82 FR 10942 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending Rule 98

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 31 (February 16, 2017)

[Federal Register Volume 82, Number 31 (Thursday, February 16, 2017)]
[Notices]
[Pages 10942-10944]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-03108]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80019; File No. SR-NYSE-2017-03]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Amending Rule 98

February 10, 2017.
    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 January 26, 2017, New York Stock Exchange LLC (``NYSE'' 
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 98 to provide that, while on 
the Trading Floor, Designated Market Makers (``DMM'') must trade DMM 
securities at their assigned stock trading post location and may not 
trade any security that is a related product of their DMM securities. 
The proposed rule change is available on the Exchange's Web site 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 98 to provide that, while on 
the Trading Floor, DMMs must trade DMM securities at their assigned 
stock trading post location and may not trade any security that is a 
related product of their DMM securities.\4\
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    \4\ As defined in Rule 2(i), the term ``DMM'' means an 
individual member, officer, partner, employee or associated person 
of a Designated Market Maker Unit who is approved by the Exchange to 
act in the capacity of a DMM. The term ``DMM securities'' is defined 
in Rule 98(a)(2) to mean any securities allocated to the DMM unit 
pursuant to Rule 103B or other applicable rules. The term ``related 
products'' is defined in Rule 98(a)(7) to mean any derivative 
instrument that is related to a DMM security, including options, 
warrants, hybrid securities, single-stock futures, security-based 
swap agreement, a forward contract, or any other instrument that is 
exercisable into or whose price is based upon or derived from a 
security traded at the Exchange.
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Background
    Rule 98 governs the operation of a DMM unit and paragraph (c)(3) of 
that rule specifies restrictions on trading for member organizations 
operating a DMM unit. More specifically, Rule 98(c)(3)(B) provides 
that, while on the Trading Floor \5\ of the Exchange, employees of the 
DMM unit:
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    \5\ As defined in Rule 6A, the term ``Trading Floor'' means the 
restricted-access physical areas designated by the Exchange for the 
trading of securities, commonly known as the ``Main Room'' and the 
``Buttonwood Room'' and does not include (i) the areas in the 
``Buttonwood Room'' designated by the Exchange where NYSE Amex-
listed options are traded, which, for the purposes of the Exchange's 
Rules, shall be referred to as the ``NYSE Amex Options Trading 
Floor'' or (ii) the physical area within fully enclosed telephone 
booths located in 18 Broad Street at the Southeast wall of the 
Trading Floor.
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    (i) Except as provided for in Rule 36.30,\6\ may trade only DMM 
securities only on or through the systems and facilities of the 
Exchange as permitted by Exchange rules.
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    \6\ Rule 36.30 permits a DMM unit that is registered in an 
Investment Company Unit (as defined in Section 703.16 of the Listed 
Company Manual) or a Trust Issued Receipt (as that term is defined 
in Rule 1200) to use a telephone connection or order entry terminal 
at the DMM unit's post to enter proprietary orders in the Unit or 
receipt in another market center, in a Component Security of such a 
Unit or receipt, or an options or futures contract related to such 
Unit or receipt, and may use the post telephone to obtain market 
information with respect to such Units, receipts, options, futures 
or Component Securities.
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    (ii) except as provided for in Rules 36.30, may not communicate 
with individuals or systems responsible for making trading decisions 
for related products or for away-market trading in their assigned DMM 
securities.
    (iii) shall not have access to customer information or the DMM 
unit's position in related products.
    Accordingly, under current Rule 98, while on the Trading Floor, 
DMMs may only trade DMM securities and, thus, may not trade any other 
securities, including securities that are related products to their DMM 
securities.
Proposed Rule Change
    The Exchange proposes to amend Rule 98 to remove restrictions to 
DMM operations on the Trading Floor that are unrelated to the unique 
role of DMMs at the Exchange. Specifically, as described in Rule 104, 
DMMs have specified obligations with respect to their DMM securities 
and have access to specified non-public order information regarding 
their DMM securities.\7\ However, DMMs do not have a unique role or 
access to any non-public order information with respect to securities 
that are not assigned to them under Rule 103B. The

[[Page 10943]]

Exchange therefore believes that the current Rule 98 restrictions are 
unnecessarily broad.
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    \7\ See, e.g., Rule 104(a) and (j).
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    Accordingly, the Exchange proposes to amend Rule 98(c)(3)(B)(i) to 
provide that, while on the Trading Floor, employees of the DMM unit may 
trade DMM securities only on or through the systems and facilities of 
the Exchange at the DMM unit's assigned stock trading post location and 
as permitted by Exchange rules. Because the proposed rule would no 
longer specify the only securities that a DMM is permitted to trade, 
the Exchange proposes to delete the clause ``except as provided for in 
Rule 36.30.'' The Exchange also proposes to add new Rule 
98(c)(3)(B)(ii) to provide that while on the Trading Floor of the 
Exchange, employees of the DMM unit may not trade any security that is 
a related product of its DMM securities. The Exchange would renumber 
current Rules 98(c)(3)(B)(ii) and (iii) as new Rules 98(c)(3)(B)(iii) 
and (iv).
    As a result of these proposed changes, DMMs would no longer be 
restricted from trading securities that are unrelated to DMM securities 
while on the Trading Floor. However, the proposed amendments would 
continue to require that, while on the Trading Floor, DMMs would not be 
able to trade any securities that are related products to DMM 
securities. The proposed amendment would also add a new requirement 
that DMMs may only trade their DMM securities at their assigned stock 
trading post.
    The proposed rule change would allow Exchange DMMs that are also 
NYSE MKT LLC (``NYSE MKT'') DMMs to continue to operate. Currently, 
NYSE MKT's cash equities trading operations share a Floor with the 
Exchange.\8\ DMMs who are also approved as NYSE MKT DMMs currently 
trade in both NYSE-listed DMM securities and NYSE MKT-listed DMM 
securities from the same physical location on the exchanges' respective 
Trading Floors.\9\ NYSE MKT has proposed to transition from a Floor-
based trading model to a fully automated trading model.\10\ After such 
transition, NYSE MKT would continue to have electronic-access DMMs that 
would be the same member organizations that are currently operating as 
Floor-based NYSE MKT DMMs. The proposed amendment to Rule 98 would 
permit NYSE DMMs to continue to support their electronic NYSE MKT DMM 
functions in the same physical location where they are currently 
operating.
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    \8\ Compare NYSE MKT Rule 6--Equities with NYSE Rule 6.
    \9\ NYSE MKT DMMs operate under the NYSE MKT Rule 98--Equities.
    \10\ See SR-NYSEMKT-2017-1 (``NYSE MKT Trading Rules Filing''). 
Subject to rule approval, NYSE MKT anticipates transitioning off of 
its Floor in the second quarter of 2017.
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \11\ that an Exchange have rules that 
are designed to promote the 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. The Exchange believes that the 
proposed change would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because it would 
remove a restriction on DMMs from trading securities while on the 
Trading Floor that is unrelated to their role as a DMM. The Exchange 
also 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 would maintain restrictions on DMM trading 
while on the Trading Floor that are narrowly drawn to reflect the 
unique role of the DMM. The Exchange further 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 would 
enable NYSE DMMs that also operate NYSE MKT DMMs to continue to support 
their NYSE MKT DMM operations after NYSE MKT transitions to be a fully 
automated trading market.
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    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
designed to be pro-competitive because it would remove a restriction 
unique to DMMs, as specified in Rule 98, that limits which securities a 
DMM may trade while on the Trading Floor. No other member that trades 
on the Floor is subject to similar restrictions and the restrictions 
that the Exchange proposes to remove are unrelated to the DMM's unique 
role at the Exchange vis-[agrave]-vis their DMM securities. The 
proposed amendment would also promote competition because it would 
facilitate NYSE DMMs to be able to continue supporting their NYSE MKT 
DMM operations once NYSE MKT transitions to be a fully automated 
trading market.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2017-03 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-NYSE-2017-03. 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

[[Page 10944]]

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-NYSE-2017-03 and should be submitted on or before March 
9, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03108 Filed 2-15-17; 8:45 am]
BILLING CODE 8011-01-P