[Federal Register Volume 89, Number 148 (Thursday, August 1, 2024)]
[Notices]
[Pages 62815-62817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16940]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100609; File No. SR-NYSE-2024-40]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 7.31(f)(1)

July 26, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on July 16, 2024, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.31(f)(1) regarding Directed 
Orders. The proposed rule change is available on the Exchange's website 
at www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    Rule 7.31(f)(1) currently defines a Directed Order as a Limit Order 
with instructions to route on arrival at its limit price to a specified 
alternative trading system (``ATS'') with which the Exchange maintains 
an electronic linkage. Directed Orders are available for all securities 
eligible to trade on the Exchange. Directed Orders are not assigned a 
working time and do not interact with interest on the Exchange Book. 
Rule 7.31(f)(1) further provides that the ATS to which a Directed Order 
is routed is responsible for validating whether the order is eligible 
to be accepted, and if such ATS determines to reject the order, the 
order would be cancelled.
    Rule 7.31(f)(1)(A) provides that a Directed Order must be 
designated for the Exchange's Core Trading Session. A Directed Order 
must be designated with a Time in Force modifier of IOC or Day and is 
routed to the specified ATS with such modifier. Rule 7.31(f)(1)(A) also 
provides that a Directed Order may not be designated with any other 
modifiers defined in Rule 7.31.
    Rule 7.31(f)(1)(B) provides that a Directed Order in a security to 
be opened in an initial public offering (``IPO'') or a Direct Listing 
will be rejected if received before the IPO Auction or Direct Listing 
Auction concludes.
    Rule 7.31(f)(1)(C) provides that an incoming Directed Order will be 
rejected if received during a trading halt or pause.
    Rule 7.31(f)(1)(D) provides that a request to cancel a Directed 
Order designated Day is routed to the ATS to which the order was 
routed.
Proposed Rule Change
    The Exchange proposes to amend Rule 7.31(f)(1) to provide for 
Directed Orders routed to an algorithm. Specifically, the Exchange 
proposes to permit Directed Orders to be designated to route to a 
broker-dealer algorithm with which the Exchange has established 
connectivity.\4\ As proposed, the member organization entering the 
Directed Order would select the algorithm to which the Directed Order 
would be routed and provide instructions for the handling of such order 
by the routing destination. As with the existing Directed Order routed 
to an ATS, the Exchange's only role would be to route the order to the 
designated algorithm as instructed. Consistent with current rules 
governing the Directed Order to an ATS, a Directed Order designated for 
an algorithm would not interact with the Exchange Book, and the 
Exchange would not exercise any discretion in determining where the 
order is routed. Similarly, the algorithm selected by the member 
organization entering the Directed Order would be responsible for 
validating whether the order is eligible to be accepted, and if the 
algorithm determines to reject the order, the Directed Order would be 
cancelled.
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    \4\ The Exchange proposes to route such Directed Orders only to 
a range of broker-dealer algorithms that have completed its 
qualification and onboarding processes to establish routing 
connectivity with the Exchange. The Exchange does not currently have 
and will not enter into any financial or other arrangements with any 
algorithm provider, and will not enter into any such arrangement 
with any algorithm provider with respect to the proposed Directed 
Orders.
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    To effect this change, the Exchange first proposes to amend the 
definition of a Directed Order in Rule 7.31(f)(1) to provide that a 
Directed Order is a Limit Order or Market Order with instructions to 
route on arrival to an ATS or algorithm with which the Exchange 
maintains an electronic linkage. Directed Orders will continue to be 
available for all securities eligible to trade on the Exchange and will 
not be assigned a working time or interact with interest on the 
Exchange Book. The Exchange further proposes to amend Rule 7.31(f)(1) 
to specify that the ATS or algorithm to which the Directed Order is 
routed, as applicable, will validate whether the order is eligible to 
be accepted, and if it rejects the order, the order will be cancelled.
    In amending Rule 7.31(f)(1) to allow for the routing of Directed 
Orders to an algorithm, the Exchange also proposes to permit Directed 
Orders to be entered as either a Limit Order or Market Order. The 
Exchange believes that permitting Directed Orders to be entered as 
Market Orders would facilitate market participants' existing functional 
workflows when routing to algorithms. A member organization routing a 
Directed Order to an algorithm may, for example, wish to send a parent 
order with Market Order instructions for execution via smaller limited 
child orders over several hours of the trading day.
    The Exchange next proposes to delete current Rule 7.31(f)(1)(A), 
which provides that Directed Orders must be designated for the 
Exchange's Core Trading Session, must be designated either IOC or Day, 
and may not be designated with any other modifiers defined in Rule 
7.31. Consistent with this proposed change, the Exchange also proposes 
to delete current Rule 7.34(c)(1)(E), which provides that Directed 
Orders designated for the Early Trading Session will be rejected, and 
to make a conforming change in Rule 7.34(c)(1) to reference 
``paragraphs (c)(1)(A) through (D)'' to reflect the deletion of Rule 
7.34(c)(1)(E). The Exchange's proposal to permit Directed Orders to be 
routed during any trading session is intended to allow the routing

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destinations receiving such orders to determine whether they are 
eligible to trade in a given trading session. The Exchange will pass on 
the instructions provided by the member organization entering the 
Directed Order, and the routing destination will be responsible for 
validating whether the order will be accepted or rejected, as 
contemplated by Rule 7.31(f)(1).
    The Exchange next proposes to renumber current Rule 7.31(f)(1)(B) 
as Rule 7.31(f)(1)(A) to reflect the deletion of current Rule 
7.31(f)(1)(A) and to amend new Rule 7.31(f)(1)(A) to provide that a 
Directed Order that is a Market Order in a security to be opened in an 
IPO or Direct Listing will be rejected if received before the IPO 
Auction or Direct Listing Auction concludes. This proposed change would 
permit the Exchange to route Directed Orders that are Limit Orders in 
securities to be opened in an IPO or Direct Listing, but not Directed 
Orders that are Market Orders.
    The Exchange also proposes to amend current Rule 7.31(f)(1)(C), 
which provides that incoming Directed Orders would be rejected during 
trading halts or pauses, and to renumber it as Rule 7.31(f)(1)(B) to 
reflect the deletion of current Rule 7.31(f)(1)(A) as described above. 
The Exchange proposes that new Rule 7.31(f)(1)(B) would provide that, 
during a trading halt or pause, Directed Orders would be routed to the 
specified ATS or algorithm. The Exchange believes that the proposed 
elimination of the restrictions on Directed Orders currently set forth 
in Rules 7.31(f)(1)(A) and (C) would provide member organizations with 
additional flexibility when entering Directed Orders, which would 
remain subject to the rules and specifications of the destinations to 
which such orders are routed. As provided in Rule 7.31(f)(1), as 
amended, the ATS or algorithm to which a Directed Order is routed would 
validate whether the order is eligible to be accepted; accordingly, 
Directed Orders would continue to be limited to the order types and 
modifiers accepted by the destinations to which they are routed and 
subject to such routing destinations' procedures for orders received 
during a trading halt or pause.
    Finally, the Exchange proposes to renumber current Rule 
7.31(f)(1)(D) as Rule 7.31(f)(1)(C) (to reflect the deletion of current 
Rule 7.31(f)(1)(A) and resulting renumbering of current Rules 
7.31(f)(1)(B) and (C)) and to amend the rule to provide that a request 
to cancel a Directed Order will be routed to the ATS or algorithm to 
which the order was routed.
    The proposed change would provide member organizations with a 
technology solution to leverage their existing Exchange connectivity to 
route Directed Orders to either an ATS or algorithm, thereby affording 
them increased access to execution tools and enhanced operational 
efficiency.\5\ The Exchange believes the proposed change would offer 
member organizations greater choice and flexibility, and further 
believes that the proposed change could create efficiencies for member 
organizations by enabling them to send orders that they wish to route 
to an alternate destination through the Exchange, thereby leveraging 
order entry protocols and specifications already configured for their 
interactions with the Exchange. The Exchange notes that Directed Orders 
designated to route to an algorithm would otherwise operate identically 
to Directed Orders that are currently eligible to be routed to an ATS 
selected by the member organization entering the order (with the 
changes described in this filing). The Exchange further believes that 
the Directed Order would continue to provide functionality similar to 
order types with specific execution instructions (such as the Auction-
Only Order defined in NYSE Rule 7.31(c)) or routing instructions (such 
as Primary Only Orders that route to the primary market, as available 
on the Exchange's affiliated equities exchanges).\6\
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    \5\ The Exchange believes that this proposed rule change could 
be particularly beneficial for smaller member organizations that 
cannot, for various reasons including cost, connect to multiple 
algorithm providers on their own.
    \6\ See NYSE American LLC (``NYSE American'') Rule 7.31E(f)(1); 
NYSE Arca, Inc. (``NYSE Arca'') Rule 7.31-E(f)(1); NYSE Chicago, 
Inc. (``NYSE Chicago'') Rule 7.31(f)(1); NYSE National, Inc. (``NYSE 
National'') Rule 7.31(f)(1). NYSE American, NYSE Arca, NYSE Chicago, 
and NYSE National also offer variations of the Primary Only Order, 
including the Primary Only Until 9:45 Order, which is a Limit or 
Inside Limit Order that, on arrival and until 9:45 a.m. Eastern 
Time, routes to the primary listing market, and the Primary Only 
Until 3:55 Order, which is a Limit or Inside Limit Order entered on 
the Exchange until 3:55 p.m. Eastern Time, after which time the 
order is cancelled on the Exchange and routed to the primary listing 
market. See NYSE American Rules 7.31E(f)(2) and (f)(3); NYSE Arca 
Rules 7.31-E(f)(2) and (f)(3); NYSE Chicago Rules 7.31(f)(2) and 
(f)(3); NYSE National Rules 7.31(f)(2) and (f)(3). The Exchange 
further notes similarities between the Directed Order and various 
order types and routing options offered by other equities exchanges. 
See, e.g., Nasdaq Stock Market LLC (``Nasdaq''), Equity 4, Equity 
Trading Rules, Rule 4758(a)(ix) (defining the Nasdaq Directed Order 
as an order designed to use a routing strategy under which the order 
is directed to an automated trading center other than Nasdaq, as 
directed by the entering party, without checking the Nasdaq Book); 
Cboe EDGX Exchange, Inc. (``EDGX'') Rules 11.8(c)(7) (defining the 
Routing/Directed ISO order type as an ISO that bypasses the EDGX 
system and is immediately routed by EDGX to a specified away trading 
center for execution) and 11.11(g)(2) (providing for the DRT routing 
option, in which an order is routed to an alternative trading system 
as instructed); Cboe EDGA Exchange, Inc. (``EDGA'') Rules 11.8(c)(7) 
(defining the Routing/Directed ISO order type as an ISO that 
bypasses the EDGA system and is immediately routed by EDGA to a 
specified away trading center for execution) and 11.11(g)(2) 
(providing for the DRT routing option, in which an order is routed 
to an alternative trading system as instructed); Cboe BZX Exchange, 
Inc. (``BZX'') Rules 11.13(b)(3)(D) (providing for the DRT routing 
option, in which an order is routed to an alternative trading system 
as instructed) and 11.13(b)(3)(F) (defining the Directed ISO routing 
option, under which an ISO order would bypass the BZX system and be 
sent to a specified away trading center); Cboe BYX Exchange, Inc. 
(``BYX'') Rules 11.13(b)(3)(D) (providing for the DRT routing 
option, in which an order is routed to an alternative trading system 
as instructed) and 11.13(b)(3)(F) (defining the Directed ISO routing 
option, under which an ISO order would bypass the BYX system and be 
sent to a specified away trading center). The Exchange also believes 
that the Directed Order would provide functionality similar to the 
C-LNK routing strategy formerly offered by EDGA, in which C-LNK 
orders bypassed EDGA's local book and routed directly to a specified 
Single Dealer Platform destination. See Securities Exchange Act 
Release No. 82904 (March 20, 2018), 83 FR 12995 (March 26, 2018) 
(SR-CboeEDGA-2018-004) (Notice of Filing and Immediate Effectiveness 
of a Proposed Rule Change To Expand an Offering Known as Cboe 
Connect To Provide Connectivity to Single-Dealer Platforms Connected 
to the Exchange's Network and To Propose a Per Share Executed Fee 
for Such Service).
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    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the implementation date by 
Trader Update.\7\ Subject to approval of this proposed rule change, the 
Exchange will implement the proposed change at the earliest in the 
third quarter of 2024 or at the latest in the first quarter of 2025.
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    \7\ The Exchange will provide information regarding the 
algorithm(s) to which a Directed Order may be designated to route in 
technical specifications and/or by Trader Update.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934,\8\ in general, and furthers the 
objectives of Section 6(b)(5),\9\ in particular, because it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to, and perfect the mechanism of, a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
remove impediments to and perfect the mechanism of a free and open 
market and promote just and equitable principles of trade because the 
Directed

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Order, as proposed, would offer member organizations access to 
additional execution tools and trading opportunities by permitting them 
to designate orders submitted to the Exchange to be routed directly to 
a specified algorithm for execution. In particular, the Exchange 
believes that amending the Directed Order to include routing to an 
algorithm would provide greater choice and flexibility for member 
organizations and their customers. The Exchange further believes that 
the proposed change would remove impediments to and perfect the 
mechanism of a free and open market by offering member organizations a 
technology solution that would provide them with the option to send 
orders that they wish to route to an alternate destination for 
execution through the Exchange, thereby promoting operational 
efficiencies through leveraging their existing protocols and 
specifications for Exchange connectivity. Finally, the Exchange notes 
that the proposed functionality is not novel as a Directed Order to an 
algorithm would otherwise function in the same way as the existing 
Directed Order to an ATS (with certain changes as proposed in this 
filing to extend increased flexibility to all Directed Orders), and the 
proposed change would simply facilitate member organizations' existing 
ability to direct orders to be executed via an algorithm.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed change to the rules governing Directed Orders would 
promote competition because it would enhance an order type on the 
Exchange that would provide access to additional execution tools and 
trading opportunities for market participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    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 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-NYSE-2024-40 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-NYSE-2024-40. 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-NYSE-2024-40 and should be 
submitted on or before August 22, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16940 Filed 7-31-24; 8:45 am]
BILLING CODE 8011-01-P