
[Federal Register Volume 81, Number 75 (Tuesday, April 19, 2016)]
[Notices]
[Pages 23064-23066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08968]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77603; File No. SR-NYSE-2016-28]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Rule 72 Relating to Setting Interest

April 13, 2016.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on March 29, 2016, 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 72 relating to setting 
interest. The proposed rule change is available on the Exchange's Web 
site at www.nyse.com, 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 72 relating to setting interest 
to provide that interest that establishes a new Exchange best bid or 
offer (``BBO'') would be considered setting interest even if a Limit 
Order designated Add Liquidity Only (``ALO'') or sell short order 
during a Short Sale Period, as defined in Rule 440B(d), is re-priced 
and displayed at the same price as such interest that became the 
Exchange BBO.
Background
    Under Rule 72(a)(ii), a bid or offer, including pegging interest, 
is considered the ``setting interest'' when it is established as the 
only displayable bid or offer made at a particular price and is the 
only displayable interest when such price is or becomes the Exchange 
BBO. Setting interest is entitled to priority for allocation of 
executions at that price, as provided for under Rule 72. If there is no 
setting interest, all interest is allocated on parity pursuant to Rule 
72(c).\4\
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    \4\ See Rule 72(c)(v).
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    In 2008, when the Exchange added the current form of Rule 72, 
current paragraph (a)(ii)(G) of the rule provided that if, at the time 
non-pegging interest becomes the Exchange BBO, an e-Quote is pegging to 
such non-pegging interest, all such interest was considered to be 
entered simultaneously and, therefore, no interest was considered the 
setting interest.\5\ Because the Exchange believed that permitting 
pegging e-Quotes to eliminate the priority to which a non-pegging e-
Quote might otherwise be entitled could disincentivize aggressive 
displayed quoting, the Exchange amended Rule 72(a)(ii)(G) to provide 
that non-pegging interest that becomes the Exchange BBO will be 
considered the setting interest even if an e-Quote is pegging to such 
non-pegging interest.\6\ The Exchange's goal in providing priority to 
setting interest was to create an incentive for participants to display 
aggressive prices. The Exchange amended Rule 72(a)(ii)(G) in 2011 
because it believed a participant may be reluctant to enter such 
displayed interest if a non-displayed pegging e-Quote could deny 
priority to such displayed interest.\7\ Because pegging interest cannot 
peg to other pegging

[[Page 23065]]

interest, the current rule specifies that non-pegging interest would 
retain priority if pegging interest is pegging to such non-pegging 
interest.
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    \5\ See Securities Exchange Act Release Nos. 58845 (Oct. 24, 
2008), 73 FR 64379 (Oct. 29, 2008) (Approval Order) and 58184 (July 
17, 2008), 73 FR 42853, (July 23, 2008) (Notice) (SR-NYSE-2008-46). 
See also Rule 70 (defining e-Quotes and d-Quotes).
    \6\ See Securities Exchange Act Release No. 65889 (Dec. 5, 
2011), 76 FR 77040 (Dec. 9, 2011) (SR-NYSE-2011-60) (Notice of 
filing and immediate effectiveness of proposed rule change amended 
Rule 72).
    \7\ Because the Exchange does not publicly identify interest as 
pegging interest that is eligible to re-price based on changes to 
the PBBO, a participant seeking to set the Exchange BBO would be 
unaware that one or more pegging interest could join it at the 
Exchange BBO.
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Proposed Rule Change
    The Exchange believes there are additional circumstances when 
orders that are re-priced due to an external pricing change may 
similarly disincentivize aggressive displayed quoting by permitting 
such re-priced interest to eliminate the setting priority to which non-
pegging interest may otherwise be entitled. For example, similar to 
pegging interest,\8\ which is re-priced based on changes to the PBBO, a 
Limit Order to buy (sell) designated ALO may be re-priced and re-
displayed based on changes to the best-priced sell (buy) interest at 
the Exchange.\9\ Likewise, sell short orders that are re-priced to a 
Permitted Price during a Short Sale Period may be re-priced and re-
displayed as the national best bid (``NBB'') moves.\10\ In both these 
scenarios, the participant sending aggressive display interest would be 
unaware that when it sets a new Exchange BBO, existing interest on the 
Exchange may be eligible to be re-priced to that new Exchange BBO 
price.
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    \8\ Pegging interest is defined in Rule 13(f)(1) as displayable 
or non-displayable interest to buy or sell at a price set to track 
the PBBO as the PBBO changes and must be an e-Quote or d-Quote.
    \9\ See Rule 13(e)(1) (defining ALO modifier) and Supplementary 
Material .10 to Rule 13 (defining the term ``best-priced sell (buy) 
interest'' to be the lowest-priced sell (highest-priced buy) 
interest against which incoming buy (sell) interest would be 
required to execute with and/or route to, including Exchange 
displayed offers, Non-Display Reserve Orders, Non-Display Reserve e-
Quotes, odd-lot sized sell (buy) interest, and protected offers 
(bids) on away markets).
    \10\ See Rule 440B(e).
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    For the same reason as the Exchange filed to change Rule 
72(a)(ii)(G) in 2011, the Exchange is proposing that Limit Orders 
designated ALO or sell short orders during a Short Sale Period that are 
re-priced and displayed based on changes to the best-priced sell (buy) 
interest or NBB would not deny priority to displayed interest that sets 
a new Exchange BBO. In addition, the Exchange proposes to amend Rule 
72(a)(ii)(G) to provide that if interest becomes the Exchange BBO, it 
would retain its priority (i.e., considered setting interest) even if 
pegging interest, Limit Orders designated ALO, or sell short orders 
during a Short Sale Period under Rule 440B(e) are re-priced and 
displayed at the same price as such interest. Finally, the Exchange 
proposes a non-substantive amendment to delete the cross-reference to 
Rule 13--Pegging Interest.
    The Exchange also proposes to amend Rule 72(a)(ii)(G) to reflect 
that any interest, and not just ``non-pegging'' interest, is eligible 
to be setting interest even if other interest re-prices and is 
displayed at the new Exchange BBO. As provided for in Rule 
13(f)(1)(B)(iii), pegging interest may establish an Exchange BBO, which 
would occur if pegging interest pegs to a PBBO that is more 
aggressively priced than the Exchange's current BBO. For example, if 
the PBB is higher than the Exchange BB and the Exchange receives 
pegging interest to buy with a limit price equal to or higher than such 
PBB price, the pegging interest would peg to the PBB and be displayed 
as a new Exchange BB. If there were no other interest when the pegging 
interest establishes the Exchange BBO, such pegging interest would be 
entitled to priority under Rule 72(a)(ii).\11\ However, if more than 
one pegging interest is pegging to the PBBO and together they establish 
a new Exchange BBO, Rule 72(a)(ii) would not provide either pegging 
interest with priority. Current Rule 72(a)(ii)(G), which provides that 
``non-pegging interest'' is considered setting interest if it becomes 
the Exchange BBO, even if pegging interest is pegging to such non-
pegging interest, is consistent with Rule 72(a)(ii) because any such 
pegging interest would not be the only displayable interest.
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    \11\ Rule 72(a)(ii) explicitly includes pegging interest as 
being setting interest entitled to priority for allocation of 
executions, when such interest is established as the only 
displayable bid or offer made at a particular price and is the only 
displayable interest when such price is or becomes the Exchange BBO.
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    As discussed above, the Exchange proposes to amend Rule 
72(a)(ii)(G) to specify additional interest that could reprice without 
denying priority to interest that sets the Exchange BBO. As a result, 
such non-pegging interest could be repriced to join pegging interest 
that establishes the Exchange BBO and that otherwise would be entitled 
to be setting interest. The Exchange therefore proposes that if a 
single pegging interest establishes the BBO, it would be entitled to 
priority even if a Limit Order designated ALO or short sale order 
during a Short Sale Period is re-priced and displayed at that same 
price. In such scenario, the pegging interest would be the 
aggressively-priced interest that established the new Exchange BBO, and 
other interest that re-prices at that price would be the reactive 
orders. Accordingly, to address such scenario, the Exchange proposes to 
change the references in Rule 72(a)(ii)(G) from ``non-pegging 
interest'' to ``interest.''
    Currently, in limited circumstances, Limit Orders designated ALO 
that are re-priced to a price other than its limit price to join 
interest that sets a new Exchange BBO do not deny priority to the 
interest that set the Exchange BBO.\12\ Because of technology changes 
associated with implementing this rule change for all circumstances 
when Limit Orders designated ALO and sell short orders during a Short 
Sale Period reprice to join interest that sets a new Exchange BBO, the 
Exchange will announce by Trader Update the full implementation of this 
proposed rule change.
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    \12\ See Trader Update dated February 17, 2016, available here: 
https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Trader_Update_Priority_Allocation.pdf.
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2. Statutory Basis
    The proposed rule change is consistent with section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\13\ in general, and 
furthers the objectives of section 6(b)(5),\14\ 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. The Exchange 
believes that the proposed rule change meets these requirements because 
it would permit interest that sets a new Exchange BBO, including 
pegging interest that establishes an Exchange BBO, to be considered the 
setting interest and therefore retain priority, as provided for under 
Rule 72, over other interest that reacts and re-prices based on such 
interest setting a new Exchange BBO. The current rule already provides 
for non-pegging interest to retain priority if pegging interest pegs to 
such price, and the proposed rule change would afford similar treatment 
to any interest that establishes an Exchange BBO if pegging interest, 
Limit Orders designated ALO, or sell short orders during a Short Sale 
Period are re-priced and displayed at the same price as such interest. 
In addition, the proposed rule change is consistent with current rules 
in that it would allow for pegging interest that is entitled to be 
setting interest, as provided for in Rules 13(f)(1)(B)(iii) and 
72(a)(ii), to retain priority if joined at that price by a Limit Order 
designated ALO or a sell short order during a Short

[[Page 23066]]

Sale Period. Accordingly, the proposal is designed to incentivize and 
reward aggressive displayed quoting by market participants, which would 
remove impediments to and perfect the mechanism of a free and open 
market and national market system by contributing to the market quality 
of the Exchange and the national market system in general. In this 
regard, the Exchange believes that this proposed change would have 
positive impact on the Exchange's market, on the Exchange's members, 
and on investors generally by promoting the display of aggressively-
priced liquidity on a registered exchange.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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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 proposed change is not 
designed to address any competitive issue but rather to promote the 
additional display of aggressively-priced liquidity on the Exchange by 
allowing interest that sets a new Exchange BBO to be considered setting 
interest even if other orders react and re-price based on such interest 
setting a new Exchange BBO.

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

    The Exchange has filed the proposed rule change pursuant to section 
19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
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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 under 
section 19(b)(2)(B) \19\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \19\ 15 U.S.C. 78s(b)(2)(B).
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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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtm); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2016-28 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2016-28. 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site 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; the Commission does 
not edit personal identifying information from submissions.
    You should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-NYSE-2016-28 
and should be submitted on or before May 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08968 Filed 4-18-16; 8:45 am]
BILLING CODE 8011-01-P


