[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Notices]
[Pages 15510-15515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05556]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88368; File No. SR-NYSENAT-2020-09]


Self-Regulatory Organizations; NYSE National, Inc.; Notice of 
Filing of Proposed Rule Change Amending Rule 7.31 (Orders and 
Modifiers) Relating to How Orders Are Repriced and Make Related Changes 
to Rules 7.36 and 7.38

March 12, 2020.
    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 February 28, 2020, NYSE National, Inc. (``NYSE 
National'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.31 (Orders and Modifiers) 
relating to how orders are repriced and make related changes to Rules 
7.36 and 7.38. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 7.31 (Orders and Modifiers) 
relating to how orders are repriced and make related changes to Rules 
7.36 and 7.38.
Background
    Currently, if an Away Market updates its PBBO and crosses not only 
the Exchange's BBO, but also displayed orders in the Exchange Book not 
represented in the BBO, i.e., depth-of-book orders, and then the 
Exchange's BBO cancels or trades, the Exchange will not disseminate its 
next-best priced displayed order as its new BBO to the securities 
information processor (``SIP'').\4\ Instead, the Exchange reprices such 
order before it is disseminated to the SIP.\5\
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    \4\ The term ``Away Market'' is defined in Rule 1.1(b) 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 term ``BBO'' is defined in Rule 
1.1(c) to mean the best bid or offer on the Exchange, and the term 
``BB'' means the best bid on the Exchange, and the term ``BO'' means 
the best offer on the Exchange. The term ``PBB'' is defined in Rule 
1.1(t) to mean the highest Protected Bid, the term ``PBO'' means the 
lowest Protected Offer, and ``PBBO'' means the Best Protected Bid 
and Best Protected Offer. The terms ``Protected Bid'' and 
``Protected Offer'' are defined in Rule 1.1(aa). The term ``Exchange 
Book'' is defined in Rule 1.1(l) to mean the Exchange's electronic 
file of orders, which contains all orders entered on the Exchange.
    \5\ See Rule 7.31(a)(2)(C), which provides that ``[i]f a BB (BO) 
that is locked or crossed by an Away Market PBO (PBB) is cancelled, 
executed or routed and the next best-priced resting Limit Order(s) 
on the Exchange Book that would become the new BB (BO) would have a 
display price that would lock or cross the PBO (PBB), such Limit 
Order(s) to buy (sell) will be assigned a display price one MPV 
below (above) the PBO (PBB) and a working price equal to the PBO 
(PBB). When the PBO (PBB) is updated, the Limit Order(s) to buy 
(sell) will be repriced consistent with the original terms of the 
order. If a Day ISO to buy (sell) arrives before the PBO (PBB) is 
updated, such repriced Limit Order(s) to buy (sell) will be repriced 
to the lower (higher) of the display price of the Day ISO or the 
original price of the Limit Order(s).''
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    For example, if the Exchange's BB is $10.05 and on the Exchange 
Book, there is an order to buy 100 shares ranked Priority 2--Display 
Orders at $10.04 (``Order A''), Order A is displayed in the Exchange's 
proprietary depth-of-book

[[Page 15511]]

market data at that $10.04 price but is not disseminated to the SIP.\6\ 
If next, an Away Market publishes a PBO of $10.03, the Exchange's BB of 
$10.05 will stand its ground. However, if that $10.05 BB trades, 
cancels, or routes, the Exchange will not disseminate Order A to the 
SIP as the new BB at $10.04. Instead, as provided for in Rule 
7.31(a)(2)(C), Order A will be assigned a display price of $10.02 and a 
working price of $10.03, which is equal to the Away Market PBO, and 
will be disseminated to the SIP as the Exchange's BB at $10.02. Order A 
will be repriced to $10.04 once the Away Market PBBO no longer locks or 
crosses the Exchange BBO. Each time Order A is repriced, including back 
to its original price, it is assigned a new working time.\7\ The 
Exchange also applies this repricing functionality to Primary Pegged 
Orders.\8\
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    \6\ See Rule 7.36(b)(3) (describing which orders are collected 
and made available to quotation vendors for dissemination pursuant 
to the requirements of Rule 602 under Regulation NMS under the Act).
    \7\ See Rule 7.36(f)(2) (an order is assigned a new working time 
any time its working price changes).
    \8\ See Rule 7.31(h)(2)(B).
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    The Exchange believes that no other exchange reprices resting depth 
orders in this manner. The Exchange understands that in the same 
scenario on other exchanges, ``Order A'' would stand its ground and be 
disseminated to the SIP as their new BBO at $10.04, even if that price 
would cross the Away Market PBO of $10.03. The rules of other exchanges 
vary regarding how much detail is used to describe circumstances when 
displayed orders stand their ground, and none explicitly address the 
specific scenario described above, i.e., when a resting, displayed, 
depth-of-book order is crossed by an Away Market quotation and then 
becomes the best-priced order on that exchange. For example:
     The Nasdaq Stock Market LLC (``Nasdaq'') Rule 4756(c)(2) 
provides that Nasdaq transmits for display to the appropriate network 
processor its best-priced orders. That Rule specifies exceptions of 
which orders are not transmitted to the SIP, i.e., the reserve size of 
orders, the discretionary portion of Discretionary Orders, and Non-
Displayed Orders. This rule is silent as to whether resting, displayed, 
depth-of-book orders that have been locked or crossed by another market 
center and then become the best-ranked orders on Nasdaq are transmitted 
to the SIP at their original price. Separately, Nasdaq rules provide 
that certain previously-displayed orders stand their ground. For 
example, pursuant to Nasdaq Rules 4702(b)(1)(B) and 4702(b)(2)(B), 
resting ``Price to Comply Orders'' and ``Price to Display Orders'' 
entered via RASH, QIX, or FIX will stand their ground if locked or 
crossed by another market center. But these rules discuss top-of-book 
displayed orders that are crossed, not depth-of-book orders.
     CBOE BZX Exchange, Inc. (``BZX'') Rule 11.12(b) (Priority 
of Orders) provides that the best-ranked order(s) to buy and the best-
ranked order(s) to sell that are displayable in the BZX Book and the 
aggregated displayed size of such orders associated with such prices 
shall be collected and made available to quotation vendors for 
dissemination pursuant to the requirements of Rule 602 of Regulation 
NMS. This rule is silent as to whether resting, displayed, depth-of-
book orders that have been locked or crossed by another market center 
and then become the best-ranked orders on BZX are transmitted to the 
SIP at their original price. BZX Rule 11.13(a)(2)(C) (Order Execution 
and Routing) discusses how orders execute on BZX when the PBBO is 
crossed, and how that exchange processes incoming orders during a 
crossed market. But that rule does not address the scenario described 
above regarding resting, displayed, depth-of-book orders and whether 
they would be made available to quotation vendors for dissemination at 
their original price, even when the PBBO is crossed. Under Rule 
11.13(b)(4), BZX further provides for optional ``Re-Route 
Instructions'' pursuant to which if a routable order has been locked or 
crossed by another market, the routable order on the BZX book would be 
routed to that other market. However, these are optional instructions, 
which implies that in the absence of one of these instructions, if a 
routable order on BZX is locked or crossed by another market, such 
order stands its ground.
     Investors Exchange LLC (``IEX'') Rule 11.240(c)(1) 
provides that IEX disseminates the aggregate of its best-ranked 
displayable orders to quotation vendors for dissemination to the SIPs. 
IEX Rules 11.190(h)(3)(A)(i) and (h)(3)(B)(i) further provide that 
resting orders that are displayed at a price that later becomes locked 
or crossed, and were originally displayed in compliance with rules and 
regulations of IEX, will maintain their displayed price and 
quantity.\9\ While these rules do not distinguish between displayed 
orders at the top of the IEX book and depth-of-book displayed orders, 
these rules appear consistent with the Exchange's proposed change to 
provide that resting, displayed, depth-of-book orders would stand their 
ground and are eligible to be disseminated to the SIP as the BBO at 
their original displayed price.
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    \9\ See also Supplementary Material .02 to IEX Rule 11.190(h) 
(providing that ``[o]rders displayed on the Exchange which were 
displayed at a price compliant with Regulation NMS are generally 
permitted to maintain their displayed price in the event an away 
trading center locks or crosses the price of the IEX displayed 
order.'')
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     Long-Term Stock Exchange (``LTSE'') Rule 11.240(c)(1) 
provides that LTSE disseminates the aggregate of its best-ranked 
displayable orders to quotation vendors for dissemination to the 
SIPs.\10\ LTSE Rules 11.190(g)(3)(A)(i) and (g)(3)(B)(i) further 
provide that resting orders that are displayed at a price that later 
becomes locked or crossed, and were originally displayed in compliance 
with rules and regulations of LTSE, will maintain their displayed price 
and quantity.\11\ While these rules do not distinguish between 
displayed orders at the top of the LTSE book and at depth, these rules 
appear consistent with the Exchange's proposed change to provide that 
resting, displayed, depth-of-book orders would stand their ground and 
are eligible to be disseminated to the SIP as the BBO at their original 
displayed price.
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    \10\ LTSE has been approved as a registered exchange but is not 
yet operational.
    \11\ See also Supplementary Material .02 to LTSE Rule 11.190(g).
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     MEMX LLC (``MEMX'') has filed a Form 1 application for 
registration as a national securities exchange pursuant to Section 6 of 
the Act.\12\ Proposed MEMX Rule 11.9(b) provides that the best-ranked 
order(s) to buy and the best-ranked order(s) to sell that are 
displayable in the MEMX Book and the aggregate displayed size of such 
orders associated with such prices shall be collected and made 
available to the SIP. MEMX claims that its proposed MEMX Rule 
11.6(j)(1)(A)(ii), which provides that ``[f]ollowing the initial 
ranking and display or an order subject to the Display-Price Sliding 
instruction, an order will only be re-ranked and re-displayed to the 
extent it achieves a more aggressive price, provided, however, that the 
Exchange will re-rank an order at the same price as the displayed price 
in the event such orders' displayed price would be a Locking or 
Crossing Quotation'' makes clear that an order displayed by MEMX would 
not be re-priced to a less aggressive price if another market locked or 
crossed an order displayed by

[[Page 15512]]

MEMX.\13\ The Exchange understands this response to mean that MEMX 
would not re-price displayed orders that were at depth that would 
become the MEMX best bid or offer.
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    \12\ See Securities Exchange Act Release No. 87436 (October 31, 
2019), 84 FR 59854 (November 6, 2019) (File No. 1--237). Although 
MEMX has not yet been approved as an exchange, the Exchange believes 
that its proposed rules are relevant to this discussion as MEMX 
expects to be operational in 2020, subject to approval of its Form 1 
application.
    \13\ See Letter from Anders Franzon, General Counsel, MEMX, to 
Ms. Vanessa Countryman, Secretary, Securities and Exchange 
Commission, dated February 11, 2020, available here: https://www.sec.gov/comments/10-237/10237-6795399-208386.pdf.
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    The Exchange proposes to amend its rules to conform how it reprices 
orders in this scenario to how other exchanges function. The Exchange 
believes that because such orders did not lock or cross an Away Market 
PBBO when they were entered on the Exchange and displayed to the 
Exchange's proprietary market data, such resting orders have priority 
at the price at which they were originally displayed.\14\ In other 
words, such resting orders did not cause a locked or crossed market 
condition.
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    \14\ If the PBBO is locked or crossed at the time of an order's 
arrival, such arriving orders would be either routed, cancelled, or 
repriced, as provided for in Rule 7.37(c) (for routable orders) or 
Rule 7.31(e) (for non-routable orders). This proposed rule change is 
applicable only to resting orders.
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    The Exchange further believes that providing priority to such 
resting orders on the Exchange Book (e.g., disseminating ``Order A'' as 
a BB at $10.04 in the above-described scenario) would be consistent 
with Rule 610(d) under the Act (``Rule 610(d)'').\15\ Rule 610(d) 
provides that ``[e]ach national securities exchange . . . shall 
establish, maintain, and enforce written rules that . . . are 
reasonably designed to assure the reconciliation of locked quotations 
in an NMS stock.'' The proposed rule change is consistent with this 
requirement because in the scenario described above, the Away Market 
has published a PBO that crosses not only the Exchange's BB, but also 
other orders that have already been entered on the Exchange and 
displayed on the Exchange's proprietary market data. Even though such 
depth-of-book orders have not yet been disseminated to the SIP as part 
of the Exchange's BBO, those resting orders pre-exist the Away Market 
quote that crossed them. Therefore, disseminating any pre-existing, 
displayed orders to the SIP as the new BB at their original price would 
be consistent with Rule 610(d) because it was the Away Market that 
crossed previously-displayed orders.
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    \15\ 17 CFR 242.610(d).
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Proposed Rule Change
    To effect this proposed rule change, the Exchange proposes to 
delete Rule 7.31(a)(2)(C) in its entirety. The Exchange also proposes 
to delete references to this Rule and describe how the Exchange would 
process orders, as follows.
    First, the Exchange proposes several rule changes to specify that 
previously-displayed orders at any price stand their ground and remain 
eligible to be quoted or traded at their last-displayed price, even if 
locked or crossed by an Away Market. The Exchange proposes to specify 
this principal generally for all displayed orders by amending Rule 
7.36(b) to add new subparagraph (4) that would provide that if an Away 
Market locks or crosses the BBO, the Exchange would not change the 
display price of any Limit Order ranked Priority 2--Display Orders \16\ 
and any such orders would be eligible to be disseminated as the 
Exchange's BBO.\17\ This proposed rule text both (1) provides 
specificity that all resting, top-of-book displayed orders stand their 
ground, which is current functionality,\18\ and (2) describes new 
functionality for previously displayed depth-of-book orders, which 
would now stand their ground instead of being repriced if they become 
the Exchange's BBO.
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    \16\ As set forth in Rule 7.36(c), all non-marketable orders are 
ranked and maintained in the Exchange Book in the following manner: 
(1) Price; (2) priority category; (3) time; and (4) ranking 
restrictions applicable to an order or modifier condition. Under 
Rule 7.36(e)(2), ``Priority 2--Display Orders'' are non-marketable 
Limit Orders with a displayed working price. Limit Orders that are 
ranked Priority 2--Display Orders can be top of book or at depth.
    \17\ As set forth in Rule 7.36(b)(1), the Exchange considers an 
order to be ``displayed'' when it has been disseminated via a market 
data feed. Because all orders ranked Priority 2--Display Orders, 
regardless of price, are displayed via proprietary data feeds, such 
orders are all ``displayed'' for purposes of Exchange rules.
    \18\ Current Rule 7.31(e)(1)(A)(iii) specifies that Non-Routable 
Limit Orders stand their ground when crossed by an Away Market PBBO.
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    Because such resting orders would no longer be repriced if locked 
or crossed by an Away Market, such orders would not need to be assigned 
new working times and would therefore retain priority at their original 
price. In addition, for market participants that read the Exchange's 
proprietary market data and are aware of displayed, depth-of-book 
orders, this proposed change provides greater certainty regarding the 
price at which a liquidity-taking order would execute on the Exchange.
    This proposed rule text therefore promotes transparency and clarity 
in Exchange rules that all resting, displayed orders, including depth-
of-book orders, would stand their ground if locked or crossed by an 
Away Market. Proposed Rule 7.36(b)(4) is based in part on IEX Rules 
11.190(h)(3)(A)(i) and (h)(3)(B)(i) and LTSE Rules 11.190(g)(3)(A)(i) 
and (g)(3)(B)(i), described above, and is consistent with proposed MEMX 
Rule 11.6(j)(1)(A)(ii).
    The Exchange proposes related changes to remove references to Rule 
7.31(a)(2)(C) in connection Primary Pegged Orders and replace that rule 
text with proposed new functionality that such orders would stand their 
ground at their last-displayed price. As described above, if the PBBO 
becomes locked or crossed, displayed orders on the Exchange would stand 
their ground. The Exchange proposes that in such scenario, resting 
Primary Pegged Orders, which are dynamically pegged to the PBBO, would 
similarly stand their ground. As further proposed, if the PBBO becomes 
locked or crossed, resting Primary Pegged Orders would wait for a PBBO 
that is not locked or crossed before the display and working price of 
such orders is adjusted. While the market is locked or crossed, such 
orders would remain eligible to trade at their current working price.
    To effect these changes, the Exchange proposes to amend Rule 
7.31(h)(2)(B) relating to Primary Pegged Orders by deleting the last 
clause of that Rule \19\ and amend the last sentence of that paragraph 
as follows (new text underlined, proposed text for deletion in 
brackets): ``If after arrival, the PBBO becomes locked or crossed, the 
Primary Pegged Order will wait for a PBBO that is not locked or crossed 
before the display and working price [is]are adjusted[, but]and remains 
eligible to trade at its current working price.''
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    \19\ The last clause of current Rule 7.31(h)(2)(B) provides: 
``provided that, if a resting Limit Order on the Exchange Book is 
assigned a new display price and working price pursuant to Rule 
7.31(a)(2)(C) and the PBBO is still locked or crossed, a resting 
Primary Pegged Order will also be assigned a new display price and 
working price pursuant to Rule 7.31(a)(2)(C).''
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    Second, the Exchange proposes to specify how the Exchange would 
process orders following a UTP Regulatory Halt in a UTP Security.\20\ 
Because continuous trading did not precede the resumption of trading of 
such security on the Exchange, the Exchange does not have a displayed 
quote eligible to stand its ground. Accordingly, to prevent publishing 
a quote that would lock or cross an Away Market, the Exchange proposes 
that

[[Page 15513]]

before the Exchange publishes a quote, orders that are marketable 
against a protected quotation on an Away Market would be either routed 
(if routable) or cancelled (if non-routable).
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    \20\ The term ``UTP Security'' is defined in Rule 1.1(ii) 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 and the term ``UTP Regulatory Halt'' is 
defined in Rule 1.1(kk) to mean a trade suspension, halt, or pause 
caused by the UTP Listing Market in a UTP Security that requires all 
market centers to halt trading in that security. The term ``UTP 
Listing Market'' is defined in Rule 1.1(jj) to mean the primary 
listing market for a UTP Security.
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    The second clause of proposed new Rule 7.36(b)(4) would address how 
the Exchange would process orders before resuming trading and 
publishing a quote in a UTP Security following a UTP Regulatory Halt. 
This proposed rule text would be an exception to the first half of the 
rule text, described above, that previously-displayed orders stand 
their ground. The Exchange proposes this exception because during a UTP 
Regulatory Halt, there is no continuous trading and the Exchange 
``zeroes'' out its quote, meaning the Exchange removes its BBO from the 
SIP. However, during a UTP Regulatory Halt, the Exchange may still have 
orders on its book. Specifically, as set forth in Rule 7.18(b), during 
a UTP Regulatory Halt, the Exchange cancels resting non-displayed 
orders and maintains all other resting orders in the Exchange Book at 
their last working price and display price. The Exchange does not 
accept new orders during such a halt. As provided for in Rule 7.18(a), 
the Exchange does not resume trading, including publishing a quote, in 
such security until it receives notification from the UTP Listing 
Market that the halt or suspension is no longer in effect and it has 
received the first Price Band in that security. The Exchange proposes 
that once it is eligible to resume trading, previously-displayed Limit 
Orders, i.e., the orders entered before the UTP Regulatory Halt, would 
be routed (if routable) or cancelled (if non-routable) if such orders 
would be marketable against protected quotations on Away Markets.
    For example, if before a UTP Regulatory Halt in XYZ security, the 
Exchange's BBO was $10.10 (100 shares) x $10.12 (100 shares), and 
before the Exchange resumes trading following that UTP Regulatory Halt, 
the first PBBO is $10.08 (100 shares) x $10.09 (100 shares), because 
the Exchange's former best bid of $10.10 is marketable against the new 
$10.09 PBO, the Exchange would either route that order (if routable) or 
cancel it (if non-routable). The Exchange would publish the former 
$10.12 because it is not marketable against an Away Market quotation.
    The Exchange believes that following a UTP Regulatory Halt, orders 
that would lock or cross the Away Market PBBO should either be routed 
(if routable) or cancelled (if non-routable) if they would be 
marketable against protected quotations on Away Markets. The Exchange 
believes that routing or cancelling such orders is consistent with Rule 
610(d) because the Away Market does not have an obligation to prevent 
locking or crossing an Exchange quote in this scenario. Therefore, in 
this scenario, to prevent locking or crossing the Away Market PBBO, the 
Exchange would either route or cancel previously-entered orders before 
publishing a quote.
    Third, the Exchange proposes to apply the proposed processing of 
orders, described above, to odd-lot orders. In other words, odd-lot 
orders would no longer be processed differently than orders that are a 
round lot or greater in size. Currently, Rule 7.38(b)(1) and 
subparagraphs (A)-(C) describe how the working and display price of 
odd-lot orders are adjusted in relation to the contra-side PBBO. In 
short, currently, the working and display prices of odd-lot orders are 
bound by the PBBO, which means that resting odd-lot orders can be 
repriced if the PBBO changes or becomes locked or crossed.\21\
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    \21\ Current Rule 7.38(b)(1) provides that ``[t]he working and 
display price of an odd lot order will be adjusted both on arrival 
and when resting on the Exchange Book as follows: (A) If the limit 
price of an odd lot order to buy (sell) is at or below (above) the 
PBO (PBB), it will have a working and display price equal to the 
limit price. (B) If the limit price of an odd lot order to buy 
(sell) is above (below) the PBO (PBB), it will have a working price 
equal to the PBO (PBB). The display price will also be adjusted to 
the PBO (PBB) unless the order's instruction requires a display 
price that is different from the PBBO. (C) If the PBBO is locked or 
crossed and the limit price of an odd lot order to buy (sell) is 
above (below) the PBO (PBB), it will have a working and display 
price equal to the PBB (PBO). The working and display price of such 
odd lot order will not be adjusted again until the PBBO unlocks or 
uncrosses.''
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    As proposed, odd-lot sized orders would be priced the same as 
orders of a round-lot size or higher, and if they are designated 
Priority 2--Display Orders, they would stand their ground if locked or 
crossed by an Away Market PBBO. To effect this change, the Exchange 
proposes to delete Rule 7.38(b)(1) and sub-paragraphs (A)-(C) in their 
entirety. The Exchange also proposes to delete the clause ``provided 
that'' at the end of Rule 7.38(b) and make a non-substantive change to 
that Rule to replace the term ``in'' with the term ``on.'' As a result 
of these changes, Rule 7.38(b) would provide, without any qualifiers, 
that ``[r]ound lot, mixed lot and odd-lot orders are treated in the 
same manner on the Exchange.'' The Exchange proposes an additional non-
substantive change to renumber current Rule 7.38(b)(2) as Rule 7.38(c).
    Fourth, because displayed odd-lot orders would stand their ground, 
the Exchange proposes to amend Rule 7.31(d)(1) to add new subparagraph 
(F) relating to Reserve Orders to specify new functionality of how non-
routable Reserve Orders would be replenished if the display quantity of 
a resting Reserve Order is decremented to an odd-lot size when the PBBO 
is crossed. The Exchange proposes this change only for non-routable 
Reserve Orders. These changes are not necessary for a routable Reserve 
Order because when such order replenishes, the replenish quantity is 
evaluated for routing to Away Markets and thus would not be displayed 
at a price that crosses an Away Market.
    As proposed in new subparagraph (F) to Rule 7.31(d)(1), if the PBBO 
is crossed and the display quantity of a Reserve Order to buy (sell) 
that is a Non-Routable Limit Order is decremented to less than a round 
lot, the display price and working price of such Reserve Order would be 
not change. This proposed rule text is consistent with the change, 
described above, that resting displayed orders, including odd-lot sized 
orders, would stand their ground if crossed by an Away Market. The 
proposed rule would further provide that the reserve interest that 
replenishes the display quantity would be assigned a display price one 
MPV below (above) the PBO (PBB) and a working price equal to the PBO 
(PBB). Because this is the first time such interest would be displayed, 
the Exchange proposes to adjust the display and working price so that 
the replenished quantity would not lock or cross the Away Market, which 
is the same manner that an arriving Non-Routable Limit Order is 
priced.\22\
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    \22\ See Rule 7.31(e)(1)(A) (describing how arriving Non-
Routable Limit Order is priced). On Nasdaq, a Price to Comply Order 
with Reserve Size replenishes in a similar manner. See Nasdaq Rule 
4703(h); see also Supplementary Material .02 to IEX Rule 11.190(h) 
(``When a reserve order refreshes its displayed portion, the 
refreshing shares are not permitted to be displayed at a price that 
locks or crosses the price of a protected quotation on an away 
market and are subject to display-price sliding'').
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    When the PBBO uncrosses, the display price and working price would 
be adjusted as provided for under paragraph (e)(1) of this Rule 
relating to Non-Routable Limit Orders.
    Fifth, as described above, displayed orders would stand their 
ground if locked or crossed by an Away Market. However, non-displayed 
orders do not. As set forth in Rule 7.31(d)(2)(A), the working price of 
a resting Non-Displayed Limit Order will be adjusted based on the limit 
price of the order. If the limit price of a Non-Displayed Limit Order 
to buy (sell) is at or below (above) the PBO (PBB), it will have a 
working price equal to the limit price. If the limit price of a Non-
Displayed Limit Order to buy (sell) is above (below) the PBO

[[Page 15514]]

(PBB), it will have a working price equal to the PBO (PBB). The 
Exchange also proposes to amend Rule 7.31(d)(1) to provide that the 
working price of the reserve interest of resting Reserve Orders, which 
are non-displayed, would be adjusted in the same manner that the 
working price of Non-Displayed Limit Orders are adjusted.
    To effect this change, the Exchange proposes to amend Rule 
7.31(d)(1) to add the following sentence: ``The working price of the 
reserve interest of a resting Reserve Order will be adjusted in the 
same manner as a Non-Displayed Limit Order, as provided for in 
paragraph (d)(2)(A) of this Rule.'' The Exchange understands that at 
least one other exchange also adjusts the price of the non-displayed 
portion of Reserve Orders in the same manner that such exchange adjusts 
the price of non-displayed orders.\23\
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    \23\ See IEX Rule 11.190(b)(2) (stating that the non-displayed 
portion of reserve orders are treated as non-displayed orders). IEX 
reprices its non-displayed orders differently from how the Exchange 
reprices Non-Displayed Limit Orders. See IEX Rule 11.190(h)(3)(D). 
Importantly, both IEX and the Exchange reprice non-displayed orders 
when crossed by an Away Market PBBO.
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    Together with the proposed rule change described above to Rule 
7.36(b), these rule changes make clear that on the Exchange, if crossed 
by an Away Market PBBO, displayed orders would stand their ground and 
non-displayed orders, including the reserve interest of resting Reserve 
Orders, would be repriced based off of the PBBO.
Implementation
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the implementation date of this 
proposed rule change by Trader Update. Subject to effectiveness of this 
proposed rule change, the Exchange anticipates that the implementation 
date will be in the Spring of 2020.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\24\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\25\ in particular, because it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to, and perfect the mechanisms of, 
a free and open market and a national market system and, in general, to 
protect investors and the public interest and because it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that deleting Rule 7.31(a)(2)(C) and the 
related proposed amendment to Rule 7.36(b) to add new sub-paragraph (4) 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because they would promote 
transparency in Exchange rules that previously-displayed orders would 
stand their ground if locked or crossed by an Away Market PBBO. The 
proposed rule changes would further promote transparency because they 
make clear that resting, displayed, depth-of-book orders that have been 
locked or crossed by an Away Market PBBO would be eligible to be 
disseminated to the SIP at their original price if they become the BBO.
    The Exchange believes that previously-displayed orders, including 
depth-of-book orders, have priority at such price and should be able to 
stand their ground if locked or crossed by an Away Market. The Exchange 
therefore believes it is consistent with this principle to delete Rule 
7.31(a)(2)(C) and change functionality on the Exchange for such orders 
to stand their ground and not be repriced if another market locks or 
crosses their price. The proposed change therefore benefits those 
resting orders because they would be able to keep their original 
working time and any priority ranking associated with such working 
time. The proposed change would also benefit liquidity takers, who 
would have greater certainty regarding the price at which they would 
receive an execution on the Exchange.
    Moreover, the proposed change is consistent with how other 
exchanges function. While the rules of other exchanges differ in level 
of detail, these proposed changes are based in part on IEX Rules 
11.190(h)(3)(A)(i) and (h)(3)(B)(i)and LTSE Rules 11.190(g)(3)(A)(i) 
and (g)(3)(B)(i), which similarly provide that previously-displayed 
orders on those exchanges maintain their display price and quantity if 
locked or crossed by an another market center. The proposal is also 
similar to how MEMX proposes it would function if approved as an 
exchange.
    The Exchange further believes that these proposed amendments are 
consistent with Rule 610(d). If an Away Market publishes a PBBO that 
crosses not only the Exchange's BBO, but also resting, displayed, 
depth-of-book orders, it was the Away Market that crossed previously-
displayed orders. If such previously-displayed, depth-of-book orders 
become the Exchange's BBO, the Exchange believes it is appropriate to 
disseminate those previously-displayed prices and quantities to the SIP 
as the new BBO because those resting orders pre-existed the Away Market 
quote that locked or crossed them.
    For the same reasons, the Exchange believes that the proposed 
changes to Primary Pegged Orders would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because displayed orders that are pegged to a dynamic price 
would stand their ground at their original displayed price if locked or 
crossed by an Away Market, which is consistent with the proposed rule 
change that all displayed orders would stand their ground. These 
proposed rule changes also promote transparency by specifying that such 
orders would continue to be eligible to trade at their original working 
price, and that their display and working prices would not be adjusted 
until the PBBO is no longer locked or crossed.
    The Exchange further believes that routing or cancelling orders 
that are marketable against an Away Market PBBO following a UTP 
Regulatory Halt would also remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because in this scenario, the Away Market would not have had an 
obligation to prevent displaying a locking or crossing quotation. The 
Exchange proposes to avoid locking or crossing an Away Market PBBO in 
this scenario by routing or cancelling previously-displayed orders, as 
applicable. These proposed changes would reduce the number of times 
resting orders would be repriced, thereby increasing determinism for 
the price at which orders would be executed on the Exchange.
    The Exchange believes that processing odd-lot sized orders in the 
same manner as round-lot sized orders would remove impediments to and 
perfect the mechanism of a free and open market because the same 
principle applies: an order of any size that has been displayed has 
priority at that price if an Away Market subsequently locks or crosses 
that price. In addition, the Exchange believes that processing odd-lot 
orders the same as round-lot sized orders is not novel as it is 
consistent with the rules of other exchanges.\26\
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    \26\ See, e.g., Nasdaq Rules 4703(b)(3) (defining the term ``odd 
lot'' as an order attribute) and 4702 (describing which order 
attributes are available for orders on Nasdaq, without any 
discussion of odd-lot sized orders being priced differently than 
round-lot sized orders). See also BZX Rules 11.10 (defining the term 
``odd lot'') and 11.9 (describing BZX Orders and Modifiers, without 
any discussion of odd-lot sized orders being priced differently than 
round-lot sized orders).

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[[Page 15515]]

    Finally, the Exchange believes that the proposed changes to Reserve 
Orders would remove impediments to and perfect the mechanism of a free 
and open market because it would apply these principles to a Non-
Routable Limit Order that is also a Reserve Order. This proposed 
functionality is also consistent with how Nasdaq and IEX process non-
routable orders with reserve interest.\27\ The proposed change to 
reprice the reserve interest of resting Reserve Orders in the same 
manner as a Non-Displayed Limit Order is priced would also remove 
impediments to and perfect the mechanism of a free and open market 
because it would promote consistency in Exchange rules regarding how 
similar orders are priced when crossed by an Away Market. The proposed 
change is also consistent with how IEX processes the reserve interest 
of Reserve Orders.\28\
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    \27\ See supra note 22.
    \28\ See supra note 23.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\29\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed change is competitive because it is 
designed to conform how the Exchange processes previously-displayed 
orders with the functionality available on other exchanges, i.e., that 
such orders would stand their ground if locked or crossed by an Away 
Market and be eligible to be disseminated to the SIP at their original 
price. The Exchange believes that the proposed change would promote 
competition because fewer orders would need to be repriced on the 
Exchange and therefore liquidity providers seeking for their orders to 
retain priority may route additional orders to the Exchange. Likewise, 
liquidity takers may be more likely to route orders to the Exchange if 
they have greater determinism regarding the price at which their orders 
would be executed.
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    \29\ 15 U.S.C. 78f(b)(8).
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    Without this proposed rule change regarding how displayed orders 
would stand their ground if locked or crossed by an Away Market, the 
Exchange is currently at a competitive disadvantage vis-[agrave]-vis 
all other equity exchanges, which do not reprice orders in this manner. 
As discussed above, displayed orders on all other equity exchanges, 
including the two exchanges that recently had their Form 1 applications 
to be approved as an exchange (IEX and LTSE), stand their ground when 
locked or crossed by an Away Market and such orders are disseminated to 
the SIP if they become those exchanges' best bid or offer. In addition, 
MEMX proposes that displayed orders would stand their ground if locked 
or crossed by an Away Market.

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-NYSENAT-2020-09 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-NYSENAT-2020-09. 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 offices 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-NYSNAT-2020-09, and should be submitted 
on or before April 8, 2020.
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    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05556 Filed 3-17-20; 8:45 am]
 BILLING CODE 8011-01-P