Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”) and Rule 19b-4 thereunder, notice is hereby given that on January 4, 2016, New York Stock Exchange LLC (“NYSE” or the “Exchange”) filed with the Securities and Exchange Commission (the “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.
15 U.S.C. 78a.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 132.30(9) to conform the Exchange's rules to industry-wide standards for the recording the capacity in which a member organization executes a transaction. The proposed rule change is available on the Exchange's Web site at www.nyse.com,, at the principal office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Supplementary Material .30 of Rule 132 to conform the Exchange's rules to industry-wide standards for recording the capacity in which a member organization executes a transaction. To effect this change, the Exchange would eliminate the current requirement to identify the account for which an order was executed and require instead that clearing members and member organizations submit account type indicators (“ATI”) reflecting the capacity in which the member organization executed a transaction (e.g., agency, principal or riskless principal). The Exchange believes that the proposed rule change would align the Exchange's rules with industry-wide conventions focusing on the capacity in which a broker-dealer acts in effecting a transaction and, by eliminating the complex set of ATIs developed over the years, significantly simplify order entry on the Exchange.
Background
Rule 132 requires clearing member organizations submitting transactions to comparison to include the audit trail data elements set forth in Supplementary Material .30. Rule 132.30(9) requires that all orders submitted to the Exchange include specified trade data elements, including “[w]hether the account for which the order was executed was that of a member or member organization or of a non-member or non-member organization.” The Exchange has periodically published guidance regarding the ATIs that can be used to satisfy this requirement.
See, e.g., Information Memos 85-37 (Nov. 12, 1985); 88-29 (Oct. 19, 1988); 92-34 (Nov. 13, 1992); 96-36 (Dec. 5, 1996); 02-59 (Dec. 17, 2002); 09-31 (June 24, 2009); 12-25 (October 9, 2012); 14-04 (January 30, 2014). The current list contains 24 distinct ATIs.
ATIs are included as part of the audit trail data reported for each transaction on the Exchange. The Exchange also uses ATIs to capture program trade information for those portions of the program trades that are submitted to and executed on the Exchange. Since 2009, the Exchange has used ATI data to report program trading statistics for portions of program trades executed on the Exchange to the Commission on a weekly basis.
Prior to 2009, member organizations reported program trading activity to the Exchange via the Daily Program Trading Report (“DPTR”). See Securities Exchange Act Release No. 60179 (June 26, 2009), 74 FR 31786, 31786 (July 2, 2009) (SR-NYSE-2009-61). The DPTR requirement was decommissioned in July 2009. See id. at 31787.
See id. Since the decommissioning of DPTR in 2009, weekly statistics regarding program trades the Exchange provides to media outlets have also been derived from ATI data. Id.
Proposed Rule Change
The Exchange proposes to amend the current requirement in subsection (9) of Rule 132.30 that clearing member organizations identify whether the account for which an order was executed was that of a member or member organization or of a non-member or non-member organization. The current requirement can be satisfied by entering the appropriate ATI from a list of ATIs that have evolved over the past 30 years.
See note 4, supra.
In place of this cumbersome process, the Exchange proposes to require member organizations to identify the capacity in which the member organization executed the transaction as follows: Agency, principal or riskless principal. The “principal” category would include proprietary trades by a member on the trading Floor relating to the member's error account pursuant to Rule 134.
In general, the term “capacity” refers to whether a broker-dealer acts as agent, i.e., directly on behalf of a customer, or whether the broker-dealer acts as principal, i.e., for its own account, in a transaction. A riskless principal transaction is one where a broker-dealer receives a customer order and then immediately executes an identical order in the marketplace, while taking on the role of principal, in order to fill the customer order pursuant to Rule 5320.
Rule 134 requires a member or member organization who acquires or assumes a security position resulting from an error transaction to clear such error transaction in the member's or member organization's error account, or in the error account established for a group of members. Rule 123.22 further requires members to enter orders executed to offset transactions made in error into an electronic system and sends a copy of such order to an electronic system on the Floor within 60 seconds of execution. See also Rule 123(e) (defining system entry). This type of proprietary trade is currently identified by the “Q” account type indicator, which would be retained to identify these trading Floor-based executions.
By requiring member organizations to identify the capacity in which a broker-dealer enters an order, the Exchange would be harmonizing its order entry requirements with those of other national securities exchanges. The proposed change would also simplify the order entry process at the Exchange and eliminate the requirement for member organizations to use order entry requirements unique to the Exchange, thereby reducing complexity in the marketplace. This proposed amendment would not alter a member organization's obligation to meet order audit trail system requirements, as set forth in the Rule 7400 Series.
See, e.g., BATS Exchange, Inc. (“BATS”) Rule 11.21; BATS Y-Exchange, Inc. (“BATS-Y”) Rule 11.21; EDGA Exchange, Inc. (“EDGA”) Rule 11.5; EDGX Exchange, Inc. Rule 11.5; and NASDAQ Stock Market LLC (“NASDAQ”) Rule 4611(a)(6).
In connection with this proposed rule change, the Exchange proposes to retire the unique ATIs used to capture program trading information. The Exchange currently uses program trading ATIs to capture program trading information in order to provide weekly statistics regarding program trading to both the Commission and the public. However, no other national securities exchange either captures program trading information in the same manner or has an obligation to report weekly statistics regarding program trading. Given the fragmentation in the equities market, the Exchange believes that the statistics published by the Exchange regarding program trading are incomplete and potentially misleading regarding the scope of program trading occurring in equities markets. Accordingly, the Exchange believes it would benefit investors and the public for the Exchange to cease publishing program trading information, because such information is no longer representative of program trading in the equities market and could cause confusion regarding the true scope of program trading in the U.S. equities markets.
“Program Trading” means either (1) index arbitrage, or (2) any trading strategy involving the related purchase or sale of a basket or group of 15 or more stocks. See Rule 7410(m).
The Exchange will publish an Information Memo advising member organizations of the proposed change that will provide guidance of which ATIs should be submitted in connection with agency, principal, or riskless principal capacity.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, in general, and furthers the objectives of Section 6(b)(5) of the Act, in particular, because it is designed to promote just and equitable principles of trade and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange believes that the proposed rule change would remove impediments to and perfect the mechanism of a free and open market and national market system because it would provide greater harmonization between order entry on the Exchange and other marketplaces, resulting in greater uniformity and more efficient order entry to enable member organizations to use the same order-market conventions across all equities markets. As such, the proposed rule change would foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and open market and a national market system. In addition, the Exchange believes that the proposed change to cease providing program trading statistics to the Commission and the public based on current ATIs would benefit investors and the public because no other market provides similar statistics regarding program trading on their markets. Because of the fragmentation of trading in the equities market, the Exchange believes that the proposed change would eliminate a source of incomplete information about program trading that could potentially be misleading regarding the scope of program trading in the U.S. equities markets.
15 U.S.C. 78f(b)(5).
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 rule change is not intended to address competitive issues, but rather it is designed to provide greater harmonization between Exchange and other markets in the marking of orders, resulting in less burdensome and more efficient order entry.
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 and Rule 19b-4(f)(6) thereunder. 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.
17 CFR 240.19b-4(f)(6).
A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest.
17 CFR 240.19b-4(f)(6)(iii).
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) of the Act to determine whether the proposed rule change should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
- Use the Commission's Internet comment form ( http://www.sec.gov/rules/sro.shtml ); or
- Send an email to rule-comments@sec.gov. Please include File Number SR-NYSE-2016-07 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-2016-07. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( http://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2016-07and should be submitted on or before February 3, 2016.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00463 Filed 1-12-16; 8:45 am]
BILLING CODE 8011-01-P