permanent, the CUBE Auction would continue to accept orders of fewer than 50 contracts, provided such orders comply with amended Rule 971.1NY(b)(6), which should continue to attract small orders and promote competition and price improvement opportunities for such CUBE Orders. --------------------------------------------------------------------------- \16\ See Notice, supra note 3 at 94439. --------------------------------------------------------------------------- III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, with Section 6(b) of the Act.\17\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\18\ which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect customers, issuers, brokers and dealers. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f(b). In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \18\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- As part of its proposal, the Exchange provided summary data on Exhibit 3 of its filing for the period January through June 2015, which the Exchange and Commission both publicly posted on their respective Web sites. Among other things, this data is useful in assessing the level of price improvement in the auction, in particular for orders of fewer than 50 contracts; the degree of competition for order flow in such auctions; and a comparison of liquidity in the auctions with liquidity on the Exchange generally.\19\ Based on the data provided by the Exchange, the Commission believes that the Exchange's price improvement auction generally delivers a meaningful opportunity for price improvement to orders, including orders for fewer than 50 contracts, when the spread in the option is $0.02 or more. At the same time, as the Exchange has recognized, the data do not demonstrate that such orders have realized significant price improvement when the NBBO has a bid/ask differential of $0.01.\20\ Recognizing this, the Exchange has proposed to amend the auction eligibility requirements to reject any CUBE Order where the NBBO has a bid/ask differential of $0.01, whether or not the Exchange BBO is the same as the NBBO, unless the Initiating Participant guarantees at least $0.01 of price improvement.\21\ --------------------------------------------------------------------------- \19\ See Exhibit 3 to SR-NYSEMKT-2016-120. \20\ See Notice, supra note 3 at 94439. \21\ The Exchange will continue to reject CUBE Orders for fewer than 50 contracts when the BBO is $0.01 wide. See Rule 971.1NY(b)(6). --------------------------------------------------------------------------- The Exchange's proposal to modify the auction eligibility requirements for orders of fewer than 50 contracts and seek permanent approval of the CUBE Pilot, as amended with the new provision, will, in the Commission's view, promote opportunities for price improvement for such orders when the NBBO is $0.01 wide, while continuing to provide opportunities for price improvement when spreads are wider than $0.01. The Commission believes that, particularly for auctions for fewer than 50 contracts when the bid/ask differential is wider than $0.01, the data provided by the Exchange support its proposal to make the CUBE Pilot permanent. The data demonstrate that the auction generally provides price improvement opportunities to orders, including orders of retail customers and particularly when the bid/ask differential is wider than $0.01, that there is meaningful competition for orders on the Exchange; and that there exists an active and liquid market functioning on the Exchange outside of the auction.\22\ The Commission further believes that the proposed revision to the eligibility requirements for orders of fewer than 50 contracts with respect to circumstances when the NBBO is no more than $0.01 wide should help to enhance the operation of the auction by providing meaningful opportunities for price improvement in such circumstances, and should benefit investors and others in a manner that is consistent with the Act. Thus, the Commission has determined to approve the Exchange's proposed revisions to Rule 971.1NY(b)(6) and Commentary .01 to Rule 971.1NY and to approve the [[Page 8467]] CUBE Pilot, as proposed to be modified, on a permanent basis. --------------------------------------------------------------------------- \22\ See Exhibit 3 to SR-NYSEMKT-2016-120. --------------------------------------------------------------------------- IV. Accelerated Approval of Proposed Rule Change The Exchange has requested that the Commission find good cause for approving the proposed rule change prior to the 30th day after publication of the notice thereof in the Federal Register. The Exchange stated that accelerated approval of its proposal would allow the applicable rules to remain in effect following the expiration of the CUBE Pilot on January 18, 2017, which would avoid any potential investor confusion that could result from a suspension or temporary interruption in the CUBE Pilot. For this reason, the Commission believes that good cause exists for accelerated approval of the proposed rule change. The Commission further notes that the original proposal was subject to a 21 day comment period and no comments were received on the proposal. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,\23\ to approve the proposed rule change prior to the 30th day after the date of publication of the notice of filing thereof in the Federal Register. --------------------------------------------------------------------------- \23\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\24\ that the proposed rule change (SR-NYSEMKT-2016-120), be and hereby is approved on an accelerated basis. --------------------------------------------------------------------------- \24\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\25\ --------------------------------------------------------------------------- \25\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-01609 Filed 1-24-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 15 / Wednesday, January 25, 2017 / Notices 8465
SECURITIES AND EXCHANGE basis (‘‘CUBE Pilot’’): (1) Rule to add that CUBE Orders for fewer than
COMMISSION 971.1NY(b)(1)(B), which establishes the 50 contracts entered when the NBBO is
permissible range of executions for $0.01 wide also will be rejected (i.e.,
[Release No. 34–79830; File No. SR–
NYSEMKT–2016–120]
CUBE Auctions for fewer than 50 whether or not the Exchange BBO is the
contracts; 6 and (2) Rule 971.1NY(b)(8), same as the NBBO)—unless the
Self-Regulatory Organizations; NYSE which establishes the minimum size for Initiating Participant guarantees the
MKT LLC; Order Granting Accelerated a CUBE Auction as one contract. In execution of the CUBE Order to buy
Approval of a Proposed Rule Change connection with the CUBE Pilot, the (sell) at a price that is equal to the NBO
To Amend NYSE MKT Rule 971.1NY Exchange has provided certain data to minus $0.01 (NBB plus $0.01), utilizing
and Make Permanent the Aspects of the Commission to provide supporting a single stop price, auto-match, or auto-
Customer Best Execution Auction That evidence that, among other things, there match limit as specified in Rule
Are Subject to a Pilot is meaningful competition for all size 971.1NY(c)(1)(A)–(C).10
orders within the CUBE Auction and Although the Exchange continues to
January 18, 2017. that there is an active and liquid market believe that the CUBE Auction provides
I. Introduction functioning on the Exchange outside of opportunities for price improvement of
the CUBE Auction.7 The CUBE Pilot is CUBE Orders of fewer than 50 contracts
On December 16, 2016, NYSE MKT currently set to expire on January 18, when the NBBO has a bid/ask
LLC (‘‘Exchange’’ or ‘‘NYSE MKT’’) filed 2017.8 differential of $0.01, the Exchange states
with the Securities and Exchange As described more fully below, the that the data have not demonstrated
Commission (‘‘Commission’’), pursuant Exchange proposes to amend Rule significant price improvement in this
to the provisions of Section 19(b)(1) of 971.1NY to provide that CUBE Orders narrow circumstance.11 The Exchange
the Securities Exchange Act of 1934 for fewer than 50 contracts entered notes that between January and June
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a when the NBBO is $0.01 wide will be 2015, a total of 171,822 contracts were
proposed rule change to amend certain rejected, unless the Initiating Participant executed in CUBE Auctions for fewer
eligibility requirements of NYSE MKT guarantees the CUBE Order price than 50 contracts when the NBBO had
Rule 971.1NY (‘‘Rule 971.1NY’’) that improvement. With this proposed a bid/ask differential of $0.01.
govern its Customer Best Execution modification to CUBE Auctions for According to the Exchange, only 1,660
Auction (‘‘CUBE’’ or ‘‘CUBE Auction’’) fewer than 50 contracts, the Exchange of those contracts received price
and to make permanent the provisions proposes that the CUBE Pilot be made improvement of $0.01. Thus, consistent
of Rule 971.1NY that currently operate permanent. In support of its proposal, with the Exchange’s view that price
on a pilot basis. The proposed rule the Exchange has provided the improvement auctions should provide
change was published for comment in Commission with data for CUBE price improvement, particularly for
the Federal Register on December 23, executions for the period from January small orders, the Exchange is proposing
2016.3 The Commission received no through June 2015 (‘‘CUBE Data’’),9 as to require that Initiating Participants
comments regarding the proposal. This analyzed in summary below. guarantee price improvement for CUBE
order approves the proposed rule Orders for fewer than 50 contracts when
A. Modification of CUBE Eligibility
change on an accelerated basis. the NBBO is $0.01 wide; otherwise, the
Requirements
II. Description of the Proposal CUBE Order will be rejected.
The Exchange proposes to modify
CUBE is an electronic crossing Rule 971.1NY to require price B. Making the CUBE Pilot Permanent
mechanism for single-leg orders that is improvement for CUBE Orders for fewer The Exchange has analyzed the CUBE
designed to provide the opportunity for than 50 contracts when the NBBO is Data and believes that it indicates that
price improvement for paired orders of $0.01 wide. Currently, Rule there is meaningful competition in
any size.4 To commence a CUBE 971.1NY(b)(6) provides that CUBE CUBE Auctions for all size orders,
Auction, an ATP Holder (‘‘Initiating Orders for fewer than 50 contracts that regardless of the size of the order or the
Participant’’) may electronically submit are submitted when the Exchange best bid/ask differential of the NBBO.12
for execution a limit order that it bid and offer (‘‘BBO’’) is $0.01 wide will Specifically, between January and June
represents as agent on behalf of a public be rejected. This requirement will be 2015, a total of 4,493,429 contracts were
customer, broker dealer, or any other retained. The Exchange, however, executed in CUBE Auctions. According
entity (‘‘CUBE Order’’). The Initiating proposes to amend Rule 971.1NY(b)(6) to the Exchange, Market Makers and
Participant agrees to guarantee the other participants submitted
execution of the CUBE Order by 6 Rule 971.1NY(b)(1) sets forth the permissible competitive bids and offers during the
submitting a contra-side order range of executions for a CUBE Order. Generally, a CUBE Auction’s Response Time
CUBE Order for 50 or more contracts may be
representing principal interest or executed at a price equal to or better than the Interval, and thereby indicated interest
interest that it has solicited to trade with National Best Bid and Offer (‘‘NBBO’’) on the contra in participating in CUBE Auction trades.
the CUBE Order at a specified price side of the market and equal to or better than the In addition, the Exchange believes that
NBBO on its own side of the market as long as there the allocation of orders executed in
(‘‘single stop price’’) or by utilizing the is no Customer order in the Exchange’s
auto-match or auto-match limit features Consolidated Book at that price on that side. See CUBE Auctions (either at a single price
set forth in Rule 971.1NY.5 Rule 971.1NY(a) and (b)(1)(A). Pursuant to the
Two aspects of the CUBE were CUBE Pilot, a CUBE Order for fewer than 50 10 The proposal would not alter the separate price
approved by the Commission on a pilot contracts is subject to a tighter range of permissible improvement requirement set forth in Rule
executions. Specifically, if the CUBE Order is for 971.1NY(b)(1)(B), which, read in conjunction with
mstockstill on DSK3G9T082PROD with NOTICES
fewer than 50 contracts, the execution price must Rule 971.1NY(a), establishes that the range of
1 15 U.S.C. 78s(b)(1). be at least $0.01 better than any displayed interest permissible execution prices for CUBE Orders of
2 17 CFR 240.19b–4. in the Exchange’s Consolidated Book. See Rule fewer than 50 contracts would be equal to or better
3 See Securities Exchange Act Release No. 79599 971.1NY(a) and (b)(1)(B). than the NBBO and at least $0.01 better than any
(December 19, 2016), 81 FR 94437 (‘‘Notice’’). 7 See Commentary .01 to Rule 971.1NY. displayed interest in the Exchange’s Consolidated
4 See Rule 971.1NY. See also Securities Exchange 8 See Securities Exchange Act Release No. 78324 Book.
Act Release No. 72025 (April 25, 2014), 79 FR (July 14, 2016), 81 FR 47196 (July 20, 2016) (SR– 11 See Notice, supra note 3 at 94439. See also
24779 (May 1, 2014) (NYSEMKT–2014–17). NYSEMKT–2016–69). Exhibit 3 to SR–NYSEMKT–2016–120.
5 See Rule 971.1NY(c)(1)(A)–(C). 9 See Exhibit 3 to SR–NYSEMKT–2016–120. 12 See Notice, supra note 3 at 94439.
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![Federal Register / Vol. 82, No. 15 / Wednesday, January 25, 2017 / Notices 8467
CUBE Pilot, as proposed to be modified, SECURITIES AND EXCHANGE Temporary Exemptions’’). The
on a permanent basis. COMMISSION expiration dates for the Linked
Temporary Exemptions established by
IV. Accelerated Approval of Proposed [Release No. 34–79833; File No. S7–27–11]
the Extension Order were the
Rule Change compliance dates for the specific
Order Extending Certain Temporary
The Exchange has requested that the Exemptions Under the Securities rulemakings to which they were
Commission find good cause for Exchange Act of 1934 in Connection ‘‘linked,’’ and the expiration date for the
With the Revision of the Definition of Unlinked Temporary Exemptions was
approving the proposed rule change
‘‘Security’’ To Encompass Security- three years following the effective date
prior to the 30th day after publication of
Based Swaps and Request for of the Extension Order (i.e., February 5,
the notice thereof in the Federal
Comment 2017), or such time that the Commission
Register. The Exchange stated that issues an order or rule determining
accelerated approval of its proposal January 18, 2017. whether continuing exemptive relief is
would allow the applicable rules to appropriate for security-based swaps
remain in effect following the expiration I. Introduction
with respect to any such Unlinked
of the CUBE Pilot on January 18, 2017, The Securities and Exchange Temporary Exemptions.
which would avoid any potential Commission (‘‘Commission’’) is (i) As described in more detail below,
investor confusion that could result extending certain temporary exemptive the Commission is extending the
from a suspension or temporary relief originally provided by the expiration date for the Unlinked
interruption in the CUBE Pilot. For this Commission in connection with the Temporary Exemptions until February
reason, the Commission believes that revision of the definition of ‘‘security’’ 5, 2018. This approach provides the
good cause exists for accelerated in the Securities Exchange Act of 1934 Commission flexibility to determine
approval of the proposed rule change. (‘‘Exchange Act’’) to encompass whether continuing relief should be
The Commission further notes that the security-based swaps (‘‘Temporary provided for any Unlinked Temporary
original proposal was subject to a 21 day Exemptions’’); 1 and (ii) requesting Exemptions while the Commission
comment period and no comments were comment on whether continuing continues to consider the relevant rules
received on the proposal. Accordingly, exemptive relief is necessary beyond mandated by the Dodd-Frank Wall
the Commission finds good cause, February 5, 2018. These temporary Street Reform and Consumer Protection
pursuant to Section 19(b)(2) of the exemptions were provided by the Act.4 This release has no effect on the
Commission on July 1, 2011 and most expiration dates for the Linked
Act,23 to approve the proposed rule
recently extended by the Commission Temporary Exemptions.5
change prior to the 30th day after the
on February 5, 2014.2 Certain of the
date of publication of the notice of filing II. Discussion
Temporary Exemptions are set to expire
thereof in the Federal Register. on February 5, 2017.3 A. Background
V. Conclusion The expiration dates in the Extension
Order distinguished between: (i) The Title VII of the Dodd-Frank Act
It is therefore ordered, pursuant to Temporary Exemptions related to amended the definition of ‘‘security’’
Section 19(b)(2) of the Act,24 that the pending security-based swap under the Exchange Act to expressly
proposed rule change (SR–NYSEMKT– rulemakings (‘‘Linked Temporary encompass security-based swaps.6 The
2016–120), be and hereby is approved Exemptions’’); and (ii) the Temporary expansion of the definition of the term
on an accelerated basis. Exemptions that generally were not ‘‘security’’ changed the scope of the
directly related to a specific security- Exchange Act regulatory provisions that
For the Commission, by the Division of
based swap rulemaking (‘‘Unlinked apply to security-based swaps and
Trading and Markets, pursuant to delegated
authority.25 1 See Order Granting Temporary Exemptions 4 The Dodd-Frank Wall Street Reform and
under the Securities Exchange Act of 1934 in Consumer Protection Act, Public Law 111–203, 124,
Eduardo A. Aleman, Connection with the Pending Revisions of the Stat. 1376 (2010) (‘‘Dodd-Frank Act’’).
Definition of ‘‘Security’’ to Encompass Security- 5 The Commission has already addressed some of
Assistant Secretary.
Based Swaps, Exchange Act Release No. 64795 (Jul. the Linked Temporary Exemptions. For example, on
[FR Doc. 2017–01609 Filed 1–24–17; 8:45 am] 1, 2011), 76 FR 39927 (Jul. 7, 2011) (‘‘Exchange Act June 8, 2016, the Commission adopted new rules for
BILLING CODE 8011–01–P Exemptive Order’’). trade acknowledgement and verification of security-
2 See Order Extending Temporary Exemptions based swap transactions. See Trade
under the Securities Exchange Act of 1934 in Acknowledgement and Verification of Security-
Connection with the Revision of the Definition of Based Swap Transactions, Exchange Act Release
‘‘Security’’ to Encompass Security-Based Swaps, No. 78011 (Jun. 8, 2016), 81 FR 39807 (Jun. 17,
and Request for Comment, Exchange Act Release 2016) (‘‘Trade Acknowledgment Release’’). In that
No. 71485 (Feb. 5, 2014), 79 FR 7731 (Feb. 10, 2014) release, the Commission described the application
(‘‘Extension Order’’); see also Further Definition of of Exchange Act Rule 10b–10 to transactions in
‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security- security-based swaps and noted that the Linked
Based Swap Agreement’’; Mixed Swaps; Security- Exemption relating to Exchange Act Rule 10b–10
Based Swap Agreement Recordkeeping, Exchange would expire upon the compliance date of the new
Act Release No. 67453 (Jul. 18, 2012), 77 FR 48207 Rule 15Fi–2. See Trade Acknowledgement Release
(Aug. 13, 2012) (‘‘Product Definitions Adopting at 39824–25, note 189.
Release’’) (extending the expiration date of the 6 See Section 761(a)(2) of the Dodd-Frank Act
Temporary Exemptions to February 11, 2013); and (amending Section 3(a)(10) of the Exchange Act (15
mstockstill on DSK3G9T082PROD with NOTICES
Order Extending Temporary Exemptions under the U.S.C. 78c(a)(10)). The provisions of Title VII
Securities Exchange Act of 1934 in Connection with generally became effective on July 16, 2011 (360
the Revision of the Definition of ‘‘Security’’ to days after the enactment of the Dodd-Frank Act)
Encompass Security-Based Swaps, and Request for (the ‘‘Effective Date’’), unless a provision required
Comment, Exchange Act Release No. 68864 (Feb. 7, a rulemaking, in which case the provision would
2013), 78 FR 10218 (Feb. 13, 2013) (‘‘2013 go into effect ‘‘not less than’’ 60 days after
23 15 U.S.C. 78s(b)(2). Extension Order’’) (extending the expiration date to publication of the related final rules in the Federal
24 15 U.S.C. 78s(b)(2). February 11, 2014). Register or on July 16, 2011, whichever is later. See
25 17 CFR 200.30–3(a)(12). 3 See Extension Order. Section 774 of the Dodd-Frank Act.
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| 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 | 82 FR 8465 |
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