[Federal Register Volume 89, Number 103 (Tuesday, May 28, 2024)]
[Notices]
[Pages 46225-46243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11580]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100205; File No. SR-LTSE-2024-03]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.;
Notice of Filing of a Proposed Rule Change To Amend Its Trading Rules
in Connection With Its Transition to a New Trading Platform
May 21, 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 May 9, 2024, the Long-Term Stock Exchange, Inc. (``LTSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes changes to its trading rules in connection
with its transition to a new trading platform with technology provided
by MEMX Technologies LLC (``MEMX Technologies''), an affiliated entity
of MEMX LLC (``MEMX Exchange''), with different functionality and
features unique to the LTSE market model. The Exchange will retain
responsibility for overseeing the daily market operations of the
Exchange's trading system and will maintain operational control over
the features of such system and any changes thereto. Further, the
Exchange will continue to have regulatory responsibility for the
Exchange's trading system and will continue to fully discharge all of
its obligations as a registered national securities exchange.
The text of the proposed rule change is available at the Exchange's
website at https://longtermstockexchange.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement on 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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement on the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing rule changes that will effectuate a
transition of the technology supporting the Exchange's trading system
(the ``System'') \3\ from its current platform to one provided on an
outsourced basis by MEMX Technologies LLC (``MEMX Technologies'').
These rule changes are intended to provide the Exchange with a
technology platform that will significantly enhance the System and
provide market participants with more opportunities to trade on the
Exchange while minimizing any disruptive effect to Members interacting
with the current System. Further, the proposed changes are the result
of a thorough and comprehensive analysis of the Exchange's current
technology platform and the changes needed to bring the System into a
more competitive posture with other trading venues. The Exchange
determined that licensing an instance of an existing trading technology
platform currently in use by another registered national securities
exchange \4\ and operating pursuant to rules that have already been
approved by or filed for immediate effectiveness with the Commission,
is the most efficient and effective option. To facilitate an expedient
implementation of the new trading platform,\5\ while minimizing
operational impact, the Exchange is proposing to amend certain of its
trading rules to conform to those of the MEMX Exchange, which are
supported by the current trading platform that LTSE is licensing from
MEMX Technologies, and replatforming subsequent to the approval of this
filing.
---------------------------------------------------------------------------
\3\ LTSE Rule 1.160 (Definitions) defines the System in
paragraph (rr) as ``. . . the electronic communications and trading
facility designated by the Board [of Directors] through which the
securities orders of Members are consolidated for ranking and
execution.''
\4\ The Exchange is proposing to license technology from MEMX
Technologies, which is currently being used by MEMX Exchange.
\5\ The Exchange will continue to utilize its current System
until after the rule changes proposed herein are effective, after
such time, the Exchange will then transfer its System to the trading
platform licensed from MEMX Technologies which will operate the
platform pursuant to the rules proposed herein.
---------------------------------------------------------------------------
The Exchange is proposing to delete the following LTSE Rules and
replace them with an identical or substantially similar version of the
corresponding MEMX Rule. Specifically, LTSE Rule 11.151 (Market Maker
Obligations) is being amended to delete the definitions of ``Crossing
Quotation'' and ``Locking
[[Page 46226]]
Quotation'' from this Rule to relocate them to newly proposed Rule
11.180 (Definitions) where they are being conformed to MEMX definitions
of the same terms. LTSE Rule 11.180 (Units of Trading) is being renamed
to (Definitions), deleted in its entirety and replaced with MEMX Rule
11.6 (Definitions).\6\ LTSE Rule 11.190 (Orders and Modifiers) is being
amended to conform with MEMX Rule 11.8 (Order Types and Modifiers).
LTSE Rule 11.210 (Minimum Price Variant) is being deleted and the
definition is being relocated to newly proposed LTSE Rule 11.180
(Definitions) and is identical to MEMX Rule 11.6(g) (Minimum Price
Variation).\7\ LTSE Rule 11.220 (Priority of Orders) is being deleted
in its entirety and replaced with MEMX Rule 11.9 (Priority of Orders).
LTSE Rule 11.230 (Order Execution) is being amended to conform with
MEMX Rule 11.10 (Order Execution).\8\ LTSE Rule 11.271 (Trading Halts)
is being deleted in its entirety because the substance of the rule will
be adopted in newly proposed LTSE Rule 11.281 (Limit Up-Limit Down Plan
and Trading Halts on the Exchange). LTSE Rules 11.281 (Limit Up-Limit
Down Mechanism) and 11.282 (Regulatory Trading Halts) are being amended
to conform with MEMX Rule 11.22 (Limit Up-Limit Down Plan and Trading
Halts) and the Nasdaq UTP Plan, as amended.\9\ LTSE Rule 11.310
(Locking or Crossing Quotations in NMS Stocks) is being amended to
conform with MEMX Rule 11.10 (f) (Locking Quotation or Crossing
Quotation in NMS Stocks). LTSE Rule 11.320 (Input of Accurate
Information) is being amended to conform with MEMX Rule 11.5 (Input of
Accurate Information). LTSE Rule 11.330 (Data Products) is being
amended to conform with MEMX Rule 13.8 (Data Products). LTSE Rule
11.380 (Risk Management) is being deleted in its entirety and replaced
with Interpretation and Policies .01 and .02 of MEMX Rule 11.10 (Order
Execution). LTSE Rule 11.410 (Use of Market Data Feeds and Calculations
of Necessary Price Reference Points) is being amended to conform with
MEMX Rule 13.4 (Usage of Data Feeds).\10\ In addition to the
aforementioned rule changes, the Exchange is also deleting certain
rules that are not supported by the new System or are now proposed to
appear elsewhere in the rulebook.\11\
---------------------------------------------------------------------------
\6\ Newly proposed Rule 11.180 (Definitions) seeks to adopt MEMX
Rule 11.6 (Definitions) in its entirety. Including matching
definitions of the following terms: Cancel Back, Crossing Quotation,
Display Options, Locking Price, Locking Quotation, Minimum Execution
Quantity, Minimum Price Variation, Pegged Order, Permitted Price,
Re-Pricing, Reserve Quantity, Posting Instructions, Short Sale,
Short Exempt, Time In Force, Trading Center, and Units of Trading.
\7\ Id.
\8\ MEMX Rule provisions related to the routing of orders are
not being adopted as the Exchange is not offering that
functionality.
\9\ See Securities Exchange Act Release No. 92071 (May 28,
2021); 86 FR 29846 (June 3, 2021) (Order Approving the Fiftieth
Amendment to the Joint Self-Regulatory Organization Plan Governing
the Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis, as Modified by
Amendments Nos. 1 and 2).
\10\ LTSE is not adopting the language in MEMX Rule 13.4 (Usage
of Data Feeds) related to the routing of orders.
\11\ LTSE Rule 11.231 (Regular Market Session Opening Process
for Non-LTSE Primary Listed Securities) is being deleted in its
entirety as this functionality is not supported in the new System.
LTSE Rule 11.240(c) (Trade Execution, Reporting, and Dissemination
of Quotations) is being deleted because it appears in newly proposed
LTSE Rule 11.230.
---------------------------------------------------------------------------
As discussed above, the rule changes proposed herein are based on
rules already approved by or filed for immediate effectiveness with the
Commission for use by MEMX Exchange. The LTSE notes, however, that it
is not proposing to adopt all of the MEMX Exchange trading rules for
use by the System as LTSE has different functionality and features
unique to its market model; for example, the Exchange will not offer
routing functionality,\12\ as is the case today, and is not proposing
to adopt certain order types (e.g., Retail Orders as described in MEMX
Exchange Rule 11.21). Moreover, the Exchange is not proposing any rule
changes that would affect membership, member conduct, or the Exchange's
Listings.
---------------------------------------------------------------------------
\12\ See footnote 9 [sic].
---------------------------------------------------------------------------
As initially designed and implemented, the current System was based
on the concept of a ``Very Simple Market'' (``VSM'').\13\ Since the
Exchange is focused on serving companies and investors focusing on the
long-term, and differentiates itself from other exchanges primarily by
promoting long-term policies and governance practices for listed
companies, the Exchange sought to further differentiate itself by
adopting a trading model that appealed to the interests and needs of
long-term investors.\14\ The Exchange remains committed to its mission
to provide a listings venue for companies seeking to differentiate
themselves by adopting and implementing long-term policies and
governance practices.\15\ However, to date the VSM concept has not led
to significant participation by long-term investors, causing the
Exchange to explore ways of achieving this goal within the framework of
a more widely-accepted market structure. As noted above, given the
current need to upgrade the Exchange's technology infrastructure (both
hardware and software) supporting the System, the cost and efficiency
considerations, and an assessment of the type of market that would be
competitive on a trading basis while supporting the Exchange's long-
term mission, the Exchange has determined to replace the VSM with a
trading model substantially similar to that currently used by the MEMX
Exchange, with certain key differences in functionality that address
LTSE's unique market model.\16\ From a technology perspective, the
Exchange will operate on its own servers, separate and apart from the
MEMX Exchange, with no joint or shared connections to participants.
LTSE Members will be required to utilize LTSE-specific member gateways
to connect into the System, and these will be separate from those of
the MEMX Exchange. Stated another way, LTSE will continue to operate as
it does now, as a standalone Exchange, within the national market
system, and the mere fact that it is licensing a technology platform
from MEMX Technologies will not provide any special treatment or
advantage to the MEMX Exchange.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 87221 (October 3,
2019; 84 FR 54195 (October 9, 2019); SR-LTSE-2019-02. The VSM
provided for a more limited array of order types, with all orders
fully displayed and no hidden or reserve orders, and all trades
occurring at displayed prices.
\14\ Id.
\15\ See LTSE Rule Series 14.400, Corporate Governance
Requirements and Rule 14.425, Long-Term Policies.
\16\ As discussed above, the Exchange will not offer routing, is
not adopting the ``Retail Order'' order type and will maintain its
rules governing its listing function.
---------------------------------------------------------------------------
Additionally, and importantly, LTSE will continue to fully
discharge its obligations as a national securities exchange, separate
and distinct from those of the MEMX Exchange, and will not rely on nor
utilize the MEMX Exchange to fulfill any aspect of those obligations on
LTSE's behalf.
The Exchange Will Continue To Operate as an Independent Registered
National Securities Exchange and Self-Regulatory Organization
The Exchange and MEMX Technologies executed a Development, License
and Services Agreement on January 23, 2024, with accompanying Schedules
(collectively, the ``DLSA''). MEMX Technologies, an affiliate of the
MEMX Exchange, is in the business of developing technology systems for
use in the financial industry. As part of the arrangement, MEMX
Technologies will
[[Page 46227]]
provide LTSE its market-as-a-service trading system to operate LTSE's
trading platform. This is the first time the Exchange will be utilizing
a system licensed from an unaffiliated third-party. Under the terms of
the DLSA, both LTSE and MEMX Technologies are required to keep
confidential all Confidential Information of each other and, except as
expressly authorized, not use such Confidential Information \17\ or
make any such Confidential Information \18\ available to any third
party, including MEMX Exchange. MEMX Technologies is allowed to share
information with its representatives, but only on a need-to-know basis
and only for purposes of MEMX Technologies fulfilling its obligations
under the DLSA.
---------------------------------------------------------------------------
\17\ Examples include e.g., requests from a governmental
authority and as required by subpoena, court order or other similar
process.
\18\ The agreement defines Confidential Information, in part,
as: all non-public and proprietary information and materials
disclosed to or accessed by any other Party or its Representatives
in connection with the Agreement that is marked ``confidential'' or
that such other Party knows, or reasonably should know, is
confidential to such first Party, including all non-public
information of any Party relating to such Party's subsidiaries,
Affiliates, investors, customers, suppliers, contractors, business
plans, strategies, operations, methods of doing business, finances,
assets, technology (including Software and IT Systems), workflows,
specifications and technical information, and any information or
materials developed by reference to or use of such information and
materials. Further, the Agreement includes in its definition of
Confidential Information information of third parties that is
disclosed to either Party.
---------------------------------------------------------------------------
The DLSA sets forth a multiyear arrangement that requires MEMX
Technologies to provide the system and services to allow the Exchange
to operate fair and orderly markets. Upon contract termination for any
reason, the DLSA requires MEMX Technologies to provide transition
services for a period of not less than 18 months, which include the
transition of any Equipment that is capable of being transferred to
Exchange including any Exchange data, confidential information, and
system information. The DLSA further requires that such transition
services be designed to ensure minimal disruption to Exchange's
business operations. In addition, upon the occurrence of certain
circumstances, including MEMX Technologies' cessation of the services
or insolvency, the Exchange is entitled to a complete and accurate copy
of the source code for the system, together with all associated
information, documentation and materials required to enable the
Exchange to operate, support and maintain the system, including
integrations with any third-party provider product or service. In
addition, because any suspension or termination of access to the system
or the services of MEMX Technologies would be a violation of the
agreement as it could impair the Exchange's ability to ensure
continuity of service, the parties have agreed that the Exchange would
be entitled to an injunction and other equitable relief (such as an
order requiring specific performance) from MEMX Technologies. Finally,
in the event that MEMX Technologies is unwilling or unable to provide
the system or services, MEMX Holdings LLC (``MEMX Holdings''), the
parent of MEMX Technologies, has entered into a guaranty agreement
(``Parent Guaranty'') with the Exchange that, among other things, would
require MEMX Holdings to perform in MEMX Technologies' stead, or cause
the performance of MEMX Technologies obligations under the DLSA,
including transition services.
The instance of the trading platform being licensed by LTSE is
based on the functionality of the MEMX Exchange, but will be
differentiated by the addition of certain functionalities specific to
LTSE's market model and the deletion of certain functionalities
specific to MEMX Exchange's market model.\19\ In summary, while the two
exchanges will share a technology provider, each will operate a trading
platform that is individualized to their market model and rule set.
Notwithstanding the foregoing, much of the technology infrastructure
that MEMX Technologies will provide to LTSE pursuant to the DLSA is
substantially similar to the technology provided to the MEMX Exchange.
However, there are key differences that are designed to support LTSE's
mission as an exchange designed for long-term investors and its
different market structure.\20\ To that end, LTSE is proposing to adopt
rules consistent with the functionality of the new System, including
the adoption of certain order types and order handling processes \21\
that will be new to LTSE with the migration to the new System. As
discussed in more detail above, LTSE does not currently offer order
routing functionality and will not do so initially upon replatforming;
LTSE will not adopt the Retail Order program offered by the MEMX
Exchange, and will continue to utilize only the data feeds provided by
the securities information processors (``SIPs'') as described in LTSE
Rule 11.410 (Use of Market Data Feeds and Calculations of Necessary
Price Reference Points) in contrast to the system functionality
employed by MEMX Exchange, which utilizes direct data feeds from
several exchanges as the primary data sources for the same
purposes.\22\
---------------------------------------------------------------------------
\19\ Id.
\20\ Id.
\21\ These order types and processes are currently employed on
the MEMX Exchange.
\22\ See MEMX Exchange Rule 13.4 (Usage of Data Feeds).
---------------------------------------------------------------------------
The Exchange notes that there is nothing in Section 6 of the
Exchange Act, or any other provision of the Act, that prevents two
independent exchanges from utilizing the technology infrastructure
provided to both by an affiliate of one of the exchanges, which offers
it as ``market-as-a-service.'' Section 6(a)(1) of the Act,\23\ defines
an exchange as ``. . . any organization, association, or group of
persons, whether incorporated or unincorporated, which constitutes,
maintains, or provides a marketplace or facilities for bringing
together purchasers and sellers of securities or for otherwise
performing the functions commonly performed by a stock exchange as that
term is generally understood. . . .'' The Exchange submits that the
fact that it is using an outsourced technology platform supplied by an
affiliate of another registered national securities exchange, under a
contract negotiated on an ``arms-length'' basis, does not implicate
Section 6 of the Act since LTSE will continue to independently provide
a marketplace for bringing together purchasers and sellers of equity
securities, and performing the functions commonly performed by a stock
exchange as that term is understood. In LTSE's case, this means
providing a marketplace designed to serve the needs of long-term
investors and operating a listing exchange, which is distinct from the
market structure of the MEMX Exchange.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78c(a)(1).
---------------------------------------------------------------------------
Additionally, there are several examples of separately registered
national securities exchanges and self-regulatory organizations
successfully migrating to a common technology platform, while retaining
important differentiators particular to each respective market. In each
such case, the rule changes proposed by each exchange to accomplish the
re-platforming were filed with the Commission for approval or immediate
effectiveness.\24\
---------------------------------------------------------------------------
\24\ See, e.g., Exchange Act Release No. 87264 (October 9,
2019), 84 FR 55345 (October 16, 2019) (SR-NYSECHX 2019-08), NYSE
Chicago, Inc; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, to Add Rules to Support the Transition of Trading
to the Pillar Trading Platform; Exchange Act Release No. 83289 (May
17, 2018), 83 FR 23968 (May 23, 2018) (SR-NYSENAT 2018-02), NYSE
National, Inc.; Notice of Filing of Amendment No. 1 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Amended
by Amendment No. 1, to Support the Re-launch of NYSE National, Inc.
on the Pillar Trading Platform; Exchange Act Release No. 86173 (June
20, 2019), 84 FR 30267 (June 26, 2019) (SR-CBOE-2019-027), CBOE
Exchange, Inc., Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Amend and Move Certain Current Rules from
the Exchange's Currently Effective Rulebook to the Shell Structure
for the Exchange's Rulebook that will Become Effective Upon the
Migration of the Exchange's Trading Platform to the Same System used
by the Cboe Affiliated Exchanges.
---------------------------------------------------------------------------
[[Page 46228]]
As a further example of the differentiation between LTSE and the
MEMX Exchange, LTSE will not be obligated to accept any change to
LTSE's instance of the technology platform that may be proposed by the
MEMX Exchange for its own market but is not desired by LTSE.
Importantly, there is no incentive, monetary or otherwise, for LTSE to
accept any changes proposed by the MEMX Exchange. Moreover, if MEMX
Exchange proposes a rule for its own market, it does not mean that LTSE
will automatically adopt the same rule. LTSE will continue to
independently evaluate other exchanges' rule filings, including MEMX
Exchange, to determine whether or not such changes should be adopted by
LTSE. If LTSE seeks to implement an enhancement to its trading platform
that is not applicable to the MEMX Exchange, MEMX Technologies will be
obligated to develop and implement that enhancement (at a cost to be
borne by LTSE). Importantly, MEMX Technologies has no authority to make
any changes to the LTSE System without LTSE's direct instruction to do
so.
LTSE's instance of the trading platform will operate on separate
servers from those of the MEMX Exchange, and neither exchange will gain
any advantage over other market participants in terms of access or
speed or otherwise. Moreover, LTSE Members will be required to
separately connect to LTSE and there will be no cross-connections
between members of the respective exchanges. Simply stated, LTSE
utilizing the outsourced trading platform provided by MEMX Technologies
will have no impact on the competitive relationship between LTSE and
the MEMX Exchange, which will continue to operate within the context of
the national market system as it currently does.
LTSE will continue to provide for its market and cross-market
surveillance through its Regulatory Services Agreement with FINRA
(``RSA''), as it does today pursuant to LTSE Rule 1.170. The Exchange
will maintain its independent regulatory function to oversee the RSA
and will not utilize personnel from the MEMX Exchange for that purpose.
The DLSA agreement provides that MEMX Technologies will provide to
FINRA all of the required data needed to effectively surveil the LTSE
market in a timely, complete and accurate way. Prior to the re-launch
of the Exchange on the new trading platform, extensive testing will be
conducted in conjunction with FINRA to assure that there are no data
issues or gaps in surveillance coverage.
In summary, the Exchange believes that the use of a common, but not
functionally identical, trading platform by LTSE and the MEMX Exchange
will not in any way alter the competitive position of the two exchanges
or establish any type of connection or opportunity for interaction that
would be different than LTSE currently has with every other exchange
participant in the national market system.
Compliance With Regulation SCI
As a registered national securities exchange, LTSE is an ``SCI
entity'' responsible for compliance with the requirements of Regulation
SCI--Systems Compliance and Integrity (``Reg. SCI'') under the Exchange
Act.\25\ The Exchange classifies several of its systems, including its
trading System, as ``SCI systems'' based on the definitions as stated
under Reg. SCI.
---------------------------------------------------------------------------
\25\ See, Exchange Act Release No.73639 (November 19, 2014), 79
FR 72252 (December 5, 2014), the ``Adopting Release.''
---------------------------------------------------------------------------
Accordingly, the Exchange submits that its proposal to move to an
outsourced trading technology infrastructure is consistent with Reg.
SCI. In the Adopting Release, the Commission stated that an SCI entity
may contract with third parties to operate SCI systems on its behalf
with the requirement that ``. . . [the] SCI entity is responsible for
having in place processes and requirements to ensure that it is able to
satisfy the requirements of Regulation SCI for SCI systems operated on
its behalf by a third party . . . .'' \26\ Thus, while MEMX
Technologies will provide the service of operating the System, all of
the regulatory obligations pertaining to the System's compliance with
Reg. SCI are the responsibility of the Exchange, as is the case today.
LTSE has obtained commitments from MEMX Technologies under the DLSA
that will allow LTSE to continue to meet its responsibilities under
Reg. SCI.\27\
---------------------------------------------------------------------------
\26\ Id., at 72275-76.
\27\ DLSA between LTSE and MEMX Technologies dated January 23,
2024.
---------------------------------------------------------------------------
Reg. SCI Rule 1001(a)(1), requires LTSE to ``. . . establish,
maintain and enforce policies and procedures reasonably designed to
ensure that its SCI systems . . . have levels of capacity, integrity,
resiliency, availability, and security, adequate to maintain the SCI's
entity's operational capability and promote the maintenance of fair and
orderly markets.'' Accordingly, the Exchange has in place detailed
policies and procedures reasonably designed to ensure that its systems,
including third-party systems, operate in the manner intended,
including in compliance with the federal securities laws and rules, and
the Exchange's rules and governing documents, and will review and
revise its policies and procedures as necessary.\28\
---------------------------------------------------------------------------
\28\ LTSE has obtained commitments from MEMX Technologies to
provide data and information, pursuant to the DLSA, that is
necessary for LTSE to meet its responsibilities under Reg SCI.
---------------------------------------------------------------------------
Consistent with that approach and the Exchange's obligations under
Reg. SCI Rule 1001(a)(2) to have policies and procedures reasonably
designed to include the requirements enumerated in that section, the
negotiated DLSA provides the Exchange with information allowing it to
meet all regulatory requirements, including requisite oversight to
ensure the Exchange continues to meet all regulatory requirements.
Consistent with Reg. SCI Rule 1001(a)(2)(i) such policies and
procedures shall include, at a minimum: (i) the establishment of
current and future technological infrastructure capacity planning
estimates; (ii) periodic capacity stress tests to determine ability of
the Exchange's Reg SCI systems to process transactions in an accurate,
timely, and efficient manner; (iii) a program to review and keep
current systems development and testing methodology for such systems;
(iv) regular reviews and testing, as applicable, of such systems,
including backup systems, to identify vulnerabilities pertaining to
internal and external threats, physical hazards, and natural or manmade
disasters; (v) business continuity and disaster recovery plans designed
to effectuate the requirements for backup and recovery capabilities
sufficiently resilient and geographically diverse and reasonably
designed to achieve next business day resumption of trading and two-
hour resumption of critical SCI systems following a wide-scale
disruption; (vi) standards that result in such systems being designed,
developed, tested, maintained, operated, and surveilled in a manner
that facilitates the successful collection,
[[Page 46229]]
processing, and dissemination of market data; and (vii) monitoring of
such systems to identify potential SCI events.
In furtherance of meeting the above, and to supplement and support
its current Reg. SCI policies and procedures, LTSE will independently
approve and disapprove System changes and, in addition to oversight of
the testing performed by MEMX Technologies, will maintain an
independent methodology to test proposed changes to the System.
Pursuant to the Agreement, MEMX Technologies is required to provide
certain information to LTSE regarding the operation of the System in
order to allow for LTSE to conduct sufficient oversight in compliance
with its Reg. SCI policies and procedures.\29\ In addition, LTSE also
will monitor market operations with respect to the System. These
monitoring tools will allow LTSE to initiate or require appropriate
additional investigation or remedial action as necessary in the event
of an issue impacting the integrity of the System. In addition,
pursuant to the Agreement, LTSE will receive information allowing it to
conduct proper oversight of the security program applicable to the
System. Taken together, the tools, processes and information provided
to LTSE will support the Exchange in meeting its Reg. SCI obligations
and provide a means for its operations and technology personnel to
provide independent oversight of the operation of the System.
---------------------------------------------------------------------------
\29\ Among other things, the Exchange will monitor the services
of MEMX Technologies with third-party software for capacity.
Further, the Exchange will oversee the operation of the System for
compliance with Reg SCI, including without limitation for the
maintenance of comprehensive policies and procedures, the provision
of required information and review of the System, including
penetration testing and results of the testing.
---------------------------------------------------------------------------
Additionally, the Exchange has established processes and
requirements for communication between responsible Exchange personnel
and MEMX Technologies personnel which, it believes, will fully satisfy
all of the Exchange's independent Reg. SCI obligations.
Pursuant to Reg. SCI Rule 1001(a)(3) the Exchange will periodically
review the effectiveness of its policies and procedures required by
Reg. SCI Rule 1001(a) and take prompt action to remedy any deficiencies
in such policies and procedures.\30\ The Exchange will include, in its
written inventory, classification and maintenance of the MEMX
Technologies platform as a SCI system.
---------------------------------------------------------------------------
\30\ At a minimum, such policies and procedures shall include:
market data; capacity planning estimates; periodic capacity stress
tests; a program to review and keep current development and testing
methodologies; integrity, availability and security adequate to
maintain operational capabilities to promote the maintenance of fair
and orderly markets, as required by Reg. SCI Rule 1001(a)(1).
---------------------------------------------------------------------------
Pursuant to Reg. SCI Rule 1001(b)(1), the Exchange shall establish
policies and procedures regarding systems compliance reasonably
designed to ensure that all SCI systems operate in a manner that
complies with all rules and regulations. Such policies shall include at
a minimum, and as required by LTSE Rule 1001(b)(1)(i)--(iv) including
(i) testing of all systems and changes to SCI systems prior to
implementation; (ii) a system of internal controls over changes to SCI
systems; (iii) a plan for assessments of the functionality of SCI
designed to detect compliance issues, including by responsible SCI
personnel; and (iv) a plan of coordination communication between
regulatory and other personnel of the SCI entity, including by
responsible SCI personnel, regarding SCI systems design, changes,
testing, and controls designed to detect and prevent systems compliance
issues.
LTSE will have oversight of MEMX Technologies to ensure that, for
all required reportable information relating to the Exchange, the
following must be provided to the Exchange in a manner consistent with
the timelines required by Reg. SCI: (i) disruption, systems intrusion,
and systems compliance issues; (ii) material system changes including
enhancements and defect remediations; (iii) relevant annual audit and
SCI systems compliance review reports; (iv) evidence of periodic
security training for MEMX personnel; and (v) such additional
information as may be required by Regulation SCI or written SEC
guidance about the interpretation of Regulation SCI, or as may be
requested by Exchange that is necessary to accurately respond to a
request from staff at the Commission. This provision is reasonably
designed to ensure that the Exchange can meet its obligations under SCI
Rule 1002(b) \31\ with respect to reporting to the Commission staff of
SCI events as described in SCI Rule 1000, and material system changes
as required by Rule 1003 of Regulation SCI.
---------------------------------------------------------------------------
\31\ 17 CFR 242. 1002.
---------------------------------------------------------------------------
Additionally, MEMX Technologies, on behalf of LTSE, has established
and shall maintain disaster recovery and business continuity plans and
the capacity and resources to implement such plans. The plans must
include maintaining backup and recovery capabilities sufficiently
resilient and geographically diverse and are reasonably designed to
achieve next-business day resumption of trading and two-hour resumption
of the System and any supporting SCI systems following a wide-scale
disruption. The DLSA stipulates that these plans shall comply with all
legal requirements, including Reg SCI.
Consistent with Rule 1001(c)(1) \32\ of Reg. SCI, the Exchange will
continue to designate persons, each of whom will be an Exchange
employee, as ``responsible SCI personnel'' who will discharge all of
the requirements required of responsible SCI personnel as described in
Rule 1001(c) of Reg. SCI and per Reg. SCI Rule 1001(c)(2), each SCI
entity shall periodically review the effectiveness of such policies and
procedures and take prompt action to remedy deficiencies.
---------------------------------------------------------------------------
\32\ 17 CFR 242.1001(c).
---------------------------------------------------------------------------
Reg. SCI Rule 1005(a) requires the Exchange to make, keep and
preserve all documents relating to its compliance with Reg. SCI as
prescribed in Section 17a-1 of the Act. The Exchange has policies and
procedures in place to meet the requirements of Reg. SCI Rule 1005(a),
including contractual undertakings by MEMX Technologies to assist the
Exchange in fulfilling its recording keeping responsibilities with all
the applicable laws.
The DLSA also provides the Exchange with other controls, including
audit rights. Specifically, the Exchange or its designee shall have the
right to audit and inspect the services provided by MEMX Technologies
and the records of those services, as well as all facilities, systems
and equipment used to provide the System or services for regulatory
compliance purposes or to confirm compliance with the DLSA and any
amounts paid or owed by the Exchange to MEMX Technologies.
There are also additional reporting requirements that require MEMX
Technologies to, among other things, provide the Exchange, on a
quarterly basis, with a summary of audit reports that relate to the
services or System, including any system and organization control
(``SOC'') reports or other audit reports completed by an independent
party. The audit summary will contain a summary of audits issued during
the quarter, a listing of open issues with their current status
(including target completion dates and issue ratings), and a listing of
issues closed during the quarter. The Exchange submits that these
provisions will provide a rigorous framework to assure that it meets
its regulatory obligations under Reg. SCI and effective oversight of
the operation of the System by MEMX Technologies.
[[Page 46230]]
Proposed Changes to LTSE Rules
The Exchange is proposing rule changes that will effectuate the
transition to the technology infrastructure provided by MEMX
Technologies. The proposed amendments are designed to provide for a
timely and efficient transition to the new trading platform with
minimal operational risk or disruption to Members. While certain of the
Exchange's current trading rules will remain unchanged, the proposed
rule changes conform, in large part to the MEMX Exchange including the
introduction of certain order types and order handling processes that
are new to LTSE but are used by the MEMX Exchange. Therefore, the
exchange believes that these proposed changes are neither novel nor
controversial, and their introduction on the System will not
significantly affect investor protection, competition within the
national market system, or limit access to or availability of the
System. Additionally, the Exchange is not proposing any changes to its
rules governing membership or member conduct.
New Definitions Relating to the Trading Rules
First, in LTSE Rule 11.151 (Market Maker Obligations), the Exchange
proposes two ministerial amendments to paragraph (e)(2)(A)(ii), which
defines the term ``Crossing Quotation'' and paragraph (e)(2)(A)(iii),
which defines the term ``Locking Quotation.'' The Exchange is proposing
to delete the substance of the definitions from this section and adopt
a cross-reference to each of the defined terms, ``Crossing Quotation''
and ``Locking Quotation,'' to newly proposed LTSE Rule 11.180
(Definitions). The text of the newly proposed definitions, which will
appear in newly proposed LTSE Rule 11.180(b) and (e), respectively,
will conform with the definitions contained in MEMX Exchange Rule
11.6(b) (Crossing Quotation) and 11.6(e) (Locking Quotation).
LTSE Rule 11.180 (Units of Trading) is being amended to conform to
MEMX Rule 11.6 (Definitions). Accordingly, the title of LTSE Rule
11.180, is being amended to change from ``Units of Trading'' to
``Definitions'' to conform with MEMX Rule 11.6 (Definitions). The
current text of 11.180 is being deleted in its entirety and in its
place, MEMX Rule 11.6 (Definitions) is being adopted in its entirety.
Each of the definitions set forth below are the same as those contained
in current MEMX Exchange Rule 11.6(a)-11.6(q) and LTSE is proposing to
adopt conforming definitions in newly proposed LTSE Rule 11.180, as
described below.
LTSE Rule 11.180(a) (Cancel Back)--An instruction the User
may attach to an order instructing the System to immediately cancel the
order when, if displayed by the System on the LTSE Book at the time of
entry would create a violation of Rule 610(d) of Regulation NMS or Rule
201 of Regulation SHO, or the order cannot otherwise be executed or
posted by the System to the LTSE Book at its limit price.\33\
---------------------------------------------------------------------------
\33\ This proposed rule text matches MEMX Rule 11.6(a) (Cancel
Back).
---------------------------------------------------------------------------
LTSE Rule 11.180(b) (Crossing Quotation)--The display of a
bid (offer) for an NMS stock at a price that is higher (lower) than the
price of an offer (bid) for such NMS stock previously disseminated
pursuant to an effective national market system plan in violation of
Rule 610(d) of Regulation NMS. This defined term is being moved from
LTSE Rule 11.310 (Locking or Crossing Quotations in NMS Stocks),
paragraph (a)(2) to this newly proposed rule to consolidate definitions
applicable throughout Chapter 11 into a single rule.\34\
---------------------------------------------------------------------------
\34\ This proposed rule text matches MEMX Rule 11.6(b) (Crossing
Quotation).
---------------------------------------------------------------------------
LTSE Rule 11.180(c) (Display Options)--(1) Displayed,
which is an instruction the User may attach to an order stating that
the order is to be displayed by the System on the LTSE Book; and (2)
Non-Displayed, which is an instruction the User may attach to an order
stating that the order is not to be displayed by the System on the LTSE
Book. The proposal to allow Users to enter non-displayed orders on LTSE
represents a change from the display options afforded to Users under
the VSM, which allowed only for displayed orders, and is designed to
allow for greater opportunities for market participants to interact
with the System.\35\
---------------------------------------------------------------------------
\35\ This proposed rule text matches MEMX Rule 11.6(c) (Display
Options).
---------------------------------------------------------------------------
LTSE Rule 11.180(d) (Locking Price)--The price at which an
order to buy (sell), that if displayed by the System on the LTSE Book,
would be a Locking Quotation.\36\
---------------------------------------------------------------------------
\36\ This proposed rule text matches MEMX Rule 11.6(d) (Locking
Price).
---------------------------------------------------------------------------
LTSE Rule 11.180(e) (Locking Quotation)--The display of a
bid for an NMS stock at a price that equals the price of an offer for
such NMS stock previously disseminated pursuant to an effective
national market system plan, or the display of an offer for an NMS
stock at a price that equals the price of a bid for such NMS stock
previously disseminated pursuant to an effective national market system
plan in violation of Rule 610(d) of Regulation NMS. This defined term
is being moved from LTSE Rule 11.310 (Locking or Crossing Quotations in
NMS Stocks), paragraph (a)(3) to this newly proposed rule to
consolidate definitions applicable throughout Chapter 11 into a single
rule.\37\
---------------------------------------------------------------------------
\37\ This proposed rule text matches MEMX Rule 11.6(e) (Locking
Quotation).
---------------------------------------------------------------------------
LTSE Rule 11.180(f) (Minimum Execution Quantity)--This
proposed amendment replaces the Minimum Quantity Order definition in
current LTSE Rule 11.190(b)(11) and will permit a User \38\ to attach a
Minimum Execution Quantity to an order with a Non-Displayed instruction
or a Time-in-Force of Immediate-or-Cancel instruction. It requires the
System to execute the order only to the extent that a minimum quantity
can be satisfied. An order with the Minimum Execution Quantity
instruction will only execute upon entry against a single order resting
on the LTSE Book. If, upon entry, there are no orders that satisfy the
minimum quantity condition resting on the LTSE Book, the order will
either be posted to the LTSE Book at its limit price or canceled in
accordance with the terms of the order. However, an order with a
Minimum Execution Quantity will be canceled where, if posted, it would
cross the displayed price of an order on the LTSE Book. An order to buy
(sell) with a Minimum Execution Quantity instruction that is ranked in
the LTSE Book will not be eligible to trade: (i) at a price equal to or
above (below) any sell (buy) orders that are Displayed and that have a
ranked price equal to or below (above) the price of such order with a
Minimum Execution Quantity instruction; or (ii) at a price above
(below) any sell (buy) order that is Non-Displayed and has a ranked
price below (above) the price of such order with a Minimum Execution
Quantity instruction.
---------------------------------------------------------------------------
\38\ The term ``User'' is defined in Exchange Rule 1.160(uu) as
``. . . any Member or Sponsored Participant who is authorized to
obtain access to the System. . . .'' This definition will remain
unchanged.
---------------------------------------------------------------------------
However, an order with a Minimum Execution Quantity instruction
that crosses an order on the LTSE Book may execute at a price less
aggressive than its ranked price against an incoming order so long as
such execution is consistent with the above restrictions. An order with
a Minimum Execution Quantity instruction may be partially executed so
long as the execution size of the individual order is equal to or
exceeds the quantity provided in the instruction.
[[Page 46231]]
Any shares remaining after a partial execution will continue to be
executed at a size that is equal to or exceeds the quantity provided in
the instruction. If posted to the LTSE Book, the order may only execute
against individual incoming orders with a size that satisfies the
minimum quantity condition. An order with the Minimum Execution
Quantity instruction cedes execution priority when it would lock or
cross an order against which it would otherwise execute if it were not
for the minimum execution size restriction. If a resting Non-Displayed
sell (buy) order did not meet the minimum quantity condition of a same-
priced resting order to buy (sell) with a Minimum Execution Quantity
instruction, a subsequently arriving sell (buy) order that meets the
minimum quantity condition will trade ahead of such resting Non-
Displayed sell (buy) order at that price. Where the number of shares
remaining after a partial execution are less than the quantity provided
in the instruction, the Minimum Execution Quantity shall be equal to
the number of shares remaining.\39\
---------------------------------------------------------------------------
\39\ This proposed rule text matches MEMX Rule 11.6(f) (Minimum
Execution Quantity).
---------------------------------------------------------------------------
LTSE Rule 11.180(g) (Minimum Price Variation (``MPV''))--
Bids, offers, or orders in securities traded on the Exchange shall not
be made in an increment smaller than: (i) $0.01 if those bids, offers,
or orders are priced equal to or greater than $1.00 per share; or (ii)
$0.0001 if those bids, offers, or orders are priced less than $1.00 per
share; or (iii) any other increment established by the Commission for
any security which has been granted an exemption from the minimum price
increments requirements of SEC Rule 612(a) or 612(b) of Regulation NMS.
This proposed rule text is substantially similar to that contained in
current LTSE Rule 11.210 (Minimum Price Variant). The Exchange proposes
to reposition the definition of an MPV to this LTSE Rule 11.180(g) and
current LTSE Rule 11.210 will become a ``Reserved'' section.\40\
---------------------------------------------------------------------------
\40\ This proposed rule text matches MEMX Rule 11.6(g) (Minimum
Price Variation).
---------------------------------------------------------------------------
LTSE Rule 11.180(h) (Pegged Order)--An order that
automatically re-prices in response to changes in the NBBO, as further
described in LTSE Rule 11.190(c). A User entering a Pegged Order can
specify that the order's price will peg to the NBB or NBO or a certain
amount away from the NBB or NBO (offset) or the midpoint of the NBBO,
as described below. The Exchange currently does not offer Pegged Orders
as part of the VSM and this will be new functionality. The proposed
rule text is based on MEMX Exchange Rule 11.6(h).\41\
---------------------------------------------------------------------------
\41\ This proposed rule text matches MEMX Rule 11.6(h) (Pegged
Order).
---------------------------------------------------------------------------
In proposed LTSE Rule 1.180(h)(1), the Exchange defines a ``Primary
Peg'' as an order with instructions to peg to the NBB, for a buy order,
or the NBO, for a sell order. A User may, but is not required to,
select an offset equal to or greater than $0.01 above or below the NBB
or NBO that the order is pegged to (``Primary Offset Amount''). A User
submitting a Pegged Order with a Primary Peg instruction may, but is
not required to, include a limit price on such order.
In proposed LTSE Rule 11.180(h)(2), the Exchange defines a
``Midpoint Peg'' as a Pegged Order with an instruction to peg to the
midpoint of the NBBO. A User submitting a Pegged Order with a Midpoint
Peg instruction may, but is not required to, include a limit price on
such order. A Pegged Order with a Midpoint Peg instruction and a limit
price that is more aggressive than the midpoint of the NBBO will
execute at the midpoint of the NBBO or better subject to its limit
price. A Pegged Order with a Midpoint Peg instruction may execute at
its limit price or better when its limit price is less aggressive than
the midpoint of the NBBO.
A Pegged Order with a Midpoint Peg instruction will be ranked at
the midpoint of the NBBO where its limit price is equal to or more
aggressive than the midpoint of the NBBO. In such case, pursuant to
LTSE Rule 11.220 (Priority of Orders), all Pegged Orders with a
Midpoint Peg instruction that are ranked at the midpoint of the NBBO
will retain their priority as compared to each other based upon the
time such orders were initially received by the System. A Pegged Order
with a Midpoint Peg instruction will be ranked at its limit price where
its limit price is less aggressive than the midpoint of the NBBO.
LTSE Rule 11.180(i) (Permitted Price)--The Exchange
proposes to define ``Permitted Price'' as the price at which a sell
order will be displayed at one Minimum Price Variation above the
NBB.\42\
---------------------------------------------------------------------------
\42\ This proposed rule text matches MEMX Rule 11.6(i)
(Permitted Price).
---------------------------------------------------------------------------
LTSE Rule 11.180(j) (Re-Pricing)--The Exchange is
proposing to define how certain conditions will result in a repricing
of an order by the System. First, in subparagraph (1)(A)(i) through
(1)(A)(v), the Exchange describes re-pricing instructions to comply
with Rule 610(d) of Regulation NMS, as follows:
(A) Display-Price Sliding.
(i) An order instruction, where an order would be a Locking
Quotation or Crossing Quotation of an external market if displayed by
the System on the LTSE Book at the time of entry, will be ranked at the
Locking Price in the LTSE Book and displayed by the System at one
Minimum Price Variation lower (higher) than the Locking Price for
orders to buy (sell). A User may elect to have the System only apply
the Display-Price Sliding instruction to the extent a display-eligible
order at the time of entry would be a Locking Quotation. For Users that
select this portion of the Display-Price Sliding instruction, any order
will be canceled if, upon entry, such order would be a Crossing
Quotation of an external market.
(ii) An order subject to the Display-Price Sliding instruction will
retain its original limit price irrespective of the prices at which
such order is ranked and displayed. In the event the NBBO changes such
that an order subject to the Display-Price Sliding instruction would
not be a Locking Quotation or Crossing Quotation, the order will
receive a new timestamp, and will be displayed at the most aggressive
permissible price. All orders that are re-ranked and re-displayed
pursuant to the Display-Price Sliding instruction will retain their
priority as compared to other orders subject to the Display-Price
Sliding instruction based upon the time such orders were initially
received by the Exchange.
Following the initial ranking and display of an order subject to
the Display-Price Sliding instruction, an order will only be re-ranked
and re-displayed to the extent it achieves a more aggressive price,
provided, however, that (1) the Exchange will re-rank an order at the
same price as the displayed price in the event such order's displayed
price would be a Locking Quotation or Crossing Quotation, which event
will not result in a change in priority for the order at its displayed
price, and (2) when an away Trading Center publishes a Protected
Quotation that locks or crosses the displayed price of a resting Limit
Order of Odd Lot size with a multiple price sliding instruction (as
described in sub-paragraph (iii) below) and the Exchange does not have
a Protected Quotation displayed at such price, the resting Limit Order
will be ranked at the Locking Price in the LTSE Book and displayed by
the System at one Minimum Price Variation lower (higher) than the
Locking Price for orders to buy (sell).
[[Page 46232]]
(iii) The ranked and displayed prices of an order subject to the
Display-Price Sliding instruction may be adjusted once or multiple
times depending upon the instructions of a User and changes to the
prevailing NBBO. A User that submits an order with a Display-Price
Sliding instruction must select either single or multiple price
sliding. The Exchange's single price sliding process will only adjust
the ranked and displayed prices of an order upon entry and then the
displayed price one time following a change to the prevailing NBBO,
provided however, that if such an order's displayed price becomes a
Locking Quotation or Crossing Quotation then the Exchange will adjust
the ranked price of such order and it will not be further re-ranked or
redisplayed at any other price. Orders subject to the Exchange's
multiple price sliding process will be further re-ranked and re-
displayed as permissible based on changes to the prevailing NBBO.
(iv) Any display-eligible order with a Post Only instruction that
would be a Locking Quotation or Crossing Quotation of the Exchange upon
entry will be executed or canceled. In the event the NBBO changes such
that an order with a Post Only instruction subject to Display-Price
Sliding instruction would be ranked at a price at which it could remove
displayed liquidity from the LTSE Book, the order will be executed or
canceled.
(v) An order with a Post Only instruction will be permitted to post
and be displayed opposite the ranked price of orders subject to
Display-Price Sliding instruction. In the event an order subject to the
Display-Price Sliding instruction is ranked on the LTSE Book with a
price equal to an opposite side order displayed by the Exchange, it
will be subject to processing as set forth in LTSE Rule 11.230(a)(4).
In proposed LTSE Rule 11.180(j)(2)(A) through (D), the Exchange
describes re-pricing instructions to comply with Rule 201 of Regulation
SHO,\43\ as follows:
---------------------------------------------------------------------------
\43\ The Exchange notes that all rules being adopted or amended
that are related to Regulation SHO are identical to the
corresponding MEMX Exchange rules.
---------------------------------------------------------------------------
(A) An order to sell with a Short Sale instruction that, at the
time of entry, could not be executed or displayed in compliance with
Regulation SHO will be re-priced by the System at the Permitted Price.
A User that submits an order with a short sale re-pricing instruction
must select either single or multiple price sliding. The Exchange's
single price sliding process will only re-price an order upon entry. To
reflect declines in the NBB, the Exchange's multiple price sliding
process will continue to re-price and re-display a short sale order at
the Permitted Price down to the order's limit price. In the event the
NBB changes such that the price of an order of Odd Lot size or with a
Non-Displayed instruction subject to Rule 201 of Regulation SHO would
be a Locking Quotation or Crossing Quotation, the order will be
canceled.
(B) When a Short Sale Circuit Breaker is in effect, the System may
execute a sell order with a Displayed and Short Sale instruction at the
price of the NBB if, at the time of initial display of the sell order
with a Short Sale instruction, the order was at a price above the then-
current NBB.
(C) Orders with a Short Exempt instruction will not be subject to
repricing under this section.
(D) If an order is subject to a Display-Price Sliding instruction
and also contains a Short Sale instruction when a Short Sale Circuit
Breaker is in effect, the re-pricing instructions to comply with Rule
201 of Regulation SHO under this Rule will apply.\44\
---------------------------------------------------------------------------
\44\ This proposed rule text matches MEMX Rule 11.6(j) (Re-
Pricing).
---------------------------------------------------------------------------
LTSE Rule 11.180(k) (Reserve Quantity)--The Exchange is
proposing to define ``Reserve Quantity'' as a portion of an order that
includes a Non-Displayed instruction in which a portion of that order
is also displayed on the LTSE Book. Both the portion of the order with
a Displayed instruction and the Reserve Quantity are available for
execution against incoming orders.
In proposed LTSE Rule 11.80(k)(1), the Exchange defines
``Replenishment Amounts.'' If the portion of the order with a Displayed
instruction is reduced to less than a Round Lot, the System will, in
accordance with the User's instruction, replenish the displayed
quantity from the Reserve Quantity using one of the below replenishment
instructions. Under either instruction below, any order with a Reserve
Quantity will be handled as a new order by the System and a new order
identification number will be created each time a displayed quantity is
replenished. The Exchange will obfuscate the unique order
identification number on its data feeds for replenishment of an order
with Reserve Quantity. If the remainder of an order is less than the
replenishment amount, the Exchange will replenish and display the
entire remainder of the order. A User must instruct the Exchange as to
the quantity of the order to be initially displayed by the System
(``Max Floor'') when entering an order with a Reserve Quantity, which
is also used to determine the replenishment amount, as described in
proposed LTSE Rule 11.180(k)(1)(A) and (B). In subparagraph (A), the
Exchange proposes to define Random Replenishment as an instruction a
User may attach to the Reserve Quantity of an order where replenishment
quantities for the order are randomly determined by the System in Round
Lot increments only within a replenishment range established by the
User. In particular, the User entering an order into the System subject
to the Random Replenishment instruction must select a replenishment
value and Max Floor. The actual quantity that will be initially
displayed will be the Max Floor. The displayed replenishment quantities
will then be determined by the System by randomly selecting a number of
shares within a replenishment range that is between: (i) the Max Floor
minus the replenishment value; and (ii) the Max Floor plus the
replenishment value. A User entering an order into the System subject
to the Random Replenishment instruction must either select immediate
replenishment or to have the time interval of such replenishment
randomly set by the Exchange. If a User has selected a random time
interval, the System will randomly replenish the User's displayed
replenishment quantity at different time intervals ranging up to one
(1) millisecond following each execution that triggers replenishment.
The non-displayed portion of an order subject to Random Replenishment
will remain fully executable prior to the replenishment of a User's
displayed quantity.
In proposed subparagraph (B) regarding Fixed Replenishment, the
Exchange proposes that, for an order for which the Random Replenishment
instruction has not been selected, the System will replenish the
displayed quantity of the order to the Max Floor designated by the
User.\45\
---------------------------------------------------------------------------
\45\ This proposed rule text matches MEMX Rule 11.6(k) (Reserve
Quantity).
---------------------------------------------------------------------------
LTSE Rule 11.180(l) (Posting Instructions)--The Exchange
is proposing to designate subparagraph (1) of this rule as
``Reserved.'' In subparagraph (2), the Exchange describes ``Post Only''
as an instruction that may be attached to an order that is to be ranked
and executed on the Exchange pursuant to LTSE Rule 11.220 and LTSE Rule
11.230(a)(4) or canceled, as appropriate, except that the order will
not remove liquidity from the LTSE Book, except in the following
condition: an order with a Post Only instruction
[[Page 46233]]
and a Display-Price Sliding instruction will remove contra-side
liquidity from the LTSE Book if the order is an order to buy or sell a
security priced below $1.00 or if the value of such execution when
removing liquidity equals or exceeds the value of such execution if the
order instead posted to the LTSE Book and subsequently provided
liquidity, including the applicable fees charged or rebates provided.
To determine at the time of a potential execution whether the value of
such execution when removing liquidity equals or exceeds the value of
such execution if the order instead posted to the LTSE Book and
subsequently provided liquidity, the Exchange will use the highest
possible rebate paid and highest possible fee charged for such
executions on the Exchange.\46\
---------------------------------------------------------------------------
\46\ This proposed rule text matches MEMX Rule 11.6(l) (Posting
Instructions).
---------------------------------------------------------------------------
LTSE Rule 11.180(m) (Short Sale)--An instruction on an
order which shall have the same meaning as defined in Rule 200(a) of
Regulation SHO.\47\
---------------------------------------------------------------------------
\47\ This proposed rule text matches MEMX Rule 11.6(m) (Short
Sale).
---------------------------------------------------------------------------
LTSE Rule 11.180(n) (Short Exempt)--An instruction on an
order with a Short Sale instruction that satisfies the requirements set
forth in Rule 201 of Regulation SHO.\48\
---------------------------------------------------------------------------
\48\ This proposed rule text matches MEMX Rule 11.6(n) (Short
Exempt).
---------------------------------------------------------------------------
LTSE Rule 11.180(o) (Time-in-Force (``TIF'')--The Exchange
is proposing to adopt the same TIFs as appear in MEMX Exchange Rule
11.6(o), as follows: (1) Immediate-or-Cancel (``IOC''), which is an
instruction the User may attach to an order stating the order is to be
executed in whole or in part as soon as such order is received. The
portion not executed immediately on the Exchange is treated as canceled
and is not posted to the LTSE Book. This is identical to MEMX Exchange
Rule 11.6(o)(1) except that LTSE is not adopting the provision related
to routing of the order.
In proposed subparagraph (2), the Exchange proposes to define the
TIF of ``Day'' as an instruction the User may attach to an order
stating that an order to buy or sell is designated for execution
starting with the Pre-Market Session and, if not executed, expires at
the end of Regular Trading Hours. Any Day Order entered into the System
before the opening for business on the Exchange as determined pursuant
to LTSE Rule 11.110, or after the closing of Regular Trading Hours,
will be rejected. The Exchange is deleting in its entirety LTSE Rule
11.190(d)(2) and replacing it with newly proposed LTSE Rule 11.180(o),
which is substantially similar to MEMX Exchange Rule 11.6(o)(2).
In proposed LTSE Rule 11.180(o)(3), the Exchange is proposing to
adopt a TIF of Fill-or-Kill (``FOK''), which is an instruction the User
may attach to an order stating that the order is to be executed in its
entirety as soon as it is received and, if not so executed, is
canceled. This represents an addition to the Exchange's rules, which
currently does not provide for an TIF of FOK but conforms to MEMX
Exchange Rule 11.6(o)(3).
Proposed LTSE Rule 11.180(o)(4) describes the Good-'til-Time
(``GTT'') TIF as an instruction the User may attach to an order
specifying the time of day at which the order expires, which is
designated for execution starting with the Pre-Market Session. Any
unexecuted portion of an order with a TIF instruction of GTT will be
canceled at the expiration of the User's specified time, which can be
no later than the close of the Post-Market Session. This definition is
in current LTSE Rule 11.190(o)(5) but is being moved to this LTSE Rule
11.180 and amended to conform to MEMX Exchange Rule 11.6(o)(4).
In proposed LTSE Rule 11.180(o)(5), the Exchange seeks to define
the TIF of Regular Hours Only (``RHO'') as an instruction a User may
attach to an order stating that an order to buy or sell is designated
for execution only during Regular Trading Hours and, if not executed,
expires at the end of Regular Trading Hours. Any order with a TIF
instruction of RHO entered into the System before the opening or after
the closing of Regular Trading Hours will be rejected. The Exchange
currently does not offer a TIF of RHO and is proposing to adopt the RHO
TIF to conform to MEMX Exchange Rule 11.6(o)(5).
LTSE Rule 11.180(p) (Trading Center)--The Exchange is
proposing to define ``Trading Center'' to mean other securities
exchanges, facilities of securities exchanges, automated trading
systems, electronic communications networks or other brokers or
dealers. The Exchange's current rules do not contain that definition
and the Exchange is proposing to adopt the same definition found in
MEMX Rule 11.6(p) (Trading Center).
LTSE Rule 11.180(q) (Units of Trading)--The Exchange
proposes in subparagraphs (1)-(3) to define units of trading. In (1),
the Exchange defines a Round Lot as one hundred (100) shares or any
multiple thereof, unless an alternative number of shares is established
as a Round Lot by the listing exchange for the security. Orders that
are a Round Lot are eligible to be Protected Quotations. In (2), the
Exchange defines an Odd Lot as any amount less than a Round Lot. Orders
of Odd Lot size are only eligible to be Protected Quotations if
aggregated to form a Round Lot. In (3), the Exchange defines a Mixed
Lot as any amount greater than a Round Lot that is not an integer
multiple of a Round Lot. Odd Lot portions of orders of Mixed Lot size
are only eligible to be Protected Quotations if aggregated to form a
Round Lot.\49\
---------------------------------------------------------------------------
\49\ This proposed rule text matches MEMX Rule 11.6(q) (Units of
Trading).
---------------------------------------------------------------------------
Amendments to LTSE Rule 11.190 Orders and Modifiers
The Exchange is proposing revisions to current LTSE Rule 11.190
governing orders and modifiers available to Users pursuant to the VSM.
The Exchange is amending the title of LTSE Rule 11.190 from ``Orders
and Modifiers'' to ``Order Types and Modifiers'' to better describe the
content of the newly proposed rule and to conform to MEMX Rule 11.8
(Order Types and Modifiers) upon which this rule is modeled.
The Exchange is proposing to amend the entirety of the rule text,
to conform with MEMX Rule 11.8 (Order Types and Modifiers). Only
provisions governing order routing are not being adopted, otherwise the
rules, as proposed, are identical. These changes are intended to better
facilitate a transition to the new trading platform with minimal
disruption to Members by implementing order types and order handling
processes that are currently in the technology utilized by MEMX
Exchange and will support the System post-replatforming.
Next, the introductory text to the rule will provide that Users may
enter into the System the types of orders listed in LTSE Rule 11.190,
subject to the limitations set forth in this rule or elsewhere in
Exchange rules. The Exchange will also include new text stating that,
by default, orders are limited to a maximum of 1,000,000 shares or
$30,000,000.00, which will align with the capacity of the System after
the replatforming is complete. Additionally, the Exchange proposes to
reposition the statement that any order that is submitted to the System
will be an ``LTSE Only'' order from LTSE Rule 11.190(b)(6), which is
proposed for deletion as described below.
Newly proposed LTSE Rule 11.190(a), will include the definition of
a Limit Order, specifically, that a Limit Order is an order to buy or
sell a stated amount of a security at a specified price (``Limit
Price'') or better. A ``marketable'' Limit Order is a Limit Order to
buy (sell) at or above (below) the lowest (highest)
[[Page 46234]]
Protected Offer (``Protected Bid'') for the security. New subparagraph
(a)(1) will include text stating that a Limit Order must have one of
the following TIF instructions: IOC, FOK, Day, RHO or GTT, which are
the same TIFs that will be available pursuant to amended LTSE Rule
11.180.
Newly proposed subparagraph (a)(2) will address the size of Limit
Orders that can be submitted through the System. A Limit Order may be
an Odd Lot, Round Lot or Mixed Lot. A User may include a Minimum
Execution Quantity instruction for a Limit Order with a Non-Displayed
instruction or TIF of IOC.
Newly proposed subparagraph (a)(3) will provide that a Limit Order
may include a Displayed instruction or a Non-Displayed instruction.
Proposed LTSE Rule 11.190(a)(4) provides that a Limit Order with a
Displayed instruction may include a Reserve Quantity, which will not be
displayed by the System. A Limit Order with both a Displayed
instruction and Reserve Quantity must include a replenishment
instruction and a replenishment amount.
Proposed LTSE Rule 11.90(a)(5) adopts rule text governing an
Intermarket Sweep Order (``ISO''). The System will accept ISOs (as such
term is defined in Regulation NMS). To be eligible for treatment as an
ISO, the order must be: (i) a Limit Order; (ii) marked ``ISO''; and
(iii) the User entering the order must simultaneously route one or more
additional Limit Orders marked ``ISO,'' if necessary, to away Trading
Centers to execute against the full displayed size of any Protected
Quotation for the security with a price that is superior to the limit
price of the ISO entered in the System. Such orders, if they meet the
requirements of the foregoing sentence, may be executed at one or
multiple price levels in the System without regard to Protected
Quotations at away Trading Centers consistent with Regulation NMS
(i.e., may trade through such quotations).
Proposed LTSE Rule 11.190(a)(5) further provides that the Exchange
relies on the marking of an order as an ISO when handling such order,
and thus, it is the entering Member's responsibility, not the
Exchange's responsibility, to comply with the requirements of
Regulation NMS relating to ISOs. Incoming ISOs must have a TIF
instruction of Day, GTT, or IOC. Incoming ISOs cannot include a TIF
instruction of FOK or RHO. Any unfilled portion of an incoming ISO with
a GTT or Day instruction will be posted by the System to the LTSE Book
at the entered limit price. An incoming ISO with a Post Only and TIF
instruction of GTT or Day will be canceled without execution if, when
entered, it is immediately marketable against an order with a Display
instruction resting in the LTSE Book unless such order removes
liquidity pursuant to LTSE Rule 11.180(l)(2). A User entering an
incoming ISO with a TIF instruction of Day represents that such User
has simultaneously routed one or more additional Limit Orders marked
``ISO,'' if necessary, to away Trading Centers to execute against the
full displayed size of any Protected Quotation for the security with a
price that is superior or equal to the limit price of the ISO entered
in the System. Incoming ISOs may be an Odd Lot, Round Lot, or Mixed
Lot. A User may include a Minimum Execution Quantity instruction for an
incoming ISO with an IOC instruction.
Proposed LTSE Rule 11.190(a)(6) (Session)--provides that a Limit
Order can be eligible for execution during the Pre-Market Session,
Regular Market Session and the Post-Market Session.
Proposed LTSE Rule 11.190(a)(7) (Posting)--states that a Limit
Order may include a Post only instruction.
Proposed LTSE Rule 11.190(a)(8) (Locked or Crossed Market)--
provides that, to the extent an incoming Limit Order with a Non-
Displayed instruction would be a Crossing Quotation if displayed at its
limit price, such order will execute against interest in the LTSE Book
at prices up to and including the Locking Price and will then be
canceled by the System.\50\ A resting Limit Order with a Non-Displayed
instruction that would be a Crossing Quotation, if displayed at the
price at which it is ranked, will be canceled by the System.
---------------------------------------------------------------------------
\50\ MEMX Exchange Rule 11.8(b)(8) contains rule text addressing
the routing of an order which LTSE is not adopting at this time.
---------------------------------------------------------------------------
When an away Trading Center publishes a Protected Quotation that
locks or crosses the displayed price of a resting Limit Order of Odd
Lot size with a Displayed instruction and the Exchange does not have a
Protected Quotation displayed at such price, such order will be
canceled by the System unless such order contains a multiple price
sliding instruction, in which case such order will be re-priced
pursuant to LTSE Rule 11.180(j)(1)(A).
Proposed LTSE Rule 11.190(a)(9) (Re-Pricing Instructions to Comply
with Rule 610 of Regulation NMS)--provides that a Limit Order may
include a Display-Price Sliding instruction or a Cancel Back
instruction. A Limit Order to buy (sell) with a limit price that would
be a Crossing Quotation at the time of entry into the System will not
execute at a price that is higher (lower) than the Locking Price. An
incoming ISO that includes a Post Only and TIF instruction of GTT, or
Day may be displayed at prices equal to or more aggressive than the
Locking Price. However, the System will immediately Cancel Back an ISO
that includes a Post Only and TIF instruction of GTT, or DAY if the
System is displaying orders on the LTSE Book at the Locking Price at
the time of the ISO's entry in the System unless such order removes
liquidity pursuant to LTSE Rule 11.180(l).
Proposed LTSE Rule 11.190(a)(10) (Re-Pricing Instructions to Comply
with Rule 201 of Regulation SHO)--provides that a Limit Order that
includes a Short Sale instruction that is not marked Short Exempt, and
that cannot be executed in the System or displayed by the System on the
LTSE Book at its limit price because a Short Sale Circuit Breaker is in
effect, will be subject to the Re-Pricing Instruction to comply with
Rule 201 of Regulation SHO if the order includes a Display-Price
Sliding instruction or will be subject to the Cancel Back instruction.
The System will immediately Cancel Back an incoming ISO combined with a
TIF instruction of GTT or Day and a Short Sale instruction that does
not include a Short Exempt instruction and that cannot be executed or
displayed at its limit price at the time of entry into the System
because of the existence of a Short Sale Circuit Breaker.
Proposed LTSE Rule 11.190(b) defines a ``Market Order'' as an order
to buy or sell a stated amount of a security that is to be executed at
the NBBO or better when the order reaches the Exchange. The Exchange
proposes to adopt the following provisions related to Market Orders:
(1) a Market Order must have one of the following time in force
instructions: DAY, IOC, RHO, or FOK and that Market Order that includes
a TIF instruction of FOK will be canceled if not executed in full
immediately after entry into the System; (2) Size, Market Orders may be
an Odd Lot, Round Lot, or Mixed Lot. A User may attach a Minimum
Execution Quantity instruction to a Market Order with a TIF instruction
of IOC; (3) Display, a Market Order is not eligible to be displayed on
the LTSE Book and will be canceled if not executed by the System; (4)
Session, a Market Order is only eligible for execution by the System
during the Market Session. The Exchange has denoted subparagraph (5) as
``Reserved.''; (6) Execution, the Exchange states that a Market Order
shall not trade through a Protected
[[Page 46235]]
Quotation and any portion of a Market Order that would execute at a
price more than $0.50 or 5 percent worse than the NBBO at the time the
order initially reaches the Exchange, whichever is greater, will be
canceled; (7) No Available NBBO, the Exchange states that a Market
Order received by the System when the NBBO is not available will be
rejected or canceled back to the entering User. In proposed LTSE Rule
11.190(c), the Exchange describes Pegged Orders, which are new to LTSE,
but a standard order type offered by MEMX Exchange. Specifically, a
User may indicate to peg an order to a reference price, including an
instruction of Primary Peg (the NBB for buy orders and NBO for sell
orders) or an instruction of Midpoint Peg (the midpoint of the NBBO).
The System's calculation of the NBBO does not take into account any
Pegged Orders that are resting on the LTSE Book. A new timestamp is
created for a Pegged Order each time it is automatically re-priced.
In proposed paragraph (c)(1), the Exchange states that a Pegged
Order may contain the following Time In Force instructions: Day, FOK,
IOC, RHO or GTT. Any unexecuted portion of a Pegged Order with a TIF
instruction of Day or GTT that is resting on the LTSE Book will receive
a new timestamp each time it is re-priced in response to changes in the
midpoint of the NBBO. In proposed new paragraph (c)(2), Size, the
Exchange states that Pegged Orders may be entered as an Odd Lot, Round
Lot or Mixed Lot and a User may include a Minimum Execution Quantity
instruction. Proposed new paragraph (c)(3) Display, states that Pegged
Orders are not eligible to include a Displayed instruction and new
paragraph (c)(4) Session, states that Pegged Orders may be executed
during the Pre-Market Session, the Market Session, and the Post-Market
Session. Paragraph (c)(5) Posting, states that a Pegged Order may
include Post Only instructions.
Proposed paragraphs (c)(6), Locked or Crossed Markets and (c)(7) No
Available NBBO, describe the handling of Pegged Orders when the market
is locked or crossed or when no NBBO is available. For locked or
crossed market, to the extent an incoming Pegged Order would be a
Crossing Quotation if displayed at the price at which it would be
ranked in the LTSE Book, such order will execute against interest in
the LTSE Book at prices up to and including the Locking Price and will
then be canceled by the System. A Pegged Order resting on the LTSE Book
is not eligible for execution when a Locking or Crossing Quotation
exists. In such cases, a Pegged Order would rest on the LTSE Book and
would not be eligible for execution in the System until a Locking
Quotation or Crossing Quotation no longer exists. With respect to no
available NBBO, (c)(7) states that a Pegged Order received by the
System when the NBBO is not available will be rejected or canceled back
to the entering User. A Pegged Order resting on the LTSE Book will be
canceled back to the User when the NBB or NBO that the order is pegged
to is no longer available.
Additionally, the Exchange proposes to delete the following
Supplementary Material to current LTSE Rule 11.190(b): .01, Best
Execution; .02, Firm Quote Obligations; and .03, Just and Equitable
Principles of Trade. These sections pertain to use of the AGID
modifier, which will no longer be offered but its functionality will be
replaced by the STP modifier as described below.
Amendments to LTSE Rule 11.210 Minimum Price Variant
The Exchange proposes to delete current LTSE Rule 11.210, Minimum
Price Variant in its entirety because it has proposed to adopt a
substantially similar definition that conforms to the MEMX definition
of the same term \51\ in newly proposed LTSE Rule 11.180(g) (Minimum
Price Variation). This rule will be designated as ``Reserved.''
---------------------------------------------------------------------------
\51\ See MEMX Rule 11.6(g) (Minimum Price Variation).
---------------------------------------------------------------------------
Amendments to LTSE Rule 11.220 Priority of Orders
The Exchange next proposes to conform the text of LTSE Rule 11.220
(Priority of Orders) to that of MEMX Exchange Rule 11.9 by deleting the
current rule text in its entirety and adopting the text of MEMX
Exchange Rule 11.9 (Priority of Orders) in its place. The purpose of
this proposed change is to remove rule provisions which, although
substantially similar in certain ways to MEMX Exchange Rule 11.9, were
written for purposes of the VSM and not for the trading technology that
will support the System post-replatforming. The Exchange submits that
these changes, which conform with the corresponding MEMX Exchange rule,
will contribute to more efficient implementation of the new trading
platform.
As proposed, the new text of LTSE Rule 11.220 will be as follows:
In paragraph (a), Ranking, orders of Users shall be ranked and
maintained in the LTSE Book based on the following priority: (1) price,
in which the highest-priced order to buy (lowest-priced order to sell)
shall have priority over all other orders to buy (sell) in all cases;
and (2), time. With respect to time, paragraph (2)(A) provides that,
subject to the execution process described in LTSE Rule 11.230(a),
where orders to buy (sell) are entered into the System at the same
price, the order clearly established as the first entered into the
System at such particular price shall have precedence at that price, up
to the number of shares of stock specified in the order. Except as
provided in subparagraphs (B) and (C) of LTSE Rule 11.230(a)(2), the
System shall rank equally priced trading interest within the System in
time priority in the following order: (i) the portion of a Limit Order
with a Displayed instruction; (ii) Limit Orders with a Non-Displayed
instruction; (iii) orders with a Primary Peg instruction; (iv) orders
with a Midpoint Peg instruction; and (v) Reserve Quantity of Limit
Orders.
Proposed LTSE Rule 11.230(a)(2)(B) covers orders priced at the
Midpoint of the NBBO. Specifically, where orders to buy (sell) are
priced at the midpoint of the NBBO, the order clearly established as
the first priced at the midpoint of the NBBO within each sub-paragraph
below shall have precedence at the mid-point of the NBBO, up to the
number of shares of stock specified in the order. The System shall rank
trading interest priced at the midpoint of the NBBO within the System
in time priority in the following order: (i) Limit Orders to which the
Display-Price Sliding instruction has been applied; (ii) Limit Orders
with a Non-Displayed instruction; (iii) orders with a Primary Peg
instruction; (iv) orders with a Midpoint Peg instruction; and (v)
Reserve Quantity of Limit Orders.
LTSE Rule 11.220(a)(2)(C) will provide that, where buy (sell)
orders are using instructions that cause them to be re-ranked by the
System upon clearance of a Locking Quotation, the System shall re-rank
and display such orders at the Locking Price in time priority in the
following order: (i) Limit Orders to which the ISO instruction has been
applied that also contain a TIF instruction of Day when such orders
establish a new NBBO at the Locked Price; and (ii) Limit Orders to
which the Display-Price Sliding instruction has been applied.
LTSE Rule 11.220(a)(2)(D) will provide that, for purposes of
paragraphs (A) and (B) above, orders re-ranked subject to the Re-
Pricing instruction to comply with Rule 201 of Regulation SHO under
LTSE Rule 11.180(j)(2), maintain the same priority as Limit Orders at
that price.
LTSE Rule 11.220(a)(3) addresses the impact of STP Modifiers and
will
[[Page 46236]]
provide that, pursuant to LTSE Rule 11.230(d), Users may direct that
orders entered into the System not execute against orders entered under
the same Unique Identifier. In such a case, the System will not permit
such orders to execute against one another, regardless of priority
ranking.
LTSE Rule 11.220(a)(4) will provide that, in the event an order has
been canceled or replaced in accordance with LTSE Rule 11.230(e) below,
such order only retains time priority if such modification involves a
decrease in the size of the order, a change to Max Floor of an order
with a Reserve Quantity, the sell long indicator, or Short Sale
instruction. Any other modification to an order, including an increase
in the size of the order and/or price change, will result in such order
losing time priority as compared to other orders in the LTSE Book and
the timestamp for such order being revised to reflect the time of the
modification.
LTSE Rule 11.220(a)(5) will provide that, in the event that an
order is executed against an incoming order in accordance with LTSE
Rule 11.230 for less than its full size, the unexecuted size of the
order shall retain its original time priority and be ranked in
accordance with LTSE Rule 11.220 paragraphs (a)(1) and (a)(2), above.
LTSE Rule 11.220(a)(6) addresses replenishment from Reserve
Quantity and will provide that the displayed quantity of a Limit Order
shall have time priority as of the time of display. A new timestamp is
created for the displayed portion and Reserve Quantity of the order
each time it is replenished from the Reserve Quantity.
Next, in proposed LTSE Rule 11.220(b), Dissemination, the Exchange
proposes in paragraph (b)(1) that the best-ranked order(s) to buy and
the best-ranked order(s) to sell that are displayable in the LTSE Book
and the aggregate displayed size of such orders associated with such
prices shall be collected and made available to quotation vendors for
dissemination pursuant to the requirements of Rule 602 of Regulation
NMS.
In paragraph (b)(2), the Exchange proposes that, pursuant to Rule
602 of Regulation NMS, the Exchange will transmit for display to the
appropriate securities information processor for each security: (A) the
highest price to buy wherein the aggregate size of all displayed buy
interest in the System greater than or equal to that price is one round
lot or greater; (B) the aggregate size of all displayed buy interest in
the System greater than or equal to the price in (A), rounded down to
the nearest round lot; (C) the lowest price to sell wherein the
aggregate size of all displayed sell interest in the System less than
or equal to that price is one round lot or greater; and (D) the
aggregate size of all displayed sell interest in the System less than
or equal to the price in (C), rounded down to the nearest round lot.
Amendments to LTSE Rule 11.230 Order Execution
The Exchange is proposing amendments to LTSE Rule 11.230 (Order
Execution) to conform to MEMX Rule 11.10 (Order Execution).
The introduction to LTSE Rule 11.230 and (a) thereof is not
proposed to change as it already tracks to MEMX Rule 11.10(a).
In paragraph (a)(1), which addresses compliance with Rule 201 of
Regulation SHO, the Exchange is only proposing to update a rule
reference contained in the text as the citation to LTSE Rule
11.190(g)(4) is no longer accurate due to the changes proposed in this
filing. The Exchange is proposing to delete that reference and replace
it with 11.190(a)(9). No other changes are proposed to this paragraph.
The Exchange is not proposing any changes to LTSE Rule
11.230(a)(2)(A) as that language tracks to the same rule text in MEMX
Rule 11.10(a)(2) which addresses the Regular Market Session.
The Exchange is proposing to amend (a)(2)(B), Compliance with Reg
NMS and Trade-Through Protection, Pre-Market Session and Post-Market
Session, to conform to the same provision in MEMX Rule 11.10(a)(2).
Such provision addresses executions during the Pre-Market Session or
the Post-Market Session and states that for any execution to occur
during these trading sessions, the price must be equal to or better
than the highest bid or lowest offer in the LTSE Book or disseminated
by the responsible single plan processor, unless the order is marked
ISO or unless a Protected Bid is crossing a Protected Offer.
Notwithstanding the foregoing, in the event that a Protected Bid is
crossing a Protected Offer, whether during or outside of Regular
Trading Hours, unless the order is marked ISO, the Exchange will not
execute any portion of a bid at a price more than the greater of 5
cents or 0.5 percent higher than the lowest Protected Offer or any
portion of an offer that would execute at a price more than the greater
of 5 cents or 0.5 percent lower than the highest Protected Bid. Upon
instruction from a User, the Exchange will cancel any incoming order
from such User in the event a Protected Bid is crossing a Protected
Offer.
The Exchange proposes to delete paragraph (a)(2)(C), Crossed
Markets, in its entirety because the substance of the current rule
pertains to the Crossed Market Collar, which is functionality that will
not be available in the new technology platform.
In LTSE Rule 11.230(a)(3), the Exchange addresses order execution
under the National Market System Plan to Address Extraordinary Market
Volatility (referred to as the ``Limit Up-Limit Down'' or ``LULD
Plan''), the Exchange proposes to delete the current text of the rule
and add new text stating as follows: ``[c]ompliance with the
requirements of the LULD Plan. Except as provided in Section VI of the
Plan, for any executions to occur during Regular Trading Hours, such
executions must occur at a price that is greater than or equal to the
Lower Price Band and less than or equal to the Upper Price Band, when
such Price Bands are disseminated.'' The Exchange's procedures for
handling, executing, re-pricing and displaying orders in connection
with the Plan are further described in LTSE Rule 11.281(b)(1)(A)(i).
The proposed new text conforms with MEMX Rule 11.10(a)(3).
LTSE Rule 11.230(a)(4) will remain unchanged as will subsections
(A) and (B) therein. The Exchange is proposing to adopt new paragraphs
(C) and (D) to this LTSE Rule 11.230(a)(4) which will be identical to
MEMX Rule 11.10(C) and (D), respectively.
In proposed paragraph (C) the new text states that ``[c]onsistent
with LTSE Rules 11.180 and 11.190, based on User instructions, certain
orders are permitted to post and rest on the LTSE Book at prices that
lock contra-side liquidity, provided, however, that the System will
never display a locked market. Subject to subparagraph (D) below, if an
incoming order, pursuant to subparagraphs (A) or (B) above is on the
same side of the market as an order displayed on the LTSE Book and upon
entry would execute against contra-side interest at the same price as
such displayed order, such incoming order will be canceled or posted to
the LTSE Book and ranked in accordance with LTSE Rule 11.220.''
In proposed paragraph (D), the new text states: ``[f]or bids or
offers equal to or greater than $1.00 per share, in the event that an
incoming order described in subparagraphs (A) or (B) above is a Market
Order or is a Limit Order priced more aggressively than an order
displayed on the LTSE Book, the Exchange will execute the incoming
order at, in the case of an incoming sell order, one-half minimum price
variation
[[Page 46237]]
less than the price of the displayed order, and, in the case of an
incoming buy order, at one-half minimum price variation more than the
price of the displayed order. For bids or offers under $1.00 per share,
this subparagraph is inapplicable.'' The Exchange is proposing to adopt
a new paragraph (a)(5) governing Short Sales in this LTSE Rule 11.230
which is identical to MEMX Rule 11.10(a)(5). The newly proposed text
states: ``Short Sales. All orders to sell short shall include a Short
Sale instruction, and if applicable, a Short Exempt instruction when
entered into the System. If an order includes a Short Exempt
instruction, the Exchange shall execute, display and/or route an order
without regard to any short sale price test restriction in effect under
Regulation SHO. The Exchange relies on the inclusion of a Short Exempt
instruction when handling such order, and thus, it is the entering
Member's responsibility, not the Exchange's responsibility to comply
with the requirements of Regulation SHO relating to including a Short
Exempt instruction on an order.''
Paragraph (b) of this LTSE Rule 11.230 had been reserved and the
Exchange is now adopting a paragraph addressing the display of
automated quotations here, which is identical to MEMX Rule 11.10(b). In
this new paragraph, the Exchange proposes to adopt the following rule
text: ``Display of Automated Quotations. The System will be operated as
an ``automated trading center'' within the meaning of Regulation NMS,
and in furtherance thereof, will display ``automated quotations''
within the meaning of Regulation NMS at all times except in the event
that a systems malfunction renders the System incapable of displaying
automated quotations, in which case the System will be disabled and
will be unable to accept any orders. The Exchange shall promptly
communicate to Users the unavailability of the System. All orders will
be designated by the System as non-attributable and displayed (price
and size) on the LTSE Book Feed on an anonymous basis by the System.
This proposed Rule text conforms with MEMX Exchange Rule 11.10(b). The
Exchange notes that certain of the rule text proposed in new paragraph
(g) is contained in current LTSE Rule 11.240 (Trade Execution,
Reporting, and Dissemination of Quotations), paragraph (c) and is being
repositioned to proposed new LTSE Rule 11.230(g) for consistency.
Paragraph (c) of this Rule is reserved and the Exchange is now
proposing to renumber current paragraph (d) addressing Self-Help as
(c). No other changes are being proposed to this paragraph.
Proposed new paragraph (d) addresses the self-trade prevention
(``STP'') modifiers that will be available as features in the System
after re-platforming and is identical to MEMX Rule 11.10(d). As
proposed, any incoming order designated with an STP modifier will be
prevented from executing against a resting opposite side order also
designated with an STP modifier and originating from the same market
participant identifier (``MPID''), Exchange Member identifier or STP
Group identifier (any such identifier, a ``Unique Identifier''). The
STP modifier on the incoming order controls the interaction between two
orders marked with STP modifiers. Users will be provided with options
to select the STP modifier.
Subparagraph (d)(1), STP Cancel Newest (``CN'') will provide that
an incoming order marked with the CN modifier will not execute against
opposite side resting interest marked with any STP modifier originating
from the same Unique Identifier. The incoming order marked with the CN
modifier will be canceled back to the originating User(s). The resting
order marked with an STP modifier will remain on the LTSE Order Book.
Newly proposed subparagraph (d)(2), STP Cancel Oldest (``CO''),
provides that an incoming order marked with the CO modifier will not
execute against opposite side resting interest marked with any STP
modifier originating from the same Unique Identifier. The resting order
marked with the STP modifier will be canceled back to the originating
User(s). The incoming order marked with the CO modifier will remain on
the LTSE Order Book.
Newly proposed subparagraph (d)(3), STP Decrement and Cancel
(``DC''), provides that an incoming order marked with the DC modifier
will not execute against opposite side resting interest marked with any
STP modifier originating from the same Unique Identifier. If both
orders are equivalent in size, both orders will be canceled back to the
originating User(s). If the orders are not equivalent in size, the
smaller order will be canceled back to the originating User(s) and the
larger order will be decremented by the size of the smaller order, with
the balance remaining on the LTSE Order Book.
Newly proposed subparagraph (d)(4), STP Cancel Both (``CB''),
provides that an incoming order marked with the CB modifier will not
execute against opposite side resting interest marked with any STP
modifier originating from the same Unique Identifier. The entire size
of both orders will be canceled back to the originating User(s).
Finally, proposed subparagraph (d)(5), STP Cancel Smallest
(``CS''), provides that an incoming order marked with the CS modifier
will not execute against opposite side resting interest marked with any
STP modifier originating from the same Unique Identifier. If both
orders are equivalent in size, both orders will be canceled back to the
originating User(s). If the orders are not equivalent in size, the
smaller of the two orders will be canceled back to the originating User
and the larger order will remain on the LTSE Order Book.
Proposed new LTSE Rule 11.230(e) addresses Cancel/Replace Messages
and will conform to MEMX Rule 11.10(e) except that the Exchange will
not adopt (e)(2) but will rather hold that paragraph as ``Reserved.''
as it addresses routed orders. As proposed, newly adopted (e) will
provide that a User may cancel or replace an existing order entered by
the User, subject to the limitations described in subparagraphs (e)(1)
through (e)(4). In (e)(1), the proposed rule text states orders may
only be canceled or replaced if the order has a TIF instruction other
than IOC and FOK and if the order has not yet been executed in its
entirety.
As stated above, subparagraph (e)(2) will be denoted as a
``Reserved'' section.
Proposed subparagraph (e)(3) will provide that, other than changing
a Limit Order to a Market Order, only the price, the sell long
indicator, Short Sale instruction, Max Floor of an order with a Reserve
Quantity, and size of the order may be changed by a Replace Message. If
a User desires to change any other terms of an existing order, the
existing order must be canceled and a new order must be entered.
Proposed subparagraph (e)(4) will provide that, notwithstanding
anything to the contrary in these LTSE Rules, no cancellation or
replacement of an order will be effective until such message has been
received and processed by the System.
Amendments to LTSE Rule 11.231 Regular Market Session Opening Process
for Non-LTSE-Primary-Listed Securities
The Exchange proposes to delete, in its entirety, LTSE Rule 11.231,
Regular Market Session Opening Process for Non-LTSE-Primary-Listed
Securities and denote that rule as ``Reserved.'' The deletion of the
current rule text is needed because the opening process to be utilized
by the System post-replatforming will mirror the opening
[[Page 46238]]
process on the MEMX Exchange for all equity securities.
Amendments to LTSE Rule 11.240 Trade Execution, Reporting, and
Dissemination of Quotations
The Exchange is proposing to amend LTSE Rule 11.240 Trade
Execution, Reporting, and Dissemination of Quotations to conform to
MEMX Rule 11.12 Trade Reporting. Accordingly, the Exchange is proposing
to amend the title of the rule from ``Trade Execution, Reporting, and
Dissemination of Quotations'' to ``Trade Reporting'' to match MEMX Rule
11.12. The Exchange is not proposing changes to subparagraphs (a) and
(b) as that language is substantially identical to the MEMX Rule
11.12(a) and (b). The Exchange is proposing to delete paragraph (c)
from this rule as dissemination of information is now addressed in
newly proposed LTSE Rule 11.220(b). The Exchange is not proposing any
changes to (d) of this rule.
Amendment to Rule 11.271. Trading Halts
The Exchange is proposing to delete LTSE Rule 11.271 and mark it as
``Reserved'' because the substance of the rule is being adopted as part
of proposed changes to LTSE 11.281 (Limit UP-Limit Down Plan and
Trading Halts on the Exchange), as discussed in more detail below.
Amendments to LTSE Rule 11.281. Limit Up-Limit Down Plan and Trading
Halts on the Exchange
The Exchange is proposing to amend LTSE Rule 11.281, currently
entitled ``Limit Up-Limit Down Mechanism.'' The rule will be re-titled
to ``Limit Up-Limit Down Plan and Trading Halts on the Exchange.'' The
current text of LTSE Rule 11.281 will be deleted in its entirety and
will be replaced by rule text copying MEMX Exchange Rule 11.22.\52\ The
proposed new rule text is described below.
---------------------------------------------------------------------------
\52\ The Exchange notes that MEMX Rule 11.22 was amended in July
2023 pursuant to Section 19(b)(3)(A)(iii) of the Act as a ``non-
controversial'' rule proposal for resuming trading in equity
securities in the event of regulatory or operational issues. (See
Exchange Act Release No. 97824 (June 29, 2023); 88 FR 43159 (July 6,
2023) SR-MEMX-2023-11). The rule change was made to establish common
criteria and procedures for halting and resuming trading in equity
securities in the event of regulatory or operational issues. By
adopting the text of MEMX Exchange Rule 11.22 in its entirety, the
Exchange will be aligning Rule 11.281 with the rules of other
exchanges designed to address halts due to regulatory or operational
issues. See also, Amendments to NASDAQ Rule 4120, Exchange Act
Release No. 95069 (June 8, 2022); 87 FR 36018 (June 14, 2022); SR-
NASDAQ-2022-017).
---------------------------------------------------------------------------
New paragraph (a), entitled Definitions, will describe definitions
that are the same as those in MEMX Exchange Rule 11.22.\53\ These
include definitions of Trust Shares; Index Fund Shares; Managed Fund
Shares; Trust Issued Receipts; Extraordinary Market Activity; Operating
Committee and Operating Halt as those terms are defined in the Nasdaq
UTP Plan; ``Post-Market Session'' is defined in LTSE Rule 1.160(ee);
``Pre-Market Session'' is defined in LTSE Rule 1.160(dd); Primary
Listing Market as defined in the Nasdaq UTP Plan; ``Processor'' or
``SIP'' defined as having the same meaning as the term ``Processor'' in
the Nasdaq UTP Plan or in the Consolidated Tape Association Plan, as is
applicable; Regulatory Halt has the same meaning as in the Nasdaq UTP
Plan; Regular Trading Hours has the same meaning as in the Nasdaq UTP
Plan; SIP Halt has the same meaning as in the Nasdaq UTP Plan; SIP Halt
Resume Time has the same meaning as in the Nasdaq UTP Plan; and SIP
Plan means the national market system plan governing the SIP.
---------------------------------------------------------------------------
\53\ The Exchange notes that certain of the defined terms in the
proposed amended Rule 11.281 are already defined in other sections
of the LTSE rulebook and such rule citations are included where
appropriate.
---------------------------------------------------------------------------
Proposed LTSE Rule 11.281(b)(1)(A)(i)-(iv) includes four situations
in which the Exchange must halt trading pursuant to a Regulatory Halt:
under the Limit Up-Limit Down Plan; pursuant to Extraordinary Market
Volatility (Market-Wide Circuit Breakers); when the Primary Listing
Market declares a SIP halt, or when the Primary Listing Market declares
a trading halt based on Extraordinary Market Activity, as defined in
the Nasdaq UTP Plan. Although it has been approved by the Commission to
operate a Primary Listing Market and to issue Regulatory Halts pursuant
to LTSE Rule 11.280, the Exchange presently has only dual-listed stocks
and is not the Primary Listing Market for any issuer; accordingly, it
does not have the authority to issue Regulatory Halts with respect to
such dual-listed securities.
Proposed paragraph (b)(1)(A)(i)(a) of LTSE Rule 11.281 contains
definitions for purposes of the Limit Up-Limit Down Mechanism. The
following definitions are being adopted: (i) LULD Plan; (ii) a
statement that all capitalized terms not otherwise defined in this Rule
shall have the meanings set forth in the LULD Plan or LTSE Rules, as
applicable; (iii) a statement entitled ``Exchange Participation in the
Plan'' and stating that the Exchange is a Participant in, and subject
to the applicable requirements of, the LULD Plan, which establishes
procedures to address extraordinary volatility in NMS Stocks;
provisions mandating Member Compliance and Exchange compliance with the
Plan.
The Exchange will adopt (b)(1)(A)(i)(e) Re-pricing and Cancellation
of Interest, which is identical to that contained in MEMX Exchange Rule
11.22(b)(1)(A)(i)(e). The following is being proposed, ``[d]epending on
a User's instructions, the System shall re-price or cancel buy (sell)
interest that is priced or could be executed above (below) the Upper
(Lower) Price Band. When re-pricing resting orders because such orders
are above (below) the Upper (Lower) Price Band, the Exchange will
provide new timestamps to such orders. When re-priced to less-
aggressive price levels such orders will have priority behind resting
interest that was originally less aggressively priced but that was not
re-priced, as such orders will retain their original timestamps.''
In proposed paragraph (b)(1)(A)(i)(e)(1), the Exchange addresses
the handling of Market Orders and Orders with TIF, IOC or FOK and
provides that the System will only execute Market Orders or orders with
a TIF of IOC or FOK at or within the Price Bands. Market Orders will be
handled in accordance with LTSE Rule 11.190. This amendment represents
a change by adding the TIF of FOK instruction given that current
paragraph (a)(2)(A) addresses only IOC orders.
Proposed new paragraph (b)(1)(A)(i)(e)(2)(A) and (B) will have new
provisions that address displayed and non-displayed limit-priced
interest. Current LTSE Rule 11.281(a)(5)(B) addresses re-pricing of
Limit Orders but does not provide for treatment under the LULD
Mechanism for non-displayed Limit Orders since all orders on LTSE are
currently display-only. Specifically, the new rule text will state that
displayed limit-priced interest will be canceled on entry or when
resting if a User has entered instructions not to use the re-pricing
process or a User has included a Reserve Quantity and such interest to
buy (sell) is priced above (below) the Upper (Lower) Price Band. As
proposed, if re-pricing is permitted based on a User's instructions,
displayable incoming limit-priced interest to buy (sell) that is priced
above (below) the Upper (Lower) Price Band shall be re-priced to the
Upper (Lower) Price Band. The System shall re-price resting, displayed
limit-priced interest to buy (sell) to the Upper (Lower) Price Band if
Price Bands move such that the price of resting, displayed limit-priced
interest to buy (sell) would be above
[[Page 46239]]
(below) the Upper (Lower) Price Band. If the Price Bands move again and
the original limit price of displayed and re-priced interest is at or
within the Price Bands and a User has opted into the Exchange's
multiple price sliding process, as described in LTSE Rule 11.180(j),
the System shall reprice such displayed limit interest to the most
aggressive permissible price up to the order's limit price. All other
displayed limit interest repriced pursuant to this paragraph (e) will
remain at its new price unless the Price Bands move such that the price
of resting limit-priced interest to buy (sell) would again be above
(below) the Upper (Lower) Price Band.
In (B), the Exchange proposes that incoming limit-priced interest
that is non-displayable will be canceled by the System if such interest
to buy (sell) is priced above (below) the Upper (Lower) Price Band.
Resting, non-displayed limit priced interest buy (sell) is priced above
(below) the Upper (Lower) Price Band (i.e., aggressively priced through
the applicable Price band) or if such interest is priced below (above)
the Lower (Upper) Price Band (i.e., non-aggressively priced outside of
the applicable Price Band).
Proposed paragraph (b)(1)(A)(i)(e)(3) provides that Pegged Orders
to buy (sell) shall peg to the specified pegging price or the Upper
(Lower) Price Band, whichever is lower (higher).
Proposed paragraph (b)(1)(A)(i)(e)(4) will be denoted as
``Reserved'' in the Exchange's rule. The corresponding section in MEMX
Exchange Rule 11.21(b)(4) addresses the handling of routable orders
under the LULD mechanism and is not relevant to LTSE because it does
not intend to route orders to away trading centers.
Paragraph (b)(1)(A)(i)(e)(5), Sell Short Orders provides that,
during a short sale price test restriction pursuant to Rule 201 of
Regulation SHO, orders with a Short Sale instruction priced below the
Lower Price Band shall be repriced to the higher of the Lower Price
Band or the Permitted Price, as defined in LTSE Rule 11.280(e)(5). This
rule text is substantially the same as in current LTSE Rule
11.281(a)(5)(E). The Exchange proposes to reposition the current text
of LTSE Rule 11.281(5)(F) into new paragraph (b)(1)(A)(i)(e)(6) to
govern Auction Orders. Auction Eligible Orders on the Auction Book are
not price slid or canceled due to LULD price bands. This provision is
specific to the Exchange's status as a listing exchange and there is no
corresponding rule text in MEMX Exchange Rule 11.22.
In proposed LTSE Rule 11.281(b)(1)(A)(ii) through (b)(1)(A)(iv),
the Exchange describes the circumstances under which it will implement
a trading halt: due to extraordinary market volatility/Market-Wide
Circuit Breakers, as set forth in LTSE Rule 11.280; when the Primary
Listing Market declares a SIP Halt or a trading halt based on
Extraordinary Market Activity, as defined in the Nasdaq UTP Plan; and
for any security traded on the Exchange when the Primary Listing Market
declares a Regulatory Halt for any such security. The following shall
apply when implementing Regulatory Halts initiated by the Primary
Listing Market. In subparagraph (b)(1)(A)(iv)(a) (Start Time), the
Exchange states that the start time of a Regulatory Halt is when the
Primary Listing Market declares the halt, regardless of whether an
issue with communications impacts the dissemination of the notice. All
of these provisions correspond with the text of MEMX Exchange Rule
11.22(b)(1)(A)(ii) through (iv).
Proposed new paragraph (2), Resumption of Trading After a
Regulatory Halt, conforms to MEMX Exchange Rule 11.22(b)(2)(A) and (B).
Newly proposed subparagraph (A) will provide, with respect to a
resumption of trading after a Regulatory Halt Other Than a SIP Halt
that: (i) the Exchange may resume trading after the Exchange receives
notification from the Primary Listing Market that the Regulatory Halt
has been terminated. In subparagraph (B), with respect to a resumption
of trading after a SIP Halt, the Exchange proposes that, for or
securities subject to a SIP Halt initiated by another exchange that is
the Primary Listing Market, during Regular Trading Hours, the Exchange
may resume trading after trading has resumed on the Primary Listing
Market or notice has been received from the Primary Listing Market that
trading may resume. During Regular Trading Hours, if the Primary
Listing Market does not open a security within the amount of time
specified by the rules of the Primary Listing Market after the SIP Halt
Resume Time, the Exchange may resume trading in that security. Outside
Regular Trading Hours, the Exchange may resume trading immediately
after the SIP Halt Resume Time. Proposed paragraph (3) corresponds to
MEMX Rule 11.22(b)(3) and will provide that, on the occurrence of any
Regulatory Halt pursuant to this LTSE Rule all outstanding orders in
the System will be canceled and while a security is subject to a
Regulatory Halt the Exchange will not accept orders. At the end of the
Regulatory Halt the Exchange shall re-open the security and again begin
accepting orders.
In proposed LTSE Rule 11.281(c), the Exchange addresses trading
halts in UTP Exchange Traded Product and provides that the Exchange may
halt trading in UTP Exchange Traded Products on the Exchange and
conforms to MEMX Exchange Rule 11.22(c).
Specifically, (A) in the Pre-Market Session, if a UTP Exchange
Traded Product begins trading on the Exchange in the Pre-Market Session
and subsequently a temporary interruption occurs in the calculation or
wide dissemination of the Intraday Indicative Value (``IIV'') or the
value of the underlying index, as applicable, to such UTP Exchange
Traded Product, by a major market data vendor, the Exchange may
continue to trade the UTP Exchange Traded Product for the remainder of
the Pre-Market Session.
In proposed subparagraph (B), which addresses Regular Trading
Hours, the proposed rule provides that if a temporary interruption
occurs during Regular Trading Hours in the calculation or wide
dissemination of the applicable IIV or value of the underlying index by
a major market data vendor and the Primary Listing Market halts trading
in the UTP Exchange Traded Product, the Exchange, upon notification by
the Primary Listing Market of such halt due to such temporary
interruption, also shall immediately halt trading in the UTP Exchange
Traded Product on the Exchange.
In proposed subparagraph (C), the Exchange addresses the Post-
Market Session and Next Business Day's Pre-Market Session and provides
that: (i) if the IIV or the value of the underlying index continues not
to be calculated or widely available after the close of the Regular
Trading Hours, the Exchange may trade the UTP Exchange Traded Product
in the Post-Market Session only if the Primary Listing Market traded
such securities until the close of its regular trading session without
a halt; and (ii) if the IIV or the value of the underlying index
continues not to be calculated or widely available as of the
commencement of the Pre-Market Session on the next business day, the
Exchange shall not commence trading of the UTP Exchange Traded Product
in the Pre-Market Session that day. If an interruption in the
calculation or wide dissemination of the IIV or the value of the
underlying index continues, the Exchange may resume trading in the UTP
Exchange Traded Product only if calculation and wide dissemination of
the IIV or the value of the underlying index resumes or trading in the
UTP
[[Page 46240]]
Exchange Traded Product resumes in the Primary Listing Market.
In proposed LTSE Rule 11.281(d), the Exchange addresses Operational
Halts and permits the Exchange to declare an Operational Halt for any
security trading on the Exchange if it is experiencing Extraordinary
Market Activity on the Exchange or when otherwise necessary to maintain
a fair and orderly market or in the public interest. The proposed
amendments conform the rule text with that in MEMX Exchange Rule
11.22(d).
Upon the initiation of an Operational Halt by the Exchange all
outstanding orders in the System will be canceled. The Exchange will
notify the SIP if it has concerns about its ability to collect and
transmit Quotation Information or Transaction Reports (as those terms
are defined in the Nasdaq UTP Plan),\54\ or if it has declared an
Operational Halt or suspension of trading in one or more Eligible
Securities (as that term is defined in the Nasdaq UTP Plan), pursuant
to the procedures adopted by the Operating Committee. The Exchange
notes that the authority of the Exchange to impose an Operational Halt
is addressed in current LTSE Rule 11.282(a)(3), which is being amended,
as discussed below, and in newly proposed LTSE Rule 11.281(d)(1).
Proposed paragraphs (3)(A)-(C) address the resumption of trading after
an Operational Halt and conform to MEMX Exchange Rule 11.22(d)(3). As
proposed, the rule would give the Exchange the ability to determine
that trading may resume in a fair and orderly manner and in accordance
with its Rules. Any orders entered during an Operational Halt will not
be accepted. Once the decision to terminate an Operational Halt has
been reached, the Exchange will provide notice to market participants
and to the SIP with respect to both the imposition of the Operational
Halt and that the halt has been lifted using such protocols and other
emergency procedures as may be mutually agreed to between the Operating
Committee and the Exchange. The proposed rule further provides that, if
the SIP is unable to disseminate notice of an Operational Halt or the
Exchange is not open for trading, the Exchange will take reasonable
steps to provide notice of an Operational Halt, which shall include
both the type and start time of the Operational Halt. Each Plan
participant shall continuously monitor communication protocols
established by the Operating Committee and the Processor during market
hours to disseminate notice of an Operational Halt, and the failure of
a Plan participant to do so will not prevent the Exchange from
initiating an Operational Halt in accordance with the procedures
specified in the rule.
---------------------------------------------------------------------------
\54\ On February 11, 2021, the Nasdaq UTP Plan participants
filed Amendment 50 to the Plan, to revise provisions governing
regulatory and operational halts. See Letter from Robert Brooks,
Chairman, UTP Operating Committee, Nasdaq UTP Plan, to Vanessa
Countryman, Secretary, Securities and Exchange Commission, dated
February 11, 2021. The Nasdaq UTP Plan subsequently filed two
partial amendments to the 50th Amendment, on March 31, 2021 and on
April 7, 2021. The SEC approved the amendments on May 28, 2021. See
Securities Exchange Act Release No. 34-92071 (May 28, 2021), 86 FR
29846 (June 3, 2021) (S7-24-89). The Amended Nasdaq UTP Plan
includes provisions requiring participant self-regulatory
organizations (``SROs'') to honor a Regulatory Halt declared by the
Primary Listing Market. The provisions in the Nasdaq UTP Plan, and
the plan for consolidation of data for non-Nasdaq-listed securities,
the Consolidated Tape System and Consolidated Quotations System
(collectively, the ``CTA/CQS Plan''), include provisions similar to
the changes proposed by the Exchange in its proposed amendments to
Rule 11.281, as well as those in current MEMX Rule 11.22.
---------------------------------------------------------------------------
Amendments to LTSE Rule 11.282. Regulatory Trading Halts
The Exchange is approved to conduct a listings business, including
primary listings in which the Exchange would have all of the regulatory
obligations attendant to that status, including initiating Trading
Halts. The Exchange is proposing amendments to LTSE Rule 11.282 that
conform the current text of the rule to the newly proposed changes to
LTSE Rule 11.281, by adding a cross-reference to proposed LTSE Rule
11.281, reorganizing remaining text in the rule and deleting
inapplicable provisions. Specifically, in paragraph (a)(1), the
Exchange retains, with certain modifications, the current rule text
providing that, in circumstances in which LTSE deems it necessary to
protect investors and the public interest, it may halt trading on LTSE
of an LTSE-Primary-Listed Security to permit the dissemination of
material news, provided, however, that in the Pre-Market Session LTSE
will halt trading for dissemination of news only at the request of an
issuer, or where a trading halt has been imposed by another national
securities exchange to permit the dissemination of material news. The
proposed revisions delete a rule reference that will be obsolete in
view of the conforming changes being made to LTSE Rule 11.282 and move
the text up from (a)(2) to (a)(1) stating that the Exchange will halt
Pre-Market Session at an issuer's request for the dissemination of
material news, or if another national securities exchange has halted
the same security.
Paragraphs (a)(2) and (a)(3) address a trading halt initiated by
another exchange to permit the dissemination of material news or for
operational issues impacting a security listed on that exchange. The
Exchange proposes to make (a)(2) a ``Reserved'' section since this text
is being moved up to (a)(1) and to amend (a)(3) by deleting (A) and
retaining the text of (B) since the latter involves an operational halt
initiated with respect to a security listed on LTSE and such security
is a derivative or component of a security listed on another exchange
and such exchange initiates an operational trading halt. The Exchange
is proposing to delete the text of paragraph (a)(6) and denote the
section as ``Reserved.''
In paragraph (b), procedure for initiating and terminating a
Trading Halt, the exchange is proposing to retain the provisions of
(b)(1) through (b)(5) since such sections pertain specifically to the
Exchange's role as a primary listing exchange. Current Paragraph (b)(6)
will be amended to delete the current text, which is substantially
covered by the amendments to LTSE Rule 11.281 and will denote the
section as ``Reserved.''
Paragraphs (b)(7) through (b)(9) of LTSE Rule 11.282 will be
retained in their current form since the provisions are directed to the
Exchange's activity as a listing Exchange.
Proposed Changes to LTSE Rule 11.310. Locking or Crossing Quotations in
NMS Stocks
The Exchange is proposing the following changes to LTSE Rule 11.310
to conform to MEMX Exchange Rule 11.10(f). In paragraph (b),
Prohibition, a ministerial change will be made to update a reference to
(c) to (d) to account for the addition of new paragraph (c). In (c),
the Exchange proposes to move the current text of the rule to (d) and
add provisions regarding manual quotations. Specifically, if a User
displays a manual quotation that locks or crosses a quotation
previously disseminated pursuant to an effective national market system
plan, such User shall promptly either withdraw the manual quotation or
route an ISO to execute against the full displayed size of the locked
or crossed quotation. The current text of paragraph (c), Exceptions,
will be designated as paragraph (d). Paragraphs (1) and (2) will only
be changed to update capitalized terms that are newly defined herein.
The Exchange proposes to add new rule paragraphs (3) and (4) to match
MEMX Rule 11(f)(3)(3) and (4).
In newly proposed (d)(3), the Exchange proposes to add as an
exception where the Locking Quotation or Crossing Quotation was an
automated quotation, and the User displaying such automated quotation
simultaneously routed an ISO to execute against the full
[[Page 46241]]
displayed size of any Protected Quotation that is a Locking Quotation
or Crossing Quotation. In newly proposed (d)(4), the Exchange proposes
to add as an exception where the Locking Quotation or Crossing
Quotation was a manual quotation that locked or crossed another manual
quotation, and the User displaying the locking or crossing manual
quotation simultaneously routed an ISO to execute against the full
displayed size of the locked or crossed manual quotation.
Amendments to LTSE Rule 11.320. Input of Accurate Information
The Exchange is proposing to amend LTSE Rule 11.320 to conform to
MEMX Exchange Rule 11.5 (Input of Accurate Information). The Exchange
is deleting the numbering of the paragraph as (a) since there are no
other paragraphs in the rule, this reference is not necessary. As
revised the rule will provide that ``[m]embers of the Exchange shall
input accurate information into the System, including, but not limited
to, whether the Member acted in a Principal, Agent, or Riskless
Principal capacity for each order entered. If such capacity is not
inputted by the Member for each order it enters, the Member's order
will be rejected back by the Exchange.
Amendments to LTSE Rule 11.330. Data Products
The Exchange is proposing to amend LTSE Rule 11.330 to conform to
MEMX Exchange Rule 13.8 (Data Products). Accordingly the Exchange is
proposing to remove the following data product offerings: LTSE Web
Platform, which is a data feed that offers aggregated top of book
quotations for all orders resting on the Order Book, aggregated depth
of book quotations for all orders resting on the Order Book at each
price level, execution information (i.e., last sale information) for
executions on the Exchange; Historical Data, which offers historical
top of book quotations and other information, and which is available on
the Exchange's public website; and DROP, which uncompressed data feed
offers information regarding the equities trading activity of a
specific Member, which will not be supported by the technology
supporting the System subsequent to the re-platforming. The Exchange
proposes to add the following data product offerings, which will be
supported upon re-platforming: LTSE Member's Order Information Record
(``MEMOIR'') Depth, which data feed contains all displayed orders for
listed securities trading on the Exchange, order executions, order
cancellations, order modifications, order identification numbers, and
administrative messages; LTSE MEMOIR Top, which uncompressed data feed
offers top of book quotations based on equity orders entered into the
System; and LTSE MEMOIR Last Sale, which uncompressed data feed offers
only execution information based on equity orders entered into the
System. To further provide for an expanded suite of market data product
offerings, the Exchange intends to offer LTSE MEMOIR Historical Data,
which provides historical equities data.
Amendments to LTSE Rule 11.380. Risk Management
To conform the Exchange's risk management rules with those of MEMX
Exchange, the Exchange proposes to amend its LTSE Rule 11.380 to
provide for expanded risk management capabilities for Members by
deleting its current rule text in its entirety and replacing it with
the risk setting offerings as set forth in the Interpretations and
Policies section of MEMX Exchange Rule 11.10, except that it will be
renumbered as rule text.
The Exchange is proposing to adopt (a), which states that it offers
certain risk settings applicable to a User's activities on the
Exchange. The risk settings offered by the Exchange include: (1)
controls related to the size of an order (including restrictions on the
maximum notional value per order and maximum shares per order); (2)
controls related to the price of an order (including percentage-based
and dollar-based controls); (3) controls related to the order types or
modifiers that can be utilized (including premarket, post-market, short
sales and ISOs); (4) controls to restrict the types of securities
transacted (including restricted securities and easy to borrow
securities as well as restricting activity to test symbols only); (5)
controls to prohibit duplicative orders; (6) controls to restrict the
overall rate of orders; (7) controls related to the size of an order as
compared to the average daily volume of the security (including the
ability to specify the minimum average daily volume of the securities
for which such controls will be activated); and (8) credit controls
measuring both gross and net exposure that warn when approached and,
when breached, prevent submission of either all new orders or Market
Orders only.
In proposed (b)(1), the Exchange states that it offers risk
functionality that permits Users to block new orders submitted, to
cancel all open orders, or to both block new orders and cancel all open
orders. Furthermore, the Exchange offers risk functionality that
automatically cancels a User's orders to the extent the User loses its
connection to the Exchange.
In proposed (b)(2), the Exchange states that it offers batch cancel
functionality that permits a User to simultaneously cancel all or a
subset of its orders in one or more symbols by requesting the Exchange
to effect such cancellation. A User initiating such a request may also
request that the Exchange block all or a subset of its new inbound
orders in one or more symbols. The block will remain in effect until
the User requests the Exchange remove the block.
Amendments to LTSE Rule 11.410. Use of Market Data Feeds
The Exchange proposes to amend LTSE Rule 11.410 to conform to MEMX
Rule 13.4 (Usage of Data Feeds), except with regards to order routing,
by amending (a) to add an introductory paragraph explaining that
``[t]he Exchange uses the following data feeds for the handling and
execution of orders, as well as for surveillance necessary to monitor
compliance with applicable securities laws and Exchange rules.'' The
Exchange is then amending the chart included in (a) to show that the
Exchange will utilize CQS/UQDF from all the other markets as its
primary source of data and, at this time, there will be no secondary
source of data.\55\ This is identical to MEMX's usage of data feeds,
except that MEMX uses direct feeds from some exchanges, which LTSE will
not. The Exchange is adopting newly proposed paragraph (b) to conform
with the same paragraph in MEMX Rule 13.4 which states ``The Exchange
may adjust its calculation of the NBBO based on information about
certain orders received by the Exchange.\56\ The Exchange is proposing
to delete paragraphs (1) through (4) under current paragraph (a) and
the entirety of current paragraphs (b), (c) and (d). The Exchange is
proposing deletions of these paragraphs because the rule text was
enacted specifically for the VSM as it operates today but will not be
applicable post-replatforming.
---------------------------------------------------------------------------
\55\ The Exchange is deleting references to CTS/UTDF in the
chart as a source of market data as MEMX does not use it nor will
LTSE upon replatforming.
\56\ The Exchange is not adopting language addressing the use of
information related to order and execution information from the
routing of orders, as MEMX does, because the Exchange does not route
orders to other markets.
---------------------------------------------------------------------------
2. Statutory Basis
LTSE believes that the proposed rule change is consistent with the
provisions
[[Page 46242]]
of Section 6 of the Act,\57\ in general, and furthers the objectives of
Section 6(b)(5) of the Act,\58\ 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.
---------------------------------------------------------------------------
\57\ Id.
\58\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange submits that the proposed rule changes are designed to
support the transition of the technology infrastructure System from its
current platform to one that will significantly enhance the current
System and provide market participants with more opportunities to trade
on the Exchange while minimizing any disruptive effect to Members
interacting with the current System. The Exchange is not proposing any
new or novel rules; in fact, as noted in the Purpose section, above,
the proposed changes conform certain of LTSE's trading rules with those
of the MEMX Exchange to the extent necessary to accomplish the
replatforming of LTSE in a timely and efficient manner, while
minimizing the cost and effort required to accomplish the replatforming
initiative. The Exchange further submits that its proposed new order
types and order handling processes are used by MEMX Exchange and
therefore do not present any significant challenges to their existing
order handling processes.
Additionally, LTSE is proposing to adopt rules that conform with
those of MEMX Exchange and the core functionality in the technology it
is licensing. The Exchange believes such changes would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because they will provide market participants
with consistency of core functionality, including adopting some new
order types and order handling rules, that are already used by MEMX
Exchange.
Generally, LTSE believes that the proposed rules would support the
transition of the technology supporting the Exchange's System from its
current platform to one that will significantly enhance the System and
provide market participants with more opportunities to trade on the
Exchange while minimizing any disruptive effect to Members interacting
with the current System. The Exchange is not proposing any new or novel
rules. The proposed rule changes relating to trading would therefore
remove impediments to and perfect the mechanism of a free and open
market and a national market system because they are based on the rules
of other exchanges.
More specifically, the Exchange is proposing to adopt rules to
conform System functionality with the core functionality in the
technology it is licensing and with similar core functionality as MEMX
Exchange, The Exchange believes such changes would remove impediments
to and perfect the mechanism of a free and open market and a national
market system because they will provide market participants with
consistency of core functionality, including adopting some new order
types and order handling rules, that are widely used throughout the
securities industry. To this extent, the Exchange submits that the
proposed changes also operate to promote just and equitable principles
of trade and the public interest and the protection of investors by
providing for a set of consistent trading rules that are based on rules
of another national securities exchange that have already been approved
by the Commission and have been operating within the national market
system.
Further, the Exchange believes that the proposal does not permit
unfair discrimination between issuers or to regulate by virtue of any
authority conferred by the Act matters not related to the purposes of
the Act or the administration of the Exchange. The instant rule
proposals do not impact issuers, except to the extent that the
replatformed System operating under new trading rules will allow the
potential for greater opportunities for issuers' securities to trade on
LTSE. The Exchange's regulatory authority over its Members will remain
unchanged as a result of the proposed rule amendments.
Finally, the Exchange submits that the licensing of a technology
platform from an unaffiliated third party currently in use by another
registered national securities exchange \59\ and operating pursuant to
rules that have already been approved by the Commission, is the most
efficient and effective option.
---------------------------------------------------------------------------
\59\ The Exchange is proposing to license technology from MEMX
Technologies, which is currently being used by MEMX 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. The proposed rule changes
are designed to facilitate the efficient transition of the System from
the current VSM model to a trading model that will provide for new
order types and order handling processes that are already commonly used
by market participants across a range of trading venues. The fact that
the System will operate using a technology platform provided by an
affiliate of another national securities exchange will not place an
unnecessary burden on competition because neither the LTSE nor the
technology affiliate of another exchange will gain any advantage in
terms of connectivity, speed or any other factor otherwise impacting
the national market system. Each exchange will continue to function
independently of the other and interact to the same extent and in the
same manner as they do today.
The Exchange operates in a highly competitive environment and as
noted in the Purpose section of this rule proposal, the VSM has not
provided the Exchange with a System in which it can serve the needs of
long-term investors while competing with other exchanges on a more
level playing field. To achieve a greater competitive posture, the
Exchange believes that its proposal to adopt rules that better align
with the instance of the trading platform that it is licensing will be
more efficient, require less development time and costs, and will offer
market participants order types and order handling processes with which
they are familiar. In addition, 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
because it is only proposing to amend those trading rules necessary to
assure a smooth transition of the System to the new technology
platform, and will retain rules governing membership, member conduct,
and listings, without changes. Given these factors, the Exchange does
not believe that its proposed changes raise any substantial competitive
issues and will impose no burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may
[[Page 46243]]
designate if it finds such longer period to be appropriate and
publishes its reasons for so finding or (ii) as to which the self-
regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-LTSE-2024-03 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-LTSE-2024-03. 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
a.m. and 3 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-LTSE-2024-03 and should be
submitted on or before June 18, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
---------------------------------------------------------------------------
\60\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11580 Filed 5-24-24; 8:45 am]
BILLING CODE 8011-01-P