Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change of New Rule 7.44 To Operate Its Retail Liquidity Program on Pillar, the Exchange's New Technology Trading Platform, 25100-25105 [2019-11237]
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Federal Register / Vol. 84, No. 104 / Thursday, May 30, 2019 / Notices
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–ISE–2019–15 and should be
submitted on or before June 20, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–11235 Filed 5–29–19; 8:45 am]
BILLING CODE 8011–01–P
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes new Rule 7.44
to operate its Retail Liquidity Program
on Pillar, the Exchange’s new
technology trading platform. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85930; File No. SR–NYSE–
2019–26]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change of New Rule
7.44 To Operate Its Retail Liquidity
Program on Pillar, the Exchange’s New
Technology Trading Platform
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May 23, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 13,
2019, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Rule 107C sets forth the Exchange’s
Retail Liquidity Program (the
‘‘Program’’). To support the transition of
NYSE-listed securities to the Exchange’s
Pillar trading platform, the Exchange
proposes to relocate the substance of
Rule 107C to Rule 7.44. As part of the
transition of the Program to Pillar, the
Exchange proposes the following
substantive differences: (i) Define Retail
Price Improvement Orders using Pillar
terminology based on text used by
NYSE Arca, Inc., the Exchange’s
affiliate, and new proposed rule text
that uses Pillar terminology to describe
the existing offset functionality and rank
such orders as Priority 3—Non-Display
Orders; (ii) remove unused functionality
by adopting a single category of Retail
Order and eliminating the Type 2 and
Type 3 Retail Orders; and (iii) trade
Retail Orders against eligible contra-side
orders at the best available prices rather
than a single ‘‘clean-up price’’ and
allocate resting orders at the same price
pursuant to the Exchange’s established
Pillar parity allocation process under
Rule 7.37(b).
The Exchange established the
Program on a pilot basis to attract retail
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order flow to the Exchange, and allow
such order flow to receive potential
price improvement.3 The Program is
limited to trades in NYSE-listed
securities occurring at prices equal to
and greater than $1.00 a share and was
recently approved by the Commission to
operate on a permanent, rather than
pilot, basis.4
Under Rule 107C, a class of market
participant called Retail Liquidity
Providers (‘‘RLPs’’) and non-RLP
member organizations are able to
provide potential price improvement to
retail investor orders in the form of a
non-displayed order that is priced at
least $0.001 better than the best
protected bid or offer (‘‘PBBO’’), called
a Retail Price Improvement Order
(‘‘RPI’’).5 When there is an RPI in a
particular security, the Exchange
disseminates an indicator, known as the
Retail Liquidity Identifier (‘‘RLI’’), that
such interest exists. Retail Member
Organizations (‘‘RMOs’’) can submit a
Retail Order to the Exchange, which
interacts, to the extent possible, with
available contra-side RPIs and orders
with a working price between the PBBO.
The segmentation in the Program allows
retail order flow to receive potential
price improvement as a result of their
order flow being deemed more desirable
by liquidity providers.6
Proposed Rule 7.44, Retail Liquidity
Program
The Exchange proposes that Rule 7.44
would set forth the Program under the
Exchange’s Pillar Platform Rules and
would use Pillar terminology based on
NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule
7.44–E. Except for the differences
described below, proposed Rule 7.44 is
substantively based on Rule 107C:
Proposed Rules 7.44(a)(1)–(3), 7.44(b),
7.44(c), 7.44(d), 7.44(e), 7.44(f), 7.44(g),
7.44(h), 7.44(i), and 7.44(j) are based on
current rules 107C(a)(1)–(3), 107C (b),
107C (c), 107C (d), 107C (e), 107C (f),
107C (g), 107C (h), 107C (i), and 107C
(j), respectively, with only minor nonsubstantive differences to replace the
term ‘‘shall’’ with ‘‘will’’ and update
internal cross-references to the Pillar
rule. Proposed Rule 7.44(m) is based on
the last sentence of current Rule 107C(l).
3 See Securities Exchange Act Release No. 67347
(July 3, 2012), 77 FR 40673 (July 10, 2012) (SR–
NYSE–2011–55) (‘‘RLP Pilot Approval Order’’).
4 See Securities Exchange Act Release No. 85160
(February 15, 2019), 84 FR 5754 (February 22, 2019)
(SR–NYSE–2018–28) (‘‘RLP Permanent Approval
Order’’).
5 See Rule 107C(a)(4). The Program also allows for
RLPs to register with the Exchange. However, any
firm can enter RPI orders into the system.
6 RLP Pilot Approval Order, 77 FR at 40679–
40680.
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The Exchange proposes nonsubstantive differences for proposed
Rules 7.44(a)(3) and 7.44(a)(4)(E), which
are based on Rule 107C(a)(3) and the
last sentence of Rule 107C(a)(4),
respectively, to replace the term ‘‘PRL’’
with the term ‘‘mixed lot’’ to conform to
Pillar terminology. Both a PRL and a
mixed lot are an order of any amount
greater than one round lot that is not a
multiple of a round lot.7
The Exchange further proposes a nonsubstantive difference for proposed Rule
7.44(c)(3), which is based on Rule
107C(c)(3), to not include references to
mnemonics, which will not be used on
the Pillar trading platform for RLPs.
Proposed Rule 7.44(c)(3) would
continue to require an RLP to use
Exchange-supplied designations that
identify to the Exchange RLP trading
activity in assigned RLP securities. This
proposed rule text is based on NYSE
Arca Rule 7.44–E(c)(3).
The Exchange also proposes a nonsubstantive difference for proposed Rule
7.44(i)(2), which is based on current
Rule 107C(i)(2), to reference the
‘‘Exchange’s Chief Regulatory Officer’’
rather than the ‘‘NYSE’s Chief
Regulatory Officer,’’ and to use the
phrase ‘‘two qualified Exchange
employees’’ instead of ‘‘officers of the
Exchange designated by the Co-Head of
U.S. Listings and Cash Execution.’’ The
Exchange proposes not to include
specific titles, other than Chief
Regulatory Officer, in Pillar rules
because the Exchange has restructured
and no longer has the position of CoHead of U.S. Listings and Cash
Executions. In addition, as a result of
the restructuring, the title of ‘‘officer’’ is
no longer used by employees who were
previously designated for this role. The
Exchange believes that the term
‘‘qualified Exchange employees’’ would
provide the Exchange with discretion to
delegate this responsibility to
appropriate Exchange staff. As
amended, proposed Rule 7.44(i)(2) is
based on NYSE Arca Rule 7.44–E(i)(2).
The Exchange also proposes a nonsubstantive difference for proposed Rule
7.44(j), which is based on current Rule
107C(j), to replace the phrase ‘‘or as
appropriate’’ with ‘‘and’’ in the first
sentence. The first sentence of Rule
107C(j) provides that a Retail Liquidity
Identifier is ‘‘disseminated through
proprietary data feeds or as appropriate
through the Consolidation Quotation
System when RPI interest priced at least
$0.001 better than the PBB or PBO for
a particular security is available in
Exchange systems’’ (emphasis added).
This non-substantive change would
7 See
Rules 7.5 and 61(a)(ii).
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clarify that the Exchange disseminates
the Retail Liquidity Identifier through
both its proprietary data feeds and the
Consolidated Quotation System.
Because proposed Rule 7.44 would
have identical requirements to be
approved as either an RMO (proposed
Rule 7.44(b)) or a Retail Liquidity
Provider (proposed Rule 7.44(c)–(d)) as
under current Rules 107C(b) and (c)–(d),
the Exchange further proposes that any
member organizations that are approved
as either an RMO or RLP under current
Rule 107C would be deemed approved
as either an RMO or RLP under
proposed Rule 7.44 and would not have
to re-apply. The Exchange believes this
will promote continuity for the RLP
Program when NYSE-listed securities
transition to the Pillar trading platform
and will reduce the administrative
burden on member organizations that
are already approved as either an RMO
or RLP.
Currently, all member organizations
communicate with the Exchange using
Pillar phase I protocols, which support
trading both on the Pillar trading
platform and in Exchange-listed
securities. The Exchange notes that
currently on the Pillar trading platform,
orders with a limit price of less than
$1.00 in securities that are priced at
$100,000 or above, are rejected if not
entered with an MPV of $0.01. The
Exchange further notes that this
functionality is only applicable to one
security traded on the Exchange. The
Exchange proposes to codify this
functionality as it applies to the
Program in proposed Commentary .01 to
Rule 7.44, which would provide that
when using Pillar phase 1 protocols, for
securities that trade at prices of
$100,000 or above, RPI Orders would be
rejected if not entered with an MPV of
$0.01.8
Retail Price Improvement Orders
Proposed Rule 7.44(a)(4) would define
the RPI. The rule text is based on
current Rule 107C(a)(4), and the
Exchange is not proposing any
substantive changes to the definition of
RPI Orders. However, the proposed rule
would include non-substantive
differences to use Pillar terminology to
describe RPIs.
As proposed, new Rule 7.44(a)(4)
would provide that an RPI would be
non-displayed interest that would trade
8 Pursuant to its authority under Rule 612(c) of
Regulation NMS, 17 CFR 242.612(c), the
Commission grants the Exchange a limited
exemption from Rule 612 of Regulation NMS, 17
CFR 242.612, (the ‘‘Sub-Penny Rule’’) to operate the
Program. See Securities Exchange Act Release No.
85160 (February 15, 2019), 84 FR 5754 (February
22, 2019) (SR–NYSE–2018–28).
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25101
at prices better than the PBB or PBO by
at least $0.001 and that is identified as
such. This rule text is based on the first
sentence of current Rule 107C(a)(4),
with non-substantive differences to use
the terms PBB and PBO and delete the
reference to Regulation NMS definition
as redundant of the definition of PBB/
PBO in Rule 1.1(o). The Exchange also
proposes to replace the term ‘‘is priced
better than’’ the PBB or PBO to ‘‘would
trade at prices better than’’ the PBB or
PBO. Because RPI interest does not need
to be priced better than the PBB or PBO
on arrival, but could trade in sub-penny
increments, the Exchange believes the
proposed non-substantive difference
describes how RPIs would operate in
Pillar. This proposed rule text also uses
Pillar terminology that is based on
NYSE Arca Rule 7.44–E(a)(4).
Proposed Rule 7.44(a)(4)(A) would
provide that an RPI would remain nondisplayed in its entirety and would be
ranked Priority 3—Non-Display Orders.
This proposed rule text is based on the
third sentence of current Rule
107C(a)(4), which provides that an RPI
remains non-displayed in its entirety
and uses Pillar terminology to describe
the priority category to which RPIs
would belong. The proposed rule also
uses Pillar terminology that is based on
NYSE Arca Rule 7.44–E(a)(4)(A).
Proposed Rule 7.44(a)(4)(B) would
provide that Exchange systems would
monitor whether RPI buy or sell interest
would be eligible to trade with
incoming Retail Orders and if it is
priced at or outside the PBBO, the RPI
would not be eligible to trade with an
incoming Retail Order. The rule would
further provide that an RPI to buy (sell)
with a limit price at or below (above)
the PBB (PBO) or at or above (below) the
PBO (PBB) would not be eligible to
trade with incoming Retail Orders to
sell (buy) and that if not cancelled, an
RPI to buy (sell) with a limit price that
is no longer at or below (above) the PBB
(PBO) or at or above (below) the PBO
(PBB) would again be eligible to trade
with incoming Retail Orders. This rule
text is based on Rule 107C(a)(4), which
provides that an RPI must be priced
better than the PBB or PBO and that the
Exchange monitors whether such orders
are eligible to trade, with nonsubstantive differences to use Pillar
terminology. This proposed rule text
also uses Pillar terminology that is
based on NYSE Arca Rule 7.44–
E(a)(4)(B) with one difference to account
for a proposed change to the definition
of Retail Order described below. The
proposed rule text would, therefore, not
include text from NYSE Arca Rule 7.44–
E(a)(4)(B) that provides for the
cancellation of an RPI if a Retail Order
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to sell (buy) trades with all displayed
liquidity at the PBB (PBO).
Proposed Rule 7.44(a)(4)(C) would
provide that an RPI may include an
optional offset, which may be specified
up to three decimals. As further
proposed, the working price of an RPI
to buy (sell) with an offset would be the
lower (higher) of the PBB (PBO) plus
(minus) the offset or the limit price of
the RPI; an RPI with an offset would not
be eligible to trade if the working price
is below $1.00, and if an RPI to buy
(sell) with an offset would have a
working price that is more than three
decimals, the working price would be
truncated to three decimals. This
proposed rule text is based on the
second and third sentences of current
Rule 107C(a)(4), which provide that an
RPI may be adjusted by any offset
subject to a ceiling or floor price and
that the offset is non-displayed.
Proposed Rule 7.44(a)(4)(C) uses Pillar
terminology to describe this existing
offset functionality, which the Exchange
believes promotes transparency and
clarity in its rules.
The Exchange proposes to make a
related change to Rule 7.16(f)(5)(C) to
specify that, like Pegged Orders and
MPL Orders, RPIs with an offset would
use the National Best Bid (‘‘NBB’’)
instead of the PBB as the reference price
when a Short Sale Price Test is triggered
pursuant to Rule 201 of Regulation
SHO.9
Proposed Rule 7.44(a)(4)(D) would
provide that, for securities to which it
is assigned, an RLP may only enter an
RPI in its RLP capacity, and that an RLP
would be permitted, but not required, to
submit RPI Orders for securities to
which it is not assigned, and would be
treated as a non-RLP member
organization for those particular
securities. Additionally, the rule would
provide that member organizations
other than RLPs would be permitted,
but not required, to submit RPI Orders.
This proposed rule text is based on the
fifth and sixth sentences of current Rule
107C(a)(4) without any substantive
differences. This proposed rule text also
uses Pillar terminology that is based on
NYSE Arca Rule 7.44–E(a)(4)(C).
Proposed Rule 7.44(a)(4)(E) would
provide that an RPI may be an odd lot,
round lot, or mixed lot and will interact
with incoming Retail Orders only. This
proposed text is based on the last
sentence of Rule 107C(a)(4), with the
non-substantive difference described
above to use the term ‘‘mixed lot’’
instead of ‘‘PRL,’’ as described above.
The Exchange also proposes to provide
greater specificity that RPIs would
9 17
18:08 May 29, 2019
Retail Orders
Pursuant to Rule 107C(k), Retail
Orders may be designated as Type 1,
Type 2, or Type 3. Proposed Rule
7.44(k) would be based on Rule 107C(k)
with two substantive differences. The
first substantive difference would be to
remove unused functionality by
eliminating the Type 2 and Type 3
Retail Orders. The second substantive
difference would be to expand the scope
of contra-side orders against which a
Retail Order may trade to include all
orders between the PBBO, not just RPI
Orders and MPL Orders.
To date, the Exchange has not
received a Retail Order designated as
Type 2 or Type 3 and, therefore,
proposes to no longer support this
functionality. On Pillar, the Exchange
would offer a single category of Retail
Orders under proposed Rule 7.44(k) that
would operate in a substantially similar
manner as the current Type 1 Retail
Order, but would be described using
Pillar terminology. The title of Rule 7.44
would therefore differ from Rule 107C
to replace the word ‘‘Designation’’ with
‘‘Operation’’ to reflect the availability of
a single type of Retail Order.
As proposed, ‘‘Retail Order,’’ as
defined in proposed Rule 7.44(k), would
be described as:
A Retail Order to buy (sell) is a Limit IOC
Order that will trade only with available
Retail Price Improvement Orders to sell (buy)
and all other orders to sell (buy) with a
working price below (above) the PBO (PBB)
on the Exchange Book and will not route.
The quantity of a Retail Order to buy (sell)
that does not trade with eligible orders to sell
(buy) will be immediately and automatically
cancelled. A Retail Order will be rejected on
arrival if the PBBO is locked or crossed. A
Retail Order may not be designated with an
MTS Modifier.
This proposed functionality is based
on the Type-1 designated Retail Order,
as described in Rule 107C(k)(1), with a
substantive difference that Retail Orders
would no longer be limited to interact
only with contra-side RPI and MPL
Orders. The Exchange believes that this
proposed difference would increase the
potential for a Retail Order to receive an
execution as such orders would be
eligible to trade with any orders
between the PBBO. The Exchange
further proposes to specify that a Retail
Order may not be designated with an
MTS Modifier.10 This proposed rule text
10 Pursuant to Rule 7.31(i)(3), a Limit IOC Order
may be designated with an MTS Modifier. Because
CFR 242.201.
VerDate Sep<11>2014
interact with incoming Retail Orders
only, which is how RPIs currently
function. This proposed rule text is
based in part on NYSE Arca Rule 7.44–
E(a)(4)(D).
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uses Pillar terminology to describe
current functionality. The proposed text
of Rule 7.44(k) is otherwise
substantially similar to current Rule
107C(k)(1) with minor changes to
confirm to Pillar terminology and to
remove references to ‘‘Type 1.’’
Rule 7.44(l), Priority and Order
Allocation
Similar to Rule 107C(l), proposed
Rule 7.44(l) would set forth the priority
and allocation rules for the Program.
With Pillar, the Exchange proposes to
simplify the operation of the Program
and rank and allocate RPIs with all
other interest at the same price as
Priority 3—Non-Display Orders. In
addition, incoming Retail Orders would
trade with contra-side interest between
the PBBO at each price point, rather
than at a single clean-up price. At each
price point between the PBBO, resting
orders would be allocated consistent
with Rule 7.37(b) (including, for
example, odd lot orders ranked Priority
2—Display Orders). With these
proposed changes, the allocation of
Retail Orders in the Program would be
aligned with the allocation of orders
outside of the Program under the
Exchange’s established Pillar allocation
process.11
To effect these differences, proposed
Rule 7.44(l) would provide that RPIs in
the same security would be ranked
together with all other interest at that
price ranked as Priority 3—Non-Display
Orders and would be allocated with
other resting orders at that price
pursuant to Rule 7.37(b). This would be
new functionality for the Program and is
consistent with how all other orders are
allocated on the Exchange. The
Exchange believes that the proposed
substantive difference to the priority
and allocation of orders in the Program
would reduce potential confusion
because the Program would no longer
have different allocation rules as
compared to how orders trade outside
the Program.
The Exchange proposes to make a
related amendment to Rule
7.37(b)(2)(D), which describes the
circumstances when a Participant
would be moved to the last position on
an allocation wheel.12 Because RPIs are
only eligible to trade with Retail Orders,
a Retail Order is a type of Limit IOC Order, the
Exchange proposes to specify that, unlike a Limit
IOC Order, Retail Orders may not be designated
with an MTS Modifier.
11 See Rule 7.37(b), Allocation.
12 Rule 7.37(b)(2)(D) provides that if an order
receives a new working time or is cancelled and
replaced at the same working price, the Participant
that entered such order will be moved to the last
position on an allocation wheel if that Participant
has no other orders at that price.
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they would be skipped on an allocation
wheel for the allocation of an
Aggressing Order that is not a Retail
Order. The Exchange proposes that if an
RPI has been skipped in an allocation
because it was not eligible to trade, the
Participant that entered such order
would be moved to the last position on
an allocation wheel if such Participant
has no other orders at that price. This
proposed rule change would be
applicable to RPIs that are priced the
same as other Priority 3—Non-Display
Orders and have been skipped in an
allocation. This proposed rule text is
consistent with how Rule 7.37(b)(2)(D)
currently operates with respect to a
Participant that has an order that
receives a new working time or cancels
and replaces an order, and such
Participant does not have any other
orders at that price.
Proposed Rule 7.44(l) would further
provide that any remaining unexecuted
RPI interest would remain available to
trade with other incoming Retail Orders
and that any remaining unfilled
quantity of the Retail Order would
cancel in accordance with proposed
Rule 7.44(k). This proposed rule text is
based in part on Rule Arca Rule 7.44–
E(l). This proposed rule text is also
consistent with the proposed change,
described above, that Retail Orders
would, by definition, have an IOC timein-force condition.
Because the Exchange proposes that
allocations in the Program would not
differ from how orders are allocated
outside the Program, the Exchange
proposes that unlike Rule 107C(l),
proposed Rule 7.44(l) no longer needs to
include examples of how executions in
the Program would operate. The
Exchange included those examples in
Rule 107C because allocations in that
version of the Program differed from the
Exchange’s regular allocation process.
Those concerns are now moot.
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Implementation of Proposed Rule
Change
Subject to effectiveness of this
proposed rule change, the Exchange
proposes to implement this proposed
change when the Exchange transitions
NYSE-listed securities to its Pillar
trading platform.13 To promote
transparency of which rule relating to
the Program would govern trading on
the Exchange both before and after the
13 The Exchange has announced that, subject to
rule approvals, the Exchange will begin
transitioning Exchange-listed securities to Pillar on
August 5, 2019, available here: https://
www.nyse.com/publicdocs/nyse/markets/nyse/
Revised_Pillar_Migration_Timeline.pdf. The
Exchange will publish by separate Trader Update a
complete symbol migration schedule.
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18:08 May 29, 2019
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Pillar transition, the Exchange proposes
to amend the preamble to Rule 107C to
provide that such rule would not be
applicable to trading on the Pillar
trading platform, and delete the
reference to UTP Securities in that
preamble.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act,14 in general, and furthers the
objectives of Sections 6(b)(5) of the
Act,15 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to, and perfect the
mechanisms of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest and because it is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The proposed rule change seeks to
provide for the Program on Pillar, the
Exchange’s new technology trading
platform. The proposed non-substantive
differences between proposed Rule 7.44
and Rule 107C to use Pillar terminology
would remove impediments to and
perfect the mechanism of a fair and
orderly market because the proposed
differences would promote transparency
through the use of consistent
terminology in Pillar rules. The
Exchange believes that proposed Rule
7.44(a)(4), describing RPIs, would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed rule text would use Pillar
terminology to describe existing
functionality. The Exchange believes
that the use of Pillar terminology
promotes transparency and clarity in
Exchange rules.
The Exchange believes that the
proposed Commentary .01 to Rule 7.44
to reject RPIs in securities that are
priced at $100,000 or above if not
entered with an MPV of $0.01 would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
provides transparency of the
circumstances when an RPI would be
rejected depending on the
communication protocol used by the
14 15
15 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00076
Fmt 4703
Sfmt 4703
25103
member organization and the MPV in
which it is entered.
The Exchange believes that its
proposal to eliminate the Type 2 and
Type 3 Retail Orders would remove
impediments to, and perfect the
mechanisms of, a free and open market
and a national market system by
simplifying and streamlining the
operation of Retail Orders. To date, the
Exchange has not received a Retail
Order designated as Type 2 or Type 3
for participation in the Program.
Therefore, no longer offering the Type 2
or Type 3 Retail Orders should not
impact market participants’ trading
activity and would serve to remove
unused functionality from the Program
and the Exchange’s rules. The Proposal
would also simplify the operation of the
Program and allow the Exchange to no
longer support functionality that is not
utilized. The Exchange further believes
that the proposed substantive difference
that Type 1 Retail Orders, which would
simply be referred to as ‘‘Retail Orders,’’
would be eligible to trade with all
contra-side orders on the Exchange
Book would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would increase the
potential that a Retail Order would
receive an execution on the Exchange.
The proposed substantive difference
to allow Retail Orders to execute at the
best available prices under proposed
Rule 7.44(l) rather than a single cleanup price would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would align how a
Retail Order would trade under the
Program with how incoming orders
outside of the Program trade on the
Exchange. In addition, the proposed
substantive difference that RPIs would
be ranked Priority 3—Non-Display
Orders, and all resting orders at a price
would be allocated on parity pursuant
to Rule 7.37(b), would remove
impediments to and perfect the
mechanism of a fair and orderly market
because it would align the allocation of
orders in the Program with the
allocation of orders outside of the
Program. This proposed substantive
difference would therefore promote
transparency in Exchange rules and
reduce potential confusion because the
Program would no longer operate
differently from the allocation of orders
outside the Program.
The Exchange further believes that the
proposed amendment to Rule
7.37(b)(2)(D) to specify that the
Participant that entered an order that is
skipped in an allocation because it
would not be eligible to trade would be
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jbell on DSK3GLQ082PROD with NOTICES
moved to the last position on the
allocation wheel if such Participant has
no other orders at that price would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would promote transparency in
Exchange rules regarding how the
Exchange determines the position of a
Participant on an allocation wheel. The
Exchange further believes it would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system to move
a Participant to the last position on the
allocation wheel because it would
simplify how such orders are processed;
if an order is skipped, other orders at
that price may be fully executed or
cancelled or new orders may be added
and it would be difficult to assess in
such fluid circumstances the exact
position of that Participant on the
allocation wheel if that Participant does
not have any other orders at that price.
Moving such Participant to the last
position on the wheel also promotes
consistency with current Rule
7.37(b)(2)(D) regarding how a
Participant is moved on an allocation
wheel if its order receives a new
working time or is cancelled and
replaced at the same working price and
such Participant does not have any
other orders at that price.
The Exchange believes that the
proposed amendment to Rule
7.16(f)(5)(C) to specify that during a
Short Sale Period, RPIs with an offset
would use the NBBO rather than the
PBBO as the reference price would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would ensure compliance with Rule 201
of Regulation SHO.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,16 the Exchange believes that the
proposed rule change would not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed change is to adopt new rules
to support continuity of the Program
when Exchange-listed securities
transition to the Exchange’s new Pillar
trading platform. As discussed in detail
above, the Exchange proposes to adopt
rules for Pillar relating to the Retail
Liquidity Program that are be based on
current rules, with both substantive and
non-substantive differences. The
proposed substantive differences
proposed for Rule 7.44 as compared to
Rule 107C would promote competition
because they streamline the operation of
the Program by eliminating unused
order types and aligning the allocation
of orders in the Program with the
allocation of orders outside of the
Program. The proposed non-substantive
differences include using new Pillar
terminology to describe the Program and
are based on NYSE Arca Rule 7.44–E.
The Exchange believes that the
proposed rule change would promote
consistent use of terminology to support
the Pillar trading platform, making the
Exchange’s rules easier to navigate.
The proposal to eliminate Type 2 and
Type 3 Retail Orders are not intended to
have a competitive impact. These
changes simply remove functionality
from the Program that has not been used
at all to date.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 17 and Rule
19b–4(f)(6) thereunder.18 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 19 of the Act to
determine whether the proposed rule
17 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
19 15 U.S.C. 78s(b)(2)(B).
18 17
16 15
U.S.C. 78f(b)(8).
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change 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–
NYSE–2019–26 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2019–26. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
offices 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–2019–26, and
should be submitted on or before June
20, 2019.
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Federal Register / Vol. 84, No. 104 / Thursday, May 30, 2019 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–11237 Filed 5–29–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85921; File No. 4–274]
Program for Allocation of Regulatory
Responsibilities Pursuant to Rule 17d–
2; Notice of Filing of an Amendment to
the Agreement Between the Financial
Industry Regulatory Authority, Inc. and
the NYSE Chicago, Inc.
May 23, 2019.
Pursuant to Section 17(d) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 17d–2 thereunder,2
notice is hereby given that on May 8,
2019, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) and the
NYSE Chicago, Inc. (‘‘CHX’’) (together
with FINRA, the ‘‘Parties’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’)
an amendment to their July 9, 2010
Agreement Between Financial Industry
Regulatory Authority, Inc. and Chicago
Stock Exchange, Inc. (‘‘17d–2 Plan’’ or
the ‘‘Plan’’) for the allocation of
regulatory responsibilities. The
Commission is publishing this notice to
solicit comments on the amendment to
the 17d–2 Plan from interested persons.
jbell on DSK3GLQ082PROD with NOTICES
I. Introduction
Section 19(g)(1) of the Act,3 among
other things, requires every selfregulatory organization (‘‘SRO’’)
registered as either a national securities
exchange or national securities
association to examine for, and enforce
compliance by, its members and persons
associated with its members with the
Act, the rules and regulations
thereunder, and the SRO’s own rules,
unless the SRO is relieved of this
responsibility pursuant to Section 17(d)
or Section 19(g)(2) of the Act.4 Without
this relief, the statutory obligation of
each individual SRO could result in a
pattern of multiple examinations of
broker-dealers that maintain
memberships in more than one SRO
(‘‘common members’’). Such regulatory
duplication would add unnecessary
20 17
CFR 200.30–3(a)(12).
U.S.C. 78q(d).
2 17 CFR 240.17d–2.
3 15 U.S.C. 78s(g)(1).
4 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2),
respectively.
1 15
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18:08 May 29, 2019
Jkt 247001
expenses for common members and
their SROs.
Section 17(d)(1) of the Act 5 was
intended, in part, to eliminate
unnecessary multiple examinations and
regulatory duplication.6 With respect to
a common member, Section 17(d)(1)
authorizes the Commission, by rule or
order, to relieve an SRO of the
responsibility to receive regulatory
reports, to examine for and enforce
compliance with applicable statutes,
rules, and regulations, or to perform
other specified regulatory functions.
To implement Section 17(d)(1), the
Commission adopted two rules: Rule
17d–1 and Rule 17d–2 under the Act.7
Rule 17d–1 authorizes the Commission
to name a single SRO as the designated
examining authority (‘‘DEA’’) to
examine common members for
compliance with the financial
responsibility requirements imposed by
the Act, or by Commission or SRO
rules.8 When an SRO has been named as
a common member’s DEA, all other
SROs to which the common member
belongs are relieved of the responsibility
to examine the firm for compliance with
the applicable financial responsibility
rules. On its face, Rule 17d–1 deals only
with an SRO’s obligations to enforce
member compliance with financial
responsibility requirements. Rule 17d–1
does not relieve an SRO from its
obligation to examine a common
member for compliance with its own
rules and provisions of the federal
securities laws governing matters other
than financial responsibility, including
sales practices and trading activities and
practices.
To address regulatory duplication in
these and other areas, the Commission
adopted Rule 17d–2 under the Act.9
Rule 17d–2 permits SROs to propose
joint plans for the allocation of
regulatory responsibilities with respect
to their common members. Under
paragraph (c) of Rule 17d–2, the
Commission may declare such a plan
effective if, after providing for
appropriate notice and comment, it
determines that the plan is necessary or
appropriate in the public interest and
for the protection of investors; to foster
cooperation and coordination among the
SROs; to remove impediments to, and
U.S.C. 78q(d)(1).
Securities Act Amendments of 1975, Report
of the Senate Committee on Banking, Housing, and
Urban Affairs to Accompany S. 249, S. Rep. No. 94–
75, 94th Cong., 1st Session 32 (1975).
7 17 CFR 240.17d–1 and 17 CFR 240.17d–2,
respectively.
8 See Securities Exchange Act Release No. 12352
(April 20, 1976), 41 FR 18808 (May 7, 1976).
9 See Securities Exchange Act Release No. 12935
(October 28, 1976), 41 FR 49091 (November 8,
1976).
25105
foster the development of, a national
market system and a national clearance
and settlement system; and is in
conformity with the factors set forth in
Section 17(d) of the Act. Commission
approval of a plan filed pursuant to Rule
17d–2 relieves an SRO of those
regulatory responsibilities allocated by
the plan to another SRO.
II. The Plan
On September 26, 1978, the
Commission approved the Plan
allocating regulatory responsibilities
pursuant to Rule 17d–2 on a provisional
basis.10 Under the Plan, the predecessor
to FINRA was responsible, in part, for
conducting on-site examination of each
dual member for which it was the DEA.
On February 20, 1980, the Commission
noticed for comment an amendment to
the Plan, which provided, in part, for
the handling of customer complaints,
the review of dual members’
advertising, and the arbitration of
disputes under the Plan.11 On May 30,
1980, the Commission approved the
Plan, as amended.12 On September 8,
2010, the Commission approved an
amendment to replace the previous Plan
in its entirety.13
III. Proposed Amendment to the Plan
On May 8, 2019, the Parties submitted
a proposed amendment to the Plan. The
primary purpose of the amendment is to
the extent that it becomes a member of
the exchange, allocate regulatory
responsibility to FINRA for CHX’s
affiliated routing broker-dealer,
Archipelago Securities LLC. The text of
the proposed amended 17d–2 plan is as
follows (additions are italicized;
deletions are [bracketed]):
AGREEMENT BETWEEN FINANCIAL
INDUSTRY REGULATORY
AUTHORITY, INC. AND NYSE
CHICAGO [STOCK EXCHANGE], INC.
PURSUANT TO RULE 17d–2 UNDER
THE SECURITIES EXCHANGE ACT OF
1934
This Agreement, by and between the
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) and the
NYSE Chicago [Stock Exchange], Inc.
(‘‘CHX’’), is made this [9th]7th day of
[July]May, [2010]2019 (the
‘‘Agreement’’), pursuant to Section 17(d)
5 15
6 See
PO 00000
Frm 00078
Fmt 4703
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10 See Securities Exchange Act Release No. 15191
(September 26, 1978), 43 FR 46093 (October 5,
1978).
11 See Securities Exchange Act Release No. 16591
(February 20, 1980), 45 FR 12573 (February 26,
1980).
12 See Securities Exchange Act Release No. 16858
(May 30, 1980), 45 FR 37927 (June 5, 1980).
13 See Securities Exchange Act Release No. 62866
(September 8, 2010), 75 FR 55833 (September 14,
2010).
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]]>Agencies
[Federal Register Volume 84, Number 104 (Thursday, May 30, 2019)]
[Notices]
[Pages 25100-25105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11237]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85930; File No. SR-NYSE-2019-26]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change of
New Rule 7.44 To Operate Its Retail Liquidity Program on Pillar, the
Exchange's New Technology Trading Platform
May 23, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 13, 2019, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes new Rule 7.44 to operate its Retail Liquidity
Program on Pillar, the Exchange's new technology trading platform. The
proposed rule change is available on the Exchange's website at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Rule 107C sets forth the Exchange's Retail Liquidity Program (the
``Program''). To support the transition of NYSE-listed securities to
the Exchange's Pillar trading platform, the Exchange proposes to
relocate the substance of Rule 107C to Rule 7.44. As part of the
transition of the Program to Pillar, the Exchange proposes the
following substantive differences: (i) Define Retail Price Improvement
Orders using Pillar terminology based on text used by NYSE Arca, Inc.,
the Exchange's affiliate, and new proposed rule text that uses Pillar
terminology to describe the existing offset functionality and rank such
orders as Priority 3--Non-Display Orders; (ii) remove unused
functionality by adopting a single category of Retail Order and
eliminating the Type 2 and Type 3 Retail Orders; and (iii) trade Retail
Orders against eligible contra-side orders at the best available prices
rather than a single ``clean-up price'' and allocate resting orders at
the same price pursuant to the Exchange's established Pillar parity
allocation process under Rule 7.37(b).
The Exchange established the Program on a pilot basis to attract
retail order flow to the Exchange, and allow such order flow to receive
potential price improvement.\3\ The Program is limited to trades in
NYSE-listed securities occurring at prices equal to and greater than
$1.00 a share and was recently approved by the Commission to operate on
a permanent, rather than pilot, basis.\4\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 67347 (July 3,
2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55) (``RLP Pilot
Approval Order'').
\4\ See Securities Exchange Act Release No. 85160 (February 15,
2019), 84 FR 5754 (February 22, 2019) (SR-NYSE-2018-28) (``RLP
Permanent Approval Order'').
---------------------------------------------------------------------------
Under Rule 107C, a class of market participant called Retail
Liquidity Providers (``RLPs'') and non-RLP member organizations are
able to provide potential price improvement to retail investor orders
in the form of a non-displayed order that is priced at least $0.001
better than the best protected bid or offer (``PBBO''), called a Retail
Price Improvement Order (``RPI'').\5\ When there is an RPI in a
particular security, the Exchange disseminates an indicator, known as
the Retail Liquidity Identifier (``RLI''), that such interest exists.
Retail Member Organizations (``RMOs'') can submit a Retail Order to the
Exchange, which interacts, to the extent possible, with available
contra-side RPIs and orders with a working price between the PBBO. The
segmentation in the Program allows retail order flow to receive
potential price improvement as a result of their order flow being
deemed more desirable by liquidity providers.\6\
---------------------------------------------------------------------------
\5\ See Rule 107C(a)(4). The Program also allows for RLPs to
register with the Exchange. However, any firm can enter RPI orders
into the system.
\6\ RLP Pilot Approval Order, 77 FR at 40679-40680.
---------------------------------------------------------------------------
Proposed Rule 7.44, Retail Liquidity Program
The Exchange proposes that Rule 7.44 would set forth the Program
under the Exchange's Pillar Platform Rules and would use Pillar
terminology based on NYSE Arca, Inc. (``NYSE Arca'') Rule 7.44-E.
Except for the differences described below, proposed Rule 7.44 is
substantively based on Rule 107C: Proposed Rules 7.44(a)(1)-(3),
7.44(b), 7.44(c), 7.44(d), 7.44(e), 7.44(f), 7.44(g), 7.44(h), 7.44(i),
and 7.44(j) are based on current rules 107C(a)(1)-(3), 107C (b), 107C
(c), 107C (d), 107C (e), 107C (f), 107C (g), 107C (h), 107C (i), and
107C (j), respectively, with only minor non-substantive differences to
replace the term ``shall'' with ``will'' and update internal cross-
references to the Pillar rule. Proposed Rule 7.44(m) is based on the
last sentence of current Rule 107C(l).
[[Page 25101]]
The Exchange proposes non-substantive differences for proposed
Rules 7.44(a)(3) and 7.44(a)(4)(E), which are based on Rule 107C(a)(3)
and the last sentence of Rule 107C(a)(4), respectively, to replace the
term ``PRL'' with the term ``mixed lot'' to conform to Pillar
terminology. Both a PRL and a mixed lot are an order of any amount
greater than one round lot that is not a multiple of a round lot.\7\
---------------------------------------------------------------------------
\7\ See Rules 7.5 and 61(a)(ii).
---------------------------------------------------------------------------
The Exchange further proposes a non-substantive difference for
proposed Rule 7.44(c)(3), which is based on Rule 107C(c)(3), to not
include references to mnemonics, which will not be used on the Pillar
trading platform for RLPs. Proposed Rule 7.44(c)(3) would continue to
require an RLP to use Exchange-supplied designations that identify to
the Exchange RLP trading activity in assigned RLP securities. This
proposed rule text is based on NYSE Arca Rule 7.44-E(c)(3).
The Exchange also proposes a non-substantive difference for
proposed Rule 7.44(i)(2), which is based on current Rule 107C(i)(2), to
reference the ``Exchange's Chief Regulatory Officer'' rather than the
``NYSE's Chief Regulatory Officer,'' and to use the phrase ``two
qualified Exchange employees'' instead of ``officers of the Exchange
designated by the Co-Head of U.S. Listings and Cash Execution.'' The
Exchange proposes not to include specific titles, other than Chief
Regulatory Officer, in Pillar rules because the Exchange has
restructured and no longer has the position of Co-Head of U.S. Listings
and Cash Executions. In addition, as a result of the restructuring, the
title of ``officer'' is no longer used by employees who were previously
designated for this role. The Exchange believes that the term
``qualified Exchange employees'' would provide the Exchange with
discretion to delegate this responsibility to appropriate Exchange
staff. As amended, proposed Rule 7.44(i)(2) is based on NYSE Arca Rule
7.44-E(i)(2).
The Exchange also proposes a non-substantive difference for
proposed Rule 7.44(j), which is based on current Rule 107C(j), to
replace the phrase ``or as appropriate'' with ``and'' in the first
sentence. The first sentence of Rule 107C(j) provides that a Retail
Liquidity Identifier is ``disseminated through proprietary data feeds
or as appropriate through the Consolidation Quotation System when RPI
interest priced at least $0.001 better than the PBB or PBO for a
particular security is available in Exchange systems'' (emphasis
added). This non-substantive change would clarify that the Exchange
disseminates the Retail Liquidity Identifier through both its
proprietary data feeds and the Consolidated Quotation System.
Because proposed Rule 7.44 would have identical requirements to be
approved as either an RMO (proposed Rule 7.44(b)) or a Retail Liquidity
Provider (proposed Rule 7.44(c)-(d)) as under current Rules 107C(b) and
(c)-(d), the Exchange further proposes that any member organizations
that are approved as either an RMO or RLP under current Rule 107C would
be deemed approved as either an RMO or RLP under proposed Rule 7.44 and
would not have to re-apply. The Exchange believes this will promote
continuity for the RLP Program when NYSE-listed securities transition
to the Pillar trading platform and will reduce the administrative
burden on member organizations that are already approved as either an
RMO or RLP.
Currently, all member organizations communicate with the Exchange
using Pillar phase I protocols, which support trading both on the
Pillar trading platform and in Exchange-listed securities. The Exchange
notes that currently on the Pillar trading platform, orders with a
limit price of less than $1.00 in securities that are priced at
$100,000 or above, are rejected if not entered with an MPV of $0.01.
The Exchange further notes that this functionality is only applicable
to one security traded on the Exchange. The Exchange proposes to codify
this functionality as it applies to the Program in proposed Commentary
.01 to Rule 7.44, which would provide that when using Pillar phase 1
protocols, for securities that trade at prices of $100,000 or above,
RPI Orders would be rejected if not entered with an MPV of $0.01.\8\
---------------------------------------------------------------------------
\8\ Pursuant to its authority under Rule 612(c) of Regulation
NMS, 17 CFR 242.612(c), the Commission grants the Exchange a limited
exemption from Rule 612 of Regulation NMS, 17 CFR 242.612, (the
``Sub-Penny Rule'') to operate the Program. See Securities Exchange
Act Release No. 85160 (February 15, 2019), 84 FR 5754 (February 22,
2019) (SR-NYSE-2018-28).
---------------------------------------------------------------------------
Retail Price Improvement Orders
Proposed Rule 7.44(a)(4) would define the RPI. The rule text is
based on current Rule 107C(a)(4), and the Exchange is not proposing any
substantive changes to the definition of RPI Orders. However, the
proposed rule would include non-substantive differences to use Pillar
terminology to describe RPIs.
As proposed, new Rule 7.44(a)(4) would provide that an RPI would be
non-displayed interest that would trade at prices better than the PBB
or PBO by at least $0.001 and that is identified as such. This rule
text is based on the first sentence of current Rule 107C(a)(4), with
non-substantive differences to use the terms PBB and PBO and delete the
reference to Regulation NMS definition as redundant of the definition
of PBB/PBO in Rule 1.1(o). The Exchange also proposes to replace the
term ``is priced better than'' the PBB or PBO to ``would trade at
prices better than'' the PBB or PBO. Because RPI interest does not need
to be priced better than the PBB or PBO on arrival, but could trade in
sub-penny increments, the Exchange believes the proposed non-
substantive difference describes how RPIs would operate in Pillar. This
proposed rule text also uses Pillar terminology that is based on NYSE
Arca Rule 7.44-E(a)(4).
Proposed Rule 7.44(a)(4)(A) would provide that an RPI would remain
non-displayed in its entirety and would be ranked Priority 3--Non-
Display Orders. This proposed rule text is based on the third sentence
of current Rule 107C(a)(4), which provides that an RPI remains non-
displayed in its entirety and uses Pillar terminology to describe the
priority category to which RPIs would belong. The proposed rule also
uses Pillar terminology that is based on NYSE Arca Rule 7.44-
E(a)(4)(A).
Proposed Rule 7.44(a)(4)(B) would provide that Exchange systems
would monitor whether RPI buy or sell interest would be eligible to
trade with incoming Retail Orders and if it is priced at or outside the
PBBO, the RPI would not be eligible to trade with an incoming Retail
Order. The rule would further provide that an RPI to buy (sell) with a
limit price at or below (above) the PBB (PBO) or at or above (below)
the PBO (PBB) would not be eligible to trade with incoming Retail
Orders to sell (buy) and that if not cancelled, an RPI to buy (sell)
with a limit price that is no longer at or below (above) the PBB (PBO)
or at or above (below) the PBO (PBB) would again be eligible to trade
with incoming Retail Orders. This rule text is based on Rule
107C(a)(4), which provides that an RPI must be priced better than the
PBB or PBO and that the Exchange monitors whether such orders are
eligible to trade, with non-substantive differences to use Pillar
terminology. This proposed rule text also uses Pillar terminology that
is based on NYSE Arca Rule 7.44-E(a)(4)(B) with one difference to
account for a proposed change to the definition of Retail Order
described below. The proposed rule text would, therefore, not include
text from NYSE Arca Rule 7.44-E(a)(4)(B) that provides for the
cancellation of an RPI if a Retail Order
[[Page 25102]]
to sell (buy) trades with all displayed liquidity at the PBB (PBO).
Proposed Rule 7.44(a)(4)(C) would provide that an RPI may include
an optional offset, which may be specified up to three decimals. As
further proposed, the working price of an RPI to buy (sell) with an
offset would be the lower (higher) of the PBB (PBO) plus (minus) the
offset or the limit price of the RPI; an RPI with an offset would not
be eligible to trade if the working price is below $1.00, and if an RPI
to buy (sell) with an offset would have a working price that is more
than three decimals, the working price would be truncated to three
decimals. This proposed rule text is based on the second and third
sentences of current Rule 107C(a)(4), which provide that an RPI may be
adjusted by any offset subject to a ceiling or floor price and that the
offset is non-displayed. Proposed Rule 7.44(a)(4)(C) uses Pillar
terminology to describe this existing offset functionality, which the
Exchange believes promotes transparency and clarity in its rules.
The Exchange proposes to make a related change to Rule
7.16(f)(5)(C) to specify that, like Pegged Orders and MPL Orders, RPIs
with an offset would use the National Best Bid (``NBB'') instead of the
PBB as the reference price when a Short Sale Price Test is triggered
pursuant to Rule 201 of Regulation SHO.\9\
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\9\ 17 CFR 242.201.
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Proposed Rule 7.44(a)(4)(D) would provide that, for securities to
which it is assigned, an RLP may only enter an RPI in its RLP capacity,
and that an RLP would be permitted, but not required, to submit RPI
Orders for securities to which it is not assigned, and would be treated
as a non-RLP member organization for those particular securities.
Additionally, the rule would provide that member organizations other
than RLPs would be permitted, but not required, to submit RPI Orders.
This proposed rule text is based on the fifth and sixth sentences of
current Rule 107C(a)(4) without any substantive differences. This
proposed rule text also uses Pillar terminology that is based on NYSE
Arca Rule 7.44-E(a)(4)(C).
Proposed Rule 7.44(a)(4)(E) would provide that an RPI may be an odd
lot, round lot, or mixed lot and will interact with incoming Retail
Orders only. This proposed text is based on the last sentence of Rule
107C(a)(4), with the non-substantive difference described above to use
the term ``mixed lot'' instead of ``PRL,'' as described above. The
Exchange also proposes to provide greater specificity that RPIs would
interact with incoming Retail Orders only, which is how RPIs currently
function. This proposed rule text is based in part on NYSE Arca Rule
7.44-E(a)(4)(D).
Retail Orders
Pursuant to Rule 107C(k), Retail Orders may be designated as Type
1, Type 2, or Type 3. Proposed Rule 7.44(k) would be based on Rule
107C(k) with two substantive differences. The first substantive
difference would be to remove unused functionality by eliminating the
Type 2 and Type 3 Retail Orders. The second substantive difference
would be to expand the scope of contra-side orders against which a
Retail Order may trade to include all orders between the PBBO, not just
RPI Orders and MPL Orders.
To date, the Exchange has not received a Retail Order designated as
Type 2 or Type 3 and, therefore, proposes to no longer support this
functionality. On Pillar, the Exchange would offer a single category of
Retail Orders under proposed Rule 7.44(k) that would operate in a
substantially similar manner as the current Type 1 Retail Order, but
would be described using Pillar terminology. The title of Rule 7.44
would therefore differ from Rule 107C to replace the word
``Designation'' with ``Operation'' to reflect the availability of a
single type of Retail Order.
As proposed, ``Retail Order,'' as defined in proposed Rule 7.44(k),
would be described as:
A Retail Order to buy (sell) is a Limit IOC Order that will
trade only with available Retail Price Improvement Orders to sell
(buy) and all other orders to sell (buy) with a working price below
(above) the PBO (PBB) on the Exchange Book and will not route. The
quantity of a Retail Order to buy (sell) that does not trade with
eligible orders to sell (buy) will be immediately and automatically
cancelled. A Retail Order will be rejected on arrival if the PBBO is
locked or crossed. A Retail Order may not be designated with an MTS
Modifier.
This proposed functionality is based on the Type-1 designated
Retail Order, as described in Rule 107C(k)(1), with a substantive
difference that Retail Orders would no longer be limited to interact
only with contra-side RPI and MPL Orders. The Exchange believes that
this proposed difference would increase the potential for a Retail
Order to receive an execution as such orders would be eligible to trade
with any orders between the PBBO. The Exchange further proposes to
specify that a Retail Order may not be designated with an MTS
Modifier.\10\ This proposed rule text uses Pillar terminology to
describe current functionality. The proposed text of Rule 7.44(k) is
otherwise substantially similar to current Rule 107C(k)(1) with minor
changes to confirm to Pillar terminology and to remove references to
``Type 1.''
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\10\ Pursuant to Rule 7.31(i)(3), a Limit IOC Order may be
designated with an MTS Modifier. Because a Retail Order is a type of
Limit IOC Order, the Exchange proposes to specify that, unlike a
Limit IOC Order, Retail Orders may not be designated with an MTS
Modifier.
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Rule 7.44(l), Priority and Order Allocation
Similar to Rule 107C(l), proposed Rule 7.44(l) would set forth the
priority and allocation rules for the Program. With Pillar, the
Exchange proposes to simplify the operation of the Program and rank and
allocate RPIs with all other interest at the same price as Priority 3--
Non-Display Orders. In addition, incoming Retail Orders would trade
with contra-side interest between the PBBO at each price point, rather
than at a single clean-up price. At each price point between the PBBO,
resting orders would be allocated consistent with Rule 7.37(b)
(including, for example, odd lot orders ranked Priority 2--Display
Orders). With these proposed changes, the allocation of Retail Orders
in the Program would be aligned with the allocation of orders outside
of the Program under the Exchange's established Pillar allocation
process.\11\
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\11\ See Rule 7.37(b), Allocation.
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To effect these differences, proposed Rule 7.44(l) would provide
that RPIs in the same security would be ranked together with all other
interest at that price ranked as Priority 3--Non-Display Orders and
would be allocated with other resting orders at that price pursuant to
Rule 7.37(b). This would be new functionality for the Program and is
consistent with how all other orders are allocated on the Exchange. The
Exchange believes that the proposed substantive difference to the
priority and allocation of orders in the Program would reduce potential
confusion because the Program would no longer have different allocation
rules as compared to how orders trade outside the Program.
The Exchange proposes to make a related amendment to Rule
7.37(b)(2)(D), which describes the circumstances when a Participant
would be moved to the last position on an allocation wheel.\12\ Because
RPIs are only eligible to trade with Retail Orders,
[[Page 25103]]
they would be skipped on an allocation wheel for the allocation of an
Aggressing Order that is not a Retail Order. The Exchange proposes that
if an RPI has been skipped in an allocation because it was not eligible
to trade, the Participant that entered such order would be moved to the
last position on an allocation wheel if such Participant has no other
orders at that price. This proposed rule change would be applicable to
RPIs that are priced the same as other Priority 3--Non-Display Orders
and have been skipped in an allocation. This proposed rule text is
consistent with how Rule 7.37(b)(2)(D) currently operates with respect
to a Participant that has an order that receives a new working time or
cancels and replaces an order, and such Participant does not have any
other orders at that price.
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\12\ Rule 7.37(b)(2)(D) provides that if an order receives a new
working time or is cancelled and replaced at the same working price,
the Participant that entered such order will be moved to the last
position on an allocation wheel if that Participant has no other
orders at that price.
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Proposed Rule 7.44(l) would further provide that any remaining
unexecuted RPI interest would remain available to trade with other
incoming Retail Orders and that any remaining unfilled quantity of the
Retail Order would cancel in accordance with proposed Rule 7.44(k).
This proposed rule text is based in part on Rule Arca Rule 7.44-E(l).
This proposed rule text is also consistent with the proposed change,
described above, that Retail Orders would, by definition, have an IOC
time-in-force condition.
Because the Exchange proposes that allocations in the Program would
not differ from how orders are allocated outside the Program, the
Exchange proposes that unlike Rule 107C(l), proposed Rule 7.44(l) no
longer needs to include examples of how executions in the Program would
operate. The Exchange included those examples in Rule 107C because
allocations in that version of the Program differed from the Exchange's
regular allocation process. Those concerns are now moot.
Implementation of Proposed Rule Change
Subject to effectiveness of this proposed rule change, the Exchange
proposes to implement this proposed change when the Exchange
transitions NYSE-listed securities to its Pillar trading platform.\13\
To promote transparency of which rule relating to the Program would
govern trading on the Exchange both before and after the Pillar
transition, the Exchange proposes to amend the preamble to Rule 107C to
provide that such rule would not be applicable to trading on the Pillar
trading platform, and delete the reference to UTP Securities in that
preamble.
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\13\ The Exchange has announced that, subject to rule approvals,
the Exchange will begin transitioning Exchange-listed securities to
Pillar on August 5, 2019, available here: https://www.nyse.com/publicdocs/nyse/markets/nyse/Revised_Pillar_Migration_Timeline.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 proposal is consistent with Section
6(b) of the Act,\14\ in general, and furthers the objectives of
Sections 6(b)(5) of the Act,\15\ in particular, because it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to, and perfect the mechanisms of,
a free and open market and a national market system and, in general, to
protect investors and the public interest and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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The proposed rule change seeks to provide for the Program on
Pillar, the Exchange's new technology trading platform. The proposed
non-substantive differences between proposed Rule 7.44 and Rule 107C to
use Pillar terminology would remove impediments to and perfect the
mechanism of a fair and orderly market because the proposed differences
would promote transparency through the use of consistent terminology in
Pillar rules. The Exchange believes that proposed Rule 7.44(a)(4),
describing RPIs, would remove impediments to and perfect the mechanism
of a free and open market and a national market system because the
proposed rule text would use Pillar terminology to describe existing
functionality. The Exchange believes that the use of Pillar terminology
promotes transparency and clarity in Exchange rules.
The Exchange believes that the proposed Commentary .01 to Rule 7.44
to reject RPIs in securities that are priced at $100,000 or above if
not entered with an MPV of $0.01 would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because it provides transparency of the circumstances when an
RPI would be rejected depending on the communication protocol used by
the member organization and the MPV in which it is entered.
The Exchange believes that its proposal to eliminate the Type 2 and
Type 3 Retail Orders would remove impediments to, and perfect the
mechanisms of, a free and open market and a national market system by
simplifying and streamlining the operation of Retail Orders. To date,
the Exchange has not received a Retail Order designated as Type 2 or
Type 3 for participation in the Program. Therefore, no longer offering
the Type 2 or Type 3 Retail Orders should not impact market
participants' trading activity and would serve to remove unused
functionality from the Program and the Exchange's rules. The Proposal
would also simplify the operation of the Program and allow the Exchange
to no longer support functionality that is not utilized. The Exchange
further believes that the proposed substantive difference that Type 1
Retail Orders, which would simply be referred to as ``Retail Orders,''
would be eligible to trade with all contra-side orders on the Exchange
Book would remove impediments to and perfect the mechanism of a free
and open market and a national market system because it would increase
the potential that a Retail Order would receive an execution on the
Exchange.
The proposed substantive difference to allow Retail Orders to
execute at the best available prices under proposed Rule 7.44(l) rather
than a single clean-up price would remove impediments to and perfect
the mechanism of a free and open market and a national market system
because it would align how a Retail Order would trade under the Program
with how incoming orders outside of the Program trade on the Exchange.
In addition, the proposed substantive difference that RPIs would be
ranked Priority 3--Non-Display Orders, and all resting orders at a
price would be allocated on parity pursuant to Rule 7.37(b), would
remove impediments to and perfect the mechanism of a fair and orderly
market because it would align the allocation of orders in the Program
with the allocation of orders outside of the Program. This proposed
substantive difference would therefore promote transparency in Exchange
rules and reduce potential confusion because the Program would no
longer operate differently from the allocation of orders outside the
Program.
The Exchange further believes that the proposed amendment to Rule
7.37(b)(2)(D) to specify that the Participant that entered an order
that is skipped in an allocation because it would not be eligible to
trade would be
[[Page 25104]]
moved to the last position on the allocation wheel if such Participant
has no other orders at that price would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because it would promote transparency in Exchange rules
regarding how the Exchange determines the position of a Participant on
an allocation wheel. The Exchange further believes it would remove
impediments to and perfect the mechanism of a free and open market and
a national market system to move a Participant to the last position on
the allocation wheel because it would simplify how such orders are
processed; if an order is skipped, other orders at that price may be
fully executed or cancelled or new orders may be added and it would be
difficult to assess in such fluid circumstances the exact position of
that Participant on the allocation wheel if that Participant does not
have any other orders at that price. Moving such Participant to the
last position on the wheel also promotes consistency with current Rule
7.37(b)(2)(D) regarding how a Participant is moved on an allocation
wheel if its order receives a new working time or is cancelled and
replaced at the same working price and such Participant does not have
any other orders at that price.
The Exchange believes that the proposed amendment to Rule
7.16(f)(5)(C) to specify that during a Short Sale Period, RPIs with an
offset would use the NBBO rather than the PBBO as the reference price
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would ensure
compliance with Rule 201 of Regulation SHO.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\16\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The proposed change is to adopt new rules to
support continuity of the Program when Exchange-listed securities
transition to the Exchange's new Pillar trading platform. As discussed
in detail above, the Exchange proposes to adopt rules for Pillar
relating to the Retail Liquidity Program that are be based on current
rules, with both substantive and non-substantive differences. The
proposed substantive differences proposed for Rule 7.44 as compared to
Rule 107C would promote competition because they streamline the
operation of the Program by eliminating unused order types and aligning
the allocation of orders in the Program with the allocation of orders
outside of the Program. The proposed non-substantive differences
include using new Pillar terminology to describe the Program and are
based on NYSE Arca Rule 7.44-E. The Exchange believes that the proposed
rule change would promote consistent use of terminology to support the
Pillar trading platform, making the Exchange's rules easier to
navigate.
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\16\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The proposal to eliminate Type 2 and Type 3 Retail Orders are not
intended to have a competitive impact. These changes simply remove
functionality from the Program that has not been used at all to date.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \19\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\19\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2019-26 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2019-26. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal offices 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-2019-26, and should be submitted on
or before June 20, 2019.
[[Page 25105]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11237 Filed 5-29-19; 8:45 am]
BILLING CODE 8011-01-P
