[Federal Register Volume 87, Number 153 (Wednesday, August 10, 2022)]
[Notices]
[Pages 48741-48744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17099]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95423; File No. SR-NYSE-2022-20]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of Proposed Rule Change, as Modified by Amendment No. 1, To 
Add Subparagraph (f)(1) Regarding Directed Orders to NYSE Rule 7.31

August 4, 2022.

I. Introduction

    On April 20, 2022, New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to introduce Directed Orders. The proposed rule 
change was published for comment in the Federal Register on May 3, 
2022.\3\ On June 16, 2022, the Commission extended to August 7, 2022, 
the time period in which to approve the proposal, disapprove the 
proposal, or institute proceedings to determine whether to approve or 
disapprove the proposal.\4\ On July 28, 2022, the Exchange filed 
Amendment No. 1 to the proposed rule change with the Commission and 
submitted Amendment No. 1 for inclusion in the public comment file.\5\ 
The Commission is publishing notice of the filing of Amendment No. 1 to 
solicit comment from interested persons, and is approving the proposed 
rule change, as modified by Amendment No. 1, on an accelerated 
basis.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 94839 (May 3, 2022), 
87 FR 27679 (May 9, 2022) (SR-NYSE-2022-20) (``Notice'').
    \4\ See Securities Exchange Act Release No. 95118 (June 16, 
2022), 87 FR 37539 (June 23, 3022).
    \5\ In Amendment No. 1, the Exchange: (i) represents that 
Directed Orders will not be routed to an ATS with which the Exchange 
has a financial arrangement; and (ii) updates the anticipated 
implementation date of the proposed rule change from the second 
quarter to the third quarter of 2022. See Letter from Martha 
Redding, Associate General Counsel, NYSE LLC, to Secretary, 
Commission (July 28, 2022). Amendment No. 1 is available at https://www.sec.gov/comments/sr-nyse-2022-20/srnyse202220-20135101-306081.pdf.
    \6\ The Commission received one comment letter that is not 
germane to the proposal. See https://www.sec.gov/comments/sr-nyse-2022-20/srnyse202220-289428.htm.
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II. Self-Regulatory Organization's Description of the Proposal, as 
Modified by Amendment No. 1

    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 modify Rule 7.31 (Orders and Modifiers) to 
designate subparagraph (f) as describing orders with specific routing 
instructions and to add new subparagraph (f)(1) to provide for Directed 
Orders. The Exchange also proposes to make other conforming changes to 
its Rules in connection with the addition of this new order type on the 
Exchange. The Directed Order, as further defined below, would be an 
order sent to the Exchange to be routed directly to an alternative 
trading system (``ATS'') specified by a member organization.\7\
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    \7\ Directed Orders will not be routed to an ATS with which the 
Exchange has a financial arrangement.
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    The Exchange proposes to rename Rule 7.31(f), which is currently 
designated as Reserved, to ``Orders with Specific Routing 
Instructions.'' The Exchange also proposes to add Rule 7.31(f)(1), 
which would define a Directed Order as a Limit Order with instructions 
to route on arrival at its

[[Page 48742]]

limit price to a specified ATS with which the Exchange maintains an 
electronic linkage. Proposed Rule 7.31(f)(1) would further provide that 
Directed Orders would be available for all securities eligible to trade 
on the Exchange. Proposed Rule 7.31(f)(1) would also provide that a 
Directed Order would not be assigned a working time or interact with 
interest on the Exchange Book. The Exchange also proposes to provide in 
Rule 7.31(f)(1) that the ATS to which a Directed Order is routed would 
be responsible for validating whether the order is eligible to be 
accepted, and if such ATS determines to reject the order, the order 
would be cancelled.
    Proposed Rule 7.31(f)(1)(A) would provide that a Directed Order 
must be designated for the Exchange's Core Trading Session, as defined 
in Rule 7.34(a)(2).\8\
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    \8\ Because the Exchange proposes that Directed Orders may only 
be designated for the Core Trading Session, the Exchange also 
proposes conforming changes to Rule 7.34 (Trading Sessions). 
Specifically, the Exchange proposes to add Rule 7.34(c)(1)(E) to 
provide that Directed Orders designated for the Early Trading 
Session would be rejected. The Exchange also proposes to update Rule 
7.34(c)(1) to refer to ``paragraphs (c)(1)(A)-(E)'' to reflect the 
addition of subparagraph (E).
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    Proposed Rule 7.31(f)(1)(A) would further provide that a Directed 
Order must be designated with a Time in Force modifier of IOC \9\ or 
Day \10\ and would be routed to the specified ATS with such modifier. 
The Exchange proposes that a Directed Order designated IOC would be 
traded in whole or in part on the ATS to which it is routed after 
receipt of the order, and any untraded quantity would be cancelled. The 
Exchange proposes that a Directed Order designated Day would expire at 
the end of the Core Trading Session on the day it is entered. Proposed 
Rule 7.31(f)(1)(A) would also provide that a Directed Order may not be 
designated with any other modifiers defined in Rule 7.31.
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    \9\ See Rule 7.31(b)(2), which provides that a Limit Order may 
be designated with an Immediate-or-Cancel (``IOC'') modifier.
    \10\ See Rule 7.31(b)(1), which provides that orders may be 
designated with a Day modifier, and that an order to buy or sell 
designated Day, if not traded, will expire at the end of the 
designated session on the day on which it was entered.
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    Proposed Rule 7.31(f)(1)(B) would provide that a Directed Order in 
a security to be opened in an initial public offering (``IPO'') or a 
Direct Listing would be rejected if received before the IPO Auction or 
Direct Listing Auction concludes.
    Proposed Rule 7.31(f)(1)(C) would provide that, during a trading 
halt or pause, an incoming Directed Order would be rejected.
    Proposed Rule 7.31(f)(1)(D) would provide that a request to cancel 
a Directed Order designated Day would be routed to the ATS to which the 
order was routed.
    The Exchange also proposes the following conforming changes to Rule 
7.19 (Pre-Trade Risk Controls) and Rule 104 (Dealings and 
Responsibilities of DMMs):
     The Exchange proposes to modify Rule 7.19(a)(5), which 
sets forth the definition of Gross Credit Risk Limit and currently 
provides that unexecuted orders in the Exchange Book, orders routed on 
arrival pursuant to Rule 7.37(a)(1), and executed orders are included 
for purposes of calculating the Gross Credit Risk Limit. The Exchange 
proposes to modify Rule 7.19(a)(5) to specify that orders routed on 
arrival pursuant to Rule 7.31(f)(1) would also be included for purposes 
of the Gross Credit Risk Limit calculation.
     The Exchange proposes to modify Rule 104(b)(6), which 
specifies the orders and modifiers that DMM units are not permitted to 
enter. The Exchange proposes to add Directed Orders to Rule 104(b)(6) 
as an order type that DMM units may not enter.
    The Exchange believes that the proposed rule change would 
facilitate additional trading opportunities by offering member 
organizations the ability to designate orders submitted to the Exchange 
to be routed to an ATS of their choosing for execution. The Exchange 
believes the proposed change would encourage member organizations to 
utilize the Exchange as a venue for order entry and further believes 
that the proposed change could create efficiencies for member 
organizations by enabling them to send orders that they wish to route 
to an alternate destination through the Exchange, thereby enabling them 
to leverage order entry protocols and specifications already configured 
for their interactions with the Exchange. The Exchange notes that the 
Directed Order, as proposed, would operate similarly to the Primary 
Only Order already offered by NYSE American LLC (``NYSE American''), 
NYSE Arca, Inc. (``NYSE Arca''), NYSE Chicago, Inc. (``NYSE Chicago''), 
and NYSE National, Inc. (``NYSE National'') (collectively, the 
``Affiliated Exchanges''). On the Affiliated Exchanges, a Primary Only 
Order is an order that is routed directly to the primary listing market 
on arrival, without being assigned a working time or interacting with 
interest on the order book of the exchange to which it was 
submitted.\11\ The Exchange also believes that the Directed Order would 
offer member organizations functionality akin to order types and 
routing options that currently exist on other equities exchanges.\12\
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    \11\ See NYSE American Rule 7.31E(f)(1); NYSE Arca Rule 7.31-
E(f)(1); NYSE Chicago Rule 7.31(f)(1); NYSE National Rule 
7.31(f)(1). The Affiliated Exchanges also offer variations of the 
Primary Only Order, including the Primary Only Until 9:45 Order, 
which is a Limit or Inside Limit Order that, on arrival and until 
9:45 a.m. Eastern Time, routes to the primary listing market, and 
the Primary Only Until 3:55 Order, which is a Limit or Inside Limit 
Order entered on the Exchange until 3:55 p.m. Eastern Time, after 
which time the order is cancelled on the Exchange and routed to the 
primary listing market. See NYSE American Rules 7.31E(f)(2) and 
(f)(3); NYSE Arca Rules 7.31-E(f)(2) and (f)(3); NYSE Chicago Rules 
7.31(f)(2) and (f)(3); NYSE National Rules 7.31(f)(2) and (f)(3).
    \12\ See, e.g., Nasdaq Stock Market LLC (``Nasdaq''), Equity 4, 
Equity Trading Rules, Rule 4758(a)(ix) (defining the Nasdaq Directed 
Order as an order designed to use a routing strategy under which the 
order is directed to an automated trading center other than Nasdaq, 
as directed by the entering party, without checking the Nasdaq 
Book); Cboe EDGX Exchange, Inc. (``EDGX'') Rules 11.8(c)(7) 
(defining the Routing/Directed ISO order type as an ISO that 
bypasses the EDGX system and is immediately routed by EDGX to a 
specified away trading center for execution) and 11.11(g)(2) 
(providing for the DRT routing option, in which an order is routed 
to an alternative trading system as instructed); Cboe EDGA Exchange, 
Inc. (``EDGA'') Rules 11.8(c)(7) (defining the Routing/Directed ISO 
order type as an ISO that bypasses the EDGA system and is 
immediately routed by EDGA to a specified away trading center for 
execution) and 11.11(g)(2) (providing for the DRT routing option, in 
which an order is routed to an alternative trading system as 
instructed); Cboe BZX Exchange, Inc. (``BZX'') Rules 11.13(b)(3)(D) 
(providing for the DRT routing option, in which an order is routed 
to an alternative trading system as instructed) and 11.13(b)(3)(F) 
(defining the Directed ISO routing option, under which an ISO order 
would bypass the BZX system and be sent to a specified away trading 
center); Cboe BYX Exchange, Inc. (``BYX'') Rules 11.13(b)(3)(D) 
(providing for the DRT routing option, in which an order is routed 
to an alternative trading system as instructed) and 11.13(b)(3)(F) 
(defining the Directed ISO routing option, under which an ISO order 
would bypass the BYX system and be sent to a specified away trading 
center). The Exchange also believes that the Directed Order would 
provide functionality similar to the C-LNK routing strategy formerly 
offered by EDGA, in which C-LNK orders bypassed EDGA's local book 
and routed directly to a specified Single Dealer Platform 
destination. See Securities Exchange Act Release No. 82904 (March 
20, 2018), 83 FR 12995 (March 26, 2018) (SR-CboeEDGA-2018-004) 
(Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Expand an Offering Known a Cboe Connect To Provide 
Connectivity to Single-Dealer Platforms Connected to the Exchange's 
Network and To Propose a Per Share Executed Fee for Such Service).
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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.\13\ Subject to effectiveness of this proposed rule 
change, the Exchange anticipates that the proposed change will be 
implemented in the third quarter of 2022.
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    \13\ The Exchange will also provide information regarding the 
ATS(s) to which a Directed Order may be designated to route by 
Trader Update.

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[[Page 48743]]

2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934,\14\ in general, and furthers the 
objectives of Section 6(b)(5),\15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
remove impediments to and perfect the mechanism of a free and open 
market and promote just and equitable principles of trade because the 
Directed Order would offer member organizations access to additional 
trading opportunities by permitting them to designate orders submitted 
to the Exchange to be routed directly to a specified ATS for execution. 
The Exchange further believes that the proposed change would remove 
impediments to and perfect the mechanism of a free and open market by 
offering member organizations the option to send orders that they wish 
to route to an alternate destination for execution through the 
Exchange, which would create efficiencies to the extent member 
organizations are able to leverage existing protocols and 
specifications. Finally, the Exchange notes that the proposed 
functionality is not novel as the Affiliated Exchanges and other 
exchanges offer their members functionality whereby an exchange routes 
orders on behalf of a member to a specified trading center without such 
order interacting with the Exchange's book.\16\
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    \16\ See notes 11 & 12, supra.
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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 rules governing Directed Orders would promote competition 
because they would provide for an order type on the Exchange that would 
facilitate additional trading opportunities for market participants. 
The Exchange further believes that the proposed rules would allow it to 
offer its member organizations functionality similar to order types and 
routing options that exist on other equities exchanges, thereby 
enabling the Exchange to compete with such exchanges.\17\
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    \17\ See note 12, supra.
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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. Discussion and Commission Findings

    After careful review of the proposal, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\18\ In 
particular, the Commission finds that the proposed rule change, as 
modified by Amendment No. 1, is consistent with Section 6(b)(5) of the 
Act,\19\ which requires, among other things, that the rules of a 
national securities exchange be 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, and that the rules of a national securities exchange 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposed rule change is reasonably 
designed to remove impediments to and perfect the mechanism of a free 
and open market and a national market system because it would provide 
exchange members with additional trading opportunities by providing 
them with the option to designate orders to be routed by the Exchange 
directly to a specified ATS for execution. The use of Directed Orders 
would be voluntary, and the Exchange represents that it would not 
direct orders to any ATSs with which the Exchange has a financial 
relationship. The Commission also believes that the proposed rule 
change would not permit unfair discrimination among customers, brokers, 
or dealers because Directed Orders will be available to all Exchange 
members on an equal basis. Finally, the Commission believes that the 
proposed changes to Exchange Rule 7.19(a)(5) will ensure that Directed 
Orders are included in the calculation of Gross Credit Risk Limit.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
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 [email protected]. Please include 
File Number SR-NYSE-2022-20 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-2022-20. 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

[[Page 48744]]

to make available publicly. All submissions should refer to File Number 
SR-NYSE-2022-20 and should be submitted on or before August 31, 2022.

V. Accelerated Approval of Amendment No. 1

    As noted above,\20\ in Amendment No. 1, as compared to the original 
proposal,\21\ the Exchange: (i) represents that Directed Orders will 
not be routed to an ATS with which the Exchange has a financial 
arrangement; and (ii) updates the anticipated implementation date of 
the proposed rule change from the second quarter to the third quarter 
of 2022. The Commission finds that Amendment No. 1 to the proposal 
raises no novel regulatory issues, that it is reasonably designed to 
protect investors and the public interest, and that it is consistent 
with the requirements of the Act. Accordingly, the Commission finds 
good cause, pursuant to Section 19(b)(2) of the Act,\22\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \20\ See supra note 5.
    \21\ See Notice, supra note 3.
    \22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NYSE-2022-20), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17099 Filed 8-9-22; 8:45 am]
BILLING CODE 8011-01-P


