[Federal Register Volume 85, Number 89 (Thursday, May 7, 2020)]
[Notices]
[Pages 27259-27261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09711]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88793; File Nos. SR-NYSE-2020-13, SR-NYSENAT-2020-09, 
SR-NYSEArca-2020-17, SR-NYSEAMER-2020-12; SR-NYSECHX-2020-06]


Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE 
National, Inc.; NYSE Arca, Inc.; NYSE American LLC; NYSE Chicago, Inc.; 
Order Granting Approval of Proposed Rule Changes Relating to Repricing 
of Depth-of-Book Orders in Response to a Locked or Crossed Market

May 1, 2020.

I. Introduction

    On February 28, 2020, New York Stock Exchange LLC (``NYSE''), NYSE 
National, Inc. (``NYSE National''), NYSE Arca, Inc. (``NYSE Arca''), 
NYSE American LLC (``NYSE American''), and NYSE Chicago Inc. (``NYSE 
CHX'', and collectively, the ``Exchanges'') 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\ proposed rule changes regarding their rules on the re-
pricing of orders in certain market situations and related rules 
relevant to each Exchange. The proposed rule changes were published for 
comment in the Federal Register on March 18, 2020.\3\ The Commission 
has received no comments on the proposed rule changes. The Commission 
is approving the proposed rule changes.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release Nos. 88362 (March 12, 
2020), 85 FR 15538 (SR-NYSE-2020-13) (``NYSE Notice''); 88368 (March 
12, 2020), 85 FR 15510 (SR-NYSENAT-2020-09); 88369 (March 12, 2020), 
85 FR 15515 (SR-NYSEArca-2020-17) (``NYSE Arca Notice''); 88363 
(March 12, 2020), 85 FR 15544 (SR-NYSEAMER-2020-12) (``NYSE American 
Notice''); 88367 (March 12, 2020), 85 FR 15551 (SR-NYSECHX-2020-06) 
(collectively, the ``Notices''). For ease of reference, page 
citations in this order are from the NYSE Notice, as published in 
the Federal Register.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    Each Exchange's current rules provide that, if an away market 
(``Away Market'') updates its Protected Best Bid and Offer (``PBBO'') 
and crosses not only the BBO of the Exchange, but also displayed orders 
in the Exchange's Book not represented in the Best Bid or Offer 
(``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 depth-of-book order as its new BBO to the securities information 
processor (``SIP''). Instead, the Exchange will reprice such order 
before it is disseminated to the SIP.\4\
---------------------------------------------------------------------------

    \4\ See NYSE Notice, 85 FR at 15538-39.
---------------------------------------------------------------------------

    For example, consider a scenario where NYSE's Best Bid (``BB'') is 
$10.05, and on the NYSE Book there is an order to buy 100 shares ranked 
as a Priority 2--Display Order at $10.04 (``Order A''). Currently, 
Order A is displayed in the NYSE's proprietary depth-of-book market 
data at that $10.04 price, but is not disseminated to the SIP. If an 
Away Market subsequently publishes a Protected Best Offer (``PBO'') of 
$10.03, NYSE's BB of $10.05 will not reprice (i.e., it will ``stand its 
ground''). However, if that $10.05 BB trades, cancels, or routes, NYSE 
will not disseminate Order A to the SIP as the new BB at $10.04. 
Instead, Order A will be assigned a display price of $10.02 and a NYSE 
working price of $10.03, which is equal to the Away Market PBO, and 
will be disseminated to the SIP as the NYSE BB at $10.02. Order A 
subsequently will be repriced to $10.04 once the Away Market PBO no 
longer locks or crosses the NYSE BB. Each time Order A is repriced, 
including back to its original price, it is assigned a new working 
time. In addition, NYSE currently applies this repricing functionality 
to other order types (specifically, D Orders and Primary Pegged 
Orders), and following an auction.\5\
---------------------------------------------------------------------------

    \5\ See id. The rules of the other Exchanges do not provide for 
D Orders, but, except for NYSE American, they do provide for Primary 
Pegged Orders and apply the same repricing functionality to those 
orders. Similarly, the other Exchanges that provide for auctions on 
their markets (NYSE American and NYSE Arca) apply the same repricing 
functionality following an auction; NYSE CHX and NYSE National do 
not have auctions on their markets.
---------------------------------------------------------------------------

    The Exchanges propose to eliminate their existing rules requiring 
the repricing functionality described above, and to add new rule text 
that provides that, if an Away Market locks or crosses the BBO, the 
Exchange would not change the display price of any Limit

[[Page 27260]]

Order ranked Priority 2--Display Orders (which would include previously 
displayed depth-of-book orders) and that any such orders would be 
eligible to be disseminated as the Exchange's BBO.\6\ As a result, in 
the example set forth above, Order A instead would not be repriced 
before being displayed and disseminated to the SIP following the prior 
Exchange BB being executed or cancelled.\7\ Accordingly, Order A would 
be disseminated to the SIP as the Exchange's new BB at $10.04, even if 
that price would cross the Away Market Protected Bid of $10.03.\8\ The 
Exchanges also propose other changes to their rules related to this 
proposal, as further described below.
---------------------------------------------------------------------------

    \6\ See NYSE Notice, 85 FR at 15540.
    \7\ Because such resting orders no longer would 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. See id.
    \8\ The Exchanges also propose that Primary Pegged Orders and D 
Orders (where applicable, as noted in supra note 5) not be subject 
to the repricing functionality, but propose instead that such orders 
be eligible to trade at their current working price; however, they 
would wait for a PBBO that is not locked or crossed before the 
display and working price of those orders are adjusted. See NYSE 
Notice, 85 FR at 15540-41.
---------------------------------------------------------------------------

Odd-Lot Orders

    The Exchanges propose to extend the same processing of orders, 
discussed above, to odd-lot orders. 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. Under the proposals, odd-lot sized orders would be 
priced in the same manner as orders of a round-lot size or higher.\9\
---------------------------------------------------------------------------

    \9\ See NYSE Notice, 85 FR at 15542.
---------------------------------------------------------------------------

Reserve Orders

    The Exchanges also propose several related changes for the 
processing of Reserve Orders. First, in a scenario when the PBBO is 
crossed and the display quantity of a resting, non-routable Reserve 
Order is decremented to an odd-lot size, the Exchanges propose that the 
display price and working price of the remaining odd-lot quantity of 
the Reserve Order would not change.\10\ The Exchanges state that this 
proposed change is consistent with the above-described changes 
establishing how resting, displayed orders, including odd-lot sized 
orders, will be disseminated to the SIP.
---------------------------------------------------------------------------

    \10\ The Exchanges propose this change only for non-routable 
Reserve Orders, stating that it is not necessary for routable 
Reserve Orders because when such orders replenish, the replenish 
quantity is evaluated for routing to Away Markets (i.e., it would be 
routed) and thus would not be displayed at a price that crosses an 
Away Market. See id.
---------------------------------------------------------------------------

    However, the Exchanges propose that the reserve interest that 
replenishes the display quantity (which interest was not previously 
displayed) 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 Exchanges propose 
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 in which an arriving Non-Routable Limit Order is priced.\11\ 
Similarly, the Exchanges propose that the working price of the reserve 
interest of resting Reserve Orders that are not displayed be adjusted 
in the same manner that the working price of Non-Displayed Limit Orders 
are adjusted.\12\
---------------------------------------------------------------------------

    \11\ See, e.g., NYSE Rule 7.31(e)(1) (describing how an arriving 
Non-Routable Limit Order is priced).
    \12\ See, e.g., NYSE Rule 7.31(d)(2)(A) (describing how the 
working price of a Non-Displayed Limit Orders is adjusted). 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 (PBB), it will have a working 
price equal to the PBO (PBB).
---------------------------------------------------------------------------

Trading After UTP Regulatory Halts or Auctions

    Finally, the Exchanges propose changes to their order processing 
rules following UTP Regulatory Halts or auctions, if the PBBO becomes 
locked or crossed, as described in further detail below.
    Specifically, when transitioning to continuous trading following a 
UTP Regulatory Halt, the Exchanges' proposals provide that before 
publishing a quote, previously-entered orders would be routed (if 
routable) or cancelled (if non-routable) if such orders would be 
marketable against protected quotations on Away Markets.\13\
---------------------------------------------------------------------------

    \13\ See NYSE Notice, 85 FR at 15541.
---------------------------------------------------------------------------

    When transitioning to continuous trading following an auction on 
NYSE--and, on NYSE American and NYSE Arca, following specifically an 
auction not preceded by continuous trading \14\--before publishing a 
quote, these Exchanges would also route (if routable), or cancel (if 
not routable), any orders that are marketable against a PBBO on an Away 
Market (except for Primary Pegged Orders on NYSE and NYSE Arca, D 
Orders on NYSE, and, during a Short Sale Price Test, sell short orders 
on all three exchanges). Then, the Exchanges would (i) trade any orders 
that are marketable against any other orders on their book; (ii) 
replenish the display quantity of any Reserve Orders, (iii) assign 
Primary Pegged and D Orders (for those Exchanges, where applicable) a 
display and working price as noted above, provided that if the PBBO is 
locked or crossed or if there is no PBBO to peg to, they would be 
cancelled; and (iv) price any sell short orders (for the Exchanges, 
where applicable) to a Permitted Price.\15\
---------------------------------------------------------------------------

    \14\ Such auctions include a Trading Halt Auction, a Closing 
Auction if not preceded by continuous trading, and an IPO Auction on 
NYSE American. With respect to auctions preceded by continuous 
trading on NYSE American and NYSE Arca, see next paragraph.
    \15\ See, e.g., NYSE Rule 7.16(f)(5) (describing the Permitted 
Price for sell short orders).
---------------------------------------------------------------------------

    On NYSE American and NYSE Arca, to specify how orders would be 
processed before publishing a quote when transitioning from a prior 
trading session or following the Core Open or Closing Auction, which 
are transitions preceded by continuous trading and where the exchange 
has a published quote immediately preceding the transition, these 
Exchanges propose that those displayed orders are eligible be 
disseminated to the SIP at their then-current price.\16\ These 
Exchanges state that this proposed change is consistent with the other 
proposed changes, described above, about how orders will be 
disseminated to the SIP even if crossed by an Away Market.\17\
---------------------------------------------------------------------------

    \16\ To effect this change, NYSE American proposes to amend Rule 
7.35E(h)(3)(A)(i)--its provision governing transitioning from a 
prior trading session or following the Early Open Auction, Core Open 
Auction, or Closing Auction--by specifying that it applies only to 
such auctions if preceded by continuous trading, and deleting its 
last clause, which provides that, if the new published quote is 
worse than the previously-published quote and would lock or cross 
the PBBO, the display price of Limit Orders will be adjusted in 
accordance with the rule describing the repricing functionality that 
is proposed to be deleted. NYSE Arca proposes to make the equivalent 
amendment to its Rule 7.35-E(h)(3)(A)(i). NYSE American and NYSE 
Arca also propose a non-substantive change to their respective 
definitions of ``previously-live orders''.
    \17\ See NYSE Arca Notice, supra note 3, 85 FR at 15518.
---------------------------------------------------------------------------

    Because of the technology changes associated with these proposed 
rule changes, the Exchanges propose to announce the implementation date 
of the proposed rule changes by Trader Update and to implement these 
changes in Spring 2020.

III. Discussion and Commission Findings

    After careful consideration of the proposed rule changes, the 
Commission finds that the Exchanges' proposed rule changes are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to national securities exchanges. In 
particular, the Commission finds that

[[Page 27261]]

the Exchanges' proposed rule changes are consistent with Section 
6(b)(5) of the Act,\18\ which requires that the rules of an exchange be 
designed, among other things, to promote just and equitable principles 
of trade, 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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchanges state that their proposed rule changes will make 
their rules consistent with the rules and functionalities of other 
exchanges.\19\ Accordingly, the proposals remove impediments to and 
perfect the mechanism of a free and open market and are not designed to 
permit unfair discrimination to the extent that they promote 
consistency among the rules of the equity exchanges regarding how 
orders are priced, processed, and disseminated to the SIP. Based on the 
foregoing, the Commission therefore finds that the proposed rule 
changes are consistent with the Act.\20\
---------------------------------------------------------------------------

    \19\ See NYSE Notice, 85 FR at 15543. See also 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).
    \20\ In approving these proposed rule changes, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule changes (SR-NYSE-2020-13, SR-NYSENAT-
2020-09, SR-NYSEArca-2020-17, SR-NYSEAMER-2020-12; and SR-NYSECHX-2020-
06) be, and hereby are approved.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09711 Filed 5-6-20; 8:45 am]
 BILLING CODE 8011-01-P