81 FR 43297 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Add a New Discretionary Pegged Order

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 127 (July 1, 2016)

[Federal Register Volume 81, Number 127 (Friday, July 1, 2016)]
[Notices]
[Pages 43297-43301]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-15718]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78181; File No. SR-NYSEArca-2016-44]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1, and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Add a New 
Discretionary Pegged Order

June 28, 2016.

I. Introduction

    On March 11, 2016, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 
amend NYSE Arca Equities Rule 7.31P(h) to add a new Discretionary 
Pegged Order. The proposed rule change was published for comment in the 
Federal Register on March 30, 2016.\3\ The Commission received two 
comment letters on the proposed rule change \4\ and a response letter 
from the Exchange.\5\ On May 12, 2016, pursuant to Section 19(b)(2) of 
the Act,\6\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\7\ On June 23, 2016, the Exchange filed Amendment 
No. 1 to the proposed rule change.\8\ The Commission is publishing

[[Page 43298]]

this notice to solicit comments on Amendment No. 1 from interested 
persons, and is approving the proposed rule change, as modified by 
Amendment No. 1, on an accelerated basis.
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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. 77441 (March 24, 
2016), 81 FR 17749 (``Notice'').
    \4\ See Letter from Sophia Lee, General Counsel, IEX Group, Inc. 
(``IEX''), to Brent J. Fields, Secretary, Commission, dated April 
15, 2016 (``IEX Letter''); Letter from John C. Nagel, Esq., Managing 
Director and Sr. Deputy General Counsel, Citadel LLC (``Citadel''), 
to Brent J. Fields, Secretary, Commission, dated April 20, 2016 
(``Citadel Letter'').
    \5\ See Letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, New York Stock Exchange, to Brent J. Fields, 
Secretary, Commission, dated April 27, 2016 (``Response Letter'').
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ See Securities Exchange Act Release No. 77820, 81 FR 31272 
(May 18, 2016). The Commission designated June 28, 2016, as the date 
by which it should approve, disapprove, or institute proceedings to 
determine whether to disapprove the proposed rule change.
    \8\ In Amendment No. 1, the Exchange: (1) Added subsection (E) 
to proposed Rule 7.31P(h)(3), which would provide that if the PBBO 
(as defined below) is locked or crossed, both an arriving and 
resting Discretionary Pegged Order would wait for a PBBO that is not 
locked or crossed before the working price (as defined below) is 
adjusted and the order becomes eligible to trade; (2) provided 
additional responses to the comment letters; and (3) provided more 
information regarding the implementation date for the proposed rule 
change. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nysearca-2016-44/nysearca201644-4.pdf.
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equites Rule 7.31P(h) to 
add a new Discretionary Pegged Order for its Pillar trading platform. 
According to the Exchange, the proposed Discretionary Pegged Order is 
based on the Discretionary Peg Order (``D-Peg Order'') proposed by IEX 
in its Form 1 application seeking registration as a national securities 
exchange.\9\
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    \9\ See Notice, supra note 3, at 17749. On June 17, 2016, the 
Commission granted IEX's application for registration as a national 
securities exchange. See Securities Exchange Act Release No. 78101 
(June 17, 2016), 81 FR 41142 (June 23, 2016) (``IEX Order''). In its 
proposal, the Exchange identifies the substantive differences 
between the proposed Discretionary Pegged Order and IEX's D-Peg 
Order. First, the proposed Discretionary Pegged Order must have a 
limit price, whereas IEX's D-Peg Order is not required to have a 
limit price. See Notice, supra note 3, at 17749. Second, the 
proposed Discretionary Pegged Order must be Day time-in-force, 
whereas IEX's D-Peg order is also permitted to have certain other 
times-in-force. See id. Third, if the PBBO is locked or crossed, 
both an arriving and resting Discretionary Pegged Order would wait 
for a PBBO that is not locked or crossed before the working price is 
adjusted and the order becomes eligible to trade, whereas IEX's D-
Peg Order can be priced and traded if the market is locked or 
crossed. See Amendment No. 1 at 3-4. In the proposal, the Exchange 
also states that, unlike IEX's D-Peg Order, the proposed 
Discretionary Pegged Order would be based on the PBBO rather than 
the NBBO. See Notice, supra note 3, at 17749. According to the 
Exchange, the PBBO is the reference price that it uses for its 
Pegged Orders under Rule 7.31P(h). The Commission notes that, in an 
amendment to IEX's exchange application, IEX clarified that its D-
Peg Order is based on the Protected NBBO. See Investors' Exchange 
LLC--Form 1 Application and Exhibits, Addendum B-1 Comparison to 
Amendment No. 1, available at https://www.sec.gov/rules/other/2016/iex/iex-form-1-addendum-b-1-amendments-redline.pdf.
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    Proposed Rule 7.31P(h)(3) would provide that a Discretionary Pegged 
Order would be a Pegged Order \10\ to buy (sell) that upon entry to the 
NYSE Arca Marketplace \11\ would be assigned a working price \12\ equal 
to the lower (higher) of the midpoint of the PBBO \13\ (``Midpoint 
Price'') or the limit price of the order. Any untraded shares of such 
order would be assigned a working price equal to the lower (higher) of 
the PBB (PBO) or the order's limit price and would automatically be 
adjusted in response to changes to the PBB (PBO) for buy (sell) orders 
up (down) to the order's limit price. In order to trade with contra-
side orders on the NYSE Arca Book, a Discretionary Pegged Order to buy 
(sell) would exercise the least amount of price discretion necessary 
from its working price to its discretionary price (defined as the lower 
(higher) of the Midpoint Price or the Discretionary Pegged Order's 
limit price), except during periods of quote instability, as defined in 
proposed Rule 7.31P(h)(3)(D).
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    \10\ The term ``Pegged Order'' is defined in Exchange Rule 
7.31P(h) as a Limit Order that does not route with a working price 
that is pegged to a dynamic reference price. If the designated 
reference price is higher (lower) than the limit price of a Pegged 
Order to buy (sell), the working price will be the limit price of 
the order.
    \11\ The term ``NYSE Arca Marketplace'' is defined in Exchange 
Rule 1.1(e) as the electronic securities communications and trading 
facility designated by the Board of Directors through which orders 
of Users are consolidated for execution and/or display.
    \12\ The term ``working price'' is defined in Exchange Rule 
7.36P(a)(3) as the price at which an order is eligible to trade at 
any given time, which may be different from the limit price or 
display price of the order. The term ``limit price'' is defined in 
Exchange Rule 7.36P(a)(2) as the highest (lowest) specified price at 
which a Limit Order to buy (sell) is eligible to trade.
    \13\ The term ``PBBO'' is defined in Exchange Rule 1.1(dd) as 
the highest Protected Bid and the lowest Protected Offer.
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    Proposed Rule 7.31P(h)(3)(A) would provide that Discretionary 
Pegged Orders would not be displayed, must be designated Day, and would 
be eligible to be designated for the Core Trading Session only. 
Discretionary Pegged Orders that include a designation for the Early 
Trading Session or Late Trading Session would be rejected.
    Proposed Rule 7.31P(h)(3)(B) would provide that when exercising 
discretion, Discretionary Pegged Orders would maintain their time 
priority at their working price as Priority 3--Non-Display Orders and 
would be prioritized behind Priority 3--Non-Display Orders with a 
working price equal to the discretionary price of a Discretionary 
Pegged Order at the time of execution. If multiple Discretionary Pegged 
Orders are exercising price discretion during the same book processing 
action, they would maintain their relative time priority at the 
discretionary price.
    Proposed Rule 7.31P(h)(3)(C) would provide that a Discretionary 
Pegged Order would be eligible to exercise price discretion to its 
discretionary price, except during periods of quote instability. If the 
Corporation \14\ determines the PBB for a particular security to be an 
unstable quote, it would restrict buy Discretionary Pegged Orders in 
that security from exercising price discretion to trade against 
interest above the PBB. If the Corporation determines the PBO for a 
particular security to be an unstable quote, it would restrict sell 
Discretionary Pegged Orders in that security from exercising price 
discretion to trade against interest below the PBO.
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    \14\ The term ``Corporation'' is defined in Exchange Rule 1.1(k) 
to mean NYSE Arca Equities, Inc., as described in NYSE Arca 
Equities, Inc.'s Certificate of Incorporation and Bylaws.
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    Proposed Rule 7.31P(h)(3)(D) would set forth how the Exchange would 
determine the quote instability factor (i.e., the probability of an 
imminent change of the current PBB to a lower price or the current PBO 
to a higher price). When the quoting activity meets predefined criteria 
and the quote instability factor is greater than a defined threshold 
(``quote instability threshold''), the Corporation would treat the 
quote as not stable (``quote instability'' or ``crumbling quote''). 
When the Corporation determines either the PBB or the PBO is unstable, 
the determination would remain in effect at that price level for ten 
milliseconds. The Corporation would only treat one side of the PBBO as 
unstable in a particular security at any given time.
    The Corporation would determine that there is quote instability or 
a crumbling quote when the following occur: The PBB and PBO are the 
same as the PBB and PBO one millisecond ago; and the PBBO spread is 
less than or equal to the thirty-day median PBBO spread during the Core 
Trading Session; and there are more protected quotations on the far 
side; and the quote instability factor is greater than the defined 
quote instability threshold.
    The quote stability calculation used to determine the current quote 
instability factor would be defined by the following formula:

1/(1 + e [supcaret] -(C0 + C1 * N + C2 * F + C3 * N-1 + C4 * F-1)).

    The Exchange proposes to use the following quote stability 
coefficients: C0 = -2.39515; C1 = -0.76504; C2 = 0.07599; C3 = 0.38374; 
and C4 = 0.14466. The Exchange proposes to use the following quote 
stability variables: N = the number of protected quotations on the near 
side of the market; F = the number of protected quotations on the far 
side of the market; N-1 = the number of protected quotations on the 
near side of the market one millisecond ago; and F-1 = the number of 
protected quotations on the far side of the market one millisecond ago. 
The Exchange proposes to use a quote instability threshold of 0.32.
    Pursuant to proposed Rule 7.31P(h)(3)(D)(i)(D)(3), the Exchange 
reserves the right to modify the quote stability coefficients or quote 
instability

[[Page 43299]]

threshold at any time, subject to the filing of a proposed rule change 
with the Commission.
    Proposed Rule 7.31P(h)(3)(E) would provide that if the PBBO is 
locked or crossed, both an arriving and a resting Discretionary Pegged 
Order would wait for a PBBO that is not locked or crossed before the 
working price is adjusted and the order becomes eligible to trade.
    The Exchange anticipates that it will announce the implementation 
date of the proposed rule change by the fourth quarter of 2016.\15\
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    \15\ See Amendment No. 1 at 5.
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III. Summary of Comments and Response to Comments

    The Commission received two comment letters opposing the proposed 
rule change and a response letter and an amendment from the 
Exchange.\16\
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    \16\ See supra notes 4, 5, and 8.
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    One commenter points out that, as noted by the Exchange, the 
proposed Discretionary Pegged Order is a copy of the D-Peg Order that 
the commenter created, which has been offered since November 2014 by 
the IEX Alternative Trading System.\17\ This commenter states its 
belief that the D-Peg Order is a useful order type that can protect 
investors, if implemented properly.\18\ However, this commenter 
questions the effectiveness of the proposed Discretionary Pegged Order, 
and states that it should not be approved unless the Exchange amends 
the proposal and provides additional justifications to show that the 
order type would work as purported.\19\ Specifically, this commenter 
states that the Exchange would not be in a position to deliver the 
benefits as claimed if it continues to offer co-location and microwave 
services to fast market participants because the Exchange would not be 
able to effectively update the order during a crumbling quote faster 
than the market participant trying to pick off the order.\20\ This 
commenter also questions whether the Exchange understands the use of 
the proposed order type and expresses concern that the implementation 
of order types that are not well thought-through can increase systemic 
risk and may have adverse impacts on investor protection.\21\ According 
to the commenter, the D-Peg formula was calculated based on the 
location of its systems in Weehawken, NJ, and its unique latency 
profile, and it makes little sense to apply the same formula to orders 
on the Exchange located in Mahwah, NJ.\22\ Finally, this commenter 
argues that the Exchange should adopt a different name for the proposed 
order type to avoid confusion and misrepresentation regarding the 
nature of the order type.\23\
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    \17\ See IEX Letter at 1.
    \18\ See id.
    \19\ See id., at 1-3.
    \20\ See id., at 2.
    \21\ See id., at 2-3.
    \22\ See id., at 2.
    \23\ See id., at 3. In its letter, the commenter also responds 
to the Exchange's comments on the D-Peg Order, which were set forth 
in the Notice. See id., at 2. As noted above, the Commission granted 
IEX's application for registration as a national securities 
exchange, which included the D-Peg Order. See supra note 9. This 
order does not address comments and responses related to IEX's D-Peg 
Order.
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    Another commenter also opposes the proposed rule change. According 
to this commenter, Commission approval of exchanges' use of predictive 
order types such as the proposed Discretionary Pegged Order would 
result in rapidly increasing order type complexity, which would reduce 
market resilience and make markets more opaque for all investors.\24\ 
The commenter states its belief that the utility of these order types 
is marginal and does not outweigh the additional complexity that these 
order types would impose on the market.\25\ This commenter also 
expresses concerns regarding how the Commission could or would 
effectively review and police additional predictive order types as they 
emerge and evolve, and whether the Commission would propose guidance or 
limitations on how predictive order types may operate.\26\ Finally, 
this commenter states that predictive order types encroach on the 
traditional role of broker-dealers by using inherent competitive 
advantages that exchanges have over broker-dealers.\27\
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    \24\ See Citadel Letter at 1. This commenter notes that the 
proposed Discretionary Pegged Order is virtually identical to IEX's 
D-Peg Order. See id. The commenter notes that it explained its 
concerns in more detail in its comment letter on IEX's exchange 
application. See Letter from John C. Nagel, Esq., Managing Director 
and Sr. Deputy General Counsel, Citadel LLC, to Brent J. Fields, 
Secretary, Commission, dated April 14, 2016.
    \25\ See Citadel Letter at 2.
    \26\ See id.
    \27\ See id. In the context of IEX's D-Peg Order and the 
proposed Discretionary Pegged Order, the Exchange also requests that 
the Commission articulate the boundaries of when an exchange may or 
may not offer services that are otherwise performed by broker-
dealers and when it would be appropriate for an exchange to monitor 
the quality of the prices in a market to determine how to price an 
order, and raises the issue of whether these order types are 
consistent with the Commission's previous disapproval of Nasdaq's 
benchmark orders. See Response Letter at 2-4. See also Notice, supra 
note 3, at 17751.
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    In response to comments, the Exchange indicates that the proposed 
Discretionary Pegged Order is a competitive response to IEX's D-Peg 
Order.\28\ The Exchange states that the proposed calculation to 
determine whether a quote is unstable is a straightforward 
determination that does not require inbound order flow to be 
intentionally delayed to be effective.\29\ According to the Exchange, 
while an intentionally-delayed market may prevent arriving interest 
from interacting with pegged orders immediately, it does not believe 
that processing market data updates and inbound orders out of phase (as 
with IEX) or simultaneously (as proposed by the Exchange) would 
materially alter the effectiveness of the proposed functionality.\30\ 
The Exchange also states its belief that the benefits of the proposed 
functionality would be the same regardless of the relative speed.\31\ 
Moreover, according to the Exchange, the proposed Discretionary Pegged 
Order would be an optional order type, and if market participants do 
not believe that the quote instability formula appropriately predicts 
market movement, they do not have to use the order type.\32\ The 
Exchange states that, over time and based on client feedback, it would 
consider changes to the specific formula used to assess the quality of 
the market or would consider offering additional types of Discretionary 
Pegged Orders to serve the trading needs of different market 
participants, subject to filing separate proposed rule changes with the 
Commission.\33\ Finally, the Exchange states that it does not 
anticipate that the proposed order type would have any disruptive 
effects on the overall market.\34\
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    \28\ See Response Letter at 3-4.
    \29\ See Amendment No. 1 at 4.
    \30\ See id.
    \31\ See id.
    \32\ See Response Letter at 4-5 and Amendment No. 1 at 4. The 
Exchange states its belief that the effectiveness of a particular 
order type in serving the trading needs of market participants 
should be market-driven. See Response Letter at 4.
    \33\ See Response Letter at 4. In its response letter, the 
Exchange also provides additional comments on IEX's exchange 
application. As noted above, the Commission granted IEX's exchange 
application, and this order does not address comments and responses 
related to IEX's D-Peg Order. See supra note 9.
    \34\ See Amendment No. 1 at 4.
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IV. Commission Findings

    After careful review, 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.\35\ In particular, the

[[Page 43300]]

Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\36\ 
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 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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    \35\ 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).
    \36\ 15 U.S.C. 78f(b)(5).
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    As noted above, the proposed Discretionary Pegged Order is based on 
IEX's D-Peg Order, although there are some differences between the two 
orders.\37\ First, unlike IEX's D-Peg Order, the proposed Discretionary 
Pegged Order must have a limit price.\38\ The Commission notes that 
this is not a novel aspect for this type of order because IEX's D-Peg 
Order is also permitted to have a limit price, although it is not 
required to have one.\39\ Second, unlike IEX's D-Peg Order, the 
proposed Discretionary Pegged Order must have a Day time-in-force.\40\ 
The Commission similarly notes that this is not a novel aspect for this 
type of order because IEX's D-Peg Order is also permitted to have the 
Day time-in-force, although it is permitted to have certain other 
times-in-force as well.\41\ Third, if the PBBO is locked or crossed, an 
arriving or resting Discretionary Pegged Order would wait for a PBBO 
that is not locked or crossed before the working price is adjusted and 
the order becomes eligible to trade,\42\ whereas IEX's D-Peg Order can 
be priced and traded if the market is locked or crossed.\43\ The 
Commission notes that the proposed treatment of Discretionary Pegged 
Orders when the market is locked or crossed is consistent with Exchange 
Rule 7.31P(h)(1)(B), which governs the treatment of other non-displayed 
pegged orders on the Exchange (i.e., Market Pegged Orders) when the 
market is locked or crossed.
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    \37\ See supra note 9.
    \38\ See Notice, supra note 3, at 17749.
    \39\ See IEX Rule 11.190(b)(10)(E).
    \40\ See Notice, supra note 3, at 17749.
    \41\ See IEX Rule 11.190(b)(10)(B).
    \42\ See Amendment No. 1 at 3-4.
    \43\ See IEX Rule 11.190(h)(3).
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    The Commission notes that, according to the Exchange, the proposed 
Discretionary Pegged Order would assist ETP Holders in obtaining best 
execution for their customers by limiting executions at the Midpoint 
Price when the PBBO is not stable, and by reducing the potential to 
execute at a stale price.\44\ Moreover, the Commission notes that, in 
response to the comments, the Exchange acknowledges that an 
intentionally-delayed market may prevent arriving interest from 
interacting with pegged orders immediately, but states its belief that 
the proposed Discretionary Pegged Order would be effective, 
notwithstanding the differences in speed between the Exchange and 
IEX.\45\
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    \44\ See Notice, supra note 3, at 17751.
    \45\ See supra notes 29-34 and accompanying text (discussing in 
more detail the Exchange's response to comments).
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    With respect to questions regarding whether the proposed 
Discretionary Pegged Order would perform a function that is typically 
performed by broker-dealers, and whether approval of the proposed 
Discretionary Pegged Order would be inconsistent with the Commission's 
prior disapproval of Nasdaq's ``benchmark orders,'' the Commission 
notes that, as with IEX's rules governing the D-Peg Order, proposed 
Rule 7.31P(h)(3) would delineate the specific conditions under which a 
Discretionary Pegged Order would or would not be eligible to execute up 
(down) to the Midpoint Price by setting forth the formula that the 
Exchange would use to determine quote stability. Also, as with IEX's D-
Peg Order, the Exchange would encode in its rule the totality of the 
discretionary feature of the proposed Discretionary Pegged Order. As 
the Exchange notes in the proposal, the manner by which it would 
monitor the quality of the quotes would be objective and transparent, 
as set forth in the proposed rule.\46\ As with IEX's D-Peg Order, the 
Commission does not believe that the hardcoded conditionality of the 
proposed order type would provide the Exchange with actual discretion 
or the ability to exercise individualized judgment when executing an 
order. The Commission also notes that the Exchange would be required to 
submit a proposed rule change pursuant to Section 19(b) of the Act 
prior to implementing any changes to the proposed order. Moreover, as 
with IEX's D-Peg Order, the Commission believes that the proposed 
Discretionary Pegged Order is distinguishable from Nasdaq's benchmark 
orders and does not implicate the same issues.\47\
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    \46\ See Notice, supra note 3, at 17751.
    \47\ See IEX Order, supra note 9, at 41153 (discussing in more 
detail the differences between IEX's D-Peg Order and Nasdaq's 
benchmark orders).
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    With respect to a commenter's concern that approval of the proposed 
Discretionary Pegged Order would lead to the proliferation of complex 
predictive order types, the Commission notes that new exchange proposed 
order types are subject to the rule filing process of Section 19(b) of 
the Act and Rule 19b-4 under the Act, and the standards in Section 6(b) 
of the Act, among other provisions.\48\
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    \48\ See also Form 19b-4, General Instructions.
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    With respect to a commenter's request that the Exchange use a 
different name for the proposed order in order to avoid confusion and 
misrepresentation regarding the nature of the order,\49\ the Commission 
notes that the functionality of the proposed Discretionary Pegged Order 
is specifically delineated in proposed Rule 7.31P(h)(3). Moreover, the 
Commission notes that, currently, order types on different exchanges 
with nearly identical names may function differently.\50\ As a result, 
the Commission does not believe the Exchange's use of the name 
``Discretionary Pegged Order'' raises regulatory concerns.
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    \49\ In its comment letter, this commenter references its 
``Patent-Pending `DYNAMIC PEG ORDERS IN AN ELECTRONIC TRADING 
SYSTEM' in the U.S. patent application number 14/799,975, priority 
to August 22, 2014.'' However, this commenter states that its 
comment letter ``speaks to deficiencies in NYSE's application in 
light of current market structure and is not intended to address, 
comment on or waive our property rights in the D-peg invention or 
related subject matter.'' See IEX Letter at note 2. In issuing this 
order, the Commission expresses no view with respect to these 
matters.
    \50\ See, e.g., Exchange Rule 7.31P(h)(2) (describing the 
Exchange's ``Primary Pegged Order'') and IEX Rules 11.190(a)(3) and 
(b)(8) (describing IEX's ``primary peg order'').
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    Finally, the Commission notes that existing exchanges offer both 
discretion and pegging functionalities, including the combination of 
both of those functionalities in a single order type.\51\ As with IEX's 
D-Peg Order, the proposed discretion functionality would be turned 
``on'' or ``off'' depending on the Exchange's quote stability 
determination. Because the Exchange has encoded in its rule the 
totality of the discretionary feature of the proposed Discretionary 
Pegged Order, the Commission believes the proposed order type is a 
close variant of the discretion and pegging functionality that 
currently exist on other exchanges.
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    \51\ See, e.g., Nasdaq Rule 4703(g).
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    Based on the foregoing and the Exchange's representations, the 
Commission believes that the proposed rule change, as modified by 
Amendment No. 1, is consistent with the Act.

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to the proposed rule change is consistent with the Act. Comments may be

[[Page 43301]]

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-NYSEArca-2016-44 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2016-44. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-44 and should 
be submitted on or before July 22, 2016.

VI. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register. In Amendment No. 1, the Exchange added subsection (E) to 
proposed Rule 7.31P(h)(3), which would provide that if the PBBO is 
locked or crossed, both an arriving and resting Discretionary Pegged 
Order would wait for a PBBO that is not locked or crossed before the 
working price is adjusted and the order becomes eligible to trade. As 
noted above, this aspect of the proposed Discretionary Pegged Order is 
consistent with Exchange Rule 7.31P(h)(1)(B), which governs the 
treatment of other non-displayed pegged orders on the Exchange (i.e., 
Market Pegged Orders) when the market is locked or crossed. In 
Amendment No. 1, the Exchange also provided additional responses to the 
comment letters and provided more information regarding the 
implementation date for the proposed rule change. These two changes do 
not alter the substance of the proposed rule change. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\52\ to approve the proposed rule change, as modified by Amendment 
No. 1, on an accelerated basis.
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    \52\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\53\ that the proposed rule change (SR-NYSEArca-2016-44), as 
modified by Amendment No. 1, be, and it hereby is, approved on an 
accelerated basis.
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    \53\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
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    \54\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-15718 Filed 6-30-16; 8:45 am]
 BILLING CODE 8011-01-P