[Federal Register Volume 77, Number 228 (Tuesday, November 27, 2012)]
[Notices]
[Page 70747]
[FR Doc No: 2012-28749]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. EL13-22-000]

PacifiCorp v. Western Electricity Coordinating Council, Los
Angeles Department of Water and Power; Notice of Complaint

    Take notice that on November 16, 2012, pursuant to Rule 206 of the
Rules of Practice and Procedure of the Federal Energy Regulatory
Commission (FERC or Commission), 18 CFR 385.206 (2012), and 18 CFR
39.7(f) and 39.9(a) (2012); and sections 215(e)(3) and (5) of the
Federal Power Act, 16 U.S.C. 824o(e)(3) and (5) (2006), PacifiCorp
(Complainant) filed a formal complaint against Western Electricity
Coordinating Council and Los Angeles Department of Water and Power
(collectively, Respondents) to address ongoing violations of mandatory
Reliability Standards.
    The Complainant certifies that copies of the complaint were served
on the contacts for each of the Respondents as listed on the
Commission's list of Corporate Officials.
    Any person desiring to intervene or to protest this filing must
file in accordance with Rules 211 and 214 of the Commission's Rules of
Practice and Procedure (18 CFR 385.211 and 385.214). Protests will be
considered by the Commission in determining the appropriate action to
be taken, but will not serve to make protestants parties to the
proceeding. Any person wishing to become a party must file a notice of
intervention or motion to intervene, as appropriate. The Respondent's
answer and all interventions, or protests must be filed on or before
the comment date. The Respondent's answer, motions to intervene, and
protests must be served on the Complainants.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper using the ``eFiling'' link at http://www.ferc.gov. Persons unable to file electronically should submit an
original and 14 copies of the protest or intervention to the Federal
Energy Regulatory Commission, 888 First Street NE., Washington, DC
20426.
    This filing is accessible on-line at http://www.ferc.gov, using the
``eLibrary'' link and is available for review in the Commission's
Public Reference Room in Washington, DC. There is an ``eSubscription''
link on the web site that enables subscribers to receive email
notification when a document is added to a subscribed docket(s). For
assistance with any FERC Online service, please email
<EMAIL_ADDRESS>or call<PHONE_NUMBER> (toll free). For
TTY, call<PHONE_NUMBER>.
    Comment Date: 5:00 p.m. Eastern Time on December 6, 2012.

    Dated: November 20, 2012.
Kimberly D. Bose,
Secretary.
[FR Doc. 2012-28749 Filed 11-26-12; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 76, Number 42 (Thursday, March 3, 2011)]
[Notices]
[Pages 11832-11834]
[FR Doc No: 2011-4722]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63968; File No. SR-NASDAQ-2011-030]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt New Rule 4763 To Implement the Amendments to Regulation SHO

February 25, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on February 22, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been substantially prepared by
the Exchange. 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\ 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, pursuant to Section 19(b)(1) of the Act \3\ and Rule
19b-4 \4\ thereunder, proposes to adopt new Rule 4763 as a written
policy or procedure to implement the amendments to Rules 200(g) and 201
of Regulation SHO.\5\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 17 CFR 242.200(g); 17 CFR 242.201. See Securities Exchange
Act Release No. 61595 (Feb. 26, 2010), 75 FR 11232 (Mar. 10, 2010)
(``Adopting Release'') (amending Rules 201 and 200 of Regulation SHO
to adopt a short sale price test restriction and ``short exempt''
marking requirement). See also Securities Exchange Act Release No.
63247 (Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010) (extending the
compliance date of the amendments to Rules 201 and 200 of Regulation
SHO until February 28, 2011).
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    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaq.cchwallstreet.com/NASDAQ/Filings/, 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 Exchange 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
Exchange has prepared summaries, set forth in sections A, B, and C
below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On February 26, 2010, the Commission adopted amendments to Rules
200(g) and 201 of Regulation SHO.\6\ The amendments became effective on
May 10, 2010, and compliance is required by February 28, 2011.\7\ The
amendments to Rule 201 of Regulation SHO require trading centers \8\
such as NASDAQ to establish, maintain, and enforce certain written
policies and procedures reasonably designed to comply with the rule.\9\
NASDAQ is proposing to adopt new Rule 4763 as a written policy and
procedure to implement the amendments to Rules 200(g) and 201 of
Regulation SHO.
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    \6\ See supra note 5.
    \7\ Id.
    \8\ Rule 201(a)(9) states the term ``trading center'' will have
the same meaning as in Rule 600(b)(78). 17 CFR 242.201(a)(9). Rule
600(b)(78) of Regulation NMS defines a ``trading center'' as ``a
national securities exchange or national securities association that
operates an SRO trading facility, an alternative trading system, an
exchange market maker, an OTC market maker, or any other broker or
dealer that executes orders internally by trading as principal or
crossing orders as agent.'' 17 CFR 242.600(b)(78).
    \9\ See 17 CFR 242.201(b). The amendments to Rule 200(g) of
Regulation SHO provide a ``short exempt'' marking requirement. See
17 CFR 242.200(g).
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    Proposed Rule 4763(a) defines the terms ``covered security,''
``listing market,'' and ``national best bid'' as having the same
meaning as such terms have in Rule 201 of Regulation SHO.\10\
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    \10\ See Rule 201(a) of Regulation SHO. The System will utilize
the national best bid from the systems information processor. Rule
201(a)(1) defines ``covered security'' to mean any ``NMS stock'' as
defined under Rule 600(b)(47) of Regulation NMS. 17 CFR
242.201(a)(1). Rule 600(b)(47) of Regulation NMS defines an ``NMS
stock'' as ``any NMS security other than an option.'' 17 CFR
242.600(b)(47). Rule 600(b)(46) of Regulation NMS defines an ``NMS
security'' as ``any security or class of securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan, or an effective
national market system plan for reporting transactions in listed
options.'' 17 CFR 242.600(b)(46).
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    Under Proposed Rule 4763(b), entitled ``Short Sale Price Test,''
the System \11\ will not execute or display a short sale order with
respect to a covered security at a price that is less than or equal to
the current national best bid if the price of that security decreases
by 10% or more from the security's closing price on the listing market
as of the end of

regular trading hours on the prior day (``Trigger Price'').\12\ For
covered securities for which NASDAQ is the listing market, the NASDAQ
Official Closing Price (``NOCP'') for each security is established by
the NASDAQ Closing Cross pursuant to procedures set forth in Rule
4754.\13\
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    \11\ See NASDAQ Rule 4751(a). The term ``Nasdaq Market Center''
or ``System'' shall mean the automated system for order execution
and trade reporting owned and operated by NASDAQ.
    \12\ See Rule 201(b)(1)(i) of Regulation SHO. Such execution or
display needs to be in compliance with applicable rules concerning
minimum pricing increments. See 17 CFR 242.612.
    \13\ See NASDAQ Rule 4754. The NASDAQ Closing Cross will begin
at 4 p.m. EST. The process begins at 3:50 p.m. EST, when NASDAQ
begins to electronically disseminate order imbalance indicator
messages every 5 seconds, to which participants may send orders in
response. This occurs until 4 p.m. EST when the NASDAQ Closing Cross
is executed by bringing together all of NASDAQ's order books at a
single price which maximizes the number of shares of eligible
interest that can be executed.
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    Under Proposed Rule 4763(c), Determination of Trigger Price, NASDAQ
will continuously compare each execution by the System with the NOCP
\14\ and alert the single plan processor \15\ when a Trigger Price has
been reached.\16\ The single plan processor will then disseminate a
notice to market participants in accordance with procedures established
by the single plan processor.\17\ When the single plan processor
disseminates such notice, NASDAQ will systematically apply the short
sale price test restriction for short sale orders in the covered
security in the manner described in Proposed Rule 4763(b).
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    \14\ Under Proposed Rule 4763(c)(2), if a covered security did
not trade on NASDAQ on the prior trading day (due to a trading halt,
trading suspension, or otherwise), NASDAQ's determination of the
Trigger Price shall be based on the last sale price on the Exchange
for that security on the most recent day on which the security
traded. See also Division of Trading and Markets: Responses to
Frequently Asked Questions Concerning Rule 201 of Regulation SHO,
Q&A No. 3.1
    \15\ See 17 CFR 242.201(a)(6).
    \16\ See Rule 201(b)(3) of Regulation SHO. See Division of
Trading and Markets: Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO, Q&A No. 1.1 (explaining
calculation of the Trigger Price).
    \17\ See NASDAQ UTP Vendor Alert 2010-9 (July 15, 2010),
available at http://www.nasdaqtrader.com/TraderNews.aspx?id=uva2010-009.
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    Under Proposed Rule 4763(d), Duration of Short Sale Price Test,
once triggered, the short sale price test restriction shall remain in
effect until the next trading day when a national best bid for the
covered security is calculated and disseminated on a current and
continuing basis by a plan processor pursuant to an effective national
market system,\18\ as provided for in Regulation SHO Rule 201(b)(1)(ii)
(the ``Short Sale Period''). There are two exceptions in the proposed
rule.\19\ First, if the Exchange determines pursuant to Proposed Rule
4763(d)(1) that the short sale price test restriction for a covered
security was triggered because of a clearly erroneous execution,\20\
NASDAQ may lift the short sale price test restriction before the Short
Sale Period ends for covered securities for which the Exchange is the
listing market.\21\ Second, if NASDAQ determines pursuant to Proposed
Rule 4763(d)(2) that the prior day's closing price for a covered
security is incorrect in the System and resulted in an incorrect
determination of the Trigger Price, the Exchange may correct the prior
day's NOCP and lift the short sale price test restriction before the
Short Sale Period ends.
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    \18\ See 17 CFR 242.201(b)(1)(ii). See also Division of Trading
and Markets: Responses to Frequently Asked Questions Concerning Rule
201 of Regulation SHO, Q&A No. 2.1.
    \19\ If the price of a covered security declines intra-day by at
least 10% on a day on which the security is already subject to the
short sale price test restriction of Rule 201, the restriction will
be re-triggered and, therefore, will continue in effect for the
remainder of that day and the following day. See Adopting Release,
75 FR at 11253, n. 290. In addition, Rule 201 does not place any
limit on the frequency or number of times the circuit breaker can be
re-triggered with respect to a particular stock. See Division of
Trading and Markets: Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO, Q&A No. 2.2.
    \20\ See NASDAQ Rule 4762 which cross-references NASDAQ Rule
11890 for the standard of determining when a trade is ``clearly
erroneous.'' The terms of a transaction executed on NASDAQ are
``clearly erroneous'' when there is an obvious error in any term,
such as price, number of shares or other unit of trading, or
identification of the security. A transaction made in clearly
erroneous error and cancelled by both parties or determined by
NASDAQ to be clearly erroneous will be removed from the consolidated
tape.
    \21\ See 17 CFR 242.201(a)(3).
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    Under Proposed Rule 4763(e), Re-pricing of Orders during Short Sale
Period, during a Short Sale Period, short sale orders that are limited
to the current national best bid or lower and short sale market orders
will be re-priced by the System one minimum allowable price increment
above the current national best bid (``Permitted Price''). To reflect
declines in the national best bid, the Exchange will continue to re-
price a short sale order at the lowest Permitted Price down to the
order's original limit price, or if a market order, until the order is
filled. Non-displayed orders between the NASDAQ bid and offer at the
time of receipt will also be re-priced upward to a Permitted Price to
correspond with a rise in the national best bid. During the Short Sale
Period, immediate or cancel (``IOC'') orders requiring that all or part
of the order be executed immediately will be executed to the extent
possible at a Permitted Price and higher and then cancelled, and will
not be re-priced. Inter-market sweep orders not marked ``short exempt''
will be handled in the same manner as IOC orders.
    Also during the Short Sale Period, Limit-on-Open and Market-on-Open
Orders defined in NASDAQ Rule 4752(a)(3) and (a)(4) and Limit-on-Close
and Market-on-Close Orders defined in NASDAQ Rule 4754(a)(4) and (a)(5)
shall be re-priced as described above unless the spread between the
national best bid and offer is $0.01.\22\ In that case, such orders
shall be converted to Mid-Point Peg Orders defined in NASDAQ Rule
4751(f)(4). Once converted, such orders will be priced at the midpoint
of the national best bid and offer and may execute in sub-pennies if
necessary to obtain a midpoint price.\23\ Converting and re-pricing on-
open and on-close orders will facilitate that such orders are permitted
to execute in the critical opening and closing crosses. As noted in the
Adopting Release, the ``short sale price test restrictions of Rule 201
will accommodate matching systems that execute trades at an
independently-derived price because such systems are designed so that
matches occur above the current national best bid.'' \24\
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    \22\ In the event of a locked market, the short sale on-open or
on-close orders will be re-priced one minimum allowable price
increment above the current national best bid.
    \23\ Re-pricing of orders, including conversion to midpoint
orders in the case of on-open and on-close orders, occurs
simultaneously with the execution of the opening and closing
crosses. NASDAQ's system takes a snapshot of the orders on the book
and the current national best bid, validates for compliance with
Rule 201 of Regulation SHO, and simultaneously executes all orders
that are available for execution at the crossing price.
    \24\ See Adopting Release, 75 FR 11232, at fn. 242-244 and
accompanying text.
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    Pursuant to Proposed Rule 4763(f), Execution of Permissible Orders
during the Short Sale Period, during the Short Sale Period, the System
will execute and display a short sale order without regard to whether
the order is at a Permitted Price or higher if, at the time of initial
display of the short sale order, the order was at a price above the
then current national best bid. This determination is consistent with
Rule 201(b)(1)(iii)(A) of Regulation SHO. Short sale orders that are
entered into the System prior to the Short Sale Period but are not
displayed will be re-priced as described in Proposed Rule 4763(e) as
set forth above.
    Finally, under Proposed Rule 4763(g), Short Exempt Orders, during
the Short Sale Period, the System will execute and display orders
marked ``short exempt'' without regard to whether the

order is at a Permitted Price or higher.\25\ The System will accept
orders marked ``short exempt'' at any time when the System is open for
order entry regardless of whether the short sale price test has been
triggered in the covered security. NASDAQ member firms marking orders
``short exempt'' in reliance on Rule 201(c) or 201(d) are responsible
for ensuring that any such orders meet the criteria of these provisions
and are accurately marked as ``short exempt.'' \26\
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    \25\ See 17 CFR 242.201(b)(1)(iii)(B).
    \26\ See Rules 200(g)(2), 201(c) and 201(d) of Regulation SHO.
See also Division of Trading and Markets: Responses to Frequently
Asked Questions Concerning Rule 201 of Regulation SHO, Q&A Nos. 4.2,
5.4 and 5.5.
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2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\27\ which requires, among other things, the rules of an
exchange to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. The proposed
rule change also is designed to support the principles of Section
11A(a)(1) of the Act \28\ in that it seeks to assure fair competition
among brokers and dealers and among exchange markets. The Exchange
believes that the proposed rule meets these requirements in that it
implements rules adopted by the Commission in Regulation SHO under the
Act.
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    \27\ 15 U.S.C. 78f(b)(5).
    \28\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing 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 for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \29\ and Rule 19b-4(f)(6) \30\
thereunder.
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    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \31\ normally
may not become operative prior to 30 days after the date of filing.\32\
However, Rule 19b-4(f)(6)(iii) \33\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. NASDAQ has requested that the
Commission waive the 30-day operative delay so that it may implement
the change no later than February 28, 2011 to coincide with the
compliance date for the amendments to Rules 200(g) and 201 of
Regulation SHO. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposed rule change, among other things,
implements the amendments to Rules 200(g) and 201 of Regulation SHO
which have a February 28, 2011 compliance date.\34\ For this reason,
the Commission designates the proposed rule change to be operative upon
filing with the Commission.\35\
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    \31\ Id.
    \32\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to
the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing
of the proposed rule change, or such shorter time as designated by
the Commission. The Exchange has satisfied this requirement.
    \33\ Id.
    \34\ See supra note 5.
    \35\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the 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 to
determine whether the proposed rule 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 e-mail to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2011-030 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2011-030. This
file number should be included on the subject line if e-mail 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 a.m. and 3
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-NASDAQ-2011-
030 and should be submitted on or before March 24, 2011.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\

Cathy H. Ahn,
Deputy Secretary.
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    \36\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-4722 Filed 3-2-11; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: June 15, 2010 (Volume 75, Number 114)]
[Notices]
[Page 33801]
[DOCID:fr15jn10-72]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER10-1403-000]

Stephentown Regulation Services LLC; Supplemental Notice That
Initial Market-Based Rate Filing Includes Request for Blanket Section
204 Authorization

June 8, 2010.
    This is a supplemental notice in the above-referenced proceeding of
Stephentown Regulation Services LLC's application for market-based rate
authority, with an accompanying rate tariff, noting that such
application includes a request for blanket authorization, under 18 CFR
part 34, of future issuances of securities and assumptions of
liability.
    Any person desiring to intervene or to protest should file with the
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426, in accordance with Rules 211 and 214 of the
Commission's Rules of Practice and Procedure (18 CFR 385.211 and
385.214). Anyone filing a motion to intervene or protest must serve a
copy of that document on the Applicant.
    Notice is hereby given that the deadline for filing protests with
regard to the applicant's request for blanket authorization, under 18
CFR part 34, of future issuances of securities and assumptions of
liability, is June 28, 2010.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://
www.ferc.gov. To facilitate electronic service, persons with Internet
access who will eFile a document and/or be listed as a contact for an
intervenor must create and validate an eRegistration account using the
eRegistration link. Select the eFiling link to log on and submit the
intervention or protests.
    Persons unable to file electronically should submit an original and
14 copies of the intervention or protest to the Federal Energy
Regulatory Commission, 888 First St., NE., Washington, DC 20426.
    The filings in the above-referenced proceeding are accessible in
the Commission's eLibrary system by clicking on the appropriate link in
the above list. They are also available for review in the Commission's
Public Reference Room in Washington, DC. There is an eSubscription link
on the Web site that enables subscribers to receive e-mail notification
when a document is added to a subscribed docket(s). For assistance with
any FERC Online service, please e-mail<EMAIL_ADDRESS>or
call<PHONE_NUMBER> (toll free). For TTY, call<PHONE_NUMBER>.

Kimberly D. Bose,
Secretary.
[FR Doc. 2010-14303 Filed 6-14-10; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 79, Number 89 (Thursday, May 8, 2014)]
[Notices]
[Pages 26474-26479]
[FR Doc No: 2014-10535]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72081; File No. SR-NYSEArca-2014-04]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 1 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 1, To Amend NYSE Arca, Inc.'s Rules by Revising the Order
of Priority of Bids and Offers When Executing Orders in Open Outcry

May 2, 2014.

I. Introduction

    On January 15, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to revise the order of priority of bids and offers
when executing orders in open outcry. The proposed rule change was
published for comment in the Federal Register on February 3, 2014.\3\
On March 18, 2014, the Commission extended the time period for
Commission action on the proposal to May 2, 2014.\4\ The Commission
received ten comment letters from seven commenters regarding the
proposal,\5\ as well as a response to the comment letters from NYSE
Arca.\6\ On April 29, 2014, the Exchange filed Amendment No. 1 to the
proposed rule change.\7\ The Commission is publishing this notice and
order to solicit comments on the proposed rule change, as modified by
Amendment No. 1, from interested persons and to institute proceedings
pursuant to Section 19(b)(2)(B) of the Act \8\ to determine whether to
approve or disapprove the proposed rule change, as modified by
Amendment No. 1. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to the proposed
rule change, nor does it mean that the Commission will ultimately
disapprove the proposed rule change. Rather, as discussed below, the
Commission seeks additional input from interested parties on the
changes to the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 71425 (January 28,
2014), 79 FR 6258 (``Notice'').
    \4\ See Securities Exchange Act Release No. 71733 (March 18,
2014), 79 FR 16072 (March 24, 2014).
    \5\ See Letter from Darren Story, dated January 29, 2014
(``Story Letter I''); Letter from Abraham Kohen, AK FE Consultants
LLC, dated January 31, 2014 (``Kohen Letter I''); Letter from David
Spack, Chief Compliance Officer, Casey Securities, LLC, dated
February 3, 2014 (``Casey Letter''); Letter from Abraham Kohen, AK
FE Consultants LLC, dated February 4, 2014 (``Kohen Letter II'');
Letter from Angel Alvira, dated February 12, 2014 (``Alvira
Letter''); Letter from Donald Hart, dated February 12, 2014 (``Hart
Letter I''); Letter from Doug Patterson, Chief Compliance Officer,
Cutler Group, LP, dated February 13, 2014 (``Cutler Letter'');
Letter from Donald Hart, dated February 18, 2014 (``Hart Letter
II''); Letter from Gerald D. O'Connell, Chief Regulatory Officer,
Susquehanna International Group, LLP (``SIG''), dated March 14, 2014
(``SIG Letter''); and Letter from Darren Story, dated March 21, 2014
(``Story Letter II'').
    \6\ See Letter from Martha Redding, Chief Counsel, NYSE
Euronext, dated April 4, 2014 (``NYSE Arca Response'').
    \7\ In Amendment No. 1, the Exchange revised the rule text for
proposed Rule 6.47: (1) To clarify that Floor Brokers, when crossing
two orders in open outcry, may not trade through any non-Customer
bids or offers on the Consolidated Book that are priced better than
the proposed execution price; and (2) to conform the term ``bids and
offers'' to ``bids or offers'' in paragraphs (a) and (c) thereunder.
Amendment No. 1 has been placed in the public comment file for SR-
NYSEArca-2014-04 at http://www.sec.gov/comments/sr-nysearca-2014-04/nysearca201404.shtml (see letter from Martha Redding, Chief Counsel,
NYSE Euronext, to Kevin M. O'Neill, Deputy Secretary, Commission,
dated April 30, 2014) and also is available on the Exchange's Web
site at http://www.nyse.com/nysenotices/nysearca/rule-filings/pdf.action;jsessionid=FACF4F6772B1316D973F5D4E2D258ACE?file--no=SR-
NYSEArca-2014-04&seqnum=2.
    \8\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposal

    NYSE Arca proposes to amend its rules governing the priority of
bids and offers on its Consolidated Book by revising the order of
priority in open outcry to afford priority to bids and offers
represented by Market Makers \9\ and Floor Brokers \10\ (collectively,
``Crowd Participants'') \11\ over certain equal-priced bids and offers
of non-Customers \12\ on the Consolidated Book \13\ during the
execution of an order in open outcry on the Floor \14\ of the
Exchange.\15\
---------------------------------------------------------------------------

    \9\ See Rule 6.32 (Market Maker Defined).
    \10\ See Rule 6.43 (Options Floor Broker Defined).
    \11\ The term ``Crowd Participants'' means the Market Makers
appointed to an option issue under Rule 6.35, and any Floor Brokers
actively representing orders at the best bid or offer on the
Exchange for a particular option series. See Rule 6.1(b)(38).
    \12\ A non-Customer is a market participant who does not meet
the definition of Customer as defined in paragraph (c)(6) of Rule
15c3-1 under the Securities Exchange Act of 1934, 17 CFR 240.15c3-1.
See Rule 6.1(b)(29).
    \13\ The Exchange also proposed to make non-substantive changes
to existing rule text contained in Rules 6.47 and 6.75. See Notice,
79 FR at 6260 for a description of these non-substantive changes.
    \14\ See Rule 1.1(i).
    \15\ The term ``Consolidated Book'' means the Exchange's
electronic book of limit orders for the accounts of Public Customers
and broker-dealers, and Quotes with Size. See Rule 6.1(b)(37).
---------------------------------------------------------------------------

    Current Rule 6.75(a) provides that any bids displayed on the
Consolidated Book have priority over same-priced bids represented in
open outcry. Such priority also is described in current Rule 6.47,
which governs crossing orders in open outcry. Floor Broker crossing
transactions, as described in Rule 6.47(a)(3), may not trade ahead of
bids or offers on the Consolidated Book that are priced equal to or
better than the proposed crossing price. The Exchange stated that,
because of this priority afforded to the Consolidated Book, Crowd
Participants who have negotiated a large transaction ultimately might
not be able to participate in its execution.\16\
---------------------------------------------------------------------------

    \16\ See Notice, 79 FR at 6258. The Exchange stated that Crowd
Participants could negotiate a transaction with an understanding of
the make-up of bids and offers on the Consolidated Book at the
beginning of open outcry. However, as the trade is executed, the
Consolidated Book could update with newly-arriving electronically-
entered bids and offers that have priority under current Rule
6.75(a). The Exchange noted that, given the speed at which quotes
can flicker in the Consolidated Book, Crowd Participants who have
agreed to a transaction in open outcry do not know if they will
actually participate on the trade until after execution. Id. at
6258-59.
---------------------------------------------------------------------------

    The Exchange proposed to restructure its priority rules so that
bids and offers of Crowd Participants would have priority over equal-
priced bids and offers of non-Customers on the Consolidated Book that
are ranked in time priority behind any equal-priced Customer bids and
offers on the Consolidated Book. Equal-priced Customer \17\ interest
would continue to be afforded priority over Crowd Participants in the
execution of an open outcry transaction. In addition, consistent with
the existing price/time priority presently applicable to bids and
offers on the Consolidated Book, equal-priced non-Customer bids and
offers ranked in time priority ahead of Customer interest also would be
afforded priority over Crowd Participants in the execution of an open
outcry transaction. In the Exchange's view, the proposed rule change
strikes the appropriate balance between encouraging larger negotiated
transactions in open outcry, while at the

same time protecting Customer interest on the Consolidated Book, and
any interest that has time priority over such protected Customer
interest.\18\
---------------------------------------------------------------------------

    \17\ See supra note 12.
    \18\ See Notice, 79 FR at 6259.
---------------------------------------------------------------------------

    To effect this change to its floor priority rules, the proposal
would amend the Exchange's rules as follows. As noted above, Rule
6.75(a) presently states that the highest bid shall have priority but
where two or more bids for the same option contract represent the
highest price and one such bid is displayed on the Consolidated Book,
such bid shall have priority over any bid at the post (i.e., the
Trading Crowd.) \19\ The Exchange proposed to amend Rule 6.75(a) \20\
by limiting the priority of bids in the Consolidated Book over bids in
the Trading Crowd solely to those bids for Customers along with non-
Customers that are ranked in time priority ahead of such Customers.\21\
---------------------------------------------------------------------------

    \19\ The term ``Trading Crowd'' means all Market Makers who hold
an appointment in the option classes at the trading post where such
trading crowd is located and all Market Makers who regularly effect
transactions in person for their Market Maker accounts at that
trading post, but generally will consist of the individuals present
at the trading post. See Rule 6.1(b)(30).
    \20\ The Exchange noted that the changes made to Rule 6.75(a)
dealing with the priority of ``bids'' also would effect a
corresponding change to the meaning of Rule 6.75(b) dealing with
``offers,'' although there would be no change to the rule text in
Rule 6.75(b). See Notice, 79 FR at 6259.
    \21\ See Notice, 79 FR at 6259-60 for examples illustrating how
the Exchange's priority and allocation rules would be applied under
the proposed rule change.
---------------------------------------------------------------------------

    Rule 6.76 presently governs order ranking, display and allocation
of orders on the NYSE Arca Options platform (``OX system''). The
Exchange proposed new paragraph (d) to Rule 6.76 that would set forth
the priority of bids and offers on the Consolidated Book against orders
executed through open outcry in the Trading Crowd. The proposed text
provides a step-by step-description of the order of priority to be
afforded bids and offers of both Customers and non-Customers on the
Consolidated Book. The Exchange noted that the priority scheme
described in proposed Rule 6.76(d) is consistent with the proposed
changes to Rule 6.75.\22\
---------------------------------------------------------------------------

    \22\ See Notice, 79 FR at 6259. According to the Exchange, the
inclusion of a description of open outcry priority procedures in
Rule 6.76 would serve as a useful cross reference to Rule 6.75. The
Exchange stated that including such a cross reference is consistent
with similar rule structures by the Chicago Board Options Exchange,
Inc. (``CBOE'') and NYSE MKT LLC (``NYSE MKT''). See id. (citing
CBOE Rule 6.45A(b) and NYSE MKT Rule 964NY(e)).
---------------------------------------------------------------------------

    The Exchange also proposed to include language in Rule 6.76(d)(4)
that sets forth certain OTP Holder \23\ obligations under Section 11(a)
of the Act.\24\ The proposed rule text states that, notwithstanding the
priority scheme set forth in proposed Rule 6.76(d)(2), an OTP Holder
effecting a transaction on the Floor for its own account, the account
of an associated person, or an account with respect to which it or an
associated person has investment discretion pursuant to the ``G Rule''
must still yield priority to any equal-priced non-OTP Holder bids or
offers on the Consolidated Book.\25\
---------------------------------------------------------------------------

    \23\ See Rule 1.1(q).
    \24\ Specifically, pursuant to Section 11(a)(1)(G) of the
Exchange Act and Rule 11a1-1(T) thereunder (the ``G Rule''), an OTP
Holder may effect transactions on the Floor for its own account, the
account of an associated person, or an account with respect to which
it or an associated person has investment discretion, provided that
such transaction yields priority in execution to orders for the
account of persons who are not OTP Holders or associated with OTP
Holders. See 15 U.S.C. 78k(a)(1)(G) and 17 CFR 11a1-1(T). The
Exchange stated that the proposed rule text is based on the rules of
the Chicago CBOE and NYSE MKT on behalf of NYSE Amex Options. See
Notice, 79 FR at 6259 (citing CBOE Rule 6.45A(b)(i)(D) and NYSE MKT
Rule 910NY).
    \25\ According to the Exchange, at this time, no OTP Holder that
currently operates on the Exchange's Floor as a Floor Broker enters
orders for its own account, the account of an associated person, or
an account with respect to which it or an associated person has
investment discretion. The Exchange stated, however, that the
Financial Industry Regulatory Authority, Inc. on behalf of NYSE
Regulation, Inc., monitors whether Floor Brokers comply with Section
11(a) of the Act. See id.
---------------------------------------------------------------------------

    Rule 6.47 outlines the procedures used when a Floor Broker attempts
to cross two orders in open outcry. Currently, Floor Brokers must trade
against all equal-priced Customer and non-Customer bids and offers in
the Consolidated Book before effecting a cross transaction in the
Trading Crowd. The Exchange proposed to revise Rule 6.47 to conform the
priority rules applicable to open outcry cross transactions to the
proposed changes described above. Accordingly, the Exchange proposed to
amend the procedures for the crossing scenarios described in Rule 6.47
\26\ by stating that Floor Brokers, when crossing two orders in open
outcry, must yield priority to: (1) Any Customer bids or offers on the
Consolidated Book that are priced equal to or better than the proposed
execution price and to any non-Customer bids or offers on the
Consolidated Book that are ranked ahead of such equal or better-priced
Customer bids or offers; and (2) to any non-Customer bids or offers on
the Consolidated Book that are priced better than the proposed
execution price.\27\ The Exchange noted that Floor Brokers would be
required to trade against equal and better-priced Customer bids or
offers on the Consolidated Book, any better-priced bids or offers of
non-Customers on the Consolidated Book and any non-Customer bids or
offers that are ranked ahead of equal-priced Customer bids or offers,
before attempting a cross transaction.\28\ Consistent with proposed
Rule 6.75(a), Floor Brokers would not be required to trade against
equal-priced non-Customer bids and offers that are ranked behind such
Customer and non-Customer bids and offers.\29\
---------------------------------------------------------------------------

    \26\ The crossing scenarios described in Rule 6.47 are: (a) Non-
Facilitation (Regular Way) Crosses; (b) Facilitation Procedures; (c)
Crossing Solicited Orders; (d) Mid-Point Cross; and (e) Customer-to-
Customer Cross. The Exchange did not propose any change to Rule
6.47(d) relating to Mid-Point Cross, and thus Mid-Point Cross
transactions would not be affected by the proposed rule change.
Telephone conversation between Glenn Gsell, Managing Director, NYSE
Arca and Commission staff, dated April 23, 2014.
    \27\ See Notice, 79 FR at 6259-60 for examples illustrating the
proposed priority changes as applicable for Non-Facilitation and
Facilitation Crosses. See also Amendment No. 1, supra note 7.
    \28\ See Notice, 79 FR at 6259.
    \29\ The Exchange stated its belief that affording priority to
Crowd Participants ahead of such non-Customer interest on the
Consolidated Book would create an increased incentive for block-
sized transactions on the Floor. See Notice, 79 FR at 6259.
---------------------------------------------------------------------------

    The Exchange stated that it would announce the implementation date
of the proposed rule change by Trader Update to be published no later
than 90 days following approval \30\ and the implementation date would
be no later than 90 days following the issuance of the Trader Update.
---------------------------------------------------------------------------

    \30\ See Notice, 79 FR at 6260.
---------------------------------------------------------------------------

III. Comment Letters and NYSE Arca's Response

    The Commission received ten comment letters from seven
commenters.\31\ NYSE Arca submitted a response to the comment
letters.\32\
---------------------------------------------------------------------------

    \31\ See supra note 5.
    \32\ See supra note 6.
---------------------------------------------------------------------------

    Five of the commenters, four of whom identified themselves as Crowd
Participants on NYSE Arca,\33\ generally were supportive of the
proposal to revise the order of priority of bids and offers when
executing orders in open outcry.\34\ Four of these commenters stated a
view that the proposal would allow NYSE Arca to compete with other
exchanges that currently have similar priority rules.\35\ Three of
these

commenters stated that the proposal would allow Crowd Participants to
compete with bids and offers of non-Customers on the Consolidated
Book,\36\ and two of them stated that Crowd Participants were the
market participants most likely to provide services during times of
market duress.\37\ Two commenters also noted that the rule change would
maintain priority for Customer orders resting on the Consolidated
Book.\38\
---------------------------------------------------------------------------

    \33\ See Casey Letter (Floor Broker); Alvira Letter (Market
Maker); Hart Letters I and II (Market Maker); Cutler Letter (Crowd
Participant), supra note 5.
    \34\ See Story Letter I; Casey Letter; Alvira Letter; Hart
Letter I; Cutler Letter; Hart Letter II; and Story Letter II.
    \35\ See Casey Letter (``The Proposal would still leave Arca
Crowd Participants at a slight disadvantage to crowd participants on
CBOE and Amex, but would go a long way towards leveling the playing
field''); Alvira Letter (``I would like to see us in a competitive
balance with the AMEX who have already implemented the change'');
Cutler Letter (``AMEX and CBOE currently have similar rules in
place''); and Hart Letter II (``This would enable the PCX to level
the rules with other exchanges''). See also SIG Letter (``the
proposal at least relates in part to a legitimate competitive
concern'').
    \36\ See Casey Letter (``The current market structure leaves
NYSE Arca Crowd Participants and their customers at a distinct
disadvantage . . . to non-customer professional traders, including
High Frequency Traders''); Hart Letter I (``This rule disadvantages
floor based market makers, which are the only ones providing
liquidity when the markets are under duress''); and Cutler Letter
(``This Proposed Rule change will level the competitive balance
between floor market makers and electronic non-customer professional
traders'').
    \37\ See Hart Letter I (``market makers . . . are the only ones
providing liquidity when the markets are under duress'') and Story
Letter II (``Perhaps one of the most compelling arguments for floor
based market-makers is that they are required to stand in and make
two-sided markets in volatile environments. They cannot just turn
off the machines and walk away'').
    \38\ See Story Letter I (``It will allow for price discovery and
improvement, but at the same time maintaining protection for
customer orders resting on the order book'') and Casey Letter (``As
Crowd Participants will still be required to interact with any
Customer orders in the Consolidated Book, public Customers will not
be adversely affected'').
---------------------------------------------------------------------------

    Two commenters stated their belief that the proposal would increase
competition on the floor for orders,\39\ and one of these commenters
noted that this competition would benefit the investing public.\40\
Similarly, two commenters stated their view that the proposal would
improve investor executions on the floor.\41\ One commenter noted that
the proposal would create an advantage for price improving
customers.\42\
---------------------------------------------------------------------------

    \39\ See Casey Letter (``The Proposal, by creating more uniform
open outcry priority rules across floors, will increase competition
for execution of these negotiated transactions'') and Story Letter
II (``This filing will create an advantage for price improving
CUSTOMER orders'') (emphasis in original).
    \40\ See Casey Letter (``Increasing competition in financial
markets is nearly always beneficial for investors; the Proposal
would increase competition among options floor brokers, and would
ultimately benefit the investing public'').
    \41\ See Story Letter I (``This rule change will allow market
participants to IMPROVE fills for customers without creating any
disadvantage for other market participants'') and Casey Letter
(``The execution of sizeable negotiated transactions in listed
options is an important service provided to investors almost
exclusively by the few remaining options Floor Brokers. The Proposal
. . . will provide investors with greater flexibility, greater
access to liquidity, and lower execution costs'') (emphasis in
original).
    \42\ See Story Letter II.
---------------------------------------------------------------------------

    Two commenters expressed concerns about the proposal.\43\ One
commenter stated its view that the proposal would disenfranchise and
disadvantage certain market participants, and suggested instead that
the Exchange give size preference for equal bid prices.\44\ The
commenter believed that such preference would be a more fair way of
revising the priority of bids and offers.\45\ This commenter further
noted that, under the Exchange's proposal, even small bids from Crowd
Participants would take priority over electronic non-Customer bids.\46\
The same commenter also noted its belief that best execution is not
enhanced by allowing more exchanges to disadvantage other traders.\47\
The commenter suggested that, regardless of the merits of high
frequency trading, there was no reason to disadvantage all non-
Customers by giving priority to one class of traders that would allow
them to jump ahead of the queue.\48\ One commenter who supported the
proposal took issue with views expressed by this commenter and noted
that current NYSE Arca rules are structured so as to disadvantage on-
floor market makers.\49\
---------------------------------------------------------------------------

    \43\ See Kohen Letter I; Kohen II; and SIG Letter.
    \44\ See Kohen Letter I.
    \45\ See Kohen Letter I.
    \46\ See Kohen Letter I (``otherwise Crowd Participants' 1
contract or 100 share bid will always take priority'').
    \47\ See Kohen Letter II.
    \48\ See Kohen Letter II.
    \49\ See Story Letter II.
---------------------------------------------------------------------------

    Another commenter also raised concerns with the proposal.\50\ The
commenter acknowledged that the proposal would reduce the number of
instances where high-frequency, non-Customer orders arriving on to the
book could cause Crowd Participants to be ``scaled-back'' from agreed
upon negotiated amounts. The commenter acknowledged that this ``scaling
back'' currently presented certain operational and hedging challenges
to Crowd Participants.\51\ The commenter remarked, however, that the
proposal apparently was focused on attracting block cross volume to the
Exchange.\52\
---------------------------------------------------------------------------

    \50\ See SIG Letter.
    \51\ See SIG Letter at 1.
    \52\ See SIG Letter at 1 (``This focus is made apparent by Arca
when it asserts that the new rule . . . will provide greater
opportunity for bids and offers of crowd participants to participate
in open outcry transaction [sic] and therefore promote larger-sized
negotiated transactions'').
---------------------------------------------------------------------------

    The commenter noted that when NYSE Arca uses the term ``Crowd
Participants,'' it appears to refer to off-floor trading houses that
attempt to internalize, in large part, block orders from institutional
customers (i.e., clean cross orders). The commenter acknowledged that
this term also includes option market makers on the NYSE Arca Floor,
but stated its view that the market maker participation in such orders
is often minimal as a percentage of the total order size.\53\ The
commenter stated that the majority of available market maker liquidity
at the Exchange is represented by a group of off-floor market maker
firms that are collectively responsible for over 90% of displayed
liquidity in multiply traded options, rather than on-floor market
makers.\54\
---------------------------------------------------------------------------

    \53\ See SIG Letter at 2.
    \54\ See SIG Letter at 2. The commenter remarked that, due to
the off-floor market makers, electronic crossing systems for block
sized orders generally have shown to be a better alternative to
floor crosses, at least on a transparency and price competition
basis. Id.
---------------------------------------------------------------------------

    The commenter further stated its view that the proposal would
attract more clean-cross type orders that it believes would further
insulate customer interest from competition by parties other than crowd
participants.\55\ In its view, because such negotiations usually occur
outside the view of off-floor market makers, the crosses often occur at
prices that have not been sufficiently vetted by those most likely to
offer price improvement.\56\ Given its concerns, the commenter believed
that the proposal would be detrimental to investors, as the opportunity
for price improvement would be significantly diminished.\57\
---------------------------------------------------------------------------

    \55\ See SIG Letter at 2.
    \56\ See SIG Letter at 2. The commenter also noted that it had
submitted a Petition for Rulemaking filed with the Commission in
April 2013. The commenter represented that, in that petition,
several market making firms (including the commenter) asserted their
belief that exchanges with trading floors would generate better
priced executions for customers if they required crosses to be
auctioned through electronic systems that included off-floor
registered market makers in the respective option classes. See
Petition for Rulemaking Regarding Option Floor Crosses, File No. 4-
662 (April 22, 2013), available at http://www.sec.gov/rules/petitions/2013/petn4-662.pdf.
    \57\ See SIG Letter at 2-3.
---------------------------------------------------------------------------

    The commenter stated that the proposal did not provide an
explanation regarding how more crowd participation in larger-sized
block floor crosses would benefit customers or the market in
general.\58\ The commenter acknowledged that, as other floor exchanges
have rules that place booked parity interest behind crowd participants,
NYSE Arca's proposal at least relates in part to a legitimate
competitive concern for the Exchange.\59\

However, the commenter stated that it was important that exchanges give
sufficient reason why a proposed rule is not injurious to customers or
the market in general, and that the Exchange's proposal fails to give
such reasons, perhaps, as the commenter opined, because there were none
to give.\60\ The commenter requested that the Commission establish the
reasoning behind the Exchange's desire to increase block-cross volume
and the reasons, if any, for NYSE Arca's belief that more (and cleaner)
block floor crosses were good for investors.\61\
---------------------------------------------------------------------------

    \58\ See SIG Letter at 3.
    \59\ See SIG Letter at 3 (``No doubt, Arca relies heavily on
open outcry crosses for transaction volume. And, no doubt, the more
often that high-frequency professional booked orders break-up
``matched'' floor crosses, the more likely it becomes that off-floor
facilitating firms will send their orders to other exchanges to be
crossed'').
    \60\ See SIG Letter at 3.
    \61\ See SIG Letter at 3.
---------------------------------------------------------------------------

    One commenter who supported the proposal raised issues with the
arguments made by the commenter who expressed several concerns
regarding the proposal.\62\ The commenter who supported the proposal
stated that the other commenter's concerns were misguided and unfounded
because the proposal would allow for price improvement on any size
order, whether large or not. The commenter who supported the proposal
also noted the proposal would allow large market-making groups like
that commenter to continue to provide inside markets and actually trade
at those prices on NYSE Arca.\63\ The commenter who supported the
proposal disagreed with the suggestion that the proposal was
necessarily about attracting clean-crosses outside the view of off-
floor market makers, and stated its belief that the rule was designed
to provide opportunity to improve markets.\64\
---------------------------------------------------------------------------

    \62\ See Story Letter II.
    \63\ See Story Letter II.
    \64\ See Story Letter II.
---------------------------------------------------------------------------

    NYSE Arca provided a response letter addressing issues raised by
the commenters.\65\ NYSE Arca emphasized that the proposal would align
the rules of the Exchange with other U.S. options exchange trading
floors, but with a unique caveat that any non-Customer electronic
interest with time priority over a Customer order in the Book also
would maintain priority over floor participants.\66\
---------------------------------------------------------------------------

    \65\ See NYSE Arca Response Letter.
    \66\ See NYSE Arca Response Letter at 1-4.
---------------------------------------------------------------------------

    In response to one commenter's suggestion that the Exchange adopt a
pure size priority model,\67\ NYSE Arca stated that a wholesale
restructuring of its priority model was beyond the scope of the current
proposal.\68\ NYSE Arca further noted its view that such a model would
unduly disadvantage small size retail customer orders by allowing
later-arriving professional participants willing to trade a larger
quantity to be accorded priority.\69\
---------------------------------------------------------------------------

    \67\ See Kohen Letters I and II.
    \68\ See NYSE Arca Response Letter at 2.
    \69\ See NYSE Arca Response Letter at 2.
---------------------------------------------------------------------------

    In response to one commenter who expressed several concerns
regarding the proposal, NYSE Arca stated that the concerns about the
practice of crossing institutional orders without electronic
participants providing price improvement was unrelated to the proposal
to allocate priority among participants at the same price.\70\ NYSE
Arca noted that its rules would continue to give priority to
participants who display an improved price.\71\
---------------------------------------------------------------------------

    \70\ See NYSE Arca Response Letter at 2.
    \71\ See NYSE Arca Response Letter at 2.
---------------------------------------------------------------------------

    NYSE Arca disagreed with that commenter's suggestion that the
proposal would attract more clean-cross type orders, noting that the
proposal was intended to promote liquidity and price discovery, and
stated that nothing would ``insulate customer interest from competition
by parties other than crowd participants.'' \72\ NYSE Arca stated that
the proposal is intended to promote liquidity and price discovery on
the Exchange by adopting a priority structure that would be similar to,
but more favorable for electronic non-Customer participants than, the
priority structure that exists on other U.S. options trading
floors.\73\ The Exchange pointed out that the execution price would
have to be equal to or better than the NBBO and that Crowd Participants
would have to yield to superior electronic bids or offers.\74\ NYSE
Arca stated further that the proposal would not reduce the ability or
incentive for any participant to improve its displayed quote
electronically, as the proposal only would impact the allocation of
orders among multiple participants at the same price.\75\
---------------------------------------------------------------------------

    \72\ See NYSE Arca Response Letter at 2-3.
    \73\ See NYSE Arca Response Letter at 3.
    \74\ See NYSE Arca Response Letter at 3.
    \75\ See NYSE Arca Response Letter at 3.
---------------------------------------------------------------------------

    In response to the commenter's request that the Exchange explain
why more (and cleaner) block floor crosses are good for investors, the
Exchange noted its view that institutional trading desks provide a
valuable service by providing liquidity to their customers for block-
size orders.\76\ The Exchange stated, however, that it did not believe
that the total level of larger-size block floor crosses in the industry
would increase as a result of its proposal.\77\ The Exchange noted that
other trading floors currently execute existing institutional block
cross volume, and the Exchange's goal was to offer an alternative venue
for such executions.\78\
---------------------------------------------------------------------------

    \76\ See NYSE Arca Response Letter at 3.
    \77\ See NYSE Arca Response Letter at 3.
    \78\ See NYSE Arca Response Letter at 3. The Exchange also
provided examples where a firm looking to facilitate its customer
order might choose to send the order to an exchange other than NYSE
Arca under the Exchange's current priority rules.
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Disapprove SR-NYSEArca-2014-04
and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \79\ to determine whether the proposed rule
change should be approved or disapproved.\80\ Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues that are raised by the proposal and are discussed below. As
noted above, institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described in greater detail below, the
Commission seeks and encourages interested persons to comment on the
proposal, as modified by Amendment No. 1, and provide the Commission
with additional comment to inform the Commission's analysis whether to
approve or disapprove the proposed rule change, as modified by
Amendment No. 1.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78s(b)(2)(B).
    \80\ Section 19(b)(2)(B) of the Act provides that proceedings to
determine whether to disapprove a proposed rule change must be
concluded within 180 days of the date of publication of notice of
the filing of the proposed rule change. The time for conclusion of
the proceedings may be extended for up to an additional 60 days if
the Commission finds good cause for such extension and publishes its
reasons for so finding or if the self-regulatory organization
consents to the extension.
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is
providing notice of the grounds for disapproval under consideration. In
particular, Section 6(b)(5) of the Act \81\ requires that the rules of
an exchange be designed, among other things, to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest; and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. In addition, Section 6(b)(8) of the Act \82\ requires that
rules of an exchange do not impose any burden on competition not

necessary or appropriate in furtherance of the Act.
---------------------------------------------------------------------------

    \81\ 15 U.S.C. 78f(b)(5).
    \82\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    NYSE Arca's proposal would revise the order of priority of bids and
offers during the execution of orders in open outcry on NYSE Arca's
Floor. The Exchange proposed to restructure its priority rules so that
bids and offers of Crowd Participants would have priority over equal-
priced bids and offers of Customer bids and offers on the Consolidated
Book and bids and offers of non-Customers on the Consolidated Book that
are ranked in time priority behind any equal-priced Customer bids and
offers on the Consolidated Book. Thus, equal-priced Customer interest
would continue to be afforded priority over Crowd Participants in the
execution of an open outcry transaction. In addition, consistent with
the existing price/time priority presently applicable to bids and
offers on the Consolidated Book, equal-priced non-Customer bids and
offers ranked in time priority ahead of Customer interest also would be
afforded priority over Crowd Participants in the execution of an open
outcry transaction.
    The Exchange believes that its proposal strikes the appropriate
balance between encouraging larger negotiated transactions in open
outcry, while at the same time protecting Customer interest on the
Consolidated Book, and any interest that has time priority over such
protected Customer interest. The Exchange believes that larger-sized
negotiated transactions will in turn lead to greater competition for
orders, creating a more robust open outcry market and benefiting
investors who choose to send orders to the Exchange. In the Exchange's
view, the proposal would align its rules governing priority during open
outcry transactions with the floor priority rules of other U.S. options
exchanges, except that any non-Customer interest in the Consolidated
Book with time priority over a booked Customer order would maintain
priority over the trading crowd.
    As detailed above, five commenters favored the proposal,\83\ and
two commenters expressed concerns about the proposal.\84\ One of these
commenters stated its view that the Exchange had not provided an
explanation regarding how more crowd participation in larger-sized
block floor crosses would benefit customers or the market in
general.\85\ This commenter stated its belief that the proposal would
further insulate customer interest from competition by off-floor market
makers that primarily display their liquidity electronically, who the
commenter believes would be most likely to offer price improvement. The
other commenter who questioned the proposal believed that the proposal
could disenfranchise and disadvantage certain market participants and
suggest that size preference be given for equal bid prices. The
Exchange in response stated that the first commenter's concerns were
entirely unrelated to the proposal and that the proposal was instead
intended to promote liquidity and price discovery, and that the second
commenter's suggestion on size priority was beyond the scope of the
proposal.
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    \83\ See supra note 33.
    \84\ See supra note 43.
    \85\ See SIG Letter.
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    The Commission believes that questions are raised as to whether
NYSE Arca's proposal is consistent with: (1) The requirements of
Section 6(b)(5) of the Act, including whether the Exchange's proposed
revisions to its rules regarding the order of priority in open outcry
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest; and are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers; and (2) the
requirements of Section 6(b)(8) of the Act, including whether the
Exchange's proposed revisions to its rules regarding the order or
priority in open outcry impose any unnecessary or inappropriate burden
on competition. The Commission believes that the issues raised by the
proposed rule change can benefit from additional consideration and
evaluation.

V. Request for Written Comments

    The Commission requests that interested persons provide written
submissions of their views, data and arguments with respect to the
concerns identified above, as well as any others they may have with the
proposal, as modified by Amendment No. 1. In particular, the Commission
invites the written views of interested persons concerning whether the
proposed rule change, as modified by Amendment No. 1, is inconsistent
with Sections 6(b)(5) and 6(b)(8) or any other provision of the Act, or
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\86\
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    \86\ Section 19(b) (2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1 and regarding whether the proposed
rule change, as modified by Amendment No. 1, should be approved or
disapproved by May 29, 2014. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by June 12,
2014. 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_ADDRESS>Please include
File Number SR-NYSEArca-2014-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2014-04. 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 such 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
publicly available.
    All submissions should refer to File Number SR-NYSEArca-2014-04 and
should be submitted on or before May 29, 2014. If comments are
received, any rebuttal comments should be submitted by June 12, 2014.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\87\
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    \87\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10535 Filed 5-7-14; 8:45 am]
BILLING CODE 8011-01-P