
[Federal Register Volume 83, Number 242 (Tuesday, December 18, 2018)]
[Notices]
[Pages 64913-64922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27280]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84806; File No. SR-NYSE-2018-52]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 7.31 Relating to 
Discretionary Orders, Auction-Only Orders, Discretionary Modifier, and 
Yielding Modifier and Related Amendments to Rules 7.16, 7.34, 7.36, and 
7.37

December 12, 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 November 29, 2018, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') 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.
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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 (Orders and Modifiers) to: 
(i) Add a new order type, Discretionary Orders; (ii) add two new order 
type modifiers, the Last Sale Peg Modifier and the Yielding Modifier; 
and (iii) make related changes to Rules 7.16, 7.34, 7.36, and 7.37. 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 (Orders and Modifiers) to: 
(i) Add a new order type, Discretionary Orders; (ii) add two new order 
type modifiers, the Last Sale Peg Modifier and the Yielding Modifier; 
and (iii) make related changes to Rules 7.16, 7.34, 7.36, and 7.37.
    Each of these proposed changes is designed to introduce on Pillar 
order types and modifiers that are currently available for trading 
securities listed on the Exchange. First, the proposed new order type, 
Discretionary Orders, or ``D Orders,'' is based on current d-Quote 
functionality.\4\ Second, the proposed Last Sale Peg Modifier is based 
on the Buy Minus Zero Plus Instruction.\5\ Finally, the proposed 
Yielding Modifier is based on e-Quotes that yield (``g-Quotes'').\6\ 
The Exchange also proposes to make related changes to Rules 7.16 (Short 
Sales), 7.34 (Trading Sessions), 7.36 (Order Ranking and Display), and 
7.37 (Order Execution and Routing).
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    \4\ See Supplementary Material .25 to Rule 70 (``Rule 70.25'').
    \5\ See Rule 13(f)(4).
    \6\ See Rule 70(a)(ii) and (iii).
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    Currently, only UTP Securities are traded on the Exchange's Pillar 
trading platform.\7\ Accordingly, at this time, the

[[Page 64914]]

proposed D Order, Last Sale Peg Modifier, and Yielding Modifier would 
be available only for UTP Securities. When the Exchange transitions 
Exchange-listed securities to Pillar, these order types and modifiers 
would be available for those securities as well.\8\
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    \7\ ``UTP Security'' is defined as a security that is listed on 
a national securities exchange other than the Exchange and that 
trades on the Exchange pursuant to unlisted trading privileges. See 
Rule 1.1(x).
    \8\ The proposed D Order, Last Sale Peg Modifier, and Yielding 
Modifier would function in an identical manner as proposed herein 
when made available for Exchange-listed securities.
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Proposed Discretionary Order
    The Exchange proposes a new order type, a Discretionary Order or 
``D Order'', under paragraph (d)(4) of Rule 7.31 for securities trading 
on Pillar. Today, the Exchange offers d-Quotes \9\ for trading in 
Exchange-listed securities only, which operate in a similar manner as 
the proposed D Order, including that such order type is available to 
Floor brokers only.
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    \9\ See Rule 70.25. See also Securities Exchange Act Release 
Nos. 54577 (October 5, 2006), 71 FR 60208 (October 12, 2006) (SR-
NYSE-2006-25) (``d-Quote Approval Order''); 60251 (July 7, 2009), 74 
FR 34068 (July 14, 2009) (SR-NYSE-2009-55); 61072 (November 30, 
2009), 74 FR 64103 (December 7, 2009) (SR-NYSE-2009-106); and 75444 
(July 13, 2015), 80 FR 42575 (July 17, 2015) (SR-NYSE-2015-15).
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    Under Rule 70.25, a d-Quote is a quotation entered by a Floor 
broker that includes discretionary instructions as to size and/or 
price.\10\ Such discretionary instructions are active during the 
trading day, unless the PBBO is crossed.\11\ A Floor broker can also 
include an instruction for the discretionary instructions to 
participate in the opening or closing transaction only.\12\ 
Discretionary instructions are not displayed and such instructions 
apply to both displayed and reserve interest.\13\ Currently, price 
discretion can apply to all or a portion of a d-Quote and a d-Quote 
with a midpoint modifier has a discretionary price range to the 
midpoint of the PBBO.\14\
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    \10\ See Rule 70.25(a)(i).
    \11\ See Rule 70.25(a)(ii).
    \12\ See id.
    \13\ See Rule 70.25(a)(vi) and (vjj).
    \14\ See Rule 70.25(b).
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    With respect to discretionary size, a Floor broker may designate 
the amount of d-Quote volume to which the discretionary price 
instructions shall apply, and can also designate that a minimum size of 
contra-side volume with which it is willing to trade using 
discretionary size instructions.\15\ A Floor broker may also designate 
a minimum trade size (``MTS'') that must be met before the d-Quote is 
executed.\16\ A resting d-Quote will be triggered to exercise 
discretion so long as the contra-side interest's price is within the 
discretionary price range and meets the MTS that has been set for the 
d-Quote.\17\
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    \15\ See Rule 70.25(c).
    \16\ See Rule 70.25(d).
    \17\ See Rule 70.25(e)(ii).
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    On Pillar, the Exchange proposes to offer Floor brokers 
functionality similar to d-Quotes in the form of D Orders. However, the 
Exchange proposes to simplify and streamline D Order functionality on 
Pillar as compared to how d-Quotes function. Among other things, the 
Exchange would not offer discretionary size instructions for D Orders 
that are available to d-Quotes. Also unlike d-Quotes, the discretionary 
price instructions would be applicable to the entirety of the D Order. 
In addition, all D Orders would have a discretionary price range capped 
at the midpoint of the PBBO, which is currently optional functionality 
for d-Quotes.
    Overview. Proposed Rule 7.31(d)(4) would set forth the general 
requirements for D Orders and would provide that a D Order is a Limit 
Order that may trade at an undisplayed discretionary price. As further 
proposed, a D Order must be designated Day, may be designated as 
routable or non-routable,\18\ and on entry, must have a minimum of one 
round lot displayed. This proposed rule text is based in part on how d-
Quotes currently function, with a proposed difference that on Pillar, D 
Orders would be required to have a display quantity.\19\ The Exchange 
proposes that, as currently available for d-Quotes, D Orders could be 
combined with a Reserve Order, which would be addressed in an amendment 
to Rule 7.31(d)(1)(C).
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    \18\ A d-Quote can be combined with a Do Not Ship ``DNS'' Order, 
which is an order that would be cancelled if it were required to be 
routed. See Rule 13(e)(2). Accordingly, a d-Quote combined with DNS 
is a non-routable d-Quote.
    \19\ Currently, Reserve Orders available to Floor brokers do not 
require a display quantity. See Rule 70(f).
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    Proposed Rule 7.31(d)(4) would further provide that a D Order is 
available only to Floor brokers and is eligible to be traded in the 
Core Trading Session \20\ only. This proposed rule text is based on 
current rules that d-Quotes are available only to Floor brokers. The 
requirement that D Orders would be eligible to trade in the Core 
Trading Session only is consistent with current d-Quote functionality, 
which trade during ``regular trading hours'' only. The Exchange 
proposes to apply this same time frame when making D Orders available 
to all securities that trade on Pillar, including UTP Securities 
because, as discussed below, D Order functionality would operate 
similarly to Pegged Orders, which are also only available during Core 
Trading Hours. The Exchange also proposes to amend Rule 7.34(c)(1)(A) 
to specify when a D Order may be entered and be eligible for execution.
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    \20\ The Core Trading Session begins at 9:30 a.m. Eastern Time 
and ends at the conclusion of Core Trading Hours. See Rule 
7.34(a)(2). The term ``Core Trading Hours'' means ``the hours of 
9:30 a.m. Eastern Time through 4:00 p.m. Eastern Time or such other 
hours as may be determined by the Exchange from time to time.'' See 
Rule 1.1(d).
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    Upon Arrival. Proposed Rule 7.31(d)(4)(A) would provide that the 
Floor broker would be required to specify one of the following 
instructions for a D Order: (i) Limit Price D Order; or (ii) Midpoint 
Price D Order.
     Proposed Rule 7.31(d)(4)(A)(i) would provide that on 
arrival, a Limit Price D Order to buy (sell) would trade with sell 
(buy) orders on the Exchange Book, or, if designated as routable, route 
to an Away Market up (down) to the limit price of the order. If after 
trading or routing the PBBO is locked or crossed or there is no PBB 
(PBO), a Limit Price D Order would be cancelled. For a Limit Price D 
Order that is partially routed to an Away Market on arrival, any 
returned quantity of such D Order would join the working price of the 
resting odd-lot quantity of the D Order. Because the limit price of a D 
Order would function similarly to the upper (lower) discretionary price 
range of a d-Quote, this proposed operation of a Limit Price D Order on 
arrival is similar to how d-Quotes currently function.\21\
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    \21\ See Rule 70.25(e)(vii) (a d-Quote may initiate a sweep to 
the extent of their price and volume discretion).
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     Proposed Rule 7.31(d)(4)(A)(ii) would provide that on 
arrival, a Midpoint Price D Order to buy (sell) would trade with sell 
(buy) orders on the Exchange Book up (down) to the lower (higher) of 
the midpoint of the PBBO (``Midpoint Price'') or the order's limit 
price. The rule would further provide that a Midpoint Price D Order 
would not route on arrival, even if designated as routable. If 
designated as routable, a Midpoint D Order combined with a Reserve 
Order would be evaluated for routing each time the display quantity is 
replenished as provided for in Rule 7.31(d)(1)(D).\22\ The rule would 
further provide that if the PBBO is locked or crossed or if the 
Midpoint Price is unavailable, the Midpoint Price D Order would be 
rejected. The Midpoint Price D Order is based on current functionality 
that a d-Quote may be designated with a

[[Page 64915]]

midpoint modifier and the discretionary price range of such d-Quote is 
the midpoint of the PBBO.\23\
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    \22\ Rule 7.31(d)(1)(D) provides that a routable Reserve Order 
will be evaluated for routing both on arrival and each time the 
display quantity is replenished.
    \23\ See Rule 70.25(b)(v).
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    The Exchange notes that the proposed functionality to either cancel 
or reject a D Order when the PBBO is locked or crossed is based on how 
Primary Pegged Orders \24\ currently function.\25\ As discussed below, 
the Exchange proposes that D Orders would function similarly to Primary 
Pegged Orders because they would be pegged to the same-side PBBO. The 
Exchange therefore believes that a D Order should be rejected or 
cancelled under the same circumstances when a Primary Pegged Order 
would be cancelled or rejected.\26\ In addition, this is consistent 
with current d-Quote functionality that provides that discretionary 
instructions are not active when the PBBO is crossed.\27\
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    \24\ See Rule 7.31(h) for a description of Pegged Orders.
    \25\ See Rule 7.31(h)(2) and (h)(2)(B) (``A Primary Pegged Order 
will be rejected if the PBBO is locked or crossed.'').
    \26\ See Rule 7.31(h)(2) (``A Primary Pegged Order to buy (sell) 
will be rejected on arrival, or cancelled when resting, if there is 
no PBB (PBO) against which to peg.'')
    \27\ See Rule 70.25(a)(ii).
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    Display Price. Proposed Rule 7.31(d)(4)(B) would set forth how a D 
Order would be displayed when resting on the Exchange Book and would 
provide that the working \28\ and display price of a D Order to buy 
(sell) would be pegged to the PBB (PBO). If the PBB (PBO) is higher 
(lower) than the limit price of a D Order to buy (sell), the working 
and display price would be the limit price of the order. The rule would 
further provide that a D Order to buy (sell) would be cancelled if 
there is no PBB (PBO) against which to peg. At its display price,\29\ a 
D Order would be ranked Priority 2--Display Orders.\30\ This proposed 
functionality for D Orders would be new for Pillar and is based on how 
Primary Pegged Orders function, including that a D Order would be 
cancelled if there is nothing against which to peg. The Exchange 
believes this proposed difference would streamline and simplify the 
operation of D Orders as compared to d-Quotes.\31\
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    \28\ ``Working price'' means the price at which an order is 
eligible to trade at any given time, which may be different from the 
limit price or display price of the order. See Rule 7.36(a)(3).
    \29\ ``Display price'' means the price at which a Limit Order is 
displayed, which may be different from the limit price or working 
price of the order. See Rule 7.36(a)(1).
    \30\ Rule 7.36(e) governs execution priority for orders resting 
on the Exchange Book and currently sets forth three priority 
categories: Priority 1--Market Orders, Priority 2--Display Orders, 
and Priority 3--Non-Display Orders. If a D Order is combined with a 
Reserve Order, the reserve interest of such order would be ranked 
Priority 3--Non-Display Orders. See Rule 7.31(d)(1).
    \31\ Currently, d-Quotes resting at the depth of book can 
exercise discretion. See Rule 70.25(e)(i)(A).
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    Exercising Discretion. Proposed Rule 7.31(d)(4)(C) would provide 
that a resting D Order to buy (sell) would be eligible to exercise 
discretion up (down) to the limit price of the order. This proposed 
rule text is new for Pillar and reflects that the limit price of the D 
Order would function as the ceiling or floor of the discretionary price 
range for such order. As noted above, the display price of a D Order 
would be pegged to the same-side PBBO and would not be based on the 
limit price.
    The proposed rule would further provide that such D Order would not 
exercise discretion if the PBBO is locked or crossed or if there is no 
Midpoint Price. This functionality is based in part on how d-Quotes 
currently function and adds that D Orders would not exercise discretion 
if the market is locked (because a D Order would be pegged to the same-
side PBBO and there is no midpoint) or if there is no Midpoint Price 
(meaning there is no price available for a D Order to extend its 
discretion to).\32\
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    \32\ See Rule 70.25(a)(ii).
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    Proposed Rule 7.31(d)(4)(C)(i) would provide that a D Order to buy 
(sell) would be triggered to exercise discretion if the price of an 
Aggressing Order \33\ to sell (buy) is above (below) the PBB (PBO) and 
at or below the Midpoint Price (the ``discretionary price range''). 
This would be new functionality for D Orders. Currently, any contra-
side order that is within the discretionary price range of a d-Quote 
would trigger a d-Quote to trade.\34\ The Exchange believes the 
proposed difference for D Orders would streamline and simplify the 
function of D Orders. More specifically, because the discretionary 
price range for a D Order would be one minimum price variation 
(``MPV'') better than the same-side PBBO capped by the Midpoint Price, 
the Exchange believes that only contra-side orders with a limit price 
within that same discretionary price range should trigger a D Order to 
exercise discretion.
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    \33\ An Aggressing Order is a buy (sell) order that is or 
becomes marketable against sell (buy) interest on the Exchange Book. 
See Rule 7.36(a)(6). A resting order may become an Aggressing Order 
if its working price changes, if the PBBO or NBBO is updated, 
because of changes to other orders on the Exchange Book, or when 
processing inbound messages. Id.
    \34\ See Rule 70.25(e)(ii).
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    Proposed Rule 7.31(d)(4)(C)(ii) would provide that the 
discretionary price at which a D Order to buy (sell) would trade would 
be the price of the sell (buy) order. This proposed functionality would 
be new for Pillar and is to be read together with proposed Rule 
7.31(d)(4)(C)(i), which defines the price range of the contra-side 
order that could trigger the D Order to exercise discretion. In 
addition, the Exchange proposes to define the term ``discretionary 
price'' in new Rule 7.36(a)(7) to mean the undisplayed price at which a 
D Order would trade if it exercises discretion.
    Proposed Rule 7.31(d)(4)(C)(ii) would further provide that if there 
is other interest to buy (sell) on the Exchange Book priced equal to or 
higher (lower) than the price of the sell (buy) order, the 
discretionary price would be one MPV higher (lower) than the highest 
(lowest) priced resting order to buy (sell), capped by the Midpoint 
Price.\35\ This would be new functionality for Pillar and is based in 
part on current functionality that requires a d-Quote to exercise the 
least amount of price discretion.\36\ The following example illustrates 
this behavior:
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    \35\ The MPV for securities is defined in Rule 7.6.
    \36\ See Rule 70.25(e)(i)(A).
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     If the PBBO is $10.00 by $10.10 with a Midpoint Price of 
$10.05 and a Floor broker enters a D Order to buy 100 shares with a 
limit price of $10.08 (``Order 1''), Order 1 would be pegged to and 
displayed at $10.00, the PBB, with a discretionary price range up to 
the $10.05 Midpoint Price. If a non-displayed Limit Order to buy 100 
shares at $10.03 is placed on the Exchange Book (``Order 2'') and next, 
a Limit Order to sell 200 shares at $10.01 is entered (``Order 3''), 
because Order 3 is marketable against Order 2 at $10.03, Order 1's 
discretionary price range would extend to $10.04, one MPV higher than 
Order 2's limit price. Order 3 would execute 100 shares against Order 1 
at $10.04, providing Order 3 with $0.03 of price improvement relative 
to its limit price. The remaining 100 shares of Order 3 would execute 
against Order 2 at $10.03.
    Ranking and Working Time. As provided for in Rule 7.36(f)(1), an 
order is assigned its working time based on its original entry time, 
which is the time when an order is placed on the Exchange Book. Rule 
7.36(f)(2) further provides that an order is assigned a new working 
time any time its working price changes.\37\ Because a D Order can 
trade at more than one price--its display price or its discretionary 
price, the Exchange proposes to address the working time associated 
with each such

[[Page 64916]]

price in proposed Rule 7.31(d)(4)(D). As proposed, the trigger to 
exercise discretion would not change the working time of a D Order's 
display and working price.
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    \37\ Pursuant to Rule 7.36(f)(2), each time a D Order is 
assigned a new working and display price, i.e., with each change to 
the same-side PBBO pursuant to proposed Rule 7.31(d)(4)(B)(i), such 
D Order would be assigned a new working time.
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    Proposed Rule 7.31(d)(4)(D)(i) would provide that at its 
discretionary price, a D Order would be assigned a new temporary 
working time that is later than any same-side resting interest at that 
price. This temporary working time is distinct from the working time 
associated with the display and working price of the D Order, which are 
pegged to the same-side PBBO.
    Proposed Rule 7.31(d)(4)(D)(ii) would provide that multiple D 
Orders eligible to trade at the same discretionary price would be 
ranked by limit price and time. This is new functionality for Pillar. 
Current Rule 70.25(e)(iii) and (iv) describe how competing d-Quotes 
from more than one Floor broker trade. The Exchange does not propose to 
replicate this functionality on Pillar and believes that ranking 
multiple same-side D Orders based on limit price and time would 
simplify the process for allocation among competing D Orders. Finally, 
proposed Rule 7.31(d)(4)(D)(iii) would provide that any quantity of a D 
Order that does not execute at a discretionary price would return to 
the working time associated with its working and display price.
    The Exchange believes that the proposed temporary working time 
associated with the discretionary price would respect the priority of 
the working times of orders that may have a working price equal to the 
D Order's discretionary price. By assigning a temporary working time, 
the D Order would be ranked behind other orders at that price. In 
addition, because the D Order would continue to be displayed at its 
display price, even if it were triggered to exercise discretion, the 
proposal would honor such D Order's original working time if it were to 
trade at its display price.
    Resting D Order that Becomes Marketable. Proposed Rule 
7.31(d)(4)(E) would provide that after the PBBO unlocks or uncrosses or 
a Midpoint Price becomes accessible, resting D Orders to buy (sell) 
would be ranked based on the lower (higher) of the Midpoint Price or 
limit price of the order to determine whether a D Order is marketable 
within the discretionary price range with contra-side orders on the 
Exchange Book. This proposed rule text is new and reflects the 
difference in Pillar that D Orders would not exercise discretion when 
the PBBO is locked or crossed or if a Midpoint Price is unavailable. 
This proposed rule text addresses how a resting D Order would be ranked 
for trading when the PBBO unlocks or uncrosses or if a Midpoint Price 
becomes accessible.
    D Orders Rejected and Modifiers. Proposed Rule 7.31(d)(4)(F) would 
provide that a D Order may be designated with a Self Trade Prevention 
Modifier (``STP'') and would be rejected if combined with any other 
modifiers or if the same-side PBBO is zero. This proposed functionality 
is new, as d-Quotes cannot currently be designated with an STP 
Modifier.\38\ The Exchange believes that making STP Modifiers available 
for D Orders would provide Floor brokers with more tools to reduce the 
potential for two orders to interact if they are from the same 
customer. By specifying that D Orders cannot be combined with other 
modifiers, the rule provides transparency that a D Order cannot be 
combined with other modifiers defined in Rule 7.31(i).
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    \38\ See Rule 13(f)(3)(B).
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    Regarding STP, Rule 7.31(i)(2) describes the Exchange's STP 
Modifier. Generally, if two orders from the same Client ID both have an 
STP Modifier, the Exchange will cancel one of the two orders, based on 
instruction from the member organization. For D Orders, because the 
discretionary price is temporary, the Exchange proposes that if a D 
Order exercising discretion would trade with another order with an STP 
Modifier from the same Client ID, the two orders would not trade, but 
nor would either order be cancelled. The Exchange does not believe it 
would be appropriate to cancel the D Order in such scenario because if 
the D Order is not cancelled, it would be eligible to trade with 
another order at either its display price or a different discretionary 
price at a later time. To effect this change, the Exchange proposes to 
amend Rule 7.31(i)(2) to add new subparagraph (C) that would provide 
that a resting D Order with an STP Modifier that is triggered to 
exercise discretion and is not an Aggressing Order will not trade at a 
discretionary price against a contra-side order that is also designated 
with an STP Modifier and from the same Client ID and that in such case, 
the D Order would not be cancelled.
    Last 10 Seconds of Trading. Proposed Rule 7.31(d)(4)(G) would 
provide that a request to enter a D Order in any security 10 seconds or 
less before the scheduled close of trading would be rejected. This 
proposed rule text is based in part on the second sentence of current 
Rule 70.25(a)(ii), which provides that the Exchange will reject any d-
Quotes that are entered 10 seconds or less before the scheduled end of 
trading. The proposed functionality for UTP Securities would be 
identical to Rule 70.25(a)(ii).
    Allocation of D Orders. Rule 7.37(b) describes how an Aggressing 
Order is allocated among contra-side orders at each price. The Exchange 
maintains separate allocation wheels on each side of the market for 
displayed and non-displayed orders at each price. The Exchange proposes 
to amend Rule 7.37(b) to set forth how D Orders would participate in 
the allocation process.
    Rule 7.37(b)(1) sets forth the following allocation sequence: (1) 
Market Orders trade first based on time; (2) orders with Setter 
Priority as described in Exchange Rule 7.36(h) receive an allocation; 
(3) orders ranked Priority 2--Displayed Orders are allocated on parity 
by Participant; (4) orders ranked Priority 3--Non-Display Orders, other 
than Mid-Point Liquidity (``MPL'') Orders \39\ with an MTS Modifier, 
are allocated on parity by Participant; \40\ and then (5) MPL Orders 
with an MTS Modifier are allocated based on MTS size (smallest to 
largest) and time.
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    \39\ See Rule 7.31(d)(3) for a description of MPL Orders.
    \40\ In sum, an order with an MTS Modifier would only trade with 
contra-side orders that, either individually or in the aggregate, 
satisfy the order's minimum trade size condition. See Rule 
7.31(i)(3) for a full description of the MTS Modifier.
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    As proposed, D Orders trading at a discretionary price would be 
allocated next on parity by Floor Broker Participant.\41\ Accordingly, 
at their discretionary price, D Orders would be allocated after all 
other orders at that price, except, as described below, Yielding 
Orders. To effect this change, the Exchange proposes to amend Rule 
7.37(b)(1) to add new sub-paragraph (F) to provide that next, D Orders 
trading at a discretionary price would be allocated on parity by Floor 
Broker Participant. This proposed functionality is based in part on 
current Rule 70.25(a)(ii), which provides that executions of d-Quotes 
within the discretionary price range are considered non-displayable for 
purposes of Rule 72.
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    \41\ See Rule 7.36(a)(5) for the definition of the term ``Floor 
Broker Participant.''
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    Rule 7.37(b)(2) describes the process for the parity allocation 
wheel. Currently, the Exchange creates separate allocation wheels for 
orders ranked Priority 2--Display Orders and orders ranked Priority 3--
Non-Display Orders. The Exchange proposes to create a third allocation 
wheel if there is more than one D Order eligible to trade at a 
discretionary price. In such case, the Exchange would create an 
allocation

[[Page 64917]]

wheel for D Orders at that discretionary price.\42\
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    \42\ See proposed amendment to Rule 7.37(b)(2).
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    The Exchange proposes that an allocation wheel for D Orders trading 
at a discretionary price would function the same as allocation wheels 
for display and non-display orders, with one proposed difference. 
Because the discretionary price at which a D Order would trade is a 
temporary price established based on whether a contra-side order 
triggers a D Order to exercise discretion, the Exchange proposes to 
amend Rule 7.37(b)(2)(A) to provide that for each D Order parity 
allocation wheel, a D Order to buy (sell) with the highest (lowest) 
limit price would establish the first position on that allocation 
wheel. This proposed rule text is consistent with the proposed ranking 
of D Orders as set forth in proposed Rule 7.31(d)(4)(D)(ii), which 
would require multiple D Orders eligible to trade at the same 
discretionary price to be ranked by limit price and time as described 
above.
    The following example illustrates how the parity allocation wheel 
for D Orders would be established:
     If the PBBO is $10.00 by $10.10 with a Midpoint Price of 
$10.05 and a Floor broker enters a D Order to buy 1,000 shares with a 
limit price of $10.06 (``Order 1''), Order 1 would be pegged to and 
displayed at $10.00, the PBB, with discretion to the $10.05, the 
Midpoint Price. If another Floor broker enters a separate D Order to 
buy 1,000 shares with a limit price of $10.07 (``Order 2''), like Order 
1, Order 2 would be pegged to and displayed at $10.00, the PBB, with 
discretion to $10.05, the Midpoint Price.
     If a Limit Order to sell 100 shares at $10.05 is entered 
(``Order 3''), Order 3 would trigger both Order 1 and 2 to exercise 
discretion at the Midpoint Price. Because Order 2 has the more 
aggressive limit price, it would establish the first position on the D 
Order parity wheel. In this example, Order 3 would trade 100 shares 
with Order 2 at $10.05. Because there is no remaining quantity of Order 
3, Order 1 would not receive an allocation.
    Re-pricing of D Orders during a Short Sale Period. Rule 7.16(f)(5) 
sets forth how the Exchange processes short sale orders during a Short 
Sale Period.\43\ The Exchange proposes to amend Rule 7.16(f)(5)(C) to 
address how the Exchange would process D Orders marked ``short'' during 
a Short Sale Period. As proposed, during a Short Sale Period, the 
Exchange proposes to process sell short D Orders like Pegged Orders and 
MPL Orders. To effect this change, the Exchange proposes to amend Rule 
7.16(f)(5)(C) to add that D Orders, like Pegged Orders and MPL Orders 
today, including orders marked buy, sell long and sell short exempt, 
would use the National Best Bid and Offer (``NBBO'') instead of the 
PBBO as the reference price. Because the Exchange has defined the term 
``Midpoint Price'' for D Orders, the Exchange further proposes to amend 
that rule to provide that the Midpoint Price of D Orders would be the 
midpoint price of the NBBO, including situations where the midpoint is 
less than one minimum price increment above the National Best Bid 
(``NBB''). This functionality would be new for D Orders on Pillar as 
compared to how d-Quotes function and is based on applying existing 
Pillar logic for orders that peg to the PBBO to D Orders.
---------------------------------------------------------------------------

    \43\ A ``Short Sale Period'' is defined in Rule 7.16(f)(4) to 
mean the period when a Short Sale Price Test is in effect. A ``Short 
Sale Price Test'' is defined in Rule 7.16(f)(3) to mean the period 
during which Exchange systems will not execute or display a short 
sale order with respect to a covered security at a price that is 
less than or equal to the current NBB in compliance with Rule 201 of 
Regulation SHO. 17 CFR 242.201.
---------------------------------------------------------------------------

Proposed Last Sale Peg Modifier
    The Exchange proposes to add a new order type modifier, Last Sale 
Peg, which would be set forth in proposed paragraph (i)(4) of Rule 
7.31. Today, the Exchange offers the Buy Minus Zero Plus (``BMZP'') 
\44\ instruction for trading in Exchange-listed securities. The Last 
Sale Peg Modifier is designed to achieve the same purpose as the BMZP 
instruction for securities trading on Pillar, with specified 
differences to reflect Pillar functions and terminology.
---------------------------------------------------------------------------

    \44\ See Rule 13(f)(4).
---------------------------------------------------------------------------

    Under Rule 13(f)(4), for Exchange-listed securities, an order with 
a BMZP instruction will not trade at a price that is higher than the 
last sale, subject to the limit price of an order, if applicable.\45\ 
Odd-lot sized transactions are not considered the last sale for 
purposes of executing BMZP orders.
---------------------------------------------------------------------------

    \45\ See Rule 13(f)(4). Limit Orders with a BMZP instruction 
that are systemically delivered to Exchange systems are eligible to 
be automatically executed in accordance with, and to the extent 
provided by, Rules 1000-1004, consistent with the order's 
instructions. Id. Odd-lot sized transactions are not be considered 
the last sale for purposes of executing an order with a BMZP 
instruction. Id.
---------------------------------------------------------------------------

    The BMZP instruction is available to buy Limit Orders only and is 
designed to assist member organizations in their compliance with the 
``safe harbor'' provisions of Rule 10b-18 under the Act (``Rule 10b-
18'') for issuer repurchases.\46\ One of the four provisions required 
to fall under Rule 10b-18's safe harbor is that the purchase price of a 
security may not exceed the highest independent bid or the last 
independent transaction price for the security.\47\ Because an order 
with a BMZP instruction will not trade at a price that is higher than 
the last sale, member organizations can use this instruction to 
facilitate their compliance with at least one of the conditions of the 
safe harbor provision of Rule 10b-18.\48\
---------------------------------------------------------------------------

    \46\ See 17 CFR 240.10b-18. See also Securities Exchange Act 
Release No. 78679 (August 25, 2016), 81 FR 60080 (August 31, 2016) 
(SR-NYSE-2016-59).
    \47\ See 17 CFR 240.10b-18(b)(3). The other three conditions 
relate to time of purchases, volume of purchases, and a requirement 
that only one broker or dealer be involved in such repurchases on a 
single day.
    \48\ The Exchange does not represent that an order with a BMZP 
instruction or the proposed Last Sale Peg Modifier are guaranteed to 
meet the requirements of the safe harbor provision of Rule 10b-18; 
rather, these instruction are available to member organizations to 
facilitate their own compliance with Rule 10b-18.
---------------------------------------------------------------------------

    On Pillar, the Exchange proposes to offer functionality that is 
based on the BMZP instruction and rename it the Last Sale Peg Modifier. 
Proposed 7.31(i)(4) would set forth the general requirements for the 
Last Sale Peg Modifier. As proposed, a Non-Routable Limit Order to buy 
may be designated with a Last Sale Peg Modifier, which would be 
referred to as a ``Last Sale Peg Order.'' Proposed 7.31(i)(4) would 
also provide that a Last Sale Peg Order would not trade or be displayed 
at a price higher than the later of the most recent last-sale eligible 
trade \49\ executed on the Exchange or the most recent consolidated 
last-sale eligible trade \50\ which would be defined for purposes of 
this Rule as the ``last-sale price.'' This rule text is based on Rule 
13(f)(4)(A), but with greater specificity of what it means to be a last 
sale price for purposes of a Last Sale Peg Order.
---------------------------------------------------------------------------

    \49\ A last-sale eligible trade must be of at least one round 
lot.
    \50\ A consolidated last-sale eligible trade is the last-sale 
eligible trade reported to the responsible single plan processor.
---------------------------------------------------------------------------

    The proposed functionality to restrict Last Sale Peg Orders to Non-
Routable Limit Orders would be new because currently, the BMZP 
instruction can be included on both routable and non-routable buy 
orders. The Exchange believes that limiting the availability of this 
modifier to Non-Routable Limit Orders would simplify the operation of 
this modifier, while at the same time achieving the goal of the 
modifier, which is to provide an instruction to facilitate compliance 
with the safe harbor provisions of Rule 10b-18. Like the BMZP 
instruction, the proposed Last Sale Peg Order would be available only 
for buy orders.

[[Page 64918]]

    Proposed Rule 7.31(i)(4)(A) would provide that the working price of 
a Last Sale Peg Order would be pegged to the lower of the last-sale 
price, the limit price of the order, or the PBO. To reflect which last-
sale price would be applicable, proposed Rule 7.31(i)(4)(A) would 
further provide that the working price of a resting Last Sale Peg Order 
would not be adjusted until an Aggressing Order is fully processed. In 
other words, if an Aggressing Order trades at multiple prices, the 
Exchange would wait for the last price at which such order trades to 
determine the last-sale price for purposes of re-pricing the working 
price of a resting Last Sale Peg Order.
    The rule would further provide that if the last-sale price is not 
at a permissible MPV, the working price of the order would be rounded 
down to the nearest MPV. This last provision would be applicable, for 
example, if the last-sale price were at the midpoint of a penny-spread 
security, which would not be in two decimals. In such case, the 
Exchange would round the working price of the Last Sale Peg Order down 
to the MPV for the security. This proposed rule text would be new for 
Pillar and the Exchange believes that it would promote transparency 
regarding how a Last Sale Peg Order would be displayed on the Exchange 
Book in a manner to facilitate compliance with the safe-harbor 
provisions of Rule 10b-18.
    Proposed Rule 7.31(i)(4)(B) would provide that the display price of 
a Last Sale Peg Order would be the same as the working price, unless 
the working price is pegged to the PBO, in which case, the display 
price would be determined under paragraph (e)(1) of Rule 7.31. Rule 
7.31(e)(1) describes how a Non-Routable Limit Order to buy that, at the 
time of entry and after trading with any sell orders in the Exchange 
Book priced at or below the PBO is priced.\51\ Because a Last Sale Peg 
Order would be a Non-Routable Limit Order, it would follow the pricing 
instructions of such order.
---------------------------------------------------------------------------

    \51\ Under Rule 7.31(e)(1), Non-Routable Limit Orders would be 
re-priced as follows: (i) It will have a working price of the PBO 
(PBB) of an Away Market and a display price one MPV below (above) 
that PBO (PBB); (ii) if the PBO (PBB) of an Away Market re-prices 
higher (lower), it will be assigned a new working price of the 
updated PBO (PBB) and a new display price of one MPV below (above) 
that updated PBO (PBB); (iii) if the PBO (PBB) of an Away Market re-
prices to be equal to or lower (higher) than its last display price, 
its display price will not change, but the working price will be 
adjusted to be equal to its display price; or (iv) if its limit 
price no longer locks or crosses the PBO (PBB) of an Away Market, it 
will be assigned a working price and display price equal to its 
limit price and will not be assigned a new working price or display 
price based on changes to the PBO (PBB).
---------------------------------------------------------------------------

    Proposed Rule 7.31(i)(4)(C) would provide that a Last Sale Peg 
Order may be designated with an STP Modifier and would be rejected if 
combined with any other modifiers or if there is no last-sale price. 
This proposed rule text promotes transparency that a Non-Routable Limit 
Order with a Last Sale Peg Modifier can include an STP, but could not 
be combined with any other modifiers described in Rule 7.31.
    The Exchange proposes that Last Sale Peg Orders would be eligible 
for execution only during the Core Trading Session. As further 
proposed, similar to Primary Pegged Orders, the Exchange proposes that 
Last Sale Peg Orders would be accepted prior to the commencement of the 
Core Trading Session, but would not be eligible for execution until the 
Core Trading Session begins. To effect this change, the Exchange 
proposes to amend Rule 7.34(c)(1)(A) to add Last Sale Peg Orders to the 
description of orders that may be accepted but not eligible to trade 
during the Early Trading Session.
Proposed Yielding Modifier
    The Exchange proposes to add a second new order type modifier, the 
Yielding Modifier, under paragraph (i)(5) of Rule 7.31, for trading on 
Pillar. Today, the Exchange offers Floor brokers g-Quotes \52\ for 
trading in Exchange-listed securities only. The proposed Yielding 
Modifier is based on how g-Quotes currently function and as with g-
Quotes, would be available only to Floor brokers.
---------------------------------------------------------------------------

    \52\ See Rule 70(a)(ii) and (iii).
---------------------------------------------------------------------------

    Currently, g-Quotes are designed to assist Floor brokers with 
compliance with Section 11(a)(1) of the Act,\53\ which generally 
prohibits a member of a national securities exchange from effecting 
transactions on that exchange for its own account, the account of an 
associated person, or any account over which it or an associated person 
exercises discretion. Subsection (G) of Section 11(a)(1) provides an 
exemption from this prohibition, allowing an exchange member to have 
its own floor broker execute a proprietary order, also known as a ``G 
order,'' provided such order yields priority, parity, and precedence 
(the ``G Rule''). For Exchange-listed securities, the Exchange offers 
g-Quotes, which are an electronic method for Floor brokers to represent 
orders that yield priority, parity and precedence based on size to all 
other displayed and non-displayed orders on the Exchange Book, in 
compliance with the G Rule.\54\
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78k(a)(1).
    \54\ Under the G Rule, G orders are not required to yield to 
other orders that are for the account of a member, e.g., Designated 
Market Maker (``DMM'') interest or other g-Quotes.
---------------------------------------------------------------------------

    Like g-Quotes, the proposed Yielding Modifier would aid Floor 
brokers in complying with the G Rule when trading on Pillar. Proposed 
Rule 7.31(i)(5) would set forth the general requirements for the 
Yielding Modifier and would provide that a Limit Order, Non-Routable 
Limit Order, or Reserve Order may be designated with a Yielding 
Modifier, which for purposes of this Rule, would be referred to as a 
``Yielding Order.'' This proposed rule text is based on how the 
Exchange currently functions, because a g-Quote is a form of an e-
Quote, and pursuant to Rule 70.25, e-Quotes may be displayed or non-
displayed and routable or non-routable. The proposed rule text uses 
Pillar terminology to reflect these functions. Proposed Rule 7.31(i)(5) 
would also provide that a Yielding Order would yield priority to all 
other displayed and non-displayed orders at the same price, and, 
similar to g-Quotes, may be entered by a Floor broker only.
    Proposed Rule 7.31(i)(5) would also provide that a Yielding Order 
would be ranked Priority 4--Yielding Orders. The Exchange would make a 
related amendment to Rule 7.36(e) to add this additional priority 
category. Proposed Rule 7.36(e)(4) would provide that Priority 4--
Yielding Orders would have fourth priority. The Exchange believes that 
these proposed priority categories are consistent with current g-Quote 
functionality because Yielding Orders would be ranked behind all other 
displayed and non-displayed orders.
    Proposed Rule 7.31(i)(5)(A) and (B) would describe how an 
Aggressing Yielding Order would trade. Proposed Rule 7.31(i)(5)(A) 
would provide that an Aggressing Yielding Order to buy (sell) with a 
limit price higher (lower) than the limit price of a resting order to 
buy (sell) would trade ahead of such resting order. This proposed rule 
text is consistent with how g-Quotes are ranked and traded in an 
auction; a better-priced g-Quote will trade ahead of an at-priced limit 
order because it has price priority.\55\ The Exchange proposes to make 
this explicit in the rules for all executions of a Yielding Order. For 
example, if the Exchange has a Non-Displayed Limit Order to buy with a 
limit price of 10.00 (``Order 1'') that is locked by an ALO Order to 
sell at 10.00 (``Order 2''), an arriving Yielding Order to buy with a 
limit price of 10.03

[[Page 64919]]

(``Order 3'') would trade with Order 2 at 10.00. Because Order 3 is 
willing to trade at a more aggressive price than Order 1 and therefore 
has price priority, the Exchange believes that Order 3 would not need 
to yield to Order 1 when trading at 10.00. The Exchange therefore 
believes that this proposed execution would be consistent with the G 
Rule.\56\
---------------------------------------------------------------------------

    \55\ See Rule 115A(a)(1) and Rule 123C(7)(a)(vii).
    \56\ See, e.g., Securities Exchange Act Release No. 67686 
(August 17, 2012), 77 FR 51596, 51599 (August 24, 2012) (SR-NYSE-
2012-19) (Approval Order) (approving the Exchange's proposal that 
better-priced G Orders would be guaranteed to participate in a 
closing auction and would have priority over same-side limit orders 
on the Exchange Book that are at the same price as the closing 
auction).
---------------------------------------------------------------------------

    Proposed Rule 7.31(i)(5)(B) would provide that an Aggressing 
Yielding Order to buy (sell) with a limit price equal to the limit 
price of a resting order to buy (sell) would either: (i) Trigger the 
resting order to become an Aggressing Order, unless the order to sell 
(buy) is an MPL-ALO Order,\57\ or an MPL Order with an MTS Modifier, in 
which case neither the Yielding Order nor the same-side resting order 
would trade; or (ii) trade ahead of such resting order if such resting 
order is not eligible to trade (e.g., an ALO Order or an order with an 
MTS Modifier).
---------------------------------------------------------------------------

    \57\ See Rule 7.31(e)(2) for a description of the ALO Order. An 
MPL Order may be designated with the ALO modifier. See Rule 
7.31(d)(3)(E).
---------------------------------------------------------------------------

    In the first scenario, the Exchange believes that triggering the 
resting order to trade ahead of the Yielding Order would respect the 
priority of the resting order at that price. Neither order would trade 
if the contra-side order is either an MPL ALO or MPL Order with an MTS 
Modifier and has a conditional instruction that does not allow it to 
trade at that price. The Exchange believes that not permitting either 
order to trade in this circumstance would ensure that the Yielding 
Order does not trade ahead of a same-priced resting order in accordance 
with the G Rule.
    In the second scenario, the Exchange believes that if a resting 
order has a condition that has not been met and is therefore not 
eligible to trade, such order cedes execution priority to a same-side 
Yielding Order at the same price, and therefore, the Yielding Order 
would not be trading ahead of such order in violation of the G Rule. 
The execution of both an ALO Order and an order with an MTS Modifier 
are both contingent on a pre-condition being met. The ALO Order 
requires that the contra-side order be a liquidity remover and the 
order with a MTS Modifier requires that the contra-side order be of a 
certain size to meet its minimum quantity condition. Because the 
condition of either resting order has not been met and such order 
cannot participate in an execution, the Exchange believes this order 
cedes execution priority to the Yielding Order and the Yielding Order 
would not be required to yield to it under the G Rule.
    The following example illustrates how an order with a Yielding 
Modifier would interact with conditional orders, such as ALO orders, 
MPL ALO orders, or MPL orders with an MTS Modifier.
     If the PBBO is $10.00 by $10.20 resulting in a Midpoint 
Price of $10.10, a Limit Order to buy 40 shares at $10.10 is entered 
and is placed on the Exchange Book (``Order 1''), and an MPL ALO order 
to sell 100 shares at 10.00 is then entered (``Order 2'') and placed on 
the Exchange Book at the Midpoint Price, the Exchange Book would become 
internally locked because Order 2 cannot trade with Order 1.\58\ Next, 
a Floor broker enters a Yielding Order to buy 50 shares at $10.10 
(``Order 3''). Order 3 would not execute against Order 2 because Order 
3 is priced equal to Order 1 and must yield priority, parity and 
precedence to Order 1. Order 3 would be placed on the Exchange Book at 
$10.10.
---------------------------------------------------------------------------

    \58\ See Rule 7.31(d)(3)(E)(i) (providing that ``[a]n Aggressing 
MPL-ALO Order to buy (sell) will trade with resting orders to sell 
(buy) with a working price below (above) the midpoint of the PBBO at 
the working price of the resting orders, but will not trade with 
resting orders to sell (buy) priced at the midpoint of the PBBO.'').
---------------------------------------------------------------------------

     If the Away Market PBB is $10.00, a Non-Displayed Limit 
Order to sell 1,000 shares at $10.00 is entered (``Order 1''), and an 
ALO order to buy 100 shares at $10.00 is entered (``Order 2''), Order 2 
would not trade with Order 1 because it cannot act as a liquidity 
remover. Order 2 would be placed on the Exchange Book at $10.00. Next, 
a Yielding Order to buy 1,000 shares at $10.00 is entered (``Order 
3''), which would execute 1,000 shares against Order 1 at $10.00. Order 
3 would not be required to yield to Order 2 because Order 2 was an ALO 
order that chose to forgo the execution in favor of being placed on the 
Exchange Book and acting as a liquidity provider.
    Similar to the Last Sale Peg Order, proposed Rule 7.31(i)(5)(C) 
would provide that a Yielding Order may be designated with an STP 
Modifier and would be rejected if combined with any other modifiers.
    The Exchange also proposes to amend Rule 7.37(b) to describe how 
orders with a Yielding Modifier would participate in the allocation 
process. As described above, the Exchange proposes that after all other 
displayed and non-displayed orders are allocated, D Orders would be 
allocated on parity. The Exchange proposes to amend Rule 7.37(b)(1) to 
add subparagraph (G) to provide that after D Orders have been 
allocated, the display quantity of orders ranked Priority 4--Yielding 
Orders would be allocated based on time. The Exchange would further add 
subparagraph (H) to provide that next, the non-display quantity of 
orders ranked Priority 4--Yielding Orders would be allocated on time. 
This proposed allocation process is based in part on how g-Quotes are 
allocated after all other displayed and non-displayed orders in 
Exchange-listed securities. The Exchange proposes new functionality for 
Pillar that within each Yielding Order priority ranking, orders would 
be allocated on time rather than on parity. The Exchange believes that 
this proposed difference would streamline and simplify the allocation 
of Yielding Orders and is consistent with their intended compliance 
with the G Rule.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\59\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\60\ 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 regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to, and perfect the mechanisms of, 
a free and open market and a national market system and, in general, to 
protect investors and the public interest and because it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78f(b).
    \60\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change extends the availability of orders and 
modifiers currently available for trading of Exchange-listed securities 
to trading of UTP Securities on Pillar. Specifically, the proposed D 
Order, Last Sale Peg Modifier, and Yielding Modifier that the Exchange 
proposes for Pillar would operate in a similar manner as d-Quotes, 
BMZP, and g-Quotes, respectively, which are currently available for 
trading in Exchange-listed securities. The proposed rule changes are 
all based on existing functionality with differences in rule text only 
to reflect Pillar terminology.
    D Orders. The Exchange believes that the proposed D Order would 
remove

[[Page 64920]]

impediments to, and perfect the mechanisms of, a free and open market 
and a national market system and, in general, protect investors and the 
public interest because it would expand existing functionality 
available to trading of Exchange-listed securities to trading of UTP 
Securities on Pillar. This proposed rule change would also ensure that 
this functionality would continue to be available to Floor brokers when 
the Exchange transitions trading of Exchange-listed securities to 
Pillar. The Exchange notes that D Orders would operate in a manner 
similar to d-Quotes. For example, a D Order would be eligible to trade 
at an undisplayed, discretionary price. In addition, D Orders could 
still be designated as routable or non-routable and could be combined 
with a Reserve Order. However, the Exchange proposes to simplify and 
streamline D Order functionality as compared to how d-Quotes function. 
More specifically, the Exchange proposes to cap the discretionary price 
range to the midpoint of the PBBO, define the discretionary price range 
of such order based on the limit price, limit the circumstances when a 
D Order would be triggered to exercise discretion, and peg the display 
price of a D Order to the same-side PBBO.
    The Exchange believes that these proposed differences would 
simplify the operation of D Orders as compared to d-Quotes, while at 
the same time allow such orders to both contribute to the display of 
liquidity at the Exchange and offer price improvement opportunities to 
contra-side orders. Accordingly, the Exchange believes that the 
proposed D Order would remove impediments to and perfect the mechanism 
of a free and open market and a national market system by promoting 
price improvement to incoming orders, thereby improving execution 
opportunities for market participants. These increased price 
improvement opportunities are designed to attract additional order flow 
to the Exchange.
    The Exchange believes that making the proposed D Order available to 
Floor brokers only is not designed to permit unfair discrimination 
among customers, issuers, brokers, or dealers. First, D Orders are 
based on current d-Quote functionality, which is available only to 
Floor brokers and is designed to replicate electronically the Floor 
broker's agency role to exercise price discretion on an order on behalf 
of a customer.\61\ Floor brokers fulfill an agency broker role on 
behalf of their customers without conflicts and fill a void for firms 
that have chosen to allocate resources away from trading desks. In 
addition to this role, Floor brokers provide services for more illiquid 
securities, which upstairs trading desks may not be staffed to manage. 
Importantly, when providing such agency trading services, a Floor 
broker is unconflicted because a Floor broker is not trading for the 
member's own account and does not sell research to customers. Floor 
brokers therefore can focus on price discovery and volume discovery on 
behalf of their customers, while at the same time managing their 
customers' order flow to ensure that it does not impact pricing on the 
market (e.g., executing large positions on behalf of a customer). Use 
of the D Order would facilitate this agency function by allowing Floor 
brokers to enter orders on behalf of their customers without pricing 
impact because the discretionary price range would be undisplayed. When 
managing such customer order flow, Floor brokers trading in UTP 
Securities would continue to be subject to Exchange rules that are 
unique to Floor brokers, including Rules 95, 122, 123, and paragraphs 
(d)-(j) of Rule 134. In addition, any member organization can choose to 
have a Floor broker operation and thus have direct access to D Orders 
on behalf of its customers.
---------------------------------------------------------------------------

    \61\ See, e.g., Securities Exchange Act Release No. 34-60251 
(July 7, 2009), 74 FR 34068 (July 14, 2009) (Approval Order) (noting 
that d-Quotes provide Floor brokers with similar functionality that 
was previously available to Floor brokers).
---------------------------------------------------------------------------

    In addition, the Exchange notes that while D Orders would be 
available only to Floor brokers, such orders would not receive any 
execution priority or benefit when trading at a discretionary price. To 
the contrary, as proposed, if a D Order were to exercise discretion and 
trade at an undisplayed, discretionary price, such D Order would be 
ranked behind all other same-side orders at that price, except for a 
Yielding Order, which by definition yields to all other orders and can 
only be entered by another Floor broker. The Exchange therefore 
believes that the proposed changes to Rule 7.37, which sets forth the 
allocation process for D Orders, would remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system by providing transparency regarding the priority of such orders.
    More specifically, the Exchange believes it would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system for a D Order trading at a discretionary price 
to yield to other orders at that price because any such resting order, 
whether displayed (which could only be an odd-lot sized order) or non-
displayed, would have time priority over the D Order trading at a 
discretionary price. To reflect this time priority, the Exchange 
proposes to assign a D Order a temporary working time associated with 
the discretionary price, which the Exchange believes would respect the 
priority of the working times of orders that may have a working price 
equal to the D Order's discretionary price. By assigning a temporary 
working time, the D Order would be ranked behind other orders at that 
price. The Exchange further believes that maintaining the working time 
of a D Order if it trades at its displayed price would reflect that 
even if triggered to exercise discretion, it would remain displayed at 
the same-side PBBO until it is executed. If a D Order that is triggered 
to exercise discretion is not fully executed, it would remain available 
for execution at its displayed price. Because that display price would 
not be changing, the Exchange believes it is reasonable to maintain 
time priority for that D Order if it were to execute at that displayed 
price.
    The Exchange believes that the manner by which the discretionary 
price for a D Order would be determined would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because the principles are the same as how d-Quotes function, 
which is to provide price improvement while exercising the least amount 
of price discretion. Consistent with that current behavior, a proposed 
D Order would be able to trade at a discretionary price that provides 
price improvement over resting orders on the Exchange Book, subject to 
a cap at the Midpoint Price.
    The Exchange also believes it is reasonable for D Orders to be 
allocated among multiple Floor brokers at a price based on parity as 
such model is consistent with the Exchange's current parity allocation 
for Floor brokers. As noted above, this parity allocation is only among 
the Floor broker D Orders--other resting orders at that price, whether 
displayed or undisplayed, would have first priority. The Exchange 
further believes that with this parity allocation, it would be 
appropriate to create a separate allocation wheel for D Orders when 
more than one D Order is eligible to trade at the same discretionary 
price. The Exchange further believes that it is appropriate for the 
most aggressively-priced D Order to establish the first position on any 
such allocation wheel as it would encourage the entry of aggressively-
priced orders

[[Page 64921]]

available to provide price improvement to contra-side orders.
    Last Sale Peg Modifier. The Exchange believes that the proposed 
Last Sale Peg Modifier would remove impediments to, and perfect the 
mechanisms of, a free and open market and a national market system and, 
in general, protect investors and the public interest because it would 
expand existing functionality available to trading of Exchange-listed 
securities to trading on Pillar, which would aid member organizations 
in their compliance with provision of Rule 10b-18. Today, the Exchange 
offers the BMZP instruction, which prevents a buy order from trading at 
a price higher than the last sale. As proposed, the Last Sale Peg 
Modifier would offer functionality based on the BMZP instruction for 
all orders that trade on the Exchange. Similar to the BMZP instruction, 
the proposed Last Sale Peg Modifier would be available to buy orders 
and is designed to facilitate compliance with one of the conditions of 
the safe harbor provision of Rule 10b-18. The Exchange believes that 
the proposed differences between the proposed Last Sale Peg Modifier 
and the BMZP instruction are designed to streamline the operation of 
the order modifier and promote transparency, while at the same time 
maintaining the core purpose of such modifier. For example, the 
Exchange believes that limiting this modifier to Non-Routable Limit 
Orders would simplify its operation because the Exchange would not be 
able to assist a member organization to comply with Rule 10b-18 if such 
order were routed to an Away Market.
    Yielding Modifier. The Exchange believes that the proposed Yielding 
Modifier would remove impediments to, and perfect the mechanisms of, a 
free and open market and a national market system and, in general, 
protect investors and the public interest because it would expand 
functionality currently available on the Exchange to Floor brokers in 
Exchange-listed securities to all securities trading on Pillar by 
providing Floor brokers an electronic method to represent orders on 
Pillar that yield priority, parity and precedence to displayed and non-
displayed orders on the Exchange's book in compliance with the G 
Rule.\62\ Today, the Exchange offers g-Quotes \63\ for trading in 
Exchange-listed securities. The proposed Yielding Modifier is based on 
current g-Quote functionality, including that it would only be 
available to Floor brokers. The Exchange notes that there is no need to 
offer this modifier to non-Floor brokers because the only members with 
the specified G Rule obligations today are Floor brokers--the 
electronic, off-Floor entry of orders is subject to an exception to the 
G Rule.\64\
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    \62\ See Section 11(a)(1) of the Act, 15 U.S.C. 78k(a)(1).
    \63\ See Rule 70(a)(ii) and (iii).
    \64\ See Securities Exchange Act Release No. 82945 (March 26, 
2018), 83 FR 13553, 13568 (March 29, 2018) (SR-NYSE-2018-36) 
(``Approval Order'').
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    The Exchange believes the proposed rule for the Yielding Modifier 
is designed to provide transparency of how the proposed modifier would 
function if there are resting orders on both sides of the Exchange book 
locking each other at the same price. The Exchange believes that the 
proposed functionality to allow an arriving Yielding Order that is 
priced better than a resting order that is locked with a contra-side 
order to trade ahead of such same-side resting order is consistent with 
the G Rule because in such scenario, the Yielding Order is willing to 
trade at a better price than the resting order, and therefore has price 
priority over such resting order. Likewise, the Exchange believes it 
would be appropriate to trigger a resting order eligible to trade ahead 
of a same-priced, same-side Yielding Order because if such resting 
order is eligible to be executed and the Yielding Order does not have 
price priority, the resting order should have an opportunity to trade 
first. If it cannot trade, then neither it nor the Yielding Order would 
trade. Finally, the Exchange believes it would be consistent with the G 
Rule for a Yielding Order to trade ahead of a same-priced resting order 
that is unable to trade because one or more conditions cannot be met 
for such resting order. The Exchange believes this trading scenario 
would be consistent with the G Rule because the resting order is not 
eligible to trade, and therefore it would yield priority to the 
Yielding Order; the Yielding Order would not trade ahead of any orders 
in that execution.
    Lastly, the Exchange believes the proposed changes to Rules 7.36 
and 7.37 regarding the priority and parity allocation process for 
orders with a Yielding Modifier would remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system. The Exchange believes it is reasonable to prioritize for 
execution and parity purposes orders with a Yielding Modifier behind 
all other orders at the same price because doing so is consistent with 
the modifier's purpose, which is to yield priority and parity to all 
other displayed and non-displayed orders at the same price, in 
compliance with the G Rule.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\65\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed change extends the availability of 
order types that are currently available for Exchange-listed securities 
to trading on Pillar. The Exchange operates in a highly competitive 
environment in which its unaffiliated exchange competitors operate 
under common rules for the trading of securities listed on their 
markets as well as those that they trade pursuant to unlisted trading 
privileges. By extending the availability of order types that are 
currently available for Exchange-listed securities to trading on 
Pillar, the Exchange would provide its members with consistency across 
trading of all securities in the Exchange. Doing so would also enable 
the Exchange to further compete with unaffiliated exchange competitors 
that also trade UTP securities.
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    \65\ 15 U.S.C. 78f(b)(8).
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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 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:

[[Page 64922]]

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-NYSE-2018-52 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-NYSE-2018-52. 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 submissions should refer to File Number SR-NYSE-2018-52 
and should be submitted on or before January 8, 2019.
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    \66\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\66\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27280 Filed 12-17-18; 8:45 am]
 BILLING CODE 8011-01-P


