Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Pillar Trading Platform Rule 7.31 Relating to Reserve Orders and Rule 7.36 Relating to Setter Priority, 28701-28705 [2018-13162]
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Federal Register / Vol. 83, No. 119 / Wednesday, June 20, 2018 / Notices
should be submitted on or before July
11, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–13170 Filed 6–19–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83432; File No. SR–NYSE–
2018–26]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 1, To
Amend Pillar Trading Platform Rule
7.31 Relating to Reserve Orders and
Rule 7.36 Relating to Setter Priority
June 14, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 1,
2018, New York Stock Exchange LLC
(‘‘NYSE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule
change. On June 8, 2018, the Exchange
filed Amendment No. 1 to the proposed
rule change, as described in Items I, II,
and III below, which Items have been
prepared by the Exchange.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
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The Exchange proposes to amend
Pillar trading platform Rule 7.31 relating
to Reserve Orders and Rule 7.36 relating
to Setter Priority. This Amendment No.
1 supersedes the original filing in its
entirety. The proposed rule change is
available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 Amendment No. 1 replaces and supersedes the
original filing in its entirety. In Amendment No. 1,
the Exchange modified the definition of ‘‘child
order’’ in proposed rule 7.31.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 7.31 relating to Reserve Orders and
Rule 7.36 relating to Setter Priority.
These proposed changes would be
operative for trading on the Pillar
trading platform only. Because the
Exchange trades only UTP Securities 5
on the Pillar trading platform at this
time, these proposed changes would not
be applicable to NYSE-listed securities.
Background
Rule 7.31(d)(1) defines a Reserve
Order as a Limit Order with a quantity
of the size displayed and with a reserve
quantity of the size (‘‘reserve interest’’)
that is not displayed. The displayed
quantity of a Reserve Order is ranked
Priority 2—Display Orders and the
reserve interest is ranked Priority 3—
Non-Display Orders.6 Rule 7.31(d)(1)(A)
provides that on entry, the display
quantity of a Reserve Order must be
entered in round lots and the displayed
portion of a Reserve Order will be
replenished following any execution.
That rule further provides that the
Exchange will display the full size of
the Reserve Order when the unfilled
quantity is less than the minimum
display size for the order. Rule
7.31(d)(1)(B) provides that each time a
Reserve Order is replenished from
reserve interest, a new working time is
assigned to the replenished quantity of
the Reserve Order, while the reserve
interest retains the working time of
original order entry. Pursuant to Rule
14 17
1 15
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5 The term ‘‘UTP Securities’’ is defined in Rule
1.1 to mean a security that is listed on a national
securities exchange other than the Exchange and
that trades on the Exchange pursuant to unlisted
trading privileges.
6 The terms ‘‘Priority 2—Display Orders’’ and
‘‘Priority 3—Non-Display Orders’’ are defined in
Rule 7.36(e).
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7.31(d)(1)(C), a Reserve Order must be
designated Day and may be combined
with a Limit Non-Routable Order or a
Primary Pegged Order.
Rule 7.36(h) provides that Setter
Priority will be assigned to an order
ranked Priority 2—Display Orders with
a display quantity of at least a round lot
if such order (i) establishes a new BBO
and (ii) either establishes a new NBBO
or joins an Away Market NBBO and that
only one order is eligible for Setter
Priority at each price.7 Rule 7.36(h)(1)
provides that an order will be evaluated
for Setter Priority on arrival, which
includes when any portion of an order
that has routed returns unexecuted and
when it becomes eligible to trade for the
first time upon transitioning to a new
trading session.
Proposed Rule Change to Reserve
Orders
The Exchange proposes to amend
Rule 7.31(d)(1) to change the manner by
which the display portion of a Reserve
Order would be replenished. As
proposed, rather than replenishing the
display quantity following any
execution, the Exchange proposes to
replenish the Reserve Order when the
display quantity is decremented to
below a round lot. This proposed
functionality is consistent with how
Reserve Orders are replenished on other
equity exchanges.8
As is currently the case, the replenish
quantity would be the minimum display
size of the order or the remaining
quantity of reserve interest if it is less
than the minimum display quantity. To
reflect this functionality, the Exchange
proposes that Rule 7.31(d)(1)(A) would
be amended as follows (deleted text
bracketed; new text underlined):
(A) On entry, the display quantity of
a Reserve Order must be entered in
round lots. The displayed portion of a
Reserve Order will be replenished when
the display quantity is decremented to
below a round lot. The replenish
quantity will be the minimum display
quantity of the order or the remaining
quantity of the reserve interest if it is
less than the minimum display quantity
[following any execution. The Exchange
will display the full size of the Reserve
Order when the unfilled quantity is less
than the minimum display size for the
order].
Under current functionality, because
the replenished quantity is assigned a
new working time, it is feasible for a
single Reserve Order to have multiple
7 The terms ‘‘BBO,’’ ‘‘NBBO,’’ ‘‘PBBO,’’ and
‘‘Away Market’’ are defined in Rule 1.1.
8 See, e.g., Cboe BZX Exchange, Inc. (‘‘BZX’’) Rule
11.9(c)(1); Nasdaq Stock Market LLC (‘‘Nasdaq’’)
Rule 7503(h).
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replenished quantities with separate
working times, each, a ‘‘child’’ order.
The proposed change to limit when a
Reserve Order would be replenished to
when the display quantity is
decremented to below a round lot only
would reduce the number of child
orders for a Reserve Order. The
Exchange believes that minimizing the
number of child orders for a Reserve
Order would reduce the potential for
market participants to detect that a child
order displayed on the Exchange’s
proprietary market data feeds is
associated with a Reserve Order.
In most cases, the maximum number
of child orders for a Reserve Order
would be two. For example, assume a
Reserve Order to buy has a display
quantity of 100 shares and an additional
200 shares of reserve interest. A sell
order of 50 shares would trade with the
display quantity of such Reserve Order,
which would decrement the display
quantity to 50 shares. As proposed, the
Exchange would then replenish the
Reserve Order with 100 shares from the
reserve interest, i.e., the minimum
display size for the order. After this
second replenishment, the Reserve
Order would have two child orders, one
for 50 shares, the other for 100 shares,
each with different working times.
Generally, when there are two child
orders, the older child order of less than
a round lot will be executed before the
second child order. However, there are
limited circumstances when a Reserve
Order could have two child orders that
equal less than a round lot, which, as
proposed, would trigger a
replenishment. For such circumstance,
the Exchange proposes that when a
Reserve Order is replenished from
reserve interest and already has two
child orders that equal less than a round
lot, the child order with the later
working time would be reassigned the
new working time assigned to the next
replenished quantity.
For example, taking the same Reserve
Order as above:
• If 100 shares of such order (‘‘A’’) are
routed on arrival, it would have a
display quantity of 100 shares (‘‘B’’) and
100 shares in reserve interest.
• While ‘‘A’’ is routed, a sell order of
50 shares would trade with ‘‘B,’’
decrementing ‘‘B’’ to 50 shares and the
Reserve Order would be replenished
from reserve interest, creating a second
child order ‘‘C’’ of 100 shares.
• Next, the Exchange receives a
request to reduce the size of the Reserve
Order from 300 shares to 230 shares.
Because ‘‘A’’ is still routed away and
there is no reserve interest, and as
described in more detail below, this 70
share reduction in size would be
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applied against the most recent child
order of ‘‘C,’’ which would be reduced
to 30 shares. Together with ‘‘B,’’ which
would still be 50 shares, the two
displayed child orders would equal less
than a round lot, but with no quantity
in reserve interest.
• Next, ‘‘A’’ is returned unexecuted,
and as described below, becomes
reserve interest and is evaluated for
replenishment. Because the total display
quantity (‘‘B’’ + ‘‘C’’) is less than a
round lot, this Reserve Order would be
replenished. But because the Reserve
Order already has two child orders, the
child order with the later working time,
‘‘C,’’ would be returned to the reserve
interest, which would now have a
quantity of 130 shares (‘‘C’’ + ‘‘A’’), and
the Reserve Order would be replenished
with 100 shares from the reserve interest
with a new working time, which would
be a new child order ‘‘D.’’
• After this replenishment, this
Reserve Order would have two child
orders of ‘‘B’’ for 50 shares and ‘‘D’’ for
100 shares, and a reserve interest of 30
shares.
To effect these changes, the Exchange
proposes to amend current Rule
7.31(d)(1)(B) to specify that each display
quantity of a Reserve Order with a
different working time would be
referred to as a child order. The
Exchange further proposes new Rule
7.31(d)(1)(B)(i) that would provide that
when a Reserve Order is replenished
from reserve interest and already has
two child orders that equal less than a
round lot, the child order with the later
working time would rejoin the reserve
interest and be assigned the new
working time assigned to the next
replenished quantity.
The Exchange also proposes new Rule
7.31(d)(1)(B)(ii) to provide that if a
Reserve Order is not routable (i.e., is
combined with either a Limit NonRoutable Order or a Primary Pegged
Order), the replenish quantity would be
assigned a display and working price
consistent with the instructions for the
order, which represents current
functionality. For example, for a Limit
Non-Routable Reserve Order, if the
display price would lock or cross the
contra-side PBBO, the replenished
quantity would be assigned a display
price one MPV worse than the PBBO
and a working price equal to the contraside PBBO, as provided for in Rule
7.31(e)(1)(A)(i). The Exchange believes
that this proposed rule text would
provide transparency and clarity to
Exchange rules.
For a Primary Pegged Reserve Order,
the Exchange proposes that the
replenished quantity would follow Rule
7.31(h)(2)(B), which provides that a
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Primary Pegged Order would be rejected
if the PBBO is locked or crossed.
Because a Primary Pegged Reserve
Order would have resting reserve
interest, the Exchange proposes to
amend Rule 7.31(h)(2)(B) to provide that
if the PBBO is locked or crossed when
the display quantity of a Primary Pegged
Reserve Order is replenished, the entire
order would be cancelled. The Exchange
believes that cancelling the entire order
is consistent with the current rule that
provides that the entire order would be
rejected on arrival if the display
quantity would lock or cross the PBBO.
The Exchange further proposes to add
new subsection (D) to Rule 7.31(d)(1) to
describe when a Reserve Order would
be routed. As proposed, a routable
Reserve Order would be evaluated for
routing both on arrival and each time
the display quantity is replenished.
Proposed Rule 7.31(d)(1)(D)(i) would
provide that if routing is required, the
Exchange would route from reserve
interest before publishing the display
quantity. In addition, if after routing,
there is less than a round lot available
to display, the Exchange would wait
until the routed quantity returns
(executed or unexecuted) before
publishing the display quantity. In the
example described above, the Exchange
would have published the display
quantity before the routed quantity
returned because the display quantity
was at least a round lot. If, however, 250
shares of a Reserve Order of 300 shares
had been routed on arrival, because the
unrouted quantity was less than a round
lot (50 shares), the Exchange would wait
for the routed quantity to return, either
executed or unexecuted, before
publishing the display quantity.
The Exchange proposes this
functionality to reduce the possibility
for a Reserve Order to have more than
one child order. If the Exchange did not
wait, and instead displayed the 50
shares when the balance of the Reserve
Order has routed, if the 250 shares
returns unexecuted, such Reserve Order
would be replenished and would have
two child orders—one for the 50 shares
that was displayed when the order was
entered and a second for the 100 shares
that replenished the Reserve Order from
the quantity that returned unexecuted.
By contrast, by waiting for a report on
the routed quantity, if the routed
quantity was not executed, the
Exchange would display the minimum
display quantity as a single child order.
If the routed quantity was executed, the
Exchange would display the 50 shares,
but only because that would be the full
remaining quantity of the Reserve
Order.
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Proposed Rule 7.31(d)(1)(D)(ii) would
provide that any quantity of a Reserve
Order that is returned unexecuted
would join the working time of the
reserve interest, which is current
functionality. If there is no quantity of
reserve interest to join, the returned
quantity would be assigned a new
working time as reserve interest. As
further proposed, in either case, such
reserve interest would replenish the
display quantity as provided for in
Rules 7.31(d)(1)(A) and (B). The
Exchange believes that this proposed
rule text would promote transparency
and clarity in Exchange rules. The
Exchange further believes it is
appropriate for a returned quantity of a
Reserve Order to join the reserve
interest first because the order may not
be eligible for a replenishment to the
display quantity.
Proposed Rule 7.31(d)(1)(E) would
provide that a request to reduce in size
a Reserve Order would cancel the
reserve interest before canceling the
display quantity and if there is more
than one child order, the child order
with the later working time would be
cancelled first. This represents current
functionality and the example set forth
above demonstrates how this would
function. The Exchange believes that
canceling reserve interest before a child
order would promote the display of
liquidity on an exchange. The Exchange
further believes that canceling a latertimed child order would respect the
time priority of the first child order, and
any priority such child order may have
for allocations.
Proposed Rule Change for Setter Priority
The Exchange also proposes to
expand the opportunity for an order to
be eligible for Setter Priority pursuant to
Rule 7.36(h)(1). As noted above,
currently, an order is eligible for Setter
Priority on arrival or when it becomes
eligible to trade for the first time when
transitioning to a new trading session.
The Exchange first proposes to amend
Rule 7.36(h)(1) to specify that an order
would not be eligible for Setter Priority
if there is an odd-lot sized order with
Setter Priority at that price, which is
current functionality. Because an oddlot order cannot establish a BBO, if there
is an odd-lot order at a price, an arriving
order can get Setter Priority if it
establishes the BBO and either joins or
establishes the NBBO. However, as set
forth in Rule 7.36(h)(2)(A), an order
retains Setter Priority if it is
decremented to below a round lot. In
such case, an arriving order that
establishes the BBO and either joins or
establishes the NBBO would not be
eligible for Setter Priority if there is an
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odd-lot sized order at that price with
Setter Priority. The Exchange believes
that the proposed rule text would
promote transparency and clarity in
Exchange rules.
The Exchange proposes in new Rule
7.36(h)(1)(C) that Setter Priority would
be evaluated for a resting order that is
assigned a new display price. A resting
order could be assigned a new display
price for a number of reasons, including
because of a change to the PBBO or
NBBO (as described in Rule 7.31),
pursuant to Rule 7.11(a)(5), or if a Short
Sale Period is triggered for a security
under Rule 7.16(f). In any repricing
scenario, the repriced order would be
evaluated for Setter Priority, meaning it
would have to meet the requirements of
Rule 7.36(h) that it has a display
quantity of at least a round lot and (i)
establishes a new BBO and (ii) either
establishes a new NBBO or joins an
Away Market NBBO. The Exchange
believes that if a repriced resting order
meets these conditions, it has
aggressively displayed liquidity on the
Exchange and should be eligible for the
additional Setter Priority allocation.
The Exchange proposes to specify
what would happen if multiple orders
reprice at the same time. As proposed in
the second sentence to new Rule
7.36(h)(1)(C), if multiple orders reprice
at the same time, none of the orders
would be eligible for Setter Priority
unless one order is equal to or greater
than a round lot and the sum of all other
orders at that price is less than a round
lot. The other orders at that price could
have been resting orders, e.g., odd-lot
sized displayed orders, or other repriced
orders, or both. The Exchange believes
that this proposed change is consistent
with how the Exchange evaluates Setter
Priority on arrival, which is available for
an incoming order of at least a roundlot size that establishes the BBO and
either joins or establishes the NBBO,
notwithstanding other orders at that
price that equal less than a round lot
and do not already have Setter Priority.
The Exchange also proposes in new
Rule 7.36(h)(1)(D) that a Reserve Order
would be evaluated for Setter Priority
when the display quantity is
replenished. The Exchange proposes
this change in conjunction with the
proposed changes to Reserve Order
replenishment, described above.
Because a Reserve Order would be
replenished only if the display quantity
is decremented to below a round lot, the
Exchange believes that a replenishment
event should be eligible for Setter
Priority if it both establishes a BBO and
either joins or establishes the NBBO. If
the second child order meets those
conditions, such child order would be
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eligible for Setter Priority even if there
is still the first child order of an oddlot size for such Reserve Order on the
Exchange Book. However, consistent
with the proposed change to Rule
7.36(h)(1), if the first child order of the
Reserve Order had Setter Priority, the
second child order of the Reserve Order
would not be eligible for Setter Priority
because there is already an order on the
Exchange Book at that price with Setter
Priority.
The second sentence of proposed Rule
7.36(h)(1)(D) would further provide that
during a Short Sale Period under Rule
7.16(f), if a short sale Reserve Order has
an odd-lot quantity with Setter Priority
and the Permitted Price at which such
order would be replenished would be a
different price, the replenish quantity
would not be eligible for Setter Priority.
As set forth in Rule 7.16(f)(5)(B), reserve
interest that replenishes the displayed
quantity of a Reserve Order will be
replenished at a Permitted Price. Even
though the second child order would be
at a different price and would otherwise
meet the conditions for Setter Priority,
the Exchange believes that a Reserve
Order should not be eligible for Setter
Priority at more than one price.
For example, during a Short Sale
Period,
• If the NBB is 10.00, a short sale
Reserve Order priced at 10.01 would be
displayed at 10.01. If that short sale
Reserve Order established the BO and
either joined or established the NBO, it
would be assigned Setter Priority.
• If the NBB subsequently changes to
10.01, pursuant to Rule 7.16(f)(6), the
display quantity of the Reserve Order
would remain displayed at 10.01, but
the reserve interest would be repriced to
the Permitted Price of 10.02.
• If next, the display quantity at 10.01
is reduced to below a round lot, such
child order would retain Setter Priority.
In addition, the Reserve Order would be
replenished at 10.02, which is the
Permitted Price. However, as proposed,
even if the child order at 10.02 would
establish a new BO and either joined or
established a new NBO, because it is
part of the same Reserve Order, it would
not be eligible to Setter Priority at the
Permitted Price.
Finally, the Exchange proposes to
amend Rule 7.36(h)(3)(C), which
provides that an order loses its Setter
Priority if such order is less than a
round lot and is assigned a new working
time pursuant to Rule 7.38(d)(2). To
reflect the proposed change to Reserve
Orders described above that a child
order could be assigned a new working
time, the Exchange proposes that if
child order of a Reserve Order with
Setter Priority is assigned a new
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working time, it would lose that
priority. However, when it joins the
reserve interest and replenishes the
Reserve Order, pursuant to proposed
Rule 7.36(h)(1)(D), the new child order
would be evaluated for Setter Priority.
For example:
• If the Away Market PBB is 10.05
and the Exchange receives a Reserve
Order to buy priced at 10.00 with 100
shares minimum display quantity and
an additional 1000 shares in reserve
interest, the child order ‘‘A’’ of 100
shares would be displayed at 10.00, but
would not be eligible for Setter Priority.
• If the Away Market PBB adjusts to
9.99 and the Exchange receives a sell
order with a limit price of 10.00 for 70
shares, ‘‘A’’ would be decremented to 30
shares and the Reserve Order would be
replenished with a new child order ‘‘B’’
for 100 shares. Because ‘‘B’’ would
establish a new BB on the Exchange and
a new NBB, it would be assigned Setter
Priority.
• If next, the Exchange receives an
order to sell 90 shares at 10.00, because
‘‘B’’ has Setter Priority, it would trade
with the new order to sell and would
decremented to 10 shares, but still
retain Setter Priority.
• Because ‘‘A’’ and ‘‘B’’ equal less
than a round lot, the Reserve Order will
be replenished. But because ‘‘B’’ would
lose its working time and join the
reserve interest pursuant to proposed
Rule 7.31(d)(1)(B), ‘‘B’’ would also lose
its Setter Priority pursuant to proposed
Rule 7.36(h)(3)(C). A new child order
‘‘C’’ would replenish the order for 100
shares.
• In this case, because ‘‘C’’ would
again establish the BB on the Exchange
and the NBB, ‘‘C’’ would be assigned
Setter Priority for 100 shares.
Finally, the Exchange proposes to
amend Rule 7.36(h)(4) to delete subparagraph (B) of that Rule, which
provides that Setter Priority is not
available when the reserve quantity
replenishes the display quantity of a
Reserve Order. The Exchange proposes
to re-number the rule text so that Rule
7.36(h)(4) provides that Setter Priority is
not available for any portion of an order
that is ranked Priority 3—Non-Display
Orders, which is currently set forth in
sub-paragraph (A).
*
*
*
*
*
Because of the technology changes
associated with this proposed rule
change, the Exchange will announce by
Trader Update when these changes will
be implemented.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
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‘‘Act’’),9 in general, and furthers the
objectives of Section 6(b)(5),10 in
particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that the
proposed rule change to replenish a
Reserve Order only if the display
quantity is decremented to below a
round lot would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would reduce the
number of child orders associated with
a single Reserve Order. By reducing the
number of child orders, the Exchange
believes it would reduce the potential
for market participants to detect that a
child order is associated with a Reserve
Order. This proposed functionality is
also consistent with how Reserve Orders
function on BZX and Nasdaq.
For similar reasons, the Exchange
believes that if a Reserve Order has two
child orders that equal less than a round
lot, it would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system to assign a new working time to
the later child order so that when such
Reserve Order is replenished, it would
have a maximum of only two child
orders. The Exchange believes that this
proposed change would streamline the
operation of Reserve Orders and meet
the objective to reduce the potential for
market participants to be able to identify
that a child order is associated with a
Reserve Order.
The Exchange further believes that the
proposed rule change to evaluate a
Reserve Order for routing both on
arrival and when replenishing would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would reduce the potential for the
display quantity of a Reserve Order to
lock or cross the PBBO of an away
market. The Exchange further believes
that routing from reserve interest would
promote the display of liquidity on the
Exchange, because if there is at least a
round lot remaining of a Reserve Order
that is not routed, the Exchange would
display that quantity. The Exchange also
believes that it would remove
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
10 15
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impediments to and perfect the
mechanism of a free and open market
and a national market system to wait to
display a Reserve Order if there is less
than a round lot remaining after routing
because it would reduce the potential
for such Reserve Order to have more
than one child order. Finally, the
Exchange believes that joining any
quantity of a Reserve Order that is
returned unexecuted with reserve
interest first would be consistent with
the proposed replenishment logic that a
Reserve Order would be replenished
only if the display quantity is
decremented to below a round lot.
The Exchange believes that it would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system to apply
a request to reduce in size a Reserve
Order to the reserve interest first, and
then next to the child order with the
later working time, because such
functionality would promote the display
of liquidity on the Exchange and honor
the priority of the first child order with
the earlier working time. The Exchange
believes that including this existing
functionality in Rule 7.31 would
promote transparency and clarity in
Exchange rules.
The Exchange believes that the
proposed change to Primary Pegged
Reserve Orders would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
similar to how a Primary Pegged Order
would function on arrival, if the
replenish quantity of a Primary Pegged
Reserve Order would lock or cross the
PBBO, the entire Reserve Order would
be cancelled. The Exchange believes
that by cancelling the entire order, the
Exchange would reduce the potential for
such order to be displayed at a price
that would lock or cross the PBBO.
The Exchange believes that the
proposed changes to Rule 7.36 relating
to Setter Priority would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would provide for additional
circumstances when an order would be
eligible to be evaluated for Setter
Priority. The Exchange believes that a
resting order that is repriced or a
Reserve Order that is replenished
should be entitled to Setter Priority if it
meets the existing conditions for Setter
Priority, including that it is at least a
round lot in size, establishes the BBO,
and either establishes or joins the
NBBO. In these circumstances, a
repriced order or replenished Reserve
Order would be promoting the
aggressive display of liquidity on the
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sradovich on DSK3GMQ082PROD with NOTICES
Exchange, which would benefit all
market participants.
The Exchange believes that the
proposed changes to Setter Priority are
designed to operate consistently with
the existing functionality, which is why
multiple orders that reprice would not
be eligible for Setter Priority, unless one
order is equal to a round lot or more and
the sum of all other orders at that price
equal less than a round lot. Similarly,
the Exchange believes that it would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system for a
Reserve Order to be eligible for Setter
Priority at only one price, and therefore,
during a Short Sale Period, if a Reserve
Order is replenished at a Permitted
Price, it would not be eligible for Setter
Priority at a second price level.
Finally, the Exchange believes that
the proposed amendment to Rule
7.37(h)(3)(C) to add that an order would
lose Setter Priority if it is less than a
round lot and assigned a new working
time pursuant to proposed Rule
7.31(d)(1)(B)(i) is consistent with
current behavior that an odd-lot sized
order would lose Setter Priority if it is
assigned a new working time. The
Exchange believes that it would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system for a
Reserve Order to lose Setter Priority in
such circumstances because when it is
assigned a new working time, it would
be eligible to be reevaluated for Setter
Priority.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is not designed to
address any competitive issues. Rather,
the proposed rule change to Reserve
Orders is designed to reduce the
potential for market participants to
identify that a child order is related to
a Reserve Order. The changes to Setter
Priority are designed to promote the
aggressive display of liquidity on the
Exchange to provide additional
circumstances when an order would be
eligible for Setter Priority, consistent
with current rules.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
VerDate Sep<11>2014
17:58 Jun 19, 2018
Jkt 244001
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
28705
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2018–26 and should
be submitted on or before July 11, 2018.
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Eduardo A. Aleman,
Assistant Secretary.
IV. Solicitation of Comments
[FR Doc. 2018–13162 Filed 6–19–18; 8:45 am]
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83446; File No. SR–ISE–
2018–52]
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–
NYSE–2018–26 on the subject line.
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Increase Certain
Route-Out Fees Set Forth in Section
IV.F of the Schedule of Fees
Paper Comments
June 14, 2018.
• 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–NYSE–2018–26. 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 website (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 website 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
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 1,
2018, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to increase
certain route-out fees set forth in
Section IV.F of the Schedule of Fees, as
described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://ise.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 83, Number 119 (Wednesday, June 20, 2018)]
[Notices]
[Pages 28701-28705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13162]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83432; File No. SR-NYSE-2018-26]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1, To Amend Pillar Trading Platform Rule 7.31 Relating to Reserve
Orders and Rule 7.36 Relating to Setter Priority
June 14, 2018.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on June 1, 2018, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change. On June 8, 2018, the Exchange
filed Amendment No. 1 to the proposed rule change, as described in
Items I, II, and III below, which Items have been prepared by the
Exchange.\4\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ Amendment No. 1 replaces and supersedes the original filing
in its entirety. In Amendment No. 1, the Exchange modified the
definition of ``child order'' in proposed rule 7.31.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Pillar trading platform Rule 7.31
relating to Reserve Orders and Rule 7.36 relating to Setter Priority.
This Amendment No. 1 supersedes the original filing in its entirety.
The proposed rule change is available on the Exchange's website at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 7.31 relating to Reserve Orders
and Rule 7.36 relating to Setter Priority. These proposed changes would
be operative for trading on the Pillar trading platform only. Because
the Exchange trades only UTP Securities \5\ on the Pillar trading
platform at this time, these proposed changes would not be applicable
to NYSE-listed securities.
---------------------------------------------------------------------------
\5\ The term ``UTP Securities'' is defined in Rule 1.1 to mean a
security that is listed on a national securities exchange other than
the Exchange and that trades on the Exchange pursuant to unlisted
trading privileges.
---------------------------------------------------------------------------
Background
Rule 7.31(d)(1) defines a Reserve Order as a Limit Order with a
quantity of the size displayed and with a reserve quantity of the size
(``reserve interest'') that is not displayed. The displayed quantity of
a Reserve Order is ranked Priority 2--Display Orders and the reserve
interest is ranked Priority 3--Non-Display Orders.\6\ Rule
7.31(d)(1)(A) provides that on entry, the display quantity of a Reserve
Order must be entered in round lots and the displayed portion of a
Reserve Order will be replenished following any execution. That rule
further provides that the Exchange will display the full size of the
Reserve Order when the unfilled quantity is less than the minimum
display size for the order. Rule 7.31(d)(1)(B) provides that each time
a Reserve Order is replenished from reserve interest, a new working
time is assigned to the replenished quantity of the Reserve Order,
while the reserve interest retains the working time of original order
entry. Pursuant to Rule 7.31(d)(1)(C), a Reserve Order must be
designated Day and may be combined with a Limit Non-Routable Order or a
Primary Pegged Order.
---------------------------------------------------------------------------
\6\ The terms ``Priority 2--Display Orders'' and ``Priority 3--
Non-Display Orders'' are defined in Rule 7.36(e).
---------------------------------------------------------------------------
Rule 7.36(h) provides that Setter Priority will be assigned to an
order ranked Priority 2--Display Orders with a display quantity of at
least a round lot if such order (i) establishes a new BBO and (ii)
either establishes a new NBBO or joins an Away Market NBBO and that
only one order is eligible for Setter Priority at each price.\7\ Rule
7.36(h)(1) provides that an order will be evaluated for Setter Priority
on arrival, which includes when any portion of an order that has routed
returns unexecuted and when it becomes eligible to trade for the first
time upon transitioning to a new trading session.
---------------------------------------------------------------------------
\7\ The terms ``BBO,'' ``NBBO,'' ``PBBO,'' and ``Away Market''
are defined in Rule 1.1.
---------------------------------------------------------------------------
Proposed Rule Change to Reserve Orders
The Exchange proposes to amend Rule 7.31(d)(1) to change the manner
by which the display portion of a Reserve Order would be replenished.
As proposed, rather than replenishing the display quantity following
any execution, the Exchange proposes to replenish the Reserve Order
when the display quantity is decremented to below a round lot. This
proposed functionality is consistent with how Reserve Orders are
replenished on other equity exchanges.\8\
---------------------------------------------------------------------------
\8\ See, e.g., Cboe BZX Exchange, Inc. (``BZX'') Rule
11.9(c)(1); Nasdaq Stock Market LLC (``Nasdaq'') Rule 7503(h).
---------------------------------------------------------------------------
As is currently the case, the replenish quantity would be the
minimum display size of the order or the remaining quantity of reserve
interest if it is less than the minimum display quantity. To reflect
this functionality, the Exchange proposes that Rule 7.31(d)(1)(A) would
be amended as follows (deleted text bracketed; new text underlined):
(A) On entry, the display quantity of a Reserve Order must be
entered in round lots. The displayed portion of a Reserve Order will be
replenished when the display quantity is decremented to below a round
lot. The replenish quantity will be the minimum display quantity of the
order or the remaining quantity of the reserve interest if it is less
than the minimum display quantity [following any execution. The
Exchange will display the full size of the Reserve Order when the
unfilled quantity is less than the minimum display size for the order].
Under current functionality, because the replenished quantity is
assigned a new working time, it is feasible for a single Reserve Order
to have multiple
[[Page 28702]]
replenished quantities with separate working times, each, a ``child''
order. The proposed change to limit when a Reserve Order would be
replenished to when the display quantity is decremented to below a
round lot only would reduce the number of child orders for a Reserve
Order. The Exchange believes that minimizing the number of child orders
for a Reserve Order would reduce the potential for market participants
to detect that a child order displayed on the Exchange's proprietary
market data feeds is associated with a Reserve Order.
In most cases, the maximum number of child orders for a Reserve
Order would be two. For example, assume a Reserve Order to buy has a
display quantity of 100 shares and an additional 200 shares of reserve
interest. A sell order of 50 shares would trade with the display
quantity of such Reserve Order, which would decrement the display
quantity to 50 shares. As proposed, the Exchange would then replenish
the Reserve Order with 100 shares from the reserve interest, i.e., the
minimum display size for the order. After this second replenishment,
the Reserve Order would have two child orders, one for 50 shares, the
other for 100 shares, each with different working times.
Generally, when there are two child orders, the older child order
of less than a round lot will be executed before the second child
order. However, there are limited circumstances when a Reserve Order
could have two child orders that equal less than a round lot, which, as
proposed, would trigger a replenishment. For such circumstance, the
Exchange proposes that when a Reserve Order is replenished from reserve
interest and already has two child orders that equal less than a round
lot, the child order with the later working time would be reassigned
the new working time assigned to the next replenished quantity.
For example, taking the same Reserve Order as above:
If 100 shares of such order (``A'') are routed on arrival,
it would have a display quantity of 100 shares (``B'') and 100 shares
in reserve interest.
While ``A'' is routed, a sell order of 50 shares would
trade with ``B,'' decrementing ``B'' to 50 shares and the Reserve Order
would be replenished from reserve interest, creating a second child
order ``C'' of 100 shares.
Next, the Exchange receives a request to reduce the size
of the Reserve Order from 300 shares to 230 shares. Because ``A'' is
still routed away and there is no reserve interest, and as described in
more detail below, this 70 share reduction in size would be applied
against the most recent child order of ``C,'' which would be reduced to
30 shares. Together with ``B,'' which would still be 50 shares, the two
displayed child orders would equal less than a round lot, but with no
quantity in reserve interest.
Next, ``A'' is returned unexecuted, and as described
below, becomes reserve interest and is evaluated for replenishment.
Because the total display quantity (``B'' + ``C'') is less than a round
lot, this Reserve Order would be replenished. But because the Reserve
Order already has two child orders, the child order with the later
working time, ``C,'' would be returned to the reserve interest, which
would now have a quantity of 130 shares (``C'' + ``A''), and the
Reserve Order would be replenished with 100 shares from the reserve
interest with a new working time, which would be a new child order
``D.''
After this replenishment, this Reserve Order would have
two child orders of ``B'' for 50 shares and ``D'' for 100 shares, and a
reserve interest of 30 shares.
To effect these changes, the Exchange proposes to amend current
Rule 7.31(d)(1)(B) to specify that each display quantity of a Reserve
Order with a different working time would be referred to as a child
order. The Exchange further proposes new Rule 7.31(d)(1)(B)(i) that
would provide that when a Reserve Order is replenished from reserve
interest and already has two child orders that equal less than a round
lot, the child order with the later working time would rejoin the
reserve interest and be assigned the new working time assigned to the
next replenished quantity.
The Exchange also proposes new Rule 7.31(d)(1)(B)(ii) to provide
that if a Reserve Order is not routable (i.e., is combined with either
a Limit Non-Routable Order or a Primary Pegged Order), the replenish
quantity would be assigned a display and working price consistent with
the instructions for the order, which represents current functionality.
For example, for a Limit Non-Routable Reserve Order, if the display
price would lock or cross the contra-side PBBO, the replenished
quantity would be assigned a display price one MPV worse than the PBBO
and a working price equal to the contra-side PBBO, as provided for in
Rule 7.31(e)(1)(A)(i). The Exchange believes that this proposed rule
text would provide transparency and clarity to Exchange rules.
For a Primary Pegged Reserve Order, the Exchange proposes that the
replenished quantity would follow Rule 7.31(h)(2)(B), which provides
that a Primary Pegged Order would be rejected if the PBBO is locked or
crossed. Because a Primary Pegged Reserve Order would have resting
reserve interest, the Exchange proposes to amend Rule 7.31(h)(2)(B) to
provide that if the PBBO is locked or crossed when the display quantity
of a Primary Pegged Reserve Order is replenished, the entire order
would be cancelled. The Exchange believes that cancelling the entire
order is consistent with the current rule that provides that the entire
order would be rejected on arrival if the display quantity would lock
or cross the PBBO.
The Exchange further proposes to add new subsection (D) to Rule
7.31(d)(1) to describe when a Reserve Order would be routed. As
proposed, a routable Reserve Order would be evaluated for routing both
on arrival and each time the display quantity is replenished.
Proposed Rule 7.31(d)(1)(D)(i) would provide that if routing is
required, the Exchange would route from reserve interest before
publishing the display quantity. In addition, if after routing, there
is less than a round lot available to display, the Exchange would wait
until the routed quantity returns (executed or unexecuted) before
publishing the display quantity. In the example described above, the
Exchange would have published the display quantity before the routed
quantity returned because the display quantity was at least a round
lot. If, however, 250 shares of a Reserve Order of 300 shares had been
routed on arrival, because the unrouted quantity was less than a round
lot (50 shares), the Exchange would wait for the routed quantity to
return, either executed or unexecuted, before publishing the display
quantity.
The Exchange proposes this functionality to reduce the possibility
for a Reserve Order to have more than one child order. If the Exchange
did not wait, and instead displayed the 50 shares when the balance of
the Reserve Order has routed, if the 250 shares returns unexecuted,
such Reserve Order would be replenished and would have two child
orders--one for the 50 shares that was displayed when the order was
entered and a second for the 100 shares that replenished the Reserve
Order from the quantity that returned unexecuted. By contrast, by
waiting for a report on the routed quantity, if the routed quantity was
not executed, the Exchange would display the minimum display quantity
as a single child order. If the routed quantity was executed, the
Exchange would display the 50 shares, but only because that would be
the full remaining quantity of the Reserve Order.
[[Page 28703]]
Proposed Rule 7.31(d)(1)(D)(ii) would provide that any quantity of
a Reserve Order that is returned unexecuted would join the working time
of the reserve interest, which is current functionality. If there is no
quantity of reserve interest to join, the returned quantity would be
assigned a new working time as reserve interest. As further proposed,
in either case, such reserve interest would replenish the display
quantity as provided for in Rules 7.31(d)(1)(A) and (B). The Exchange
believes that this proposed rule text would promote transparency and
clarity in Exchange rules. The Exchange further believes it is
appropriate for a returned quantity of a Reserve Order to join the
reserve interest first because the order may not be eligible for a
replenishment to the display quantity.
Proposed Rule 7.31(d)(1)(E) would provide that a request to reduce
in size a Reserve Order would cancel the reserve interest before
canceling the display quantity and if there is more than one child
order, the child order with the later working time would be cancelled
first. This represents current functionality and the example set forth
above demonstrates how this would function. The Exchange believes that
canceling reserve interest before a child order would promote the
display of liquidity on an exchange. The Exchange further believes that
canceling a later-timed child order would respect the time priority of
the first child order, and any priority such child order may have for
allocations.
Proposed Rule Change for Setter Priority
The Exchange also proposes to expand the opportunity for an order
to be eligible for Setter Priority pursuant to Rule 7.36(h)(1). As
noted above, currently, an order is eligible for Setter Priority on
arrival or when it becomes eligible to trade for the first time when
transitioning to a new trading session.
The Exchange first proposes to amend Rule 7.36(h)(1) to specify
that an order would not be eligible for Setter Priority if there is an
odd-lot sized order with Setter Priority at that price, which is
current functionality. Because an odd-lot order cannot establish a BBO,
if there is an odd-lot order at a price, an arriving order can get
Setter Priority if it establishes the BBO and either joins or
establishes the NBBO. However, as set forth in Rule 7.36(h)(2)(A), an
order retains Setter Priority if it is decremented to below a round
lot. In such case, an arriving order that establishes the BBO and
either joins or establishes the NBBO would not be eligible for Setter
Priority if there is an odd-lot sized order at that price with Setter
Priority. The Exchange believes that the proposed rule text would
promote transparency and clarity in Exchange rules.
The Exchange proposes in new Rule 7.36(h)(1)(C) that Setter
Priority would be evaluated for a resting order that is assigned a new
display price. A resting order could be assigned a new display price
for a number of reasons, including because of a change to the PBBO or
NBBO (as described in Rule 7.31), pursuant to Rule 7.11(a)(5), or if a
Short Sale Period is triggered for a security under Rule 7.16(f). In
any repricing scenario, the repriced order would be evaluated for
Setter Priority, meaning it would have to meet the requirements of Rule
7.36(h) that it has a display quantity of at least a round lot and (i)
establishes a new BBO and (ii) either establishes a new NBBO or joins
an Away Market NBBO. The Exchange believes that if a repriced resting
order meets these conditions, it has aggressively displayed liquidity
on the Exchange and should be eligible for the additional Setter
Priority allocation.
The Exchange proposes to specify what would happen if multiple
orders reprice at the same time. As proposed in the second sentence to
new Rule 7.36(h)(1)(C), if multiple orders reprice at the same time,
none of the orders would be eligible for Setter Priority unless one
order is equal to or greater than a round lot and the sum of all other
orders at that price is less than a round lot. The other orders at that
price could have been resting orders, e.g., odd-lot sized displayed
orders, or other repriced orders, or both. The Exchange believes that
this proposed change is consistent with how the Exchange evaluates
Setter Priority on arrival, which is available for an incoming order of
at least a round-lot size that establishes the BBO and either joins or
establishes the NBBO, notwithstanding other orders at that price that
equal less than a round lot and do not already have Setter Priority.
The Exchange also proposes in new Rule 7.36(h)(1)(D) that a Reserve
Order would be evaluated for Setter Priority when the display quantity
is replenished. The Exchange proposes this change in conjunction with
the proposed changes to Reserve Order replenishment, described above.
Because a Reserve Order would be replenished only if the display
quantity is decremented to below a round lot, the Exchange believes
that a replenishment event should be eligible for Setter Priority if it
both establishes a BBO and either joins or establishes the NBBO. If the
second child order meets those conditions, such child order would be
eligible for Setter Priority even if there is still the first child
order of an odd-lot size for such Reserve Order on the Exchange Book.
However, consistent with the proposed change to Rule 7.36(h)(1), if the
first child order of the Reserve Order had Setter Priority, the second
child order of the Reserve Order would not be eligible for Setter
Priority because there is already an order on the Exchange Book at that
price with Setter Priority.
The second sentence of proposed Rule 7.36(h)(1)(D) would further
provide that during a Short Sale Period under Rule 7.16(f), if a short
sale Reserve Order has an odd-lot quantity with Setter Priority and the
Permitted Price at which such order would be replenished would be a
different price, the replenish quantity would not be eligible for
Setter Priority. As set forth in Rule 7.16(f)(5)(B), reserve interest
that replenishes the displayed quantity of a Reserve Order will be
replenished at a Permitted Price. Even though the second child order
would be at a different price and would otherwise meet the conditions
for Setter Priority, the Exchange believes that a Reserve Order should
not be eligible for Setter Priority at more than one price.
For example, during a Short Sale Period,
If the NBB is 10.00, a short sale Reserve Order priced at
10.01 would be displayed at 10.01. If that short sale Reserve Order
established the BO and either joined or established the NBO, it would
be assigned Setter Priority.
If the NBB subsequently changes to 10.01, pursuant to Rule
7.16(f)(6), the display quantity of the Reserve Order would remain
displayed at 10.01, but the reserve interest would be repriced to the
Permitted Price of 10.02.
If next, the display quantity at 10.01 is reduced to below
a round lot, such child order would retain Setter Priority. In
addition, the Reserve Order would be replenished at 10.02, which is the
Permitted Price. However, as proposed, even if the child order at 10.02
would establish a new BO and either joined or established a new NBO,
because it is part of the same Reserve Order, it would not be eligible
to Setter Priority at the Permitted Price.
Finally, the Exchange proposes to amend Rule 7.36(h)(3)(C), which
provides that an order loses its Setter Priority if such order is less
than a round lot and is assigned a new working time pursuant to Rule
7.38(d)(2). To reflect the proposed change to Reserve Orders described
above that a child order could be assigned a new working time, the
Exchange proposes that if child order of a Reserve Order with Setter
Priority is assigned a new
[[Page 28704]]
working time, it would lose that priority. However, when it joins the
reserve interest and replenishes the Reserve Order, pursuant to
proposed Rule 7.36(h)(1)(D), the new child order would be evaluated for
Setter Priority. For example:
If the Away Market PBB is 10.05 and the Exchange receives
a Reserve Order to buy priced at 10.00 with 100 shares minimum display
quantity and an additional 1000 shares in reserve interest, the child
order ``A'' of 100 shares would be displayed at 10.00, but would not be
eligible for Setter Priority.
If the Away Market PBB adjusts to 9.99 and the Exchange
receives a sell order with a limit price of 10.00 for 70 shares, ``A''
would be decremented to 30 shares and the Reserve Order would be
replenished with a new child order ``B'' for 100 shares. Because ``B''
would establish a new BB on the Exchange and a new NBB, it would be
assigned Setter Priority.
If next, the Exchange receives an order to sell 90 shares
at 10.00, because ``B'' has Setter Priority, it would trade with the
new order to sell and would decremented to 10 shares, but still retain
Setter Priority.
Because ``A'' and ``B'' equal less than a round lot, the
Reserve Order will be replenished. But because ``B'' would lose its
working time and join the reserve interest pursuant to proposed Rule
7.31(d)(1)(B), ``B'' would also lose its Setter Priority pursuant to
proposed Rule 7.36(h)(3)(C). A new child order ``C'' would replenish
the order for 100 shares.
In this case, because ``C'' would again establish the BB
on the Exchange and the NBB, ``C'' would be assigned Setter Priority
for 100 shares.
Finally, the Exchange proposes to amend Rule 7.36(h)(4) to delete
sub-paragraph (B) of that Rule, which provides that Setter Priority is
not available when the reserve quantity replenishes the display
quantity of a Reserve Order. The Exchange proposes to re-number the
rule text so that Rule 7.36(h)(4) provides that Setter Priority is not
available for any portion of an order that is ranked Priority 3--Non-
Display Orders, which is currently set forth in sub-paragraph (A).
* * * * *
Because of the technology changes associated with this proposed
rule change, the Exchange will announce by Trader Update when these
changes will be implemented.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\9\ in general, and
furthers the objectives of Section 6(b)(5),\10\ in particular, because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to, and perfect the
mechanism of, a free and open market and a national market system and,
in general, to protect investors and the public interest.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change to replenish a
Reserve Order only if the display quantity is decremented to below a
round lot would remove impediments to and perfect the mechanism of a
free and open market and a national market system because it would
reduce the number of child orders associated with a single Reserve
Order. By reducing the number of child orders, the Exchange believes it
would reduce the potential for market participants to detect that a
child order is associated with a Reserve Order. This proposed
functionality is also consistent with how Reserve Orders function on
BZX and Nasdaq.
For similar reasons, the Exchange believes that if a Reserve Order
has two child orders that equal less than a round lot, it would remove
impediments to and perfect the mechanism of a free and open market and
a national market system to assign a new working time to the later
child order so that when such Reserve Order is replenished, it would
have a maximum of only two child orders. The Exchange believes that
this proposed change would streamline the operation of Reserve Orders
and meet the objective to reduce the potential for market participants
to be able to identify that a child order is associated with a Reserve
Order.
The Exchange further believes that the proposed rule change to
evaluate a Reserve Order for routing both on arrival and when
replenishing would remove impediments to and perfect the mechanism of a
free and open market and a national market system because it would
reduce the potential for the display quantity of a Reserve Order to
lock or cross the PBBO of an away market. The Exchange further believes
that routing from reserve interest would promote the display of
liquidity on the Exchange, because if there is at least a round lot
remaining of a Reserve Order that is not routed, the Exchange would
display that quantity. The Exchange also believes that it would remove
impediments to and perfect the mechanism of a free and open market and
a national market system to wait to display a Reserve Order if there is
less than a round lot remaining after routing because it would reduce
the potential for such Reserve Order to have more than one child order.
Finally, the Exchange believes that joining any quantity of a Reserve
Order that is returned unexecuted with reserve interest first would be
consistent with the proposed replenishment logic that a Reserve Order
would be replenished only if the display quantity is decremented to
below a round lot.
The Exchange believes that it would remove impediments to and
perfect the mechanism of a free and open market and a national market
system to apply a request to reduce in size a Reserve Order to the
reserve interest first, and then next to the child order with the later
working time, because such functionality would promote the display of
liquidity on the Exchange and honor the priority of the first child
order with the earlier working time. The Exchange believes that
including this existing functionality in Rule 7.31 would promote
transparency and clarity in Exchange rules.
The Exchange believes that the proposed change to Primary Pegged
Reserve Orders would remove impediments to and perfect the mechanism of
a free and open market and a national market system because similar to
how a Primary Pegged Order would function on arrival, if the replenish
quantity of a Primary Pegged Reserve Order would lock or cross the
PBBO, the entire Reserve Order would be cancelled. The Exchange
believes that by cancelling the entire order, the Exchange would reduce
the potential for such order to be displayed at a price that would lock
or cross the PBBO.
The Exchange believes that the proposed changes to Rule 7.36
relating to Setter Priority would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because it would provide for additional circumstances when an order
would be eligible to be evaluated for Setter Priority. The Exchange
believes that a resting order that is repriced or a Reserve Order that
is replenished should be entitled to Setter Priority if it meets the
existing conditions for Setter Priority, including that it is at least
a round lot in size, establishes the BBO, and either establishes or
joins the NBBO. In these circumstances, a repriced order or replenished
Reserve Order would be promoting the aggressive display of liquidity on
the
[[Page 28705]]
Exchange, which would benefit all market participants.
The Exchange believes that the proposed changes to Setter Priority
are designed to operate consistently with the existing functionality,
which is why multiple orders that reprice would not be eligible for
Setter Priority, unless one order is equal to a round lot or more and
the sum of all other orders at that price equal less than a round lot.
Similarly, the Exchange believes that it would remove impediments to
and perfect the mechanism of a free and open market and a national
market system for a Reserve Order to be eligible for Setter Priority at
only one price, and therefore, during a Short Sale Period, if a Reserve
Order is replenished at a Permitted Price, it would not be eligible for
Setter Priority at a second price level.
Finally, the Exchange believes that the proposed amendment to Rule
7.37(h)(3)(C) to add that an order would lose Setter Priority if it is
less than a round lot and assigned a new working time pursuant to
proposed Rule 7.31(d)(1)(B)(i) is consistent with current behavior that
an odd-lot sized order would lose Setter Priority if it is assigned a
new working time. The Exchange believes that it would remove
impediments to and perfect the mechanism of a free and open market and
a national market system for a Reserve Order to lose Setter Priority in
such circumstances because when it is assigned a new working time, it
would be eligible to be reevaluated for Setter Priority.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not designed to address any competitive issues. Rather, the proposed
rule change to Reserve Orders is designed to reduce the potential for
market participants to identify that a child order is related to a
Reserve Order. The changes to Setter Priority are designed to promote
the aggressive display of liquidity on the Exchange to provide
additional circumstances when an order would be eligible for Setter
Priority, consistent with current rules.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2018-26 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-NYSE-2018-26. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2018-26 and should be submitted on
or before July 11, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13162 Filed 6-19-18; 8:45 am]
BILLING CODE 8011-01-P
