[Federal Register Volume 87, Number 59 (Monday, March 28, 2022)]
[Notices]
[Pages 17376-17378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06388]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94490; File No. SR-NYSEArca-2022-13]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Amend Rule 7.31-E(h)(3)

March 22, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on March 9, 2022, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``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.
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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-E(h)(3) with respect to 
Discretionary Pegged Orders. The proposed 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 7.31-E(h)(3) to modify certain 
factors relevant to the quote instability calculation for Discretionary 
Pegged Orders. Specifically, the Exchange proposes to amend Rule 7.31-
E(h)(3)(D)(i)(D)(1)(a), which sets forth the quote stability 
coefficients. Under Rule 7.31-E(h)(3)(D)(i)(D)(3), the Exchange may 
modify the quote stability coefficients at any time, subject to a 
filing of a proposed rule change. The Exchange proposes such changes in 
this rule filing.
Discretionary Pegged Orders
    Rule 7.31-E(h)(3) provides for Discretionary Pegged Orders, which 
are Pegged Orders \4\ that may exercise price discretion from their 
working price to a discretionary price in order to trade with contra-
side orders on the NYSE Arca Book, except during periods of quote 
instability as defined in Rule 7.31-E(h)(3)(D).
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    \4\ A Pegged Order is a Limit Order that does not route with a 
working price that is pegged to a dynamic reference price. If the 
designated reference price is higher (lower) than the limit price of 
a Pegged Order to buy (sell), the working price will be the limit 
price of the order. See Rule 7.31-E(h).
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    Rule 7.31-E(h)(3)(D) provides that the Exchange uses a quote 
instability calculation to assess a security's ``quote instability 
factor,'' or the probability of an imminent change to the current PBB 
to a lower price or PBO to a higher price.\5\ When quoting activity in 
a security meets predefined criteria and the quote instability factor 
calculated is greater than the Exchange's defined ``quote instability 
threshold,'' the Exchange treats the quote as unstable (``quote 
instability'' or a ``crumbling quote'').
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    \5\ NYSE Arca Rule 1.1 defines PBB as the highest Protected Bid 
and PBO as the lowest Protected Offer. Rule 1.1 also provides that 
``PBBO'' means the Best Protected Bid and the Best Protected Offer.
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    Rule 7.31-E(h)(3)(D)(i) provides that the Exchange determines a 
quote to be unstable when, among other factors, the quote instability 
factor result from the quote stability calculation is greater than the 
quote instability threshold. To perform the quote stability calculation 
and determine the quote instability factor, the Exchange employs a 
fixed formula utilizing the quote stability coefficients and quote 
stability variables set forth in Rule 7.31-E(h)(3)(D)(i)(D)(1)(a) and 
Rule 7.31-E(h)(3)(D)(i)(D)(1)(b), respectively.
Proposed Rule Change
    The Exchange proposes to update the quote stability coefficients 
used in the quote instability calculation, which have not been modified 
since Rule 7.31-E(h)(3) was adopted.\6\ The proposed changes are 
intended to update the quote stability coefficients so that they are 
based on current market data and better calibrated to function on an 
exchange without an intentional delay mechanism and with deeper 
liquidity

[[Page 17377]]

than other exchanges that offer similar functionality.\7\
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    \6\ The Exchange adopted Rule 7.31-E(h)(3) governing 
Discretionary Pegged Orders in 2016 but has not yet announced the 
implementation of the order type. See Securities Exchange Act 
Release No. 78181 (June 28, 2016), 81 FR 43297 (July 1, 2016) (SR-
NYSEArca-2016-44) (Notice of Filing of Amendment No. 1, and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 1, to Add a New Discretionary Pegged Order). 
Accordingly, the current quote stability coefficients have not been 
in operation on the Exchange.
    \7\ The Exchange notes that its rules governing the 
Discretionary Pegged Order, including the formula for the quote 
instability calculation, are based on the Investors Exchange LLC 
(``IEX'') Discretionary Peg Order (``D-Peg Order''), which functions 
in conjunction with IEX's speed bump. See id. The Exchange does not 
anticipate any issues in connection with the introduction of the 
order type, including because such orders would be processed 
similarly to Discretionary Pegged Orders on its affiliated exchange, 
NYSE American LLC (``NYSE American''). NYSE American, which also 
does not currently function with any intentional delay, offers a 
Discretionary Pegged Order as set forth in NYSE American Rule 
7.31E(h)(3), which is substantially the same as NYSE Arca Rule 7.31-
E(h)(3).
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    The Exchange reviewed NYSE Arca market data from randomly selected 
days in the fourth quarter of 2021 to analyze the effectiveness of the 
quote stability coefficients in predicting changes to the PBBO. 
Specifically, the Exchange reviewed PBBO data, on a nanosecond level, 
for certain intervals throughout each randomly selected day to track 
changes to quotes on NYSE Arca and away markets. The Exchange used this 
data to generate and test the proposed quote stability coefficients, 
and based on its analysis, believes that modifying the quote stability 
coefficients would enable the Exchange to evaluate the quality of the 
PBBO more effectively.
    The Exchange proposes to modify the quote stability coefficients 
set forth in Rule 7.31-E(h)(3)(D)(i)(D)(1)(a)(i) through (v) as 
follows:

------------------------------------------------------------------------
                                                  Current      Proposed
          Quote stability coefficient              value        value
------------------------------------------------------------------------
C0............................................     -2.39515    -1.793885
C1............................................     -0.76504    -0.600796
C2............................................      0.07599    0.0776515
C3............................................      0.38374     0.492649
C4............................................      0.14466    0.1631485
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    The Exchange believes that its proposed modification of the quote 
stability coefficients, based on the market data analysis described 
above, would improve the accuracy of the fixed formula used to perform 
the quote instability calculation. Specifically, the Exchange believes 
that the proposed quote stability coefficients, which have been 
adjusted to reflect more recent activity on the Exchange, would improve 
the calibration of the quote instability calculation to activity on the 
Exchange, thereby improving the Exchange's ability to predict whether 
there is quote instability and protect Discretionary Pegged Orders from 
exercising discretion when the PBBO is unstable.
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the implementation date by 
Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\8\ in general, and furthers the objectives of Section 6(b)(5),\9\ 
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 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed change would promote just 
and equitable principles of trade, remove impediments to, and perfect 
the mechanism of, a free and open market and a national market system, 
and protect investors and the public interest because it is designed to 
increase the effectiveness of the quote instability calculation used to 
determine whether a crumbling quote exists. As discussed above, the 
proposed change is based on the Exchange's analysis of market data, 
which supports that the proposed change would improve the accuracy of 
the Exchange's quote instability calculation. Accordingly, the Exchange 
believes that the proposed change would remove impediments to, and 
perfect the mechanism of, a free and open market and a national market 
system, as well as protect investors and the public interest, by 
enhancing the Exchange's protection of Discretionary Pegged Orders. 
Specifically, because the proposed quote stability coefficients were 
derived through an analysis of more recent market data and are 
calibrated to reflect current activity on the Exchange (including to 
adapt them to function on an exchange without an intentional delay 
mechanism and with deeper liquidity than other exchanges that offer 
similar functionality), the Exchange believes that the proposed change 
would improve the effectiveness of the quote instability calculation in 
predicting periods of quote instability and thus enhance the extent to 
which Discretionary Pegged Orders would be protected from unfavorable 
executions.

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 Exchange believes that 
the proposed change would promote competition by improving the accuracy 
of the quote instability calculation, thereby enhancing the protection 
of Discretionary Pegged Orders from unfavorable executions during 
periods of quote instability.

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 such longer period 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-NYSEArca-2022-13 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-NYSEArca-2022-13. 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

[[Page 17378]]

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-NYSEArca-2022-13 and should be submitted 
on or before April 18, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06388 Filed 3-25-22; 8:45 am]
BILLING CODE 8011-01-P