Document ID: SEC-2017-1855-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2017-11-14T05:00Z

[Federal Register Volume 82, Number 218 (Tuesday, November 14, 2017)]
[Notices]
[Pages 52757-52762]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24577]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82028; File No. SR-NYSE-2017-36]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Adopt New Equity Trading Rules To trade 
Securities Pursuant to Unlisted Trading Privileges, Including Orders 
and Modifiers, Order Ranking and Display, and Order Execution and 
Routing on Pillar, the Exchange's New Trading Technology Platform

November 7, 2017.

I. Introduction

    On July 28, 2017, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt new equity trading rules to allow the 
Exchange to trade securities pursuant to unlisted trading privileges 
(``UTP Securities'') \3\ on Pillar, the Exchange's new trading 
technology platform. The proposed rule change was published for comment 
in the Federal Register on August 9, 2017.\4\ On September 18, 2017, 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether the proposed rule change

[[Page 52758]]

should be disapproved.\5\ The Commission received no comments on the 
proposed rule change. This order institutes proceedings under Section 
19(b)(2)(B) of the Exchange Act \6\ to determine whether to approve or 
disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NYSE Rules define ``UTP Security'' as a security that is 
listed on a national securities exchange other than the Exchange and 
that trades on the Exchange pursuant to unlisted trading privileges. 
See NYSE Rule 1.1(ii).
    \4\ See Securities Exchange Act Release No. 81310 (Aug. 3, 
2017), 82 FR 37257 (Aug. 9, 2017) (``Notice'').
    \5\ See Securities Exchange Act Release No. 81641 (Sept. 18, 
2017), 82 FR 44483 (Sept. 22, 2017) (``Extension'').
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change

    The Exchange proposes to adopt equities trading rules to implement 
Pillar, a new trading technology platform, in order to introduce 
trading of UTP Securities on the Exchange. Under the proposal, the 
Pillar platform rules, as set forth in NYSE Rules 1P-13P, would govern 
trading in UTP Securities on the Exchange.\7\ The Exchange proposes 
rule changes relating to clearly erroneous executions; the limit up-
limit down plan; short sales; halts; orders and modifiers; order 
ranking, display, execution, and routing; odd and mixed lots; the tick 
size pilot plan. The Exchange also proposes to specify the current 
Exchange rules that would not be operative under Pillar.
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    \7\ See Securities Exchange Act Release No. 76803 (Dec. 30, 
2015), 81 FR 536 (Jan. 6, 2016) (SR-NYSE-2015-67) (Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change) (adopting a 
framework of rule numbering based on NYSE Arca rules in advance of 
the NYSE adopting Pillar).
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    Pursuant to the proposal, UTP Securities would trade under the 
Exchange's current parity allocation model.\8\ Designated market makers 
(``DMMs'') would not be assigned UTP Securities on Pillar.\9\ 
Supplemental Liquidity Providers \10\ would be eligible to be assigned 
UTP Securities, and member organizations operating floor broker 
operations that are physically located on the floor would also be 
eligible to trade UTP Securities,\11\ but UTP Securities would not be 
available for floor-based point-of-sale trading. Finally, the Exchange 
would not conduct auctions in UTP Securities.\12\ The Exchange 
represents that it will continue to trade NYSE-listed securities on its 
current trading platform.\13\
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    \8\ The Pillar platform on NYSE Arca and NYSE American uses a 
price-time allocation model. See NYSE Arca Rule 7.37-E(a) and NYSE 
American Rule 7.37E(a).
    \9\ See Notice, supra note 3, 82 FR at 37258.
    \10\ See Proposed NYSE Rule 107B.
    \11\ According to the Exchange, member organizations trading UTP 
Securities would be required to comply with Section 11(a)(1) of the 
Act, 15 U.S.C. 78k(a)(1), and with any exceptions that are currently 
applicable to trading on the Exchange. See Notice, supra note 3, 82 
FR at 37258 n.12.
    \12\ See Notice, supra note 3, 82 FR at 37258.
    \13\ The Exchange states that it plans to transition trading in 
NYSE-listed securities to Pillar at a later date, and will file 
separate proposed rule changes to implement that transition. See 
Notice, supra note 3, 82 FR at 37258 n.9.
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    The Exchange represents that the proposal to trade UTP Securities 
on Pillar is based in part on the equity trading rules of NYSE Arca, 
Inc. (``NYSE Arca'') and NYSE American LLC (``NYSE American''), with 
the following substantive differences. First, as noted earlier, the 
Exchange would use a parity allocation model with a setter priority 
allocation for the participant that sets the best bid or offer on the 
Exchange (``BBO'').\14\ Second, the Exchange would not offer a Retail 
Liquidity Program or the associated order types--Retail Orders and 
Retail Price Improvement Orders. Third, as noted above, the Exchange 
would not conduct auctions. Fourth, the Exchange would offer only two 
trading sessions--an Early Trading Session and a Core Trading Session. 
Finally, the Exchange's order types and modifiers would differ from the 
order types and modifiers offered by NYSE Arca and NYSE American.
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    \14\ See NYSE Rule 1.1(h) (defining ``BBO'' as the best bid or 
offer on the Exchange).
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    The Exchange represents that it will announce the implementation of 
trading UTP Securities on Pillar by a Trader Update. The Exchange 
anticipates that the implementation will occur in the first quarter of 
2018. If the Exchange begins trading UTP Securities on Pillar, certain 
current NYSE trading rules would not be applicable. The Exchange 
proposes to mark the affected Exchange rules with a preamble to state 
that the rules are not applicable to trading UTP Securities on Pillar.
    The Notice contains a detailed description of the proposal. The 
following section briefly summarizes the proposal.

A. NYSE Rule 7P--Equities Trading

    The Exchange proposes several new rules and changes to existing 
rules in NYSE Rule 7P. Currently, Section 1 of NYSE Rule 7P sets forth 
general provisions relating to equities trading on Pillar, such as 
hours of business and clearance and settlement. The Exchange proposes 
to add NYSE Rules 7.10 (clearly erroneous executions); 7.11 (limit up-
limit down); and 7.16 (short sales) to Section 1 of NYSE Rule 7P and 
amend NYSE Rule 7.18 (halts).
    Section 3 of NYSE Rule 7P sets forth the rules for trading on 
Pillar. The Exchange proposes to add to this section new NYSE Rules 
7.31 (orders and modifiers); 7.34 (trading sessions); 7.36 (order 
ranking and display); 7.37 (order execution and routing); and 7.38 (odd 
and mixed lots). Finally, the Exchange proposes to add new NYSE Rule 
7.46 to Section 5 of NYSE Rule 7P to establish rules to implement the 
Tick Size Pilot Plan.
1. General Provisions
    The Exchange proposes to establish rules relating to clearly 
erroneous executions, the limit up-limit down plan, short sales, and 
trading halts with respect to UTP Securities.
    Proposed NYSE Rule 7.10 would set forth the Exchange's rules 
governing clearly erroneous executions.\15\ The proposed rule would set 
forth how a member organization could request a review of an order that 
was submitted erroneously, the timing of Exchange review, thresholds 
for determining clearly erroneous execution, review procedures, and 
other rules governing clearly erroneous executions.
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    \15\ See Proposed NYSE Rule 7.10.
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    The Exchange represents that the proposed rule is based on NYSE 
Arca Rule 7.10-E and NYSE American Rule 7.10E, except that the proposed 
rule would omit references to: (1) The Late Trading Session,\16\ since 
the Exchange would not offer a late trading session; (2) Cross 
Orders,\17\ since the Exchange would not offer cross orders; and (3) 
executions in the Trading Halt Auction, since the Exchange would not 
conduct auctions for UTP Securities.\18\
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    \16\ See Proposed NYSE Rule 7.34 and see infra the related 
discussion below.
    \17\ See Proposed NYSE Rule 7.31 and see infra the related 
discussion below.
    \18\ The Exchange proposes that current NYSE Rule 128 (Clearly 
Erroneous Executions For NYSE Equities) would not be applicable for 
trading in UTP Securities on Pillar.
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    Proposed NYSE Rule 7.11 would establish rules governing how the 
Exchange would comply with the Regulation NMS Plan to Address 
Extraordinary Market Volatility (``LULD Plan''). The LULD Plan 
addresses extraordinary market volatility and is intended to prevent 
trades in NMS securities from occurring outside of specified price 
bands, and the proposed rule would implement the LULD Plan on the 
Exchange's Pillar platform. The Exchange represents that the proposed 
rule is based on NYSE American 7.11E with the following differences: 
(1) There would be no option for member organizations to enter an 
instruction to cancel Limit Orders that cannot be traded or routed at 
prices within the price bands; (2) there would be no provisions and 
references relating to Q Orders, Limit IOC Cross Orders, or orders with 
specific routing instructions because the Exchange will not offer these 
order types; \19\ (3) there would be no provision on reopenings since 
the

[[Page 52759]]

Exchange will not conduct auctions; and (4) the proposed rules would 
not include references to Day ISO orders, an order type that NYSE 
American does not offer.
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    \19\ See Proposed NYSE Rule 7.31 and the related discussion 
below.
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    Proposed NYSE Rule 7.16 would set forth the Exchange's short sale 
rule, which would govern short sales and compliance with Regulation 
SHO. The Exchange represents that the proposed rule is based on NYSE 
Arca Rule 7.16-E and NYSE American Rule 7.16E with two substantive 
differences. First, because the proposed rule would not apply to the 
Exchange's listed securities, the Exchange would not evaluate the 
triggering of the short sale price restrictions pursuant to Rule 201 of 
Regulation SHO for covered securities in which the Exchange is not the 
listing market.\20\ Second, the Exchange is not proposing a rule that 
relates to Tracking Orders, Cross Orders, or the Proactive if Locked/
Crossed Modifier because the Exchange would not offer these order types 
for UTP Securities.\21\
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    \20\ As a result, the Exchange would not include rules based on 
NYSE Arca Rules 7.16-E(f)(3), 7.16-E(f)(4)(A), or 7.16-E(f)(4)(B) or 
NYSE American Rules 7.16E(f)(3), 7.16E(f)(4)(A), or 7.16E(f)(4)(B).
    \21\ Current NYSE Rule 440B (Short Sales) would not be 
applicable to trading UTP Securities on Pillar.
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    Current NYSE Rule 7.18 governs trading halts in an UTP Security. 
The Exchange proposes to add proposed Rule 7.18(b), which would set 
forth how the Exchange would process new and existing orders in an UTP 
Security during an UTP Regulatory Halt.\22\ The Exchange represents 
that the proposed rule is based on NYSE Arca Rule 7.18-E(b) and 
subparagraphs (1)-(6), as well as NYSE American Rule 7.18E(b) and 
subparagraphs (1)-(6), except that the Exchange would not refer to 
``Primary Only'' order types because the Exchange would not offer this 
order type. The Exchange also proposes to add NYSE Rule 7.18(d)(1)(A), 
which would allow the Exchange to continue to trade an UTP Exchange 
Traded Product for the remainder of the Early Trading Session in 
certain situations.\23\ The Exchange represents that the proposed rule 
is based on NYSE Arca Rule 7.18-E(d)(1)(A) and NYSE American Rule 
7.18E(d)(1)(A), with no substantive differences.\24\
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    \22\ See Proposed NYSE Rule 7.18(b). UTP Regulatory Halt is 
defined in current NYSE Rule 1.1(kk) to mean a trade suspension, 
halt, or pause called by the UTP Listing Market in an UTP Security 
that requires all market centers to halt trading in that security. 
NYSE Rule 1.1(jj) defines the term ``UTP Listing Market'' as the 
primary listing market for an UTP Security.
    \23\ See Proposed NYSE Rule 7.18(d)(1)(A). Specifically, this 
rule would apply if an UTP Exchange Traded Product begins trading on 
the Exchange in the Early Trading Session and a temporary 
interruption occurs in a major market vendor's calculation or wide 
dissemination of either the Intraday Indicative Value or the value 
of the underlying index to the UTP Exchange Traded Product, as 
applicable.
    \24\ The Exchange proposes two non-substantive changes: (1) 
Amend NYSE Rule 7.18(a) to update a cross-reference and (2) amend 
NYSE Rule 7.18(d)(1)(B) to replace the phrase ``Normal Trading 
Hours'' with the phrase ``Core Trading Session.'' See Proposed NYSE 
Rule 7.34(a)(2) (defining Core Trading Session).
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2. Trading Rules for Pillar
    The Exchange proposes trading rules for Pillar, including a 
description of order types and modifiers, trading sessions, how orders 
are displayed and ranked, how orders are executed and routed, and how 
odd lots and mixed lots are ranked and executed.
    Proposed NYSE Rule 7.31 would set forth the primary order types, as 
well as time-in-force modifiers, auction-only orders, orders with 
conditional or undisplayed price and/or size, orders with instructions 
not to route, pegged orders, and other order instructions and modifiers 
that would be available on Pillar. The Exchange represents that the 
proposed orders and modifiers are a subset of those offered on NYSE 
Arca and NYSE American, with several substantive differences.
    The proposed NYSE rule differs from the NYSE Arca and NYSE American 
rules as follows: (1) NYSE would not offer auctions in UTP Securities 
(Auction-Only Orders would be routed to the primary listing markets); 
(2) Limit Orders entered before the Core Trading Session would be 
designated for both the Early and Core Trading Sessions; (3) the 
Exchange would not offer the option to designate certain orders with a 
Non-Display Remove Modifier; (4) Intermarket Sweep Orders would not be 
available to floor brokers; (5) Pegged Orders would be available only 
to floor brokers; \25\ and (6) the Exchange would not offer certain 
order types.\26\ The proposed rule also sets forth how Self Trade 
Prevention Modifiers would function consistent with the Exchange's 
proposed allocation model.\27\
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    \25\ Currently, NYSE only offers pegged orders for floor 
brokers. See NYSE Rule 13(f)(1) (stating that pegging interest 
``must be an e-Quote or d-Quote''). See NYSE Rule 70 for more 
information on e-Quote and d-Quote.
    \26\ The Exchange would not offer Tracking Orders, Cross Orders, 
Q Orders, orders that include specific routing instructions (which 
includes Primary Only Orders), Inside Limit Orders, Limit IOC Cross 
Orders, Market Pegged Orders, Discretionary Pegged Orders, or the 
Proactive if Locked/Crossed Modifier. However, the Exchange would 
offer the order type Non-Displayed Primary Pegged Order, which NYSE 
Arca does not offer. The Exchange would also offer order types and 
modifiers not offered by NYSE American (Primary Pegged Orders, ALO 
Orders, Day ISO Orders, IOC ISO Orders, and MPL Orders with an ALO 
Modifier).
    \27\ The Exchange proposes additional rules addressing how the 
self-trade prevention modifiers STP Cancel Newest and STP Cancel 
Oldest orders would interact with resting orders in a priority 
category that allocates orders based on parity. The Exchange 
proposes that current NYSE Rules 13 (Orders and Modifiers) and 70 
(Execution of Floor Broker Interest) would not be applicable for 
trading in UTP Securities on Pillar.
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    Proposed NYSE Rule 7.34 would specify that the Exchange would 
operate Early and Core Trading Sessions. The Exchange represents that 
the proposed rule is based on NYSE Arca Rule 7.34-E and NYSE American 
Rule 7.34E, except for the following substantive differences: (1) The 
Exchange would offer two trading sessions--an Early Trading Session and 
a Core Trading Session--instead of three trading sessions; \28\ (2) the 
Early Trading Session would start at 7:00 a.m. Eastern Time (rather 
than 4:00 a.m. Eastern Time on NYSE Arca); (3) the Exchange would deem 
an order entered before or during the Early or Core Trading Session as 
designated for both trading sessions; \29\ (4) the Exchange would not 
reference current NYSE Rule 7.44 because the Exchange would not offer a 
retail liquidity program; (5) in the Early Trading Session, Market 
Orders would be treated like Auction-Only Orders and would be routed to 
the primary listing market on arrival, instead of being rejected; and 
(6) the Exchange would not include provisions involving auctions and 
would not refer to order types that it does not offer (e.g., Cross 
Orders).
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    \28\ NYSE Arca and NYSE American also offer a Late Trading 
Session. See NYSE Arca Rule 7.34-E(a)(3) and NYSE American Rule 
7.34E(a)(3). NYSE would not offer a Late Trading Session.
    \29\ Proposed NYSE Rule 7.34(b) would also provide that an order 
would be deemed designated with a day time-in-force modifier if that 
order did not have a time-in-force designation.
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    Proposed NYSE Rule 7.36 would set forth how orders are ranked and 
displayed, and the priority of orders. As noted earlier, the Exchange 
would use a parity allocation model for the trading of UTP securities. 
The Exchange represents that proposed subsections NYSE Rule 7.36(a)-(g) 
are based on NYSE Arca Rule 7.36-E(a)-(g) and NYSE American Rule 
7.36(a)-(g) with several substantive differences. The Exchange would 
add the term ``Participant'' based on the term ``individual 
participant'' in current NYSE Rule 72(c)(ii), and a new term 
``Aggressing Order.'' \30\ Proposed NYSE Rule 7.36(b)(2) would not 
include the

[[Page 52760]]

reference to NYSE Arca Rule 7.7-E--which prohibits ETP Holders from 
transmitting through the facilities of the Exchange information 
regarding a bid, offer, indication of an order, or the ETP Holder's 
identity unless the originating ETP Holder grants permission or 
affirmatively elects to disclose its identity--because all non-
marketable displayed Limit Orders would be displayed on an anonymous 
basis. Proposed NYSE Rule 7.36(c) would not include a reference to 
price-time priority since the Exchange would operate under its existing 
parity allocation model, and there would be three priority categories 
for orders instead of four categories on NYSE Arca and NYSE 
American.\31\
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    \30\ See Proposed NYSE Rule 7.36(a)(6). An Aggressing Order is a 
buy (sell) order that is or becomes marketable against sell (buy) 
interest on the Exchange Book.
    \31\ See Proposed NYSE Rule 7.36(e). The proposed priority 
categories are Priority 1--Market Orders, Priority 2--Display 
Orders, and Priority 3--Non-Displayed Orders. The category Tracking 
Orders, which appears as a Priority 4 category in NYSE Arca 7.36-E 
and NYSE American 7.36E, is not included in the Exchange's proposed 
rule.
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    Proposed NYSE Rule 7.36(h) sets forth the rules for Setter 
Priority. The Exchange represents that the proposed rule is based in 
part on current NYSE Rule 72, with several substantive differences: (1) 
In addition to establishing the BBO,\32\ an order would have to either 
establish a new national best bid or offer (``NBBO'') \33\ or join an 
Away Market NBBO to be eligible for Setter Priority; (2) unlike current 
NYSE Rule 72(a)(ii), Setter Priority would not be available for a 
resting order solely because that order is the only interest at a given 
price when that price becomes the BBO; (3) Setter Priority would not be 
available for reserve quantities that replenish the display quantity of 
a Reserve Order; \34\ and (4) orders that are routed and return 
unexecuted would be eligible for Setter Priority consistent with 
proposed NYSE Rules 7.16(f)(5)(H), 7.36(f)(1)(A) and (B), and 
7.38(b)(2), which govern the working time assigned to the return 
quantity of an order.\35\ In addition, the Exchange proposes that an 
order would be evaluated for Setter Priority when the order becomes 
eligible to trade for the first time upon the transition to a new 
trading session; \36\ that an order would retain Setter Priority when 
transitioning from one trading session to another; \37\ and that an 
order would lose Setter Priority if it is assigned a new display 
price.\38\
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    \32\ See NYSE Rule 1.1(h).
    \33\ See NYSE Rule 1.1(dd) (defining NBBO as the national best 
bid or offer) and Rule 600(b)(42) of Regulation NMS (``National best 
bid and national best offer means, with respect to quotations for an 
NMS security, the best bid and best offer for such security that are 
calculated and disseminated on a current and continuing basis by a 
plan processor pursuant to an effective national market system plan; 
provided, that in the event two or more market centers transmit to 
the plan processor pursuant to such plan identical bids or offers 
for an NMS security, the best bid or best offer (as the case may be) 
shall be determined by ranking all such identical bids or offers (as 
the case may be) first by size (giving the highest ranking to the 
bid or offer associated with the largest size), and then by time 
(giving the highest ranking to the bid or offer received first in 
time)''). 17 CFR 242.600(b)(42).
    \34\ See Proposed NYSE Rule 7.36(h)(4)(B). The Exchange proposes 
that resting orders that are the only interest at the price when 
that price becomes the BBO, and the replenished portion of a Reserve 
Order, would not be eligible for Setter Priority on Pillar in order 
to encourage displayed orders that are aggressively priced.
    \35\ The Exchange proposes that NYSE Rules 72(a), (b), and 
(c)(xii) would not be applicable to trading UTP Securities on 
Pillar.
    \36\ See Proposed NYSE Rule 7.36(h)(1)(B).
    \37\ See Proposed NYSE Rule 7.36(h)(2)(E).
    \38\ See Proposed NYSE Rule 7.36(h)(3)(B).
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    Proposed NYSE Rule 7.37 would govern how orders would execute and 
route. Proposed NYSE Rule 7.37(a) would govern order execution. 
Proposed NYSE Rule 7.37(b) would govern order allocation, as described 
further below. And proposed NYSE Rule 7.37(c)-(g) would govern routing, 
the data feeds the Exchange would use, the prohibition on quotations 
that lock or cross the protected best bid or offer, and exceptions to 
the Commission's Order Protection Rule.
    The Exchange represents that proposed Rule 7.37 is based on NYSE 
Arca Rule 7.37-E(a)-(f) and NYSE American Rule 7.37E(a)-(f), with the 
following substantive differences. The proposed rule would not include 
references to Inside Limit Orders and orders with specific routing 
instructions since the Exchange will not offer these order types. 
Proposed NYSE Rule 7.37 would not include rule text from NYSE Arca 
Rules 7.37-E(b)(3) or (d)(1) \39\ because, like NYSE American, the 
Exchange would neither use data feeds from broker-dealers nor route to 
away markets that do not display protected quotations. Also, in 
proposed NYSE Rule 7.37(a), the Exchange would use the proposed new 
term ``Aggressing Order'' instead of ``incoming marketable order'' when 
referring to orders that would be matched for execution.\40\
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    \39\ NYSE Arca Rule 7.37-E(b)(3) provides ETP Holders the option 
to bypass away markets that are not displaying protected quotations. 
NYSE Arca Rule 7.37-E(d)(1) states that NYSE Arca receives data 
feeds directly from broker-dealers for the purpose of routing 
interest to away markets that are not displaying protected 
quotations.
    \40\ See supra note 37.
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    Proposed NYSE Rule 7.37(b) would establish how Aggressing Orders 
are allocated against contra-side orders. The Exchange represents that 
the proposed rule is based in part on current NYSE Rule 72(c) with the 
following substantive differences: (1) The Exchange would maintain 
separate allocation wheels at each price for displayed and non-
displayed orders on each side of the market; \41\ (2) allocations to a 
Floor Broker Participant would be allocation to orders represented by 
that Floor Broker on parity; (3) the proposed rule would not reference 
DMM allocations as there would be no DMMs assigned to UTP Securities; 
(4) the Exchange would offer Mid-Point Liquidity Orders (``MPL'') with 
a Minimum Trading Size (``MTS''), and the orders would be allocated 
based on MTS size and time; \42\ (5) if resting orders on one side of 
the market are repriced and become marketable against contra-side 
orders on the Exchange book, the Exchange would rank the re-priced 
orders as described in proposed NYSE Rule 7.36(c) and trade them as 
Aggressing Orders consistent with their ranking; and (6) proposed NYSE 
Rule 7.37(b)(9) would provide that if resting orders on both sides of 
the market are repriced and become marketable against one another, the 
Exchange would rank the orders based on proposed NYSE Rule 7.36(c) and 
determine which orders are the Aggressing Orders based on their 
ranking.\43\
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    \41\ Current NYSE Rule 72(c)(viii) sets forth a single 
allocation wheel for each security. According to the Exchange, the 
proposed NYSE Rule for Pillar would permit a member organization to 
establish a position at each price point, instead of simply adding 
the order to a single allocation wheel with multiple price points.
    \42\ See Proposed NYSE Rule 7.37(b)(1)(E)).
    \43\ The Exchange proposes that NYSE Rules 15A, 19, 72(c), 1000, 
1001, 1002, and 1004 would not apply to trading UTP Securities on 
Pillar. As NYSE Rule 72(d) would also not apply to trading UTP 
Securities on the Pillar trading platform, the Exchange proposes 
that NYSE Rule 72 in its entirety would not apply to trading UTP 
Securities on Pillar.
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    Proposed NYSE Rule 7.38 sets forth how odd-lot and mixed-lot orders 
would be ranked and executed. The Exchange represents that the proposed 
rule is based on NYSE Arca Rule 7.38-E and NYSE American 7.38E, except 
that, if the display price of an odd-lot order to buy (sell) is greater 
than (less than) its working price, the order would be ranked and 
allocated based on its display price.\44\
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    \44\ The Exchange proposes that current NYSE Rule 61 (Recognized 
Quotations) would not be applicable to trading UTP Securities on 
Pillar.
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3. Tick Size Pilot Plan
    Proposed NYSE Rule 7.46 sets forth the rules for the Tick Size 
Pilot Plan. The Exchange represents that the proposed rule is based on 
NYSE American Rule 7.46E, except that: (1) The Exchange would not 
include text relating to Market Pegged Orders or Limit IOC Cross Orders 
(as the Exchange would not offer these orders); (2)

[[Page 52761]]

proposed NYSE Rules 7.46(f)(5)(A) and (B) would govern ranking and 
allocation for Pilot Securities in Test Group Three instead of Rules 
7.36(e) and 7.37(b)(1), respectively; \45\ and (3) proposed NYSE Rules 
7.46(f)(5)(F)(i)(a) and (b) are based on NYSE Arca Rules 7.46-
E(f)(5)(F)(i)(a) and (b) because NYSE American does not offer Day ISO 
orders. Proposed NYSE Rules 7.46(f)(5)(F)(ii) and (iii) include ALO 
orders, which, like Day ISO orders, are not offered by NYSE 
American.\46\
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    \45\ The Exchange did not provide a reason for this rule change.
    \46\ The Exchange proposes that current NYSE Rule 67 (Tick Size 
Pilot Plan) would not be applicable for trading in UTP Securities on 
Pillar.
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B. Amendments to NYSE Rules 103B and 107B

    The Exchange proposes to amend NYSE Rule 103B(I) (Security 
Allocation and Reallocation) to state that UTP Securities will not be 
allocated to a DMM Unit. Also, the Exchange proposes to amend NYSE Rule 
107B (Supplemental Liquidity Providers) to change ``NYSE-listed 
securities'' to ``NYSE-traded securities.'' According to the Exchange, 
the change reflects that UTP Securities would be eligible for 
assignment to Supplemental Liquidity Providers.

C. Retail Liquidity Program Not Available on Pillar

    The Exchange does not plan to offer a retail liquidity program for 
UTP Securities on Pillar. For this reason, the Exchange proposes that 
NYSE Rule 107C would not apply to trading UTP Securities on Pillar. 
Also, proposed rules based on NYSE Arca rules that cross reference NYSE 
Arca Rule 7.44-E would not include that rule reference.

D. Current NYSE Rules Not Applicable to Pillar

    Under the Exchange's proposal, several current NYSE rules would not 
apply to trading in UTP Securities as they are superseded by the 
proposed rules. Several additional rules, which do not have 
counterparts in the proposed Pillar rules, would not apply to trading 
in UTP Securities as they are related to auctions and floor-based 
point-of-sale trading. Further information about current NYSE rules 
that would not apply to UTP trading on the Pillar platform can be found 
in the Notice.\47\
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    \47\ See Notice, supra note 3, 82 FR at 37270, for a list of 
NYSE rules that are not applicable to Pillar.
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III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposal

    The Commission is instituting proceedings pursuant to Section 
19(b)(2) of the Act \48\ to determine whether the Exchange's proposed 
rule change should be approved or disapproved. The Commission believes 
it is appropriate to institute proceedings at this time in view of the 
legal and policy issues raised by the proposal, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described in greater detail below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change.
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    \48\ 15 U.S.C. 78s(b)(2).
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. In 
particular, the Commission is instituting proceedings to allow for 
additional analysis of the proposed rule change's consistency with 
Sections 6(b)(5) and 6(b)(8) of the Act.\49\ Section 6(b)(5) requires, 
among other things, that the rules of a national securities exchange be 
designed ``to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, 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.'' \50\ In addition, Section 6(b)(5) of the Act 
prohibits the rules of an exchange from being ``designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers.'' \51\ Section 6(b)(8) of the Act, requires that the rules of 
a national securities exchange ``not impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of [the 
Act].'' \52\
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    \49\ 15 U.S.C. 78f(b)(5) and (b)(8).
    \50\ Id.
    \51\ Id.
    \52\ 15 U.S.C. 78f(b)(8).
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    As discussed above, NYSE proposes to commence UTP trading of Tape B 
and C securities and to do so on its new Pillar trading platform. There 
would be no DMM assigned to UTP Securities; there would be no Floor-
based point of sale for UTP Securities; the Exchange would not conduct 
auctions in UTP Securities; and the Exchange would allocate executions 
in UTP Securities using a modified version of its parity allocation 
system, granting one place on the allocation wheel to each Floor Broker 
Participant and one place on the allocation wheel to orders 
collectively represented in the Exchange Book. Additionally, Floor 
Brokers would be able to use certain order types, such as Pegging 
Orders, that would not be available to other market participants.\53\
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    \53\ After Market Orders trade based on time and the order with 
Setter Priority, if eligible, receives an allocation, Proposed NYSE 
Rule 7.37(b) allocates orders based on parity by Participant. 
Proposed NYSE Rule 7.36(a)(5) defines Participant as a Floor broker 
trading license (a ``Floor Broker Participant'') or orders 
collectively represented in the Exchange Book that have not been 
entered by a Floor broker (``Book Participant'').
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    The Commission seeks commenters' views on whether the Exchange's 
proposal is consistent with Section 6(b)(5) and Section 6(b)(8) of the 
Act. In particular, the Commission seeks commenters' view on the 
following questions.
     Unlike the Exchange's existing trading model for its 
listed securities, there would be no DMM assigned to UTP Securities, no 
Floor-based point of sale for UTP Securities, no Crossing Orders, and 
no auction in UTP Securities. Given these differences from the market 
structure in which Floor Brokers currently operate, what are 
commenters' views on the role that Floor Brokers would play in trading 
UTP Securities on the Exchange?
     What benefits or costs, if any, would the activities of 
Floor Brokers create for trading of UTP Securities on the Exchange? 
What benefits or costs, if any, would accrue to the customers of the 
Floor Brokers? Would these benefits or costs vary depending on the type 
of Floor Broker customer or the means the customer used to submit an 
order through a Floor Broker? What benefits or costs, if any, would 
accrue to participants on the Exchange that are not customers of a 
Floor Broker?
     Would providing Floor Brokers with parity allocation in 
UTP Securities, or providing them with exclusive use of certain order 
instructions, unfairly discriminate against market participants who do 
not submit orders through a Floor Broker? Would providing parity to 
Floor Brokers, or providing them with exclusive use of certain order 
instructions, impose a burden on competition that is not necessary or 
appropriate?

IV. Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data and arguments with respect to the 
concerns identified above, as well as any others they may have with the 
proposal. In particular, the Commission invites the written views of 
interested persons concerning whether the proposal is inconsistent with 
Section 6(b)(5), Section 6(b)(8), or any other provision of the Act, or 
the rules and regulation

[[Page 52762]]

thereunder. Although there do not appear to be any issues relevant to 
approval or disapproval which would be facilitated by an oral 
presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4, any request for an opportunity to 
make an oral presentation.\54\
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    \54\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views and 
arguments regarding whether the proposal should be disapproved by 
December 5, 2017. Any person who wishes to file a rebuttal to any other 
person's submission must file that rebuttal by December 19, 2017.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2017-36 on the subject line.

Paper Comments

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

All submissions should refer to File Numbers SR-NYSE-2017-36. The 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 proposal that are filed with the 
Commission, and all written communications relating to the proposal 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2017-36 and should be submitted on 
or before December 5, 2017. Rebuttal comments should be submitted by 
December 19, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24577 Filed 11-13-17; 8:45 am]
 BILLING CODE 8011-01-P