Document ID: SEC-2022-0187-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-02-07T05:00Z

[Federal Register Volume 87, Number 25 (Monday, February 7, 2022)]
[Notices]
[Pages 6900-6902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02437]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94121; File No. SR-NYSEARCA-2022-07]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its Rules 
To Add New Subparagraph (i)(4) to Rule 7.31-E

February 1, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on January 27, 2022, 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 and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules to add new subparagraph 
(i)(4) to Rule 7.31-E (Orders and Modifiers) regarding orders 
designated with a ``retail'' modifier. 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 its rules to add new subparagraph 
(i)(4) to Rule 7.31-E (Orders and Modifiers) regarding orders 
designated with a ``retail'' modifier.
Proposed Rule Change
    Currently, the Exchange's Fee Schedule provides specified fees and 
credits for agency orders that originate from a natural person and are 
submitted to the Exchange by an ETP Holder,\4\ provided that no change 
is made to the terms of the order with respect to price or side of 
market and the order does not originate from a trading algorithm or any 
other computerized methodology.\5\ The Exchange's rules concerning such 
orders are set out in the 2012 Filing but do not presently appear in 
Rule 7.31-E (Orders and Modifiers).
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    \4\ See Rules 1.1(n) (definition of ETP) & (o) (definition of 
ETP Holder).
    \5\ See Securities Exchange Act Release No. 67540 (July 30, 
2012), 77 FR 46539 (August 3, 2012) (SR-NYSEArca-2012-77) (the 
``2012 Filing'').
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    The Exchange now proposes to amend Rule 7.31-E to add new 
subparagraph (i)(4) pertaining to this ``retail'' modifier. The 
proposed rule is consistent with the existing requirements as set out 
in the 2012 Filing, except as set forth below, and is substantively 
identical to rules currently in effect on the Exchange's affiliates New 
York Stock Exchange LLC (``NYSE''), NYSE American LLC (``NYSE 
American''), and NYSE National, Inc. (``NYSE National'').\6\
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    \6\ See Securities Exchange Act Release Nos. 93850 (December 22, 
2021), 86 FR 74119 (December 29, 2021) (SR-NYSE-2021-75) (relocating 
``retail'' order modifier from NYSE Rule 13 to NYSE Rule 
7.31(i)(6)); 92254 (June 24, 2021), 86 FR 34819 (June 30, 2021) (SR-
NYSEAMER-2021-31) (adding ``retail'' order modifier at NYSE American 
Rule 7.31E(i)(4)); and 92446 (July 20, 2021), 86 FR 40108 (July 26, 
2021) (SR-NYSENAT-2021-15) (adding ``retail'' order modifier at NYSE 
National Rule 7.31(i)(4)).
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    Proposed Rule 7.31-E(i)(4)(A) would specify that an order 
designated with a ``retail'' modifier is an agency order or a riskless 
principal order that meets the criteria of FINRA Rule 5320.03 that 
originates from a natural person and is submitted to the Exchange by an 
ETP Holder, provided that no change is made to the terms of the order 
with respect to price or side of market and the order does not 
originate from a trading algorithm or any other computerized 
methodology. It would also specify that an order with a ``retail'' 
modifier is separate and distinct from a ``Retail Order'' under Rule 
7.44-E. This proposed rule is based on NYSE Rule 7.31(i)(6)(A), NYSE 
American Rule 7.31E(i)(4)(A), and NYSE National 7.31(i)(4)(A), without 
any substantive differences.\7\
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    \7\ The proposed rule is identical to NYSE Rule 7.31(i)(6)(A), 
except that the term ``member organization'' in the NYSE rule would 
be replaced with the term ``ETP Holder'' in the proposed rule, and 
the reference to Rule 7.44 in the NYSE rule would be replaced with a 
reference to NYSE Arca Rule 7.44-E. The proposed rule is also 
identical to NYSE American Rule 7.31E(i)(4)(A) and NYSE National 
7.31(i)(4)(A), except that the term ``Retail Order'' in the NYSE 
American and NYSE National rules would be replaced with the phrase 
``order designated with a `retail' modifier'' in the proposed rule.
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    Proposed Rule 7.31-E(i)(4)(B) would specify that an ETP Holder 
would be required to designate an order as ``retail'' in the form and/
or manner prescribed by the Exchange. This proposed rule is based on 
NYSE Rule 7.31(i)(6)(B), NYSE American Rule 7.31E(i)(4)(B), and NYSE 
National 7.31(i)(4)(B), without any substantive differences.\8\
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    \8\ The proposed rule is identical to NYSE Rule 7.31(i)(6)(B), 
except that the term ``member organization'' in the NYSE rule would 
be replaced with the term ``ETP Holder'' in the proposed rule. The 
proposed rule is also identical to NYSE American Rule 7.31E(i)(4)(B) 
and NYSE National 7.31(i)(4)(B), except that the phrase ``designate 
an order as a Retail Order'' in the NYSE American and NYSE National 
rules would be replaced with the phrase ``designate an order as 
`retail' '' in the proposed rule.
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    Proposed Rule 7.31-E(i)(4)(C) would specify that in order to submit 
an order with a ``retail'' modifier, an ETP Holder must submit an 
attestation, in a form prescribed by the Exchange, that substantially 
all orders designated as ``retail'' would meet the requirements set out 
in paragraph (A) above. This proposed rule is based on NYSE Rule 
7.31(i)(6)(C), NYSE American Rule 7.31E(i)(4)(C), and NYSE National 
7.31(i)(4)(C), without any substantive differences.\9\
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    \9\ The proposed rule is identical to NYSE Rule 7.31(i)(6)(C), 
except that the term ``member organization'' in the NYSE rule would 
be replaced with the term ``ETP Holder'' in the proposed rule. The 
proposed rule is also identical to NYSE American Rule 7.31E(i)(4)(C) 
and NYSE National 7.31(i)(4)(C), except that the phrase ``Retail 
Order'' in the NYSE American and NYSE National rules would be 
replaced with the phrase `` `retail' order'' in the proposed rule.
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    Proposed Rule 7.31-E(i)(4)(D) would specify that an ETP Holder must 
have

[[Page 6901]]

written policies and procedures reasonably designed to assure that it 
will only designate orders as ``retail'' if all requirements of Rule 
7.31-E(i)(4)(A) are met. Such written policies and procedures must 
require the ETP Holder to (i) exercise due diligence before entering a 
``retail'' order to assure that entry as a ``retail'' order is in 
compliance with the requirements specified by the Exchange, and (ii) 
monitor whether orders entered as ``retail'' orders meet the applicable 
requirements. If an ETP Holder represents ``retail'' orders from 
another broker-dealer customer, the ETP Holder's supervisory procedures 
must be reasonably designed to assure that the orders it receives from 
such broker-dealer customer that it designates as ``retail'' orders 
meet the definition of a ``retail'' order. The ETP Holder must (i) 
obtain an annual written representation, in a form acceptable to the 
Exchange, from each broker-dealer customer that sends it orders to be 
designated as ``retail'' orders'' that entry of such orders as 
``retail'' orders will be in compliance with the requirements specified 
by the Exchange, and (ii) monitor whether its broker-dealer customer's 
``retail'' order flow meets the applicable requirements. This proposed 
rule is based on NYSE Rule 7.31(i)(6)(D), NYSE American Rule 
7.31E(i)(4)(D), and NYSE National 7.31(i)(4)(D), without any 
substantive differences.\10\
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    \10\ The proposed rule is identical to NYSE Rule 7.31(i)(6)(D), 
except that the term ``member organization'' in the NYSE rule would 
be replaced with the term ``ETP Holder'' in the proposed rule. The 
proposed rule is also identical to NYSE American Rule 7.31E(i)(4)(D) 
and NYSE National 7.31(i)(4)(D), except that the term ``Retail 
Order'' in the NYSE American and NYSE National rules would be 
replaced with the term `` `retail' order'' in the proposed rule.
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    Proposed Rule 7.31-E(i)(4)(E) would specify that an ETP Holder that 
fails to abide by the requirements specified in paragraphs (i)(4)(A)-
(D) of Rule 7.31-E would not be eligible for the ``retail'' rates for 
orders it designates as ``retail'' orders. This proposed rule is based 
on NYSE Rule 7.31(i)(6)(E), NYSE American Rule 7.31E(i)(4)(E), and NYSE 
National 7.31(i)(4)(E), without any substantive differences.\11\
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    \11\ The proposed rule is identical to NYSE Rule 7.31(i)(6)(E), 
except that the term ``member organization'' in the NYSE rule would 
be replaced with the term ``ETP Holder'' in the proposed rule, and 
the reference to paragraphs (i)(6)(A)-(D) in the NYSE rule would be 
replaced with a reference to paragraphs (i)(4)(A)-(D) in the 
proposed rule. The proposed rule is also identical to NYSE American 
Rule 7.31E(i)(4)(E) and NYSE National 7.31(i)(4)(E), except that the 
term ``Retail Order'' in the NYSE American and NYSE National rules 
would be replaced with the term `` `retail' order'' in the proposed 
rule. Note that orders that do not meet the requirements specified 
in paragraphs (i)(4)(A)-(D) of Rule 7.31-E would still be eligible 
to trade pursuant to the non-``retail'' fees in the NYSE Arca 
Equities Schedule of Fees and Charges (``Fee Schedule'').
    The Exchange does not propose to add to the proposed rule the 
provision of the 2012 Filing requiring an ETP Holder to designate 
certain of its order entry ports at the Exchange as ``Retail Order 
Ports.'' Under the Exchange's current Pillar trading system, there 
is no need for ETP Holders to use designated ports to submit orders 
eligible for ``retail'' pricing, since Pillar identifies such orders 
by coded tags, not by the port through which they were submitted. As 
such, the requirement in the 2012 Filing that ETP Holders use 
``Retail Order Ports'' to submit ``retail'' orders is now obsolete. 
Under the proposal, all orders that meet the requirements of the 
proposed rule would be eligible for preferential ``retail'' order 
pricing as set out in the Exchange's Fee Schedule, regardless of 
which order entry port the ETP Holder uses.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\12\ in general, and furthers the 
objectives of Sections 6(b)(5) of the Act,\13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed amendment to Rule 7.31-
E(i)(4) would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because the proposed 
requirements are based on existing requirements for orders designated 
as ``retail'' for purposes of fees and credits on the Exchange (in the 
2012 Filing), NYSE, NYSE American, and NYSE National, and therefore are 
not novel. In addition, the proposed designation, attestation, and 
written policies and procedures are also based on existing procedures 
for similarly-defined orders on the Exchange (in the 2012 Filing), 
NYSE, NYSE American, and NYSE National, and therefore are not novel. 
The Exchange believes that the proposed requirements to submit 
attestations and to maintain written policies and procedures are not 
unfairly discriminatory, because they would apply equally to all ETP 
Holders that seek to enter orders designated with a ``retail'' 
modifier.
    The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because they are substantively identical to 
the requirements for designating orders with a ``retail'' modifier that 
are currently in place on NYSE, NYSE American, and NYSE National, and 
therefore would harmonize the requirements for designating orders as 
``retail'' across the four affiliated exchanges. Such uniformity will 
enhance market participants' understanding of the process for 
designating orders as ``retail'' across the exchanges, and will 
minimize any potential confusion that could result from having 
different programs on each exchange.
    The Exchange believes that omitting the provision of the 2012 
Filing requiring an ETP Holder to designate certain of its order entry 
ports at the Exchange as ``Retail Order Ports'' would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because such requirement is obsolete under the 
Exchange's current Pillar trading system, which identifies ``retail'' 
orders by coded tag and not by the port through which they were 
submitted. As such, there is no longer any reason to require ETP 
Holders to submit ``retail'' orders through designated ports. Under the 
proposal, all orders that meet the requirements of proposed Rule 7.31-
E(i)(4)(A)-(D) would be eligible for preferential ``retail'' order 
pricing as set out in the Exchange's Fee Schedule, regardless of the 
order entry port used.

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

    In accordance with Section 6(b)(8) of the Act,\14\ the Exchange 
believes that the proposed rule change would not 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 intended to 
address competition at all, but merely moves the Exchange's existing 
requirements for orders designated as ``retail'' into Rule 7.31-E and 
conforms those requirements to those currently in place on the 
Exchange's affiliate exchanges NYSE, NYSE American, and NYSE National.
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    \14\ 15 U.S.C. 78f(b)(8).

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[[Page 6902]]

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 \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
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.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change 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.
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    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) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEARCA-2022-07 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEARCA-2022-07. 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-NYSEARCA-2022-07 and should be submitted 
on or before February 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02437 Filed 2-4-22; 8:45 am]
BILLING CODE 8011-01-P