Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules 7.16-E, 7.18-E, 7.31-E, 7.34-E, 7.35-E, and 7.38-E, 9175-9183 [2019-04555]
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Federal Register / Vol. 84, No. 49 / Wednesday, March 13, 2019 / Notices
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investment companies. The Funds will
disclose EWCs in accordance with the
requirements of Form N–1A concerning
CDSLs.
Asset-Based Distribution and/or Service
Fees
1. Section 17(d) of the Act and rule
17d–1 under the Act prohibit an
affiliated person of a registered
investment company, or an affiliated
person of such person, acting as
principal, from participating in or
effecting any transaction in connection
with any joint enterprise or joint
arrangement in which the investment
company participates unless the
Commission issues an order permitting
the transaction. In reviewing
applications submitted under section
17(d) and rule 17d–1, the Commission
considers whether the participation of
the investment company in a joint
enterprise or joint arrangement is
consistent with the provisions, policies
and purposes of the Act, and the extent
to which the participation is on a basis
different from or less advantageous than
that of other participants.
2. Rule 17d–3 under the Act provides
an exemption from section 17(d) and
rule 17d–1 to permit open-end
investment companies to enter into
distribution arrangements pursuant to
rule 12b–1 under the Act. Applicants
request an order under section 17(d) and
rule 17d–1 under the Act to the extent
necessary to permit a Fund to impose
asset–based distribution and/or service
fees. Applicants have agreed to comply
with rules 12b–1 and 17d–3 as if those
rules applied to closed-end investment
companies, which they believe will
resolve any concerns that might arise in
connection with a Fund financing the
distribution of its shares through assetbased distribution fees.
3. For the reasons stated above,
applicants submit that the exemptions
requested under section 6(c) are
necessary and appropriate in the public
interest and are consistent with the
protection of investors and the purposes
fairly intended by the policy and
provisions of the Act. Applicants further
submit that the relief requested
pursuant to section 23(c)(3) will be
consistent with the protection of
investors and will insure that applicants
do not unfairly discriminate against any
holders of the class of securities to be
purchased. Finally, applicants state that
the Funds’ imposition of asset-based
distribution and/or service fees is
consistent with the provisions, policies
and purposes of the Act and does not
involve participation on a basis different
from or less advantageous than that of
other participants.
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Applicants’ Condition
Applicants agree that any order
granting the requested relief will be
subject to the following condition:
Each Fund relying on the Order will
comply with the provisions of rules 6c–
10, 12b–1, 17d–3, 18f–3, 22d–1, and,
where applicable, 11a–3 under the Act,
as amended from time to time, as if
those rules applied to closed-end funds,
and will comply with the FINRA Sales
Charge Rule, as amended from time to
time, as if that rule applied to all closedend funds.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–04640 Filed 3–12–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85265; File No. SR–
NYSEARCA–2019–08]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rules 7.16–E,
7.18–E, 7.31–E, 7.34–E, 7.35–E, and
7.38–E
March 7, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
25, 2019, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rules 7.16–E (Short Sales), 7.18–E
(Halts), 7.31–E (Orders and Modifiers),
7.34–E (Trading Sessions), 7.35–E
(Auctions), and 7.38–E (Odd and Mixed
Lots). 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.
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00102
Fmt 4703
9175
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
Rules 7.16–E (Short Sales), 7.18–E
(Halts), 7.31–E (Orders and Modifiers),
7.34–E (Trading Sessions), 7.35–E
(Auctions), and 7.38–E (Odd and Mixed
Lots). The proposed rule changes are
intended to provide additional
specificity in the Exchange’s rules,
streamline order processing when a
security is halted or paused, and reduce
operational complexity when
transitioning to continuous trading.
Rule 7.16–E, Short Sales
Rule 7.16–E(f) sets forth how the
Exchange handles short sale orders
when the provisions of paragraph (b)(1)
of Rule 201 of Regulation SHO are in
effect (‘‘Short Sale Period’’).3 The
Exchange proposes to make two changes
to Rule 7.16–E. First, the Exchange
proposes to amend how sell short
Market Orders would be processed
during a Short Sale Period. Second, the
Exchange proposes to amend how sell
short orders in Auction-Eligible Orders
would be priced before an auction
during a Short Sale Period.
With respect to the processing of
Market Orders, Rule 7.16–E(f)(5) sets
forth how short sale orders are
processed during a Short Sale Period,
which is defined in Rule 7.16–E(f)(4).
More specifically, Rule 7.16–E(f)(5)(B)
provides how the Exchange processes
sell short Priority 1 and Priority 3
Orders during a Short Sale Period.4 The
3 17
CFR part 242.201(b)(1).
to Rule 7.36–E(e)(1), an order ranked
‘‘Priority 1—Market Orders,’’ which is referred to in
Rule 7.16–E(f)(5)(B) as a ‘‘Priority 1 Order’’ refers
to unexecuted Market Orders. Pursuant to Rule
7.31–E(a)(1)(A), a Market Order may be held
undisplayed on the NYSE Arca Book. Pursuant to
Rule 7.36–E(e)(3), an order ranked ‘‘Priority 3—
Non-Display Orders,’’ which is referred to in Rule
4 Pursuant
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current rule provides that such orders,
which are not displayed, are re-priced at
a Permitted Price 5 and are continuously
re-priced at a Permitted Price as the
national best bid moves both up and
down. Accordingly, under the current
rule, during a Short Sale Period, orders
ranked Priority 1—Market Orders, are
processed in the same manner as orders
ranked Priority 3—Non-Display Orders.
The Exchange proposes to change
how sell short Market Orders during a
Short Sale Period are processed during
continuous trading to conform to how
such orders are processed for an
auction. As provided for in Commentary
.01(a) to Rule 7.35–E, for purposes of
pricing an auction and ranking orders
for allocation in an auction, sell short
Market Orders that are adjusted to a
Permitted Price are processed as Limit
Orders ranked Priority 2—Display
Orders.6 With this proposed rule
change, the Exchange proposes to
extend the functionality currently
applicable to sell short Market Orders
during an auction to how sell short
Market Orders would be processed
during continuous trading, i.e., that
during a Short Sale Period, sell short
Market Orders would be converted into
display orders and would be ranked and
allocated as a displayed order. To effect
this change, the Exchange proposes to
delete references to ‘‘Priority 1 Orders’’
and ‘‘Market Orders’’ in current Rule
7.16–E(f)(5)(B) and add new Rule 7.16–
E(f)(5)(C) that would be applicable only
to Market Orders. Orders ranked Priority
3—Non-Display Orders would continue
to be processed in the same manner as
they are today under Rule 7.16–
E(f)(5)(B).
Proposed new Rule 7.16–E(f)(5)(C)
would provide that, during a Short Sale
Period, a sell short Market Order would
be ranked Priority 2—Display Orders
and would be subject to Trading Collars
specified in Rule 7.31–E(a)(1)(B)(i).7 As
discussed below, when a sell short
Market Order is ranked as Priority 2—
Display Orders, it would be assigned a
limit price of one MPV above $0.00. The
Exchange believes that applying Limit
7.16–E(f)(5)(B) as a ‘‘Priority 3 Order’’ refers to nonmarketable Limit Orders for which the working
price is not displayed, including the reserve interest
of Reserve Orders.
5 The Permitted Price is one minimum price
variation above the current NBB. See Rule 7.16–
E(f)(5)(A).
6 See Commentary .01(a) to Rule 7.35–E.
7 During Core Trading Hours, the Trading Collar
is based on a price that is a specified percentage
away from the consolidated last sale price and is
continuously updated based on market activity. If
there is no consolidated last sale price on the same
trading day, the Exchange uses the last Official
Closing Price for the security. See Rule 7.31–
E(a)(1)(B)(i).
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Order Price Protection when such
orders are ranked as Priority 2—Display
Orders would result in all such orders
being rejected as being priced too far
away from the NBBO.8 Accordingly, to
ensure that there is a mechanism
available to prevent such orders from
causing significant price dislocation
during a Sell Short Period, the Exchange
proposes that such orders would
continue to be subject to Trading
Collars, which are applicable to Market
Orders, rather than to Limit Order Price
Protection.
To address what would happen when
a Short Sale Period is triggered when
there is a resting Market Order on the
NYSE Arca Book, proposed Rule 7.16–
E(f)(5)(C) would further provide that if
a Short Sale Period is triggered when an
order ranked Priority 1—Market Orders
is resting on the NYSE Arca Book, such
resting order would be converted to an
order ranked Priority 2—Display Orders.
This could happen if there is an
unexecuted Market Order that is
undisplayed on the NYSE Arca Book
pursuant to Rule 7.31–E(a)(1)(A). In
such case, the resting order would be
converted to an order ranked Priority
2—Display Orders and would be ranked
and allocated for all purposes as a
displayed order. If the Short Sale Period
ends intraday, such order would be
converted back to an order ranked
Priority 1—Market Orders.
While a sell short Market Order
would be ranked and allocated as
Priority 2—Display Orders during a
Short Sale Period, not all functionality
applicable to displayed orders would be
applicable to such Market Orders. As
proposed, when ranked as Priority 2—
Display Orders, such order would be (1)
assigned a limit price of one MPV above
$0.00; (2) assigned a working and
(during Core Trading Hours) a display
price that is the higher of the Permitted
Price or one MPV above the lower
Trading Collar as determined under
Rule 7.31–E(a)(1)(B)(i); and (3) cancelled
if the Permitted Price is or becomes
lower than the Lower Price Band, as
provided in Rule 7.11–E(a)(5).
The Exchange believes that assigning
a Market Order with a limit price equal
to one MPV above $0.00 would provide
for a limit price for such order while it
is functioning as an order ranked
Priority 2—Display Orders. However, as
noted above, such limit price would not
be used for purposes of Limit Order
Price Protection. Rather, the Exchange
proposes to continue applying the
8 Pursuant to Rule 7.31–E(a)(2)(B), a Limit Order
to buy (sell) is subject to Limit Order Price
Protection and will be rejected if it is priced at or
above (below) the greater of $0.15 or a specified
percentage away from the NBO (NBB).
PO 00000
Frm 00103
Fmt 4703
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Trading Collars applicable to Market
Orders even if such order converts to
displayed interest. Next, the Exchange
believes that assigning such order a
working and display price (during Core
Trading Hours) that is the higher of the
Permitted Price or one MPV above the
lower Trading Collar is consistent both
with how sell short Priority 2—Display
Orders are displayed and priced during
a Short Sale Period and with the
proposal that Trading Collars would
continue to be applicable to such orders.
Not displaying such orders until Core
Trading Hours is also consistent with
the continued behavior that such Market
Orders are not eligible to trade until the
Core Trading Session. Finally, the
Exchange proposes to cancel such order
if the Permitted Price (i.e., the displayed
price of the order) is or becomes lower
than the Lower Price Band, which is
consistent with how Market Orders are
processed pursuant to Rule 7.11–
E(a)(5)(A)(i) if they cannot be traded or
routed at prices at or within the Price
Bands. In other words, if the Permitted
Price would be a price at or below the
Lower Price Band, the Exchange
proposes to cancel such order rather
than re-pricing it once again to the
Lower Price Band, even though the
Lower Price Band would be at a price
higher than the Permitted Price. Thus,
no short sale order would be executed
(effected) at or below the NBB during a
Short Sale Period.
With the adoption of proposed Rule
7.16–E(f)(5)(C), the Exchange further
proposes to re-number each of current
sub-paragraphs (C)–(I) of Rule 7.16–
E(f)(5) as (D)–(J) without making any
substantive change to those rules.
With respect to sell short orders and
how they are priced during an auction,
Rule 7.16–E(f)(6) states that during a
Short Sale Period, a short sale order will
be executed and displayed without
regard to price if, at the time of initial
display of the short sale order, the order
was at a price above the then current
National Best Bid (‘‘NBB’’).9 Consistent
with this rule, if a short sale order is
eligible to be displayed at that price
pursuant to Rule 7.16–E(f)(6), it would
remain at its previously displayed price
for participation in an opening,
reopening or closing auction. Otherwise,
short sale orders that are unable to
remain at their previously displayed
price pursuant to Rule 7.16–E(f)(6) are
priced to a Permitted Price as required
by Rule 7.16–E(f)(5).
The Exchange proposes to change this
behavior and no longer apply the
exception permitted under Rule 7.16–
E(f)(6) to short sale orders when they
9 See
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also 17 CFR part 242.201(b)(1)(iii)(A).
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participate in an auction. Accordingly,
during a Short Sale Period, the
Exchange proposes to adjust the price of
all short sale orders to a Permitted Price
prior to an auction during a Short Sale
Period, even if such orders were eligible
to remain at their previously displayed
price pursuant to Rule 7.16–E(f)(6).
Short sale orders not executed in an
auction would remain at a Permitted
Price for the duration of the Short Sale
Period.
To effect this change, new
subparagraph (8) to Rule 7.16–E(f)
would provide that notwithstanding
subparagraph (6) of Rule 7.16–E(f), with
respect to the execution of short sale
orders in a covered security in any
auction during the Short Sale Period,
the Exchange would adjust the working
price and display price of such short
sale orders in a covered security to a
Permitted Price before such auction.
Subparagraph (8) to Rule 7.16–E(f)
would further provide that if such a
short sale order is not executed in the
applicable auction and is eligible to
trade, it will be priced consistent with
paragraph (f)(5)(A) of Rule 7.16–E. In
other words, after the auction, it would
not revert back to a previouslydisplayed price pursuant to Rule 7.16–
E(f)(6). The Exchange believes that the
proposed rule change would streamline
order processing by adjusting the price
of all short sale orders to a Permitted
Price. The proposal is also consistent
with the treatment of short sale orders
on the Exchange’s affiliate, which also
re-prices all short sale orders in advance
of an auction.10
With this proposed change, there may
be circumstances when a short sale
order displayed at a price other than a
Permitted Price pursuant to Rule 7.16–
E(f)(6) may lose the opportunity to
participate in an auction when it repriced to a Permitted Price for the
auction. For example, currently, if a
short sale order is displayed at $9.99
pursuant to current Rule 7.16–E(f)(6),
the Permitted Price at the time of the
10 New York Stock Exchange LLC (‘‘NYSE’’) Rule
440B(h) provides that with respect to the execution
of short sale orders in a covered security in any
single-priced opening, re-opening or closing
transaction during the Short Sale Period, the NYSE
will re-price short sale orders in a covered security
as follows: (1) Opening—one minimum price
increment above the national best bid at 9:30 a.m.;
(2) Re-opening following a halt or pause in
trading—one minimum price increment above the
last published Exchange bid prior to such halt or
pause in trading; and (3) Closing—one minimum
price increment above the last published Exchange
bid prior to the close. The Exchange is not
proposing to re-price short sale orders to a price
other than the Permitted Price. Unlike NYSE Rule
440B(h), proposed Rule 7.16E(f)(8) uses the term
‘‘auction’’ in place of ‘‘single-priced opening, reopening or closing transaction’’ for consistency
with Rule 7.35–E.
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auction is $10.01 (i.e., the NBB crosses
the Exchange’s displayed offer of $9.99),
and the auction is priced at $10.00, that
sell short order would be eligible to
participate in the auction.11 However,
under the proposed new behavior, that
sell short order would be re-priced to
$10.01 and would not be eligible to
participate in the auction at $10.00.
Based on the Exchange’s review of
existing trading data, the Exchange
believes that this would be an extremely
rare event and would have a de minimis
impact on the overall execution of short
sale orders in auctions at the Exchange.
The Exchange also proposes to make
a related change to Commentary .01(b)
to Rule 7.35–E. That Commentary
provides that short sale orders that are
included in Auction Imbalance
Information, but are not eligible for
continuous trading before the applicable
auction, will be adjusted to a Permitted
Price as the NBB moves both up and
down. For example, for the Auction
Imbalance Information for the Closing
Auction, sell short MOC and LOC
Orders, which are not eligible for
continuous trading, are continually
adjusted to a Permitted Price. With the
proposed change to Rule 7.16–E, all
short sale orders would be participating
in an auction at a Permitted Price.
Accordingly, the Exchange proposes to
amend this Commentary to remove the
clause ‘‘but are not eligible for
continuous trading before the applicable
auction.’’ With this proposed change,
the Auction Imbalance Information
would reflect the Permitted Price at
which a short sale order would
participate in an auction.
Rule 7.18–E, Halts 12
Rule 7.18–E(b) states that the
Exchange does not conduct Trading Halt
Auctions in UTP Securities and sets
forth how the Exchange processes new
and existing orders in UTP securities
during a UTP Regulatory Halt.13 Rule
7.18–E(b)(1) states that during a UTP
Regulatory Halt the Exchange will
cancel any unexecuted portion of
Market Orders and orders not eligible to
trade in the current trading session on
the NYSE Arca Book. The Exchange
proposes to amend this Rule to further
provide that orders that are not
11 Pursuant
to Rule 7.35–E(a)(6), orders are ranked
for purposes of allocation in an auction and not all
orders are guaranteed to participate.
12 The Exchange also proposes to delete a
superfluous reference to the word ‘‘Halt’’ at the
beginning of Rule 7.18–E.
13 A ‘‘UTP Regulatory Halt’’ is defined in Rule 1.1
as a trade suspension, halt, or paused [sic] called
by the UTP Listing Market in a UTP Security that
requires all market centers to halt trading in that
security. The terms UTP Security and UTP Listing
Market are also defined in Rule 1.1.
PO 00000
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9177
displayed would also be cancelled
during a UTP Regulatory Halt. To reflect
this change, the Exchange proposes to
amend Rule 7.18–E(b)(1) to provide that
Non-Displayed Limit Orders,14 MidPoint Liquidity (‘‘MPL’’) Orders,15
Tracking Orders,16 Market Pegged
Orders,17 Discretionary Pegged
Orders,18 and Retail Price Improvement
(‘‘RPI’’) Orders 19 would also be
canceled during a UTP Regulatory Halt.
The Exchange believes that cancelling
these non-displayed orders during a
UTP Regulatory Halt would streamline
order processing once trading resumes.
Rule 7.18–E(c) sets forth how the
Exchange processes new and existing
orders in Exchange-listed securities
during a halt or pause. Currently, during
such a halt or pause, unexecuted Market
Orders are cancelled and all other
resting orders, including non-displayed
orders, are maintained at their last
working price and display price. The
Exchange proposes to amend how
orders in Exchange-listed securities are
processed during a halt or pause based
on whether orders are eligible to
participate in the Trading Halt Auction.
First, the Exchange proposes to cancel
the unexecuted portion of nondisplayed orders that are not eligible to
participate in a Trading Halt Auction.
To effect this change, the Exchange
proposes to amend Rule 7.18–E(c)(1) to
provide that any unexecuted portion of
Non-Displayed Limit Orders, MPL
Orders, Tracking Orders, Market Pegged
Orders, Discretionary Pegged Orders,
and RPI Orders in an Exchange-listed
security would be cancelled during a
halt or pause. This proposed change is
consistent with the above proposal
regarding how non-displayed orders for
UTP Securities during a UTP Regulatory
Halt would be processed under Rule
7.18–E(b)(1). The Exchange proposes to
make this change for Exchange-listed
securities as well because such order
types are not eligible to participate in an
auction.
Second, because Market Orders are
eligible to participate in a Trading Halt
Auction, the Exchange proposes to add
new paragraph (c)(2) to Rule 7.18–E 20 to
provide that the unexecuted quantity of
a Market Order would be retained.21
14 See
Rule 7.31–E(d)(2).
Rule 7.31–E(d)(3).
16 See Rule 7.31–E(d)(4).
17 See Rule 7.31–E(h)(1).
18 See Rule 7.31–E(h)(3).
19 See Rule 7.44–E(a)(4).
20 The Exchange proposes to renumber the
subparagraphs in Rule 7.18–E(c) to account for the
addition new subparagraph (c)(2).
21 The quantity of a Market Order to buy (sell) not
traded or routed will remain undisplayed on the
15 See
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Continued
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The Exchange also proposes to delete
reference to Market Orders in Rule 7.18–
E(c)(1).
Third, the Exchange proposes to
amend Rule 7.18–E(c)(3) to provide that
it would re-price all other resting orders
on the NYSE Arca Book to their limit
price.22 This proposed change would
not alter how those orders would be
ranked for purposes of a Trading Halt
Auction, which is based on their limit
price.23
Rule 7.18–E(c)(4), which would be
renumbered as Rule 7.18–E(c)(5),
currently provides that incoming Limit
Orders designated as IOC, Cross Orders,
Tracking Orders, Market Pegged Orders,
and Discretionary Pegged Orders, and
Retail Orders entered during a halt or
pause are rejected. The Exchange
proposes to make a related change to
proposed Rule 7.18–E(c)(5) to provide
that incoming Non-Displayed Limit
Orders, MPL Orders, and RPI Orders
entered during a halt or pause would
also be rejected.
Because such non-displayed orders
would be cancelled during a halt or
pause, the Exchange proposes to amend
Rule 7.18–E(c)(5) further to no longer
provide that a request to cancel and
replace a Tracking Order, Market Pegged
Order, Discretionary Pegged Order, or
Retail Order is treated as a cancellation
without replacing the order. This text in
current Rule 7.18–E(c)(4) is no longer
necessary because incoming Tracking
Orders, Market Pegged Orders,
Discretionary Pegged Orders, and Retail
Orders would be rejected and any
unexecuted portion of such orders
resting on the NYSE Arca Book would
be cancelled during a halt or pause.
The Exchange believes these proposed
changes to Rules 7.18–E(c) relating to
non-displayed orders are reasonable
because none of these order types are
eligible to participate in a Trading Halt
Auction either by definition or by their
operation.24 Rejecting or cancelling
NYSE Arca Book at a working price of the NBO
(NBB) and be eligible to trade with incoming sell
(buy) orders at that price. See Rule 7.31–E(a)(1)(A).
22 The Exchange notes that it previously priced
orders resting the NYSE Arca Book during a halt at
their limit price. See Securities Exchange Act
Release No. 78615 (August 18, 2016), 81 FR 57986
(August 24, 2016) (SR–NYSEArca–2016–117).
23 See Rule 7.35–E(a)(6)(A) (Limit Orders, LOO
Orders, and LOC orders will be ranked based on
their limit price and not the price at which they
would participate in the auction).
24 Non-Displayed Limit Orders, MPL Orders,
Market Pegged Orders, and Discretionary Pegged
Orders are by definition ineligible to participate in
auctions. See Rule 7.31–E(d)(2), (d)(3), (h)(1), and
(h)(3), respectively. Tracking Orders are to only
execute against orders that are in the process of
being routing away and not against contra-side
interest in an auction. See Rule 7.31–E(d)(4). RPI
Orders must be designated as either a Non-
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17:45 Mar 12, 2019
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these orders resting on the NYSE Arca
Book during a halt or pause would
reduce operational complexity and ease
order processing once the Trading Halt
Auction occurs and the Exchange
transitions to continuous trading.
Rule 7.31–E, Orders and Modifiers
The Exchange proposes to make a
number of changes to Rule 7.31–E, each
of which are designed to streamline
order processing.
Limit Order Price Protection. As
described above, Rule 7.31–E(a)(2)(B)
sets forth Limit Order Price Protection
for Limit Orders and currently provides
that a Limit Order entered before the
Core Trading Session that becomes
eligible to trade in the Core Trading
Session will become subject to Limit
Order Price Protection after the Core
Opening Auction. With this
functionality, orders not yet eligible to
trade will not be rejected on arrival, but
rather will be evaluated for Limit Order
Price Protection when they become
eligible to trade.
The Exchange proposes a change to
whether Limit Order Price Protection
would be applied to Limit Orders in
Auction-Eligible Securities entered
during a halt or pause. As proposed, a
Limit Order in an Auction-Eligible
Security entered during a trading halt or
pause, i.e., a period when the Exchange
is not open for trading in such
securities, would not be subject to Limit
Order Price Protection. With this
proposed change, similar to current
functionality, Limit Orders in AuctionEligible Securities would continue to
not be subject to Limit Order Protection
on arrival. The first opportunity for an
order entered during a period when
there is no trading in such security on
the Exchange, i.e., during a trading halt
or pause, would be the single-priced
transaction of a Trading Halt Auction. In
such case, the Limit Order would be
traded in such auction at the price of the
auction and not at the limit price.
Accordingly, the Exchange does not
believe that Limit Order Price Protection
would be necessary for such orders.
To reflect this change, the Exchange
proposes to amend Rule 7.31–E(a)(2)(B)
to provide that a Limit Order in an
Auction-Eligible Security entered
during a trading halt or pause would not
be subject to Limit Order Price
Protection.
Re-pricing of Resting Orders. Rule
7.31–E(a)(2)(C) currently describes how
the Exchange re-prices resting orders
under specified circumstances.
Displayed Limit Order or an MPL Order, neither of
which are eligible to participate in auctions. See
Rule 7.44–E(a)(4)(d).
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Specifically, if a BB (BO) that is locked
or crossed by an Away Market PBO
(PBB) is cancelled, executed or routed
and the next best-priced resting Limit
Order(s) on the NYSE Arca Book that
would become the new BB (BO) would
have a display price that would lock or
cross the PBO (PBB), such Limit
Order(s) to buy (sell) will be assigned a
display price one MPV below (above)
the PBO (PBB) and a working price
equal to the PBO (PBB). Such Limit
Orders are re-priced when the PBBO is
updated, including if the Exchange
receives a Day ISO that would result in
at least a round lot being displayed as
the new BBO.
The Exchange proposes to amend this
text to provide that the arrival of anysized Day ISO would result in the repricing of such resting orders. The
arrival of a Day ISO of any size provides
the Exchange with notice that the ETP
Holder that has entered such order has
met the requirement under Rule 7.31–
E(e)(3)(A)(ii) to simultaneously route
one or more additional Limit Orders to
trade against the full displayed size of
any protected bids (for sell orders) or
protected offers (for buy orders) on
Away Markets. Accordingly, the
Exchange would adjust the PBBO based
on the arrival of any-sized Day ISO.
Because the PBBO would be adjusted
based on the arrival of any-sized Day
ISO, the Exchange believes it would no
longer be necessary to wait for a roundlot sized Day ISO before re-pricing
orders under Rule 7.31–E(a)(2)(C).
Accordingly, the Exchange proposes to
delete the following text in the second
sentence of current Rule 7.31–
E(a)(2)(C)—‘‘and would result in at least
a round lot being displayed as a new BB
(BO)’’—and the third and last sentence
of current Rule 7.31–E(a)(2)(C).
The Exchange also proposes to
provide additional specificity in Rule
7.31–E(h)(2)(B) regarding when a
Primary Pegged Order’s display price
and working price would be adjusted
when the PBBO is locked or crossed.25
Specifically, the Exchange proposes to
specify that Primary Pegged Orders
would be re-priced whenever a Limit
Order is re-priced pursuant to Rules
7.31–E(a)(2)(C) or 7.35–E(h)(3)(A)(ii).26
Re-pricing a Primary Pegged Order like
a Limit Order pursuant to Rule 7.31–
25 Pursuant to Rule 7.31(h)(2), a Primary Pegged
Order is a displayed Pegged Order to buy (sell) with
a working price that is pegged to the PBB (PBO),
with no offset allowed.
26 Under Rule 7.35–E(h)(3)(A)(ii), before
publishing a quote following a Trading Halt
Auction, the display price of orders that are
marketable against a protected quotation on an
Away Market will be adjusted consistent with Rule
7.31–E(a)(2)(C).
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E(a)(2)(C) ensures that if the PBBO is
locked or crossed, a resting Primary
Pegged Order would not be re-priced to
a locking or crossing price, for example,
if the Exchange BBO changes.27 To
effect this change, the Exchange
proposes to amend Rule 7.31–E(h)(2)(B)
to specify that if a resting Limit Order
on the NYSE Arca Book is assigned a
new display price and working price
pursuant to Rules 7.31–E(a)(2)(C) or
7.35–E(h)(3)(A)(ii) and the PBBO is still
locked or crossed, a resting Primary
Pegged Order would also be assigned a
new display price and working price
pursuant to Rule 7.31–E(a)(2)(C). The
proposed text represents current
functionality. The Exchange believes
that this proposed rule change would
provide clarity and transparency in
Exchange rules of when a Primary
Pegged Order would be re-priced
consistent with Rule 7.31–E(a)(2)(C).
A Primary Pegged Order is currently
eligible to participate in auctions at its
limit price. The Exchange proposes to
amend Rule 7.31–E(h)(2) to provide that
Primary Pegged Orders would no longer
be eligible to participate in the Closing
Auction. Because a Primary Pegged
Order, which intraday is pegged to
display to the same-side PBBO, would
likely need to be re-priced to its limit
price in order to participate in the
Closing Auction, the Exchange believes
that making such orders ineligible to
participate in the Closing Auction
would streamline order processing
when transition [sic] to the Closing
Auction. This is also consistent with
one other exchange that precludes
Pegged Orders from participating in
select auctions.28 ETP Holders wishing
to participate in the Closing Auction
could do so through the use of other
orders types, such as Limit Orders,
which like Primary Pegged Orders,
participate in the Closing Auction at
their limit price.
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Rule 7.34–E, Trading Sessions
Rule 7.34–E(c)(1) describes order
entry during the Early Trading
Session.29 The Exchange proposes to
27 For example, if the PBBO is 10.00 x 10.02, and
NYSE Arca’s BB is 10.00, a Primary Pegged Order
to buy would peg to that 10.00. If next, an Away
Market PBO is displayed at 9.98, crossing the NYSE
Arca BB, pursuant to Rule 7.31–E(h)(2)(B), the
Primary Pegged Order would remain displayed at
10.00. If next, the 10.00 BB on NYSE Arca cancels,
the Primary Pegged Order would need to re-price,
but at that point, the PBBO is crossed because of
the Away Market PBO of 9.98. In this scenario, the
Primary Pegged Order would be re-priced to 9.97
as provided for in Rule 7.31–E(a)(2)(C).
28 See Cboe BZX Exchange, Inc. (‘‘BZX’’) Rule
11.23(a)(8)(A)(ii) (precluding Pegged Orders from
participating in an IPO Auction).
29 The Early Trading Session begins at 4:00 a.m.
Eastern Time and concludes at the commencement
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add new subparagraph (F) to Rule 7.34–
E(c)(1) to provide that the following
non-displayed orders would be rejected
if entered before the Auction Processing
Period for the Early Trading Session
concludes: Non-Displayed Limit Orders,
Discretionary Pegged Orders [sic],30
MPL Orders, Tracking Orders, and RPI
Orders. Similar to how the Exchange
proposes to cancel non-displayed orders
during halt or pause, the Exchange
believes that rejecting these nondisplayed orders when the Exchange is
not engaged in continuous trading
would reduce operational complexity
when the Exchange transitions to
continuous trading. ETP Holders
seeking to enter theses order types may
do so once the Early Trading Session
begins.
Rule 7.35–E, Auctions
Rule 7.35–E(e), Trading Halt Auction.
Rule 7.35–E(e)(10) states that if the ReOpening Time for a Trading Halt
Auction would be in the last ten
minutes of trading before the end of
Core Trading Hours, the Exchange will
not conduct a Trading Halt Auction in
that security and will not transition to
continuous trading. Instead, the
Exchange remains halted or paused and
will conduct a Closing Auction
pursuant to Rule 7.35–E(d). Rule 7.35–
E(e)(10)(A) provides that in such case
MOO Orders, LOO Orders, and IO
Orders entered during the pause or halt
will not participate in the Closing
Auction and be cancelled.
Consistent with the proposed change
to Rule 7.31–E(h)(2), described above,
that Primary Pegged Orders are not
eligible to participate in a Closing
Auction, the Exchange proposes to
amend Rule 7.35–E(e)(10)(A) to also
provide that Primary Pegged Orders
would be rejected on arrival and
cancelled when resting if the Exchange
does not transition to continuous
trading under these circumstances.
Because Primary Pegged Orders may
be entered prior to a halt or pause and
because by their terms, MOO, LOO, and
IO Orders are not eligible to participate
in a Closing Auction, the Exchange
further proposes to amend Rule 7.35–
of the Core Trading Session. See Rule 7.34–E(a)(1).
The Core Trading Session begins at 9:30 a.m.
Eastern Time. See Rule 7.34–E(a)(2).
30 The Exchange has represented that it
erroneously included a reference to ‘‘Discretionary
Pegged Orders’’ in the Purpose and Statutory Basis
sections of the filing that describes the proposed
changes to subparagraph (F) to Rule 7.34E(c)(1) and
that the proposed rule text set forth in Exhibit 5
does not list Discretionary Pegged Orders as one of
the order types proposed to be added therein.
Telephone conversation between Ira Brandriss and
Matthew Cursio, SEC, and Christopher Solgan,
NYSE on March 6, 2019.
PO 00000
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9179
E(e)(10)(A) to delete the phrase ‘‘entered
during the pause or halt will not
participate in the Closing Auction and
be cancelled’’ as redundant text of the
proposed new text that would provide
that all such orders would be rejected
on arrival and cancelled when resting.
Rule 7.35–E(h), Transition to
Continuous Trading. Rule 7.35–E(h) sets
forth how the Exchange transitions to
continuous trading following an
auction, if there is no matched volume
and an auction is not conducted, or
when transitioning from one trading
session to another. Rule 7.35–E(h)(2)(A)
provides that during the transition to
continuous trading, an order instruction
(as defined in Rule 7.35–E(g)) received
during the Auction Imbalance Freeze,
the transition to continuous trading, or
the Auction Processing Period would be
processed in time sequence with the
processing of orders as specified in
Rules 7.35–E(h)(3)(A) or (B) if it relates
to an order that was received before the
Auction Processing Period. The
Exchange proposes to amend Rule 7.35–
E(h)(2)(A) to further provide that the
processing of order instructions
described in that sentence would also
apply to orders that have already
transitioned to continuous trading. This
proposed rule text represents current
functionality and is intended to promote
clarity and transparency in Exchange
rules of when an order instruction
would be applied to an order.
The Exchange proposes to make a
corollary amendment to Rule 7.35–
E(h)(2)(B) to provide that this
subparagraph of the Rule would apply
only to an order instruction for an order
that has not yet transitioned to
continuous trading. The Exchange also
proposes to make a clarifying
amendment to add the word ‘‘either’’
before the phrase ‘‘the Auction
Processing Period or the transition to
continuous trading.’’
Rule 7.35–E(h)(3) sets forth how
orders are processed when transitioning
to continuous trading from a prior
trading session or following an auction.
The Exchange proposes to amend
Rule 7.35–E(h)(3)(A)(ii) to remove the
term ‘‘fully-executed’’ from before the
reference to ‘‘display quantity.’’ The
Exchange has amended its Reserve
Order functionality and specifically the
circumstances when a Reserve Order
would be replenished, and the reference
to ‘‘fully-executed’’ is now moot.31
31 See Securities Exchange Act Release No. 83967
(August 28, 2018), 83 FR 44984 (September 4, 2018)
(SR–NYSEArca–2018–61) (amending Rule 7.31–
E(d)(1)(A) to state that the replenish quantity of a
Reserve Order is either the minimum display size
of the order or the remaining quantity of reserve
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Rule 7.35–E(h)(3)(B) provides that
unexecuted orders that were not eligible
to trade in the prior trading session (or
were received during a halt or pause) or
that were received during the Auction
Processing Period, will be assigned a
new working time at the end of the
Auction Processing Period in time
sequence relative to one another based
on original entry time. The Exchange
proposes to amend Rule 7.35–E(h)(3)(B)
to remove references to orders received
during a halt or pause. As noted above,
the Exchange will be reducing the
number of orders that would be
accepted during a halt or pause. Orders
not eligible to participate in a Trading
Halt Auction would no longer be resting
or accepted during a halt or pause, and
therefore, there would no longer be a
need to assign a working time for such
securities. In addition, orders in
Exchange-listed securities that are
accepted during a halt or pause are
eligible to participate in the Trading
Halt Auction, and therefore, the working
time for such orders is the original entry
time, as provided for in Rule 7.36–
E(f)(1). The Exchange believes it is
reasonable for new orders received
during a halt or pause to be processed
as provided for in Rule 7.36–E(f)(1) as
this is the default processing for
assigning a working time.
The Exchange proposes a nonsubstantive change to number the stand
alone paragraph following Rule 7.35–
E(h)(3)(C) as paragraph (D).
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Rule 7.38–E (Odd and Mixed Lots)
The Exchange proposes to amend
Rule 7.38–E relating to Odd and Mixed
Lots. Rule 7.38–E sets forth
requirements relating to odd lot and
mixed lot trading on the Exchange. Rule
7.38–E(b) further provides that round
lot, mixed lot, and odd lot orders are
treated in the same manner on the
Exchange, provided that the working
price of an odd lot order is adjusted
both on arrival and when resting on the
Exchange Book based on the limit price
of the order. Currently, if the limit price
of an odd lot order to buy (sell) is at or
below (above) the PBO (PBB), the order
has a working price equal to the limit
price. If the limit price of an odd lot
order to buy (sell) is above (below) the
PBO (PBB), the order has a working
price equal to the PBO (PBB). The rule
further provides that if the limit price of
an odd lot order to buy (sell) is above
(below) the PBO (PBB) and the PBBO is
crossed, the order has a working price
equal to the PBB (PBO).
interest if it is less than the minimum display
quantity).
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Under the current rule, although the
working price of an odd lot order is
adjusted based on the PBBO, the display
price of an odd lot order ranked Priority
2—Display Orders is not adjusted based
on the PBBO. Additionally, the rule
provides that an odd lot order ranked
Priority 2—Display Orders will not be
assigned a new working time if its
working price is adjusted under the
rule. If the display price of an odd lot
order to buy (sell) is above (below) its
working price, the order is ranked and
allocated based on its display price. As
a result, an odd lot bid or offer can be
displayed on the Exchange’s proprietary
data feeds at a price that appears to
cross the PBBO, even if such order
would not be eligible to trade at that
price.
The Exchange proposes to amend
Rule 7.38–E(b) to provide that the
display price of an odd lot order would
be adjusted whenever the working price
is adjusted. To effect this change, the
Exchange proposes to amend current
Rule 7.38–E(b)(1) to provide that the
working and display price of an odd lot
order would be adjusted both on arrival
and when resting on the NYSE Arca
Book. The Exchange further proposes to
break current Rule 7.38–E(b)(1) into
subparagraphs (A)–(C) so that the rule
provides how odd lot orders are ranked
and executed under each of the
instances provided in the current rule
that are described above.
Proposed Rule 7.38–E(b)(1)(A) would
provide that if the limit price of an odd
lot order to buy (sell) is at or below
(above) the PBO (PBB), the order would
have a working price and display price
equal to the limit price of the order.
This proposed rule text does not change
any functionality, but rather, provides
greater specificity of what the display
price would be when the limit price of
an odd lot order is not through the
PBBO.
Proposed Rule 7.38–E(b)(1)(B) would
provide that if the limit price of an odd
lot order to buy (sell) is above (below)
the PBO (PBB), the order would have a
working price and display price equal to
the PBO (PBB) unless the order’s
instruction requires a display price to be
different from the PBBO. This proposed
rule text represents new functionality
that the display price of an odd lot order
would be adjusted at the same time as
the working price is currently adjusted
for such order. This proposed
amendment does not change the price at
which such odd lot order would be
eligible to trade, only the price at which
it is displayed on the Exchange’s
proprietary data feeds. The proposed
rule text includes that the display price
would be adjusted to the contra-side
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Fmt 4703
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PBBO unless the order’s instruction
requires a display price to be different
from the PBBO to account for those
order types that, by their terms, do not
allow the display price to be equal to a
contra-side PBBO. For example, a NonRoutable Limit Order does not have a
display price equal to the contra-side
PBBO.32 Accordingly, if an odd lot order
were to be a Non-Routable Limit Order,
pursuant to that order’s instructions, it
would have a display price different
from the contra-side PBBO.
Proposed Rule 7.38–E(b)(1)(C) would
address what the display price of an odd
lot order would be if the PBBO is locked
or crossed. The Exchange proposes to
expand the current rule text to include
locked markets and add that both the
display price and working price would
be adjusted to the same-side PBBO if the
PBBO is locked or crossed. Accordingly,
as proposed, if the limit price of an odd
lot order to buy (sell) is above (below)
the PBO (PBB) and the PBBO is locked
or crossed, the order would have a
working price and display price equal to
the PBB (PBO). The proposed rule
would further provide that the working
price and the display price of such odd
lot order would not be adjusted again
until the PBBO unlocks or uncrosses.
Additionally, the Exchange proposes
to delete the last two sentences of
current Rule 7.38–E(b)(1) regarding the
display price of odd lot orders and their
ranking given the changes proposed to
the current rule regarding the display
price of an odd lot order render this text
moot. By deleting this rule text, the
general rules governing when a working
time is assigned to an order, as specified
in Rule 7.36–E(f)(2), would be
applicable to odd lot orders.
*
*
*
*
*
Because of the technology changes
associated with this proposed rule
change, the Exchange will announce the
implementation date of this proposed
rule change by Trader Update. The
Exchange anticipates that the
implementation date will be in the
second quarter of 2019.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Act,33 in general, and furthers the
objectives of Section 6(b)(5),34 in
particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
32 See
NYSE Arca Rule 7.31–E(e)(1).
U.S.C. 78f(b).
34 15 U.S.C. 78f(b)(5).
33 15
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transactions in securities, to remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest because it would provide
additional specificity in the Exchange’s
rules, streamline order processing when
a security is halted or paused, and
reduce operational complexity when
transitioning to continuous trading.
Rule 7.16–E, Short Sales. The
Exchange believes that the proposed
processing of sell short Market Orders
during a Short Sale Period, as proposed
in Rule 7.16–E(f)(5)(C), would remove
impediments to and perfect the
mechanism of a fair and orderly market
because it would standardize the
processing of sell short Market Orders
for both auctions and continuous
trading. As described in Commentary
.01(a) to Rule 7.35–E, during a Short
Sale Period, sell short Market Orders are
currently processed as Limit Orders
ranked Priority 2—Display Orders. The
Exchange believes that it would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system to extend
this functionality to how sell short
Market Orders are processed during
continuous trading. The Exchange
further believes that because Market
Orders would be assigned a limit price
of one MPV above $0.00, it would
remove impediments to and perfect the
mechanism of a free and open market
for sell short Market Orders that have
been converted to an order ranked
Priority 2—Display Orders to continue
to be subject to Trading Collars and be
cancelled if the Permitted Price is equal
to or below the Lower Price Band. The
Exchange believes that the proposed
changes will provide clarity on the short
sale order handling procedures
employed by the Exchange so that such
orders are handled by the Exchange
consistent with Regulation SHO. The
Exchange also believes that the
proposed functionality related to the
processing of short sale orders will
assist ETP Holders in executing or
displaying their orders consistent with
Regulation SHO.
The proposed change to adopt new
subparagraph (8) to Rule 7.16–E(f) and
to make a related change to Commentary
.01(b) to Rule 7.35–E would promote
just and equitable principles of trade
and remove impediments to, and perfect
the mechanism of a free and open
market and a national market system
because it would streamline order
processing by adjusting the working and
display price of all short sale orders to
a Permitted Price ahead of an auction
with any unexecuted portion of that
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short sale order remaining at a
Permitted Price following the auction
for the remainder of the Short Sale
Period. The proposal would provide for
consistent pricing of all short sale orders
during a Short Sale Period, even though
certain short sale orders would
otherwise be permitted to remain at
their previously displayed price
pursuant to Rule 7.16–E(f)(6). The
Exchange believes that situations where
the NBB would cross the price at which
an auction is conducted are rare, and
therefore the number of sell short orders
that could lose an execution
opportunity in such circumstances
would be de minimis. The proposal is
also consistent with the treatment of
short sale orders on the Exchange’s
affiliate.35
Rule 7.18–E, Halts. The proposed
change to Rule 7.18–E(b) to cancel
certain non-displayed orders in UTP
Securities during a halt or pause
promotes just and equitable principles
of trade and removes impediments to,
and perfects the mechanism of a free
and open market and a national market
system because it would reduce the
operational complexity of processing
these orders following a halt or pause.
The proposed changes to Rules 7.18–
E(c)(1) and (4) to cancel or reject various
types of non-displayed orders in
Exchange-listed securities during a halt
or pause also promotes just and
equitable principles of trade and
removes impediments to, and perfect
the mechanism of, a free and open
market and a national market system
because none of those orders are eligible
to participate in a Trading Halt Auction
and would reduce operational
complexity when the Exchange
transitions to continuous trading and
orders are placed on the NYSE Arca
Book.
The proposed changes to Rule 7.18–
E(c)(1) and (2) to retain Market Orders
in Exchange-listed securities during and
halt or pause promotes just and
equitable principles of trade because it
would enable those Market Orders to
participate in the Trading Halt Auction.
ETP Holders that do not wish that their
Market Order participate in a Trading
Halt Auction may cancel their order
while the security is halted or paused.
The proposed change to Rule 7.18–
E(c)(3) to provide that the Exchange
would re-price orders resting in the
NYSE Arca Book during a halt or pause
to their limit price fosters cooperation
and coordination with persons engaged
in facilitating transactions in securities
because it would align the pricing of
those orders with price at which they
35 See
PO 00000
supra note 10.
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9181
would be ranked for purposes of the
Trading Halt Auction.36
Rule 7.31–E, Orders and Modifiers.
The proposed change to Rule 7.31–
E(a)(2)(B) to not subject a Limit Order in
an Auction-Eligible Security entered
during a halt or pause to Limit Order
Price Protection removes impediments
to, and perfects the mechanism of, a free
and open market and a national market
system because it is consistent with
other provisions of Rule 7.31–E(a)(2)(B)
under which an order would not be
subject to Limit Order Protection on
arrival before they are eligible to trade.
The first opportunity such order would
have to trade would be a single-priced
transaction of a Trading Halt Auction. In
such case, the Limit Order would be
traded in such auction at the price of the
auction and not at the limit price.
Accordingly, the Exchange does not
believe that Limit Order Price Protection
would be necessary for such orders. The
proposal would also provide additional
specificity in the Exchange’s rules
because Limit Orders are not eligible to
trade during a halt or pause and,
therefore, should not be subject to Limit
Order Price Protection.
The Exchange also believes the
proposed change to Rule 7.31–E(a)(2)(C)
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system by providing specificity
regarding when resting orders would be
re-priced due to the arrival of a Day ISO.
Specifically, as proposed, because anysized Day ISO would result in a new
PBBO, it is not necessary for an arriving
Day ISO to result in a round lot or more
being displayed as a new BBO before
resting orders would be re-priced under
Rule 7.31–E(a)(2)(C). The Exchange
therefore believes that this proposed
change would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would promote the
display of orders at their limit price
without locking or crossing the PBBO.
Similarly, amending Rule 7.31–
E(h)(2)(B) to describe when a resting
Primary Pegged Order would be repriced pursuant to Rule 7.31–E(a)(2)(C)
or Rule 7.35–E(h)(3)(A)(ii) removes
impediments to, and perfects the
mechanism of, a free and open market
and a national market system because it
does not propose new functionality, but
rather, provides additional specificity in
the Exchange’s rules regarding the
operation of Primary Pegged Orders
36 See Rule 7.35–E(a)(6)(A) (Limit Orders, LOO
Orders, and LOC orders will be ranked based on
their limit price and not the price at which they
would participate in the auction).
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such that it prevents a resting Primary
Pegged Order from being re-priced to
peg to a locked or crossed market. This
change does not alter the operation of
Primary Pegged Orders. Rather, it would
further clarify the Exchange’s rules
regarding when a Primary Pegged Order
would be re-priced to avoid pegging to
a locked or crossed PBBO.
The additional proposed changes to
Primary Pegged Orders remove
impediments to and perfects the
mechanism of a free and open market
and a national market system because
prohibiting Primary Pegged Orders from
participating in the Closing Auction
would streamline order processing in
the Closing Auction process. ETP
Holders wishing to participate in the
Closing Auction may do so through the
use of other orders types, such as Limit
Orders, which like Primary Pegged
Orders, participate in the Closing
Auction at their limit price. The
Exchange notes that not allowing
Primary Pegged Orders in the Closing
Auction is similar to the rules of another
exchange that prohibits the entry of
pegging orders in select auctions.37
Rule 7.34–E, Trading Sessions. The
proposed changes to Rule 7.34–E(c)
promote just and equitable principles of
trade and remove impediments to, and
perfect the mechanism of, a free and
open market and a national market
system because rejecting Non-Displayed
Limit Orders, Discretionary Pegged
Orders [sic], MPL Orders, Tracking
Orders, and RPI Orders entered before
the Auction Processing Period for the
Early Open Auction concludes would
reduce operational complexity when the
Exchange transitions to continuous
trading. It would also streamline order
processing when the Exchange begins
continuous trading by reducing the
operational complexity of processing
these orders following a halt or pause.
ETP Holders seeking to enter theses
order types may do so once the Early
Trading Session begins.
Rule 7.35–E, Auctions. The proposed
change to Rule 7.35–E(e)(10) to reject on
arrival and cancel MOO Orders, LOO
Orders, IO Orders, and Primary Pegged
Orders when resting on the NYSE Arca
37 See BZX Rule 11.23(a)(8)(A)(ii) (precluding
Pegged Orders from participating in an IPO
Auction). See also Securities Exchange Act Release
No. 77476 (March 30, 2016), 81 FR 19661 (April 5,
2016) (SR–BATS–2016–17) (Approval Order)
(stating that refining the types of orders processed
in an IPO Auction and/or those that would be
placed onto the BATS Book following such IPO
Auction would simplify and reduce the complexity
of the IPO Auction for BATS listed corporate
securities). BZX further argued that the proposal
would aid in ensuring a robust, but streamlined,
IPO Auction process for a newly listed corporate
securities. Id. at 19662.
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Book during a halt or pause when the
Re-Opening Time for a Trading Halt
Auction would be in the last 10 minutes
of trading before the end of Core
Trading Hours removes impediments to,
and perfects the mechanism of, a free
and open market and a national market
system because, as described above,
such order types would not be eligible
to participate in a Closing Auction.
The proposed changes to Rule 7.35–
E(h)(2) would also remove impediments
to, and perfect the mechanism of, a free
and open market and a national market
system because it adds further
specificity to the Exchange’s rules
regarding how order instruction (as
defined in Rule 7.35–E(g)) are processed
before and after the order transitions to
continuous trading. The proposed rule
change does not alter the manner in
which the Exchange processes order
instructions. Rather, the proposal
provides additional specificity within
the Exchange’s rules, thereby removing
any ambiguity and avoiding potential
investor confusion.
The proposed change to Rule 7.35–
E(h)(3)(A)(ii) perfects the mechanism of
a free and open market and a national
market system because conforms the
rule to a recent change to the
description of Reserve Orders under
Rule 7.31–E(d)(1)(A) to specify that the
replenish quantity of a Reserve Order
may not be the full display quantity.38
The proposed change to Rule 7.35–
E(h)(3)(B) to process orders received
during a halt or pause consistent with
Rule 7.36–E(f)(1) is consistent with the
proposed changes, described above,
limiting the orders that are accepted
during a halt or pause to those order
types that are eligible to participate in
a Trading Halt Auction. The Exchange
believes that it would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system to apply
the default process for assigning a
working time to such orders.
The non-substantive changes to Rules
7.18–E and 7.35–E(h)(3) promote just
and equitable principles of trade
because they are designed to promote
clarity and consistency in Exchange
rules.
Rule 7.38—Odd and Mixed Lots. The
Exchange believes that the proposed
processing of odd lot orders would
remove impediments to and perfect the
mechanism of a fair and orderly market
because the proposed change would
align the working price and display
price of odd lot orders. The proposed
change would not alter the price at
which an odd lot order would be
38 See
PO 00000
supra note 30.
Frm 00109
Fmt 4703
Sfmt 4703
eligible to trade, but rather, would
provide greater transparency regarding
what price an odd lot order would trade
by aligning the display price of such
order with its working price. The
Exchange believes that this proposed
rule change would further remove
impediments to and perfect the
mechanism of a free and open market
and a national market system by
reducing the potential for an odd lot
order to appear on the Exchange’s
proprietary data feeds as though it is
locking or crossing the PBBO. The
Exchange further believes the proposed
rule change, which proposes to assign a
display price that is equal to the
working price for odd lot orders, would
remove impediments to and perfect the
mechanism of a fair and orderly market
because it would promote transparency
in the ranking and execution of such
orders. Additionally, the Exchange
believes the proposed change to how the
working time of an odd lot order would
be adjusted would remove impediments
to and perfect the mechanism of a free
and open market by aligning the
processing of odd lot orders with the
standard manner by which the working
time is assigned to an order, as provided
for in Rule 7.36–E(f)(2).
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes to Rules 7.18–E, 7.31–
E, 7.34–E and 7.35–E are designed to
provide additional specificity to the
Exchange’s rules, reduce operational
complexity during a halt or pause, and
streamline order processing when
transitioning to continuous trading
following an auction. The proposed
changes to Rules 7.16–E, 7.31–E, 7.38–
E are also designed to provide
additional specificity to the Exchange’s
rules and reduce operational complexity
by (i) aligning the display price of an
odd lot order with its working price, (ii)
converting sell short Market Orders to
displayed interest and adjusting the
working and display price of short sale
orders prior to an auction to the
Permitted Price, (iii) clarifying that
Primary Pegged Orders would not be repriced to a locked or crossed PBBO, and
(iv) promoting transparency in the
ranking and execution of odd lot orders.
These proposed changes should,
therefore, promote competition by
enhancing the Exchange’s rules to
provide greater specificity to market
participants and improving the
efficiency of the Exchange’s order
E:\FR\FM\13MRN1.SGM
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Federal Register / Vol. 84, No. 49 / Wednesday, March 13, 2019 / Notices
handling processes. The nonsubstantive changes to Rule 7.18–E and
subparagraphs (B) and (D) of Rule 7.35–
E(h)(3) would have no an impact on
competition because they do not amend
or alter the operation of either rule.
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2019–08 on the subject
line.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
No written comments were solicited
or received with respect to the proposed
rule change.
All submissions should refer to File
Number SR–NYSEARCA–2019–08. 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 this
filing will also 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–NYSEARCA–2019–08, and
should be submitted on or before April
3, 2019.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 39 and Rule
19b–4(f)(6) thereunder.40 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 41 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
amozie on DSK9F9SC42PROD with NOTICES
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:
Paper Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–04555 Filed 3–12–19; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85267; File No. SR–
CboeEDGX–2019–007]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Bats Auction Mechanism (‘‘BAM’’)
March 7, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 5,
2019, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
amend the Bats Auction Mechanism
(‘‘BAM’’). The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, 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
Exchange 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 these
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 aspects of such
statements.
1 15
39 15
U.S.C. 78s(b)(3)(A)(iii).
40 17 CFR 240.19b–4(f)(6).
41 15 U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
17:45 Mar 12, 2019
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
42 17
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]]>Agencies
[Federal Register Volume 84, Number 49 (Wednesday, March 13, 2019)]
[Notices]
[Pages 9175-9183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04555]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85265; File No. SR-NYSEARCA-2019-08]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rules
7.16-E, 7.18-E, 7.31-E, 7.34-E, 7.35-E, and 7.38-E
March 7, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 25, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 Rules 7.16-E (Short Sales), 7.18-E
(Halts), 7.31-E (Orders and Modifiers), 7.34-E (Trading Sessions),
7.35-E (Auctions), and 7.38-E (Odd and Mixed Lots). 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 Rules 7.16-E (Short Sales), 7.18-E
(Halts), 7.31-E (Orders and Modifiers), 7.34-E (Trading Sessions),
7.35-E (Auctions), and 7.38-E (Odd and Mixed Lots). The proposed rule
changes are intended to provide additional specificity in the
Exchange's rules, streamline order processing when a security is halted
or paused, and reduce operational complexity when transitioning to
continuous trading.
Rule 7.16-E, Short Sales
Rule 7.16-E(f) sets forth how the Exchange handles short sale
orders when the provisions of paragraph (b)(1) of Rule 201 of
Regulation SHO are in effect (``Short Sale Period'').\3\ The Exchange
proposes to make two changes to Rule 7.16-E. First, the Exchange
proposes to amend how sell short Market Orders would be processed
during a Short Sale Period. Second, the Exchange proposes to amend how
sell short orders in Auction-Eligible Orders would be priced before an
auction during a Short Sale Period.
---------------------------------------------------------------------------
\3\ 17 CFR part 242.201(b)(1).
---------------------------------------------------------------------------
With respect to the processing of Market Orders, Rule 7.16-E(f)(5)
sets forth how short sale orders are processed during a Short Sale
Period, which is defined in Rule 7.16-E(f)(4). More specifically, Rule
7.16-E(f)(5)(B) provides how the Exchange processes sell short Priority
1 and Priority 3 Orders during a Short Sale Period.\4\ The
[[Page 9176]]
current rule provides that such orders, which are not displayed, are
re-priced at a Permitted Price \5\ and are continuously re-priced at a
Permitted Price as the national best bid moves both up and down.
Accordingly, under the current rule, during a Short Sale Period, orders
ranked Priority 1--Market Orders, are processed in the same manner as
orders ranked Priority 3--Non-Display Orders.
---------------------------------------------------------------------------
\4\ Pursuant to Rule 7.36-E(e)(1), an order ranked ``Priority
1--Market Orders,'' which is referred to in Rule 7.16-E(f)(5)(B) as
a ``Priority 1 Order'' refers to unexecuted Market Orders. Pursuant
to Rule 7.31-E(a)(1)(A), a Market Order may be held undisplayed on
the NYSE Arca Book. Pursuant to Rule 7.36-E(e)(3), an order ranked
``Priority 3--Non-Display Orders,'' which is referred to in Rule
7.16-E(f)(5)(B) as a ``Priority 3 Order'' refers to non-marketable
Limit Orders for which the working price is not displayed, including
the reserve interest of Reserve Orders.
\5\ The Permitted Price is one minimum price variation above the
current NBB. See Rule 7.16-E(f)(5)(A).
---------------------------------------------------------------------------
The Exchange proposes to change how sell short Market Orders during
a Short Sale Period are processed during continuous trading to conform
to how such orders are processed for an auction. As provided for in
Commentary .01(a) to Rule 7.35-E, for purposes of pricing an auction
and ranking orders for allocation in an auction, sell short Market
Orders that are adjusted to a Permitted Price are processed as Limit
Orders ranked Priority 2--Display Orders.\6\ With this proposed rule
change, the Exchange proposes to extend the functionality currently
applicable to sell short Market Orders during an auction to how sell
short Market Orders would be processed during continuous trading, i.e.,
that during a Short Sale Period, sell short Market Orders would be
converted into display orders and would be ranked and allocated as a
displayed order. To effect this change, the Exchange proposes to delete
references to ``Priority 1 Orders'' and ``Market Orders'' in current
Rule 7.16-E(f)(5)(B) and add new Rule 7.16-E(f)(5)(C) that would be
applicable only to Market Orders. Orders ranked Priority 3--Non-Display
Orders would continue to be processed in the same manner as they are
today under Rule 7.16-E(f)(5)(B).
---------------------------------------------------------------------------
\6\ See Commentary .01(a) to Rule 7.35-E.
---------------------------------------------------------------------------
Proposed new Rule 7.16-E(f)(5)(C) would provide that, during a
Short Sale Period, a sell short Market Order would be ranked Priority
2--Display Orders and would be subject to Trading Collars specified in
Rule 7.31-E(a)(1)(B)(i).\7\ As discussed below, when a sell short
Market Order is ranked as Priority 2--Display Orders, it would be
assigned a limit price of one MPV above $0.00. The Exchange believes
that applying Limit Order Price Protection when such orders are ranked
as Priority 2--Display Orders would result in all such orders being
rejected as being priced too far away from the NBBO.\8\ Accordingly, to
ensure that there is a mechanism available to prevent such orders from
causing significant price dislocation during a Sell Short Period, the
Exchange proposes that such orders would continue to be subject to
Trading Collars, which are applicable to Market Orders, rather than to
Limit Order Price Protection.
---------------------------------------------------------------------------
\7\ During Core Trading Hours, the Trading Collar is based on a
price that is a specified percentage away from the consolidated last
sale price and is continuously updated based on market activity. If
there is no consolidated last sale price on the same trading day,
the Exchange uses the last Official Closing Price for the security.
See Rule 7.31-E(a)(1)(B)(i).
\8\ Pursuant to Rule 7.31-E(a)(2)(B), a Limit Order to buy
(sell) is subject to Limit Order Price Protection and will be
rejected if it is priced at or above (below) the greater of $0.15 or
a specified percentage away from the NBO (NBB).
---------------------------------------------------------------------------
To address what would happen when a Short Sale Period is triggered
when there is a resting Market Order on the NYSE Arca Book, proposed
Rule 7.16-E(f)(5)(C) would further provide that if a Short Sale Period
is triggered when an order ranked Priority 1--Market Orders is resting
on the NYSE Arca Book, such resting order would be converted to an
order ranked Priority 2--Display Orders. This could happen if there is
an unexecuted Market Order that is undisplayed on the NYSE Arca Book
pursuant to Rule 7.31-E(a)(1)(A). In such case, the resting order would
be converted to an order ranked Priority 2--Display Orders and would be
ranked and allocated for all purposes as a displayed order. If the
Short Sale Period ends intraday, such order would be converted back to
an order ranked Priority 1--Market Orders.
While a sell short Market Order would be ranked and allocated as
Priority 2--Display Orders during a Short Sale Period, not all
functionality applicable to displayed orders would be applicable to
such Market Orders. As proposed, when ranked as Priority 2--Display
Orders, such order would be (1) assigned a limit price of one MPV above
$0.00; (2) assigned a working and (during Core Trading Hours) a display
price that is the higher of the Permitted Price or one MPV above the
lower Trading Collar as determined under Rule 7.31-E(a)(1)(B)(i); and
(3) cancelled if the Permitted Price is or becomes lower than the Lower
Price Band, as provided in Rule 7.11-E(a)(5).
The Exchange believes that assigning a Market Order with a limit
price equal to one MPV above $0.00 would provide for a limit price for
such order while it is functioning as an order ranked Priority 2--
Display Orders. However, as noted above, such limit price would not be
used for purposes of Limit Order Price Protection. Rather, the Exchange
proposes to continue applying the Trading Collars applicable to Market
Orders even if such order converts to displayed interest. Next, the
Exchange believes that assigning such order a working and display price
(during Core Trading Hours) that is the higher of the Permitted Price
or one MPV above the lower Trading Collar is consistent both with how
sell short Priority 2--Display Orders are displayed and priced during a
Short Sale Period and with the proposal that Trading Collars would
continue to be applicable to such orders. Not displaying such orders
until Core Trading Hours is also consistent with the continued behavior
that such Market Orders are not eligible to trade until the Core
Trading Session. Finally, the Exchange proposes to cancel such order if
the Permitted Price (i.e., the displayed price of the order) is or
becomes lower than the Lower Price Band, which is consistent with how
Market Orders are processed pursuant to Rule 7.11-E(a)(5)(A)(i) if they
cannot be traded or routed at prices at or within the Price Bands. In
other words, if the Permitted Price would be a price at or below the
Lower Price Band, the Exchange proposes to cancel such order rather
than re-pricing it once again to the Lower Price Band, even though the
Lower Price Band would be at a price higher than the Permitted Price.
Thus, no short sale order would be executed (effected) at or below the
NBB during a Short Sale Period.
With the adoption of proposed Rule 7.16-E(f)(5)(C), the Exchange
further proposes to re-number each of current sub-paragraphs (C)-(I) of
Rule 7.16-E(f)(5) as (D)-(J) without making any substantive change to
those rules.
With respect to sell short orders and how they are priced during an
auction, Rule 7.16-E(f)(6) states that during a Short Sale Period, a
short sale order will be executed and displayed without regard to price
if, at the time of initial display of the short sale order, the order
was at a price above the then current National Best Bid (``NBB'').\9\
Consistent with this rule, if a short sale order is eligible to be
displayed at that price pursuant to Rule 7.16-E(f)(6), it would remain
at its previously displayed price for participation in an opening,
reopening or closing auction. Otherwise, short sale orders that are
unable to remain at their previously displayed price pursuant to Rule
7.16-E(f)(6) are priced to a Permitted Price as required by Rule 7.16-
E(f)(5).
---------------------------------------------------------------------------
\9\ See also 17 CFR part 242.201(b)(1)(iii)(A).
---------------------------------------------------------------------------
The Exchange proposes to change this behavior and no longer apply
the exception permitted under Rule 7.16-E(f)(6) to short sale orders
when they
[[Page 9177]]
participate in an auction. Accordingly, during a Short Sale Period, the
Exchange proposes to adjust the price of all short sale orders to a
Permitted Price prior to an auction during a Short Sale Period, even if
such orders were eligible to remain at their previously displayed price
pursuant to Rule 7.16-E(f)(6). Short sale orders not executed in an
auction would remain at a Permitted Price for the duration of the Short
Sale Period.
To effect this change, new subparagraph (8) to Rule 7.16-E(f) would
provide that notwithstanding subparagraph (6) of Rule 7.16-E(f), with
respect to the execution of short sale orders in a covered security in
any auction during the Short Sale Period, the Exchange would adjust the
working price and display price of such short sale orders in a covered
security to a Permitted Price before such auction. Subparagraph (8) to
Rule 7.16-E(f) would further provide that if such a short sale order is
not executed in the applicable auction and is eligible to trade, it
will be priced consistent with paragraph (f)(5)(A) of Rule 7.16-E. In
other words, after the auction, it would not revert back to a
previously-displayed price pursuant to Rule 7.16-E(f)(6). The Exchange
believes that the proposed rule change would streamline order
processing by adjusting the price of all short sale orders to a
Permitted Price. The proposal is also consistent with the treatment of
short sale orders on the Exchange's affiliate, which also re-prices all
short sale orders in advance of an auction.\10\
---------------------------------------------------------------------------
\10\ New York Stock Exchange LLC (``NYSE'') Rule 440B(h)
provides that with respect to the execution of short sale orders in
a covered security in any single-priced opening, re-opening or
closing transaction during the Short Sale Period, the NYSE will re-
price short sale orders in a covered security as follows: (1)
Opening--one minimum price increment above the national best bid at
9:30 a.m.; (2) Re-opening following a halt or pause in trading--one
minimum price increment above the last published Exchange bid prior
to such halt or pause in trading; and (3) Closing--one minimum price
increment above the last published Exchange bid prior to the close.
The Exchange is not proposing to re-price short sale orders to a
price other than the Permitted Price. Unlike NYSE Rule 440B(h),
proposed Rule 7.16E(f)(8) uses the term ``auction'' in place of
``single-priced opening, re-opening or closing transaction'' for
consistency with Rule 7.35-E.
---------------------------------------------------------------------------
With this proposed change, there may be circumstances when a short
sale order displayed at a price other than a Permitted Price pursuant
to Rule 7.16-E(f)(6) may lose the opportunity to participate in an
auction when it re-priced to a Permitted Price for the auction. For
example, currently, if a short sale order is displayed at $9.99
pursuant to current Rule 7.16-E(f)(6), the Permitted Price at the time
of the auction is $10.01 (i.e., the NBB crosses the Exchange's
displayed offer of $9.99), and the auction is priced at $10.00, that
sell short order would be eligible to participate in the auction.\11\
However, under the proposed new behavior, that sell short order would
be re-priced to $10.01 and would not be eligible to participate in the
auction at $10.00. Based on the Exchange's review of existing trading
data, the Exchange believes that this would be an extremely rare event
and would have a de minimis impact on the overall execution of short
sale orders in auctions at the Exchange.
---------------------------------------------------------------------------
\11\ Pursuant to Rule 7.35-E(a)(6), orders are ranked for
purposes of allocation in an auction and not all orders are
guaranteed to participate.
---------------------------------------------------------------------------
The Exchange also proposes to make a related change to Commentary
.01(b) to Rule 7.35-E. That Commentary provides that short sale orders
that are included in Auction Imbalance Information, but are not
eligible for continuous trading before the applicable auction, will be
adjusted to a Permitted Price as the NBB moves both up and down. For
example, for the Auction Imbalance Information for the Closing Auction,
sell short MOC and LOC Orders, which are not eligible for continuous
trading, are continually adjusted to a Permitted Price. With the
proposed change to Rule 7.16-E, all short sale orders would be
participating in an auction at a Permitted Price. Accordingly, the
Exchange proposes to amend this Commentary to remove the clause ``but
are not eligible for continuous trading before the applicable
auction.'' With this proposed change, the Auction Imbalance Information
would reflect the Permitted Price at which a short sale order would
participate in an auction.
Rule 7.18-E, Halts \12\
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\12\ The Exchange also proposes to delete a superfluous
reference to the word ``Halt'' at the beginning of Rule 7.18-E.
---------------------------------------------------------------------------
Rule 7.18-E(b) states that the Exchange does not conduct Trading
Halt Auctions in UTP Securities and sets forth how the Exchange
processes new and existing orders in UTP securities during a UTP
Regulatory Halt.\13\ Rule 7.18-E(b)(1) states that during a UTP
Regulatory Halt the Exchange will cancel any unexecuted portion of
Market Orders and orders not eligible to trade in the current trading
session on the NYSE Arca Book. The Exchange proposes to amend this Rule
to further provide that orders that are not displayed would also be
cancelled during a UTP Regulatory Halt. To reflect this change, the
Exchange proposes to amend Rule 7.18-E(b)(1) to provide that Non-
Displayed Limit Orders,\14\ Mid-Point Liquidity (``MPL'') Orders,\15\
Tracking Orders,\16\ Market Pegged Orders,\17\ Discretionary Pegged
Orders,\18\ and Retail Price Improvement (``RPI'') Orders \19\ would
also be canceled during a UTP Regulatory Halt. The Exchange believes
that cancelling these non-displayed orders during a UTP Regulatory Halt
would streamline order processing once trading resumes.
---------------------------------------------------------------------------
\13\ A ``UTP Regulatory Halt'' is defined in Rule 1.1 as a trade
suspension, halt, or paused [sic] called by the UTP Listing Market
in a UTP Security that requires all market centers to halt trading
in that security. The terms UTP Security and UTP Listing Market are
also defined in Rule 1.1.
\14\ See Rule 7.31-E(d)(2).
\15\ See Rule 7.31-E(d)(3).
\16\ See Rule 7.31-E(d)(4).
\17\ See Rule 7.31-E(h)(1).
\18\ See Rule 7.31-E(h)(3).
\19\ See Rule 7.44-E(a)(4).
---------------------------------------------------------------------------
Rule 7.18-E(c) sets forth how the Exchange processes new and
existing orders in Exchange-listed securities during a halt or pause.
Currently, during such a halt or pause, unexecuted Market Orders are
cancelled and all other resting orders, including non-displayed orders,
are maintained at their last working price and display price. The
Exchange proposes to amend how orders in Exchange-listed securities are
processed during a halt or pause based on whether orders are eligible
to participate in the Trading Halt Auction.
First, the Exchange proposes to cancel the unexecuted portion of
non-displayed orders that are not eligible to participate in a Trading
Halt Auction. To effect this change, the Exchange proposes to amend
Rule 7.18-E(c)(1) to provide that any unexecuted portion of Non-
Displayed Limit Orders, MPL Orders, Tracking Orders, Market Pegged
Orders, Discretionary Pegged Orders, and RPI Orders in an Exchange-
listed security would be cancelled during a halt or pause. This
proposed change is consistent with the above proposal regarding how
non-displayed orders for UTP Securities during a UTP Regulatory Halt
would be processed under Rule 7.18-E(b)(1). The Exchange proposes to
make this change for Exchange-listed securities as well because such
order types are not eligible to participate in an auction.
Second, because Market Orders are eligible to participate in a
Trading Halt Auction, the Exchange proposes to add new paragraph (c)(2)
to Rule 7.18-E \20\ to provide that the unexecuted quantity of a Market
Order would be retained.\21\
[[Page 9178]]
The Exchange also proposes to delete reference to Market Orders in Rule
7.18-E(c)(1).
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\20\ The Exchange proposes to renumber the subparagraphs in Rule
7.18-E(c) to account for the addition new subparagraph (c)(2).
\21\ The quantity of a Market Order to buy (sell) not traded or
routed will remain undisplayed on the NYSE Arca Book at a working
price of the NBO (NBB) and be eligible to trade with incoming sell
(buy) orders at that price. See Rule 7.31-E(a)(1)(A).
---------------------------------------------------------------------------
Third, the Exchange proposes to amend Rule 7.18-E(c)(3) to provide
that it would re-price all other resting orders on the NYSE Arca Book
to their limit price.\22\ This proposed change would not alter how
those orders would be ranked for purposes of a Trading Halt Auction,
which is based on their limit price.\23\
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\22\ The Exchange notes that it previously priced orders resting
the NYSE Arca Book during a halt at their limit price. See
Securities Exchange Act Release No. 78615 (August 18, 2016), 81 FR
57986 (August 24, 2016) (SR-NYSEArca-2016-117).
\23\ See Rule 7.35-E(a)(6)(A) (Limit Orders, LOO Orders, and LOC
orders will be ranked based on their limit price and not the price
at which they would participate in the auction).
---------------------------------------------------------------------------
Rule 7.18-E(c)(4), which would be renumbered as Rule 7.18-E(c)(5),
currently provides that incoming Limit Orders designated as IOC, Cross
Orders, Tracking Orders, Market Pegged Orders, and Discretionary Pegged
Orders, and Retail Orders entered during a halt or pause are rejected.
The Exchange proposes to make a related change to proposed Rule 7.18-
E(c)(5) to provide that incoming Non-Displayed Limit Orders, MPL
Orders, and RPI Orders entered during a halt or pause would also be
rejected.
Because such non-displayed orders would be cancelled during a halt
or pause, the Exchange proposes to amend Rule 7.18-E(c)(5) further to
no longer provide that a request to cancel and replace a Tracking
Order, Market Pegged Order, Discretionary Pegged Order, or Retail Order
is treated as a cancellation without replacing the order. This text in
current Rule 7.18-E(c)(4) is no longer necessary because incoming
Tracking Orders, Market Pegged Orders, Discretionary Pegged Orders, and
Retail Orders would be rejected and any unexecuted portion of such
orders resting on the NYSE Arca Book would be cancelled during a halt
or pause.
The Exchange believes these proposed changes to Rules 7.18-E(c)
relating to non-displayed orders are reasonable because none of these
order types are eligible to participate in a Trading Halt Auction
either by definition or by their operation.\24\ Rejecting or cancelling
these orders resting on the NYSE Arca Book during a halt or pause would
reduce operational complexity and ease order processing once the
Trading Halt Auction occurs and the Exchange transitions to continuous
trading.
---------------------------------------------------------------------------
\24\ Non-Displayed Limit Orders, MPL Orders, Market Pegged
Orders, and Discretionary Pegged Orders are by definition ineligible
to participate in auctions. See Rule 7.31-E(d)(2), (d)(3), (h)(1),
and (h)(3), respectively. Tracking Orders are to only execute
against orders that are in the process of being routing away and not
against contra-side interest in an auction. See Rule 7.31-E(d)(4).
RPI Orders must be designated as either a Non-Displayed Limit Order
or an MPL Order, neither of which are eligible to participate in
auctions. See Rule 7.44-E(a)(4)(d).
---------------------------------------------------------------------------
Rule 7.31-E, Orders and Modifiers
The Exchange proposes to make a number of changes to Rule 7.31-E,
each of which are designed to streamline order processing.
Limit Order Price Protection. As described above, Rule 7.31-
E(a)(2)(B) sets forth Limit Order Price Protection for Limit Orders and
currently provides that a Limit Order entered before the Core Trading
Session that becomes eligible to trade in the Core Trading Session will
become subject to Limit Order Price Protection after the Core Opening
Auction. With this functionality, orders not yet eligible to trade will
not be rejected on arrival, but rather will be evaluated for Limit
Order Price Protection when they become eligible to trade.
The Exchange proposes a change to whether Limit Order Price
Protection would be applied to Limit Orders in Auction-Eligible
Securities entered during a halt or pause. As proposed, a Limit Order
in an Auction-Eligible Security entered during a trading halt or pause,
i.e., a period when the Exchange is not open for trading in such
securities, would not be subject to Limit Order Price Protection. With
this proposed change, similar to current functionality, Limit Orders in
Auction-Eligible Securities would continue to not be subject to Limit
Order Protection on arrival. The first opportunity for an order entered
during a period when there is no trading in such security on the
Exchange, i.e., during a trading halt or pause, would be the single-
priced transaction of a Trading Halt Auction. In such case, the Limit
Order would be traded in such auction at the price of the auction and
not at the limit price. Accordingly, the Exchange does not believe that
Limit Order Price Protection would be necessary for such orders.
To reflect this change, the Exchange proposes to amend Rule 7.31-
E(a)(2)(B) to provide that a Limit Order in an Auction-Eligible
Security entered during a trading halt or pause would not be subject to
Limit Order Price Protection.
Re-pricing of Resting Orders. Rule 7.31-E(a)(2)(C) currently
describes how the Exchange re-prices resting orders under specified
circumstances. Specifically, if a BB (BO) that is locked or crossed by
an Away Market PBO (PBB) is cancelled, executed or routed and the next
best-priced resting Limit Order(s) on the NYSE Arca Book that would
become the new BB (BO) would have a display price that would lock or
cross the PBO (PBB), such Limit Order(s) to buy (sell) will be assigned
a display price one MPV below (above) the PBO (PBB) and a working price
equal to the PBO (PBB). Such Limit Orders are re-priced when the PBBO
is updated, including if the Exchange receives a Day ISO that would
result in at least a round lot being displayed as the new BBO.
The Exchange proposes to amend this text to provide that the
arrival of any-sized Day ISO would result in the re-pricing of such
resting orders. The arrival of a Day ISO of any size provides the
Exchange with notice that the ETP Holder that has entered such order
has met the requirement under Rule 7.31-E(e)(3)(A)(ii) to
simultaneously route one or more additional Limit Orders to trade
against the full displayed size of any protected bids (for sell orders)
or protected offers (for buy orders) on Away Markets. Accordingly, the
Exchange would adjust the PBBO based on the arrival of any-sized Day
ISO. Because the PBBO would be adjusted based on the arrival of any-
sized Day ISO, the Exchange believes it would no longer be necessary to
wait for a round-lot sized Day ISO before re-pricing orders under Rule
7.31-E(a)(2)(C). Accordingly, the Exchange proposes to delete the
following text in the second sentence of current Rule 7.31-E(a)(2)(C)--
``and would result in at least a round lot being displayed as a new BB
(BO)''--and the third and last sentence of current Rule 7.31-
E(a)(2)(C).
The Exchange also proposes to provide additional specificity in
Rule 7.31-E(h)(2)(B) regarding when a Primary Pegged Order's display
price and working price would be adjusted when the PBBO is locked or
crossed.\25\ Specifically, the Exchange proposes to specify that
Primary Pegged Orders would be re-priced whenever a Limit Order is re-
priced pursuant to Rules 7.31-E(a)(2)(C) or 7.35-E(h)(3)(A)(ii).\26\
Re-pricing a Primary Pegged Order like a Limit Order pursuant to Rule
7.31-
[[Page 9179]]
E(a)(2)(C) ensures that if the PBBO is locked or crossed, a resting
Primary Pegged Order would not be re-priced to a locking or crossing
price, for example, if the Exchange BBO changes.\27\ To effect this
change, the Exchange proposes to amend Rule 7.31-E(h)(2)(B) to specify
that if a resting Limit Order on the NYSE Arca Book is assigned a new
display price and working price pursuant to Rules 7.31-E(a)(2)(C) or
7.35-E(h)(3)(A)(ii) and the PBBO is still locked or crossed, a resting
Primary Pegged Order would also be assigned a new display price and
working price pursuant to Rule 7.31-E(a)(2)(C). The proposed text
represents current functionality. The Exchange believes that this
proposed rule change would provide clarity and transparency in Exchange
rules of when a Primary Pegged Order would be re-priced consistent with
Rule 7.31-E(a)(2)(C).
---------------------------------------------------------------------------
\25\ Pursuant to Rule 7.31(h)(2), a Primary Pegged Order is a
displayed Pegged Order to buy (sell) with a working price that is
pegged to the PBB (PBO), with no offset allowed.
\26\ Under Rule 7.35-E(h)(3)(A)(ii), before publishing a quote
following a Trading Halt Auction, the display price of orders that
are marketable against a protected quotation on an Away Market will
be adjusted consistent with Rule 7.31-E(a)(2)(C).
\27\ For example, if the PBBO is 10.00 x 10.02, and NYSE Arca's
BB is 10.00, a Primary Pegged Order to buy would peg to that 10.00.
If next, an Away Market PBO is displayed at 9.98, crossing the NYSE
Arca BB, pursuant to Rule 7.31-E(h)(2)(B), the Primary Pegged Order
would remain displayed at 10.00. If next, the 10.00 BB on NYSE Arca
cancels, the Primary Pegged Order would need to re-price, but at
that point, the PBBO is crossed because of the Away Market PBO of
9.98. In this scenario, the Primary Pegged Order would be re-priced
to 9.97 as provided for in Rule 7.31-E(a)(2)(C).
---------------------------------------------------------------------------
A Primary Pegged Order is currently eligible to participate in
auctions at its limit price. The Exchange proposes to amend Rule 7.31-
E(h)(2) to provide that Primary Pegged Orders would no longer be
eligible to participate in the Closing Auction. Because a Primary
Pegged Order, which intraday is pegged to display to the same-side
PBBO, would likely need to be re-priced to its limit price in order to
participate in the Closing Auction, the Exchange believes that making
such orders ineligible to participate in the Closing Auction would
streamline order processing when transition [sic] to the Closing
Auction. This is also consistent with one other exchange that precludes
Pegged Orders from participating in select auctions.\28\ ETP Holders
wishing to participate in the Closing Auction could do so through the
use of other orders types, such as Limit Orders, which like Primary
Pegged Orders, participate in the Closing Auction at their limit price.
---------------------------------------------------------------------------
\28\ See Cboe BZX Exchange, Inc. (``BZX'') Rule
11.23(a)(8)(A)(ii) (precluding Pegged Orders from participating in
an IPO Auction).
---------------------------------------------------------------------------
Rule 7.34-E, Trading Sessions
Rule 7.34-E(c)(1) describes order entry during the Early Trading
Session.\29\ The Exchange proposes to add new subparagraph (F) to Rule
7.34-E(c)(1) to provide that the following non-displayed orders would
be rejected if entered before the Auction Processing Period for the
Early Trading Session concludes: Non-Displayed Limit Orders,
Discretionary Pegged Orders [sic],\30\ MPL Orders, Tracking Orders, and
RPI Orders. Similar to how the Exchange proposes to cancel non-
displayed orders during halt or pause, the Exchange believes that
rejecting these non-displayed orders when the Exchange is not engaged
in continuous trading would reduce operational complexity when the
Exchange transitions to continuous trading. ETP Holders seeking to
enter theses order types may do so once the Early Trading Session
begins.
---------------------------------------------------------------------------
\29\ The Early Trading Session begins at 4:00 a.m. Eastern Time
and concludes at the commencement of the Core Trading Session. See
Rule 7.34-E(a)(1). The Core Trading Session begins at 9:30 a.m.
Eastern Time. See Rule 7.34-E(a)(2).
\30\ The Exchange has represented that it erroneously included a
reference to ``Discretionary Pegged Orders'' in the Purpose and
Statutory Basis sections of the filing that describes the proposed
changes to subparagraph (F) to Rule 7.34E(c)(1) and that the
proposed rule text set forth in Exhibit 5 does not list
Discretionary Pegged Orders as one of the order types proposed to be
added therein. Telephone conversation between Ira Brandriss and
Matthew Cursio, SEC, and Christopher Solgan, NYSE on March 6, 2019.
---------------------------------------------------------------------------
Rule 7.35-E, Auctions
Rule 7.35-E(e), Trading Halt Auction. Rule 7.35-E(e)(10) states
that if the Re-Opening Time for a Trading Halt Auction would be in the
last ten minutes of trading before the end of Core Trading Hours, the
Exchange will not conduct a Trading Halt Auction in that security and
will not transition to continuous trading. Instead, the Exchange
remains halted or paused and will conduct a Closing Auction pursuant to
Rule 7.35-E(d). Rule 7.35-E(e)(10)(A) provides that in such case MOO
Orders, LOO Orders, and IO Orders entered during the pause or halt will
not participate in the Closing Auction and be cancelled.
Consistent with the proposed change to Rule 7.31-E(h)(2), described
above, that Primary Pegged Orders are not eligible to participate in a
Closing Auction, the Exchange proposes to amend Rule 7.35-E(e)(10)(A)
to also provide that Primary Pegged Orders would be rejected on arrival
and cancelled when resting if the Exchange does not transition to
continuous trading under these circumstances.
Because Primary Pegged Orders may be entered prior to a halt or
pause and because by their terms, MOO, LOO, and IO Orders are not
eligible to participate in a Closing Auction, the Exchange further
proposes to amend Rule 7.35-E(e)(10)(A) to delete the phrase ``entered
during the pause or halt will not participate in the Closing Auction
and be cancelled'' as redundant text of the proposed new text that
would provide that all such orders would be rejected on arrival and
cancelled when resting.
Rule 7.35-E(h), Transition to Continuous Trading. Rule 7.35-E(h)
sets forth how the Exchange transitions to continuous trading following
an auction, if there is no matched volume and an auction is not
conducted, or when transitioning from one trading session to another.
Rule 7.35-E(h)(2)(A) provides that during the transition to continuous
trading, an order instruction (as defined in Rule 7.35-E(g)) received
during the Auction Imbalance Freeze, the transition to continuous
trading, or the Auction Processing Period would be processed in time
sequence with the processing of orders as specified in Rules 7.35-
E(h)(3)(A) or (B) if it relates to an order that was received before
the Auction Processing Period. The Exchange proposes to amend Rule
7.35-E(h)(2)(A) to further provide that the processing of order
instructions described in that sentence would also apply to orders that
have already transitioned to continuous trading. This proposed rule
text represents current functionality and is intended to promote
clarity and transparency in Exchange rules of when an order instruction
would be applied to an order.
The Exchange proposes to make a corollary amendment to Rule 7.35-
E(h)(2)(B) to provide that this subparagraph of the Rule would apply
only to an order instruction for an order that has not yet transitioned
to continuous trading. The Exchange also proposes to make a clarifying
amendment to add the word ``either'' before the phrase ``the Auction
Processing Period or the transition to continuous trading.''
Rule 7.35-E(h)(3) sets forth how orders are processed when
transitioning to continuous trading from a prior trading session or
following an auction.
The Exchange proposes to amend Rule 7.35-E(h)(3)(A)(ii) to remove
the term ``fully-executed'' from before the reference to ``display
quantity.'' The Exchange has amended its Reserve Order functionality
and specifically the circumstances when a Reserve Order would be
replenished, and the reference to ``fully-executed'' is now moot.\31\
---------------------------------------------------------------------------
\31\ See Securities Exchange Act Release No. 83967 (August 28,
2018), 83 FR 44984 (September 4, 2018) (SR-NYSEArca-2018-61)
(amending Rule 7.31-E(d)(1)(A) to state that the replenish quantity
of a Reserve Order is either the minimum display size of the order
or the remaining quantity of reserve interest if it is less than the
minimum display quantity).
---------------------------------------------------------------------------
[[Page 9180]]
Rule 7.35-E(h)(3)(B) provides that unexecuted orders that were not
eligible to trade in the prior trading session (or were received during
a halt or pause) or that were received during the Auction Processing
Period, will be assigned a new working time at the end of the Auction
Processing Period in time sequence relative to one another based on
original entry time. The Exchange proposes to amend Rule 7.35-
E(h)(3)(B) to remove references to orders received during a halt or
pause. As noted above, the Exchange will be reducing the number of
orders that would be accepted during a halt or pause. Orders not
eligible to participate in a Trading Halt Auction would no longer be
resting or accepted during a halt or pause, and therefore, there would
no longer be a need to assign a working time for such securities. In
addition, orders in Exchange-listed securities that are accepted during
a halt or pause are eligible to participate in the Trading Halt
Auction, and therefore, the working time for such orders is the
original entry time, as provided for in Rule 7.36-E(f)(1). The Exchange
believes it is reasonable for new orders received during a halt or
pause to be processed as provided for in Rule 7.36-E(f)(1) as this is
the default processing for assigning a working time.
The Exchange proposes a non-substantive change to number the stand
alone paragraph following Rule 7.35-E(h)(3)(C) as paragraph (D).
Rule 7.38-E (Odd and Mixed Lots)
The Exchange proposes to amend Rule 7.38-E relating to Odd and
Mixed Lots. Rule 7.38-E sets forth requirements relating to odd lot and
mixed lot trading on the Exchange. Rule 7.38-E(b) further provides that
round lot, mixed lot, and odd lot orders are treated in the same manner
on the Exchange, provided that the working price of an odd lot order is
adjusted both on arrival and when resting on the Exchange Book based on
the limit price of the order. Currently, if the limit price of an odd
lot order to buy (sell) is at or below (above) the PBO (PBB), the order
has a working price equal to the limit price. If the limit price of an
odd lot order to buy (sell) is above (below) the PBO (PBB), the order
has a working price equal to the PBO (PBB). The rule further provides
that if the limit price of an odd lot order to buy (sell) is above
(below) the PBO (PBB) and the PBBO is crossed, the order has a working
price equal to the PBB (PBO).
Under the current rule, although the working price of an odd lot
order is adjusted based on the PBBO, the display price of an odd lot
order ranked Priority 2--Display Orders is not adjusted based on the
PBBO. Additionally, the rule provides that an odd lot order ranked
Priority 2--Display Orders will not be assigned a new working time if
its working price is adjusted under the rule. If the display price of
an odd lot order to buy (sell) is above (below) its working price, the
order is ranked and allocated based on its display price. As a result,
an odd lot bid or offer can be displayed on the Exchange's proprietary
data feeds at a price that appears to cross the PBBO, even if such
order would not be eligible to trade at that price.
The Exchange proposes to amend Rule 7.38-E(b) to provide that the
display price of an odd lot order would be adjusted whenever the
working price is adjusted. To effect this change, the Exchange proposes
to amend current Rule 7.38-E(b)(1) to provide that the working and
display price of an odd lot order would be adjusted both on arrival and
when resting on the NYSE Arca Book. The Exchange further proposes to
break current Rule 7.38-E(b)(1) into subparagraphs (A)-(C) so that the
rule provides how odd lot orders are ranked and executed under each of
the instances provided in the current rule that are described above.
Proposed Rule 7.38-E(b)(1)(A) would provide that if the limit price
of an odd lot order to buy (sell) is at or below (above) the PBO (PBB),
the order would have a working price and display price equal to the
limit price of the order. This proposed rule text does not change any
functionality, but rather, provides greater specificity of what the
display price would be when the limit price of an odd lot order is not
through the PBBO.
Proposed Rule 7.38-E(b)(1)(B) would provide that if the limit price
of an odd lot order to buy (sell) is above (below) the PBO (PBB), the
order would have a working price and display price equal to the PBO
(PBB) unless the order's instruction requires a display price to be
different from the PBBO. This proposed rule text represents new
functionality that the display price of an odd lot order would be
adjusted at the same time as the working price is currently adjusted
for such order. This proposed amendment does not change the price at
which such odd lot order would be eligible to trade, only the price at
which it is displayed on the Exchange's proprietary data feeds. The
proposed rule text includes that the display price would be adjusted to
the contra-side PBBO unless the order's instruction requires a display
price to be different from the PBBO to account for those order types
that, by their terms, do not allow the display price to be equal to a
contra-side PBBO. For example, a Non-Routable Limit Order does not have
a display price equal to the contra-side PBBO.\32\ Accordingly, if an
odd lot order were to be a Non-Routable Limit Order, pursuant to that
order's instructions, it would have a display price different from the
contra-side PBBO.
---------------------------------------------------------------------------
\32\ See NYSE Arca Rule 7.31-E(e)(1).
---------------------------------------------------------------------------
Proposed Rule 7.38-E(b)(1)(C) would address what the display price
of an odd lot order would be if the PBBO is locked or crossed. The
Exchange proposes to expand the current rule text to include locked
markets and add that both the display price and working price would be
adjusted to the same-side PBBO if the PBBO is locked or crossed.
Accordingly, as proposed, if the limit price of an odd lot order to buy
(sell) is above (below) the PBO (PBB) and the PBBO is locked or
crossed, the order would have a working price and display price equal
to the PBB (PBO). The proposed rule would further provide that the
working price and the display price of such odd lot order would not be
adjusted again until the PBBO unlocks or uncrosses.
Additionally, the Exchange proposes to delete the last two
sentences of current Rule 7.38-E(b)(1) regarding the display price of
odd lot orders and their ranking given the changes proposed to the
current rule regarding the display price of an odd lot order render
this text moot. By deleting this rule text, the general rules governing
when a working time is assigned to an order, as specified in Rule 7.36-
E(f)(2), would be applicable to odd lot orders.
* * * * *
Because of the technology changes associated with this proposed
rule change, the Exchange will announce the implementation date of this
proposed rule change by Trader Update. The Exchange anticipates that
the implementation date will be in the second quarter of 2019.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\33\ in general, and furthers the objectives of Section
6(b)(5),\34\ in particular, because it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating
[[Page 9181]]
transactions in securities, to remove impediments to, and perfect the
mechanism of, a free and open market and a national market system and,
in general, to protect investors and the public interest because it
would provide additional specificity in the Exchange's rules,
streamline order processing when a security is halted or paused, and
reduce operational complexity when transitioning to continuous trading.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Rule 7.16-E, Short Sales. The Exchange believes that the proposed
processing of sell short Market Orders during a Short Sale Period, as
proposed in Rule 7.16-E(f)(5)(C), would remove impediments to and
perfect the mechanism of a fair and orderly market because it would
standardize the processing of sell short Market Orders for both
auctions and continuous trading. As described in Commentary .01(a) to
Rule 7.35-E, during a Short Sale Period, sell short Market Orders are
currently processed as Limit Orders ranked Priority 2--Display Orders.
The Exchange believes that it would remove impediments to and perfect
the mechanism of a free and open market and a national market system to
extend this functionality to how sell short Market Orders are processed
during continuous trading. The Exchange further believes that because
Market Orders would be assigned a limit price of one MPV above $0.00,
it would remove impediments to and perfect the mechanism of a free and
open market for sell short Market Orders that have been converted to an
order ranked Priority 2--Display Orders to continue to be subject to
Trading Collars and be cancelled if the Permitted Price is equal to or
below the Lower Price Band. The Exchange believes that the proposed
changes will provide clarity on the short sale order handling
procedures employed by the Exchange so that such orders are handled by
the Exchange consistent with Regulation SHO. The Exchange also believes
that the proposed functionality related to the processing of short sale
orders will assist ETP Holders in executing or displaying their orders
consistent with Regulation SHO.
The proposed change to adopt new subparagraph (8) to Rule 7.16-E(f)
and to make a related change to Commentary .01(b) to Rule 7.35-E would
promote just and equitable principles of trade and remove impediments
to, and perfect the mechanism of a free and open market and a national
market system because it would streamline order processing by adjusting
the working and display price of all short sale orders to a Permitted
Price ahead of an auction with any unexecuted portion of that short
sale order remaining at a Permitted Price following the auction for the
remainder of the Short Sale Period. The proposal would provide for
consistent pricing of all short sale orders during a Short Sale Period,
even though certain short sale orders would otherwise be permitted to
remain at their previously displayed price pursuant to Rule 7.16-
E(f)(6). The Exchange believes that situations where the NBB would
cross the price at which an auction is conducted are rare, and
therefore the number of sell short orders that could lose an execution
opportunity in such circumstances would be de minimis. The proposal is
also consistent with the treatment of short sale orders on the
Exchange's affiliate.\35\
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\35\ See supra note 10.
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Rule 7.18-E, Halts. The proposed change to Rule 7.18-E(b) to cancel
certain non-displayed orders in UTP Securities during a halt or pause
promotes just and equitable principles of trade and removes impediments
to, and perfects the mechanism of a free and open market and a national
market system because it would reduce the operational complexity of
processing these orders following a halt or pause.
The proposed changes to Rules 7.18-E(c)(1) and (4) to cancel or
reject various types of non-displayed orders in Exchange-listed
securities during a halt or pause also promotes just and equitable
principles of trade and removes impediments to, and perfect the
mechanism of, a free and open market and a national market system
because none of those orders are eligible to participate in a Trading
Halt Auction and would reduce operational complexity when the Exchange
transitions to continuous trading and orders are placed on the NYSE
Arca Book.
The proposed changes to Rule 7.18-E(c)(1) and (2) to retain Market
Orders in Exchange-listed securities during and halt or pause promotes
just and equitable principles of trade because it would enable those
Market Orders to participate in the Trading Halt Auction. ETP Holders
that do not wish that their Market Order participate in a Trading Halt
Auction may cancel their order while the security is halted or paused.
The proposed change to Rule 7.18-E(c)(3) to provide that the
Exchange would re-price orders resting in the NYSE Arca Book during a
halt or pause to their limit price fosters cooperation and coordination
with persons engaged in facilitating transactions in securities because
it would align the pricing of those orders with price at which they
would be ranked for purposes of the Trading Halt Auction.\36\
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\36\ See Rule 7.35-E(a)(6)(A) (Limit Orders, LOO Orders, and LOC
orders will be ranked based on their limit price and not the price
at which they would participate in the auction).
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Rule 7.31-E, Orders and Modifiers. The proposed change to Rule
7.31-E(a)(2)(B) to not subject a Limit Order in an Auction-Eligible
Security entered during a halt or pause to Limit Order Price Protection
removes impediments to, and perfects the mechanism of, a free and open
market and a national market system because it is consistent with other
provisions of Rule 7.31-E(a)(2)(B) under which an order would not be
subject to Limit Order Protection on arrival before they are eligible
to trade. The first opportunity such order would have to trade would be
a single-priced transaction of a Trading Halt Auction. In such case,
the Limit Order would be traded in such auction at the price of the
auction and not at the limit price. Accordingly, the Exchange does not
believe that Limit Order Price Protection would be necessary for such
orders. The proposal would also provide additional specificity in the
Exchange's rules because Limit Orders are not eligible to trade during
a halt or pause and, therefore, should not be subject to Limit Order
Price Protection.
The Exchange also believes the proposed change to Rule 7.31-
E(a)(2)(C) would remove impediments to and perfect the mechanism of a
free and open market and a national market system by providing
specificity regarding when resting orders would be re-priced due to the
arrival of a Day ISO. Specifically, as proposed, because any-sized Day
ISO would result in a new PBBO, it is not necessary for an arriving Day
ISO to result in a round lot or more being displayed as a new BBO
before resting orders would be re-priced under Rule 7.31-E(a)(2)(C).
The Exchange therefore believes that this proposed change would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would promote the display of orders
at their limit price without locking or crossing the PBBO.
Similarly, amending Rule 7.31-E(h)(2)(B) to describe when a resting
Primary Pegged Order would be re-priced pursuant to Rule 7.31-
E(a)(2)(C) or Rule 7.35-E(h)(3)(A)(ii) removes impediments to, and
perfects the mechanism of, a free and open market and a national market
system because it does not propose new functionality, but rather,
provides additional specificity in the Exchange's rules regarding the
operation of Primary Pegged Orders
[[Page 9182]]
such that it prevents a resting Primary Pegged Order from being re-
priced to peg to a locked or crossed market. This change does not alter
the operation of Primary Pegged Orders. Rather, it would further
clarify the Exchange's rules regarding when a Primary Pegged Order
would be re-priced to avoid pegging to a locked or crossed PBBO.
The additional proposed changes to Primary Pegged Orders remove
impediments to and perfects the mechanism of a free and open market and
a national market system because prohibiting Primary Pegged Orders from
participating in the Closing Auction would streamline order processing
in the Closing Auction process. ETP Holders wishing to participate in
the Closing Auction may do so through the use of other orders types,
such as Limit Orders, which like Primary Pegged Orders, participate in
the Closing Auction at their limit price. The Exchange notes that not
allowing Primary Pegged Orders in the Closing Auction is similar to the
rules of another exchange that prohibits the entry of pegging orders in
select auctions.\37\
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\37\ See BZX Rule 11.23(a)(8)(A)(ii) (precluding Pegged Orders
from participating in an IPO Auction). See also Securities Exchange
Act Release No. 77476 (March 30, 2016), 81 FR 19661 (April 5, 2016)
(SR-BATS-2016-17) (Approval Order) (stating that refining the types
of orders processed in an IPO Auction and/or those that would be
placed onto the BATS Book following such IPO Auction would simplify
and reduce the complexity of the IPO Auction for BATS listed
corporate securities). BZX further argued that the proposal would
aid in ensuring a robust, but streamlined, IPO Auction process for a
newly listed corporate securities. Id. at 19662.
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Rule 7.34-E, Trading Sessions. The proposed changes to Rule 7.34-
E(c) promote just and equitable principles of trade and remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system because rejecting Non-Displayed Limit
Orders, Discretionary Pegged Orders [sic], MPL Orders, Tracking Orders,
and RPI Orders entered before the Auction Processing Period for the
Early Open Auction concludes would reduce operational complexity when
the Exchange transitions to continuous trading. It would also
streamline order processing when the Exchange begins continuous trading
by reducing the operational complexity of processing these orders
following a halt or pause. ETP Holders seeking to enter theses order
types may do so once the Early Trading Session begins.
Rule 7.35-E, Auctions. The proposed change to Rule 7.35-E(e)(10) to
reject on arrival and cancel MOO Orders, LOO Orders, IO Orders, and
Primary Pegged Orders when resting on the NYSE Arca Book during a halt
or pause when the Re-Opening Time for a Trading Halt Auction would be
in the last 10 minutes of trading before the end of Core Trading Hours
removes impediments to, and perfects the mechanism of, a free and open
market and a national market system because, as described above, such
order types would not be eligible to participate in a Closing Auction.
The proposed changes to Rule 7.35-E(h)(2) would also remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system because it adds further specificity to the
Exchange's rules regarding how order instruction (as defined in Rule
7.35-E(g)) are processed before and after the order transitions to
continuous trading. The proposed rule change does not alter the manner
in which the Exchange processes order instructions. Rather, the
proposal provides additional specificity within the Exchange's rules,
thereby removing any ambiguity and avoiding potential investor
confusion.
The proposed change to Rule 7.35-E(h)(3)(A)(ii) perfects the
mechanism of a free and open market and a national market system
because conforms the rule to a recent change to the description of
Reserve Orders under Rule 7.31-E(d)(1)(A) to specify that the replenish
quantity of a Reserve Order may not be the full display quantity.\38\
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\38\ See supra note 30.
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The proposed change to Rule 7.35-E(h)(3)(B) to process orders
received during a halt or pause consistent with Rule 7.36-E(f)(1) is
consistent with the proposed changes, described above, limiting the
orders that are accepted during a halt or pause to those order types
that are eligible to participate in a Trading Halt Auction. The
Exchange believes that it would remove impediments to and perfect the
mechanism of a free and open market and a national market system to
apply the default process for assigning a working time to such orders.
The non-substantive changes to Rules 7.18-E and 7.35-E(h)(3)
promote just and equitable principles of trade because they are
designed to promote clarity and consistency in Exchange rules.
Rule 7.38--Odd and Mixed Lots. The Exchange believes that the
proposed processing of odd lot orders would remove impediments to and
perfect the mechanism of a fair and orderly market because the proposed
change would align the working price and display price of odd lot
orders. The proposed change would not alter the price at which an odd
lot order would be eligible to trade, but rather, would provide greater
transparency regarding what price an odd lot order would trade by
aligning the display price of such order with its working price. The
Exchange believes that this proposed rule change would further remove
impediments to and perfect the mechanism of a free and open market and
a national market system by reducing the potential for an odd lot order
to appear on the Exchange's proprietary data feeds as though it is
locking or crossing the PBBO. The Exchange further believes the
proposed rule change, which proposes to assign a display price that is
equal to the working price for odd lot orders, would remove impediments
to and perfect the mechanism of a fair and orderly market because it
would promote transparency in the ranking and execution of such orders.
Additionally, the Exchange believes the proposed change to how the
working time of an odd lot order would be adjusted would remove
impediments to and perfect the mechanism of a free and open market by
aligning the processing of odd lot orders with the standard manner by
which the working time is assigned to an order, as provided for in Rule
7.36-E(f)(2).
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes to
Rules 7.18-E, 7.31-E, 7.34-E and 7.35-E are designed to provide
additional specificity to the Exchange's rules, reduce operational
complexity during a halt or pause, and streamline order processing when
transitioning to continuous trading following an auction. The proposed
changes to Rules 7.16-E, 7.31-E, 7.38-E are also designed to provide
additional specificity to the Exchange's rules and reduce operational
complexity by (i) aligning the display price of an odd lot order with
its working price, (ii) converting sell short Market Orders to
displayed interest and adjusting the working and display price of short
sale orders prior to an auction to the Permitted Price, (iii)
clarifying that Primary Pegged Orders would not be re-priced to a
locked or crossed PBBO, and (iv) promoting transparency in the ranking
and execution of odd lot orders. These proposed changes should,
therefore, promote competition by enhancing the Exchange's rules to
provide greater specificity to market participants and improving the
efficiency of the Exchange's order
[[Page 9183]]
handling processes. The non-substantive changes to Rule 7.18-E and
subparagraphs (B) and (D) of Rule 7.35-E(h)(3) would have no an impact
on competition because they do not amend or alter the operation of
either rule.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \39\ and Rule 19b-4(f)(6) thereunder.\40\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\39\ 15 U.S.C. 78s(b)(3)(A)(iii).
\40\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \41\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\41\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEARCA-2019-08 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-NYSEARCA-2019-08. 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 this filing will also 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-NYSEARCA-2019-08, and should be
submitted on or before April 3, 2019.
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\42\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-04555 Filed 3-12-19; 8:45 am]
BILLING CODE 8011-01-P
