Document ID: SEC-2017-0234-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2017-02-15T05:00Z

[Federal Register Volume 82, Number 30 (Wednesday, February 15, 2017)]
[Notices]
[Pages 10814-10827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02990]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79993; File No. SR-NYSEMKT-2017-01]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change To Adopt New Equities Trading Rules To Transition 
Trading on the Exchange From a Floor Based Market With a Parity 
Allocation Model to Fully Automated Price-Time Priority Model on the 
Exchange's New Trading Technology Platform, Pillar

February 9, 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 January 25, 2017, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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 new rules to transition trading on the 
Exchange to Pillar, the Exchange's new trading technology platform, and 
to operate as a fully-automated cash equities market. 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.

[[Page 10815]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On January 29, 2015, the Exchange announced the implementation of 
Pillar, which is an integrated trading technology platform designed to 
use a single specification for connecting to the equities and options 
markets operated by the Exchange and its affiliates, NYSE Arca, Inc. 
(``NYSE Arca'') and New York Stock Exchange LLC (``NYSE'').\4\ NYSE 
Arca Equities, Inc. (``NYSE Arca Equities),\5\ which operates the cash 
equities trading platform for NYSE Arca, was the first trading system 
to migrate to Pillar.\6\
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    \4\ See Trader Update dated January 29, 2015, available here: 
www.nyse.com/pillar.
    \5\ NYSE Arca Equities is a wholly-owned corporation of NYSE 
Arca and operates as a facility of NYSE Arca.
    \6\ In connection with the NYSE Arca implementation of Pillar, 
NYSE Arca filed four rule proposals relating to Pillar. See 
Securities Exchange Act Release Nos. 74951 (May 13, 2015), 80 FR 
28721 (May 19, 2015) (Notice) and 75494 (July 20, 2015), 80 FR 44170 
(July 24, 2015) (SR-NYSEArca-2015-38) (Approval Order of NYSE Arca 
Pillar I Filing, adopting rules for Trading Sessions, Order Ranking 
and Display, and Order Execution); Securities Exchange Act Release 
Nos. 75497 (July 21, 2015), 80 FR 45022 (July 28, 2015) (Notice) and 
76267 (October 26, 2015), 80 FR 66951 (October 30, 2015) (SR-
NYSEArca-2015-56) (Approval Order of NYSE Arca Pillar II Filing, 
adopting rules for Orders and Modifiers and the Retail Liquidity 
Program); Securities Exchange Act Release Nos. 75467 (July 16, 
2015), 80 FR 43515 (July 22, 2015) (Notice) and 76198 (October 20, 
2015), 80 FR 65274 (October 26, 2015) (SR-NYSEArca-2015-58) 
(Approval Order of NYSE Arca Pillar III Filing, adopting rules for 
Trading Halts, Short Sales, Limit Up-Limit Down, and Odd Lots and 
Mixed Lots); and Securities Exchange Act Release Nos. 76085 (October 
6, 2015), 80 FR 61513 (October 13, 2015) (Notice) and 76869 (January 
11, 2016), 81 FR 2276 (January 15, 2016) (Approval Order of NYSE 
Arca Pillar IV Filing, adopting rules for Auctions).
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Overview
    With Pillar, the Exchange proposes to transition its cash equities 
trading platform from a Floor-based market with a parity allocation 
model to a fully automated price-time priority allocation model. As 
such, when the Exchange transitions to Pillar, the Exchange would no 
longer have a Floor-based point-of-sale trading model. As a 
consequence, the Exchange is proposing to replace its Floor-based 
Designated Market Makers (``DMM'') with electronic DMMs, and would no 
longer have Floor brokers or support Supplemental Liquidity Providers 
as a separate class of participant on the Exchange.\7\
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    \7\ See, e.g., Rule 107B--Equities.
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    The Exchange also proposes to expand the securities it trades to 
all NMS securities, including securities listed on NYSE, NYSE Arca, the 
Nasdaq Stock Market LLC (``Nasdaq''), and the Bats BZX Exchange, Inc. 
(``Bats''). Trading of securities on an unlisted trading privileges 
basis would be subject to the same trading rules as trading of 
securities listed on the Exchange, except for specified rules directed 
to the Exchange's responsibility as a primary listing market, e.g., 
proposed Rules 7.11E and 7.16E, described in further detail below.
    The Exchange will be filing several proposed rule changes to 
support the NYSE MKT cash equities implementation of Pillar. The 
Exchange has already adopted the rule numbering framework of the NYSE 
Arca Equities rules for Exchange cash equities trading on the Pillar 
trading platform.\8\ As described in the Framework Filing, the Exchange 
is denoting the rules applicable to cash equities trading on Pillar 
with the letter ``E'' to distinguish such rules from current Exchange 
rules with the same numbering.\9\ In addition, the Exchange has filed a 
proposed rule change to support Exchange trading of securities listed 
on NYSE, NYSE Arca, and other exchanges on an unlisted trading 
privileges basis, including Exchange Traded Products (``ETP'') listed 
on other exchanges.\10\
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    \8\ See Securities Exchange Act Release No. 79242 (November 4, 
2016), 81 FR 79081 (November 10, 2016) (SR-NYSEMKT-2016-97) (Notice 
and Filing of Immediate Effectiveness of Proposed Rule Change) (the 
``Framework Filing'').
    \9\ To distinguish Rule 1E-13E from Exchange rules that govern 
options trading, the Exchange proposes a non-substantive change to 
amend the description of ``Pillar Platform Rules'' after Rule 0--
Equities to specify that these are ``cash equities'' rules.
    \10\ See Securities Exchange Act Release No. 79400 (November 25, 
2016), 81 FR 86750 (December 1, 2016) (SR-NYSEMKT-2016-103) (Notice) 
(the ``ETP Listing Rules Filing''). When trading on Pillar, the 
Exchange would not be relying on Rule 500--Equities--Rule 525--
Equities for authority to trade securities on an unlisted trading 
privileges basis. Accordingly, the Exchange proposes to amend Rule 
500--Equities to provide that the Rules of that series (Rules 500--
Equities--Rule 525--Equities) would not be applicable to trading on 
the Pillar trading platform. To use terms applicable to trading on 
Pillar, the Exchange also proposes to amend Rule 2A(b)(2)--Equities 
to replace the term ``Nasdaq Security'' with the term ``UTP 
Security'' and replace the rule reference from Rule 501--Equities to 
Rule 1.1E(ii).
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    In this filing, the Exchange proposes trading rules that would 
govern Exchange cash equities trading on Pillar. All trading would be 
automated, including opening, re-opening, and closing auctions. As 
proposed, the Exchange's Pillar cash equities trading platform would be 
based on the rules and trading model of NYSE Arca Equities, which is a 
fully-automated price-time priority allocation model with registered 
market makers.
    As discussed in the Framework Filing, Rules 1E-13E govern cash 
equities trading on the Pillar platform.\11\ In particular, Rule 7E 
Equities Trading would establish the trading rules. Rule 7E Equities 
Trading would be based on NYSE Arca Equities Rule 7 Equities Trading.
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    \11\ Rules 1E-13E are including in the ``Equities Rules'' 
portion of the Exchange's rule book. Pursuant to Rule 0--Equities, 
the Equities Rules govern all transactions conducted on the Equities 
Trading Systems.
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    In addition, to support the proposed fully-automated market, the 
Exchange is proposing rules based on NYSE Arca Equities Rules 1 
Definitions, 2 Equity Trading Permits, 3 Organization and 
Administration, 6 Business Conduct, Rule 12 Arbitration, and Rule 13 
Liability of Directors and Exchange.
    The Exchange proposes the following differences to how it will 
function on Pillar as compared to NYSE Arca Equities:
     To be addressed in a separate filing, for securities 
listed on NYSE MKT, the Exchange would maintain DMMs. These electronic-
access DMMs would be subject to rules-based heightened quoting 
obligations vis-[agrave]-vis their assigned securities. For all 
securities that would trade on the Exchange, including UTP securities, 
the Exchange would have electronic registered market makers with 
obligations similar to the obligations of market makers on NYSE Arca 
Equities.
     The Exchange would not offer a Retail Liquidity Program 
and related order types (Retail Orders and Retail Price Improvement 
Orders).
     The Exchange would offer three trading sessions, but the 
Early Trading Session would begin at 7:00 a.m. Eastern Time instead of 
4:00 a.m. Eastern Time.
     ETP Holders would communicate with the Pillar trading 
platform using Pillar phase II protocols only.
    Subject to rule approvals, the Exchange will announce the 
transition of its cash equities trading to the Pillar trading system by 
Trader Update, which the Exchange anticipates will be in the second 
quarter of 2017.
    Because the Exchange would not be trading on both its current 
Floor-based trading platform and the Pillar trading platform at the 
same time, once trading on the Pillar trading platform begins, 
specified current Exchange equities trading rules would no longer be 
applicable. Accordingly, as described in more detail below, for each 
current equities rule that would no longer be applicable when trading 
on the Pillar

[[Page 10816]]

trading platform begins, the Exchange proposes to state in a preamble 
to such rule that ``this rule is not applicable to trading on the 
Pillar trading platform.'' \12\ Once the Exchange has transitioned to 
the Pillar trading platform, the Exchange will file a separate proposed 
rule change to delete those current rules that have been identified in 
this filing as not being applicable to trading on Pillar. Current 
Exchange rules governing equities trading that do not have this 
preamble will continue to govern Exchange operations on its cash 
equities trading platform.
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    \12\ The Exchange proposes to amend the description of Cash 
Equities Pillar Platform Rules, which precedes Rule 1E, to delete 
the last sentence, which currently provides that ``[t]he following 
rules will not be applicable to trading on the Pillar trading 
platform: Rules 7--Equities, 55--Equities, 56--Equities, 62--
Equities, and 80B--Equities.'' As proposed, the inapplicability of 
these rules on the Pillar platform would be addressed in the 
preamble that the Exchange proposes to add to each of these rules. 
The Exchange further proposes to retain Rule 56--Equities when the 
Exchange migrates to Pillar, as it addresses the unit of trading for 
rights, which are listed on the Exchange.
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Proposed Rule Changes
    As noted above, the Exchange proposes rules that would be 
applicable to cash equities trading on Pillar that are based on NYSE 
Arca Equities Rules. As a global matter, the Exchange proposes non-
substantive differences as compared to the NYSE Arca Equities rules to 
use the term ``Exchange'' instead of the terms ``NYSE Arca 
Marketplace,'' ``NYSE Arca,'' or ``Corporation,'' and to use the terms 
``mean'' or ``have the meaning'' instead of the terms ``shall mean'' or 
``shall have the meaning.'' \13\
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    \13\ Because these non-substantive differences would be applied 
throughout the proposed rules, the Exchange will not note these 
differences separately for each proposed rule.
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Rule 1E
    As described in the Framework Filing, Rule 1E specifies definitions 
that are applicable to trading on the Pillar trading platform. The 
Exchange proposes the following additional definitions:
     Proposed Rule 1.1E(a) would define the term ``Exchange 
Book'' as the Exchange's electronic file of orders. This proposed rule 
is based on NYSE Arca Equities Rule 1.1(a), which defines the term 
``NYSE Arca Book,'' with a non-substantive difference to not include 
the following phrase in the Exchange's proposed rule: ``Which contains 
all orders entered on the NYSE Arca Marketplace.'' The Exchange 
believes that this clause is redundant of the description of the 
Exchange Book.
     Proposed Rule 1.1E(g) would define the term ``Authorized 
Trader'' or ``AT'' to mean a person who may submit orders to the 
Exchange's cash equities Trading Facilities on behalf of his or her ETP 
Holder. This proposed rule is based on NYSE Arca Equities Rule 1.1(g) 
with non-substantive differences to reflect that the Exchange will not 
have sponsored participants.
     Proposed Rule 1.1E(j) would define the term ``Core Trading 
Hours'' to mean the hours of 9:30 a.m. Eastern Time through 4:00 p.m. 
Eastern Time or such other hours as may be determined by the Exchange 
from time to time. This proposed rule is based on NYSE Arca Equities 
rule 1.1(j).
     Proposed Rule 1.1E(k) would define the term ``Exchange'' 
to mean NYSE MKT. Because the term ``Exchange'' would be defined in 
proposed Rule 1.1E(k), the Exchange proposes that Rule 1--Equities 
would not be applicable to trading on the Pillar trading platform.
     Proposed Rule 1.1E(m) would define the term ``ETP'' to 
mean an Equity Trading Permit issued by the Exchange for effecting 
approved securities transactions on the Exchange's cash equity Pillar 
trading platform pursuant to Rules 1E-13E. The proposed rule would 
further provide that an ETP may be issued to a sole proprietor, 
partnership, corporation, limited liability company or other 
organization that is a registered broker or dealer pursuant to Section 
15 of the Securities Exchange Act of 1934, as amended, and which has 
been approved by the Exchange as a member organization. This proposed 
rule text is based on NYSE Arca Equities Rule 1.1(m) with non-
substantive differences to specify that an ETP is the permit for 
effecting approved securities transaction on the Exchange's cash equity 
Pillar trading platform pursuant to Rules 1E-13E. As described in 
greater detail below, the Exchange proposes to use ETPs to permission 
its member organizations to trade on its Pillar cash equities trading 
platform.
     Proposed Rule 1.1E(n) would define the term ``ETP Holder'' 
to mean a member organization that has been issued an ETP. The proposed 
rule would further provide that an ETP Holder would agree to be bound 
by the Rules of the Exchange, and by all applicable rules and 
regulations of the Securities and Exchange Commission. This proposed 
rule is based on NYSE Arca Equities Rule 1.1(n), with a proposed 
difference to reference the term ``member organization,'' which is 
defined in Rule 2(b)--Equities.
     Proposed Rule 1.1E(p) would define the term ``General 
Authorized Trader'' or ``GAT'' to mean an AT who performs only non-
market making activities on behalf of an ETP Holder. This proposed rule 
is based on NYSE Arca Equities Rule 1.1(p) without any substantive 
differences.
     Proposed Rule 1.1E(u) would define the term ``Marketable'' 
to mean, for a Limit Order, an order than can be immediately executed 
or routed. The proposed rule would further provide that Market Orders 
are always considered Marketable. This proposed rule text is based on 
NYSE Arca Equities Rule 1.1(u).
     Proposed Rule 1.1E(gg) would define the term ``Official 
Closing Price'' as the reference price to determine the closing price 
in a security for purposes of Rule 7E Equities Trading. Proposed Rules 
1.1E(gg)(1)-(5) would specify how the Exchange would determine an 
Official Closing Price in all circumstances, including when the 
Exchange is unable to conduct a Closing Auction in one or more 
Exchange-listed securities due to a systems or technical issue, and is 
based on NYSE Arca Equities Rule 1.1(gg) without any substantive 
differences. Proposed Rule 1.1E(gg), together with proposed Rule 7.35E 
described in greater detail below, would obviate current Rule 123C--
Equities (The Closing Procedures).\14\ Accordingly, the Exchange 
proposes to specify that Rule 123C--Equities would not be applicable to 
trading on the Pillar trading platform.
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    \14\ Rule 123C(1)(e)--Equities sets forth how the Exchange 
currently determines the Official Closing Price of a security listed 
on the Exchange.
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     Proposed Rule 1.1E(rr) would define the term ``security'' 
and ``securities'' to mean any security as defined in in Rule 3(a)(10) 
under the Securities Exchange Act of 1934; provided, however, that for 
purposes of Rule 7E such terms mean any NMS stock. This proposed rule 
is based on NYSE Arca Equities Rule 1.1(ss) [sic] without any 
substantive differences. Because the term ``security'' would be defined 
in proposed Rule 1.1E(rr), the Exchange proposes to specify that Rules 
3--Equities and 4--Equities, which define the terms ``Security'' and 
``Stock'' would not be applicable to trading on the Pillar trading 
platform. In addition, because the Exchange would not be trading bonds 
on its Pillar cash equities trading platform, the Exchange proposes to 
specify that Rule 5--Equities would not be applicable to trading on the 
Pillar trading platform.
     Proposed Rule 1.1E(ss) would define the term ``Self-
Regulatory

[[Page 10817]]

Organization (`SRO')'' as having the same meaning as set forth in the 
provisions of the Securities Exchange Act of 1934 relating to national 
securities exchanges. This proposed rule text is based on NYSE Arca 
Equities Rule 1.1(ss) without any substantive differences.
     Proposed Rule 1.1E(xx) would define the term ``Trading 
Facilities'' or ``Facilities'' to mean any and all electronic or 
automated trading systems provided by the Exchange to ETP Holders. This 
proposed rule text is based on NYSE Arca Equities Rule 1.1(xx) without 
any substantive differences.
     The Exchange proposes to amend Rule 1.1E(hhh) to add the 
letter ``E'' to the reference to Rule 7 in this rule.
Rule 2E
    The Exchange proposes to amend Rule 2E to delete the term 
``Reserved'' and re-name this rule as ``Equity Trading Permits.'' The 
Exchange proposes rules to support Equity Trading Permits (``ETP'') on 
the Exchange for trading on the Pillar trading platform that are based 
on NYSE Arca Equities Rule 2.
    Currently, Rule 300--Equities governs trading licenses on the 
Exchange. Under that rule, a trading license issued by the Exchange is 
required to effect transactions on the floor of the Exchange or through 
any facility thereof and an organization may acquire and hold a trading 
license only if and for so long as such organization is qualified and 
approved to be a member organization of the Exchange. The Exchange's 
current trading license rule is identical to NYSE Rule 300 and a single 
trading license provides an Exchange member organization with the 
ability to trade on both the Exchange and NYSE.
    To trade on Pillar, the Exchange proposes that a member 
organization would need an ETP.\15\ Accordingly, a trading license 
issued under Rule 300--Equities would not permit a member organization 
to trade on the Exchange's Pillar cash equities trading platform. 
Instead, as proposed, a member organization would be eligible to obtain 
an ETP to trade on the Exchange's cash equities Pillar trading 
platform. As noted above, member organizations that have been issued an 
ETP would be referred to in Exchange rules as ``ETP Holders.'' \16\
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    \15\ The Exchange will file a separate proposed rule change to 
specify fees for cash equities trading on NYSE MKT when it 
transitions to Pillar.
    \16\ At this time, the Exchange is not proposing rules, 
comparable to those in NYSE Arca Equities Rule 2, that specify the 
requirements to be approved as a member of the Exchange. 
Accordingly, the Exchange proposes that the rule numbers under Rule 
2E that would support membership requirements would be designated as 
``Reserved.'' Instead, the Exchange's current rules governing the 
definition of a member organization and the requirements to be 
approved as a member organization would continue to apply.
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    In addition, because the Exchange would operate as a fully-
automated market, the Exchange proposes rules that mirror those of NYSE 
Arca Equities with respect to requirements relating to employees of ETP 
Holders. Accordingly, ETP Holders accessing the Exchange on its Pillar 
cash equities trading platform would have the same employee 
registration requirements as NYSE Arca Equities.
     Proposed Rule 2.2E (Qualification of Applicants) would 
provide that an ETP may be held by an entity that is approved as a 
member organization. This proposed rule is based in part on the first 
sentence of NYSE Arca Equities Rule 2.2, which provides that an ETP on 
NYSE Arca Equities may be held by an entity that is a registered broker 
or dealer pursuant to Section 15 of the Act, as amended, including sole 
proprietors, partnerships, limited liability partnerships, 
corporations, and limited liability companies. The Exchange would not 
include in its Rule 2.2E the text in NYSE Arca Equities Rule 2.2 
relating to registered broker dealers because it is duplicative of Rule 
2(b)(i), which defines the term member organization on the Exchange.
     Proposed Rule 2.4E (Denial or Conditions to ETPs) would 
govern the denial or conditions to ETPs and is based on NYSE Arca 
Equities Rule 2.4 without any substantive differences. Paragraphs (a) 
and (b) of proposed Rule 2.4E would specify the circumstances when the 
Exchange could deny or condition trading privileges on the Exchange, 
and these circumstances are identical to those specified in NYSE Arca 
Equities Rule 2.4(a) and (b).
    The proposed rule would separately specify the Series 7 Examination 
requirement for traders of ETP Holders for which the Exchange is the 
Designated Examining Authority. These proposed requirements are 
identical to the Series 7 Examination requirements for ETP Holders on 
NYSE Arca Equities. The Exchange proposes a non-substantive difference 
to paragraphs (c) and (f) of proposed Rule 2.4E to cross-reference Rule 
9522 instead of NYSE Arca Equities Rule 10.
     Proposed Rule 2.6E (Revocable Privilege) would specify 
that the issuance of an ETP would constitute only a revocable privilege 
and confers on its holder no right or interest of any nature to 
continue as an ETP Holder. This proposed rule is based on NYSE Arca 
Equities Rule 2.6 without any differences. The Exchange also proposes 
to add a sub-header to Exchange rules immediately preceding Rule 2.6E 
that would provide ``Requirements of Holding an ETP.'' This proposed 
text is based on the sub-header before NYSE Arca Equities Rule 2.6 that 
provides ``Requirements of Holding an ETP Requirements Applicable 
Generally.'' The Exchange proposes an abbreviated form of the sub-
header to eliminate unnecessary text. Because proposed Rule 2.6E, 
together with proposed Rule 2.4E, would establish the requirements for 
a member organization to obtain an ETP, the Exchange proposes that Rule 
300--Equities would not be applicable to trading on the Pillar trading 
platform.
     Proposed Rule 2.17E (Activity Assessment Fees) would 
specify the Activity Assessment Fees applicable for securities 
transactions effected on the Exchange as required by Section 31 of the 
Act. This proposed rule is based on current Rule 440H--Equities without 
any substantive differences. Specifically, the rule text is based on 
Supplementary Material .10, .20, and the last sentence of .30 to Rule 
440H--Equities with non-substantive differences to use Pillar 
terminology. Proposed Rule 2.17E is therefore designed to retain the 
existing requirements relating to Activity Assessment Fees, but use new 
rule numbering for trading on the Pillar trading platform that is 
consistent with the Framework Filing. The Exchange does not propose to 
move rule text based on the first three sentences of Supplementary 
Material .30 to Rule 440H--Equities because that rule text is obsolete 
as it relates to a temporary program that automatically sunsetted in 
2009.
    Because proposed Rule 2.17E would set forth Activity Assessment 
Fees, the Exchange proposes that Rule 440H--Equities would not apply to 
trading on the Pillar trading platform.
     Proposed Rule 2.21E (Employees of ETP Holders 
Registration) would specify the registration requirements for employees 
of ETP Holders. This proposed rule is based on NYSE Arca Equities Rule 
2.21 without any substantive differences. Accordingly, this rule would 
specify employee registration requirements for trading on the Exchange, 
including examination requirements, continuing education requirements, 
and procedures to register employees.
    Because proposed Rule 2.21E, together with proposed Rule 2.4E, 
would specify employee registration

[[Page 10818]]

requirements applicable to trading on the Exchange on its cash equities 
Pillar trading platform, the Exchange proposes to specify that the 
following rules, which govern current trading employee registration 
requirements, would not be applicable to trading on the Pillar trading 
platform: Rule 345--Equities (Employees--Registration, Approval, 
Records) and Rule 345A--Equities (Continuing Education for Registered 
Persons). The Exchange also proposes that the requirement for a member 
organization that a member organization that conducts a DMM business 
has a Series 14A requirement, as set forth in Rule 342--Equities, would 
not be applicable to trading on the Pillar trading platform. However, 
the Exchange would retain the non-Floor-based Compliance Supervisor 
requirements of Rule 342--Equities. Accordingly, a member organization 
engaged in a public business in addition to a DMM business must have a 
qualified compliance supervisor that has passed the Series 14 
Examination, but would no longer need the Series 14A Examination.
     Proposed Rule 2.22E would specify the Exchange Back-Up 
Systems and Mandatory Testing Requirements of the Exchange and is based 
on Rule 49(b)--Equities without any substantive changes. The Exchange 
proposes to move this rule text to Rule 2.22E so that it has the same 
rule number as the rules of NYSE Arca Equities. Because member 
organizations trading on the Exchange's cash equities Pillar trading 
platform would be designated as ``ETP Holders'' in Exchange rules, the 
Exchange proposes to use the term ``ETP Holder'' instead of ``member 
organization'' in proposed Rule 2.22E.
    The Exchange proposes to designate the entirety of Rule 49--
Equities (Exchange Business Continuity and Disaster Recovery Plans and 
Mandatory Testing) as not applicable to trading on the Pillar trading 
platform. Because the Exchange would trade in its secondary data center 
under the same rules as would be applicable to trading on its primary 
data center, the procedures specified in Rule 49(a)--Equities would no 
longer be applicable.
     Proposed Rule 2.24E (ETP Books and Records) would 
establish an ETP Holder's books and records requirements and is based 
on NYSE Arca Equities Rule 2.24 without any substantive differences. 
Because proposed Rule 2.24E would establish the same requirements as 
set forth in current Rule 440--Equities (Books and Records), the 
Exchange proposes that Rule 440--Equities would not be applicable to 
trading on the Pillar trading platform.
Rule 3E
    The Exchange proposes to amend Rule 3E to delete the term 
``Reserved'' and re-name it ``Organization and Administration.'' 
Proposed Part I of Rule 3E would be designated as ``Reserved.'' 
Proposed Part II of Rule 3E would be designated ``Regulation'' and 
proposed Part III of Rule 3E would be designated ``Dues, Fees, and 
Fines.'' Except as described below, the rules under Rule 3E would be 
designated as ``Reserved'' because the subject matter of the NYSE Arca 
Equities Rules with corresponding numbers are the subject of existing 
Exchange rules that would continue to apply.\17\
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    \17\ NYSE Arca Equities Rule 3 Part I relates to board 
committees, which are described in the Exchange's Operating 
Agreement, which is available here: https://www.theice.com/publicdocs/nyse/regulation/nyse-mkt/Tenth_Amended_and_Restated_Operating_Agreement_of_NYSE_MKT_LLC.pdf. 
NYSE Arca Equities Rules 3.4 and 3.5 relate to the self-regulatory 
responsibilities of NYSE Arca for the administration and enforcement 
of rules governing the operation of NYSE Arca Equities, its wholly 
owned subsidiary, and the delegation of authority from NYSE Arca to 
NYSE Arca Equities. Because the Exchange is itself a self-regulatory 
organization, these rules are inapplicable. The subject matter of 
NYSE Arca Equities Rule 3 Part III is addressed in the Exchange's 
Disciplinary Rules and Rule 2B--Equities.
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     Proposed Rule 3.6E (Surveillance Agreements) would specify 
that the Exchange may enter into agreements with domestic and foreign 
self-regulatory organizations providing for the exchange of information 
and other forms of mutual assistance for market surveillance, 
investigative, enforcement and other regulatory purposes. This proposed 
rule is based on NYSE Arca Equities 3.6 with no substantive 
differences. Because this rule covers the same subject matter as Rule 
27--Equities, the Exchange proposes that that Rule 27--Equities would 
not be applicable to trading on the Pillar trading platform.
     Proposed Rule 3.11E (Fingerprint-Based Background Checks 
of Exchange Employees and Others) would establish the Exchange's 
requirements for fingerprint-based background checks of Exchange 
employees and others. The proposed rule is based on NYSE Arca Equities 
Rule 3.11 and Rule 28--Equities, which are identical rules. The 
Exchange proposes to move the rule text from Rule 28--Equities to Rule 
3.11E so that it has the same rule number as the same subject matter in 
the rules of NYSE Arca Equities. The Exchange further proposes that 
Rule 28--Equities would not be applicable to trading on the Pillar 
trading platform.
Rule 6E
    The Exchange proposes to amend Rule 6E to delete the term 
``Reserved'' and re-name it ``Business Conduct.'' The Exchange proposes 
rules governing specified business conduct. Except as described below, 
the rules under Rule 6E would be designated as ``Reserved.''
     Proposed Rule 6.3E (Prevention of the Misuse of Material, 
Nonpublic Information) would establish the Exchange's requirement that 
every ETP Holder establish, maintain, and enforce written policies and 
procedures reasonably designed to prevent the misuse of material, non-
public information by such ETP Holder or persons associated with such 
ETP Holder. This proposed rule is based on NYSE Arca Equities Rule 6.3 
without any substantive differences. The Exchange proposes a non-
substantive difference to refer to the Exchange's ``regulatory staff'' 
instead of ``Surveillance Department.''
     Proposed Rule 6.10E (ETP Holders Holding Options) would 
specify an ETP Holder's obligations with respect to trading on the 
Exchange when holding any options that are not issued by the Options 
Clearing Corporation. This proposed rule is based on NYSE Arca Equities 
Rule 6.10 without any substantive differences. Current Rule 96--
Equities (Limitations on Members' Trading Because of Options) sets 
forth a requirement similar to proposed Rule 6.10E, but that rule is 
only applicable to a member's trading while on the Floor for his own 
account or for any account in which he, his member organization, or any 
member, principal executive, or approved person of such organization is 
directly or indirectly interest. As proposed, Rule 6.10E would set 
forth these requirements and they would be applicable to all ETP 
Holders. In addition, the Exchange proposes that Rule 96--Equities 
(Limitation on Members' Trading Because of Options) would not be 
applicable to trading on the Pillar trading platform.
     Proposed Rule 6.12E (Joint Accounts) would describe 
requirements relating to joint accounts. The proposed rule is based on 
NYSE Arca Equities Rule 6.12 without any substantive differences. The 
Exchange proposes a non-substantive difference in that the proposed 
rule would not include the phrase ``Application of the System'' because 
such terms are not defined on the Exchange. The Exchange proposes that 
Rules 93--Equities (Trading for Joint Account) and 94--Equities 
(Designated Market Marker's or Odd-Lot

[[Page 10819]]

Dealers Interest in Joint Accounts) would not be applicable to trading 
on the Pillar trading platform.
     Proposed Rule 6.15E (Prearranged Trades) would prohibit 
prearranged trades and is based on NYSE Arca Equities Rule 6.15(b) 
without any substantive differences. The Exchange proposes that Rule 
78--Equities, which similarly prohibits prearranged trades, would not 
be applicable to trading on the Pillar trading platform. The Exchange 
would not be adding rule text based on NYSE Arca Equities Rule 6.15(a), 
relating to prohibitions on engaging in manipulative practices or 
operations, because Rule 6140--Equities already establishes these 
requirements.
Rule 7E Equities Trading
    The Exchange proposes additional rules under Rule 7E Equities 
Trading.
    As previously established in the Framework Filing, Section 1 of 
Rule 7E specifies the General Provisions relating to cash equities 
trading on the Pillar trading platform. The Exchange proposes the 
following additional rules:
     Proposed Rule 7.1E (Hours of Business) would specify that 
the Exchange would be open for the transaction of business on every 
business day. The proposed rule also sets forth when the CEO may take 
specified actions, such as halting or suspending trading in some or all 
securities on the Exchange. The proposed rule is based on NYSE Arca 
Equities Rule 7.1 and Rule 51--Equities. The Exchange proposes that 
Rule 51--Equities would not be applicable to trading on the Pillar 
trading platform. In addition, because the definition of the term 
``business day'' in Rule 12--Equities would be redundant of proposed 
Rule 7.1E, the Exchange proposes that Rule 12--Equities would not be 
applicable to trading on the Pillar trading platform.
     Proposed Rule 7.2E (Holidays) would establish the holidays 
when the Exchange would not be open for business. The proposed rule is 
based on NYSE Arca Equities Rule 7.2 and Supplementary Material .10 to 
Rule 51--Equities, including text that provides that when any holiday 
observed by the Exchange falls on a Sunday, the Exchange would not be 
open for business on the succeeding Monday, which is in Rule 51--
Equities.
     Proposed Rule 7.3E (Commissions) would establish that ETP 
Holders may not charge fixed commissions and must indicate whether 
acting as a broker or as principal. The proposed rule is based on NYSE 
Arca Equities Rule 7.3 without any substantive differences. Because 
Rule 388--Equities (Prohibition Against Fixed Rates of Commission) also 
prohibits fixed commissions, the Exchange proposes that Rule 388--
Equities would not be applicable to trading on the Pillar trading 
platform.
     Proposed Rule 7.4E (Ex-Dividend or Ex-Right Dates) would 
establish the ex-dividend and ex-rights dates for stocks traded regular 
way. The proposed rule is based on NYSE Arca Equities Rule 7.4 without 
any substantive differences. The Exchange proposes that Rule 235--
Equities would not be applicable to trading on the Pillar trading 
platform.
     Proposed Rule 7.7E (Transmission of Bids or Offers) would 
establish that all bids and offers on the Exchange would be anonymous 
unless otherwise specified by the ETP Holder. The proposed rule is 
based on NYSE Arca Equities Rule 7.7 without any substantive 
differences.
     Proposed Rule 7.8E (Bid or Offer Deemed Regular Way) would 
establish that all bids and offers would be considered to be ``regular 
way.'' This proposed rule text is based on NYSE Arca Equities Rule 
7.8E. As proposed, the Exchange would not accept orders that, if 
executed, would not settle regular way. Accordingly, the Exchange 
proposes that Rules 12--Equities, 14--Equities, 73--Equities, which 
each specify rules for orders that are not entered ``regular way,'' 
would not be applicable to trading on the Pillar trading platform. 
Currently, the Exchange accepts bids and offers that are not made 
regular way only from Floor brokers.
     Proposed Rule 7.9E (Execution Price Binding) would 
establish that, notwithstanding Exchange rules governing clearly 
erroneous executions, the price at which an order is executed is 
binding notwithstanding that an erroneous report is rendered. This 
proposed rule text is based on NYSE Arca Equities Rule 7.9 without any 
substantive differences. The Exchange proposes that Rules 71--Equities 
(Precedence of Highest Bid and Lowest Offer) and 411--Equities 
(Erroneous Reports) would not be applicable to trading on the Pillar 
trading platform.
     Proposed Rule 7.10E (Clearly Erroneous Executions) would 
set forth the Exchange's rules governing clearly erroneous executions. 
The proposed rule is based on NYSE Arca Equities Rule 7.10 without any 
substantive differences. The Exchange proposes rule text based on NYSE 
Arca Equities rather than current Rule 128--Equities (Clearly Erroneous 
Executions) because the NYSE Arca Equities version of the rule uses the 
same terminology that the Exchange is proposing for the Pillar trading 
platform, e.g., references to Early, Core, and Late Trading Sessions. 
Accordingly, the Exchange proposes that Rule 128--Equities (Clearly 
Erroneous Executions) would not be applicable to trading on the Pillar 
trading platform.
     Proposed Rule 7.11E (Limit Up--Limit Down Plan and Trading 
Pauses in Individual Securities Due to Extraordinary Market Volatility) 
would specify how the Exchange would comply with the Regulation NMS 
Plan to Address Extraordinary Market Volatility (``LULD Plan'').\18\ 
Because ETP Holders would communicate with the Exchange's proposed 
Pillar trading platform using Pillar phase II protocols only, the 
proposed rule is based on NYSE Arca Equities Rule 7.11(a) rule text 
governing Pillar phase II protocols without any substantive 
differences.\19\ In addition, the Exchange proposes that it would 
include rule text based on current NYSE Arca Equities Rule 7.11(b)(2) 
and (b)(5) only as the remaining provisions of NYSE Arca Equities Rule 
7.11(b) are obsolete now that the LULD Plan has been fully implemented. 
The Exchange proposes that Rule 80C--Equities would not be applicable 
to trading on the Pillar trading platform.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release No. 77679 (April 21, 
2016), 81 FR 24908 (April 27, 2016) (File No. 4-631) (Order 
approving 10th Amendment to the LULD Plan).
    \19\ See Securities Exchange Act Release No. 79688 (December 23, 
2016), 81 FR 96534 (December 30, 2016) (SR-NYSEArca-2016-170) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change).
---------------------------------------------------------------------------

     The Exchange proposes to amend paragraph (c)(i) of Rule 
7.12E to change the rule cross reference from Rule 123D--Equities to 
Rule 7.35E(e). As described in greater detail below, the Exchange 
proposes Rule 7.35E to govern its auctions, including auctions 
following a trading halt. Accordingly, the procedures for reopening a 
security specified in Rule 123D--Equities would not be applicable on 
the Pillar trading platform.
     Proposed Rule 7.13E (Trading Suspensions) would establish 
authority for the Chair or the CEO of the Exchange to suspend trading 
in any and all securities that trade on the Exchange if such suspension 
would be in the public interest. This proposed rule is based on NYSE 
Arca Equities Rule 7.13 with non-substantive differences to use the 
term ``CEO'' instead of ``President'' and to omit a cross reference to 
a rule that is not applicable on the Exchange.
     Proposed Rule 7.14E (Clearance and Settlement) would 
establish the requirements regarding an ETP Holder's arrangements for 
clearing. Because all

[[Page 10820]]

post-trade functions on the Exchange's Pillar trading platform would 
follow the NYSE Arca Equities procedures for post-trade processing, the 
Exchange proposes rules that are based on NYSE Arca Equities rules 
governing clearing. Accordingly, the proposed rule is based on NYSE 
Arca Equities Rule 7.14 without any substantive differences. The 
Exchange proposes that its current rules governing clearing, Rules 
130--Equities and 132--Equities, would not be applicable to trading on 
the Pillar trading platform.\20\
---------------------------------------------------------------------------

    \20\ See also infra proposed Rules 7.33E (Capacity Codes) and 
7.41E (Clearance and Settlement).
---------------------------------------------------------------------------

     Proposed Rule 7.15E (Stock Option Transactions) would 
establish requirements for Market Makers relating to pool dealing and 
having an interest in an option that is not issued by the Options 
Clearing Corporation. The proposed rule is based on NYSE Arca Equities 
Rule 7.15 without any substantive differences. Because the proposed 
rule covers the same subject matter as Rule 105--Equities, the Exchange 
proposes that this rule would not be applicable to trading on the 
Pillar trading platform.
     Proposed Rule 7.16E (Short Sales) would establish 
requirements relating to short sales. The proposed rule is based on 
NYSE Arca Equities Rule 7.16 without any substantive differences. 
Because the proposed rule covers the same subject matter as Rule 440B--
Equities (Short Sales), the Exchange proposes that Rule 440B--Equities 
would not be applicable to trading on the Pillar trading platform.
     Proposed Rule 7.17E (Firm Orders and Quotes) would 
establish requirements that all orders and quotes must be firm. This 
proposed rule is based on NYSE Arca Equities Rule 7.17 without any 
substantive differences. Because on the Pillar trading platform, the 
Exchange would only publish automated quotations consistent with 
proposed Rule 7.17E, the Exchange proposes that Rule 60--Equities 
(Dissemination of Quotations) would not be applicable to trading on the 
Pillar trading platform.\21\
---------------------------------------------------------------------------

    \21\ See also infra proposed Rule 7.36E regarding the display of 
orders on the Pillar trading platform.
---------------------------------------------------------------------------

    As noted above, the Exchange will file a separate proposed rule 
change to establish rules relating to Market Makers, which will be in 
Section 2 of Rule 7E. The Exchange has proposed Rule 7.18E in the ETP 
Listing Rules Filing.\22\
---------------------------------------------------------------------------

    \22\ See supra note 10. The Exchange will file an amendment to 
the ETP Listing Rules Filing to add rule text for proposed 
paragraphs (b) and (c) of Rule 7.18E that would be based on NYSE 
Arca Equities Rule 7.18(b) and (c).
---------------------------------------------------------------------------

    Section 3 of Rule 7E sets forth Exchange trading rules for the 
Pillar trading platform. As noted above, the Exchange proposes certain 
substantive differences to how the Exchange would operate on the Pillar 
trading platform compared to how NYSE Arca Equities operates. These 
substantive differences would be reflected in the proposed rules 
governing Orders and Modifiers and Trading Sessions.
    Proposed Rule 7.31E (Orders and Modifiers) would specify the orders 
and modifiers that would be available on the Exchange on the Pillar 
trading platform. The Exchange proposes to offer the same types of 
orders and modifiers that are available on NYSE Arca Equities, with 
specified substantive differences.
    Proposed Rule 7.31E is based on NYSE Arca Equities Rule 7.31 with 
the following differences. With respect to Self-Trade Prevention 
(``STP'') Modifiers, because the Exchange would be operating on Pillar 
phase II protocols only, STPs would be based on the MPID of an ETP 
Holder and not on an ETP ID. Accordingly, proposed Rule 7.31E(i)(2) 
would not include references from NYSE Arca Equities Rule 7.31(i)(2) 
relating to ETPIDs. In addition, Arca Only Orders, which are described 
in NYSE Arca Equities Rule 7.31(e)(1), would be named ``MKT Only 
Orders'' on the Exchange, as described in proposed Rule 7.31E(e)(1). 
The Exchange does not propose any substantive differences to how MKT 
Only Orders would function as compared to Arca Only Orders on NYSE Arca 
Equities. Next, the Exchange proposes that for Primary Only Day/IOC 
Orders, an ETP Holder may specify that an order in NYSE Arca-listed 
securities may include an instruction to be routed to NYSE Arca as a 
routable order, as set forth in proposed Rule 7.31E(f)(1)(B). Finally, 
because when operating on the Pillar phase II protocols, the Exchange 
would not accept order types with conflicting order instructions, the 
Exchange proposes not to include in proposed Rule 7.31E text based on 
Commentary .02 to NYSE Arca Equities Rule 7.31.
    Because proposed Rule 7.31E would govern orders and modifiers, the 
Exchange proposes that Rule 13--Equities (Orders and Modifiers) would 
not be applicable to trading on the Pillar trading platform. In 
addition, references to Trading Collars in Rule 1000(c)--Equities would 
not be applicable to trading on the Pillar Trading platform.\23\
---------------------------------------------------------------------------

    \23\ As described in greater detail below, the Exchange proposes 
that the entirety of Rule 1000--Equities would not be applicable to 
trading on the Pillar trading platform.
---------------------------------------------------------------------------

    Proposed Rule 7.34E would specify trading session on the Exchange. 
Similar to NYSE Arca Equities, the Exchange proposes that on the Pillar 
trading platform, it would have Early, Core, and Late Trading Sessions. 
Accordingly, proposed Rule 7.34E is based on NYSE Arca Equities Rule 
7.34, with non-substantive differences. The Exchange proposes one 
substantive difference from NYSE Arca Equities Rule 7.34 in that the 
Early Trading Session would begin at 7:00 a.m. Eastern Time rather than 
4:00 a.m. Eastern Time. Similar to NYSE Arca Equities, the Exchange 
would begin accepting orders 30 minutes before the Early Trading 
Session begins, which means order entry acceptance would begin at 6:30 
a.m. Eastern Time instead of at 3:30 a.m. Eastern Time. These 
differences would be reflected in proposed Rule 7.34E(a)(1).
    In addition, because the Exchange would use Pillar phase II 
protocols, proposed Rule 7.34E(b)(1) would specify that an order 
entered without a trading session designation would be rejected. In 
addition, the Exchange proposes that it would not include rule text 
based on NYSE Arca Equities Rule 7.34(b)(2) or (3).
    The following proposed rules in Section 3 of Rule 7E would be based 
on existing NYSE Arca Equities rules without any substantive 
differences:
     Proposed Rule 7.29E (Access) would provide that the 
Exchange would be available for entry and cancellation of orders by ETP 
Holders with authorized access. To obtain authorized access to the 
Exchange, each ETP Holder would be required to enter into a User 
Agreement. Proposed Rule 7.29E is based on NYSE Arca Equities Rule 
7.29(a), without any substantive differences. The Exchange does not 
propose to include rule text based on NYSE Arca Equities Rule 7.29(b) 
because the Exchange would not offer sponsored access.
     Proposed Rule 7.30E (Authorized Traders) would establish 
requirements for ETP Holders relating to ATs. The proposed rule is 
based on NYSE Arca Equities Rule 7.30, without any substantive 
differences.
     Proposed Rule 7.32E (Order Entry) would establish 
requirements for order entry size. The proposed rule is based on NYSE 
Arca Equities Rule 7.32 without any substantive differences. The 
Exchange proposes that the current maximum order size references before 
subparagraph (a) in Rule 1000--Equities would not be applicable to 
trading on the Pillar trading platform.
     Proposed Rule 7.33E (Capacity Codes) would establish 
requirements for

[[Page 10821]]

capacity code information that ETP Holders must include with every 
order. The proposed rule is based on NYSE Arca Equities Rule 7.33 
without any substantive differences. The Exchange proposes to use the 
title ``Capacity Codes'' instead of ``ETP Holder User,'' for proposed 
Rule 7.33E, which the Exchange believes provides more clarity regarding 
the content of the proposed rule. The Exchange proposes that the 
capacity code requirements in Supplementary Material .30(9) to Rule 
132--Equities would not be applicable to trading on the Pillar trading 
platform.
     Proposed Rule 7.35E (Auctions) would establish 
requirements for auctions on the Exchange. Because the Exchange 
proposes to automate all auctions and not have a DMM facilitate such 
auctions, the proposed rule is based on NYSE Arca Equities Rule 7.35 
without any substantive differences. The Exchange proposes that 
paragraph (a)(10)(A), regarding Auction Collars for Trading Halt 
Auctions, which is based on a pilot rule of NYSE Arca Equities, would 
be in effect until SR-NYSEArca-2016-130 has been approved and a 
proposed rule change based on SR-NYSEArca-2016-130 for the Exchange is 
effective and operative.\24\ Because proposed Rule 7.35E would govern 
all auctions, including the Early Open Auction, Core Open Auction, 
Trading Halt Auction, IPO Auction, and Closing Auction, the Exchange 
proposes that the following rules, which govern auctions on the 
Exchange, would not be applicable to trading on the Pillar trading 
platform: Rule 15--Equities (governing pre-opening indications and 
Opening Order Imbalance Information), Rule 115A--Equities (governing 
the opening process), Supplementary Material .40 to Rule 116--Equities 
(governing pair off of MOC and LOC orders at the close),\25\ Rule 
123C--Equities (governing the closing process), and Rule 123D--Equities 
(governing the opening and trading halts).
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release No. 79705 (December 29, 
2016), 82 FR 1419 (January 5, 2017) (SR-NYSEArca-2016-169) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change).
    \25\ As described below, because the Exchange would not have 
Floor-based DMMs or trading, the remainder of Rule 116--Equities 
would not be applicable to trading on the Pillar trading platform.
---------------------------------------------------------------------------

     Proposed Rule 7.36E (Order Ranking and Display) would 
establish requirements for how orders would be ranked and displayed at 
the Exchange. The proposed rule is based on NYSE Arca Equities Rule 
7.36 without any substantive differences.
     Proposed Rule 7.37E (Order Execution and Routing) would 
establish requirements for how orders would execute and route at the 
Exchange, the data feeds that the Exchange would use, and Exchange 
requirements under the Order Protection Rule and the prohibition on 
locking and crossing quotations in NMS Stocks. This proposed rule is 
based on NYSE Arca Equities Rule 7.37 with one substantive difference. 
Because the Exchange would not be taking in data feeds from broker 
dealers or routing to Away Markets that are not displaying protected 
quotations, the Exchange proposes that proposed Rule 7.37E would not 
include rule text from paragraph (b)(3) of NYSE Arca Equities Rule 
7.37, which specifies that an ETP Holder can opt out of routing to Away 
Markets that are not displaying a protected quotation, i.e., broker 
dealers, or paragraph (d)(1) of NYSE Arca Equities Rule 7.37, which 
specifies that NYSE Arca Equities receives data feeds directly from 
broker dealers. The subject matter of proposed Rules 7.36E and 7.37E 
would address a cross-section of current rules. Accordingly, the 
Exchange proposes that the following rules would not be applicable to 
trading on the Pillar trading platform: Rule 15A--Equities (Order 
Protection Rule), Rule 19--Equities (Locking or Crossing Protected 
Quotations in NMS Stocks), Rule 60--Equities (Dissemination of 
Quotations), Rule 61--Equities (Recognized Quotations), Rule 72--
Equities (Priority of Bids and Offers and Allocation of Executions), 
Supplementary Material .15 to Rule 79A--Equities,\26\ Rule 1000(a) and 
(b)--Equities (Automatic Executions), Rule 1001--Equities (Execution of 
Automatically Executing Orders), Rule 1002--Equities (Availability of 
Automatic Execution Feature), and Rule 1004--Equities (Election of Buy 
Minus and Sell Plus).
---------------------------------------------------------------------------

    \26\ As described below, the Exchange proposes that Rule 79A in 
its entirety would not be applicable on the Pillar trading platform.
---------------------------------------------------------------------------

     Proposed Rule 7.38E (Odd and Mixed Lot) would establish 
requirements relating to odd lot and mixed lot trading on the Exchange. 
The proposed rule is based on NYSE Arca Equities Rule 7.38 without any 
substantive differences.
     Proposed Rule 7.40E (Trade Execution and Reporting) would 
establish the Exchange's obligation to report trades to an appropriate 
consolidated transaction reporting system. The proposed rule is based 
on NYSE Arca Equities Rule 7.40 without any substantive differences. 
Because all reporting of transactions would be automated, the Exchange 
proposes that Rule 128A--Equities would not be applicable to trading on 
the Pillar trading platform.
     Proposed Rule 7.41E (Clearance and Settlement) would 
establish requirements that all trades be processed for clearance and 
settlement on a locked-in and anonymous basis. Specifically, proposed 
Rules 7.41E(a), (b), (d), and (e) are based on NYSE Arca Equities Rule 
7.41(a), (b), (d), and (e) with non-substantive differences not to 
include references to sponsored access, because the Exchange will not 
offer sponsored access. Proposed Rule 7.41E(c) is based on NYSE Rule 
130(b), which reflects the circumstances when the Exchange may reveal 
the contra-party identity.\27\ In addition, proposed Commentary .10 to 
Rule 7.41E is based on Supplementary Material .10 to Rule 132, defining 
the term ``Qualified Clearing Agency.'' The Exchange proposes to define 
this term for use in proposed Rule 7.41E(c). Because all trades would 
be reported by the Exchange on a locked-in basis, the Exchange proposes 
to specify that the following rules relating to clearance and 
settlement would not be applicable to trading on the Pillar trading 
system: Rule 130--Equities (Overnight Comparison of Exchange 
Transactions), Rule 132--Equities (Comparison and Settlement of 
Transactions Through a Fully-Interfaced or Qualified Clearing Agency), 
Rule 133--Equities (Comparison--Non-cleared Transactions), Rule 134 
(Differences and Omissions--Cleared Transactions QTs), Rule 135--
Equities (Differences and Omissions--Non-cleared Transactions (`DKs')), 
and Rule 136--Equities (Comparison--Transactions Excluded from a 
Clearance).
---------------------------------------------------------------------------

    \27\ See Securities Exchange Act Release No. 77930 (May 26, 
2016), 81 FR 35410 (June 2, 2016) (SR-NYSE-2016-38) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change).
---------------------------------------------------------------------------

    As noted above, the Exchange would not offer a Retail Liquidity 
Program when it trades on the Pillar trading platform. Accordingly, the 
Exchange would not propose rules based on NYSE Arca Equities Rule 7.44 
and proposed Rules 7.36E, 7.37E, and 7.38E would not include cross 
references to Rule 7.44. The Exchange proposes that Rule 107C--Equities 
would not be applicable to trading on the Pillar trading platform.
    Section 4 of Rule 7E would establish the Operation of a Routing 
Broker. Specifically, proposed Rule 7.45E (Operation of a Routing 
Broker) would establish the outbound and inbound function of the 
Exchange's routing broker and the cancellation of orders and the 
Exchange's error account. The proposed rule is based on NYSE Arca

[[Page 10822]]

Equities Rule 7.45 without any substantive differences. The Exchange 
proposes that Rule 17--Equities (Use of Exchange Facilities and Vendor 
Services) would not be applicable to trading on the Pillar trading 
platform.\28\
---------------------------------------------------------------------------

    \28\ The subject matter of Rule 17(a)--Equities would be 
addressed in proposed Rule 13.2E. On Pillar, the Exchange would not 
operate with vendors and therefore would not need a vendor liability 
rule, as described in Rule 17(b)--Equities. Current Rule 17(c)--
Equities would not be applicable because it addresses the same 
subject matter as proposed Rule 7.45E.
---------------------------------------------------------------------------

    Section 5 of Rule 7E would establish requirements relating to the 
Plan to Implement a Tick Size Pilot Program. Proposed Rule 7.46E (Tick 
Size Pilot Plan) would specify such requirements. The proposed rule is 
based on NYSE Arca Equities Rule 7.46 with a proposed substantive 
difference not to include cross references to a Retail Liquidity 
Program in proposed Rules 7.46E(c), (d)(1), and (e)(1). The Exchange 
also proposes to designate proposed Rules 7.46E(f)(4) and (f)(5)(B) as 
``Reserved'' because the Exchange would not support Retail Price 
Improvement Orders or routing to Away Markets that are not displaying 
protected quotations on Pillar. The remaining differences are all non-
substantive, including using the term MKT Only Order rather than Arca 
Only Order. The Exchange proposes that Rule 67--Equities (Tick Size 
Pilot Plan) would not be applicable to trading on the Pillar trading 
platform.
Rule 12E
    The Exchange proposes to amend Rule 12E to delete the term 
``Reserved,'' re-name it ``Arbitration,'' and establish the Exchange's 
arbitration procedures. The proposed rule text is based on current Rule 
600--Equities, with a non-substantive change to use the term ``ETP 
Holder'' instead of ``member organization.'' The Exchange proposes to 
move this rule text to Rule 12E so that it has the same rule number as 
the arbitration rules of NYSE Arca Equities. The Exchange further 
proposes that Rule 600--Equities would not be applicable to trading on 
the Pillar trading platform.
Rule 13E
    The Exchange proposes to amend Rule 13E to delete the term 
``Reserved'' and re-name it ``Liability of Directors and Exchange.''
     Proposed Rule 13.2E (Liability of the Exchange) would 
establish requirements governing liability of the Exchange, including 
the limits on liability for specified circumstances. This proposed rule 
is based on Rule 905NY, which governs liability of the Exchange for its 
options market, and NYSE Arca Equities Rule 13.2 without any 
substantive differences. Because this rule would govern liability of 
the Exchange, the Exchange proposes that Rule 18--Equities would not be 
applicable to trading on the Pillar trading platform.
     Proposed Rule 13.3E (Legal Proceedings Against Directors, 
Officers, Employees, or Agents) would establish requirements relating 
to legal proceedings against directors, officers, employees, agents, or 
other officials of the Exchange. The proposed rule is based on NYSE 
Arca Equities Rule 13.3 without any substantive differences.
     Proposed Rule 13.4E (Exchange's Costs of Defending Legal 
Proceedings) would establish the circumstances regarding who is 
responsible for the Exchange's costs in defending a legal proceeding 
brought against the Exchange. The proposed rule is based on NYSE Arca 
Equities Rule 13.4 without any substantive differences and Rule 61, 
which governs the Exchange's costs of defending legal proceedings for 
its options market. The Exchange proposes that Rule 25--Equities 
(Exchange Liability for Legal Costs) would not be applicable to trading 
on the Pillar trading platform.
Proposed Amendments to the Exchange's Off-Hours Trading Facility
    After the Exchange transitions to the Pillar trading platform, the 
Exchange proposes to maintain certain functionality in its Off-Hours 
Trading Facility, which is currently described in Rules 900--Equities 
through 907--Equities (the ``Rule 900 Series''). Specifically, once 
trading begins on its Pillar trading platform, the Exchange proposes 
that the only function that would be available on its Off-Hours Trading 
Facility would be for ETP Holders to enter aggregate-price coupled 
orders.
    The Exchange proposes that new Rule 7.39E would describe this Off-
Hours Trading Facility functionality,\29\ and that the entirety of the 
Rule 900 Series would not be applicable to trading on the Pillar 
trading platform.
---------------------------------------------------------------------------

    \29\ NYSE Arca Equities Rule 7.39 addresses the adjustment of 
open orders, e.g., orders with a good until canceled time-in-force 
instruction, due to corporate actions. Because the Exchange does not 
propose to have any open orders when trading on the Pillar trading 
platform, the Exchange will not adopt rule text based on NYSE Arca 
Equities Rule 7.39.
---------------------------------------------------------------------------

     Proposed Rule 7.39E(a) would provide that Rule 7.39E would 
apply to all Exchange contracts made on the Exchange through its ``Off-
Hours Trading Facility.'' This proposed rule text is based on the first 
sentence of Rule 900(a)--Equities. The Exchange would not include rule 
text specified in the second sentence of Rule 900(a)--Equities and text 
from Rule 900(b)--Equities through Rule 900(d)--Equities because it 
would not apply to the Off-Hours Trading Facility once trading begins 
on the Pillar trading platform.
     Proposed Rule 7.39E(b) would establish the definitions for 
the Off-Hours Trading Facility. Proposed Rule 7.39E(b)(i) would define 
the term ``Aggregate-Price Coupled Order'' to mean an order to buy or 
sell a group of securities, which group includes no fewer than 15 
Exchange-listed or traded securities having a total market value of $1 
million or more. This proposed definition is based on the definition of 
``aggregate-price order'' in Rule 900(e)(i)--Equities with a non-
substantive difference to use the term ``Aggregate-Price Coupled 
Order'' rather than ``aggregate-price order.'' Proposed Rule 
7.39E(e)(b)(ii) would define the term ``Off-Hours Trading Facility,'' 
to mean the Exchange facility that permits ETP Holders to effect 
securities transactions on the Exchange under proposed Rule 7.39E and 
is based on Rule 900(e)(v)--Equities with a non-substantive difference 
to use the term ``ETP Holder'' instead of ``member or member 
organization.'' Proposed Rule 7.39E(b)(ii) would also define the term 
``Off-Hours Trading'' to mean trading through the Off-Hours Trading 
Facility. This text is based on the second sentence of Rule 900(e)(v)--
Equities. Because the Exchange would only be trading Aggregate-Price 
Coupled Orders in the Off-Hours Trading Facility, the Exchange proposes 
that Rule 7.39E(b) would not include definitions for ``closing price,'' 
``closing-price order,'' or ``guaranteed price coupled order,'' which 
are defined in Rule 900(e)(ii)-(iv)--Equities.
     Proposed Rule 7.39E(c) would establish that only such NMS 
Stocks, as the Exchange may specify, including Exchange-listed 
securities and UTP Securities, would be eligible to trade in the Off-
Hours Trading Facility. This proposed rule text is based on Rule 901--
Equities with non-substantive differences to use Pillar terminology to 
describe which securities would be eligible to trade in the Off-Hours 
Trading Facility. The Exchange would not include rule text from 
Supplementary Material .10 of Rule 902, which provides that only the 
orders described in Rule 902 are eligible for Off-Hours Trading because 
it is redundant of proposed Rule 7.39E(c).
     Proposed Rule 7.39E(d) would establish the procedures for 
entering

[[Page 10823]]

Aggregate-Price Coupled Orders into the Off-Hours Trading Facility. As 
proposed, an ETP Holder may only enter into the Off-Hours Trading 
Facility an Aggregate-Price Coupled Order to buy (sell) that is matched 
with an Aggregate-Price Coupled Order to sell (buy) the same quantities 
of the same securities, including in odd lot and mixed lot quantities. 
This proposed rule text is based on Rule 902(a)(iii)--Equities and Rule 
902(g)--Equities with non-substantive differences to combine the two 
sections into a single section of rule text. The Exchange would not 
include rule text from Rule 902(a)(ii) because this specifies a Floor-
based method to enter a coupled-order after the close and therefore 
would not be necessary on the Exchange's proposed Pillar trading 
system.
     Proposed Rule 7.39E(d)(i) would provide that transactions 
effected through the Off-Hours Trading Facility pursuant to Aggregate-
Price Coupled Orders may be for delivery at such time as the parties 
entering the orders may agree. This proposed rule text is based on the 
first sentence of Rule 902(c)--Equities. The Exchange would not include 
the second sentence of Rule 902(c)--Equities in proposed Rule 
7.39E(d)(i) because all orders in the Off-Hours Trading Facility would 
be Aggregate-Price Coupled Orders and thus subject to proposed Rule 
7.39E(d)(i).
     Proposed Rule 7.39E(d)(ii) would provide that ETP Holders 
would mark all sell orders as ``long'' as appropriate. This proposed 
rule text is based on Rule 902(f)--Equities with a non-substantive 
difference to use the term ``ETP Holder'' instead of ``members and 
member organizations.''
     Proposed Rule 7.39E(d)(iii) would provide that each side 
of an Aggregate-Price Coupled Order entered on a matched basis would be 
traded on entry against the other side without regard to the priority 
of other orders entered into the Off-Hours Trading Facility. This 
proposed rule text is based on Rule 903(b)--Equities and 903(d)(i) with 
non-substantive differences to combine those rules into a single sub-
section, use Pillar terminology, and use the term ``matched'' instead 
of ``coupled.''
     Proposed Rule 7.39E(d)(iv) would provide that a 
transaction described in this Rule would be an Exchange contract that 
is binding in all respects and without limit on the ETP Holder that 
enters any of the transaction's component orders and that the ETP 
Holder would be fully responsible for the Exchange contract. This 
proposed rule text is based on Rule 903(c)--Equities with non-
substantive differences to use the term ``ETP Holder'' instead of 
``member or member organization.''
     Proposed Rule 7.39E(e) would provide that each ETP Holder 
would report to the Exchange such information, in such manner, and at 
such times, as the Exchange may from time to time prescribe in respect 
of Off-Hours Trading, including, but not limited to, reports relating 
to Off-Hours Trading orders, proprietary or agency activity and 
activity in related instruments. This proposed rule text is based on 
Rule 905(a)--Equities with a non-substantive difference to use the term 
``ETP Holder'' instead of ``member or member organization.''
     Proposed Rule 7.39E(f) would provide that each ETP Holder 
would maintain and preserve such records, in such manner, and for such 
period of time, as the Exchange may from time to time prescribe in 
respect of Off-Hours Trading, including, records relating to orders, 
cancellations, executions and trading volume, proprietary trading 
activity, activity in related instruments and securities and other 
records necessary to allow the ETP Holder to comply with the reporting 
provisions of proposed paragraph (e) of Rule 7.39E. This proposed rule 
text is based on rule 905(b)--Equities with non-substantive differences 
to use the term ``ETP Holder'' instead of ``member or member 
organization,'' and to eliminate the ``but not limited to'' text.
     Proposed Rule 7.39E(g) would provide that notwithstanding 
a trading halt in any security (other than a trading halt pursuant to 
Rule 7.12E (Trading Halts Due to Extraordinary Market Volatility)) or a 
corporate development, ETP Holders may enter Aggregate-Price Coupled 
Orders into the Off-Hours Trading Facility under this Rule. This 
proposed rule text is based on Supplementary Material .10 to Rule 906--
Equities with non-substantive differences to cross-reference Rule 7.12E 
instead of Rule 80B and to use the term ``ETP Holders'' instead of 
``members and member organizations.''
    In addition to the provisions of the Rule 900 Series noted above, 
the Exchange would not include rule text from Rule 903(d)(ii)--Equities 
and Rule 906(b)--Equities in proposed Rule 7.39E because these 
provisions relate to Floor-based use of the Off-Hours Trading Facility, 
which would not be available on the proposed Pillar trading platform. 
In addition, the Exchange proposes that Rule 7.39E would not include 
any provisions from Rule 907, which describes now-obsolete crossing 
session functionality.
Current Rules That Would Not Be Applicable to Pillar
    As described in more detail above, in connection with the proposed 
rules to support cash equities trading on the Pillar trading platform, 
the Exchange has identified current Exchange rules that would not be 
applicable because they would be superseded by a proposed rule. The 
Exchange has identified additional current rules that would not be 
applicable to trading on Pillar. These rules do not have a counterpart 
in the proposed Pillar rules, described above, but would be obsolete on 
the new, fully-automated trading platform.
    The main category of rules that would not be applicable to trading 
on the Pillar trading platform are those that are specific to Floor-
based trading, including requirements relating to DMMs and Floor 
brokers. For this reason, the Exchange proposes that the following 
Floor-specific rules would not be applicable to trading on the Pillar 
trading platform:
     Paragraphs (a), (i), and (j) of Rule 2--Equities 
(``Member,'' ``Membership,'' and ``Member Firm,'' etc.) (defining terms 
relating to Floor-based trading, i.e., member, DMM, and DMM unit).
     Rule 6--Equities (Floor).
     Rule 6A--Equities (Trading Floor).
     Rule 35--Equities (Floor Employees to be Registered).
     Rule 36--Equities (Communications Between Exchange and 
Members' Offices).
     Rule 37--Equities (Visitors).
     Rule 46--Equities (Floor Officials--Appointments).
     Rule 46A--Equities (Executive Floor Governors).
     Rule 47--Equities (Floor Officials--Unusual Situations).
     Rule 52--Equities (Dealings on the Exchange--Hours).
     Rule 53--Equities (Dealings on Floor--Securities).
     Rule 54--Equities (Dealings on Floor--Persons).
     Rule 70--Equities (Execution of Floor broker interest).
     Rule 74--Equities (Publicity of Bids and Offers).
     Rule 75--Equities (Disputes as to Bids and Offers).
     Rule 76--Equities (`Crossing' Orders).
     Rule 77--Equities (Prohibited Dealings and Activities).
     Rule 79A--Equities (Miscellaneous Requirements on Stock 
Market Procedures).
     Rule 90--Equities (Dealings by Members on the Exchange).
     Rule 91--Equities (Taking or Supplying Securities Named in 
Order).

[[Page 10824]]

     Rule 95--Equities (Discretionary Transactions).
     Rule 103A--Equities (Member Education).
     Rule 106A--Equities (Taking Book or Order of Another 
Member).
     Rule 108--Equities (Limitation on Members' Bids and 
Offers).
     Rule 112--Equities (Orders Initiated `Off the Floor').
     Rule 116--Equities (`Stop' Constitutes Guarantee).
     Rule 117--Equities (Orders of Members To Be in Writing).
     Rule 121--Equities (Records of DMM Units).
     Rule 122--Equities (Orders with More than One Broker).
     Rule 123--Equities (Record of Orders).
     Rule 123A--Equities (Miscellaneous Requirements).
     Rule 123B--Equities (Exchange Automated Order Routing 
System).
     Rule 126--Equities (Odd-Lot Dealers General).
     Rule 127--Equities (Block Crossed Outside the Prevailing 
Exchange Quotation).
     Rule 128B--Equities (Publication of Changes, Corrections, 
Cancellations or Omissions and Verifications of Transactions).
     Rule 131--Equities (Comparison--Requirements for Reporting 
Trades and Providing Facilities).
     Rule 301--Equities (Qualifications for Membership).
     Rule 303--Equities (Limitation on Access to Floor).
     Rule 304A--Equities (Member Examination Requirements).
     Rule 440I--Equities (Records of Compensation 
Arrangements--Floor Brokerage).
     Rule 1000(d)-(g)--Equities (Capital Commitment Schedule).
    In addition, the Exchange proposes that the following rules would 
not be applicable to trading on the Pillar platform.
     Rule 11--Equities (Effect of Definitions) because Rule 
1.1E supersedes any description of definitions.
     Rule 23--Equities (New York local time) because all 
references to times in the proposed Pillar trading platform rules refer 
to ``Eastern Time.''
     Rule 24--Equities (Change in Procedure to Conform to 
Changes Hours of Trading) because proposed Rule 7.1E would specify the 
hours of the Exchange.
     Rule 86--Equities (NYSE MKT Bonds) because the Exchange 
would not trade bonds on the Pillar trading platform.
     Rule 107B--Equities (Supplemental Liquidity Providers) 
because the Exchange would not support the Supplemental Liquidity 
Provider program on its proposed Pillar trading platform.
     Rule 119--Equities (Change in Basis from ``And Interest'' 
to ``Flat'') because the Exchange would not trade bonds on its proposed 
Pillar trading platform.
     Rule 131A--Equities (A Member Organization Shall Use Its 
Own Mnemonic When Entering Orders) because the Exchange would use MPIDs 
rather than mnemonics on its proposed Pillar trading platform.
Proposed Deletion of Rules Designated ``Reserved''
    To simplify the Exchange's rules, the Exchange proposes to delete 
Equities rules that are currently designated ``Reserved.'' \30\ The 
Exchange believes it would reduce confusion and promote transparency to 
delete references to rules that do not have any substantive content. 
The Exchange further believes that because it is transitioning to a new 
rule numbering framework, maintaining these rules on a reserved basis 
is no longer necessary.
---------------------------------------------------------------------------

    \30\ See Rules 16--Equities; 20--Equities; 21--Equities 
(Disqualification of Directors on Listing of Securities); Rule 26--
Equities (Disqualification of Directors on Listing of Securities); 
Rule 29--Equities--Rule 34--Equities; Rule 38--Equities--Rule 44--
Equities; Rule 45--Equities (Equities); Rule 50--Equities; Rule 57--
Equities--Rule 59--Equities; Rule 60A--Equities; Rule 65--Equities; 
Rule 69--Equities; Rule 92--Equities; Rule 106--Equities; Rule 107--
Equities; Rule 109--Equities--Rule 111--Equities; Rule 115--
Equities; Rule 118--Equities; Rule 123G--Equities; Rule 124--
Equities; Rule 132A--Equities; Rule 132B--Equities; Rule 132C--
Equities; Rule 305--Equities--307--Equities; Rule 309--Equities; 
Rules 314--Equities--318--Equities; Rule 319--Equities; Rule 322--
Equities; Rules 323--Equities--324--Equities; Rule 325--Equities; 
Rule 326(a)--Equities; Rule 326(b)--Equities; Rule 326(c)--Equities; 
Rule 326(d)--Equities; Rule 327--Equities; Rule 328--Equities; Rule 
329--Equities; Rule 343--Equities; Rule 440A--Equities; and Rule 
1003--Equities.
---------------------------------------------------------------------------

Section 11(a) of the Act
    Section 11(a)(l) of the Act \31\ (``Section 11(a)(1)'') prohibits a 
member of a national securities exchange from effecting transactions on 
that exchange for its own account, the account of an associated person, 
or an account over which it or its associated person exercises 
investment discretion (collectively, ``covered accounts'') unless an 
exception to the prohibition applies. Rule 11a2-2(T) under the Act 
(``Rule 11a2-2(T)''),\32\ known as the ``effect versus execute'' rule, 
provides exchange members with an exemption from the Section 11(a)(l) 
prohibition. Rule 11a2-2(T) permits an exchange member, subject to 
certain conditions, to effect transactions for covered accounts by 
arranging for an unaffiliated member to execute the transactions on the 
exchange. To comply with Rule 11a2-2(T)'s conditions, a member: (i) 
Must transmit the order from off the exchange floor; (ii) may not 
participate in the execution of the transaction once it has been 
transmitted to the member performing the execution (although the member 
may participate in clearing and settling the transaction); (iii) may 
not be affiliated with the executing member; and (iv) with respect to 
an account over which the member or its associated person has 
investment discretion, neither the member nor its associated person may 
retain any compensation in connection with effecting the transaction 
except as provided in the Rule.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78k(a)(1).
    \32\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------

    With the proposed transition of the Exchange to a fully automated 
electronic trading model that does not have a trading floor, the 
Exchange believes that the policy concerns Congress sought to address 
in Section 11(a)(1), i.e., the time and place advantage that members on 
exchange trading floors have over non-members off the floor and the 
general public--would not be present. Specifically, on the Pillar 
trading system, buy and sell interest will be matching in a continuous, 
automated fashion. Liquidity will be derived from quotes as well as 
orders to buy and orders to sell submitted to the Exchange 
electronically by ETP Holders from remote locations. The Exchange 
further believes that ETP Holders entering orders into the Exchange's 
Pillar trading system will satisfy the requirements of Rule 11a2-2(T) 
under the Act, which provides an exception to Section 11(a)'s general 
prohibition on proprietary trading.
    The four conditions imposed by the ``effect versus execute'' rule 
are designed to put members and non-members of an exchange on the same 
footing, to the extent practicable, in light of the purpose of Section 
11(a). For the reasons set forth below, the Exchange believes the 
structure and characteristics of its proposed Pillar trading system do 
not result in disparate treatment of members and non-members and places 
them on the ``same footing'' as intended by Rule 11a2-2(T).
    1. Off-Floor Transmission. Rule 11a2-2(T) requires orders for a 
covered account transaction to be transmitted from off the exchange 
floor. The Commission has considered this and other requirements of the 
rule in the context of automated trading and electronic order handling 
facilities operated by various national securities

[[Page 10825]]

exchanges in a 1979 Release \33\ as well as more applications of Rule 
11a2-2(T) in connection with the approval of the registrations of 
national securities exchanges.\34\ In the context of these automated 
trading systems, the Commission has found that the off-floor 
transmission requirement is met if an order for a covered account is 
transmitted from a remote location directly to an exchange's floor by 
electronic means.\35\ Because the Exchange would not have a physical 
trading floor once it transitions to the Pillar trading platform, and 
like other all electronic exchanges, the Exchange's Pillar trading 
system would receive orders from ETP Holders electronically through 
remote terminals or computer-to-computer interfaces, the Exchange 
therefore believes that its trading system satisfies the off-floor 
transmission requirement.
---------------------------------------------------------------------------

    \33\ See Securities Exchange Act Release No. 15533 (January 29, 
1979) (regarding the Amex Post Execution Reporting System, the Amex 
Switching System, the lntermarket Trading System, the Multiple 
Dealer Trading Facility of the Cincinnati Stock Exchange, the PCX's 
Communications and Execution System (``COM EX''), and the Phlx's 
Automated Communications and Execution System (``PACE'')) (``1979 
Release'').
    \34\ Securities Exchange Act Release Nos. 53128 (January 13, 
2006) 71 FR 3550 (January 23, 2006) (File No. 10-13 1) (order 
approving Nasdaq Exchange registration); 58375 (August 18, 2008) 73 
FR 49498 (August 21, 2008) (order approving BATS Exchange 
registration); 61152 (December 10, 2009) 74 FR 66699 (December 16, 
2009) (order approving C2 exchange registration); and 78101 (June 
17, 2016), 81 FR 41142, 41164 (June 23, 2016) (order approving 
Investors Exchange LLC registration).
    \35\ See, e.g., Securities Exchange Act Release Nos. 49068 
(January 13, 2004), 69 FR 2775 (January 20, 2004) (order approving 
the Boston Options Exchange as an options trading facility of the 
Boston Stock Exchange); 44983 (October 25, 2001), 66 FR 55225 
(November 1, 2001) (order approving Archipelago Exchange 
(``ArcaEx'') as electronic trading facility of the Pacific Exchange 
(``PCX'') (``Arca Ex Order'')); 29237 (May 24, 1991), 56 FR 24853 
(May 31, 1991) (regarding NYSE's Off-Hours Trading Facility); 15533 
(January 29, 1979); and 14563 (March 14, 1978), 43 FR 11542 (March 
17, 1978) (regarding the NYSE's Designated Order Turnaround System 
(``1978 Release'')).
---------------------------------------------------------------------------

    2. Non-Participation in Order Execution. The ``effect versus 
execute'' rule further provides that neither the exchange member nor an 
associated person of such member participate in the execution of its 
order. This requirement was originally intended to prevent members from 
using their own brokers on an exchange floor to influence or guide the 
execution of their orders.\36\ The rule, however, does not preclude 
members from cancelling or modifying orders, or from modifying 
instructions for executing orders, after they have been transmitted, 
provided such cancellations or modifications are transmitted from off 
an exchange floor.\37\ In the 1979 Release discussing both the Pacific 
Stock Exchange's COM EX system and the Philadelphia Stock Exchange's 
PACE system, the Commission noted that a member relinquishes any 
ability to influence or guide the execution of its order at the time 
the order is transmitted into the systems, and although the execution 
is automatic, the design of such systems ensures that members do not 
possess any special or unique trading advantages in handling orders 
after transmission to the systems.\38\ The Exchange's Pillar trading 
system would at no time following the submission of an order allow an 
ETP Holder or an associated person of such member to acquire control or 
influence over the result or timing of an order's execution. The 
execution of an ETP Holder's order would be determined solely by what 
quotes and orders are present in the system at the time the member 
submits the order and the order priority based on Exchange rules. 
Therefore, the Exchange believes the non-participation requirement 
would be met through the submission and execution of orders in the 
Exchange's Pillar trading system.
---------------------------------------------------------------------------

    \36\ Id. 1978 Release, supra note 35.
    \37\ Id.
    \38\ 1979 Release, supra, note 33.
---------------------------------------------------------------------------

    3. Execution Through an Unaffiliated Member. Although Rule 11a2-
2(T) contemplates having an order executed by an exchange member, 
unaffiliated with the member initiating the order, the Commission has 
recognized the requirement is satisfied where automated exchange 
facilities are used as long as the design of these systems ensures that 
members do not possess any special or unique trading advantages in 
handling their orders after transmitting them to the exchange. In the 
1979 Release, the Commission noted that while there is not an 
independent executing exchange member, the execution of an order is 
automatic once it has been transmitted into the systems. Because the 
design of these systems ensures that members do not possess any special 
or unique trading advantages in handling their orders after 
transmitting them to the exchange, the Commission has stated that 
executions obtained through these systems satisfy the independent 
execution requirement of Rule 11a2-2(T). Because the design of the 
Exchange's Pillar trading system ensures that no ETP Holder has any 
special or unique trading advantages over nonmembers in the handling of 
its orders after transmitting its orders to the Exchange, the Exchange 
believes that its Pillar trading system would satisfy this requirement.
    4. Non-Retention of Compensation for Discretionary Accounts. 
Finally, Rule 11a2-2(T) states, in the case of a transaction effected 
for the account for which the initiating member or its associated 
person exercises investment discretion, in general, the member or its 
associated person may not retain compensation for effecting the 
transaction, unless the person authorized to transact business for the 
account has expressly provided otherwise by written contract referring 
to both Section 11(a) of the Exchange Act and Rule 11a2-2(T). The 
Exchange will advise its membership through the issuance of a 
Regulatory Bulletin that those ETP Holders trading for covered accounts 
over which they exercise investment discretion must comply with this 
condition in order to rely on the exemption in Rule 11a2-2(T) from the 
prohibition in Section 11(a) of the Exchange Act.
    In conclusion, The Exchange believes that its Pillar trading system 
would satisfy the four requirements of Rule 11a2-2(T) as well as the 
general policy objectives of Section 11(a). The Exchange's proposed 
Pillar trading system would place all users, members and non-members, 
on the ``same footing'' with respect to transactions on the Exchange 
for covered accounts as intended by Rule 11a2-2(T). As such, no 
Exchange ETP Holder would be able to engage in proprietary trading in a 
manner inconsistent with Section 11(a).
* * * * *
    As discussed above, because of the technology changes associated 
with the migration to the Pillar trading platform, the Exchange will 
announce by Trader Update when rules with an ``E'' modifier will become 
operative.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\39\ in general, and 
furthers the objectives of Section 6(b)(5),\40\ 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. The Exchange 
believes that the proposed rules to support Pillar on the Exchange 
would remove

[[Page 10826]]

impediments to and perfect the mechanism of a free and open market 
because they provide for a complete set of rules to support the 
Exchange's transition to a fully automated cash equities trading model 
on the Pillar trading platform.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78f(b).
    \40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Generally, the Exchange believes that the proposed rules would 
support the Exchange's transition to a fully automated cash equities 
trading market with a price-time priority model because they are based 
on the rules of its affiliated market, NYSE Arca Equities. The proposed 
rule change would therefore remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because they are based on the approved rules of another exchange.
    More specifically, the Exchange believes that the proposed 
definitions for Rule 1.1E would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed definitions are terms that would be used in the 
additional rules proposed by the Exchange. The Exchange also believes 
that proposed Rule 2E would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would specify the requirements to obtain an ETP for trading 
on the Exchange's Pillar trading platform. In addition, the proposed 
rules governing employee registrations would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because they would ensure that employees of broker-dealers that 
are members of both NYSE Arca Equities and the Exchange would be 
subject to the same registration requirements. The proposed rule change 
would therefore also promote just and equitable principles of trade by 
requiring the same registration requirements for the same type of 
trading on affiliated exchanges.
    The Exchange believes that proposed Rule 3E would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would move existing rules to new 
rule numbering that aligns with the Framework Filing rule numbering. 
The proposed rule change would therefore promote consistency among the 
Exchange and its affiliates and make its rules easier to navigate for 
the public, the Commission, and members.
    The Exchange believes that proposed Rule 6E is designed to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade because it would establish regulatory 
requirements for its ETP Holders. Proposed Rule 6.3E is designed to 
prevent fraudulent and manipulative acts and practices because it 
addresses the potential misuse of material non-public information and 
is based on NYSE Arca Equities Rule 6.3. The remaining rules proposed 
for Rule 6E are based on existing Exchange rules and the Exchange 
believes it would make its rules easier to navigate to move the text of 
these rules to rule numbers consistent with the Framework Filing.
    The Exchange believes that proposed Rule 7E would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would establish rules that would 
govern trading on the Exchange, including post-trade requirements, that 
would establish the Exchange as a fully automated trading market with a 
price-time priority trading model. The proposed rules are based on the 
rules of NYSE Arca Equities, and include rules governing orders and 
modifiers, ranking and display, execution and routing, trading 
sessions, and auctions. The Exchange believes that the proposed 
substantive difference that its proposed Early Trading Session would 
begin at 7:00 a.m. Eastern Time, rather than 4:00 a.m. Eastern Time, 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it would provide 
transparency of the trading hours of the Exchange when it begins 
trading on the Pillar trading platform.
    The Exchange believes that proposed Rule 7.39E, which would govern 
the Off-Hours Trading Facility on the Exchange, would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would use Framework Filing rule 
numbering and Pillar terminology to describe the Off-Hours Trading 
Facility that would continue to be available once the Exchange 
transitions to Pillar. Proposed Rule 7.39E, which would offer ETP 
Holders the ability to enter Aggregate-Price Coupled Orders, is based 
on the Rule 900 Series.
    The Exchange believes that proposed Rule 12E would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would move an existing rule to new 
rule numbering that aligns with the Framework Filing rule numbering. 
The proposed rule change would therefore promote consistency among the 
Exchange and its affiliates and make its rules easier to navigate for 
the public, the Commission, and members.
    The Exchange believes that proposed Rule 13E would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would harmonize the Exchange's 
rules governing liability for its equity market with Exchange rules 
governing liability for its options markets, and the rules governing 
liability on NYSE Arca Equities. The proposed rule change would 
therefore promote consistency among the Exchange and its affiliates and 
make its rules easier to navigate for the public, the Commission, and 
members.
    The Exchange further believes that it would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system to specify which current rules would not be applicable to 
trading on the Pillar trading platform. The Exchange believes that the 
following legend, which would be added to existing rules, ``This rule 
is not applicable to trading on the Pillar trading platform,'' would 
promote transparency regarding which rules would govern trading on the 
Exchange once it transitions to Pillar. The Exchange has proposed to 
add this legend to rules that would be superseded by proposed rules or 
rules that would not be applicable because they concern Floor-based 
trading. The Exchange also believes that it would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system to delete rule numbers that are currently ``reserved'' 
because it would reduce confusion and promote transparency to delete 
references to rules that do not have any substantive content. The 
Exchange further believes that because it is transitioning to a new 
rule numbering framework, maintaining these rules on a reserved basis 
is no longer necessary.
    For reasons described above, the Exchange believes that the 
proposal for the Exchange to operate on a fully automated trading 
market without a Floor is consistent with Section 11(a) of the Act and 
Rule 11a2-2(T) thereunder.
    Finally, the Exchange believes that proposed Rule 2.17E furthers 
the objectives of Section 6(b)(4) of the Act,\41\ in particular, 
because it provides for the equitable allocation of reasonable dues, 
fees, and other charges among its members, issuers, and other persons 
using its facilities and does not unfairly discriminate between 
customers, issuers, brokers, or dealers. Specifically, proposed Rule 
2.17E does not establish a new fee. Rather, the proposed rule is

[[Page 10827]]

based on existing provisions of current Rule 440H--Equities relating to 
Activity Assessment Fees without any substantive differences. The 
Exchange proposes to move the rule text to Rule 2.17E to use rule 
numbering for Pillar that is consistent with the Framework Filing, with 
non-substantive differences to use Pillar terminology, and not move 
obsolete rule text.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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 proposed change is 
designed to propose rules to support the Exchange's new Pillar trading 
platform, which would be a fully automated cash equities trading market 
that trades all NMS Stocks and is based on the rules of NYSE Arca 
Equities. The Exchange operates in a highly competitive environment in 
which its unaffiliated exchange competitors operate multiple affiliated 
exchanges that operate under common rules. By moving the Exchange to a 
fully automated trading model that trades all NMS Stocks, the Exchange 
believes that it will be able to compete on a more level playing field 
with its exchange competitors that similarly trade all NMS Stocks on 
fully automated trading models. In addition, by basing its rules on 
those of NYSE Arca Equities, the Exchange will provide its members with 
consistency across affiliated exchanges, thereby enabling the Exchange 
to compete with unaffiliated exchange competitors that similarly 
operate multiple exchanges on the same trading platforms.

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 rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2017-01 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-NYSEMKT-2017-01. 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 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEMKT-2017-01 and should 
be submitted on or before March 8, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02990 Filed 2-14-17; 8:45 am]
BILLING CODE 8011-01-P