Document ID: SEC-2022-1568-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2022-12-05T05:00Z

[Federal Register Volume 87, Number 232 (Monday, December 5, 2022)]
[Notices]
[Pages 74459-74463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26334]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96403; File No. SR-NYSEAMER-2022-53]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 7.19E

November 29, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on November 17, 2022, NYSE American LLC (``NYSE American'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in

[[Page 74460]]

Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.19E pertaining to pre-trade 
risk controls to make additional pre-trade risk controls available to 
Entering Firms. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 7.19E pertaining to pre-trade 
risk controls to make additional pre-trade risk controls available to 
Entering Firms.
Background and Purpose
    In 2020, in order to assist member organizations' efforts to manage 
their risk, the Exchange amended its rules to add Rule 7.19E (Pre-Trade 
Risk Controls),\4\ which established a set of pre-trade risk controls 
by which Entering Firms and their designated Clearing Firms \5\ could 
set credit limits and other pre-trade risk controls for an Entering 
Firm's trading on the Exchange and authorize the Exchange to take 
action if those credit limits or other pre-trade risk controls are 
exceeded. Specifically, the Exchange added a Gross Credit Risk Limit, a 
Single Order Maximum Notional Value Risk Limit, and a Single Order 
Maximum Quantity Risk Limit \6\ (collectively, the ``2020 Risk 
Controls'').
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    \4\ See Securities Exchange Act Release No. 88878 (May 14, 
2020), 85 FR 30770 (May 20, 2020) (SR-NYSEAMER-2020-38).
    \5\ The terms ``Entering Firm'' and ``Clearing Firm'' are 
defined in Rule 7.19E.
    \6\ The terms ``Gross Credit Risk Limit,'' ``Single Order 
Maximum Notional Value Risk Limit, and ``Single Order Maximum 
Quantity Risk Limit'' are defined in Rule 7.19E.
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    The Exchange now proposes to expand the list of the optional pre-
trade risk controls available to Entering Firms by adding several 
additional pre-trade risk controls that would provide Entering Firms 
with enhanced abilities to manage their risk with respect to orders on 
the Exchange. Like the 2020 Risk Controls, use of the pre-trade risk 
controls proposed herein is optional, but all orders on the Exchange 
would pass through these risk checks. As such, an Entering Firm that 
does not choose to set limits pursuant to the new proposed pre-trade 
risk controls would not achieve any latency advantage with respect to 
its trading activity on the Exchange. In addition, the Exchange expects 
that any latency added by the pre-trade risk controls would be de 
minimis.
    The proposed new pre-trade risk controls proposed herein would be 
available to be set by Entering Firms only. Clearing Firms designated 
by an Entering Firm would continue to be able to view all pre-trade 
risk controls set by the Entering Firm and to set the 2020 Risk 
Controls on the Entering Firm's behalf.
Proposed Amendment to Rule 7.19E
    To accomplish this rule change, the Exchange proposes to amend 
paragraph (a) to include a new paragraph (a)(3) that would define the 
term ``Pre-Trade Risk Controls'' as all of the risk controls listed in 
proposed paragraph (b), inclusive of the 2020 Risk Controls and the 
proposed new risk controls.
    In proposed paragraph (b), the Exchange proposes to list all Pre-
Trade Risk Controls available to Entering Firms, which would include 
the existing 2020 Risk Controls and the proposed new controls. The 
Exchange proposes to move the definition of Gross Credit Risk Limit 
from current paragraph (a)(5) to proposed paragraph (b)(1), with no 
substantive change. Next, the Exchange proposes to add paragraph 
(b)(2), which would list all available ``Single Order Risk Controls.'' 
The Exchange proposes to move the definitions of Single Order Maximum 
Notional Value Risk Limit and Single Order Maximum Quantity Risk Limit 
from current paragraphs (a)(3) and (a)(4) to proposed paragraph 
(b)(2)(A), with no substantive change. Next, the Exchange proposes to 
add paragraphs (b)(2)(B) through (b)(2)(F) to enumerate the proposed 
new Single Order Risk Controls, as follows:
    (B) controls related to the price of an order (including 
percentage-based and dollar-based controls);
    (C) controls related to the order types or modifiers that can be 
utilized;
    (D) controls to restrict the types of securities transacted 
(including restricted securities);
    (E) controls to prohibit duplicative orders; and
    (F) controls related to the size of an order as compared to the 
average daily volume of the security (including the ability to specify 
the minimum average daily volume for the securities for which such 
controls will be activated).
    Each of the Single Order Risk Controls in proposed paragraph (b)(2) 
is substantively identical to risk settings available on the Cboe and 
MEMX \7\ equities exchanges. As such, the proposed new Pre-Trade Risk 
Controls are familiar to market participants and are not novel.
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    \7\ See Cboe BZX Exchange, Inc. (``Cboe BZX'') Rule 11.13, 
Interpretations and Policies .01; Cboe BYX Exchange, Inc. (``Cboe 
BYX'') Rule 11.13, Interpretations and Policies .01; Cboe EDGA 
Exchange, Inc. (``Cboe EDGA'') Rule 11.10, Interpretations and 
Policies .01; Cboe EDGX Exchange, Inc. (``Cboe EDGX'') Rule 11.10, 
Interpretations and Policies .01; and MEMX LLC (``MEMX'') Rule 
11.10, Interpretations and Policies .01.
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    The Exchange proposes to move current paragraph (b)(2) to proposed 
paragraph (c) and to re-name that paragraph ``Pre-Trade Risk Controls 
Available to Clearing Firms.'' The Exchange proposes to renumber 
current paragraphs (b)(2)(A), (b)(2)(B), and (b)(2)(C) as paragraphs 
(c)(1), (c)(2), and (c)(3) accordingly. The Exchange proposes to smooth 
the grammar in proposed paragraph (c)(1) by moving the ``or both'' 
language from the end of the sentence to the beginning, to clarify that 
an Entering Firm that does not self-clear may designate its Clearing 
Firm to take either or both of the following actions: viewing or 
setting Pre-Trade Risk Controls on the Entering Firm's behalf. Finally, 
in proposed paragraph (c)(1)(B), the Exchange proposes to specify that 
Clearing Firms so-designated may only set the 2020 Risk Controls on an 
Entering Firm's behalf; the proposed new risk controls set out in 
proposed paragraph (b)(2)(B) through (b)(2)(F) are available to be set 
by Entering Firms only. The Exchange does not propose any changes to 
proposed paragraph (c)(2), and with respect to proposed paragraph 
(c)(3), proposes only to update internal cross-references.

[[Page 74461]]

    The Exchange proposes to move current paragraph (b)(3) regarding 
``Setting and Adjusting Pre-Trade Risk Controls'' to proposed paragraph 
(d), and to renumber current paragraphs (b)(3)(A) and (b)(3)(B) as 
proposed paragraphs (d)(1) and (d)(2) accordingly. The Exchange 
proposes to amend the text of proposed paragraph (d)(2) to state that 
in addition to Pre-Trade Risk Controls being available to be set at the 
MPID level or at one or more sub-IDs associated with that MPID, or 
both, Pre-Trade Risk Controls related to the short selling of 
securities, transacting in restricted securities, and the size of an 
order compared to the average daily volume of a security must be set 
per symbol.
    The Exchange proposes to move current paragraph (b)(4) regarding 
``Notifications'' to paragraph (e), with no changes.
    The Exchange proposes to move current paragraph (c) regarding 
``Automated Breach Actions'' to proposed paragraph (f) and to renumber 
current paragraphs (c)(1), (c)(2), (c)(3), and (c)(4) as paragraphs 
(f)(1), (f)(2), (f)(3), and (f)(4) accordingly. The Exchange proposes 
no changes to the text of proposed paragraphs (f)(1), (f)(3), or 
(f)(4), other than to update an internal cross-reference. With respect 
to proposed paragraph (f)(2) regarding ``Breach Action for Single Order 
Risk Limits,'' the Exchange proposes to change the word ``Limits'' in 
the heading to ``Controls.'' The Exchange further proposes to amend the 
text of current paragraph (c)(2) to specify in paragraph (f)(2)(A) that 
if an order would breach a price control under paragraph (b)(2)(B), it 
would be rejected or canceled as specified in Rule 7.31E(a)(2)(B) (the 
``Limit Order Price Protection Rule''), while providing in paragraph 
(f)(2)(B) that an order that breaches the designated limit of any other 
Single Order Risk Control would be rejected.
    The Exchange proposes to move current paragraph (d) regarding 
``Reinstatement of Entering Firm After Automated Breach Action'' to 
proposed paragraph (g), with no changes.
    The Exchange proposes to move current paragraph (e) regarding 
``Kill Switch Actions'' to proposed paragraph (h) with no changes, 
other than to update an internal cross-reference.
    The Exchange proposes no changes to Commentary .01 to the Rule. The 
Exchange proposes to add Commentary .02 to specify the interplay 
between the Exchange's Limit Order Price Protection Rule and the price 
controls that may be set by an Entering Firm pursuant to proposed 
paragraph (b)(2)(B). Proposed Commentary .02 specifies that pursuant to 
paragraph (b)(2)(B), an Entering Firm may always set dollar-based or 
percentage-based controls as to the price of an order that are equal to 
or more restrictive than the levels set out in Rule 7.31E(a)(2)(B) 
regarding Limit Order Price Protection (e.g., the greater of $0.15 or 
10% (for securities with a reference price up to and including $25.00), 
5% (for securities with a reference price of greater than $25.00 and up 
to and including $50.00), or 3% (for securities with a reference price 
greater than $50.00) away from the NBB or NBO). However, an Entering 
Firm may set price controls under paragraph (b)(2)(B) that are less 
restrictive than the levels in the Limit Order Price Protection Rule 
only (i) outside of Core Trading Hours or (ii) with respect to LOC 
Orders.
Continuing Obligations of ETP Holders Under Rule 15c3-5
    The proposed Pre-Trade Risk Controls described here are meant to 
supplement, and not replace, the member organizations' own internal 
systems, monitoring, and procedures related to risk management. The 
Exchange does not guarantee that these controls will be sufficiently 
comprehensive to meet all of an ETP Holder's needs, the controls are 
not designed to be the sole means of risk management, and using these 
controls will not necessarily meet an ETP Holder's obligations required 
by Exchange or federal rules (including, without limitation, the Rule 
15c3-5 under the Act \8\ (``Rule 15c3-5'')). Use of the Exchange's Pre-
Trade Risk Controls will not automatically constitute compliance with 
Exchange or federal rules and responsibility for compliance with all 
Exchange and SEC rules remains with the ETP Holder.\9\
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    \8\ See 17 CFR 240.15c3-5.
    \9\ See also Commentary .01 to Rule 7.19E, which provides that 
``[t]he pre-trade risk controls described in this Rule are meant to 
supplement, and not replace, the ETP Holder's own internal systems, 
monitoring and procedures related to risk management and are not 
designed for compliance with Rule 15c3-5 under the Exchange Act. 
Responsibility for compliance with all Exchange and SEC rules 
remains with the ETP Holder.''
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Timing and Implementation
    The Exchange anticipates completing the technological changes 
necessary to implement the proposed rule change in the first quarter of 
2023, but in any event no later than April 30, 2023. The Exchange 
anticipates announcing the availability of the Pre-Trade Risk Controls 
introduced in this filing by Trader Update in the first quarter of 
2023.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\11\ 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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest, 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that the proposed rule change 
will remove impediments to and perfect the mechanism of a free and open 
market and a national market system because the proposed additional 
Pre-Trade Risk Controls would provide Entering Firms with enhanced 
abilities to manage their risk with respect to orders on the Exchange. 
The proposed additional Pre-Trade Risk Controls are not novel; they are 
based on existing risk settings already in place on the Cboe and MEMX 
equities exchanges \12\ and market participants are already familiar 
with the types of protections that the proposed risk controls afford. 
As such, the Exchange believes that the proposed additional Pre-Trade 
Risk Controls would provide a means to address potentially market-
impacting events, helping to ensure the proper functioning of the 
market.
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    \12\ See supra note 7.
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    In addition, the Exchange believes that the proposed rule change 
will protect investors and the public interest because the proposed 
additional Pre-Trade Risk Controls are a form of impact mitigation that 
will aid Entering Firms in minimizing their risk exposure and reduce 
the potential for disruptive, market-wide events. The Exchange 
understands that ETP Holders implement a number of different risk-based 
controls, including those required by Rule 15c3-5. The controls 
proposed here will serve as an additional tool for Entering Firms to 
assist them in identifying any risk exposure. The Exchange believes the 
proposed additional Pre-Trade Risk Controls will assist Entering Firms 
in managing their financial exposure which, in turn, could

[[Page 74462]]

enhance the integrity of trading on the securities markets and help to 
assure the stability of the financial system.
    The Exchange believes that the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by permitting Entering Firms to set price 
controls under paragraph (b)(2)(B) that are equal to or more 
restrictive than the levels in the Exchange's Limit Order Price 
Protection Rule, but preventing Entering Firms from setting price 
controls that are less restrictive than those levels during Core 
Trading Hours in most circumstances. The Exchange's Limit Order Price 
Protection Rule protects from aberrant trades, thus improving 
continuous trading and price discovery. The Exchange believes that 
Entering Firms should not be able to circumvent the protections of that 
rule by setting lower levels during Core Trading Hours, except with 
respect to orders that participate in the Closing Auction (e.g., LOC 
Orders).\13\ But under the proposed rule, Entering Firms seeking to 
further manage their exposure to aberrant trades would be permitted to 
set price controls at levels that are more restrictive than in the 
Exchange's Limit Order Price Protection Rule. Additionally, because 
price controls set by an Entering Firm under paragraph (b)(2)(B) would 
function as a form of limit order price protection, the Exchange 
believes that it would remove impediments to and perfect the mechanism 
of a free and open market and a national market system for an order 
that would breach such a price control to be rejected or canceled as 
specified in the Limit Order Price Protection Rule.
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    \13\ LOC Orders are not subject to the Limit Order Price 
Protection in Rule 7.31E(a)(2)(B).
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    Finally, the Exchange believes that the proposed rule change does 
not unfairly discriminate among the Exchange's member organizations 
because use of the proposed additional Pre-Trade Risk Controls is 
optional and is not a prerequisite for participation on the Exchange. 
In addition, because all orders on the Exchange would pass through the 
risk checks, there would be no difference in the latency experienced by 
member organizations who have opted to use the proposed additional Pre-
Trade Risk Controls versus those who have not opted to use them.

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. In fact, the Exchange 
believes that the proposal will have a positive effect on competition 
because, by providing Entering Firms additional means to monitor and 
control risk, the proposed rule will increase confidence in the proper 
functioning of the markets. The Exchange believes the proposed 
additional Pre-Trade Risk Controls will assist Entering Firms in 
managing their financial exposure which, in turn, could enhance the 
integrity of trading on the securities markets and help to assure the 
stability of the financial system. As a result, the level of 
competition should increase as public confidence in the markets is 
solidified.

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 \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    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) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2022-53 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAMER-2022-53. 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-2022-53 and

[[Page 74463]]

should be submitted on or before December 27, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26334 Filed 12-2-22; 8:45 am]
BILLING CODE 8011-01-P