[Federal Register Volume 83, Number 61 (Thursday, March 29, 2018)]
[Notices]
[Pages 13553-13574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06339]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82945; File No. SR-NYSE-2017-36]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Adopt New Equity Trading Rules To Trade Securities Pursuant to Unlisted 
Trading Privileges, Including Orders and Modifiers, Order Ranking and 
Display, and Order Execution and Routing on Pillar, the Exchange's New 
Trading Technology Platform

March 26, 2018.

I. Introduction

    On July 28, 2017, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt new equity trading rules to allow the 
Exchange to trade securities pursuant to unlisted trading privileges 
(``UTP Securities'') \3\ on Pillar, the Exchange's new trading 
technology platform. The proposed rule change was published for comment 
in the Federal Register on August 9, 2017.\4\ On September 18, 2017, 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether the proposed rule change should be 
disapproved.\5\ On November 7, 2017, the Commission instituted 
proceedings under Section 19(b)(2)(B) of the Act \6\ to determine 
whether to approve or disapprove the proposed rule change.\7\ On 
February 1, 2018, the Commission designated a longer period for 
Commission action on the proceedings to determine whether to approve or 
disapprove the proposed rule change.\8\ The Commission received one 
comment letter on the proposal.\9\ On February 23, 2018, the Exchange 
filed Amendment No. 1 to the proposed rule change, which replaces and 
supersedes the proposed rule change in its entirety.\10\ The Commission 
is publishing notice of the filing of Amendment No. 1 to interested 
persons, and is approving the proposed rule change, as modified by 
Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NYSE Rules define ``UTP Security'' as 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. 
See NYSE Rule 1.1(ii).
    \4\ See Securities Exchange Act Release No. 81310 (Aug. 3, 
2017), 82 FR 37257 (Aug. 9, 2017).
    \5\ See Securities Exchange Act Release No. 81641 (Sept. 18, 
2017), 82 FR 44483 (Sept. 22, 2017).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 82028 (Nov. 7, 
2017), 82 FR 52757 (Nov. 14, 2017) (``Order Instituting 
Proceedings'').
    \8\ See Securities Exchange Act Release No. 82613 (Feb. 1, 
2018), 83 FR 5499 (Feb. 7, 2018).
    \9\ See Letter from Joanne Moffic-Silver, Executive Vice 
President, General Counsel, and Corporate Secretary, Cboe Global 
Markets, Inc., to Brent J. Fields, Secretary, Commission (Feb. 1, 
2018) (``Cboe Letter'').
    \10\ In Amendment No. 1, among other changes, the Exchange 
proposes to: (i) Respond to the Commission's concerns in the Order 
Instituting Proceedings relating to offering a separate parity 
allocation for floor brokers by (a) setting forth additional 
requirements for floor broker orders to be eligible for a separate 
parity allocation, (b) proposing to permit floor brokers to engage 
in floor-based point-of-sale trading and crossing transactions in 
UTP Securities, and (c) providing additional justification for 
providing floor brokers with parity; (ii) amend the definition of 
Aggressing Order to include that a resting order may become an 
Aggressing Order if its working price change, the best protected bid 
or offer (``PBBO'') or the national best bid or offer (``NBBO'') is 
updated, there are changes to other orders on the Exchange Book, or 
when processing inbound messages; (iii) amend the rules relating to 
the Mid-Point Liquidity (``MPL'') Order and the Minimum Trade Size 
(``MTS'') Modifier to reflect those of NYSE Arca and NYSE American 
and proposes additional rules setting forth how orders with an MTS 
Modifier would trade in a parity allocation model; (iv) change the 
list of rules that are not applicable to Pillar; (v) amend proposed 
NYSE Rules 7.37 and 7.46 to refer to an order with an MTS as an 
order with an ``MTS Modifier;'' (vi) change cross-references to NYSE 
Arca's rules to reflect the merger of NYSE Arca and NYSE Arca 
Equities, and (vii) reflect the renaming of NYSE MKT to NYSE 
American. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nyse-2017-36/nyse201736-3137940-161948.pdf).
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II. Exchange's Description of the Proposed Rule Change, as Modified by 
Amendment No. 1

    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 V 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
    On January 29, 2015, the Exchange announced the implementation of 
Pillar, which is an integrated trading technology platform designed to 
use a single specification for connecting to the equities and options 
markets operated by the Exchange and its affiliates, NYSE Arca, Inc. 
(``NYSE Arca'') and NYSE American LLC (``NYSE American'').\11\ NYSE 
Arca's cash equities market was the first trading system to migrate to 
Pillar.\12\ NYSE American's cash equities

[[Page 13554]]

market transitioned to Pillar on July 24, 2017.\13\
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    \11\ See Trader Update dated January 29, 2015, available here: 
www.nyse.com/pillar.
    \12\ In connection with the NYSE Arca implementation of Pillar, 
NYSE Arca filed four rule proposals relating to Pillar. See 
Securities Exchange Act Release Nos. 74951 (May 13, 2015), 80 FR 
28721 (May 19, 2015) (Notice) and 75494 (July 20, 2015), 80 FR 44170 
(July 24, 2015) (SR-NYSEArca-2015-38) (Approval Order of NYSE Arca 
Pillar I Filing, adopting rules for Trading Sessions, Order Ranking 
and Display, and Order Execution); Securities Exchange Act Release 
Nos. 75497 (July 21, 2015), 80 FR 45022 (July 28, 2015) (Notice) and 
76267 (October 26, 2015), 80 FR 66951 (October 30, 2015) (SR-
NYSEArca-2015-56) (Approval Order of NYSE Arca Pillar II Filing, 
adopting rules for Orders and Modifiers and the Retail Liquidity 
Program); Securities Exchange Act Release Nos. 75467 (July 16, 
2015), 80 FR 43515 (July 22, 2015) (Notice) and 76198 (October 20, 
2015), 80 FR 65274 (October 26, 2015) (SR-NYSEArca-2015-58) 
(Approval Order of NYSE Arca Pillar III Filing, adopting rules for 
Trading Halts, Short Sales, Limit Up-Limit Down, and Odd Lots and 
Mixed Lots); and Securities Exchange Act Release Nos. 76085 (October 
6, 2015), 80 FR 61513 (October 13, 2015) (Notice) and 76869 (January 
11, 2016), 81 FR 2276 (January 15, 2016) (Approval Order of NYSE 
Arca Pillar IV Filing, adopting rules for Auctions). NYSE Arca 
Equities, Inc., which was a wholly-owned corporation of NYSE Arca, 
has been merged with and into NYSE Arca and as a result, certain 
former NYSE Arca Equities rules are now the rules of NYSE Arca using 
the same rule number but with an additional suffix of ``-E'' added 
to each rule. See Securities Exchange Act Release No. 81419 (August 
17, 2017), 82 FR 40044 (August 23, 2017) (SR-NYSEArca-2017-40) 
(Approval Order).
    \13\ In connection with the NYSE American implementation of 
Pillar, NYSE American filed several rule changes. See Securities 
Exchange Act Release Nos. 79242 (November 4, 2016), 81 FR 79081 
(November 10, 2016) (SR-NYSEMKT-2016-97) (Notice and Filing of 
Immediate Effectiveness of Proposed Rule Change of framework rules); 
81038 (June 28, 2017), 82 FR 31118 (July 5, 2017) (SR-NYSEMKT-2016-
103) (Approval Order) (the ``ETP Listing Rules Filing''); 80590 (May 
4, 2017), 82 FR 21843 (May 10, 2017) (Approval Order) (NYSE MKT 
rules governing automated trading); 80577 (May 2, 2017), 82 FR 21446 
(May 8, 2017) (SR-NYSEMKT-2017-04) (Approval Order) (NYSE MKT rules 
governing market makers); 80700 (May 16, 2017), 82 FR 23381 (May 22, 
2017) (SR-NYSEMKT-2017-05) (Approval Order) (NYSE MKT rules 
governing delay mechanism). NYSE American was previously known as 
NYSE MKT LLC. See Securities Exchange Act Release No. 80748 (May 23, 
2017), 82 FR 24764, 24765 (SR-NYSEMKT-2017-20) (Notice of filing and 
immediate effectiveness of proposed rule change to change the name 
of NYSE MKT to NYSE American).
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Overview
    The NYSE serves a unique role in the U.S. market as the only cash 
equities exchange that still has an active Trading Floor.\14\ Member 
organizations that operate a Floor broker business play a vital role in 
that model, through participation in auctions and point-of-sale trading 
with other members on the Floor. Under Exchange rules, member 
organizations that operate a Floor broker business are eligible for 
parity allocations for liquidity-providing orders that are entered on 
the Floor.\15\ Because Floor brokers operate an agency-only business, 
such parity allocations always accrue to their customers. All other 
national securities exchanges use a price-time allocation methodology. 
On an exchange with price-time allocation, the order resting on the 
book that arrived first will be executed in full before other orders at 
that same price are executed. In this way, a price-time allocation 
creates incentives for market participants to invest in technology and 
use the fastest telecommunication lines. While the Exchange does not 
contend there is anything wrong with price-time allocation, it believes 
that a parity allocation model serves as a choice to investors that are 
not driven by speed and that value the service an agency Floor broker 
can provide in managing order flow. The Exchange currently offers this 
choice for trading in its listed securities and is proposing to offer 
investors that same choice in other NMS securities.
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    \14\ The term ``Floor'' means the trading Floor of the Exchange 
and the premises immediately adjacent thereto, such as the various 
entrances and lobbies of the 11 Wall Street, 18 New Street, 8 Broad 
Street, 12 Broad Street and 18 Broad Street Buildings, and also 
means the telephone facilities available in these locations. See 
Rule 6. The term ``Trading Floor'' means the restricted-access 
physical areas designated by the Exchange for the trading of 
securities, commonly known as the ``Main Room'' and the ``Buttonwood 
Room,'' but does not include (i) the areas in the ``Buttonwood 
Room'' designated by the Exchange where NYSE American-listed options 
are traded, which, for the purposes of the Exchange's Rules, shall 
be referred to as the ``NYSE American Options Trading Floor'' or 
(ii) the physical area within fully enclosed telephone booths 
located in 18 Broad Street at the Southeast wall of the Trading 
Floor. See Rule 6A.
    \15\ See NYSE Rules 70 and 72.
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    Currently, the Exchange only trades securities listed on the 
Exchange. With Pillar, the Exchange proposes to expand its offering and 
introduce trading of UTP Securities.\16\ Because trading in UTP 
Securities on the Exchange is designed to complement and be an 
extension of the current trading services it offers, customer orders in 
both Exchange-listed securities and UTP Securities entered by Floor 
brokers while on the Floor would have consistent allocation behavior. 
Accordingly, the Exchange proposes that trading in UTP Securities would 
be subject to a parity allocation model that is similar to the existing 
allocation model for Exchange-listed securities, with modifications 
described below.
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    \16\ The term ``UTP Security'' means 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. See 
Rule 1.1(ii). The Exchange has authority to extend unlisted trading 
privileges to any security that is an NMS Stock that is listed on 
another national securities exchange or with respect to which 
unlisted trading privileges may otherwise be extended in accordance 
with Section 12(f) of the Act. See Rule 5.1(a)(1).
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    Unlike the trading of listed securities on the Exchange, the 
Exchange would not conduct any auctions in UTP Securities.\17\ Even 
though DMMs would not be assigned to UTP Securities, the Exchange 
proposes to offer point-of-sale trading of UTP Securities for Floor 
brokers on the Trading Floor for crossing transactions. Accordingly, 
member organizations that operate Floor broker operations would be able 
to represent their customers' orders in UTP Securities under both 
current rules relating to manual transactions on the Trading Floor and 
proposed rules relating to trading on the Pillar trading platform. As 
with listed securities, member organizations approved as Supplemental 
Liquidity Providers would be eligible to be assigned UTP 
Securities.\18\
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    \17\ The Exchange will continue to trade NYSE-listed securities 
on its current trading platform without any changes. The Exchange 
will transition trading in NYSE-listed securities to Pillar at a 
separate date, which will be the subject of separate proposed rule 
changes.
    \18\ See Rule 107B, which the Exchange is proposing to amend, 
see infra.
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    Member organizations trading UTP Securities would continue to be 
required to comply with Section 11(a)(1) of the Act, 15 U.S.C. 
78k(a)(1), and any applicable exceptions thereto as are currently 
applicable to trading on the Exchange. As described below, trading by 
Floor brokers on the Trading Floor at the point of sale for UTP 
Securities, also referred to as ``manual trading'' or ``manual 
transactions,'' would continue to be subject to current rules relating 
to such trading. In addition, all trading by Floor brokers in UTP 
Securities (whether manual or electronic transactions) on the Exchange 
would continue to be subject to rules that are unique to Floor brokers, 
including Rules 95 (Discretionary Transactions), 122 (Orders with More 
than One Broker), 123 (Record of Orders), and paragraphs (d)-(j) of 
Rule 134 and related Supplementary Material (requirement for Floor 
brokers to maintain an error account).
    With the exception of specified point-of-sale trading for Floor 
brokers, trading in UTP Securities would be subject to the Pillar 
Platform Rules, as set forth in Rules 1P-13P.\19\ With this proposed 
rule change, the Exchange proposes changes to Rule 7P Equities Trading 
that would govern such trading in UTP Securities. The proposed rules 
are based in part on the rules of NYSE Arca and NYSE American, with the 
following substantive differences:
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    \19\ See Securities Exchange Act Release Nos. 76803 (December 
30, 2015), 81 FR 536 (January 6, 2016) (SR-NYSE-2015-67) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change) 
(``Framework Filing''); and 80214 (March 10, 2017), 82 FR 14050 
(March 16, 2017) (SR-NYSE-2016-44) (Approval Order) (``ETP Listing 
Rules Filing''). See also SR-NYSE-2017-35.
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     Consistent with the Exchange's current allocation model, 
trading in UTP Securities on the Exchange would be a parity allocation 
model with a setter priority allocation for the participant that sets 
the BBO.\20\
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    \20\ The term ``BBO'' means the best bid or offer on the 
Exchange. See Rule 1.1(h).
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     The Exchange would not offer a Retail Liquidity Program 
and related order types (Retail Orders and Retail Price Improvement 
Orders) for UTP Securities.

[[Page 13555]]

     The Exchange would not conduct auctions in UTP Securities.
     The Exchange would offer two trading sessions, with the 
Early Trading Session beginning at 7:00 a.m. Eastern Time.
     The Exchange is not proposing to offer the full suite of 
order instructions and modifiers that are available on NYSE Arca and 
NYSE American.
    Subject to rule approvals, the Exchange will announce the 
implementation of trading UTP Securities on the Pillar trading system 
by Trader Update, which the Exchange anticipates will be in the second 
quarter of 2018.
Applicability of Current Rules on Trading UTP Securities on Pillar
    Once trading in UTP Securities on the Pillar trading platform 
begins, specified current Exchange trading rules would not be 
applicable for trading UTP Securities. As described in more detail 
below, for each current rule that would not be applicable for trading 
on the Pillar trading platform, the Exchange proposes to state in a 
preamble to such rule that ``this rule is not applicable to trading UTP 
Securities on the Pillar trading platform.'' Current Exchange rules 
governing equities trading that do not have this preamble will govern 
Exchange operations on Pillar.\21\
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    \21\ See Securities Exchange Act Release No. 81225 (July 27, 
2017), 82 FR 36033 (August 2, 2017) (SR-NYSE-2017-35) (Notice of 
filing to amend certain Exchange rules to add a preamble that such 
rules would not be applicable to trading UTP Securities on the 
Pillar trading platform).
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    The Exchange proposes that current rules governing Floor-based 
crossing transactions would be applicable to trading in UTP Securities. 
As with crossing transactions for Exchange-listed securities, any such 
cross transactions must meet the requirements of current Rule 76. 
However, unlike trading in Exchange-listed securities, because UTP 
Securities would not be assigned to a trading post with a DMM, the 
trading crowd for such trading, i.e., the point of sale, would be a 
physical location on the Trading Floor designated by the Exchange and 
staffed by an Exchange employee.
    Because the Exchange proposes to provide for Floor crossing 
transactions in UTP Securities, Rules 74, 75, and 76, which relate to 
crossing transactions on the Floor and ancillary Floor-based 
requirements, would be applicable to trading UTP Securities. At this 
time, the Exchange would not make available for UTP Securities the 
cross function described in Supplementary Material .10 to Rule 76. 
Accordingly, the Exchange proposes to add a preamble to Rule 76 that 
would provide that Supplementary Material .10 to that Rule would not be 
applicable to trading UTP Securities on the Pillar trading platform.
    The Exchange also proposes to amend the existing preambles to Rules 
128A, 128B, 130, 131, 132, and 135 \22\ to reflect that crossing 
transactions pursuant to Rule 76 would be subject to existing Exchange 
rules relating to publication of Floor-based transactions, corrections 
to the Tape, and clearing. The amended preambles to these rules would 
provide that ``except for manual transactions pursuant to Rule 76,'' 
such rules would not be applicable to trading UTP Securities on the 
Pillar trading platform.
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    \22\ See id.
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    Finally, the Exchange proposes to amend the preamble to Rule 134, 
which currently provides that such rule is not applicable to trading 
UTP Securities on the Pillar trading platform. Rule 134(a)-(c) relates 
to clearing of Floor-based transactions, and would be applicable to any 
manual transactions pursuant to Rule 76 in UTP Securities. Rule 134(d)-
(j) separately requires a Floor broker to maintain an error account. 
Because Floor brokers would continue to be subject to Section 11(a)(1) 
of the Act for all trading in UTP Securities, the Exchange proposes 
that current Rules 134(d)-(j) would be applicable to all Floor broker 
trading of UTP Securities on the Exchange. To effect these two changes, 
the Exchange proposes that the preamble to Rule 134 would be amended to 
provide that: ``Except for manual transactions pursuant to Rule 76, 
paragraphs (a)-(c) of this Rule are not applicable to trading UTP 
Securities on the Pillar trading platform.''
Proposed Rule Changes
    As noted above, with the exception of crossing transactions 
pursuant to Rule 76 and related rules, the Exchange proposes rules that 
would be applicable to trading UTP Securities on Pillar that are based 
on the rules of NYSE Arca and NYSE American. As a global matter, the 
Exchange proposes non-substantive differences as compared to the NYSE 
Arca rules to use the terms ``Exchange'' instead of the terms ``NYSE 
Arca Marketplace'' or ``NYSE Arca'' and to use the terms ``mean'' or 
``have meaning'' instead of the terms ``shall mean'' or ``shall have 
the meaning.'' In addition, the Exchange will use the term ``member 
organization,'' which is defined in Rule 2, instead of the terms ``ETP 
Holder'' or ``User.'' \23\
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    \23\ Because these non-substantive differences would be applied 
throughout the proposed rules, the Exchange will not note these 
differences separately for each proposed rule.
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    As previously established in the Framework Filing, Section 1 of 
Rule 7P sets forth the General Provisions relating to trading on the 
Pillar trading platform and Section 3 of Rule 7P sets forth Exchange 
Trading on the Pillar trading platform. In this filing, the Exchange 
proposes new Rules 7.10, 7.11, and 7.16 and to amend Rule 7.18 for 
Section 1 of Rule 7P and new Rules 7.31, 7.34, 7.36, 7.37, and 7.38 for 
Section 3 of Rule 7P. In addition, the Exchange proposes new Section 5 
of Rule 7P to establish rules for the Plan to Implement a Tick Size 
Pilot Program, and proposes new Rule 7.46 in that section.
    Below, the Exchange first describes proposed Rules 7.36 and 7.37, 
as these rules would establish the Exchange's Pillar rules governing 
order ranking and display and order execution and routing. Next, the 
Exchange describes proposed Rule 7.31, which would establish the orders 
and modifiers available for trading UTP Securities on Pillar. Finally, 
the Exchange describes proposed Rules 7.10, 7.11, 7.16, 7.34, 7.38, and 
7.46 and amendments to Rule 7.18.
Proposed Rule 7.36
    Proposed Rule 7.36 (Order Ranking and Display) would establish how 
orders in UTP Securities would be ranked and displayed on the Pillar 
trading platform. As described above, the Exchange proposes to extend 
its current allocation model to trading UTP Securities on Pillar, 
including the concept of ``setter interest,'' which the Exchange would 
define in proposed Rule 7.36 as ``Setter Priority.'' Except for the 
addition of Setter Priority, the Exchange proposes to use Pillar 
functionality for determining how orders would be ranked and displayed. 
Accordingly, proposed Rule 7.36 is based in part on NYSE Arca Rule 
7.36-E and NYSE American Rule 7.36E, with substantive differences as 
described below.
Proposed Rule 7.36(a)-(g)
    Proposed Rules 7.36(a)-(g) would establish rules defining terms 
that would be used in Rule 7P--Equities Trading and that describe the 
display and ranking of orders on the Exchange, including ranking based 
on price, priority category, and time. The proposed rule text is based 
on NYSE Arca Rule 7.36-E(a)-(g) and NYSE American Rule 7.36E(a)-(g) 
with the following substantive differences:
     Proposed Rule 7.36(a)(5) would add a definition of the 
term ``Participant,'' which is based on how the term ``individual 
participant'' is defined in current Rule 72(c)(ii), with non-

[[Page 13556]]

substantive differences. The Exchange proposes that the term 
``Participant'' would mean for purposes of parity allocation, a Floor 
broker trading license (each, a ``Floor Broker Participant'') or orders 
collectively represented in the Exchange Book that have not been 
entered by a Floor Broker Participant (``Book Participant'').\24\ The 
Exchange proposes to use the term ``Floor broker trading license'' 
rather than ``each single Floor broker'' because pursuant to Rule 300 a 
trading license is required to effect transactions on the Floor of the 
Exchange or any facility thereof and a member organization designates 
natural persons to effect transactions on the Floor on its behalf. 
Accordingly, reference to a ``Floor broker trading license'' makes 
clear that the Floor broker participant is at the trading license 
level, rather than at the member organization level. The Exchange also 
proposes to use the term ``Exchange Book,'' which is a defined term, 
rather than referring more generally to ``Exchange systems.''
    As described in greater detail below, the Exchange proposes that 
its existing parity allocation model would be available for all 
securities that trade on the Exchange. Because there would not be a DMM 
assigned to any UTP Securities, orders represented by individual Floor 
Brokers and the Book Participant would be eligible for a parity 
allocation for UTP Securities.
    Because trading in UTP Securities is intended to be an extension of 
the Exchange's current Floor-based trading model, the Exchange proposes 
that Floor Broker Participant allocations for UTP Securities would be 
available only to Floor brokers that also engage in a Floor broker 
business in Exchange-listed securities. As further proposed, an order 
entered by a Floor broker would be eligible to be included in the Floor 
Broker Participant only if: (A) Such order is entered by a Floor broker 
while on the Trading Floor, which is an existing requirement; \25\ and 
(B) such order is not entered for the account of the member 
organization, the account of an associated person, or an account with 
respect to which the member, member organization, or an associated 
person exercises investment discretion, unless such order is entered 
pursuant to Rule 134(d)-(j), i.e., the order is entered via the Floor 
broker's error account.
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    \24\ As defined in Rule 1.1(a), the term ``Exchange Book'' 
refers to the Exchange's electronic file of orders, which contains 
all orders entered on the Exchange. Accordingly, all orders entered 
by Floor brokers in UTP Securities are included in the Exchange 
Book. The Exchange proposes to use the term ``Book Participant'' as 
continuity from its current rules, which refer to the Book 
Participant. See Rule 72(c)(ii).
    \25\ Rule 70(a)(i) requires a Floor broker to be in the 
``Crowd'' in order to enter e-Quotes, which are eligible for a 
parity allocation. Rule 70.30 defines the term ``Crowd'' as the 
rooms on the Exchange Floor that contain active posts/panels where 
Floor brokers are able to conduct business and a Floor broker is 
considered to be in the Crowd if he or she is physically present in 
one of these room. Rule 6A defines the term ``Trading Floor'' to 
mean the restricted-access physical areas designated by the Exchange 
for the trading of securities, commonly known as the ``Main Room'' 
and the ``Buttonwood Room.'' The terms ``Crowd'' and ``Trading 
Floor'' therefore refer to the same physical location.
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     Proposed Rule 7.36(a)(6) would add the definition of 
``Aggressing Order'' to mean a buy (sell) order that is or becomes 
marketable against sell (buy) interest on the Exchange Book and 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.\26\ 
This proposed term would be used in proposed Rule 7.37, described 
below.
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    \26\ NYSE Arca and NYSE American have recently amended their 
rules to add this definition of ``Aggressing Order.'' See Securities 
Exchange Act Release Nos. 82447 (January 5, 2018), 83 FR 1442 
(January 11, 2018) (SR-NYSEAmer-2017-40) and 82504 (January 16, 
2018), 83 FR 3038 (January 22, 2018) (SR-NYSEArca-2018-02) [sic].
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     Because all displayed Limit Orders would be displayed on 
an anonymous basis, the Exchange does not propose to include text based 
on the first clause of NYSE Arca Rule 7.36-E(b)(2) in proposed Rule 
7.36(b)(2).
     Proposed Rule 7.36(c) regarding ranking would not include 
reference to price-time priority, as the Exchange's allocation model 
would not always be a price-time priority allocation, as described 
below. As further described below, the Exchange would rank orders 
consistent with proposed Rule 7.36(c).
     Proposed Rule 7.36(e) would establish three priority 
categories: Priority 1--Market Orders, Priority 2--Display Orders, and 
Priority 3--Non-Display Orders. The Exchange would not offer any 
additional priority categories for trading of UTP Securities.
    In addition to these substantive differences, the Exchange proposes 
a non-substantive clarifying difference for proposed Rule 7.36(f)(1)(B) 
to add ``[o]ther than as provided for in Rule 7.38(b)(2),'' to make 
clear that the way in which a working time is assigned to an order that 
is partially routed to an Away Market and returns to the Exchange is 
addressed in both proposed Rule 7.36(f)(1)(B) and proposed Rule 
7.38(b)(2). The Exchange also proposes non-substantive differences to 
proposed Rule 7.36(f)(2) and (3) to streamline the rule text.
Proposed Rule 7.36(h)--Setter Priority
    Proposed Rule 7.36(h) would establish how Setter Priority would be 
assigned to an order and is based in part on current Rules 72(a) and 
(b). Rule 72(a)(ii) provides that when a bid or offer, including 
pegging interest is established as the only displayable bid or offer 
made at a particular price and such bid or offer is the only 
displayable interest when such price is or becomes the Exchange BBO 
(the ``setting interest''), such setting interest is entitled to 
priority for allocation of executions at that price as described in 
Rule 72. The rule further provides that:
     Odd-lot orders, including aggregated odd-lot orders that 
are displayable, are not eligible to be setting interest. (Rule 
72(a)(ii)(A))
     If, at the time displayable interest of a round lot or 
greater becomes the Exchange BBO, there is other displayable interest 
of a round lot or greater, including aggregated odd-lot orders that are 
equal to or greater than a round lot, at the price that becomes the 
Exchange BBO, no interest is considered to be a setting interest, and, 
therefore, there is no priority established. (Rule 72(a)(ii)(B))
     If, at the time displayable interest of a round lot or 
greater becomes the Exchange BBO, there is other displayable interest 
the sum of which is less than a round lot, at the price that becomes 
the Exchange BBO, the displayable interest of a round lot or greater 
will be considered the only displayable bid or offer at that price 
point and is therefore established as the setting interest entitled to 
priority for allocation of executions at that price as described in 
this rule. (Rule 72(a)(ii)(C))
     If executions decrement the setting interest to an odd-lot 
size, a round lot or partial round lot order that joins such remaining 
odd-lot size order is not eligible to be the setting interest. (Rule 
72(a)(ii)(D))
     If, as a result of cancellation, interest is or becomes 
the single displayable interest of a round lot or greater at the 
Exchange BBO, it becomes the setting interest. (Rule 72(a)(ii)(E))
     Only the portion of setting interest that is or has been 
published in the Exchange BBO is entitled to priority allocation of an 
execution. That portion of setting interest that is designated as 
reserve interest and therefore not displayed at the Exchange BBO (or 
not displayable if it becomes the Exchange BBO) is not eligible for 
priority allocation of an execution irrespective of the price of such 
reserve interest or the time it is accepted into Exchange systems. 
However, if, following an

[[Page 13557]]

execution of part or all of setting interest, such setting interest is 
replenished from any reserve interest, the replenished volume of such 
setting interest shall be entitled to priority if the setting interest 
is still the only interest at the Exchange BBO. (Rule 72(a)(ii)(F))
     If interest becomes the Exchange BBO, it will be 
considered the setting interest even if pegging interest, Limit Orders 
designated ALO, or sell short orders during a Short Sale Period under 
Rule 440B(e) are re-priced and displayed at the same price as such 
interest, and it will retain its priority even if subsequently joined 
at that price by re-priced interest. (Rule 72(a)(ii)(G))
    Rule 72(b)(i) provides that once priority is established by setting 
interest, such setting interest retains that priority for any execution 
at that price when that price is at the Exchange BBO and if executions 
decrement the setting interest to an odd-lot size, such remaining 
portion of the setting interest retains its priority for any execution 
at that price when that price is the Exchange BBO. Rule 72(b)(ii) 
further provides that for any execution of setting interest that occurs 
when the price of the setting interest is not the Exchange BBO, the 
setting interest does not have priority and is executed on parity. 
Finally, Rule 73(b)(ii) provides that priority of setting interest will 
not be retained after the close of trading on the Exchange or following 
the resumption of trading in a security after a trading halt in such 
security has been invoked pursuant to Rule 123D or following the 
resumption of trading after a trading halt invoked pursuant to the 
provisions of Rule 80B. In addition, priority of the setting interest 
is not retained on any portion of the priority interest that is routed 
to an away market and is returned unexecuted unless such priority 
interest is greater than a round lot and the only other interest at the 
price point is odd-lot orders, the sum of which is less than a round 
lot.
    Proposed Rule 7.36(h) would use Pillar terminology to establish 
``Setter Priority,'' which would function similarly to setting interest 
under Rule 72. The Exchange proposes the following substantive 
differences to how Setter Priority would be assigned and retained on 
Pillar:
     To be eligible for Setter Priority, an order would have to 
establish not only the BBO, but also either join an Away Market NBBO or 
establish the NBBO. The Exchange believes that requiring an order to 
either join or establish an NBBO before it is eligible for Setter 
Priority would encourage the display of aggressive liquidity on the 
Exchange.
     A resting order would not be eligible to be assigned 
Setter Priority simply because it is the only interest at that price 
when it becomes the BBO (either because of a cancellation of other 
interest at that price or because a resting order that is priced worse 
than the BBO becomes the BBO). The Exchange believes that the benefit 
of Setter Priority should be for orders that are aggressively seeking 
to improve the BBO, rather than for passive orders that become the BBO.
     The replenished portion of a Reserve Order would not be 
eligible for Setter Priority. The Exchange believes that Setter 
Priority should be assigned to interest willing to be displayed, and 
because the reserve interest would not be displayed on arrival, it 
would not be eligible for Setter Priority.
     Orders that are routed and returned unexecuted would be 
eligible for Setter Priority consistent with the proposed rules 
regarding the working time assigned to the returned quantity of an 
order. As described in greater detail below, if such orders meet the 
requirements to be eligible for Setter Priority, e.g., establish the 
BBO and either join or establish the NBBO, they would be evaluated for 
Setter Priority.
    Proposed Rule 7.36(h) would provide that Setter Priority would be 
assigned to an order ranked Priority 2--Display Orders with a display 
quantity of at least a round lot if such order (i) establishes a new 
BBO and (ii) either establishes a new NBBO or joins an Away Market 
NBBO. The rule would further provide that only one order is eligible 
for Setter Priority at each price. This proposed rule text is based in 
part on Rule 72(a)(ii), 72(a)(ii)(A), 72(a)(ii)(B), 72(a)(ii)(C), 
subject to the substantive differences described above.\27\
---------------------------------------------------------------------------

    \27\ Because of the proposed substantive differences, the 
Exchange is not proposing rules based on current Rules 72(a)(ii)(D) 
and (E). In addition, when an order is considered displayed on 
Pillar would be addressed in proposed Rule 7.36(b)(1). Accordingly, 
the Exchange is not proposing rule text based on Rule 72(a)(i).
---------------------------------------------------------------------------

    Proposed Rule 7.36(h)(1) would set forth when an order would be 
evaluated for Setter Priority. As noted above, the Exchange proposes a 
substantive difference from current Rule 72(a)(ii) in that a resting 
order would not be eligible to be assigned Setter Priority simply 
because it is the only interest at that price when it becomes the BBO.
     Proposed Rule 7.36(h)(1)(A) would provide that an order 
would be evaluated for Setter Priority on arrival, which would include 
when any portion of an order that has routed returns unexecuted and is 
added to the Exchange Book. Pursuant to proposed Rule 7.37(a)(1), 
described below, an order that is routed on arrival to an Away Market 
would not be assigned a working time. Proposed Rule 7.36(f) provides 
that an order would not be assigned a working time until it is placed 
on the Exchange Book. As such, an order that has returned after routing 
would be processed similarly to a newly arriving order. Therefore, the 
Exchange believes that an order should be evaluated for Setter Priority 
when it returns from an Away Market unexecuted in the same way as 
evaluating an order for Setter Priority on arrival.
    When evaluating Setter Priority for an order that has returned from 
an Away Market unexecuted, the Exchange would assess whether such order 
meets the requirements of proposed Rule 7.36(h), which is based in part 
on the second sentence of Rule 72(b)(iii). The Exchange proposes that 
for Pillar, an order that was routed to an Away Market and returned 
unexecuted would be evaluated for Setter Priority based on how a 
working time would be assigned to the returned quantity of the routed 
order, as described in proposed Rules 7.16(f)(5)(H), 7.36(f)(1)(A) and 
(B), and 7.38(b)(2).
    [cir] Proposed Rule 7.16(f)(5)(H) provides that if a Short Sale 
Price Test, as defined in that rule, is triggered after an order has 
routed, any returned quantity of the order and the order it joins on 
the Exchange Book would be adjusted to a Permitted Price.\28\ In such 
case, the returned quantity and the resting quantity that would be re-
priced to a Permitted Price would be a single order and the Exchange 
would evaluate such order for Setter Priority. If such order would set 
a new BO and either join or establish a new NBO, it would be assigned 
Setter Priority. For example, if the Exchange receives a sell short 
order of 200 shares ranked Priority 2--Display Orders, routes 100 
shares (``A'') of such order and adds 100 shares (``B'') of such order 
to the Exchange Book, ``B'' would be displayed at the price of the sell 
short order. If an Away Market NBB locks the price of ``B'' and then a 
Short Sale Price Test is triggered, ``B'' would remain displayed at the 
price of the NBB.\29\ If subsequently, ``A'' returns unexecuted, 
pursuant to proposed Rule

[[Page 13558]]

7.16(f)(5)(H), ``A'' and ``B'' would be considered a single order and 
would be re-priced to a Permitted Price, at which point the order would 
be evaluated for Setter Priority.
---------------------------------------------------------------------------

    \28\ Pursuant to proposed Rule 7.16(f)(5)(A), described below, 
during a Short Sale Period, as defined in that rule, short sale 
orders with a working price and/or a display price equal to or lower 
than the NBB will have the working price and/or display price 
adjusted one minimum price increment above the current NBB, which is 
the ``Permitted Price.''
    \29\ See proposed Rule 7.16(f)(6).
---------------------------------------------------------------------------

    [cir] Proposed Rule 7.36(f)(1)(A) provides that an order that is 
fully routed to an Away Market would not be assigned a working time 
unless and until any unexecuted portion of the order returns to the 
Exchange Book. As proposed, if the Exchange routes an entire order and 
a portion returns unexecuted, the Exchange would evaluate the returned 
quantity for Setter Priority as if it were a newly arriving order. For 
example, if less than a round lot returns unexecuted, the returned 
quantity would not be eligible for Setter Priority. If at least a round 
lot returns unexecuted, establishes a new BBO, and either joins or 
establishes the NBBO, it would be eligible for Setter Priority.
    [cir] Proposed Rule 7.36(f)(1)(B) provides that (except as provided 
for in proposed Rule 7.38(b)(2)), if an order is partially routed to an 
Away Market on arrival, the portion that is not routed would be 
assigned a working time and any portion of the order returning 
unexecuted would be assigned the same working time as any remaining 
portion of the original order resting on the Exchange Book and would be 
considered the same order as the resting order. In such case, if the 
resting portion of the order has Setter Priority, the returned portion 
would also have Setter Priority.
    For example, if the Exchange receives a 200 share order ranked 
Priority 2--Display Orders, routes 100 shares (``C'') of such order and 
adds 100 shares (``D'') of such order to the Exchange Book, which 
establishes the BBO and joined the NBBO, ``D'' would be assigned Setter 
Priority. If ``D'' is partially executed and decremented to 50 shares 
and another order ``E'' for 100 shares joins ``D'' at its price, 
pursuant to proposed Rules 7.36(h)(2)(A) and (B), described below, 
``D'' would retain Setter Priority. If ``C'' returns unexecuted, it 
would join the working time of ``D'' pursuant to proposed Rule 
7.36(f)(1)(B), ``C'' and ``D'' would be considered a single order, and 
``C'' would therefore also receive Setter Priority.
    [cir] Proposed Rule 7.38(b)(2) provides that for an order that is 
partially routed to an Away Market on arrival, if any returned quantity 
of such order joins resting odd-lot quantity of the original order and 
the returned and resting quantity, either alone or together with other 
odd-lot orders, would be displayed as a new BBO, both the returned and 
resting quantity would be assigned a new working time. In such case, 
the returned quantity and the resting odd-lot quantity together would 
be a single order and would be evaluated for Setter Priority.
    For example, if the Exchange receives an order for 100 shares, 
routes 50 shares (``E'') of such order and the remaining 50 shares 
(``F'') of such order are added to the Exchange Book, pursuant to 
proposed Rule 7.36(f)(1)(B), ``F'' would be assigned a working time 
when it is added to the Exchange Book. If ``E'' returns unexecuted, and 
``E'' and ``F'' together would establish a new BBO at that price, 
pursuant to proposed Rule 7.38(b)(2), ``F'' would be assigned a new 
working time to join the working time of ``E,'' and ``E'' and ``F'' 
would be considered a single order. If the returned quantity together 
with the resting quantity establishes the BBO pursuant to proposed Rule 
7.38(b)(2), the order would be eligible to be evaluated for Setter 
Priority.
     Proposed Rule 7.36(h)(1)(B) would provide that an order 
would be evaluated for Setter Priority when it becomes eligible to 
trade for the first time upon transitioning to a new trading session. 
When an order becomes eligible to trade upon a trading session 
transition, it is treated as if it were a newly arriving order. 
Accordingly, the Exchange believes it would be consistent with its 
proposal to evaluate arriving orders for Setter Priority to also 
evaluate orders that become eligible to trade upon a trading session 
transition for Setter Priority. For example, pursuant to proposed Rule 
7.34(c)(1), described below, the Exchange would accept Primary Pegged 
Orders during the Early Trading Session, however, such orders would not 
be eligible to trade until the Core Trading Session begins. In such 
case, a Primary Pegged Order would be evaluated for Setter Priority 
when it becomes eligible to trade in the Core Trading Session.
    Proposed Rule 7.36(h)(2) would establish when an order retains its 
Setter Priority, as follows:
     If it is decremented to any size because it has either 
traded or been partially cancelled (proposed Rule 7.36(h)(2)(A)). This 
proposed rule is based on Rule 72(b)(i), with non-substantive 
differences to use Pillar terminology.
     if it is joined at that price by a resting order that is 
re-priced and assigned a display price equal to the display price of 
the order with Setter Priority (proposed Rule 7.36(h)(2)(B)). This 
proposed rule is based on Rule 72(a)(ii)(G), with non-substantive 
differences to use Pillar terminology.
     if the BBO or NBBO changes (proposed Rule 7.36(h)(2)(C)). 
This proposed rule, together with proposed Rule 7.37(b)(1)(B), 
described below, is based on Rule 72(b)(ii), with non-substantive 
differences to use Pillar terminology. Specifically, once an order has 
been assigned Setter Priority, it has that status so long as it is on 
the Exchange Book, subject to proposed Rule 7.36(h)(3), described 
below, regardless of the BBO or NBBO. However, as described in proposed 
Rule 7.37(b)(1)(B), it would only be eligible for a Setter Priority 
allocation if it is executed when it is the BBO.
     if the order marking changes from (A) sell to sell short, 
(B) sell to sell short exempt, (C) sell short to sell, (D) sell short 
to sell short exempt, (E) sell short exempt to sell, and (F) sell short 
exempt to sell short (proposed Rule 7.36(h)(2)(D)). This proposed rule 
text is consistent with proposed Rule 7.36(f)(4) because if an order 
retains its working time, the Exchange believes it should also retain 
its Setter Priority status.
     when transitioning from one trading session to another 
(proposed Rule 7.36(h)(2)(E)). This text would be new because, with 
Pillar, the Exchange would be introducing an Early Trading Session. The 
Exchange believes that if an order entered during the Early Trading 
Session is assigned Setter Priority, it should retain that status in 
the Core Trading Session.
    Proposed Rule 7.36(h)(3) would establish when an order would lose 
Setter Priority, as follows:
     If trading in the security is halted, suspended, or paused 
(proposed Rule 7.36(h)(3)(A)). This proposed rule is based on the first 
sentence of current Rule 72(b)(iii), with non-substantive differences 
to use Pillar terminology. In addition, because all orders expire at 
the end of the trading day, the Exchange believes that the current rule 
text providing that setting interest would not be retained after the 
close of trading on the Exchange would not be necessary for Pillar.
     if such order is assigned a new display price (proposed 
Rule 7.36(h)(3)(B)). The Exchange believes that if an order has Setter 
Priority at a price, and then is assigned a new display price, it 
should not retain the Setter Priority status that was associated with 
its original display price.
     if such order is less than a round lot and is assigned a 
new working time pursuant to proposed Rule 7.38(b)(2). As discussed 
above, pursuant to proposed Rule 7.38(b)(2) the resting odd-lot portion 
of an order would be assigned a new working time if the returned 
quantity of that order, together with the

[[Page 13559]]

resting portion, would establish a new BBO. In such case, if the 
resting quantity had Setter Priority status, it would lose that status, 
and would be re-evaluated for Setter Priority at its new working time.
    For example, if the Exchange receives an order for 200 shares 
ranked Priority 2--Display Orders, routes 100 shares (``G'') of such 
order, and the remaining 100 shares (``H'') of such order are added to 
the Exchange Book and assigned Setter Priority, ``H'' would retain 
Setter Priority even if it is partially executed and the remaining 
portion of ``H'' is less than a round lot. If ``G'' returns unexecuted 
and ``G'' and ``H'' together would establish a new BBO at that price, 
pursuant to proposed Rule 7.38(b)(2), ``H'' would be assigned a new 
working time to join the working time of ``G,'' and ``G'' and ``H'' 
would be considered a single order. When ``H'' is assigned a new 
working time, it would lose its Setter Priority status. Even though 
``G'' and ``H'' would establish the BBO, if that order does not also 
join or establish an NBBO, it would not be assigned Setter Priority. In 
this scenario, ``H'' would have lost its Setter Priority. The Exchange 
believes it is appropriate to re-evaluate such order for Setter 
Priority because it is being assigned a new working time together with 
the returned quantity of the order.
    Proposed Rule 7.36(h)(4) would establish when Setter Priority is 
not available, as follows:
     For any portion of an order that is ranked Priority 3--
Non-Display Orders (proposed Rule 7.36(h)(4)(A)). This proposed rule 
text is based on the second sentence of Rule 72(a)(ii)(F), with non-
substantive differences to use Pillar terminology.
     when the reserve quantity replenishes the display quantity 
of a Reserve Order (proposed Rule 7.36(h)(4)(B)). This proposed rule 
text would be new and would be a substantive difference, described 
above, as compared to the third sentence of Rule 72(a)(ii)(F).
    Because proposed Rule 7.36 would address the display and working 
time of orders and Setter Priority, the Exchange proposes that Rules 
72(a), (b), and (c)(xii) would not be applicable to trading UTP 
Securities on the Pillar trading platform.
Proposed Rule 7.37
    Proposed Rule 7.37 (Order Execution and Routing) would establish 
rules governing order execution and routing on the Pillar trading 
platform. As described above, the Exchange proposes to retain its 
parity allocation model, which the Exchange would set forth in proposed 
Rule 7.37(b). Except for the addition of parity allocation, the 
Exchange proposes to use Pillar functionality for determining how 
orders would be executed and routed. Accordingly, the proposed rule is 
based in part on NYSE Arca Rule 7.37-E and NYSE American Rule 7.37E, 
with substantive differences as described below.
Proposed Rules 7.37(a), (c)-(g)
    Proposed Rules 7.37(a) and paragraphs (c)-(d) would establish rules 
regarding order execution, routing, use of data feeds, locking or 
crossing quotations in NMS Stocks, and exceptions to the Order 
Protection Rule. The proposed rule text is based on NYSE Arca Rule 
7.37-E(a)-(f) and NYSE American Rule 7.37E(a)-(f) with the following 
substantive differences: \30\
---------------------------------------------------------------------------

    \30\ Because proposed Rule 7.37(b) would establish parity 
allocation, proposed Rule 7.37(c)-(g) would be based on NYSE Arca 
Rules 7.37-E(b)-(f) and NYSE American Rules 7.37E(b)-(f).
---------------------------------------------------------------------------

     Proposed Rule 7.37(a) would use the proposed new term 
``Aggressing Order'' rather than the term ``incoming marketable order'' 
to refer to orders that would be matched for execution. In addition, 
because the Exchange would not use a price-time priority allocation for 
all orders, the Exchange proposes to specify that orders would be 
matched for execution as provided for in proposed Rule 7.37(b).
     As discussed below, the Exchange would not offer all order 
types that are available on NYSE Arca and NYSE American. Accordingly, 
proposed Rule 7.37(a)(4) would not include a reference to Inside Limit 
Orders.
     Similar to NYSE American, because the Exchange would not 
be taking in data feeds from broker-dealers or routing to Away Markets 
that are not displaying protected quotations, the Exchange proposes 
that proposed Rule 7.37 would not include rule text from paragraph 
(b)(3) of NYSE Arca Rule 7.37-E, which specifies that an ETP Holder can 
opt out of routing to Away Markets that are not displaying a protected 
quotation, i.e., broker dealers, or paragraph (d)(1) of NYSE Arca Rule 
7.37-E, which specifies that NYSE Arca receives data feeds directly 
from broker dealers.
     As discussed in greater detail below, because the Exchange 
would not offer all orders available on NYSE Arca and NYSE American, 
including orders based on NYSE Arca Rule 7.31-E(f) that are orders with 
specific routing instructions, the Exchange proposes that proposed 
Rules 7.37(c)(5) and (c)(7)(B) would not include reference to orders 
that are designated to route to the primary listing market. Similarly, 
the Exchange would not include rule text based on NYSE Arca Rule 7.37-
E(b)(7)(C) and NYSE American Rule 7.37E(b)(7)(C).
     The Exchange proposes a non-substantive difference to 
update the chart in proposed Rule 7.37(e) to reflect the amended names 
of market centers.
Proposed Rule 7.37(b)--Allocation
    Proposed Rule 7.37(b) would set forth how an Aggressing Order would 
be allocated against contra-side orders and is based in part on current 
Rule 72(c). The Exchange proposes that its existing parity allocation 
model, modified as described below, would be applicable to UTP 
Securities. Like the Exchange's existing parity allocation model for 
NYSE-listed securities, the proposed parity allocation model for UTP 
Securities would provide customers with choices. The Exchange's parity 
allocation model provides customers that do not have latency sensitive 
strategies or who value intermediation by a trusted agent with an 
alternative to the price-time priority model offered by other 
exchanges: Such customers can use a Floor broker and be allocated 
trades based on parity, as described below. Those customers with 
latency sensitive strategies or who prefer un-intermediated access can 
choose to send orders electronically and would be allocated trades as 
part of the Book Participant. Irrespective of whether the customer 
chooses to use a Floor broker or enter their interest electronically 
via the Book Participant, a customer assigned Setter Priority by 
setting the BBO would receive the first 15% of an allocation.
    While there would be no DMMs assigned to UTP Securities, as noted 
above, the Exchange would require that for an order to be eligible to 
be included in the Floor Broker Participant, such order must be entered 
by a Floor broker while on the Trading Floor and only if such Floor 
broker also engages in a Floor broker business in Exchange-listed 
securities. In addition, to be eligible to be included in the Floor 
Broker Participant, orders must be entered on an agency basis (unless 
trading out of the Floor broker's error account pursuant to Rule 134). 
As a result, in contrast to off-Floor agency broker-dealers, Floor 
brokers would not be permitted to trade for their own accounts while on 
the Trading Floor, including principal trading on behalf of customers. 
The result of any allocation to an individual Floor broker would 
therefore always accrue to the customer. In addition, when trading UTP

[[Page 13560]]

Securities, Floor brokers would continue to be subject to current rules 
that are applicable only to Floor brokers, including Rules 95, 122, 
123, and paragraphs (d)-(j) of Rule 134.
    The Exchange proposes to use Pillar terminology to describe 
allocations and proposes the following substantive differences to how 
allocations are processed under Rule 72(c):
     Mid-point Liquidity Orders (``MPL'') with a Minimum Trade 
Size (``MTS''), which are not currently available on the Exchange, 
would be allocated based on MTS size (smallest to largest) and time.
     The Exchange would maintain separate allocation wheels on 
each side of the market for displayed and non-displayed orders at each 
price. Currently, the Exchange maintains a single allocation wheel for 
each security.\31\
---------------------------------------------------------------------------

    \31\ See Rule 72(c)(viii)(A).
---------------------------------------------------------------------------

     An allocation to a Floor Broker Participant would be 
allocated to orders represented by that Floor Broker on parity.
     If resting orders on one side of the Exchange Book are 
repriced such that they become marketable against orders on the other 
side of the Exchange Book, they would trade as Aggressing Orders based 
on their ranking pursuant to proposed Rule 7.36(c).
     If resting orders on both side of the Exchange Book are 
repriced such that they become marketable against each other, e.g., a 
crossed PBBO becomes uncrossed and orders priced based on the PBBO are 
repriced, the Exchange would determine which order is the Aggressing 
Order based on its ranking pursuant to Rule 7.36(c).
     Because there would not be any DMMs assigned to UTP 
Securities, the proposed rule would not reference DMM allocations.
    Proposed Rule 7.37(b)(1) would set forth that at each price, an 
Aggressing Order would be allocated against contra-side orders as 
follows:
     Proposed Rule 7.37(b)(1)(A) would provide that orders 
ranked Priority 1--Market Orders would trade first based on time. This 
proposed rule is based on the first sentence of Rule 72(c)(i) with non-
substantive differences to use Pillar terminology.
     Proposed Rule 7.37(b)(1)(B) would provide that next, an 
order with Setter Priority that has a display price and working price 
equal to the BBO would receive 15% of the remaining quantity of the 
Aggressing Order, rounded up to the next round lot size or the 
remaining displayed quantity of the order with Setter Priority, 
whichever is lower. The rule would further provide that an order with 
Setter Priority is eligible for allocation under proposed Rule 
7.37(b)(1)(B) if the BBO is no longer the same as the NBBO. This 
proposed rule text is based on Rules 72(b)(ii) and 72(c)(iii) with non-
substantive differences to use Pillar terminology. Although the 
Exchange is using different rule text, the quantity of an Aggressing 
Order that would be allocated to an order with Setter Priority would be 
the same under both current rules and the proposed Pillar rule.
     Proposed Rule 7.37(b)(1)(C) would provide that next, 
orders ranked Priority 2--Displayed Orders would be allocated on parity 
by Participant and that any remaining quantity of an order with Setter 
Priority would be eligible to participate in this parity allocation, 
consistent with the allocation wheel position of the Participant that 
entered the order with Setter Priority. This proposed rule text is 
based on Rules 72(c)(i), (iv), (vi), and (ix) with non-substantive 
differences to use Pillar terminology.
     Proposed Rule 7.37(b)(1)(D) would provide that next, 
orders ranked Priority 3--Non-Display Orders, other than MPL Orders 
with an MTS, would be allocated on parity by Participant. This proposed 
rule text is based on Rules 72(c)(i), (iv), (vi), and (ix) with non-
substantive differences to use Pillar terminology and a substantive 
difference not to include MPL Orders with an MTS in the parity 
allocation of resting non-displayed orders.
     Proposed Rule 7.37(b)(1)(E) would provide that MPL Orders 
with an MTS would be allocated based on MTS size (smallest to largest) 
and time. Because MPL Orders with an MTS would be a new offering on the 
Exchange, this proposed rule text is new. With an MTS instruction, an 
[sic] member organization is instructing the Exchange that it does not 
want an execution of its order if the MTS cannot be met. Accordingly, 
an MPL Order with an MTS is willing to be skipped if such instruction 
cannot be met. The Exchange proposes to separate MPL Orders with an MTS 
from the parity allocation of Priority 3--Non-Display Orders because 
with a parity allocation, an MTS instruction would not be guaranteed. 
In order to honor the MTS instruction of the resting MPL Order, the 
Exchange proposes to allocate these orders after all other Priority 3--
Non-Display Orders have been allocated on parity. The Exchange believes 
that this proposed allocation priority would be consistent with the MTS 
instruction in that such orders are willing to be skipped in order to 
have the MTS met.
    Proposed Rule 7.37(b)(2) would establish the allocation wheel for 
parity allocations. The proposed rule would be new for Pillar and would 
establish that at each price on each side of the market, the Exchange 
would maintain an ``allocation wheel'' of Participants with orders 
ranked Priority 2--Display Orders and a separate allocation wheel of 
Participants with orders ranked Priority 3--Non-Display Orders. The 
rule further describes how the position of an order on an allocation 
wheel would be determined, as follows:
     Proposed Rule 7.37(b)(2)(A) would provide that the 
Participant that enters the first order in a priority category at a 
price would establish the first position on the applicable allocation 
wheel for that price. The rule would further provide that if an 
allocation wheel no longer has any orders at a price, the next 
Participant to enter an order at that price would establish a new 
allocation wheel. This proposed rule is based in part on the first 
sentence of Rule 72(c)(viii)(A), with both non-substantive differences 
to use Pillar terminology and substantive differences because the 
Exchange would maintain separate allocation wheels at each price point, 
rather than a single allocation wheel for a security. Accordingly, an 
allocation wheel at a price point could be re-established throughout 
the trading day.
     Proposed Rule 7.37(b)(2)(B) would provide that additional 
Participants would be added to an allocation wheel based on time of 
entry of the first order entered by a Participant. This proposed rule 
is based in part on the second sentence of Rule 72(c)(viii)(A) with 
non-substantive differences to use Pillar terminology.
     Proposed Rule 7.37(b)(2)(C) would provide that once a 
Participant has established a position on an allocation wheel at a 
price, any additional orders from that Participant at the same price 
would join that position on an allocation wheel. This proposed rule 
uses Pillar terminology to describe current functionality.
     Proposed Rule 7.37(b)(2)(D) would provide that if an order 
receives a new working time or is cancelled and replaced at the same 
working price, a Participant that entered such order would be moved to 
the last position on an allocation wheel if, that Participant has no 
other orders at that price. This proposed rule is based in part on the 
last sentence of Rule 72(c)(viii)(A) with non-substantive differences 
to use Pillar terminology.
     Proposed Rule 7.37(b)(2)(E) would provide that a 
Participant would be removed from an allocation wheel if (i) all orders 
from that Participant at that

[[Page 13561]]

price are executed or cancelled in full, (ii) the working price of an 
order changes and that Participant has no other orders at that price, 
or (iii) the priority category of the order changes and that 
Participant has no other orders at that price. This proposed rule would 
be new functionality associated with the substantive difference of 
having separate allocation wheels at each price point.
     Proposed Rule 7.37(b)(2)(F) would provide that if multiple 
orders are assigned new working prices at the same time, the 
Participants representing those orders would be added to an allocation 
wheel at the new working price in time sequence relative to one 
another. This proposed rule would be new functionality associated with 
the substantive difference of having separate allocation wheels at each 
price point.
    Proposed Rule 7.37(b)(3) would set forth the parity pointer 
associated with the allocation wheel. As proposed, if there is more 
than one Participant on an allocation wheel, the Exchange would 
maintain a ``pointer'' that would identify which Participant would be 
next to be evaluated for a parity allocation and that the Participant 
with the pointer would be considered the first position. This proposed 
rule is based in part on the Parity Example 1 described in Rule 
72(c)(viii)(A) and Rule 72(c)(viii)(B), with non-substantive 
differences to use Pillar terminology. The rule would further provide 
that the Setter Priority allocation described in proposed Rule 
7.37(b)(1)(B) would not move the pointer, which is based on the second 
sentence of Rule 72(c)(iv) with non-substantive differences to use 
Pillar terminology.
    Proposed Rule 7.37(b)(4) would set forth how an Aggressing Order 
would be allocated on parity. As proposed, an Aggressing Order would be 
allocated by round lots. The Participant with the pointer would be 
allocated a round lot and then the pointer would advance to the next 
Participant. The pointer would continue to advance on an allocation 
wheel until the Aggressing Order is fully allocated or all Participants 
in that priority category are exhausted. This proposed rule is based on 
Rule 72(c)(viii), sub-paragraphs (A)-(C) of that Rule, and Parity 
Examples 1 through 4, with non-substantive differences to use Pillar 
terminology. Rather than include examples in the proposed rule, the 
Exchange believes that the Pillar terminology streamlines the 
description of parity allocations in a manner that obviates the need 
for examples, as follows:
     Proposed Rule 7.37(b)(4)(A) would provide that not all 
Participants on an allocation wheel would be guaranteed to receive an 
allocation. The size of an allocation to a Participant would be based 
on which Participant had the pointer at the beginning of the 
allocation, the size of the Aggressing Order, the number of 
Participants in the allocation, and the size of the orders entered by 
Participants. The Exchange believes that this proposed rule makes clear 
that while the parity allocation seeks to evenly allocate an Aggressing 
Order, an even allocation may not be feasible and would be dependent on 
multiple variables.
    For example, if there are three Participants on an allocation 
wheel, ``A,'' ``B,'' and ``C,'' each representing 200 shares and ``A'' 
has the pointer, an Aggressing Order of 450 shares would be allocated 
as follows: ``A'' would be allocated 100 shares, ``B'' would be 
allocated 100 shares, ``C'' would be allocated 100 shares, ``A'' would 
be allocated 100 shares, and ``B'' would be allocated 50 shares. In 
this example, an uneven allocation would result because the Aggressing 
Order cannot be evenly divided by round lots among the Participants and 
the allocation sizes would be dependent on which Participant has the 
pointer at the beginning of the allocation. Accordingly, ``A'' would be 
allocated a total of 200 shares, ``B'' would be allocated a total of 
150 shares, and ``C'' would be allocated a total of 100 shares.
     Proposed Rule 7.37(b)(4)(B) would provide that if the last 
Participant to receive an allocation is allocated an odd lot, the 
pointer would stay with that Participant. The Exchange proposes that 
the pointer would advance only after a round-lot allocation. If the 
last allocation is an odd-lot, the pointer would stay with that 
Participant. For example, continuing with the example above where ``B'' 
received an allocation of 150 shares because the last allocation was 50 
shares, the pointer would remain with ``B'' for the next allocation at 
that price. By contrast, if the last Participant receives a round-lot 
allocation of an Aggressing Order, the pointer would advance to the 
next Participant for the next allocation at that price.
     Proposed Rule 7.37(b)(4)(C) would provide that if the 
Aggressing Order is an odd lot, the Participant with the pointer would 
be allocated the full quantity of the order, unless that Participant 
does not have an order that could satisfy the Aggressing Order in full, 
in which case, the pointer would move to the next Participant on an 
allocation wheel. This proposed rule uses Pillar terminology to 
describe how an odd-lot sized Aggressing Order would be allocated.
     Proposed Rule 7.37(b)(4)(D) would provide that a 
Participant that has an order or orders equaling less than a round lot 
would be eligible for a parity allocation up to the size of the 
order(s) represented by that Participant. This proposed rule is based 
in part on Rule 72(c)(viii)(B) with non-substantive differences to use 
Pillar terminology.
    Proposed Rule 7.37(b)(5) would provide that an allocation to the 
Book Participant would be allocated to orders that comprise the Book 
Participant by working time. This proposed rule is based on the second 
sentence of Rule 72(c)(ii) with non-substantive differences to use 
Pillar terminology.
    Proposed Rule 7.37(b)(6) would provide that an allocation to a 
Floor Broker Participant, which would be defined as a ``Floor Broker 
Allocation,'' would be allocated to orders with unique working times 
that comprise the Floor Broker Participant, which would be defined as 
``Floor Broker Orders,'' on parity. In other words, any allocation to 
an individual Floor Broker Participant at a price would be further 
allocated among multiple orders that may be represented by that Floor 
broker. The proposed reference to ``unique working times'' would refer 
to orders that have multiple working times. For example, pursuant to 
proposed Rule 7.31(d)(1)(B), each time a Reserve Order is replenished 
from reserve interest, a new working time would be assigned to the 
replenished quantity of the Reserve Order, while the reserve interest 
would retain the working time of original order entry. As a result, the 
display quantity of a Reserve Order may be represented by multiple 
orders with unique working times representing each replenishment. For 
purposes of the Floor Broker Allocation, each quantity with a unique 
working time would be considered a separate order.
    As further proposed, the parity allocation within a Floor Broker 
Allocation would be processed as described in proposed Rule 7.37(b)(2)-
(4) with the Floor Broker Allocation processed as the ``Aggressing 
Order'' and each Floor Broker Order processed as a ``Participant.'' 
Because a Floor Broker Participant may represent multiple orders, the 
Exchange believes that allocating the Floor Broker Allocation on parity 
would be consistent with the Exchange's allocation model, which 
provides for a parity allocation to Floor brokers. For example, if an 
Aggressing Order is allocated 200 shares to Floor Broker Participant 
``X,'' which would be the Floor Broker Allocation, and ``X''

[[Page 13562]]

represents three Floor Broker Orders, ``A,'' ``B,'' and ``C'' for 100 
shares each at a price and the parity pointer is on ``B,'' pursuant to 
proposed Rule 7.37(b)(6), the Floor Broker Allocation would be 
allocated 100 shares to ``B'' and 100 shares to ``C'' and ``A'' would 
not receive an allocation.
    Proposed Rule 7.37(b)(8) would provide that if resting orders on 
one side of the market are repriced and become marketable against 
contra-side orders on the Exchange Book, the Exchange would rank the 
re-priced orders as described in proposed Rule 7.36(c) and trade them 
as Aggressing Orders consistent with their ranking.\32\ This proposed 
functionality would be new for Pillar.
---------------------------------------------------------------------------

    \32\ The Exchange proposes to designated [sic] proposed Rule 
7.37(b)(7) as ``Reserved.''
---------------------------------------------------------------------------

    Proposed Rule 7.37(b)(9) would provide that if resting orders on 
both sides of the market are repriced and become marketable against one 
another, the Exchange would rank the orders on each side of the market 
as described in Rule 7.36(c) and trade them as follows:
     The best-ranked order would establish the price at which 
the marketable orders will trade, provided that if the marketable 
orders include MPL orders, orders would trade at the midpoint of the 
PBBO (proposed Rule 7.37(b)(9)(A)).
     The next best-ranked order would trade as the Aggressing 
Order with contra-side orders at that price pursuant to proposed Rule 
7.37(b)(1) (proposed Rule 7.37(b)(9)(B)).
     When an Aggressing Order is fully executed, the next-best 
ranked order would trade as the Aggressing Order with contra-side 
orders at that price pursuant to proposed Rule 7.37(b)(1) (proposed 
Rule 7.37(b)(9)(C)).
     Orders on both sides of the market would continue to trade 
as the Aggressing Order until all marketable orders are executed 
(proposed Rule 7.37(b)(9)(D)).
    Because proposed Rule 7.37 would address order execution and 
routing, including parity allocations, locking and crossing, and the 
Order Protection Rule, the Exchange proposes that Rules 15A, 19, 72(c), 
1000, 1001, 1002, and 1004 would not be applicable to trading UTP 
Securities on the Pillar trading platform.\33\
---------------------------------------------------------------------------

    \33\ Rule 72(d) would also not be applicable to trading UTP 
Securities on the Pillar trading platform, accordingly the Exchange 
would designate the entirety of Rule 72 as not applicable to trading 
UTP Securities on the Pillar trading platform.
---------------------------------------------------------------------------

Proposed Rule 7.31
    Proposed Rule 7.31 (Orders and Modifiers) would establish the 
orders and modifiers that would be available on the Exchange for 
trading UTP Securities on the Pillar trading platform. The Exchange 
proposes to offer a subset of the orders and modifiers that are 
available on NYSE Arca and NYSE American, with specified substantive 
differences, as described below.
     Proposed Rule 7.31(a) would establish the Exchange's 
proposed Primary Order Types. The Exchange would offer Market Orders, 
which would be described in proposed Rule 7.31(a)(1), and Limit Orders, 
which would be described in proposed Rule 7.31(a)(2). These proposed 
rules are based on NYSE Arca Rule 7.31-E(a)(1) and (2) with one 
substantive difference. Because the Exchange would not be conducting 
auctions for UTP Securities and because, as described below, with the 
exception of Primary Pegged Orders, Limit Orders entered before the 
Core Trading Session would be deemed designated for both the Early 
Trading Session and the Core Trading Session, the Exchange proposes not 
to include the following text in proposed Rule 7.31(a)(2)(B): ``A Limit 
Order entered before the Core Trading Session that is designated for 
the Core Trading Session only will become subject to Limit Order Price 
Protection after the Core Open Auction.'' Instead, the Exchange 
proposes to provide that a Limit Order entered before the Core Trading 
Session that becomes eligible to trade in the Core Trading Session 
would become subject to the Limit Order Price Protection when the Core 
Trading Session begins. Accordingly, Primary Pegged Orders entered 
before the Core Trading Session begins would not be subject to Limit 
Order Price Protection until the Core Trading Session begins.
     Proposed Rule 7.31(b) would establish the proposed time-
in-force modifiers available for UTP Securities on the Pillar trading 
platform. The Exchange would offer both Day and Immediate-or-Cancel 
(``IOC'') time-in-force modifiers. The rule text is based on NYSE 
American Rule 7.31E(b) without any substantive differences.
     Proposed Rule 7.31(c) would establish the Exchange's 
Auction-Only Orders. Because the Exchange would not be conducting 
auctions in UTP Securities, the Exchange would route all Auction-Only 
Orders in UTP Securities to the primary listing market, as described in 
greater detail below in proposed Rule 7.34. To reflect this 
functionality, proposed Rule 7.31(c) would provide that an Auction-Only 
Order is a Limit or Market Order that is only to be routed pursuant to 
Rule 7.34. Proposed Rules 7.31(c)(1)-(4) would define Limit-on-Open 
Orders (``LOO Order''), Market-on-Open Order (``MOO Order''), Limit-on-
Close Order (``LOC Order''), and Market-on-Close (``MOC Order''). The 
proposed rule text is based on NYSE Arca Rule 7.31-E(c)(1)-(4) and NYSE 
American Rule 7.31E(c)(1)-(4), with the substantive difference not to 
include rule text relating to how Auction-Only Orders would function 
during a Trading Halt Auction, as the Exchange would not be conducting 
any auctions in UTP Securities. Because the Exchange would not have 
defined terms for auctions in the Pillar rules, the Exchange proposes 
an additional non-substantive difference to use the term ``an opening 
or re-opening auction'' instead of ``the Core Open Auction or a Trading 
Halt Auction'' and the term ``a closing auction'' instead of ``the 
Closing Auction.''
     Proposed Rule 7.31(d) would describe orders with a 
conditional or undisplayed price and/or size. Proposed Rule 7.31(d) is 
based on NYSE Arca Rule 7.31-E(d) and NYSE American Rule 7.31E(d) 
without any differences.
     Proposed Rule 7.31(d)(1) would establish Reserve Orders, 
which would be a Limit Order with a quantity of the size displayed and 
with a reserve quantity (``reserve interest'') that is not displayed. 
Proposed Rule 7.31(d)(1) and subparagraphs (A)-(C) to that rule are 
based on NYSE Arca Rule 7.31-E(d)(1) and its sub-paragraphs (A)-(C) 
without any substantive differences. As described below, the Exchange 
proposes to describe Limit Orders that do not route as a ``Limit Non-
Routable Order.''
     Proposed Rule 7.31(d)(2) would establish Limit Non-
Displayed Orders, which would be a Limit Order that is not displayed 
and does not route. This proposed rule is based on NYSE Arca Rule 7.31-
E(d)(2), with one substantive difference: The Exchange would not be 
offering the ability for a Limit Non-Displayed Order to be designated 
with a Non-Display Remove Modifier and therefore would not be proposing 
rule text based on NYSE Arca Rule 7.31-E(d)(2)(B).
     Proposed Rule 7.31(d)(3) would establish MPL Orders, which 
would be a Limit Order that is not displayed and does not route, with a 
working price at the midpoint of the PBBO. Proposed Rule 7.31(d)(3) is 
based on NYSE Arca Rule 7.31-E(d)(3) and NYSE American Rule 7.31E(d)(3) 
with one substantive difference: Because the Exchange would not be 
conducting auctions in UTP Securities, the Exchange does not propose to 
include rule text that MPL Orders do not participate in any auctions.
    Proposed Rules 7.31(d)(3)(A)-(F), which further describe MPL 
Orders, are

[[Page 13563]]

based on NYSE Arca Rule 7.31-E(d)(3)(A)-(F) with two substantive 
differences. First, the Exchange would not offer the optional 
functionality for an incoming Limit Order to be designated with a ``No 
Midpoint Execution'' modifier. Second, the Exchange would not offer for 
MPL Orders to be designated with a Non-Display Remove Modifier. Because 
the Exchange would not offer the Non-Display Remove Modifier for MPL 
Orders, the Exchange is not proposing rule text based on NYSE Arca Rule 
7.31-E(d)(3)(G). Proposed Rule 7.31(e) would establish orders with 
instructions not to route and is based on NYSE Arca Rule 7.31-E(e) and 
NYSE American Rule 7.31E(e) without any differences.\34\
---------------------------------------------------------------------------

    \34\ Proposed Rule 7.31 includes behavior relating to MPL Orders 
that were recently adopted on NYSE Arca and NYSE American. See supra 
note 19.
---------------------------------------------------------------------------

     Proposed Rule 7.31(e)(1) would establish the Limit Non-
Routable Order, which is a Limit Order that does not route. Proposed 
Rule 7.31(e)(1) and its sub-paragraphs (A)-(B) is based on NYSE Arca 
Rule 7.31-E(e)(1) and its sub-paragraphs (A)-(B) and NYSE American Rule 
7.31E(1) and its sub-paragraphs (A)-(B) without any substantive 
differences. Because the Exchange would not offer Non-Display Remove 
Modifiers for Limit Non-Routable Orders, the Exchange is not proposing 
rule text based on NYSE Arca Rule 7.31-E(e)(1)(C).
     Proposed Rule 7.31(e)(2) and sub-paragraphs (B)-(D) would 
establish the ALO Order, which is a Limit Non-Routable Order that, 
except as specified in the proposed rule, would not remove liquidity 
from the Exchange Book. The proposed rule is based on NYSE Arca Rule 
7.31-E(e)(2) and its sub-paragraphs (B)-(D) with two substantive 
differences. First, because the Exchange would not have auctions in UTP 
Securities, the Exchange does not propose rule text based on NYSE Arca 
Rule 7.31-E(e)(2)(A), and would designate this sub-paragraph as 
``Reserved.'' Second, because the Exchange would not offer the Non-
Display Remove Modifier for Limit Non-Routable Orders or Limit Non-
Display Orders, the Exchange does not propose rule text based on NYSE 
Arca Rule 7.31-E(e)(2)(B)(iv)(b).
     Proposed Rule 7.31(e)(3) and sub-paragraphs (A)-(D) would 
establish Intermarket Sweep Orders (``ISO''), which would be a Limit 
Order that does not route and meets the requirements of Rule 600(b)(3) 
of Regulation NMS and could be designated IOC or Day. The proposed rule 
is based on NYSE Arca Rule 7.31-E(e)(3) and its sub-paragraphs (A)-(D) 
and its sub-paragraphs (A)-(D) with two substantive differences. First, 
because Exchange Floor brokers do not have the ability to enter orders 
directly on Away Markets, the Exchange does not currently offer the 
ability for Floor brokers to enter ISOs.\35\ The Exchange similarly 
proposes that Floor brokers would not be able to enter ISOs for trading 
UTP Securities on the Pillar trading platform and therefore would 
specify that ISOs are not available to Floor brokers. Second, because 
Non-Display Remove Modifiers would not be available, the Exchange is 
not proposing rule text based on NYSE Arca Rule 7.31-
E(e)(3)(D)(iii)(b).
---------------------------------------------------------------------------

    \35\ See Rule 70(a)(i).
---------------------------------------------------------------------------

     Because the Exchange would not offer Primary Only Orders 
or Cross Orders, the Exchange proposes that Rules 7.31(f) and (g) would 
be designated as ``Reserved.''
     Proposed Rule 7.31(h) would establish Pegged Orders, which 
would be a Limit Order that does not route with a working price that is 
pegged to a dynamic reference price. Proposed Rule 7.31(h) is based on 
NYSE Arca Rule 7.31-E(h) with one substantive difference. Consistent 
with the Exchange's current rules, Pegged Orders would be available 
only to Floor brokers.\36\
    Proposed Rule 7.31(h)(2) and sub-paragraphs (A) and (B) would 
establish Primary Pegged Orders, which would be a Pegged Order to buy 
(sell) with a working price that is pegged to the PBB (PBO), must 
include a minimum of one round lot of displayed, and with no offset 
allowed. This proposed rule text is based on NYSE Arca Rule 7.31-
E(h)(2) and sub-paragraphs (A) and (B) with one substantive difference. 
Because the Exchange would not conduct auctions in UTP Securities, the 
Exchange does not propose to include rule text that a Primary Pegged 
Order would be eligible to participate in auctions at the limit price 
of the order.
    Proposed Rule 7.31(h)(4) and sub-paragraphs (A) and (B) would 
establish a Non-Displayed Primary Pegged Order, which would be a Pegged 
Order to buy (sell) with a working price that is pegged to the PBB 
(PBO), with no offset allowed, that is not displayed. This rule text is 
based on NYSE American Rule 7.31E(h)(2), which describes a Primary 
Pegged Order that is not displayed. Similar to the rules of NYSE 
American, the proposed Non-Displayed Primary Pegged Order would be 
rejected on arrival, or cancelled when resting, if there is no PBBO 
against which to peg. In addition, Non-Displayed Primary Pegged Orders 
would be ranked Priority 3--Non-Display Orders and if the PBBO is 
locked or crossed, both an arriving and resting Non-Displayd [sic] 
Primary Pegged Order would wait for a PBBO that is not locked or 
crossed before the working price is adjusted and the order becomes 
eligible to trade.
    Because the Exchange would not offer Market Pegged Order or 
Discretionary Pegged Orders, the Exchange proposes that paragraphs 
(h)(1) and (h)(3) of proposed Rule 7.31 would be designated as 
``Reserved.''
---------------------------------------------------------------------------

    \36\ See Rule 13(f)(1)(A)(i), which describes Pegging Interest 
as being available for e-Quotes and d-Quotes, which is functionality 
available only to Floor brokers.
---------------------------------------------------------------------------

     Proposed Rule 7.31(i)(2) would establish Self Trade 
Prevention Modifiers (``STP'') on the Exchange. As proposed, any 
incoming order to buy (sell) designated with an STP modifier would be 
prevented from trading with a resting order to sell (buy) also 
designated with an STP modifier and from the same Client ID, as 
designated by the member organization, and the STP modifier on the 
incoming order would control the interaction between two orders marked 
with STP modifiers. Proposed Rule 7.31(i)(2)(A) would establish STP 
Cancel Newest (``STPN'') and proposed Rule 7.31(i)(2)(B) would 
establish STP Cancel Oldest (``STPO''). Proposed Rule 7.31(i)(2) and 
subparagraphs (A) and (B) are based in part on NYSE Arca Rule 7.31-
E(i)(2) and its sub-paragraphs (A) and (B) and NYSE American Rule 
7.31E(i)(2) and its sub-paragraphs (A) and (B), with substantive 
differences to specify how STP modifiers would function consistent with 
the Exchange's proposed allocation model.
    Specifically, because, as described above, resting orders are 
allocated either on parity or time based on the priority category of an 
order, the Exchange proposes to specify in proposed Rule 7.31(i)(2) 
that the Exchange would evaluate the interaction between two orders 
marked with STP modifiers from the same Client ID consistent with the 
allocation logic applicable to the priority category of the resting 
order. The proposed rule would further provide that if resting orders 
in a priority category do not have an STP modifier from the same Client 
ID, the incoming order designated with an STP modifier would trade with 
resting orders in that priority category before being evaluated for STP 
with resting orders in the next priority category.
    For STPN, proposed Rule 7.31(i)(2)(A)(i) would provide that if a 
resting order with an STP modifier from the same Client ID is in a 
priority category that allocates orders on price-

[[Page 13564]]

time priority, the incoming order marked with the STPN modifier would 
be cancelled back to the originating member organization and the 
resting order marked with one of the STP modifiers would remain on the 
Exchange Book. This proposed rule is based on NYSE Arca Rule 7.31-
E(i)(2)(A) and NYSE American Rule 7.31E(i)(2)(A), with non-substantive 
differences to specify that this order processing would be applicable 
for orders that are allocated in price-time priority.
    Proposed Rule 7.31(i)(2)(A)(ii) would be new and would address how 
STPN would function for resting orders in a priority category that 
allocates orders on parity. As proposed, if a resting order with an STP 
modifier from the same Client ID is in a priority category that 
allocates orders on parity and would have been considered for an 
allocation, none of the resting orders eligible for a parity allocation 
in that priority category would receive an allocation and the incoming 
order marked with the STPN modifier would be cancelled back.\37\ The 
Exchange believes that if a member organization designates an order 
with an STPN modifier, that member organization has instructed the 
Exchange to cancel the incoming order rather than trade with a resting 
order with an STP modifier from the same Client ID. Because in a parity 
allocation, resting orders are allocated based on their position on an 
allocation wheel, as described above, it would be consistent with the 
incoming order's instruction to cancel the incoming order if any of the 
resting orders eligible to participate in the parity allocation has an 
STP modifier from the same Client ID.
---------------------------------------------------------------------------

    \37\ As described above, if there were resting Market Orders 
against which the incoming order was marketable, because Market 
Orders are in a different priority category, the incoming order 
would trade with the resting Market Orders before being assessed for 
STP with resting orders in a parity priority category.
---------------------------------------------------------------------------

    For STPO, proposed Rule 7.31(i)(2)(B)(i) would provide that if a 
resting order with an STP modifier from the same Client ID is in a 
priority category that allocates orders on price-time priority, the 
resting order marked with the STP modifier would be cancelled back to 
the originating member organization and the incoming order marked with 
the STPO modifier would remain on the Exchange Book. This proposed rule 
is based on NYSE Arca Rule 7.31-E(i)(2)(B) and NYSE American Rule 
7.31E(i)(2)(B), with non-substantive differences to specify that this 
order processing would be applicable for orders that are allocated in 
price-time priority.
    Proposed Rule 7.31(i)(2)(B)(ii) would be new and would address how 
STPO would function for resting orders in a priority category that 
allocates orders on parity. As proposed, if a resting order with an STP 
modifier from the same Client ID is in a priority category that 
allocates orders on parity, all resting orders with the STP modifier 
with the same Client ID in that priority category that would have been 
considered for an allocation would not be eligible for a parity 
allocation and would be cancelled. The rule would further provide that 
an incoming order marked with the STPO modifier would be eligible to 
trade on parity with orders in that priority category that do not have 
a matching STP modifier and that resting orders in that priority 
category with an STP modifier from the same Client ID that would not 
have been eligible for a parity allocation would remain on the Exchange 
Book. The Exchange believes that this proposed processing of STPO would 
allow for the incoming order to continue to trade with resting orders 
that do not have an STP modifier from the same client ID, while at the 
same time processing the instruction that resting orders with an STP 
from the same Client ID would be cancelled if there were a potential 
for an execution between the two orders.
     Proposed Rule 7.31(i)(3) would describe the Minimum Trade 
Size (``MTS'') Modifier, which is based in part on NYSE Arca Rule 7.31-
E(i)(3).\38\ The Exchange proposes a substantive difference in that the 
MTS Modifier would be available only for Limit IOC and MPL Orders. 
Subject to this difference, proposed Rule 7.31(i)(3)(A)-(E) and (G) is 
based on NYSE Arca Rule 7.31-E(i)(3)(A)-(F).
---------------------------------------------------------------------------

    \38\ See supra note 19.
---------------------------------------------------------------------------

    The Exchange proposes an additional substantive difference to 
address how a resting order with an MTS that becomes an Aggressing 
Order would trade under the parity allocation model. As described in 
proposed Rule 7.31(i)(3)(B), on arrival, an order to buy (sell) with an 
MTS Modifier would trade with sell (buy) orders in the Exchange Book 
that in the aggregate meet such order's MTS. In other words, the MTS of 
an Aggressing Order on arrival can be met by one or more resting 
orders. Because more than one resting order can trade with an arriving 
order with an MTS, such allocation can be made consistent with the 
Exchange's parity allocation model without any changes.\39\
---------------------------------------------------------------------------

    \39\ For example, if the midpoint of the PBBO is 10.00 and at 
10.00, the Exchange has a sell order ``A'' ranked Priority 3--Non-
Displayed for 100 shares from the Book Participant and a sell order 
``B'' ranked Priority 3--Non-Displayed for 100 shares from the Floor 
Broker Participant, if the Exchange receives a buy MPL Order with a 
limit price of 10.00 and an MTS of 200 shares, the MTS could be met 
by the resting orders in the aggregate, and the arriving buy order 
would trade with both ``A'' and ``B.''
---------------------------------------------------------------------------

    By contrast, proposed Rule 7.31(i)(3)(E) would provide that a 
resting order to buy (sell) with an MTS Modifier that becomes an 
Aggressing Order would trade with individual sell (buy) orders that 
each meet the MTS. Because a resting order that becomes an Aggressing 
Order, which could only be an MPL Order, would need to be able to trade 
with individual contra-side orders that each meet the MTS, the Exchange 
proposes to address how such requirement would operate with the 
Exchange's proposed allocation model. Specifically, proposed Rule 
7.31(i)(3)(F)(i) would provide that when such Aggressing Order is 
trading with sell (buy) orders in a priority category that allocates 
orders on price-time priority, if a sell (buy) order does not meet the 
MTS, the MPL Order with the MTS Modifier would not trade and would be 
ranked on the Exchange Book.
    Accordingly, for orders that trade in a price-time priority 
category, the MPL Order with an MTS Modifier would stop trading if a 
contra-side order does not meet the MTS. This proposal is consistent 
with how a resting order that becomes an Aggressing Order would trade 
on NYSE Arca, which has a price-time priority allocation model.
    Proposed Rule 7.31(i)(3)(F)(ii) would set forth how a resting MPL 
Order to buy (sell) with an MTS that becomes an Aggressing Order would 
trade with sell (buy) orders in a priority category that allocates 
orders on parity. Because in a parity allocation model, more than one 
resting order may participate in an allocation, the Exchange proposes 
that a resting order to buy (sell) with an MTS that becomes an 
Aggressing Order would not trade with any contra-side orders if at 
least one sell (buy) order that would have been considered for 
allocation does not meet the MTS. As proposed, in such case, the 
resting order with the MTS Modifier would be ranked on the Exchange 
Book.\40\ The Exchange

[[Page 13565]]

believes that if a member organization designates an MPL Order with an 
MTS Modifier, that member organization has instructed the Exchange not 
to trade that order with contra-side orders that are smaller in size 
than the MTS. Because in a parity allocation, resting orders are 
allocated based on their position on an allocation wheel, as described 
above, it would be consistent with the incoming order's instruction not 
to trade at all rather than to trade with even one order in the parity 
allocation that that does not meet the MTS.
---------------------------------------------------------------------------

    \40\ For example, the midpoint of the PBBO is 10.01 and at 
10.00, the Exchange has a sell order ``A'' ranked Priority 3--Non-
Displayed for 100 shares from the Book Participant and a sell order 
``B'' ranked Priority 3--Non-Displayed for 200 shares from the Floor 
Broker Participant and a buy MPL Order with a limit price of 10.00 
and an MTS of 200 shares. If the midpoint changes to 10.00, the 
resting buy MPL Order would become an Aggressing Order. In this 
scenario, both ``A'' and ``B'' would be eligible for an allocation, 
but because ``A'' cannot individually meet the MTS of the buy MPL 
Order, the MPL Order would not trade with either ``A'' or ``B'' and 
the buy MPL Order would be ranked on the Exchange Book as provided 
for in proposed Rule 7.31(i)(3)(F)(ii).
---------------------------------------------------------------------------

     Proposed Commentary .01 and .02 to Rule 7.31 is based on 
Commentary .01 and .02 to NYSE Arca Rule 7.31-E without any substantive 
differences.
    Because proposed Rule 7.31 would govern orders and modifiers, 
including orders entered by Floor brokers, the Exchange proposes that 
Rules 13 (Orders and Modifiers) and 70 (Execution of Floor broker 
interest) would not be applicable to trading UTP Securities on the 
Pillar trading platform. In addition, references to Trading Collars in 
Rule 1000(c) would not be applicable to trading UTP Securities on the 
Pillar Trading platform.\41\
---------------------------------------------------------------------------

    \41\ As described in greater detail above in connection with 
proposed Rule 7.37, the Exchange proposes that the entirety of Rule 
1000 would not be applicable to trading UTP Securities on the Pillar 
trading platform.
---------------------------------------------------------------------------

Proposed Rule 7.10
    Proposed Rule 7.10 (Clearly Erroneous Executions) would set forth 
the Exchange's rules governing clearly erroneous executions. The 
proposed rule is based on NYSE Arca Rule 7.10-E and NYSE American Rule 
7.10E with substantive differences not to refer to a Late Trading 
Session or Cross Orders. The Exchange proposes rule text based on NYSE 
Arca rather than current Rule 128 (Clearly Erroneous Executions) 
because the NYSE Arca and NYSE American version of the rule uses the 
same terminology that the Exchange is proposing for the Pillar trading 
platform, e.g., references to Early and Core Trading Sessions. 
Accordingly, the Exchange proposes that Rule 128 (Clearly Erroneous 
Executions) would not be applicable to trading UTP Securities on the 
Pillar trading platform.\42\ Because the Exchange would not be 
conducting auctions in UTP Securities, proposed Rule 7.10(a) would not 
include the last sentence of NYSE Arca Rule 7.10-E(a), which provides 
that ``[e]xecutions as a result of a Trading Halt Auction are not 
eligible for a request to review as clearly erroneous under paragraph 
(b) of this Rule.''
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    \42\ The Exchange proposes that because there is not a prior 
version of proposed Rule 7.10, if the Limit Up-Limit Down Plan is 
not approved, the prior version of sections (c), (e)(2), (f) and (g) 
of Rule 128 would be in effect.
---------------------------------------------------------------------------

Proposed Rule 7.11
    Proposed Rule 7.11 (Limit Up-Limit Down Plan and Trading Pauses in 
Individual Securities Due to Extraordinary Market Volatility) would 
establish how the Exchange would comply with the Regulation NMS Plan to 
Address Extraordinary Market Volatility (``LULD Plan'').\43\ The 
proposed rule is based on NYSE American Rule 7.11E with the following 
substantive differences. First, as proposed, the Exchange would not 
offer the optional functionality for a member organization to instruct 
the Exchange to cancel a Limit Order that cannot be traded or routed at 
prices at or within the Price bands, rather than the default processing 
of re-pricing a Limit Order to the Price Bands, as described in 
proposed Rule 7.11(a)(5)(B)(i).\44\ Accordingly, the Exchange would not 
include text relating to this instruction, as described in NYSE 
American Rules 7.11E(a)(5)(B)(i), 7.11E(a)(5)(C), or 7.11E(a)(5)(F). 
Second, because the Exchange would not be offering orders that include 
specific routing instructions, Q Orders, or Limit IOC Cross Orders, the 
Exchange would not include text that references these order types, as 
described in NYSE American Rule 7.11E(a)(5)(B)(iii), 7.11E(a)(5)(D), 
7.11E(a)(5)(E), and 7.11E(a)(6). The Exchange proposes to designate 
proposed Rules 7.11(a)(5)(D) and 7.11(a)(5)(E) as ``Reserved.''
---------------------------------------------------------------------------

    \43\ See Securities Exchange Act Release No. 80455 (April 13, 
2017), 81 FR 24908 (April 27, 2016) (File No. 4-631) (Order 
approving 12th Amendment to the LULD Plan).
    \44\ The Exchange will offer this optional functionality when it 
implements Pillar phase II communication protocols.
---------------------------------------------------------------------------

    Finally, because proposed Rule 7.11 would govern trading in UTP 
Securities and the Exchange would not conduct auctions for such 
securities, the Exchange does not propose rule text from NYSE American 
Rule 7.11E(b) that describes how the Exchange would re-open trading in 
a security. The Exchange proposes that Rule 7.11(b)(1) would be based 
on rule text from NYSE American Rule 7.11E(b)(1).
    Because the proposed rule covers the same subject matter as Rule 
80C, the Exchange proposes that Rule 80C would not be applicable to 
trading UTP Securities on the Pillar trading platform.
Proposed Rule 7.16
    Proposed Rule 7.16 (Short Sales) would establish requirements 
relating to short sales. The proposed rule is based on NYSE Arca Rule 
7.16-E and NYSE American Rule 7.16E with two substantive differences. 
First, because the proposed rule would not be applicable to any 
securities that are listed on the Exchange, the Exchange would not be 
evaluating whether the short sale price test restrictions of Rule 201 
of Regulation SHO have been triggered. Accordingly, the Exchange does 
not propose rule text based on NYSE Arca Rule 7.16-E(f)(3) or NYSE 
American Rule 7.16E(f)(3) and would designate that sub-paragraph as 
``Reserved.'' For similar reasons, the Exchange proposes not to include 
rule text based on NYSE Arca Rules 7.16-E(f)(4)(A) and (B) or NYSE 
American Rule 7.16E(f)(4)(A) and (B).
    Second, because the Exchange would not be offering Tracking Orders, 
Cross Orders, or the Proactive if Locked/Crossed Modifier, the Exchange 
does not propose rule text based on NYSE Arca Rule 7.16-E(f)(5)(D), 
(G), or (I) or NYSE American Rule 7.16E(f)(5)(D), (G), or (I). The 
Exchange proposes to designate proposed Rules 7.16(f)(5)(D) and (G) as 
``Reserved.''
    Because the proposed rule covers the same subject matter as Rule 
440B (Short Sales), the Exchange proposes that Rule 440B would not be 
applicable to trading UTP Securities on the Pillar trading platform.
Proposed Rule 7.18
    The Exchange proposes to amend Rule 7.18 (Halts) to establish how 
the Exchange would process orders during a halt in a UTP Security and 
when it would halt trading in a UTP Exchange Traded Product.\45\ 
Proposed Rule 7.18(b) would provide that the Exchange would not conduct 
a Trading Halt Auction in a UTP Security and would process new and 
existing orders in a UTP Security during a UTP Regulatory Halt \46\ as 
described in proposed Rule

[[Page 13566]]

7.18(b)(1)-(6). The proposed rule text is based on NYSE Arca Rule 7.18-
E(b) and its sub-paragraphs (1)--(6) and NYSE American Rule 7.18E(b) 
and its sub-paragraphs (1)-(6) with one substantive difference. Because 
the Exchange would not be offering ``Primary Only'' orders, proposed 
Rule 7.18(b)(5) would not reference such order types.
---------------------------------------------------------------------------

    \45\ The term ``UTP Exchange Traded Product'' is defined in Rule 
1.1(bbb) to mean an Exchange Traded Product that trades on the 
Exchange pursuant to unlisted trading privileges. The terms 
``Exchange Traded Product'' and ``UTP Exchange Traded Product'' on 
the Exchange have the same meaning as the NYSE Arca terms 
``Derivatives Securities Product'' and ``UTP Derivative Securities 
Product,'' which are defined in NYSE Arca Rule 1.1(k). The Exchange 
proposes a non-substantive difference in proposed Rule 7.18 as 
compared to NYSE Arca Rule 7.18-E to use the Exchange-defined terms.
    \46\ The term ``UTP Regulatory Halt'' is defined in Rule 1.1(kk) 
to mean a trade suspension, halt, or pause called by the UTP Listing 
Market in a UTP Security that requires all market centers to halt 
trading in that security.
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 7.18(d)(1)(A) to specify that 
if a UTP Exchange Traded Product begins trading on the Exchange in the 
Early Trading Session and subsequently a temporary interruption occurs 
in the calculation or wide dissemination of the Intraday Indicative 
Value (``IIV'') or the value of the underlying index, as applicable, to 
such UTP Exchange Traded Product, by a major market data vendor, the 
Exchange may continue to trade the UTP Exchange Traded Product for the 
remainder of the Early Trading Session. This proposed rule text is 
based on NYSE Arca Rule 7.18-E(d)(1)(A) and NYSE American Rule 
7.18E(d)(1)(A) without any substantive differences. The Exchange also 
proposes to amend Rule 7.18(d)(1)(B) to change the reference from 
``Exchange's Normal Trading Hours'' to the term ``Core Trading 
Session,'' which would be defined in proposed Rule 7.34, described 
below.
    The Exchange also proposes to amend Rule 7.18(a) to change the 
cross reference from Rule 80C to Rule 7.11 as proposed Rule 7.11 would 
govern how the Exchange would comply with the LULD Plan for trading UTP 
Securities.
Proposed Rule 7.34
    Proposed Rule 7.34 would establish trading sessions on the 
Exchange. The Exchange proposes that on the Pillar trading platform, it 
would have Early and Core Trading Sessions. Accordingly, proposed Rule 
7.34 is based in part on NYSE Arca Rule 7.34-E and NYSE American Rule 
7.34E, with the following substantive differences. First, similar to 
NYSE American, the Exchange proposes that the Early Trading Session 
would begin at 7:00 a.m. Eastern Time. Similar to NYSE Arca and NYSE 
American, the Exchange would begin accepting orders 30 minutes before 
the Early Trading Session begins, which means order entry acceptance 
would begin at 6:30 a.m. Eastern Time. These differences would be 
reflected in proposed Rule 7.34(a)(1).
    Second, proposed Rule 7.34(b) would be new and is not based on NYSE 
Arca Rule 7.34-E(b) or NYSE American Rule 7.34E(b). Rather than require 
member organizations to include a designation for which trading session 
the order would be in effect, the Exchange proposes to specify in Rule 
7.34(b) and (c) which trading sessions an order would be deemed 
designated. Proposed Rule 7.34(b)(1) would provide that unless 
otherwise specified in Rule 7.34(c), an order entered before or during 
the Early or Core Trading Session would be deemed designated for the 
Early Trading Session and the Core Trading Session. Proposed Rule 
7.34(b)(2) would provide that an order without a time-in-force 
designation would be deemed designated with a day time-in-force 
modifier.
    Proposed Rule 7.34(c) would specify which orders would be permitted 
in each session. Proposed Rule 7.34(c)(1) would provide that unless 
otherwise specified in paragraphs (c)(1)(A)-(C), orders and modifiers 
defined in Rule 7.31 would be eligible to participate in the Early 
Trading Session. This proposed rule text is based on NYSE Arca Rule 
7.34-E(c)(1) and NYSE American Rule 7.34E(c)(1) with a substantive 
difference not to refer to orders ``designated'' for the Early Trading 
Session. In addition, because the Exchange would not be offering a 
Retail Liquidity Program, the Exchange would not reference Rule 7.44.
     Proposed Rule 7.34(c)(1)(A) would provide that Pegged 
Orders would not be eligible to participate in the Early Trading 
Session. This rule text is based in part on NYSE Arca Rule 7.34-
E(c)(1)(A) and NYSE American Rule 7.34E(c)(1)(A) in the Pegged Orders 
would not be eligible to participate in the Early Trading Session. The 
Exchange proposes a substantive difference from the NYSE Arca and NYSE 
American rules because proposed Rule 7.34(c)(1)(A) would not refer to 
Market Orders. Market Orders entered during the Early Trading Session 
would be addressed in proposed Rule 7.34(c)(1)(C), described below. The 
proposed rule would further provide that Non-Displayed Primary Pegged 
Orders entered before the Core Trading Session would be rejected and 
Primary Pegged Orders entered before the Core Trading Session would be 
accepted but would not be eligible to trade until the Core Trading 
Session begins. This rule text is based in part on both NYSE Arca Rule 
7.34-E(c)(1)(A) and NYSE American Rule 7.34E(c)(1)(A), but uses 
terminology consistent with the Exchange's proposed order types.
     Proposed Rule 7.34(c)(1)(B) would provide that Limit 
Orders designated IOC would be rejected if entered before the Early 
Trading Session begins. This proposed rule is based on NYSE Arca Rule 
7.34-E(c)(1)(B) and NYSE American Rule 7.34E(c)(1)(B) with two 
substantive differences. First, because the Exchange would not be 
conducting auctions, the Exchange proposes to specify that the 
rejection period would begin ``before the Early Trading Session 
begins'' rather than state ``before the Early Open Auction concludes.'' 
Second, the Exchange would not refer to Cross Orders, which would not 
be offered on the Exchange.
     Proposed Rule 7.34(c)(1)(C) would provide that Market 
Orders and Auction-Only Orders in UTP Securities entered before the 
Core Trading Session begins would be routed to the primary listing 
market on arrival and any order routed directly to the primary listing 
market on arrival would be cancelled if that market is not accepting 
orders. This proposed rule is based on NYSE Arca Rule 7.34-E(c)(1)(D) 
and NYSE American Rule 7.34E(c)(1)(D) with a non-substantive difference 
to specify that such orders would be routed until the Core Trading 
Session begins.
    Proposed Rule 7.34(c)(2) would provide that unless otherwise 
specified in Rule 7.34(c)(2)(A)-(B), all orders and modifiers defined 
in Rule 7.31 would be eligible to participate in the Core Trading 
Session. This proposed rule text is based on NYSE Arca Rule 7.34-
E(c)(2) and NYSE American Rule 7.34E(c)(2) with a substantive 
difference not to refer to orders ``designated'' for the Core Trading 
Session. In addition, because the Exchange would not be offering a 
Retail Liquidity Program, the Exchange would not reference Rule 7.44.
     Proposed Rule 7.34(c)(2)(A) would provide that Market 
Orders in UTP Securities would be routed to the primary listing market 
until the first opening print of any size on the primary listing market 
or 10:00 a.m. Eastern Time, whichever is earlier. This proposed rule is 
based on NYSE Arca Rule 7.34-E(c)(2)(A) and NYSE American Rule 
7.34E(c)(2)(A) with a non-substantive difference to use the term ``UTP 
Securities'' instead of referencing orders that ``are not eligible for 
the Core Open Auction.''
     Proposed Rule 7.34(c)(2)(B) would provide that Auction-
Only Orders in UTP Securities would be accepted and routed directly to 
the primary listing market. This proposed rule is based on NYSE Arca 
Rule 7.34-E(c)(2)(B) and NYSE American Rule 7.34E(c)(2)(B) with a non-
substantive difference to use the term ``UTP Securities'' instead of 
referencing orders that ``are not eligible for an auction on the 
Exchange.''

[[Page 13567]]

    Proposed Rule 7.34(d) would establish requirements for member 
organizations to provide customer disclosure when accepting orders for 
execution in the Early Trading Session. The proposed rule is based on 
NYSE Arca Rule 7.34-E(d) and NYSE American Rule 7.34E(d) without any 
substantive differences.
    Proposed Rule 7.34(e) would provide that trades on the Exchange 
executed and reported outside of the Core Trading Session would be 
designated as .T trades. This proposed rule is based on NYSE Arca Rule 
7.34-E(e) and NYSE American Rule 7.34E(e) without any substantive 
differences.
Proposed Rule 7.38
    Proposed Rule 7.38 (Odd and Mixed Lot) would establish requirements 
relating to odd lot and mixed lot trading on the Exchange. The proposed 
rule is based on NYSE Arca Rule 7.38-E and NYSE American Rule 7.38E 
with one substantive difference. Because orders ranked Priority 2--
Display Orders, including odd-lot sized orders, are on an allocation 
wheel at their display price, the Exchange proposes that if the display 
price of an odd-lot order to buy (sell) is above (below) its working 
price (i.e., the PBBO, which is the price at which the odd-lot order is 
eligible to trade, has crossed the display price of that odd-lot 
order), the odd-lot order would be ranked and allocated based on its 
display price. In such case, the order would execute at its working 
price, but if there is more than one odd-lot order at the different 
display price, they would be allocated on parity.
    For example, if at 10.02, the Exchange has an order ``A'' to buy 50 
shares ranked Priority 2--Display Orders, and at 10.01, the Exchange 
has an order ``B'' to buy 10 shares ranked Priority 2 -Display Orders, 
an order ``C'' to buy 10 shares ranked Priority 2--Display Orders, and 
an order ``D'' to buy 10 shares ranked Priority 2 -Display Orders, and 
the parity pointer is on order ``C,'' if the Away Market PBO becomes 
10.00, which crosses the display price of ``A,'' ``B,'' ``C,'' and 
``D,'' those orders would trade at 10.00. If the Exchange were to 
receive a Market Order to sell 70 shares, it would trade at 10.00 and 
be allocated 50 shares to ``A,'' 10 shares to ``C,'' and 10 shares to 
``D.'' ``B'' would not receive an allocation based on its position on 
the allocation wheel.
    The Exchange proposes that Rule 61 (Recognized Quotations) would 
not be applicable to trading UTP Securities on the Pillar trading 
platform.
Proposed Rule 7.46
    Section 5 of Rule 7P would establish requirements relating to the 
Plan to Implement a Tick Size Pilot Program. Proposed Rule 7.46 (Tick 
Size Pilot Plan) would specify such requirements. The proposed rule is 
based on NYSE American Rule 7.46E with the following substantive 
differences for proposed Rule 7.46(f). First, because the Exchange 
would not offer Market Pegged Orders, the Exchange proposes that 
paragraph (f)(3) of the Rule would be designated as ``Reserved.'' 
Second, the Exchange proposes to set forth the priority of resting 
orders both for ranking and for allocation. For Pilot Securities in 
Test Group Three, proposed Rule 7.46(f)(5)(A) would govern ranking 
instead of proposed Rule 7.36(e), described above, as follows:
     Priority 2--Display Orders. Non-marketable Limit Orders 
with a displayed working price would have first priority.
     Protected Quotations of Away Markets. Protected quotations 
of Away Markets would have second priority.
     Priority 1--Market Orders. Unexecuted Market Orders would 
have third priority.
     Priority 3--Non-Display Orders. Non-marketable Limit 
Orders for which the working price is not displayed, including reserve 
interest of Reserve Orders, would have fourth priority.
    For Pilot Securities in Test Group Three, proposed Rule 
7.46(f)(5)(B) would set forth how an Aggressing Order would be 
allocated against contra-side orders, instead of proposed Rule 
7.37(b)(1), described above, as follows:
     First, an order with Setter Priority that has a display 
price and working price equal to the BBO would receive 15% of the 
remaining quantity of the Aggressing Order, rounded up to the next 
round lot size or the remaining displayed quantity of the order with 
Setter Priority, whichever is lower. An order with Setter Priority 
would be eligible for Setter Priority allocation if the BBO is no 
longer the same as the NBBO.
     Next, orders ranked Priority 2--Displayed Orders would be 
allocated on parity by Participant. The remaining quantity of the order 
with Setting Priority would be eligible to participate in this parity 
allocation, consistent with the allocation wheel position of the 
Participant that entered the order with Setter Priority.
     Next, subject to proposed Rule 7.46(f)(5)(F) (describing 
orders with instructions not to route), the Exchange would route the 
Aggressing Order to protected quotations of Away Markets.
     Next, orders ranked Priority 1--Market Orders would trade 
based on time.
     Next, orders ranked Priority 3--Non-Display Orders, other 
than MPL Orders with an MTS, would be allocated on parity by 
Participant.
     Next, MPL Orders with an MTS would be allocated based on 
MTS size (smallest to largest) and time.
    Third, the Exchange would not include rule text based on NYSE 
American Rule 7.46E(f)(G), relating to Limit IOC Cross Orders, which 
would not be offered on the Exchange. Finally, proposed Rules 
7.46(f)(5)(F)(i)(a) and (b) are based on NYSE Arca Rules 7.46-
E(f)(5)(F)(i)(a) and (b) and not the NYSE American version of the rule 
because NYSE American does not offer Day ISO orders.
    The Exchange proposes that Rule 67 (Tick Size Pilot Plan) would not 
be applicable to trading UTP Securities on the Pillar trading platform.
Amendments to Rule 103B and 107B
    As described above, the Exchange would not assign UTP Securities to 
DMMs. Accordingly, the Exchange proposes to amend Rule 103B(I) 
(Security Allocation and Reallocation) to specify that UTP Securities 
would not be allocated to a DMM unit.
    In addition, because UTP Securities would be eligible to be 
assigned to Supplemental Liquidity Providers, the Exchange proposes to 
amend Rule 107B (Supplemental Liquidity Providers) to replace the term 
``NYSE-listed securities'' with the term ``NYSE-traded securities,'' 
which would include UTP Securities.
Current Rules That Would Not Be Applicable To Trading UTP Securities on 
Pillar
    As described in more detail above, in connection with the proposed 
rules to support trading of UTP Securities on the Pillar trading 
platform, the Exchange has identified current Exchange rules that would 
not be applicable because they would be superseded by a proposed rule. 
The Exchange has identified additional current rules that would not be 
applicable to trading on Pillar. These rules do not have a counterpart 
in the proposed Pillar rules, described above, but would be obsolete 
when trading UTP Securities on Pillar.
    The main category of rules that would not be applicable to trading 
on the Pillar trading platform are those rules that are specific to 
auctions and Floor-based point-of-sale trading other than crossing 
transactions pursuant to Rule 76. For this reason, the Exchange 
proposes that the following Floor-specific rules would

[[Page 13568]]

not be applicable to trading on the Pillar trading platform:
     Rule 15 (Pre-Opening Indication and Opening Order 
Imbalance Information).
     Rule 77 (Prohibited Dealings and Activities).
     Rule 79A (Miscellaneous Requirements on Stock Market 
Procedures).
     Rule 108 (Limitation on Members' Bids and Offers).
     Rule 111 (Reports of Executions).
     Rule 115A (Orders at Opening).
     Rule 116 (`Stop' Constitutes Guarantee).
     Rule 123A (Miscellaneous Requirements).
     Rule 123B (Exchange Automated Order Routing System).
     Rule 123C (The Closing Procedures).
     Rule 123D (Openings and Halts in Trading)
     Rule 127 (Block Crosses Outside the Prevailing NYSE 
Quotation).
    In addition, as noted above, the Exchange would not offer a Retail 
Liquidity Program when it trades on the Pillar trading platform. 
Proposed rules that are based on NYSE Arca rules that include a cross 
reference to NYSE Arca Rule 7.44-E would not include that rule 
reference. The Exchange also proposes that Rule 107C would not be 
applicable to trading UTP Securities on the Pillar trading platform.
* * * * *
    As discussed above, because of the technology changes associated 
with the migration to the Pillar trading platform, the Exchange will 
announce by Trader Update when the Pillar rules for trading UTP 
Securities will become operative.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\47\ in general, and 
furthers the objectives of Section 6(b)(5),\48\ 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. The Exchange 
believes that the proposed rules to support Pillar on the Exchange 
would remove impediments to and perfect the mechanism of a free and 
open market because they provide for rules to support the Exchange's 
introduction of trading UTP Securities on the Pillar trading platform.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f(b).
    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Generally, the Exchange believes that the proposed rules would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because they would support the 
Exchange's introduction of trading UTP Securities in a manner that 
would use Pillar terminology to describe how the Exchange's current 
Floor-based parity allocation model with Setter Priority would operate, 
with specified substantive differences from current rules, and 
introduce Pillar rules for the Exchange that are based on the rules of 
its affiliated markets, NYSE Arca and NYSE American.
    With respect to how UTP Securities would be ranked, displayed, 
executed, and routed on Pillar, the Exchange believes that proposed 
Rules 7.36(a)-(g) and proposed Rules 7.37(a) and (c)-(g) would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because these rules would use Pillar 
terminology that is based on the approved rules of NYSE Arca and NYSE 
American. The Exchange believes that proposed Rule 7.36(h), which would 
establish Setter Priority, would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed rule is based on current Rule 72(a), with 
substantive differences designed to encourage the display of 
aggressively-priced orders by requiring that an order not only 
establish the BBO, but also establish or join the NBBO to be eligible 
for Setter Priority.
    The Exchange similarly believes that proposed Rule 7.37(b), which 
would use Pillar terminology to describe how an Aggressing Order would 
be allocated, would remove impediments to and perfect the mechanism of 
a free and open market and a national market system because it is based 
on current Rule 72(b) and (c). The Exchange believes that the proposed 
substantive difference to maintain separate allocation wheels for 
displayed and non-displayed orders at each price would promote just and 
equitable principles of trade because it would allow for Exchange 
member organizations to establish their position on an allocation wheel 
at each price point, rather than rely on their position on a single 
allocation wheel that would be applicable to trades at multiple price 
points.
    The Exchange believes that extending its parity allocation model to 
UTP Securities, including extending parity allocation for orders 
entered by Floor brokers, is not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers. First, 
although the Exchange would not have DMMs assigned to UTP Securities, 
the Exchange proposes to maintain Floor trading for UTP Securities. 
Similar to trading in Exchange-listed securities, Floor brokers, would 
be able to effect crossing transactions in UTP Securities on the Floor, 
but with Exchange employees rather than DMMs staffing where such 
trading would occur.
    Second, to be eligible to be included in the Floor Broker 
Participant, and thus be eligible for a parity allocation, the Floor 
broker that entered the order must be engaged in a Floor broker 
business in Exchange-listed securities. The Exchange believes that this 
requirement provides a nexus between Exchange Floor trading in 
Exchange-listed securities and the extension of that model to trading 
in UTP Securities.
    Third, because member organizations operating as Floor brokers 
would be trading on the floor of an exchange, they would be subject to 
restrictions on trading for their own account set forth in Section 
11(a)(1) of the Act and rules thereunder. Moreover, the Exchange 
proposes to specify in proposed Rule 7.36 that for an order to be 
eligible to be included in the Floor Broker Participant, it cannot be 
for the account of the Floor broker or any associated persons (unless 
entered via an error account pursuant to Rule 134).
    Because Floor brokers trading in UTP Securities would not be 
permitted to trade for their own accounts, they would not be permitted 
to engage in the type of customer-based principal trading activities of 
a member organization that enters orders from off the Floor of the 
Exchange. Therefore, an allocation to an individual Floor broker under 
the Exchange's proposed allocation model would always accrue to the 
customer of that Floor broker (or customers if multiple orders are 
represented by a Floor broker). Conversely, because a member 
organization operating a Floor broker may trade on behalf of customers 
only, it would never receive a Floor broker parity allocation for 
proprietary trading. As such, the Exchange does not consider the 
proposed parity allocation model for UTP Securities as a Floor broker 
``benefit,'' but rather as an allocation model choice for customers.
    This choice remains relevant in today's more electronic market. As 
broker-dealers and institutional investors have reduced the number of

[[Page 13569]]

natural persons on their own off-Floor trading desks, Floor brokers 
have come to serve as an extension of the more thinly staffed trading 
desks of other broker-dealers or institutional investors, but at a 
variable cost. This is an important function that the Floor brokers 
play as an agency broker without conflicts and fills a void for firms 
that have chosen to allocate resources away from trading desks. In 
addition to this role, Floor brokers provide services for more illiquid 
securities, which upstairs trading desks may not be staffed to manage. 
Importantly, when providing such agency trading services, a Floor 
broker is unconflicted because he or she is not trading for his own 
account and does not sell research to customers. Floor brokers 
therefore can focus on price discovery and volume discovery on behalf 
of their customers, while at the same time managing their customers' 
order flow to ensure that it does not impact pricing on the market 
(e.g., executing large positions on behalf of a customer). As discussed 
above, when managing such customer order flow, Floor brokers trading in 
UTP Securities would continue to be subject to Exchange rules that are 
unique to Floor brokers, including Rules 95, 122, 123, and paragraphs 
(d)-(j) of Rule 134.
    Fourth, any member organization can choose to have a Floor broker 
operation and thus have direct access to Floor broker parity 
allocations on behalf of its customers. The Exchange does not charge 
member organizations for the use of booth space on the Floor, and 
therefore there would be minimal to no extra cost for a member 
organization to have a Floor business. Indeed, a smaller firm that 
moves its entire operation to the NYSE Floor could have reduced costs 
as compared to a firm that needs to pay for office space. Because there 
is fair access to any member organization to engage in a Floor broker 
operation, the differences between how an order is allocated to a Floor 
Broker Participant and Book Participant would not unfairly discriminate 
among Exchange member organizations.
    Finally, customers relying on agency broker-dealers to represent 
their orders on the Exchange can choose whether to use a Floor broker 
or a member organization that only uses off-exchange order entry 
methods.\49\ In some cases, customers choose to use a member 
organization that offers both order entry methods. But the different 
allocation models are available to all customers that use a member 
organization to enter orders on the Exchange; having such choice would 
not unfairly discriminate among customers.
---------------------------------------------------------------------------

    \49\ Floor broker customers are generally other broker-dealers 
or institutional investors. Retail investors generally do not 
interact directly with either Floor brokers or the trade desks of 
member organizations that route orders to the Exchange.
---------------------------------------------------------------------------

    The Exchange also believes that its proposal to make its existing 
parity allocation model, as modified for the Pillar trading platform, 
available for UTP Securities would remove impediments to and perfect 
the mechanism of a free and open market because it would extend the 
Exchange's choice-based allocation model to all securities that would 
trade on the Exchange in a manner that is consistent with its Trading 
Floor model. For market participants other than DMMs, the Exchange does 
not believe that there is an inherent benefit of one method of 
allocation on the Exchange over another. Market participants that are 
latency sensitive--whether for proprietary or agency-based trading--may 
choose to use the off-exchange order entry method because of the 
relative speed of that order entry path as compared to Floor broker 
order entry and availability of Setter Priority allocation. By 
contrast, market participants that are not as latency sensitive or are 
seeking an unconflicted agent to manage their order flow and 
potentially negotiate a large crossing transaction may choose to use a 
Floor broker.
    The Exchange believes that intra-day trading volume entered by 
Floor brokers in NYSE-listed securities, which are subject to the 
Exchange's existing parity allocation model, demonstrates how customers 
have already exercised this choice. In October 2017, orders from Floor 
brokers represented approximately 5.5% of the intra-day liquidity-
providing volume on the Exchange in NYSE-listed securities (the parity 
allocation model is only applicable to provide volume).\50\ The 
Exchange believes that this volume demonstrates that there is still a 
value to the end customer--who has a choice--to use a Floor broker. As 
discussed above, Floor brokers can be distinguished from off-Floor 
agency member organizations because they operate a pure agency business 
and do not trade for their own accounts. There are customers that value 
that conflict-free model. In addition, Floor brokers distinguish 
themselves by providing high-touch service to their customers. Floor 
brokers that attract liquidity-providing orders promote the display of 
liquidity on the Exchange.
---------------------------------------------------------------------------

    \50\ Over 75% of Floor broker traded volume in NYSE-listed 
securities is for auctions. However, because the Exchange would not 
be conducting auctions in UTP Securities, the relative benefits of a 
parity allocation to a Floor broker in an auction would not be 
applicable.
---------------------------------------------------------------------------

    That volume of Floor broker intra-day trading also demonstrates 
that customers have similarly exercised their choice not to use Floor 
brokers. If there were an inherent benefit to the Floor broker parity 
allocation that distinguishes it as superior to the Book Participant 
allocation, it would likely follow that there would be greater 
proportion of intra-day order flow directed to Floor brokers in NYSE-
listed securities. But that is not the case. In sum, the current NYSE-
listed intra-day Floor broker provide volume demonstrates that using a 
Floor broker has value to certain customers, but also demonstrates that 
the parity allocation to a Floor broker is not the only component of a 
customer's decision about how to send its orders to the Exchange. With 
this filing, the Exchange proposes to extend that choice to UTP 
Securities, thereby benefiting the ultimate customer of the Floor 
broker.
    The Exchange further believes that its proposed parity allocation 
model for UTP Securities would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it is a competitive offering vis-[agrave]-vis other exchange 
competitors, which offer variations on a price-time priority models, 
and over-the-counter trading. The Exchange is currently the only 
registered exchange that does not trade non-Exchange listed securities 
on a UTP basis. Additionally, the Exchange currently is the only 
registered exchange that makes available Floor-based trading for cash 
equity securities. The Exchange proposes to extend the availability of 
this feature by maintaining Floor-based crossing transactions when it 
launches trading in UTP Securities. The Exchange believes that trading 
UTP Securities is a natural extension of its current offering of 
trading Exchange-listed securities, which also trade on a parity 
allocation model. The Exchange believes it would promote competition to 
offer this allocation model for all securities that would trade on the 
Exchange, thereby providing an alternative allocation model for UTP 
Securities. Conversely, Floor brokers on the Exchange would be able to 
expand the services they provide to customers by being able to manage 
order flow in UTP Securities in addition to Exchange-listed securities. 
The Exchange also believes that this proposed allocation model would 
promote intra-market competition by offering a menu of choices to 
market participants of how their orders in UTP Securities would be 
allocated on the Exchange.

[[Page 13570]]

    While the parity allocation model is a competitive offering, its 
origins are derived from the Floor-based trading model of the Exchange. 
Accordingly, the Exchange believes that it would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system to provide for Floor-based crossing transactions and to 
extend existing requirements relating to Floor brokers for orders in 
UTP Securities that seek to be eligible to be included in the Floor 
Broker Participant. First, as noted above, the Floor broker must trade 
on an agency-only basis and would continue to be subject to rules that 
are unique to a Floor broker, including requirements specified in Rules 
95, 122, 123, and 134(d)-(j). Second, consistent with current Rule 70 
requirements, for orders in UTP Securities to be eligible to be 
included in the Floor Broker Participant, such orders must be entered 
by a Floor broker while on the Trading Floor.
    In addition, because the parity allocation model is based on the 
history of the Exchange as a Floor-based model, the Exchange believes 
that for orders in UTP Securities to be eligible to be included in the 
Floor Broker Participant, the Floor broker representing such orders 
must also be engaged in a Floor broker business in Exchange-listed 
securities. Trading in UTP Securities on the Trading Floor is designed 
to complement a Floor broker's existing role in representing orders in 
Exchange-listed securities because it would enable such Floor brokers 
to trade additional securities on behalf of their customers. For 
example, a Floor broker would be better positioned to process baskets 
of securities that include Tape A, B, and C securities and enter all 
such orders on the Exchange. By offering the parity allocation model 
for UTP Securities, a Floor broker would not need to segregate its 
orders in UTP Securities into different trading strategies than what 
would be offered for Exchange-listed securities. Because Floor broker 
trading in UTP Securities is designed to function in tandem with 
trading in Exchange-listed securities, the Exchange believes that it 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system to require such nexus because 
it would ensure that member organizations would not seek to conduct a 
stand-alone Floor broker business in only UTP Securities.
    The Exchange believes that proposed Rules 7.10, 7.11, 7.16, 7.18, 
7.31, 7.34, 7.38, and 7.46 would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because they are based on the rules of NYSE Arca and NYSE American. The 
proposed substantive differences to the Exchange's rules would be 
because the Exchange would not be offering the full suite of orders and 
modifiers available on NYSE Arca and NYSE American. In addition, the 
Exchange proposes substantive differences to these rules consistent 
with the Exchange's proposed parity allocation model. The Exchange 
believes that the proposed substantive differences for these rules 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because they would provide 
transparency of which orders, modifiers and instructions would be 
available on the Exchange when it begins trading UTP Securities on the 
Pillar trading platform, and how the Pillar rules would function with a 
parity allocation model.
    The Exchange believes that the proposed substantive differences to 
Rule 7.34 to offer Early and Core Trading Sessions, but not a Late 
Trading Session, would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because it is 
consistent with the Exchange's current hours, described in Rule 51, 
that the Exchange is not open for business after 4:00 p.m. Eastern 
Time. The Exchange further believes that adding a trading session 
before 9:30 a.m. Eastern Time would provide additional time for 
Exchange member organizations to trade UTP Securities on the Exchange 
consistent with the trading hours of other exchanges, including NYSE 
American, which also will begin trading at 7:00 a.m. Eastern Time.
    The Exchange believes that the proposed amendments to Rules 103B 
and 107B would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because they would 
provide transparency that the Exchange would not be assigning UTP 
Securities to DMMs and that member organizations would be eligible to 
register as a Supplemental Liquidity Providers in UTP Securities. The 
Exchange further believes that not assigning DMMs to UTP Securities is 
consistent with just and equitable principles of trade because the 
Exchange would not be conducting auctions in UTP Securities and 
therefore the Exchange would not need DMMs assigned to such securities 
to facilitate auctions. Not having DMMs registered in UTP Securities is 
also consistent with how NYSE Arca and NYSE American function on 
Pillar, in that neither lead market makers (on NYSE Arca) nor 
electronic designated market makers (on NYSE American) are assigned 
securities not listed on those exchanges. The Exchange further believes 
that it would remove impediments to and perfect the mechanism of a free 
and open market and a national market system for member organizations 
to be eligible to register as Supplemental Liquidity Providers in UTP 
Securities as this would provide an incentive for displayed liquidity 
in UTP Securities.
    The Exchange further believes that it would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system to specify which current rules would not be applicable to 
trading UTP Securities on the Pillar trading platform. The Exchange 
believes that the following legend, which would be added to existing 
rules, ``This Rule is not applicable to trading UTP Securities on the 
Pillar trading platform,'' would promote transparency regarding which 
rules would govern trading UTP Securities on the Exchange on Pillar. 
The Exchange has proposed to add this legend to rules that would be 
superseded by proposed rules or rules that would not be applicable 
because they relate to auctions or Floor-based point-of-sale trading.

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 proposed change is 
designed to propose rules to support trading of UTP Securities on the 
Exchange's new Pillar trading platform. The Exchange operates in a 
highly competitive environment in which its unaffiliated exchange 
competitors operate multiple affiliated exchanges that operate under 
common rules. By adding trading of UTP Securities on the Exchange, the 
Exchange believes that it will be able to compete on a more level 
playing field with its exchange competitors that similarly trade all 
NMS Stocks. In addition, by basing certain rules on those of NYSE Arca 
and NYSE American, the Exchange will provide its members with 
consistency across affiliated exchanges, thereby enabling the Exchange 
to compete with unaffiliated exchange competitors that similarly 
operate multiple exchanges on the same trading platforms.
    More specifically, the Exchange does not believe that the proposal 
to extend

[[Page 13571]]

the Exchange's existing parity allocation model, as modified for 
Pillar, to UTP Securities would impose a burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
To the contrary, the Exchange believes that the proposal would promote 
inter-market competition by providing market participants with the 
choice of a parity allocation model together with Floor crossing 
transactions for trading UTP Securities, which is not available on any 
other exchange. For the Exchange's listed securities, its competitive 
offering includes not only its parity allocation model, but also its 
auctions. Designed as a complement to existing Floor broker operations 
in Exchange-listed securities and consistent with the Exchange's 
current trading model, the Floor Broker Participant parity allocation 
for UTP Securities would be available only to Floor brokers that engage 
in Floor trading of Exchange-listed securities, and such Floor brokers 
would be eligible to engage in manual transactions under Rule 76 for 
UTP Securities. In addition, to be eligible for a parity allocation, 
Floor brokers must enter such orders on the Trading Floor and could 
only trade on an agency basis. Moreover, any trading in UTP Securities 
by Floor brokers would be subject to existing rules that apply only to 
Floor brokers, such as Rules 95, 122, 123, and 134(d)-(j).
    The Exchange further believes that the proposal would promote 
intra-market competition because it would provide a choice to customers 
of how their orders in UTP Securities would be allocated on the 
Exchange. For certain customers, entering orders via the Book 
Participant may serve their trading strategies. For other customers, 
using a Floor broker for intra-day trading may serve their trading 
strategies. Importantly, the results of a Floor broker allocation would 
always accrue to the customer, and whether to use a Floor broker is the 
customer's choice. Accordingly, this proposed market structure is not 
about providing a ``benefit'' to a Floor broker, but rather providing 
customers with a choice of how an order would be allocated.

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. Summary of Comments Received

    The Commission received one comment letter, which opposes NYSE's 
proposal to provide floor brokers with parity allocation and the 
exclusive use of certain order types (i.e., pegged orders).\51\ The 
commenter asserts that providing floor brokers with preferential 
treatment in a fully electronic trading environment, the market for UTP 
Securities, unfairly discriminates against market participants who do 
not submit orders through a Floor Broker.\52\ According to the 
commenter, parity provides floor brokers with a distinct unfair 
competitive advantage over other market participants, such as customers 
and broker-dealers.\53\
---------------------------------------------------------------------------

    \51\ See Cboe Letter, supra note 9.
    \52\ See id. at 1-2.
    \53\ Id. at 2.
---------------------------------------------------------------------------

    The commenter states that floor brokers do not have the 
restrictions of time priority when they receive parity and can ``skip 
the line.'' \54\ According to the commentor, floor brokers can insert 
themselves into the parity wheel and buy and sell during price 
disparities to liquidate or acquire positions at beneficial prices.\55\ 
The commentor asserts that this would disadvantage customers and 
broker-dealers, even though, like the floor brokers, they add liquidity 
to the market.\56\ The commenter further assert that this would also 
disadvantages other members and their orders, including orders routed 
from other trading centers, which are aggregated into one participant 
and receive one slot on the parity wheel.\57\
---------------------------------------------------------------------------

    \54\ Id.
    \55\ Id.
    \56\ Id.
    \57\ Id.
---------------------------------------------------------------------------

    According to the commenter, many entities cannot, as a practical 
matter, take advantage of the floor brokers' parity allocations, and 
that those that can use the services of floor brokers may route more 
orders through them to get the advantage of parity.\58\ The commenter 
believes that floor brokers could take advantage of this by charging 
higher transaction fees to customers.\59\ The commenter asserts that 
orders submitted by the floor broker do not represent manual interest, 
but are the byproduct of the floor broker reselling algorithms or other 
electronic access to their privileged position on the parity wheel.\60\
---------------------------------------------------------------------------

    \58\ Id.
    \59\ Id.
    \60\ Id. at 2-3.
---------------------------------------------------------------------------

    The commenter also states that providing floor brokers with the 
exclusive use of pegged orders provides them an unjustified competitive 
advantage over customers and broker-dealers when trading securities 
electronically.\61\ The commenter explains that pegged orders 
automatically repriced to a new price level and that, therefore, pegged 
orders have a time advantage over all other orders that seek to be 
entered at the revised price.\62\
---------------------------------------------------------------------------

    \61\ Id. at 3.
    \62\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\63\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \64\--which requires, among other things, 
that the rules of a national securities exchange be 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, and that the rules not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers--and with Section 6(b)(8) of the Act,\65\ which requires that 
the rules of a national securities exchange not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Commission further finds that the proposed 
rule change is consistent with Section 12(f) of the Act,\66\ which 
permits a national securities exchange to trade securities it does not 
list, pursuant to unlisted trading privileges, as long as the 
securities are listed on another national securities exchange.
---------------------------------------------------------------------------

    \63\ In approving this proposed rule change, as modified by 
Amendment No. 1, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \64\ 15 U.S.C. 78f(b)(5).
    \65\ 15 U.S.C. 78f(b)(8).
    \66\ 15 U.S.C. 78l(f).
---------------------------------------------------------------------------

    The Exchange proposes to trade, for the first time, securities that 
it does not list, and it proposes to do so using a new technology 
platform--the Pillar platform that has been deployed to date on the 
Exchange's affiliated exchanges NYSE Arca and NYSE American. The 
proposed rules for UTP trading would govern clearly erroneous 
executions, limit-up-limit-down plan compliance, short sales, trading 
halts, orders and

[[Page 13572]]

modifiers, order ranking and display, order execution and routing, odd 
and mixed lots trading, and tick-size pilot plan compliance, and the 
proposal would also designate the current Exchange rules that are not 
applicable to UTP Securities.
    Trading of UTP Securities on the Exchange would differ in two 
significant respects from trading in NYSE-listed securities.\67\ First, 
the Exchange would not conduct auctions in UTP Securities. And second, 
the Exchange would not assign UTP securities to DMMs, which have 
affirmative obligations to support a fair and orderly market, and to 
facilitate auctions, in their assigned securities.\68\ The Commission 
believes that these distinctions between NYSE-listed securities and UTP 
Securities are consistent with UTP trading of securities generally, and 
that these distinctions are consistent with the requirements of the 
Act.
---------------------------------------------------------------------------

    \67\ NYSE represents that it will continue to trade NYSE-listed 
securities on its current trading platform. The Exchange intends to 
migrate trading in NYSE-listed securities to Pillar at a later date. 
See supra note 17.
    \68\ See NYSE Rule 104(a) (stating that ``DMMs registered in one 
or more securities trading on the Exchange must engage in a course 
of dealings for their own account to assist in the maintenance of a 
fair and orderly market insofar as reasonably practicable.'').
---------------------------------------------------------------------------

    The Commission also notes that, while the proposed trading rules 
are similar in most respects to previously approved rules of NYSE Arca 
and NYSE American--which also use the Pillar trading platform \69\--
they differ in certain material ways. Most notably, the Exchange will 
extend its current parity allocation model to the execution of trades 
in UTP Securities, rather than using the strict price-time priority 
allocation of NYSE Arca and NYSE American, and this parity allocation 
model would allow each floor broker's orders to trade on parity with 
orders on the Exchange book. Only floor brokers engaged in a floor-
broker business for NYSE-listed securities would be eligible for parity 
allocation. Additionally, Exchange floor brokers would only be able to 
enter orders for parity allocation while physically on the floor of the 
Exchange, and they could not engage in proprietary trading using parity 
allocation. Finally, there would also be a floor-based point of sale, 
supervised by Exchange employees, where floor brokers would be able 
cross trades in UTP securities.
---------------------------------------------------------------------------

    \69\ See supra notes 12 and 13.
---------------------------------------------------------------------------

    When instituting proceedings to determine whether the Exchange's 
proposal was consistent with Section 6(b)(5) and Section 6(b)(8) of the 
Act,\70\ the Commission specifically requested comments concerning the 
role of floor brokers in trading UTP Securities on the Exchange; \71\ 
on the benefits and costs of floor-broker activities with respect to 
trading of UTP Securities; \72\ and on whether providing floor brokers 
with parity allocation in UTP Securities, or providing floor brokers 
with exclusive use of certain order instructions, would unfairly 
discriminate or impose an unfair burden on competition that is not 
necessary or appropriate.\73\ The one comment letter received opposes 
the proposal, arguing that parity allocation in a fully electronic 
market would provide floor brokers, by allowing them to ``skip the 
line,'' with an unfair advantage vis-[agrave]-vis other market 
participants that also add liquidity to the market, and that floor 
brokers might take advantage of their preferential treatment on the 
parity wheel by charging higher transaction fees. The commenter also 
argues that the exclusive use of pegged orders by floor brokers would 
similarly provide them with an unfair competitive advantage.
---------------------------------------------------------------------------

    \70\ See Order Instituting Proceedings, supra note 7, at 52761.
    \71\ Id.
    \72\ Id.
    \73\ Id.
---------------------------------------------------------------------------

    The Commission notes that, in Amendment No. 1 to its proposal, the 
Exchange has responded to the questions raised by the Commission, and 
the concerns expressed by the commenter, by modifying its proposal to 
require that floor brokers be engaged in a floor-broker business in 
NYSE-listed securities in order to be eligible for parity allocation in 
UTP Securities; to expressly require that orders in UTP Securities be 
entered from the Exchange floor in order to be eligible for parity 
\74\; and to provide for a floor-based point of sale for crossing 
transactions.\75\ Additionally, the Exchange has added substantial 
further explaination of the role that floor brokers play as agency 
brokers on behalf of their customers.
---------------------------------------------------------------------------

    \74\ See Proposed NYSE Rule 7.36(a)(5).
    \75\ As explained above, NYSE proposes to permit floor brokers 
to enter into crossing transactions pursuant to NYSE Rule 76.
---------------------------------------------------------------------------

    The Exchange argues that the parity allocation model for UTP 
Securities is based on the historically floor-based model of the 
Exchange and that trading in UTP Securities is designed to complement 
the floor broker's existing role in NYSE-listed securities, which 
includes both parity allocation and the use of pegging orders. The 
Exchange argues that the proposed parity allocation model in UTP 
Securities would benefit competition by providing market participants 
with a choice as to how their orders are executed, asserting that 
market participants who do not wish to invest in speed-related 
technology, who have a thinly staff trading desk, or who would like to 
execute a large crossing transaction could utilize the services of a 
floor broker. According to the Exchange, trading UTP Securities using a 
parity model would also benefit competition by providing an alternative 
trading model for trading those securities. The Exchange asserts that 
floor brokers serve an important role as an agency broker without 
conflicts, especially for illiquid securities. The Exchange also notes 
that any member organization can choose to become a floor broker and 
that the Exchange does not charge member organizations for the use of 
space on the trading floor.
    The Commission believes that the changes to the proposal in 
Amendment No. 1 have sufficiently addressed the Commission's and the 
commenter's concerns regarding the proposal's consistency with the Act. 
The proposal, as amended, represents a measured extension of the 
Exchange's existing market model (including the potential for floor-
based trading added by Amendment No. 1) to trading in UTP Securities, 
while ensuring that the ability of floor brokers to obtain parity 
allocation is limited to those floor brokers who are engaged in a bona 
fide agency business while physically on the trading floor of the 
Exchange, with the benefit of parity allocations flowing to the 
customers of the floor brokers. Floor brokers, as agency-only market 
participants, would not be able to use either parity allocations or 
pegging orders to liquidate or acquire their own proprietary positions. 
Finally, with respect to concerns regarding competition, the Exchange 
has representated that, in October 2017, floor-broker orders receiving 
parity executions (all of which are liquidity-providing orders) 
represented only about 5.5% of the intraday liquidity-providing volume 
on the Exchange in NYSE-listed securities.\76\ Given that parity 
allocation and the exclusive use of pegging orders do not appear to 
have burdened competition in NYSE-listed securities, the Commission 
does not have a reason to believe that permitting the Exchange to trade 
UTP Securities with a similar intraday role for floor brokers will 
provide those floor brokers with an unfair competitive advantage.
---------------------------------------------------------------------------

    \76\ See supra note 50 and accompanying text.
---------------------------------------------------------------------------

    The Commission also finds that the proposed rule change is 
consistent with Section 12(f) of the Act. Section 12(a) of

[[Page 13573]]

the Act \77\ generally prohibits trading on an exchange of any security 
that is not registered (listed) on that exchange. Section 12(f) of the 
Act,\78\ however, allows a national securities exchange to extend 
unlisted trading privileges--i.e., to allow trading in a security that 
is not listed and registered on that exchange--to securities that are 
registered on another national securities exchange. When an exchange 
extends unlisted trading privileges to a security, the exchange allows 
its members to trade the security as if the security were listed on 
that exchange.\79\
---------------------------------------------------------------------------

    \77\ 15 U.S.C. 78l(a).
    \78\ 15 U.S.C. 78l(f).
    \79\ Over-the-counter (``OTC'') dealers are not subject to the 
Section 12(a) registration requirement because they do not transact 
business on an exchange.
---------------------------------------------------------------------------

    The UTP Act of 1994 \80\ substantially amended Section 12(f) of the 
Act. Before 1994, national securities exchanges had to apply to the 
Commission for approval before extending unlisted trading privileges to 
a particular security. The UTP Act removed the application, notice, and 
Commission approval process from Section 12(f) of the Act, except in 
cases of Commission suspension of unlisted trading privileges in a 
particular security on an exchange. Accordingly, under Section 12(f) of 
the Act, exchanges may immediately extend unlisted trading privileges 
to a security listed on another exchange. Pursuant to Rule 12f-5 under 
the Act,\81\ a national securities exchange shall not extend unlisted 
trading privileges to any security, unless the national securities 
exchange has in effect a rule or rules providing for transactions in 
the class or type of security to which the exchange extends unlisted 
trading privileges.
---------------------------------------------------------------------------

    \80\ Pub. L. 103-389, 108 Stat. 4081 (1994).
    \81\ 17 CFR 240.12f-5.
---------------------------------------------------------------------------

    The proposal would establish Exchange rules providing for 
transactions on securities that are listed on other national securities 
exchanges. As a national securities exchange, the Exchange is permitted 
under Section 12(f) of the Act \82\ to extend unlisted trading 
privileges to securities listed and registered on other national 
securities exchanges, subject to Rule 12f-5 under the Act. The 
Commission notes that the Exchange's current rules would allow the 
Exchange to extend unlisted trading privileges to any security that is 
an NMS Stock listed on another national securities exchange.\83\
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 78l.
    \83\ See NYSE Rule 5.1 (``Notwithstanding the requirements for 
listing set forth in these Rules, the Exchange may extend unlisted 
trading privileges (``UTP'') to any security that is an NMS Stock 
(as defined in Rule 600 of Regulation NMS under the Act) that is 
listed on another national securities exchange or with respect to 
which unlisted trading privileges may otherwise be extended in 
accordance with Section 12(f) of the Act. Any such security will be 
subject to all Exchange trading rules applicable to securities 
trading on the Pillar trading platform, unless otherwise noted.'').
---------------------------------------------------------------------------

    The proposed rules provide for transactions in the class or type of 
security to which the Exchange intends to extend unlisted trading 
privileges. Together with the existing Exchange rules for trading on 
Pillar--NYSE Rules 1P to 13P--the Exchange would have rules providing 
for transactions in the class or type of security to which the exchange 
proposes to extend unlisted trading privileges, and, therefore, the 
proposal is consistent with Section 12(f) of the Act.
    Because the proposal, as amended, is consistent with Sections 
6(b)(5), 6(b)(8), and 12(f) of the Act, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\84\ to approve the 
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \84\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-NYSE-2017-36 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-NYSE-2017-36. 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 comment 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-NYSE-2017-36, and should be submitted on 
or before April 19, 2018.

VI. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of Amendment No. 1 in the Federal 
Register. In Amendment No. 1, among other changes, the Exchange: (i) 
Responds to the Commission's concerns in the Order Instituting 
Proceedings relating to the extension of parity to floor brokers in UTP 
Securities by (a) proposing additional requirements for floor broker 
orders to be eligible for parity, (b) proposing to permit floor brokers 
to engage in floor-based point-of-sale trading and crossing 
transactions in UTP Securities, and (c) providing additional 
justification for providing floor brokers with parity in UTP 
Securities; (ii) amends the definition of Aggressing Order to include 
that a resting order may become an Aggressing Order if its working 
price change, the PBBO or NBBO is updated, when there are changes to 
other orders on the Exchange Book, or when processing inbound messages; 
(iii) amends the rules relating to the MPL Order and MTS Modifier to 
reflect those of NYSE Arca and NYSE American and sets forth additional 
rules relating setting forth how orders with an MTS Modifier would 
trade in a parity-based model; (iv) makes changes to the list of rules 
that are not applicable for parity; (v) makes changes to proposed NYSE 
Rules 7.37 and 7.46 to refer to an order with an MTS as an order with 
an ``MTS Modifier''; (vi) changes cross-references to NYSE Arca's rules 
to reflect the merger of NYSE Arca and NYSE Arca Equities, and (vii) 
makes changes to

[[Page 13574]]

reflect the renaming of NYSE MKT to NYSE American.
    As discussed above, Amendment No.1 addresses the Commission's 
concerns and the comment letter received. The definitions of Aggressing 
Order, the MPL Order, and the MTS Modifier are similar to the rules of 
NYSE Arca, which have been approved by the Commission previously, with 
adaptions for the Exchange's parity allocation model. The remaining 
changes are non-substantive. Accordingly, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\85\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \85\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\86\ that the proposed rule change (SR-NYSE-2017-36), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
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    \86\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
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    \87\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2018-06339 Filed 3-28-18; 8:45 am]
 BILLING CODE 8011-01-P