Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change To Amend Rule 7.31E(h)(3), 17349-17350 [2022-06386]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 59 (Monday, March 28, 2022)]
[Notices]
[Pages 17349-17350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06386]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94487; File No. SR-NYSEAMER-2022-15]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed Rule Change To Amend Rule 7.31E(h)(3)

March 22, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on March 9, 2022, NYSE American LLC (``NYSE American'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.31E(h)(3). The proposed rule 
change is available on the Exchange's website at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 7.31E(h)(3) to modify certain 
factors relevant to the quote instability calculation for Discretionary 
Pegged Orders. Specifically, the Exchange proposes to amend Rule 
7.31E(h)(3)(D)(i)(D)(1)(a), which sets forth the quote stability 
coefficients. Under Rule 7.31E(h)(3)(D)(i)(D)(3), the Exchange may 
modify the quote stability coefficients at any time, subject to a 
filing of a proposed rule change. The Exchange proposes such changes in 
this rule filing.
Discretionary Pegged Orders
    Rule 7.31E(h)(3) provides for Discretionary Pegged Orders, which 
are Pegged Orders \4\ that may exercise price discretion from their 
working price to a discretionary price in order to trade with contra-
side orders on the Exchange Book, except during periods of quote 
instability as defined in Rule 7.31E(h)(3)(D).
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    \4\ A Pegged Order is a Limit Order that does not route with a 
working price that is pegged to a dynamic reference price. If the 
designated reference price is higher (lower) than the limit price of 
a Pegged Order to buy (sell), the working price will be the limit 
price of the order. See Rule 7.31E(h).
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    Rule 7.31E(h)(3)(D) provides that the Exchange uses a quote 
instability calculation to assess a security's ``quote instability 
factor,'' or the probability of an imminent change to the current PBB 
to a lower price or PBO to a higher price.\5\ When quoting activity in 
a security meets predefined criteria and the quote instability factor 
calculated is greater than the Exchange's defined ``quote instability 
threshold,'' the Exchange treats the quote as unstable (``quote 
instability'' or a ``crumbling quote'').
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    \5\ NYSE American Rule 1.1E(dd) defines PBB as the highest 
Protected Bid and PBO as the lowest Protected Offer. Rule 1.1E(dd) 
also provides that ``PBBO'' means the Best Protected Bid and the 
Best Protected Offer.
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    Rule 7.31E(h)(3)(D)(i) provides that the Exchange determines a 
quote to be unstable when, among other factors, the quote instability 
factor result from the quote stability calculation is greater than the 
quote instability threshold. To perform the quote stability calculation 
and determine the quote instability factor, the Exchange employs a 
fixed formula utilizing the quote stability coefficients and quote 
stability variables set forth in Rule 7.31E(h)(3)(D)(i)(D)(1)(a) and 
Rule 7.31E(h)(3)(D)(i)(D)(1)(b), respectively.
Proposed Rule Change
    The Exchange proposes to update the quote stability coefficients 
used in the quote instability calculation, which have not been modified 
since Rule 7.31E(h)(3) was adopted. The proposed changes are intended 
to update the quote stability coefficients to be based on more current 
market data and activity on the Exchange, including to reflect the 
Exchange's elimination of a delay mechanism that previously added 
latency to certain order processing (the ``Delay Mechanism'').\6\
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    \6\ The Exchange eliminated the Delay Mechanism, which added a 
delay of 350 microseconds of latency to specified order processing, 
in 2019. See Securities Exchange Act Release No. 87550 (November 15, 
2019), 84 FR 64359 (November 21, 2019) (SR-NYSEAMER-2019-48) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change to 
Amend Exchange Rules 1.1E and 7.29E to Eliminate the Delay Mechanism 
and Amend Exchange Rule 7.31E and Related Exchange Rules to Re-
Introduce Previously-Approved Order Types and Modifiers).
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    The Exchange reviewed NYSE American market data from randomly 
selected days in the fourth quarter of 2021 to analyze the 
effectiveness of the quote stability coefficients in predicting changes 
to the PBBO. Specifically, the Exchange reviewed PBBO data, on a 
nanosecond level, for certain intervals throughout each randomly 
selected day to track changes to quotes on NYSE American and away 
markets. The Exchange used this data to generate and test the proposed 
quote stability coefficients, and based on its analysis, believes that 
modifying the quote stability coefficients would enable the Exchange to 
evaluate the quality of the PBBO more effectively.
    The Exchange proposes to modify the quote stability coefficients 
set forth in Rule 7.31E(h)(3)(D)(i)(D)(1)(a)(i) through (v) as follows:

------------------------------------------------------------------------
                                                  Current      Proposed
          Quote stability coefficient              value        value
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C0............................................     -2.39515    -2.174901

[[Page 17350]]

 
C1............................................     -0.76504    -0.561555
C2............................................      0.07599     0.077739
C3............................................      0.38374    0.4860265
C4............................................      0.14466    0.1627735
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    The Exchange believes that its proposed modification of the quote 
stability coefficients, based on the market data analysis described 
above, would improve the accuracy of the fixed formula used to perform 
the quote instability calculation. Specifically, the Exchange believes 
that the proposed quote stability coefficients, which have been 
adjusted to reflect more recent activity on the Exchange (including the 
elimination of the Delay Mechanism), would improve the calibration of 
the quote instability calculation to activity on the Exchange, thereby 
enhancing the Exchange's ability to predict whether there is quote 
instability and protect Discretionary Pegged Orders from exercising 
discretion when the PBBO is unstable.
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the implementation date by 
Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\7\ in general, and furthers the objectives of Section 6(b)(5),\8\ 
in particular, because it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, in general, to protect investors and 
the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed change would promote just 
and equitable principles of trade, remove impediments to, and perfect 
the mechanism of, a free and open market and a national market system, 
and protect investors and the public interest because it is designed to 
increase the effectiveness of the quote instability calculation used to 
determine whether a crumbling quote exists. As discussed above, the 
proposed change is based on the Exchange's analysis of market data, 
which supports that the proposed change would improve the accuracy of 
the Exchange's quote instability calculation. Accordingly, the Exchange 
believes that the proposed change would remove impediments to, and 
perfect the mechanism of, a free and open market and a national market 
system, as well as protect investors and the public interest, by 
enhancing the Exchange's protection of Discretionary Pegged Orders. 
Specifically, because the proposed quote stability coefficients were 
derived through an analysis of more recent market data and are 
calibrated to reflect current activity on the Exchange (including to 
account for the fact that the Exchange no longer operates with the 
Delay Mechanism), the Exchange believes that the proposed change would 
improve the effectiveness of the quote instability calculation in 
predicting periods of quote instability and thus enhance the extent to 
which Discretionary Pegged Orders would be protected from unfavorable 
executions.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed change would promote competition by improving the accuracy 
of the quote instability calculation, thereby enhancing the protection 
of Discretionary Pegged Orders from unfavorable executions during 
periods of quote instability.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2022-15 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-NYSEAMER-2022-15. 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-NYSEAMER-2022-15 and should be submitted 
on or before April 18, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06386 Filed 3-25-22; 8:45 am]
BILLING CODE 8011-01-P