Document ID: SEC-2017-1125-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2017-07-05T04:00Z

[Federal Register Volume 82, Number 127 (Wednesday, July 5, 2017)]
[Notices]
[Pages 31118-31121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14014]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81038; File No. SR-NYSEMKT-2016-103]

Self-Regulatory Organizations; NYSE MKT LLC; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendments No. 1, 2, 
and 3, To Allow the Exchange To Trade, Pursuant to Unlisted Trading 
Privileges, any NMS Stock Listed on Another National Securities 
Exchange; Establish Rules for the Trading Pursuant to UTP of Exchange-
Traded Products; and Adopt New Equity Trading Rules Relating To Trading 
Halts of Securities Traded Pursuant to UTP on the Pillar Platform

June 28, 2017.

I. Introduction

    On November 17, 2016, 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: 
(1) Allow the Exchange to trade, pursuant to unlisted trading 
privileges (``UTP''), any NMS stock \3\ listed on another national 
securities exchange; (2) establish rules for the trading pursuant to 
UTP of certain exchange-traded products (``ETPs''); and (3) adopt new 
equity trading rules relating to trading halts of securities traded 
pursuant to UTP on the Exchange's new trading platform, Pillar. The 
proposed rule change was published for comment in the Federal Register 
on December 1, 2016.\4\ On January 4, 2017, pursuant to Section 
19(b)(2) of the Act,\5\ the Commission designated a longer period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\6\ On February 24, 2017, the 
Commission instituted proceedings under Section 19(b)(2)(B) of the 
Act\7\ to determine whether to approve or disapprove the proposed rule 
change.\8\

[[Page 31119]]

On March 28, 2017, the Exchange filed Amendment No. 1 to the proposed 
rule change, and Amendment No. 1 was published for comment in the 
Federal Register on April 27, 2017.\9\ On April 27, 2017, the Exchange 
filed Amendment No. 2 to the proposed rule change.\10\ On May 23, 2017, 
the Commission designated a longer period for Commission action on the 
proposed rule change.\11\ On May 31, 2017, the Exchange filed Amendment 
No. 3 to the proposed rule change.\12\ The Commission has received no 
comments on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The term ``NMS stock'' is defined in Rule 600 of Regulation 
NMS. See 17 CFR 242.600(b)(47).
    \4\ See Securities Exchange Act Release No. 79400 (Nov. 25, 
2016), 81 FR 86750 (Dec. 1, 2016).
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 79738, 82 FR 3068 
(Jan. 10, 2017).
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 80097 (Feb. 24, 
2017), 82 FR 12251 (Mar. 1, 2017). Specifically, the Commission 
instituted proceedings to allow for additional analysis of the 
proposed rule change's consistency with Section 6(b)(5) of the Act, 
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,'' and ``to protect investors and the public 
interest.'' See id. at 12252.
    \9\ See Securities Exchange Act Release No. 80500 (Apr. 21, 
2017), 82 FR 19416 (Apr. 27, 2017) (``Notice of Amendment No. 1'').
    \10\ In Amendment No. 2, the Exchange: (1) Corrected the cross-
reference in footnote 66 of the filing to read ``See supra note 
63''; (2) amended proposed Rule 5.2E(j)(6)(B)(V)(2)(a) to read 
``may'' instead of ``will''; (3) amended proposed Rule 5.5E(m)(1)(c) 
to clarify that the regulatory function described therein would be 
exercised by ``the Exchange'' instead of ``Regulation''; (4) amended 
Supplementary Material .01 to proposed Rule 8.200E to erase the 
repetitive words ``are satisfied'' at the end of the introductory 
paragraph; and (5) amended proposed Rule 8.700E(h) to add at the 
beginning of the paragraph the sentence ``The Exchange will file 
separate proposals under Section 19(b) of the Securities Exchange 
Act of 1934 before listing and trading separate and distinct Managed 
Trust Securities.'' Amendment No. 2 is available at: https://www.sec.gov/comments/sr-nysemkt-2016-103/nysemkt2016103-1724667-150689.pdf. Because Amendment No. 2 to the proposed rule change does 
not materially alter the substance of the proposed rule change or 
raise unique or novel regulatory issues, Amendment No. 2 is not 
subject to notice and comment.
    \11\ See Securities Exchange Act Release No. 80746, 82 FR 24763 
(May 30, 2017) (designating July 29, 2017, as the date by which the 
Commission must either approve or disapprove the proposed rule 
change).
    \12\ In Amendment No. 3, the Exchange deleted footnote 10 of the 
filing, which stated that ``[t]he Exchange currently lists five ETPs 
on its current trading platform. These ETPs will continue to be 
listed and traded pursuant to the NYSE MKT Company Guide and the 
other rules of the Exchange that do not apply to the Pillar 
platform.'' The Exchange also deleted the sentence that followed 
footnote 10, which stated that ``[t]herefore, the Exchange is only 
proposing ETP rules in this rule filing that would apply to the 
Pillar platform and trading pursuant to UTP. Since the Exchange does 
not plan to trade ETPs on the Pillar platform that would be listed 
under these proposed rules, the Exchange is not proposing to change 
any of the current rules of the Exchange pertaining to the listing 
and trading of ETPs in the NYSE MKT Company Guide or in its other 
rules.'' The Exchange also deleted footnote 11, which was attached 
to the deleted sentence, and which provided a Web site address for 
the NYSE MKT Company Guide. Amendment No. 3 is available at https://www.sec.gov/comments/sr-nysemkt-2016-103/nysemkt2016103-1780346-152834.pdf. Because Amendment No. 3 to the proposed rule change does 
not materially alter the substance of the proposed rule change or 
raise unique or novel regulatory issues, Amendment No. 3 is not 
subject to notice and comment.
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    The Commission is granting approval of the proposed rule change, as 
modified by Amendments No. 1, 2, and 3.

II. Description of the Proposal, As Modified by Amendments No. 1, 2, 
and 3 \13\
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    \13\ Additional information regarding the proposal can be found 
in the Notice of Amendment No. 1, supra note 9.
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    NYSE MKT proposes to trade on its Pillar trading platform,\14\ 
pursuant to UTP, any NMS stock listed on another national securities 
exchange.\15\ NYSE MKT also proposes to establish listing and trading 
requirements for certain types of ETPs on Pillar.\16\ The Exchange's 
proposed rules for the qualification, listing, and trading of these 
ETPs are substantively identical to the rules of NYSE Arca and 
NYSE.\17\ Finally, the Exchange proposes to adopt new equity trading 
rules relating to trading halts of securities traded pursuant to UTP on 
Pillar.
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    \14\ On January 29, 2015, the Exchange announced the 
implementation of Pillar, which, according to the Exchange, is an 
integrated trading technology platform designed to use a single 
specification for connecting to the equities and options markets 
operated by the Exchange and its affiliates, NYSE Arca, Inc. (``NYSE 
Arca'') and New York Stock Exchange LLC (``NYSE''). See Trader 
Update dated January 29, 2015, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/Pillar_Trader_Update_Jan_2015.pdf. See 
also Securities Exchange Act Release No. 79242 (Nov. 4, 2016), 81 FR 
79081 (Nov. 10, 2016) (SR-NYSEMKT-2016-97) (``Pillar Framework 
Filing'').
    \15\ The Exchange represents that it will continue to trade the 
symbols for which it is the listing venue on its separate, existing 
trading platform (``Existing Platform'') and will not trade 
securities pursuant to UTP on the Existing Platform.
    \16\ Specifically, the Exchange proposes to establish listing 
and trading rules for the following: Equity Linked Notes; Investment 
Company Units; Index-Linked Exchangeable Notes; Equity Gold Shares; 
Equity Index-Linked Securities, Commodity-Linked Securities, 
Currency-Linked Securities, Fixed-Income Index-Linked Securities, 
Futures-Linked Securities, and Multifactor-Index-Linked Securities; 
Trust Certificates; Currency and Index Warrants; Portfolio 
Depositary Receipts; Trust Issued Receipts; Commodity-Based Trust 
Shares; Currency Trust Shares; Commodity Index Trust Shares; 
Commodity Futures Trust Shares; Partnership Units; Paired Trust 
Shares; Trust Units; Managed Fund Shares; and Managed Trust 
Securities.
    \17\ See NYSE Arca Equities Rules 5 (Listings) and 8 (Trading of 
Certain Equities Derivatives); and NYSE Rules 5P (Securities Traded) 
and 8P (Trading of Certain Exchange Traded Products).
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    Under the proposal, the Exchange represents that it will only trade 
securities pursuant to UTP on its Pillar trading platform, and will not 
trade securities pursuant to UTP on its Existing Platform. Furthermore, 
the Exchange does not intend to list ETPs on Pillar or on its Existing 
Platform. Therefore, the Exchange represents that the proposed rules 
apply only to Pillar, and the rules pertaining to the Existing Platform 
will remain unchanged.

A. New Definitions

    The Exchange proposes to define the term ``Exchange Traded 
Product'' in Rule 1.1E(bbb) to mean a security that meets the 
definition of ``derivative securities product'' in Rule 19b-4(e) under 
the Act, and a ``UTP Exchange Traded Product'' to mean an ETP that 
trades on the Exchange pursuant to UTP.\18\ The Exchange also proposes 
to add Rule 1.1E(kk) to define ``UTP Regulatory Halt'' as a trade 
suspension, halt, or pause called by the primary listing market for a 
UTP security that requires all market centers to halt trading in that 
security.
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    \18\ These proposed definitions are identical to the definitions 
of the same terms in NYSE Rule 1.1(bbb), and to the definition of 
``Derivative Securities Product'' in NYSE Arca Equities Rule 
1.1(bbb).
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B. Proposal To Trade Securities Pursuant to UTP

    The Exchange proposes new Rule 5.1E(a) to extend UTP to Pillar for 
securities listed on other national securities exchanges. Specifically, 
proposed Rule 5.1E(a)(1) would allow the Exchange to trade securities 
eligible for UTP under Section 12(f) of the Act.\19\ Proposed Rule 
5.1E(a) provides that the securities the Exchange would trade pursuant 
to UTP would be traded on Pillar under the rules applicable to UTP 
trading.
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    \19\ 15 U.S.C. 78l(f).
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    Proposed Rule 5.1E(a)(1) makes clear that the Exchange would not 
list any ETPs unless it files a proposed rule change under Section 
19(b)(2) under the Act.\20\ Therefore, the Exchange represents that the 
provisions of proposed Rules 5E and 8E described below, which also 
permit the listing of ETPs, would not be effective until the Exchange 
files a proposed rule change to amend its rules to comply with Rules 
10A-3 and 10C-1 under the Act and to incorporate qualitative listing 
criteria, and the proposed rule change is approved by the 
Commission.\21\
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ In addition, the introductory note to each of proposed 
Rules 5E and 8E states that the provisions of the rules apply to the 
trading pursuant to UTP of ETPs on the Exchange and do not apply to 
the listing of ETPs on the Exchange.
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C. ETP Trading Pursuant UTP on the Exchange

    The Exchange proposes Rule 5.1E(a)(2) to govern the trading of ETPs 
pursuant to UTP and Rule 19b-4(e) under the Act. Specifically, proposed 
Rule 5.1E(a)(2)(A) provides that, within

[[Page 31120]]

five days after commencement of trading, the Exchange would file a Form 
19b-4(e) with the Commission with respect to each ETP the Exchange 
trades pursuant to UTP.
    The Exchange proposes certain other rules to support the trading of 
ETPs pursuant to UTP. For example, proposed Rule 5.1E(a)(2)(B) provides 
that the Exchange will distribute an information circular prior to the 
commencement of trading in an ETP, which would generally include the 
same information as the information circular provided by the listing 
exchange, including (a) the special risks of trading the ETP, (b) the 
Exchange's rules that will apply to the ETP, including Rules 2090-
Equities and 2111-Equities,\22\ and (c) information about the 
dissemination of the value of the underlying assets or indices, as 
applicable.
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    \22\ See NYSE MKT Rule 2090-Equities (the Exchange's Know Your 
Customer Rule) and NYSE MKT Rule 2111-Equities (the Exchange's 
Suitability Rule).
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    In addition, proposed Rule 5.1E(a)(2)(C) establishes certain 
requirements for member organizations that have customers that trade 
ETPs on a UTP basis, including requirements pertaining to prospectus 
delivery and the provision of written description of terms and 
characteristics of the ETPs. Also, proposed Rule 5.1E(a)(2)(E) imposes 
restrictions on member organizations that are registered as market 
makers on the Exchange for certain ETPs. Finally, proposed Rule 
5.1E(a)(2)(F) specifies certain surveillance mechanisms for ETPs traded 
on the Exchange pursuant to UTP. Namely, Rule 5.1E(a)(2)(F) provides 
that the Exchange will enter into comprehensive surveillance sharing 
agreements with markets that trade components of the index or portfolio 
on which the ETP is based to the same extent as the listing exchange's 
rules require the listing exchange to enter into comprehensive 
surveillance sharing agreements with those markets.\23\
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    \23\ In addition, the Exchange represents that its surveillance 
procedures for ETPs traded on the Exchange pursuant to UTP would be 
similar to the procedures used for equity securities traded on the 
Exchange and would incorporate and rely upon existing Exchange 
surveillance systems. See Notice of Amendment No. 1, supra note 9, 
at 19418.
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    The Exchange also proposes to add certain definitions contained in 
NYSE Arca Equities Rule 5.1E(b) that are relevant to the proposed 
rules, including non-substantive changes to certain references to 
account for the minor differences of the Exchange and NYSE Arca and 
their respective rules.

D. Listing and Trading Requirements for ETPs

    The Exchange proposes to adopt rules that are substantively 
identical to those of NYSE Arca and NYSE for the qualification, 
listing, and delisting of ETPs. The Exchange proposes to add Rule 
5.2E(j), which would be substantively identical to NYSE Arca Equities 
and NYSE Rule 5.2(j). This proposed rule pertains to the following 
ETPs: Equity Linked Notes (Rule 5.2E(j)(2)); Investment Company Units 
(Rule 5.2E(j)(3)); Index-Linked Exchangeable Notes (Rule 5.2E(j)(4)); 
Equity Gold Shares (Rule 5.2E(j)(5)); Equity Index Linked Securities, 
Commodity-Linked Securities, Currency-Linked Securities, Fixed Income 
Index-Linked Securities, Futures-Linked Securities, and Multifactor 
Index-Linked Securities (Rule 5.2E(j)(6)); and Trust Certificates (Rule 
5.2E(j)(7)). The Exchange also proposes to add Rules 5.5E(g)(2), which 
would provide additional continued listing standards for Investment 
Company Units; 5.5E(j)-1, which would provide additional continued 
listing standards for Equity Linked Notes; and 5.5E(m), which would 
provide delisting procedures for ETPs. Other than certain non-
substantive and technical differences, the text of these proposed rules 
is identical to NYSE Arca and NYSE Rules 5.2(j)(2)-5.2(j)(7), 
5.5(g)(2), 5.5(j)-1, and 5.5(m).
    Further, the Exchange proposes to add Rule 8E, which is 
substantively identical to Sections 1 and 2 of NYSE Arca Equities Rule 
8 and of NYSE Rule 8P. This proposed rule pertains to the following 
ETPs: Currency and Index Warrants (Rules 8.1E-8.13E); Portfolio 
Depositary Receipts (Rule 8.100E); Trust Issued Receipts (Rule 8.200E); 
Commodity-Based Trust Shares (Rule 8.201E);Currency Trust Shares (Rule 
8.202E); Commodity Index Trust Shares (Rule 8.203E); Commodity Futures 
Trust Shares (Rule 8.204E); Partnership Units (Rule 8.300E); Paired 
Trust Shares (Rule 8.400E); Trust Units (Rule 8.500E); Managed Fund 
Shares (Rule 8.600E); and Managed Trust Securities (Rule 8.700E).
    As mentioned above, the Exchange would not list any ETPs unless it 
files a proposed rule change under Section 19(b)(2) under the Act.\24\ 
Therefore, the provisions of Rules 5E and 8E, which permit the listing 
of ETPs, would not be effective until the Exchange files a proposed 
rule change to amend its rules to comply with Rules 10A-3 and 10C-1 
under the Act and to incorporate qualitative listing criteria, and the 
proposed rule change is approved by the Commission.
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    \24\ 15 U.S.C. 78s(b)(2).
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E. Proposed Rule 7.18E--Requirements for Halts on Pillar Platform

    In conjunction with the implementation of Pillar for trading of 
securities pursuant to UTP, the Exchange proposes new Rule 7.18E which 
governs trading halts in symbols trading on Pillar. This rule is 
substantively identical to the rules of NYSE Arca and NYSE.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendments No. 1, 2, and 3, is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\25\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\26\ 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 system, and, in general, to protect 
investors and the public interest.
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    \25\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to trade, pursuant to UTP, NMS stocks 
(including ETPs) on its Pillar platform. Section 12(f) of the Act \27\ 
provides that any national securities exchange may extend UTP to 
securities listed and registered on other national securities 
exchanges, subject to Commission rules. In particular, in order to 
extend UTP to securities, Rule 12f-5 under the Act requires a national 
securities exchange to have in effect a rule or rules providing for 
transactions in the class or type of security to which the exchange 
extends unlisted trading privileges.\28\ The Commission notes that the 
Exchange's proposed Rule 5.1E allows NYSE MKT to extend UTP in Pillar 
to any security that is an NMS stock that

[[Page 31121]]

is listed on another national securities exchange.
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    \27\ 15 U.S.C. 78l.
    \28\ See 17 CFR 240.12f-5. See also Securities Exchange Act 
Release No. 35737 (Apr. 21, 1995), 60 FR 20891 (Apr. 28, 1995) (File 
No. S7-4-95) (adopting Rule 12f-5 under the Act).
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    The Commission has previously approved substantively identical 
rules for the listing and trading of ETPs on NYSE Arca and NYSE. The 
Exchange represents that it will not list, but only trade, ETPs on a 
UTP basis. The Exchange represents that to trade pursuant to UTP any 
ETP that is listed and traded on another national securities exchange, 
NYSE MKT would be required to file Form 19b-4(e) with the Commission.
    The Commission believes that the Exchange's proposal does not raise 
any novel issues, and the proposed rules of the Exchange are consistent 
with the rules of other national securities exchanges that trade 
securities, including ETPs.\29\ Additionally, the Exchange represents, 
and its proposed rules specify, that NYSE MKT will not list any ETPs 
unless it first obtains Commission approval of a proposed rule change 
under Section 19(b)(2) of the Act. Therefore, the provisions of 
proposed Rules 5E and 8E that permit the listing of ETPs would only be 
effective if the Commission approves a proposed rule change for the 
Exchange to amend its rules to comply with Rules 10A-3 and 10C-1 under 
the Act and to incorporate other applicable listing criteria. Finally, 
the Commission notes that NYSE MKT has represented that it will be 
responsible for accepting the obligations applicable to a UTP market, 
including specific requirements for registered market makers, books and 
records production, surveillance procedures, suitability and prospectus 
requirements, and requisite Exchange approvals.\30\
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    \29\ See, e.g., Rule 14.1 of Bats BYX Exchange, Inc. and Rule 
14.1 of Bats EDGA Exchange, Inc.
    \30\ See proposed Rule 5.1E.
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    The Commission believes that the UTP trading on NYSE MKT of NMS 
stocks, including ETPs, listed on other national securities exchanges 
is consistent with existing UTP trading of NMS stocks on other national 
securities exchanges and that is designed to increase competition among 
the different securities markets to the benefit of market participants. 
The Commission therefore finds that NYSE MKT's proposed rules governing 
trading on a UTP basis on its Pillar platform are consistent with the 
Act.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change (SR-NYSEMKT-2016-103), as 
modified by Amendments No. 1, 2, and 3, be, and it hereby is, approved.
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    \31\ 15 U.S.C. 78s(b)(2).

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-14014 Filed 7-3-17; 8:45 am]
 BILLING CODE 8011-01-P