Notice2023-05270
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.62P-O(i)(2)
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Published
March 15, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 50 (Wednesday, March 15, 2023)</title>
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[Federal Register Volume 88, Number 50 (Wednesday, March 15, 2023)]
[Notices]
[Pages 16071-16074]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-05270]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97088; File No. SR-NYSEARCA-2023-23]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule
6.62P-O(i)(2)
March 9, 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 March 3, 2023, NYSE Arca, Inc. (``NYSE Arca'' 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 6.62P-O(i)(2) to enhance the
Exchange's existing Self Trade Prevention 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 6.62P-O(i)(2) to enhance the
Exchange's existing Self Trade Prevention (``STP'') modifiers.
Specifically, the Exchange proposes to allow OTP Holders or OTP Firms
(collectively referred to as ``OTP Holders'' herein) the option to
apply STP modifiers to orders or quotes submitted not only from the
same market participant identifier (``MPID'') and, if specified, any
subidentifier of that MPID, as the current rule provides, but also to
orders or quotes submitted from (i) other MPIDs associated with the
same Client ID (as designated by the OTP Holder); and (ii) Affiliates
of the OTP Holder.
Background
Currently, Rule 6.62P-O(i)(2) offers optional anti-internalization
functionality to OTP Holders in the form of STP modifiers that enable
an OTP Holder to prevent two of its orders or quotes from executing
against each other.\4\ Currently, OTP Holders can set the STP modifier
to apply at the MPID level and, if specified, at the subidentifier of
that MPID level.\5\ The STP modifier on the order or quote with the
most recent time stamp controls the interaction between two orders or
quotes marked with STP modifiers. STP functionality assists market
participants
[[Page 16072]]
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.\6\ 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\ See Rule 6.62P-O(i)(2) (providing that ``[a]n 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.'').
\5\ The Exchange will refer simply to ``orders'' and ``quotes''
throughout this filing for brevity, but acknowledges that Rule
6.62P-O(i)(2) prevents certain ``Aggressing Orders'' or ``Aggressing
Quotes'' marked with an STP modifier from trading with certain
resting orders or quotes also designated with an STP modifier. Rule
6.76P-O(a)(5) defines ``Aggressing Orders'' and ``Aggressing
Quotes'' as ``a buy (sell) order or quote that is or becomes
marketable against sell (buy) interest on the Consolidated Book''
and further provides that ``[a] resting order or quote may become an
Aggressing Order or Aggressing Quote if its working price changes,
the NBBO is updated, there are changes to other orders or quotes on
the Consolidated Book, or when processing inbound messages.''
\6\ Options Market Makers enter quotes and orders, which orders
and quotes the Exchange processes together with respect to ranking
and display. For this reason, STP Modifier instructions can be added
to both orders and quotes. Providing STP functionality for quotes
facilitates risk management for Market Makers.
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Proposed Amendment
The Exchange proposes to amend the Rule 6.62P-O(i)(2) to enhance
OTP Holders' flexibility over the levels at which orders or quotes may
be grouped for the purposes of applying the Exchange's existing STP
modifiers.
First, the Exchange proposes to amend Rule 6.62P-O(i)(2) to permit
an OTP Holder to set the STP modifiers to prevent orders or quotes from
different MPIDs from executing against each other. The proposed
amendment would address this by allowing OTP Holders to apply STP
modifiers at the level of ``Client ID,'' which would be an identifier
designated by the OTP Holder. As proposed, a Client ID would function
similarly to an MPID in that it would be a unique identifier assigned
to an OTP Holder. The Exchange believes that this proposed enhancement
would provide OTP Holders with greater flexibility in how they instruct
the Exchange to apply STP modifiers to their orders and quotes. 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, except that the proposed functionality
(consistent with current functionality) would apply to both orders and
quotes.\7\
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\7\ 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')''). The Exchange's
affiliated national securities exchanges likewise offer similar STP
functionality. See NYSE Arca Equities Rule 7.31-E(i)(2) (providing
STP functionality consistent with proposed Rule 6.62P-O(i)(2),
except that for purposes of that rule an ``Affiliate'' refers to
entities under 75% common ownership, which definition aligns with
the definition set forth in that exchange's fee schedule); NYSE
American LLC Rule 7.31E(i)(2) (same); NYSE LLC Rule 7.31(i)(2)
(same); NYSE National, Inc. Rule 7.31(i)(2) (same); and NYSE
Chicago, Inc. Rule 7.31(i)(2) (same). As noted herein, the proposed
STP functionality differs from functionality offered on these
equities exchanges (including the Exchange's affiliated equities
exchanges) because it extends to Market Maker quotes for options
trading.
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Second, the Exchange proposes to amend Rule 6.62P-O(i)(2) to permit
OTP Holders to direct orders or quotes not to execute against orders or
quotes entered across MPIDs associated with Affiliates of the OTP
Holder that are also OTP Holders.\8\ This change would expand the
availability of the STP functionality to OTP Holders that have divided
their business activities between separate corporate entities without
disadvantaging them when compared to OTP Holders that operate their
business activities within a single corporate entity.
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\8\ Per Rule 1.1, ``[a]n `affiliate' of, or person `affiliated'
with a specific person, is a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified.'' The Exchange
notes that relying on the established definition of affiliate for
purposes of the proposed STP functionality is not new or novel. See,
e.g., MIAX Pearl Equities Rule 2614(f) (for purposes of an STP
``Unique Identifier,'' cross-referencing the definition of affiliate
in regards to what constitutes ``Equity Member Affiliates'').
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The Exchange believes that these enhancements will all provide
helpful flexibility for OTP Holders by expanding their ability to apply
STP modifiers at multiple levels, including across multiple MPIDs of
the same Client ID, and across multiple MPIDs of the OTP Holder and its
Affiliate. These proposed changes would help OTP Holders better manage
their quotes and 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 6.62P-O(i)(2) and add a new sentence as follows
(proposed text italicized): ``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 and from the same
Client ID; the same MPID, and, if specified, any subidentifier of that
MPID; or an Affiliate (as defined in Rule 1.1) identifier (any such
identifier, a ``Unique Identifier''). The Exchange further proposes to
replace references to ``MPID'' in Rules 6.62P-O(i)(2)(A)-(C) with the
term ``Unique Identifier.''
While this proposal would expand how an OTP Holder can designate
orders and quotes 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 or quotes interacting within
a relevant level.
The Exchange notes that, as with its current anti-internalization
functionality, use of the proposed revised Rule 6.62P-O(i)(2) will not
alleviate or otherwise exempt OTP Holders from their best execution
obligations. As such, OTP 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 such
orders not been inhibited by anti-internalization.
Timing and Implementation
The Exchange proposes to implement this proposed rule change within
60 days of the effectiveness of this rule filing, but in no case later
than the end of the second quarter of 2023.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\9\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\10\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 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
OTP Holders may apply STP modifiers will provide OTP 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 OTP Holders because the proposed STP
protections will be available to all OTP Holders, and OTP Holders that
prefer setting STP modifiers at the MPID level and, if
[[Page 16073]]
specified, at the subidentifier of that MPID level, will still be able
to do so. In addition, allowing OTP Holders to apply STP modifiers to
trades submitted by their Affiliates that are also OTP 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 exchanges have rules that
allow affiliate grouping for their own anti-internalization
functionality.\11\ Consequently, the Exchange does not believe that
this change raises new or novel issues not already considered by the
Commission.
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\11\ See supra note 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 and
quotes may be grouped for STP purposes, thereby incentivizing OTP
Holders to send orders and quotes 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 OTP Holders
can determine whether to apply anti-internalization protections to
orders and quotes submitted to the Exchange, and if so, at what level
to apply those protections (e.g., MPID, subidentifier, Client ID, or
Affiliate level). There is no barrier to other national securities
exchanges adopting similar anti-internalization groupings as those
proposed herein.
C. 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 \12\ and Rule 19b-
4(f)(6) \13\ thereunder.
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ 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 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 within 60 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.\16\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ 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#4331362f266e202c2e2e262d3730033026206d242c35"><span class="__cf_email__" data-cfemail="b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2023-23 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-2023-23. 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-2023-23 and
[[Page 16074]]
should be submitted on or before April 5, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05270 Filed 3-14-23; 8:45 am]
BILLING CODE 8011-01-P
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