
[Federal Register Volume 82, Number 87 (Monday, May 8, 2017)]
[Notices]
[Pages 21434-21437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09194]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80576; File No. SR-NYSEArca-2017-47]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca 
Equities Rule 7.35 To Specify Order Handling for an IPO Auction

May 2, 2017.
    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 April 21, 2017, NYSE Arca, Inc. (the ``Exchange''

[[Page 21435]]

or ``NYSE Arca'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 7.35 
(Auctions) to specify order handling for an IPO Auction. The proposed 
rule change is available on the Exchange's website 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Arca Equities Rule 7.35 
(Auctions) (``Rule 7.35'') to specify order handling for an IPO 
Auction.
    Under Rule 7.35(f), IPO Auctions follow the processing rules of a 
Core Open Auction, provided that: (1) The Exchange will specify the 
time an IPO Auction will be conducted; (2) there will be no Auction 
Imbalance Freeze, Auction Collars, or restrictions on the entry or 
cancellation of orders for an IPO Auction; and (3) an IPO Auction will 
not be conducted if there are only Market Orders on both sides of the 
market.
    The Exchange proposes to amend Rule 7.35(f)(2) to provide that 
order types that are not eligible to participate in the IPO Auction 
would be rejected until such time that the Auction Processing Period 
for the IPO Auction has concluded. Specifically, Limit Orders 
designated IOC, Limit Non-Displayed Orders, MPL Orders, Tracking 
Orders, Market Pegged Orders, Discretionary Pegged Orders, Cross 
Orders, Retail Orders, and Retail Price Improvement Orders are not 
eligible to participate in auctions, including IPO Auctions.\4\ Because 
none of these order types are eligible to participate in an auction and 
because there would be no trading in a security before an IPO Auction, 
the Exchange believes it would be appropriate to reject such orders 
until after the Auction Processing Period concludes, at which time they 
would be eligible to trade. Accordingly, the Exchange proposes to amend 
Rule 7.35(f)(2) to specify that the Exchange would reject these orders 
until after the Auction Processing Period for the IPO Auction has 
concluded.
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    \4\ See Rules 7.31(b)(2) (A Limit Order designated IOC is not 
eligible to participate in any auctions); 7.31(d)(2) (Limit Non-
Displayed Order does not participate in an auction); 7.31(d)(3) (MPL 
Order does not participate in an auction); 7.31(d)(4) (Tracking 
Orders are not triggered to trade during an auction because the 
Exchange does not route during an auction); 7.31(h)(1) (Market 
Pegged Orders will not participate in any auctions); 7.31(g) (A 
Cross Order is not eligible to participate in any auctions); and 
7.44(m) (the Retail Liquidity Program operates only during the Core 
Trading Session and Retail Orders will be accepted during Core 
Trading Hours only). Because Discretionary Pegged Orders are non-
displayed Pegged Orders, they are processed similarly to Market 
Pegged Orders in that they would not participate in auctions, would 
be rejected if entered or cancelled if cancel/replaced during a halt 
or pause in a security listed on the Exchange, and would be rejected 
if entered before or during the Early Trading Session. The Exchange 
proposes to amend Rules 7.18(c)(4), 7.31(h)(3)(A), and 7.34(c)(1)(A) 
to specify this behavior.
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    In conjunction with this change, the Exchange proposes to delete 
the current text in Rule 7.32(f)(2) stating that there will be no 
restriction on the entry of orders for an IPO Auction.
    As proposed, amended Rule 7.35(f)(2) would provide (deleted text 
bracketed, new text underlined):

    (2) There will be no Auction Imbalance Freeze, Auction Collars, 
or restrictions on the [entry or] cancellation of orders for an IPO 
Auction. Limit Orders designated IOC, Limit Non-Displayed Orders, 
MPL Orders, Tracking Orders, Market Pegged Orders, Discretionary 
Pegged Orders, Cross Orders, Retail Orders, and Retail Price 
Improvement Orders will be rejected until after the Auction 
Processing Period for the IPO Auction has concluded.

    The Exchange also proposes to amend Rule 7.35(h)(3), which 
describes the transition to continuous trading following an auction, to 
specify how the Exchange would transition to continuous trading 
following an IPO Auction. Currently, Rule 7.35(h)(3)(A) provides that 
when transitioning to continuous trading from a prior trading session 
or following an auction, a quote will be published based on unexecuted 
orders that were eligible to trade in the trading sessions both before 
and after the transition or auction, i.e., previously-live orders. To 
make the text more specific, the Exchange proposes to define the term 
``previously-live order'' separately for an IPO Auction to mean 
unexecuted orders that were entered before the IPO Auction Processing 
Period began. In the case of an IPO Auction, there is no prior trading 
session. In addition, as described in detail above, the Exchange would 
reject orders that are not eligible to participate in the IPO Auction 
until after the Auction Processing Period for the IPO Auction has 
concluded. Therefore, the only unexecuted orders following an IPO 
Auction would be those orders that would have been eligible to 
participate in the IPO Auction. The Exchange further proposes to 
specify that the current definition of previously-live orders would be 
applicable for the Core Open Auction, Trading Halt Auction, and Closing 
Auction.
    In addition, the Exchange believes that in the context of 
transitioning to continuous trading, an IPO Auction is more akin to a 
Trading Halt Auction than to the Core Open Auction because there is no 
trading in such security immediately preceding the auction, but there 
may be a previously-published quote.\5\ Accordingly, the Exchange 
proposes to amend Rule 7.35(h)(3)(A)(ii) to provide that the procedures 
for publishing a quote after an IPO Auction would be the same as are 
currently applicable for publishing a quote following a Trading Halt 
Auction.\6\ Because all marketable orders at the indicative match price 
would trade in an IPO Auction and the Exchange would reject orders that 
are not eligible to participate in the IPO Auction, following an IPO 
Auction there would not be any previously-live orders that would be 
marketable against other orders in the NYSE Arca Book. For this reason, 
the Exchange proposes to specify that the second step specified in

[[Page 21436]]

that rule would be for the Trading Halt Auction only. The Exchange also 
proposes to amend this rule to correct a typographical error to remove 
the hyphen between ``trade'' and ``through.''
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    \5\ In limited circumstances, the first day of trading of a new 
listing on an exchange may not be an initial public offering, e.g., 
first day of listing of a new rights security, and therefore another 
exchange that trades such security on an unlisted trading privileges 
basis may begin quoting and trading in such security before the 
Exchange's IPO Auction. In such case, there may be a quote in that 
symbol before the IPO Auction, just as there would be a previously-
published quote in a security that is subject to a Trading Halt 
Auction.
    \6\ Rule 7.35(h)(3)(A)(i) currently specifies order processing 
following an Early Open Auction, Core Open Auction, and Closing 
Auction. Because there is no trading in a security before an Early 
Open Auction and no previously-published quote against which to 
compare the new quote, the Exchange proposes to amend this rule text 
to remove reference to the Early Open Auction.
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    Finally, the Exchange proposes to amend Rule 7.35(h)(3)(B). The 
rule currently provides that unexecuted orders that were not eligible 
to trade in the prior trading session (or were received during a halt 
or pause) or that were received during the Auction Processing Period, 
will be assigned a new working time at the end of the Auction 
Processing Period in time sequence relative to one another based on 
original entry time. The Exchange proposes to clarify this rule text by 
adding sub-numbering, specifying that existing rule text relates to a 
Trading Halt Auction, adding how orders entered before an Early Open 
Auction would be assigned a working time, and specifying that all such 
unexecuted orders would be processed in time sequence, i.e., such 
orders would be quoted, traded, or routed consistent with Rules 7.36 
and 7.37. As proposed, the rule would provide that ``unexecuted orders 
that (1) were not eligible to trade in the prior trading session, (2) 
for a Trading Halt Auction, were received during a halt or pause, (3) 
for the Early Open Auction, were received before the Early Open Auction 
Processing Period, or (4) that were received during the Auction 
Processing Period'' would be assigned a new working time at the end of 
the Auction Processing Period in time sequence relative to one another 
based on original time entry [sic] and would be processed in time 
sequence.\7\ This proposed rule text represents current functionality.
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    \7\ For example, for the Early Open Auction, unexecuted orders 
that either did not participate in an auction or, if there were no 
auction, were not represented in the first quote would be added to 
the NYSE Arca Book in time sequence and processed consistent with 
Rule 7.36 and 7.37 and the terms of the order.
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    The Exchange further proposes to amend how the Exchange would 
assign working times to previously-live orders following an IPO 
Auction. The Exchange proposes to amend Rule 7.35(h)(3)(B) to specify 
that for an IPO Auction, previously-live orders (as defined in proposed 
Rule 7.35(h)(3)(A) above) that did not trade in the auction would 
retain the working time assigned at original entry time. The Exchange 
proposes this difference for IPO Auctions because, as proposed above, 
the Exchange would be rejecting orders that are not eligible to trade 
in an IPO Auction until after the Auction Processing Period concludes. 
Therefore, there would not be any other orders that need to be re-
ranked with such previously-live orders and therefore the previously-
live orders may retain their previously-assigned working times as they 
are processed in time sequence.
* * * * *
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce by Trader Update the 
implementation date, which the Exchange anticipates will be in the 
third quarter of 2017.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\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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    Specifically, the Exchange believes that the proposed rule change 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system by rejecting orders that are 
not yet eligible to trade. Similar to how the Exchange rejects Limit 
Orders designated IOC, Cross Orders, and Market Pegged Orders that are 
entered during the Early Trading Session and designated for the Core 
Trading Session, as provided for in Rule 7.34(c)(1), the Exchange 
believes that it provides greater certainty for ETP Holders for the 
Exchange to reject an order that is not yet eligible to trade. Because 
Limit Orders designated IOC, Limit Non-Displayed Orders, MPL Orders, 
Tracking Orders, Market Pegged Orders, Discretionary Pegged Orders, 
Cross Orders, Retail Orders, and Retail Price Improvement Orders are 
not eligible to participate in an auction and because there would be no 
trading in a security before an IPO Auction, the Exchange believes it 
would be consistent with the protection of investors and the public 
interest to reject such orders until after the Auction Processing 
Period concludes, at which time they would be eligible to trade.
    The Exchange further believes that it would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system to align its rules governing how the Exchange transitions 
from an IPO Auction to continuous trading with its proposal to reject 
orders that are not yet eligible to trade. Specifically, because 
immediately following an IPO Auction, the only available orders would 
be previously-entered orders that were eligible to participate in the 
IPO Auction, the proposed rule changes are designed to reflect how this 
order processing would be reflected in the transition to continuous 
trading following an IPO Auction. For example, there would be no need 
to adjust the working time of such orders. The Exchange believes that 
specifying such order processing in its rules would promote 
transparency and therefore remove impediments to and perfect the 
mechanism of a free and open market and a national market system.
    The Exchange believes that the proposed amendments to Rule 
7.35(h)(3)(A) and (B) would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed changes would provide greater specificity 
regarding how orders would be processed following an auction, including 
defining what constitutes a ``previously-live order'' for different 
auctions, how previously-live orders would be quoted following an 
auction, and how unexecuted orders would be processed following all 
auctions, including an Early Open Auction, thereby promoting 
transparency and clarity in exchange rules.
    The Exchange further believes that the proposed amendments to Rules 
7.18(c)(4) and 7.34(c)(1)(A) would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because the Exchange proposes to process Discretionary Pegged Orders, 
like [sic] Market Pegged Orders are non-displayed Pegged Orders, in the 
same manner as Market Pegged Orders, which are also non-displayed 
Pegged Orders. Accordingly, the Exchange proposes that Discretionary 
Pegged Orders would not participate in auctions, would be rejected if 
entered or cancelled if cancel/replaced during a halt or pause for an 
Exchange-listed security, and would be rejected if entered before or 
during the Early Trading Session.

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

[[Page 21437]]

Exchange believes that the proposed rule change would not impose any 
burden on competition because it is not designed to address any 
competitive issues. Rather, the proposed rule change is designed to 
provide specificity in Exchange rules regarding how the Exchange would 
process orders before and after all auctions, including the Early Open 
Auction and an IPO Auction. In addition the proposed changes regarding 
Discretionary Pegged Orders would not impose any burden on competition 
because Discretionary Pegged Orders, like Market Pegged Orders are non-
displayed orders, and the proposed changes are based on how Market 
Pegged Orders operate.

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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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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 change 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2017-47 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-NYSEArca-2017-47. 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 such 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-NYSEArca-2017-47, and should 
be submitted on or before May 30, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09194 Filed 5-5-17; 8:45 am]
BILLING CODE 8011-01-P


