Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, to Amend NYSE Rule 104, 16079-16086 [2019-07707]
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Federal Register / Vol. 84, No. 74 / Wednesday, April 17, 2019 / Notices
Exchange understands that the other
national securities exchanges and
FINRA will also file similar proposals to
extend their respective clearly
erroneous execution pilot programs.
Thus, the proposed rule change will
help to ensure consistency across
market centers without implicating any
competitive issues.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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 for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 12 and
subparagraph (f)(6) of Rule 19b–4
thereunder.13
A proposed rule change filed under
Rule 19b–4(f)(6) 14 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 15 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposed
rule change may become effective and
operative immediately upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest, as it will allow the
current clearly erroneous execution
pilot program to continue
uninterrupted, without any changes,
while the Exchange and the other
national securities exchanges consider
and develop a permanent proposal for
clearly erroneous execution reviews. For
this reason, the Commission hereby
waives the 30-day operative delay and
12 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
14 17 CFR 240.19b–4(f)(6).
15 17 CFR 240.19b–4(f)(6)(iii).
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13 17
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designates the proposed rule change as
operative upon filing.16
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2019–009 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–BX–2019–009. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BX–2019–009 and should
be submitted on or before May 8, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–07624 Filed 4–16–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85637; File No. SR–NYSE–
2018–34]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Amendment No. 1 and Order
Granting Accelerated Approval of
Proposed Rule Change, as Modified by
Amendment No. 1, to Amend NYSE
Rule 104
April 12, 2019.
I. Introduction
On July 31, 2018, New York Stock
Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend NYSE Rule 104
governing transactions by Designated
Market Makers (‘‘DMMs’’). The
proposed rule change was published for
comment in the Federal Register on
August 16, 2018.3
On September 24, 2018, pursuant to
Section 19(b)(2) of the Act,4 the
Commission extended to November 14,
2018, the time period in which to
approve, disapprove, or institute
proceedings to determine whether to
approve or disapprove, the proposed
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 83821
(Aug. 10, 2018), 83 FR 40808 (Aug. 16, 2018)
(‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
1 15
16 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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Federal Register / Vol. 84, No. 74 / Wednesday, April 17, 2019 / Notices
rule change.5 On November 1, 2018, the
Commission issued an order instituting
proceedings, pursuant to Section
19(b)(2)(B) of the Act,6 to determine
whether to approve or disapprove the
proposed rule change.7 On February 11,
2019, the Commission extended to April
13, 2019, the period for Commission
action on proceedings to determine
whether to approve or disapprove the
proposed rule change.8 The Commission
has received one comment letter on the
proposal.9
On April 9, 2019, the Exchange filed
Amendment No. 1 to the proposal,
which supersedes the original filing in
its entirety. The Commission is
publishing this notice to solicit
comments on Amendment No. 1 from
interested persons, and is approving the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
II. Self-Regulatory Organization’s
Description of the Proposal, as
Modified by Amendment No. 1
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 those
statements may be examined at the
places specified in Item V 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
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1. Purpose
The Exchange proposes to consolidate
and restructure subsections (g), (h) and
(i) of Rule 104 governing DMM
transactions and make a related change
to Rule 98(c)(5) (Operation of a DMM
Unit). This Amendment No. 1
supersedes the original filing its
entirety.10
5 See Securities Exchange Act Release No. 84276
(Sep. 24, 2018), 83 FR 49143 (Sep. 28, 2018).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 84515
(Nov. 1, 2018), 83 FR 55763 (Nov. 7, 2018) (‘‘Order
Instituting Proceedings’’).
8 See Securities Exchange Act Release No. 85096
(Feb. 11, 2019), 84 FR 4553 (Feb. 15, 2019).
9 See Letter from Stephen John Berger, Managing
Director, Government and Regulatory Policy,
Citadel Securities, to Assistant Secretary,
Commission (Nov. 28, 2018) (‘‘Citadel Letter’’).
10 In this Amendment No. 1, the Exchange
proposes to amend the original filing by modifying
proposed Rule 104(g)(1)(B) relating to Aggressing
Transactions prior to the close. In the original filing,
the Exchange proposed that Aggressing
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Background
Rule 104 sets forth the obligations of
Exchange DMMs. Under Rule 104(a),
DMMs registered in one or more
securities traded on the Exchange are
required to engage in a course of
dealings for their own account to assist
in the maintenance of a fair and orderly
market insofar as reasonably practicable.
Rule 104(a) also enumerates the specific
responsibilities and duties of a DMM,
including: (1) Maintenance of a
continuous two-sided quote, which
mandates that each DMM maintain a bid
or an offer at the National Best Bid
(‘‘NBB’’) and National Best Offer
(‘‘NBO,’’ together the ‘‘NBBO’’) for a
certain percentage of the trading day,11
and (2) the facilitation of, among other
things, openings, re-openings, and the
close of trading for the DMM’s assigned
securities, all of which may include
supplying liquidity as needed.12 Rule
104(f) imposes an affirmative obligation
on DMMs to maintain, insofar as
reasonably practicable, a fair and
orderly market on the Exchange in
assigned securities, including
maintaining price continuity with
reasonable depth and trading for the
DMM’s own account when lack of price
continuity, lack of depth, or disparity
between supply and demand exists or is
reasonably to be anticipated.
Rule 104(g) provides that transactions
on the Exchange by a DMM for the
DMM’s account must be effected in a
reasonable and orderly manner in
relation to the condition of the general
market and the market in the particular
stock. More particularly, Rule 104(g)
describes certain transactions that are
permitted to render the DMM’s position
adequate to the market’s needs,
including Neutral and Non-Conditional
Transactions, and certain DMM
transactions that are prohibited.
Transactions in the last ten seconds of trading
would be prohibited if they would result in a new
consolidated high or low price of the day unless
such transaction would bring the price of that
security into parity with an underlying or related
security or asset. As amended, the Exchange
proposes that Aggressing Transactions in the last
ten minutes of trading would be prohibited if they
would result in a new Exchange high or low price
of the day, with three exceptions for matching
another market’s better bid or offer, bringing the
price of that security into parity with an underlying
or related security or asset, or liquidating or
decreasing the DMM unit’s position. This
Amendment No. 1 also proposes to amend Rule
98(c)(5).
11 See Rule 104(a)(1).
12 See Rule 104(a)(2)–(3). Rule 104(e) further
provides that DMM units must provide contra-side
liquidity as needed for the execution of odd-lot
quantities eligible to be executed as part of the
opening, reopening, and closing transactions but
that remain unpaired after the DMM has paired all
other eligible round lot sized interest.
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Rule 104(g)(i)(A)(I) defines Neutral
Transactions as a purchase or sale by
which a DMM liquidates or decreases a
position. Neutral Transactions may be
made without restriction as to price.
However, the DMM’s obligation to
maintain a fair and orderly market may
require re-entry on the opposite side of
the market trend after effecting one or
more Neutral Transactions. Such reentry transactions should be in
accordance with the immediate and
anticipated needs of the market.
Rule 104(g)(i)(A)(II) defines NonConditional Transactions as a DMM’s
bid or purchase and offer or sale that
establishes or increases a position, other
than a transaction that reaches across
the market to trade with the Exchange
BBO. Non-Conditional Transactions
may be made without restriction as to
price in order to (i) match another
market’s better bid or offer price; (ii)
bring the price of a security into parity
with an underlying or related security or
asset; (iii) add size to an independently
established bid or offer on the Exchange;
(iv) purchase at the published bid price
on the Exchange; (v) sell at the
published offer price on the Exchange;
(vi) purchase or sell at a price between
the Exchange BBO; and (vii) purchase
below the published bid or sell above
the published offer on the Exchange. As
with Neutral Transactions, the DMM’s
obligation to maintain a fair and orderly
market may also require re-entry on the
opposite side of the market trend after
effecting one or more Non-Conditional
Transactions. Such re-entry transactions
should be commensurate with the size
of the Non-Conditional Transactions
and the immediate and anticipated
needs of the market.
Rule 104(g)(i)(A)(III) provides that,
except as otherwise permitted by Rule
104, during the last ten minutes prior to
the close of trading, a DMM with a long
or short position in a security is
prohibited from making a purchase or
sale in such security that results in a
new high or low price, respectively, on
the Exchange for the day at the time of
the DMM’s transaction (‘‘Prohibited
Transactions’’).13
Finally, Rule 104(h) addresses DMM
transactions in securities that establish
or increase the DMM’s position. Rule
104(h)(i) defines a Conditional
Transaction as a DMM transaction in a
security that establishes or increases a
position and reaches across the market
13 Rule 104(g)(i)(A)(III) contains two exceptions to
Prohibited Transactions: (1) Matching another
market’s better bid or offer price, and (2) bringing
the price of a security into parity with an
underlying or related security or asset.
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to trade as the contra-side to the
Exchange published bid or offer.14
Rule 104(h)(ii) permits ‘‘Conditional
Transactions’’ without restriction as to
price if they are followed by appropriate
re-entry on the opposite side of the
market commensurate with the size of
the DMM’s transaction. Thus, if a DMM
establishes or increases a long position
by buying from the Exchange best offer,
or establishes or increases a short
position by selling to the Exchange best
bid, such transaction would be followed
by the DMM quoting on the opposite
side of the last transaction in order to
dampen the impact of that transaction
on the market.
The re-entry obligations for
Conditional Transactions are set forth in
Rule 104(h)(iii). Under Rule
104(h)(iii)(A), DMMs must re-enter
within certain Exchange issued
guidelines, called price participation
points (‘‘PPP’’), that identify the price at
or before which a DMM is expected to
re-enter the market after effecting a
Conditional Transaction. PPPs are only
minimum guidelines and compliance
with them does not guarantee that a
DMM is meeting its obligations.
Notwithstanding that a security may
not have reached the PPP, the DMM
may be required to re-enter the market
immediately after a Conditional
Transaction based on the price and/or
volume of the DMM’s trading in
reference to the market in the security
at the time of such trading. In such
situations DMMs may or may not rely
on the fact and circumstance that there
may have been one or more
independent trades following the
DMM’s trading to justify a failure to reenter the market. As set forth in Rule
104(h)(iii)(C)(I) and (II), immediate reentry is required after the following
Conditional Transactions:
• a purchase that (1) reaches across
the market to trade with an Exchange
published offer that is above the last
differently priced trade on the Exchange
and above the last differently priced
published offer on the Exchange, (2) is
10,000 shares or more or has a market
value of $200,000 or more, and (3)
exceeds 50% of the published offer size;
and
• a sale that (1) reaches across the
market to trade with an Exchange
published bid that is below the last
differently priced trade on the Exchange
and below the last differently priced
published bid on the Exchange, (2) is
10,000 shares or more or has a market
value of $200,000 or more, and (3)
14 A
DMM reaches across the market when the
DMM buys from the NYSE offer or sells to the NYSE
bid.
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exceeds 50% of the published bid
size.15
Rule 104(h)(iv) permits certain other
Conditional Transactions without
restriction as to price. Specifically,
under subsection (h)(iv)(A), a DMM’s
purchase from the Exchange published
offer that is priced above the last
differently-priced trade on the Exchange
or above the last differently-priced
published offer on the Exchange.
Similarly, under subsection (h)(iv)(B), a
DMM’s sale to the Exchange published
bid that is priced below the last
differently-priced trade on the Exchange
or below the last differently-priced
published bid on the Exchange.
Rule 104(i) provides that re-entry
obligations following such Conditional
Transactions would be the same as the
re-entry obligations for Non-Conditional
Transactions pursuant to Rule 104(g).
Finally, paragraph (c)(5) of Rule 98
provides that the member organization
operating a DMM unit must provide the
Exchange with real-time net position
information in DMM securities by the
DMM unit and any independent trading
unit of which it is part at such times and
in the manner prescribed by the
Exchange.
Proposed Rule Change
The Exchange proposes to consolidate
and restructure current Rules 104(g), (h)
and (i), which would be deleted and
incorporated as modified into a new
subsection (g) titled ‘‘Transactions by
DMMs.’’
As discussed below, proposed Rule
104(g) would revise the requirements for
DMM transactions based on the type of
trading by the DMM, rather than by
reference to the DMM’s position. Rule
98(c)(5) would be amended to require
DMMs to provide net position
information to the Exchange daily. The
Exchange also proposes certain
technical and conforming changes.16
As restructured, proposed Rule 104
would replace the four current types of
DMM transactions based on the DMM’s
position (Neutral, Non-conditional,
Conditional and Prohibited) with a
single, enhanced DMM transaction
called an ‘‘Aggressing Transaction’’ that
would retain existing re-entry
requirements. During the ten minutes
before the scheduled close of trading,
Aggressing Transactions that would
15 For purposes of subsections (h)(iii)(C)(I) and
(h)(iii)(C)(II), a Sweep is viewed as a transaction
with the published bid or offer.
16 The Exchange proposes the following technical
and conforming changes: (1) romanettes (i) through
(vi) in Rule 104(b) and (i) through (iv) in Rule 104(f)
would be replaced with numbers 1 through 6 and
1 through 4, respectively; (2) current subsection (j)
would become new subsection (h); and (3) current
subsection (k) would become new subsection (i).
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16081
result in a new high (low) price for a
security on the Exchange for the day at
the time of the DMM’s transaction
would be prohibited with three
exceptions discussed below.
Proposed Rule 104(g)(1)
Proposed Rule 104(g)(1) would be
based on current Rule104(g)(i). Like
current Rule 104(g)(i), proposed Rule
104(g)(1) would specify that
transactions on the Exchange by a DMM
unit for the DMM unit’s account are to
be effected in a reasonable and orderly
manner in relation to the condition of
the general market and the market in the
particular stock. Proposed Rule
104(g)(1) would eliminate the
definitions of Neutral and NonConditional Transactions 17 and retain
Conditional Transactions, which would
be enhanced and renamed ‘‘Aggressing
Transactions.’’
Aggressing Transactions
In proposed Rule 104(g)(1)(A), the
Exchange would define an Aggressing
Transaction as a DMM unit transaction
that:
(i) is a purchase (sale) that reaches
across the market to trade as the contraside to the Exchange published offer
(bid); and
(ii) is priced above (below) the last
differently-priced trade on the Exchange
and above (below) the last differentlypriced published offer (bid) on the
Exchange.
The proposed definition of Aggressing
Transaction would be the same as the
current definition of Conditional
Transaction in Rule 104(h)(i) and (ii),
except that Aggressing Transaction
would not be defined by reference to
whether the transaction increases or
decreases the DMM’s position.
Accordingly, a DMM unit Aggressing
Transaction would be any trade where
the DMM both reaches across the market
and aggressively moves the price of the
security.
Prohibited Transactions
The Exchange proposes to retain
certain of the existing prohibitions on
specified DMM transactions during the
final ten minutes of the trading day and
the current exceptions to Prohibited
Transactions, which are described in
current Rule 104(g)(i)(A)(III). With this
proposed rule change, the Exchange
proposes a substantive difference for
determining whether a DMM
transaction should be prohibited in the
last ten minutes of trading. Rather than
17 As discussed below, the re-entry obligations for
Neutral and Non-Conditional Transactions would
be retained and incorporated into proposed
subsection (g)(2).
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the current rule, which looks at the
DMM’s position (long or short) and then
determines whether the trade should be
prohibited based on whether it results
in a new Exchange high or low, as
proposed, a DMM transaction in the last
ten minutes of trading would be
prohibited if it is an Aggressing
Transaction, i.e., reaches across the
market, and, as a result, creates a new
Exchange high or low. The Exchange
also proposes exceptions to this
prohibition, which are based on
exceptions to prohibited transactions in
the current rule.
To effect this change, proposed Rule
104(g)(1)(B) would define ‘‘Prohibited
Transactions’’ as Aggressing
Transactions during the last ten minutes
prior to the scheduled close of trading
that would result in a new high (low)
price for a security on the Exchange for
the day at the time of the DMM’s
transaction. The proposed three
exceptions to this prohibition would be
if the trade:
• matches another market’s better bid
or offer price;
• brings the price of that security into
parity with an underlying or related
security or asset; or
• liquidates or decreases the position
of the DMM unit.
The first two exceptions are in current
Rule 104(g)(i)(A)(III) and the Exchange
proposes to retain these exceptions in
the proposed rule.18 The third exception
is based in part on the position-based
review of whether a transaction would
be prohibited under current rules.
Current Rule 104(g)(i)(A)(III)(1)
prohibits a DMM with a long position in
a security from making a purchase in
that security during the last ten minutes
that results in a new high price; the rule
does not prohibit a DMM with a long
position from selling or decreasing their
position in the security. Likewise,
current Rule 104(g)(i)(A)(III)(2) prohibits
a DMM with a short position in a
security from making a sale in that
security during the last ten minutes
prior to the close of trading that results
in a new low price, but the rule does not
prohibit a DMM with a short position
from purchasing or liquidating their
position in that security. Because
looking at the DMM’s position would be
an exception rather than the basis for
the prohibition, the Exchange proposes
to restate the rule as an exception that
permits a DMM to liquidate or decrease
a position of the DMM unit, rather than
focus on what is prohibited when the
DMM is long or short. This proposed
rule text is also based on Rule
18 See Rule 104(g)(i)(A)(III) (referencing Rules
104(g)(i)(A)(II)(2)(i) through (g)(i)(A)(II)(2)(ii)).
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104(g)(i)(A)(I), which has no restrictions
as to price for ‘‘Neutral Transactions,’’
i.e., transactions when the DMM
liquidates or decreases a position.
With this proposed difference for
Prohibited Transactions, in the last ten
minutes of trading, DMMs would be
able to trade at prices lower than the
published offer, or higher than the
published bid, even if such trade would
result in a new Exchange high or low for
the day. The Exchange believes that this
proposed change would support DMMs
in meeting their affirmative obligations
while at the same time continuing to
prevent DMMs from aggressively taking
liquidity and moving prices on the
Exchange by trading with the published
bid or offer in the final ten minutes
before the closing auction 19 For
example, if the Exchange best bid and
offer were $10.01 × $10.05, the DMM
has a long position, and the DMM posts
a bid at $10.04 to try and tighten that
spread, under the current rules, if that
$10.04 bid were to trade with nondisplayed sell liquidity at that price and
that trade resulted in a new high price
on the Exchange for the day, that trade
would be prohibited. Under the
proposed change to Prohibited
Transactions, this trade would no longer
be prohibited because the DMM is not
reaching across the market.
Finally, the Exchange notes that the
proposal is consistent with, and in no
way diminishes or relieves the DMM of,
the other obligations regarding the
quality of the markets in securities to
which DMMs are assigned under Rule
104.20
Proposed Rule 104(g)(2)
Proposed subsection (g)(2) would set
forth the re-entry obligations for DMM
transactions, which would be based on
19 See
Rule 104(g)(i)(A)(III).
general, as noted above, transactions on the
Exchange by a DMM for the DMM’s account must
be effected in a reasonable and orderly manner in
relation to the condition of the general market and
the market in the particular stock, and DMMs must
refrain from causing or exacerbating excessive price
movements. DMMs have affirmative obligations
under Rule 104(a) to engage in a course of dealings
for their own account to assist in the maintenance
of a fair and orderly market insofar as reasonably
practicable. Specifically, Rule 104(f)(ii) sets forth
the DMM’s obligation to act as reasonably necessary
to ensure appropriate depth and maintain
reasonable price variations between transactions
(also known as price continuity) and prevent
unexpected variations in trading. Further, under
Rule 123D(a), openings and reopenings must be fair
and orderly, reflecting the DMM’s professional
assessment of market conditions at the time, and
appropriate consideration of the balance of supply
and demand as reflected by orders represented in
the market. The Exchange supplies DMMs with
suggested Depth Guidelines for each security in
which a DMM is registered, and DMMs are
expected to quote and trade with reference to the
Depth Guidelines. See Rule 104(f)(iii).
20 In
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the current rule’s re-entry obligations.
Specifically, proposed Rule 104(g)(2)
would provide that a DMM unit’s
obligation to maintain a fair and orderly
market may require re-entry on the
opposite side of the market after
effecting one or more transactions. The
proposed rule would provide that such
re-entry should be commensurate with
the size of the transaction(s) and the
immediate and anticipated needs of the
market, which are the same re-entry
requirements specified in current Rules
104(g)(i)(A)(I)(3) and 104(g)(i)(A)(II)(3)
for Neutral and Non-Conditional
Transactions, respectively, as well as
the types of Conditional Transactions
referenced in current Rules 104(h)(iv)
and 104(i).21 Accordingly, these re-entry
obligations would be applicable to
DMM transactions other than
Aggressing Transactions.
Proposed Rule 104(g)(2)(A) and (B)
would specify the re-entry obligations
for Aggressing Transactions. Following
an Aggressing Transaction, proposed
Rule 104(g)(2)(A) would require the
DMM unit to re-enter the opposite side
of the market at or before the applicable
PPP for that security commensurate
with the size of the Aggressing
Transaction. The re-entry requirement
for Aggressing Transactions set forth in
proposed Rule 104(g)(2)(A) is based on
the current re-entry requirements for
certain Conditional Transactions set
forth in current Rule 104(h)(iii).
Under proposed Rule 104(g)(2)(B), if
the Aggressing Transaction (i) is 10,000
shares or more or has a market value of
$200,000 or more, and (ii) exceeds 50%
of the published offer (bid) size,
immediate re-entry on the opposite side
of the market at or before the applicable
PPP for the security commensurate with
the size of the Aggressing Transaction
would be required. The re-entry
requirement for block-sized Aggressing
Transactions set forth in proposed Rule
104(g)(2)(B) is based the current re-entry
requirements for block-sized
Conditional Transactions under Rule
104(h)(iii)(C). The Exchange proposes a
clarifying amendment in proposed Rule
104(g)(2)(B), as compared to current
Rule 104(h)(iii)(C), to provide that such
21 Current Rule 104(h)(iv) provides that two types
of Conditional Transactions may be made without
restriction as to price: (1) A DMM’s purchase from
the Exchange published offer that is priced above
the last differently-priced trade on the Exchange or
above the last differently-priced published offer on
the Exchange ((h)(iv)(A)); and (2) a DMM’s sale to
the Exchange published bid that is priced below the
last differently-priced trade on the Exchange or
below the last differently-priced published bid on
the Exchange ((h)(iv)(B)). Current Rule 104(i)
provides that the re-entry obligations following
transactions defined in Rule 104(h)(iv)(A) and
(h)(iv)(B) are the same as for Non-Conditional
Transactions pursuant to Rule 104(g) (i)(A)(3).
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re-entry must be at or before the
applicable PPP for that security. The
Exchange believes that this proposed
change will provide greater detail in the
rule regarding the price at which the reentry would be required.
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Proposed Rule 104(g)(3)
Finally, proposed Rule 104(g)(3)(A)
would provide that the Exchange would
periodically issue PPP Guidelines that
identify the price at or before which a
DMM unit is expected to re-enter the
market following an Aggressing
Transaction. PPPs are only minimum
guidelines and compliance with them
does not guarantee that a DMM unit is
meeting its obligations. This portion of
the proposed Rule is based on Rule
104(h)(iii)(A) without any differences.
Proposed Rule 104(g)(3)(B) would
provide that, notwithstanding that a
security may not have reached the PPP,
the DMM unit may be required to reenter the market immediately after an
Aggressing Transaction based on the
price and/or volume of the DMM unit’s
trading in reference to the market in the
security at the time of such trading. In
such situations, DMM units may or may
not rely on the fact and circumstance
that there may have been one or more
independent trades following the DMM
unit’s trading to justify a failure to reenter the market. Subsection (B) of the
proposed rule is based on current Rule
104(h)(iii)(B).
believes it would be able to effectively
monitor for compliance with the
proposed exception utilizing DMM
position information provided on a
same-day basis for its automated
surveillances. The Exchange would
publish regulatory guidance setting
forth the requirement that DMMs
provide net position on a daily basis but
in no event later than trading day plus
one (T+1). To implement this change,
the Exchange proposes to delete the
term ‘‘real time’’ in Rule 98(c)(5) and
add the word ‘‘daily’’ after ‘‘must’’ and
before ‘‘provide.’’ The Exchange would
also replace ‘‘for’’ for ‘‘at’’ before ‘‘such
times,’’ delete the ‘‘s’’ in times, and add
‘‘periods’’ immediately following in
order to clarify that the Exchange may
request DMM net position information
for specific time periods on a daily
basis.
Rule Implementation
Subject to approval of this proposed
rule change, the Exchange proposes to
implement these changes concurrent
with the transition of Exchange-listed
securities to the Pillar trading system,
which is currently anticipated to begin
in the third quarter of 2019.23
Proposed Amendment to Rule 98(c)(5)
As noted above, except for an
exception to Prohibited Transactions,
the Exchange proposes to eliminate
reliance on the DMM’s position to
determine DMM trading requirements
under proposed Rule 104(g). The
Exchange proposes a related change to
Rule 98(c)(5) to require DMMs to
provide the Exchange with net position
information daily. The Exchange
proposes a further clarifying change to
require DMM to provide net position
information ‘‘for’’ such time ‘‘periods,’’
rather than ‘‘at’’ such times, prescribed
by the Exchange. The Exchange does not
believe that DMM net position
information would need to be provided
in real time in order for the Exchange to
effectively monitor for compliance with
the proposed exception to Rule
104(g)(1)(B).22 Rather, the Exchange
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,24 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,25 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices,
promote just and equitable principles of
trade, remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and protect investors and the
public interest.
In particular, the Exchange believes
that revising the requirements for DMM
transactions based on the type of DMM
trading rather than the DMM’s position
and introducing a new, enhanced DMM
transaction called an ‘‘Aggressing
Transaction’’ would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system by
simplifying and streamlining the
requirements for DMM transactions. The
proposal would eliminate four separate
types of DMM transactions and
22 The Exchange currently provides DMMs with
a technology interface that supports the submission
of DMM real-time position information. In
extremely limited circumstances, the Exchange
relies on that position information to assist the
DMMs in marking certain manual orders as sell
short or sell long. When the Exchange transitions
NYSE-listed securities to its Pillar trading system,
it will no longer support this technology interface;
nor will it be marking orders on behalf of the DMM.
23 The Exchange has announced that, subject to
rule approvals, the Exchange will begin
transitioning Exchange-listed securities to Pillar on
July 15, 2019, available at https://www.nyse.com/
publicdocs/nyse/markets/nyse/Pillar_Update_
NYSE_Tape_A_NGW_February_2019.pdf. The
Exchange will publish by separate Trader Update a
complete symbol migration schedule.
24 15 U.S.C. 78f(b).
25 15 U.S.C. 78f(b)(5).
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16083
introduce a simplified framework
whereby all DMM transactions would be
subject to general re-entry requirements
based on the current re-entry obligations
for Neutral, Non-Conditional and
Conditional transactions, and specific
re-entry requirements for Aggressing
Transactions, except for Aggressing
Transactions during the final ten
minutes of trading that result in a new
high (low) price for a security on the
Exchange for the day at the time of the
DMM’s transaction, which would
continue to be prohibited unless subject
to a specified exception.
The Exchange believes that the
proposal would not be inconsistent with
the public interest and the protection of
investors. As noted, the proposed rule
would carry over the requirement that
all DMM transactions be effected in a
reasonable and orderly manner in
relation to the condition of the general
market and the market in the particular
stock. Further, DMM Aggressing
Transactions would continue to require
re-entry on the opposite side of the
market at or before the applicable PPP
for the security as warranted. Aggressing
Transactions in the final ten minutes of
trading that result in a new high (low)
price for a security on the Exchange for
the day at the time of the DMM’s
transaction would continue to be
prohibited. These safeguards would
reasonably ensure that DMM
transactions continue to bear a
reasonable relationship to overall
market conditions and that DMMs
cannot destabilize, inappropriately
influence or manipulate a security going
into the close. In addition, the
prohibition on Aggressing Transactions
that would create a new high or low
price on the Exchange would maintain
the current bright-line rule that
prohibits DMM transactions that
aggressively take liquidity during the
final ten minutes prior to the close.
The Exchange believes that the
proposed substantive difference to
Prohibited Transactions in the last ten
minutes of trading to permit DMM
trades between the Exchange BBO, even
if such trades resulted in a new
Exchange high or low and regardless of
the DMM’s position at the time, would
promote fair and orderly markets and
not be inconsistent with the public
interest and the protection of investors
because this proposed change would
promote the display of liquidity by
enabling DMMs to post bids and offers
that would tighten the Exchange
published bid and offer. The Exchange
further believes that retaining the
current exceptions for Prohibited
Transactions, and permitting Aggressing
Transactions that would liquidate or
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decrease the DMM unit’s position
during the ten minutes prior to the
scheduled close of trading even if they
would result in a new Exchange high or
low price, would remove impediments
to and perfect the mechanism of a free
and open market and a national market
system because DMMs would be able to
quote appropriately in their assigned
securities during the period of the
prohibition. The Exchange further
believes that not restricting Aggressing
Transactions in the last ten minutes of
trading that result in a new Exchange
high or low price for the day if such
trade is the result of the DMM
liquidating or decreasing a position
would remove impediments to and
perfect the mechanisms of a free and
open market and a national market
system because this exception is based
on the current position-based review of
whether a transaction would be
prohibited, which does not prohibit
such transactions, as well the current
definition of ‘‘Neutral Transactions’’
which have no restrictions as to price.
Further, the Exchange believes that the
proposed exception would remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system because a
DMM that reaches across the market
when liquidating or decreasing a
position is generally not doing so to
favor a position leading into the close.
Moreover, the numerous obligations
currently imposed by Rule 104 would in
no way be altered or diminished by the
proposal. The Exchange does not
believe that the balance of benefits and
obligations under Rule 104 would be
impacted by this proposed rule change.
DMMs would continue to be prohibited
from engaging in specified transactions
in the final ten minutes prior to the
close. Moreover, the proposed rule
would carry over the requirement that
all DMM transactions be effected in a
reasonable and orderly manner in
relation to the condition of the general
market and the market in the particular
stock. These safeguards would
reasonably ensure that DMM
transactions bear a reasonable
relationship to overall market
conditions and that DMMs cannot
destabilize, inappropriately influence or
manipulate a security going into the
close. For the same reasons, the
proposed prohibition would not alter or
disrupt the balance between DMM
benefits and obligations of being an
Exchange DMM.
Finally, revising the requirements for
DMM transactions based on the type of
DMM trading rather than the DMM’s
position, and amending Rule 98 to
require that DMM units provide net
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position information to the Exchange on
a daily basis and for such time periods
as prescribed by the Exchange, would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system by
simplifying and streamlining the
requirements for DMM transactions. The
Exchange further believes that the
proposed rule change would promote
just and equitable principles of trade
and is designed to prevent fraudulent
and manipulative acts and practices
because DMMs would be required to
provide net position information daily
to the Exchange and the Exchange
would be able to conduct automated
surveillances monitoring for compliance
with the amended rule for this
exception.
For the foregoing reasons, the
Exchange believes that the proposal is
consistent with the Act.
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
Exchange proposes amendments to the
rule governing DMM obligations to
simplify and streamline the
requirements for DMM transactions. The
Exchange believes that the proposal
would promote competition by allowing
DMMs to quote more aggressively in the
final minutes of trading, thereby
permitting DMMs to remain competitive
with other traders both on the Exchange
and on other trading venues, thereby
enhancing the ability of DMMs to meet
their affirmative obligation under Rule
104. The Exchange further believes that
its proposed rules governing DMMs
would not impose any burden on
competition that is not necessary or
appropriate because the proposed rules
are designed to foster a fair and orderly
marketplace without diminishing the
balance of benefits and obligations
under Rule 104 or altering or
diminishing the numerous obligations
currently imposed by Rule 104 on
DMMs.
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. Summary of Comments Received
The Commission received one
comment letter in support of the
proposal as initially filed by the
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Exchange. The commenter asserts that
the proposal materially increases the
obligations of DMMs because the
proposal would impose re-entry
obligations on DMMs throughout the
trading day, including following
transactions that reduce or liquidate the
DMM’s position.26 The commenter
asserts that the proposed prohibition
prior to the close of trading is also
strengthened because it would eliminate
reference to the DMM’s position.27 The
commenter also states that it supports
the proposed changes to the NYSE rule
regarding prohibited transactions
because it would modernize the rule to
reflect market structure changes, retain
a bright line rule negative obligation,
and maintain an appropriate balance of
benefits and obligations for DMMs.28
IV. Discussion and Commission
Findings
After careful review of the proposal,
as modified by Amendment No. 1, and
the comments received, the Commission
finds that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.29 In particular, the
Commission finds that the proposed
rule change, as amended, is consistent
with Section 6(b)(5) of the Act,30 which
requires, among other things, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest; and are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Commission also finds that the
proposed rule change, as amended, is
consistent with Section 6(b)(8) of the
26 See
Citadel Letter, supra note 9, at 1.
id. at 2. This commenter also asserted that
the prohibition would be strengthened because the
rule would reference the consolidated high or low
price of a security, rather than the high or low price
on the NYSE, but Amendment No. 1, which was
filed after this comment letter was submitted,
changed the Exchange’s proposal so that it no
longer changed the reference price. See id.
28 See id. The proposed rule change with respect
to Prohibited Transactions was substantially altered
by Amendment No. 1, which was filed after this
comment letter was submitted.
29 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
30 15 U.S.C. 78f(b)(5).
27 See
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Act, which provides that the rules of a
national securities exchange must not
‘‘impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of’’ the Act.31
The Exchange has proposed to
substantially modify the provisions of
NYSE Rule 104(g) and (h) that govern
the obligations of DMMs to re-enter the
market after certain transactions in
assigned securities and that prohibit
certain transactions by DMMs in
assigned securities near the end of the
trading day.32 Currently, whether a
DMM’s re-entry obligation is triggered
depends, in the first instance, on
whether the DMM’s transaction
establishes or increases the DMM’s
position or instead liquidates or
decreases the DMM’s position, and this
distinction is reflected in the existing
definitions in NYSE Rule 104(g) and (h)
of Neutral Transactions, NonConditional Transactions, and
Conditional Transactions.33
NYSE now proposes to eliminate
these transaction-type definitions and
replace them with a single transaction
type called an Aggressing Transaction,
which would be a DMM unit purchase
(sale) that reaches across the market to
trade with the Exchange’s published
offer (bid) and is priced above (below)
both the last differently priced trade on
the Exchange and the last differently
priced offer (bid) on the Exchange. An
Aggressing Transaction would be
similar to a Conditional Transaction,
which also involves a DMM reaching
across the market, and the same re-entry
obligations that apply to Conditional
Transactions under current NYSE Rule
104 would apply to Aggressing
Transactions under amended NYSE
Rule 104. But, while Conditional
Transactions by definition establish or
increase a DMM position, whether a
transaction is an Aggressing Transaction
would not depend on the DMM’s
position.
The Commission believes that
triggering DMM re-entry obligations
based solely on whether the DMM is
aggressively taking liquidity—rather
than also considering a DMM’s position
at the time of trading—is consistent
with the Act, because those re-entry
obligations are based on price
movement, rather than on the DMM’s
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31 15
U.S.C. 78(f)(8).
Exchange has also proposed to make nonsubstantive changes to renumber provisions within
NYSE Rule 104 and to relocate existing rule text
regarding Price Participation Points.
33 See Section II.A.1, supra. Non-Conditional
Transactions are distinguished from Conditional
Transactions by whether a DMM has reached across
the market to trade as the contra-side to an
Exchange bid or offer. See id.
32 The
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position. The Commission further notes
that, while the Exchange proposes to
eliminate the definitions of Neutral
Transactions and Non-Conditional
Transactions, which currently have
their own re-entry obligations, those reentry obligations are not substantially
different from the DMMs’ general
obligations under NYSE Rule 104(a) to
‘‘engage in a course of dealings for their
own account to assist in the
maintenance of a fair and orderly
market’’ and under NYSE Rule 104(f) to
maintain ‘‘price continuity with
reasonable depth.’’ Thus, the
Commission does not believe that the
Exchange’s proposal to replace the
existing categories of Neutral
Transactions, Non-Conditional
Transactions, and Conditional
Transactions with a newly defined
Aggressing Transaction would
substantially alter the balance of DMM
benefits and obligations previously
approved by the Commission.34
The Exchange has also proposed to
modify the existing definition of
Prohibited Transactions. Under its
initial proposal, the Exchange sought to
make four substantive changes: (1) To
limit the applicability of the prohibition
to the last 10 seconds of trading before
the close, rather than the last 10
minutes; (2) to change the price test in
the rule to the high or low consolidated
price for the day, rather than the high
or low Exchange price for the day; (3)
to remove from the Prohibited
Transactions rule the focus on a DMM’s
position at the time of the transaction;
and (4) to apply the Prohibited
Transactions rule only to Aggressing
Transactions, rather than including
certain liquidity-providing trades.35
In its Order Instituting Proceedings,
the Commission asked questions about
whether the proposed changes were
consistent with the Act.36 The Exchange
subsequently amended its proposal
significantly with respect to Prohibited
Transactions. First, the Exchange
proposed to retain the existing 10minute period for Prohibited
Transactions. Second, the Exchange
proposed to retain the existing price test
for Prohibited Transactions. And third,
34 See Securities Exchange Act Release No. 58845
(Oct. 24, 2008), 73 FR 64379, 64388–89 (Oct. 29,
2008) (SR–NYSE–2008–46) (approving NYSE New
Market Model pilot and finding that it reflected ‘‘an
appropriate balance of DMM obligations against the
benefits provided to DMMs’’). See also Citadel
Letter, supra note 9, at 1 (asserting that the proposal
materially increases the obligations on DMMs
during the trading day because the proposal would
impose obligations following transactions that
reduce or liquidate the DMM’s position).
35 See Notice, supra note 3.
36 See Order Instituting Proceedings, supra note 7,
83 FR at 55764–65.
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16085
the Exchange proposed to add an
exception for transactions that would
liquidate or decrease the position of the
DMM unit, incorporating as a specific
exception to the proposed Prohibited
Transactions rule a transaction that is,
by definition, not covered by the
existing rule.37
The Commission believes that the
Exchange’s amended proposal with
respect to Prohibited Transactions is
consistent with the Act. While the
language and structure of the Prohibited
Transactions rule would be different,
the only substantive difference between
the Prohibited Transactions rule in
Amendment No. 1 and the existing rule
would be that DMMs could no longer
potentially run afoul of the rule by
passively providing liquidity through a
quote that narrowed the spread in an
assigned security. Consistent with its
analysis in disapproving an earlier
proposal by the Exchange to eliminate
the Prohibited Transactions rule, the
Commission does not believe that the
provision of liquidity by DMMs under
such circumstances risks destabilizing
the market.38
Finally, the Exchange proposes to
amend the obligation under NYSE Rule
98 of a member organization operating
a DMM unit to provide the DMM unit’s
net position data to the Exchange. As
amended, NYSE Rule 98 would require
that daily data be provided for specified
time periods, rather than requiring realtime data. The Commission notes that
the DMM unit net position information
to be provided will be relevant under
amended NYSE Rule 104 only for the
last 10 minutes of trading before the
close—when the modified Prohibited
Transactions rule would be in effect—
and the Exchange represents that it will
be able to effectively monitor for
compliance with the proposed
exception using information provided as
required by amended NYSE Rule 98,
rather than in real time, as required by
current NYSE Rule 98.39 The
Commission therefore believes that this
37 Consistent with its initial proposal, the
Exchange’s amended proposal would also define a
Prohibited Transaction as a type of Aggressing
Transaction, rather than as a separate type of
transaction, and it would retain the existing
exceptions to the Prohibited Transactions rule for
transactions that would match another market’s
better bid or offer or that would bring the price of
an assigned security into parity with an underlying
security or asset. See Proposed NYSE Rule
104(g)(1)(B).
38 See Securities Exchange Act Release No. 81150
(July 1, 2017), 82 FR 33534, 33537 (July 20, 2018)
(SR–NYSE–2016–71).
39 Under amended NYSE Rule 98, DMMs would
have to provide net position information on a sameday basis, but in no event later than trading day
plus one.
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change to NYSE Rule 98 is consistent
with the Act.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with Sections 6(b)(5)
and 6(b)(8) of the Act and the rules and
regulations thereunder applicable to a
national securities exchange.
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2018–34 and should
be submitted on or before May 8, 2019.
V. Solicitation of Comments on
Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 1 in the Federal
Register. As discussed above,40
Amendment No. 1 substantially
modifies the original proposed rule
change with respect to the Prohibited
Transactions rule, narrowing the
proposed rule change significantly so
that the only substantive change to the
existing rule governing Prohibited
Transactions would be to limit the
applicability of the rule to instances in
which a DMM was aggressively taking
liquidity, rather than including certain
instances in which a DMM was
providing liquidity. As noted above, the
Commission does not believe that the
provision of liquidity by DMMs under
these circumstances risks destabilizing
the market.41 Amendment No. 1 made
no other substantive changes to the
definition of Aggressing Transaction as
published in the original Notice.42
Additionally, in Amendment No. 1,
the Exchange proposes to amend Rule
98—which requires that member
organizations operating a DMM unit
provide the Exchange with real-time net
position information for the DMM
unit—to require that DMM unit net
position information be provided to the
Exchange on a daily basis and for such
time periods as prescribed by the
Exchange. The Commission believes
this proposal does not raise regulatory
concerns, as the Exchange has
represented that it would be able to
effectively monitor for compliance with
the proposed exception to the
Prohibited Transactions rule using
information provided under an
amended Rule 98, rather than in real
time, as required under current Rule
98.43
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Act,44 to approve the proposed
rule change, SR–NYSE–2018–34, as
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2018–34 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2018–34. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
VerDate Sep<11>2014
18:23 Apr 16, 2019
Jkt 247001
VI. Accelerated Approval of Proposed
Rule Change, as Modified By
Amendment No. 1
modified by Amendment No. 1, on an
acceleratedbasis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–07707 Filed 4–16–19; 8:45 am]
BILLING CODE 8011–01–P
40 See
supra notes 36–38 and accompanying text.
supra note 38 and accompanying text.
42 See Notice, supra note 3.
43 See supra note 39 and accompanying text.
44 15 U.S.C. 78s(b)(2).
41 See
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85623; File No. 4–631]
Joint Industry Plan; Order Approving
the Eighteenth Amendment to the
National Market System Plan To
Address Extraordinary Market
Volatility by Cboe BYX Exchange, Inc.,
Cboe BZX Exchange, Inc., Cboe EDGA
Exchange, Inc., Cboe EDGX Exchange,
Inc., Chicago Stock Exchange, Inc.,
Financial Industry Regulatory
Authority, Inc., Investors Exchange
LLC, NASDAQ BX, Inc., NASDAQ PHLX
LLC, The Nasdaq Stock Market LLC,
NYSE National, Inc., New York Stock
Exchange LLC, NYSE American LLC,
and NYSE Arca, Inc.
April 11, 2019.
I. Introduction
On November 5, 2018, NYSE Group,
Inc., on behalf of the other parties 1 to
the National Market System Plan to
Address Extraordinary Market Volatility
(the ‘‘Plan’’), filed with the Securities
and Exchange Commission
(‘‘Commission’’) pursuant to Section
11A of the Securities Exchange Act of
1934 (‘‘Act’’) 2 and Rule 608
thereunder,3 a proposal to amend the
Plan 4 to, among other things, amend
Section VIII of the Plan to transition the
Plan from operating on a pilot to a
permanent basis. The proposal
represents the eighteenth amendment to
the Plan, and reflects proposed changes
unanimously approved by the
Participants (‘‘Eighteenth
Amendment’’). A copy of the Plan is
45 17
CFR 200.30–3(a)(12).
BZX Exchange, Inc., Cboe BYX Exchange,
Inc., Cboe EDGA Exchange, Inc., Cboe EDGX
Exchange, Inc., Chicago Stock Exchange, Inc., the
Financial Industry Regulatory Authority, Inc.
(‘‘FINRA’’), Investors Exchange LLC (‘‘IEX’’),
NASDAQ BX, Inc., NASDAQ PHLX LLC, The
NASDAQ Stock Market LLC (‘‘Nasdaq’’), New York
Stock Exchange LLC (‘‘NYSE’’), NYSE Arca, Inc.,
NYSE National Inc., and NYSE American LLC
(collectively, the ‘‘Participants’’).
2 15 U.S.C. 78k–1.
3 17 CFR 242.608.
4 See Letter from Elizabeth King, General Counsel
and Corporate Secretary, NYSE, to Brent Fields,
Secretary, Commission, dated November 2, 2018
(‘‘Transmittal Letter’’).
1 Cboe
E:\FR\FM\17APN1.SGM
17APN1
]]>Agencies
[Federal Register Volume 84, Number 74 (Wednesday, April 17, 2019)]
[Notices]
[Pages 16079-16086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07707]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85637; File No. SR-NYSE-2018-34]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Amendment No. 1 and Order Granting Accelerated
Approval of Proposed Rule Change, as Modified by Amendment No. 1, to
Amend NYSE Rule 104
April 12, 2019.
I. Introduction
On July 31, 2018, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend NYSE Rule 104 governing transactions by
Designated Market Makers (``DMMs''). The proposed rule change was
published for comment in the Federal Register on August 16, 2018.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 83821 (Aug. 10,
2018), 83 FR 40808 (Aug. 16, 2018) (``Notice'').
---------------------------------------------------------------------------
On September 24, 2018, pursuant to Section 19(b)(2) of the Act,\4\
the Commission extended to November 14, 2018, the time period in which
to approve, disapprove, or institute proceedings to determine whether
to approve or disapprove, the proposed
[[Page 16080]]
rule change.\5\ On November 1, 2018, the Commission issued an order
instituting proceedings, pursuant to Section 19(b)(2)(B) of the Act,\6\
to determine whether to approve or disapprove the proposed rule
change.\7\ On February 11, 2019, the Commission extended to April 13,
2019, the period for Commission action on proceedings to determine
whether to approve or disapprove the proposed rule change.\8\ The
Commission has received one comment letter on the proposal.\9\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 84276 (Sep. 24,
2018), 83 FR 49143 (Sep. 28, 2018).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 84515 (Nov. 1,
2018), 83 FR 55763 (Nov. 7, 2018) (``Order Instituting
Proceedings'').
\8\ See Securities Exchange Act Release No. 85096 (Feb. 11,
2019), 84 FR 4553 (Feb. 15, 2019).
\9\ See Letter from Stephen John Berger, Managing Director,
Government and Regulatory Policy, Citadel Securities, to Assistant
Secretary, Commission (Nov. 28, 2018) (``Citadel Letter'').
---------------------------------------------------------------------------
On April 9, 2019, the Exchange filed Amendment No. 1 to the
proposal, which supersedes the original filing in its entirety. The
Commission is publishing this notice to solicit comments on Amendment
No. 1 from interested persons, and is approving the proposed rule
change, as modified by Amendment No. 1, on an accelerated basis.
II. Self-Regulatory Organization's Description of the Proposal, as
Modified by Amendment No. 1
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 those statements may be examined at the places specified in
Item V 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 consolidate and restructure subsections
(g), (h) and (i) of Rule 104 governing DMM transactions and make a
related change to Rule 98(c)(5) (Operation of a DMM Unit). This
Amendment No. 1 supersedes the original filing its entirety.\10\
---------------------------------------------------------------------------
\10\ In this Amendment No. 1, the Exchange proposes to amend the
original filing by modifying proposed Rule 104(g)(1)(B) relating to
Aggressing Transactions prior to the close. In the original filing,
the Exchange proposed that Aggressing Transactions in the last ten
seconds of trading would be prohibited if they would result in a new
consolidated high or low price of the day unless such transaction
would bring the price of that security into parity with an
underlying or related security or asset. As amended, the Exchange
proposes that Aggressing Transactions in the last ten minutes of
trading would be prohibited if they would result in a new Exchange
high or low price of the day, with three exceptions for matching
another market's better bid or offer, bringing the price of that
security into parity with an underlying or related security or
asset, or liquidating or decreasing the DMM unit's position. This
Amendment No. 1 also proposes to amend Rule 98(c)(5).
---------------------------------------------------------------------------
Background
Rule 104 sets forth the obligations of Exchange DMMs. Under Rule
104(a), DMMs registered in one or more securities traded on the
Exchange are required to engage in a course of dealings for their own
account to assist in the maintenance of a fair and orderly market
insofar as reasonably practicable. Rule 104(a) also enumerates the
specific responsibilities and duties of a DMM, including: (1)
Maintenance of a continuous two-sided quote, which mandates that each
DMM maintain a bid or an offer at the National Best Bid (``NBB'') and
National Best Offer (``NBO,'' together the ``NBBO'') for a certain
percentage of the trading day,\11\ and (2) the facilitation of, among
other things, openings, re-openings, and the close of trading for the
DMM's assigned securities, all of which may include supplying liquidity
as needed.\12\ Rule 104(f) imposes an affirmative obligation on DMMs to
maintain, insofar as reasonably practicable, a fair and orderly market
on the Exchange in assigned securities, including maintaining price
continuity with reasonable depth and trading for the DMM's own account
when lack of price continuity, lack of depth, or disparity between
supply and demand exists or is reasonably to be anticipated.
---------------------------------------------------------------------------
\11\ See Rule 104(a)(1).
\12\ See Rule 104(a)(2)-(3). Rule 104(e) further provides that
DMM units must provide contra-side liquidity as needed for the
execution of odd-lot quantities eligible to be executed as part of
the opening, reopening, and closing transactions but that remain
unpaired after the DMM has paired all other eligible round lot sized
interest.
---------------------------------------------------------------------------
Rule 104(g) provides that transactions on the Exchange by a DMM for
the DMM's account must be effected in a reasonable and orderly manner
in relation to the condition of the general market and the market in
the particular stock. More particularly, Rule 104(g) describes certain
transactions that are permitted to render the DMM's position adequate
to the market's needs, including Neutral and Non-Conditional
Transactions, and certain DMM transactions that are prohibited.
Rule 104(g)(i)(A)(I) defines Neutral Transactions as a purchase or
sale by which a DMM liquidates or decreases a position. Neutral
Transactions may be made without restriction as to price. However, the
DMM's obligation to maintain a fair and orderly market may require re-
entry on the opposite side of the market trend after effecting one or
more Neutral Transactions. Such re-entry transactions should be in
accordance with the immediate and anticipated needs of the market.
Rule 104(g)(i)(A)(II) defines Non-Conditional Transactions as a
DMM's bid or purchase and offer or sale that establishes or increases a
position, other than a transaction that reaches across the market to
trade with the Exchange BBO. Non-Conditional Transactions may be made
without restriction as to price in order to (i) match another market's
better bid or offer price; (ii) bring the price of a security into
parity with an underlying or related security or asset; (iii) add size
to an independently established bid or offer on the Exchange; (iv)
purchase at the published bid price on the Exchange; (v) sell at the
published offer price on the Exchange; (vi) purchase or sell at a price
between the Exchange BBO; and (vii) purchase below the published bid or
sell above the published offer on the Exchange. As with Neutral
Transactions, the DMM's obligation to maintain a fair and orderly
market may also require re-entry on the opposite side of the market
trend after effecting one or more Non-Conditional Transactions. Such
re-entry transactions should be commensurate with the size of the Non-
Conditional Transactions and the immediate and anticipated needs of the
market.
Rule 104(g)(i)(A)(III) provides that, except as otherwise permitted
by Rule 104, during the last ten minutes prior to the close of trading,
a DMM with a long or short position in a security is prohibited from
making a purchase or sale in such security that results in a new high
or low price, respectively, on the Exchange for the day at the time of
the DMM's transaction (``Prohibited Transactions'').\13\
---------------------------------------------------------------------------
\13\ Rule 104(g)(i)(A)(III) contains two exceptions to
Prohibited Transactions: (1) Matching another market's better bid or
offer price, and (2) bringing the price of a security into parity
with an underlying or related security or asset.
---------------------------------------------------------------------------
Finally, Rule 104(h) addresses DMM transactions in securities that
establish or increase the DMM's position. Rule 104(h)(i) defines a
Conditional Transaction as a DMM transaction in a security that
establishes or increases a position and reaches across the market
[[Page 16081]]
to trade as the contra-side to the Exchange published bid or offer.\14\
---------------------------------------------------------------------------
\14\ A DMM reaches across the market when the DMM buys from the
NYSE offer or sells to the NYSE bid.
---------------------------------------------------------------------------
Rule 104(h)(ii) permits ``Conditional Transactions'' without
restriction as to price if they are followed by appropriate re-entry on
the opposite side of the market commensurate with the size of the DMM's
transaction. Thus, if a DMM establishes or increases a long position by
buying from the Exchange best offer, or establishes or increases a
short position by selling to the Exchange best bid, such transaction
would be followed by the DMM quoting on the opposite side of the last
transaction in order to dampen the impact of that transaction on the
market.
The re-entry obligations for Conditional Transactions are set forth
in Rule 104(h)(iii). Under Rule 104(h)(iii)(A), DMMs must re-enter
within certain Exchange issued guidelines, called price participation
points (``PPP''), that identify the price at or before which a DMM is
expected to re-enter the market after effecting a Conditional
Transaction. PPPs are only minimum guidelines and compliance with them
does not guarantee that a DMM is meeting its obligations.
Notwithstanding that a security may not have reached the PPP, the
DMM may be required to re-enter the market immediately after a
Conditional Transaction based on the price and/or volume of the DMM's
trading in reference to the market in the security at the time of such
trading. In such situations DMMs may or may not rely on the fact and
circumstance that there may have been one or more independent trades
following the DMM's trading to justify a failure to re-enter the
market. As set forth in Rule 104(h)(iii)(C)(I) and (II), immediate re-
entry is required after the following Conditional Transactions:
a purchase that (1) reaches across the market to trade
with an Exchange published offer that is above the last differently
priced trade on the Exchange and above the last differently priced
published offer on the Exchange, (2) is 10,000 shares or more or has a
market value of $200,000 or more, and (3) exceeds 50% of the published
offer size; and
a sale that (1) reaches across the market to trade with an
Exchange published bid that is below the last differently priced trade
on the Exchange and below the last differently priced published bid on
the Exchange, (2) is 10,000 shares or more or has a market value of
$200,000 or more, and (3) exceeds 50% of the published bid size.\15\
---------------------------------------------------------------------------
\15\ For purposes of subsections (h)(iii)(C)(I) and
(h)(iii)(C)(II), a Sweep is viewed as a transaction with the
published bid or offer.
---------------------------------------------------------------------------
Rule 104(h)(iv) permits certain other Conditional Transactions
without restriction as to price. Specifically, under subsection
(h)(iv)(A), a DMM's purchase from the Exchange published offer that is
priced above the last differently-priced trade on the Exchange or above
the last differently-priced published offer on the Exchange. Similarly,
under subsection (h)(iv)(B), a DMM's sale to the Exchange published bid
that is priced below the last differently-priced trade on the Exchange
or below the last differently-priced published bid on the Exchange.
Rule 104(i) provides that re-entry obligations following such
Conditional Transactions would be the same as the re-entry obligations
for Non-Conditional Transactions pursuant to Rule 104(g).
Finally, paragraph (c)(5) of Rule 98 provides that the member
organization operating a DMM unit must provide the Exchange with real-
time net position information in DMM securities by the DMM unit and any
independent trading unit of which it is part at such times and in the
manner prescribed by the Exchange.
Proposed Rule Change
The Exchange proposes to consolidate and restructure current Rules
104(g), (h) and (i), which would be deleted and incorporated as
modified into a new subsection (g) titled ``Transactions by DMMs.''
As discussed below, proposed Rule 104(g) would revise the
requirements for DMM transactions based on the type of trading by the
DMM, rather than by reference to the DMM's position. Rule 98(c)(5)
would be amended to require DMMs to provide net position information to
the Exchange daily. The Exchange also proposes certain technical and
conforming changes.\16\
---------------------------------------------------------------------------
\16\ The Exchange proposes the following technical and
conforming changes: (1) romanettes (i) through (vi) in Rule 104(b)
and (i) through (iv) in Rule 104(f) would be replaced with numbers 1
through 6 and 1 through 4, respectively; (2) current subsection (j)
would become new subsection (h); and (3) current subsection (k)
would become new subsection (i).
---------------------------------------------------------------------------
As restructured, proposed Rule 104 would replace the four current
types of DMM transactions based on the DMM's position (Neutral, Non-
conditional, Conditional and Prohibited) with a single, enhanced DMM
transaction called an ``Aggressing Transaction'' that would retain
existing re-entry requirements. During the ten minutes before the
scheduled close of trading, Aggressing Transactions that would result
in a new high (low) price for a security on the Exchange for the day at
the time of the DMM's transaction would be prohibited with three
exceptions discussed below.
Proposed Rule 104(g)(1)
Proposed Rule 104(g)(1) would be based on current Rule104(g)(i).
Like current Rule 104(g)(i), proposed Rule 104(g)(1) would specify that
transactions on the Exchange by a DMM unit for the DMM unit's account
are to be effected in a reasonable and orderly manner in relation to
the condition of the general market and the market in the particular
stock. Proposed Rule 104(g)(1) would eliminate the definitions of
Neutral and Non-Conditional Transactions \17\ and retain Conditional
Transactions, which would be enhanced and renamed ``Aggressing
Transactions.''
---------------------------------------------------------------------------
\17\ As discussed below, the re-entry obligations for Neutral
and Non-Conditional Transactions would be retained and incorporated
into proposed subsection (g)(2).
---------------------------------------------------------------------------
Aggressing Transactions
In proposed Rule 104(g)(1)(A), the Exchange would define an
Aggressing Transaction as a DMM unit transaction that:
(i) is a purchase (sale) that reaches across the market to trade as
the contra-side to the Exchange published offer (bid); and
(ii) is priced above (below) the last differently-priced trade on
the Exchange and above (below) the last differently-priced published
offer (bid) on the Exchange.
The proposed definition of Aggressing Transaction would be the same
as the current definition of Conditional Transaction in Rule 104(h)(i)
and (ii), except that Aggressing Transaction would not be defined by
reference to whether the transaction increases or decreases the DMM's
position. Accordingly, a DMM unit Aggressing Transaction would be any
trade where the DMM both reaches across the market and aggressively
moves the price of the security.
Prohibited Transactions
The Exchange proposes to retain certain of the existing
prohibitions on specified DMM transactions during the final ten minutes
of the trading day and the current exceptions to Prohibited
Transactions, which are described in current Rule 104(g)(i)(A)(III).
With this proposed rule change, the Exchange proposes a substantive
difference for determining whether a DMM transaction should be
prohibited in the last ten minutes of trading. Rather than
[[Page 16082]]
the current rule, which looks at the DMM's position (long or short) and
then determines whether the trade should be prohibited based on whether
it results in a new Exchange high or low, as proposed, a DMM
transaction in the last ten minutes of trading would be prohibited if
it is an Aggressing Transaction, i.e., reaches across the market, and,
as a result, creates a new Exchange high or low. The Exchange also
proposes exceptions to this prohibition, which are based on exceptions
to prohibited transactions in the current rule.
To effect this change, proposed Rule 104(g)(1)(B) would define
``Prohibited Transactions'' as Aggressing Transactions during the last
ten minutes prior to the scheduled close of trading that would result
in a new high (low) price for a security on the Exchange for the day at
the time of the DMM's transaction. The proposed three exceptions to
this prohibition would be if the trade:
matches another market's better bid or offer price;
brings the price of that security into parity with an
underlying or related security or asset; or
liquidates or decreases the position of the DMM unit.
The first two exceptions are in current Rule 104(g)(i)(A)(III) and
the Exchange proposes to retain these exceptions in the proposed
rule.\18\ The third exception is based in part on the position-based
review of whether a transaction would be prohibited under current
rules. Current Rule 104(g)(i)(A)(III)(1) prohibits a DMM with a long
position in a security from making a purchase in that security during
the last ten minutes that results in a new high price; the rule does
not prohibit a DMM with a long position from selling or decreasing
their position in the security. Likewise, current Rule
104(g)(i)(A)(III)(2) prohibits a DMM with a short position in a
security from making a sale in that security during the last ten
minutes prior to the close of trading that results in a new low price,
but the rule does not prohibit a DMM with a short position from
purchasing or liquidating their position in that security. Because
looking at the DMM's position would be an exception rather than the
basis for the prohibition, the Exchange proposes to restate the rule as
an exception that permits a DMM to liquidate or decrease a position of
the DMM unit, rather than focus on what is prohibited when the DMM is
long or short. This proposed rule text is also based on Rule
104(g)(i)(A)(I), which has no restrictions as to price for ``Neutral
Transactions,'' i.e., transactions when the DMM liquidates or decreases
a position.
---------------------------------------------------------------------------
\18\ See Rule 104(g)(i)(A)(III) (referencing Rules
104(g)(i)(A)(II)(2)(i) through (g)(i)(A)(II)(2)(ii)).
---------------------------------------------------------------------------
With this proposed difference for Prohibited Transactions, in the
last ten minutes of trading, DMMs would be able to trade at prices
lower than the published offer, or higher than the published bid, even
if such trade would result in a new Exchange high or low for the day.
The Exchange believes that this proposed change would support DMMs in
meeting their affirmative obligations while at the same time continuing
to prevent DMMs from aggressively taking liquidity and moving prices on
the Exchange by trading with the published bid or offer in the final
ten minutes before the closing auction \19\ For example, if the
Exchange best bid and offer were $10.01 x $10.05, the DMM has a long
position, and the DMM posts a bid at $10.04 to try and tighten that
spread, under the current rules, if that $10.04 bid were to trade with
non-displayed sell liquidity at that price and that trade resulted in a
new high price on the Exchange for the day, that trade would be
prohibited. Under the proposed change to Prohibited Transactions, this
trade would no longer be prohibited because the DMM is not reaching
across the market.
---------------------------------------------------------------------------
\19\ See Rule 104(g)(i)(A)(III).
---------------------------------------------------------------------------
Finally, the Exchange notes that the proposal is consistent with,
and in no way diminishes or relieves the DMM of, the other obligations
regarding the quality of the markets in securities to which DMMs are
assigned under Rule 104.\20\
---------------------------------------------------------------------------
\20\ In general, as noted above, transactions on the Exchange by
a DMM for the DMM's account must be effected in a reasonable and
orderly manner in relation to the condition of the general market
and the market in the particular stock, and DMMs must refrain from
causing or exacerbating excessive price movements. DMMs have
affirmative obligations under Rule 104(a) to engage in a course of
dealings for their own account to assist in the maintenance of a
fair and orderly market insofar as reasonably practicable.
Specifically, Rule 104(f)(ii) sets forth the DMM's obligation to act
as reasonably necessary to ensure appropriate depth and maintain
reasonable price variations between transactions (also known as
price continuity) and prevent unexpected variations in trading.
Further, under Rule 123D(a), openings and reopenings must be fair
and orderly, reflecting the DMM's professional assessment of market
conditions at the time, and appropriate consideration of the balance
of supply and demand as reflected by orders represented in the
market. The Exchange supplies DMMs with suggested Depth Guidelines
for each security in which a DMM is registered, and DMMs are
expected to quote and trade with reference to the Depth Guidelines.
See Rule 104(f)(iii).
---------------------------------------------------------------------------
Proposed Rule 104(g)(2)
Proposed subsection (g)(2) would set forth the re-entry obligations
for DMM transactions, which would be based on the current rule's re-
entry obligations. Specifically, proposed Rule 104(g)(2) would provide
that a DMM unit's obligation to maintain a fair and orderly market may
require re-entry on the opposite side of the market after effecting one
or more transactions. The proposed rule would provide that such re-
entry should be commensurate with the size of the transaction(s) and
the immediate and anticipated needs of the market, which are the same
re-entry requirements specified in current Rules 104(g)(i)(A)(I)(3) and
104(g)(i)(A)(II)(3) for Neutral and Non-Conditional Transactions,
respectively, as well as the types of Conditional Transactions
referenced in current Rules 104(h)(iv) and 104(i).\21\ Accordingly,
these re-entry obligations would be applicable to DMM transactions
other than Aggressing Transactions.
---------------------------------------------------------------------------
\21\ Current Rule 104(h)(iv) provides that two types of
Conditional Transactions may be made without restriction as to
price: (1) A DMM's purchase from the Exchange published offer that
is priced above the last differently-priced trade on the Exchange or
above the last differently-priced published offer on the Exchange
((h)(iv)(A)); and (2) a DMM's sale to the Exchange published bid
that is priced below the last differently-priced trade on the
Exchange or below the last differently-priced published bid on the
Exchange ((h)(iv)(B)). Current Rule 104(i) provides that the re-
entry obligations following transactions defined in Rule
104(h)(iv)(A) and (h)(iv)(B) are the same as for Non-Conditional
Transactions pursuant to Rule 104(g) (i)(A)(3).
---------------------------------------------------------------------------
Proposed Rule 104(g)(2)(A) and (B) would specify the re-entry
obligations for Aggressing Transactions. Following an Aggressing
Transaction, proposed Rule 104(g)(2)(A) would require the DMM unit to
re-enter the opposite side of the market at or before the applicable
PPP for that security commensurate with the size of the Aggressing
Transaction. The re-entry requirement for Aggressing Transactions set
forth in proposed Rule 104(g)(2)(A) is based on the current re-entry
requirements for certain Conditional Transactions set forth in current
Rule 104(h)(iii).
Under proposed Rule 104(g)(2)(B), if the Aggressing Transaction (i)
is 10,000 shares or more or has a market value of $200,000 or more, and
(ii) exceeds 50% of the published offer (bid) size, immediate re-entry
on the opposite side of the market at or before the applicable PPP for
the security commensurate with the size of the Aggressing Transaction
would be required. The re-entry requirement for block-sized Aggressing
Transactions set forth in proposed Rule 104(g)(2)(B) is based the
current re-entry requirements for block-sized Conditional Transactions
under Rule 104(h)(iii)(C). The Exchange proposes a clarifying amendment
in proposed Rule 104(g)(2)(B), as compared to current Rule
104(h)(iii)(C), to provide that such
[[Page 16083]]
re-entry must be at or before the applicable PPP for that security. The
Exchange believes that this proposed change will provide greater detail
in the rule regarding the price at which the re-entry would be
required.
Proposed Rule 104(g)(3)
Finally, proposed Rule 104(g)(3)(A) would provide that the Exchange
would periodically issue PPP Guidelines that identify the price at or
before which a DMM unit is expected to re-enter the market following an
Aggressing Transaction. PPPs are only minimum guidelines and compliance
with them does not guarantee that a DMM unit is meeting its
obligations. This portion of the proposed Rule is based on Rule
104(h)(iii)(A) without any differences.
Proposed Rule 104(g)(3)(B) would provide that, notwithstanding that
a security may not have reached the PPP, the DMM unit may be required
to re-enter the market immediately after an Aggressing Transaction
based on the price and/or volume of the DMM unit's trading in reference
to the market in the security at the time of such trading. In such
situations, DMM units may or may not rely on the fact and circumstance
that there may have been one or more independent trades following the
DMM unit's trading to justify a failure to re-enter the market.
Subsection (B) of the proposed rule is based on current Rule
104(h)(iii)(B).
Proposed Amendment to Rule 98(c)(5)
As noted above, except for an exception to Prohibited Transactions,
the Exchange proposes to eliminate reliance on the DMM's position to
determine DMM trading requirements under proposed Rule 104(g). The
Exchange proposes a related change to Rule 98(c)(5) to require DMMs to
provide the Exchange with net position information daily. The Exchange
proposes a further clarifying change to require DMM to provide net
position information ``for'' such time ``periods,'' rather than ``at''
such times, prescribed by the Exchange. The Exchange does not believe
that DMM net position information would need to be provided in real
time in order for the Exchange to effectively monitor for compliance
with the proposed exception to Rule 104(g)(1)(B).\22\ Rather, the
Exchange believes it would be able to effectively monitor for
compliance with the proposed exception utilizing DMM position
information provided on a same-day basis for its automated
surveillances. The Exchange would publish regulatory guidance setting
forth the requirement that DMMs provide net position on a daily basis
but in no event later than trading day plus one (T+1). To implement
this change, the Exchange proposes to delete the term ``real time'' in
Rule 98(c)(5) and add the word ``daily'' after ``must'' and before
``provide.'' The Exchange would also replace ``for'' for ``at'' before
``such times,'' delete the ``s'' in times, and add ``periods''
immediately following in order to clarify that the Exchange may request
DMM net position information for specific time periods on a daily
basis.
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\22\ The Exchange currently provides DMMs with a technology
interface that supports the submission of DMM real-time position
information. In extremely limited circumstances, the Exchange relies
on that position information to assist the DMMs in marking certain
manual orders as sell short or sell long. When the Exchange
transitions NYSE-listed securities to its Pillar trading system, it
will no longer support this technology interface; nor will it be
marking orders on behalf of the DMM.
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Rule Implementation
Subject to approval of this proposed rule change, the Exchange
proposes to implement these changes concurrent with the transition of
Exchange-listed securities to the Pillar trading system, which is
currently anticipated to begin in the third quarter of 2019.\23\
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\23\ The Exchange has announced that, subject to rule approvals,
the Exchange will begin transitioning Exchange-listed securities to
Pillar on July 15, 2019, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/Pillar_Update_NYSE_Tape_A_NGW_February_2019.pdf. The Exchange will
publish by separate Trader Update a complete symbol migration
schedule.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\24\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\25\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and protect investors and the public interest.
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes that revising the requirements
for DMM transactions based on the type of DMM trading rather than the
DMM's position and introducing a new, enhanced DMM transaction called
an ``Aggressing Transaction'' would remove impediments to and perfect
the mechanism of a free and open market and a national market system by
simplifying and streamlining the requirements for DMM transactions. The
proposal would eliminate four separate types of DMM transactions and
introduce a simplified framework whereby all DMM transactions would be
subject to general re-entry requirements based on the current re-entry
obligations for Neutral, Non-Conditional and Conditional transactions,
and specific re-entry requirements for Aggressing Transactions, except
for Aggressing Transactions during the final ten minutes of trading
that result in a new high (low) price for a security on the Exchange
for the day at the time of the DMM's transaction, which would continue
to be prohibited unless subject to a specified exception.
The Exchange believes that the proposal would not be inconsistent
with the public interest and the protection of investors. As noted, the
proposed rule would carry over the requirement that all DMM
transactions be effected in a reasonable and orderly manner in relation
to the condition of the general market and the market in the particular
stock. Further, DMM Aggressing Transactions would continue to require
re-entry on the opposite side of the market at or before the applicable
PPP for the security as warranted. Aggressing Transactions in the final
ten minutes of trading that result in a new high (low) price for a
security on the Exchange for the day at the time of the DMM's
transaction would continue to be prohibited. These safeguards would
reasonably ensure that DMM transactions continue to bear a reasonable
relationship to overall market conditions and that DMMs cannot
destabilize, inappropriately influence or manipulate a security going
into the close. In addition, the prohibition on Aggressing Transactions
that would create a new high or low price on the Exchange would
maintain the current bright-line rule that prohibits DMM transactions
that aggressively take liquidity during the final ten minutes prior to
the close.
The Exchange believes that the proposed substantive difference to
Prohibited Transactions in the last ten minutes of trading to permit
DMM trades between the Exchange BBO, even if such trades resulted in a
new Exchange high or low and regardless of the DMM's position at the
time, would promote fair and orderly markets and not be inconsistent
with the public interest and the protection of investors because this
proposed change would promote the display of liquidity by enabling DMMs
to post bids and offers that would tighten the Exchange published bid
and offer. The Exchange further believes that retaining the current
exceptions for Prohibited Transactions, and permitting Aggressing
Transactions that would liquidate or
[[Page 16084]]
decrease the DMM unit's position during the ten minutes prior to the
scheduled close of trading even if they would result in a new Exchange
high or low price, would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because DMMs would be able to quote appropriately in their assigned
securities during the period of the prohibition. The Exchange further
believes that not restricting Aggressing Transactions in the last ten
minutes of trading that result in a new Exchange high or low price for
the day if such trade is the result of the DMM liquidating or
decreasing a position would remove impediments to and perfect the
mechanisms of a free and open market and a national market system
because this exception is based on the current position-based review of
whether a transaction would be prohibited, which does not prohibit such
transactions, as well the current definition of ``Neutral
Transactions'' which have no restrictions as to price. Further, the
Exchange believes that the proposed exception would remove impediments
to and perfect the mechanisms of a free and open market and a national
market system because a DMM that reaches across the market when
liquidating or decreasing a position is generally not doing so to favor
a position leading into the close.
Moreover, the numerous obligations currently imposed by Rule 104
would in no way be altered or diminished by the proposal. The Exchange
does not believe that the balance of benefits and obligations under
Rule 104 would be impacted by this proposed rule change. DMMs would
continue to be prohibited from engaging in specified transactions in
the final ten minutes prior to the close. Moreover, the proposed rule
would carry over the requirement that all DMM transactions be effected
in a reasonable and orderly manner in relation to the condition of the
general market and the market in the particular stock. These safeguards
would reasonably ensure that DMM transactions bear a reasonable
relationship to overall market conditions and that DMMs cannot
destabilize, inappropriately influence or manipulate a security going
into the close. For the same reasons, the proposed prohibition would
not alter or disrupt the balance between DMM benefits and obligations
of being an Exchange DMM.
Finally, revising the requirements for DMM transactions based on
the type of DMM trading rather than the DMM's position, and amending
Rule 98 to require that DMM units provide net position information to
the Exchange on a daily basis and for such time periods as prescribed
by the Exchange, would remove impediments to and perfect the mechanism
of a free and open market and a national market system by simplifying
and streamlining the requirements for DMM transactions. The Exchange
further believes that the proposed rule change would promote just and
equitable principles of trade and is designed to prevent fraudulent and
manipulative acts and practices because DMMs would be required to
provide net position information daily to the Exchange and the Exchange
would be able to conduct automated surveillances monitoring for
compliance with the amended rule for this exception.
For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.
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 Exchange proposes
amendments to the rule governing DMM obligations to simplify and
streamline the requirements for DMM transactions. The Exchange believes
that the proposal would promote competition by allowing DMMs to quote
more aggressively in the final minutes of trading, thereby permitting
DMMs to remain competitive with other traders both on the Exchange and
on other trading venues, thereby enhancing the ability of DMMs to meet
their affirmative obligation under Rule 104. The Exchange further
believes that its proposed rules governing DMMs would not impose any
burden on competition that is not necessary or appropriate because the
proposed rules are designed to foster a fair and orderly marketplace
without diminishing the balance of benefits and obligations under Rule
104 or altering or diminishing the numerous obligations currently
imposed by Rule 104 on DMMs.
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. Summary of Comments Received
The Commission received one comment letter in support of the
proposal as initially filed by the Exchange. The commenter asserts that
the proposal materially increases the obligations of DMMs because the
proposal would impose re-entry obligations on DMMs throughout the
trading day, including following transactions that reduce or liquidate
the DMM's position.\26\ The commenter asserts that the proposed
prohibition prior to the close of trading is also strengthened because
it would eliminate reference to the DMM's position.\27\ The commenter
also states that it supports the proposed changes to the NYSE rule
regarding prohibited transactions because it would modernize the rule
to reflect market structure changes, retain a bright line rule negative
obligation, and maintain an appropriate balance of benefits and
obligations for DMMs.\28\
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\26\ See Citadel Letter, supra note 9, at 1.
\27\ See id. at 2. This commenter also asserted that the
prohibition would be strengthened because the rule would reference
the consolidated high or low price of a security, rather than the
high or low price on the NYSE, but Amendment No. 1, which was filed
after this comment letter was submitted, changed the Exchange's
proposal so that it no longer changed the reference price. See id.
\28\ See id. The proposed rule change with respect to Prohibited
Transactions was substantially altered by Amendment No. 1, which was
filed after this comment letter was submitted.
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IV. Discussion and Commission Findings
After careful review of the proposal, as modified by Amendment No.
1, and the comments received, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\29\ In particular, the
Commission finds that the proposed rule change, as amended, is
consistent with Section 6(b)(5) of the Act,\30\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest; and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. The Commission also finds that the proposed rule change, as
amended, is consistent with Section 6(b)(8) of the
[[Page 16085]]
Act, which provides that the rules of a national securities exchange
must not ``impose any burden on competition not necessary or
appropriate in furtherance of the purposes of'' the Act.\31\
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\29\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\30\ 15 U.S.C. 78f(b)(5).
\31\ 15 U.S.C. 78(f)(8).
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The Exchange has proposed to substantially modify the provisions of
NYSE Rule 104(g) and (h) that govern the obligations of DMMs to re-
enter the market after certain transactions in assigned securities and
that prohibit certain transactions by DMMs in assigned securities near
the end of the trading day.\32\ Currently, whether a DMM's re-entry
obligation is triggered depends, in the first instance, on whether the
DMM's transaction establishes or increases the DMM's position or
instead liquidates or decreases the DMM's position, and this
distinction is reflected in the existing definitions in NYSE Rule
104(g) and (h) of Neutral Transactions, Non-Conditional Transactions,
and Conditional Transactions.\33\
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\32\ The Exchange has also proposed to make non-substantive
changes to renumber provisions within NYSE Rule 104 and to relocate
existing rule text regarding Price Participation Points.
\33\ See Section II.A.1, supra. Non-Conditional Transactions are
distinguished from Conditional Transactions by whether a DMM has
reached across the market to trade as the contra-side to an Exchange
bid or offer. See id.
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NYSE now proposes to eliminate these transaction-type definitions
and replace them with a single transaction type called an Aggressing
Transaction, which would be a DMM unit purchase (sale) that reaches
across the market to trade with the Exchange's published offer (bid)
and is priced above (below) both the last differently priced trade on
the Exchange and the last differently priced offer (bid) on the
Exchange. An Aggressing Transaction would be similar to a Conditional
Transaction, which also involves a DMM reaching across the market, and
the same re-entry obligations that apply to Conditional Transactions
under current NYSE Rule 104 would apply to Aggressing Transactions
under amended NYSE Rule 104. But, while Conditional Transactions by
definition establish or increase a DMM position, whether a transaction
is an Aggressing Transaction would not depend on the DMM's position.
The Commission believes that triggering DMM re-entry obligations
based solely on whether the DMM is aggressively taking liquidity--
rather than also considering a DMM's position at the time of trading--
is consistent with the Act, because those re-entry obligations are
based on price movement, rather than on the DMM's position. The
Commission further notes that, while the Exchange proposes to eliminate
the definitions of Neutral Transactions and Non-Conditional
Transactions, which currently have their own re-entry obligations,
those re-entry obligations are not substantially different from the
DMMs' general obligations under NYSE Rule 104(a) to ``engage in a
course of dealings for their own account to assist in the maintenance
of a fair and orderly market'' and under NYSE Rule 104(f) to maintain
``price continuity with reasonable depth.'' Thus, the Commission does
not believe that the Exchange's proposal to replace the existing
categories of Neutral Transactions, Non-Conditional Transactions, and
Conditional Transactions with a newly defined Aggressing Transaction
would substantially alter the balance of DMM benefits and obligations
previously approved by the Commission.\34\
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\34\ See Securities Exchange Act Release No. 58845 (Oct. 24,
2008), 73 FR 64379, 64388-89 (Oct. 29, 2008) (SR-NYSE-2008-46)
(approving NYSE New Market Model pilot and finding that it reflected
``an appropriate balance of DMM obligations against the benefits
provided to DMMs''). See also Citadel Letter, supra note 9, at 1
(asserting that the proposal materially increases the obligations on
DMMs during the trading day because the proposal would impose
obligations following transactions that reduce or liquidate the
DMM's position).
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The Exchange has also proposed to modify the existing definition of
Prohibited Transactions. Under its initial proposal, the Exchange
sought to make four substantive changes: (1) To limit the applicability
of the prohibition to the last 10 seconds of trading before the close,
rather than the last 10 minutes; (2) to change the price test in the
rule to the high or low consolidated price for the day, rather than the
high or low Exchange price for the day; (3) to remove from the
Prohibited Transactions rule the focus on a DMM's position at the time
of the transaction; and (4) to apply the Prohibited Transactions rule
only to Aggressing Transactions, rather than including certain
liquidity-providing trades.\35\
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\35\ See Notice, supra note 3.
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In its Order Instituting Proceedings, the Commission asked
questions about whether the proposed changes were consistent with the
Act.\36\ The Exchange subsequently amended its proposal significantly
with respect to Prohibited Transactions. First, the Exchange proposed
to retain the existing 10-minute period for Prohibited Transactions.
Second, the Exchange proposed to retain the existing price test for
Prohibited Transactions. And third, the Exchange proposed to add an
exception for transactions that would liquidate or decrease the
position of the DMM unit, incorporating as a specific exception to the
proposed Prohibited Transactions rule a transaction that is, by
definition, not covered by the existing rule.\37\
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\36\ See Order Instituting Proceedings, supra note 7, 83 FR at
55764-65.
\37\ Consistent with its initial proposal, the Exchange's
amended proposal would also define a Prohibited Transaction as a
type of Aggressing Transaction, rather than as a separate type of
transaction, and it would retain the existing exceptions to the
Prohibited Transactions rule for transactions that would match
another market's better bid or offer or that would bring the price
of an assigned security into parity with an underlying security or
asset. See Proposed NYSE Rule 104(g)(1)(B).
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The Commission believes that the Exchange's amended proposal with
respect to Prohibited Transactions is consistent with the Act. While
the language and structure of the Prohibited Transactions rule would be
different, the only substantive difference between the Prohibited
Transactions rule in Amendment No. 1 and the existing rule would be
that DMMs could no longer potentially run afoul of the rule by
passively providing liquidity through a quote that narrowed the spread
in an assigned security. Consistent with its analysis in disapproving
an earlier proposal by the Exchange to eliminate the Prohibited
Transactions rule, the Commission does not believe that the provision
of liquidity by DMMs under such circumstances risks destabilizing the
market.\38\
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\38\ See Securities Exchange Act Release No. 81150 (July 1,
2017), 82 FR 33534, 33537 (July 20, 2018) (SR-NYSE-2016-71).
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Finally, the Exchange proposes to amend the obligation under NYSE
Rule 98 of a member organization operating a DMM unit to provide the
DMM unit's net position data to the Exchange. As amended, NYSE Rule 98
would require that daily data be provided for specified time periods,
rather than requiring real-time data. The Commission notes that the DMM
unit net position information to be provided will be relevant under
amended NYSE Rule 104 only for the last 10 minutes of trading before
the close--when the modified Prohibited Transactions rule would be in
effect--and the Exchange represents that it will be able to effectively
monitor for compliance with the proposed exception using information
provided as required by amended NYSE Rule 98, rather than in real time,
as required by current NYSE Rule 98.\39\ The Commission therefore
believes that this
[[Page 16086]]
change to NYSE Rule 98 is consistent with the Act.
---------------------------------------------------------------------------
\39\ Under amended NYSE Rule 98, DMMs would have to provide net
position information on a same-day basis, but in no event later than
trading day plus one.
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For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with
Sections 6(b)(5) and 6(b)(8) of the Act and the rules and regulations
thereunder applicable to a national securities exchange.
V. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2018-34 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2018-34. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2018-34 and should be submitted on
or before May 8, 2019.
VI. Accelerated Approval of Proposed Rule Change, as Modified By
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. As discussed above,\40\ Amendment No. 1
substantially modifies the original proposed rule change with respect
to the Prohibited Transactions rule, narrowing the proposed rule change
significantly so that the only substantive change to the existing rule
governing Prohibited Transactions would be to limit the applicability
of the rule to instances in which a DMM was aggressively taking
liquidity, rather than including certain instances in which a DMM was
providing liquidity. As noted above, the Commission does not believe
that the provision of liquidity by DMMs under these circumstances risks
destabilizing the market.\41\ Amendment No. 1 made no other substantive
changes to the definition of Aggressing Transaction as published in the
original Notice.\42\
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\40\ See supra notes 36-38 and accompanying text.
\41\ See supra note 38 and accompanying text.
\42\ See Notice, supra note 3.
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Additionally, in Amendment No. 1, the Exchange proposes to amend
Rule 98--which requires that member organizations operating a DMM unit
provide the Exchange with real-time net position information for the
DMM unit--to require that DMM unit net position information be provided
to the Exchange on a daily basis and for such time periods as
prescribed by the Exchange. The Commission believes this proposal does
not raise regulatory concerns, as the Exchange has represented that it
would be able to effectively monitor for compliance with the proposed
exception to the Prohibited Transactions rule using information
provided under an amended Rule 98, rather than in real time, as
required under current Rule 98.\43\
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\43\ See supra note 39 and accompanying text.
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Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\44\ to approve the proposed rule change, SR-NYSE-
2018-34, as modified by Amendment No. 1, on an accelerated basis.
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\44\ 15 U.S.C. 78s(b)(2).
\45\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07707 Filed 4-16-19; 8:45 am]
BILLING CODE 8011-01-P
