Notice2023-01409
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31E(i)(2)
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Published
January 25, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 16 (Wednesday, January 25, 2023)</title>
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[Federal Register Volume 88, Number 16 (Wednesday, January 25, 2023)]
[Notices]
[Pages 4859-4861]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-01409]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96715; File No. SR-NYSEAMER-2023-05]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 7.31E(i)(2)
January 19, 2023.
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 January 12, 2023, 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 Exchange. 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(i)(2) to enhance the
Exchange's existing Self Trade Prevention (``STP'') modifiers. 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(i)(2) to enhance the
Exchange's existing Self Trade Prevention (``STP'') modifiers.
Specifically, the Exchange proposes to allow ETP Holders the option to
apply STP modifiers to orders submitted not only from the same MPID, as
the current rule provides, but also to orders submitted from (i) the
same subidentifier of a particular MPID; (ii) other MPIDs associated
with the same Client ID (as designated by the ETP Holder); and (iii)
Affiliates of the ETP Holder.
Background
Currently, Rule 7.31E(i)(2) offers optional anti-internalization
functionality to ETP Holders in the form of STP modifiers that enable
an ETP Holder to prevent two of its orders from executing against each
other. Currently, ETP Holders can set the STP modifier to apply at the
market participant identifier (``MPID'') level. The STP modifier on the
order with the most recent time stamp controls the interaction between
two orders marked with STP modifiers. STP functionality assists market
participants by allowing firms to better prevent unintended executions
with themselves and to reduce the potential for ``wash sales'' that may
occur as a result of the velocity of trading in a high-speed
marketplace. STP functionality also assists market participants in
reducing trading costs from unwanted executions potentially resulting
from the interaction of executable buy and sell trading interest from
the same firm.
The Exchange notes that several equities exchanges--including IEX,
Nasdaq, Nasdaq BX, Nasdaq Phlx, and MIAX Pearl Equities--have all
recently amended their rules to provide additional levels at which
orders may be grouped for the purposes of applying their anti-
internalization rules. As such, the proposed changes herein are not
novel and are familiar to market participants.\4\
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\4\ Several other equity exchanges recently amended their rules
to allow affiliate grouping for their own anti-internalization
functionality. See, e.g., Securities Exchange Act Release Nos. 96187
(October 31, 2022), 87 FR 66764 (November 4, 2022) (SR-IEX-2022-08);
96156 (October 25, 2022), 87 FR 65633 (October 31, 2022) (SR-BX-
2022-020); 96154 (October 25, 2022), 87 FR 65631 (October 31, 2022)
(SR-Phlx-2022-43); 96069 (October 13, 2022), 87 FR 63558 (October
19, 2022) (SR-NASDAQ-2022-56, implemented by SR-NASSDAQ-2022-60);
and 96334 (November 16, 2022), 87 FR 71368 (November 22, 2022) (SR-
PEARL-2022-48).
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Proposed Amendment
The Exchange proposes to amend the Rule 7.31E(i)(2) in three ways,
each of which would enhance ETP Holders' flexibility over the levels at
which orders may be grouped for the purposes of applying the Exchange's
existing STP modifiers.
First, the Exchange proposes to amend the rule to permit an ETP
Holder to set the STP modifiers to apply at the level of a
subidentifier of an MPID. This change would allow ETP Holders to
prevent orders sent from the same subidentifier of a particular MPID
from executing against each other, but permit orders sent from
different subidentifiers of the same MPID to interact.\5\
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\5\ This functionality exists on the Exchange's affiliate
exchange Arca Options, and as such is not novel and is familiar to
market participants. See Arca Options Rule 6.62P-O(i)(2) (``An
Aggressing Order or Aggressing Quote to buy (sell) designated with
one of the STP modifiers in this paragraph will be prevented from
trading with a resting order or quote to sell (buy) also designated
with an STP modifier from the same MPID, and, if specified, any
subidentifier of that MPID.'').
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Second, the Exchange proposes to amend Rule 7.31E(i)(2) to permit
an ETP Holder to set the STP modifiers to prevent orders from different
MPIDs from executing against each other. The proposed amendment would
address this by allowing ETP Holders to apply STP modifiers at the
level of ``Client ID,'' which would be an identifier designated by the
ETP Holder. As proposed, a Client ID would function similarly to an
MPID in that it would be a unique identifier assigned to an ETP Holder.
The Exchange believes that this proposed enhancement would provide ETP
Holders with greater flexibility in how they instruct the Exchange to
apply STP modifiers to their orders. The Exchange notes that it is not
novel for an exchange to provide its members with multiple methods by
which to designate anti-internalization instructions.\6\
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\6\ See, e.g., MIAX Pearl, LLC (``MIAX Pearl Equities'') Rule
2614(f) (specifying that Self-Trade Prevention Modifiers will be
applicable to orders ``from the same MPID, Exchange member
identifier, trading group identifier, or Equity Member Affiliate
(any such identifier, a `Unique Identifier')'').
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Third, the Exchange proposes to amend Rule 7.31E(i)(2) to permit
ETP Holders to direct orders not to execute against orders entered
across MPIDs associated with Affiliates of the ETP Holder that are also
ETP Holders.\7\ This change would expand the availability of the STP
functionality to ETP Holders that have divided their business
activities between separate corporate entities without disadvantaging
them when compared to ETP Holders that
[[Page 4860]]
operate their business activities within a single corporate entity.
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\7\ The proposed definition of ``Affiliate'' is identical to the
one currently provided in the Exchange's Price List. See Price List,
``General'' section II(c) (``For purposes of this Fee Schedule, the
term ``affiliate'' shall mean any [ETP Holder] under 75% common
ownership or control of that [ETP Holder].''). This 75% threshold is
not novel. See, e.g., Nasdaq PHLX LLC (``Nasdaq PHLX'') Equity 4,
Rule 3307(c)
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The Exchange believes that these enhancements will all provide
helpful flexibility for ETP Holders by expanding their ability to apply
STP modifiers at multiple levels, including within a subidentifier of a
single MPID, across multiple MPIDs of the same Client ID, and across
multiple MPIDs of the ETP Holder and its Affiliates, in addition to at
the MPID level as the current rule provides. These proposed changes
would help ETP Holders better manage their order flow and prevent
undesirable executions or the potential for ``wash sales'' that might
otherwise occur.
To effect these changes, the Exchange proposes to amend the first
sentence of Rule 7.31E(i)(2) and add a new sentence as follows
(proposed text underlined, deletions in brackets): ``Any incoming order
to buy (sell) designated with an STP modifier will be prevented from
trading with a resting order to sell (buy) also designated with an STP
modifier and from the same Client ID; the same MPID and, if specified,
any subidentifier; or an Affiliate identifier (any such identifier, a
``Unique Identifier''). For purposes of this rule, the term
``Affiliate'' means any ETP Holder under 75% common ownership or
control of that ETP Holder.'' The Exchange further proposes to replace
references to ``MPID'' in Rules 7.31E(i)(2)(A)-(D) with the term
``Unique Identifier.''
While this proposal would expand how an ETP Holder can designate
orders with an STP modifier, nothing in this proposal would make
substantive changes to the STP modifiers themselves or how they would
function with respect to two orders interacting within a relevant
level.
The Exchange notes that, as with its current anti-internalization
functionality, use of the proposed revised Rule 7.31E(i)(2) will not
alleviate or otherwise exempt ETP Holders from their best execution
obligations. As such, ETP Holders using the proposed enhanced STP
functionality will continue to be obligated to take appropriate steps
to ensure that customer orders that do not execute because they were
subject to anti-internalization ultimately receive the same price, or a
better price, than they would have received had execution of the orders
not been inhibited by anti-internalization.
Timing and Implementation
The Exchange anticipates that the technology changes required to
implement this proposed rule change will become available on a rolling
basis, beginning less than 30 days from the date of filing, to be
completed by the end of the first quarter of 2023.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\8\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\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 regulating,
clearing, settling, processing information with respect to, and
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,
and because it is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that the proposed rule change
will remove impediments to and perfect the mechanism of a free and open
market and a national market system and is consistent with the
protection of investors and the public interest because enhancing how
ETP Holders may apply STP modifiers will provide ETP Holders with
additional flexibility with respect to how they implement self-trade
protections provided by the Exchange that may better support their
trading strategies.
The Exchange believes that the proposed rule change does not
unfairly discriminate among ETP Holders because the proposed STP
protections will be available to all ETP Holders, and ETP Holders that
prefer setting STP modifiers at the MPID level will still be able to do
so. In addition, allowing ETP Holders to apply STP modifiers to trades
submitted by their Affiliates that are also ETP Holders is intended to
avoid disparate treatment of firms that have divided their various
business activities between separate corporate entities as compared to
firms that operate those business activities within a single corporate
entity.
Finally, the Exchange notes that other equity exchanges recently
amended their rules to allow affiliate grouping for their own anti-
internalization functionality and similarly use a 75% threshold of
common ownership for assessing whether such orders would be eligible
for this enhancement.\10\ Consequently, the Exchange does not believe
that this change raises new or novel issues not already considered by
the Commission.
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\10\ See supra notes 4 and 7.
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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. To the contrary, the
proposal is designed to enhance the Exchange's competitiveness by
providing additional flexibility over the levels at which orders may be
grouped for STP purposes, thereby incentivizing ETP Holders to send
orders to the Exchange and increase the liquidity available on the
Exchange. The Exchange also notes that the proposed new STP grouping
options, like the Exchange's current anti-internalization
functionality, are completely optional and ETP Holders can determine
whether to apply anti-internalization protections to orders submitted
to the Exchange, and if so, at what level to apply those protections
(e.g., MPID, subidentifier, Client ID, or Affiliate level). The
proposed rule change would also improve the Exchange's ability to
compete with other exchanges that recently amended their rules to
expand the groupings for their own anti-internalization functionality.
There is no barrier to other national securities exchanges adopting
similar anti-internalization groupings as those proposed herein.
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 after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) \12\ thereunder.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization 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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[[Page 4861]]
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 so that the proposed
rule change may become operative upon filing. The Exchange requested
the waiver because it would enable the Exchange to compete with other
exchanges that have recently amended their rules to expand the levels
at which orders may be grouped for STP purposes. The Exchange states
that at least one such competitor exchange plans to introduce similar
capabilities to market participants as early as January 9, 2023. The
Exchange also states that it is currently working on technological
solutions to meet this competition and to make similar offerings
available to market participants as soon as possible. The Exchange
expects to begin rolling out this functionality in less than 30 days
from the date of filing, and thus requests waiver of the operative
delay in order to promptly meet market competition. For these reasons,
and because the proposed rule change does not raise any novel
regulatory issues, the Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the 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 the 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#d7a5a2bbb2fab4b8babab2b9a3a497a4b2b4f9b0b8a1"><span class="__cf_email__" data-cfemail="7103041d145c121e1c1c141f0502310214125f161e07">[email protected]</span></a>. Please include
File Number SR-NYSEAMER-2023-05 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-2023-05. 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-2023-05 and should be submitted
on or before February 15, 2023.
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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01409 Filed 1-24-23; 8:45 am]
BILLING CODE 8011-01-P
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