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8011-01 p SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-75578; File No. SR-NYSE-2015-26)
July 31, 2015
Self-Regulatory Organizations; New York Stock Exchange, LLC; Order Granting Approval of a Proposed Rule Change Making Permanent the Rules of the NYSE New Market Model Pilot and the NYSE Supplemental Liquidity Providers Pilot
I. Introduction
On June 4, 2015, New York Stock Exchange LLC (“NYSE” or “Exchange”) 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
make permanent the rules of the Exchange’s New Market Model (“NMM”) Pilot (“NMM Pilot”)
and the Supplemental Liquidity Providers (“SLP”) Pilot (“SLP Pilot,” and together with the
NMM Pilot, the “Pilots”). The proposed rule change was published in the Federal Register on
June 17, 2015.3 The Commission received no comment letters regarding the proposed rule
change. This order approves the proposed rule change.
II. Description of the Proposal
A. Background of the Proposal
In October 2008, the Exchange implemented the NMM, under which the Exchange’s
market currently operates. Historically, NYSE specialists were responsible for overseeing the
execution of all orders coming into the Exchange, for conducting auctions on the NYSE Floor
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 See Securities Exchange Act Release No. 75153 (June 11, 2015), 80 FR 3417 (“Notice”).
2
(the “Floor”), and for maintaining an orderly market in all assigned securities.4 Price discovery
on the Exchange took place almost exclusively on the Floor in the form of face-to-face
interactions among NYSE Floor brokers ( “Floor brokers”) and specialists.5 In 2006, the
Exchange began operating under the NYSE HYBRID MARKET, under which Exchange
systems assumed the function of matching and executing electronically entered orders and the
Exchange programmed its systems to provide its specialists with an order-by-order advance
“look” at incoming orders.6 By 2008, however, the increase in electronic executions on the
Exchange, as well as the increase in the use of smart order-routing engines by market
participants, had reduced the advantages once enjoyed by Floor brokers and specialists.7
According to the Exchange at the time, informational advantages had shifted from Floor brokers
and specialists to market participants trading electronically “upstairs.”8
In response to the increased prevalence of electronic trading and the aforementioned shift
in informational advantages among the Exchange’s market participants, the Exchange proposed
the NMM.9 Among other things, the NMM: (1) eliminated the function of the Exchange’s
specialists and created a new category of market participant, Designated Market Makers
(“DMMs”) under NYSE Rule 104; (2) implemented the DMM Capital Commitment Schedule
(“CCS”) under NYSE Rule 1000; (3) and modified the Exchange’s priority rules under NYSE
4 See Securities Exchange Act Release No. 58845 (October 24, 2008), 73 FR 64379, 64739
(October 29, 2008) (SR-NYSE-2008-46) (“NMM Approval Order”).
5 See id.
6 See id.
7 See id.
8 See id at 64379-80.
9 See id.
3
Rule 72.10
In a subsequent filing and in connection with the NMM Pilot,11
the Exchange created
an additional category of market participant, SLPs, under NYSE Rule 107B. The NMM Pilot
was originally scheduled to end on October 1, 2009,12
and the SLP Pilot was originally
scheduled to be a six-month pilot program.13
The Exchange filed to extend the operation of the
Pilots on several occasions, most recently to extend the Pilot periods to July 31, 2015.14
In this
proposal, the Exchange seeks to make the Pilots permanent.
B. Description of the Exchange Rules Subject to the Pilots
1. NYSE Rule 72
The Exchange’s rules governing the priority of bids and offers, and the allocation of
executions, are set forth in NYSE Rule 72. Under NYSE Rule 72(a), when a bid or offer,
including pegging interest,15
is established as the only displayable16
bid or offer made at a
10
See id. at 64380-87.
11 See Securities Exchange Act Release No. 58877 (October 29, 2008), 73 FR 65904
(November 5, 2008) (SR-NYSE-2008-108) (“SLP Notice”). 12
See NMM Approval Order, supra note 4, 73 FR at 64389.
13 See SLP Notice, supra note 11, 73 FR at 6904.
14 See Securities Exchange Act Nos. 73919 (December 23, 2014), 79 FR 78930
(December 31, 2014) (SR-NYSE-2014-71) (citing prior filings to extend the NMM Pilot and extending the NMM Pilot until the earlier of Commission approval to make the
NMM Pilot permanent or July 31, 2015) and 73945 (December 24, 2014), 80 FR 58 (January 2, 2015) (SR-NYSE-2014-72) (citing prior filings to extend the SLP Pilot and extending the SLP Pilot until the earlier of Commission approval to make the SLP Pilot permanent or July 31, 2015).
15 See NYSE Rule 13(f)(3). In 2012, the Exchange amended Rule 72(a) to specify that
pegging interest may be a setting interest. See Securities Exchange Act Release No. 68302 (November 27, 2012), 77 FR 71658 (December 3, 2012) (SR-NYSE-2012-65).
16 As used in NYSE Rule 72, the term “displayable” means that portion of interest that
could be published as, or as part of, the Exchange BBO, including pegging interest. Displayable odd-lot orders are published as part of the Exchange BBO if, when aggregated with other interest available for execution at that price point, the sum of the odd-lot order and other interest available at that price point would be equal to or greater
than a round lot. The term “displayed interest” includes that part of an order that is
4
particular price, and that bid or offer is the only displayable interest when its price is or becomes
the Exchange Best Bid or Offer (“BBO”), that bid or offer is designated as the “setting interest”
and is entitled to priority for allocation of executions at that price, as described in NYSE Rule 72
and subject to certain provisions set forth in NYSE Rule 72(a)(ii).
NYSE Rule 72(b) sets forth the provisions governing how setting interest retains its
priority. Specifically, once priority is established by setting interest, that setting interest retains
its priority for any execution at its price when that price is at the Exchange BBO. If executions
decrement the setting interest to an odd-lot size,17
the remaining portion of the setting interest
retains its priority. For any execution of setting interest that occurs when the price of the setting
interest is not the Exchange BBO, the setting interest does not have priority and is executed on
“parity,” as described below.18
NYSE Rule 72(c) sets forth the Exchange’s rules for the allocation of executions. An
automatically executing order will trade first with displayable bids or offers and, if there is
insufficient displayable volume to fill the order, will trade next with non-displayable interest.
Displayable interest will trade on parity with other displayable interest, and non-displayable
interest will trade on parity with other non-displayable interest.19
For the purpose of share
published as, or as part of, the Exchange BBO, which may include one or more odd-lot orders. See NYSE Rule 72(a)(i).
17 NYSE Rule 72(a)(ii)(A) precludes odd lot orders from qualifying as a setting interest.
18 See infra, notes 20-21 and accompanying text. Furthermore, priority of setting interest is
not retained after the close of trading on the Exchange or following the resumption of
trading in a security after a trading halt has been invoked pursuant to NYSE Rule 123D or NYSE Rule 80B. Priority of the setting interest is not retained on any portion of the priority interest that is routed to an away market and is returned unexecuted unless the priority interest is greater than a round lot and the only other interest at the price point is odd-lot orders, the sum of which is less than a round lot. See NYSE Rule 72(b)(iii).
19 After the Exchange filed this proposal and it was noticed for public comment, the
Commission approved a separate proposed rule change under which the Exchange
5
allocation among market participants in an execution, (1) the DMM in a security counts as one
“participant,” (2) each NYSE Floor broker counts as a participant, and (3) orders represented in
Exchange systems, including those of SLPs, collectively constitute a single participant (referred
to as the “Book Participant”). The orders represented in the Book Participant are allocated
shares among themselves by time priority with respect to entry.
In any execution at the Exchange BBO, a participant who has established priority as the
setting interest receives 15% of the volume of the executed amount or a minimum of one round
lot, whichever is greater, until the setting interest has received a complete execution of its
eligible priority interest. Setting interest that is decremented to an odd-lot size receives 15% of
the volume of the incoming interest rounded up to the size of the setting interest, or the size of
the incoming interest, whichever is less. Following the allocation of an execution to setting
interest as provided above, the remainder of the executed volume is allocated to each participant
on parity. In general, parity provides all market participants the ability to receive executions on
an equal basis with other interest available at that price.20
The participant with the setting
interest is also included in the parity allocation.
amended its rules governing order types and modifiers. See Securities Exchange Act Release No. 75444 (July 13, 2015), 80 FR 42575 (July 17, 2015) (SR-NYSE-2015-15) (“NYSE Order Type Approval Order”). In the NYSE Order Type Approval Order, the Commission approved amendments to NYSE Rule 72(c)(i) that: (1) replaced the term
“reserve interest” with the term “non-displayable interest” so that the rule now provides that all non-displayable interest, which includes certain types of reserve interest and Mid-Point Passive Liquidity (“MPL”) Orders, trades on parity in accordance with the order allocation provisions of NYSE Rule 72; and (2) changed the phrase “the displayed bid
(offer)” to “displayable bids (offers)” and changed the phrase “displayed volume” to “displayable volume” to specify that an automatically executing order will trade first with displayable bids (offers) and, if there is insufficient displayable volume to fill the order, will trade next with non-displayable interest. See NYSE Order Type Approval Order, 80 FR at 42577.
20 See NMM Approval Order, supra note 4, 73 FR at 64384. In NYSE Rule 72(c)(iv) and
(viii), the Exchange provides examples of how orders are executed on parity.
6
If there is no setting interest for an execution at the Exchange BBO, allocation of the
executed volume is on parity by participant, except as otherwise set forth in NYSE Rule
72.When an execution occurs at the Exchange BBO, interest that is displayed in the Exchange
BBO is allocated before any interest that is not displayed. In allocating an execution that
involves setting interest, whether the execution takes place at the Exchange BBO or otherwise,
the volume allocated to the setting interest is allocated to the interest in the setting interest that is
entitled to priority first.
Shares are allocated among participants in round lots or the size of the order if less than a
round lot. If the number of shares to be executed at a price point is insufficient to allocate round
lots to all the participants eligible to receive an execution at that price point, or the size of the
order is less than a round lot, Exchange systems create an allocation wheel of the eligible
participants at that price point, and the available round-lot shares are distributed to the
participants in turn. If an odd-lot-sized portion of the incoming order remains after allocating all
eligible round lots, the remaining shares are allocated to the next eligible participant.
On each trading day, the allocation wheel for each security is set to begin with the
participant whose interest is entered or retained first in time. Thereafter, participants are added
to the wheel as their interest joins existing interest at a particular price point. If a participant
cancels its interest and then rejoins, that participant joins as the last position on the wheel at that
time. If an odd-lot allocation completely fills the interest of a participant, the wheel moves to the
next participant. The allocation wheel also moves to the next participant when Exchange
7
systems execute remaining displayable odd-lot interest prior to replenishing the displayable
quantity of a participant.21
When an execution occurs outside the Exchange BBO, the interest that is displayable is
allocated before any interest that is non-displayable. All interest that is displayable is on parity
with other individual participants’ displayable interest. Similarly, all interest that is non-
displayable is on parity with other individual participants’ non-displayable interest. Incoming
orders eligible for execution at price points between the Exchange BBO trade with all available
interest at the price of the execution in between the Exchange BBO. All NYSE interest available
to participate in the execution (e.g., d-quotes, s-quotes, Reserve Orders, Mid-Point Passive
Liquidity (“MPL”) Orders, and CCS interest) will trade on parity with other such interest.22
DMM interest added intra day to participate in a verbal transaction with a Floor broker or
during a slow quote is allocated shares only after all other interest eligible for execution at the
price point is executed in full. DMM interest added at the time of the slow quote, or when
verbally trading with a Floor broker, that is not executed during the transaction will be
cancelled.23
However, s-Quotes, if any, representing DMM interest present at the price point
prior to the verbal transaction with a Floor broker or during a slow quote receive an allocation on
parity as described above. An order that is modified to reduce the size of the order retains the
21
NYSE Rule 72(c)(viii) provides examples of how the Exchange’s allocation wheel sets execution priority.
22 In the NYSE Order Type Approval Order, the Commission approved a change to NYSE
Rule 72(c)(x) that added MPL Orders to the list of orders identified as being eligible to trade at price points between the Exchange BBO. See NYSE Order Type Approval Order, supra note 19, 80 FR at 42577.
23 When the Exchange adopted the NMM Pilot in 2008, all DMM interest was allocated on
parity. In 2009, the Exchange amended NYSE Rule 72 to eliminate parity allocations for
DMM interest added intra day during a slow quote or when verbally trading with Floor brokers at the point of sale. See Securities Exchange Act Release No. 60287 (July 10, 2009), 74 FR 34817 (July 17, 2009) (SR-NYSE-2009-69).
8
time stamp of original order entry. An order modified in any other way, such as increasing the
size or changing the price of the order, receives a new time stamp.
Under NYSE Rule 72(d), when a member has an order to buy and an order to sell an
equivalent amount of the same security, and both orders are “block” orders (i.e., orders of at least
10,000 shares or a quantity of stock having a market value of $200,000 or more, whichever is
less)24
– and are not for the account of the member or member organization, an account of an
associated person, or an account with respect to which the member, member organization, or
associated person thereof exercises investment discretion – then the member may “cross” those
orders at a price at or within the Exchange BBO. 25
The member’s bid or offer shall be entitled
to priority at the cross price, irrespective of pre-existing displayed bids or offers on the Exchange
at that price. NYSE Rule 72(d) also sets forth the rules and procedures for executing these types
of transactions.
2. NYSE Rule 104
NYSE Rule 104 sets forth the obligations of DMMs. Under NYSE Rule 104(a), DMMs
registered in one or more securities traded on the Exchange are required to engage in a course of
dealings for their own account to assist in the maintenance of a fair and orderly market insofar as
reasonably practicable. NYSE Rule 104(a) also enumerates specific responsibilities and duties
of a DMM, including: (1) a continuous two-sided quoting requirement, which mandates that each
24
See NYSE Rule 72.10.
25 In 2011, the Exchange amended NYSE Rule 72(d) regarding agency cross transactions
and added NYSE Rule 72.10 to: (1) change the minimum size of a block order under the rule from 25,000 shares or more to 10,000 shares or a quantity of stock having a market value of $200,000 or more, whichever is less; and (2) conform NYSE Rule 72(d) to NYSE Rule 90 to permit a Floor broker to represent an NYSE Rule 72(d) crossing
transaction on behalf of an unaffiliated member or member organization. See Securities Exchange Act Release No. 64334 (April 25, 2011), 76 FR 24078 (April 29, 2011) (SR-NYSE-2011-18).
9
DMM maintain a bid or an offer at the National Best Bid (“NBB”) and National Best Offer
(“NBO,” together the “NBBO”) for a certain percentage of the trading day26
and (2) the
facilitation of openings, re-openings, the Exchange’s Midday Auction, and the close of trading
for the DMM’s assigned securities, all of which may include supplying liquidity as needed.27
NYSE Rule 104(e) further provides that DMM units must provide contra-side liquidity as needed
for the execution of odd-lot quantities that are eligible to be executed as part of the opening, re-
opening, and closing transactions but that remain unpaired after the DMM has paired all other
eligible round lot sized interest.
NYSE Rule 104(b) permits DMM units to use algorithms for quoting and trading, sets
forth the provisions governing how a DMM unit’s systems may employ algorithms, and lists the
order types that a DMM unit may not enter.28
Furthermore, under NYSE Rule 104(d), a DMM
unit may provide algorithmically generated price improvement to all or part of an incoming order
26
See NYSE Rule 104(a)(1). NYSE Rule 104(a)(1) requires the DMM to maintain a bid or offer at the NBB and NBO at least 15% of the trading day for securities in which the DMM unit is registered with a consolidated average daily volume (“CADV”) of less than
one million shares, and at least 10% of the trading day for securities in which the DMM unit is registered with a CADV equal to or greater than one million shares.
27 See NYSE Rule 104(a)(2)-(3). In 2015, the Exchange implemented its Trading Collar
price protection under Rule 1000(c) and simultaneously eliminated liquidity replenishment points (“LRP”) and the “gap” quote procedures. See Securities Exchange Act Release No. 74063 (January 15, 2015), 80 FR 3269 (January 22, 2015) (SR-NYSE-
2015-01). The Exchange also amended NYSE Rule 104(a) to eliminate a DMM’s obligations to facilitate trading when an LRP was reached or the gap quote procedure was being used. See id.
28 In the NYSE Order Type Approval Order, the Commission approved the following
changes to NYSE Rule 104(b): (1) the addition of text stating that the Exchange systems will prevent incoming DMM interest from trading with resting DMM interest; and (2) the
addition of text specifying the order types and modifiers that a DMM unit may not enter, such as Market Orders, as defined under NYSE Rule 13. See NYSE Order Type Approval Order, supra note 19, 80 FR 42577-78.
10
that can be executed at or within the Exchanges BBO through the use of CCS interest under Rule
1000.29
Under NYSE Rule 104(c), a DMM unit may maintain reserve interest consistent with
Exchange rules governing Reserve Orders,30
and such reserve interest is eligible for execution in
manual transactions.
NYSE Rule 104(f) sets forth the functions of DMMs, such as: (1) mandating that a
DMM maintain, insofar as reasonably practicable, a fair and orderly market on the Exchange in
the stocks in which he or she is so acting and (2) stating that DMMs are designated as market
makers on the Exchange for all purposes under the Act and the rules and regulations thereunder.
NYSE Rule 104(g) governs transactions by DMMs. NYSE Rule 104(g) states that
transactions on the Exchange by a DMM for the DMM’s account must be effected in a
reasonable and orderly manner in relation to the condition of the general market and the market
in the particular stock. NYSE Rule 104(g) describes certain permitted transactions, including
neutral transactions and Non-Conditional Transactions, as defined therein. NYSE Rule
104(g)(A)(III) provides that, except as otherwise permitted by NYSE Rule 104, during the last
ten minutes prior to the close of trading, a DMM with a long or short position in a security is
prohibited from making a purchase or sale, respectively, in such security that results in a new
high or low price, respectively, on the Exchange for the day at the time of the DMM’s
transaction. Furthermore, NYSE Rule 104(h) addresses DMM transactions in securities that
establish or increase the DMM’s position. NYSE Rule 104(h)(ii) permits certain “Conditional
29
See infra Section II.B.3 for a discussion of a DMM’s CCS interest.
30 See NYSE Rule 13(d)(2). Reserve interest is the portion of a Reserve Order that is not
displayed. See NYSE Rule 13(d)(2)(C).
11
Transactions”31
without restriction as to price if they are followed by appropriate re-entry on the
opposite side of the market commensurate with the size of the DMM’s transaction.32
However,
NYSE Rule 104(h)(iv) permits certain other Conditional Transactions without restriction as to
price, and NYSE Rule 104(i) provides that re-entry obligations following such Conditional
Transactions would be the same as the re-entry obligations for Non-Conditional Transactions
pursuant to NYSE Rule 104(g).
NYSE Rule 104(j), which was added in 2013,33
permits a DMM to perform the following
Trading Floor functions:
maintain order among Floor brokers manually trading at the DMM’s assigned panel;
bring Floor brokers together to facilitate trading, which may include the DMM as a buyer
or seller;
assist a Floor broker with respect to an order by providing information regarding the
status of a Floor broker’s orders, helping to resolve errors or questioned trades, adjusting
errors, and canceling or inputting Floor broker agency interest on behalf of a Floor
broker; and
research the status of orders or questioned trades on his or her own initiative or at the
request of the Exchange or a Floor broker when a Floor broker’s handheld device is not
operational, when there is activity indicating that a potentially erroneous order was
31
Under NYSE Rule 104(h)(i), a Conditional Transaction is a DMM’s transaction in a security that establishes or increases a position and reaches across the market to trade as the contra-side to the Exchange published bid or offer.
32 NYSE Rule 104(h)(iii) sets forth the Exchange’s re-entry obligations for Conditional
Transactions.
33 See Securities Exchange Act Release No. 71175 (December 23, 2013), 78 FR 79534
(December 30, 2013) (SR-NYSE-2013-21).
12
entered or a potentially erroneous trade was executed, or when there otherwise is an
indication that improper activity may be occurring.34
Finally, NYSE Rule 104(k) provides that in the event of an emergency, such as the
absence of the DMM, or when the volume of business in the particular stock or stocks is so great
that it cannot be handled by the DMMs without assistance, an NYSE Floor Governor may
authorize a member of the Exchange, who is not registered as a DMM in such stock, to act as
temporary DMM for that day only.
In addition to making the current provisions of NYSE Rule 104 permanent, the Exchange
also proposes to: (1) replace the reference to “NYSE Regulation’s Division of Market
Surveillance” in Rule 104(k) with a reference to “the Exchange” because, pursuant to NYSE
Rule 0, Exchange Rules that refer to NYSE Regulation, Inc. (“NYSE Regulation”), NYSE
Regulation staff or departments, Exchange staff, and Exchange departments should be
understood as also referring to the Financial Industry Regulatory Authority (“FINRA”) staff and
FINRA departments acting on behalf of the Exchange pursuant to the regulatory services
agreement between the Exchange and FINRA, as applicable; (2) delete the Supplementary
34
NYSE Rule 104(j)(ii) permits the Exchange to make systems available to a DMM at the post displaying the following information about securities in which the DMM is registered: (1) aggregated buying and selling interest; (2) the price and size of any individual order or Floor broker agency interest file and the entering and clearing firm
information for such order, except that the display excludes any order or portion thereof that a market participant has elected not to display to a DMM; and (3) post-trade information. A DMM may not use any such information in a manner that would violate Exchange rules or federal securities laws or regulations. Under NYSE Rule 104(j)(iii), a
DMM may provide market information that is available to the DMM at the post to (1) respond to an inquiry from a Floor broker in the normal course of business or (2) visitors to the Trading Floor for the purpose of demonstrating methods of trading. However, a Floor broker may not submit an inquiry pursuant to NYSE Rule 104(j)(iii) by
electronic means and the DMM may not use electronic means to transmit market information to a Floor broker in response to a Floor broker’s inquiry pursuant to NYSE Rule 104(j)(iii).
13
Material to NYSE Rule 104 – NYSE Rule 104.05 – because NYSE Rule 104.05 states that its
provisions apply “until no later than October 31, 2009;” and (3) delete NYSE Rule 104T, which,
by its express terms, sets forth the rule for dealings by DMMs until no later than ten weeks after
the Commission issued the NMM Approval Order.35
3. The DMM Capital Commitment Schedule
The provisions of NYSE Rule 1000 relating to the CCS, and which are operating as part
of the NMM Pilot, are set forth in NYSE Rules 1000(d) – 1000(g). In general, the CCS allows a
DMM to create a schedule of additional non-displayed liquidity at various price points at which
the DMM is willing to interact with other trading interest (i.e., outside, at, and inside the
Exchange BBO) and provide price improvement to orders in the Exchange’s systems. CCS
interest is separate and distinct from other DMM interest and the Exchange characterizes CCS
interest as “generally interest of last resort.”36
Under NYSE Rule 1000(d), a DMM unit may, for each security in which it is registered,
place within Exchange systems a pool of liquidity – the CCS – to be available to fill or partially
fill37
incoming orders in automatic executions.38
NYSE Rule 1000(d) also provides that CCS
35
Additionally, in NYSE Rules 104 and 1000, the Exchange proposes to replace all references to the term “Display Book” with references either to the term (1) “Exchange
systems” when use of the term refers to the Exchange systems that receive and execute orders, or (2) “Exchange book” when use of the term refers to the interest that has been entered and ranked in Exchange systems. The Exchange represents that it has retired the actual system referred to as the “Display Book,” but not the functionality associated with the Display Book. See Notice, supra note 3, 80 FR 34717 n.9.
36 See Notice, supra note 3, 80 FR at 34718.
37 The original NMM Pilot permitted CCS to participate only if it would fill an incoming
order. In 2009, the Exchange amended Rule 1000 to provide that Exchange systems
would access CCS interest to participate in executions when the incoming order would only be partially executed. See Securities Exchange Act Release No. 60671 (September 15, 2009), 74 FR 48327 (September 22, 2009) (SR-NYSE-2009-71).
14
interest is used to trade at the Exchange BBO, at prices better than the Exchange BBO, and at
prices outside the Exchange BBO. CCS interest must be for a minimum of one round lot of a
security and entered at price points that are at, inside, or away from the Exchange BBO. NYSE
Rule 1000(e) governs executions at and outside the Exchange BBO and specifies how CCS
interest would interact with such executions.
NYSE Rule 1000(f) specifies how CCS interest may provide price improvement inside
the Exchange BBO with interest arriving in the Exchange market that: (1) will be eligible to
trade at or through the Exchange BBO; (2) will be eligible to trade at the price of interest in
Exchange systems representing non-displayable reserve interest of Reserve Orders and Floor
broker agency interest files reserve interest (“hidden interest”) or MPL Orders; or (3) will be
eligible to route to away market interest for execution, if the total volume of CCS interest, plus
d-Quote interest in Floor broker agency interest files, plus any interest represented by hidden
interest, would be sufficient to fully complete the arriving interest at a price inside the Exchange
BBO. In such an instance, the Exchange systems determine the price point inside the BBO at
which the maximum volume of CCS interest will trade, taking into account the volume, if any,
available from Floor broker d-Quotes and hidden interest. The arriving interest is executed at
that price, with all interest trading on parity.
Under NYSE Rule 1000(g), CCS interest may trade with non-marketable39
interest if the
non-marketable interest betters the Exchange BBO (or cancels in the case of an arriving IOC
38
CCS interest supplements displayed and non-displayed interest of the DMM in Exchange systems.
39 Under NYSE Rule 1000(g)(1), “non-marketable” means trading interest (i.e., displayable
and non-displayable) that is at a price higher than the current Exchange bid (but below the current Exchange offer) or lower than the current Exchange offer (but above the current Exchange bid), including better bids and offers on other market centers. See NYSE Rule 1000(g)(1).
15
order) and if the incoming interest may be executed in full by all available trading interest on the
Exchange, including CCS interest and d-quotes. Such a trade would take place at the limit price
of the arriving non-marketable interest. All interest trading with the incoming interest trades on
parity.
4. NYSE Rule 107B
NYSE Rule 107B sets forth the rules governing SLPs. Under NYSE Rule 107B(a), an
SLP is defined as a member organization that electronically enters proprietary orders or quotes
from off the Floor into the systems and facilities of the Exchange and is obligated: (1) to
maintain a bid or an offer at the NBB or NBO in each assigned security in round lots for at least
10% of the trading day, on average, and for all assigned SLP securities;40
and (2) to add liquidity
of an average daily volume (“ADV”) of more than a specified percentage of CADV in all NYSE-
listed securities, as set forth in the Exchange’s Price List, on a monthly basis.41
An SLP can be
either a proprietary trading unit of a member organization (“SLP-Prop”) or a registered market
maker at the Exchange (“SLMM”).42
40
The SLP Pilot originally required an SLP to maintain a bid or offer at the NBB or NBO in each assigned security averaging at least 5% of the trading day. Effective Septem-ber 25, 2010, the Exchange increased this quoting requirement to require SLPs to
maintain a bid or offer at the NBB or NBO in each assigned security averaging at least 10% of the trading day. See Securities Exchange Act Release No. 62791 (August 30, 2010) 75 FR 54411 (September 7, 2010) (SR-NYSE-2010-60) (“SLP 2010 Filing”).
41 In the SLP 2010 Filing, the Exchange introduced a monthly volume requirement for SLPs
of an ADV of more than 10 million shares. See SLP 2010 Filing, supra note 40. Effective September 1, 2012, the Exchange amended the monthly volume requirement to
require instead that SLPs meet an ADV that is more than a specified percentage of the NYSE CADV and amended the Exchange’s Price List to specify the applicable percentage of NYSE CADV for the monthly volume requirement. See Securities Exchange Act Release No. 67759 (August 30, 2012), 77 FR 54939 (September 6, 2012) (SR-NYSE-2012-38).
42 The SLP Pilot was originally available only for a proprietary trading unit of a member
organization. In 2012, the Exchange amended NYSE Rule 107B to add the SLMMs as a
16
Under NYSE Rule 107B(b), when an SLP posts liquidity on the Exchange and that
liquidity is executed against an inbound order, the SLP receives a financial rebate for the
executed transaction as set forth in the Exchange’s Price List, subject to the non-regulatory
penalty provision described in NYSE Rule 107B(k).43
The SLP receives credit toward the
financial rebate for executions of displayed and non-displayed liquidity posted in round lots in its
assigned securities only.
NYSE Rule 107B(c) sets forth the criteria to qualify as an SLP-Prop, which includes
having a quoting and volume performance that demonstrates an ability to meet the SLP’s quoting
requirements under NYSE Rule 107B(a). Under NYSE Rule 107B(d), a member organization
may register as an SLMM in one or more securities traded on the Exchange in order to assist in
the maintenance of a fair and orderly market insofar as reasonably practicable. If approved as an
SLMM, the member organization must: (1) maintain continuous, two-sided trading interest in
assigned securities and meet certain pricing obligations as set forth in NYSE Rule 107B;
(2) maintain minimum net capital in accordance with SEC Rule 15c3-1;44
and (3) maintain
unique mnemonics specifically dedicated to SLMM activity, which may not be used for trading
in securities other than SLP securities assigned to the SLMM. NYSE Rule 107B(e) sets forth the
application process for SLPs, and NYSE Rule 107B(f) describes how an SLP may voluntarily
withdraw from such status.
class of SLPs that are registered as market makers on the Exchange and subject to the
market-wide equity market maker quoting obligations. See Securities Exchange Act Release No. 67154 (June 7, 2012), 77 FR 35455 (June 13, 2012) (SR-NYSE-2012-10).
43 Currently, NYSE Rule 107B(b) incorrectly references subparagraph (j) when referring to
the non-regulatory penalties provisions of NYSE Rule 107B. The Exchange proposes to correct that errant cross-reference by changing the reference to subparagraph (k) of NYSE Rule 107B.
44 See 17 CFR 240.15c3-1.
17
NYSE Rules 107B(g) and (h) set forth how the Exchange calculates whether an SLP is
meeting its 10% quoting requirement and monthly volume requirements under NYSE Rule
107B(a), respectively. For instance, under NYSE Rule 107B(g)(1)(D)(ii), an SLP may post non-
displayed liquidity, but such liquidity is not counted as credit toward the 10% quoting
requirement.
NYSE Rule 107B(i) governs the how securities are assigned to SLPs. NYSE Rule
107B(j) provides that SLPs may only enter orders electronically from off the Floor and may only
enter such orders directly into Exchange systems and facilities designated for this purpose.
NYSE Rule 107B(j) further provides that SLMM quotes and orders may be for the account of the
SLMM in either a proprietary or principal capacity on behalf of an affiliated or unaffiliated
person and SLP-Prop orders must only be for the proprietary account of the SLP-Prop member
organization. NYSE Rule 107B(k) sets forth non-regulatory penalties that apply if an SLP fails
to meet its quoting requirements. Among other things, the rule provides that if an SLP fails to
meet its 10% quoting requirement for three consecutive calendar months in any assigned
security, the SLP will be in danger of losing its SLP status. The rule also sets forth the
reapplication process for member organizations whose SLP applications have been denied or
who have been disqualified as an SLP. Rule 107B(l) sets forth provisions for appealing non-
regulatory penalties.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposal is consistent with the
requirements of the Act and the rules and regulations thereunder applicable to a national
securities exchange. In particular, the Commission finds that the proposed rule change is
18
consistent with Section 6(b)(5) of the Act,45
which requires, among other things, that an
exchange have rules that are designed 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 that are not
designed to permit unfair discrimination between customers, issuers, brokers, or dealers.46
The
Commission also finds that the proposed rule change is consistent with Section 6(b)(8) of the
Act,47
which requires that the rules of an exchange not impose any burden on competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
A. NMM Pilot
When the Commission approved the NMM, it approved the following key provisions on
a pilot basis:48
(i) the changes to NYSE’s priority and order allocation structure under NYSE
Rule 72; (ii) the dealings and responsibilities of DMMs, including the affirmative obligation to
market quality, the quoting obligation, the re-entry requirements following certain transactions
for a DMM’s own account, and, implicitly, the elimination of the “negative obligation”49
set
45
15 U.S.C. 78f(b)(5).
46 In approving the proposed rule change, the Commission has considered its impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
47 15 U.S.C. 78f(b)(8).
48 See NMM Approval Order, supra note 4, 73 FR at 64390.
49 The “negative obligation” was set forth in the prior version of NYSE Rule 104(a). As the
Commission noted in the NMM Approval Order, former “NYSE Rule 104(a) reflect[ed] NYSE’s adoption of the negative obligation and state[d] that ‘no specialist shall effect on the Exchange purchases or sales of any security in which such specialist is registered, for any account in which he or his member organization … is directly or indirectly
interested, unless such dealings are reasonably necessary to permit such specialist to maintain a fair and orderly market … .” See NMM Approval Order, supra note 4, 73 FR at 64379 n.10.
19
forth in NYSE Rule 104; and (iii) the provisions related to DMM CCS interest set forth in NYSE
Rule 1000.
The Commission approved these provisions on a pilot basis, stating that, “to be able to
take any further action on an NYSE proposal with regard to the [NMM] Pilot, NYSE must
provide to [the Commission] on a regular, ongoing basis, statistics relating to market quality and
trading activity” and that analysis of the requested statistics would assist the Commission “in
evaluating the effects of the [NMM] Pilot provisions on NYSE’s market quality, and in
determining whether the [NMM] Pilot should be permanently approved … consistent with the
Act.”50
By requiring the Exchange to submit statistics relating to market quality and trading
activity throughout the duration of the NMM Pilot, the Commission sought to determine whether
implementation of the NMM Pilot would have a detrimental effect on investors or other market
participants.51
Since it first adopted the Pilots, the Exchange has provided the Commission, on an
ongoing basis, with statistics relating to market quality and trading activity. Furthermore, in its
current proposal, the Exchange has provided its own analysis, based on those statistics, of the
50
See NMM Approval Order, supra note 4, 73 FR at 64390. Specifically, the Commission required the Exchange to provide the following monthly data during the term of the NMM Pilot: (1) DMM time at the NBBO by security; (2) the effective spread by
security; (3) the DMM volume broken out by “DMM interest type” (e.g., CCS, s-Quote) and the total shares traded expressed in twice total volume where both the buy and the sell shares are counted for each trade; (4) the average depth at the NBBO by market participant (DMMs, Floor brokers, and orders represented in the Exchange’s book); (5)
the ratio of (i) shares not executed in Exchange systems due to DMM execution to (ii) the shares executed by the DMM; and (6) effective spread for (i) orders that involve DMM liquidity provisions and (ii) orders that are executed without DMM liquidity (for similar order size categories). See id. at 64387.
51 See NMM Approval Order, supra note 4, 73 FR at 64391.
20
effect of the Pilots on market quality for investors and other market participants.52
The
Exchange also asserts that the Pilots have enabled the Exchange to remain competitive and to
maintain relatively stable market share over the past six years, which, the Exchange notes, have
been a period during which traded volume for equities securities has generally shifted away from
registered exchanges.53
1. NYSE’s Priority and Order Allocation Structure under NYSE Rule 72
As explained above,54
under the NMM Pilot, all market participants receive executions
on parity. The setting interest that establishes the Exchange BBO is entitled to priority and
receives the first 15% of any incoming order (subject to a minimum of one round lot) in advance
of the regular allocation of that order. For executions outside the Exchange BBO, all displayable
interest is executed before any non-displayable interest. Also, under the NMM Pilot, DMMs no
longer yield to off-Floor participants. More importantly, while the DMM and each Floor Broker
are counted as separate market participants, all off-Floor participants and SLPs are aggregated
together and counted as a single market participant.
In the NMM Approval Order, the Commission raised questions about the effects that the
Exchange’s parity rule might have on market quality, book depth, and execution rates of public
customer orders.55
In seeking to make the Pilots permanent, the Exchange asserts that the
monthly statistics provided by the Exchange to the Commission demonstrate that the NMM Pilot
has improved market quality by numerous measures.56
Specifically, based on the statistics the
52
See Notice, supra note 3, 80 FR at 34722-25.
53 See Notice, supra note 3, 80 FR at 34723.
54 See supra Section II.B.1.
55 See NMM Approval Order, supra note 4, 73 FR at 64389.
56 See Notice, supra note 3, 80 FR at 34726.
21
Exchange assembled for the Commission, the Exchange asserts that the rules under the NMM
Pilot have been effective at improving the Exchange’s spread on marketable orders and the
percentage of time that DMMs quote at the NBBO.57
Additionally, the Exchange argues that,
among registered exchanges in what has become a fragmented equity market, the Exchange
continues to be a leading liquidity provider because of the diverse population of market
participants under the Pilots (i.e., DMMs, SLPs, Floor Brokers, and other off-Floor market
participants).58
In support of these assertions, the Exchange’s proposal provides statistics for,
and analysis of, six market quality metrics for NYSE-listed Securities, such as the average
quoted spread, displayed shares at the NBBO, and time alone at the NBBO.59
The Commission has reviewed the data analysis provided by the Exchange and believes
that the Exchange has shown that the NMM Pilot, which includes the parity provisions under
NYSE Rule 72, has produced sufficient execution quality to attract volume and sufficient
incentives to liquidity providers to supply this execution quality. Accordingly, the Commission
finds that making the parity rules under NYSE Rule 72 permanent is consistent with the
requirements of the Act.
2. Dealings and Responsibilities of DMMs and the Provisions Related to
DMM CCS Interest
As explained above,60
under the NMM Pilot, specialists on the NYSE were eliminated
and DMMs were introduced as market participants on the Exchange. DMMs have an affirmative
obligation to engage in a course of dealings for their own accounts to assist in the maintenance,
57
See Notice, supra note 3, 80 FR at 34725.
58 See Notice, supra note 3, 80 FR at 34724.
59 See id.
60 See supra Sections II.B.2 & .3.
22
so far as reasonably practicable, of a fair and orderly market. Specifically, DMMs have an
obligation to use their own capital to contribute to the maintenance of a fair and orderly market,
are subject to depth guidelines, and must maintain a bid or an offer at the NBB and NBO for a
certain percentage of the trading day. Further, DMMs are required to facilitate transactions in
their assigned securities during the opening, reopening, NYSE Midday Auction, and closing
transactions. DMMs are no longer given the advance “look” at incoming orders that the
Exchange’s prior Hybrid Market provided to specialists.
In return for incurring these obligations, DMMs are permitted to trade freely for their
own accounts on parity with other market participants. Further, the CCS – in which a DMM sets
forth additional liquidity that it commits to provide in its assigned securities at specific price
points – allows DMMs to trade in their assigned securities with incoming orders at a price inside
the Exchange BBO with minimal risk and without contributing to visible depth of the market.61
Because the NMM provides DMMs with the advantages of being on parity with market
participants and of CCS executions, the Commission, in approving these aspects of the NMM as
a pilot program, noted that it was “seeking further evidence that the benefits proposed for DMMs
are not disproportionate to their obligations.”62
As noted above, in seeking to make the NMM Pilot permanent, the Exchange asserts that
the monthly statistics provided by the Exchange to the Commission demonstrate that the NMM
Pilot has improved market quality by numerous measures.63
Specifically, the Exchange asserts
that the NMM Pilot has allowed the Exchange’s former specialists and new DMMs to compete,
and to contribute to market quality, in a fully electronic trading environment despite challenging
61
See NMM Approval Order, supra note 4, 73 FR at 64389. 62
See id.
63 See Notice, supra note 3, 80 FR at 34726.
23
conditions over the past several years. The Exchange notes that, between 2009 and 2014, there
was a significant decrease in trading volume in the cash equities markets, which resulted in
thinner profit margins for market makers and caused turnover among the Exchange’s new
DMMs and former specialists.64
The Exchange also argues that the operation of the NMM Pilot
has been instrumental in attracting new DMMs to the Exchange at a time when former specialists
were exiting the Exchange’s market maker business.65
Additionally, the Exchange asserts that DMMs – as well as SLPs – have been important
contributors to the Exchange’s ability to set the NBBO. The Exchange represents that, during
2014, DMMs quoted at the inside of the NBBO almost 30% of the time on average and that,
during the same period, an average of 8.3% of DMM execution volume improved the NBBO at
the time the executed quotes were entered.66
Further, the Exchange asserts that its statistics and
analysis demonstrate that the rules under the NMM Pilot have been effective at improving the
percentage of time that DMMs quote at the NBBO and the percentage of DMM participation in
total trading volume.67
The Commission has reviewed the data analysis provided by the Exchange and believes
that the Exchange has shown that the NMM Pilot, which includes the DMM dealings and
responsibilities provisions and the CCS interest provisions of NYSE Rules 104 and 1000,
respectively, has produced sufficient execution quality to attract volume and sufficient incentives
64
See Notice, supra note 3, 80 FR at 34723-24.
65 See id. at 34724.
66 See id.
67 See id. at 34725. Specifically, the Exchange represents that the percentage of the time
that DMMs were quoting at the NBBO, which ranged from 9.9% to 19% from August to December 2008, have exceeded 20% since that time and ranged from 31.3% to 39.2% in the period from November 2013 to November 2014. See id.
24
to liquidity providers to supply this execution quality. Accordingly, the Commission finds that
making NYSE Rule 104 and the CCS provisions under NYSE Rule 1000 permanent is consistent
with the requirements of the Act.
B. SLP Pilot
The Exchange represents that it adopted the SLP Pilot to encourage an additional pool of
liquidity at the Exchange following the approval of the NMM Pilot.68
As explained above,69
SLPs are obligated to: (1) maintain a bid or an offer at the NBB or NBO in each assigned
security in round lots at least 10% of the trading day on average; and (2) add a certain volume of
liquidity for all assigned SLP securities. SLMMs have continuous two-sided quoting obligations
and must meet certain pricing obligations for those quotes. As a benefit for incurring these
obligations, SLPs receive a financial rebate for each transaction when liquidity that the SLP
posts on the Exchange is executed against an inbound order. When it adopted the SLP Pilot, the
Exchange represented that it would use the SLP Pilot period to identify and address any
administrative or operational problems prior to expanding it.70
The Exchange also opined that
the Pilot period would provide SLPs with “essential practical experience with the new program
and enable the SLPs to become proficient in the SLP role before expanding the assigned
securities to all NYSE-listed securities.”71
In seeking to make the SLP Pilot permanent, the Exchange has explained that the number
of stocks quoted by at least one SLP has increased substantially since it first launched the SLP
68
See Notice, supra note 3, 80 FR at 34722.
69 See supra Section II.B.4.
70 See SLP Notice, supra note 11, 73 FR at 65905.
71 See id.
25
Pilot.72
The Exchange represents that: (1) through December 2014, SLPs represented 25.2% of
liquidity-providing execution; and (2) SLPs currently account for 13.3% of the liquidity-
providing volume in issues outside of the Exchange’s 1,000 most active issues.73
The Exchange
also states that SLPs – along with DMMs – have been important contributors to the Exchange’s
ability to set the NBBO.74
The Commission has reviewed the data analysis provided by the Exchange and believes
that the Exchange has shown that the SLP Pilot, as part of the NMM Pilot, has produced
sufficient execution quality to attract volume and sufficient incentives to liquidity providers to
supply this execution quality. Accordingly, the Commission finds that making the provisions
governing SLPs set forth in NYSE Rule 107B permanent is consistent with the requirements of
the Act.
C. Additional Proposed Rule Changes
The Exchange proposes to delete: (1) NYSE Rule 104T, which is no longer operative
because the Commission approved the NMM Pilot; (2) NYSE Rule 104.05, which was only
intended to be effective through October 31, 2009; and (3) a related reference to NYSE Rule
104.05. The Commission finds that these proposed deletions from the Exchange’s rule text are
consistent with the Act because they remove text from the Exchange’s rulebook that is
extraneous, particularly now that the Commission is approving the NMM and SLP programs on
a permanent basis.
72
See Notice, supra note 3, 80 FR at 34725. The Exchange represents that when it first launched the SLP Pilot, only 497 symbols were covered by an SLP and that, by the end of September 2014, “nearly every Exchange symbol, including operating companies, preferred stocks, warrants, rights and all other issue types, had at least once SLP quoting in it.” See id.
73 See id.
74 See id. at 34724.
26
Furthermore, the Exchange proposes to: (1) replace the term “Display Book” with either
the term “Exchange systems” or “Exchange book” throughout NYSE Rules 104 and 1000; (2) in
NYSE Rule 104(k), replace the term “NYSE Regulation’s Division of Market Surveillance” with
the term “the Exchange” pursuant to NYSE Rule 0; and (3) correct an errant cross reference in
NYSE Rule 107B(b). The Commission finds that these additional changes are consistent with
the Act because they will provide additional clarity and consistency throughout the current
NMM rules.
IV. Conclusion
IT IS THEREFORE ORDERED that, pursuant to Section 19(b)(2) of the Act,75
the
proposed rule change (SR-NYSE-2015-26) be, and hereby is, approved.
For the Commission, by the Division of Trading and Markets, pursuant to delegated
authority.76
Robert W. Errett
Deputy Secretary
75
15 U.S.C. 78s(b)(2).
76 17 CFR 200.30-3(a)(12).
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EXHIBIT 5
Additions underscored
Deletions [bracketed]
NYSE Rules
*****
Rule 72. Priority of Bids and Offers and Allocation of Executions
[The provisions of this rule shall be in effect during a Pilot set to end on July 31, 2014.]
(a) Priority of First Bid or Offer
(i) As used in this rule, the term "displayable" shall mean that portion of interest that could be published as, or as part of, the Exchange BBO, including pegging interest.
Displayable odd-lot orders will be published as part of the Exchange BBO if, when aggregated with other interest available for execution at that price point, the sum of the odd-lot order and other interest available at that price point would be equal to or greater than a round lot. The term "displayed interest" includes that part of an order that is
published as, or as part of, the Exchange BBO, which may include one or more odd-lot orders.
(ii) When a bid or offer, including pegging interest is established as the only displayable bid or offer made at a particular price and such bid or offer is the only displayable interest when such price is or becomes the Exchange BBO (the "setting interest"), such setting interest shall be entitled to priority for allocation of executions at that price as described in this rule, subject to the provisions below.
(A) Odd-lot orders, including aggregated odd-lot orders that are displayable, are not eligible to be setting interest.
(B) If at the time displayable interest of a round lot or greater becomes the Exchange
BBO, there is other displayable interest of a round lot or greater, including aggregated odd-lot orders that are equal to or greater than a round lot, at the price that becomes the Exchange BBO, no interest is considered to be a setting interest, and, therefore, there is no priority established.
(C) If at the time displayable interest of a round lot or greater becomes the Exchange BBO, there is other displayable interest, the sum of which is less than a round lot, at
the price that becomes the Exchange BBO, the displayable interest of a round lot or greater will be considered the only displayable bid or offer at that price point and is therefore established as the setting interest entitled to priority for allocation of executions at that price as described in this rule.
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(D) If executions decrement the setting interest to an odd-lot size, a round lot or PRL order that joins such remaining odd-lot size order is not eligible to be the setting interest.
(E) If as a result of cancellation, interest is or becomes the single displayable interest of a round lot or greater at the Exchange BBO, it becomes the setting interest.
(F) Only the portion of setting interest that is or has been published in the Exchange BBO shall be entitled to priority allocation of an execution. That portion of setting
interest that is designated as reserve interest and therefore not displayed at the Exchange BBO (or not displayable if it becomes the Exchange BBO) is not eligible for priority allocation of an execution irrespective of the price of such reserve interest or the time it is accepted into Exchange systems. However, if, following an
execution of part or all of setting interest, such setting interest is replenished from any reserve interest, the replenished volume of such setting interest shall be entitled to priority if the setting interest is still the only interest at the Exchange BBO.
(G) If non-pegging interest becomes the Exchange BBO, it shall be considered the setting interest even if pegging interest is pegging to such non-pegging interest, and it shall retain its priority even if subsequently joined at that price by a pegging interest. (See Rule 13 - Pegging Interest.)
(b) Retention of Priority
(i) Once priority is established by setting interest, such setting interest retains that priority for any execution at that price when that price is at the Exchange BBO. In the event that
executions decrement the setting interest to an odd-lot size, such remaining portion of the setting interest retains its priority for any execution at that price when that price is the Exchange BBO.
(ii) For any execution of setting interest that occurs when the price of the setting interest is not the Exchange BBO, the setting interest does not have priority and is executed on parity.
(iii) Priority of setting interest shall not be retained after the close of trading on the Exchange or following the resumption of trading in a security after a trading halt in such
security has been invoked pursuant to Rule 123D or following the resumption of trading after a trading halt invoked pursuant to the provisions of Rule 80B. Priority of the setting interest is not retained on any portion of the priority interest that is routed to an away market and is returned unexecuted unless such priority interest is greater than a round lot
and the only other interest at the price point is odd-lot orders, the sum of which is less than a round lot.
(c) Allocation of Executions
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(i) An automatically executing order will trade first with the displayed bid (offer) and if there is insufficient displayed volume to fill the order, will trade next with reserve interest. All reserve interest will trade on parity.
(ii) For the purpose of share allocation in an execution, each single Floor broker, the DMM and orders collectively represented in Exchange systems (referred to herein as
"Book Participant") shall constitute individual participants. The orders represented in the Book Participant in aggregate shall constitute a single participant and will be allocated shares among such orders by means of time priority with respect to entry.
(iii) In any execution at the Exchange BBO, a participant who has established priority as provided in (a) of this rule (i.e., is setting interest) shall receive fifteen percent (15%) of the volume of such executed amount or a minimum of one round lot, whichever is
greater, until such setting interest has received a complete execution of its eligible priority interest. Setting interest that is decremented to an odd-lot size shall receive fifteen percent (15%) of the volume of such incoming interest rounded up to the size of the setting interest, or the size of the incoming interest, whichever is less.
(iv) Following the allocation of an execution to setting interest as provided in (c)(i) above, the remainder of the executed volume shall be allocated to each participant on
parity. The participant with the priority interest (the setting interest) shall be included in such parity allocation.
Example for (c)(ii) and (iii):
Setting interest has 1,000 shares as the best bid of 20.05. There is an
additional 600 shares of an e-Quote without priority at the same bid price. A market order to sell 500 shares arrives and is executed. The setting interest first receives 100 shares as its priority allocation (15% of 500 equals 75 shares, rounded up to 100 shares). The remainder of
the execution is split on a parity basis between the two participants, with each receiving 200 shares. In total, the setting interest received 300 shares of the 500 share execution and the e-Quote received 200 shares.
(v) If there is no setting interest for an execution at the Exchange BBO, allocation of the executed volume shall be on parity by participant except as set forth in subparagraph (c)(xi) of this rule.
(vi) When an execution occurs at the Exchange BBO, interest that is displayed in the
Exchange BBO shall be allocated before any interest that is not displayed. For purposes of this rule, "displayed" shall have the meaning as stated in subparagraph (a) above of this rule.
(vii) In allocating an execution that involves setting interest, whether such execution takes place at the Exchange BBO or otherwise, the volume allocated to the setting
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interest shall be allocated to the interest in the setting interest that is entitled to priority first.
(viii) Shares will be allocated in round lots or the size of the order if less than a round lot. In the event the number of shares to be executed at a price point is insufficient to allocate round lots to all the participants eligible to receive an execution at that price point, or the
size of the order if less than a round lot, Exchange systems shall create an allocation wheel of the eligible participants at that price point and the available round lot shares will be distributed to the participants in turn. If an odd-lot sized portion of the incoming order remains after allocating all eligible round lots, the remaining shares will be allocated to the next eligible participant in less than a round lot. (See Example below.)
(A) On each trading day, the allocation wheel for each security is set to begin with the
participant whose interest is entered or retained first on a time basis. Thereafter, participants are added to the wheel as their interest joins existing interest at a particular price point. If a participant cancels his, her or its interest and then rejoins, that participant joins as the last position on the wheel at that time.
Parity Example 1
Assume there is interest of the Book Participant (representing orders entered by two different public customers), three Floor brokers and the DMM are bidding at the same price, with no participant having
priority. An order to sell is received by the Exchange. Exchange systems will divide the allocations among the participants as follows:
Public Order #1 100 shares and Public Order #2 100 shares Book Participant
Floor Broker 1 Participant A
DMM Participant B
Floor Broker 2 Participant C
Floor Broker 3 Participant D
A market order for 300 shares to sell entered in Exchange systems
will allocate 100 shares to the Book Participant (Public Order #1), Participant A and Participant B above. Subsequently, another order to sell 300 shares at the same price is received by Exchange systems. Those shares will be allocated to Participant C, Participant D, and Book Participant ( Public Order #2).
(B) The allocation wheel will move to the next participant when an odd-lot allocation completely fills the interest of such participant.
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Parity Example 2
Assume there is interest of the Book Participant (representing orders entered by two different public customers), three Floor brokers and the DMM are bidding at the same price, with no participant having priority. An order to sell is received by the Exchange. Exchange systems will divide the allocations among the participants as follows:
Public Order #1 100 shares and Public Order #2 100 shares Book Participant
Floor Broker 1 Participant A 50 shares
DMM Participant B 50 shares
Floor Broker 2 Participant C 300 shares
Floor Broker 3 Participant D 300 shares
A market order for 200 shares to sell entered in Exchange systems will allocate 100 shares to the Book Participant (Public Order #1),
Participant A will receive 50 shares, Participant B above will receive 50 shares. Subsequently, another order to sell 300 shares at the same price is received by Exchange systems. Those shares will be allocated to Participant C, Participant D, and Book Participant ( Public Order #2).
Parity Example 3
Assume there is interest of the Book Participant (representing orders entered by two different public customers), three Floor brokers and
the DMM are bidding at the same price, with no participant having priority. An order to sell is received by the Exchange. Exchange systems will divide the allocations among the participants as follows:
Public Order #1 100 shares and Public Order #2 100 shares Book Participant
Floor Broker 1 Participant A 50 shares
DMM Participant B 75 shares
Floor Broker 2 Participant B 75 shares
Floor Broker 3 Participant D 300 shares
A market order for 200 shares to sell entered in Exchange systems will allocate 100 shares to the Book Participant (Public Order #1),
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Participant A will receive 50 shares, Participant B above will receive 50 shares. Subsequently, another order to sell 300 shares at the same price is received by Exchange systems. The allocation wheel will
start with Participant B. Participant B is allocated 25 shares, Participant C is allocated 100 shares, Participant D is allocated 100 shares, and Book Participant ( Public Order #2) is allocated 75 shares. Exchange systems will retain Book Participant (Public Order
#2) as the participant eligible to receive the next allocation at that price point.
(C) The allocation wheel will also move to the next participant where Exchange systems execute remaining displayable odd-lot interest prior to replenishing the displayable quantity of a participant.
Parity Example 4
Assume the available bid interest on the Exchange consists of a single Book Participant and two Floor brokers listed below in order of their position on the allocation wheel none of the participants have priority.
Floor Broker 1 Participant A - 200 shares displayed and 4800 shares reserve
Book Participant Public Order #1 Participant B - 500 shares displayed
Floor Broker 2 Participant C - 500 shares displayed
An order to sell 350 shares is received by the Exchange. Exchange systems will divide the allocations among the participants as follows:
Participant A - 150 shares
Book Participant - 100 shares
Participant C - 100 shares
Each participant receives a round lot allocation. The Allocation wheel returns to Participant A as the first participant on the wheel and allocates the remaining 50 shares. The allocation wheel remains on Participant A. The remaining interest of the three participants is as follows:
Floor Broker 1 Participant A - 50 shares displayed and 4800 shares reserve
Book Participant Public Order #1 Participant B 400 shares displayed
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Floor Broker 2 Participant C 400 shares displayed
Prior to the system replenishing the displayed quantity of Participant A, an order to sell 100 shares is received by Exchange systems. The system will allocate 50 shares to Participants A and B. The next allocation at the price point will begin with Participant B.
(ix) When an execution occurs outside the Exchange BBO, the interest that is displayable will be allocated before any interest that is non-displayable (i.e. reserve interest). All
interest that is displayable will be on parity among individual participants' displayable interest. All interest that is non-displayable will be on parity among individual participants' non-displayable interest.
(x) Incoming orders eligible for execution at price points between the Exchange BBO shall trade with all available interest at the price. All NYSE interest available to participate in the execution (e.g., d-quotes, s-quotes, Reserve Orders pursuant to Rule 13 and Capital Commitment Schedule interest (see Rule 1000)) will trade on parity.
(xi) DMM interest added intra day to participate in a verbal transaction with a Floor
broker or during a slow quote, will be allocated shares only after all other interest eligible for execution at the price point are executed in full. DMM interest added at the time of the slow quote or when verbally trading with a Floor broker not executed during the transaction will be cancelled.
However, s-Quotes, if any, representing DMM interest present at the price point prior to the verbal transaction with a Floor broker or during a slow quote will receive an allocation on parity pursuant to the provisions of subparagraph (c)(v) of this rule above.
(xii) An order that is modified to reduce the size of the order shall retain the time stamp
of original order entry. Any other modification to an order, such as increasing the size or changing the price of the order, shall receive a new time stamp.
(d) Priority of Cross Transactions
When a member has an order to buy and an order to sell an equivalent amount of the
same security, and both orders are "block" orders and are not for the account of such member or member organization, an account of an associated person, or an account with respect to which the member, member organization or associated person thereof exercises investment discretion, the member may "cross" those orders at a price at or within the
Exchange best bid or offer. The member's bid or offer shall be entitled to priority at such cross price, irrespective of pre-existing displayed bids or offers on the Exchange at that price. The member shall follow the crossing procedures of Rule 76, and another member may trade with either the bid or offer side of the cross transaction only to provide a price
which is better than the cross price as to all or part of such bid or offer. A member who is providing a better price to one side of the cross transaction must trade with all other displayed market interest on the Exchange at that price before trading with any part of the
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cross transaction. Following a transaction at the improved price, the member with the agency cross transaction shall follow the crossing procedures of Rule 76 and complete the balance of the cross. No member may break up the proposed cross transaction, in
whole or in part, at the cross price. No DMM may effect a proprietary transaction to provide price improvement to one side or the other of a cross transaction effected pursuant to this paragraph. A transaction effected at the cross price in reliance on this paragraph shall be printed as "stopped stock".
When a member effects a transaction under the provisions of this paragraph, the member shall, as soon as practicable after the trade is completed, complete such documentation of the trade as the Exchange may from time to time require.
Example 1
Assume the Exchange's market in XYZ is quoted 20 to 20.01, 40,000 shares by 30,000 shares. A member intending to effect a 25,000 share "agency cross" transaction at a price
of 20 must bid 20 for 25,000 shares and offer 25,000 shares at 20.01. The member's bid at 20 has priority, and the proposed cross could not be broken up at that price. The proposed cross could however, be broken up at 20.01, as this would provide a better price to the seller. However, a member intending to trade with the offer side of the cross would first
have to take the entire displayed 30,000 share offer at 20.01 before trading with any part of the offer side of the cross.
Example 2
Assume the Exchange's market in XYZ is quoted 20 to 20.35, 20,000 shares by 20,000
shares. A member intending to effect a 25,000 share "agency cross" transaction at a price of 20.05 must follow the crossing procedures of Rule 76 and bid 20.05 for 25,000 shares and offer 25,000 shares at 20.06. The member's bid at 20.05 has priority, and the proposed cross could not be broken up at this price. The proposed cross could, however,
be broken up, in whole or in part, at 20.06, as this would provide a better price to the seller.
• • • Supplementary Material: ------------------
.10 Definition of a Block - For purposes of this rule, a "block" shall be at least 10,000
shares or a quantity of stock having a market value of $200,000 or more, whichever is less.
*****
[Rule 104T. Dealings by DMMs
This version of Rule 104 is operative upon Securities and Exchange Commission
approval of SR-NYSE-2008-46 and will cease operation no later than ten weeks after such approval of SR-NYSE-2008-46.
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(a) No DMM shall effect on the Exchange purchases or sales of any security in which such DMM is registered, for any account in which he or she, his or her DMM unit or any other member or allied member in such unit or officer or employee thereof is directly or
indirectly interested, unless such dealings are reasonably necessary to permit such DMM to maintain a fair and orderly market, or to act as an odd-lot dealer in such security.
(aa)
(i) The DMM shall have the ability to algorithmically quote in any security in reaction to certain information, which will not include information about incoming orders as such orders are entering Exchange systems.
(ii) The DMM shall have the ability to algorithmically execute transactions against the Exchange best bid or offer ("Hit Bid/Take Offer") in any security in reaction to certain information, which will not include information about incoming orders as such orders are
entering Exchange systems. Hit Bid/Take Offer messages will be processed by the Display Book in such a manner that DMMs and other market participants will have a similar opportunity to trade with the Exchanges' published quotation.
(b) DMMs shall have the ability to establish systems employing algorithms to generate quoting and trading messages, as detailed below, which will be delivered to the Display Book® system via an external quote application programmed interface ("API").
(i) In reaction to information, including but not limited to, an incoming order as it is entering NYSE systems, the DMM's system employing algorithms may generate messages for any of the following quoting or trading actions, provided such algorithmically-generated messages are in reaction to only one order at a time:
Quoting Messages:
(A) supplement the size of the existing Exchange published best bid or offer;
(B) place within the Display Book® system DMM reserve interest at the Exchange published best bid or offer as described in (d) below;
(C) layer within the Display Book® system DMM interest at varying prices outside the published Exchange quotation ("DMM interest");
(D) establish the Exchange best bid or offer; and
(E) withdraw previously established DMM interest at the Exchange best bid or offer.
Trading Messages:
(F) provide additional DMM volume to partially or completely fill an order either at the Exchange published best bid or offer price or at a sweep price;
(G) match better bids and offers published by other market centers where automatic executions are immediately available;
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(H) provide price improvement to an order subject to the conditions set forth in (e) below; and
(I) trade with the Exchange published best bid or offer.
(ii) DMMs may open a security on a quote when there is no opening trade or with a transaction by sending an automated opening message through the API (see also Exchange Rule 123D).
(iii) Exchange systems shall:
(A) enforce the proper sequencing of incoming orders and algorithmically-generated messages; and
(B) ensure that algorithmically-generated messages to trade with the Exchange BBO are processed by the Display Book® in such a manner that DMMs and other market participants have a similar opportunity to trade with the published quotation.
(c)
(i) All algorithmically-generated messages delivered via the API must include a code
identifying the reason for the algorithmic action, the unique identifier of the order to which the algorithmically-generated message is reacting, (if any), the unique identifier of the order immediately preceding the generation of the algorithmically-generated message and any other information the Exchange may require. In addition,
(A) Algorithmically-generated messages to trade with the Exchange published BBO, as provided in (b)(i)(I) above, must include the unique identifier for the publicly- disseminated Exchange best bid or offer to which the algorithmic message is reacting.
(B) The Exchange will designate the reason codes, unique identifiers for orders and quotations and the format of any other required information for use in algorithmically-generated messages.
(C) Identification of a particular order and/or quotation in an algorithmically-generated message does not guarantee that the DMM will trade with that order or quotation or that the DMM has priority in trading with that order or quotation.
(D) The Exchange will automatically cancel algorithmically-generated messages that are unable to interact with the order or quotation identified by the message where the reason code and the proposed algorithmic action are inconsistent, where the message activity
would create a locked or crossed market, where the identifiers described above in (c) are not designated, and in other similar situations.
(ii) The DMM system employing algorithms will not have access to the following types
of information:
(A) information which identifies the firms entering orders, customer information, or an order's clearing broker;
(B) Floor broker agency interest files or aggregate Floor broker agency interest available at each price; or
(C) cancellation of an order, except for cancel and replace orders.
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(iii) Algorithmically-generated messages must comply with all SEC and Exchange rules, policies and procedures governing DMM proprietary trading.
(iv) Algorithmically-generated messages must not create a locked or crossed market, as defined in Exchange Rule 15A.
(v) The Display Book® will not process algorithmically-generated messages during the
time a block-size transaction (as defined in Rule 127) involving orders on the Display Book® is being reported pursuant to manual reporting.
(vi) The Display Book® will not process algorithmically-generated messages when
automatic executions are suspended, except:
(i) when automatic executions are suspended but autoquote is available, the Display Book® will process algorithmically-generated messages to improve the Exchange best
bid or offer or supplement the size of an existing best bid or offer; and
(ii) where automatic executions and autoquote are suspended, the Display Book® will:
(1) process algorithmically-generated messages to layer within the Display Book® system DMM interest at prices outside the published Exchange quotation; and
(2) permit DMMs to manually layer interest within the Display Book® system, as
provided in (viii), below, at prices that are within a previously-established locking or crossing quotation.
(vii) The Display Book® shall not process algorithmically-generated messages
transmitted via the API that will trigger the automatic execution of an auction limit or an auction market order pursuant to Rule 123F or that will result in such order's execution with an existing contra-side DMM bid or offer. However, the Display Book® will process algorithmically-generated messages to provide price improvement to auction
limit and auction market orders in accordance with the price improvement parameters described in (e).
(viii) DMMs shall have the ability to manually layer within the Display Book® system
DMM interest, including reserve interest, at varying prices at and outside the Exchange BBO. Such interest remains in the Display Book® system until traded with or cancelled.
(ix) DMM algorithmically-generated messages will compete with or trade along with
same-side discretionary e-Quotes SM
in the manner described in Exchange Rule 70.25.
(d)
(i) A DMM unit may maintain reserve interest consistent with Exchange rules governing Reserve Orders. Such reserve interest is eligible for execution in manual transactions.
(ii) After an execution involving DMM interest at the Exchange BBO that does not
exhaust the DMM's interest at that price, the DMM's displayed interest will be automatically replenished from the reserve interest, if any, so that at least one round-lot of DMM interest is displayed.
(iii) DMM reserve interest will be on parity with Floor broker agency file reserve interest and, like it, shall yield to all other displayed interest eligible to trade at the Exchange bid or offer (See Rule 70.20(c)).
(e)
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(i) A DMM may provide algorithmically-generated price improvement to all or part of a marketable incoming order including an auction limit order and an auction market order. The price improvement to be supplied by the DMM must be at least one cent.
(f)
(i) Each DMM unit shall maintain an electronic log of all algorithmically-generated
messages, including the date and time of each algorithmically-generated message and such other information as the Exchange shall designate. Such log shall be maintained in accordance with SEC and Exchange rules regarding books and records and shall be capable of being provided to the Exchange upon request, in such time and in such format
as the Exchange shall designate.
(ii) Each DMM unit shall notify the Exchange in writing, within such time as the Exchange shall designate, whenever the system employing algorithms or an individual
algorithm is not operating and the time, cause, and duration of such non-operation.
(g) During the day, DMMs on the Floor may interact with the system employing the unit's algorithms or an individual algorithm with respect to the securities they are trading
by:
(i) activating or deactivating the unit's algorithms from a group of pre-set algorithms made available by the DMM unit, or
(ii) adjusting the unit's pre-set parameters guiding algorithm decision-making.
(h) DMMs must have an independent third party auditor review on an annual basis all
DMM unit systems employing algorithms and all algorithms to ensure that they operate in accordance with all SEC and Exchange rules, policies, and procedures. The Exchange shall have the right to request originals and copies of any reports, notes, analysis, documents and similar types of materials prepared by or on behalf of, or reviewed by
such independent auditor, as the Exchange deems appropriate.
(i) Each DMM unit shall certify in the time, frequency, and manner as prescribed by the Exchange, that the system employing its algorithms and all algorithms operate in
accordance with all SEC and Exchange rules, policies and procedures.
(j) DMMs, trading assistants and anyone acting on their behalf are prohibited from using the Display Book® system to access information about Floor broker agency interest
excluded from the aggregated agency interest and Minimum Display Reserve Order information other than for the purpose of effecting transactions that are reasonably imminent where such Floor broker agency and Minimum Display Reserve Order interest information is necessary to effect such transaction.
(k) With respect to maintaining a continuous two-sided quote with reasonable size, DMM units must maintain a bid or an offer at the National Best Bid and National Best Offer ("inside") at least 10% of the trading day for securities in which the DMM unit is
registered with an average daily volume on the Exchange of less than one million shares, and at least 5% for securities in which the DMM unit is registered with an average daily trading volume equal to or greater than one million shares. Time at the inside is calculated as the average of the percentage of time the DMM unit has a bid or offer at the
inside. In calculating whether a DMM is meeting the 10% and 5% measure, credit will be
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given for executions for the liquidity provided by the DMM. Reserve or other hidden orders entered by the DMM will not be included in the inside quote calculations.
• • • Supplementary Material:
Functions of DMMs
.10 Regular DMMs—Any member who expects to act regularly as DMM in any listed stock and to solicit orders therein must be registered as a regular DMM.
The function of a member acting as regular DMM on the Floor of the Exchange includes, the maintenance, in so far as reasonably practicable, of a fair and orderly market on the Exchange in the stocks in which he is so acting. This is more specifically set forth in the
following:
(1) The maintenance of a fair and orderly market implies the maintenance of price continuity with reasonable depth, and the minimizing of the effects of temporary
disparity between supply and demand.
(2) In connection with the maintenance of a fair and orderly market, it is commonly desirable that a member acting as DMM engage to a reasonable degree under existing
circumstances in dealings for his or her own account when lack of price continuity, lack of depth, or disparity between supply and demand exists or is reasonably to be anticipated.
(3) Transactions on the Exchange for his own account effected by a member acting as DMM must constitute a course of dealings reasonably calculated to contribute to the maintenance of price continuity with reasonable depth, and to the minimizing of the effects of temporary disparity between supply and demand, immediate or reasonably to
be anticipated. Transactions not part of such a course of dealings or in acting as on odd-lot dealer are not to be effected.
(4) A DMM's quotation, made for his own account, should be such that a transaction
effected thereon, whether having the effect of reducing or increasing the DMM's position, will bear a proper relation to preceding transactions and anticipated succeeding transactions.
(5)
(i) Transactions on the Exchange by a DMM for the DMM's account are to be effected in a reasonable and orderly manner in relation to the condition of the general market, the
market in the particular stock and the adequacy of the DMM's position to the immediate and reasonably anticipated needs of the round-lot and the odd-lot market.
(a) The following types of transactions are permitted when they are reasonably necessary
to render the DMM's position adequate to such markets' needs:
(I) Neutral Transactions
(a) Definition - A neutral transaction is a purchase or sale by which a DMM liquidates or decreases a position.
(b) Neutral Transactions may be made without restriction as to price.
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(c) Re-entry Obligation Following Neutral Transactions - The DMM's obligation to maintain a fair and orderly market may require re-entry on the opposite side of the market trend after effecting one or more Neutral Transactions. Such re-entry
transactions should be in accordance with the immediate and anticipated needs of the market.
(d) Neutral Transactions must yield parity to, and may not claim precedence based on size over, a customer order in the Crowd upon the request of the member representing such order, where such request has been documented as a term of the order, to the extent of the volume of such order that has been included in the quote prior to the transaction.
(e) The requirements contained in (5)(i)(a)(I)(d) above shall not apply to automatic executions involving the DMM dealer account.
(II) Non-Conditional Transactions
(a) Definition - A non-conditional transaction is a DMM's bid or purchase and offer or sale, that establishes or increases a position, other than a transaction that reaches across the market to trade with the Exchange bid or offer.
(b) Non-Conditional Transactions may be made without restriction as to price in order to:
(i) match another market's better bid or offer price;
(ii) bring the price of a security into parity with an underlying or related security or asset;
(iii) add size to an independently established bid or offer on the Exchange;
(iv) purchase at the published bid price on the Exchange;
(v) sell at the published offer price on the Exchange;
(vi) purchase or sell at a price between the Exchange published bid and published offer;
(vii) purchase below the published bid or sell above the published offer on the Exchange;
(c) Re-entry Obligation Following Non-Conditional Transactions - The DMM's obligation to maintain a fair and orderly market may require re-entry on the opposite side of the market trend after effecting one or more Non- Conditional Transactions. Such re-
entry transactions should be commensurate with the size of the Non-Conditional Transactions and the immediate and anticipated needs of the market.
(b) During the operation of Rule 104.10(6) pursuant to the pilot program set to end the
earlier of December 31, 2008 or the approval of SR-NYSE-2008-46, the provisions of this subparagraph (5)(i)(b) shall not apply.
(I) The following types of transactions by a DMM for the DMM's account to establish or
increase a position that reach across the market to trade with the Exchange bid or offer are not to be effected except when, with the approval of a Floor Official, the transactions are reasonably necessary to render the DMM's position adequate to the immediate and reasonably anticipated needs of the round-lot and the odd-lot market and the DMM
reoffers or rebids where necessary after effecting such transaction:
(a) a purchase at a price above the last trade price on the Exchange;
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(b) a sale at a price below the last trade price on the Exchange;
(c) the purchase of more than 50% of the stock offered in the market at a price equal to
the last trade price where such last trade price was higher than the last differently priced regular way sale.
(c) Prohibited Transactions
(I) During the last ten minutes prior to the close of trading, a DMM with a long position in a security is prohibited from making a purchase in such security that results in a new high price on the Exchange for the day at the time of the DMM's transaction, except as
provided in subparagraphs (5)(i)(a)(II)(b)(i) through (5)(i)(a)(II)(b)(ii) above.
(II) During the last ten minutes of trading, a DMM with a short position in a security is prohibited from making a sale in such security, that results in a new low price on the
Exchange for the day at the time of the DMM's transaction, except as provided in subparagraphs (5)(i)(a)(II)(b)(i) through (5)(i)(a)(II)(b)(ii) above.
(6) DMM Transactions in Securities that Establish or Increase the DMM's Position:
(i) Definition - A "Conditional Transaction" is a DMM's transaction in a security that establishes or increases a position and reaches across the market to trade as the contra-side to the Exchange published bid or offer.
(ii) The following Conditional Transactions, may be made by a DMM without restriction as to price, provided they are followed by appropriate re-entry on the opposite side of the market commensurate with the size of the DMM's transaction. ("Appropriate" re-entry
shall mean re-entry on the opposite side of the market at or before the price participation point or the "PPP".):
(a) A DMM's purchase from the Exchange published offer that is priced above the last
differently-priced trade on the Exchange and above the last differently-priced published offer on the Exchange; and
(b) A DMM's sale to the Exchange published bid that is priced below the last differently-
priced trade on the Exchange and below the last differently-priced published bid on the Exchange.
(c) As used in (a) and (b) above, the term "last differently priced trade" shall not include
the price of any transaction that occurs in the NYBX Facility (See Rule 1600).
(iii) Re-entry Obligations for Conditional Transactions:
(a) "PPPs"—The Exchange will periodically issue guidelines, called price participation points ("PPP"), that identify the price at or before which a DMM is expected to re-enter the market after effecting a Conditional Transaction. PPPs are only minimum guidelines and compliance with them does not guarantee that a DMM is meeting its obligations.
(b) Notwithstanding that a security may not have reached the PPP, the DMM may be required to re-enter the market immediately after a Conditional Transaction based on the price and/or volume of the DMM's trading in reference to the market in the security at the
time of such trading. In such situations DMMs may not rely on the fact that there may have been one or more independent trades following the DMM's trading to justify a failure to re-enter the market.
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(c) Immediate re-entry is required after the following Conditional Transactions:
(I) A purchase that (1) reaches across the market to trade with an Exchange published
offer that is above the last differently priced trade on the Exchange and above the last differently priced published offer on the Exchange, (2) is 10,000 shares or more or has a market value of $200,000 or more, and (3) exceeds 50% of the published offer size.
(II) A sale that (1) reaches across the market to trade with an Exchange published bid that is below the last differently priced trade on the Exchange and below the last differently priced published bid on the Exchange, (2) is 10,000 shares or more or has a market value of $200,000 or more, and (3) exceeds 50% of the published bid size.
(III) Each trade at a separate price in a Sweep is viewed as a transaction with the published bid or offer for the purpose of subparagraphs (6)(iii)(c)(I) and (6)(iii)(c)(II) above.
(iv) The following Conditional Transactions may be made without restriction as to price:
(a) A DMM's purchase from the Exchange published offer that is priced above the last
differently-priced trade on the Exchange or above the last differently-priced published offer on the Exchange; and
(b) A DMM's sale to the Exchange published bid that is priced below the last differently-
priced trade on the Exchange or below the last differently-priced published bid on the Exchange.
(c) Re-entry obligations following transactions defined in subparagraphs (6)(iv)(a) and
(6)(iv)(b) above are the same as for Non-Conditional Transactions pursuant to subparagraph (5)(i)(a)(II)(c) above.
(7) The requirement to obtain Floor Official approval for transactions for a DMM's own
account contained in subparagraphs (5)(i)(b)(I)(a) through (5)(i)(b)I)(c) above shall not apply to transactions effected in an investment company unit (the "unit"), as that term is defined in Section 703.16 of the Listed Company Manual, or a Trust Issued Receipt (the "receipt") as that term is defined in Rule 1200, streetTRACKS® Gold Shares as the term
is defined in Rule 1300 or Currency Trust Shares as the term is defined in Rule 1301A. Nevertheless such transactions must be effected in a manner that is consistent with the maintenance of a fair and orderly market and with the other requirements of this rule and the supplementary material herein.
(8) When inquiry is made of a DMM as to the price at which a block of stock may be sold, the DMM may advise the broker of the "clean up" price for the block, after trading with the published bid (offer). If, as a result of this inquiry, the block is sold and the
DMM participates as a dealer at the "clean up" price, he or she should also execute at the same price the executable buy orders held by him or her. The same principle applies in the event an inquiry is made with respect to an order to purchase a block of stock.
(9) A DMM's bid or offer in a registered security on the Exchange may not be inferior to the DMM's market maker bid or offer disseminated by an electronic communications network (as that term is defined in Securities and Exchange Commission Rule 600(b)(23) of Regulation NMS) or any other market center. A DMM may not disseminate a market
maker bid or offer on another market center or electronic communications network at a
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price at which Exchange rules would preclude dissemination of such bid or offer on the Exchange.
.11 Participation at openings or re-openings. A DMM should avoid participating as a dealer in opening or reopening a stock in such a manner as to upset the public balance of supply and demand as reflected by market and limited price orders, unless the condition of the general market or the DMM's position in light of the reasonably anticipated needs
of the market makes it advisable to do so. He may, however, buy or sell stock as a dealer to minimize the disparity between supply and demand at an opening or reopening.
.11C See paragraph (d)(iv) of Rule 900 (Off-Hours Trading: Applicability and
Definitions) in respect of (a) the impact of Off-Hours Trading on the calculation of stock positions.
.12 DMM Investment Accounts. Under certain circumstances a DMM may assign
registered securities to an investment account. Purchases creating or adding to a position in an investment account which are not reasonably necessary to permit the maintenance of a fair and orderly market or to act as an odd-lot dealer are not to be made.
In the maintenance of price continuity with reasonable depth, it is commonly desirable for a DMM to supply stock to the market, even though he may have to sell short to do so, to the extent reasonably necessary to meet the needs of the market.
A DMM may not effect a transfer of a registered security from his dealer account to an investment account if the transfer would result in creating a short position in the dealer account.
A DMM may not assign to an investment account any registered security which was purchased in the round-lot market on a "plus" or "zero plus" tick. In addition, in order to make such assignment, he or she must have maintained, with respect to purchases in that stock, a stabilization rate of at least 75%, measured by the Tick Test, as defined in Rule
112(d)(3), for the day of purchase, and for the entire calendar week encompassing that day.
If a "net long" position is created as a result of the maintenance of an investment position
in a registered security while a short position exists in the DMM's dealer account, the DMM may not cover such a short position by purchasing stock in the round-lot market on a "plus" tick. In addition, he or she must also limit his or her purchase to no more than 50% of the stock offered on a "zero plus" tick, and in no event may he or she purchase
the final 100 shares offered.
See paragraph (d)(iii) of Rule 900 in respect of (a) the assignment of a registered security acquired through the Off-Hours Trading Facility to an investment account and (b) the
purchase of securities through the Off-Hours Trading Facility to cover a short position in a dealer account.
Reporting Requirements
In connection with investment positions in registered securities, a DMM shall report to the Exchange, on such form and in such format
as the Exchange may from time to time prescribe, a record of all transactions effected for investment purposes. The DMM shall also
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report to the Exchange, on such form and in such format as the Exchange may from time to time prescribe, a record of all transactions effected for investment purposes for the account of any person specified in Rule 104.13.
.13 Investment Transactions.
(a) Any transactions effected for the benefit of any of the following persons in stocks in
which a DMM is registered must be for investment purposes:
(i) any member, allied member, officer, employee or person or party active in the business of the DMM; or
(ii) the spouse and children of any of the above-named persons or parties who reside in the same household as such person or party.
(b) Any transaction included within paragraph (a) may only be made as follows::
(i) acquisitions at prices below the last different price—on "minus" or "zero minus" ticks; and
(ii) liquidations at prices above the last different price—on "plus" or "zero plus" ticks—except with the prior approval of the Exchange.
(c) All off-Floor orders entered for any of the above-named accounts must be identified so that such orders will not be executed prior to any agency order received by the DMM at the same price even though such agency order may be received subsequent to the identified order.
(d) No DMM, and no member or allied member affiliated with such DMM, officer, employee or person active in the business of the DMM shall originate orders in stocks in which such DMM is registered for any account over which they exercise investment
discretion.
(e) Transactions in a stock in which a DMM is registered effected for trust accounts, including "blind" accounts, for the benefit of such DMM or any person specified in
paragraph (a) shall be subject to the provisions of this rule. Transactions in a fund which invests broadly in securities and which may from to time invest in a security in which a DMM is registered, shall not be subject to this rule.
.14 LIFO transactions. A member acting as a DMM may not effect transactions for the purpose of adjusting a LIFO inventory in a stock in which he is so acting except as a part of a course of dealings reasonably necessary to assist in the maintenance of a fair and orderly market.
.15 Relief DMMs Any member registered as a regular DMM must either (1) be associated with other members also registered as regular DMMs in the same stocks, either through a partnership or a member corporation or a joint account, and arrange for
at least one member of the group to be in attendance during the hours when the Exchange is open for business, or (2) arrange for the registration by at least one other member as relief DMM, who would always be available, in the regular DMM's absence, to take over the "book" and to service the market, so that there would be no interruption of the
continuity of service during the hours when the Exchange is open for business.
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The same obligations and responsibilities for the maintenance and stabilization of markets which rest upon regular DMMs, rest also upon relief DMM while in possession of the "book."
Approval of the registration of a regular DMM as a relief DMM will be granted provided that the surrounding circumstances are such as to permit him or her to act in such relief capacity, and at the same time insure the adequate servicing of the stocks in which he or
she is registered as a regular DMM and the proper performance of his or her dealer function therein.
.17 Temporary DMMs. In the event of an emergency, such as the absence of the regular
and relief DMMs, or when the volume of business in the particular stock or stocks is so great that it cannot be handled by the regular and relief DMMs without assistance, a Floor Governor may authorize a member of the Exchange who is not registered as a DMM or relief DMM in such stock or stocks, to act as temporary DMM for that day only.
A member who acts as a temporary DMM by such authority is required to file with Market Surveillance, at the end of the day, a report showing (a) the name of the stock or stocks in which he or she so acted, (b) the name of the regular DMM, (c) the time of day
when he or she so acted, and (d) the name of the Floor Governor who authorized the arrangement. The necessary forms may be obtained at the Information Desk.
The Floor Governor will not give such authority for the purpose of permitting a member
not registered as DMM or relief DMM habitually to relieve a regular DMM at lunch periods, etc.
If a temporary DMM substitutes for a regular DMM, and if no regular or relief DMM is
present, the temporary DMM is expected to assume the obligations and responsibilities of regular DMMs for the maintenance and stabilization of the market.
.24 Relief DMMs.
(1) The requirements with respect to a member registered as a full time relief DMM, i.e., one who may be called upon to act as a relief DMM for an entire business day, shall be, net liquid assets of $150,000.
(2) There is no requirement with respect to a member registered as a part-time relief DMM, i.e., one who may be called upon to act as a relief DMM for less than the entire business day, usually for lunch periods, etc. Dealings effected by a part-time relief DMM
while relieving the regular DMM must be made for the account of the regular DMM whom he or she is relieving.]
Rule 104. Dealings and Responsibilities of DMMs
[This version of Rule 104 is operative no later than five weeks after the approval by
the Securities and Exchange Commission of SR-NYSE-2008-46 The provisions of this rule shall be in effect during a Pilot set to end on July 31, 2015.]
(a) DMMs registered in one or more securities traded on the Exchange must engage in a
course of dealings for their own account to assist in the maintenance of a fair and orderly
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market insofar as reasonably practicable. The responsibilities and duties of a DMM specifically include, but are not limited to, the following:
(1) Assist the Exchange by providing liquidity as needed to provide a reasonable quotation and by maintaining a continuous two-sided quote with a displayed size of at least one round lot.
(A) With respect to maintaining a continuous two-sided quote with reasonable size, DMM units must maintain a bid or an offer at the National Best Bid and National
Best Offer ("inside") at least 15% of the trading day for securities in which the DMM unit is registered with a consolidated average daily volume of less than one million shares, and at least 10% for securities in which the DMM unit is registered with a consolidated average daily volume equal to or greater than one
million shares. Time at the inside is calculated as the average of the percentage of time the DMM unit has a bid or offer at the inside. In calculating whether a DMM is meeting the 15% and 10% measure, credit will be given for executions for the liquidity provided by the DMM. Reserve or other hidden orders entered by the DMM will not be included in the inside quote calculations.
(B) Pricing Obligations. For NMS stocks (as defined in Rule 600 under Regulation
NMS) a DMM shall adhere to the pricing obligations established by this Rule during the trading day; provided, however, that such pricing obligations (i) shall not commence during any trading day until after the first regular way transaction on the primary listing market in the security, as reported by the responsible single
plan processor, and (ii) shall be suspended during a trading halt, suspension, or pause, and shall not re-commence until after the first regular way transaction on the primary listing market in the security following such halt, suspension, or pause, as reported by the responsible single plan processor.
(i) Bid and Offer Quotations. At the time of entry of the DMM's bid (offer) interest, the price of the bid (offer) interest shall be not more than the
Designated Percentage away from the then current National Best Bid (Offer), or if no National Best Bid (Offer), not more than the Designated Percentage away from the last reported sale from the responsible single plan processor. In the event that the National Best Bid (Offer) (or if no National Best Bid (Offer),
the last reported sale) increases (decreases) to a level that would cause the bid (offer) interest to be more than the Defined Limit away from the National Best Bid (Offer) (or if no National Best Bid (Offer), the last reported sale), or if the bid (offer) is executed or cancelled, the DMM shall enter new bid (offer)
interest at a price not more than the Designated Percentage away from the then current National Best Bid (Offer) (or if no National Best Bid (Offer), the last reported sale), or identify to the Exchange current resting interest that satisfies the DMM's obligation according paragraph (1)(A), above.
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(ii) The National Best Bid and Offer shall be determined by the Exchange in accordance with its procedures for determining protected quotations under Rule 600 under Regulation NMS.
(iii) For purposes of this Rule, the "Designated Percentage" shall be 8% for securities subject to Rule 80C(a)(i), 28% for securities subject to Rule
80C(a)(ii), and 30% for securities subject to Rule 80C(a)(iii), except that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the close of trading, when Rule 80C is not in effect, the Designated Percentage shall be 20% for securities subject to Rule 80C(a)(i), 28% for securities subject to Rule 80C(a)(ii), and 30% for securities subject to Rule 80C(a)(iii).
(iv) For purposes of this Rule, the "Defined Limit" shall be 9.5% for securities
subject to Rule 80C(a)(i), 29.5% for securities subject to Rule 80C(a)(ii), and 31.5% for securities subject to Rule 80C(a)(iii), except that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the close of trading, when Rule 80C is not in effect, the Defined Limit shall be 21.5% for securities subject to Rule
80C(a)(i), 29.5% for securities subject to Rule 80C(a)(ii), and 31.5% for securities subject to Rule 80C(a)(iii).
Nothing in this Rule shall preclude a DMM from quoting at price levels that are closer to the National Best Bid and Offer than the levels required by this Rule.
(2) Facilitate openings and reopenings for each of the securities in which the DMM is registered as required under Exchange rules. This may include supplying liquidity as needed. (See Rule 123D for additional responsibilities of DMMs with respect to openings and Rule 13 with respect to Reserve Order interest procedures at the
opening.) DMM and DMM unit algorithms will have access to aggregate order information in order to comply with this requirement. [(See Supplementary Material .05 of this 104 with respect to odd-lot order information to the DMM unit algorithm.)]
(3) Facilitate the close of trading for each of the securities in which the DMM is registered as required by Exchange rules. This may include supplying liquidity as
needed. (See Rule 123C for additional responsibilities of DMMs with respect to closes and Rule 13 with respect to Reserve Order interest procedures at the close.) DMM and DMM unit algorithms will have access to aggregate order information in order to comply with this requirement.
(b) DMM Unit Algorithms
(i) DMM units shall have the ability to employ algorithms for quoting and trading consistent with NYSE and SEC regulations.
(ii) Exchange systems shall enforce the proper sequencing of incoming orders and algorithmically-generated messages.
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(iii) Except as provided for in paragraphs (a)(2) and (a)(3) of this Rule, the DMM unit's system employing algorithms will have access to information with respect to orders entered on the Exchange, Floor Broker agency interest files or reserve
interest, to the extent such information is made publicly available. DMM unit algorithms will receive the same information with respect to orders entered on the Exchange, Floor Broker agency interest files or reserve interest as is disseminated to the public by the Exchange and shall receive such information no sooner than it is available to other market participants.
(iv) The DMM unit's algorithm may place within Exchange systems trading interest to
be known as a "Capital Commitment Schedule". (See Rule 1000 concerning the operation of the Capital Commitment Schedule.)
(v) All DMM unit trades via an algorithm must comply with all SEC and Exchange rules, policies and procedures governing DMM unit trading
(c) A DMM unit may maintain reserve interest consistent with Exchange rules governing Reserve Orders. Such reserve interest is eligible for execution in manual transactions.
(d) A DMM unit may provide algorithmically-generated price improvement to all or part of an incoming order that can be executed at or within the Exchange BBO through the use of Capital Commitment Schedule interest (see Rule 1000). Any orders eligible for execution in [the Display Book® system] Exchange systems at the price of the DMM
unit's interest will trade on parity with such interest, as will any displayed interest representing a d-Quote enabling such interest to trade at the same price as the DMM unit's interest.
(e) DMM units shall provide contra side liquidity as needed for the execution of odd-lot quantities that are eligible to be executed as part of the opening, re-opening and closing transactions but remain unpaired after the DMM has paired all other eligible round lot sized interest.
(f) Functions of DMMs
(i) Any member who expects to act as a DMM in any listed stock must be registered as a DMM. See Rule 103 for registration requirements for DMMs.
(ii) The function of a member acting as a DMM on the Floor of the Exchange includes the maintenance, in so far as reasonably practicable, of a fair and orderly market on
the Exchange in the stocks in which he or she is so acting. The maintenance of a fair and orderly market implies the maintenance of price continuity with reasonable depth, to the extent possible consistent with the ability of participants to use reserve orders, and the minimizing of the effects of temporary disparity between supply and
demand. In connection with the maintenance of a fair and orderly market, it is commonly desirable that a member acting as DMM engage to a reasonable degree under existing circumstances in dealings for the DMM's own account when lack of
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price continuity, lack of depth, or disparity between supply and demand exists or is reasonably to be anticipated.
(iii) The Exchange will supply DMMs with suggested Depth Guidelines for each security in which a DMM is registered. The administration of the Depth Guidelines will be contained in notices periodically issued to all DMMs. In connection with a
DMM's responsibility to maintain a fair and orderly market, DMMs will be expected to quote and trade with reference to the Depth Guidelines where necessary.
(iv) DMMs are designated as market maker on the Exchange for all purposes under the Securities Exchange Act of 1934 and the rules and regulations thereunder.
(g) Transactions by DMMs
(i) Transactions on the Exchange by a DMM for the DMM's account are to be effected
in a reasonable and orderly manner in relation to the condition of the general market and the market in the particular stock.
(A) The following types of transactions are permitted to render the DMM's position adequate to such markets' needs:
(I) Neutral Transactions
(1) Definition - A neutral transaction is a purchase or sale by which a DMM liquidates or decreases a position.
(2) Neutral Transactions may be made without restriction as to price.
(3) Re-entry Obligation Following Neutral Transactions - The DMM's obligation to maintain a fair and orderly market may require re-entry on the
opposite side of the market trend after effecting one or more Neutral Transactions. Such re-entry transactions should be in accordance with the immediate and anticipated needs of the market.
(II) Non-Conditional Transactions
(1) Definition - A non-conditional transaction is a DMM's bid or purchase and offer or sale, that establishes or increases a position, other than a transaction that reaches across the market to trade with the Exchange BBO.
(2) Non-Conditional Transactions may be made without restriction as to price in order to:
(i) match another market's better bid or offer price;
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(ii) bring the price of a security into parity with an underlying or related security or asset;
(iii) add size to an independently established bid or offer on the Exchange;
(iv) purchase at the published bid price on the Exchange;
(v) sell at the published offer price on the Exchange;
(vi) purchase or sell at a price between the Exchange BBO;
(vii) purchase below the published bid or sell above the published offer on the Exchange;
(3) Re-entry Obligation Following Non-Conditional Transactions - The DMM's obligation to maintain a fair and orderly market may require re-entry on the opposite side of the market trend after effecting one or more Non-
Conditional Transactions. Such re-entry transactions should be commensurate with the size of the Non-Conditional Transactions and the immediate and anticipated needs of the market.
(III) Prohibited Transactions
(1) During the last ten minutes prior to the close of trading, a DMM with a long position in a security is prohibited from making a purchase in such security that results in a new high price on the Exchange for the day at the time of the DMM's transaction, except as provided in subparagraphs (g)(i)(A)(II)(2)(i) through (g)(i)(A)(II)(2)(ii) above.
(2) During the last ten minutes of trading, a DMM with a short position in a
security is prohibited from making a sale in such security, that results in a new low price on the Exchange for the day at the time of the DMM's transaction, except as provided in subparagraphs (g)(i)(A)(II)(2)(i) through (g)(i)(A)(II)(2)(ii) above.
(h) DMM Transactions in Securities that Establish or Increase the DMM's Position:
(i) Definition - A "Conditional Transaction" is a DMM's transaction in a security that establishes or increases a position and reaches across the market to trade as the contra-side to the Exchange published bid or offer.
(ii) The following Conditional Transactions, may be made by a DMM without restriction as to price, provided they are followed by appropriate re-entry on the
opposite side of the market commensurate with the size of the DMM's transaction. ("Appropriate" re-entry shall mean re-entry on the opposite side of the market at or before the price participation point or the "PPP".):
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(A) A DMM's purchase from the Exchange published offer that is priced above the last differently-priced trade on the Exchange and above the last differently-priced published offer on the Exchange; and
(B) A DMM's sale to the Exchange published bid that is priced below the last differently-priced trade on the Exchange and below the last differently-priced published bid on the Exchange.
(iii) Re-entry Obligations for Conditional Transactions:
(A) "PPPs"—The Exchange will periodically issue guidelines, called price participation points ("PPP"), that identify the price at or before which a DMM is
expected to re-enter the market after effecting a Conditional Transaction. PPPs are only minimum guidelines and compliance with them does not guarantee that a DMM is meeting its obligations.
(B) Notwithstanding that a security may not have reached the PPP, the DMM may be required to re-enter the market immediately after a Conditional Transaction based on the price and/or volume of the DMM's trading in reference to the market
in the security at the time of such trading. In such situations DMMs may or may not rely on the fact and circumstance that there may have been one or more independent trades following the DMM's trading to justify a failure to re-enter the market.
(C) Immediate re-entry is required after the following Conditional Transactions:
(I) A purchase that (1) reaches across the market to trade with an Exchange published offer that is above the last differently priced trade on the Exchange and above the last differently priced published offer on the Exchange, (2) is
10,000 shares or more or has a market value of $200,000 or more, and (3) exceeds 50% of the published offer size.
(II) A sale that (1) reaches across the market to trade with an Exchange published bid that is below the last differently priced trade on the Exchange and below the last differently priced published bid on the Exchange, (2) is 10,000 shares or more or has a market value of $200,000 or more, and (3) exceeds 50% of the published bid size.
(III) A Sweep is viewed as a transaction with the published bid or offer for the purpose of subparagraphs (h)(iii)(C)(I) and (h)(iii)(C)(II) above.
(iv) The following Conditional Transactions may be made without restriction as to price:
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(A) A DMM's purchase from the Exchange published offer that is priced above the last differently-priced trade on the Exchange or above the last differently-priced published offer on the Exchange; and
(B) A DMM's sale to the Exchange published bid that is priced below the last differently-priced trade on the Exchange or below the last differently-priced published bid on the Exchange.
(i) Re-entry obligations following transactions defined in subparagraphs (h)(iv)(A) and
(h)(iv)(B) above are the same as for Non-Conditional Transactions pursuant to subparagraph (g) (i)(A)(3) above.
(j) Trading Floor Functions of DMMs
(i) A DMM may perform the following Trading Floor functions:
(A) maintain order among Floor brokers manually trading at the DMM's assigned panel;
(B) bring Floor brokers together to facilitate trading, which may include the DMM as a buyer or seller;
(C) assist a Floor broker with respect to an order by providing information regarding the status of a Floor broker's orders, helping to resolve errors or questioned trades, adjusting errors, and cancelling or inputting Floor broker agency interest on behalf of a Floor broker; and
(D) research the status of orders or questioned trades on his or her own initiative or at the
request of the Exchange or a Floor broker when a Floor broker's handheld device is not operational, when there is activity indicating that a potentially erroneous order was entered or a potentially erroneous trade was executed, or when there otherwise is an indication that improper activity may be occurring.
(ii) The Exchange may make systems available to a DMM at the post that display the following information about securities in which the DMM is registered: (A) aggregated
buying and selling interest; (B) the price and size of any individual order or Floor broker agency interest file and the entering and clearing firm information for such order, except that the display shall exclude any order or portion thereof that a market participant has elected not to display to a DMM; and (C) post-trade information. A DMM may not use
any information provided by Exchange systems pursuant to this subparagraph (ii) in a manner that would violate Exchange rules or federal securities laws or regulations.
(iii) The DMM may provide market information that is available to the DMM at the post as described in subparagraph (j)(ii) to: (A) respond to an inquiry from a Floor broker in the normal course of business; or (B) visitors to the Trading Floor for the purpose of demonstrating methods of trading; provided, however, that a Floor broker may not submit
an inquiry pursuant to this subparagraph (j)(iii) by electronic means and the DMM may
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not use electronic means to transmit market information to a Floor broker in response to a Floor broker's inquiry pursuant to this subparagraph (j)(iii).
(k) Temporary DMMs. In the event of an emergency, such as the absence of the DMM, or when the volume of business in the particular stock or stocks is so great that it cannot be handled by the DMMs without assistance, a Floor Governor may authorize a member
of the Exchange who is not registered as a DMM in such stock or stocks, to act as temporary DMM for that day only.
A member who acts as a temporary DMM by such authority is required to file with [NYSE Regulation's Division of Market Surveillance] the Exchange, at the end of the day, a report showing (a) the name of the stock or stocks in which he so acted, (b) the name of the regular DMM, (c) the time of day when he so acted, and (d) the name of the
Floor Governor who authorized the arrangement. The necessary forms may be obtained at the Information Desk.
The Floor Governor will not give such authority for the purpose of permitting a member not registered as DMM habitually to relieve another DMM at lunch periods, etc.
If a temporary DMM substitutes for a DMM, and if no DMM is present, the temporary DMM is expected to assume the obligations and responsibilities of DMMs for the maintenance of the market.
[• • • Supplementary Material: ------------------
.05 Odd-lot Order Information to DMM Unit Algorithm. DMM unit algorithm will receive odd-lot order-by-order information prior to the opening from Exchange systems until no later than October 31, 2009.]
*****
Rule 107B. Supplemental Liquidity Providers
(a) For purposes of this Rule, a Supplemental Liquidity Provider (“SLP”) is a member organization that electronically enters proprietary orders or quotes from off the Floor of
the Exchange into the systems and facilities of the Exchange and is obligated to maintain a bid or an offer at the National Best Bid (“NBB”) or the National Best Offer (“NBO”) in each assigned security in round lots averaging at least 10% of the trading day (see Section (g) below) and for all assigned SLP securities, adds liquidity of an average daily
volume (“ADV”) of more than a specified percentage of consolidated average daily volume (“CADV”) in all NYSE-listed securities, as set forth in the Exchange’s Price List, on a monthly basis. An SLP can be either a proprietary trading unit of a member organization (“SLP-Prop”) or a registered market maker at the Exchange (“SLMM”).
[This pilot program will end on July 31, 2015.]
(b) Financial Rebates for Executed Transactions. When an SLP posts liquidity on the
Exchange and such liquidity is executed against an inbound order, the SLP will
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receive a financial rebate for that executed transaction in an amount that will be published in the Exchange's Price List (see the NYSE Price List on the NYSE website), subject to the non-regulatory penalty provision described in subsection (j) of this Rule ("Non-Regulatory Penalties").
(1) The SLP will receive credit towards the financial rebate for executions of
displayed and non-displayed liquidity (e.g., reserve and dark orders) posted in round lots in its assigned securities only.
(c) Qualifications of an SLP-Prop. To qualify as an SLP-Prop, a member organization must have:
(1) adequate technology to support electronic trading through the systems and facilities of the Exchange;
(2) mnemonics that identify to the Exchange SLP-Prop trading activity in assigned SLP securities. A member organization may not use such mnemonics for trading activity at the Exchange in assigned SLP securities that is not SLP-Prop trading activity or in securities in which a DMM unit is registered, but may use the same
mnemonics for trading activity in securities not assigned to an SLP. If a member organization does not identify to the Exchange the mnemonic to be used for SLP-Prop trading activity, the member organization will not receive credit for such SLP trading;
(3) adequate trading infrastructure to support SLP trading activity, which includes support staff to maintain operational efficiencies in the SLP program and adequate administrative staff to manage the member organization's SLP program;
(4) quoting and volume performance that demonstrates an ability to meet the 10%
average quoting requirement in each assigned security and the ADV requirement of more than a specified percentage of CADV in all NYSE-listed securities for all assigned SLP securities on a monthly basis;
(5) a disciplinary history that is consistent with just and equitable business practices; and
(6) the business unit of the member organization acting as an SLP-Prop must have in place adequate information barriers between the SLP-Prop unit and the member organization's customer, research and investment banking business.
(d) Qualifications of an SLMM. A member organization may register as an SLMM in one or more securities traded on the Exchange in order to assist in the maintenance
of a fair and orderly market insofar as reasonably practicable. To qualify as an SLMM, a member organization must meet the requirements of Rule 107B(c)(1), and (3) - (5) and if approved as an SLMM, must:
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(1) maintain continuous, two-sided trading interest in those securities in which the SLMM is registered to trade as an SLP ("Two-Sided Obligation").
(A) Two-Sided Obligation. For each security in which a member organization is registered as an SLMM, the SLMM must be willing to buy and sell such security for its own account on a continuous basis during the trading day and
must enter and maintain two-sided trading interest that is identified to the Exchange as the interest meeting the Two-Sided Obligation and is displayed in Display Book at all times. Interest eligible to be considered as part of an SLMM's Two-Sided Obligation must have a displayed size of at least one
round lot; provided, however, that an SLMM may augment its Two-Sided Obligation size to display limit orders priced at the same price as the Two-Sided Obligation. After an execution against its Two-Sided Obligation, an SLMM must ensure that additional trading interest exists in the Display Book
to satisfy its Two-Sided Obligation either by immediately entering new interest to comply with this obligation to maintain continuous two-sided quotations or by identifying existing interest on Display Book that will satisfy this obligation.
(B) Pricing Obligations. For NMS stocks (as defined in Rule 600 under Regulation NMS) an SLMM shall adhere to the pricing obligations established by paragraph (d)(1)(A) of this Rule during the trading day; provided, however,
that such pricing obligations (i) shall not commence during any trading day until after the first regular way transaction on the primary listing market in the security, as reported by the responsible single plan processor, and (ii) shall be suspended during a trading halt, suspension, or pause, and shall not re-
commence until after the first regular way transaction on the primary listing market in the security following such halt, suspension, or pause, as reported by the responsible single plan processor.
(i) Bid and Offer Quotations. At the time of entry of the SLMM's bid (offer) interest, the price of the bid (offer) interest shall be not more than the Designated Percentage away from the then current NBB (NBO), or if no
NBB (NBO), not more than the Designated Percentage away from the last reported sale from the responsible single plan processor. In the event that the NBB (NBO) (or if no NBB (NBO), the last reported sale) increases (decreases) to a level that would cause the bid (offer) interest to be more than
the Defined Limit away from the NBB (NBO) (or if no NBB (NBO), the last reported sale), or if the bid (offer) is executed or cancelled, the SLMM shall enter new bid (offer) interest at a price not more than the Designated Percentage away from the then current NBB (NBO) (or if no NBB (NBO),
the last reported sale), or identify to the Exchange current resting interest that satisfies the SLMM's obligation according to paragraph (d)(1)(A), above.
(ii) The NBB and NBO shall be determined by the Exchange in accordance with its procedures for determining protected quotations under Rule 600 under Regulation NMS.
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(iii) For purposes of this Rule, the "Designated Percentage" shall be 8% for securities subject to Rule 80C(a)(i), 28% for securities subject to Rule 80C(a)(ii), and 30% for securities subject to Rule 80C(a)(iii), except that
between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the close of trading, when Rule 80C is not in effect, the Designated Percentage shall be 20% for securities subject to Rule 80C(a)(i), 28% for securities subject to Rule 80C(a)(ii), and 30% for securities subject to Rule 80C(a)(iii).
(iv) For purposes of this Rule, the "Defined Limit" shall be 9.5% for securities subject to Rule 80C(a)(i), 29.5% for securities subject to Rule 80C(a)(ii), and
31.5% for securities subject to Rule 80C(a)(iii), except that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the close of trading, when Rule 80C is not in effect, the Defined Limit shall be 21.5% for securities subject to Rule 80C(a)(i), 29.5% for securities subject to Rule 80C(a)(ii), and 31.5% for securities subject to Rule 80C(a)(iii).
Nothing in this Rule shall preclude an SLMM from quoting at price levels that are closer to the NBB and NBO than the levels required by this Rule.
(2) maintain minimum net capital in accordance with the provisions of Rule 15c3-1 under the Securities Exchange Act of 1934.
(3) maintain unique mnemonics specifically dedicated to SLMM activity in order to
comply with paragraph (d)(1)(A) of this Rule. Such mnemonics may not be used for trading in securities other than SLP Securities assigned to the SLMM.
(e) Application Process.
(1) For purposes of this Rule, an "SLP Liaison Committee" shall consist of NYSE
employees of the Operations Division and the U.S. Markets Division. The Head of the U.S. Markets Division or a designee shall designate the members of the SLP Liaison Committee. Among other responsibilities described in this Rule, the SLP Liaison Committee will determine whether an applicant is qualified to become an SLP.
(2) To become an SLP, a member organization must submit an SLP application form
with all supporting documentation to the SLP Liaison Committee. The processing of SLP applications will be suspended when the SLP quota has been reached as provided in Section (h)(2) of this Rule.
(3) The SLP Liaison Committee will determine whether an applicant is qualified to become an SLP based on the qualifications described above in Section (c) or (d) of this Rule.
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(4) After an applicant submits an SLP application to the SLP Liaison Committee, with supporting documentation, the SLP Liaison Committee shall notify the applicant member organization of its decision.
(5) If an applicant is approved by the SLP Liaison Committee to receive SLP status, such applicant must establish connectivity with relevant Exchange systems before such applicant will be permitted to trade as an SLP on the Exchange.
(6) In the event an applicant is disapproved or disqualified (see Section (k)(2)
below) by the SLP Liaison Committee, such applicant may request an appeal of such disapproval or disqualification by the SLP Panel as provided in Section (l)("Appeal of Non-Regulatory Penalties") of this Rule, and/or reapply for SLP status three (3) months after the month in which the applicant received disapproval or disqualification notice from the Exchange.
(f) Voluntary Withdrawal of SLP Status.
(1) An SLP may withdraw from such status by giving notice to the SLP Liaison Committee, the NYSE Operations Division, and FINRA. Such withdrawal shall
become effective when those securities assigned to the withdrawing SLP are reassigned to another SLP. After the SLP Liaison Committee, the NYSE Operations Division, and FINRA receive the notice of withdrawal from the withdrawing SLP, the SLP Liaison Committee will reassign such securities as
soon as practicable but no later than 30 days of the date said notice is received by the SLP Liaison Committee, the NYSE Operations Division, and FINRA. In the event the reassignment of securities takes longer than the 30-day period, the withdrawing SLP will have no obligations under this Rule 107B and will not be
held responsible for any matters concerning its previously assigned SLP securities upon termination this 30-day period.
(2) An SLMM may withdraw its registration in a security by giving written notice to the SLP Liaison Committee and FINRA. The Exchange may require a certain minimum notice period for withdrawal, and may place such other conditions on withdrawal and re-registration following withdrawal, as it deems appropriate in
the interests of maintaining fair and orderly markets. An SLMM that fails to give advanced written notice of termination to the Exchange may be subject to formal disciplinary action.
(g) Calculation of Quoting Requirement:
(1) The SLP's 10% quoting requirement is calculated by determining the average percentage of time the SLP is at the NBB or the NBO in each assigned security during the regular hours of the Exchange on a daily and monthly basis. For purposes of this Rule, the SLP Liaison Committee will determine whether an SLP has met its quoting requirement by calculating the following:
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(A) the "Daily NBB Quoting Percentage", is calculated by determining the percentage of time an SLP has at least one round lot of displayed interest in each assigned security in an Exchange bid at the National Best Bid during each trading day for a calendar month;
(B) the "Daily NBO Quoting Percentage," is calculated by determining the
percentage of time an SLP has at least one round lot of displayed interest in each assigned security in an Exchange offer at the National Best Offer during each trading day for a calendar month;
(C) the "Average Daily NBBO Quoting Percentage", is calculated for each trading day by summing the "Daily NBB Quoting Percentage" and the "Daily NBO Quoting Percentage" in each assigned security then dividing such sum by two; and
(D) the "Monthly Average NBBO Quoting Percentage", is calculated for each
assigned security by summing the security's "Average Daily NBBO Quoting Percentages" for each Trading Day in a calendar month then dividing the resulting sum by the total number of Trading Days in such calendar month.
(i) For purposes of calculating whether an SLP is in compliance with its 10% quoting requirement, the SLP must post displayed liquidity in round lots in its assigned securities at the NBB or the NBO.
(ii) An SLP may post non-displayed liquidity; however, such liquidity will not be counted as credit towards the 10% quoting requirement.
(iii) Tick sensitive orders (i.e., "Sell Plus", "Buy Minus" (see Rule 13) and "Buy Minus Zero Plus") will not be counted as credit towards the 10% quoting requirement.
(2) The SLP shall not be subject to any minimum or maximum quoting size
requirement in assigned securities apart from the requirement that an order be for at least one round lot. The quoting requirement will be measured by utilizing the mnemonics that the member organization has identified for SLP trading activity.
(h) Calculation of Monthly Volume Requirement:
(1) The SLP's monthly volume requirement of an ADV of more than the specified percentage of CADV in all NYSE-listed securities is calculated by aggregating all liquidity an SLP provides in all of its assigned SLP securities each month, calculating the ADV by dividing the total aggregated provide volume by the
number of trading days in the applicable month, and then dividing the ADV figure by CADV in all NYSE-listed securities during the month.
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(2) Days that the Exchange ends its regular trading hours early (i.e., earlier than 4:00 p.m.) will not be included in the calculations of ADV for the applicable month in determining if an SLP has met its monthly volume requirement.
(3) The quoting and volume requirements will not be in effect in the first calendar month a member organization operates as an SLP. Therefore, the quoting and
volume requirements will take effect on the first day of the second consecutive calendar month the member organization operates as an SLP.
(4) SLP orders will be in the "Book Participant" category for purposes of parity pursuant to Rule 72 under the New Market Model.
(i) Assignment of Securities.
(1) The SLP Liaison Committee in its discretion, will assign to the SLP, a group of
securities consisting of NYSE-listed securities for SLP trading purposes. The SLP Liaison Committee shall determine the number of NYSE-listed securities within the group of securities assigned to each SLP.
(2) The SLP Liaison Committee, in its discretion, will assign one (1) or more SLPs to each security, depending upon the trading activity of the security.
(A) A DMM unit shall not also act as an SLP in the same securities in which it is registered as a DMM.
(B) An SLP-Prop shall not also act as an SLMM in the same securities in which it is registered as an SLP-Prop and vice versa, provided, however, if a member organization maintains information barriers between an SLP-Prop unit and an
SLMM unit, the SLP-Prop and SLMM units may be assigned the same securities.
(j) Entry of Orders. SLPs may only enter orders electronically from off the Floor of the Exchange and may only enter such orders directly into Exchange systems and facilities designated for this purpose. SLMM quotes and orders may be for the account of the SLMM in either a proprietary capacity or a principal capacity on
behalf of an affiliated or unaffiliated person. SLP-Prop orders must only be for the proprietary account of the SLP-Prop member organization.
(k) Non-Regulatory Penalties.
(1) If an SLP fails to meet the 10% quoting requirement, the following non-regulatory penalties may be imposed by the Exchange:
(A) If, in any given calendar month, an SLP meets the ADV requirement of more
than the specified percentage of CADV in all NYSE-listed securities in all assigned SLP securities and an SLP maintains a quote at the NBB or NBO
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averaging at least 10% of the trading day in any assigned security, such SLP will receive a financial rebate for that calendar month for all executed transactions as described in Section (b) ("Financial Rebates for Executed Transactions") of this Rule.
(B) If, in any calendar month, an SLP maintains a quote at the NBB or the NBO
averaging less than 10% of the regular trading day in an assigned security, the SLP will not receive a financial rebate for that month for executed transactions in that particular assigned security as described in Section (b) ("Financial Rebates for Executed Transactions") of this Rule; and
(C) If an SLP fails to meet the 10% quoting requirement for three (3) consecutive calendar months in any assigned security, the SLP will be at risk of losing its
SLP status, and the SLP Liaison Committee may, in its discretion, take the following non-regulatory actions:
(i) revoke the assignment of the affected security(ies) from the SLP; and
(ii) each time the SLP Liaison Committee revokes the assignment of an
affected security for non-compliance with the 10% quoting requirement, as described in Section (k)(1)(C)(i) above, the SLP Liaison Committee reserves the right to revoke the assignment of an additional unaffected security from an SLP when there is a failure to comply with such quoting requirements; or
(iii) disqualify a member organization's status as an SLP.
(2) Disqualification Determinations. The SLP Liaison Committee shall determine if and when a member organization is disqualified from its status as an SLP. One calendar month prior to any such determination, the SLP Liaison Committee will
notify the SLP of such impending disqualification in writing. If the SLP fails to meet the 10% average quoting requirement (for a third consecutive month) in a particular security, the SLP may be disqualified from SLP status. When disqualification determinations are made, the SLP Liaison Committee will
provide a disqualification notice to the member organization informing such member organization that it has been disqualified as an SLP.
(3) Re-application for SLP Status: In the event a member organization is disapproved pursuant to Section (e)(6) or disqualified from its status as an SLP pursuant to Section (k)(1)(C)(iii), such member organization may re-apply for SLP status in accordance with Section (e) ("Application Process") of this Rule.
Such application process shall occur at last three (3) calendar months following the month in which such member organization received its disapproval or disqualification notice.
(l) Appeal of Non-Regulatory Penalties
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(1) In the event a member organization disputes the SLP Liaison Committee's decision to impose any non-regulatory penalties described above in Section (j) (Non-Regulatory Penalties) of this Rule, such member organization ("appellant")
may request, within five (5) business days of receiving notice of the decision to impose such non-regulatory penalties, the Supplemental Liquidity Provider Panel ("SLP Panel") to review all such decisions to determine if such decisions were correct.
(A) In the event a member organization is disqualified from its status as an SLP pursuant to Section (k)(1)(C)(iii) of this Rule, the SLP Liaison Committee shall
not reassign the appellant's assigned securities to a different SLP until the SLP Panel has informed the appellant of its ruling.
(2) The SLP Panel shall consist of the NYSE's Chief Regulatory Officer ("CRO"), or a designee of the CRO, and two (2) officers of the Exchange designated by the Head of the U.S. Markets Division.
(3) The SLP Panel shall review the facts and render a decision within the time frame prescribed by the Exchange.
(4) The SLP Panel may overturn or modify an action taken by the SLP Liaison Committee under this Rule. All determinations by the SLP Panel shall constitute final action by the Exchange on the matter at issue.
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Rule 1000. Automatic Executions [The provisions of this rule relating to the Capital Commitment Schedule shall be in effect during a Pilot scheduled to end on July 31, 2015.]
Maximum Order Size for Automatic Executions
Market and limit orders of such size as the Exchange may specify from time to time are eligible to initiate or participate in automatic executions. Orders up to 1,000,000 shares are eligible for automatic execution. Upon advance notice to market participants, the Exchange may increase the order size eligible for automatic executions up to 5,000,000
shares on a security-by-security basis.
Maximum Systems Order Size Accepted by Exchange Systems
Exchange systems shall accept a maximum order size of up to 25,000,000 shares, except Floor broker systems shall accept a maximum order size of up to 99,000,000 shares.
(a) An automatically executing order shall receive an immediate, automatic execution
against orders reflected in the Exchange published quotation, orders [on the Display Book®,] in the Exchange book, including Floor broker agency file interest ("e-Quotes"), Floor broker proprietary file interest ("G-quotes"), DMM interest, and interest placed in the Exchange's systems by DMMs pursuant to a Capital Commitment Schedule in
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accordance with, and to the extent provided by Exchange rules and shall be immediately reported as Exchange transactions, unless:
(i) trading in the subject security has been halted; or
(ii) a block-size transaction as defined in Rule 127.10 that involves orders in the Exchange book [on the Display Book®] is being reported manually; Automatic
executions will resume when manual reporting is concluded; or
(iii) the closing price for a security, or if the security did not trade, the closing bid price of the security on the Exchange on the immediate previous trading day is $10,000.00 or
more.
(b) Automatic executions will resume in the same way autoquoting will resume, as provided in Rules 60(d)(ii).
(c) Trading Collar. An incoming market order, including an elected stop order, or marketable limit order to buy (sell) will not execute or route to another market center at a price above (below) the Trading Collar.
(i) Calculation of the Trading Collar. The Trading Collar shall be a specified percentage above the National Best Offer ("NBO") for buy orders and below the National Best Bid ("NBB") for sell orders. If the NBB or the NBO is greater than $0.00 up to and including
$25.00, the specified percentage shall be 10%. If the NBB or NBO is greater than $25.00 up to and including $50.00, the specified percentage shall be 5%. If the NBB or NBO is greater than $50.00, the specified percentage shall be 3%. If the NBBO is crossed, the Exchange shall use the Exchange Best Offer ("BO") instead of the NBO for buy orders
and the Exchange Best Bid ("BB") instead of the NBB for sell orders. If there is no NBB or BB, the lower boundary of the Trading Collar is zero. If there is no NBO or BO, the upper boundary of the Trading Collar is set to the maximum price that the System could handle.
(ii) Trading Collars are applicable only when automatic executions are in effect. An incoming market or marketable limit order to buy (sell) shall execute and/or route up (down) to (and including) the Trading Collar and any remaining interest shall be
cancelled, including if the Trading Collar equals a Price Band, as defined in Rule 80C. Unless it is a non-routable order to buy (sell), the buy (sell) order would route to all markets at or below (above) the Trading Collar. If there is no execution opportunity at the Exchange at a price above (below) the NBO (NBB) and at or below (above) the Trading
Collar, a buy (sell) order, or remainder of partially executed order, that is priced at or above (below) the Trading Collar would not route and shall be cancelled.
(iii) During a Short Sale Price Test, if the NBBO is crossed, short sale orders that would
be re-priced to a Trading Collar shall be cancelled.
(d) Capital Commitment Schedule.
(i) For each security in which it is registered, a DMM unit may place within Exchange systems a pool of liquidity to be available to fill or partially fill incoming orders in
automatic executions and to be known as a "Capital Commitment Schedule" ("CCS") pursuant to the provisions of subparagraph (e) and (g) below. The CCS is the DMM unit's commitment to trade a specified number of shares at specified price points in reaction to
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incoming contra side interest that is equal to or greater than one round lot, received through Exchange systems. CCS interest shall be used to trade at the Exchange BBO, at prices better than the Exchange BBO and at prices outside the Exchange BBO. CCS
interest shall supplement displayed and non-displayed interest of the DMM in Exchange systems [on the Display Book®].
(ii) CCS interest must be for a minimum of one round lot of a security and be entered at price points that are at, inside or away from the Exchange BBO.
(e) Executions at and Outside the Exchange Best Bid or Offer
(i) Automatically executing orders to buy shall trade with the Exchange published best
offer. Automatically executing orders to sell shall trade with the Exchange published best bid. All displayed interest at the Exchange BBO shall be allocated in accordance with Exchange Rule 72.
(ii) Where the volume associated with the Exchange published best bid (offer) is insufficient to fill an automatically executing order in its entirety, the unfilled balance of such order (the "residual") shall trade with available contra-side interest in the following order:
(A) reserve interest at the Exchange published best bid (offer);
(B) any DMM unit CCS interest at the Exchange published best bid (offer) if such CCS interest will fill the balance of such order at the best bid (offer). Any CCS interest eligible
to participate in the execution at the Exchange BBO shall yield to all other interest at that price; or
(C) if a residual remains, it shall then "sweep" the Exchange book [Display Book® system] as set forth in (iii) below, until it is executed in full, its limit price, if any, is reached, a Trading Collar or Price Band is reached, or in the case of a Reg. NMS-compliant IOC or Do Not Ship order, as described in Rule 13, trading at a particular price
on the Exchange would require cancellation because the order cannot be routed to another market center, whichever occurs first.
(iii) Automatic Execution of Orders in Executions Outside the Exchange BBO ("Sweeps")
(A) During a sweep (i.e., a trade that takes place at prices outside the Exchange BBO), the residual shall trade with the orders in the Exchange book [on the Display Book® system] and any broker agency interest files ("e-Quotes"), broker proprietary interest files ("G-Quotes") and/or DMM interest files ("s-Quotes") capable of execution in accordance
with Exchange rules, at each successive price lower than the displayed bid (in the case of a sweeping sell order) or higher than the displayed offer (in the case of a sweeping buy order) unless the interest reaches a Trading Collar or Price Band, whichever is reached first.
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(1) If the contra side order is not executed in full at the Exchange BBO, Exchange systems will then calculate the unfilled volume of the contra side order and review the additional displayed and non-displayed interest available in the Exchange book [Display
Book® system] including the CCS interest submitted by the DMM unit and any protected bids or offers on markets other than the Exchange ("away interest") to determine the price at which the remaining volume of the contra side order can be executed in full. This is the "completion price".
(2) Exchange systems will then identify the next price that is one minimum price variation ("MPV") (as that term is defined in Exchange Rule 62) or more inside the
completion price (i.e., for an incoming contra side order to buy, one MPV lower, and for an incoming contra side order to sell, one MPV higher) at which the maximum volume of CCS interest exists to trade with the residual volume of the contra side order. This is the "better price" for CCS interest. The residual amount of the contra side order will be
executed at the better price against the displayed, non-displayed and CCS interest, with CCS interest yielding to any other interest in Exchange systems at the better price.
(3) Any remaining volume of the contra side order that is unfilled following the trade with the CCS interest will trade against displayable and non-displayable interest pursuant to Exchange Rule 72 governing parity, but not CCS interest, at the price point at which the contra side order will be completed.
(4) During a sweep transaction, if Exchange systems review the displayed and non-displayed interest available in the Exchange book [Display Book® system] (including
the CCS interest submitted by the DMM unit) and any protected bids or offers on markets other than the Exchange ("away interest") and determine that the order cannot be executed in full because: there is insufficient volume up to the order's limit price, if any, then Exchange systems may partially fill the order utilizing CCS interest when the DMM has designated such CCS interest for partial execution.
CCS interest shall be accessed by Exchange systems to partially fill Incoming Regulation
NMS-compliant Immediate or Cancel Orders, NYSE Immediate or Cancel Orders and any order whose partial execution will result in a remaining unfilled quantity of less than one round lot even if such CCS interest is not designated for partial execution.
CCS interest utilized in the partial execution of an order will execute against the remaining shares of the incoming order at the order's limit price, if any.
(5) CCS interest may only participate once in the execution of a contra side order during a sweep.
(B) Where a bid or offer published by another market center protected from a trade-through by Securities and Exchange Commission rule is better than an execution price during a sweep, the portion of the sweeping residual that satisfies the size of such better
priced protected bid or offer ("away interest") will be automatically routed to trade to the market center publishing such better bid or offer except with respect to Reg. NMS-
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compliant IOC or Do Not Ship orders, as described in Rule 13. Orders will be routed to satisfy away interest only after CCS interest has participated in an execution on the Exchange pursuant to the procedures contained in section (d)(iii) of this Rule.
(C) During a sweep, sell short orders, must comply with the conditions outlined in the Exchange Rule 440B.
(iv) Any residual of an auto ex limit order remaining after the sweep described in (d)(ii) above shall be displayed as a limit order in the Exchange book [on the Display Book.®] and will be bid (offered) at the order's limit price, if any.
(A) Exceptions:
Residuals will be cancelled in the manner described in Rule 13 for the following order types:
(i) Reg. NMS-compliant Immediate or Cancel orders;
(ii) NYSE Immediate or Cancel orders; and
(iii) Intermarket sweep orders.
Auto ex orders that cannot be immediately executed shall be displayed as limit orders in the auction market.
(f) Price Improvement Offered by CCS Interest
(1) CCS interest may trade inside the Exchange BBO with interest arriving in the Exchange market that:
(A) Will be eligible to trade at or through the Exchange BBO; or
(B) Will be eligible to trade at the price of interest in Exchange systems representing non displayable reserve interest of Reserve Orders and Floor broker agency interest files reserve interest ("hidden interest") or MPL Orders; or
(C) Will be eligible to route to away market interest for execution
if the total volume of CCS interest, plus d-Quote interest in Floor broker agency interest files, plus any interest represented by hidden interest would be sufficient to fully complete the arriving interest at a price inside the Exchange BBO.
(2) In such an instance, the [Display Book®] Exchange system will determine the price point inside the Exchange BBO at which the maximum volume of CCS interest will
trade, taking into account the volume, if any, available from d-Quotes and hidden
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interest. The arriving interest will then be executed at that price, with all interest (CCS, d-Quote, hidden interest) trading on parity.
(g) CCS Trades With Non-Marketable Interest
(1) For purposes of this section, the term "non-marketable" means trading interest (i.e. displayable and non-displayable) that is at a price higher than the current Exchange bid (but below the current Exchange offer) or lower than the current Exchange offer (but above the current Exchange bid) including better bids and offers on other market centers.
(2) CCS interest may trade with non-marketable interest where such non-marketable interest will better the Exchange BBO (or will cancel in the case of an arriving IOC
order) if the incoming interest may be executed in full by all interest available in the Exchange book [Display Book®] including CCS interest and d-quotes. Such trade will take place at the limit price of the arriving non-marketable interest. All interest trading with the incoming interest will trade on parity.
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