[Federal Register Volume 86, Number 74 (Tuesday, April 20, 2021)]
[Notices]
[Pages 20574-20577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08036]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91563; File No. SR-NYSENAT-2021-07]


Self-Regulatory Organizations; NYSE National, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 7.37

April 14, 2021.
    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 April 1, 2021, NYSE National, Inc. (``NYSE National'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``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 7.37 to specify when the 
Exchange may adjust its calculation of the PBBO. 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

[[Page 20575]]

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 7.37 to specify when the 
Exchange may adjust its calculation of the PBBO.\4\
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    \4\ The term ``PBBO'' is defined in Rule 1.1 to mean the Best 
Protected Bid and the Best Protected Offer, which in turn mean the 
highest Protected Bid and the lowest Protected Offer, which refer to 
quotations in an NMS stock that is (i) displayed by an Automated 
Trading Center; (ii) disseminated pursuant to an effective national 
market system plan; and (iii) an Automated Quotation that is the 
best bid or best offer of a national securities exchange or the best 
bid or best offer of a national securities association. The term 
NBBO is defined to mean the national best bid and offer. The 
Exchange notes that the NBBO may differ from the PBBO because the 
NBBO includes Manual Quotations, which are defined as any quotation 
other than an automated quotation. 17 CFR 242.600(b)(37).
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    Generally, the Exchange updates both the PBBO and NBBO based on 
quote updates received from data feeds from Away Markets, which are 
disclosed in Rule 7.37(d).\5\ In 2018, the Exchange described in a rule 
filing that when it routes interest to a protected quotation, the 
Exchange adjusts the PBBO.\6\ The Exchange proposes to amend its rules 
to include that description in Rule 7.37 and provide additional 
specificity of when it may adjust its calculation of the PBBO.
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    \5\ The Exchange proposes non-substantive amendments to Rule 
7.37-E(d) to update the names of the exchanges listed in the table 
by replacing the term ``NASDAQ'' with ``Nasdaq.''
    \6\ See Securities Exchange Act Release No. 83289 (May 17, 
2018), 83 FR 23968 (May 23, 2018) (SR-NYSENat-2018-02) (Approval 
Order and Notice of filing of Amendment No. 1) (``Pillar Filing''). 
The full text of Amendment No. 1 of the Pillar Filing is available 
here: https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2018/NYSENAT-2018-02,%20Am.1.pdf.
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    As proposed, new paragraph (d)(2) of Rule 7.37 would provide:
    The Exchange may adjust its calculation of the PBBO based on 
information about orders it sends to Away Markets with protected 
quotations, execution reports received from those Away Markets, and 
certain orders received by the Exchange.
    This proposed rule text is consistent with the Exchange's 
disclosure in the Pillar Filing and adds specificity that the Exchange 
may adjust its calculation of the PBBO based on execution reports 
received from Away Markets and certain orders received by the 
Exchange.\7\
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    \7\ The Exchange does not adjust its calculation of the NBBO 
based on information about orders sent to Away Markets, execution 
reports from Away Markets, or certain orders received by the 
Exchange. Id.
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    Proposed Rule 7.37(d)(2) is based on MEMX LLC (``MEMX'') Rule 
13.4(b) with two non-substantive differences.\8\ First, the Exchange 
proposes to use the term ``PBBO,'' which is the term used in the 
Exchange's rules for the best-priced protected quotations, instead of 
``NBBO.'' Second, the Exchange proposes to refer to ``Away Markets,'' 
which is a defined term in Rule 1.1, instead of ``other venues.''
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    \8\ MEMX Rule 13.4(b) provides: ``The Exchange may adjust its 
calculation of the NBBO based on information about orders sent to 
other venues with protected quotations, execution reports received 
from those venues, and certain orders received by the Exchange.''
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    MEMX has not disclosed circumstances when ``certain orders received 
by the Exchange'' would result in an adjustment to its calculation of 
the PBBO, but the Exchange believes that when MEMX receives an ISO with 
a Day time in force (``Day ISO''), it adjusts its calculation of the 
PBBO. The Exchange proposes that it would also adjust its calculation 
of the PBBO based on receipt of a Day ISO, which is consistent with how 
Nasdaq Stock Market LLC (``Nasdaq'') \9\ and Cboe BZX Exchange, Inc. 
(``BZX'') \10\ function.
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    \9\ See Nasdaq Rule 4703(j) (``Upon receipt of an ISO, the 
System will consider the stated price of the ISO to be available for 
other Orders to be entered at that price, unless the ISO is not 
itself accepted at that price level (for example, a Post-Only Order 
that has its price adjusted to avoid executing against an Order on 
the Nasdaq Book) or the ISO is not Displayed.'') and Securities 
Exchange Act Release No. 74558 (March 20, 2015) 80 FR 16050, 16068 
(March 26, 2015) (SR-Nasdaq-2015-024) (Notice).
    \10\ See Securities Exchange Act Release No. 74074 (January 15, 
2015), 80 FR 3679, 3680 (January 23, 2015) (SR-BATS-2015-04) (Notice 
of filing and immediate effectiveness of proposed rule change to 
clarify the use of certain data feeds) (``The Exchange's [matching 
engine] will update the NBBO upon receipt of a Day ISO. When a Day 
ISO is posted on the BATS Book, the [matching engine] uses the 
receipt of a Day ISO as evidence that the protected quotes have been 
cleared, and the ME does not check away markets for equal or better-
priced protected quotes. . . . . In determining whether to route an 
order and to which venue(s) it should be routed, the [routing 
engine] makes its own calculation of the NBBO. . . . The [routing 
engine] does not utilize Day ISO Feedback in constructing the NBBO; 
however, because all orders initially flow through the [matching 
engine], to the extent Day ISO Feedback has updated the [matching 
engine's] calculation of the NBBO, all orders processed by the 
[routing engine] do take Day ISO Feedback into account.'') (``BZX 
Filing'').
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    Specifically, the Exchange proposes that it would adjust its 
calculation of the PBBO upon receipt of a Day ISO Order that the 
Exchange displays. As described in Rule 7.37(e)(3)(C), a Day ISO is 
eligible for the exception to locking or crossing a protected quotation 
because the member organization simultaneously routes an ISO to execute 
against the full size of any locked or crossed protection quotations, 
i.e., the member organization routes ISOs to trade with contra-side 
protected quotations on Away Markets that are priced equal to or better 
than the arriving Day ISO on the Exchange. Because receipt of a Day ISO 
informs the Exchange that the member organization has routed ISOs to 
trade with Away Market contra-side protected quotations priced equal to 
or better than the Day ISO, upon receipt and displaying of a Day ISO, 
the Exchange proposes to adjust its calculation of the PBBO to exclude 
any contra-side protected quotations that are priced equal to or better 
than the Day ISO.
     For example, if the best protected bid is 10.00, Exchange 
A is displaying a protected offer at 10.05, and Exchange B is 
displaying a protected offer at 10.09, the Exchange's calculation of 
the PBBO would be 10.00 x 10.05. If the Exchange receives a Day ISO for 
100 shares to buy priced at 10.05 that is displayed on the Exchange at 
10.05, the Exchange would adjust its calculation of the PBBO to be 
10.05 x 10.09 and would use this updated PBBO for execution, routing, 
and re-pricing determinations.
    If a Day ISO is displayed on the Exchange at a price less 
aggressive than its limit price (e.g., a Day ISO ALO that, if displayed 
at its limit price, would lock displayed interest on the Exchange), the 
Day ISO still informs the Exchange that the member organization has 
routed ISOs to trade with contra-side protected quotations on Away 
Markets that are priced equal to or better than the limit price of 
arriving Day ISO on the Exchange. The Exchange would therefore use the 
limit price of the Day ISO ALO to determine how to adjust its 
calculation of the contra-side Away Market PBBO, provided that contra-
side displayed interest on the Exchange equal to the limit price of the 
Day ISO ALO would not be considered cleared. The price at which the 
arriving Day ISO ALO would be displayed would be the price that informs 
the Exchange's calculation of the same-side PBBO.
    For example, when the best protected bid is 10.00 and Exchange A is 
displaying a protected offer at 10.05 and the Exchange's best displayed 
offer is 10.07, the Exchange's calculation of the PBBO would be 10.00 x 
10.05, then:
     If the Exchange receives ALO ``1'' to buy at 10.06, it 
would be displayed at 10.04 and be assigned a working price of 10.05, 
which is the PBO (displayed on Exchange A),\11\ and the Exchange

[[Page 20576]]

would adjust the PBBO to be 10.04 x 10.05.
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    \11\ See Rule 7.31(e)(2)(B)(i).
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     If next, the Exchange receives Day ISO ALO ``2'' to buy at 
10.07, the Exchange would be permitted to display that order at a price 
that crosses Exchange A's PBO because it is a Day ISO. However, because 
it locks the Exchange's best displayed offer, due to its ALO modifier, 
the Exchange would display Day ISO ALO ``2'' at 10.06 and it would have 
a working price of 10.06.\12\ In this scenario, the Exchange proposes 
to adjust its calculation of the PBBO to be 10.06 x 10.07 and use this 
updated PBBO for execution, routing, and re-pricing determinations, 
including repricing the ALO ``1'' to buy to both work and display at 
its limit price of 10.06.
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    \12\ See Rule 7.31(e)(3)(D)(ii). Currently, the Exchange would 
display such Day ISO ALO ``2'' at 10.06 and would adjust its 
calculation of the same-side PBBO and reprice same-side resting 
orders to the Day ISO price, but would not adjust its calculation of 
the contra-side PBBO for purposes of routing and execution 
determinations of new orders.
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    The Exchange believes that adjusting the PBBO in this manner is 
consistent with Regulation NMS because the member organization that 
submitted the Day ISO ALO to buy priced at 10.07 has represented that 
it has sent ISOs to trade with protected offers on other exchanges 
priced at 10.07 or lower. The only reason that such order would not be 
displayed at 10.07 on the Exchange is because it has an ALO modifier 
and cannot trade with the Exchange's displayed offer of 10.07. However, 
there is no restriction on that Day ISO ALO being displayed at 10.06, 
which crosses the Away Market PBO of 10.05. The Exchange believes in 
this circumstance, it is consistent with Regulation NMS for the 
Exchange to consider that any Away Market protected offers priced 10.07 
or below have been cleared and therefore adjust its calculation of the 
contra-side Away Market PBBO for purposes of execution, routing, and 
repricing determinations based on the limit price of the Day ISO ALO.
    The Exchange believes that the proposed amendments to Rule 7.37(d) 
would promote clarity and transparency in the Exchange's rules 
regarding circumstances when the Exchange may adjust its calculation of 
the PBBO. The Exchange does not believe this proposed rule change is 
novel. Rather, the Exchange believes that other equity exchanges that 
accept Day ISOs similarly adjust their calculation of the best 
protected bid and best protected offer for purposes of making 
execution, routing, and repricing determinations based on the receipt 
of Day ISOs, as described above. The Exchange anticipates that it will 
implement the technology change to how it calculates the PBBO in May 
2021.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\14\ 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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 promote clarity and 
transparency in Exchange rules of when the Exchange may adjust its 
calculation of the PBBO. The Exchange believes that adjusting its 
calculation of the PBBO based on receipt of a Day ISO is consistent 
with Regulation NMS because the member organization that entered such 
Day ISO has also sent ISOs to Away Markets to trade with contra-side 
protected quotations priced equal to or better than the Day ISO. For 
the same reasons that displaying a Day ISO at a price that locks or 
crosses the PBBO is consistent with Regulation NMS, the Exchange 
believes that adjusting its calculation of the PBBO based on receipt 
and display of a Day ISO for purposes of making execution, routing, and 
repricing determinations for other orders is also consistent with 
Regulation NMS. The Exchange further notes that the proposed rule text 
is not novel and is based on MEMX Rule 13.4(b) and is consistent with 
Nasdaq rules and the BZX Filing.

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

    In accordance with Section 6(b)(8) of the Act,\15\ 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 rule changes are designed to promote 
transparency and clarity in Exchange rules regarding when the Exchange 
may adjust its calculation of the PBBO. The Exchange believes that the 
proposed rule change would promote competition because the Exchange 
proposes to adjust its calculation of the PBBO under similar 
circumstances that other equity exchanges adjust their calculation of 
the PBBO, including MEMX, Nasdaq, and BZX.
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    \15\ 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \16\ and Rule 19b-4(f)(6) thereunder.\17\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 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,

[[Page 20577]]

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-NYSENAT-2021-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSENAT-2021-07. 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-NYSENAT-2021-07, and should be submitted 
on or before May 11, 2021.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-08036 Filed 4-19-21; 8:45 am]
BILLING CODE 8011-01-P


