[Federal Register Volume 85, Number 89 (Thursday, May 7, 2020)]
[Notices]
[Pages 27259-27261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09711]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88793; File Nos. SR-NYSE-2020-13, SR-NYSENAT-2020-09,
SR-NYSEArca-2020-17, SR-NYSEAMER-2020-12; SR-NYSECHX-2020-06]
Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE
National, Inc.; NYSE Arca, Inc.; NYSE American LLC; NYSE Chicago, Inc.;
Order Granting Approval of Proposed Rule Changes Relating to Repricing
of Depth-of-Book Orders in Response to a Locked or Crossed Market
May 1, 2020.
I. Introduction
On February 28, 2020, New York Stock Exchange LLC (``NYSE''), NYSE
National, Inc. (``NYSE National''), NYSE Arca, Inc. (``NYSE Arca''),
NYSE American LLC (``NYSE American''), and NYSE Chicago Inc. (``NYSE
CHX'', and collectively, the ``Exchanges'') filed with the Securities
and Exchange Commission (``Commission''), pursuant to Section 19(b)(1)
of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ proposed rule changes regarding their rules on the re-
pricing of orders in certain market situations and related rules
relevant to each Exchange. The proposed rule changes were published for
comment in the Federal Register on March 18, 2020.\3\ The Commission
has received no comments on the proposed rule changes. The Commission
is approving the proposed rule changes.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release Nos. 88362 (March 12,
2020), 85 FR 15538 (SR-NYSE-2020-13) (``NYSE Notice''); 88368 (March
12, 2020), 85 FR 15510 (SR-NYSENAT-2020-09); 88369 (March 12, 2020),
85 FR 15515 (SR-NYSEArca-2020-17) (``NYSE Arca Notice''); 88363
(March 12, 2020), 85 FR 15544 (SR-NYSEAMER-2020-12) (``NYSE American
Notice''); 88367 (March 12, 2020), 85 FR 15551 (SR-NYSECHX-2020-06)
(collectively, the ``Notices''). For ease of reference, page
citations in this order are from the NYSE Notice, as published in
the Federal Register.
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II. Description of the Proposed Rule Change
Each Exchange's current rules provide that, if an away market
(``Away Market'') updates its Protected Best Bid and Offer (``PBBO'')
and crosses not only the BBO of the Exchange, but also displayed orders
in the Exchange's Book not represented in the Best Bid or Offer
(``BBO''), (i.e., depth-of-book orders), and then the Exchange's BBO
cancels or trades, the Exchange will not disseminate its next-best
priced depth-of-book order as its new BBO to the securities information
processor (``SIP''). Instead, the Exchange will reprice such order
before it is disseminated to the SIP.\4\
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\4\ See NYSE Notice, 85 FR at 15538-39.
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For example, consider a scenario where NYSE's Best Bid (``BB'') is
$10.05, and on the NYSE Book there is an order to buy 100 shares ranked
as a Priority 2--Display Order at $10.04 (``Order A''). Currently,
Order A is displayed in the NYSE's proprietary depth-of-book market
data at that $10.04 price, but is not disseminated to the SIP. If an
Away Market subsequently publishes a Protected Best Offer (``PBO'') of
$10.03, NYSE's BB of $10.05 will not reprice (i.e., it will ``stand its
ground''). However, if that $10.05 BB trades, cancels, or routes, NYSE
will not disseminate Order A to the SIP as the new BB at $10.04.
Instead, Order A will be assigned a display price of $10.02 and a NYSE
working price of $10.03, which is equal to the Away Market PBO, and
will be disseminated to the SIP as the NYSE BB at $10.02. Order A
subsequently will be repriced to $10.04 once the Away Market PBO no
longer locks or crosses the NYSE BB. Each time Order A is repriced,
including back to its original price, it is assigned a new working
time. In addition, NYSE currently applies this repricing functionality
to other order types (specifically, D Orders and Primary Pegged
Orders), and following an auction.\5\
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\5\ See id. The rules of the other Exchanges do not provide for
D Orders, but, except for NYSE American, they do provide for Primary
Pegged Orders and apply the same repricing functionality to those
orders. Similarly, the other Exchanges that provide for auctions on
their markets (NYSE American and NYSE Arca) apply the same repricing
functionality following an auction; NYSE CHX and NYSE National do
not have auctions on their markets.
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The Exchanges propose to eliminate their existing rules requiring
the repricing functionality described above, and to add new rule text
that provides that, if an Away Market locks or crosses the BBO, the
Exchange would not change the display price of any Limit
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Order ranked Priority 2--Display Orders (which would include previously
displayed depth-of-book orders) and that any such orders would be
eligible to be disseminated as the Exchange's BBO.\6\ As a result, in
the example set forth above, Order A instead would not be repriced
before being displayed and disseminated to the SIP following the prior
Exchange BB being executed or cancelled.\7\ Accordingly, Order A would
be disseminated to the SIP as the Exchange's new BB at $10.04, even if
that price would cross the Away Market Protected Bid of $10.03.\8\ The
Exchanges also propose other changes to their rules related to this
proposal, as further described below.
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\6\ See NYSE Notice, 85 FR at 15540.
\7\ Because such resting orders no longer would be repriced if
locked or crossed by an Away Market, such orders would not need to
be assigned new working times and would therefore retain priority at
their original price. See id.
\8\ The Exchanges also propose that Primary Pegged Orders and D
Orders (where applicable, as noted in supra note 5) not be subject
to the repricing functionality, but propose instead that such orders
be eligible to trade at their current working price; however, they
would wait for a PBBO that is not locked or crossed before the
display and working price of those orders are adjusted. See NYSE
Notice, 85 FR at 15540-41.
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Odd-Lot Orders
The Exchanges propose to extend the same processing of orders,
discussed above, to odd-lot orders. Currently, the working and display
prices of odd-lot orders are bound by the PBBO, which means that
resting odd-lot orders can be repriced if the PBBO changes or becomes
locked or crossed. Under the proposals, odd-lot sized orders would be
priced in the same manner as orders of a round-lot size or higher.\9\
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\9\ See NYSE Notice, 85 FR at 15542.
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Reserve Orders
The Exchanges also propose several related changes for the
processing of Reserve Orders. First, in a scenario when the PBBO is
crossed and the display quantity of a resting, non-routable Reserve
Order is decremented to an odd-lot size, the Exchanges propose that the
display price and working price of the remaining odd-lot quantity of
the Reserve Order would not change.\10\ The Exchanges state that this
proposed change is consistent with the above-described changes
establishing how resting, displayed orders, including odd-lot sized
orders, will be disseminated to the SIP.
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\10\ The Exchanges propose this change only for non-routable
Reserve Orders, stating that it is not necessary for routable
Reserve Orders because when such orders replenish, the replenish
quantity is evaluated for routing to Away Markets (i.e., it would be
routed) and thus would not be displayed at a price that crosses an
Away Market. See id.
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However, the Exchanges propose that the reserve interest that
replenishes the display quantity (which interest was not previously
displayed) would be assigned a display price one MPV below (above) the
PBO (PBB) and a working price equal to the PBO (PBB). Because this is
the first time such interest would be displayed, the Exchanges propose
to adjust the display and working price so that the replenished
quantity would not lock or cross the Away Market, which is the same
manner in which an arriving Non-Routable Limit Order is priced.\11\
Similarly, the Exchanges propose that the working price of the reserve
interest of resting Reserve Orders that are not displayed be adjusted
in the same manner that the working price of Non-Displayed Limit Orders
are adjusted.\12\
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\11\ See, e.g., NYSE Rule 7.31(e)(1) (describing how an arriving
Non-Routable Limit Order is priced).
\12\ See, e.g., NYSE Rule 7.31(d)(2)(A) (describing how the
working price of a Non-Displayed Limit Orders is adjusted). If the
limit price of a Non-Displayed Limit Order to buy (sell) is at or
below (above) the PBO (PBB), it will have a working price equal to
the limit price. If the limit price of a Non-Displayed Limit Order
to buy (sell) is above (below) the PBO (PBB), it will have a working
price equal to the PBO (PBB).
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Trading After UTP Regulatory Halts or Auctions
Finally, the Exchanges propose changes to their order processing
rules following UTP Regulatory Halts or auctions, if the PBBO becomes
locked or crossed, as described in further detail below.
Specifically, when transitioning to continuous trading following a
UTP Regulatory Halt, the Exchanges' proposals provide that before
publishing a quote, previously-entered orders would be routed (if
routable) or cancelled (if non-routable) if such orders would be
marketable against protected quotations on Away Markets.\13\
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\13\ See NYSE Notice, 85 FR at 15541.
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When transitioning to continuous trading following an auction on
NYSE--and, on NYSE American and NYSE Arca, following specifically an
auction not preceded by continuous trading \14\--before publishing a
quote, these Exchanges would also route (if routable), or cancel (if
not routable), any orders that are marketable against a PBBO on an Away
Market (except for Primary Pegged Orders on NYSE and NYSE Arca, D
Orders on NYSE, and, during a Short Sale Price Test, sell short orders
on all three exchanges). Then, the Exchanges would (i) trade any orders
that are marketable against any other orders on their book; (ii)
replenish the display quantity of any Reserve Orders, (iii) assign
Primary Pegged and D Orders (for those Exchanges, where applicable) a
display and working price as noted above, provided that if the PBBO is
locked or crossed or if there is no PBBO to peg to, they would be
cancelled; and (iv) price any sell short orders (for the Exchanges,
where applicable) to a Permitted Price.\15\
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\14\ Such auctions include a Trading Halt Auction, a Closing
Auction if not preceded by continuous trading, and an IPO Auction on
NYSE American. With respect to auctions preceded by continuous
trading on NYSE American and NYSE Arca, see next paragraph.
\15\ See, e.g., NYSE Rule 7.16(f)(5) (describing the Permitted
Price for sell short orders).
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On NYSE American and NYSE Arca, to specify how orders would be
processed before publishing a quote when transitioning from a prior
trading session or following the Core Open or Closing Auction, which
are transitions preceded by continuous trading and where the exchange
has a published quote immediately preceding the transition, these
Exchanges propose that those displayed orders are eligible be
disseminated to the SIP at their then-current price.\16\ These
Exchanges state that this proposed change is consistent with the other
proposed changes, described above, about how orders will be
disseminated to the SIP even if crossed by an Away Market.\17\
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\16\ To effect this change, NYSE American proposes to amend Rule
7.35E(h)(3)(A)(i)--its provision governing transitioning from a
prior trading session or following the Early Open Auction, Core Open
Auction, or Closing Auction--by specifying that it applies only to
such auctions if preceded by continuous trading, and deleting its
last clause, which provides that, if the new published quote is
worse than the previously-published quote and would lock or cross
the PBBO, the display price of Limit Orders will be adjusted in
accordance with the rule describing the repricing functionality that
is proposed to be deleted. NYSE Arca proposes to make the equivalent
amendment to its Rule 7.35-E(h)(3)(A)(i). NYSE American and NYSE
Arca also propose a non-substantive change to their respective
definitions of ``previously-live orders''.
\17\ See NYSE Arca Notice, supra note 3, 85 FR at 15518.
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Because of the technology changes associated with these proposed
rule changes, the Exchanges propose to announce the implementation date
of the proposed rule changes by Trader Update and to implement these
changes in Spring 2020.
III. Discussion and Commission Findings
After careful consideration of the proposed rule changes, the
Commission finds that the Exchanges' proposed rule changes are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to national securities exchanges. In
particular, the Commission finds that
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the Exchanges' proposed rule changes are consistent with Section
6(b)(5) of the Act,\18\ which requires that the rules of an exchange be
designed, among other things, to promote just and equitable principles
of trade, to remove impediments to and perfect the mechanism of a free
and open market and a national market system and, in general, to
protect investors and the public interest, and not be designed to
permit unfair discrimination between customers, issuers, brokers or
dealers.
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\18\ 15 U.S.C. 78f(b)(5).
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The Exchanges state that their proposed rule changes will make
their rules consistent with the rules and functionalities of other
exchanges.\19\ Accordingly, the proposals remove impediments to and
perfect the mechanism of a free and open market and are not designed to
permit unfair discrimination to the extent that they promote
consistency among the rules of the equity exchanges regarding how
orders are priced, processed, and disseminated to the SIP. Based on the
foregoing, the Commission therefore finds that the proposed rule
changes are consistent with the Act.\20\
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\19\ See NYSE Notice, 85 FR at 15543. See also IEX Rules
11.190(h)(3)(A)(i) and (h)(3)(B)(i), and LTSE Rules
11.190(g)(3)(A)(i) and (g)(3)(B)(i).
\20\ In approving these proposed rule changes, 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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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule changes (SR-NYSE-2020-13, SR-NYSENAT-
2020-09, SR-NYSEArca-2020-17, SR-NYSEAMER-2020-12; and SR-NYSECHX-2020-
06) be, and hereby are approved.
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\21\ 15 U.S.C. 78s(b)(2).
\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09711 Filed 5-6-20; 8:45 am]
BILLING CODE 8011-01-P