[Federal Register Volume 85, Number 250 (Wednesday, December 30, 2020)]
[Notices]
[Pages 86623-86625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28806]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90777; File No. SR-LTSE-2020-23]


Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 11.380 To Expand the Exchange's Optional Risk Controls 
Mechanism To Include a Net Notional Exposure Risk Check in Addition to 
the Gross Notional Exposure Risk Check

December 22, 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 December 17, 2020, Long-Term Stock Exchange, Inc. 
(``LTSE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    LTSE proposes a rule change to amend LTSE Rule 11.380 to offer an 
optional net notional exposure risk check to Members and their clearing 
firms as part of the Exchange's Risk Controls mechanism.
    The text of the proposed rule change is available at the Exchange's 
website at https://longtermstockexchange.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend LTSE Rule 11.380 to offer an 
optional net notional exposure risk check to Members and their clearing 
firms as part of the Exchange's Risk Controls mechanism.
    Existing LTSE Rule 11.380 describes the Exchange's current optional 
Risk Controls mechanism that is designed to assist LTSE Members and 
their clearing firms in their risk management efforts. LTSE does not 
charge a fee for use of the Risk Controls mechanism. As described in 
the rule, the Risk Controls mechanism currently can be configured to 
provide trading limits based on the gross notional exposure for matched 
trades for a Member or clearing firm's broker correspondent across 
market participant identifiers (``MPIDs''), by MPID, by session or in 
combination, per clearing firm relationship or Member, as applicable 
(``Gross Notional Exposure''). Once the Gross Notional Exposure, as 
elected and configured by a Member or its clearing firm, has exceeded 
the pre-determined limit, LTSE will automatically reject new orders and 
cancel all open orders for the applicable

[[Page 86624]]

MPID(s) and/or FIX session \4\ as specified. Further, the Gross 
Notional Exposure risk control may be increased or decreased on an 
intra-day basis by a Member or the clearing firm of a Member, as 
applicable. As specified in paragraph (a)(2)(A) of Rule 11.380, Gross 
Notional Exposure is calculated as the absolute sum of the notional 
value of all buy and sell trades (i.e., equal to the value of executed 
buys plus the absolute value of executed long sells plus the absolute 
value of executed short sells). There is no netting of buys and sales 
in the same symbol or across symbols. The Gross Notional Exposure 
resets for each new trading day.
---------------------------------------------------------------------------

    \4\ The proposed rule change is substantively identical to the 
corresponding provisions in Investors Exchange (``IEX'') Rule 11.380 
with certain exceptions. The Exchange's existing Rule 11.380 uses 
the term ``session'' but the proposed rule change would use the term 
``FIX session'' to clarify its meaning. See IEX Rule 11.380. The 
Exchange also is not adopting the provisions in paragraph (a)(3) of 
IEX Rule 11.380, which pertain to the application of the Risk 
Controls in the context of an opening or closing auction. Because 
the Exchange does not have an opening or closing auction, these 
provisions are inapposite. If the Exchange introduces an opening or 
closing auction, it will address the implications for its Risk 
Controls at that time.
---------------------------------------------------------------------------

    LTSE proposes to revise Rule 11.380 to provide Members or the 
clearing firms of Members with an additional option of configuring a 
Risk Controls trading limit on the net notional exposure for matched 
trades for a Member or clearing firm's broker correspondent across 
MPIDs, by MPID, by FIX session or in combination, per clearing firm 
relationship or Member as applicable (``Net Notional Exposure''). LTSE 
notes that other exchanges offer their members the option of a risk 
control based upon the member's net notional exposure.\5\ As proposed, 
once the Net Notional Exposure, as elected and configured by a Member 
or its clearing firm, has exceeded the predetermined limit, LTSE will 
automatically reject new orders and cancel all open orders for the 
applicable MPID(s) and/or FIX session specified. However, just as with 
the existing Gross Notional Exposure risk control, the proposed new Net 
Notional Exposure risk control may be increased or decreased on an 
intra-day basis by a Member or the clearing firm of a Member, as 
applicable. As specified in the proposed new paragraph (a)(2)(B) of 
Rule 11.380, Net Notional Exposure will be calculated as the absolute 
net sum of the notional value of all buy and sell trades (i.e., equal 
to the value of executed buys minus the absolute value of executed long 
sells minus the absolute value of executed short sells). Netting will 
be calculated across all symbols. As with Gross Notional Exposure risk 
controls, the proposed Net Notional Exposure risk control would reset 
for each new trading day. Under the proposed rule change, Members or 
their clearing firms, if they choose to avail themselves of LTSE's Risk 
Controls mechanism, may elect to configure the Risk Controls mechanism 
to accumulate and specify a limit or limits on either the Gross 
Notional Exposure, the newly-offered Net Notional Exposure, or both 
(collectively defined in the proposed new rule as the ``Risk Controls 
Limit'').\6\ LTSE believes that adding a Net Notional Exposure risk 
control to its existing Risk Controls mechanism will enhance the risk 
management tools available to LTSE Members. The Exchange notes, 
however, that use of a Risk Controls Limit by a Member or the clearing 
firm of a Member does not automatically constitute compliance with LTSE 
rules or SEC rules, nor does it replace Member-managed and clearing 
firm-managed risk management solutions. The Exchange does not propose 
to require Members or their clearing firms to use the Risk Controls 
mechanism, and Members and their clearing firms may use any other 
appropriate risk-management tool or service instead of, or in 
combination with, LTSE's Risk Controls mechanism. The Exchange will not 
provide preferential treatment to Members or clearing firms using 
LTSE's Risk Controls mechanism, nor will the use of the Risk Controls 
mechanism impact a Member or clearing firm's use of LTSE other than 
when it results in orders being rejected or cancelled pursuant to the 
Risk Controls Limits. In addition, LTSE will continue to provide the 
Risk Controls mechanism to Members and clearing firms without charge.
---------------------------------------------------------------------------

    \5\ See, e.g., IEX Rule 11.380; Nasdaq Stock Market (``Nasdaq'') 
Rule 6130; Cboe BZX Exchange, Inc. (``Cboe'') Rule 11.13 
Interpretations and Policies .01(h). The proposed rule change is 
substantively identical to the corresponding provisions in IEX Rule 
11.380 with the exception of references to ``routed'' trades because 
LTSE does not have a routing broker.
    \6\ In the case of a Member that is subject to Risk Controls 
Limits set by its clearing firm, the Member will be advised of such 
limits by LTSE. In the event a Member that is subject to Risk 
Controls Limits set by its clearing firm also elects to set Risk 
Controls Limits for its own trading, the Exchange will apply both 
such limits with the lower of the Risk Controls Limits being 
applicable since it will trigger first.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\7\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act,\8\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, to foster cooperation and coordination with persons engaged 
in facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that the proposed rule change 
is designed to prevent fraudulent and manipulative acts and practices, 
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 by enhancing the risk management protections available 
to Exchange Members and their clearing firms. The Exchange believes 
that the proposed rule change supports these objectives because it is 
designed to enable all LTSE Members an additional option for how to 
manage and limit their own trading exposure (whether on the basis of 
the Member's Gross Notional Exposure, Net Notional Exposure, or both) 
on the Exchange, in addition to providing clearing firms an additional 
option to monitor their correspondent Members' trading exposure as well 
as their own trading exposure (whether on the basis of the clearing 
firm's Gross Notional Exposure, Net Notional Exposure, or both), 
including by intra-day increases or decreases in the limits.
    Further, the Exchange believes that the proposed rule change is 
consistent with the protection of investors and the public interest 
because it provides an additional mechanism to enable LTSE Members and 
clearing firms of LTSE Members to manage their risk by preventing 
trading that exceeds a Member or a Member's clearing firm's financial 
resources on a net notional basis (as well as the currently available 
gross notional basis risk control), and, thereby, contributes to the 
stability of the equities markets. Thus, the Exchange believes the 
addition of a Net Notional Exposure risk control offers Members and 
their clearing firms an important compliance tool that Members and 
their clearing firms may use to help maintain the regulatory integrity 
of the markets. The Exchange notes that other exchanges' rules provide 
for similar functionality,\9\ and, accordingly, LTSE does not believe 
that

[[Page 86625]]

the proposed rule change raises any new or novel issues not already 
considered by the Commission.
---------------------------------------------------------------------------

    \9\ See supra note 5.
---------------------------------------------------------------------------

    In addition, the Exchange believes that the proposal is consistent 
with just and equitable principles of trade and not unfairly 
discriminatory because the Risk Controls mechanism is available to all 
Members and their clearing firms without charge.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposal is designed to 
expand the Exchange's existing, optional Risk Controls mechanism by 
adding a new Net Notional Exposure risk control. The Exchange is not 
proposing to charge any fee for use of any aspect of its Risk Controls 
mechanism. The Exchange does not believe the proposed rule change will 
impose any burden on intermarket competition because other exchanges 
offer similar functionality.\10\ The Exchange also does not believe 
that the proposal will impose a burden on intramarket competition 
because its Risk Controls mechanism is available to all Members, and 
clearing firms of Members, and provides a way for LTSE Members and 
clearing firms to manage their risk by preventing trading that is 
erroneous or exceeds a Member or clearing firm's financial resources, 
thereby contributing to the stability of the equities markets. 
Accordingly, the Exchange does not believe that this proposal will have 
any impact on competition.
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
Because the proposed rule change does not (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; or (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \13\ and Rule 
19b-4(f)(6)(iii) thereunder.\14\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has fulfilled this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \15\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-LTSE-2020-23 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-LTSE-2020-23. 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-LTSE-2020-23 and should be submitted on 
or before January 20, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020-28806 Filed 12-29-20; 8:45 am]
BILLING CODE 8011-01-P