Document ID: SEC-2022-1589-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Chicago, Inc.
Posted Date: 2022-12-09T05:00Z

[Federal Register Volume 87, Number 236 (Friday, December 9, 2022)]
[Notices]
[Pages 75683-75686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26744]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96448; File No. SR-NYSECHX-2022-29]

Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Article 17, Rule 5

December 5, 2022.
    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 December 1, 2022, the NYSE Chicago, Inc. (``NYSE Chicago'' 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Article 17, Rule 5 to (1) change how 
Qualified Contingent Trade (``QCT'') Cross Orders are handled in the 
Exchange's Brokerplex[supreg] order management system, and (2) make 
certain non-substantive conforming changes. 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 Article 17, Rule 5 (Brokerplex) in 
order to (1) change how QCT Cross Orders are handled in the Exchange's 
Brokerplex[supreg] order management system, and (2) make certain non-
substantive conforming changes.
Background and Proposed Rule Change
    The Exchange provides the Brokerplex order management system for 
use by Institutional Broker Representatives (``IBRs''),\4\ to receive, 
transmit and hold orders from their customers while seeking execution

[[Page 75684]]

within the NYSE Chicago Marketplace \5\ or elsewhere in the National 
Market System. Brokerplex also can be used to record trade executions 
and send transaction reports to a Trade Reporting Facility (``TRF''), 
as defined in FINRA Rules 6300 et seq., as amended from time-to-time. 
Brokerplex can also be used to initiate clearing submissions to a 
Qualified Clearing Agency via the Exchange's reporting systems.
---------------------------------------------------------------------------

    \4\ IBRs are also known as Institutional Brokers or ``IBs''. The 
term ``Institutional Broker'' is defined in Article 1, Rule 1(n) to 
mean a member of the Exchange who is registered as an Institutional 
Broker pursuant to the provisions of Article 17 and has satisfied 
all Exchange requirements to operate as an Institutional Broker on 
the Exchange.
    \5\ During the transition to Pillar, the Exchange added the 
phrase ``NYSE Chicago Marketplace, as applicable'' in Article 17, 
Rule 5 as an alternative to the term ``Matching System'' then used 
in the Exchange's rules. See Securities Exchange Act Release No. 
86709 (August 20, 2019), 84 FR 44654, 44663 (August 26, 2019) (SR-
NYSECHX-2019-08) (Notice of Filing of Proposed Rule Change for 
Trading Rules To Support the Transition of Trading to the Pillar 
Trading Platform). ``Matching System'' is defined in Article 1, Rule 
1(z) as one of the electronic or automated order routing, execution 
and reporting systems provided by the Exchange. As discussed below, 
the term became obsolete following the transition to Pillar and the 
Exchange now proposes to delete it from Article 17, Rule 5.
---------------------------------------------------------------------------

    Orders may be entered into Brokerplex manually by an IBR or 
submitted by an Exchange-approved electronic connection. With certain 
enumerated exceptions,\6\ Brokerplex accepts and handles all of the 
order types, conditions and instructions accepted by the NYSE Chicago 
Marketplace pursuant to Rule 7.31. In addition to the order types 
accepted by the NYSE Chicago Marketplace, Brokerplex permits entry and 
processing of certain additional order types, conditions and 
instructions accepted by other market centers. Finally, Brokerplex 
accepts and processes certain specified order types, conditions and 
instructions set forth in Article 17, Rule 5(c)(3).
---------------------------------------------------------------------------

    \6\ Brokerplex does not accept the following orders specified in 
Rule 7.31: Inside Limit Orders, Auction-Only Orders, MPL Orders, 
Tracking Orders, ISOs, Primary Only Orders, Primary Until 9:45 
Orders, Primary After 3:55 Orders, Directed Orders, Pegged Orders, 
Non-Display Remove Modifier, Proactive if Crossed Modifier, Self-
Trade Prevention Modifier, and Minimum Trade Size Modifier. See 
Article 17, Rule 5(c)(1).
---------------------------------------------------------------------------

    As set forth in Rule 7.31(g), a QCT Cross Order is a Cross Order 
that is part of a transaction consisting of two or more component 
orders that qualifies for a Contingent Order Exemption to the Order 
Protection Rule pursuant to Rule 7.37(f)(5).\7\ QCT Cross Orders may 
thus trade through both manual and protected quotes but may not trade 
through the Exchange BBO.\8\
---------------------------------------------------------------------------

    \7\ See Rule 7.31(g).
    \8\ See Rule 7.37(f)(5).
---------------------------------------------------------------------------

    QCT Cross Orders are only available to IBRs. While IBRs are not 
required to use Brokerplex to manage their orders, including QCT Cross 
Orders, Brokerplex facilitates the execution of QCT Cross Orders by 
retaining the QCT Cross Order information submitted by the IBRs and 
providing such information to IBRs in a format that assists IBRs in 
processing orders and transactions, responding to request for 
information from customers and regulatory bodies and for other 
legitimate business purposes.\9\
---------------------------------------------------------------------------

    \9\ See Article 17, Rule 5(b).
---------------------------------------------------------------------------

    As noted, many of the order types specified in Rule 7.31 that would 
be sent directly to the matching engine cannot be entered into 
Brokerplex. As a practical matter, IBR business on the Exchange 
consists of facilitating crosses, the majority of which are QCT Cross 
Orders entered into Brokerplex via an Exchange-approved electronic 
connection or manually by an IBR. Because QCT Cross Orders are exempt 
from the Order Protection Rule, QCT Cross Orders entered into 
Brokerplex can be and usually are executed at venues away from the 
Exchange, which is permissible as long as the order does not trade 
through the Exchange BBO. The proposed rule change would require that 
QCT Cross Orders entered into Brokerplex be initially sent to execute 
on the Exchange.
Amendment of Article 17, Rule 5(e)
    Article 17, Rule 5(e) sets forth the Brokerplex order handling and 
transmission requirements. Currently, QCT Cross Orders entered into 
Brokerplex electronically or manually by an IBR can either be submitted 
(1) to the Exchange's Matching System or the NYSE Chicago Marketplace, 
as applicable, to execute and then, if they cannot be executed in the 
Exchange's Matching System or NYSE Chicago Marketplace, as applicable, 
to another destination according to the IBR's instructions,\10\ or (2) 
directly to another trading center.\11\
---------------------------------------------------------------------------

    \10\ See Article 17, Rule 5(e)(1)(A).
    \11\ See Article 17, Rule 5(e)(1)(B).
---------------------------------------------------------------------------

    The Exchange proposes to amend Article 17, Rule 5(e)(1) to change 
how QCT Cross Orders are handled in Brokerplex. As proposed, QCT Cross 
Orders entered into Brokerplex either electronically or manually would 
be sent to the NYSE Chicago Marketplace to execute in the first 
instance and then to other trading centers if the order cannot be 
executed in the NYSE Chicago Marketplace. In other words, IBRs would no 
longer have the ability to send QCT Cross Orders entered into 
Brokerplex directly to another trading center in the first instance as 
provided for in Article 17, Rule 5(e)(1)(B).\12\
---------------------------------------------------------------------------

    \12\ As noted, the QCT Cross Order is a type of Cross Order that 
is only available to IBRs. Cross Orders are two-sided orders with 
instructions to match the identified buy-side with the identified 
sell-side at a specified price known as the ``cross price.'' The 
Exchange will reject a QCT Cross Order if the cross price is not 
between the BBO, unless it meets Cross with Size requirements, in 
which case the cross price can be equal to the BB (BO). See Rule 
7.31(g)(2). Other equities markets do not have a comparable QCT 
Cross Order type.
---------------------------------------------------------------------------

    All other aspects of the Brokerplex functionality would continue to 
operate as described in Article 17, Rule 5.
Non-Substantive Conforming Changes
    The Exchange proposes to amend Article 17, Rule 5 to eliminate 
obsolete references to the Exchange's Matching System. During its 
transition to the Pillar trading system, the Exchange defined ``NYSE 
Chicago Marketplace'' in Rule 1.1(p) to mean the electronic securities 
communications and trading facility of the Exchange through which 
orders are processed or are consolidated for execution and/or display. 
The definition was intended to replace references to the term 
``Matching System'' following the transition to Pillar.\13\ Having 
transitioned to Pillar, ``Matching System'' is obsolete and the 
Exchange proposes to delete the phrase ``Exchange's Matching System or 
the'' before ``NYSE Chicago Marketplace'' in each place that it appears 
in Article 17, Rule 5. The Exchange also proposes a non-substantive 
change in Article 17, Rule 5(e)(2) by replacing the word 
``Institutional Broker'' with ``IBR''.
---------------------------------------------------------------------------

    \13\ See note 5, supra.
---------------------------------------------------------------------------

Implementation
    The Exchange anticipates the technology changes associated with the 
proposed change to Article 17, Rule 5 relating to QCT Cross Orders to 
be implemented in the first quarter of 2023. The Exchange will announce 
the implementation date of this proposal via a Brokerplex Release Note.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\14\ in general, and furthers the objectives of Section 
6(b)(5),\15\ 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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed change would promote just 
and equitable principles of trade and

[[Page 75685]]

protect investors and the public interest by requiring that QCT Cross 
Orders entered into Brokerplex be sent to the Exchange for execution in 
the first instance. Currently, IBRs can send QCT Cross Orders entered 
into the Exchange-provided Brokerplex order management system either to 
the Exchange or to an away trading center. As proposed, QCT Cross 
Orders entered into Brokerplex could only be sent to the Exchange in 
the first instance for execution. If there is no opportunity to execute 
on the Exchange, such orders would then be sent to another trading 
center, at the direction of the IBR. By requiring QCT Cross Orders 
entered into Brokerplex to be sent to the Exchange first rather than 
allowing IBRs to execute such QCT Cross Orders in away venues as long 
as they do not trade through the Exchange BBO,\16\ the Exchange 
believes that the proposal would enhance the likelihood of QCT Cross 
Orders executing on the Exchange, thereby enabling the Exchange to 
better compete with other trading centers for the execution of such 
orders when those orders are entered into Exchange systems.
---------------------------------------------------------------------------

    \16\ See Rule 7.37(f)(5).
---------------------------------------------------------------------------

    As noted, although IBRs are not required to use Brokerplex to 
manage their orders, Brokerplex facilitates entry and execution of QCT 
Cross Orders by providing IBRs with a comprehensive recordkeeping 
solution for such orders, which contain both equities and options 
legs.\17\ To the extent that IBRs utilize Brokerplex in order to 
facilitate their QCT Cross Order business, the Exchange believes that 
such orders should be required to be executed on the Exchange. The 
current functionality permits IBRs that utilize Brokerplex to 
immediately send those orders to away venues. The Exchange believes 
that if IBRs utilize Brokerplex to facilitate QCT Cross Orders, it 
would be fair and consistent with just and equitable principles of 
trade for those orders to be executed on the Exchange. As noted above, 
a number of order types enumerated in Rule 7.31 currently interact with 
the Exchange's order book first. Unlike those order types, which as 
noted are not eligible to be entered into Brokerplex, QCT Cross Orders 
entered into Brokerplex, do not automatically interact with the NYSE 
Chicago Marketplace. QCT Cross Orders, for the most part, are routed 
away for execution because they can trade through a protected quote, 
which is permissible as long as the order does not trade through the 
Exchange BBO. The Exchange therefore believes that it is just and 
equitable to require QCT Cross Orders entered into Brokerplex to be 
treated similarly to these other order types and sent to the Exchange 
for execution in the first instance.
---------------------------------------------------------------------------

    \17\ See Article 17, Rule 5(b).
---------------------------------------------------------------------------

    In addition, the Exchange believes that the proposed rule change is 
consistent with Section 6(b) of the Act,\18\ in general, and with 
Section 6(b)(1) \19\ in particular, in that it enables the Exchange to 
be so organized as to have the capacity to be able to carry out the 
purposes of the Exchange Act and to comply, and to enforce compliance 
by its exchange members and persons associated with its exchange 
members, with the provisions of the Exchange Act, the rules and 
regulations thereunder, and the rules of the Exchange. In particular, 
the Exchange believes that the proposed non-substantive conforming 
changes to delete the words ``Matching System'' throughout Article 17, 
Rule 5 and replacing the word ``Institutional Broker'' with ``IBR'' in 
Article 17, Rule 5(e)(2) would add clarity, consistency and 
transparency to the Exchange's rules. The Exchange believes that adding 
such clarity, consistency and transparency would also be consistent 
with the public interest and the protection of investors because 
investors will not be harmed and in fact would benefit from increased 
transparency, thereby reducing potential confusion.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

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 that 
by requiring QCT Cross Orders entered into Brokerplex to be sent to the 
Exchange before other trading centers, the proposed rule change would 
increase opportunities for these orders to be executed on the Exchange, 
thereby improving the Exchange's ability to compete with other trading 
centers for the execution of QCT Cross Orders.

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 \20\ and Rule 19b-4(f)(6) thereunder.\21\ 
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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-NYSECHX-2022-29 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-NYSECHX-2022-29. 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

[[Page 75686]]

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-NYSECHX-2022-29 and should be submitted 
on or before December 30, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26744 Filed 12-8-22; 8:45 am]
BILLING CODE 8011-01-P