[Federal Register Volume 85, Number 216 (Friday, November 6, 2020)]
[Notices]
[Pages 71115-71118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24634]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90312; File No. SR-NYSECHX-2020-31]


Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing of Proposed Rule Change To Amend Rule 7.31

November 2, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934

[[Page 71116]]

(``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that 
on October 20, 2020, NYSE Chicago, Inc. (``NYSE Chicago'' or 
``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 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 to cancel ALO Orders that 
lock displayed interest. The proposed 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 
provide that ALO Orders that lock displayed interest would be 
cancelled. Specifically, the Exchange proposes to amend Rules 
7.31(e)(2), which describes how the Exchange processes ALO Orders, and 
7.31(e)(3)(D), which describes how the Exchange processes Day ISO ALO 
Orders. Currently, under Rule 7.31(e)(2)(B)(iii), an arriving ALO Order 
to buy (sell) with a limit price that would lock a displayed order 
priced equal to or below (above) the PBO (PBB) on the Exchange Book 
will be assigned a working price and display price one minimum price 
variation (``MPV'') below (above) the displayed order. Day ISO ALO 
Orders that would lock displayed interest on the Exchange Book are 
processed in the same manner.\4\ The Exchange proposes to amend these 
rules to provide that arriving ALO and Day ISO ALO Orders with a limit 
price that would lock displayed interest on the Exchange Book would be 
cancelled.
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    \4\ See Rule 7.31(e)(3)(D)(ii).
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    To effect this change, the Exchange proposes to delete the portion 
of Rule 7.31(e)(2)(B)(iii) providing that an ALO Order that locks 
displayed interest will be ``assigned a working price and display price 
one MPV below (above) the displayed order on the Exchange Book'' and 
instead provide that such order would be cancelled. In addition, to 
simplify the rule text, the Exchange proposes to combine Rule 
7.31(e)(2)(B)(iii), as revised, into Rule 7.31(e)(2)(B)(ii). Proposed 
amended Rule 7.31(e)(2)(B)(ii) would thus provide:

    If the limit price of the ALO Order to buy (sell) crosses the 
working price of any displayed or non-displayed order on the 
Exchange Book priced equal to or below (above) the PBO (PBB), it 
will trade as the liquidity taker with such order(s). Any untraded 
quantity of the ALO Order will have a working price equal to the PBO 
(PBB) and a display price one MPV below (above) the PBO (PBB), 
provided that if the limit price of the ALO Order to buy (sell) 
locks the display price of any order ranked Priority 2--Display 
Orders on the Exchange Book priced equal to or below (above) the PBO 
(PBB), it will be cancelled.

    The Exchange also proposes the following conforming changes to 
Rules 7.31(e)(2)(B) and 7.31(e)(2)(C) to reflect the proposed change to 
how ALO Orders that lock displayed interest would be handled:
     The Exchange proposes to renumber current Rule 
7.31(e)(2)(B)(iv) as 7.31(e)(2)(B)(iii) to accommodate the proposed 
combination of current Rules 7.31(e)(2)(B)(ii) and 7.31(e)(2)(B)(iii), 
as described above.
     The Exchange proposes to replace introductory references 
providing that an ALO Order will be ``priced'' or ``priced or trade, or 
both,'' with the phrase ``will be processed'' in Rules 7.31(e)(2)(B), 
7.31(e)(2)(B)(iv)(a) (which would become Rule 7.31(e)(2)(B)(iii)(a) 
after renumbering), 7.31(e)(2)(C), and 7.31(e)(2)(C)(i). The Exchange 
proposes to use the term ``processed'' because some ALO Orders would be 
cancelled (and therefore not priced or traded).
     The Exchange proposes to renumber current Rule 
7.31(e)(2)(B)(v) as 7.31(e)(2)(B)(iv) to accommodate the proposed 
combination of current Rules 7.31(e)(2)(B)(ii) and 7.31(e)(2)(B)(iii), 
as described above.
     The Exchange further proposes to revise Rule 
7.31(e)(2)(C)(i) to delete the reference to orders ranked Priority 2--
Display Orders because, as noted above, an ALO Order would no longer be 
repriced based on contra-side Priority 2--Display Orders and instead 
would be cancelled. Accordingly, the only time a resting ALO Order 
would be repriced is if the contra-side PBBO re-prices.
    The Exchange proposes to amend Rule 7.31(e)(3)(D) to align the 
rules governing Day ISO ALOs with the proposed changes to ALO Orders. 
Currently, pursuant to Rule 7.31(e)(3)(D)(ii), if the limit price of an 
arriving Day ISO ALO locks the display price of a displayed order on 
the Exchange Book, it will be assigned a working price and display 
price one MPV below (above) the price of the displayed order. As with 
ALO Orders, the Exchange proposes to amend this rule to specify that 
arriving Day ISO ALOs that lock displayed interest would be cancelled.
    To effect this change, the Exchange proposes to delete the portion 
of Rule 7.31(e)(3)(D)(ii) that provides that a Day ISO ALO that locks 
displayed interest will be ``assigned a working price and display price 
one MPV below (above) the displayed order on the Exchange Book'' and 
instead provide that such order would be cancelled. In addition, to 
simplify the rule text, the Exchange proposes to combine Rule 
7.31(e)(3)(D)(ii), as revised, with Rule 7.31(e)(3)(D)(i). Proposed 
amended Rule 7.31(e)(3)(D)(i) would thus provide:

    If the limit price of the Day ISO ALO to buy (sell) crosses the 
working price of any displayed or non-displayed order on the 
Exchange Book, it will trade as the liquidity taker with such 
order(s). Any untraded quantity of the Day ISO ALO will have a 
working price and display price equal to its limit price, provided 
that if the limit price of the Day ISO ALO to buy (sell) locks the 
display price of any order ranked Priority 2--Display Orders on the 
Exchange Book, it will be cancelled.

    The Exchange also proposes the following conforming changes 
consistent with the proposed change to cancel Day ISO ALOs that lock 
displayed interest:
     The Exchange proposes to renumber Rule 7.31(e)(3)(D)(iii) 
as Rule 7.31(e)(3)(D)(ii) to accommodate the proposed combination of 
current Rules 7.31(e)(3)(D)(i) and 7.31(e)(3)(D)(ii), as described 
above.
     The Exchange proposes to replace introductory references 
providing that a Day ISO ALO Order will be ``priced'' or ``priced or 
trade, or both,'' with the phrase ``will be processed'' in Rules 
7.31(e)(3)(D) and 7.31(3)(D)(ii)(a) (as

[[Page 71117]]

renumbered). The Exchange proposes this change to reflect that certain 
ALO Orders would be cancelled (and therefore not priced or traded).
     The Exchange proposes to delete Rule 7.31(e)(3)(D)(iv), 
which currently specifies how a Day ISO ALO will be processed after it 
is displayed. Because a Day ISO ALO would now either display at its 
limit price (because, by its terms, it can be displayed at a price that 
locks or crosses the contra-side PBBO) \5\ or be cancelled if it locks 
displayed interest on the Exchange Book, there would no longer be any 
circumstances where a resting Day ISO ALO would reprice and therefore 
this rule text would no longer be applicable.
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    \5\ See Rule 7.31(e)(3)(C).
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* * * * *
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the implementation date by 
Trader Update. Subject to approval of this proposed rule change, the 
Exchange anticipates that the proposed changes will be implemented in 
January 2021.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\6\ in general, and furthers the objectives of Section 6(b)(5),\7\ 
in particular, because it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, in general, to protect investors and 
the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market by 
simplifying the treatment of ALO Orders that lock displayed orders. The 
Exchange believes that cancelling ALO Orders that lock displayed 
interest, rather than repricing them, would provide Participants with 
greater determinism with respect to how ALO Orders would be processed 
on the Exchange and enhance Participants' ability to manage order flow 
to suit their business needs. In addition, the Exchange believes that 
cancelling ALO Orders that would otherwise be marketable against 
displayed interest on the Exchange Book is consistent with the terms of 
the ALO Order, i.e., that such orders would not take liquidity on the 
Exchange. The Exchange further believes that the proposed changes would 
promote just and equitable principles of trade and remove impediments 
to, and perfect the mechanism of, a free and open market and a national 
market system and, in general, protect investors and the public 
interest because the proposed behavior to cancel ALO Orders on the 
Exchange if the limit price would lock contra-side displayed orders 
would be consistent with functionality available on other exchanges for 
similar order types when they lock displayed interest.\8\
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    \8\ See, e.g., Cboe BZX Exchange, Inc. (``BZX'') Rules 
11.9(c)(6), 11.9(g)(1)(D), 11.9(g)(2)(D), and 11.13(a)(2)(C) (a Post 
Only Order that locks displayed interest on BZX may be cancelled at 
the User's option); Nasdaq Stock Exchange LLC (``Nasdaq'') Rule 
4702(b)(4)(A) (Nasdaq Participants may opt to have Post-Only Orders 
cancel if they lock orders displayed on the Nasdaq Book); MEMX LLC 
(``MEMX'') Rules 11.6(a), 11.6(l), and 11.8(b)(10) (Users have the 
option to apply Post Only and Cancel Back instructions to orders 
that would lock displayed interest, and MEMX cancels ISO orders with 
Post Only and Day instructions if they lock displayed interest).
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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 furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change would reduce the burden on competition because 
it would simplify the treatment of such orders when they lock displayed 
interest and promote consistency with functionality offered for similar 
order types on other exchanges.\9\
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    \9\ See id.
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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 within 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.

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-NYSECHX-2020-31 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-NYSECHX-2020-31. 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-NYSECHX-2020-31 and should be submitted 
on or before November 27, 2020.


[[Page 71118]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24634 Filed 11-5-20; 8:45 am]
BILLING CODE 8011-01-P


