[Federal Register Volume 87, Number 222 (Friday, November 18, 2022)]
[Notices]
[Pages 69376-69378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25230]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96322; File No. SR-NYSEARCA-2022-76]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31-
E

November 15, 2022.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 2, 2022, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.31-E regarding Discretionary 
Pegged Orders. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to (1) amend Rule 7.31-E to delete Commentary 
.03 to end the temporary suspension of the Discretionary Pegged Order, 
and (2) amend Rule 7.31-E(h)(3) to modify the operation of the 
Discretionary Pegged Order.
    The Discretionary Pegged Order is a non-displayed order to buy 
(sell) that is pegged to the same side of the PBBO and assigned a 
working price equal to the lower (higher) of the midpoint of the PBBO 
(the ``Midpoint Price'') or the limit price of the order.\3\ A 
Discretionary Pegged Order will exercise the least amount of discretion 
necessary from its working price to its discretionary price (defined as 
the lower (higher) of the Midpoint Price or the limit price of the 
order) to trade with contra-side interest. Current Rule 7.31-E(h)(3)(C) 
provides that a Discretionary Pegged Order will not exercise discretion 
if the PBBO is determined to be unstable via a ``quote instability 
calculation'' that assesses the probability of a change to the PBB or 
PBO. Specifically, as set forth in current Rule 7.31-E(h)(3)(D), the 
Exchange uses the quote instability calculation along with real-time 
relative quoting activity of protected quotations to assess the 
probability of an imminent change to the PBBO (the ``quote instability 
factor''). When the quoting activity meets predefined criteria 
described in Rule 7.31-E(h)(3)(D)(i)(A) through (C) and the quote 
instability factor calculated is greater than the Exchange's quote 
instability threshold (defined in Rule 7.31-E(h)(3)(D)(i)(D)(2)), the 
Exchange treats the quote as unstable. The quote stability calculation 
utilizes quote stability coefficients and quote stability variables, as 
defined in Rules 7.31-E(h)(3)(D)(i)(D)(1)(a) and (b). In July 2022, the 
Exchange modified the quote stability calculation to incorporate 
updated quote stability coefficients that would allow the quote 
stability calculation to more accurately identify changes to the 
PBBO.\4\
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    \3\ See Rule 7.31-E(h)(3). As defined in NYSE Arca Rule 1.1, 
``PBBO'' means the Best Protected Bid and the Best Protected Offer. 
Rule 1.1 also defines ``PBB'' as the highest Protected Bid and 
``PBO'' as the lowest Protected Offer.
    \4\ See Securities Exchange Act Release No. 95154 (June 24, 
2022), 87 FR 39134 (June 30, 2022) (SR-NYSEArca-2022-13) (Notice of 
Filing of Amendment No. 2 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 2, To Amend 
Rule 7.31-E(h)(3) Relating to Discretionary Pegged Orders).
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End of Temporary Suspension
    In August 2022, the Exchange added Commentary .03 to Rule 7.31-E to 
provide for the temporary suspension of the Discretionary Pegged 
Order.\5\ The Exchange determined to temporarily suspend use of the 
Discretionary Pegged Order to evaluate system performance impacts 
following the modification of the quote stability coefficients, as 
described above. Commentary .03 to Rule 7.31-E provides that the 
Exchange will submit a proposed rule filing to end the temporary 
suspension and will provide notice of the end of the suspension period 
by Trader Update.
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    \5\ See Securities Exchange Act Release No. 95584 (August 23, 
2022), 87 FR 52826 (August 29, 2022) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change to Amend Rule 7.31-E).
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    The Exchange now proposes to end the temporary suspension period, 
as it has assessed system performance impact and is prepared to resume 
offering the Discretionary Pegged Order, as modified by this filing. 
The Exchange also proposes to delete Commentary .03 from 7.31-E to 
remove text that would no longer have application once the temporary 
suspension is lifted.
Modification of Discretionary Pegged Orders
    The Exchange proposes to amend Rule 7.31-E(h)(3) to modify the 
operation of Discretionary Pegged Orders following the end of the 
temporary suspension period. As noted above, the temporary suspension 
period provided the Exchange with an opportunity to evaluate the impact 
of the order type on system performance. Based on the Exchange's 
assessment of such impact, and, specifically, the system resources 
required to perform the quote stability calculation, the Exchange now 
proposes to modify Rule 7.31-E(h)(3) to provide that the Discretionary 
Pegged Order would not be restricted from exercising discretion during 
periods of quote instability, thereby eliminating the need to perform 
the quote stability calculation.
    As proposed, the Discretionary Pegged Order would operate as 
defined in Rule 7.31-E(h)(3) and as specified in current Rules 7.31-
E(h)(3)(A), (B), and (E), without any changes except that the order 
would continue to exercise the least amount of price discretion

[[Page 69377]]

necessary from its working price to its discretionary price to trade 
with contra-side orders on the NYSE Arca Book without regard to 
potential quote instability. The Exchange thus proposes to delete the 
clause beginning with ``except'' in the last sentence of current Rule 
7.31-E(h)(3). In addition, because the Exchange proposes to permit 
Discretionary Pegged Orders to exercise discretion without considering 
potential quote instability, the Exchange would no longer perform the 
quote instability calculation to assess the probability of an imminent 
change to the PBBO or identify periods of quote instability. To effect 
this change, the Exchange proposes to delete current Rules 7.31-
E(h)(3)(C) and (D), including the subparagraphs thereunder. The 
Exchange also proposes to renumber current Rule 7.31-E(h)(3)(E) as Rule 
7.31-E(h)(3)(C) to reflect those deletions.
    Although the Discretionary Pegged Order, as modified, would no 
longer provide price protection during periods of quote instability, 
the Exchange believes that it would still provide ETP Holders with the 
flexibility and benefits of an order type that can exercise discretion 
to trade with contra-side interest. The Exchange notes that the 
Discretionary Pegged Order, as modified, would operate similarly to 
order types currently offered by other equities exchanges.\6\
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    \6\ See, e.g., Cboe EDGA Exchange, Inc. Rule 11.8(e) (defining 
the MidPoint Discretionary Order as a limit order to buy or sell 
that is pegged to the NBBO with discretion to execute at prices up 
or down to and including the midpoint of the NBBO); Cboe EDGX 
Exchange, Inc. Rule 11.8(g) (same).
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    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the end of the temporary 
suspension and availability of the Discretionary Pegged Order, as 
proposed in this filing, by Trader Update. Subject to effectiveness of 
this rule filing, the Exchange will implement the changes described 
herein in the fourth quarter of 2022.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\7\ in general, and furthers the objectives of Section 6(b)(5),\8\ 
in particular, because it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, in general, to protect investors and 
the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed change to end the temporary 
suspension of Discretionary Pegged Orders and delete Commentary .03 
would promote just and equitable principles of trade and remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system because it would permit the Exchange to 
resume offering the Discretionary Pegged Order to ETP Holders and 
remove rule text that would no longer have application following the 
end of the suspension period. Furthermore, as discussed above, the 
temporary suspension of the Discretionary Pegged Order allowed the 
Exchange an opportunity to evaluate system performance impacts. 
Accordingly, the Exchange believes that the proposed change to modify 
the operation of the Discretionary Pegged Order, further to such 
assessment, would remove impediments to, and perfect the mechanism of, 
a free and open market and a national market system, as well as protect 
investors and the public interest, by continuing to provide ETP Holders 
with the benefits of an order type that can exercise discretion to 
trade with contra-side interest, without a quote instability 
calculation that would restrict such order from exercising discretion 
during periods of quote instability. The Exchange also believes that 
the proposed modification of the Discretionary Pegged Order would 
remove impediments to, and perfect the mechanism of, a free and open 
market and a national market system by modifying the Discretionary 
Pegged Order to function similarly to discretionary orders currently 
offered by other equities exchanges.\9\
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    \9\ See note 6, supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed change would promote competition by ending the temporary 
suspension of the Discretionary Pegged Order and making the order type 
once again available to ETP Holders, as proposed. The proposed 
modification of the Discretionary Pegged Order would also promote 
competition by permitting the Exchange to offer ETP Holders an order 
type that can exercise discretion to trade with contra-side interest 
and would not be restricted from doing so by a quote stability 
calculation. The Exchange also believes that the proposed modification 
to the operation of the Discretionary Pegged Order could promote 
competition because the order type would function similarly to order 
types currently offered by other equities exchanges.\10\
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    \10\ See id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay to allow the 
Exchange to end the temporary suspension and modify the Discretionary 
Pegged Order as soon as the technology associated with those proposed 
changes is available and make the Discretionary Pegged Order available 
for use by interested ETP Holders. The Exchange states that the 
proposed changes would allow the Exchange to end the temporary 
suspension of an approved order type and modify the order type to 
operate similarly to discretionary orders

[[Page 69378]]

currently offered by other equities exchanges. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest because the proposal 
does not raise any new or novel issues. Accordingly, the Commission 
hereby waives the 30-day operative delay and designates the proposal 
operative upon filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEARCA-2022-76 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2022-76. 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-NYSEARCA-2022-76 and 
should be submitted on or before December 9, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-25230 Filed 11-17-22; 8:45 am]
BILLING CODE 8011-01-P