Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amend Exchange Rule 104 To Specify Designated Market Maker Requirements for Exchange Traded Products Listed on the Exchange, 29908-29912 [2019-13407]

Download as PDF 29908 Federal Register / Vol. 84, No. 122 / Tuesday, June 25, 2019 / Notices consistent with the Commission’s prior approval of the extension and expansion of the Pilot Program.14 Accordingly, the Commission designates the proposed rule change as operative upon filing with the Commission.15 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 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 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: khammond on DSKBBV9HB2PROD with NOTICES 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– CBOE–2019–028 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–CBOE–2019–028. 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 14 See Securities Exchange Release No. 61061 (November 24, 2009), 74 FR 62857 (December 1, 2009) (SR–NYSEArca-2009–44). 15 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 20:35 Jun 24, 2019 Jkt 247001 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, on official business days between the hours of 10:00 a.m. and 3:00 p.m., located at 100 F Street NE, Washington, DC 20549. Copies of such 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–CBOE–2019–028 and should be submitted on or before July 16, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Vanessa A. Countryman, Acting Secretary. [FR Doc. 2019–13409 Filed 6–24–19; 8:45 am] BILLING CODE 8011–01–P I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 104 to specify Designated Market Maker (‘‘DMM’’) requirements for Exchange Traded Products (‘‘ETPs’’) listed on the Exchange pursuant to Rules 5P and 8P. 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. SECURITIES AND EXCHANGE COMMISSION A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change [Release No. 34–86151; File No. SR–NYSE– 2019–34] 1. Purpose Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amend Exchange Rule 104 To Specify Designated Market Maker Requirements for Exchange Traded Products Listed on the Exchange June 19, 2019. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on June 7, 2019, New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 The Exchange proposes to amend Rule 104 (Dealings and Responsibilities of DMMs) to specify DMM requirements for ETPs listed on the Exchange pursuant to Rules 5P and 8P. Background Currently, the Exchange trades securities, including ETPs, on its Pillar trading platform on an unlisted trading privileges (‘‘UTP’’) basis, subject to Pillar Platform Rules 1P–13P.4 In the next phase of Pillar, the Exchange proposes to transition trading of Exchange-listed securities to the Pillar trading platform, which means that DMMs would be trading on Pillar in their assigned securities.5 Once transitioned to Pillar, such securities 4 ‘‘UTP Security’’ is defined as a security that is listed on a national securities exchange other than the Exchange and that trades on the Exchange pursuant to unlisted trading privileges. See Rule 1.1. 5 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. E:\FR\FM\25JNN1.SGM 25JNN1 Federal Register / Vol. 84, No. 122 / Tuesday, June 25, 2019 / Notices khammond on DSKBBV9HB2PROD with NOTICES will also be subject to the Pillar Platform Rules 1P–13P. Rules 5P (Securities Traded) and 8P (Trading of Certain Exchange Traded Products) provide for the listing of certain ETPs 6 on the Exchange that (1) meet the applicable requirements set forth in those rules, and (2) do not have any component NMS Stock 7 that is listed on the Exchange or is based on, or represents an interest in, an underlying index or reference asset that includes an NMS Stock listed on the Exchange. ETPs listed under Rules 5P and 8P are ‘‘Tape A’’ listings and would be traded pursuant to the rules applicable to NYSE-listed securities. The Exchange does not currently list any ETPs and anticipates that it would not do so until Exchange-listed securities transition to Pillar. Once an ETP is listed, it will be assigned to a DMM pursuant to Rule 103B. The DMMs’ role with respect to ETPs assigned to them will be subject to the same DMM rules governing all other listed securities, including Rules 36, 98, and 104. For example, DMMs will be responsible for facilitating the opening, reopening, and close of trading for assigned ETPs as required by Rule 104(a)(2) and (3). To facilitate DMM trading of Exchange-listed ETPs pursuant to Rules 5P and 8P, with this proposed change, the Exchange proposes to amend Rule 104 relating specified DMM requirements. Current Rule 104 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’’ or ‘‘inside’’) at least 15% of the trading day for securities with a consolidated average daily volume of less than one million shares, and at least 10% for securities with a consolidated average daily volume equal to or greater than one million shares,8 and (2) the 6 Rule 1.1P(k) defines ‘‘Exchange Traded Product’’ as a security that meets the definition of ‘‘derivative securities product’’ in Rule 19b–4(e) under the Act. 7 NMS Stock is defined in Rule 600 of Regulation NMS, 17 CFR 242.600(b)(47). 8 See Rule 104(a)(1)(A). VerDate Sep<11>2014 20:35 Jun 24, 2019 Jkt 247001 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.9 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. 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.10 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. Rule 104(g) also describes certain 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. In addition, if a DMM unit engages in an ‘‘Aggressing Transaction,’’ i.e., a 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, such DMM is subject to specified requirements to re-enter on the opposite side of the Aggressing Transaction. Rule 104(g) also prohibits DMM Aggressing Transactions in the last ten minutes of trading if the transaction that create a new high/low price for the security on the Exchange for the day at the time of the DMM’s transaction, subject to certain exceptions. Proposed Rule Change To reflect the differences in how ETPs trade and the unique role of exchange market makers in the trading of ETPs, in order to facilitate DMM trading of Exchange-listed ETPs pursuant to Rules 9 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. 10 See Rule 104(f)(3). PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 29909 5P and 8P, the Exchange proposes certain amendments to Rule 104. Unlike operating company securities listed on the Exchange, the value of ETPs are derived from the underlying assets owned. The end-of-day net asset value (‘‘NAV’’) of an ETP is a daily calculation based off the most recent closing prices of the underlying assets and an accounting of the ETP’s total cash position at the time of calculation. The NAV generally is calculated by taking the sum of fund assets, including any securities and cash, subtracting liabilities, and dividing by the number of outstanding shares. Additionally, ETPs are generally subject to a creation and redemption mechanism to ensure that the ETP’s price does not fluctuate too far away from NAV, which mechanisms mitigate the potential for exchange trading to impact the price of an ETP. Moreover, each business day, ETPs make publicly available a creation and redemption ‘‘basket’’ which may, for example, be in the form of a portfolio composition file (i.e., a specific list of names and quantities of securities or other assets designed to track the performance of the portfolio as a whole). ETP shares are created when an Authorized Participant, typically a market maker or other large institutional investor, deposits the daily creation basket or cash with the issuer. In return for the creation basket or cash (or both), a ‘‘creation unit’’ is issued to the Authorized Participant that consists of a specified number of ETF shares.11 The principal, and perhaps most important, feature of ETPs is their reliance on an ‘‘arbitrage function’’ performed by market participants that influences the supply and demand of shares and, thus, trading prices relative to NAV. As noted above, new ETP shares can be created and existing shares redeemed based on investor demand; thus, ETP supply is generally open-ended. As the Commission has acknowledged, the arbitrage function helps to keep an ETP’s price in line with the value of its underlying portfolio, i.e., 11 For example, assume a given ETP is designed to track the performance of a specific index. An Authorized Participant will generally purchase certain of the constituent securities of that index, then deliver those shares to the issuer. In exchange, the issuer gives the Authorized Participant a block of equally valued ETP shares, on a one-for-one fair value basis. This process also works in reverse. A redemption is achieved when the Authorized Participant accumulates a sufficient number of shares to constitute a creation unit and then exchanges these shares with the issuer, thereby decreasing the supply of ETP shares in the marketplace. E:\FR\FM\25JNN1.SGM 25JNN1 29910 Federal Register / Vol. 84, No. 122 / Tuesday, June 25, 2019 / Notices khammond on DSKBBV9HB2PROD with NOTICES it minimizes deviation from NAV.12 Generally, the higher the liquidity and trading volume of an ETP, the more likely the ETP’s price will not deviate from the value of its underlying portfolio. Market makers registered in ETPs play a key role in this arbitrage function and DMMs, along with other market participants, would perform this role for ETPs listed on the Exchange. In short, the Exchange believes that the arbitrage mechanism is generally an effective and efficient means of ensuring that intraday pricing in ETPs closely tracks the value of the underlying portfolio or reference assets. To reflect the role of market makers— including DMMs—in the trading of ETPs, the Exchange proposes to amend Rule 104 in several respects. First, the Exchange proposes to exclude ETPs from the definition of ‘‘Aggressing Transactions’’ in Rule 104(g) (Transactions by DMMs) and, by extension, from the prohibition on Aggressing Transactions in 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 Exchange believes that because of the unique characteristics of ETPs—in particular, that ETPs trade at intra-day market prices rather than at NAV and the existence of arbitrage pricing mechanisms that are designed to help ensure that secondary market prices of ETP shares do not vary substantially from the NAV—the DMM obligations set forth in Rule 104(g) not only are not necessary, but also could impede the ability of a DMM to effectively make markets in ETPs. For example, a market maker engaging in the arbitrage function may need to update the quote for an ETP to bring the price of the security in line with the underlying assets. If updating the quote consistent with that arbitrage function were to require the DMM to first to engage in an Aggressing Transaction (i.e., to trade with the existing BBO in order to post a new quote), the Exchange believes that the current re-entry obligations for Aggressing Transactions would defeat the purpose of the DMM engaging in 12 See Securities Exchange Act Release No. 75165, 80 FR 34729, 34733 (June 17, 2015) (S7–11–15) (arbitrage ‘‘generally helps to prevent the market price of ETP Securities from diverging significantly from the value of the ETP’s underlying or reference assets’’). See also generally id., 80 FR at 34739 (‘‘In the Commission’s experience, the deviation between the daily closing price of ETP Securities and their NAV, averaged across broad categories of ETP investment strategies and over time periods of several months, has been relatively small[,]’’ although it had been ‘‘somewhat higher’’ in the case of ETPs based on international indices.). VerDate Sep<11>2014 20:35 Jun 24, 2019 Jkt 247001 such Aggressing Transaction to update the quote in the first place. More specifically, the re-entry obligation could be inconsistent with the new quote that the DMM is seeking to post as part of the arbitrage function. Indeed, the Exchange believes that without the proposed changes, DMMs assigned to ETPs would be at a competitive disadvantage vis-a`-vis registered market makers in the same ETP on competing exchanges as well as other market participants on the NYSE and would be impeded in their ability to effectively make competitive markets in their assigned ETP securities. For similar reasons, the Exchange does not believe that DMMs should be prohibited from engaging in Aggressing Transactions in the last ten minutes of trading. While DMMs will be responsible for facilitating the closing transaction pursuant to Rule 104(a)(3), given the nature of ETPs and how they are priced, the Exchange does not believe that the DMM will have any unique pricing power either leading into the close or when facilitating the close. In the ten minutes leading into the close, to perform its role as market maker, the DMM will continue to price such securities consistent with the arbitrage functions described above. And for the close, because an ETP should be priced at or very close the ETP’s NAV, the Exchange believes that this pricing pressure will mitigate the potential for a DMM to influence the price of the ETP. In both cases, if a DMM’s quotes become inconsistent with the value of the underlying basket, other market participants can profit by employing the arbitrage function and reestablishing consistency with the underlying basket similar to intraday trading of ETPs. To maintain the balance between DMM benefits and obligations under Rule 104, the Exchange proposes to amend Rule 104 to require heightened DMM quoting obligations for Exchangelisted ETPs. As proposed, for listed ETPs, DMMs would be required to maintain a bid or offer at the NBB and NBO at least 25% of the trading day. Time at the inside for ETPs would be calculated in the same way as other securities in which DMM units are registered as the average of the percentage of time the DMM unit has a bid or offer at the inside. In other words, this would be a portfolio-based quoting requirement. Orders entered by the DMM in ETPs that are not displayed would not be included in the inside quote calculation as is also currently the case for other securities in which DMM units are registered. Reserve or other non-displayed orders entered by the PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 DMM in their assigned ETP would not be included in the inside quote calculations. To effectuate this change, Rule 104(a)(1)(A) would be amended as follows: • The phrase ‘‘for securities in which the DMM unit is registered’’ would be added following the first sentence in Rule 104(a)(1)(A) and the comma following that initial sentence would be removed; • New subsections (i), (ii) and (iii) would be created; • The phrase ‘‘that are not ETPs’’ would be added following ‘‘at least 15% of the trading day for securities’’ in new subsection (i) and ‘‘in which the DMM unit is registered’’ would be deleted; • The phrase ‘‘of the trading day’’ 13 would added after ‘‘at least 10%’’ and ‘‘that are not ETPs’’ would be added after ‘‘for securities’’ in new subsection (ii). The phrase ‘‘in which the DMM unit is registered’’ would be deleted since it would appear in the first sentence of the amended rule; • New subdivision (iii) providing that DMM units must maintain a bid or an offer at the inside ‘‘at least 25% of the trading day for ETPs’’ would be added; and • The phrase ‘‘respective percentage’’ would replace ‘‘15% and 10%’’ in the next to last sentence of Rule 104(a)(1)(A) and ‘‘non-displayed’’ would replace ‘‘hidden’’ in the last sentence of the rule. The Exchange also proposes nonsubstantive amendments to replace the terms ‘‘stock’’ and ‘‘stocks’’ in Rule 104(f)(2) (Function of DMMs) with the terms ‘‘security’’ and ‘‘securities,’’ respectively. The Exchange would also add a new subsection (5) to Rule 104(f) providing that, for those ETPs in which they are registered, DMM units will be responsible for the affirmative obligation of maintaining a fair and orderly market, including maintaining price continuity with reasonable depth for their registered ETPs in accordance with Depth Guidelines published by the Exchange. To provide the Exchange time to collect trading data adequate to calculate appropriate Depth Guidelines for listed ETPs, the Exchange proposes that these provisions would not be operative until 18 weeks after the approval of the proposed rule change by the Commission.14 13 This is a non-substantive conforming change that would mirror the current rule text for the 15% requirement. 14 See, e.g., Securities Exchange Act Release Nos. 62479 (July 9, 2010), 75 FR 41264, 41265 (July 15, 2010) (SR–NYSEAmex–2010–31) (providing for a delayed implementation of Depth Guidelines to enable the collection of trading data adequate to E:\FR\FM\25JNN1.SGM 25JNN1 Federal Register / Vol. 84, No. 122 / Tuesday, June 25, 2019 / Notices khammond on DSKBBV9HB2PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act,15 in general, and furthers the objectives of Sections 6(b)(5) of the Act,16 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. In particular, the Exchange believes that proposed requirements for DMM trading of ETPs would remove impediments to and perfect the mechanism of a free and open market and a national market system by facilitating market making by DMMs in listed ETPs and maintaining the Exchange’s current structure to trade listed securities. The Exchange believes that the proposed exclusion of listed ETPs from the requirements of Rule 104(g) would not be inconsistent with the public interest and the protection of investors because the unique characteristics of ETPs, including that ETPs trade at intra-day market prices rather than end-of-day NAV and are constrained by arbitrage pricing mechanisms that are designed to ensure that secondary market prices of ETP shares do not vary substantially from the NAV, render those obligations unnecessary or potentially even harmful. As discussed above, the Exchange also believes the DMM obligations set forth in Rule 104(g) could impede the ability of a DMM to effectively make markets in ETPs. For similar reasons, excluding listed ETPs from the prohibition on Aggressing Transactions in the last ten minutes of trading would not be inconsistent with the public interest and the protection of calculate the guidelines in connection with the Floor-based DMM trading of Nasdaq securities on a UTP basis). Such an approach is necessary so that appropriate Depth Guidelines may be calculated based on actual trading data on the Exchange. Accordingly, following implementation and roll-out of the pilot program, the Exchange proposes to collect 60 trading days of trade data before implementing Depth Guidelines for trading ETPs securities on the Exchange within 30 calendar days of the collection of the trade data. See generally id., 75 FR at 41267 & n. 19. 15 15 U.S.C. 78f(b). 16 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 20:35 Jun 24, 2019 Jkt 247001 investors because, given the nature of ETPs and how they are priced, DMMs will not have any unique pricing power either leading into the close or when facilitating the close and these restrictions could end up impeding the alignment of ETP price with the underlying basket. Rather, in the ten minutes leading into the close, DMM will continue to price such securities consistent with the arbitrage functions described above and, because an ETP should be priced at NAV, the Exchange believes that this pricing pressure will reduce the potential for a DMM to potentially manipulate the price of ETPs going into the close. The Exchange believes that the proposed heightened quoting obligations for DMMs in listed ETPs requiring maintenance of a bid or offer at the inside of at least 25% of the trading day would maintain the balance of benefits and obligations under Rule 104 because exclusion of listed ETPs from the requirements of Rule 104(g) would be offset by the heightened DMM quoting obligations for listed ETPs. DMMs would also be required to facilitate the opening, reopening, and closing of listed ETPs assigned to them, as required by Rule 104(a)(2) and (3), which is an obligation unique to the Exchange. As noted, listed ETPs would also be subject to the requirement that 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 are designed to ensure that DMM transactions in listed ETPs 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. The proposed heightened quoting obligation for listed ETPs assigned to a DMM would also encourage additional stable displayed liquidity on the Exchange in listed securities, thereby promoting price discovery and transparency. The Exchange further believes that by establishing distinct requirements for DMMs, the proposal is also designed to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade. The Exchange believes that the proposal would not be inconsistent with the public interest and the protection of investors. As noted, the proposal would subject DMMs to the Exchange’s current structure for trading listed securities PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 29911 and the responsibilities and duties of DMMs set forth in Rule 104, including facilitating openings, reopenings, and closings and adding a heightened quoting obligation at the inside. In addition, the proposed rule would subject listed ETPs to 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. Although the implementation of Depth Guidelines will be delayed, DMM units will still have the obligation once ETPs are listed and begin trading to maintain a fair and orderly market. The Exchange believes that the delayed implementation of Depth Guidelines will allow it to develop guidelines that are appropriately tailored for how ETPs will trade on the Exchange, which should improve the DMM units’ ability to maintain a fair and orderly market and also the broader market for those securities here on the Exchange and on other markets.17 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 In accordance with Section 6(b)(8) of the Act,18 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 Exchange believes that the proposed change would promote competition by facilitating the listing and trading of ETPs on the Exchange. The Exchange believes that without this proposed change, DMMs assigned to ETPs would be at a competitive disadvantage vis-a`vis registered market makers in the same ETP on competing exchanges or other market participants on the NYSE because if they were required to comply with requirements relating to Aggressing Transactions in Rule 104(g), they would be impeded in their ability to effectively make markets in their assigned ETP securities. The Exchange believes that the proposed heightened DMM quoting obligations in listed ETPs would promote competition by promoting the display of liquidity on an exchange, which would benefit all market participants. These proposed rule changes would facilitate the trading of Exchange-listed ETPs by DMMs on Pillar, which would enable the Exchange to further compete with 17 See 18 15 E:\FR\FM\25JNN1.SGM note 13, supra. U.S.C. 78f(b)(8). 25JNN1 29912 Federal Register / Vol. 84, No. 122 / Tuesday, June 25, 2019 / Notices unaffiliated exchange competitors that also trade ETPs. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: khammond on DSKBBV9HB2PROD with NOTICES 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–2019–34 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–2019–34. 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 VerDate Sep<11>2014 20:35 Jun 24, 2019 Jkt 247001 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–2019–34 and should be submitted on or before July 16, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Vanessa A. Countryman, Acting Secretary. [FR Doc. 2019–13407 Filed 6–24–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86155; File No. SR– CboeBZX–2019–057] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the American Century Focused Dynamic Growth ETF and American Century Focused Large Cap Value ETF Under Currently Proposed Rule 14.11(k) June 19, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 6, 2019, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes a rule change to list and trade shares of the following under currently proposed Rule 14.11(k): American Century Focused Dynamic Growth ETF and American Century Focused Large Cap Value ETF (each a ‘‘Fund’’ and, collectively, the ‘‘Funds’’). The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange has submitted a proposal to add new Rule 14.11(k) for the purpose of permitting the listing and trading of Managed Portfolio Shares, which are securities issued by an actively managed open-end investment management company, which has not yet been published by the Commission.3 3 As proposed, the term ‘‘Managed Portfolio Share’’ means a security that (a) represents an interest in a registered investment company (‘‘Investment Company’’) organized as an open-end management investment company, that invests in a portfolio of securities selected by the Investment Company’s investment adviser consistent with the Investment Company’s investment objectives and policies; (b) is issued in a specified aggregate minimum number of shares equal to a Creation Unit, or multiples thereof, in return for a designated portfolio of securities (and/or an amount of cash) with a value equal to the next determined net asset value which the AP Representative (defined below) will provide through a confidential account; and (c) when aggregated in the same specified aggregate number of shares equal to a Redemption Unit, or multiples thereof, may be redeemed at the request of an Authorized Participant (as defined in the Investment Company’s Form N–1A filed with the SEC), which Authorized Participant will be paid through a confidential account established for its benefit a portfolio of securities and/or cash with a E:\FR\FM\25JNN1.SGM 25JNN1

Agencies

[Federal Register Volume 84, Number 122 (Tuesday, June 25, 2019)]
[Notices]
[Pages 29908-29912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13407]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86151; File No. SR-NYSE-2019-34]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Amend Exchange Rule 104 To 
Specify Designated Market Maker Requirements for Exchange Traded 
Products Listed on the Exchange

June 19, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on June 7, 2019, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 104 to specify Designated 
Market Maker (``DMM'') requirements for Exchange Traded Products 
(``ETPs'') listed on the Exchange pursuant to Rules 5P and 8P. The 
proposed rule change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 104 (Dealings and 
Responsibilities of DMMs) to specify DMM requirements for ETPs listed 
on the Exchange pursuant to Rules 5P and 8P.
Background
    Currently, the Exchange trades securities, including ETPs, on its 
Pillar trading platform on an unlisted trading privileges (``UTP'') 
basis, subject to Pillar Platform Rules 1P-13P.\4\ In the next phase of 
Pillar, the Exchange proposes to transition trading of Exchange-listed 
securities to the Pillar trading platform, which means that DMMs would 
be trading on Pillar in their assigned securities.\5\ Once transitioned 
to Pillar, such securities

[[Page 29909]]

will also be subject to the Pillar Platform Rules 1P-13P.
---------------------------------------------------------------------------

    \4\ ``UTP Security'' is defined as a security that is listed on 
a national securities exchange other than the Exchange and that 
trades on the Exchange pursuant to unlisted trading privileges. See 
Rule 1.1.
    \5\ 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.
---------------------------------------------------------------------------

    Rules 5P (Securities Traded) and 8P (Trading of Certain Exchange 
Traded Products) provide for the listing of certain ETPs \6\ on the 
Exchange that (1) meet the applicable requirements set forth in those 
rules, and (2) do not have any component NMS Stock \7\ that is listed 
on the Exchange or is based on, or represents an interest in, an 
underlying index or reference asset that includes an NMS Stock listed 
on the Exchange. ETPs listed under Rules 5P and 8P are ``Tape A'' 
listings and would be traded pursuant to the rules applicable to NYSE-
listed securities.
---------------------------------------------------------------------------

    \6\ Rule 1.1P(k) defines ``Exchange Traded Product'' as a 
security that meets the definition of ``derivative securities 
product'' in Rule 19b-4(e) under the Act.
    \7\ NMS Stock is defined in Rule 600 of Regulation NMS, 17 CFR 
242.600(b)(47).
---------------------------------------------------------------------------

    The Exchange does not currently list any ETPs and anticipates that 
it would not do so until Exchange-listed securities transition to 
Pillar. Once an ETP is listed, it will be assigned to a DMM pursuant to 
Rule 103B. The DMMs' role with respect to ETPs assigned to them will be 
subject to the same DMM rules governing all other listed securities, 
including Rules 36, 98, and 104. For example, DMMs will be responsible 
for facilitating the opening, reopening, and close of trading for 
assigned ETPs as required by Rule 104(a)(2) and (3). To facilitate DMM 
trading of Exchange-listed ETPs pursuant to Rules 5P and 8P, with this 
proposed change, the Exchange proposes to amend Rule 104 relating 
specified DMM requirements.
Current Rule 104
    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'' or ``inside'') at 
least 15% of the trading day for securities with a consolidated average 
daily volume of less than one million shares, and at least 10% for 
securities with a consolidated average daily volume equal to or greater 
than one million shares,\8\ 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.\9\
---------------------------------------------------------------------------

    \8\ See Rule 104(a)(1)(A).
    \9\ 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(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. 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.\10\
---------------------------------------------------------------------------

    \10\ See Rule 104(f)(3).
---------------------------------------------------------------------------

    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. Rule 104(g) also describes certain 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. In addition, if 
a DMM unit engages in an ``Aggressing Transaction,'' i.e., a 
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, such DMM is subject to specified 
requirements to re-enter on the opposite side of the Aggressing 
Transaction. Rule 104(g) also prohibits DMM Aggressing Transactions in 
the last ten minutes of trading if the transaction that create a new 
high/low price for the security on the Exchange for the day at the time 
of the DMM's transaction, subject to certain exceptions.
Proposed Rule Change
    To reflect the differences in how ETPs trade and the unique role of 
exchange market makers in the trading of ETPs, in order to facilitate 
DMM trading of Exchange-listed ETPs pursuant to Rules 5P and 8P, the 
Exchange proposes certain amendments to Rule 104.
    Unlike operating company securities listed on the Exchange, the 
value of ETPs are derived from the underlying assets owned. The end-of-
day net asset value (``NAV'') of an ETP is a daily calculation based 
off the most recent closing prices of the underlying assets and an 
accounting of the ETP's total cash position at the time of calculation. 
The NAV generally is calculated by taking the sum of fund assets, 
including any securities and cash, subtracting liabilities, and 
dividing by the number of outstanding shares. Additionally, ETPs are 
generally subject to a creation and redemption mechanism to ensure that 
the ETP's price does not fluctuate too far away from NAV, which 
mechanisms mitigate the potential for exchange trading to impact the 
price of an ETP.
    Moreover, each business day, ETPs make publicly available a 
creation and redemption ``basket'' which may, for example, be in the 
form of a portfolio composition file (i.e., a specific list of names 
and quantities of securities or other assets designed to track the 
performance of the portfolio as a whole). ETP shares are created when 
an Authorized Participant, typically a market maker or other large 
institutional investor, deposits the daily creation basket or cash with 
the issuer. In return for the creation basket or cash (or both), a 
``creation unit'' is issued to the Authorized Participant that consists 
of a specified number of ETF shares.\11\
---------------------------------------------------------------------------

    \11\ For example, assume a given ETP is designed to track the 
performance of a specific index. An Authorized Participant will 
generally purchase certain of the constituent securities of that 
index, then deliver those shares to the issuer. In exchange, the 
issuer gives the Authorized Participant a block of equally valued 
ETP shares, on a one-for-one fair value basis. This process also 
works in reverse. A redemption is achieved when the Authorized 
Participant accumulates a sufficient number of shares to constitute 
a creation unit and then exchanges these shares with the issuer, 
thereby decreasing the supply of ETP shares in the marketplace.
---------------------------------------------------------------------------

    The principal, and perhaps most important, feature of ETPs is their 
reliance on an ``arbitrage function'' performed by market participants 
that influences the supply and demand of shares and, thus, trading 
prices relative to NAV. As noted above, new ETP shares can be created 
and existing shares redeemed based on investor demand; thus, ETP supply 
is generally open-ended. As the Commission has acknowledged, the 
arbitrage function helps to keep an ETP's price in line with the value 
of its underlying portfolio, i.e.,

[[Page 29910]]

it minimizes deviation from NAV.\12\ Generally, the higher the 
liquidity and trading volume of an ETP, the more likely the ETP's price 
will not deviate from the value of its underlying portfolio. Market 
makers registered in ETPs play a key role in this arbitrage function 
and DMMs, along with other market participants, would perform this role 
for ETPs listed on the Exchange. In short, the Exchange believes that 
the arbitrage mechanism is generally an effective and efficient means 
of ensuring that intraday pricing in ETPs closely tracks the value of 
the underlying portfolio or reference assets.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 75165, 80 FR 34729, 
34733 (June 17, 2015) (S7-11-15) (arbitrage ``generally helps to 
prevent the market price of ETP Securities from diverging 
significantly from the value of the ETP's underlying or reference 
assets''). See also generally id., 80 FR at 34739 (``In the 
Commission's experience, the deviation between the daily closing 
price of ETP Securities and their NAV, averaged across broad 
categories of ETP investment strategies and over time periods of 
several months, has been relatively small[,]'' although it had been 
``somewhat higher'' in the case of ETPs based on international 
indices.).
---------------------------------------------------------------------------

    To reflect the role of market makers--including DMMs--in the 
trading of ETPs, the Exchange proposes to amend Rule 104 in several 
respects. First, the Exchange proposes to exclude ETPs from the 
definition of ``Aggressing Transactions'' in Rule 104(g) (Transactions 
by DMMs) and, by extension, from the prohibition on Aggressing 
Transactions in 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 Exchange believes that because of the unique characteristics of 
ETPs--in particular, that ETPs trade at intra-day market prices rather 
than at NAV and the existence of arbitrage pricing mechanisms that are 
designed to help ensure that secondary market prices of ETP shares do 
not vary substantially from the NAV--the DMM obligations set forth in 
Rule 104(g) not only are not necessary, but also could impede the 
ability of a DMM to effectively make markets in ETPs. For example, a 
market maker engaging in the arbitrage function may need to update the 
quote for an ETP to bring the price of the security in line with the 
underlying assets. If updating the quote consistent with that arbitrage 
function were to require the DMM to first to engage in an Aggressing 
Transaction (i.e., to trade with the existing BBO in order to post a 
new quote), the Exchange believes that the current re-entry obligations 
for Aggressing Transactions would defeat the purpose of the DMM 
engaging in such Aggressing Transaction to update the quote in the 
first place. More specifically, the re-entry obligation could be 
inconsistent with the new quote that the DMM is seeking to post as part 
of the arbitrage function. Indeed, the Exchange believes that without 
the proposed changes, DMMs assigned to ETPs would be at a competitive 
disadvantage vis-[agrave]-vis registered market makers in the same ETP 
on competing exchanges as well as other market participants on the NYSE 
and would be impeded in their ability to effectively make competitive 
markets in their assigned ETP securities.
    For similar reasons, the Exchange does not believe that DMMs should 
be prohibited from engaging in Aggressing Transactions in the last ten 
minutes of trading. While DMMs will be responsible for facilitating the 
closing transaction pursuant to Rule 104(a)(3), given the nature of 
ETPs and how they are priced, the Exchange does not believe that the 
DMM will have any unique pricing power either leading into the close or 
when facilitating the close. In the ten minutes leading into the close, 
to perform its role as market maker, the DMM will continue to price 
such securities consistent with the arbitrage functions described 
above. And for the close, because an ETP should be priced at or very 
close the ETP's NAV, the Exchange believes that this pricing pressure 
will mitigate the potential for a DMM to influence the price of the 
ETP. In both cases, if a DMM's quotes become inconsistent with the 
value of the underlying basket, other market participants can profit by 
employing the arbitrage function and re-establishing consistency with 
the underlying basket similar to intraday trading of ETPs.
    To maintain the balance between DMM benefits and obligations under 
Rule 104, the Exchange proposes to amend Rule 104 to require heightened 
DMM quoting obligations for Exchange-listed ETPs. As proposed, for 
listed ETPs, DMMs would be required to maintain a bid or offer at the 
NBB and NBO at least 25% of the trading day. Time at the inside for 
ETPs would be calculated in the same way as other securities in which 
DMM units are registered as the average of the percentage of time the 
DMM unit has a bid or offer at the inside. In other words, this would 
be a portfolio-based quoting requirement. Orders entered by the DMM in 
ETPs that are not displayed would not be included in the inside quote 
calculation as is also currently the case for other securities in which 
DMM units are registered. Reserve or other non-displayed orders entered 
by the DMM in their assigned ETP would not be included in the inside 
quote calculations.
    To effectuate this change, Rule 104(a)(1)(A) would be amended as 
follows:
     The phrase ``for securities in which the DMM unit is 
registered'' would be added following the first sentence in Rule 
104(a)(1)(A) and the comma following that initial sentence would be 
removed;
     New subsections (i), (ii) and (iii) would be created;
     The phrase ``that are not ETPs'' would be added following 
``at least 15% of the trading day for securities'' in new subsection 
(i) and ``in which the DMM unit is registered'' would be deleted;
     The phrase ``of the trading day'' \13\ would added after 
``at least 10%'' and ``that are not ETPs'' would be added after ``for 
securities'' in new subsection (ii). The phrase ``in which the DMM unit 
is registered'' would be deleted since it would appear in the first 
sentence of the amended rule;
---------------------------------------------------------------------------

    \13\ This is a non-substantive conforming change that would 
mirror the current rule text for the 15% requirement.
---------------------------------------------------------------------------

     New subdivision (iii) providing that DMM units must 
maintain a bid or an offer at the inside ``at least 25% of the trading 
day for ETPs'' would be added; and
     The phrase ``respective percentage'' would replace ``15% 
and 10%'' in the next to last sentence of Rule 104(a)(1)(A) and ``non-
displayed'' would replace ``hidden'' in the last sentence of the rule.
    The Exchange also proposes non-substantive amendments to replace 
the terms ``stock'' and ``stocks'' in Rule 104(f)(2) (Function of DMMs) 
with the terms ``security'' and ``securities,'' respectively. The 
Exchange would also add a new subsection (5) to Rule 104(f) providing 
that, for those ETPs in which they are registered, DMM units will be 
responsible for the affirmative obligation of maintaining a fair and 
orderly market, including maintaining price continuity with reasonable 
depth for their registered ETPs in accordance with Depth Guidelines 
published by the Exchange. To provide the Exchange time to collect 
trading data adequate to calculate appropriate Depth Guidelines for 
listed ETPs, the Exchange proposes that these provisions would not be 
operative until 18 weeks after the approval of the proposed rule change 
by the Commission.\14\
---------------------------------------------------------------------------

    \14\ See, e.g., Securities Exchange Act Release Nos. 62479 (July 
9, 2010), 75 FR 41264, 41265 (July 15, 2010) (SR-NYSEAmex-2010-31) 
(providing for a delayed implementation of Depth Guidelines to 
enable the collection of trading data adequate to calculate the 
guidelines in connection with the Floor-based DMM trading of Nasdaq 
securities on a UTP basis). Such an approach is necessary so that 
appropriate Depth Guidelines may be calculated based on actual 
trading data on the Exchange. Accordingly, following implementation 
and roll-out of the pilot program, the Exchange proposes to collect 
60 trading days of trade data before implementing Depth Guidelines 
for trading ETPs securities on the Exchange within 30 calendar days 
of the collection of the trade data. See generally id., 75 FR at 
41267 & n. 19.

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[[Page 29911]]

2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\16\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that proposed requirements for 
DMM trading of ETPs would remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
facilitating market making by DMMs in listed ETPs and maintaining the 
Exchange's current structure to trade listed securities. The Exchange 
believes that the proposed exclusion of listed ETPs from the 
requirements of Rule 104(g) would not be inconsistent with the public 
interest and the protection of investors because the unique 
characteristics of ETPs, including that ETPs trade at intra-day market 
prices rather than end-of-day NAV and are constrained by arbitrage 
pricing mechanisms that are designed to ensure that secondary market 
prices of ETP shares do not vary substantially from the NAV, render 
those obligations unnecessary or potentially even harmful. As discussed 
above, the Exchange also believes the DMM obligations set forth in Rule 
104(g) could impede the ability of a DMM to effectively make markets in 
ETPs. For similar reasons, excluding listed ETPs from the prohibition 
on Aggressing Transactions in the last ten minutes of trading would not 
be inconsistent with the public interest and the protection of 
investors because, given the nature of ETPs and how they are priced, 
DMMs will not have any unique pricing power either leading into the 
close or when facilitating the close and these restrictions could end 
up impeding the alignment of ETP price with the underlying basket. 
Rather, in the ten minutes leading into the close, DMM will continue to 
price such securities consistent with the arbitrage functions described 
above and, because an ETP should be priced at NAV, the Exchange 
believes that this pricing pressure will reduce the potential for a DMM 
to potentially manipulate the price of ETPs going into the close.
    The Exchange believes that the proposed heightened quoting 
obligations for DMMs in listed ETPs requiring maintenance of a bid or 
offer at the inside of at least 25% of the trading day would maintain 
the balance of benefits and obligations under Rule 104 because 
exclusion of listed ETPs from the requirements of Rule 104(g) would be 
offset by the heightened DMM quoting obligations for listed ETPs. DMMs 
would also be required to facilitate the opening, reopening, and 
closing of listed ETPs assigned to them, as required by Rule 104(a)(2) 
and (3), which is an obligation unique to the Exchange. As noted, 
listed ETPs would also be subject to the requirement that 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 are designed to ensure that DMM transactions in 
listed ETPs 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.
    The proposed heightened quoting obligation for listed ETPs assigned 
to a DMM would also encourage additional stable displayed liquidity on 
the Exchange in listed securities, thereby promoting price discovery 
and transparency. The Exchange further believes that by establishing 
distinct requirements for DMMs, the proposal is also designed to 
prevent fraudulent and manipulative acts and practices and to promote 
just and equitable principles of trade.
    The Exchange believes that the proposal would not be inconsistent 
with the public interest and the protection of investors. As noted, the 
proposal would subject DMMs to the Exchange's current structure for 
trading listed securities and the responsibilities and duties of DMMs 
set forth in Rule 104, including facilitating openings, reopenings, and 
closings and adding a heightened quoting obligation at the inside. In 
addition, the proposed rule would subject listed ETPs to 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. Although the implementation of 
Depth Guidelines will be delayed, DMM units will still have the 
obligation once ETPs are listed and begin trading to maintain a fair 
and orderly market. The Exchange believes that the delayed 
implementation of Depth Guidelines will allow it to develop guidelines 
that are appropriately tailored for how ETPs will trade on the 
Exchange, which should improve the DMM units' ability to maintain a 
fair and orderly market and also the broader market for those 
securities here on the Exchange and on other markets.\17\
---------------------------------------------------------------------------

    \17\ See note 13, supra.
---------------------------------------------------------------------------

    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

    In accordance with Section 6(b)(8) of the Act,\18\ 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 Exchange believes that the proposed change 
would promote competition by facilitating the listing and trading of 
ETPs on the Exchange. The Exchange believes that without this proposed 
change, DMMs assigned to ETPs would be at a competitive disadvantage 
vis-[agrave]-vis registered market makers in the same ETP on competing 
exchanges or other market participants on the NYSE because if they were 
required to comply with requirements relating to Aggressing 
Transactions in Rule 104(g), they would be impeded in their ability to 
effectively make markets in their assigned ETP securities. The Exchange 
believes that the proposed heightened DMM quoting obligations in listed 
ETPs would promote competition by promoting the display of liquidity on 
an exchange, which would benefit all market participants. These 
proposed rule changes would facilitate the trading of Exchange-listed 
ETPs by DMMs on Pillar, which would enable the Exchange to further 
compete with

[[Page 29912]]

unaffiliated exchange competitors that also trade ETPs.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

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-2019-34 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-2019-34. 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-2019-34 and should be submitted on 
or before July 16, 2019.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-13407 Filed 6-24-19; 8:45 am]
 BILLING CODE 8011-01-P
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