Notice2022-25230
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31-E
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Published
November 18, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 222 (Friday, November 18, 2022)</title>
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[Federal Register Volume 87, Number 222 (Friday, November 18, 2022)]
[Notices]
[Pages 69376-69378]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-25230]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96322; File No. SR-NYSEARCA-2022-76]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31-
E
November 15, 2022.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 2, 2022, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``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\ 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-E regarding Discretionary
Pegged Orders. 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 (1) amend Rule 7.31-E to delete Commentary
.03 to end the temporary suspension of the Discretionary Pegged Order,
and (2) amend Rule 7.31-E(h)(3) to modify the operation of the
Discretionary Pegged Order.
The Discretionary Pegged Order is a non-displayed order to buy
(sell) that is pegged to the same side of the PBBO and assigned a
working price equal to the lower (higher) of the midpoint of the PBBO
(the ``Midpoint Price'') or the limit price of the order.\3\ A
Discretionary Pegged Order will exercise the least amount of discretion
necessary from its working price to its discretionary price (defined as
the lower (higher) of the Midpoint Price or the limit price of the
order) to trade with contra-side interest. Current Rule 7.31-E(h)(3)(C)
provides that a Discretionary Pegged Order will not exercise discretion
if the PBBO is determined to be unstable via a ``quote instability
calculation'' that assesses the probability of a change to the PBB or
PBO. Specifically, as set forth in current Rule 7.31-E(h)(3)(D), the
Exchange uses the quote instability calculation along with real-time
relative quoting activity of protected quotations to assess the
probability of an imminent change to the PBBO (the ``quote instability
factor''). When the quoting activity meets predefined criteria
described in Rule 7.31-E(h)(3)(D)(i)(A) through (C) and the quote
instability factor calculated is greater than the Exchange's quote
instability threshold (defined in Rule 7.31-E(h)(3)(D)(i)(D)(2)), the
Exchange treats the quote as unstable. The quote stability calculation
utilizes quote stability coefficients and quote stability variables, as
defined in Rules 7.31-E(h)(3)(D)(i)(D)(1)(a) and (b). In July 2022, the
Exchange modified the quote stability calculation to incorporate
updated quote stability coefficients that would allow the quote
stability calculation to more accurately identify changes to the
PBBO.\4\
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\3\ See Rule 7.31-E(h)(3). As defined in NYSE Arca Rule 1.1,
``PBBO'' means the Best Protected Bid and the Best Protected Offer.
Rule 1.1 also defines ``PBB'' as the highest Protected Bid and
``PBO'' as the lowest Protected Offer.
\4\ See Securities Exchange Act Release No. 95154 (June 24,
2022), 87 FR 39134 (June 30, 2022) (SR-NYSEArca-2022-13) (Notice of
Filing of Amendment No. 2 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 2, To Amend
Rule 7.31-E(h)(3) Relating to Discretionary Pegged Orders).
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End of Temporary Suspension
In August 2022, the Exchange added Commentary .03 to Rule 7.31-E to
provide for the temporary suspension of the Discretionary Pegged
Order.\5\ The Exchange determined to temporarily suspend use of the
Discretionary Pegged Order to evaluate system performance impacts
following the modification of the quote stability coefficients, as
described above. Commentary .03 to Rule 7.31-E provides that the
Exchange will submit a proposed rule filing to end the temporary
suspension and will provide notice of the end of the suspension period
by Trader Update.
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\5\ See Securities Exchange Act Release No. 95584 (August 23,
2022), 87 FR 52826 (August 29, 2022) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Amend Rule 7.31-E).
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The Exchange now proposes to end the temporary suspension period,
as it has assessed system performance impact and is prepared to resume
offering the Discretionary Pegged Order, as modified by this filing.
The Exchange also proposes to delete Commentary .03 from 7.31-E to
remove text that would no longer have application once the temporary
suspension is lifted.
Modification of Discretionary Pegged Orders
The Exchange proposes to amend Rule 7.31-E(h)(3) to modify the
operation of Discretionary Pegged Orders following the end of the
temporary suspension period. As noted above, the temporary suspension
period provided the Exchange with an opportunity to evaluate the impact
of the order type on system performance. Based on the Exchange's
assessment of such impact, and, specifically, the system resources
required to perform the quote stability calculation, the Exchange now
proposes to modify Rule 7.31-E(h)(3) to provide that the Discretionary
Pegged Order would not be restricted from exercising discretion during
periods of quote instability, thereby eliminating the need to perform
the quote stability calculation.
As proposed, the Discretionary Pegged Order would operate as
defined in Rule 7.31-E(h)(3) and as specified in current Rules 7.31-
E(h)(3)(A), (B), and (E), without any changes except that the order
would continue to exercise the least amount of price discretion
[[Page 69377]]
necessary from its working price to its discretionary price to trade
with contra-side orders on the NYSE Arca Book without regard to
potential quote instability. The Exchange thus proposes to delete the
clause beginning with ``except'' in the last sentence of current Rule
7.31-E(h)(3). In addition, because the Exchange proposes to permit
Discretionary Pegged Orders to exercise discretion without considering
potential quote instability, the Exchange would no longer perform the
quote instability calculation to assess the probability of an imminent
change to the PBBO or identify periods of quote instability. To effect
this change, the Exchange proposes to delete current Rules 7.31-
E(h)(3)(C) and (D), including the subparagraphs thereunder. The
Exchange also proposes to renumber current Rule 7.31-E(h)(3)(E) as Rule
7.31-E(h)(3)(C) to reflect those deletions.
Although the Discretionary Pegged Order, as modified, would no
longer provide price protection during periods of quote instability,
the Exchange believes that it would still provide ETP Holders with the
flexibility and benefits of an order type that can exercise discretion
to trade with contra-side interest. The Exchange notes that the
Discretionary Pegged Order, as modified, would operate similarly to
order types currently offered by other equities exchanges.\6\
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\6\ See, e.g., Cboe EDGA Exchange, Inc. Rule 11.8(e) (defining
the MidPoint Discretionary Order as a limit order to buy or sell
that is pegged to the NBBO with discretion to execute at prices up
or down to and including the midpoint of the NBBO); Cboe EDGX
Exchange, Inc. Rule 11.8(g) (same).
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Because of the technology changes associated with this proposed
rule change, the Exchange will announce the end of the temporary
suspension and availability of the Discretionary Pegged Order, as
proposed in this filing, by Trader Update. Subject to effectiveness of
this rule filing, the Exchange will implement the changes described
herein in the fourth quarter of 2022.
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 to end the temporary
suspension of Discretionary Pegged Orders and delete Commentary .03
would promote just and equitable principles of trade and remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system because it would permit the Exchange to
resume offering the Discretionary Pegged Order to ETP Holders and
remove rule text that would no longer have application following the
end of the suspension period. Furthermore, as discussed above, the
temporary suspension of the Discretionary Pegged Order allowed the
Exchange an opportunity to evaluate system performance impacts.
Accordingly, the Exchange believes that the proposed change to modify
the operation of the Discretionary Pegged Order, further to such
assessment, 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 continuing to provide ETP Holders
with the benefits of an order type that can exercise discretion to
trade with contra-side interest, without a quote instability
calculation that would restrict such order from exercising discretion
during periods of quote instability. The Exchange also believes that
the proposed modification of the Discretionary Pegged Order would
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system by modifying the Discretionary
Pegged Order to function similarly to discretionary orders currently
offered by other equities exchanges.\9\
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\9\ See note 6, supra.
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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 ending the temporary
suspension of the Discretionary Pegged Order and making the order type
once again available to ETP Holders, as proposed. The proposed
modification of the Discretionary Pegged Order would also promote
competition by permitting the Exchange to offer ETP Holders an order
type that can exercise discretion to trade with contra-side interest
and would not be restricted from doing so by a quote stability
calculation. The Exchange also believes that the proposed modification
to the operation of the Discretionary Pegged Order could promote
competition because the order type would function similarly to order
types currently offered by other equities exchanges.\10\
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\10\ See id.
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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
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of its
intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay to allow the
Exchange to end the temporary suspension and modify the Discretionary
Pegged Order as soon as the technology associated with those proposed
changes is available and make the Discretionary Pegged Order available
for use by interested ETP Holders. The Exchange states that the
proposed changes would allow the Exchange to end the temporary
suspension of an approved order type and modify the order type to
operate similarly to discretionary orders
[[Page 69378]]
currently offered by other equities exchanges. The Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest because the proposal
does not raise any new or novel issues. Accordingly, the Commission
hereby waives the 30-day operative delay and designates the proposal
operative upon filing.\15\
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\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4(f)(6)(iii).
\15\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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#95e7e0f9f0b8f6faf8f8f0fbe1e6d5e6f0f6bbf2fae3"><span class="__cf_email__" data-cfemail="a3d1d6cfc68ec0cccecec6cdd7d0e3d0c6c08dc4ccd5">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2022-76 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-NYSEARCA-2022-76. 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-NYSEARCA-2022-76 and
should be submitted on or before December 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-25230 Filed 11-17-22; 8:45 am]
BILLING CODE 8011-01-P
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