[Federal Register Volume 84, Number 245 (Friday, December 20, 2019)]
[Notices]
[Pages 70221-70222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27457]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87761; File No. SR-NYSEAMER-2019-41]
Self-Regulatory Organizations; NYSE American LLC; Order Approving
a Proposed Rule Change Regarding the Applicability and Functionality of
Certain Order Types on the Exchange
December 16, 2019.
I. Introduction
On October 22, 2019, NYSE American LLC (``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend its rules
to clarify the applicability and functionality of certain order types
on the Exchange. The proposed rule change was published for comment in
the Federal Register on November 7, 2019.\3\ The Commission received no
comment letters on the proposed rule change. This order approves the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 87442 (November 1,
2019), 84 FR 60125 (``Notice'').
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II. Description of the Proposal
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 Contingency Orders or Working
Orders. The Exchange states it is not proposing to change or alter any
obligations, rights, policies or practices. Rather, the Exchange states
that its proposal is designed to reduce potential investor confusion as
to the functionality and applicability of certain order types presently
available on the Exchange.\4\
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\4\ See Notice, supra note 3, 84 FR at 60126.
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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.'' The Exchange proposes
to add language regarding the handling of such orders to state that
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.\5\ As discussed below, the Exchange also
proposes to amend the definitions of Stop Orders, Stop Limit Orders and
AON Orders, which are Contingency Orders/Working Orders.
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\5\ 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.\6\ A Stop Limit
Order is an order that becomes a Limit Order when the market for a
particular option contract reaches a specified price.\7\ 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
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trades or is quoted at, or above for a buy (below for a sell), the
specified stop price.\8\ 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).\9\
The Exchange proposes to modify the description of Stop Orders as
follows. First, 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.\10\ 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 functionality. The
current rule addresses buy and sell Stop Orders in two sentences and
the Exchange believes the proposed change would 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.'' \11\
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\6\ See Rule 900.3NY(d)(1).
\7\ See Rule 900.3NY(d)(2).
\8\ See Rule 900.3NY(d)(1), (2).
\9\ Id.
\10\ See proposed Rule 900.3NY(d)(1), (2).
\11\ 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 describe
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.\12\ Specifically, the
Exchange proposes to modify its 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).'' \13\ The Exchange additionally 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.\14\
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\12\ 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'').
\13\ 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.
\14\ 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 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). The Exchange states that this
language is not accurate because the Exchange does not reject Stop
Orders so priced, but instead would execute such orders once
triggered.\15\ This proposed change would reflect current Exchange
functionality.\16\
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\15\ See Notice, supra note 3, 84 FR at 60126.
\16\ See proposed Rule 900.3NY(d)(1), (2).
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Rule 900.3NY(d)(4): AON Orders. An AON Order is a Market or Limit
Order that is to be executed in its entirety or not at all.\17\ 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\
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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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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act \21\ and the
rules and regulations thereunder applicable to a national securities
exchange.\22\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\23\ which
requires, among other things, that the rules of a national securities
exchange be designed to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest,
and not be designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\21\ 15 U.S.C. 78(f).
\22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78f(b)(5).
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The Commission notes that the Exchange represents it is not
proposing to change or alter any obligations, rights, policies or
practices. The Commission notes that the proposal would delete
inaccurate language regarding Stop Orders and clarify the descriptions
regarding the functionality of Contingency Orders, Working Orders, Stop
Orders, and AON Orders. In addition, the proposal would make
organizational and non-substantive changes to the rule text. The
Commission believes this should add transparency and clarity to the
Exchange's rules, without altering current functionality, to the
benefit of investors, market participants, and the public in general.
For the reasons discussed above, the Commission believes that the
proposed rule change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\24\ that the proposed rule change (SR-NYSEAMER-2019-41) be, and it
hereby is, approved.
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\24\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27457 Filed 12-19-19; 8:45 am]
BILLING CODE 8011-01-P