[Federal Register Volume 83, Number 13 (Friday, January 19, 2018)]
[Notices]
[Pages 2823-2825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00855]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82498; File No. SR-NYSEAMER-2017-26]


Self-Regulatory Organizations; NYSE American LLC; Order Approving 
a Proposed Rule Change To Amend Rule 971.1NY To Amend the Duration of a 
Customer Best Execution Auction

January 12, 2018.

I. Introduction

    On November 17, 2017, NYSE American LLC (``Exchange'' or ``NYSE 
American'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Rule 971.1NY (Electronic Cross 
Transactions) to modify the parameters for the duration of a Customer 
Best Execution (``CUBE'') Auction. The proposed rule change was 
published for comment in the Federal Register on December 4, 2017.\3\ 
The Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 82162 (November 28, 
2017), 82 FR 57322 (``Notice'').
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II. Description of the Proposed Rule Change

    CUBE is a process by which an ATP Holder may electronically submit 
for execution an order it represents as agent (``CUBE Order'') against 
principal interest or against any other order it represents as 
agent.\4\ When the Exchange receives a valid CUBE Order for auction 
processing, a Request for Responses (``RFR'') detailing the series, the 
side of the market, the size of the CUBE Order, and the limit price of 
the CUBE Order is sent to all ATP Holders that subscribe to receive RFR 
messages. Currently, the amount of time given to ATP Holders to respond 
with competing interest to trade against the CUBE Order (``Response 
Time Interval'') is randomly set by the CUBE mechanism for each auction 
but cannot be shorter than 500 milliseconds or longer than 750 
milliseconds, unless the auction is concluded early.\5\ The Exchange 
proposes to revise the Response Time Interval to provide that the 
duration of a CUBE Auction shall be a random period of time within 
parameters

[[Page 2824]]

designated by the Exchange, which parameters shall be no less than 100 
milliseconds and no more than one second.\6\ The proposal would require 
the Exchange to announce in advance, by Trader Update, any changes to 
the parameters.\7\
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    \4\ See Exchange Rule 971.1NY.
    \5\ See Exchange Rule 971.1NY(c)(4)(A)-(F) (providing the 
scenarios that would result in the early termination of a CUBE 
Auction).
    \6\ The Exchange states that its proposal is consistent with 
exposure periods permitted in similar mechanisms on other options 
exchanges. See Notice, supra note 3, at 57323 n.5.
    \7\ See id. at 57323.
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    The Exchange states that the proposed rule change, among other 
things, would provide investors with more timely execution of their 
option orders while ensuring that there is an adequate exposure of 
orders in the CUBE mechanism; could provide more CUBE Orders an 
opportunity for price improvement by reducing market risk for ATP 
Holders that participate in CUBE Auctions; would give the Exchange 
flexibility in establishing the optimal duration of CUBE Auctions; and 
would encourage competition and thereby enhance the potential for price 
improvement.\8\
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    \8\ See id. at 57324.
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    To substantiate that its members can receive, process, and 
communicate a response back to the Exchange within 100 milliseconds 
(the shortest possible duration of the Response Time Interval), the 
Exchange states that it surveyed all ATP Holders that responded to a 
CUBE Auction broadcast in the three months prior to the filing of this 
proposed rule change.\9\ According to the Exchange, each ATP Holder it 
surveyed indicated that it can receive, process, and communicate a 
response back to the Exchange within 100 milliseconds.\10\ The Exchange 
further states that it has analyzed its capacity and represents that it 
has the necessary systems capacity to handle the potential additional 
traffic associated with the additional transactions that may occur with 
the implementation of the proposed reduction of the Response Time 
Interval to no less than 100 milliseconds.\11\ The Exchange further 
represents that its system will be able to sufficiently maintain an 
audit trail for order and trade information with the reduction in the 
Response Time Interval.\12\
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    \9\ See id. at 57323.
    \10\ See id.
    \11\ See id.
    \12\ See id.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\13\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\14\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating 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 not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers. The Commission also finds that the 
proposed rule change is consistent with Section 6(b)(8) of the Act,\15\ 
which requires that the rules of an exchange not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that, as NYSE American maintains, 
permitting the Exchange to designate an exposure time period of as 
short as100 milliseconds in the CUBE Auction is consistent with the 
Commission's past approval of rules of options exchanges that govern 
the duration of their electronic auctions. These rules provide for a 
period of as short as 100 milliseconds for market participants to 
submit responses to an auction announcement before the auction 
ends.\16\ Similarly, the Commission has approved rules allowing options 
exchanges to set an exposure period of up to one second.\17\
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    \16\ See Securities Exchange Act Release Nos. 76301 (October 29, 
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (establishing 
an exposure period for Nasdaq BX's options price improvement 
mechanism (``PRISM'') of no less than 100 milliseconds and no more 
than one second); 77557 (April 7, 2016), 81 FR 21935 (April 13, 
2016) (SR-Phlx-2016-40) (amending the exposure period for Nasdaq 
Phlx's Price Improvement XL (``PIXL'') to be no less than 100 
milliseconds and no more than one second); 79733 (January 4, 2017), 
82 FR 3055 (January 10, 2017) (SR-ISE-2016-26) (amending the 
exposure period for Nasdaq ISE's Price Improvement Mechanism 
(``PIM'') to be no less than 100 milliseconds and no more than one 
second); 80738 (May 22, 2017), 82 FR 24417 (May 26, 2017) (SR-CBOE-
2017-029) (amending the exposure periods for CBOE's Automated 
Improvement Mechanism (``AIM'') and Solicitation Auction Mechanism 
(``SAM'') to be no less than 100 milliseconds and no more than one 
second); and 80940 (June 15, 2017), 82 FR 28369 (June 21, 2017) (SR-
MIAX-2017-16) (amending the exposure periods for MIAX's Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism 
to be no less than 100 milliseconds and no more than one second). 
See also the rules as codified at NASDAQ Phlx Rule 
1080(n)(ii)(A)(4), NASDAQ BX Options Rules Chapter VI, Section 
9(ii)(A)(3), Nasdaq ISE Rule 716, Supplementary Material .04, Nasdaq 
ISE Rule 723(c)(1), CBOE Rule 6.74A(b)(1)(C), CBOE Rule 
6.74B(b)(1)(C), MIAX Rule 515A(a)(2)(i)(C), and MIAX Rule 
515A(b)(2)(i)(C).
    \17\ See supra note 16.
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    The Commission notes that the fact that, in CUBE, a Response Time 
Interval is separately and randomly set by the auction mechanism for 
each individual auction (provided that no auction can be longer or 
shorter than specified limits) is not unique with respect to the 
instant proposal.\18\ The feature of CUBE that randomly sets a Response 
Time Interval for each auction--which is unique in contrast to 
electronic auction mechanisms at other options exchanges--has been a 
component of CUBE since approval of the Exchange's Rule governing the 
CUBE \19\ and is consistent with the mechanism's current functionality.
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    \18\ Currently, for example, the Response Time Interval for each 
individual auction is randomly set by the CUBE mechanism, but it is 
not possible for the mechanism to set a duration that is shorter 
than 500 milliseconds or longer than 750 milliseconds.
    \19\ See Exchange Rule 971.1NY(c)(2)(B). See also Securities 
Exchange Act Release No. 72025 (April 25, 2014), 79 FR 24779, 24782, 
24787 (May 1, 2017) (SR-NYSEMKT-2014-17) (order approving a proposed 
rule change to adopt the CUBE Auction).
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    The Exchange's proposal revises how the minimum and maximum time 
lengths for the randomly-set Response Time Interval for each CUBE 
Auction would be established. Currently, Exchange Rule 971.1NY sets the 
minimum and maximum: no less than 500 milliseconds and no more than 750 
milliseconds. Under the proposal, the Exchange is granted the 
discretion to establish the minimum and maximum possible durations of 
an auction and change them from time to time (with adequate notice to 
market participants). However, that discretion itself is restricted 
under the proposal. The Exchange would not be permitted to establish 
the limits in a way that would allow even a randomly-set Response Time 
Interval to be shorter than 100 milliseconds or longer than one second. 
The Commission thus notes that, under the proposed parameters, the 
exposure period for an order submitted to a CUBE Auction could never be 
shorter than the exposure period of any other options exchange's 
electronic auction.
    Accordingly, for the reasons discussed above, the Commission 
believes that the Exchange's proposal is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the

[[Page 2825]]

proposed rule change (SR-NYSEAMER-2017-26) be, and hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00855 Filed 1-18-18; 8:45 am]
 BILLING CODE 8011-01-P


