Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change To Adopt New Equities Trading Rules To Transition Trading on the Exchange From a Floor Based Market With a Parity Allocation Model to Fully Automated Price-Time Priority Model on the Exchange's New Trading Technology Platform, Pillar, 10814-10827 [2017-02990]
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Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
technical or systems issue at the
Exchange, NES, a routing destination, or
an unaffiliated third-party routing
broker-dealer that affects one or more
orders.42 The Commission found these
rules, which will also become rules of
ISE Gemini and ISE Mercury, to be
consistent with the Act.43
ISE Gemini and ISE Mercury each
proposed that NES be permitted to
perform the same functions pursuant to
the same conditions with respect to the
outbound routing of orders, cancellation
of orders, and the handling of error
positions as set forth in the ISE
proposal.44 As discussed in the ISE
Exchange Routing Order, the
Commission believes that the proposed
rules and procedures regarding the
Exchanges’ use of NES to route orders
to away markets, cancellation of orders,
and handling of error positions, which
will also apply to ISE Gemini and ISE
Mercury’s use of NES, are consistent
with the Act, for the reasons, and
pursuant to the protections and
considerations, discussed in such
order.45
In addition, the Exchanges propose to
make a related, conforming rule change
to ISE Gemini Rule 705 and ISE
Mercury Rule 705, respectively, which
do not incorporate by reference ISE’s
rules. Currently, pursuant to ISE rules
incorporated by reference, ISE Gemini
and ISE Mercury utilize Linkage
Handlers 46 unaffiliated with the
Exchange to route outbound orders.47
Pursuant to the proposed rule change by
ISE, as applied to the Exchanges, ISE
Gemini and ISE Mercury will no longer
utilize unaffiliated Linkage Handlers to
route outbound orders and instead, NES
will route orders to other options
exchanges, either directly, or indirectly
through unaffiliated third-party routing
broker-dealers, on behalf of ISE Gemini
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42 See
supra note 14 and accompanying text.
43 See ISE Exchange Routing Order, supra note
14.
44 See ISE Gemini Notice, supra note 5, at 96138;
ISE Mercury Notice, supra note 5, at 96091.
45 See ISE Exchange Routing Order, supra note
14, at Section III.B and III.D. The proposal by ISE
being approved today also makes other conforming
changes to rules incorporated by reference. See ISE
Exchange Routing Order, supra note 14.
46 A ‘‘Linkage Handler’’ is a broker that is
unaffiliated with the Exchange with which the
Exchange has contracted to provide Routing
Services, as that term is defined in ISE Rule 1903,
by routing ISO(s) to other exchange(s) as an agent
on behalf of Public Customer and Non-Customer
Orders according to the requirements of Rule 1901
(prohibition on trade-throughs) and Rule 1902
(prohibition on locked and crossed markets). See
ISE Rule 1901, Supplementary Material .03. ISE
Gemini Rules 100(a)(28) and (39), and ISE Mercury
Rules 100(a)(28) and (39), define ‘‘Non-Customer
Order’’ and ‘‘Public Customer Order,’’ respectively.
47 See ISE Rule 1903(a).
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and ISE Mercury.48 Accordingly, ISE
Gemini and ISE Mercury have proposed
to remove ISE Gemini Rule 705(d)(4)
and ISE Mercury Rule 705(d)(4),
respectively, which provide an
exception to the limits on compensation
in ISE Gemini Rule 705(d) and ISE
Mercury Rule 705(d) for Members to the
extent such Members are acting as
Linkage Handlers.49 ISE Gemini and ISE
Mercury explained that Phlx does not
have a similar provision and ISE is also
removing this provision from its
comparable rule.50 The Commission
believes that this minor, conforming
revision is consistent with the Act.
SECURITIES AND EXCHANGE
COMMISSION
IV. Implementation of Proposed Rule
Change
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on January
25, 2017, NYSE MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
ISE Gemini and ISE Mercury stated
that they intend to begin
implementation of the proposed rule
changes in the first quarter of 2017 and
third quarter of 2017, respectively, and
that the migration will be on a symbolby-symbol basis.51 The Commission
expects that the Exchanges will issue
alerts to Members to announce the
relevant migration date for specific
symbols. ISE Gemini and ISE Mercury
represented that they will add notations
in each rulebook to cross-reference the
amended rule text and clarify the
respective implementation dates.52
III. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,53 that the
proposed rule changes (SR–ISEGemini–
2016–16; SR–ISEMercury–2016–22),
each as modified by their respective
Amendment Nos. 1 and 2, be, and
hereby are, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.54
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–02992 Filed 2–14–17; 8:45 am]
BILLING CODE 8011–01–P
48 See
ISE Exchange Routing Order, supra note
14.
49 See proposed ISE Gemini Rule 705(d);
proposed ISE Mercury Rule 705(d).
50 See ISE Gemini Notice, supra note 5, at 96138;
ISE Mercury Notice, supra note 5, at 96091. See also
ISE Notice, supra note 14, at 96095 (noting that,
unlike NES, Linkage Handlers are not affiliated
with ISE and ISE does not believe that such an
exception to compensation limits is necessary for
NES).
51 See ISE Gemini Notice, supra note 5, at 96138;
ISE Mercury Notice, supra note 5, at 96091.
52 See ISE Gemini Notice, supra note 5, at 96138;
ISE Mercury Notice, supra note 5, at 96091.
53 15 U.S.C. 78s(b)(2).
54 17 CFR 200.30–3(a)(12).
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[Release No. 34–79993; File No. SR–
NYSEMKT–2017–01]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing of Proposed
Rule Change To Adopt New Equities
Trading Rules To Transition Trading
on the Exchange From a Floor Based
Market With a Parity Allocation Model
to Fully Automated Price-Time Priority
Model on the Exchange’s New Trading
Technology Platform, Pillar
February 9, 2017.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes new rules to
transition trading on the Exchange to
Pillar, the Exchange’s new trading
technology platform, and to operate as
a fully-automated cash equities market.
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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On January 29, 2015, the Exchange
announced the implementation of Pillar,
which is an integrated trading
technology platform designed to use a
single specification for connecting to the
equities and options markets operated
by the Exchange and its affiliates, NYSE
Arca, Inc. (‘‘NYSE Arca’’) and New York
Stock Exchange LLC (‘‘NYSE’’).4 NYSE
Arca Equities, Inc. (‘‘NYSE Arca
Equities),5 which operates the cash
equities trading platform for NYSE Arca,
was the first trading system to migrate
to Pillar.6
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Overview
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. As such, when the Exchange
transitions to Pillar, the Exchange
would no longer have a Floor-based
point-of-sale trading model. As a
consequence, the Exchange is proposing
to replace its Floor-based Designated
Market Makers (‘‘DMM’’) with
electronic DMMs, and would no longer
have Floor brokers or support
Supplemental Liquidity Providers as a
separate class of participant on the
Exchange.7
The Exchange also proposes to
expand the securities it trades to all
4 See Trader Update dated January 29, 2015,
available here: www.nyse.com/pillar.
5 NYSE Arca Equities is a wholly-owned
corporation of NYSE Arca and operates as a facility
of NYSE Arca.
6 In connection with the NYSE Arca
implementation of Pillar, NYSE Arca filed four rule
proposals relating to Pillar. See Securities Exchange
Act Release Nos. 74951 (May 13, 2015), 80 FR
28721 (May 19, 2015) (Notice) and 75494 (July 20,
2015), 80 FR 44170 (July 24, 2015) (SR–NYSEArca–
2015–38) (Approval Order of NYSE Arca Pillar I
Filing, adopting rules for Trading Sessions, Order
Ranking and Display, and Order Execution);
Securities Exchange Act Release Nos. 75497 (July
21, 2015), 80 FR 45022 (July 28, 2015) (Notice) and
76267 (October 26, 2015), 80 FR 66951 (October 30,
2015) (SR–NYSEArca–2015–56) (Approval Order of
NYSE Arca Pillar II Filing, adopting rules for Orders
and Modifiers and the Retail Liquidity Program);
Securities Exchange Act Release Nos. 75467 (July
16, 2015), 80 FR 43515 (July 22, 2015) (Notice) and
76198 (October 20, 2015), 80 FR 65274 (October 26,
2015) (SR–NYSEArca–2015–58) (Approval Order of
NYSE Arca Pillar III Filing, adopting rules for
Trading Halts, Short Sales, Limit Up-Limit Down,
and Odd Lots and Mixed Lots); and Securities
Exchange Act Release Nos. 76085 (October 6, 2015),
80 FR 61513 (October 13, 2015) (Notice) and 76869
(January 11, 2016), 81 FR 2276 (January 15, 2016)
(Approval Order of NYSE Arca Pillar IV Filing,
adopting rules for Auctions).
7 See, e.g., Rule 107B—Equities.
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NMS securities, including securities
listed on NYSE, NYSE Arca, the Nasdaq
Stock Market LLC (‘‘Nasdaq’’), and the
Bats BZX Exchange, Inc. (‘‘Bats’’).
Trading of securities on an unlisted
trading privileges basis would be subject
to the same trading rules as trading of
securities listed on the Exchange, except
for specified rules directed to the
Exchange’s responsibility as a primary
listing market, e.g., proposed Rules
7.11E and 7.16E, described in further
detail below.
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
rules for Exchange cash equities trading
on the Pillar trading platform.8 As
described in the Framework Filing, the
Exchange is denoting 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.9 In addition,
the Exchange has filed a proposed rule
change to support Exchange trading of
securities listed on NYSE, NYSE Arca,
and other exchanges on an unlisted
trading privileges basis, including
Exchange Traded Products (‘‘ETP’’)
listed on other exchanges.10
In this filing, the Exchange proposes
trading rules that would govern
Exchange cash equities trading on Pillar.
All trading would be automated,
including opening, re-opening, and
closing auctions. As proposed, the
Exchange’s Pillar cash equities trading
platform would be based on the rules
and trading model of NYSE Arca
Equities, which is a fully-automated
8 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’’).
9 To distinguish Rule 1E–13E from Exchange
rules that govern options trading, the Exchange
proposes a non-substantive change to amend the
description of ‘‘Pillar Platform Rules’’ after Rule 0—
Equities to specify that these are ‘‘cash equities’’
rules.
10 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’’). When trading on Pillar,
the Exchange would not be relying on Rule 500—
Equities—Rule 525—Equities for authority to trade
securities on an unlisted trading privileges basis.
Accordingly, the Exchange proposes to amend Rule
500—Equities to provide that the Rules of that
series (Rules 500—Equities—Rule 525—Equities)
would not be applicable to trading on the Pillar
trading platform. To use terms applicable to trading
on Pillar, the Exchange also proposes to amend
Rule 2A(b)(2)—Equities to replace the term ‘‘Nasdaq
Security’’ with the term ‘‘UTP Security’’ and
replace the rule reference from Rule 501—Equities
to Rule 1.1E(ii).
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10815
price-time priority allocation model
with registered market makers.
As discussed in the Framework
Filing, Rules 1E–13E govern cash
equities trading on the Pillar platform.11
In particular, Rule 7E Equities Trading
would establish the trading rules. Rule
7E Equities Trading would be based on
NYSE Arca Equities Rule 7 Equities
Trading.
In addition, to support the proposed
fully-automated market, the Exchange is
proposing rules based on NYSE Arca
Equities Rules 1 Definitions, 2 Equity
Trading Permits, 3 Organization and
Administration, 6 Business Conduct,
Rule 12 Arbitration, and Rule 13
Liability of Directors and Exchange.
The Exchange proposes the following
differences to how it will function on
Pillar as compared to NYSE Arca
Equities:
• To be addressed in a separate filing,
for securities listed on NYSE MKT, the
Exchange would maintain DMMs. These
electronic-access DMMs would be
subject to rules-based heightened
`
quoting obligations vis-a-vis their
assigned securities. For all securities
that would trade on the Exchange,
including UTP securities, the Exchange
would have electronic registered market
makers with obligations similar to the
obligations of market makers on NYSE
Arca Equities.
• The Exchange would not offer a
Retail Liquidity Program and related
order types (Retail Orders and Retail
Price Improvement Orders).
• The Exchange would offer three
trading sessions, but the Early Trading
Session would begin at 7:00 a.m.
Eastern Time instead of 4:00 a.m.
Eastern Time.
• ETP Holders would communicate
with the Pillar trading platform using
Pillar phase II protocols only.
Subject to rule approvals, 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
11 Rules 1E–13E are including in the ‘‘Equities
Rules’’ portion of the Exchange’s rule book.
Pursuant to Rule 0—Equities, the Equities Rules
govern all transactions conducted on the Equities
Trading Systems.
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Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
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.’’ 12 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 that would be applicable
to cash equities trading on Pillar that are
based on NYSE Arca Equities Rules. As
a global matter, 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,’’ and to use the terms
‘‘mean’’ or ‘‘have the meaning’’ instead
of the terms ‘‘shall mean’’ or ‘‘shall have
the meaning.’’ 13
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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 following additional
definitions:
• Proposed Rule 1.1E(a) would define
the term ‘‘Exchange Book’’ as the
Exchange’s electronic file of orders. This
proposed rule is based on NYSE Arca
Equities Rule 1.1(a), which defines the
term ‘‘NYSE Arca Book,’’ with a nonsubstantive difference to not include the
following phrase in the Exchange’s
proposed rule: ‘‘Which contains all
orders entered on the NYSE Arca
Marketplace.’’ The Exchange believes
that this clause is redundant of the
description of the Exchange Book.
12 The Exchange proposes to amend the
description of Cash Equities Pillar Platform Rules,
which precedes Rule 1E, to delete the last sentence,
which currently provides that ‘‘[t]he following rules
will not be applicable to trading on the Pillar
trading platform: Rules 7—Equities, 55—Equities,
56—Equities, 62—Equities, and 80B—Equities.’’ As
proposed, the inapplicability of these rules on the
Pillar platform would be addressed in the preamble
that the Exchange proposes to add to each of these
rules. The Exchange further proposes to retain Rule
56—Equities when the Exchange migrates to Pillar,
as it addresses the unit of trading for rights, which
are listed on the Exchange.
13 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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• Proposed Rule 1.1E(g) would define
the term ‘‘Authorized Trader’’ or ‘‘AT’’
to mean a person who may submit
orders to the Exchange’s cash equities
Trading Facilities on behalf of his or her
ETP Holder. This proposed rule is based
on NYSE Arca Equities Rule 1.1(g) with
non-substantive differences to reflect
that the Exchange will not have
sponsored participants.
• Proposed Rule 1.1E(j) would define
the term ‘‘Core Trading Hours’’ to mean
the hours of 9:30 a.m. Eastern Time
through 4:00 p.m. Eastern Time or such
other hours as may be determined by
the Exchange from time to time. This
proposed rule is based on NYSE Arca
Equities rule 1.1(j).
• Proposed Rule 1.1E(k) would define
the term ‘‘Exchange’’ to mean NYSE
MKT. Because the term ‘‘Exchange’’
would be defined in proposed Rule
1.1E(k), the Exchange proposes that
Rule 1—Equities would not be
applicable to trading on the Pillar
trading platform.
• Proposed Rule 1.1E(m) would
define the term ‘‘ETP’’ to mean an
Equity Trading Permit issued by the
Exchange for effecting approved
securities transactions on the
Exchange’s cash equity Pillar trading
platform pursuant to Rules 1E–13E. The
proposed rule would further provide
that an ETP may be issued to a sole
proprietor, partnership, corporation,
limited liability company or other
organization that is a registered broker
or dealer pursuant to Section 15 of the
Securities Exchange Act of 1934, as
amended, and which has been approved
by the Exchange as a member
organization. This proposed rule text is
based on NYSE Arca Equities Rule
1.1(m) with non-substantive differences
to specify that an ETP is the permit for
effecting approved securities transaction
on the Exchange’s cash equity Pillar
trading platform pursuant to Rules 1E–
13E. As described in greater detail
below, the Exchange proposes to use
ETPs to permission its member
organizations to trade on its Pillar cash
equities trading platform.
• Proposed Rule 1.1E(n) would define
the term ‘‘ETP Holder’’ to mean a
member organization that has been
issued an ETP. The proposed rule
would further provide that an ETP
Holder would agree to be bound by the
Rules of the Exchange, and by all
applicable rules and regulations of the
Securities and Exchange Commission.
This proposed rule is based on NYSE
Arca Equities Rule 1.1(n), with a
proposed difference to reference the
term ‘‘member organization,’’ which is
defined in Rule 2(b)—Equities.
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• Proposed Rule 1.1E(p) would define
the term ‘‘General Authorized Trader’’
or ‘‘GAT’’ to mean an AT who performs
only non-market making activities on
behalf of an ETP Holder. This proposed
rule is based on NYSE Arca Equities
Rule 1.1(p) without any substantive
differences.
• Proposed Rule 1.1E(u) would define
the term ‘‘Marketable’’ to mean, for a
Limit Order, an order than can be
immediately executed or routed. The
proposed rule would further provide
that Market Orders are always
considered Marketable. This proposed
rule text is based on NYSE Arca Equities
Rule 1.1(u).
• Proposed Rule 1.1E(gg) would
define the term ‘‘Official Closing Price’’
as the reference price to determine the
closing price in a security for purposes
of Rule 7E Equities Trading. Proposed
Rules 1.1E(gg)(1)–(5) would specify how
the Exchange would determine an
Official Closing Price in all
circumstances, including when the
Exchange is unable to conduct a Closing
Auction in one or more Exchange-listed
securities due to a systems or technical
issue, and is based on NYSE Arca
Equities Rule 1.1(gg) without any
substantive differences. Proposed Rule
1.1E(gg), together with proposed Rule
7.35E described in greater detail below,
would obviate current Rule 123C—
Equities (The Closing Procedures).14
Accordingly, the Exchange proposes to
specify that Rule 123C—Equities would
not be applicable to trading on the Pillar
trading platform.
• Proposed Rule 1.1E(rr) would
define the term ‘‘security’’ and
‘‘securities’’ to mean any security as
defined in in Rule 3(a)(10) under the
Securities Exchange Act of 1934;
provided, however, that for purposes of
Rule 7E such terms mean any NMS
stock. This proposed rule is based on
NYSE Arca Equities Rule 1.1(ss) [sic]
without any substantive differences.
Because the term ‘‘security’’ would be
defined in proposed Rule 1.1E(rr), the
Exchange proposes to specify that Rules
3—Equities and 4—Equities, which
define the terms ‘‘Security’’ and ‘‘Stock’’
would not be applicable to trading on
the Pillar trading platform. In addition,
because the Exchange would not be
trading bonds on its Pillar cash equities
trading platform, the Exchange proposes
to specify that Rule 5—Equities would
not be applicable to trading on the Pillar
trading platform.
• Proposed Rule 1.1E(ss) would
define the term ‘‘Self-Regulatory
14 Rule 123C(1)(e)—Equities sets forth how the
Exchange currently determines the Official Closing
Price of a security listed on the Exchange.
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Organization (‘SRO’)’’ as having the
same meaning as set forth in the
provisions of the Securities Exchange
Act of 1934 relating to national
securities exchanges. This proposed rule
text is based on NYSE Arca Equities
Rule 1.1(ss) without any substantive
differences.
• Proposed Rule 1.1E(xx) would
define the term ‘‘Trading Facilities’’ or
‘‘Facilities’’ to mean any and all
electronic or automated trading systems
provided by the Exchange to ETP
Holders. This proposed rule text is
based on NYSE Arca Equities Rule
1.1(xx) without any substantive
differences.
• The Exchange proposes to amend
Rule 1.1E(hhh) to add the letter ‘‘E’’ to
the reference to Rule 7 in this rule.
Rule 2E
The Exchange proposes to amend
Rule 2E to delete the term ‘‘Reserved’’
and re-name this rule as ‘‘Equity
Trading Permits.’’ The Exchange
proposes rules to support Equity
Trading Permits (‘‘ETP’’) on the
Exchange for trading on the Pillar
trading platform that are based on NYSE
Arca Equities Rule 2.
Currently, Rule 300—Equities governs
trading licenses on the Exchange. Under
that rule, a trading license issued by the
Exchange is required to effect
transactions on the floor of the
Exchange or through any facility thereof
and an organization may acquire and
hold a trading license only if and for so
long as such organization is qualified
and approved to be a member
organization of the Exchange. The
Exchange’s current trading license rule
is identical to NYSE Rule 300 and a
single trading license provides an
Exchange member organization with the
ability to trade on both the Exchange
and NYSE.
To trade on Pillar, the Exchange
proposes that a member organization
would need an ETP.15 Accordingly, a
trading license issued under Rule 300—
Equities would not permit a member
organization to trade on the Exchange’s
Pillar cash equities trading platform.
Instead, as proposed, a member
organization would be eligible to obtain
an ETP to trade on the Exchange’s cash
equities Pillar trading platform. As
noted above, member organizations that
have been issued an ETP would be
referred to in Exchange rules as ‘‘ETP
Holders.’’ 16
15 The Exchange will file a separate proposed rule
change to specify fees for cash equities trading on
NYSE MKT when it transitions to Pillar.
16 At this time, the Exchange is not proposing
rules, comparable to those in NYSE Arca Equities
Rule 2, that specify the requirements to be approved
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In addition, because the Exchange
would operate as a fully-automated
market, the Exchange proposes rules
that mirror those of NYSE Arca Equities
with respect to requirements relating to
employees of ETP Holders. Accordingly,
ETP Holders accessing the Exchange on
its Pillar cash equities trading platform
would have the same employee
registration requirements as NYSE Arca
Equities.
• Proposed Rule 2.2E (Qualification
of Applicants) would provide that an
ETP may be held by an entity that is
approved as a member organization.
This proposed rule is based in part on
the first sentence of NYSE Arca Equities
Rule 2.2, which provides that an ETP on
NYSE Arca Equities may be held by an
entity that is a registered broker or
dealer pursuant to Section 15 of the Act,
as amended, including sole proprietors,
partnerships, limited liability
partnerships, corporations, and limited
liability companies. The Exchange
would not include in its Rule 2.2E the
text in NYSE Arca Equities Rule 2.2
relating to registered broker dealers
because it is duplicative of Rule 2(b)(i),
which defines the term member
organization on the Exchange.
• Proposed Rule 2.4E (Denial or
Conditions to ETPs) would govern the
denial or conditions to ETPs and is
based on NYSE Arca Equities Rule 2.4
without any substantive differences.
Paragraphs (a) and (b) of proposed Rule
2.4E would specify the circumstances
when the Exchange could deny or
condition trading privileges on the
Exchange, and these circumstances are
identical to those specified in NYSE
Arca Equities Rule 2.4(a) and (b).
The proposed rule would separately
specify the Series 7 Examination
requirement for traders of ETP Holders
for which the Exchange is the
Designated Examining Authority. These
proposed requirements are identical to
the Series 7 Examination requirements
for ETP Holders on NYSE Arca Equities.
The Exchange proposes a nonsubstantive difference to paragraphs (c)
and (f) of proposed Rule 2.4E to crossreference Rule 9522 instead of NYSE
Arca Equities Rule 10.
• Proposed Rule 2.6E (Revocable
Privilege) would specify that the
issuance of an ETP would constitute
only a revocable privilege and confers
on its holder no right or interest of any
as a member of the Exchange. Accordingly, the
Exchange proposes that the rule numbers under
Rule 2E that would support membership
requirements would be designated as ‘‘Reserved.’’
Instead, the Exchange’s current rules governing the
definition of a member organization and the
requirements to be approved as a member
organization would continue to apply.
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nature to continue as an ETP Holder.
This proposed rule is based on NYSE
Arca Equities Rule 2.6 without any
differences. The Exchange also proposes
to add a sub-header to Exchange rules
immediately preceding Rule 2.6E that
would provide ‘‘Requirements of
Holding an ETP.’’ This proposed text is
based on the sub-header before NYSE
Arca Equities Rule 2.6 that provides
‘‘Requirements of Holding an ETP
Requirements Applicable Generally.’’
The Exchange proposes an abbreviated
form of the sub-header to eliminate
unnecessary text. Because proposed
Rule 2.6E, together with proposed Rule
2.4E, would establish the requirements
for a member organization to obtain an
ETP, the Exchange proposes that Rule
300—Equities would not be applicable
to trading on the Pillar trading platform.
• Proposed Rule 2.17E (Activity
Assessment Fees) would specify the
Activity Assessment Fees applicable for
securities transactions effected on the
Exchange as required by Section 31 of
the Act. This proposed rule is based on
current Rule 440H—Equities without
any substantive differences.
Specifically, the rule text is based on
Supplementary Material .10, .20, and
the last sentence of .30 to Rule 440H—
Equities with non-substantive
differences to use Pillar terminology.
Proposed Rule 2.17E is therefore
designed to retain the existing
requirements relating to Activity
Assessment Fees, but use new rule
numbering for trading on the Pillar
trading platform that is consistent with
the Framework Filing. The Exchange
does not propose to move rule text
based on the first three sentences of
Supplementary Material .30 to Rule
440H—Equities because that rule text is
obsolete as it relates to a temporary
program that automatically sunsetted in
2009.
Because proposed Rule 2.17E would
set forth Activity Assessment Fees, the
Exchange proposes that Rule 440H—
Equities would not apply to trading on
the Pillar trading platform.
• Proposed Rule 2.21E (Employees of
ETP Holders Registration) would specify
the registration requirements for
employees of ETP Holders. This
proposed rule is based on NYSE Arca
Equities Rule 2.21 without any
substantive differences. Accordingly,
this rule would specify employee
registration requirements for trading on
the Exchange, including examination
requirements, continuing education
requirements, and procedures to register
employees.
Because proposed Rule 2.21E,
together with proposed Rule 2.4E,
would specify employee registration
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requirements applicable to trading on
the Exchange on its cash equities Pillar
trading platform, the Exchange proposes
to specify that the following rules,
which govern current trading employee
registration requirements, would not be
applicable to trading on the Pillar
trading platform: Rule 345—Equities
(Employees—Registration, Approval,
Records) and Rule 345A—Equities
(Continuing Education for Registered
Persons). The Exchange also proposes
that the requirement for a member
organization that a member organization
that conducts a DMM business has a
Series 14A requirement, as set forth in
Rule 342—Equities, would not be
applicable to trading on the Pillar
trading platform. However, the
Exchange would retain the non-Floorbased Compliance Supervisor
requirements of Rule 342—Equities.
Accordingly, a member organization
engaged in a public business in addition
to a DMM business must have a
qualified compliance supervisor that
has passed the Series 14 Examination,
but would no longer need the Series
14A Examination.
• Proposed Rule 2.22E would specify
the Exchange Back-Up Systems and
Mandatory Testing Requirements of the
Exchange and is based on Rule 49(b)—
Equities without any substantive
changes. The Exchange proposes to
move this rule text to Rule 2.22E so that
it has the same rule number as the rules
of NYSE Arca Equities. Because member
organizations trading on the Exchange’s
cash equities Pillar trading platform
would be designated as ‘‘ETP Holders’’
in Exchange rules, the Exchange
proposes to use the term ‘‘ETP Holder’’
instead of ‘‘member organization’’ in
proposed Rule 2.22E.
The Exchange proposes to designate
the entirety of Rule 49—Equities
(Exchange Business Continuity and
Disaster Recovery Plans and Mandatory
Testing) as not applicable to trading on
the Pillar trading platform. Because the
Exchange would trade in its secondary
data center under the same rules as
would be applicable to trading on its
primary data center, the procedures
specified in Rule 49(a)—Equities would
no longer be applicable.
• Proposed Rule 2.24E (ETP Books
and Records) would establish an ETP
Holder’s books and records
requirements and is based on NYSE
Arca Equities Rule 2.24 without any
substantive differences. Because
proposed Rule 2.24E would establish
the same requirements as set forth in
current Rule 440—Equities (Books and
Records), the Exchange proposes that
Rule 440—Equities would not be
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applicable to trading on the Pillar
trading platform.
would not be applicable to trading on
the Pillar trading platform.
Rule 3E
Rule 6E
The Exchange proposes to amend
Rule 6E to delete the term ‘‘Reserved’’
and re-name it ‘‘Business Conduct.’’ The
Exchange proposes rules governing
specified business conduct. Except as
described below, the rules under Rule
6E would be designated as ‘‘Reserved.’’
• Proposed Rule 6.3E (Prevention of
the Misuse of Material, Nonpublic
Information) would establish the
Exchange’s requirement 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. This proposed rule is based on
NYSE Arca Equities Rule 6.3 without
any substantive differences. The
Exchange proposes a non-substantive
difference to refer to the Exchange’s
‘‘regulatory staff’’ instead of
‘‘Surveillance Department.’’
• Proposed Rule 6.10E (ETP Holders
Holding Options) would specify an ETP
Holder’s obligations with respect to
trading on the Exchange when holding
any options that are not issued by the
Options Clearing Corporation. This
proposed rule is based on NYSE Arca
Equities Rule 6.10 without any
substantive differences. Current Rule
96—Equities (Limitations on Members’
Trading Because of Options) sets forth a
requirement similar to proposed Rule
6.10E, but that rule is only applicable to
a member’s trading while on the Floor
for his own account or for any account
in which he, his member organization,
or any member, principal executive, or
approved person of such organization is
directly or indirectly interest. As
proposed, Rule 6.10E would set forth
these requirements and they would be
applicable to all ETP Holders. In
addition, the Exchange proposes that
Rule 96—Equities (Limitation on
Members’ Trading Because of Options)
would not be applicable to trading on
the Pillar trading platform.
• Proposed Rule 6.12E (Joint
Accounts) would describe requirements
relating to joint accounts. The proposed
rule is based on NYSE Arca Equities
Rule 6.12 without any substantive
differences. The Exchange proposes a
non-substantive difference in that the
proposed rule would not include the
phrase ‘‘Application of the System’’
because such terms are not defined on
the Exchange. The Exchange proposes
that Rules 93—Equities (Trading for
Joint Account) and 94—Equities
(Designated Market Marker’s or Odd-Lot
The Exchange proposes to amend
Rule 3E to delete the term ‘‘Reserved’’
and re-name it ‘‘Organization and
Administration.’’ Proposed Part I of
Rule 3E would be designated as
‘‘Reserved.’’ Proposed Part II of Rule 3E
would be designated ‘‘Regulation’’ and
proposed Part III of Rule 3E would be
designated ‘‘Dues, Fees, and Fines.’’
Except as described below, the rules
under Rule 3E would be designated as
‘‘Reserved’’ because the subject matter
of the NYSE Arca Equities Rules with
corresponding numbers are the subject
of existing Exchange rules that would
continue to apply.17
• Proposed Rule 3.6E (Surveillance
Agreements) would specify that the
Exchange may enter into agreements
with domestic and foreign selfregulatory organizations providing for
the exchange of information and other
forms of mutual assistance for market
surveillance, investigative, enforcement
and other regulatory purposes. This
proposed rule is based on NYSE Arca
Equities 3.6 with no substantive
differences. Because this rule covers the
same subject matter as Rule 27—
Equities, the Exchange proposes that
that Rule 27—Equities would not be
applicable to trading on the Pillar
trading platform.
• Proposed Rule 3.11E (FingerprintBased Background Checks of Exchange
Employees and Others) would establish
the Exchange’s requirements for
fingerprint-based background checks of
Exchange employees and others. The
proposed rule is based on NYSE Arca
Equities Rule 3.11 and Rule 28—
Equities, which are identical rules. The
Exchange proposes to move the rule text
from Rule 28—Equities to Rule 3.11E so
that it has the same rule number as the
same subject matter in the rules of
NYSE Arca Equities. The Exchange
further proposes that Rule 28—Equities
17 NYSE Arca Equities Rule 3 Part I relates to
board committees, which are described in the
Exchange’s Operating Agreement, which is
available here: https://www.theice.com/publicdocs/
nyse/regulation/nyse-mkt/Tenth_Amended_and_
Restated_Operating_Agreement_of_NYSE_MKT_
LLC.pdf. NYSE Arca Equities Rules 3.4 and 3.5
relate to the self-regulatory responsibilities of NYSE
Arca for the administration and enforcement of
rules governing the operation of NYSE Arca
Equities, its wholly owned subsidiary, and the
delegation of authority from NYSE Arca to NYSE
Arca Equities. Because the Exchange is itself a selfregulatory organization, these rules are
inapplicable. The subject matter of NYSE Arca
Equities Rule 3 Part III is addressed in the
Exchange’s Disciplinary Rules and Rule 2B—
Equities.
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Dealers Interest in Joint Accounts)
would not be applicable to trading on
the Pillar trading platform.
• Proposed Rule 6.15E (Prearranged
Trades) would prohibit prearranged
trades and is based on NYSE Arca
Equities Rule 6.15(b) without any
substantive differences. The Exchange
proposes that Rule 78—Equities, which
similarly prohibits prearranged trades,
would not be applicable to trading on
the Pillar trading platform. The
Exchange would not be adding rule text
based on NYSE Arca Equities Rule
6.15(a), relating to prohibitions on
engaging in manipulative practices or
operations, because Rule 6140—Equities
already establishes these requirements.
Rule 7E Equities Trading
The Exchange proposes additional
rules under Rule 7E Equities Trading.
As previously established in the
Framework Filing, Section 1 of Rule 7E
specifies the General Provisions relating
to cash equities trading on the Pillar
trading platform. The Exchange
proposes the following additional rules:
• Proposed Rule 7.1E (Hours of
Business) would specify that the
Exchange would be open for the
transaction of business on every
business day. The proposed rule also
sets forth when the CEO may take
specified actions, such as halting or
suspending trading in some or all
securities on the Exchange. The
proposed rule is based on NYSE Arca
Equities Rule 7.1 and Rule 51—Equities.
The Exchange proposes that Rule 51—
Equities would not be applicable to
trading on the Pillar trading platform. In
addition, because the definition of the
term ‘‘business day’’ in Rule 12—
Equities would be redundant of
proposed Rule 7.1E, the Exchange
proposes that Rule 12—Equities would
not be applicable to trading on the Pillar
trading platform.
• Proposed Rule 7.2E (Holidays)
would establish the holidays when the
Exchange would not be open for
business. The proposed rule is based on
NYSE Arca Equities Rule 7.2 and
Supplementary Material .10 to Rule
51—Equities, including text that
provides that when any holiday
observed by the Exchange falls on a
Sunday, the Exchange would not be
open for business on the succeeding
Monday, which is in Rule 51—Equities.
• Proposed Rule 7.3E (Commissions)
would establish that ETP Holders may
not charge fixed commissions and must
indicate whether acting as a broker or as
principal. The proposed rule is based on
NYSE Arca Equities Rule 7.3 without
any substantive differences. Because
Rule 388—Equities (Prohibition Against
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Fixed Rates of Commission) also
prohibits fixed commissions, the
Exchange proposes that Rule 388—
Equities would not be applicable to
trading on the Pillar trading platform.
• Proposed Rule 7.4E (Ex-Dividend or
Ex-Right Dates) would establish the exdividend and ex-rights dates for stocks
traded regular way. The proposed rule
is based on NYSE Arca Equities Rule 7.4
without any substantive differences.
The Exchange proposes that Rule 235—
Equities would not be applicable to
trading on the Pillar trading platform.
• Proposed Rule 7.7E (Transmission
of Bids or Offers) would establish that
all bids and offers on the Exchange
would be anonymous unless otherwise
specified by the ETP Holder. The
proposed rule is based on NYSE Arca
Equities Rule 7.7 without any
substantive differences.
• Proposed Rule 7.8E (Bid or Offer
Deemed Regular Way) would establish
that all bids and offers would be
considered to be ‘‘regular way.’’ This
proposed rule text is based on NYSE
Arca Equities Rule 7.8E. As proposed,
the Exchange would not accept orders
that, if executed, would not settle
regular way. Accordingly, the Exchange
proposes that Rules 12—Equities, 14—
Equities, 73—Equities, which each
specify rules for orders that are not
entered ‘‘regular way,’’ would not be
applicable to trading on the Pillar
trading platform. Currently, the
Exchange accepts bids and offers that
are not made regular way only from
Floor brokers.
• Proposed Rule 7.9E (Execution
Price Binding) would establish that,
notwithstanding Exchange rules
governing clearly erroneous executions,
the price at which an order is executed
is binding notwithstanding that an
erroneous report is rendered. This
proposed rule text is based on NYSE
Arca Equities Rule 7.9 without any
substantive differences. The Exchange
proposes that Rules 71—Equities
(Precedence of Highest Bid and Lowest
Offer) and 411—Equities (Erroneous
Reports) would not be applicable to
trading on the Pillar trading platform.
• Proposed Rule 7.10E (Clearly
Erroneous Executions) would set forth
the Exchange’s rules governing clearly
erroneous executions. The proposed
rule is based on NYSE Arca Equities
Rule 7.10 without any substantive
differences. The Exchange proposes rule
text based on NYSE Arca Equities rather
than current Rule 128—Equities (Clearly
Erroneous Executions) because the
NYSE Arca Equities version of the rule
uses the same terminology that the
Exchange is proposing for the Pillar
trading platform, e.g., references to
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10819
Early, Core, and Late Trading Sessions.
Accordingly, the Exchange proposes
that Rule 128—Equities (Clearly
Erroneous Executions) would not be
applicable to trading on the Pillar
trading platform.
• Proposed Rule 7.11E (Limit Up—
Limit Down Plan and Trading Pauses in
Individual Securities Due to
Extraordinary Market Volatility) would
specify how the Exchange would
comply with the Regulation NMS Plan
to Address Extraordinary Market
Volatility (‘‘LULD Plan’’).18 Because
ETP Holders would communicate with
the Exchange’s proposed Pillar trading
platform using Pillar phase II protocols
only, the proposed rule is based on
NYSE Arca Equities Rule 7.11(a) rule
text governing Pillar phase II protocols
without any substantive differences.19
In addition, the Exchange proposes that
it would include rule text based on
current NYSE Arca Equities Rule
7.11(b)(2) and (b)(5) only as the
remaining provisions of NYSE Arca
Equities Rule 7.11(b) are obsolete now
that the LULD Plan has been fully
implemented. The Exchange proposes
that Rule 80C—Equities would not be
applicable to trading on the Pillar
trading platform.
• The Exchange proposes to amend
paragraph (c)(i) of Rule 7.12E to change
the rule cross reference from Rule
123D—Equities to Rule 7.35E(e). As
described in greater detail below, the
Exchange proposes Rule 7.35E to govern
its auctions, including auctions
following a trading halt. Accordingly,
the procedures for reopening a security
specified in Rule 123D—Equities would
not be applicable on the Pillar trading
platform.
• Proposed Rule 7.13E (Trading
Suspensions) would establish authority
for the Chair or the CEO of the Exchange
to suspend trading in any and all
securities that trade on the Exchange if
such suspension would be in the public
interest. This proposed rule is based on
NYSE Arca Equities Rule 7.13 with nonsubstantive differences to use the term
‘‘CEO’’ instead of ‘‘President’’ and to
omit a cross reference to a rule that is
not applicable on the Exchange.
• Proposed Rule 7.14E (Clearance and
Settlement) would establish the
requirements regarding an ETP Holder’s
arrangements for clearing. Because all
18 See Securities Exchange Act Release No. 77679
(April 21, 2016), 81 FR 24908 (April 27, 2016) (File
No. 4–631) (Order approving 10th Amendment to
the LULD Plan).
19 See Securities Exchange Act Release No. 79688
(December 23, 2016), 81 FR 96534 (December 30,
2016) (SR–NYSEArca–2016–170) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change).
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post-trade functions on the Exchange’s
Pillar trading platform would follow the
NYSE Arca Equities procedures for posttrade processing, the Exchange proposes
rules that are based on NYSE Arca
Equities rules governing clearing.
Accordingly, the proposed rule is based
on NYSE Arca Equities Rule 7.14
without any substantive differences.
The Exchange proposes that its current
rules governing clearing, Rules 130—
Equities and 132—Equities, would not
be applicable to trading on the Pillar
trading platform.20
• Proposed Rule 7.15E (Stock Option
Transactions) would establish
requirements for Market Makers relating
to pool dealing and having an interest
in an option that is not issued by the
Options Clearing Corporation. The
proposed rule is based on NYSE Arca
Equities Rule 7.15 without any
substantive differences. Because the
proposed rule covers the same subject
matter as Rule 105—Equities, the
Exchange proposes that this rule would
not be applicable to trading on the Pillar
trading platform.
• Proposed Rule 7.16E (Short Sales)
would establish requirements relating to
short sales. The proposed rule is based
on NYSE Arca Equities Rule 7.16
without any substantive differences.
Because the proposed rule covers the
same subject matter as Rule 440B—
Equities (Short Sales), the Exchange
proposes that Rule 440B—Equities
would not be applicable to trading on
the Pillar trading platform.
• Proposed Rule 7.17E (Firm Orders
and Quotes) would establish
requirements that all orders and quotes
must be firm. This proposed rule is
based on NYSE Arca Equities Rule 7.17
without any substantive differences.
Because on the Pillar trading platform,
the Exchange would only publish
automated quotations consistent with
proposed Rule 7.17E, the Exchange
proposes that Rule 60—Equities
(Dissemination of Quotations) would
not be applicable to trading on the Pillar
trading platform.21
As noted above, the Exchange will file
a separate proposed rule change to
establish rules relating to Market
Makers, which will be in Section 2 of
Rule 7E. The Exchange has proposed
Rule 7.18E in the ETP Listing Rules
Filing.22
20 See also infra proposed Rules 7.33E (Capacity
Codes) and 7.41E (Clearance and Settlement).
21 See also infra proposed Rule 7.36E regarding
the display of orders on the Pillar trading platform.
22 See supra note 10. The Exchange will file an
amendment to the ETP Listing Rules Filing to add
rule text for proposed paragraphs (b) and (c) of Rule
7.18E that would be based on NYSE Arca Equities
Rule 7.18(b) and (c).
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Section 3 of Rule 7E sets forth
Exchange trading rules for the Pillar
trading platform. As noted above, the
Exchange proposes certain substantive
differences to how the Exchange would
operate on the Pillar trading platform
compared to how NYSE Arca Equities
operates. These substantive differences
would be reflected in the proposed rules
governing Orders and Modifiers and
Trading Sessions.
Proposed Rule 7.31E (Orders and
Modifiers) would specify the orders and
modifiers that would be available on the
Exchange on the Pillar trading platform.
The Exchange proposes to offer the
same types of orders and modifiers that
are available on NYSE Arca Equities,
with specified substantive differences.
Proposed Rule 7.31E is based on
NYSE Arca Equities Rule 7.31 with the
following differences. With respect to
Self-Trade Prevention (‘‘STP’’)
Modifiers, because the Exchange would
be operating on Pillar phase II protocols
only, STPs would be based on the MPID
of an ETP Holder and not on an ETP ID.
Accordingly, proposed Rule 7.31E(i)(2)
would not include references from
NYSE Arca Equities Rule 7.31(i)(2)
relating to ETPIDs. In addition, Arca
Only Orders, which are described in
NYSE Arca Equities Rule 7.31(e)(1),
would be named ‘‘MKT Only Orders’’
on the Exchange, as described in
proposed Rule 7.31E(e)(1). The
Exchange does not propose any
substantive differences to how MKT
Only Orders would function as
compared to Arca Only Orders on NYSE
Arca Equities. Next, the Exchange
proposes that for Primary Only Day/IOC
Orders, an ETP Holder may specify that
an order in NYSE Arca-listed securities
may include an instruction to be routed
to NYSE Arca as a routable order, as set
forth in proposed Rule 7.31E(f)(1)(B).
Finally, because when operating on the
Pillar phase II protocols, the Exchange
would not accept order types with
conflicting order instructions, the
Exchange proposes not to include in
proposed Rule 7.31E text based on
Commentary .02 to NYSE Arca Equities
Rule 7.31.
Because proposed Rule 7.31E would
govern orders and modifiers, the
Exchange proposes that Rule 13—
Equities (Orders and Modifiers) would
not be applicable to trading on the Pillar
trading platform. In addition, references
to Trading Collars in Rule 1000(c)—
Equities would not be applicable to
trading on the Pillar Trading platform.23
23 As described in greater detail below, the
Exchange proposes that the entirety of Rule 1000—
Equities would not be applicable to trading on the
Pillar trading platform.
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Proposed Rule 7.34E would specify
trading session on the Exchange. Similar
to NYSE Arca Equities, the Exchange
proposes that on the Pillar trading
platform, it would have Early, Core, and
Late Trading Sessions. Accordingly,
proposed Rule 7.34E is based on NYSE
Arca Equities Rule 7.34, with nonsubstantive differences. The Exchange
proposes one substantive difference
from NYSE Arca Equities Rule 7.34 in
that the Early Trading Session would
begin at 7:00 a.m. Eastern Time rather
than 4:00 a.m. Eastern Time. Similar to
NYSE Arca Equities, the Exchange
would begin accepting orders 30
minutes before the Early Trading
Session begins, which means order
entry acceptance would begin at 6:30
a.m. Eastern Time instead of at 3:30 a.m.
Eastern Time. These differences would
be reflected in proposed Rule
7.34E(a)(1).
In addition, because the Exchange
would use Pillar phase II protocols,
proposed Rule 7.34E(b)(1) would
specify that an order entered without a
trading session designation would be
rejected. In addition, the Exchange
proposes that it would not include rule
text based on NYSE Arca Equities Rule
7.34(b)(2) or (3).
The following proposed rules in
Section 3 of Rule 7E would be based on
existing NYSE Arca Equities rules
without any substantive differences:
• Proposed Rule 7.29E (Access)
would provide that the Exchange would
be available for entry and cancellation
of orders by ETP Holders with
authorized access. To obtain authorized
access to the Exchange, each ETP
Holder would be required to enter into
a User Agreement. Proposed Rule 7.29E
is based on NYSE Arca Equities Rule
7.29(a), without any substantive
differences. The Exchange does not
propose to include rule text based on
NYSE Arca Equities Rule 7.29(b)
because the Exchange would not offer
sponsored access.
• Proposed Rule 7.30E (Authorized
Traders) would establish requirements
for ETP Holders relating to ATs. The
proposed rule is based on NYSE Arca
Equities Rule 7.30, without any
substantive differences.
• Proposed Rule 7.32E (Order Entry)
would establish requirements for order
entry size. The proposed rule is based
on NYSE Arca Equities Rule 7.32
without any substantive differences.
The Exchange proposes that the current
maximum order size references before
subparagraph (a) in Rule 1000—Equities
would not be applicable to trading on
the Pillar trading platform.
• Proposed Rule 7.33E (Capacity
Codes) would establish requirements for
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capacity code information that ETP
Holders must include with every order.
The proposed rule is based on NYSE
Arca Equities Rule 7.33 without any
substantive differences. The Exchange
proposes to use the title ‘‘Capacity
Codes’’ instead of ‘‘ETP Holder User,’’
for proposed Rule 7.33E, which the
Exchange believes provides more clarity
regarding the content of the proposed
rule. The Exchange proposes that the
capacity code requirements in
Supplementary Material .30(9) to Rule
132—Equities would not be applicable
to trading on the Pillar trading platform.
• Proposed Rule 7.35E (Auctions)
would establish requirements for
auctions on the Exchange. Because the
Exchange proposes to automate all
auctions and not have a DMM facilitate
such auctions, the proposed rule is
based on NYSE Arca Equities Rule 7.35
without any substantive differences.
The Exchange proposes that paragraph
(a)(10)(A), regarding Auction Collars for
Trading Halt Auctions, which is based
on a pilot rule of NYSE Arca Equities,
would be in effect until SR–NYSEArca–
2016–130 has been approved and a
proposed rule change based on SR–
NYSEArca–2016–130 for the Exchange
is effective and operative.24 Because
proposed Rule 7.35E would govern all
auctions, including the Early Open
Auction, Core Open Auction, Trading
Halt Auction, IPO Auction, and Closing
Auction, the Exchange proposes that the
following rules, which govern auctions
on the Exchange, would not be
applicable to trading on the Pillar
trading platform: Rule 15—Equities
(governing pre-opening indications and
Opening Order Imbalance Information),
Rule 115A—Equities (governing the
opening process), Supplementary
Material .40 to Rule 116—Equities
(governing pair off of MOC and LOC
orders at the close),25 Rule 123C—
Equities (governing the closing process),
and Rule 123D—Equities (governing the
opening and trading halts).
• Proposed Rule 7.36E (Order
Ranking and Display) would establish
requirements for how orders would be
ranked and displayed at the Exchange.
The proposed rule is based on NYSE
Arca Equities Rule 7.36 without any
substantive differences.
• Proposed Rule 7.37E (Order
Execution and Routing) would establish
requirements for how orders would
24 See Securities Exchange Act Release No. 79705
(December 29, 2016), 82 FR 1419 (January 5, 2017)
(SR–NYSEArca–2016–169) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change).
25 As described below, because the Exchange
would not have Floor-based DMMs or trading, the
remainder of Rule 116—Equities would not be
applicable to trading on the Pillar trading platform.
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execute and route at the Exchange, the
data feeds that the Exchange would use,
and Exchange requirements under the
Order Protection Rule and the
prohibition on locking and crossing
quotations in NMS Stocks. This
proposed rule is based on NYSE Arca
Equities Rule 7.37 with one substantive
difference. Because the Exchange would
not be taking in data feeds from broker
dealers or routing to Away Markets that
are not displaying protected quotations,
the Exchange proposes that proposed
Rule 7.37E would not include rule text
from paragraph (b)(3) of NYSE Arca
Equities Rule 7.37, which specifies that
an ETP Holder can opt out of routing to
Away Markets that are not displaying a
protected quotation, i.e., broker dealers,
or paragraph (d)(1) of NYSE Arca
Equities Rule 7.37, which specifies that
NYSE Arca Equities receives data feeds
directly from broker dealers. The subject
matter of proposed Rules 7.36E and
7.37E would address a cross-section of
current rules. Accordingly, the
Exchange proposes that the following
rules would not be applicable to trading
on the Pillar trading platform: Rule
15A—Equities (Order Protection Rule),
Rule 19—Equities (Locking or Crossing
Protected Quotations in NMS Stocks),
Rule 60—Equities (Dissemination of
Quotations), Rule 61—Equities
(Recognized Quotations), Rule 72—
Equities (Priority of Bids and Offers and
Allocation of Executions),
Supplementary Material .15 to Rule
79A—Equities,26 Rule 1000(a) and (b)—
Equities (Automatic Executions), Rule
1001—Equities (Execution of
Automatically Executing Orders), Rule
1002—Equities (Availability of
Automatic Execution Feature), and Rule
1004—Equities (Election of Buy Minus
and Sell Plus).
• Proposed Rule 7.38E (Odd and
Mixed Lot) would establish
requirements relating to odd lot and
mixed lot trading on the Exchange. The
proposed rule is based on NYSE Arca
Equities Rule 7.38 without any
substantive differences.
• Proposed Rule 7.40E (Trade
Execution and Reporting) would
establish the Exchange’s obligation to
report trades to an appropriate
consolidated transaction reporting
system. The proposed rule is based on
NYSE Arca Equities Rule 7.40 without
any substantive differences. Because all
reporting of transactions would be
automated, the Exchange proposes that
Rule 128A—Equities would not be
26 As
described below, the Exchange proposes
that Rule 79A in its entirety would not be
applicable on the Pillar trading platform.
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10821
applicable to trading on the Pillar
trading platform.
• Proposed Rule 7.41E (Clearance and
Settlement) would establish
requirements that all trades be
processed for clearance and settlement
on a locked-in and anonymous basis.
Specifically, proposed Rules 7.41E(a),
(b), (d), and (e) are based on NYSE Arca
Equities Rule 7.41(a), (b), (d), and (e)
with non-substantive differences not to
include references to sponsored access,
because the Exchange will not offer
sponsored access. Proposed Rule
7.41E(c) is based on NYSE Rule 130(b),
which reflects the circumstances when
the Exchange may reveal the contraparty identity.27 In addition, proposed
Commentary .10 to Rule 7.41E is based
on Supplementary Material .10 to Rule
132, defining the term ‘‘Qualified
Clearing Agency.’’ The Exchange
proposes to define this term for use in
proposed Rule 7.41E(c). Because all
trades would be reported by the
Exchange on a locked-in basis, the
Exchange proposes to specify that the
following rules relating to clearance and
settlement would not be applicable to
trading on the Pillar trading system:
Rule 130—Equities (Overnight
Comparison of Exchange Transactions),
Rule 132—Equities (Comparison and
Settlement of Transactions Through a
Fully-Interfaced or Qualified Clearing
Agency), Rule 133—Equities
(Comparison—Non-cleared
Transactions), Rule 134 (Differences and
Omissions—Cleared Transactions QTs),
Rule 135—Equities (Differences and
Omissions—Non-cleared Transactions
(‘DKs’)), and Rule 136—Equities
(Comparison—Transactions Excluded
from a Clearance).
As noted above, the Exchange would
not offer a Retail Liquidity Program
when it trades on the Pillar trading
platform. Accordingly, the Exchange
would not propose rules based on NYSE
Arca Equities Rule 7.44 and proposed
Rules 7.36E, 7.37E, and 7.38E would not
include cross references to Rule 7.44.
The Exchange proposes that Rule
107C—Equities would not be applicable
to trading on the Pillar trading platform.
Section 4 of Rule 7E would establish
the Operation of a Routing Broker.
Specifically, proposed Rule 7.45E
(Operation of a Routing Broker) would
establish the outbound and inbound
function of the Exchange’s routing
broker and the cancellation of orders
and the Exchange’s error account. The
proposed rule is based on NYSE Arca
27 See Securities Exchange Act Release No. 77930
(May 26, 2016), 81 FR 35410 (June 2, 2016) (SR–
NYSE–2016–38) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change).
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Equities Rule 7.45 without any
substantive differences. The Exchange
proposes that Rule 17—Equities (Use of
Exchange Facilities and Vendor
Services) would not be applicable to
trading on the Pillar trading platform.28
Section 5 of Rule 7E would establish
requirements relating to the Plan to
Implement a Tick Size Pilot Program.
Proposed Rule 7.46E (Tick Size Pilot
Plan) would specify such requirements.
The proposed rule is based on NYSE
Arca Equities Rule 7.46 with a proposed
substantive difference not to include
cross references to a Retail Liquidity
Program in proposed Rules 7.46E(c),
(d)(1), and (e)(1). The Exchange also
proposes to designate proposed Rules
7.46E(f)(4) and (f)(5)(B) as ‘‘Reserved’’
because the Exchange would not
support Retail Price Improvement
Orders or routing to Away Markets that
are not displaying protected quotations
on Pillar. The remaining differences are
all non-substantive, including using the
term MKT Only Order rather than Arca
Only Order. The Exchange proposes that
Rule 67—Equities (Tick Size Pilot Plan)
would not be applicable to trading on
the Pillar trading platform.
Rule 12E
The Exchange proposes to amend
Rule 12E to delete the term ‘‘Reserved,’’
re-name it ‘‘Arbitration,’’ and establish
the Exchange’s arbitration procedures.
The proposed rule text is based on
current Rule 600—Equities, with a nonsubstantive change to use the term ‘‘ETP
Holder’’ instead of ‘‘member
organization.’’ The Exchange proposes
to move this rule text to Rule 12E so that
it has the same rule number as the
arbitration rules of NYSE Arca Equities.
The Exchange further proposes that
Rule 600—Equities would not be
applicable to trading on the Pillar
trading platform.
The Exchange proposes to amend
Rule 13E to delete the term ‘‘Reserved’’
and re-name it ‘‘Liability of Directors
and Exchange.’’
• Proposed Rule 13.2E (Liability of
the Exchange) would establish
requirements governing liability of the
Exchange, including the limits on
liability for specified circumstances.
This proposed rule is based on Rule
905NY, which governs liability of the
Proposed Amendments to the
Exchange’s Off-Hours Trading Facility
After the Exchange transitions to the
Pillar trading platform, the Exchange
proposes to maintain certain
functionality in its Off-Hours Trading
Facility, which is currently described in
Rules 900—Equities through 907—
Equities (the ‘‘Rule 900 Series’’).
Specifically, once trading begins on its
Pillar trading platform, the Exchange
proposes that the only function that
would be available on its Off-Hours
Trading Facility would be for ETP
Holders to enter aggregate-price coupled
orders.
The Exchange proposes that new Rule
7.39E would describe this Off-Hours
Trading Facility functionality,29 and
that the entirety of the Rule 900 Series
would not be applicable to trading on
the Pillar trading platform.
• Proposed Rule 7.39E(a) would
provide that Rule 7.39E would apply to
all Exchange contracts made on the
Exchange through its ‘‘Off-Hours
Trading Facility.’’ This proposed rule
28 The subject matter of Rule 17(a)—Equities
would be addressed in proposed Rule 13.2E. On
Pillar, the Exchange would not operate with
vendors and therefore would not need a vendor
liability rule, as described in Rule 17(b)—Equities.
Current Rule 17(c)—Equities would not be
applicable because it addresses the same subject
matter as proposed Rule 7.45E.
29 NYSE Arca Equities Rule 7.39 addresses the
adjustment of open orders, e.g., orders with a good
until canceled time-in-force instruction, due to
corporate actions. Because the Exchange does not
propose to have any open orders when trading on
the Pillar trading platform, the Exchange will not
adopt rule text based on NYSE Arca Equities Rule
7.39.
Rule 13E
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Exchange for its options market, and
NYSE Arca Equities Rule 13.2 without
any substantive differences. Because
this rule would govern liability of the
Exchange, the Exchange proposes that
Rule 18—Equities would not be
applicable to trading on the Pillar
trading platform.
• Proposed Rule 13.3E (Legal
Proceedings Against Directors, Officers,
Employees, or Agents) would establish
requirements relating to legal
proceedings against directors, officers,
employees, agents, or other officials of
the Exchange. The proposed rule is
based on NYSE Arca Equities Rule 13.3
without any substantive differences.
• Proposed Rule 13.4E (Exchange’s
Costs of Defending Legal Proceedings)
would establish the circumstances
regarding who is responsible for the
Exchange’s costs in defending a legal
proceeding brought against the
Exchange. The proposed rule is based
on NYSE Arca Equities Rule 13.4
without any substantive differences and
Rule 61, which governs the Exchange’s
costs of defending legal proceedings for
its options market. The Exchange
proposes that Rule 25—Equities
(Exchange Liability for Legal Costs)
would not be applicable to trading on
the Pillar trading platform.
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text is based on the first sentence of
Rule 900(a)—Equities. The Exchange
would not include rule text specified in
the second sentence of Rule 900(a)—
Equities and text from Rule 900(b)—
Equities through Rule 900(d)—Equities
because it would not apply to the OffHours Trading Facility once trading
begins on the Pillar trading platform.
• Proposed Rule 7.39E(b) would
establish the definitions for the OffHours Trading Facility. Proposed Rule
7.39E(b)(i) would define the term
‘‘Aggregate-Price Coupled Order’’ to
mean an order to buy or sell a group of
securities, which group includes no
fewer than 15 Exchange-listed or traded
securities having a total market value of
$1 million or more. This proposed
definition is based on the definition of
‘‘aggregate-price order’’ in Rule
900(e)(i)—Equities with a nonsubstantive difference to use the term
‘‘Aggregate-Price Coupled Order’’ rather
than ‘‘aggregate-price order.’’ Proposed
Rule 7.39E(e)(b)(ii) would define the
term ‘‘Off-Hours Trading Facility,’’ to
mean the Exchange facility that permits
ETP Holders to effect securities
transactions on the Exchange under
proposed Rule 7.39E and is based on
Rule 900(e)(v)—Equities with a nonsubstantive difference to use the term
‘‘ETP Holder’’ instead of ‘‘member or
member organization.’’ Proposed Rule
7.39E(b)(ii) would also define the term
‘‘Off-Hours Trading’’ to mean trading
through the Off-Hours Trading Facility.
This text is based on the second
sentence of Rule 900(e)(v)—Equities.
Because the Exchange would only be
trading Aggregate-Price Coupled Orders
in the Off-Hours Trading Facility, the
Exchange proposes that Rule 7.39E(b)
would not include definitions for
‘‘closing price,’’ ‘‘closing-price order,’’
or ‘‘guaranteed price coupled order,’’
which are defined in Rule 900(e)(ii)–
(iv)—Equities.
• Proposed Rule 7.39E(c) would
establish that only such NMS Stocks, as
the Exchange may specify, including
Exchange-listed securities and UTP
Securities, would be eligible to trade in
the Off-Hours Trading Facility. This
proposed rule text is based on Rule
901—Equities with non-substantive
differences to use Pillar terminology to
describe which securities would be
eligible to trade in the Off-Hours
Trading Facility. The Exchange would
not include rule text from
Supplementary Material .10 of Rule 902,
which provides that only the orders
described in Rule 902 are eligible for
Off-Hours Trading because it is
redundant of proposed Rule 7.39E(c).
• Proposed Rule 7.39E(d) would
establish the procedures for entering
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Aggregate-Price Coupled Orders into the
Off-Hours Trading Facility. As
proposed, an ETP Holder may only
enter into the Off-Hours Trading Facility
an Aggregate-Price Coupled Order to
buy (sell) that is matched with an
Aggregate-Price Coupled Order to sell
(buy) the same quantities of the same
securities, including in odd lot and
mixed lot quantities. This proposed rule
text is based on Rule 902(a)(iii)—
Equities and Rule 902(g)—Equities with
non-substantive differences to combine
the two sections into a single section of
rule text. The Exchange would not
include rule text from Rule 902(a)(ii)
because this specifies a Floor-based
method to enter a coupled-order after
the close and therefore would not be
necessary on the Exchange’s proposed
Pillar trading system.
• Proposed Rule 7.39E(d)(i) would
provide that transactions effected
through the Off-Hours Trading Facility
pursuant to Aggregate-Price Coupled
Orders may be for delivery at such time
as the parties entering the orders may
agree. This proposed rule text is based
on the first sentence of Rule 902(c)—
Equities. The Exchange would not
include the second sentence of Rule
902(c)—Equities in proposed Rule
7.39E(d)(i) because all orders in the OffHours Trading Facility would be
Aggregate-Price Coupled Orders and
thus subject to proposed Rule
7.39E(d)(i).
• Proposed Rule 7.39E(d)(ii) would
provide that ETP Holders would mark
all sell orders as ‘‘long’’ as appropriate.
This proposed rule text is based on Rule
902(f)—Equities with a non-substantive
difference to use the term ‘‘ETP Holder’’
instead of ‘‘members and member
organizations.’’
• Proposed Rule 7.39E(d)(iii) would
provide that each side of an AggregatePrice Coupled Order entered on a
matched basis would be traded on entry
against the other side without regard to
the priority of other orders entered into
the Off-Hours Trading Facility. This
proposed rule text is based on Rule
903(b)—Equities and 903(d)(i) with nonsubstantive differences to combine those
rules into a single sub-section, use Pillar
terminology, and use the term
‘‘matched’’ instead of ‘‘coupled.’’
• Proposed Rule 7.39E(d)(iv) would
provide that a transaction described in
this Rule would be an Exchange
contract that is binding in all respects
and without limit on the ETP Holder
that enters any of the transaction’s
component orders and that the ETP
Holder would be fully responsible for
the Exchange contract. This proposed
rule text is based on Rule 903(c)—
Equities with non-substantive
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differences to use the term ‘‘ETP
Holder’’ instead of ‘‘member or member
organization.’’
• Proposed Rule 7.39E(e) would
provide that each ETP Holder would
report to the Exchange such
information, in such manner, and at
such times, as the Exchange may from
time to time prescribe in respect of OffHours Trading, including, but not
limited to, reports relating to Off-Hours
Trading orders, proprietary or agency
activity and activity in related
instruments. This proposed rule text is
based on Rule 905(a)—Equities with a
non-substantive difference to use the
term ‘‘ETP Holder’’ instead of ‘‘member
or member organization.’’
• Proposed Rule 7.39E(f) would
provide that each ETP Holder would
maintain and preserve such records, in
such manner, and for such period of
time, as the Exchange may from time to
time prescribe in respect of Off-Hours
Trading, including, records relating to
orders, cancellations, executions and
trading volume, proprietary trading
activity, activity in related instruments
and securities and other records
necessary to allow the ETP Holder to
comply with the reporting provisions of
proposed paragraph (e) of Rule 7.39E.
This proposed rule text is based on rule
905(b)—Equities with non-substantive
differences to use the term ‘‘ETP
Holder’’ instead of ‘‘member or member
organization,’’ and to eliminate the ‘‘but
not limited to’’ text.
• Proposed Rule 7.39E(g) would
provide that notwithstanding a trading
halt in any security (other than a trading
halt pursuant to Rule 7.12E (Trading
Halts Due to Extraordinary Market
Volatility)) or a corporate development,
ETP Holders may enter Aggregate-Price
Coupled Orders into the Off-Hours
Trading Facility under this Rule. This
proposed rule text is based on
Supplementary Material .10 to Rule
906—Equities with non-substantive
differences to cross-reference Rule 7.12E
instead of Rule 80B and to use the term
‘‘ETP Holders’’ instead of ‘‘members and
member organizations.’’
In addition to the provisions of the
Rule 900 Series noted above, the
Exchange would not include rule text
from Rule 903(d)(ii)—Equities and Rule
906(b)—Equities in proposed Rule 7.39E
because these provisions relate to Floorbased use of the Off-Hours Trading
Facility, which would not be available
on the proposed Pillar trading platform.
In addition, the Exchange proposes that
Rule 7.39E would not include any
provisions from Rule 907, which
describes now-obsolete crossing session
functionality.
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10823
Current Rules That Would Not Be
Applicable to Pillar
As described in more detail above, in
connection with the proposed rules to
support cash equities trading on the
Pillar trading platform, the Exchange
has identified current Exchange rules
that would not be applicable because
they would be superseded by a
proposed rule. 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, 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,
including requirements relating to
DMMs and Floor brokers. For this
reason, the Exchange proposes that the
following Floor-specific rules would not
be applicable to trading on the Pillar
trading platform:
• Paragraphs (a), (i), and (j) of Rule
2—Equities (‘‘Member,’’ ‘‘Membership,’’
and ‘‘Member Firm,’’ etc.) (defining
terms relating to Floor-based trading,
i.e., member, DMM, and DMM unit).
• Rule 6—Equities (Floor).
• Rule 6A—Equities (Trading Floor).
• Rule 35—Equities (Floor Employees
to be Registered).
• Rule 36—Equities
(Communications Between Exchange
and Members’ Offices).
• Rule 37—Equities (Visitors).
• Rule 46—Equities (Floor Officials—
Appointments).
• Rule 46A—Equities (Executive
Floor Governors).
• Rule 47—Equities (Floor Officials—
Unusual Situations).
• Rule 52—Equities (Dealings on the
Exchange—Hours).
• Rule 53—Equities (Dealings on
Floor—Securities).
• Rule 54—Equities (Dealings on
Floor—Persons).
• Rule 70—Equities (Execution of
Floor broker interest).
• Rule 74—Equities (Publicity of Bids
and Offers).
• Rule 75—Equities (Disputes as to
Bids and Offers).
• Rule 76—Equities (‘Crossing’
Orders).
• Rule 77—Equities (Prohibited
Dealings and Activities).
• Rule 79A—Equities (Miscellaneous
Requirements on Stock Market
Procedures).
• Rule 90—Equities (Dealings by
Members on the Exchange).
• Rule 91—Equities (Taking or
Supplying Securities Named in Order).
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• Rule 95—Equities (Discretionary
Transactions).
• Rule 103A—Equities (Member
Education).
• Rule 106A—Equities (Taking Book
or Order of Another Member).
• Rule 108—Equities (Limitation on
Members’ Bids and Offers).
• Rule 112—Equities (Orders Initiated
‘Off the Floor’).
• Rule 116—Equities (‘Stop’
Constitutes Guarantee).
• Rule 117—Equities (Orders of
Members To Be in Writing).
• Rule 121—Equities (Records of
DMM Units).
• Rule 122—Equities (Orders with
More than One Broker).
• Rule 123—Equities (Record of
Orders).
• Rule 123A—Equities
(Miscellaneous Requirements).
• Rule 123B—Equities (Exchange
Automated Order Routing System).
• Rule 126—Equities (Odd-Lot
Dealers General).
• Rule 127—Equities (Block Crossed
Outside the Prevailing Exchange
Quotation).
• Rule 128B—Equities (Publication of
Changes, Corrections, Cancellations or
Omissions and Verifications of
Transactions).
• Rule 131—Equities (Comparison—
Requirements for Reporting Trades and
Providing Facilities).
• Rule 301—Equities (Qualifications
for Membership).
• Rule 303—Equities (Limitation on
Access to Floor).
• Rule 304A—Equities (Member
Examination Requirements).
• Rule 440I—Equities (Records of
Compensation Arrangements—Floor
Brokerage).
• Rule 1000(d)–(g)—Equities (Capital
Commitment Schedule).
In addition, the Exchange proposes
that the following rules would not be
applicable to trading on the Pillar
platform.
• Rule 11—Equities (Effect of
Definitions) because Rule 1.1E
supersedes any description of
definitions.
• Rule 23—Equities (New York local
time) because all references to times in
the proposed Pillar trading platform
rules refer to ‘‘Eastern Time.’’
• Rule 24—Equities (Change in
Procedure to Conform to Changes Hours
of Trading) because proposed Rule 7.1E
would specify the hours of the
Exchange.
• Rule 86—Equities (NYSE MKT
Bonds) because the Exchange would not
trade bonds on the Pillar trading
platform.
• Rule 107B—Equities (Supplemental
Liquidity Providers) because the
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Exchange would not support the
Supplemental Liquidity Provider
program on its proposed Pillar trading
platform.
• Rule 119—Equities (Change in Basis
from ‘‘And Interest’’ to ‘‘Flat’’) because
the Exchange would not trade bonds on
its proposed Pillar trading platform.
• Rule 131A—Equities (A Member
Organization Shall Use Its Own
Mnemonic When Entering Orders)
because the Exchange would use MPIDs
rather than mnemonics on its proposed
Pillar trading platform.
Proposed Deletion of Rules Designated
‘‘Reserved’’
To simplify the Exchange’s rules, the
Exchange proposes to delete Equities
rules that are currently designated
‘‘Reserved.’’ 30 The Exchange believes 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.
Section 11(a) of the Act
Section 11(a)(l) of the Act 31 (‘‘Section
11(a)(1)’’) prohibits a member of a
national securities exchange from
effecting transactions on that exchange
for its own account, the account of an
associated person, or an account over
which it or its associated person
exercises investment discretion
(collectively, ‘‘covered accounts’’)
unless an exception to the prohibition
applies. Rule 11a2–2(T) under the Act
(‘‘Rule 11a2–2(T)’’),32 known as the
‘‘effect versus execute’’ rule, provides
exchange members with an exemption
from the Section 11(a)(l) prohibition.
Rule 11a2–2(T) permits an exchange
member, subject to certain conditions,
30 See Rules 16—Equities; 20—Equities; 21—
Equities (Disqualification of Directors on Listing of
Securities); Rule 26—Equities (Disqualification of
Directors on Listing of Securities); Rule 29—
Equities—Rule 34—Equities; Rule 38—Equities—
Rule 44—Equities; Rule 45—Equities (Equities);
Rule 50—Equities; Rule 57—Equities—Rule 59—
Equities; Rule 60A—Equities; Rule 65—Equities;
Rule 69—Equities; Rule 92—Equities; Rule 106—
Equities; Rule 107—Equities; Rule 109—Equities—
Rule 111—Equities; Rule 115—Equities; Rule 118—
Equities; Rule 123G—Equities; Rule 124—Equities;
Rule 132A—Equities; Rule 132B—Equities; Rule
132C—Equities; Rule 305—Equities—307—
Equities; Rule 309—Equities; Rules 314—Equities—
318—Equities; Rule 319—Equities; Rule 322—
Equities; Rules 323—Equities—324—Equities; Rule
325—Equities; Rule 326(a)—Equities; Rule 326(b)—
Equities; Rule 326(c)—Equities; Rule 326(d)—
Equities; Rule 327—Equities; Rule 328—Equities;
Rule 329—Equities; Rule 343—Equities; Rule
440A—Equities; and Rule 1003—Equities.
31 15 U.S.C. 78k(a)(1).
32 17 CFR 240.11a2–2(T).
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to effect transactions for covered
accounts by arranging for an unaffiliated
member to execute the transactions on
the exchange. To comply with Rule
11a2–2(T)’s conditions, a member: (i)
Must transmit the order from off the
exchange floor; (ii) may not participate
in the execution of the transaction once
it has been transmitted to the member
performing the execution (although the
member may participate in clearing and
settling the transaction); (iii) may not be
affiliated with the executing member;
and (iv) with respect to an account over
which the member or its associated
person has investment discretion,
neither the member nor its associated
person may retain any compensation in
connection with effecting the
transaction except as provided in the
Rule.
With the proposed transition of the
Exchange to a fully automated
electronic trading model that does not
have a trading floor, the Exchange
believes that the policy concerns
Congress sought to address in Section
11(a)(1), i.e., the time and place
advantage that members on exchange
trading floors have over non-members
off the floor and the general public—
would not be present. Specifically, on
the Pillar trading system, buy and sell
interest will be matching in a
continuous, automated fashion.
Liquidity will be derived from quotes as
well as orders to buy and orders to sell
submitted to the Exchange
electronically by ETP Holders from
remote locations. The Exchange further
believes that ETP Holders entering
orders into the Exchange’s Pillar trading
system will satisfy the requirements of
Rule 11a2–2(T) under the Act, which
provides an exception to Section 11(a)’s
general prohibition on proprietary
trading.
The four conditions imposed by the
‘‘effect versus execute’’ rule are
designed to put members and nonmembers of an exchange on the same
footing, to the extent practicable, in
light of the purpose of Section 11(a). For
the reasons set forth below, the
Exchange believes the structure and
characteristics of its proposed Pillar
trading system do not result in disparate
treatment of members and non-members
and places them on the ‘‘same footing’’
as intended by Rule 11a2–2(T).
1. Off-Floor Transmission. Rule 11a2–
2(T) requires orders for a covered
account transaction to be transmitted
from off the exchange floor. The
Commission has considered this and
other requirements of the rule in the
context of automated trading and
electronic order handling facilities
operated by various national securities
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mstockstill on DSK3G9T082PROD with NOTICES
exchanges in a 1979 Release 33 as well
as more applications of Rule 11a2–2(T)
in connection with the approval of the
registrations of national securities
exchanges.34 In the context of these
automated trading systems, the
Commission has found that the off-floor
transmission requirement is met if an
order for a covered account is
transmitted from a remote location
directly to an exchange’s floor by
electronic means.35 Because the
Exchange would not have a physical
trading floor once it transitions to the
Pillar trading platform, and like other all
electronic exchanges, the Exchange’s
Pillar trading system would receive
orders from ETP Holders electronically
through remote terminals or computerto-computer interfaces, the Exchange
therefore believes that its trading system
satisfies the off-floor transmission
requirement.
2. Non-Participation in Order
Execution. The ‘‘effect versus execute’’
rule further provides that neither the
exchange member nor an associated
person of such member participate in
the execution of its order. This
requirement was originally intended to
prevent members from using their own
brokers on an exchange floor to
influence or guide the execution of their
orders.36 The rule, however, does not
preclude members from cancelling or
modifying orders, or from modifying
instructions for executing orders, after
they have been transmitted, provided
such cancellations or modifications are
transmitted from off an exchange
33 See Securities Exchange Act Release No. 15533
(January 29, 1979) (regarding the Amex Post
Execution Reporting System, the Amex Switching
System, the lntermarket Trading System, the
Multiple Dealer Trading Facility of the Cincinnati
Stock Exchange, the PCX’s Communications and
Execution System (‘‘COM EX’’), and the Phlx’s
Automated Communications and Execution System
(‘‘PACE’’)) (‘‘1979 Release’’).
34 Securities Exchange Act Release Nos. 53128
(January 13, 2006) 71 FR 3550 (January 23, 2006)
(File No. 10–13 1) (order approving Nasdaq
Exchange registration); 58375 (August 18, 2008) 73
FR 49498 (August 21, 2008) (order approving BATS
Exchange registration); 61152 (December 10, 2009)
74 FR 66699 (December 16, 2009) (order approving
C2 exchange registration); and 78101 (June 17,
2016), 81 FR 41142, 41164 (June 23, 2016) (order
approving Investors Exchange LLC registration).
35 See, e.g., Securities Exchange Act Release Nos.
49068 (January 13, 2004), 69 FR 2775 (January 20,
2004) (order approving the Boston Options
Exchange as an options trading facility of the
Boston Stock Exchange); 44983 (October 25, 2001),
66 FR 55225 (November 1, 2001) (order approving
Archipelago Exchange (‘‘ArcaEx’’) as electronic
trading facility of the Pacific Exchange (‘‘PCX’’)
(‘‘Arca Ex Order’’)); 29237 (May 24, 1991), 56 FR
24853 (May 31, 1991) (regarding NYSE’s Off-Hours
Trading Facility); 15533 (January 29, 1979); and
14563 (March 14, 1978), 43 FR 11542 (March 17,
1978) (regarding the NYSE’s Designated Order
Turnaround System (‘‘1978 Release’’)).
36 Id. 1978 Release, supra note 35.
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floor.37 In the 1979 Release discussing
both the Pacific Stock Exchange’s COM
EX system and the Philadelphia Stock
Exchange’s PACE system, the
Commission noted that a member
relinquishes any ability to influence or
guide the execution of its order at the
time the order is transmitted into the
systems, and although the execution is
automatic, the design of such systems
ensures that members do not possess
any special or unique trading
advantages in handling orders after
transmission to the systems.38 The
Exchange’s Pillar trading system would
at no time following the submission of
an order allow an ETP Holder or an
associated person of such member to
acquire control or influence over the
result or timing of an order’s execution.
The execution of an ETP Holder’s order
would be determined solely by what
quotes and orders are present in the
system at the time the member submits
the order and the order priority based
on Exchange rules. Therefore, the
Exchange believes the non-participation
requirement would be met through the
submission and execution of orders in
the Exchange’s Pillar trading system.
3. Execution Through an Unaffiliated
Member. Although Rule 11a2–2(T)
contemplates having an order executed
by an exchange member, unaffiliated
with the member initiating the order,
the Commission has recognized the
requirement is satisfied where
automated exchange facilities are used
as long as the design of these systems
ensures that members do not possess
any special or unique trading
advantages in handling their orders after
transmitting them to the exchange. In
the 1979 Release, the Commission noted
that while there is not an independent
executing exchange member, the
execution of an order is automatic once
it has been transmitted into the systems.
Because the design of these systems
ensures that members do not possess
any special or unique trading
advantages in handling their orders after
transmitting them to the exchange, the
Commission has stated that executions
obtained through these systems satisfy
the independent execution requirement
of Rule 11a2–2(T). Because the design of
the Exchange’s Pillar trading system
ensures that no ETP Holder has any
special or unique trading advantages
over nonmembers in the handling of its
orders after transmitting its orders to the
Exchange, the Exchange believes that its
Pillar trading system would satisfy this
requirement.
37 Id.
38 1979
PO 00000
4. Non-Retention of Compensation for
Discretionary Accounts. Finally, Rule
11a2–2(T) states, in the case of a
transaction effected for the account for
which the initiating member or its
associated person exercises investment
discretion, in general, the member or its
associated person may not retain
compensation for effecting the
transaction, unless the person
authorized to transact business for the
account has expressly provided
otherwise by written contract referring
to both Section 11(a) of the Exchange
Act and Rule 11a2–2(T). The Exchange
will advise its membership through the
issuance of a Regulatory Bulletin that
those ETP Holders trading for covered
accounts over which they exercise
investment discretion must comply with
this condition in order to rely on the
exemption in Rule 11a2–2(T) from the
prohibition in Section 11(a) of the
Exchange Act.
In conclusion, The Exchange believes
that its Pillar trading system would
satisfy the four requirements of Rule
11a2–2(T) as well as the general policy
objectives of Section 11(a). The
Exchange’s proposed Pillar trading
system would place all users, members
and non-members, on the ‘‘same
footing’’ with respect to transactions on
the Exchange for covered accounts as
intended by Rule 11a2–2(T). As such,
no Exchange ETP Holder would be able
to engage in proprietary trading in a
manner inconsistent with Section 11(a).
*
*
*
*
*
As discussed above, because of the
technology changes associated with the
migration to the Pillar trading platform,
the Exchange will announce by Trader
Update when rules with an ‘‘E’’
modifier will become operative.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),39 in general, and furthers the
objectives of Section 6(b)(5),40 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
39 15
Release, supra, note 33.
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10825
40 15
E:\FR\FM\15FEN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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impediments to and perfect the
mechanism of a free and open market
because they provide for a complete set
of 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 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
for 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
Rule 2E 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 to obtain an ETP for
trading on the Exchange’s Pillar trading
platform. In addition, the proposed
rules governing employee registrations
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because they would ensure that
employees of broker-dealers that are
members of both NYSE Arca Equities
and the Exchange would be subject to
the same registration requirements. The
proposed rule change would therefore
also promote just and equitable
principles of trade by requiring the same
registration requirements for the same
type of trading on affiliated exchanges.
The Exchange believes that proposed
Rule 3E would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would move existing
rules to new rule numbering that aligns
with the Framework Filing rule
numbering. The proposed rule change
would therefore promote consistency
among the Exchange and its affiliates
and make its rules easier to navigate for
the public, the Commission, and
members.
The Exchange believes that proposed
Rule 6E is designed to prevent
fraudulent and manipulative acts and
practices and to promote just and
equitable principles of trade because it
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would establish regulatory requirements
for its ETP Holders. Proposed Rule 6.3E
is designed to prevent fraudulent and
manipulative acts and practices because
it addresses the potential misuse of
material non-public information and is
based on NYSE Arca Equities Rule 6.3.
The remaining rules proposed for Rule
6E are based on existing Exchange rules
and the Exchange believes it would
make its rules easier to navigate to move
the text of these rules to rule numbers
consistent with the Framework Filing.
The Exchange believes that proposed
Rule 7E 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, including post-trade
requirements, that would establish the
Exchange as a fully automated trading
market with a price-time priority trading
model. The proposed rules are based on
the rules of NYSE Arca Equities, and
include rules governing orders and
modifiers, ranking and display,
execution and routing, trading sessions,
and auctions. The Exchange believes
that the proposed substantive difference
that its proposed Early Trading Session
would begin at 7:00 a.m. Eastern Time,
rather than 4:00 a.m. Eastern Time,
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would provide
transparency of the trading hours of the
Exchange when it begins trading on the
Pillar trading platform.
The Exchange believes that proposed
Rule 7.39E, which would govern the
Off-Hours Trading Facility on the
Exchange, would remove impediments
to and perfect the mechanism of a free
and open market and a national market
system because it would use Framework
Filing rule numbering and Pillar
terminology to describe the Off-Hours
Trading Facility that would continue to
be available once the Exchange
transitions to Pillar. Proposed Rule
7.39E, which would offer ETP Holders
the ability to enter Aggregate-Price
Coupled Orders, is based on the Rule
900 Series.
The Exchange believes that proposed
Rule 12E would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would move an
existing rule to new rule numbering that
aligns with the Framework Filing rule
numbering. The proposed rule change
would therefore promote consistency
among the Exchange and its affiliates
and make its rules easier to navigate for
the public, the Commission, and
members.
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
The Exchange believes that proposed
Rule 13E would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would harmonize the
Exchange’s rules governing liability for
its equity market with Exchange rules
governing liability for its options
markets, and the rules governing
liability on NYSE Arca Equities. The
proposed rule change would therefore
promote consistency among the
Exchange and its affiliates and make its
rules easier to navigate for the public,
the Commission, and members.
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 following
legend, which would be added to
existing rules, ‘‘This 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
rule numbers that are currently
‘‘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.
For reasons described above, the
Exchange believes that the proposal for
the Exchange to operate on a fully
automated trading market without a
Floor is consistent with Section 11(a) of
the Act and Rule 11a2–2(T) thereunder.
Finally, the Exchange believes that
proposed Rule 2.17E furthers the
objectives of Section 6(b)(4) of the Act,41
in particular, because it provides for the
equitable allocation of reasonable dues,
fees, and other charges among its
members, issuers, and other persons
using its facilities and does not unfairly
discriminate between customers,
issuers, brokers, or dealers. Specifically,
proposed Rule 2.17E does not establish
a new fee. Rather, the proposed rule is
41 15
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U.S.C. 78f(b)(4).
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based on existing provisions of current
Rule 440H—Equities relating to Activity
Assessment Fees without any
substantive differences. The Exchange
proposes to move the rule text to Rule
2.17E to use rule numbering for Pillar
that is consistent with the Framework
Filing, with non-substantive differences
to use Pillar terminology, and not move
obsolete rule text.
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 to support 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 the rules of NYSE Arca
Equities. The Exchange operates in a
highly competitive environment in
which its unaffiliated exchange
competitors operate multiple affiliated
exchanges that operate under common
rules. By moving the Exchange to a fully
automated trading model that trades all
NMS Stocks, the Exchange believes that
it will be able to compete on a more
level playing field with its exchange
competitors that similarly trade all NMS
Stocks on fully automated trading
models. In addition, by basing its rules
on those of NYSE Arca Equities, the
Exchange will provide its members with
consistency across affiliated exchanges,
thereby enabling the Exchange to
compete with unaffiliated exchange
competitors that similarly operate
multiple exchanges on the same trading
platforms.
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.
mstockstill on DSK3G9T082PROD with NOTICES
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
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18:44 Feb 14, 2017
Jkt 241001
(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–2017–01 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–2017–01. 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
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–2017–01 and should be
submitted on or before March 8, 2017.
42 17
PO 00000
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–02990 Filed 2–14–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80002; File No. SR–NYSE–
2016–45]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change,
as Modified by Amendment Nos. 1–4,
To Amend the Co-Location Services
Offered by the Exchange To Add
Certain Access and Connectivity Fees
February 9, 2017.
On July 29, 2016, the New York Stock
Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
(1) provide additional information
regarding access to various NYSE
trading and execution services and
establish fees for connectivity to certain
NYSE market data feeds; and (2) provide
and establish fees for connectivity to
data feeds from third party markets and
other content service providers; access
to the trading and execution services of
Third Party markets and other content
service providers; connectivity to
Depository Trust & Clearing Corporation
services; connectivity to third party
testing and certification feeds; and the
use of virtual control circuits by Users
in the Data Center.
The Commission published the
proposed rule change for comment in
the Federal Register on August 17,
2016.3 The Exchange filed Amendment
No. 1 to the proposed rule change on
August 16, 2016.4 The Commission
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 34–
78556 (August 11, 2016), 81 FR 54877.
4 Amendment No. 1 (i) amended the third party
data feed MSCI from 20 Gigabits (‘‘Gb’’) to 25 Gb
and amended the price from $2000 to $1200; (ii)
clarified the costs associated with providing a
greater amount of bandwidth for Premium NYSE
Data Products for a particular market as compared
to the bandwidth requirements for the Included
Data Products for that same market; (iii) provided
further details on Premium NYSE Data Products,
2 17
CFR 200.30–3(a)(12).
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Continued
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]]>Agencies
[Federal Register Volume 82, Number 30 (Wednesday, February 15, 2017)]
[Notices]
[Pages 10814-10827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02990]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79993; File No. SR-NYSEMKT-2017-01]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of
Proposed Rule Change To Adopt New Equities Trading Rules To Transition
Trading on the Exchange From a Floor Based Market With a Parity
Allocation Model to Fully Automated Price-Time Priority Model on the
Exchange's New Trading Technology Platform, Pillar
February 9, 2017.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 25, 2017, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 new rules to transition trading on the
Exchange to Pillar, the Exchange's new trading technology platform, and
to operate as a fully-automated cash equities market. 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.
[[Page 10815]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
On January 29, 2015, the Exchange announced the implementation of
Pillar, which is an integrated trading technology platform designed to
use a single specification for connecting to the equities and options
markets operated by the Exchange and its affiliates, NYSE Arca, Inc.
(``NYSE Arca'') and New York Stock Exchange LLC (``NYSE'').\4\ NYSE
Arca Equities, Inc. (``NYSE Arca Equities),\5\ which operates the cash
equities trading platform for NYSE Arca, was the first trading system
to migrate to Pillar.\6\
---------------------------------------------------------------------------
\4\ See Trader Update dated January 29, 2015, available here:
www.nyse.com/pillar.
\5\ NYSE Arca Equities is a wholly-owned corporation of NYSE
Arca and operates as a facility of NYSE Arca.
\6\ In connection with the NYSE Arca implementation of Pillar,
NYSE Arca filed four rule proposals relating to Pillar. See
Securities Exchange Act Release Nos. 74951 (May 13, 2015), 80 FR
28721 (May 19, 2015) (Notice) and 75494 (July 20, 2015), 80 FR 44170
(July 24, 2015) (SR-NYSEArca-2015-38) (Approval Order of NYSE Arca
Pillar I Filing, adopting rules for Trading Sessions, Order Ranking
and Display, and Order Execution); Securities Exchange Act Release
Nos. 75497 (July 21, 2015), 80 FR 45022 (July 28, 2015) (Notice) and
76267 (October 26, 2015), 80 FR 66951 (October 30, 2015) (SR-
NYSEArca-2015-56) (Approval Order of NYSE Arca Pillar II Filing,
adopting rules for Orders and Modifiers and the Retail Liquidity
Program); Securities Exchange Act Release Nos. 75467 (July 16,
2015), 80 FR 43515 (July 22, 2015) (Notice) and 76198 (October 20,
2015), 80 FR 65274 (October 26, 2015) (SR-NYSEArca-2015-58)
(Approval Order of NYSE Arca Pillar III Filing, adopting rules for
Trading Halts, Short Sales, Limit Up-Limit Down, and Odd Lots and
Mixed Lots); and Securities Exchange Act Release Nos. 76085 (October
6, 2015), 80 FR 61513 (October 13, 2015) (Notice) and 76869 (January
11, 2016), 81 FR 2276 (January 15, 2016) (Approval Order of NYSE
Arca Pillar IV Filing, adopting rules for Auctions).
---------------------------------------------------------------------------
Overview
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. As
such, when the Exchange transitions to Pillar, the Exchange would no
longer have a Floor-based point-of-sale trading model. As a
consequence, the Exchange is proposing to replace its Floor-based
Designated Market Makers (``DMM'') with electronic DMMs, and would no
longer have Floor brokers or support Supplemental Liquidity Providers
as a separate class of participant on the Exchange.\7\
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\7\ See, e.g., Rule 107B--Equities.
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The Exchange also proposes to expand the securities it trades to
all NMS securities, including securities listed on NYSE, NYSE Arca, the
Nasdaq Stock Market LLC (``Nasdaq''), and the Bats BZX Exchange, Inc.
(``Bats''). Trading of securities on an unlisted trading privileges
basis would be subject to the same trading rules as trading of
securities listed on the Exchange, except for specified rules directed
to the Exchange's responsibility as a primary listing market, e.g.,
proposed Rules 7.11E and 7.16E, described in further detail below.
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 rules for Exchange cash equities trading on the Pillar
trading platform.\8\ As described in the Framework Filing, the Exchange
is denoting 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.\9\ In addition, the Exchange has filed a
proposed rule change to support Exchange trading of securities listed
on NYSE, NYSE Arca, and other exchanges on an unlisted trading
privileges basis, including Exchange Traded Products (``ETP'') listed
on other exchanges.\10\
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\8\ 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'').
\9\ To distinguish Rule 1E-13E from Exchange rules that govern
options trading, the Exchange proposes a non-substantive change to
amend the description of ``Pillar Platform Rules'' after Rule 0--
Equities to specify that these are ``cash equities'' rules.
\10\ 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''). When trading on Pillar, the
Exchange would not be relying on Rule 500--Equities--Rule 525--
Equities for authority to trade securities on an unlisted trading
privileges basis. Accordingly, the Exchange proposes to amend Rule
500--Equities to provide that the Rules of that series (Rules 500--
Equities--Rule 525--Equities) would not be applicable to trading on
the Pillar trading platform. To use terms applicable to trading on
Pillar, the Exchange also proposes to amend Rule 2A(b)(2)--Equities
to replace the term ``Nasdaq Security'' with the term ``UTP
Security'' and replace the rule reference from Rule 501--Equities to
Rule 1.1E(ii).
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In this filing, the Exchange proposes trading rules that would
govern Exchange cash equities trading on Pillar. All trading would be
automated, including opening, re-opening, and closing auctions. As
proposed, the Exchange's Pillar cash equities trading platform would be
based on the rules and trading model of NYSE Arca Equities, which is a
fully-automated price-time priority allocation model with registered
market makers.
As discussed in the Framework Filing, Rules 1E-13E govern cash
equities trading on the Pillar platform.\11\ In particular, Rule 7E
Equities Trading would establish the trading rules. Rule 7E Equities
Trading would be based on NYSE Arca Equities Rule 7 Equities Trading.
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\11\ Rules 1E-13E are including in the ``Equities Rules''
portion of the Exchange's rule book. Pursuant to Rule 0--Equities,
the Equities Rules govern all transactions conducted on the Equities
Trading Systems.
---------------------------------------------------------------------------
In addition, to support the proposed fully-automated market, the
Exchange is proposing rules based on NYSE Arca Equities Rules 1
Definitions, 2 Equity Trading Permits, 3 Organization and
Administration, 6 Business Conduct, Rule 12 Arbitration, and Rule 13
Liability of Directors and Exchange.
The Exchange proposes the following differences to how it will
function on Pillar as compared to NYSE Arca Equities:
To be addressed in a separate filing, for securities
listed on NYSE MKT, the Exchange would maintain DMMs. These electronic-
access DMMs would be subject to rules-based heightened quoting
obligations vis-[agrave]-vis their assigned securities. For all
securities that would trade on the Exchange, including UTP securities,
the Exchange would have electronic registered market makers with
obligations similar to the obligations of market makers on NYSE Arca
Equities.
The Exchange would not offer a Retail Liquidity Program
and related order types (Retail Orders and Retail Price Improvement
Orders).
The Exchange would offer three trading sessions, but the
Early Trading Session would begin at 7:00 a.m. Eastern Time instead of
4:00 a.m. Eastern Time.
ETP Holders would communicate with the Pillar trading
platform using Pillar phase II protocols only.
Subject to rule approvals, 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
[[Page 10816]]
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.'' \12\ 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.
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\12\ The Exchange proposes to amend the description of Cash
Equities Pillar Platform Rules, which precedes Rule 1E, to delete
the last sentence, which currently provides that ``[t]he following
rules will not be applicable to trading on the Pillar trading
platform: Rules 7--Equities, 55--Equities, 56--Equities, 62--
Equities, and 80B--Equities.'' As proposed, the inapplicability of
these rules on the Pillar platform would be addressed in the
preamble that the Exchange proposes to add to each of these rules.
The Exchange further proposes to retain Rule 56--Equities when the
Exchange migrates to Pillar, as it addresses the unit of trading for
rights, which are listed on the Exchange.
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Proposed Rule Changes
As noted above, the Exchange proposes rules that would be
applicable to cash equities trading on Pillar that are based on NYSE
Arca Equities Rules. As a global matter, 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,'' and to use the terms
``mean'' or ``have the meaning'' instead of the terms ``shall mean'' or
``shall have the meaning.'' \13\
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\13\ 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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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 following additional definitions:
Proposed Rule 1.1E(a) would define the term ``Exchange
Book'' as the Exchange's electronic file of orders. This proposed rule
is based on NYSE Arca Equities Rule 1.1(a), which defines the term
``NYSE Arca Book,'' with a non-substantive difference to not include
the following phrase in the Exchange's proposed rule: ``Which contains
all orders entered on the NYSE Arca Marketplace.'' The Exchange
believes that this clause is redundant of the description of the
Exchange Book.
Proposed Rule 1.1E(g) would define the term ``Authorized
Trader'' or ``AT'' to mean a person who may submit orders to the
Exchange's cash equities Trading Facilities on behalf of his or her ETP
Holder. This proposed rule is based on NYSE Arca Equities Rule 1.1(g)
with non-substantive differences to reflect that the Exchange will not
have sponsored participants.
Proposed Rule 1.1E(j) would define the term ``Core Trading
Hours'' to mean the hours of 9:30 a.m. Eastern Time through 4:00 p.m.
Eastern Time or such other hours as may be determined by the Exchange
from time to time. This proposed rule is based on NYSE Arca Equities
rule 1.1(j).
Proposed Rule 1.1E(k) would define the term ``Exchange''
to mean NYSE MKT. Because the term ``Exchange'' would be defined in
proposed Rule 1.1E(k), the Exchange proposes that Rule 1--Equities
would not be applicable to trading on the Pillar trading platform.
Proposed Rule 1.1E(m) would define the term ``ETP'' to
mean an Equity Trading Permit issued by the Exchange for effecting
approved securities transactions on the Exchange's cash equity Pillar
trading platform pursuant to Rules 1E-13E. The proposed rule would
further provide that an ETP may be issued to a sole proprietor,
partnership, corporation, limited liability company or other
organization that is a registered broker or dealer pursuant to Section
15 of the Securities Exchange Act of 1934, as amended, and which has
been approved by the Exchange as a member organization. This proposed
rule text is based on NYSE Arca Equities Rule 1.1(m) with non-
substantive differences to specify that an ETP is the permit for
effecting approved securities transaction on the Exchange's cash equity
Pillar trading platform pursuant to Rules 1E-13E. As described in
greater detail below, the Exchange proposes to use ETPs to permission
its member organizations to trade on its Pillar cash equities trading
platform.
Proposed Rule 1.1E(n) would define the term ``ETP Holder''
to mean a member organization that has been issued an ETP. The proposed
rule would further provide that an ETP Holder would agree to be bound
by the Rules of the Exchange, and by all applicable rules and
regulations of the Securities and Exchange Commission. This proposed
rule is based on NYSE Arca Equities Rule 1.1(n), with a proposed
difference to reference the term ``member organization,'' which is
defined in Rule 2(b)--Equities.
Proposed Rule 1.1E(p) would define the term ``General
Authorized Trader'' or ``GAT'' to mean an AT who performs only non-
market making activities on behalf of an ETP Holder. This proposed rule
is based on NYSE Arca Equities Rule 1.1(p) without any substantive
differences.
Proposed Rule 1.1E(u) would define the term ``Marketable''
to mean, for a Limit Order, an order than can be immediately executed
or routed. The proposed rule would further provide that Market Orders
are always considered Marketable. This proposed rule text is based on
NYSE Arca Equities Rule 1.1(u).
Proposed Rule 1.1E(gg) would define the term ``Official
Closing Price'' as the reference price to determine the closing price
in a security for purposes of Rule 7E Equities Trading. Proposed Rules
1.1E(gg)(1)-(5) would specify how the Exchange would determine an
Official Closing Price in all circumstances, including when the
Exchange is unable to conduct a Closing Auction in one or more
Exchange-listed securities due to a systems or technical issue, and is
based on NYSE Arca Equities Rule 1.1(gg) without any substantive
differences. Proposed Rule 1.1E(gg), together with proposed Rule 7.35E
described in greater detail below, would obviate current Rule 123C--
Equities (The Closing Procedures).\14\ Accordingly, the Exchange
proposes to specify that Rule 123C--Equities would not be applicable to
trading on the Pillar trading platform.
---------------------------------------------------------------------------
\14\ Rule 123C(1)(e)--Equities sets forth how the Exchange
currently determines the Official Closing Price of a security listed
on the Exchange.
---------------------------------------------------------------------------
Proposed Rule 1.1E(rr) would define the term ``security''
and ``securities'' to mean any security as defined in in Rule 3(a)(10)
under the Securities Exchange Act of 1934; provided, however, that for
purposes of Rule 7E such terms mean any NMS stock. This proposed rule
is based on NYSE Arca Equities Rule 1.1(ss) [sic] without any
substantive differences. Because the term ``security'' would be defined
in proposed Rule 1.1E(rr), the Exchange proposes to specify that Rules
3--Equities and 4--Equities, which define the terms ``Security'' and
``Stock'' would not be applicable to trading on the Pillar trading
platform. In addition, because the Exchange would not be trading bonds
on its Pillar cash equities trading platform, the Exchange proposes to
specify that Rule 5--Equities would not be applicable to trading on the
Pillar trading platform.
Proposed Rule 1.1E(ss) would define the term ``Self-
Regulatory
[[Page 10817]]
Organization (`SRO')'' as having the same meaning as set forth in the
provisions of the Securities Exchange Act of 1934 relating to national
securities exchanges. This proposed rule text is based on NYSE Arca
Equities Rule 1.1(ss) without any substantive differences.
Proposed Rule 1.1E(xx) would define the term ``Trading
Facilities'' or ``Facilities'' to mean any and all electronic or
automated trading systems provided by the Exchange to ETP Holders. This
proposed rule text is based on NYSE Arca Equities Rule 1.1(xx) without
any substantive differences.
The Exchange proposes to amend Rule 1.1E(hhh) to add the
letter ``E'' to the reference to Rule 7 in this rule.
Rule 2E
The Exchange proposes to amend Rule 2E to delete the term
``Reserved'' and re-name this rule as ``Equity Trading Permits.'' The
Exchange proposes rules to support Equity Trading Permits (``ETP'') on
the Exchange for trading on the Pillar trading platform that are based
on NYSE Arca Equities Rule 2.
Currently, Rule 300--Equities governs trading licenses on the
Exchange. Under that rule, a trading license issued by the Exchange is
required to effect transactions on the floor of the Exchange or through
any facility thereof and an organization may acquire and hold a trading
license only if and for so long as such organization is qualified and
approved to be a member organization of the Exchange. The Exchange's
current trading license rule is identical to NYSE Rule 300 and a single
trading license provides an Exchange member organization with the
ability to trade on both the Exchange and NYSE.
To trade on Pillar, the Exchange proposes that a member
organization would need an ETP.\15\ Accordingly, a trading license
issued under Rule 300--Equities would not permit a member organization
to trade on the Exchange's Pillar cash equities trading platform.
Instead, as proposed, a member organization would be eligible to obtain
an ETP to trade on the Exchange's cash equities Pillar trading
platform. As noted above, member organizations that have been issued an
ETP would be referred to in Exchange rules as ``ETP Holders.'' \16\
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\15\ The Exchange will file a separate proposed rule change to
specify fees for cash equities trading on NYSE MKT when it
transitions to Pillar.
\16\ At this time, the Exchange is not proposing rules,
comparable to those in NYSE Arca Equities Rule 2, that specify the
requirements to be approved as a member of the Exchange.
Accordingly, the Exchange proposes that the rule numbers under Rule
2E that would support membership requirements would be designated as
``Reserved.'' Instead, the Exchange's current rules governing the
definition of a member organization and the requirements to be
approved as a member organization would continue to apply.
---------------------------------------------------------------------------
In addition, because the Exchange would operate as a fully-
automated market, the Exchange proposes rules that mirror those of NYSE
Arca Equities with respect to requirements relating to employees of ETP
Holders. Accordingly, ETP Holders accessing the Exchange on its Pillar
cash equities trading platform would have the same employee
registration requirements as NYSE Arca Equities.
Proposed Rule 2.2E (Qualification of Applicants) would
provide that an ETP may be held by an entity that is approved as a
member organization. This proposed rule is based in part on the first
sentence of NYSE Arca Equities Rule 2.2, which provides that an ETP on
NYSE Arca Equities may be held by an entity that is a registered broker
or dealer pursuant to Section 15 of the Act, as amended, including sole
proprietors, partnerships, limited liability partnerships,
corporations, and limited liability companies. The Exchange would not
include in its Rule 2.2E the text in NYSE Arca Equities Rule 2.2
relating to registered broker dealers because it is duplicative of Rule
2(b)(i), which defines the term member organization on the Exchange.
Proposed Rule 2.4E (Denial or Conditions to ETPs) would
govern the denial or conditions to ETPs and is based on NYSE Arca
Equities Rule 2.4 without any substantive differences. Paragraphs (a)
and (b) of proposed Rule 2.4E would specify the circumstances when the
Exchange could deny or condition trading privileges on the Exchange,
and these circumstances are identical to those specified in NYSE Arca
Equities Rule 2.4(a) and (b).
The proposed rule would separately specify the Series 7 Examination
requirement for traders of ETP Holders for which the Exchange is the
Designated Examining Authority. These proposed requirements are
identical to the Series 7 Examination requirements for ETP Holders on
NYSE Arca Equities. The Exchange proposes a non-substantive difference
to paragraphs (c) and (f) of proposed Rule 2.4E to cross-reference Rule
9522 instead of NYSE Arca Equities Rule 10.
Proposed Rule 2.6E (Revocable Privilege) would specify
that the issuance of an ETP would constitute only a revocable privilege
and confers on its holder no right or interest of any nature to
continue as an ETP Holder. This proposed rule is based on NYSE Arca
Equities Rule 2.6 without any differences. The Exchange also proposes
to add a sub-header to Exchange rules immediately preceding Rule 2.6E
that would provide ``Requirements of Holding an ETP.'' This proposed
text is based on the sub-header before NYSE Arca Equities Rule 2.6 that
provides ``Requirements of Holding an ETP Requirements Applicable
Generally.'' The Exchange proposes an abbreviated form of the sub-
header to eliminate unnecessary text. Because proposed Rule 2.6E,
together with proposed Rule 2.4E, would establish the requirements for
a member organization to obtain an ETP, the Exchange proposes that Rule
300--Equities would not be applicable to trading on the Pillar trading
platform.
Proposed Rule 2.17E (Activity Assessment Fees) would
specify the Activity Assessment Fees applicable for securities
transactions effected on the Exchange as required by Section 31 of the
Act. This proposed rule is based on current Rule 440H--Equities without
any substantive differences. Specifically, the rule text is based on
Supplementary Material .10, .20, and the last sentence of .30 to Rule
440H--Equities with non-substantive differences to use Pillar
terminology. Proposed Rule 2.17E is therefore designed to retain the
existing requirements relating to Activity Assessment Fees, but use new
rule numbering for trading on the Pillar trading platform that is
consistent with the Framework Filing. The Exchange does not propose to
move rule text based on the first three sentences of Supplementary
Material .30 to Rule 440H--Equities because that rule text is obsolete
as it relates to a temporary program that automatically sunsetted in
2009.
Because proposed Rule 2.17E would set forth Activity Assessment
Fees, the Exchange proposes that Rule 440H--Equities would not apply to
trading on the Pillar trading platform.
Proposed Rule 2.21E (Employees of ETP Holders
Registration) would specify the registration requirements for employees
of ETP Holders. This proposed rule is based on NYSE Arca Equities Rule
2.21 without any substantive differences. Accordingly, this rule would
specify employee registration requirements for trading on the Exchange,
including examination requirements, continuing education requirements,
and procedures to register employees.
Because proposed Rule 2.21E, together with proposed Rule 2.4E,
would specify employee registration
[[Page 10818]]
requirements applicable to trading on the Exchange on its cash equities
Pillar trading platform, the Exchange proposes to specify that the
following rules, which govern current trading employee registration
requirements, would not be applicable to trading on the Pillar trading
platform: Rule 345--Equities (Employees--Registration, Approval,
Records) and Rule 345A--Equities (Continuing Education for Registered
Persons). The Exchange also proposes that the requirement for a member
organization that a member organization that conducts a DMM business
has a Series 14A requirement, as set forth in Rule 342--Equities, would
not be applicable to trading on the Pillar trading platform. However,
the Exchange would retain the non-Floor-based Compliance Supervisor
requirements of Rule 342--Equities. Accordingly, a member organization
engaged in a public business in addition to a DMM business must have a
qualified compliance supervisor that has passed the Series 14
Examination, but would no longer need the Series 14A Examination.
Proposed Rule 2.22E would specify the Exchange Back-Up
Systems and Mandatory Testing Requirements of the Exchange and is based
on Rule 49(b)--Equities without any substantive changes. The Exchange
proposes to move this rule text to Rule 2.22E so that it has the same
rule number as the rules of NYSE Arca Equities. Because member
organizations trading on the Exchange's cash equities Pillar trading
platform would be designated as ``ETP Holders'' in Exchange rules, the
Exchange proposes to use the term ``ETP Holder'' instead of ``member
organization'' in proposed Rule 2.22E.
The Exchange proposes to designate the entirety of Rule 49--
Equities (Exchange Business Continuity and Disaster Recovery Plans and
Mandatory Testing) as not applicable to trading on the Pillar trading
platform. Because the Exchange would trade in its secondary data center
under the same rules as would be applicable to trading on its primary
data center, the procedures specified in Rule 49(a)--Equities would no
longer be applicable.
Proposed Rule 2.24E (ETP Books and Records) would
establish an ETP Holder's books and records requirements and is based
on NYSE Arca Equities Rule 2.24 without any substantive differences.
Because proposed Rule 2.24E would establish the same requirements as
set forth in current Rule 440--Equities (Books and Records), the
Exchange proposes that Rule 440--Equities would not be applicable to
trading on the Pillar trading platform.
Rule 3E
The Exchange proposes to amend Rule 3E to delete the term
``Reserved'' and re-name it ``Organization and Administration.''
Proposed Part I of Rule 3E would be designated as ``Reserved.''
Proposed Part II of Rule 3E would be designated ``Regulation'' and
proposed Part III of Rule 3E would be designated ``Dues, Fees, and
Fines.'' Except as described below, the rules under Rule 3E would be
designated as ``Reserved'' because the subject matter of the NYSE Arca
Equities Rules with corresponding numbers are the subject of existing
Exchange rules that would continue to apply.\17\
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\17\ NYSE Arca Equities Rule 3 Part I relates to board
committees, which are described in the Exchange's Operating
Agreement, which is available here: https://www.theice.com/publicdocs/nyse/regulation/nyse-mkt/Tenth_Amended_and_Restated_Operating_Agreement_of_NYSE_MKT_LLC.pdf.
NYSE Arca Equities Rules 3.4 and 3.5 relate to the self-regulatory
responsibilities of NYSE Arca for the administration and enforcement
of rules governing the operation of NYSE Arca Equities, its wholly
owned subsidiary, and the delegation of authority from NYSE Arca to
NYSE Arca Equities. Because the Exchange is itself a self-regulatory
organization, these rules are inapplicable. The subject matter of
NYSE Arca Equities Rule 3 Part III is addressed in the Exchange's
Disciplinary Rules and Rule 2B--Equities.
---------------------------------------------------------------------------
Proposed Rule 3.6E (Surveillance Agreements) would specify
that the Exchange may enter into agreements with domestic and foreign
self-regulatory organizations providing for the exchange of information
and other forms of mutual assistance for market surveillance,
investigative, enforcement and other regulatory purposes. This proposed
rule is based on NYSE Arca Equities 3.6 with no substantive
differences. Because this rule covers the same subject matter as Rule
27--Equities, the Exchange proposes that that Rule 27--Equities would
not be applicable to trading on the Pillar trading platform.
Proposed Rule 3.11E (Fingerprint-Based Background Checks
of Exchange Employees and Others) would establish the Exchange's
requirements for fingerprint-based background checks of Exchange
employees and others. The proposed rule is based on NYSE Arca Equities
Rule 3.11 and Rule 28--Equities, which are identical rules. The
Exchange proposes to move the rule text from Rule 28--Equities to Rule
3.11E so that it has the same rule number as the same subject matter in
the rules of NYSE Arca Equities. The Exchange further proposes that
Rule 28--Equities would not be applicable to trading on the Pillar
trading platform.
Rule 6E
The Exchange proposes to amend Rule 6E to delete the term
``Reserved'' and re-name it ``Business Conduct.'' The Exchange proposes
rules governing specified business conduct. Except as described below,
the rules under Rule 6E would be designated as ``Reserved.''
Proposed Rule 6.3E (Prevention of the Misuse of Material,
Nonpublic Information) would establish the Exchange's requirement 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. This proposed rule is based on NYSE Arca Equities Rule 6.3
without any substantive differences. The Exchange proposes a non-
substantive difference to refer to the Exchange's ``regulatory staff''
instead of ``Surveillance Department.''
Proposed Rule 6.10E (ETP Holders Holding Options) would
specify an ETP Holder's obligations with respect to trading on the
Exchange when holding any options that are not issued by the Options
Clearing Corporation. This proposed rule is based on NYSE Arca Equities
Rule 6.10 without any substantive differences. Current Rule 96--
Equities (Limitations on Members' Trading Because of Options) sets
forth a requirement similar to proposed Rule 6.10E, but that rule is
only applicable to a member's trading while on the Floor for his own
account or for any account in which he, his member organization, or any
member, principal executive, or approved person of such organization is
directly or indirectly interest. As proposed, Rule 6.10E would set
forth these requirements and they would be applicable to all ETP
Holders. In addition, the Exchange proposes that Rule 96--Equities
(Limitation on Members' Trading Because of Options) would not be
applicable to trading on the Pillar trading platform.
Proposed Rule 6.12E (Joint Accounts) would describe
requirements relating to joint accounts. The proposed rule is based on
NYSE Arca Equities Rule 6.12 without any substantive differences. The
Exchange proposes a non-substantive difference in that the proposed
rule would not include the phrase ``Application of the System'' because
such terms are not defined on the Exchange. The Exchange proposes that
Rules 93--Equities (Trading for Joint Account) and 94--Equities
(Designated Market Marker's or Odd-Lot
[[Page 10819]]
Dealers Interest in Joint Accounts) would not be applicable to trading
on the Pillar trading platform.
Proposed Rule 6.15E (Prearranged Trades) would prohibit
prearranged trades and is based on NYSE Arca Equities Rule 6.15(b)
without any substantive differences. The Exchange proposes that Rule
78--Equities, which similarly prohibits prearranged trades, would not
be applicable to trading on the Pillar trading platform. The Exchange
would not be adding rule text based on NYSE Arca Equities Rule 6.15(a),
relating to prohibitions on engaging in manipulative practices or
operations, because Rule 6140--Equities already establishes these
requirements.
Rule 7E Equities Trading
The Exchange proposes additional rules under Rule 7E Equities
Trading.
As previously established in the Framework Filing, Section 1 of
Rule 7E specifies the General Provisions relating to cash equities
trading on the Pillar trading platform. The Exchange proposes the
following additional rules:
Proposed Rule 7.1E (Hours of Business) would specify that
the Exchange would be open for the transaction of business on every
business day. The proposed rule also sets forth when the CEO may take
specified actions, such as halting or suspending trading in some or all
securities on the Exchange. The proposed rule is based on NYSE Arca
Equities Rule 7.1 and Rule 51--Equities. The Exchange proposes that
Rule 51--Equities would not be applicable to trading on the Pillar
trading platform. In addition, because the definition of the term
``business day'' in Rule 12--Equities would be redundant of proposed
Rule 7.1E, the Exchange proposes that Rule 12--Equities would not be
applicable to trading on the Pillar trading platform.
Proposed Rule 7.2E (Holidays) would establish the holidays
when the Exchange would not be open for business. The proposed rule is
based on NYSE Arca Equities Rule 7.2 and Supplementary Material .10 to
Rule 51--Equities, including text that provides that when any holiday
observed by the Exchange falls on a Sunday, the Exchange would not be
open for business on the succeeding Monday, which is in Rule 51--
Equities.
Proposed Rule 7.3E (Commissions) would establish that ETP
Holders may not charge fixed commissions and must indicate whether
acting as a broker or as principal. The proposed rule is based on NYSE
Arca Equities Rule 7.3 without any substantive differences. Because
Rule 388--Equities (Prohibition Against Fixed Rates of Commission) also
prohibits fixed commissions, the Exchange proposes that Rule 388--
Equities would not be applicable to trading on the Pillar trading
platform.
Proposed Rule 7.4E (Ex-Dividend or Ex-Right Dates) would
establish the ex-dividend and ex-rights dates for stocks traded regular
way. The proposed rule is based on NYSE Arca Equities Rule 7.4 without
any substantive differences. The Exchange proposes that Rule 235--
Equities would not be applicable to trading on the Pillar trading
platform.
Proposed Rule 7.7E (Transmission of Bids or Offers) would
establish that all bids and offers on the Exchange would be anonymous
unless otherwise specified by the ETP Holder. The proposed rule is
based on NYSE Arca Equities Rule 7.7 without any substantive
differences.
Proposed Rule 7.8E (Bid or Offer Deemed Regular Way) would
establish that all bids and offers would be considered to be ``regular
way.'' This proposed rule text is based on NYSE Arca Equities Rule
7.8E. As proposed, the Exchange would not accept orders that, if
executed, would not settle regular way. Accordingly, the Exchange
proposes that Rules 12--Equities, 14--Equities, 73--Equities, which
each specify rules for orders that are not entered ``regular way,''
would not be applicable to trading on the Pillar trading platform.
Currently, the Exchange accepts bids and offers that are not made
regular way only from Floor brokers.
Proposed Rule 7.9E (Execution Price Binding) would
establish that, notwithstanding Exchange rules governing clearly
erroneous executions, the price at which an order is executed is
binding notwithstanding that an erroneous report is rendered. This
proposed rule text is based on NYSE Arca Equities Rule 7.9 without any
substantive differences. The Exchange proposes that Rules 71--Equities
(Precedence of Highest Bid and Lowest Offer) and 411--Equities
(Erroneous Reports) would not be applicable to trading on the Pillar
trading platform.
Proposed Rule 7.10E (Clearly Erroneous Executions) would
set forth the Exchange's rules governing clearly erroneous executions.
The proposed rule is based on NYSE Arca Equities Rule 7.10 without any
substantive differences. The Exchange proposes rule text based on NYSE
Arca Equities rather than current Rule 128--Equities (Clearly Erroneous
Executions) because the NYSE Arca Equities version of the rule uses the
same terminology that the Exchange is proposing for the Pillar trading
platform, e.g., references to Early, Core, and Late Trading Sessions.
Accordingly, the Exchange proposes that Rule 128--Equities (Clearly
Erroneous Executions) would not be applicable to trading on the Pillar
trading platform.
Proposed Rule 7.11E (Limit Up--Limit Down Plan and Trading
Pauses in Individual Securities Due to Extraordinary Market Volatility)
would specify how the Exchange would comply with the Regulation NMS
Plan to Address Extraordinary Market Volatility (``LULD Plan'').\18\
Because ETP Holders would communicate with the Exchange's proposed
Pillar trading platform using Pillar phase II protocols only, the
proposed rule is based on NYSE Arca Equities Rule 7.11(a) rule text
governing Pillar phase II protocols without any substantive
differences.\19\ In addition, the Exchange proposes that it would
include rule text based on current NYSE Arca Equities Rule 7.11(b)(2)
and (b)(5) only as the remaining provisions of NYSE Arca Equities Rule
7.11(b) are obsolete now that the LULD Plan has been fully implemented.
The Exchange proposes that Rule 80C--Equities would not be applicable
to trading on the Pillar trading platform.
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 77679 (April 21,
2016), 81 FR 24908 (April 27, 2016) (File No. 4-631) (Order
approving 10th Amendment to the LULD Plan).
\19\ See Securities Exchange Act Release No. 79688 (December 23,
2016), 81 FR 96534 (December 30, 2016) (SR-NYSEArca-2016-170)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change).
---------------------------------------------------------------------------
The Exchange proposes to amend paragraph (c)(i) of Rule
7.12E to change the rule cross reference from Rule 123D--Equities to
Rule 7.35E(e). As described in greater detail below, the Exchange
proposes Rule 7.35E to govern its auctions, including auctions
following a trading halt. Accordingly, the procedures for reopening a
security specified in Rule 123D--Equities would not be applicable on
the Pillar trading platform.
Proposed Rule 7.13E (Trading Suspensions) would establish
authority for the Chair or the CEO of the Exchange to suspend trading
in any and all securities that trade on the Exchange if such suspension
would be in the public interest. This proposed rule is based on NYSE
Arca Equities Rule 7.13 with non-substantive differences to use the
term ``CEO'' instead of ``President'' and to omit a cross reference to
a rule that is not applicable on the Exchange.
Proposed Rule 7.14E (Clearance and Settlement) would
establish the requirements regarding an ETP Holder's arrangements for
clearing. Because all
[[Page 10820]]
post-trade functions on the Exchange's Pillar trading platform would
follow the NYSE Arca Equities procedures for post-trade processing, the
Exchange proposes rules that are based on NYSE Arca Equities rules
governing clearing. Accordingly, the proposed rule is based on NYSE
Arca Equities Rule 7.14 without any substantive differences. The
Exchange proposes that its current rules governing clearing, Rules
130--Equities and 132--Equities, would not be applicable to trading on
the Pillar trading platform.\20\
---------------------------------------------------------------------------
\20\ See also infra proposed Rules 7.33E (Capacity Codes) and
7.41E (Clearance and Settlement).
---------------------------------------------------------------------------
Proposed Rule 7.15E (Stock Option Transactions) would
establish requirements for Market Makers relating to pool dealing and
having an interest in an option that is not issued by the Options
Clearing Corporation. The proposed rule is based on NYSE Arca Equities
Rule 7.15 without any substantive differences. Because the proposed
rule covers the same subject matter as Rule 105--Equities, the Exchange
proposes that this rule would not be applicable to trading on the
Pillar trading platform.
Proposed Rule 7.16E (Short Sales) would establish
requirements relating to short sales. The proposed rule is based on
NYSE Arca Equities Rule 7.16 without any substantive differences.
Because the proposed rule covers the same subject matter as Rule 440B--
Equities (Short Sales), the Exchange proposes that Rule 440B--Equities
would not be applicable to trading on the Pillar trading platform.
Proposed Rule 7.17E (Firm Orders and Quotes) would
establish requirements that all orders and quotes must be firm. This
proposed rule is based on NYSE Arca Equities Rule 7.17 without any
substantive differences. Because on the Pillar trading platform, the
Exchange would only publish automated quotations consistent with
proposed Rule 7.17E, the Exchange proposes that Rule 60--Equities
(Dissemination of Quotations) would not be applicable to trading on the
Pillar trading platform.\21\
---------------------------------------------------------------------------
\21\ See also infra proposed Rule 7.36E regarding the display of
orders on the Pillar trading platform.
---------------------------------------------------------------------------
As noted above, the Exchange will file a separate proposed rule
change to establish rules relating to Market Makers, which will be in
Section 2 of Rule 7E. The Exchange has proposed Rule 7.18E in the ETP
Listing Rules Filing.\22\
---------------------------------------------------------------------------
\22\ See supra note 10. The Exchange will file an amendment to
the ETP Listing Rules Filing to add rule text for proposed
paragraphs (b) and (c) of Rule 7.18E that would be based on NYSE
Arca Equities Rule 7.18(b) and (c).
---------------------------------------------------------------------------
Section 3 of Rule 7E sets forth Exchange trading rules for the
Pillar trading platform. As noted above, the Exchange proposes certain
substantive differences to how the Exchange would operate on the Pillar
trading platform compared to how NYSE Arca Equities operates. These
substantive differences would be reflected in the proposed rules
governing Orders and Modifiers and Trading Sessions.
Proposed Rule 7.31E (Orders and Modifiers) would specify the orders
and modifiers that would be available on the Exchange on the Pillar
trading platform. The Exchange proposes to offer the same types of
orders and modifiers that are available on NYSE Arca Equities, with
specified substantive differences.
Proposed Rule 7.31E is based on NYSE Arca Equities Rule 7.31 with
the following differences. With respect to Self-Trade Prevention
(``STP'') Modifiers, because the Exchange would be operating on Pillar
phase II protocols only, STPs would be based on the MPID of an ETP
Holder and not on an ETP ID. Accordingly, proposed Rule 7.31E(i)(2)
would not include references from NYSE Arca Equities Rule 7.31(i)(2)
relating to ETPIDs. In addition, Arca Only Orders, which are described
in NYSE Arca Equities Rule 7.31(e)(1), would be named ``MKT Only
Orders'' on the Exchange, as described in proposed Rule 7.31E(e)(1).
The Exchange does not propose any substantive differences to how MKT
Only Orders would function as compared to Arca Only Orders on NYSE Arca
Equities. Next, the Exchange proposes that for Primary Only Day/IOC
Orders, an ETP Holder may specify that an order in NYSE Arca-listed
securities may include an instruction to be routed to NYSE Arca as a
routable order, as set forth in proposed Rule 7.31E(f)(1)(B). Finally,
because when operating on the Pillar phase II protocols, the Exchange
would not accept order types with conflicting order instructions, the
Exchange proposes not to include in proposed Rule 7.31E text based on
Commentary .02 to NYSE Arca Equities Rule 7.31.
Because proposed Rule 7.31E would govern orders and modifiers, the
Exchange proposes that Rule 13--Equities (Orders and Modifiers) would
not be applicable to trading on the Pillar trading platform. In
addition, references to Trading Collars in Rule 1000(c)--Equities would
not be applicable to trading on the Pillar Trading platform.\23\
---------------------------------------------------------------------------
\23\ As described in greater detail below, the Exchange proposes
that the entirety of Rule 1000--Equities would not be applicable to
trading on the Pillar trading platform.
---------------------------------------------------------------------------
Proposed Rule 7.34E would specify trading session on the Exchange.
Similar to NYSE Arca Equities, the Exchange proposes that on the Pillar
trading platform, it would have Early, Core, and Late Trading Sessions.
Accordingly, proposed Rule 7.34E is based on NYSE Arca Equities Rule
7.34, with non-substantive differences. The Exchange proposes one
substantive difference from NYSE Arca Equities Rule 7.34 in that the
Early Trading Session would begin at 7:00 a.m. Eastern Time rather than
4:00 a.m. Eastern Time. Similar to NYSE Arca Equities, the Exchange
would begin accepting orders 30 minutes before the Early Trading
Session begins, which means order entry acceptance would begin at 6:30
a.m. Eastern Time instead of at 3:30 a.m. Eastern Time. These
differences would be reflected in proposed Rule 7.34E(a)(1).
In addition, because the Exchange would use Pillar phase II
protocols, proposed Rule 7.34E(b)(1) would specify that an order
entered without a trading session designation would be rejected. In
addition, the Exchange proposes that it would not include rule text
based on NYSE Arca Equities Rule 7.34(b)(2) or (3).
The following proposed rules in Section 3 of Rule 7E would be based
on existing NYSE Arca Equities rules without any substantive
differences:
Proposed Rule 7.29E (Access) would provide that the
Exchange would be available for entry and cancellation of orders by ETP
Holders with authorized access. To obtain authorized access to the
Exchange, each ETP Holder would be required to enter into a User
Agreement. Proposed Rule 7.29E is based on NYSE Arca Equities Rule
7.29(a), without any substantive differences. The Exchange does not
propose to include rule text based on NYSE Arca Equities Rule 7.29(b)
because the Exchange would not offer sponsored access.
Proposed Rule 7.30E (Authorized Traders) would establish
requirements for ETP Holders relating to ATs. The proposed rule is
based on NYSE Arca Equities Rule 7.30, without any substantive
differences.
Proposed Rule 7.32E (Order Entry) would establish
requirements for order entry size. The proposed rule is based on NYSE
Arca Equities Rule 7.32 without any substantive differences. The
Exchange proposes that the current maximum order size references before
subparagraph (a) in Rule 1000--Equities would not be applicable to
trading on the Pillar trading platform.
Proposed Rule 7.33E (Capacity Codes) would establish
requirements for
[[Page 10821]]
capacity code information that ETP Holders must include with every
order. The proposed rule is based on NYSE Arca Equities Rule 7.33
without any substantive differences. The Exchange proposes to use the
title ``Capacity Codes'' instead of ``ETP Holder User,'' for proposed
Rule 7.33E, which the Exchange believes provides more clarity regarding
the content of the proposed rule. The Exchange proposes that the
capacity code requirements in Supplementary Material .30(9) to Rule
132--Equities would not be applicable to trading on the Pillar trading
platform.
Proposed Rule 7.35E (Auctions) would establish
requirements for auctions on the Exchange. Because the Exchange
proposes to automate all auctions and not have a DMM facilitate such
auctions, the proposed rule is based on NYSE Arca Equities Rule 7.35
without any substantive differences. The Exchange proposes that
paragraph (a)(10)(A), regarding Auction Collars for Trading Halt
Auctions, which is based on a pilot rule of NYSE Arca Equities, would
be in effect until SR-NYSEArca-2016-130 has been approved and a
proposed rule change based on SR-NYSEArca-2016-130 for the Exchange is
effective and operative.\24\ Because proposed Rule 7.35E would govern
all auctions, including the Early Open Auction, Core Open Auction,
Trading Halt Auction, IPO Auction, and Closing Auction, the Exchange
proposes that the following rules, which govern auctions on the
Exchange, would not be applicable to trading on the Pillar trading
platform: Rule 15--Equities (governing pre-opening indications and
Opening Order Imbalance Information), Rule 115A--Equities (governing
the opening process), Supplementary Material .40 to Rule 116--Equities
(governing pair off of MOC and LOC orders at the close),\25\ Rule
123C--Equities (governing the closing process), and Rule 123D--Equities
(governing the opening and trading halts).
---------------------------------------------------------------------------
\24\ See Securities Exchange Act Release No. 79705 (December 29,
2016), 82 FR 1419 (January 5, 2017) (SR-NYSEArca-2016-169) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change).
\25\ As described below, because the Exchange would not have
Floor-based DMMs or trading, the remainder of Rule 116--Equities
would not be applicable to trading on the Pillar trading platform.
---------------------------------------------------------------------------
Proposed Rule 7.36E (Order Ranking and Display) would
establish requirements for how orders would be ranked and displayed at
the Exchange. The proposed rule is based on NYSE Arca Equities Rule
7.36 without any substantive differences.
Proposed Rule 7.37E (Order Execution and Routing) would
establish requirements for how orders would execute and route at the
Exchange, the data feeds that the Exchange would use, and Exchange
requirements under the Order Protection Rule and the prohibition on
locking and crossing quotations in NMS Stocks. This proposed rule is
based on NYSE Arca Equities Rule 7.37 with one substantive difference.
Because the Exchange would not be taking in data feeds from broker
dealers or routing to Away Markets that are not displaying protected
quotations, the Exchange proposes that proposed Rule 7.37E would not
include rule text from paragraph (b)(3) of NYSE Arca Equities Rule
7.37, which specifies that an ETP Holder can opt out of routing to Away
Markets that are not displaying a protected quotation, i.e., broker
dealers, or paragraph (d)(1) of NYSE Arca Equities Rule 7.37, which
specifies that NYSE Arca Equities receives data feeds directly from
broker dealers. The subject matter of proposed Rules 7.36E and 7.37E
would address a cross-section of current rules. Accordingly, the
Exchange proposes that the following rules would not be applicable to
trading on the Pillar trading platform: Rule 15A--Equities (Order
Protection Rule), Rule 19--Equities (Locking or Crossing Protected
Quotations in NMS Stocks), Rule 60--Equities (Dissemination of
Quotations), Rule 61--Equities (Recognized Quotations), Rule 72--
Equities (Priority of Bids and Offers and Allocation of Executions),
Supplementary Material .15 to Rule 79A--Equities,\26\ Rule 1000(a) and
(b)--Equities (Automatic Executions), Rule 1001--Equities (Execution of
Automatically Executing Orders), Rule 1002--Equities (Availability of
Automatic Execution Feature), and Rule 1004--Equities (Election of Buy
Minus and Sell Plus).
---------------------------------------------------------------------------
\26\ As described below, the Exchange proposes that Rule 79A in
its entirety would not be applicable on the Pillar trading platform.
---------------------------------------------------------------------------
Proposed Rule 7.38E (Odd and Mixed Lot) would establish
requirements relating to odd lot and mixed lot trading on the Exchange.
The proposed rule is based on NYSE Arca Equities Rule 7.38 without any
substantive differences.
Proposed Rule 7.40E (Trade Execution and Reporting) would
establish the Exchange's obligation to report trades to an appropriate
consolidated transaction reporting system. The proposed rule is based
on NYSE Arca Equities Rule 7.40 without any substantive differences.
Because all reporting of transactions would be automated, the Exchange
proposes that Rule 128A--Equities would not be applicable to trading on
the Pillar trading platform.
Proposed Rule 7.41E (Clearance and Settlement) would
establish requirements that all trades be processed for clearance and
settlement on a locked-in and anonymous basis. Specifically, proposed
Rules 7.41E(a), (b), (d), and (e) are based on NYSE Arca Equities Rule
7.41(a), (b), (d), and (e) with non-substantive differences not to
include references to sponsored access, because the Exchange will not
offer sponsored access. Proposed Rule 7.41E(c) is based on NYSE Rule
130(b), which reflects the circumstances when the Exchange may reveal
the contra-party identity.\27\ In addition, proposed Commentary .10 to
Rule 7.41E is based on Supplementary Material .10 to Rule 132, defining
the term ``Qualified Clearing Agency.'' The Exchange proposes to define
this term for use in proposed Rule 7.41E(c). Because all trades would
be reported by the Exchange on a locked-in basis, the Exchange proposes
to specify that the following rules relating to clearance and
settlement would not be applicable to trading on the Pillar trading
system: Rule 130--Equities (Overnight Comparison of Exchange
Transactions), Rule 132--Equities (Comparison and Settlement of
Transactions Through a Fully-Interfaced or Qualified Clearing Agency),
Rule 133--Equities (Comparison--Non-cleared Transactions), Rule 134
(Differences and Omissions--Cleared Transactions QTs), Rule 135--
Equities (Differences and Omissions--Non-cleared Transactions (`DKs')),
and Rule 136--Equities (Comparison--Transactions Excluded from a
Clearance).
---------------------------------------------------------------------------
\27\ See Securities Exchange Act Release No. 77930 (May 26,
2016), 81 FR 35410 (June 2, 2016) (SR-NYSE-2016-38) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change).
---------------------------------------------------------------------------
As noted above, the Exchange would not offer a Retail Liquidity
Program when it trades on the Pillar trading platform. Accordingly, the
Exchange would not propose rules based on NYSE Arca Equities Rule 7.44
and proposed Rules 7.36E, 7.37E, and 7.38E would not include cross
references to Rule 7.44. The Exchange proposes that Rule 107C--Equities
would not be applicable to trading on the Pillar trading platform.
Section 4 of Rule 7E would establish the Operation of a Routing
Broker. Specifically, proposed Rule 7.45E (Operation of a Routing
Broker) would establish the outbound and inbound function of the
Exchange's routing broker and the cancellation of orders and the
Exchange's error account. The proposed rule is based on NYSE Arca
[[Page 10822]]
Equities Rule 7.45 without any substantive differences. The Exchange
proposes that Rule 17--Equities (Use of Exchange Facilities and Vendor
Services) would not be applicable to trading on the Pillar trading
platform.\28\
---------------------------------------------------------------------------
\28\ The subject matter of Rule 17(a)--Equities would be
addressed in proposed Rule 13.2E. On Pillar, the Exchange would not
operate with vendors and therefore would not need a vendor liability
rule, as described in Rule 17(b)--Equities. Current Rule 17(c)--
Equities would not be applicable because it addresses the same
subject matter as proposed Rule 7.45E.
---------------------------------------------------------------------------
Section 5 of Rule 7E would establish requirements relating to the
Plan to Implement a Tick Size Pilot Program. Proposed Rule 7.46E (Tick
Size Pilot Plan) would specify such requirements. The proposed rule is
based on NYSE Arca Equities Rule 7.46 with a proposed substantive
difference not to include cross references to a Retail Liquidity
Program in proposed Rules 7.46E(c), (d)(1), and (e)(1). The Exchange
also proposes to designate proposed Rules 7.46E(f)(4) and (f)(5)(B) as
``Reserved'' because the Exchange would not support Retail Price
Improvement Orders or routing to Away Markets that are not displaying
protected quotations on Pillar. The remaining differences are all non-
substantive, including using the term MKT Only Order rather than Arca
Only Order. The Exchange proposes that Rule 67--Equities (Tick Size
Pilot Plan) would not be applicable to trading on the Pillar trading
platform.
Rule 12E
The Exchange proposes to amend Rule 12E to delete the term
``Reserved,'' re-name it ``Arbitration,'' and establish the Exchange's
arbitration procedures. The proposed rule text is based on current Rule
600--Equities, with a non-substantive change to use the term ``ETP
Holder'' instead of ``member organization.'' The Exchange proposes to
move this rule text to Rule 12E so that it has the same rule number as
the arbitration rules of NYSE Arca Equities. The Exchange further
proposes that Rule 600--Equities would not be applicable to trading on
the Pillar trading platform.
Rule 13E
The Exchange proposes to amend Rule 13E to delete the term
``Reserved'' and re-name it ``Liability of Directors and Exchange.''
Proposed Rule 13.2E (Liability of the Exchange) would
establish requirements governing liability of the Exchange, including
the limits on liability for specified circumstances. This proposed rule
is based on Rule 905NY, which governs liability of the Exchange for its
options market, and NYSE Arca Equities Rule 13.2 without any
substantive differences. Because this rule would govern liability of
the Exchange, the Exchange proposes that Rule 18--Equities would not be
applicable to trading on the Pillar trading platform.
Proposed Rule 13.3E (Legal Proceedings Against Directors,
Officers, Employees, or Agents) would establish requirements relating
to legal proceedings against directors, officers, employees, agents, or
other officials of the Exchange. The proposed rule is based on NYSE
Arca Equities Rule 13.3 without any substantive differences.
Proposed Rule 13.4E (Exchange's Costs of Defending Legal
Proceedings) would establish the circumstances regarding who is
responsible for the Exchange's costs in defending a legal proceeding
brought against the Exchange. The proposed rule is based on NYSE Arca
Equities Rule 13.4 without any substantive differences and Rule 61,
which governs the Exchange's costs of defending legal proceedings for
its options market. The Exchange proposes that Rule 25--Equities
(Exchange Liability for Legal Costs) would not be applicable to trading
on the Pillar trading platform.
Proposed Amendments to the Exchange's Off-Hours Trading Facility
After the Exchange transitions to the Pillar trading platform, the
Exchange proposes to maintain certain functionality in its Off-Hours
Trading Facility, which is currently described in Rules 900--Equities
through 907--Equities (the ``Rule 900 Series''). Specifically, once
trading begins on its Pillar trading platform, the Exchange proposes
that the only function that would be available on its Off-Hours Trading
Facility would be for ETP Holders to enter aggregate-price coupled
orders.
The Exchange proposes that new Rule 7.39E would describe this Off-
Hours Trading Facility functionality,\29\ and that the entirety of the
Rule 900 Series would not be applicable to trading on the Pillar
trading platform.
---------------------------------------------------------------------------
\29\ NYSE Arca Equities Rule 7.39 addresses the adjustment of
open orders, e.g., orders with a good until canceled time-in-force
instruction, due to corporate actions. Because the Exchange does not
propose to have any open orders when trading on the Pillar trading
platform, the Exchange will not adopt rule text based on NYSE Arca
Equities Rule 7.39.
---------------------------------------------------------------------------
Proposed Rule 7.39E(a) would provide that Rule 7.39E would
apply to all Exchange contracts made on the Exchange through its ``Off-
Hours Trading Facility.'' This proposed rule text is based on the first
sentence of Rule 900(a)--Equities. The Exchange would not include rule
text specified in the second sentence of Rule 900(a)--Equities and text
from Rule 900(b)--Equities through Rule 900(d)--Equities because it
would not apply to the Off-Hours Trading Facility once trading begins
on the Pillar trading platform.
Proposed Rule 7.39E(b) would establish the definitions for
the Off-Hours Trading Facility. Proposed Rule 7.39E(b)(i) would define
the term ``Aggregate-Price Coupled Order'' to mean an order to buy or
sell a group of securities, which group includes no fewer than 15
Exchange-listed or traded securities having a total market value of $1
million or more. This proposed definition is based on the definition of
``aggregate-price order'' in Rule 900(e)(i)--Equities with a non-
substantive difference to use the term ``Aggregate-Price Coupled
Order'' rather than ``aggregate-price order.'' Proposed Rule
7.39E(e)(b)(ii) would define the term ``Off-Hours Trading Facility,''
to mean the Exchange facility that permits ETP Holders to effect
securities transactions on the Exchange under proposed Rule 7.39E and
is based on Rule 900(e)(v)--Equities with a non-substantive difference
to use the term ``ETP Holder'' instead of ``member or member
organization.'' Proposed Rule 7.39E(b)(ii) would also define the term
``Off-Hours Trading'' to mean trading through the Off-Hours Trading
Facility. This text is based on the second sentence of Rule 900(e)(v)--
Equities. Because the Exchange would only be trading Aggregate-Price
Coupled Orders in the Off-Hours Trading Facility, the Exchange proposes
that Rule 7.39E(b) would not include definitions for ``closing price,''
``closing-price order,'' or ``guaranteed price coupled order,'' which
are defined in Rule 900(e)(ii)-(iv)--Equities.
Proposed Rule 7.39E(c) would establish that only such NMS
Stocks, as the Exchange may specify, including Exchange-listed
securities and UTP Securities, would be eligible to trade in the Off-
Hours Trading Facility. This proposed rule text is based on Rule 901--
Equities with non-substantive differences to use Pillar terminology to
describe which securities would be eligible to trade in the Off-Hours
Trading Facility. The Exchange would not include rule text from
Supplementary Material .10 of Rule 902, which provides that only the
orders described in Rule 902 are eligible for Off-Hours Trading because
it is redundant of proposed Rule 7.39E(c).
Proposed Rule 7.39E(d) would establish the procedures for
entering
[[Page 10823]]
Aggregate-Price Coupled Orders into the Off-Hours Trading Facility. As
proposed, an ETP Holder may only enter into the Off-Hours Trading
Facility an Aggregate-Price Coupled Order to buy (sell) that is matched
with an Aggregate-Price Coupled Order to sell (buy) the same quantities
of the same securities, including in odd lot and mixed lot quantities.
This proposed rule text is based on Rule 902(a)(iii)--Equities and Rule
902(g)--Equities with non-substantive differences to combine the two
sections into a single section of rule text. The Exchange would not
include rule text from Rule 902(a)(ii) because this specifies a Floor-
based method to enter a coupled-order after the close and therefore
would not be necessary on the Exchange's proposed Pillar trading
system.
Proposed Rule 7.39E(d)(i) would provide that transactions
effected through the Off-Hours Trading Facility pursuant to Aggregate-
Price Coupled Orders may be for delivery at such time as the parties
entering the orders may agree. This proposed rule text is based on the
first sentence of Rule 902(c)--Equities. The Exchange would not include
the second sentence of Rule 902(c)--Equities in proposed Rule
7.39E(d)(i) because all orders in the Off-Hours Trading Facility would
be Aggregate-Price Coupled Orders and thus subject to proposed Rule
7.39E(d)(i).
Proposed Rule 7.39E(d)(ii) would provide that ETP Holders
would mark all sell orders as ``long'' as appropriate. This proposed
rule text is based on Rule 902(f)--Equities with a non-substantive
difference to use the term ``ETP Holder'' instead of ``members and
member organizations.''
Proposed Rule 7.39E(d)(iii) would provide that each side
of an Aggregate-Price Coupled Order entered on a matched basis would be
traded on entry against the other side without regard to the priority
of other orders entered into the Off-Hours Trading Facility. This
proposed rule text is based on Rule 903(b)--Equities and 903(d)(i) with
non-substantive differences to combine those rules into a single sub-
section, use Pillar terminology, and use the term ``matched'' instead
of ``coupled.''
Proposed Rule 7.39E(d)(iv) would provide that a
transaction described in this Rule would be an Exchange contract that
is binding in all respects and without limit on the ETP Holder that
enters any of the transaction's component orders and that the ETP
Holder would be fully responsible for the Exchange contract. This
proposed rule text is based on Rule 903(c)--Equities with non-
substantive differences to use the term ``ETP Holder'' instead of
``member or member organization.''
Proposed Rule 7.39E(e) would provide that each ETP Holder
would report to the Exchange such information, in such manner, and at
such times, as the Exchange may from time to time prescribe in respect
of Off-Hours Trading, including, but not limited to, reports relating
to Off-Hours Trading orders, proprietary or agency activity and
activity in related instruments. This proposed rule text is based on
Rule 905(a)--Equities with a non-substantive difference to use the term
``ETP Holder'' instead of ``member or member organization.''
Proposed Rule 7.39E(f) would provide that each ETP Holder
would maintain and preserve such records, in such manner, and for such
period of time, as the Exchange may from time to time prescribe in
respect of Off-Hours Trading, including, records relating to orders,
cancellations, executions and trading volume, proprietary trading
activity, activity in related instruments and securities and other
records necessary to allow the ETP Holder to comply with the reporting
provisions of proposed paragraph (e) of Rule 7.39E. This proposed rule
text is based on rule 905(b)--Equities with non-substantive differences
to use the term ``ETP Holder'' instead of ``member or member
organization,'' and to eliminate the ``but not limited to'' text.
Proposed Rule 7.39E(g) would provide that notwithstanding
a trading halt in any security (other than a trading halt pursuant to
Rule 7.12E (Trading Halts Due to Extraordinary Market Volatility)) or a
corporate development, ETP Holders may enter Aggregate-Price Coupled
Orders into the Off-Hours Trading Facility under this Rule. This
proposed rule text is based on Supplementary Material .10 to Rule 906--
Equities with non-substantive differences to cross-reference Rule 7.12E
instead of Rule 80B and to use the term ``ETP Holders'' instead of
``members and member organizations.''
In addition to the provisions of the Rule 900 Series noted above,
the Exchange would not include rule text from Rule 903(d)(ii)--Equities
and Rule 906(b)--Equities in proposed Rule 7.39E because these
provisions relate to Floor-based use of the Off-Hours Trading Facility,
which would not be available on the proposed Pillar trading platform.
In addition, the Exchange proposes that Rule 7.39E would not include
any provisions from Rule 907, which describes now-obsolete crossing
session functionality.
Current Rules That Would Not Be Applicable to Pillar
As described in more detail above, in connection with the proposed
rules to support cash equities trading on the Pillar trading platform,
the Exchange has identified current Exchange rules that would not be
applicable because they would be superseded by a proposed rule. 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, 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, including requirements relating to DMMs and Floor
brokers. For this reason, the Exchange proposes that the following
Floor-specific rules would not be applicable to trading on the Pillar
trading platform:
Paragraphs (a), (i), and (j) of Rule 2--Equities
(``Member,'' ``Membership,'' and ``Member Firm,'' etc.) (defining terms
relating to Floor-based trading, i.e., member, DMM, and DMM unit).
Rule 6--Equities (Floor).
Rule 6A--Equities (Trading Floor).
Rule 35--Equities (Floor Employees to be Registered).
Rule 36--Equities (Communications Between Exchange and
Members' Offices).
Rule 37--Equities (Visitors).
Rule 46--Equities (Floor Officials--Appointments).
Rule 46A--Equities (Executive Floor Governors).
Rule 47--Equities (Floor Officials--Unusual Situations).
Rule 52--Equities (Dealings on the Exchange--Hours).
Rule 53--Equities (Dealings on Floor--Securities).
Rule 54--Equities (Dealings on Floor--Persons).
Rule 70--Equities (Execution of Floor broker interest).
Rule 74--Equities (Publicity of Bids and Offers).
Rule 75--Equities (Disputes as to Bids and Offers).
Rule 76--Equities (`Crossing' Orders).
Rule 77--Equities (Prohibited Dealings and Activities).
Rule 79A--Equities (Miscellaneous Requirements on Stock
Market Procedures).
Rule 90--Equities (Dealings by Members on the Exchange).
Rule 91--Equities (Taking or Supplying Securities Named in
Order).
[[Page 10824]]
Rule 95--Equities (Discretionary Transactions).
Rule 103A--Equities (Member Education).
Rule 106A--Equities (Taking Book or Order of Another
Member).
Rule 108--Equities (Limitation on Members' Bids and
Offers).
Rule 112--Equities (Orders Initiated `Off the Floor').
Rule 116--Equities (`Stop' Constitutes Guarantee).
Rule 117--Equities (Orders of Members To Be in Writing).
Rule 121--Equities (Records of DMM Units).
Rule 122--Equities (Orders with More than One Broker).
Rule 123--Equities (Record of Orders).
Rule 123A--Equities (Miscellaneous Requirements).
Rule 123B--Equities (Exchange Automated Order Routing
System).
Rule 126--Equities (Odd-Lot Dealers General).
Rule 127--Equities (Block Crossed Outside the Prevailing
Exchange Quotation).
Rule 128B--Equities (Publication of Changes, Corrections,
Cancellations or Omissions and Verifications of Transactions).
Rule 131--Equities (Comparison--Requirements for Reporting
Trades and Providing Facilities).
Rule 301--Equities (Qualifications for Membership).
Rule 303--Equities (Limitation on Access to Floor).
Rule 304A--Equities (Member Examination Requirements).
Rule 440I--Equities (Records of Compensation
Arrangements--Floor Brokerage).
Rule 1000(d)-(g)--Equities (Capital Commitment Schedule).
In addition, the Exchange proposes that the following rules would
not be applicable to trading on the Pillar platform.
Rule 11--Equities (Effect of Definitions) because Rule
1.1E supersedes any description of definitions.
Rule 23--Equities (New York local time) because all
references to times in the proposed Pillar trading platform rules refer
to ``Eastern Time.''
Rule 24--Equities (Change in Procedure to Conform to
Changes Hours of Trading) because proposed Rule 7.1E would specify the
hours of the Exchange.
Rule 86--Equities (NYSE MKT Bonds) because the Exchange
would not trade bonds on the Pillar trading platform.
Rule 107B--Equities (Supplemental Liquidity Providers)
because the Exchange would not support the Supplemental Liquidity
Provider program on its proposed Pillar trading platform.
Rule 119--Equities (Change in Basis from ``And Interest''
to ``Flat'') because the Exchange would not trade bonds on its proposed
Pillar trading platform.
Rule 131A--Equities (A Member Organization Shall Use Its
Own Mnemonic When Entering Orders) because the Exchange would use MPIDs
rather than mnemonics on its proposed Pillar trading platform.
Proposed Deletion of Rules Designated ``Reserved''
To simplify the Exchange's rules, the Exchange proposes to delete
Equities rules that are currently designated ``Reserved.'' \30\ The
Exchange believes 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.
---------------------------------------------------------------------------
\30\ See Rules 16--Equities; 20--Equities; 21--Equities
(Disqualification of Directors on Listing of Securities); Rule 26--
Equities (Disqualification of Directors on Listing of Securities);
Rule 29--Equities--Rule 34--Equities; Rule 38--Equities--Rule 44--
Equities; Rule 45--Equities (Equities); Rule 50--Equities; Rule 57--
Equities--Rule 59--Equities; Rule 60A--Equities; Rule 65--Equities;
Rule 69--Equities; Rule 92--Equities; Rule 106--Equities; Rule 107--
Equities; Rule 109--Equities--Rule 111--Equities; Rule 115--
Equities; Rule 118--Equities; Rule 123G--Equities; Rule 124--
Equities; Rule 132A--Equities; Rule 132B--Equities; Rule 132C--
Equities; Rule 305--Equities--307--Equities; Rule 309--Equities;
Rules 314--Equities--318--Equities; Rule 319--Equities; Rule 322--
Equities; Rules 323--Equities--324--Equities; Rule 325--Equities;
Rule 326(a)--Equities; Rule 326(b)--Equities; Rule 326(c)--Equities;
Rule 326(d)--Equities; Rule 327--Equities; Rule 328--Equities; Rule
329--Equities; Rule 343--Equities; Rule 440A--Equities; and Rule
1003--Equities.
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Section 11(a) of the Act
Section 11(a)(l) of the Act \31\ (``Section 11(a)(1)'') prohibits a
member of a national securities exchange from effecting transactions on
that exchange for its own account, the account of an associated person,
or an account over which it or its associated person exercises
investment discretion (collectively, ``covered accounts'') unless an
exception to the prohibition applies. Rule 11a2-2(T) under the Act
(``Rule 11a2-2(T)''),\32\ known as the ``effect versus execute'' rule,
provides exchange members with an exemption from the Section 11(a)(l)
prohibition. Rule 11a2-2(T) permits an exchange member, subject to
certain conditions, to effect transactions for covered accounts by
arranging for an unaffiliated member to execute the transactions on the
exchange. To comply with Rule 11a2-2(T)'s conditions, a member: (i)
Must transmit the order from off the exchange floor; (ii) may not
participate in the execution of the transaction once it has been
transmitted to the member performing the execution (although the member
may participate in clearing and settling the transaction); (iii) may
not be affiliated with the executing member; and (iv) with respect to
an account over which the member or its associated person has
investment discretion, neither the member nor its associated person may
retain any compensation in connection with effecting the transaction
except as provided in the Rule.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78k(a)(1).
\32\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------
With the proposed transition of the Exchange to a fully automated
electronic trading model that does not have a trading floor, the
Exchange believes that the policy concerns Congress sought to address
in Section 11(a)(1), i.e., the time and place advantage that members on
exchange trading floors have over non-members off the floor and the
general public--would not be present. Specifically, on the Pillar
trading system, buy and sell interest will be matching in a continuous,
automated fashion. Liquidity will be derived from quotes as well as
orders to buy and orders to sell submitted to the Exchange
electronically by ETP Holders from remote locations. The Exchange
further believes that ETP Holders entering orders into the Exchange's
Pillar trading system will satisfy the requirements of Rule 11a2-2(T)
under the Act, which provides an exception to Section 11(a)'s general
prohibition on proprietary trading.
The four conditions imposed by the ``effect versus execute'' rule
are designed to put members and non-members of an exchange on the same
footing, to the extent practicable, in light of the purpose of Section
11(a). For the reasons set forth below, the Exchange believes the
structure and characteristics of its proposed Pillar trading system do
not result in disparate treatment of members and non-members and places
them on the ``same footing'' as intended by Rule 11a2-2(T).
1. Off-Floor Transmission. Rule 11a2-2(T) requires orders for a
covered account transaction to be transmitted from off the exchange
floor. The Commission has considered this and other requirements of the
rule in the context of automated trading and electronic order handling
facilities operated by various national securities
[[Page 10825]]
exchanges in a 1979 Release \33\ as well as more applications of Rule
11a2-2(T) in connection with the approval of the registrations of
national securities exchanges.\34\ In the context of these automated
trading systems, the Commission has found that the off-floor
transmission requirement is met if an order for a covered account is
transmitted from a remote location directly to an exchange's floor by
electronic means.\35\ Because the Exchange would not have a physical
trading floor once it transitions to the Pillar trading platform, and
like other all electronic exchanges, the Exchange's Pillar trading
system would receive orders from ETP Holders electronically through
remote terminals or computer-to-computer interfaces, the Exchange
therefore believes that its trading system satisfies the off-floor
transmission requirement.
---------------------------------------------------------------------------
\33\ See Securities Exchange Act Release No. 15533 (January 29,
1979) (regarding the Amex Post Execution Reporting System, the Amex
Switching System, the lntermarket Trading System, the Multiple
Dealer Trading Facility of the Cincinnati Stock Exchange, the PCX's
Communications and Execution System (``COM EX''), and the Phlx's
Automated Communications and Execution System (``PACE'')) (``1979
Release'').
\34\ Securities Exchange Act Release Nos. 53128 (January 13,
2006) 71 FR 3550 (January 23, 2006) (File No. 10-13 1) (order
approving Nasdaq Exchange registration); 58375 (August 18, 2008) 73
FR 49498 (August 21, 2008) (order approving BATS Exchange
registration); 61152 (December 10, 2009) 74 FR 66699 (December 16,
2009) (order approving C2 exchange registration); and 78101 (June
17, 2016), 81 FR 41142, 41164 (June 23, 2016) (order approving
Investors Exchange LLC registration).
\35\ See, e.g., Securities Exchange Act Release Nos. 49068
(January 13, 2004), 69 FR 2775 (January 20, 2004) (order approving
the Boston Options Exchange as an options trading facility of the
Boston Stock Exchange); 44983 (October 25, 2001), 66 FR 55225
(November 1, 2001) (order approving Archipelago Exchange
(``ArcaEx'') as electronic trading facility of the Pacific Exchange
(``PCX'') (``Arca Ex Order'')); 29237 (May 24, 1991), 56 FR 24853
(May 31, 1991) (regarding NYSE's Off-Hours Trading Facility); 15533
(January 29, 1979); and 14563 (March 14, 1978), 43 FR 11542 (March
17, 1978) (regarding the NYSE's Designated Order Turnaround System
(``1978 Release'')).
---------------------------------------------------------------------------
2. Non-Participation in Order Execution. The ``effect versus
execute'' rule further provides that neither the exchange member nor an
associated person of such member participate in the execution of its
order. This requirement was originally intended to prevent members from
using their own brokers on an exchange floor to influence or guide the
execution of their orders.\36\ The rule, however, does not preclude
members from cancelling or modifying orders, or from modifying
instructions for executing orders, after they have been transmitted,
provided such cancellations or modifications are transmitted from off
an exchange floor.\37\ In the 1979 Release discussing both the Pacific
Stock Exchange's COM EX system and the Philadelphia Stock Exchange's
PACE system, the Commission noted that a member relinquishes any
ability to influence or guide the execution of its order at the time
the order is transmitted into the systems, and although the execution
is automatic, the design of such systems ensures that members do not
possess any special or unique trading advantages in handling orders
after transmission to the systems.\38\ The Exchange's Pillar trading
system would at no time following the submission of an order allow an
ETP Holder or an associated person of such member to acquire control or
influence over the result or timing of an order's execution. The
execution of an ETP Holder's order would be determined solely by what
quotes and orders are present in the system at the time the member
submits the order and the order priority based on Exchange rules.
Therefore, the Exchange believes the non-participation requirement
would be met through the submission and execution of orders in the
Exchange's Pillar trading system.
---------------------------------------------------------------------------
\36\ Id. 1978 Release, supra note 35.
\37\ Id.
\38\ 1979 Release, supra, note 33.
---------------------------------------------------------------------------
3. Execution Through an Unaffiliated Member. Although Rule 11a2-
2(T) contemplates having an order executed by an exchange member,
unaffiliated with the member initiating the order, the Commission has
recognized the requirement is satisfied where automated exchange
facilities are used as long as the design of these systems ensures that
members do not possess any special or unique trading advantages in
handling their orders after transmitting them to the exchange. In the
1979 Release, the Commission noted that while there is not an
independent executing exchange member, the execution of an order is
automatic once it has been transmitted into the systems. Because the
design of these systems ensures that members do not possess any special
or unique trading advantages in handling their orders after
transmitting them to the exchange, the Commission has stated that
executions obtained through these systems satisfy the independent
execution requirement of Rule 11a2-2(T). Because the design of the
Exchange's Pillar trading system ensures that no ETP Holder has any
special or unique trading advantages over nonmembers in the handling of
its orders after transmitting its orders to the Exchange, the Exchange
believes that its Pillar trading system would satisfy this requirement.
4. Non-Retention of Compensation for Discretionary Accounts.
Finally, Rule 11a2-2(T) states, in the case of a transaction effected
for the account for which the initiating member or its associated
person exercises investment discretion, in general, the member or its
associated person may not retain compensation for effecting the
transaction, unless the person authorized to transact business for the
account has expressly provided otherwise by written contract referring
to both Section 11(a) of the Exchange Act and Rule 11a2-2(T). The
Exchange will advise its membership through the issuance of a
Regulatory Bulletin that those ETP Holders trading for covered accounts
over which they exercise investment discretion must comply with this
condition in order to rely on the exemption in Rule 11a2-2(T) from the
prohibition in Section 11(a) of the Exchange Act.
In conclusion, The Exchange believes that its Pillar trading system
would satisfy the four requirements of Rule 11a2-2(T) as well as the
general policy objectives of Section 11(a). The Exchange's proposed
Pillar trading system would place all users, members and non-members,
on the ``same footing'' with respect to transactions on the Exchange
for covered accounts as intended by Rule 11a2-2(T). As such, no
Exchange ETP Holder would be able to engage in proprietary trading in a
manner inconsistent with Section 11(a).
* * * * *
As discussed above, because of the technology changes associated
with the migration to the Pillar trading platform, the Exchange will
announce by Trader Update when rules with an ``E'' modifier will become
operative.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\39\ in general, and
furthers the objectives of Section 6(b)(5),\40\ 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
[[Page 10826]]
impediments to and perfect the mechanism of a free and open market
because they provide for a complete set of rules to support the
Exchange's transition to a fully automated cash equities trading model
on the Pillar trading platform.
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78f(b).
\40\ 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 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 for 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 Rule 2E 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 to obtain an ETP for trading
on the Exchange's Pillar trading platform. In addition, the proposed
rules governing employee registrations would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because they would ensure that employees of broker-dealers that
are members of both NYSE Arca Equities and the Exchange would be
subject to the same registration requirements. The proposed rule change
would therefore also promote just and equitable principles of trade by
requiring the same registration requirements for the same type of
trading on affiliated exchanges.
The Exchange believes that proposed Rule 3E would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would move existing rules to new
rule numbering that aligns with the Framework Filing rule numbering.
The proposed rule change would therefore promote consistency among the
Exchange and its affiliates and make its rules easier to navigate for
the public, the Commission, and members.
The Exchange believes that proposed Rule 6E is designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade because it would establish regulatory
requirements for its ETP Holders. Proposed Rule 6.3E is designed to
prevent fraudulent and manipulative acts and practices because it
addresses the potential misuse of material non-public information and
is based on NYSE Arca Equities Rule 6.3. The remaining rules proposed
for Rule 6E are based on existing Exchange rules and the Exchange
believes it would make its rules easier to navigate to move the text of
these rules to rule numbers consistent with the Framework Filing.
The Exchange believes that proposed Rule 7E 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, including post-trade requirements, that
would establish the Exchange as a fully automated trading market with a
price-time priority trading model. The proposed rules are based on the
rules of NYSE Arca Equities, and include rules governing orders and
modifiers, ranking and display, execution and routing, trading
sessions, and auctions. The Exchange believes that the proposed
substantive difference that its proposed Early Trading Session would
begin at 7:00 a.m. Eastern Time, rather than 4:00 a.m. Eastern Time,
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would provide
transparency of the trading hours of the Exchange when it begins
trading on the Pillar trading platform.
The Exchange believes that proposed Rule 7.39E, which would govern
the Off-Hours Trading Facility on the Exchange, would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would use Framework Filing rule
numbering and Pillar terminology to describe the Off-Hours Trading
Facility that would continue to be available once the Exchange
transitions to Pillar. Proposed Rule 7.39E, which would offer ETP
Holders the ability to enter Aggregate-Price Coupled Orders, is based
on the Rule 900 Series.
The Exchange believes that proposed Rule 12E would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would move an existing rule to new
rule numbering that aligns with the Framework Filing rule numbering.
The proposed rule change would therefore promote consistency among the
Exchange and its affiliates and make its rules easier to navigate for
the public, the Commission, and members.
The Exchange believes that proposed Rule 13E would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would harmonize the Exchange's
rules governing liability for its equity market with Exchange rules
governing liability for its options markets, and the rules governing
liability on NYSE Arca Equities. The proposed rule change would
therefore promote consistency among the Exchange and its affiliates and
make its rules easier to navigate for the public, the Commission, and
members.
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
following legend, which would be added to existing rules, ``This 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 rule numbers that are currently ``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.
For reasons described above, the Exchange believes that the
proposal for the Exchange to operate on a fully automated trading
market without a Floor is consistent with Section 11(a) of the Act and
Rule 11a2-2(T) thereunder.
Finally, the Exchange believes that proposed Rule 2.17E furthers
the objectives of Section 6(b)(4) of the Act,\41\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers, and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers, or dealers. Specifically, proposed Rule
2.17E does not establish a new fee. Rather, the proposed rule is
[[Page 10827]]
based on existing provisions of current Rule 440H--Equities relating to
Activity Assessment Fees without any substantive differences. The
Exchange proposes to move the rule text to Rule 2.17E to use rule
numbering for Pillar that is consistent with the Framework Filing, with
non-substantive differences to use Pillar terminology, and not move
obsolete rule text.
---------------------------------------------------------------------------
\41\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
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 to support 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 the rules of NYSE Arca
Equities. The Exchange operates in a highly competitive environment in
which its unaffiliated exchange competitors operate multiple affiliated
exchanges that operate under common rules. By moving the Exchange to a
fully automated trading model that trades all NMS Stocks, the Exchange
believes that it will be able to compete on a more level playing field
with its exchange competitors that similarly trade all NMS Stocks on
fully automated trading models. In addition, by basing its rules on
those of NYSE Arca Equities, the Exchange will provide its members with
consistency across affiliated exchanges, thereby enabling the Exchange
to compete with unaffiliated exchange competitors that similarly
operate multiple exchanges on the same trading platforms.
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-2017-01 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-2017-01. 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 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-2017-01 and should
be submitted on or before March 8, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
---------------------------------------------------------------------------
\42\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02990 Filed 2-14-17; 8:45 am]
BILLING CODE 8011-01-P
