[Federal Register Volume 83, Number 167 (Tuesday, August 28, 2018)]
[Notices]
[Pages 43942-43946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18571]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83900; File No. SR-NYSENAT-2018-19]


Self-Regulatory Organizations; NYSE National, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 7.31 Relating to Reserve Orders and Re-Name Two Order Types

August 22, 2018.
    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 August 9, 2018, NYSE National, Inc. (``Exchange'' or ``NYSE 
National'') filed with the Securities and Exchange Commission 
(``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.31 relating to Reserve Orders 
and re-name two order types. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 7.31 relating to Reserve Orders 
and re-name two order types.
Background
    Rule 7.31(d)(1) defines a Reserve Order as a Limit or Inside Limit 
Order with a quantity of the size displayed and with a reserve quantity 
of the size (``reserve interest'') that is not displayed. The displayed 
quantity of a Reserve Order is ranked Priority 2--Display Orders and 
the reserve interest is ranked Priority 3--Non-Display Orders.\4\ Rule 
7.31(d)(1)(A) provides that on entry, the display quantity of a Reserve 
Order must be entered in round lots and the displayed portion of a 
Reserve Order will be replenished following any execution. That rule 
further provides that the Exchange will display the full size of the 
Reserve Order when the unfilled quantity is less than the minimum 
display size for the order. Rule 7.31(d)(1)(B) provides that each time 
a Reserve Order is replenished from reserve interest, a new working 
time is assigned to the replenished quantity of the Reserve Order, 
while the reserve interest retains the working time of original order 
entry. Pursuant to Rule 7.31(d)(1)(C), a Reserve Order must be 
designated Day and may be combined with a Limit Non-Routable Order or a 
Primary Pegged Order.
---------------------------------------------------------------------------

    \4\ The terms ``Priority 2--Display Orders'' and ``Priority 3--
Non-Display Orders'' are defined in Rule 7.36(e).
---------------------------------------------------------------------------

    Rule 7.31(d)(2) defines a ``Limit Non-Displayed Order,'' which is a 
Limit Order that is not displayed and does not route. Rule 7.31(e)(1) 
defines a ``Limit Non-Routable Order,'' which is a Limit Order that 
does not route.

[[Page 43943]]

Proposed Rule Change Relating to Order Type Names
    The Exchange proposes non-substantive amendments to Rules 7.31 and 
7.46 to re-name the ``Limit Non-Routable Order'' as the ``Non-Routable 
Limit Order.'' This proposed rule change is based on the term used by 
the Exchange's affiliate, NYSE American LLC (``NYSE American'') for the 
same order type.
    The Exchange also proposes non-substantive amendments to Rules 7.31 
and 7.46 to re-name the ``Limit Non-Displayed Order'' as the ``Non-
Displayed Limit Order.'' In both cases, the Exchange believes that it 
promotes clarity and consistency in its rules to move the respective 
modifier for each of these rules before the term ``Limit Order.''
Proposed Rule Change Relating to Reserve Orders
    The Exchange proposes to amend Rule 7.31(d)(1) to change the manner 
by which the display portion of a Reserve Order would be replenished. 
As proposed, rather than replenishing the display quantity following 
any execution, the Exchange proposes to replenish the Reserve Order 
when the display quantity is decremented to below a round lot. The 
changes that the Exchange is proposing to Rule 7.31 relating to Reserve 
Orders (and Primary Pegged Orders) are identical to changes that were 
recently approved for the Exchange's affiliate, New York Stock Exchange 
LLC (``NYSE'').\5\ In addition, the proposed changes to how Reserve 
Orders would be replenished are consistent with how Reserve Orders are 
replenished on other equity exchanges.\6\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 83768 (August 3, 
2018), 83 FR 39488 (August 9, 2018) (SR-NYSE-2018-26) (Approval 
Order).
    \6\ See Cboe BZX Exchange, Inc. (``BZX'') Rule 11.9(c)(1); 
Nasdaq Stock Market LLC (``Nasdaq'') Rule 7503(h).
---------------------------------------------------------------------------

    As is currently the case, the replenish quantity would be the 
minimum display size of the order or the remaining quantity of reserve 
interest if it is less than the minimum display quantity. To reflect 
this functionality, the Exchange proposes that Rule 7.31(d)(1)(A) would 
be amended as follows (deleted text bracketed; new text underlined):
    (A) On entry, the display quantity of a Reserve Order must be 
entered in round lots. The displayed portion of a Reserve Order will be 
replenished when the display quantity is decremented to below a round 
lot. The replenish quantity will be the minimum display quantity of the 
order or the remaining quantity of the reserve interest if it is less 
than the minimum display quantity[following any execution. The Exchange 
will display the full size of the Reserve Order when the unfilled 
quantity is less than the minimum display size for the order].
    Under current functionality, because the replenished quantity is 
assigned a new working time, it is feasible for a single Reserve Order 
to have multiple replenished quantities with separate working times, 
each, a ``child'' order. The proposed change to limit when a Reserve 
Order would be replenished to when the display quantity is decremented 
to below a round lot only would reduce the number of child orders for a 
Reserve Order. The Exchange believes that minimizing the number of 
child orders for a Reserve Order would reduce the potential for market 
participants to detect that a child order displayed on the Exchange's 
proprietary market data feeds is associated with a Reserve Order.
    In most cases, the maximum number of child orders for a Reserve 
Order would be two. For example, assume a Reserve Order to buy has a 
display quantity of 100 shares and an additional 200 shares of reserve 
interest. A sell order of 50 shares would trade with the display 
quantity of such Reserve Order, which would decrement the display 
quantity to 50 shares. As proposed, the Exchange would then replenish 
the Reserve Order with 100 shares from the reserve interest, i.e., the 
minimum display size for the order. After this second replenishment, 
the Reserve Order would have two child orders, one for 50 shares, the 
other for 100 shares, each with different working times.
    Generally, when there are two child orders, the older child order 
of less than a round lot will be executed before the second child 
order. However, there are limited circumstances when a Reserve Order 
could have two child orders that equal less than a round lot, which, as 
proposed, would trigger a replenishment. For such circumstance, the 
Exchange proposes that when a Reserve Order is replenished from reserve 
interest and already has two child orders that equal less than a round 
lot, the child order with the later working time would be reassigned 
the new working time assigned to the next replenished quantity.
    For example, taking the same Reserve Order as above:
     If 100 shares of such order (``A'') are routed on arrival, 
it would have a display quantity of 100 shares (``B'') and 100 shares 
in reserve interest.
     While ``A'' is routed, a sell order of 50 shares would 
trade with ``B,'' decrementing ``B'' to 50 shares and the Reserve Order 
would be replenished from reserve interest, creating a second child 
order ``C'' of 100 shares.
     Next, the Exchange receives a request to reduce the size 
of the Reserve Order from 300 shares to 230 shares. Because ``A'' is 
still routed away and there is no reserve interest, and as described in 
more detail below, this 70 share reduction in size would be applied 
against the most recent child order of ``C,'' which would be reduced to 
30 shares. Together with ``B,'' which would still be 50 shares, the two 
displayed child orders would equal less than a round lot, but with no 
quantity in reserve interest.
     Next, ``A'' is returned unexecuted, and as described 
below, becomes reserve interest and is evaluated for replenishment. 
Because the total display quantity (``B'' + ``C'') is less than a round 
lot, this Reserve Order would be replenished. But because the Reserve 
Order already has two child orders, the child order with the later 
working time, ``C,'' would be returned to the reserve interest, which 
would now have a quantity of 130 shares (``C'' + ``A''), and the 
Reserve Order would be replenished with 100 shares from the reserve 
interest with a new working time, which would be a new child order 
``D.''
     After this replenishment, this Reserve Order would have 
two child orders of ``B'' for 50 shares and ``D'' for 100 shares, and a 
reserve interest of 30 shares.
    To effect these changes, the Exchange proposes to amend current 
Rule 7.31(d)(1)(B) to specify that each display quantity of a Reserve 
Order with a different working time would be referred to as a child 
order. The Exchange further proposes new Rule 7.31(d)(1)(B)(i) that 
would provide that when a Reserve Order is replenished from reserve 
interest and already has two child orders that equal less than a round 
lot, the child order with the later working time would rejoin the 
reserve interest and be assigned the new working time assigned to the 
next replenished quantity.
    The Exchange also proposes new Rule 7.31(d)(1)(B)(ii) to provide 
that if a Reserve Order is not routable (i.e., is combined with either 
a Non-Routable Limit Order or a Primary Pegged Order), the replenish 
quantity would be assigned a display and working price consistent with 
the instructions for the order, which represents current functionality. 
For example, for a Non-Routable Limit Reserve Order, if the display 
price would lock or cross the contra-side PBBO, the replenished 
quantity would be assigned a display price one MPV worse than the PBBO

[[Page 43944]]

and a working price equal to the contra-side PBBO, as provided for in 
Rule 7.31(e)(1)(A)(i).\7\ The Exchange believes that this proposed rule 
text would provide transparency and clarity to Exchange rules.
---------------------------------------------------------------------------

    \7\ The term ``PBBO'' is defined in Rule 1.1. The term ``MPV'' 
is defined in Rule 7.6.
---------------------------------------------------------------------------

    For a Primary Pegged Reserve Order, the Exchange proposes that the 
replenished quantity would follow Rule 7.31(h)(2)(B), which provides 
that a Primary Pegged Order would be rejected if the PBBO is locked or 
crossed. Because a Primary Pegged Reserve Order would have resting 
reserve interest, the Exchange proposes to amend Rule 7.31(h)(2)(B) to 
provide that if the PBBO is locked or crossed when the display quantity 
of a Primary Pegged Reserve Order is replenished, the entire order 
would be cancelled. The Exchange believes that cancelling the entire 
order is consistent with the current rule that provides that the entire 
order would be rejected on arrival if the display quantity would lock 
or cross the PBBO.
    The Exchange further proposes to add new subsection (D) to Rule 
7.31(d)(1) to describe when a Reserve Order would be routed. As 
proposed, a routable Reserve Order would be evaluated for routing both 
on arrival and each time the display quantity is replenished.
    Proposed Rule 7.31(d)(1)(D)(i) would provide that if routing is 
required, the Exchange would route from reserve interest before 
publishing the display quantity. In addition, if after routing, there 
is less than a round lot available to display, the Exchange would wait 
until the routed quantity returns (executed or unexecuted) before 
publishing the display quantity. In the example described above, the 
Exchange would have published the display quantity before the routed 
quantity returned because the display quantity was at least a round 
lot. If, however, 250 shares of a Reserve Order of 300 shares had been 
routed on arrival, because the unrouted quantity was less than a round 
lot (50 shares), the Exchange would wait for the routed quantity to 
return, either executed or unexecuted, before publishing the display 
quantity.
    The Exchange proposes this functionality to reduce the possibility 
for a Reserve Order to have more than one child order. If the Exchange 
did not wait, and instead displayed the 50 shares when the balance of 
the Reserve Order has routed, if the 250 shares returns unexecuted, 
such Reserve Order would be replenished and would have two child 
orders--one for the 50 shares that was displayed when the order was 
entered and a second for the 100 shares that replenished the Reserve 
Order from the quantity that returned unexecuted. By contrast, by 
waiting for a report on the routed quantity, if the routed quantity was 
not executed, the Exchange would display the minimum display quantity 
as a single child order. If the routed quantity was executed, the 
Exchange would display the 50 shares, but only because that would be 
the full remaining quantity of the Reserve Order.
    Proposed Rule 7.31(d)(1)(D)(ii) would provide that any quantity of 
a Reserve Order that is returned unexecuted would join the working time 
of the reserve interest, which is current functionality. If there is no 
quantity of reserve interest to join, the returned quantity would be 
assigned a new working time as reserve interest. As further proposed, 
in either case, such reserve interest would replenish the display 
quantity as provided for in Rules 7.31(d)(1)(A) and (B). The Exchange 
believes that this proposed rule text would promote transparency and 
clarity in Exchange rules. The Exchange further believes it is 
appropriate for a returned quantity of a Reserve Order to join the 
reserve interest first because the order may not be eligible for a 
replenishment to the display quantity.
    Proposed Rule 7.31(d)(1)(E) would provide that a request to reduce 
in size a Reserve Order would cancel the reserve interest before 
canceling the display quantity and if there is more than one child 
order, the child order with the later working time would be cancelled 
first. This represents current functionality and the example set forth 
above demonstrates how this would function. The Exchange believes that 
canceling reserve interest before a child order would promote the 
display of liquidity on an exchange. The Exchange further believes that 
canceling a later-timed child order would respect the time priority of 
the first child order, and any priority such child order may have for 
allocations.
* * * * *
    Because of the technology changes associated with the proposed rule 
changes relating to Reserve Orders, the Exchange will announce by 
Trader Update when these changes will be implemented, which the 
Exchange anticipates will be in the third quarter of 2018.
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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change to replenish a 
Reserve Order only if the display quantity is decremented to below a 
round lot would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it would 
reduce the number of child orders associated with a single Reserve 
Order. By reducing the number of child orders, the Exchange believes it 
would reduce the potential for market participants to detect that a 
child order is associated with a Reserve Order. The proposed changes to 
Reserve Orders and Primary Pegged Orders are identical to recently 
approved changes to the rules of its affiliated exchange, NYSE, and how 
a Reserve Order would be replenished is also consistent with how 
Reserve Orders function on BZX and Nasdaq.\10\
---------------------------------------------------------------------------

    \10\ See supra notes 5 and 6.
---------------------------------------------------------------------------

    For similar reasons, the Exchange believes that if a Reserve Order 
has two child orders that equal less than a round lot, it would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system to assign a new working time to the later 
child order so that when such Reserve Order is replenished, it would 
have a maximum of only two child orders. The Exchange believes that 
this proposed change would streamline the operation of Reserve Orders 
and meet the objective to reduce the potential for market participants 
to be able to identify that a child order is associated with a Reserve 
Order.
    The Exchange further believes that the proposed rule change to 
evaluate a Reserve Order for routing both on arrival and when 
replenishing would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it would 
reduce the potential for the display quantity of a Reserve Order to 
lock or cross the PBBO of an away market. The Exchange further believes 
that routing from reserve interest would

[[Page 43945]]

promote the display of liquidity on the Exchange, because if there is 
at least a round lot remaining of a Reserve Order that is not routed, 
the Exchange would display that quantity. The Exchange also believes 
that it would remove impediments to and perfect the mechanism of a free 
and open market and a national market system to wait to display a 
Reserve Order if there is less than a round lot remaining after routing 
because it would reduce the potential for such Reserve Order to have 
more than one child order. Finally, the Exchange believes that joining 
any quantity of a Reserve Order that is returned unexecuted with 
reserve interest first would be consistent with the proposed 
replenishment logic that a Reserve Order would be replenished only if 
the display quantity is decremented to below a round lot.
    The Exchange believes that it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system to apply a request to reduce in size a Reserve Order to the 
reserve interest first, and then next to the child order with the later 
working time, because such functionality would promote the display of 
liquidity on the Exchange and honor the priority of the first child 
order with the earlier working time. The Exchange believes that 
including this existing functionality in Rule 7.31 would promote 
transparency and clarity in Exchange rules.
    The Exchange believes that the proposed change to Primary Pegged 
Reserve Orders would remove impediments to and perfect the mechanism of 
a free and open market and a national market system because similar to 
how a Primary Pegged Order would function on arrival, if the replenish 
quantity of a Primary Pegged Reserve Order would lock or cross the 
PBBO, the entire Reserve Order would be cancelled. The Exchange 
believes that by cancelling the entire order, the Exchange would reduce 
the potential for such order to be displayed at a price that would lock 
or cross the PBBO.
    The Exchange believes that the proposed non-substantive amendments 
to rename the ``Limit Non-Displayed Order'' as the ``Non-Displayed 
Limit Order'' and to rename the ``Limit Non-Routable Order'' as the 
``Non-Routable Limit Order'' would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because the proposed changes are designed to promote clarity and 
consistency in Exchange rules by moving the modifier describing the 
function of the order type before the term ``Limit Order.''

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 rule change is 
not designed to address any competitive issues. Rather, the proposed 
rule change to Reserve Orders is designed to reduce the potential for 
market participants to identify that a child order is related to a 
Reserve Order. The additional proposed rule changes are non-substantive 
and are designed to promote clarity and consistency in Exchange rules.

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 \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\14\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
---------------------------------------------------------------------------

    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    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) \15\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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 [email protected]. Please include 
File Number SR-NYSENAT-2018-19 on the subject line.

Paper Comments

     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-NYSENAT-2018-19. 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 (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 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

[[Page 43946]]

submissions should refer to File Number SR-NYSENAT-2018-19 and should 
be submitted on or before September 18, 2018.
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18571 Filed 8-27-18; 8:45 am]
 BILLING CODE 8011-01-P


