Document ID: SEC-2019-0281-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2019-03-14T04:00Z

[Federal Register Volume 84, Number 50 (Thursday, March 14, 2019)]
[Notices]
[Pages 9403-9410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04688]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85272; File No. SR-NYSEAMER-2019-04]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rules 7.16E, 7.18E, 7.31E, 7.34E, 7.35E, and 7.38E

March 8, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on February 22, 2019, NYSE American LLC (``NYSE American'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rules 7.16E (Short Sales), 7.18E 
(Halts), 7.31E (Orders and Modifiers), 7.34E (Trading Sessions), 7.35E 
(Auctions), and 7.38E (Odd and Mixed Lots). The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

[[Page 9404]]

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

1. Purpose
    The Exchange proposes to amend Rules 7.16E (Short Sales), 7.18E 
(Halts), 7.31E (Orders and Modifiers), 7.34E (Trading Sessions), 7.35E 
(Auctions), and 7.38E (Odd and Mixed Lots). The proposed rule changes 
are intended to provide additional specificity in the Exchange's rules, 
streamline order processing when a security is halted or paused, and 
reduce operational complexity when transitioning to continuous trading.
Rule 7.16E, Short Sales
    Rule 7.16E(f) sets forth how the Exchange handles short sale orders 
when the provisions of paragraph (b)(1) of Rule 201 of Regulation SHO 
are in effect (``Short Sale Period'').\4\ The Exchange proposes to make 
two changes to Rule 7.16E. First, the Exchange proposes to amend how 
sell short Market Orders would be processed during a Short Sale Period. 
Second, the Exchange proposes to amend how sell short orders in 
Auction-Eligible Orders would be priced before an auction during a 
Short Sale Period.
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    \4\ 17 CFR 242.201(b)(1).
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    With respect to the processing of Market Orders, Rule 7.16E(f)(5) 
sets forth how short sale orders are processed during a Short Sale 
Period, which is defined in Rule 7.16E(f)(4). More specifically, Rule 
7.16E(f)(5)(B) provides how the Exchange processes sell short Priority 
1 and Priority 3 Orders during a Short Sale Period.\5\ The current rule 
provides that such orders, which are not displayed, are re-priced at a 
Permitted Price \6\ and are continuously re-priced at a Permitted Price 
as the national best bid moves both up and down. Accordingly, under the 
current rule, during a Short Sale Period, orders ranked Priority 1--
Market Orders, are processed in the same manner as orders ranked 
Priority 3--Non-Display Orders.
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    \5\ Pursuant to Rule 7.36E(e)(1), an order ranked ``Priority 1--
Market Orders,'' which is referred to in Rule 7.16E(f)(5)(B) as a 
``Priority 1 Order'' refers to unexecuted Market Orders. Pursuant to 
Rule 7.31E(a)(1)(A), a Market Order may be held undisplayed on the 
Exchange Book. Pursuant to Rule 7.36E(e)(3), an order ranked 
``Priority 3--Non-Display Orders,'' which is referred to in Rule 
7.16E(f)(5)(B) as a ``Priority 3 Order'' refers to non-marketable 
Limit Orders for which the working price is not displayed, including 
the reserve interest of Reserve Orders.
    \6\ The Permitted Price is one minimum price variation above the 
current NBB. See Rule 7.16E(f)(5)(A).
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    The Exchange proposes to change how sell short Market Orders during 
a Short Sale Period are processed during continuous trading to conform 
to how such orders are processed for an auction. As provided for in 
Commentary .01(a) to Rule 7.35E, for purposes of pricing an auction and 
ranking orders for allocation in an auction, sell short Market Orders 
that are adjusted to a Permitted Price are processed as Limit Orders 
ranked Priority 2--Display Orders.\7\ With this proposed rule change, 
the Exchange proposes to extend the functionality currently applicable 
to sell short Market Orders during an auction to how sell short Market 
Orders would be processed during continuous trading, i.e., that during 
a Short Sale Period, sell short Market Orders would be converted into 
display orders and would be ranked and allocated as a displayed order. 
To effect this change, the Exchange proposes to delete references to 
``Priority 1 Orders'' and ``Market Orders'' in current Rule 
7.16E(f)(5)(B) and add new Rule 7.16E(f)(5)(C) that would be applicable 
only to Market Orders. Orders ranked Priority 3--Non-Display Orders 
would continue to be processed in the same manner as they are today 
under Rule 7.16E(f)(5)(B).
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    \7\ See Commentary .01(a) to Rule 7.35E.
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    Proposed new Rule 7.16E(f)(5)(C) would provide that, during a Short 
Sale Period, a sell short Market Order would be ranked Priority 2--
Display Orders and would be subject to Trading Collars specified in 
Rule 7.31E(a)(1)(B)(i).\8\
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    \8\ During Core Trading Hours, the Trading Collar is based on a 
price that is a specified percentage away from the consolidated last 
sale price and is continuously updated based on market activity. If 
there is no consolidated last sale price on the same trading day, 
the Exchange uses the last Official Closing Price for the security. 
See Rule 7.31E(a)(1)(B)(i).
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    As discussed below, when a sell short Market Order is ranked as 
Priority 2--Display Orders, it would be assigned a limit price of one 
MPV above $0.00. The Exchange believes that applying Limit Order Price 
Protection when such orders are ranked as Priority 2--Display Orders 
would result in all such orders being rejected as being priced too far 
away from the NBBO.\9\ Accordingly, to ensure that there is a mechanism 
available to prevent such orders from causing significant price 
dislocation during a Sell Short Period, the Exchange proposes that such 
orders would continue to be subject to Trading Collars, which are 
applicable to Market Orders, rather than to Limit Order Price 
Protection.
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    \9\ Pursuant to Rule 7.31E(a)(2)(B), a Limit Order to buy (sell) 
is subject to Limit Order Price Protection and will be rejected if 
it is priced at or above (below) the greater of $0.15 or a specified 
percentage away from the NBO (NBB).
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    To address what would happen when a Short Sale Period is triggered 
when there is a resting Market Order on the Exchange Book, proposed 
Rule 7.16E(f)(5)(C) would further provide that if a Short Sale Period 
is triggered when an order ranked Priority 1--Market Orders is resting 
on the Exchange Book, such resting order would be converted to an order 
ranked Priority 2--Display Orders. This could happen if there is an 
unexecuted Market Order that is undisplayed on the Exchange Book 
pursuant to Rule 7.31E(a)(1)(A). In such case, the resting order would 
be converted to an order ranked Priority 2--Display Orders and would be 
ranked and allocated for all purposes as a displayed order. If the 
Short Sale Period ends intraday, such order would be converted back to 
an order ranked Priority 1--Market Orders.
    While a sell short Market Order would be ranked and allocated as 
Priority 2--Display Orders during a Short Sale Period, not all 
functionality applicable to displayed orders would be applicable to 
such Market Orders. As proposed, when ranked as Priority 2--Display 
Orders, such order would be (1) assigned a limit price of one MPV above 
$0.00; (2) assigned a working and (during Core Trading Hours) a display 
price that is the higher of the Permitted Price or one MPV above the 
lower Trading Collar as determined under Rule 7.31E(a)(1)(B)(i); and 
(3) cancelled if the Permitted Price is or becomes lower than the Lower 
Price Band, as provided in Rule 7.11E(a)(5).
    The Exchange believes that assigning a Market Order with a limit 
price equal to one MPV above $0.00 would provide for a limit price for 
such order while it is functioning as an order ranked Priority 2--
Display Orders. However, as noted above, such limit price would not be 
used for purposes of Limit Order Price Protection. Rather, the Exchange 
proposes to continue applying the Trading Collars applicable to Market 
Orders even if such order converts to displayed interest. Next, the 
Exchange believes that assigning such order a working and display price 
(during Core Trading Hours) that is the higher of the Permitted Price 
or one MPV above the lower Trading Collar is consistent both with how 
sell short Priority 2--Display Orders are displayed and priced during a 
Short Sale Period and with the proposal that Trading Collars would 
continue to be applicable to such orders. Not displaying such orders 
until Core Trading Hours is also consistent with the continued behavior 
that such Market Orders are not eligible to trade until the

[[Page 9405]]

Core Trading Session. Finally, the Exchange proposes to cancel such 
order if the Permitted Price (i.e., the displayed price of the order) 
is or becomes lower than the Lower Price Band, which is consistent with 
how Market Orders are processed pursuant to Rule 7.11E(a)(5)(A)(i) if 
they cannot be traded or routed at prices at or within the Price Bands. 
In other words, if the Permitted Price would be a price at or below the 
Lower Price Band, the Exchange proposes to cancel such order rather 
than re-pricing it once again to the Lower Price Band, even though the 
Lower Price Band would be at a price higher than the Permitted Price. 
Thus, no short sale order would be executed (effected) at or below the 
NBB during a Short Sale Period.
    With the adoption of proposed Rule 7.16E(f)(5)(C), the Exchange 
further proposes to re-number each of current sub-paragraphs (C)-(I) of 
Rule 7.16E(f)(5) as (D)-(J) without making any substantive change to 
those rules.
    With respect to short sale orders and how they are priced during an 
auction, Rule 7.16E(f)(6) states that during a Short Sale Period, a 
short sale order will be executed and displayed without regard to price 
if, at the time of initial display of the short sale order, the order 
was at a price above the then current National Best Bid (``NBB'').\10\ 
Consistent with this Rule, if a short sale order is eligible to be 
displayed at that price pursuant to Rule 7.16E(f)(6), it would remain 
at its previously displayed price for participation in an opening, 
reopening or closing auction. Otherwise, short sale orders that are 
unable to remain at their previously displayed price pursuant to Rule 
7.16E(f)(6) are priced to a Permitted Price as required by Rule 
7.16E(f)(5).
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    \10\ See also 17 CFR 242.201(b)(1)(iii)(A).
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    The Exchange proposes to change this behavior and no longer apply 
the exception permitted under Rule 7.16E(f)(6) to short sale orders 
when they participate in an auction. Accordingly, during a Short Sale 
Period, the Exchange proposes to adjust the price of all short sale 
orders to a Permitted Price prior to an auction during a Short Sale 
Period, even if such orders were eligible to remain at their previously 
displayed price pursuant to Rule 7.16E(f)(6). Short sale orders not 
executed in an auction would remain at a Permitted Price for the 
duration of the Short Sale Period.
    To effect this change, new subparagraph (8) to Rule 7.16E(f) would 
provide that notwithstanding subparagraph (6) of Rule 7.16E(f), with 
respect to the execution of short sale orders in a covered security in 
any auction during the Short Sale Period, the Exchange would adjust the 
working price and display price of such short sale orders in a covered 
security to a Permitted Price before such auction. Subparagraph (8) to 
Rule 7.16E(f) would further provide that if such a short sale order is 
not executed in the applicable auction and is eligible to trade, it 
will be priced consistent with paragraph (f)(5)(A) of Rule 7.16E. In 
other words, after the auction, it would not revert back to a 
previously-displayed price pursuant to Rule 7.16E(f)(6). The Exchange 
believes that the proposed rule change would streamline order 
processing by adjusting the price of all short sale orders to a 
Permitted Price. The proposal is also consistent with the treatment of 
short sale orders on the Exchange's affiliate, which also re-prices all 
short sale orders in advance of an auction.\11\
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    \11\ New York Stock Exchange LLC (``NYSE'') Rule 440B(h) 
provides that with respect to the execution of short sale orders in 
a covered security in any single-priced opening, re-opening or 
closing transaction during the Short Sale Period, the NYSE will re-
price short sale orders in a covered security as follows: (1) 
Opening--one minimum price increment above the national best bid at 
9:30 a.m.; (2) Re-opening following a halt or pause in trading--one 
minimum price increment above the last published Exchange bid prior 
to such halt or pause in trading; and (3) Closing--one minimum price 
increment above the last published Exchange bid prior to the close. 
The Exchange is not proposing to re-price short sale orders to a 
price other than the Permitted Price. Unlike NYSE Rule 440B(h), 
proposed Rule 7.16E(f)(8) uses the term ``auction'' in place of 
``single-priced opening, re-opening or closing transaction'' for 
consistency with Rule 7.35E.
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    With this proposed change, there may be circumstances when a short 
sale order displayed at a price other than a Permitted Price pursuant 
to Rule 7.16E(f)(6) may lose the opportunity to participate in an 
auction when it re-priced to a Permitted Price for the auction. For 
example, currently, if a short sale order is displayed at $9.99 
pursuant to current Rule 7.16E(f)(6), the Permitted Price at the time 
of the auction is $10.01 (i.e., the NBB crosses the Exchange's 
displayed offer of $9.99), and the auction is priced at $10.00, that 
sell short order would be eligible to participate in the auction.\12\ 
However, under the proposed new behavior, that sell short order would 
be re-priced to $10.01 and would not be eligible to participate in the 
auction at $10.00. Based on the Exchange's review of existing trading 
data, the Exchange believes that this would be an extremely rare event 
and would have a de minimis impact on the overall execution of short 
sale orders in auctions at the Exchange.
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    \12\ Pursuant to Rule 7.35E(a)(6), orders are ranked for 
purposes of allocation in an auction and not all orders are 
guaranteed to participate.
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    The Exchange also proposes to make a related change to Commentary 
.01(b) to Rule 7.35E. That Commentary provides that short sale orders 
that are included in Auction Imbalance Information, but are not 
eligible for continuous trading before the applicable auction, will be 
adjusted to a Permitted Price as the NBB moves both up and down. For 
example, for the Auction Imbalance Information for the Closing Auction, 
sell short MOC and LOC Orders, which are not eligible for continuous 
trading, are continually adjusted to a Permitted Price. With the 
proposed change to Rule 7.16E, all short sale orders would be 
participating in an auction at a Permitted Price. Accordingly, the 
Exchange proposes to amend this Commentary to remove the clause ``but 
are not eligible for continuous trading before the applicable 
auction.'' With this proposed change, the Auction Imbalance Information 
would reflect the Permitted Price at which a short sale order would 
participate in an auction.
    Rule 7.18E, Halts
    Rule 7.18E(b) states that the Exchange does not conduct Trading 
Halt Auctions in UTP Securities and sets forth how the Exchange 
processes new and existing orders in UTP securities during a UTP 
Regulatory Halt.\13\ Rule 7.18E(b)(1) states that during a UTP 
Regulatory Halt the Exchange will cancel any unexecuted portion of 
Market Orders and orders not eligible to trade in the current trading 
session on the Exchange Book. The Exchange proposes to amend this Rule 
to further provide that orders that are not displayed would also be 
cancelled during a UTP Regulatory Halt. To reflect this change, the 
Exchange proposes to amend Rule 7.18E(b)(1) to provide that Non-
Displayed Limit Orders,\14\ Mid-Point Liquidity (``MPL'') Orders,\15\ 
Tracking Orders,\16\ and Pegged Orders \17\ would also be canceled 
during a UTP Regulatory Halt. The Exchange believes that cancelling 
these non-displayed orders during a UTP Regulatory Halt would 
streamline order processing once trading resumes.
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    \13\ A ``UTP Regulatory Halt'' is defined in Rule 1.1E as a 
trade suspension, halt, or paused called by the UTP Listing Market 
in a UTP Security that requires all market centers to halt trading 
in that security. The terms UTP Security and UTP Listing Market are 
also defined in Rule 1.1E.
    \14\ See Rule 7.31E(d)(2).
    \15\ See Rule 7.31E(d)(3).
    \16\ See Rule 7.31E(d)(4).
    \17\ See Rule 7.31E(h).
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    Rule 7.18E(c) sets forth how the Exchange processes new and 
existing orders in Exchange-listed securities

[[Page 9406]]

during a halt or pause. Currently, during such a halt or pause, 
unexecuted Market Orders are cancelled and all other resting orders, 
including non-displayed orders, are maintained at their last working 
price and display price. The Exchange proposes to amend how orders in 
Exchange-listed securities are processed during a halt or pause based 
on whether orders are eligible to participate in the Trading Halt 
Auction.
    First, the Exchange proposes to cancel the unexecuted portion of 
non-displayed orders that are not eligible to participate in a Trading 
Halt Auction. To effect this change, the Exchange proposes to amend 
Rule 7.18E(c)(1) to provide that any unexecuted portion of Non-
Displayed Limit Orders, MPL Orders, Tracking Orders, and Market Pegged 
Orders in an Exchange-listed security would be cancelled during a halt 
or pause. This proposed change is consistent with the above proposal 
regarding how non-displayed orders for UTP Securities during a UTP 
Regulatory Halt would be processed under Rule 7.18E(b)(1). The Exchange 
proposes to make this change for Exchange-listed securities as well 
because such order types are not eligible to participate in an auction.
    Second, because Market Orders are eligible to participate in a 
Trading Halt Auction, the Exchange proposes to add new subparagraph 
(c)(2) to Rule 7.18E \18\ to provide that the unexecuted quantity of a 
Market Order would be retained.\19\ The Exchange also proposes to 
delete reference to Market Orders in Rule 7.18E(c)(1).
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    \18\ The Exchange proposes to renumber the subparagraphs in Rule 
7.18E(c) to account for the addition new subparagraph (c)(2).
    \19\ The quantity of a Market Order to buy (sell) not traded or 
routed will remain undisplayed on the Exchange Book at a working 
price of the NBO (NBB) and be eligible to trade with incoming sell 
(buy) orders at that price. See Rule 7.31E(a)(1)(A).
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    Third, the Exchange proposes to amend Rule 7.18E(c)(3) to provide 
that it would re-price all other resting orders on the Exchange Book to 
their limit price. This proposed change would not alter how those 
orders would be ranked for purposes of a Trading Halt Auction, which is 
based on their limit price.\20\
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    \20\ See Rule 7.35E(a)(6)(A) (Limit Orders, LOO Orders, and LOC 
orders will be ranked based on their limit price and not the price 
at which they would participate in the auction).
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    Rule 7.18E(c)(4), which would be renumbered as Rule 7.18E(c)(5), 
currently provides that incoming Limit Orders designated as IOC, Cross 
Orders, Tracking Orders, Market Pegged Orders [sic], and Discretionary 
Pegged Orders [sic], and Retail Orders [sic] entered during a halt or 
pause are rejected. The Exchange proposes to make a related change to 
proposed Rule 7.18E(c)(5) to provide that incoming Non-Displayed Limit 
Orders and MPL Orders entered during a halt or pause would also be 
rejected.
    Because such non-displayed orders would be cancelled during a halt 
or pause, the Exchange proposes to amend Rule 7.18E(c)(5) further to no 
longer provide that a request to cancel and replace a Tracking Order or 
Pegged Order is treated as a cancellation without replacing the order. 
This text in current Rule 7.18E(c)(4) is no longer necessary because 
incoming Tracking Orders and Pegged Orders would be rejected and any 
unexecuted portion of such orders resting on the Exchange Book would be 
cancelled during a halt or pause.
    The Exchange believes these proposed changes to Rules 7.18E(c) 
relating to non-displayed orders are reasonable because none of these 
order types are eligible to participate in a Trading Halt Auction 
either by definition or by their operation.\21\ Rejecting or cancelling 
these orders resting on the Exchange Book during a halt or pause would 
reduce operational complexity and ease order processing once the 
Trading Halt Auction occurs and the Exchange transitions to continuous 
trading.
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    \21\ Non-Displayed Limit Orders, MPL Orders, Pegged Orders, and 
Tracking Orders are by definition ineligible to participate in 
auctions. See Rule 7.31E(b)(2), (d)(3), (d)(4), and (h), 
respectively. Tracking Orders are to only execute against orders 
that are in the process of being routing away and not against 
contra-side interest in an auction. See Rule 7.31E(d)(4).
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Rule 7.31E, Orders and Modifiers
    As described above, Rule 7.31E(a)(2)(B) sets forth Limit Order 
Protection for Limit Orders and currently provides that a Limit Order 
entered before the Core Trading Session that becomes eligible to trade 
in the Core Trading Session will become subject to Limit Order Price 
Protection after the Core Opening Auction. With this functionality, 
orders not yet eligible to trade will not be rejected on arrival, but 
rather will be evaluated for Limit Order Price Protection when they 
become eligible to trade.
    The Exchange proposes a change to whether Limit Order Price 
Protection would be applied to Limit Orders in Auction-Eligible 
Securities entered during a halt or pause. As proposed, a Limit Order 
in an Auction-Eligible Security entered during a trading halt or pause, 
i.e., a period when the Exchange is not open for trading in such 
securities, would not be subject to Limit Order Price Protection. With 
this proposed change, similar to current functionality, Limit Orders in 
Auction-Eligible Securities would continue to not be subject to Limit 
Order Protection on arrival. The first opportunity for an order entered 
during a period when there is no trading in such security on the 
Exchange, i.e., during a trading halt or pause, would be the single-
priced transaction of a Trading Halt Auction. In such case, the Limit 
Order would be traded in such auction at the price of the auction and 
not at the limit price. Accordingly, the Exchange does not believe that 
Limit Order Price Protection would be necessary for such orders.
    To reflect this change, the Exchange proposes to amend Rule 
7.31E(a)(2)(B) to provide that a Limit Order in an Auction-Eligible 
Security entered during a trading halt or pause would not be subject to 
Limit Order Price Protection.
Rule 7.34E, Trading Sessions
    Rule 7.34E(c)(1) describes orders entry during the Early Trading 
Session.\22\ The Exchange proposes to add new subparagraph (F) to Rule 
7.34E(c)(1) to provide that the following non-displayed orders would be 
rejected if entered before the Auction Processing Period for the Early 
Trading Session concludes: Non-Displayed Limit Orders, MPL Orders, and 
Tracking Orders. Similar to how the Exchange proposes to cancel non-
displayed orders during halt or pause, the Exchange believes that 
rejecting these non-displayed orders when the Exchange is not engaged 
in continuous trading would reduce operational complexity when the 
Exchange transitions to continuous trading. ETP Holders seeking to 
enter theses order types may do so once the Early Trading Session 
begins.
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    \22\ The Early Trading Session begins at 7:00 a.m. Eastern Time 
and concludes at the commencement of the Core Trading Session. See 
Rule 7.34E(a)(1). The Core Trading Session begins at 9:30 a.m. 
Eastern Time. See Rule 7.34E(a)(2).
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Rule 7.35E, Auctions
    Rule 7.35E(h), Transition to Continuous Trading. Rule 7.35E(h) sets 
forth how the Exchange transitions to continuous trading following an 
auction, if there is no matched volume and an auction is not conducted, 
or when transitioning from one trading session to another. Rule 
7.35E(h)(2)(A) provides that during the transition to continuous 
trading, an order instruction (as defined in Rule 7.35E(g)) received 
during the Auction Imbalance Freeze, the transition to continuous 
trading, or the Auction Processing Period would be processed in time 
sequence with the processing of orders as specified in Rules 
7.35E(h)(3)(A) or (B) if it relates to

[[Page 9407]]

an order that was received before the Auction Processing Period. The 
Exchange proposes to amend Rule 7.35E(h)(2)(A) to further provide that 
the processing of order instructions described in that sentence would 
also apply to orders that have already transitioned to continuous 
trading. This proposed rule text represents current functionality and 
is intended to promote clarity and transparency in Exchange rules of 
when an order instruction would be applied to an order.
    The Exchange proposes to make a corollary amendment to Rule 
7.35E(h)(2)(B) to provide that this subparagraph of the Rule would 
apply only to an order instruction for an order that has not yet 
transitioned to continuous trading. The Exchange also proposes to make 
a clarifying amendment to add the word ``either'' before the phrase 
``the Auction Processing Period or the transition to continuous 
trading.''
    Rule 7.35E(h)(3) sets forth how orders are processed when 
transitioning to continuous trading from a prior trading session or 
following an auction.
    The Exchange proposes to amend Rule 7.35E(h)(3)(A)(ii) to remove 
the term ``fully-executed'' from before the reference to ``display 
quantity.'' The Exchange has amended its Reserve Order functionality 
and specifically the circumstances when a Reserve Order would be 
replenished, and the reference to ``fully-executed'' is now moot.\23\
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    \23\ See Securities Exchange Act Release No. 83898 (August 22, 
2018), 83 FR 43919 (August 28, 2018) (SR-NYSEAMER-2018-41) (amending 
Rule 7.31E(d)(1)(A) to state that the replenish quantity of a 
Reserve Order is either the minimum display size of the order or the 
remaining quantity of reserve interest if it is less than the 
minimum display quantity).
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    Rule 7.35E(h)(3)(B) provides that unexecuted orders that (1) were 
not eligible to trade in the prior trading session, (2) for a Trading 
Halt Auction, were received during a halt or pause, or (3) were 
received during the Auction Processing Period will be assigned a new 
working time at the end of the Auction Processing Period in time 
sequence relative to one another based on original entry time and will 
be processed in time sequence. The Exchange proposes to amend Rule 
7.35E(h)(3)(B) to remove references to orders received during a halt or 
pause under (2) above.\24\ As noted above, the Exchange will be 
reducing the number of orders that would be accepted during a halt or 
pause. Orders not eligible to participate in a Trading Halt Auction 
would no longer be resting or accepted during a halt or pause, and 
therefore, there would no longer be a need to assign a working time for 
such securities. In addition, orders in Exchange-listed securities that 
are accepted during a halt or pause are eligible to participate in the 
Trading Halt Auction, and therefore, the working time for such orders 
is the original entry time, as provided for in Rule 7.36E(f)(1). The 
Exchange believes it is reasonable for new orders received during a 
halt or pause to be processed as provided for in Rule 7.36E(f)(1) as 
this is the default processing for assigning a working time.
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    \24\ To account for the deletion of paragraph (h)(3)(B)(2) of 
Rule 7.35E, paragraph (h)(3)(B)(3) would be renumbered as 
(h)(3)(B)(2) and paragraph (h)(3)(B)(4) would be renumbered as 
(h)(3)(B)(3).
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Rule 7.38E, Odd and Mixed Lots
    The Exchange proposes to amend Rule 7.38E relating to Odd and Mixed 
Lots. Rule 7.38E sets forth requirements relating to odd lot and mixed 
lot trading on the Exchange. Rule 7.38E(b) further provides that round 
lot, mixed lot, and odd lot orders are treated in the same manner on 
the Exchange, provided that the working price of an odd lot order is 
adjusted both on arrival and when resting on the Exchange Book based on 
the limit price of the order. Currently, if the limit price of an odd 
lot order to buy (sell) is at or below (above) the PBO (PBB), the order 
has a working price equal to the limit price. If the limit price of an 
odd lot order to buy (sell) is above (below) the PBO (PBB), the order 
has a working price equal to the PBO (PBB). The rule further provides 
that if the limit price of an odd lot order to buy (sell) is above 
(below) the PBO (PBB) and the PBBO is crossed, the order has a working 
price equal to the PBB (PBO).
    Under the current rule, although the working price of an odd lot 
order is adjusted based on the PBBO, the display price of an odd lot 
order ranked Priority 2--Display Orders is not adjusted based on the 
PBBO. Additionally, the rule provides that an odd lot order ranked 
Priority 2--Display Orders will not be assigned a new working time if 
its working price is adjusted under the rule. If the display price of 
an odd lot order to buy (sell) is above (below) its working price, the 
order is ranked and allocated based on its display price. As a result, 
an odd lot bid or offer can be displayed on the Exchange's proprietary 
data feeds at a price that appears to cross the PBBO, even if such 
order would not be eligible to trade at that price.
    The Exchange proposes to amend Rule 7.38E(b) to provide that the 
display price of an odd lot order would be adjusted whenever the 
working price is adjusted. To effect this change, the Exchange proposes 
to amend current Rule 7.38E(b)(1) to provide that the working and 
display price of an odd lot order would be adjusted both on arrival and 
when resting on the Exchange Book. The Exchange further proposes to 
break current Rule 7.38E(b)(1) into subparagraphs (A)-(C) so that the 
rule provides how odd lot orders are ranked and executed under each of 
the instances provided in the current rule that are described above.
    Proposed Rule 7.38E(b)(1)(A) would provide that if the limit price 
of an odd lot order to buy (sell) is at or below (above) the PBO (PBB), 
the order would have a working price and display price equal to the 
limit price of the order. This proposed rule text does not change any 
functionality, but rather, provides greater specificity of what the 
display price would be when the limit price of an odd lot order is not 
through the PBBO.
    Proposed Rule 7.38E(b)(1)(B) would provide that if the limit price 
of an odd lot order to buy (sell) is above (below) the PBO (PBB), the 
order would have a working price and display price equal to the PBO 
(PBB) unless the order's instruction requires a display price to be 
different from the PBBO. This proposed rule text represents new 
functionality that the display price of an odd lot order would be 
adjusted at the same time as the working price is currently adjusted 
for such order. This proposed amendment does not change the price at 
which such odd lot order would be eligible to trade, only the price at 
which it is displayed on the Exchange's proprietary data feeds. The 
proposed rule text includes that the display price would be adjusted to 
the contra-side PBBO unless the order's instruction requires a display 
price to be different from the PBBO to account for those order types 
that, by their terms, do not allow the display price to be equal to a 
contra-side PBBO. For example, a Non-Routable Limit Order does not have 
a display price equal to the contra-side PBBO.\25\ Accordingly, if an 
odd lot order were to be a Non-Routable Limit Order, pursuant to that 
order's instructions, it would have a display price different from the 
contra-side PBBO.
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    \25\ See Rule 7.31E(e)(1).
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    Proposed Rule 7.38E(b)(1)(C) would address what the display price 
of an odd lot order would be if the PBBO is locked or crossed. The 
Exchange proposes to expand the current rule text to include locked 
markets and add that both the display price and working price would be 
adjusted to the same-side PBBO if the PBBO is locked or crossed. 
Accordingly, as proposed, if the limit price of an odd lot order to buy 
(sell) is above (below) the PBO (PBB) and the PBBO is locked

[[Page 9408]]

or crossed, the order would have a working price and display price 
equal to the PBB (PBO). The proposed rule would further provide that 
the working price and the display price of such odd lot order would not 
be adjusted again until the PBBO unlocks or uncrosses.
    Additionally, the Exchange proposes to delete the last two 
sentences of current Rule 7.38E(b)(1) regarding the display price of 
odd lot orders and their ranking given the changes proposed to the 
current rule regarding the display price of an odd lot order render 
this text moot. By deleting this rule text, the general rules governing 
when a working time is assigned to an order, as specified in Rule 
7.36E(f)(2), would be applicable to odd lot orders.
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the implementation date of this 
proposed rule change by Trader Update. The Exchange anticipates that 
the implementation date will be in the second quarter of 2019.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\26\ in general, and furthers the objectives of Section 
6(b)(5),\27\ 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 because it would provide additional 
specificity in the Exchange's rules, streamline order processing when a 
security is halted or paused, and reduce operational complexity when 
transitioning to continuous trading.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    Rule 7.16E, Short Sales. The Exchange believes that the proposed 
processing of sell short Market Orders during a Short Sale Period, as 
proposed in Rule 7.16E(f)(5)(C), would remove impediments to and 
perfect the mechanism of a fair and orderly market because it would 
standardize the processing of sell short Market Orders for both 
auctions and continuous trading. As described in Commentary .01(a) to 
Rule 7.35E, during a Short Sale Period, sell short Market Orders are 
currently processed as Limit Orders ranked Priority 2--Display Orders. 
The Exchange believes that it would remove impediments to and perfect 
the mechanism of a free and open market and a national market system to 
extend this functionality to how sell short Market Orders are processed 
during continuous trading. The Exchange further believes that because 
Market Orders would be assigned a limit price of one MPV above $0.00, 
it would remove impediments to and perfect the mechanism of a free and 
open market for sell short Market Orders that have been converted to an 
order ranked Priority 2--Display Orders to continue to be subject to 
Trading Collars and be cancelled if the Permitted Price is equal to or 
below the Lower Price Band. The Exchange believes that the proposed 
changes will provide clarity on the short sale order handling 
procedures employed by the Exchange so that such orders are handled by 
the Exchange consistent with Regulation SHO. The Exchange also believes 
that the proposed functionality related to the processing of short sale 
orders will assist ETP Holders in executing or displaying their orders 
consistent with Regulation SHO.
    The proposed change to adopt new subparagraph (8) to Rule 7.16E(f) 
and to make a related change to Commentary .01(b) to Rule 7.35E would 
promote just and equitable principles of trade and remove impediments 
to, and perfect the mechanism of a free and open market and a national 
market system because it would streamline order processing by adjusting 
the working and display price of all short sale orders to a Permitted 
Price ahead of an auction with any unexecuted portion of that short 
sale order remaining at a Permitted Price following the auction for the 
remainder of the Short Sale Period. The proposal would provide for 
consistent pricing of all short sale orders during a Short Sale Period, 
even though certain short sale orders would otherwise be permitted to 
remain at their previously displayed price pursuant to Rule 
7.16E(f)(6). The Exchange believes that situations where the NBB would 
cross the price at which an auction is conducted are rare, and 
therefore the number of sell short orders that could lose an execution 
opportunity in such circumstances would be de minimis. The proposal is 
also consistent with the treatment of short sale orders on the 
Exchange's affiliate.\28\
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    \28\ See supra note 11.
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    Rule 7.18E, Halts. The proposed change to Rule 7.18E(b) to cancel 
certain non-displayed orders in UTP Securities during a halt or pause 
promotes just and equitable principles of trade and removes impediments 
to, and perfects the mechanism of, a free and open market and a 
national market system because it would reduce the operational 
complexity of processing these orders following a halt or pause.
    The proposed changes to Rules 7.18E(c)(1) and (4) to cancel or 
reject various types of non-displayed orders in Exchange-listed 
securities during a halt or pause also promotes just and equitable 
principles of trade and removes impediments to, and perfect the 
mechanism of, a free and open market and a national market system 
because none of those orders are eligible to participate in a Trading 
Halt Auction and would reduce operational complexity when the Exchange 
transitions to continuous trading and orders are placed on the Exchange 
Book.
    The proposed changes to Rule 7.18E(c)(1) and (2) to retain Market 
Orders in Exchange-listed securities during and halt or pause promotes 
just and equitable principles of trade because it would enable those 
Market Orders to participate in the Trading Halt Auction. ETP Holders 
that do not wish that their Market Order participate in a Trading Halt 
Auction may cancel their order while the security is halted or paused.
    The proposed change to Rule 7.18E(c)(3) to provide that the 
Exchange would re-price orders resting in the Exchange Book during a 
halt or pause to their limit price fosters cooperation and coordination 
with persons engaged in facilitating transactions in securities because 
it would align the pricing of those orders with price at which they 
would be ranked for purposes of the Trading Halt Auction.\29\
---------------------------------------------------------------------------

    \29\ See Rule 7.35E(a)(6)(A) (Limit Orders, LOO Orders, and LOC 
orders will be ranked based on their limit price and not the price 
at which they would participate in the auction).
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    Rule 7.31E, Orders and Modifiers. The proposed change to Rule 
7.31E(a)(2)(B) to not subject a Limit Order in an Auction-Eligible 
Security entered during a halt or pause to Limit Order Price Protection 
removes impediments to, and perfects the mechanism of, a free and open 
market and a national market system because it is consistent with other 
provisions of Rule 7.31E(a)(2)(B) under which an order would not be 
subject to Limit Order Protection on arrival before they are eligible 
to trade. The first opportunity such order would have to trade would be 
a single-priced transaction of a Trading Halt Auction. In such case, 
the Limit Order would be traded in such auction at the price of the 
auction and not at the limit price. Accordingly, the Exchange does not 
believe that Limit Order Price Protection

[[Page 9409]]

would be necessary for such orders. The proposal would also provide 
additional specificity in the Exchange's rules because Limit Orders are 
not eligible to trade during a halt or pause and, therefore, should not 
be subject to Limit Order Price Protection.
    Rule 7.34E, Trading Sessions. The proposed changes to Rule 7.34E(c) 
promote just and equitable principles of trade and remove impediments 
to, and perfect the mechanism of, a free and open market and a national 
market system because rejecting Non-Displayed Limit Orders, MPL Orders, 
and Tracking Orders entered before the Auction Processing Period for 
the Early Open Auction concludes would reduce operational complexity 
when the Exchange transitions to continuous trading. It would also 
streamline order processing when the Exchange begins continuous trading 
by reducing the operational complexity of processing these orders 
following a halt or pause. ETP Holders seeking to enter theses order 
types may do so once the Early Trading Session begins.
    Rule 7.35E, Auctions. The proposed changes to Rule 7.35E(h)(2) 
would remove impediments to, and perfect the mechanism of, a free and 
open market and a national market system because it adds further 
specificity to the Exchange's rules regarding how order instruction (as 
defined in Rule 7.35E(g)) are processed before and after the order 
transitions to continuous trading. The proposed rule change does not 
alter the manner in which the Exchange processes order instructions. 
Rather, the proposal provides additional specificity within the 
Exchange's rules, thereby removing any ambiguity and avoiding potential 
investor confusion.
    The proposed change to Rule 7.35E(h)(3)(A)(ii) perfects the 
mechanism of a free and open market and a national market system 
because it conforms the rule to a recent change to the description of 
Reserve Orders under Rule 7.31E(d)(1)(A) to specify that the replenish 
quantity of a Reserve Order may not be the full display quantity.\30\
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    \30\ See supra note 23.
---------------------------------------------------------------------------

    The proposed change to Rule 7.35E(h)(3)(B) to process orders 
received during a halt or pause consistent with Rule 7.36E(f)(1) is 
consistent with the proposed changes, described above, limiting the 
orders that are accepted during a halt or pause to those order types 
that are eligible to participate in a Trading Halt Auction. The 
Exchange believes that it would remove impediments to and perfect the 
mechanism of a free and open market and a national market system to 
apply the default process for assigning a working time to such orders.
    Rule 7.38E, Odd and Mixed Lots. The Exchange believes that the 
proposed processing of odd lot orders would remove impediments to and 
perfect the mechanism of a fair and orderly market because the proposed 
change would align the working price and display price of odd lot 
orders. The proposed change would not alter the price at which an odd 
lot order would be eligible to trade, but rather, would provide greater 
transparency regarding what price an odd lot order would trade by 
aligning the display price of such order with its working price. The 
Exchange believes that this proposed rule change would further remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by reducing the potential for an odd lot order 
to appear on the Exchange's proprietary data feeds as though it is 
locking or crossing the PBBO. The Exchange further believes the 
proposed rule change, which proposes to assign a display price that is 
equal to the working price for odd lot orders, would remove impediments 
to and perfect the mechanism of a fair and orderly market because it 
would promote transparency in the ranking and execution of such orders. 
Additionally, the Exchange believes the proposed change to how the 
working time of an odd lot order would be adjusted would remove 
impediments to and perfect the mechanism of a free and open market by 
aligning the processing of odd lot orders with the standard manner by 
which the working time is assigned to an order, as provided for in Rule 
7.36E(f)(2).

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 changes to 
Rules 7.18E, 7.31E, 7.34E and 7.35E are designed to provide additional 
specificity to the Exchange's rules, reduce operational complexity 
during a halt or pause, and streamline order processing when 
transitioning to continuous trading following an auction. The proposed 
changes to Rules 7.16E and 7.38E are also designed to provide 
additional specificity to the Exchange's rules and reduce operational 
complexity by (i) aligning the display price of an odd lot order with 
its working price, (ii) converting sell short Market Orders to 
displayed interest and adjusting the working and display price of short 
sale orders prior to an auction to the Permitted Price, and (iii) 
promoting transparency in the ranking and execution of odd lot orders. 
These proposed changes should, therefore, promote competition by 
enhancing the Exchange's rules to provide greater specificity to market 
participants and improving the efficiency of the Exchange's order 
handling processes.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \31\ and Rule 19b-4(f)(6) thereunder.\32\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \32\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \33\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 9410]]

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-NYSEAMER-2019-04 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAMER-2019-04. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEAMER-2019-04 and should be submitted 
on or before April 4, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-04688 Filed 3-13-19; 8:45 am]
 BILLING CODE 8011-01-P