[Federal Register Volume 89, Number 213 (Monday, November 4, 2024)]
[Notices]
[Pages 87675-87678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25530]
[[Page 87675]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101471; File No. SR-NYSE-2024-67]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 7.31(f)(1)
October 29, 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 October 24, 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.\4\ 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.
\4\ The Exchange originally filed a proposed rule change to
amend NYSE Rule 7.31(f)(1) on July 16, 2024 (SR-NYSE-2024-40). SR-
NYSE-2024-40 was withdrawn on October 24, 2024, and replaced by this
filing.
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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. The Exchange proposes to route Directed Orders only to a
range of broker-dealer algorithms that have completed its onboarding
process and established routing connectivity with the Exchange.\5\ Any
FINRA-registered broker-dealer \6\ is eligible to complete this
process, which is intended, among other things, to ensure that
algorithm providers attest to compliance with applicable Exchange
rules, FINRA rules, and federal securities laws and regulations and to
confirm that they can meet the applicable technical specifications to
connect to the Exchange. Algorithm providers will also be required to
enter into routing agreements with the Exchange's routing broker,
Archipelago Securities LLC (``ArcaSec''), to facilitate ArcaSec's
routing of Directed Orders on behalf of member organizations to
designated algorithms.\7\
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\5\ All broker-dealer algorithms will operate on their
respective systems, not on Exchange systems. 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. The member organization initiating a
Directed Order to an algorithm has ultimate responsibility for any
transaction fees associated with the execution of such order. The
Exchange may facilitate the process by which such fees are passed
through from the algorithm providers to the member organizations
utilizing Directed Orders, as proposed, but will not determine,
subsidize, or benefit from any such fees. Subject to approval and
implementation of this proposed rule change, the Exchange intends to
adopt a routing fee for Directed Orders to an algorithm, similar to
the existing routing fee for Directed Orders to an ATS. See New York
Stock Exchange Price List 2024, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf (providing for
Routing Fee for Directed Order to OneChronos LLC).
\6\ The ability to become an NYSE algorithm provider is open to
all FINRA-registered broker-dealers, regardless of whether they are
also Exchange members, on an equal and non-discriminatory basis.
\7\ The Consolidated Audit Trail (``CAT'') for a Directed Order
would reflect entry of the order at the Exchange; ArcaSec's receipt
of the order from the Exchange; ArcaSec's routing of the order to
the designated algorithm; and the algorithm's routing of the order
to the execution venue(s) selected to effectuate its strategy. The
Exchange will not be involved in the clearing or settlement of
Directed Orders, except to the extent that it may submit certain
trades to clearing on behalf of member organizations (similar to the
capacity in which it participates in the clearing process for orders
that it routes for Regulation NMS purposes).
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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. Member organizations would select from the available
algorithm providers without any input or control from the Exchange. 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. Neither the Exchange nor ArcaSec will make any routing
decisions and will only route Directed Orders to valid destinations as
instructed by the member organization. The Exchange will not have any
visibility into where or how a Directed Order is executed by an
algorithm, including whether that
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order may be routed back to the Exchange or one of its affiliated
exchanges, at the time of execution.\8\ 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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\8\ Exchange systems would not be able to determine, upon
receipt of a routed order, whether such order had originated in
whole or in part from an algorithm or originated at the Exchange as
a Directed Order to an algorithm.
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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 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 designated to route to an algorithm to be Market Orders. The
Exchange believes that permitting Directed Orders routed to algorithms
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 the first sentence of current
Rule 7.31(f)(1)(A), which provides that Directed Orders must be
designated for the Exchange's Core Trading Session. 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 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 further proposes to amend Rule 7.31(f)(1)(A) to
provide that a Directed Order to an ATS must be designated as IOC or
Day and will be routed as such, whereas a Directed Order to an
algorithm may only be designated as Day and routed as such, consistent
with market participants' existing functional workflows when routing to
algorithms. The Exchange also proposes to clarify language currently in
Rule 7.31(f)(1)(A) providing that Directed Orders may not be combined
with any other modifiers set forth in this Rule, to instead provide
that Directed Orders will not be processed with any other modifiers set
forth in this Rule.
The Exchange next proposes to amend Rule 7.31(f)(1)(C) to specify
that, during a trading halt or pause, Directed Orders routed to an ATS
would continue to be rejected, whereas Directed Orders to an algorithm
would be routed as specified. The Exchange proposes that Directed
Orders routed to an algorithm would be routed during a trading halt or
pause, consistent with market participants' existing functional
workflows when routing to algorithms. The Exchange believes that the
proposed elimination of certain 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.
Finally, the Exchange proposes to amend Rule 7.31(f)(1)(D) to
provide that a request to cancel a Directed Order designated Day 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.\9\ 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 generally operate in the same
manner as Directed Orders that are currently eligible to be routed to
an ATS selected by the member organization entering the order (except
as proposed above). 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).\10\
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\9\ 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.
\10\ 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.\11\ Subject to approval of this proposed rule change,
the Exchange will implement the proposed change at the earliest in the
fourth quarter of 2024 or at the latest in the second quarter of 2025.
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\11\ 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,\12\ in general, and furthers the
objectives of Section 6(b)(5),\13\ 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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\12\ 15 U.S.C. 78f(b).
\13\ 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 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 generally function in the same way as the
existing Directed Order to an ATS, 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-2024-67 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-2024-67. 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
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submissions should refer to file number SR-NYSE-2024-67 and should be
submitted on or before November 25, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25530 Filed 11-1-24; 8:45 am]
BILLING CODE 8011-01-P