[Federal Register Volume 83, Number 8 (Thursday, January 11, 2018)]
[Notices]
[Pages 1442-1445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00306]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82447; File No. SR-NYSEAMER-2017-40]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 7.31E Relating to Mid-Point Liquidity Orders and the MTS Modifier 
and Rule 7.36E To Add a Definition of ``Aggressing Order''

January 5, 2018.
    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 December 22, 2017, NYSE American LLC (``Exchange'' or ``NYSE 
American'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.31E relating to Mid-Point 
Liquidity Orders and the MTS Modifier and Rule 7.36E to add a 
definition of ``Aggressing Order.'' The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 7.31E (Orders and Modifiers) 
relating to Mid-Point Liquidity (``MPL'') Orders and the MTS Modifier 
and Rule 7.36E (Order Ranking and Display) to add a definition of 
``Aggressing Order.'' For MPL Orders, the Exchange proposes to amend 
the price at which a marketable MPL Order would trade when there are 
resting orders priced better than the midpoint. The Exchange also 
proposes to amend how resting orders with an MTS Modifier would trade 
in specified circumstances.
Background
    As provided for in current Rule 7.31E(d)(3)(C), on arrival, an MPL 
Order to buy (sell) that is eligible to trade will trade with resting 
orders to sell (buy) with a working price at or below (above) the 
midpoint of the PBBO (i.e., priced better than the midpoint of the 
PBBO). The rule further provides that resting MPL Orders to buy (sell) 
will trade at the midpoint of the PBBO against all incoming orders to 
sell (buy) priced at or below (above) the midpoint of the PBBO (i.e., 
priced better than the midpoint of the PBBO).
    Current Rule 7.31E(i)(3) describes the MTS Modifier, including how 
a resting order with an MTS Modifier will trade. Current Rule 
7.31E(i)(3)(E)(i) provides that if a sell (buy) order does not meet the 
MTS of the resting order to buy (sell) with an MTS Modifier, that sell 
(buy) order will not trade with and may trade through such order with 
an MTS Modifier. Current Rule 7.31E(i)(3)(E)(ii) provides that if a 
resting sell (buy) order did not meet the MTS of a same-priced resting 
order to buy (sell) with an MTS Modifier, a subsequently arriving sell 
(buy) order that meets the MTS will trade ahead of the resting sell 
(buy) order. Finally, current Rule 7.31E(i)(3)(E)(iii) provides that a 
resting order to buy (sell) with an MTS Modifier will not be eligible 
to trade if sell (buy) order(s) ranked Priority 2--Display Orders are 
displayed on the Exchange Book at a price lower (higher) than the 
working price of such MTS Order. Similarly, Rule 7.46E(f)(5)(I) (Tick 
Size Pilot Plan) provides that for Pilot Securities in Test Group 
Three, a resting order to buy (sell) with an MTS Modifier will not be 
eligible to trade if sell (buy) order(s) ranked Priority 2--Display 
Orders are displayed on the Exchange Book at a price equal to or lower 
(higher) than the working price of such MTS Order.
Proposed Definition of ``Aggressing Order''
    The Exchange proposes to amend Rule 7.36E to add a definition that 
would be used for purposes of Rule 7E. Proposed Rule 7.36E(a)(5) would 
define the term ``Aggressing Order'' to mean a buy (sell) order that is 
or becomes marketable against sell (buy) interest on the Exchange 
Book.\4\ This term would therefore refer to orders that are marketable 
against other orders on the Exchange Book, such as incoming orders and 
orders that have returned unexecuted after routing.
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    \4\ The term ``marketable'' is defined in Rule 1.1E(u) to mean 
for a Limit Order, an order than can be immediately executed or 
routed.
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    This term would also be applicable to resting orders that become 
marketable due to one or more events. For the most part, resting orders 
will have already traded with contra-side orders against

[[Page 1443]]

which they are marketable. However, there are circumstances when a 
resting order may become marketable, such as orders that become 
eligible to trade when a PBBO unlocks or uncrosses (e.g., MPL and 
Pegged Orders) or orders that have a trading restriction at specified 
prices (e.g., as discussed in greater detail below, orders with an MTS 
Modifier). To maximize the potential for orders to trade, the Exchange 
continually evaluates whether resting orders may become marketable. 
Events that could trigger a resting order to become marketable include 
updates to the working price of such order, updates to the PBBO or 
NBBO, changes to other orders on the Exchange Book, or processing of 
inbound messages (e.g., an update to Price Bands under the Regulation 
NMS Plan to Address Extraordinary Market Volatility). To address such 
circumstances, the Exchange proposes to include in proposed Rule 
7.36E(a)(5) that a resting order may become an Aggressing Order if its 
working price changes, if the PBBO or NBBO is updated, because of 
changes to other orders on the Exchange Book, or when processing 
inbound messages.
    The order that becomes the Aggressing Order is the liquidity-taking 
order. Generally, if resting orders on both sides are determined to be 
an Aggressing Order, e.g., a locked PBBO becomes unlocked and as a 
result, MPL Orders are repriced, the later-arriving order will be the 
liquidity-taking order.\5\ However, if the evaluation results in only 
one side becoming an Aggressing Order, e.g., an order with an MTS 
Modifier becomes eligible to trade and the contra-side order(s) have no 
working price changes, the order with the MTS Modifier would become the 
liquidity-taking Aggressing Order. As described below, the Exchange 
proposes to use the term ``Aggressing Order'' in the rule text relating 
to the MTS Modifier. Because an Aggressing Order becomes a liquidity 
taker, such term could be applicable to other circumstances. For 
example, an order with a Non-Display Remove Modifier [sic] that trades 
as a liquidity taker would also be considered an Aggressing Order. 
However, at this time, the Exchange does not propose to amend its rules 
to use the term ``Aggressing Order'' because the rule already specifies 
which order is the liquidity taker.
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    \5\ See, e.g., Rule 7.31-E(d)(3)(B).
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Proposed Amendments Relating to MPL Orders
    The Exchange proposes to amend the first sentence of current Rule 
7.31E(d)(3)(C) to make this text applicable to any marketable MPL 
Order, and not just an arriving MPL Order. To effect this change, the 
Exchange proposes to use the term ``Aggressing Order'' and replace the 
phrase ``[o]n arrival, an MPL Order to buy (sell) that is eligible to 
trade'' with the phrase, ``[a]n Aggressing MPL Order to buy (sell).''
    The Exchange also proposes to amend the first sentence of current 
Rule 7.31E(d)(3)(C) to describe at what price an Aggressing MPL Order 
would trade with contra-side resting orders that are priced better than 
the midpoint. The rule currently provides that an arriving MPL Order to 
buy (sell) would trade with resting orders to sell (buy) with a working 
price at or below (above) the midpoint of the PBBO. The Exchange 
proposes to specify that when an Aggressing MPL Order trades with 
resting orders priced better than the midpoint, it will trade at the 
working price of the resting orders, which is current functionality. 
For example, if the PBB is 10.10 and the midpoint is 10.13, and there 
are non-displayed sell orders of 100 shares with working prices of 
10.11 and 10.12, an Aggressing MPL Order to buy with a limit of 10.13 
for 200 shares would trade with such non-displayed sell orders at 10.11 
and 10.12, respectively. The Exchange believes that this proposed 
amendment would promote transparency in Exchange rules regarding at 
what price an Aggressing MPL Order would trade.
    By using the term ``Aggressing Order,'' this rule would be 
applicable to a resting MPL Order that becomes marketable, such as 
after a PBBO unlocks or uncrosses. In the above example, if the MPL 
Order to buy is ineligible to trade because of a crossed PBBO, and 
while the PBBO is crossed, the Exchange receives the two non-displayed 
sell orders, when the PBBO uncrosses and the new midpoint is 10.13, the 
resting MPL Order would become an Aggressing Order and would trade with 
the non-displayed sell orders at 10.11 and 10.12, respectively.
    The Exchange also proposes to amend the second sentence of Rule 
7.31E(d)(3)(C) to replace the term ``incoming orders'' with the term 
``Aggressing Orders.'' This proposed rule change would provide greater 
specificity that any contra-side order that is an Aggressing Order, as 
defined in proposed Rule 7.36E(a)(5), would trade with a resting MPL 
Order at the midpoint of the PBBO.
Proposed Amendments Relating to the MTS Modifier
    The Exchange proposes to amend Rules 7.31E(i)(3)(C) and (E) to 
specify circumstances when a resting order with an MTS Modifier would 
not be eligible to trade.
    Current Rule 7.31E(i)(3)(C) provides that an order with an MTS 
Modifier that is designated Day and cannot be satisfied on arrival 
would not trade and would be ranked in the Exchange Book. The Exchange 
proposes to describe new functionality relating to when an order with 
an MTS Modifier that is designated Day would not be eligible to trade. 
In short, if a later-arriving contra-side order can meet the MTS of a 
resting order with an MTS Modifier, the two orders would trade unless 
the execution would be inconsistent with either intra-market price 
priority or would result in a non-displayed order trading ahead of a 
same-side, same-priced displayed order.\6\ Therefore, as proposed, the 
Exchange would not permit an order with an MTS Modifier that crosses 
other displayed or non-displayed orders on the Exchange Book to trade 
at prices that are worse than the price of such contra-side orders. As 
further proposed, the Exchange would not permit a resting order with an 
MTS Modifier to trade at a price equal to a displayed contra-side 
order.\7\
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    \6\ Rule 7.36E(c) provides that the Exchange ranks all non-
marketable orders on the Exchange Book according to price--time 
priority.
    \7\ A displayed odd-lot order that is not included in the 
calculation of the PBBO could be at the same price as an MPL Order.
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    To reflect these changes, the second sentence of Rule 
7.31E(i)(3)(C) would provide that when a buy (sell) order with an MTS 
Modifier that is designated Day is ranked in the Exchange Book, it 
would not be eligible to trade:
    (i) At a price equal to or above (below) any sell (buy) orders that 
are displayed and that have a working price equal to or below (above) 
the working price of such order with an MTS Modifier, or
    (ii) at a price above (below) any sell (buy) orders that are not 
displayed and that have a working price below (above) the working price 
of such order with an MTS Modifier.
    For example,
     if the PBBO is 10.10 x 10.16, on the Exchange Book there 
is a sell order (``Order A'') ranked Priority 3--Non-Display Orders for 
50 shares at 10.12 and a sell order (``Order B'') ranked Priority 2--
Display Orders for 25 shares at 10.11, and the Exchange receives a buy 
MPL Order (``Order C'') with an MTS Modifier for 100 shares with a 
10.16 limit, because the MTS cannot be met, Order C will not trade and 
will be ranked in the Exchange Book at the midpoint of 10.13. At this 
point, the Exchange would have a non-displayed buy order crossing both 
non-displayed

[[Page 1444]]

and displayed sell orders on the Exchange Book. If the Exchange then 
receives a non-displayed sell order (``Order D'') for 100 shares at 
10.11, even though Order D would be marketable against Order C, it 
would not trade because a trade at 10.13 would be above the price of 
resting sell orders.\8\ Order D would be added to the Exchange Book at 
10.11.
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    \8\ Pursuant to Rule 7.31E(d)(3)(C), an Aggressing Order will 
trade with a resting MPL Order at the midpoint of the PBBO.
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     If next, the Exchange receives a buy order (``Order E'') 
to buy 25 shares at 10.11, it would trade with Order B. As discussed 
above, this execution would trigger the Exchange to evaluate whether 
Order C becomes marketable against contra-side orders.\9\ In this 
scenario, because Order B has now executed, Order C is no longer 
restricted from trading at 10.11. Because Order C's restriction has 
been lifted and Order D does not have a working price change, Order C 
would become an Aggressing Order and trade as the liquidity taker with 
Order D at 10.11.
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    \9\ See discussion infra regarding the second sentence to 
proposed Rule 7.36E(a)(5).
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    Because proposed Rule 7.31E(i)(3)(C)(i) would be applicable to all 
securities that trade on the exchange, including Pilot Securities in 
the Tick Pilot Plan, the Exchange proposes to delete Rule 
7.46E(f)(5)(I) as duplicative of the proposed new rule text.
    The Exchange also proposes to amend Rules 7.31E(i)(3)(E)(i), (ii), 
and (iii) relating to the behavior of resting orders with an MTS 
Modifier.\10\ The Exchange proposes a non-substantive change to Rule 
7.31E(i)(3)(E) to change the term ``order(s)'' to ``orders,'' which the 
Exchange believes is a more technically accurate way to describe that a 
resting order with an MTS Modifier will be evaluated against individual 
orders.
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    \10\ A resting order with an MTS Modifier that becomes an 
Aggressing Order would trade consistent with Rule 7.31E(i)(3)(E) and 
therefore would trade with individual orders that each meet the MTS.
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    First, the Exchange proposes to amend Rule 7.31E(i)(3)(E)(i) to use 
the term ``Aggressing Order.'' Use of this proposed new definition 
would not change the functionality associated with this rule. 
Accordingly, as proposed, the rule would provide that if an Aggressing 
Order to sell (buy) does not meet the MTS of the resting order to buy 
(sell) with an MTS Modifier, that Aggressing Order will not trade with 
and may trade through such order with an MTS Modifier (proposed new 
text in italics). The Exchange believes that use of the term 
``Aggressing Order'' in the context of this rule would promote 
transparency of which order is trading with the resting order with an 
MTS Modifier.
    Second, the Exchange proposes to amend Rule 7.31E(i)(3)(E)(ii) to 
provide that if a resting sell (buy) non-displayed order did not meet 
the MTS of a same-priced resting order to buy (sell) with an MTS 
Modifier, a subsequently arriving sell (buy) order that meets the MTS 
would trade ahead of such resting non-displayed sell (buy) order at 
that price (proposed new text in italics), e.g., at the internal 
locking price. The Exchange proposes to amend this rule to provide that 
the subsequently arriving order could trade ahead of a resting non-
displayed order at that price. As described above, the proposed 
amendment to Rule 7.31E(i)(3)(C)(i) would address circumstances when an 
order with an MTS Modifier is locked by a displayed order. In such 
case, the subsequently arriving order would not trade with the order 
with an MTS Modifier.
    Finally, the Exchange proposes to delete current Rule 
7.31E(i)(3)(iii) as superseded by proposed Rule 7.31E(i)(3)(C)(i) and 
(ii) and the amendments to Rule 7.31E(i)(3)(E)(i) and (ii).
    Because of the technology changes associated with these proposed 
rule change, the Exchange will announce the implementation date of this 
proposed rule change by Trader Update. The Exchange anticipates that 
the implementation date will be in the first quarter of 2018.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\11\ in general, and 
furthers the objectives of Section 6(b)(5),\12\ 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 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed definition of ``Aggressing 
Order'' in Rule 7.36E would remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system and, 
in general, protect investors and the public interest because it would 
provide for a definition in Exchange rules that describes orders that 
are or become marketable. The Exchange believes that the proposed 
definition would promote transparency in Exchange rules by providing 
detail regarding circumstances when a resting order may become 
marketable, and thus would be an Aggressing Order. The Exchange further 
believes that use of such definition would promote clarity in Exchange 
rules, particularly in the context of the amendments to MPL Orders and 
orders with an MTS Modifier.
    The Exchange believes that the proposed amendments to Rule 
7.31E(d)(3)(C) to use the term ``Aggressing Order'' and to describe the 
prices at which an Aggressing MPL Order would trade would remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, in general, protect investors and the 
public interest because it would promote clarity and transparency in 
Exchange rules regarding the behavior of marketable MPL Orders. In 
particular, the rule would provide greater specificity regarding how a 
resting MPL Order that becomes an Aggressing Order would trade.
    Finally, the Exchange believes that the proposed amendments 
relating to when a resting order with an MTS Modifier would be eligible 
to trade would remove impediments to, and perfect the mechanism of, a 
free and open market and a national market system and, in general, 
protect investors and the public interest, because the proposed rule 
change would ensure that there would not be an execution of a resting 
order with an MTS Modifier that either would be inconsistent with 
intra-market price priority or would result in a non-displayed order 
trading ahead of a same-side, same-priced displayed order. This 
proposed rule change would therefore promote just and equitable 
principles of trade by ensuring that displayed interest does not get 
traded through by a non-displayed order.

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. The Exchange believes that 
the proposed rule change is not designed to address any competitive 
issues, but rather to add further clarity to Exchange rules by defining 
the term ``Aggressing Order'' and using that term in connection with 
MPL Orders. In addition, the rule is

[[Page 1445]]

designed to ensure that resting orders with an MTS Modifier would not 
trade through displayed orders or violate intra-market priority.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\16\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2017-40 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAMER-2017-40. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEAMER-2017-40 and should be submitted 
on or before February 1, 2018.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00306 Filed 1-10-18; 8:45 am]
 BILLING CODE 8011-01-P