Self-Regulatory Organizations; NYSE MKT LLC; Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, To Adopt New Equity Trading Rules To Transition Trading on the Exchange From a Floor-Based Market With a Parity Allocation Model to a Fully Automated Market With a Price-Time Priority Model on the Exchange's New Trading Technology Platform, Pillar, 21843-21850 [2017-09419]
Download as PDF
<![CDATA[
Federal Register / Vol. 82, No. 89 / Wednesday, May 10, 2017 / Notices
jstallworth on DSK7TPTVN1PROD with NOTICES
downloaded.30 The Web site will
include (directly or through a link to
www.nextshares.com) additional Fund
information updated on a daily basis,
including the prior business day’s NAV,
and the following trading information
for that business day expressed as
premiums/discounts to NAV: (a)
Intraday high, low, average, and closing
prices of Shares in Exchange trading; (b)
the midpoint of the highest bid and
lowest offer prices as of the close of
Exchange trading, expressed as a
premium/discount to NAV (‘‘Closing
Bid/Ask Midpoint’’); and (c) the spread
between highest bid and lowest offer
prices as of the close of Exchange
trading (‘‘Closing Bid/Ask Spread.’’).31
The Web site will also contain charts
showing the frequency distribution and
range of values of trading prices, Closing
Bid/Ask Midpoints, and Closing Bid/
Ask Spreads over time.
The Exchange represents that all
statements and representations made in
the filing regarding: (a) The description
of the Fund’s portfolio, (b) limitations
on portfolio holdings or reference assets,
(c) dissemination and availability of the
reference asset or IIVs, or (d) the
applicability of Exchange listing rules
shall constitute continued listing
requirements for listing the Shares on
the Exchange. The issuer has
represented to the Exchange that it will
advise the Exchange of any failure by
the Fund to comply with the continued
listing requirements, and, pursuant to
its obligations under Section 19(g)(1) of
the Act, the Exchange will monitor for
compliance with the continued listing
requirements.32 If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Nasdaq Rules 5800, et seq.
This approval order is based on all of
the Exchange’s representations,
including those set forth above, in the
30 The Exchange represents that the Web site
containing this information will be
www.hartfordfunds.com.
31 The Exchange represents that the Web site
containing the Fund’s NAV will be
www.hartfordfunds.com and that all other
information listed will be made available on
www.nextshares.com, which can be accessed
directly and via a link on www.hartfordfunds.com.
32 The Commission notes that certain other
proposals for the listing and trading of Managed
Fund Shares include a representation that the
exchange will ‘‘surveil’’ for compliance with the
continued listing requirements. See, e.g., Securities
Exchange Act Release No. 78005 (Jun. 7, 2016), 81
FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In
the context of this representation, it is the
Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of a fund’s compliance
with the continued listing requirements. Therefore,
the Commission does not view ‘‘monitor’’ as a more
or less stringent obligation than ‘‘surveil’’ with
respect to the continued listing requirements.
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Notice, and Amendment Nos. 3 and 4,33
and the Exchange’s description of the
Fund. The Commission notes that the
Fund and the Shares must comply with
the requirements of Nasdaq Rule 5745
and the conditions set forth in this
proposed rule change to be listed and
traded on the Exchange on an initial and
continuing basis.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
Nos. 3 and 4, is consistent with Section
6(b)(5) 34 and Section 11A(a)(1)(C)(iii) of
the Act 35 and the rules and regulations
thereunder applicable to a national
securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,36 that the
proposed rule change (SR–NASDAQ–
2017–025), as modified by Amendment
Nos. 3 and 4, be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–09420 Filed 5–9–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80590; File No. SR–
NYSEMKT–2017–01]
Self-Regulatory Organizations; NYSE
MKT LLC; Order Granting Accelerated
Approval of Proposed Rule Change, as
Modified by Amendment No. 1, To
Adopt New Equity Trading Rules To
Transition Trading on the Exchange
From a Floor-Based Market With a
Parity Allocation Model to a Fully
Automated Market With a Price-Time
Priority Model on the Exchange’s New
Trading Technology Platform, Pillar
May 4, 2017.
I. Introduction
On January 25, 2017, NYSE MKT LLC
(‘‘Exchange’’ or ‘‘NYSE MKT’’) 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
33 See
supra notes 3 and 4.
U.S.C. 78f(b)(5).
35 15 U.S.C. 78k–1(a)(1)(C)(iii).
36 15 U.S.C. 78s(b)(2).
37 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
34 15
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21843
change to adopt new equity trading
rules to transition trading on the
Exchange from a floor-based market
with a parity-allocation model to a fully
automated market with price-timepriority allocation model on the
Exchange’s new trading technology
platform, Pillar. The proposed rule
change was published for comment in
the Federal Register on February 15,
2017.3 On March 29, 2017, the
Commission designated a longer period
for action on the proposed rule change.4
On April 24, 2017, the Exchange filed
Amendment No. 1 to the proposed rule
change.5 The Commission received no
comments on the proposal. The
Commission is approving the proposed
rule change, as modified by Amendment
No. 1, on an accelerated basis and
soliciting comments on Amendment No.
1.
II. Description of the Proposed Rule
Change, as Modified by Amendment
No. 1
The Exchange proposes to adopt new
equities trading rules to facilitate the
transition to Pillar, a new tradingtechnology platform, in order to operate
as a fully-automated cash equities
market. As part of this transition, the
Exchange would move from the current
floor-based market with a parityallocation model to a fully automated
market with a price-time-priority
allocation model. Consequently,
3 See Securities Exchange Act Release No. 79993
(Feb. 9, 2017), 82 FR 10814 (Feb. 15, 2017)
(‘‘Notice’’).
4 See Securities Exchange Act Release No. 80337
(Mar. 29, 2017), 82 FR 16459 (Apr. 4, 2017).
5 In Amendment No. 1, the Exchange proposes to:
(1) Amend proposed Exchange Rule 7.35E(a)(10)(A)
to specify the ‘‘Auction Collar’’ as the greater of
$0.50 or 10% away from the Auction Reference
Price and delete the specified percentages to
conform to rule filing SR–NYSEArca–2016–130; (2)
amend proposed Exchange Rule 7.35E(d)(2) to note
that the Closing Auction Imbalance Freeze will
begin ten minutes (rather than one minute) before
the schedule time for the Closing Auction; (3)
amend proposed Exchange Rule 7.35E(f)(2) to reject
certain orders until after the Auction Processing
Period for the IPO Auction has concluded; (4)
amend proposed Exchange Rule 7.35E(h)(3)(A) and
(B) to define ‘‘previously-live orders’’ for Core Open
Auction, Trading Halt Auction, Closing Auction,
and IPO Auction, and how unexecuted orders
would be processed, when the Exchange transitions
from continuous trading from a prior trading
session; (5) amend proposed Exchange rule
7.31E(h)(3)(A) to specify that Discretionary Pegged
Orders do not participate in any auctions; (6)
amend proposed Exchange Rule 7.34E(c)(1)(A) to
add that Discretionary Pegged Orders may not be
entered before or during the Early Trading Session;
(7) amend proposed Exchange Rule 7.46E to reflect
recent changes to publication dates with respect to
the Tick Size Pilot Plan; and (8) state that the Pillar
transition is anticipated to occur in the third quarter
of 2017. The Exchange represents that most of the
amendments relate to a recent proposed rule change
(SR–NYSEArca–2017–47) by NYSE Arca, Inc.
(‘‘NYSE Arca’’).
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Exchange floor-based designated market
makers (‘‘DMMs’’) would be replaced by
Electronic DMMs, and the Exchange
would no longer support Supplemental
Liquidity Providers or floor brokers as a
separate class of participant on the
Exchange.6
The Exchange represents that the
proposal is based on the trading rules of
the NYSE Arca Equities exchange
(‘‘NYSE Arca Equities’’) and current
Exchange equities rules. NYSE Arca
Equities already uses Pillar, the same
trading technology platform that the
Exchange proposes to adopt.7 The
Exchange proposes to adopt Exchange
Rules 1E, 2E, 3E, 6E, 7E, 12E, and 13E
to cover cash equities trading on the
Pillar platform.8 Exchange Rule 1E
would cover definitions. Exchange Rule
2E would cover equity trading permits.
Exchange Rule 3E would cover
organization and administration of the
Exchange. Exchange Rule 6E would
cover business conduct. Exchange Rule
7E would cover equities trading.
Exchange Rule 12E would cover
arbitration. Exchange Rule 13E would
cover liability of directors and the
Exchange.
The Exchange would announce the
transition of its cash equities trading to
Pillar, if approved by the Commission,
by a Trader Update. The Exchange
anticipates that the transition would
occur in the third quarter of 2017. If the
Exchange transitions to Pillar trading
6 The Exchange would also expand unlisted
trading privileges to all NMS Securities, including
securities listed on the New York Stock Exchange
LLC, NYSE Arca, the Nasdaq Stock Market LLC
(‘‘Nasdaq’’), and Bats BZX Exchange, Inc. See
Securities Exchange Act Release Nos. 79400 (Nov.
25, 2016), 81 FR 86750 (Dec. 1, 2016); 79738 (Jan.
4, 2017), 82 FR 3068 (Jan. 10, 2017); and 80097
(Feb. 24, 2017), 82 FR 12251 (Mar. 1, 2017).
7 NYSE Arca filed four proposals to implement
Pillar in stages: (1) Adopting rules for trading
sessions, order ranking and display, and order
execution; (2) adopting rules for orders and
modifiers and the retail liquidity program; (3)
adopting rules for trading halts, short sales, limit
up-limit down, and odd lots and mixed lots; and
(4) adopting rules for auctions. See Securities
Exchange Act Release Nos. 74951 (May 13, 2015),
80 FR 28721 (May 19, 2015) and 75494 (July 20,
2015), 80 FR 44170 (July 24, 2015) (SR–NYSEArca–
2015–38) (first Pillar filing and approval); 75497
(July 21, 2015), 80 FR 45022 (July 28, 2015) and
76267 (Oct. 26, 2015), 80 FR 66951 (Oct. 30, 2015)
(SR–NYSEArca–2015–56) (second Pillar filing and
approval); 75467 (July 16, 2015), 80 FR 43515 (July
22, 2015) and 76198 (Oct. 20, 2015), 80 FR 65274
(Oct. 26, 2015) (third Pillar filing and approval);
and 76085 (Oct. 6, 2015), 80 FR 61513 (Oct. 13,
2015) and 76869 (Jan. 11, 2016), 81 FR 2276 (Jan.
15, 2016) (fourth Pillar filing and approval).
8 The Exchange previously adopted these rules,
generally with rule text reserved for future use, in
anticipation of the current proposal. See Securities
Exchange Act Release No. 79242 (Nov. 4, 2016), 81
FR 79081 (Nov. 10, 2016) (SR–NYSEMKT–2016–
97). The rule numbers for the rules being adopted
by NYSE MKT correspond with the rule numbers
of NYSE Arca Equities rules.
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platform, the Exchange would no longer
trade on its current floor-based platform,
and current Exchange equities rules
governing the floor-based platform
would no longer be applicable. The
Exchange proposes to mark the affected
Exchange rules with a preamble to state
that these rules would no longer be in
effect and represents that it will
subsequently file a separate proposed
rule change to delete rules no longer
applicable.
A detailed description of the proposal
appears in the Notice. The proposal is
summarized and discussed below.
A. Exchange Rule 1E—Definitions
The Exchange proposes 12 new
definitions to be used with the Pillar
trading platform. The Exchange
represents that most of the proposed
definitions are based on the rules of
NYSE Arca Equities. First, the Exchange
proposes to define the term ‘‘Exchange
Book’’ as the Exchange’s electronic file
of orders.9 Second, the Exchange
proposes to define ‘‘Authorized Trader’’
as a person who may submit orders to
the Exchange’s cash equity Trading
Facilities on behalf of his or her ETP
Holder.10 Third, the Exchange proposes
to define ‘‘Core Trading Hours’’ as 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.11 Fourth,
the Exchange proposes to define the
term ‘‘Exchange’’ as NYSE MKT LLC.12
Fifth, the Exchange proposes to define
the term ‘‘ETP’’ as an Equity Trading
Permit issued by the Exchange to a
registered broker or dealer approved by
the Exchange as a member
organization.13
The Exchange proposes to define the
term ‘‘ETP Holder’’ as a member
organization that has been issued an
ETP.14 The Exchange proposes to define
the term ‘‘General Authorized Trader’’
as an Authorized Trader who performs
only non-market making activities on
behalf an ETP Holder.15 The Exchange
proposes to define the term
‘‘Marketable’’ to mean, for a limit order,
that the order that can be immediately
executed or routed.16
9 See Proposed Exchange Rule 1.1E (a) and NYSE
Arca Equities Rule 1.1(a). The proposed rule does
not contain the phrase ‘‘which contains all orders
entered on the NYSE Arca Marketplace’’ from the
NYSE Arca rule.
10 See Proposed Exchange Rule 1.1E (g).
11 See Proposed Exchange Rule 1.1E (j).
12 See Proposed Exchange Rule 1.1E (k).
13 See Proposed Exchange Rule 1.1E (m).
14 See Proposed Exchange Rule 1.1E (n).
15 See Proposed Exchange Rule 1.1E (p).
16 See Proposed Exchange Rule 1.1E (u). The
Exchange proposes that it will always consider a
market order as Marketable.
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The Exchange proposes to define the
term ‘‘Official Closing Price’’ as the
reference price to determine the closing
price in a security.17 The Exchange
proposes to define the term ‘‘Security’’
to mean any security defined in Rule
3(a)(10) under the Act and, for purposes
of proposed Rule 7E, to mean any NMS
stock.18 The Exchange proposes to
define the term ‘‘Self-Regulatory
Organization (‘SRO’)’’ as defined in the
provisions of the Act relating to national
securities exchanges.19 Finally, the
Exchange proposes to define the term
‘‘Trading Facilities’’ as any and all
electronic or automatic trading systems
provided by the Exchange to ETP
Holders.20
B. Exchange Rule 2E—Equity Trading
Permits
The Exchange proposes to adopt rules
related to equity trading permits on the
Exchange, including procedures,
qualifications, fees, and employees of
ETP Holders. Exchange member
organizations who want to trade on
Pillar would need to obtain an ETP.21
The Exchange proposes that it may,
under certain conditions, deny an ETP
or condition trading privileges under an
ETP.22 The Exchange represents that
these conditions are identical to NYSE
Arca Equities Rule 2.4(a) and (b).
Additionally, the Exchange proposes
that traders of ETP Holders for which
the Exchange is the Designated
Examining Authority must successfully
complete the Series 7 examination.23
The Exchange represents that these
requirements are identical to those in
the NYSE Arca Equities rules.
Proposed Exchange Rule 2.6E would
specify that the issuance of an ETP
constitutes a revocable privilege and
confers on its holder no right or interest
of any nature to continue as an ETP
Holder.24 The Exchange represents that
this rule is identical to NYSE Arca
17 See Proposed Exchange Rule 1.1E (gg). The
proposed rule provides detailed procedures for the
determination of the official closing price.
According to the Exchange, proposed Rule 1.1E
(gg), together with proposed Exchange Rule 7.35E,
would obviate the need for current Exchange Rule
123C—Equities (The Closing Procedures), which is
how the Exchange currently determines the Official
Closing Price for an Exchange listed security.
18 See Proposed Exchange Rule 1.1E (rr).
19 See Proposed Exchange Rule 1.1E (ss).
20 See Proposed Exchange Rule 1.1E (xx). The
Exchange also proposes to amend a cross reference
in Exchange Rule 1.1 (hhh).
21 See Proposed Exchange Rule 2.2E. The
Exchange is not adopting the rule text in NYSE
Arca Equities Rule 2.2 relating to registered broker
dealers, because the Exchange believes it is not
necessary.
22 See Proposed Exchange Rule 2.4E.
23 See Proposed Exchange Rule 2.4E.
24 See Proposed Exchange Rule 2.6E.
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Equities Rule 2.6. Proposed Exchange
Rule 2.17E would set forth ‘‘Activity
Assessment Fees’’ for securities
transactions effected on the Exchange,
as required by Section 31 of the Act, and
would specify that the Exchange may
retain payment to help fund its
regulatory expenses.25 The Exchange
represents that proposed Exchange Rule
2.17E is based on current Exchange Rule
440H—Equities.
Proposed Exchange Rule 2.21E would
specify registration requirements for
employees of ETP Holders, including
examination requirements, continuing
education requirements, and procedures
for registering employees. The proposed
rule would prohibit an ETP Holder from
employing an Exchange employee
during regular Exchange business
hours.26 The Exchange represents that
the proposed rule is based on NYSE
Arca Equities Rule 2.21.27
Proposed Exchange Rule 2.22E would
set forth the Exchange back-up systems
and mandatory testing requirements of
the Exchange. The Exchange represents
that the proposed rule is based on
current Exchange Rule 49(b)—
Equities.28 Proposed Exchange Rule
2.24E would set forth the retention
requirements for ETP books and
records.29 The Exchange represents that
the proposed rule is based on NYSE
Arca Equities Rule 2.24.30
C. Exchange Rule 3E—Organization and
Administration of the Exchange
The next section of proposed
Exchange rules would govern the
internal administration of the Exchange.
Proposed Exchange Rule 3.6E would
allow the Exchange to enter into
agreements with domestic and foreign
self-regulatory organizations to provide
25 See
Proposed Exchange Rule 2.17E.
Proposed Exchange Rule 2.21E.
27 The Exchange represents that proposed
Exchange Rule 2.21E, together with proposed
Exchange Rule 2.4E, would render the following
current Exchange rules obsolete: Rule 345—Equities
(Employees—Registration, Approval, Records); Rule
345A—Equities (Continuing Education for
Registered Persons); and Rule 342—Equities
(Compliance Supervisors) related to DMM Series
14A requirement. However, an Exchange member
organization engaged in a public business in
addition to a DMM business must have a qualified
compliance supervisor that has passed the Series
14A examination, but would no longer need the
Series 14A examination.
28 See Proposed Exchange Rule 2.22E. The
Exchange would designate current Exchange Rule
49—Equities (Exchange Business Continuity and
Disaster Recovery Plans and Mandatory Testing) as
not applicable to Pillar trading.
29 See Proposed Exchange Rule 2.24E.
30 The Exchange represents that proposed
Exchange Rule 2.24E would set forth the same
requirements as current Exchange Rule 440—
Equities (Books and Records), therefore current
Exchange Rule 440—Equities would not be
applicable on Pillar.
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26 See
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for the exchange of information and
other forms of mutual assistance for
market surveillance, investigative,
enforcement, and other regulatory
purposes.31 The Exchange represents
that the proposed rule is based on NYSE
Arca Equities Rule 3.6.32 Proposed
Exchange Rule 3.11E would set forth
fingerprint-based background checks of
Exchange employees and other
personnel related to the Exchange.33
The Exchange represents that the
proposed rule is based on NYSE Arca
Equities Rule 3.11 and current Exchange
Rule 28—Equities.
D. Exchange Rule 6E—Business
Conduct
The next section of proposed
Exchange rules would govern the
business conduct of ETP Holders and
their associated persons. Proposed
Exchange Rule 6.3E 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 the ETP Holder or
persons associated with the ETP
Holder.34 The Exchange represents that
the proposed rule is based on NYSE
Arca Equities Rule 6.3.
Proposed Exchange Rule 6.10E 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.35 The Exchange represents
that the proposed rule is based on NYSE
Arca Equities Rule 6.10.
Proposed Exchange Rule 6.12E would
govern requirements for joint accounts
between an ETP Holder and another
person, including reporting obligations
to the Exchange.36 The Exchange
represents that the proposed rule is
based on NYSE Arca Equities Rule 6.12.
Proposed Exchange Rule 6.15E would
prohibit ETP Holders from participating
in a prearranged trade.37 The Exchange
31 See
Proposed Exchange Rule 3.6E.
Exchange proposes that current Rule 27—
Equities would not be applicable on Pillar because
proposed Exchange Rule 3.6E would cover the same
matter. See id.
33 See Proposed Exchange Rule 3.11E.
34 See Proposed Exchange Rule 6.3E.
35 See Proposed Exchange Rule 6.10E. The
Exchange proposes that current Exchange Rule 96—
Equities would not be applicable for trading on
Pillar.
36 See Proposed Exchange Rule 6.12E. The
Exchange proposes that current Exchange Rule 93—
Equities (Trading for Joint Account) and Rule 94—
Equities (Designated Market Maker’s or Odd-Lot
Dealers Interest in Joint Accounts) would not be
applicable for trading on Pillar.
37 See Proposed Exchange Rule 6.15E. The
Exchange proposes that current Exchange Rule 78—
Equities would not be applicable on Pillar. See
Notice, 82 FR at 10819.
32 The
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21845
represents that the proposed rule is
based on NYSE Arca Equities Rule
6.15(b).
E. Exchange Rule 7E—Equities Trading
The proposed rules under Exchange
Rule 7E would set forth how trading
would be conducted on the Exchange.
Section 1 of proposed Exchange Rule 7E
would set forth general provisions
relating to cash equities trading on the
Pillar trading platform, such as hours of
business, clearly erroneous executions,
limit up-limit down plan, and clearance
and settlement. Section 3 of proposed
Exchange Rule 7E would set forth the
trading rules for Pillar. Other proposed
Exchange rules would provide that the
Exchange would not offer a retail
liquidity program, set forth rules related
to the Exchange routing broker, and
adopt rules to comply with the Tick
Size Pilot Plan. The Exchange
represents that the trading system and
rules are based on the rules of NYSE
Arca Equities.
1. General Provisions
The general provisions of the
proposed trading rules would set out the
necessary rules for trading on the
Exchange, including rules governing
when the Exchange would be open for
business, how clearly erroneous
executions would be handled by the
Exchange, how the Exchange would
clear and settle securities transactions
conducted on the Exchange,
requirements for short sales, and the
limit up-limit down plan.
Proposed Exchange Rule 7.1E would
set forth the hours of operation for the
Exchange.38 The proposed rule also sets
forth when the Exchange Chief
Executive Officer may take specified
actions, such as halting or suspending
trading in some or all securities on the
Exchange. The Exchange represents that
the proposed rule is based on NYSE
Arca Equities Rule 7.1 and current
Exchange Rule 51—Equities.39
Proposed Exchange Rule 7.2E would
set forth the holiday schedules for the
Exchange.40 The Exchange represents
that the proposed rule is based on NYSE
Arca Equities Rule 7.2 and current
Exchange Rule 51.10—Equities.
Proposed Exchange Rule 7.3E would
specify that ETP Holders may not charge
fixed commissions and that they must
indicate whether they are acting as a
broker or as a principal.41 The Exchange
38 See
Proposed Exchange Rule 7.1E.
Exchange proposes that current Exchange
Rule 12—Equities and Rule 51—Equities would not
be applicable for trading on Pillar. See id.
40 See Proposed Exchange Rule 7.2E.
41 See Proposed Exchange Rule 7.3E.
39 The
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represents that the proposed rule is
based on NYSE Arca Equities Rule 7.3.42
Proposed Exchange Rule 7.4E would
set the ex-dividend or ex-right dates for
stocks traded ‘‘regular’’ way.43 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 7.4.44
Proposed Exchange Rule 7.7E would
establish that all bids and offers on the
Exchange would be anonymous unless
otherwise specified by the ETP
Holder.45 The Exchange represents that
the proposed rule is based on NYSE
Arca Equities Rule 7.7.
Proposed Exchange Rule 7.8E would
specify that all bids and offers will be
considered ‘‘regular way,’’ and the
Exchange would not accept orders that
are not entered for regular way
settlement.46 The Exchange represents
that the proposed rule is based on NYSE
Arca Equities Rule 7.8E.47
Proposed Exchange Rule 7.9E would
state that the execution price of an order
is binding, notwithstanding the
Exchange’s clearly erroneous executions
and limit up-limit down rules.48 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 7.9.49
Proposed Exchange Rule 7.10E would
set forth the Exchange’s rules governing
clearly erroneous executions.50 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
7.10.51
Proposed Exchange Rule 7.11E would
specify how the Exchange would
comply with the Regulation NMS Plan
to Address Extraordinary Market
Volatility (‘‘LULD Plan’’) 52 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 7.11(a), (b)(2), and (b)(5).53
42 The Exchange proposes that current Exchange
Rule 388—Equities (Prohibition Against Fixed Rates
of Commission) would not be applicable for trading
on Pillar.
43 See Proposed Exchange Rule 7.4E.
44 The Exchange proposes that current Exchange
Rule 235—Equities would not be applicable for
trading on Pillar.
45 See Proposed Exchange Rule 7.7E.
46 See Proposed Exchange Rule 7.8E.
47 The Exchange proposes that current Exchange
Rules 12—Equities, 14—Equities, and 73—Equities
would not be applicable for trading on Pillar.
48 See Proposed Exchange Rule 7.9E.
49 The Exchange proposes that current Exchange
Rules 71—Equities (Precedence of Highest Bid and
Lowest Offer) and 411—Equities (Erroneous
Reports) would not be applicable for trading on
Pillar.
50 See Proposed Exchange Rule 7.10E.
51 The Exchange proposes that current Exchange
Rule 128—Equities (Clearly Erroneous Executions)
would not be applicable for trading on Pillar.
52 See Proposed Exchange Rule 7.11E.
53 The Exchange proposes that current Exchange
Rule 80C—Equities would not be applicable for
trading on Pillar.
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The Exchange proposes to amend
paragraph (c)(i) of Exchange Rule 7.12E
to change the rule cross reference from
Rule 123D—Equities to Rule 7.35(e).54
Proposed Exchange Rule 7.13E would
govern trading suspensions.55 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 7.13.
Proposed Exchange Rule 7.14E would
govern clearance and settlement
procedures.56 The Exchange represents
that the proposed rule is based on NYSE
Arca Equities Rule 7.14.57
Proposed Exchange Rule 7.15E would
state that Market Makers may not have
an interest in an option that is not
issued by the Options Clearing
Corporation and prohibit pool dealing
in registered securities.58 The Exchange
represents that the proposed rule is
based on NYSE Arca Equities Rule
7.15.59
Proposed Exchange Rule 7.16E would
set forth the short sales rule.60 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 7.16.61
Proposed Exchange Rule 7.17E would
establish requirements that all orders
and quotes comply with Rule 602 of
Regulation NMS (firm quote rule).62 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 7.17.63
2. Trading Rules for Pillar
The trading rules for Pillar would set
forth definition of orders, how auctions
would operate, how orders are
displayed and ranked, and how orders
are executed. The Exchange represents
that the proposed trading rules are
based on NYSE Arca Equities rules,
with the exception of rules governing
orders and modifiers and rules
governing trading sessions.
Proposed Exchange Rule 7.29E would
specify that, to obtain authorized access
54 See Proposed Exchange Rule 7.12E. The
Exchange proposes Rule 7.35E to govern auctions.
Accordingly, the Exchange proposes that the
procedures set out in current Exchange Rule 123D—
Equities would not be applicable on the Pillar
trading platform.
55 See Proposed Exchange Rule 7.13E.
56 See Proposed Exchange Rule 7.14E.
57 The Exchange proposes that current Exchange
Rules 130—Equities and 132—Equities would not
be applicable for trading on Pillar.
58 See Proposed Exchange Rule 7.15E.
59 The Exchange proposes that current Exchange
Rule 105—Equities would not be applicable for
trading on Pillar.
60 See Proposed Exchange Rule 7.16E.
61 The Exchange proposes that current Exchange
Rule 440B—Equities (Short Sales) would not be
applicable for trading on Pillar.
62 See Proposed Exchange Rule 7.17E.
63 The Exchange proposes that current Exchange
Rule 60—Equities (Dissemination of Quotations)
would not be applicable for trading on Pillar.
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to the Exchange, each ETP Holder
would be required to enter into a User
Agreement.64 The Exchange represents
that the proposed rule is based on NYSE
Arca Equities Rule 7.29(a).
Proposed Exchange Rule 7.30E would
establish requirements for ETP Holders
relating to authorized traders who can
obtain access to the Exchange on behalf
of an ETP Holder.65 The Exchange
represents that the proposed rule is
based on NYSE Arca Equities Rule 7.30.
Proposed Exchange Rule 7.31E would
set forth the primary order types, time
in force modifiers for the order types,
orders with conditional or undisplayed
price and/or size, non-routable and
routable order instructions, operations
of pegged orders, and other order types
that would be available on the Pillar
trading platform.66 The Exchange
represents that the proposed rule is
based on NYSE Arca Equities Rule 7.31
with the following differences: (1) The
self-trade prevention (‘‘STP’’) modifiers
would not include references relating to
ETPIDs; 67 (2) Arca Only Orders would
be renamed ‘‘MKT Only Orders’’ on the
Exchange; 68 (3) ETP Holders would be
permitted to specify that Primary Only
Day/IOC Orders 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); 69 and (4) NYSE Arca
Equities Rule 7.31.02 would not be
adopted.70
Proposed Exchange rule 7.32E would
set forth the maximum order entry size
at 5 million shares.71 The Exchange
represents that the proposed rule is
based on NYSE Arca Equities Rule
7.32.72
Proposed Exchange Rule 7.33E would
require ETP Holders to include, with
each order entered into the Exchange,
their capacity code information,
whether as principal, agent, or riskless
principal.73 The Exchange represents
64 See
Proposed Exchange Rule 7.29E.
Proposed Exchange Rule 7.30E.
66 See Proposed Exchange Rule 7.31E.
67 See Proposed Exchange Rule 7.31E(i)(2).
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.
Consequently, proposed Exchange Rule 7.32E(i)(2)
would not include references from NYSE Arca
Equities Rule 7.31(i)(2) relating to ETPIDs (ETP
identifications).
68 See Proposed Exchange Rule 7.31E(e)(1).
69 See Proposed Exchange Rule 7.31E(f)(1)(B).
70 The Exchange proposes that current Exchange
Rules 13—Equities (Orders and Modifiers) and
1000(c)—Equities would not be applicable to
trading on Pillar.
71 See Proposed Exchange Rule 7.32E.
72 The Exchange proposes that the current
maximum order size references before subparagraph
(a) in Exchange Rule 1000—Equities would not be
applicable to trading on Pillar.
73 See Proposed Exchange Rule 7.33E.
65 See
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that the proposed rule is based on NYSE
Arca Equities Rule 7.33.
Proposed Exchange Rule 7.34E would
specify that the Exchange would operate
three trading sessions each day: Early,
Core, and Late.74 The Exchange
represents that the proposed rule is
based on NYSE Arca Equities Rule 7.34,
except that the early trading session
would start at 7:00 a.m. Eastern Time
rather than 4:00 a.m. Eastern Time for
NYSE Arca Equities.75
Proposed Exchange Rule 7.35E would
set forth the auction rules.76 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 7.35, with some substantive
differences.77 First, the Exchange states
that, because it lists the securities of
operating companies, instead of the
exchange traded products listed on
NYSE Arca, the auction-collar
thresholds should be wider than those
on NYSE Arca, and the Exchange
proposes auction collars based on the
collars for the Nasdaq opening and
closing crosses. Second, the Exchange,
based on the rules of Nasdaq, proposes
to provide that the Closing Auction
Imbalance Freeze would begin ten
minutes (instead of one minute) before
the scheduled time for the closing
auction.
Proposed Exchange Rule 7.36E would
set forth how orders are ranked and
displayed, and the priority of orders.78
The Exchange represents that the
proposed rule is based on NYSE Arca
Equities Rule 7.36.
Proposed Exchange Rule 7.37E would
set forth how orders would execute and
route, the data feeds the Exchange
would use, the prohibition on
quotations that lock or cross the best
protected bid or offer, and exceptions to
the Commission’s Order Protection
Rule.79 The Exchange represents that
the proposed rule is based on NYSE
Arca Equities 7.37, except that the
Exchange would not be using data feeds
from broker-dealers or routing to away
markets that do not display protected
quotations.80
74 See Proposed Exchange Rule 7.34E. The
Exchange proposes that NYSE Arca Equities Rule
7.34(b)(2) and (b)(3) would not be adopted.
75 See, e.g., Proposed Exchange Rule 7.34E.
76 See Proposed Exchange Rule 7.35E.
77 The Exchange proposes that current Exchange
Rules 15—Equities, 115A—Equities, 116.40—
Equities, 123C—Equities, and 123D—Equities
would not be applicable on Pillar.
78 See Proposed Exchange Rule 7.36E.
79 See Proposed Exchange Rule 7.37E.
80 The Exchange proposes that the following rules
would not be applicable to trading on the Pillar
trading platform: Exchange Rules 15A—Equities
(Order Protection Rule), 19—Equities (Locking or
Crossing Protected Quotations in NMS Stocks), 60—
Equities (Dissemination of Quotations), 61—
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Proposed Exchange Rule 7.38E sets
forth how odd-lot and mixed-lot orders
are treated on the Exchange.81 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 7.38.
Proposed Exchange Rule 7.39E sets
forth how trading would occur on the
Exchange through its off-hours trading
facility.82 The Exchange proposes to
permit only aggregate-price coupled
orders—an order to buy or sell a group
of securities (no fewer than 15) having
a total market value of $1 million or
more—through the off-hours trading
facility. The Exchange represents that
NYSE Arca Equities Rule 7.39 would
not be adopted, but rather, current
Exchange Rule 900 series would form
the basis for the proposed rules.83
Proposed Exchange Rule 7.40E would
set forth the Exchange’s obligation to
report trades to an appropriate
consolidated transaction reporting
system.84 The Exchange represents that
the proposed rule is based on NYSE
Arca Equities Rule 7.40.85
Proposed Exchange Rule 7.41E would
specify that each executed transaction
on the Exchange will be automatically
processed for clearance and settlement
on a locked-in and anonymous basis.86
With the exception of proposed
Exchange Rule 7.41E(c), the Exchange
represents that the proposed rule is
based on NYSE Arca Equities 7.41. The
Exchange represents that proposed
Exchange Rule 7.41E(c) is based on
NYSE Rule 130(b), which specifies the
circumstances under which the
Exchange may reveal the contra-party
identity.87
Equities (Recognized Quotations), 72—Equities
(Priority of Bids and Offers and Allocation of
Executions), 79A.15—Equities, 100(a) and (b)—
Equities (Automatic Executions), 1001—Equities
(Execution of Automatically Executing Orders),
1002—Equities (Availability of Automatic
Execution Feature), and 1004—Equities (Election of
Buy Minus and Sell Plus).
81 See Proposed Exchange Rule 7.38E.
82 See Proposed Exchange Rule 7.39E.
83 NYSE Arca Equities Rule 7.39 addresses the
adjustment of open orders. Because the Exchange
does not propose to have any open orders when
trading on the Pillar trading platform, the Exchange
would not adopt rule text based on NYSE Arca
Equities Rule 7.39.
84 See Proposed Exchange rule 7.40E.
85 The Exchange proposes that current Exchange
Rule 128A—Equities would not be applicable on
Pillar.
86 See Proposed Exchange rule 7.41E.
87 The Exchange represents that proposed
Exchange Rule 7.41E.10 is based on current
Exchange Rule 132.10—Equities. The Exchange
proposes that current Exchange Rules 130—Equities
(Overnight Comparison of Exchange Transaction),
132—Equities (Comparison and Settlement of
Transactions Through a Fully-Interfaced or
Qualified Clearing Agency), 133—Equities
(Comparison—Non-cleared Transactions), 134—
Equities (Differences and Omissions—Non-cleared
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21847
3. Retail Liquidity Program Would Not
Be Available
The Exchange currently operates a
retail liquidity program on a pilot
basis.88 The Exchange proposes that it
would not establish a retail liquidity
program on Pillar.
4. Rules Related to Exchange Routing
Broker
Proposed Exchange Rule 7.45E would
establish the rules for the Exchange’s
routing broker.89 The Exchange
represents that the proposed rule is
based on NYSE Arca Equities Rule
7.45.90
5. Rules Related to Tick Size Pilot Plan
Proposed Exchange Rule 7.46E sets
forth the rules for the Tick Size Pilot
Plan.91 The Exchange represents that the
proposed rule is based on NYSE Arca
Equities Rule 7.46, with the exception of
references to the retail liquidity
program.92
F. Exchange Rule 12E—Arbitration
Proposed Exchange Rule 12E would
provide that disputes between or among
ETP Holders and their associated
persons would be resolved via
arbitration.93 The Exchange represents
that the proposed rule is based on
current Exchange Rule 600—Equities.
G. Exchange Rule 13E—Liability of
Directors and the Exchange
Proposed Exchange Rule 13.2E would
set forth requirements governing
liability of the Exchange, including the
limits on liability under specified
circumstances.94 The Exchange
represents that the proposed rule is
based on current Exchange Rule 905NY
and NYSE Arca Equities Rule 13.2.
Proposed Exchange Rule 13.3E would
set forth when ETP Holders and their
associated persons may sue Exchange
Transactions (‘‘DKs’’)), and 136—Equities
(Comparison—Transactions Excluded from a
Clearance) would not apply to trading on Pillar. See
Notice, 82 FR at 10821.
88 See Securities Exchange Act Release Nos.
67347 (Jul. 3, 2012), 77 FR 40673 (Jul. 10 2012)
(approving the retail liquidity program on a pilot
basis); 79587 (Dec. 16, 2016), 81 FR 93975 (Dec. 22,
2016) (extending the pilot until June 30, 2017) (SR–
NYSE–2011–55; SR–NYSEAmex–2011–84).
89 See Proposed Exchange Rule 7.45E.
90 The Exchange proposes that current Exchange
Rule 17—Equities (Use of Exchange Facilities and
Vendor Services) would not be applicable on Pillar.
91 See Proposed Exchange Rule 7.46E.
92 The Exchange proposes that current Exchange
Rule 67—Equities (Tick Size Pilot Plan) would not
be applicable on Pillar.
93 See Proposed Exchange Rule 12E.
94 See Proposed Exchange Rule 13.2E. The
Exchange proposes that current Exchange Rule 18—
Equities would not be applicable on Pillar. See
Notice, 82 FR at 10822.
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subsidiaries and personnel.95 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 13.3. Proposed Exchange Rule
13.4E would determine the responsible
party for legal costs when the Exchange
is defending a legal proceeding.96 The
Exchange represents that the proposed
rule is based on NYSE Arca Equities
Rule 13.4.
H. Current Exchange Rules Not
Applicable on Pillar
As noted earlier, the Exchange would
no longer operate a trading floor once
the Exchange transitions to Pillar. As a
result, the Exchange proposes that
certain current rules that relate to floorbased trading would not be applicable
on Pillar.97
III. Discussion and Findings
After careful review of the proposal,
the Commission finds, for the reasons
discussed below, that the proposal is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to the
Exchange.98 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,99 which requires,
among other things, that the rules of a
national securities exchange be
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 systems and, in
general, to protect investors and the
public interest and that the rules are not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
A. Pillar Trading System
The proposal would replace the
Exchange’s current floor based trading,
which has a parity-allocation model,
with a fully automated, electronic
trading system with a price-timepriority model. The Commission notes
95 See
Proposed Exchange Rule 13.3E.
Proposed Exchange Rule 13.4E. The
Exchange proposes that current Exchange Rule 25—
Equities (Exchange Liability for Legal Costs) would
not be applicable on Pillar. See Notice, 82 FR at
10822.
97 See Notice, 82 FR at 10823–10824, for a list of
current Exchange rules related to floor-based
trading that would not be applicable on Pillar.
98 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
99 15 U.S.C. 78f(b)(5).
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96 See
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that the proposed rules closely parallel,
and are substantially similar to, current
NYSE Arca Equities rules and current
Exchange rules, which were filed and
approved by the Commission (or which
became immediately effective) pursuant
to Section 19(b) of the Act. NYSE Arca
Equities currently operates using the
Pillar trading platform, and most other
national securities exchanges operate
fully electronic markets that use a pricetime-priority model. Accordingly, the
Commission believes that the proposal
raises no novel regulatory issues, that it
is reasonably designed to protect
investors and the public interest, and
that it is consistent with the
requirements of the Act.
B. Section 11(a) of the Act
Section 11(a)(1) of the Act 100
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 applies. Rule 11a2–
2(T) under the Act,101 known as the
‘‘effect versus execute’’ rule, provides
exchange members with an exemption
from the Section 11(a)(1) 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 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 the
order has been transmitted to the
member performing the execution; 102
(iii) may not be affiliated with the
executing member; and (iv) with respect
to an account over which the member or
an associated person has investment
discretion, neither the member nor an
associated person may retain any
compensation in connection with
effecting the transaction except as
provided in the Rule. For the reasons set
forth below, the Commission believes
that ETP Holders entering orders into
the Exchange’s Pillar trading system
would satisfy the requirements of Rule
11a2–2(T).103
100 15
U.S.C. 78k(a)(1).
CFR 240.11a2–2(T).
102 This prohibition also applies to associated
persons of the initiating member. The member may,
however, participate in clearing and settling the
transaction.
103 The Exchange has clarified that its analysis
relating to Section 11(a) of the Act in the Notice
applies to the Exchange’s proposed Pillar trading
101 17
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Rule 11a2–2(T)’s first requirement is
that orders for covered accounts be
transmitted from off the exchange floor.
The Exchange represents that it will not
have a physical trading floor once it
transitions to the Pillar trading platform,
and the Exchange’s Pillar trading system
will receive orders from members
electronically through remote terminals
or computer-to-computer interfaces.104
In the context of other automated
trading systems, the Commission has
found that the off-floor transmission
requirement is met if a covered account
order is transmitted from a remote
location directly to an exchange’s floor
by electronic means.105 Because the
Pillar trading system receives orders
electronically through remote terminals
or computer-to-computer interfaces, the
Commission believes that the Pillar
platform and does not apply to trading in the
Exchange’s off-hours trading facility, which is to be
governed by proposed Rule 7.39E (‘‘Off-Hours
Trading Facility’’). See Email from Clare Saperstein,
Associate General Counsel, NYSE Group, Inc. to
Yue Ding, Jennifer Dodd, and Steve Kuan, Division
of Trading and Markets, Commission (May 2, 2017).
The Exchange has also clarified that its Off-Hours
Trading Facility would continue to operate on its
existing technology and would not operate on the
proposed Pillar trading platform. See id.
Additionally, the Exchange represents that it is not
proposing any new or different functionality for its
Off-Hours Trading Facility and that member
organizations using the Off-Hours Trading Facility
pursuant to proposed Rule 7.39E would continue to
be required to comply with Section 11(a)(1) of the
Act, and any applicable exceptions thereto as are
currently applicable to the Exchange’s off-hours
trading facility under the Exchange’s Rule 900
Series, which is based on the rules of the New York
Stock Exchange LLC (‘‘NYSE’’). See id.; see also
Securities Exchange Act Release Nos. 33992 (May
2, 1994), 59 FR 23907 (May 9, 1994) (SR–NYSE–93–
50) (approving the NYSE’s off-hours trading facility
on a permanent basis); 29237 (May 24, 1991), 56 FR
24853 (May 31, 1991) (SR–NYSE–90–52 and SR–
NYSE–90–53) (approving the NYSE’s off-hours
trading facility on a temporary basis); and 58705
(Oct. 1, 2008), 73 FR 58995 (Oct. 8, 2008) (SR–
Amex–2008–63) (approving the adoption of new
equity trading rules by the Exchange that are
substantially identical to the equity trading rules of
NYSE).
104 See Notice, supra note 3, 82 FR at 10825.
105 In the context of other all-electronic systems,
the Commission has similarly found that the offfloor transmission requirement is met if the system
receives orders electronically through remote
terminals or computer-to-computer interfaces. See,
e.g., Securities Exchange Act Release Nos. 61419
(Jan. 26, 2010), 75 FR 5157 (Feb. 1, 2010) (SR–
BATS–2009–031) (approving BATS options
trading); 59154 (Dec. 23, 2008), 73 FR 80468 (Dec.
31, 2008) (SR–BSE–2008–48) (approving equity
securities listing and trading on BSE); 57478 (Mar.
12, 2008), 73 FR 14521 (Mar. 18, 2008) (SR–
NASDAQ–2007–004 and SR–NASDAQ–2007–080)
(approving NOM options trading); 53128 (Jan. 13,
2006), 71 FR 3550 (Jan. 23, 2006) (File No. 10–131)
(granting the application of The Nasdaq Stock
Market LLC for registration as a national securities
exchange); and 44983 (Oct. 25, 2001), 66 FR 55225
(Nov. 1, 2001) (SR–PCX–00–25) (approving the
establishment of the Archipelago Exchange as the
equities trading facility of PCX Equities, Inc., a
subsidiary of the Pacific Exchange, Inc.).
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trading system would satisfy this offfloor transmission requirement.
Second, Rule 11a2–2(T) requires that
neither the initiating member nor an
associated person of the initiating
member participate in the execution of
the transaction at any time after the
order for the transaction has been
transmitted. The Exchange represents
that the Pillar trading system would at
no time following the submission of an
order allow an ETP Holder or an
associated person of the ETP Holder to
acquire control or influence over the
result or timing of the order’s
execution.106 According to the
Exchange, the execution of an ETP
Holder’s order would be determined
solely by the quotes and orders that are
present in the system at the time the
member submits the order and by the
order priority under the Exchange
rules.107 Accordingly, the Commission
believes that an Exchange member and
its associated persons would not
participate in the execution of an order
submitted to the Pillar trading system.
Third, Rule 11a2–2(T) requires that
the order be executed by an exchange
member that is not associated with the
member initiating the order. The
Commission has stated that this
requirement is satisfied when
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.108
106 See
Notice, supra note 3, 82 FR at 10825.
id. The Exchange notes that Rule 11a2–
2(T) does not preclude a member from cancelling
or modifying orders, or from modifying the
instructions for executing orders, after they have
been transmitted, provided that such cancellations
or modifications are transmitted from off an
exchange floor. See id. The Commission has stated
that the non-participation requirement is satisfied
under such circumstances so long as the
modifications or cancellations are also transmitted
from off the floor. See Securities Exchange Act
Release No. 14563 (Mar. 14, 1978), 43 FR 11542
(Mar. 17, 1978) (‘‘1978 Release’’) (stating that the
‘‘non-participation requirement does not prevent
initiating members from canceling or modifying
orders (or the instructions pursuant to which the
initiating member wishes orders to be executed)
after the orders have been transmitted to the
executing member, provided that any such
instructions are also transmitted from off the
floor’’).
108 In considering the operation of automated
execution systems operated by an exchange, 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 system. 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). See Securities Exchange Act Release No.
15533 (Jan. 29, 1979), 44 FR 6084 (Jan. 31, 1979).
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107 See
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The Exchange represents that the design
of the Pillar trading system ensures that
no ETP Holder has any special or
unique trading advantage in the
handling of its orders after transmitting
its orders to the Exchange.109 Based on
the Exchange’s representation, the
Commission believes that the Pillar
trading system would satisfy this
requirement.
Fourth, in the case of a transaction
effected for an account with respect to
which the initiating member or an
associated person thereof exercises
investment discretion, neither the
initiating member nor any associated
person may retain any compensation in
connection with effecting the
transaction, unless the person
authorized to transact business for the
account has expressly provided
otherwise by written contract referring
to Section 11(a) of the Act and Rule
11a2–2(T) thereunder.110 ETP Holders
trading for covered accounts over which
they exercise investment discretion
must comply with this condition in
order to rely on the rule’s exemption.111
IV. Solicitation of Comments on
Amendment No. 1
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 to
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
109 See
Notice, supra note 3, 82 FR at 10825.
addition, Rule 11a2–2(T)(d) requires that, if
a member or associated person is authorized by
written contract to retain compensation in
connection with effecting transactions for covered
accounts over which the member or associated
person thereof exercises investment discretion, the
member or associated person must furnish at least
annually to the person authorized to transact
business for the account a statement setting forth
the total amount of compensation retained by the
member or any associated person thereof in
connection with effecting transactions for the
account during the period covered by the statement.
See 17 CFR 240.11a2–2(T)(d). See also 1978
Release, supra note 107 (‘‘The contractual and
disclosure requirements are designed to assure that
accounts electing to permit transaction-related
compensation do so only after deciding that such
arrangements are suitable to their interests’’).
111 The Exchange has represented that it 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). See Notice, supra note 3, 82 FR at 10825.
110 In
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• 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 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 May 31, 2017.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
As noted above, in Amendment No. 1,
the Exchange proposes to: (1) Amend
proposed Exchange Rule 7.35E(a)(10)(A)
to specify the ‘‘Auction Collar’’ as the
greater of $0.50 or 10% away from the
Auction Reference Price and delete the
specified percentages to conform to SR–
NYSEArca–2016–130; (2) amend
proposed Exchange Rule 7.35E(d)(2) to
note that the Closing Auction Imbalance
Freeze will begin ten minutes (rather
than one minute) before the scheduled
time for the Closing Auction; (3) amend
proposed Exchange Rule 7.35E(f)(2) to
reject certain orders until after the
Auction Processing Period for the IPO
Auction has concluded; (4) amend
E:\FR\FM\10MYN1.SGM
10MYN1
21850
Federal Register / Vol. 82, No. 89 / Wednesday, May 10, 2017 / Notices
proposed Exchange Rule 7.35E(h)(3)(A)
and (B) to define ‘‘previously-live
orders’’ for Core Open Auction, Trading
Halt Auction, Closing Auction, and IPO
Auction and to define how unexecuted
orders would be processed when the
Exchange transitions from continuous
trading from a prior trading session; (5)
amend proposed Exchange rule
7.31E(h)(3)(A) to specify that
Discretionary Pegged Orders do not
participate in any auctions; (6) amend
proposed Exchange Rule 7.34E(c)(1)(A)
to add a provision that Discretionary
Pegged Orders may not be entered
before or during the Early Trading
Session; (7) amend proposed Exchange
Rule 7.46E to reflect recent changes to
publication dates with respect to the
Tick Size Pilot Plan; and (8) state that
the Pillar transition is anticipated to
occur in the third quarter of 2017.
The Commission believes that
Amendment No. 1 does not raise novel
regulatory issues and is based on, and
substantively identical to, the existing
rules of other self-regulatory
organizations. Accordingly, the
Commission finds good cause, pursuant
to Section 19(b)(2) of the Act,112 to
approve the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis.
VI. Conclusion
It is therefore ordered, that pursuant
to Section 19(b)(2) of the Act, that the
proposed rule change, as modified by
Amendment No. 1, (SR–NYSEMKT–
2017–01), be, and it hereby is, approved
on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.113
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–09419 Filed 5–9–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
jstallworth on DSK7TPTVN1PROD with NOTICES
[Release No. 34–80605; File Nos. SR–DTC–
2017–802; SR–NSCC–2017–802]
Self-Regulatory Organizations; The
Depository Trust Company; National
Securities Clearing Corporation;
Notice of Filing of and No Objection To
Advance Notices, as Modified by
Amendments No. 1, To Renew the
Credit Facility
May 5, 2017.
Pursuant to Section 806(e)(1) of Title
VIII of the Dodd-Frank Wall Street
112 15
113 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
15:21 May 09, 2017
Jkt 241001
Reform and Consumer Protection Act
entitled the Payment, Clearing, and
Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) under the Securities
Exchange Act of 1934 (‘‘Act’’),2 notice is
hereby given that on April 4, 2017 The
Depository Trust Company (‘‘DTC’’) and
National Securities Clearing Corporation
(‘‘NSCC,’’ together with DTC, ‘‘Clearing
Agencies’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the advance notices SR–DTC–2017–802
and SR–NSCC–2017–802. On May 1,
2017, the Clearing Agencies filed
Amendments No. 1 to the advance
notices.3 The advance notices, as
modified by Amendments No. 1
(hereinafter, collectively ‘‘Advance
Notices’’), are described in Items I, II
and III below, which Items have been
prepared primarily by the Clearing
Agencies. The Commission is
publishing this notice to solicit
comments on the Advance Notices from
interested persons and providing notice
that the Commission does not object to
the Advance Notices.
I. Clearing Agencies’ Statement of the
Terms of Substance of the Advance
Notices
These Advance Notices are filed by
the Clearing Agencies in connection
with their proposals to (1) renew
(‘‘Renewal’’) their 364-day committed
revolving credit facility (‘‘Credit
Facility’’), described below, and (2)
make annual renewals of the Credit
Facility on substantially similar terms
and conditions (‘‘Future Renewals’’),
also described below, as described in
greater detail below.4
II. Clearing Agencies’ Statement of the
Purpose of, and Statutory Basis for, the
Advance Notices
In their filings with the Commission,
the Clearing Agencies included
statements concerning the purpose of
and basis for the Advance Notices and
discussed any comments they received
on the Advance Notices. The text of
1 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
3 In Amendments No. 1 to the advance notices,
the Clearing Agencies request Commission approval
to (i) accept $14.075 billion in aggregate
commitments for this year’s facility, and (ii) clarify
that for future renewals of the credit facility, the
Clearing Agencies may accept, not just seek, an
aggregate commitment amount within 15 percent of
$14 billion, as discussed below.
4 Terms not defined herein are defined in the
Terms not defined herein are defined in the Rules,
By-Laws and Organization Certificate of DTC,
available at https://www.dtcc.com/∼/media/Files/
Downloads/legal/rules/dtc_rules.pdf; or Rules and
Procedures of NSCC (‘‘Rules’’), available at https://
www.dtcc.com/∼/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
2 17
PO 00000
Frm 00062
Fmt 4703
Sfmt 4703
these statements may be examined at
the places specified in Item IV below.
The Clearing Agencies have prepared
summaries, set forth in sections A and
B below, of the most significant aspects
of such statements.
(A) Clearing Agencies’ Statement on
Comments on the Advance Notices
Received From Members, Participants,
or Others
The Clearing Agencies have not
solicited or received any written
comments relating to these proposals.
The Clearing Agencies will notify the
Commission of any written comments
received by the Clearing Agencies.
(B) Advance Notices Filed Pursuant to
Section 806(e) of the Payment, Clearing
and Settlement Supervision Act
Description of the Proposals
Renewal. As part of their liquidity risk
management regime, the Clearing
Agencies maintain a 364-day committed
revolving line of credit with a syndicate
of commercial lenders, which is
renewed every year. The terms and
conditions of the current Renewal
would be specified in the Sixteenth
Amended and Restated Revolving Credit
Agreement, to be dated as of May 9,
2017 (‘‘Renewal Agreement’’), among
the Clearing Agencies,5 the lenders
party thereto, the administrative agent
and the collateral agent. Such terms and
conditions are substantially the same as
the terms and conditions of the existing
credit agreement, dated as of May 10,
2016, as heretofore amended (‘‘Existing
Agreement’’),6 except that pricing 7 and
the amount of the aggregate
commitment for NSCC may change. The
substantive terms of the Renewal
Agreement are set forth in the Summary
of Indicative Principal Terms and
Conditions, dated March 30, 2017,
which is not a public document. The
aggregate commitments being sought
under the Renewal would be for an
amount up to $14 billion for NSCC and
DTC together, of which all but $1.9
billion commitment would be the
5 The Renewal Agreement would provide for both
DTC and NSCC as borrowers, with an aggregate
commitment of $1.9 billion for DTC and the amount
of any excess aggregate commitment for NSCC. The
borrowers are not jointly and severally liable and
each lender has a ratable commitment to each
borrower. DTC and NSCC provide separate
collateral to secure their respective borrowings.
6 See Securities Exchange Act Release No. 77750
(April 29, 2016), 81 FR 27181 (May 5, 2016) (SR–
DTC–2017–801; SR–NSCC–2016–801).
7 ‘‘Pricing’’ of the Credit Facility refers to the
charges and fees owed by the borrowers to the
agents and lenders thereto with respect to the
services performed by the agents, the commitment
to lend and the rate of interest applicable to any
borrowing under the Credit Facility, among other
such matters.
E:\FR\FM\10MYN1.SGM
10MYN1
]]>Agencies
[Federal Register Volume 82, Number 89 (Wednesday, May 10, 2017)]
[Notices]
[Pages 21843-21850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09419]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80590; File No. SR-NYSEMKT-2017-01]
Self-Regulatory Organizations; NYSE MKT LLC; Order Granting
Accelerated Approval of Proposed Rule Change, as Modified by Amendment
No. 1, To Adopt New Equity Trading Rules To Transition Trading on the
Exchange From a Floor-Based Market With a Parity Allocation Model to a
Fully Automated Market With a Price-Time Priority Model on the
Exchange's New Trading Technology Platform, Pillar
May 4, 2017.
I. Introduction
On January 25, 2017, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'')
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
adopt new equity trading rules to transition trading on the Exchange
from a floor-based market with a parity-allocation model to a fully
automated market with price-time-priority allocation model on the
Exchange's new trading technology platform, Pillar. The proposed rule
change was published for comment in the Federal Register on February
15, 2017.\3\ On March 29, 2017, the Commission designated a longer
period for action on the proposed rule change.\4\ On April 24, 2017,
the Exchange filed Amendment No. 1 to the proposed rule change.\5\ The
Commission received no comments on the proposal. The Commission is
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis and soliciting comments on Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 79993 (Feb. 9,
2017), 82 FR 10814 (Feb. 15, 2017) (``Notice'').
\4\ See Securities Exchange Act Release No. 80337 (Mar. 29,
2017), 82 FR 16459 (Apr. 4, 2017).
\5\ In Amendment No. 1, the Exchange proposes to: (1) Amend
proposed Exchange Rule 7.35E(a)(10)(A) to specify the ``Auction
Collar'' as the greater of $0.50 or 10% away from the Auction
Reference Price and delete the specified percentages to conform to
rule filing SR-NYSEArca-2016-130; (2) amend proposed Exchange Rule
7.35E(d)(2) to note that the Closing Auction Imbalance Freeze will
begin ten minutes (rather than one minute) before the schedule time
for the Closing Auction; (3) amend proposed Exchange Rule
7.35E(f)(2) to reject certain orders until after the Auction
Processing Period for the IPO Auction has concluded; (4) amend
proposed Exchange Rule 7.35E(h)(3)(A) and (B) to define
``previously-live orders'' for Core Open Auction, Trading Halt
Auction, Closing Auction, and IPO Auction, and how unexecuted orders
would be processed, when the Exchange transitions from continuous
trading from a prior trading session; (5) amend proposed Exchange
rule 7.31E(h)(3)(A) to specify that Discretionary Pegged Orders do
not participate in any auctions; (6) amend proposed Exchange Rule
7.34E(c)(1)(A) to add that Discretionary Pegged Orders may not be
entered before or during the Early Trading Session; (7) amend
proposed Exchange Rule 7.46E to reflect recent changes to
publication dates with respect to the Tick Size Pilot Plan; and (8)
state that the Pillar transition is anticipated to occur in the
third quarter of 2017. The Exchange represents that most of the
amendments relate to a recent proposed rule change (SR-NYSEArca-
2017-47) by NYSE Arca, Inc. (``NYSE Arca'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
The Exchange proposes to adopt new equities trading rules to
facilitate the transition to Pillar, a new trading-technology platform,
in order to operate as a fully-automated cash equities market. As part
of this transition, the Exchange would move from the current floor-
based market with a parity-allocation model to a fully automated market
with a price-time-priority allocation model. Consequently,
[[Page 21844]]
Exchange floor-based designated market makers (``DMMs'') would be
replaced by Electronic DMMs, and the Exchange would no longer support
Supplemental Liquidity Providers or floor brokers as a separate class
of participant on the Exchange.\6\
---------------------------------------------------------------------------
\6\ The Exchange would also expand unlisted trading privileges
to all NMS Securities, including securities listed on the New York
Stock Exchange LLC, NYSE Arca, the Nasdaq Stock Market LLC
(``Nasdaq''), and Bats BZX Exchange, Inc. See Securities Exchange
Act Release Nos. 79400 (Nov. 25, 2016), 81 FR 86750 (Dec. 1, 2016);
79738 (Jan. 4, 2017), 82 FR 3068 (Jan. 10, 2017); and 80097 (Feb.
24, 2017), 82 FR 12251 (Mar. 1, 2017).
---------------------------------------------------------------------------
The Exchange represents that the proposal is based on the trading
rules of the NYSE Arca Equities exchange (``NYSE Arca Equities'') and
current Exchange equities rules. NYSE Arca Equities already uses
Pillar, the same trading technology platform that the Exchange proposes
to adopt.\7\ The Exchange proposes to adopt Exchange Rules 1E, 2E, 3E,
6E, 7E, 12E, and 13E to cover cash equities trading on the Pillar
platform.\8\ Exchange Rule 1E would cover definitions. Exchange Rule 2E
would cover equity trading permits. Exchange Rule 3E would cover
organization and administration of the Exchange. Exchange Rule 6E would
cover business conduct. Exchange Rule 7E would cover equities trading.
Exchange Rule 12E would cover arbitration. Exchange Rule 13E would
cover liability of directors and the Exchange.
---------------------------------------------------------------------------
\7\ NYSE Arca filed four proposals to implement Pillar in
stages: (1) Adopting rules for trading sessions, order ranking and
display, and order execution; (2) adopting rules for orders and
modifiers and the retail liquidity program; (3) adopting rules for
trading halts, short sales, limit up-limit down, and odd lots and
mixed lots; and (4) adopting rules for auctions. See Securities
Exchange Act Release Nos. 74951 (May 13, 2015), 80 FR 28721 (May 19,
2015) and 75494 (July 20, 2015), 80 FR 44170 (July 24, 2015) (SR-
NYSEArca-2015-38) (first Pillar filing and approval); 75497 (July
21, 2015), 80 FR 45022 (July 28, 2015) and 76267 (Oct. 26, 2015), 80
FR 66951 (Oct. 30, 2015) (SR-NYSEArca-2015-56) (second Pillar filing
and approval); 75467 (July 16, 2015), 80 FR 43515 (July 22, 2015)
and 76198 (Oct. 20, 2015), 80 FR 65274 (Oct. 26, 2015) (third Pillar
filing and approval); and 76085 (Oct. 6, 2015), 80 FR 61513 (Oct.
13, 2015) and 76869 (Jan. 11, 2016), 81 FR 2276 (Jan. 15, 2016)
(fourth Pillar filing and approval).
\8\ The Exchange previously adopted these rules, generally with
rule text reserved for future use, in anticipation of the current
proposal. See Securities Exchange Act Release No. 79242 (Nov. 4,
2016), 81 FR 79081 (Nov. 10, 2016) (SR-NYSEMKT-2016-97). The rule
numbers for the rules being adopted by NYSE MKT correspond with the
rule numbers of NYSE Arca Equities rules.
---------------------------------------------------------------------------
The Exchange would announce the transition of its cash equities
trading to Pillar, if approved by the Commission, by a Trader Update.
The Exchange anticipates that the transition would occur in the third
quarter of 2017. If the Exchange transitions to Pillar trading
platform, the Exchange would no longer trade on its current floor-based
platform, and current Exchange equities rules governing the floor-based
platform would no longer be applicable. The Exchange proposes to mark
the affected Exchange rules with a preamble to state that these rules
would no longer be in effect and represents that it will subsequently
file a separate proposed rule change to delete rules no longer
applicable.
A detailed description of the proposal appears in the Notice. The
proposal is summarized and discussed below.
A. Exchange Rule 1E--Definitions
The Exchange proposes 12 new definitions to be used with the Pillar
trading platform. The Exchange represents that most of the proposed
definitions are based on the rules of NYSE Arca Equities. First, the
Exchange proposes to define the term ``Exchange Book'' as the
Exchange's electronic file of orders.\9\ Second, the Exchange proposes
to define ``Authorized Trader'' as a person who may submit orders to
the Exchange's cash equity Trading Facilities on behalf of his or her
ETP Holder.\10\ Third, the Exchange proposes to define ``Core Trading
Hours'' as 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.\11\ Fourth, the Exchange proposes to define the term
``Exchange'' as NYSE MKT LLC.\12\ Fifth, the Exchange proposes to
define the term ``ETP'' as an Equity Trading Permit issued by the
Exchange to a registered broker or dealer approved by the Exchange as a
member organization.\13\
---------------------------------------------------------------------------
\9\ See Proposed Exchange Rule 1.1E (a) and NYSE Arca Equities
Rule 1.1(a). The proposed rule does not contain the phrase ``which
contains all orders entered on the NYSE Arca Marketplace'' from the
NYSE Arca rule.
\10\ See Proposed Exchange Rule 1.1E (g).
\11\ See Proposed Exchange Rule 1.1E (j).
\12\ See Proposed Exchange Rule 1.1E (k).
\13\ See Proposed Exchange Rule 1.1E (m).
---------------------------------------------------------------------------
The Exchange proposes to define the term ``ETP Holder'' as a member
organization that has been issued an ETP.\14\ The Exchange proposes to
define the term ``General Authorized Trader'' as an Authorized Trader
who performs only non-market making activities on behalf an ETP
Holder.\15\ The Exchange proposes to define the term ``Marketable'' to
mean, for a limit order, that the order that can be immediately
executed or routed.\16\
---------------------------------------------------------------------------
\14\ See Proposed Exchange Rule 1.1E (n).
\15\ See Proposed Exchange Rule 1.1E (p).
\16\ See Proposed Exchange Rule 1.1E (u). The Exchange proposes
that it will always consider a market order as Marketable.
---------------------------------------------------------------------------
The Exchange proposes to define the term ``Official Closing Price''
as the reference price to determine the closing price in a
security.\17\ The Exchange proposes to define the term ``Security'' to
mean any security defined in Rule 3(a)(10) under the Act and, for
purposes of proposed Rule 7E, to mean any NMS stock.\18\ The Exchange
proposes to define the term ``Self-Regulatory Organization (`SRO')'' as
defined in the provisions of the Act relating to national securities
exchanges.\19\ Finally, the Exchange proposes to define the term
``Trading Facilities'' as any and all electronic or automatic trading
systems provided by the Exchange to ETP Holders.\20\
---------------------------------------------------------------------------
\17\ See Proposed Exchange Rule 1.1E (gg). The proposed rule
provides detailed procedures for the determination of the official
closing price. According to the Exchange, proposed Rule 1.1E (gg),
together with proposed Exchange Rule 7.35E, would obviate the need
for current Exchange Rule 123C--Equities (The Closing Procedures),
which is how the Exchange currently determines the Official Closing
Price for an Exchange listed security.
\18\ See Proposed Exchange Rule 1.1E (rr).
\19\ See Proposed Exchange Rule 1.1E (ss).
\20\ See Proposed Exchange Rule 1.1E (xx). The Exchange also
proposes to amend a cross reference in Exchange Rule 1.1 (hhh).
---------------------------------------------------------------------------
B. Exchange Rule 2E--Equity Trading Permits
The Exchange proposes to adopt rules related to equity trading
permits on the Exchange, including procedures, qualifications, fees,
and employees of ETP Holders. Exchange member organizations who want to
trade on Pillar would need to obtain an ETP.\21\
---------------------------------------------------------------------------
\21\ See Proposed Exchange Rule 2.2E. The Exchange is not
adopting the rule text in NYSE Arca Equities Rule 2.2 relating to
registered broker dealers, because the Exchange believes it is not
necessary.
---------------------------------------------------------------------------
The Exchange proposes that it may, under certain conditions, deny
an ETP or condition trading privileges under an ETP.\22\ The Exchange
represents that these conditions are identical to NYSE Arca Equities
Rule 2.4(a) and (b). Additionally, the Exchange proposes that traders
of ETP Holders for which the Exchange is the Designated Examining
Authority must successfully complete the Series 7 examination.\23\ The
Exchange represents that these requirements are identical to those in
the NYSE Arca Equities rules.
---------------------------------------------------------------------------
\22\ See Proposed Exchange Rule 2.4E.
\23\ See Proposed Exchange Rule 2.4E.
---------------------------------------------------------------------------
Proposed Exchange Rule 2.6E would specify that the issuance of an
ETP constitutes a revocable privilege and confers on its holder no
right or interest of any nature to continue as an ETP Holder.\24\ The
Exchange represents that this rule is identical to NYSE Arca
[[Page 21845]]
Equities Rule 2.6. Proposed Exchange Rule 2.17E would set forth
``Activity Assessment Fees'' for securities transactions effected on
the Exchange, as required by Section 31 of the Act, and would specify
that the Exchange may retain payment to help fund its regulatory
expenses.\25\ The Exchange represents that proposed Exchange Rule 2.17E
is based on current Exchange Rule 440H--Equities.
---------------------------------------------------------------------------
\24\ See Proposed Exchange Rule 2.6E.
\25\ See Proposed Exchange Rule 2.17E.
---------------------------------------------------------------------------
Proposed Exchange Rule 2.21E would specify registration
requirements for employees of ETP Holders, including examination
requirements, continuing education requirements, and procedures for
registering employees. The proposed rule would prohibit an ETP Holder
from employing an Exchange employee during regular Exchange business
hours.\26\ The Exchange represents that the proposed rule is based on
NYSE Arca Equities Rule 2.21.\27\
---------------------------------------------------------------------------
\26\ See Proposed Exchange Rule 2.21E.
\27\ The Exchange represents that proposed Exchange Rule 2.21E,
together with proposed Exchange Rule 2.4E, would render the
following current Exchange rules obsolete: Rule 345--Equities
(Employees--Registration, Approval, Records); Rule 345A--Equities
(Continuing Education for Registered Persons); and Rule 342--
Equities (Compliance Supervisors) related to DMM Series 14A
requirement. However, an Exchange member organization engaged in a
public business in addition to a DMM business must have a qualified
compliance supervisor that has passed the Series 14A examination,
but would no longer need the Series 14A examination.
---------------------------------------------------------------------------
Proposed Exchange Rule 2.22E would set forth the Exchange back-up
systems and mandatory testing requirements of the Exchange. The
Exchange represents that the proposed rule is based on current Exchange
Rule 49(b)--Equities.\28\ Proposed Exchange Rule 2.24E would set forth
the retention requirements for ETP books and records.\29\ The Exchange
represents that the proposed rule is based on NYSE Arca Equities Rule
2.24.\30\
---------------------------------------------------------------------------
\28\ See Proposed Exchange Rule 2.22E. The Exchange would
designate current Exchange Rule 49--Equities (Exchange Business
Continuity and Disaster Recovery Plans and Mandatory Testing) as not
applicable to Pillar trading.
\29\ See Proposed Exchange Rule 2.24E.
\30\ The Exchange represents that proposed Exchange Rule 2.24E
would set forth the same requirements as current Exchange Rule 440--
Equities (Books and Records), therefore current Exchange Rule 440--
Equities would not be applicable on Pillar.
---------------------------------------------------------------------------
C. Exchange Rule 3E--Organization and Administration of the Exchange
The next section of proposed Exchange rules would govern the
internal administration of the Exchange. Proposed Exchange Rule 3.6E
would allow the Exchange to enter into agreements with domestic and
foreign self-regulatory organizations to provide for the exchange of
information and other forms of mutual assistance for market
surveillance, investigative, enforcement, and other regulatory
purposes.\31\ The Exchange represents that the proposed rule is based
on NYSE Arca Equities Rule 3.6.\32\ Proposed Exchange Rule 3.11E would
set forth fingerprint-based background checks of Exchange employees and
other personnel related to the Exchange.\33\ The Exchange represents
that the proposed rule is based on NYSE Arca Equities Rule 3.11 and
current Exchange Rule 28--Equities.
---------------------------------------------------------------------------
\31\ See Proposed Exchange Rule 3.6E.
\32\ The Exchange proposes that current Rule 27--Equities would
not be applicable on Pillar because proposed Exchange Rule 3.6E
would cover the same matter. See id.
\33\ See Proposed Exchange Rule 3.11E.
---------------------------------------------------------------------------
D. Exchange Rule 6E--Business Conduct
The next section of proposed Exchange rules would govern the
business conduct of ETP Holders and their associated persons. Proposed
Exchange Rule 6.3E 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 the ETP Holder or persons associated with the ETP
Holder.\34\ The Exchange represents that the proposed rule is based on
NYSE Arca Equities Rule 6.3.
---------------------------------------------------------------------------
\34\ See Proposed Exchange Rule 6.3E.
---------------------------------------------------------------------------
Proposed Exchange Rule 6.10E 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.\35\
The Exchange represents that the proposed rule is based on NYSE Arca
Equities Rule 6.10.
---------------------------------------------------------------------------
\35\ See Proposed Exchange Rule 6.10E. The Exchange proposes
that current Exchange Rule 96--Equities would not be applicable for
trading on Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 6.12E would govern requirements for joint
accounts between an ETP Holder and another person, including reporting
obligations to the Exchange.\36\ The Exchange represents that the
proposed rule is based on NYSE Arca Equities Rule 6.12.
---------------------------------------------------------------------------
\36\ See Proposed Exchange Rule 6.12E. The Exchange proposes
that current Exchange Rule 93--Equities (Trading for Joint Account)
and Rule 94--Equities (Designated Market Maker's or Odd-Lot Dealers
Interest in Joint Accounts) would not be applicable for trading on
Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 6.15E would prohibit ETP Holders from
participating in a prearranged trade.\37\ The Exchange represents that
the proposed rule is based on NYSE Arca Equities Rule 6.15(b).
---------------------------------------------------------------------------
\37\ See Proposed Exchange Rule 6.15E. The Exchange proposes
that current Exchange Rule 78--Equities would not be applicable on
Pillar. See Notice, 82 FR at 10819.
---------------------------------------------------------------------------
E. Exchange Rule 7E--Equities Trading
The proposed rules under Exchange Rule 7E would set forth how
trading would be conducted on the Exchange. Section 1 of proposed
Exchange Rule 7E would set forth general provisions relating to cash
equities trading on the Pillar trading platform, such as hours of
business, clearly erroneous executions, limit up-limit down plan, and
clearance and settlement. Section 3 of proposed Exchange Rule 7E would
set forth the trading rules for Pillar. Other proposed Exchange rules
would provide that the Exchange would not offer a retail liquidity
program, set forth rules related to the Exchange routing broker, and
adopt rules to comply with the Tick Size Pilot Plan. The Exchange
represents that the trading system and rules are based on the rules of
NYSE Arca Equities.
1. General Provisions
The general provisions of the proposed trading rules would set out
the necessary rules for trading on the Exchange, including rules
governing when the Exchange would be open for business, how clearly
erroneous executions would be handled by the Exchange, how the Exchange
would clear and settle securities transactions conducted on the
Exchange, requirements for short sales, and the limit up-limit down
plan.
Proposed Exchange Rule 7.1E would set forth the hours of operation
for the Exchange.\38\ The proposed rule also sets forth when the
Exchange Chief Executive Officer may take specified actions, such as
halting or suspending trading in some or all securities on the
Exchange. The Exchange represents that the proposed rule is based on
NYSE Arca Equities Rule 7.1 and current Exchange Rule 51--Equities.\39\
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\38\ See Proposed Exchange Rule 7.1E.
\39\ The Exchange proposes that current Exchange Rule 12--
Equities and Rule 51--Equities would not be applicable for trading
on Pillar. See id.
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Proposed Exchange Rule 7.2E would set forth the holiday schedules
for the Exchange.\40\ The Exchange represents that the proposed rule is
based on NYSE Arca Equities Rule 7.2 and current Exchange Rule 51.10--
Equities.
---------------------------------------------------------------------------
\40\ See Proposed Exchange Rule 7.2E.
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Proposed Exchange Rule 7.3E would specify that ETP Holders may not
charge fixed commissions and that they must indicate whether they are
acting as a broker or as a principal.\41\ The Exchange
[[Page 21846]]
represents that the proposed rule is based on NYSE Arca Equities Rule
7.3.\42\
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\41\ See Proposed Exchange Rule 7.3E.
\42\ The Exchange proposes that current Exchange Rule 388--
Equities (Prohibition Against Fixed Rates of Commission) would not
be applicable for trading on Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.4E would set the ex-dividend or ex-right
dates for stocks traded ``regular'' way.\43\ The Exchange represents
that the proposed rule is based on NYSE Arca Equities Rule 7.4.\44\
---------------------------------------------------------------------------
\43\ See Proposed Exchange Rule 7.4E.
\44\ The Exchange proposes that current Exchange Rule 235--
Equities would not be applicable for trading on Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.7E would establish that all bids and
offers on the Exchange would be anonymous unless otherwise specified by
the ETP Holder.\45\ The Exchange represents that the proposed rule is
based on NYSE Arca Equities Rule 7.7.
---------------------------------------------------------------------------
\45\ See Proposed Exchange Rule 7.7E.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.8E would specify that all bids and offers
will be considered ``regular way,'' and the Exchange would not accept
orders that are not entered for regular way settlement.\46\ The
Exchange represents that the proposed rule is based on NYSE Arca
Equities Rule 7.8E.\47\
---------------------------------------------------------------------------
\46\ See Proposed Exchange Rule 7.8E.
\47\ The Exchange proposes that current Exchange Rules 12--
Equities, 14--Equities, and 73--Equities would not be applicable for
trading on Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.9E would state that the execution price of
an order is binding, notwithstanding the Exchange's clearly erroneous
executions and limit up-limit down rules.\48\ The Exchange represents
that the proposed rule is based on NYSE Arca Equities Rule 7.9.\49\
---------------------------------------------------------------------------
\48\ See Proposed Exchange Rule 7.9E.
\49\ The Exchange proposes that current Exchange Rules 71--
Equities (Precedence of Highest Bid and Lowest Offer) and 411--
Equities (Erroneous Reports) would not be applicable for trading on
Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.10E would set forth the Exchange's rules
governing clearly erroneous executions.\50\ The Exchange represents
that the proposed rule is based on NYSE Arca Equities 7.10.\51\
---------------------------------------------------------------------------
\50\ See Proposed Exchange Rule 7.10E.
\51\ The Exchange proposes that current Exchange Rule 128--
Equities (Clearly Erroneous Executions) would not be applicable for
trading on Pillar.
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Proposed Exchange Rule 7.11E would specify how the Exchange would
comply with the Regulation NMS Plan to Address Extraordinary Market
Volatility (``LULD Plan'') \52\ The Exchange represents that the
proposed rule is based on NYSE Arca Equities Rule 7.11(a), (b)(2), and
(b)(5).\53\
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\52\ See Proposed Exchange Rule 7.11E.
\53\ The Exchange proposes that current Exchange Rule 80C--
Equities would not be applicable for trading on Pillar.
---------------------------------------------------------------------------
The Exchange proposes to amend paragraph (c)(i) of Exchange Rule
7.12E to change the rule cross reference from Rule 123D--Equities to
Rule 7.35(e).\54\
---------------------------------------------------------------------------
\54\ See Proposed Exchange Rule 7.12E. The Exchange proposes
Rule 7.35E to govern auctions. Accordingly, the Exchange proposes
that the procedures set out in current Exchange Rule 123D--Equities
would not be applicable on the Pillar trading platform.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.13E would govern trading suspensions.\55\
The Exchange represents that the proposed rule is based on NYSE Arca
Equities Rule 7.13.
---------------------------------------------------------------------------
\55\ See Proposed Exchange Rule 7.13E.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.14E would govern clearance and settlement
procedures.\56\ The Exchange represents that the proposed rule is based
on NYSE Arca Equities Rule 7.14.\57\
---------------------------------------------------------------------------
\56\ See Proposed Exchange Rule 7.14E.
\57\ The Exchange proposes that current Exchange Rules 130--
Equities and 132--Equities would not be applicable for trading on
Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.15E would state that Market Makers may not
have an interest in an option that is not issued by the Options
Clearing Corporation and prohibit pool dealing in registered
securities.\58\ The Exchange represents that the proposed rule is based
on NYSE Arca Equities Rule 7.15.\59\
---------------------------------------------------------------------------
\58\ See Proposed Exchange Rule 7.15E.
\59\ The Exchange proposes that current Exchange Rule 105--
Equities would not be applicable for trading on Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.16E would set forth the short sales
rule.\60\ The Exchange represents that the proposed rule is based on
NYSE Arca Equities Rule 7.16.\61\
---------------------------------------------------------------------------
\60\ See Proposed Exchange Rule 7.16E.
\61\ The Exchange proposes that current Exchange Rule 440B--
Equities (Short Sales) would not be applicable for trading on
Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.17E would establish requirements that all
orders and quotes comply with Rule 602 of Regulation NMS (firm quote
rule).\62\ The Exchange represents that the proposed rule is based on
NYSE Arca Equities Rule 7.17.\63\
---------------------------------------------------------------------------
\62\ See Proposed Exchange Rule 7.17E.
\63\ The Exchange proposes that current Exchange Rule 60--
Equities (Dissemination of Quotations) would not be applicable for
trading on Pillar.
---------------------------------------------------------------------------
2. Trading Rules for Pillar
The trading rules for Pillar would set forth definition of orders,
how auctions would operate, how orders are displayed and ranked, and
how orders are executed. The Exchange represents that the proposed
trading rules are based on NYSE Arca Equities rules, with the exception
of rules governing orders and modifiers and rules governing trading
sessions.
Proposed Exchange Rule 7.29E would specify that, to obtain
authorized access to the Exchange, each ETP Holder would be required to
enter into a User Agreement.\64\ The Exchange represents that the
proposed rule is based on NYSE Arca Equities Rule 7.29(a).
---------------------------------------------------------------------------
\64\ See Proposed Exchange Rule 7.29E.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.30E would establish requirements for ETP
Holders relating to authorized traders who can obtain access to the
Exchange on behalf of an ETP Holder.\65\ The Exchange represents that
the proposed rule is based on NYSE Arca Equities Rule 7.30.
---------------------------------------------------------------------------
\65\ See Proposed Exchange Rule 7.30E.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.31E would set forth the primary order
types, time in force modifiers for the order types, orders with
conditional or undisplayed price and/or size, non-routable and routable
order instructions, operations of pegged orders, and other order types
that would be available on the Pillar trading platform.\66\ The
Exchange represents that the proposed rule is based on NYSE Arca
Equities Rule 7.31 with the following differences: (1) The self-trade
prevention (``STP'') modifiers would not include references relating to
ETPIDs; \67\ (2) Arca Only Orders would be renamed ``MKT Only Orders''
on the Exchange; \68\ (3) ETP Holders would be permitted to specify
that Primary Only Day/IOC Orders 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); \69\ and (4) NYSE Arca
Equities Rule 7.31.02 would not be adopted.\70\
---------------------------------------------------------------------------
\66\ See Proposed Exchange Rule 7.31E.
\67\ See Proposed Exchange Rule 7.31E(i)(2). 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.
Consequently, proposed Exchange Rule 7.32E(i)(2) would not include
references from NYSE Arca Equities Rule 7.31(i)(2) relating to
ETPIDs (ETP identifications).
\68\ See Proposed Exchange Rule 7.31E(e)(1).
\69\ See Proposed Exchange Rule 7.31E(f)(1)(B).
\70\ The Exchange proposes that current Exchange Rules 13--
Equities (Orders and Modifiers) and 1000(c)--Equities would not be
applicable to trading on Pillar.
---------------------------------------------------------------------------
Proposed Exchange rule 7.32E would set forth the maximum order
entry size at 5 million shares.\71\ The Exchange represents that the
proposed rule is based on NYSE Arca Equities Rule 7.32.\72\
---------------------------------------------------------------------------
\71\ See Proposed Exchange Rule 7.32E.
\72\ The Exchange proposes that the current maximum order size
references before subparagraph (a) in Exchange Rule 1000--Equities
would not be applicable to trading on Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.33E would require ETP Holders to include,
with each order entered into the Exchange, their capacity code
information, whether as principal, agent, or riskless principal.\73\
The Exchange represents
[[Page 21847]]
that the proposed rule is based on NYSE Arca Equities Rule 7.33.
---------------------------------------------------------------------------
\73\ See Proposed Exchange Rule 7.33E.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.34E would specify that the Exchange would
operate three trading sessions each day: Early, Core, and Late.\74\ The
Exchange represents that the proposed rule is based on NYSE Arca
Equities Rule 7.34, except that the early trading session would start
at 7:00 a.m. Eastern Time rather than 4:00 a.m. Eastern Time for NYSE
Arca Equities.\75\
---------------------------------------------------------------------------
\74\ See Proposed Exchange Rule 7.34E. The Exchange proposes
that NYSE Arca Equities Rule 7.34(b)(2) and (b)(3) would not be
adopted.
\75\ See, e.g., Proposed Exchange Rule 7.34E.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.35E would set forth the auction rules.\76\
The Exchange represents that the proposed rule is based on NYSE Arca
Equities Rule 7.35, with some substantive differences.\77\ First, the
Exchange states that, because it lists the securities of operating
companies, instead of the exchange traded products listed on NYSE Arca,
the auction-collar thresholds should be wider than those on NYSE Arca,
and the Exchange proposes auction collars based on the collars for the
Nasdaq opening and closing crosses. Second, the Exchange, based on the
rules of Nasdaq, proposes to provide that the Closing Auction Imbalance
Freeze would begin ten minutes (instead of one minute) before the
scheduled time for the closing auction.
---------------------------------------------------------------------------
\76\ See Proposed Exchange Rule 7.35E.
\77\ The Exchange proposes that current Exchange Rules 15--
Equities, 115A--Equities, 116.40--Equities, 123C--Equities, and
123D--Equities would not be applicable on Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.36E would set forth how orders are ranked
and displayed, and the priority of orders.\78\ The Exchange represents
that the proposed rule is based on NYSE Arca Equities Rule 7.36.
---------------------------------------------------------------------------
\78\ See Proposed Exchange Rule 7.36E.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.37E would set forth how orders would
execute and route, the data feeds the Exchange would use, the
prohibition on quotations that lock or cross the best protected bid or
offer, and exceptions to the Commission's Order Protection Rule.\79\
The Exchange represents that the proposed rule is based on NYSE Arca
Equities 7.37, except that the Exchange would not be using data feeds
from broker-dealers or routing to away markets that do not display
protected quotations.\80\
---------------------------------------------------------------------------
\79\ See Proposed Exchange Rule 7.37E.
\80\ The Exchange proposes that the following rules would not be
applicable to trading on the Pillar trading platform: Exchange Rules
15A--Equities (Order Protection Rule), 19--Equities (Locking or
Crossing Protected Quotations in NMS Stocks), 60--Equities
(Dissemination of Quotations), 61--Equities (Recognized Quotations),
72--Equities (Priority of Bids and Offers and Allocation of
Executions), 79A.15--Equities, 100(a) and (b)--Equities (Automatic
Executions), 1001--Equities (Execution of Automatically Executing
Orders), 1002--Equities (Availability of Automatic Execution
Feature), and 1004--Equities (Election of Buy Minus and Sell Plus).
---------------------------------------------------------------------------
Proposed Exchange Rule 7.38E sets forth how odd-lot and mixed-lot
orders are treated on the Exchange.\81\ The Exchange represents that
the proposed rule is based on NYSE Arca Equities Rule 7.38.
---------------------------------------------------------------------------
\81\ See Proposed Exchange Rule 7.38E.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.39E sets forth how trading would occur on
the Exchange through its off-hours trading facility.\82\ The Exchange
proposes to permit only aggregate-price coupled orders--an order to buy
or sell a group of securities (no fewer than 15) having a total market
value of $1 million or more--through the off-hours trading facility.
The Exchange represents that NYSE Arca Equities Rule 7.39 would not be
adopted, but rather, current Exchange Rule 900 series would form the
basis for the proposed rules.\83\
---------------------------------------------------------------------------
\82\ See Proposed Exchange Rule 7.39E.
\83\ NYSE Arca Equities Rule 7.39 addresses the adjustment of
open orders. Because the Exchange does not propose to have any open
orders when trading on the Pillar trading platform, the Exchange
would not adopt rule text based on NYSE Arca Equities Rule 7.39.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.40E would set forth the Exchange's
obligation to report trades to an appropriate consolidated transaction
reporting system.\84\ The Exchange represents that the proposed rule is
based on NYSE Arca Equities Rule 7.40.\85\
---------------------------------------------------------------------------
\84\ See Proposed Exchange rule 7.40E.
\85\ The Exchange proposes that current Exchange Rule 128A--
Equities would not be applicable on Pillar.
---------------------------------------------------------------------------
Proposed Exchange Rule 7.41E would specify that each executed
transaction on the Exchange will be automatically processed for
clearance and settlement on a locked-in and anonymous basis.\86\ With
the exception of proposed Exchange Rule 7.41E(c), the Exchange
represents that the proposed rule is based on NYSE Arca Equities 7.41.
The Exchange represents that proposed Exchange Rule 7.41E(c) is based
on NYSE Rule 130(b), which specifies the circumstances under which the
Exchange may reveal the contra-party identity.\87\
---------------------------------------------------------------------------
\86\ See Proposed Exchange rule 7.41E.
\87\ The Exchange represents that proposed Exchange Rule
7.41E.10 is based on current Exchange Rule 132.10--Equities. The
Exchange proposes that current Exchange Rules 130--Equities
(Overnight Comparison of Exchange Transaction), 132--Equities
(Comparison and Settlement of Transactions Through a Fully-
Interfaced or Qualified Clearing Agency), 133--Equities
(Comparison--Non-cleared Transactions), 134--Equities (Differences
and Omissions--Non-cleared Transactions (``DKs'')), and 136--
Equities (Comparison--Transactions Excluded from a Clearance) would
not apply to trading on Pillar. See Notice, 82 FR at 10821.
---------------------------------------------------------------------------
3. Retail Liquidity Program Would Not Be Available
The Exchange currently operates a retail liquidity program on a
pilot basis.\88\ The Exchange proposes that it would not establish a
retail liquidity program on Pillar.
---------------------------------------------------------------------------
\88\ See Securities Exchange Act Release Nos. 67347 (Jul. 3,
2012), 77 FR 40673 (Jul. 10 2012) (approving the retail liquidity
program on a pilot basis); 79587 (Dec. 16, 2016), 81 FR 93975 (Dec.
22, 2016) (extending the pilot until June 30, 2017) (SR-NYSE-2011-
55; SR-NYSEAmex-2011-84).
---------------------------------------------------------------------------
4. Rules Related to Exchange Routing Broker
Proposed Exchange Rule 7.45E would establish the rules for the
Exchange's routing broker.\89\ The Exchange represents that the
proposed rule is based on NYSE Arca Equities Rule 7.45.\90\
---------------------------------------------------------------------------
\89\ See Proposed Exchange Rule 7.45E.
\90\ The Exchange proposes that current Exchange Rule 17--
Equities (Use of Exchange Facilities and Vendor Services) would not
be applicable on Pillar.
---------------------------------------------------------------------------
5. Rules Related to Tick Size Pilot Plan
Proposed Exchange Rule 7.46E sets forth the rules for the Tick Size
Pilot Plan.\91\ The Exchange represents that the proposed rule is based
on NYSE Arca Equities Rule 7.46, with the exception of references to
the retail liquidity program.\92\
---------------------------------------------------------------------------
\91\ See Proposed Exchange Rule 7.46E.
\92\ The Exchange proposes that current Exchange Rule 67--
Equities (Tick Size Pilot Plan) would not be applicable on Pillar.
---------------------------------------------------------------------------
F. Exchange Rule 12E--Arbitration
Proposed Exchange Rule 12E would provide that disputes between or
among ETP Holders and their associated persons would be resolved via
arbitration.\93\ The Exchange represents that the proposed rule is
based on current Exchange Rule 600--Equities.
---------------------------------------------------------------------------
\93\ See Proposed Exchange Rule 12E.
---------------------------------------------------------------------------
G. Exchange Rule 13E--Liability of Directors and the Exchange
Proposed Exchange Rule 13.2E would set forth requirements governing
liability of the Exchange, including the limits on liability under
specified circumstances.\94\ The Exchange represents that the proposed
rule is based on current Exchange Rule 905NY and NYSE Arca Equities
Rule 13.2. Proposed Exchange Rule 13.3E would set forth when ETP
Holders and their associated persons may sue Exchange
[[Page 21848]]
subsidiaries and personnel.\95\ The Exchange represents that the
proposed rule is based on NYSE Arca Equities Rule 13.3. Proposed
Exchange Rule 13.4E would determine the responsible party for legal
costs when the Exchange is defending a legal proceeding.\96\ The
Exchange represents that the proposed rule is based on NYSE Arca
Equities Rule 13.4.
---------------------------------------------------------------------------
\94\ See Proposed Exchange Rule 13.2E. The Exchange proposes
that current Exchange Rule 18--Equities would not be applicable on
Pillar. See Notice, 82 FR at 10822.
\95\ See Proposed Exchange Rule 13.3E.
\96\ See Proposed Exchange Rule 13.4E. The Exchange proposes
that current Exchange Rule 25--Equities (Exchange Liability for
Legal Costs) would not be applicable on Pillar. See Notice, 82 FR at
10822.
---------------------------------------------------------------------------
H. Current Exchange Rules Not Applicable on Pillar
As noted earlier, the Exchange would no longer operate a trading
floor once the Exchange transitions to Pillar. As a result, the
Exchange proposes that certain current rules that relate to floor-based
trading would not be applicable on Pillar.\97\
---------------------------------------------------------------------------
\97\ See Notice, 82 FR at 10823-10824, for a list of current
Exchange rules related to floor-based trading that would not be
applicable on Pillar.
---------------------------------------------------------------------------
III. Discussion and Findings
After careful review of the proposal, the Commission finds, for the
reasons discussed below, that the proposal is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the Exchange.\98\ In particular, the Commission finds
that the proposed rule change is consistent with Section 6(b)(5) of the
Act,\99\ which requires, among other things, that the rules of a
national securities exchange be 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 systems and, in general, to protect investors and the
public interest and that the rules are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\98\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\99\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
A. Pillar Trading System
The proposal would replace the Exchange's current floor based
trading, which has a parity-allocation model, with a fully automated,
electronic trading system with a price-time-priority model. The
Commission notes that the proposed rules closely parallel, and are
substantially similar to, current NYSE Arca Equities rules and current
Exchange rules, which were filed and approved by the Commission (or
which became immediately effective) pursuant to Section 19(b) of the
Act. NYSE Arca Equities currently operates using the Pillar trading
platform, and most other national securities exchanges operate fully
electronic markets that use a price-time-priority model. Accordingly,
the Commission believes that the proposal raises no novel regulatory
issues, that it is reasonably designed to protect investors and the
public interest, and that it is consistent with the requirements of the
Act.
B. Section 11(a) of the Act
Section 11(a)(1) of the Act \100\ 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 applies. Rule
11a2-2(T) under the Act,\101\ known as the ``effect versus execute''
rule, provides exchange members with an exemption from the Section
11(a)(1) 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
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 the order has been transmitted to the member performing the
execution; \102\ (iii) may not be affiliated with the executing member;
and (iv) with respect to an account over which the member or an
associated person has investment discretion, neither the member nor an
associated person may retain any compensation in connection with
effecting the transaction except as provided in the Rule. For the
reasons set forth below, the Commission believes that ETP Holders
entering orders into the Exchange's Pillar trading system would satisfy
the requirements of Rule 11a2-2(T).\103\
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\100\ 15 U.S.C. 78k(a)(1).
\101\ 17 CFR 240.11a2-2(T).
\102\ This prohibition also applies to associated persons of the
initiating member. The member may, however, participate in clearing
and settling the transaction.
\103\ The Exchange has clarified that its analysis relating to
Section 11(a) of the Act in the Notice applies to the Exchange's
proposed Pillar trading platform and does not apply to trading in
the Exchange's off-hours trading facility, which is to be governed
by proposed Rule 7.39E (``Off-Hours Trading Facility''). See Email
from Clare Saperstein, Associate General Counsel, NYSE Group, Inc.
to Yue Ding, Jennifer Dodd, and Steve Kuan, Division of Trading and
Markets, Commission (May 2, 2017). The Exchange has also clarified
that its Off-Hours Trading Facility would continue to operate on its
existing technology and would not operate on the proposed Pillar
trading platform. See id. Additionally, the Exchange represents that
it is not proposing any new or different functionality for its Off-
Hours Trading Facility and that member organizations using the Off-
Hours Trading Facility pursuant to proposed Rule 7.39E would
continue to be required to comply with Section 11(a)(1) of the Act,
and any applicable exceptions thereto as are currently applicable to
the Exchange's off-hours trading facility under the Exchange's Rule
900 Series, which is based on the rules of the New York Stock
Exchange LLC (``NYSE''). See id.; see also Securities Exchange Act
Release Nos. 33992 (May 2, 1994), 59 FR 23907 (May 9, 1994) (SR-
NYSE-93-50) (approving the NYSE's off-hours trading facility on a
permanent basis); 29237 (May 24, 1991), 56 FR 24853 (May 31, 1991)
(SR-NYSE-90-52 and SR-NYSE-90-53) (approving the NYSE's off-hours
trading facility on a temporary basis); and 58705 (Oct. 1, 2008), 73
FR 58995 (Oct. 8, 2008) (SR-Amex-2008-63) (approving the adoption of
new equity trading rules by the Exchange that are substantially
identical to the equity trading rules of NYSE).
---------------------------------------------------------------------------
Rule 11a2-2(T)'s first requirement is that orders for covered
accounts be transmitted from off the exchange floor. The Exchange
represents that it will not have a physical trading floor once it
transitions to the Pillar trading platform, and the Exchange's Pillar
trading system will receive orders from members electronically through
remote terminals or computer-to-computer interfaces.\104\ In the
context of other automated trading systems, the Commission has found
that the off-floor transmission requirement is met if a covered account
order is transmitted from a remote location directly to an exchange's
floor by electronic means.\105\ Because the Pillar trading system
receives orders electronically through remote terminals or computer-to-
computer interfaces, the Commission believes that the Pillar
[[Page 21849]]
trading system would satisfy this off-floor transmission requirement.
---------------------------------------------------------------------------
\104\ See Notice, supra note 3, 82 FR at 10825.
\105\ In the context of other all-electronic systems, the
Commission has similarly found that the off-floor transmission
requirement is met if the system receives orders electronically
through remote terminals or computer-to-computer interfaces. See,
e.g., Securities Exchange Act Release Nos. 61419 (Jan. 26, 2010), 75
FR 5157 (Feb. 1, 2010) (SR-BATS-2009-031) (approving BATS options
trading); 59154 (Dec. 23, 2008), 73 FR 80468 (Dec. 31, 2008) (SR-
BSE-2008-48) (approving equity securities listing and trading on
BSE); 57478 (Mar. 12, 2008), 73 FR 14521 (Mar. 18, 2008) (SR-NASDAQ-
2007-004 and SR-NASDAQ-2007-080) (approving NOM options trading);
53128 (Jan. 13, 2006), 71 FR 3550 (Jan. 23, 2006) (File No. 10-131)
(granting the application of The Nasdaq Stock Market LLC for
registration as a national securities exchange); and 44983 (Oct. 25,
2001), 66 FR 55225 (Nov. 1, 2001) (SR-PCX-00-25) (approving the
establishment of the Archipelago Exchange as the equities trading
facility of PCX Equities, Inc., a subsidiary of the Pacific
Exchange, Inc.).
---------------------------------------------------------------------------
Second, Rule 11a2-2(T) requires that neither the initiating member
nor an associated person of the initiating member participate in the
execution of the transaction at any time after the order for the
transaction has been transmitted. The Exchange represents that the
Pillar trading system would at no time following the submission of an
order allow an ETP Holder or an associated person of the ETP Holder to
acquire control or influence over the result or timing of the order's
execution.\106\ According to the Exchange, the execution of an ETP
Holder's order would be determined solely by the quotes and orders that
are present in the system at the time the member submits the order and
by the order priority under the Exchange rules.\107\ Accordingly, the
Commission believes that an Exchange member and its associated persons
would not participate in the execution of an order submitted to the
Pillar trading system.
---------------------------------------------------------------------------
\106\ See Notice, supra note 3, 82 FR at 10825.
\107\ See id. The Exchange notes that Rule 11a2-2(T) does not
preclude a member from cancelling or modifying orders, or from
modifying the instructions for executing orders, after they have
been transmitted, provided that such cancellations or modifications
are transmitted from off an exchange floor. See id. The Commission
has stated that the non-participation requirement is satisfied under
such circumstances so long as the modifications or cancellations are
also transmitted from off the floor. See Securities Exchange Act
Release No. 14563 (Mar. 14, 1978), 43 FR 11542 (Mar. 17, 1978)
(``1978 Release'') (stating that the ``non-participation requirement
does not prevent initiating members from canceling or modifying
orders (or the instructions pursuant to which the initiating member
wishes orders to be executed) after the orders have been transmitted
to the executing member, provided that any such instructions are
also transmitted from off the floor'').
---------------------------------------------------------------------------
Third, Rule 11a2-2(T) requires that the order be executed by an
exchange member that is not associated with the member initiating the
order. The Commission has stated that this requirement is satisfied
when 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.\108\ The Exchange represents that the design of the
Pillar trading system ensures that no ETP Holder has any special or
unique trading advantage in the handling of its orders after
transmitting its orders to the Exchange.\109\ Based on the Exchange's
representation, the Commission believes that the Pillar trading system
would satisfy this requirement.
---------------------------------------------------------------------------
\108\ In considering the operation of automated execution
systems operated by an exchange, 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
system. 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). See
Securities Exchange Act Release No. 15533 (Jan. 29, 1979), 44 FR
6084 (Jan. 31, 1979).
\109\ See Notice, supra note 3, 82 FR at 10825.
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Fourth, in the case of a transaction effected for an account with
respect to which the initiating member or an associated person thereof
exercises investment discretion, neither the initiating member nor any
associated person may retain any compensation in connection with
effecting the transaction, unless the person authorized to transact
business for the account has expressly provided otherwise by written
contract referring to Section 11(a) of the Act and Rule 11a2-2(T)
thereunder.\110\ ETP Holders trading for covered accounts over which
they exercise investment discretion must comply with this condition in
order to rely on the rule's exemption.\111\
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\110\ In addition, Rule 11a2-2(T)(d) requires that, if a member
or associated person is authorized by written contract to retain
compensation in connection with effecting transactions for covered
accounts over which the member or associated person thereof
exercises investment discretion, the member or associated person
must furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member or any associated person
thereof in connection with effecting transactions for the account
during the period covered by the statement. See 17 CFR 240.11a2-
2(T)(d). See also 1978 Release, supra note 107 (``The contractual
and disclosure requirements are designed to assure that accounts
electing to permit transaction-related compensation do so only after
deciding that such arrangements are suitable to their interests'').
\111\ The Exchange has represented that it 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). See Notice, supra note 3,
82 FR at 10825.
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IV. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to 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 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 May 31, 2017.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
As noted above, in Amendment No. 1, the Exchange proposes to: (1)
Amend proposed Exchange Rule 7.35E(a)(10)(A) to specify the ``Auction
Collar'' as the greater of $0.50 or 10% away from the Auction Reference
Price and delete the specified percentages to conform to SR-NYSEArca-
2016-130; (2) amend proposed Exchange Rule 7.35E(d)(2) to note that the
Closing Auction Imbalance Freeze will begin ten minutes (rather than
one minute) before the scheduled time for the Closing Auction; (3)
amend proposed Exchange Rule 7.35E(f)(2) to reject certain orders until
after the Auction Processing Period for the IPO Auction has concluded;
(4) amend
[[Page 21850]]
proposed Exchange Rule 7.35E(h)(3)(A) and (B) to define ``previously-
live orders'' for Core Open Auction, Trading Halt Auction, Closing
Auction, and IPO Auction and to define how unexecuted orders would be
processed when the Exchange transitions from continuous trading from a
prior trading session; (5) amend proposed Exchange rule 7.31E(h)(3)(A)
to specify that Discretionary Pegged Orders do not participate in any
auctions; (6) amend proposed Exchange Rule 7.34E(c)(1)(A) to add a
provision that Discretionary Pegged Orders may not be entered before or
during the Early Trading Session; (7) amend proposed Exchange Rule
7.46E to reflect recent changes to publication dates with respect to
the Tick Size Pilot Plan; and (8) state that the Pillar transition is
anticipated to occur in the third quarter of 2017.
The Commission believes that Amendment No. 1 does not raise novel
regulatory issues and is based on, and substantively identical to, the
existing rules of other self-regulatory organizations. Accordingly, the
Commission finds good cause, pursuant to Section 19(b)(2) of the
Act,\112\ to approve the proposed rule change, as modified by Amendment
No. 1, on an accelerated basis.
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\112\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, that pursuant to Section 19(b)(2) of the
Act, that the proposed rule change, as modified by Amendment No. 1,
(SR-NYSEMKT-2017-01), be, and it hereby is, approved on an accelerated
basis.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\113\
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\113\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09419 Filed 5-9-17; 8:45 am]
BILLING CODE 8011-01-P
