[Federal Register Volume 83, Number 194 (Friday, October 5, 2018)]
[Notices]
[Pages 50427-50430]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21678]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84330; File No. SR-NYSE-2018-43]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 67 To Specify That D-Quote Functionality Under Rule 67(f)(5) 
Will Continue To Be in Effect Until Six Months After the End of the 
Pilot Period

October 1, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on September 24, 2018, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 67 (Tick Size Pilot Plan) to 
specify that d-Quote functionality under Rule 67(f)(5) will continue to 
be in effect until six months after the end of the pilot period (which 
will be April 2, 2019). The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

[[Page 50428]]

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

1. Purpose
    The Exchange proposes to amend Rule 67 (Tick Size Pilot Plan) to 
specify that d-Quote functionality described under Rule 67(f)(5) will 
continue to be in effect for all pilot securities (``Pilot 
Securities'') under the plan for the Tick Size Pilot Program (the 
``Plan'') until six months after the end of the pilot period (which 
will be April 2, 2019).
Background
    On August 25, 2014, NYSE Group, Inc., on behalf of Bats BZX 
Exchange, Inc. (f/k/a BATS Exchange, Inc.), Bats BYX Exchange, Inc. (f/
k/a BATS Y-Exchange, Inc.), Chicago Stock Exchange, Inc., Bats EDGA 
Exchange, Inc. (f/k/a EDGA Exchange, Inc.), Bats EDGX Exchange, Inc. 
(f/k/a EDGX Exchange, Inc.), the Financial Industry Regulatory 
Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, 
the Nasdaq Stock Market LLC, NYSE MKT LLC, NYSE Arca, Inc., and the 
Exchange (collectively, the ``Participants''), filed the Plan to 
Implement a Tick Size Pilot Program (``Plan'') \4\ with the Securities 
and Exchange Commission (the ``Commission''), pursuant to Section 11A 
of the Act \5\ and Rule 608 of Regulation NMS thereunder.\6\ The 
Participants filed the Plan to comply with an order issued by the 
Commission on June 24, 2014 (the ``June 2014 Order'').\7\ The Plan was 
published for comment in the Federal Register on November 7, 2014,\8\ 
and approved by the Commission, as modified, on May 6, 2015.\9\
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    \4\ See Securities and Exchange Act Release No. 74892 (May 6, 
2015), 80 FR 27513 (File No. 4-657) (``Tick Plan Approval Order''). 
See, also, Securities and Exchange Act Release No. 76382 (November 
6, 2015) (File No. 4-657), 80 FR 70284 (File No. 4-657) (November 
13, 2015), which extended the pilot period commencement date from 
May 6, 2015 to October 3, 2016. The Plan was submitted to the 
Commission pursuant to Rule 608 of Regulation NMS. 17 CFR 242.608.
    \5\ 15 U.S.C. 78k-1.
    \6\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \7\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \8\ See Securities and Exchange Act Release No. 73511 (November 
3, 2014), 79 FR 66423 (File No. 4-657) (Tick Plan Filing).
    \9\ See Tick Plan Approval Order, supra note 4. See also 
Securities Exchange Act Release No. 77277 (March 3, 2016), 81 FR 
12162 (March 8, 2016) (File No. 4-657), amending the Plan to add 
National Stock Exchange, Inc. as a Participant.
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    The Plan includes stocks of companies with $3 billion or less in 
market capitalization, an average daily trading volume of one million 
shares or less, and a volume weighted average price of at least $2.00 
for every trading day. The Plan consists of a control group (``Control 
Group'') of approximately 1400 Pilot Securities and three test groups 
with 400 Pilot Securities in each selected by a stratified 
sampling.\10\
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    \10\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
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    During the pilot, Pilot Securities in the Control Group are quoted 
at the current tick size increment of $0.01 per share and trade at the 
currently permitted increments. Pilot Securities in the first test 
group (``Test Group One'') are quoted in $0.05 minimum increments but 
continue to trade at any price increment that is currently 
permitted.\11\ Pilot Securities in the second test group (``Test Group 
Two'') are quoted in $0.05 minimum increments and trade at $0.05 
minimum increments subject to a midpoint exception, a retail investor 
exception, and a negotiated trade exception.\12\ Pilot Securities in 
Test Group Three are subject to the same terms as Test Group Two and 
are also subject to the ``Trade-at'' requirement to prevent price 
matching by a person not displaying at a price of a Trading Center's 
``Best Protected Bid or ``Best Protected Offer,'' unless an enumerated 
exception applies.\13\ In addition to the exceptions provided under 
Test Group Two, an exception for Block Size orders and exceptions that 
closely resemble those under Rule 611 of Regulation NMS (``Rule 611'') 
\14\ apply to the Trade-at requirement.
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    \11\ See Section VI(B) of the Plan. Pilot Securities in Test 
Group One will be subject to a midpoint exception and a retail 
investor exception.
    \12\ See Section VI(C) of the Plan.
    \13\ See Section VI(D) of the Plan.
    \14\ 17 CFR 242.611.
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    The pilot period commenced on October 3, 2016 and is in effect for 
a period of two years following commencement, until April 2, 2019 (the 
``Pilot Period'')[sic]. Pursuant to an exemption granted under Rule 
608(e) of Regulation NMS, the quoting and trading requirements of the 
Plan will terminate at the end of trading on Friday, September 28, 
2018, instead of at the end of trading on Tuesday, October 2, 2018.\15\ 
At the close of trading on September 28, 2018, all Pilot Securities 
will be moved into the Control Group and certain data collection 
provisions under Appendix B and C of the Plan will continue to apply 
through six (6) months after the end of the Pilot Period, which will be 
April 2, 2019.\16\
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    \15\ See Letter from David S. Shillman, Associate Director, for 
the Commission, by the Division of Trading of Markets, pursuant to 
delegated authority, to John Ramsay, Chief Market Policy Officer, 
IEX Group, Inc., dated September 10, 2018.
    \16\ See, supra, note 16.
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Amendment to Rule 67--d-Quotes
    The Exchange adopted Rule 67 to implement the requirements 
specified in the Plan. Rule 67(f)(5) states that, in all Pilot 
Securities, d-Quotes to buy (sell) will not exercise discretion if (i) 
exercising discretion would result in an execution equal to or higher 
(lower) than the price of a protected offer (bid), or (ii) the price of 
a protected bid (offer) is equal to or higher (lower) than the filed 
price of the d-Quote. As noted above, at the end of the Pilot Period, 
Test Group One, Test Group Two and Test Group Three Pilot Securities 
will be moved into the Control Group. Because Rule 67(f)(5) applies to 
all Pilot Securities, including Pilot Securities in the Control Group, 
all Pilot Securities will continue to be subject to Rule 67(f)(5) for 
the six-month period after the end of the Pilot Period. To make this 
clear, the Exchange proposes to amend the first paragraph of Rule 67, 
which currently provides that ``The provisions of this Rule will be in 
effect during a pilot to coincide with the Pilot Period for the 
Regulation NMS Tick Size Pilot Plan,'' to add that ``[p]aragraph (f)(5) 
of this Rule will continue to be in effect for all Pilot Securities for 
six months after the end of the Pilot Period.'' The Exchange believes 
that this proposed rule change will promote transparency that the 
existing Rule 67(f)(5) requirement, which is applicable to Control 
Group Pilot Securities, would continue to be applicable to all Pilot 
Securities for the six-month period following the end of the Pilot 
Period.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest. The 
Exchange believes that the proposed rule change is consistent with the 
Act because it facilitates data analysis during the data collection 
period specified under a Plan

[[Page 50429]]

approved by the Commission pursuant to an order issued by the 
Commission in reliance on Section 11A of the Act.\19\ More 
specifically, the Exchange believes that the proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it would promote 
transparency and clarity in Exchange rules that an existing provision 
in Rule 67 relating to how Control Group Pilot Securities are processed 
would continue during the six-month period following the end of the 
Pilot Period and during which certain data collection provisions under 
Appendix B and C of the Plan will continue to apply. By specifying that 
Rule 67(f)(5) would continue to apply through the six-month period 
after the end of the Pilot Period, during which all Pilot Securities 
will be in the Control Group, this proposed rule change ensures that 
the Exchange's system functionality during the six-month period after 
the end of the Pilot Period will be in compliance with the Plan.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ See, supra, note 5.
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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 changes are 
being made to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to comply with the trading and 
quoting requirements specified in the Plan, of which other equities 
exchanges are also Participants. The proposed changes facilitate data 
analysis during the data collection period specified under the Plan. 
Therefore, the proposed changes would not impose any burden on 
competition, while providing certainty of treatment and execution of 
trading interests on the Exchange to market participants in NMS Stocks 
that are acting in compliance with the requirements specified in the 
Plan.

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

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) \20\ of the Act and Rule 19b-
4(f)(6) thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and the text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \22\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \23\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
notes that the Plan's quoting and trading rule obligations will cease 
on September 28, 2018, and this proposed rule change should be 
operative on or before that date in order to provide notice to members 
that the provisions of Rule 67(f)(5) would continue to apply during the 
six-month period following the end of the Pilot Period. The Commission 
believes that the proposed rule change provides clarity as to the 
requirements under Rule 67(f)(5) during the post-Pilot Period. In 
addition, the Commission believes that the proposed rule change should 
ensure that the data collected under the Tick Size Pilot during the 
post-Pilot Period remains consistent with the data collected during the 
Pilot Period. Based on the foregoing, the Commission believes the 
waiver of the operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposal operative upon 
filing.\24\
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    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2018-43 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2018-43. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2018-43 and should

[[Page 50430]]

be submitted on or before October 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Eduardo A. Aleman,
Assistant Secretary.
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    \25\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-21678 Filed 10-4-18; 8:45 am]
BILLING CODE 8011-01-P