[Federal Register Volume 87, Number 147 (Tuesday, August 2, 2022)]
[Notices]
[Pages 47259-47271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16483]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95378; File No. SR-NYSE-2022-04]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 1, and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend Rules 5P, 5.2(j)(8)(e), 8P, and 98

July 27, 2022.

I. Introduction

    On January 14, 2022, New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to permit the listing and trading 
of certain exchange-traded products (``ETPs'') that overlie one or more 
stocks listed on the Exchange. The proposed rule change was published 
for comment in the Federal Register on January 31, 2022.\3\
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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. 94053 (Jan. 25, 
2022), 87 FR 4982 (``Notice''). The Commission has received one 
comment letter, which does not relate to the substance of the 
proposed rule change. The comment letter is available at https://www.sec.gov/comments/sr-nyse-2022-04/srnyse202204-288838.htm.
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    On March 9, 2022, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On April 28, 2022, the Commission instituted proceedings 
under Section 19(b)(2)(B) of the Exchange Act \6\ to determine whether 
to approve or disapprove the proposed rule change.\7\ On June 30, 2022, 
the Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and superseded the proposed rule change as originally filed.\8\ 
The Commission is publishing this notice to solicit comments on 
Amendment No. 1 from interested persons and is approving the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 94392, 87 FR 14592 
(Mar. 15, 2022). The Commission designated May 1, 2022 as the date 
by which it should approve or disapprove, or institute proceedings 
to determine whether to disapprove, the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 94814, 87 FR 26378 
(May 4, 2022).
    \8\ Amendment No. 1 can be can be found on the Commission's 
website at: https://www.sec.gov/comments/sr-nyse-2022-04/srnyse202204-20133423-303642.pdf.
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 1

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 Rules 5P, 8P, 5.2(j)(8)(e) and 98 to 
permit the listing of certain Exchange Traded Products (``ETPs'') \9\ 
that have a component NMS Stock listed on the Exchange or that are 
based on, or represent an interest in, an underlying index or reference 
asset that includes an NMS Stock listed on the Exchange (an ``NYSE 
Component Security'' or, collectively, ``NYSE Component Securities''). 
The amendments would also permit the trading of those ETPs on the NYSE 
Trading Floor (``Trading Floor'' or ``Floor'').\10\
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    \9\ Rule 1.1(l) defines ``Exchange Traded Product'' as a 
security that meets the definition of ``derivative securities 
product'' in Rule 19b-4(e) under the Securities and Exchange Act of 
1934 (the ``Act''). ETPs include, for example, securities listed and 
traded on the Exchange pursuant to the following Exchange rules: 
Rule 5.2(j)(3) (Investment Company Units); Rule 5.2(j)(5) (Equity 
Gold Shares); Rule 5.2 (j)(6)(Equity Index-Linked Securities); Rule 
8.100 (Portfolio Depositary Receipts); Rule 8.200 (Trust Issued 
Receipts) (``TIR'')); Rule 8.201 (Commodity-Based Trust Shares); 
Rule 8.202 (Currency Trust Shares); Rule 8.203 (Commodity Index 
Trust Shares); Rule 8.204 (Commodity Futures Trust Shares); Rule 
8.600 (Managed Fund Shares); and Rule 8.700 (Managed Trust 
Securities).
    \10\ The term ``Trading Floor'' is defined in Rule 6A to mean 
the restricted-access physical areas designated by the Exchange for 
the trading of securities, commonly known as the ``Main Room'' and 
the ``Buttonwood Room.''

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[[Page 47260]]

    Currently, Exchange rules do not permit the listing of an ETP that 
has underlying NYSE Component Securities. The proposed changes would 
permit the listing of ETPs that satisfy the composition and 
concentration requirements for equity-based products set forth in the 
listing criteria of (1) current Rules 5.2(j)(3) (Investment Company 
Units), 5.2(j)(6) (Equity Index-Linked Securities), 8.100 (Portfolio 
Depositary Receipts), 8.600 (Managed Fund Shares), and (2) Rule 
5.2(j)(8) as proposed to be amended to include requirements to ensure 
diversification, non-concentration, liquidity, and capitalization.
    Accordingly, these ETPs would not be covered by the restrictions 
associated with the listing of ETPs that have an NYSE Component 
Security.
Background
Current Listing Rules
    Currently, the Exchange trades securities, including ETPs, on its 
Pillar trading platform on an unlisted trading privileges (``UTP'') 
basis, subject to Pillar Platform Rules 1P-13P.\11\ ETPs traded on a 
UTP basis on the Exchange are not assigned to a Designated Market Maker 
(``DMM'') and are available for Floor brokers to trade in Floor-based 
crossing transactions.\12\ The Exchange does not have any restrictions 
on which ETPs may trade on a UTP basis on the Exchange.
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    \11\ ``UTP Security'' is defined as 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. See 
Rule 1.1.
    \12\ See Securities Exchange Act Release No. 82945 (March 26, 
2018), 83 FR 13553, 13568 (March 29, 2018) (SR-NYSE-2017-36) 
(approving Exchange rules to trade securities on a UTP basis on the 
Pillar trading platform).
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    The Exchange's rules permit it to list ETPs under Rules 5P and 8P. 
Specifically, Rules 5P (Securities Traded) and 8P (Trading of Certain 
Exchange Traded Products) provide for the listing of certain ETPs on 
the Exchange that (1) meet the applicable requirements set forth in 
those rules, and (2) do not hold NYSE Component Securities.\13\ ETPs 
listed under Rules 5P and 8P are ``Tape A'' listings and are traded 
pursuant to the rules applicable to NYSE-listed securities. 
Accordingly, once an ETP is listed, it is assigned to a DMM pursuant to 
Rule 103B and the assigned DMM has obligations vis-[agrave]-vis such 
securities as specified in Rule 104, including facilitating the 
opening, reopening, and closing of, and trading in, such 
securities.\14\
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    \13\ ETPs listed under NYSE Rules 8.601 (Active Proxy Portfolio 
Shares) and 8.900 (Managed Portfolio Shares) are not subject to the 
prohibition in the preamble to Rule 8P. See Securities Exchange Act 
Release No. 90091 (October 5, 2020), 85 FR 64194, 64211 (October 9, 
2020) (SR-NYSE-2020-77) (Notice); Securities Exchange Act Release 
No. 90526 (November 27, 2020), 85 FR 78157 (December 3, 2020) (SR-
NYSE-2020-77) (Notice of Deemed Approval).
    \14\ See Securities Exchange Act Release No. 87056 (September 
23, 2019), 84 FR 51205 (September 27, 2019) (SR-NYSE-2019-34) (order 
approving amendments to Rule 104 to specify DMM requirements for 
ETPs listed on the Exchange pursuant to Rules 5P and 8P).
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    The Exchange recently adopted a new Rule 5.2(j)(8) \15\ 
establishing generic listing standards allowing the Exchange to list 
and trade Exchange-Traded Fund Shares.\16\
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    \15\ See Securities Exchange Act Release No. 91029 (February 1, 
2021), 86 FR 8420 (February 5, 2021) (SR-NYSE-2020-86) (approval 
order).
    \16\ See Release Nos. 33-10695; IC-33646; File No. S7-15-18 
(ETFs) (September 25, 2019), 84 FR 57162 (October 24, 2019) (the 
``Rule 6c-11 Release'').
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Relevant Commission Precedent
    While the trading of an equity security and its related derivative 
product at the same physical location (``side-by-side trading'') \17\ 
and the practice of the same person or firm making markets in an equity 
security and its related option (``integrated market making'' \18\) has 
generally not been permitted, the Commission has approved integrated 
market making and side-by-side trading for ``broad-based'' exchange 
traded funds (``ETF'') and Trust-Issued Receipts (``TIR'') and related 
options.\19\ The test for whether a product is ``broad-based,'' and 
therefore not readily susceptible to manipulation, is whether the 
individual components of the ETP are sufficiently liquid and well-
capitalized and the product is not over-concentrated.\20\ When these 
criteria are met, and the product can therefore can be considered 
``broad-based,'' the Commission has explicitly permitted integrated 
market making and side-by-side trading in both the ETP and related 
options, with no additional requirement for information barriers or 
physical or organizational separation. In making these determinations, 
the Commission balanced the potential improvements in the quality of 
the markets for the securities and their related options against the 
competitive, regulatory, and surveillance concerns.\21\
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    \17\ ``Side-by-side trading'' refers to the trading of an equity 
security and its related derivative product at the same physical 
location, though ``not necessarily by the same specialist or 
specialist firm.'' See Securities Exchange Act Release No. 46213 
(July 16, 2002), 67 FR 48232, 48233 (July 23, 2002) (SR-Amex-2002-
21) (``Release No. 46213'') (order approving side-by-side trading 
and integrated market making of broad index-based ETFs and related 
options); see also Securities Exchange Act Release No. 45454 
(February 15, 2002), 67 FR 8567, 8568 n. 7 (February 25, 2002) (SR-
NYSE-2001-43) (``Release No. 45454'') (order approving approved 
person of a specialist to act as a specialist or primary market 
maker with respect to an option on a stock in which the NYSE 
specialist is registered on the Exchange).
    \18\ ``Integrated market making'' refers to the practice of the 
same person or firm making markets in an equity security and its 
related option. See Release No. 45454, 67 FR at 8568 n. 7.
    \19\ See Release No. 46213, 67 FR at 48232 (approving side-by-
side trading and integrated market making for certain ETFs and TIRs 
and related options); see also Securities Exchange Act Release No. 
62479 (July 9, 2010), 75 FR 41264 (July 15, 2010) (SR-Amex-2010-31) 
(``Release No. 62479'') (order approving side-by-side trading and 
integrated market making in the QQQ ETF and certain of its component 
securities where the QQQs met the composition and concentration 
measures to be classified as a broad-based ETF).
    \20\ See Release No. 62479, 75 FR at 41272. The Commission has 
expressed its belief ``that, when the securities underlying an ETF 
consist of a number of liquid and well-capitalized stocks, the 
likelihood that a market participant will be able to manipulate the 
price of the ETF is reduced.'' See id. See generally Securities 
Exchange Act Release Nos. 56633 (October 9, 2007), 72 FR 58696 
(October 16, 2007) (SR-ISE-2007-60) (order approving generic listing 
standards for ETFs based on both U.S. and international indices, 
noting they are ``sufficiently broad-based in scope to minimize 
potential manipulation.''); 55621 (April 12, 2007), 72 FR 19571 
(April 18, 2007) (SR-NYSEArca-2006-86) (same); 54739 (November 9, 
2006), 71 FR 66993 (November 17, 2006) (SR-Amex-2006-78) (same); 
57365 (February 21, 2008), 73 FR 10839 (February 28, 2008) (SR-CBOE-
2007-109) (order approving generic listing standards for ETFs based 
on international indices, noting they are ``sufficiently broad-based 
in scope to minimize potential manipulation.''); 56049 (July 11, 
2007), 72 FR 39121 (July 17, 2007) (SR-Phlx-2007-20) (same); 55113 
(January 17, 2007), 72 FR 3179 (January 24, 2007) (SR-NYSE-2006-101) 
(same); and 55269 (February 9, 2007), 72 FR 7490 (February 15, 2007) 
(SR-Nasdaq-2006-50) (same). Although the relevant Commission 
precedents involved 1940 Act investment products, the underlying 
rationale applies with equal force to non-1940 Act products. Whether 
a product is sufficiently broad-based such that the product is not 
readily susceptible to manipulation should follow from an assessment 
of whether the listing criteria are designed to ensure the 
underlying individual components are sufficiently liquid and well-
capitalized and not over-concentrated. Whether or not a product is 
issued by an investment company as defined by the 1940 Act is not 
relevant to this analysis.
    \21\ See Release No. 46213, 67 FR at 48234. In this regard, the 
Commission noted that it must consider whether a side-by-side 
trading or integrated market making proposal would permit market 
participants to possess ``undetectable, material non-public market 
information'' that could give certain market participants a trading 
advantage over other market participants. See id.
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    In making a determination of whether an ETP is broad-based, the 
Commission has relied on an exchange's listing standards. For instance, 
in permitting integrated market making and side-by-side trading for two 
types of ETPs and their related options, the Commission looked to the 
then-American Stock Exchange LLC's listing standards that, as described 
below, are very similar to

[[Page 47261]]

the Exchange's current listing standards.\22\
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    \22\ The American Stock Exchange LLC is now NYSE American, LLC.
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    In particular, the Commission observed that the ETPs at issue, an 
ETF and a TIR, were securities based on ``groups of stocks'' whose 
prices were based on the prices of their component securities. As such, 
the Commission was of the view that a market participant's ability to 
manipulate the price of the ETPs or the related options would be 
``limited.'' \23\ Moreover, the Commission noted that the listing 
standards required (1) each product to have a minimum of 13 securities 
in the underlying portfolio, (2) that the most heavily weighted 
component securities could not exceed 25% of the weight of the 
portfolio, and (3) that the five most heavily weighted component 
securities could not exceed 65% of the weight of the portfolio. As the 
Commission concluded,
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    \23\ Release No. 46213, 67 FR at 48235.

[b]y limiting the proposal to broad-based ETFs and TIRs, concerns 
regarding informational advantages about individual securities are 
lessened.\24\
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    \24\ Id.

    Finally, the Commission noted that the capitalization and liquidity 
requirements imposed by the listing standards--for example, the 
component securities that in the aggregate account for at least 90% of 
the weight of the portfolio must have a minimum market value of at 
least $75 million and the component securities representing 90% of the 
weight of the portfolio each must have a minimum trading volume during 
each of the last six month of at least 250,000 shares--``should reduce 
the likelihood that any market participant has an unfair information 
advantage about the ETF, TIR, its related options, or its component 
securities, or that a market participant would not be able to 
manipulate the prices of the ETFs, TIRs, or their related options.'' 
\25\
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    \25\ Id.
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Proposed Rule Change
    Because listed securities are assigned to DMMs, trading is on the 
Floor of the Exchange and thus a listed ETP with one or more underlying 
NYSE Component Securities could be assigned to a DMM that is also 
assigned one or more NYSE Component Securities forming part of the 
underlying ETP index or portfolio. The Exchange believes that it would 
be consistent with the Act and with prior Commission actions with 
respect to both integrated market making and side-by-side trading for 
the Exchange to list certain ETPs that include NYSE Component 
Securities based on the broad-based listing criteria contained in the 
relevant listing rules.
    Specifically, the Exchange proposes to permit the listing and 
trading of five types of ETPs that include one or more underlying NYSE 
Component Securities as long as the ETP independently satisfies the 
quantitative generic listing criteria set forth in the listing rules 
for those products. As discussed more fully below, four of the proposed 
ETPs would rely on existing listing criteria. For ETPs that have 
underlying NYSE Component Securities and that otherwise meet the 
criteria for listing of Rule 5.2(j)(8), the Exchange proposes 
additional broad-based listing criteria that must be satisfied in order 
for the ETP to be listed and traded on the Exchange. To accomplish this 
change, the Exchange proposes to specifically exclude these five types 
of ETPs from the current prohibition on listing products with 
underlying NYSE Component Securities in the preambles to Rules 5P and 
Rule 8P, respectively. The Exchange would also amend Rule 5P to provide 
that the Exchange may submit a rule filing pursuant to Section 19(b) of 
the Act to permit the listing and trading of an ETP that does not 
otherwise meet the specified listing standards. Finally, the Exchange 
proposes to amend Rule 98(b)(7) to exclude from the definition of 
``related products'' the five types of ETPs that are excluded from the 
listing prohibition set forth in the preamble to Rule 5P or to Rule 8P.
Current Generic Listing Standards
    The Exchange believes that four of its existing listing rules, 
together with proposed additional criteria for ETPs that meet the 
criteria for listing under Rule 5.2(j)(8), incorporate salient 
composition and concentration criteria designed to ensure that listed 
ETPs that have an NYSE Component Security would be sufficiently broad-
based to address potential manipulation concerns. Specifically, the 
Exchange believes that ETPs that have underlying NYSE Component 
Securities and that would otherwise qualify for listing under the 
current criteria in Rule 5.2(j)(3), Supplementary Material .01(a), Rule 
5.2(j)(6)(B)(I), Rule 8.100, Supplementary Material .01(a)(A), and Rule 
8.600, Supplementary Material .01(a), could, by virtue of meeting the 
listing criteria, list and trade on the Exchange with no additional 
requirement for information barriers or physical or organizational 
separation based on the broad-based nature of the current listing 
criteria.
    As discussed more fully below, the current listing standards for 
each product incorporate composition and concentration criteria that 
includes market cap, volume, weighting and minimum number of components 
requirements, as follows.
Rule 5.2(j)(3), Supplementary Material .01(a)--Investment Company Units 
(``Units'')
    Units listed under Rule 5.2(j)(3), Supplementary Material .01(a)(A) 
based on an index or portfolio of only US Component Stocks \26\ or US 
Component Stocks and cash underlying a series of listed Units must meet 
the following criteria on an initial and continued listing basis:
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    \26\ For purposes of Rule 5.2(j)(3), ``US Component Stock'' 
means an equity security that is registered under Sections 12(b) or 
12(g) of the Act or an American Depositary Receipt (``ADR''), the 
underlying equity security of which is registered under Sections 
12(b) or 12(g) of the Act. See NYSE Rule 5.2(j)(3).
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     The index or portfolio include a minimum of 13 component 
stocks; \27\
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    \27\ See Rule 5.2(j)(3).01(a)(A)(4). The rule provides that 
there shall be no minimum number of component stocks if (a) one or 
more series of Units or Portfolio Depositary Receipts (as defined in 
Section 2 of Rule 8P) constitute, at least in part, components 
underlying a series of Units, or (b) one or more series of ETPs 
account for 100% of the US Component Stocks portion of the weight of 
the index or portfolio.
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     Component stocks (excluding Units and securities defined 
in Section 2 of Rule 8P) that in the aggregate account for at least 90% 
of the weight of the US Component Stocks portion of the index or 
portfolio (excluding such Units and securities defined in Section 2 of 
Rule 8P) each will have a minimum market value of at least $75 million; 
\28\
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    \28\ See Rule 5.2(j)(3).01(a)(A)(1).
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     Component stocks (excluding Units and securities defined 
in Section 2 of Rule 8P) that in the aggregate account for at least 70% 
of the US Component Stocks portion of the weight of the index or 
portfolio (excluding such Exchange Traded Products) each will have a 
minimum monthly trading volume of 250,000 shares, or minimum notional 
volume traded per month of $25,000,000, averaged over the last six 
months; \29\ and
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    \29\ See Rule 5.2(j)(3).01(a)(A)(2).
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     The most heavily weighted component stock component 
(excluding Units and securities defined in Section 2 of Rule 8P) will 
not exceed 30% of the US Component Stocks portion of the weight of the 
index or portfolio, and, to the extent applicable, the five most 
heavily weighted component stocks (excluding Exchange Traded Products) 
will not exceed 65% of the US Component Stocks portion of the weight of 
the index or portfolio.\30\
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    \30\ See Rule 5.2(j)(3).01(a)(A)(3).

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[[Page 47262]]

    Similarly, Units listed under Rule 5.2(j)(3), Supplementary 
Material .01(a)(B) based on an index or portfolio of both US Component 
Stocks and Non-US Component Stocks \31\ or US Component Stocks, Non-US 
Component Stocks and cash, must meet the following criteria on an 
initial and continued listing basis:
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    \31\ The term ``Non-U.S. Component Stock'' means an equity 
security that is not registered under Sections 12(b) or 12(g) of the 
Act and that is issued by an entity that (a) is not organized, 
domiciled or incorporated in the United States, and (b) is an 
operating company (including Real Estate Investment Trusts (REITS) 
and income trusts, but excluding investment trusts, unit trusts, 
mutual funds, and derivatives). See Rule 5.2(j)(3).
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     The index or portfolio include a minimum of 20 component 
stocks; \32\
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    \32\ See Rule 5.2(j)(3).01(a)(B)(4). The rule provides that 
there shall be no minimum number of component stocks if (a) one or 
more series of Units or Portfolio Depositary Receipts constitute, at 
least in part, components underlying a series of Units, or (b) one 
or more series of Exchange Traded Products account for 100% of the 
weight of the combined US and Non-US Component Stocks portions of 
the index or portfolio.
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     Component stocks (similarly excluding Units and securities 
defined in Section 2 of Rule 8P) that in the aggregate account for at 
least 90% of the weight of the combined US and Non-US Component Stocks 
portions of the index or portfolio (excluding such Units and securities 
defined in Section 2 of Rule 8P) each will have a minimum market value 
of at least $100 million; \33\
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    \33\ See Rule 5.2(j)(3).01(a)(B)(1).
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     Component stocks (excluding Units and securities defined 
in Section 2 of Rule 8P) that in the aggregate account for at least 70% 
of the combined US and Non-US Component Stocks portions of the weight 
of the index or portfolio (excluding such Exchange Traded Products) 
each will have a minimum global monthly trading volume of 250,000 
shares, or minimum global notional volume traded per month of 
$25,000,000, averaged over the last six months; \34\ and
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    \34\ See Rule 5.2(j)(3).01(a)(B)(2).
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     The most heavily weighted component stock component 
(excluding Units and securities defined in Section 2 of Rule 8P) will 
not exceed 25% of the combined US and Non-US Component Stocks portions 
of the weight of the index or portfolio, and, to the extent applicable, 
the five most heavily weighted component stocks (excluding Exchange 
Traded Products) will not exceed 60% of the combined US and Non-US 
Component Stocks portions of the weight of the index or portfolio.\35\
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    \35\ See Rule 5.2(j)(3).01(a)(B)(3).
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    These listing requirements for Units are generally comparable to 
the listing requirements described above in the relevant precedents for 
assessing whether a product is sufficiently broad-based to address 
potential manipulation concerns.
    First, the index or portfolio underlying Units must have the same 
minimum number (13) of component stocks. For an index or portfolio 
underlying Units listed under Rule 5.2(j)(3), Supplementary Material 
.01(a)(B), based on an index or portfolio of both US Component Stocks 
and Non-US Component Stocks or US Component Stocks, Non-US Component 
Stocks and cash, the minimum component requirement is even stricter (20 
component stocks).\36\
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    \36\ See Rule 5.2(j)(3).01(a)(B)(4).
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    Second, the component stocks in an index or portfolio underlying 
Units must meet comparable capitalization and liquidity requirements, 
i.e., at least 90% of the weight of the US Component Stocks portion of 
the index or portfolio each must have a minimum market value of at 
least $75 million. For an index or portfolio underlying Units listed 
under Rule 5.2(j)(3), Supplementary Material .01(a)(B), the minimum 
market value requirement is $100 million.
    Third, the component stocks in an index or portfolio underlying 
Units must also meet comparable minimum trading volume requirements, 
i.e., component stocks in an index or portfolio accounting for at least 
70% of the US Component Stocks portion of the weight of the index or 
portfolio each must have a minimum monthly trading volume of 250,000 
shares, or minimum notional volume traded per month of $25,000,000, 
averaged over the last six months. Although the Exchange's listing 
standard does not require 90% of the of the weight of the index or 
portfolio to each have the same minimum monthly trading volume of 
250,000 shares, the Exchange believes that the 70% requirement is still 
significant enough to reduce the likelihood that any market participant 
would be able to engage in price manipulation. The Exchange notes that 
in approving the current listing requirements, the Commission was 
satisfied that the these standards met the statutory requirements of 
the Act and were designed, among other things, to prevent manipulation. 
Moreover, the Exchange believes that the current requirements, coupled 
with the Exchange's rigorous regulation and surveillance of trading 
activity by DMMs and other Floor-based market participants discussed 
below, are also sufficient to prevent potential manipulation.
    Finally, the concentration requirements for Units are also 
generally comparable. Indeed, for Units based on an index or portfolio 
of only US Component Stocks or US Component Stocks and cash, the 
requirement that the most heavily weighted component stock not exceed 
30% of the US Component Stocks portion of the weight of the index or 
portfolio is arguably stricter.
    In the case of Units based on an index or portfolio of both US 
Component Stocks and Non-US Component Stocks or US Component Stocks, 
Non-US Component Stocks and cash, the requirement that the most heavily 
weighted component stock not exceed 25% of the combined US and Non-US 
Component Stocks portion of the weight of the index or portfolio is 
also arguably comparable. The Exchange believes that the difference 
between this requirement and the 30% standard set forth in the relevant 
precedents is not sufficiently material to warrant the conclusion that 
the Exchange's current standard would be insufficient to deter 
potential manipulation, especially when considered in combination with 
the other current requirements for Units, some of which are arguably 
stricter. The requirement that the five most heavily weighted component 
stocks (excluding Units and securities defined in Section 2 of Rule 8P) 
not exceed 60% of the combined US and Non-US Component Stocks portions 
of the weight of the index or portfolio is slightly less than the 
relevant precedent, the Exchange believes the difference would not be 
material given that the index or portfolio could also contain non-
Exchange listed US Component Stocks as well as Non-US Component Stocks. 
As noted, in approving the current listing requirements, the Commission 
was satisfied that the these standards met the statutory requirements 
of the Act and were designed, among other things, to prevent 
manipulation. Moreover, the Exchange believes that the current 
requirements, coupled with the Exchange's rigorous regulation and 
surveillance of trading activity by DMMs and other Floor-based market 
participants discussed below, are also sufficient to prevent potential 
manipulation.
    Based on the foregoing, the Exchange believes Units with an NYSE 
Component Security listing under the existing listing criteria would be 
sufficiently broad-based to address potential manipulation concerns and 
could thus list without additional requirements for information 
barriers or physical or organizational separation.

[[Page 47263]]

Rule 5.2(j)(6)(B)(I)--Equity Index-Linked Securities
    Equity Index-Linked Securities (``ETN'') based on an index or 
indexes of, among other things, equity securities listed under Rule 
5.2(j)(6)(B)(I) must meet the following initial listing criteria:
     Each underlying index has at least ten (10) component 
securities; \37\
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    \37\ See Rule 5.2(j)(6)(B)(I)(1)(a). The rule provides that 
there shall be no minimum of component securities if one or more 
issues of Derivative Securities Products (i.e., Investment Company 
Units (as described in Rule 5.2(j)(3)) and securities described in 
Section 2 of Rule 8P) or Index-Linked Securities (as described in 
Rule 5.2(j)(6)), constitute, at least in part, component securities 
underlying an issue of Equity Index-Linked Securities.
---------------------------------------------------------------------------

     Each component security (excluding Derivative Securities 
Products and Index-Linked Securities) has a minimum market value of at 
least $75 million; \38\
---------------------------------------------------------------------------

    \38\ See Rule 5.2(j)(6)(B)(I)(1)(b)(i). For each of the lowest 
dollar weighted component securities in the index that in the 
aggregate account for no more than 10% of the dollar weight of the 
index (excluding Derivative Securities Products and Index-Linked 
Securities), the rule provides that the market value can be at least 
$50 million.
---------------------------------------------------------------------------

     Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at least 
90% of the weight of the index (excluding Derivative Securities 
Products and Index-Linked Securities) each must have a minimum global 
monthly trading volume of 1,000,000 shares, or minimum global notional 
volume traded per month of $25,000,000, averaged over the last six 
months; \39\
---------------------------------------------------------------------------

    \39\ See Rule 5.2(j)(6)(B)(I)(1)(b)(ii).
---------------------------------------------------------------------------

     No underlying component security (excluding Derivative 
Securities Products and Index-Linked Securities) will represent more 
than 25% of the dollar weight of the index, and, to the extent 
applicable, the five highest dollar weighted component securities in 
the index (excluding Derivative Securities Products and Index-Linked 
Securities) will not in the aggregate account for more than 50% of the 
dollar weight of the index (60% for an index consisting of fewer than 
25 component securities); \40\ and
---------------------------------------------------------------------------

    \40\ See Rule 5.2(j)(6)(B)(I)(1)(b)(iii).
---------------------------------------------------------------------------

     90% of the index's numerical value (excluding Derivative 
Securities Products and Index-Linked Securities) and at least 80% of 
the total number of component securities (excluding Derivative 
Securities Products and Index-Linked Securities) will meet the then 
current criteria for standardized option trading set forth in NYSE Arca 
Rule 5.3-O.\41\
---------------------------------------------------------------------------

    \41\ See Rule 5.2(j)(6)(B)(I)(1)(b)(iv). The ETN listing 
requirements also contain two requirements that did not figure in 
the SEC's analysis of the hallmarks of a broad-based ETP. First, 90% 
of the index's numerical value (excluding Derivative Securities 
Products and Index-Linked Securities) and at least 80% of the total 
number of component securities (excluding Derivative Securities 
Products and Index-Linked Securities) will meet the then current 
criteria for standardized option trading set forth in NYSE Arca Rule 
5.3-O. See Rule 5.2(j)(6)(B)(I)(1)(b)(iv). An index will not be 
subject to this requirement if (a) no underlying component security 
represents more than 10% of the dollar weight of the index 
(excluding Derivative Securities Products and Index-Linked 
Securities) and (b) the index has a minimum of 20 components 
(excluding Derivative Securities Products and Index-Linked 
Securities). See id. In addition, all component securities must be, 
among others, securities (other than foreign country securities and 
ADRs) that are issued by a reporting company under the Act or by an 
investment company registered under the 1940 Act, which in each case 
is listed on a national securities exchange, and an ``NMS stock'' 
(as defined in Rule 600 of Regulation NMS). See Rule 
5.2(j)(6)(B)(I)(1)(b)(v).
---------------------------------------------------------------------------

    These listing requirements for ETNs are comparable to the 
requirements described above in the relevant precedents for assessing 
whether a product is sufficiently broad-based to address potential 
manipulation concerns.
    First, indexes underlying ETNs must have a minimum of 10 component 
securities. Although the precedents discussed above cited a minimum of 
13 components, the Exchange does not believe the small difference 
translates into less meaningful diversification to obviate potential 
manipulation concerns, especially when considered in light of the 
heightened market value and volume requirements for listed ETNs, 
discussed below.
    Second, each component security of the ETN's underlying index must 
have a minimum market value of at least $75 million, which is stricter 
than the requirement that only component securities that in the 
aggregate account for at least 90% of the weight of the portfolio have 
such a minimum market value.
    Third, ETN component stocks that in the aggregate account for at 
least 90% of the weight of the index must each have a minimum global 
monthly trading volume of 1,000,000 shares, or minimum global notional 
volume traded per month of $25,000,000, averaged over the last six 
months, far in excess of the 250,000 shares noted in the Commission 
precedents.
    Fourth, no underlying component security can represent more than 
25% of the dollar weight of the index, which is comparable, although 
the five highest dollar weighted component securities in the index 
cannot in the aggregate account for more than 50% of the dollar weight 
of the index (60% for an index consisting of fewer than 25 component 
securities), which is less than the 65% of the weight of the portfolio 
noted in the Commission precedents. The Exchange believes that the 
lower weighting for the five highest dollar weighted component 
securities does not significantly dilute the requirement since the 
weighting still comprises half of an index with 25 or more component 
securities and 60% for an index composed of 25 or few securities. As 
with the minimum component requirement, the Exchange believes that the 
stricter market capitalization and volume requirements for listed ETNs 
along with the other current requirements would mean that the 
securities underlying the index would be larger and more liquid, and 
therefore generally more difficult to manipulate.
    Based on the foregoing, the Exchange believes ETNs that have an 
NYSE Component Security and that list under the existing listing 
criteria would be sufficiently broad-based to address potential 
manipulation concerns and could thus list without additional 
requirements for information barriers or physical or organizational 
separation.
8.100, Supplementary Material .01(a)(A)--Portfolio Depositary Receipts
    Rule 8.100, Supplementary Material 01(a)(A) provides that the 
components of an index or portfolio of only US Component Stocks \42\ 
underlying a series of Portfolio Depositary Receipts must meet the 
following criteria on an initial and continued listing basis:
---------------------------------------------------------------------------

    \42\ For purposes of Rule 8.100, the term ``US Component Stock'' 
means an equity security that is registered under Sections 12(b) or 
12(g) of the Act or an ADR, the underlying equity security of which 
is registered under Sections 12(b) or 12(g) of the Act. See Rule 
8.100(a)(3).
---------------------------------------------------------------------------

     Component stocks that in the aggregate account for at 
least 90% of the weight of the index or portfolio each will have a 
minimum market value of at least $75 million;
     Component stocks that in the aggregate account for at 
least 90% of the weight of the index or portfolio each will have a 
minimum monthly trading volume during each of the last six months of at 
least 250,000 shares;
     The most heavily weighted component stock will not exceed 
25% of the weight of the index or portfolio, and the five most heavily 
weighted component stocks will not exceed 65% of the weight of the 
index or portfolio;
     The index or portfolio will include a minimum of 13 
component stocks; and
     All securities in the index or portfolio will be US 
Component Stocks listed on a national securities exchange and will be 
NMS Stocks as defined in

[[Page 47264]]

Rule 600 of Regulation NMS under the Act.
    These listing requirements for Portfolio Depositary Receipts are 
the same as the listing requirements described above in the relevant 
precedents for assessing whether a product is sufficiently broad-based 
to address potential manipulation concerns.
    First, the index or portfolio for Portfolio Depositary Receipts 
must have the same minimum number (13) of component stocks.
    Second, the component stocks of Portfolio Depositary Receipts must 
have the same capitalization and liquidity requirements, i.e., at least 
90% of the weight of the US Component Stocks portion of the index or 
portfolio each will have a minimum market value of at least $75 
million.
    Third, component stocks of Portfolio Depositary Receipts must also 
have the same minimum trading volume, i.e., must in the aggregate 
account for at least 90% of the US Component Stocks portion of the 
weight of the index or portfolio each will have a minimum monthly 
trading volume of 250,000 shares, during the last six months.
    Finally, the concentration requirements are also comparable, 
requiring heavily weighted component stocks to not exceed 25% of the US 
Component Stocks portion of the weight of the index or portfolio, and, 
to the extent applicable, the five most heavily weighted component 
stocks not to exceed 65%.
    Based on the foregoing, the Exchange believes Portfolio Depositary 
Receipts that have an NYSE Component Security and that list under the 
existing listing criteria would be sufficiently broad-based to address 
potential manipulation concerns and could thus list without additional 
requirements for information barriers or physical or organizational 
separation.
Rule 8.600, Supplementary Material .01(a)--Managed Fund Shares
    Supplementary Material .01(a) of Rule 8.600 provides that the 
component stocks of the equity portion of a portfolio of Managed Fund 
Shares that are U.S. Component Stocks \43\ shall meet the following 
criteria initially and on a continuing basis:
---------------------------------------------------------------------------

    \43\ Rule 8.600, Supp. Material .01(a) notes that ``U.S. 
Component Stocks'' are the same as described in Rule 5.2(j)(3). See 
note 20 [sic], supra.
---------------------------------------------------------------------------

     Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at least 
90% of the equity weight of the portfolio (excluding such Derivative 
Securities Products and Index-Linked Securities) each shall have a 
minimum market value of at least $75 million;
     Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at least 
70% of the equity weight of the portfolio (excluding such Derivative 
Securities Products and Index-Linked Securities) each shall have a 
minimum monthly trading volume of 250,000 shares, or minimum notional 
volume traded per month of $25,000,000, averaged over the last six 
months;
     The most heavily weighted component stock (excluding 
Derivative Securities Products and Index-Linked Securities) shall not 
exceed 30% of the equity weight of the portfolio, and, to the extent 
applicable, the five most heavily weighted component stocks (excluding 
Derivative Securities Products and Index-Linked Securities) shall not 
exceed 65% of the equity weight of the portfolio;
     Where the equity portion of the portfolio does not include 
Non-U.S. Component Stocks,\44\ the equity portion of the portfolio 
shall include a minimum of 13 component stocks; \45\
---------------------------------------------------------------------------

    \44\ See note 26, supra.
    \45\ See Rule 8.600, Supp. Material .01(a)(1)(D). The rule 
provides that there shall be no minimum number of component stocks 
if (1) one or more series of Exchange Traded Products or Index-
Linked Securities constitute, at least in part, components 
underlying a series of Managed Fund Shares, or (2) one or more 
series of Derivative Securities Products or Index-Linked Securities 
account for 100% of the equity weight of the portfolio of a series 
of Managed Fund Shares.
---------------------------------------------------------------------------

     Except as provided in the Rule, equity securities in the 
portfolio shall be U.S. Component Stocks listed on a national 
securities exchange and shall be NMS Stocks as defined in Rule 600 of 
Regulation NMS under the Act; and
     ADRs in a portfolio may be exchange-traded or non-
exchange-traded. However, no more than 10% of the equity weight of a 
portfolio shall consist of non-exchange-traded ADRs.
    These listing requirements for Managed Fund Shares are either the 
same as or generally comparable to the listing requirements described 
above in the relevant precedents for assessing whether a product is 
sufficiently broad-based to address potential manipulation concerns.
    First, the portfolio for Managed Fund Shares where the equity 
portion of the portfolio does not include Non-U.S. Component Stocks 
must include the same minimum number (13) of component stocks. Where 
the equity portion of a portfolio of Managed Fund Shares includes Non-
U.S. Component Stocks, the equity portion of the portfolio must include 
a minimum of 20 component stocks, which is a stricter requirement.
    Second, the component stocks of Managed Fund Shares must meet the 
same capitalization and liquidity requirements, i.e., at least 90% of 
the weight of the US Component Stocks portion of the index or portfolio 
each must have a minimum market value of at least $75 million.
    Third, component stocks of Managed Fund Shares must also meet 
comparable minimum trading volume requirements, i.e., must in the 
aggregate account for at least 70% of the US Component Stocks portion 
of the weight of the index or portfolio each will have a minimum 
monthly trading volume of 250,000 shares, during the last six months. 
Once again, although the Exchange's listing standard does not require 
90% of the weight of the index or portfolio to each have the same 
minimum monthly trading volume of 250,000 shares, the Exchange believes 
that the 70% requirement is significant enough to meaningfully reduce 
the likelihood that any market participant would be able to engage in 
price manipulation. The Exchange notes that in approving the current 
listing requirements, the Commission was satisfied that the these 
standards met the statutory requirements of the Act and were designed, 
among other things, to prevent manipulation. Moreover, the Exchange 
believes that the 70% requirement, coupled with the Exchange's rigorous 
regulation and surveillance of trading activity by DMMs and other 
Floor-based market participants discussed below, is also sufficient to 
prevent potential manipulation.
    Finally, the concentration requirements are somewhat stricter, 
requiring heavily weighted component stocks to not exceed 30% (not 25%) 
of the US Component Stocks portion of the weight of the index or 
portfolio, and, to the extent applicable, the five most heavily 
weighted component stocks must not exceed 65%.
    Based on the foregoing, the Exchange believes Managed Fund Shares 
that have an NYSE Component Security and that list under the existing 
listing criteria would be sufficiently broad-based to address potential 
manipulation concerns and could thus list without additional 
requirements for information barriers or physical or organizational 
separation.
* * * * *
    As the foregoing discussion demonstrates, by virtue of the

[[Page 47265]]

composition and concentration requirements in the Exchange's generic 
listing standards for equities-based products relating to market cap, 
trading volume, and diversity requirements, among others, that the 
underlying components must meet to list on the Exchange, the generic 
listing standards are, among other things,

intended to reduce the potential for manipulation by assuring that 
the ETP is sufficiently broad-based, and that the components of an 
index or portfolio underlying an ETP are adequately capitalized, 
sufficiently liquid, and that no one stock dominates the index.\46\
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 80189 (March 9, 
2017), 82 FR 13889, 13892 (March 15, 2017) (SR-NYSEArca-2017-01) 
(order approving amendment of NYSE Arca Rule 5 and 8 Series to add 
specific continued listing standards for ETPs and to specify the 
delisting procedures for these products). See generally id. n. 28 & 
authorities cited therein.

    Accordingly, the Exchange believes that ETPs meeting these existing 
listing criteria would be sufficiently broad-based to allow integrated 
market making and side-by-side trading in both the ETP and the NYSE 
Component Securities without more, and therefore should be excluded 
from the preambles to Rules 5P and 8P.
Proposed Broad-Based Generic Listing Standards for Exchange Traded Fund 
Shares
    The Exchange further believes that Exchange Traded Fund Shares 
eligible to list under Rule 5.2(j)(8) that have underlying NYSE 
Component Securities should be eligible to list and trade on the 
Exchange if such Exchange Traded Fund Shares meet similar broad-based 
requirements as those specified in Rules 5.2(j)(3), 5.2(j)(6), 8.100, 
and 8.600 described above. To allow for listing of Exchange Traded Fund 
Shares with NYSE Component Securities, the Exchange proposes to add a 
new subsection e.1.B. to Rule 5.2(j)(8) to provide for additional 
listing requirements for such Exchange Traded Fund Shares. As with the 
ETPs discussed above, Exchange-Traded Fund Shares with NYSE Component 
Securities meeting the proposed composition and concentration measures 
proposed in Rule 5.2(j)(8)(e)(1)(B) would be permitted to list with no 
additional requirement for information barriers or physical or 
organizational separation, and would be excluded from the preamble to 
Rule 5P.
    As proposed, Rule 5.2(j)(8)(e)(1)(B) would provide that if a 
portfolio of an actively managed series of Exchange-Traded Fund Shares 
or the index underlying a series of index-based Exchange-Traded Fund 
Shares has NYSE Component Securities, the component securities of the 
equity portion of such portfolio or index must satisfy specified 
requirements upon initial listing and on a continuing basis that would 
be designed to ensure that broad-based Exchange Traded Fund Shares with 
underlying NYSE Component Securities would be listed and traded on the 
Exchange.
    First, proposed Rule 5.2(j)(8)(e)(1)(B)(1) would provide that the 
portfolio or index must include a minimum of 13 equity component 
securities. This proposed requirement is substantively the same as 
listing rules for ETPs that similarly require a minimum of 13 equity 
component securities. For example, as set forth in Supplementary 
Material .01 of Rule 5.2(j)(3) and discussed above, the index 
components underlying Units consisting solely of US Component Stocks 
\47\ or US Component Stocks and cash--i.e., where the equity portion of 
the portfolio does not include Non-US Component Stocks--must include a 
minimum of 13 component stocks.\48\ In addition, Portfolio Depositary 
Receipts and Rule 8.100 and Managed Fund Shares under Rule 8.600 also 
require a minimum of 13 component securities if the equity portion of 
the portfolio does not include Non-U.S. Component Stocks.\49\ The 
Exchange believes that the proposed 13 equity component requirement for 
a series of Exchange Traded Fund Shares with an NYSE Component 
Securities would similarly ensure significant portfolio breadth such 
that the potential for manipulation or coordinated trading is 
significantly attenuated.
---------------------------------------------------------------------------

    \47\ See Rule 5.2(j)(3) & note 19, infra.
    \48\ See Rule 5.2(j)(3), Supp. Material .01(a)(A)(4). As 
previously noted, there is no minimum number of component stocks if 
(a) one or more series of Units or Portfolio Depositary Receipts (as 
defined in Section 2 of Rule 8P) constitute, at least in part, 
components underlying a series of Managed Fund Units, or (b) one or 
more series of such ETPs account for 100% of the US Component Stocks 
portion of the weight of the index or portfolio. See id.
    \49\ See Rule 8.100, Supp. Material .01(a)(A)(4) & Rule 8.600, 
Supp. Material .01(a)(1)(D).
---------------------------------------------------------------------------

    Second, proposed Rule 5.2(j)(8)(e)(1)(B)(2) provides that no one 
single component security may exceed 30% of the equity weight of the 
portfolio or index. Third, proposed Rule 5.2(j)(8)(e)(1)(B)(3) would 
provide that the five most heavily weighted component securities may 
not exceed 65% of the equity weight of the portfolio or index. Both of 
these proposed requirements are substantively identical to current 
generic listing requirements for Investment Company Units under 
Supplementary Material .01 of Rule 5.2(j)(3), which provides that the 
most heavily weighted component stock (excluding Investment Company 
Units and securities defined in Section 2 of Rule 8P) cannot exceed 30% 
of the equity weight of the portfolio, and, to the extent applicable, 
the five most heavily weighted component stocks (excluding Units and 
securities defined in Section 2 of Rule 8P) cannot exceed 65% of the 
equity weight of the portfolio.\50\ Portfolio Depositary Receipts and 
Managed Fund Shares have similar requirements.\51\
---------------------------------------------------------------------------

    \50\ See Rule 8.100, Supp. Material .01(a)(A)(3).
    \51\ See Rule 8.100, Supp. Material .01(a)(A)(1)-(3) & Rule 
8.600, Supp. Material .01 (a)(1)(A)-(C).
---------------------------------------------------------------------------

    Third, proposed Rule 5.2(j)(8)(e)(1)(B)(4) provides that component 
securities that in the aggregate account for at least 90% of the equity 
weight of the portfolio or index each must have a minimum market value 
of at least $75 million. The proposed requirements are substantively 
similar to the current generic listing requirements for Units under 
Supplementary Material .01 of Rule 5.2(j)(3), which provides that 
component stocks in the aggregate account for at least 90% of the 
weight of the US Component Stocks portion of the index or portfolio 
(excluding Units and securities defined in Section 2 of Rule 8P) each 
shall have a minimum market value of at least $75 million.\52\
---------------------------------------------------------------------------

    \52\ See Rule 5.2(j)(3), Supp. Material .01(a)(A)(1). As 
proposed, Rule 5.2(j)(8)(e)(1)(B) would not, unlike Rule 5.3(j)(3), 
Supp. Material .01(a)(A)(1)-(3), exclude Units and securities 
defined in Section 2 of Rule 8P when calculating the weight of the 
portfolio, thereby ensuring a stricter percentage requirement for 
indices or portfolios containing NYSE Component Securities.
---------------------------------------------------------------------------

    Finally, proposed Rule 5.2(j)(8)(e)(1)(B)(5) would provide that 
component securities that in the aggregate account for at least 70% of 
the equity weight of the index or portfolio each must have a minimum 
monthly trading volume of 250,000 shares, or minimum notional volume 
traded per month of $25,000,000, averaged over the last six months. The 
proposed requirement is also substantively identical to Supplementary 
Material .01 of Rule 5.2(j)(3), which provides that component stocks 
(excluding Units and securities defined in Section 2 of Rule 8P) that 
in the aggregate account for at least 70% of the US Component Stocks 
portion of the weight of the index or portfolio (excluding Derivative 
Securities Products) each shall have a minimum monthly trading volume 
of 250,000 shares, or minimum notional volume traded per month of 
$25,000,000, averaged over the last six

[[Page 47266]]

months.\53\ Although the Exchange's proposed listing standard does not 
require 90% of the of the weight of the index or portfolio to each have 
the same minimum monthly trading volume of 250,000 shares, the Exchange 
believes that the 70% requirement is still significant enough to reduce 
the likelihood that any market participant would be able to engage in 
price manipulation. The Exchange believes that the current 
requirements, coupled with the Exchange's rigorous regulation and 
surveillance of trading activity by DMMs and other Floor-based market 
participants discussed below, are also sufficient to prevent potential 
manipulation. Moreover, the Exchange notes that the alternative minimum 
notional volume traded per month of $25,000,000, averaged over the last 
six months, is the same as that in current Exchange listing standards 
that also incorporate a 70% and not a 90% weight requirement, such as 
that for Units, and that the Commission was satisfied that the 
Exchange's current listing standards met the statutory requirements of 
the Act and were designed, among other things, to prevent manipulation.
---------------------------------------------------------------------------

    \53\ See Rule 5.2(j)(3), Supp. Material .01(a)(A)(2).
---------------------------------------------------------------------------

    The Exchange believes that these proposed additional initial and 
continued listed requirements for a series of Exchange Traded Fund 
Shares with one or more NYSE Component Securities mirror existing 
generic listing standards for equities-based products and are 
consistent with the listing requirements described above that the 
Commission determined were sufficiently broad-based to address 
potential manipulation concerns. Accordingly, the Exchange believes 
that the proposed requirements would ensure that a portfolio of a 
series of Exchange Traded Fund Shares listed under Rule 5.2(j)(8) with 
one or more NYSE Component Securities would not be unduly concentrated.
    The Exchange believes that requiring Exchange Traded Fund Shares 
with underlying NYSE Component Securities to meet enhanced criteria is 
designed to ensure that the Exchange Traded Fund Shares listed on the 
Exchange would be broad-based and would mitigate potential issues 
raised by the trading of Exchange Traded Fund Shares on the same 
physical trading floor as one or more component securities.
Proposed Changes to Rules 5P and 8P
    To effect the above-described changes, the Exchange proposes to 
amend the preambles following both Rule 5P and Rule 8P.
    For Rule 5P, the Exchange proposes to add ``Listed and'' before 
``Traded'' in the heading. The Exchange also proposes to add the 
defined term ``NYSE Component Securities,'' which would mean the 
existing Rule 5P definition of ``any component NMS Stock that is listed 
on the Exchange or that is based on, or represents an interest in, an 
underlying index or reference asset that includes an NMS Stock listed 
on the Exchange.'' The Exchange further proposes to amend Rule 5P to 
exclude from the listing prohibition an Exchange Traded Product listed 
under NYSE Rules 5.2(j)(3), Supplementary Material .01(a); 
5.2(j)(6)(B)(I); or 5.2(j)(8) (e)(1)(B). Finally, for the avoidance of 
doubt, the Exchange proposes to add text to the heading of Rule 5P 
providing that the Exchange may submit a rule filing pursuant to 
Section 19(b) of the Securities Exchange Act of 1934 to permit the 
listing and trading of an ETP that does not otherwise meet the above 
standards.
    The Exchange similarly proposes to amend the heading of Rule 8P to 
add ``Listing and'' before ``Trading.'' The Exchange also proposes to 
replace the text ``component NMS Stock that is listed on the Exchange 
or that is based on, or represents an interest in, an underlying index 
or reference asset that includes an NMS Stock listed on the Exchange'' 
with the proposed newly defined term of ``NYSE Component Securities.'' 
Use of this new defined term would not make any substantive changes to 
the Rule and is designed to streamline the rule text. Finally, the 
Exchange would amend Rule 8P to add language similar to that proposed 
for Rule 5P that would exclude from the listing prohibition an Exchange 
Traded Product listed under Rules 8.100, Supplementary Material 
.01(a)(A) or 8.600, Supplementary Material .01(a).
Proposed Changes to Rule 98
    Rule 98 governs the operation of DMM units and imposes certain 
restrictions on DMM trading. With respect to integrated market making, 
the Commission has approved changes to Rule 98 that permit a DMM unit 
to engage in integrated market making with off-Floor market making 
units in related products.\54\ Rule 98(c)(6) prohibits DMM units from 
operating as a specialist or market maker on the Exchange in related 
products, unless specifically permitted in Exchange rules. Rule 
98(b)(7) defines ``related products'' as ``any derivative instrument 
that is related to a DMM security.'' \55\ Accordingly, consistent with 
the proposal, the Exchange proposes to amend Rule 98(b)(7) to 
specifically exclude from the definition of ``related products'' the 
ETPs that are excluded from the listing prohibition set forth in the 
preamble to Rule 5P or to Rule 8P.
---------------------------------------------------------------------------

    \54\ See Securities Exchange Act Release No. 58328 (August 7, 
2008), 73 FR 48260 (August 18, 2008) (SR-NYSE-2008-45) (order 
approving amendments to Rule 98 that permit specialist firms to 
integrate with off-Trading Floor trading desks that trade in 
``related products,'' as that term is defined in Rule 98).
    \55\ Under Rule 98(b)(7), derivative instruments include 
options, warrants, hybrid securities, single-stock futures, 
security-based swap agreement, a forward contract, or ``any other 
instrument that is exercisable into or whose price is based upon or 
derived from a security traded at the Exchange.''
---------------------------------------------------------------------------

    With the proposed changes above, the Exchange would be able to list 
ETPs that include NYSE Component Securities and are listed under Rules 
5.2(j)(3), Supplementary Material .01(a); 5.2(j)(6)(B)(I); 
5.2(j)(8)(e)(1)(B); 8.100, Supplementary Material .01(a)(A); or 8.600 
Supplementary Material .01(a). The proposed change would also provide 
that ETPs listed under these rules would be excluded from the Rule 98 
definition of ``related products.'' In addition, this proposed change 
would clarify that ETPs listed under Rules 8.601 (Active Proxy 
Portfolio Shares) and 8.900 (Managed Portfolio Shares), which are 
currently excluded from the preamble to Rule 8P, would also be excluded 
from the Rule 98 definition of ``related products.'' \56\
---------------------------------------------------------------------------

    \56\ See note 8, supra.
---------------------------------------------------------------------------

    As discussed above, for each of the ETPs proposed to be excluded 
from the definition of ``related security,'' integrated market making 
and side-by-side trading in both the ETP and any underlying NYSE 
Component Securities would be appropriate with no additional 
requirement for information barriers or physical or organizational 
separation.
Safeguards Against Informational Advantages
    In addition to the reasons why specific products present a reduced 
risk of manipulation, the Exchange believes that there are significant 
structural and regulatory safeguards in place that both minimize the 
amount of material nonpublic information available to DMMs and prevent 
the potential misuse of that information by DMMs to give themselves a 
competitive or trading advantage over other market participants.\57\ As 
discussed below, the evolution of NYSE trading away from Floor-based 
manual executions toward an electronic market has made trading on the 
Exchange more transparent. In addition, the increasingly automated

[[Page 47267]]

logic for executions--including for interest entered by both Floor 
brokers and DMMs--has severely circumscribed the amount of non-public 
information that is only available to DMMs. Moreover, Rule 98 requires 
and enforces procedures that are designed to restrict trading by DMMs 
when in possession of material non-public information, thereby 
minimizing the potential for manipulative and improper trading conduct 
by DMMs when trading the proposed specific products with underlying 
NYSE Component Securities.\58\
---------------------------------------------------------------------------

    \57\ See, e.g., Release No. 46213, 67 FR at 48234.
    \58\ See id., 67 FR at 48235.
---------------------------------------------------------------------------

Market Structure Evolution
    Over the years, the Exchange has enhanced the transparency of its 
marketplace and significantly reduced the amount of material, non-
public information available to DMMs.
    One of the most significant evolutions has been in the technology 
and the manner in which DMMs close securities. Since 2014, DMMs have 
had the ability to close securities manually or electronically.\59\ 
When this functionality was introduced, to close a security 
electronically, a DMM needed to be physically present on the Trading 
Floor. With the transition to the Pillar trading platform, a DMM can 
now close a security electronically even when not present on the 
Trading Floor. Further, since 2015, the Exchange has had the ability to 
facilitate the close of trading for one or more securities when the DMM 
is unable to do so.\60\ As a result, DMMs can efficiently and 
effectively algorithmically close their assigned securities without 
being physically present on the Floor.
---------------------------------------------------------------------------

    \59\ See Securities Exchange Act Release No. 71086 (December 16, 
2013), 78 FR 77186 (December 20, 2013) (SR-NYSE-2013-79) (Notice of 
filing and immediate effectiveness of proposed rule change amending 
Rules 104 and 123C to specify that closings may be effectuated 
manually or electronically).
    \60\ See Securities Exchange Act Release No. 74006 (January 6, 
2015), 80 FR 1567 (January 12, 2015) (SR-NYSE-2014-73) (Notice of 
filing and immediate effectiveness of proposed rule change amending 
Rule 123C to specify that Exchange systems may close one or more 
securities electronically).
---------------------------------------------------------------------------

    In addition, the Exchange has significantly enhanced the 
transparency of its marketplace. For instance, the Exchange 
disseminates Closing Auction Imbalance Information beginning 10 minutes 
before the scheduled end of Core Trading Hours, which provides updated 
imbalance information and indicative closing prices. In 2019, in 
connection with the transition to the Pillar trading platform, the 
Exchange amended its rules to provide that Floor Broker Interest (i.e., 
interest verbalized in the trading crowd by a Floor Broker) would be 
included in Closing Auction Imbalance Information. Further, beginning 
in 2020, the Exchange temporarily suspended the availability of Floor 
Broker Interest to be eligible to participate in the Closing Auction, 
as defined in Rule 7.35. In 2021, the Exchange permanently excluded 
Floor Broker Interest from the Closing Auction and requires all Floor 
brokers to enter orders for the Closing Auction electronically during 
Core Trading Hours.\61\ Because of the absence of Floor Broker Interest 
in the Closing Auction, any remaining information advantage that DMMs 
might have had with respect to orders from Floor brokers--even after 
such interest was included in the Closing Auction Imbalance 
Information--was eliminated.
---------------------------------------------------------------------------

    \61\ See Securities Exchange Act Release No. 92480 (July 23, 
2021), 86 FR 40885 (July 29, 2021) (SR-NYSE-2020-95) (Notice of 
Filing of Amendment No. 2 and Order Granting Accelerated Approval of 
Proposed Rule Change, as Modified by Amendment No. 2, To Make 
Permanent Commentaries to Rule 7.35A and Commentaries to Rule 7.35B 
and To Make Related Changes to Rules 7.32, 7.35C, 46B, and 47).
---------------------------------------------------------------------------

    Given their unique role to facilitate the close of trading, DMMs at 
the point of sale continue to have display-only access to aggregated 
buying and selling interest that is eligible to participate in the 
Closing Auction at each price point.\62\ DMM unit algorithms, however, 
are not provided access to such non-public information until after the 
end of Core Trading Hours, and only in connection with messaging for 
the DMM to electronically facilitate the close of trading. Moreover, 
pursuant to Rule 104(h)(iii), Floor brokers may request that a DMM 
provide them with the information that is available to the DMM at the 
post, including such aggregated buying and selling interest for the 
Closing Auction. Moreover, pursuant to current Rule 104(h)(ii), a DMM 
may not use any information provided by Exchange systems in a manner 
that would violate Exchange rules or federal securities laws or 
regulations.
---------------------------------------------------------------------------

    \62\ See Rules 104(a)(3) and 104(b)(3). The information 
available at each price point is not available in the Auction 
Imbalance Information. However, such information is used to 
calculate the Continuous Book Clearing Price, which is disseminated 
via Auction Imbalance Information.
---------------------------------------------------------------------------

    The Exchange believes that as a result of the cumulative effect of 
these changes, the non-public interest available to Floor participants 
has been meaningfully and materially reduced such that no market 
participant on the Trading Floor has an unfair competitive advantage 
over any other market participant on the Trading Floor.
Rule 98 Restrictions
    In addition to the prohibitions contained in Rule 104(h), Rule 98 
contains narrowly tailored restrictions to address the fact that DMMs 
while on the Floor may have access to certain Floor-based non-public 
information and requires DMM units to maintain procedures and controls 
to prevent the misuse of material, non-public information that are 
effective and appropriate for that member organization.
    Specifically, under Rule 98(c)(2), a member organization seeking 
approval to operate a DMM unit pursuant to Rule 98 must maintain and 
enforce written policies and procedures reasonably designed, taking 
into consideration the nature of such member organization's business, 
(1) to prevent the misuse of material, non-public information by such 
member organizations or persons associated with such member 
organization, and (2) to ensure compliance with applicable federal laws 
and regulations and with Exchange rules.\63\ Further, Rule 98(c)(3)(A) 
provides that a member organization shall protect against the misuse of 
Floor-based non-public order information and that only the Trading 
Floor-based employees of the DMM unit and individuals responsible for 
the direct supervision of the DMM unit's Floor-based operations may 
have access (as permitted pursuant to Rule 104) to Floor-based non-
public order information. Rule 98(c)(3)(B) specifies the restrictions 
applicable to employees of the DMM unit while on the Trading Floor. 
Rule 98(c)(3)(C) also provides that a Floor-based employee of a DMM 
unit who moves to a location off the Trading Floor, or any person who 
provides risk management oversight or supervision of the Floor-based 
operations of the DMM unit and becomes aware of Floor-based non-public 
order information, shall not (1) make such information available to 
customers, (2) make such information available to individuals or 
systems responsible for making trading decisions in DMM securities in 
away markets or

[[Page 47268]]

related products, or (3) use any such information in connection with 
making trading decisions in DMM securities in away markets or related 
products. The rule covers an individual that leaves the Floor, as well 
as a manager providing oversight or supervision of the Floor-based 
operations of the DMM unit. Submission and approval of a DMM unit's 
written policies and procedures addressing the requirements of Rule 98 
is a prerequisite to operating a DMM unit on the Floor. The Exchange 
notes that all member organizations currently operating DMM units 
already have in place written policies and procedures to comply with 
Rule 98.
---------------------------------------------------------------------------

    \63\ Rule 98(c)(2) provides examples of conduct that would 
constitute the misuse of material, non-public information, 
including, but not limited to: (1) trading in any securities issued 
by a corporation, or in any related product, while in possession of 
material-non-public information concerning the issuer; or (2) 
trading in a security or related product, while in possession of 
material non-public information concerning imminent transactions in 
the security or related product; or (3) disclosing to another person 
or entity any material, non-public information involving a 
corporation whose shares are publicly traded or an imminent 
transaction in an underlying security or related product for the 
purpose of facilitating the possible misuse of such material, non-
public information. See Rule 98(c)(2)(A)-(C).
---------------------------------------------------------------------------

Regulation and Surveillance of Floor Trading
    Trading on the Exchange is subject to a comprehensive regulatory 
program that includes a suite of surveillances that review trading by 
DMMs and other market participants on the Floor, including 
surveillances designed to monitor for trading ahead and manipulative 
activity. To assist Exchange surveillance of DMM trading activity, a 
member organization operating a DMM unit must daily provide the 
Exchange with net position information in DMM securities by the DMM 
unit and any independent trading unit of which it is part for such 
times and in the manner prescribed by the Exchange pursuant to Rule 
98(c)(5). Moreover, DMM units and individual DMMs must produce trading 
and other records relating to ETP trading (including books and records 
with respect to which such DMM unit or DMM has access and control) to 
the Exchange on demand and can be subject to disciplinary action for 
failing to do so.\64\ In addition, routine examinations are conducted 
consistent with the current exam-based regulatory program associated 
with Rule 98 that reviews member organizations operating DMM units for 
compliance with the above-described policies and procedures to protect 
against the misuse of material nonpublic information. On a day-to-day 
basis, the physical activity at DMM posts is also under visual 
surveillance by Floor-based regulatory staff.
---------------------------------------------------------------------------

    \64\ See, e.g., Rule 8210 & 476(a)(11).
---------------------------------------------------------------------------

    In today's marketplace, the Exchange believes that primarily 
electronic DMM market-making activity is not materially different from 
market-making on other exchanges. DMMs, who have not been agents for 
the Exchange's limit order book for many years and whose trading 
activity on the Exchange is limited to proprietary trading, do not have 
a unique ability to direct or influence trading or control intra-day 
prices. In addition, no single exchange has more than 20% of the 
market, and the Exchange's share of executed volume of equity trades in 
Tapes A, B and C securities is less than 12%.\65\ Based on the 
foregoing, the Exchange believes that DMMs have no unique opportunities 
to engage in improper conduct trading ETPs with underlying NYSE 
Component Securities that would create unfair advantages for DMMs and 
would be ``hard, if not impossible'' for the Exchange to surveil.\66\ 
The Exchange accordingly believes that its existing programs are 
reasonably designed to address any regulatory issues that may be raised 
by the trading of the specified listed ETPs.
---------------------------------------------------------------------------

    \65\ See Cboe Global Markets U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/.
    \66\ See, e.g., Release No. 45454, 67 FR at 8568. See also note 
16, supra.
---------------------------------------------------------------------------

    Finally, the Exchange believes that the proposal would provide 
benefits to the marketplace.\67\ Like other securities traded on the 
Exchange, ETPs with underlying NYSE Component Securities would benefit 
from a market model featuring an assigned DMM that has unique 
responsibilities to actively make markets (i.e., quote bids and offers) 
throughout the trading day, both at inside market prices and throughout 
the order book, that adds significantly to the quality of markets made 
in those assigned securities. Because DMMs are also responsible for 
executing the NYSE opening and closing auctions and are obligated to 
ensure all marketable auction orders receive an execution, obligations 
that other markets do not apply to market makers, the Exchange believes 
that the quality of auctions in these products would also be enhanced, 
to the benefit of all market participants. Given reduced potential for 
manipulation and improper trading conduct for the reasons described 
above, the Exchange believes that the potential improvements to 
liquidity and quality of the markets outweigh the potential regulatory 
concerns.\68\
---------------------------------------------------------------------------

    \67\ See id., 67 FR at 8569.
    \68\ See, e.g., id., 67 FR at 8569.
---------------------------------------------------------------------------

    For all of the reasons stated above, the proposal is therefore 
consistent with the requirements of the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\69\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\70\ 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.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f(b).
    \70\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that listing and trading ETPs 
that have underlying NYSE Component Securities and that also meet the 
composition and concentration requirements set forth in the listing 
criteria of Rules 5.2(j)(3), Supplementary Material .01(a); 
5.2(j)(6)(B)(I); 8.100, Supplementary Material .01(a)(A); and 8.600, 
Supplementary Material .01(a) as well as those proposed under Rule 
5.2(j)(8)(e)(1)(B), would remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
facilitating the listing and trading of a broader range of ETPs 
consistent with the Exchange's current structure to trade listed 
securities. The Exchange believes that permitting [sic] the ETPs that 
have underlying NYSE Component Securities and that meet the criteria of 
the specified listing rules (including as amended) would meet the type 
of listing criteria previously identified by the Commission as 
sufficiently broad-based and well-diversified to protect against 
potential manipulation. The Exchange believes that these safeguards 
would continue to serve to prevent fraudulent and manipulative acts and 
practices, as well as to protect investors and the public interest from 
concerns that may be associated with integrated market making and any 
possible misuse of non-public information. In addition to the reasons 
why these specific products present a reduced risk of manipulation, the 
Exchange believes that there are significant structural and regulatory 
safeguards in place that both minimize the amount of material nonpublic 
information available to DMMs and prevent the potential misuse of that 
information by DMMs to give themselves a competitive or trading 
advantage over other market participants. Taken together, the Exchange 
believes these factors sufficiently minimize the risk of potential 
manipulation and improper trading conduct. Moreover, as also discussed 
above, the Exchange believes

[[Page 47269]]

there would be potential improvements in the quality of the markets for 
the ETPs with underlying NYSE Component Securities traded on the 
Exchange. The Exchange accordingly believes that these benefits 
outweigh the reduced regulatory risks and that integrated market making 
and side-by-side trading in both the listed ETP and underlying listed 
NMS stock components is appropriate with no additional requirement for 
information barriers or physical or organizational separation.
    The Exchange believes that the proposed changes to Rule 98 to 
exclude any ETPs listed on the Exchange from the definition of 
``related products'' would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would facilitate the assignment of listed ETPs, which would 
include ETPs that have underlying NYSE Component Securities and that 
meet the specified listing rules in Rules 5P and 8P, to DMMs and permit 
DMMs to trade such listed ETPs consistent with existing Rules governing 
DMM trading, including, for example, Rule 104.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\71\ 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. Instead, the Exchange believes that the proposed 
rule change would facilitate the listing of additional ETPs on the 
Exchange by allowing such securities to trade no differently than other 
securities listed on the Exchange, including assigning such securities 
to a DMM, which would enable the Exchange to further compete with 
unaffiliated exchange competitors that also list and trade ETPs. The 
proposed rule changes would also provide issuers with greater choice in 
potential listing venues for their ETP products to include an exchange 
model that includes a DMM assigned to their security and related 
benefits to an issuer as a result of the Exchange's high-touch trading 
model. The Exchange accordingly believes that the proposed change would 
promote competition by facilitating the listing and trading of a 
broader range of ETPs on the Exchange.
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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. Discussion and Commission Findings

    After careful review of the proposal, the Commission finds that the 
Exchange's proposal is consistent with the requirements of the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange. In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\72\ which requires, among other things, that the rules of a 
national securities exchange be 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.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Background

    Currently, NYSE Rules 5P and 8P generally prohibit the Exchange 
from listing shares of an ETP that has any component NMS Stock that is 
listed on the Exchange or that is based on, or represents an interest 
in, an underlying index or reference asset that includes an NMS Stock 
listed on the Exchange.\73\ Additionally, current NYSE Rule 98(c)(6) 
prohibits DMM units from operating as a specialist or market maker on 
the Exchange in ``related products'' unless specifically permitted in 
Exchange rules. NYSE assigns each of securities it lists to a DMM, and 
trading is on the floor of the Exchange. Integrated market making could 
be implicated if NYSE starts listing ETPs with an underlying NYSE 
Component Security because each ETP would be assigned to a DMM and that 
DMM may be assigned one or more NYSE Component Securities that underlie 
the ETP's underlying index or portfolio.
---------------------------------------------------------------------------

    \73\ A NMS Stock is defined in Rule 600 of Regulation NMS, 17 
CFR 242.600(b)(48), as ``any NMS security other than an option.'' A 
``NMS Security'' is any security or class of securities for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan, or an effective 
national market system plan for reporting transactions in listed 
options.'' 17 CFR 242.600(b)(47). ``NMS Security'' refers to 
``exchange-listed equity securities and standardized options, but 
does not include exchange-listed debt securities, securities 
futures, or open-end mutual funds, which are not currently reported 
pursuant to an effective transaction reporting plan.'' See Question 
1.1 in the ``Responses to Frequently Asked Questions Concerning 
Large Trader Reporting,'' available at: https://www.sec.gov/divisions/marketreg/large-trader-faqs.htm.
---------------------------------------------------------------------------

    Previously, the Commission explained that the concerns raised by 
side-by-side trading and integrated market making are that such 
practices could result in the unfair use of non-public market 
information by and an unfair competitive advantage for market 
participants that engage in such practices because of their access to 
and ability to use non-public market information.\74\ More recently 
however, finding that informational advantage concerns about individual 
securities are lessened for ``broad based'' ETFs and TIRs,\75\ the 
Commission approved integrated market making and side-by-side trading 
for ``broad-based'' ETFs and TIRs and related options.\76\ In 
determining whether a product is broad based, the Commission analyzed 
the listing criteria for each product. Specifically, the Commission 
considered the diversification, capitalization, and liquidity 
requirements in evaluating the likelihood that a market participant 
would be able to manipulate the prices of the ETFs, TIRs, or their 
related options. In approving these practices, the Commission also 
stated that the listing exchange's surveillance procedures should be 
adequate ``to ensure that market participants do not engage in 
manipulative or improper trading practices.'' \77\
---------------------------------------------------------------------------

    \74\ Release No. 46213, supra note 17, 67 FR at 48234. As an 
example, the Commission explained how ``in a side-by-side trading 
environment or integrated market making environment on a single 
exchange floor, floor members, by virtue of their positions on the 
floor of an exchange, are able to react instantaneously to market 
information by executing orders before the information is publicly 
disseminated.'' Id.
    \75\ Id. at 48235.
    \76\ See id. at 48236; see also Release No. 62479, supra note 
19.
    \77\ Release No. 46213, supra note 17, 67 FR at 48235.
---------------------------------------------------------------------------

B. Discussion of the Proposal

    The Exchange proposes to amend its rules regarding side-by-side 
trading. Specifically, the Exchange proposes to exclude from its 
listing prohibitions in NYSE Rules 5P and 8P shares of an ETP that 
independently satisfies the quantitative generic listing criteria set 
forth in NYSE Rules 5.2(j)(3), Supplementary Material .01(a), NYSE Rule 
5.2(j)(6)(B)(I); or proposed Rule 5.2(j)(8)(e)(1)(B), as well as shares 
of an ETP that independently satisfies the generic listing criteria set 
forth in NYSE Rules 8.100, Supplementary Material

[[Page 47270]]

.01(a)(A) or 8.600, Supplementary Material .01(a) (collectively, 
``Specified ETP Listing Rules'').\78\ The Exchange seeks to list and 
trade shares of these types of ETPs with no additional requirement for 
information barriers or physical or organizational separation because 
the current listing criteria provide that they overlie a sufficiently 
broad-based underlying portfolio or reference asset (as applicable).
---------------------------------------------------------------------------

    \78\ Shares of Active Proxy Portfolio Shares and Managed 
Portfolio Shares, which are issued by funds whose portfolios are not 
fully transparent, already are exempted from the general 
prohibition. See NYSE Rule 8P.
---------------------------------------------------------------------------

    The Exchange also proposes to amend its rule regarding integrated 
market making. The Exchange proposes to narrow the definition of 
``related products'' to exclude derivative instruments that overlie 
ETPs listed under NYSE Rule 8.900, which governs the listing and 
trading of Managed Portfolio Shares on the Exchange,\79\ or that 
satisfy the generic listing criteria of one of the Specified ETP 
Listing Rules.
---------------------------------------------------------------------------

    \79\ A defining characteristic of Managed Portfolio Shares is 
that their portfolio holdings are disclosed within at least 60 days 
following the end of every fiscal quarter. See NYSE Rule 
8.900(c)(1). Instead of disclosing its portfolio on a daily basis, 
each issue of Managed Portfolio Shares disseminates to all market 
participants at the same time a Verified Intraday Indicative Value 
in one-second intervals during the Core Trading Session. See NYSE 
Rule 8.900(d)(2)(A). Unlike DMMs for transparent ETPs, a DMM for an 
issue of Managed Portfolio Shares does not know whether any 
component NMS Stock that is listed on the Exchange is a component of 
the fund's portfolio. Therefore, the concern underlying the 
historical prohibitions against side-by-side trading and integrated 
market making is not implicated with respect to DMMs for Managed 
Portfolio Shares (i.e., they do not have any informational 
advantage).
---------------------------------------------------------------------------

1. The Listing Criteria for the ETPs
    The Exchange proposes to exclude from its listing prohibitions in 
NYSE Rules 5P and 8P shares of an ETP that independently satisfies the 
quantitative generic listing criteria set forth in the Specified ETP 
Listing Rules.
    The Commission believes that the proposed rule change permitting 
side-by-side trading and integrated market making of shares of the 
specified types of ETPs and their related options is consistent with 
section 6(b)(5) of the Exchange Act because the quantitative generic 
listing criteria set forth in the Specified ETP Listing Rules reduce 
the susceptibility to manipulation of such shares and correspondingly 
their related options. The Commission previously, has found the 
quantitative generic listing criteria included in the Specified ETP 
Listing Rules to be consistent with section 6(b)(5) of the Exchange Act 
and to be designed to prevent manipulation of the price of the ETP 
shares.\80\ Additionally, the quantitative generic listing criteria 
included in the Specified ETP Listing Rules are generally consistent 
with the Amex listing requirements that the Commission found to be 
broad-based.\81\ Although the minimum trading volume criterion for 
Portfolio Depositary Receipts is lower than the threshold in Amex's 
rules, the Commission has found that the generic listing criteria for 
Portfolio Depositary Receipts are consistent with Section 6(b)(5) of 
the Exchange Act and are designed to prevent the manipulation of 
generically listed Portfolio Depositary Receipts.\82\ Coupled with the 
Exchange's surveillance procedures and the requirements applicable to 
DMMs described below, the Commission believes that the quantitative 
generic listing criteria applicable to Portfolio Depositary Receipts 
are adequate to prevent manipulation in the context of side-by-side 
trading and integrated market making by DMMs on the Exchange.
---------------------------------------------------------------------------

    \80\ The Commission approved NYSE's adoption of the Specified 
ETP Listing Rules, which are substantively identical to the rules of 
other exchanges, as consistent with Section 6(b)(5) of the Exchange 
Act. See Securities Exchange Act Release Nos. 80214 (March 10, 
2017), 82 FR 14050, 14052-53 (March 16, 2017) (SR-NYSE-2016-44) and 
91029, supra note 15, 86 FR at 8423-24. In approving the 
substantively identical rules of other exchanges, the Commission 
found that the generic listing criteria, including the quantitative 
requirements that must be satisfied to permit side-by-side trading 
and integrated market, are designed to prevent manipulation. See, 
e.g., Securities Exchange Act Release No. 78397 (July 22, 2016), 81 
FR 49320, 49327 (July 27, 2016) (finding that the generic listing 
criteria for Managed Fund Shares should promote the listing only of 
Managed Fund Shares that are not susceptible to manipulation).
    \81\ See Release No. 46213, supra note 17.
    \82\ See Securities Exchange Act Release No. 54739, supra note 
20.
---------------------------------------------------------------------------

2. DMMs and the Exchange's Surveillance Procedures
    The primary risk posed by integrated market making and side-by-side 
trading is that a DMM might improperly utilize its informational 
advantage. The DMMs' historical informational advantage over other 
market participants has been decreased through a series of rule changes 
by the Exchange. For example, the evolution of the Exchange's trading 
floor from a floor-based model to a primarily electronic market has 
increased the transparency of trading on the Exchange, automated logic 
for executions has circumscribed the amount of non-public information 
available to DMMs, and DMM units have been required to implement 
policies and procedures to prevent the misuse of material non-public 
information.
    To ensure that DMMs do not improperly use any remaining 
informational advantage, the Exchange utilizes a regulatory program 
that reviews trading by DMMs and other market participants on the 
Floor, including surveillances designed to monitor for trading ahead 
and manipulative activity. Additionally, a member organization 
operating a DMM unit must daily provide the Exchange with net position 
information in DMM securities by the DMM unit and any independent 
trading unit of which it is part for such times and in the manner 
prescribed by the Exchange pursuant to Rule 98(c)(5). The Exchange also 
requires DMM units and individual DMMs to produce trading and other 
records relating to ETP trading (including books and records with 
respect to which such DMM unit or DMM has access and control) to the 
Exchange on demand, and DMM units and individuals can be subject to 
disciplinary action for failing to do so.\83\ In addition, the Exchange 
conducts routine examinations, consistent with the current exam-based 
regulatory program associated with Rule 98, to review member 
organizations operating DMM units for compliance with the above-
described policies and procedures to protect against the misuse of 
material nonpublic information. Lastly, the Exchange states that Floor-
based regulatory staff visually monitor DMM physical activity daily. 
The Commission believes that the Exchange's regulation and surveillance 
of DMM trading activity, and its examination procedures regarding DMMs, 
adequately mitigate the risk that DMMs might engage in manipulative or 
improper trading practices in connection with side-by-side trading and 
integrated market making for ETPs under the Specified ETP Listing 
Rules.
---------------------------------------------------------------------------

    \83\ See, e.g., Exchange Rules 8210 & 476(a)(11).
---------------------------------------------------------------------------

3. Conclusion
    For the reasons discussed above, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the Exchange Act \84\ and the rules and regulations thereunder 
applicable to a national securities exchange.
---------------------------------------------------------------------------

    \84\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written views, data, and 
arguments concerning whether Amendment No. 1 is consistent with the 
Exchange Act. Comments may be

[[Page 47271]]

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-NYSE-2022-04 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-NYSE-2022-04. 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-NYSE-2022-04 and should be submitted on 
or before August 23, 2022.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. In Amendment No. 1, the Exchange (among 
other things) clarified its proposed rule text and supplemented its 
discussion of why its proposal is consistent with the Exchange Act. 
Specifically, the Exchange analyzed the requirements of the Specified 
ETP Listing Rules that address the potential for manipulation and its 
DMM surveillance regime. This additional information in Amendment No. 1 
assisted the Commission in evaluating the Exchange's proposal and in 
determining that it is consistent with the Exchange Act. Amendment No. 
1 does not raise any novel legal issue. Accordingly, the Commission 
finds good cause, pursuant to Section 19(b)(2) of the Exchange Act,\85\ 
to approve the proposed rule change, as modified by Amendment No. 1 on 
an accelerated basis.
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\86\ that the proposed rule change (SR-NYSE-2022-04), as 
modified by Amendment No. 1, be, and it hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \86\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
---------------------------------------------------------------------------

    \87\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16483 Filed 8-1-22; 8:45 am]
BILLING CODE 8011-01-P