Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Rules To Add New Rule 7.19-E, 31560-31564 [2020-11135]

Download as PDF 31560 Federal Register / Vol. 85, No. 101 / Tuesday, May 26, 2020 / Notices notified if the Commission should order a hearing thereon. Any such communication should be emailed to the Commission’s Secretary at Secretarys-Office@sec.gov. At any time after June 22, 2020, the Commission may issue an order cancelling the registration, upon the basis of the information stated above, unless an order for a hearing on the cancellation shall be issued upon request or upon the Commission’s own motion. Persons who requested a hearing, or who requested to be advised as to whether a hearing is ordered, will receive any notices and orders issued in this matter, including the date of the hearing (if ordered) and any postponements thereof. Any adviser whose registration is cancelled under delegated authority may appeal that decision directly to the Commission in accordance with rules 430 and 431 of the Commission’s rules of practice (17 CFR 201.430 and 431). ADDRESSES: The Commission: Secretarys-Office@sec.gov. FOR FURTHER INFORMATION CONTACT: Christopher Staley, Senior Counsel at 202–551–8475; SEC, Division of Investment Management, Investment Adviser Regulation Office, 100 F Street NE, Washington, DC 20549–8549. For the Commission, by the Division of Investment Management, pursuant to delegated authority.2 J. Matthew DeLesDernier, Assistant Secretary. prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its rules to add new Rule 7.19–E (Pre-Trade Risk Controls). The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2020–11253 Filed 5–22–20; 8:45 am] 1. Purpose BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88904; File No. SR– NYSEArca–2020–43] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Rules To Add New Rule 7.19–E May 19, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 8, 2020, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been 2 17 CFR 200.30–5(e)(2). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Sep<11>2014 19:08 May 22, 2020 In order to assist ETP Holders’ efforts to manage their risk, the Exchange proposes to amend its rules to add new Rule 7.19–E (Pre-Trade Risk Controls) to establish a set of pre-trade risk controls by which Entering Firms and their designated Clearing Firms (as defined below) may set credit limits and other pre-trade risk controls for an Entering Firm’s trading on the Exchange and authorize the Exchange to take action if those credit limits or other pre-trade risk controls are exceeded. For purposes of this proposed rule change, the Exchange proposes to define the term ‘‘Entering Firm’’ to mean an ETP Holder that either has a correspondent relationship with a Clearing Firm whereby it executes trades and the clearing function is the responsibility of the Clearing Firm or clears for its own account 3 and to define the term ‘‘Clearing Firm’’ to mean an ETP Holder that acts as principal for clearing and settling a trade, whether for 3 Jkt 250001 PO 00000 See proposed Rule 7.19–E(a)(1). Frm 00130 Fmt 4703 Sfmt 4703 its own account or for an Entering Firm.4 1. Overview In order to help firms manage their risk, the Exchange proposes to offer optional pre-trade risk controls that would authorize the Exchange to take automated actions if a designated credit limit or other pre-trade risk control for a firm is breached. Because Clearing Firms bear the risk on behalf of their correspondent Entering Firms, the Exchange proposes to make the proposed pre-trade risk controls available not only to Entering Firms, but also to their Clearing Firms, if so authorized by the Entering Firm. These pre-trade risk controls would provide Entering Firms and their Clearing Firms with enhanced abilities to manage their risk with respect to orders on the Exchange. As proposed, these optional controls would allow Entering Firms and their Clearing Firms (if designated by the Entering Firm) to each define different pre-set risk thresholds and to choose the automated action the Exchange would take if those thresholds are breached, which would range from notifying the Entering Firm and Clearing Firm that a limit has been breached, blocking new orders, or canceling orders until the Entering Firm has been reinstated to trade on the Exchange. Although use of the proposed Exchange-provided pre-trade risk controls are optional, all orders on the Exchange will pass through risk checks. As such, an Entering Firm that does not choose to set limits or permit its Clearing Firm to set limits on its behalf will not achieve any latency advantage with respect to its trading activity on the Exchange. In addition, the Exchange expects that any latency added by the pre-trade risk controls will be de minimis. The proposed pre-trade risk controls described are meant to supplement, and not replace, the ETP Holders’ own internal systems, monitoring and procedures related to risk management. The Exchange does not guarantee that these controls will be sufficiently comprehensive to meet all of an ETP Holder’s needs, the controls are not designed to be the sole means of risk management, and using these controls will not necessarily meet an ETP Holder’s obligations required by Exchange or federal rules (including, without limitation, the Rule 15c3–5 4 See proposed Rule 7.19–E(a)(2). As required by Rule 7.14–E, an ETP Holder is required to give up the name of the clearing firm through which each transaction on the Exchange will be cleared. E:\FR\FM\26MYN1.SGM 26MYN1 Federal Register / Vol. 85, No. 101 / Tuesday, May 26, 2020 / Notices under the Act 5 (‘‘Rule 15c3–5’’)). Use of the Exchange’s pre-trade risk controls will not automatically constitute compliance with Exchange or federal rules and responsibility for compliance with all Exchange and Commission rules remains with the ETP Holder.6 2. Proposed Rule Change Proposed Rule 7.19–E(a) would set forth the definitions that would be used for purposes of the Rule. In addition to the defined terms of ‘‘Entering Firm’’ and ‘‘Clearing Firm,’’ as described above, the Exchange proposes the following definitions: • The term ‘‘Single Order Maximum Notional Value Risk Limit’’ would mean a pre-established maximum dollar amount for a single order before it can be traded. • The term ‘‘Single Order Maximum Quantity Risk Limit’’ would mean a preestablished maximum number of shares that may be included in a single order before it can be traded. • The term ‘‘Gross Credit Risk Limit’’ would mean a pre-established maximum daily dollar amount for purchases and sales across all symbols, where both buy and sell orders are counted as positive values. For purposes of calculating the Gross Credit Risk Limit, unexecuted orders in the NYSE Arca Book,7 orders routed on arrival pursuant to Rule 7.37–E(a)(1), and executed orders are included. Proposed Rule 7.19–E(b) would set forth the Pre-Trade Risk Controls that would be available to Entering Firms and Clearing Firms. Under proposed Rule 7.19–E(b)(1), an Entering Firm may select one or more of the following optional pre-trade risk controls with respect to its trading activity on the Exchange: (i) Gross Credit Risk Limits; (ii) Single Order Maximum Notional Value Risk Limits; and (iii) Single Order Maximum Quantity Risk Limits, which would collectively be referred to as the ‘‘Pre-Trade Risk Controls.’’ In addition, under proposed Rule 7.19–E(b)(2)(A), an Entering Firm that does not self-clear may designate its Clearing Firm to (i) view any Pre-Trade Risk Controls set by the Entering Firm, See 17 CFR 240.15c3–5. The Exchange proposes Commentary .01 to Rule 7.19–E to provide that ‘‘[t]he pre-trade risk controls described in this Rule are meant to supplement, and not replace, the ETP Holder’s own internal systems, monitoring and procedures related to risk management and are not designed for compliance with Rule 15c3–5 under the Exchange Act. Responsibility for compliance with all Exchange and SEC rules remains with the ETP Holder.’’ 7 The term ‘‘NYSE Arca Book’’ is defined in Rule 1.1–E(jj) to refer to the Exchange’s electronic file of orders, which contains all orders entered on the Exchange. 5 6 VerDate Sep<11>2014 19:08 May 22, 2020 Jkt 250001 or (ii) set one or more Pre-Trade Risk Controls on the Entering Firm’s behalf, or both. Proposed Rule 7.19–E(b)(2)(B) provides that an Entering Firm would be able to view any Pre-Trade Risk Controls that its Clearing Firm sets with respect to the Entering Firm’s trading activity on the Exchange. Because both an Entering Firm and Clearing Firm (if so designated by the Entering Firm) would be able to access information about Pre-Trade Risk Controls, this mechanism would foster transparency between an Entering Firm and its Clearing Firm regarding which PreTrade Risk Control limits may have been set. For example, if an Entering Firm designates its Clearing Firm to view the Pre-Trade Risk Controls set by that Entering Firm, its Clearing Firm may determine that it does not need to separately set Pre-Trade Risk Controls on behalf of such Entering Firm. Because the Entering Firm is the ETP Holder that is entering orders on the Exchange, the Exchange will not take action based on a Clearing Firm’s instructions about the Entering Firm’s trading activities on the Exchange without first receiving consent from the Entering Firm. Accordingly, proposed Rule 7.19–E(b)(2)(C) would provide that if an Entering Firm designates a Clearing Firm to set Pre-Trade Risk Controls for the Entering Firm, the Entering Firm would be consenting to the Exchange taking certain prescribed actions (discussed further below) with respect to the Entering Firm’s trading activity as provided for in proposed Rules 7.19– E(c) and (d), described below. The Exchange would consider an Entering Firm to provide such consent by authorizing a Clearing Firm to enter PreTrade Risk Controls via the risk management tool that will be provided to Entering Firms in connection with this proposed rule change. Once such authorization is provided by the Entering Firm, the Clearing Firm would have access to the Pre-Trade Risk Controls that the Entering Firm designates. The proposed Rule makes clear that by designating a Clearing Firm to set limits on its trading activities, the Entering Firm will have authorized the Exchange to act pursuant to the Clearing Firm’s instructions if the limits set by the Clearing Firm are breached. Proposed Rule 7.19–E(b)(3) would set forth how the Pre-Trade Risk Controls could be set or adjusted. Proposed Rule 7.19–E(b)(3)(A) would provide that PreTrade Risk Controls may be set before the beginning of a trading day and may be adjusted during the trading day. Proposed Rule 7.19–E(b)(3)(B) would provide that Entering Firms or Clearing Firms may set Pre-Trade Risk Controls PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 31561 at the MPID level or at one or more subIDs associated with that MPID.8 The Exchange believes that supporting PreTrade Risk Controls at both an MPID and sub-ID level would provide both Entering Firms, and if designated, their Clearing Firms, more granular control over how such risk controls are determined and monitored. Proposed Rule 7.19–E(b)(4) would provide that with respect to Gross Credit Risk Limits, an Entering Firm and, if so designated, its Clearing Firm, will receive notifications when the Entering Firm is approaching or has breached a limit set by itself or by the Clearing Firm. The Exchange believes that by providing such notifications, the Entering Firm, and if designated, its Clearing Firm, would have advance notice that the Entering Firm is approaching a designated limit and could take steps to mitigate the potential that an automated breach action would be triggered. Proposed Rule 7.19–E(c) would set forth the actions the Exchange would be authorized to take when a Pre-Trade Risk Control set by an Entering Firm or a Clearing Firm is breached, which would be referred to as ‘‘Automated Breach Actions.’’ These proposed actions would be automated; if a PreTrade Risk Control is breached, the Exchange would automatically take the designated action and would not need further direction from either the Entering Firm or Clearing Firm to take such action. At the outset, proposed Rule 7.19– E(c)(1) would provide that if both an Entering Firm and its Clearing Firm set the same type of Pre-Trade Risk Control for the Entering Firm but have set different limits, the Exchange would enforce the more restrictive limit. For example, if an Entering Firm sets a Single Order Maximum Notional Value Risk Limit of $20 million and its Clearing Firm sets the same risk limit at $15 million, the Exchange will take action when the more restrictive limit is breached—i.e., $15 million. Proposed Rule 7.19–E(c)(2) would set forth the Automated Breach Action the Exchange would take if an order would breach the designated limit of either a Single Order Maximum Notional Value Risk Limit or Single Order Maximum Quantity Risk Limit. As proposed, the Exchange would reject the incoming order that would have breached the applicable limit. Proposed Rule 7.19–E(c)(3)(A) would set forth the Automated Breach Actions the Exchange would take if a designated 8 Entering Firms may request that the Exchange create sub-IDs associated with their MPIDs. E:\FR\FM\26MYN1.SGM 26MYN1 31562 Federal Register / Vol. 85, No. 101 / Tuesday, May 26, 2020 / Notices Gross Credit Risk Limit is breached. The Exchange proposes to provide options of which Automated Breach Action the Exchange would be authorized to take if a Gross Credit Risk Limit is breached. Such Automated Breach Actions would be taken at the MPID or sub-ID level that is associated with the designated Gross Credit Risk Limit. As proposed, when setting Gross Credit Risk Limits, the Entering Firm or Clearing Firm setting the limit would be required to indicate one of the following actions that the Exchange would take if such limit is breached: • ‘‘Notification Only.’’ As set forth in proposed Rule 7.19–E(c)(3)(A)(i), if this option is selected, the Exchange would continue to accept new orders and order instructions and would not cancel any unexecuted orders in the NYSE Arca Book. Proposed Rule 7.19–E(b)(4), described above, sets forth the notifications that would be provided to an Entering Firm, and if designated, a Clearing Firm regarding the Pre-Trade Risk Controls that have been set. With the ‘‘Notification Only’’ action, the Exchange would provide such notifications, but would not take any other automated actions with respect to new or unexecuted orders. • ‘‘Block Only.’’ As set forth in proposed Rule 7.19–E(c)(3)(A)(ii), if this option is selected, the Exchange would reject new orders and order instructions but would not cancel any unexecuted orders in the NYSE Arca Book. The Exchange would continue to accept instructions from the Entering Firm to cancel one or more orders in full (including Auction-Only Orders) or any instructions specified in proposed Rule 7.19–E(e) (described below), but would not take any automated action to cancel orders. • ‘‘Cancel and Block.’’ As set forth in proposed Rule 7.19–E(c)(3)(A)(iii), if this option is selected, in addition to the Block actions described above, the Exchange would also cancel all unexecuted orders in the NYSE Arca Book other than Auction-Only Orders. If an Entering Firm and its Clearing Firm each set different limits for a Gross Credit Risk Limit for the Entering Firm’s activities on the Exchange, proposed Rule 7.19–E(c)(3)(B) would provide that the Exchange would enforce the action that was chosen by the party that set the limit that was breached. For example, if a Clearing Firm sets a lower limit and designates the ‘‘Cancel and Block’’ Automated Breach Action, if that limit is breached, the Exchange will implement that ‘‘Cancel and Block’’ action even if the Entering Firm designated a different Automated Breach Action. VerDate Sep<11>2014 19:08 May 22, 2020 Jkt 250001 Proposed Rule 7.19–E(c)(3)(C) would provide that if both the Entering Firm and Clearing Firm set the same Gross Credit Risk Limit and that limit is breached, the Exchange would enforce the most restrictive Automated Breach Action. As further proposed, for purposes of this Rule, the ‘‘Cancel and Block’’ action would be more restrictive than ‘‘Block Only,’’ which would be more restrictive than ‘‘Notification Only.’’ For example, if the Entering Firm selects the ‘‘Block Only’’ action for a Gross Credit Risk Limit and its Clearing Firm selects the ‘‘Cancel and Block’’ action for the same Gross Credit Risk Limit, if the limit is breached, the Exchange would take the ‘‘Cancel and Block’’ action for the Entering Firm’s orders. Proposed Rule 7.19–E(c)(4) would provide that if a Pre-Trade Risk Control set at the MPID level is breached, the Automated Breach Action specified at the MPID level would be applied to all sub-IDs associated with that MPID. For instance, if a Clearing Firm sets a Gross Credit Risk Limit for an MPID at $500 million and the Entering Firm sets Gross Credit Risk Limits for each of three subIDs associated with that MPID at $500 million each, if two of the sub-IDs reach a $250 million limit, which combined is the Gross Credit Risk Limit at the MPID level, the Automated Breach Action associated with the limit at the MPID level would be triggered and would apply also to the associated sub-IDs, even though none of the sub-IDs have breached their separate $500 million limits. This functionality ensures that an Entering Firm cannot effectively override a Pre-Trade Risk Control set at the MPID level by setting risk limits for each of the MPID’s associated sub-IDs that cumulatively equal more than the MPID’s total Gross Credit Risk Limit. Proposed Rule 7.19–E(d) concerns how an Entering Firm’s ability to enter orders and order instructions would be reinstated after a ‘‘Block Only’’ or ‘‘Cancel and Block’’ Automated Breach Action has been triggered. In such case, proposed Rule 7.19–E(d) provides that the Exchange would not reinstate the Entering Firm’s ability to enter orders and order instructions on the Exchange (other than instructions to cancel one or more orders (including Auction-Only Orders) in full) without the consent of (1) the Entering Firm, and (2) the Clearing Firm, if the Entering Firm has designated that the Clearing Firm’s consent is required. The Exchange proposes to include this functionality because the Clearing Firm bears the risk of any exposure of its correspondent Entering Firms. PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 Finally, proposed Rule 7.19–E(e) would set forth ‘‘kill switch’’ functionality, which would allow an Entering Firm or its designated Clearing Firm to direct the Exchange to take certain bulk Kill Switch Actions with respect to orders. In contrast to the Automated Breach Actions described above, which the Exchange would take automatically after the breach of a credit limit, the Exchange would not take any of the Kill Switch Actions without express direction from the Entering Firm or its designated Clearing Firm. Specifically, Proposed Rule 7.19–E(e) would specify that an Entering Firm, or if authorized pursuant to proposed Rule 7.19–E(b)(2)(A), its Clearing Firm, could direct the Exchange to take one or more of the following actions with respect to orders at either an MPID, or if designated, sub-ID Level: (1) Cancel all Auction-Only Orders; (2) Cancel all unexecuted orders in the NYSE Arca Book other than Auction-Only Orders; or (3) Block the entry of any new orders and order instructions, provided that the Exchange would continue to accept instructions from Entering Firms to cancel one or more orders (including Auction-Only Orders) in full, and later, reverse that block. The Exchange proposes that the Kill Switch functionality proposed in Rule 7.19–E(e) would supersede and replace the Exchange’s previously filed proposed rule change,9 which provided certain post-trade risk management tools to ETP Holders, but not to their Clearing Firms. The Exchange proposes to provide these post-trade Kill Switch Actions in addition to the pre-trade Automated Breach Actions described above in order to give Entering Firms and their Clearing Firms more flexibility in setting risk controls. An Entering Firm that wants more control over when and which actions are taken with respect to its orders may choose to use these Kill Switch Actions instead of the ‘‘Block’’ or ‘‘Cancel and Block’’ Automated Breach Actions described above. For example, for an Entering Firm that selects the ‘‘Notification Only’’ Automated Breach Action, if it receives notification of a credit breach, it could choose to direct the Exchange to take a Kill Switch Action described in proposed Rule 7.19–E(e). 3. Proposed Rule Commentary The Exchange proposes Commentary .01 to Rule 7.19–E to specify that the 9 See Securities Exchange Act Release No. 71166 (December 20, 2013), 78 FR 79046 (December 27, 2013) (SR–NYSEArca–2013–142) (Notice of filing and immediate effectiveness of proposed rule change) (the ‘‘2013 Risk Control Filing’’). E:\FR\FM\26MYN1.SGM 26MYN1 Federal Register / Vol. 85, No. 101 / Tuesday, May 26, 2020 / Notices Pre-Trade Risk Controls described in this Rule are meant to supplement, and not replace, the ETP Holder’s own internal systems, monitoring and procedures related to risk management and are not designed for compliance with Rule 15c3–5 under the Act.10 This proposed Commentary specifies that use of the Exchange’s pre-trade risk controls would not automatically constitute compliance with Exchange or federal rules and responsibility for compliance with all Exchange and SEC rules remains with the ETP Holder. The Exchange does not guarantee that these controls will be sufficiently comprehensive to meet all of an ETP Holder’s needs, the controls are not designed to be the sole means of risk management, and using these controls will not necessarily meet an ETP Holder’s obligations required by Exchange or federal rules (including, without limitation, the Rule 15c3–5). 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,11 in general, and furthers the objectives of Section 6(b)(5) of the Act,12 in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest, and because it is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. Specifically, the Exchange believes that the proposed rule will remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed optional Pre-Trade Risk Controls would provide both Entering Firms, and if designated, Clearing Firms, with the ability to manage risk, while also providing an alert system that would help to ensure that such firms are aware of developing issues. In addition, the Pre-Trade Risk Controls would provide Clearing Firms, who have assumed certain risks of the Entering Firms, greater control and flexibility over setting risk tolerance and exposure on behalf of their 10 See 17 CFR 240.15c3–5. 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). 11 VerDate Sep<11>2014 19:08 May 22, 2020 Jkt 250001 correspondent Entering Firms. As such, the Exchange believes that the Pre-Trade Risk Controls would provide a means to address potentially market-impacting events, helping to ensure the proper functioning of the market. In addition, the Exchange believes that the proposed rule change is designed to protect investors and the public interest because the Pre-Trade Risk Controls are a form of impact mitigation that will aid Entering Firms and Clearing Firms in minimizing their risk exposure and reduce the potential for disruptive, market-wide events. The Exchange understands that ETP Holders implement a number of different riskbased controls, including those required by Rule 15c3–5. The proposed controls will serve as an additional tool for Entering Firms and Clearing Firms to assist them in identifying any risk exposure. The Exchange believes the Pre-Trade Risk Controls will assist Entering Firms and Clearing Firms in managing their financial exposure which, in turn, could enhance the integrity of trading on the securities markets and help to assure the stability of the financial system. Further, the Exchange believes that the proposed rule will foster cooperation and coordination with persons facilitating transactions in securities because the Exchange will provide alerts to Entering Firms and their Clearing Firms when the Entering Firm’s trading reaches certain thresholds. As such, the Exchange will help Clearing Firms monitor the risk levels of their correspondent Entering Firms and provide tools for Clearing Firms, if designated, to take action. The Exchange believes that proposed Commentary .01 to Rule 7.19 is designed to prevent fraudulent and manipulative acts and practices and promote just and equitable principles of trade because it provides clarity in Exchange rules that the proposed PreTrade Risk Controls are intended to supplement, and not replace, an ETP Holder’s own internal systems, monitoring, and procedures related to compliance with Rule 15c3–5. Finally, the Exchange believes that the proposed rule change does not unfairly discriminate among the Exchange’s ETP Holders because use of the Pre-Trade Risk Controls is optional and is not a prerequisite for participation on the Exchange. In addition, because all orders on the Exchange would pass through the risk checks, there would be no difference in the latency experienced by ETP Holders who have opted to use the Pre-Trade Risk Controls versus those who have not opted to use them. PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 31563 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. In fact, the Exchange believes that the proposal will have a positive effect on competition because, by providing Entering Firms and their Clearing Firms additional means to monitor and control risk, the proposed rule will increase confidence in the proper functioning of the markets. The Exchange believes the proposed Pre-Trade Risk Controls will assist Entering Firms and Clearing Firms in managing their financial exposure which, in turn, could enhance the integrity of trading on the securities markets and help to assure the stability of the financial system. As a result, the level of competition should increase as public confidence in the markets is solidified. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 13 and Rule 19b–4(f)(6) thereunder.14 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings 13 14 15 U.S.C. 78s(b)(3)(A)(iii). 17 CFR 240.19b–4(f)(6). E:\FR\FM\26MYN1.SGM 26MYN1 31564 Federal Register / Vol. 85, No. 101 / Tuesday, May 26, 2020 / Notices under Section 19(b)(2)(B) 15 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca-2020–43 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–NYSEArca–2020–43. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca-2020–43, and 15 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 19:08 May 22, 2020 should be submitted on or before June 16, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–11135 Filed 5–22–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meetings 2:00 p.m. on Wednesday, May 27, 2020. PLACE: The meeting will be held via remote means and/or at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. STATUS: This meeting will be closed to the public. MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. In the event that the time, date, or location of this meeting changes, an announcement of the change, along with the new time, date, and/or place of the meeting will be posted on the Commission’s website at https:// www.sec.gov. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. The subject matter of the closed meeting will consist of the following topic: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting agenda items that may consist of adjudicatory, examination, litigation, or regulatory matters. CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. TIME AND DATE: 16 17 Jkt 250001 PO 00000 CFR 200.30–3(a)(12). Frm 00134 Fmt 4703 Sfmt 4703 Dated: May 20, 2020. Vanessa A. Countryman, Secretary. [FR Doc. 2020–11290 Filed 5–21–20; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88909; File No. SR–ICEEU– 2020–006] Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of Proposed Rule Change, SecurityBased Swap Submission or Advance Notice Relating to Amendments to the ICE Clear Europe Auction Terms for F&O Default Auctions and F&O Default Management Policy (Formerly the F&O Default Management Framework) May 19, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 11, 2019, ICE Clear Europe Limited (‘‘ICE Clear Europe’’ or the ‘‘Clearing House’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule changes described in Items I, II and III below, which Items have been prepared by ICE Clear Europe. ICE Clear Europe filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(4)(ii) thereunder,4 such that the proposed rule change was immediately effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change, Security-Based Swap Submission, or Advance Notice The principal purpose of the proposed amendments is for ICE Clear Europe to amend its Auction Terms for F&O Default Auctions (the ‘‘Auction Terms’’) and F&O Default Management Policy (the ‘‘Policy’’), formerly the F&O Default Management Framework. The revisions do not involve any changes to the ICE Clear Europe Clearing Rules (the ‘‘Rules’’) or other Procedures.5 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(4)(ii). 5 Capitalized terms used but not defined herein have the meanings specified in the Rules. 2 17 E:\FR\FM\26MYN1.SGM 26MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 101 (Tuesday, May 26, 2020)]
[Notices]
[Pages 31560-31564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11135]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88904; File No. SR-NYSEArca-2020-43]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its Rules 
To Add New Rule 7.19-E

May 19, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 8, 2020, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend its rules to add new Rule 7.19-E 
(Pre-Trade Risk Controls). The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    In order to assist ETP Holders' efforts to manage their risk, the 
Exchange proposes to amend its rules to add new Rule 7.19-E (Pre-Trade 
Risk Controls) to establish a set of pre-trade risk controls by which 
Entering Firms and their designated Clearing Firms (as defined below) 
may set credit limits and other pre-trade risk controls for an Entering 
Firm's trading on the Exchange and authorize the Exchange to take 
action if those credit limits or other pre-trade risk controls are 
exceeded.
    For purposes of this proposed rule change, the Exchange proposes to 
define the term ``Entering Firm'' to mean an ETP Holder that either has 
a correspondent relationship with a Clearing Firm whereby it executes 
trades and the clearing function is the responsibility of the Clearing 
Firm or clears for its own account \3\ and to define the term 
``Clearing Firm'' to mean an ETP Holder that acts as principal for 
clearing and settling a trade, whether for its own account or for an 
Entering Firm.\4\
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    \3\ See proposed Rule 7.19-E(a)(1).
    \4\ See proposed Rule 7.19-E(a)(2). As required by Rule 7.14-E, 
an ETP Holder is required to give up the name of the clearing firm 
through which each transaction on the Exchange will be cleared.
---------------------------------------------------------------------------

1. Overview
    In order to help firms manage their risk, the Exchange proposes to 
offer optional pre-trade risk controls that would authorize the 
Exchange to take automated actions if a designated credit limit or 
other pre-trade risk control for a firm is breached. Because Clearing 
Firms bear the risk on behalf of their correspondent Entering Firms, 
the Exchange proposes to make the proposed pre-trade risk controls 
available not only to Entering Firms, but also to their Clearing Firms, 
if so authorized by the Entering Firm. These pre-trade risk controls 
would provide Entering Firms and their Clearing Firms with enhanced 
abilities to manage their risk with respect to orders on the Exchange.
    As proposed, these optional controls would allow Entering Firms and 
their Clearing Firms (if designated by the Entering Firm) to each 
define different pre-set risk thresholds and to choose the automated 
action the Exchange would take if those thresholds are breached, which 
would range from notifying the Entering Firm and Clearing Firm that a 
limit has been breached, blocking new orders, or canceling orders until 
the Entering Firm has been reinstated to trade on the Exchange.
    Although use of the proposed Exchange-provided pre-trade risk 
controls are optional, all orders on the Exchange will pass through 
risk checks. As such, an Entering Firm that does not choose to set 
limits or permit its Clearing Firm to set limits on its behalf will not 
achieve any latency advantage with respect to its trading activity on 
the Exchange. In addition, the Exchange expects that any latency added 
by the pre-trade risk controls will be de minimis.
    The proposed pre-trade risk controls described are meant to 
supplement, and not replace, the ETP Holders' own internal systems, 
monitoring and procedures related to risk management. The Exchange does 
not guarantee that these controls will be sufficiently comprehensive to 
meet all of an ETP Holder's needs, the controls are not designed to be 
the sole means of risk management, and using these controls will not 
necessarily meet an ETP Holder's obligations required by Exchange or 
federal rules (including, without limitation, the Rule 15c3-5

[[Page 31561]]

under the Act \5\ (``Rule 15c3-5'')). Use of the Exchange's pre-trade 
risk controls will not automatically constitute compliance with 
Exchange or federal rules and responsibility for compliance with all 
Exchange and Commission rules remains with the ETP Holder.\6\
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    \5\ See 17 CFR 240.15c3-5.
    \6\ The Exchange proposes Commentary .01 to Rule 7.19-E to 
provide that ``[t]he pre-trade risk controls described in this Rule 
are meant to supplement, and not replace, the ETP Holder's own 
internal systems, monitoring and procedures related to risk 
management and are not designed for compliance with Rule 15c3-5 
under the Exchange Act. Responsibility for compliance with all 
Exchange and SEC rules remains with the ETP Holder.''
---------------------------------------------------------------------------

2. Proposed Rule Change
    Proposed Rule 7.19-E(a) would set forth the definitions that would 
be used for purposes of the Rule. In addition to the defined terms of 
``Entering Firm'' and ``Clearing Firm,'' as described above, the 
Exchange proposes the following definitions:
     The term ``Single Order Maximum Notional Value Risk 
Limit'' would mean a pre-established maximum dollar amount for a single 
order before it can be traded.
     The term ``Single Order Maximum Quantity Risk Limit'' 
would mean a pre-established maximum number of shares that may be 
included in a single order before it can be traded.
     The term ``Gross Credit Risk Limit'' would mean a pre-
established maximum daily dollar amount for purchases and sales across 
all symbols, where both buy and sell orders are counted as positive 
values. For purposes of calculating the Gross Credit Risk Limit, 
unexecuted orders in the NYSE Arca Book,\7\ orders routed on arrival 
pursuant to Rule 7.37-E(a)(1), and executed orders are included.
---------------------------------------------------------------------------

    \7\ The term ``NYSE Arca Book'' is defined in Rule 1.1-E(jj) to 
refer to the Exchange's electronic file of orders, which contains 
all orders entered on the Exchange.
---------------------------------------------------------------------------

    Proposed Rule 7.19-E(b) would set forth the Pre-Trade Risk Controls 
that would be available to Entering Firms and Clearing Firms. Under 
proposed Rule 7.19-E(b)(1), an Entering Firm may select one or more of 
the following optional pre-trade risk controls with respect to its 
trading activity on the Exchange: (i) Gross Credit Risk Limits; (ii) 
Single Order Maximum Notional Value Risk Limits; and (iii) Single Order 
Maximum Quantity Risk Limits, which would collectively be referred to 
as the ``Pre-Trade Risk Controls.''
    In addition, under proposed Rule 7.19-E(b)(2)(A), an Entering Firm 
that does not self-clear may designate its Clearing Firm to (i) view 
any Pre-Trade Risk Controls set by the Entering Firm, or (ii) set one 
or more Pre-Trade Risk Controls on the Entering Firm's behalf, or both. 
Proposed Rule 7.19-E(b)(2)(B) provides that an Entering Firm would be 
able to view any Pre-Trade Risk Controls that its Clearing Firm sets 
with respect to the Entering Firm's trading activity on the Exchange. 
Because both an Entering Firm and Clearing Firm (if so designated by 
the Entering Firm) would be able to access information about Pre-Trade 
Risk Controls, this mechanism would foster transparency between an 
Entering Firm and its Clearing Firm regarding which Pre-Trade Risk 
Control limits may have been set. For example, if an Entering Firm 
designates its Clearing Firm to view the Pre-Trade Risk Controls set by 
that Entering Firm, its Clearing Firm may determine that it does not 
need to separately set Pre-Trade Risk Controls on behalf of such 
Entering Firm.
    Because the Entering Firm is the ETP Holder that is entering orders 
on the Exchange, the Exchange will not take action based on a Clearing 
Firm's instructions about the Entering Firm's trading activities on the 
Exchange without first receiving consent from the Entering Firm. 
Accordingly, proposed Rule 7.19-E(b)(2)(C) would provide that if an 
Entering Firm designates a Clearing Firm to set Pre-Trade Risk Controls 
for the Entering Firm, the Entering Firm would be consenting to the 
Exchange taking certain prescribed actions (discussed further below) 
with respect to the Entering Firm's trading activity as provided for in 
proposed Rules 7.19-E(c) and (d), described below. The Exchange would 
consider an Entering Firm to provide such consent by authorizing a 
Clearing Firm to enter Pre-Trade Risk Controls via the risk management 
tool that will be provided to Entering Firms in connection with this 
proposed rule change. Once such authorization is provided by the 
Entering Firm, the Clearing Firm would have access to the Pre-Trade 
Risk Controls that the Entering Firm designates. The proposed Rule 
makes clear that by designating a Clearing Firm to set limits on its 
trading activities, the Entering Firm will have authorized the Exchange 
to act pursuant to the Clearing Firm's instructions if the limits set 
by the Clearing Firm are breached.
    Proposed Rule 7.19-E(b)(3) would set forth how the Pre-Trade Risk 
Controls could be set or adjusted. Proposed Rule 7.19-E(b)(3)(A) would 
provide that Pre-Trade Risk Controls may be set before the beginning of 
a trading day and may be adjusted during the trading day. Proposed Rule 
7.19-E(b)(3)(B) would provide that Entering Firms or Clearing Firms may 
set Pre-Trade Risk Controls at the MPID level or at one or more sub-IDs 
associated with that MPID.\8\ The Exchange believes that supporting 
Pre-Trade Risk Controls at both an MPID and sub-ID level would provide 
both Entering Firms, and if designated, their Clearing Firms, more 
granular control over how such risk controls are determined and 
monitored.
---------------------------------------------------------------------------

    \8\ Entering Firms may request that the Exchange create sub-IDs 
associated with their MPIDs.
---------------------------------------------------------------------------

    Proposed Rule 7.19-E(b)(4) would provide that with respect to Gross 
Credit Risk Limits, an Entering Firm and, if so designated, its 
Clearing Firm, will receive notifications when the Entering Firm is 
approaching or has breached a limit set by itself or by the Clearing 
Firm. The Exchange believes that by providing such notifications, the 
Entering Firm, and if designated, its Clearing Firm, would have advance 
notice that the Entering Firm is approaching a designated limit and 
could take steps to mitigate the potential that an automated breach 
action would be triggered.
    Proposed Rule 7.19-E(c) would set forth the actions the Exchange 
would be authorized to take when a Pre-Trade Risk Control set by an 
Entering Firm or a Clearing Firm is breached, which would be referred 
to as ``Automated Breach Actions.'' These proposed actions would be 
automated; if a Pre-Trade Risk Control is breached, the Exchange would 
automatically take the designated action and would not need further 
direction from either the Entering Firm or Clearing Firm to take such 
action.
    At the outset, proposed Rule 7.19-E(c)(1) would provide that if 
both an Entering Firm and its Clearing Firm set the same type of Pre-
Trade Risk Control for the Entering Firm but have set different limits, 
the Exchange would enforce the more restrictive limit. For example, if 
an Entering Firm sets a Single Order Maximum Notional Value Risk Limit 
of $20 million and its Clearing Firm sets the same risk limit at $15 
million, the Exchange will take action when the more restrictive limit 
is breached--i.e., $15 million.
    Proposed Rule 7.19-E(c)(2) would set forth the Automated Breach 
Action the Exchange would take if an order would breach the designated 
limit of either a Single Order Maximum Notional Value Risk Limit or 
Single Order Maximum Quantity Risk Limit. As proposed, the Exchange 
would reject the incoming order that would have breached the applicable 
limit.
    Proposed Rule 7.19-E(c)(3)(A) would set forth the Automated Breach 
Actions the Exchange would take if a designated

[[Page 31562]]

Gross Credit Risk Limit is breached. The Exchange proposes to provide 
options of which Automated Breach Action the Exchange would be 
authorized to take if a Gross Credit Risk Limit is breached. Such 
Automated Breach Actions would be taken at the MPID or sub-ID level 
that is associated with the designated Gross Credit Risk Limit. As 
proposed, when setting Gross Credit Risk Limits, the Entering Firm or 
Clearing Firm setting the limit would be required to indicate one of 
the following actions that the Exchange would take if such limit is 
breached:
     ``Notification Only.'' As set forth in proposed Rule 7.19-
E(c)(3)(A)(i), if this option is selected, the Exchange would continue 
to accept new orders and order instructions and would not cancel any 
unexecuted orders in the NYSE Arca Book. Proposed Rule 7.19-E(b)(4), 
described above, sets forth the notifications that would be provided to 
an Entering Firm, and if designated, a Clearing Firm regarding the Pre-
Trade Risk Controls that have been set. With the ``Notification Only'' 
action, the Exchange would provide such notifications, but would not 
take any other automated actions with respect to new or unexecuted 
orders.
     ``Block Only.'' As set forth in proposed Rule 7.19-
E(c)(3)(A)(ii), if this option is selected, the Exchange would reject 
new orders and order instructions but would not cancel any unexecuted 
orders in the NYSE Arca Book. The Exchange would continue to accept 
instructions from the Entering Firm to cancel one or more orders in 
full (including Auction-Only Orders) or any instructions specified in 
proposed Rule 7.19-E(e) (described below), but would not take any 
automated action to cancel orders.
     ``Cancel and Block.'' As set forth in proposed Rule 7.19-
E(c)(3)(A)(iii), if this option is selected, in addition to the Block 
actions described above, the Exchange would also cancel all unexecuted 
orders in the NYSE Arca Book other than Auction-Only Orders.
    If an Entering Firm and its Clearing Firm each set different limits 
for a Gross Credit Risk Limit for the Entering Firm's activities on the 
Exchange, proposed Rule 7.19-E(c)(3)(B) would provide that the Exchange 
would enforce the action that was chosen by the party that set the 
limit that was breached. For example, if a Clearing Firm sets a lower 
limit and designates the ``Cancel and Block'' Automated Breach Action, 
if that limit is breached, the Exchange will implement that ``Cancel 
and Block'' action even if the Entering Firm designated a different 
Automated Breach Action.
    Proposed Rule 7.19-E(c)(3)(C) would provide that if both the 
Entering Firm and Clearing Firm set the same Gross Credit Risk Limit 
and that limit is breached, the Exchange would enforce the most 
restrictive Automated Breach Action. As further proposed, for purposes 
of this Rule, the ``Cancel and Block'' action would be more restrictive 
than ``Block Only,'' which would be more restrictive than 
``Notification Only.'' For example, if the Entering Firm selects the 
``Block Only'' action for a Gross Credit Risk Limit and its Clearing 
Firm selects the ``Cancel and Block'' action for the same Gross Credit 
Risk Limit, if the limit is breached, the Exchange would take the 
``Cancel and Block'' action for the Entering Firm's orders.
    Proposed Rule 7.19-E(c)(4) would provide that if a Pre-Trade Risk 
Control set at the MPID level is breached, the Automated Breach Action 
specified at the MPID level would be applied to all sub-IDs associated 
with that MPID. For instance, if a Clearing Firm sets a Gross Credit 
Risk Limit for an MPID at $500 million and the Entering Firm sets Gross 
Credit Risk Limits for each of three sub-IDs associated with that MPID 
at $500 million each, if two of the sub-IDs reach a $250 million limit, 
which combined is the Gross Credit Risk Limit at the MPID level, the 
Automated Breach Action associated with the limit at the MPID level 
would be triggered and would apply also to the associated sub-IDs, even 
though none of the sub-IDs have breached their separate $500 million 
limits. This functionality ensures that an Entering Firm cannot 
effectively override a Pre-Trade Risk Control set at the MPID level by 
setting risk limits for each of the MPID's associated sub-IDs that 
cumulatively equal more than the MPID's total Gross Credit Risk Limit.
    Proposed Rule 7.19-E(d) concerns how an Entering Firm's ability to 
enter orders and order instructions would be reinstated after a ``Block 
Only'' or ``Cancel and Block'' Automated Breach Action has been 
triggered. In such case, proposed Rule 7.19-E(d) provides that the 
Exchange would not reinstate the Entering Firm's ability to enter 
orders and order instructions on the Exchange (other than instructions 
to cancel one or more orders (including Auction-Only Orders) in full) 
without the consent of (1) the Entering Firm, and (2) the Clearing 
Firm, if the Entering Firm has designated that the Clearing Firm's 
consent is required. The Exchange proposes to include this 
functionality because the Clearing Firm bears the risk of any exposure 
of its correspondent Entering Firms.
    Finally, proposed Rule 7.19-E(e) would set forth ``kill switch'' 
functionality, which would allow an Entering Firm or its designated 
Clearing Firm to direct the Exchange to take certain bulk Kill Switch 
Actions with respect to orders. In contrast to the Automated Breach 
Actions described above, which the Exchange would take automatically 
after the breach of a credit limit, the Exchange would not take any of 
the Kill Switch Actions without express direction from the Entering 
Firm or its designated Clearing Firm.
    Specifically, Proposed Rule 7.19-E(e) would specify that an 
Entering Firm, or if authorized pursuant to proposed Rule 7.19-
E(b)(2)(A), its Clearing Firm, could direct the Exchange to take one or 
more of the following actions with respect to orders at either an MPID, 
or if designated, sub-ID Level: (1) Cancel all Auction-Only Orders; (2) 
Cancel all unexecuted orders in the NYSE Arca Book other than Auction-
Only Orders; or (3) Block the entry of any new orders and order 
instructions, provided that the Exchange would continue to accept 
instructions from Entering Firms to cancel one or more orders 
(including Auction-Only Orders) in full, and later, reverse that block.
    The Exchange proposes that the Kill Switch functionality proposed 
in Rule 7.19-E(e) would supersede and replace the Exchange's previously 
filed proposed rule change,\9\ which provided certain post-trade risk 
management tools to ETP Holders, but not to their Clearing Firms.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 71166 (December 20, 
2013), 78 FR 79046 (December 27, 2013) (SR-NYSEArca-2013-142) 
(Notice of filing and immediate effectiveness of proposed rule 
change) (the ``2013 Risk Control Filing'').
---------------------------------------------------------------------------

    The Exchange proposes to provide these post-trade Kill Switch 
Actions in addition to the pre-trade Automated Breach Actions described 
above in order to give Entering Firms and their Clearing Firms more 
flexibility in setting risk controls. An Entering Firm that wants more 
control over when and which actions are taken with respect to its 
orders may choose to use these Kill Switch Actions instead of the 
``Block'' or ``Cancel and Block'' Automated Breach Actions described 
above. For example, for an Entering Firm that selects the 
``Notification Only'' Automated Breach Action, if it receives 
notification of a credit breach, it could choose to direct the Exchange 
to take a Kill Switch Action described in proposed Rule 7.19-E(e).
3. Proposed Rule Commentary
    The Exchange proposes Commentary .01 to Rule 7.19-E to specify that 
the

[[Page 31563]]

Pre-Trade Risk Controls described in this Rule are meant to supplement, 
and not replace, the ETP Holder's own internal systems, monitoring and 
procedures related to risk management and are not designed for 
compliance with Rule 15c3-5 under the Act.\10\ This proposed Commentary 
specifies that use of the Exchange's pre-trade risk controls would not 
automatically constitute compliance with Exchange or federal rules and 
responsibility for compliance with all Exchange and SEC rules remains 
with the ETP Holder. The Exchange does not guarantee that these 
controls will be sufficiently comprehensive to meet all of an ETP 
Holder's needs, the controls are not designed to be the sole means of 
risk management, and using these controls will not necessarily meet an 
ETP Holder's obligations required by Exchange or federal rules 
(including, without limitation, the Rule 15c3-5).
---------------------------------------------------------------------------

    \10\ See 17 CFR 240.15c3-5.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\12\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest, 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that the proposed rule will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because the proposed optional Pre-
Trade Risk Controls would provide both Entering Firms, and if 
designated, Clearing Firms, with the ability to manage risk, while also 
providing an alert system that would help to ensure that such firms are 
aware of developing issues. In addition, the Pre-Trade Risk Controls 
would provide Clearing Firms, who have assumed certain risks of the 
Entering Firms, greater control and flexibility over setting risk 
tolerance and exposure on behalf of their correspondent Entering Firms. 
As such, the Exchange believes that the Pre-Trade Risk Controls would 
provide a means to address potentially market-impacting events, helping 
to ensure the proper functioning of the market.
    In addition, the Exchange believes that the proposed rule change is 
designed to protect investors and the public interest because the Pre-
Trade Risk Controls are a form of impact mitigation that will aid 
Entering Firms and Clearing Firms in minimizing their risk exposure and 
reduce the potential for disruptive, market-wide events. The Exchange 
understands that ETP Holders implement a number of different risk-based 
controls, including those required by Rule 15c3-5. The proposed 
controls will serve as an additional tool for Entering Firms and 
Clearing Firms to assist them in identifying any risk exposure. The 
Exchange believes the Pre-Trade Risk Controls will assist Entering 
Firms and Clearing Firms in managing their financial exposure which, in 
turn, could enhance the integrity of trading on the securities markets 
and help to assure the stability of the financial system.
    Further, the Exchange believes that the proposed rule will foster 
cooperation and coordination with persons facilitating transactions in 
securities because the Exchange will provide alerts to Entering Firms 
and their Clearing Firms when the Entering Firm's trading reaches 
certain thresholds. As such, the Exchange will help Clearing Firms 
monitor the risk levels of their correspondent Entering Firms and 
provide tools for Clearing Firms, if designated, to take action.
    The Exchange believes that proposed Commentary .01 to Rule 7.19 is 
designed to prevent fraudulent and manipulative acts and practices and 
promote just and equitable principles of trade because it provides 
clarity in Exchange rules that the proposed Pre-Trade Risk Controls are 
intended to supplement, and not replace, an ETP Holder's own internal 
systems, monitoring, and procedures related to compliance with Rule 
15c3-5.
    Finally, the Exchange believes that the proposed rule change does 
not unfairly discriminate among the Exchange's ETP Holders because use 
of the Pre-Trade Risk Controls is optional and is not a prerequisite 
for participation on the Exchange. In addition, because all orders on 
the Exchange would pass through the risk checks, there would be no 
difference in the latency experienced by ETP Holders who have opted to 
use the Pre-Trade Risk Controls versus those who have not opted to use 
them.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. In fact, the Exchange 
believes that the proposal will have a positive effect on competition 
because, by providing Entering Firms and their Clearing Firms 
additional means to monitor and control risk, the proposed rule will 
increase confidence in the proper functioning of the markets. The 
Exchange believes the proposed Pre-Trade Risk Controls will assist 
Entering Firms and Clearing Firms in managing their financial exposure 
which, in turn, could enhance the integrity of trading on the 
securities markets and help to assure the stability of the financial 
system. As a result, the level of competition should increase as public 
confidence in the markets is solidified.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings

[[Page 31564]]

under Section 19(b)(2)(B) \15\ of the Act to determine whether the 
proposed rule change should be approved or disapproved.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2020-43 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-NYSEArca-2020-43. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2020-43, and should be 
submitted on or before June 16, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11135 Filed 5-22-20; 8:45 am]
BILLING CODE 8011-01-P

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