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[Federal Register Volume 83, Number 119 (Wednesday, June 20, 2018)]
[Notices]
[Pages 28701-28705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13162]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83432; File No. SR-NYSE-2018-26]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1, To Amend Pillar Trading Platform Rule 7.31 Relating to Reserve 
Orders and Rule 7.36 Relating to Setter Priority

June 14, 2018.
    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 June 1, 2018, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change. On June 8, 2018, the Exchange 
filed Amendment No. 1 to the proposed rule change, as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 replaces and supersedes the original filing 
in its entirety. In Amendment No. 1, the Exchange modified the 
definition of ``child order'' in proposed rule 7.31.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Pillar trading platform Rule 7.31 
relating to Reserve Orders and Rule 7.36 relating to Setter Priority. 
This Amendment No. 1 supersedes the original filing in its entirety. 
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 7.31 relating to Reserve Orders 
and Rule 7.36 relating to Setter Priority. These proposed changes would 
be operative for trading on the Pillar trading platform only. Because 
the Exchange trades only UTP Securities \5\ on the Pillar trading 
platform at this time, these proposed changes would not be applicable 
to NYSE-listed securities.
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    \5\ The term ``UTP Securities'' is defined in Rule 1.1 to mean a 
security that is listed on a national securities exchange other than 
the Exchange and that trades on the Exchange pursuant to unlisted 
trading privileges.
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Background

    Rule 7.31(d)(1) defines a Reserve Order as a Limit Order with a 
quantity of the size displayed and with a reserve quantity of the size 
(``reserve interest'') that is not displayed. The displayed quantity of 
a Reserve Order is ranked Priority 2--Display Orders and the reserve 
interest is ranked Priority 3--Non-Display Orders.\6\ Rule 
7.31(d)(1)(A) provides that on entry, the display quantity of a Reserve 
Order must be entered in round lots and the displayed portion of a 
Reserve Order will be replenished following any execution. That rule 
further provides that the Exchange will display the full size of the 
Reserve Order when the unfilled quantity is less than the minimum 
display size for the order. Rule 7.31(d)(1)(B) provides that each time 
a Reserve Order is replenished from reserve interest, a new working 
time is assigned to the replenished quantity of the Reserve Order, 
while the reserve interest retains the working time of original order 
entry. Pursuant to Rule 7.31(d)(1)(C), a Reserve Order must be 
designated Day and may be combined with a Limit Non-Routable Order or a 
Primary Pegged Order.
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    \6\ The terms ``Priority 2--Display Orders'' and ``Priority 3--
Non-Display Orders'' are defined in Rule 7.36(e).
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    Rule 7.36(h) provides that Setter Priority will be assigned to an 
order ranked Priority 2--Display Orders with a display quantity of at 
least a round lot if such order (i) establishes a new BBO and (ii) 
either establishes a new NBBO or joins an Away Market NBBO and that 
only one order is eligible for Setter Priority at each price.\7\ Rule 
7.36(h)(1) provides that an order will be evaluated for Setter Priority 
on arrival, which includes when any portion of an order that has routed 
returns unexecuted and when it becomes eligible to trade for the first 
time upon transitioning to a new trading session.
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    \7\ The terms ``BBO,'' ``NBBO,'' ``PBBO,'' and ``Away Market'' 
are defined in Rule 1.1.
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Proposed Rule Change to Reserve Orders
    The Exchange proposes to amend Rule 7.31(d)(1) to change the manner 
by which the display portion of a Reserve Order would be replenished. 
As proposed, rather than replenishing the display quantity following 
any execution, the Exchange proposes to replenish the Reserve Order 
when the display quantity is decremented to below a round lot. This 
proposed functionality is consistent with how Reserve Orders are 
replenished on other equity exchanges.\8\
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    \8\ See, e.g., Cboe BZX Exchange, Inc. (``BZX'') Rule 
11.9(c)(1); Nasdaq Stock Market LLC (``Nasdaq'') Rule 7503(h).
---------------------------------------------------------------------------

    As is currently the case, the replenish quantity would be the 
minimum display size of the order or the remaining quantity of reserve 
interest if it is less than the minimum display quantity. To reflect 
this functionality, the Exchange proposes that Rule 7.31(d)(1)(A) would 
be amended as follows (deleted text bracketed; new text underlined):
    (A) On entry, the display quantity of a Reserve Order must be 
entered in round lots. The displayed portion of a Reserve Order will be 
replenished when the display quantity is decremented to below a round 
lot. The replenish quantity will be the minimum display quantity of the 
order or the remaining quantity of the reserve interest if it is less 
than the minimum display quantity [following any execution. The 
Exchange will display the full size of the Reserve Order when the 
unfilled quantity is less than the minimum display size for the order].
    Under current functionality, because the replenished quantity is 
assigned a new working time, it is feasible for a single Reserve Order 
to have multiple

[[Page 28702]]

replenished quantities with separate working times, each, a ``child'' 
order. The proposed change to limit when a Reserve Order would be 
replenished to when the display quantity is decremented to below a 
round lot only would reduce the number of child orders for a Reserve 
Order. The Exchange believes that minimizing the number of child orders 
for a Reserve Order would reduce the potential for market participants 
to detect that a child order displayed on the Exchange's proprietary 
market data feeds is associated with a Reserve Order.
    In most cases, the maximum number of child orders for a Reserve 
Order would be two. For example, assume a Reserve Order to buy has a 
display quantity of 100 shares and an additional 200 shares of reserve 
interest. A sell order of 50 shares would trade with the display 
quantity of such Reserve Order, which would decrement the display 
quantity to 50 shares. As proposed, the Exchange would then replenish 
the Reserve Order with 100 shares from the reserve interest, i.e., the 
minimum display size for the order. After this second replenishment, 
the Reserve Order would have two child orders, one for 50 shares, the 
other for 100 shares, each with different working times.
    Generally, when there are two child orders, the older child order 
of less than a round lot will be executed before the second child 
order. However, there are limited circumstances when a Reserve Order 
could have two child orders that equal less than a round lot, which, as 
proposed, would trigger a replenishment. For such circumstance, the 
Exchange proposes that when a Reserve Order is replenished from reserve 
interest and already has two child orders that equal less than a round 
lot, the child order with the later working time would be reassigned 
the new working time assigned to the next replenished quantity.
    For example, taking the same Reserve Order as above:
     If 100 shares of such order (``A'') are routed on arrival, 
it would have a display quantity of 100 shares (``B'') and 100 shares 
in reserve interest.
     While ``A'' is routed, a sell order of 50 shares would 
trade with ``B,'' decrementing ``B'' to 50 shares and the Reserve Order 
would be replenished from reserve interest, creating a second child 
order ``C'' of 100 shares.
     Next, the Exchange receives a request to reduce the size 
of the Reserve Order from 300 shares to 230 shares. Because ``A'' is 
still routed away and there is no reserve interest, and as described in 
more detail below, this 70 share reduction in size would be applied 
against the most recent child order of ``C,'' which would be reduced to 
30 shares. Together with ``B,'' which would still be 50 shares, the two 
displayed child orders would equal less than a round lot, but with no 
quantity in reserve interest.
     Next, ``A'' is returned unexecuted, and as described 
below, becomes reserve interest and is evaluated for replenishment. 
Because the total display quantity (``B'' + ``C'') is less than a round 
lot, this Reserve Order would be replenished. But because the Reserve 
Order already has two child orders, the child order with the later 
working time, ``C,'' would be returned to the reserve interest, which 
would now have a quantity of 130 shares (``C'' + ``A''), and the 
Reserve Order would be replenished with 100 shares from the reserve 
interest with a new working time, which would be a new child order 
``D.''
     After this replenishment, this Reserve Order would have 
two child orders of ``B'' for 50 shares and ``D'' for 100 shares, and a 
reserve interest of 30 shares.
    To effect these changes, the Exchange proposes to amend current 
Rule 7.31(d)(1)(B) to specify that each display quantity of a Reserve 
Order with a different working time would be referred to as a child 
order. The Exchange further proposes new Rule 7.31(d)(1)(B)(i) that 
would provide that when a Reserve Order is replenished from reserve 
interest and already has two child orders that equal less than a round 
lot, the child order with the later working time would rejoin the 
reserve interest and be assigned the new working time assigned to the 
next replenished quantity.
    The Exchange also proposes new Rule 7.31(d)(1)(B)(ii) to provide 
that if a Reserve Order is not routable (i.e., is combined with either 
a Limit Non-Routable Order or a Primary Pegged Order), the replenish 
quantity would be assigned a display and working price consistent with 
the instructions for the order, which represents current functionality. 
For example, for a Limit Non-Routable Reserve Order, if the display 
price would lock or cross the contra-side PBBO, the replenished 
quantity would be assigned a display price one MPV worse than the PBBO 
and a working price equal to the contra-side PBBO, as provided for in 
Rule 7.31(e)(1)(A)(i). The Exchange believes that this proposed rule 
text would provide transparency and clarity to Exchange rules.
    For a Primary Pegged Reserve Order, the Exchange proposes that the 
replenished quantity would follow Rule 7.31(h)(2)(B), which provides 
that a Primary Pegged Order would be rejected if the PBBO is locked or 
crossed. Because a Primary Pegged Reserve Order would have resting 
reserve interest, the Exchange proposes to amend Rule 7.31(h)(2)(B) to 
provide that if the PBBO is locked or crossed when the display quantity 
of a Primary Pegged Reserve Order is replenished, the entire order 
would be cancelled. The Exchange believes that cancelling the entire 
order is consistent with the current rule that provides that the entire 
order would be rejected on arrival if the display quantity would lock 
or cross the PBBO.
    The Exchange further proposes to add new subsection (D) to Rule 
7.31(d)(1) to describe when a Reserve Order would be routed. As 
proposed, a routable Reserve Order would be evaluated for routing both 
on arrival and each time the display quantity is replenished.
    Proposed Rule 7.31(d)(1)(D)(i) would provide that if routing is 
required, the Exchange would route from reserve interest before 
publishing the display quantity. In addition, if after routing, there 
is less than a round lot available to display, the Exchange would wait 
until the routed quantity returns (executed or unexecuted) before 
publishing the display quantity. In the example described above, the 
Exchange would have published the display quantity before the routed 
quantity returned because the display quantity was at least a round 
lot. If, however, 250 shares of a Reserve Order of 300 shares had been 
routed on arrival, because the unrouted quantity was less than a round 
lot (50 shares), the Exchange would wait for the routed quantity to 
return, either executed or unexecuted, before publishing the display 
quantity.
    The Exchange proposes this functionality to reduce the possibility 
for a Reserve Order to have more than one child order. If the Exchange 
did not wait, and instead displayed the 50 shares when the balance of 
the Reserve Order has routed, if the 250 shares returns unexecuted, 
such Reserve Order would be replenished and would have two child 
orders--one for the 50 shares that was displayed when the order was 
entered and a second for the 100 shares that replenished the Reserve 
Order from the quantity that returned unexecuted. By contrast, by 
waiting for a report on the routed quantity, if the routed quantity was 
not executed, the Exchange would display the minimum display quantity 
as a single child order. If the routed quantity was executed, the 
Exchange would display the 50 shares, but only because that would be 
the full remaining quantity of the Reserve Order.

[[Page 28703]]

    Proposed Rule 7.31(d)(1)(D)(ii) would provide that any quantity of 
a Reserve Order that is returned unexecuted would join the working time 
of the reserve interest, which is current functionality. If there is no 
quantity of reserve interest to join, the returned quantity would be 
assigned a new working time as reserve interest. As further proposed, 
in either case, such reserve interest would replenish the display 
quantity as provided for in Rules 7.31(d)(1)(A) and (B). The Exchange 
believes that this proposed rule text would promote transparency and 
clarity in Exchange rules. The Exchange further believes it is 
appropriate for a returned quantity of a Reserve Order to join the 
reserve interest first because the order may not be eligible for a 
replenishment to the display quantity.
    Proposed Rule 7.31(d)(1)(E) would provide that a request to reduce 
in size a Reserve Order would cancel the reserve interest before 
canceling the display quantity and if there is more than one child 
order, the child order with the later working time would be cancelled 
first. This represents current functionality and the example set forth 
above demonstrates how this would function. The Exchange believes that 
canceling reserve interest before a child order would promote the 
display of liquidity on an exchange. The Exchange further believes that 
canceling a later-timed child order would respect the time priority of 
the first child order, and any priority such child order may have for 
allocations.
Proposed Rule Change for Setter Priority
    The Exchange also proposes to expand the opportunity for an order 
to be eligible for Setter Priority pursuant to Rule 7.36(h)(1). As 
noted above, currently, an order is eligible for Setter Priority on 
arrival or when it becomes eligible to trade for the first time when 
transitioning to a new trading session.
    The Exchange first proposes to amend Rule 7.36(h)(1) to specify 
that an order would not be eligible for Setter Priority if there is an 
odd-lot sized order with Setter Priority at that price, which is 
current functionality. Because an odd-lot order cannot establish a BBO, 
if there is an odd-lot order at a price, an arriving order can get 
Setter Priority if it establishes the BBO and either joins or 
establishes the NBBO. However, as set forth in Rule 7.36(h)(2)(A), an 
order retains Setter Priority if it is decremented to below a round 
lot. In such case, an arriving order that establishes the BBO and 
either joins or establishes the NBBO would not be eligible for Setter 
Priority if there is an odd-lot sized order at that price with Setter 
Priority. The Exchange believes that the proposed rule text would 
promote transparency and clarity in Exchange rules.
    The Exchange proposes in new Rule 7.36(h)(1)(C) that Setter 
Priority would be evaluated for a resting order that is assigned a new 
display price. A resting order could be assigned a new display price 
for a number of reasons, including because of a change to the PBBO or 
NBBO (as described in Rule 7.31), pursuant to Rule 7.11(a)(5), or if a 
Short Sale Period is triggered for a security under Rule 7.16(f). In 
any repricing scenario, the repriced order would be evaluated for 
Setter Priority, meaning it would have to meet the requirements of Rule 
7.36(h) that it has a display quantity of at least a round lot and (i) 
establishes a new BBO and (ii) either establishes a new NBBO or joins 
an Away Market NBBO. The Exchange believes that if a repriced resting 
order meets these conditions, it has aggressively displayed liquidity 
on the Exchange and should be eligible for the additional Setter 
Priority allocation.
    The Exchange proposes to specify what would happen if multiple 
orders reprice at the same time. As proposed in the second sentence to 
new Rule 7.36(h)(1)(C), if multiple orders reprice at the same time, 
none of the orders would be eligible for Setter Priority unless one 
order is equal to or greater than a round lot and the sum of all other 
orders at that price is less than a round lot. The other orders at that 
price could have been resting orders, e.g., odd-lot sized displayed 
orders, or other repriced orders, or both. The Exchange believes that 
this proposed change is consistent with how the Exchange evaluates 
Setter Priority on arrival, which is available for an incoming order of 
at least a round-lot size that establishes the BBO and either joins or 
establishes the NBBO, notwithstanding other orders at that price that 
equal less than a round lot and do not already have Setter Priority.
    The Exchange also proposes in new Rule 7.36(h)(1)(D) that a Reserve 
Order would be evaluated for Setter Priority when the display quantity 
is replenished. The Exchange proposes this change in conjunction with 
the proposed changes to Reserve Order replenishment, described above. 
Because a Reserve Order would be replenished only if the display 
quantity is decremented to below a round lot, the Exchange believes 
that a replenishment event should be eligible for Setter Priority if it 
both establishes a BBO and either joins or establishes the NBBO. If the 
second child order meets those conditions, such child order would be 
eligible for Setter Priority even if there is still the first child 
order of an odd-lot size for such Reserve Order on the Exchange Book. 
However, consistent with the proposed change to Rule 7.36(h)(1), if the 
first child order of the Reserve Order had Setter Priority, the second 
child order of the Reserve Order would not be eligible for Setter 
Priority because there is already an order on the Exchange Book at that 
price with Setter Priority.
    The second sentence of proposed Rule 7.36(h)(1)(D) would further 
provide that during a Short Sale Period under Rule 7.16(f), if a short 
sale Reserve Order has an odd-lot quantity with Setter Priority and the 
Permitted Price at which such order would be replenished would be a 
different price, the replenish quantity would not be eligible for 
Setter Priority. As set forth in Rule 7.16(f)(5)(B), reserve interest 
that replenishes the displayed quantity of a Reserve Order will be 
replenished at a Permitted Price. Even though the second child order 
would be at a different price and would otherwise meet the conditions 
for Setter Priority, the Exchange believes that a Reserve Order should 
not be eligible for Setter Priority at more than one price.
    For example, during a Short Sale Period,
     If the NBB is 10.00, a short sale Reserve Order priced at 
10.01 would be displayed at 10.01. If that short sale Reserve Order 
established the BO and either joined or established the NBO, it would 
be assigned Setter Priority.
     If the NBB subsequently changes to 10.01, pursuant to Rule 
7.16(f)(6), the display quantity of the Reserve Order would remain 
displayed at 10.01, but the reserve interest would be repriced to the 
Permitted Price of 10.02.
     If next, the display quantity at 10.01 is reduced to below 
a round lot, such child order would retain Setter Priority. In 
addition, the Reserve Order would be replenished at 10.02, which is the 
Permitted Price. However, as proposed, even if the child order at 10.02 
would establish a new BO and either joined or established a new NBO, 
because it is part of the same Reserve Order, it would not be eligible 
to Setter Priority at the Permitted Price.
    Finally, the Exchange proposes to amend Rule 7.36(h)(3)(C), which 
provides that an order loses its Setter Priority if such order is less 
than a round lot and is assigned a new working time pursuant to Rule 
7.38(d)(2). To reflect the proposed change to Reserve Orders described 
above that a child order could be assigned a new working time, the 
Exchange proposes that if child order of a Reserve Order with Setter 
Priority is assigned a new

[[Page 28704]]

working time, it would lose that priority. However, when it joins the 
reserve interest and replenishes the Reserve Order, pursuant to 
proposed Rule 7.36(h)(1)(D), the new child order would be evaluated for 
Setter Priority. For example:
     If the Away Market PBB is 10.05 and the Exchange receives 
a Reserve Order to buy priced at 10.00 with 100 shares minimum display 
quantity and an additional 1000 shares in reserve interest, the child 
order ``A'' of 100 shares would be displayed at 10.00, but would not be 
eligible for Setter Priority.
     If the Away Market PBB adjusts to 9.99 and the Exchange 
receives a sell order with a limit price of 10.00 for 70 shares, ``A'' 
would be decremented to 30 shares and the Reserve Order would be 
replenished with a new child order ``B'' for 100 shares. Because ``B'' 
would establish a new BB on the Exchange and a new NBB, it would be 
assigned Setter Priority.
     If next, the Exchange receives an order to sell 90 shares 
at 10.00, because ``B'' has Setter Priority, it would trade with the 
new order to sell and would decremented to 10 shares, but still retain 
Setter Priority.
     Because ``A'' and ``B'' equal less than a round lot, the 
Reserve Order will be replenished. But because ``B'' would lose its 
working time and join the reserve interest pursuant to proposed Rule 
7.31(d)(1)(B), ``B'' would also lose its Setter Priority pursuant to 
proposed Rule 7.36(h)(3)(C). A new child order ``C'' would replenish 
the order for 100 shares.
     In this case, because ``C'' would again establish the BB 
on the Exchange and the NBB, ``C'' would be assigned Setter Priority 
for 100 shares.
    Finally, the Exchange proposes to amend Rule 7.36(h)(4) to delete 
sub-paragraph (B) of that Rule, which provides that Setter Priority is 
not available when the reserve quantity replenishes the display 
quantity of a Reserve Order. The Exchange proposes to re-number the 
rule text so that Rule 7.36(h)(4) provides that Setter Priority is not 
available for any portion of an order that is ranked Priority 3--Non-
Display Orders, which is currently set forth in sub-paragraph (A).
* * * * *
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce by Trader Update when these 
changes will be implemented.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\9\ in general, and 
furthers the objectives of Section 6(b)(5),\10\ in particular, because 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system and, 
in general, to protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change to replenish a 
Reserve Order only if the display quantity is decremented to below a 
round lot would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it would 
reduce the number of child orders associated with a single Reserve 
Order. By reducing the number of child orders, the Exchange believes it 
would reduce the potential for market participants to detect that a 
child order is associated with a Reserve Order. This proposed 
functionality is also consistent with how Reserve Orders function on 
BZX and Nasdaq.
    For similar reasons, the Exchange believes that if a Reserve Order 
has two child orders that equal less than a round lot, it would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system to assign a new working time to the later 
child order so that when such Reserve Order is replenished, it would 
have a maximum of only two child orders. The Exchange believes that 
this proposed change would streamline the operation of Reserve Orders 
and meet the objective to reduce the potential for market participants 
to be able to identify that a child order is associated with a Reserve 
Order.
    The Exchange further believes that the proposed rule change to 
evaluate a Reserve Order for routing both on arrival and when 
replenishing would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it would 
reduce the potential for the display quantity of a Reserve Order to 
lock or cross the PBBO of an away market. The Exchange further believes 
that routing from reserve interest would promote the display of 
liquidity on the Exchange, because if there is at least a round lot 
remaining of a Reserve Order that is not routed, the Exchange would 
display that quantity. The Exchange also believes that it would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system to wait to display a Reserve Order if there is 
less than a round lot remaining after routing because it would reduce 
the potential for such Reserve Order to have more than one child order. 
Finally, the Exchange believes that joining any quantity of a Reserve 
Order that is returned unexecuted with reserve interest first would be 
consistent with the proposed replenishment logic that a Reserve Order 
would be replenished only if the display quantity is decremented to 
below a round lot.
    The Exchange believes that it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system to apply a request to reduce in size a Reserve Order to the 
reserve interest first, and then next to the child order with the later 
working time, because such functionality would promote the display of 
liquidity on the Exchange and honor the priority of the first child 
order with the earlier working time. The Exchange believes that 
including this existing functionality in Rule 7.31 would promote 
transparency and clarity in Exchange rules.
    The Exchange believes that the proposed change to Primary Pegged 
Reserve Orders would remove impediments to and perfect the mechanism of 
a free and open market and a national market system because similar to 
how a Primary Pegged Order would function on arrival, if the replenish 
quantity of a Primary Pegged Reserve Order would lock or cross the 
PBBO, the entire Reserve Order would be cancelled. The Exchange 
believes that by cancelling the entire order, the Exchange would reduce 
the potential for such order to be displayed at a price that would lock 
or cross the PBBO.
    The Exchange believes that the proposed changes to Rule 7.36 
relating to Setter Priority would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would provide for additional circumstances when an order 
would be eligible to be evaluated for Setter Priority. The Exchange 
believes that a resting order that is repriced or a Reserve Order that 
is replenished should be entitled to Setter Priority if it meets the 
existing conditions for Setter Priority, including that it is at least 
a round lot in size, establishes the BBO, and either establishes or 
joins the NBBO. In these circumstances, a repriced order or replenished 
Reserve Order would be promoting the aggressive display of liquidity on 
the

[[Page 28705]]

Exchange, which would benefit all market participants.
    The Exchange believes that the proposed changes to Setter Priority 
are designed to operate consistently with the existing functionality, 
which is why multiple orders that reprice would not be eligible for 
Setter Priority, unless one order is equal to a round lot or more and 
the sum of all other orders at that price equal less than a round lot. 
Similarly, 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 a Reserve Order to be eligible for Setter Priority at 
only one price, and therefore, during a Short Sale Period, if a Reserve 
Order is replenished at a Permitted Price, it would not be eligible for 
Setter Priority at a second price level.
    Finally, the Exchange believes that the proposed amendment to Rule 
7.37(h)(3)(C) to add that an order would lose Setter Priority if it is 
less than a round lot and assigned a new working time pursuant to 
proposed Rule 7.31(d)(1)(B)(i) is consistent with current behavior that 
an odd-lot sized order would lose Setter Priority if it is assigned a 
new working time. 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 a Reserve Order to lose Setter Priority in 
such circumstances because when it is assigned a new working time, it 
would be eligible to be reevaluated for Setter Priority.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues. Rather, the proposed 
rule change to Reserve Orders is designed to reduce the potential for 
market participants to identify that a child order is related to a 
Reserve Order. The changes to Setter Priority are designed to promote 
the aggressive display of liquidity on the Exchange to provide 
additional circumstances when an order would be eligible for Setter 
Priority, consistent with current rules.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2018-26 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2018-26. 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 (http://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-NYSE-2018-26 and should be submitted on 
or before July 11, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13162 Filed 6-19-18; 8:45 am]
BILLING CODE 8011-01-P
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