[Federal Register Volume 86, Number 88 (Monday, May 10, 2021)]
[Notices]
[Pages 24909-24911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09775]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91769; File No. SR-NYSE-2021-08]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change of New Rules Providing for 
the Registration and Obligations of Non-DMM Market Makers

May 4, 2021.

I. Introduction

    On March 12, 2021, New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'')

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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 new rules 
providing for the registration and obligations of Non-DMM Market 
Makers. The proposed rule change was published for comment in the 
Federal Register on March 25, 2021.\3\ The Commission has received no 
comments on the proposed rule change. The Commission is approving 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. 91377 (March 19, 
2021), 86 FR 15974 (March 25, 2021) (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes rules governing Non-DMM Market Makers who 
would be electronic, off-floor market makers.\4\ Non-DMM Market Makers 
would comprise a new category of market participants on the Exchange 
and would have responsibilities different than those of Designated 
Market Makers (``DMMs'') and Supplemental Liquidity Providers 
(``SLPs'').
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    \4\ A ``Non-DMM Market Maker'' would be defined as a member 
organization that acts as a Non-DMM Market Maker pursuant to Rule 
7P. See Notice, id. at 15974.
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    Non-DMM Market Makers are not intended to replace DMMs or SLPs on 
the Exchange and would not assume any of the responsibilities already 
assigned to DMMs or SLPs pursuant to Exchange Rules (for example, Non-
DMM Market Makers would not perform any trading floor functions such as 
those assigned to DMMs). Instead, under the proposed rules, for all 
securities that trade on the Exchange, a member organization may 
register as a Non-DMM Market Maker and be subject to obligations 
similar to those of Market Makers on NYSE Arca, Inc. (``NYSE Arca'') 
and NYSE American LLC (``NYSE American'') to, among other things, 
maintain continuous, two-sided trading interest in the securities in 
which they are registered as a Non-DMM Market Maker (``Two-Sided 
Obligation'') and adhere to certain pricing obligations.
    The Exchange proposes the following rules, based on NYSE Arca and 
NYSE American rules of the same number with non-substantive changes, to 
govern the registration and obligations of Non-DMM Market Makers on the 
NYSE:
     Proposed Rule 1.1(p) (definition of Market Maker 
Authorized Trader);
     Proposed Rule 1.1(t) (definition of Non-DMM Market Maker);
     Proposed Rule 7.20 (Registration of Non-DMM Market 
Makers);
     Proposed Rule 7.21 (Obligations of Market Maker Authorized 
Traders);
     Proposed Rule 7.22 (Registration of Non-DMM Market Makers 
in a Security); and
     Proposed Rule 7.23 (Obligations of Non-DMM Market Makers).
    These proposed rules would be applicable only to Non-DMM Market 
Makers. They would not apply to DMMs or SLPs, who would continue to be 
governed by existing Exchange rules applicable to those market 
participants.\5\
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    \5\ See, e.g., NYSE Rules 98, 103, 103B, 104, and 107B.
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Proposed Rule Changes

Rule 1.1
    Rule 1.1 sets forth definitions of terms that are used throughout 
the Exchange rules. The Exchange proposes to add the following 
definitions to the rule:
     The Exchange proposes to amend current Rule 1.1(p) to set 
forth the definition of ``Market Maker Authorized Trader'' or ``MMAT.'' 
A ``Market Maker Authorized Trader'' or ``MMAT'' would be defined as an 
Authorized Trader (as defined in Rule 1.1(a)) who performs market 
making activities pursuant to Rule 7P on behalf of a Non-DMM Market 
Maker.
     The Exchange proposes to amend current Rule 1.1(t) to set 
forth the definition of ``Non-DMM Market Maker.'' A ``Non-DMM Market 
Maker'' would be defined as a member organization that acts as a Non-
DMM Market Maker pursuant to Rule 7P. Accordingly, for purposes of 
Exchange rules, the term ``Non-DMM Market Maker'' does not include DMMs 
or SLPs.
Rule 7P, Section 2
    The Exchange proposes to amend Section 2 under Rule 7P, which is 
currently designated as ``Reserved,'' and rename it ``Non-DMM Market 
Makers.'' The Exchange proposes that the rules set forth in this 
section would apply only to the proposed new group of Non-DMM Market 
Makers and would not be applicable to DMMs or SLPs.
Rule 7.20
    The Exchange proposes to add Rule 7.20 and title it ``Registration 
of Non-DMM Market Makers.'' Proposed Rule 7.20 would set forth the 
requirements for member organizations to apply for registration as Non-
DMM Market Makers. The Exchange proposes that its Non-DMM Market Makers 
have the same registration requirements as Market Makers on NYSE Arca 
and NYSE American. The Exchange proposes to require member 
organizations interested in acting as Non-DMM Market Makers to submit 
an application to the Exchange. Proposed Rule 7.20 would also set forth 
the criteria the Exchange may consider in determining whether to 
approve or disapprove a prospective Non-DMM Market Maker's application 
and specify how a Non-DMM Market Maker's registration may be suspended, 
terminated, or withdrawn.
Rule 7.21
    The Exchange proposes to add Rule 7.21 and title it ``Obligations 
of Market Maker Authorized Traders.'' Proposed Rule 7.21 would provide 
that Market Maker Authorized Traders (``MMATs'') are permitted to enter 
orders only for the account of the Non-DMM Market Maker for which they 
are registered. In addition, the proposed rule would specify the 
registration requirements for MMATs and the procedures for suspension 
and withdrawal of registration of MMATs. Specifically, the proposed 
rule would provide that a Non-DMM Market Maker must submit an 
application to the Exchange to register an associated person as an 
MMAT. An MMAT must meet certain requirements, and a Non-DMM Market 
Maker must ensure that its MMATs are qualified to perform market making 
activities. Proposed Rule 7.21 also provides that the Exchange may 
suspend or withdraw an MMAT's registration.
Rule 7.22
    The Exchange proposes to add Rule 7.22 and title it ``Registration 
of Non-DMM Market Makers in a Security.'' Proposed Rule 7.22 would set 
forth the process for Non-DMM Market Makers to become registered in a 
security and the factors the Exchange may consider in approving such 
registration. Non-DMM Market Makers may submit a request to the 
Exchange to be registered in a security, and the Exchange will evaluate 
whether to approve such registration, taking into consideration factors 
including the Non-DMM Market Maker's financial resources, experience in 
making markets, operational capability, and the character of the market 
for the security. Non-DMM Market Makers will generally be permitted to 
register in securities in which a DMM and/or SLP is also registered, 
subject to the Exchange's evaluation of the character of the market

[[Page 24911]]

for a given security.\6\ Finally, the proposed rule would also describe 
both termination of a Non-DMM Market Maker's registration in a security 
by the Exchange and voluntary termination by a Non-DMM Market Maker.
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    \6\ Orders entered by Non-DMM Market Makers will be allocated in 
accordance with Rules 7.36 and 7.37 and be treated as a Book 
Participant. Non-DMM Market Makers will not be eligible to 
participate in the allocation process as a DMM Participant.
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Rule 7.23
    The Exchange proposes to add Rule 7.23 and title it ``Obligations 
of Non-DMM Market Makers.'' Proposed Rule 7.23 would set forth the 
obligation of Non-DMM Market Makers to engage in a course of dealings 
for their own account to assist in the maintenance, insofar as 
reasonably practicable, of fair and orderly markets on the Exchange. 
The proposed rule would delineate the specific responsibilities and 
duties of Non-DMM Market Makers, including the Two-Sided Obligation 
applicable to securities in which the Non-DMM Market Maker is 
registered and the requirement that the interest satisfying the Two-
Sided Obligation be not more than the Designated Percentage (as defined 
in Proposed Rule 7.23) away from the National Best Bid or Offer 
(``NBBO''). Proposed Rule 7.23 also provides that Non-DMM Market Makers 
will be subject to certain minimum capital requirements and sets forth 
the circumstances under which a Non-DMM Market Maker could be subject 
to disciplinary action or suspension or revocation of registration by 
the Exchange for failure to comply with the course of dealings 
obligations set forth in this proposed rule.
    Specifically, with respect to the Two-Sided Obligation, proposed 
Rule 7.23(a)(1)(A) provides that Non-DMM Market Makers would be 
required to maintain displayed interest identified as interest meeting 
the Two-Sided Obligation on a continuous basis during Core Trading 
Hours for those securities in which the Non-DMM Market Maker is 
registered. Proposed Rule 7.23(a)(1)(B) provides that interest 
satisfying a Non-DMM Market Maker's Two-Sided Obligation must not be 
more than the Designated Percentage away from the then current NBBO, or 
if there is no NBBO, not more than the Designated Percentage away from 
the last reported sale for that security. With respect to minimum 
capital requirements, proposed Rule 7.23(a)(2) provides that Non-DMM 
Market Makers would be required to maintain adequate minimum capital in 
accordance with Rule 15c3-1 under the Act.

III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the 
Exchange's proposed rule change is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to national 
securities exchanges. In particular, the Commission finds that the 
Exchange's proposed rule change is consistent with Section 6(b)(5) of 
the Act,\7\ which requires that the rules of an exchange be designed, 
among other things, to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market 
system.\8\
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    \7\ 17 U.S.C. 78f(b)(5).
    \8\ 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).
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    As described above, the Exchange proposes to adopt rules for the 
registration and obligations of Non-DMM Market Makers that are 
substantially comparable to NYSE Arca and NYSE American rules. The 
Exchange stated that the proposed rules are designed to enable market 
makers that are registered on the Exchange's affiliated markets to 
become registered on the Exchange as Non-DMM Market Makers by meeting 
the same registration requirements and by agreeing to be subject to the 
same obligations.\9\ The Exchange represented that the proposed Non-DMM 
Market Makers are not intended to supplant existing DMMs or SLPs or 
their roles on the Exchange and Non-DMM Market Makers would not assume 
any of the responsibilities already assigned to DMMs or SLPs pursuant 
to Exchange Rules.\10\ According to the Exchange, the proposed rules 
are intended to provide for a new category of market maker that the 
Exchange believes will promote competition on the Exchange by enhancing 
the range and diversity of market making activity on the Exchange. 
Further, the Exchange stated that the proposal would promote 
competition by encouraging additional displayed liquidity. The Exchange 
also stated that the proposal would facilitate price discovery and 
promote market quality on the Exchange.\11\
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    \9\ See Notice, supra note 3 at 15976.
    \10\ While the proposed obligations for Non-DMM Market Makers 
are less stringent than those for DMMs and SLPs, the proposed rules 
would not affect the existing roles or obligations of DMMs and SLPs.
    \11\ See id.
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    The Commission believes that introducing a new category of market 
maker--Non-DMM Market Makers--could promote competition on the 
Exchange. Further the Commission believes that the introduction of Non-
DMM Market Makers on the Exchange and their obligations to the market 
as required under NYSE Rule 7.23 could provide additional, supplemental 
liquidity to the market and could enhance price discovery.
    Based on the foregoing, the Commission therefore finds 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,\12\ that the proposed rule change (SR-NYSE-2021-08) be, and hereby 
is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09775 Filed 5-7-21; 8:45 am]
BILLING CODE 8011-01-P