[Federal Register Volume 89, Number 48 (Monday, March 11, 2024)]
[Notices]
[Pages 17530-17533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05053]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99677; File No. SR-NYSE-2024-10]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 7.19
March 5, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 21, 2024, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this
[[Page 17531]]
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 7.19 to make additional pre-
trade risk controls available to Entering Firms and Clearing Firms. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 7.19 to make additional pre-
trade risk controls available to Entering Firms and Clearing Firms.
Background and Proposal
In 2020, in order to assist Member organizations' efforts to manage
their risk, the Exchange amended its rules to add Rule 7.19 (Pre-Trade
Risk Controls),\3\ which established a set of optional pre-trade risk
controls by which Entering Firms and their designated Clearing Firms
\4\ could set credit limits and other pre-trade risk controls for an
Entering Firm's trading on the Exchange and authorize the Exchange to
take action if those credit limits or other pre-trade risk controls are
exceeded (the ``2020 Risk Controls''). These pre-trade risk controls
include a Gross Credit Risk Limit, which is defined in Rule 7.19(b)(1)
as ``a pre-established maximum daily dollar amount for purchases and
sales across all symbols, where both buy and sell orders are counted as
positive values.'' The current version of Rule 7.19(b)(1) specifies
that both open and executed orders are considered: ``[f]or purposes of
calculating the Gross Credit Risk Limit, unexecuted orders in the
Exchange Book, orders routed on arrival pursuant to Rule 7.37(a)(1),
and executed orders are included.''
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\3\ See Securities Exchange Act Release No. 88776 (April 29,
2020), 85 FR 26768 (May 5, 2020) (SR-NYSE-2020-17). Later, in 2023,
the Exchange amended its rules to make additional pre-trade risk
controls available to Entering Firms (the ``2023 Risk Controls'').
See Securities Exchange Act Release No. 97101 (March 1, 2023), 88 FR
14213 (March 7, 2023) (SR-NYSE-2023-14).
\4\ The terms ``Entering Firm'' and ``Clearing Firm'' are
defined in Rule 7.19.
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The Exchange has recently received several requests from market
participants to create two additional Gross Credit Risk Limit risk
controls: one that includes only open orders and another that includes
only executed orders. Market participants have explained that Entering
Firms and Clearing Firms would benefit from having more granular gross
credit risk controls available, which would allow them to set limits
and breach actions based solely on open orders or executed orders, in
addition to the Exchange's existing Gross Credit Risk Limit that
includes both open and executed orders.
The Exchange notes that the MIAX Pearl equities exchange (``MIAX
Pearl'') currently offers risk controls substantially similar to those
proposed here. Specifically, MIAX Pearl offers its ``Equity Members''
and their ``Clearing Members'' the option to use a ``Gross Notional
Trade Value'' risk check, which includes only executed orders, and a
``Gross Notional Open Value'' risk check, which includes only
unexecuted orders, in addition to a ``Gross Notional Open and Trade
Value'' risk check, for which both executed and unexecuted orders are
included.\5\ As such, market participants are already familiar with
these various gross credit risk checks, such that the ones proposed by
the Exchange in this filing are not novel.
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\5\ See MIAX Pearl Rule 2618(a)(2)(A), (C), and (E).
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In light of these requests, the Exchange proposes to amend Rule
7.19(b)(1) to rename the existing Gross Credit Risk Limit as ``Gross
Credit Risk Limit--Open + Executed,'' and to add two additional risk
limits: ``Gross Credit Risk Limit--Open Only'' and ``Gross Credit Risk
Limit--Executed Only.''
Specifically, the Exchange proposes to amend and reorganize Rule
7.19(b)(1) as follows. First, the Exchange would amend the language in
the first sentence of the rule to refer to plural Gross Credit Risk
Limits, instead of just one. At the end of the first sentence, the
Exchange would add that ``[a]vailable Gross Credit Risk Limits
include'' the three types described in new sub-sections (A), (B), and
(C).
Proposed sub-section (A) would define the ``Gross Credit Risk
Limit--Open + Executed'' risk check to include unexecuted orders in the
Exchange Book, orders routed on arrival pursuant to Rule 7.37(a)(1),
and executed orders (just as the current Gross Credit Risk Limit does).
Proposed sub-section (B) would define the ``Gross Credit Risk
Limit--Open Only'' risk check to include only unexecuted orders in the
Exchange Book and orders routed on arrival pursuant to Rule 7.37(a)(1).
Proposed sub-section (C) would define the ``Gross Credit Risk
Limit--Executed Only'' risk check to include executed orders only.
In addition, the Exchange proposes to make a conforming change to
section (c)(1)(B) of the rule, to make plural the current singular
reference to ``Gross Credit Risk Limit.''
Commentary .03
The Exchange also proposes to update paragraph (a) of Commentary
.03 regarding Floor brokers. The current version of paragraph (a) of
Commentary .03, implemented in 2023, explains that when a customer of a
Floor broker firm is a member organization, either that customer or the
Floor broker firm may be considered the ``Entering Firm'' for the
purposes of setting the 2020 Risk Controls (which appear in paragraphs
(b)(1) and (b)(2)(A) and the Kill Switch Actions sections of the
current rule) for the customer's trading activity on the Exchange.
Under the current rule, the 2023 Risk Controls (which appear in
paragraphs (b)(2)(B) through (b)(2)(F)) are not available to Floor
brokers, but the Exchange noted in its filing for the 2023 Risk
Controls that it would file an updated rule change when they become
available.\6\
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\6\ See Securities Exchange Act Release No. 97101 (March 1,
2023), 88 FR 14213 (March 7, 2023) (SR-NYSE-2023-14).
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The Exchange has recently completed a technology upgrade to enable
Floor brokers to connect with the Exchange via Pillar gateways, such
that the 2023 Risk Controls are available to Floor brokers when they
are identified as the ``Entering Firm.'' Similarly, the new Pre-Trade
Risk Controls proposed in this filing would also be available to Floor
brokers when they are identified as the ``Entering Firm.''
In light of these changes, the Exchange proposes to delete the
current text of paragraph (a) of Commentary .03 and replace it with
updated text. First, in light of the fact that the original Gross
[[Page 17532]]
Credit Risk Check that was part of the 2020 Risk Controls (current
paragraph (b)(1)) would now appear as ``Gross Credit Risk Limit--Open +
Executed'' in paragraph (b)(1)(A), the updated text would specify that:
``Regarding a Floor broker's trading activity on the Exchange on behalf
of a customer that is a member organization (``Customer''), either the
Floor broker or the Customer may identify itself as the ``Entering
Firm'' for purposes of setting the Pre-Trade Risk Controls in
paragraphs (b)(1)(A) and (b)(2)(A) or Kill Switch Actions.'' Second,
the updated text would reflect that all of the other Pre-Trade Risk
Controls in Rule 7.19, including the ones proposed in this rule filing,
would be available to Floor brokers when they are identified as the
``Entering Firm.'' Specifically, the Commentary would state that
``[f]or the other Pre-Trade Risk Controls described in this rule, the
Floor broker must be identified as the ``Entering Firm.''
As with the Exchange's existing risk controls, use of the pre-trade
risk controls proposed herein would be optional. The Exchange proposes
no other changes to Rule 7.19 or its Commentary.
Continuing Obligations of Member Organizations Under Rule 15c3-5
The proposed Pre-Trade Risk Controls described here are meant to
supplement, and not replace, the member organizations' own internal
systems, monitoring, and procedures related to risk management. The
Exchange does not guarantee that these controls will be sufficiently
comprehensive to meet all of a member organization's needs, the
controls are not designed to be the sole means of risk management, and
using these controls will not necessarily meet a member organization's
obligations required by Exchange or federal rules (including, without
limitation, the Rule 15c3-5 under the Act \7\ (``Rule 15c3-5'')). Use
of the Exchange's Pre-Trade Risk Controls will not automatically
constitute compliance with Exchange or federal rules and responsibility
for compliance with all Exchange and SEC rules remains with the member
organization.\8\
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\7\ See 17 CFR 240.15c3-5.
\8\ See also Commentary .01 to Rule 7.19, which provides that
``[t]he pre-trade risk controls described in this Rule are meant to
supplement, and not replace, the member organization's own internal
systems, monitoring and procedures related to risk management and
are not designed for compliance with Rule 15c3-5 under the Exchange
Act. Responsibility for compliance with all Exchange and SEC rules
remains with the member organization.''
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Timing and Implementation
The Exchange anticipates implementing the proposed change in the
first quarter of 2024 and, in any event, will implement the proposed
rule change no later than the end of June 2024. The Exchange will
announce the timing of such changes by Trader Update.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\9\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\10\ 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 mechanism 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.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that the proposed rule change
will remove impediments to and perfect the mechanism of a free and open
market and a national market system because the proposed additional
Pre-Trade Risk Controls would provide Entering Firms and Clearing Firms
with enhanced abilities to manage their risk with respect to orders on
the Exchange. The proposed additional Pre-Trade Risk Controls are not
novel; they are based on existing risk settings already in place on
MIAX Pearl and market participants are already familiar with the types
of protections that the proposed risk controls afford.\11\ As such, the
Exchange believes that the proposed additional Pre-Trade Risk Controls
would provide a means to address potentially market-impacting events,
helping to ensure the proper functioning of the market.
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\11\ See supra note 6.
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In addition, the Exchange believes that the proposed rule change
will protect investors and the public interest because the proposed
additional Pre-Trade Risk Controls are a form of impact mitigation that
will aid Entering Firms and Clearing Firms in minimizing their risk
exposure and reduce the potential for disruptive, market-wide events.
The Exchange understands that member organizations implement a number
of different risk-based controls, including those required by Rule
15c3-5. The controls proposed here will serve as an additional tool for
Entering Firms and Clearing Firms to assist them in identifying any
risk exposure. The Exchange believes the proposed additional Pre-Trade
Risk Controls will assist Entering Firms and Clearing Firms in managing
their financial exposure which, in turn, could enhance the integrity of
trading on the securities markets and help to assure the stability of
the financial system.
The Exchange believes that the proposed revision of paragraph (a)
of Commentary .03 will remove impediments to and perfect the mechanism
of a free and open market and a national market system by adding
specificity to inform market participants of how the Pre-Trade Risk
Controls apply to Floor brokers. The proposed revision informs market
participants that, with respect to a Floor broker's trading activity on
the Exchange on behalf of a customer that is a member organization, all
of the Pre-Trade Risk Controls are now available when the Floor broker
is identified as the ``Entering Firm,'' while the original 2020 Risk
Controls remain available when either the Floor broker or the customer
is identified as the ``Entering Firm.''
Finally, the Exchange believes that the proposed rule change does
not unfairly discriminate among the Exchange's member organizations
because use of the proposed additional Pre-Trade Risk Controls is
optional and is not a prerequisite for participation on the Exchange.
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. In fact, the Exchange
believes that the proposal will have a positive effect on competition
because, by providing Entering Firms and Clearing Firms additional
means to monitor and control risk, the proposed rule will increase
confidence in the proper functioning of the markets. The Exchange
believes the proposed additional Pre-Trade Risk Controls will assist
Entering Firms and Clearing Firms in managing their financial exposure
which, in turn, could enhance the integrity of trading on the
securities markets and help to assure the stability of the financial
system. As a result, the level of competition should increase as public
confidence in the markets is solidified.
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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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\15\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
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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 under
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\16\ 15 U.S.C. 78s(b)(2)(B).
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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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSE-2024-10 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-2024-10. 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 (https://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. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-NYSE-2024-10, and should
be submitted on or before April 1, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05053 Filed 3-8-24; 8:45 am]
BILLING CODE 8011-01-P