Notice2022-06386
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change To Amend Rule 7.31E(h)(3)
Primary source
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Published
March 28, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 59 (Monday, March 28, 2022)</title>
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[Federal Register Volume 87, Number 59 (Monday, March 28, 2022)]
[Notices]
[Pages 17349-17350]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-06386]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94487; File No. SR-NYSEAMER-2022-15]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing of Proposed Rule Change To Amend Rule 7.31E(h)(3)
March 22, 2022.
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 March 9, 2022, NYSE American LLC (``NYSE American'' or the
``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.
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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 7.31E(h)(3). The proposed rule
change is available on the Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, 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
The Exchange proposes to amend Rule 7.31E(h)(3) to modify certain
factors relevant to the quote instability calculation for Discretionary
Pegged Orders. Specifically, the Exchange proposes to amend Rule
7.31E(h)(3)(D)(i)(D)(1)(a), which sets forth the quote stability
coefficients. Under Rule 7.31E(h)(3)(D)(i)(D)(3), the Exchange may
modify the quote stability coefficients at any time, subject to a
filing of a proposed rule change. The Exchange proposes such changes in
this rule filing.
Discretionary Pegged Orders
Rule 7.31E(h)(3) provides for Discretionary Pegged Orders, which
are Pegged Orders \4\ that may exercise price discretion from their
working price to a discretionary price in order to trade with contra-
side orders on the Exchange Book, except during periods of quote
instability as defined in Rule 7.31E(h)(3)(D).
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\4\ A Pegged Order is a Limit Order that does not route with a
working price that is pegged to a dynamic reference price. If the
designated reference price is higher (lower) than the limit price of
a Pegged Order to buy (sell), the working price will be the limit
price of the order. See Rule 7.31E(h).
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Rule 7.31E(h)(3)(D) provides that the Exchange uses a quote
instability calculation to assess a security's ``quote instability
factor,'' or the probability of an imminent change to the current PBB
to a lower price or PBO to a higher price.\5\ When quoting activity in
a security meets predefined criteria and the quote instability factor
calculated is greater than the Exchange's defined ``quote instability
threshold,'' the Exchange treats the quote as unstable (``quote
instability'' or a ``crumbling quote'').
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\5\ NYSE American Rule 1.1E(dd) defines PBB as the highest
Protected Bid and PBO as the lowest Protected Offer. Rule 1.1E(dd)
also provides that ``PBBO'' means the Best Protected Bid and the
Best Protected Offer.
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Rule 7.31E(h)(3)(D)(i) provides that the Exchange determines a
quote to be unstable when, among other factors, the quote instability
factor result from the quote stability calculation is greater than the
quote instability threshold. To perform the quote stability calculation
and determine the quote instability factor, the Exchange employs a
fixed formula utilizing the quote stability coefficients and quote
stability variables set forth in Rule 7.31E(h)(3)(D)(i)(D)(1)(a) and
Rule 7.31E(h)(3)(D)(i)(D)(1)(b), respectively.
Proposed Rule Change
The Exchange proposes to update the quote stability coefficients
used in the quote instability calculation, which have not been modified
since Rule 7.31E(h)(3) was adopted. The proposed changes are intended
to update the quote stability coefficients to be based on more current
market data and activity on the Exchange, including to reflect the
Exchange's elimination of a delay mechanism that previously added
latency to certain order processing (the ``Delay Mechanism'').\6\
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\6\ The Exchange eliminated the Delay Mechanism, which added a
delay of 350 microseconds of latency to specified order processing,
in 2019. See Securities Exchange Act Release No. 87550 (November 15,
2019), 84 FR 64359 (November 21, 2019) (SR-NYSEAMER-2019-48) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change to
Amend Exchange Rules 1.1E and 7.29E to Eliminate the Delay Mechanism
and Amend Exchange Rule 7.31E and Related Exchange Rules to Re-
Introduce Previously-Approved Order Types and Modifiers).
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The Exchange reviewed NYSE American market data from randomly
selected days in the fourth quarter of 2021 to analyze the
effectiveness of the quote stability coefficients in predicting changes
to the PBBO. Specifically, the Exchange reviewed PBBO data, on a
nanosecond level, for certain intervals throughout each randomly
selected day to track changes to quotes on NYSE American and away
markets. The Exchange used this data to generate and test the proposed
quote stability coefficients, and based on its analysis, believes that
modifying the quote stability coefficients would enable the Exchange to
evaluate the quality of the PBBO more effectively.
The Exchange proposes to modify the quote stability coefficients
set forth in Rule 7.31E(h)(3)(D)(i)(D)(1)(a)(i) through (v) as follows:
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Current Proposed
Quote stability coefficient value value
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C0............................................ -2.39515 -2.174901
[[Page 17350]]
C1............................................ -0.76504 -0.561555
C2............................................ 0.07599 0.077739
C3............................................ 0.38374 0.4860265
C4............................................ 0.14466 0.1627735
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The Exchange believes that its proposed modification of the quote
stability coefficients, based on the market data analysis described
above, would improve the accuracy of the fixed formula used to perform
the quote instability calculation. Specifically, the Exchange believes
that the proposed quote stability coefficients, which have been
adjusted to reflect more recent activity on the Exchange (including the
elimination of the Delay Mechanism), would improve the calibration of
the quote instability calculation to activity on the Exchange, thereby
enhancing the Exchange's ability to predict whether there is quote
instability and protect Discretionary Pegged Orders from exercising
discretion when the PBBO is unstable.
Because of the technology changes associated with this proposed
rule change, the Exchange will announce the implementation date by
Trader Update.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\7\ in general, and furthers the objectives of Section 6(b)(5),\8\
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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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed change would promote just
and equitable principles of trade, remove impediments to, and perfect
the mechanism of, a free and open market and a national market system,
and protect investors and the public interest because it is designed to
increase the effectiveness of the quote instability calculation used to
determine whether a crumbling quote exists. As discussed above, the
proposed change is based on the Exchange's analysis of market data,
which supports that the proposed change would improve the accuracy of
the Exchange's quote instability calculation. Accordingly, the Exchange
believes that the proposed change would remove impediments to, and
perfect the mechanism of, a free and open market and a national market
system, as well as protect investors and the public interest, by
enhancing the Exchange's protection of Discretionary Pegged Orders.
Specifically, because the proposed quote stability coefficients were
derived through an analysis of more recent market data and are
calibrated to reflect current activity on the Exchange (including to
account for the fact that the Exchange no longer operates with the
Delay Mechanism), the Exchange believes that the proposed change would
improve the effectiveness of the quote instability calculation in
predicting periods of quote instability and thus enhance the extent to
which Discretionary Pegged Orders would be protected from unfavorable
executions.
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 would promote competition by improving the accuracy
of the quote instability calculation, thereby enhancing the protection
of Discretionary Pegged Orders from unfavorable executions during
periods of quote instability.
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 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#83f1f6efe6aee0eceeeee6edf7f0c3f0e6e0ade4ecf5"><span class="__cf_email__" data-cfemail="a2d0d7cec78fc1cdcfcfc7ccd6d1e2d1c7c18cc5cdd4">[email protected]</span></a>. Please include
File Number SR-NYSEAMER-2022-15 on the subject line.
Paper Comments
<bullet> 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-NYSEAMER-2022-15. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEAMER-2022-15 and should be submitted
on or before April 18, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06386 Filed 3-25-22; 8:45 am]
BILLING CODE 8011-01-P
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