Document ID: SEC-2017-0733-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2017-05-08T04:00Z

[Federal Register Volume 82, Number 87 (Monday, May 8, 2017)]
[Notices]
[Pages 21446-21450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09195]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80577; File No. SR-NYSEMKT-2017-04]

Self-Regulatory Organizations; NYSE MKT LLC; Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Amendment 
No. 1, Relating to Market Makers Applicable When the Exchange 
Transitions Trading to Pillar, the Exchange's New Trading Technology 
Platform

May 2, 2017.

I. Introduction

    On January 25, 2017, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
adopt rules relating to market makers that would be applicable when the 
Exchange transitions trading to Pillar, the Exchange's new trading 
technology platform. The proposed rule change was published for comment 
in the Federal Register on February 13, 2017.\3\ On March 29, 2017, the 
Commission designated a longer period for action on the proposed rule 
change.\4\ On March 30, 2017, the Exchange filed Amendment No. 1 to the 
proposed rule change.\5\ The Commission received no comments on the 
proposal, as modified by Amendment No. 1. The Commission is approving 
the proposed rule change, as modified by Amendment No. 1, on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79982 (Feb. 7, 
2017), 82 FR 10508 (Feb. 13, 2017) (``Notice'').
    \4\ See Securities Exchange Act Release No. 80336 (Mar. 29, 
2017), 82 FR 16447 (Apr. 4, 2017).
    \5\ In Amendment No. 1, the Exchange: (1) Specified that 
proposed Exchange Rule 7.25E titled ``DMM Security Allocation and 
Reallocation'' is also based on New York Stock Exchange LLC 
(``NYSE'') Rule 103B; (2) modified proposed Exchange Rule 
7.25E(b)(1), to read ``Issuer Section [sic] of DMM Unit by 
Interview;'' (3) modified proposed Exchange Rule 7.25E(b)(1)(B)(ii) 
by (a) adding the qualifier ``eligible'' to ``DMMs'' in the first 
sentence, (b) adding the clause ``or a designee of such senior 
official'' at the end of the second sentence, (c) modifying the 
fourth sentence to ``Representatives of each DMM must participate in 
the meeting,'' and (d) adding a final sentence stating that 
``Meetings will normally be held at the Exchange, unless the 
Exchange has agreed that they may be held elsewhere;'' (4) modified 
proposed Exchange Rule 7.25(b)(2) by (a) changing the title to 
``Exchange Selection of DMM by Delegation,'' (b) deleting from the 
first sentence of paragraph (A) the phrase ``based on a review of 
all information available to the issuer,'' and (c) modifying 
paragraph (B) to state that ``The ESP will select the DMM and inform 
the issuer of its selection''; (5) modified proposed Exchange Rule 
7.25E(b)(11) to state that ``If the issuer of an initial Fund lists 
additional funds within nine months from the date of its initial 
listing, the issuer may choose to maintain the same DMM for those 
subsequently listed funds or it may select a different DMM from the 
group of eligible DMMs that the issuer interviewed or reviewed in 
the allocation process for its initial fund''; (6) modified proposed 
Exchange Rule 7.25E(d)(1) to state ``loses its registration as a DMM 
in a security as a result of proceedings under the Rule 8000 or 9000 
Series, as applicable; or''; and (7) changed proposed Exchange Rule 
7.25E(e) to make listing-company DMM allocation decisions for 
purposes of an initial public offering sunset after 18 months, made 
a conforming change to the filing, and stated that this proposed 
rule is based on current Exchange Rule 103B(VI)(H)--Equities and 
NYSE Rule 103B(VI)(H). Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nysemkt-2017-04/nysemkt201704-1680445-149392.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The Exchange proposes to adopt new rules relating to market makers 
that would be applicable when the Exchange transitions trading to 
Pillar, a new trading technology platform. As part of this transition, 
the Exchange would move from the current floor-based market with a 
parity allocation model to a fully automated market with a price-time-
priority allocation model. The Exchange's floor-based traders, such as 
designated market makers (``DMMs'') and floor brokers, would not be 
retained in Pillar. Electronic DMMs would replace floor-based DMMs.
    The proposed rules would not assign securities to DMMs at the 
natural-person level and would not require DMMs to facilitate the 
opening, reopening, or closing of assigned Exchange-listed securities. 
In addition, the proposed rules would not entitle DMMs to a parity 
allocation of executions, and also would not subject DMMs to heightened 
capital requirements. Finally, DMMs would continue to be subject to 
rules governing allocation of securities and combination of DMM units. 
The Exchange would also no longer provide for members to act as 
Supplemental Liquidity Providers.
    The Exchange represents that the proposal is based on the rules of 
NYSE Arca Equities, Inc. (``NYSE Arca Equities''), which has already 
implemented Pillar, the same trading technology platform as the 
Exchange proposes to adopt.\6\
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    \6\ NYSE Arca filed four proposals to implement its transition 
to Pillar in stages: (1) Adopting rules for trading sessions, order 
ranking and display, and order execution; (2) adopting rules for 
orders and modifiers and the retail liquidity program; (3) adopting 
rules for trading halts, short sales, limit up-limit down, and odd 
lots and mixed lots; and (4) adopting rules for auctions. See 
Securities Exchange Act Release Nos. 74951 (May 13, 2015), 80 FR 
28721 (May 19, 2015) and 75494 (July 20, 2015), 80 FR 44170 (July 
24, 2015) (SR-NYSEArca-2015-38) (first Pillar filing and approval); 
75497 (July 21, 2015), 80 FR 45022 (July 28, 2015) and 76267 (Oct. 
26, 2015), 80 FR 66951 (Oct. 30, 2015) (SR-NYSEArca-2015-56) (second 
Pillar filing and approval); 75467 (July 16, 2015), 80 FR 43515 
(July 22, 2015) and 76198 (Oct. 20, 2015), 80 FR 65274 (Oct. 26, 
2015) (third Pillar filing and approval); and 76085 (Oct. 6, 2015), 
80 FR 61513 (Oct. 13, 2015) and 76869 (Jan. 11, 2016), 81 FR 2276 
(Jan. 15, 2016) (fourth Pillar filing and approval).
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    The proposal would set forth new definitions for Market Makers, 
Market Maker Authorized Traders, and Designated Market Makers. In 
addition, the proposal would set forth the process for registration and 
obligations of Market Makers, the obligations of Market Maker 
Authorized Traders, the registration of non-DMM Market Makers, the 
registration and obligations of DMMs, DMM security allocation and 
reallocation, and DMM combination review policy.\7\
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    \7\ The Exchange previously adopted these rules, generally with 
rule text reserved for future filings, in anticipation of the 
current proposal. See Securities Exchange Act Release No. 79242 
(Nov. 4, 2016), 81 FR 79081 (Nov. 10, 2016) (SR-NYSEMKT-2016-97). 
The rule numbers correspond with the rule numbers of NYSE Arca 
Equities rules.
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    The Exchange represents that it will announce the transition to 
Pillar, if approved by the Commission, by Trader Update. The Exchange 
anticipates that the transition would occur in the second quarter of 
2017. After the transition to Pillar, current Exchange equities rules 
governing the floor-based platform would no longer be applicable. For 
each current equities rule that would not be applicable when trading on 
the Pillar platform begins, the Exchange proposes to add a preamble 
stating that ``this rule is not applicable to trading on the Pillar 
trading platform.'' The Exchange represents that, after it has 
transitioned to the Pillar trading platform, it will file a separate 
proposed rule change to delete the obsolete rules. Current Exchange 
rules governing equities trading that do not have the preamble 
described above will continue to govern

[[Page 21447]]

Exchange operations on its cash equities trading platform. A detailed 
description of the proposal appears in the Notice.\8\ The proposal is 
summarized and discussed below.
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    \8\ See Notice, supra note 3.
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A. Definitions

    The Exchange proposes three new definitions related to market 
makers. First, the Exchange proposes to define the term ``Market 
Maker'' as an ETP Holder that acts as a Market Maker pursuant to 
Exchange Rule 7E.\9\ This proposed definition is based on the 
definition of ``Market Maker'' in NYSE Arca Equities, without any 
substantive differences.\10\ Second, the Exchange proposes to define 
``Market Maker Authorized Trader,'' or ``MMAT,'' to mean an Authorized 
Trader who performs market making activities pursuant to Exchange Rule 
7E on behalf of a Market Maker.\11\ This proposed definition is based 
on the definition of ``Market Maker Authorized Trader'' in NYSE Arca 
Equities, without any substantive differences.\12\ Third, the Exchange 
proposes to define ``Designated Market Maker,'' or ``DMM,'' as a 
registered Market Maker that is subject to additional requirements set 
forth in Section 2 of Exchange Rule 7E for Exchange-listed securities 
assigned to such DMM.\13\ The Exchange represents that this proposed 
definition would be new and that it is not based on the rules of the 
NYSE Arca Equities exchange.\14\
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    \9\ See Proposed Exchange Rule 1.1E(v). In a related rule 
filing, the Exchange has proposed to define the term ``ETP Holder'' 
as a member organization that has been issued an Equity Trading 
Permit. See Securities Exchange Act Release No. 79993 (Feb. 9, 
2017), 82 FR 10814 (Feb. 15, 2017) (SR-NYSEMKT-2017-01) (``Trading 
Rules Filing''). The term ``member organization'' is defined in 
Exchange Rule 2(b)--Equities.
    \10\ See NYSE Arca Equities Rule 1.1(v).
    \11\ See Proposed Exchange Rule 1.1E(w). The Exchange has 
separately proposed to define the term ``Authorized Trader'' to mean 
a person who may submit orders to the Exchange's cash equities 
Trading Facilities on behalf of his or her ETP Holder. See supra 
note 9.
    \12\ See NYSE Arca Equities Rule 1.1(w).
    \13\ See Proposed Exchange Rule 1.1E(ccc).
    \14\ See Exchange Rule 2(i)--Equities. Furthermore, because DMMs 
would be Market Makers, and a Market Maker designation is at the 
level of the ETP Holder, the Exchange represents that the proposed 
definition would differ from the Exchange's current rules, which 
define a DMM at the individual level.
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B. Registration of Market Makers

    Proposed Exchange Rule 7.20E addresses registration requirements 
for Market Makers, such as how an ETP Holder files an application to 
register, the factors that the Exchange will consider in reviewing the 
application, effectiveness and appeal provisions, the right of the 
Exchange to suspend or terminate registration, and withdrawal 
procedures. The Exchange represents that the proposed rule is based in 
part on NYSE Arca Equities Rule 7.20, with the following substantive 
differences. First, the Exchange proposes that member organizations 
already registered as Market Makers by the Exchange would continue to 
be registered as Market Makers under proposed Exchange Rule 7.20E 
without being required to re-register as a Market Maker.\15\ Second, 
the second sentence of proposed Exchange Rule 7.20E(b) would be changed 
to provide that ``[a]pplications will be reviewed by the Exchange, 
which will consider the ETP Holder's capital, operations, personnel, 
technical resources, and disciplinary history.'' The Exchange also 
proposes an additional clarifying sentence that would provide that, 
after reviewing the application, the Exchange would either approve or 
disapprove the ETP Holder's registration as a Market Maker. Third, 
because proposed Exchange Rule 7.24E(a)(4) would cover DMM withdrawal 
from registration in a security, the Exchange proposes that DMMs would 
not be covered by the provisions of proposed Rule 7.20E(e), which 
governs a Market Maker's withdrawal of registration as a Market Maker 
in a security. The Exchange also proposes to provide that a Market 
Maker that fails to notify the Exchange of its written notice of 
withdrawal on the business day prior to its withdrawal may be subject 
to formal disciplinary action.\16\ Finally, the Exchange proposes a 
non-substantive difference to proposed Rule 7.20E(c) and (e), as 
compared to NYSE Arca Equities Rule 7.20(c) and (d), to use Exchange 
disciplinary rule references in lieu of NYSE Arca Equities disciplinary 
rule references.
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    \15\ Under current Rule 103--Equities, a member organization may 
be approved to be registered as a DMM. In addition, under current 
Rule 107B--Equities, a member organization approved as a 
Supplemental Liquidity Provider may be registered as a market maker 
on the Exchange as an ``SLMM''.
    \16\ The Exchange states it does not believe that a Market Maker 
needs to provide ten business day notice of such withdrawal of 
registration, as required by NYSE Arca Equities Rule 7.20(e), 
because the Exchange can process such withdrawals within one 
business day from date of notice.
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C. Obligations of Market Maker Authorized Traders

    Proposed Exchange Rule 7.21E would set forth the obligations of 
Market Maker Authorized Traders. As proposed, MMATs would be permitted 
to enter orders only for the account of the Market Maker for which the 
MMATs are registered. The proposed rule would also specify the 
registration requirements for MMATs and the procedures for suspension 
and withdrawal of registration. The Exchange represents that the 
proposed rule is based on NYSE Arca Equities Rule 7.21.

D. Registration of Non-DMM Market Makers in a Security \17\
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    \17\ Because proposed Exchange Rules 7.22E and 7.24E would 
describe the obligations of DMMs on the Pillar trading platform, the 
Exchange proposes that Exchange Rule 104--Equities would not be 
applicable to trading on the Pillar trading platform.
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    Proposed Exchange Rule 7.22E would set forth the process for Market 
Makers, other than DMMs, to become registered in a security and would 
set forth the factors the Exchange may consider in approving the 
registration of a non-DMM Market Maker in a security. The proposed rule 
would also govern both termination of a Market Maker's registration in 
a security by the Exchange and voluntary termination by a Market Maker.
    The Exchange represents that proposed Exchange Rule 7.22E is based 
on NYSE Arca Equities Rule 7.22 with certain differences. First, 
proposed Exchange Rule 7.22E would govern registration in a security 
only for non-DMM Market Makers, rather than for all Market Makers. 
Second, in proposed Exchange Rule 7.22E(a), the Exchange proposes that 
a Market Maker may become registered in a security by submitting a 
request to the Exchange, rather than by filing a security registration 
form.\18\ Third, the Exchange does not propose to include rule text 
based on paragraphs (c) and (d) of NYSE Arca Equities Rule 7.22.\19\ 
Finally, the Exchange proposes additional, non-substantive differences 
by replacing references to NYSE Arca Equities Rule 10 and 10.13 with 
references to the Exchange Rule 9200 and Rule 9500 Series, 
respectively.
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    \18\ NYSE Arca Equities Rule 7.22 states that a prospective 
Market Maker should file a security registration form.
    \19\ Since NYSE Arca Equities rules governing designated market 
makers and lead market makers are not applicable on the Exchange, 
the Exchange is not including in proposed Exchange Rule 7.22E the 
text from paragraphs (c) and (d) of NYSE Arca Equities Rule 7.22. 
The Exchange proposes that requirements relating to DMMs would be 
set forth in proposed Exchange Rules 7.24E, 7.25E, and 7.26E, 
described in greater detail below.
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E. Obligations of Market Makers

    Proposed Exchange Rule 7.23E would set forth the affirmative 
obligations of Market Makers, including DMMs, to engage in a course of 
dealing for their own account to assist in the maintenance, insofar as 
reasonably

[[Page 21448]]

practicable, of fair and orderly markets on the Exchange. Further, the 
proposed rule would set forth specific responsibilities and duties of 
Market Makers, including the obligation to maintain continuous, two-
sided trading in registered securities and to adhere to certain pricing 
obligations. As proposed, Market Makers would have to remain in good 
standing with the Exchange, inform the Exchange of any material change 
in financial or operational condition or in personnel, and clear and 
settle transactions through the facilities of a registered clearing 
agency. The proposed rule provides for disciplinary action, suspension, 
or revocation of registration by the Exchange upon certain failures of 
Market Makers to abide by the requirements of the rule. Finally, the 
proposed rule sets forth temporary withdrawal provisions for Market 
Makers.
    The Exchange represents that proposed Exchange Rule 7.23E is based 
on NYSE Arca Equities Rule 7.23 with certain differences. First, 
proposed Exchange Rules 7.23E(a)(1)(B)(iii) and (iv) have different 
definitions for the terms ``Designated Percentage'' and ``Defined 
Limit.'' The Exchange states that it is using the definitions for these 
terms used in Bats BZX, Inc. Rule 11.8(d)(2)(D) and (E). Second, 
proposed Exchange Rule 7.23E(a)(2), rather than citing NYSE Arca 
Equities Rule 4.1, would require that a Market Maker maintain adequate 
minimum capital in accordance with the provisions of Rule 15c3-1 under 
the Act (``Rule 15c3-1''). The Exchange represents that this does not 
represent a substantive change in minimum capital requirements because 
NYSE Arca Equities Rule 4.1 cross references Rule 15c3-1. Finally, the 
Exchange proposes that the provisions of proposed Exchange Rule 
7.23E(d), regarding temporary withdrawal of an ETP Holder from Market 
Maker status in the securities in which it is registered, would not be 
applicable to Market Makers acting as a DMM. As described in greater 
detail below, proposed Exchange Rule 7.24E(a)(4) would address DMM 
withdrawal from registration in a security.

F. Registration and Obligations of DMMs \20\
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    \20\ Because proposed Exchange Rules 7.22E and 7.24E would 
describe the obligations of DMMs on the Pillar trading platform, the 
Exchange proposes that Exchange Rule 104--Equities would not be 
applicable to trading on Pillar.
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    Proposed Exchange Rule 7.24E would set forth the registration and 
obligations of DMMs. The Exchange represents that proposed Exchange 
Rule 7.24E is new and is based in part on provisions of current 
Exchange Rule 98A--Equities, Exchange Rule 103--Equities, Exchange Rule 
104--Equities, and Exchange Rule 107B--Equities.
    Proposed Exchange Rule 7.24E(a) would provide that all Exchange-
listed securities would be assigned to a DMM and there would be no more 
than one DMM per Exchange-listed security.\21\ The Exchange represents 
that this new rule text is based on how the Exchange currently 
operates, as set forth in Exchange Rules 103--Equities and 103B--
Equities, in that every Exchange-listed security is allocated to a DMM.
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    \21\ See Proposed Exchange Rule 7.24E(a).
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    Proposed Exchange Rule 7.24E(b) would set forth the registration 
procedures of DMMs.\22\ An ETP Holder must be registered as a Market 
Maker and approved as a DMM, in order to be eligible to receive an 
allocation as a DMM. The Exchange represents this proposed rule is 
based in part on current Exchange Rule 103(a)(i)--Equities.\23\ To 
provide for continuity for companies that list their securities on the 
Exchange, the Exchange proposes in Rule 7.24E(b)(1) to allow a DMM unit 
currently approved to operate one business day prior to the Pillar 
transition to automatically be approved as a DMM. Conversely, Market 
Makers not registered as a DMM one business day before the Pillar 
transition date would need to file a written application to become a 
DMM.
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    \22\ See Proposed Exchange Rule 7.24E(b).
    \23\ The Exchange proposes that Exchange Rule 103--Equities 
would not be applicable to trading on the Pillar trading platform. 
Instead, proposed Exchange Rule 7.24(b), together with proposed 
Exchange Rule 7.20E, described above, would establish the 
registration requirements for DMMs.
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    The Exchange proposes a substantive difference between proposed 
Exchange Rule 7.24E(b)(2) and existing Exchange Rule 103(b)(i)--
Equities in that proposed Exchange Rule 7.24E(b)(2) would reference 
proposed Exchange Rules 7.25E(f) and 7.26E, which establish additional 
factors that the Exchange may consider in determining whether to 
approve a Market Maker as a DMM. Proposed Exchange Rules 7.25E (``DMM 
Security Allocation and Reallocation'') and 7.26E (``DMM Combination 
Policy'') are described below.
    Proposed Exchange Rule 7.24E(b)(3) would provide that an ETP Holder 
registered as a DMM in a security may also be registered as a Market 
Maker in that security only if the ETP Holder maintains information 
barriers between the trading unit operating as a DMM and the trading 
unit operation as a non-DMM Market Maker in the same security. 
Currently, under Exchange Rule 107B(h)(2)(A)--Equities, an Exchange 
member may operate as a supplemental liquidity provider in a security 
that is assigned to a DMM unit of the member, provided that the 
supplemental liquidity provider is not part of the DMM unit.\24\ The 
Exchange represents that Rule 7.24E(b)(3) would operate substantially 
similarly to the current rule in that a member organization can 
currently be both a DMM and a supplemental liquidity provider in a 
security through the use of information barriers.
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    \24\ See Exchange Rule 107B(h)(2)(A)--Equities.
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    Proposed Exchange Rule 7.24E(b)(4) would govern the circumstances 
under which a DMM may temporarily withdraw from its DMM status in its 
assigned securities. The Exchange represents that this rule is based on 
NYSE Arca Equities Rule 7.23(d). In addition, Proposed Rule 7.24E(b)(5) 
would specify that a DMM may not be registered in a security of an 
issuer, or a partner or subsidiary of the issuer, if the entity is an 
approved person or affiliate of the DMM. The Exchange represents that 
the proposed rule text is based on current Exchange Rule 98A--Equities, 
with non-substantive differences to use Pillar terminology.
    Proposed Exchange Rule 7.24E(c) sets forth the obligations of DMMs. 
The Exchange represents that the text of proposed Exchange Rule 
7.24E(c) is based in part on current Exchange Rule 104(a)(1)(A)--
Equities. Currently, DMMs are required to maintain a quote at the 
inside at least 10% of the trading day for securities with a 
consolidated average daily volume of less than one million shares and 
at least 5% of the trading day for securities with a consolidated 
average daily volume equal to or greater than one million shares. The 
Exchange represents that, similar to the current quoting requirements, 
the proposed quoting requirement set forth in proposed Exchange Rule 
7.24E(c) are portfolio-based quoting requirements. On the Pillar 
trading platform, because DMMs would not have other obligations as set 
forth in Exchange Rule 104(a)--Equities, such as the requirement to 
facilitate openings, reopenings, and closings, the Exchange proposes a 
heightened quoting obligation of 25% across all securities assigned to 
a DMM, regardless of consolidated average daily trading volume for a 
security. The Exchange otherwise proposes that the manner that a DMM's 
quoting obligations would be calculated would be the same as under 
current rules.

[[Page 21449]]

G. DMM Security Allocation and Reallocation

    Proposed Exchange Rule 7.25E would set forth the allocation and 
reallocation of securities to DMMs. The proposed rule would set forth 
when a security is eligible for allocation or reallocation, as well as 
the eligibility of DMMs to participate in the allocation process. The 
proposed rule further sets forth the allocation process--whether the 
issuer selects the DMM directly or the issuer delegates the selection 
to the Exchange. In the event that a company with listed securities 
wishes to change its DMM, the proposed rule sets forth the reallocation 
process. Should a DMM lose its registration or voluntarily withdraw its 
registration, the DMM would be ineligible, under the Exchange's 
``Allocation Freeze Policy,'' for future allocations for a six-month 
period. For companies that list securities through an initial public 
offering, the allocation decision would remain in effect for 12 months. 
Finally, the proposed rule sets forth criteria the Exchange may 
consider for applicants that are not currently DMMs. For applicants 
that are not currently DMMs, the proposal would not require additional 
capital requirements as currently required.
    The Exchange represents that proposed Exchange Rule 7.25E is based 
on current Exchange Rule 103B--Equities and on NYSE Rule 103B, with 
substantive differences to reflect that an allocation would be to a DMM 
at the ETP Holder level rather than at the individual (natural person) 
DMM level, as well as non-substantive differences to streamline the 
rule text. In addition, the Exchange would use the term ``DMM,'' as 
defined in proposed Exchange Rule 1.1E(ccc) to replace current 
references to either DMM (as an individual) or DMM unit.\25\
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    \25\ Because proposed Exchange Rule 7.25E would establish the 
requirements for the allocation and reallocation of securities to 
DMMs on Pillar, the Exchange proposes that Exchange Rule 103B--
Equities would not be applicable to trading on the Pillar trading 
platform.
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H. DMM Combination Policy

    For a DMM to merge with another DMM, or otherwise combine their 
businesses, the transaction must be approved by the Exchange. Proposed 
Exchange Rule 7.26E would set forth the required contents of a written 
submission to the Exchange by proponents of the DMM combination 
addressing certain enumerated factors for the Exchange to consider in 
approving the transaction, as well as the procedures the Exchange would 
follow in approving or disapproving a combination. The proposal also 
sets forth the timeline for the Exchange to approve or disapprove a 
combination, the ability of the Exchange to grant conditional 
approvals, and the ability to have the Exchange's board of directors to 
review a disapproval decision. The Exchange represents that the 
proposed Exchange Rule is based on current Exchange Rule 123E--Equities 
(``DMM Combination Review Policy'').\26\
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    \26\ Because this rule would govern DMM combinations on the 
Exchange, the Exchange proposes that Rule 123E--Equities would not 
be applicable to trading on the Pillar trading platform.
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I. Current Exchange Rules Not Applicable on Pillar

    As noted earlier, the Exchange would no longer operate a trading 
floor once the Exchange transitions to Pillar. As a result, the 
Exchange proposes that certain current rules that relate to floor-based 
trading would not be applicable on Pillar.\27\
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    \27\ The Exchange proposes to specify in its rule book that the 
following Floor-specific rules would not be applicable to trading on 
Pillar: Exchange Rule 98--Equities (Operation of a DMM Unit), 
Exchange Rule 104A--Equities (DMMs--General), Exchange Rule 104B--
Equities (DMM Commissions),\27\ Exchange Rule 113--Equities (DMM 
Unit's Public Customers), and Exchange Rule 460--Equities (DMMs 
Participating in Contests). In addition, the Exchange proposes to 
delete current Exchange Rules 99--Equities, Exchange Rule 100--
Equities, and Exchange Rule 101--Equities, all of which are 
currently marked ``Reserved,'' as well as Exchange Rule 113 Former--
Equities (DMMs' Public Customers), which is obsolete. The Exchange 
represents that DMMs would not be required to facilitate the 
opening, reopening, or closing of assigned securities; would have 
electronic access only; would not be entitled to parity allocation; 
and would not be subject to heightened capital requirements. Current 
Exchange Rule 460--Equities prohibits DMM firms and associated 
persons from participating in a proxy contest or serving as a 
director of an issuer, requires DMMs to report beneficial ownership 
above a certain limit, and limits specified DMM business 
transactions, if the DMM member is registered in the securities of 
the issuer. The Exchange represents that DMMs would no longer have a 
time and place advantage, that DMMs would be similar to market 
makers on NYSE Arca, and that no other exchanges have restrictions 
similar to Exchange Rule 460--Equities. See Email from Clare 
Saperstein, Associate General Counsel, NYSE Group, Inc. to Michael 
E. Coe, Assistant Director, and Steve Kuan, Division of Trading and 
Markets, Commission (Apr. 27, 2017).
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III. Discussion and Commission's Findings

    After careful review of the proposal, as modified by Amendment No. 
1, the Commission finds that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to the Exchange.\28\ In particular, the Commission finds 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\29\ which requires, among other things, that the rules of a 
national securities exchange be 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 systems and, in general, to protect investors and the 
public interest, and that the rules are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \28\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \29\ 15 U.S.C. 78f(b)(5).
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    The Exchange is transitioning from its current floor-based trading, 
with a parity allocation model, to a fully automated electronic trading 
system, with a price-time allocation model. The Commission notes that 
the proposed rules closely parallel, and are substantially similar to, 
current rules of the Exchange, the NYSE Arca Equities, or the Bats BZX 
exchange, which were filed and approved by the Commission (or which 
became immediately effective) pursuant to Section 19(b) of the Act. 
NYSE Arca Equities currently operates using the Pillar trading 
platform, and NYSE Arca Equities market makers operate according to 
rules that are similar to the rules that the Exchange proposes to 
adopt. In addition, the Commission believes that the heightened DMM 
quoting obligations proposed in Exchange Rule 7.24E(c), and the lack of 
heightened capital requirements, are appropriate because DMMs on the 
Exchange would not, on the Pillar trading platform, retain their 
current obligations to facilitate openings, reopenings, and closings on 
the Exchange. Accordingly, the Commission believes that the proposal is 
reasonably designed to protect investors and the public interest, and 
that it is consistent with the requirements of the Act.

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to the proposed rule change is consistent with the Act. Comments may be 
submitted by any of the following methods:

[[Page 21450]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2017-04 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-NYSEMKT-2017-04. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEMKT-2017-04 and should 
be submitted on or before May 30, 2017.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    As noted above, in Amendment No. 1, the Exchange: (1) Specified 
that proposed Exchange Rule 7.25E, titled ``DMM Security Allocation and 
Reallocation,'' is based on NYSE Rule 103B; (2) modified proposed 
Exchange Rule 7.25E(b)(1), to read ``Issuer Section [sic] of DMM Unit 
by Interview;'' (3) modified proposed Exchange Rule 7.25E(b)(1)(B)(ii) 
by (a) adding the qualifier ``eligible'' to ``DMMs'' in the first 
sentence, (b) adding the clause ``or a designee of such senior 
official'' at the end of the second sentence, (c) modifying the fourth 
sentence to ``Representatives of each DMM must participate in the 
meeting,'' and (d) adding a final sentence stating that ``Meetings will 
normally be held at the Exchange, unless the Exchange has agreed that 
they may be held elsewhere;'' (4) modified proposed Exchange Rule 
7.25(b)(2) by (a) changing the title to ``Exchange Selection of DMM by 
Delegation,'' (b) deleting from the first sentence of paragraph (A) the 
phrase ``based on a review of all information available to the 
issuer,'' and (c) modifying paragraph (B) to state that ``The ESP will 
select the DMM and inform the issuer of its selection;'' (5) modified 
proposed Exchange Rule 7.25E(b)(11) to state that ``If the issuer of an 
initial Fund lists additional funds within nine months from the date of 
its initial listing, the issuer may choose to maintain the same DMM for 
those subsequently listed funds or it may select a different DMM from 
the group of eligible DMMs that the issuer interviewed or reviewed in 
the allocation process for its initial fund;'' (6) modified proposed 
Exchange Rule 7.25E(d)(1) to state ``loses its registration as a DMM in 
a security as a result of proceedings under the Exchange Rule 8000 or 
9000 Series, as applicable; or''; and (7) changed proposed Exchange 
Rule 7.25E(e) to make listing company DMM allocation decisions for 
purposes of an initial public offering sunset after 18 months, made a 
conforming change to the filing, and stated that this proposed rule is 
based on current Exchange Rule 103B(VI)(H)--Equities and NYSE Rule 
103B(VI)(H).
    The Commission believes that Amendment No. 1 is consistent with the 
Act and notes that the amendment updates proposed Exchange Rule 7.25E 
to conform to an amended version of NYSE Rule 103B that became 
effective in February 2017.\30\ Accordingly, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\31\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \30\ See Securities Exchange Act Release No. 80122 (Feb. 28, 
2017), 82 FR 12642 (Mar. 6, 2017) (SR-NYSE-2017-06).
    \31\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, that pursuant to Section 19(b)(2) of the 
Act, that the proposed rule change (SR-NYSEMKT-2017-04), as modified by 
Amendment No. 1, be, and it hereby is, approved on an accelerated 
basis.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09195 Filed 5-5-17; 8:45 am]
 BILLING CODE 8011-01-P