Notice2023-01412
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31(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 4874-4877]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-01412]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96714; File No. SR-NYSE-2023-06]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 7.31(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, New York Stock Exchange LLC (``NYSE'' 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
[[Page 4875]]
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(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 7.31(i)(2) to enhance the
Exchange's existing Self Trade Prevention (``STP'') modifiers.
Specifically, the Exchange proposes to allow member organizations the
option to apply STP modifiers to orders submitted not only from the
same MPID, as the rule currently 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 member
organization); and (iii) Affiliates of the member organization.
Background
Currently, Rule 7.31(i)(2) offers optional anti-internalization
functionality to member organizations in the form of STP modifiers that
enable a member organization to prevent two of its orders from
executing against each other. Currently, member organizations can set
the STP modifier to apply at the ``MPID'' level.\4\ 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.
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\4\ The Exchange decommissioned the Pillar Phase I protocols
described in Rule 7.31(i)(2)(F).
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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.\5\
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\5\ 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 7.31(i)(2) in three ways,
each of which would enhance member organizations' 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 a member
organization to set the STP modifiers to apply at the level of a
subidentifier of an MPID. This change would allow member organizations
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.\6\
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\6\ 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 7.31(i)(2) to permit a
member organization to set the STP modifiers to prevent orders from
different MPIDs from executing against each other. The proposed
amendment would address this by allowing member organizations to apply
STP modifiers at the level of ``Client ID,'' which would be an
identifier designated by the member organization.\7\ As proposed, a
Client ID would function similarly to an MPID in that it would be a
unique identifier assigned to a member organization. The Exchange
believes that this proposed enhancement would provide member
organizations 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.\8\
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\7\ Note that the term ``Client ID'' would no longer have the
definition ascribed to it in subparagraph (F) of Rule 7.31(i)(2), as
the Exchange proposes to delete that subparagraph as obsolete. See
infra note 9 and accompanying text.
\8\ See, e.g., MIAX Pearl, LLC (``MIAX Pearl'') 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 7.31(i)(2) to permit
member organizations to direct orders not to execute against orders
entered across MPIDs associated with Affiliates of the member
organization that are also member organizations.\9\ This change would
expand the availability of the STP functionality to member
organizations that have divided their business activities between
separate corporate entities without disadvantaging them when compared
to member organizations that operate their business activities within a
single corporate entity.
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\9\ The proposed definition of ``Affiliate'' is identical to the
one currently provided in the Exchange's Price List. See NYSE Price
List, ``General'' section II(c) (``For purposes of this Fee
Schedule, the term `affiliate' shall mean any member organization
under 75% common ownership or control of that member
organization.''). 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 member organizations 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 member organization and its
Affiliates, in addition to at the MPID level as the current rule
provides. These proposed changes would help member organizations better
manage their order flow and prevent undesirable executions or the
potential for ``wash sales'' that might otherwise occur.
[[Page 4876]]
To effect these changes, the Exchange proposes to amend the first
sentence of Rule 7.31(i)(2) and add a new sentence as follows (proposed
text italicized, 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;[, as designated by the member
organization] 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 member
organization under 75% common ownership or control of that member
organization.'' The Exchange further proposes to replace references to
``Client ID'' in Rules 7.31(i)(2)(A)-(E) and related subparagraphs with
the term ``Unique Identifier.'' The Exchange also proposes to delete
subparagraph (F) of Rule 7.31(i)(2) as obsolete, since it pertains to
Pillar Phase I and II protocols that were in place during the
Exchange's migration to Pillar, which was completed in 2021.\10\
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\10\ See Securities Exchange Act Release No. 93496 (November 1,
2021), 86 FR 61354 (November 5, 2021) (SR-NYSE-2021-63) (eliminating
obsolete Pillar port transition fee pricing in light of completion
of migration).
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While this proposal would expand how a member organization 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 7.31(i)(2) will not
alleviate or otherwise exempt member organizations from their best
execution obligations. As such, member organizations 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,\11\ in general, and furthers the
objectives of section 6(b)(5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 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
member organizations may apply STP modifiers will provide member
organizations 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 member organizations because the proposed
STP protections will be available to all member organizations, and
member organizations that prefer setting STP modifiers at the MPID
level will still be able to do so. In addition, allowing member
organizations to apply STP modifiers to trades submitted by their
Affiliates that are also member organizations 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.\13\ Consequently, the Exchange does not believe
that this change raises new or novel issues not already considered by
the Commission.
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\13\ See supra notes 5 and 8.
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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 member organizations 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 member organizations 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
[[Page 4877]]
Act \14\ and Rule 19b-4(f)(6) \15\ thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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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A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ 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.\18\
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\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ 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#82f0f7eee7afe1edefefe7ecf6f1c2f1e7e1ace5edf4"><span class="__cf_email__" data-cfemail="e496918881c9878b8989818a9097a4978187ca838b92">[email protected]</span></a>. Please include
File Number SR-NYSE-2023-06 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-NYSE-2023-06. 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-NYSE-2023-06 and should be submitted on
or before February 15, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01412 Filed 1-24-23; 8:45 am]
BILLING CODE 8011-01-P
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