Document ID: SEC-2019-1922-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American LLC
Posted Date: 2019-12-20T05:00Z

[Federal Register Volume 84, Number 245 (Friday, December 20, 2019)]
[Notices]
[Pages 70221-70222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27457]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87761; File No. SR-NYSEAMER-2019-41]

Self-Regulatory Organizations; NYSE American LLC; Order Approving 
a Proposed Rule Change Regarding the Applicability and Functionality of 
Certain Order Types on the Exchange

December 16, 2019.

I. Introduction

    On October 22, 2019, NYSE American LLC (``Exchange'') 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 amend its rules 
to clarify the applicability and functionality of certain order types 
on the Exchange. The proposed rule change was published for comment in 
the Federal Register on November 7, 2019.\3\ The Commission received no 
comment letters on the proposed rule change. This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 87442 (November 1, 
2019), 84 FR 60125 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to amend Rule 900.3NY (Orders Defined) to 
clarify the applicability and functionality of certain order types. 
Specifically, the Exchange proposes to amend the definitions of Stop 
Orders, Stop Limit Orders and All-or None (``AON'') Orders, as set 
forth in Rule 900.3NY(d), which describes Contingency Orders or Working 
Orders. The Exchange states it is not proposing to change or alter any 
obligations, rights, policies or practices. Rather, the Exchange states 
that its proposal is designed to reduce potential investor confusion as 
to the functionality and applicability of certain order types presently 
available on the Exchange.\4\
---------------------------------------------------------------------------

    \4\ See Notice, supra note 3, 84 FR at 60126.
---------------------------------------------------------------------------

Proposed Changes to Order Type Definitions

    Rule 900.3NY (the ``Rule'') contains certain definitions of options 
order types available on the Exchange. Paragraph (d) of the Rule 
defines Contingency Orders or Working Orders as orders that are 
``contingent upon a condition being satisfied or an order with a 
conditional or undisplayed price and/or size.'' The Exchange proposes 
to add language regarding the handling of such orders to state that 
Contingency Orders and Working Orders are maintained in the Working 
Order File of the Consolidated Book until they are eligible for 
execution and/or display.\5\ As discussed below, the Exchange also 
proposes to amend the definitions of Stop Orders, Stop Limit Orders and 
AON Orders, which are Contingency Orders/Working Orders.
---------------------------------------------------------------------------

    \5\ See Rule 900.3NY(d). See Rule 964NY(b)(2)(E) (regarding 
priority of orders in the Working Order File once eligible for 
execution and stating that such orders ``do not have any priority or 
standing until they are eligible for execution and/or display'') and 
Rule 964NY(a) (providing, in relevant part, that the Exchange will 
display ``all non-marketable limit orders in the Display Order 
Process, unless indicated otherwise'').
---------------------------------------------------------------------------

    Rule 900.3NY(d)(1)-(2): Stop Orders and Stop Limit Orders. A Stop 
Order is an order that becomes a Market Order when the market for a 
particular option contract reaches a specified price.\6\ A Stop Limit 
Order is an order that becomes a Limit Order when the market for a 
particular option contract reaches a specified price.\7\ Stop Orders 
and Stop Limit Orders (collectively, ``Stop Orders'' herein unless 
otherwise specified) track the price of an option and are generally 
used to limit losses as prices move up, in the case of buy orders, or 
down in the case of sell orders. In each case, the ``triggering 
event,'' which converts the order type (to a Market Order or Limit 
Order, as applicable) occurs once the option

[[Page 70222]]

trades or is quoted at, or above for a buy (below for a sell), the 
specified stop price.\8\ Thus, Stop Orders to buy (sell) may be 
triggered as the price of an option rises (falls). The current rule 
provides that a Stop Order to buy (sell) will be rejected if, at the 
time of arrival, the stop price is below (above) the bid (offer).\9\ 
The Exchange proposes to modify the description of Stop Orders as 
follows. First, the Exchange proposes to revise the first sentence 
describing each order type (i.e., Rule 900.3NY(d)(1), (2)) to state 
that the order type converts to a Market or Limit Order, respectively--
or ``is triggered''--when the market for a particular option contract 
reaches a specified price.\10\ The Exchange also proposes to modify 
Rule 900.3NY(d)(1), (2) to combine into one sentence the description of 
both buy and sell Stop Orders without modifying functionality. The 
current rule addresses buy and sell Stop Orders in two sentences and 
the Exchange believes the proposed change would make it easier to 
navigate. Specifically, proposed Rule 900.3NY(d)(1), (2) would provide 
that a Stop Order (or Stop Limit Order) ``to buy (sell) is triggered'' 
such that it becomes a Market Order or Limit Order, respectively, 
``when the option contract trades at a price equal to or greater (less) 
than the specified `stop' price on the Exchange or another Market 
Center or when the Exchange bid (offer) is quoted at a price equal to 
or greater (less) than the stop price.'' \11\
---------------------------------------------------------------------------

    \6\ See Rule 900.3NY(d)(1).
    \7\ See Rule 900.3NY(d)(2).
    \8\ See Rule 900.3NY(d)(1), (2).
    \9\ Id.
    \10\ See proposed Rule 900.3NY(d)(1), (2).
    \11\ See proposed Rule 900.3NY(d)(1), (2). Consistent with this 
proposed change to address both buy and sell Stop Orders and Stop 
Limit Orders in one sentence, the Exchange proposes to delete as 
unnecessary the sentences in the current definitions that describe 
the functionality for sell Stop Orders and sell Stop Limit Orders. 
See id.
---------------------------------------------------------------------------

    The Exchange also proposes to address the display and standing of 
each type of Stop Order for which information is currently contained 
only in paragraph (d)(1) of Rule 900.3NY.\12\ Specifically, the 
Exchange proposes to modify its rules to reflect that each type of Stop 
Order ``is not displayed and has no standing in any Order Process in 
the Consolidated Book, unless or until it is triggered (i.e., same-side 
incoming interest trades or quotes at a price equal to or better than 
the stop price).'' \13\ The Exchange additionally proposes to add new 
rule text to clarify that ``[a]fter the triggering event,'' a Stop 
Order (per Rule 900.3NY(d)(1)) becomes a new Market Order, and a Stop 
Limit Order (per Rule 900.3NY(d)(2)) becomes a new Limit Order, and 
each converted order is processed accordingly.\14\
---------------------------------------------------------------------------

    \12\ See Rule 900.3NY(d)(1) (which provides that ``Stop Orders 
(including Stop Limit Orders) shall not have standing in any Order 
Process in the Consolidated Book and shall not be displayed'').
    \13\ See proposed Rule 900.3NY(d)(1), (2). The Exchange notes 
that this proposed text modifies the existing text in paragraph 
(d)(1) and is new text for paragraph (d)(2) of the Rule. See id.
    \14\ See proposed Rule 900.3NY(d)(1), (2). See also Rule 
900.3NY(a), (b) (defining Market Order and Limit Order, 
respectively).
---------------------------------------------------------------------------

    Finally, the Exchange proposes to delete the last two sentences in 
the description of each type of Stop Order, which provides for the 
rejection of such orders to buy (sell) if entered with a stop price 
below the bid (or above the offer). The Exchange states that this 
language is not accurate because the Exchange does not reject Stop 
Orders so priced, but instead would execute such orders once 
triggered.\15\ This proposed change would reflect current Exchange 
functionality.\16\
---------------------------------------------------------------------------

    \15\ See Notice, supra note 3, 84 FR at 60126.
    \16\ See proposed Rule 900.3NY(d)(1), (2).
---------------------------------------------------------------------------

    Rule 900.3NY(d)(4): AON Orders. An AON Order is a Market or Limit 
Order that is to be executed in its entirety or not at all.\17\ The 
Exchange proposes to make clear that an AON Order that does not execute 
on arrival will not be displayed or routed to another Market Center 
(i.e., AON Orders may only be executed on the Exchange) and would have 
no standing in any Order Process in the Consolidated Book.\18\ Further, 
the Exchange proposes to clarify that AON Orders are not eligible to 
execute against incoming interest but rather may execute solely against 
interest resting in the Consolidated Book when sufficient size is 
available.\19\ Finally, the Exchange proposes to specify that the 
System monitors the Consolidated Book for AON Order execution 
opportunities.\20\
---------------------------------------------------------------------------

    \17\ See Rule 900.3NY(d)(4).
    \18\ See proposed Rule 900.3NY(d)(4). See also Rule 
964NY(b)(2)(E) (regarding priority orders in the Working Order File 
and noting that such orders (i.e., AON Orders) have no priority or 
standing until eligible for execution and/or display).
    \19\ See proposed Rule 900.3NY(d)(4).
    \20\ See id.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act \21\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\22\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\23\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating 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 not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78(f).
    \22\ 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).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission notes that the Exchange represents it is not 
proposing to change or alter any obligations, rights, policies or 
practices. The Commission notes that the proposal would delete 
inaccurate language regarding Stop Orders and clarify the descriptions 
regarding the functionality of Contingency Orders, Working Orders, Stop 
Orders, and AON Orders. In addition, the proposal would make 
organizational and non-substantive changes to the rule text. The 
Commission believes this should add transparency and clarity to the 
Exchange's rules, without altering current functionality, to the 
benefit of investors, market participants, and the public in general.
    For the reasons discussed above, the Commission believes that the 
proposed rule change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\24\ that the proposed rule change (SR-NYSEAMER-2019-41) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27457 Filed 12-19-19; 8:45 am]
 BILLING CODE 8011-01-P