[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Notices]
[Pages 15551-15556]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05555]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88367; File No. SR-NYSECHX-2020-06]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing of Proposed Rule Change Amending Rule 7.31 (Orders and
Modifiers) Relating to How Orders Are Repriced and Make Related Changes
to Rules 7.36 and 7.38
March 12, 2020.
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 28, 2020, the NYSE Chicago, Inc. (``NYSE
Chicago'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or ``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 7.31 (Orders and Modifiers)
relating to how orders are repriced and make related changes to Rules
7.36 and 7.38. The proposed 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 7.31 (Orders and Modifiers)
relating to how orders are repriced and make related changes to Rules
7.36 and 7.38.
Background
Currently, if an Away Market updates its PBBO and crosses not only
the Exchange's BBO, but also displayed orders in the Exchange Book not
represented in the 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 displayed order as its new BBO to the securities
information processor (``SIP'').\4\ Instead, the Exchange reprices such
order before it is disseminated to the SIP.\5\
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\4\ The term ``Away Market'' is defined in Rule 1.1(b) to mean
``any exchange, alternative trading system (``ATS'') or other
broker-dealer (1) with which the Exchange maintains an electronic
linkage and (2) that provides instantaneous responses to orders
routed from the Exchange.'' The term ``BBO'' is defined in Rule
1.1(c) to mean the best bid or offer on the Exchange, and the term
``BB'' means the best bid on the Exchange, and the term ``BO'' means
the best offer on the Exchange. The term ``PBB'' is defined in Rule
1.1(n) to mean the highest Protected Bid, the term ``PBO'' means the
lowest Protected Offer, and ``PBBO'' means the Best Protected Bid
and Best Protected Offer. The terms ``Protected Bid'' and
``Protected Offer'' are defined in Rule 1.1(q). The term ``Exchange
Book'' is defined in Rule 1.1(j) to mean the Exchange's electronic
file of orders, which contains all orders entered on the Exchange.
\5\ See Rule 7.31(a)(2)(C), which provides that ``[i]f a BB (BO)
that is locked or crossed by an Away Market PBO (PBB) is cancelled,
executed or routed and the next best-priced resting Limit Order(s)
on the Exchange Book that would become the new BB (BO) would have a
display price that would lock or cross the PBO (PBB), such Limit
Order(s) to buy (sell) will be assigned a display price one MPV
below (above) the PBO (PBB) and a working price equal to the PBO
(PBB). When the PBO (PBB) is updated, the Limit Order(s) to buy
(sell) will be repriced consistent with the original terms of the
order. If a Day ISO to buy (sell) arrives before the PBO (PBB) is
updated, such repriced Limit Order(s) to buy (sell) will be repriced
to the lower (higher) of the display price of the Day ISO or the
original price of the Limit Order(s).''
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For example, if the Exchange's BB is $10.05 and on the Exchange
Book, there is an order to buy 100 shares ranked Priority 2--Display
Orders at $10.04 (``Order A''), Order A is displayed in the Exchange's
proprietary depth-of-book market data at that $10.04 price but is not
disseminated to the SIP.\6\ If next, an Away Market publishes a PBO of
$10.03, the Exchange's BB of $10.05 will stand its ground. However, if
that $10.05 BB trades, cancels, or routes, the Exchange will not
disseminate Order A to the SIP as the new BB at $10.04. Instead, as
provided for in Rule 7.31(a)(2)(C), Order A will be assigned a display
price of $10.02 and a working price of $10.03, which is equal to the
Away Market PBO, and will be disseminated to the SIP as the Exchange's
BB at $10.02. Order A will be repriced to $10.04 once the Away Market
PBBO no longer locks or crosses the Exchange BBO. Each time Order A is
repriced, including back to its original price, it is assigned a new
working time.\7\ The Exchange also applies this repricing functionality
to Primary Pegged Orders.\8\
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\6\ See Rule 7.36(b)(3) (describing which orders are collected
and made available to quotation vendors for dissemination pursuant
to the requirements of Rule 602 under Regulation NMS under the Act).
\7\ See Rule 7.36(f)(2) (an order is assigned a new working time
any time its working price changes).
\8\ See Rule 7.31(h)(2)(B).
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The Exchange believes that no other exchange reprices resting depth
orders in this manner. The Exchange understands that in the same
scenario on other exchanges, ``Order A'' would stand its ground and be
disseminated to the SIP as their new BBO at $10.04, even if that price
would cross the Away Market PBO of $10.03. The rules of other exchanges
vary regarding how much detail is used to describe circumstances when
displayed orders stand their ground, and none explicitly address the
specific scenario described above, i.e., when a resting, displayed,
depth-of-book order is crossed by an Away Market quotation and then
[[Page 15552]]
becomes the best-priced order on that exchange. For example:
The Nasdaq Stock Market LLC (``Nasdaq'') Rule 4756(c)(2)
provides that Nasdaq transmits for display to the appropriate network
processor its best-priced orders. That Rule specifies exceptions of
which orders are not transmitted to the SIP, i.e., the reserve size of
orders, the discretionary portion of Discretionary Orders, and Non-
Displayed Orders. This rule is silent as to whether resting, displayed,
depth-of-book orders that have been locked or crossed by another market
center and then become the best-ranked orders on Nasdaq are transmitted
to the SIP at their original price. Separately, Nasdaq rules provide
that certain previously-displayed orders stand their ground. For
example, pursuant to Nasdaq Rules 4702(b)(1)(B) and 4702(b)(2)(B),
resting ``Price to Comply Orders'' and ``Price to Display Orders''
entered via RASH, QIX, or FIX will stand their ground if locked or
crossed by another market center. But these rules discuss top-of-book
displayed orders that are crossed, not depth-of-book orders.
CBOE BZX Exchange, Inc. (``BZX'') Rule 11.12(b) (Priority
of Orders) provides that the best-ranked order(s) to buy and the best-
ranked order(s) to sell that are displayable in the BZX Book and the
aggregated displayed size of such orders associated with such prices
shall be collected and made available to quotation vendors for
dissemination pursuant to the requirements of Rule 602 of Regulation
NMS. This rule is silent as to whether resting, displayed, depth-of-
book orders that have been locked or crossed by another market center
and then become the best-ranked orders on BZX are transmitted to the
SIP at their original price. BZX Rule 11.13(a)(2)(C) (Order Execution
and Routing) discusses how orders execute on BZX when the PBBO is
crossed, and how that exchange processes incoming orders during a
crossed market. But that rule does not address the scenario described
above regarding resting, displayed, depth-of-book orders and whether
they would be made available to quotation vendors for dissemination at
their original price, even when the PBBO is crossed. Under Rule
11.13(b)(4), BZX further provides for optional ``Re-Route
Instructions'' pursuant to which if a routable order has been locked or
crossed by another market, the routable order on the BZX book would be
routed to that other market. However, these are optional instructions,
which implies that in the absence of one of these instructions, if a
routable order on BZX is locked or crossed by another market, such
order stands its ground.
Investors Exchange LLC (``IEX'') Rule 11.240(c)(1)
provides that IEX disseminates the aggregate of its best-ranked
displayable orders to quotation vendors for dissemination to the SIPs.
IEX Rules 11.190(h)(3)(A)(i) and (h)(3)(B)(i) further provide that
resting orders that are displayed at a price that later becomes locked
or crossed, and were originally displayed in compliance with rules and
regulations of IEX, will maintain their displayed price and
quantity.\9\ While these rules do not distinguish between displayed
orders at the top of the IEX book and depth-of-book displayed orders,
these rules appear consistent with the Exchange's proposed change to
provide that resting, displayed, depth-of-book orders would stand their
ground and are eligible to be disseminated to the SIP as the BBO at
their original displayed price.
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\9\ See also Supplementary Material .02 to IEX Rule 11.190(h)
(providing that ``[o]rders displayed on the Exchange which were
displayed at a price compliant with Regulation NMS are generally
permitted to maintain their displayed price in the event an away
trading center locks or crosses the price of the IEX displayed
order.'')
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Long-Term Stock Exchange (``LTSE'') Rule 11.240(c)(1)
provides that LTSE disseminates the aggregate of its best-ranked
displayable orders to quotation vendors for dissemination to the
SIPs.\10\ LTSE Rules 11.190(g)(3)(A)(i) and (g)(3)(B)(i) further
provide that resting orders that are displayed at a price that later
becomes locked or crossed, and were originally displayed in compliance
with rules and regulations of LTSE, will maintain their displayed price
and quantity.\11\ While these rules do not distinguish between
displayed orders at the top of the LTSE book and at depth, these rules
appear consistent with the Exchange's proposed change to provide that
resting, displayed, depth-of-book orders would stand their ground and
are eligible to be disseminated to the SIP as the BBO at their original
displayed price.
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\10\ LTSE has been approved as a registered exchange but is not
yet operational.
\11\ See also Supplementary Material .02 to LTSE Rule 11.190(g).
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MEMX LLC (``MEMX'') has filed a Form 1 application for
registration as a national securities exchange pursuant to Section 6 of
the Act.\12\ Proposed MEMX Rule 11.9(b) provides that the best-ranked
order(s) to buy and the best-ranked order(s) to sell that are
displayable in the MEMX Book and the aggregate displayed size of such
orders associated with such prices shall be collected and made
available to the SIP. MEMX claims that its proposed MEMX Rule
11.6(j)(1)(A)(ii), which provides that ``[f]ollowing the initial
ranking and display or an order subject to the Display-Price Sliding
instruction, an order will only be re-ranked and re-displayed to the
extent it achieves a more aggressive price, provided, however, that the
Exchange will re-rank an order at the same price as the displayed price
in the event such orders' displayed price would be a Locking or
Crossing Quotation'' makes clear that an order displayed by MEMX would
not be re-priced to a less aggressive price if another market locked or
crossed an order displayed by MEMX.\13\ The Exchange understands this
response to mean that MEMX would not re-price displayed orders that
were at depth that would become the MEMX best bid or offer.
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\12\ See Securities Exchange Act Release No. 87436 (October 31,
2019), 84 FR 59854 (November 6, 2019) (File No. 1--237). Although
MEMX has not yet been approved as an exchange, the Exchange believes
that its proposed rules are relevant to this discussion as MEMX
expects to be operational in 2020, subject to approval of its Form 1
application.
\13\ See Letter from Anders Franzon, General Counsel, MEMX, to
Ms. Vanessa Countryman, Secretary, Securities and Exchange
Commission, dated February 11, 2020, available here: https://www.sec.gov/comments/10-237/10237-6795399-208386.pdf.
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The Exchange proposes to amend its rules to conform how it reprices
orders in this scenario to how other exchanges function. The Exchange
believes that because such orders did not lock or cross an Away Market
PBBO when they were entered on the Exchange and displayed to the
Exchange's proprietary market data, such resting orders have priority
at the price at which they were originally displayed.\14\ In other
words, such resting orders did not cause a locked or crossed market
condition.
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\14\ If the PBBO is locked or crossed at the time of an order's
arrival, such arriving orders would be either routed, cancelled, or
repriced, as provided for in Rule 7.37(c) (for routable orders) or
Rule 7.31(e) (for non-routable orders). This proposed rule change is
applicable only to resting orders.
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The Exchange further believes that providing priority to such
resting orders on the Exchange Book (e.g., disseminating ``Order A'' as
a BB at $10.04 in the above-described scenario) would be consistent
with Rule 610(d) under the Act (``Rule 610(d)'').\15\ Rule 610(d)
provides that ``[e]ach national securities exchange . . . shall
establish, maintain, and enforce written rules that . . . are
reasonably designed to assure the reconciliation of locked quotations
in an NMS stock.'' The proposed rule change is consistent with this
requirement because in the scenario described above, the Away Market
has published a PBO that crosses not only the Exchange's BB, but also
other orders
[[Page 15553]]
that have already been entered on the Exchange and displayed on the
Exchange's proprietary market data. Even though such depth-of-book
orders have not yet been disseminated to the SIP as part of the
Exchange's BBO, those resting orders pre-exist the Away Market quote
that crossed them. Therefore, disseminating any pre-existing, displayed
orders to the SIP as the new BB at their original price would be
consistent with Rule 610(d) because it was the Away Market that crossed
previously-displayed orders.
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\15\ 17 CFR 242.610(d).
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Proposed Rule Change
To effect this proposed rule change, the Exchange proposes to
delete Rule 7.31(a)(2)(C) in its entirety. The Exchange also proposes
to delete references to this Rule and describe how the Exchange would
process orders, as follows.
First, the Exchange proposes several rule changes to specify that
previously-displayed orders at any price stand their ground and remain
eligible to be quoted or traded at their last-displayed price, even if
locked or crossed by an Away Market. The Exchange proposes to specify
this principal generally for all displayed orders by amending Rule
7.36(b) to add new subparagraph (4) that would provide that if an Away
Market locks or crosses the BBO, the Exchange would not change the
display price of any Limit Order ranked Priority 2--Display Orders \16\
and any such orders would be eligible to be disseminated as the
Exchange's BBO.\17\ This proposed rule text both (1) provides
specificity that all resting, top-of-book displayed orders stand their
ground, which is current functionality,\18\ and (2) describes new
functionality for previously displayed depth-of-book orders, which
would now stand their ground instead of being repriced if they become
the Exchange's BBO.
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\16\ As set forth in Rule 7.36(c), all non-marketable orders are
ranked and maintained in the Exchange Book in the following manner:
(1) Price; (2) priority category; (3) time; and (4) ranking
restrictions applicable to an order or modifier condition. Under
Rule 7.36(e)(2), ``Priority 2--Display Orders'' are non-marketable
Limit Orders with a displayed working price. Limit Orders that are
ranked Priority 2--Display Orders can be top of book or at depth.
\17\ As set forth in Rule 7.36(b)(1), the Exchange considers an
order to be ``displayed'' when it has been disseminated via a market
data feed. Because all orders ranked Priority 2--Display Orders,
regardless of price, are displayed via proprietary data feeds, such
orders are all ``displayed'' for purposes of Exchange rules.
\18\ Current Rule 7.31(e)(1)(A)(iii) specifies that Non-Routable
Limit Orders stand their ground when crossed by an Away Market PBBO.
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Because such resting orders would no longer 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. In addition, for market participants that read the Exchange's
proprietary market data and are aware of displayed, depth-of-book
orders, this proposed change provides greater certainty regarding the
price at which a liquidity-taking order would execute on the Exchange.
This proposed rule text therefore promotes transparency and clarity
in Exchange rules that all resting, displayed orders, including depth-
of-book orders, would stand their ground if locked or crossed by an
Away Market. Proposed Rule 7.36(b)(4) is based in part on 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), described above, and is consistent with proposed MEMX
Rule 11.6(j)(1)(A)(ii).
The Exchange proposes related changes to remove references to Rule
7.31(a)(2)(C) in connection with Primary Pegged Orders and replace that
rule text with proposed new functionality that such orders would stand
their ground at their last-displayed price. As described above, if the
PBBO becomes locked or crossed, displayed orders on the Exchange would
stand their ground. The Exchange proposes that in such scenario,
resting Primary Pegged Orders, which are dynamically pegged to the
PBBO, would similarly stand their ground. As further proposed, if the
PBBO becomes locked or crossed, resting Primary Pegged Orders would
wait for a PBBO that is not locked or crossed before the display and
working price of such orders is adjusted. While the market is locked or
crossed, such orders would remain eligible to trade at their current
working price.
To effect these changes, the Exchange proposes to amend Rule
7.31(h)(2)(B) relating to Primary Pegged Orders by deleting the last
clause of that Rule \19\ and amend the last sentence of that paragraph
as follows (new text underlined, proposed text for deletion in
brackets): ``If after arrival, the PBBO becomes locked or crossed, the
Primary Pegged Order will wait for a PBBO that is not locked or crossed
before the display and working price [is]are adjusted[, but]and remains
eligible to trade at its current working price.''
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\19\ The last clause of current Rule 7.31(h)(2)(B) provides:
``provided that, if a resting Limit Order on the Exchange Book is
assigned a new display price and working price pursuant to Rule
7.31(a)(2)(C) and the PBBO is still locked or crossed, a resting
Primary Pegged Order will also be assigned a new display price and
working price pursuant to Rule 7.31(a)(2)(C).''
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Second, the Exchange proposes to specify how the Exchange would
process orders following a UTP Regulatory Halt in a UTP Security.\20\
Because continuous trading did not precede the resumption of trading of
such security on the Exchange, the Exchange does not have a displayed
quote eligible to stand its ground. Accordingly, to prevent publishing
a quote that would lock or cross an Away Market, the Exchange proposes
that before the Exchange publishes a quote, orders that are marketable
against a protected quotation on an Away Market would be either routed
(if routable) or cancelled (if non-routable).
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\20\ The term ``UTP Security'' is defined in Rule 1.1(w) to mean
a security that is listed on a national securities exchange other
than the Exchange and that trades on the Exchange pursuant to
unlisted trading privileges and the term ``UTP Regulatory Halt'' is
defined in Rule 1.1(y) to mean a trade suspension, halt, or pause
caused by the UTP Listing Market in a UTP Security that requires all
market centers to halt trading in that security. The term ``UTP
Listing Market'' is defined in Rule 1.1(x) to mean the primary
listing market for a UTP Security.
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The second clause of proposed new Rule 7.36(b)(4) would address how
the Exchange would process orders before resuming trading and
publishing a quote in a UTP Security following a UTP Regulatory Halt.
This proposed rule text would be an exception to the first half of the
rule text, described above, that previously-displayed orders stand
their ground. The Exchange proposes this exception because during a UTP
Regulatory Halt, there is no continuous trading and the Exchange
``zeroes'' out its quote, meaning the Exchange removes its BBO from the
SIP. However, during a UTP Regulatory Halt, the Exchange may still have
orders on its book. Specifically, as set forth in Rule 7.18(b), during
a UTP Regulatory Halt, the Exchange cancels resting non-displayed
orders and maintains all other resting orders in the Exchange Book at
their last working price and display price. The Exchange does not
accept new orders during such a halt. As provided for in Rule 7.18(a),
the Exchange does not resume trading, including publishing a quote, in
such security until it receives notification from the UTP Listing
Market that the halt or suspension is no longer in effect and it has
received the first Price Band in that security. The Exchange proposes
that once it is eligible to resume trading, previously-displayed Limit
Orders, i.e., the orders entered before the UTP Regulatory Halt, would
be routed (if routable) or cancelled (if non-routable) if such orders
would be marketable against protected quotations on Away Markets.
For example, if before a UTP Regulatory Halt in XYZ security, the
[[Page 15554]]
Exchange's BBO was $10.10 (100 shares) x $10.12 (100 shares), and
before the Exchange resumes trading following that UTP Regulatory Halt,
the first PBBO is $10.08 (100 shares) x $10.09 (100 shares), because
the Exchange's former best bid of $10.10 is marketable against the new
$10.09 PBO, the Exchange would either route that order (if routable) or
cancel it (if non-routable). The Exchange would publish the former
$10.12 because it is not marketable against an Away Market quotation.
The Exchange believes that following a UTP Regulatory Halt, orders
that would lock or cross the Away Market PBBO should either be routed
(if routable) or cancelled (if non-routable) if they would be
marketable against protected quotations on Away Markets. The Exchange
believes that routing or cancelling such orders is consistent with Rule
610(d) because the Away Market does not have an obligation to prevent
locking or crossing an Exchange quote in this scenario. Therefore, in
this scenario, to prevent locking or crossing the Away Market PBBO, the
Exchange would either route or cancel previously-entered orders before
publishing a quote.
Third, the Exchange proposes to apply the proposed processing of
orders, described above, to odd-lot orders. In other words, odd-lot
orders would no longer be processed differently than orders that are a
round lot or greater in size. Currently, Rule 7.38(b)(1) and
subparagraphs (A)-(C) describe how the working and display price of
odd-lot orders are adjusted in relation to the contra-side PBBO. In
short, 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.\21\
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\21\ Current Rule 7.38(b)(1) provides that ``[t]he working and
display price of an odd lot order will be adjusted both on arrival
and when resting on the Exchange Book as follows: (A) If the limit
price of an odd lot order to buy (sell) is at or below (above) the
PBO (PBB), it will have a working and display price equal to the
limit price. (B) If the limit price of an odd lot order to buy
(sell) is above (below) the PBO (PBB), it will have a working price
equal to the PBO (PBB). The display price will also be adjusted to
the PBO (PBB) unless the order's instruction requires a display
price that is different from the PBBO. (C) If the PBBO is locked or
crossed and the limit price of an odd lot order to buy (sell) is
above (below) the PBO (PBB), it will have a working and display
price equal to the PBB (PBO). The working and display price of such
odd lot order will not be adjusted again until the PBBO unlocks or
uncrosses.''
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As proposed, odd-lot sized orders would be priced the same as
orders of a round-lot size or higher, and if they are designated
Priority 2- Display Orders, they would stand their ground if locked or
crossed by an Away Market PBBO. To effect this change, the Exchange
proposes to delete Rule 7.38(b)(1) and sub-paragraphs (A)-(C) in their
entirety. The Exchange also proposes to delete the clause ``provided
that'' at the end of Rule 7.38(b) and make a non-substantive change to
that Rule to replace the term ``in'' with the term ``on.'' As a result
of these changes, Rule 7.38(b) would provide, without any qualifiers,
that ``[r]ound lot, mixed lot and odd-lot orders are treated in the
same manner on the Exchange.'' The Exchange proposes an additional non-
substantive change to renumber current Rule 7.38(b)(2) as Rule 7.38(c).
Fourth, because displayed odd-lot orders would stand their ground,
the Exchange proposes to amend Rule 7.31(d)(1) to add new subparagraph
(F) relating to Reserve Orders to specify new functionality of how non-
routable Reserve Orders would be replenished if the display quantity of
a resting Reserve Order is decremented to an odd-lot size when the PBBO
is crossed. The Exchange proposes this change only for non-routable
Reserve Orders. These changes are not necessary for a routable Reserve
Order because when such order replenishes, the replenish quantity is
evaluated for routing to Away Markets and thus would not be displayed
at a price that crosses an Away Market.
As proposed in new subparagraph (F) to Rule 7.31(d)(1), if the PBBO
is crossed and the display quantity of a Reserve Order to buy (sell)
that is a Non-Routable Limit Order is decremented to less than a round
lot, the display price and working price of such Reserve Order would
not change. This proposed rule text is consistent with the change,
described above, that resting displayed orders, including odd-lot sized
orders, would stand their ground if crossed by an Away Market. The
proposed rule would further provide that the reserve interest that
replenishes the display quantity 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 Exchange proposes 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 that an arriving Non-Routable Limit Order is
priced.\22\
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\22\ See Rule 7.31(e)(1)(A) (describing how arriving Non-
Routable Limit Order is priced). On Nasdaq, a Price to Comply Order
with Reserve Size replenishes in a similar manner. See Nasdaq Rule
4703(h); see also Supplementary Material .02 to IEX Rule 11.190(h)
(``When a reserve order refreshes its displayed portion, the
refreshing shares are not permitted to be displayed at a price that
locks or crosses the price of a protected quotation on an away
market and are subject to display-price sliding'').
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When the PBBO uncrosses, the display price and working price would
be adjusted as provided for under paragraph (e)(1) of this Rule
relating to Non-Routable Limit Orders.
Fifth, as described above, displayed orders would stand their
ground if locked or crossed by an Away Market. However, non-displayed
orders do not. As set forth in Rule 7.31(d)(2)(A), the working price of
a resting Non-Displayed Limit Order will be adjusted based on the limit
price of the order. 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). The Exchange proposes
to amend Rule 7.31(d)(1) to provide that the working price of the
reserve interest of resting Reserve Orders, which are non-displayed,
would be adjusted in the same manner that the working price of Non-
Displayed Limit Orders are adjusted.
To effect this change, the Exchange proposes to amend Rule
7.31(d)(1) to add the following sentence: ``The working price of the
reserve interest of a resting Reserve Order will be adjusted in the
same manner as a Non-Displayed Limit Order, as provided for in
paragraph (d)(2)(A) of this Rule.'' The Exchange understands that at
least one other exchange also adjusts the price of the non-displayed
portion of Reserve Orders in the same manner that such exchange adjusts
the price of non-displayed orders.\23\
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\23\ See IEX Rule 11.190(b)(2) (stating that the non-displayed
portion of reserve orders are treated as non-displayed orders). IEX
reprices its non-displayed orders differently from how the Exchange
reprices Non-Displayed Limit Orders. See IEX Rule 11.190(h)(3)(D).
Importantly, both IEX and the Exchange reprice non-displayed when
crossed by an Away Market PBBO.
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Together with the proposed rule change described above to Rule
7.36(b), these rule changes make clear that on the Exchange, if crossed
by an Away Market PBBO, displayed orders would stand their ground and
non-displayed orders, including the reserve interest of resting Reserve
Orders, would be repriced based off of the PBBO.
Implementation
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. Subject to effectiveness of this
proposed rule
[[Page 15555]]
change, the Exchange anticipates that the implementation date will be
in the Spring of 2020.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\24\ in general, and furthers the objectives of
Sections 6(b)(5) of the Act,\25\ 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 mechanisms 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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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that deleting Rule 7.31(a)(2)(C) and the
related proposed amendment to Rule 7.36(b) to add new sub-paragraph (4)
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because they would promote
transparency in Exchange rules that previously-displayed orders would
stand their ground if locked or crossed by an Away Market PBBO. The
proposed rule changes would further promote transparency because they
make clear that resting, displayed, depth-of-book orders that have been
locked or crossed by an Away Market PBBO would be eligible to be
disseminated to the SIP at their original price if they become the BBO.
The Exchange believes that previously-displayed orders, including
depth-of-book orders, have priority at such price and should be able to
stand their ground if locked or crossed by an Away Market. The Exchange
therefore believes it is consistent with this principle to delete Rule
7.31(a)(2)(C) and change functionality on the Exchange for such orders
to stand their ground and not be repriced if another market locks or
crosses their price. The proposed change therefore benefits those
resting orders because they would be able to keep their original
working time and any priority ranking associated with such working
time. The proposed change would also benefit liquidity takers, who
would have greater certainty regarding the price at which they would
receive an execution on the Exchange.
Moreover, the proposed change is consistent with how other
exchanges function. While the rules of other exchanges differ in level
of detail, these proposed changes are based in part on 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), which similarly provide that previously-displayed
orders on those exchanges maintain their display price and quantity if
locked or crossed by an another market center. The proposal is also
similar to how MEMX proposes it would function if approved as an
exchange.
The Exchange further believes that these proposed amendments are
consistent with Rule 610(d). If an Away Market publishes a PBBO that
crosses not only the Exchange's BBO, but also resting, displayed,
depth-of-book orders, it was the Away Market that crossed previously-
displayed orders. If such previously-displayed, depth-of-book orders
become the Exchange's BBO, the Exchange believes it is appropriate to
disseminate those previously-displayed prices and quantities to the SIP
as the new BBO because those resting orders pre-existed the Away Market
quote that locked or crossed them.
For the same reasons, the Exchange believes that the proposed
changes to Primary Pegged Orders would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because displayed orders that are pegged to a dynamic price
would stand their ground at their original displayed price if locked or
crossed by an Away Market, which is consistent with the proposed rule
change that all displayed orders would stand their ground. These
proposed rule changes also promote transparency by specifying that such
orders would continue to be eligible to trade at their original working
price, and that their display and working prices would not be adjusted
until the PBBO is no longer locked or crossed.
The Exchange further believes that routing or cancelling orders
that are marketable against an Away Market PBBO following a UTP
Regulatory Halt would also remove impediments to and perfect the
mechanism of a free and open market and a national market system
because in this scenario, the Away Market would not have had an
obligation to prevent displaying a locking or crossing quotation. The
Exchange proposes to avoid locking or crossing an Away Market PBBO in
this scenario by routing or cancelling previously-displayed orders, as
applicable. These proposed changes would reduce the number of times
resting orders would be repriced, thereby increasing determinism for
the price at which orders would be executed on the Exchange.
The Exchange believes that processing odd-lot sized orders in the
same manner as round-lot sized orders would remove impediments to and
perfect the mechanism of a free and open market because the same
principle applies: An order of any size that has been displayed has
priority at that price if an Away Market subsequently locks or crosses
that price. In addition, the Exchange believes that processing odd-lot
orders the same as round-lot sized orders is not novel as it is
consistent with the rules of other exchanges.\26\
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\26\ See, e.g., Nasdaq Rules 4703(b)(3) (defining the term ``odd
lot'' as an order attribute) and 4702 (describing which order
attributes are available for orders on Nasdaq, without any
discussion of odd-lot sized orders being priced differently than
round-lot sized orders). See also BZX Rules 11.10 (defining the term
``odd lot'') and 11.9 (describing BZX Orders and Modifiers, without
any discussion of odd-lot sized orders being priced differently than
round-lot sized orders).
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Finally, the Exchange believes that the proposed changes to Reserve
Orders would remove impediments to and perfect the mechanism of a free
and open market because it would apply these principles to a Non-
Routable Limit Order that is also a Reserve Order. This proposed
functionality is also consistent with how Nasdaq and IEX process non-
routable orders with reserve interest.\27\ The proposed change to
reprice the reserve interest of resting Reserve Orders in the same
manner as a Non-Displayed Limit Order is priced would also remove
impediments to and perfect the mechanism of a free and open market
because it would promote consistency in Exchange rules regarding how
similar orders are priced when crossed by an Away Market. The proposed
change is also consistent with how IEX processes the reserve interest
of Reserve Orders.\28\
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\27\ See supra note 22.
\28\ See supra note 23.
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B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\29\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The proposed change is competitive because it is
designed to conform how the Exchange processes previously-displayed
orders with the functionality available on other exchanges, i.e., that
[[Page 15556]]
such orders would stand their ground if locked or crossed by an Away
Market and be eligible to be disseminated to the SIP at their original
price. The Exchange believes that the proposed change would promote
competition because fewer orders would need to be repriced on the
Exchange and therefore liquidity providers seeking for their orders to
retain priority may route additional orders to the Exchange. Likewise,
liquidity takers may be more likely to route orders to the Exchange if
they have greater determinism regarding the price at which their
resting, displayed orders on the Exchange would be executed.
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\29\ 15 U.S.C. 78f(b)(8).
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Without this proposed rule change regarding how displayed orders
would stand their ground if locked or crossed by an Away Market, the
Exchange is currently at a competitive disadvantage vis-[agrave]-vis
all other equity exchanges, which do not reprice orders in this manner.
As discussed above, displayed orders on all other equity exchanges,
including the two exchanges that recently had their Form 1 applications
to be approved as an exchange (IEX and LTSE), stand their ground when
locked or crossed by an Away Market and such orders are disseminated to
the SIP if they become those exchanges' best bid or offer. In addition,
MEMX proposes that displayed orders would stand their ground if locked
or crossed by an Away Market.
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
Within 45 days of the date of publication of this notice in the
Federal Register, or such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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-NYSECHX-2020-06 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-NYSECHX-2020-06. 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 offices 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-NYSECHX-2020-06, and should be submitted
on or before April 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05555 Filed 3-17-20; 8:45 am]
BILLING CODE 8011-01-P