Notice2024-16940
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change To Amend Rule 7.31(f)(1)
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Published
August 1, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 148 (Thursday, August 1, 2024)</title>
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[Federal Register Volume 89, Number 148 (Thursday, August 1, 2024)]
[Notices]
[Pages 62815-62817]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16940]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100609; File No. SR-NYSE-2024-40]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 7.31(f)(1)
July 26, 2024.
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 July 16, 2024, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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 7.31(f)(1) regarding Directed
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
Rule 7.31(f)(1) currently defines a Directed Order as a Limit Order
with instructions to route on arrival at its limit price to a specified
alternative trading system (``ATS'') with which the Exchange maintains
an electronic linkage. Directed Orders are available for all securities
eligible to trade on the Exchange. Directed Orders are not assigned a
working time and do not interact with interest on the Exchange Book.
Rule 7.31(f)(1) further provides that the ATS to which a Directed Order
is routed is responsible for validating whether the order is eligible
to be accepted, and if such ATS determines to reject the order, the
order would be cancelled.
Rule 7.31(f)(1)(A) provides that a Directed Order must be
designated for the Exchange's Core Trading Session. A Directed Order
must be designated with a Time in Force modifier of IOC or Day and is
routed to the specified ATS with such modifier. Rule 7.31(f)(1)(A) also
provides that a Directed Order may not be designated with any other
modifiers defined in Rule 7.31.
Rule 7.31(f)(1)(B) provides that a Directed Order in a security to
be opened in an initial public offering (``IPO'') or a Direct Listing
will be rejected if received before the IPO Auction or Direct Listing
Auction concludes.
Rule 7.31(f)(1)(C) provides that an incoming Directed Order will be
rejected if received during a trading halt or pause.
Rule 7.31(f)(1)(D) provides that a request to cancel a Directed
Order designated Day is routed to the ATS to which the order was
routed.
Proposed Rule Change
The Exchange proposes to amend Rule 7.31(f)(1) to provide for
Directed Orders routed to an algorithm. Specifically, the Exchange
proposes to permit Directed Orders to be designated to route to a
broker-dealer algorithm with which the Exchange has established
connectivity.\4\ As proposed, the member organization entering the
Directed Order would select the algorithm to which the Directed Order
would be routed and provide instructions for the handling of such order
by the routing destination. As with the existing Directed Order routed
to an ATS, the Exchange's only role would be to route the order to the
designated algorithm as instructed. Consistent with current rules
governing the Directed Order to an ATS, a Directed Order designated for
an algorithm would not interact with the Exchange Book, and the
Exchange would not exercise any discretion in determining where the
order is routed. Similarly, the algorithm selected by the member
organization entering the Directed Order would be responsible for
validating whether the order is eligible to be accepted, and if the
algorithm determines to reject the order, the Directed Order would be
cancelled.
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\4\ The Exchange proposes to route such Directed Orders only to
a range of broker-dealer algorithms that have completed its
qualification and onboarding processes to establish routing
connectivity with the Exchange. The Exchange does not currently have
and will not enter into any financial or other arrangements with any
algorithm provider, and will not enter into any such arrangement
with any algorithm provider with respect to the proposed Directed
Orders.
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To effect this change, the Exchange first proposes to amend the
definition of a Directed Order in Rule 7.31(f)(1) to provide that a
Directed Order is a Limit Order or Market Order with instructions to
route on arrival to an ATS or algorithm with which the Exchange
maintains an electronic linkage. Directed Orders will continue to be
available for all securities eligible to trade on the Exchange and will
not be assigned a working time or interact with interest on the
Exchange Book. The Exchange further proposes to amend Rule 7.31(f)(1)
to specify that the ATS or algorithm to which the Directed Order is
routed, as applicable, will validate whether the order is eligible to
be accepted, and if it rejects the order, the order will be cancelled.
In amending Rule 7.31(f)(1) to allow for the routing of Directed
Orders to an algorithm, the Exchange also proposes to permit Directed
Orders to be entered as either a Limit Order or Market Order. The
Exchange believes that permitting Directed Orders to be entered as
Market Orders would facilitate market participants' existing functional
workflows when routing to algorithms. A member organization routing a
Directed Order to an algorithm may, for example, wish to send a parent
order with Market Order instructions for execution via smaller limited
child orders over several hours of the trading day.
The Exchange next proposes to delete current Rule 7.31(f)(1)(A),
which provides that Directed Orders must be designated for the
Exchange's Core Trading Session, must be designated either IOC or Day,
and may not be designated with any other modifiers defined in Rule
7.31. Consistent with this proposed change, the Exchange also proposes
to delete current Rule 7.34(c)(1)(E), which provides that Directed
Orders designated for the Early Trading Session will be rejected, and
to make a conforming change in Rule 7.34(c)(1) to reference
``paragraphs (c)(1)(A) through (D)'' to reflect the deletion of Rule
7.34(c)(1)(E). The Exchange's proposal to permit Directed Orders to be
routed during any trading session is intended to allow the routing
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destinations receiving such orders to determine whether they are
eligible to trade in a given trading session. The Exchange will pass on
the instructions provided by the member organization entering the
Directed Order, and the routing destination will be responsible for
validating whether the order will be accepted or rejected, as
contemplated by Rule 7.31(f)(1).
The Exchange next proposes to renumber current Rule 7.31(f)(1)(B)
as Rule 7.31(f)(1)(A) to reflect the deletion of current Rule
7.31(f)(1)(A) and to amend new Rule 7.31(f)(1)(A) to provide that a
Directed Order that is a Market Order in a security to be opened in an
IPO or Direct Listing will be rejected if received before the IPO
Auction or Direct Listing Auction concludes. This proposed change would
permit the Exchange to route Directed Orders that are Limit Orders in
securities to be opened in an IPO or Direct Listing, but not Directed
Orders that are Market Orders.
The Exchange also proposes to amend current Rule 7.31(f)(1)(C),
which provides that incoming Directed Orders would be rejected during
trading halts or pauses, and to renumber it as Rule 7.31(f)(1)(B) to
reflect the deletion of current Rule 7.31(f)(1)(A) as described above.
The Exchange proposes that new Rule 7.31(f)(1)(B) would provide that,
during a trading halt or pause, Directed Orders would be routed to the
specified ATS or algorithm. The Exchange believes that the proposed
elimination of the restrictions on Directed Orders currently set forth
in Rules 7.31(f)(1)(A) and (C) would provide member organizations with
additional flexibility when entering Directed Orders, which would
remain subject to the rules and specifications of the destinations to
which such orders are routed. As provided in Rule 7.31(f)(1), as
amended, the ATS or algorithm to which a Directed Order is routed would
validate whether the order is eligible to be accepted; accordingly,
Directed Orders would continue to be limited to the order types and
modifiers accepted by the destinations to which they are routed and
subject to such routing destinations' procedures for orders received
during a trading halt or pause.
Finally, the Exchange proposes to renumber current Rule
7.31(f)(1)(D) as Rule 7.31(f)(1)(C) (to reflect the deletion of current
Rule 7.31(f)(1)(A) and resulting renumbering of current Rules
7.31(f)(1)(B) and (C)) and to amend the rule to provide that a request
to cancel a Directed Order will be routed to the ATS or algorithm to
which the order was routed.
The proposed change would provide member organizations with a
technology solution to leverage their existing Exchange connectivity to
route Directed Orders to either an ATS or algorithm, thereby affording
them increased access to execution tools and enhanced operational
efficiency.\5\ The Exchange believes the proposed change would offer
member organizations greater choice and flexibility, and further
believes that the proposed change could create efficiencies for member
organizations by enabling them to send orders that they wish to route
to an alternate destination through the Exchange, thereby leveraging
order entry protocols and specifications already configured for their
interactions with the Exchange. The Exchange notes that Directed Orders
designated to route to an algorithm would otherwise operate identically
to Directed Orders that are currently eligible to be routed to an ATS
selected by the member organization entering the order (with the
changes described in this filing). The Exchange further believes that
the Directed Order would continue to provide functionality similar to
order types with specific execution instructions (such as the Auction-
Only Order defined in NYSE Rule 7.31(c)) or routing instructions (such
as Primary Only Orders that route to the primary market, as available
on the Exchange's affiliated equities exchanges).\6\
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\5\ The Exchange believes that this proposed rule change could
be particularly beneficial for smaller member organizations that
cannot, for various reasons including cost, connect to multiple
algorithm providers on their own.
\6\ See NYSE American LLC (``NYSE American'') Rule 7.31E(f)(1);
NYSE Arca, Inc. (``NYSE Arca'') Rule 7.31-E(f)(1); NYSE Chicago,
Inc. (``NYSE Chicago'') Rule 7.31(f)(1); NYSE National, Inc. (``NYSE
National'') Rule 7.31(f)(1). NYSE American, NYSE Arca, NYSE Chicago,
and NYSE National also offer variations of the Primary Only Order,
including the Primary Only Until 9:45 Order, which is a Limit or
Inside Limit Order that, on arrival and until 9:45 a.m. Eastern
Time, routes to the primary listing market, and the Primary Only
Until 3:55 Order, which is a Limit or Inside Limit Order entered on
the Exchange until 3:55 p.m. Eastern Time, after which time the
order is cancelled on the Exchange and routed to the primary listing
market. See NYSE American Rules 7.31E(f)(2) and (f)(3); NYSE Arca
Rules 7.31-E(f)(2) and (f)(3); NYSE Chicago Rules 7.31(f)(2) and
(f)(3); NYSE National Rules 7.31(f)(2) and (f)(3). The Exchange
further notes similarities between the Directed Order and various
order types and routing options offered by other equities exchanges.
See, e.g., Nasdaq Stock Market LLC (``Nasdaq''), Equity 4, Equity
Trading Rules, Rule 4758(a)(ix) (defining the Nasdaq Directed Order
as an order designed to use a routing strategy under which the order
is directed to an automated trading center other than Nasdaq, as
directed by the entering party, without checking the Nasdaq Book);
Cboe EDGX Exchange, Inc. (``EDGX'') Rules 11.8(c)(7) (defining the
Routing/Directed ISO order type as an ISO that bypasses the EDGX
system and is immediately routed by EDGX to a specified away trading
center for execution) and 11.11(g)(2) (providing for the DRT routing
option, in which an order is routed to an alternative trading system
as instructed); Cboe EDGA Exchange, Inc. (``EDGA'') Rules 11.8(c)(7)
(defining the Routing/Directed ISO order type as an ISO that
bypasses the EDGA system and is immediately routed by EDGA to a
specified away trading center for execution) and 11.11(g)(2)
(providing for the DRT routing option, in which an order is routed
to an alternative trading system as instructed); Cboe BZX Exchange,
Inc. (``BZX'') Rules 11.13(b)(3)(D) (providing for the DRT routing
option, in which an order is routed to an alternative trading system
as instructed) and 11.13(b)(3)(F) (defining the Directed ISO routing
option, under which an ISO order would bypass the BZX system and be
sent to a specified away trading center); Cboe BYX Exchange, Inc.
(``BYX'') Rules 11.13(b)(3)(D) (providing for the DRT routing
option, in which an order is routed to an alternative trading system
as instructed) and 11.13(b)(3)(F) (defining the Directed ISO routing
option, under which an ISO order would bypass the BYX system and be
sent to a specified away trading center). The Exchange also believes
that the Directed Order would provide functionality similar to the
C-LNK routing strategy formerly offered by EDGA, in which C-LNK
orders bypassed EDGA's local book and routed directly to a specified
Single Dealer Platform destination. See Securities Exchange Act
Release No. 82904 (March 20, 2018), 83 FR 12995 (March 26, 2018)
(SR-CboeEDGA-2018-004) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Expand an Offering Known as Cboe
Connect To Provide Connectivity to Single-Dealer Platforms Connected
to the Exchange's Network and To Propose a Per Share Executed Fee
for Such Service).
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Because of the technology changes associated with this proposed
rule change, the Exchange will announce the implementation date by
Trader Update.\7\ Subject to approval of this proposed rule change, the
Exchange will implement the proposed change at the earliest in the
third quarter of 2024 or at the latest in the first quarter of 2025.
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\7\ The Exchange will provide information regarding the
algorithm(s) to which a Directed Order may be designated to route in
technical specifications and/or by Trader Update.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934,\8\ in general, and furthers the
objectives of Section 6(b)(5),\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 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
remove impediments to and perfect the mechanism of a free and open
market and promote just and equitable principles of trade because the
Directed
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Order, as proposed, would offer member organizations access to
additional execution tools and trading opportunities by permitting them
to designate orders submitted to the Exchange to be routed directly to
a specified algorithm for execution. In particular, the Exchange
believes that amending the Directed Order to include routing to an
algorithm would provide greater choice and flexibility for member
organizations and their customers. The Exchange further believes that
the proposed change would remove impediments to and perfect the
mechanism of a free and open market by offering member organizations a
technology solution that would provide them with the option to send
orders that they wish to route to an alternate destination for
execution through the Exchange, thereby promoting operational
efficiencies through leveraging their existing protocols and
specifications for Exchange connectivity. Finally, the Exchange notes
that the proposed functionality is not novel as a Directed Order to an
algorithm would otherwise function in the same way as the existing
Directed Order to an ATS (with certain changes as proposed in this
filing to extend increased flexibility to all Directed Orders), and the
proposed change would simply facilitate member organizations' existing
ability to direct orders to be executed via an algorithm.
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 to the rules governing Directed Orders would
promote competition because it would enhance an order type on the
Exchange that would provide access to additional execution tools and
trading opportunities for market participants.
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 within 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ec9e998089c18f8381818982989fac9f898fc28b839a"><span class="__cf_email__" data-cfemail="5725223b327a34383a3a323923241724323479303821">[email protected]</span></a>. Please include
file number SR-NYSE-2024-40 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-2024-40. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSE-2024-40 and should be
submitted on or before August 22, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16940 Filed 7-31-24; 8:45 am]
BILLING CODE 8011-01-P
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