Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide for "Self-Trade Prevention" on the Exchange
Feb 17, 2012 (SECURITIES AND EXCHANGE COMMISSION RELEASE/ContentWorks via COMTEX) --
February 13, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act") /1/ and Rule 19b-4 thereunder, /2/ notice is hereby given that, on January 30, 2012, NYSE Amex LLC (the "Exchange" or "NYSE Amex") filed with the Securities and Exchange Commission (the "Commission") the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
FOOTNOTE 1 15 U.S.C. 78s(b)(1). END FOOTNOTE
FOOTNOTE 2 17 CFR 240.19b-4. END FOOTNOTE
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to add new Commentary .02 to NYSE Amex Options Rule 964NY (Display, Priority and Order Allocation--Trading Systems) to provide for "Self-Trade Prevention" on the Exchange. The text of the proposed rule change is available at the Exchange, the Commission's Public Reference Room, and www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
The Exchange proposes to add new Commentary .02 to NYSE Amex Options Rule 964NY (Display, Priority and Order Allocation--Trading Systems) to provide for "Self-Trade Prevention" on the Exchange. /3/ As proposed, the Exchange would cancel any resting Market Maker quote(s) and order(s) /4/ to buy (sell) that are priced equal to or higher (lower) than an incoming Market Maker quote, order or both to sell (buy) entered under the same trading permit identification. /5/ The following examples illustrate how Self-Trade Prevention would function:
FOOTNOTE 3 Self-Trade Prevention would only be applicable to electronic trading on the Exchange. END FOOTNOTE
FOOTNOTE 4 The Exchange will specify from time to time via a Regulatory Information Bulletin the Market Maker trading interest (i.e., quotes and orders) to which Self-Trade Prevention will apply. Currently, the Exchange plans to initially apply Self-Trade Prevention to the following order types used by Market Makers: "PNP Orders" and "PNP-Blind Orders." PNP Orders and PNP-Blind Orders are defined in NYSE Amex Options Rule 900.3NY, and each is a type of non-routable Limit Order that is only executed on the Exchange. The Exchange notes that Market Makers primarily use these order types, as opposed to other order types offered by the Exchange, because they are similar to quotes (i.e., they are non-routable Limit Orders). The Exchange currently plans to expand Self-Trade Prevention to other Market Maker trading interest (e.g., quotes) when certain technology changes have been completed, and would announce any such expansion through a Regulatory Information Bulletin under this proposed rule change pursuant to Commentary .02 of NYSE Amex Options Rule 964NY. In the future, the Exchange may expand Self-Trade Prevention to other orders used by Market Makers (including routable orders), and it also would announce any such changes through a Regulatory Information Bulletin under this proposed rule change pursuant to Commentary .02 of NYSE Amex Options Rule 964NY. The Exchange would submit a separate proposed rule change if it were to make Self-Trade Prevention available to non-Market Maker trading interest. END FOOTNOTE
FOOTNOTE 5 The Exchange would use a Market Maker's trading permit identification ("TPID") to monitor for self-trades in the proposed Self-Trade Prevention functionality. TPIDs are assigned to Market Makers, as well as other ATP Holders, to identify them in the Exchange's systems. Market Makers on the Exchange are not able to submit orders on an agency basis. Thus, a Market Maker within a firm that conducts both an agency and market making business would have a unique TPID that could only be used for that Market Maker's quotes and orders. END FOOTNOTE
[ ] The National Best Bid and Offer ("NBBO") for a particular option series is $1.15 (bid)--$1.20 (offer);
[ ] The Exchange Best Bid and Offer ("BBO") is $1.15 (bid)--$1.25 (offer);
[ ] A Market Maker has a single resting PNP Order to buy on the Exchange's Consolidated Book with a price of $1.15;
[ ] If the Market Maker submits a PNP Order to sell with a price of $1.15, the NYSE Amex System would cancel the Market Maker's resting PNP Order to buy with a price of $1.15. /6/
FOOTNOTE 6 Example 1 illustrates that Self-Trade Prevention would result in the cancellation of the Market Maker's resting order (or quote) to buy regardless of whether the incoming order (or quote) and the resting order (or quote) would actually execute against each other. END FOOTNOTE
[ ] The NBBO and BBO are the same as in Example 1;
[ ] A Market Maker has two separate resting PNP Orders to buy on the Exchange's Consolidated Book, with prices of $1.15 and $1.13, respectively;
[ ] If the Market Maker submits a PNP Order to sell with a price of $1.14, the NYSE Amex System would cancel the Market Maker's resting PNP Order to buy with a price of $1.15, but would not cancel the Market Maker's resting PNP Order to buy with a price of $1.13. /7/
FOOTNOTE 7 Example 2 illustrates that Self-Trade Prevention would not result in the cancellation of the Market Maker's resting order (or quote) to buy with a price of $1.13 because the price of the resting order (or quote) to buy is lower than the price of the incoming order (or quote) to sell. END FOOTNOTE
As proposed, Self-Trade Prevention would be in effect throughout the trading day for all Market Markers on the Exchange, /8/ but not during Trading Auctions. /9/ In this regard, the Exchange believes that it is highly unlikely that a Market Maker would trade against its own resting interest during a Trading Auction. Moreover, the Exchange notes that it would be difficult to implement this functionality from a technological and operational perspective because it would require the Exchange to cancel resting, executable Market Maker trading interest as it is calculating the price at which to conduct the Trading Auction. For these reasons, the Exchange is not applying Self-Trade Prevention to Trading Auctions.
FOOTNOTE 8 Market Markers on the Exchange would not have the ability to deactivate Self-Trade Prevention or change any settings related to it. END FOOTNOTE
FOOTNOTE 9 See, e.g., NYSE Amex Options Rule 952NY. END FOOTNOTE
The Exchange also proposes that Self-Trade Prevention would not be applicable to individual legs of Complex Orders. /10/ In this regard, senders of Complex Orders, including Market Makers, view them as discrete orders, serving a particular investment purpose, that are contingent on all of the legs of the Complex Order being executed. Thus, they are only interested in having all of the legs of a Complex Order executed. Because the non-execution of one leg of a Complex Order is contrary to the investment purpose of the Complex Order, the Exchange has determined to not apply Self-Trade Prevention in a manner that would prevent a Complex Order sent by a Market Maker from executing against that Market Maker's resting interest in the leg markets.
FOOTNOTE 10 See NYSE Amex Options Rule 900.3NY(e), which defines Complex Order. See also NYSE Amex Options Rule 980NY, which describes electronic Complex Order trading. END FOOTNOTE
The Exchange notes that Self-Trade Prevention would not relieve or modify a Market Maker's obligations under the Exchange's Rules, such as the Market Maker's quoting obligations, or any other rules and regulations to which the Market Maker is subject.
The Exchange believes that the proposed Self-Trade Prevention is very similar to functionality currently offered by the Nasdaq Options Market ("NOM"). In particular, NOM provides market makers on its market with an "anti-internalization" functionality, whereby quotes and orders entered by NOM market makers using the same market participant identifier will not be executed against quotes and orders entered on the opposite side of the market by the same market maker using the same identifier, but instead the NOM system will cancel the oldest of the quotes or orders back to the entering party prior to execution. /11/ Similarly, the Chicago Board Options Exchange ("CBOE") provides for a market-maker trade prevention order, which is a market maker immediate-or-cancel order that, if it would trade against a resting quote or order for the same market-maker, is cancelled along with the resting quote or order. /12/ Additionally, NYSE Arca Equities provides for a self trade prevention order modifier that prevents orders so designated from executing against resting opposite side orders entered under the same equity trading permit identification that are also designated with the modifier. /13/ The change proposed herein would therefore provide Market Makers with a method of managing their trading interest that is similar to functionalities that are currently available on other markets.
FOOTNOTE 11 See Chapter VI, Section 10(6) of the NOM Rules. END FOOTNOTE
FOOTNOTE 12 See CBOE Rule 6.53(c)(v). END FOOTNOTE
--This is a summary of a Federal Register article originally published on the page number listed below--
Citation: "77 FR 9719"
Document Number: "Release No. 34-66385; File No. SR-NYSEAmex-2012-03"
Federal Register Page Number: "9719"
[ Back To SIP Phones Homepage's Homepage ]