[Federal Register Volume 84, Number 165 (Monday, August 26, 2019)]
[Notices]
[Pages 44654-44667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18269]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86709; File No. SR-NYSECHX-2019-08]


Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing of Proposed Rule Change for Trading Rules To Support the 
Transition of Trading to the Pillar Trading Platform

August 20, 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 August 6, 2019, the NYSE Chicago, Inc. (``NYSE Chicago'' 
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 trading rules to support the transition of 
trading to the Pillar trading platform. The proposed 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 trading rules to support the transition of 
its trading platform to 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''), NYSE American, LLC 
(``NYSE American''), NYSE National, Inc. (``NYSE National''), and New 
York Stock Exchange LLC (``NYSE'') (the ``Affiliated Exchanges'').
    Subject to rule approvals, the Exchange anticipates that it will 
transition trading to Pillar in the fourth quarter 2019.\4\
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    \4\ The Exchange has announced that, subject to rule approvals, 
the Exchange will transition to trading on Pillar on November 4, 
2019. See Trader Update, available here: https://www.nyse.com/publicdocs/nyse/markets/nyse-chicago/NYSE_Chicago_Migration.pdf.
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1. Background
    In July 2018, the Exchange and its direct parent company were 
acquired by NYSE Group, Inc. (``Transaction'').\5\ As

[[Page 44655]]

a result of the Transaction, the Exchange became part of a corporate 
family including the Affiliated Exchanges. Following the Transaction, 
the Exchange continued to operate as a separate self-regulatory 
organization with rules, membership rosters and listings distinct from 
the rules, membership rosters and listings of the other Affiliated 
Exchanges.
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    \5\ See Exchange Act Release No. 83635 (July 13, 2018), 83 FR 
34182 (July 19, 2018) (SR-CHX-2018-004); see also Exchange Act 
Release No. 83303 (May 22, 2018), 83 FR 24517 (May 29, 2018) (SR-
CHX-2018-004).
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    With Pillar, the Exchange proposes to transition trading in all 
Tape A, Tape B, and Tape C-listed securities from its current trading 
platform to a fully automated price-time priority allocation model that 
operates on the Pillar trading platform. From the perspective of a 
Participant,\6\ the experience trading on Pillar will be most similar 
to trading on NYSE Arca or NYSE National, as the Exchange would offer 
the same suite of orders and modifiers as are available on those 
exchanges.\7\ Accordingly, the Exchange proposes trading rules based on 
the rules and trading model of the cash equities platforms of NYSE Arca 
and NYSE National, which both operate fully automated price-time 
priority allocation exchanges on the Pillar trading platform. 
Specifically, the Exchange proposes rules relating to orders and 
modifiers, ranking and display of orders, execution and routing of 
orders, and all other trading functionality that are based on the rules 
of those exchanges.\8\ The Exchange will continue to support its dual 
listings but will not provide trading functions, such as auctions, that 
support the operation of a primary listing exchange.\9\ Accordingly, 
once it transitions to Pillar, NYSE Chicago will function most 
similarly to NYSE National, which is not a listing exchange.
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    \6\ The term ``Participant'' is defined in Article 1, Rule 1(s) 
to mean, among other things, any Participant Firm that holds a valid 
Trading Permit and that a Participant shall be considered a 
``member'' of the Exchange for purposes of the Act. If a Participant 
is not a natural person, the Participant may also be referred to as 
a Participant Firm, but unless the context requires otherwise, the 
term Participant shall refer to an individual Participant and/or a 
Participant Firm.
    \7\ NYSE National was the most recent Affiliated Exchange to 
begin trading on the Pillar trading platform. See Securities 
Exchange Act Release No. 83289 (May 17, 2018), 83 FR 23968 (May 23, 
2018) (SR-NYSENat-2018-02) (Order approving rule change to support 
the re-launch of NYSE National on the Pillar trading platform). 
Since launching, NYSE National has amended its Pillar trading rules, 
and the Exchange's proposed rules are based on the current version 
of NYSE National's rules. See Securities Exchange Act Release Nos. 
83900 (August 22, 2018), 83 FR 43942 (August 28, 2018) (SR-NYSENat-
2019-19) (Notice of filing and immediate effectiveness of proposed 
rule change relating to NYSE National Rule 7.31); 85144 (February 
13, 2019), 84 F8 5519 (February 21, 2019) (SR-NYSENat-2019-02) 
(Notice of filing and immediate effectiveness of proposed rule 
change relating to NYSE National Rule 7.31); 85264 (March 7, 2019), 
84 FR 9168 (March 13, 2019) (SR-NYSENat-2019-04) (Notice of filing 
and immediate effectiveness of proposed rule change relating to NYSE 
National Rules 7.16, 7.18, 7.34, and 7.38); 85572 (April 9, 2019), 
84 FR 15257 (April 15, 2019) (SR-NYSENat-2019-08) (Notice of filing 
and immediate effectiveness of proposed rule change to NYSE National 
Rule 7.12); 85723 (April 25, 2019), 84 FR 18618 (May 1, 2019) (SR-
NYSENat-2019-10) (Notice of filing and immediate effectiveness of 
proposed rule change to NYSE National Rule 7.11).
    \8\ NYSE American's cash equities market and NYSE also operate 
on the Pillar trading platform and share a substantial number of 
trading functions and Pillar platform rules with NYSE Arca and NYSE 
National (see generally NYSE American Rule 7-E (Equities Trading) 
and NYSE Rule 7P (Equities Trading)). NYSE American operates with a 
Delay Mechanism and as a result, does not offer all of the order 
types that are available on NYSE Arca and NYSE National (see NYSE 
American Rules 7.29 and 7.31). NYSE operates a Floor-based parity 
allocation model and offers order types that differ from those 
available on NYSE Arca and NYSE National (see NYSE Rules 7.31, 7.36, 
and 7.37). Because of those differences, which the Exchange does not 
propose, the Exchange will not cite to either NYSE American or NYSE 
Pillar rules in this filing, even if those exchanges have similar 
rules to what is being proposed for the Exchange.
    \9\ Information about the securities dually listed on the 
Exchange is available here: https://www.nyse.com/markets/nyse-chicago/listings.
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    The Exchange proposes four substantive differences from how trading 
on NYSE Arca and NYSE National function:
     First, the Exchange would continue to support 
Institutional Brokers,\10\ as provided for under Article 17. As 
described in greater detail below, the Exchange proposes to amend the 
rules set forth under Article 17 only as necessary to support 
differences in the Pillar trading platform as compared to the 
Exchange's current trading rules.
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    \10\ The term ``Institutional Broker'' is defined in Article 1, 
Rule 1(n) to mean a member of the Exchange who is registered as an 
Institutional Broker pursuant to the provisions of Article 17 and 
has satisfied all Exchange requirements to operate as an 
Institutional Broker on the Exchange.
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     Second, the Exchange would continue to support an order 
type to facilitate compliance with the contingent trade exemption of 
Rule 611 of Regulation NMS, which is currently described in Article 1, 
Rule 2(b)(2)(E). While NYSE Arca and NYSE National both describe this 
exemption in their respective rules,\11\ neither exchange offers a 
specific order type designed for this exemption. Similar to current 
Exchange rules, on Pillar, the Exchange will continue to support a 
Qualified Contingent Trade (``QCT'') cross order type that is designed 
for an Institutional Broker to comply with the contingent trade 
exemption, which will be described in proposed Rule 7.31(g).
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    \11\ See NYSE Arca Rule 7.37-E(f)(5) and NYSE National Rule 
7.37(f)(5).
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     Third, the Exchange will continue to support non-regular 
way settlement instructions for cross orders and the ability for cross 
orders to be submitted in an increment as small as $0.000001. These 
proposed differences from NYSE Arca and NYSE National would be set 
forth in proposed Rules 7.6, 7.8, and 7.8A.
     Fourth, the Exchange will not support Market Makers on the 
Exchange. Accordingly, the Exchange does not propose rules based on 
Section 2 of NYSE Arca Rule 7-E or Section 2 of NYSE National Rule 7 
and will not offer the ``Q'' Order type, as described in NYSE Arca Rule 
7.31-E(j) and NYSE National Rule 7.31(j).
    Once trading on the Pillar trading platform begins, specified 
current Exchange rules would not be applicable, as described in greater 
detail below. For each current rule (or Article) 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/Article 
is not applicable to trading on the Pillar trading platform.'' \12\
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    \12\ The NYSE uses the same convention to identify the NYSE 
trading rules that are not applicable to trading on Pillar. See 
Securities Exchange Act Release Nos. 82945 (March 26, 2018), 83 FR 
13553, 13555 (March 29, 2018) (SR-NYSE-2017-36) (Approval Order) and 
85962 (May 29, 2019), 84 FR 26188, 26189 (June 5, 2019) (SR-NYSE-
2019-05) (Approval Order).
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    Current Exchange rules that do not have this preamble will continue 
to govern Exchange operations after the transition to Pillar. 
Specifically, the following current rules will continue to be operative 
without any substantive changes: Article 2 (Committees); Article 3 
(Participants and Participant Firms); Article 5 (except for Rule 1) 
(Access to the Exchange); Article 6 (Registration, Supervision and 
Training); Article 7 (Financial Responsibility and Reporting 
Requirements); Article 8 (except for Rule 17) (Business Conduct); 
Article 9 (except for Rule 23) (General Trading Rules); Article 10 
(Margins); Article 11 (except for Rule 3(b)(8)) (Participant Books and 
Records); Article 12 (Disciplinary Matters and Trial Proceedings); 
Article 13 (Suspension--Reinstatement); Article 14 (Arbitration); 
Article 15 (Hearings and Reviews); Article 21 (Clearance and 
Settlement); and Article 22 (Listed Securities).
2. Proposed Rule Changes
    The Exchange recently adopted the rule numbering framework of NYSE 
National rules, which are organized in 13 Rules.\13\ This framework 
will

[[Page 44656]]

eventually replace the Exchange's current rule numbering framework.
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    \13\ See Securities Exchange Act Release No. 85297 (March 12, 
2019), 84 FR 9854 (March 18, 2019) (SR-NYSECHX-2019-03) (Notice of 
Filing and Immediate Effectiveness) (``Framework Filing'').
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    With this filing, and as described in greater detail below, the 
Exchange proposes to expand on the Framework Filing by adding new rules 
relating to trading on the Pillar trading platform (proposed Rules 0, 
1, 2, and 7).
    Similar to NYSE National, the Exchange proposes the following non-
substantive differences throughout the proposed Pillar rules as 
compared to the NYSE Arca rules:
     To use the term ``Exchange'' instead of ``NYSE Arca 
Marketplace;''
     to use the term ``Exchange Act,'' which is a proposed 
defined term;
     to use the term ``Exchange Book'' instead of ``NYSE Arca 
Book;''
     to use the term ``will'' instead of ``shall;'' and
     to use the term ``Participant'' instead of ``ETP Holder.''
Rule 0--Regulation of the Exchange and Participants
    As described in the Framework Filing, Rule 0 establishes the 
regulation of the Exchange and Participants. As proposed, Rule 0 would 
provide that:

    The Exchange and FINRA are parties to a Regulatory Services 
Agreement (``RSA'') pursuant to which FINRA has agreed to perform 
certain regulatory functions of the Exchange on behalf of the 
Exchange. Exchange Rules that refer to Exchange staff and Exchange 
departments should be understood as also referring to FINRA staff 
and FINRA departments acting on behalf of the Exchange pursuant to 
the RSA, as applicable. Notwithstanding the fact that the Exchange 
has entered into an RSA with FINRA to perform certain of the 
Exchange's functions, the Exchange shall retain ultimate legal 
responsibility for, and control of, such functions.

    This proposed rule is based on NYSE National Rule 0 and NYSE Arca 
Rule 0 without any substantive differences. Because NYSE Chicago now 
has an RSA with FINRA, the Exchange proposes Rule 0, which would be a 
new Exchange rule.
Rule 1--Definitions
    As described in the Framework Filing, Rule 1 would set forth 
definitions applicable to trading on the Exchange's Pillar trading 
platform. Proposed Rule 1.1 includes definitions that are based on NYSE 
National Rule 1.1 definitions and NYSE Arca Rule 1.1 definitions.
    Proposed Rule 1.1 would provide that as used in Exchange rules, 
unless the context requires otherwise, the terms in proposed Rule 1.1 
would have the meanings indicated. This rule is based on NYSE National 
Rule 1.1. The Exchange proposes sub-paragraph numbering for Rule 1.1 
that aligns to the alphabetical ordering of the proposed definitions. 
The Exchange proposes the following definitions:
     Proposed Rule 1.1(a) would define the terms ``Authorized 
Trader'' or ``AT'' to mean a person who may submit orders to the 
Exchange's Trading Facilities on behalf of his or her Participant. This 
proposed rule is based on NYSE National 1.1(a) and NYSE Arca Rule 
1.1(e) without any substantive differences.
     Proposed Rule 1.1(b) would define the term ``Away Market'' 
to mean any exchange, alternative trading system (``ATS'') or other 
broker-dealer (1) with which the Exchange maintains an electronic 
linkage and (2) that provides instantaneous responses to orders routed 
from the Exchange. The Exchange will designate from time to time those 
ATS's or other broker-dealers that qualify as Away Markets. This 
proposed rule is based on NYSE National Rule 1.1(b) and NYSE Arca Rule 
1.1(f) without any substantive differences.
     Proposed Rule 1.1(c) would define the term ``BBO'' to mean 
the best bid or offer that is a Protected Quotation on the Exchange and 
that the term ``BB'' means the best bid that is a Protected Quotation 
on the Exchange and the term ``BO'' means the best offer that is a 
Protected Quotation on the Exchange. This proposed rule is based on 
NYSE National Rule 1.1(c) and NYSE Arca Rule 1.1(g) without any 
substantive differences.
     Proposed Rule 1.1(d) would define the terms ``Board'' and 
``Board of Directors'' to mean the Board of Directors of NYSE Chicago, 
Inc. This proposed rule is based on NYSE National Rule 1.1(d) and NYSE 
Arca Rule 1.1(h).
     Proposed Rule 1.1(e) would define the term ``Core Trading 
Hours'' to mean 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. This proposed rule is based on NYSE National Rule 
1.1(e) and NYSE Arca Rule 1.1(j). Proposed Rule 1.1(e) would also 
provide that all times in the Pillar Platform Rules are Eastern Time, 
which text is based on NYSE Rule 1.1(d). Because all times would be 
Eastern Time, the Exchange proposes that Article 1, Rule 3 would not be 
applicable to trading on Pillar.
     Proposed Rule 1.1(f) would define the terms ``Effective 
National Market System Plan'' and ``Regular Trading Hours'' to have the 
meanings set forth in Rule 600(b) of Regulation NMS under the Exchange 
Act. This proposed rule is based on NYSE National Rule 1.1(f) and NYSE 
Arca Rule 1.1(l).
     Proposed Rule 1.1(g) would define the term ``Eligible 
Security'' to mean any equity security (i) traded on the Exchange 
pursuant to a grant of unlisted trading privileges under Section 12(f) 
of the Exchange Act and (ii) specified by the Exchange to be traded on 
the Exchange or other facility, as the case may be. This proposed rule 
is based on NYSE National Rule 1.1(g) and NYSE Arca Rule 1.1(m).
     Proposed Rule 1.1(h) would define the term ``Exchange'' to 
mean NYSE Chicago, Inc. This proposed rule is based on NYSE National 
Rule 1.1(j).
     Proposed Rule 1.1(i) would define the term ``Exchange 
Act'' to mean the Securities Exchange Act of 1934, as amended. This 
proposed rule is based on NYSE National Rule 1.1(k) and NYSE Arca Rule 
1.1(q).
     Proposed Rule 1.1(j) would define the term ``Exchange 
Book'' to mean the Exchange's electronic file of displayed and non-
displayed orders. This proposed rule is based on NYSE National Rule 
1.1(l).
     Proposed Rule 1.1(k) would define the term ``Exchange 
Traded Product'' to mean a security that meets the definition of 
``derivative securities product'' in Rule 19b-4(e) under the Exchange 
Act and would define the term ``UTP Exchange Traded Product'' to mean 
one of the following Exchange Traded Products that trades on the 
Exchange pursuant to unlisted trading privileges: Equity Linked Notes, 
Investment Company Units, Index-Linked Exchangeable Notes, Equity Gold 
Shares, Equity Index-Linked Securities, Commodity-Linked Securities, 
Currency-Linked Securities, Fixed-Income Index-Linked Securities, 
Futures-Linked Securities, Multifactor-Index-Linked Securities, Trust 
Certificates, Currency and Index Warrants, Portfolio Depository 
Receipts, Trust Issued Receipts, Commodity-Based Trust Shares, Currency 
Trust Shares, Commodity Index Trust Shares, Commodity Futures Trust 
Shares, Partnership Units, Paired Trust Shares, Trust Units, Managed 
Fund Shares, and Managed Trust Securities. This proposed rule is based 
on NYSE National Rule 1.1(m). This enumerated list is designed to 
establish rules relating to the classes of securities to which the 
Exchange would extend unlisted trading privileges on Pillar.
     Proposed Rule 1.1(l) would define the term ``FINRA'' to 
mean the Financial Industry Regulatory Authority, Inc. This proposed 
rule is based on NYSE National Rule 1.1(n).

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     Proposed Rule 1.1(m) would define the term ``Marketable'' 
to mean, for a Limit Order, an order that can be immediately executed 
or routed and that Market Orders are always considered marketable. This 
proposed rule is based on NYSE National Rule 1.1(p) and NYSE Arca Rule 
1.1(y).
     Proposed Rule 1.1(n) would define the terms ``NBBO, Best 
Protected Bid, Best Protected Offer, and Protected Best Bid and Offer 
(PBBO)''. The term ``NBBO'' would mean the national best bid or offer, 
as defined in Rule 600(b)(42) of Regulation NMS. The terms ``NBB'' 
would mean the national best bid and ``NBO'' would mean the national 
best offer. The terms ``Best Protected Bid'' or ``PBB'' would mean the 
highest Protected Bid, and ``Best Protected Offer'' or ``PBO'' would 
mean the lowest Protected Offer, and the term ``Protected Best Bid and 
Offer'' (``PBBO'') would mean the Best Protected Bid and the Best 
Protected Offer, as those terms are defined in Rule 600(b)(57) of 
Regulation NMS. This proposed rule is based on NYSE National Rule 
1.1(t) and NYSE Arca Rule 1.1(dd).
    The Exchange proposes to calculate the NBBO and PBBO in the same 
manner that NYSE Arca calculates the NBBO and PBBO.\14\ As described in 
the NYSE Arca Data Feed Filing, the NBBO may differ from the PBBO 
because the NBBO includes Manual Quotations, which are defined as any 
quotation other than an automated quotation. By contrast, a protected 
quotation is an automated quotation that is the best bid or offer of a 
national securities exchange.\15\ Another difference between NBBO and 
PBBO is that when the Exchange routes interest to a protected 
quotation, it will adjust the PBBO. Accordingly, for this additional 
reason, the PBBO may differ from the NBBO, which the Exchange does not 
adjust based on interest it routes to protected quotations. As 
described in greater detail below, the Exchange proposed to use both 
the NBBO and PBBO for purposes of order types that may be priced based 
on an external reference price.
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    \14\ See Securities Exchange Act Release No. 74409 (March 2, 
2015), 80 FR 12221 (March 6, 2015) (SR-NYSEArca-2015-11) (Notice of 
filing and immediate effectiveness of proposed rule change 
specifying NYSE Arca's use of certain data feeds for handling and 
execution, order routing, and regulatory compliance) (``NYSE Arca 
Data Feed Filing''). The Exchange proposes to establish the data 
feeds that it uses for handling, execution, and routing of orders in 
proposed Rule 7.37, described below.
    \15\ See id. at 12222 n.9.
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     Proposed Rule 1.1(o) would define the term ``NMS Stock'' 
to mean any security, other than an option, for which transaction 
reports are collected, processed, and made available pursuant to an 
effective transaction reporting plan as defined in Rule 600(b)(47) of 
Regulation NMS. This proposed rule is based on NYSE National Rule 
1.1(u).
     Proposed Rule 1.1(p) would define the term ``NYSE Chicago 
Marketplace'' to mean the electronic securities communications and 
trading facility of the Exchange through which orders are processed or 
are consolidated for execution and/or display. This proposed definition 
is based on NYSE Arca Rule 1.1(kk) and NYSE American Rule 1.1E(e) 
without any substantive differences. As described in greater detail 
below, the Exchange proposes to use this definition to replace 
references to the term ``Matching System'' in the current rules that 
would continue to be applicable after the Exchange transitions to 
Pillar.
     Proposed Rule 1.1(q) would define the term ``Protected 
Bid'' or ``Protected Offer'' to mean a quotation in an NMS Stock that 
is (i) displayed by an Automated Trading Center; (ii) disseminated 
pursuant to an effective national market system plan; and (iii) an 
Automated Quotation that is the best bid or best offer of a national 
securities exchange or the best bid or best offer of a national 
securities association. The term ``Protected Quotation'' would mean a 
quotation that is a Protected Bid or Protected Offer. For purposes of 
the foregoing definitions, the terms ``Automated Trading Center,'' 
``Automated Quotation,'' ``Manual Quotation,'' ``Best Bid,'' and ``Best 
Offer,'' would have the meanings ascribed to them in Rule 600(b) of 
Regulation NMS under the Exchange Act. This proposed rule is based on 
NYSE National Rule 1.1(aa) without any substantive differences.
     Proposed Rule 1.1(r) would define the term ``Security'' 
and ``Securities'' to mean any security as defined in Rule 3(a)(10) 
under the Exchange Act, provided, that for purposes of Rule 7, such 
term would mean any NMS Stock. This proposed rule is based on NYSE 
National Rule 1.1(bb) and NYSE Arca Rule 1.1(vv).
     Proposed Rule 1.1(s) would define the term ``self-
regulatory organization'' and ``SRO'' to have the same meaning as set 
forth in the provisions of the Exchange Act relating to national 
securities exchanges. This proposed rule is based on NYSE National Rule 
1.1(ee) and NYSE Arca Rule 1.1(ww) without any substantive differences.
     Proposed Rule 1.1(t) would define the term ``trade-
through'' to mean the purchase or sale of an NMS Stock during regular 
trading hours, either as principal or agent, at a price that is lower 
than a Protected Bid or higher than a Protected Offer. This proposed 
rule is based on NYSE National Rule 1.1(ff) and NYSE Arca Rule 1.1(bbb) 
without any substantive differences.
     Proposed Rule 1.1(u) would define the term ``Trading 
Center'' to mean, for purposes of Rule 7, a national securities 
exchange or a national securities association that operates an SRO 
trading facility, an alternative trading system, an exchange market 
maker, an OTC market maker or any other broker or dealer that executes 
orders internally by trading as principal or crossing orders as agent. 
For purposes of this definition, the terms ``SRO trading facility,'' 
``alternative trading system,'' ``exchange market maker'' and ``OTC 
market maker'' would have the meanings ascribed to them in Rule 600(b) 
of Regulation NMS under the Exchange Act. This proposed rule is based 
on NYSE National Rule 1.1(gg) and NYSE Arca Rule 1.1(ccc) without any 
substantive differences.
     Proposed Rule 1.1(v) would define the term ``Trading 
Facilities'' to mean any and all electronic or automatic trading 
systems provided by the Exchange to Participants. This proposed rule is 
based on NYSE National Rule 1.1(hh) without any differences.
     Proposed Rule 1.1(w) would define the term ``UTP 
Security'' to mean 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. This proposed rule is based on 
NYSE National Rule 1.1(ii) and NYSE Arca Rule 1.1(iii) without any 
substantive differences.
     Proposed Rule 1.1(x) would define the term ``UTP Listing 
Market'' to mean the primary listing market for a UTP Security. This 
proposed rule is based on NYSE National Rule 1.1(jj) and NYSE Arca Rule 
1.1(ggg) without any substantive differences.
     Proposed Rule 1.1(y) would define the term ``UTP 
Regulatory Halt'' 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. This proposed rule is based 
on NYSE National Rule 1.1(kk) and NYSE Arca Rule 1.1(hhh) without any 
substantive differences.
    Because the above-described rules would describe definitions to 
support the trading rules on Pillar, the Exchange proposes to amend 
Article 1, Rule 1 to specify which current definitions would not be 
applicable to trading on the Pillar trading platform. To effect this 
change,

[[Page 44658]]

the Exchange proposes to amend the opening paragraph to Article 1, Rule 
1 to provide that paragraphs (a), (e), (f), (g), (k), (l), (o), (z), 
(bb), (cc), (dd), (nn), (pp), (qq), (tt), and (uu) would not be 
applicable to trading on the Pillar trading platform.
Rule 2--Trading Permits
    The Exchange proposes to retain its existing rules governing 
membership and registration. Accordingly, at this time, the Exchange 
does not propose any membership rules for Rule 2 (Trading Permits), 
with one exception. The Exchange proposes that Rule 2.13 would address 
mandatory participation in the testing of backup systems. To maintain 
consistency among the Affiliated Exchanges, the Exchange proposes that 
Rule 2.13 would be based on NYSE National Rule 2.13 without any 
substantive differences.
    Because proposed Rule 2.13 would govern mandatory participation in 
the testing of back-up systems, the Exchange proposes to amend Article 
3, Rule 21 to add a preamble that such rule would not be applicable to 
trading on the Pillar trading platform.
Rule 7--Equities Trading
    Rule 7 would establish rules for trading on the Exchange. As noted 
above, the Exchange will launch on the same trading platform as NYSE 
National's and NYSE Arca's cash equities trading platform, and proposes 
trading rules based on the rules of those exchanges, including general 
provisions relating to trading on the Exchange and operation of the 
routing broker. Rule 7 would therefore specify all aspects of trading 
on the Exchange, including the orders and modifiers that would be 
available and how orders would be ranked, displayed, and executed.
    Because the Exchange would not be a primary listing exchange, the 
Exchange does not propose to have either lead or designated market 
makers assigned to securities trading on the Exchange. The Exchange 
therefore does not propose rules based on Section 2 to NYSE Arca Rule 
7-E or Section 2 to NYSE National Rule 7. In addition, because the 
Exchange would not operate auctions, the Exchange does not propose a 
rule based on NYSE Arca Rule 7.35-E (Auctions).
    As noted above, the Exchange proposes to define terms in Rule 1.1. 
In addition, the Exchange would be defining terms relating to equities 
trading in specified rules in Rule 7. Accordingly, the Exchange 
proposes to include a preamble after ``Rule 7'' and before ``Section 1. 
General Provisions'' that would provide that in addition to using terms 
defined in Rule 1.1, Rule 7 would use capitalized terms that refer to 
certain order types and modifiers that are defined in Rule 7.31 and 
other capitalized terms relating to trading sessions and the ranking of 
orders that are defined in Rules 7.34 and 7.36, and additional terms 
defined under Article 1, Rule 1. This rule text is based on NYSE 
National Rule 7, with one difference to reference definitions in 
Article 1, Rule 1.

A. Proposed Rules Based on NYSE Arca and NYSE National

    The following sets forth the proposed rules that are based on the 
rules of NYSE Arca and NYSE National without any substantive 
differences. Proposed Rules 7.6, 7.8, 7.8A, 7.31(g), and 7.32, which 
would differ from the NYSE Arca and NYSE National rules, will be 
discussed in the next section. The Exchange does not propose rules 
based on NYSE National Rule 7.14 and 7.41, relating to clearing. 
Current Article 21 (Clearance and Settlement) will continue to be 
operative on the Pillar trading platform without any differences.
    Section 1 of Rule 7 would specify the General Provisions relating 
to trading on the Pillar trading platform. The Exchange proposes the 
following rules:
     Proposed Rule 7.5 (Trading Units) would establish the unit 
of trading in securities on the Exchange, including that a unit of 
trading is one share, a ``round lot'' would be 100 shares, unless 
specified by the primary listing market to be fewer than 100 shares, 
and that any amount less than a round lot would constitute an ``odd 
lot'' and any amount greater than a round lot that is not a multiple of 
a round lot would constitute a ``mixed lot.'' The proposed rule is 
based on NYSE National Rule 7.5 and NYSE Arca Rule 7.5-E without any 
differences.
    Because proposed Rule 7.5 would address the trading units on the 
Exchange, the Exchange proposes that Article 1, Rule 2(f) would not be 
applicable to trading on the Pillar trading platform.
     Proposed Rule 7.7 (Transmission of Bids or Offers) would 
establish that all bids and offers on the Exchange would be anonymous 
unless otherwise specified by the Participant. The proposed rule is 
based on NYSE National Rule 7.7 and NYSE Arca Rule 7.7-E without any 
differences. This proposed rule text is new and does not replace any 
current Exchange rule.
     Proposed Rule 7.9 (Execution Price Binding) would 
establish that, notwithstanding proposed Rules 7.10 and 7.11, the price 
at which an order is executed is binding notwithstanding that an 
erroneous report is rendered. In other words, the Exchange would 
consider all trades at which an order is executed as binding regardless 
of whether a Participant issues an erroneous report regarding the 
execution. This proposed rule text is based on NYSE National Rule 7.9 
and NYSE Arca Rule 7.9-E.
    In addition, the Exchange proposes that current Article 20, Rules 
9, 9A, and 11 would continue to be operative once the Exchange 
transitions to Pillar. Because these rules provide for additional 
circumstances when a trade may be cancelled, the Exchange proposes a 
substantive difference from NYSE National Rule 7.9 and NYSE Arca Rule 
7.9-E to reference these three rules, in addition to references to 
proposed Rules 7.10 and 7.11, as exceptions to proposed Rule 7.9 that 
an execution price would be binding.
    Because proposed Rule 7.9 would address the executions are binding, 
the Exchange proposes that Article 20, Rule 3 would not be applicable 
to trading on the Pillar trading platform.
     Proposed Rule 7.10 (Clearly Erroneous Executions) would 
set forth the Exchange's rules on clearly erroneous executions. The 
proposed rule is based on NYSE National Rule 7.10 without any 
substantive differences. Because the rules governing clearly erroneous 
executions have been harmonized among all equities exchanges, this rule 
is also based on current Article 20, Rule 10, which the Exchange 
proposes would not be applicable to trading on Pillar.
    Certain provisions of the equities exchanges' harmonized clearly 
erroneous rules are on a pilot that expires at the close of business on 
October 19, 2019.\16\ As set forth in Interpretation and Policies .01 
to current Article 20, Rule 10, paragraphs (c), (e)(2), (f), and (g), 
as amended on September 10, 2010, and the provisions of paragraphs (i) 
through (k) shall be in effect during a pilot period that expires at 
the close of business on October 18, 2019.\17\ To conform the 
Exchange's proposed Rule 7.10 with this

[[Page 44659]]

convention, the Exchange proposes to provide that if the pilot period 
is not either extended or approved as permanent, the prior versions of 
those sections of Article 20, Rule 10 prior to being amended by SR-CHX-
2010-13 would be in effect and the provisions of paragraphs (i) through 
(k) would be null and void.
    The Exchange proposes to make a conforming amendment to Article 2, 
Rule 2 to add a cross-reference to proposed Rule 7.10(e) in each place 
where current Article 20, Rule 10(d) is referenced.
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    \16\ See Securities Exchange Act Release No. 85533 (April 5, 
2019), 84 FR 14701 (April 11, 2019) (SR-NYSECHX-2019-04) (Notice of 
filing and immediate effectiveness of proposed rule change to extend 
current pilot program). See also Securities Exchange Act Release No. 
62886 (September 10, 2010), 75 FR 56613 (September 16, 2010) (SR-
CHX-2010-137) (Order approved harmonized clearly erroneous execution 
rules for all registered equity exchanges).
    \17\ The U.S. equities exchanges are working on an amendment to 
the harmonized clearly erroneous rules and the Exchange will amend 
this proposed rule to conform to any approved changes to the market-
wide clearly erroneous rules.
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     Proposed Rule 7.11 (Limit Up--Limit Down Plan and Trading 
Pauses in Individual Securities Due to Extraordinary Market Volatility) 
would specify how the Exchange would comply with the Regulation NMS 
Plan to Address Extraordinary Market Volatility (``LULD Plan.'') \18\ 
The proposed rule is based on NYSE National Rule 7.11 with the 
following differences.\19\ First, in proposed Rule 7.11(a)(2), the 
Exchange proposes to use the lower-case term ``participant'' to refer 
to the Exchange's role in the LULD Plan. The Exchange proposes this 
difference from NYSE National Rule 7.11(a)(2) because under Exchange 
rules, the upper-case term ``Participant'' means a member of the 
Exchange, and therefore the proposed Rule 7.11(a)(3) reference to 
``Participant'' means Exchange Participants, and not the Exchange.\20\ 
Second, because the Exchange will not have market makers or ``Q'' 
Orders, the Exchange proposes to designate proposed Rule 7.11(a)(5)(D) 
as ``Reserved.''
    To align proposed Rule 7.11(a)(5)(E) with NYSE National Rule 
7.11(a)(5)(E), the Exchange proposes that this Rule would refer to 
``Limit IOC Cross Orders with regular-way settlement instructions,'' 
and not just ``Limit IOC Cross Orders,'' as set forth in NYSE National 
Rule 7.11(a)(5)(E). The Exchange proposes this difference because, as 
described below, the Exchange will make available non-regular way 
settlement instructions for Cross Orders and will also offer a QCT 
Cross Order. Because neither of these order types are subject to the 
LULD Plan, the Exchange does not propose to restrict executions of such 
orders because of Price Bands.\21\
    Because proposed Rule 7.11 would address the LULD Plan, the 
Exchange proposes that Article 20, Rule 2A would not be applicable to 
trading on Pillar.
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    \18\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 74 FR 16086 (April 17, 2019) (File No. 4-631) (Order 
approving eighteenth amendment to LULD Plan to transition from 
operating on a pilot to a permanent basis).
    \19\ Because the Exchange will not be a primary listing 
exchange, the Exchange does not propose rule text based on NYSE Arca 
Rule 7.11-E.
    \20\ See supra note 6.
    \21\ See Section VI(a)(1) of the LULD Plan (providing that ``any 
transaction that both (i) does not update the last sale price . . . 
and (ii) is excepted or exempt from Rule 611 under Regulation NMS'' 
is excluded from the limitation that trades should not be executed 
outside the Price Bands). As discussed below, Cross Orders with non-
regular way settlement instructions or that are QCT are excepted 
from Rule 611 under Regulation NMS. In addition, neither order type 
will update the last sale price on the Exchange. Accordingly, these 
transactions are not subject to the LULD Plan and therefore will not 
be included in proposed Rule 7.11(a)(5)(E).
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     Proposed Rule 7.12 (Trading Halts Due to Extraordinary 
Market Volatility) would establish rules on halts in trading due to 
extraordinary market volatility and related reopening of trading. The 
proposed rule is based on NYSE National Rule 7.12 and NYSE Arca Rule 
7.12-E without any substantive differences.\22\ Because proposed Rule 
7.12 would address market-wide circuit breakers, the Exchange proposes 
that Article 20, Rule 2 would not be applicable to trading on 
Pillar.\23\
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    \22\ The U.S. equities exchanges are working on an amendment to 
the harmonized market-wide circuit breaker rules and the Exchange 
will amend this proposed rule to conform to any approved changes to 
the market-wide circuit breaker rules.
    \23\ To maintain continuity of rule numbering with those of its 
Affiliated Exchanges, the Exchange proposes to designate Rules 7.14 
and 7.15 as ``Reserved.''
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     Proposed Rule 7.16 (Short Sales) would establish 
requirements relating to short sales, including how orders would be re-
priced during a Short Sale Price Test pursuant to Rule 201 of 
Regulation SHO. The proposed rule is based on NYSE National Rule 7.16 
without any substantive differences. Because the Exchange would not be 
a primary listing exchange, the Exchange does not propose rule text 
based on NYSE Arca Rule 7.16-E(f)(3) or 7.16-E(f)(4)(A) and (B). The 
Exchange notes that pursuant to proposed Rule 7.16(f)(5)(H), any Cross 
Order that includes a short sale order and has a cross price at or 
below the NBBO would be rejected. As proposed, this would include all 
forms of Cross Orders available on the Exchange, including, as 
described below, QCT Cross Orders and Cross Orders that include non-
regular way settlement instructions.
    Because proposed Rule 7.16 would address short sales, the Exchange 
proposes that Article 1, Rules 2(b)(1)(C)(ii) and 2(b)(3)(D) and (E), 
Article 20, Rule 8(d)(4), and Article 9, Rule 23 would not be 
applicable to trading on Pillar.
     Proposed Rule 7.17 (Firm Orders and Quotes) would 
establish requirements that all orders and quotes must be firm. This 
proposed rule is based on NYSE National Rule 7.17 and NYSE Arca Rule 
7.17-E with one substantive difference not to include reference to Q 
Orders, which will not be available on the Exchange. Because proposed 
Rule 7.17 would address firm orders and quotes, the Exchange proposes 
that Article 20, Rule 3 would not be applicable to trading on Pillar.
     Proposed Rule 7.18 (Halts) would establish rules relating 
to trading halts of securities traded pursuant to UTP on the Exchange's 
Pillar platform, including how orders will be processed during a 
trading halt and halts in Exchange Traded Products. This proposed rule 
is based on NYSE National Rule 7.18 without any substantive 
differences. Because proposed Rule 7.18 would address halts, the 
Exchange proposes that Article 1, Rule 2(b)(1)(B, Article 20, Rule 1, 
Interpretations and Policies .02, and Article 22, Rule 6(a)(3) would 
not be applicable to trading on Pillar.
    As noted above, at this time, the Exchange is not proposing to 
offer rules for market makers on the Exchange and, therefore, proposes 
to designate Section 2 as ``Reserved.'' The Exchange further proposes 
that Article 16 in its entirety would not be applicable to trading on 
Pillar.
    Section 3 of proposed Rule 7 would establish the Exchange's trading 
rules. Among other things, these rules would establish the orders and 
modifiers that would be available on the Exchange (proposed Rule 7.31), 
describe order display and ranking (proposed Rule 7.36), and describe 
how the Exchange would ensure that orders would not trade through 
either the PBBO (for Limit Orders) or NBBO (for Market Orders and 
Inside Limit Orders) and when orders would route (proposed Rules 7.37 
and 7.34).
    As noted above, the Exchange will not conduct any auctions, and 
therefore does not propose a rule based on NYSE Arca Rule 7.35-E. In 
addition, because the Exchange would not offer a retail liquidity 
program, the Exchange does not propose a rule based on NYSE Arca Rule 
7.44-E and proposed Rules 7.36, 7.37, and 7.38 would not include any 
references to Rule 7.44.
     Proposed Rule 7.29 (Access) would provide that the 
Exchange would be available for entry and execution of orders by 
Participants with authorized access. To obtain authorized access to the 
Exchange, each Participant would be required to enter into a User 
Agreement. Proposed Rule 7.29 is based on NYSE

[[Page 44660]]

National Rule 7.29 and NYSE Arca Rule 7.29-E(a) without any substantive 
differences. The Exchange does not propose to include rule text based 
on NYSE Arca Rule 7.29-E(b).
     Proposed Rule 7.30 (Authorized Traders) would provide for 
requirements relating to Authorized Traders and is based on NYSE 
National Rule 7.30 and NYSE Arca Rule 7.30-E without any differences.
    Because proposed Rules 7.29 and 7.30 would address access and 
individuals who may access the Exchange, the Exchange proposes that 
Article 5, Rule 1 would not be applicable to trading on Pillar.
     Proposed Rule 7.31 (Orders and Modifiers) would specify 
the orders and modifiers that would be available on the Exchange. The 
Exchange proposes to offer the same types of orders and modifiers that 
are available on NYSE National and NYSE Arca, with specified 
differences. Specifically, proposed Rule 7.31(a)-(f) and (h)-(i) are 
based on NYSE National Rule 7.31(a)-(f) and (h)-(i) and NYSE Arca Rule 
7.31-E(a)-(f) and (h)-(i), subject to specified differences described 
below. As noted above, proposed Rule 7.31(g), relating to Cross Orders, 
will be described in greater detail below.
    The Exchange does not propose to include text based on NYSE Arca 
Rule 7.31-E relating to auctions or being a primary listing exchange. 
Instead, for those applicable sub-paragraphs of proposed Rule 7.31, the 
Exchange proposes rule text based on NYSE National Rule 7.31, which 
also does not conduct auctions or operate as a primary listing 
exchange. Specifically, proposed Rules 7.31(a)(2)(B) (Limit Order Price 
Protection), 7.31(c) (Auction-Only Orders), 7.31(f)(1) (Primary Only 
Orders), and 7.31(f)(1)(B) (designating a Primary Only Day/IOC Order in 
an NYSE, NYSE Arca, or NYSE American-listed security as routable) are 
based on NYSE National Rules 7.31(a)(2)(B), 7.31(c), 7.31(f)(1), and 
7.31(f)(1)(B) and not the NYSE Arca versions of those subparagraphs.
    In addition, similar to NYSE National Rule 7.31, proposed Rule 7.31 
would not include text based on NYSE Arca Rule 7.31-E that specifies 
whether an order is eligible to participate in an auction. Accordingly, 
the Exchange will not include rule text based on NYSE Arca Rules 7.31-
E(b)(2), (d)(2), (d)(3), (e)(2)(A), (g), (h)(1), (h)(2), and (i)(2) 
that refer to how such orders would function in an auction.
    Also similar to NYSE National, the Exchange is not proposing to 
offer a Discretionary Pegged Order and, therefore, proposes to 
designate proposed Rule 7.31(h)(3) as ``Reserved'' and will not include 
a reference to Discretionary Pegged Orders in proposed Rule 7.34. 
Except for these differences, proposed Rules 7.31(a)-(f) and (h)-(i) 
are based on the same rules of NYSE National and NYSE Arca.
    Because proposed Rule 7.31 would address orders and modifiers that 
would be available when the Exchange transitions to Pillar, the 
Exchange proposes that the remainder of Article 1, Rule 2 not 
specifically identified above would not be applicable to trading on 
Pillar. As noted above and below, specified subparagraphs of Article 1, 
Rule 2 would not be applicable to trading on Pillar and the Exchange 
has described how they would be addressed in other Pillar rules. 
Together, the entirety of Article 1, Rule 2 would not be applicable to 
trading on Pillar. As a result, with the exception of Cross Orders, 
described below, the Exchange would no longer make available orders and 
modifiers that are described in Article 1, Rule 2.
    In addition, the Exchange proposes that Article 20, Rule 4 would 
not be applicable to trading on Pillar because proposed Rule 7.31 would 
specify the orders and modifiers available for trading on the Exchange. 
Finally, as noted below, Article 20, Rule 8 would not be applicable to 
trading on Pillar, and that includes those provisions of that rule that 
relate to order behavior that would be described in proposed Rule 7.31 
(e.g., Article 20, Rule 8(b)(4), regarding how Reserve Size orders are 
refreshed, would be addressed in proposed Rule 7.31(d)(2)).
     Proposed Rule 7.33 (Capacity Codes) would establish 
requirements for capacity code information that Participants must 
include with every order. The proposed rule is based on NYSE National 
Rule 7.33 and NYSE Arca Rule 7.33-E without any substantive 
differences.
    Because proposed Rule 7.33 would address capacity codes, the 
Exchange proposes that Article 11, Rule 3(b)(8) and Article 20, Rule 8 
Interpretation and Policies .01 would not be applicable to trading on 
Pillar.
     Proposed Rule 7.34 (Trading Sessions) would specify 
trading sessions on the Exchange. The proposed rule is based on NYSE 
National 7.34 without any substantive differences. Specifically, the 
Exchange proposes that the Early Trading Session would begin at 7:00 
a.m. and conclude at the commencement of the Core Trading Session, the 
Core Trading Session would begin at 9:30 a.m. and would end at the 
conclusion of Core Trading Hours, and the Late Trading Session would 
begin at the conclusion of the Core Trading Session and conclude at 
8:00 p.m. Proposed Rule 7.34(c) would specify the orders permitted in 
each session, and proposed Rule 7.34(d) would specify customer 
disclosures required for trading in the Early and Late Trading 
Sessions.
    Because proposed Rule 7.34 would address trading sessions, 
including customer disclosures for trading outside of Core Trading 
Hours, the Exchange proposes that Article 8, Rule 17, Article 20, Rule 
1(b) and Interpretation .03 to Rule 1, and Article 20, Rule 8(c) would 
not be applicable to trading on Pillar.\24\
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    \24\ To maintain continuity of rule numbering with those of its 
Affiliated Exchanges, the Exchange proposes to designate Rule 7.35 
as ``Reserved.''
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     Proposed Rule 7.36 (Order Ranking and Display) would 
establish requirements for how orders would be ranked and displayed at 
the Exchange. The proposed rule is based on NYSE National Rule 7.36 and 
NYSE Arca Rule 7.36-E without any substantive differences.
    Because proposed Rule 7.36 would address how orders are ranked and 
displayed, the Exchange proposes that Article 1, Rule 1(pp) and Article 
20, Rule 8(b) would not be applicable to trading on Pillar.
     Proposed Rule 7.37 (Order Execution and Routing) would 
establish requirements for how orders would execute and route at the 
Exchange, the data feeds that the Exchange would use, and Exchange 
requirements under the Order Protection Rule and the prohibition on 
locking and crossing quotations in NMS Stocks. This proposed rule is 
based on NYSE National Rule 7.37 and NYSE Arca Rule 7.37-E without any 
substantive differences.
    Because proposed Rule 7.37 would address how orders are executed 
and ranked, which data feeds the Exchange will use, and Regulation NMS, 
the Exchange proposes that Article 1, Rule 4 and Article 20, Rules 5, 
6, 8(d), and 8(f) would not be applicable to trading on Pillar.
     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 National Rule 7.38 and NYSE Arca 
Rule 7.38-E without any substantive differences.\25\
    Because proposed Rule 7.38 would address odd lot orders, the 
Exchange

[[Page 44661]]

proposes that Article 20, Rules 5(b) and 8(d)(3) would not be 
applicable to trading on Pillar.
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    \25\ The Exchange does not propose a rule based on NYSE Arca 
Rule 7.39-E (concerning adjustment of open orders, which relates to 
good-til-cancelled orders, which would not be available on the 
Exchange). Similar to NYSE National, the Exchange will designate 
Rule 7.39 as ``Reserved.''
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     Proposed Rule 7.40 (Trade Execution and Reporting) would 
establish the Exchange's obligation to report trades to an appropriate 
consolidated transaction reporting system. The proposed rule is based 
on NYSE National Rule 7.40 and NYSE Arca Rule 7.40-E without any 
substantive differences.
    Because proposed Rule 7.40 would address reporting trades to a 
consolidated transaction reporting system, the Exchange proposes that 
Article 20, Rule 8(g) would not be applicable to trading on Pillar.
    Section 4 of proposed Rule 7 would establish the Operation of a 
Routing Broker. Specifically, proposed Rule 7.45 (Operation of a 
Routing Broker) would establish both the outbound and inbound function 
of the Exchange's routing broker, the cancellation of orders as the 
Exchange deems necessary to maintain a fair and orderly market if a 
technical issue occurs at the Exchange, the routing broker, or a 
routing destination, and the Exchange's error account. The proposed 
rule would also set forth the parameters of the Exchange's relationship 
with its affiliated broker-dealer, Archipelago Securities LLC, which 
would function solely as a routing broker on behalf of both the 
Exchange and the Affiliated Exchanges. The proposed rule is based on 
NYSE National Rule 7.45 and NYSE Arca Rule 7.45-E without any 
substantive differences.\26\
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    \26\ The Exchange has an agreement with FINRA pursuant to Rule 
17d-2 under the Act. See Securities Exchange Act Release No. 86161 
(June 20, 2019), 84 FR 29923 (June 25, 2019) (File No. 4-274) 
(Approval Order).
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    Because proposed Rule 7.45 would address both the operation of the 
routing broker and cancellation of orders, the Exchange proposes that 
Article 19 in its entirety and Article 20, Rule 12 would not be 
applicable to trading on Pillar.

B. Proposed Rules Relating to Cross Orders

    The Exchange proposes to continue to support cross orders. 
Currently, the Exchange offers the following cross orders: 
``Benchmark,'' ``Midpoint Cross,'' and ``QCT.'' \27\ In addition, the 
Exchange offers a ``Cross with Size'' modifier, which permits a cross 
order of at least 5,000 shares of the same security with a total value 
of at least $100,000 to execute, notwithstanding resting orders in the 
book at the same price, subject to specified conditions.\28\ Currently, 
cross orders can be entered with Non-Regular Way Settlement 
instructions \29\ and may be submitted in an increment as small as 
$0.000001, subject to specified conditions.\30\
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    \27\ See Article 1, Rule 2(b)(2)(A), (D), and (E).
    \28\ See Article 1, Rule 2(g)(1). To be eligible for Cross with 
Size, there cannot be any resting orders on the Book with a Working 
Price better than the cross order and the size of the cross order 
must be larger than the largest order displayed on the Exchange at 
that price.
    \29\ See Article 1, Rule 2(e)(2). Under this Rule, the Exchange 
currently uses the capitalized term ``Non-Regular Way Settlement.'' 
Under the proposed Pillar rules, the Exchange will not capitalize 
this term.
    \30\ See Article 20, Rule 4(a)(7)(B). Unless a cross order is a 
Midpoint Cross, is designated with non-regular way settlement 
instructions, or is Cross with Size, the Exchange will not currently 
allow a cross order priced (i) at or above $1.00, to execute at a 
price less than $0.01 better than any order on the same side of the 
Matching System or (ii) under $1.00, to execute at a price less than 
$0.0001 better than any order on the same side of the Matching 
System.
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    With the transition to the Pillar trading platform, the Exchange 
proposes to streamline the cross order offerings on the Exchange and no 
longer offer Midpoint or Benchmark cross orders. As proposed, cross 
orders would be based in part on existing cross order functionality on 
NYSE Arca and NYSE National. As a substantive difference compared to 
NYSE Arca and NYSE National, the Exchange proposes to continue to offer 
a QCT cross order and Cross with Size, as well as related functionality 
to permit cross orders to be entered with non-regular way settlement 
instructions and with trading increments out six decimals. As described 
in more detail below, the Exchange proposes to combine existing Pillar 
functionality relating to cross orders with the Exchange's current 
cross order offerings.
    Under NYSE Arca Rule 7.31-E(g) and NYSE National Rule 7.31(g), a 
``Cross Order'' is defined as two-sided orders with instructions to 
match the identified buy-side with the identified sell-side at a 
specified price (the ``cross price''). Both exchanges offer one type of 
Cross Order--a Limit IOC Cross Order--which is a Cross Order that must 
trade at full at its cross price, will not route, and will cancel at 
the time of entry if the cross price is not between the BBO \31\ or 
would trade through the PBBO.\32\ Accordingly, NYSE Arca and NYSE 
National will accept and execute a Limit IOC Cross Order that is priced 
between the BBO, even if there are non-displayed or odd-lot sized buy 
or sell orders between the BBO. This functionality is not currently 
available on the Exchange.
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    \31\ The BBO is defined on NYSE Arca and NYSE National, and as 
described above, would be defined on the Exchange under proposed 
Rule 1.1(c) to mean the best bid or offer that is a Protected 
Quotation on the Exchange. The term ``BB'' would mean the best bid 
that is a Protected Quotation on the Exchange and the term ``BO'' 
would mean the best offer that is a Protected Quotation on the 
Exchange. Pursuant to proposed Rule 1.1(r) [sic], the term 
``Protected Quotation'' would mean a Protected Bid or Protected 
Offer and references definitions under Rule 600(b) of Regulation 
NMS. Odd-lot sized bids and offers are not Protected Quotations.
    \32\ The term PBBO is defined on NYSE Arca and NYSE National, 
and as described above, would be defined on the Exchange under 
proposed Rule 1.1(o) [sic] to mean the best Protected Bid and the 
Best Protected Offer, as those terms are defined in Rule 600(b)(57) 
of Regulation NMS.
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    Proposed Rule 7.31(g) would set forth the Cross Orders that would 
be available on the Exchange. Paragraph (g) would set forth the 
requirements that would be applicable to all Cross Orders. As proposed, 
a Cross Order would be two-sided orders with instructions to match the 
identified buy-side with the identified sell-side at a specified price 
(the ``cross price''). This proposed rule text is based on the first 
sentence of NYSE Arca Rule 7.31-E(g) and NYSE National Rule 7.31(g).
    Proposed Rule 7.31(g) would further provide that a Cross Order must 
trade in full at its cross price, does not route, and may be designated 
with non-regular way settlement instructions (which are described 
below). This proposed rule text is based in part on NYSE Arca Rule 
7.31-E(g)(1) and NYSE National Rule 7.31(g)(1), which provide that 
Cross Orders on those exchanges must trade in full at its cross price 
and will not route. The proposed text to permit a Cross Order to be 
designated with non-regular way settlement instructions is based on 
current Article 1, Rule 2(e)(2) without any substantive differences, 
which provides that the Matching System \33\ will only accept cross 
orders for Non-Regular Way Settlement. The Exchange proposes non-
substantive differences to include reference to non-regular way 
settlement instructions in the description of Cross Orders.
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    \33\ The term ``Matching System'' is defined in Article 1, Rule 
1(z) as one of the electronic or automated order routing, execution 
and reporting systems provided by the Exchange. The Exchange does 
not propose to use this term when it transitions to Pillar.
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    Proposed Rule 7.31(g) would further provide that a Cross Order 
entered by an Institutional Broker may represent interest of one or 
more Participants and may be executed as agent or principal. This 
proposed rule text is based in part on current Article 1, Rule 
2(b)(2)(E), which provides that Institutional Brokers may execute a 
cross order as agent or principal, and Article 1, Rule 2(g)(1), which 
provides that a cross order with Cross with Size may represent interest 
of one or more Participants of the Exchange. On Pillar,

[[Page 44662]]

the Exchange proposes that any Cross Order entered by an Institutional 
Broker may represent interest of one or more Participants on the 
Exchange.
    Proposed Rule 7.31(g)(1) would set forth the proposed ``Limit IOC 
Cross Order,'' which is based in part on how the Limit IOC Cross Order 
functions on NYSE Arca and NYSE National. This would be new 
functionality on the Exchange. As proposed, a Limit IOC Cross Order 
would be a Cross Order that would be rejected under the following 
circumstance: (A) The cross price would trade through the PBBO; (B) the 
cross price is not between the BBO, unless it meets Cross with Size 
requirements, in which case the cross price may be equal to the BB 
(BO); or (C) there is no PBB or PBO or the PBBO is locked or crossed. 
This proposed rule text differs from the NYSE Arca and NYSE National 
rules to account for the availability of the Cross with Size modifier, 
described below. As proposed, the Limit IOC Cross Order would be 
available to any Participant.
    Proposed Rule 7.31(g)(2) would set forth how the QCT Cross Order 
would function on the Exchange. As proposed, a QCT Cross Order would be 
a Cross Order that is part of a transaction consisting of two or more 
component orders that qualifies for a Contingent Order Exemption under 
proposed Rule 7.37(e)(5).
    Proposed Rule 7.37(f)(5), which is based on NYSE Arca Rule 7.37-
E(f)(5) and NYSE National Rule 7.37(f)(5), would set forth the 
requirements for a transaction to qualify as a QCT Cross Order. 
Proposed Rule 7.37(f)(5)(A)-(F) would set forth identical requirements 
as are set forth in Article 1, Rule 2(b)(2)(E)(i)-(vi). Specifically, a 
QCT would be a transaction consisting of two or more component orders, 
executed as agent or principal, where:
     at least one component order is in an NMS Stock;
     all components are effected with a product or price 
contingency that either has been agreed to by the respective 
counterparties or arranged for by a broker-dealer as principal or 
agent;
     the execution of one component is contingent upon the 
execution of all other components at or near the same time;
     the specific relationship between the component orders 
(e.g., the spread between the prices of the component orders) is 
determined at the time the contingent order is placed;
     the component orders bear a derivative relationship to one 
another, represent different classes of shares of the same issuer, or 
involve the securities of participants in mergers or with intentions to 
merge that have been announced or since cancelled; and
     the Exempted NMS Stock Transaction is fully hedged 
(without regard to any prior existing position) as a result of the 
other components of the contingent trade.
    Proposed Rule 7.31(g)(2)(A) would provide that a QCT Cross Order 
would be rejected if the cross price is not between the BBO, unless it 
meets Cross with Size requirements, in which case the cross price can 
be equal to the BB (BO) (as discussed in greater detail below). This 
proposed functionality would be new on the Exchange and is based on how 
Cross Orders function on NYSE Arca and NYSE National. Specifically, as 
noted above, Cross Orders on those exchanges can execute provided that 
the cross price is between the BBO. Because Cross Orders on Pillar 
function in this manner, the Exchange proposes to apply this 
functionality when it transitions QCT Cross Orders to Pillar.
    Proposed Rule 7.31(g)(2)(B) would further provide that QCT Cross 
Orders would be available to Institutional Brokers only. This proposed 
rule text is based on Article 1, Rule 2(b)(2)(E), which provides that a 
QCT cross order modifier may only be utilized by an Institutional 
Broker.
    Proposed Rule 7.31(g)(3) would describe the proposed Cross with 
Size requirements. As proposed, a Cross Order with a cross price equal 
to the BB (BO) will trade at that price if such Cross Order: (A) Is at 
least 5,000 shares of the same security with a total value of at least 
$100,000; and (B) is larger than the largest order displayed on the 
Exchange Book at the BB (BO). This proposed rule text is based in part 
on Article 1, Rule 2(g)(1) with differences to reflect that on Pillar, 
Cross Orders would be eligible to execute if the cross price is between 
the BBO, regardless of the size of the Cross Order. With this 
difference in functionality, Cross with Size would only be necessary if 
the proposed cross price is equal to the BB (BO). In such case, if a 
Cross Order meets the size requirement and is larger than the largest 
order displayed on the Exchange Book at the BB (BO), the Exchange would 
accept and execute such Cross Order.
    As noted above, consistent with current Rules, the Exchange would 
accept Cross Orders with non-regular way settlement instructions. NYSE 
Arca Rule 7.8-E and NYSE National Rule 7.8 provide that on those 
exchanges, all bids and offers will be considered to be ``regular way'' 
settlement instructions. To address that the Exchange would accept non-
regular way settlement instructions for Cross Orders, the Exchange 
proposes Rule 7.8A, which would describe the settlement terms for Cross 
Orders.
    To maintain continuity with the Pillar rules of Affiliated 
Exchanges, proposed Rule 7.8 would be based on NYSE Arca Rule 7.8-E and 
NYSE National Rule 7.8 and would provide that except as provided for in 
proposed Rule 7.8A, bids and offers would be considered to be ``regular 
way'' settlement terms.
    Proposed Rule 7.8A would specify Cross Order settlement terms. 
Proposed Rule 7.8A(a) would provide that Cross Orders would be 
considered to be ``regular way'' settlement terms unless designated 
with one of the following ``non-regular way'' settlement terms: Cash or 
Next Day. This proposed rule text is based in part on current Article 
20, Rule 4(a)(7)(A), which provides that a cross order may be submitted 
for Non-Regular Way Settlement, and current Article 1, Rule 2(e)(2), 
which provides that cross orders may be settled with one of three 
conditions: Cash, Next Day, or Seller's Option. On Pillar, the Exchange 
does not propose to offer Seller's Option non-regular way settlement 
instructions.
    Proposed Rule 7.8A(a) would further provide that a Cross Order 
designated for ``non-regular way'' settlement may execute at any price 
without regard to the PBBO or any orders on the Exchange Book. This 
proposed rule text is based in part on current Article 1, Rule 2(e)(2), 
which provides that a cross order marked for Non-Regular Way Settlement 
may execute at any price, without regard to the NBBO or any other 
orders in the Matching System.\34\ The Exchange proposes non-
substantive differences to use Pillar terminology without any 
substantive differences, including that the Exchange uses the PBBO 
instead of NBBO.
---------------------------------------------------------------------------

    \34\ See also Article 20, Rule 8(e)(3), which similarly provides 
that cross orders with Non-Regular Way Settlement shall be 
automatically executed without regard to either the NBBO or any 
orders for Regular Way Settlement that might be in the Matching 
System if they meet the requirements for Article 1, Rule 2(e)(2).
---------------------------------------------------------------------------

    Proposed Rule 7.8A(a)(1) would provide that ``Cash'' means a 
transaction for delivery on the next day of the contract. This proposed 
rule text is based on the first sentence of current Article 1, Rule 
2(e)(2)(A) without any differences. The Exchange does not propose rule 
text based on the second sentence of Article 1, Rule 2(e)(2)(A), which 
provides any cross order that is for cash settlement must be received 
by the Matching System by 2:00 p.m. Central Standard Time or such other 
time that may be established by the

[[Page 44663]]

Exchange and communicated to Participants from time to time. On Pillar, 
the Exchange will accept a Cross Order with Cash instructions after 
3:00 p.m. Eastern Time. Pursuant to National Securities Clearing 
Corporation (``NSCC'') Procedure II (Trade Comparison and Recording 
Service), Section B(ii), NSCC designates a cut-off time by which a 
transaction designated as Cash can be settled on those terms, and 
transactions received after that time will be accepted and reported, 
but may only be settled directly between the parties.\35\ Because such 
trades would settle, the Exchange proposes not to reject transactions 
designated as ``Cash'' that are entered after the NSCC cut-off time.
---------------------------------------------------------------------------

    \35\ See NSCC Rules and Procedures, available here: http://www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------

    Proposed Rule 7.8A(a)(2) would provide that ``Next Day'' means a 
transaction for delivery on the next business day following the day of 
the contract. This proposed rule text is based on current Article 1, 
Rule 2(e)(2)(B) without any differences.
    Proposed Rule 7.6 would specify the trading differentials available 
on the Exchange. The first sentence would provide that, except for 
Cross Orders, the minimum price variation (``MPV'') for quoting and 
entry of orders in securities traded on the Exchange would be $0.01, 
with the exception of securities that are priced less than $1.00, for 
which the MPV for quoting and entry of orders would be $0.0001. This 
proposed rule text is based on NYSE Arca Rule 7.6-E and NYSE National 
Rule 7.6 with one difference to reference the exception for Cross 
Orders.
    Proposed Rule 7.6 would further provide that:

    A Cross Order, whether priced less than or at or above $1.00, 
may be submitted in an increment as small as $0.000001 unless the 
Cross Order has been designated with regular way settlement terms 
and does not meet Cross with Size, in which case the cross price 
must also be (i) at least $0.01 above (below) the BB (BO) if the 
cross price is at or above $1.00 or (ii) at least $0.0001 above 
(below) the BB (BO) if the cross price is under $1.00.

    This proposed rule text is based on Article 20, Rule 4(a)(7)(B) 
without any substantive differences. Because the Exchange will not be 
offering a Midpoint Cross, that order type does not need to be 
referenced in the Pillar version of this rule. The remaining 
differences are non-substantive, to use Pillar terminology.
    Finally, proposed Rule 7.32 (Order Entry) would establish 
requirements for order entry size and that orders entered that are 
greater than five million shares in size would be rejected, provided 
that the Exchange would accept Cross Orders up to 25 million shares. 
The proposed rule is based in part on NYSE National Rule 7.32 and NYSE 
Arca Rule 7.32-E. Similar to NYSE Rule 7.32, the Exchange proposes to 
accept Cross Orders that are up to 25 million shares in size.
    Because proposed Rule 7.32 would address order entry size, the 
Exchange proposes that Article 20, Rule 4(a)(6) would not be applicable 
to trading on Pillar.
Proposed Amendments to Current Exchange Rules
    As described above, a number of current Exchange rules will not be 
applicable to trading on Pillar and the Exchange will include a 
preamble for those rules (or Articles, if all rules under an Article 
would not be applicable to trading on Pillar) that will specify that 
such rule or Article would not be applicable to trading on Pillar.
    In the above section, the Exchange identifies specified current 
Exchange rules, or sections of rules, that would not be applicable to 
trading on Pillar because they will be superseded by a proposed Pillar 
rule.
    In addition to the above-referenced current rules, the Exchange 
proposes that the entirety of Article 4 would not be applicable to 
trading on Pillar. Article 4, Rule 1 currently describes the Exchange's 
Book Feed. Once the Exchange transitions to Pillar, it will no longer 
offer the Book Feed. The Exchange proposes to file a separate proposed 
rule change to establish the market data products that will be 
available when the Exchange transitions to Pillar.\36\ In addition, 
because the Exchange does not currently offer the Connect service, and 
does not plan to offer the Connect service when it transitions to 
Pillar, the Exchange proposes to delete Article 4, Rule 2 in its 
entirety.
---------------------------------------------------------------------------

    \36\ NYSE National also filed a stand-alone filing to establish 
the market data products that would be available on that exchange 
when it began trading on Pillar. See Securities Exchange Act Release 
No. 83350 (May 31, 2018), 83 FR 26332 (June 6, 2018) (SR-NYSENat-
2018-09) (Notice of filing and immediate effectiveness of proposed 
rule change). Similar to NYSE National, the Exchange will be 
separately proposing to establish NYSE Chicago BBO, NYSE Chicago 
Trades, and NYSE National Integrated Feed Market Data feeds. As with 
the current Book Feed, the Exchange does not propose to charge fees 
for market data products when it transitions to Pillar.
---------------------------------------------------------------------------

    The following is the full list of current rules that would not be 
applicable to trading on Pillar and therefore would include the above-
described preamble:

 Article 1, Rule 1(a), (e), (f), (g), (k), (l), (o), (z), (bb), 
(cc), (dd), (nn), (pp), (qq), (tt), and (uu)
 Article 1, Rule 2
 Article 1, Rule 3
 Article 1, Rule 4
 Article 3, Rule 21
 Article 4 (in its entirety)
 Article 5, Rule 1
 Article 8, Rule 17
 Article 9, Rule 23
 Article 11, Rule 3(b)(8)
 Article 16 (in its entirety)
 Article 19 (in its entirety)
 Article 20, Rules 1-8, 10, 12-13
 Article 22, Rule 6(a)(3)
    In addition to rules not applicable to trading on Pillar, the 
Exchange proposes to amend specified rules that would continue to be 
applicable to trading once the Exchange transitions to Pillar, but 
reference systems or definitions that would not be used on Pillar.
    As noted above, the Exchange will continue to support Institutional 
Brokers and the BrokerPlex system when the Exchange transitions to the 
Pillar trading platform. The Exchange proposes to amend specified rules 
under Article 17 to add a reference to the term ``NYSE Chicago 
Marketplace'' in any rule that references the term ``Matching System.'' 
While the term ``Matching System'' is not explicitly defined in current 
Exchange rules, it is used throughout Exchange rules to refer to the 
current system that matches orders.\37\ Because the Exchange will be 
replacing that system when it transitions to Pillar, to reduce 
confusion about which Exchange systems are referenced in Article 17, 
the Exchange proposes to add the phrase ``NYSE Chicago Marketplace, as 
applicable'' in Article 17, Rule 3(b), 5(a), 5(c)(1), 5(c)(2), 5(e), 
and 5(e)(1) as an alternative to the term ``Matching System.'' The 
Exchange also proposes to add a cross reference to proposed Rule 7.31 
in Article 17, Rules 5(c)(1) and 5(e)(1).
---------------------------------------------------------------------------

    \37\ See, e.g. Article 20 (Operation of the Matching System). 
The Exchange also proposes a non-substantive amendment to the second 
sentence of Article 17 Rule 5(a) to delete the word ``Exchange'' in 
front of the term ``Matching System.''
---------------------------------------------------------------------------

    The Exchange further proposes to amend Article 17, Rule 5(c)(1) to 
specify order types and modifiers that would be defined under proposed 
Rule 7.31 that would not be available via BrokerPlex. As proposed, an 
Institutional Broker would not be able to enter the following order 
types and modifiers via BrokerPlex: Inside Limit Orders, Auction-Only 
Orders, MPL Orders, Tracking Orders, ISOs, Primary Only Orders, Primary 
Until 9:45 Orders, Primary After 3:55 Orders, Pegged Orders, Non-
Display Remove Modifier,

[[Page 44664]]

Proactive if Locked or Crossed Modifier, Self-Trade Prevention 
Modifier, and Minimum Trade Size Modifier. While these order types 
would not be available via Brokerplex, an Institutional Broker could 
enter these orders via any other system that they choose to use to 
connect with the Exchange, just as any other NYSE Chicago Participant 
could choose to do.
    The Exchange also proposes to amend Article 17, Rule 5(c)(3) to 
specify current order types that would not be available on Pillar. 
Current Article 17, Rule 5(c)(3) provides that in addition to the 
orders described in Rule 5(c)(1) and (2), BrokerPlex also accepts 
``Quote@Exchange'' and ``Reprice@Exchange'' order types. Because 
neither of these order types will be accepted once the Exchange 
transitions to Pillar, the Exchange proposes to amend Article 17, Rule 
5(c)(3) to provide that these order types would not be available on the 
Pillar trading system.
    Finally, the Exchange proposes to amend Article 12, Rule 8(h)(2) 
relating to the Exchange's Minor Rule Violations Plan (``MRVP'') both 
(i) to delete a reference to rules that no longer exist and (ii) to add 
proposed Pillar rules that are subject to an Affiliated Exchange's 
minor rule violation plan and that the Exchange similarly believes that 
should be subject to the Exchange's MRVP.
     First, the Exchange proposes to amend Article 12, Rule 
8(h)(2)(F) to delete the reference to ``Failure to Clear the Matching 
System (Article 20, Rule 7)'' as this rule was eliminated in 2011 and 
the Exchange no longer needs a reference to this Rule in its Minor Rule 
Violation Plan.\38\
---------------------------------------------------------------------------

    \38\ See Securities Exchange Act Release No. 65633 (October 26, 
2011), 76 FR 67509 (November 1, 2011) (SR-CHX-2011-29) (Approval 
Order).
---------------------------------------------------------------------------

     Second, the Exchange proposes to amend Article 12, Rule 
8(h)(2)(G) to add a reference to Rule 7.6. The current rule provides 
that Article 20, Rule 4, which addresses the minimum order increments, 
would be eligible for the MRVP. Because on Pillar, proposed Rule 7.6 
would address minimum order increments, the Exchange proposes to add a 
reference to this rule, which would have the same substantive effect as 
current Article 12, Rule 8(h)(2)(G) after the Exchange transitions to 
Pillar.
     Finally, the Exchange proposes to amend Article 12, Rule 
8(h)(2) to add two additional rules that the Exchange proposes to be 
eligible for the Exchange's MRVP. Proposed Article 12, Rule 8(h)(2)(M) 
would add a reference to ``Short Sales (Rule 7.16)'' and proposed 
Article 12, Rule 8(h)(2)(N) would add a reference to ``Failure to 
comply with Authorized Trader requirements (Rule 7.30).'' These 
proposed rule changes are based on NYSE Arca Rule 10.9217(f)(1) and (4) 
and NYSE National Rule 10.9217(f)(1)(1) and (3), which both provide 
that their versions of Rule 7.16 and 7.30 are eligible for those 
exchanges' respective minor rule violation plans. Accordingly, the 
Exchange similarly proposes that these rules should be included on the 
Exchange's MRVP.
3. Section 11(a) of the Act
    Section 11(a)(l) of the Act \39\ (``Section 11(a)(1)'') prohibits a 
member of a national securities exchange from effecting transactions on 
that exchange for its own account, the account of an associated person, 
or an account over which it or its associated person exercises 
investment discretion (collectively, ``covered accounts'') unless an 
exception to the prohibition applies. Rule 11a2-2(T) under the Act 
(``Rule 11a2-2(T)''),\40\ known as the ``effect versus execute'' rule, 
provides exchange members with an exemption from the Section 11(a)(l) 
prohibition. Rule 11a2-2(T) permits an exchange member, subject to 
certain conditions, to effect transactions for covered accounts by 
arranging for an unaffiliated member to execute the transactions on the 
exchange. To comply with Rule 11a2-2(T)'s conditions, a member: (i) 
Must transmit the order from off the exchange floor; (ii) may not 
participate in the execution of the transaction once it has been 
transmitted to the member performing the execution (although the member 
may participate in clearing and settling the transaction); (iii) may 
not be affiliated with the executing member; and (iv) with respect to 
an account over which the member or its associated person has 
investment discretion, neither the member nor its associated person may 
retain any compensation in connection with effecting the transaction 
except as provided in the Rule.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78k(a)(1).
    \40\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------

    With the proposed re-launch of the Exchange as a fully automated 
electronic trading model that does not have a trading floor, the 
Exchange believes that the policy concerns Congress sought to address 
in Section 11(a)(1)--i.e., the time and place advantage that members on 
exchange trading floors have over non-members off the floor and the 
general public--would not be present. Specifically, on the Pillar 
trading system, buy and sell interest will be matching in a continuous, 
automated fashion. Liquidity will be derived from quotes as well as 
orders to buy and orders to sell submitted to the Exchange 
electronically by Participants from remote locations. The Exchange 
further believes that Participants entering orders into the Exchange 
through the Pillar trading system will satisfy the requirements of Rule 
11a2-2(T) under the Act, which provides an exception to Section 11(a)'s 
general prohibition on proprietary trading.
    The four conditions imposed by the ``effect versus execute'' rule 
are designed to put members and non-members of an exchange on the same 
footing, to the extent practicable, in light of the purpose of Section 
11(a). For the reasons set forth below, the Exchange believes the 
structure and characteristics of its proposed Pillar trading system do 
not result in disparate treatment of members and non-members and places 
them on the ``same footing'' as intended by Rule 11a2-2(T).
    1. Off-Floor Transmission. Rule 11a2-2(T) requires orders for a 
covered account transaction to be transmitted from off the exchange 
floor. The Commission has considered this and other requirements of the 
rule in the context of automated trading and electronic order handling 
facilities operated by various national securities exchanges in a 1979 
Release \41\ as well as more applications of Rule 11a2-2(T) in 
connection with the approval of the registrations of national 
securities exchanges.\42\ In the context of these automated trading 
systems, the Commission has found that the off-floor transmission 
requirement is met if an order for a covered account is transmitted 
from a remote location directly to an exchange's floor by electronic 
means.\43\ Because the

[[Page 44665]]

Exchange would not have a physical trading floor when it re-launches 
trading, and like other all electronic exchanges, the Exchange's Pillar 
trading system would receive orders from Participants electronically 
through remote terminals or computer-to-computer interfaces, the 
Exchange therefore believes that its trading system satisfies the off-
floor transmission requirement.
---------------------------------------------------------------------------

    \41\ See Securities Exchange Act Release No. 15533 (January 29, 
1979) (regarding the Amex Post Execution Reporting System, the Amex 
Switching System, the lntermarket Trading System, the Multiple 
Dealer Trading Facility of the Cincinnati Stock Exchange, the PCX's 
Communications and Execution System (``COM EX''), and the Phlx's 
Automated Communications and Execution System (``PACE'')) (``1979 
Release'').
    \42\ See Securities Exchange Act Release Nos. 53128 (January 13, 
2006) 71 FR 3550 (January 23, 2006) (File No. 10-13 1) (order 
approving Nasdaq Exchange registration); 58375 (August 18, 2008) 73 
FR 49498 (August 21, 2008) (order approving BATS Exchange 
registration); 61152 (December 10, 2009) 74 FR 66699 (December 16, 
2009) (order approving C2 exchange registration); and 78101 (June 
17, 2016), 81 FR 41142, 41164 (June 23, 2016) (order approving 
Investors Exchange LLC registration).
    \43\ See, e.g., Securities Exchange Act Release Nos. 49068 
(January 13, 2004), 69 FR 2775 (January 20, 2004) (order approving 
the Boston Options Exchange as an options trading facility of the 
Boston Stock Exchange); 44983 (October 25, 2001), 66 FR 55225 
(November 1, 2001) (order approving Archipelago Exchange 
(``ArcaEx'') as electronic trading facility of the Pacific Exchange 
(``PCX'')(``Arca Ex Order'')); 29237 (May 24, 1991), 56 FR 24853 
(May 31, 1991) (regarding NYSE's Off-Hours Trading Facility); 15533 
(January 29, 1979); and 14563 (March 14, 1978), 43 FR 11542 (March 
17, 1978) (regarding the NYSE's Designated Order Turnaround System 
(``1978 Release'')).
---------------------------------------------------------------------------

    2. Non-Participation in Order Execution. The ``effect versus 
execute'' rule further provides that neither the exchange member nor an 
associated person of such member participate in the execution of its 
order. This requirement was originally intended to prevent members from 
using their own brokers on an exchange floor to influence or guide the 
execution of their orders.\44\ The rule, however, does not preclude 
members from cancelling or modifying orders, or from modifying 
instructions for executing orders, after they have been transmitted, 
provided such cancellations or modifications are transmitted from off 
an exchange floor.\45\ In the 1979 Release discussing both the Pacific 
Stock Exchange's COM EX system and the Philadelphia Stock Exchange's 
PACE system, the Commission noted that a member relinquishes any 
ability to influence or guide the execution of its order at the time 
the order is transmitted into the systems, and although the execution 
is automatic, the design of such systems ensures that members do not 
possess any special or unique trading advantages in handling orders 
after transmission to the systems.\46\ The Exchange's Pillar trading 
system would at no time following the submission of an order allow a 
Participant or an associated person of such member to acquire control 
or influence over the result or timing of an order's execution. The 
execution of a Participant's order would be determined solely by what 
quotes and orders are present in the system at the time the Participant 
submits the order and the order priority based on Exchange rules. 
Therefore, the Exchange believes the non-participation requirement 
would be met through the submission and execution of orders in the 
Exchange's Pillar trading system.
---------------------------------------------------------------------------

    \44\ Id. 1978 Release, supra note 43.
    \45\ Id.
    \46\ 1979 Release, supra note 41.
---------------------------------------------------------------------------

    3. Execution Through an Unaffiliated Member. Although Rule 11a2-
2(T) contemplates having an order executed by an exchange member, 
unaffiliated with the member initiating the order, the Commission has 
recognized the requirement is satisfied where automated exchange 
facilities are used as long as the design of these systems ensures that 
members do not possess any special or unique trading advantages in 
handling their orders after transmitting them to the exchange. In the 
1979 Release, the Commission noted that while there is not an 
independent executing exchange member, the execution of an order is 
automatic once it has been transmitted into the systems. Because the 
design of these systems ensures that members do not possess any special 
or unique trading advantages in handling their orders after 
transmitting them to the exchange, the Commission has stated that 
executions obtained through these systems satisfy the independent 
execution requirement of Rule 11a2-2(T). Because the design of the 
Exchange's Pillar trading system ensures that no Participant has any 
special or unique trading advantages over nonmembers in the handling of 
its orders after transmitting its orders to the Exchange, the Exchange 
believes that its Pillar trading system would satisfy this requirement.
    4. Non-Retention of Compensation for Discretionary Accounts. 
Finally, Rule 11a2-2(T) states, in the case of a transaction effected 
for the account for which the initiating member or its associated 
person exercises investment discretion, in general, the member or its 
associated person may not retain compensation for effecting the 
transaction, unless the person authorized to transact business for the 
account has expressly provided otherwise by written contract referring 
to both Section 11(a) of the Exchange Act and Rule 11a2-2(T). The 
Exchange will advise its membership through the issuance of a 
Regulatory Bulletin that those Participants trading for covered 
accounts over which they exercise investment discretion must comply 
with this condition in order to rely on the exemption in Rule 11a2-2(T) 
from the prohibition in Section 11(a) of the Exchange Act.
    In conclusion, the Exchange believes that its Pillar trading system 
would satisfy the four requirements of Rule 11a2-2(T) as well as the 
general policy objectives of Section 11(a). The Exchange's proposed 
Pillar trading system would place all users, members and non-members, 
on the ``same footing'' with respect to transactions on the Exchange 
for covered accounts as intended by Rule 11a2-2(T). As such, no 
Exchange Participant would be able to engage in proprietary trading in 
a manner inconsistent with Section 11(a).

2. Statutory Basis

    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\47\ As noted above, at 
this time, the Exchange is not proposing to offer rules for market 
makers on the Exchange and, therefore, proposes to designate Section 2 
as ``Reserved.'' The Exchange further proposes that Article 16 in its 
entirety would not be applicable to trading on Pillar.
---------------------------------------------------------------------------

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

    Section 3 of proposed Rule 7 would establish the Exchange's trading 
rules. Among other things, these rules would establish the orders and 
modifiers that would be available on the Exchange (proposed 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.
---------------------------------------------------------------------------

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

    Generally, the Exchange believes that the proposed rules would 
support the migration of the Exchange to the Pillar trading system as a 
fully automated cash equities trading market with a price-time priority 
model that is based both on the rules of its affiliated exchanges, NYSE 
Arca and NYSE National, and with respect to Cross Orders, the 
Exchange's current rules. The Exchange is not proposing any new or 
novel rules. The proposed rule changes relating to trading would 
therefore remove impediments to and perfect the mechanism of a free and 
open market and a national market system because they are based on the 
approved rules of other exchanges.
Proposed Rules Based on the Rules of the Exchange's Affiliates
Regulation of the Exchange (Rule 0) and Definitions (Rule 1)
    The Exchange believes that proposed Rule 0 would 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 because it would specify the role of FINRA, pursuant to a 
Regulatory Services Agreement, to perform certain

[[Page 44666]]

regulatory functions of the Exchange on behalf of the Exchange.
    The Exchange further believes that proposed Rule 1 would 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 because the proposed definitions are terms that would 
be used in the additional rules proposed by the Exchange. Proposed Rule 
1 would therefore promote transparency in Exchange rules by providing 
for definitional terms that would be used throughout the rulebook.
Equities Trading Rules (Proposed Rule 7)

A. Proposed Rules Based on NYSE Arca and NYSE National

    The Exchange believes that proposed Rule 7 and the rules thereunder 
that are based on the rules of NYSE Arca and NYSE National (proposed 
Rules 7.5, 7.7, 7.9, 7.10, 7.11, 7.12, 7.16, 7.17, 7.18, 7.29, 7.30, 
7.31, 7.33, 7.34, 7.36, 7.37, 7.38, 7.40 and 7.45) would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would establish rules relating to 
trading on the Exchange that would support the re-launch of Exchange 
trading as a fully automated trading market on Pillar with a price-time 
priority trading model. The proposed rules are based on the rules of 
NYSE Arca and NYSE National, as applicable, and include rules governing 
orders and modifiers, ranking and display, execution and routing, and 
trading sessions. The Exchange believes that because it would not be a 
primary listing exchange, it would be consistent with the protection of 
investors and the public interest not to include rules relating to 
auctions or lead or designated market makers. Other than substantive 
differences to the proposed rules relating to the difference that the 
Exchange would not operate auctions, the proposed rules are not novel, 
and are based on the rules of NYSE Arca and NYSE National. The Exchange 
believes that having Pillar rules that are based on the rules of NYSE 
Arca and NYSE National would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would promote consistency among the Exchange and the 
Affiliated Exchanges, thereby making Exchange rules easier to navigate 
for those Exchange Participants that are also members of one or more 
Affiliated Exchange.

B. Proposed Rules Relating to Cross Orders

    As noted above, when it transitions to Pillar, the Exchange will 
continue to support Institutional Brokers on the Exchange consistent 
with current Article 17, including making BrokerPlex available to 
Institutional Brokers. To support Institutional Brokers, the Exchange 
proposes a difference from its Affiliated Exchanges by continuing to 
support Cross Orders and related functionality that is currently 
available on the Exchange, with specified differences.
    Specifically, the Exchange believes that proposed Rule 7.31(g), 
relating to Cross Orders, would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed rule would provide for both Limit IOC Cross 
Orders, which are based on the rules of NYSE Arca and NYSE National, 
and QCT Cross Orders, which are currently available on the Exchange. 
The Exchange believes that the proposed differences in how QCT Cross 
Orders would function on Pillar as compared to the current Rules would 
remove impediments to and perfect the mechanism of a free and open 
market because it would apply Cross Order functionality that has been 
approved on NYSE Arca and NYSE National, i.e., the ability to execute a 
Cross Order if the cross price is between the BBO, to existing QCT 
Cross Order functionality, as described in current Exchange rules. How 
QCT Cross Orders would otherwise function on Pillar would not differ 
substantively from how such orders currently function. The Exchange 
believes that the proposed non-substantive rule differences to use 
Pillar terminology to describe QCT Cross Orders would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because using Pillar terminology would promote 
transparency and consistency in Exchange rules.
    The Exchange believes that offering Limit IOC Cross Orders would 
remove impediments to and perfect the mechanism of a free and open 
market because the proposed order type is based on the approved rules 
of NYSE Arca and NYSE National. In addition, the proposed Limit IOC 
Cross Order would provide Participants that are not Institutional 
Brokers with an opportunity to send Cross Orders to the Exchange. The 
Exchange further believes that eliminating Benchmark and Midpoint Cross 
orders would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because the Exchange would 
be streamlining its offerings and eliminating little-used order types.
    How Cross Orders would function on the Exchange would otherwise be 
based on current Exchange rules, with non-substantive differences to 
use Pillar terminology, including the availability of non-regular way 
settlement instructions (proposed Rule 7.8A), entering such orders in 
an increment as small as $0.000001 (proposed Rule 7.6), and the 
availability of Cross with Size (proposed Rule 7.31(g)(3)). The 
Exchange believes that these proposed rules would remove impediments to 
and perfect the mechanism of a free and open market because they would 
provide continuity to Institutional Brokers regarding how Cross Orders 
would function after the Exchange transitions to Pillar. The Exchange 
similarly believes that proposed Rule 7.32, and in particular, the 
ability for Cross Orders to be entered up to 25 million shares in size, 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it would promote the 
entry of larger-sized Cross Orders on the Exchange. This proposed rule 
change is not novel and is based on NYSE Rule 7.32.
Proposed Amendments to Current Exchange Rules
    The Exchange believes that the proposed amendments to Article 17 to 
add references to the NYSE Chicago Marketplace and amendments to 
Article 17, Rule 5 to specify which order types would not be available 
via BrokerPlex would remove impediments to and perfect the mechanism of 
a free and open market and a national market system because the 
proposed changes are designed to promote transparency in Exchange rules 
of how BrokerPlex would function once the Exchange transitions to 
Pillar.
    The Exchange further believes that the proposed amendments to 
Article 12, Rule 8 relating to which rules are eligible for the MRVP 
are designed to prevent fraudulent and manipulative acts and practices 
and promote just and equitable principles of trade because they add 
Pillar rules to the Exchange's MRVP that have previously been approved 
by the Commission to be included in the minor rule violation plans of 
NYSE Arca and NYSE National, thus promoting consistency among the 
Affiliated Exchanges of which rules would be eligible for the MRVP. The 
proposed amendments would also promote transparency by eliminating an 
obsolete rule from the MRVP and

[[Page 44667]]

updating a rule cross reference for an existing rule that is eligible 
for MRVP.
    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 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 on the Pillar trading platform,'' would 
promote transparency regarding which rules would govern trading 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 functions that would not be 
available when the Exchange transitions to Pillar.
Section 11(a) of the Act
    For reasons described above, the Exchange believes that the 
proposal for the Exchange to operate on a fully automated trading 
market without a Floor is consistent with Section 11(a) of the Act and 
Rule 11a2-2(T) thereunder.

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 rule change is 
designed to provide for trading rules to support the migration to the 
Pillar trading platform consistent with the Framework Filing. The 
Exchange operates in a highly competitive environment in which its 
unaffiliated exchanges competitors operate multiple affiliated 
exchanges that operate under common rules. By proposing rules based on 
the rules of its affiliated exchanges, the Exchange believes that it 
will be able to compete on a more level playing field with its exchange 
competitors that similarly trade NMS Stocks on fully automated trading 
models. In addition, by basing its rules on those of its affiliated 
exchanges, the Exchange will provide its Participants 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.
    In addition, the Exchange does not believe that the proposed rule 
change will impose any burden on competition on its Participants that 
is not necessary or appropriate in furtherance of the purposes of the 
Act because the Exchange proposes to retain rules governing Participant 
membership and conduct and therefore such Participants would not need 
to update internal procedures in connection with the migration of the 
Exchange to the Pillar trading platform. The Exchange further believes 
that the proposed rule change would promote consistency and 
transparency on both the Exchange and its affiliated exchanges, thus 
making the Exchange's rules easier to navigate.

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 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-NYSECHX-2019-08 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-NYSECHX-2019-08. 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-NYSECHX-2019-08 and should be submitted 
on or before September 16, 2019.
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    \49\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18269 Filed 8-23-19; 8:45 am]
 BILLING CODE 8011-01-P