[Federal Register Volume 84, Number 90 (Thursday, May 9, 2019)]
[Notices]
[Pages 20448-20453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09506]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85772; File No. SR-NYSE-2019-22]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1, To Amend Rule 7.31 To Add a New Order Type, Capital Commitment 
Order, and Make Related Changes to Rules 7.16, 7.34, 7.36, and 7.37

May 3, 2019.
    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 April 18, 2019, 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. On May 1, 2019, the Exchange filed Amendment 
No. 1 to the proposal. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as modified by Amendment 
No. 1, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.31 (Orders and Modifiers) to 
add a new order type, Capital Commitment Order, and make related 
changes to Rules 7.16, 7.34, 7.36, and 7.37. The

[[Page 20449]]

Exchange proposes to further amend Rule 7.31 to specify that Market 
Orders and the Last Sale Peg Modifier are not available to Designated 
Market Makers. This Amendment No. 1 supersedes the original filing in 
its entirety. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 7.31 (Orders and Modifiers) to 
add a new order type, Capital Commitment Order, and make related 
changes to Rules 7.16, 7.34, 7.36, and 7.37. The Exchange proposes to 
further amend Rule 7.31 to specify that Market Orders and the Last Sale 
Peg Modifier would not be available to Designated Market Makers 
(``DMMs''). This Amendment No. 1 supersedes the original filing in its 
entirety.
    Currently, the Exchange trades UTP Securities on its Pillar trading 
platform, subject to Pillar Platform Rules 1P-13P.\4\ In the next phase 
of Pillar, the Exchange proposes to transition trading of Exchange-
listed securities to the Pillar trading platform, which means that DMMs 
would be trading on Pillar in their assigned securities.\5\ Once 
transitioned to Pillar, such securities will also be subject to the 
Pillar Platform Rules 1P-13P. The Exchange has separately filed a 
proposed rule change to support the transition of Exchange-listed 
securities to the Pillar Trading Platform, including adding the DMM as 
a Participant under the Pillar Platform Rules.\6\
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    \4\ ``UTP Security'' is defined 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 
Rule 1.1.
    \5\ The Exchange has announced that, subject to rule approvals, 
the Exchange will begin transitioning Exchange-listed securities to 
Pillar on August 5, 2019, available here: https://www.nyse.com/publicdocs/nyse/markets/nyse/Revised_Pillar_Migration_Timeline.pdf. 
The Exchange will publish by separate Trader Update a complete 
symbol migration schedule.
    \6\ See Securities Exchange Act Release No. 85176 (February 22, 
2019), 84 FR 6868 (February 28, 2019) (Notice of Filing) (SR-NYSE-
2019-05) (``NYSE Tape A Pillar Filing'').
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    With this proposed rule change, the Exchange proposes an additional 
order type that would be available to DMMs when Exchange-listed 
securities transition to Pillar.
Proposed Capital Commitment Order
    The proposed new order type, Capital Commitment Order, or ``CCO,'' 
is based in part on the current Capital Commitment Schedule \7\ 
(``CCS''), which is currently available only to DMMs trading in 
Exchange-listed securities. The Exchange proposes to make related 
changes to Rules 7.16 (Short Sales), 7.34 (Trading Sessions), 7.36 
(Order Ranking and Display), and 7.37 (Order Execution and Routing).
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    \7\ See Rule 1000(d)-(g). See also Securities Exchange Act 
Release Nos. 75578 (July 31, 2015), 80 FR 47008 (August 6, 2015) 
(SR-NYSE-2015-26) (Order Granting Approval of a Proposed Rule Change 
Making Permanent the Rules of the NYSE New Market Model Pilot and 
the NYSE Supplemental Liquidity Providers Pilot) (``Approval 
Order'').
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    The proposed CCO would be available to DMMs when the Exchange 
transitions Exchange-listed securities to Pillar. Like CCS interest, 
the CCO would enable DMMs to provide additional, non-displayed 
liquidity at specific price points in their assigned securities on 
Pillar.
    The operation of the existing CCS is set forth in Rules 1000(d)-
1000(g). Under Rule 1000(d), a DMM may, for each security in which it 
is registered, place within Exchange systems a pool of non-displayed 
liquidity--the CCS--to be available to fill or partially fill incoming 
orders in automatic executions.\8\ Rule 1000(d) also provides that CCS 
interest is used to trade at the Exchange BBO, at prices better than 
the Exchange BBO, and at prices outside the Exchange BBO. CCS interest 
must be for a minimum of one round lot of a security and entered at 
price points that are at, inside, or away from the Exchange BBO.
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    \8\ CCS interest supplements displayed and non-displayed 
interest of the DMM in Exchange systems.
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    Rule 1000(e) governs executions at and outside the Exchange BBO and 
specifies how CCS interest would interact with such executions. Rule 
1000(e)(iii) specifies how CCS would trade with an incoming order that 
sweeps multiple price points outside the Exchange BBO, and 
specifically, how CCS trades at a single price point to provide price 
improvement for completing the incoming order. Rule 1000(f) specifies 
how CCS interest may provide price improvement inside the Exchange BBO 
with interest arriving in the Exchange market. Under Rule 1000(g), CCS 
interest may trade with non-marketable \9\ interest if the non-
marketable interest betters the Exchange BBO (or cancels in the case of 
an arriving IOC order) and if the incoming interest may be executed in 
full by all available trading interest on the Exchange, including CCS 
interest and d-quotes.
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    \9\ Under Rule 1000(g)(1), ``non-marketable'' means trading 
interest (i.e., displayable and non-displayable) that is at a price 
higher than the current Exchange bid (but below the current Exchange 
offer) or lower than the current Exchange offer (but above the 
current Exchange bid), including better bids and offers on other 
market centers. See NYSE Rule 1000(g)(1).
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    On Pillar, the Exchange proposes to offer DMMs functionality 
similar to the CCS in the form of CCOs. However, the Exchange proposes 
to simplify and streamline CCO functionality on Pillar as compared to 
how the CCS functions. Among other things, unlike CCS, the proposed CCO 
would be an order type that includes a limit price, rather than a 
schedule of non-displayed liquidity, and would be eligible to execute 
only at its limit price on an order-by-order basis. Multiple CCOs 
would, therefore, not be aggregated at the same price or multiple 
prices like CCS interest is today pursuant to Rules 1000(f) and (g). 
While the purpose of the CCO is the same as CCS--a tool for DMMs to 
provide additional, non-displayed liquidity in their assigned 
securities--the operation of CCOs would be based in part on how 
Tracking Orders function on the Exchange's affiliated exchanges that 
currently operate on Pillar, NYSE Arca, Inc. (``NYSE Arca'') and NYSE 
National, Inc. (``NYSE National'').\10\
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    \10\ See NYSE Arca Rule 7.31-E(d)(4) and NYSE National Rule 
7.31(d)(4).
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    The proposed CCO would be described under paragraph (d)(5) of Rule 
7.31 for Exchange-listed securities trading on Pillar. Proposed Rule 
7.31(d)(5) would set forth the general requirements for CCOs and would 
provide that a CCO is a Limit Order that is not displayed, does not 
route, must be entered in a minimum of one round lot, and must be 
designated Day. This proposed rule text is based in part on how the CCS 
currently functions, but unlike CCS, the proposed CCO would be a Limit 
Order rather than a schedule of

[[Page 20450]]

non-displayed liquidity. This proposed rule text uses Pillar 
terminology and is also based in part on the first half of the first 
sentence of NYSE Arca Rule 7.31-E(d)(4) and NYSE National Rule 
7.31(d)(4) relating to Tracking Orders.
    Proposed Rule 7.31(d)(5) would also provide that a CCO would be 
ranked Priority 5--CCOs. The Exchange would make a related amendment to 
Rule 7.36(e) to add this additional priority category. Proposed Rule 
7.36(e)(5) would provide that Priority 5--CCOs would have fifth 
priority after Priority 4--Yielding Orders.\11\ The Exchange believes 
that this proposed priority category is consistent with current CCS 
functionality \12\ because CCOs would be ranked behind all other 
displayed and non-displayed orders. This proposed rule change is also 
based in part on how Tracking Orders function on NYSE Arca and NYSE 
National, as Tracking Orders similarly have a priority ranking behind 
all other displayed and non-displayed orders at a price.\13\
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    \11\ Pursuant to Section 11(a)(1)(G) of the Act and Rule 11a1-
1(T)(a) thereunder, an order for the account of a member (i.e., a 
Yielding Order), does not need to yield priority, parity, or 
precedence in execution to orders for the account of another member. 
15 U.S.C. 78k(a)(1)(G) and 17 CFR 240.11a1-1(T)(a). Consistent with 
these requirements, under current rules, G Orders do not always 
yield to DMM interest. See, e.g., Rule 115A(a)(1)(D) (at the same 
price, G Orders do not yield to DMM interest in the opening 
transaction).
    \12\ See Rule 1000(e)(ii)(B) and (e)(iii)(A)(2) (providing that 
CCS interest yields to all displayed and non-displayed interest when 
trading at the BBO or outside the BBO).
    \13\ See NYSE Arca Rule 7.36-E(e)(4) and NYSE National Rule 
7.36(e)(4) (Tracking Orders have fourth priority behind all other 
orders).
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    Proposed Rule 7.31(d)(5) would further provide that CCOs would be 
available only to DMMs in their assigned securities, eligible to be 
traded in the Core Trading Session \14\ only, and not eligible to 
participate in any Auctions. This proposed rule text is based on 
current rules that the CCS is available only to DMMs. The requirement 
that CCOs would be eligible to trade in the Core Trading Session only 
is consistent with current CCS functionality for Exchange-listed 
securities, which trade during regular trading hours only,\15\ and 
proposed functionality that Exchange-listed securities would not be 
eligible to participate in the Early Trading Session on Pillar.\16\ The 
Exchange also proposes to amend Rule 7.34(c)(1)(A) (Trading Sessions) 
to specify that CCOs are not eligible to participate in the Early 
Trading Session and that CCOs entered during the Early Trading Session 
would be rejected. The proposal that CCOs would not be eligible to 
participate in any Auctions is also consistent with current CCS 
functionality.
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    \14\ The Core Trading Session begins at 9:30 a.m. Eastern Time 
and ends at the conclusion of Core Trading Hours. See Rule 
7.34(a)(2). The term ``Core Trading Hours'' means ``the hours of 
9:30 a.m. Eastern Time through 4:00 p.m. Eastern Time or such other 
hours as may be determined by the Exchange from time to time.'' See 
Rule 1.1(d).
    \15\ See Rule 51(a).
    \16\ See NYSE Tape A Pillar Filing, supra note 6.
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    Proposed Rule 7.31(d)(5)(A) would describe how CCOs function on 
arrival and would provide that a CCO to buy (sell) does not trade on 
arrival and is triggered to trade by an Aggressing Order \17\ to sell 
(buy) that (i) has exhausted all other interest eligible to trade at 
the Exchange at the CCO's working price, and (ii) has a remaining 
quantity equal to or less than the size of a resting CCO (i.e., 
completely fills an Aggressing Order). This proposed rule text is based 
in part on how Tracking Orders function, as described in NYSE Arca Rule 
7.31-E(d)(4)(A) and NYSE National Rule 7.31(d)(4)(A). This proposed 
functionality is also similar to how CCS operates, as it is a schedule 
of resting non-displayed liquidity, and does not trade with resting 
interest.
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    \17\ An Aggressing Order is a buy (sell) order that is or 
becomes marketable against sell (buy) interest on the Exchange Book. 
See Rule 7.36(a)(6). 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. Id.
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    Proposed Rule 7.31(d)(5)(A)(1) would provide that a CCO to buy 
(sell) may be designated to trade with an Aggressing Order to sell 
(buy) that has a remaining quantity greater than the size of the 
resting CCO (i.e., partially fills an Aggressing Order). This is 
similar to the operation of CCS interest, which the DMM can similarly 
designate for partial execution.\18\ The Exchange believes that this 
optional functionality should continue to be available to DMMs as it 
would increase execution opportunities for incoming orders.
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    \18\ See Rule 1000(e)(iii)(A)(4).
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    Proposed Rule 7.31(d)(5)(A)(2) would provide that an arriving CCO 
to buy (sell) with a limit price in the discretionary price range, as 
defined in paragraph (d)(4)(C)(i) of Rule 7.31, can trigger a resting D 
Order to sell (buy) to exercise discretion. This would be new 
functionality that would provide an execution opportunity for a resting 
D Order. Specifically, pursuant to Rule 7.31(d)(4)(C)(i), a D Order to 
buy (sell) would be triggered to exercise discretion if the price of an 
Aggressing Order to sell (buy) is above (below) the PBB (PBO) and at or 
below (above) the Midpoint Price (defined as the ``discretionary price 
range'').
    Even though a CCO is not, by its terms, an Aggressing Order, the 
Exchange believes that a CCO should be eligible to provide liquidity if 
its limit price is in the discretionary price range of a resting D 
Order. A CCO that would trigger a resting D Order to exercise 
discretion will not receive execution priority over any resting orders 
that are on the same side as the CCO and are eligible to trade with the 
D Order because any such orders would have already traded with the D 
Order. Specifically, pursuant to Rule 7.31(d)(4)(C)(1), a D Order to 
buy (sell) will be triggered to exercise discretion if the price of an 
Aggressing Order to sell (buy) is above (below) the PBB (PBO) and at or 
below (above) the Midpoint Price, which is defined as the discretionary 
price range. This includes resting contra-side orders that become an 
Aggressing Order, e.g., an MPL that receives a new working price 
because of an update to the PBBO, because if such orders are within the 
discretionary price range of a D Order, the D Order would be triggered 
to exercise discretion by such Aggressing Order. Accordingly, if a CCO 
order arrives and is within the discretionary price range of a D Order, 
any other same-side resting orders eligible to trade with such D Order 
would have already executed. Because a CCO does not meet the terms of 
an Aggressing Order and therefore would not be addressed by Rule 
7.31(d)(4)(C)(i), the Exchange proposes to specify this behavior 
separately in proposed Rule 7.31(d)(5)(A)(2). This would be new 
functionality on Pillar that the Exchange believes is consistent with 
the purpose of a CCO, which is to provide additional liquidity that 
would not trade ahead of other orders eligible to trade at that price.
    Proposed Rule 7.31(d)(5)(B) would provide that the working price of 
the CCO would be equal its limit price and sets forth when a COO would 
not be eligible to trade. Proposed Rule 7.31(d)(5)(B)(1) would provide 
that a buy (sell) CCO would not be eligible to trade if its limit price 
is equal to or higher (lower) than the PBO (PBB), NBO (NBB), Upper 
(Lower) Price Band, or the working price of any resting sell (buy) 
order on the Exchange Book. Proposed Rule 7.31(d)(5)(B)(2) would 
provide that a CCO would also not be eligible to trade when the PBBO or 
NBBO is locked or crossed. The Exchange believes that by making a CCO 
ineligible to trade in the above-described circumstances, the Exchange 
would reduce the potential to trade through the PBBO or BBO. This would 
be new functionality on Pillar and is not based on how CCS currently

[[Page 20451]]

function. This proposed rule change is based in part on how Tracking 
Orders function, which are not eligible to trade when the PBBO is 
locked or crossed.\19\
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    \19\ See NYSE Arca Rule 7.31-E(d)(4) and NYSE National Rule 
7.31(d)(4).
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    Proposed Rule 7.31(d)(5)(C) would describe how CCOs would function 
when resting on the Exchange Book and would provide that multiple CCOs 
with the same limit price would be ranked by time. Proposed Rule 
7.31(d)(5)(C)(1) would provide that at the same price, a CCO with a 
later working time would trade ahead of a CCO with an earlier working 
time that is not designated as eligible for a partial execution and 
cannot execute in full against the Aggressing Order. In such case, the 
CCO with a later working time would execute first because the CCO with 
the earlier working time chose to forego a partial execution in favor 
of executing against another incoming order that is large enough to 
execute against its total quantity. This would be new functionality on 
Pillar and is not based on how CCS currently function. This proposed 
rule text is based in part on how Tracking Orders function, as 
described in the second sentence of NYSE Arca Rule 7.31-E(d)(4)(B) and 
NYSE National Rule 7.31(d)(4)(B).
    Proposed Rule 7.31(d)(5)(C)(2) would describe how an Aggressing 
Order to buy (sell) with a Minimum Trade Size (``MTS'') Modifier \20\ 
would interact with a resting CCO. Rule 7.31(i)(3)(F) generally 
provides that if a sell (buy) order does not meet the MTS, the order 
with an MTS Modifier will not trade and will be ranked in the Exchange 
Book. Proposed Rule 7.31(d)(5)(C)(2) would provide that an Aggressing 
Order to buy (sell) with an MTS Modifier would ignore a resting CCO to 
sell (buy) if the CCO does not meet the order's MTS. This would be new 
functionality and is consistent with the operation of CCOs, which is to 
allow the DMM to provide additional, supplemental liquidity of last 
resort that is ranked behind all other displayed and non-displayed 
orders. If a CCO does not meet the MTS of the Aggressing Order, the 
order with an MTS would ignore the CCO and seek to execute against the 
next available order resting on the Exchange Book, which may be at 
another price.
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    \20\ In sum, an order with an MTS Modifier would only trade with 
contra-side orders that, either individually or in the aggregate, 
satisfy the order's minimum trade size condition. See Rule 
7.31(i)(3) for a full description of the MTS Modifier.
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    Proposed Rule 7.31(d)(5)(D) would provide that a CCO may be 
designated with a Self Trade Prevention (``STP'') Modifier and would be 
rejected if combined with any other modifiers. This proposed 
functionality is new, as CCS interest cannot currently be designated 
with an STP Modifier.\21\ The Exchange believes that making STP 
Modifiers available for CCOs would provide DMMs with more tools to 
reduce the potential for two orders to interact if they are from the 
same entity. By specifying that CCOs cannot be combined with other 
modifiers, the rule provides transparency that a CCO cannot be combined 
with other modifiers defined in Rule 7.31(i).
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    \21\ See Rule 13(f)(3)(B) (stating that the STP modifier is not 
available for d-Quotes or DMM interest).
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    Rule 7.16 establishes requirements relating to short sale orders. 
Rule 7.16(f)(5) sets forth how short sale orders are processed during a 
Short Sale Period, which is defined in Rule 7.16(f)(4). Proposed new 
Rule 7.16(f)(5)(E) would provide that, during a Short Sale Period, the 
working price of CCOs would not be adjusted and that CCOs would not 
trade at or below the NBB. This proposed text is based on how Tracking 
Orders function during a Short Sale Period, as described in NYSE Arca 
Rule 7.16-E(f)(5)(E) and NYSE National Rule 7.16(f)(5)(E), which both 
provide that, during a Short Sale Period, the working price of Tracking 
Orders will not be adjusted and that Tracking Orders will not be 
eligible to trade at or below the NBB.
    Rule 7.37(b) describes how an Aggressing Order is allocated among 
contra-side orders at each price. The Exchange maintains separate 
allocation wheels on each side of the market for displayed and non-
displayed orders at each price. The Exchange proposes to amend Rule 
7.37(b) to set forth how CCOs would participate in the allocation 
process.
    Consistent with the proposed amendment to Rule 7.36(e), described 
above, to add a new Priority category for CCOs, the Exchange proposes 
to amend Rule 7.37(b)(1) to add that CCOs would be allocated after all 
other interest at that price.\22\ Multiple CCOs at that price would be 
allocated on time. To effect this change, the Exchange proposes to 
amend Rule 7.37(b)(1) to add new sub-paragraph (I) to provide that 
next, CCOs ranked Priority 5--CCOs would be allocated based on time. 
This proposed functionality is based in part on how CCS functions, as 
CCS interest yields to all other interest when trading at the Exchange 
BBO or at prices outside the BBO.
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    \22\ Rule 7.37(b)(1) sets forth the following allocation 
sequence: (1) Market Orders trade first based on time; (2) orders 
with Setter Priority as described in Exchange Rule 7.36(h) receive 
an allocation; (3) orders ranked Priority 2--Displayed Orders are 
allocated on parity by Participant; (4) orders ranked Priority 3--
Non-Display Orders, other than Mid-Point Liquidity (``MPL'') Orders 
with an MTS Modifier, are allocated on parity by Participant; (5) 
MPL Orders with an MTS Modifier are allocated based on MTS size 
(smallest to largest) and time; (6) D Orders trading at a 
discretionary price will be allocated on parity by Floor Broker 
Participant; (7) the display quantity of orders ranked Priority 4--
Yielding Orders will be allocated based on time; and then (8) the 
non-display quantity of orders ranked Priority 4--Yielding Orders 
will allocated based on time.
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Orders Not Available to Designated Market Makers
    The Exchange proposes to amend Rule 7.31(a)(1), which describes 
Market Orders, and Rule 7.31(i)(4), which describes the Last Sale Peg 
Modifier, to specify that neither of these order types would be 
available to DMMs when the Exchange transitions Exchange-listed 
securities to Pillar. These proposed changes are based on Rule 
104(b)(vi), which states that DMMs may not enter Market Orders or Buy 
Minus Zero Plus instruction \23\ in Exchange-listed securities.
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    \23\ The Last Sale Peg Modifier is based on the Buy Minus Zero 
Plus instruction. See Rule 13(f)(4). See also Securities Exchange 
Act Release No. 85158 (February 15, 2019), 84 FR 5794 (February 22, 
2019) (SR-NYSE-2018-52) (Approval Order).
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Implementation
    Subject to approval of this proposed rule change, the Exchange 
proposes to implement this proposed rule change when the Exchange 
transitions NYSE-listed securities to the Pillar trading platform, 
which is anticipated to begin in the third quarter of 2019.\24\
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    \24\ See supra note 5.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\25\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\26\ in particular, because it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to, and perfect the mechanisms of, 
a free and open market and a national market system and, in general, to 
protect investors and the public interest and because it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).

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[[Page 20452]]

Proposed Capital Commitment Order
    The Exchange believes that the proposed CCO would remove 
impediments to, and perfect the mechanisms of, a free and open market 
and a national market system and, in general, protect investors and the 
public interest because it would provide DMMs with functionality 
currently available on the Exchange when Exchange-listed securities 
transition to Pillar. The proposed CCO would therefore promote 
continuity for the DMMs in the tools they have available to meet their 
affirmative obligation to maintain depth and continuity. The proposed 
rule change is based on existing functionality with differences in rule 
text to reflect Pillar terminology and to streamline and simplify the 
operation of CCOs as compared to CCS interest.
    The proposed CCO is based in part on current CCS functionality, 
including that it would only be available to DMMs in their assigned 
securities and would be non-displayed liquidity of last resort at a 
price. Like CCS interest, the CCO would enable DMMs to provide 
additional liquidity at specific price points in their assigned 
securities when NYSE-listed securities transition to Pillar. The 
Exchange notes that there is no need to offer this modifier to non-DMMs 
because they are the only member organizations on the Exchange with the 
affirmative obligation to engage in a course of dealings for their own 
accounts to assist in the maintenance, so far as practicable, of a fair 
and orderly market, including the maintenance of price continuity with 
reasonable depth.\27\ Specifically, DMMs have an obligation to use 
their own capital when lack of price continuity, lack of depth, or 
disparity between supply and demand exists or is reasonably to be 
anticipated.\28\ Like CCS interest, the CCO would allow DMMs to trade 
in their assigned securities at the CCO's working price without 
contributing to visible depth of market.\29\
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    \27\ See Rule 104(f)(ii).
    \28\ Id.
    \29\ See Securities Exchange Act Release Nos. 75578 (July 31, 
2015), 80 FR 47008, 47013 at n. 61 (August 6, 2015) (SR-NYSE-2015-
26) (Order Granting Approval of a Proposed Rule Change Making 
Permanent the Rules of the NYSE New Market Model Pilot and the NYSE 
Supplemental Liquidity Providers Pilot).
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    The Exchange believes that the proposed differences to how the CCO 
would function as compared to CCS would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because the proposed differences are designed to streamline the 
functionality and simplify the operation of such liquidity, while still 
achieving the same goal to provide the DMMs with a tool to meet their 
unique affirmative obligations. To achieve this goal, the Exchange 
proposes that the CCO would function similarly to Tracking Orders, as 
described in NYSE Arca Rule 7.31-E(d)(4) and NYSE National Rule 
7.31(d)(4), in that a CCO would be a Limit Order that is not displayed, 
it would not trade on arrival, and instead would be triggered to trade 
by a contra-side Aggressing Order that has exhausted all other interest 
eligible to trade at the CCO's working price and is equal to or less 
than the size of the CCO. Also similar to the Tracking Order, a CCO 
with a later working time would trade ahead of a CCO with an earlier 
working time (which can only be from the same DMM) if not designated 
for a partial execution and could not execute in full against the 
Aggressing Order. The Exchange believes it promotes just and equitable 
principles of trade for the CCO with the later working time to trade 
ahead of a same-priced CCO Order with an earlier working time if the 
earlier CCO chose to forgo the option for a partial execution, 
particularly since all CCOs in a security are entered by the same DMM. 
For similar reasons, the Exchange believes that it would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system for an Aggressing Order with an MTS to ignore 
a CCO because if an Aggressing Order with an MTS has a condition that 
it is not eligible to trade, the Exchange does not believe that the 
Aggressing Order with an MTS should be denied an opportunity to trade 
if the MTS could otherwise be met by other orders on the Exchange Book.
    The Exchange believes it would remove impediments to and perfect 
the mechanism of a free and open market and a national market system to 
retain the optional functionality currently available for CCS for a CCO 
to provide a partial execution to an incoming order, as such option 
would provide for more execution opportunities at the Exchange. 
Similarly, the Exchange believes it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system for an arriving CCO to trigger a resting D Order to trade 
because it would provide for additional execution opportunities for D 
Orders. Because CCOs would trade at their limit price, the Exchange 
believes that the proposal to make such orders ineligible to trade if 
the limit price is equal to or through the PBBO, NBBO, Price Bands, or 
resting orders on the Exchange Book, or if the PBBO or NBBO is crossed, 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it would reduce the 
potential for a CCO to trade through the PBBO, NBBO or resting orders 
on the Exchange Book.
    The Exchange believes that the proposed processing of sell short 
CCOs during a Short Sale Period under proposed Rule 7.16(f)(5)(E) would 
remove impediments to and perfect the mechanism of a fair and orderly 
market because it would provide that CCOs would not trade at or below 
the NBB during a Short Sale Period in violation of Rule 201 of 
Regulation SHO. Proposed Rule 7.16(f)(5)(E) is also based on NYSE Arca 
Rule 7.16-E(f)(5)(E) and NYSE National Rule 7.16(f)(5)(E) for Tracking 
Orders.
    Lastly, the Exchange believes the proposed changes to Rules 7.36 
and 7.37 describing how CCOs would be ranked and allocated would remove 
impediments to, and perfect the mechanisms of, a free and open market 
and a national market system because having CCOs as an interest of last 
resort is consistent with how CCS currently functions when trading at 
prices equal to the BBO or outside the BBO. Prioritizing CCOs behind 
Yielding Orders \30\ complies with subsection (G) of Section 11(a)(1) 
\31\ of the Act (the ``G Rule'') because CCOs represent DMM interest 
only. In sum, the G Rule requires orders entered by DMMs or Floor 
Brokers to yield priority to all orders entered by non-members of the 
Exchange at the same price. Therefore, the G Rule does not require that 
Yielding Orders yield priority to CCOs, which may only be entered by 
DMMs.
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    \30\ Rule 7.31(i)(5). Yielding Orders aid Floor brokers in 
complying with the G Rule when trading on Pillar by yielding 
priority to all displayed and non-displayed orders at the same 
price.
    \31\ 15 U.S.C. 78k(a)(1)(G).
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Orders Not Available to Market Makers
    The Exchange believes the proposed changes to Rule 7.31(a)(1) to 
specify that Market Orders would not be available to DMMs and Rule 
7.31(i)(4) to specify that the Last Sale Peg Modifier would not be 
available to DMMs would promote just and equitable principles of trade 
because these changes would provide additional transparency by 
specifying that Market Orders and the Last Sale Peg Modifier would not 
be available to DMMs when the Exchange transitions Exchange-listed 
securities to Pillar. These proposed changes are based on current 
functionality, as described in Rule 104(d)(iv), which states that 
Market Orders and the Buy Minus Zero

[[Page 20453]]

Plus modifier are not available to DMMs trading in Exchange-listed 
securities.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\32\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed change would provide DMMs with 
functionality currently available on the Exchange when Exchange-listed 
securities transition to Pillar. The Exchange does not believe that the 
proposed CCO would impose any burden on competition that is not 
necessary or appropriate because such orders are designed to provide 
additional liquidity on the Exchange without providing DMMs with any 
execution priority for CCOs over other orders. This order type thus 
does not confer any execution priority benefits to DMMs, but rather, 
would assist the DMM in meeting its affirmative obligation to maintain 
depth and continuity in its assigned securities. The proposed rule 
change also specifies that Market Orders and the Last Sale Peg Modifier 
would continue to be unavailable to DMMs when Exchange-listed 
securities transition to Pillar, as is the case today under Rule 
104(d)(iv). The Exchange does not believe this proposed rule change 
would impose any burden on competition because these order types are 
not necessary for the DMMs to meet their affirmative obligations 
pursuant to Rule 104 and are not currently available to DMMs.
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    \32\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by 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-2019-22 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-2019-22. 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-2019-22 and should be submitted on 
or before May 30, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09506 Filed 5-8-19; 8:45 am]
BILLING CODE 8011-01-P