Document ID: SEC-2017-1981-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American LLC
Posted Date: 2017-12-04T05:00Z

[Federal Register Volume 82, Number 231 (Monday, December 4, 2017)]
[Notices]
[Pages 57322-57325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25990]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82162; File No. SR-NYSEAMER-2017-26]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed Rule Change To Amend Rule 971.1NY To Amend the 
Duration of a Customer Best Execution Auction

November 28, 2017.
    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 November 17, 2017, NYSE American LLC (the ``Exchange'' or 
``NYSE American'') filed with the Securities and Exchange Commission 
(the ``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 Rule 971.1NY (Electronic Cross 
Transactions) to amend the duration of a Customer Best Execution 
(``CUBE'') Auction. The proposed rule change is available on the 
Exchange's Web site 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 Rule 971.1NY to modify the 
parameters for the duration of a CUBE Auction. The CUBE Auction is an 
electronic crossing mechanism for single-leg orders with a price 
improvement auction on the Exchange.
    An ATP Holder (``Initiating Participant'') may initiate a CUBE 
Auction by electronically submitting for execution a limit order it 
represents as agent on behalf of a public customer, broker dealer, or 
any other entity (``CUBE Order'') against principal interest or against 
any other order it represents as agent, provided the Initiating 
Participant complies with Rule 971.1NY. When the Exchange receives a 
valid CUBE Order for auction processing, a Request for Responses 
(``RFR'') detailing the series, the side of

[[Page 57323]]

the market, the size of the CUBE Order, and the limit price of the CUBE 
Order is sent to all ATP Holders that subscribe to receive RFR 
messages. Currently, the Auction lasts for a random period of time 
between 500-750 milliseconds, unless it is concluded early.\4\ The 
Exchange proposes to amend Rule 971.1NY(c)(2)(B) to provide that the 
duration of a CUBE Auction shall be a random period of time within 
parameters designated by the Exchange, which random time period [sic] 
shall be no less than 100 milliseconds and no more than 1 second. This 
proposed change is consistent with the recently amended rules of other 
exchanges, such as the NASDAQ International Securities Exchange 
(``ISE''), NASDAQ BX (``BX''), NASDAQ PHLX (``PHLX''), Miami 
International Securities Exchange, LLC (``MIAX''), and Chicago Board 
Options Exchange (``CBOE'').\5\ When approving the change to exposure 
periods in these mechanisms, the Securities and Exchange Commission 
(``Commission'') concluded that reducing the time periods was 
consistent with the Act.\6\
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    \4\ See Rule 971.1NY(c)(2)(B) (providing that the Response Time 
Interval is ``the period of time during which responses to the RFR 
may be entered, which will last for a random period of time between 
500 and 750 milliseconds''). See Rule 971.1NY(c)(4)(A)-(F) 
(providing the scenarios that would result in the early end of a 
CUBE Auction).
    \5\ See Securities Exchange Act Release Nos. 79733 (January 4, 
2017), 82 FR 3055 (January 10, 2017) (SR-ISE-2016-26); 76301 
(October 29, 2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032); 
77557 (April 7, 2016), 81 FR 21935 (April 13, 2016) (SR-PHLX-2016-
40); 80570 (May 1, 2017), 82 FR 21288 (May 5, 2017) (SR-MIAX-2017-
16); and 80421 (April 10, 2017), 82 FR 18048 (April 14, 2017) (SR-
CBOE-2017-029).
    \6\ Id.
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    The Exchange believes that moving to the proposed range structure 
provides the Exchange with greater flexibility in establishing the 
optimal duration for the CUBE Auction. The Exchange believes that 
permitting a minimum duration as low as 100 milliseconds would reduce 
market risk for all ATP Holders executing trades on the Exchange via 
the CUBE Auction. Initiating Participants are required to guarantee an 
execution at the National Best Bid or Offer (``NBBO'') or at a better 
price, and are subject to market risk during the time the CUBE Order is 
exposed to other ATP Holders.\7\ While other participants are also 
subject to market risk, those providing RFR Responses may cancel their 
responses.\8\ The Exchange believes that the Initiating Participant 
plays a critical role in the CUBE Auction process. Their willingness to 
guarantee that CUBE Orders receive an execution at the NBBO or, in some 
cases, a better price, is the catalyst for an order gaining the 
opportunity for price improvement. The Exchange believes that allowing 
a CUBE Auction period of no less than 100 milliseconds and no more than 
1 second (when the CUBE does not conclude early) \9\ would benefit ATP 
Holders utilizing the CUBE Auction. The Exchange believes it could be 
in the best interest of Initiating Participants to minimize the CUBE 
Auction duration while continuing to allow other ATP Holders adequate 
time to respond with their best priced responses.
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    \7\ See Rule 971.1NY(a).
    \8\ See Rule 971.1NY(c)(2)(C)(i)(d).
    \9\ See supra note 4.
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    The Exchange notes the Commission previously approved other 
exchanges' rules that provide for a specified auction response time as 
low as 100 milliseconds and that the Exchange is not proposing to go 
lower than the lowest previously approved timer range.\10\ Further, 
consistent with this proposal, the Commission has likewise allowed 
other exchanges to retain the flexibility to choose a response period 
of up to 1 second.\11\
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    \10\ See supra note 5.
    \11\ See, e.g., ISE Rule 723(c)(1) (providing ISE ``will 
designate via circular a time of no less than 100 milliseconds and 
no more than 1 second'' during which its members can submit 
responses to the ISE price improvement mechanism).
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    Accordingly, the Exchange proposes to amend Rule 971.1NY(c)(2)(B) 
to remove the reference to the duration of the current timer setting 
and replace it with language providing that ``[t] he Response Time 
Interval will last for a random period of time within parameters 
determined by the Exchange and announced by Trader Update. The minimum/
maximum parameters for the Response Time Interval will be no less than 
100 milliseconds and no more than one (1) second.'' \12\ The Exchange 
will continue to utilize a random timer for each CUBE Auction, because 
it believes (as it articulated when adopting the CUBE), that the use of 
a random time period for RFR Responses provides the CUBE with a 
functional difference to distinguish it from similar price improvement 
mechanisms offered by other exchanges.\13\
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    \12\ See proposed Rule 971.1NY(c)(2)(B).
    \13\ See Securities Exchange Act Release No. 72025 (April 25, 
2014), 79 FR 24779, 24782 and 24787 (May 1, 2017) (SR-NYSEMKT-2014-
17) (the ``CUBE Approval Order'') (describing the operation of the 
random timer for the duration of the Response Timer Interval).
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    The Exchange does not believe that requiring the CUBE Auction to 
run for a random time of at least 500 milliseconds (absent an early 
end) is necessary in today's market where, generally, ATP Holders' 
systems have the capability to respond within 100 milliseconds or less. 
As such, reducing the minimum potential Response Time Interval in the 
CUBE is appropriate as ATP Holders no longer need 500 milliseconds to 
respond to an Auction. Further, reducing the potential minimum Response 
Time Interval would allow ATP Holders the opportunity to seek out 
liquidity in an expedient manner that is consistent with today's system 
capabilities.
    The Exchange believes that ATP Holders operate electronic systems 
that enable them to react and respond to orders in a meaningful way in 
fractions of a second. The Exchange anticipates that its ATP Holders 
would continue to compete within the proposed Response Time Interval 
designated by the Exchange. In particular, the Exchange believes that 
the proposed Response Time Interval--which would be a random period of 
time no less than 100 milliseconds and no more than 1 second--would 
continue to provide ATP Holders with sufficient time to respond to, 
compete for, and provide price improvement for CUBE Orders. As such, 
the Exchange believes this proposed change would continue to provide 
the investing public with more timely executions, and reduce their 
market risk.
    To substantiate that ATP Holders are able to receive, process and 
communicate a response to an auction broadcast within 100 milliseconds, 
the Exchange surveyed all responders to a CUBE Auction over the last 
three months. Each of these ATP Holders confirmed that they can 
receive, process and communicate a response back to the Exchange within 
100 milliseconds.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it has the 
necessary systems capacity to handle the potential additional traffic 
associated with the additional transactions that may occur with the 
implementation of the proposed modification to the Response Time 
Interval to no less than 100 milliseconds. Additionally, the Exchange 
represents that its System will be able to sufficiently maintain an 
audit trail for order and trade information with the reduction in the 
Response Time Interval.
Implementation
    Pursuant to the modified rule, the Exchange will announce by Trader 
Update any changes to the current random time period applicable to CUBE 
Auctions in advance.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)

[[Page 57324]]

of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change would provide investors 
with more timely execution of their option orders, while ensuring that 
there is an adequate exposure of orders in the mechanisms. 
Additionally, the proposed change could provide more CUBE Orders an 
opportunity for price improvement because it would reduce market risk 
for ATP Holders that participate in CUBE Auctions. Finally, as 
mentioned above, other exchanges such as ISE, BX, PHLX, MIAX, and CBOE, 
have already amended their rules to permit response times consistent 
with the instant proposal--i.e., no less than 100 milliseconds and no 
more than 1 second.\16\ As such, the Exchange believes the proposed 
rule change would help perfect the mechanism for a free and open 
national market system, and generally help protect investors and the 
public's interest.\17\
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    \16\ See supra note 5.
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule change is not unfairly 
discriminatory because the Response Time Interval for each CUBE Auction 
would be the same for all participating ATP Holders. As is the case 
today, all ATP Holders would continue to have an equal opportunity to 
receive the broadcast and respond with their best prices during the 
auction. Additionally, the Exchange believes the proposed modification 
to the Response Time Interval to be as low as 100 milliseconds would 
reduce the market risk for all ATP Holders, inclusive of Initiating 
Participants and those ATP Holders responding to a CUBE Action.\18\
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    \18\ The Exchange notes that, as proposed, the duration of a 
CUBE Auction could be a maximum of 1 second, as determined and 
announced by the Exchange.
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    Finally, the proposal would promote just and equitable principles 
of trade because it would allow the Exchange to continue to use a 
random timer for each CUBE Auction (within the outside parameters 
announced by the Exchange), which timer provides the CUBE with a 
functional difference to distinguish it from similar price improvement 
mechanisms offered by other exchanges.\19\ The Exchange believes this 
flexibility would allow the Exchange to modify the outside parameters 
of uninterrupted CUBE Auctions to provide ATP Holders with sufficient 
time to submit RFR Responses and would encourage competition among 
participants, thereby enhancing the potential for price improvement for 
the CUBE Order.
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    \19\ See CUBE Approval Order, supra note 13.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposal to provide the 
Exchange flexibility in determining potentially shorter durations for 
CUBE Auctions does not impose an undue burden on intra-market 
competition as the Exchange believes that allowing for a Response Time 
Interval of no less than 100 milliseconds and no more than 1 second 
(absent an early end) would benefit all ATP Holders utilizing the CUBE 
Auctions. Specifically, it is in Initiating Participants' best interest 
to minimize the Response Time Interval while continuing to allow other 
ATP Holders adequate time to electronically respond.
    The proposed rule would allow ATP Holders to respond quickly at the 
most favorable price while reducing the risk that the market will move 
against that response. The Exchange believes that its ATP Holders would 
be able to compete within a Response Time Interval of no less than 100 
milliseconds and no more than 1 second, and that any random duration 
within this range is a sufficient amount of time to respond to, compete 
for, and provide price improvement for CUBE Orders, which would, in 
turn, provide investors and other market participants more timely 
executions, and reduce their market risk.
    The Exchange does not believe its proposed rule change would impose 
an undue burden on inter-market competition as the Exchange notes other 
exchanges offer similar functionality with similar auction duration 
lengths.\20\
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    \20\ See supra note 5. See also ISE Rule 723(c)(1); BX Rules, 
Chapter VI, Section 9(ii)(A)(3); PHLX Rule 1080(n)(ii)(A)(4); MIAX 
Rule 515A; and CBOE Rule 6.74A and 6.74B.
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    For all the reasons stated, the Exchange does not believe that the 
proposed rule change would impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act, and 
believes the proposed change would enhance competition.

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 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 [email protected]. Please 
include File Number SR-NYSEAMER-2017-26 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAMER-2017-26. 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 Web site (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

[[Page 57325]]

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 Web site 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-NYSEAMER-2017-26 and should 
be submitted on or before December 26, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-25990 Filed 12-1-17; 8:45 am]
BILLING CODE 8011-01-P