Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Add Rules To Support the Transition of Trading to the Pillar Trading Platform, 55345-55351 [2019-22483]
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Federal Register / Vol. 84, No. 200 / Wednesday, October 16, 2019 / Notices
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: CP2018–7; Filing
Title: USPS Notice of Amendment to
Priority Mail Contract 368, Filed Under
Seal; Filing Acceptance Date: October 9,
2019; Filing Authority: 39 CFR 3015.5;
Public Representative: Kenneth R.
Moeller; Comments Due: October 17,
2019.
2. Docket No(s).: MC2020–5 and
CP2020–6; Filing Title: USPS Request to
Add Priority Mail Contract 553 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: October 9, 2019;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3020.30 et seq., and 39 CFR 3015.5;
Public Representative: Kenneth R.
Moeller; Comments Due: October 17,
2019.
3. Docket No(s).: MC2020–6 and
CP2020–7; Filing Title: USPS Request to
Add Priority Mail & First-Class Package
Service Contract 122 to Competitive
Product List and Notice of Filing
Materials Under Seal; Filing Acceptance
Date: October 9, 2019; Filing Authority:
39 U.S.C. 3642, 39 CFR 3020.30 et seq.,
and 39 CFR 3015.5; Public
Representative: Kenneth R. Moeller;
Comments Due: October 17, 2019.
This Notice will be published in the
Federal Register.
Darcie S. Tokioka,
Acting Secretary.
[FR Doc. 2019–22555 Filed 10–15–19; 8:45 am]
BILLING CODE 7710–FW–P
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2020–5, CP2020–6.
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2019–22475 Filed 10–15–19; 8:45 am]
BILLING CODE 7710–12–P
POSTAL SERVICE
Product Change—Priority Mail and
First-Class Package Service
Negotiated Service Agreement
Postal ServiceTM.
Notice.
ACTION:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: October
16, 2019.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on October 9, 2019,
it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail & First-Class Package
Service Contract 122 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2020–6,
CP2020–7.
SUMMARY:
[FR Doc. 2019–22474 Filed 10–15–19; 8:45 am]
BILLING CODE 7710–12–P
Product Change—Priority Mail
Negotiated Service Agreement
POSTAL SERVICE
Postal ServiceTM.
Notice.
AGENCY:
ACTION:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: October
16, 2019.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on October 9, 2019,
it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Contract 553 to
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SUMMARY:
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gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on October 10,
2019, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail & First-Class Package
Service Contract 123 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2020–9,
CP2020–8.
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2019–22559 Filed 10–15–19; 8:45 am]
BILLING CODE 7710–12–P
AGENCY:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
POSTAL SERVICE
55345
Product Change—Priority Mail and
First-Class Package Service
Negotiated Service Agreement
Postal ServiceTM.
Notice.
AGENCY:
ACTION:
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[Release No. 34–87264; File No. SR–
NYSECHX–2019–08]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, To Add Rules To
Support the Transition of Trading to
the Pillar Trading Platform
October 9, 2019.
I. Introduction
On August 6, 2019, NYSE Chicago,
Inc. (‘‘NYSE Chicago’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change in connection with the transition
of trading on the Exchange to the Pillar
trading platform, described below. The
proposed rule change was published for
comment in the Federal Register on
August 26, 2019.3 The Commission
received no comments on the proposed
rule change. On October 2, 2019, the
Exchange filed Amendment No. 1 to the
proposed rule change, which supersedes
and replaces the original filing in its
entirety.4 The Commission is approving
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 86709
(August 20, 2019), 84 FR 44654 (‘‘Notice’’).
4 In Amendment No. 1, the Exchange proposes,
among other things, to: (i) Extend the pilot period
for proposed NYSE Chicago Rule 7.12 (Trading
Halts Due to Extraordinary Market Volatility) to
October 18, 2020; (ii) amend NYSE Chicago Article
17, Rule 5(c)(3) to add definitions of stock-option
combination order and stock-future combination
order and amend NYSE Chicago Article 1, Rule 1
to state that the definitions of stock-option
combination order and stock-future combination
order in NYSE Chicago Article 1, Rule 1 (jj) and (kk)
are not applicable to trading on the Pillar trading
platform; and (iii) cross reference Article 21, Rule
1 in proposed NYSE Chicago Rule 7.45(d)(2)(A).
2 17
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: October
16, 2019.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
SUMMARY:
SECURITIES AND EXCHANGE
COMMISSION
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Federal Register / Vol. 84, No. 200 / Wednesday, October 16, 2019 / Notices
the proposed rule change, as modified
by Amendment No. 1, on an accelerated
basis, and is soliciting comments on
Amendment No. 1.
II. Description of the Proposal
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In July 2018, NYSE Chicago and its
direct parent company were acquired by
NYSE Group, Inc., and the Exchange
became part of a corporate family
including NYSE Arca, Inc. (‘‘NYSE
Arca’’), NYSE American LLC (‘‘NYSE
American’’), NYSE National, Inc.
(‘‘NYSE National’’) and New York Stock
Exchange LLC (‘‘NYSE’’) (collectively,
the ‘‘Affiliated Exchanges’’).5 Since the
acquisition, NYSE Chicago has
continued to operate with rules distinct
from those of the Affiliated Exchanges.6
The Exchange now proposes to
transition trading in 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, 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
Chicago would offer the same suite of
orders and modifiers, generally, as are
available on NYSE Arca or NYSE
National.7 Accordingly, the Exchange
proposes trading rules based on the
rules and trading model of the cash
equities platforms of those exchanges—
including rules relating to orders and
modifiers, ranking and display of
orders, execution and routing of orders,
and all other trading functionality—
with certain differences in some of the
details of its rules, as discussed below.
The Exchange states that it will
continue to support its dual listings, but
would not provide trading functions
that support the operation of a primary
listing exchange.8 Accordingly, the
Exchange states, once it transitions to
Pillar, NYSE Chicago will function most
Although the Exchange proposed with Amendment
No. 1 to supersede and replace the original
proposal, for ease of reference this Order cites to the
published Notice with respect to those aspects of
the original proposal that have not been changed.
Amendment No. 1 is available at: https://
www.sec.gov/comments/sr-nysechx-2019-08/
srnysechx201908-6244417-192732.pdf.
5 See Securities Exchange Act Release No. 83635
(July 13, 2018), 83 FR 34182 (July 19, 2018) (SR–
CHX–2018–004); see also Securities Exchange Act
Release No. 83303 (May 22, 2018), 83 FR 24517
(May 29, 2018) (SR–CHX–2018–004).
6 See Notice, supra note 3, at 44655.
7 See id. at footnote 8 for a discussion of the
differences between the rules of NYSE Arca and
NYSE National and those of markets of the other
Affiliated Exchanges that share a substantial
number of trading functions and Pillar platform
rules with them.
8 See Notice at 44655.
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similarly to NYSE National, which,
unlike NYSE Arca, is not a listing
exchange.9 The Exchange proposes,
however, a number of substantive
differences in its trading on the Pillar
platform from how trading on NYSE
Arca and NYSE National function.10
First, the Exchange states, it would
continue to support Institutional
Brokers,11 as provided for under Article
17 of the current NYSE Chicago rules.12
Second, the Exchange would continue
to support a Qualified Contingent Trade
(‘‘QCT’’) cross order modifier to
facilitate compliance with the
contingent trade exemption of Rule 611
of Regulation NMS.13 Third, the
Exchange will continue to support nonregular way settlement instructions for
cross orders and the ability for cross
orders to be submitted in an increment
as small as $0.000001, as provided in its
current rules.14 Fourth, the Exchange
will not support Market Makers on the
Exchange.15
The following is an overview of the
proposed revisions to the Exchange’s
existing rules as well as a more detailed
9 As a result, for example, the Exchange does not
propose to operate any auctions and therefore does
not propose rules like those of NYSE Arca to
provide for auction functionality on the Exchange.
Concomitantly, like NYSE National, the Exchange
would offer ‘‘Auction-Only Orders,’’ which are
orders designated to participate in an auction on the
primary listing market. See NYSE National (and
proposed NYSE Chicago) Rule 7.31(c). The
Exchange would route all such orders to the
primary listing market. See Notice at 44660 for a
discussion of this and other, related provisions
based on NYSE National rules. See also Securities
Exchange Act Release No. 83289 (May 17, 2018), 83
FR 23968 (May 23, 2018) (SR–NYSENAT–2018–02).
10 See Notice at 44655.
11 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.
12 As detailed below, the Exchange proposes to
amend the rules set forth under Article 17 as
necessary to support differences in the Pillar
trading platform as compared to the Exchange’s
current trading rules. See infra notes 52–54 and
accompanying text.
13 The QCT cross order modifier, which is
currently described in Article 1, Rule 2(b)(2)(E) of
the current NYSE Chicago rules, is designed for an
Institutional Broker to comply with the contingent
trade exemption. The Exchange states that, while
NYSE Arca and NYSE National both describe this
exemption in their respective rules, neither
exchange offers a specific order type designed for
this exemption. See Notice at 44655 and NYSE Arca
Rule 7.37–E(f)(5) and NYSE National Rule
7.37(f)(5).
14 See infra note 29 and accompanying text.
15 Accordingly, the Exchange does not propose
rules based on Section 2 of NYSE Arca Rule 7–E
or NYSE National Rule 7, relating to market makers,
and will not offer the ‘‘Q’’ order type described in
NYSE Arca Rule 7.31–E(j) and NYSE National Rule
7.31(j). See Notice at 44655. ‘‘Q’’ orders are relevant
only for market makers.
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discussion of some of the proposed new
rules for the Pillar trading platform.16
The following current rules of the
Exchange will continue to be operative
without any substantive changes:17
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).18
Once trading on the Pillar trading
platform begins, certain specified
current Exchange rules would not be
applicable, either because they are not
relevant for Pillar or because there is an
equivalent or replacement provision in
the Pillar rules set that addresses the
same topic.19 With respect, specifically,
16 See Notice, supra note 3, for a more complete
description.
17 The Exchange’s existing rules will appear in its
rulebook in their current numbering format
following a rules set that is based on numbering
system of NYSE National’s rules, the framework of
which was recently adopted by the Exchange and
is organized in 13 Rules. See Securities Exchange
Act Release No. 85297 (March 12, 2019), 84 FR
9854 (March 18, 2019) (SR–NYSECHX–2019–03).
18 Regarding the exceptions to the rules included
in this paragraph, see infra note 19.
19 These include: Certain of the definitions set
forth in Article 1, Rule 1 (see infra note 24); Article
1, Rule 2 (Order Types, Modifiers, and Related
Terms), covered in proposed Section 3 of Rule 7
(see infra text accompanying notes 32–48); Article
1, Rule 3 (Time) (see proposed Rule 1.1(e),
providing that all times in the Pillar Platform Rules
are Eastern Time); Article 1, Rule 4 (Exchange Use
of the Securities Information Processors) (see
proposed Rule 7.37); Article 3, Rule 21 (Mandatory
Participation Testing of Backup Systems), covered
by proposed Rule 2.13 (see infra note 25); Article
4, relating to Book Feed and Connect service, which
will not be offered on Pillar (see Notice at 44663);
Article 5, Rule 1 (Access to Exchange Systems),
covered by proposed Rule 7.29; Article 8, Rule 17
(Customer Disclosures), covered in proposed Rule
7.34; Article 9, Rule 23 (Short Sales), covered in
proposed Rule 7.16; Article 11, Rule 3(b)(8),
covered by proposed Rule 7.33, relating to capacity
codes; Article 16 (Market Makers), not applicable
on the Exchange (see supra note 15); Article 19
(Operation of the Routing Services), covered by
proposed rule 7.45; Article 20, Rules 1–8, 10, 12–
13, replaced by provisions in proposed Rule 7
covering trading sessions, trading halts, Limit UpLimit Down Plan, firm orders, orders eligible for
entry, prevention of trade-throughs, locked and
crossed markets, operation of the matching system,
clearly erroneous transactions, order cancellation,
and reporting of transactions (see discussion infra);
and Article 22, Rule 6(a)(3), relating to trading halts
for derivative securities products traded pursuant to
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to the Exchange’s current rules
regarding cross orders, certain aspects of
these rules that are unique to NYSE
Chicago would be integrated within the
rules governing crosses in the Pillar
platform,20 while certain of these would
be eliminated in Pillar.21
The new rules relating to trading on
the Pillar platform that are proposed in
this filing will be added in Rules 0, 1,
2, and 7 of the recently adopted new
numbering framework.22 They include
the following:
Rule 0—Regulation of the Exchange and
ETP Holders
Proposed NYSE Chicago Rule 0 would
establish the regulation of the Exchange
and Participants. Proposed NYSE
Chicago Rule 0 would provide that the
Exchange and FINRA are parties to a
regulatory services agreement in which
FINRA will perform certain functions
on behalf of the Exchange, with the
Exchange retaining ultimate legal
responsibility for, and control of, such
functions. The proposed rule is based
on the NYSE National Rule 0 and NYSE
Arca Rule 0 without any differences.23
Rule 1—Definitions
Proposed NYSE Chicago Rule 1 would
contain definitions applicable to trading
on the Exchange’s Pillar platform. The
Exchange represents that the definitions
are based on the rules of NYSE Arca,
NYSE American, and NYSE National.24
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Rule 2—Trading Permits
The Exchange proposes to add
proposed NYSE Chicago Rule 2.13
concerning the mandatory testing of the
Exchange’s business continuity and
disaster recovery plans. Proposed NYSE
Chicago Rule 2.13 provides that the
Exchange will establish standards to
unlisted trading privileges, covered by proposed
Rule 7.18. 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.’’
20 As previously mentioned, the Exchange would
continue to support the QCT cross order type,
which is designed for Institutional Brokers to
comply with the contingent trade exemption. See
supra note 13. Similarly, it would retain the ‘‘Cross
with Size’’ modifier available in its existing rules.
However, the Exchange proposes to no longer offer
‘‘Benchmark’’ or ‘‘Midpoint Cross’’ orders once it
transitions to Pillar.
21 See infra notes 39–48 and accompanying text.
22 See supra note 17.
23 See Notice at 44656.
24 Because these definitions would be applicable
to the rules pertaining to trading on Pillar, the
Exchange proposes to amend Article 1, Rule 1 of the
existing rules to specify which current definitions
would not be applicable to trading on the Pillar
trading platform. See Notice at 44657–58 and
additional current definitions specified in
Amendment No. 1.
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identify Participants that it reasonably
determines are the minimum necessary
for the maintenance of fair and orderly
markets in the event the Exchange’s
business continuity and disaster
recovery plans are activated and require
designated Participants to participate in
the functional and performance testing
of the Exchange’s business continuity
and disaster recovery plans.25 The
Exchange represents that proposed
NYSE Chicago Rule 2.13 is based on
NYSE National Rule 2.13 without any
substantive differences.26
Rule 7—Equities Trading
To accommodate trading on Pillar, the
Exchange proposes to adopt in NYSE
Chicago Rule 7, ‘‘Equities Trading,’’
rules that are based largely on the
equivalent rules of NYSE National and
NYSE Arca for their cash equities
trading platforms.27
Proposed NYSE Chicago Rule 7 is
divided into six sections. In Section 1,
‘‘General Provisions,’’ the Exchange
proposes to add provisions relating to
units of trading; trading differentials;
anonymity of bids and offers; binding
prices; clearly erroneous executions;
Exchange compliance with the Limit
Up-Limit Down National Market System
Plan; trading halts; short sales; and
firmness of quotes.28
25 ‘‘Participants’’—defined formally in Article 1,
Rule 1(s) of the Exchange’s existing rules—signifies,
generally, persons who are permitted to trade on the
Exchange, who are deemed ‘‘members’’ for
purposes of the Act. The Exchange proposes to
retain its current rules governing membership and
registration, which are found, generally, in Article
3 of its existing rules and thus does not propose to
add any membership rules in Rule 2 (Trading
Permits) corresponding to those of NYSE National
in its Rule 2, with the exception of proposed Rule
2.13, which is being added, according to the
Exchange, to maintain consistency among the
Affiliated Exchanges. Correspondingly, the
Exchange proposes to amend Article 3, Rule 21 of
its existing rules to add a preamble stating that such
rule would not be applicable to trading on the Pillar
trading platform.
26 See Notice at 44658.
27 See supra note 7. Certain rules would differ
from the NYSE Arca and NYSE National rules, as
discussed within the descriptions below. In
addition, the Exchange has identified certain
trading rules of NYSE Arca and NYSE National that
it is not proposing to adopt. For example, as already
noted, the Exchange would not operate auctions
and therefore is not proposing rules pertaining to
auction procedures (see supra note 9), and is also
not proposing to adopt rules relating to market
makers (supra note 15). In addition, 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. See supra note 17 and
accompanying text.
28 See Notice at 44658 and proposed NYSE
Chicago Rules 7.5, 7.6, 7.7, 7.9, 7.10, 7.11, 7.12,
7.16, 7.17, and 7.18. The Exchange proposes to add
NYSE Chicago Rules 7.14 and 7.15 and designate
them as ‘‘Reserved’’ to maintain continuity of rule
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55347
The Exchange proposes a difference
from the rules of NYSE Arca and NYSE
National within this section relating to
trading differentials in proposed Rule
7.6. Based on its current rules, NYSE
Chicago proposes that, a Cross Order,
whether priced less than or at or above
$1.00, would be permitted to 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.29
The Exchange proposes another
difference from the rules of NYSE Arca
and NYSE National within this section,
relating to settlement terms. Whereas
the rules of those exchanges, in Rule
7.8, provide that bids and offers are
considered to be ‘‘regular way’’
settlement terms, the proposed NYSE
Chicago rules would make an exception
based on its current rules that would
provide that Cross Orders would be
considered to be ‘‘regular way’’ unless
designated with either of the following
settlement terms: ‘‘Cash’’ or ‘‘Next
Day’’.30 Also based in part on current
rules, a cross order marked for nonregular way settlement would be
permitted under the proposed rules to
execute at any price, without regard to
the NBBO or any other orders in the
Matching System.31
Section 3 of proposed NYSE Chicago
Rule 7,32 ‘‘Exchange Trading,’’ sets forth
provisions regarding authorized access
to the Exchange and establishes rules
relating to the kinds of order types
numbering with the rules of NYSE Chicago’s
exchange affiliates. See Notice at footnote 23.
29 See current Article 20, Rule 4(a)(7)(B). For
Cross Orders designated with regular way
settlement terms (that do not meet Cross with Size
requirements), the cross price would be required to
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.
30 A Cross Order designated for ‘‘non-regular
way’’ settlement would be permitted to execute at
any price without regard to the Protected Best Bid
or Offer or any orders on the Exchange’s book. See
proposed Rules 7.8 and 7.8A. The Exchange states
that 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. However, on Pillar, the Exchange
does not propose to offer Seller’s Option nonregular way settlement instructions. See Notice at
44662. See also id. for a discussion of other changes
that the Exchanges proposes to implement with
respect to current Article 1, Rule 2(e).
31 See Article 1, Rule 2(e)(2). See also Article 20,
Rule 8(e)(3).
32 As noted above, the Exchange at this time will
not support market makers, and therefore, does not
propose the rules relating to market makers that
make up Section 2 of the Pillar rules of Affiliated
Exchanges, and proposes instead to designate
Section 2 as ‘‘Reserved.’’
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available on the Exchange and how they
are designed to trade. Section 3 of
proposed Rule 7 also would set forth the
rules of the Exchange relating to order
entry (including one substantive
difference from the rules of NYSE Arca
and NYSE National); 33 the codes by
which the ETP Holder submitting an
order must indicate whether it is acting
in a principal, agency, or riskless
principal capacity; and the three trading
sessions for which the Exchange will be
open (early, core, and late), including
the order types that may be traded in
each and the disclosures that
Participants must make to nonParticipants that send orders to them for
trading in the early or late session
regarding, among other things, the risks
that may apply to such orders.34
Further, Section 3 of proposed NYSE
Chicago Rule 7 would establish rules
relating to the display and non-display
of various order types, the ranking of
orders in the Exchange book with
respect to execution priority, and the
role of price and time in determining
such priority.35 The section also
includes proposed rules that pertain to
routing of orders to away markets; the
prohibition of trading through protected
quotations and exceptions thereto; and
compliance with other aspects of
Regulation NMS under the Act.36 It also
lists the data feeds that the Exchange
proposes to use for the handling,
execution, and routing of orders, as well
as regulatory compliance.37 Additional
proposed rules in Section 3 relate to odd
lot and mixed lot trading on the
Exchange; and trade execution and
reporting.38
In Section 3, the Exchange proposes,
as already mentioned,39 to combine
existing Pillar functionality relating to
cross orders with the Exchange’s current
cross order offerings. Proposed Rule
7.31(g) would first define Cross Orders
as two-sided orders with instructions to
match the identified buy-side with the
identified sell-side at a specified price
(the ‘‘cross price’’), and is based on
NYSE Arca and NYSE National rules.
As in the rules of those other exchanges,
33 As set forth in proposed NYSE Chicago Rule
7.32 (Order Entry), unlike NYSE Arca and NYSE
National rule, the Exchange would accept cross
orders that are up to 25 million shares in size. The
Exchange states that this provision is based on
NYSE Rule 7.32. See Notice at 44663.
34 See proposed NYSE Chicago Rules 7.33
(Capacity Codes); and 7.34 (Trading Sessions).
35 See proposed NYSE Chicago Rule 7.36 (Order
Ranking and Display).
36 See proposed NYSE Chicago Rule 7.37 (Order
Execution and Routing).
37 Id.
38 See proposed NYSE Chicago Rules 7.38 and
7.40, respectively.
39 See supra note 20.
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17:10 Oct 15, 2019
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Rule 7.31(g) would further provide that
a Cross Order must trade in full at its
cross price and will not route. NYSE
Chicago, however—unlike at the other
exchanges—proposes to permit a Cross
Order to be designated with non-regular
way settlement instructions, based on
current Exchange rules, stating that this
proposed provision is based on its
current rules.40 Also based on its
current rules, the Exchange proposes to
further provide in its version of Rule
7.31(g) 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.41
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. As
proposed, a Limit IOC Cross Order
would be a Cross Order that would be
rejected under the following
circumstance: (a) If the cross price
would trade through the PBBO; 42 (b) if
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); 43 or
(c) if there is no PBB or PBO or the
PBBO is locked or crossed. As on NYSE
Arca and NYSE National, under the
proposed rule the Exchange would
accept and execute a Limit IOC Cross
Order that is priced between the BBO—
a functionality currently not available
on the Exchange—and the cross will be
executed even if there are non-displayed
or odd-lot sized buy or sell orders
40 See Article 1, Rule 2(e)(2) of the current rules,
which provides that the Exchange’s Matching
System will only accept cross orders for non-regular
way settlement.
41 The Exchange states that this proposed
provision 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
current 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, the Exchange proposes that any Cross
Order entered by an Institutional Broker may
represent interest of one or more Participants on the
Exchange.
42 The term PBBO is defined on NYSE Arca and
NYSE National, and would be defined on the
Exchange under proposed Rule 1.1(o) to mean the
best Protected Bid and the Best Protected Offer, as
those terms are defined in Rule 600(b)(57) of
Regulation NMS.
43 The BBO is defined on NYSE Arca and NYSE
National, and 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), 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.
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between the BBO.44 The proposed rule
text differs from the NYSE Arca and
NYSE National rules to account for the
availability of the Cross with Size
modifier (described immediately below)
which, when utilized, would permit the
cross price to be equal to the BB or BO.
The Cross with Size modifier 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. To qualify, the
cross order must be larger than the
largest order displayed on the Exchange
Book at the BB or BO.45
Proposed Rule 7.31(g)(2) would define
a QCT Cross Order as 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(f)(5).46 The
proposed rule would provide that a QCT
Cross Order, which would be available
only to Institutional Brokers,47 would be
rejected if the cross price is not between
the BBO (unless it meets Cross with Size
requirements). However, because, as
noted above, Cross Orders generally
would newly be permitted to execute on
the Exchange if the cross price is
between the BBO,48 the Exchange would
also apply this functionality when it
transitions QCT Cross Orders to Pillar.
Another difference in Section 3 from
the rules of NYSE Arca and NYSE
National is proposed in Rule 7.32 (Order
Entry), which provides, generally, that
orders entered that are greater than five
million shares in size are to be rejected.
NYSE Chicago’s proposed rule, based on
the rules of NYSE, another Affiliated
Exchange, would provide an exception
in the case of Cross Orders, which the
Exchange will accept in sizes up to 25
million shares.49
Section 4 of proposed NYSE Chicago
Rule 7, ‘‘Operation of Routing Broker,’’
would define ‘‘routing broker’’ as ‘‘the
44 See
Notice at 44661.
Exchange states that the Cross with Size
modifier, which would be set forth in proposed
Rule 7.31(g)(3), is based in part on Article 1, Rule
2(g)(1) of the current rules with differences to
reflect that on Pillar, Cross Orders would be eligible
to execute if the cross price is between the BBO
even without a size requirement. See supra note 44
and Notice at 44662. Because of this, Cross with
Size would only be necessary if the proposed cross
price is equal to the BB (BO).
46 Proposed Rule 7.37(f)(5), which is based on
corresponding rules of NYSE Arca and NYSE
National, would set forth the requirements for a
transaction to qualify as a QCT Cross Order.
47 See proposed Rule 7.31(g)(b)(2). The Exchange
states that this proposed provision is based on
current Article 1, Rule 2(b)(2)(E), which provides
that a QCT cross order modifier may only be
utilized by an Institutional Broker.
48 See supra note 44 and Notice at 44662.
49 See supra note 33.
45 The
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broker-dealer affiliate of the Exchange
and/or any other non-affiliate thirdparty broker-dealer that acts as a facility
of the Exchange for routing orders
entered into Exchange systems to other
market centers for execution whenever
such routing is required by the Rules of
the Exchange or the federal securities
laws.’’ 50 In Section 4, the Exchange
further proposes rules covering
outbound and inbound routing
functions.51
As noted above, the Exchange
proposes changes to existing Article 17
of its rules to support differences in the
Pillar trading platform as compared to
the Exchange’s current trading rules.52
The Exchange proposes to amend
Article 17 to specify order types defined
under proposed Exchange Rule 7.31 that
an Institutional Broker would not be
able to enter via BrokerPlex 53 and
specify that the Quote@Exchange and
Reprice@Exchange order types will not
be available on Pillar.54
50 See proposed NYSE Chicago Rule 7.45, which
comprises the whole of Section 4.
51 See Notice at 44661 for additional details. 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.
See id.
52 See supra note 12.
53 BrokerPlex is an order and trade entry,
recordation and management system developed and
operated by the Exchange for use by affiliated
representatives of Institutional Brokers as provided
in Article 17, Rule 5. The orders that would not be
available include: Inside Limit Orders, AuctionOnly Orders, MPL Orders, Tracking Orders, ISOs,
Primary Only Orders, Primary Until 9:45 Orders,
Primary After 3:55 Orders, Pegged Orders, NonDisplay Remove Modifier, Proactive if Locked or
Crossed Modifier, Self-Trade Prevention Modifier,
and Minimum Trade Size Modifier. The Exchange
states that, 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.
54 The Exchange also proposes to renumber these
order types as proposed NYSE Chicago Rule
5(c)(3)(C) and (D), respectively. See in this regard
Amendment No. 1. Further in Amendment No. 1,
the Exchange proposes to move text relating to
Stock-Option Combination Orders, and StockFuture Combination Orders, which are currently
defined in Article 1, Rule 1(jj)-(kk), to new
subparagraphs (A) and (B) under Article 17, Rule
5(c)(3). As noted above, the Exchange proposes to
specify that certain provisions of Article 1, Rule 1
(Definitions) would not be applicable to trading on
Pillar. Because both Stock-Option and Stock-Future
Combination Orders are currently available via
Brokerplex, the Exchange proposes to amend its
rules to specify that these are order types that
would be available via Brokerplex. The Exchange
states that, because such orders are cross orders, an
order that meets the requirements of either a StockOption or Stock-Future Combination Order could
be entered for execution on Pillar as either a QCT
Cross Order (if it also meets the requirements of
QCT) or a Limit IOC Cross Order, as described
above. Such orders would continue to be subject to
Article 20, Rule 11 and the Exchange proposes non-
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Finally, the Exchange proposes to
amend Article 12, Rule 8(h) (Exchange
Rules and Policies subject to the Minor
Rule Violation Plan) as follows: (1)
Delete the reference to ‘‘Failure to Clear
the Matching System (Article 20, Rule
7),’’ as this rule has been eliminated,
and reserve Rule 8(h)(2)(F); (2) add
proposed NYSE Chicago Rules 7.6
(concerning minimum trading
increments, 7.16 (short sales) and 7.30
(failure to comply with authorized
trader requirements) as subject to the
Exchange’s minor rule violation plan.
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of the
Act and rules and regulations
thereunder applicable to a national
securities exchange.55 In particular, the
Commission finds that the amended
proposed rule change is consistent with
Section 6(b)(5) of the Act,56 which
requires, among other things, that the
rules of a national securities exchange
be designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest, and are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
1. Transitioning of Exchange Trading to
the Pillar Trading Platform
The Exchange’s proposal would
transition trading on the Exchange from
the current trading platform to the Pillar
platform as a fully-automated cash
equities trading market with a pricetime priority allocation model. As
discussed at length in the proposed rule
change, as amended, the re-launched
Exchange would neither list securities
nor operate an auction, although it
would retain its dual-listed securities.
The Commission notes that the
Exchange’s amended proposal would
establish new rules that are based on,
and are substantially similar to, the
rules of its Affiliated Exchanges and its
current rules, which were filed and
approved by the Commission (or which
became immediately effective) pursuant
to Section 19(b) of the Act.57 Several of
substantive amendments to that rule to update rule
cross references.
55 In approving the proposed rule changes, the
Commission has considered their impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
56 15 U.S.C. 78f(b)(5).
57 See 78 U.S.C 78s(b).
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55349
its Affiliated Exchanges currently
operate using the Pillar trading
platform, and a number of other
national securities exchanges operate
fully electronic markets. Under the
proposal, the Exchange would retain
many of its existing rules that are
unique to the Exchange—such as its
rules relating to Institutional Brokers,
the QCT cross order modifier,
provisions for trades with non-regular
way settlement and permitted trading
differentials for such trades—and adjust
them, where appropriate, with respect
to the Pillar platform, and, in the case
of cross orders, integrate them within
the Pillar rules while adopting several
features of the related rules of the
Affiliated Exchanges. Accordingly, the
Commission finds that the amended
proposal raises no novel regulatory
issues, that it is reasonably designed to
protect investors and the public interest,
and that it is consistent with the
requirements of the Act.
2. Section 11(a) of the Act
Section 11(a)(1) of the Act 58 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 applies. Rule 11a2–
2(T) under the Act,59 known as the
‘‘effect versus execute’’ rule, provides
exchange members with an exemption
from the Section 11(a)(1) 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 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 the
order has been transmitted to the
member performing the execution; 60
(iii) may not be affiliated with the
executing member; and (iv) with respect
to an account over which the member or
an associated person has investment
discretion, neither the member nor an
associated person may retain any
compensation in connection with
effecting the transaction except as
provided in the Rule. For the reasons set
forth below, the Commission believes
that Participants entering orders into the
58 15
U.S.C. 78k(a)(1).
CFR 240.11a2–2(T).
60 This prohibition also applies to associated
persons of the initiating member. The member may,
however, participate in clearing and settling the
transaction.
59 17
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Exchange’s Pillar trading system would
satisfy the requirements of Rule 11a2–
2(T).
Rule 11a2–2(T)’s first requirement is
that orders for covered accounts be
transmitted from off the exchange floor.
The Exchange represents that it will not
have a physical trading floor when it relaunches trading and the Exchange’s
Pillar trading system will receive orders
from members electronically through
remote terminals or computer-tocomputer interfaces.61 In the context of
other automated trading systems, the
Commission has found that the off-floor
transmission requirement is met if a
covered account is transmitted from a
remote location directly to an
exchange’s floor by electronic means.62
Because the Pillar trading system
receives orders electronically through
remote terminals or computer-tocomputer interfaces, the Commission
believes that the Pillar trading system
would satisfy this off-floor transmission
requirement.
Second, Rule 11a2–2(T) requires that
neither the initiating member nor an
associated person of the initiating
member participate in the execution of
the transaction at any time after the
order for the transaction has been
transmitted. The Exchange represents
that the Pillar trading system would at
no time following the submission of an
order allow a Member or an associated
person of the Member to acquire control
or influence over the result or timing of
the order’s execution.63 According to
the Exchange, the execution of a
Member’s order would be determined
solely by the quotes and orders that are
present in the system at the time the
member submits the order and by the
order priority under the Exchange
rules.64 Accordingly, the Commission
61 See
Notice at 44665.
the context of other all-electronic systems,
the Commission has similarly found that the offfloor transmission requirement is met if the system
receives orders electronically through remote
terminals or computer-to-computer interfaces. See,
e.g., Securities Exchange Act Release Nos. 61419
(January 26, 2010), 75 FR 5157 (February 1, 2010)
(SR–BATS–2009–031) (approving BATS options
trading); 59154 (December 23, 2008), 73 FR 80468
(December 31, 2008) (SR–BSE–2008–48) (approving
equity securities listing and trading on BSE); 57478
(March 12, 2008), 73 FR 14521 (March 18, 2008)
(SR–NASDAQ–2007–004 and SR–NASDAQ–2007–
080) (approving NOM options trading); 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006)
(File No. 10–131) (granting the application of The
Nasdaq Stock Market LLC for registration as a
national securities exchange); and 44983 (October
25, 2001), 66 FR 55225 (November 1, 2001) (SR–
PCX–00–25) (approving the establishment of the
Archipelago Exchange as the equities trading
facility of PCX Equities, Inc., a subsidiary of the
Pacific Exchange, Inc.).
63 See Notice at 44665.
64 See id. The Exchange notes that Rule 11a2–2(T)
does not preclude a member from cancelling or
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believes that an Exchange member and
its associated persons would not
participate in the execution of an order
submitted to the Pillar trading system.
Third, Rule 11a2–2(T) requires that
the order be executed by an exchange
member that is not associated with the
member initiating the order. The
Commission has stated that this
requirement is satisfied when
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.65
The Exchange represents that the design
of the Pillar trading system ensures that
no Participant has any special or unique
trading advantage in the handling of its
orders after transmitting its orders to the
Exchange.66 Based on the Exchange’s
representation, the Commission believes
that the Pillar trading system would
satisfy this requirement.
Fourth, in the case of a transaction
effected for an account with respect to
which the initiating member or an
associated person thereof exercises
investment discretion, neither the
initiating member nor any associated
person may retain any compensation in
connection with effecting the
transaction, unless the person
authorized to transact business for the
account has expressly provided
otherwise by written contract referring
to Section 11(a) of the Act and Rule
modifying orders, or from modifying the
instructions for executing orders, after they have
been transmitted, provided that such cancellations
or modifications are transmitted from off an
exchange floor. See id. The Commission has stated
that the non-participation requirement is satisfied
under such circumstances so long as the
modifications or cancellations are also transmitted
from off the floor. See Securities Exchange Act
Release No. 14563 (March 14, 1978), 43 FR 11542
(March 17, 1978) (‘‘1978 Release’’) (stating that the
‘‘non-participation requirement does not prevent
initiating members from canceling or modifying
orders (or the instructions pursuant to which the
initiating member wishes orders to be executed)
after the orders have been transmitted to the
executing member, provided that any such
instructions are also transmitted from off the
floor’’).
65 In considering the operation of automated
execution systems operated by an exchange, 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 system. 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). See Securities Exchange Act Release No.
15533 (January 29, 1979), 44 FR 6084 (January 31,
1979).
66 See Notice at 44665.
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11a2–2(T) thereunder.67 Members
trading for covered accounts over which
they exercise investment discretion
must comply with this condition in
order to rely on the rule’s exemption.68
IV. Solicitation of Comments on
Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to 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
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
67 In addition, Rule 11a2–2(T)(d) requires that, if
a member or associated person is authorized by
written contract to retain compensation in
connection with effecting transactions for covered
accounts over which the member or associated
person thereof exercises investment discretion, the
member or associated person must furnish at least
annually to the person authorized to transact
business for the account a statement setting forth
the total amount of compensation retained by the
member or any associated person thereof in
connection with effecting transactions for the
account during the period covered by the statement.
See 17 CFR 240.11a2–2(T)(d). See also 1978
Release, supra note 107 (‘‘The contractual and
disclosure requirements are designed to assure that
accounts electing to permit transaction-related
compensation do so only after deciding that such
arrangements are suitable to their interests’’).
68 The Exchange represents that it 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). See
Notice at 44665.
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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
November 6, 2019.
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V. Accelerated Approval of Proposed
Rule Change, as Modified By
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 1 in the Federal
Register. As discussed above, in
Amendment No. 1, the Exchange
proposes, among other things, to: (i)
Extend the pilot period for proposed
NYSE Chicago Rule 7.12 (Trading Halts
Due to Extraordinary Market Volatility)
to October 18, 2020; (ii) amend NYSE
Chicago Article 17, Rule 5(c)(3) to add
definitions of stock-option combination
order and stock-future combination
order and amend NYSE Chicago Article
1, Rule 1 to state that the definitions of
stock-option combination order and
stock-future combination order in NYSE
Chicago Article 1, Rule 1 (jj) and (kk) are
not applicable to trading on the Pillar
trading platform; and (iii) cross
reference Article 21, Rule 1 in proposed
NYSE Chicago Rule 7.45(d)(2)(A). The
proposed changes do not introduce any
rules that differ in any substantive
manner from rules that previously have
been approved by the Commission, or
that have become immediately effective,
pursuant to Section 19(b) of the Act.
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Act,69 to approve the proposed
rule change, as modified by Amendment
No. 1, on an accelerated basis so that the
Exchange can commence its transition
69 15
U.S.C. 78s(b)(2).
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to the Pillar platform without
unnecessary delay.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,70 that the
proposed rule change (SR–NYSECHX–
2019–08), as modified by Amendment
No. 1, be and hereby is approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.71
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–22483 Filed 10–15–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87266; File No. SR–BOX–
2019–24]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Designation
of Longer Period for Commission
Action on Proposed Rule Change To
Amend Rule 7600
October 9, 2019.
On August 8, 2019, BOX Exchange
LLC (‘‘BOX’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to provide split-price
functionality to Complex and multi-leg
QOO Orders on the BOX Trading Floor.
The proposed rule change was
published for comment in the Federal
Register on August 27, 2019.3 The
Commission has received no comment
letters on the proposed rule change.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
70 Id.
71 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 86723
(August 21, 2019), 84 FR 44954.
4 15 U.S.C. 78s(b)(2).
disapproved. The 45th day for this filing
is October 11, 2019.
The Commission is extending the 45day time period for Commission action
on the proposed rule change. The
Commission finds that it is appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider the proposed rule change.
Accordingly, pursuant to Section
19(b)(2)(A)(ii)(I) of the Act 5 and for the
reasons stated above, the Commission
designates November 25, 2019, as the
date by which the Commission shall
either approve, disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. BOX–2019–24).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–22485 Filed 10–15–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87261; File No. SR–CBOE–
2019–096]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Make Minor Updates
and Consolidate Various Exchange
Rules in Connection With Business
Conduct on the Exchange, and Move
Those Rules From the Currently
Effective Rulebook to Proposed
Chapter 8 of the Shell Structure for the
Exchange’s Rulebook That Will
Become Effective Upon the Migration
of the Exchange’s Trading Platform to
the Same System Used by the Cboe
Affiliated Exchanges
October 9, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
4, 2019, Cboe Exchange, Inc.
(‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
1 15
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
55351
5 15
U.S.C. 78s(b)(2)(A)(ii)(I).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
6 17
E:\FR\FM\16OCN1.SGM
16OCN1
]]>Agencies
[Federal Register Volume 84, Number 200 (Wednesday, October 16, 2019)]
[Notices]
[Pages 55345-55351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22483]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87264; File No. SR-NYSECHX-2019-08]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Add Rules To
Support the Transition of Trading to the Pillar Trading Platform
October 9, 2019.
I. Introduction
On August 6, 2019, NYSE Chicago, Inc. (``NYSE Chicago'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change in connection with the transition of trading on
the Exchange to the Pillar trading platform, described below. The
proposed rule change was published for comment in the Federal Register
on August 26, 2019.\3\ The Commission received no comments on the
proposed rule change. On October 2, 2019, the Exchange filed Amendment
No. 1 to the proposed rule change, which supersedes and replaces the
original filing in its entirety.\4\ The Commission is approving
[[Page 55346]]
the proposed rule change, as modified by Amendment No. 1, on an
accelerated basis, and is soliciting comments on Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 86709 (August 20,
2019), 84 FR 44654 (``Notice'').
\4\ In Amendment No. 1, the Exchange proposes, among other
things, to: (i) Extend the pilot period for proposed NYSE Chicago
Rule 7.12 (Trading Halts Due to Extraordinary Market Volatility) to
October 18, 2020; (ii) amend NYSE Chicago Article 17, Rule 5(c)(3)
to add definitions of stock-option combination order and stock-
future combination order and amend NYSE Chicago Article 1, Rule 1 to
state that the definitions of stock-option combination order and
stock-future combination order in NYSE Chicago Article 1, Rule 1
(jj) and (kk) are not applicable to trading on the Pillar trading
platform; and (iii) cross reference Article 21, Rule 1 in proposed
NYSE Chicago Rule 7.45(d)(2)(A). Although the Exchange proposed with
Amendment No. 1 to supersede and replace the original proposal, for
ease of reference this Order cites to the published Notice with
respect to those aspects of the original proposal that have not been
changed. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nysechx-2019-08/srnysechx201908-6244417-192732.pdf.
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II. Description of the Proposal
In July 2018, NYSE Chicago and its direct parent company were
acquired by NYSE Group, Inc., and the Exchange became part of a
corporate family including NYSE Arca, Inc. (``NYSE Arca''), NYSE
American LLC (``NYSE American''), NYSE National, Inc. (``NYSE
National'') and New York Stock Exchange LLC (``NYSE'') (collectively,
the ``Affiliated Exchanges'').\5\ Since the acquisition, NYSE Chicago
has continued to operate with rules distinct from those of the
Affiliated Exchanges.\6\
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\5\ See Securities Exchange Act Release No. 83635 (July 13,
2018), 83 FR 34182 (July 19, 2018) (SR-CHX-2018-004); see also
Securities Exchange Act Release No. 83303 (May 22, 2018), 83 FR
24517 (May 29, 2018) (SR-CHX-2018-004).
\6\ See Notice, supra note 3, at 44655.
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The Exchange now proposes to transition trading in 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, 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 Chicago would offer the same suite of orders and
modifiers, generally, as are available on NYSE Arca or NYSE
National.\7\ Accordingly, the Exchange proposes trading rules based on
the rules and trading model of the cash equities platforms of those
exchanges--including rules relating to orders and modifiers, ranking
and display of orders, execution and routing of orders, and all other
trading functionality--with certain differences in some of the details
of its rules, as discussed below.
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\7\ See id. at footnote 8 for a discussion of the differences
between the rules of NYSE Arca and NYSE National and those of
markets of the other Affiliated Exchanges that share a substantial
number of trading functions and Pillar platform rules with them.
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The Exchange states that it will continue to support its dual
listings, but would not provide trading functions that support the
operation of a primary listing exchange.\8\ Accordingly, the Exchange
states, once it transitions to Pillar, NYSE Chicago will function most
similarly to NYSE National, which, unlike NYSE Arca, is not a listing
exchange.\9\ The Exchange proposes, however, a number of substantive
differences in its trading on the Pillar platform from how trading on
NYSE Arca and NYSE National function.\10\
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\8\ See Notice at 44655.
\9\ As a result, for example, the Exchange does not propose to
operate any auctions and therefore does not propose rules like those
of NYSE Arca to provide for auction functionality on the Exchange.
Concomitantly, like NYSE National, the Exchange would offer
``Auction-Only Orders,'' which are orders designated to participate
in an auction on the primary listing market. See NYSE National (and
proposed NYSE Chicago) Rule 7.31(c). The Exchange would route all
such orders to the primary listing market. See Notice at 44660 for a
discussion of this and other, related provisions based on NYSE
National rules. See also Securities Exchange Act Release No. 83289
(May 17, 2018), 83 FR 23968 (May 23, 2018) (SR-NYSENAT-2018-02).
\10\ See Notice at 44655.
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First, the Exchange states, it would continue to support
Institutional Brokers,\11\ as provided for under Article 17 of the
current NYSE Chicago rules.\12\ Second, the Exchange would continue to
support a Qualified Contingent Trade (``QCT'') cross order modifier to
facilitate compliance with the contingent trade exemption of Rule 611
of Regulation NMS.\13\ 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, as provided in its current rules.\14\ Fourth, the Exchange
will not support Market Makers on the Exchange.\15\
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\11\ 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.
\12\ As detailed below, the Exchange proposes to amend the rules
set forth under Article 17 as necessary to support differences in
the Pillar trading platform as compared to the Exchange's current
trading rules. See infra notes 52-54 and accompanying text.
\13\ The QCT cross order modifier, which is currently described
in Article 1, Rule 2(b)(2)(E) of the current NYSE Chicago rules, is
designed for an Institutional Broker to comply with the contingent
trade exemption. The Exchange states that, while NYSE Arca and NYSE
National both describe this exemption in their respective rules,
neither exchange offers a specific order type designed for this
exemption. See Notice at 44655 and NYSE Arca Rule 7.37-E(f)(5) and
NYSE National Rule 7.37(f)(5).
\14\ See infra note 29 and accompanying text.
\15\ Accordingly, the Exchange does not propose rules based on
Section 2 of NYSE Arca Rule 7-E or NYSE National Rule 7, relating to
market makers, and will not offer the ``Q'' order type described in
NYSE Arca Rule 7.31-E(j) and NYSE National Rule 7.31(j). See Notice
at 44655. ``Q'' orders are relevant only for market makers.
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The following is an overview of the proposed revisions to the
Exchange's existing rules as well as a more detailed discussion of some
of the proposed new rules for the Pillar trading platform.\16\
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\16\ See Notice, supra note 3, for a more complete description.
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The following current rules of the Exchange will continue to be
operative without any substantive changes:\17\ 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).\18\
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\17\ The Exchange's existing rules will appear in its rulebook
in their current numbering format following a rules set that is
based on numbering system of NYSE National's rules, the framework of
which was recently adopted by the Exchange and is organized in 13
Rules. See Securities Exchange Act Release No. 85297 (March 12,
2019), 84 FR 9854 (March 18, 2019) (SR-NYSECHX-2019-03).
\18\ Regarding the exceptions to the rules included in this
paragraph, see infra note 19.
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Once trading on the Pillar trading platform begins, certain
specified current Exchange rules would not be applicable, either
because they are not relevant for Pillar or because there is an
equivalent or replacement provision in the Pillar rules set that
addresses the same topic.\19\ With respect, specifically,
[[Page 55347]]
to the Exchange's current rules regarding cross orders, certain aspects
of these rules that are unique to NYSE Chicago would be integrated
within the rules governing crosses in the Pillar platform,\20\ while
certain of these would be eliminated in Pillar.\21\
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\19\ These include: Certain of the definitions set forth in
Article 1, Rule 1 (see infra note 24); Article 1, Rule 2 (Order
Types, Modifiers, and Related Terms), covered in proposed Section 3
of Rule 7 (see infra text accompanying notes 32-48); Article 1, Rule
3 (Time) (see proposed Rule 1.1(e), providing that all times in the
Pillar Platform Rules are Eastern Time); Article 1, Rule 4 (Exchange
Use of the Securities Information Processors) (see proposed Rule
7.37); Article 3, Rule 21 (Mandatory Participation Testing of Backup
Systems), covered by proposed Rule 2.13 (see infra note 25); Article
4, relating to Book Feed and Connect service, which will not be
offered on Pillar (see Notice at 44663); Article 5, Rule 1 (Access
to Exchange Systems), covered by proposed Rule 7.29; Article 8, Rule
17 (Customer Disclosures), covered in proposed Rule 7.34; Article 9,
Rule 23 (Short Sales), covered in proposed Rule 7.16; Article 11,
Rule 3(b)(8), covered by proposed Rule 7.33, relating to capacity
codes; Article 16 (Market Makers), not applicable on the Exchange
(see supra note 15); Article 19 (Operation of the Routing Services),
covered by proposed rule 7.45; Article 20, Rules 1-8, 10, 12-13,
replaced by provisions in proposed Rule 7 covering trading sessions,
trading halts, Limit Up-Limit Down Plan, firm orders, orders
eligible for entry, prevention of trade-throughs, locked and crossed
markets, operation of the matching system, clearly erroneous
transactions, order cancellation, and reporting of transactions (see
discussion infra); and Article 22, Rule 6(a)(3), relating to trading
halts for derivative securities products traded pursuant to unlisted
trading privileges, covered by proposed Rule 7.18. 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.''
\20\ As previously mentioned, the Exchange would continue to
support the QCT cross order type, which is designed for
Institutional Brokers to comply with the contingent trade exemption.
See supra note 13. Similarly, it would retain the ``Cross with
Size'' modifier available in its existing rules. However, the
Exchange proposes to no longer offer ``Benchmark'' or ``Midpoint
Cross'' orders once it transitions to Pillar.
\21\ See infra notes 39-48 and accompanying text.
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The new rules relating to trading on the Pillar platform that are
proposed in this filing will be added in Rules 0, 1, 2, and 7 of the
recently adopted new numbering framework.\22\ They include the
following:
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\22\ See supra note 17.
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Rule 0--Regulation of the Exchange and ETP Holders
Proposed NYSE Chicago Rule 0 would establish the regulation of the
Exchange and Participants. Proposed NYSE Chicago Rule 0 would provide
that the Exchange and FINRA are parties to a regulatory services
agreement in which FINRA will perform certain functions on behalf of
the Exchange, with the Exchange retaining ultimate legal responsibility
for, and control of, such functions. The proposed rule is based on the
NYSE National Rule 0 and NYSE Arca Rule 0 without any differences.\23\
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\23\ See Notice at 44656.
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Rule 1--Definitions
Proposed NYSE Chicago Rule 1 would contain definitions applicable
to trading on the Exchange's Pillar platform. The Exchange represents
that the definitions are based on the rules of NYSE Arca, NYSE
American, and NYSE National.\24\
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\24\ Because these definitions would be applicable to the rules
pertaining to trading on Pillar, the Exchange proposes to amend
Article 1, Rule 1 of the existing rules to specify which current
definitions would not be applicable to trading on the Pillar trading
platform. See Notice at 44657-58 and additional current definitions
specified in Amendment No. 1.
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Rule 2--Trading Permits
The Exchange proposes to add proposed NYSE Chicago Rule 2.13
concerning the mandatory testing of the Exchange's business continuity
and disaster recovery plans. Proposed NYSE Chicago Rule 2.13 provides
that the Exchange will establish standards to identify Participants
that it reasonably determines are the minimum necessary for the
maintenance of fair and orderly markets in the event the Exchange's
business continuity and disaster recovery plans are activated and
require designated Participants to participate in the functional and
performance testing of the Exchange's business continuity and disaster
recovery plans.\25\ The Exchange represents that proposed NYSE Chicago
Rule 2.13 is based on NYSE National Rule 2.13 without any substantive
differences.\26\
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\25\ ``Participants''--defined formally in Article 1, Rule 1(s)
of the Exchange's existing rules--signifies, generally, persons who
are permitted to trade on the Exchange, who are deemed ``members''
for purposes of the Act. The Exchange proposes to retain its current
rules governing membership and registration, which are found,
generally, in Article 3 of its existing rules and thus does not
propose to add any membership rules in Rule 2 (Trading Permits)
corresponding to those of NYSE National in its Rule 2, with the
exception of proposed Rule 2.13, which is being added, according to
the Exchange, to maintain consistency among the Affiliated
Exchanges. Correspondingly, the Exchange proposes to amend Article
3, Rule 21 of its existing rules to add a preamble stating that such
rule would not be applicable to trading on the Pillar trading
platform.
\26\ See Notice at 44658.
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Rule 7--Equities Trading
To accommodate trading on Pillar, the Exchange proposes to adopt in
NYSE Chicago Rule 7, ``Equities Trading,'' rules that are based largely
on the equivalent rules of NYSE National and NYSE Arca for their cash
equities trading platforms.\27\
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\27\ See supra note 7. Certain rules would differ from the NYSE
Arca and NYSE National rules, as discussed within the descriptions
below. In addition, the Exchange has identified certain trading
rules of NYSE Arca and NYSE National that it is not proposing to
adopt. For example, as already noted, the Exchange would not operate
auctions and therefore is not proposing rules pertaining to auction
procedures (see supra note 9), and is also not proposing to adopt
rules relating to market makers (supra note 15). In addition, 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. See supra note 17 and accompanying
text.
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Proposed NYSE Chicago Rule 7 is divided into six sections. In
Section 1, ``General Provisions,'' the Exchange proposes to add
provisions relating to units of trading; trading differentials;
anonymity of bids and offers; binding prices; clearly erroneous
executions; Exchange compliance with the Limit Up-Limit Down National
Market System Plan; trading halts; short sales; and firmness of
quotes.\28\
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\28\ See Notice at 44658 and proposed NYSE Chicago Rules 7.5,
7.6, 7.7, 7.9, 7.10, 7.11, 7.12, 7.16, 7.17, and 7.18. The Exchange
proposes to add NYSE Chicago Rules 7.14 and 7.15 and designate them
as ``Reserved'' to maintain continuity of rule numbering with the
rules of NYSE Chicago's exchange affiliates. See Notice at footnote
23.
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The Exchange proposes a difference from the rules of NYSE Arca and
NYSE National within this section relating to trading differentials in
proposed Rule 7.6. Based on its current rules, NYSE Chicago proposes
that, a Cross Order, whether priced less than or at or above $1.00,
would be permitted to 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.\29\
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\29\ See current Article 20, Rule 4(a)(7)(B). For Cross Orders
designated with regular way settlement terms (that do not meet Cross
with Size requirements), the cross price would be required to 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.
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The Exchange proposes another difference from the rules of NYSE
Arca and NYSE National within this section, relating to settlement
terms. Whereas the rules of those exchanges, in Rule 7.8, provide that
bids and offers are considered to be ``regular way'' settlement terms,
the proposed NYSE Chicago rules would make an exception based on its
current rules that would provide that Cross Orders would be considered
to be ``regular way'' unless designated with either of the following
settlement terms: ``Cash'' or ``Next Day''.\30\ Also based in part on
current rules, a cross order marked for non-regular way settlement
would be permitted under the proposed rules to execute at any price,
without regard to the NBBO or any other orders in the Matching
System.\31\
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\30\ A Cross Order designated for ``non-regular way'' settlement
would be permitted to execute at any price without regard to the
Protected Best Bid or Offer or any orders on the Exchange's book.
See proposed Rules 7.8 and 7.8A. The Exchange states that 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. However, on Pillar,
the Exchange does not propose to offer Seller's Option non-regular
way settlement instructions. See Notice at 44662. See also id. for a
discussion of other changes that the Exchanges proposes to implement
with respect to current Article 1, Rule 2(e).
\31\ See Article 1, Rule 2(e)(2). See also Article 20, Rule
8(e)(3).
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Section 3 of proposed NYSE Chicago Rule 7,\32\ ``Exchange
Trading,'' sets forth provisions regarding authorized access to the
Exchange and establishes rules relating to the kinds of order types
[[Page 55348]]
available on the Exchange and how they are designed to trade. Section 3
of proposed Rule 7 also would set forth the rules of the Exchange
relating to order entry (including one substantive difference from the
rules of NYSE Arca and NYSE National); \33\ the codes by which the ETP
Holder submitting an order must indicate whether it is acting in a
principal, agency, or riskless principal capacity; and the three
trading sessions for which the Exchange will be open (early, core, and
late), including the order types that may be traded in each and the
disclosures that Participants must make to non-Participants that send
orders to them for trading in the early or late session regarding,
among other things, the risks that may apply to such orders.\34\
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\32\ As noted above, the Exchange at this time will not support
market makers, and therefore, does not propose the rules relating to
market makers that make up Section 2 of the Pillar rules of
Affiliated Exchanges, and proposes instead to designate Section 2 as
``Reserved.''
\33\ As set forth in proposed NYSE Chicago Rule 7.32 (Order
Entry), unlike NYSE Arca and NYSE National rule, the Exchange would
accept cross orders that are up to 25 million shares in size. The
Exchange states that this provision is based on NYSE Rule 7.32. See
Notice at 44663.
\34\ See proposed NYSE Chicago Rules 7.33 (Capacity Codes); and
7.34 (Trading Sessions).
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Further, Section 3 of proposed NYSE Chicago Rule 7 would establish
rules relating to the display and non-display of various order types,
the ranking of orders in the Exchange book with respect to execution
priority, and the role of price and time in determining such
priority.\35\ The section also includes proposed rules that pertain to
routing of orders to away markets; the prohibition of trading through
protected quotations and exceptions thereto; and compliance with other
aspects of Regulation NMS under the Act.\36\ It also lists the data
feeds that the Exchange proposes to use for the handling, execution,
and routing of orders, as well as regulatory compliance.\37\ Additional
proposed rules in Section 3 relate to odd lot and mixed lot trading on
the Exchange; and trade execution and reporting.\38\
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\35\ See proposed NYSE Chicago Rule 7.36 (Order Ranking and
Display).
\36\ See proposed NYSE Chicago Rule 7.37 (Order Execution and
Routing).
\37\ Id.
\38\ See proposed NYSE Chicago Rules 7.38 and 7.40,
respectively.
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In Section 3, the Exchange proposes, as already mentioned,\39\ to
combine existing Pillar functionality relating to cross orders with the
Exchange's current cross order offerings. Proposed Rule 7.31(g) would
first define Cross Orders as two-sided orders with instructions to
match the identified buy-side with the identified sell-side at a
specified price (the ``cross price''), and is based on NYSE Arca and
NYSE National rules. As in the rules of those other exchanges, Rule
7.31(g) would further provide that a Cross Order must trade in full at
its cross price and will not route. NYSE Chicago, however--unlike at
the other exchanges--proposes to permit a Cross Order to be designated
with non-regular way settlement instructions, based on current Exchange
rules, stating that this proposed provision is based on its current
rules.\40\ Also based on its current rules, the Exchange proposes to
further provide in its version of Rule 7.31(g) 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.\41\
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\39\ See supra note 20.
\40\ See Article 1, Rule 2(e)(2) of the current rules, which
provides that the Exchange's Matching System will only accept cross
orders for non-regular way settlement.
\41\ The Exchange states that this proposed provision 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 current 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, the Exchange proposes
that any Cross Order entered by an Institutional Broker may
represent interest of one or more Participants on the Exchange.
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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. As proposed, a Limit IOC
Cross Order would be a Cross Order that would be rejected under the
following circumstance: (a) If the cross price would trade through the
PBBO; \42\ (b) if 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); \43\ or (c) if there is no PBB or PBO or the
PBBO is locked or crossed. As on NYSE Arca and NYSE National, under the
proposed rule the Exchange would accept and execute a Limit IOC Cross
Order that is priced between the BBO--a functionality currently not
available on the Exchange--and the cross will be executed even if there
are non-displayed or odd-lot sized buy or sell orders between the
BBO.\44\ The proposed rule text differs from the NYSE Arca and NYSE
National rules to account for the availability of the Cross with Size
modifier (described immediately below) which, when utilized, would
permit the cross price to be equal to the BB or BO.
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\42\ The term PBBO is defined on NYSE Arca and NYSE National,
and would be defined on the Exchange under proposed Rule 1.1(o) to
mean the best Protected Bid and the Best Protected Offer, as those
terms are defined in Rule 600(b)(57) of Regulation NMS.
\43\ The BBO is defined on NYSE Arca and NYSE National, and
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), 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.
\44\ See Notice at 44661.
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The Cross with Size modifier 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. To qualify, the cross order must be larger than the largest
order displayed on the Exchange Book at the BB or BO.\45\
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\45\ The Exchange states that the Cross with Size modifier,
which would be set forth in proposed Rule 7.31(g)(3), is based in
part on Article 1, Rule 2(g)(1) of the current rules with
differences to reflect that on Pillar, Cross Orders would be
eligible to execute if the cross price is between the BBO even
without a size requirement. See supra note 44 and Notice at 44662.
Because of this, Cross with Size would only be necessary if the
proposed cross price is equal to the BB (BO).
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Proposed Rule 7.31(g)(2) would define a QCT Cross Order as 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(f)(5).\46\ The proposed rule would provide that a QCT Cross
Order, which would be available only to Institutional Brokers,\47\
would be rejected if the cross price is not between the BBO (unless it
meets Cross with Size requirements). However, because, as noted above,
Cross Orders generally would newly be permitted to execute on the
Exchange if the cross price is between the BBO,\48\ the Exchange would
also apply this functionality when it transitions QCT Cross Orders to
Pillar.
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\46\ Proposed Rule 7.37(f)(5), which is based on corresponding
rules of NYSE Arca and NYSE National, would set forth the
requirements for a transaction to qualify as a QCT Cross Order.
\47\ See proposed Rule 7.31(g)(b)(2). The Exchange states that
this proposed provision is based on current Article 1, Rule
2(b)(2)(E), which provides that a QCT cross order modifier may only
be utilized by an Institutional Broker.
\48\ See supra note 44 and Notice at 44662.
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Another difference in Section 3 from the rules of NYSE Arca and
NYSE National is proposed in Rule 7.32 (Order Entry), which provides,
generally, that orders entered that are greater than five million
shares in size are to be rejected. NYSE Chicago's proposed rule, based
on the rules of NYSE, another Affiliated Exchange, would provide an
exception in the case of Cross Orders, which the Exchange will accept
in sizes up to 25 million shares.\49\
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\49\ See supra note 33.
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Section 4 of proposed NYSE Chicago Rule 7, ``Operation of Routing
Broker,'' would define ``routing broker'' as ``the
[[Page 55349]]
broker-dealer affiliate of the Exchange and/or any other non-affiliate
third-party broker-dealer that acts as a facility of the Exchange for
routing orders entered into Exchange systems to other market centers
for execution whenever such routing is required by the Rules of the
Exchange or the federal securities laws.'' \50\ In Section 4, the
Exchange further proposes rules covering outbound and inbound routing
functions.\51\
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\50\ See proposed NYSE Chicago Rule 7.45, which comprises the
whole of Section 4.
\51\ See Notice at 44661 for additional details. 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. See id.
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As noted above, the Exchange proposes changes to existing Article
17 of its rules to support differences in the Pillar trading platform
as compared to the Exchange's current trading rules.\52\ The Exchange
proposes to amend Article 17 to specify order types defined under
proposed Exchange Rule 7.31 that an Institutional Broker would not be
able to enter via BrokerPlex \53\ and specify that the [email protected]
and [email protected] order types will not be available on Pillar.\54\
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\52\ See supra note 12.
\53\ BrokerPlex is an order and trade entry, recordation and
management system developed and operated by the Exchange for use by
affiliated representatives of Institutional Brokers as provided in
Article 17, Rule 5. The orders that would not be available include:
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, Proactive if Locked or Crossed Modifier, Self-Trade
Prevention Modifier, and Minimum Trade Size Modifier. The Exchange
states that, 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.
\54\ The Exchange also proposes to renumber these order types as
proposed NYSE Chicago Rule 5(c)(3)(C) and (D), respectively. See in
this regard Amendment No. 1. Further in Amendment No. 1, the
Exchange proposes to move text relating to Stock-Option Combination
Orders, and Stock-Future Combination Orders, which are currently
defined in Article 1, Rule 1(jj)-(kk), to new subparagraphs (A) and
(B) under Article 17, Rule 5(c)(3). As noted above, the Exchange
proposes to specify that certain provisions of Article 1, Rule 1
(Definitions) would not be applicable to trading on Pillar. Because
both Stock-Option and Stock-Future Combination Orders are currently
available via Brokerplex, the Exchange proposes to amend its rules
to specify that these are order types that would be available via
Brokerplex. The Exchange states that, because such orders are cross
orders, an order that meets the requirements of either a Stock-
Option or Stock-Future Combination Order could be entered for
execution on Pillar as either a QCT Cross Order (if it also meets
the requirements of QCT) or a Limit IOC Cross Order, as described
above. Such orders would continue to be subject to Article 20, Rule
11 and the Exchange proposes non-substantive amendments to that rule
to update rule cross references.
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Finally, the Exchange proposes to amend Article 12, Rule 8(h)
(Exchange Rules and Policies subject to the Minor Rule Violation Plan)
as follows: (1) Delete the reference to ``Failure to Clear the Matching
System (Article 20, Rule 7),'' as this rule has been eliminated, and
reserve Rule 8(h)(2)(F); (2) add proposed NYSE Chicago Rules 7.6
(concerning minimum trading increments, 7.16 (short sales) and 7.30
(failure to comply with authorized trader requirements) as subject to
the Exchange's minor rule violation plan.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to a national securities exchange.\55\ In particular, the Commission
finds that the amended proposed rule change is consistent with Section
6(b)(5) of the Act,\56\ which requires, among other things, that the
rules of a national securities exchange be designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest, and are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\55\ In approving the proposed rule changes, the Commission has
considered their impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\56\ 15 U.S.C. 78f(b)(5).
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1. Transitioning of Exchange Trading to the Pillar Trading Platform
The Exchange's proposal would transition trading on the Exchange
from the current trading platform to the Pillar platform as a fully-
automated cash equities trading market with a price-time priority
allocation model. As discussed at length in the proposed rule change,
as amended, the re-launched Exchange would neither list securities nor
operate an auction, although it would retain its dual-listed
securities.
The Commission notes that the Exchange's amended proposal would
establish new rules that are based on, and are substantially similar
to, the rules of its Affiliated Exchanges and its current rules, which
were filed and approved by the Commission (or which became immediately
effective) pursuant to Section 19(b) of the Act.\57\ Several of its
Affiliated Exchanges currently operate using the Pillar trading
platform, and a number of other national securities exchanges operate
fully electronic markets. Under the proposal, the Exchange would retain
many of its existing rules that are unique to the Exchange--such as its
rules relating to Institutional Brokers, the QCT cross order modifier,
provisions for trades with non-regular way settlement and permitted
trading differentials for such trades--and adjust them, where
appropriate, with respect to the Pillar platform, and, in the case of
cross orders, integrate them within the Pillar rules while adopting
several features of the related rules of the Affiliated Exchanges.
Accordingly, the Commission finds that the amended proposal raises no
novel regulatory issues, that it is reasonably designed to protect
investors and the public interest, and that it is consistent with the
requirements of the Act.
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\57\ See 78 U.S.C 78s(b).
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2. Section 11(a) of the Act
Section 11(a)(1) of the Act \58\ 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 applies. Rule
11a2-2(T) under the Act,\59\ known as the ``effect versus execute''
rule, provides exchange members with an exemption from the Section
11(a)(1) 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
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 the order has been transmitted to the member performing the
execution; \60\ (iii) may not be affiliated with the executing member;
and (iv) with respect to an account over which the member or an
associated person has investment discretion, neither the member nor an
associated person may retain any compensation in connection with
effecting the transaction except as provided in the Rule. For the
reasons set forth below, the Commission believes that Participants
entering orders into the
[[Page 55350]]
Exchange's Pillar trading system would satisfy the requirements of Rule
11a2-2(T).
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\58\ 15 U.S.C. 78k(a)(1).
\59\ 17 CFR 240.11a2-2(T).
\60\ This prohibition also applies to associated persons of the
initiating member. The member may, however, participate in clearing
and settling the transaction.
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Rule 11a2-2(T)'s first requirement is that orders for covered
accounts be transmitted from off the exchange floor. The Exchange
represents that it will not have a physical trading floor when it re-
launches trading and the Exchange's Pillar trading system will receive
orders from members electronically through remote terminals or
computer-to-computer interfaces.\61\ In the context of other automated
trading systems, the Commission has found that the off-floor
transmission requirement is met if a covered account is transmitted
from a remote location directly to an exchange's floor by electronic
means.\62\ Because the Pillar trading system receives orders
electronically through remote terminals or computer-to-computer
interfaces, the Commission believes that the Pillar trading system
would satisfy this off-floor transmission requirement.
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\61\ See Notice at 44665.
\62\ In the context of other all-electronic systems, the
Commission has similarly found that the off-floor transmission
requirement is met if the system receives orders electronically
through remote terminals or computer-to-computer interfaces. See,
e.g., Securities Exchange Act Release Nos. 61419 (January 26, 2010),
75 FR 5157 (February 1, 2010) (SR-BATS-2009-031) (approving BATS
options trading); 59154 (December 23, 2008), 73 FR 80468 (December
31, 2008) (SR-BSE-2008-48) (approving equity securities listing and
trading on BSE); 57478 (March 12, 2008), 73 FR 14521 (March 18,
2008) (SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080) (approving NOM
options trading); 53128 (January 13, 2006), 71 FR 3550 (January 23,
2006) (File No. 10-131) (granting the application of The Nasdaq
Stock Market LLC for registration as a national securities
exchange); and 44983 (October 25, 2001), 66 FR 55225 (November 1,
2001) (SR-PCX-00-25) (approving the establishment of the Archipelago
Exchange as the equities trading facility of PCX Equities, Inc., a
subsidiary of the Pacific Exchange, Inc.).
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Second, Rule 11a2-2(T) requires that neither the initiating member
nor an associated person of the initiating member participate in the
execution of the transaction at any time after the order for the
transaction has been transmitted. The Exchange represents that the
Pillar trading system would at no time following the submission of an
order allow a Member or an associated person of the Member to acquire
control or influence over the result or timing of the order's
execution.\63\ According to the Exchange, the execution of a Member's
order would be determined solely by the quotes and orders that are
present in the system at the time the member submits the order and by
the order priority under the Exchange rules.\64\ Accordingly, the
Commission believes that an Exchange member and its associated persons
would not participate in the execution of an order submitted to the
Pillar trading system.
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\63\ See Notice at 44665.
\64\ See id. The Exchange notes that Rule 11a2-2(T) does not
preclude a member from cancelling or modifying orders, or from
modifying the instructions for executing orders, after they have
been transmitted, provided that such cancellations or modifications
are transmitted from off an exchange floor. See id. The Commission
has stated that the non-participation requirement is satisfied under
such circumstances so long as the modifications or cancellations are
also transmitted from off the floor. See Securities Exchange Act
Release No. 14563 (March 14, 1978), 43 FR 11542 (March 17, 1978)
(``1978 Release'') (stating that the ``non-participation requirement
does not prevent initiating members from canceling or modifying
orders (or the instructions pursuant to which the initiating member
wishes orders to be executed) after the orders have been transmitted
to the executing member, provided that any such instructions are
also transmitted from off the floor'').
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Third, Rule 11a2-2(T) requires that the order be executed by an
exchange member that is not associated with the member initiating the
order. The Commission has stated that this requirement is satisfied
when 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.\65\ The Exchange represents that the design of the Pillar
trading system ensures that no Participant has any special or unique
trading advantage in the handling of its orders after transmitting its
orders to the Exchange.\66\ Based on the Exchange's representation, the
Commission believes that the Pillar trading system would satisfy this
requirement.
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\65\ In considering the operation of automated execution systems
operated by an exchange, 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 system.
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). See Securities
Exchange Act Release No. 15533 (January 29, 1979), 44 FR 6084
(January 31, 1979).
\66\ See Notice at 44665.
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Fourth, in the case of a transaction effected for an account with
respect to which the initiating member or an associated person thereof
exercises investment discretion, neither the initiating member nor any
associated person may retain any compensation in connection with
effecting the transaction, unless the person authorized to transact
business for the account has expressly provided otherwise by written
contract referring to Section 11(a) of the Act and Rule 11a2-2(T)
thereunder.\67\ Members trading for covered accounts over which they
exercise investment discretion must comply with this condition in order
to rely on the rule's exemption.\68\
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\67\ In addition, Rule 11a2-2(T)(d) requires that, if a member
or associated person is authorized by written contract to retain
compensation in connection with effecting transactions for covered
accounts over which the member or associated person thereof
exercises investment discretion, the member or associated person
must furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member or any associated person
thereof in connection with effecting transactions for the account
during the period covered by the statement. See 17 CFR 240.11a2-
2(T)(d). See also 1978 Release, supra note 107 (``The contractual
and disclosure requirements are designed to assure that accounts
electing to permit transaction-related compensation do so only after
deciding that such arrangements are suitable to their interests'').
\68\ The Exchange represents that it 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). See Notice at 44665.
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-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
[[Page 55351]]
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 November 6, 2019.
V. Accelerated Approval of Proposed Rule Change, as Modified By
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. As discussed above, in Amendment No. 1, the
Exchange proposes, among other things, to: (i) Extend the pilot period
for proposed NYSE Chicago Rule 7.12 (Trading Halts Due to Extraordinary
Market Volatility) to October 18, 2020; (ii) amend NYSE Chicago Article
17, Rule 5(c)(3) to add definitions of stock-option combination order
and stock-future combination order and amend NYSE Chicago Article 1,
Rule 1 to state that the definitions of stock-option combination order
and stock-future combination order in NYSE Chicago Article 1, Rule 1
(jj) and (kk) are not applicable to trading on the Pillar trading
platform; and (iii) cross reference Article 21, Rule 1 in proposed NYSE
Chicago Rule 7.45(d)(2)(A). The proposed changes do not introduce any
rules that differ in any substantive manner from rules that previously
have been approved by the Commission, or that have become immediately
effective, pursuant to Section 19(b) of the Act. Accordingly, the
Commission finds good cause, pursuant to Section 19(b)(2) of the
Act,\69\ to approve the proposed rule change, as modified by Amendment
No. 1, on an accelerated basis so that the Exchange can commence its
transition to the Pillar platform without unnecessary delay.
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\69\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\70\ that the proposed rule change (SR-NYSECHX-2019-08), as
modified by Amendment No. 1, be and hereby is approved on an
accelerated basis.
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\70\ Id.
\71\ 17 CFR 200.30-3(a)(31).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\71\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22483 Filed 10-15-19; 8:45 am]
BILLING CODE 8011-01-P
