[Federal Register Volume 84, Number 196 (Wednesday, October 9, 2019)]
[Notices]
[Pages 54195-54198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22019]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87221; File No. SR-LTSE-2019-02]


Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Make the Exchange a Display-Only Market by Removing 
References to Non-Displayed and Reserve Orders

October 3, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 27, 2019, Long-Term Stock Exchange, Inc. (``LTSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. 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\ 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

    LTSE proposes to operate as a display-only market, and in 
furtherance thereof, proposes to delete references to non-displayed and 
reserve orders, and make other conforming changes. The text of the 
proposed rule change is available at the Exchange's website at https://longtermstockexchange.com/, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement on 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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement on the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On May 10, 2019, the Commission granted the Exchange's application 
for registration as a national securities exchange under Section 6 of 
the Act,\3\ including approval of rules applicable to trading of 
securities on the Exchange.
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    \3\ See Securities Exchange Act Release No. 85828 (May 10, 
2019), 84 FR 21841 (May 15, 2019).
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    LTSE is being built primarily to serve companies and investors who 
focus long-term. To date, LTSE has differentiated itself from other 
exchanges primarily by promoting long-term policies and governing 
practices for listed companies.\4\ LTSE seeks to further differentiate 
itself by offering a trading model that appeals to the interests and 
needs of long-term investors.
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    \4\ See Securities Exchange Act Release No. 86722 (August 21, 
2019), 84 FR 44952 (August 27, 2019) (SR-LTSE-2019-01) (Order 
Approving Proposed Rule Change To Adopt Rule 14.425, Which Would 
Require Companies Listed on the Exchange To Develop and Publish 
Certain Long-Term Policies).
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    In particular, LTSE believes that long-term investors are seeking a 
simplified trading model that emphasizes displayed liquidity; that is, 
trading on LTSE will occur exclusively at prices displayed to all 
participants. The Exchange describes this model as a Very Simple Market 
(``VSM''). In the proposed VSM:
    (i) All orders resting on LTSE would be fully displayed; \5\
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    \5\ Certain order types, such as market orders, Immediate-or-
Cancel (``IOC''), and Inter-market Sweep Orders (``ISO''), are by 
their very terms never displayable, and the proposed rule change 
would not eliminate these order types. The description of LTSE as a 
``fully-displayed'' exchange in the proposed rule change refers to 
the fact there will be no hidden resting orders.

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[[Page 54196]]

    (ii) There would be no hidden or reserve orders; and
    (iii) All trades would occur at displayed prices.
    Because all orders would be fully displayed and all trades would 
occur at displayed prices, the VSM would dispense with both the need 
for midpoint executions (e.g., traders accessing non-displayed prices) 
and complex order types (e.g., orders that aim primarily to advance 
trading strategies).
    LTSE believes that the VSM also would appeal to market makers who, 
by virtue of the simple nature of the market, would be able to 
effectively manage their quoting behavior.
    LTSE's existing rulebook closely resembles the desired state of the 
VSM, with the exception of certain provisions referencing or permitting 
non-displayed and reserve orders.\6\ Accordingly, LTSE is making the 
following amendments: \7\
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    \6\ In some instances, use of the term ``display'' or 
``displayed'' will remain in the rulebook as the term refers to the 
operation of the Exchange in displaying orders, rather than as an 
order attribute.
    \7\ Capitalized terms have the meaning as defined in LTSE Rule 
1.160.
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Rule 11.151 (Market Maker Obligations)
    For each security in which a Member is registered as a Market 
Maker, the Member shall on a continuous basis during regular market 
hours meet a Two-Sided Quote Obligation, which requires a displayed 
quotation size of at least one normal unit of trading. Insofar as all 
quotations will be displayed, the reference to a ``displayed'' 
quotation size in paragraph (a)(1) of the rule is redundant and is 
proposed to be deleted. Likewise, in the discussion of a Market Maker's 
firm quote obligations, the reference to a Market Maker's ``non-
displayed'' size in paragraph (b)(1) would be deleted. Additionally, 
the discussion of locked and crossed markets in paragraph (e)(1) has a 
provision that contrasts how ``displayed orders'' are handled, which 
will be unnecessary and, therefore, is proposed to be deleted.
Rule 11.190 (Orders and Modifiers)
    This rule establishes the allowable order types and attributes. The 
Exchange proposes to add an introductory statement to the first 
paragraph providing that ``All orders resting on the Order Book shall 
be displayable; this requirement shall not preclude the use of market 
orders, Immediate-or-Cancel Orders, or Inter-market Sweep Orders which, 
by their terms, are ineligible to rest on the Order Book.''
    Consistent with foregoing, references to non-displayed, partially-
displayed, and reserve orders are proposed to be deleted. In 
particular, the descriptions of a ``Non-Displayed Order'' in paragraph 
(b)(3), and ``Reserve Order'' in paragraph (b)(2), would be deleted. 
Similarly, the description of a ``Displayed Order'' in paragraph (b)(1) 
would be deleted because it will be redundant of the General Order 
Types in paragraph (a).
    As originally adopted, odd lot orders, and the odd lot portion of 
mixed lot orders, were treated as non-displayed orders. To accommodate 
LTSE's transition to a fully-displayed market as described above, 
provisions in paragraph (b)(4) treating odd lot orders as non-displayed 
orders would be deleted. Similarly, provisions in paragraph (b)(5) 
explaining that mixed lot orders that are decremented to an odd lot 
size are converted to non-displayed orders would be deleted. 
Additionally, the provisions in paragraph (b)(5) explaining how old lot 
portions of mixed lot orders must be marked for display to be eligible 
to be a Protected Quotation would be deleted as all portions of a mixed 
lot order will be displayed. In addition, the Minimum Quantity Order 
(``MQTY'') designation in paragraph (b)(11) would be changed to no 
longer be limited to non-displayed orders. The supplementary material 
.01 describing the priority of non-display portions of reserve orders 
also would be deleted. Conforming amendments to the rule text are 
proposed in paragraph (c)(1) to delete references to the fact that IOC 
orders are non-displayable orders, and in paragraph (f)(1) to remove 
references to ``displayed and non-displayed portions'' of orders.
    The provisions in paragraph (f)(4) addressing One-Sided Markets 
also would be revised to account for the fact that the Exchange would 
be a display-only market as described above, by deleting the provisions 
describing how non-displayed interest is handled. Relatedly, the 
provisions describing how displayed interest in One-Sided Markets is 
handled would be modified to replace references to ``displayable 
interest'' with the phrase ``limit order'' marked LTSE Only, as 
previously used elsewhere in paragraph (f)(4). Finally, there are 
proposed technical and stylistic amendments to improve the readability 
of the rule in view the changes described above.
    Additionally, the provisions in paragraph (f)(5) pertaining to Zero 
Markets, defined as a condition which neither a Protected Bid nor 
Protected Offer exists, are proposed to be deleted. The Zero Market 
provisions address the condition where resting, non-displayed interest 
is unavailable to trade. Because LTSE will be a fully-displayed market 
as described above, provisions addressing how non-displayed orders in a 
Zero Market will post when a Two-Sided Market returns would be 
unnecessary.\8\
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    \8\ References to Zero Markets are also proposed to be deleted 
in Rule 11.231, below.
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    In what is purely a change in nomenclature, the Exchange's price 
sliding process will now use the term ``price sliding'' in lieu of 
``display--price sliding.'' The phrase ``order eligible for display by 
the Exchange'' in paragraph (g)(1)(A) would be deleted. Additionally, 
paragraph (g)(2) pertaining to ``non-displayed price sliding'' would be 
deleted. The sections of the rule in paragraph (g)(3) addressing locked 
and crossed markets contain redundant references to display orders, 
which along with obsolete references to non-displayed or partially 
displayed orders, such as in paragraphs (a)(1)(G), (b)(1)(H), (b)(2), 
(b)(3)-(5), (b)(11), (f)(1), (f)(4)(A)(i)-(iii), (f)(5)(A), 
(g)(1)(C)(ii), and (g)(2) and in the Supplementary Material, are 
proposed to be deleted. Conforming changes are also proposed to the 
section addressing short sale price sliding in paragraph (g)(4).
Rule 11.220 (Priority of Orders)
    As originally adopted, the rules of LTSE established a Price--
Display--Time priority. In becoming a fully-displayed market as 
described above, the Exchange would operate with a Price--Time 
priority. Accordingly, this rule would be changed in paragraphs (a)(1) 
and (2) to reflect this new priority scheme, and throughout the rule to 
eliminate redundant or inaccurate references to displayed or non-
displayed orders. Notably, because odd lot orders and the odd lot 
portion of mixed lot orders would be displayed, the provisions in 
paragraph (a)(1)(C)(vii), which would have given a new time stamp to an 
order that is decremented to an odd lot size are proposed to be 
deleted. Conforming changes to paragraph (a)(3) also are proposed to 
reflect the deletion of paragraph (a)(1)(C)(vii). References to 
displayed portions of reserve orders and displayable orders are also 
proposed to be deleted from paragraph (a)(6) and (b), respectively.
Rule 11.230 (Order Execution)
    This rule describes how orders are matched for execution against 
the LTSE

[[Page 54197]]

Book. The provisions in paragraph (a)(4)(C) related to how non-
displayed orders are posted to the Order Book would be deleted. The 
``Reserved.'' provision in paragraph (a)(4)(D) would also be deleted.
Rule 11.231 (Regular Market Session Opening Process for Non-LTSE-Listed 
Securities)
    The description of the Opening Process for non-LTSE-listed 
securities contemplates ranking non-displayed orders and non-displayed 
portions of reserve orders. These provisions, found in paragraph 
(a)(1)(E), would be deleted. Additionally, the reference to 
``displayed'' limit orders would be deleted from paragraph (a)(1)(F). 
Elsewhere, provisions in paragraph (b)(1) addressing execution priority 
are proposed to be changed to reflect that LTSE would have a Price--
Time priority. The reference to Zero Market in paragraph (c)(3) also 
would be deleted.
Rule 11.240 (Trade Execution, Reporting, and Dissemination of 
Quotations)
    LTSE will operate as an ``automated market center,'' and in 
furtherance thereof, will display ``automated quotations'' within the 
meaning of Regulation NMS. Accordingly, the aggregate of the best-
ranked order(s) will be collected and made available to quotation 
vendors for dissemination pursuant to the requirements of Rule 602 of 
Regulation NMS. A reference in paragraph (c)(1) to the fact that only 
displayable orders will be disseminated is proposed to be deleted 
because all ranked orders on the Exchange will be displayed and 
retaining the rule text could suggest otherwise.
Rule 11.280 (Limit Up-Limit Down Plan and Trading Halts)
    This rule incorporates the elements of the NMS Plan to Address 
Extraordinary Market Volatility, to establish for market-wide limit up-
limit down requirements that prevent trades in individual NMS Stocks 
from occurring outside of the specified Price Bands. These limit up-
limit down requirements are coupled with Trading Pauses to accommodate 
more fundamental price moves. Minor edits are proposed to the section 
on Re-pricing and Cancellation of Interest in paragraphs (e)(5)(B) and 
(E) to reflect the fact that LTSE will not have non-displayed orders.
Rule 11.330 (Data Products)
    Among the data products offered by LTSE free of charge is the LTSE 
Web Platform, a data feed made available through the Exchange's public 
website. In view of the fact that LTSE would be a fully-displayed 
market, references to ``displayed'' orders in paragraph (a)(1) are 
redundant and are proposed to be deleted.
Rule 11.350 (Auctions)
    The rules governing the auction processes are extensive and 
reference order types which allow for a user instructed display 
quantity, such as Limit-On-Close, Limit-On-Open, Market-On-Close, and 
Market-On-Open. Because the user instructed display quantity would no 
longer be permitted, this attribute is proposed to be deleted from 
these order types as provided in paragraphs (a)(20), (a)(21), (a)(24) 
and (a)(25), respectively. There are also references throughout the 
rule to displayable and non-displayable interest, which are proposed to 
be deleted. Additionally, because the Continuous Book would have only 
displayed interest, the term ``Auction Ineligible Orders,'' defined in 
paragraph (a)(3), and whose only operative provisions address ``non-
displayed interest,'' would no longer be relevant, and would be deleted 
in paragraph (a)(3) and elsewhere as referenced throughout the rule. 
Other conforming changes are proposed to paragraphs (b) through (f) to 
reflect, as discussed above, that LTSE would have a Price--Time 
priority. Finally, periods would be added after ``Reserved'' in 
paragraphs (a)(3)(C)(i) and (a)(3)(D)(i), and the duplicative numeric 
heading in (c)(1) would be deleted.
Rule 11.410 (Use of Market Data Feeds and Calculations of Necessary 
Price Reference Points)
    The LTSE Top of Book is the aggregate of the best priced resting, 
displayed orders for which it publishes a protected quotation. Because 
all orders would be displayed, the term ``displayed'' is proposed to be 
deleted from the description of Top of Book in paragraph (a)(4). 
Additionally, to account for the fact that odd lot orders would be 
displayed interest, but are not a protected quotation (unless 
aggregated with other odd lot orders at the same or better prices to 
make a round lot), the rule would state that the ``LTSE proprietary 
market data feeds will provide information about odd lot-sized orders, 
including when such orders are at prices better than the LTSE Top of 
Book.'' \9\
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    \9\ Including such orders in an LTSE proprietary market data 
feed is necessary because odd-lot sized quotes, unless aggregated as 
part of a round lot at the BBO, would not be displayed in the market 
data feeds distributed by the Securities Information Processors.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\11\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general to protect 
investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change is a series of substantive and conforming 
amendments to LTSE's rules to reflect LTSE's objective to operate as a 
fully-displayed market as described above. The Commission or its staff 
has on many occasions considered the benefits of displayed liquidity to 
the national market system.\12\ The proposed rule change, which 
promotes the use of displayed liquidity, is consistent with the 
protection of investors and the public interest because it further the 
goals of transparency and price discovery. In addition, the trading 
model proposed by LTSE would not impair the mechanism of a free and 
open market and a national market system insofar as it would not 
eliminate the ability of market participants to access or offer non-
displayed liquidity on other trading venues.
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    \12\ See, e.g., Concept Release on Equity Market Structure, 75 
FR 3593 (January 21, 2010), https://www.sec.gov/rules/concept/2010/34-61358.pdf (soliciting comment and noting concerns about market 
structure often have related to high frequency trading and various 
types of undisplayed liquidity); Equity Market Structure 2019: 
Looking Back & Moving Forward, speech by Jay Clayton, Chairman, SEC, 
and Brett Redfearn, Director, Division of Trading and Markets (March 
8, 2019), https://www.sec.gov/news/speech/clayton-redfearn-equity-market-structure-2019 (discussing the importance of displayed 
trading interest for thinly-traded securities); Memorandum on Rule 
611 of Regulation NMS to SEC Market Structure Advisory Committee, 
from SEC Division of Trading and Markets (April 30, 2015), https://www.sec.gov/spotlight/emsac/memo-rule-611-regulation-nms.pdf 
(explaining that one of the objectives of Rule 611 was to promote 
the use of displayed ``non-marketable'' limit orders, which would 
improve the price discovery process and contribute to increased 
liquidity and depth).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in the furtherance of the purposes of the Act. The Exchange believes 
that removing the non-display functionality from its trading rules 
will, if anything, burden LTSE as it will offer less functionality

[[Page 54198]]

than other exchanges. As a result of the proposed rule change, LTSE 
will be unable to compete for order flow from market participants 
seeking to post or trade against non-displayed interest, though it will 
continue to accept market orders, IOC orders and ISOs. It will, 
however, provide a venue in which market participants have full 
visibility into the order book.
    The Exchange also believes that the effects of the proposed rule 
change will not burden competition because there are many other 
exchanges that offer the opportunity to post or trade against non-
displayed interest. Finally, the Exchange believes that removing the 
non-display functionality as described above from its trading rules 
will not burden competition in that the proposed rule change will not 
impact LTSE's ability to comply with Regulation NMS or the ability of 
other exchanges to access its quotes.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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 \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
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, 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.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ In addition, Rule 19b-4(f)(6) requires the Exchange to give 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change, at least five business days prior to the date of filing 
of the proposed rule change, or such shorter time as designated by 
the Commission. The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings under 
Section 19(b)(2)(B) \16\ to determine whether the proposed rule change 
should be approved or disapproved.
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    \16\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-LTSE-2019-02 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-LTSE-2019-02. 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-LTSE-2019-02 and should be submitted on 
or before October 30, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22019 Filed 10-8-19; 8:45 am]
 BILLING CODE 8011-01-P


