Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.19 Pertaining to Pre-trade Risk Controls, 10592-10597 [2023-03480]
Download as PDF
<![CDATA[
10592
Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
19b–4(f)(6) thereunder.8 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 9 and Rule 19b–4(f)(6)(iii)
thereunder.10
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
under section 19(b)(2)(B) 11 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–
CboeEDGX–2023–011 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–CboeEDGX–2023–011. This
file number should be included on the
subject line if email is used. To help the
8 17
CFR 240.19b–4(f)(6).
U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
11 15 U.S.C. 78s(b)(2)(B).
lotter on DSK11XQN23PROD with NOTICES1
9 15
VerDate Sep<11>2014
17:54 Feb 17, 2023
Jkt 259001
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–CboeEDGX–2023–011 and
should be submitted on or before March
14, 2023.
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
topics:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Resolution of litigation claims; and
Other matters relating to examinations
and 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.
Authority: 5 U.S.C. 552b.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Sherry R. Haywood,
Assistant Secretary.
Dated: February 16, 2023.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2023–03473 Filed 2–17–23; 8:45 am]
[FR Doc. 2023–03650 Filed 2–16–23; 4:15 pm]
BILLING CODE 8011–01–P
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
2:00 p.m. on Thursday,
February 23, 2023.
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.
TIME AND DATE:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96920; File No. SR–
NYSECHX–2023–08]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 7.19
Pertaining to Pre-trade Risk Controls
February 14, 2023.
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 February
9, 2023, the NYSE Chicago, Inc. (‘‘NYSE
Chicago’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
12 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00098
Fmt 4703
Sfmt 4703
E:\FR\FM\21FEN1.SGM
21FEN1
Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
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
Rule 7.19 pertaining to pre-trade risk
controls to make additional pre-trade
risk controls available to Entering Firms.
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
lotter on DSK11XQN23PROD with NOTICES1
The Exchange proposes to amend
Rule 7.19 pertaining to pre-trade risk
controls to make additional pre-trade
risk controls available to Entering Firms.
The Exchange originally filed on
December 8, 2022 to make this change
immediately effective and that filing
was published for comment in the
Federal Register on December 19,
2022.4 In light of a comment letter dated
January 5, 2023,5 the Exchange
withdrew the original filing and now
submits this revised filing to address
4 See Securities Exchange Act Release No. 96488
(December 13, 2022), 87 FR 77651 (December 19,
2022) (SR–NYSECHX–2022–30).
5 See Letter to Vanessa Countryman, Secretary,
Securities and Exchange Commission, from Gerard
P. O’Connor, Vice President and General Counsel of
Hyannis Port Research, Inc. (‘‘HPR Letter’’) dated
January 5, 2023, available at https://www.sec.gov/
comments/sr-nyseamer-2022-53/srnyseamer20225320154615-322842.pdf. HPR is a provider of (among
other things) non-exchange based risk controls
solutions.
VerDate Sep<11>2014
17:54 Feb 17, 2023
Jkt 259001
several of the points raised in the
comment letter.
Background and Purpose
In 2020, in order to assist Participants’
efforts to manage their risk, the
Exchange amended its rules to add Rule
7.19 (Pre-Trade Risk Controls),6 which
established a set of optional pre-trade
risk controls by which Entering Firms
and their designated Clearing Firms 7
could set credit limits and other pretrade 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. Specifically, the
Exchange added a Gross Credit Risk
Limit, a Single Order Maximum
Notional Value Risk Limit, and a Single
Order Maximum Quantity Risk Limit 8
(collectively, the ‘‘2020 Risk Controls’’).
The Exchange now proposes to
expand the list of the optional pre-trade
risk controls available to Entering Firms
by adding several additional pre-trade
risk controls that would provide
Entering Firms with enhanced abilities
to manage their risk with respect to
orders on the Exchange. As detailed
below, each of the proposed additional
risk controls is modeled on risk settings
that are already available on the Cboe,9
Nasdaq,10 MEMX,11 and MIAX Pearl 12
equities exchanges.
6 See Securities Exchange Act Release No. 88903
(May 19, 2020), 85 FR 31578 (May 26, 2020) (SR–
NYSECHX–2020–14).
7 The terms ‘‘Entering Firm’’ and ‘‘Clearing Firm’’
are defined in Rule 7.19.
8 The terms ‘‘Gross Credit Risk Limit,’’ ‘‘Single
Order Maximum Notional Value Risk Limit, and
‘‘Single Order Maximum Quantity Risk Limit’’ are
defined in Rule 7.19.
9 See Securities Exchange Act Release Nos. 80611
(May 5, 2017), 82 FR 22045 (May 11, 2017) (SR–
BatsBZX–2017–24) (adopting Rule 11.13,
Interpretation and Policies .01); 80612 (May 5,
2017), 82 FR 22024 (May 11, 2017) (SR–BatsBYX–
2017–07) (same); 80608 (May 5, 2017), 82 FR 22030
(May 11, 2017) (SR–BatsEDGA–2017–07) (adopting
Rule 11.10, Interpretation and Policies .01); 80607
(May 5, 2017), 82 FR 22027 (May 11, 2017) (SR–
BatsEDGX–2017–16) (same).
10 See, e.g., Securities Exchange Act Release Nos.
82479 (January 10, 2018), 83 FR 2471 (January 17,
2018) (SR–Nasdaq–2018–002) (adopting IM–6200–
1); 90577 (December 7, 2020), 85 FR 80202
(December 11, 2020) (SR–Nasdaq–2020–79)
(moving IM–6200–1 into Equity 6, Section 5). See
also Securities Exchange Act Release Nos. 82545
(January 19, 2018), 83 FR 3834 (January 26, 2018)
(SR–BX–2018–001) (adopting Rule 4765 and
commentary thereto); 91830 (May 10, 2021), 86 FR
26567 (May 14, 2021) (SR–BX–2021–012) (moving
Rule 4765 and commentary into Equity 6, Section
5).
11 See Securities Exchange Act Release No. 89581
(August 17, 2020), 85 FR 51799 (August 21, 2020)
(SR–MEMX–2020–04) (adopting Rule 11.10,
Interpretation and Policies .01).
12 See Securities Exchange Act Release Nos.
89563 (August 14, 2020), 85 FR 51510 (August 20,
2020) (SR–PEARL–2020–03) (adopting Rule
2618(a)(1)(A)–(D)); 96205 (November 1, 2022), 87
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
10593
Like the 2020 Risk Controls, use of the
pre-trade risk controls proposed herein
is optional, but all orders on the
Exchange would pass through these risk
checks. As such, an Entering Firm that
does not choose to set limits pursuant
to the new proposed pre-trade risk
controls would not achieve any latency
advantage with respect to its trading
activity on the Exchange.
The HPR Letter questions why the
Exchange proposes to make all orders
on the Exchange pass through its risk
checks, even if a particular firm trading
on the Exchange opts not to employ the
Exchange’s pre-trade risk controls. The
Exchange has chosen to implement its
risk checks ‘‘symmetrically’’ to all
orders because that is the functionality
that clients have specifically requested,
and it is also the recognized best
practice in this area. In a September
2021 white paper entitled ‘‘Market Lens:
Exchange Best Practices for Reducing
Operational Risk at Broker-Dealers,’’ 13
Citadel Securities requested that
exchanges assist firms in mitigating
operational trading risk by instituting
exchange-based risk controls, but
expressly cautioned exchanges against
segmenting orders into those that would
pass through risk checks versus those
that would not. Citadel noted that such
segmentation of orders would ‘‘produce
incentives for all firms to avoid using
any controls, for fear of suffering a
competitive disadvantage.’’ 14 Instead,
Citadel recommended that exchanges
‘‘ensure orders follow the same order
processing logic regardless of which
options or features are enabled,’’ 15 in
FR 67080 (November 7, 2022) (SR–PEARL–2022–
43) (adopting subsections (E)–(H) to Rule
2618(a)(1)).
13 See Citadel Securities, ‘‘Market Lens: Exchange
Best Practices for Reducing Operational Risk at
Broker-Dealers’’ (‘‘Citadel white paper’’) dated
September 2021, available at https://
www.citadelsecurities.com/wp-content/uploads/
sites/2/2021/09/Citadel_Securities_Market-Lens_
Sept_2021_Exchange-Best-Practices-for-ReducingOperational-Risk.pdf. As Citadel put it (at page 5):
Insufficiently well-designed and tested controls
can create what amount to penalties, driven by the
time and computational power required to perform
various stages of checks, if applied only to
participants who opt-in to their use. This could
produce incentives for all firms to avoid using any
controls, for fear of suffering a competitive
disadvantage. One way to address this, while
maintaining choice for member firms, is to ensure
orders follow the same order processing logic
regardless of which options or features are
enabled—similar to how all colocated servers in an
equalized data center incur the same cabling
distance to the matching engine, regardless of their
physical proximity to it. Additionally, exchanges
should vigorously test controls to ensure no latency
penalty exists in practice. Exchanges should
actively publicize the net-neutral risk controls.
14 Id. at 5.
15 Id.
E:\FR\FM\21FEN1.SGM
21FEN1
10594
Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
order to eliminate any competitive
advantage or disadvantages for clients.
This is the model that the Exchange
used in building the 2020 Risk Controls
that the Commission approved in
2020,16 and is the same model that the
Exchange proposes would apply to the
additional pre-trade risk checks
proposed here. There is nothing unique
about this approach. Functionality on
the Exchange’s trading systems is often
applied uniformly to all orders,
regardless of whether a particular client
has opted to use that functionality for a
particular order. For example, the
Exchange’s limit order price protection
applies generally to trading on the
Exchange and orders with limit prices
are not processed more slowly than
those without. Similarly, the Exchange’s
trading systems check all orders for a
variety of details and modifiers (e.g.,
duplicative client order check, order
capacity check, and self-trade
prevention).
The Exchange understands that the
risk checks of other exchanges, on
which the proposed rule is modeled,
also apply symmetrically to all orders.17
The Exchange also notes that the Citadel
white paper cited above was written ‘‘in
collaboration with several major
exchanges, including NYSE, Nasdaq,
MIAX, MEMX, and BOX,’’ suggesting
that some or all of those exchanges may
also employ the symmetrical
application of risk checks that the
Citadel white paper recommends.18
The Exchange stated in its original
filing for the current proposal that it
expects that any latency added by the
proposed additional pre-trade risk
controls would be de minimis.
Specifically, the Exchange expects that
the latency added by the combination of
the 2020 Risk Checks plus the proposed
16 See Securities Exchange Act Release No. 88776
(April 29, 2020), 85 FR 26768 (May 5, 2020) (SR–
NYSE–2020–17) (order approving pre-trade risk
controls on the Exchange’s affiliate exchange, the
New York Stock Exchange LLC). The Commission
concluded that ‘‘the proposed rule change is
reasonably designed to provide members with
optional tools to manage their credit risk.’’ Id. at
26770.
17 See, e.g., MEMX Risk FAQ, dated October 13,
2020, available at https://info.memxtrading.com/usequities-faq/#Bookmark21 (‘‘The risk checks are
applied in a consistent manner to all participant
orders in order to mitigate risk without incurring
latency disadvantage.’’); MIAX Pearl Equities
Exchange User Manual, updated October 2022,
available at https://www.miaxequities.com/sites/
default/files/website_file-files/MIAX_Pearl_
Equities_User_Manual_October_2022.pdf, at 29
(stating that all but two of the exchange’s 14 risk
checks ‘‘are latency equalized i.e. there is no latency
penalty for a member when opting into and
leveraging a risk protection available on the
exchange when entering an order as compared to
a member not opting into the risk protection when
entering an order’’).
18 See Citadel white paper, supra note 13, at 2.
VerDate Sep<11>2014
17:54 Feb 17, 2023
Jkt 259001
additional pre-trade risk controls would
be significantly less than one
microsecond. Nevertheless, seizing on
the phrase ‘‘de minimis,’’ HPR argues
that the Commission’s 2016
interpretation regarding automated
quotations under Regulation NMS 19
applies here and should require the
Exchange to justify this de minimis
latency change in a number of ways.20
But that Commission interpretation
pertains to ‘‘intentional access delays,’’
like speed bumps—not to the issues
here. The Exchange’s pre-trade risk
controls are not an intentional access
delay,21 but a functional enhancement
to the Exchange’s trading systems, and,
like any change to a trading system’s
function or performance, may impact
the overall speed of trading on the
Exchange in ways that can increase or
decrease overall latency. It is within the
Exchange’s prerogative as a market
center in the current hotly competitive
environment to assess whether and
when to make functional enhancements
to its trading systems. What is key under
the Exchange Act is that any anticipated
latency effects of such enhancements
are applied uniformly, to all orders of
all market participants, in a nondiscriminatory way—as the risk controls
proposed here would be. If market
participants find that the latency cost of
such enhancements is not justified by
the additional functionality they offer,
such market participants will vote with
their feet and send their order flow
elsewhere.
With one exception, the additional
risk checks proposed here would be a
functional enhancement to the
Exchange’s Pillar gateway 22 and the risk
checks would be applied to all orders on
the Exchange. While the Exchange
strongly believes that symmetrical
application of all pre-trade risk controls
is the appropriate approach (as
explained above), providing customers
an opt-out ability would require the
Exchange to provide new order entry
19 See also Securities Exchange Act Release No.
78102 (June 17, 2016), 81 FR 40785 (June 23, 2016)
(File No. S7–03–16) (Commission Interpretation
Regarding Automated Quotations Under Regulation
NMS), available at https://www.sec.gov/rules/
interp/2016/34-78102.pdf.
20 HPR Letter, supra note 5, at 5–6.
21 Indeed, the Commission did not treat any of the
other exchanges’ filings for pre-trade risk controls
listed above in notes 9–12 as ‘‘intentional access
delays.’’
22 The one exception is the proposed pre-trade
risk control in paragraph (b)(2)(B), discussed below,
which would permit an Entering Firm to set dollarbased or percentage-based controls as to the price
of an order that are equal to or more restrictive than
the levels set out in Rule 7.31(a)(2)(B) regarding
Limit Order Price Protection. This risk check, like
the Exchange’s Limit Order Price Protection, is
implemented in the matching engine.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
ports that would bypass the evaluation
of such pre-trade risk protections.
Providing such new ports would burden
customers with additional costs to
purchase such ports and to migrate their
order flow to such ports. The Exchange
does not believe that the added expense
of creating such new ports (on the part
of the Exchange) or of purchasing and
migrating to them (on the part of
customers) is justified in light of the de
minimis latency imposed by the pretrade risk controls at issue.
The proposed new pre-trade risk
controls proposed herein would be
available to be set by Entering Firms
only. Clearing Firms designated by an
Entering Firm would continue to be able
to view all pre-trade risk controls set by
the Entering Firm and to set the 2020
Risk Controls on the Entering Firm’s
behalf.
Proposed Amendment to Rule 7.19
To accomplish this rule change, the
Exchange proposes to amend paragraph
(a) to include a new paragraph (a)(3)
that would define the term ‘‘Pre-Trade
Risk Controls’’ as all of the risk controls
listed in proposed paragraph (b),
inclusive of the 2020 Risk Controls and
the proposed new risk controls.
In proposed paragraph (b), the
Exchange proposes to list all Pre-Trade
Risk Controls available to Entering
Firms, which would include the
existing 2020 Risk Controls and the
proposed new controls. The Exchange
proposes to move the definition of Gross
Credit Risk Limit from current
paragraph (a)(5) to proposed paragraph
(b)(1), with no substantive change. Next,
the Exchange proposes to add paragraph
(b)(2), which would list all available
‘‘Single Order Risk Controls.’’ The
Exchange proposes to move the
definitions of Single Order Maximum
Notional Value Risk Limit and Single
Order Maximum Quantity Risk Limit
from current paragraphs (a)(3) and (a)(4)
to proposed paragraph (b)(2)(A), with no
substantive change. Next, the Exchange
proposes to add paragraphs (b)(2)(B)
through (b)(2)(F) to enumerate the
proposed new Single Order Risk
Controls, as follows:
(B) controls related to the price of an
order (including percentage-based and
dollar-based controls);
(C) controls related to the order types
or modifiers that can be utilized;
(D) controls to restrict the types of
securities transacted (including but not
limited to restricted securities);
(E) controls to prohibit duplicative
orders; and
(F) controls related to the size of an
order as compared to the average daily
volume of the security (including the
E:\FR\FM\21FEN1.SGM
21FEN1
lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
ability to specify the minimum average
daily volume for the securities for
which such controls will be activated).
Each of the Single Order Risk Controls
in proposed paragraph (b)(2) is
substantively identical to risk settings
available on the Cboe, Nasdaq, MEMX,
and MIAX Pearl 23 equities exchanges.
As such, the proposed new Pre-Trade
Risk Controls are familiar to market
participants and are not novel.
The Exchange proposes to move
current paragraph (b)(2) to proposed
paragraph (c) and to re-name that
paragraph ‘‘Pre-Trade Risk Controls
Available to Clearing Firms.’’ The
Exchange proposes to renumber current
paragraphs (b)(2)(A), (b)(2)(B), and
(b)(2)(C) as paragraphs (c)(1), (c)(2), and
(c)(3) accordingly. The Exchange
proposes to smooth the grammar in
proposed paragraph (c)(1) by moving the
‘‘or both’’ language from the end of the
sentence to the beginning, to clarify that
an Entering Firm that does not self-clear
may designate its Clearing Firm to take
either or both of the following actions:
viewing or setting Pre-Trade Risk
Controls on the Entering Firm’s behalf.
Finally, in proposed paragraph (c)(1)(B),
the Exchange proposes to specify that
Clearing Firms so-designated may only
set the 2020 Risk Controls on an
Entering Firm’s behalf; the proposed
new risk controls set out in proposed
paragraph (b)(2)(B) through (b)(2)(F) are
available to be set by Entering Firms
only. The Exchange does not propose
any changes to proposed paragraph
(c)(2), and with respect to proposed
paragraph (c)(3), proposes only to
update internal cross-references.
The Exchange proposes to move
current paragraph (b)(3) regarding
‘‘Setting and Adjusting Pre-Trade Risk
Controls’’ to proposed paragraph (d),
and to renumber current paragraphs
(b)(3)(A) and (b)(3)(B) as proposed
paragraphs (d)(1) and (d)(2) accordingly.
The Exchange proposes to amend the
text of proposed paragraph (d)(2) to state
that in addition to Pre-Trade Risk
Controls being available to be set at the
MPID level or at one or more sub-IDs
associated with that MPID, or both, PreTrade Risk Controls related to the short
selling of securities, transacting in
restricted securities, and the size of an
order compared to the average daily
volume of a security must be set per
symbol.
The Exchange proposes to move
current paragraph (b)(4) regarding
‘‘Notifications’’ to paragraph (e), with no
changes.
The Exchange proposes to move
current paragraph (c) regarding
23 See
supra notes 9–12.
VerDate Sep<11>2014
17:54 Feb 17, 2023
Jkt 259001
‘‘Automated Breach Actions’’ to
proposed paragraph (f) and to renumber
current paragraphs (c)(1), (c)(2), (c)(3),
and (c)(4) as paragraphs (f)(1), (f)(2),
(f)(3), and (f)(4) accordingly. The
Exchange proposes no changes to the
text of proposed paragraphs (f)(1), (f)(3),
or (f)(4), other than to update an internal
cross-reference. With respect to
proposed paragraph (f)(2) regarding
‘‘Breach Action for Single Order Risk
Limits,’’ the Exchange proposes to
change the word ‘‘Limits’’ in the
heading to ‘‘Controls.’’ The Exchange
further proposes to amend the text of
current paragraph (c)(2) to specify in
paragraph (f)(2)(A) that if an order
would breach a price control under
paragraph (b)(2)(B), it would be rejected
or canceled as specified in Rule
7.31(a)(2)(B) (the ‘‘Limit Order Price
Protection Rule’’), while providing in
paragraph (f)(2)(B) that an order that
breaches the designated limit of any
other Single Order Risk Control would
be rejected.
The Exchange proposes to move
current paragraph (d) regarding
‘‘Reinstatement of Entering Firm After
Automated Breach Action’’ to proposed
paragraph (g), with no changes.
The Exchange proposes to move
current paragraph (e) regarding ‘‘Kill
Switch Actions’’ to proposed paragraph
(h) with no changes, other than to
update an internal cross-reference.
The Exchange proposes no changes to
Commentary .01 to the Rule. The
Exchange proposes to add Commentary
.02 to specify the interplay between the
Exchange’s Limit Order Price Protection
Rule and the price controls that may be
set by an Entering Firm pursuant to
proposed paragraph (b)(2)(B). Proposed
Commentary .02 specifies that pursuant
to paragraph (b)(2)(B), an Entering Firm
may always set dollar-based or
percentage-based controls as to the price
of an order that are equal to or more
restrictive than the levels set out in Rule
7.31(a)(2)(B) regarding Limit Order Price
Protection (e.g., the greater of $0.15 or
10% (for securities with a reference
price up to and including $25.00), 5%
(for securities with a reference price of
greater than $25.00 and up to and
including $50.00), or 3% (for securities
with a reference price greater than
$50.00) away from the NBB or NBO).
However, an Entering Firm may set
price controls under paragraph (b)(2)(B)
that are less restrictive than the levels in
the Limit Order Price Protection Rule
only (i) outside of Core Trading Hours
or (ii) with respect to LOC Orders.
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
10595
Continuing Obligations of Participants
Under Rule 15c3–5
The proposed Pre-Trade Risk Controls
described here are meant to supplement,
and not replace, the Participants’ 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 a
Participant’s needs, the controls are not
designed to be the sole means of risk
management, and using these controls
will not necessarily meet an
Participant’s obligations required by
Exchange or federal rules (including,
without limitation, the Rule 15c3–5
under the Act 24 (‘‘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 SEC
rules remains with the Participant.25
Timing and Implementation
The Exchange anticipates completing
the technological changes necessary to
implement the proposed rule change in
the first quarter of 2023, but in any
event no later than April 30, 2023. The
Exchange anticipates announcing the
availability of the Pre-Trade Risk
Controls introduced in this filing by
Trader Update in the first quarter of
2023.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,26 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,27 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
24 See
17 CFR 240.15c3–5.
also Commentary .01 to Rule 7.19, which
provides that ‘‘[t]he pre-trade risk controls
described in this Rule are meant to supplement, and
not replace, the Participant’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 Participant.’’
26 15 U.S.C. 78f(b).
27 15 U.S.C. 78f(b)(5).
25 See
E:\FR\FM\21FEN1.SGM
21FEN1
10596
Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
discrimination between customers,
issuers, brokers, or dealers.28
Specifically, the Exchange believes
that the proposed rule change will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed additional Pre-Trade Risk
Controls would provide Entering Firms
with enhanced abilities to manage their
risk with respect to orders on the
Exchange. The proposed additional PreTrade Risk Controls are not novel; they
are based on existing risk settings
already in place on the Cboe, Nasdaq,
MEMX, and MIAX Pearl equities
exchanges 29 and market participants are
already familiar with the types of
protections that the proposed risk
controls afford. As such, the Exchange
believes that the proposed additional
Pre-Trade Risk Controls would provide
a means to address potentially marketimpacting events, helping to ensure the
proper functioning of the market.
In addition, the Exchange believes
that the proposed rule change will
protect investors and the public interest
because the proposed additional PreTrade Risk Controls are a form of impact
mitigation that will aid Entering Firms
in minimizing their risk exposure and
reduce the potential for disruptive,
market-wide events. The Exchange
understands that Participants
implement a number of different riskbased controls, including those required
by Rule 15c3–5. The controls proposed
here will serve as an additional tool for
Entering Firms to assist them in
identifying any risk exposure. The
Exchange believes the proposed
additional Pre-Trade Risk Controls will
assist Entering 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.
The Exchange believes that the
proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system by
permitting Entering Firms to set price
controls under paragraph (b)(2)(B) that
are equal to or more restrictive than the
levels in the Exchange’s Limit Order
28 HPR argues that the Exchange should be
compelled to submit this proposal as a fee filing
pursuant to Section 19(b)(3)(A)(ii) of the Exchange
Act. See HPR Letter, supra note 5, at 6–8. But that
provision only applies to rule filings ‘‘establishing
or charging a due, fee, or other charge imposed by
the [SRO] . . . .’’ Because the Exchange does not
propose to charge any fees for the proposed services
here, Section 19(b)(3)(A)(ii) is inapplicable.
Notably, the Commission did not treat any of the
other exchanges’ filings for pre-trade risk controls
listed above in notes 9–12 as fee filings.
29 See supra notes 9–12.
VerDate Sep<11>2014
17:54 Feb 17, 2023
Jkt 259001
Price Protection Rule, but preventing
Entering Firms from setting price
controls that are less restrictive than
those levels during Core Trading Hours
in most circumstances. The Exchange’s
Limit Order Price Protection Rule
protects from aberrant trades, thus
improving continuous trading and price
discovery. The Exchange believes that
Entering Firms should not be able to
circumvent the protections of that rule
by setting lower levels during Core
Trading Hours, except with respect to
orders that participate in the Closing
Auction (e.g., LOC Orders).30 But under
the proposed rule, Entering Firms
seeking to further manage their
exposure to aberrant trades would be
permitted to set price controls at levels
that are more restrictive than in the
Exchange’s Limit Order Price Protection
Rule. Additionally, because price
controls set by an Entering Firm under
paragraph (b)(2)(B) would function as a
form of limit order price protection, the
Exchange believes that it would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system for an
order that would breach such a price
control to be rejected or canceled as
specified in the Limit Order Price
Protection Rule.
Finally, the Exchange believes that
the proposed rule change does not
unfairly discriminate among the
Exchange’s Participants because use of
the proposed additional 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 Participants who have opted to use
the proposed additional Pre-Trade Risk
Controls versus those who have not
opted to use them. The Exchange does
not believe it is unfairly discriminatory
to have all orders on the Exchange pass
through the risk checks, even for
Participants that opt not to use the
Exchange’s pre-trade risk controls. As
described above, the proposed risk
checks are a functional enhancement to
the Exchange’s trading systems that the
Exchange proposes to apply uniformly
to all orders on the Exchange; by
applying them uniformly, the Exchange
would avoid producing incentives for
all firms to avoid using the risk controls
for fear of suffering a competitive
disadvantage. Additionally, any latency
imposed by the pre-trade risk controls
proposed here is de minimis and would
not have a material impact on the order
30 LOC Orders are not subject to the Limit Order
Price Protection in Rule 7.31(a)(2)(B).
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
flow of Participants that choose to
employ non-exchange providers (such
as HPR) to provide them with risk
control solutions.
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
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 additional Pre-Trade Risk
Controls will assist Entering 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.
In its letter, HPR contends that it is an
unnecessary burden on competition for
the Exchange to have all orders—even
the orders of Participants that choose
not to use the proposed pre-trade risk
controls—to pass through the
Exchange’s checks because doing so will
reduce customer demand for HPR’s risk
control services. HPR argues that by
imposing latency from its risk checks on
all orders, the Exchange has created a
‘‘latency tax’’ that would encourage
customers to use the Exchange’s risk
controls instead of third-party risk
solutions like HPR’s.31 These assertions
are factually incorrect and obscure the
very real differences between the
Exchange’s pre-trade risk controls and
the services that HPR offers. The
Exchange understands that HPR’s
enterprise risk management solutions,
like those of its competitors, permit its
clients to track aggregated risk across all
markets and provide consolidated risk
management capabilities. In contrast,
exchange based-solutions such as the
Exchange’s only offer tools to manage
risk across the Exchanges and its
affiliate exchanges (e.g., the NYSE
Group exchanges). The Exchange’s
proposed risk checks would not and
could not replace HPR’s far broader
offering. In addition, as the Exchange
made clear in its filing for the 2020 Risk
31 See HPR Letter, supra note 5, at 4 (claiming the
Exchange has ‘‘architected the proposed risk
controls to give [itself] an unfair and anticompetitive latency advantage over non-exchange
offerings provided by broker-dealers or vendors
such as HPR.’’).
E:\FR\FM\21FEN1.SGM
21FEN1
Federal Register / Vol. 88, No. 34 / Tuesday, February 21, 2023 / Notices
Controls and repeats here, the
Exchange’s pre-trade risk controls are
not a complete Rule 15c3–5 solution.
The Exchange’s risk controls are meant
to supplement, and not replace, an
Participant’s own internal risk
management systems (which firms may
outsource to providers like HPR), and
the Exchange’s controls are not designed
to be the sole means of risk management
that any firm uses. Additionally, any
latency imposed by the Pre-Trade Risk
Controls proposed here is de minimis
and would not have a material impact
on the order flow of Participants that
choose to employ non-exchange
providers (such as HPR) to provide them
with risk control solutions.
Finally, the Exchange believes it
would be an unfair burden on
competition for the Commission to
suspend and ultimately disapprove the
pre-trade risk controls proposed here,
where substantially identical controls
are already in place on numerous of the
Exchange’s competitor exchanges.32
Since 2017, equities exchanges have
been adding pre-trade risk controls to
their trading systems. It would be an
unjustifiable burden on competition and
on the Exchange for the Commission to
permit all equities exchanges to offer
such functionality except for the
Exchange and its affiliates mentioned in
the HPR Letter. Specifically, the
Exchange would be at a significant
competitive disadvantage vis-a`-vis other
equities exchanges that already offer the
type of pre-trade risk controls proposed
in this filing as Participants may choose
to direct order flow away from the
Exchange until it is able to offer such
competing pre-trade risk controls.
lotter on DSK11XQN23PROD with NOTICES1
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 33 and Rule
19b–4(f)(6) thereunder.34 Because the
foregoing 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
for 30 days from the date on which it
32 See
supra notes 9–12.
33 15 U.S.C. 78s(b)(3)(A)(iii).
34 17 CFR 240.19b–4(f)(6).
VerDate Sep<11>2014
17:54 Feb 17, 2023
Jkt 259001
was filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 35 and
subparagraph (f)(6) of Rule 19b–4
thereunder.36
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
under Section 19(b)(2)(B) 37 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–
NYSECHX–2023–08 on the subject line.
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSECHX–2023–08. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
35 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
37 15 U.S.C. 78s(b)(2)(B).
36 17
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
10597
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSECHX–2023–08 and
should be submitted on or before March
14, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–03480 Filed 2–17–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96921; File No. SR–
NYSEARCA–2023–13]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 7.19–E
Pertaining to Pre-Trade Risk Controls
February 14, 2023.
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 February
9, 2023, NYSE Arca, Inc. (‘‘NYSE Arca’’
or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
38 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
E:\FR\FM\21FEN1.SGM
21FEN1
]]>Agencies
[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10592-10597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03480]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96920; File No. SR-NYSECHX-2023-08]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 7.19 Pertaining to Pre-trade Risk Controls
February 14, 2023.
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 February 9, 2023, the NYSE Chicago, Inc. (``NYSE Chicago'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the
[[Page 10593]]
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 7.19 pertaining to pre-trade
risk controls to make additional pre-trade risk controls available to
Entering Firms. 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 7.19 pertaining to pre-trade
risk controls to make additional pre-trade risk controls available to
Entering Firms. The Exchange originally filed on December 8, 2022 to
make this change immediately effective and that filing was published
for comment in the Federal Register on December 19, 2022.\4\ In light
of a comment letter dated January 5, 2023,\5\ the Exchange withdrew the
original filing and now submits this revised filing to address several
of the points raised in the comment letter.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 96488 (December 13,
2022), 87 FR 77651 (December 19, 2022) (SR-NYSECHX-2022-30).
\5\ See Letter to Vanessa Countryman, Secretary, Securities and
Exchange Commission, from Gerard P. O'Connor, Vice President and
General Counsel of Hyannis Port Research, Inc. (``HPR Letter'')
dated January 5, 2023, available at https://www.sec.gov/comments/sr-nyseamer-2022-53/srnyseamer202253-20154615-322842.pdf. HPR is a
provider of (among other things) non-exchange based risk controls
solutions.
---------------------------------------------------------------------------
Background and Purpose
In 2020, in order to assist Participants' efforts to manage their
risk, the Exchange amended its rules to add Rule 7.19 (Pre-Trade Risk
Controls),\6\ which established a set of optional pre-trade risk
controls by which Entering Firms and their designated Clearing Firms
\7\ could 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. Specifically, the Exchange added a Gross Credit Risk Limit, a
Single Order Maximum Notional Value Risk Limit, and a Single Order
Maximum Quantity Risk Limit \8\ (collectively, the ``2020 Risk
Controls'').
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 88903 (May 19,
2020), 85 FR 31578 (May 26, 2020) (SR-NYSECHX-2020-14).
\7\ The terms ``Entering Firm'' and ``Clearing Firm'' are
defined in Rule 7.19.
\8\ The terms ``Gross Credit Risk Limit,'' ``Single Order
Maximum Notional Value Risk Limit, and ``Single Order Maximum
Quantity Risk Limit'' are defined in Rule 7.19.
---------------------------------------------------------------------------
The Exchange now proposes to expand the list of the optional pre-
trade risk controls available to Entering Firms by adding several
additional pre-trade risk controls that would provide Entering Firms
with enhanced abilities to manage their risk with respect to orders on
the Exchange. As detailed below, each of the proposed additional risk
controls is modeled on risk settings that are already available on the
Cboe,\9\ Nasdaq,\10\ MEMX,\11\ and MIAX Pearl \12\ equities exchanges.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release Nos. 80611 (May 5,
2017), 82 FR 22045 (May 11, 2017) (SR-BatsBZX-2017-24) (adopting
Rule 11.13, Interpretation and Policies .01); 80612 (May 5, 2017),
82 FR 22024 (May 11, 2017) (SR-BatsBYX-2017-07) (same); 80608 (May
5, 2017), 82 FR 22030 (May 11, 2017) (SR-BatsEDGA-2017-07) (adopting
Rule 11.10, Interpretation and Policies .01); 80607 (May 5, 2017),
82 FR 22027 (May 11, 2017) (SR-BatsEDGX-2017-16) (same).
\10\ See, e.g., Securities Exchange Act Release Nos. 82479
(January 10, 2018), 83 FR 2471 (January 17, 2018) (SR-Nasdaq-2018-
002) (adopting IM-6200-1); 90577 (December 7, 2020), 85 FR 80202
(December 11, 2020) (SR-Nasdaq-2020-79) (moving IM-6200-1 into
Equity 6, Section 5). See also Securities Exchange Act Release Nos.
82545 (January 19, 2018), 83 FR 3834 (January 26, 2018) (SR-BX-2018-
001) (adopting Rule 4765 and commentary thereto); 91830 (May 10,
2021), 86 FR 26567 (May 14, 2021) (SR-BX-2021-012) (moving Rule 4765
and commentary into Equity 6, Section 5).
\11\ See Securities Exchange Act Release No. 89581 (August 17,
2020), 85 FR 51799 (August 21, 2020) (SR-MEMX-2020-04) (adopting
Rule 11.10, Interpretation and Policies .01).
\12\ See Securities Exchange Act Release Nos. 89563 (August 14,
2020), 85 FR 51510 (August 20, 2020) (SR-PEARL-2020-03) (adopting
Rule 2618(a)(1)(A)-(D)); 96205 (November 1, 2022), 87 FR 67080
(November 7, 2022) (SR-PEARL-2022-43) (adopting subsections (E)-(H)
to Rule 2618(a)(1)).
---------------------------------------------------------------------------
Like the 2020 Risk Controls, use of the pre-trade risk controls
proposed herein is optional, but all orders on the Exchange would pass
through these risk checks. As such, an Entering Firm that does not
choose to set limits pursuant to the new proposed pre-trade risk
controls would not achieve any latency advantage with respect to its
trading activity on the Exchange.
The HPR Letter questions why the Exchange proposes to make all
orders on the Exchange pass through its risk checks, even if a
particular firm trading on the Exchange opts not to employ the
Exchange's pre-trade risk controls. The Exchange has chosen to
implement its risk checks ``symmetrically'' to all orders because that
is the functionality that clients have specifically requested, and it
is also the recognized best practice in this area. In a September 2021
white paper entitled ``Market Lens: Exchange Best Practices for
Reducing Operational Risk at Broker-Dealers,'' \13\ Citadel Securities
requested that exchanges assist firms in mitigating operational trading
risk by instituting exchange-based risk controls, but expressly
cautioned exchanges against segmenting orders into those that would
pass through risk checks versus those that would not. Citadel noted
that such segmentation of orders would ``produce incentives for all
firms to avoid using any controls, for fear of suffering a competitive
disadvantage.'' \14\ Instead, Citadel recommended that exchanges
``ensure orders follow the same order processing logic regardless of
which options or features are enabled,'' \15\ in
[[Page 10594]]
order to eliminate any competitive advantage or disadvantages for
clients.
---------------------------------------------------------------------------
\13\ See Citadel Securities, ``Market Lens: Exchange Best
Practices for Reducing Operational Risk at Broker-Dealers''
(``Citadel white paper'') dated September 2021, available at https://www.citadelsecurities.com/wp-content/uploads/sites/2/2021/09/Citadel_Securities_Market-Lens_Sept_2021_Exchange-Best-Practices-for-Reducing-Operational-Risk.pdf. As Citadel put it (at page 5):
Insufficiently well-designed and tested controls can create what
amount to penalties, driven by the time and computational power
required to perform various stages of checks, if applied only to
participants who opt-in to their use. This could produce incentives
for all firms to avoid using any controls, for fear of suffering a
competitive disadvantage. One way to address this, while maintaining
choice for member firms, is to ensure orders follow the same order
processing logic regardless of which options or features are
enabled--similar to how all colocated servers in an equalized data
center incur the same cabling distance to the matching engine,
regardless of their physical proximity to it. Additionally,
exchanges should vigorously test controls to ensure no latency
penalty exists in practice. Exchanges should actively publicize the
net-neutral risk controls.
\14\ Id. at 5.
\15\ Id.
---------------------------------------------------------------------------
This is the model that the Exchange used in building the 2020 Risk
Controls that the Commission approved in 2020,\16\ and is the same
model that the Exchange proposes would apply to the additional pre-
trade risk checks proposed here. There is nothing unique about this
approach. Functionality on the Exchange's trading systems is often
applied uniformly to all orders, regardless of whether a particular
client has opted to use that functionality for a particular order. For
example, the Exchange's limit order price protection applies generally
to trading on the Exchange and orders with limit prices are not
processed more slowly than those without. Similarly, the Exchange's
trading systems check all orders for a variety of details and modifiers
(e.g., duplicative client order check, order capacity check, and self-
trade prevention).
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 88776 (April 29,
2020), 85 FR 26768 (May 5, 2020) (SR-NYSE-2020-17) (order approving
pre-trade risk controls on the Exchange's affiliate exchange, the
New York Stock Exchange LLC). The Commission concluded that ``the
proposed rule change is reasonably designed to provide members with
optional tools to manage their credit risk.'' Id. at 26770.
---------------------------------------------------------------------------
The Exchange understands that the risk checks of other exchanges,
on which the proposed rule is modeled, also apply symmetrically to all
orders.\17\ The Exchange also notes that the Citadel white paper cited
above was written ``in collaboration with several major exchanges,
including NYSE, Nasdaq, MIAX, MEMX, and BOX,'' suggesting that some or
all of those exchanges may also employ the symmetrical application of
risk checks that the Citadel white paper recommends.\18\
---------------------------------------------------------------------------
\17\ See, e.g., MEMX Risk FAQ, dated October 13, 2020, available
at https://info.memxtrading.com/us-equities-faq/#Bookmark21 (``The
risk checks are applied in a consistent manner to all participant
orders in order to mitigate risk without incurring latency
disadvantage.''); MIAX Pearl Equities Exchange User Manual, updated
October 2022, available at https://www.miaxequities.com/sites/default/files/website_file-files/MIAX_Pearl_Equities_User_Manual_October_2022.pdf, at 29 (stating
that all but two of the exchange's 14 risk checks ``are latency
equalized i.e. there is no latency penalty for a member when opting
into and leveraging a risk protection available on the exchange when
entering an order as compared to a member not opting into the risk
protection when entering an order'').
\18\ See Citadel white paper, supra note 13, at 2.
---------------------------------------------------------------------------
The Exchange stated in its original filing for the current proposal
that it expects that any latency added by the proposed additional pre-
trade risk controls would be de minimis. Specifically, the Exchange
expects that the latency added by the combination of the 2020 Risk
Checks plus the proposed additional pre-trade risk controls would be
significantly less than one microsecond. Nevertheless, seizing on the
phrase ``de minimis,'' HPR argues that the Commission's 2016
interpretation regarding automated quotations under Regulation NMS \19\
applies here and should require the Exchange to justify this de minimis
latency change in a number of ways.\20\ But that Commission
interpretation pertains to ``intentional access delays,'' like speed
bumps--not to the issues here. The Exchange's pre-trade risk controls
are not an intentional access delay,\21\ but a functional enhancement
to the Exchange's trading systems, and, like any change to a trading
system's function or performance, may impact the overall speed of
trading on the Exchange in ways that can increase or decrease overall
latency. It is within the Exchange's prerogative as a market center in
the current hotly competitive environment to assess whether and when to
make functional enhancements to its trading systems. What is key under
the Exchange Act is that any anticipated latency effects of such
enhancements are applied uniformly, to all orders of all market
participants, in a non-discriminatory way--as the risk controls
proposed here would be. If market participants find that the latency
cost of such enhancements is not justified by the additional
functionality they offer, such market participants will vote with their
feet and send their order flow elsewhere.
---------------------------------------------------------------------------
\19\ See also Securities Exchange Act Release No. 78102 (June
17, 2016), 81 FR 40785 (June 23, 2016) (File No. S7-03-16)
(Commission Interpretation Regarding Automated Quotations Under
Regulation NMS), available at https://www.sec.gov/rules/interp/2016/34-78102.pdf.
\20\ HPR Letter, supra note 5, at 5-6.
\21\ Indeed, the Commission did not treat any of the other
exchanges' filings for pre-trade risk controls listed above in notes
9-12 as ``intentional access delays.''
---------------------------------------------------------------------------
With one exception, the additional risk checks proposed here would
be a functional enhancement to the Exchange's Pillar gateway \22\ and
the risk checks would be applied to all orders on the Exchange. While
the Exchange strongly believes that symmetrical application of all pre-
trade risk controls is the appropriate approach (as explained above),
providing customers an opt-out ability would require the Exchange to
provide new order entry ports that would bypass the evaluation of such
pre-trade risk protections. Providing such new ports would burden
customers with additional costs to purchase such ports and to migrate
their order flow to such ports. The Exchange does not believe that the
added expense of creating such new ports (on the part of the Exchange)
or of purchasing and migrating to them (on the part of customers) is
justified in light of the de minimis latency imposed by the pre-trade
risk controls at issue.
---------------------------------------------------------------------------
\22\ The one exception is the proposed pre-trade risk control in
paragraph (b)(2)(B), discussed below, which would permit an Entering
Firm to set dollar-based or percentage-based controls as to the
price of an order that are equal to or more restrictive than the
levels set out in Rule 7.31(a)(2)(B) regarding Limit Order Price
Protection. This risk check, like the Exchange's Limit Order Price
Protection, is implemented in the matching engine.
---------------------------------------------------------------------------
The proposed new pre-trade risk controls proposed herein would be
available to be set by Entering Firms only. Clearing Firms designated
by an Entering Firm would continue to be able to view all pre-trade
risk controls set by the Entering Firm and to set the 2020 Risk
Controls on the Entering Firm's behalf.
Proposed Amendment to Rule 7.19
To accomplish this rule change, the Exchange proposes to amend
paragraph (a) to include a new paragraph (a)(3) that would define the
term ``Pre-Trade Risk Controls'' as all of the risk controls listed in
proposed paragraph (b), inclusive of the 2020 Risk Controls and the
proposed new risk controls.
In proposed paragraph (b), the Exchange proposes to list all Pre-
Trade Risk Controls available to Entering Firms, which would include
the existing 2020 Risk Controls and the proposed new controls. The
Exchange proposes to move the definition of Gross Credit Risk Limit
from current paragraph (a)(5) to proposed paragraph (b)(1), with no
substantive change. Next, the Exchange proposes to add paragraph
(b)(2), which would list all available ``Single Order Risk Controls.''
The Exchange proposes to move the definitions of Single Order Maximum
Notional Value Risk Limit and Single Order Maximum Quantity Risk Limit
from current paragraphs (a)(3) and (a)(4) to proposed paragraph
(b)(2)(A), with no substantive change. Next, the Exchange proposes to
add paragraphs (b)(2)(B) through (b)(2)(F) to enumerate the proposed
new Single Order Risk Controls, as follows:
(B) controls related to the price of an order (including
percentage-based and dollar-based controls);
(C) controls related to the order types or modifiers that can be
utilized;
(D) controls to restrict the types of securities transacted
(including but not limited to restricted securities);
(E) controls to prohibit duplicative orders; and
(F) controls related to the size of an order as compared to the
average daily volume of the security (including the
[[Page 10595]]
ability to specify the minimum average daily volume for the securities
for which such controls will be activated).
Each of the Single Order Risk Controls in proposed paragraph (b)(2)
is substantively identical to risk settings available on the Cboe,
Nasdaq, MEMX, and MIAX Pearl \23\ equities exchanges. As such, the
proposed new Pre-Trade Risk Controls are familiar to market
participants and are not novel.
---------------------------------------------------------------------------
\23\ See supra notes 9-12.
---------------------------------------------------------------------------
The Exchange proposes to move current paragraph (b)(2) to proposed
paragraph (c) and to re-name that paragraph ``Pre-Trade Risk Controls
Available to Clearing Firms.'' The Exchange proposes to renumber
current paragraphs (b)(2)(A), (b)(2)(B), and (b)(2)(C) as paragraphs
(c)(1), (c)(2), and (c)(3) accordingly. The Exchange proposes to smooth
the grammar in proposed paragraph (c)(1) by moving the ``or both''
language from the end of the sentence to the beginning, to clarify that
an Entering Firm that does not self-clear may designate its Clearing
Firm to take either or both of the following actions: viewing or
setting Pre-Trade Risk Controls on the Entering Firm's behalf. Finally,
in proposed paragraph (c)(1)(B), the Exchange proposes to specify that
Clearing Firms so-designated may only set the 2020 Risk Controls on an
Entering Firm's behalf; the proposed new risk controls set out in
proposed paragraph (b)(2)(B) through (b)(2)(F) are available to be set
by Entering Firms only. The Exchange does not propose any changes to
proposed paragraph (c)(2), and with respect to proposed paragraph
(c)(3), proposes only to update internal cross-references.
The Exchange proposes to move current paragraph (b)(3) regarding
``Setting and Adjusting Pre-Trade Risk Controls'' to proposed paragraph
(d), and to renumber current paragraphs (b)(3)(A) and (b)(3)(B) as
proposed paragraphs (d)(1) and (d)(2) accordingly. The Exchange
proposes to amend the text of proposed paragraph (d)(2) to state that
in addition to Pre-Trade Risk Controls being available to be set at the
MPID level or at one or more sub-IDs associated with that MPID, or
both, Pre-Trade Risk Controls related to the short selling of
securities, transacting in restricted securities, and the size of an
order compared to the average daily volume of a security must be set
per symbol.
The Exchange proposes to move current paragraph (b)(4) regarding
``Notifications'' to paragraph (e), with no changes.
The Exchange proposes to move current paragraph (c) regarding
``Automated Breach Actions'' to proposed paragraph (f) and to renumber
current paragraphs (c)(1), (c)(2), (c)(3), and (c)(4) as paragraphs
(f)(1), (f)(2), (f)(3), and (f)(4) accordingly. The Exchange proposes
no changes to the text of proposed paragraphs (f)(1), (f)(3), or
(f)(4), other than to update an internal cross-reference. With respect
to proposed paragraph (f)(2) regarding ``Breach Action for Single Order
Risk Limits,'' the Exchange proposes to change the word ``Limits'' in
the heading to ``Controls.'' The Exchange further proposes to amend the
text of current paragraph (c)(2) to specify in paragraph (f)(2)(A) that
if an order would breach a price control under paragraph (b)(2)(B), it
would be rejected or canceled as specified in Rule 7.31(a)(2)(B) (the
``Limit Order Price Protection Rule''), while providing in paragraph
(f)(2)(B) that an order that breaches the designated limit of any other
Single Order Risk Control would be rejected.
The Exchange proposes to move current paragraph (d) regarding
``Reinstatement of Entering Firm After Automated Breach Action'' to
proposed paragraph (g), with no changes.
The Exchange proposes to move current paragraph (e) regarding
``Kill Switch Actions'' to proposed paragraph (h) with no changes,
other than to update an internal cross-reference.
The Exchange proposes no changes to Commentary .01 to the Rule. The
Exchange proposes to add Commentary .02 to specify the interplay
between the Exchange's Limit Order Price Protection Rule and the price
controls that may be set by an Entering Firm pursuant to proposed
paragraph (b)(2)(B). Proposed Commentary .02 specifies that pursuant to
paragraph (b)(2)(B), an Entering Firm may always set dollar-based or
percentage-based controls as to the price of an order that are equal to
or more restrictive than the levels set out in Rule 7.31(a)(2)(B)
regarding Limit Order Price Protection (e.g., the greater of $0.15 or
10% (for securities with a reference price up to and including $25.00),
5% (for securities with a reference price of greater than $25.00 and up
to and including $50.00), or 3% (for securities with a reference price
greater than $50.00) away from the NBB or NBO). However, an Entering
Firm may set price controls under paragraph (b)(2)(B) that are less
restrictive than the levels in the Limit Order Price Protection Rule
only (i) outside of Core Trading Hours or (ii) with respect to LOC
Orders.
Continuing Obligations of Participants Under Rule 15c3-5
The proposed Pre-Trade Risk Controls described here are meant to
supplement, and not replace, the Participants' 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 a Participant's needs, the controls are
not designed to be the sole means of risk management, and using these
controls will not necessarily meet an Participant's obligations
required by Exchange or federal rules (including, without limitation,
the Rule 15c3-5 under the Act \24\ (``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 SEC rules remains with the
Participant.\25\
---------------------------------------------------------------------------
\24\ See 17 CFR 240.15c3-5.
\25\ See also Commentary .01 to Rule 7.19, which provides that
``[t]he pre-trade risk controls described in this Rule are meant to
supplement, and not replace, the Participant'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 Participant.''
---------------------------------------------------------------------------
Timing and Implementation
The Exchange anticipates completing the technological changes
necessary to implement the proposed rule change in the first quarter of
2023, but in any event no later than April 30, 2023. The Exchange
anticipates announcing the availability of the Pre-Trade Risk Controls
introduced in this filing by Trader Update in the first quarter of
2023.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\26\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\27\ 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
[[Page 10596]]
discrimination between customers, issuers, brokers, or dealers.\28\
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
\28\ HPR argues that the Exchange should be compelled to submit
this proposal as a fee filing pursuant to Section 19(b)(3)(A)(ii) of
the Exchange Act. See HPR Letter, supra note 5, at 6-8. But that
provision only applies to rule filings ``establishing or charging a
due, fee, or other charge imposed by the [SRO] . . . .'' Because the
Exchange does not propose to charge any fees for the proposed
services here, Section 19(b)(3)(A)(ii) is inapplicable. Notably, the
Commission did not treat any of the other exchanges' filings for
pre-trade risk controls listed above in notes 9-12 as fee filings.
---------------------------------------------------------------------------
Specifically, the Exchange believes that the proposed rule change
will remove impediments to and perfect the mechanism of a free and open
market and a national market system because the proposed additional
Pre-Trade Risk Controls would provide Entering Firms with enhanced
abilities to manage their risk with respect to orders on the Exchange.
The proposed additional Pre-Trade Risk Controls are not novel; they are
based on existing risk settings already in place on the Cboe, Nasdaq,
MEMX, and MIAX Pearl equities exchanges \29\ and market participants
are already familiar with the types of protections that the proposed
risk controls afford. As such, the Exchange believes that the proposed
additional Pre-Trade Risk Controls would provide a means to address
potentially market-impacting events, helping to ensure the proper
functioning of the market.
---------------------------------------------------------------------------
\29\ See supra notes 9-12.
---------------------------------------------------------------------------
In addition, the Exchange believes that the proposed rule change
will protect investors and the public interest because the proposed
additional Pre-Trade Risk Controls are a form of impact mitigation that
will aid Entering Firms in minimizing their risk exposure and reduce
the potential for disruptive, market-wide events. The Exchange
understands that Participants implement a number of different risk-
based controls, including those required by Rule 15c3-5. The controls
proposed here will serve as an additional tool for Entering Firms to
assist them in identifying any risk exposure. The Exchange believes the
proposed additional Pre-Trade Risk Controls will assist Entering 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.
The Exchange believes that the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system by permitting Entering Firms to set price
controls under paragraph (b)(2)(B) that are equal to or more
restrictive than the levels in the Exchange's Limit Order Price
Protection Rule, but preventing Entering Firms from setting price
controls that are less restrictive than those levels during Core
Trading Hours in most circumstances. The Exchange's Limit Order Price
Protection Rule protects from aberrant trades, thus improving
continuous trading and price discovery. The Exchange believes that
Entering Firms should not be able to circumvent the protections of that
rule by setting lower levels during Core Trading Hours, except with
respect to orders that participate in the Closing Auction (e.g., LOC
Orders).\30\ But under the proposed rule, Entering Firms seeking to
further manage their exposure to aberrant trades would be permitted to
set price controls at levels that are more restrictive than in the
Exchange's Limit Order Price Protection Rule. Additionally, because
price controls set by an Entering Firm under paragraph (b)(2)(B) would
function as a form of limit order price protection, the Exchange
believes that it would remove impediments to and perfect the mechanism
of a free and open market and a national market system for an order
that would breach such a price control to be rejected or canceled as
specified in the Limit Order Price Protection Rule.
---------------------------------------------------------------------------
\30\ LOC Orders are not subject to the Limit Order Price
Protection in Rule 7.31(a)(2)(B).
---------------------------------------------------------------------------
Finally, the Exchange believes that the proposed rule change does
not unfairly discriminate among the Exchange's Participants because use
of the proposed additional 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 Participants
who have opted to use the proposed additional Pre-Trade Risk Controls
versus those who have not opted to use them. The Exchange does not
believe it is unfairly discriminatory to have all orders on the
Exchange pass through the risk checks, even for Participants that opt
not to use the Exchange's pre-trade risk controls. As described above,
the proposed risk checks are a functional enhancement to the Exchange's
trading systems that the Exchange proposes to apply uniformly to all
orders on the Exchange; by applying them uniformly, the Exchange would
avoid producing incentives for all firms to avoid using the risk
controls for fear of suffering a competitive disadvantage.
Additionally, any latency imposed by the pre-trade risk controls
proposed here is de minimis and would not have a material impact on the
order flow of Participants that choose to employ non-exchange providers
(such as HPR) to provide them with risk control solutions.
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 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
additional Pre-Trade Risk Controls will assist Entering 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.
In its letter, HPR contends that it is an unnecessary burden on
competition for the Exchange to have all orders--even the orders of
Participants that choose not to use the proposed pre-trade risk
controls--to pass through the Exchange's checks because doing so will
reduce customer demand for HPR's risk control services. HPR argues that
by imposing latency from its risk checks on all orders, the Exchange
has created a ``latency tax'' that would encourage customers to use the
Exchange's risk controls instead of third-party risk solutions like
HPR's.\31\ These assertions are factually incorrect and obscure the
very real differences between the Exchange's pre-trade risk controls
and the services that HPR offers. The Exchange understands that HPR's
enterprise risk management solutions, like those of its competitors,
permit its clients to track aggregated risk across all markets and
provide consolidated risk management capabilities. In contrast,
exchange based-solutions such as the Exchange's only offer tools to
manage risk across the Exchanges and its affiliate exchanges (e.g., the
NYSE Group exchanges). The Exchange's proposed risk checks would not
and could not replace HPR's far broader offering. In addition, as the
Exchange made clear in its filing for the 2020 Risk
[[Page 10597]]
Controls and repeats here, the Exchange's pre-trade risk controls are
not a complete Rule 15c3-5 solution. The Exchange's risk controls are
meant to supplement, and not replace, an Participant's own internal
risk management systems (which firms may outsource to providers like
HPR), and the Exchange's controls are not designed to be the sole means
of risk management that any firm uses. Additionally, any latency
imposed by the Pre-Trade Risk Controls proposed here is de minimis and
would not have a material impact on the order flow of Participants that
choose to employ non-exchange providers (such as HPR) to provide them
with risk control solutions.
---------------------------------------------------------------------------
\31\ See HPR Letter, supra note 5, at 4 (claiming the Exchange
has ``architected the proposed risk controls to give [itself] an
unfair and anti-competitive latency advantage over non-exchange
offerings provided by broker-dealers or vendors such as HPR.'').
---------------------------------------------------------------------------
Finally, the Exchange believes it would be an unfair burden on
competition for the Commission to suspend and ultimately disapprove the
pre-trade risk controls proposed here, where substantially identical
controls are already in place on numerous of the Exchange's competitor
exchanges.\32\ Since 2017, equities exchanges have been adding pre-
trade risk controls to their trading systems. It would be an
unjustifiable burden on competition and on the Exchange for the
Commission to permit all equities exchanges to offer such functionality
except for the Exchange and its affiliates mentioned in the HPR Letter.
Specifically, the Exchange would be at a significant competitive
disadvantage vis-[agrave]-vis other equities exchanges that already
offer the type of pre-trade risk controls proposed in this filing as
Participants may choose to direct order flow away from the Exchange
until it is able to offer such competing pre-trade risk controls.
---------------------------------------------------------------------------
\32\ See supra notes 9-12.
---------------------------------------------------------------------------
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 \33\ and Rule 19b-4(f)(6) thereunder.\34\
Because the foregoing 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 for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \35\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\36\
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78s(b)(3)(A)(iii).
\34\ 17 CFR 240.19b-4(f)(6).
\35\ 15 U.S.C. 78s(b)(3)(A)(iii).
\36\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
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 under
Section 19(b)(2)(B) \37\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSECHX-2023-08 on the subject line.
Paper Comments
Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-NYSECHX-2023-08. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSECHX-2023-08 and should be submitted
on or before March 14, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------
\38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03480 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P
