[Federal Register Volume 82, Number 138 (Thursday, July 20, 2017)]
[Notices]
[Pages 33534-33537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15195]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81150; File Nos. SR-NYSE-2016-71 and SR-NYSEMKT 2016-
99]


Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE 
MKT LLC; Order Disapproving Proposed Rule Changes Amending Exchange 
Rule 104 To Delete Subsection (g)(i)(A)(III), Which Prohibits 
Designated Market Makers From Engaging in Transactions, During the Last 
Ten Minutes of Trading Before the Close, That Establish a New High 
(Low) Price for the Day on the Exchange in an Assigned Security in 
Which the DMM Has a Long (Short) Position

July 1, 2017.

I. Introduction

    On October 27, 2016, New York Stock Exchange LLC (``NYSE'') and 
NYSE MKT LLC (``NYSE MKT'') (each an ``Exchange,'' and collectively the 
``Exchanges'') each filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change amending its respective Rule 104 
to delete subsection (g)(i)(A)(III)--``Prohibited Transactions.'' \3\ 
Exchange Rule 104(g)(i)(A)(III) prohibits Designated Market Makers 
(``DMMs'') from engaging in a transaction that establishes, during the 
last ten minutes of trading before the close, a new high (low) price 
for the day on the Exchange in an assigned security in which the DMM 
has a long (short) position (``Prohibited Transactions Rule''). The 
proposed rule changes were published for comment in the Federal 
Register on November 17, 2016.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ This order refers to both NYSE Rule 104 and NYSE MKT Rule 
104--Equities as ``Exchange Rule 104.'' NYSE MKT Rule 104--Equities 
is based on and, in relevant part, substantively identical to NYSE 
Rule 104. See Securities Exchange Act Release Nos. 58705 (Oct. 1, 
2008), 73 FR 58995 (Oct. 8. 2008) (SR-Amex-2008-63) and 59022 (Nov. 
26, 2008), 73 FR 73683 (Dec. 3, 2008) (amending NYSE MKT equity 
rules to conform to NYSE New Market Model Pilot rules).
    \4\ See Securities Exchange Act Release Nos. 79284 (Nov. 10, 
2016), 81 FR 81222 (Nov. 17, 2016) (``NYSE Notice'') and 79283 (Nov. 
10, 2016), 81 FR 81210 (Nov. 17, 2016) (``NYSE MKT Notice'').
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    On December 20, 2016, the Commission extended to February 15, 2017, 
the time period in which to approve or disapprove the proposed rule 
changes or to institute proceedings to determine whether to approve or 
disapprove the proposals.\5\ On February 15, 2017, the Commission 
instituted proceedings to determine whether to approve or disapprove 
the proposed rule changes.\6\ The Commission then received a comment 
letter, as well as a combined response letter from NYSE and NYSE 
MKT.\7\ On April 28, 2017, the Commission designated a longer period 
for Commission action on proceedings to determine whether to approve or 
disapprove the proposed rule changes.\8\ This order disapproves the 
proposed rule changes.
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    \5\ See Securities Exchange Act Release Nos. 79612 (Dec. 20, 
2016), 81 FR 95205 (Dec. 27, 2016) and 79611 (Dec. 20, 2016), 81 FR 
95205 (Dec. 27, 2016).
    \6\ See Securities Exchange Act Release Nos. 80044 (Feb. 15, 
2017), 82 FR 11388 (Feb. 22, 2017) (``NYSE Order Instituting 
Proceedings'') and 80043 (Feb. 15, 2017), 82 FR 11379 (Feb. 22, 
2017) (``NYSE MKT Order Instituting Proceedings'') (collectively, 
the ``Orders Instituting Proceedings'').
    \7\ See Letter from Stephen John Berger, Managing Director, 
Government and Regulatory Policy, Citadel Securities, to Brent J. 
Fields, Secretary, Commission (Mar. 15, 2017) (``Citadel Letter''); 
Letter from Elizabeth K. King, General Counsel and Corporate 
Secretary, NYSE, to Brent J. Fields, Secretary, Commission (Mar. 16, 
2017) (``NYSE Letter''). The Citadel Letter addressed only the NYSE 
proposal, which is substantively identical to the NYSE MKT proposal. 
The NYSE Letter was submitted on behalf of both NYSE and NYSE MKT.
    \8\ See Securities Exchange Act Release Nos. 80552 (Apr. 28, 
2017), 82 FR 20927 (May 4, 2017) and 80550 (Apr. 28, 2017), 82 FR 
20926 (May 4, 2017).
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II. Description of the Proposals

    Currently, under Exchange Rule 104(g)(i)(A)(III), a DMM with a long 
(short) position in an assigned security cannot, during the last ten 
minutes before the close of trading, make a purchase (sale) in that 
security that results in a new high (low) price on the Exchange for the 
day.\9\ The Prohibited Transactions Rule provides two exceptions that 
permit a DMM to: (1) Match another market's better bid or offer price; 
or (2) bring the price of a security into parity with an underlying or 
related security or asset.\10\ The Exchanges propose to remove the 
Prohibited Transactions Rule from their rulebooks.
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    \9\ See Exchange Rule 104(g)(i)(A)(III).
    \10\ See id.; see also Exchange Rule 104(g)(i)(A)(II)(2)(i).

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[[Page 33535]]

    The Exchanges assert that, in light of developments in the equity 
markets and in their trading model, the Prohibited Transactions Rule 
has lost its original purpose and utility.\11\ Specifically, the 
Exchanges assert that in today's electronic marketplace--where DMMs 
have replaced specialists and control of pricing decisions has moved 
away from market participants on the Exchange trading floor--the 
Prohibited Transactions Rule is no longer necessary.\12\ According to 
the Exchanges, eliminating the Prohibited Transactions Rule would not 
eliminate other existing safeguards that prevent DMMs from 
inappropriately influencing or manipulating the close.\13\
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    \11\ See NYSE Notice, supra note 4, 81 FR at 81223; NYSE MKT 
Notice, supra note 4, 81 FR at 81211.
    \12\ See NYSE Notice, supra note 4, 81 FR at 81222; NYSE MKT 
Notice, supra note 4, 81 FR at 81212.
    \13\ See NYSE Notice, supra note 4, 81 FR at 81222-23; NYSE MKT 
Notice, supra note 4, 81 FR at 81212.
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    The Exchanges assert that the rationale behind the Prohibited 
Transactions Rule--preventing specialists from setting the price of a 
security on the Exchange in the final ten minutes of trading--was to 
prevent a specialist from inappropriately influencing the price of a 
security at the close to advantage the specialist's proprietary 
position.\14\ According to the Exchanges, in today's fragmented 
marketplace, a new high (low) price for a security on one of the 
Exchanges in the last ten minutes of trading does not have a 
significant effect on the market price for that security, because a new 
high (low) price on one of the Exchanges may not be the new high (low) 
market-wide price for a security--prices may be higher (lower) in away 
markets, where the majority of intra-day trading in Exchange-listed 
securities takes place--and because any advantage to a DMM from 
establishing a new high or low on the Exchange during the last ten 
minutes can rapidly evaporate following trades in away markets.\15\ The 
Exchanges assert that, because DMMs do not have the ability to direct 
or influence trading or to control intra-day prices that specialists 
had before the implementation of Regulation NMS, the Prohibited 
Transactions Rule is anachronistic.\16\
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    \14\ See NYSE Notice, supra note 4, 81 FR at 81223; NYSE MKT 
Notice, supra note 4, 81 FR at 81211.
    \15\ See id.
    \16\ See id.
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III. Summary of Comment Letter and the Exchanges' Response

    The Commission received one comment letter in support of the NYSE 
proposal and a combined response letter from NYSE and NYSE MKT.\17\ The 
commenter asserts that the Prohibited Transactions Rule is no longer 
necessary. First, the commenter states that, when the Prohibited 
Transactions Rule was originally adopted, structural advantages enjoyed 
by NYSE specialists--including a dominant position in NYSE-listed 
securities and an advance look at incoming orders--warranted imposing 
prescriptive limitations on their trading activities, particularly at 
certain critical pricing points during the day, such as the pre-closing 
period.\18\ The commenter states that, because DMMs no longer have 
these same structural advantages, and because DMMs do not have the 
dominant position that NYSE specialists once had in the trading of 
NYSE-listed securities, DMMs should be able to engage in the sorts of 
transactions barred under the Prohibited Transactions Rule.\19\
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    \17\ See supra note 7. While Citadel submitted its letter solely 
to the NYSE proposal, the Commission will consider the comment 
letter to be applicable to the NYSE MKT proposal, as both proposals 
are substantively identical.
    \18\ See Citadel Letter, supra note 7, at 1-3.
    \19\ See id. The commenter states that, for example, in February 
2017, NYSE market share for NYSE-listed stocks was approximately 24% 
including auctions and 19% excluding auctions. See id. at 2. The 
commenter further states that, during the same month, a stock in 
which NYSE is the primary exchange and the DMM is the commenter, 
NYSE market share during the last ten minutes was approximately 27% 
on a share-weighted basis. See id.
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    Second, the commenter states that the Prohibited Transactions Rule 
is unnecessary because existing NYSE and Commission rules ``prohibit 
all market participants, including DMMs, from engaging in market 
manipulation, including around the close.'' \20\ Finally, the commenter 
states that the Prohibited Transactions Rule is ``artificial'' and 
creates an ``uneven playing field'' in the current market structure 
because it only prohibits trading activity on a single exchange.\21\ 
According to the commenter, this restriction affects a DMM's ability to 
provide competitive quotations during the last ten minutes of trading, 
thereby hindering price discovery, reducing liquidity at NYSE, and 
causing trading activity to migrate to venues where participants are 
not subject to the same artificial restriction.\22\
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    \20\ Id. at 3.
    \21\ See id. at 3-4.
    \22\ See id.
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    According to NYSE and NYSE MKT, in today's electronic marketplace, 
where increased automation of trading has decentralized control of 
pricing decisions away from the DMM and from other market participants 
on the Exchanges' trading floor, retaining the Prohibited Transactions 
Rule is no longer necessary.\23\ NYSE and NYSE MKT believe that the 
Prohibited Transactions Rule is anachronistic because DMMs do not have 
the same ability to direct or influence trading or control intra-day 
prices that specialists had before Regulation NMS.\24\ Further, NYSE 
and NYSE MKT assert that the proposal does not alter the existing 
balance of DMM benefits and obligations because, despite the 
elimination of the Prohibited Transactions Rule, remaining DMM 
obligations would be sufficient to safeguard against the possibility 
that DMMs may act to inappropriately influence prices or manipulate the 
close.\25\ Finally, NYSE and NYSE MKT state that the Exchanges would 
use their existing suite of trading surveillances to assess whether a 
particular transaction was effectuated to manipulate a security's price 
going into the close to benefit the DMM's position.\26\
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    \23\ See NYSE Letter, supra note 7, at 3.
    \24\ See id.
    \25\ See id. at 3-6. The Exchanges state that these obligations 
include the obligations: (1) Not to destabilize the market when 
buying or selling to increase a position or reaching across the 
market; (2) to facilitate the close; (3) to effect transactions in a 
reasonable and orderly manner; and (4) to refrain from causing or 
exacerbating excessive price movements. See id.
    \26\ See id. at 5.
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IV. Discussion and Commission Findings

    Under Section 19(b)(2)(C) of the Exchange Act,\27\ the Commission 
shall approve a proposed rule change by a self-regulatory organization 
if the Commission finds that the proposed rule change is consistent 
with the requirements of the Exchange Act and the applicable rules and 
regulations thereunder.\28\ The Commission shall disapprove a proposed 
rule change if it does not make such a finding.\29\ The Commission's 
Rules of Practice, under Rule 700(b)(3), state that the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
self-regulatory organization that proposed the rule change'' and that a 
``mere assertion that the proposed rule change is consistent with those 
requirements . . . is not sufficient.'' \30\
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    \27\ 15 U.S.C. 78s(b)(2)(C).
    \28\ See 15 U.S.C. 78s(b)(2)(C)(i).
    \29\ See 15 U.S.C. 78s(b)(2)(C)(ii).
    \30\ 17 CFR 201.700(b)(3). The description of a proposed rule 
change, its purpose and operation, its effect, and a legal analysis 
of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative 
Commission finding. See id. Any failure of a self-regulatory 
organization to provide the information elicited by Form 19b-4 may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with 
the Exchange Act and the rules and regulations issued thereunder 
that are applicable to the self-regulatory organization. See id.

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[[Page 33536]]

    After careful consideration of the proposals, and for the reasons 
discussed below, the Commission does not believe that the proposed rule 
changes are consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\31\ Specifically, the Commission does not find 
that the proposals are consistent with Section 6(b)(5) of the Exchange 
Act, which, among other things, requires that the rules of a national 
securities exchange not be designed to permit unfair discrimination and 
that those rules be designed to prevent fraudulent and manipulative 
acts and practices, 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.\32\
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    \31\ In disapproving the proposed rule changes, the Commission 
has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \32\ See 15 U.S.C. 78f(b)(5).
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    The Exchanges propose to eliminate the Prohibited Transactions 
Rule--a negative obligation imposed on DMMs to restrict aggressive 
trading immediately before the close--and the Commission analyzes the 
proposed rule changes in the context of the unique role played by DMMs 
on the Exchanges. Because the Exchanges' proposal would alter the 
balance of the benefits and obligations of DMMs, and in light of the 
special responsibilities that DMMs have for the closing auction on the 
Exchanges, the Commission sought comment in the Orders Instituting 
Proceedings on these topics. Specifically, the Commission asked for 
public comment on whether each Exchange's proposal ``would maintain an 
appropriate balance between the benefits and obligations of being a DMM 
on the Exchange and whether the obligations of DMMs under remaining 
Exchange rules are reasonably designed to prevent DMMs from 
inappropriately influencing or manipulating the close in light of DMMs' 
special responsibility for closing auctions under Exchange rules.'' 
\33\
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    \33\ NYSE Order Instituting Proceedings, supra note 6, 82 FR at 
11389; NYSE MKT Order Instituting Proceedings, supra note 6, 82 FR 
at 11380.
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    The Prohibited Transactions Rule was originally adopted by NYSE in 
2006 as NYSE moved to its ``hybrid market'' model,\34\ and NYSE 
retained Prohibited Transactions Rule in 2008, when it adopted its New 
Market Model, which replaced the specialists on its floor with 
DMMs.\35\ NYSE MKT subsequently adopted the NYSE's New Market Model, 
including the Prohibited Transactions Rule, pursuant to its merger with 
the NYSE.\36\
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    \34\ See Securities Exchange Act Release No. 54860 (Dec. 1, 
2006), 71 FR 71221 (Dec. 8, 2006) (SR-NYSE-2006-76) (order approving 
amendments to Rule 104 that included Prohibited Transactions in 
Supplementary Material .10 of Rule 104).
    \35\ See Securities Exchange Act Release No. 58845 (Oct. 24, 
2008), 73 FR 64379 (Oct. 29, 2008) (SR-NYSE-2008-46) (order 
approving New Market Model pilot program).
    \36\ See Securities Exchange Act Release No. 75952 (Sept. 18, 
2015), 80 FR 57645, 57646 & n.6 (Sept. 24, 2015) (describing filings 
by which NYSE MKT adopted NYSE equity trading rules).
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    Exchange Rule 104 sets forth the obligations of DMMs on each 
Exchange, which include the affirmative obligation to engage in a 
course of dealings for their own account to assist in the maintenance 
of a fair and orderly market in securities for which they have been 
assigned responsibility as the DMM, to maintain quotes in their 
assigned securities at the inside market a specified percentage of 
time, and to facilitate certain transactions in their assigned 
securities, most notably the opening and closing auctions.\37\ Under 
Exchange rules, DMMs have significant responsibilities to ``facilitate 
the close of trading'' in their assigned securities.\38\ The closing 
price for a security on its listing exchange is widely used as a 
reference price (e.g., by mutual funds calculating their net asset 
value), and the listing exchange tends to have a dominant market share 
at the close.\39\
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    \37\ See Exchange Rule 104.
    \38\ See Exchange Rule 104; NYSE Rule 123C; NYSE MKT Rule 123C--
Equities.
    \39\ See, e.g., NYSE Opening and Closing Auctions Fact Sheet 
(stating that NYSE has a 100% market share in the closing auction 
for Tape A securities), https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Opening_and_Closing_Auctions_Fact_Sheet.pdf.
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    Supporting these general obligations, Exchange Rules 104(g) and 
104(h) regulate specific types of DMM transactions: Neutral 
Transactions, Non-Conditional Transactions, Conditional Transactions, 
and Prohibited Transactions.\40\ DMMs may engage in Conditional 
Transactions throughout the trading day--generally, crossing the market 
to take liquidity by buying (selling) at an increasing (decreasing) 
price--if those transactions are followed by ``appropriate'' re-entry 
on the opposite side of the market ``commensurate with the size of the 
DMM's transaction.'' \41\ During the last ten minutes of the day, 
however, DMMs are subject to the Prohibited Transactions Rule at issue 
here--a bright-line rule against aggressively taking liquidity and 
moving prices on the exchange immediately before the closing 
auction.\42\
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    \40\ See Exchange Rule 104(g)(i)(A)(I)-(III) (defining Neutral 
Transactions, Non-Conditional Transactions, and Prohibited 
Transactions); Exchange Rule 104(h)(i) (defining Conditional 
Transaction). A Neutral Transaction is a purchase or sale by which a 
DMM liquidates or decreases a position and may be made without 
regard to price, but the DMM's ``obligation to maintain a fair and 
orderly market may require re-entry on the opposite side of the 
market trend . . . in accordance with the immediate and anticipated 
needs of the market.'' See Exchange Rule 104(g)(i)(A)(I). A Non-
Conditional Transaction is a DMM's bid or purchase and offer or sale 
that establishes or increases a position, other than a transaction 
that reaches across the market to trade with the Exchange best bid 
or offer, and may be made without regard to price in order to match 
another market's better bid or offer price; to bring the price of a 
security into parity with an underlying or related security or 
asset; to add size to an independently established bid or offer on 
the Exchange; to purchase at the published bid price on the 
Exchange; to sell at the published offer price on the Exchange; to 
purchase or sell at a price between the Exchange BBO; or to purchase 
below the published bid or sell above the published offer on the 
Exchange. See Exchange Rule 104(g)(i)(A)(II). Following a Non-
Conditional Transaction, a DMM's obligation to maintain a fair and 
orderly market ``may require re-entry on the opposite side of the 
market trend . . . commensurate with the size of the Non-Conditional 
Transactions and the immediate and anticipated needs of the 
market.'' Id.
    \41\ See Exchange Rule 104(h)(i)-(iv). According to their rules, 
the Exchanges periodically issue guidelines, called ``price 
participation points'' that ``identify the price at or before which 
a DMM is expended to re-enter the market after effecting a 
Conditional Transaction.'' See Exchange Rule 104(h)(iii)(A).
    \42\ See Exchange Rule 104(g)(i)(A)(III).
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    In return for their obligations and responsibilities, DMMs have 
significant priority and informational advantages in trading on the 
Exchanges, both during continuous trading and during the closing 
auction. During continuous trading, DMMs trade on parity with the 
entire order book and with floor brokers, which ``provides DMMs with a 
substantial advantage over off-Floor orders'' sent to the NYSE order 
book.\43\ Moreover, during the trading day, including the ten minutes 
before the close, DMMs have unique access to aggregated information 
about closing auction interest at each price level, and, during the 
auction itself, DMMs are

[[Page 33537]]

aware of interest represented by floor brokers, which is not publicly 
disseminated.\44\ When offsetting an imbalance during the closing 
auction, DMM interest trades at parity with limit orders on the 
Exchange order book, and DMM interest takes priority over limit-on-
close orders with a price equal to the closing price and over closing-
offset orders.\45\ In approving the entire set of advantages given to 
DMMs in 2008 through the New Market Model, the Commission specifically 
assessed ``whether the rewards granted to DMMs . . . are commensurate 
with their obligations'' and found that the proposed New Market Model 
pilot reflected ``an appropriate balance of DMM obligations against the 
benefits provided to DMMs.'' \46\
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    \43\ See Securities Exchange Act Release No. 58845 (Oct. 24, 
2008), 73 FR 64379, 64389 (Oct. 29, 2008) (Order approving SR-NYSE-
2008-46). See also NYSE Rule 72(c)(ii) and NYSE MKT Rule 72(c)(ii)--
Equities (stating that, for the purpose of share allocation in an 
execution, each single floor broker, the DMM, and orders on the 
Exchange book shall constitute individual participants and that the 
orders on the Exchange book shall constitute a single participant).
    \44\ See Exchange Rule 104(j); see also NYSE Rule 123C and NYSE 
MKT Rule 123C--Equities.
    \45\ See NYSE Rule 123C(7)(b); NYSE MKT Rule 123C(7)(b)--
Equities.
    \46\ Securities Exchange Act Release No. 58845 (Oct. 24, 2008), 
73 FR 64379, 64388-89 (Oct. 29, 2008) (SR-NYSE-2008-46).
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    In proposing to remove the Prohibited Transactions Rule, however, 
NYSE and NYSE MKT have failed to adequately explain or justify how the 
proposed alteration to the balance of benefits and obligations of a DMM 
previously approved by the Commission is consistent with Section 
6(b)(5) of the Exchange Act, or how allowing DMMs to aggressively take 
liquidity in the last ten minutes of trading is both consistent with a 
DMM's obligation to maintain a fair and orderly market in its assigned 
securities and designed to prevent fraudulent or manipulative acts and 
practices regarding the closing auction, for which a DMM has crucial 
responsibilities.
    The Exchanges and Citadel in their comment letters argue that 
changes in market structure such as the inability of DMMs, compared to 
specialists, to ``set prices'' in their assigned securities, and the 
movement of trading volume in NYSE-listed securities away from the 
NYSE, support the elimination of the Prohibited Transactions Rule. But, 
as noted above, the Prohibited Transactions Rule was included in the 
New Market Model rule filing that established the role of DMMs, and the 
market-share statistics offered by Citadel--which purportedly establish 
the relatively weak pricing power of a DMM \47\--fail to acknowledge 
that the Exchanges have a dominant market share in the closing 
auction,\48\ and that a DMM has discretion and informational advantages 
that place the DMM in a unique position to choose its own level of 
participation in the auction and to influence the closing price.\49\ 
Additionally, the argument by Citadel that the current prohibition 
creates an uneven playing field, and that it limits DMMs' ``ability to 
provide competitive quotations,'' \50\ fails to address that DMMs have 
unique privileges on NYSE and NYSE MKT and that the proposed rule 
change is not limited to circumstances in which DMMs would be allowed 
to quote competitively and provide liquidity, but would also allow them 
to aggressively take liquidity.
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    \47\ See Citadel Letter, supra note 7, at 2.
    \48\ See supra note 39 and accompanying text.
    \49\ See supra notes 42-44 and accompanying text.
    \50\ Citadel Letter, supra note 7, at 2-3.
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    Additionally, while NYSE and NYSE MKT have argued that the proposal 
is consistent with the Exchange Act because remaining exchange rules 
address the possibility of disruptive or improper DMM trading during 
the last ten minutes of the day, the Commission does not believe that 
NYSE and NYSE MKT have met their burden to demonstrate that these other 
rules--which require the exercise of judgment as to what is 
``reasonable,'' ``excessive,'' ``appropriate,'' or ``commensurate'' 
\51\--are adequate substitutes for a clear, meaningful, and enforceable 
bright-line rule that limits aggressive DMM trading at a particularly 
sensitive and important time of the trading day and that addresses the 
risk of destabilizing or even manipulative activity. Additionally, the 
Commission believes that NYSE and NYSE MKT have merely asserted that, 
but not explained how, existing surveillances can act as an adequate 
substitute for this bright-line rule.
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    \51\ See supra notes 25 & 40 and accompanying text.
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    Thus, because the Exchanges' arguments in favor of the proposed 
rule changes do not adequately address significant issues raised by the 
proposals, the Commission does not find that the proposed rule changes 
are consistent with the requirements of the Exchange Act and the rules 
and regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b)(5) of the Exchange Act.

V. Conclusion

    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Exchange Act,\52\ the proposed rule changes (SR-NYSE-2016-71 and SR-
NYSEMKT-2016-99) be, and hereby are, disapproved.
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    \52\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017-15195 Filed 7-19-17; 8:45 am]
BILLING CODE 8011-01-P