[Federal Register Volume 88, Number 16 (Wednesday, January 25, 2023)]
[Notices]
[Pages 4874-4877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01412]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96714; File No. SR-NYSE-2023-06]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 7.31(i)(2)

January 19, 2023.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on January 12, 2023, New York Stock Exchange LLC (``NYSE'' 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

[[Page 4875]]

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(i)(2) to enhance the 
Exchange's existing Self Trade Prevention (``STP'') modifiers. 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, 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(i)(2) to enhance the 
Exchange's existing Self Trade Prevention (``STP'') modifiers. 
Specifically, the Exchange proposes to allow member organizations the 
option to apply STP modifiers to orders submitted not only from the 
same MPID, as the rule currently provides, but also to orders submitted 
from (i) the same subidentifier of a particular MPID; (ii) other MPIDs 
associated with the same Client ID (as designated by the member 
organization); and (iii) Affiliates of the member organization.
Background
    Currently, Rule 7.31(i)(2) offers optional anti-internalization 
functionality to member organizations in the form of STP modifiers that 
enable a member organization to prevent two of its orders from 
executing against each other. Currently, member organizations can set 
the STP modifier to apply at the ``MPID'' level.\4\ The STP modifier on 
the order with the most recent time stamp controls the interaction 
between two orders marked with STP modifiers. STP functionality assists 
market participants by allowing firms to better prevent unintended 
executions with themselves and to reduce the potential for ``wash 
sales'' that may occur as a result of the velocity of trading in a 
high-speed marketplace. STP functionality also assists market 
participants in reducing trading costs from unwanted executions 
potentially resulting from the interaction of executable buy and sell 
trading interest from the same firm.
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    \4\ The Exchange decommissioned the Pillar Phase I protocols 
described in Rule 7.31(i)(2)(F).
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    The Exchange notes that several equities exchanges--including IEX, 
Nasdaq, Nasdaq BX, Nasdaq PHLX, and MIAX Pearl Equities--have all 
recently amended their rules to provide additional levels at which 
orders may be grouped for the purposes of applying their anti-
internalization rules. As such, the proposed changes herein are not 
novel and are familiar to market participants.\5\
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    \5\ Several other equity exchanges recently amended their rules 
to allow affiliate grouping for their own anti-internalization 
functionality. See, e.g., Securities Exchange Act Release Nos. 96187 
(October 31, 2022), 87 FR 66764 (November 4, 2022) (SR-IEX-2022-08); 
96156 (October 25, 2022), 87 FR 65633 (October 31, 2022) (SR-BX-
2022-020); 96154 (October 25, 2022), 87 FR 65631 (October 31, 2022) 
(SR-PHLX-2022-43); 96069 (October 13, 2022), 87 FR 63558 (October 
19, 2022) (SR-NASDAQ-2022-56, implemented by SR-NASSDAQ-2022-60); 
and 96334 (November 16, 2022), 87 FR 71368 (November 22, 2022) (SR-
PEARL-2022-48).
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Proposed Amendment
    The Exchange proposes to amend the Rule 7.31(i)(2) in three ways, 
each of which would enhance member organizations' flexibility over the 
levels at which orders may be grouped for the purposes of applying the 
Exchange's existing STP modifiers.
    First, the Exchange proposes to amend the rule to permit a member 
organization to set the STP modifiers to apply at the level of a 
subidentifier of an MPID. This change would allow member organizations 
to prevent orders sent from the same subidentifier of a particular MPID 
from executing against each other, but permit orders sent from 
different subidentifiers of the same MPID to interact.\6\
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    \6\ This functionality exists on the Exchange's affiliate 
exchange Arca Options, and as such is not novel and is familiar to 
market participants. See Arca Options Rule 6.62P-O(i)(2) (``An 
Aggressing Order or Aggressing Quote to buy (sell) designated with 
one of the STP modifiers in this paragraph will be prevented from 
trading with a resting order or quote to sell (buy) also designated 
with an STP modifier from the same MPID, and, if specified, any 
subidentifier of that MPID.'').
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    Second, the Exchange proposes to amend Rule 7.31(i)(2) to permit a 
member organization to set the STP modifiers to prevent orders from 
different MPIDs from executing against each other. The proposed 
amendment would address this by allowing member organizations to apply 
STP modifiers at the level of ``Client ID,'' which would be an 
identifier designated by the member organization.\7\ As proposed, a 
Client ID would function similarly to an MPID in that it would be a 
unique identifier assigned to a member organization. The Exchange 
believes that this proposed enhancement would provide member 
organizations with greater flexibility in how they instruct the 
Exchange to apply STP modifiers to their orders. The Exchange notes 
that it is not novel for an exchange to provide its members with 
multiple methods by which to designate anti-internalization 
instructions.\8\
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    \7\ Note that the term ``Client ID'' would no longer have the 
definition ascribed to it in subparagraph (F) of Rule 7.31(i)(2), as 
the Exchange proposes to delete that subparagraph as obsolete. See 
infra note 9 and accompanying text.
    \8\ See, e.g., MIAX Pearl, LLC (``MIAX Pearl'') Rule 2614(f) 
(specifying that Self-Trade Prevention Modifiers will be applicable 
to orders ``from the same MPID, Exchange member identifier, trading 
group identifier, or Equity Member Affiliate (any such identifier, a 
`Unique Identifier')'').
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    Third, the Exchange proposes to amend Rule 7.31(i)(2) to permit 
member organizations to direct orders not to execute against orders 
entered across MPIDs associated with Affiliates of the member 
organization that are also member organizations.\9\ This change would 
expand the availability of the STP functionality to member 
organizations that have divided their business activities between 
separate corporate entities without disadvantaging them when compared 
to member organizations that operate their business activities within a 
single corporate entity.
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    \9\ The proposed definition of ``Affiliate'' is identical to the 
one currently provided in the Exchange's Price List. See NYSE Price 
List, ``General'' section II(c) (``For purposes of this Fee 
Schedule, the term `affiliate' shall mean any member organization 
under 75% common ownership or control of that member 
organization.''). This 75% threshold is not novel. See, e.g., Nasdaq 
PHLX LLC (``Nasdaq PHLX'') Equity 4, Rule 3307(c).
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    The Exchange believes that these enhancements will all provide 
helpful flexibility for member organizations by expanding their ability 
to apply STP modifiers at multiple levels, including within a 
subidentifier of a single MPID, across multiple MPIDs of the same 
Client ID, and across multiple MPIDs of the member organization and its 
Affiliates, in addition to at the MPID level as the current rule 
provides. These proposed changes would help member organizations better 
manage their order flow and prevent undesirable executions or the 
potential for ``wash sales'' that might otherwise occur.

[[Page 4876]]

    To effect these changes, the Exchange proposes to amend the first 
sentence of Rule 7.31(i)(2) and add a new sentence as follows (proposed 
text italicized, deletions in brackets): ``Any incoming order to buy 
(sell) designated with an STP modifier will be prevented from trading 
with a resting order to sell (buy) also designated with an STP modifier 
and from the same Client ID;[, as designated by the member 
organization] the same MPID and, if specified, any subidentifier; or an 
Affiliate identifier (any such identifier, a ``Unique Identifier''). 
For purposes of this rule, the term ``Affiliate'' means any member 
organization under 75% common ownership or control of that member 
organization.'' The Exchange further proposes to replace references to 
``Client ID'' in Rules 7.31(i)(2)(A)-(E) and related subparagraphs with 
the term ``Unique Identifier.'' The Exchange also proposes to delete 
subparagraph (F) of Rule 7.31(i)(2) as obsolete, since it pertains to 
Pillar Phase I and II protocols that were in place during the 
Exchange's migration to Pillar, which was completed in 2021.\10\
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    \10\ See Securities Exchange Act Release No. 93496 (November 1, 
2021), 86 FR 61354 (November 5, 2021) (SR-NYSE-2021-63) (eliminating 
obsolete Pillar port transition fee pricing in light of completion 
of migration).
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    While this proposal would expand how a member organization can 
designate orders with an STP modifier, nothing in this proposal would 
make substantive changes to the STP modifiers themselves or how they 
would function with respect to two orders interacting within a relevant 
level.
    The Exchange notes that, as with its current anti-internalization 
functionality, use of the proposed revised Rule 7.31(i)(2) will not 
alleviate or otherwise exempt member organizations from their best 
execution obligations. As such, member organizations using the proposed 
enhanced STP functionality will continue to be obligated to take 
appropriate steps to ensure that customer orders that do not execute 
because they were subject to anti-internalization ultimately receive 
the same price, or a better price, than they would have received had 
execution of the orders not been inhibited by anti-internalization.
Timing and Implementation
    The Exchange anticipates that the technology changes required to 
implement this proposed rule change will become available on a rolling 
basis, beginning less than 30 days from the date of filing, to be 
completed by the end of the first quarter of 2023.
2. Statutory Basis
    The Exchange believes that 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, 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 mechanism 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that the proposed rule change 
will remove impediments to and perfect the mechanism of a free and open 
market and a national market system and is consistent with the 
protection of investors and the public interest because enhancing how 
member organizations may apply STP modifiers will provide member 
organizations with additional flexibility with respect to how they 
implement self-trade protections provided by the Exchange that may 
better support their trading strategies.
    The Exchange believes that the proposed rule change does not 
unfairly discriminate among member organizations because the proposed 
STP protections will be available to all member organizations, and 
member organizations that prefer setting STP modifiers at the MPID 
level will still be able to do so. In addition, allowing member 
organizations to apply STP modifiers to trades submitted by their 
Affiliates that are also member organizations is intended to avoid 
disparate treatment of firms that have divided their various business 
activities between separate corporate entities as compared to firms 
that operate those business activities within a single corporate 
entity.
    Finally, the Exchange notes that other equity exchanges recently 
amended their rules to allow affiliate grouping for their own anti-
internalization functionality and similarly use a 75% threshold of 
common ownership for assessing whether such orders would be eligible 
for this enhancement.\13\ Consequently, the Exchange does not believe 
that this change raises new or novel issues not already considered by 
the Commission.
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    \13\ See supra notes 5 and 8.
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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. To the contrary, the 
proposal is designed to enhance the Exchange's competitiveness by 
providing additional flexibility over the levels at which orders may be 
grouped for STP purposes, thereby incentivizing member organizations to 
send orders to the Exchange and increase the liquidity available on the 
Exchange. The Exchange also notes that the proposed new STP grouping 
options, like the Exchange's current anti-internalization 
functionality, are completely optional and member organizations can 
determine whether to apply anti-internalization protections to orders 
submitted to the Exchange, and if so, at what level to apply those 
protections (e.g., MPID, subidentifier, Client ID, or Affiliate level). 
The proposed rule change would also improve the Exchange's ability to 
compete with other exchanges that recently amended their rules to 
expand the groupings for their own anti-internalization functionality. 
There is no barrier to other national securities exchanges adopting 
similar anti-internalization groupings as those proposed herein.

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

    Because the foregoing 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 for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to section 19(b)(3)(A) of the

[[Page 4877]]

Act \14\ and Rule 19b-4(f)(6) \15\ thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization 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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    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. The Exchange requested 
the waiver because it would enable the Exchange to compete with other 
exchanges that have recently amended their rules to expand the levels 
at which orders may be grouped for STP purposes. The Exchange states 
that at least one such competitor exchange plans to introduce similar 
capabilities to market participants as early as January 9, 2023. The 
Exchange also states that it is currently working on technological 
solutions to meet this competition and to make similar offerings 
available to market participants as soon as possible. The Exchange 
expects to begin rolling out this functionality in less than 30 days 
from the date of filing, and thus requests waiver of the operative 
delay in order to promptly meet market competition. For these reasons, 
and because the proposed rule change does not raise any novel 
regulatory issues, the Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission hereby waives the operative 
delay and designates the proposal operative upon filing.\18\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 shall institute proceedings to 
determine whether the proposed rule should be approved or 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 [email protected]. Please include 
File Number SR-NYSE-2023-06 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-2023-06. 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-2023-06 and should be submitted on 
or before February 15, 2023.

    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).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01412 Filed 1-24-23; 8:45 am]
BILLING CODE 8011-01-P


