[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.

[[Page 17533]]

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