Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.40P-O Pertaining to Pre-Trade Risk Controls, 17072-17077 [2023-05686]
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Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices
change was published for comment in
the Federal Register on January 30,
2023.4 The Commission has received no
comments on the proposed rule change.
Section 19(b)(2) of the Act 5 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is March 16, 2023.
The Commission is extending this 45day time period.
The Commission finds it appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider the proposed rule change.
Accordingly, the Commission, pursuant
to section 19(b)(2) of the Act,6
designates April 28, 2023 as the date by
which the Commission shall either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–NYSEARCA–2023–06).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–05684 Filed 3–20–23; 8:45 am]
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BILLING CODE 8011–01–P
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[Release No. 34–97147; File No. SR–
NYSEARCA–2023–24]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 6.40P–O
Pertaining to Pre-Trade Risk Controls
March 15, 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 March 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 6.40P–O (Pre-Trade and ActivityBased Risk Controls) pertaining to pretrade 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
exchange from accepting or ranking orders priced
greater than $1.00 per share in an increment smaller
than $0.01. See Securities Exchange Act Release No.
71176 (December 23, 2013), 78 FR 79524 (December
30, 2013) (SR–NYSEArca–2013–107).
4 See Securities Exchange Act Release No. 96741
(Jan. 24, 2023), 88 FR 5948.
5 15 U.S.C. 78s(b)(2).
6 Id.
7 17 CFR 200.30–3(a)(31).
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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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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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 6.40P–O (Pre-Trade and ActivityBased Risk Controls) pertaining to pretrade risk controls to make additional
pre-trade risk controls available to
entering Firms.4 The Exchange
originally filed on November 17, 2022 to
make this change immediately effective
and that filing was published for
comment on December 5, 2022 (the
‘‘original filing’’).5 In light of a comment
letter dated January 5, 2023,6 the
Exchange withdrew the original filing
and now submits this revised filing to
address several of the points raised in
the comment letter.
Background and Purpose
In 2022, in connection with the
Exchange’s migration to Pillar and to
better assist OTP Holders and OTP
Firms in managing their risk, the
Exchange adopted Rule 6.40P–O, which
included pre-trade risk controls, among
other activity-based controls, wherein
an Entering Firm had the option of
establishing limits or restrictions on
certain of its trading behavior on the
Exchange and authorizing the Exchange
to take action if those limits or
restrictions were exceeded.7
Specifically, the Exchange added a
Single Order Maximum Notional Value
Risk Limit, and a Single Order
Maximum Quantity Risk Limit 8
(collectively, the ‘‘Initial Pre-Trade 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
4 The term ‘‘Entering Firm’’ refers to an OTP
Holder or OTP Firm (including those acting as
Market Makers). See Rule 6.40P–O(a)(1).
5 See Securities Exchange Act Release No. 96829
(February 7, 2023), 88 FR 8980 (February 10, 2023)
(SR–NYSEArca–2022–82).
6 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 19, 2023, available at https://www.sec.gov/
comments/sr-bx-2022-022/srbx2022022-20155250323599.pdf. HPR is a provider of (among other
things) non-exchange based risk controls solutions.
7 See Securities Exchange Act Release No. 94072
(January 26, 2022), 87 FR 5592 (February 1, 2022)
(Notice of filing Notice of Filing of Amendment No.
4 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment
No. 4) (SR–NYSEArca–2021–47).
8 The terms ‘‘Single Order Maximum Notional
Value Risk Limit, and ‘‘Single Order Maximum
Quantity Risk Limit’’ are defined in Rule 6.40P–
O(a)(2).
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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
Exchange’s affiliate equities exchanges,
including NYSE American LLC (‘‘NYSE
American’’),9 as well as on other
equities exchanges, including Cboe,10
Nasdaq,11 MEMX,12 and MIAX Pearl.13
Like the Initial Pre-Trade 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
9 See, e.g., Securities Exchange Act Release Nos.
96922 (February 14, 2023), 88 FR 10580 (February
14, 2023) (SR–NYSE AMER–2023–12) (modifying
NYSE American Rule 7.19E).
10 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).
11 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).
12 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).
13 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)).
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Operational Risk at Broker-Dealers,’’ 14
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.’’ 15 Instead,
Citadel recommended that exchanges
‘‘ensure orders follow the same order
processing logic regardless of which
options or features are enabled,’’ 16 in
order to eliminate any competitive
advantage or disadvantages for clients.
This is the model that the Exchange
used in building the Initial Pre-Trade
Risk Controls that the Commission
approved in 2020,17 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 and quotes, regardless of whether
a particular client has opted to use that
functionality for a particular order or
quote. For example, the Exchange’s
limit order price protection applies
generally to trading on the Exchange
and orders or quotes with limit prices
are not processed more slowly than
those without. Similarly, the Exchange’s
14 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.
15 Id. at 5.
16 Id.
17 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.
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trading systems check all orders and
quotes for a variety of details and
modifiers (e.g., duplicative client order
check, order capacity check, and selftrade prevention).
The Exchange understands that the
risk checks of other exchanges, on
which the proposed rule is modeled,
also apply symmetrically to all orders.18
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.19
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 Initial Pre-Trade Risk Controls 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 20
applies here and should require the
Exchange to justify this de minimis
latency change in a number of ways.21
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,22 but a functional enhancement
to the Exchange’s trading systems, and,
like any change to a trading system’s
18 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’’).
19 See Citadel white paper, supra note 14, at 2.
20 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.
21 HPR Letter, supra note 6 at 5–6.
22 Indeed, the Commission did not treat any of the
other exchanges’ filings for pre-trade risk controls
listed above in notes 9–13 as ‘‘intentional access
delays.’’
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Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices
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 23 and the risk
checks would be applied to all orders
and quotes 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/quote 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.
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Proposed Amendment to Rule 6.40P–O
To accomplish this rule change, the
Exchange proposes to amend the
definition of the term ‘‘Pre-Trade Risk
Controls’’ set forth in Rule 6.40P–O(a)(2)
to adopt the definition of ‘‘Single-Order
Risk Controls,’’ which controls would
be listed in proposed paragraph (A) to
Rule 6.40P–O(a)(2). As proposed, the
‘‘Single-Order Risk Controls’’ would
include the already-defined risk
23 The one exception is the proposed pre-trade
risk control in paragraph (a)(2)(A)(ii), 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 6.62P–O(a)(3)(A)
regarding Limit Order Price Protection. This risk
check, like the Exchange’s Limit Order Price
Protection, is implemented in the matching engine.
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controls of the Single Order Maximum
Notional Value Risk Limit and Single
Order Maximum Quantity Risk Limit
(collectively referred to herein as the
‘‘existing Single-Order Risk Checks’’),
with non-substantive changes to
streamline the descriptions of these
controls into new paragraph (i) of
proposed Rule 6.40P–O(a)(2)(A).24
However, because of a lack of demand
for the option to apply the existing
Single-Order Risk Checks to Market
Maker quotes, the Exchange proposes to
discontinue functionality supporting
this optional feature.
In the addition, the Exchange
proposes to add paragraphs (a)(2)(A)(ii)
through (v) to enumerate the proposed
new Single-Order Risk Controls, as
follows:
(ii) controls related to the price of an
order or quote (including percentagebased and dollar-based controls);
(iii) controls related to the order types
or modifiers that can be utilized;
(iv) controls to restrict the options
class transacted; and
(v) controls to prohibit duplicative
orders.
Each of the new Single-Order Risk
Controls in proposed paragraph
(a)(2)(A)(ii)–(v) is substantively
identical to risk settings already in place
on the Exchange’s affiliate equities
exchange, NYSE American as well as
those on other equities exchanges,
including Cboe, Nasdaq, MEMX, and
MIAX Pearl,25 except that the proposed
controls account for options trading,
such as including reference to ‘‘an order
or quote’’ versus ‘‘an order’’ and
reference to restrictions on trading in an
‘‘options class’’ versus on ‘‘the types of
securities transacted (including but not
limited to restricted securities).’’ 26 As
such, the proposed new optional PreTrade Risk Controls are familiar to
market participants and are not novel.
The Exchange proposes to modify
current paragraph (b)(2) regarding the
setting and adjusting of the Pre-Trade
Risk Controls to state that, in addition
24 See proposed Rule 6.40P–O(a)(2)(A)(i) (setting
forth ‘‘controls related to the maximum dollar
amount for a single order to be applied one time
(‘Single Order Maximum Notional Value Risk
Limit’) and the maximum number of contracts that
may be included in a single order before it can be
traded (‘Single Order Maximum Quantity Risk
Limit’). Orders designated GTC will be subject to
these checks only once.’’) Consistent with the
foregoing changes, the Exchange proposes to delete
current paragraph (B) to Rule 6.40P–O(a)(2)(B). See
id.
25 See supra notes 9–13.
26 See proposed Rule 6.40P(a)(2)(A)(ii) and
(a)(2)(A)(iv) as compared to NYSE American Rule
7.19E(b)(2)(B) and (b)(2)(F), respectively.
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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, that Pre-Trade Risk
Controls to restrict the options class(es)
transacted must be set per option
class.27
The Exchange proposes to modify
paragraph (c)(1) regarding ‘‘Breach
Action for Pre-Trade Risk Controls.’’
First, the Exchange proposes to specify
that ‘‘[a] Limit Order that breaches any
Single-Order Risk Control will be
rejected.’’ 28 The proposed functionality
is consistent with the treatment of Limit
Orders that breach the existing Single
Order Risk Checks and simply extends
the application of the breach action to
the newly proposed Single-Order Risk
Controls. Next, proposed Rule 6.40P–
O(c)(1)(A)(ii) specifies that ‘‘[a] Market
Order that arrives during a pre-open
state will be cancelled if the quantity
remaining to trade after an Auction
breaches the Single Order Maximum
Notional Value Risk Limit,’’ which
functionality is identical to treatment of
such interest under the current Rule.29
Proposed Rule 6.40P–O(c)(1)(A)(ii)
further specifies that ‘‘[a]t all other
times, a Market Order that triggers or
breaches any Single-Order Risk Control
will be rejected.’’ 30 The proposed
functionality is consistent with the
treatment of Market Orders (that arrive
other than during a pre-open state) that
breach the existing Single Order Risk
Checks and simply extends the
application of the breach action to the
newly proposed Single-Order Risk
Controls. Further, proposed Rule 6.40P–
O(c)(1)(A)(iii) addresses the breach
action relevant to the new Single-Order
Risk Control set forth in proposed Rule
6.40P–O(a)(2)(A)(ii) (i.e., a breach of
controls related to the price of an order
or quote including percentage-based and
dollar-based controls). As proposed, a
Limit Order or quote that would breach
a price control under paragraph
(a)(2)((A)(ii) would be rejected or
cancelled as specified in Rule 6.62P–O
(a)(3)(A) (Limit Order Price
Protection).31
27 See, e.g., Rule 7.19E(d)(2) (specifying that pretrade risk controls related to transacting in
restricted securities must be set per symbol).
28 See proposed Rule 6.40P(c)(1)(A)(i).
29 See Rule 6.40P(c)(1)(A)(i) (providing, in
relevant part, that ‘‘[a] Market Order that breaches
the designated limit of a Single Order Maximum
Quantity Risk Limit’’ will be ‘‘canceled if the order
was received during a pre-open state and the
quantity remaining to trade after an Auction
concludes breaches the designated limit.’’).
30 See proposed Rule 6.40P(c)(1)(A)(ii).
31 See proposed Rule 6.40P(c)(1)(A)(iii).
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Finally, the Exchange proposes to add
new Commentary .02 to specify the
interplay between the Exchange’s Limit
Order Price Protection (‘‘LOPP’’)
functionality and the price controls that
may be set by an Entering Firm pursuant
to proposed paragraph (a)(2)(A)(ii).
Proposed Commentary .02 specifies that
an Entering Firm may set price controls
under paragraph (a)(2)(A)(ii) that are
equal to or more restrictive than levels
set by the Exchange LOPP functionality.
Continuing Obligations of OTP Holders
Under Rule 15c3–5
The proposed Pre-Trade Risk Controls
described here are meant to supplement,
and not replace, the OTP Holders’ own
internal systems, monitoring, and
procedures related to risk management.
The Exchange does not guarantee that
these controls will be sufficiently
comprehensive to meet all of an OTP
Holder’s needs, the controls are not
designed to be the sole means of risk
management, and using these controls
will not necessarily meet an OTP
Holder’s obligations required by
Exchange or federal rules (including,
without limitation, the Rule 15c3–5
under the Act 32 (‘‘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 OTP Holder.33
Timing and Implementation
The Exchange anticipates completing
the technological changes necessary to
implement the proposed rule change in
the second quarter of 2023, but in any
event no later than June 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,34 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,35 in particular, because it is
designed to prevent fraudulent and
32 See
17 CFR 240.15c3–5.
also Commentary .01 to Rule 6.40P–O,
which provides that the Pre-Trade Risk Controls set
forth in Rule 6.40P–O ‘‘are meant to supplement,
and not replace, the OTP Holder’s or OTP Firm’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 OTP
Holder or OTP Firm.’’).
34 15 U.S.C. 78f(b).
35 15 U.S.C. 78f(b)(5).
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33 See
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manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest, and because it is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.36
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 optional additional PreTrade Risk Controls would provide
Entering Firms with enhanced abilities
to manage their risk with respect to
orders or quotes on the Exchange. The
proposed additional Pre-Trade Risk
Controls are not novel; they are based
on existing risk settings already in place
on NYSE American, as well as those on
Cboe, Nasdaq, MEMX and MIAX Pearl
equities exchanges,37 and market
participants are already familiar with
the types of protections that the
proposed risk controls afford. Moreover,
the proposed new Single-Order Risk
Controls (like the existing Single-Order
Risk Checks) are options and, as such,
Entering Firms are free to utilize or not
at their discretion. 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.
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 OTP Holders
implement a number of different riskbased controls, including those required
36 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 6, 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 9–13 as fee filings.
37 See supra notes 9–13.
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
17075
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 (a)(2)(A)(ii)
that are equal to or more restrictive than
the levels established in the Exchange’s
LOPP functionality, which protects from
aberrant trades, thus improving
continuous trading and price discovery.
To the extent that Entering Firms would
like to further manage their exposure to
aberrant trades, this proposed
functionality affords such Firms the
ability to set price controls at levels that
are more restrictive than the LOPP
levels. Additionally, because price
controls set by an Entering Firm under
paragraph (a)(2)(A)(ii) 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 cancelled as
specified per Rule 6.62P–O(a)(3)(A)
regarding the LOPP.
Finally, the Exchange believes that
the proposed rule change does not
unfairly discriminate among the
Exchange’s OTP Holders 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 OTP Holders 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 OTP
Holders or OTP Firms 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 and quotes
on the Exchange; by applying them
uniformly, the Exchange would avoid
producing incentives for all firms to
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Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
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
OTP Holders and OTP Firms 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 OTP Holders and OTP
Firms 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.38
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
38 See
HPR Letter, supra note 6, 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.’’).
VerDate Sep<11>2014
19:23 Mar 20, 2023
Jkt 259001
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 Initial Pre-Trade Risk
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 OTP
Holder’s or OTP Firm’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 proposed pre-trade risk controls
proposed here is de minimis and would
not have a material impact on the order
flow of OTP Holders and OTP Firms
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.39
Since 2017, equities exchanges have
been adding pre-trade risk controls to
their trading systems. And, in 2022, the
Exchange adopted the Initial Pre-Trade
Risk Controls. 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 OTP Holders and OTP
Firms may choose to direct order flow
away from the Exchange until it is able
to offer such competing pre-trade risk
controls.
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.
39 See
PO 00000
supra notes 9–13.
Frm 00139
Fmt 4703
Sfmt 4703
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 40 and Rule
19b–4(f)(6) thereunder.41 Because the
proposed rule change does not: (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.42
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) 43 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2023–24 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
40 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
42 17 CFR 240.19b–4(f)(6)(iii). 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 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.
43 15 U.S.C. 78s(b)(2)(B).
41 17
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Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices
Commission, 100 F Street NE,
Washington, DC 20549–1090.
SECURITIES AND EXCHANGE
COMMISSION
All submissions should refer to File
Number SR–NYSEARCA–2023–24. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEARCA–2023–24 and
should be submitted on or before April
11, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–05686 Filed 3–20–23; 8:45 am]
ddrumheller on DSK120RN23PROD with NOTICES1
BILLING CODE 8011–01–P
[Release No. 34–97149; File No. SR–MIAX–
2023–11]
Self-Regulatory Organizations: Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Non-Substantively Amend
the MIAX Fee Schedule
March 15, 2023.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–
4thereunder,2 notice is hereby given
that on March 3, 2023, Miami
International Securities Exchange LLC
(‘‘MIAX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I and II below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Fee Schedule (‘‘Fee
Schedule’’) to make minor, nonsubstantive clarifying changes.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, 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
Exchange 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 these
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 aspects of such
statements.
1 15
44 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
19:23 Mar 20, 2023
2 17
Jkt 259001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00140
Fmt 4703
Sfmt 4703
17077
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to make minor, nonsubstantive clarifying changes.
Specifically, the Exchange proposes to
amend instances of the phrases ‘‘MIAX
Select Symbols’’ and ‘‘non-MIAX Select
Symbols’’ in Section 1)a)iii) of the Fee
Schedule to clarify that the terms
‘‘Select Symbols’’ and ‘‘non-MIAX
Select Symbols’’ refer to options listed
on MIAX.
Background
The Exchange initially created the list
of Select Symbols on March 1, 2014,3
and has added, removed and amended
symbol names of option classes from
that list since that time.4 Select Symbols
are rebated slightly higher in certain
Priority Customer Rebate Program
(‘‘PCRP’’) 5 tiers and segments than nonSelect Symbols. Currently, the term
‘‘MIAX Select Symbols’’ means options
overlying AAL, AAPL, AMAT, AMD,
AMZN, BA, BABA, BB, BIDU, BP, C,
CAT, CLF, CVX, DAL, EBAY, EEM,
FCX, GE, GILD, GLD, GM, GOOGL,
GPRO, HAL, INTC, IWM, JNJ, JPM, KMI,
KO, META, MO, MRK, NFLX, NOK,
ORCL, PBR, PFE, PG, QCOM, QQQ, RIG,
SPY, T, TSLA, USO, VALE, WBA, WFC,
WMB, X, XHB, XLE, XLF, XLP, XOM
and XOP.6
Proposal
First, the Exchange proposes to
amend two column headers of the PCRP
Table in Section 1)a)iii) of the Fee
3 See Securities Exchange Act Release No. 71700
(March 12, 2014), 79 FR 15188 (March 18, 2014)
(SR–MIAX–2014–13).
4 See, e.g., Securities Exchange Act Release Nos.
89530 (August 12, 2020), 85 FR 50845 (August 18,
2020) (SR–MIAX–2020–26); 88850 (May 11, 2020),
85 FR 29497 (May 15, 2020) (SR–MIAX–2020–09);
87964 (January 14, 2020), 85 FR 3435 (January 21,
2020) (SR–MIAX–2020–01); 87790 (December 18,
2019), 84 FR 71037 (December 26, 2019) (SR–
MIAX–2019–49); 85314 (March 14, 2019), 84 FR
10359 (March 20, 2019) (SR–MIAX–2019–07; 81998
(November 2, 2017), 82 FR 51897 (November 8,
2017) (SR–MIAX–2017–45); 81019 (June 26, 2017),
82 FR 29962 (June 30, 2017) (SR–MIAX–2017–29);
79301 (November 14, 2016), 81 FR 81854
(November 18, 2016) (SR–MIAX–2016–42); 74291
(February 18, 2015), 80 FR 9841 (February 24, 2015)
(SR–MIAX–2015–09); 74288 (February 18, 2015), 80
FR 9837 (February 24, 2015) (SR–MIAX–2015–08);
73328 (October 9, 2014), 79 FR 62230 (October 16,
2014) (SR–MIAX–2014–50); 72567 (July 8, 2014), 79
FR 40818 (July 14, 2014) (SR–MIAX–2014–34);
72356 (June 10, 2014), 79 FR 34384 (June 16, 2014)
(SR–MIAX–2014–26); 71700 (March 12, 2014), 79
FR 15188 (March 18, 2014) (SR–MIAX–2014–13).
5 See section 1)a)iii) of the Fee Schedule for a
complete description of the PCRP.
6 See Fee Schedule, note 14.
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]]>Agencies
[Federal Register Volume 88, Number 54 (Tuesday, March 21, 2023)]
[Notices]
[Pages 17072-17077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05686]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97147; File No. SR-NYSEARCA-2023-24]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule
6.40P-O Pertaining to Pre-Trade Risk Controls
March 15, 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 March 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.
---------------------------------------------------------------------------
\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 6.40P-O (Pre-Trade and
Activity-Based Risk Controls) 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 6.40P-O (Pre-Trade and
Activity-Based Risk Controls) pertaining to pre-trade risk controls to
make additional pre-trade risk controls available to entering Firms.\4\
The Exchange originally filed on November 17, 2022 to make this change
immediately effective and that filing was published for comment on
December 5, 2022 (the ``original filing'').\5\ In light of a comment
letter dated January 5, 2023,\6\ the Exchange withdrew the original
filing and now submits this revised filing to address several of the
points raised in the comment letter.
---------------------------------------------------------------------------
\4\ The term ``Entering Firm'' refers to an OTP Holder or OTP
Firm (including those acting as Market Makers). See Rule 6.40P-
O(a)(1).
\5\ See Securities Exchange Act Release No. 96829 (February 7,
2023), 88 FR 8980 (February 10, 2023) (SR-NYSEArca-2022-82).
\6\ 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 19, 2023, available at https://www.sec.gov/comments/sr-bx-2022-022/srbx2022022-20155250-323599.pdf. HPR is a provider of
(among other things) non-exchange based risk controls solutions.
---------------------------------------------------------------------------
Background and Purpose
In 2022, in connection with the Exchange's migration to Pillar and
to better assist OTP Holders and OTP Firms in managing their risk, the
Exchange adopted Rule 6.40P-O, which included pre-trade risk controls,
among other activity-based controls, wherein an Entering Firm had the
option of establishing limits or restrictions on certain of its trading
behavior on the Exchange and authorizing the Exchange to take action if
those limits or restrictions were exceeded.\7\ Specifically, the
Exchange added a Single Order Maximum Notional Value Risk Limit, and a
Single Order Maximum Quantity Risk Limit \8\ (collectively, the
``Initial Pre-Trade Risk Controls'').
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 94072 (January 26,
2022), 87 FR 5592 (February 1, 2022) (Notice of filing Notice of
Filing of Amendment No. 4 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 4) (SR-
NYSEArca-2021-47).
\8\ The terms ``Single Order Maximum Notional Value Risk Limit,
and ``Single Order Maximum Quantity Risk Limit'' are defined in Rule
6.40P-O(a)(2).
---------------------------------------------------------------------------
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
[[Page 17073]]
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 Exchange's affiliate equities exchanges,
including NYSE American LLC (``NYSE American''),\9\ as well as on other
equities exchanges, including Cboe,\10\ Nasdaq,\11\ MEMX,\12\ and MIAX
Pearl.\13\
---------------------------------------------------------------------------
\9\ See, e.g., Securities Exchange Act Release Nos. 96922
(February 14, 2023), 88 FR 10580 (February 14, 2023) (SR-NYSE AMER-
2023-12) (modifying NYSE American Rule 7.19E).
\10\ 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).
\11\ 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).
\12\ 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).
\13\ 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 Initial Pre-Trade 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,'' \14\ 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.'' \15\ Instead, Citadel recommended that exchanges
``ensure orders follow the same order processing logic regardless of
which options or features are enabled,'' \16\ in order to eliminate any
competitive advantage or disadvantages for clients.
---------------------------------------------------------------------------
\14\ 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.
\15\ Id. at 5.
\16\ Id.
---------------------------------------------------------------------------
This is the model that the Exchange used in building the Initial
Pre-Trade Risk Controls that the Commission approved in 2020,\17\ 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 and quotes, regardless of whether
a particular client has opted to use that functionality for a
particular order or quote. For example, the Exchange's limit order
price protection applies generally to trading on the Exchange and
orders or quotes with limit prices are not processed more slowly than
those without. Similarly, the Exchange's trading systems check all
orders and quotes for a variety of details and modifiers (e.g.,
duplicative client order check, order capacity check, and self-trade
prevention).
---------------------------------------------------------------------------
\17\ 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.
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The Exchange understands that the risk checks of other exchanges,
on which the proposed rule is modeled, also apply symmetrically to all
orders.\18\ 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.\19\
---------------------------------------------------------------------------
\18\ 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'').
\19\ See Citadel white paper, supra note 14, 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 Initial Pre-
Trade Risk Controls 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 \20\ applies here and should require the Exchange to
justify this de minimis latency change in a number of ways.\21\ 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,\22\ but a
functional enhancement to the Exchange's trading systems, and, like any
change to a trading system's
[[Page 17074]]
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.
---------------------------------------------------------------------------
\20\ 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.
\21\ HPR Letter, supra note 6 at 5-6.
\22\ Indeed, the Commission did not treat any of the other
exchanges' filings for pre-trade risk controls listed above in notes
9-13 as ``intentional access delays.''
---------------------------------------------------------------------------
With one exception, the additional risk checks proposed here would
be a functional enhancement to the Exchange's Pillar gateway \23\ and
the risk checks would be applied to all orders and quotes 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/quote 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.
---------------------------------------------------------------------------
\23\ The one exception is the proposed pre-trade risk control in
paragraph (a)(2)(A)(ii), 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 6.62P-O(a)(3)(A) regarding Limit Order Price
Protection. This risk check, like the Exchange's Limit Order Price
Protection, is implemented in the matching engine.
---------------------------------------------------------------------------
Proposed Amendment to Rule 6.40P-O
To accomplish this rule change, the Exchange proposes to amend the
definition of the term ``Pre-Trade Risk Controls'' set forth in Rule
6.40P-O(a)(2) to adopt the definition of ``Single-Order Risk
Controls,'' which controls would be listed in proposed paragraph (A) to
Rule 6.40P-O(a)(2). As proposed, the ``Single-Order Risk Controls''
would include the already-defined risk controls of the Single Order
Maximum Notional Value Risk Limit and Single Order Maximum Quantity
Risk Limit (collectively referred to herein as the ``existing Single-
Order Risk Checks''), with non-substantive changes to streamline the
descriptions of these controls into new paragraph (i) of proposed Rule
6.40P-O(a)(2)(A).\24\ However, because of a lack of demand for the
option to apply the existing Single-Order Risk Checks to Market Maker
quotes, the Exchange proposes to discontinue functionality supporting
this optional feature.
---------------------------------------------------------------------------
\24\ See proposed Rule 6.40P-O(a)(2)(A)(i) (setting forth
``controls related to the maximum dollar amount for a single order
to be applied one time (`Single Order Maximum Notional Value Risk
Limit') and the maximum number of contracts that may be included in
a single order before it can be traded (`Single Order Maximum
Quantity Risk Limit'). Orders designated GTC will be subject to
these checks only once.'') Consistent with the foregoing changes,
the Exchange proposes to delete current paragraph (B) to Rule 6.40P-
O(a)(2)(B). See id.
---------------------------------------------------------------------------
In the addition, the Exchange proposes to add paragraphs
(a)(2)(A)(ii) through (v) to enumerate the proposed new Single-Order
Risk Controls, as follows:
(ii) controls related to the price of an order or quote (including
percentage-based and dollar-based controls);
(iii) controls related to the order types or modifiers that can be
utilized;
(iv) controls to restrict the options class transacted; and
(v) controls to prohibit duplicative orders.
Each of the new Single-Order Risk Controls in proposed paragraph
(a)(2)(A)(ii)-(v) is substantively identical to risk settings already
in place on the Exchange's affiliate equities exchange, NYSE American
as well as those on other equities exchanges, including Cboe, Nasdaq,
MEMX, and MIAX Pearl,\25\ except that the proposed controls account for
options trading, such as including reference to ``an order or quote''
versus ``an order'' and reference to restrictions on trading in an
``options class'' versus on ``the types of securities transacted
(including but not limited to restricted securities).'' \26\ As such,
the proposed new optional Pre-Trade Risk Controls are familiar to
market participants and are not novel.
---------------------------------------------------------------------------
\25\ See supra notes 9-13.
\26\ See proposed Rule 6.40P(a)(2)(A)(ii) and (a)(2)(A)(iv) as
compared to NYSE American Rule 7.19E(b)(2)(B) and (b)(2)(F),
respectively.
---------------------------------------------------------------------------
The Exchange proposes to modify current paragraph (b)(2) regarding
the setting and adjusting of the Pre-Trade Risk Controls 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, that Pre-Trade Risk Controls to restrict the options class(es)
transacted must be set per option class.\27\
---------------------------------------------------------------------------
\27\ See, e.g., Rule 7.19E(d)(2) (specifying that pre-trade risk
controls related to transacting in restricted securities must be set
per symbol).
---------------------------------------------------------------------------
The Exchange proposes to modify paragraph (c)(1) regarding ``Breach
Action for Pre-Trade Risk Controls.'' First, the Exchange proposes to
specify that ``[a] Limit Order that breaches any Single-Order Risk
Control will be rejected.'' \28\ The proposed functionality is
consistent with the treatment of Limit Orders that breach the existing
Single Order Risk Checks and simply extends the application of the
breach action to the newly proposed Single-Order Risk Controls. Next,
proposed Rule 6.40P-O(c)(1)(A)(ii) specifies that ``[a] Market Order
that arrives during a pre-open state will be cancelled if the quantity
remaining to trade after an Auction breaches the Single Order Maximum
Notional Value Risk Limit,'' which functionality is identical to
treatment of such interest under the current Rule.\29\ Proposed Rule
6.40P-O(c)(1)(A)(ii) further specifies that ``[a]t all other times, a
Market Order that triggers or breaches any Single-Order Risk Control
will be rejected.'' \30\ The proposed functionality is consistent with
the treatment of Market Orders (that arrive other than during a pre-
open state) that breach the existing Single Order Risk Checks and
simply extends the application of the breach action to the newly
proposed Single-Order Risk Controls. Further, proposed Rule 6.40P-
O(c)(1)(A)(iii) addresses the breach action relevant to the new Single-
Order Risk Control set forth in proposed Rule 6.40P-O(a)(2)(A)(ii)
(i.e., a breach of controls related to the price of an order or quote
including percentage-based and dollar-based controls). As proposed, a
Limit Order or quote that would breach a price control under paragraph
(a)(2)((A)(ii) would be rejected or cancelled as specified in Rule
6.62P-O (a)(3)(A) (Limit Order Price Protection).\31\
---------------------------------------------------------------------------
\28\ See proposed Rule 6.40P(c)(1)(A)(i).
\29\ See Rule 6.40P(c)(1)(A)(i) (providing, in relevant part,
that ``[a] Market Order that breaches the designated limit of a
Single Order Maximum Quantity Risk Limit'' will be ``canceled if the
order was received during a pre-open state and the quantity
remaining to trade after an Auction concludes breaches the
designated limit.'').
\30\ See proposed Rule 6.40P(c)(1)(A)(ii).
\31\ See proposed Rule 6.40P(c)(1)(A)(iii).
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[[Page 17075]]
Finally, the Exchange proposes to add new Commentary .02 to specify
the interplay between the Exchange's Limit Order Price Protection
(``LOPP'') functionality and the price controls that may be set by an
Entering Firm pursuant to proposed paragraph (a)(2)(A)(ii). Proposed
Commentary .02 specifies that an Entering Firm may set price controls
under paragraph (a)(2)(A)(ii) that are equal to or more restrictive
than levels set by the Exchange LOPP functionality.
Continuing Obligations of OTP Holders Under Rule 15c3-5
The proposed Pre-Trade Risk Controls described here are meant to
supplement, and not replace, the OTP Holders' own internal systems,
monitoring, and procedures related to risk management. The Exchange
does not guarantee that these controls will be sufficiently
comprehensive to meet all of an OTP Holder's needs, the controls are
not designed to be the sole means of risk management, and using these
controls will not necessarily meet an OTP Holder's obligations required
by Exchange or federal rules (including, without limitation, the Rule
15c3-5 under the Act \32\ (``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 OTP Holder.\33\
---------------------------------------------------------------------------
\32\ See 17 CFR 240.15c3-5.
\33\ See also Commentary .01 to Rule 6.40P-O, which provides
that the Pre-Trade Risk Controls set forth in Rule 6.40P-O ``are
meant to supplement, and not replace, the OTP Holder's or OTP Firm'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 OTP Holder or OTP Firm.'').
---------------------------------------------------------------------------
Timing and Implementation
The Exchange anticipates completing the technological changes
necessary to implement the proposed rule change in the second quarter
of 2023, but in any event no later than June 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,\34\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\35\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest,
and because it is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.\36\
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78f(b).
\35\ 15 U.S.C. 78f(b)(5).
\36\ 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 6, 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 9-13 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 optional
additional Pre-Trade Risk Controls would provide Entering Firms with
enhanced abilities to manage their risk with respect to orders or
quotes on the Exchange. The proposed additional Pre-Trade Risk Controls
are not novel; they are based on existing risk settings already in
place on NYSE American, as well as those on Cboe, Nasdaq, MEMX and MIAX
Pearl equities exchanges,\37\ and market participants are already
familiar with the types of protections that the proposed risk controls
afford. Moreover, the proposed new Single-Order Risk Controls (like the
existing Single-Order Risk Checks) are options and, as such, Entering
Firms are free to utilize or not at their discretion. 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.
---------------------------------------------------------------------------
\37\ See supra notes 9-13.
---------------------------------------------------------------------------
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 OTP Holders 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 (a)(2)(A)(ii) that are equal to or more
restrictive than the levels established in the Exchange's LOPP
functionality, which protects from aberrant trades, thus improving
continuous trading and price discovery. To the extent that Entering
Firms would like to further manage their exposure to aberrant trades,
this proposed functionality affords such Firms the ability to set price
controls at levels that are more restrictive than the LOPP levels.
Additionally, because price controls set by an Entering Firm under
paragraph (a)(2)(A)(ii) 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 cancelled as specified per Rule 6.62P-O(a)(3)(A) regarding
the LOPP.
Finally, the Exchange believes that the proposed rule change does
not unfairly discriminate among the Exchange's OTP Holders 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 OTP Holders
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 OTP Holders or OTP
Firms 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 and quotes on the Exchange; by applying them
uniformly, the Exchange would avoid producing incentives for all firms
to
[[Page 17076]]
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 OTP Holders and OTP Firms 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 OTP
Holders and OTP Firms 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.\38\ 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 Initial Pre-
Trade Risk 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 OTP Holder's or
OTP Firm'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 proposed pre-trade risk
controls proposed here is de minimis and would not have a material
impact on the order flow of OTP Holders and OTP Firms that choose to
employ non-exchange providers (such as HPR) to provide them with risk
control solutions.
---------------------------------------------------------------------------
\38\ See HPR Letter, supra note 6, 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.\39\ Since 2017, equities exchanges have been adding pre-
trade risk controls to their trading systems. And, in 2022, the
Exchange adopted the Initial Pre-Trade Risk Controls. 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
OTP Holders and OTP Firms may choose to direct order flow away from the
Exchange until it is able to offer such competing pre-trade risk
controls.
---------------------------------------------------------------------------
\39\ See supra notes 9-13.
---------------------------------------------------------------------------
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 \40\ and Rule 19b-4(f)(6) thereunder.\41\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\42\
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\40\ 15 U.S.C. 78s(b)(3)(A)(iii).
\41\ 17 CFR 240.19b-4(f)(6).
\42\ 17 CFR 240.19b-4(f)(6)(iii). 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 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) \43\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\43\ 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-NYSEARCA-2023-24 on the subject line.
Paper Comments
Send paper comments in triplicate to: Secretary,
Securities and Exchange
[[Page 17077]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEARCA-2023-24. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEARCA-2023-24 and should be submitted
on or before April 11, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
---------------------------------------------------------------------------
\44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05686 Filed 3-20-23; 8:45 am]
BILLING CODE 8011-01-P
