Document ID: SEC-2019-0752-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2019-06-03T04:00Z

[Federal Register Volume 84, Number 106 (Monday, June 3, 2019)]
[Notices]
[Pages 25596-25599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11445]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85945; File No. SR-NYSE-2019-29]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend NYSE Rules 7.6, 7.31, 7.34, 98, 107B and 131A, To Specify Order 
Behavior for Orders Entered Via the Pillar Phase II Protocols

May 28, 2019.
    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 May 15, 2019, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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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 Rules 7.6, 7.31, 7.34, 98, 107B and 
131A to specify order behavior for orders entered via the Pillar phase 
II protocols. 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 Rules 7.6 (Trading Differentials), 
7.31 (Orders and Modifiers), 7.34 (Trading Sessions), 98 (Operation of 
a DMM Unit), 107B (Supplemental Liquidity Providers) and 131A (A Member 
Organization Shall Use Its Own Mnemonic When Entering Orders) to 
specify order behavior for orders entered via the Pillar phase II 
protocols.
Background
    Currently, the Exchange trades UTP Securities on its Pillar trading 
platform, subject to Pillar Platform Rules 1P-13P.\4\ In the next phase 
of Pillar, the Exchange proposes to transition trading of Exchange-
listed securities to the Pillar trading platform.\5\ Once transitioned 
to Pillar, such securities will also be subject to the Pillar Platform 
Rules 1P-13P.
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    \4\ ``UTP Security'' is defined as 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. See 
Rule 1.1.
    \5\ The Exchange has announced that, subject to rule approvals, 
the Exchange will begin transitioning Exchange-listed securities to 
Pillar on July 15, 2019, available here: https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Pillar_Update_NGW.pdf. The 
Exchange will publish by separate Trader Update a complete symbol 
migration schedule.
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    Member organizations enter orders and order instructions by using 
communication protocols that map to the order types and modifiers 
described in Exchange rules. Currently, all member organizations 
communicate with the Exchange using Pillar phase I protocols, which 
support trading both under the Pillar Platform Rules and in Exchange-
listed securities. In anticipation of the transition of NYSE-listed 
securities to Pillar, the Exchange is introducing new technology to 
support how member organizations communicate with the Exchange when 
trading on the Pillar trading platform (``Pillar phase II protocols''). 
Because Pillar phase II protocols will support new order functionality, 
the Exchange proposes to revise its rules to reflect these changes.
    During this implementation, there will be a period when both the 
Pillar phase I and Pillar phase II protocols will be available to 
member organizations other than designated market makers (``DMM'').\6\ 
Accordingly, the Exchange

[[Page 25597]]

proposes to amend its rules to describe how a member organization's 
orders would behave depending on the protocol a member organization 
chooses to use. Once Exchange-listed securities transition to Pillar, 
DMMs will be required to connect to the Exchange using Pillar phase II 
protocols for trading in their assigned securities.
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    \6\ The Exchange's affiliate, NYSE Arca, Inc. (``NYSE Arca''), 
similarly offered a parallel period when both Pillar phase I and 
Pillar phase II protocols were available to ETP Holders. See 
Securities Exchange Act Release No. 79588 (December 23, 2016), 81 FR 
96534 (December 30, 2016) (SR-NYSEArca-2016-170) (Notice of filing 
and immediate effectiveness of proposed rule change).
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Proposed Amendment to Rule 7.6
    Rule 7.6 sets forth the Exchange's Trading Differentials, also 
referred to as the minimum price variation (``MPV'') for quoting and 
entry of securities traded on the Exchange. The rule currently provides 
that the MPV for quoting and entry of orders in securities traded on 
the Exchange is $0.01, with the exception of securities that are priced 
less than $1.00 for which the MPV for quoting and entry or orders is 
$0.0001. On the Pillar trading platform, when using Pillar phase I 
protocols, orders with a limit price of less than $1.00 in securities 
that trade in prices of $100,000 or above, must be entered in no more 
than two decimal places, e.g., $0.01, and when using Pillar phase II 
protocols, such orders must be entered in no more than three decimal 
places, e.g., $0.001. The Exchange notes that this functionality is 
only applicable to one security traded on the Exchange. The Exchange 
proposes to codify this functionality in proposed Commentary .01 to 
Rule 7.6. As proposed, Commentary .01 to Rule 7.6 would provide that on 
Pillar, when using Pillar phase I protocols, the MPV for orders with a 
limit price of less than $1.00 in securities that trade in prices of 
$100,000 or above is $0.01, and when using Pillar phase II protocols, 
the MPV for such orders is $0.001.
Proposed Amendment to Rule 7.31
    The Exchange proposes to amend Rule 7.31 to reflect that under the 
Pillar phase II protocols, the Exchange would use a member 
organization's MPID, rather than a Client ID, to assess whether to 
apply Self-Trade Prevention Modifiers (``STP'') against two matching 
orders. To reflect this change, the Exchange proposes to add new 
subsection (D) to Rule 7.31(i)(2) that would provide that for purposes 
of STP, references to Client ID mean a Client ID when using Pillar 
phase I protocols to communicate with the Exchange or an MPID when 
using Pillar phase II protocols to communicate with the Exchange. This 
proposed rule change is based in part on the rules of the Exchange's 
affiliated exchanges, NYSE Arca, NYSE American LLC (``NYSE American''), 
and NYSE National, Inc. (``NYSE National''), which also require the use 
of an MPID for their respective rules relating to STP.\7\
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    \7\ See NYSE Arca Rule 7.31-E(i)(2), NYSE American Rule 
7.31E(i)(2), and NYSE National Rule 7.31(i)(2).
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Proposed Amendment to Rule 7.34
    The Exchange proposes to amend Rule 7.34 to reflect that under the 
Pillar phase II protocols, the Exchange would reject orders that do not 
include a designation for which trading session(s) the order will 
remain in effect. Current Rule 7.34(b)(1) provides that any order 
entered before or during the Early or Core Trading Session will be 
deemed designated for the Early Trading Session and the Core Trading 
Session. Further, current Rule 7.34(b)(2) provides that an order 
without a time-in-force designation will be deemed designated with a 
day time-in-force modifier.
    The Exchange proposes that when member organizations use Pillar 
phase II protocols to enter an order, the Exchange would reject any 
order that does not include a trading session designation. To reflect 
this functionality, the Exchange proposes to add the following sentence 
to Rule 7.34(b)(1): ``For member organizations that communicate with 
the Exchange using Pillar phase II protocols, orders entered without a 
trading session will be rejected.'' This proposed rule text is based on 
the rules of the Exchange's affiliates that use Pillar phase II 
protocols, and which also reject orders that do not include a trading 
session designation.\8\ To specify that the current rule processing is 
available only for orders entered via the Pillar phase I protocols, the 
Exchange proposes to add the following introductory text to Rule 
7.34(b)(2): ``For member organizations that communicate with the 
Exchange using Pillar phase I protocols.''
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    \8\ See NYSE Arca Rule 7.34-E(b)(1), NYSE American Rule 
7.34E(b)(1), and NYSE National Rule 7.34(b)(1).
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Proposed Amendment to Rule 98
    Rule 98(c) sets forth specified restrictions to operating a DMM 
unit.\9\ Among other requirements, Rule 98(c)(4) provides that any 
proprietary interest entered into Exchange systems by a DMM unit in DMM 
Securities \10\ must be identifiable as DMM unit interest, unless such 
proprietary interest is for the purposes of facilitating the execution 
of an order received from a customer (whether the DMM's own customer or 
the customer of another broker-dealer) and is on a riskless principal 
basis, or on a principal basis to provide price improvement to the 
customer. The Exchange does not specify which system(s) a DMM unit must 
use because, as the Exchange's trading systems continue to evolve, the 
manner by which interest would be identified as DMM interest could 
change. However, Rule 98(c)(4) requires that a DMM use a unique 
mnemonic that identifies to the Exchange its customer-driven orders in 
DMM securities and that such mnemonic may not be used for trading 
activity on the Exchange in DMM securities that are not customer-driven 
orders. Because mnemonics will not be supported on Pillar phase II 
protocols, the Exchange will instead require DMMs to use a unique 
identifier that is not a mnemonic to identify its customer-driven 
orders in DMM securities. The Exchange proposes to amend Rule 98(c)(4) 
to reflect this change by replacing the term ``mnemonic'' in Rule 
98(c)(4) with the term ``identifier.''
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    \9\ For purposes of Rule 98, the term ``DMM unit'' means a 
trading unit within a member organization that is approved pursuant 
to Rule 103 to act as a DMM unit. See Rule 98(b)(1). The term 
``Designated Market Maker'' means an individual member, officer, 
partner, employee or associated person of a Designated Market Maker 
who is approved by the Exchange to act in the capacity of a DMM. See 
Rule 2(i).
    \10\ The term ``DMM securities'' means any securities allocated 
to the DMM unit pursuant to Rule 103B or other applicable rules. See 
Rule 98(b)(2).
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Proposed Amendment to Rule 107B
    Rule 107B provides for a class of market participants referred to 
as Supplemental Liquidity Providers or ``SLPs.'' Approved Exchange 
member organizations are eligible to be an SLP. SLPs supplement the 
liquidity provided by DMMs. SLPs have monthly quoting requirements that 
may qualify them to receive SLP rebates. Rule 107B requires that an SLP 
use a unique mnemonic that identify the SLP trading activity of each 
SLP in assigned SLP securities.\11\ Because all order flow in an 
assigned SLP security using that mnemonic is treated as SLP volume, a 
member organization may not use such identified mnemonics for trading 
activity at the Exchange in assigned SLP securities that is not SLP 
trading activity. However, to enable the member organization to use the 
same mnemonic for both SLP and non-SLP trading activity in different 
securities, an SLP may use mnemonics used for SLP trading for trading 
activity in securities not assigned to the SLP. Additionally,

[[Page 25598]]

the rule specifies that if a member organization does not identify such 
mnemonics to the Exchange, the member organization would not receive 
credit for such SLP trading.
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    \11\ See Rule 107B(c)(2).
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    The Exchange proposes to amend Rule 107B to provide that SLPs may 
continue to use mnemonics when communicating with the Exchange using 
Pillar phase I protocols, but that if an SLP uses Pillar Phase II 
protocols, it would be required to use MMID in lieu of a mnemonic. The 
Exchange proposes to adopt this distinction in current Rules 
107B(c)(2), 107B(d)(3), and 107B(g)(2). This proposed rule change would 
not alter any of the substantive requirements of Rule 107B and instead 
would reflect the new communication protocol to comply with the 
existing rule requirements.
Proposed Amendment to Rule 131A
    The Exchange proposes to amend Rule 131A, which set forth the 
requirements relating to mnemonics, to reflect that the rule would not 
be applicable to trading on the Pillar platform. Specifically, since 
the Exchange would use MPIDs under Pillar phase II protocols and would 
not use mnemonics, the Exchange proposes to adopt the following 
preamble to the current rule: This rule is not applicable to member 
organizations using Pillar phase II protocols to communicate with the 
Exchange.
* * * * *
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the implementation date by 
Trader Update. The Exchange anticipates implementing these changes in 
the second quarter, before the Exchange begins the transition of 
Exchange-listed securities to Pillar.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\12\ in general, and 
furthers the objectives of Section 6(b)(5),\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 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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    \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 change to Rule 7.6 to 
reject orders with a limit price of less than $1.00 in securities that 
trade in prices of $100,000 or above if not entered with an MPV of 
$0.01 when using Pillar phase I protocols, and to reject such orders if 
not entered with an MPV of $0.001 when using Pillar phase II protocols, 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it provides 
transparency of the circumstances when orders would be rejected 
depending on the communication protocol used by the member organization 
and the MPV in which they are entered.
    The Exchange believes that the proposed change to Rule 7.31 to 
specify that a member organization's MPID rather than Client ID would 
be used for STP purposes when a member organization uses Pillar phase 
II protocols would remove impediments to and perfect the mechanism of a 
free and open market and a national market system by providing notice 
to member organizations of which orders would be matched for purposes 
of STP, depending on the communication protocol that they use.
    The Exchange believes that the proposed change to Rule 7.34 to 
reject orders that do not include a trading session designation would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it provides transparency 
and uniformity of the circumstances when an order would be rejected 
depending on the communication protocol used by the member 
organization.
    The Exchange believes that the proposed change to Rule 98 would 
remove impediments to and perfect the mechanism of a free and open 
market by providing greater specificity in Rule 98 regarding the manner 
by which DMMs would be required to send customer-driven orders in DMM 
securities.
    The Exchange further believes that amending Rule 107B to specify 
whether a mnemonic or MMID should be used, depending on communication 
protocol, would remove impediments to and perfect the mechanism of a 
free and open market and a national market system by providing 
transparency to SLPs of how they must comply with the requirements of 
Rule 107B when using Pillar phase II protocols.
    Finally, 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 specify which current rules would not be applicable to 
trading on the Pillar trading platform. The Exchange believes that 
adding a legend which clearly states that a rule would not be 
applicable to trading on the Pillar trading platform would promote 
transparency regarding which rules would govern trading on the Exchange 
once it transitions to Pillar.

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 Exchange believes the 
proposed rule change to reject orders in high priced securities 
depending on the communication protocol used by the member organization 
and the MPV in which they are entered would not impose any burden on 
competition because the proposed change is not designed to address any 
competitive issues, but rather, would promote transparency in the 
Exchange's rules. The Exchange believes that the proposed rule change 
to specify that a member organization's MPID rather than Client ID 
would be used for STP purposes when a member organization uses Pillar 
phase II protocols is not designed to address any competitive issues, 
but rather, would provide clarity regarding when the STP functionality 
would be available to a member organization, depending on the 
communication protocol that they use. Additionally, the Exchange 
believes that the proposed rule change to reject orders if they do not 
include a trading session designation would not impose any burden on 
competition because the proposed change is not designed to address any 
competitive issues, but rather, would promote transparency and 
uniformity by specifying when an order would be rejected depending on 
the communication protocol used by a member organization. Finally, the 
Exchange believes that amending Exchange rules to specify how orders 
must be identified depending on which Pillar protocol is used to 
communicate with the Exchange is intended to provide transparency 
regarding how orders would be processed depending on the communication 
protocol used by a member organization.

[[Page 25599]]

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 \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
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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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
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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) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 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 rule-comments@sec.gov. Please include 
File Number SR-NYSE-2019-29 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-2019-29. 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-2019-29 and should be submitted on 
or before June 24, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11445 Filed 5-31-19; 8:45 am]
BILLING CODE 8011-01-P