Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change Relating to Market Makers Applicable When the Exchange Transitions Trading to Pillar, the Exchange's New Trading Technology Platform, 10508-10516 [2017-02837]
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jstallworth on DSK7TPTVN1PROD with NOTICES
[Release No. 34–79982; File No. SR–
NYSEMKT–2017–04]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing of Proposed
Rule Change Relating to Market
Makers Applicable When the Exchange
Transitions Trading to Pillar, the
Exchange’s New Trading Technology
Platform
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
1 15
U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes rules relating
to market makers that would be
applicable when the Exchange
transitions trading to Pillar, the
Exchange’s new trading technology
platform. The proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
Stacy L. Ruble,
Secretary.
February 7, 2017.
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on January
25, 2017, NYSE MKT LLC (‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
1. Purpose
With Pillar, the Exchange proposes to
transition its cash equities trading
platform from a Floor-based market with
a parity allocation model to a fully
automated price-time priority allocation
model. The Exchange will be filing
several proposed rule changes to
support the NYSE MKT cash equities
implementation of Pillar. The Exchange
has already adopted the rule numbering
framework of the NYSE Arca Equities,
Inc. (‘‘NYSE Arca Equities’’) rules for
Exchange cash equities trading on the
Pillar trading platform.4 As described in
2 15
U.S.C. 78a.
CFR 240.19b–4.
4 See Securities Exchange Act Release No. 79242
(November 4, 2016), 81 FR 79081 (November 10,
3 17
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the Framework Filing, the Exchange
denoted the rules applicable to cash
equities trading on Pillar with the letter
‘‘E’’ to distinguish such rules from
current Exchange rules with the same
numbering. In addition, the Exchange
filed a proposed rule change to support
Exchange trading of securities listed on
New York Stock Exchange LLC
(‘‘NYSE’’), NYSE Arca, Inc., and other
exchanges on an unlisted trading
privileges basis, including Exchange
Traded Products listed on other
exchanges.5 The Exchange has also
proposed rules based on the rules of
NYSE Arca Equities to support the
transition of Exchange trading to a fully
automated price-time priority allocation
model.6
In this filing, the Exchange proposes
rules governing market makers on the
Exchange following the transition to
Pillar. Specifically, for all securities that
would trade on the Exchange, including
UTP Securities,7 an ETP Holder 8 could
register as a Market Maker 9 and be
subject to obligations similar to the
obligations of a Market Maker on NYSE
Arca Equities.10 The Exchange proposes
that the following rules, based on NYSE
Arca Equities rules of the same number
with non-substantive differences, would
govern Market Makers on the Pillar
trading platform:
• Proposed Rule 1.1E(v) (definition of
Market Maker);
• proposed Rule 1.1E(w) (definition
of Market Maker Authorized Trader);
• proposed Rule 7.20E (Registration
of Market Makers);
• proposed Rule 7.21E (Obligations of
Market Maker Authorized Traders);
• proposed Rule 7.22E (Registration
of non-DMM Market Makers in a
Security); and
• proposed Rule 7.23E (Obligations of
Market Makers).
2016) (SR–NYSEMKT–2016–97) (Notice and Filing
of Immediate Effectiveness of Proposed Rule
Change) (the ‘‘Framework Filing’’).
5 See Securities Exchange Act Release No. 79400
(November 25, 2016), 81 FR 86750 (December 1,
2016) (SR–NYSEMKT–2016–103) (Notice) (the
‘‘ETP Listing Rules Filing’’).
6 See SR–NYSEMKT–2017–1 (‘‘Trading Rules
Filing’’).
7 The term ‘‘UTP Security’’ is defined in Rule
1.1E(ii) to mean a security that is listed on a
national securities exchange other than the
Exchange and that trades on the Exchange pursuant
to unlisted trading privileges.
8 In the Trading Rules Filing, the Exchange
proposes to define the term ‘‘ETP Holder’’ in Rule
1.1E(n) as a member organization that has been
issued an Equity Trading Permit. The term
‘‘member organization’’ is defined in Rule 2(b)—
Equities.
9 As described below, the Exchange proposes to
define the term ‘‘Market Maker’’ in Rule 1.1E(v).
10 On NYSE Arca Equities, the term ‘‘Market
Maker’’ is defined in NYSE Arca Equities Rule
1.1(v).
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In addition, the Exchange proposes to
require that a Designated Market Maker
(‘‘DMM’’) be registered in each
Exchange-listed security, which is based
on current rules. As proposed, Exchange
DMMs would be required to meet all of
the proposed obligations for Market
Makers, and would be subject to rulesbased heightened quoting obligations in
their assigned securities.
Unlike Exchange DMMs under
current rules, which are Floor-based
individuals who operate within a DMM
unit of a member organization,11 the
proposed rules for DMMs would
provide for electronic access only,
would not assign securities at the
natural person level, and would not
require DMMs to facilitate the opening,
reopening, or closing of assigned
Exchange-listed securities. In addition,
the proposed rules would not entitle
DMMs to a parity allocation of
executions, and also would not subject
DMMs to heightened capital
requirements. Finally, DMMs would
continue to be subject to rules governing
allocation of securities and combination
of DMM units that are based on current
rules.
The Exchange proposes the following
rules, which are based on both NYSE
Arca Equities rules and current
Exchange rules, to establish the
requirements for DMMs on the Pillar
trading platform.
• proposed Rule 1.1E(ccc) (definition
of DMM);
• proposed Rule 7.24E (Registration
and Obligation of DMMs);
• proposed Rule 7.25E (DMM
Security Allocation and Reallocation);
and
• proposed Rule 7.26E (DMM
Combination Review Policy).
Subject to rule approvals for the ETP
Listing Rule Filing, Trading Rules
Filing, and this filing, the Exchange will
announce the transition of its cash
equities trading to the Pillar trading
system by Trader Update, which the
Exchange anticipates will be in the
second quarter of 2017.
Because the Exchange would not be
trading on both its current Floor-based
trading platform and the Pillar trading
platform at the same time, once trading
on the Pillar trading platform begins,
specified current Exchange equities
trading rules would no longer be
applicable. Accordingly, as described in
11 See Rule 2(i)—Equities (defining the term
‘‘DMM’’ to mean an individual member, officer,
partner, employee, or associated person of a DMM
unit who is approved by the Exchange to act in the
capacity as a DMM) and Rule 98(b)(1)—Equities
(defining a ‘‘DMM unit’’ as a trading unit within a
member organization that is approved pursuant to
Rule 103—Equities to act as a DMM unit).
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more detail below, for each current
equities rule that would no longer be
applicable when trading on the Pillar
trading platform begins, the Exchange
proposes to state in a preamble to such
rule that ‘‘this rule is not applicable to
trading on the Pillar trading platform.’’
Once the Exchange has transitioned to
the Pillar trading platform, the Exchange
will file a separate proposed rule change
to delete those current rules that have
been identified in this filing as not being
applicable to trading on Pillar. Current
Exchange rules governing equities
trading that do not have this preamble
will continue to govern Exchange
operations on its cash equities trading
platform.
Proposed Rule Changes
As noted above, the Exchange
proposes rules for Market Makers that
would be applicable to cash equities
trading on Pillar that are based on NYSE
Arca Equities Rules. Throughout these
proposed rules, the Exchange proposes
non-substantive differences as
compared to the NYSE Arca Equities
rules to use the term ‘‘Exchange’’
instead of the terms ‘‘NYSE Arca
Marketplace,’’ ‘‘NYSE Arca,’’ or
‘‘Corporation’’; use the term ‘‘Exchange
Book’’ instead of ‘‘NYSE Arca Book’’;
use the term ‘‘will’’ instead of ‘‘shall’’;
and use the terms ‘‘mean’’ or ‘‘have the
meaning’’ instead of the terms ‘‘shall
mean’’ or ‘‘shall have the meaning.’’ 12
The Exchange proposes that rules
governing Market Makers on the Pillar
trading platform would be set forth in
Rules 1.1E (Definitions) and Section 2
(Market Makers) of Rule 7E—Equities
Trading.
Rule 1E
As described in the Framework Filing,
Rule 1E specifies definitions that are
applicable to trading on the Pillar
trading platform. The Exchange
proposes the text for following existing
definitions that are marked ‘‘Reserved’’:
• The Exchange proposes to amend
Rule 1.1E(v) to delete the term
‘‘Reserved’’ and define the term ‘‘Market
Maker’’ as the ETP Holder that acts as
a Market Maker pursuant to Rule 7E.
This proposed rule is based on NYSE
Arca Equities Rule 1.1(v), which defines
the term ‘‘Market Maker,’’ without any
substantive differences.
• The Exchange proposes to amend
Rule 1.1E(w) to delete the term
‘‘Reserved’’ and define the term ‘‘Market
Maker Authorized Trader’’ or ‘‘MMAT’’
12 Because these non-substantive differences
would be applied throughout the proposed rules,
the Exchange will not note these differences
separately for each proposed rule.
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10509
to mean an Authorized Trader 13 who
performs market making activities
pursuant to Rule 7E on behalf of a
Market Maker. This proposed rule is
based on NYSE Arca Equities Rule
1.1(w), which defines the term ‘‘Market
Maker Authorized Trader,’’ without any
substantive differences.
• The Exchange proposes to amend
Rule 1.1E(ccc) to delete the term
‘‘Reserved’’ and define the term
‘‘Designated Market Maker’’ and
‘‘DMM’’ to mean a registered Market
Maker that is subject to additional
requirements set forth in Section 2 of
Rule 7E for Exchange-listed securities
assigned to such DMM. This proposed
definition would be new and is not
based on the rules of NYSE Arca
Equities. Because DMMs would be
Market Makers, and a Market Maker
designation is at the ETP Holder level,
this proposed definition would differ
from current rules, which define a DMM
at the individual level.14
Rule 7.20E
The Exchange proposes to amend
Rule 7.20E to delete the term
‘‘Reserved’’ and re-name it ‘‘Registration
of Market Makers.’’ Because the
Exchange would operate as a fullyautomated market, the Exchange
proposes that Market Makers on its
Pillar cash equities trading platform
would have the same registration
requirement as marker makers on NYSE
Arca Equities. Accordingly, the
Exchange proposes Rule 7.20E based on
NYSE Arca Equities Rule 7.20 without
substantive differences.
Proposed Rule 7.20E is based on
NYSE Arca Equities Rule 7.20 with
specified differences.
• First, because the Exchange already
has member organizations that are
registered as market makers, the
Exchange proposes that such member
organizations would continue to be
registered as Market Makers under
proposed Rule 7.20E without being
required to re-register as a Market
Maker.15 The Exchange therefore
proposes to specify in Rule 7.20E(a)(i)
that no ETP Holder would act as a
Market Maker in any security unless
such ETP Holder is registered as a
Market Maker in such security by the
Exchange pursuant to Rule 7.20E or is
13 In the Trading Rules Filing, supra note 6, the
Exchange proposes to define the term ‘‘Authorized
Trader’’ in Rule 1.1E(g).
14 See Rule 2(i)—Equities, supra note 11.
15 Under current Rule 103—Equities, a member
organization may be approved to be registered as a
DMM. In addition, under current Rule 107B—
Equities, a member organization approved as a
Supplemental Liquidity Provider may be registered
as a market maker on the Exchange as an ‘‘SLMM’’.
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a member organization registered as a
DMM or SLMM under Exchange rules as
of one business day before the Pillar
transition date.16 Accordingly, a
member organization registered as either
a DMM or SLMM on a specified date
close to the transition of trading to Pillar
would be deemed registered as a Market
Maker on the Exchange pursuant to
proposed Rule 7.20E and would not
need to re-apply for Market Maker
status.
• Second, proposed Rule 7.20E(b) is
based on NYSE Arca Equities Rule
7.20(b) with the following change to the
second sentence so that it would
provide that ‘‘[a]pplications will be
reviewed by the Exchange, which will
consider the ETP Holder’s capital,
operations, personnel, technical
resources, and disciplinary history.’’
The Exchange also proposes an
additional clarifying sentence that is not
in NYSE Arca Equities Rule 7.20(b) that
would provide that after reviewing the
application, the Exchange would either
approve or disapprove the ETP Holder’s
registration as a Market Maker. These
proposed differences compared to NYSE
Arca Equities Rule 7.20 do not result in
any substantive differences.
• Third, the Exchange proposes that
DMMs would not be covered by the
provisions of proposed Rule 7.20E(e),
which governs a Market Maker’s
withdrawal of registration as a Market
Maker in a security. As described in
greater detail below, the Exchange
proposes to address DMM withdrawal
from registration in a security in
proposed Rule 7.24E(a)(4). The
Exchange also proposes a substantive
difference to proposed Rule 7.20E(e) to
provide that a Market Maker that fails to
notify the Exchange of its written notice
of withdrawal on the business day prior
to such withdrawal may be subject to
formal disciplinary action. The
Exchange does not believe that a Market
Maker needs to provide ten business
day’s [sic] notice of such withdrawal of
registration, as required by NYSE Arca
Equities Rule 7.20(e), because the
Exchange can process such withdrawals
with only one business day’s [sic]
notice.
• Finally, the Exchange proposes a
non-substantive difference to proposed
Rule 7.20E(c) and (e) as compared to
NYSE Arca Equities Rule 7.20(c) and (d)
to use Exchange disciplinary rule
references in lieu of NYSE Arca Equities
disciplinary rule references.
16 As described infra, the Pillar implementation
date is subject to approval of the Trading Rules
Filing, ETP Listing Rules Filing, and this filing, and
will announce the implementation date by Trader
Update. Once announced, the Exchange will update
the rule text with the implementation date.
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Rule 7.21E
The Exchange proposes to amend
Rule 7.21E to delete the term
‘‘Reserved’’ and re-name it ‘‘Obligations
of Market Maker Authorized Traders.’’
Proposed Rule 7.21E would set forth the
requirement that MMATs are permitted
to enter orders only for the account of
the Market Maker for which they are
registered. The proposed rule would
also specify the registration
requirements for MMAT and the
procedures for suspension and
withdrawal of registration. This
proposed rule is based on NYSE Arca
Equities Rule 7.21 without any
substantive differences.
Rule 7.22E
The Exchange proposes to amend
Rule 7.22E to delete the term
‘‘Reserved’’ and re-name it ‘‘Registration
of Non-DMM Market Makers in a
Security.’’ Proposed Rule 7.22E would
set forth the process for Market Makers,
other than DMMs, to become registered
in a security and the factors the
Exchange may consider in approving
the registration of a Market Maker in a
security. The proposed Rule would also
describe both termination of a Market
Maker’s registration in a security by the
Exchange and voluntary termination by
a Market Maker.
Proposed Rule 7.22E is based on
NYSE Arca Equities Rule 7.22 with the
following differences:
• First, because DMM registration in
a security would be governed by
proposed Rule 7.25E, the Exchange
proposes that not all Market Makers
would register in a security pursuant to
the requirements in proposed Rule
7.22E. Instead, proposed Rule 7.22E
would govern only registration in a
security for non-DMM Market Makers.
• Second, in proposed Rule 7.22E(a),
the Exchange proposes that a Market
Maker may become registered in a
security by submitting a request to the
Exchange rather than the text in NYSE
Arca Equities Rule 7.22, which provides
that a prospective Market Maker should
file a security registration form. The
Exchange believes the proposed text
provides flexibility regarding the
manner that the Exchange would accept
such requests, including electronically,
and is not a substantive difference.
• Third, the Exchange proposes a
substantive difference compared to
NYSE Arca Equities Rule 7.22 because
it does not propose rule text based on
paragraphs (c) and (d) of NYSE Arca
Equities Rule 7.22. Those NYSE Arca
Equities rules govern designated market
makers and lead market makers on
NYSE Arca Equities. Because the
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Exchange is not proposing to have
Market Makers with the same
obligations as NYSE Arca Equities
designated market makers and lead
market makers, the Exchange is not
including in proposed Rule 7.22E the
text from paragraphs (c) and (d) of NYSE
Arca Equites Rule 7.22. The Exchange
proposes that requirements relating to
DMMs would be set forth in proposed
Rules 7.24E, 7.25E, and 7.26E, described
in greater detail below.
• Finally, the Exchange proposes
additional, non-substantive differences
by replacing references to NYSE Arca
Equities Rule 10 and 10.13 with
references to the Rule 9200 and Rule
9500 Series, respectively.
Rule 7.23E
The Exchange proposes to amend
Rule 7.23E to delete the term
‘‘Reserved’’ and re-name it ‘‘Obligations
of Market Makers.’’ Proposed Rule 7.23E
would set forth the obligation of all
Market Makers, including DMMs, to
engage in a course of dealings for their
own account to assist in the
maintenance, insofar as reasonably
practicable, of fair and orderly markets
on the Exchange and would delineate
the specific responsibilities and duties
of Market Makers, including the
obligation to maintain continuous, twosided trading in registered securities
and certain pricing obligations Market
Makers are required to adhere to.
Proposed Rule 7.23E is based on
NYSE Arca Equities Rule 7.23 with the
following differences:
• First, proposed Rules
7.23E(a)(1)(B)(iii) and (iv) would have
updated definitions for the terms
‘‘Designated Percentage’’ and ‘‘Defined
Limit.’’ To reflect that the applicable
percentages are based on how a security
is designated under Regulation NMS
Plan to Address Extraordinary Market
Volatility (‘‘LULD Plan’’), the Exchange
proposes to use LULD Plan definitions
in proposed Rule 7.23E(a)(1)(B). Using
these definitions is based on Bats BZX,
Inc. (‘‘Bats’’) Rule 11.8(d)(2)(D) and (E),
which similarly uses LULD Plan
definitions for defining the terms
‘‘Designated Percentage’’ and ‘‘Defined
Limit.’’ This proposed difference
compared to NYSE Arca Equities Rule
7.23(a)(1)(B)(iii) and (iv) is nonsubstantive and is meant to be
clarifying.
• Second, proposed Rule 7.23E(a)(2)
would require that a Market Maker
maintain adequate minimum capital in
accordance with the provisions of Rule
15c3–1 under the Securities Exchange
Act of 1934 (‘‘Rule 15c3–1’’), rather than
cite to NYSE Arca Equities Rule 4.1.
This proposed difference is non-
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substantive because NYSE Arca Equities
Rule 4.1 cross references Rule 15c3–1
and therefore the capital requirements
for Market Makers on the Exchange
would be identical to the capital
requirements for Market Makers on
NYSE Arca Equities.
• Finally, the Exchange proposes that
the provisions of proposed Rule
7.23E(d), regarding temporary
withdrawal of an ETP Holder from
Market Maker status in the securities in
which it is registered, would not be
applicable to Market Makers acting as a
DMM. As described in greater detail
below, the Exchange proposes to
address DMM withdrawal from
registration in a security in proposed
Rule 7.24E(a)(4).
Rule 7.24E
The Exchange proposes to amend
Rule 7.24E to delete the term
‘‘Reserved’’ and re-name it ‘‘Registration
and Obligations of DMMs.’’ Proposed
Rule 7.24E would describe the
registration and temporary withdrawal
procedures and obligations of DMMs on
the Exchange’s Pillar trading platform.
Proposed Rule 7.24E is new and is
based in part on provisions of current
98A—Equities, Rule 103—Equities, Rule
104—Equities, and Rule 107B—Equities.
Rule 7.24E(a) would be titled
‘‘General’’ and would provide that all
Exchange-listed securities would be
assigned to a DMM and there would be
no more than one DMM per Exchangelisted security. This is new rule text and
is based on how the Exchange currently
operates, as set forth in Rules 103—
Equities and 103B—Equities, in that
every Exchange-listed security is
allocated to a DMM.
Proposed Rule 7.24E(b) would be
titled ‘‘Registration’’ and would require
that an ETP Holder be registered as a
Market Maker and approved as a DMM
to be eligible to receive an allocation as
a DMM under proposed Rule 7.25E.
This proposed rule text is based in part
on current Rule 103(a)(i)—Equities,
which provides that no member
organization shall act as a DMM unit on
the Exchange in any security unless
such member organization is registered
as a DMM unit in such security with the
Exchange and unless the Exchange has
approved of the member organization so
acting as a DMM unit and has not
withdrawn such approval.
Proposed paragraphs (b)(1)–(4) of Rule
7.24E would specify additional
requirements relating to registration.
• The Exchange proposes to provide
for continuity for its listed companies
and provide in proposed Rule
7.24E(b)(1) that a member organization
that is approved to operate as a DMM
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unit under Exchange rules as of one
business day before the Pillar transition
date would automatically be approved
as a DMM under proposed Rule 7.24E.
This proposed rule text, together with
proposed Rule 7.25E(a)(1), described
below, would ensure that DMM units
currently assigned to a security would
continue to be the assigned DMM in a
security when the Exchange transitions
to the Pillar trading platform.
• Proposed Rule 7.24E(b)(2) would
provide for how a Market Maker that is
not currently approved as a DMM may
become a DMM. As proposed, Market
Makers that are not registered as a DMM
as of one business day before the Pillar
transition date would be required to file
an application in writing in such form
as required by the Exchange to be
considered eligible to receive an
allocation as a DMM. In reviewing the
application, the Exchange may consider
the Market Maker’s market making
ability, capital available for market
making, and such other factors as the
Exchange deems appropriate, including
those set forth in proposed Rules
7.25E(f) and 7.26E. After reviewing the
application, the Exchange would either
approve or disapprove the applicant
Market Maker’s registration as a DMM.
This proposed rule text is based on Rule
103(b)(i)—Equities. The Exchange
proposes a substantive difference from
current rules to reference proposed
Rules 7.25E(f) and 7.26E, described
below, which establish additional
factors that the Exchange may consider
in determining whether to approve a
DMM.
• Proposed Rule 7.24E(b)(3) would
provide that an ETP Holder registered as
a DMM in a security may also be
registered as a Market Maker in such
security pursuant to Rule 7.22E(a) only
if such ETP Holder maintains
information barriers between the trading
unit operating as a DMM and the trading
unit operating as a non-DMM Market
Maker in the same security. This
proposed rule is based on Rule
107B(h)(2)(A)—Equities, which
provides that a DMM unit shall not also
act as an SLP in the same securities in
which it is registered as a DMM.
Because current rules define a DMM
unit as a trading unit within a member
organization,17 current Rule
107B(h)(2)(A)—Equities permits a
member organization to operate as an
SLP in a security that is assigned to a
DMM unit provided that such SLP is not
part of the DMM unit. Accordingly,
proposed Rule 7.24E(b)(3) would
operate substantially the same as how a
member organization currently may be
17 See
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10511
both a DMM and an SLP in the same
security through the use of information
barriers.
• Proposed Rule 7.24E(b)(4) would
provide that a DMM may apply to
withdraw temporarily from its DMM
status in one or more assigned
securities. Exchange rules currently
provide for the temporary reallocation
of a security, but the current rule is
geared toward Floor-based individuals
making the determination to
temporarily reassign a security to
another DMM.18 To maintain the
current ability to temporarily reassign a
security to another DMM for legal or
regulatory reasons and also update the
rule text to reflect that it would not be
a decision made by Floor participants,
the Exchange proposes rule text based
in part on NYSE Arca Equities Rule
7.23(d) instead of current Rule 103.10—
Equities. Accordingly, as proposed, the
DMM would be required to base its
request to temporarily withdraw on
demonstrated legal or regulatory
requirements that necessitate a
temporary withdrawal, or to provide the
Exchange an opinion of counsel
certifying that such legal or regulatory
basis exists. As further proposed, the
Exchange would act promptly on a
withdrawal request and, if the request is
granted, the Exchange may temporarily
reassign the security or securities to
another DMM. As proposed, Rule
7.24E(b)(4) would further provide that
the DMM temporarily assigned a
security or securities would be subject
to the obligations set forth in paragraph
(b) of proposed Rule 7.24E, described
below, when acting as a temporary
DMM in such security or securities. By
requiring a legal or regulatory basis for
requesting a temporary withdrawal in
registration in a security, the Exchange
believes the proposed rule would have
the same effect as current Rule 103.10—
Equities, which requires that the
determination to temporarily reallocate
securities be made for the public
interest.
• Proposed Rule 7.24E(b)(5) would
provide that a DMM may not be
registered in a security of an issuer, or
a partner or subsidiary thereof, if such
entity is an approved person or affiliate
of the DMM. This proposed rule text is
based on current Rule 98A—Equities,
with non-substantive differences to use
18 See Rule 103.10—Equities (providing that the
Chief Regulatory Officer or his or her designee and
two non-DMM Executive Floor Governors or if only
one or no non-DMM Executive Floor Governors is
present on the Floor, the most senior non-DMM
Floor Governor or Governors, shall have the power
to reallocate temporarily any security on an
emergency basis to another location on the
Exchange whenever in their opinion such
reallocation would be in the public interest).
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Pillar terminology. The Exchange
proposes that Rule 98A—Equities would
not be applicable to trading on the Pillar
trading platform.
The Exchange proposes that Rule
103—Equities would not be applicable
to trading on the Pillar trading platform.
Instead, proposed Rule 7.24(b), together
with proposed Rule 7.20E, described
above, would establish the registration
requirements for DMMs.
Proposed Rule 7.24E(c) would
describe the obligations of DMMs on the
Pillar Trading Platform. Specifically, in
addition to meeting the Market Maker
obligations set forth in Rule 7.23E,
DMMs would be required to maintain a
bid or an offer at the National Best Bid
and National Best Offer (‘‘inside’’) at
least 25% of the day as measured across
all Exchange-listed securities that have
been assigned to the DMM. Proposed
Rule 7.24E(c) would provide that 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 other
words, this would be a portfolio-based
quoting requirement. Orders entered by
the DMM that are not displayed would
not be included in the inside quote
calculation.
The text of proposed Rule 7.24E(c) is
based in part on current Rule
104(a)(1)(A)—Equities. Currently,
DMMs are required to maintain a quote
at the inside at least 10% of the trading
day for securities with a consolidated
average daily volume of less than one
million shares and at least 5% of the
trading day for securities with a
consolidated average daily volume
equal to or greater than one million
shares. Similar to the proposed quoting
requirement set forth in proposed Rule
7.24E(c), the current quoting
requirements are portfolio-based
quoting requirements. On the Pillar
trading platform, because DMMs would
not have other obligations as set forth in
Rule 104(a)—Equities, such as the
requirement to facilitate openings,
reopenings, and closings, the Exchange
proposes a heightened quoting
obligation of 25% across all securities
assigned to a DMM, regardless of
consolidated average daily trading
volume for a security. The Exchange
otherwise proposes that the manner that
a DMM’s quoting obligations would be
calculated would be the same as under
current rules.
Because proposed Rules 7.22E and
7.24E would describe the obligations of
DMMs on the Pillar trading platform,
the Exchange proposes that Rule 104—
Equities would not be applicable to
trading on the Pillar trading platform.
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Rule 7.25E
The Exchange proposes new Rule
7.25E titled ‘‘DMM Security Allocation
and Reallocation’’ to set forth the
allocation and reallocation of securities
to DMMs following the transition to
Pillar. The proposed Rule is based on
current Rule 103B—Equities with
substantive differences to reflect that an
allocation would be to a DMM at the
ETP Holder level rather than at the
individual DMM level and nonsubstantive differences to streamline the
rule text. In addition, the Exchange
would use the term ‘‘DMM,’’ as defined
in proposed Rule 1.1E(ccc) to replace
current references to either DMM (as an
individual) or DMM unit. Because
proposed Rule 7.25E would establish
the requirements for the allocation and
reallocation of securities to DMMs on
Pillar, the Exchange proposes that Rule
103B—Equities would not be applicable
to trading on the Pillar trading platform.
Proposed Rule 7.25E(a) would set
forth the criteria for ETP Holders
registered as DMMs to be eligible for
allocation and reallocation of securities.
• Proposed Rule 7.25E(a)(1) would
provide that a security listed on the
Exchange as of one business day before
the Pillar transition date would
continue to be allocated to the member
organization registered as a DMM in
such security, unless reallocated under
paragraph (c) of the proposed Rule,
described below. This proposed rule,
together with proposed Rule 7.24E(b)(1),
described above, would ensure
continuity for Exchange-listed
companies to stay with the same DMM
after the Exchange transitions to Pillar.
To reflect that an allocation decision
under current Rule 103B—Equities may
occur after the transition date (e.g., the
allocation process began before the
Pillar transition date), the Exchange
proposes to further provide that any
allocation decisions made under Rule
103B—Equities after one business day
before the Pillar transition date would
be deemed an allocation under
proposed Rule 7.25E(b), described in
greater detail below.
• Proposed Rule 7.25E(a)(2) would
provide that a security would be
allocated to a DMM when such security
(A) is initially listed on the Exchange;
and (B) must be reassigned under either
this Rule or the Exchange’s Company
Guide. This proposed rule text is based
on current Rule 103B(I)—Equities with
non-substantive differences to use Pillar
terminology.
• Proposed Rule 7.25E(a)(3) would
provide that a DMM’s eligibility to
participate in the allocation process
would be determined at the time the
PO 00000
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interview is scheduled by the Exchange.
This proposed rule text is based on
current Rule 103B(II)(I)—Equities with
non-substantive differences to use Pillar
terminology.
• Proposed Rule 7.25E(a)(4) would
provide that DMMs would be eligible to
participate in the allocation process of
a listed security if the DMM meets the
quoting requirements specified in
proposed Rule 7.24E(c), which the
Exchange proposes to define as ‘‘DMM
obligations.’’ Rule 7.25E(a)(4) is based
on current Rule 103B(II)(A)—Equities
with non-substantive differences to
cross reference proposed DMM
obligations.19 Proposed Rules
7.24E(a)(4)(A)–(D) would describe the
consequences for a DMM’s failure to
meet DMM obligations. These proposed
rules are based on current Rule
103B(II)(J)(1)–(4)—Equities with
differences to cross reference the
proposed DMM obligations rather than
current quoting requirements.
Proposed Rule 7.25E(b) would
describe the allocation process, which
would operate similarly to the
allocation process as currently set forth
in Rule 103B(III)—Equities. Under the
proposed Rule, issuers would have the
option to select its DMM directly
following the procedures set forth in
proposed Rule 7.25E(b)(1), which is
based on current Rule 103B(III)(A)—
Equities with one substantive
difference, or delegate the authority to
the Exchange to select its DMM as
described in proposed Rule 7.25E(b)(2),
which is based on current Rule
103B(III)(B)—Equities.
The Exchange proposes a substantive
difference for proposed Rule
7.25E(b)(1)(A) as compared to current
Rule 103B(III)(A)(1)—Equities in that an
issuer would be required to select a
minimum of four DMMs to interview
rather than a minimum of two DMMs to
interview. By increasing the minimum
number of DMMs that must be
interviewed, a larger number of DMMs
would have an opportunity to
participate in the allocation process,
which would lead to an increase in
competition without being overly
burdensome on the issuer. The increase
in number of DMMs to interview would
also provide the issuer with more choice
in the selection of its assigned DMM.
The Exchange further believes that the
increase in competition would provide
19 The Exchange does not propose rule text for
Rule 7.25E based on current Rule 103B(II)(B)–(H)—
Equities because these requirements correlate to
quoting requirements depending on the
consolidated average daily volume of a security,
which would not be applicable on Pillar.
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DMMs with a greater incentive to
perform optimally.20
In addition, because on Pillar, there
would be no Floor participants, the
Exchange proposes substantive
differences for the proposed rule to not
include references to Floor-based
personnel. Proposed Rule
7.25E(b)(1)(B)(ii), as compared to
current Rule 103B(III)(A)(2)(b)—
Equities, would not refer to the
‘‘individual DMM’’ assigned to the
security because on Pillar, the DMM
assigned to a security would be at the
ETP Holder level. In addition, proposed
Rule 7.25E(b)(2)(A), as compared to
current Rule 103B(III)(B)(1)—Equities,
would provide that the Exchange
Selection Panel would be comprised
only of Exchange staff. Proposed Rule
7.25E(b)(3) would require the DMM
selected to remain the assigned DMM
for one year from the date that the issuer
begins trading on the Exchange, which
is based on Rule 103B(III)(B)(2)—
Equities.21
Proposed Rule 7.25E(b)(4) through
(11) would address allocation of
specified listings and is based on
current Rule 103B(VI)—Equities, with
non-substantive differences to renumber the provisions, update rule
cross references, and streamline the rule
text:
• Proposed Rule 7.25E(b)(4) would
govern the allocation of a spin-off or
related company to an existing listed
company and is based on Rule
103B(VI)(A)(1) and (3)—Equities;
• proposed Rule 7.25E(b)(5) would
govern the allocation of a warrant issued
by a listed company and is based on
Rule 103B(VI)(A)(2)—Equities;
• proposed Rule 7.25E(b)(6) would
govern the allocation of rights traded on
the Exchange and is based on Rule
103B(VI)(A)(4)—Equities;
• proposed Rule 7.25E(b)(7) would
govern relistings and is based on Rule
103B(VI)(B)—Equities;
• proposed Rule 7.25E(b)(8) would
govern common stock listing after
preferred stock and is based on Rule
103B(VI)(C)—Equities;
20 Proposed Rule 7.25E(b)(1)(A) is based in part
on NYSE Rule 103B(III)(A)(1). See also Securities
Exchange Act Release No. 69735 (June 11, 2013), 78
FR 36279 (June 17, 2013) (SR–NYSE–2013–39)
(Notice of Filing and immediate effectiveness of
proposed NYSE rule change to increase number of
DMM firms to be interviewed from three to four).
21 The Exchange does not propose rule text based
on Rule 103B(III)(B)(3)—Equities relating to
requirements for a DMM unit to commit extra
resources in order to be considered for foreign
listings. The Exchange believes that proposed Rule
7.24E(b)(2), which requires market making ability as
a factor in assessing whether to approve a Market
Maker as a DMM would address any considerations
of whether a DMM would have the capability to be
a Market Maker in foreign listings.
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• proposed Rule 7.25E(b)(9)(A)–(C)
would govern listed company mergers
and is based on Rule 103B(VI)(D)(1)–
(4)—Equities;
• proposed Rule 7.25E(b)(10) would
govern target stocks and is based on
Rule 103B(VI)(E)—Equities; and
• proposed Rule 7.25E(b)(11) would
govern the allocation of closed-end
management investment companies and
is based on Rule 103B(VI)(F)—Equities.
Proposed Rule 7.25E(c) would be
titled ‘‘Reallocation Process.’’ Proposed
Rules 7.25E(c)(1)(A)–(C) would describe
the reallocation process when an issuer
requests such reallocation, including
Exchange regulatory staff review of any
such request. This proposed rule text is
based on Rule 103B(IV)—Equities and
Supplementary Material .10 to Rule
103B—Equities with non-substantive
differences to re-number the rule text
and update rule cross-references.
Proposed Rule 7.25E(c)(2)(A)–(D)
would describe the reallocation process
where a DMM’s performance in a
particular market situation was, in the
Exchange’s judgment, so egregiously
deficient as to call into question the
Exchange’s integrity or impair the
Exchange’s reputation for maintaining
an efficient, fair, and orderly market.
The proposed Rule is based on current
Rule 103B(III)(V)(A)–(E)—Equities with
non-substantive differences to renumber the rule text and update rule
cross references.
Proposed Rule 7.25E(d), titled
‘‘Allocation Freeze Policy,’’ would
provide that, in the event a DMM unit
(1) loses its registration in a security as
a result of proceedings under the Rule
8000 or 9000 Series, as applicable, or (2)
voluntarily withdraws its registration in
a security as a result of possible
proceedings under those rules, the
DMM would be ineligible to apply for
future allocations for the six month
period immediately following the
reassignment of the security. The
proposed Rule is based on current Rule
103B(III)(VI)(G)—Equities with nonsubstantive differences to re-number the
rule text and update rule cross
references.
Proposed Rule 7.25E(e), titled
‘‘Allocation Sunset Policy,’’ would
provide that allocation decisions would
remain effective with respect to any
initial public offering listing company
that lists on the Exchange within twelve
months of such decision. The proposed
Rule is based on current Rule
103B(III)(VI)(H)—Equities with nonsubstantive differences to re-number the
rule text and update rule cross
references.
Finally, proposed Rule 7.25E(f) would
set forth the criteria for applicants that
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10513
are not currently DMMs to be eligible to
be allocated a security as a DMM,
including that the proposed DMM
demonstrate that it understands the
DMM business, including the needs of
issuers, and has an ability and
willingness to trade as necessary to
maintain fair and orderly markets.
Under the proposed Rule, the Exchange
would also consider if the proposed
DMM or any of its participants is a
DMM or market maker on any exchange,
the quality of performance of the unit or
its participants as a DMM or market
maker on such exchange. The Exchange
would also consider any action taken or
warning issued within the past 12
months by any regulatory or selfregulatory organization against the unit
or any of its participants with respect to
any capital or operational problem, or
any regulatory or disciplinary matter.
The proposed Rule is based on current
Rule 103B(III)(VI)(I)—Equities with
proposed substantive differences not to
include rule text that relates to
individual DMMs or additional capital
requirements, as these would not be
applicable to DMMs on Pillar. The
Exchange also proposes non-substantive
differences to re-number the rule text
and update rule cross references.
Rule 7.26E
The Exchange proposes new Rule
7.26E titled ‘‘DMM Combination Policy’’
that would establish the requirement for
Exchange approval of certain proposed
combinations of DMMs; the contents of
a written submission to the Exchange by
proponents of the DMM combination
addressing certain specific enumerated
factors for the Exchange to consider in
approving the transaction; and the
procedures the Exchange would follow
in approving or disapproving a
proposed DMM combination. The
proposed Rule is based on current Rule
123E—Equities (‘‘DMM Combination
Review Policy’’) with proposed
substantive differences not to include
rule text that relates to Floor-based
DMM activities as this will not be
applicable on Pillar. Because this rule
would govern DMM combinations on
the Exchange, the Exchange proposes
that Rule 123E—Equities would not be
applicable to trading on the Pillar
trading platform.
Current Rules That Would Not Be
Applicable to Pillar
In addition to the rules identified
above, the Exchange has identified
additional current rules that would not
be applicable to trading on Pillar. These
rules do not have a counterpart in the
proposed Pillar rules, described above,
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but would be obsolete on the new, fullyautomated trading platform.
The main category of rules that would
not be applicable to trading on the Pillar
trading platform are those that are
specific to Floor-based trading. For this
reason and the additional reasons noted
below, the Exchange proposes that the
following Floor-specific rules would not
be applicable to trading on the Pillar
trading platform:
• Rule 98—Equities (Operation of a
DMM Unit). In the Trading Rules Filing,
the Exchange has proposed Rule 6.3E
(Prevention of the Misuse of Material,
Nonpublic Information), which is based
on NYSE Arca Equities Rule 6.3 and
would require that every ETP Holder
establish, maintain, and enforce written
policies and procedures reasonably
designed to prevent the misuse of
material, non-public information by
such ETP Holder or persons associated
with such ETP Holder. Rule 98(c)(2)—
Equities is based on NYSE Arca Equities
Rule 6.3 and the remainder of Rule 98—
Equities governs the unique role of
DMMs on the Exchange’s cash equities
Floor. Because Rule 6.3E is designed to
prevent fraudulent and manipulative
acts and practices by addressing the
potential misuse of material non-public
information and because the Exchange
would not have Floor-based DMM
trading on Pilar [sic], the Exchange
proposes that Rule 98—Equities would
not be applicable to trading on Pillar.
• Rule 104A—Equities (DMMs—
General).
• Rule 104B—Equities (DMM
Commissions).22
• Rule 113—Equities (DMM Unit’s
Public Customers).
• Rule 460—Equities (DMMs
Participating in Contests). Because
DMMs on the Pillar platform would not
have the ability to set prices, the current
restrictions on DMMs from participating
in proxy contests of a company
registered to that DMM would be
unnecessary. The Exchange accordingly
proposes that Rule 460—Equities would
not be applicable to trading on Pillar.
In addition, the Exchange proposes to
delete Rules 99—Equities, Rule 100—
Equities, and Rule 101—Equities, all of
which are currently marked ‘‘Reserved.’’
The Exchange also proposes to delete
Rule 113 Former—Equities (DMMs’
Public Customers) as obsolete.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
22 In the Trading Rules Filing, supra note 6, the
Exchange has proposed Rule 7.3E, which provides
that ETP Holders may not charge fixed
commissions, which would be applicable to DMMs.
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Securities Exchange Act of 1934 (the
‘‘Act’’),23 in general, and furthers the
objectives of Section 6(b)(5),24 in
particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The Exchange believes
that the proposed rules to support Pillar
on the Exchange would remove
impediments to and perfect the
mechanism of a free and open market
because they provide for a complete set
of market maker rules to support the
Exchange’s transition to a fully
automated cash equities trading model
on the Pillar trading platform.
Generally, the Exchange believes that
the proposed rules would support the
Exchange’s transition to a fully
automated cash equities trading market
with a price-time priority model
because they are based on the rules
governing market makers of its affiliated
market, NYSE Arca Equities. The
proposed rule change would therefore
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
they are based on the approved rules of
another exchange.
More specifically, the Exchange
believes that the proposed definitions of
Market Maker, Market Maker
Authorized Trader and DMM in Rule
1.1E would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because the proposed definitions
are terms that would be used in the
additional rules proposed by the
Exchange.
The Exchange also believes that
proposed Rules 7.20E and 7.21E,
providing for the registration of Market
Makers and Market Maker Authorized
Traders, would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would specify the
requirements for an ETP Holder to
register as a Market Maker and Market
Maker Authorized Trader for trading on
the Exchange’s Pillar trading platform.
The proposed rule change would also
promote just and equitable principles of
trade by requiring the same registration
requirements as have already been
approved for NYSE Arca Equities.
23 15
24 15
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U.S.C. 78f(b)(5).
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The Exchange believes that proposed
Rule 7.22E, providing for the
registration of a Market Maker other
than a DMM in a security, would
similarly remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would specify the
requirements and process for registered
Market Makers to register to trade a
specific security on the Exchange’s
Pillar trading platform. The proposed
registration process is based on the same
process on NYSE Arca Equities and
therefore would promote just and
equitable principles of trade by
specifying requirements that are based
on the approved rules of another
exchange.
The Exchange believes that proposed
Rules 7.23E, setting forth the obligations
and duties of Market Makers, including
DMMs, would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would establish rules
that would govern trading on the
Exchange that are consistent with the
duties and obligations for Market
Makers currently in place on the
Exchange’s affiliate NYSE Arca Equities
that have been previously approved by
the Commission. For similar reasons,
the Exchange believes that proposed
Rule 7.23E is also designed to prevent
fraudulent and manipulative acts and
practices and to promote just and
equitable principles of trade by
establishing regulatory requirements for
Market Maker participation on the
Exchange’s electronic marketplace that
would enhance the quality of its market
and thereby support investor protection
and public interest goals.
The Exchange believes that proposed
Rule 7.24E, setting forth the registration
and obligations for DMMs, would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system by
maintaining the Exchange’s current
structure to assign listed securities to
DMMs. The Exchange believes that the
proposed heightened quoting
obligations for DMMs would encourage
additional displayed liquidity on the
Exchange in Exchange-listed securities.
Unlike under current Exchange rules,
DMMs on Pillar would not be entitled
to the additional benefit of a parity
allocation and therefore the proposed
obligations are reasonable and are
designed to enhance the quality of the
Exchange’s market for its listed
companies. The Exchange further
believes that by establishing distinct
requirements for DMMs, the proposal is
also designed to prevent fraudulent and
manipulative acts and practices and to
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promote just and equitable principles of
trade.
The Exchange believes that proposed
Rules 7.25E, setting forth the standards
and process for DMM security allocation
and reallocation, would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would establish transparent and
objectives rules and standards governing
the allocation of securities to its DMM
that are based on current rules. By
adopting the current allocation process
set forth in Rule 103B—Equities for
DMMs on the Exchange’s all-electronic
trading platform, the Exchange believes
that it would foster continuity and
ensure fair and orderly trading in its
listed securities. The Exchange believes
that the proposed substantive difference
for proposed Rule 7.25E(b)(1)(A) to
increase the number of DMMs to be
interviewed from two to four would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
increasing the number of DMMs
participating in the issuer allocation
process would increase competition to
provide services to issuers, and will
provide the issuer with more choice in
the selection of its DMM.
The Exchange believes that proposed
Rules 7.26E, setting forth the DMM
combination review policy, would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system by
establishing a review process by which
the Exchange would continue to review
proposed combinations of DMMs in the
same manner as it currently does for
Floor-based DMMs pursuant to Rule
123E—Equities.
The Exchange further believes that it
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system to specify which current rules
would not be applicable to trading on
the Pillar trading platform. The
Exchange believes that the proposed
legend that would be added to existing
rules, ‘‘[t]his rule is not applicable to
trading on the Pillar trading platform,’’
would promote transparency regarding
which rules would govern trading on
the Exchange once it transitions to
Pillar. The Exchange has proposed to
add this legend to rules that would be
superseded by proposed rules or rules
that would not be applicable because
they concern Floor-based trading.
The Exchange also believes that it
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system to delete Rules 99—Equities,
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Rule 100—Equities, and Rule 101—
Equities, all of which are currently
marked ‘‘Reserved,’’ because it would
reduce confusion and promote
transparency to delete references to
rules that do not have any substantive
content. The Exchange further believes
that because it is transitioning to a new
rule numbering framework, maintaining
these rules on a reserved basis is no
longer necessary.
Finally, the Exchange believes that
deleting Rule 113 Former—Equities as
obsolete removes impediments to and
perfects the mechanism of a free and
open market by simplifying its rulebook
and removing confusion that may result
from having obsolete rules in the
Exchange’s rulebook. The Exchange
further believes that the proposal
removes impediments to and perfects
the mechanism of a free and open
market by ensuring that persons subject
to the Exchange’s jurisdiction,
regulators, and the investing public can
more easily navigate and understand the
Exchange’s rulebook. The Exchange also
believes that eliminating obsolete rules
would not be inconsistent with the
public interest and the protection of
investors because investors will not be
harmed and in fact would benefit from
increased transparency as to which
rules are operable, thereby reducing
potential confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed change is designed to propose
rules that would govern Market Makers
on the Exchange’s new Pillar trading
platform, which would be a fully
automated cash equities trading market
that trades all NMS Stocks and is based
on both the rules of NYSE Arca Equities
and current rules. The Exchange
believes that the proposed rules would
promote competition because it would
provide for obligations relating to
Market Makers that are based on
established rules, thereby reducing any
potential barriers to entry for Market
Makers registered on other exchanges to
be approved as a Market Maker on the
Exchange when it transitions to Pillar.
The Exchange further believes that its
proposed rules governing DMMs would
not impose any burden on competition
that is not necessary or appropriate
because the proposed rules are designed
to provide continuity for Exchangelisted companies to maintain existing
DMMs assigned to their securities,
while at the same time proposing
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
10515
obligations for DMMs that are tailored to
a price-time automated trading model.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEMKT–2017–04 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2017–04. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
E:\FR\FM\13FEN1.SGM
13FEN1
10516
Federal Register / Vol. 82, No. 28 / Monday, February 13, 2017 / Notices
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEMKT–2017–04 and should be
submitted on or before March 6, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–02837 Filed 2–10–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No. IC–
32472; File No. 812–14708]
NorthStar/Townsend Institutional Real
Estate Fund Inc., et al.; Notice of
Application
February 7, 2017.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application under
section 6(c) of the Investment Company
Act of 1940 (the ‘‘Act’’) for an
exemption from sections 18(a)(2), 18(c)
and 18(i) of the Act, under sections 6(c)
and 23(c)(3) of the Act for an exemption
from rule 23c–3 under the Act, and for
an order pursuant to section 17(d) of the
Act and rule 17d–1 under the Act.
AGENCY:
jstallworth on DSK7TPTVN1PROD with NOTICES
SUMMARY:
Summary of Application: Applicants
request an order to permit certain
registered closed-end management
investment companies to issue multiple
classes of shares and to impose assetbased distribution and/or service fees
and early withdrawal charges (‘‘EWCs’’).
Applicants: NorthStar/Townsend
Institutional Real Estate Fund Inc. (the
‘‘Fund’’), Townsend Holdings LLC (the
‘‘Adviser’’), and NSAM B–TCEF Ltd.
(the ‘‘Sub-Adviser,’’ and together with
the Adviser, the ‘‘Advisers’’).
DATES:
25 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
13:41 Feb 10, 2017
Jkt 241001
Filing Dates: The application was
filed on October 19, 2016, January 6,
2017, and January 20, 2017.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on March 6, 2017, and
should be accompanied by proof of
service on the applicants, in the form of
an affidavit, or, for lawyers, a certificate
of service. Pursuant to rule 0–5 under
the Act, hearing requests should state
the nature of the writer’s interest, any
facts bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090;
Applicants: NorthStar/Townsend
Institutional Real Estate Fund Inc., 399
Park Avenue, 18th Floor, New York, NY
10022; Townsend Holdings LLC,
Skylight Office Tower, 1660 West
Second Street, 4th Floor, Cleveland,
Ohio 44113; NSAM B–TCEF Ltd., 11
Waterloo Lane, Pembroke, HM 08,
Bermuda.
FOR FURTHER INFORMATION CONTACT: Jill
Ehrlich, Senior Counsel, at (202) 551–
6819, or David J. Marcinkus, Branch
Chief, at (202) 551–6821 (Division of
Investment Management, Chief
Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. The Fund is a Maryland
corporation that has registered under
the Act as a non-diversified, closed-end
management investment company. The
Fund’s primary investment objectives
are to realize capital appreciation and to
preserve shareholders’ capital, with a
secondary objective of generating
income through cash distributions.
2. The Adviser is a Delaware limited
liability company that is doing business
as the Townsend Group and is
registered as an investment adviser
under the Investment Advisers Act of
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
1940 (‘‘Advisers Act’’). The Adviser
serves as investment adviser to the
Fund.
3. The Sub-Adviser is a Bermuda
limited exempted company and is a
registered investment adviser under the
Advisers Act. The Sub-Adviser serves as
the investment sub-adviser to the Fund.
4. The applicants seek an order to
permit the Fund to issue multiple
classes of shares, each having its own
fee and expense structure, and to
impose asset-based distribution and/or
service fees and EWCs.
5. Applicants request that the order
also apply to any continuously-offered
registered closed-end management
investment company that has been
previously organized or that may be
organized in the future for which the
Adviser or any entity controlling,
controlled by, or under common control
with the Adviser, or any successor in
interest to any such entity,1 acts as
investment adviser and which operates
as an interval fund pursuant to rule
23c–3 under the Act or provides
periodic liquidity with respect to its
shares pursuant to rule 13e–4 under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) (each, a ‘‘Future
Fund’’ and together with the Fund, the
‘‘Funds’’).2
6. The Fund intends to make a
continuous public offering of its
common stock upon a declaration of
effectiveness of its registration statement
(File Nos. 333–214167 and 811–23200).
Applicants state that additional
offerings by any Fund relying on the
order may be on a private placement or
public offering basis. Shares of the
Funds will not be listed on any
securities exchange, nor quoted on any
quotation medium. The Funds do not
expect there to be a secondary trading
market for their shares.
7. If the requested relief is granted, the
Fund intends to continuously offer
Class A Shares, Class C Shares, and
Class I Shares. Because of the different
distribution and/or service fees, services
and any other class expenses that may
be attributable to the Class A Shares,
Class C Shares and Class I Shares, the
net income attributable to, and the
dividends payable on, each class of
shares may differ from each other.
8. Applicants state that, from time to
time, the Fund may create additional
1 A successor in interest is limited to an entity
that results from a reorganization into another
jurisdiction or a change in the type of business
organization.
2 Any Fund relying on this relief in the future will
do so in a manner consistent with the terms and
conditions of the application. Applicants represent
that each entity presently intending to rely on the
requested relief is listed as an applicant.
E:\FR\FM\13FEN1.SGM
13FEN1
]]>Agencies
[Federal Register Volume 82, Number 28 (Monday, February 13, 2017)]
[Notices]
[Pages 10508-10516]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02837]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79982; File No. SR-NYSEMKT-2017-04]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of
Proposed Rule Change Relating to Market Makers Applicable When the
Exchange Transitions Trading to Pillar, the Exchange's New Trading
Technology Platform
February 7, 2017.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on January 25, 2017, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes rules relating to market makers that would be
applicable when the Exchange transitions trading to Pillar, the
Exchange's new trading technology platform. The proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
With Pillar, the Exchange proposes to transition its cash equities
trading platform from a Floor-based market with a parity allocation
model to a fully automated price-time priority allocation model. The
Exchange will be filing several proposed rule changes to support the
NYSE MKT cash equities implementation of Pillar. The Exchange has
already adopted the rule numbering framework of the NYSE Arca Equities,
Inc. (``NYSE Arca Equities'') rules for Exchange cash equities trading
on the Pillar trading platform.\4\ As described in the Framework
Filing, the Exchange denoted the rules applicable to cash equities
trading on Pillar with the letter ``E'' to distinguish such rules from
current Exchange rules with the same numbering. In addition, the
Exchange filed a proposed rule change to support Exchange trading of
securities listed on New York Stock Exchange LLC (``NYSE''), NYSE Arca,
Inc., and other exchanges on an unlisted trading privileges basis,
including Exchange Traded Products listed on other exchanges.\5\ The
Exchange has also proposed rules based on the rules of NYSE Arca
Equities to support the transition of Exchange trading to a fully
automated price-time priority allocation model.\6\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 79242 (November 4,
2016), 81 FR 79081 (November 10, 2016) (SR-NYSEMKT-2016-97) (Notice
and Filing of Immediate Effectiveness of Proposed Rule Change) (the
``Framework Filing'').
\5\ See Securities Exchange Act Release No. 79400 (November 25,
2016), 81 FR 86750 (December 1, 2016) (SR-NYSEMKT-2016-103) (Notice)
(the ``ETP Listing Rules Filing'').
\6\ See SR-NYSEMKT-2017-1 (``Trading Rules Filing'').
---------------------------------------------------------------------------
In this filing, the Exchange proposes rules governing market makers
on the Exchange following the transition to Pillar. Specifically, for
all securities that would trade on the Exchange, including UTP
Securities,\7\ an ETP Holder \8\ could register as a Market Maker \9\
and be subject to obligations similar to the obligations of a Market
Maker on NYSE Arca Equities.\10\ The Exchange proposes that the
following rules, based on NYSE Arca Equities rules of the same number
with non-substantive differences, would govern Market Makers on the
Pillar trading platform:
---------------------------------------------------------------------------
\7\ The term ``UTP Security'' is defined in Rule 1.1E(ii) to
mean a security that is listed on a national securities exchange
other than the Exchange and that trades on the Exchange pursuant to
unlisted trading privileges.
\8\ In the Trading Rules Filing, the Exchange proposes to define
the term ``ETP Holder'' in Rule 1.1E(n) as a member organization
that has been issued an Equity Trading Permit. The term ``member
organization'' is defined in Rule 2(b)--Equities.
\9\ As described below, the Exchange proposes to define the term
``Market Maker'' in Rule 1.1E(v).
\10\ On NYSE Arca Equities, the term ``Market Maker'' is defined
in NYSE Arca Equities Rule 1.1(v).
---------------------------------------------------------------------------
Proposed Rule 1.1E(v) (definition of Market Maker);
proposed Rule 1.1E(w) (definition of Market Maker
Authorized Trader);
proposed Rule 7.20E (Registration of Market Makers);
proposed Rule 7.21E (Obligations of Market Maker
Authorized Traders);
proposed Rule 7.22E (Registration of non-DMM Market Makers
in a Security); and
proposed Rule 7.23E (Obligations of Market Makers).
[[Page 10509]]
In addition, the Exchange proposes to require that a Designated
Market Maker (``DMM'') be registered in each Exchange-listed security,
which is based on current rules. As proposed, Exchange DMMs would be
required to meet all of the proposed obligations for Market Makers, and
would be subject to rules-based heightened quoting obligations in their
assigned securities.
Unlike Exchange DMMs under current rules, which are Floor-based
individuals who operate within a DMM unit of a member organization,\11\
the proposed rules for DMMs would provide for electronic access only,
would not assign securities at the natural person level, and would not
require DMMs to facilitate the opening, reopening, or closing of
assigned Exchange-listed securities. In addition, the proposed rules
would not entitle DMMs to a parity allocation of executions, and also
would not subject DMMs to heightened capital requirements. Finally,
DMMs would continue to be subject to rules governing allocation of
securities and combination of DMM units that are based on current
rules.
---------------------------------------------------------------------------
\11\ See Rule 2(i)--Equities (defining the term ``DMM'' to mean
an individual member, officer, partner, employee, or associated
person of a DMM unit who is approved by the Exchange to act in the
capacity as a DMM) and Rule 98(b)(1)--Equities (defining a ``DMM
unit'' as a trading unit within a member organization that is
approved pursuant to Rule 103--Equities to act as a DMM unit).
---------------------------------------------------------------------------
The Exchange proposes the following rules, which are based on both
NYSE Arca Equities rules and current Exchange rules, to establish the
requirements for DMMs on the Pillar trading platform.
proposed Rule 1.1E(ccc) (definition of DMM);
proposed Rule 7.24E (Registration and Obligation of DMMs);
proposed Rule 7.25E (DMM Security Allocation and
Reallocation); and
proposed Rule 7.26E (DMM Combination Review Policy).
Subject to rule approvals for the ETP Listing Rule Filing, Trading
Rules Filing, and this filing, the Exchange will announce the
transition of its cash equities trading to the Pillar trading system by
Trader Update, which the Exchange anticipates will be in the second
quarter of 2017.
Because the Exchange would not be trading on both its current
Floor-based trading platform and the Pillar trading platform at the
same time, once trading on the Pillar trading platform begins,
specified current Exchange equities trading rules would no longer be
applicable. Accordingly, as described in more detail below, for each
current equities rule that would no longer be applicable when trading
on the Pillar trading platform begins, the Exchange proposes to state
in a preamble to such rule that ``this rule is not applicable to
trading on the Pillar trading platform.'' Once the Exchange has
transitioned to the Pillar trading platform, the Exchange will file a
separate proposed rule change to delete those current rules that have
been identified in this filing as not being applicable to trading on
Pillar. Current Exchange rules governing equities trading that do not
have this preamble will continue to govern Exchange operations on its
cash equities trading platform.
Proposed Rule Changes
As noted above, the Exchange proposes rules for Market Makers that
would be applicable to cash equities trading on Pillar that are based
on NYSE Arca Equities Rules. Throughout these proposed rules, the
Exchange proposes non-substantive differences as compared to the NYSE
Arca Equities rules to use the term ``Exchange'' instead of the terms
``NYSE Arca Marketplace,'' ``NYSE Arca,'' or ``Corporation''; use the
term ``Exchange Book'' instead of ``NYSE Arca Book''; use the term
``will'' instead of ``shall''; and use the terms ``mean'' or ``have the
meaning'' instead of the terms ``shall mean'' or ``shall have the
meaning.'' \12\ The Exchange proposes that rules governing Market
Makers on the Pillar trading platform would be set forth in Rules 1.1E
(Definitions) and Section 2 (Market Makers) of Rule 7E--Equities
Trading.
---------------------------------------------------------------------------
\12\ Because these non-substantive differences would be applied
throughout the proposed rules, the Exchange will not note these
differences separately for each proposed rule.
---------------------------------------------------------------------------
Rule 1E
As described in the Framework Filing, Rule 1E specifies definitions
that are applicable to trading on the Pillar trading platform. The
Exchange proposes the text for following existing definitions that are
marked ``Reserved'':
The Exchange proposes to amend Rule 1.1E(v) to delete the
term ``Reserved'' and define the term ``Market Maker'' as the ETP
Holder that acts as a Market Maker pursuant to Rule 7E. This proposed
rule is based on NYSE Arca Equities Rule 1.1(v), which defines the term
``Market Maker,'' without any substantive differences.
The Exchange proposes to amend Rule 1.1E(w) to delete the
term ``Reserved'' and define the term ``Market Maker Authorized
Trader'' or ``MMAT'' to mean an Authorized Trader \13\ who performs
market making activities pursuant to Rule 7E on behalf of a Market
Maker. This proposed rule is based on NYSE Arca Equities Rule 1.1(w),
which defines the term ``Market Maker Authorized Trader,'' without any
substantive differences.
---------------------------------------------------------------------------
\13\ In the Trading Rules Filing, supra note 6, the Exchange
proposes to define the term ``Authorized Trader'' in Rule 1.1E(g).
---------------------------------------------------------------------------
The Exchange proposes to amend Rule 1.1E(ccc) to delete
the term ``Reserved'' and define the term ``Designated Market Maker''
and ``DMM'' to mean a registered Market Maker that is subject to
additional requirements set forth in Section 2 of Rule 7E for Exchange-
listed securities assigned to such DMM. This proposed definition would
be new and is not based on the rules of NYSE Arca Equities. Because
DMMs would be Market Makers, and a Market Maker designation is at the
ETP Holder level, this proposed definition would differ from current
rules, which define a DMM at the individual level.\14\
---------------------------------------------------------------------------
\14\ See Rule 2(i)--Equities, supra note 11.
---------------------------------------------------------------------------
Rule 7.20E
The Exchange proposes to amend Rule 7.20E to delete the term
``Reserved'' and re-name it ``Registration of Market Makers.'' Because
the Exchange would operate as a fully-automated market, the Exchange
proposes that Market Makers on its Pillar cash equities trading
platform would have the same registration requirement as marker makers
on NYSE Arca Equities. Accordingly, the Exchange proposes Rule 7.20E
based on NYSE Arca Equities Rule 7.20 without substantive differences.
Proposed Rule 7.20E is based on NYSE Arca Equities Rule 7.20 with
specified differences.
First, because the Exchange already has member
organizations that are registered as market makers, the Exchange
proposes that such member organizations would continue to be registered
as Market Makers under proposed Rule 7.20E without being required to
re-register as a Market Maker.\15\ The Exchange therefore proposes to
specify in Rule 7.20E(a)(i) that no ETP Holder would act as a Market
Maker in any security unless such ETP Holder is registered as a Market
Maker in such security by the Exchange pursuant to Rule 7.20E or is
[[Page 10510]]
a member organization registered as a DMM or SLMM under Exchange rules
as of one business day before the Pillar transition date.\16\
Accordingly, a member organization registered as either a DMM or SLMM
on a specified date close to the transition of trading to Pillar would
be deemed registered as a Market Maker on the Exchange pursuant to
proposed Rule 7.20E and would not need to re-apply for Market Maker
status.
---------------------------------------------------------------------------
\15\ Under current Rule 103--Equities, a member organization may
be approved to be registered as a DMM. In addition, under current
Rule 107B--Equities, a member organization approved as a
Supplemental Liquidity Provider may be registered as a market maker
on the Exchange as an ``SLMM''.
\16\ As described infra, the Pillar implementation date is
subject to approval of the Trading Rules Filing, ETP Listing Rules
Filing, and this filing, and will announce the implementation date
by Trader Update. Once announced, the Exchange will update the rule
text with the implementation date.
---------------------------------------------------------------------------
Second, proposed Rule 7.20E(b) is based on NYSE Arca
Equities Rule 7.20(b) with the following change to the second sentence
so that it would provide that ``[a]pplications will be reviewed by the
Exchange, which will consider the ETP Holder's capital, operations,
personnel, technical resources, and disciplinary history.'' The
Exchange also proposes an additional clarifying sentence that is not in
NYSE Arca Equities Rule 7.20(b) that would provide that after reviewing
the application, the Exchange would either approve or disapprove the
ETP Holder's registration as a Market Maker. These proposed differences
compared to NYSE Arca Equities Rule 7.20 do not result in any
substantive differences.
Third, the Exchange proposes that DMMs would not be
covered by the provisions of proposed Rule 7.20E(e), which governs a
Market Maker's withdrawal of registration as a Market Maker in a
security. As described in greater detail below, the Exchange proposes
to address DMM withdrawal from registration in a security in proposed
Rule 7.24E(a)(4). The Exchange also proposes a substantive difference
to proposed Rule 7.20E(e) to provide that a Market Maker that fails to
notify the Exchange of its written notice of withdrawal on the business
day prior to such withdrawal may be subject to formal disciplinary
action. The Exchange does not believe that a Market Maker needs to
provide ten business day's [sic] notice of such withdrawal of
registration, as required by NYSE Arca Equities Rule 7.20(e), because
the Exchange can process such withdrawals with only one business day's
[sic] notice.
Finally, the Exchange proposes a non-substantive
difference to proposed Rule 7.20E(c) and (e) as compared to NYSE Arca
Equities Rule 7.20(c) and (d) to use Exchange disciplinary rule
references in lieu of NYSE Arca Equities disciplinary rule references.
Rule 7.21E
The Exchange proposes to amend Rule 7.21E to delete the term
``Reserved'' and re-name it ``Obligations of Market Maker Authorized
Traders.'' Proposed Rule 7.21E would set forth the requirement that
MMATs are permitted to enter orders only for the account of the Market
Maker for which they are registered. The proposed rule would also
specify the registration requirements for MMAT and the procedures for
suspension and withdrawal of registration. This proposed rule is based
on NYSE Arca Equities Rule 7.21 without any substantive differences.
Rule 7.22E
The Exchange proposes to amend Rule 7.22E to delete the term
``Reserved'' and re-name it ``Registration of Non-DMM Market Makers in
a Security.'' Proposed Rule 7.22E would set forth the process for
Market Makers, other than DMMs, to become registered in a security and
the factors the Exchange may consider in approving the registration of
a Market Maker in a security. The proposed Rule would also describe
both termination of a Market Maker's registration in a security by the
Exchange and voluntary termination by a Market Maker.
Proposed Rule 7.22E is based on NYSE Arca Equities Rule 7.22 with
the following differences:
First, because DMM registration in a security would be
governed by proposed Rule 7.25E, the Exchange proposes that not all
Market Makers would register in a security pursuant to the requirements
in proposed Rule 7.22E. Instead, proposed Rule 7.22E would govern only
registration in a security for non-DMM Market Makers.
Second, in proposed Rule 7.22E(a), the Exchange proposes
that a Market Maker may become registered in a security by submitting a
request to the Exchange rather than the text in NYSE Arca Equities Rule
7.22, which provides that a prospective Market Maker should file a
security registration form. The Exchange believes the proposed text
provides flexibility regarding the manner that the Exchange would
accept such requests, including electronically, and is not a
substantive difference.
Third, the Exchange proposes a substantive difference
compared to NYSE Arca Equities Rule 7.22 because it does not propose
rule text based on paragraphs (c) and (d) of NYSE Arca Equities Rule
7.22. Those NYSE Arca Equities rules govern designated market makers
and lead market makers on NYSE Arca Equities. Because the Exchange is
not proposing to have Market Makers with the same obligations as NYSE
Arca Equities designated market makers and lead market makers, the
Exchange is not including in proposed Rule 7.22E the text from
paragraphs (c) and (d) of NYSE Arca Equites Rule 7.22. The Exchange
proposes that requirements relating to DMMs would be set forth in
proposed Rules 7.24E, 7.25E, and 7.26E, described in greater detail
below.
Finally, the Exchange proposes additional, non-substantive
differences by replacing references to NYSE Arca Equities Rule 10 and
10.13 with references to the Rule 9200 and Rule 9500 Series,
respectively.
Rule 7.23E
The Exchange proposes to amend Rule 7.23E to delete the term
``Reserved'' and re-name it ``Obligations of Market Makers.'' Proposed
Rule 7.23E would set forth the obligation of all Market Makers,
including DMMs, to engage in a course of dealings for their own account
to assist in the maintenance, insofar as reasonably practicable, of
fair and orderly markets on the Exchange and would delineate the
specific responsibilities and duties of Market Makers, including the
obligation to maintain continuous, two-sided trading in registered
securities and certain pricing obligations Market Makers are required
to adhere to.
Proposed Rule 7.23E is based on NYSE Arca Equities Rule 7.23 with
the following differences:
First, proposed Rules 7.23E(a)(1)(B)(iii) and (iv) would
have updated definitions for the terms ``Designated Percentage'' and
``Defined Limit.'' To reflect that the applicable percentages are based
on how a security is designated under Regulation NMS Plan to Address
Extraordinary Market Volatility (``LULD Plan''), the Exchange proposes
to use LULD Plan definitions in proposed Rule 7.23E(a)(1)(B). Using
these definitions is based on Bats BZX, Inc. (``Bats'') Rule
11.8(d)(2)(D) and (E), which similarly uses LULD Plan definitions for
defining the terms ``Designated Percentage'' and ``Defined Limit.''
This proposed difference compared to NYSE Arca Equities Rule
7.23(a)(1)(B)(iii) and (iv) is non-substantive and is meant to be
clarifying.
Second, proposed Rule 7.23E(a)(2) would require that a
Market Maker maintain adequate minimum capital in accordance with the
provisions of Rule 15c3-1 under the Securities Exchange Act of 1934
(``Rule 15c3-1''), rather than cite to NYSE Arca Equities Rule 4.1.
This proposed difference is non-
[[Page 10511]]
substantive because NYSE Arca Equities Rule 4.1 cross references Rule
15c3-1 and therefore the capital requirements for Market Makers on the
Exchange would be identical to the capital requirements for Market
Makers on NYSE Arca Equities.
Finally, the Exchange proposes that the provisions of
proposed Rule 7.23E(d), regarding temporary withdrawal of an ETP Holder
from Market Maker status in the securities in which it is registered,
would not be applicable to Market Makers acting as a DMM. As described
in greater detail below, the Exchange proposes to address DMM
withdrawal from registration in a security in proposed Rule
7.24E(a)(4).
Rule 7.24E
The Exchange proposes to amend Rule 7.24E to delete the term
``Reserved'' and re-name it ``Registration and Obligations of DMMs.''
Proposed Rule 7.24E would describe the registration and temporary
withdrawal procedures and obligations of DMMs on the Exchange's Pillar
trading platform. Proposed Rule 7.24E is new and is based in part on
provisions of current 98A--Equities, Rule 103--Equities, Rule 104--
Equities, and Rule 107B--Equities.
Rule 7.24E(a) would be titled ``General'' and would provide that
all Exchange-listed securities would be assigned to a DMM and there
would be no more than one DMM per Exchange-listed security. This is new
rule text and is based on how the Exchange currently operates, as set
forth in Rules 103--Equities and 103B--Equities, in that every
Exchange-listed security is allocated to a DMM.
Proposed Rule 7.24E(b) would be titled ``Registration'' and would
require that an ETP Holder be registered as a Market Maker and approved
as a DMM to be eligible to receive an allocation as a DMM under
proposed Rule 7.25E. This proposed rule text is based in part on
current Rule 103(a)(i)--Equities, which provides that no member
organization shall act as a DMM unit on the Exchange in any security
unless such member organization is registered as a DMM unit in such
security with the Exchange and unless the Exchange has approved of the
member organization so acting as a DMM unit and has not withdrawn such
approval.
Proposed paragraphs (b)(1)-(4) of Rule 7.24E would specify
additional requirements relating to registration.
The Exchange proposes to provide for continuity for its
listed companies and provide in proposed Rule 7.24E(b)(1) that a member
organization that is approved to operate as a DMM unit under Exchange
rules as of one business day before the Pillar transition date would
automatically be approved as a DMM under proposed Rule 7.24E. This
proposed rule text, together with proposed Rule 7.25E(a)(1), described
below, would ensure that DMM units currently assigned to a security
would continue to be the assigned DMM in a security when the Exchange
transitions to the Pillar trading platform.
Proposed Rule 7.24E(b)(2) would provide for how a Market
Maker that is not currently approved as a DMM may become a DMM. As
proposed, Market Makers that are not registered as a DMM as of one
business day before the Pillar transition date would be required to
file an application in writing in such form as required by the Exchange
to be considered eligible to receive an allocation as a DMM. In
reviewing the application, the Exchange may consider the Market Maker's
market making ability, capital available for market making, and such
other factors as the Exchange deems appropriate, including those set
forth in proposed Rules 7.25E(f) and 7.26E. After reviewing the
application, the Exchange would either approve or disapprove the
applicant Market Maker's registration as a DMM. This proposed rule text
is based on Rule 103(b)(i)--Equities. The Exchange proposes a
substantive difference from current rules to reference proposed Rules
7.25E(f) and 7.26E, described below, which establish additional factors
that the Exchange may consider in determining whether to approve a DMM.
Proposed Rule 7.24E(b)(3) would provide that an ETP Holder
registered as a DMM in a security may also be registered as a Market
Maker in such security pursuant to Rule 7.22E(a) only if such ETP
Holder maintains information barriers between the trading unit
operating as a DMM and the trading unit operating as a non-DMM Market
Maker in the same security. This proposed rule is based on Rule
107B(h)(2)(A)--Equities, which provides that a DMM unit shall not also
act as an SLP in the same securities in which it is registered as a
DMM. Because current rules define a DMM unit as a trading unit within a
member organization,\17\ current Rule 107B(h)(2)(A)--Equities permits a
member organization to operate as an SLP in a security that is assigned
to a DMM unit provided that such SLP is not part of the DMM unit.
Accordingly, proposed Rule 7.24E(b)(3) would operate substantially the
same as how a member organization currently may be both a DMM and an
SLP in the same security through the use of information barriers.
---------------------------------------------------------------------------
\17\ See Rule 98(b)(1)--Equities.
---------------------------------------------------------------------------
Proposed Rule 7.24E(b)(4) would provide that a DMM may
apply to withdraw temporarily from its DMM status in one or more
assigned securities. Exchange rules currently provide for the temporary
reallocation of a security, but the current rule is geared toward
Floor-based individuals making the determination to temporarily
reassign a security to another DMM.\18\ To maintain the current ability
to temporarily reassign a security to another DMM for legal or
regulatory reasons and also update the rule text to reflect that it
would not be a decision made by Floor participants, the Exchange
proposes rule text based in part on NYSE Arca Equities Rule 7.23(d)
instead of current Rule 103.10--Equities. Accordingly, as proposed, the
DMM would be required to base its request to temporarily withdraw on
demonstrated legal or regulatory requirements that necessitate a
temporary withdrawal, or to provide the Exchange an opinion of counsel
certifying that such legal or regulatory basis exists. As further
proposed, the Exchange would act promptly on a withdrawal request and,
if the request is granted, the Exchange may temporarily reassign the
security or securities to another DMM. As proposed, Rule 7.24E(b)(4)
would further provide that the DMM temporarily assigned a security or
securities would be subject to the obligations set forth in paragraph
(b) of proposed Rule 7.24E, described below, when acting as a temporary
DMM in such security or securities. By requiring a legal or regulatory
basis for requesting a temporary withdrawal in registration in a
security, the Exchange believes the proposed rule would have the same
effect as current Rule 103.10--Equities, which requires that the
determination to temporarily reallocate securities be made for the
public interest.
---------------------------------------------------------------------------
\18\ See Rule 103.10--Equities (providing that the Chief
Regulatory Officer or his or her designee and two non-DMM Executive
Floor Governors or if only one or no non-DMM Executive Floor
Governors is present on the Floor, the most senior non-DMM Floor
Governor or Governors, shall have the power to reallocate
temporarily any security on an emergency basis to another location
on the Exchange whenever in their opinion such reallocation would be
in the public interest).
---------------------------------------------------------------------------
Proposed Rule 7.24E(b)(5) would provide that a DMM may not
be registered in a security of an issuer, or a partner or subsidiary
thereof, if such entity is an approved person or affiliate of the DMM.
This proposed rule text is based on current Rule 98A--Equities, with
non-substantive differences to use
[[Page 10512]]
Pillar terminology. The Exchange proposes that Rule 98A--Equities would
not be applicable to trading on the Pillar trading platform.
The Exchange proposes that Rule 103--Equities would not be
applicable to trading on the Pillar trading platform. Instead, proposed
Rule 7.24(b), together with proposed Rule 7.20E, described above, would
establish the registration requirements for DMMs.
Proposed Rule 7.24E(c) would describe the obligations of DMMs on
the Pillar Trading Platform. Specifically, in addition to meeting the
Market Maker obligations set forth in Rule 7.23E, DMMs would be
required to maintain a bid or an offer at the National Best Bid and
National Best Offer (``inside'') at least 25% of the day as measured
across all Exchange-listed securities that have been assigned to the
DMM. Proposed Rule 7.24E(c) would provide that 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 other words, this would be a portfolio-
based quoting requirement. Orders entered by the DMM that are not
displayed would not be included in the inside quote calculation.
The text of proposed Rule 7.24E(c) is based in part on current Rule
104(a)(1)(A)--Equities. Currently, DMMs are required to maintain a
quote at the inside at least 10% of the trading day for securities with
a consolidated average daily volume of less than one million shares and
at least 5% of the trading day for securities with a consolidated
average daily volume equal to or greater than one million shares.
Similar to the proposed quoting requirement set forth in proposed Rule
7.24E(c), the current quoting requirements are portfolio-based quoting
requirements. On the Pillar trading platform, because DMMs would not
have other obligations as set forth in Rule 104(a)--Equities, such as
the requirement to facilitate openings, reopenings, and closings, the
Exchange proposes a heightened quoting obligation of 25% across all
securities assigned to a DMM, regardless of consolidated average daily
trading volume for a security. The Exchange otherwise proposes that the
manner that a DMM's quoting obligations would be calculated would be
the same as under current rules.
Because proposed Rules 7.22E and 7.24E would describe the
obligations of DMMs on the Pillar trading platform, the Exchange
proposes that Rule 104--Equities would not be applicable to trading on
the Pillar trading platform.
Rule 7.25E
The Exchange proposes new Rule 7.25E titled ``DMM Security
Allocation and Reallocation'' to set forth the allocation and
reallocation of securities to DMMs following the transition to Pillar.
The proposed Rule is based on current Rule 103B--Equities with
substantive differences to reflect that an allocation would be to a DMM
at the ETP Holder level rather than at the individual DMM level and
non-substantive differences to streamline the rule text. In addition,
the Exchange would use the term ``DMM,'' as defined in proposed Rule
1.1E(ccc) to replace current references to either DMM (as an
individual) or DMM unit. Because proposed Rule 7.25E would establish
the requirements for the allocation and reallocation of securities to
DMMs on Pillar, the Exchange proposes that Rule 103B--Equities would
not be applicable to trading on the Pillar trading platform.
Proposed Rule 7.25E(a) would set forth the criteria for ETP Holders
registered as DMMs to be eligible for allocation and reallocation of
securities.
Proposed Rule 7.25E(a)(1) would provide that a security
listed on the Exchange as of one business day before the Pillar
transition date would continue to be allocated to the member
organization registered as a DMM in such security, unless reallocated
under paragraph (c) of the proposed Rule, described below. This
proposed rule, together with proposed Rule 7.24E(b)(1), described
above, would ensure continuity for Exchange-listed companies to stay
with the same DMM after the Exchange transitions to Pillar. To reflect
that an allocation decision under current Rule 103B--Equities may occur
after the transition date (e.g., the allocation process began before
the Pillar transition date), the Exchange proposes to further provide
that any allocation decisions made under Rule 103B--Equities after one
business day before the Pillar transition date would be deemed an
allocation under proposed Rule 7.25E(b), described in greater detail
below.
Proposed Rule 7.25E(a)(2) would provide that a security
would be allocated to a DMM when such security (A) is initially listed
on the Exchange; and (B) must be reassigned under either this Rule or
the Exchange's Company Guide. This proposed rule text is based on
current Rule 103B(I)--Equities with non-substantive differences to use
Pillar terminology.
Proposed Rule 7.25E(a)(3) would provide that a DMM's
eligibility to participate in the allocation process would be
determined at the time the interview is scheduled by the Exchange. This
proposed rule text is based on current Rule 103B(II)(I)--Equities with
non-substantive differences to use Pillar terminology.
Proposed Rule 7.25E(a)(4) would provide that DMMs would be
eligible to participate in the allocation process of a listed security
if the DMM meets the quoting requirements specified in proposed Rule
7.24E(c), which the Exchange proposes to define as ``DMM obligations.''
Rule 7.25E(a)(4) is based on current Rule 103B(II)(A)--Equities with
non-substantive differences to cross reference proposed DMM
obligations.\19\ Proposed Rules 7.24E(a)(4)(A)-(D) would describe the
consequences for a DMM's failure to meet DMM obligations. These
proposed rules are based on current Rule 103B(II)(J)(1)-(4)--Equities
with differences to cross reference the proposed DMM obligations rather
than current quoting requirements.
---------------------------------------------------------------------------
\19\ The Exchange does not propose rule text for Rule 7.25E
based on current Rule 103B(II)(B)-(H)--Equities because these
requirements correlate to quoting requirements depending on the
consolidated average daily volume of a security, which would not be
applicable on Pillar.
---------------------------------------------------------------------------
Proposed Rule 7.25E(b) would describe the allocation process, which
would operate similarly to the allocation process as currently set
forth in Rule 103B(III)--Equities. Under the proposed Rule, issuers
would have the option to select its DMM directly following the
procedures set forth in proposed Rule 7.25E(b)(1), which is based on
current Rule 103B(III)(A)--Equities with one substantive difference, or
delegate the authority to the Exchange to select its DMM as described
in proposed Rule 7.25E(b)(2), which is based on current Rule
103B(III)(B)--Equities.
The Exchange proposes a substantive difference for proposed Rule
7.25E(b)(1)(A) as compared to current Rule 103B(III)(A)(1)--Equities in
that an issuer would be required to select a minimum of four DMMs to
interview rather than a minimum of two DMMs to interview. By increasing
the minimum number of DMMs that must be interviewed, a larger number of
DMMs would have an opportunity to participate in the allocation
process, which would lead to an increase in competition without being
overly burdensome on the issuer. The increase in number of DMMs to
interview would also provide the issuer with more choice in the
selection of its assigned DMM. The Exchange further believes that the
increase in competition would provide
[[Page 10513]]
DMMs with a greater incentive to perform optimally.\20\
---------------------------------------------------------------------------
\20\ Proposed Rule 7.25E(b)(1)(A) is based in part on NYSE Rule
103B(III)(A)(1). See also Securities Exchange Act Release No. 69735
(June 11, 2013), 78 FR 36279 (June 17, 2013) (SR-NYSE-2013-39)
(Notice of Filing and immediate effectiveness of proposed NYSE rule
change to increase number of DMM firms to be interviewed from three
to four).
---------------------------------------------------------------------------
In addition, because on Pillar, there would be no Floor
participants, the Exchange proposes substantive differences for the
proposed rule to not include references to Floor-based personnel.
Proposed Rule 7.25E(b)(1)(B)(ii), as compared to current Rule
103B(III)(A)(2)(b)--Equities, would not refer to the ``individual DMM''
assigned to the security because on Pillar, the DMM assigned to a
security would be at the ETP Holder level. In addition, proposed Rule
7.25E(b)(2)(A), as compared to current Rule 103B(III)(B)(1)--Equities,
would provide that the Exchange Selection Panel would be comprised only
of Exchange staff. Proposed Rule 7.25E(b)(3) would require the DMM
selected to remain the assigned DMM for one year from the date that the
issuer begins trading on the Exchange, which is based on Rule
103B(III)(B)(2)--Equities.\21\
---------------------------------------------------------------------------
\21\ The Exchange does not propose rule text based on Rule
103B(III)(B)(3)--Equities relating to requirements for a DMM unit to
commit extra resources in order to be considered for foreign
listings. The Exchange believes that proposed Rule 7.24E(b)(2),
which requires market making ability as a factor in assessing
whether to approve a Market Maker as a DMM would address any
considerations of whether a DMM would have the capability to be a
Market Maker in foreign listings.
---------------------------------------------------------------------------
Proposed Rule 7.25E(b)(4) through (11) would address allocation of
specified listings and is based on current Rule 103B(VI)--Equities,
with non-substantive differences to re-number the provisions, update
rule cross references, and streamline the rule text:
Proposed Rule 7.25E(b)(4) would govern the allocation of a
spin-off or related company to an existing listed company and is based
on Rule 103B(VI)(A)(1) and (3)--Equities;
proposed Rule 7.25E(b)(5) would govern the allocation of a
warrant issued by a listed company and is based on Rule
103B(VI)(A)(2)--Equities;
proposed Rule 7.25E(b)(6) would govern the allocation of
rights traded on the Exchange and is based on Rule 103B(VI)(A)(4)--
Equities;
proposed Rule 7.25E(b)(7) would govern relistings and is
based on Rule 103B(VI)(B)--Equities;
proposed Rule 7.25E(b)(8) would govern common stock
listing after preferred stock and is based on Rule 103B(VI)(C)--
Equities;
proposed Rule 7.25E(b)(9)(A)-(C) would govern listed
company mergers and is based on Rule 103B(VI)(D)(1)-(4)--Equities;
proposed Rule 7.25E(b)(10) would govern target stocks and
is based on Rule 103B(VI)(E)--Equities; and
proposed Rule 7.25E(b)(11) would govern the allocation of
closed-end management investment companies and is based on Rule
103B(VI)(F)--Equities.
Proposed Rule 7.25E(c) would be titled ``Reallocation Process.''
Proposed Rules 7.25E(c)(1)(A)-(C) would describe the reallocation
process when an issuer requests such reallocation, including Exchange
regulatory staff review of any such request. This proposed rule text is
based on Rule 103B(IV)--Equities and Supplementary Material .10 to Rule
103B--Equities with non-substantive differences to re-number the rule
text and update rule cross-references.
Proposed Rule 7.25E(c)(2)(A)-(D) would describe the reallocation
process where a DMM's performance in a particular market situation was,
in the Exchange's judgment, so egregiously deficient as to call into
question the Exchange's integrity or impair the Exchange's reputation
for maintaining an efficient, fair, and orderly market. The proposed
Rule is based on current Rule 103B(III)(V)(A)-(E)--Equities with non-
substantive differences to re-number the rule text and update rule
cross references.
Proposed Rule 7.25E(d), titled ``Allocation Freeze Policy,'' would
provide that, in the event a DMM unit (1) loses its registration in a
security as a result of proceedings under the Rule 8000 or 9000 Series,
as applicable, or (2) voluntarily withdraws its registration in a
security as a result of possible proceedings under those rules, the DMM
would be ineligible to apply for future allocations for the six month
period immediately following the reassignment of the security. The
proposed Rule is based on current Rule 103B(III)(VI)(G)--Equities with
non-substantive differences to re-number the rule text and update rule
cross references.
Proposed Rule 7.25E(e), titled ``Allocation Sunset Policy,'' would
provide that allocation decisions would remain effective with respect
to any initial public offering listing company that lists on the
Exchange within twelve months of such decision. The proposed Rule is
based on current Rule 103B(III)(VI)(H)--Equities with non-substantive
differences to re-number the rule text and update rule cross
references.
Finally, proposed Rule 7.25E(f) would set forth the criteria for
applicants that are not currently DMMs to be eligible to be allocated a
security as a DMM, including that the proposed DMM demonstrate that it
understands the DMM business, including the needs of issuers, and has
an ability and willingness to trade as necessary to maintain fair and
orderly markets. Under the proposed Rule, the Exchange would also
consider if the proposed DMM or any of its participants is a DMM or
market maker on any exchange, the quality of performance of the unit or
its participants as a DMM or market maker on such exchange. The
Exchange would also consider any action taken or warning issued within
the past 12 months by any regulatory or self-regulatory organization
against the unit or any of its participants with respect to any capital
or operational problem, or any regulatory or disciplinary matter. The
proposed Rule is based on current Rule 103B(III)(VI)(I)--Equities with
proposed substantive differences not to include rule text that relates
to individual DMMs or additional capital requirements, as these would
not be applicable to DMMs on Pillar. The Exchange also proposes non-
substantive differences to re-number the rule text and update rule
cross references.
Rule 7.26E
The Exchange proposes new Rule 7.26E titled ``DMM Combination
Policy'' that would establish the requirement for Exchange approval of
certain proposed combinations of DMMs; the contents of a written
submission to the Exchange by proponents of the DMM combination
addressing certain specific enumerated factors for the Exchange to
consider in approving the transaction; and the procedures the Exchange
would follow in approving or disapproving a proposed DMM combination.
The proposed Rule is based on current Rule 123E--Equities (``DMM
Combination Review Policy'') with proposed substantive differences not
to include rule text that relates to Floor-based DMM activities as this
will not be applicable on Pillar. Because this rule would govern DMM
combinations on the Exchange, the Exchange proposes that Rule 123E--
Equities would not be applicable to trading on the Pillar trading
platform.
Current Rules That Would Not Be Applicable to Pillar
In addition to the rules identified above, the Exchange has
identified additional current rules that would not be applicable to
trading on Pillar. These rules do not have a counterpart in the
proposed Pillar rules, described above,
[[Page 10514]]
but would be obsolete on the new, fully-automated trading platform.
The main category of rules that would not be applicable to trading
on the Pillar trading platform are those that are specific to Floor-
based trading. For this reason and the additional reasons noted below,
the Exchange proposes that the following Floor-specific rules would not
be applicable to trading on the Pillar trading platform:
Rule 98--Equities (Operation of a DMM Unit). In the
Trading Rules Filing, the Exchange has proposed Rule 6.3E (Prevention
of the Misuse of Material, Nonpublic Information), which is based on
NYSE Arca Equities Rule 6.3 and would require that every ETP Holder
establish, maintain, and enforce written policies and procedures
reasonably designed to prevent the misuse of material, non-public
information by such ETP Holder or persons associated with such ETP
Holder. Rule 98(c)(2)--Equities is based on NYSE Arca Equities Rule 6.3
and the remainder of Rule 98--Equities governs the unique role of DMMs
on the Exchange's cash equities Floor. Because Rule 6.3E is designed to
prevent fraudulent and manipulative acts and practices by addressing
the potential misuse of material non-public information and because the
Exchange would not have Floor-based DMM trading on Pilar [sic], the
Exchange proposes that Rule 98--Equities would not be applicable to
trading on Pillar.
Rule 104A--Equities (DMMs--General).
Rule 104B--Equities (DMM Commissions).\22\
---------------------------------------------------------------------------
\22\ In the Trading Rules Filing, supra note 6, the Exchange has
proposed Rule 7.3E, which provides that ETP Holders may not charge
fixed commissions, which would be applicable to DMMs.
---------------------------------------------------------------------------
Rule 113--Equities (DMM Unit's Public Customers).
Rule 460--Equities (DMMs Participating in Contests).
Because DMMs on the Pillar platform would not have the ability to set
prices, the current restrictions on DMMs from participating in proxy
contests of a company registered to that DMM would be unnecessary. The
Exchange accordingly proposes that Rule 460--Equities would not be
applicable to trading on Pillar.
In addition, the Exchange proposes to delete Rules 99--Equities,
Rule 100--Equities, and Rule 101--Equities, all of which are currently
marked ``Reserved.'' The Exchange also proposes to delete Rule 113
Former--Equities (DMMs' Public Customers) as obsolete.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\23\ in general, and
furthers the objectives of Section 6(b)(5),\24\ in particular, because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to, and perfect the
mechanism of, a free and open market and a national market system and,
in general, to protect investors and the public interest. The Exchange
believes that the proposed rules to support Pillar on the Exchange
would remove impediments to and perfect the mechanism of a free and
open market because they provide for a complete set of market maker
rules to support the Exchange's transition to a fully automated cash
equities trading model on the Pillar trading platform.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Generally, the Exchange believes that the proposed rules would
support the Exchange's transition to a fully automated cash equities
trading market with a price-time priority model because they are based
on the rules governing market makers of its affiliated market, NYSE
Arca Equities. The proposed rule change would therefore remove
impediments to and perfect the mechanism of a free and open market and
a national market system because they are based on the approved rules
of another exchange.
More specifically, the Exchange believes that the proposed
definitions of Market Maker, Market Maker Authorized Trader and DMM in
Rule 1.1E would remove impediments to and perfect the mechanism of a
free and open market and a national market system because the proposed
definitions are terms that would be used in the additional rules
proposed by the Exchange.
The Exchange also believes that proposed Rules 7.20E and 7.21E,
providing for the registration of Market Makers and Market Maker
Authorized Traders, would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because it would specify the requirements for an ETP Holder to register
as a Market Maker and Market Maker Authorized Trader for trading on the
Exchange's Pillar trading platform. The proposed rule change would also
promote just and equitable principles of trade by requiring the same
registration requirements as have already been approved for NYSE Arca
Equities.
The Exchange believes that proposed Rule 7.22E, providing for the
registration of a Market Maker other than a DMM in a security, would
similarly remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would specify the
requirements and process for registered Market Makers to register to
trade a specific security on the Exchange's Pillar trading platform.
The proposed registration process is based on the same process on NYSE
Arca Equities and therefore would promote just and equitable principles
of trade by specifying requirements that are based on the approved
rules of another exchange.
The Exchange believes that proposed Rules 7.23E, setting forth the
obligations and duties of Market Makers, including DMMs, would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would establish rules that would
govern trading on the Exchange that are consistent with the duties and
obligations for Market Makers currently in place on the Exchange's
affiliate NYSE Arca Equities that have been previously approved by the
Commission. For similar reasons, the Exchange believes that proposed
Rule 7.23E is also designed to prevent fraudulent and manipulative acts
and practices and to promote just and equitable principles of trade by
establishing regulatory requirements for Market Maker participation on
the Exchange's electronic marketplace that would enhance the quality of
its market and thereby support investor protection and public interest
goals.
The Exchange believes that proposed Rule 7.24E, setting forth the
registration and obligations for DMMs, would remove impediments to and
perfect the mechanism of a free and open market and a national market
system by maintaining the Exchange's current structure to assign listed
securities to DMMs. The Exchange believes that the proposed heightened
quoting obligations for DMMs would encourage additional displayed
liquidity on the Exchange in Exchange-listed securities. Unlike under
current Exchange rules, DMMs on Pillar would not be entitled to the
additional benefit of a parity allocation and therefore the proposed
obligations are reasonable and are designed to enhance the quality of
the Exchange's market for its listed companies. The Exchange further
believes that by establishing distinct requirements for DMMs, the
proposal is also designed to prevent fraudulent and manipulative acts
and practices and to
[[Page 10515]]
promote just and equitable principles of trade.
The Exchange believes that proposed Rules 7.25E, setting forth the
standards and process for DMM security allocation and reallocation,
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would establish
transparent and objectives rules and standards governing the allocation
of securities to its DMM that are based on current rules. By adopting
the current allocation process set forth in Rule 103B--Equities for
DMMs on the Exchange's all-electronic trading platform, the Exchange
believes that it would foster continuity and ensure fair and orderly
trading in its listed securities. The Exchange believes that the
proposed substantive difference for proposed Rule 7.25E(b)(1)(A) to
increase the number of DMMs to be interviewed from two to four would
remove impediments to and perfect the mechanism of a free and open
market and a national market system because increasing the number of
DMMs participating in the issuer allocation process would increase
competition to provide services to issuers, and will provide the issuer
with more choice in the selection of its DMM.
The Exchange believes that proposed Rules 7.26E, setting forth the
DMM combination review policy, would remove impediments to and perfect
the mechanism of a free and open market and a national market system by
establishing a review process by which the Exchange would continue to
review proposed combinations of DMMs in the same manner as it currently
does for Floor-based DMMs pursuant to Rule 123E--Equities.
The Exchange further believes that it would remove impediments to
and perfect the mechanism of a free and open market and a national
market system to specify which current rules would not be applicable to
trading on the Pillar trading platform. The Exchange believes that the
proposed legend that would be added to existing rules, ``[t]his rule is
not applicable to trading on the Pillar trading platform,'' would
promote transparency regarding which rules would govern trading on the
Exchange once it transitions to Pillar. The Exchange has proposed to
add this legend to rules that would be superseded by proposed rules or
rules that would not be applicable because they concern Floor-based
trading.
The Exchange also believes that it would remove impediments to and
perfect the mechanism of a free and open market and a national market
system to delete Rules 99--Equities, Rule 100--Equities, and Rule 101--
Equities, all of which are currently marked ``Reserved,'' because it
would reduce confusion and promote transparency to delete references to
rules that do not have any substantive content. The Exchange further
believes that because it is transitioning to a new rule numbering
framework, maintaining these rules on a reserved basis is no longer
necessary.
Finally, the Exchange believes that deleting Rule 113 Former--
Equities as obsolete removes impediments to and perfects the mechanism
of a free and open market by simplifying its rulebook and removing
confusion that may result from having obsolete rules in the Exchange's
rulebook. The Exchange further believes that the proposal removes
impediments to and perfects the mechanism of a free and open market by
ensuring that persons subject to the Exchange's jurisdiction,
regulators, and the investing public can more easily navigate and
understand the Exchange's rulebook. The Exchange also believes that
eliminating obsolete rules would not be inconsistent with the public
interest and the protection of investors because investors will not be
harmed and in fact would benefit from increased transparency as to
which rules are operable, thereby reducing potential confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed change is
designed to propose rules that would govern Market Makers on the
Exchange's new Pillar trading platform, which would be a fully
automated cash equities trading market that trades all NMS Stocks and
is based on both the rules of NYSE Arca Equities and current rules. The
Exchange believes that the proposed rules would promote competition
because it would provide for obligations relating to Market Makers that
are based on established rules, thereby reducing any potential barriers
to entry for Market Makers registered on other exchanges to be approved
as a Market Maker on the Exchange when it transitions to Pillar. The
Exchange further believes that its proposed rules governing DMMs would
not impose any burden on competition that is not necessary or
appropriate because the proposed rules are designed to provide
continuity for Exchange-listed companies to maintain existing DMMs
assigned to their securities, while at the same time proposing
obligations for DMMs that are tailored to a price-time automated
trading model.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEMKT-2017-04 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2017-04. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than
[[Page 10516]]
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEMKT-2017-04 and should
be submitted on or before March 6, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02837 Filed 2-10-17; 8:45 am]
BILLING CODE 8011-01-P
