Document ID: SEC-2023-0292-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2023-03-15T04:00Z

[Federal Register Volume 88, Number 50 (Wednesday, March 15, 2023)]
[Notices]
[Pages 16071-16074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05270]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97088; File No. SR-NYSEARCA-2023-23]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 
6.62P-O(i)(2)

March 9, 2023.
    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 March 3, 2023, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. 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 6.62P-O(i)(2) to enhance the 
Exchange's existing Self Trade Prevention modifiers. 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 6.62P-O(i)(2) to enhance the 
Exchange's existing Self Trade Prevention (``STP'') modifiers. 
Specifically, the Exchange proposes to allow OTP Holders or OTP Firms 
(collectively referred to as ``OTP Holders'' herein) the option to 
apply STP modifiers to orders or quotes submitted not only from the 
same market participant identifier (``MPID'') and, if specified, any 
subidentifier of that MPID, as the current rule provides, but also to 
orders or quotes submitted from (i) other MPIDs associated with the 
same Client ID (as designated by the OTP Holder); and (ii) Affiliates 
of the OTP Holder.
Background
    Currently, Rule 6.62P-O(i)(2) offers optional anti-internalization 
functionality to OTP Holders in the form of STP modifiers that enable 
an OTP Holder to prevent two of its orders or quotes from executing 
against each other.\4\ Currently, OTP Holders can set the STP modifier 
to apply at the MPID level and, if specified, at the subidentifier of 
that MPID level.\5\ The STP modifier on the order or quote with the 
most recent time stamp controls the interaction between two orders or 
quotes marked with STP modifiers. STP functionality assists market 
participants

[[Page 16072]]

by allowing firms to better prevent unintended executions with 
themselves and to reduce the potential for ``wash sales'' that may 
occur as a result of the velocity of trading in a high-speed 
marketplace.\6\ STP functionality also assists market participants in 
reducing trading costs from unwanted executions potentially resulting 
from the interaction of executable buy and sell trading interest from 
the same firm.
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    \4\ See Rule 6.62P-O(i)(2) (providing that ``[a]n Aggressing 
Order or Aggressing Quote to buy (sell) designated with one of the 
STP modifiers in this paragraph will be prevented from trading with 
a resting order or quote to sell (buy) also designated with an STP 
modifier from the same MPID, and, if specified, any subidentifier of 
that MPID.'').
    \5\ The Exchange will refer simply to ``orders'' and ``quotes'' 
throughout this filing for brevity, but acknowledges that Rule 
6.62P-O(i)(2) prevents certain ``Aggressing Orders'' or ``Aggressing 
Quotes'' marked with an STP modifier from trading with certain 
resting orders or quotes also designated with an STP modifier. Rule 
6.76P-O(a)(5) defines ``Aggressing Orders'' and ``Aggressing 
Quotes'' as ``a buy (sell) order or quote that is or becomes 
marketable against sell (buy) interest on the Consolidated Book'' 
and further provides that ``[a] resting order or quote may become an 
Aggressing Order or Aggressing Quote if its working price changes, 
the NBBO is updated, there are changes to other orders or quotes on 
the Consolidated Book, or when processing inbound messages.''
    \6\ Options Market Makers enter quotes and orders, which orders 
and quotes the Exchange processes together with respect to ranking 
and display. For this reason, STP Modifier instructions can be added 
to both orders and quotes. Providing STP functionality for quotes 
facilitates risk management for Market Makers.
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Proposed Amendment
    The Exchange proposes to amend the Rule 6.62P-O(i)(2) to enhance 
OTP Holders' flexibility over the levels at which orders or quotes may 
be grouped for the purposes of applying the Exchange's existing STP 
modifiers.
    First, the Exchange proposes to amend Rule 6.62P-O(i)(2) to permit 
an OTP Holder to set the STP modifiers to prevent orders or quotes from 
different MPIDs from executing against each other. The proposed 
amendment would address this by allowing OTP Holders to apply STP 
modifiers at the level of ``Client ID,'' which would be an identifier 
designated by the OTP Holder. As proposed, a Client ID would function 
similarly to an MPID in that it would be a unique identifier assigned 
to an OTP Holder. The Exchange believes that this proposed enhancement 
would provide OTP Holders with greater flexibility in how they instruct 
the Exchange to apply STP modifiers to their orders and quotes. The 
Exchange notes that it is not novel for an exchange to provide its 
members with multiple methods by which to designate anti-
internalization instructions, except that the proposed functionality 
(consistent with current functionality) would apply to both orders and 
quotes.\7\
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    \7\ See, e.g., MIAX Pearl, LLC (``MIAX Pearl Equities'') Rule 
2614(f) (specifying that Self-Trade Prevention Modifiers will be 
applicable to orders ``from the same MPID, Exchange member 
identifier, trading group identifier, or Equity Member Affiliate 
(any such identifier, a `Unique Identifier')''). The Exchange's 
affiliated national securities exchanges likewise offer similar STP 
functionality. See NYSE Arca Equities Rule 7.31-E(i)(2) (providing 
STP functionality consistent with proposed Rule 6.62P-O(i)(2), 
except that for purposes of that rule an ``Affiliate'' refers to 
entities under 75% common ownership, which definition aligns with 
the definition set forth in that exchange's fee schedule); NYSE 
American LLC Rule 7.31E(i)(2) (same); NYSE LLC Rule 7.31(i)(2) 
(same); NYSE National, Inc. Rule 7.31(i)(2) (same); and NYSE 
Chicago, Inc. Rule 7.31(i)(2) (same). As noted herein, the proposed 
STP functionality differs from functionality offered on these 
equities exchanges (including the Exchange's affiliated equities 
exchanges) because it extends to Market Maker quotes for options 
trading.
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    Second, the Exchange proposes to amend Rule 6.62P-O(i)(2) to permit 
OTP Holders to direct orders or quotes not to execute against orders or 
quotes entered across MPIDs associated with Affiliates of the OTP 
Holder that are also OTP Holders.\8\ This change would expand the 
availability of the STP functionality to OTP Holders that have divided 
their business activities between separate corporate entities without 
disadvantaging them when compared to OTP Holders that operate their 
business activities within a single corporate entity.
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    \8\ Per Rule 1.1, ``[a]n `affiliate' of, or person `affiliated' 
with a specific person, is a person that directly, or indirectly 
through one or more intermediaries, controls or is controlled by, or 
is under common control with, the person specified.'' The Exchange 
notes that relying on the established definition of affiliate for 
purposes of the proposed STP functionality is not new or novel. See, 
e.g., MIAX Pearl Equities Rule 2614(f) (for purposes of an STP 
``Unique Identifier,'' cross-referencing the definition of affiliate 
in regards to what constitutes ``Equity Member Affiliates'').
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    The Exchange believes that these enhancements will all provide 
helpful flexibility for OTP Holders by expanding their ability to apply 
STP modifiers at multiple levels, including across multiple MPIDs of 
the same Client ID, and across multiple MPIDs of the OTP Holder and its 
Affiliate. These proposed changes would help OTP Holders better manage 
their quotes and order flow and prevent undesirable executions or the 
potential for ``wash sales'' that might otherwise occur.
    To effect these changes, the Exchange proposes to amend the first 
sentence of Rule 6.62P-O(i)(2) and add a new sentence as follows 
(proposed text italicized): ``An Aggressing Order or Aggressing Quote 
to buy (sell) designated with one of the STP modifiers in this 
paragraph will be prevented from trading with a resting order or quote 
to sell (buy) also designated with an STP modifier and from the same 
Client ID; the same MPID, and, if specified, any subidentifier of that 
MPID; or an Affiliate (as defined in Rule 1.1) identifier (any such 
identifier, a ``Unique Identifier''). The Exchange further proposes to 
replace references to ``MPID'' in Rules 6.62P-O(i)(2)(A)-(C) with the 
term ``Unique Identifier.''
    While this proposal would expand how an OTP Holder can designate 
orders and quotes with an STP modifier, nothing in this proposal would 
make substantive changes to the STP modifiers themselves or how they 
would function with respect to two orders or quotes interacting within 
a relevant level.
    The Exchange notes that, as with its current anti-internalization 
functionality, use of the proposed revised Rule 6.62P-O(i)(2) will not 
alleviate or otherwise exempt OTP Holders from their best execution 
obligations. As such, OTP Holders using the proposed enhanced STP 
functionality will continue to be obligated to take appropriate steps 
to ensure that Customer orders that do not execute because they were 
subject to anti-internalization ultimately receive the same price, or a 
better price, than they would have received had execution of such 
orders not been inhibited by anti-internalization.
Timing and Implementation
    The Exchange proposes to implement this proposed rule change within 
60 days of the effectiveness of this rule filing, but in no case later 
than the end of the second quarter of 2023.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 and is consistent with the 
protection of investors and the public interest because enhancing how 
OTP Holders may apply STP modifiers will provide OTP Holders with 
additional flexibility with respect to how they implement self-trade 
protections provided by the Exchange that may better support their 
trading strategies.
    The Exchange believes that the proposed rule change does not 
unfairly discriminate among OTP Holders because the proposed STP 
protections will be available to all OTP Holders, and OTP Holders that 
prefer setting STP modifiers at the MPID level and, if

[[Page 16073]]

specified, at the subidentifier of that MPID level, will still be able 
to do so. In addition, allowing OTP Holders to apply STP modifiers to 
trades submitted by their Affiliates that are also OTP Holders is 
intended to avoid disparate treatment of firms that have divided their 
various business activities between separate corporate entities as 
compared to firms that operate those business activities within a 
single corporate entity.
    Finally, the Exchange notes that other exchanges have rules that 
allow affiliate grouping for their own anti-internalization 
functionality.\11\ Consequently, the Exchange does not believe that 
this change raises new or novel issues not already considered by the 
Commission.
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    \11\ See supra note 7.
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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. To the contrary, the 
proposal is designed to enhance the Exchange's competitiveness by 
providing additional flexibility over the levels at which orders and 
quotes may be grouped for STP purposes, thereby incentivizing OTP 
Holders to send orders and quotes to the Exchange and increase the 
liquidity available on the Exchange. The Exchange also notes that the 
proposed new STP grouping options, like the Exchange's current anti-
internalization functionality, are completely optional and OTP Holders 
can determine whether to apply anti-internalization protections to 
orders and quotes submitted to the Exchange, and if so, at what level 
to apply those protections (e.g., MPID, subidentifier, Client ID, or 
Affiliate level). There is no barrier to other national securities 
exchanges adopting similar anti-internalization groupings as those 
proposed herein.

C. 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

    Because the foregoing 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 for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) \13\ thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). 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, along 
with a brief description and text of 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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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. The Exchange requested 
the waiver because it would enable the Exchange to compete with other 
exchanges that have recently amended their rules to expand the levels 
at which orders may be grouped for STP purposes. The Exchange also 
states that it is currently working on technological solutions to meet 
this competition and to make similar offerings available to market 
participants as soon as possible. The Exchange expects to begin rolling 
out this functionality within 60 days from the date of filing, and thus 
requests waiver of the operative delay in order to promptly meet market 
competition. For these reasons, and because the proposed rule change 
does not raise any novel regulatory issues, the Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Therefore, the 
Commission hereby waives the operative delay and designates the 
proposal operative upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the 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 to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEARCA-2023-23 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-NYSEARCA-2023-23. 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-NYSEARCA-2023-23 and

[[Page 16074]]

should be submitted on or before April 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05270 Filed 3-14-23; 8:45 am]
BILLING CODE 8011-01-P