Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change To Amend Rule 7.31 Relating to Discretionary Orders, Auction-Only Orders, Discretionary Modifier, and Yielding Modifier and Related Amendments to Rules 7.16, 7.34, 7.36, and 7.37, 64913-64922 [2018-27280]
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Federal Register / Vol. 83, No. 242 / Tuesday, December 18, 2018 / Notices
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–2018–58 and should
be submitted on or before January 8,
2019.
The subject matters of the closed
meeting will be:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Resolution of litigation claims; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed; please contact
Brent J. Fields from the Office of the
Secretary at (202) 551–5400.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Deputy Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[FR Doc. 2018–27278 Filed 12–17–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
2:00 p.m. on Thursday,
December 20, 2018.
PLACE: The meeting will be held at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will be closed to
the public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
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more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matters at the closed meeting.
Commissioner Jackson, as duty
officer, voted to consider the items
listed for the closed meeting in closed
session.
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TIME AND DATE:
Dated: December 13, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018–27417 Filed 12–14–18; 11:15 am]
BILLING CODE 8011–01–P
[Release No. 34–84806; File No. SR–NYSE–
2018–52]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change To
Amend Rule 7.31 Relating to
Discretionary Orders, Auction-Only
Orders, Discretionary Modifier, and
Yielding Modifier and Related
Amendments to Rules 7.16, 7.34, 7.36,
and 7.37
December 12, 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
November 29, 2018, New York Stock
Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. 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
The Exchange proposes to amend
Rule 7.31 (Orders and Modifiers) to: (i)
Add a new order type, Discretionary
Orders; (ii) add two new order type
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
21 17
CFR 200.30–3(a)(12).
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modifiers, the Last Sale Peg Modifier
and the Yielding Modifier; and (iii)
make related changes to Rules 7.16,
7.34, 7.36, and 7.37. 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 (Orders and Modifiers) to: (i)
Add a new order type, Discretionary
Orders; (ii) add two new order type
modifiers, the Last Sale Peg Modifier
and the Yielding Modifier; and (iii)
make related changes to Rules 7.16,
7.34, 7.36, and 7.37.
Each of these proposed changes is
designed to introduce on Pillar order
types and modifiers that are currently
available for trading securities listed on
the Exchange. First, the proposed new
order type, Discretionary Orders, or ‘‘D
Orders,’’ is based on current d-Quote
functionality.4 Second, the proposed
Last Sale Peg Modifier is based on the
Buy Minus Zero Plus Instruction.5
Finally, the proposed Yielding Modifier
is based on e-Quotes that yield (‘‘gQuotes’’).6 The Exchange also proposes
to make related changes to Rules 7.16
(Short Sales), 7.34 (Trading Sessions),
7.36 (Order Ranking and Display), and
7.37 (Order Execution and Routing).
Currently, only UTP Securities are
traded on the Exchange’s Pillar trading
platform.7 Accordingly, at this time, the
4 See Supplementary Material .25 to Rule 70
(‘‘Rule 70.25’’).
5 See Rule 13(f)(4).
6 See Rule 70(a)(ii) and (iii).
7 ‘‘UTP Security’’ is defined as a security that is
listed on a national securities exchange other than
the Exchange and that trades on the Exchange
Continued
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Federal Register / Vol. 83, No. 242 / Tuesday, December 18, 2018 / Notices
proposed D Order, Last Sale Peg
Modifier, and Yielding Modifier would
be available only for UTP Securities.
When the Exchange transitions
Exchange-listed securities to Pillar,
these order types and modifiers would
be available for those securities as well.8
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Proposed Discretionary Order
The Exchange proposes a new order
type, a Discretionary Order or ‘‘D
Order’’, under paragraph (d)(4) of Rule
7.31 for securities trading on Pillar.
Today, the Exchange offers d-Quotes 9
for trading in Exchange-listed securities
only, which operate in a similar manner
as the proposed D Order, including that
such order type is available to Floor
brokers only.
Under Rule 70.25, a d-Quote is a
quotation entered by a Floor broker that
includes discretionary instructions as to
size and/or price.10 Such discretionary
instructions are active during the
trading day, unless the PBBO is
crossed.11 A Floor broker can also
include an instruction for the
discretionary instructions to participate
in the opening or closing transaction
only.12 Discretionary instructions are
not displayed and such instructions
apply to both displayed and reserve
interest.13 Currently, price discretion
can apply to all or a portion of a dQuote and a d-Quote with a midpoint
modifier has a discretionary price range
to the midpoint of the PBBO.14
With respect to discretionary size, a
Floor broker may designate the amount
of d-Quote volume to which the
discretionary price instructions shall
apply, and can also designate that a
minimum size of contra-side volume
with which it is willing to trade using
discretionary size instructions.15 A
Floor broker may also designate a
minimum trade size (‘‘MTS’’) that must
be met before the d-Quote is executed.16
A resting d-Quote will be triggered to
pursuant to unlisted trading privileges. See Rule
1.1(x).
8 The proposed D Order, Last Sale Peg Modifier,
and Yielding Modifier would function in an
identical manner as proposed herein when made
available for Exchange-listed securities.
9 See Rule 70.25. See also Securities Exchange
Act Release Nos. 54577 (October 5, 2006), 71 FR
60208 (October 12, 2006) (SR–NYSE–2006–25) (‘‘dQuote Approval Order’’); 60251 (July 7, 2009), 74
FR 34068 (July 14, 2009) (SR–NYSE–2009–55);
61072 (November 30, 2009), 74 FR 64103
(December 7, 2009) (SR–NYSE–2009–106); and
75444 (July 13, 2015), 80 FR 42575 (July 17, 2015)
(SR–NYSE–2015–15).
10 See Rule 70.25(a)(i).
11 See Rule 70.25(a)(ii).
12 See id.
13 See Rule 70.25(a)(vi) and (vjj).
14 See Rule 70.25(b).
15 See Rule 70.25(c).
16 See Rule 70.25(d).
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exercise discretion so long as the contraside interest’s price is within the
discretionary price range and meets the
MTS that has been set for the d-Quote.17
On Pillar, the Exchange proposes to
offer Floor brokers functionality similar
to d-Quotes in the form of D Orders.
However, the Exchange proposes to
simplify and streamline D Order
functionality on Pillar as compared to
how d-Quotes function. Among other
things, the Exchange would not offer
discretionary size instructions for D
Orders that are available to d-Quotes.
Also unlike d-Quotes, the discretionary
price instructions would be applicable
to the entirety of the D Order. In
addition, all D Orders would have a
discretionary price range capped at the
midpoint of the PBBO, which is
currently optional functionality for dQuotes.
Overview. Proposed Rule 7.31(d)(4)
would set forth the general requirements
for D Orders and would provide that a
D Order is a Limit Order that may trade
at an undisplayed discretionary price.
As further proposed, a D Order must be
designated Day, may be designated as
routable or non-routable,18 and on
entry, must have a minimum of one
round lot displayed. This proposed rule
text is based in part on how d-Quotes
currently function, with a proposed
difference that on Pillar, D Orders
would be required to have a display
quantity.19 The Exchange proposes that,
as currently available for d-Quotes, D
Orders could be combined with a
Reserve Order, which would be
addressed in an amendment to Rule
7.31(d)(1)(C).
Proposed Rule 7.31(d)(4) would
further provide that a D Order is
available only to Floor brokers and is
eligible to be traded in the Core Trading
Session 20 only. This proposed rule text
is based on current rules that d-Quotes
are available only to Floor brokers. The
requirement that D Orders would be
eligible to trade in the Core Trading
Session only is consistent with current
d-Quote functionality, which trade
during ‘‘regular trading hours’’ only.
17 See
Rule 70.25(e)(ii).
d-Quote can be combined with a Do Not Ship
‘‘DNS’’ Order, which is an order that would be
cancelled if it were required to be routed. See Rule
13(e)(2). Accordingly, a d-Quote combined with
DNS is a non-routable d-Quote.
19 Currently, Reserve Orders available to Floor
brokers do not require a display quantity. See Rule
70(f).
20 The Core Trading Session begins at 9:30 a.m.
Eastern Time and ends at the conclusion of Core
Trading Hours. See Rule 7.34(a)(2). The term ‘‘Core
Trading Hours’’ means ‘‘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.’’ See Rule 1.1(d).
18 A
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The Exchange proposes to apply this
same time frame when making D Orders
available to all securities that trade on
Pillar, including UTP Securities
because, as discussed below, D Order
functionality would operate similarly to
Pegged Orders, which are also only
available during Core Trading Hours.
The Exchange also proposes to amend
Rule 7.34(c)(1)(A) to specify when a D
Order may be entered and be eligible for
execution.
Upon Arrival. Proposed Rule
7.31(d)(4)(A) would provide that the
Floor broker would be required to
specify one of the following instructions
for a D Order: (i) Limit Price D Order;
or (ii) Midpoint Price D Order.
• Proposed Rule 7.31(d)(4)(A)(i)
would provide that on arrival, a Limit
Price D Order to buy (sell) would trade
with sell (buy) orders on the Exchange
Book, or, if designated as routable, route
to an Away Market up (down) to the
limit price of the order. If after trading
or routing the PBBO is locked or crossed
or there is no PBB (PBO), a Limit Price
D Order would be cancelled. For a Limit
Price D Order that is partially routed to
an Away Market on arrival, any
returned quantity of such D Order
would join the working price of the
resting odd-lot quantity of the D Order.
Because the limit price of a D Order
would function similarly to the upper
(lower) discretionary price range of a dQuote, this proposed operation of a
Limit Price D Order on arrival is similar
to how d-Quotes currently function.21
• Proposed Rule 7.31(d)(4)(A)(ii)
would provide that on arrival, a
Midpoint Price D Order to buy (sell)
would trade with sell (buy) orders on
the Exchange Book up (down) to the
lower (higher) of the midpoint of the
PBBO (‘‘Midpoint Price’’) or the order’s
limit price. The rule would further
provide that a Midpoint Price D Order
would not route on arrival, even if
designated as routable. If designated as
routable, a Midpoint D Order combined
with a Reserve Order would be
evaluated for routing each time the
display quantity is replenished as
provided for in Rule 7.31(d)(1)(D).22 The
rule would further provide that if the
PBBO is locked or crossed or if the
Midpoint Price is unavailable, the
Midpoint Price D Order would be
rejected. The Midpoint Price D Order is
based on current functionality that a dQuote may be designated with a
21 See Rule 70.25(e)(vii) (a d-Quote may initiate
a sweep to the extent of their price and volume
discretion).
22 Rule 7.31(d)(1)(D) provides that a routable
Reserve Order will be evaluated for routing both on
arrival and each time the display quantity is
replenished.
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Federal Register / Vol. 83, No. 242 / Tuesday, December 18, 2018 / Notices
midpoint modifier and the discretionary
price range of such d-Quote is the
midpoint of the PBBO.23
The Exchange notes that the proposed
functionality to either cancel or reject a
D Order when the PBBO is locked or
crossed is based on how Primary Pegged
Orders 24 currently function.25 As
discussed below, the Exchange proposes
that D Orders would function similarly
to Primary Pegged Orders because they
would be pegged to the same-side
PBBO. The Exchange therefore believes
that a D Order should be rejected or
cancelled under the same circumstances
when a Primary Pegged Order would be
cancelled or rejected.26 In addition, this
is consistent with current d-Quote
functionality that provides that
discretionary instructions are not active
when the PBBO is crossed.27
Display Price. Proposed Rule
7.31(d)(4)(B) would set forth how a D
Order would be displayed when resting
on the Exchange Book and would
provide that the working 28 and display
price of a D Order to buy (sell) would
be pegged to the PBB (PBO). If the PBB
(PBO) is higher (lower) than the limit
price of a D Order to buy (sell), the
working and display price would be the
limit price of the order. The rule would
further provide that a D Order to buy
(sell) would be cancelled if there is no
PBB (PBO) against which to peg. At its
display price,29 a D Order would be
ranked Priority 2—Display Orders.30
This proposed functionality for D
Orders would be new for Pillar and is
based on how Primary Pegged Orders
function, including that a D Order
would be cancelled if there is nothing
against which to peg. The Exchange
believes this proposed difference would
23 See
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24 See
Rule 70.25(b)(v).
Rule 7.31(h) for a description of Pegged
Orders.
25 See Rule 7.31(h)(2) and (h)(2)(B) (‘‘A Primary
Pegged Order will be rejected if the PBBO is locked
or crossed.’’).
26 See Rule 7.31(h)(2) (‘‘A Primary Pegged Order
to buy (sell) will be rejected on arrival, or cancelled
when resting, if there is no PBB (PBO) against
which to peg.’’)
27 See Rule 70.25(a)(ii).
28 ‘‘Working price’’ means the price at which an
order is eligible to trade at any given time, which
may be different from the limit price or display
price of the order. See Rule 7.36(a)(3).
29 ‘‘Display price’’ means the price at which a
Limit Order is displayed, which may be different
from the limit price or working price of the order.
See Rule 7.36(a)(1).
30 Rule 7.36(e) governs execution priority for
orders resting on the Exchange Book and currently
sets forth three priority categories: Priority 1—
Market Orders, Priority 2—Display Orders, and
Priority 3—Non-Display Orders. If a D Order is
combined with a Reserve Order, the reserve interest
of such order would be ranked Priority 3—NonDisplay Orders. See Rule 7.31(d)(1).
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streamline and simplify the operation of
D Orders as compared to d-Quotes.31
Exercising Discretion. Proposed Rule
7.31(d)(4)(C) would provide that a
resting D Order to buy (sell) would be
eligible to exercise discretion up (down)
to the limit price of the order. This
proposed rule text is new for Pillar and
reflects that the limit price of the D
Order would function as the ceiling or
floor of the discretionary price range for
such order. As noted above, the display
price of a D Order would be pegged to
the same-side PBBO and would not be
based on the limit price.
The proposed rule would further
provide that such D Order would not
exercise discretion if the PBBO is locked
or crossed or if there is no Midpoint
Price. This functionality is based in part
on how d-Quotes currently function and
adds that D Orders would not exercise
discretion if the market is locked
(because a D Order would be pegged to
the same-side PBBO and there is no
midpoint) or if there is no Midpoint
Price (meaning there is no price
available for a D Order to extend its
discretion to).32
Proposed Rule 7.31(d)(4)(C)(i) would
provide that a D Order to buy (sell)
would be triggered to exercise discretion
if the price of an Aggressing Order 33 to
sell (buy) is above (below) the PBB
(PBO) and at or below the Midpoint
Price (the ‘‘discretionary price range’’).
This would be new functionality for D
Orders. Currently, any contra-side order
that is within the discretionary price
range of a d-Quote would trigger a dQuote to trade.34 The Exchange believes
the proposed difference for D Orders
would streamline and simplify the
function of D Orders. More specifically,
because the discretionary price range for
a D Order would be one minimum price
variation (‘‘MPV’’) better than the sameside PBBO capped by the Midpoint
Price, the Exchange believes that only
contra-side orders with a limit price
within that same discretionary price
range should trigger a D Order to
exercise discretion.
Proposed Rule 7.31(d)(4)(C)(ii) would
provide that the discretionary price at
which a D Order to buy (sell) would
trade would be the price of the sell (buy)
order. This proposed functionality
31 Currently, d-Quotes resting at the depth of book
can exercise discretion. See Rule 70.25(e)(i)(A).
32 See Rule 70.25(a)(ii).
33 An Aggressing Order is a buy (sell) order that
is or becomes marketable against sell (buy) interest
on the Exchange Book. See Rule 7.36(a)(6). A
resting order may become an Aggressing Order if its
working price changes, if the PBBO or NBBO is
updated, because of changes to other orders on the
Exchange Book, or when processing inbound
messages. Id.
34 See Rule 70.25(e)(ii).
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64915
would be new for Pillar and is to be read
together with proposed Rule
7.31(d)(4)(C)(i), which defines the price
range of the contra-side order that could
trigger the D Order to exercise
discretion. In addition, the Exchange
proposes to define the term
‘‘discretionary price’’ in new Rule
7.36(a)(7) to mean the undisplayed price
at which a D Order would trade if it
exercises discretion.
Proposed Rule 7.31(d)(4)(C)(ii) would
further provide that if there is other
interest to buy (sell) on the Exchange
Book priced equal to or higher (lower)
than the price of the sell (buy) order, the
discretionary price would be one MPV
higher (lower) than the highest (lowest)
priced resting order to buy (sell), capped
by the Midpoint Price.35 This would be
new functionality for Pillar and is based
in part on current functionality that
requires a d-Quote to exercise the least
amount of price discretion.36 The
following example illustrates this
behavior:
• If the PBBO is $10.00 by $10.10
with a Midpoint Price of $10.05 and a
Floor broker enters a D Order to buy 100
shares with a limit price of $10.08
(‘‘Order 1’’), Order 1 would be pegged
to and displayed at $10.00, the PBB,
with a discretionary price range up to
the $10.05 Midpoint Price. If a nondisplayed Limit Order to buy 100 shares
at $10.03 is placed on the Exchange
Book (‘‘Order 2’’) and next, a Limit
Order to sell 200 shares at $10.01 is
entered (‘‘Order 3’’), because Order 3 is
marketable against Order 2 at $10.03,
Order 1’s discretionary price range
would extend to $10.04, one MPV
higher than Order 2’s limit price. Order
3 would execute 100 shares against
Order 1 at $10.04, providing Order 3
with $0.03 of price improvement
relative to its limit price. The remaining
100 shares of Order 3 would execute
against Order 2 at $10.03.
Ranking and Working Time. As
provided for in Rule 7.36(f)(1), an order
is assigned its working time based on its
original entry time, which is the time
when an order is placed on the
Exchange Book. Rule 7.36(f)(2) further
provides that an order is assigned a new
working time any time its working price
changes.37 Because a D Order can trade
at more than one price—its display
price or its discretionary price, the
Exchange proposes to address the
working time associated with each such
35 The
MPV for securities is defined in Rule 7.6.
Rule 70.25(e)(i)(A).
37 Pursuant to Rule 7.36(f)(2), each time a D Order
is assigned a new working and display price, i.e.,
with each change to the same-side PBBO pursuant
to proposed Rule 7.31(d)(4)(B)(i), such D Order
would be assigned a new working time.
36 See
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price in proposed Rule 7.31(d)(4)(D). As
proposed, the trigger to exercise
discretion would not change the
working time of a D Order’s display and
working price.
Proposed Rule 7.31(d)(4)(D)(i) would
provide that at its discretionary price, a
D Order would be assigned a new
temporary working time that is later
than any same-side resting interest at
that price. This temporary working time
is distinct from the working time
associated with the display and working
price of the D Order, which are pegged
to the same-side PBBO.
Proposed Rule 7.31(d)(4)(D)(ii) would
provide that multiple D Orders eligible
to trade at the same discretionary price
would be ranked by limit price and
time. This is new functionality for
Pillar. Current Rule 70.25(e)(iii) and (iv)
describe how competing d-Quotes from
more than one Floor broker trade. The
Exchange does not propose to replicate
this functionality on Pillar and believes
that ranking multiple same-side D
Orders based on limit price and time
would simplify the process for
allocation among competing D Orders.
Finally, proposed Rule 7.31(d)(4)(D)(iii)
would provide that any quantity of a D
Order that does not execute at a
discretionary price would return to the
working time associated with its
working and display price.
The Exchange believes that the
proposed temporary working time
associated with the discretionary price
would respect the priority of the
working times of orders that may have
a working price equal to the D Order’s
discretionary price. By assigning a
temporary working time, the D Order
would be ranked behind other orders at
that price. In addition, because the D
Order would continue to be displayed at
its display price, even if it were
triggered to exercise discretion, the
proposal would honor such D Order’s
original working time if it were to trade
at its display price.
Resting D Order that Becomes
Marketable. Proposed Rule 7.31(d)(4)(E)
would provide that after the PBBO
unlocks or uncrosses or a Midpoint
Price becomes accessible, resting D
Orders to buy (sell) would be ranked
based on the lower (higher) of the
Midpoint Price or limit price of the
order to determine whether a D Order is
marketable within the discretionary
price range with contra-side orders on
the Exchange Book. This proposed rule
text is new and reflects the difference in
Pillar that D Orders would not exercise
discretion when the PBBO is locked or
crossed or if a Midpoint Price is
unavailable. This proposed rule text
addresses how a resting D Order would
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be ranked for trading when the PBBO
unlocks or uncrosses or if a Midpoint
Price becomes accessible.
D Orders Rejected and Modifiers.
Proposed Rule 7.31(d)(4)(F) would
provide that a D Order may be
designated with a Self Trade Prevention
Modifier (‘‘STP’’) and would be rejected
if combined with any other modifiers or
if the same-side PBBO is zero. This
proposed functionality is new, as dQuotes cannot currently be designated
with an STP Modifier.38 The Exchange
believes that making STP Modifiers
available for D Orders would provide
Floor brokers with more tools to reduce
the potential for two orders to interact
if they are from the same customer. By
specifying that D Orders cannot be
combined with other modifiers, the rule
provides transparency that a D Order
cannot be combined with other
modifiers defined in Rule 7.31(i).
Regarding STP, Rule 7.31(i)(2)
describes the Exchange’s STP Modifier.
Generally, if two orders from the same
Client ID both have an STP Modifier,
the Exchange will cancel one of the two
orders, based on instruction from the
member organization. For D Orders,
because the discretionary price is
temporary, the Exchange proposes that
if a D Order exercising discretion would
trade with another order with an STP
Modifier from the same Client ID, the
two orders would not trade, but nor
would either order be cancelled. The
Exchange does not believe it would be
appropriate to cancel the D Order in
such scenario because if the D Order is
not cancelled, it would be eligible to
trade with another order at either its
display price or a different discretionary
price at a later time. To effect this
change, the Exchange proposes to
amend Rule 7.31(i)(2) to add new
subparagraph (C) that would provide
that a resting D Order with an STP
Modifier that is triggered to exercise
discretion and is not an Aggressing
Order will not trade at a discretionary
price against a contra-side order that is
also designated with an STP Modifier
and from the same Client ID and that in
such case, the D Order would not be
cancelled.
Last 10 Seconds of Trading. Proposed
Rule 7.31(d)(4)(G) would provide that a
request to enter a D Order in any
security 10 seconds or less before the
scheduled close of trading would be
rejected. This proposed rule text is
based in part on the second sentence of
current Rule 70.25(a)(ii), which
provides that the Exchange will reject
any d-Quotes that are entered 10
seconds or less before the scheduled
38 See
PO 00000
Rule 13(f)(3)(B).
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end of trading. The proposed
functionality for UTP Securities would
be identical to Rule 70.25(a)(ii).
Allocation of D Orders. Rule 7.37(b)
describes how an Aggressing Order is
allocated among contra-side orders at
each price. The Exchange maintains
separate allocation wheels on each side
of the market for displayed and nondisplayed orders at each price. The
Exchange proposes to amend Rule
7.37(b) to set forth how D Orders would
participate in the allocation process.
Rule 7.37(b)(1) sets forth the following
allocation sequence: (1) Market Orders
trade first based on time; (2) orders with
Setter Priority as described in Exchange
Rule 7.36(h) receive an allocation; (3)
orders ranked Priority 2—Displayed
Orders are allocated on parity by
Participant; (4) orders ranked Priority
3—Non-Display Orders, other than MidPoint Liquidity (‘‘MPL’’) Orders 39 with
an MTS Modifier, are allocated on
parity by Participant; 40 and then (5)
MPL Orders with an MTS Modifier are
allocated based on MTS size (smallest to
largest) and time.
As proposed, D Orders trading at a
discretionary price would be allocated
next on parity by Floor Broker
Participant.41 Accordingly, at their
discretionary price, D Orders would be
allocated after all other orders at that
price, except, as described below,
Yielding Orders. To effect this change,
the Exchange proposes to amend Rule
7.37(b)(1) to add new sub-paragraph (F)
to provide that next, D Orders trading at
a discretionary price would be allocated
on parity by Floor Broker Participant.
This proposed functionality is based in
part on current Rule 70.25(a)(ii), which
provides that executions of d-Quotes
within the discretionary price range are
considered non-displayable for
purposes of Rule 72.
Rule 7.37(b)(2) describes the process
for the parity allocation wheel.
Currently, the Exchange creates separate
allocation wheels for orders ranked
Priority 2—Display Orders and orders
ranked Priority 3—Non-Display Orders.
The Exchange proposes to create a third
allocation wheel if there is more than
one D Order eligible to trade at a
discretionary price. In such case, the
Exchange would create an allocation
39 See Rule 7.31(d)(3) for a description of MPL
Orders.
40 In sum, an order with an MTS Modifier would
only trade with contra-side orders that, either
individually or in the aggregate, satisfy the order’s
minimum trade size condition. See Rule 7.31(i)(3)
for a full description of the MTS Modifier.
41 See Rule 7.36(a)(5) for the definition of the term
‘‘Floor Broker Participant.’’
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wheel for D Orders at that discretionary
price.42
The Exchange proposes that an
allocation wheel for D Orders trading at
a discretionary price would function the
same as allocation wheels for display
and non-display orders, with one
proposed difference. Because the
discretionary price at which a D Order
would trade is a temporary price
established based on whether a contraside order triggers a D Order to exercise
discretion, the Exchange proposes to
amend Rule 7.37(b)(2)(A) to provide that
for each D Order parity allocation
wheel, a D Order to buy (sell) with the
highest (lowest) limit price would
establish the first position on that
allocation wheel. This proposed rule
text is consistent with the proposed
ranking of D Orders as set forth in
proposed Rule 7.31(d)(4)(D)(ii), which
would require multiple D Orders
eligible to trade at the same
discretionary price to be ranked by limit
price and time as described above.
The following example illustrates
how the parity allocation wheel for D
Orders would be established:
• If the PBBO is $10.00 by $10.10
with a Midpoint Price of $10.05 and a
Floor broker enters a D Order to buy
1,000 shares with a limit price of $10.06
(‘‘Order 1’’), Order 1 would be pegged
to and displayed at $10.00, the PBB,
with discretion to the $10.05, the
Midpoint Price. If another Floor broker
enters a separate D Order to buy 1,000
shares with a limit price of $10.07
(‘‘Order 2’’), like Order 1, Order 2 would
be pegged to and displayed at $10.00,
the PBB, with discretion to $10.05, the
Midpoint Price.
• If a Limit Order to sell 100 shares
at $10.05 is entered (‘‘Order 3’’), Order
3 would trigger both Order 1 and 2 to
exercise discretion at the Midpoint
Price. Because Order 2 has the more
aggressive limit price, it would establish
the first position on the D Order parity
wheel. In this example, Order 3 would
trade 100 shares with Order 2 at $10.05.
Because there is no remaining quantity
of Order 3, Order 1 would not receive
an allocation.
Re-pricing of D Orders during a Short
Sale Period. Rule 7.16(f)(5) sets forth
how the Exchange processes short sale
orders during a Short Sale Period.43 The
Exchange proposes to amend Rule
7.16(f)(5)(C) to address how the
Exchange would process D Orders
marked ‘‘short’’ during a Short Sale
Period. As proposed, during a Short
Sale Period, the Exchange proposes to
process sell short D Orders like Pegged
Orders and MPL Orders. To effect this
change, the Exchange proposes to
amend Rule 7.16(f)(5)(C) to add that D
Orders, like Pegged Orders and MPL
Orders today, including orders marked
buy, sell long and sell short exempt,
would use the National Best Bid and
Offer (‘‘NBBO’’) instead of the PBBO as
the reference price. Because the
Exchange has defined the term
‘‘Midpoint Price’’ for D Orders, the
Exchange further proposes to amend
that rule to provide that the Midpoint
Price of D Orders would be the
midpoint price of the NBBO, including
situations where the midpoint is less
than one minimum price increment
above the National Best Bid (‘‘NBB’’).
This functionality would be new for D
Orders on Pillar as compared to how dQuotes function and is based on
applying existing Pillar logic for orders
that peg to the PBBO to D Orders.
Proposed Last Sale Peg Modifier
The Exchange proposes to add a new
order type modifier, Last Sale Peg,
which would be set forth in proposed
paragraph (i)(4) of Rule 7.31. Today, the
Exchange offers the Buy Minus Zero
Plus (‘‘BMZP’’) 44 instruction for trading
in Exchange-listed securities. The Last
Sale Peg Modifier is designed to achieve
the same purpose as the BMZP
instruction for securities trading on
Pillar, with specified differences to
reflect Pillar functions and terminology.
Under Rule 13(f)(4), for Exchangelisted securities, an order with a BMZP
instruction will not trade at a price that
is higher than the last sale, subject to the
limit price of an order, if applicable.45
Odd-lot sized transactions are not
considered the last sale for purposes of
executing BMZP orders.
The BMZP instruction is available to
buy Limit Orders only and is designed
to assist member organizations in their
compliance with the ‘‘safe harbor’’
provisions of Rule 10b–18 under the Act
(‘‘Rule 10b–18’’) for issuer
repurchases.46 One of the four
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44 See
42 See
proposed amendment to Rule 7.37(b)(2).
43 A ‘‘Short Sale Period’’ is defined in Rule
7.16(f)(4) to mean the period when a Short Sale
Price Test is in effect. A ‘‘Short Sale Price Test’’ is
defined in Rule 7.16(f)(3) to mean the period during
which Exchange systems will not execute or display
a short sale order with respect to a covered security
at a price that is less than or equal to the current
NBB in compliance with Rule 201 of Regulation
SHO. 17 CFR 242.201.
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Rule 13(f)(4).
Rule 13(f)(4). Limit Orders with a BMZP
instruction that are systemically delivered to
Exchange systems are eligible to be automatically
executed in accordance with, and to the extent
provided by, Rules 1000–1004, consistent with the
order’s instructions. Id. Odd-lot sized transactions
are not be considered the last sale for purposes of
executing an order with a BMZP instruction. Id.
46 See 17 CFR 240.10b–18. See also Securities
Exchange Act Release No. 78679 (August 25, 2016),
45 See
PO 00000
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Fmt 4703
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64917
provisions required to fall under Rule
10b–18’s safe harbor is that the purchase
price of a security may not exceed the
highest independent bid or the last
independent transaction price for the
security.47 Because an order with a
BMZP instruction will not trade at a
price that is higher than the last sale,
member organizations can use this
instruction to facilitate their compliance
with at least one of the conditions of the
safe harbor provision of Rule 10b–18.48
On Pillar, the Exchange proposes to
offer functionality that is based on the
BMZP instruction and rename it the
Last Sale Peg Modifier. Proposed
7.31(i)(4) would set forth the general
requirements for the Last Sale Peg
Modifier. As proposed, a Non-Routable
Limit Order to buy may be designated
with a Last Sale Peg Modifier, which
would be referred to as a ‘‘Last Sale Peg
Order.’’ Proposed 7.31(i)(4) would also
provide that a Last Sale Peg Order
would not trade or be displayed at a
price higher than the later of the most
recent last-sale eligible trade 49 executed
on the Exchange or the most recent
consolidated last-sale eligible trade 50
which would be defined for purposes of
this Rule as the ‘‘last-sale price.’’ This
rule text is based on Rule 13(f)(4)(A),
but with greater specificity of what it
means to be a last sale price for
purposes of a Last Sale Peg Order.
The proposed functionality to restrict
Last Sale Peg Orders to Non-Routable
Limit Orders would be new because
currently, the BMZP instruction can be
included on both routable and nonroutable buy orders. The Exchange
believes that limiting the availability of
this modifier to Non-Routable Limit
Orders would simplify the operation of
this modifier, while at the same time
achieving the goal of the modifier,
which is to provide an instruction to
facilitate compliance with the safe
harbor provisions of Rule 10b–18. Like
the BMZP instruction, the proposed Last
Sale Peg Order would be available only
for buy orders.
81 FR 60080 (August 31, 2016) (SR–NYSE–2016–
59).
47 See 17 CFR 240.10b–18(b)(3). The other three
conditions relate to time of purchases, volume of
purchases, and a requirement that only one broker
or dealer be involved in such repurchases on a
single day.
48 The Exchange does not represent that an order
with a BMZP instruction or the proposed Last Sale
Peg Modifier are guaranteed to meet the
requirements of the safe harbor provision of Rule
10b–18; rather, these instruction are available to
member organizations to facilitate their own
compliance with Rule 10b–18.
49 A last-sale eligible trade must be of at least one
round lot.
50 A consolidated last-sale eligible trade is the
last-sale eligible trade reported to the responsible
single plan processor.
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Proposed Rule 7.31(i)(4)(A) would
provide that the working price of a Last
Sale Peg Order would be pegged to the
lower of the last-sale price, the limit
price of the order, or the PBO. To reflect
which last-sale price would be
applicable, proposed Rule 7.31(i)(4)(A)
would further provide that the working
price of a resting Last Sale Peg Order
would not be adjusted until an
Aggressing Order is fully processed. In
other words, if an Aggressing Order
trades at multiple prices, the Exchange
would wait for the last price at which
such order trades to determine the lastsale price for purposes of re-pricing the
working price of a resting Last Sale Peg
Order.
The rule would further provide that if
the last-sale price is not at a permissible
MPV, the working price of the order
would be rounded down to the nearest
MPV. This last provision would be
applicable, for example, if the last-sale
price were at the midpoint of a pennyspread security, which would not be in
two decimals. In such case, the
Exchange would round the working
price of the Last Sale Peg Order down
to the MPV for the security. This
proposed rule text would be new for
Pillar and the Exchange believes that it
would promote transparency regarding
how a Last Sale Peg Order would be
displayed on the Exchange Book in a
manner to facilitate compliance with the
safe-harbor provisions of Rule 10b–18.
Proposed Rule 7.31(i)(4)(B) would
provide that the display price of a Last
Sale Peg Order would be the same as the
working price, unless the working price
is pegged to the PBO, in which case, the
display price would be determined
under paragraph (e)(1) of Rule 7.31.
Rule 7.31(e)(1) describes how a NonRoutable Limit Order to buy that, at the
time of entry and after trading with any
sell orders in the Exchange Book priced
at or below the PBO is priced.51 Because
a Last Sale Peg Order would be a NonRoutable Limit Order, it would follow
the pricing instructions of such order.
51 Under Rule 7.31(e)(1), Non-Routable Limit
Orders would be re-priced as follows: (i) It will
have a working price of the PBO (PBB) of an Away
Market and a display price one MPV below (above)
that PBO (PBB); (ii) if the PBO (PBB) of an Away
Market re-prices higher (lower), it will be assigned
a new working price of the updated PBO (PBB) and
a new display price of one MPV below (above) that
updated PBO (PBB); (iii) if the PBO (PBB) of an
Away Market re-prices to be equal to or lower
(higher) than its last display price, its display price
will not change, but the working price will be
adjusted to be equal to its display price; or (iv) if
its limit price no longer locks or crosses the PBO
(PBB) of an Away Market, it will be assigned a
working price and display price equal to its limit
price and will not be assigned a new working price
or display price based on changes to the PBO (PBB).
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the Exchange Book, in compliance with
the G Rule.54
Like g-Quotes, the proposed Yielding
Modifier would aid Floor brokers in
complying with the G Rule when
trading on Pillar. Proposed Rule
7.31(i)(5) would set forth the general
requirements for the Yielding Modifier
and would provide that a Limit Order,
Non-Routable Limit Order, or Reserve
Order may be designated with a
Yielding Modifier, which for purposes
of this Rule, would be referred to as a
‘‘Yielding Order.’’ This proposed rule
text is based on how the Exchange
currently functions, because a g-Quote
is a form of an e-Quote, and pursuant to
Rule 70.25, e-Quotes may be displayed
or non-displayed and routable or nonroutable. The proposed rule text uses
Pillar terminology to reflect these
functions. Proposed Rule 7.31(i)(5)
would also provide that a Yielding
Order would yield priority to all other
displayed and non-displayed orders at
the same price, and, similar to g-Quotes,
may be entered by a Floor broker only.
Proposed Rule 7.31(i)(5) would also
provide that a Yielding Order would be
Proposed Yielding Modifier
ranked Priority 4—Yielding Orders. The
Exchange would make a related
The Exchange proposes to add a
amendment to Rule 7.36(e) to add this
second new order type modifier, the
additional priority category. Proposed
Yielding Modifier, under paragraph
Rule 7.36(e)(4) would provide that
(i)(5) of Rule 7.31, for trading on Pillar.
Priority 4—Yielding Orders would have
Today, the Exchange offers Floor
fourth priority. The Exchange believes
52
brokers g-Quotes for trading in
that these proposed priority categories
Exchange-listed securities only. The
are consistent with current g-Quote
proposed Yielding Modifier is based on
how g-Quotes currently function and as functionality because Yielding Orders
would be ranked behind all other
with g-Quotes, would be available only
displayed and non-displayed orders.
to Floor brokers.
Proposed Rule 7.31(i)(5)(A) and (B)
Currently, g-Quotes are designed to
would describe how an Aggressing
assist Floor brokers with compliance
Yielding Order would trade. Proposed
with Section 11(a)(1) of the Act,53 which Rule 7.31(i)(5)(A) would provide that an
generally prohibits a member of a
Aggressing Yielding Order to buy (sell)
national securities exchange from
with a limit price higher (lower) than
effecting transactions on that exchange
the limit price of a resting order to buy
for its own account, the account of an
(sell) would trade ahead of such resting
associated person, or any account over
order. This proposed rule text is
which it or an associated person
consistent with how g-Quotes are
exercises discretion. Subsection (G) of
ranked and traded in an auction; a
Section 11(a)(1) provides an exemption
better-priced g-Quote will trade ahead of
from this prohibition, allowing an
an at-priced limit order because it has
price priority.55 The Exchange proposes
exchange member to have its own floor
to make this explicit in the rules for all
broker execute a proprietary order, also
executions of a Yielding Order. For
known as a ‘‘G order,’’ provided such
example, if the Exchange has a Nonorder yields priority, parity, and
Displayed Limit Order to buy with a
precedence (the ‘‘G Rule’’). For
Exchange-listed securities, the Exchange limit price of 10.00 (‘‘Order 1’’) that is
offers g-Quotes, which are an electronic locked by an ALO Order to sell at 10.00
(‘‘Order 2’’), an arriving Yielding Order
method for Floor brokers to represent
to buy with a limit price of 10.03
orders that yield priority, parity and
precedence based on size to all other
54 Under the G Rule, G orders are not required to
displayed and non-displayed orders on
Proposed Rule 7.31(i)(4)(C) would
provide that a Last Sale Peg Order may
be designated with an STP Modifier and
would be rejected if combined with any
other modifiers or if there is no last-sale
price. This proposed rule text promotes
transparency that a Non-Routable Limit
Order with a Last Sale Peg Modifier can
include an STP, but could not be
combined with any other modifiers
described in Rule 7.31.
The Exchange proposes that Last Sale
Peg Orders would be eligible for
execution only during the Core Trading
Session. As further proposed, similar to
Primary Pegged Orders, the Exchange
proposes that Last Sale Peg Orders
would be accepted prior to the
commencement of the Core Trading
Session, but would not be eligible for
execution until the Core Trading
Session begins. To effect this change,
the Exchange proposes to amend Rule
7.34(c)(1)(A) to add Last Sale Peg Orders
to the description of orders that may be
accepted but not eligible to trade during
the Early Trading Session.
52 See
53 15
PO 00000
Rule 70(a)(ii) and (iii).
U.S.C. 78k(a)(1).
Frm 00110
Fmt 4703
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yield to other orders that are for the account of a
member, e.g., Designated Market Maker (‘‘DMM’’)
interest or other g-Quotes.
55 See Rule 115A(a)(1) and Rule 123C(7)(a)(vii).
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(‘‘Order 3’’) would trade with Order 2 at
10.00. Because Order 3 is willing to
trade at a more aggressive price than
Order 1 and therefore has price priority,
the Exchange believes that Order 3
would not need to yield to Order 1
when trading at 10.00. The Exchange
therefore believes that this proposed
execution would be consistent with the
G Rule.56
Proposed Rule 7.31(i)(5)(B) would
provide that an Aggressing Yielding
Order to buy (sell) with a limit price
equal to the limit price of a resting order
to buy (sell) would either: (i) Trigger the
resting order to become an Aggressing
Order, unless the order to sell (buy) is
an MPL–ALO Order,57 or an MPL Order
with an MTS Modifier, in which case
neither the Yielding Order nor the sameside resting order would trade; or (ii)
trade ahead of such resting order if such
resting order is not eligible to trade (e.g.,
an ALO Order or an order with an MTS
Modifier).
In the first scenario, the Exchange
believes that triggering the resting order
to trade ahead of the Yielding Order
would respect the priority of the resting
order at that price. Neither order would
trade if the contra-side order is either an
MPL ALO or MPL Order with an MTS
Modifier and has a conditional
instruction that does not allow it to
trade at that price. The Exchange
believes that not permitting either order
to trade in this circumstance would
ensure that the Yielding Order does not
trade ahead of a same-priced resting
order in accordance with the G Rule.
In the second scenario, the Exchange
believes that if a resting order has a
condition that has not been met and is
therefore not eligible to trade, such
order cedes execution priority to a
same-side Yielding Order at the same
price, and therefore, the Yielding Order
would not be trading ahead of such
order in violation of the G Rule. The
execution of both an ALO Order and an
order with an MTS Modifier are both
contingent on a pre-condition being
met. The ALO Order requires that the
contra-side order be a liquidity remover
and the order with a MTS Modifier
requires that the contra-side order be of
a certain size to meet its minimum
quantity condition. Because the
56 See, e.g., Securities Exchange Act Release No.
67686 (August 17, 2012), 77 FR 51596, 51599
(August 24, 2012) (SR–NYSE–2012–19) (Approval
Order) (approving the Exchange’s proposal that
better-priced G Orders would be guaranteed to
participate in a closing auction and would have
priority over same-side limit orders on the
Exchange Book that are at the same price as the
closing auction).
57 See Rule 7.31(e)(2) for a description of the ALO
Order. An MPL Order may be designated with the
ALO modifier. See Rule 7.31(d)(3)(E).
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condition of either resting order has not
been met and such order cannot
participate in an execution, the
Exchange believes this order cedes
execution priority to the Yielding Order
and the Yielding Order would not be
required to yield to it under the G Rule.
The following example illustrates
how an order with a Yielding Modifier
would interact with conditional orders,
such as ALO orders, MPL ALO orders,
or MPL orders with an MTS Modifier.
• If the PBBO is $10.00 by $10.20
resulting in a Midpoint Price of $10.10,
a Limit Order to buy 40 shares at $10.10
is entered and is placed on the
Exchange Book (‘‘Order 1’’), and an MPL
ALO order to sell 100 shares at 10.00 is
then entered (‘‘Order 2’’) and placed on
the Exchange Book at the Midpoint
Price, the Exchange Book would become
internally locked because Order 2
cannot trade with Order 1.58 Next, a
Floor broker enters a Yielding Order to
buy 50 shares at $10.10 (‘‘Order 3’’).
Order 3 would not execute against
Order 2 because Order 3 is priced equal
to Order 1 and must yield priority,
parity and precedence to Order 1. Order
3 would be placed on the Exchange
Book at $10.10.
• If the Away Market PBB is $10.00,
a Non-Displayed Limit Order to sell
1,000 shares at $10.00 is entered
(‘‘Order 1’’), and an ALO order to buy
100 shares at $10.00 is entered (‘‘Order
2’’), Order 2 would not trade with Order
1 because it cannot act as a liquidity
remover. Order 2 would be placed on
the Exchange Book at $10.00. Next, a
Yielding Order to buy 1,000 shares at
$10.00 is entered (‘‘Order 3’’), which
would execute 1,000 shares against
Order 1 at $10.00. Order 3 would not be
required to yield to Order 2 because
Order 2 was an ALO order that chose to
forgo the execution in favor of being
placed on the Exchange Book and acting
as a liquidity provider.
Similar to the Last Sale Peg Order,
proposed Rule 7.31(i)(5)(C) would
provide that a Yielding Order may be
designated with an STP Modifier and
would be rejected if combined with any
other modifiers.
The Exchange also proposes to amend
Rule 7.37(b) to describe how orders with
a Yielding Modifier would participate in
the allocation process. As described
above, the Exchange proposes that after
all other displayed and non-displayed
orders are allocated, D Orders would be
58 See Rule 7.31(d)(3)(E)(i) (providing that ‘‘[a]n
Aggressing MPL–ALO Order to buy (sell) will trade
with resting orders to sell (buy) with a working
price below (above) the midpoint of the PBBO at the
working price of the resting orders, but will not
trade with resting orders to sell (buy) priced at the
midpoint of the PBBO.’’).
PO 00000
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64919
allocated on parity. The Exchange
proposes to amend Rule 7.37(b)(1) to
add subparagraph (G) to provide that
after D Orders have been allocated, the
display quantity of orders ranked
Priority 4—Yielding Orders would be
allocated based on time. The Exchange
would further add subparagraph (H) to
provide that next, the non-display
quantity of orders ranked Priority 4—
Yielding Orders would be allocated on
time. This proposed allocation process
is based in part on how g-Quotes are
allocated after all other displayed and
non-displayed orders in Exchange-listed
securities. The Exchange proposes new
functionality for Pillar that within each
Yielding Order priority ranking, orders
would be allocated on time rather than
on parity. The Exchange believes that
this proposed difference would
streamline and simplify the allocation of
Yielding Orders and is consistent with
their intended compliance with the G
Rule.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act,59 in general, and furthers the
objectives of Sections 6(b)(5) of the
Act,60 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
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to, and perfect the
mechanisms of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest and because it is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The proposed rule change extends the
availability of orders and modifiers
currently available for trading of
Exchange-listed securities to trading of
UTP Securities on Pillar. Specifically,
the proposed D Order, Last Sale Peg
Modifier, and Yielding Modifier that the
Exchange proposes for Pillar would
operate in a similar manner as d-Quotes,
BMZP, and g-Quotes, respectively,
which are currently available for trading
in Exchange-listed securities. The
proposed rule changes are all based on
existing functionality with differences
in rule text only to reflect Pillar
terminology.
D Orders. The Exchange believes that
the proposed D Order would remove
59 15
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impediments to, and perfect the
mechanisms of, a free and open market
and a national market system and, in
general, protect investors and the public
interest because it would expand
existing functionality available to
trading of Exchange-listed securities to
trading of UTP Securities on Pillar. This
proposed rule change would also ensure
that this functionality would continue
to be available to Floor brokers when
the Exchange transitions trading of
Exchange-listed securities to Pillar. The
Exchange notes that D Orders would
operate in a manner similar to d-Quotes.
For example, a D Order would be
eligible to trade at an undisplayed,
discretionary price. In addition, D
Orders could still be designated as
routable or non-routable and could be
combined with a Reserve Order.
However, the Exchange proposes to
simplify and streamline D Order
functionality as compared to how dQuotes function. More specifically, the
Exchange proposes to cap the
discretionary price range to the
midpoint of the PBBO, define the
discretionary price range of such order
based on the limit price, limit the
circumstances when a D Order would be
triggered to exercise discretion, and peg
the display price of a D Order to the
same-side PBBO.
The Exchange believes that these
proposed differences would simplify the
operation of D Orders as compared to dQuotes, while at the same time allow
such orders to both contribute to the
display of liquidity at the Exchange and
offer price improvement opportunities
to contra-side orders. Accordingly, the
Exchange believes that the proposed D
Order would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system by promoting price improvement
to incoming orders, thereby improving
execution opportunities for market
participants. These increased price
improvement opportunities are
designed to attract additional order flow
to the Exchange.
The Exchange believes that making
the proposed D Order available to Floor
brokers only is not designed to permit
unfair discrimination among customers,
issuers, brokers, or dealers. First, D
Orders are based on current d-Quote
functionality, which is available only to
Floor brokers and is designed to
replicate electronically the Floor
broker’s agency role to exercise price
discretion on an order on behalf of a
customer.61 Floor brokers fulfill an
61 See, e.g., Securities Exchange Act Release No.
34–60251 (July 7, 2009), 74 FR 34068 (July 14,
2009) (Approval Order) (noting that d-Quotes
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agency broker role on behalf of their
customers without conflicts and fill a
void for firms that have chosen to
allocate resources away from trading
desks. In addition to this role, Floor
brokers provide services for more
illiquid securities, which upstairs
trading desks may not be staffed to
manage. Importantly, when providing
such agency trading services, a Floor
broker is unconflicted because a Floor
broker is not trading for the member’s
own account and does not sell research
to customers. Floor brokers therefore
can focus on price discovery and
volume discovery on behalf of their
customers, while at the same time
managing their customers’ order flow to
ensure that it does not impact pricing on
the market (e.g., executing large
positions on behalf of a customer). Use
of the D Order would facilitate this
agency function by allowing Floor
brokers to enter orders on behalf of their
customers without pricing impact
because the discretionary price range
would be undisplayed. When managing
such customer order flow, Floor brokers
trading in UTP Securities would
continue to be subject to Exchange rules
that are unique to Floor brokers,
including Rules 95, 122, 123, and
paragraphs (d)–(j) of Rule 134. In
addition, any member organization can
choose to have a Floor broker operation
and thus have direct access to D Orders
on behalf of its customers.
In addition, the Exchange notes that
while D Orders would be available only
to Floor brokers, such orders would not
receive any execution priority or benefit
when trading at a discretionary price.
To the contrary, as proposed, if a D
Order were to exercise discretion and
trade at an undisplayed, discretionary
price, such D Order would be ranked
behind all other same-side orders at that
price, except for a Yielding Order,
which by definition yields to all other
orders and can only be entered by
another Floor broker. The Exchange
therefore believes that the proposed
changes to Rule 7.37, which sets forth
the allocation process for D Orders,
would remove impediments to, and
perfect the mechanisms of, a free and
open market and a national market
system by providing transparency
regarding the priority of such orders.
More specifically, the Exchange
believes it would remove impediments
to and perfect the mechanism of a free
and open market and a national market
system for a D Order trading at a
discretionary price to yield to other
orders at that price because any such
provide Floor brokers with similar functionality
that was previously available to Floor brokers).
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resting order, whether displayed (which
could only be an odd-lot sized order) or
non-displayed, would have time priority
over the D Order trading at a
discretionary price. To reflect this time
priority, the Exchange proposes to
assign a D Order a temporary working
time associated with the discretionary
price, which the Exchange believes
would respect the priority of the
working times of orders that may have
a working price equal to the D Order’s
discretionary price. By assigning a
temporary working time, the D Order
would be ranked behind other orders at
that price. The Exchange further
believes that maintaining the working
time of a D Order if it trades at its
displayed price would reflect that even
if triggered to exercise discretion, it
would remain displayed at the sameside PBBO until it is executed. If a D
Order that is triggered to exercise
discretion is not fully executed, it
would remain available for execution at
its displayed price. Because that display
price would not be changing, the
Exchange believes it is reasonable to
maintain time priority for that D Order
if it were to execute at that displayed
price.
The Exchange believes that the
manner by which the discretionary
price for a D Order would be
determined would remove impediments
to and perfect the mechanism of a free
and open market and a national market
system because the principles are the
same as how d-Quotes function, which
is to provide price improvement while
exercising the least amount of price
discretion. Consistent with that current
behavior, a proposed D Order would be
able to trade at a discretionary price that
provides price improvement over
resting orders on the Exchange Book,
subject to a cap at the Midpoint Price.
The Exchange also believes it is
reasonable for D Orders to be allocated
among multiple Floor brokers at a price
based on parity as such model is
consistent with the Exchange’s current
parity allocation for Floor brokers. As
noted above, this parity allocation is
only among the Floor broker D Orders—
other resting orders at that price,
whether displayed or undisplayed,
would have first priority. The Exchange
further believes that with this parity
allocation, it would be appropriate to
create a separate allocation wheel for D
Orders when more than one D Order is
eligible to trade at the same
discretionary price. The Exchange
further believes that it is appropriate for
the most aggressively-priced D Order to
establish the first position on any such
allocation wheel as it would encourage
the entry of aggressively-priced orders
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available to provide price improvement
to contra-side orders.
Last Sale Peg Modifier. The Exchange
believes that the proposed Last Sale Peg
Modifier would remove impediments to,
and perfect the mechanisms of, a free
and open market and a national market
system and, in general, protect investors
and the public interest because it would
expand existing functionality available
to trading of Exchange-listed securities
to trading on Pillar, which would aid
member organizations in their
compliance with provision of Rule 10b–
18. Today, the Exchange offers the
BMZP instruction, which prevents a buy
order from trading at a price higher than
the last sale. As proposed, the Last Sale
Peg Modifier would offer functionality
based on the BMZP instruction for all
orders that trade on the Exchange.
Similar to the BMZP instruction, the
proposed Last Sale Peg Modifier would
be available to buy orders and is
designed to facilitate compliance with
one of the conditions of the safe harbor
provision of Rule 10b–18. The Exchange
believes that the proposed differences
between the proposed Last Sale Peg
Modifier and the BMZP instruction are
designed to streamline the operation of
the order modifier and promote
transparency, while at the same time
maintaining the core purpose of such
modifier. For example, the Exchange
believes that limiting this modifier to
Non-Routable Limit Orders would
simplify its operation because the
Exchange would not be able to assist a
member organization to comply with
Rule 10b–18 if such order were routed
to an Away Market.
Yielding Modifier. The Exchange
believes that the proposed Yielding
Modifier would remove impediments to,
and perfect the mechanisms of, a free
and open market and a national market
system and, in general, protect investors
and the public interest because it would
expand functionality currently available
on the Exchange to Floor brokers in
Exchange-listed securities to all
securities trading on Pillar by providing
Floor brokers an electronic method to
represent orders on Pillar that yield
priority, parity and precedence to
displayed and non-displayed orders on
the Exchange’s book in compliance with
the G Rule.62 Today, the Exchange offers
g-Quotes 63 for trading in Exchangelisted securities. The proposed Yielding
Modifier is based on current g-Quote
functionality, including that it would
only be available to Floor brokers. The
Exchange notes that there is no need to
offer this modifier to non-Floor brokers
because the only members with the
specified G Rule obligations today are
Floor brokers—the electronic, off-Floor
entry of orders is subject to an exception
to the G Rule.64
The Exchange believes the proposed
rule for the Yielding Modifier is
designed to provide transparency of
how the proposed modifier would
function if there are resting orders on
both sides of the Exchange book locking
each other at the same price. The
Exchange believes that the proposed
functionality to allow an arriving
Yielding Order that is priced better than
a resting order that is locked with a
contra-side order to trade ahead of such
same-side resting order is consistent
with the G Rule because in such
scenario, the Yielding Order is willing
to trade at a better price than the resting
order, and therefore has price priority
over such resting order. Likewise, the
Exchange believes it would be
appropriate to trigger a resting order
eligible to trade ahead of a same-priced,
same-side Yielding Order because if
such resting order is eligible to be
executed and the Yielding Order does
not have price priority, the resting order
should have an opportunity to trade
first. If it cannot trade, then neither it
nor the Yielding Order would trade.
Finally, the Exchange believes it would
be consistent with the G Rule for a
Yielding Order to trade ahead of a samepriced resting order that is unable to
trade because one or more conditions
cannot be met for such resting order.
The Exchange believes this trading
scenario would be consistent with the G
Rule because the resting order is not
eligible to trade, and therefore it would
yield priority to the Yielding Order; the
Yielding Order would not trade ahead of
any orders in that execution.
Lastly, the Exchange believes the
proposed changes to Rules 7.36 and 7.37
regarding the priority and parity
allocation process for orders with a
Yielding Modifier would remove
impediments to, and perfect the
mechanisms of, a free and open market
and a national market system. The
Exchange believes it is reasonable to
prioritize for execution and parity
purposes orders with a Yielding
Modifier behind all other orders at the
same price because doing so is
consistent with the modifier’s purpose,
which is to yield priority and parity to
all other displayed and non-displayed
orders at the same price, in compliance
with the G Rule.
62 See Section 11(a)(1) of the Act, 15 U.S.C.
78k(a)(1).
63 See Rule 70(a)(ii) and (iii).
64 See Securities Exchange Act Release No. 82945
(March 26, 2018), 83 FR 13553, 13568 (March 29,
2018) (SR–NYSE–2018–36) (‘‘Approval Order’’).
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64921
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,65 the Exchange believes that the
proposed rule change would not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed change extends the
availability of order types that are
currently available for Exchange-listed
securities to trading on Pillar. The
Exchange operates in a highly
competitive environment in which its
unaffiliated exchange competitors
operate under common rules for the
trading of securities listed on their
markets as well as those that they trade
pursuant to unlisted trading privileges.
By extending the availability of order
types that are currently available for
Exchange-listed securities to trading on
Pillar, the Exchange would provide its
members with consistency across
trading of all securities in the Exchange.
Doing so would also enable the
Exchange to further compete with
unaffiliated exchange competitors that
also trade UTP securities.
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:
65 15
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Federal Register / Vol. 83, No. 242 / Tuesday, December 18, 2018 / Notices
Electronic Comments
SMALL BUSINESS ADMINISTRATION
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSE–2018–52 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.
amozie on DSK3GDR082PROD with NOTICES
All submissions should refer to File
Number SR–NYSE–2018–52. 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–2018–52 and
should be submitted on or before
January 8, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.66
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018–27280 Filed 12–17–18; 8:45 am]
BILLING CODE 8011–01–P
66 17
CFR 200.30–3(a)(12).
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[Disaster Declaration # 15831 and # 15832;
Connecticut Disaster Number CT–00044]
Presidential Declaration of a Major
Disaster for Public Assistance Only for
the State of Connecticut
The number assigned to this disaster
for physical damage is 158316 and for
economic injury is 158320.
(Catalog of Federal Domestic Assistance
Number 59008)
James Rivera,
Associate Administrator for Disaster
Assistance.
U.S. Small Business
Administration.
ACTION: Notice.
[FR Doc. 2018–27372 Filed 12–17–18; 8:45 am]
This is a Notice of the
Presidential declaration of a major
disaster for Public Assistance Only for
the State of Connecticut (FEMA–4410–
DR), dated 12/05/2018.
Incident: Severe Storms and Flooding.
Incident Period: 09/25/2018 through
09/26/2018.
DATES: Issued on 12/05/2018.
Physical Loan Application Deadline
Date: 02/04/2019.
Economic Injury (EIDL) Loan
Application Deadline Date: 09/05/2019.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
President’s major disaster declaration on
12/05/2018, Private Non-Profit
organizations that provide essential
services of a governmental nature may
file disaster loan applications at the
address listed above or other locally
announced locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Counties/Areas: Middlesex and
New London Counties, including
the Mashantucket Pequot Indian
Tribe and Mohegan Tribe of Indians
of Connecticut located within New
London County.
The Interest Rates are:
SMALL BUSINESS ADMINISTRATION
AGENCY:
SUMMARY:
For Physical Damage:
Non-Profit Organizations with
Credit Available Elsewhere ...
Non-Profit Organizations without Credit Available Elsewhere .....................................
For Economic Injury:
Non-Profit Organizations without Credit Available Elsewhere .....................................
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BILLING CODE 8025–01–P
[Disaster Declaration #15836 and #15837;
Pennsylvania Disaster Number PA–00088]
Administrative Declaration of a
Disaster for the Commonwealth of
Pennsylvania
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a notice of an
Administrative declaration of a disaster
for the Commonwealth of Pennsylvania
dated 12/11/2018.
Incident: Flooding.
Incident Period: 08/10/2018 through
08/15/2018.
DATES: Issued on 12/11/2018.
Physical Loan Application Deadline
Date: 02/11/2019.
Economic Injury (EIDL) Loan
Application Deadline Date: 09/11/2019.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
Administrator’s disaster declaration,
applications for disaster loans may be
filed at the address listed above or other
locally announced locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Counties: Bradford, Columbia,
Percent
Delaware, Northumberland,
Schuylkill, Susquehanna
Contiguous Counties:
Pennsylvania: Berks, Carbon, Chester,
2.500
Dauphin, Juniata, Lackawanna,
Lebanon, Lehigh, Luzerne,
2.500
Lycoming, Montgomery, Montour,
Perry, Philadelphia, Snyder,
Sullivan, Tioga, Union, Wayne,
Wyoming
2.500
Delaware: New Castle
SUMMARY:
E:\FR\FM\18DEN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 242 (Tuesday, December 18, 2018)]
[Notices]
[Pages 64913-64922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27280]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84806; File No. SR-NYSE-2018-52]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 7.31 Relating to
Discretionary Orders, Auction-Only Orders, Discretionary Modifier, and
Yielding Modifier and Related Amendments to Rules 7.16, 7.34, 7.36, and
7.37
December 12, 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 November 29, 2018, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 7.31 (Orders and Modifiers) to:
(i) Add a new order type, Discretionary Orders; (ii) add two new order
type modifiers, the Last Sale Peg Modifier and the Yielding Modifier;
and (iii) make related changes to Rules 7.16, 7.34, 7.36, and 7.37. 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 (Orders and Modifiers) to:
(i) Add a new order type, Discretionary Orders; (ii) add two new order
type modifiers, the Last Sale Peg Modifier and the Yielding Modifier;
and (iii) make related changes to Rules 7.16, 7.34, 7.36, and 7.37.
Each of these proposed changes is designed to introduce on Pillar
order types and modifiers that are currently available for trading
securities listed on the Exchange. First, the proposed new order type,
Discretionary Orders, or ``D Orders,'' is based on current d-Quote
functionality.\4\ Second, the proposed Last Sale Peg Modifier is based
on the Buy Minus Zero Plus Instruction.\5\ Finally, the proposed
Yielding Modifier is based on e-Quotes that yield (``g-Quotes'').\6\
The Exchange also proposes to make related changes to Rules 7.16 (Short
Sales), 7.34 (Trading Sessions), 7.36 (Order Ranking and Display), and
7.37 (Order Execution and Routing).
---------------------------------------------------------------------------
\4\ See Supplementary Material .25 to Rule 70 (``Rule 70.25'').
\5\ See Rule 13(f)(4).
\6\ See Rule 70(a)(ii) and (iii).
---------------------------------------------------------------------------
Currently, only UTP Securities are traded on the Exchange's Pillar
trading platform.\7\ Accordingly, at this time, the
[[Page 64914]]
proposed D Order, Last Sale Peg Modifier, and Yielding Modifier would
be available only for UTP Securities. When the Exchange transitions
Exchange-listed securities to Pillar, these order types and modifiers
would be available for those securities as well.\8\
---------------------------------------------------------------------------
\7\ ``UTP Security'' is defined as 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. See
Rule 1.1(x).
\8\ The proposed D Order, Last Sale Peg Modifier, and Yielding
Modifier would function in an identical manner as proposed herein
when made available for Exchange-listed securities.
---------------------------------------------------------------------------
Proposed Discretionary Order
The Exchange proposes a new order type, a Discretionary Order or
``D Order'', under paragraph (d)(4) of Rule 7.31 for securities trading
on Pillar. Today, the Exchange offers d-Quotes \9\ for trading in
Exchange-listed securities only, which operate in a similar manner as
the proposed D Order, including that such order type is available to
Floor brokers only.
---------------------------------------------------------------------------
\9\ See Rule 70.25. See also Securities Exchange Act Release
Nos. 54577 (October 5, 2006), 71 FR 60208 (October 12, 2006) (SR-
NYSE-2006-25) (``d-Quote Approval Order''); 60251 (July 7, 2009), 74
FR 34068 (July 14, 2009) (SR-NYSE-2009-55); 61072 (November 30,
2009), 74 FR 64103 (December 7, 2009) (SR-NYSE-2009-106); and 75444
(July 13, 2015), 80 FR 42575 (July 17, 2015) (SR-NYSE-2015-15).
---------------------------------------------------------------------------
Under Rule 70.25, a d-Quote is a quotation entered by a Floor
broker that includes discretionary instructions as to size and/or
price.\10\ Such discretionary instructions are active during the
trading day, unless the PBBO is crossed.\11\ A Floor broker can also
include an instruction for the discretionary instructions to
participate in the opening or closing transaction only.\12\
Discretionary instructions are not displayed and such instructions
apply to both displayed and reserve interest.\13\ Currently, price
discretion can apply to all or a portion of a d-Quote and a d-Quote
with a midpoint modifier has a discretionary price range to the
midpoint of the PBBO.\14\
---------------------------------------------------------------------------
\10\ See Rule 70.25(a)(i).
\11\ See Rule 70.25(a)(ii).
\12\ See id.
\13\ See Rule 70.25(a)(vi) and (vjj).
\14\ See Rule 70.25(b).
---------------------------------------------------------------------------
With respect to discretionary size, a Floor broker may designate
the amount of d-Quote volume to which the discretionary price
instructions shall apply, and can also designate that a minimum size of
contra-side volume with which it is willing to trade using
discretionary size instructions.\15\ A Floor broker may also designate
a minimum trade size (``MTS'') that must be met before the d-Quote is
executed.\16\ A resting d-Quote will be triggered to exercise
discretion so long as the contra-side interest's price is within the
discretionary price range and meets the MTS that has been set for the
d-Quote.\17\
---------------------------------------------------------------------------
\15\ See Rule 70.25(c).
\16\ See Rule 70.25(d).
\17\ See Rule 70.25(e)(ii).
---------------------------------------------------------------------------
On Pillar, the Exchange proposes to offer Floor brokers
functionality similar to d-Quotes in the form of D Orders. However, the
Exchange proposes to simplify and streamline D Order functionality on
Pillar as compared to how d-Quotes function. Among other things, the
Exchange would not offer discretionary size instructions for D Orders
that are available to d-Quotes. Also unlike d-Quotes, the discretionary
price instructions would be applicable to the entirety of the D Order.
In addition, all D Orders would have a discretionary price range capped
at the midpoint of the PBBO, which is currently optional functionality
for d-Quotes.
Overview. Proposed Rule 7.31(d)(4) would set forth the general
requirements for D Orders and would provide that a D Order is a Limit
Order that may trade at an undisplayed discretionary price. As further
proposed, a D Order must be designated Day, may be designated as
routable or non-routable,\18\ and on entry, must have a minimum of one
round lot displayed. This proposed rule text is based in part on how d-
Quotes currently function, with a proposed difference that on Pillar, D
Orders would be required to have a display quantity.\19\ The Exchange
proposes that, as currently available for d-Quotes, D Orders could be
combined with a Reserve Order, which would be addressed in an amendment
to Rule 7.31(d)(1)(C).
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\18\ A d-Quote can be combined with a Do Not Ship ``DNS'' Order,
which is an order that would be cancelled if it were required to be
routed. See Rule 13(e)(2). Accordingly, a d-Quote combined with DNS
is a non-routable d-Quote.
\19\ Currently, Reserve Orders available to Floor brokers do not
require a display quantity. See Rule 70(f).
---------------------------------------------------------------------------
Proposed Rule 7.31(d)(4) would further provide that a D Order is
available only to Floor brokers and is eligible to be traded in the
Core Trading Session \20\ only. This proposed rule text is based on
current rules that d-Quotes are available only to Floor brokers. The
requirement that D Orders would be eligible to trade in the Core
Trading Session only is consistent with current d-Quote functionality,
which trade during ``regular trading hours'' only. The Exchange
proposes to apply this same time frame when making D Orders available
to all securities that trade on Pillar, including UTP Securities
because, as discussed below, D Order functionality would operate
similarly to Pegged Orders, which are also only available during Core
Trading Hours. The Exchange also proposes to amend Rule 7.34(c)(1)(A)
to specify when a D Order may be entered and be eligible for execution.
---------------------------------------------------------------------------
\20\ The Core Trading Session begins at 9:30 a.m. Eastern Time
and ends at the conclusion of Core Trading Hours. See Rule
7.34(a)(2). The term ``Core Trading Hours'' means ``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.'' See
Rule 1.1(d).
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Upon Arrival. Proposed Rule 7.31(d)(4)(A) would provide that the
Floor broker would be required to specify one of the following
instructions for a D Order: (i) Limit Price D Order; or (ii) Midpoint
Price D Order.
Proposed Rule 7.31(d)(4)(A)(i) would provide that on
arrival, a Limit Price D Order to buy (sell) would trade with sell
(buy) orders on the Exchange Book, or, if designated as routable, route
to an Away Market up (down) to the limit price of the order. If after
trading or routing the PBBO is locked or crossed or there is no PBB
(PBO), a Limit Price D Order would be cancelled. For a Limit Price D
Order that is partially routed to an Away Market on arrival, any
returned quantity of such D Order would join the working price of the
resting odd-lot quantity of the D Order. Because the limit price of a D
Order would function similarly to the upper (lower) discretionary price
range of a d-Quote, this proposed operation of a Limit Price D Order on
arrival is similar to how d-Quotes currently function.\21\
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\21\ See Rule 70.25(e)(vii) (a d-Quote may initiate a sweep to
the extent of their price and volume discretion).
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Proposed Rule 7.31(d)(4)(A)(ii) would provide that on
arrival, a Midpoint Price D Order to buy (sell) would trade with sell
(buy) orders on the Exchange Book up (down) to the lower (higher) of
the midpoint of the PBBO (``Midpoint Price'') or the order's limit
price. The rule would further provide that a Midpoint Price D Order
would not route on arrival, even if designated as routable. If
designated as routable, a Midpoint D Order combined with a Reserve
Order would be evaluated for routing each time the display quantity is
replenished as provided for in Rule 7.31(d)(1)(D).\22\ The rule would
further provide that if the PBBO is locked or crossed or if the
Midpoint Price is unavailable, the Midpoint Price D Order would be
rejected. The Midpoint Price D Order is based on current functionality
that a d-Quote may be designated with a
[[Page 64915]]
midpoint modifier and the discretionary price range of such d-Quote is
the midpoint of the PBBO.\23\
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\22\ Rule 7.31(d)(1)(D) provides that a routable Reserve Order
will be evaluated for routing both on arrival and each time the
display quantity is replenished.
\23\ See Rule 70.25(b)(v).
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The Exchange notes that the proposed functionality to either cancel
or reject a D Order when the PBBO is locked or crossed is based on how
Primary Pegged Orders \24\ currently function.\25\ As discussed below,
the Exchange proposes that D Orders would function similarly to Primary
Pegged Orders because they would be pegged to the same-side PBBO. The
Exchange therefore believes that a D Order should be rejected or
cancelled under the same circumstances when a Primary Pegged Order
would be cancelled or rejected.\26\ In addition, this is consistent
with current d-Quote functionality that provides that discretionary
instructions are not active when the PBBO is crossed.\27\
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\24\ See Rule 7.31(h) for a description of Pegged Orders.
\25\ See Rule 7.31(h)(2) and (h)(2)(B) (``A Primary Pegged Order
will be rejected if the PBBO is locked or crossed.'').
\26\ See Rule 7.31(h)(2) (``A Primary Pegged Order to buy (sell)
will be rejected on arrival, or cancelled when resting, if there is
no PBB (PBO) against which to peg.'')
\27\ See Rule 70.25(a)(ii).
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Display Price. Proposed Rule 7.31(d)(4)(B) would set forth how a D
Order would be displayed when resting on the Exchange Book and would
provide that the working \28\ and display price of a D Order to buy
(sell) would be pegged to the PBB (PBO). If the PBB (PBO) is higher
(lower) than the limit price of a D Order to buy (sell), the working
and display price would be the limit price of the order. The rule would
further provide that a D Order to buy (sell) would be cancelled if
there is no PBB (PBO) against which to peg. At its display price,\29\ a
D Order would be ranked Priority 2--Display Orders.\30\ This proposed
functionality for D Orders would be new for Pillar and is based on how
Primary Pegged Orders function, including that a D Order would be
cancelled if there is nothing against which to peg. The Exchange
believes this proposed difference would streamline and simplify the
operation of D Orders as compared to d-Quotes.\31\
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\28\ ``Working price'' means the price at which an order is
eligible to trade at any given time, which may be different from the
limit price or display price of the order. See Rule 7.36(a)(3).
\29\ ``Display price'' means the price at which a Limit Order is
displayed, which may be different from the limit price or working
price of the order. See Rule 7.36(a)(1).
\30\ Rule 7.36(e) governs execution priority for orders resting
on the Exchange Book and currently sets forth three priority
categories: Priority 1--Market Orders, Priority 2--Display Orders,
and Priority 3--Non-Display Orders. If a D Order is combined with a
Reserve Order, the reserve interest of such order would be ranked
Priority 3--Non-Display Orders. See Rule 7.31(d)(1).
\31\ Currently, d-Quotes resting at the depth of book can
exercise discretion. See Rule 70.25(e)(i)(A).
---------------------------------------------------------------------------
Exercising Discretion. Proposed Rule 7.31(d)(4)(C) would provide
that a resting D Order to buy (sell) would be eligible to exercise
discretion up (down) to the limit price of the order. This proposed
rule text is new for Pillar and reflects that the limit price of the D
Order would function as the ceiling or floor of the discretionary price
range for such order. As noted above, the display price of a D Order
would be pegged to the same-side PBBO and would not be based on the
limit price.
The proposed rule would further provide that such D Order would not
exercise discretion if the PBBO is locked or crossed or if there is no
Midpoint Price. This functionality is based in part on how d-Quotes
currently function and adds that D Orders would not exercise discretion
if the market is locked (because a D Order would be pegged to the same-
side PBBO and there is no midpoint) or if there is no Midpoint Price
(meaning there is no price available for a D Order to extend its
discretion to).\32\
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\32\ See Rule 70.25(a)(ii).
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Proposed Rule 7.31(d)(4)(C)(i) would provide that a D Order to buy
(sell) would be triggered to exercise discretion if the price of an
Aggressing Order \33\ to sell (buy) is above (below) the PBB (PBO) and
at or below the Midpoint Price (the ``discretionary price range'').
This would be new functionality for D Orders. Currently, any contra-
side order that is within the discretionary price range of a d-Quote
would trigger a d-Quote to trade.\34\ The Exchange believes the
proposed difference for D Orders would streamline and simplify the
function of D Orders. More specifically, because the discretionary
price range for a D Order would be one minimum price variation
(``MPV'') better than the same-side PBBO capped by the Midpoint Price,
the Exchange believes that only contra-side orders with a limit price
within that same discretionary price range should trigger a D Order to
exercise discretion.
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\33\ An Aggressing Order is a buy (sell) order that is or
becomes marketable against sell (buy) interest on the Exchange Book.
See Rule 7.36(a)(6). A resting order may become an Aggressing Order
if its working price changes, if the PBBO or NBBO is updated,
because of changes to other orders on the Exchange Book, or when
processing inbound messages. Id.
\34\ See Rule 70.25(e)(ii).
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Proposed Rule 7.31(d)(4)(C)(ii) would provide that the
discretionary price at which a D Order to buy (sell) would trade would
be the price of the sell (buy) order. This proposed functionality would
be new for Pillar and is to be read together with proposed Rule
7.31(d)(4)(C)(i), which defines the price range of the contra-side
order that could trigger the D Order to exercise discretion. In
addition, the Exchange proposes to define the term ``discretionary
price'' in new Rule 7.36(a)(7) to mean the undisplayed price at which a
D Order would trade if it exercises discretion.
Proposed Rule 7.31(d)(4)(C)(ii) would further provide that if there
is other interest to buy (sell) on the Exchange Book priced equal to or
higher (lower) than the price of the sell (buy) order, the
discretionary price would be one MPV higher (lower) than the highest
(lowest) priced resting order to buy (sell), capped by the Midpoint
Price.\35\ This would be new functionality for Pillar and is based in
part on current functionality that requires a d-Quote to exercise the
least amount of price discretion.\36\ The following example illustrates
this behavior:
---------------------------------------------------------------------------
\35\ The MPV for securities is defined in Rule 7.6.
\36\ See Rule 70.25(e)(i)(A).
---------------------------------------------------------------------------
If the PBBO is $10.00 by $10.10 with a Midpoint Price of
$10.05 and a Floor broker enters a D Order to buy 100 shares with a
limit price of $10.08 (``Order 1''), Order 1 would be pegged to and
displayed at $10.00, the PBB, with a discretionary price range up to
the $10.05 Midpoint Price. If a non-displayed Limit Order to buy 100
shares at $10.03 is placed on the Exchange Book (``Order 2'') and next,
a Limit Order to sell 200 shares at $10.01 is entered (``Order 3''),
because Order 3 is marketable against Order 2 at $10.03, Order 1's
discretionary price range would extend to $10.04, one MPV higher than
Order 2's limit price. Order 3 would execute 100 shares against Order 1
at $10.04, providing Order 3 with $0.03 of price improvement relative
to its limit price. The remaining 100 shares of Order 3 would execute
against Order 2 at $10.03.
Ranking and Working Time. As provided for in Rule 7.36(f)(1), an
order is assigned its working time based on its original entry time,
which is the time when an order is placed on the Exchange Book. Rule
7.36(f)(2) further provides that an order is assigned a new working
time any time its working price changes.\37\ Because a D Order can
trade at more than one price--its display price or its discretionary
price, the Exchange proposes to address the working time associated
with each such
[[Page 64916]]
price in proposed Rule 7.31(d)(4)(D). As proposed, the trigger to
exercise discretion would not change the working time of a D Order's
display and working price.
---------------------------------------------------------------------------
\37\ Pursuant to Rule 7.36(f)(2), each time a D Order is
assigned a new working and display price, i.e., with each change to
the same-side PBBO pursuant to proposed Rule 7.31(d)(4)(B)(i), such
D Order would be assigned a new working time.
---------------------------------------------------------------------------
Proposed Rule 7.31(d)(4)(D)(i) would provide that at its
discretionary price, a D Order would be assigned a new temporary
working time that is later than any same-side resting interest at that
price. This temporary working time is distinct from the working time
associated with the display and working price of the D Order, which are
pegged to the same-side PBBO.
Proposed Rule 7.31(d)(4)(D)(ii) would provide that multiple D
Orders eligible to trade at the same discretionary price would be
ranked by limit price and time. This is new functionality for Pillar.
Current Rule 70.25(e)(iii) and (iv) describe how competing d-Quotes
from more than one Floor broker trade. The Exchange does not propose to
replicate this functionality on Pillar and believes that ranking
multiple same-side D Orders based on limit price and time would
simplify the process for allocation among competing D Orders. Finally,
proposed Rule 7.31(d)(4)(D)(iii) would provide that any quantity of a D
Order that does not execute at a discretionary price would return to
the working time associated with its working and display price.
The Exchange believes that the proposed temporary working time
associated with the discretionary price would respect the priority of
the working times of orders that may have a working price equal to the
D Order's discretionary price. By assigning a temporary working time,
the D Order would be ranked behind other orders at that price. In
addition, because the D Order would continue to be displayed at its
display price, even if it were triggered to exercise discretion, the
proposal would honor such D Order's original working time if it were to
trade at its display price.
Resting D Order that Becomes Marketable. Proposed Rule
7.31(d)(4)(E) would provide that after the PBBO unlocks or uncrosses or
a Midpoint Price becomes accessible, resting D Orders to buy (sell)
would be ranked based on the lower (higher) of the Midpoint Price or
limit price of the order to determine whether a D Order is marketable
within the discretionary price range with contra-side orders on the
Exchange Book. This proposed rule text is new and reflects the
difference in Pillar that D Orders would not exercise discretion when
the PBBO is locked or crossed or if a Midpoint Price is unavailable.
This proposed rule text addresses how a resting D Order would be ranked
for trading when the PBBO unlocks or uncrosses or if a Midpoint Price
becomes accessible.
D Orders Rejected and Modifiers. Proposed Rule 7.31(d)(4)(F) would
provide that a D Order may be designated with a Self Trade Prevention
Modifier (``STP'') and would be rejected if combined with any other
modifiers or if the same-side PBBO is zero. This proposed functionality
is new, as d-Quotes cannot currently be designated with an STP
Modifier.\38\ The Exchange believes that making STP Modifiers available
for D Orders would provide Floor brokers with more tools to reduce the
potential for two orders to interact if they are from the same
customer. By specifying that D Orders cannot be combined with other
modifiers, the rule provides transparency that a D Order cannot be
combined with other modifiers defined in Rule 7.31(i).
---------------------------------------------------------------------------
\38\ See Rule 13(f)(3)(B).
---------------------------------------------------------------------------
Regarding STP, Rule 7.31(i)(2) describes the Exchange's STP
Modifier. Generally, if two orders from the same Client ID both have an
STP Modifier, the Exchange will cancel one of the two orders, based on
instruction from the member organization. For D Orders, because the
discretionary price is temporary, the Exchange proposes that if a D
Order exercising discretion would trade with another order with an STP
Modifier from the same Client ID, the two orders would not trade, but
nor would either order be cancelled. The Exchange does not believe it
would be appropriate to cancel the D Order in such scenario because if
the D Order is not cancelled, it would be eligible to trade with
another order at either its display price or a different discretionary
price at a later time. To effect this change, the Exchange proposes to
amend Rule 7.31(i)(2) to add new subparagraph (C) that would provide
that a resting D Order with an STP Modifier that is triggered to
exercise discretion and is not an Aggressing Order will not trade at a
discretionary price against a contra-side order that is also designated
with an STP Modifier and from the same Client ID and that in such case,
the D Order would not be cancelled.
Last 10 Seconds of Trading. Proposed Rule 7.31(d)(4)(G) would
provide that a request to enter a D Order in any security 10 seconds or
less before the scheduled close of trading would be rejected. This
proposed rule text is based in part on the second sentence of current
Rule 70.25(a)(ii), which provides that the Exchange will reject any d-
Quotes that are entered 10 seconds or less before the scheduled end of
trading. The proposed functionality for UTP Securities would be
identical to Rule 70.25(a)(ii).
Allocation of D Orders. Rule 7.37(b) describes how an Aggressing
Order is allocated among contra-side orders at each price. The Exchange
maintains separate allocation wheels on each side of the market for
displayed and non-displayed orders at each price. The Exchange proposes
to amend Rule 7.37(b) to set forth how D Orders would participate in
the allocation process.
Rule 7.37(b)(1) sets forth the following allocation sequence: (1)
Market Orders trade first based on time; (2) orders with Setter
Priority as described in Exchange Rule 7.36(h) receive an allocation;
(3) orders ranked Priority 2--Displayed Orders are allocated on parity
by Participant; (4) orders ranked Priority 3--Non-Display Orders, other
than Mid-Point Liquidity (``MPL'') Orders \39\ with an MTS Modifier,
are allocated on parity by Participant; \40\ and then (5) MPL Orders
with an MTS Modifier are allocated based on MTS size (smallest to
largest) and time.
---------------------------------------------------------------------------
\39\ See Rule 7.31(d)(3) for a description of MPL Orders.
\40\ In sum, an order with an MTS Modifier would only trade with
contra-side orders that, either individually or in the aggregate,
satisfy the order's minimum trade size condition. See Rule
7.31(i)(3) for a full description of the MTS Modifier.
---------------------------------------------------------------------------
As proposed, D Orders trading at a discretionary price would be
allocated next on parity by Floor Broker Participant.\41\ Accordingly,
at their discretionary price, D Orders would be allocated after all
other orders at that price, except, as described below, Yielding
Orders. To effect this change, the Exchange proposes to amend Rule
7.37(b)(1) to add new sub-paragraph (F) to provide that next, D Orders
trading at a discretionary price would be allocated on parity by Floor
Broker Participant. This proposed functionality is based in part on
current Rule 70.25(a)(ii), which provides that executions of d-Quotes
within the discretionary price range are considered non-displayable for
purposes of Rule 72.
---------------------------------------------------------------------------
\41\ See Rule 7.36(a)(5) for the definition of the term ``Floor
Broker Participant.''
---------------------------------------------------------------------------
Rule 7.37(b)(2) describes the process for the parity allocation
wheel. Currently, the Exchange creates separate allocation wheels for
orders ranked Priority 2--Display Orders and orders ranked Priority 3--
Non-Display Orders. The Exchange proposes to create a third allocation
wheel if there is more than one D Order eligible to trade at a
discretionary price. In such case, the Exchange would create an
allocation
[[Page 64917]]
wheel for D Orders at that discretionary price.\42\
---------------------------------------------------------------------------
\42\ See proposed amendment to Rule 7.37(b)(2).
---------------------------------------------------------------------------
The Exchange proposes that an allocation wheel for D Orders trading
at a discretionary price would function the same as allocation wheels
for display and non-display orders, with one proposed difference.
Because the discretionary price at which a D Order would trade is a
temporary price established based on whether a contra-side order
triggers a D Order to exercise discretion, the Exchange proposes to
amend Rule 7.37(b)(2)(A) to provide that for each D Order parity
allocation wheel, a D Order to buy (sell) with the highest (lowest)
limit price would establish the first position on that allocation
wheel. This proposed rule text is consistent with the proposed ranking
of D Orders as set forth in proposed Rule 7.31(d)(4)(D)(ii), which
would require multiple D Orders eligible to trade at the same
discretionary price to be ranked by limit price and time as described
above.
The following example illustrates how the parity allocation wheel
for D Orders would be established:
If the PBBO is $10.00 by $10.10 with a Midpoint Price of
$10.05 and a Floor broker enters a D Order to buy 1,000 shares with a
limit price of $10.06 (``Order 1''), Order 1 would be pegged to and
displayed at $10.00, the PBB, with discretion to the $10.05, the
Midpoint Price. If another Floor broker enters a separate D Order to
buy 1,000 shares with a limit price of $10.07 (``Order 2''), like Order
1, Order 2 would be pegged to and displayed at $10.00, the PBB, with
discretion to $10.05, the Midpoint Price.
If a Limit Order to sell 100 shares at $10.05 is entered
(``Order 3''), Order 3 would trigger both Order 1 and 2 to exercise
discretion at the Midpoint Price. Because Order 2 has the more
aggressive limit price, it would establish the first position on the D
Order parity wheel. In this example, Order 3 would trade 100 shares
with Order 2 at $10.05. Because there is no remaining quantity of Order
3, Order 1 would not receive an allocation.
Re-pricing of D Orders during a Short Sale Period. Rule 7.16(f)(5)
sets forth how the Exchange processes short sale orders during a Short
Sale Period.\43\ The Exchange proposes to amend Rule 7.16(f)(5)(C) to
address how the Exchange would process D Orders marked ``short'' during
a Short Sale Period. As proposed, during a Short Sale Period, the
Exchange proposes to process sell short D Orders like Pegged Orders and
MPL Orders. To effect this change, the Exchange proposes to amend Rule
7.16(f)(5)(C) to add that D Orders, like Pegged Orders and MPL Orders
today, including orders marked buy, sell long and sell short exempt,
would use the National Best Bid and Offer (``NBBO'') instead of the
PBBO as the reference price. Because the Exchange has defined the term
``Midpoint Price'' for D Orders, the Exchange further proposes to amend
that rule to provide that the Midpoint Price of D Orders would be the
midpoint price of the NBBO, including situations where the midpoint is
less than one minimum price increment above the National Best Bid
(``NBB''). This functionality would be new for D Orders on Pillar as
compared to how d-Quotes function and is based on applying existing
Pillar logic for orders that peg to the PBBO to D Orders.
---------------------------------------------------------------------------
\43\ A ``Short Sale Period'' is defined in Rule 7.16(f)(4) to
mean the period when a Short Sale Price Test is in effect. A ``Short
Sale Price Test'' is defined in Rule 7.16(f)(3) to mean the period
during which Exchange systems will not execute or display a short
sale order with respect to a covered security at a price that is
less than or equal to the current NBB in compliance with Rule 201 of
Regulation SHO. 17 CFR 242.201.
---------------------------------------------------------------------------
Proposed Last Sale Peg Modifier
The Exchange proposes to add a new order type modifier, Last Sale
Peg, which would be set forth in proposed paragraph (i)(4) of Rule
7.31. Today, the Exchange offers the Buy Minus Zero Plus (``BMZP'')
\44\ instruction for trading in Exchange-listed securities. The Last
Sale Peg Modifier is designed to achieve the same purpose as the BMZP
instruction for securities trading on Pillar, with specified
differences to reflect Pillar functions and terminology.
---------------------------------------------------------------------------
\44\ See Rule 13(f)(4).
---------------------------------------------------------------------------
Under Rule 13(f)(4), for Exchange-listed securities, an order with
a BMZP instruction will not trade at a price that is higher than the
last sale, subject to the limit price of an order, if applicable.\45\
Odd-lot sized transactions are not considered the last sale for
purposes of executing BMZP orders.
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\45\ See Rule 13(f)(4). Limit Orders with a BMZP instruction
that are systemically delivered to Exchange systems are eligible to
be automatically executed in accordance with, and to the extent
provided by, Rules 1000-1004, consistent with the order's
instructions. Id. Odd-lot sized transactions are not be considered
the last sale for purposes of executing an order with a BMZP
instruction. Id.
---------------------------------------------------------------------------
The BMZP instruction is available to buy Limit Orders only and is
designed to assist member organizations in their compliance with the
``safe harbor'' provisions of Rule 10b-18 under the Act (``Rule 10b-
18'') for issuer repurchases.\46\ One of the four provisions required
to fall under Rule 10b-18's safe harbor is that the purchase price of a
security may not exceed the highest independent bid or the last
independent transaction price for the security.\47\ Because an order
with a BMZP instruction will not trade at a price that is higher than
the last sale, member organizations can use this instruction to
facilitate their compliance with at least one of the conditions of the
safe harbor provision of Rule 10b-18.\48\
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\46\ See 17 CFR 240.10b-18. See also Securities Exchange Act
Release No. 78679 (August 25, 2016), 81 FR 60080 (August 31, 2016)
(SR-NYSE-2016-59).
\47\ See 17 CFR 240.10b-18(b)(3). The other three conditions
relate to time of purchases, volume of purchases, and a requirement
that only one broker or dealer be involved in such repurchases on a
single day.
\48\ The Exchange does not represent that an order with a BMZP
instruction or the proposed Last Sale Peg Modifier are guaranteed to
meet the requirements of the safe harbor provision of Rule 10b-18;
rather, these instruction are available to member organizations to
facilitate their own compliance with Rule 10b-18.
---------------------------------------------------------------------------
On Pillar, the Exchange proposes to offer functionality that is
based on the BMZP instruction and rename it the Last Sale Peg Modifier.
Proposed 7.31(i)(4) would set forth the general requirements for the
Last Sale Peg Modifier. As proposed, a Non-Routable Limit Order to buy
may be designated with a Last Sale Peg Modifier, which would be
referred to as a ``Last Sale Peg Order.'' Proposed 7.31(i)(4) would
also provide that a Last Sale Peg Order would not trade or be displayed
at a price higher than the later of the most recent last-sale eligible
trade \49\ executed on the Exchange or the most recent consolidated
last-sale eligible trade \50\ which would be defined for purposes of
this Rule as the ``last-sale price.'' This rule text is based on Rule
13(f)(4)(A), but with greater specificity of what it means to be a last
sale price for purposes of a Last Sale Peg Order.
---------------------------------------------------------------------------
\49\ A last-sale eligible trade must be of at least one round
lot.
\50\ A consolidated last-sale eligible trade is the last-sale
eligible trade reported to the responsible single plan processor.
---------------------------------------------------------------------------
The proposed functionality to restrict Last Sale Peg Orders to Non-
Routable Limit Orders would be new because currently, the BMZP
instruction can be included on both routable and non-routable buy
orders. The Exchange believes that limiting the availability of this
modifier to Non-Routable Limit Orders would simplify the operation of
this modifier, while at the same time achieving the goal of the
modifier, which is to provide an instruction to facilitate compliance
with the safe harbor provisions of Rule 10b-18. Like the BMZP
instruction, the proposed Last Sale Peg Order would be available only
for buy orders.
[[Page 64918]]
Proposed Rule 7.31(i)(4)(A) would provide that the working price of
a Last Sale Peg Order would be pegged to the lower of the last-sale
price, the limit price of the order, or the PBO. To reflect which last-
sale price would be applicable, proposed Rule 7.31(i)(4)(A) would
further provide that the working price of a resting Last Sale Peg Order
would not be adjusted until an Aggressing Order is fully processed. In
other words, if an Aggressing Order trades at multiple prices, the
Exchange would wait for the last price at which such order trades to
determine the last-sale price for purposes of re-pricing the working
price of a resting Last Sale Peg Order.
The rule would further provide that if the last-sale price is not
at a permissible MPV, the working price of the order would be rounded
down to the nearest MPV. This last provision would be applicable, for
example, if the last-sale price were at the midpoint of a penny-spread
security, which would not be in two decimals. In such case, the
Exchange would round the working price of the Last Sale Peg Order down
to the MPV for the security. This proposed rule text would be new for
Pillar and the Exchange believes that it would promote transparency
regarding how a Last Sale Peg Order would be displayed on the Exchange
Book in a manner to facilitate compliance with the safe-harbor
provisions of Rule 10b-18.
Proposed Rule 7.31(i)(4)(B) would provide that the display price of
a Last Sale Peg Order would be the same as the working price, unless
the working price is pegged to the PBO, in which case, the display
price would be determined under paragraph (e)(1) of Rule 7.31. Rule
7.31(e)(1) describes how a Non-Routable Limit Order to buy that, at the
time of entry and after trading with any sell orders in the Exchange
Book priced at or below the PBO is priced.\51\ Because a Last Sale Peg
Order would be a Non-Routable Limit Order, it would follow the pricing
instructions of such order.
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\51\ Under Rule 7.31(e)(1), Non-Routable Limit Orders would be
re-priced as follows: (i) It will have a working price of the PBO
(PBB) of an Away Market and a display price one MPV below (above)
that PBO (PBB); (ii) if the PBO (PBB) of an Away Market re-prices
higher (lower), it will be assigned a new working price of the
updated PBO (PBB) and a new display price of one MPV below (above)
that updated PBO (PBB); (iii) if the PBO (PBB) of an Away Market re-
prices to be equal to or lower (higher) than its last display price,
its display price will not change, but the working price will be
adjusted to be equal to its display price; or (iv) if its limit
price no longer locks or crosses the PBO (PBB) of an Away Market, it
will be assigned a working price and display price equal to its
limit price and will not be assigned a new working price or display
price based on changes to the PBO (PBB).
---------------------------------------------------------------------------
Proposed Rule 7.31(i)(4)(C) would provide that a Last Sale Peg
Order may be designated with an STP Modifier and would be rejected if
combined with any other modifiers or if there is no last-sale price.
This proposed rule text promotes transparency that a Non-Routable Limit
Order with a Last Sale Peg Modifier can include an STP, but could not
be combined with any other modifiers described in Rule 7.31.
The Exchange proposes that Last Sale Peg Orders would be eligible
for execution only during the Core Trading Session. As further
proposed, similar to Primary Pegged Orders, the Exchange proposes that
Last Sale Peg Orders would be accepted prior to the commencement of the
Core Trading Session, but would not be eligible for execution until the
Core Trading Session begins. To effect this change, the Exchange
proposes to amend Rule 7.34(c)(1)(A) to add Last Sale Peg Orders to the
description of orders that may be accepted but not eligible to trade
during the Early Trading Session.
Proposed Yielding Modifier
The Exchange proposes to add a second new order type modifier, the
Yielding Modifier, under paragraph (i)(5) of Rule 7.31, for trading on
Pillar. Today, the Exchange offers Floor brokers g-Quotes \52\ for
trading in Exchange-listed securities only. The proposed Yielding
Modifier is based on how g-Quotes currently function and as with g-
Quotes, would be available only to Floor brokers.
---------------------------------------------------------------------------
\52\ See Rule 70(a)(ii) and (iii).
---------------------------------------------------------------------------
Currently, g-Quotes are designed to assist Floor brokers with
compliance with Section 11(a)(1) of the Act,\53\ which generally
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 any account over which it or an associated person
exercises discretion. Subsection (G) of Section 11(a)(1) provides an
exemption from this prohibition, allowing an exchange member to have
its own floor broker execute a proprietary order, also known as a ``G
order,'' provided such order yields priority, parity, and precedence
(the ``G Rule''). For Exchange-listed securities, the Exchange offers
g-Quotes, which are an electronic method for Floor brokers to represent
orders that yield priority, parity and precedence based on size to all
other displayed and non-displayed orders on the Exchange Book, in
compliance with the G Rule.\54\
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\53\ 15 U.S.C. 78k(a)(1).
\54\ Under the G Rule, G orders are not required to yield to
other orders that are for the account of a member, e.g., Designated
Market Maker (``DMM'') interest or other g-Quotes.
---------------------------------------------------------------------------
Like g-Quotes, the proposed Yielding Modifier would aid Floor
brokers in complying with the G Rule when trading on Pillar. Proposed
Rule 7.31(i)(5) would set forth the general requirements for the
Yielding Modifier and would provide that a Limit Order, Non-Routable
Limit Order, or Reserve Order may be designated with a Yielding
Modifier, which for purposes of this Rule, would be referred to as a
``Yielding Order.'' This proposed rule text is based on how the
Exchange currently functions, because a g-Quote is a form of an e-
Quote, and pursuant to Rule 70.25, e-Quotes may be displayed or non-
displayed and routable or non-routable. The proposed rule text uses
Pillar terminology to reflect these functions. Proposed Rule 7.31(i)(5)
would also provide that a Yielding Order would yield priority to all
other displayed and non-displayed orders at the same price, and,
similar to g-Quotes, may be entered by a Floor broker only.
Proposed Rule 7.31(i)(5) would also provide that a Yielding Order
would be ranked Priority 4--Yielding Orders. The Exchange would make a
related amendment to Rule 7.36(e) to add this additional priority
category. Proposed Rule 7.36(e)(4) would provide that Priority 4--
Yielding Orders would have fourth priority. The Exchange believes that
these proposed priority categories are consistent with current g-Quote
functionality because Yielding Orders would be ranked behind all other
displayed and non-displayed orders.
Proposed Rule 7.31(i)(5)(A) and (B) would describe how an
Aggressing Yielding Order would trade. Proposed Rule 7.31(i)(5)(A)
would provide that an Aggressing Yielding Order to buy (sell) with a
limit price higher (lower) than the limit price of a resting order to
buy (sell) would trade ahead of such resting order. This proposed rule
text is consistent with how g-Quotes are ranked and traded in an
auction; a better-priced g-Quote will trade ahead of an at-priced limit
order because it has price priority.\55\ The Exchange proposes to make
this explicit in the rules for all executions of a Yielding Order. For
example, if the Exchange has a Non-Displayed Limit Order to buy with a
limit price of 10.00 (``Order 1'') that is locked by an ALO Order to
sell at 10.00 (``Order 2''), an arriving Yielding Order to buy with a
limit price of 10.03
[[Page 64919]]
(``Order 3'') would trade with Order 2 at 10.00. Because Order 3 is
willing to trade at a more aggressive price than Order 1 and therefore
has price priority, the Exchange believes that Order 3 would not need
to yield to Order 1 when trading at 10.00. The Exchange therefore
believes that this proposed execution would be consistent with the G
Rule.\56\
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\55\ See Rule 115A(a)(1) and Rule 123C(7)(a)(vii).
\56\ See, e.g., Securities Exchange Act Release No. 67686
(August 17, 2012), 77 FR 51596, 51599 (August 24, 2012) (SR-NYSE-
2012-19) (Approval Order) (approving the Exchange's proposal that
better-priced G Orders would be guaranteed to participate in a
closing auction and would have priority over same-side limit orders
on the Exchange Book that are at the same price as the closing
auction).
---------------------------------------------------------------------------
Proposed Rule 7.31(i)(5)(B) would provide that an Aggressing
Yielding Order to buy (sell) with a limit price equal to the limit
price of a resting order to buy (sell) would either: (i) Trigger the
resting order to become an Aggressing Order, unless the order to sell
(buy) is an MPL-ALO Order,\57\ or an MPL Order with an MTS Modifier, in
which case neither the Yielding Order nor the same-side resting order
would trade; or (ii) trade ahead of such resting order if such resting
order is not eligible to trade (e.g., an ALO Order or an order with an
MTS Modifier).
---------------------------------------------------------------------------
\57\ See Rule 7.31(e)(2) for a description of the ALO Order. An
MPL Order may be designated with the ALO modifier. See Rule
7.31(d)(3)(E).
---------------------------------------------------------------------------
In the first scenario, the Exchange believes that triggering the
resting order to trade ahead of the Yielding Order would respect the
priority of the resting order at that price. Neither order would trade
if the contra-side order is either an MPL ALO or MPL Order with an MTS
Modifier and has a conditional instruction that does not allow it to
trade at that price. The Exchange believes that not permitting either
order to trade in this circumstance would ensure that the Yielding
Order does not trade ahead of a same-priced resting order in accordance
with the G Rule.
In the second scenario, the Exchange believes that if a resting
order has a condition that has not been met and is therefore not
eligible to trade, such order cedes execution priority to a same-side
Yielding Order at the same price, and therefore, the Yielding Order
would not be trading ahead of such order in violation of the G Rule.
The execution of both an ALO Order and an order with an MTS Modifier
are both contingent on a pre-condition being met. The ALO Order
requires that the contra-side order be a liquidity remover and the
order with a MTS Modifier requires that the contra-side order be of a
certain size to meet its minimum quantity condition. Because the
condition of either resting order has not been met and such order
cannot participate in an execution, the Exchange believes this order
cedes execution priority to the Yielding Order and the Yielding Order
would not be required to yield to it under the G Rule.
The following example illustrates how an order with a Yielding
Modifier would interact with conditional orders, such as ALO orders,
MPL ALO orders, or MPL orders with an MTS Modifier.
If the PBBO is $10.00 by $10.20 resulting in a Midpoint
Price of $10.10, a Limit Order to buy 40 shares at $10.10 is entered
and is placed on the Exchange Book (``Order 1''), and an MPL ALO order
to sell 100 shares at 10.00 is then entered (``Order 2'') and placed on
the Exchange Book at the Midpoint Price, the Exchange Book would become
internally locked because Order 2 cannot trade with Order 1.\58\ Next,
a Floor broker enters a Yielding Order to buy 50 shares at $10.10
(``Order 3''). Order 3 would not execute against Order 2 because Order
3 is priced equal to Order 1 and must yield priority, parity and
precedence to Order 1. Order 3 would be placed on the Exchange Book at
$10.10.
---------------------------------------------------------------------------
\58\ See Rule 7.31(d)(3)(E)(i) (providing that ``[a]n Aggressing
MPL-ALO Order to buy (sell) will trade with resting orders to sell
(buy) with a working price below (above) the midpoint of the PBBO at
the working price of the resting orders, but will not trade with
resting orders to sell (buy) priced at the midpoint of the PBBO.'').
---------------------------------------------------------------------------
If the Away Market PBB is $10.00, a Non-Displayed Limit
Order to sell 1,000 shares at $10.00 is entered (``Order 1''), and an
ALO order to buy 100 shares at $10.00 is entered (``Order 2''), Order 2
would not trade with Order 1 because it cannot act as a liquidity
remover. Order 2 would be placed on the Exchange Book at $10.00. Next,
a Yielding Order to buy 1,000 shares at $10.00 is entered (``Order
3''), which would execute 1,000 shares against Order 1 at $10.00. Order
3 would not be required to yield to Order 2 because Order 2 was an ALO
order that chose to forgo the execution in favor of being placed on the
Exchange Book and acting as a liquidity provider.
Similar to the Last Sale Peg Order, proposed Rule 7.31(i)(5)(C)
would provide that a Yielding Order may be designated with an STP
Modifier and would be rejected if combined with any other modifiers.
The Exchange also proposes to amend Rule 7.37(b) to describe how
orders with a Yielding Modifier would participate in the allocation
process. As described above, the Exchange proposes that after all other
displayed and non-displayed orders are allocated, D Orders would be
allocated on parity. The Exchange proposes to amend Rule 7.37(b)(1) to
add subparagraph (G) to provide that after D Orders have been
allocated, the display quantity of orders ranked Priority 4--Yielding
Orders would be allocated based on time. The Exchange would further add
subparagraph (H) to provide that next, the non-display quantity of
orders ranked Priority 4--Yielding Orders would be allocated on time.
This proposed allocation process is based in part on how g-Quotes are
allocated after all other displayed and non-displayed orders in
Exchange-listed securities. The Exchange proposes new functionality for
Pillar that within each Yielding Order priority ranking, orders would
be allocated on time rather than on parity. The Exchange believes that
this proposed difference would streamline and simplify the allocation
of Yielding Orders and is consistent with their intended compliance
with the G Rule.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\59\ in general, and furthers the objectives of
Sections 6(b)(5) of the Act,\60\ 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 regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to, and perfect the mechanisms of,
a free and open market and a national market system and, in general, to
protect investors and the public interest and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\59\ 15 U.S.C. 78f(b).
\60\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed rule change extends the availability of orders and
modifiers currently available for trading of Exchange-listed securities
to trading of UTP Securities on Pillar. Specifically, the proposed D
Order, Last Sale Peg Modifier, and Yielding Modifier that the Exchange
proposes for Pillar would operate in a similar manner as d-Quotes,
BMZP, and g-Quotes, respectively, which are currently available for
trading in Exchange-listed securities. The proposed rule changes are
all based on existing functionality with differences in rule text only
to reflect Pillar terminology.
D Orders. The Exchange believes that the proposed D Order would
remove
[[Page 64920]]
impediments to, and perfect the mechanisms of, a free and open market
and a national market system and, in general, protect investors and the
public interest because it would expand existing functionality
available to trading of Exchange-listed securities to trading of UTP
Securities on Pillar. This proposed rule change would also ensure that
this functionality would continue to be available to Floor brokers when
the Exchange transitions trading of Exchange-listed securities to
Pillar. The Exchange notes that D Orders would operate in a manner
similar to d-Quotes. For example, a D Order would be eligible to trade
at an undisplayed, discretionary price. In addition, D Orders could
still be designated as routable or non-routable and could be combined
with a Reserve Order. However, the Exchange proposes to simplify and
streamline D Order functionality as compared to how d-Quotes function.
More specifically, the Exchange proposes to cap the discretionary price
range to the midpoint of the PBBO, define the discretionary price range
of such order based on the limit price, limit the circumstances when a
D Order would be triggered to exercise discretion, and peg the display
price of a D Order to the same-side PBBO.
The Exchange believes that these proposed differences would
simplify the operation of D Orders as compared to d-Quotes, while at
the same time allow such orders to both contribute to the display of
liquidity at the Exchange and offer price improvement opportunities to
contra-side orders. Accordingly, the Exchange believes that the
proposed D Order would remove impediments to and perfect the mechanism
of a free and open market and a national market system by promoting
price improvement to incoming orders, thereby improving execution
opportunities for market participants. These increased price
improvement opportunities are designed to attract additional order flow
to the Exchange.
The Exchange believes that making the proposed D Order available to
Floor brokers only is not designed to permit unfair discrimination
among customers, issuers, brokers, or dealers. First, D Orders are
based on current d-Quote functionality, which is available only to
Floor brokers and is designed to replicate electronically the Floor
broker's agency role to exercise price discretion on an order on behalf
of a customer.\61\ Floor brokers fulfill an agency broker role on
behalf of their customers without conflicts and fill a void for firms
that have chosen to allocate resources away from trading desks. In
addition to this role, Floor brokers provide services for more illiquid
securities, which upstairs trading desks may not be staffed to manage.
Importantly, when providing such agency trading services, a Floor
broker is unconflicted because a Floor broker is not trading for the
member's own account and does not sell research to customers. Floor
brokers therefore can focus on price discovery and volume discovery on
behalf of their customers, while at the same time managing their
customers' order flow to ensure that it does not impact pricing on the
market (e.g., executing large positions on behalf of a customer). Use
of the D Order would facilitate this agency function by allowing Floor
brokers to enter orders on behalf of their customers without pricing
impact because the discretionary price range would be undisplayed. When
managing such customer order flow, Floor brokers trading in UTP
Securities would continue to be subject to Exchange rules that are
unique to Floor brokers, including Rules 95, 122, 123, and paragraphs
(d)-(j) of Rule 134. In addition, any member organization can choose to
have a Floor broker operation and thus have direct access to D Orders
on behalf of its customers.
---------------------------------------------------------------------------
\61\ See, e.g., Securities Exchange Act Release No. 34-60251
(July 7, 2009), 74 FR 34068 (July 14, 2009) (Approval Order) (noting
that d-Quotes provide Floor brokers with similar functionality that
was previously available to Floor brokers).
---------------------------------------------------------------------------
In addition, the Exchange notes that while D Orders would be
available only to Floor brokers, such orders would not receive any
execution priority or benefit when trading at a discretionary price. To
the contrary, as proposed, if a D Order were to exercise discretion and
trade at an undisplayed, discretionary price, such D Order would be
ranked behind all other same-side orders at that price, except for a
Yielding Order, which by definition yields to all other orders and can
only be entered by another Floor broker. The Exchange therefore
believes that the proposed changes to Rule 7.37, which sets forth the
allocation process for D Orders, would remove impediments to, and
perfect the mechanisms of, a free and open market and a national market
system by providing transparency regarding the priority of such orders.
More specifically, the Exchange believes it would remove
impediments to and perfect the mechanism of a free and open market and
a national market system for a D Order trading at a discretionary price
to yield to other orders at that price because any such resting order,
whether displayed (which could only be an odd-lot sized order) or non-
displayed, would have time priority over the D Order trading at a
discretionary price. To reflect this time priority, the Exchange
proposes to assign a D Order a temporary working time associated with
the discretionary price, which the Exchange believes would respect the
priority of the working times of orders that may have a working price
equal to the D Order's discretionary price. By assigning a temporary
working time, the D Order would be ranked behind other orders at that
price. The Exchange further believes that maintaining the working time
of a D Order if it trades at its displayed price would reflect that
even if triggered to exercise discretion, it would remain displayed at
the same-side PBBO until it is executed. If a D Order that is triggered
to exercise discretion is not fully executed, it would remain available
for execution at its displayed price. Because that display price would
not be changing, the Exchange believes it is reasonable to maintain
time priority for that D Order if it were to execute at that displayed
price.
The Exchange believes that the manner by which the discretionary
price for a D Order would be determined would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because the principles are the same as how d-Quotes function,
which is to provide price improvement while exercising the least amount
of price discretion. Consistent with that current behavior, a proposed
D Order would be able to trade at a discretionary price that provides
price improvement over resting orders on the Exchange Book, subject to
a cap at the Midpoint Price.
The Exchange also believes it is reasonable for D Orders to be
allocated among multiple Floor brokers at a price based on parity as
such model is consistent with the Exchange's current parity allocation
for Floor brokers. As noted above, this parity allocation is only among
the Floor broker D Orders--other resting orders at that price, whether
displayed or undisplayed, would have first priority. The Exchange
further believes that with this parity allocation, it would be
appropriate to create a separate allocation wheel for D Orders when
more than one D Order is eligible to trade at the same discretionary
price. The Exchange further believes that it is appropriate for the
most aggressively-priced D Order to establish the first position on any
such allocation wheel as it would encourage the entry of aggressively-
priced orders
[[Page 64921]]
available to provide price improvement to contra-side orders.
Last Sale Peg Modifier. The Exchange believes that the proposed
Last Sale Peg Modifier would remove impediments to, and perfect the
mechanisms of, a free and open market and a national market system and,
in general, protect investors and the public interest because it would
expand existing functionality available to trading of Exchange-listed
securities to trading on Pillar, which would aid member organizations
in their compliance with provision of Rule 10b-18. Today, the Exchange
offers the BMZP instruction, which prevents a buy order from trading at
a price higher than the last sale. As proposed, the Last Sale Peg
Modifier would offer functionality based on the BMZP instruction for
all orders that trade on the Exchange. Similar to the BMZP instruction,
the proposed Last Sale Peg Modifier would be available to buy orders
and is designed to facilitate compliance with one of the conditions of
the safe harbor provision of Rule 10b-18. The Exchange believes that
the proposed differences between the proposed Last Sale Peg Modifier
and the BMZP instruction are designed to streamline the operation of
the order modifier and promote transparency, while at the same time
maintaining the core purpose of such modifier. For example, the
Exchange believes that limiting this modifier to Non-Routable Limit
Orders would simplify its operation because the Exchange would not be
able to assist a member organization to comply with Rule 10b-18 if such
order were routed to an Away Market.
Yielding Modifier. The Exchange believes that the proposed Yielding
Modifier would remove impediments to, and perfect the mechanisms of, a
free and open market and a national market system and, in general,
protect investors and the public interest because it would expand
functionality currently available on the Exchange to Floor brokers in
Exchange-listed securities to all securities trading on Pillar by
providing Floor brokers an electronic method to represent orders on
Pillar that yield priority, parity and precedence to displayed and non-
displayed orders on the Exchange's book in compliance with the G
Rule.\62\ Today, the Exchange offers g-Quotes \63\ for trading in
Exchange-listed securities. The proposed Yielding Modifier is based on
current g-Quote functionality, including that it would only be
available to Floor brokers. The Exchange notes that there is no need to
offer this modifier to non-Floor brokers because the only members with
the specified G Rule obligations today are Floor brokers--the
electronic, off-Floor entry of orders is subject to an exception to the
G Rule.\64\
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\62\ See Section 11(a)(1) of the Act, 15 U.S.C. 78k(a)(1).
\63\ See Rule 70(a)(ii) and (iii).
\64\ See Securities Exchange Act Release No. 82945 (March 26,
2018), 83 FR 13553, 13568 (March 29, 2018) (SR-NYSE-2018-36)
(``Approval Order'').
---------------------------------------------------------------------------
The Exchange believes the proposed rule for the Yielding Modifier
is designed to provide transparency of how the proposed modifier would
function if there are resting orders on both sides of the Exchange book
locking each other at the same price. The Exchange believes that the
proposed functionality to allow an arriving Yielding Order that is
priced better than a resting order that is locked with a contra-side
order to trade ahead of such same-side resting order is consistent with
the G Rule because in such scenario, the Yielding Order is willing to
trade at a better price than the resting order, and therefore has price
priority over such resting order. Likewise, the Exchange believes it
would be appropriate to trigger a resting order eligible to trade ahead
of a same-priced, same-side Yielding Order because if such resting
order is eligible to be executed and the Yielding Order does not have
price priority, the resting order should have an opportunity to trade
first. If it cannot trade, then neither it nor the Yielding Order would
trade. Finally, the Exchange believes it would be consistent with the G
Rule for a Yielding Order to trade ahead of a same-priced resting order
that is unable to trade because one or more conditions cannot be met
for such resting order. The Exchange believes this trading scenario
would be consistent with the G Rule because the resting order is not
eligible to trade, and therefore it would yield priority to the
Yielding Order; the Yielding Order would not trade ahead of any orders
in that execution.
Lastly, the Exchange believes the proposed changes to Rules 7.36
and 7.37 regarding the priority and parity allocation process for
orders with a Yielding Modifier would remove impediments to, and
perfect the mechanisms of, a free and open market and a national market
system. The Exchange believes it is reasonable to prioritize for
execution and parity purposes orders with a Yielding Modifier behind
all other orders at the same price because doing so is consistent with
the modifier's purpose, which is to yield priority and parity to all
other displayed and non-displayed orders at the same price, in
compliance with the G Rule.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\65\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The proposed change extends the availability of
order types that are currently available for Exchange-listed securities
to trading on Pillar. The Exchange operates in a highly competitive
environment in which its unaffiliated exchange competitors operate
under common rules for the trading of securities listed on their
markets as well as those that they trade pursuant to unlisted trading
privileges. By extending the availability of order types that are
currently available for Exchange-listed securities to trading on
Pillar, the Exchange would provide its members with consistency across
trading of all securities in the Exchange. Doing so would also enable
the Exchange to further compete with unaffiliated exchange competitors
that also trade UTP securities.
---------------------------------------------------------------------------
\65\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
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:
[[Page 64922]]
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-2018-52 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-2018-52. 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-2018-52
and should be submitted on or before January 8, 2019.
---------------------------------------------------------------------------
\66\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\66\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27280 Filed 12-17-18; 8:45 am]
BILLING CODE 8011-01-P
