Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing of Proposed Rule Change for Trading Rules To Support the Transition of Trading to the Pillar Trading Platform, 44654-44667 [2019-18269]
Download as PDF
<![CDATA[
44654
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
khammond on DSKBBV9HB2PROD with NOTICES
Funds to pay redemption proceeds
within fifteen calendar days following
the tender of Creation Units for
redemption. Applicants assert that the
requested relief would not be
inconsistent with the spirit and intent of
section 22(e) to prevent unreasonable,
undisclosed or unforeseen delays in the
actual payment of redemption proceeds.
7. Applicants request an exemption to
permit Funds of Funds to acquire Fund
shares beyond the limits of section
12(d)(1)(A) of the Act; and the Funds,
and any principal underwriter for the
Funds, and/or any broker or dealer
registered under the Exchange Act, to
sell shares to Funds of Funds beyond
the limits of section 12(d)(1)(B) of the
Act. The application’s terms and
conditions are designed to, among other
things, help prevent any potential (i)
undue influence over a Fund through
control or voting power, or in
connection with certain services,
transactions, and underwritings, (ii)
excessive layering of fees, and (iii)
overly complex fund structures, which
are the concerns underlying the limits
in sections 12(d)(1)(A) and (B) of the
Act.
8. Applicants request an exemption
from sections 17(a)(1) and 17(a)(2) of the
Act to permit persons that are Affiliated
Persons, or Second Tier Affiliates, of the
Funds, solely by virtue of certain
ownership interests, to effectuate
purchases and redemptions in-kind. The
deposit procedures for in-kind
purchases of Creation Units and the
redemption procedures for in-kind
redemptions of Creation Units will be
the same for all purchases and
redemptions, and Deposit Instruments
and Redemption Instruments will be
valued in the same manner as those
investment positions currently held by
the Funds. Applicants also seek relief
from the prohibitions on affiliated
transactions in section 17(a) to permit a
Fund to sell its shares to and redeem its
shares from a Fund of Funds, and to
engage in the accompanying in-kind
transactions with the Fund of Funds.3
The purchase of Creation Units by a
Fund of Funds directly from a Fund will
be accomplished in accordance with the
policies of the Fund of Funds and will
be based on the NAVs of the Funds.
3 The requested relief would apply to direct sales
of shares in Creation Units by a Fund to a Fund of
Funds and redemptions of those shares. Applicants,
moreover, are not seeking relief from section 17(a)
for, and the requested relief will not apply to,
transactions where a Fund could be deemed an
Affiliated Person, or a Second-Tier Affiliate, of a
Fund of Funds because an Adviser or an entity
controlling, controlled by or under common control
with an Adviser provides investment advisory
services to that Fund of Funds.
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
9. Section 6(c) of the Act permits the
Commission to exempt any persons or
transactions from any provision of the
Act if such exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities, or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Section 17(b) of the Act authorizes the
Commission to grant an order
permitting a transaction otherwise
prohibited by section 17(a) if it finds
that (a) the terms of the proposed
transaction are fair and reasonable and
do not involve overreaching on the part
of any person concerned; (b) the
proposed transaction is consistent with
the policies of each registered
investment company involved; and (c)
the proposed transaction is consistent
with the general purposes of the Act.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–18329 Filed 8–23–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86709; File No. SR–
NYSECHX–2019–08]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing of
Proposed Rule Change for Trading
Rules To Support the Transition of
Trading to the Pillar Trading Platform
August 20, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
6, 2019, the NYSE Chicago, Inc. (‘‘NYSE
Chicago’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
PO 00000
Frm 00057
Fmt 4703
Sfmt 4703
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to trading
rules to support the transition of trading
to the Pillar trading platform. The
proposed 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 trading rules
to support the transition of its trading
platform to Pillar, which is an integrated
trading technology platform designed to
use a single specification for connecting
to the equities and options markets
operated by the Exchange and its
affiliates, NYSE Arca, Inc. (‘‘NYSE
Arca’’), NYSE American, LLC (‘‘NYSE
American’’), NYSE National, Inc.
(‘‘NYSE National’’), and New York
Stock Exchange LLC (‘‘NYSE’’) (the
‘‘Affiliated Exchanges’’).
Subject to rule approvals, the
Exchange anticipates that it will
transition trading to Pillar in the fourth
quarter 2019.4
1. Background
In July 2018, the Exchange and its
direct parent company were acquired by
NYSE Group, Inc. (‘‘Transaction’’).5 As
4 The Exchange has announced that, subject to
rule approvals, the Exchange will transition to
trading on Pillar on November 4, 2019. See Trader
Update, available here: https://www.nyse.com/
publicdocs/nyse/markets/nyse-chicago/NYSE_
Chicago_Migration.pdf.
5 See Exchange Act Release No. 83635 (July 13,
2018), 83 FR 34182 (July 19, 2018) (SR–CHX–2018–
004); see also Exchange Act Release No. 83303 (May
22, 2018), 83 FR 24517 (May 29, 2018) (SR–CHX–
2018–004).
E:\FR\FM\26AUN1.SGM
26AUN1
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
khammond on DSKBBV9HB2PROD with NOTICES
a result of the Transaction, the Exchange
became part of a corporate family
including the Affiliated Exchanges.
Following the Transaction, the
Exchange continued to operate as a
separate self-regulatory organization
with rules, membership rosters and
listings distinct from the rules,
membership rosters and listings of the
other Affiliated Exchanges.
With Pillar, the Exchange proposes to
transition trading in all Tape A, Tape B,
and Tape C-listed securities from its
current trading platform to a fully
automated price-time priority allocation
model that operates on the Pillar trading
platform. From the perspective of a
Participant,6 the experience trading on
Pillar will be most similar to trading on
NYSE Arca or NYSE National, as the
Exchange would offer the same suite of
orders and modifiers as are available on
those exchanges.7 Accordingly, the
Exchange proposes trading rules based
on the rules and trading model of the
cash equities platforms of NYSE Arca
and NYSE National, which both operate
fully automated price-time priority
allocation exchanges on the Pillar
trading platform. Specifically, the
Exchange proposes rules relating to
orders and modifiers, ranking and
display of orders, execution and routing
of orders, and all other trading
functionality that are based on the rules
6 The term ‘‘Participant’’ is defined in Article 1,
Rule 1(s) to mean, among other things, any
Participant Firm that holds a valid Trading Permit
and that a Participant shall be considered a
‘‘member’’ of the Exchange for purposes of the Act.
If a Participant is not a natural person, the
Participant may also be referred to as a Participant
Firm, but unless the context requires otherwise, the
term Participant shall refer to an individual
Participant and/or a Participant Firm.
7 NYSE National was the most recent Affiliated
Exchange to begin trading on the Pillar trading
platform. See Securities Exchange Act Release No.
83289 (May 17, 2018), 83 FR 23968 (May 23, 2018)
(SR–NYSENat–2018–02) (Order approving rule
change to support the re-launch of NYSE National
on the Pillar trading platform). Since launching,
NYSE National has amended its Pillar trading rules,
and the Exchange’s proposed rules are based on the
current version of NYSE National’s rules. See
Securities Exchange Act Release Nos. 83900
(August 22, 2018), 83 FR 43942 (August 28, 2018)
(SR–NYSENat–2019–19) (Notice of filing and
immediate effectiveness of proposed rule change
relating to NYSE National Rule 7.31); 85144
(February 13, 2019), 84 F8 5519 (February 21, 2019)
(SR–NYSENat-2019–02) (Notice of filing and
immediate effectiveness of proposed rule change
relating to NYSE National Rule 7.31); 85264 (March
7, 2019), 84 FR 9168 (March 13, 2019) (SR–
NYSENat–2019–04) (Notice of filing and immediate
effectiveness of proposed rule change relating to
NYSE National Rules 7.16, 7.18, 7.34, and 7.38);
85572 (April 9, 2019), 84 FR 15257 (April 15, 2019)
(SR–NYSENat–2019–08) (Notice of filing and
immediate effectiveness of proposed rule change to
NYSE National Rule 7.12); 85723 (April 25, 2019),
84 FR 18618 (May 1, 2019) (SR–NYSENat–2019–10)
(Notice of filing and immediate effectiveness of
proposed rule change to NYSE National Rule 7.11).
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
of those exchanges.8 The Exchange will
continue to support its dual listings but
will not provide trading functions, such
as auctions, that support the operation
of a primary listing exchange.9
Accordingly, once it transitions to
Pillar, NYSE Chicago will function most
similarly to NYSE National, which is
not a listing exchange.
The Exchange proposes four
substantive differences from how
trading on NYSE Arca and NYSE
National function:
• First, the Exchange would continue
to support Institutional Brokers,10 as
provided for under Article 17. As
described in greater detail below, the
Exchange proposes to amend the rules
set forth under Article 17 only as
necessary to support differences in the
Pillar trading platform as compared to
the Exchange’s current trading rules.
• Second, the Exchange would
continue to support an order type to
facilitate compliance with the
contingent trade exemption of Rule 611
of Regulation NMS, which is currently
described in Article 1, Rule 2(b)(2)(E).
While NYSE Arca and NYSE National
both describe this exemption in their
respective rules,11 neither exchange
offers a specific order type designed for
this exemption. Similar to current
Exchange rules, on Pillar, the Exchange
will continue to support a Qualified
Contingent Trade (‘‘QCT’’) cross order
type that is designed for an Institutional
Broker to comply with the contingent
trade exemption, which will be
described in proposed Rule 7.31(g).
• Third, the Exchange will continue
to support non-regular way settlement
instructions for cross orders and the
8 NYSE American’s cash equities market and
NYSE also operate on the Pillar trading platform
and share a substantial number of trading functions
and Pillar platform rules with NYSE Arca and
NYSE National (see generally NYSE American Rule
7–E (Equities Trading) and NYSE Rule 7P (Equities
Trading)). NYSE American operates with a Delay
Mechanism and as a result, does not offer all of the
order types that are available on NYSE Arca and
NYSE National (see NYSE American Rules 7.29 and
7.31). NYSE operates a Floor-based parity allocation
model and offers order types that differ from those
available on NYSE Arca and NYSE National (see
NYSE Rules 7.31, 7.36, and 7.37). Because of those
differences, which the Exchange does not propose,
the Exchange will not cite to either NYSE American
or NYSE Pillar rules in this filing, even if those
exchanges have similar rules to what is being
proposed for the Exchange.
9 Information about the securities dually listed on
the Exchange is available here: https://
www.nyse.com/markets/nyse-chicago/listings.
10 The term ‘‘Institutional Broker’’ is defined in
Article 1, Rule 1(n) to mean a member of the
Exchange who is registered as an Institutional
Broker pursuant to the provisions of Article 17 and
has satisfied all Exchange requirements to operate
as an Institutional Broker on the Exchange.
11 See NYSE Arca Rule 7.37–E(f)(5) and NYSE
National Rule 7.37(f)(5).
PO 00000
Frm 00058
Fmt 4703
Sfmt 4703
44655
ability for cross orders to be submitted
in an increment as small as $0.000001.
These proposed differences from NYSE
Arca and NYSE National would be set
forth in proposed Rules 7.6, 7.8, and
7.8A.
• Fourth, the Exchange will not
support Market Makers on the
Exchange. Accordingly, the Exchange
does not propose rules based on Section
2 of NYSE Arca Rule 7–E or Section 2
of NYSE National Rule 7 and will not
offer the ‘‘Q’’ Order type, as described
in NYSE Arca Rule 7.31–E(j) and NYSE
National Rule 7.31(j).
Once trading on the Pillar trading
platform begins, specified current
Exchange rules would not be applicable,
as described in greater detail below. For
each current rule (or Article) that would
not be applicable for trading on the
Pillar trading platform, the Exchange
proposes to state in a preamble to such
rule that ‘‘this Rule/Article is not
applicable to trading on the Pillar
trading platform.’’ 12
Current Exchange rules that do not
have this preamble will continue to
govern Exchange operations after the
transition to Pillar. Specifically, the
following current rules will continue to
be operative without any substantive
changes: Article 2 (Committees); Article
3 (Participants and Participant Firms);
Article 5 (except for Rule 1) (Access to
the Exchange); Article 6 (Registration,
Supervision and Training); Article 7
(Financial Responsibility and Reporting
Requirements); Article 8 (except for
Rule 17) (Business Conduct); Article 9
(except for Rule 23) (General Trading
Rules); Article 10 (Margins); Article 11
(except for Rule 3(b)(8)) (Participant
Books and Records); Article 12
(Disciplinary Matters and Trial
Proceedings); Article 13 (Suspension—
Reinstatement); Article 14 (Arbitration);
Article 15 (Hearings and Reviews);
Article 21 (Clearance and Settlement);
and Article 22 (Listed Securities).
2. Proposed Rule Changes
The Exchange recently adopted the
rule numbering framework of NYSE
National rules, which are organized in
13 Rules.13 This framework will
12 The NYSE uses the same convention to identify
the NYSE trading rules that are not applicable to
trading on Pillar. See Securities Exchange Act
Release Nos. 82945 (March 26, 2018), 83 FR 13553,
13555 (March 29, 2018) (SR–NYSE–2017–36)
(Approval Order) and 85962 (May 29, 2019), 84 FR
26188, 26189 (June 5, 2019) (SR–NYSE–2019–05)
(Approval Order).
13 See Securities Exchange Act Release No. 85297
(March 12, 2019), 84 FR 9854 (March 18, 2019) (SR–
NYSECHX–2019–03) (Notice of Filing and
Immediate Effectiveness) (‘‘Framework Filing’’).
E:\FR\FM\26AUN1.SGM
26AUN1
44656
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
eventually replace the Exchange’s
current rule numbering framework.
With this filing, and as described in
greater detail below, the Exchange
proposes to expand on the Framework
Filing by adding new rules relating to
trading on the Pillar trading platform
(proposed Rules 0, 1, 2, and 7).
Similar to NYSE National, the
Exchange proposes the following nonsubstantive differences throughout the
proposed Pillar rules as compared to the
NYSE Arca rules:
• To use the term ‘‘Exchange’’ instead
of ‘‘NYSE Arca Marketplace;’’
• to use the term ‘‘Exchange Act,’’
which is a proposed defined term;
• to use the term ‘‘Exchange Book’’
instead of ‘‘NYSE Arca Book;’’
• to use the term ‘‘will’’ instead of
‘‘shall;’’ and
• to use the term ‘‘Participant’’
instead of ‘‘ETP Holder.’’
Rule 0—Regulation of the Exchange and
Participants
As described in the Framework Filing,
Rule 0 establishes the regulation of the
Exchange and Participants. As
proposed, Rule 0 would provide that:
The Exchange and FINRA are parties to a
Regulatory Services Agreement (‘‘RSA’’)
pursuant to which FINRA has agreed to
perform certain regulatory functions of the
Exchange on behalf of the Exchange.
Exchange Rules that refer to Exchange staff
and Exchange departments should be
understood as also referring to FINRA staff
and FINRA departments acting on behalf of
the Exchange pursuant to the RSA, as
applicable. Notwithstanding the fact that the
Exchange has entered into an RSA with
FINRA to perform certain of the Exchange’s
functions, the Exchange shall retain ultimate
legal responsibility for, and control of, such
functions.
khammond on DSKBBV9HB2PROD with NOTICES
This proposed rule is based on NYSE
National Rule 0 and NYSE Arca Rule 0
without any substantive differences.
Because NYSE Chicago now has an RSA
with FINRA, the Exchange proposes
Rule 0, which would be a new Exchange
rule.
Rule 1—Definitions
As described in the Framework Filing,
Rule 1 would set forth definitions
applicable to trading on the Exchange’s
Pillar trading platform. Proposed Rule
1.1 includes definitions that are based
on NYSE National Rule 1.1 definitions
and NYSE Arca Rule 1.1 definitions.
Proposed Rule 1.1 would provide that
as used in Exchange rules, unless the
context requires otherwise, the terms in
proposed Rule 1.1 would have the
meanings indicated. This rule is based
on NYSE National Rule 1.1. The
Exchange proposes sub-paragraph
numbering for Rule 1.1 that aligns to the
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
alphabetical ordering of the proposed
definitions. The Exchange proposes the
following definitions:
• Proposed Rule 1.1(a) would define
the terms ‘‘Authorized Trader’’ or ‘‘AT’’
to mean a person who may submit
orders to the Exchange’s Trading
Facilities on behalf of his or her
Participant. This proposed rule is based
on NYSE National 1.1(a) and NYSE Arca
Rule 1.1(e) without any substantive
differences.
• Proposed Rule 1.1(b) would define
the term ‘‘Away Market’’ to mean any
exchange, alternative trading system
(‘‘ATS’’) or other broker-dealer (1) with
which the Exchange maintains an
electronic linkage and (2) that provides
instantaneous responses to orders
routed from the Exchange. The
Exchange will designate from time to
time those ATS’s or other broker-dealers
that qualify as Away Markets. This
proposed rule is based on NYSE
National Rule 1.1(b) and NYSE Arca
Rule 1.1(f) without any substantive
differences.
• Proposed Rule 1.1(c) would define
the term ‘‘BBO’’ to mean the best bid or
offer that is a Protected Quotation on the
Exchange and that the term ‘‘BB’’ means
the best bid that is a Protected
Quotation on the Exchange and the term
‘‘BO’’ means the best offer that is a
Protected Quotation on the Exchange.
This proposed rule is based on NYSE
National Rule 1.1(c) and NYSE Arca
Rule 1.1(g) without any substantive
differences.
• Proposed Rule 1.1(d) would define
the terms ‘‘Board’’ and ‘‘Board of
Directors’’ to mean the Board of
Directors of NYSE Chicago, Inc. This
proposed rule is based on NYSE
National Rule 1.1(d) and NYSE Arca
Rule 1.1(h).
• Proposed Rule 1.1(e) would define
the term ‘‘Core Trading Hours’’ to mean
the hours of 9:30 a.m. Eastern Time
through 4:00 p.m. Eastern Time or such
other hours as may be determined by
the Exchange from time to time. This
proposed rule is based on NYSE
National Rule 1.1(e) and NYSE Arca
Rule 1.1(j). Proposed Rule 1.1(e) would
also provide that all times in the Pillar
Platform Rules are Eastern Time, which
text is based on NYSE Rule 1.1(d).
Because all times would be Eastern
Time, the Exchange proposes that
Article 1, Rule 3 would not be
applicable to trading on Pillar.
• Proposed Rule 1.1(f) would define
the terms ‘‘Effective National Market
System Plan’’ and ‘‘Regular Trading
Hours’’ to have the meanings set forth
in Rule 600(b) of Regulation NMS under
the Exchange Act. This proposed rule is
PO 00000
Frm 00059
Fmt 4703
Sfmt 4703
based on NYSE National Rule 1.1(f) and
NYSE Arca Rule 1.1(l).
• Proposed Rule 1.1(g) would define
the term ‘‘Eligible Security’’ to mean
any equity security (i) traded on the
Exchange pursuant to a grant of unlisted
trading privileges under Section 12(f) of
the Exchange Act and (ii) specified by
the Exchange to be traded on the
Exchange or other facility, as the case
may be. This proposed rule is based on
NYSE National Rule 1.1(g) and NYSE
Arca Rule 1.1(m).
• Proposed Rule 1.1(h) would define
the term ‘‘Exchange’’ to mean NYSE
Chicago, Inc. This proposed rule is
based on NYSE National Rule 1.1(j).
• Proposed Rule 1.1(i) would define
the term ‘‘Exchange Act’’ to mean the
Securities Exchange Act of 1934, as
amended. This proposed rule is based
on NYSE National Rule 1.1(k) and NYSE
Arca Rule 1.1(q).
• Proposed Rule 1.1(j) would define
the term ‘‘Exchange Book’’ to mean the
Exchange’s electronic file of displayed
and non-displayed orders. This
proposed rule is based on NYSE
National Rule 1.1(l).
• Proposed Rule 1.1(k) would define
the term ‘‘Exchange Traded Product’’ to
mean a security that meets the
definition of ‘‘derivative securities
product’’ in Rule 19b–4(e) under the
Exchange Act and would define the
term ‘‘UTP Exchange Traded Product’’
to mean one of the following Exchange
Traded Products that trades on the
Exchange pursuant to unlisted trading
privileges: Equity Linked Notes,
Investment Company Units, IndexLinked Exchangeable Notes, Equity
Gold Shares, Equity Index-Linked
Securities, Commodity-Linked
Securities, Currency-Linked Securities,
Fixed-Income Index-Linked Securities,
Futures-Linked Securities, MultifactorIndex-Linked Securities, Trust
Certificates, Currency and Index
Warrants, Portfolio Depository Receipts,
Trust Issued Receipts, CommodityBased Trust Shares, Currency Trust
Shares, Commodity Index Trust Shares,
Commodity Futures Trust Shares,
Partnership Units, Paired Trust Shares,
Trust Units, Managed Fund Shares, and
Managed Trust Securities. This
proposed rule is based on NYSE
National Rule 1.1(m). This enumerated
list is designed to establish rules
relating to the classes of securities to
which the Exchange would extend
unlisted trading privileges on Pillar.
• Proposed Rule 1.1(l) would define
the term ‘‘FINRA’’ to mean the Financial
Industry Regulatory Authority, Inc. This
proposed rule is based on NYSE
National Rule 1.1(n).
E:\FR\FM\26AUN1.SGM
26AUN1
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
khammond on DSKBBV9HB2PROD with NOTICES
• Proposed Rule 1.1(m) would define
the term ‘‘Marketable’’ to mean, for a
Limit Order, an order that can be
immediately executed or routed and
that Market Orders are always
considered marketable. This proposed
rule is based on NYSE National Rule
1.1(p) and NYSE Arca Rule 1.1(y).
• Proposed Rule 1.1(n) would define
the terms ‘‘NBBO, Best Protected Bid,
Best Protected Offer, and Protected Best
Bid and Offer (PBBO)’’. The term
‘‘NBBO’’ would mean the national best
bid or offer, as defined in Rule
600(b)(42) of Regulation NMS. The
terms ‘‘NBB’’ would mean the national
best bid and ‘‘NBO’’ would mean the
national best offer. The terms ‘‘Best
Protected Bid’’ or ‘‘PBB’’ would mean
the highest Protected Bid, and ‘‘Best
Protected Offer’’ or ‘‘PBO’’ would mean
the lowest Protected Offer, and the term
‘‘Protected Best Bid and Offer’’
(‘‘PBBO’’) would mean the Best
Protected Bid and the Best Protected
Offer, as those terms are defined in Rule
600(b)(57) of Regulation NMS. This
proposed rule is based on NYSE
National Rule 1.1(t) and NYSE Arca
Rule 1.1(dd).
The Exchange proposes to calculate
the NBBO and PBBO in the same
manner that NYSE Arca calculates the
NBBO and PBBO.14 As described in the
NYSE Arca Data Feed Filing, the NBBO
may differ from the PBBO because the
NBBO includes Manual Quotations,
which are defined as any quotation
other than an automated quotation. By
contrast, a protected quotation is an
automated quotation that is the best bid
or offer of a national securities
exchange.15 Another difference between
NBBO and PBBO is that when the
Exchange routes interest to a protected
quotation, it will adjust the PBBO.
Accordingly, for this additional reason,
the PBBO may differ from the NBBO,
which the Exchange does not adjust
based on interest it routes to protected
quotations. As described in greater
detail below, the Exchange proposed to
use both the NBBO and PBBO for
purposes of order types that may be
priced based on an external reference
price.
• Proposed Rule 1.1(o) would define
the term ‘‘NMS Stock’’ to mean any
14 See Securities Exchange Act Release No. 74409
(March 2, 2015), 80 FR 12221 (March 6, 2015) (SR–
NYSEArca–2015–11) (Notice of filing and
immediate effectiveness of proposed rule change
specifying NYSE Arca’s use of certain data feeds for
handling and execution, order routing, and
regulatory compliance) (‘‘NYSE Arca Data Feed
Filing’’). The Exchange proposes to establish the
data feeds that it uses for handling, execution, and
routing of orders in proposed Rule 7.37, described
below.
15 See id. at 12222 n.9.
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
security, other than an option, for which
transaction reports are collected,
processed, and made available pursuant
to an effective transaction reporting plan
as defined in Rule 600(b)(47) of
Regulation NMS. This proposed rule is
based on NYSE National Rule 1.1(u).
• Proposed Rule 1.1(p) would define
the term ‘‘NYSE Chicago Marketplace’’
to mean the electronic securities
communications and trading facility of
the Exchange through which orders are
processed or are consolidated for
execution and/or display. This proposed
definition is based on NYSE Arca Rule
1.1(kk) and NYSE American Rule
1.1E(e) without any substantive
differences. As described in greater
detail below, the Exchange proposes to
use this definition to replace references
to the term ‘‘Matching System’’ in the
current rules that would continue to be
applicable after the Exchange transitions
to Pillar.
• Proposed Rule 1.1(q) would define
the term ‘‘Protected Bid’’ or ‘‘Protected
Offer’’ to mean a quotation in an NMS
Stock that is (i) displayed by an
Automated Trading Center; (ii)
disseminated pursuant to an effective
national market system plan; and (iii) an
Automated Quotation that is the best
bid or best offer of a national securities
exchange or the best bid or best offer of
a national securities association. The
term ‘‘Protected Quotation’’ would
mean a quotation that is a Protected Bid
or Protected Offer. For purposes of the
foregoing definitions, the terms
‘‘Automated Trading Center,’’
‘‘Automated Quotation,’’ ‘‘Manual
Quotation,’’ ‘‘Best Bid,’’ and ‘‘Best
Offer,’’ would have the meanings
ascribed to them in Rule 600(b) of
Regulation NMS under the Exchange
Act. This proposed rule is based on
NYSE National Rule 1.1(aa) without any
substantive differences.
• Proposed Rule 1.1(r) would define
the term ‘‘Security’’ and ‘‘Securities’’ to
mean any security as defined in Rule
3(a)(10) under the Exchange Act,
provided, that for purposes of Rule 7,
such term would mean any NMS Stock.
This proposed rule is based on NYSE
National Rule 1.1(bb) and NYSE Arca
Rule 1.1(vv).
• Proposed Rule 1.1(s) would define
the term ‘‘self-regulatory organization’’
and ‘‘SRO’’ to have the same meaning as
set forth in the provisions of the
Exchange Act relating to national
securities exchanges. This proposed rule
is based on NYSE National Rule 1.1(ee)
and NYSE Arca Rule 1.1(ww) without
any substantive differences.
• Proposed Rule 1.1(t) would define
the term ‘‘trade-through’’ to mean the
purchase or sale of an NMS Stock
PO 00000
Frm 00060
Fmt 4703
Sfmt 4703
44657
during regular trading hours, either as
principal or agent, at a price that is
lower than a Protected Bid or higher
than a Protected Offer. This proposed
rule is based on NYSE National Rule
1.1(ff) and NYSE Arca Rule 1.1(bbb)
without any substantive differences.
• Proposed Rule 1.1(u) would define
the term ‘‘Trading Center’’ to mean, for
purposes of Rule 7, a national securities
exchange or a national securities
association that operates an SRO trading
facility, an alternative trading system,
an exchange market maker, an OTC
market maker or any other broker or
dealer that executes orders internally by
trading as principal or crossing orders as
agent. For purposes of this definition,
the terms ‘‘SRO trading facility,’’
‘‘alternative trading system,’’ ‘‘exchange
market maker’’ and ‘‘OTC market
maker’’ would have the meanings
ascribed to them in Rule 600(b) of
Regulation NMS under the Exchange
Act. This proposed rule is based on
NYSE National Rule 1.1(gg) and NYSE
Arca Rule 1.1(ccc) without any
substantive differences.
• Proposed Rule 1.1(v) would define
the term ‘‘Trading Facilities’’ to mean
any and all electronic or automatic
trading systems provided by the
Exchange to Participants. This proposed
rule is based on NYSE National Rule
1.1(hh) without any differences.
• Proposed Rule 1.1(w) would define
the term ‘‘UTP Security’’ to mean 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. This proposed rule is based
on NYSE National Rule 1.1(ii) and
NYSE Arca Rule 1.1(iii) without any
substantive differences.
• Proposed Rule 1.1(x) would define
the term ‘‘UTP Listing Market’’ to mean
the primary listing market for a UTP
Security. This proposed rule is based on
NYSE National Rule 1.1(jj) and NYSE
Arca Rule 1.1(ggg) without any
substantive differences.
• Proposed Rule 1.1(y) would define
the term ‘‘UTP Regulatory Halt’’ to mean
a trade suspension, halt, or pause called
by the UTP Listing Market in a UTP
Security that requires all market centers
to halt trading in that security. This
proposed rule is based on NYSE
National Rule 1.1(kk) and NYSE Arca
Rule 1.1(hhh) without any substantive
differences.
Because the above-described rules
would describe definitions to support
the trading rules on Pillar, the Exchange
proposes to amend Article 1, Rule 1 to
specify which current definitions would
not be applicable to trading on the Pillar
trading platform. To effect this change,
E:\FR\FM\26AUN1.SGM
26AUN1
44658
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
the Exchange proposes to amend the
opening paragraph to Article 1, Rule 1
to provide that paragraphs (a), (e), (f),
(g), (k), (l), (o), (z), (bb), (cc), (dd), (nn),
(pp), (qq), (tt), and (uu) would not be
applicable to trading on the Pillar
trading platform.
khammond on DSKBBV9HB2PROD with NOTICES
Rule 2—Trading Permits
The Exchange proposes to retain its
existing rules governing membership
and registration. Accordingly, at this
time, the Exchange does not propose
any membership rules for Rule 2
(Trading Permits), with one exception.
The Exchange proposes that Rule 2.13
would address mandatory participation
in the testing of backup systems. To
maintain consistency among the
Affiliated Exchanges, the Exchange
proposes that Rule 2.13 would be based
on NYSE National Rule 2.13 without
any substantive differences.
Because proposed Rule 2.13 would
govern mandatory participation in the
testing of back-up systems, the
Exchange proposes to amend Article 3,
Rule 21 to add a preamble that such rule
would not be applicable to trading on
the Pillar trading platform.
Rule 7—Equities Trading
Rule 7 would establish rules for
trading on the Exchange. As noted
above, the Exchange will launch on the
same trading platform as NYSE
National’s and NYSE Arca’s cash
equities trading platform, and proposes
trading rules based on the rules of those
exchanges, including general provisions
relating to trading on the Exchange and
operation of the routing broker. Rule 7
would therefore specify all aspects of
trading on the Exchange, including the
orders and modifiers that would be
available and how orders would be
ranked, displayed, and executed.
Because the Exchange would not be a
primary listing exchange, the Exchange
does not propose to have either lead or
designated market makers assigned to
securities trading on the Exchange. The
Exchange therefore does not propose
rules based on Section 2 to NYSE Arca
Rule 7–E or Section 2 to NYSE National
Rule 7. In addition, because the
Exchange would not operate auctions,
the Exchange does not propose a rule
based on NYSE Arca Rule 7.35–E
(Auctions).
As noted above, the Exchange
proposes to define terms in Rule 1.1. In
addition, the Exchange would be
defining terms relating to equities
trading in specified rules in Rule 7.
Accordingly, the Exchange proposes to
include a preamble after ‘‘Rule 7’’ and
before ‘‘Section 1. General Provisions’’
that would provide that in addition to
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
using terms defined in Rule 1.1, Rule 7
would use capitalized terms that refer to
certain order types and modifiers that
are defined in Rule 7.31 and other
capitalized terms relating to trading
sessions and the ranking of orders that
are defined in Rules 7.34 and 7.36, and
additional terms defined under Article
1, Rule 1. This rule text is based on
NYSE National Rule 7, with one
difference to reference definitions in
Article 1, Rule 1.
A. Proposed Rules Based on NYSE Arca
and NYSE National
The following sets forth the proposed
rules that are based on the rules of
NYSE Arca and NYSE National without
any substantive differences. Proposed
Rules 7.6, 7.8, 7.8A, 7.31(g), and 7.32,
which would differ from the NYSE Arca
and NYSE National rules, will be
discussed in the next section. The
Exchange does not propose rules based
on NYSE National Rule 7.14 and 7.41,
relating to clearing. Current Article 21
(Clearance and Settlement) will
continue to be operative on the Pillar
trading platform without any
differences.
Section 1 of Rule 7 would specify the
General Provisions relating to trading on
the Pillar trading platform. The
Exchange proposes the following rules:
• Proposed Rule 7.5 (Trading Units)
would establish the unit of trading in
securities on the Exchange, including
that a unit of trading is one share, a
‘‘round lot’’ would be 100 shares, unless
specified by the primary listing market
to be fewer than 100 shares, and that
any amount less than a round lot would
constitute an ‘‘odd lot’’ and any amount
greater than a round lot that is not a
multiple of a round lot would constitute
a ‘‘mixed lot.’’ The proposed rule is
based on NYSE National Rule 7.5 and
NYSE Arca Rule 7.5–E without any
differences.
Because proposed Rule 7.5 would
address the trading units on the
Exchange, the Exchange proposes that
Article 1, Rule 2(f) would not be
applicable to trading on the Pillar
trading platform.
• Proposed Rule 7.7 (Transmission of
Bids or Offers) would establish that all
bids and offers on the Exchange would
be anonymous unless otherwise
specified by the Participant. The
proposed rule is based on NYSE
National Rule 7.7 and NYSE Arca Rule
7.7–E without any differences. This
proposed rule text is new and does not
replace any current Exchange rule.
• Proposed Rule 7.9 (Execution Price
Binding) would establish that,
notwithstanding proposed Rules 7.10
and 7.11, the price at which an order is
PO 00000
Frm 00061
Fmt 4703
Sfmt 4703
executed is binding notwithstanding
that an erroneous report is rendered. In
other words, the Exchange would
consider all trades at which an order is
executed as binding regardless of
whether a Participant issues an
erroneous report regarding the
execution. This proposed rule text is
based on NYSE National Rule 7.9 and
NYSE Arca Rule 7.9–E.
In addition, the Exchange proposes
that current Article 20, Rules 9, 9A, and
11 would continue to be operative once
the Exchange transitions to Pillar.
Because these rules provide for
additional circumstances when a trade
may be cancelled, the Exchange
proposes a substantive difference from
NYSE National Rule 7.9 and NYSE Arca
Rule 7.9–E to reference these three
rules, in addition to references to
proposed Rules 7.10 and 7.11, as
exceptions to proposed Rule 7.9 that an
execution price would be binding.
Because proposed Rule 7.9 would
address the executions are binding, the
Exchange proposes that Article 20, Rule
3 would not be applicable to trading on
the Pillar trading platform.
• Proposed Rule 7.10 (Clearly
Erroneous Executions) would set forth
the Exchange’s rules on clearly
erroneous executions. The proposed
rule is based on NYSE National Rule
7.10 without any substantive
differences. Because the rules governing
clearly erroneous executions have been
harmonized among all equities
exchanges, this rule is also based on
current Article 20, Rule 10, which the
Exchange proposes would not be
applicable to trading on Pillar.
Certain provisions of the equities
exchanges’ harmonized clearly
erroneous rules are on a pilot that
expires at the close of business on
October 19, 2019.16 As set forth in
Interpretation and Policies .01 to current
Article 20, Rule 10, paragraphs (c),
(e)(2), (f), and (g), as amended on
September 10, 2010, and the provisions
of paragraphs (i) through (k) shall be in
effect during a pilot period that expires
at the close of business on October 18,
2019.17 To conform the Exchange’s
proposed Rule 7.10 with this
16 See Securities Exchange Act Release No. 85533
(April 5, 2019), 84 FR 14701 (April 11, 2019) (SR–
NYSECHX–2019–04) (Notice of filing and
immediate effectiveness of proposed rule change to
extend current pilot program). See also Securities
Exchange Act Release No. 62886 (September 10,
2010), 75 FR 56613 (September 16, 2010) (SR–CHX–
2010–137) (Order approved harmonized clearly
erroneous execution rules for all registered equity
exchanges).
17 The U.S. equities exchanges are working on an
amendment to the harmonized clearly erroneous
rules and the Exchange will amend this proposed
rule to conform to any approved changes to the
market-wide clearly erroneous rules.
E:\FR\FM\26AUN1.SGM
26AUN1
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
khammond on DSKBBV9HB2PROD with NOTICES
convention, the Exchange proposes to
provide that if the pilot period is not
either extended or approved as
permanent, the prior versions of those
sections of Article 20, Rule 10 prior to
being amended by SR–CHX–2010–13
would be in effect and the provisions of
paragraphs (i) through (k) would be null
and void.
The Exchange proposes to make a
conforming amendment to Article 2,
Rule 2 to add a cross-reference to
proposed Rule 7.10(e) in each place
where current Article 20, Rule 10(d) is
referenced.
• Proposed Rule 7.11 (Limit Up—
Limit Down Plan and Trading Pauses in
Individual Securities Due to
Extraordinary Market Volatility) would
specify how the Exchange would
comply with the Regulation NMS Plan
to Address Extraordinary Market
Volatility (‘‘LULD Plan.’’) 18 The
proposed rule is based on NYSE
National Rule 7.11 with the following
differences.19 First, in proposed Rule
7.11(a)(2), the Exchange proposes to use
the lower-case term ‘‘participant’’ to
refer to the Exchange’s role in the LULD
Plan. The Exchange proposes this
difference from NYSE National Rule
7.11(a)(2) because under Exchange
rules, the upper-case term ‘‘Participant’’
means a member of the Exchange, and
therefore the proposed Rule 7.11(a)(3)
reference to ‘‘Participant’’ means
Exchange Participants, and not the
Exchange.20 Second, because the
Exchange will not have market makers
or ‘‘Q’’ Orders, the Exchange proposes
to designate proposed Rule 7.11(a)(5)(D)
as ‘‘Reserved.’’
To align proposed Rule 7.11(a)(5)(E)
with NYSE National Rule 7.11(a)(5)(E),
the Exchange proposes that this Rule
would refer to ‘‘Limit IOC Cross Orders
with regular-way settlement
instructions,’’ and not just ‘‘Limit IOC
Cross Orders,’’ as set forth in NYSE
National Rule 7.11(a)(5)(E). The
Exchange proposes this difference
because, as described below, the
Exchange will make available nonregular way settlement instructions for
Cross Orders and will also offer a QCT
Cross Order. Because neither of these
order types are subject to the LULD
Plan, the Exchange does not propose to
18 See Securities Exchange Act Release No. 85623
(April 11, 2019), 74 FR 16086 (April 17, 2019) (File
No. 4–631) (Order approving eighteenth
amendment to LULD Plan to transition from
operating on a pilot to a permanent basis).
19 Because the Exchange will not be a primary
listing exchange, the Exchange does not propose
rule text based on NYSE Arca Rule 7.11–E.
20 See supra note 6.
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
restrict executions of such orders
because of Price Bands.21
Because proposed Rule 7.11 would
address the LULD Plan, the Exchange
proposes that Article 20, Rule 2A would
not be applicable to trading on Pillar.
• Proposed Rule 7.12 (Trading Halts
Due to Extraordinary Market Volatility)
would establish rules on halts in trading
due to extraordinary market volatility
and related reopening of trading. The
proposed rule is based on NYSE
National Rule 7.12 and NYSE Arca Rule
7.12–E without any substantive
differences.22 Because proposed Rule
7.12 would address market-wide circuit
breakers, the Exchange proposes that
Article 20, Rule 2 would not be
applicable to trading on Pillar.23
• Proposed Rule 7.16 (Short Sales)
would establish requirements relating to
short sales, including how orders would
be re-priced during a Short Sale Price
Test pursuant to Rule 201 of Regulation
SHO. The proposed rule is based on
NYSE National Rule 7.16 without any
substantive differences. Because the
Exchange would not be a primary listing
exchange, the Exchange does not
propose rule text based on NYSE Arca
Rule 7.16–E(f)(3) or 7.16–E(f)(4)(A) and
(B). The Exchange notes that pursuant to
proposed Rule 7.16(f)(5)(H), any Cross
Order that includes a short sale order
and has a cross price at or below the
NBBO would be rejected. As proposed,
this would include all forms of Cross
Orders available on the Exchange,
including, as described below, QCT
Cross Orders and Cross Orders that
include non-regular way settlement
instructions.
Because proposed Rule 7.16 would
address short sales, the Exchange
proposes that Article 1, Rules
2(b)(1)(C)(ii) and 2(b)(3)(D) and (E),
Article 20, Rule 8(d)(4), and Article 9,
Rule 23 would not be applicable to
trading on Pillar.
21 See Section VI(a)(1) of the LULD Plan
(providing that ‘‘any transaction that both (i) does
not update the last sale price . . . and (ii) is
excepted or exempt from Rule 611 under Regulation
NMS’’ is excluded from the limitation that trades
should not be executed outside the Price Bands). As
discussed below, Cross Orders with non-regular
way settlement instructions or that are QCT are
excepted from Rule 611 under Regulation NMS. In
addition, neither order type will update the last sale
price on the Exchange. Accordingly, these
transactions are not subject to the LULD Plan and
therefore will not be included in proposed Rule
7.11(a)(5)(E).
22 The U.S. equities exchanges are working on an
amendment to the harmonized market-wide circuit
breaker rules and the Exchange will amend this
proposed rule to conform to any approved changes
to the market-wide circuit breaker rules.
23 To maintain continuity of rule numbering with
those of its Affiliated Exchanges, the Exchange
proposes to designate Rules 7.14 and 7.15 as
‘‘Reserved.’’
PO 00000
Frm 00062
Fmt 4703
Sfmt 4703
44659
• Proposed Rule 7.17 (Firm Orders
and Quotes) would establish
requirements that all orders and quotes
must be firm. This proposed rule is
based on NYSE National Rule 7.17 and
NYSE Arca Rule 7.17–E with one
substantive difference not to include
reference to Q Orders, which will not be
available on the Exchange. Because
proposed Rule 7.17 would address firm
orders and quotes, the Exchange
proposes that Article 20, Rule 3 would
not be applicable to trading on Pillar.
• Proposed Rule 7.18 (Halts) would
establish rules relating to trading halts
of securities traded pursuant to UTP on
the Exchange’s Pillar platform,
including how orders will be processed
during a trading halt and halts in
Exchange Traded Products. This
proposed rule is based on NYSE
National Rule 7.18 without any
substantive differences. Because
proposed Rule 7.18 would address halts,
the Exchange proposes that Article 1,
Rule 2(b)(1)(B, Article 20, Rule 1,
Interpretations and Policies .02, and
Article 22, Rule 6(a)(3) would not be
applicable to trading on Pillar.
As noted above, at this time, the
Exchange is not proposing to offer rules
for market makers on the Exchange and,
therefore, proposes to designate Section
2 as ‘‘Reserved.’’ The Exchange further
proposes that Article 16 in its entirety
would not be applicable to trading on
Pillar.
Section 3 of proposed Rule 7 would
establish the Exchange’s trading rules.
Among other things, these rules would
establish the orders and modifiers that
would be available on the Exchange
(proposed Rule 7.31), describe order
display and ranking (proposed Rule
7.36), and describe how the Exchange
would ensure that orders would not
trade through either the PBBO (for Limit
Orders) or NBBO (for Market Orders and
Inside Limit Orders) and when orders
would route (proposed Rules 7.37 and
7.34).
As noted above, the Exchange will not
conduct any auctions, and therefore
does not propose a rule based on NYSE
Arca Rule 7.35–E. In addition, because
the Exchange would not offer a retail
liquidity program, the Exchange does
not propose a rule based on NYSE Arca
Rule 7.44–E and proposed Rules 7.36,
7.37, and 7.38 would not include any
references to Rule 7.44.
• Proposed Rule 7.29 (Access) would
provide that the Exchange would be
available for entry and execution of
orders by Participants with authorized
access. To obtain authorized access to
the Exchange, each Participant would be
required to enter into a User Agreement.
Proposed Rule 7.29 is based on NYSE
E:\FR\FM\26AUN1.SGM
26AUN1
khammond on DSKBBV9HB2PROD with NOTICES
44660
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
National Rule 7.29 and NYSE Arca Rule
7.29–E(a) without any substantive
differences. The Exchange does not
propose to include rule text based on
NYSE Arca Rule 7.29–E(b).
• Proposed Rule 7.30 (Authorized
Traders) would provide for
requirements relating to Authorized
Traders and is based on NYSE National
Rule 7.30 and NYSE Arca Rule 7.30–E
without any differences.
Because proposed Rules 7.29 and 7.30
would address access and individuals
who may access the Exchange, the
Exchange proposes that Article 5, Rule
1 would not be applicable to trading on
Pillar.
• Proposed Rule 7.31 (Orders and
Modifiers) would specify the orders and
modifiers that would be available on the
Exchange. The Exchange proposes to
offer the same types of orders and
modifiers that are available on NYSE
National and NYSE Arca, with specified
differences. Specifically, proposed Rule
7.31(a)–(f) and (h)–(i) are based on
NYSE National Rule 7.31(a)–(f) and (h)–
(i) and NYSE Arca Rule 7.31–E(a)–(f)
and (h)–(i), subject to specified
differences described below. As noted
above, proposed Rule 7.31(g), relating to
Cross Orders, will be described in
greater detail below.
The Exchange does not propose to
include text based on NYSE Arca Rule
7.31–E relating to auctions or being a
primary listing exchange. Instead, for
those applicable sub-paragraphs of
proposed Rule 7.31, the Exchange
proposes rule text based on NYSE
National Rule 7.31, which also does not
conduct auctions or operate as a
primary listing exchange. Specifically,
proposed Rules 7.31(a)(2)(B) (Limit
Order Price Protection), 7.31(c)
(Auction-Only Orders), 7.31(f)(1)
(Primary Only Orders), and 7.31(f)(1)(B)
(designating a Primary Only Day/IOC
Order in an NYSE, NYSE Arca, or NYSE
American-listed security as routable) are
based on NYSE National Rules
7.31(a)(2)(B), 7.31(c), 7.31(f)(1), and
7.31(f)(1)(B) and not the NYSE Arca
versions of those subparagraphs.
In addition, similar to NYSE National
Rule 7.31, proposed Rule 7.31 would
not include text based on NYSE Arca
Rule 7.31–E that specifies whether an
order is eligible to participate in an
auction. Accordingly, the Exchange will
not include rule text based on NYSE
Arca Rules 7.31–E(b)(2), (d)(2), (d)(3),
(e)(2)(A), (g), (h)(1), (h)(2), and (i)(2) that
refer to how such orders would function
in an auction.
Also similar to NYSE National, the
Exchange is not proposing to offer a
Discretionary Pegged Order and,
therefore, proposes to designate
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
proposed Rule 7.31(h)(3) as ‘‘Reserved’’
and will not include a reference to
Discretionary Pegged Orders in
proposed Rule 7.34. Except for these
differences, proposed Rules 7.31(a)–(f)
and (h)–(i) are based on the same rules
of NYSE National and NYSE Arca.
Because proposed Rule 7.31 would
address orders and modifiers that would
be available when the Exchange
transitions to Pillar, the Exchange
proposes that the remainder of Article 1,
Rule 2 not specifically identified above
would not be applicable to trading on
Pillar. As noted above and below,
specified subparagraphs of Article 1,
Rule 2 would not be applicable to
trading on Pillar and the Exchange has
described how they would be addressed
in other Pillar rules. Together, the
entirety of Article 1, Rule 2 would not
be applicable to trading on Pillar. As a
result, with the exception of Cross
Orders, described below, the Exchange
would no longer make available orders
and modifiers that are described in
Article 1, Rule 2.
In addition, the Exchange proposes
that Article 20, Rule 4 would not be
applicable to trading on Pillar because
proposed Rule 7.31 would specify the
orders and modifiers available for
trading on the Exchange. Finally, as
noted below, Article 20, Rule 8 would
not be applicable to trading on Pillar,
and that includes those provisions of
that rule that relate to order behavior
that would be described in proposed
Rule 7.31 (e.g., Article 20, Rule 8(b)(4),
regarding how Reserve Size orders are
refreshed, would be addressed in
proposed Rule 7.31(d)(2)).
• Proposed Rule 7.33 (Capacity
Codes) would establish requirements for
capacity code information that
Participants must include with every
order. The proposed rule is based on
NYSE National Rule 7.33 and NYSE
Arca Rule 7.33–E without any
substantive differences.
Because proposed Rule 7.33 would
address capacity codes, the Exchange
proposes that Article 11, Rule 3(b)(8)
and Article 20, Rule 8 Interpretation and
Policies .01 would not be applicable to
trading on Pillar.
• Proposed Rule 7.34 (Trading
Sessions) would specify trading sessions
on the Exchange. The proposed rule is
based on NYSE National 7.34 without
any substantive differences.
Specifically, the Exchange proposes that
the Early Trading Session would begin
at 7:00 a.m. and conclude at the
commencement of the Core Trading
Session, the Core Trading Session
would begin at 9:30 a.m. and would end
at the conclusion of Core Trading Hours,
and the Late Trading Session would
PO 00000
Frm 00063
Fmt 4703
Sfmt 4703
begin at the conclusion of the Core
Trading Session and conclude at 8:00
p.m. Proposed Rule 7.34(c) would
specify the orders permitted in each
session, and proposed Rule 7.34(d)
would specify customer disclosures
required for trading in the Early and
Late Trading Sessions.
Because proposed Rule 7.34 would
address trading sessions, including
customer disclosures for trading outside
of Core Trading Hours, the Exchange
proposes that Article 8, Rule 17, Article
20, Rule 1(b) and Interpretation .03 to
Rule 1, and Article 20, Rule 8(c) would
not be applicable to trading on Pillar.24
• Proposed Rule 7.36 (Order Ranking
and Display) would establish
requirements for how orders would be
ranked and displayed at the Exchange.
The proposed rule is based on NYSE
National Rule 7.36 and NYSE Arca Rule
7.36–E without any substantive
differences.
Because proposed Rule 7.36 would
address how orders are ranked and
displayed, the Exchange proposes that
Article 1, Rule 1(pp) and Article 20,
Rule 8(b) would not be applicable to
trading on Pillar.
• Proposed Rule 7.37 (Order
Execution and Routing) would establish
requirements for how orders would
execute and route at the Exchange, the
data feeds that the Exchange would use,
and Exchange requirements under the
Order Protection Rule and the
prohibition on locking and crossing
quotations in NMS Stocks. This
proposed rule is based on NYSE
National Rule 7.37 and NYSE Arca Rule
7.37–E without any substantive
differences.
Because proposed Rule 7.37 would
address how orders are executed and
ranked, which data feeds the Exchange
will use, and Regulation NMS, the
Exchange proposes that Article 1, Rule
4 and Article 20, Rules 5, 6, 8(d), and
8(f) would not be applicable to trading
on Pillar.
• Proposed Rule 7.38 (Odd and
Mixed Lot) would establish
requirements relating to odd lot and
mixed lot trading on the Exchange. The
proposed rule is based on NYSE
National Rule 7.38 and NYSE Arca Rule
7.38–E without any substantive
differences.25
Because proposed Rule 7.38 would
address odd lot orders, the Exchange
24 To maintain continuity of rule numbering with
those of its Affiliated Exchanges, the Exchange
proposes to designate Rule 7.35 as ‘‘Reserved.’’
25 The Exchange does not propose a rule based on
NYSE Arca Rule 7.39–E (concerning adjustment of
open orders, which relates to good-til-cancelled
orders, which would not be available on the
Exchange). Similar to NYSE National, the Exchange
will designate Rule 7.39 as ‘‘Reserved.’’
E:\FR\FM\26AUN1.SGM
26AUN1
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
proposes that Article 20, Rules 5(b) and
8(d)(3) would not be applicable to
trading on Pillar.
• Proposed Rule 7.40 (Trade
Execution and Reporting) would
establish the Exchange’s obligation to
report trades to an appropriate
consolidated transaction reporting
system. The proposed rule is based on
NYSE National Rule 7.40 and NYSE
Arca Rule 7.40–E without any
substantive differences.
Because proposed Rule 7.40 would
address reporting trades to a
consolidated transaction reporting
system, the Exchange proposes that
Article 20, Rule 8(g) would not be
applicable to trading on Pillar.
Section 4 of proposed Rule 7 would
establish the Operation of a Routing
Broker. Specifically, proposed Rule 7.45
(Operation of a Routing Broker) would
establish both the outbound and
inbound function of the Exchange’s
routing broker, the cancellation of
orders as the Exchange deems necessary
to maintain a fair and orderly market if
a technical issue occurs at the Exchange,
the routing broker, or a routing
destination, and the Exchange’s error
account. The proposed rule would also
set forth the parameters of the
Exchange’s relationship with its
affiliated broker-dealer, Archipelago
Securities LLC, which would function
solely as a routing broker on behalf of
both the Exchange and the Affiliated
Exchanges. The proposed rule is based
on NYSE National Rule 7.45 and NYSE
Arca Rule 7.45–E without any
substantive differences.26
Because proposed Rule 7.45 would
address both the operation of the
routing broker and cancellation of
orders, the Exchange proposes that
Article 19 in its entirety and Article 20,
Rule 12 would not be applicable to
trading on Pillar.
khammond on DSKBBV9HB2PROD with NOTICES
B. Proposed Rules Relating to Cross
Orders
The Exchange proposes to continue to
support cross orders. Currently, the
Exchange offers the following cross
orders: ‘‘Benchmark,’’ ‘‘Midpoint
Cross,’’ and ‘‘QCT.’’ 27 In addition, the
Exchange offers a ‘‘Cross with Size’’
modifier, which permits a cross order of
at least 5,000 shares of the same security
with a total value of at least $100,000 to
execute, notwithstanding resting orders
in the book at the same price, subject to
26 The Exchange has an agreement with FINRA
pursuant to Rule 17d–2 under the Act. See
Securities Exchange Act Release No. 86161 (June
20, 2019), 84 FR 29923 (June 25, 2019) (File No. 4–
274) (Approval Order).
27 See Article 1, Rule 2(b)(2)(A), (D), and (E).
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
specified conditions.28 Currently, cross
orders can be entered with Non-Regular
Way Settlement instructions 29 and may
be submitted in an increment as small
as $0.000001, subject to specified
conditions.30
With the transition to the Pillar
trading platform, the Exchange proposes
to streamline the cross order offerings
on the Exchange and no longer offer
Midpoint or Benchmark cross orders. As
proposed, cross orders would be based
in part on existing cross order
functionality on NYSE Arca and NYSE
National. As a substantive difference
compared to NYSE Arca and NYSE
National, the Exchange proposes to
continue to offer a QCT cross order and
Cross with Size, as well as related
functionality to permit cross orders to
be entered with non-regular way
settlement instructions and with trading
increments out six decimals. As
described in more detail below, the
Exchange proposes to combine existing
Pillar functionality relating to cross
orders with the Exchange’s current cross
order offerings.
Under NYSE Arca Rule 7.31–E(g) and
NYSE National Rule 7.31(g), a ‘‘Cross
Order’’ is defined as two-sided orders
with instructions to match the identified
buy-side with the identified sell-side at
a specified price (the ‘‘cross price’’).
Both exchanges offer one type of Cross
Order—a Limit IOC Cross Order—which
is a Cross Order that must trade at full
at its cross price, will not route, and will
cancel at the time of entry if the cross
price is not between the BBO 31 or
28 See Article 1, Rule 2(g)(1). To be eligible for
Cross with Size, there cannot be any resting orders
on the Book with a Working Price better than the
cross order and the size of the cross order must be
larger than the largest order displayed on the
Exchange at that price.
29 See Article 1, Rule 2(e)(2). Under this Rule, the
Exchange currently uses the capitalized term ‘‘NonRegular Way Settlement.’’ Under the proposed
Pillar rules, the Exchange will not capitalize this
term.
30 See Article 20, Rule 4(a)(7)(B). Unless a cross
order is a Midpoint Cross, is designated with nonregular way settlement instructions, or is Cross with
Size, the Exchange will not currently allow a cross
order priced (i) at or above $1.00, to execute at a
price less than $0.01 better than any order on the
same side of the Matching System or (ii) under
$1.00, to execute at a price less than $0.0001 better
than any order on the same side of the Matching
System.
31 The BBO is defined on NYSE Arca and NYSE
National, and as described above, would be defined
on the Exchange under proposed Rule 1.1(c) to
mean the best bid or offer that is a Protected
Quotation on the Exchange. The term ‘‘BB’’ would
mean the best bid that is a Protected Quotation on
the Exchange and the term ‘‘BO’’ would mean the
best offer that is a Protected Quotation on the
Exchange. Pursuant to proposed Rule 1.1(r) [sic],
the term ‘‘Protected Quotation’’ would mean a
Protected Bid or Protected Offer and references
definitions under Rule 600(b) of Regulation NMS.
Odd-lot sized bids and offers are not Protected
Quotations.
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
44661
would trade through the PBBO.32
Accordingly, NYSE Arca and NYSE
National will accept and execute a Limit
IOC Cross Order that is priced between
the BBO, even if there are non-displayed
or odd-lot sized buy or sell orders
between the BBO. This functionality is
not currently available on the Exchange.
Proposed Rule 7.31(g) would set forth
the Cross Orders that would be available
on the Exchange. Paragraph (g) would
set forth the requirements that would be
applicable to all Cross Orders. As
proposed, a Cross Order would be twosided orders with instructions to match
the identified buy-side with the
identified sell-side at a specified price
(the ‘‘cross price’’). This proposed rule
text is based on the first sentence of
NYSE Arca Rule 7.31–E(g) and NYSE
National Rule 7.31(g).
Proposed Rule 7.31(g) would further
provide that a Cross Order must trade in
full at its cross price, does not route,
and may be designated with non-regular
way settlement instructions (which are
described below). This proposed rule
text is based in part on NYSE Arca Rule
7.31–E(g)(1) and NYSE National Rule
7.31(g)(1), which provide that Cross
Orders on those exchanges must trade in
full at its cross price and will not route.
The proposed text to permit a Cross
Order to be designated with non-regular
way settlement instructions is based on
current Article 1, Rule 2(e)(2) without
any substantive differences, which
provides that the Matching System 33
will only accept cross orders for NonRegular Way Settlement. The Exchange
proposes non-substantive differences to
include reference to non-regular way
settlement instructions in the
description of Cross Orders.
Proposed Rule 7.31(g) would further
provide that a Cross Order entered by an
Institutional Broker may represent
interest of one or more Participants and
may be executed as agent or principal.
This proposed rule text is based in part
on current Article 1, Rule 2(b)(2)(E),
which provides that Institutional
Brokers may execute a cross order as
agent or principal, and Article 1, Rule
2(g)(1), which provides that a cross
order with Cross with Size may
represent interest of one or more
Participants of the Exchange. On Pillar,
32 The term PBBO is defined on NYSE Arca and
NYSE National, and as described above, would be
defined on the Exchange under proposed Rule
1.1(o) [sic] to mean the best Protected Bid and the
Best Protected Offer, as those terms are defined in
Rule 600(b)(57) of Regulation NMS.
33 The term ‘‘Matching System’’ is defined in
Article 1, Rule 1(z) as one of the electronic or
automated order routing, execution and reporting
systems provided by the Exchange. The Exchange
does not propose to use this term when it
transitions to Pillar.
E:\FR\FM\26AUN1.SGM
26AUN1
khammond on DSKBBV9HB2PROD with NOTICES
44662
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
the Exchange proposes that any Cross
Order entered by an Institutional Broker
may represent interest of one or more
Participants on the Exchange.
Proposed Rule 7.31(g)(1) would set
forth the proposed ‘‘Limit IOC Cross
Order,’’ which is based in part on how
the Limit IOC Cross Order functions on
NYSE Arca and NYSE National. This
would be new functionality on the
Exchange. As proposed, a Limit IOC
Cross Order would be a Cross Order that
would be rejected under the following
circumstance: (A) The cross price would
trade through the PBBO; (B) the cross
price is not between the BBO, unless it
meets Cross with Size requirements, in
which case the cross price may be equal
to the BB (BO); or (C) there is no PBB
or PBO or the PBBO is locked or
crossed. This proposed rule text differs
from the NYSE Arca and NYSE National
rules to account for the availability of
the Cross with Size modifier, described
below. As proposed, the Limit IOC
Cross Order would be available to any
Participant.
Proposed Rule 7.31(g)(2) would set
forth how the QCT Cross Order would
function on the Exchange. As proposed,
a QCT Cross Order would be a Cross
Order that is part of a transaction
consisting of two or more component
orders that qualifies for a Contingent
Order Exemption under proposed Rule
7.37(e)(5).
Proposed Rule 7.37(f)(5), which is
based on NYSE Arca Rule 7.37–E(f)(5)
and NYSE National Rule 7.37(f)(5),
would set forth the requirements for a
transaction to qualify as a QCT Cross
Order. Proposed Rule 7.37(f)(5)(A)–(F)
would set forth identical requirements
as are set forth in Article 1, Rule
2(b)(2)(E)(i)–(vi). Specifically, a QCT
would be a transaction consisting of two
or more component orders, executed as
agent or principal, where:
• at least one component order is in
an NMS Stock;
• all components are effected with a
product or price contingency that either
has been agreed to by the respective
counterparties or arranged for by a
broker-dealer as principal or agent;
• the execution of one component is
contingent upon the execution of all
other components at or near the same
time;
• the specific relationship between
the component orders (e.g., the spread
between the prices of the component
orders) is determined at the time the
contingent order is placed;
• the component orders bear a
derivative relationship to one another,
represent different classes of shares of
the same issuer, or involve the securities
of participants in mergers or with
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
intentions to merge that have been
announced or since cancelled; and
• the Exempted NMS Stock
Transaction is fully hedged (without
regard to any prior existing position) as
a result of the other components of the
contingent trade.
Proposed Rule 7.31(g)(2)(A) would
provide that a QCT Cross Order would
be rejected if the cross price is not
between the BBO, unless it meets Cross
with Size requirements, in which case
the cross price can be equal to the BB
(BO) (as discussed in greater detail
below). This proposed functionality
would be new on the Exchange and is
based on how Cross Orders function on
NYSE Arca and NYSE National.
Specifically, as noted above, Cross
Orders on those exchanges can execute
provided that the cross price is between
the BBO. Because Cross Orders on Pillar
function in this manner, the Exchange
proposes to apply this functionality
when it transitions QCT Cross Orders to
Pillar.
Proposed Rule 7.31(g)(2)(B) would
further provide that QCT Cross Orders
would be available to Institutional
Brokers only. This proposed rule text is
based on Article 1, Rule 2(b)(2)(E),
which provides that a QCT cross order
modifier may only be utilized by an
Institutional Broker.
Proposed Rule 7.31(g)(3) would
describe the proposed Cross with Size
requirements. As proposed, a Cross
Order with a cross price equal to the BB
(BO) will trade at that price if such
Cross Order: (A) Is at least 5,000 shares
of the same security with a total value
of at least $100,000; and (B) is larger
than the largest order displayed on the
Exchange Book at the BB (BO). This
proposed rule text is based in part on
Article 1, Rule 2(g)(1) with differences
to reflect that on Pillar, Cross Orders
would be eligible to execute if the cross
price is between the BBO, regardless of
the size of the Cross Order. With this
difference in functionality, Cross with
Size would only be necessary if the
proposed cross price is equal to the BB
(BO). In such case, if a Cross Order
meets the size requirement and is larger
than the largest order displayed on the
Exchange Book at the BB (BO), the
Exchange would accept and execute
such Cross Order.
As noted above, consistent with
current Rules, the Exchange would
accept Cross Orders with non-regular
way settlement instructions. NYSE Arca
Rule 7.8–E and NYSE National Rule 7.8
provide that on those exchanges, all
bids and offers will be considered to be
‘‘regular way’’ settlement instructions.
To address that the Exchange would
accept non-regular way settlement
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
instructions for Cross Orders, the
Exchange proposes Rule 7.8A, which
would describe the settlement terms for
Cross Orders.
To maintain continuity with the Pillar
rules of Affiliated Exchanges, proposed
Rule 7.8 would be based on NYSE Arca
Rule 7.8–E and NYSE National Rule 7.8
and would provide that except as
provided for in proposed Rule 7.8A,
bids and offers would be considered to
be ‘‘regular way’’ settlement terms.
Proposed Rule 7.8A would specify
Cross Order settlement terms. Proposed
Rule 7.8A(a) would provide that Cross
Orders would be considered to be
‘‘regular way’’ settlement terms unless
designated with one of the following
‘‘non-regular way’’ settlement terms:
Cash or Next Day. This proposed rule
text is based in part on current Article
20, Rule 4(a)(7)(A), which provides that
a cross order may be submitted for NonRegular Way Settlement, and current
Article 1, Rule 2(e)(2), which provides
that cross orders may be settled with
one of three conditions: Cash, Next Day,
or Seller’s Option. On Pillar, the
Exchange does not propose to offer
Seller’s Option non-regular way
settlement instructions.
Proposed Rule 7.8A(a) would further
provide that a Cross Order designated
for ‘‘non-regular way’’ settlement may
execute at any price without regard to
the PBBO or any orders on the Exchange
Book. This proposed rule text is based
in part on current Article 1, Rule 2(e)(2),
which provides that a cross order
marked for Non-Regular Way Settlement
may execute at any price, without
regard to the NBBO or any other orders
in the Matching System.34 The
Exchange proposes non-substantive
differences to use Pillar terminology
without any substantive differences,
including that the Exchange uses the
PBBO instead of NBBO.
Proposed Rule 7.8A(a)(1) would
provide that ‘‘Cash’’ means a transaction
for delivery on the next day of the
contract. This proposed rule text is
based on the first sentence of current
Article 1, Rule 2(e)(2)(A) without any
differences. The Exchange does not
propose rule text based on the second
sentence of Article 1, Rule 2(e)(2)(A),
which provides any cross order that is
for cash settlement must be received by
the Matching System by 2:00 p.m.
Central Standard Time or such other
time that may be established by the
34 See also Article 20, Rule 8(e)(3), which
similarly provides that cross orders with NonRegular Way Settlement shall be automatically
executed without regard to either the NBBO or any
orders for Regular Way Settlement that might be in
the Matching System if they meet the requirements
for Article 1, Rule 2(e)(2).
E:\FR\FM\26AUN1.SGM
26AUN1
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
Exchange and communicated to
Participants from time to time. On
Pillar, the Exchange will accept a Cross
Order with Cash instructions after 3:00
p.m. Eastern Time. Pursuant to National
Securities Clearing Corporation
(‘‘NSCC’’) Procedure II (Trade
Comparison and Recording Service),
Section B(ii), NSCC designates a cut-off
time by which a transaction designated
as Cash can be settled on those terms,
and transactions received after that time
will be accepted and reported, but may
only be settled directly between the
parties.35 Because such trades would
settle, the Exchange proposes not to
reject transactions designated as ‘‘Cash’’
that are entered after the NSCC cut-off
time.
Proposed Rule 7.8A(a)(2) would
provide that ‘‘Next Day’’ means a
transaction for delivery on the next
business day following the day of the
contract. This proposed rule text is
based on current Article 1, Rule
2(e)(2)(B) without any differences.
Proposed Rule 7.6 would specify the
trading differentials available on the
Exchange. The first sentence would
provide that, except for Cross Orders,
the minimum price variation (‘‘MPV’’)
for quoting and entry of orders in
securities traded on the Exchange would
be $0.01, with the exception of
securities that are priced less than
$1.00, for which the MPV for quoting
and entry of orders would be $0.0001.
This proposed rule text is based on
NYSE Arca Rule 7.6–E and NYSE
National Rule 7.6 with one difference to
reference the exception for Cross
Orders.
Proposed Rule 7.6 would further
provide that:
khammond on DSKBBV9HB2PROD with NOTICES
A Cross Order, whether priced less than or
at or above $1.00, may be submitted in an
increment as small as $0.000001 unless the
Cross Order has been designated with regular
way settlement terms and does not meet
Cross with Size, in which case the cross price
must also be (i) at least $0.01 above (below)
the BB (BO) if the cross price is at or above
$1.00 or (ii) at least $0.0001 above (below)
the BB (BO) if the cross price is under $1.00.
This proposed rule text is based on
Article 20, Rule 4(a)(7)(B) without any
substantive differences. Because the
Exchange will not be offering a
Midpoint Cross, that order type does not
need to be referenced in the Pillar
version of this rule. The remaining
differences are non-substantive, to use
Pillar terminology.
Finally, proposed Rule 7.32 (Order
Entry) would establish requirements for
35 See NSCC Rules and Procedures, available
here: https://www.dtcc.com/legal/rules-andprocedures.
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
order entry size and that orders entered
that are greater than five million shares
in size would be rejected, provided that
the Exchange would accept Cross
Orders up to 25 million shares. The
proposed rule is based in part on NYSE
National Rule 7.32 and NYSE Arca Rule
7.32–E. Similar to NYSE Rule 7.32, the
Exchange proposes to accept Cross
Orders that are up to 25 million shares
in size.
Because proposed Rule 7.32 would
address order entry size, the Exchange
proposes that Article 20, Rule 4(a)(6)
would not be applicable to trading on
Pillar.
Proposed Amendments to Current
Exchange Rules
As described above, a number of
current Exchange rules will not be
applicable to trading on Pillar and the
Exchange will include a preamble for
those rules (or Articles, if all rules under
an Article would not be applicable to
trading on Pillar) that will specify that
such rule or Article would not be
applicable to trading on Pillar.
In the above section, the Exchange
identifies specified current Exchange
rules, or sections of rules, that would
not be applicable to trading on Pillar
because they will be superseded by a
proposed Pillar rule.
In addition to the above-referenced
current rules, the Exchange proposes
that the entirety of Article 4 would not
be applicable to trading on Pillar.
Article 4, Rule 1 currently describes the
Exchange’s Book Feed. Once the
Exchange transitions to Pillar, it will no
longer offer the Book Feed. The
Exchange proposes to file a separate
proposed rule change to establish the
market data products that will be
available when the Exchange transitions
to Pillar.36 In addition, because the
Exchange does not currently offer the
Connect service, and does not plan to
offer the Connect service when it
transitions to Pillar, the Exchange
proposes to delete Article 4, Rule 2 in
its entirety.
The following is the full list of current
rules that would not be applicable to
trading on Pillar and therefore would
include the above-described preamble:
36 NYSE National also filed a stand-alone filing to
establish the market data products that would be
available on that exchange when it began trading on
Pillar. See Securities Exchange Act Release No.
83350 (May 31, 2018), 83 FR 26332 (June 6, 2018)
(SR–NYSENat–2018–09) (Notice of filing and
immediate effectiveness of proposed rule change).
Similar to NYSE National, the Exchange will be
separately proposing to establish NYSE Chicago
BBO, NYSE Chicago Trades, and NYSE National
Integrated Feed Market Data feeds. As with the
current Book Feed, the Exchange does not propose
to charge fees for market data products when it
transitions to Pillar.
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
44663
• Article 1, Rule 1(a), (e), (f), (g), (k), (l),
(o), (z), (bb), (cc), (dd), (nn), (pp), (qq),
(tt), and (uu)
• Article 1, Rule 2
• Article 1, Rule 3
• Article 1, Rule 4
• Article 3, Rule 21
• Article 4 (in its entirety)
• Article 5, Rule 1
• Article 8, Rule 17
• Article 9, Rule 23
• Article 11, Rule 3(b)(8)
• Article 16 (in its entirety)
• Article 19 (in its entirety)
• Article 20, Rules 1–8, 10, 12–13
• Article 22, Rule 6(a)(3)
In addition to rules not applicable to
trading on Pillar, the Exchange proposes
to amend specified rules that would
continue to be applicable to trading
once the Exchange transitions to Pillar,
but reference systems or definitions that
would not be used on Pillar.
As noted above, the Exchange will
continue to support Institutional
Brokers and the BrokerPlex system
when the Exchange transitions to the
Pillar trading platform. The Exchange
proposes to amend specified rules under
Article 17 to add a reference to the term
‘‘NYSE Chicago Marketplace’’ in any
rule that references the term ‘‘Matching
System.’’ While the term ‘‘Matching
System’’ is not explicitly defined in
current Exchange rules, it is used
throughout Exchange rules to refer to
the current system that matches
orders.37 Because the Exchange will be
replacing that system when it
transitions to Pillar, to reduce confusion
about which Exchange systems are
referenced in Article 17, the Exchange
proposes to add the phrase ‘‘NYSE
Chicago Marketplace, as applicable’’ in
Article 17, Rule 3(b), 5(a), 5(c)(1),
5(c)(2), 5(e), and 5(e)(1) as an alternative
to the term ‘‘Matching System.’’ The
Exchange also proposes to add a cross
reference to proposed Rule 7.31 in
Article 17, Rules 5(c)(1) and 5(e)(1).
The Exchange further proposes to
amend Article 17, Rule 5(c)(1) to specify
order types and modifiers that would be
defined under proposed Rule 7.31 that
would not be available via BrokerPlex.
As proposed, an Institutional Broker
would not be able to enter the following
order types and modifiers via
BrokerPlex: Inside Limit Orders,
Auction-Only Orders, MPL Orders,
Tracking Orders, ISOs, Primary Only
Orders, Primary Until 9:45 Orders,
Primary After 3:55 Orders, Pegged
Orders, Non-Display Remove Modifier,
37 See, e.g. Article 20 (Operation of the Matching
System). The Exchange also proposes a nonsubstantive amendment to the second sentence of
Article 17 Rule 5(a) to delete the word ‘‘Exchange’’
in front of the term ‘‘Matching System.’’
E:\FR\FM\26AUN1.SGM
26AUN1
khammond on DSKBBV9HB2PROD with NOTICES
44664
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
Proactive if Locked or Crossed Modifier,
Self-Trade Prevention Modifier, and
Minimum Trade Size Modifier. While
these order types would not be available
via Brokerplex, an Institutional Broker
could enter these orders via any other
system that they choose to use to
connect with the Exchange, just as any
other NYSE Chicago Participant could
choose to do.
The Exchange also proposes to amend
Article 17, Rule 5(c)(3) to specify
current order types that would not be
available on Pillar. Current Article 17,
Rule 5(c)(3) provides that in addition to
the orders described in Rule 5(c)(1) and
(2), BrokerPlex also accepts ‘‘Quote@
Exchange’’ and ‘‘Reprice@Exchange’’
order types. Because neither of these
order types will be accepted once the
Exchange transitions to Pillar, the
Exchange proposes to amend Article 17,
Rule 5(c)(3) to provide that these order
types would not be available on the
Pillar trading system.
Finally, the Exchange proposes to
amend Article 12, Rule 8(h)(2) relating
to the Exchange’s Minor Rule Violations
Plan (‘‘MRVP’’) both (i) to delete a
reference to rules that no longer exist
and (ii) to add proposed Pillar rules that
are subject to an Affiliated Exchange’s
minor rule violation plan and that the
Exchange similarly believes that should
be subject to the Exchange’s MRVP.
• First, the Exchange proposes to
amend Article 12, Rule 8(h)(2)(F) to
delete the reference to ‘‘Failure to Clear
the Matching System (Article 20, Rule
7)’’ as this rule was eliminated in 2011
and the Exchange no longer needs a
reference to this Rule in its Minor Rule
Violation Plan.38
• Second, the Exchange proposes to
amend Article 12, Rule 8(h)(2)(G) to add
a reference to Rule 7.6. The current rule
provides that Article 20, Rule 4, which
addresses the minimum order
increments, would be eligible for the
MRVP. Because on Pillar, proposed Rule
7.6 would address minimum order
increments, the Exchange proposes to
add a reference to this rule, which
would have the same substantive effect
as current Article 12, Rule 8(h)(2)(G)
after the Exchange transitions to Pillar.
• Finally, the Exchange proposes to
amend Article 12, Rule 8(h)(2) to add
two additional rules that the Exchange
proposes to be eligible for the
Exchange’s MRVP. Proposed Article 12,
Rule 8(h)(2)(M) would add a reference
to ‘‘Short Sales (Rule 7.16)’’ and
proposed Article 12, Rule 8(h)(2)(N)
would add a reference to ‘‘Failure to
38 See Securities Exchange Act Release No. 65633
(October 26, 2011), 76 FR 67509 (November 1, 2011)
(SR–CHX–2011–29) (Approval Order).
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
comply with Authorized Trader
requirements (Rule 7.30).’’ These
proposed rule changes are based on
NYSE Arca Rule 10.9217(f)(1) and (4)
and NYSE National Rule 10.9217(f)(1)(1)
and (3), which both provide that their
versions of Rule 7.16 and 7.30 are
eligible for those exchanges’ respective
minor rule violation plans. Accordingly,
the Exchange similarly proposes that
these rules should be included on the
Exchange’s MRVP.
3. Section 11(a) of the Act
Section 11(a)(l) of the Act 39 (‘‘Section
11(a)(1)’’) prohibits a member of a
national securities exchange from
effecting transactions on that exchange
for its own account, the account of an
associated person, or an account over
which it or its associated person
exercises investment discretion
(collectively, ‘‘covered accounts’’)
unless an exception to the prohibition
applies. Rule 11a2–2(T) under the Act
(‘‘Rule 11a2–2(T)’’),40 known as the
‘‘effect versus execute’’ rule, provides
exchange members with an exemption
from the Section 11(a)(l) prohibition.
Rule 11a2–2(T) permits an exchange
member, subject to certain conditions,
to effect transactions for covered
accounts by arranging for an unaffiliated
member to execute the transactions on
the exchange. To comply with Rule
11a2–2(T)’s conditions, a member: (i)
Must transmit the order from off the
exchange floor; (ii) may not participate
in the execution of the transaction once
it has been transmitted to the member
performing the execution (although the
member may participate in clearing and
settling the transaction); (iii) may not be
affiliated with the executing member;
and (iv) with respect to an account over
which the member or its associated
person has investment discretion,
neither the member nor its associated
person may retain any compensation in
connection with effecting the
transaction except as provided in the
Rule.
With the proposed re-launch of the
Exchange as a fully automated
electronic trading model that does not
have a trading floor, the Exchange
believes that the policy concerns
Congress sought to address in Section
11(a)(1)—i.e., the time and place
advantage that members on exchange
trading floors have over non-members
off the floor and the general public—
would not be present. Specifically, on
the Pillar trading system, buy and sell
interest will be matching in a
continuous, automated fashion.
39 15
40 17
PO 00000
U.S.C. 78k(a)(1).
CFR 240.11a2–2(T).
Frm 00067
Fmt 4703
Sfmt 4703
Liquidity will be derived from quotes as
well as orders to buy and orders to sell
submitted to the Exchange
electronically by Participants from
remote locations. The Exchange further
believes that Participants entering
orders into the Exchange through the
Pillar trading system will satisfy the
requirements of Rule 11a2–2(T) under
the Act, which provides an exception to
Section 11(a)’s general prohibition on
proprietary trading.
The four conditions imposed by the
‘‘effect versus execute’’ rule are
designed to put members and nonmembers of an exchange on the same
footing, to the extent practicable, in
light of the purpose of Section 11(a). For
the reasons set forth below, the
Exchange believes the structure and
characteristics of its proposed Pillar
trading system do not result in disparate
treatment of members and non-members
and places them on the ‘‘same footing’’
as intended by Rule 11a2–2(T).
1. Off-Floor Transmission. Rule 11a2–
2(T) requires orders for a covered
account transaction to be transmitted
from off the exchange floor. The
Commission has considered this and
other requirements of the rule in the
context of automated trading and
electronic order handling facilities
operated by various national securities
exchanges in a 1979 Release 41 as well
as more applications of Rule 11a2–2(T)
in connection with the approval of the
registrations of national securities
exchanges.42 In the context of these
automated trading systems, the
Commission has found that the off-floor
transmission requirement is met if an
order for a covered account is
transmitted from a remote location
directly to an exchange’s floor by
electronic means.43 Because the
41 See Securities Exchange Act Release No. 15533
(January 29, 1979) (regarding the Amex Post
Execution Reporting System, the Amex Switching
System, the lntermarket Trading System, the
Multiple Dealer Trading Facility of the Cincinnati
Stock Exchange, the PCX’s Communications and
Execution System (‘‘COM EX’’), and the Phlx’s
Automated Communications and Execution System
(‘‘PACE’’)) (‘‘1979 Release’’).
42 See Securities Exchange Act Release Nos.
53128 (January 13, 2006) 71 FR 3550 (January 23,
2006) (File No. 10–13 1) (order approving Nasdaq
Exchange registration); 58375 (August 18, 2008) 73
FR 49498 (August 21, 2008) (order approving BATS
Exchange registration); 61152 (December 10, 2009)
74 FR 66699 (December 16, 2009) (order approving
C2 exchange registration); and 78101 (June 17,
2016), 81 FR 41142, 41164 (June 23, 2016) (order
approving Investors Exchange LLC registration).
43 See, e.g., Securities Exchange Act Release Nos.
49068 (January 13, 2004), 69 FR 2775 (January 20,
2004) (order approving the Boston Options
Exchange as an options trading facility of the
Boston Stock Exchange); 44983 (October 25, 2001),
66 FR 55225 (November 1, 2001) (order approving
Archipelago Exchange (‘‘ArcaEx’’) as electronic
trading facility of the Pacific Exchange
E:\FR\FM\26AUN1.SGM
26AUN1
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
khammond on DSKBBV9HB2PROD with NOTICES
Exchange would not have a physical
trading floor when it re-launches
trading, and like other all electronic
exchanges, the Exchange’s Pillar trading
system would receive orders from
Participants electronically through
remote terminals or computer-tocomputer interfaces, the Exchange
therefore believes that its trading system
satisfies the off-floor transmission
requirement.
2. Non-Participation in Order
Execution. The ‘‘effect versus execute’’
rule further provides that neither the
exchange member nor an associated
person of such member participate in
the execution of its order. This
requirement was originally intended to
prevent members from using their own
brokers on an exchange floor to
influence or guide the execution of their
orders.44 The rule, however, does not
preclude members from cancelling or
modifying orders, or from modifying
instructions for executing orders, after
they have been transmitted, provided
such cancellations or modifications are
transmitted from off an exchange
floor.45 In the 1979 Release discussing
both the Pacific Stock Exchange’s COM
EX system and the Philadelphia Stock
Exchange’s PACE system, the
Commission noted that a member
relinquishes any ability to influence or
guide the execution of its order at the
time the order is transmitted into the
systems, and although the execution is
automatic, the design of such systems
ensures that members do not possess
any special or unique trading
advantages in handling orders after
transmission to the systems.46 The
Exchange’s Pillar trading system would
at no time following the submission of
an order allow a Participant or an
associated person of such member to
acquire control or influence over the
result or timing of an order’s execution.
The execution of a Participant’s order
would be determined solely by what
quotes and orders are present in the
system at the time the Participant
submits the order and the order priority
based on Exchange rules. Therefore, the
Exchange believes the non-participation
requirement would be met through the
submission and execution of orders in
the Exchange’s Pillar trading system.
3. Execution Through an Unaffiliated
Member. Although Rule 11a2–2(T)
(‘‘PCX’’)(‘‘Arca Ex Order’’)); 29237 (May 24, 1991),
56 FR 24853 (May 31, 1991) (regarding NYSE’s OffHours Trading Facility); 15533 (January 29, 1979);
and 14563 (March 14, 1978), 43 FR 11542 (March
17, 1978) (regarding the NYSE’s Designated Order
Turnaround System (‘‘1978 Release’’)).
44 Id. 1978 Release, supra note 43.
45 Id.
46 1979 Release, supra note 41.
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
contemplates having an order executed
by an exchange member, unaffiliated
with the member initiating the order,
the Commission has recognized the
requirement is satisfied where
automated exchange facilities are used
as long as the design of these systems
ensures that members do not possess
any special or unique trading
advantages in handling their orders after
transmitting them to the exchange. In
the 1979 Release, the Commission noted
that while there is not an independent
executing exchange member, the
execution of an order is automatic once
it has been transmitted into the systems.
Because the design of these systems
ensures that members do not possess
any special or unique trading
advantages in handling their orders after
transmitting them to the exchange, the
Commission has stated that executions
obtained through these systems satisfy
the independent execution requirement
of Rule 11a2–2(T). Because the design of
the Exchange’s Pillar trading system
ensures that no Participant has any
special or unique trading advantages
over nonmembers in the handling of its
orders after transmitting its orders to the
Exchange, the Exchange believes that its
Pillar trading system would satisfy this
requirement.
4. Non-Retention of Compensation for
Discretionary Accounts. Finally, Rule
11a2–2(T) states, in the case of a
transaction effected for the account for
which the initiating member or its
associated person exercises investment
discretion, in general, the member or its
associated person may not retain
compensation for effecting the
transaction, unless the person
authorized to transact business for the
account has expressly provided
otherwise by written contract referring
to both Section 11(a) of the Exchange
Act and Rule 11a2–2(T). The Exchange
will advise its membership through the
issuance of a Regulatory Bulletin that
those Participants trading for covered
accounts over which they exercise
investment discretion must comply with
this condition in order to rely on the
exemption in Rule 11a2–2(T) from the
prohibition in Section 11(a) of the
Exchange Act.
In conclusion, the Exchange believes
that its Pillar trading system would
satisfy the four requirements of Rule
11a2–2(T) as well as the general policy
objectives of Section 11(a). The
Exchange’s proposed Pillar trading
system would place all users, members
and non-members, on the ‘‘same
footing’’ with respect to transactions on
the Exchange for covered accounts as
intended by Rule 11a2–2(T). As such,
no Exchange Participant would be able
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
44665
to engage in proprietary trading in a
manner inconsistent with Section 11(a).
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),47 As noted above, at this time,
the Exchange is not proposing to offer
rules for market makers on the Exchange
and, therefore, proposes to designate
Section 2 as ‘‘Reserved.’’ The Exchange
further proposes that Article 16 in its
entirety would not be applicable to
trading on Pillar.
Section 3 of proposed Rule 7 would
establish the Exchange’s trading rules.
Among other things, these rules would
establish the orders and modifiers that
would be available on the Exchange
(proposed in general, and furthers the
objectives of Section 6(b)(5),48 in
particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
Generally, the Exchange believes that
the proposed rules would support the
migration of the Exchange to the Pillar
trading system as a fully automated cash
equities trading market with a pricetime priority model that is based both
on the rules of its affiliated exchanges,
NYSE Arca and NYSE National, and
with respect to Cross Orders, the
Exchange’s current rules. The Exchange
is not proposing any new or novel rules.
The proposed rule changes relating to
trading would therefore remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
they are based on the approved rules of
other exchanges.
Proposed Rules Based on the Rules of
the Exchange’s Affiliates
Regulation of the Exchange (Rule 0) and
Definitions (Rule 1)
The Exchange believes that proposed
Rule 0 would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and in general, to protect
investors and the public interest
because it would specify the role of
FINRA, pursuant to a Regulatory
Services Agreement, to perform certain
47 15
48 15
E:\FR\FM\26AUN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
26AUN1
44666
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
regulatory functions of the Exchange on
behalf of the Exchange.
The Exchange further believes that
proposed Rule 1 would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and in
general, to protect investors and the
public interest because the proposed
definitions are terms that would be used
in the additional rules proposed by the
Exchange. Proposed Rule 1 would
therefore promote transparency in
Exchange rules by providing for
definitional terms that would be used
throughout the rulebook.
Equities Trading Rules (Proposed
Rule 7)
khammond on DSKBBV9HB2PROD with NOTICES
A. Proposed Rules Based on NYSE Arca
and NYSE National
The Exchange believes that proposed
Rule 7 and the rules thereunder that are
based on the rules of NYSE Arca and
NYSE National (proposed Rules 7.5, 7.7,
7.9, 7.10, 7.11, 7.12, 7.16, 7.17, 7.18,
7.29, 7.30, 7.31, 7.33, 7.34, 7.36, 7.37,
7.38, 7.40 and 7.45) would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would establish rules relating to trading
on the Exchange that would support the
re-launch of Exchange trading as a fully
automated trading market on Pillar with
a price-time priority trading model. The
proposed rules are based on the rules of
NYSE Arca and NYSE National, as
applicable, and include rules governing
orders and modifiers, ranking and
display, execution and routing, and
trading sessions. The Exchange believes
that because it would not be a primary
listing exchange, it would be consistent
with the protection of investors and the
public interest not to include rules
relating to auctions or lead or
designated market makers. Other than
substantive differences to the proposed
rules relating to the difference that the
Exchange would not operate auctions,
the proposed rules are not novel, and
are based on the rules of NYSE Arca and
NYSE National. The Exchange believes
that having Pillar rules that are based on
the rules of NYSE Arca and NYSE
National would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would promote
consistency among the Exchange and
the Affiliated Exchanges, thereby
making Exchange rules easier to
navigate for those Exchange Participants
that are also members of one or more
Affiliated Exchange.
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
B. Proposed Rules Relating to Cross
Orders
As noted above, when it transitions to
Pillar, the Exchange will continue to
support Institutional Brokers on the
Exchange consistent with current
Article 17, including making BrokerPlex
available to Institutional Brokers. To
support Institutional Brokers, the
Exchange proposes a difference from its
Affiliated Exchanges by continuing to
support Cross Orders and related
functionality that is currently available
on the Exchange, with specified
differences.
Specifically, the Exchange believes
that proposed Rule 7.31(g), relating to
Cross Orders, would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed rule would provide for
both Limit IOC Cross Orders, which are
based on the rules of NYSE Arca and
NYSE National, and QCT Cross Orders,
which are currently available on the
Exchange. The Exchange believes that
the proposed differences in how QCT
Cross Orders would function on Pillar
as compared to the current Rules would
remove impediments to and perfect the
mechanism of a free and open market
because it would apply Cross Order
functionality that has been approved on
NYSE Arca and NYSE National, i.e., the
ability to execute a Cross Order if the
cross price is between the BBO, to
existing QCT Cross Order functionality,
as described in current Exchange rules.
How QCT Cross Orders would
otherwise function on Pillar would not
differ substantively from how such
orders currently function. The Exchange
believes that the proposed nonsubstantive rule differences to use Pillar
terminology to describe QCT Cross
Orders would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because using Pillar terminology
would promote transparency and
consistency in Exchange rules.
The Exchange believes that offering
Limit IOC Cross Orders would remove
impediments to and perfect the
mechanism of a free and open market
because the proposed order type is
based on the approved rules of NYSE
Arca and NYSE National. In addition,
the proposed Limit IOC Cross Order
would provide Participants that are not
Institutional Brokers with an
opportunity to send Cross Orders to the
Exchange. The Exchange further
believes that eliminating Benchmark
and Midpoint Cross orders would
remove impediments to and perfect the
mechanism of a free and open market
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
and a national market system because
the Exchange would be streamlining its
offerings and eliminating little-used
order types.
How Cross Orders would function on
the Exchange would otherwise be based
on current Exchange rules, with nonsubstantive differences to use Pillar
terminology, including the availability
of non-regular way settlement
instructions (proposed Rule 7.8A),
entering such orders in an increment as
small as $0.000001 (proposed Rule 7.6),
and the availability of Cross with Size
(proposed Rule 7.31(g)(3)). The
Exchange believes that these proposed
rules would remove impediments to and
perfect the mechanism of a free and
open market because they would
provide continuity to Institutional
Brokers regarding how Cross Orders
would function after the Exchange
transitions to Pillar. The Exchange
similarly believes that proposed Rule
7.32, and in particular, the ability for
Cross Orders to be entered up to 25
million shares in size, would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would promote the entry of larger-sized
Cross Orders on the Exchange. This
proposed rule change is not novel and
is based on NYSE Rule 7.32.
Proposed Amendments to Current
Exchange Rules
The Exchange believes that the
proposed amendments to Article 17 to
add references to the NYSE Chicago
Marketplace and amendments to Article
17, Rule 5 to specify which order types
would not be available via BrokerPlex
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because the proposed changes
are designed to promote transparency in
Exchange rules of how BrokerPlex
would function once the Exchange
transitions to Pillar.
The Exchange further believes that the
proposed amendments to Article 12,
Rule 8 relating to which rules are
eligible for the MRVP are designed to
prevent fraudulent and manipulative
acts and practices and promote just and
equitable principles of trade because
they add Pillar rules to the Exchange’s
MRVP that have previously been
approved by the Commission to be
included in the minor rule violation
plans of NYSE Arca and NYSE National,
thus promoting consistency among the
Affiliated Exchanges of which rules
would be eligible for the MRVP. The
proposed amendments would also
promote transparency by eliminating an
obsolete rule from the MRVP and
E:\FR\FM\26AUN1.SGM
26AUN1
Federal Register / Vol. 84, No. 165 / Monday, August 26, 2019 / Notices
updating a rule cross reference for an
existing rule that is eligible for MRVP.
The Exchange further believes that it
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system to specify which current rules
would not be applicable to trading on
the Pillar trading platform. The
Exchange believes that the following
legend, which would be added to
existing rules, ‘‘This Rule is not
applicable to trading on the Pillar
trading platform,’’ would promote
transparency regarding which rules
would govern trading on the Exchange
on Pillar. The Exchange has proposed to
add this legend to rules that would be
superseded by proposed rules or rules
that would not be applicable because
they relate to functions that would not
be available when the Exchange
transitions to Pillar.
khammond on DSKBBV9HB2PROD with NOTICES
Section 11(a) of the Act
For reasons described above, the
Exchange believes that the proposal for
the Exchange to operate on a fully
automated trading market without a
Floor is consistent with Section 11(a) of
the Act and Rule 11a2–2(T) thereunder.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
provide for trading rules to support the
migration to the Pillar trading platform
consistent with the Framework Filing.
The Exchange operates in a highly
competitive environment in which its
unaffiliated exchanges competitors
operate multiple affiliated exchanges
that operate under common rules. By
proposing rules based on the rules of its
affiliated exchanges, the Exchange
believes that it will be able to compete
on a more level playing field with its
exchange competitors that similarly
trade NMS Stocks on fully automated
trading models. In addition, by basing
its rules on those of its affiliated
exchanges, the Exchange will provide
its Participants with consistency across
affiliated exchanges, thereby enabling
the Exchange to compete with
unaffiliated exchange competitors that
similarly operate multiple exchanges on
the same trading platforms.
In addition, the Exchange does not
believe that the proposed rule change
will impose any burden on competition
on its Participants that is not necessary
or appropriate in furtherance of the
purposes of the Act because the
VerDate Sep<11>2014
16:09 Aug 23, 2019
Jkt 247001
Exchange proposes to retain rules
governing Participant membership and
conduct and therefore such Participants
would not need to update internal
procedures in connection with the
migration of the Exchange to the Pillar
trading platform. The Exchange further
believes that the proposed rule change
would promote consistency and
transparency on both the Exchange and
its affiliated exchanges, thus making the
Exchange’s rules easier to navigate.
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 rule-comments@
sec.gov. Please include File Number SR–
NYSECHX–2019–08 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSECHX–2019–08. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
44667
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–NYSECHX–2019–08 and
should be submitted on or before
September 16, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.49
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–18269 Filed 8–23–19; 8:45 am]
BILLING CODE 8011–01–P
SOCIAL SECURITY ADMINISTRATION
[Docket No. SSA–2018–0023]
Social Security Ruling, SSR 19–4p;
Titles II and XVI: Evaluating Cases
Involving Primary Headache Disorders
Social Security Administration.
Notice of Social Security Ruling
AGENCY:
ACTION:
(SSR).
We are providing notice of
SSR 19–4p. This SSR provides guidance
on how we establish that a person has
a medically determinable impairment of
a primary headache disorder and how
we evaluate primary headache disorders
in disability claims under titles II and
XVI of the Social Security Act.
DATES: We will apply this notice on
August 26, 2019.
FOR FURTHER INFORMATION CONTACT:
Cheryl A. Williams, Office of Medical
Policy, Social Security Administration,
SUMMARY:
49 17
E:\FR\FM\26AUN1.SGM
CFR 200.30–3(a)(12).
26AUN1
]]>Agencies
[Federal Register Volume 84, Number 165 (Monday, August 26, 2019)]
[Notices]
[Pages 44654-44667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18269]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86709; File No. SR-NYSECHX-2019-08]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing of Proposed Rule Change for Trading Rules To Support the
Transition of Trading to the Pillar Trading Platform
August 20, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 6, 2019, the NYSE Chicago, Inc. (``NYSE Chicago''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``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 trading rules to support the transition of
trading to the Pillar trading platform. The proposed 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 trading rules to support the transition of
its trading platform to Pillar, which is an integrated trading
technology platform designed to use a single specification for
connecting to the equities and options markets operated by the Exchange
and its affiliates, NYSE Arca, Inc. (``NYSE Arca''), NYSE American, LLC
(``NYSE American''), NYSE National, Inc. (``NYSE National''), and New
York Stock Exchange LLC (``NYSE'') (the ``Affiliated Exchanges'').
Subject to rule approvals, the Exchange anticipates that it will
transition trading to Pillar in the fourth quarter 2019.\4\
---------------------------------------------------------------------------
\4\ The Exchange has announced that, subject to rule approvals,
the Exchange will transition to trading on Pillar on November 4,
2019. See Trader Update, available here: https://www.nyse.com/publicdocs/nyse/markets/nyse-chicago/NYSE_Chicago_Migration.pdf.
---------------------------------------------------------------------------
1. Background
In July 2018, the Exchange and its direct parent company were
acquired by NYSE Group, Inc. (``Transaction'').\5\ As
[[Page 44655]]
a result of the Transaction, the Exchange became part of a corporate
family including the Affiliated Exchanges. Following the Transaction,
the Exchange continued to operate as a separate self-regulatory
organization with rules, membership rosters and listings distinct from
the rules, membership rosters and listings of the other Affiliated
Exchanges.
---------------------------------------------------------------------------
\5\ See Exchange Act Release No. 83635 (July 13, 2018), 83 FR
34182 (July 19, 2018) (SR-CHX-2018-004); see also Exchange Act
Release No. 83303 (May 22, 2018), 83 FR 24517 (May 29, 2018) (SR-
CHX-2018-004).
---------------------------------------------------------------------------
With Pillar, the Exchange proposes to transition trading in all
Tape A, Tape B, and Tape C-listed securities from its current trading
platform to a fully automated price-time priority allocation model that
operates on the Pillar trading platform. From the perspective of a
Participant,\6\ the experience trading on Pillar will be most similar
to trading on NYSE Arca or NYSE National, as the Exchange would offer
the same suite of orders and modifiers as are available on those
exchanges.\7\ Accordingly, the Exchange proposes trading rules based on
the rules and trading model of the cash equities platforms of NYSE Arca
and NYSE National, which both operate fully automated price-time
priority allocation exchanges on the Pillar trading platform.
Specifically, the Exchange proposes rules relating to orders and
modifiers, ranking and display of orders, execution and routing of
orders, and all other trading functionality that are based on the rules
of those exchanges.\8\ The Exchange will continue to support its dual
listings but will not provide trading functions, such as auctions, that
support the operation of a primary listing exchange.\9\ Accordingly,
once it transitions to Pillar, NYSE Chicago will function most
similarly to NYSE National, which is not a listing exchange.
---------------------------------------------------------------------------
\6\ The term ``Participant'' is defined in Article 1, Rule 1(s)
to mean, among other things, any Participant Firm that holds a valid
Trading Permit and that a Participant shall be considered a
``member'' of the Exchange for purposes of the Act. If a Participant
is not a natural person, the Participant may also be referred to as
a Participant Firm, but unless the context requires otherwise, the
term Participant shall refer to an individual Participant and/or a
Participant Firm.
\7\ NYSE National was the most recent Affiliated Exchange to
begin trading on the Pillar trading platform. See Securities
Exchange Act Release No. 83289 (May 17, 2018), 83 FR 23968 (May 23,
2018) (SR-NYSENat-2018-02) (Order approving rule change to support
the re-launch of NYSE National on the Pillar trading platform).
Since launching, NYSE National has amended its Pillar trading rules,
and the Exchange's proposed rules are based on the current version
of NYSE National's rules. See Securities Exchange Act Release Nos.
83900 (August 22, 2018), 83 FR 43942 (August 28, 2018) (SR-NYSENat-
2019-19) (Notice of filing and immediate effectiveness of proposed
rule change relating to NYSE National Rule 7.31); 85144 (February
13, 2019), 84 F8 5519 (February 21, 2019) (SR-NYSENat-2019-02)
(Notice of filing and immediate effectiveness of proposed rule
change relating to NYSE National Rule 7.31); 85264 (March 7, 2019),
84 FR 9168 (March 13, 2019) (SR-NYSENat-2019-04) (Notice of filing
and immediate effectiveness of proposed rule change relating to NYSE
National Rules 7.16, 7.18, 7.34, and 7.38); 85572 (April 9, 2019),
84 FR 15257 (April 15, 2019) (SR-NYSENat-2019-08) (Notice of filing
and immediate effectiveness of proposed rule change to NYSE National
Rule 7.12); 85723 (April 25, 2019), 84 FR 18618 (May 1, 2019) (SR-
NYSENat-2019-10) (Notice of filing and immediate effectiveness of
proposed rule change to NYSE National Rule 7.11).
\8\ NYSE American's cash equities market and NYSE also operate
on the Pillar trading platform and share a substantial number of
trading functions and Pillar platform rules with NYSE Arca and NYSE
National (see generally NYSE American Rule 7-E (Equities Trading)
and NYSE Rule 7P (Equities Trading)). NYSE American operates with a
Delay Mechanism and as a result, does not offer all of the order
types that are available on NYSE Arca and NYSE National (see NYSE
American Rules 7.29 and 7.31). NYSE operates a Floor-based parity
allocation model and offers order types that differ from those
available on NYSE Arca and NYSE National (see NYSE Rules 7.31, 7.36,
and 7.37). Because of those differences, which the Exchange does not
propose, the Exchange will not cite to either NYSE American or NYSE
Pillar rules in this filing, even if those exchanges have similar
rules to what is being proposed for the Exchange.
\9\ Information about the securities dually listed on the
Exchange is available here: https://www.nyse.com/markets/nyse-chicago/listings.
---------------------------------------------------------------------------
The Exchange proposes four substantive differences from how trading
on NYSE Arca and NYSE National function:
First, the Exchange would continue to support
Institutional Brokers,\10\ as provided for under Article 17. As
described in greater detail below, the Exchange proposes to amend the
rules set forth under Article 17 only as necessary to support
differences in the Pillar trading platform as compared to the
Exchange's current trading rules.
---------------------------------------------------------------------------
\10\ The term ``Institutional Broker'' is defined in Article 1,
Rule 1(n) to mean a member of the Exchange who is registered as an
Institutional Broker pursuant to the provisions of Article 17 and
has satisfied all Exchange requirements to operate as an
Institutional Broker on the Exchange.
---------------------------------------------------------------------------
Second, the Exchange would continue to support an order
type to facilitate compliance with the contingent trade exemption of
Rule 611 of Regulation NMS, which is currently described in Article 1,
Rule 2(b)(2)(E). While NYSE Arca and NYSE National both describe this
exemption in their respective rules,\11\ neither exchange offers a
specific order type designed for this exemption. Similar to current
Exchange rules, on Pillar, the Exchange will continue to support a
Qualified Contingent Trade (``QCT'') cross order type that is designed
for an Institutional Broker to comply with the contingent trade
exemption, which will be described in proposed Rule 7.31(g).
---------------------------------------------------------------------------
\11\ See NYSE Arca Rule 7.37-E(f)(5) and NYSE National Rule
7.37(f)(5).
---------------------------------------------------------------------------
Third, the Exchange will continue to support non-regular
way settlement instructions for cross orders and the ability for cross
orders to be submitted in an increment as small as $0.000001. These
proposed differences from NYSE Arca and NYSE National would be set
forth in proposed Rules 7.6, 7.8, and 7.8A.
Fourth, the Exchange will not support Market Makers on the
Exchange. Accordingly, the Exchange does not propose rules based on
Section 2 of NYSE Arca Rule 7-E or Section 2 of NYSE National Rule 7
and will not offer the ``Q'' Order type, as described in NYSE Arca Rule
7.31-E(j) and NYSE National Rule 7.31(j).
Once trading on the Pillar trading platform begins, specified
current Exchange rules would not be applicable, as described in greater
detail below. For each current rule (or Article) that would not be
applicable for trading on the Pillar trading platform, the Exchange
proposes to state in a preamble to such rule that ``this Rule/Article
is not applicable to trading on the Pillar trading platform.'' \12\
---------------------------------------------------------------------------
\12\ The NYSE uses the same convention to identify the NYSE
trading rules that are not applicable to trading on Pillar. See
Securities Exchange Act Release Nos. 82945 (March 26, 2018), 83 FR
13553, 13555 (March 29, 2018) (SR-NYSE-2017-36) (Approval Order) and
85962 (May 29, 2019), 84 FR 26188, 26189 (June 5, 2019) (SR-NYSE-
2019-05) (Approval Order).
---------------------------------------------------------------------------
Current Exchange rules that do not have this preamble will continue
to govern Exchange operations after the transition to Pillar.
Specifically, the following current rules will continue to be operative
without any substantive changes: Article 2 (Committees); Article 3
(Participants and Participant Firms); Article 5 (except for Rule 1)
(Access to the Exchange); Article 6 (Registration, Supervision and
Training); Article 7 (Financial Responsibility and Reporting
Requirements); Article 8 (except for Rule 17) (Business Conduct);
Article 9 (except for Rule 23) (General Trading Rules); Article 10
(Margins); Article 11 (except for Rule 3(b)(8)) (Participant Books and
Records); Article 12 (Disciplinary Matters and Trial Proceedings);
Article 13 (Suspension--Reinstatement); Article 14 (Arbitration);
Article 15 (Hearings and Reviews); Article 21 (Clearance and
Settlement); and Article 22 (Listed Securities).
2. Proposed Rule Changes
The Exchange recently adopted the rule numbering framework of NYSE
National rules, which are organized in 13 Rules.\13\ This framework
will
[[Page 44656]]
eventually replace the Exchange's current rule numbering framework.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 85297 (March 12,
2019), 84 FR 9854 (March 18, 2019) (SR-NYSECHX-2019-03) (Notice of
Filing and Immediate Effectiveness) (``Framework Filing'').
---------------------------------------------------------------------------
With this filing, and as described in greater detail below, the
Exchange proposes to expand on the Framework Filing by adding new rules
relating to trading on the Pillar trading platform (proposed Rules 0,
1, 2, and 7).
Similar to NYSE National, the Exchange proposes the following non-
substantive differences throughout the proposed Pillar rules as
compared to the NYSE Arca rules:
To use the term ``Exchange'' instead of ``NYSE Arca
Marketplace;''
to use the term ``Exchange Act,'' which is a proposed
defined term;
to use the term ``Exchange Book'' instead of ``NYSE Arca
Book;''
to use the term ``will'' instead of ``shall;'' and
to use the term ``Participant'' instead of ``ETP Holder.''
Rule 0--Regulation of the Exchange and Participants
As described in the Framework Filing, Rule 0 establishes the
regulation of the Exchange and Participants. As proposed, Rule 0 would
provide that:
The Exchange and FINRA are parties to a Regulatory Services
Agreement (``RSA'') pursuant to which FINRA has agreed to perform
certain regulatory functions of the Exchange on behalf of the
Exchange. Exchange Rules that refer to Exchange staff and Exchange
departments should be understood as also referring to FINRA staff
and FINRA departments acting on behalf of the Exchange pursuant to
the RSA, as applicable. Notwithstanding the fact that the Exchange
has entered into an RSA with FINRA to perform certain of the
Exchange's functions, the Exchange shall retain ultimate legal
responsibility for, and control of, such functions.
This proposed rule is based on NYSE National Rule 0 and NYSE Arca
Rule 0 without any substantive differences. Because NYSE Chicago now
has an RSA with FINRA, the Exchange proposes Rule 0, which would be a
new Exchange rule.
Rule 1--Definitions
As described in the Framework Filing, Rule 1 would set forth
definitions applicable to trading on the Exchange's Pillar trading
platform. Proposed Rule 1.1 includes definitions that are based on NYSE
National Rule 1.1 definitions and NYSE Arca Rule 1.1 definitions.
Proposed Rule 1.1 would provide that as used in Exchange rules,
unless the context requires otherwise, the terms in proposed Rule 1.1
would have the meanings indicated. This rule is based on NYSE National
Rule 1.1. The Exchange proposes sub-paragraph numbering for Rule 1.1
that aligns to the alphabetical ordering of the proposed definitions.
The Exchange proposes the following definitions:
Proposed Rule 1.1(a) would define the terms ``Authorized
Trader'' or ``AT'' to mean a person who may submit orders to the
Exchange's Trading Facilities on behalf of his or her Participant. This
proposed rule is based on NYSE National 1.1(a) and NYSE Arca Rule
1.1(e) without any substantive differences.
Proposed Rule 1.1(b) would define the term ``Away Market''
to mean any exchange, alternative trading system (``ATS'') or other
broker-dealer (1) with which the Exchange maintains an electronic
linkage and (2) that provides instantaneous responses to orders routed
from the Exchange. The Exchange will designate from time to time those
ATS's or other broker-dealers that qualify as Away Markets. This
proposed rule is based on NYSE National Rule 1.1(b) and NYSE Arca Rule
1.1(f) without any substantive differences.
Proposed Rule 1.1(c) would define the term ``BBO'' to mean
the best bid or offer that is a Protected Quotation on the Exchange and
that the term ``BB'' means the best bid that is a Protected Quotation
on the Exchange and the term ``BO'' means the best offer that is a
Protected Quotation on the Exchange. This proposed rule is based on
NYSE National Rule 1.1(c) and NYSE Arca Rule 1.1(g) without any
substantive differences.
Proposed Rule 1.1(d) would define the terms ``Board'' and
``Board of Directors'' to mean the Board of Directors of NYSE Chicago,
Inc. This proposed rule is based on NYSE National Rule 1.1(d) and NYSE
Arca Rule 1.1(h).
Proposed Rule 1.1(e) would define the term ``Core Trading
Hours'' to mean the hours of 9:30 a.m. Eastern Time through 4:00 p.m.
Eastern Time or such other hours as may be determined by the Exchange
from time to time. This proposed rule is based on NYSE National Rule
1.1(e) and NYSE Arca Rule 1.1(j). Proposed Rule 1.1(e) would also
provide that all times in the Pillar Platform Rules are Eastern Time,
which text is based on NYSE Rule 1.1(d). Because all times would be
Eastern Time, the Exchange proposes that Article 1, Rule 3 would not be
applicable to trading on Pillar.
Proposed Rule 1.1(f) would define the terms ``Effective
National Market System Plan'' and ``Regular Trading Hours'' to have the
meanings set forth in Rule 600(b) of Regulation NMS under the Exchange
Act. This proposed rule is based on NYSE National Rule 1.1(f) and NYSE
Arca Rule 1.1(l).
Proposed Rule 1.1(g) would define the term ``Eligible
Security'' to mean any equity security (i) traded on the Exchange
pursuant to a grant of unlisted trading privileges under Section 12(f)
of the Exchange Act and (ii) specified by the Exchange to be traded on
the Exchange or other facility, as the case may be. This proposed rule
is based on NYSE National Rule 1.1(g) and NYSE Arca Rule 1.1(m).
Proposed Rule 1.1(h) would define the term ``Exchange'' to
mean NYSE Chicago, Inc. This proposed rule is based on NYSE National
Rule 1.1(j).
Proposed Rule 1.1(i) would define the term ``Exchange
Act'' to mean the Securities Exchange Act of 1934, as amended. This
proposed rule is based on NYSE National Rule 1.1(k) and NYSE Arca Rule
1.1(q).
Proposed Rule 1.1(j) would define the term ``Exchange
Book'' to mean the Exchange's electronic file of displayed and non-
displayed orders. This proposed rule is based on NYSE National Rule
1.1(l).
Proposed Rule 1.1(k) would define the term ``Exchange
Traded Product'' to mean a security that meets the definition of
``derivative securities product'' in Rule 19b-4(e) under the Exchange
Act and would define the term ``UTP Exchange Traded Product'' to mean
one of the following Exchange Traded Products that trades on the
Exchange pursuant to unlisted trading privileges: Equity Linked Notes,
Investment Company Units, Index-Linked Exchangeable Notes, Equity Gold
Shares, Equity Index-Linked Securities, Commodity-Linked Securities,
Currency-Linked Securities, Fixed-Income Index-Linked Securities,
Futures-Linked Securities, Multifactor-Index-Linked Securities, Trust
Certificates, Currency and Index Warrants, Portfolio Depository
Receipts, Trust Issued Receipts, Commodity-Based Trust Shares, Currency
Trust Shares, Commodity Index Trust Shares, Commodity Futures Trust
Shares, Partnership Units, Paired Trust Shares, Trust Units, Managed
Fund Shares, and Managed Trust Securities. This proposed rule is based
on NYSE National Rule 1.1(m). This enumerated list is designed to
establish rules relating to the classes of securities to which the
Exchange would extend unlisted trading privileges on Pillar.
Proposed Rule 1.1(l) would define the term ``FINRA'' to
mean the Financial Industry Regulatory Authority, Inc. This proposed
rule is based on NYSE National Rule 1.1(n).
[[Page 44657]]
Proposed Rule 1.1(m) would define the term ``Marketable''
to mean, for a Limit Order, an order that can be immediately executed
or routed and that Market Orders are always considered marketable. This
proposed rule is based on NYSE National Rule 1.1(p) and NYSE Arca Rule
1.1(y).
Proposed Rule 1.1(n) would define the terms ``NBBO, Best
Protected Bid, Best Protected Offer, and Protected Best Bid and Offer
(PBBO)''. The term ``NBBO'' would mean the national best bid or offer,
as defined in Rule 600(b)(42) of Regulation NMS. The terms ``NBB''
would mean the national best bid and ``NBO'' would mean the national
best offer. The terms ``Best Protected Bid'' or ``PBB'' would mean the
highest Protected Bid, and ``Best Protected Offer'' or ``PBO'' would
mean the lowest Protected Offer, and the term ``Protected Best Bid and
Offer'' (``PBBO'') would mean the Best Protected Bid and the Best
Protected Offer, as those terms are defined in Rule 600(b)(57) of
Regulation NMS. This proposed rule is based on NYSE National Rule
1.1(t) and NYSE Arca Rule 1.1(dd).
The Exchange proposes to calculate the NBBO and PBBO in the same
manner that NYSE Arca calculates the NBBO and PBBO.\14\ As described in
the NYSE Arca Data Feed Filing, the NBBO may differ from the PBBO
because the NBBO includes Manual Quotations, which are defined as any
quotation other than an automated quotation. By contrast, a protected
quotation is an automated quotation that is the best bid or offer of a
national securities exchange.\15\ Another difference between NBBO and
PBBO is that when the Exchange routes interest to a protected
quotation, it will adjust the PBBO. Accordingly, for this additional
reason, the PBBO may differ from the NBBO, which the Exchange does not
adjust based on interest it routes to protected quotations. As
described in greater detail below, the Exchange proposed to use both
the NBBO and PBBO for purposes of order types that may be priced based
on an external reference price.
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 74409 (March 2,
2015), 80 FR 12221 (March 6, 2015) (SR-NYSEArca-2015-11) (Notice of
filing and immediate effectiveness of proposed rule change
specifying NYSE Arca's use of certain data feeds for handling and
execution, order routing, and regulatory compliance) (``NYSE Arca
Data Feed Filing''). The Exchange proposes to establish the data
feeds that it uses for handling, execution, and routing of orders in
proposed Rule 7.37, described below.
\15\ See id. at 12222 n.9.
---------------------------------------------------------------------------
Proposed Rule 1.1(o) would define the term ``NMS Stock''
to mean any security, other than an option, for which transaction
reports are collected, processed, and made available pursuant to an
effective transaction reporting plan as defined in Rule 600(b)(47) of
Regulation NMS. This proposed rule is based on NYSE National Rule
1.1(u).
Proposed Rule 1.1(p) would define the term ``NYSE Chicago
Marketplace'' to mean the electronic securities communications and
trading facility of the Exchange through which orders are processed or
are consolidated for execution and/or display. This proposed definition
is based on NYSE Arca Rule 1.1(kk) and NYSE American Rule 1.1E(e)
without any substantive differences. As described in greater detail
below, the Exchange proposes to use this definition to replace
references to the term ``Matching System'' in the current rules that
would continue to be applicable after the Exchange transitions to
Pillar.
Proposed Rule 1.1(q) would define the term ``Protected
Bid'' or ``Protected Offer'' to mean a quotation in an NMS Stock that
is (i) displayed by an Automated Trading Center; (ii) disseminated
pursuant to an effective national market system plan; and (iii) an
Automated Quotation that is the best bid or best offer of a national
securities exchange or the best bid or best offer of a national
securities association. The term ``Protected Quotation'' would mean a
quotation that is a Protected Bid or Protected Offer. For purposes of
the foregoing definitions, the terms ``Automated Trading Center,''
``Automated Quotation,'' ``Manual Quotation,'' ``Best Bid,'' and ``Best
Offer,'' would have the meanings ascribed to them in Rule 600(b) of
Regulation NMS under the Exchange Act. This proposed rule is based on
NYSE National Rule 1.1(aa) without any substantive differences.
Proposed Rule 1.1(r) would define the term ``Security''
and ``Securities'' to mean any security as defined in Rule 3(a)(10)
under the Exchange Act, provided, that for purposes of Rule 7, such
term would mean any NMS Stock. This proposed rule is based on NYSE
National Rule 1.1(bb) and NYSE Arca Rule 1.1(vv).
Proposed Rule 1.1(s) would define the term ``self-
regulatory organization'' and ``SRO'' to have the same meaning as set
forth in the provisions of the Exchange Act relating to national
securities exchanges. This proposed rule is based on NYSE National Rule
1.1(ee) and NYSE Arca Rule 1.1(ww) without any substantive differences.
Proposed Rule 1.1(t) would define the term ``trade-
through'' to mean the purchase or sale of an NMS Stock during regular
trading hours, either as principal or agent, at a price that is lower
than a Protected Bid or higher than a Protected Offer. This proposed
rule is based on NYSE National Rule 1.1(ff) and NYSE Arca Rule 1.1(bbb)
without any substantive differences.
Proposed Rule 1.1(u) would define the term ``Trading
Center'' to mean, for purposes of Rule 7, a national securities
exchange or a national securities association that operates an SRO
trading facility, an alternative trading system, an exchange market
maker, an OTC market maker or any other broker or dealer that executes
orders internally by trading as principal or crossing orders as agent.
For purposes of this definition, the terms ``SRO trading facility,''
``alternative trading system,'' ``exchange market maker'' and ``OTC
market maker'' would have the meanings ascribed to them in Rule 600(b)
of Regulation NMS under the Exchange Act. This proposed rule is based
on NYSE National Rule 1.1(gg) and NYSE Arca Rule 1.1(ccc) without any
substantive differences.
Proposed Rule 1.1(v) would define the term ``Trading
Facilities'' to mean any and all electronic or automatic trading
systems provided by the Exchange to Participants. This proposed rule is
based on NYSE National Rule 1.1(hh) without any differences.
Proposed Rule 1.1(w) would define the term ``UTP
Security'' to mean 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. This proposed rule is based on
NYSE National Rule 1.1(ii) and NYSE Arca Rule 1.1(iii) without any
substantive differences.
Proposed Rule 1.1(x) would define the term ``UTP Listing
Market'' to mean the primary listing market for a UTP Security. This
proposed rule is based on NYSE National Rule 1.1(jj) and NYSE Arca Rule
1.1(ggg) without any substantive differences.
Proposed Rule 1.1(y) would define the term ``UTP
Regulatory Halt'' to mean a trade suspension, halt, or pause called by
the UTP Listing Market in a UTP Security that requires all market
centers to halt trading in that security. This proposed rule is based
on NYSE National Rule 1.1(kk) and NYSE Arca Rule 1.1(hhh) without any
substantive differences.
Because the above-described rules would describe definitions to
support the trading rules on Pillar, the Exchange proposes to amend
Article 1, Rule 1 to specify which current definitions would not be
applicable to trading on the Pillar trading platform. To effect this
change,
[[Page 44658]]
the Exchange proposes to amend the opening paragraph to Article 1, Rule
1 to provide that paragraphs (a), (e), (f), (g), (k), (l), (o), (z),
(bb), (cc), (dd), (nn), (pp), (qq), (tt), and (uu) would not be
applicable to trading on the Pillar trading platform.
Rule 2--Trading Permits
The Exchange proposes to retain its existing rules governing
membership and registration. Accordingly, at this time, the Exchange
does not propose any membership rules for Rule 2 (Trading Permits),
with one exception. The Exchange proposes that Rule 2.13 would address
mandatory participation in the testing of backup systems. To maintain
consistency among the Affiliated Exchanges, the Exchange proposes that
Rule 2.13 would be based on NYSE National Rule 2.13 without any
substantive differences.
Because proposed Rule 2.13 would govern mandatory participation in
the testing of back-up systems, the Exchange proposes to amend Article
3, Rule 21 to add a preamble that such rule would not be applicable to
trading on the Pillar trading platform.
Rule 7--Equities Trading
Rule 7 would establish rules for trading on the Exchange. As noted
above, the Exchange will launch on the same trading platform as NYSE
National's and NYSE Arca's cash equities trading platform, and proposes
trading rules based on the rules of those exchanges, including general
provisions relating to trading on the Exchange and operation of the
routing broker. Rule 7 would therefore specify all aspects of trading
on the Exchange, including the orders and modifiers that would be
available and how orders would be ranked, displayed, and executed.
Because the Exchange would not be a primary listing exchange, the
Exchange does not propose to have either lead or designated market
makers assigned to securities trading on the Exchange. The Exchange
therefore does not propose rules based on Section 2 to NYSE Arca Rule
7-E or Section 2 to NYSE National Rule 7. In addition, because the
Exchange would not operate auctions, the Exchange does not propose a
rule based on NYSE Arca Rule 7.35-E (Auctions).
As noted above, the Exchange proposes to define terms in Rule 1.1.
In addition, the Exchange would be defining terms relating to equities
trading in specified rules in Rule 7. Accordingly, the Exchange
proposes to include a preamble after ``Rule 7'' and before ``Section 1.
General Provisions'' that would provide that in addition to using terms
defined in Rule 1.1, Rule 7 would use capitalized terms that refer to
certain order types and modifiers that are defined in Rule 7.31 and
other capitalized terms relating to trading sessions and the ranking of
orders that are defined in Rules 7.34 and 7.36, and additional terms
defined under Article 1, Rule 1. This rule text is based on NYSE
National Rule 7, with one difference to reference definitions in
Article 1, Rule 1.
A. Proposed Rules Based on NYSE Arca and NYSE National
The following sets forth the proposed rules that are based on the
rules of NYSE Arca and NYSE National without any substantive
differences. Proposed Rules 7.6, 7.8, 7.8A, 7.31(g), and 7.32, which
would differ from the NYSE Arca and NYSE National rules, will be
discussed in the next section. The Exchange does not propose rules
based on NYSE National Rule 7.14 and 7.41, relating to clearing.
Current Article 21 (Clearance and Settlement) will continue to be
operative on the Pillar trading platform without any differences.
Section 1 of Rule 7 would specify the General Provisions relating
to trading on the Pillar trading platform. The Exchange proposes the
following rules:
Proposed Rule 7.5 (Trading Units) would establish the unit
of trading in securities on the Exchange, including that a unit of
trading is one share, a ``round lot'' would be 100 shares, unless
specified by the primary listing market to be fewer than 100 shares,
and that any amount less than a round lot would constitute an ``odd
lot'' and any amount greater than a round lot that is not a multiple of
a round lot would constitute a ``mixed lot.'' The proposed rule is
based on NYSE National Rule 7.5 and NYSE Arca Rule 7.5-E without any
differences.
Because proposed Rule 7.5 would address the trading units on the
Exchange, the Exchange proposes that Article 1, Rule 2(f) would not be
applicable to trading on the Pillar trading platform.
Proposed Rule 7.7 (Transmission of Bids or Offers) would
establish that all bids and offers on the Exchange would be anonymous
unless otherwise specified by the Participant. The proposed rule is
based on NYSE National Rule 7.7 and NYSE Arca Rule 7.7-E without any
differences. This proposed rule text is new and does not replace any
current Exchange rule.
Proposed Rule 7.9 (Execution Price Binding) would
establish that, notwithstanding proposed Rules 7.10 and 7.11, the price
at which an order is executed is binding notwithstanding that an
erroneous report is rendered. In other words, the Exchange would
consider all trades at which an order is executed as binding regardless
of whether a Participant issues an erroneous report regarding the
execution. This proposed rule text is based on NYSE National Rule 7.9
and NYSE Arca Rule 7.9-E.
In addition, the Exchange proposes that current Article 20, Rules
9, 9A, and 11 would continue to be operative once the Exchange
transitions to Pillar. Because these rules provide for additional
circumstances when a trade may be cancelled, the Exchange proposes a
substantive difference from NYSE National Rule 7.9 and NYSE Arca Rule
7.9-E to reference these three rules, in addition to references to
proposed Rules 7.10 and 7.11, as exceptions to proposed Rule 7.9 that
an execution price would be binding.
Because proposed Rule 7.9 would address the executions are binding,
the Exchange proposes that Article 20, Rule 3 would not be applicable
to trading on the Pillar trading platform.
Proposed Rule 7.10 (Clearly Erroneous Executions) would
set forth the Exchange's rules on clearly erroneous executions. The
proposed rule is based on NYSE National Rule 7.10 without any
substantive differences. Because the rules governing clearly erroneous
executions have been harmonized among all equities exchanges, this rule
is also based on current Article 20, Rule 10, which the Exchange
proposes would not be applicable to trading on Pillar.
Certain provisions of the equities exchanges' harmonized clearly
erroneous rules are on a pilot that expires at the close of business on
October 19, 2019.\16\ As set forth in Interpretation and Policies .01
to current Article 20, Rule 10, paragraphs (c), (e)(2), (f), and (g),
as amended on September 10, 2010, and the provisions of paragraphs (i)
through (k) shall be in effect during a pilot period that expires at
the close of business on October 18, 2019.\17\ To conform the
Exchange's proposed Rule 7.10 with this
[[Page 44659]]
convention, the Exchange proposes to provide that if the pilot period
is not either extended or approved as permanent, the prior versions of
those sections of Article 20, Rule 10 prior to being amended by SR-CHX-
2010-13 would be in effect and the provisions of paragraphs (i) through
(k) would be null and void.
The Exchange proposes to make a conforming amendment to Article 2,
Rule 2 to add a cross-reference to proposed Rule 7.10(e) in each place
where current Article 20, Rule 10(d) is referenced.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 85533 (April 5,
2019), 84 FR 14701 (April 11, 2019) (SR-NYSECHX-2019-04) (Notice of
filing and immediate effectiveness of proposed rule change to extend
current pilot program). See also Securities Exchange Act Release No.
62886 (September 10, 2010), 75 FR 56613 (September 16, 2010) (SR-
CHX-2010-137) (Order approved harmonized clearly erroneous execution
rules for all registered equity exchanges).
\17\ The U.S. equities exchanges are working on an amendment to
the harmonized clearly erroneous rules and the Exchange will amend
this proposed rule to conform to any approved changes to the market-
wide clearly erroneous rules.
---------------------------------------------------------------------------
Proposed Rule 7.11 (Limit Up--Limit Down Plan and Trading
Pauses in Individual Securities Due to Extraordinary Market Volatility)
would specify how the Exchange would comply with the Regulation NMS
Plan to Address Extraordinary Market Volatility (``LULD Plan.'') \18\
The proposed rule is based on NYSE National Rule 7.11 with the
following differences.\19\ First, in proposed Rule 7.11(a)(2), the
Exchange proposes to use the lower-case term ``participant'' to refer
to the Exchange's role in the LULD Plan. The Exchange proposes this
difference from NYSE National Rule 7.11(a)(2) because under Exchange
rules, the upper-case term ``Participant'' means a member of the
Exchange, and therefore the proposed Rule 7.11(a)(3) reference to
``Participant'' means Exchange Participants, and not the Exchange.\20\
Second, because the Exchange will not have market makers or ``Q''
Orders, the Exchange proposes to designate proposed Rule 7.11(a)(5)(D)
as ``Reserved.''
To align proposed Rule 7.11(a)(5)(E) with NYSE National Rule
7.11(a)(5)(E), the Exchange proposes that this Rule would refer to
``Limit IOC Cross Orders with regular-way settlement instructions,''
and not just ``Limit IOC Cross Orders,'' as set forth in NYSE National
Rule 7.11(a)(5)(E). The Exchange proposes this difference because, as
described below, the Exchange will make available non-regular way
settlement instructions for Cross Orders and will also offer a QCT
Cross Order. Because neither of these order types are subject to the
LULD Plan, the Exchange does not propose to restrict executions of such
orders because of Price Bands.\21\
Because proposed Rule 7.11 would address the LULD Plan, the
Exchange proposes that Article 20, Rule 2A would not be applicable to
trading on Pillar.
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 74 FR 16086 (April 17, 2019) (File No. 4-631) (Order
approving eighteenth amendment to LULD Plan to transition from
operating on a pilot to a permanent basis).
\19\ Because the Exchange will not be a primary listing
exchange, the Exchange does not propose rule text based on NYSE Arca
Rule 7.11-E.
\20\ See supra note 6.
\21\ See Section VI(a)(1) of the LULD Plan (providing that ``any
transaction that both (i) does not update the last sale price . . .
and (ii) is excepted or exempt from Rule 611 under Regulation NMS''
is excluded from the limitation that trades should not be executed
outside the Price Bands). As discussed below, Cross Orders with non-
regular way settlement instructions or that are QCT are excepted
from Rule 611 under Regulation NMS. In addition, neither order type
will update the last sale price on the Exchange. Accordingly, these
transactions are not subject to the LULD Plan and therefore will not
be included in proposed Rule 7.11(a)(5)(E).
---------------------------------------------------------------------------
Proposed Rule 7.12 (Trading Halts Due to Extraordinary
Market Volatility) would establish rules on halts in trading due to
extraordinary market volatility and related reopening of trading. The
proposed rule is based on NYSE National Rule 7.12 and NYSE Arca Rule
7.12-E without any substantive differences.\22\ Because proposed Rule
7.12 would address market-wide circuit breakers, the Exchange proposes
that Article 20, Rule 2 would not be applicable to trading on
Pillar.\23\
---------------------------------------------------------------------------
\22\ The U.S. equities exchanges are working on an amendment to
the harmonized market-wide circuit breaker rules and the Exchange
will amend this proposed rule to conform to any approved changes to
the market-wide circuit breaker rules.
\23\ To maintain continuity of rule numbering with those of its
Affiliated Exchanges, the Exchange proposes to designate Rules 7.14
and 7.15 as ``Reserved.''
---------------------------------------------------------------------------
Proposed Rule 7.16 (Short Sales) would establish
requirements relating to short sales, including how orders would be re-
priced during a Short Sale Price Test pursuant to Rule 201 of
Regulation SHO. The proposed rule is based on NYSE National Rule 7.16
without any substantive differences. Because the Exchange would not be
a primary listing exchange, the Exchange does not propose rule text
based on NYSE Arca Rule 7.16-E(f)(3) or 7.16-E(f)(4)(A) and (B). The
Exchange notes that pursuant to proposed Rule 7.16(f)(5)(H), any Cross
Order that includes a short sale order and has a cross price at or
below the NBBO would be rejected. As proposed, this would include all
forms of Cross Orders available on the Exchange, including, as
described below, QCT Cross Orders and Cross Orders that include non-
regular way settlement instructions.
Because proposed Rule 7.16 would address short sales, the Exchange
proposes that Article 1, Rules 2(b)(1)(C)(ii) and 2(b)(3)(D) and (E),
Article 20, Rule 8(d)(4), and Article 9, Rule 23 would not be
applicable to trading on Pillar.
Proposed Rule 7.17 (Firm Orders and Quotes) would
establish requirements that all orders and quotes must be firm. This
proposed rule is based on NYSE National Rule 7.17 and NYSE Arca Rule
7.17-E with one substantive difference not to include reference to Q
Orders, which will not be available on the Exchange. Because proposed
Rule 7.17 would address firm orders and quotes, the Exchange proposes
that Article 20, Rule 3 would not be applicable to trading on Pillar.
Proposed Rule 7.18 (Halts) would establish rules relating
to trading halts of securities traded pursuant to UTP on the Exchange's
Pillar platform, including how orders will be processed during a
trading halt and halts in Exchange Traded Products. This proposed rule
is based on NYSE National Rule 7.18 without any substantive
differences. Because proposed Rule 7.18 would address halts, the
Exchange proposes that Article 1, Rule 2(b)(1)(B, Article 20, Rule 1,
Interpretations and Policies .02, and Article 22, Rule 6(a)(3) would
not be applicable to trading on Pillar.
As noted above, at this time, the Exchange is not proposing to
offer rules for market makers on the Exchange and, therefore, proposes
to designate Section 2 as ``Reserved.'' The Exchange further proposes
that Article 16 in its entirety would not be applicable to trading on
Pillar.
Section 3 of proposed Rule 7 would establish the Exchange's trading
rules. Among other things, these rules would establish the orders and
modifiers that would be available on the Exchange (proposed Rule 7.31),
describe order display and ranking (proposed Rule 7.36), and describe
how the Exchange would ensure that orders would not trade through
either the PBBO (for Limit Orders) or NBBO (for Market Orders and
Inside Limit Orders) and when orders would route (proposed Rules 7.37
and 7.34).
As noted above, the Exchange will not conduct any auctions, and
therefore does not propose a rule based on NYSE Arca Rule 7.35-E. In
addition, because the Exchange would not offer a retail liquidity
program, the Exchange does not propose a rule based on NYSE Arca Rule
7.44-E and proposed Rules 7.36, 7.37, and 7.38 would not include any
references to Rule 7.44.
Proposed Rule 7.29 (Access) would provide that the
Exchange would be available for entry and execution of orders by
Participants with authorized access. To obtain authorized access to the
Exchange, each Participant would be required to enter into a User
Agreement. Proposed Rule 7.29 is based on NYSE
[[Page 44660]]
National Rule 7.29 and NYSE Arca Rule 7.29-E(a) without any substantive
differences. The Exchange does not propose to include rule text based
on NYSE Arca Rule 7.29-E(b).
Proposed Rule 7.30 (Authorized Traders) would provide for
requirements relating to Authorized Traders and is based on NYSE
National Rule 7.30 and NYSE Arca Rule 7.30-E without any differences.
Because proposed Rules 7.29 and 7.30 would address access and
individuals who may access the Exchange, the Exchange proposes that
Article 5, Rule 1 would not be applicable to trading on Pillar.
Proposed Rule 7.31 (Orders and Modifiers) would specify
the orders and modifiers that would be available on the Exchange. The
Exchange proposes to offer the same types of orders and modifiers that
are available on NYSE National and NYSE Arca, with specified
differences. Specifically, proposed Rule 7.31(a)-(f) and (h)-(i) are
based on NYSE National Rule 7.31(a)-(f) and (h)-(i) and NYSE Arca Rule
7.31-E(a)-(f) and (h)-(i), subject to specified differences described
below. As noted above, proposed Rule 7.31(g), relating to Cross Orders,
will be described in greater detail below.
The Exchange does not propose to include text based on NYSE Arca
Rule 7.31-E relating to auctions or being a primary listing exchange.
Instead, for those applicable sub-paragraphs of proposed Rule 7.31, the
Exchange proposes rule text based on NYSE National Rule 7.31, which
also does not conduct auctions or operate as a primary listing
exchange. Specifically, proposed Rules 7.31(a)(2)(B) (Limit Order Price
Protection), 7.31(c) (Auction-Only Orders), 7.31(f)(1) (Primary Only
Orders), and 7.31(f)(1)(B) (designating a Primary Only Day/IOC Order in
an NYSE, NYSE Arca, or NYSE American-listed security as routable) are
based on NYSE National Rules 7.31(a)(2)(B), 7.31(c), 7.31(f)(1), and
7.31(f)(1)(B) and not the NYSE Arca versions of those subparagraphs.
In addition, similar to NYSE National Rule 7.31, proposed Rule 7.31
would not include text based on NYSE Arca Rule 7.31-E that specifies
whether an order is eligible to participate in an auction. Accordingly,
the Exchange will not include rule text based on NYSE Arca Rules 7.31-
E(b)(2), (d)(2), (d)(3), (e)(2)(A), (g), (h)(1), (h)(2), and (i)(2)
that refer to how such orders would function in an auction.
Also similar to NYSE National, the Exchange is not proposing to
offer a Discretionary Pegged Order and, therefore, proposes to
designate proposed Rule 7.31(h)(3) as ``Reserved'' and will not include
a reference to Discretionary Pegged Orders in proposed Rule 7.34.
Except for these differences, proposed Rules 7.31(a)-(f) and (h)-(i)
are based on the same rules of NYSE National and NYSE Arca.
Because proposed Rule 7.31 would address orders and modifiers that
would be available when the Exchange transitions to Pillar, the
Exchange proposes that the remainder of Article 1, Rule 2 not
specifically identified above would not be applicable to trading on
Pillar. As noted above and below, specified subparagraphs of Article 1,
Rule 2 would not be applicable to trading on Pillar and the Exchange
has described how they would be addressed in other Pillar rules.
Together, the entirety of Article 1, Rule 2 would not be applicable to
trading on Pillar. As a result, with the exception of Cross Orders,
described below, the Exchange would no longer make available orders and
modifiers that are described in Article 1, Rule 2.
In addition, the Exchange proposes that Article 20, Rule 4 would
not be applicable to trading on Pillar because proposed Rule 7.31 would
specify the orders and modifiers available for trading on the Exchange.
Finally, as noted below, Article 20, Rule 8 would not be applicable to
trading on Pillar, and that includes those provisions of that rule that
relate to order behavior that would be described in proposed Rule 7.31
(e.g., Article 20, Rule 8(b)(4), regarding how Reserve Size orders are
refreshed, would be addressed in proposed Rule 7.31(d)(2)).
Proposed Rule 7.33 (Capacity Codes) would establish
requirements for capacity code information that Participants must
include with every order. The proposed rule is based on NYSE National
Rule 7.33 and NYSE Arca Rule 7.33-E without any substantive
differences.
Because proposed Rule 7.33 would address capacity codes, the
Exchange proposes that Article 11, Rule 3(b)(8) and Article 20, Rule 8
Interpretation and Policies .01 would not be applicable to trading on
Pillar.
Proposed Rule 7.34 (Trading Sessions) would specify
trading sessions on the Exchange. The proposed rule is based on NYSE
National 7.34 without any substantive differences. Specifically, the
Exchange proposes that the Early Trading Session would begin at 7:00
a.m. and conclude at the commencement of the Core Trading Session, the
Core Trading Session would begin at 9:30 a.m. and would end at the
conclusion of Core Trading Hours, and the Late Trading Session would
begin at the conclusion of the Core Trading Session and conclude at
8:00 p.m. Proposed Rule 7.34(c) would specify the orders permitted in
each session, and proposed Rule 7.34(d) would specify customer
disclosures required for trading in the Early and Late Trading
Sessions.
Because proposed Rule 7.34 would address trading sessions,
including customer disclosures for trading outside of Core Trading
Hours, the Exchange proposes that Article 8, Rule 17, Article 20, Rule
1(b) and Interpretation .03 to Rule 1, and Article 20, Rule 8(c) would
not be applicable to trading on Pillar.\24\
---------------------------------------------------------------------------
\24\ To maintain continuity of rule numbering with those of its
Affiliated Exchanges, the Exchange proposes to designate Rule 7.35
as ``Reserved.''
---------------------------------------------------------------------------
Proposed Rule 7.36 (Order Ranking and Display) would
establish requirements for how orders would be ranked and displayed at
the Exchange. The proposed rule is based on NYSE National Rule 7.36 and
NYSE Arca Rule 7.36-E without any substantive differences.
Because proposed Rule 7.36 would address how orders are ranked and
displayed, the Exchange proposes that Article 1, Rule 1(pp) and Article
20, Rule 8(b) would not be applicable to trading on Pillar.
Proposed Rule 7.37 (Order Execution and Routing) would
establish requirements for how orders would execute and route at the
Exchange, the data feeds that the Exchange would use, and Exchange
requirements under the Order Protection Rule and the prohibition on
locking and crossing quotations in NMS Stocks. This proposed rule is
based on NYSE National Rule 7.37 and NYSE Arca Rule 7.37-E without any
substantive differences.
Because proposed Rule 7.37 would address how orders are executed
and ranked, which data feeds the Exchange will use, and Regulation NMS,
the Exchange proposes that Article 1, Rule 4 and Article 20, Rules 5,
6, 8(d), and 8(f) would not be applicable to trading on Pillar.
Proposed Rule 7.38 (Odd and Mixed Lot) would establish
requirements relating to odd lot and mixed lot trading on the Exchange.
The proposed rule is based on NYSE National Rule 7.38 and NYSE Arca
Rule 7.38-E without any substantive differences.\25\
Because proposed Rule 7.38 would address odd lot orders, the
Exchange
[[Page 44661]]
proposes that Article 20, Rules 5(b) and 8(d)(3) would not be
applicable to trading on Pillar.
---------------------------------------------------------------------------
\25\ The Exchange does not propose a rule based on NYSE Arca
Rule 7.39-E (concerning adjustment of open orders, which relates to
good-til-cancelled orders, which would not be available on the
Exchange). Similar to NYSE National, the Exchange will designate
Rule 7.39 as ``Reserved.''
---------------------------------------------------------------------------
Proposed Rule 7.40 (Trade Execution and Reporting) would
establish the Exchange's obligation to report trades to an appropriate
consolidated transaction reporting system. The proposed rule is based
on NYSE National Rule 7.40 and NYSE Arca Rule 7.40-E without any
substantive differences.
Because proposed Rule 7.40 would address reporting trades to a
consolidated transaction reporting system, the Exchange proposes that
Article 20, Rule 8(g) would not be applicable to trading on Pillar.
Section 4 of proposed Rule 7 would establish the Operation of a
Routing Broker. Specifically, proposed Rule 7.45 (Operation of a
Routing Broker) would establish both the outbound and inbound function
of the Exchange's routing broker, the cancellation of orders as the
Exchange deems necessary to maintain a fair and orderly market if a
technical issue occurs at the Exchange, the routing broker, or a
routing destination, and the Exchange's error account. The proposed
rule would also set forth the parameters of the Exchange's relationship
with its affiliated broker-dealer, Archipelago Securities LLC, which
would function solely as a routing broker on behalf of both the
Exchange and the Affiliated Exchanges. The proposed rule is based on
NYSE National Rule 7.45 and NYSE Arca Rule 7.45-E without any
substantive differences.\26\
---------------------------------------------------------------------------
\26\ The Exchange has an agreement with FINRA pursuant to Rule
17d-2 under the Act. See Securities Exchange Act Release No. 86161
(June 20, 2019), 84 FR 29923 (June 25, 2019) (File No. 4-274)
(Approval Order).
---------------------------------------------------------------------------
Because proposed Rule 7.45 would address both the operation of the
routing broker and cancellation of orders, the Exchange proposes that
Article 19 in its entirety and Article 20, Rule 12 would not be
applicable to trading on Pillar.
B. Proposed Rules Relating to Cross Orders
The Exchange proposes to continue to support cross orders.
Currently, the Exchange offers the following cross orders:
``Benchmark,'' ``Midpoint Cross,'' and ``QCT.'' \27\ In addition, the
Exchange offers a ``Cross with Size'' modifier, which permits a cross
order of at least 5,000 shares of the same security with a total value
of at least $100,000 to execute, notwithstanding resting orders in the
book at the same price, subject to specified conditions.\28\ Currently,
cross orders can be entered with Non-Regular Way Settlement
instructions \29\ and may be submitted in an increment as small as
$0.000001, subject to specified conditions.\30\
---------------------------------------------------------------------------
\27\ See Article 1, Rule 2(b)(2)(A), (D), and (E).
\28\ See Article 1, Rule 2(g)(1). To be eligible for Cross with
Size, there cannot be any resting orders on the Book with a Working
Price better than the cross order and the size of the cross order
must be larger than the largest order displayed on the Exchange at
that price.
\29\ See Article 1, Rule 2(e)(2). Under this Rule, the Exchange
currently uses the capitalized term ``Non-Regular Way Settlement.''
Under the proposed Pillar rules, the Exchange will not capitalize
this term.
\30\ See Article 20, Rule 4(a)(7)(B). Unless a cross order is a
Midpoint Cross, is designated with non-regular way settlement
instructions, or is Cross with Size, the Exchange will not currently
allow a cross order priced (i) at or above $1.00, to execute at a
price less than $0.01 better than any order on the same side of the
Matching System or (ii) under $1.00, to execute at a price less than
$0.0001 better than any order on the same side of the Matching
System.
---------------------------------------------------------------------------
With the transition to the Pillar trading platform, the Exchange
proposes to streamline the cross order offerings on the Exchange and no
longer offer Midpoint or Benchmark cross orders. As proposed, cross
orders would be based in part on existing cross order functionality on
NYSE Arca and NYSE National. As a substantive difference compared to
NYSE Arca and NYSE National, the Exchange proposes to continue to offer
a QCT cross order and Cross with Size, as well as related functionality
to permit cross orders to be entered with non-regular way settlement
instructions and with trading increments out six decimals. As described
in more detail below, the Exchange proposes to combine existing Pillar
functionality relating to cross orders with the Exchange's current
cross order offerings.
Under NYSE Arca Rule 7.31-E(g) and NYSE National Rule 7.31(g), a
``Cross Order'' is defined as two-sided orders with instructions to
match the identified buy-side with the identified sell-side at a
specified price (the ``cross price''). Both exchanges offer one type of
Cross Order--a Limit IOC Cross Order--which is a Cross Order that must
trade at full at its cross price, will not route, and will cancel at
the time of entry if the cross price is not between the BBO \31\ or
would trade through the PBBO.\32\ Accordingly, NYSE Arca and NYSE
National will accept and execute a Limit IOC Cross Order that is priced
between the BBO, even if there are non-displayed or odd-lot sized buy
or sell orders between the BBO. This functionality is not currently
available on the Exchange.
---------------------------------------------------------------------------
\31\ The BBO is defined on NYSE Arca and NYSE National, and as
described above, would be defined on the Exchange under proposed
Rule 1.1(c) to mean the best bid or offer that is a Protected
Quotation on the Exchange. The term ``BB'' would mean the best bid
that is a Protected Quotation on the Exchange and the term ``BO''
would mean the best offer that is a Protected Quotation on the
Exchange. Pursuant to proposed Rule 1.1(r) [sic], the term
``Protected Quotation'' would mean a Protected Bid or Protected
Offer and references definitions under Rule 600(b) of Regulation
NMS. Odd-lot sized bids and offers are not Protected Quotations.
\32\ The term PBBO is defined on NYSE Arca and NYSE National,
and as described above, would be defined on the Exchange under
proposed Rule 1.1(o) [sic] to mean the best Protected Bid and the
Best Protected Offer, as those terms are defined in Rule 600(b)(57)
of Regulation NMS.
---------------------------------------------------------------------------
Proposed Rule 7.31(g) would set forth the Cross Orders that would
be available on the Exchange. Paragraph (g) would set forth the
requirements that would be applicable to all Cross Orders. As proposed,
a Cross Order would be two-sided orders with instructions to match the
identified buy-side with the identified sell-side at a specified price
(the ``cross price''). This proposed rule text is based on the first
sentence of NYSE Arca Rule 7.31-E(g) and NYSE National Rule 7.31(g).
Proposed Rule 7.31(g) would further provide that a Cross Order must
trade in full at its cross price, does not route, and may be designated
with non-regular way settlement instructions (which are described
below). This proposed rule text is based in part on NYSE Arca Rule
7.31-E(g)(1) and NYSE National Rule 7.31(g)(1), which provide that
Cross Orders on those exchanges must trade in full at its cross price
and will not route. The proposed text to permit a Cross Order to be
designated with non-regular way settlement instructions is based on
current Article 1, Rule 2(e)(2) without any substantive differences,
which provides that the Matching System \33\ will only accept cross
orders for Non-Regular Way Settlement. The Exchange proposes non-
substantive differences to include reference to non-regular way
settlement instructions in the description of Cross Orders.
---------------------------------------------------------------------------
\33\ The term ``Matching System'' is defined in Article 1, Rule
1(z) as one of the electronic or automated order routing, execution
and reporting systems provided by the Exchange. The Exchange does
not propose to use this term when it transitions to Pillar.
---------------------------------------------------------------------------
Proposed Rule 7.31(g) would further provide that a Cross Order
entered by an Institutional Broker may represent interest of one or
more Participants and may be executed as agent or principal. This
proposed rule text is based in part on current Article 1, Rule
2(b)(2)(E), which provides that Institutional Brokers may execute a
cross order as agent or principal, and Article 1, Rule 2(g)(1), which
provides that a cross order with Cross with Size may represent interest
of one or more Participants of the Exchange. On Pillar,
[[Page 44662]]
the Exchange proposes that any Cross Order entered by an Institutional
Broker may represent interest of one or more Participants on the
Exchange.
Proposed Rule 7.31(g)(1) would set forth the proposed ``Limit IOC
Cross Order,'' which is based in part on how the Limit IOC Cross Order
functions on NYSE Arca and NYSE National. This would be new
functionality on the Exchange. As proposed, a Limit IOC Cross Order
would be a Cross Order that would be rejected under the following
circumstance: (A) The cross price would trade through the PBBO; (B) the
cross price is not between the BBO, unless it meets Cross with Size
requirements, in which case the cross price may be equal to the BB
(BO); or (C) there is no PBB or PBO or the PBBO is locked or crossed.
This proposed rule text differs from the NYSE Arca and NYSE National
rules to account for the availability of the Cross with Size modifier,
described below. As proposed, the Limit IOC Cross Order would be
available to any Participant.
Proposed Rule 7.31(g)(2) would set forth how the QCT Cross Order
would function on the Exchange. As proposed, a QCT Cross Order would be
a Cross Order that is part of a transaction consisting of two or more
component orders that qualifies for a Contingent Order Exemption under
proposed Rule 7.37(e)(5).
Proposed Rule 7.37(f)(5), which is based on NYSE Arca Rule 7.37-
E(f)(5) and NYSE National Rule 7.37(f)(5), would set forth the
requirements for a transaction to qualify as a QCT Cross Order.
Proposed Rule 7.37(f)(5)(A)-(F) would set forth identical requirements
as are set forth in Article 1, Rule 2(b)(2)(E)(i)-(vi). Specifically, a
QCT would be a transaction consisting of two or more component orders,
executed as agent or principal, where:
at least one component order is in an NMS Stock;
all components are effected with a product or price
contingency that either has been agreed to by the respective
counterparties or arranged for by a broker-dealer as principal or
agent;
the execution of one component is contingent upon the
execution of all other components at or near the same time;
the specific relationship between the component orders
(e.g., the spread between the prices of the component orders) is
determined at the time the contingent order is placed;
the component orders bear a derivative relationship to one
another, represent different classes of shares of the same issuer, or
involve the securities of participants in mergers or with intentions to
merge that have been announced or since cancelled; and
the Exempted NMS Stock Transaction is fully hedged
(without regard to any prior existing position) as a result of the
other components of the contingent trade.
Proposed Rule 7.31(g)(2)(A) would provide that a QCT Cross Order
would be rejected if the cross price is not between the BBO, unless it
meets Cross with Size requirements, in which case the cross price can
be equal to the BB (BO) (as discussed in greater detail below). This
proposed functionality would be new on the Exchange and is based on how
Cross Orders function on NYSE Arca and NYSE National. Specifically, as
noted above, Cross Orders on those exchanges can execute provided that
the cross price is between the BBO. Because Cross Orders on Pillar
function in this manner, the Exchange proposes to apply this
functionality when it transitions QCT Cross Orders to Pillar.
Proposed Rule 7.31(g)(2)(B) would further provide that QCT Cross
Orders would be available to Institutional Brokers only. This proposed
rule text is based on Article 1, Rule 2(b)(2)(E), which provides that a
QCT cross order modifier may only be utilized by an Institutional
Broker.
Proposed Rule 7.31(g)(3) would describe the proposed Cross with
Size requirements. As proposed, a Cross Order with a cross price equal
to the BB (BO) will trade at that price if such Cross Order: (A) Is at
least 5,000 shares of the same security with a total value of at least
$100,000; and (B) is larger than the largest order displayed on the
Exchange Book at the BB (BO). This proposed rule text is based in part
on Article 1, Rule 2(g)(1) with differences to reflect that on Pillar,
Cross Orders would be eligible to execute if the cross price is between
the BBO, regardless of the size of the Cross Order. With this
difference in functionality, Cross with Size would only be necessary if
the proposed cross price is equal to the BB (BO). In such case, if a
Cross Order meets the size requirement and is larger than the largest
order displayed on the Exchange Book at the BB (BO), the Exchange would
accept and execute such Cross Order.
As noted above, consistent with current Rules, the Exchange would
accept Cross Orders with non-regular way settlement instructions. NYSE
Arca Rule 7.8-E and NYSE National Rule 7.8 provide that on those
exchanges, all bids and offers will be considered to be ``regular way''
settlement instructions. To address that the Exchange would accept non-
regular way settlement instructions for Cross Orders, the Exchange
proposes Rule 7.8A, which would describe the settlement terms for Cross
Orders.
To maintain continuity with the Pillar rules of Affiliated
Exchanges, proposed Rule 7.8 would be based on NYSE Arca Rule 7.8-E and
NYSE National Rule 7.8 and would provide that except as provided for in
proposed Rule 7.8A, bids and offers would be considered to be ``regular
way'' settlement terms.
Proposed Rule 7.8A would specify Cross Order settlement terms.
Proposed Rule 7.8A(a) would provide that Cross Orders would be
considered to be ``regular way'' settlement terms unless designated
with one of the following ``non-regular way'' settlement terms: Cash or
Next Day. This proposed rule text is based in part on current Article
20, Rule 4(a)(7)(A), which provides that a cross order may be submitted
for Non-Regular Way Settlement, and current Article 1, Rule 2(e)(2),
which provides that cross orders may be settled with one of three
conditions: Cash, Next Day, or Seller's Option. On Pillar, the Exchange
does not propose to offer Seller's Option non-regular way settlement
instructions.
Proposed Rule 7.8A(a) would further provide that a Cross Order
designated for ``non-regular way'' settlement may execute at any price
without regard to the PBBO or any orders on the Exchange Book. This
proposed rule text is based in part on current Article 1, Rule 2(e)(2),
which provides that a cross order marked for Non-Regular Way Settlement
may execute at any price, without regard to the NBBO or any other
orders in the Matching System.\34\ The Exchange proposes non-
substantive differences to use Pillar terminology without any
substantive differences, including that the Exchange uses the PBBO
instead of NBBO.
---------------------------------------------------------------------------
\34\ See also Article 20, Rule 8(e)(3), which similarly provides
that cross orders with Non-Regular Way Settlement shall be
automatically executed without regard to either the NBBO or any
orders for Regular Way Settlement that might be in the Matching
System if they meet the requirements for Article 1, Rule 2(e)(2).
---------------------------------------------------------------------------
Proposed Rule 7.8A(a)(1) would provide that ``Cash'' means a
transaction for delivery on the next day of the contract. This proposed
rule text is based on the first sentence of current Article 1, Rule
2(e)(2)(A) without any differences. The Exchange does not propose rule
text based on the second sentence of Article 1, Rule 2(e)(2)(A), which
provides any cross order that is for cash settlement must be received
by the Matching System by 2:00 p.m. Central Standard Time or such other
time that may be established by the
[[Page 44663]]
Exchange and communicated to Participants from time to time. On Pillar,
the Exchange will accept a Cross Order with Cash instructions after
3:00 p.m. Eastern Time. Pursuant to National Securities Clearing
Corporation (``NSCC'') Procedure II (Trade Comparison and Recording
Service), Section B(ii), NSCC designates a cut-off time by which a
transaction designated as Cash can be settled on those terms, and
transactions received after that time will be accepted and reported,
but may only be settled directly between the parties.\35\ Because such
trades would settle, the Exchange proposes not to reject transactions
designated as ``Cash'' that are entered after the NSCC cut-off time.
---------------------------------------------------------------------------
\35\ See NSCC Rules and Procedures, available here: https://www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------
Proposed Rule 7.8A(a)(2) would provide that ``Next Day'' means a
transaction for delivery on the next business day following the day of
the contract. This proposed rule text is based on current Article 1,
Rule 2(e)(2)(B) without any differences.
Proposed Rule 7.6 would specify the trading differentials available
on the Exchange. The first sentence would provide that, except for
Cross Orders, the minimum price variation (``MPV'') for quoting and
entry of orders in securities traded on the Exchange would be $0.01,
with the exception of securities that are priced less than $1.00, for
which the MPV for quoting and entry of orders would be $0.0001. This
proposed rule text is based on NYSE Arca Rule 7.6-E and NYSE National
Rule 7.6 with one difference to reference the exception for Cross
Orders.
Proposed Rule 7.6 would further provide that:
A Cross Order, whether priced less than or at or above $1.00,
may be submitted in an increment as small as $0.000001 unless the
Cross Order has been designated with regular way settlement terms
and does not meet Cross with Size, in which case the cross price
must also be (i) at least $0.01 above (below) the BB (BO) if the
cross price is at or above $1.00 or (ii) at least $0.0001 above
(below) the BB (BO) if the cross price is under $1.00.
This proposed rule text is based on Article 20, Rule 4(a)(7)(B)
without any substantive differences. Because the Exchange will not be
offering a Midpoint Cross, that order type does not need to be
referenced in the Pillar version of this rule. The remaining
differences are non-substantive, to use Pillar terminology.
Finally, proposed Rule 7.32 (Order Entry) would establish
requirements for order entry size and that orders entered that are
greater than five million shares in size would be rejected, provided
that the Exchange would accept Cross Orders up to 25 million shares.
The proposed rule is based in part on NYSE National Rule 7.32 and NYSE
Arca Rule 7.32-E. Similar to NYSE Rule 7.32, the Exchange proposes to
accept Cross Orders that are up to 25 million shares in size.
Because proposed Rule 7.32 would address order entry size, the
Exchange proposes that Article 20, Rule 4(a)(6) would not be applicable
to trading on Pillar.
Proposed Amendments to Current Exchange Rules
As described above, a number of current Exchange rules will not be
applicable to trading on Pillar and the Exchange will include a
preamble for those rules (or Articles, if all rules under an Article
would not be applicable to trading on Pillar) that will specify that
such rule or Article would not be applicable to trading on Pillar.
In the above section, the Exchange identifies specified current
Exchange rules, or sections of rules, that would not be applicable to
trading on Pillar because they will be superseded by a proposed Pillar
rule.
In addition to the above-referenced current rules, the Exchange
proposes that the entirety of Article 4 would not be applicable to
trading on Pillar. Article 4, Rule 1 currently describes the Exchange's
Book Feed. Once the Exchange transitions to Pillar, it will no longer
offer the Book Feed. The Exchange proposes to file a separate proposed
rule change to establish the market data products that will be
available when the Exchange transitions to Pillar.\36\ In addition,
because the Exchange does not currently offer the Connect service, and
does not plan to offer the Connect service when it transitions to
Pillar, the Exchange proposes to delete Article 4, Rule 2 in its
entirety.
---------------------------------------------------------------------------
\36\ NYSE National also filed a stand-alone filing to establish
the market data products that would be available on that exchange
when it began trading on Pillar. See Securities Exchange Act Release
No. 83350 (May 31, 2018), 83 FR 26332 (June 6, 2018) (SR-NYSENat-
2018-09) (Notice of filing and immediate effectiveness of proposed
rule change). Similar to NYSE National, the Exchange will be
separately proposing to establish NYSE Chicago BBO, NYSE Chicago
Trades, and NYSE National Integrated Feed Market Data feeds. As with
the current Book Feed, the Exchange does not propose to charge fees
for market data products when it transitions to Pillar.
---------------------------------------------------------------------------
The following is the full list of current rules that would not be
applicable to trading on Pillar and therefore would include the above-
described preamble:
Article 1, Rule 1(a), (e), (f), (g), (k), (l), (o), (z), (bb),
(cc), (dd), (nn), (pp), (qq), (tt), and (uu)
Article 1, Rule 2
Article 1, Rule 3
Article 1, Rule 4
Article 3, Rule 21
Article 4 (in its entirety)
Article 5, Rule 1
Article 8, Rule 17
Article 9, Rule 23
Article 11, Rule 3(b)(8)
Article 16 (in its entirety)
Article 19 (in its entirety)
Article 20, Rules 1-8, 10, 12-13
Article 22, Rule 6(a)(3)
In addition to rules not applicable to trading on Pillar, the
Exchange proposes to amend specified rules that would continue to be
applicable to trading once the Exchange transitions to Pillar, but
reference systems or definitions that would not be used on Pillar.
As noted above, the Exchange will continue to support Institutional
Brokers and the BrokerPlex system when the Exchange transitions to the
Pillar trading platform. The Exchange proposes to amend specified rules
under Article 17 to add a reference to the term ``NYSE Chicago
Marketplace'' in any rule that references the term ``Matching System.''
While the term ``Matching System'' is not explicitly defined in current
Exchange rules, it is used throughout Exchange rules to refer to the
current system that matches orders.\37\ Because the Exchange will be
replacing that system when it transitions to Pillar, to reduce
confusion about which Exchange systems are referenced in Article 17,
the Exchange proposes to add the phrase ``NYSE Chicago Marketplace, as
applicable'' in Article 17, Rule 3(b), 5(a), 5(c)(1), 5(c)(2), 5(e),
and 5(e)(1) as an alternative to the term ``Matching System.'' The
Exchange also proposes to add a cross reference to proposed Rule 7.31
in Article 17, Rules 5(c)(1) and 5(e)(1).
---------------------------------------------------------------------------
\37\ See, e.g. Article 20 (Operation of the Matching System).
The Exchange also proposes a non-substantive amendment to the second
sentence of Article 17 Rule 5(a) to delete the word ``Exchange'' in
front of the term ``Matching System.''
---------------------------------------------------------------------------
The Exchange further proposes to amend Article 17, Rule 5(c)(1) to
specify order types and modifiers that would be defined under proposed
Rule 7.31 that would not be available via BrokerPlex. As proposed, an
Institutional Broker would not be able to enter the following order
types and modifiers via BrokerPlex: Inside Limit Orders, Auction-Only
Orders, MPL Orders, Tracking Orders, ISOs, Primary Only Orders, Primary
Until 9:45 Orders, Primary After 3:55 Orders, Pegged Orders, Non-
Display Remove Modifier,
[[Page 44664]]
Proactive if Locked or Crossed Modifier, Self-Trade Prevention
Modifier, and Minimum Trade Size Modifier. While these order types
would not be available via Brokerplex, an Institutional Broker could
enter these orders via any other system that they choose to use to
connect with the Exchange, just as any other NYSE Chicago Participant
could choose to do.
The Exchange also proposes to amend Article 17, Rule 5(c)(3) to
specify current order types that would not be available on Pillar.
Current Article 17, Rule 5(c)(3) provides that in addition to the
orders described in Rule 5(c)(1) and (2), BrokerPlex also accepts
``[email protected]'' and ``[email protected]'' order types. Because
neither of these order types will be accepted once the Exchange
transitions to Pillar, the Exchange proposes to amend Article 17, Rule
5(c)(3) to provide that these order types would not be available on the
Pillar trading system.
Finally, the Exchange proposes to amend Article 12, Rule 8(h)(2)
relating to the Exchange's Minor Rule Violations Plan (``MRVP'') both
(i) to delete a reference to rules that no longer exist and (ii) to add
proposed Pillar rules that are subject to an Affiliated Exchange's
minor rule violation plan and that the Exchange similarly believes that
should be subject to the Exchange's MRVP.
First, the Exchange proposes to amend Article 12, Rule
8(h)(2)(F) to delete the reference to ``Failure to Clear the Matching
System (Article 20, Rule 7)'' as this rule was eliminated in 2011 and
the Exchange no longer needs a reference to this Rule in its Minor Rule
Violation Plan.\38\
---------------------------------------------------------------------------
\38\ See Securities Exchange Act Release No. 65633 (October 26,
2011), 76 FR 67509 (November 1, 2011) (SR-CHX-2011-29) (Approval
Order).
---------------------------------------------------------------------------
Second, the Exchange proposes to amend Article 12, Rule
8(h)(2)(G) to add a reference to Rule 7.6. The current rule provides
that Article 20, Rule 4, which addresses the minimum order increments,
would be eligible for the MRVP. Because on Pillar, proposed Rule 7.6
would address minimum order increments, the Exchange proposes to add a
reference to this rule, which would have the same substantive effect as
current Article 12, Rule 8(h)(2)(G) after the Exchange transitions to
Pillar.
Finally, the Exchange proposes to amend Article 12, Rule
8(h)(2) to add two additional rules that the Exchange proposes to be
eligible for the Exchange's MRVP. Proposed Article 12, Rule 8(h)(2)(M)
would add a reference to ``Short Sales (Rule 7.16)'' and proposed
Article 12, Rule 8(h)(2)(N) would add a reference to ``Failure to
comply with Authorized Trader requirements (Rule 7.30).'' These
proposed rule changes are based on NYSE Arca Rule 10.9217(f)(1) and (4)
and NYSE National Rule 10.9217(f)(1)(1) and (3), which both provide
that their versions of Rule 7.16 and 7.30 are eligible for those
exchanges' respective minor rule violation plans. Accordingly, the
Exchange similarly proposes that these rules should be included on the
Exchange's MRVP.
3. Section 11(a) of the Act
Section 11(a)(l) of the Act \39\ (``Section 11(a)(1)'') prohibits a
member of a national securities exchange from effecting transactions on
that exchange for its own account, the account of an associated person,
or an account over which it or its associated person exercises
investment discretion (collectively, ``covered accounts'') unless an
exception to the prohibition applies. Rule 11a2-2(T) under the Act
(``Rule 11a2-2(T)''),\40\ known as the ``effect versus execute'' rule,
provides exchange members with an exemption from the Section 11(a)(l)
prohibition. Rule 11a2-2(T) permits an exchange member, subject to
certain conditions, to effect transactions for covered accounts by
arranging for an unaffiliated member to execute the transactions on the
exchange. To comply with Rule 11a2-2(T)'s conditions, a member: (i)
Must transmit the order from off the exchange floor; (ii) may not
participate in the execution of the transaction once it has been
transmitted to the member performing the execution (although the member
may participate in clearing and settling the transaction); (iii) may
not be affiliated with the executing member; and (iv) with respect to
an account over which the member or its associated person has
investment discretion, neither the member nor its associated person may
retain any compensation in connection with effecting the transaction
except as provided in the Rule.
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78k(a)(1).
\40\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------
With the proposed re-launch of the Exchange as a fully automated
electronic trading model that does not have a trading floor, the
Exchange believes that the policy concerns Congress sought to address
in Section 11(a)(1)--i.e., the time and place advantage that members on
exchange trading floors have over non-members off the floor and the
general public--would not be present. Specifically, on the Pillar
trading system, buy and sell interest will be matching in a continuous,
automated fashion. Liquidity will be derived from quotes as well as
orders to buy and orders to sell submitted to the Exchange
electronically by Participants from remote locations. The Exchange
further believes that Participants entering orders into the Exchange
through the Pillar trading system will satisfy the requirements of Rule
11a2-2(T) under the Act, which provides an exception to Section 11(a)'s
general prohibition on proprietary trading.
The four conditions imposed by the ``effect versus execute'' rule
are designed to put members and non-members of an exchange on the same
footing, to the extent practicable, in light of the purpose of Section
11(a). For the reasons set forth below, the Exchange believes the
structure and characteristics of its proposed Pillar trading system do
not result in disparate treatment of members and non-members and places
them on the ``same footing'' as intended by Rule 11a2-2(T).
1. Off-Floor Transmission. Rule 11a2-2(T) requires orders for a
covered account transaction to be transmitted from off the exchange
floor. The Commission has considered this and other requirements of the
rule in the context of automated trading and electronic order handling
facilities operated by various national securities exchanges in a 1979
Release \41\ as well as more applications of Rule 11a2-2(T) in
connection with the approval of the registrations of national
securities exchanges.\42\ In the context of these automated trading
systems, the Commission has found that the off-floor transmission
requirement is met if an order for a covered account is transmitted
from a remote location directly to an exchange's floor by electronic
means.\43\ Because the
[[Page 44665]]
Exchange would not have a physical trading floor when it re-launches
trading, and like other all electronic exchanges, the Exchange's Pillar
trading system would receive orders from Participants electronically
through remote terminals or computer-to-computer interfaces, the
Exchange therefore believes that its trading system satisfies the off-
floor transmission requirement.
---------------------------------------------------------------------------
\41\ See Securities Exchange Act Release No. 15533 (January 29,
1979) (regarding the Amex Post Execution Reporting System, the Amex
Switching System, the lntermarket Trading System, the Multiple
Dealer Trading Facility of the Cincinnati Stock Exchange, the PCX's
Communications and Execution System (``COM EX''), and the Phlx's
Automated Communications and Execution System (``PACE'')) (``1979
Release'').
\42\ See Securities Exchange Act Release Nos. 53128 (January 13,
2006) 71 FR 3550 (January 23, 2006) (File No. 10-13 1) (order
approving Nasdaq Exchange registration); 58375 (August 18, 2008) 73
FR 49498 (August 21, 2008) (order approving BATS Exchange
registration); 61152 (December 10, 2009) 74 FR 66699 (December 16,
2009) (order approving C2 exchange registration); and 78101 (June
17, 2016), 81 FR 41142, 41164 (June 23, 2016) (order approving
Investors Exchange LLC registration).
\43\ See, e.g., Securities Exchange Act Release Nos. 49068
(January 13, 2004), 69 FR 2775 (January 20, 2004) (order approving
the Boston Options Exchange as an options trading facility of the
Boston Stock Exchange); 44983 (October 25, 2001), 66 FR 55225
(November 1, 2001) (order approving Archipelago Exchange
(``ArcaEx'') as electronic trading facility of the Pacific Exchange
(``PCX'')(``Arca Ex Order'')); 29237 (May 24, 1991), 56 FR 24853
(May 31, 1991) (regarding NYSE's Off-Hours Trading Facility); 15533
(January 29, 1979); and 14563 (March 14, 1978), 43 FR 11542 (March
17, 1978) (regarding the NYSE's Designated Order Turnaround System
(``1978 Release'')).
---------------------------------------------------------------------------
2. Non-Participation in Order Execution. The ``effect versus
execute'' rule further provides that neither the exchange member nor an
associated person of such member participate in the execution of its
order. This requirement was originally intended to prevent members from
using their own brokers on an exchange floor to influence or guide the
execution of their orders.\44\ The rule, however, does not preclude
members from cancelling or modifying orders, or from modifying
instructions for executing orders, after they have been transmitted,
provided such cancellations or modifications are transmitted from off
an exchange floor.\45\ In the 1979 Release discussing both the Pacific
Stock Exchange's COM EX system and the Philadelphia Stock Exchange's
PACE system, the Commission noted that a member relinquishes any
ability to influence or guide the execution of its order at the time
the order is transmitted into the systems, and although the execution
is automatic, the design of such systems ensures that members do not
possess any special or unique trading advantages in handling orders
after transmission to the systems.\46\ The Exchange's Pillar trading
system would at no time following the submission of an order allow a
Participant or an associated person of such member to acquire control
or influence over the result or timing of an order's execution. The
execution of a Participant's order would be determined solely by what
quotes and orders are present in the system at the time the Participant
submits the order and the order priority based on Exchange rules.
Therefore, the Exchange believes the non-participation requirement
would be met through the submission and execution of orders in the
Exchange's Pillar trading system.
---------------------------------------------------------------------------
\44\ Id. 1978 Release, supra note 43.
\45\ Id.
\46\ 1979 Release, supra note 41.
---------------------------------------------------------------------------
3. Execution Through an Unaffiliated Member. Although Rule 11a2-
2(T) contemplates having an order executed by an exchange member,
unaffiliated with the member initiating the order, the Commission has
recognized the requirement is satisfied where automated exchange
facilities are used as long as the design of these systems ensures that
members do not possess any special or unique trading advantages in
handling their orders after transmitting them to the exchange. In the
1979 Release, the Commission noted that while there is not an
independent executing exchange member, the execution of an order is
automatic once it has been transmitted into the systems. Because the
design of these systems ensures that members do not possess any special
or unique trading advantages in handling their orders after
transmitting them to the exchange, the Commission has stated that
executions obtained through these systems satisfy the independent
execution requirement of Rule 11a2-2(T). Because the design of the
Exchange's Pillar trading system ensures that no Participant has any
special or unique trading advantages over nonmembers in the handling of
its orders after transmitting its orders to the Exchange, the Exchange
believes that its Pillar trading system would satisfy this requirement.
4. Non-Retention of Compensation for Discretionary Accounts.
Finally, Rule 11a2-2(T) states, in the case of a transaction effected
for the account for which the initiating member or its associated
person exercises investment discretion, in general, the member or its
associated person may not retain compensation for effecting the
transaction, unless the person authorized to transact business for the
account has expressly provided otherwise by written contract referring
to both Section 11(a) of the Exchange Act and Rule 11a2-2(T). The
Exchange will advise its membership through the issuance of a
Regulatory Bulletin that those Participants trading for covered
accounts over which they exercise investment discretion must comply
with this condition in order to rely on the exemption in Rule 11a2-2(T)
from the prohibition in Section 11(a) of the Exchange Act.
In conclusion, the Exchange believes that its Pillar trading system
would satisfy the four requirements of Rule 11a2-2(T) as well as the
general policy objectives of Section 11(a). The Exchange's proposed
Pillar trading system would place all users, members and non-members,
on the ``same footing'' with respect to transactions on the Exchange
for covered accounts as intended by Rule 11a2-2(T). As such, no
Exchange Participant would be able to engage in proprietary trading in
a manner inconsistent with Section 11(a).
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\47\ As noted above, at
this time, the Exchange is not proposing to offer rules for market
makers on the Exchange and, therefore, proposes to designate Section 2
as ``Reserved.'' The Exchange further proposes that Article 16 in its
entirety would not be applicable to trading on Pillar.
---------------------------------------------------------------------------
\47\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
Section 3 of proposed Rule 7 would establish the Exchange's trading
rules. Among other things, these rules would establish the orders and
modifiers that would be available on the Exchange (proposed in general,
and furthers the objectives of Section 6(b)(5),\48\ in particular,
because it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to, and perfect the
mechanism of, a free and open market and a national market system and,
in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Generally, the Exchange believes that the proposed rules would
support the migration of the Exchange to the Pillar trading system as a
fully automated cash equities trading market with a price-time priority
model that is based both on the rules of its affiliated exchanges, NYSE
Arca and NYSE National, and with respect to Cross Orders, the
Exchange's current rules. The Exchange is not proposing any new or
novel rules. The proposed rule changes relating to trading would
therefore remove impediments to and perfect the mechanism of a free and
open market and a national market system because they are based on the
approved rules of other exchanges.
Proposed Rules Based on the Rules of the Exchange's Affiliates
Regulation of the Exchange (Rule 0) and Definitions (Rule 1)
The Exchange believes that proposed Rule 0 would remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and in general, to protect investors and the public
interest because it would specify the role of FINRA, pursuant to a
Regulatory Services Agreement, to perform certain
[[Page 44666]]
regulatory functions of the Exchange on behalf of the Exchange.
The Exchange further believes that proposed Rule 1 would remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and in general, to protect investors and the
public interest because the proposed definitions are terms that would
be used in the additional rules proposed by the Exchange. Proposed Rule
1 would therefore promote transparency in Exchange rules by providing
for definitional terms that would be used throughout the rulebook.
Equities Trading Rules (Proposed Rule 7)
A. Proposed Rules Based on NYSE Arca and NYSE National
The Exchange believes that proposed Rule 7 and the rules thereunder
that are based on the rules of NYSE Arca and NYSE National (proposed
Rules 7.5, 7.7, 7.9, 7.10, 7.11, 7.12, 7.16, 7.17, 7.18, 7.29, 7.30,
7.31, 7.33, 7.34, 7.36, 7.37, 7.38, 7.40 and 7.45) would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would establish rules relating to
trading on the Exchange that would support the re-launch of Exchange
trading as a fully automated trading market on Pillar with a price-time
priority trading model. The proposed rules are based on the rules of
NYSE Arca and NYSE National, as applicable, and include rules governing
orders and modifiers, ranking and display, execution and routing, and
trading sessions. The Exchange believes that because it would not be a
primary listing exchange, it would be consistent with the protection of
investors and the public interest not to include rules relating to
auctions or lead or designated market makers. Other than substantive
differences to the proposed rules relating to the difference that the
Exchange would not operate auctions, the proposed rules are not novel,
and are based on the rules of NYSE Arca and NYSE National. The Exchange
believes that having Pillar rules that are based on the rules of NYSE
Arca and NYSE National would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because it would promote consistency among the Exchange and the
Affiliated Exchanges, thereby making Exchange rules easier to navigate
for those Exchange Participants that are also members of one or more
Affiliated Exchange.
B. Proposed Rules Relating to Cross Orders
As noted above, when it transitions to Pillar, the Exchange will
continue to support Institutional Brokers on the Exchange consistent
with current Article 17, including making BrokerPlex available to
Institutional Brokers. To support Institutional Brokers, the Exchange
proposes a difference from its Affiliated Exchanges by continuing to
support Cross Orders and related functionality that is currently
available on the Exchange, with specified differences.
Specifically, the Exchange believes that proposed Rule 7.31(g),
relating to Cross Orders, would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because the proposed rule would provide for both Limit IOC Cross
Orders, which are based on the rules of NYSE Arca and NYSE National,
and QCT Cross Orders, which are currently available on the Exchange.
The Exchange believes that the proposed differences in how QCT Cross
Orders would function on Pillar as compared to the current Rules would
remove impediments to and perfect the mechanism of a free and open
market because it would apply Cross Order functionality that has been
approved on NYSE Arca and NYSE National, i.e., the ability to execute a
Cross Order if the cross price is between the BBO, to existing QCT
Cross Order functionality, as described in current Exchange rules. How
QCT Cross Orders would otherwise function on Pillar would not differ
substantively from how such orders currently function. The Exchange
believes that the proposed non-substantive rule differences to use
Pillar terminology to describe QCT Cross Orders would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because using Pillar terminology would promote
transparency and consistency in Exchange rules.
The Exchange believes that offering Limit IOC Cross Orders would
remove impediments to and perfect the mechanism of a free and open
market because the proposed order type is based on the approved rules
of NYSE Arca and NYSE National. In addition, the proposed Limit IOC
Cross Order would provide Participants that are not Institutional
Brokers with an opportunity to send Cross Orders to the Exchange. The
Exchange further believes that eliminating Benchmark and Midpoint Cross
orders would remove impediments to and perfect the mechanism of a free
and open market and a national market system because the Exchange would
be streamlining its offerings and eliminating little-used order types.
How Cross Orders would function on the Exchange would otherwise be
based on current Exchange rules, with non-substantive differences to
use Pillar terminology, including the availability of non-regular way
settlement instructions (proposed Rule 7.8A), entering such orders in
an increment as small as $0.000001 (proposed Rule 7.6), and the
availability of Cross with Size (proposed Rule 7.31(g)(3)). The
Exchange believes that these proposed rules would remove impediments to
and perfect the mechanism of a free and open market because they would
provide continuity to Institutional Brokers regarding how Cross Orders
would function after the Exchange transitions to Pillar. The Exchange
similarly believes that proposed Rule 7.32, and in particular, the
ability for Cross Orders to be entered up to 25 million shares in size,
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would promote the
entry of larger-sized Cross Orders on the Exchange. This proposed rule
change is not novel and is based on NYSE Rule 7.32.
Proposed Amendments to Current Exchange Rules
The Exchange believes that the proposed amendments to Article 17 to
add references to the NYSE Chicago Marketplace and amendments to
Article 17, Rule 5 to specify which order types would not be available
via BrokerPlex would remove impediments to and perfect the mechanism of
a free and open market and a national market system because the
proposed changes are designed to promote transparency in Exchange rules
of how BrokerPlex would function once the Exchange transitions to
Pillar.
The Exchange further believes that the proposed amendments to
Article 12, Rule 8 relating to which rules are eligible for the MRVP
are designed to prevent fraudulent and manipulative acts and practices
and promote just and equitable principles of trade because they add
Pillar rules to the Exchange's MRVP that have previously been approved
by the Commission to be included in the minor rule violation plans of
NYSE Arca and NYSE National, thus promoting consistency among the
Affiliated Exchanges of which rules would be eligible for the MRVP. The
proposed amendments would also promote transparency by eliminating an
obsolete rule from the MRVP and
[[Page 44667]]
updating a rule cross reference for an existing rule that is eligible
for MRVP.
The Exchange further believes that it would remove impediments to
and perfect the mechanism of a free and open market and a national
market system to specify which current rules would not be applicable to
trading on the Pillar trading platform. The Exchange believes that the
following legend, which would be added to existing rules, ``This Rule
is not applicable to trading on the Pillar trading platform,'' would
promote transparency regarding which rules would govern trading on the
Exchange on Pillar. The Exchange has proposed to add this legend to
rules that would be superseded by proposed rules or rules that would
not be applicable because they relate to functions that would not be
available when the Exchange transitions to Pillar.
Section 11(a) of the Act
For reasons described above, the Exchange believes that the
proposal for the Exchange to operate on a fully automated trading
market without a Floor is consistent with Section 11(a) of the Act and
Rule 11a2-2(T) thereunder.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
designed to provide for trading rules to support the migration to the
Pillar trading platform consistent with the Framework Filing. The
Exchange operates in a highly competitive environment in which its
unaffiliated exchanges competitors operate multiple affiliated
exchanges that operate under common rules. By proposing rules based on
the rules of its affiliated exchanges, the Exchange believes that it
will be able to compete on a more level playing field with its exchange
competitors that similarly trade NMS Stocks on fully automated trading
models. In addition, by basing its rules on those of its affiliated
exchanges, the Exchange will provide its Participants with consistency
across affiliated exchanges, thereby enabling the Exchange to compete
with unaffiliated exchange competitors that similarly operate multiple
exchanges on the same trading platforms.
In addition, the Exchange does not believe that the proposed rule
change will impose any burden on competition on its Participants that
is not necessary or appropriate in furtherance of the purposes of the
Act because the Exchange proposes to retain rules governing Participant
membership and conduct and therefore such Participants would not need
to update internal procedures in connection with the migration of the
Exchange to the Pillar trading platform. The Exchange further believes
that the proposed rule change would promote consistency and
transparency on both the Exchange and its affiliated exchanges, thus
making the Exchange's rules easier to navigate.
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-NYSECHX-2019-08 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSECHX-2019-08. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of 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-NYSECHX-2019-08 and should be submitted
on or before September 16, 2019.
---------------------------------------------------------------------------
\49\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18269 Filed 8-23-19; 8:45 am]
BILLING CODE 8011-01-P
