Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend to NYSE Rule 122 Related to Orders With More Than One Broker, 72720-72723 [2020-25059]

Download as PDF jbell on DSKJLSW7X2PROD with NOTICES 72720 Federal Register / Vol. 85, No. 220 / Friday, November 13, 2020 / Notices primarily engaged in the business of providing technology and related services to financial institutions and not in the business of being an investment company or investing in loans. Applicant explains that most of its 374 employees are devoted to developing the AI models, facilitating the origination and financing of loans through its Platform, performing roles supporting the operations of the Platform and servicing those loans. Applicant states that only 9 employees are engaged in any activities related to managing the loans held on the Applicant’s balance sheet. Applicant estimates that these 9 individuals spend a negligible amount of time on activities related to the loans. In addition, Applicant states that substantially all of its net revenues are derived from these business activities. Applicant states that the loans and other investment securities that are held by its whollyowned subsidiaries are a byproduct of these activities and are acquired not for investment purpose but to support the loan origination by its partner banks by finding financing for those loans. Furthermore, Applicant states that any net investment income derived from such securities is minimal. 4. Applicant states that it, including its wholly-owned subsidiaries, are subject to a range of regulations that cover their business activities. Specifically, Applicant states that UNI maintains state licenses and registrations related to consumer lending, loan brokering and servicing. Applicant also states that the Platform generally has been structured to comply with banking regulations, consistent with UNI’s role as a service provider to its bank partners. 5. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction or any class or classes of persons, securities or transactions from any provision of the Act, or from any rule or regulation under the Act, if and to the extent such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicant requests an order under Section 6(c) to permit the Applicant, directly and through its wholly-owned subsidiaries, to engage in its business activities without being subject to the Act. 6. Applicant states that the requested exemption is necessary and appropriate in the public interest, and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicant states that, directly and through its VerDate Sep<11>2014 17:19 Nov 12, 2020 Jkt 253001 wholly-owned subsidiaries, it is primarily engaged in the business of providing technology and related services to financial institutions to help facilitate the origination of loans to consumers. Applicant states that the structure of its business, including the acquisition of the investment securities, was not established, and is not operated, for the purpose of creating an investment company within the contemplation of the Act, and the Applicant’s business activities are not of the type intended to be regulated under the Act. APPLICANT’S CONDITIONS: Applicant agrees that any order granting the requested relief will be subject to the following conditions: 1. Applicant will not hold itself out as being engaged in investing, reinvesting or trading in securities other than loans originated through the Platform as described in the Application. 2. Applicant, directly or indirectly, will only hold loans that are originated through the Platform as described in the application. 3. Any loans held to maturity will represent less than 15% of the total volume of loans held, directly or indirectly, by the Applicant on a rolling basis for the last four most recent fiscal quarters combined. 4. Applicant, directly or indirectly, will not hold loans for speculative purposes. 5. Applicant will allocate and use its accumulated cash and any investment securities (other than loans) for bona fide business purposes in accordance with a cash-management investment policy adopted by Applicant’s board of directors and will refrain from investing or trading in securities for short-term speculative purposes. As of the last date of each last fiscal quarter, at least 90% of investment securities other than the loans or ABS held only for purposes of satisfying the Risk Retention Rules, held by the Applicant on a consolidated basis, will be in Capital Preservation Investments. 6. Net revenue earned from interest on the loans will comprise, on a rolling basis for the last four most recent fiscal quarters combined, in combination with interest on any other investment securities, no more than 10% of Applicant’s total net revenue. For purposes of this condition, net revenue excludes (from both the numerator and the denominator) interest generated by cash holdings, Government securities, and risk retention vehicles, as well as fair value adjustments for the loans, and will be calculated net of interest paid on any credit facilities used to purchase the loans. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 7. Applicant may continue to rely on the order granting the requested relief so long as the operations that gave rise to the request for the exemptive order do not differ materially from those described in this application. For the Commission, by the Division of Investment Management, under delegated authority. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25160 Filed 11–12–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90371; File No. SR–NYSE– 2020–66] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend to NYSE Rule 122 Related to Orders With More Than One Broker November 6, 2020. I. Introduction On August 3, 2020, New York Stock Exchange LLC (‘‘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 amend to NYSE Rule 122 (Orders with More than One Broker). The proposed rule change was published for comment in the Federal Register on August 12, 2020.3 On September 22, 2020, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 The Commission has received no comment letters on the proposal. On November 3, 2020, the Exchange filed Amendment No. 1 to the proposed rule change, which replaced and superseded the proposed rule change in its entirety.6 The Commission 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 89500 (Aug. 6, 2020), 85 FR 48738 (Aug. 12, 2020). 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 89962 (Sept. 22, 2020), 85 FR 60854 (Sept. 28, 2020). 6 In Amendment No. 1, the Exchange added the representation that it will monitor, via examinationbased surveillance, member organization compliance with its supervisory obligation 2 17 E:\FR\FM\13NON1.SGM 13NON1 Federal Register / Vol. 85, No. 220 / Friday, November 13, 2020 / Notices is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons, and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. jbell on DSKJLSW7X2PROD with NOTICES II. Description of the Proposed Rule Change price from its independent units to more than one Floor broker in a manner that is consistent with NYSE Rule 122. In addition, the Exchange proposes to amend the text of NYSE Rule 122 to remove certain obsolete language and to provide greater specificity to the rule text, without changing its meaning. 2. Proposed Changes to Text of Rule 122 1. Overview Currently, NYSE Rule 122 (Orders with More than One Floor Broker) provides that a member organization may not maintain orders with more than one Floor broker to purchase the same security at the same price. Because each Floor broker is a separate Participant in a parity allocation,7 NYSE Rule 122 prevents member organizations from circumventing the parity allocation rules to obtain preferential execution by splitting a single order among multiple Floor brokers. NYSE Rule 122 currently contains an exception, and the main purpose of the proposed amendment is to clarify this exception. The exception is: if the orders are not for the account of the same principal, then it is permissible for the member organization to maintain such orders with different Floor brokers. This exception reflects the Exchange’s understanding that some member organizations, or customers of member organizations, have multiple trading desks that do not coordinate trading strategies and are separated by information barriers. In such circumstances, because there is no coordination between such trading desks, maintaining those separate orders with more than one Floor broker would not be circumventing the parity allocation rules. The proposed amendment to NYSE Rule 122 would add Commentary to add specificity about this exception with respect to both member organizations’ proprietary orders and orders that member organizations represent on an agency basis for customers. Both member organizations and the customers of member organizations may consist of multiple trading units that are separated by information barriers that restrict the trading units from coordinating trading strategies, sharing capital, and sharing profits and losses. The proposed amended rule would provide that, if a member organization has knowledge and can verify that it or its customer is organized in this way, the member organization may route orders for the same security at the same The Exchange proposes to amend NYSE Rule 122 to remove certain obsolete language and to provide greater specificity to the rule text, without changing its meaning. Because the text of current NYSE Rule 122 addresses two distinct topics, the Exchange proposes to reorganize the existing rule text into new subsections (a) and (b), which the Exchange believes will enhance comprehension of the rule. The Exchange proposes that new subsection (a) would include the current first sentence of NYSE Rule 122. Because the term ‘‘member’’ refers to the natural person associated with a member organization who has been designated by such member organizations to effect transactions on the Floor of the Exchange, e.g., a Floor broker,8 and Floor brokers do not originate orders,9 and because the term ‘‘allied member’’ no longer exists in Exchange rules,10 the Exchange proposes to delete the extraneous language ‘‘member’’ and ‘‘or any allied member therein.’’ The Exchange further proposes to amend new subsection (a) to specify that the rule applies both to orders ‘‘sent to’’—as well as those ‘‘maintained with’’—more than one Floor broker, and to insert the word ‘‘Floor’’ before ‘‘broker’’ to enhance the clarity of the sentence. The Exchange also proposes to replace the phrase ‘‘market orders or orders at the same price’’ in new subsection (a) with the phrase ‘‘orders that may execute at the same price,’’ to specify that the rule applies to multiple orders of any resting order type that may execute at the same price. The Exchange proposes that new subsection (b) would include the current second and third sentences of Rule 122, relating to how a Floor broker can represent an order that already has a portion transmitted to the Exchange Book. Because this text addresses a different topic than proposed Rule 122(a), the Exchange proposes to delete the extraneous ‘‘However’’ at the start of the first sentence of this new subsection. 8 See Rule 2(a) (definition of the term ‘‘member’’). Rule 112(a). 10 See Securities Exchange Act Release No. 58549 (September 15, 2008), 73 FR 54444 (September 19, 2008) (SR–NYSE–2008–80) (Approval order). 9 See 7 See Rule 7.36(a)(5) (defining the term ‘‘Floor Broker Participant’’ to mean a Floor Broker trading license). VerDate Sep<11>2014 17:19 Nov 12, 2020 Jkt 253001 PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 72721 The Exchange also proposes to delete from new subsection (b) several phrases—including ‘‘manually or from a hand-held terminal,’’ ‘‘in the auction market or via the Floor broker agency interest file,’’ and ‘‘as part of an auction market transaction or automatic execution’’—because they are extraneous, use obsolete text, and are not necessary to a clear understanding of the rule. The Exchange believes that making these deletions will have no substantive effect on the meaning of subsection (b). Finally, the Exchange proposes to delete from new subsection (b) several references to the ‘‘Display Book® system,’’ which is an obsolete system formerly used by the Exchange, and to replace them with references to the Exchange’s current ‘‘Exchange Book.’’ 11 3. Proposed Rule Commentary In addition to the proposed amendments to the rule text listed above, the Exchange proposes to amend Rule 122 by adding new Rule Commentary to provide greater specificity as to the rule’s application and to enhance comprehension of the rule. The Exchange proposes to add Rule Commentary .01 to specify that, for the purposes of Rule 122, sending to, maintaining with, or using ‘‘more than one Floor broker’’ would mean more than one Floor broker member organization, or two different individual Floor brokers at the same Floor broker member organization. This proposed rule text is not intended to add new functionality, but rather to add clarity regarding the current Rule text. The Exchange proposes to add Rule Commentary .02 to provide more specificity as to when a member organization’s own orders are not presumed to be for the account of the same principal. As proposed, for purposes of Rule 122, when a member organization uses more than one Floor broker, multiple orders originating from the member organization would be presumed not to be for the account of the same principal if each order is from a separate trading unit that is separated by information barriers or other barriers that restrict the trading unit from coordinating trading strategies, sharing capital, and sharing profits and losses with other trading units (an ‘‘Independent Unit’’), as defined in proposed Commentary .02(a). Proposed Rule Commentary .02(b) would require a member organization to have supervisory systems and written policies and procedures reasonably 11 See E:\FR\FM\13NON1.SGM Rule 1.1(k). 13NON1 jbell on DSKJLSW7X2PROD with NOTICES 72722 Federal Register / Vol. 85, No. 220 / Friday, November 13, 2020 / Notices designed to ensure that it is not using more than one Floor broker for its orders that are for the account of the same principal. Proposed Rule Commentary .03 would apply the same concepts to circumstances when a member organization uses more than one Floor broker for multiple orders that it represents on an agency basis. Proposed Rule Commentary .03(a) would specify that orders that the member organization represents on an agency basis from a single customer are presumed not to be for the account of the same principal if the member organization’s customer maintains Independent Units and the orders are from Independent Units. Proposed Rule Commentary .03(b) would specify that if a member organization is representing a customer on an agency basis and uses more than one Floor broker for such customer, the member organization’s written policies and procedures must be reasonably designed to ensure that the orders it receives from the customer are from Independent Units of the customer. The proposed Rule Commentary would specify that the member organization must: (1) Use reasonable diligence to know and retain the essential facts relating to the operation and supervision of its customer’s information barriers to ensure there is a prohibition against the coordination of trading strategies and that there is in fact no coordination of trading strategies, and that the orders are from Independent Units (see proposed Rule Commentary .03(b)(1)); (2) review and document such reviews that the orders received from its customers originated from Independent Units (see proposed Rule Commentary .03(b)(2)); and (3) obtain an annual written representation, in a form acceptable to the Exchange, from each customer that such orders originate from Independent Units (see proposed Rule Commentary .03(b)(3)). The Exchange believes that, taken together, these measures will provide the member organization and the Exchange with reasonable assurance that the orders are not for the account of the same principal, and member organizations are operating in compliance with Rule 122. The Exchange states that The requirements of proposed Commentary .03(b) are not the first time that the Exchange has imposed obligations on its member organizations with respect to orders that they represent on an agency basis on behalf of their customers. For example, the Exchange states, Rule 7.44(b)(6), relating to the Exchange’s Retail Liquidity Program, provides that if the Retail Member Organization does VerDate Sep<11>2014 17:19 Nov 12, 2020 Jkt 253001 not itself conduct a retail business but instead routes Retail Orders on behalf of another broker-dealer, the Retail Member Organization’s supervisory procedures must be reasonably designed to ensure that the orders it receives from such other broker-dealer meet the definition of a Retail Order. According to the Exchange, that Rule further provides that to fulfill this supervisory requirement, the Retail Member Organization must obtain an annual written representation, in a form acceptable to the Exchange, from the broker-dealer sending the orders that the orders comply with Rule 7.44, and by monitoring whether Retail Order flow routed on behalf of such other brokerdealer meets the applicable requirements. Here, the Exchange asserts, the proposed amended rule would require a similar supervisory obligation for member organizations to ensure that orders placed by their customers in fact originate from Independent Units. The Exchange represents that it will monitor member organization compliance with these proposed requirements via examinationbased surveillance.12 Proposed Rule Commentary .04 would add that notwithstanding Commentary .02(a) and .03(a), that there is a presumption that orders are for the account of the same principal (i.e., not from Independent Units) if the trading strategies are run by the same desk, group, employee(s), or portfolio manager(s); are otherwise overseen or supervised by the same desk, group, employee(s), or portfolio managers; or share capital or roll up to the same profit and loss center. 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 the rules and regulations thereunder applicable to national securities exchanges.13 In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with Section 6(b)(5) of the Act,14 which requires that the rules of an exchange be designed, 12 The Exchange represents that it and the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) have entered into a regulatory services agreement pursuant to which FINRA will conduct specified regulatory services on the Exchange’s behalf, including examining member organizations’ compliance with Exchange rules. 13 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 14 17 U.S.C. 78f(b)(5). PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 among other things, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. Generally, NYSE Rule 122 provides that a member organization may not maintain orders with more than one Floor broker to purchase the same security at the same price. The intent of the rule is to prevent member organizations from by splitting a single order among multiple Floor brokers in order to circumvent the Exchange’s parity allocation rules and obtain preferential executions. The Exchange has proposed to both (1) clarify the existing exception to NYSE Rule 122 that permits a member organization to maintain separate orders with more than one Floor broker if the member organization has multiple trading desks and there is no coordination between those trading desks, and (2) extend this exception to include customers of member organizations, provided that the orders originate from independent trading desks at the customer that do not coordinate their trading.15 The Commission finds that this proposed rule change is reasonably designed to prevent fraudulent and manipulative acts and practices. The Commission believes that the proposed rule change is consistent with the purpose and intent of NYSE Rule 122 to prevent the circumvention of the Exchange’s parity allocation rules. Significantly, in extending the ‘‘account of the same principal’’ exception to the Independent Units of a member organization’s customer, the proposed rule change would require that a member organization accepting such customer orders use reasonable diligence to know and retain essential facts relating to the operation and supervision of its customer’s information barriers or other barriers to ensure that there is a prohibition against the coordination of trading strategies, that there is in fact no coordination of trading strategies, and that the orders are from Independent Units of the customer Further, the Exchange has represented that it will monitor member organization compliance with these 15 The Exchange has also proposed nonsubstantive, technical and clarifying changes to the rule text to: (1) Add subsection numbering and (2) remove references that are either extraneous or obsolete. E:\FR\FM\13NON1.SGM 13NON1 Federal Register / Vol. 85, No. 220 / Friday, November 13, 2020 / Notices requirements via examination-based surveillance.16 Based on the foregoing, the Commission therefore finds that the proposed rule change is consistent with the Act. IV. Solicitation of Comments on Amendments No. 1 Interested persons are invited to submit written data, views, and arguments concerning whether Amendments No. 1 is consistent with the Act. Comments may be submitted by any of the following methods: jbell on DSKJLSW7X2PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSE–2020–66 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2020–66. 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 this filing will also 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 16 See Note 12 and accompanying text, supra. VerDate Sep<11>2014 17:19 Nov 12, 2020 Jkt 253001 Number SR–NYSE–2020–66 and should be submitted on or before December 4, 2020. V. Accelerated Approval of the 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 Amendment No. 1 in the Federal Register. In Amendment No. 1, the Exchange added to its proposal the representation that it will monitor, via examination-based surveillance, member organization compliance with its supervisory obligation to ensure that orders placed by their customers in fact originate from Independent Units.17 The Commission finds that Amendment No. 1 is consistent with the Act in that is designed, among other things, to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,18 to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,19 that the proposed rule change SR–NYSE–2020– 66, as modified by Amendment No. 1 be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25059 Filed 11–12–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90376; File No. 265–33] Asset Management Advisory Committee Securities and Exchange Commission. ACTION: Notice of meeting. AGENCY: Notice is being provided that the Securities and Exchange Commission Asset Management Advisory Committee (‘‘AMAC’’) will hold a public meeting on December 1, SUMMARY: 17 See Note 12 and accompanying text, supra. U.S.C. 78s(b)(2). 19 15 U.S.C. 78s(b)(2). 20 17 CFR 200.30–3(a)(12). 18 15 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 72723 2020, by remote means. The meeting will begin at 9:00 a.m. (ET) and will be open to the public via webcast on the Commission’s website at www.sec.gov. Persons needing special accommodations to take part because of a disability should notify the contact person listed below. The public is invited to submit written statements to the Committee. The meeting will include a discussion of matters in the asset management industry relating to the Private Investments Subcommittee; the ESG Subcommittee, including potential recommendations from that Subcommittee; and the Diversity & Inclusion Subcommittee, including a panel discussion on improving diversity and inclusion. The meeting will also include a discussion of AMAC’s administrative matters during a portion of the meeting that will not be open to the public. DATES: The public meeting will be held on December 1, 2020. Written statements should be received on or before November 23, 2020. ADDRESSES: The meeting will be held by remote means and webcast on www.sec.gov. Written statements may be submitted by any of the following methods. To help us process and review your statement more efficiently, please use only one method. At this time, electronic statements are preferred. Electronic Statements • Use the Commission’s internet submission form (https://www.sec.gov/ rules/other.shtml); or • Send an email message to rulecomments@sec.gov. Please include File Number 265–33 on the subject line; or Paper Statements • Send paper statements to Vanessa Countryman, Federal Advisory Committee Management Officer, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File No. 265–33. This file number should be included on the subject line if email is used. The Commission will post all statements on the Commission’s website at (https://www.sec.gov/comments/26533/265-33.htm). Statements also will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. For up-to-date information on the availability of the Public Reference Room, please refer to https://www.sec.gov/fast-answers/ E:\FR\FM\13NON1.SGM 13NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 220 (Friday, November 13, 2020)]
[Notices]
[Pages 72720-72723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25059]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90371; File No. SR-NYSE-2020-66]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend to NYSE Rule 122 Related to Orders With More Than One Broker

November 6, 2020.

I. Introduction

    On August 3, 2020, New York Stock Exchange LLC (``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 amend to 
NYSE Rule 122 (Orders with More than One Broker). The proposed rule 
change was published for comment in the Federal Register on August 12, 
2020.\3\ On September 22, 2020, pursuant to Section 19(b)(2) of the 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ The Commission has received no comment letters 
on the proposal. On November 3, 2020, the Exchange filed Amendment No. 
1 to the proposed rule change, which replaced and superseded the 
proposed rule change in its entirety.\6\ The Commission

[[Page 72721]]

is publishing this notice to solicit comments on the proposed rule 
change, as modified by Amendment No. 1, from interested persons, and is 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 89500 (Aug. 6, 
2020), 85 FR 48738 (Aug. 12, 2020).
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 89962 (Sept. 22, 
2020), 85 FR 60854 (Sept. 28, 2020).
    \6\ In Amendment No. 1, the Exchange added the representation 
that it will monitor, via examination-based surveillance, member 
organization compliance with its supervisory obligation
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

1. Overview

    Currently, NYSE Rule 122 (Orders with More than One Floor Broker) 
provides that a member organization may not maintain orders with more 
than one Floor broker to purchase the same security at the same price. 
Because each Floor broker is a separate Participant in a parity 
allocation,\7\ NYSE Rule 122 prevents member organizations from 
circumventing the parity allocation rules to obtain preferential 
execution by splitting a single order among multiple Floor brokers.
---------------------------------------------------------------------------

    \7\ See Rule 7.36(a)(5) (defining the term ``Floor Broker 
Participant'' to mean a Floor Broker trading license).
---------------------------------------------------------------------------

    NYSE Rule 122 currently contains an exception, and the main purpose 
of the proposed amendment is to clarify this exception. The exception 
is: if the orders are not for the account of the same principal, then 
it is permissible for the member organization to maintain such orders 
with different Floor brokers. This exception reflects the Exchange's 
understanding that some member organizations, or customers of member 
organizations, have multiple trading desks that do not coordinate 
trading strategies and are separated by information barriers. In such 
circumstances, because there is no coordination between such trading 
desks, maintaining those separate orders with more than one Floor 
broker would not be circumventing the parity allocation rules. The 
proposed amendment to NYSE Rule 122 would add Commentary to add 
specificity about this exception with respect to both member 
organizations' proprietary orders and orders that member organizations 
represent on an agency basis for customers.
    Both member organizations and the customers of member organizations 
may consist of multiple trading units that are separated by information 
barriers that restrict the trading units from coordinating trading 
strategies, sharing capital, and sharing profits and losses. The 
proposed amended rule would provide that, if a member organization has 
knowledge and can verify that it or its customer is organized in this 
way, the member organization may route orders for the same security at 
the same price from its independent units to more than one Floor broker 
in a manner that is consistent with NYSE Rule 122.
    In addition, the Exchange proposes to amend the text of NYSE Rule 
122 to remove certain obsolete language and to provide greater 
specificity to the rule text, without changing its meaning.

2. Proposed Changes to Text of Rule 122

    The Exchange proposes to amend NYSE Rule 122 to remove certain 
obsolete language and to provide greater specificity to the rule text, 
without changing its meaning.
    Because the text of current NYSE Rule 122 addresses two distinct 
topics, the Exchange proposes to reorganize the existing rule text into 
new subsections (a) and (b), which the Exchange believes will enhance 
comprehension of the rule.
    The Exchange proposes that new subsection (a) would include the 
current first sentence of NYSE Rule 122. Because the term ``member'' 
refers to the natural person associated with a member organization who 
has been designated by such member organizations to effect transactions 
on the Floor of the Exchange, e.g., a Floor broker,\8\ and Floor 
brokers do not originate orders,\9\ and because the term ``allied 
member'' no longer exists in Exchange rules,\10\ the Exchange proposes 
to delete the extraneous language ``member'' and ``or any allied member 
therein.''
---------------------------------------------------------------------------

    \8\ See Rule 2(a) (definition of the term ``member'').
    \9\ See Rule 112(a).
    \10\ See Securities Exchange Act Release No. 58549 (September 
15, 2008), 73 FR 54444 (September 19, 2008) (SR-NYSE-2008-80) 
(Approval order).
---------------------------------------------------------------------------

    The Exchange further proposes to amend new subsection (a) to 
specify that the rule applies both to orders ``sent to''--as well as 
those ``maintained with''--more than one Floor broker, and to insert 
the word ``Floor'' before ``broker'' to enhance the clarity of the 
sentence. The Exchange also proposes to replace the phrase ``market 
orders or orders at the same price'' in new subsection (a) with the 
phrase ``orders that may execute at the same price,'' to specify that 
the rule applies to multiple orders of any resting order type that may 
execute at the same price.
    The Exchange proposes that new subsection (b) would include the 
current second and third sentences of Rule 122, relating to how a Floor 
broker can represent an order that already has a portion transmitted to 
the Exchange Book. Because this text addresses a different topic than 
proposed Rule 122(a), the Exchange proposes to delete the extraneous 
``However'' at the start of the first sentence of this new subsection. 
The Exchange also proposes to delete from new subsection (b) several 
phrases--including ``manually or from a hand-held terminal,'' ``in the 
auction market or via the Floor broker agency interest file,'' and ``as 
part of an auction market transaction or automatic execution''--because 
they are extraneous, use obsolete text, and are not necessary to a 
clear understanding of the rule. The Exchange believes that making 
these deletions will have no substantive effect on the meaning of 
subsection (b).
    Finally, the Exchange proposes to delete from new subsection (b) 
several references to the ``Display Book[supreg] system,'' which is an 
obsolete system formerly used by the Exchange, and to replace them with 
references to the Exchange's current ``Exchange Book.'' \11\
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    \11\ See Rule 1.1(k).
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3. Proposed Rule Commentary

    In addition to the proposed amendments to the rule text listed 
above, the Exchange proposes to amend Rule 122 by adding new Rule 
Commentary to provide greater specificity as to the rule's application 
and to enhance comprehension of the rule.
    The Exchange proposes to add Rule Commentary .01 to specify that, 
for the purposes of Rule 122, sending to, maintaining with, or using 
``more than one Floor broker'' would mean more than one Floor broker 
member organization, or two different individual Floor brokers at the 
same Floor broker member organization. This proposed rule text is not 
intended to add new functionality, but rather to add clarity regarding 
the current Rule text.
    The Exchange proposes to add Rule Commentary .02 to provide more 
specificity as to when a member organization's own orders are not 
presumed to be for the account of the same principal. As proposed, for 
purposes of Rule 122, when a member organization uses more than one 
Floor broker, multiple orders originating from the member organization 
would be presumed not to be for the account of the same principal if 
each order is from a separate trading unit that is separated by 
information barriers or other barriers that restrict the trading unit 
from coordinating trading strategies, sharing capital, and sharing 
profits and losses with other trading units (an ``Independent Unit''), 
as defined in proposed Commentary .02(a). Proposed Rule Commentary 
.02(b) would require a member organization to have supervisory systems 
and written policies and procedures reasonably

[[Page 72722]]

designed to ensure that it is not using more than one Floor broker for 
its orders that are for the account of the same principal.
    Proposed Rule Commentary .03 would apply the same concepts to 
circumstances when a member organization uses more than one Floor 
broker for multiple orders that it represents on an agency basis. 
Proposed Rule Commentary .03(a) would specify that orders that the 
member organization represents on an agency basis from a single 
customer are presumed not to be for the account of the same principal 
if the member organization's customer maintains Independent Units and 
the orders are from Independent Units. Proposed Rule Commentary .03(b) 
would specify that if a member organization is representing a customer 
on an agency basis and uses more than one Floor broker for such 
customer, the member organization's written policies and procedures 
must be reasonably designed to ensure that the orders it receives from 
the customer are from Independent Units of the customer. The proposed 
Rule Commentary would specify that the member organization must: (1) 
Use reasonable diligence to know and retain the essential facts 
relating to the operation and supervision of its customer's information 
barriers to ensure there is a prohibition against the coordination of 
trading strategies and that there is in fact no coordination of trading 
strategies, and that the orders are from Independent Units (see 
proposed Rule Commentary .03(b)(1)); (2) review and document such 
reviews that the orders received from its customers originated from 
Independent Units (see proposed Rule Commentary .03(b)(2)); and (3) 
obtain an annual written representation, in a form acceptable to the 
Exchange, from each customer that such orders originate from 
Independent Units (see proposed Rule Commentary .03(b)(3)). The 
Exchange believes that, taken together, these measures will provide the 
member organization and the Exchange with reasonable assurance that the 
orders are not for the account of the same principal, and member 
organizations are operating in compliance with Rule 122.
    The Exchange states that The requirements of proposed Commentary 
.03(b) are not the first time that the Exchange has imposed obligations 
on its member organizations with respect to orders that they represent 
on an agency basis on behalf of their customers. For example, the 
Exchange states, Rule 7.44(b)(6), relating to the Exchange's Retail 
Liquidity Program, provides that if the Retail Member Organization does 
not itself conduct a retail business but instead routes Retail Orders 
on behalf of another broker-dealer, the Retail Member Organization's 
supervisory procedures must be reasonably designed to ensure that the 
orders it receives from such other broker-dealer meet the definition of 
a Retail Order. According to the Exchange, that Rule further provides 
that to fulfill this supervisory requirement, the Retail Member 
Organization must obtain an annual written representation, in a form 
acceptable to the Exchange, from the broker-dealer sending the orders 
that the orders comply with Rule 7.44, and by monitoring whether Retail 
Order flow routed on behalf of such other broker-dealer meets the 
applicable requirements. Here, the Exchange asserts, the proposed 
amended rule would require a similar supervisory obligation for member 
organizations to ensure that orders placed by their customers in fact 
originate from Independent Units. The Exchange represents that it will 
monitor member organization compliance with these proposed requirements 
via examination-based surveillance.\12\
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    \12\ The Exchange represents that it and the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') have entered into a 
regulatory services agreement pursuant to which FINRA will conduct 
specified regulatory services on the Exchange's behalf, including 
examining member organizations' compliance with Exchange rules.
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    Proposed Rule Commentary .04 would add that notwithstanding 
Commentary .02(a) and .03(a), that there is a presumption that orders 
are for the account of the same principal (i.e., not from Independent 
Units) if the trading strategies are run by the same desk, group, 
employee(s), or portfolio manager(s); are otherwise overseen or 
supervised by the same desk, group, employee(s), or portfolio managers; 
or share capital or roll up to the same profit and loss center.

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 the rules and regulations thereunder 
applicable to national securities exchanges.\13\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\14\ 
which requires that the rules of an exchange be designed, among other 
things, to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \14\ 17 U.S.C. 78f(b)(5).
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    Generally, NYSE Rule 122 provides that a member organization may 
not maintain orders with more than one Floor broker to purchase the 
same security at the same price. The intent of the rule is to prevent 
member organizations from by splitting a single order among multiple 
Floor brokers in order to circumvent the Exchange's parity allocation 
rules and obtain preferential executions. The Exchange has proposed to 
both (1) clarify the existing exception to NYSE Rule 122 that permits a 
member organization to maintain separate orders with more than one 
Floor broker if the member organization has multiple trading desks and 
there is no coordination between those trading desks, and (2) extend 
this exception to include customers of member organizations, provided 
that the orders originate from independent trading desks at the 
customer that do not coordinate their trading.\15\
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    \15\ The Exchange has also proposed non-substantive, technical 
and clarifying changes to the rule text to: (1) Add subsection 
numbering and (2) remove references that are either extraneous or 
obsolete.
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    The Commission finds that this proposed rule change is reasonably 
designed to prevent fraudulent and manipulative acts and practices. The 
Commission believes that the proposed rule change is consistent with 
the purpose and intent of NYSE Rule 122 to prevent the circumvention of 
the Exchange's parity allocation rules. Significantly, in extending the 
``account of the same principal'' exception to the Independent Units of 
a member organization's customer, the proposed rule change would 
require that a member organization accepting such customer orders use 
reasonable diligence to know and retain essential facts relating to the 
operation and supervision of its customer's information barriers or 
other barriers to ensure that there is a prohibition against the 
coordination of trading strategies, that there is in fact no 
coordination of trading strategies, and that the orders are from 
Independent Units of the customer Further, the Exchange has represented 
that it will monitor member organization compliance with these

[[Page 72723]]

requirements via examination-based surveillance.\16\
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    \16\ See Note 12 and accompanying text, supra.
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    Based on the foregoing, the Commission therefore finds that the 
proposed rule change is consistent with the Act.

IV. Solicitation of Comments on Amendments No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendments 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-NYSE-2020-66 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSE-2020-66. 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 this filing will also be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change.
    Persons submitting comments are cautioned that we do not redact or 
edit personal identifying information from comment submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-NYSE-2020-66 
and should be submitted on or before December 4, 2020.

V. Accelerated Approval of the 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 Amendment No. 1 in the Federal 
Register. In Amendment No. 1, the Exchange added to its proposal the 
representation that it will monitor, via examination-based 
surveillance, member organization compliance with its supervisory 
obligation to ensure that orders placed by their customers in fact 
originate from Independent Units.\17\
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    \17\ See Note 12 and accompanying text, supra.
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    The Commission finds that Amendment No. 1 is consistent with the 
Act in that is designed, among other things, to prevent fraudulent and 
manipulative acts and practices and to promote just and equitable 
principles of trade. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\18\ to approve the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change SR-NYSE-2020-66, as modified by 
Amendment No. 1 be, and hereby is, approved.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25059 Filed 11-12-20; 8:45 am]
BILLING CODE 8011-01-P

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