[Federal Register Volume 84, Number 216 (Thursday, November 7, 2019)]
[Notices]
[Pages 60125-60128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24254]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87442; File No. SR-NYSEAMER-2019-41]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing of Proposed Rule Change Regarding the Applicability and
Functionality of Certain Order Types on the Exchange
November 1, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on October 22, 2019, NYSE American LLC (``Exchange'') filed with
the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules to clarify the
applicability and functionality of certain order types on the Exchange.
The proposed rule change is available on the Exchange's website at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 60126]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 900.3NY(Orders Defined) to
clarify the applicability and functionality of certain order types.
Specifically, the Exchange proposes to amend the definitions of Stop
Orders, Stop Limit Orders and All-or None (``AON'') Orders, as set
forth in Rule 900.3NY(d), which describes the Contingency Orders or
Working Orders. The Exchange is not proposing to change or alter any
obligations, rights, policies or practices enumerated within its rules.
Rather, this proposal is designed to reduce any potential investor
confusion as to the functionality and applicability of certain order
types presently available on the Exchange.
Proposed Changes to Order Type Definitions
Rule 900.3NY (the ``Rule'') contains certain definitions of options
order types available on the Exchange. Paragraph (d) of the Rule
defines Contingency Orders or Working Orders as orders that are
``contingent upon a condition being satisfied or an order with a
conditional or undisplayed price and/or size.'' Contingency Orders and
Working Orders are maintained in the Working Order File of the
Consolidated Book until they are eligible for execution and/or
display.\4\ The Exchange proposes to amend the definitions of Stop
Orders, Stop Limit Orders and AON Orders, which are Contingency Orders/
Working Orders.
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\4\ See Rule 900.3NY(d). See Rule 964NY(b)(2)(E) (regarding
priority of orders in the Working Order File once eligible for
execution and stating that such orders ``do not have any priority or
standing until they are eligible for execution and/or display'') and
Rule 964NY(a) (providing, in relevant part, that the Exchange will
display ``all non-marketable limit orders in the Display Order
Process, unless indicated otherwise'').
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Rule 900.3NY(d)(1)-(2) Stop Orders and Stop Limit Orders. A Stop
Order is an order that becomes a Market Order when the market for a
particular option contract reaches a specified price.\5\ A Stop Limit
Order is an order that becomes a Limit Order when the market for a
particular option contract reaches a specified price.\6\ Stop Orders
and Stop Limit Orders (collectively, ``Stop Orders'' herein unless
otherwise specified) track the price of an option and are generally
used to limit losses as prices move up, in the case of buy orders, or
down in the case of sell orders. In each case, the ``triggering
event,'' which converts the order type (to a Market Order or Limit
Order, as applicable) occurs once the option trades or is quoted at, or
above for a buy (below for a sell), the specified stop price.\7\ Thus,
Stop Orders to buy (sell) may be triggered as the price of an option
rises (falls). The current rule provides that a Stop Order to buy
(sell) will be rejected if, at the time of arrival, the stop price is
below (above) the bid (offer).\8\ Regarding priority, Stop Orders
(including Stop Limit Orders) are not displayed and have no standing in
any Order Process in the Consolidated Book.\9\ As such, Stop Orders
``are not eligible to execute against incoming orders and will become
eligible to execute via the Display Order Process only after the
incoming order is executed in full or rests in the book or the working
order is sent to the Display Order Process at the end of a triggering
event.'' \10\
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\5\ See Rule 900.3NY(d)(1).
\6\ See Rule 900.3NY(d)(2).
\7\ See Rule 900.3NY(d)(1),(2).
\8\ See Rule 900.3NY(d)(1),(2).
\9\ See Rule 900.3NY(d)(1) (setting forth details about both
Stop Orders and Stop Limit Orders, even though paragraph (d)(1)
pertains solely to Stop Orders). See also Rule 964NY(b)(2)(E)
(regarding priority of orders in the Working Order File once
eligible for execution and stating that such orders ``do not have
any priority or standing until they are eligible for execution and/
or display'') and Rule 964NY(a) (providing, in relevant part, that
the Exchange will display ``all non-marketable limit orders in the
Display Order Process, unless indicated otherwise'').
\10\ See Rule 900.3NY(d)(1) (settings forth details about both
Stop Orders and Stop Limit Orders, even though paragraph (d)(1)
pertains solely to Stop Orders).
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The Exchange proposes to modify the description of Stop Orders to
enhance the clarity of the rule text, including by streamlining some of
the existing text and adding new text, as appropriate, and deleting
existing text to correct an inaccuracy regarding current functionality.
First, the Exchange proposes to streamline the description of the order
types as follows. The Exchange proposes to revise the first sentence
describing each order type (i.e., Rule 900.3NY(d)(1),(2)) to state that
the order type converts to a Market or Limit Order, respectively--or
``is triggered''--when the market for a particular option contract
reaches a specified price.\11\ The Exchange also proposes to modify
Rule 900.3NY(d)(1),(2) to combine into one sentence the description of
both buy and sell Stop Orders without modifying current functionality.
The current rule addresses buy and sell Stop Orders in two sentences
and the Exchange thinks the proposed change would streamline the rule
and make it easier to navigate. Specifically, proposed Rule
900.3NY(d)(1),(2) would provide that a Stop Order (or Stop Limit Order)
``to buy (sell) is triggered'' such that it becomes a Market Order or
Limit Order, respectively, ``when the option contract trades at a price
equal to or greater (less) than the specified `stop' price on the
Exchange or another Market Center or when the Exchange bid (offer) is
quoted at a price equal to or greater (less) than the stop price.''
\12\
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\11\ See proposed Rule 900.3NY(d)(1), (2).
\12\ See proposed Rule 900.3NY(d)(1), (2). Consistent with this
proposed change to address both buy and sell Stop Orders and Stop
Limit Orders in one sentence, the Exchange proposes to delete as
unnecessary the sentences in the current definitions that describes
the functionality for sell Stop Orders and sell Stop Limit Orders.
See id.
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The Exchange also proposes to address the display and standing of
each type of Stop Order for which information is currently contained
only in paragraph (d)(1) of Rule 900.3NY.\13\ Specifically, the
Exchange proposes to modify the current rules to reflect that each type
of Stop Order ``is not displayed and has no standing in any Order
Process in the Consolidated Book, unless or until it is triggered
(i.e., same-side incoming interest trades or quotes at a price equal to
or better than the stop price).'' \14\ The Exchange also proposes to
add new rule text to clarify that ``[a]fter the triggering event,'' a
Stop Order (per Rule 900.3NY(d)(1)) becomes a new Market Order, and a
Stop Limit Order (per Rule 900.3NY(d)(2)) becomes a new Limit Order,
and each converted order is processed accordingly.\15\
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\13\ See Rule 900.3NY(d)(1) (which provides that ``Stop Orders
(including Stop Limit Orders) shall not have standing in any Order
Process in the Consolidated Book and shall not be displayed'').
\14\ See proposed Rule 900.3NY(d)(1), (2). The Exchange notes
that this proposed text modifies the existing text in paragraph
(d)(1) and is new text for paragraph (d)(2) of the Rule. See id.
\15\ See proposed Rule 900.3NY(d)(1), (2). See also Rule
900.3NY(a), (b) (defining Market Order and Limit Order,
respectively).
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Finally, the Exchange proposes to delete as inaccurate the last two
sentences in the description of each type of Stop Order, which provides
for the rejection of such orders to buy (sell) if entered with a stop
price below the bid (or above the offer). This language is not accurate
as the Exchange does not reject Stop Orders so priced, but instead
would execute such orders once triggered. This proposed change would
reflect current functionality and therefore add clarity and consistency
to Exchange rules.\16\
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\16\ See proposed Rule 900.3NY(d)(1), (2).
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Rule 900.3NY(d)(4) All-Or-None Orders (``AON Orders''). An AON
Order is a Market or Limit Order that is to be executed in its entirety
or not at all.\17\
[[Page 60127]]
The Exchange is not proposing to modify the functionality of an AON
Order, but rather proposes to amplify the definition of an AON Order to
clarify its current functionality. Specifically, the Exchange proposes
to make clear that an AON Order that does not execute on arrival will
not be displayed or routed to another Market Center (i.e., AON Orders
may only be executed on the Exchange) and would have no standing in any
Order Process in the Consolidated Book.\18\ Further, the Exchange
proposes to clarify that AON Orders are not eligible to execute against
incoming interest but rather may execute solely against interest
resting in the Consolidated Book when sufficient size is available.\19\
Finally, the Exchange proposes to specify that the System monitors the
Consolidated Book for AON Order execution opportunities.\20\ The
Exchange believes the proposed changes would add transparency to the
operation of this order type, without altering the current
functionality.
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\17\ See Rule 900.3NY(d)(4).
\18\ See proposed Rule 900.3NY(d)(4). See also Rule
964NY(b)(2)(E) (regarding priority orders in the Working Order File
and noting that such orders (i.e., AON Orders) have no priority or
standing until eligible for execution and/or display).
\19\ See proposed Rule 900.3NY(d)(4).
\20\ See id.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \21\ of
the Act, in general, and furthers the objectives of Section
6(b)(5),\22\ in particular, in that 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, and to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes that deleting inaccurate
language (regarding Stop Orders) and enhancing the descriptions as to
the functionality of Stop Orders and AON Orders types (i.e., the
Contingency Orders or Working Orders) would add transparency and
clarity to the Exchange's rules, without altering current
functionality. In addition, the Exchange believes that clarifying the
definitions and current operation of Stop Orders and AON Orders removes
impediments to, and perfects the mechanism of a free and open market by
helping to ensure that investors better understand the current
functionality of certain orders types available for trading on the
Exchange.
The Exchange further believes that the proposal removes impediments
to, and perfects the mechanism of a free and open market by ensuring
that members, regulators and the public can more easily navigate the
Exchange's rulebook and better understand certain order types available
for trading on the Exchange.
Technical Changes
The Exchange notes that the proposed organizational and non-
substantive changes to the rule text would provide clarity and
transparency to Exchange rules and would promote just and equitable
principles of trade and remove impediments to, and perfect the
mechanism of, a free and open market and a national market system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that this proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed change is not
designed to address any competitive issue but rather revise or amplify
incomplete or inaccurate rule text or remove language pertaining to
unavailable functionality in the Exchange's rulebook, thereby reducing
confusion and making the Exchange's rules easier to understand and
navigate. The Exchange believes the proposed changes would add
transparency to the operation of certain order types, without altering
the current functionality.
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-NYSEAMER-2019-41 on the subject line.
Paper Comments
Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-NYSEAMER-2019-41. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEAMER-2019-41 and should be submitted
on or before November 29, 2019.
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\23\ 17 CFR 200.30-3(a)(12).
[[Page 60128]]
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24254 Filed 11-6-19; 8:45 am]
BILLING CODE 8011-01-P