Document ID: SEC-2019-1559-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2019-10-23T04:00Z

[Federal Register Volume 84, Number 205 (Wednesday, October 23, 2019)]
[Notices]
[Pages 56864-56868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23051]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87329; File No. SR-NYSE-2019-54]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Permit the Exchange To List 
and Trade Exchange Traded Products

October 17, 2019.
    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 October 3, 2019, New York Stock Exchange LLC (``NYSE'' 
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 permit the Exchange to list and trade 
Exchange Traded Products that have a component NMS Stock listed on the 
Exchange or that are based on, or represent an interest in, an 
underlying index or reference asset that includes an NMS Stock listed 
on the Exchange. 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 permit the Exchange to list and trade 
Exchange Traded Products (``ETPs'') \4\ that have a component NMS Stock 
\5\ listed on the Exchange or that are based on, or represent an 
interest in, an underlying index or reference asset that includes an 
NMS Stock listed on the Exchange.
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    \4\ Rule 1.1P(k) defines ``Exchange Traded Product'' as a 
security that meets the definition of ``derivative securities 
product'' in Rule 19b-4(e) under the Act. ETPs include, for example, 
securities listed and traded on the Exchange pursuant to the 
following Exchange rules: Rule 5.2(j)(3) (Investment Company Units); 
Rule 5.2(j)(5) (Equity Gold Shares); Rule 5.2(j)(6) (Index-Linked 
Securities); Rule 8.100 (Portfolio Depositary Receipts); Rule 8.200 
(Trust Issued Receipts); Rule 8.201 (Commodity-Based Trust Shares); 
Rule 8.202-E (Currency Trust Shares); Rule 8.203 (Commodity Index 
Trust Shares); Rule 8.204 (Commodity Futures Trust Shares); Rule 
8.600 (Managed Fund Shares); and Rule 8.700 (Managed Trust 
Securities).
    \5\ NMS Stock is defined in Rule 600 of Regulation NMS, 17 CFR 
242.600(b)(48) as ``any NMS security other than an option.'' ``NMS 
Security'' means any security or class of securities for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan, or an effective 
national market system plan for reporting transactions in listed 
options.'' See 17 CFR 242.600(b)(47). As the Commission has 
explained, the term ``NMS Security'' refers to ``exchange-listed 
equity securities and standardized options, but does not include 
exchange-listed debt securities, securities futures, or open-end 
mutual funds, which are not currently reported pursuant to an 
effective transaction reporting plan.'' See Question 1.1 in the 
``Responses to Frequently Asked Questions Concerning Large Trader 
Reporting,'' available at https://www.sec.gov/divisions/marketreg/large-trader-faqs.htm.
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Background
    Currently, the Exchange trades securities, including ETPs, on its 
Pillar trading platform on an unlisted trading privileges (``UTP'') 
basis, subject to Pillar Platform Rules 1P-13P.\6\ ETPs traded on a UTP 
basis on the Exchange are not assigned to a Designated Market Maker 
(``DMM'') but are available for Floor brokers to trade in Floor-based 
crossing transactions.\7\
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    \6\ ``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.
    \7\ See Securities Exchange Act Release No. 82945 (March 26, 
2018), 83 FR 13553, 13568 (March 29, 2018) (SR-NYSE-2017-36) 
(approving Exchange rules to trade securities on a UTP basis on the 
Pillar trading platform).
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    The Exchange's rules also permit it to list ETPs under Rules 5P and 
8P. Specifically, Rules 5P (Securities Traded) and 8P (Trading of 
Certain Exchange Traded Products) provide for the listing of certain 
ETPs on the Exchange that (1) meet the applicable requirements set 
forth in those rules, and (2) do not have any component NMS Stock that 
is listed on the Exchange or is based on, or represents an interest in, 
an underlying index or reference asset that includes an NMS Stock 
listed on the Exchange. ETPs listed under Rules 5P and 8P would be 
``Tape A'' listings and would be traded pursuant to the rules 
applicable to NYSE-listed securities.
    Accordingly, once an ETP is listed, it will be assigned to a DMM 
pursuant to Rule 103B and the assigned DMM will have obligations vis-
[agrave]-vis such securities as specified in Rule 104, including 
facilitating the opening, reopening, and closing of such securities.\8\
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    \8\ See Securities Exchange Act Release No. 87056 (September 23, 
2019), 84 FR 51205 (September 27, 2019) (SR-NYSE-2019-34) (order 
approving amendments to Rule 104 to specify DMM requirements for 
ETPs listed on the Exchange pursuant to Rules 5P and 8P).
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Proposed Rule Change
    The Exchange proposes to expand the ETPs that would be eligible to 
list and trade on the Exchange to include ETPs that have a component 
NMS Stock or that are based on, or represent an interest in, an 
underlying index or reference asset that includes an NMS

[[Page 56865]]

Stock listed on the Exchange. To effectuate this change, the Exchange 
proposes to delete the preambles to Rules 5P and 8P currently providing 
that the Exchange will not list such ETPs.
    The proposal would permit the Exchange to list and trade on the 
NYSE Trading Floor \9\ both ETPs and one or more component NMS Stocks 
forming part of the underlying ETP index or portfolio (``side-by-side 
trading'' \10\). Because listed securities are assigned to DMMs, the 
proposed elimination of the current restriction could result in DMMs 
being assigned ETPs that may have one or more component NMS Stocks 
forming part of the underlying ETP index or portfolio that are also 
assigned to the DMM (``integrated market making'' \11\). The Commission 
has approved integrated market making and side-by-side trading for 
``broad-based'' ETPs and related options.\12\ The test for whether a 
product is ``broad-based'', and therefore is not readily susceptible to 
manipulation, is whether the individual components of the ETP are 
sufficiently liquid and well-capitalized and the product is not over-
concentrated.\13\ When an ETP meets both criteria, and therefore can be 
considered ``broad-based,'' the Commission has explicitly permitted 
integrated market making and side-by-side trading in both the ETP and 
related options, with no requirement for information barriers or 
physical or organizational separation.\14\
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    \9\ The term ``Trading Floor'' is defined in Rule 6A to mean the 
restricted-access physical areas designated by the Exchange for the 
trading of securities, commonly known as the ``Main Room'' and the 
``Buttonwood Room.''
    \10\ ``Side-by-side trading'' refers to the trading of an equity 
security and its related derivative product at the same physical 
location, though ``not necessarily by the same specialist or 
specialist firm.'' Securities Exchange Act Release No. 46213 (July 
16, 2002), 67 FR 48232, 48233 (July 23, 2002) (SR-Amex-002-21) 
(``Release No. 46213'') (order approving side-by-side trading and 
integrated market making of broad index-based ETFs and related 
options); see also Securities Exchange Act Release No. 45454 
(February 15, 2002), 67 FR 8567, 8568 n. 7 (February 25, 2002) (SR-
NYSE-2001-43) (``Release No. 45454'') (order approving approved 
person of a specialist to act as a specialist or primary market 
maker with respect to an option on a stock in which the NYSE 
specialist is registered on the Exchange).
    \11\ ``Integrated market making'' refers to the practice of the 
same person or firm making markets in an equity security and its 
related option. See Release No. 45454, 67 FR at 8568 n. 7.
    \12\ See Release No. 46213, 67 FR at 48232 (approving side-by-
side trading and integrated market making for certain Exchange 
Traded Funds (``ETF'') and Trust Issued Receipts (``TIR'') and 
related options); see also Securities Exchange Act Release No. 62479 
(July 9, 2010), 75 FR 41264 (July 15, 2010) (SR-Amex-2010-31) 
(``Release No. 62479'') (order approving side-by-side trading and 
integrated market making in the QQQ ETF and certain of its component 
securities where the QQQs met the composition and concentration 
measures to be classified as a broad-based ETF).
    \13\ See Release No. 62479, id., 75 FR at 41272. The Commission 
has expressed its belief ``that, when the securities underlying an 
ETF consist of a number of liquid and well-capitalized stocks, the 
likelihood that a market participant will be able to manipulate the 
price of the ETF is reduced.'' See id. See generally Securities 
Exchange Act Release Nos. 56633 (October 9, 2007), 72 FR 58696 
(October 16, 2007) (SR-ISE-2007-60) (order approving generic listing 
standards for ETFs based on both U.S. and international indices, 
noting they are ``sufficiently broad-based in scope to minimize 
potential manipulation.''); 55621 (April 12, 2007), 72 FR 19571 
(April 18, 2007) (SR-NYSEArca-2006-86) (same); 54739 (November 9, 
2006), 71 FR 66993 (November 17, 2006) (SR-Amex-2006-78) (same); 
57365 (February 21, 2008), 73 FR 10839 (February 28, 2008) (SR-CBOE-
2007-109) (order approving generic listing standards for ETFs based 
on international indices, noting they are ``sufficiently broad-based 
in scope to minimize potential manipulation.''); 56049 (July 11, 
2007), 72 FR 39121 (July 17, 2007) (SR-Phlx-2007-20) (same); 55113 
(January 17, 2007), 72 FR 3179 (January 24, 2007) (SR-NYSE-2006-101) 
(same); and 55269 (February 9, 2007), 72 FR 7490 (February 15, 2007) 
(SR-Nasdaq-2006-50) (same).
    \14\ See note 12, supra.
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    In making a determination of whether an ETP is broad-based, the 
Commission has relied on an exchange's listing standards. For instance, 
in permitting integrated market making and side-by-side trading for two 
types of ETPs and their related options, the Commission looked to the 
American Stock Exchange LLC's listing standards that, as described 
below, are very similar to the Exchange's current listing standards.
    Specifically, the Commission observed that the ETPs at issue, an 
ETF and a TIR, were securities based on ``groups of stocks'' whose 
prices were based on the prices of their component securities. As such, 
the Commission was of the view that a market participant's ability to 
manipulate the price of ETPs or the related options would be 
``limited.'' \15\ Moreover, the Commission noted that the listing 
standards required (1) each product to have a minimum of 13 securities 
in the underlying portfolio, (2) that the most heavily weighted 
component securities could not exceed 25% of the weight of the 
portfolio, and (3) that the five most heavily weighted component 
securities could not exceed 65% of the weight of the portfolio. As the 
Commission concluded,
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    \15\ Release No. 46213, 67 FR at 48235.

[b]y limiting the proposal to broad-based ETFs and TIRs, concerns 
regarding informational advantages about individual securities are 
lessened.\16\
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    \16\ Id.

    Finally, the Commission noted that the capitalization and liquidity 
requirements imposed by the listing standards--for example, the 
component securities that in the aggregate account for at least 90% of 
the weight of the portfolio must have a minimum market value of at 
least $75 million and the component securities representing 90% of the 
weight of the portfolio each must have a minimum trading volume during 
each of the last six month of at least 250,000 shares--``should reduce 
the likelihood that any market participant has an unfair information 
advantage about the ETF, TIR, its related options, or its component 
securities, or that a market participant would not be able to 
manipulate the prices of the ETFs, TIRs, or their related options.'' 
\17\ The Exchange believes that the same conclusions are warranted here 
for all ETPs with underlying NMS Stock components listed under the 
Exchange's generic listing standards.
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    \17\ Id.
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    The Exchange notes that the relationship between an ETP and its 
underlying listed NMS Stock component or components is fundamentally 
different than that between an ETP and its related option. In the 
latter case, a small move in the price of the listed security can 
trigger a large move in the price of the related option, increasing the 
incentive for a market maker or specialist to manipulate the security 
or coordinate trading with the options market maker or specialist. 
Here, there is no similar outsized correlation between a move in the 
price of a listed ETP and one or more of its underlying NMS Stock 
components. Indeed, as discussed below, the potential for manipulation 
or coordinated trading is significantly attenuated for listed ETPs and 
their underlying NMS Stock components because the Exchange's generic 
listed standards are designed to ensure that the Exchange will only 
list ETPs that are ``broad-based''--that is, the ETP's underlying 
component securities must be sufficiently liquid and well-capitalized, 
and the ETP must not be unduly concentrated.
    As set forth in Supplementary Material .01 of Rule 5.2(j)(3), the 
index components for investment company units (``Units'') consisting 
solely of US Component Stocks \18\ or US Component Stocks and cash must 
meet the following criteria initially and on a continuing basis:
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    \18\ The term ``US Component Stock'' means an equity security 
that is registered under Sections 12(b) or 12(g) of the Securities 
Exchange Act of 1934 or an American Depositary Receipt, the 
underlying equity security of which is registered under Sections 
12(b) or 12(g) of the Securities Exchange Act of 1934. See Rule 
5.2(j)(3).
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     Component stocks (excluding Units and securities defined 
in Section 2 of Rule 8P) that in the aggregate account

[[Page 56866]]

for at least 90% of the equity weight of the portfolio (excluding Units 
and securities defined in Section 2 of Rule 8P) each must have a 
minimum market value of at least $75 million; \19\
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    \19\ See Rule 5.2(j)(3), Supp. Material .01(a)(A)(1).
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     Component stocks (excluding Units and securities defined 
in Section 2 of Rule 8P) that in the aggregate account for at least 70% 
of the equity weight of the portfolio (excluding Units and securities 
defined in Section 2 of Rule 8P) each must have a minimum monthly 
trading volume of 250,000 shares, or minimum notional volume traded per 
month of $25,000,000, averaged over the last six months; \20\
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    \20\ See id. at (a)(A)(2).
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     The most heavily weighted component stock (excluding Units 
and securities defined in Section 2 of Rule 8P) cannot exceed 30% of 
the equity weight of the portfolio, and, to the extent applicable, the 
five most heavily weighted component stocks (excluding Units and 
securities defined in Section 2 of Rule 8P) cannot exceed 65% of the 
equity weight of the portfolio; \21\
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    \21\ See id. at (a)(A)(3).
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     Where the equity portion of the portfolio does not include 
Non-US Component Stocks,\22\ the equity portion of the portfolio must 
include a minimum of 13 component stocks; \23\ and
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    \22\ The term ``Non-US Component Stock'' means an equity 
security that is not registered under Sections 12(b) or 12(g) of the 
Securities Exchange Act of 1934 and that is issued by an entity that 
(a) is not organized, domiciled or incorporated in the United 
States, and (b) is an operating company (including Real Estate 
Investment Trusts (REITS) and income trusts, but excluding 
investment trusts, unit trusts, mutual funds, and derivatives). See 
Rule 5.2(j)(3).
    \23\ See id. at (a)(A)(4). There is no minimum number of 
component stocks if (a) one or more series of Units or Portfolio 
Depositary Receipts (as defined in Section 2 of Rule 8P) constitute, 
at least in part, components underlying a series of Managed Fund 
Shares, or (b) one or more series of such ETPs account for 100% of 
the US Component Stocks portion of the weight of the index or 
portfolio. See id.
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     All securities in the index or portfolio will be US 
Component Stocks listed on a listed on a national securities exchange 
and be NMS Stocks as defined in Rule 6000 of Regulation NMS.\24\
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    \24\ See id. at (a)(A)(5).
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    The listing standards for Units based on an index of both US 
Component Stocks and Non-US Component Stocks; \25\ Equity-Index Linked 
securities (commonly referred to as Exchange Traded Notes or ``ETNs''); 
\26\ Portfolio Depositary Receipts under Rule 8.100 with underlying 
component stocks consisting of an index or portfolio of US Component 
Stocks; \27\ and actively managed funds under Rule 8.600 \28\ are all 
broadly similar. The Exchange could not list an ETP that does not meet 
these generic listing requirements without a proposed rule change being 
filed with the Commission.
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    \25\ See Rule 5.2(j)(3), Supp. Material .01(a)(B)(1)-(5). The 
index or portfolio must include a minimum of 20 component stocks.
    \26\ See Rule 5.2(j)(6)(B)(I).
    \27\ See Rule 8.100.
    \28\ See Rule 8.600.
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    By virtue of the numerous restrictions in the Exchange's generic 
listing standards relating to market cap, trading volume, and diversity 
requirements, among others, that the underlying components must meet to 
list on the Exchange, the generic listing standards are, among other 
things,

intended to reduce the potential for manipulation by assuring that 
the ETP is sufficiently broad-based, and that the components of an 
index or portfolio underlying an ETP are adequately capitalized, 
sufficiently liquid, and that no one stock dominates the index.\29\
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    \29\ See Securities Exchange Act Release No. 80189 (March 9, 
2017), 82 FR 13889, 13892 (March 15, 2017) (SR-NYSEArca-2017-01) 
(order approving amendment of NYSE Arca, Inc. (``NYSE Arca'') Rule 5 
and 8 Series to add specific continued listing standards for ETPs 
and to specify the delisting procedures for these products). See 
generally id. n. 28 & authorities cited therein.

    The Exchange believes that listed ETPs meeting these composition 
and concentration measures would be sufficiently broad-based to allow 
integrated market making and side-by-side trading in both the ETP and 
the component NMS securities with no requirement for information 
barriers or physical or organizational separation.
    As noted, equity-based ETPs that do not meet the applicable generic 
listing standards would require a rule filing with the Commission prior 
to commencement of Exchange listing or trading. The rule filing would 
set forth the initial and continued listing requirements in order for 
such a product to be listed and traded on the Exchange. In order for a 
rule proposal to be consistent with the Act, it must, among other 
things, further the objectives of Section 6(b)(5) of the Act \30\ in 
that it is designed to prevent fraudulent and manipulative acts and 
practices. The Exchange believes that equity-based ETPs whose 
underlying component composition varies greatly from the generic 
listing standards, i.e., an ETP whose components are insufficiently 
liquid or well-capitalized or unduly concentrated, would be unlikely to 
meet this requirement.\31\ Accordingly, the Exchange believes that ETPs 
listed and traded via the rule filing process would also be 
sufficiently broad-based in order to minimize potential manipulation, 
thus justifying integrated market making and side-by-side trading in 
both the ETP and the component NMS securities.
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    \30\ 15 U.S.C. 78f(b)(5).
    \31\ For examples of equity-based ETPs that did not meet the 
generic listing standards on the Exchange's affiliate NYSE Arca and 
for which a rule filing was required, see, e.g., Securities Exchange 
Act Release No. 56987 (December 18, 2007), 72 FR 73397 (December 27, 
2007) (SR-NYSEArca-2007-119) (proposal to list and trade the 
BearLinxSM Alerian master limited partnership (``MLP'') Select Index 
ETNs linked to the performance of the Alerian MLP Select Index); 
Securities Exchange Act Release No. 58437 (August 28, 2008), 73 FR 
51684 (September 4, 2008) (SR-NYSEArca-2008-77) (proposal to list 
and trade shares of the Barclays Middle East Equities (MSCI GCC) Non 
Exchange Traded Notes Due 2038, which are linked to the MSCI Gulf 
Cooperation Council (GCC) Countries ex-Saudi Arabia Net Total Return 
Index, and index comprised of all of the equity securities included 
in the five individual Middle Eastern country indices); Securities 
Exchange Act Release No. 57320 (February 13, 2008), 73 FR 9395 
(February 20, 2008) (SR-NYSEArca-2008-15) (proposal to continue to 
list a and trade the iShares MSCI Mexico Index Fund that corresponds 
to the price and yield performance of publicly traded securities in 
the aggregate in the Mexican market as represented by the MSCI 
Mexico Investable Market Index); Securities Exchange Act Release No. 
60137 (June 18, 2009), 74 FR 30340 (June 25, 2009) (SR-NYSEArca-
2009-54) (proposal to list and trade the iShares MSCI All Peru 
Capped Index Fund that corresponds to the MSCI All Peru Capped 
Index, which measures the performance of the ``Broad Peru Equity 
Universe'' which includes Peruvian equity securities classified in 
Peru according to the MSCI Global Investable Market Indices 
Methodology and securities of companies headquartered in Peru and 
that have the majority of their operations based in Peru).
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    While the ``broad-based'' nature of listed ETPs under either the 
generic listing standards or via a rule filing makes manipulation less 
likely, the Exchange also believes that the potential for manipulation 
of listed ETPs is minimal because ETP pricing is based on an 
``arbitrage function'' performed by market participants that affects 
the supply of and demand for ETP shares and, thus, ETP prices. This 
``arbitrage function'' is effectuated by creating new ETP shares and 
redeeming existing ETP shares based on investor demand; thus, ETP 
supply is open-ended. As the Commission has acknowledged, the arbitrage 
function helps to keep an ETP's price in line with the value of its 
underlying portfolio, i.e., it minimizes deviation from NAV.\32\ 
Generally, the higher the liquidity and trading volume

[[Page 56867]]

of an ETP, the more likely the ETP's price will not deviate from the 
value of its underlying portfolio. Market makers registered in ETPs 
play a key role in this arbitrage function and DMMs, along with other 
market participants, would perform this role for ETPs listed on the 
Exchange. In short, the Exchange believes that the arbitrage mechanism 
is an effective and efficient means of ensuring that intraday pricing 
in ETPs closely tracks the value of the underlying portfolio or 
reference assets.\33\
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    \32\ See Securities Exchange Act Release No. 75165, 80 FR 34729, 
34733 (June 17, 2015) (S7-11-15) (arbitrage ``generally helps to 
prevent the market price of ETP Securities from diverging 
significantly from the value of the ETP's underlying or reference 
assets''). See also generally id., 80 FR at 34739 (``In the 
Commission's experience, the deviation between the daily closing 
price of ETP Securities and their NAV, averaged across broad 
categories of ETP investment strategies and over time periods of 
several months, has been relatively small[,]'' although it had been 
``somewhat higher'' in the case of ETPs based on international 
indices.).
    \33\ See Securities Exchange Act Release No. 87056, supra note 
8.
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    The Exchange believes that the price regulating function played by 
the arbitrage mechanism renders attempts to influence or manipulate the 
price of an ETP more difficult and more susceptible to immediate 
detection and correction. The fact that an ETP and one or more of its 
underlying components are traded in the same physical space on the 
Exchange or by the same DMM on the Exchange does not alter this dynamic 
in the slightest, nor does it make price manipulation more likely. 
Rather, the Exchange believes the arbitrage mechanism would make price 
manipulation more difficult and, thus, less likely. Attempts by Floor-
based market participants to influence the price of an ETP by, for 
instance, manipulating or [sic] one or more of component securities 
would be reflected in the deviation of the price from the NAV just as 
similar attempts today by upstairs traders would be reflected in the 
deviation of the price from the NAV. Moreover, a broad-based ETP would, 
as shown above, be even less susceptible to price manipulation. The 
Exchange thus believes that the type of broad-based equity ETPs 
eligible for listing under the generic listing standards, coupled with 
the arbitrage mechanism, sufficiently minimize the potential for 
manipulation of ETPs listed and traded on the Trading Floor.
    With respect to integrated market making, the Commission has 
approved changes to Rule 98 that permit a DMM unit to engage in 
integrated market making with off-Floor market making units in related 
products.\34\ Rule 98(c)(6) prohibits DMM units from operating as a 
specialist or market maker on the Exchange in related products, unless 
specifically permitted in Exchange rules. Rule 98(b)(7) defines 
``related products'' as ``any derivative instrument that is related to 
a DMM security.'' \35\ Accordingly, consistent with the proposal, the 
Exchange proposes to amend Rule 98(b)(7) to specifically exclude ETPs 
from the definition of ``related products.'' As discussed above, the 
Exchange believes that ETPs are different from other types of related 
products such as single-stock options or futures and that, given the 
broad-based nature of listed ETPs, integrated market making and side-
by-side trading in both the ETP and underlying NMS stock components is 
appropriate with no requirement for information barriers or physical or 
organizational separation.
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    \34\ See Securities Exchange Act Release No. 58328 (August 7, 
2008), 73 FR 48260 (August 18, 2008) (SR-NYSE-2008-45) (order 
approving amendments to Rule 98 that permit specialist firms to 
integrate with off-Floor trading desks that trade in ``related 
products,'' as that term is defined in Rule 98).
    \35\ Under Rule 98(b)(7), derivative instruments include 
options, warrants, hybrid securities, single-stock futures, 
security-based swap agreement, a forward contract, or ``any other 
instrument that is exercisable into or whose price is based upon or 
derived from a security traded at the Exchange.''
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    Finally, trading on the Exchange is subject to a comprehensive 
regulatory program that includes a suite of surveillances and routine 
examinations that review trading by DMMs and other market participants 
on the Exchange's trading Floor. Market participants on the trading 
Floor, including DMMs, are also required to implement policies and 
procedures reasonably designed to detect and deter inappropriate 
conduct and prevent the misuse of material, non-public information or 
disclosure of Floor-based non-public order information.\36\
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    \36\ See, e.g., Rule 98(c)(3) (setting forth restrictions on 
trading for member organizations operating a DMM unit).
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    For all of the reasons stated above, the proposal is therefore 
consistent with the requirements of the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\37\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\38\ 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 mechanisms 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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    \37\ 15 U.S.C. 78f(b).
    \38\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that listing and trading ETPs 
that have a component NMS Stock or are based on, or represent an 
interest in, an underlying index or reference asset that includes an 
NMS stock listed on the Exchange would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system by facilitating the listing and trading a broader range of ETPs 
consistent with the Exchange's current structure to trade listed 
securities. The Exchange believes that removal of the current exclusion 
of listed ETPs with NMS Stock components and the exclusion of ETPs from 
the definition of related products would not be inconsistent with the 
public interest and the protection of investors because listed ETPs 
that include equity securities as components are subject to listing 
requirements--whether the generic listing standards or those approved 
by individual rule filing--that are designed to ensure that underlying 
indices or portfolios are sufficiently broad-based and well-diversified 
to protect against manipulation. Moreover, the Exchange believes that 
potential manipulation of listed ETPs is also minimal because of ETPs 
reliance on an ``arbitrage function'' performed by market participants 
that influences the supply and demand of shares and, thus, trading 
prices relative to NAV. The Exchange believes that these safeguards 
would continue to serve to prevent fraudulent and manipulative acts and 
practices, as well as to protect investors and the public interest from 
concerns that may be associated with integrated market making and any 
possible misuse of non-public information.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\39\ 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 Exchange believes that the proposed change 
would promote competition by facilitating the listing and trading of a 
broader range of ETPs on the Exchange. The Exchange believes that the 
proposed rule change would facilitate the trading of Exchange-listed 
ETPs by DMMs on Pillar, which would enable the Exchange to further 
compete with unaffiliated exchange competitors that also list and trade 
ETPs. The proposed rule changes would also provide issuers with greater 
choice in potential listing

[[Page 56868]]

venues for their ETP products to include an exchange model that 
includes a DMM assigned to their security and related benefits to an 
issuer as a result of the Exchange's high-touch trading model.
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    \39\ 15 U.S.C. 78f(b)(8).
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove the proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2019-54 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-2019-54. 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-2019-54 and should be submitted on 
or before November 13, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23051 Filed 10-22-19; 8:45 am]
 BILLING CODE 8011-01-P