[Federal Register Volume 85, Number 130 (Tuesday, July 7, 2020)]
[Notices]
[Pages 40715-40718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14505]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89205; File No. SR-NYSE-2020-55]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend Rules 7.36 and 7.37

June 30, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on June 24, 2020, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rules 7.36 and 7.37 relating to 
Setter Priority. 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,

[[Page 40716]]

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 Rules 7.36 and 7.37 relating to 
Setter Priority.
Background
    Rule 7.36(h) provides that Setter Priority will be assigned to an 
order ranked Priority 2--Display Orders \4\ with a display quantity of 
at least a round lot if such order (i) establishes a new BBO and (ii) 
either establishes a new NBBO or joins an Away Market NBBO provided 
that such order will not be eligible for Setter Priority if there is an 
odd-lot sized order with Setter Priority at that price.\5\ The Rule 
further provides that only one order is eligible for Setter Priority at 
each Price. Rules 7.36(h)(1)-(3) describe how an order is evaluated for 
Setter Priority, how it retains Setter Priority, and how it loses 
Setter Priority. Finally, Setter Priority is not available for any 
portion of an order that is ranked Priority 3--Non-Display Orders and 
is not available for allocations in an Auction.
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    \4\ Rule 7.36(e) defines the priority categories to which orders 
are assigned at each price point. Priority 1--Market Orders are 
defined as unexecuted Market Orders that have priority over all 
other same-side orders with the same working price (Rule 
7.36(e)(1)). Priority 2--Display Orders are defined as non-
marketable Limit Orders with a display price and have second 
priority (Rule 7.36(e)(2)). Priority 3--Non-Display Orders are 
defined as non-marketable Limit Orders for which the working price 
is not displayed, including reserve interest of Reserve Orders, and 
have third priority (Rule 7.36(e)(3)).
    \5\ The term ``BBO'' means the best bid or offer on the 
Exchange. See Rule 1.1(c). The term ``NBBO'' means the national best 
bid or offer. See Rule 1.1(q). An ``Away Market'' means any 
exchange, alternative trading system, or other broker-dealer (1) 
with which the Exchange maintains an electronic linkage and (2) that 
provides instantaneous responses to orders routed from the Exchange. 
Accordingly, an Away Market NBBO refers to an NBBO that does not 
include the Exchange's BBO.
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    Rule 7.37(b)(1) specifies how an Aggressing Order will be allocated 
against contra-side orders at each price.\6\ After first trading with 
resting orders ranked Priority 1--Market Orders based on time, an 
Aggressing Order will next trade with an order with Setter Priority. As 
set forth in Rule 7.37(b)(1)(B), an order with Setter Priority that has 
a display price and a working price equal to the BBO will receive 15% 
of the remaining quantity of the Aggressing Order, rounded up to the 
next round lot size or the remaining displayed quantity of the order 
with Setter Priority, whichever is lower. That Rule further provides 
that an order with Setter Priority is eligible for allocation under 
this Rule if the BBO is no longer the same as the NBBO. Next, the 
Aggressing Order will be allocated against orders ranked Priority 2--
Displayed Orders on parity by Participant. Any remaining quantity of an 
order with Setter Priority is eligible to participate in this parity 
allocation, consistent with the allocation wheel position of the 
Participant that entered the order with Setter Priority. Rules 
7.37(b)(1)(C)-(I) describe how the remaining quantity of an Aggressing 
Order would be allocated.
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    \6\ An ``Aggressing Order'' is defined as a buy (sell) order 
that is or becomes marketable against sell (buy) interest on the 
Exchange Book. See Rule 7.36(a)(6).
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Proposed Rule Change
    The Exchange proposes two changes to Setter Priority. First, the 
Exchange proposes that only those orders that set the NBBO (which would 
also set the BBO) would be eligible for Setter Priority. Orders that 
set the BBO and join an existing NBBO would no longer be eligible for 
Setter Priority. Second, the Exchange proposes that when an order with 
Setter Priority is the Exchange's BBO, it would be eligible to trade in 
full with the contra-side Aggressing Order.
    To effect these changes, the Exchange proposes to change the first 
sentence of Rule 7.36(h) to provide as follows (deleted text in 
brackets):

    Setter Priority will be assigned to an order ranked Priority 2--
Display Orders with a display quantity of at least a round lot if 
such order [(i) establishes a new BBO and (ii) either] establishes a 
new NBBO [or joins an Away Market NBBO] provided that such order 
will not be eligible for Setter Priority if there is an odd-lot 
sized order with Setter Priority at that price.

    With this proposed rule change, the only orders that would be 
eligible for Setter Priority would be displayed orders that establish a 
new NBBO. The Exchange does not believe that it needs to separately 
state that such an order also needs to establish a new BBO because if 
an order establishes a new NBBO, it also establishes a new BBO.\7\
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    \7\ For example, if the BBO is $10.00 x $10.05 and the NBBO is 
$10.01 x $10.05, to be eligible for Setter Priority, a bid would 
need a limit price of $10.02 or higher (an order with a limit price 
of $10.05 or higher would either be routed pursuant to Rule 
7.37(c)(1), be assigned a display price of $10.04 pursuant to Rule 
7.31(e)(1) or (2), or be displayed at its limit price pursuant to 
Rule 7.31(e)(3)).
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    The Exchange further proposes to change Rule 7.37(b)(1)(B) as 
follows (new text italicized, deleted text bracketed):

    Next, an order with Setter Priority that has a display price and 
working price equal to the BBO will trade with [receive 15% of] the 
remaining quantity of the Aggressing Order[, rounded up to the next 
round lot size or the remaining displayed quantity of the order with 
Setter Priority, whichever is lower]. If the size of the Aggressing 
Order is equal to or larger than the size of the order with Setter 
Priority, the order with Setter Priority will trade in full. If the 
size of the Aggressing Order is smaller than the size of the order 
with Setter Priority, the order with Setter Priority will trade with 
the remaining quantity of the Aggressing Order. An order with Setter 
Priority is eligible for allocation under this subparagraph if the 
BBO is no longer the same as the NBBO.

    With this proposed change, after an Aggressing Order trades first 
with Market Orders, as described in Rule 7.37(b)(1)(A), the remaining 
quantity of the Aggressing Order would trade with an order with Setter 
Priority that has a display price and working price equal to the BBO. 
As with the current rule, an order with Setter Priority is eligible for 
this priority allocation only if such order is the BBO when it is 
trading with the Aggressing Order.
    Under the proposal, instead of a 15% allocation (rounded up to the 
next round lot size, or the full quantity of the Aggressing Order), an 
order with Setter Priority would be eligible for up to 100% of the size 
of the Aggressing Order. Accordingly, with this proposed change, an 
order with Setter Priority would execute in the same manner that a top-
of-book, resting, displayed order would trade on an exchange with a 
price-time priority model.\8\
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    \8\ For example, on NYSE Arca, Inc. (``NYSE Arca''), an incoming 
marketable order will be matched for execution against contra-side 
orders in the NYSE Arca Book according to the price-time priority 
ranking of the resting orders. See NYSE Arca Rule 7.37-E(a). Non-
marketable Limit Orders with a displayed working price have second 
priority on NYSE Arca. See NYSE Arca Rule 7.37-E(e)(2).
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    If the size of the Aggressing Order is equal to or larger than the 
size of the order with Setter Priority, the order with Setter Priority 
would trade in full. For example, if the order with Setter Priority is 
400 shares and the remaining quantity of the contra-side Aggressing 
Order is 400 shares or more, the order with Setter Priority would trade 
in full. If the size of the Aggressing Order is over 400 shares, the 
remaining quantity of the Aggressing Order would be allocated as 
described in Rules 7.37(b)(1)(C)-(I).
    If the size of the Aggressing Order is smaller than the size of the 
order with Setter Priority, the order with Setter Priority would trade 
with the remaining

[[Page 40717]]

quantity of the Aggressing Order. For example, if the order with Setter 
Priority is 400 shares and the remaining quantity of the contra-side 
Aggressing Order is 300 shares, the order with Setter Priority would 
trade with those 300 shares and the Aggressing Order would be fully 
executed. The remaining 100 shares of the order with Setter Priority 
would retain their Setter Priority and be eligible to interact with the 
next contra-side Aggressing Order.\9\
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    \9\ See Rule 7.36(h)(2)(A).
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    With this revised allocation proposal, if there is a remaining 
quantity of the Aggressing Order, there would not be any quantity left 
of the order with Setter Priority. Because there would not be any 
quantity of the order with Setter Priority to trade on parity with 
other displayed orders, the Exchange proposes to amend Rule 
7.37(b)(1)(C) to delete the second sentence of that Rule in full.\10\
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    \10\ The second sentence of Rule 7.37(b)(1)(C) currently 
provides: ``Any remaining quantity of an order with Setter Priority 
is eligible to participate in this parity allocation, consistent 
with the allocation wheel position of the Participant that entered 
the order with Setter Priority.''
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    The Exchange believes that these proposed changes would provide an 
incentive for member organizations to improve the best bid or offer on 
the Exchange. Specifically, the Exchange believes that providing orders 
with Setter Priority an execution experience similar to that on price-
time priority models, i.e., that such orders would be eligible to trade 
in full with the contra-side Aggressing Order, would provide an 
incentive for member organizations to direct their liquidity-providing 
order flow to the Exchange.
    This proposed rule change is also designed to operate seamlessly 
with the Exchange's parity allocation model. If there is no order with 
Setter Priority eligible to trade, an Aggressing Order would be 
allocated consistent with the existing allocation model, as described 
in Rule 7.37(b)(1)(C)-(I), without any changes. Likewise, after trading 
with an order with Setter Priority, any remaining quantity of an 
Aggressing Order would be allocated consistent with the existing 
allocation model, as described in Rule 7.37(b)(1)(C)-(I), without any 
changes.
Implementation
    Subject to approval of this proposed rule change, the Exchange 
anticipates that it could implement the proposed changes to Setter 
Priority in August 2020. The Exchange would announce the implementation 
date of this proposed rule change by Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\11\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\12\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it is designed to create an incentive 
to improve the best displayed bid or offer on the Exchange. The 
Exchange already provides an increased allocation opportunity for 
orders with Setter Priority. The Exchange believes that both narrowing 
which orders are eligible for Setter Priority and increasing the 
execution opportunity for an order with Setter Priority would provide 
an incentive for member organizations to route orders to the Exchange 
that would set a new NBBO, which would benefit all market participants.
    The Exchange further believes that the proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it is designed to provide 
an incentive for member organizations to route their price-forming 
liquidity-providing orders to the Exchange by providing such orders 
with an execution opportunity that is similar to how such orders would 
trade if they were the top-of-book, resting, displayed order on an 
exchange with a price-time priority model. Accordingly, the proposed 
allocation of an order with Setter Priority is not novel, as it is how 
such a resting, displayed order would trade if it were top of book on 
an exchange with a price-time priority model.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange operates in a 
highly competitive market. Equity trading is currently dispersed across 
13 exchanges,\13\ 31 alternative trading systems,\14\ and numerous 
broker-dealer internalizers and wholesalers, all competing for order 
flow. Based on publicly-available information, no single exchange has 
more than 20% market share (whether including or excluding auction 
volume).\15\ More specifically, the Exchange's market share of trading 
in Tapes A, B and C securities combined is less than 13%. In this 
competitive market, Exchange member organizations are often members of 
multiple exchanges, and can direct liquidity-providing order flow to 
more than one exchange. The proposed rule change would promote inter-
market competition because it would provide an additional incentive for 
member organizations to improve the best displayed bid or offer on the 
Exchange, which would benefit all market participants. The Exchange 
further believes that the proposed rule change would promote intra-
market competition because Setter Priority would be available on equal 
terms to any member organization that sets a new NBBO on the Exchange.
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    \13\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \14\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \15\ See Cboe Global Markets U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/.
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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 such longer period 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.

[[Page 40718]]

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-NYSE-2020-55 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-2020-55. 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-2020-55 and should be submitted on 
or before July 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14505 Filed 7-6-20; 8:45 am]
BILLING CODE 8011-01-P


