83_FR_11147
83 FR 11098 - Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing of Proposed Rule Change To Support the Re-Launch of the Exchange on the Pillar Trading Platform
83 FR 11098 - Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing of Proposed Rule Change To Support the Re-Launch of the Exchange on the Pillar Trading Platform
SECURITIES AND EXCHANGE COMMISSION
Federal Register Volume 83, Issue 49 (March 13, 2018)
Page Range
11098-11128
FR Document
2018-04962
Federal Register, Volume 83 Issue 49 (Tuesday, March 13, 2018)
[Federal Register Volume 83, Number 49 (Tuesday, March 13, 2018)]
[Notices]
[Pages 11098-11128]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2018-04962]
[[Page 11097]]
Vol. 83
Tuesday,
No. 49
March 13, 2018
Part III
Securities and Exchange Commission
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Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing of
Proposed Rule Change To Support the Re-Launch of the Exchange on the
Pillar Trading Platform; Notice
Federal Register / Vol. 83 , No. 49 / Tuesday, March 13, 2018 /
Notices
[[Page 11098]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82819; File No. SR-NYSENAT-2018-02]
Self-Regulatory Organizations; NYSE National, Inc.; Notice of
Filing of Proposed Rule Change To Support the Re-Launch of the Exchange
on the Pillar Trading Platform
March 7, 2018.
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 February 21, 2018, NYSE National, Inc. (the ``Exchange''
or ``NYSE National'') 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 NYSE National. 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 the following rules and rule changes to
support the re-launch of the Exchange on the Pillar trading platform:
(1) Amendments to Article V, Sections 5.01 and 5.8 of the Fourth
Amended and Restated Bylaws of NYSE National (``Bylaws''); (2) new
rules based on the rules of the Exchange's affiliates relating to (a)
trading securities on an unlisted trading privileges basis (Rules 5 and
8), (b) trading on the Pillar trading platform (Rules 1 and 7), (c)
disciplinary rules (Rule 10), and (d) administration of the Exchange
(Rules 3, 12, and 13); (3) rule changes that renumber current Exchange
rules relating to (a) membership (Rule 2), (b) order audit trail
requirements (Rule 6), and (c) business conduct, books and records,
supervision, extensions of credit, and trading practices (Rule 11); and
(4) deletion of Chapters I-XVI and the rules contained therein. 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
1. [sic] Background
On February 1, 2017, the Exchange ceased trading operations.\4\ The
Exchange proposes to re-launch trading operations on Pillar, which is
an integrated trading technology platform designed to use a single
specification for connecting to the equities and options markets
operated by the Exchange and its affiliates, NYSE Arca, Inc. (``NYSE
Arca''), NYSE American LLC (``NYSE American''), and New York Stock
Exchange LLC (``NYSE'').\5\ Subject to rule approvals, the Exchange
anticipates re-launching trading operations on Pillar in the second
quarter of 2018.
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\4\ See Securities Exchange Act Release No. 80018 (February 10,
2017), 82 FR 10947 (February 16, 2017) (SR-NSX-2017-04)
(``Termination Filing''). On January 31, 2017, Intercontinental
Exchange, Inc. (``ICE''), through its wholly-owned subsidiary NYSE
Group, acquired all of the outstanding capital stock of the Exchange
(the ``Acquisition''). See Securities Exchange Act Release No. 79902
(January 30, 2017), 82 FR 9258 (February 3, 2017) (SR-NSX-2016-16).
Prior to the Acquisition, the Exchange was named ``National Stock
Exchange, Inc.''
\5\ See www.nyse.com/pillar.
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In the Spring of 2016, NYSE Arca's cash equities market was the
first trading system to migrate to Pillar.\6\ NYSE American's cash
equities market transitioned to Pillar on July 24, 2017.\7\ NYSE has
filed proposed rule changes to launch trading on Pillar.\8\ In each
case, NYSE Arca, NYSE American, and NYSE have proposed trading rules
that are substantially similar and that are based on the rule numbering
framework of NYSE Arca. As described in the rule filings for NYSE
American and NYSE, those exchanges proposed specified differences to
certain trading rules as compared to NYSE Arca to differentiate their
respective trading models. For example, NYSE American has a delay
mechanism and does not offer specified order types \9\ and NYSE has
proposed a parity allocation model.\10\
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\6\ In connection with the NYSE Arca implementation of Pillar,
NYSE Arca filed four rule proposals relating to Pillar. See
Securities Exchange Act Release Nos. 74951 (May 13, 2015), 80 FR
28721 (May 19, 2015) (Notice) and 75494 (July 20, 2015), 80 FR 44170
(July 24, 2015) (SR-NYSEArca-2015-38) (Approval Order of NYSE Arca
Pillar I Filing, adopting rules for Trading Sessions, Order Ranking
and Display, and Order Execution); Securities Exchange Act Release
Nos. 75497 (July 21, 2015), 80 FR 45022 (July 28, 2015) (Notice) and
76267 (October 26, 2015), 80 FR 66951 (October 30, 2015) (SR-
NYSEArca-2015-56) (Approval Order of NYSE Arca Pillar II Filing,
adopting rules for Orders and Modifiers and the Retail Liquidity
Program); Securities Exchange Act Release Nos. 75467 (July 16,
2015), 80 FR 43515 (July 22, 2015) (Notice) and 76198 (October 20,
2015), 80 FR 65274 (October 26, 2015) (SR-NYSEArca-2015-58)
(Approval Order of NYSE Arca Pillar III Filing, adopting rules for
Trading Halts, Short Sales, Limit Up-Limit Down, and Odd Lots and
Mixed Lots); and Securities Exchange Act Release Nos. 76085 (October
6, 2015), 80 FR 61513 (October 13, 2015) (Notice) and 76869 (January
11, 2016), 81 FR 2276 (January 15, 2016) (Approval Order of NYSE
Arca Pillar IV Filing, adopting rules for Auctions). NYSE Arca
Equities, Inc., which was a wholly-owned subsidiary of NYSE Arca,
has been merged with and into NYSE Arca and as a result, former NYSE
Arca Equities rules are now the rules of NYSE Arca. NYSE Arca rules
that only apply to its cash equities market have a suffix of ``-E''
in the rule number. See Securities Exchange Act Release No. 81419
(August 17, 2017), 82 FR 40044 (August 23, 2017) (SR-NYSEArca-2017-
40) (Approval Order).
\7\ In connection with the NYSE American implementation of
Pillar, NYSE American filed several rule changes. See Securities
Exchange Act Release Nos. 79242 (November 4, 2016), 81 FR 79081
(November 10, 2016) (SR-NYSEMKT-2016-97) (Notice and Filing of
Immediate Effectiveness of Proposed Rule Change of framework rules);
81038 (June 28, 2017), 82 FR 31118 (July 5, 2017) (SR-NYSEMKT-2016-
103) (Approval Order) (``NYSE American ETP Listing Rules Filing'');
80590 (May 4, 2017), 82 FR 21843 (May 10, 2017) (SR-NYSEMKT-2017-01)
(Approval Order) (``NYSE American Trading Rules Filing''); 80577
(May 2, 2017), 82 FR 21446 (May 8, 2017) (SR-NYSEMKT-2017-04)
(Approval Order) (``NYSE American Market Maker Filing''); 80700 (May
16, 2017), 82 FR 23381 (May 22, 2017) (SR-NYSEMKT-2017-05) (Approval
Order) (``NYSE American Delay Mechanism Filing''). NYSE American was
previously known as NYSE MKT LLC. See Securities Exchange Act
Release No. 80748 (May 23, 2017), 82 FR 24764, 24765 (SR-NYSEMKT-
2017-20) (Notice of filing and immediate effectiveness of proposed
rule change to change the name of NYSE MKT to NYSE American).
\8\ See Securities Exchange Act Release Nos. Securities Exchange
Act Release Nos. [sic] 76803 (December 30, 2015), 81 FR 536 (January
6, 2016) (SR-NYSE-2015-67) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change); 80214 (March 10, 2017), 82
FR 14050 (March 16, 2017) (SR-NYSE-2016-44) (Approval Order) (``NYSE
ETP Listing Rules Filing''); 81225 (July 27, 2017), 82 FR 36033
(August 2, 2017) (SR-NYSE-2017-35) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change); and 81310 (August 3, 2017),
82 FR 37257 (August 9, 2017) (SR-NYSE-2017-36) (Notice of Filing)
(``NYSE Trading Rules Filing'').
\9\ See NYSE American Delay Mechanism Filing, supra, note 7.
\10\ See NYSE Trading Rules Filing, supra note 8.
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With Pillar, the Exchange proposes to re-launch trading in all Tape
A, Tape B,
[[Page 11099]]
and Tape C securities on an unlisted trading privileges (``UTP'') basis
on a fully automated price-time priority allocation model. As proposed,
the Exchange's trading rules would be based on the rules and trading
model of the cash equities platform of NYSE Arca, which operates as a
fully automated price-time priority allocation exchange, without any
substantive differences. Accordingly, the Exchange proposes rules
relating to orders and modifiers, ranking and display of orders,
execution and routing of orders, and all other trading functionality
that are based on the rules of NYSE Arca. In addition, in specified
circumstances, described in more detail below, the Exchange proposes
rules based on NYSE American as well, which was a more recent exchange
to transition to the Pillar trading platform. In short, the Exchange is
not proposing any new or novel rules for how trading would operate on
the Exchange.
However, unlike its affiliated exchanges, the Exchange would not be
a listing venue. Because the Exchange would trade securities on a UTP
basis only, the Exchange proposes to operate in the same manner that
NYSE Arca operates with respect to securities that trade on a UTP basis
on that exchange. For example, the Exchange would not operate any
auctions and therefore would not propose rules to provide for auction
functionality on the Exchange. However, the Exchange would make
available order types that already exist on NYSE Arca and NYSE American
for securities that trade on a UTP basis and that route directly to the
primary listing market, including orders designated to participate in
an auction on the primary listing market. In addition, because the
Exchange would not be a listing venue, the Exchange would not provide
for either ``lead'' or ``designated'' market makers, which are
available on NYSE Arca and NYSE American, respectively, for securities
listed on those exchanges only. As with NYSE Arca and NYSE American,
proposed Exchange rules would provide that ETP Holders may register as
a market maker in securities that trade on a UTP basis on the Exchange.
And as with NYSE Arca and NYSE American, Exchange rules would not
require a market maker for a security to trade on a UTP basis on the
Exchange. Similar to NYSE American, the Exchange would not operate a
retail liquidity program.
While the trading rules for the Exchange's re-launch would be based
on the rules of its affiliated exchanges, the Exchange proposes to
retain its existing rules relating to membership and ETP Holder
conduct. As described in more detail below, the Exchange proposes to
renumber such rules and make minor modifications to certain rules.
However, the Exchange is not proposing any new rules; all such rules
would be either existing Exchange rules that have been renumbered or
updated rules based on an existing rule of another exchange.
Because the Exchange is not proposing new or different rules to
qualify as a member of the Exchange, for the re-launch, the Exchange
proposes to reinstate ETP Holder status \11\ using the existing process
described in Interpretation and Policies .01 to current Rule 2.5, which
sets forth the expedited process for reinstatement as an ETP Holder and
to register associated persons when the Exchange re-launched operations
in 2015.\12\ Pursuant to that rule, approved ETP Holders that were in
good standing as of the close of business on May 30, 2014, when the
Exchange previously ceased trading operations, had their ETP Holder
status reinstated and associated persons registered pursuant to that
expedited process.
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\11\ When the Exchange ceased operations, the Exchange
terminated the ETP status of all ETP Holders as of the close of
business on February 1, 2017. See Termination Filing, supra note 4.
\12\ See Securities Exchange Act Release No. 75098 (June 3,
2015), 80 FR 32644 (June 9, 2015) (Notice of filing and immediate
effectiveness of proposed rule change to establish expedited process
to reinstate ETP Holder status).
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Because the Exchange proposes to use an established process to
reinstate ETP Holder status, the Exchange is not proposing any
substantive differences to this rule. The Exchange proposes to amend
Interpretation and Policies .01 to Rule 2.5 to replace the date of May
30, 2014, with the date of February 1, 2017, which was when the
Exchange last terminated ETP Holder status. This proposed rule change
would therefore provide for the reinstatement of ETP Holders whose
status was terminated on February 1, 2017 in the exact same manner that
the Exchange reinstated ETP Holders whose status had previously been
terminated on May 30, 2014.
In short, for the re-launch of Exchange operations, the trading
experience for reinstated ETP Holders on the Exchange would be
identical to how trading functions on NYSE Arca for securities trading
on a UTP basis. The Exchange proposes to differentiate itself from its
affiliated exchanges through a different pricing model, which the
Exchange will establish in a separate proposed rule change.\13\
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\13\ The Exchange also proposes to file separate proposed rule
changes to establish market data products that will be available for
the Exchange and related fees.
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2. Summary of Proposed Rule Changes
In preparation for the re-launch, the Exchange adopted the rule
numbering framework of the NYSE Arca rules, which are organized in 14
Rules.\14\ This framework replaces the Exchange's current rule
numbering framework.
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\14\ See Securities Exchange Act Release No. 81782 (September
29, 2017), 82 FR 81782 (October 5, 2017) (SR-NYSENat-2017-04)
(Notice of Filing and Immediate Effectiveness) (``Framework
Filing'').
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With this filing, and as described in greater detail below, the
Exchange proposes to expand on the Framework Filing by making the
following changes to its rulebook:
Adding new rules based on the rules of the Exchange's
affiliates relating to:
Trading securities on an unlisted trading privileges basis
(Rules 5 and 8)
trading on the Pillar trading platform (Rules 1 and 7)
disciplinary rules (Rule 10)
administration of the Exchange (Rules 3, 12, and 13)
Moving and renumbering current rules set forth in Chapters
II, III, IV, V, VI and XII to the new framework:
ETP Holder \15\ membership (Rule 2)
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\15\ The Exchange proposes to define the term ``ETP Holder'' in
Rule 1.1 to mean an Exchange-approved holder of an ETP. This
proposed rule is based on current Rule 1.5(E)(2).
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order audit trail requirements (Rule 6)
rules of fair practice, books and records, supervision,
extensions of credit, and trading practices (Rule 11)
Because Rules 4 and 9 would not include any rules,
designating those rules as ``Reserved''
In addition, the Exchange proposes to amend Article V, Section 5.01
and 5.8 of the Bylaws.
Because the current rulebook would be replaced with both new and
renumbered rules under the new framework, the Exchange proposes to
delete current Chapters I-XVI and the rules contained therein.
The following summarizes the proposed rule changes and Part 3,
below, provides additional detail regarding the specific proposed rule
changes.
a. Bylaws
The Exchange proposes to amend Article V, Sections 5.01 and 5.8 of
the Bylaws to conform the Exchange's name for its existing ``Appeals
Committee'' to ``Committee for Review.'' The proposed change would more
closely align the Bylaws of the Exchange with the governing documents
of its affiliates, NYSE, NYSE American, and NYSE Arca, which all have
``committees for
[[Page 11100]]
review,'' rather than appeals committees.
b. Definitions
Rule 1 would set forth definitions that would be used in Exchange
rules. As described below, except for membership and conduct rules, the
Exchange's proposed definitions are based on the rules for the NYSE
Arca or NYSE American cash equities markets, or both. Accordingly, the
definitions in proposed Rule 1.1 are based on definitions set forth in
NYSE Arca Rule 1.1 and NYSE American Rule 1.1E, as applicable. The
definitions set forth in proposed Rule 1.1 would also include current
definitions set forth in Chapter I that relate to membership.
c. Membership Rules
To facilitate the expedited process to reinstate ETP Holders for
the re-launch of trading operations, the Exchange proposes to retain
its existing rules relating to membership and the registration of
associated persons, which are currently set forth in Chapter II of the
Exchange's rulebook. Consistent with the Framework Filing, the Exchange
proposes to move the membership rules to Rule 2, but would retain the
current individual rule numbers. As described in greater detail below,
the Exchange proposes amendments to certain of those membership rules.
d. Unlisted Trading Privileges Rules
Proposed Rules 5 and 8 would provide for rules to trade all Tape A,
Tape B, and Tape C securities, including Exchange Traded Products, on a
UTP basis.\16\ Because NYSE American is the latest affiliate of the
Exchange to add rules for trading securities on a UTP basis on the
Pillar trading platform, the Exchange is proposing rules that are based
on the rules of NYSE American with only non-substantive and technical
differences, as described in greater detail below. As described in NYSE
American ETP Listing Rules Filing, the NYSE American rules are based on
NYSE Rules 5P and 8P, which in turn are modeled on NYSE Arca Rules 5-E
and 8-E.\17\ The NYSE American and NYSE rules are differentiated from
the NYSE Arca rules because they are intended for trading on a UTP
basis only. Those rules therefore include a preamble explaining that
such rules are for trading on a UTP basis only and not for listing
purposes, even though individual NYSE American and NYSE rules reference
listing requirements. The Exchange proposes to follow this established
and approved process for its proposed Rules 5 and 8 without any
differences. Accordingly, proposed Rules 5 and 8 are based on the
approved rules of NYSE American and NYSE, including proposed preambles
to such rules explaining that such rules would govern trading on a UTP
basis only and would not govern the listing of securities, even though
individual rules may include references to listing requirements. In
addition, proposed Rules 5 and 8 are based on the approved rules of
NYSE, which cross reference options-related rules of NYSE Arca.
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\16\ As described below, the term ``Exchange Traded Product''
will be defined in Rule 1.1 and would include Equity Linked Notes
(``ELNs''), Investment Company Units, Index-Linked Exchangeable
Notes, Equity Gold Shares, Equity Index-Linked Securities,
Commodity-Linked Securities, Currency-Linked Securities, Fixed-
Income Index-Linked Securities, Futures-Linked Securities,
Multifactor-Index-Linked Securities, Trust Certificates, Currency
and Index Warrants, Portfolio Depository Receipts, Trust Issued
Receipts, Commodity-Based Trust Shares, Currency Trust Shares,
Commodity Index Trust Shares, Commodity Futures Trust Shares,
Partnership Units, Paired Trust Shares, Trust Units, Managed Fund
Shares, and Managed Trust Securities.
\17\ See NYSE American ETP Listing Rules Filing, supra note 7
and NYSE ETP Listing Rules Filing, supra note 8.
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e. Consolidated Audit Trail and Order Audit Trail Rules
Rule 6 would set forth rules relating to (i) compliance with the
National Market System Plan Governing the Consolidated Audit Trail (the
``CAT NMS Plan''),\18\ which are currently set forth in Chapter XIV
(the ``Compliance Rules''), (ii) new Rule 6.6900 to establish the
procedures for resolving potential disputes related to CAT Fees charged
to Industry Members (``Fee Dispute Rule''); and (iii) new rules based
on NYSE Arca Order Audit Trail System (``OATS'') rules relating to
order audit trail system requirements. None of these are novel rules
and are either renumbered Exchange rules (the Compliance Rules) or new
rules based on the approved rules of other exchanges (the Fee Dispute
Rule and OATS rules).
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\18\ The CAT NMS Plan is designed to create, implement and
maintain a consolidated audit trail (``CAT'') that would capture
customer and order event information for orders in NMS Securities
and OTC Equity Securities, across all markets, from the time of
order inception through routing, cancellation, modification, or
execution in a single consolidated data source. Each Participant of
the Plan is required to enforce compliance by its Industry Members,
as applicable, with the provisions of the Plan, by adopting a
Compliance Rule applicable to their Industry Members.
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f. Trading Rules
Rule 7 would establish rules for trading on the Exchange. As noted
above, the Exchange will re-launch on the same trading platform as NYSE
Arca's cash equities trading platform, and proposes trading rules based
on the rules of NYSE Arca. Rule 7 would include rules based on NYSE
Arca Rule 7-E, including general provisions relating to trading, market
makers, trading on the Exchange, operation of the routing broker, and
the Plan to Implement a Tick Size Pilot Program. Rule 7 would therefore
specify all aspects of trading on the Exchange, including the orders
and modifiers that would be available and how orders would be ranked,
displayed, and executed.
Because the Exchange will not be a listing venue, the Exchange does
not propose to have either lead or designated market makers assigned to
securities trading on the Exchange. The Exchange therefore does not
propose a rule based on NYSE Arca Rule 7.24-E (Designated Market Maker
Performance Standards). In addition, because the Exchange would not
operate auctions, the Exchange does not propose a rule based on NYSE
Arca Rule 7.35-E (Auctions).
g. Disciplinary Rules
Rule 10 would set forth the Exchange's rules relating to
investigation, discipline, sanction, and other procedural rules that
are modeled on the rules of the Exchange's affiliate NYSE American,
which in turn, are modeled on the rules of the Financial Industry
Regulatory Authority, Inc. (``FINRA'').
h. Rules of Fair Practice, Books and Records, Supervision, Extensions
of Credit, and Trading Practice Rules
The Exchange proposes to retain its existing rules relating to
rules of fair practice, books and records, supervision, extensions of
credit, and trading practices, which are set forth in Chapters III, IV,
V, VI, and XII, and move and renumber them to Rule 11. The Exchange
believes that retaining existing rules relating to rules of fair
practice, books and records, supervision, extensions of credit, and
trading practices would facilitate the expedited process for ETP
Holders and their associated persons to be reinstated as members
because such ETP Holders would not be required to change their internal
procedures to be reinstated as ETP Holders of the Exchange. However,
because the Exchange has established a new numbering framework, the
Exchange proposes to renumber these existing rules under Rule 11, but
with sub-numbering that is the same as the existing Exchange rule
numbers for such rules. Accordingly, these rules would all begin as
``Rule 11'', but then would have
[[Page 11101]]
a sub-number assigned that is identical to the existing rule number.
For example, Rule 3.1 would be renumbered as Rule 11.3.1.
The Exchange proposes to rename Rule 11 as ``Rules of Fair
Practice; Books and Records; Supervision; Extensions of Credit; Trading
Practice Rules.'' Because Rules 4 and 9 will not include any rules, the
Exchange proposes to delete the current titles associated with those
rules and designate them as ``Reserved.''
i. Organizational, Administration, Business Conduct, Books and Records
and Supervisory Rules
In addition to the above categories of rules, the Exchange proposes
rules based on NYSE Arca Rules 3 (Organization and Administration), 12
(Arbitration), and 13 (Liability of Directors and the Exchange).
3. Proposed Rule Changes
Proposed Changes to the Bylaws
The Exchange has an Appeals Committee, which presides over appeals
related to disciplinary and adverse action determinations in accordance
with the Exchange rules.\19\ The Exchange proposes to change the name
of the committee, from ``Appeals Committee'' to ``Committee for
Review.'' In order to make the change, the Exchange proposes to replace
``Appeals Committee'' with ``Committee for Review'' in Article V,
Sections 5.01 and 5.8 of the Bylaws, as well as in the table of
contents of the Bylaws. The change would be non-substantive, as the
makeup and function of the committee would not change.
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\19\ See Securities Exchange Release No. 79684 (December 23,
2016), 81 FR 96552 (December 30, 2016) (SR-NSX-2016-16, at 96557
(proposal). See also Securities Exchange Release No. 79902 (January
30, 2017), 82 FR 9258 (February 3, 2017) (SR-NSX-2016-16)
(approval).
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The proposed change would conform the Exchange's name for the
Appeals Committee to that of its affiliates, NYSE, NYSE American, and
NYSE Arca, which all have committees for review, rather than appeals
committees.\20\ The change would thereby more closely align the Bylaws
of the Exchange with the governing documents of its national securities
exchange affiliates.
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\20\ See the Eleventh Amended and Restated Operating Agreement
of New York Stock Exchange LLC, Article II, Section 2.03(h)(iii);
Eleventh Amended and Restated Operating Agreement of NYSE American
LLC, Article II, Section 2.03(h)(iii); Amended and Restated NYSE
Arca, Inc. Bylaws, Article IV, Section 4.01(a).
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In addition, ``Fourth'' would be replaced with ``Fifth'' on the
cover page heading, the table of contents, and first page of the
Bylaws.
No other changes are proposed to the Bylaws.
Rule 0--Regulation of the Exchange and ETP Holders
As described in the Framework Filing, Rule 0 establishes the
regulation of the Exchange and ETP Holders. As proposed, Rule 0 would
provide that:
The Exchange and FINRA are parties to a Regulatory Services
Agreement (``RSA'') pursuant to which FINRA has agreed to perform
certain regulatory functions of the Exchange on behalf of the Exchange.
Exchange Rules that refer to Exchange staff and Exchange departments
should be understood as also referring to FINRA staff and FINRA
departments acting on behalf of the Exchange pursuant to the RSA, as
applicable. Notwithstanding the fact that the Exchange has entered into
an RSA with FINRA to perform certain of the Exchange's functions, the
Exchange shall retain ultimate legal responsibility for, and control
of, such functions.
This proposed rule is based on NYSE Arca Rule 0 without any
substantive differences. This Exchange does not currently have a rule
that addresses the same topics as proposed Rule 0 and therefore this
would be a new Exchange rule.
Rule 1--Definitions
As described in the Framework Filing, Rule 1 would establish
definitions applicable to trading on the Exchange's Pillar trading
platform. Proposed Rule 1.1 includes definitions that are based on NYSE
Arca Rule 1.1 definitions, NYSE American Rule 1.1E definitions, and
definitions currently set forth in Rule 1.5 in Chapter I of the
Exchange's rulebook. Because definitions would be specified in Rule
1.1, the Exchange proposes to delete Chapter I of the current rulebook.
Proposed Rule 1.1 would provide that as used in Exchange rules,
unless the context requires otherwise, the terms in proposed Rule 1.1
would have the meanings indicated. This rule is based on NYSE American
Rule 1.1E. Throughout proposed Rule 1.1, where applicable, the Exchange
proposes non-substantive differences as compared to the NYSE Arca rules
to use the term ``Exchange'' instead of the term ``NYSE Arca
Marketplace.'' In addition, the Exchange proposes sub-paragraph
numbering for Rule 1.1 that aligns to the alphabetical ordering of the
proposed definitions. The Exchange proposes the following definitions:
Proposed Rule 1.1(a) would define the terms ``Authorized
Trader'' or ``AT'' to mean a person who may submit orders to the
Exchange's Trading Facilities on behalf of his or her ETP Holder. This
proposed rule is based on NYSE American Rule 1.1E(g) without any
differences.
Proposed Rule 1.1(b) would define the term ``Away Market''
to mean any exchange, alternative trading system (``ATS'') or other
broker-dealer (1) with which the Exchange maintains an electronic
linkage and (2) that provides instantaneous responses to orders routed
from the Exchange. The Exchange will designate from time to time those
ATSs or other broker-dealers that qualify as Away Markets. This
proposed rule is based on NYSE Arca Rule 1.1(f) and NYSE American Rule
1.1E(ff) without any substantive differences.
Proposed Rule 1.1(c) would define the term ``BBO'' to mean
the best bid or offer that is a protected quotation on the Exchange and
that the term ``BB'' means the best bid on the Exchange and the term
``BO'' means the best offer on the Exchange. This proposed rule is
based on NYSE Arca Rule 1.1(g) and NYSE American Rule 1.1E(h).
Proposed Rule 1.1(d) would define the term ``Board and
Board of Directors'' to mean the Board of Directors of NYSE National,
Inc. This proposed rule is based on NYSE Arca Rule 1.1(h).
Proposed Rule 1.1(e) would define the term ``Core Trading
Hours'' to mean the hours of 9:30 a.m. Eastern Time through 4:00 p.m.
Eastern Time or such other hours as may be determined by the Exchange
from time to time. This proposed rule is based on NYSE Arca Rule 1.1(j)
and NYSE American Rule 1.1E(j).
Proposed Rule 1.1(f) would define the terms ``effective
national market system plan'' and ``regular trading hours'' to have the
meanings set forth in Rule 600(b) of Regulation NMS under the Exchange
Act. This proposed rule is based on NYSE Arca Rule 1.1(l) and NYSE
American Rule 1.1E(hhh).
Proposed Rule 1.1(g) would define the term ``Eligible
Security'' to mean any equity security (i) traded on the Exchange
pursuant to a grant of unlisted trading privileges under Section 12(f)
of the Exchange Act and (ii) specified by the Exchange to be traded on
the Exchange or other facility, as the case may be. This proposed rule
is based on NYSE American Rule 1.1E(l) with a non-substantive
difference not to reference securities listed on the Exchange.
Proposed Rule 1.1(h) would define the term ``ETP'' to
refer to an Equity Trading Permit issued by the Exchange for effecting
approved securities transactions on the Exchange. This proposed rule is
based on current NYSE
[[Page 11102]]
National Rule 1.5(E)(1), which has been renumbered as Rule 1.1(h).
Proposed Rule 1.1(i) would define the term ``ETP Holder''
to mean the Exchange-approved holder of an ETP. This proposed rule is
based on current NYSE National Rule 1.5(E)(2), which has been
renumbered as Rule 1.1(i).
Proposed Rule 1.1(j) would define the term ``Exchange'' to
mean NYSE National, Inc. This proposed rule is based on NYSE American
Rule 1.1E(k).
Proposed Rule 1.1(k) would define the term ``Exchange
Act'' to mean the Securities Exchange Act of 1934, as amended. This
proposed rule is based on NYSE Arca Rule 1.1(q).
Proposed Rule 1.1(l) would define the term ``Exchange
Book'' to mean the Exchange's electronic file of orders. This proposed
rule is based on NYSE American Rule 1.1E(a).
Proposed Rule 1.1(m) would define the term ``Exchange
Traded Product'' to mean a security that meets the definition of
``derivative securities product'' in Rule 19b-4(e) under the Exchange
Act and would define the term ``UTP Exchange Traded Product'' to mean
an Exchange Traded Product that trades on the Exchange pursuant to
unlisted trading privileges. This proposed rule is based on NYSE
American Rule 1.1E(bbb).
Proposed Rule 1.1(n) would define the term ``FINRA'' to
mean the Financial Industry Regulatory Authority, Inc. This proposed
rule is based on NYSE Arca Rule 1.1(r).
Proposed Rule 1.1(o) would define the terms ``General
Authorized Trader'' or ``GAT'' to mean an authorized trader who
performs only non-market making activities on behalf of an ETP Holder.
This proposed rule is based on NYSE Arca Rule 1.1(u) and NYSE American
Rule 1.1E(p).
Proposed Rule 1.1(p) would define the term ``Good
Standing'' to mean an ETP Holder who is not in violation of any of its
agreements with the Exchange or any of the provisions of the Rules or
Bylaws of the Exchange, and who has maintained all of the conditions
for approval of the ETP. This proposed rule is based on NYSE Arca Rule
1.1(v) with one substantive difference to exclude references to OTP,
OTP Holder or OTP Firm from the proposed rule as NYSE National would
not trade any options and therefore would not have OTPs, OTP Holders or
OTP Firms on the Exchange.
Proposed Rule 1.1(q) would define the term ``Marketable''
to mean, for a Limit Order, an order that can be immediately executed
or routed and that Market Orders are always considered marketable. This
proposed rule is based on NYSE Arca Rule 1.1(y) and NYSE American Rule
1.1E(u).
Proposed Rule 1.1(r) would define the term ``Market
Maker'' to mean an ETP Holder that acts as a Market Maker pursuant to
Rule 7. This proposed rule is based on NYSE Arca Rule 1.1(z) and NYSE
American Rule 1.1E(v).
Proposed Rule 1.1(s) would define the terms ``Market Maker
Authorized Trader'' or ``MMAT'' to mean an Authorized Trader who
performs market making activities pursuant to Rule 7 on behalf of a
Market Maker. This proposed rule is based on NYSE Arca Rule 1.1(aa) and
NYSE American Rule 1.1E(w).
Proposed Rule 1.1(t) would define the term ``Market
Participant'' to include electronic communications networks (``ECN''),
dealer-specialists registered with a national securities exchange, and
market makers registered with a national securities association. This
proposed rule is based on NYSE Arca Rule 1.1(bb).
Proposed Rule 1.1(u) would define the term ``Nasdaq'' to
mean The Nasdaq Stock Market LLC. This proposed rule is based on NYSE
Arca Rule 1.1(cc).
Proposed Rule 1.1(v) would define the terms ``NBBO, Best
Protected Bid, Best Protected Offer, and Protected Best Bid and Offer
(PBBO)''. The term ``NBBO'' would mean the national best bid or offer.
The terms ``NBB'' would mean the national best bid and ``NBO'' would
mean the national best offer. The terms ``Best Protected Bid'' or
``PBB'' would mean the highest Protected Bid, and ``Best Protected
Offer'' or ``PBO'' would mean the lowest Protected Offer, and the term
``Protected Best Bid and Offer'' (``PBBO'') would mean the Best
Protected Bid and the Best Protected Offer. This proposed rule is based
on NYSE Arca Rule 1.1(dd) and NYSE American Rule 1.1E(dd).
Proposed Rule 1.1(w) would define the term ``NMS Stock''
to mean any security, other than an option, for which transaction
reports are collected, processed, and made available pursuant to an
effective transaction reporting plan. This proposed rule is based on
NYSE Arca Rule 1.1(ee) and NYSE American Rule 1.1E(ddd).
Proposed Rule 1.1(x) would define the term ``NYSE
National'' to have the same meaning as the term ``Exchange'' as that
term is defined in proposed Rule 1.1. This proposed rule is based on
NYSE Arca Rule 1.1(i) [sic], but with reference to ``NYSE National''
instead of ``NYSE Arca.''
Proposed Rule 1.1(y) would define the term ``NYSE National
Marketplace'' to mean the electronic securities communications and
trading facility of the Exchange through which orders are processed or
are consolidated for execution and/or display. This proposed rule is
based on NYSE American Rule 1.1E(e).
Proposed Rule 1.1(z) would define the term ``Person'' to
mean a natural person, corporation, partnership, limited liability
company, association, joint stock company, trustee of a trust fund, or
any organized group of persons whether incorporated or not. This
proposed rule is based on current NYSE National Rule 1.5(P)(1), which
has been renumbered as Rule 1.1(z) without any changes.
Proposed Rule 1.1(aa) would define the terms ``Person
Associated with an ETP Holder,'' [sic] Associated Person of an ETP
Holder'' or ``Associated Person'' to mean any partner, officer,
director, or branch manager of an ETP Holder (or any Person occupying a
similar status or performing similar functions), any Person directly or
indirectly controlling, controlled by, or under common control with an
ETP Holder, or any employee of such ETP Holder, except that any Person
Associated with an ETP Holder whose functions are solely clerical or
ministerial shall not be included in the meaning of such terms. This
proposed rule is based on current NYSE National Rule 1.5(P)(2), which
has been renumbered as Rule 1.1(aa) with a non-substantive difference
to add the short-hand definition of ``Associated Person'' to mean the
same thing as ``Person Associated with an ETP Holder.''
Proposed Rule 1.1(bb) would define the term ``Principal''
to mean any Person Associated with an ETP Holder actively engaged in
the management of the ETP Holder's securities business, including
supervision, solicitation, conduct of the ETP Holder's business, or the
training of Authorized Traders and Persons Associated with an ETP
Holder for any of these functions and that such Persons include Sole
Proprietors, Officers, Partners, and Directors of Corporations. This
proposed rule is based on current NYSE National Rule 1.5(P)(3), which
has been renumbered as Rule 1.1(bb) with a non-substantive difference
to change ``shall include'' to ``include.''
Proposed Rule 1.1(cc) would define the term ``Principal--
Financial and Operations'' to mean a Person Associated with an ETP
Holder whose duties include: Final approval and responsibility for the
accuracy of financial reports submitted to any duly established
securities industry regulatory body; final preparation of such reports;
supervision of individuals who assist in the preparation of such
reports; supervision of and responsibility for individuals who are
[[Page 11103]]
involved in the actual maintenance of the ETP Holder's books and
records from which such reports are derived; supervision and/or
performance of the ETP Holder's responsibilities under all financial
responsibility rules promulgated pursuant to the provisions of the Act;
overall supervision of and responsibility for the individuals who are
involved in the administration and maintenance of the ETP Holder's back
office operations; or any other matter involving the financial and
operational management of the ETP Holder. This proposed rule is based
on current NYSE National Rule 1.5(P)(4), which has been renumbered as
Rule 1.1(cc) without any changes.
Proposed Rule 1.1(dd) would define the term ``Protected
Bid'' or ``Protected Offer'' to mean a quotation in an NMS stock that
is (i) displayed by an Automated Trading Center; (ii) disseminated
pursuant to an effective national market system plan; and (iii) an
Automated Quotation that is the best bid or best offer of a national
securities exchange or the best bid or best offer of a national
securities association. The term ``Protected Quotation'' would mean a
quotation that is a Protected Bid or Protected Offer. For purposes of
the foregoing definitions, the terms ``Automated Trading Center,''
``Automated Quotation,'' ``Manual Quotation,'' ``Best Bid,'' and ``Best
Offer,'' would have the meanings ascribed to them in Rule 600(b) of
Regulation NMS under the Securities Exchange Act. This proposed rule is
based on NYSE Arca Rule 1.1(ss) and NYSE American Rule 1.1E(eee)
without any substantive differences.
Proposed Rule 1.1(ee) would define the term ``Security''
and ``Securities'' to mean any security as defined in Rule 3(a)(10)
under the Exchange Act, provided, that for purposes of Rule 7, such
term would mean any NMS stock. This proposed rule is based on NYSE Arca
Rule 1.1(vv) and NYSE American Rule 1.1E(rr).
Proposed Rule 1.1(ff) would define the term ``Securities
Trader'' to mean any Person engaged in the purchase or sale of
securities or other similar instruments for the account of an ETP
Holder with which such Person is associated, as an employee or
otherwise, and who does not transact any business with the public. This
proposed rule is based on current NYSE National Rule 1.5(S)(1), which
has been renumbered as Rule 1.1(ff) without any changes.
Proposed Rule 1.1(gg) would define the term ``Securities
Trader Principal'' to mean a Person who has become qualified and
registered as a Securities Trader and passes the General Securities
Principal qualification examination. Each Principal with responsibility
over securities trading activities on the Exchange shall become
qualified and registered as a Securities Trader Principal. This
proposed rule is based on current NYSE National Rule 1.5(S)(2), which
has been renumbered as Rule 1.1(gg) without any changes.
Proposed Rule 1.1(hh) would define the term ``Self-
Regulatory Organization'' and ``SRO'' to have the same meaning as set
forth in the provisions of the Exchange Act relating to national
securities exchanges. This proposed rule is based on NYSE Arca Rule
1.1(ww) and NYSE American Rule 1.1E(ss) without any substantive
differences.
Proposed Rule 1.1(ii) would define the term ``Trade-
Through'' to mean the purchase or sale of an NMS stock during regular
trading hours, either as principal or agent, at a price that is lower
than a Protected Bid or higher than a Protected Offer. This proposed
rule is based on NYSE Arca Rule 1.1(bbb) and NYSE American Rule
1.1E(fff) without any substantive differences.
Proposed Rule 1.1(jj) would define the term ``Trading
Center'' to mean, for purposes of Rule 7, a national securities
exchange or a national securities association that operates an SRO
trading facility, an alternative trading system, an exchange market
maker, an OTC market maker or any other broker or dealer that executes
orders internally by trading as principal or crossing orders as agent.
For purposes of this definition, the terms ``SRO trading facility,''
``alternative trading system,'' ``exchange market maker'' and ``OTC
market maker'' would have the meanings ascribed to them in Rule 600(b)
of Regulation NMS under the Exchange Act. This proposed rule is based
on NYSE Arca Rule 1.1(ccc) without any substantive differences.
Proposed Rule 1.1(kk) would define the term ``Trading
Facilities'' to mean any and all electronic or automatic trading
systems provided by the Exchange to ETP Holders. This proposed rule is
based on NYSE American Rule 1.1E(xx) without any differences.
Proposed Rule 1.1(ll) would define the term ``UTP
Security'' to mean a security that is listed on a national securities
exchange other than the Exchange and that trades on the Exchange
pursuant to unlisted trading privileges. This proposed rule is based on
NYSE Arca Rule 1.1(iii) and NYSE American Rule 1.1E(ii) without any
substantive differences.
Proposed Rule 1.1(mm) would define the term ``UTP Listing
Market'' to mean the primary listing market for a UTP Security. This
proposed rule is based on NYSE Arca Rule 1.1(ggg) and NYSE American
Rule 1.1E(jj) without any substantive differences.
Proposed Rule 1.1(nn) would define the term ``UTP
Regulatory Halt'' to mean a trade suspension, halt, or pause called by
the UTP Listing Market in a UTP Security that requires all market
centers to halt trading in that security. This proposed rule is based
on NYSE Arca Rule 1.1(hhh) and NYSE American Rule 1.1E(kk) without any
substantive differences.
Rule 2--ETP Holders of the Exchange
The Exchange proposes to retain its existing rules relating to
membership, which are currently set forth in Chapter II. Consistent
with the Framework Filing, the Exchange proposes to move those rules,
as amended, to new Rule 2. For consistency and clarity, the Exchange
proposes to retain the same individual rule numbers. When moving the
rules, the Exchange proposes non-substantive differences to (i) use a
different sub-paragraph numbering format; \21\ (ii) use the term
``Commentary'' instead of ``Interpretation and Policies;'' and (iii)
update internal rule cross references to replace references to the term
``Chapter'' with the term ``Rule.'' \22\
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\21\ Current Exchange rules use an ``(a)(i)(A)(1)'' sub-
paragraph numbering convention and the Exchange proposes to use an
``(a)(1)(A)(i)'' sub-paragraph numbering convention.
\22\ See proposed Rules 2.5(c) (replacing ``Chapter'' with
``Rule'') and 2.5(d) and (e)(2) (replacing ``Chapter X'' with ``Rule
10'').
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Subject to these non-substantive differences, the Exchange proposes
to move Rules 2.1 (Rights, Privileges and Duties of ETP Holders), 2.2
(Obligations of ETP Holders and the Exchange), 2.3 (ETP Holder
Eligibility), 2.4 (Restrictions), 2.5 (Application Procedures for an
ETP Holder), 2.6 (Revocation of an ETP or an Association with an ETP
Holder), 2.7 (Voluntary Termination of Rights as an ETP Holder), 2.8
(Transfer or Sale of an ETP), and 2.9 (Dues, Assessments and Other
Charges) to Rule 2 without any additional differences.
In addition to the non-substantive differences described above, the
Exchange proposes to amend Commentary .01 to Rule 2.5 to facilitate the
efficient reinstatement of ETP Holders by replacing the date ``May 30,
2014'' with the date ``February 1, 2017,'' which was when the Exchange
ceased operations and terminated ETP Holder status. This amendment will
allow the use of the existing expedited process--without any
substantive changes--to facilitate the reinstatement, subject to
[[Page 11104]]
certain conditions, of former ETP Holders of the Exchange and to
register Associated Persons. The Exchange proposes non-substantive
differences to update the rule cross references in Commentary .01 from
Rule 2.4 to Rule 2.2.\23\
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\23\ See Securities Exchange Act Release No. 78676 (August 25,
2016), 81 FR 60083 (August 31, 2016) (SR-NSX-2016-07) (Notice of
filing of amendments to Chapter II, including moving rule text
relating to requirements for Associated Persons from Rule 2.4 to
Rule 2.2).
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The Exchange proposes to delete the following rules currently set
forth in Chapter II and not move them to Rule 2:
Rule 2.10 (No Affiliation between Exchange and any ETP
Holder). Proposed Rule 3.9, described in greater detail below, would
establish the permitted relationships between ETP Holders and Exchange
affiliates. Accordingly, current Rule 2.10 is not necessary. The
Exchange proposes to designate Rule 2.10 as ``Reserved.''
Rule 2.11 (NSX Securities LLC). The Exchange will no
longer use NSX Securities LLC as a routing broker and is now affiliated
with Archipelago Securities LLC. Proposed Rule 7.45, described in
greater detail below and which is based on NYSE Arca Rule 7.45-E, would
establish rules for both the inbound and outbound routing of orders.
The Exchange proposes to designate Rule 2.11 as ``Reserved.''
Rule 2.12 (Back-Up Order Routing Services). By its terms,
current Rule 2.12 expired on September 30, 2008. Moreover, proposed
Rule 7.45 would address all routing services on behalf of the Exchange.
The Exchange proposes to designate Rule 2.12 as ``Reserved.''
The Exchange proposes that Rule 2.13 (Exchange Backup Systems and
Mandatory Testing) would address mandatory participation in the testing
of backup systems. To maintain consistency across all exchanges
operated by NYSE Group, the Exchange proposes that Rule 2.13 would be
based on NYSE Arca Rule 2.27 instead of current Rule 2.13 (Mandatory
Participation in Testing of Backup Systems), with the following minor
substantive differences to reflect the differences between the Exchange
and NYSE Arca. First, because the Exchange does not have any OTP
Holders, proposed Rule 2.13 would not reference OTP Holders. Second,
because the Exchange would not have lead market makers, proposed Rule
2.13 would not include text based on Rule 2.27(c). The Exchange would
delete current Rule 2.13 in its entirety.
The Exchange also proposes new Rule 2.18 (Activity Assessment Fees)
to be included in Rule 2, which is based on NYSE Arca Rule 2.18 and
NYSE American Rule 2.17E. Proposed Rule 2.18 would provide authority
for the Exchange to impose fees, assessments, and other charges, for
example, in connection with securities transaction fees required under
Section 31 of the Act.\24\ The Exchange proposes to delete current Rule
16.1, which similarly addresses the Exchange's authority to prescribe
dues, fees, assessments and other charges.
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\24\ The Exchange does not propose rule text based on Commentary
.01 to NYSE Arca 2.18, which has expired on its own terms.
---------------------------------------------------------------------------
To maintain rule numbering consistency, the Exchange proposes to
add Rules 2.14 through and including Rule 2.17 and designate each rule
``Reserved.''
Because Rule 2 would set forth rules on membership, the Exchange
proposes to delete the rules in Chapter II in their entirety. In
addition, because Rule 2 would include rules authorizing the Exchange
to prescribe dues, fees, assessments, and other charges, the Exchange
proposes to delete the rules in Chapter XVI in their entirety.
Rule 3--Organization and Administration
The Exchange proposes new Rule 3 titled ``Organization and
Administration,'' which would include specified rules set forth in NYSE
Arca Rule 3 and NYSE Arca Rule 13.1.
To maintain the same rule numbers as NYSE Arca, proposed Rules 3.1
through 3.7 would be designated as ``Reserved''.\25\
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\25\ NYSE Arca Rules 3.1 (Overview), 3.2 (Exchange Committees),
3.3 (Board Committees) relate to board committees, which are
described in the Exchange's Fourth Amended and Restated By-Laws,
which is available here: https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_National_Inc_Fourth_Amended_and_Restated_Bylaws.pdf. Proposed
Rules 3.4 and 3.5 would be designated as ``Reserved'' like the
analogous NYSE Arca rules. NYSE Arca Rule 3.6 authorizes the
exchange to enter into surveillance agreements with domestic and
foreign SROs, although it does not cover domestic agencies and
foreign regulators. As discussed below, proposed Rule 8210(b) would
authorize Exchange staff to enter into regulatory cooperation
agreements with a domestic federal agency or subdivision thereof, a
foreign regulator, or a domestic or foreign SRO. The authority to
adopt and prescribe fines in NYSE Arca Rule 3.7 (Dues, Fees and
Charges) would be encompassed in proposed Rule 2.9 (Dues,
Assessments and Other Charges).
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Proposed Rule 3.8 (Liability for Payment) provides that an ETP
Holder failing to pay any assessments, dues or other charges to the
Exchange for thirty days after the same shall become payable, may be
suspended by the Exchange in accordance with Rule 10.9555, except that
failure to pay any fine levied in connection with a disciplinary action
would be governed by Rule 10.8320. The proposed Rule is based on NYSE
Arca Rule 3.8 (Liability for Payment) with non-substantive differences
to reference the applicable disciplinary rules on the Exchange,
described in greater detail below.
Proposed Rule 3.9 (Certain Relationships) would preclude an ETP
Holder from being affiliated with NYSE Group, Inc., unless the
Commission otherwise approves. The proposed Rule further provides that
any failure by an ETP Holder to comply with Rule 3.9 would subject it
to the disciplinary actions prescribed by Rule 10.9555, which provides
for non-summary suspensions and other actions. The proposed Rule is
based on NYSE Arca Rule 3.10 (Certain Relationships), with non-
substantive differences to reference the applicable disciplinary rule
on the Exchange, described in greater detail below. As discussed above,
proposed Rule 3.9 obviates the need for current Rule 2.10 to be
maintained.
Proposed Rule 3.10 (Notice of Expulsion or Suspension) would
require an ETP Holder to provide prompt written notification to the
Exchange whenever such ETP Holder is expelled or suspended from any
SRO, encounters financial difficulty or operating inadequacies, or
[sic] fails to perform contracts or becomes insolvent. The proposed
Rule would further require an ETP Holder to give prompt written
notification to the Exchange with respect to the expulsion or
suspension of any ETP Holder or any other Associated Person of such ETP
Holder by any SRO. The proposed Rule is based on NYSE Arca Rule 13.1
without any differences.\26\
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\26\ As discussed below, proposed Rule 10.9555 would govern
suspensions, cancellations, bars, limitations and prohibitions on
access to the Exchange's services for failure to meet the
eligibility or qualification standards or prerequisites for access
to services offered by the Exchange.
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Proposed Rule 3.11 (Fingerprint-Based Background Checks of Exchange
Employees and Others) would establish the Exchange's requirements for
fingerprint-based background checks of Exchange employees and others.
The proposed rule is based on NYSE Arca Rule 3.11 with non-substantive
differences to use the term ``will'' instead of ``shall'' and number
the Commentary as ``.01'' instead of ``.10.''
Rule 5--Securities Traded and Rule 8--Trading of Certain Exchange
Traded Products
Rules 5 and 8 would set forth the Exchange's rules to: (1) Allow
the Exchange to trade, pursuant to UTP, any NMS Stock listed on another
national
[[Page 11105]]
securities exchange, and (2) establish rules for the trading pursuant
to UTP of certain Exchange Traded Products. Since NYSE American was the
most recent exchange in the NYSE Group to add rules for the trading
pursuant to UTP of Exchange Traded Products, the Exchange proposes
rules that are based on current NYSE American Rules 5E and 8E.\27\
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\27\ See NYSE American ETP Listing Rules Filing, supra note 7.
The proposed rules are also based on NYSE Rules 5P and 8P. See NYSE
ETP Listing Rules Filing, supra note 8. Both the NYSE American and
NYSE rules are modeled on NYSE Arca Rules 5-E and 8-E.
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As noted above, because the Exchange will not be a listing venue,
the Exchange proposes to include introductory language to both Rules 5
and 8 that would provide that these rules would apply only to the
trading pursuant to UTP of Exchange Traded Products, and would not
apply to the listing of Exchange Traded Products on the Exchange. The
Exchange is proposing this language to clarify that the rules
incorporated in Rules 5 and 8 should not be interpreted to be either
initial or continued listing requirements of the Exchange, but rather,
requirements that pertain solely to the trading of Exchange Traded
Products pursuant to UTP on the Pillar platform. Accordingly,
references to securities listed on the Exchange in proposed Rule 5 and
8 are not designed to be listing standards. Rather, similar to NYSE
American Rules 5 and 8 and NYSE Rules 5P and 8P, proposed Rules 5 and 8
are intended only to address trading of securities on a UTP basis. The
Exchange therefore proposes rules that are virtually identical to
established and approved rules of NYSE American and NYSE that are for
the same purpose.
To further clarify this point, proposed Rule 5.1(a)(1) would
provide that the Exchange would not list any Exchange Traded Products
unless it filed a proposed rule change under Section 19(b)(2) \28\
[sic] under the Act. Therefore, the provisions of proposed Rules 5 and
8 described below, which permit the listing of Exchange Traded
Products, would not be effective until the Exchange files a proposed
rule change to amend its rules to comply with Rules 10A-3 and 10C-1
under the Act and to incorporate qualitative listing criteria, and such
proposed rule change is approved by the Commission. This change would
require the Exchange to add rules relating to the independence of
compensation committees and their advisors [sic].\29\
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\28\ 15 U.S.C. 78s(b)(2).
\29\ On June 20, 2012, the Commission adopted Rule 10C-1 to
implement Section 10C of the Act, as added by Section 952 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Rule 10C-1 under the Act directs each national securities exchange
to prohibit the listing of any equity security of an issuer, with
certain exceptions, that does not comply with the rule's
requirements regarding compensation committees of listed issuers and
related requirements regarding compensation advisers. See, CFR
240.10C-1; Securities Act Release No. 9199, Securities Exchange Act
Release No. 64149 (March 30, 2011), 76 FR 18966 (April 6, 2011) and
Securities Exchange Act Release No. 67220 (June 20, 2012), 77 FR
38422 (June 27, 2012).
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In addition, the Exchange proposes the following non-substantive
differences in its proposed rules as compared to the NYSE American
Rules 5E and 8E that would be applied throughout Rules 5 and 8
(collectively, the ``General Definitional Term Changes''):
Because the Exchange uses the term ``Commentary'' to refer
to commentaries to its Rules, the Exchange proposes to substitute this
term where ``Supplementary Material'' is used in the rules of NYSE
American.
Because the Exchange uses the defined term ``Exchange
Act'' to refer to the Securities Exchange Act of 1934, as amended, the
Exchange proposes to substitute this defined term where ``Securities
Exchange Act of 1934,'' ``Securities Act of 1934,'' ``Securities
Exchange Act,'' or ``1934 Act'' is used in the rules of NYSE American.
Because the Exchange does not need to distinguish these
proposed rules from other rules with the same numbering on the
Exchange, the Exchange will not denote these proposed rules with the
letter ``E'' at the end of each rule.
Because the Exchange's rules regarding the production of
books and records would be described in proposed Rule 11.4.1 \30\ the
Exchange proposes to refer to Rule 11.4.1 wherever NYSE American Rule
440-Equities is referenced in the rules of NYSE American.
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\30\ In addition to the existing obligations under the
Exchange's rules regarding the production of books and records,
proposed Rule 11.4.1 provides restrictions on ETP Holder activities
pertaining to books and records.
---------------------------------------------------------------------------
Because the Exchange proposes to define the term
``Exchange Traded Product'' in Rule 1.1, described above, to use this
term instead of ``Derivative Securities Product.''
Because Rules 5 and 8 would address all rules relating to trading
securities on a UTP basis, the Exchange proposes to delete the rules in
Chapter XV in their entirety.
Rule 5--Securities Traded
The Exchange proposes that Rule 5 would include rules based on NYSE
American Rule 5E. Rule 5 would establish the Exchange's authority to
extend UTP to all Tape A, B, and C securities. These proposed rules
would also permit the Exchange to trade pursuant to UTP the following:
ELNs, Investment Company Units, Index-Linked Exchangeable Notes, Equity
Gold Shares, Equity Index Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Fixed Income Index-Linked
Securities, Futures-Linked Securities, Multifactor Index-Linked
Securities, and Trust Certificates.
Proposed Rule 5.1(a)
Proposed Rule 5.1(a)(1) would provide that the Exchange may extend
UTP to any security that is an NMS Stock (as defined in Rule 600 to
Regulation NMS under the Exchange Act) that is listed on another
national securities exchange or with respect to which UTP may otherwise
be extended in accordance with Section 12(f) of the Exchange Act.\31\
This proposed text is identical to NYSE American Rule 5.1E(a), NYSE
Rule 5.1(a), and Rules 14.1 of both Cboe BYX Exchange, Inc. and Cboe
EDGA Exchange, Inc. (``EDGA''). The proposed rule is also substantially
similar to NYSE Arca Rule 5.1-E(a).\32\
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\31\ 15 U.S.C. 78l(f). See also 17 CFR 242.600.
\32\ See NYSE Arca Rule 5.1-E(a)(1) and Securities Exchange Act
Release No. 67066 (May 29, 2012), 77 FR 33010 (June 4, 2012) (SR-
NYSEArca-2012-46). See also Cboe BZX Exchange, Inc. (``BZX'') Rule
14.11 and Securities Exchange Act Release No. 58623 (September 23,
2008), 73 FR 57169 (October 1, 2008) (SR-BATS-2008-004); Nasdaq PHLX
LLC (``Phlx'') Rule 803(o) and Securities Exchange Act Release No.
57806 (May 9, 2008), 73 FR 28541 (May 16, 2008) (SR-Phlx-2008-34);
and Nasdaq ISE, LLC (``ISE'') Rule 2101 and Securities Exchange Act
Release No. 57387 (February 27, 2008), 73 FR 11965 (March 5, 2008)
(SR-ISE-2007-99).
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Proposed Rule 5.1(a)(2) would establish rules for trading of UTP
Exchange Traded Products, which are defined in Rule 1.1 (described
above). Specifically, the requirements in subparagraphs (A)-(F) of
proposed Rule 5.1(a)(2) would apply to UTP Exchange Traded Products
traded on the Exchange. Proposed Rule 5.1(a)(2) and its sub-paragraphs
are based on NYSE American Rule 5.1E(a)(2) and its sub-paragraphs and
NYSE Rule 5.1(a)(2) and its subparagraphs with a non-substantive
difference to use the defined term of ``UTP Exchange Traded Product,''
which is defined in Rule 1.1.
Under proposed Rule 5.1(a)(2)(A), the Exchange would file a Form
19b-4(e) with the Commission with respect to each Exchange Traded
Product \33\ the
[[Page 11106]]
Exchange trades pursuant to UTP within five days after commencement of
trading.
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\33\ Although Rule 19b-4(e) of the Act defines any type of
option, warrant, hybrid securities product or any other security,
other than a single equity option or a security futures product,
whose value is based, in whole or in part, upon the performance of,
or interest in, an underlying instrument, as a ``new derivative
securities product,'' the Exchange prefers to refer to these types
of products that it will be trading as ``exchange traded products,''
so as not to confuse investors with a term that can be deemed to
imply such products are futures or options related.
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Proposed Rule 5.1(a)(2)(B) would provide that the Exchange would
distribute an information circular prior to the commencement of trading
in an Exchange Traded Product that generally would include the same
information as the information circular provided by the listing
exchange, including (a) the special risks of trading the Exchange
Traded Product, (b) the Exchange's rules that will apply to the
Exchange Traded Product, including Rules 8.4 and 8.5,\34\ and (c)
information about the dissemination of value of the underlying assets
or indices.
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\34\ See proposed Rules 8.4 (Account Approval) and 8.5
(Suitability).
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Under proposed Rule 5.1(a)(2)(D), the Exchange would halt trading
in a UTP Exchange Traded Product as provided for in proposed Rule 7.18.
The Exchange proposes different rule text from NYSE American Rule
5.1(a)(2)(D) to streamline its rules and eliminate duplication in
requirements relating to the halting of trading of UTP Exchange Traded
Products, which are addressed in proposed Rule 7.18, described below.
Proposed Rule 5.1(a)(2)(F) provides that the Exchange's
surveillance procedures for Exchange Traded Products traded on the
Exchange pursuant to UTP would be similar to the procedures used for
equity securities traded on the Exchange and would incorporate and rely
upon existing Exchange surveillance systems.
Proposed Rules 5.1(a)(2)(C) and (E) would establish the following
requirements for ETP Holders that have customers that trade UTP
Exchange Traded Products:
Prospectus Delivery Requirements. Proposed Rule
5.1(a)(2)(C)(i) would remind ETP Holders that they are subject to the
prospectus delivery requirements under the Securities Act of 1933, as
amended (the ``Securities Act''), unless the Exchange Traded Product is
the subject of an order by the Commission exempting the product from
certain prospectus delivery requirements under Section 24(d) of the
Investment Company Act of 1940, as amended (the ``1940 Act''), and the
product is not otherwise subject to prospectus delivery requirements
under the Securities Act. ETP Holders would also be required to provide
a prospectus to a customer requesting a prospectus.\35\
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\35\ Proposed Rule 5.1(a)(2)(C)(iii).
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Written Description of Terms and Conditions. Proposed Rule
5.1(a)(2)(C)(ii) would require ETP Holders to provide a written
description of the terms and characteristics of UTP Exchange Traded
Products to purchasers of such securities, not later than the time of
confirmation of the first transaction, and with any sales materials
relating to UTP Exchange Traded Products.
Market Maker Restrictions. Proposed Rule 5.1(a)(E) would
establish certain restrictions for any ETP Holder registered as a
market maker in an Exchange Traded Product listed on the exchange that
derives its value from one or more currencies, commodities, or
derivatives based on one or more currencies or commodities, or is based
on a basket or index composed of currencies or commodities
(collectively, ``Reference Assets''). Specifically, such an ETP Holder
must file with the Exchange and keep current a list identifying all
accounts for trading the underlying physical asset or commodity,
related futures or options on futures, or any other related
derivatives, which the ETP Holder acting as registered market maker may
have or over which it may exercise investment discretion.\36\ If an
account in which an ETP Holder acting as a registered market maker,
directly or indirectly, controls trading activities, or has a direct
interest in the profits or losses thereof, has not been reported to the
Exchange as required by this Rule, an ETP Holder acting as registered
market maker in the Exchange Traded Product would be [sic] permitted to
trade in the underlying physical asset or commodity, related futures or
options on futures, or any other related derivatives. Finally, a market
maker could not use any material nonpublic information in connection
with trading a related instrument.
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\36\ The proposed rule would also, more specifically, require a
market maker to file with the Exchange and keep current a list
identifying any accounts (``Related Instrument Trading Accounts'')
for which related instruments are traded (1) in which the market
maker holds an interest, (2) over which it has investment
discretion, or (3) in which it shares in the profits and/or losses.
In addition, a market maker would not be permitted to have an
interest in, exercise investment discretion over, or share in the
profits and/or losses of a Related Instrument Trading Account that
has not been reported to the Exchange as required by the proposed
rule.
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Proposed Rule 5.1(b)
As noted above, the terms ``Exchange Traded Product'' and ``UTP
Exchange Traded Product'' would be defined in Rule 1.1. The Exchange
proposes to set forth additional definitions that would be relevant to
the rules for the trading pursuant to UTP of the Exchange Traded
Products in proposed Rule 5.1(b). Proposed Rule 5.1(b) is based on NYSE
American Rule 5.1E(b). To maintain consistency in rule references
between the Exchange's proposed rules and NYSE American's rules, the
Exchange proposes to Reserve the same subparagraphs in the definitions
of proposed Rule 5.1(b) as those that are Reserved in the subparagraphs
of NYSE American Rule 5.1E(b).\37\
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\37\ The Exchange is proposing to designate paragraphs (b)(3),
(b)(7), (b)(8), (b)(10), (b)(17) and (b)(19) of proposed Rule 5.1(b)
as ``Reserved'' because they are Reserved in NYSE American Rule
5.1E(b).
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Proposed Rule 5.2(j)(2)-(j)(7)
The Exchange proposes to add Rules 5.2(j)(2)-(j)(7), which would be
substantially identical to NYSE American Rules 5.2E(j)(2)-(j)(7) and
substantially similar to NYSE Rules 5.2(j)(2)-(j)(7) and NYSE Arca
Rules 5.2-E(j)(2)-(j)(7). These proposed rules would permit the
Exchange to trade pursuant to UTP the following:
ELNs that meet the rules for the trading pursuant to UTP
that are contained in proposed Rule 5.2(j)(2);
Investment Company Units that meet the rules for the
trading pursuant to UTP that are contained in proposed Rule 5.2(j)(3);
Index-Linked Exchangeable Notes that meet the rules for
the trading pursuant to UTP that are contained in proposed Rule
5.2(j)(4);
Equity Gold Shares that meet the rules for the trading
pursuant to UTP that are contained in proposed Rule 5.2(j)(5);
Equity Index Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Fixed Income Index-Linked
Securities, Futures-Linked Securities, and Multifactor Index-Linked
Securities that meet the rules for the trading pursuant to UTP that are
contained in proposed Rule 5.2(j)(6); and
Trust Certificates that meet the rules for the trading
pursuant to UTP that are contained in proposed Rule 5.2(j)(7).
The text of these proposed rules is identical to NYSE American
Rules 5.2E(j)(2)-5.2(j)(7), other than certain non-substantive and
technical differences explained below.
[[Page 11107]]
The Exchange proposes to Reserve paragraphs 5.2(a)-(i) \38\ and
(j)(1),\39\ to maintain the same rule numbers as the NYSE American
rules with which it conforms.
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\38\ NYSE American adopted rules for the trading pursuant to UTP
of ETPs that are substantially identical to the rules of NYSE Arca.
See NYSE American ETP Listing Rules Filing, supra note 7. In order
to maintain the same rule numbers as NYSE Arca, NYSE American
reserved paragraphs 5.2E(a)-(i) as these rules pertain to specific
listing criteria for NYSE Arca and not trading ETPs pursuant to UTP,
and NYSE American was not proposing similar rules at the time.
Because the Exchange will not be a listing venue, the Exchange
similarly proposes to designate these rules as ``Reserved.''
NYSE Arca Rule 5.2-E(a) pertains to applications for admitting
securities to list on NYSE Arca and NYSE Arca Rule 5.2-E(b) pertains
to NYSE Arca's unique two-tier listing structure.
NYSE Arca Rules 5.2-E(c)-(g) relate to listing standards for
securities that are not ETPs, and NYSE American did not propose rule
changes related to such securities.
NYSE Arca Rule 5.2-E(h) pertains to Unit Investment Trusts
(``UITs''). NYSE American trades UITs pursuant to UTP under proposed
Rule 5.2(j)(3) (Investment Company Units) or proposed Rule 8.100
(Portfolio Depository Receipts), and the Exchange is proposing the
same.
\39\ NYSE American added rules for the trading pursuant to UTP
of ETPs that are substantially identical to the rules of NYSE Arca.
See id. and NYSE American ETP Listing Rules Filing, supra note 7. In
order to maintain the same rule numbers as NYSE Arca, NYSE American
reserved paragraph 5.2E(j)(1) as NYSE Arca Rule 5.2-E(j)(1) pertains
to ``Other Securities'' that are not otherwise covered by the
requirements contained in the other listing rules of NYSE Arca. As
NYSE American added only the rules that were necessary for the
exchange to trade ETPs pursuant to UTP, NYSE American did not
propose a rule comparable to NYSE Arca Rule 5.2-E(j)(1) at that
time. The Exchange similarly does not propose rules comparable to
that NYSE Arca rule.
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Proposed Rule 5.2(j)(2) (ELNs)
The Exchange is proposing Rule 5.2(j)(2) to provide rules for the
trading pursuant to UTP of ELNs, so that they may be traded on the
Exchange pursuant to UTP. Other than the General Definitional Term
Changes described above, there are no differences between this proposed
rule and NYSE American Rule 5.2E(j)(2).\40\
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\40\ See NYSE American Rule 5.2E(j)(2), which is based on NYSE
Arca Rule 5.2-E(j)(2). See also NYSE American ETP Listing Rules
Filing, supra note 7 and Securities Exchange Act Release Nos. 50319
(September 7, 2004), 69 FR 55204 (September 13, 2004) (SR-PCX-2004-
75); 56924 (December 7, 2007), 72 FR 70918 (December 13, 2007) (SR-
NYSEArca-2007-98); 58745 (October 7, 2008), 73 FR 60745 (October 14,
2008) (SR-NYSEArca-2008-94).
---------------------------------------------------------------------------
Proposed Rule 5.2(j)(3) (Investment Company Units)
The Exchange proposes Rule 5.2(j)(3) to establish rules for the
trading pursuant to UTP of investment company units, so that they may
be traded on the Exchange pursuant to UTP. Other than the General
Definitional Term Changes described above, there are no differences
between this proposed rule and NYSE American Rule 5.2E(j)(3).\41\
---------------------------------------------------------------------------
\41\ See NYSE American Rule 5.2E(j)(3), which is based on NYSE
Arca Rule 5.2-E(j)(3). See also NYSE American ETP Listing Rules
Filing, supra note 7 and Securities Exchange Act Release Nos. 44551
(July 12, 2001), 66 FR 37716 (July 19, 2001) (SR-PCX-2001-14) and
40603 (November 3, 1998), 63 FR 59354 (November 3, 1998) (SR-PCX-98-
29).
---------------------------------------------------------------------------
Proposed Rule 5.2(j)(4) (Index-Linked Exchangeable Notes)
The Exchange proposes Rule 5.2(j)(4) to establish rules for the
trading pursuant to UTP of index-linked exchangeable notes, so that
they may be traded on the Exchange pursuant to UTP.
In addition to the General Definitional Term Changes described
above, the Exchange is proposing the following non-substantive
differences between this proposed rule and NYSE American Rule
5.2E(j)(4): \42\
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\42\ See NYSE American Rule 5.2E(j)(4), which is based on NYSE
Arca Rule 5.2-E(j)(4). See also NYSE American ETP Listing Rules
Filing, supra note 7 and Securities Exchange Act Release No. 49532
(April 7, 2004), 69 FR 19593 (April 13, 2004) (SR-PCX-2004-01).
---------------------------------------------------------------------------
To qualify for listing and trading under NYSE American
Rule 5.2E(j)(4), an index-linked exchangeable note and its issuer must
meet the criteria in NYSE Arca Rule 5.2-E(j)(1) (Other Securities),
except that the minimum public distribution will be 150,000 notes with
a minimum of 400 public note-holders, except, if traded in thousand
dollar denominations then there is no minimum public distribution and
number of holders.
Because neither NYSE American nor the Exchange have and are not
proposing a rule for ``Other Securities'' comparable to NYSE Arca Rule
5.2-E(j)(1), the Exchange, like NYSE American, proposes to reference
NYSE Arca Rule 5.2-E(j)(1) in subparagraphs (a) and (c) of proposed
Rule 5.2(j)(4) in establishing the criteria that an issuer and issue
must satisfy.\43\
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\43\ The Exchange will monitor for any changes to the rules of
NYSE Arca, and will amend its rules accordingly to conform to the
rules of NYSE Arca. The Exchange notes that it is proposing to
cross-reference to the rules of an affiliate of the Exchange, which
will facilitate monitoring for changes to such rules. The Exchange
also notes that it is proposing to follow the established and
approved rules of NYSE, which also reference the rules of NYSE Arca.
See NYSE ETP Listing Rules Filing, supra note 8.
---------------------------------------------------------------------------
To qualify for listing and trading under NYSE American
Rule 5.2E(j)(4), an index to which an exchangeable note is linked and
its underlying securities must meet (i) the procedures and criteria set
forth in Supplementary Material .03 to NYSE American Rule 901C; \44\ or
(ii) the criteria set forth in subsections (C) and (D) of NYSE American
Rule 5.2E(j)(2), the index concentration limits set forth in
Supplementary Material .03(a)(7) to NYSE American Rule 901C, and
Supplementary Material .03(b)(iii) to NYSE American Rule 901C insofar
as it relates to Supplementary Material .03(a)(7) to NYSE American Rule
901C. Because the Exchange does not plan to trade options at this time
and is not proposing rules for listing of index options contracts, the
Exchange is proposing to refer to NYSE Arca Rule 5.13-O in proposed
Rule 5.2(j)(4)(d)(i) and (ii), which has the same requirements as NYSE
American Rule 901C. The Exchange would apply the criteria set forth in
NYSE Arca Rule 5.13-O in determining whether an index underlying an
index-linked exchangeable note satisfies the requirements of Rule
5.2(j)(4)(d).\45\
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\44\ Supplementary Material .03 to NYSE American Rule 901C is
substantially identical to NYSE Arca Rule 5.13-O (NYSE Arca Rule
5.13-O is cross-referenced in NYSE Arca Rule 5.2-E(j)(4), on which
NYSE American Rule 5.2E(j)(4) was originally based; see NYSE
American ETP Listing Rules Filing, supra note 7, and sets forth
criteria for narrow-based and micro narrow-based indexes on which an
options contract may be listed without filing a proposed rule change
under Section 19(b) of the Exchange Act.
\45\ See supra note 43.
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The Exchange proposes to reference NYSE Arca Rule 5.13-O because
the Exchange does not have options trading rules. In referencing such
rules, the Exchange proposes to follow the established and approved
rules of NYSE Rule 5.2(j)(4), which also references NYSE Arca Rule
5.13-O.\46\
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\46\ See NYSE ETP Listing Rules Filing, supra note 8.
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Proposed Rule 5.2(j)(5) (Equity Gold Shares)
The Exchange is proposing Rule 5.2(j)(5) to provide rules for the
trading pursuant to UTP of equity gold shares, so that they may be
traded on the Exchange pursuant to UTP. Other than the General
Definitional Term Changes described above, there are no differences
between this proposed rule and NYSE American Rule 5.2E(j)(5).\47\
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\47\ See NYSE American Rule 5.2E(j)(5), which is based on NYSE
Arca Rule 5.2-E(j)(5). See also NYSE American ETP Listing Rules
Filing, supra note 7 and Securities Exchange Act Release No. 51245
(February 23, 2005), 70 FR 10731 (March 4, 2005) (SR-PCX-2004-117).
---------------------------------------------------------------------------
Proposed Rule 5.2(j)(6) (Index-Linked Securities)
The Exchange is proposing Rule 5.2(j)(6) to provide rules for the
trading pursuant to UTP of equity index-linked securities, so that they
may be traded on the Exchange pursuant to UTP.
In addition to the General Definitional Term Changes described
above, the
[[Page 11108]]
Exchange is proposing the following non-substantive changes between
this proposed rule and NYSE American Rule 5.2E(j)(6): \48\
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\48\ See NYSE American Rule 5.2E(j)(6), which is based on NYSE
Arca Rule 5.2-E(j)(6). See also NYSE American ETP Listing Rules
Filing, supra note 7 and Securities Exchange Act Release Nos. 54231
(July 27, 2006), 71 FR 44339 (August 4, 2006) (SR-NYSEArca-2006-19);
59332 (January 30, 2009), 74 FR 6338 (February 6, 2009) (SR-
NYSEArca&2008-136); and 52204 (August 3, 2005), 70 FR 46559 (August
10, 2005) (SR-PCX-2005-63).
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To qualify for listing and trading under NYSE American
Rule 5.2E(j)(6), both the issue and issuer of an index-linked security
must meet the criteria in NYSE Arca Rule 5.2-E(j)(1) (Other
Securities), with certain specified exceptions. Because neither NYSE
American nor the Exchange have and are not proposing a rule for ``Other
Securities'' comparable to NYSE Arca Rule 5.2-E(j)(1), the Exchange,
like NYSE American, proposes to reference NYSE Arca Rule 5.1-E(j)(1) in
proposed Rule 5.2(j)(6)(A)(a) establishing the criteria that an issue
and issuer must satisfy.\49\
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\49\ See supra note 43.
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The listing standards for Equity Index-Linked Securities
in NYSE American Rule 5.2E(j)(6) reference NYSE American Rule 915 in
describing the criteria for securities that compose 90% of an index's
numerical value and at least 80% of the total number of components.
Because the Exchange does not plan to trade options at this time
and is not proposing rules for establishing the criteria for underlying
securities of put and call options contracts described in NYSE American
Rule 915,\50\ the Exchange is proposing to refer to NYSE Arca Rule 5.3-
O in paragraph (B)(I)(1)(b)(iv) of proposed Rule 5.2(j)(6), to
establish the initial listing criteria that an index must meet to trade
pursuant to UTP. The Exchange would apply the criteria set forth in
NYSE Arca Rule 5.3-O in determining whether an index's numerical value
meets the then current criteria for standardized option trading.\51\
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\50\ NYSE American Rule 915 is substantially identical to NYSE
Arca Rule 5.3-O (NYSE Arca Rule 5.3-O is cross-referenced in NYSE
Arca Rule 5.2-E(j)(6), on which NYSE American Rule 5.2E(j)(6) was
originally based; see NYSE American ETP Listing Rules Filing, supra
note 7), and establishes the criteria for underlying securities of
put and call option contracts listed on the exchange.
\51\ See supra note 43.
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The Exchange proposes to reference NYSE Arca Rule 5.3-O because the
Exchange does not have options trading rules. In referencing such
rules, the Exchange proposes to follow the established and approved
rules of NYSE Rule 5.2(j)(6), which also references NYSE Arca Rule 5.3-
O.\52\
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\52\ See NYSE ETP Listing Rules Filing, supra note 8.
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Proposed Rule 5.2(j)(7) (Trust Certificates)
The Exchange is proposing Rule 5.2(j)(7) to provide rules for the
trading pursuant to UTP of trust certificates, so that they may be
traded on the Exchange pursuant to UTP. Other than the General
Definitional Term Changes described above, there are no differences
between this proposed rule and NYSE American Rule 5.2E(j)(7).\53\
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\53\ See NYSE American Rule 5.2E(j)(7), which is based on NYSE
Arca Rule 5.2-E(j)(7). See also NYSE American ETP Listing Rules
Filing, supra note 7 and Securities Exchange Act Release Nos. 59051
(December 4, 2008), 73 FR 75155 (December 10, 2008) (SR-NYSEArca-
2008-123) and 58920 (November 7, 2008), 73 FR 68479 (November 18,
2008) (SR-NYSEArca-2008-123).
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Rule 8--Trading of Certain Exchange Traded Products
The Exchange proposes that the rules set forth in Rule 8 would be
based on Sections 1 and 2 of NYSE American Rule 8E, NYSE Rule 8P, and
NYSE Arca Rule 8-E. These proposed rules would permit the Exchange to
trade pursuant to UTP the following: Currency and Index Warrants,
Portfolio Depositary Receipts, Trust Issued Receipts, Commodity-Based
Trust Shares, Currency Trust Shares, Commodity Index Trust Shares,
Commodity Futures Trust Shares, Partnership Units, Paired Trust Shares,
Trust Units, Managed Fund Shares, and Managed Trust Securities.\54\
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\54\ The Exchange is only proposing listing and trading rules
necessary to trade ETPs pursuant to UTP. Accordingly, the Exchange,
like NYSE American and NYSE LLC, is not proposing a rule comparable
to NYSE Arca Rule 8.100-E(g).
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The Exchange proposes to designate Rule 8.100(g) as Reserved to
maintain the same rule numbers as the NYSE American rules with which it
conforms.
The text of proposed Rule 8 is based on Sections 1 and 2 of NYSE
American Rule 8E, with only specified non-substantive and technical
differences explained below and the General Definitional Term Changes
described above. In addition, as described above, proposed Rule 8 would
apply only to the trading pursuant to UTP of Exchange Traded Products
on the Exchange would not apply to the listing of Exchange Traded
Products on the Exchange.
Proposed Rules 8.1-8.13--Currency and Index Warrants
The Exchange is proposing Rules 8.1-8.13 to provide rules for the
trading pursuant to UTP (including sales-practice rules such as those
relating to suitability and supervision of accounts) of currency and
index warrants.\55\ Proposed Rules 8.1-8.13 are based on NYSE American
rules 8.1E-8.13E. The Exchange is proposing the following non-
substantive differences between these proposed rules and NYSE American
Rules 8.1E-8.13E (Currency and Index Warrants):
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\55\ NYSE American Rules 8.1E-8.13E, which are based on NYSE
Arca Rules 8.1-E-8.13-E, all pertain to the listing and trading
requirements (including sales-practice rules such as those relating
to suitability and supervision of accounts) for Currency and Index
Warrants. See Section 1 of NYSE American Rule 8E; see also NYSE
American ETP Listing Rules Filing, supra note 7 and Securities
Exchange Act Release Nos. 44983 (October 25, 2001), 66 FR 55225
(November 1, 2001) (SR-PCX-00-25) and 59886 (May 7, 2009), 74 FR
22779 (May 14, 2009) (SR-NYSEArca-2009-39).
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Proposed Rule 8.1 (General)
Other than the General Definitional Term Changes described above,
there are no differences between this proposed rule and NYSE American
Rule 8.1E.
Proposed Rule 8.2 (Definitions)
Other than the General Definitional Term Changes described above,
there are no differences between this proposed rule and NYSE American
Rule 8.2E.
Proposed Rule 8.3 (Listing of Currency and Index Warrants)
Other than with respect to the General Definitional Term Changes
described above, there are no differences between this proposed rule
and NYSE American Rule 8.3E.
Proposed Rule 8.4 (Account Approval)
The account approval rules of NYSE American Rule 8.4E reference
NYSE American Rule 921 \56\ in describing the criteria that must be met
for opening up a customer account for options trading. Because the
Exchange does not plan to trade options at this time and is not
proposing to add rules that pertain to the opening of accounts that are
approved for options trading, the Exchange proposes to require an ETP
Holder to ensure its account is approved for options trading pursuant
to NYSE Arca Rule 9.18-E(b).\57\
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\56\ NYSE American Rule 921 is substantially similar to NYSE
Arca Rule 9.18-E(b) (NYSE Arca Rule 9.18-E(b) is cross-referenced in
NYSE Arca Rule 8.4-E, on which NYSE American Rule 8.4E was
originally based; see NYSE American ETP Listing Rules Filing, supra
note 7), and establishes criteria that must be met to open up a
customer account for options trading.
\57\ See supra note 43.
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The Exchange proposes to reference NYSE Arca Rule 9.18-E(b) because
the Exchange does not have options trading
[[Page 11109]]
rules. In referencing such rule, the Exchange proposes to follow the
established and approved rules of NYSE Rule 8.4 and NYSE Arca Rule 8.4-
E, which also reference NYSE Arca Rule 9.18-E(b).\58\
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\58\ See NYSE ETP Listing Rules Filing, supra note 8.
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Proposed Rule 8.5 (Suitability)
The account suitability rules of NYSE American Rule 8.5E reference
NYSE American Rule 923 \59\ in describing rules that apply to
recommendations made in stock index, currency index and currency
warrants. Because the Exchange does not plan to trade options at this
time and is not proposing to add rules that pertain to account
suitability for options trading described in NYSE American Rule 923,
the Exchange proposes to cross-reference NYSE Arca Rule 9.18-E(c) in
proposed Rule 8.5. The Exchange would apply the criteria set forth in
NYSE Arca Rule 9.18-E(c) in determining account suitability.\60\
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\59\ Rule 923 is substantially similar to NYSE Arca Rule 9.18-
E(c) (NYSE Arca Rule 9.18-E(c) is cross-referenced in NYSE Arca Rule
8.5-E, on which NYSE American Rule 8.5E was originally based; see
NYSE American ETP Listing Rules Filing, supra note 7), and
establishes suitability rules that pertain to recommendations in
stock index, currency index and currency warrants.
\60\ See supra note 42 [sic].
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The Exchange proposes to reference NYSE Arca Rule 9.18-E(c) because
the Exchange does not have options trading rules. In referencing such
rule, the Exchange proposes to follow the established and approved
rules of NYSE Rule 8.5 and NYSE Arca Rule 8.5-E, which also reference
NYSE Arca Rule 9.18-E(c).\61\
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\61\ See NYSE ETP Listing Rules Filing, supra note 8.
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Proposed Rule 8.6 (Discretionary Accounts)
The rules of NYSE American Rule 8.6E state that NYSE American Rule
408-Equities \62\ will not apply to customer accounts insofar as they
may relate to discretion to trade in stock index, currency index and
currency warrants, and that NYSE American Rule 924 \63\ will apply to
such discretionary accounts instead. Because the Exchange does not plan
to trade options at this time and is not proposing a rule specific to
the Exchange's discretionary accounts for equity trading as described
in NYSE American Rule 408-Equitites, nor a rule that pertains to
exercising discretion for options trading described in NYSE American
Rule 924, the Exchange proposes to cross-reference to NYSE Arca Rule
9.18-E(e) in proposed Rule 8.6. The Exchange would apply the criteria
set forth in this rule in determining whether an ETP Holder
appropriately exercised discretion.\64\
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\62\ NYSE American Rule 408-Equities is substantially similar to
NYSE Arca Rule 9.6-E(a) (NYSE Arca Rule 9.6-E(a) is cross-referenced
in NYSE Arca Rule 8.6-E, on which NYSE American Rule 8.6E was
originally based; see NYSE American ETP Listing Rules Filing, supra
note 7), and pertains to the rules of the exchange with regard to
discretionary power in customer accounts for equity trading.
\63\ NYSE American Rule 924 is substantially similar to NYSE
Arca Rule 9.18-E(e) (NYSE Arca Rule 9.18-E(e) is cross-referenced in
NYSE Arca Rule 8.6-E, on which NYSE American Rule 8.6E was
originally based; see NYSE American ETP Listing Rules Filing, supra
note 7), and establishes rules pertaining to discretion as to
customer accounts for options trading.
\64\ See supra note 43.
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The Exchange proposes to reference NYSE Arca Rule 9.18-E(e) because
the Exchange does not have options trading rules. In referencing such
rule, the Exchange proposes to follow the established and approved
rules of NYSE Rule 8.6 and NYSE Arca Rule 8.6-E, which also reference
NYSE Arca Rule 9.18-E(e).\65\
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\65\ See NYSE ETP Listing Rules Filing, supra note 8.
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Proposed Rule 8.7 (Supervision of Accounts)
The account supervision rules of NYSE American Rule 8.7E reference
NYSE American Rule 922 \66\ in describing rules that apply to the
supervision of customer accounts in which transactions in stock index,
currency index or currency warrants are effected. Because the Exchange
does not plan to trade options at this time and is not proposing to add
rules that pertain to the supervision of customer accounts for options
trading described in NYSE American Rule 922, the Exchange proposes to
cross-reference to NYSE Arca Rule 9.18-E(d) in proposed Rule 8.7. The
Exchange would apply the criteria set forth in NYSE Arca Rule 9.18-
E(d)in supervising such accounts.\67\
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\66\ NYSE American Rule 922 is substantially similar to NYSE
Arca Rule 9.18-E(d) (NYSE Arca Rule 9.18-E(d) is cross-referenced in
NYSE Arca Rule 8.7-E, on which NYSE American Rule 8.7E was
originally based; see NYSE American ETP Listing Rules Filing, supra
note 7), and establishes account supervision rules that apply to the
supervision of customer accounts in which transactions in stock
index, currency index and currency warrants are effected.
\67\ See supra note 43.
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The Exchange proposes to reference NYSE Arca Rule 9.18-E(d) because
the Exchange does not have options trading rules. In referencing such
rule, the Exchange proposes to follow the established and approved
rules of NYSE Rule 8.7 and NYSE Arca Rule 8.7-E, which also reference
NYSE Arca Rule 9.18-E(d).\68\
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\68\ See NYSE ETP Listing Rules Filing, supra note 8.
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Proposed Rule 8.8 (Customer Complaints)
The customer complaint rules of NYSE American Rule 8.8E reference
NYSE American Rule 932 \69\ in describing rules that apply to customer
complaints received regarding stock index, currency index or currency
warrants. Because the Exchange does not plan to trade options at this
time and is not proposing to add rules for doing a public business in
options as described in NYSE American Rule 932, the Exchange proposes
to cross-reference to NYSE Arca Rule 9.18-E(l) in proposed Rule 8.8.
The Exchange would apply the criteria set forth in NYSE Arca Rule 9.18-
E(l) to customer complaints.\70\
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\69\ NYSE American Rule 932 is substantially similar to NYSE
Arca Rule 9.18-E(l) (NYSE Arca Rule 9.18-E(l) is cross-referenced in
NYSE Arca Rule 8.8-E, on which NYSE American Rule 8.8E was
originally based; see NYSE American ETP Listing Rules Filing, supra
note 7), and establishes rules that apply to customer complaints
received regarding stock index, currency index or currency warrants.
\70\ See supra note 43.
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The Exchange proposes to reference NYSE Arca Rule 9.18-E(l) because
the Exchange does not have options trading rules. In referencing such
rule, the Exchange proposes to follow the established and approved
rules of NYSE Rule 8.8 and NYSE Arca Rule 8.8-E, which also reference
NYSE Arca Rule 9.18-E(l).\71\
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\71\ See NYSE ETP Listing Rules Filing, supra note 8.
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Proposed Rule 8.9 (Prior Approval of Certain Communications to
Customers)
The rules pertaining to communications to customers regarding stock
index, currency index and currency warrants described in NYSE American
8.9E reference NYSE American Rule 991.\72\ Because the Exchange does
not plan to trade options at this time and is not proposing to add
rules for advertisements, market letters and sales literature relating
to options as described in NYSE American Rule 991, the Exchange
proposes to cross-reference to the Commentaries to NYSE Arca Rule 9.28-
E in proposed Rule 8.9. The Exchange would apply the criteria set forth
in the Commentaries to NYSE
[[Page 11110]]
Arca Rule 9.28-E to prior approvals of such communications to
customers.\73\
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\72\ NYSE American Rule 991 is substantially similar to NYSE
Arca Rule 9.28-E (NYSE Arca Rule 9.28-E is cross-referenced in NYSE
Arca Rule 8.9-E, on which NYSE American Rule 8.9E was originally
based; see NYSE American ETP Listing Rules Filing, supra note 7),
and establishes rules regarding advertisements, sales literature and
educational material issued to any customer or member of the public
pertaining to stock index, currency index or currency warrants.
\73\ See supra note 43.
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The Exchange proposes to reference to the Commentaries to NYSE Arca
Rule 9.28-E because the Exchange does not have options trading rules.
In referencing such rules, the Exchange proposes to follow the
established and approved rules of NYSE Rule 8.9 and NYSE Arca Rule 8.9-
E, which also reference Commentaries to NYSE Arca Rule 9.28-E.\74\
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\74\ See NYSE ETP Listing Rules Filing, supra note 8.
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Proposed Rule 8.10 (Position Limits)
Other than the General Definitional Term Changes described above,
there are no differences between this proposed rule and NYSE American
Rule 8.10E.
Proposed Rule 8.11 (Exercise Limits)
Other than the General Definitional Term Changes described above,
there are no differences between this proposed rule and NYSE American
Rule 8.11E.
Proposed Rule 8.12 (Trading Halts or Suspensions)
Other than the General Definitional Term Changes described above,
there are no differences between this proposed rule and NYSE American
Rule 8.12E.
Proposed Rule 8.13 (Reporting of Warrant Positions)
Other than the General Definitional Term Changes described above,
there are no differences between this proposed rule and NYSE American
Rule 8.13E.
Proposed Rules 8.100--8.700
The Exchange is proposing:
Rule 8.100 to provide rules for the trading pursuant to
UTP of portfolio depositary receipts. Other than the General
Definitional Term Changes described above, there are no differences
between this proposed rule and NYSE American Rule 8.100E.\75\
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\75\ See NYSE American Rule 8.100E, which is based on NYSE Arca
Rule 8.100-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release Nos. 39461 (December 17,
1997), 62 FR 67674 (December 29, 1997) (SR-PCX-97-35); 39188
(October 2, 1997), 62 FR 53373 (October 14, 1997) (SR-PCX-97-35);
and 44551 (July 12, 2001), 66 FR 37716 (July 19, 2001) (SR-PCX-2001-
14).
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Rule 8.200 to provide rules for the trading pursuant to
UTP of trust issued receipts. Other than the General Definitional Term
Changes described above, there are no differences between this proposed
rule and NYSE American Rule 8.200E.\76\
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\76\ See NYSE American Rule 8.200E, which is based on NYSE Arca
Rule 8.200-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release Nos. 58162 (July 15,
2008), 73 FR 42391 (July 21, 2008) (SR-NYSEArca-2008-73) and 44182
(April 16, 2001), 66 FR 21798 (April 16, 2001) (SR-PCX-2001-01).
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Rule 8.201 to provide rules for the trading pursuant to
UTP of commodity-based trust shares. Other than the General
Definitional Term Changes described above, there are no differences
between this proposed rule and NYSE American Rule 8.201E.\77\
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\77\ See NYSE American Rule 8.201E, which is based on NYSE Arca
Rule 8.201-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release No. 51067 (January 21,
2005), 70 FR 3952 (January 27, 2005) (SR-PCX-2004-132).
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Rule 8.202 to provide rules for the trading pursuant to
UTP of currency trust shares. Other than the General Definitional Term
Changes described above, there are no differences between this proposed
rule and NYSE American Rule 8.202E.\78\
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\78\ See NYSE American Rule 8.202E, which is based on NYSE Arca
Rule 8.202-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release Nos. 60065 (June 8,
2009), 74 FR 28310 (June 15, 2009) (SR-NYSEArca-2009-47) and 53253
(February 8, 2006), 71 FR 8029 (February 15, 2006) (SR-PCX-2005-
123).
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Rule 8.203 to provide rules for the trading pursuant to
UTP of commodity index trust shares. Other than the General
Definitional Term Changes described above, there are no differences
between this proposed rule and NYSE American Rule 8.203E.\79\
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\79\ See NYSE American Rule 8.203E, which is based on NYSE Arca
Rule 8.203-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release No. 54025 (June 21,
2006), 71 FR 36856 (June 28, 2006) (SR-NYSEArca-2006-12).
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Rule 8.204 to provide rules for the trading pursuant to
UTP of commodity futures trust shares, so that they may be traded on
the Exchange pursuant to UTP. Other than the General Definitional Term
Changes described above, there are no differences between this proposed
rule and NYSE American Rule 8.204E.\80\
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\80\ See NYSE American Rule 8.204E, which is based on NYSE Arca
Rule 8.204-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release Nos. 57838 (May 20,
2008), 73 FR 30649 (May 28, 2008) (SR-NYSEArca-2008-09) and 57636
(April 8, 2008), 73 FR 20344 (April 15, 2008) (SR-NYSEArca-2008-09).
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Rule 8.300 to provide rules for the trading pursuant to
UTP of partnership units. Other than the General Definitional Term
Changes described above, there are no differences between this proposed
rule and NYSE American Rule 8.300E-Equities.\81\
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\81\ See NYSE American Rule 8.300E, which is based on NYSE Arca
Rule 8.300-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release No. 53875 (May 25, 2006),
71 FR 32164 (January 2, 2006) (SR-NYSEArca-2006-11).
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Rule 8.400 to provide rules for the trading pursuant to
UTP of paired trust shares. Other than the General Definitional Term
Changes described above, there are no differences between this proposed
rule and NYSE American Rule 8.400E.\82\
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\82\ See NYSE American Rule 8.400E, which is based on NYSE Arca
Rule 8.400-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release Nos. 55033 (December 29,
2006), 72 FR 1253 (January 10, 2007) (SR-NYSEArca-2006-75) and 58312
(August 5, 2008), 73 FR 46689 (August 11, 2008) (SR-NYSEArca-2008-
63).
---------------------------------------------------------------------------
Rule 8.500 to provide rules for the trading pursuant to
UTP of trust units. Other than the General Definitional Term Changes
described above, there are no differences between this proposed rule
and NYSE American Rule 8.500E.\83\
---------------------------------------------------------------------------
\83\ See NYSE American Rule 8.500E, which is based on NYSE Arca
Rule 8.500-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release Nos. 57059 (December 28,
2007), 73 FR 909 (January 4, 2008) (SR-NYSEArca-2006-76) and 63129
(October 19, 2010), 75 FR 65539 (October 25, 2010) (SR-NYSEArca-
2010-91).
---------------------------------------------------------------------------
Rule 8.600 to provide rules for the trading pursuant to
UTP of managed fund shares. Other than the General Definitional Term
Changes described above, there are no differences between this proposed
rule and NYSE American Rule 8.600E.\84\
---------------------------------------------------------------------------
\84\ See, NYSE American Rule 8.600E, which is based on NYSE Arca
Rule 8.600-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release Nos. 57395 (February 28,
2008), 73 FR 11974 (March 5, 2008) (SR-NYSEArca-2008-25) and 57619
(April 4, 2008), 73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25).
---------------------------------------------------------------------------
Rule 8.700 to provide rules for the trading pursuant to
UTP of managed trust securities. Other than the General Definitional
Term Changes described above, there are no differences between this
proposed rule and NYSE American Rule 8.700E.\85\
---------------------------------------------------------------------------
\85\ See, NYSE American Rule 8.700E, which is based on NYSE Arca
Rule 8.700-E. See also NYSE American ETP Listing Rules Filing, supra
note 7 and Securities Exchange Act Release Nos. 60064 (June 8,
2009), 74 FR 28315 (June 15, 2009) (SR-NYSEArca-2009-30) and 59835
(April 28, 2009), 74 FR 21041 (May 6, 2009) (SR-NYSEArca-2009-30).
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Rule 6--Consolidated Audit Trail and Order Audit Trail System
Proposed Rule 6.6800 Series (Compliance Rules)
As noted above, the Exchange proposes to renumber its existing
[[Page 11111]]
Compliance Rules relating to the CAT NMS Plan under Rule 6 without any
substantive changes. The Compliance Rules require Industry Members to
comply with the provisions of the CAT NMS Plan.\86\ The Compliance Rule
includes twelve rules covering the following areas: (1) Definitions;
(2) clock synchronization; (3) Industry Member Data reporting; (4)
Customer information reporting; (5) Industry Member information
reporting; (6) time stamps; (7) clock synchronization rule violations;
(8) connectivity and data transmission; (9) development and testing;
(10) recordkeeping; (11) timely, accurate and complete data; and (12)
compliance dates.
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\86\ Unless otherwise specified, capitalized terms used are
defined as set forth herein, the CAT Compliance Rule Series or in
the CAT NMS Plan.
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In moving the Compliance Rules to Rule 6, the Exchange proposes to
renumber Rules 14.1 through 14.12 as proposed Rules 6.6800 through
6.6895, which is based in part on the NYSE Arca rule numbering for its
Compliance Rules, but not make any substantive changes to those rules.
The Exchange proposes non-substantive differences to the Compliance
Rules to use a different sub-paragraph numbering format.\87\ The
proposed sub-numbering for the Compliance Rules (i.e., 6800-6895)
mirrors the rule-numbering framework for the CAT NMS Plan Compliance
Rules on FINRA, NYSE, and NYSE American and includes a sub-section rule
heading of ``Rule 6.6800 Consolidated Audit Trail Compliance Rule.''
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\87\ Current Exchange rules use an ``(a)(i)(A)(1)'' sub-
paragraph numbering convention and the Exchange proposes to use an
``(a)(1)(A)(i)'' sub-paragraph numbering convention.
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Proposed Rule 6.6900 (Consolidated Audit Trail--Fee Dispute Resolution)
The Exchange proposes Rule 6.6900 to establish the procedures for
resolving potential disputes related to CAT Fees charged to Industry
Members. Section 11.5 of the CAT NMS Plan requires participants to that
plan to adopt rules requiring that disputes with respect to fees
charged to Industry Members pursuant to the CAT NMS Plan be determined
by the Operating Committee or Subcommittee. Section 11.5 of the CAT NMS
Plan also states that decisions by the Operating Committee or
Subcommittee on such matters will be binding on Industry Members,
without prejudice to the right of any Industry Member to seek redress
from the SEC pursuant to SEC Rule 608 or in any other appropriate
forum. The Commission has approved industry-wide rules that set forth
such fee dispute procedures.\88\ At the time when CAT NMS Plan
Participants adopted the Fee Dispute Rule, the Exchange had ceased
operations and therefore did not adopt the rule.
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\88\ See Securities Exchange Act Release No. 81500 (August 30,
2017), 82 FR 42143 (September 6, 2017) (SR-BatsBYX-2017-13; SR-
BatsBZX-2017-39; SR-BatsEDGA-2017-14; SR-BatsEDGX-2017-24; SR-BOX-
2017-19; SR-CBOE-2017-043; SR-IEX-2017-21; SR-ISE-2017-52; SR-MRX-
2017-08; SR-MIAX-2017-24; SR-NASDAQ-2017-059; SR-BX-2017-029; SR-
GEMX-2017-059; SR-PHLX-2017-47; SR-NYSE-2017-24; SR-NYSEArca-2017-
60; SR-NYSEMKT-2017-31) (Order Approving Proposed Rule Changes to
Adopt a CAT Fee Dispute Resolution Process) (``Fee Dispute Approval
Order'').
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Proposed Rule 6.6900 would set forth the Exchange's proposed
procedures to resolve disputes initiated by an Industry Member with
respect to CAT fees and is based on NYSE Arca Rule 11.6900
specifically, and the rules of other exchanges generally, without any
substantive differences.\89\ Proposed Rule 6.6900(a) would set forth
definitions used for purposes of the rule and proposed Rule 6.6900(b)
would set forth the ``Fee Dispute Resolution Procedures under the CAT
NMS Plan.'' The proposed sub-numbering for the CAT NMS Plan Fee Dispute
Rule (i.e., 6900) mirrors the rule-numbering framework for the CAT NMS
Plan Fee Dispute Rule on FINRA, NYSE, and NYSE American.
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\89\ The Exchange will file a separate proposed rule change for
Consolidated Audit Trail Funding Fees on the Exchange's Fee
Schedule.
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Proposed Rule 6.7400 (Order Audit Trail System)
The Exchange proposes OATS rules based on NYSE Arca Rules 6.7400-E
Series, which in turn are based on the FINRA Rules 7400 Series. The
proposed NYSE National Rule 6.7400 Series would consist of proposed
Rules 6.7410 through 6.7470, which are based on NYSE Arca Rules 6.7410-
E through 6.7470-E without any substantive differences. The Exchange
proposes non-substantive differences throughout the Rule 6.7400 Series
to refer to the Exchange instead of NYSE Arca and to use the defined
term ``Associated Person.''
Proposed Rule 6.7140 (Definitions) would set forth
definitions used for purposes of the Rule 6.7400 Series and is based on
NYSE Arca Rule 6.7410-E without any substantive differences.
Proposed Rule 6.7420 (Applicability) would specify that
the requirements of the Rule 6.7400 Series are applicable to all ETP
Holders and their associated persons and to all NMS Stocks that trade
on the Exchange, and is based on NYSE Arca Rule 6.720-E without any
differences.
Proposed Rule 6.7430 (Synchronization of ETP Holder
Business Clocks) would require ETP Holders to synchronize business
clocks used for purposes of recording the date and time of specified
events, and is based on NYSE Arca Rule 6.7430 without any differences.
Proposed Rule 6.7440 (Recording of Order Information)
would require ETP Holders to comply with FINRA Rule 7440 as if such
rule were part of the Exchange's rules and is based on NYSE Arca Rule
6.7440-E without any substantive differences.
Proposed Rule 6.7450 (Order Data Transmission
Requirements) would require ETP Holders to comply with FINRA Rule 7450
as if such rule were part of the Exchange's rules and is based on NYSE
Arca Rule 6.7450-E without any substantive differences.
Proposed Rule 6.7460 (Violation of Order Audit Trail
System Rules) would provide that failure of an ETP Holder or associated
person to comply with the requirements of proposed Rules 6.7410 through
6.7460 may be considered conduct that is inconsistent with high
standards of commercial honor and just and equitable principles of
trade. This proposed rule is based on NYSE Arca Rule 6.7460-E with a
non-substantive difference to cross reference proposed Rule 11.3.1
instead of NYSE Arca Rule 9.2010.
Proposed Rule 6.7470 (Exemption to the Order Recording and
Data Transmission Requirements) would provide for how an ETP Holder may
apply for an exemption from the Rule 6.7400 Series and is based on NYSE
Arca Rule 6.7470-E without any differences.
At the time the Exchange ceased operations, it did not require its
ETP Holders to maintain order information pursuant to an order tracking
system and therefore, did not have the OATS rules or similar rules in
its rulebook. The Exchange does not believe that requiring Exchange ETP
Holders to comply with the OATS requirements in connection with the re-
launch of trading will impose an undue burden on such ETP Holders or
its associated persons. Once the Exchange restarts operation, ETP
Holders that are also FINRA members (``Dual Members'') would already be
subject to FINRA's OATS requirements. Similarly, because NYSE Arca,
NYSE, and NYSE American each also have rules based on the FINRA OATS
requirements, Exchange ETP Holders that are not members of FINRA, but
are members of NYSE Arca, NYSE, or NYSE American, will already be
[[Page 11112]]
subject to such OATS requirements.\90\ To the extent an Exchange ETP
Holder is not also a member of FINRA, one of the Exchange's affiliated
exchanges, or Nasdaq (which also requires compliance with FINRA OATS
requirements), the Exchange believes that the OATS requirements for
non-FINRA members are not onerous, as order information pursuant to
those rules need only be submitted upon request.\91\
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\90\ The Exchange's affiliates, NYSE, NYSE Arca, and NYSE
American, all have substantially similar requirements and the
proposed rules are similar to the rules adopted by the Exchange's
affiliates. See NYSE Rules 7410 through 7470; NYSE Arca Rule 6.7410-
E through 6.7470-E.; and NYSE American Rule 7410--Equities through
7470--Equities. See also Nasdaq Rule 7400A Series.
\91\ See proposed Rule 6.7450-E(b). The Exchange is aware of
only one former Exchange ETP Holder that is not also a member of
FINRA, NYSE Arca, NYSE American, NYSE, or Nasdaq.
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The Exchange believes that requiring its members to comply with the
OATS rules will further promote cross-market surveillance and enhance
FINRA's ability to conduct surveillance and investigations for the
Exchange under a Regulatory Services Agreement. The proposed sub-
numbering of the OATS Rules (i.e., 7410-7470) mirrors the rule numbers
for the OATS rules on FINRA, NYSE, and NYSE American.
Because Rule 6 would include the Compliance Rules, the Fee Dispute
Rule, and the OATS rules, the Exchange proposes to delete the word
``System'' from the title of Rule 6. The Exchange further proposes to
delete the rules in Chapter XIV in their entirety.
Rule 7--Equities Trading
As noted above, the Exchange proposes trading rules based on the
cash equities rules of NYSE Arca and, in some cases specified below,
NYSE American. Accordingly, Proposed Rule 7 would include rules based
on NYSE Arca Rule 7-E or NYSE American 7E, or both, including general
provisions relating to trading, market makers, trading on the Exchange,
operation of the routing broker, and the Plan to Implement a Tick Size
Pilot Program. Proposed Rule 7 would therefore specify all aspects of
trading on the Exchange, including the orders and modifiers that would
be available and how orders would be ranked, displayed, and executed.
Similar to NYSE American, the Exchange proposes the following non-
substantive differences throughout Rule 7:
To use the term ``Exchange'' instead of ``NYSE Arca
Marketplace;''
to use the term ``Exchange Act,'' which is a proposed
defined term;
to use the term ``Exchange Book'' instead of ``NYSE Arca
Book;''
to use the term ``will'' instead of ``shall;''
to use the term ``ETP Holders'' instead of ``Users;'' and
to use the capitalized term ``Associated Person.''
In addition, because the Exchange will be using Pillar phase II
protocols, the Exchange will not include rule text based on NYSE Arca's
order behavior using Pillar phase I protocols, as described in NYSE
Arca Rules 7.11-E, 7.31-E, and 7.34-E.
Section 1 of Rule 7 would specify the General Provisions relating
to trading on the Pillar trading platform. The Exchange proposes the
following rules:
Proposed Rule 7.1 (Hours of Business) would specify that
the Exchange would be open for the transaction of business on every
business day. The proposed rule also sets forth when the President may
take specified actions, such as halting or suspending trading in some
or all securities on the Exchange. The proposed rule is based on NYSE
Arca Rule 7.1-E and NYSE American Rule 7.1E without any differences.
Proposed Rule 7.2 (Holidays) would establish the holidays
when the Exchange would not be open for business. The proposed rule is
based on NYSE American Rule 7.2E (which has updated rule text as
compared to NYSE Arca Rule 7.2-E regarding when that exchange would be
open for business if a holiday falls on a Sunday) without any
differences.
Proposed Rule 7.3 (Commissions) would establish that ETP
Holders may not charge fixed commissions and must indicate whether
acting as a broker or as principal. The proposed rule is based on NYSE
Arca Rule 7.3-E and NYSE American Rule 7.3E with a non-substantive
difference to reference ``Associated Persons,'' which is a defined term
on the Exchange, instead of the phrase ``Allied Persons, partners,
approved persons or stockholder associates'' in paragraph (c) of
proposed Rule 7.3.
Proposed Rule 7.4 (Ex-Dividend or Ex-Right Dates) would
establish the ex-dividend and ex-rights dates for stocks traded regular
way. The proposed rule is based on NYSE Arca Rule 7.4-E and NYSE
American Rule 7.4E without any differences.
Proposed Rule 7.5 (Trading Units) would establish the unit
of trading in stocks, including ``round lot,'' ``odd lot,'' and ``mixed
lot.'' The proposed rule is based on NYSE Arca Rule 7.5-E and NYSE
American Rule 7.5E without any differences.
Proposed Rule 7.6 (Trading Differentials) would establish
the minimum price variation for quoting and entry of orders for
securities priced at $1.00 or more and for securities priced at less
than $1.00. The proposed rule is based on NYSE Arca Rule 7.6-E and NYSE
American Rule 7.6E without any substantive differences.
Proposed Rule 7.7 (Transmission of Bids or Offers) would
establish that all bids and offers on the Exchange would be anonymous
unless otherwise specified by the ETP Holder. The proposed rule is
based on NYSE Arca Rule 7.7-E and NYSE American Rule 7.7E without any
differences.
Proposed Rule 7.8 (Bid or Offer Deemed Regular Way) would
establish that all bids and offers would be considered to be ``regular
way.'' This proposed rule text is based on NYSE Arca Rule 7.8-E and
NYSE American Rule 7.8E.
Proposed Rule 7.9 (Execution Price Binding) would
establish that, notwithstanding Exchange rules on clearly erroneous
executions, the price at which an order is executed is binding
notwithstanding that an erroneous report is rendered. This proposed
rule text is based on NYSE Arca Rule 7.9-E and NYSE American Rule 7.9E
without any differences.
Proposed Rule 7.10 (Clearly Erroneous Executions) would
set forth the Exchange's rules on clearly erroneous executions. The
proposed rule is based on NYSE Arca Rule 7.10-E and NYSE American Rule
7.10E with one substantive difference: because the Exchange would not
be conducting any auctions, the Exchange does not propose text based on
NYSE Arca Rule 7.10-E(a) and NYSE American Rule 7.10E(a) that provides
that executions as a result of a Trading Halt Auction are not eligible
for a request to review as clearly erroneous under paragraph (b) of
such rule.
Proposed Rule 7.11 (Limit Up--Limit Down Plan and Trading
Pauses in Individual Securities Due to Extraordinary Market Volatility)
would specify how the Exchange would comply with the Regulation NMS
Plan to Address Extraordinary Market Volatility (``LULD Plan'').\92\
The proposed rule is based on NYSE Arca Rule 7.11-E and NYSE American
Rule 7.11E with the following substantive differences. First, proposed
Rule 7.11(a)(6) is based on NYSE American Rule 7.11E(a)(6) and NYSE
Arca Rule 7.11-E(a)(7).\93\ Next, because the
[[Page 11113]]
Exchange will not be a listing exchange, the Exchange will not include
rule text based on NYSE Arca Rule 7.11-E(a)(8) (relating to triggering
a Straddle State under the LULD Plan), (a)(9) (relating to calculating
Price Bands after NYSE Arca opens or re-opens an Exchange-listed
security), or (b)(1) (relating to notifying the single plan processor
if NYSE Arca is not able to reopen trading at the end of a Trading
Pause due to a systems or technology issue). Finally, the Exchange
proposes that Rule 7.11(b) would provide that if a primary listing
market issues a Trading Pause, the Exchange would resume trading as
provided for in proposed Rule 7.18, which is based on NYSE Arca Rule
7.11-E(b)(2).
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\92\ See Securities Exchange Act Release No. 80455 (April 13,
2017), 82 FR 18519 (April 19, 2017) (Order approving thirteenth
amendment to the LULD Plan).
\93\ As noted above, the Exchange will be on Pillar phase II
protocols and therefore will not include rule text from NYSE Arca
regarding functionality based on Pillar phase I protocols.
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Proposed Rule 7.12 (Trading Halts Due to Extraordinary
Market Volatility) would establish rules on halts in trading due to
extraordinary market volatility and related reopening of trading. The
proposed rule is based on NYSE Arca Rule 7.12-E and NYSE American Rule
7.12E without any substantive differences.
Proposed Rule 7.13 (Trading Suspensions) would establish
authority for the Chair or the President of the Exchange to suspend
trading in any and all securities that trade on the Exchange if such
suspension would be in the public interest. This proposed rule is based
on NYSE Arca Rule 7.13-E and NYSE American Rule 7.13E without any
substantive differences. Because this proposed rule covers the same
subject matter as current Rule 12.11, as discussed below, the Exchange
does not propose to move Rule 12.11 to Rule 11 and would delete Rule
12.11.
Proposed Rule 7.14 (Clearance and Settlement) would
establish the requirements regarding an ETP Holder's arrangements for
clearing. Because all post-trade functions on the Exchange's Pillar
trading platform would follow the NYSE Arca procedures for post-trade
processing, the Exchange proposes rules that are based on NYSE Arca
rules [sic] clearing rules. Accordingly, the proposed rule is based on
NYSE Arca Rule 7.14-E and NYSE American Rule 7.14E without any
substantive differences.
Proposed Rule 7.15 (Stock Option Transactions) would
establish requirements for Market Makers relating to pool dealing and
having an interest in an option that is not issued by the Options
Clearing Corporation. The proposed rule is based on NYSE Arca Rule
7.15-E and NYSE American Rule 7.15E without any substantive
differences.
Proposed Rule 7.16 (Short Sales) would establish
requirements relating to short sales. The proposed rule is based on
NYSE Arca Rule 7.16-E with the following substantive differences.
Because the Exchange would not be a listing venue, the Exchange would
not be evaluating whether the short sale price test restrictions of
Rule 201 of Regulation SHO have been triggered. Accordingly, the
Exchange does not propose rule text based on NYSE Arca Rule 7.16-
E(f)(3) or NYSE American Rule 7.16E(f)(3) and would designate that sub-
paragraph as ``Reserved.'' For similar reasons, the Exchange proposes
not to include rule text based on NYSE Arca Rule 7.16-E(f)(4)(A) and
(B) or NYSE American Rule 7.16E(f)(4)(A) and (B).
Proposed Rule 7.17 (Firm Orders and Quotes) would
establish requirements that all orders and quotes must be firm. This
proposed rule is based on NYSE Arca Rule 7.17-E without any
differences.
Proposed Rule 7.18 (Halts) would establish rules relating
to trading halts of securities traded pursuant to UTP on the Exchange's
Pillar platform. This proposed rule is based on NYSE Arca Rule 7.18-
E(a), (b), and (d) and NYSE American Rule 7.18E(a), (b), and (d).
Proposed Rule 7.18(c) would be based on NYSE American Rule 7.18E(d) and
would use the Exchange-defined terms of ``Exchange Traded Product'' and
``UTP Exchange Traded Product.'' Because the Exchange will not be a
listing venue, the Exchange does not proposed rule text based on NYSE
Arca Rule 7.18-E(c) or NYSE American Rule 7.18E(c). In addition, the
Exchange proposes to use the term ``reopening auction'' instead of
``Trading Halt Auction'' in proposed Rule 7.18(b).
Section 2 of proposed Rule 7 proposes rules for market makers on
the Exchange. Specifically, for all securities that would trade on the
Exchange, an ETP Holder could register as a Market Maker and be subject
to obligations similar to the obligations of a Market Maker on NYSE
Arca. The Exchange proposes the following rules, based on cash equities
NYSE Arca and NYSE American rules of the same number with non-
substantive differences:
Proposed Rule 7.20 (Registration of Market Makers) would
establish the registration requirements for market makers on the
Exchange. This proposed rule is based on NYSE American Rule 7.20E
without any substantive differences. The Exchange proposes non-
substantive differences to cross reference the Rule 10.9500 and 10.9200
Series in proposed Rule 7.20(c) and (e), respectively.
Proposed Rule 7.21 (Obligations of Market Maker Authorized
Traders) would set forth the requirements that MMATs are permitted to
enter orders only for the account of the Market Maker for which they
are registered. The proposed rule would also specify the registration
requirements for MMAT and the procedures for suspension and withdrawal
of registration. This proposed rule is based on NYSE Arca Rule 7.21-E
and NYSE American Rule 7.21E without any substantive differences.
Proposed Rule 7.22 (Registration of Market Makers in a
Security) would set forth the process for Market Makers to become
registered in a security and the factors the Exchange may consider in
approving the registration of a Market Maker in a security. The
proposed rule would also describe both the termination of a Market
Maker's registration in a security by the Exchange and voluntary
termination by a Market Maker. This proposed rule is based on NYSE Arca
Rule 7.22-E and NYSE American Rule 7.22E without any substantive
differences. The Exchange proposes non-substantive differences to cross
reference proposed Rule 10.9200 and 10.9500 Series in proposed Rule
7.22(e) and (g), respectively.
Proposed Rule 7.23 (Obligations of Market Makers) would
set forth the obligation of all Market Makers to engage in a course of
dealings for their own account to assist in the maintenance, insofar as
reasonably practicable, of fair and orderly markets on the Exchange and
would delineate the specific responsibilities and duties of Market
Makers, including the obligation to maintain continuous, two-sided
trading in registered securities and certain pricing obligations Market
Makers are required to adhere to. This proposed rule is based on NYSE
Arca Rule 7.23-E and NYSE American Rule 7.23E without any substantive
differences. The Exchange proposes a non-substantive difference to
cross reference proposed Rule 10.9200 Series in proposed Rule 7.23(c).
Proposed Rule 7.28 (NMS Market Access) would implement the
Exchange's obligations under Rule 610 of Regulation NMS and is based on
NYSE Arca Rule 7.28-E without any differences.\94\
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\94\ Rules 7.24, 7.25, 7.26, and 7.27 would be designated as
``Reserved.''
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Section 3 of proposed Rule 7 would establish the Exchange's trading
rules. Among other things, these rules would establish the orders and
modifiers that would be available on the Exchange (proposed Rule 7.31),
would describe
[[Page 11114]]
order display and ranking (proposed Rule 7.36), and would describe how
the Exchange would ensure that orders would not trade through either
the PBBO (for Limit Orders) or NBBO (for Market Orders and Inside Limit
Orders) and when orders would route (proposed Rules 7.37 and 7.34).
As noted above, the Exchange will not conduct any auctions, and
therefore does not propose a rule based on NYSE Arca Rule 7.35-E or
NYSE American Rule 7.35E. In addition, because the Exchange would not
offer a retail liquidity program, the Exchange does not propose a rule
based on NYSE Arca Rule 7.44-E and proposed Rules 7.36, 7.37, and 7.38
would not include cross references to Rule 7.44.
Proposed Rule 7.29 (Access) would provide that the
Exchange would be available for entry and cancellation of orders by ETP
Holders with authorized access. To obtain authorized access to the
Exchange, each ETP Holder would be required to enter into a User
Agreement. Proposed Rule 7.29 is based on NYSE Arca Rule 7.29-E(a) and
NYSE American Rule 7.29E, without any substantive differences. The
Exchange does not propose to include rule text based on NYSE Arca Rule
7.29-E(b) because the Exchange would not offer sponsored access.
Proposed Rule 7.30 (Authorized Traders) would provide for
requirements relating to Authorized Traders and is based on NYSE Arca
Rule 7.30-E and NYSE American Rule 7.30E without any differences.
Proposed Rule 7.31 (Orders and Modifiers) would specify
the orders and modifiers that would be available on the Exchange. The
Exchange proposes to offer the same types of orders and modifiers that
are available on NYSE Arca, with specified substantive differences.
Accordingly, proposed Rule 7.31 is based on NYSE Arca Rule 7.31-E with
the following substantive differences.
First, in proposed Rule 7.31(a)(2)(B), in describing the Limit
Order Price Protection, the Exchange proposes to provide that a Limit
Order entered before the Core Trading Session that is designated for
the Core Trading Session only will become subject to Limit Order Price
Protection once it becomes eligible to trade. The Exchange proposes
this difference because the Exchange would not be conducting any
auctions on the Exchange.
Second, the Exchange proposes that, similar to NYSE Arca, it would
accept Auction-Only Orders (e.g., Limit-on-Open Order (``LOO Order''),
Market-on-Open Order (``MOO Order''), Limit-on-Close Order (``LOC
Order''), and Market-on-Close Order (``MOC Order''). However, because
the Exchange would not be conducting auctions, it proposes to define an
Auction-Only Order as a Limit or Market Order that is only to be routed
pursuant to proposed Rule 7.34. Accordingly, on arrival, such orders
would be routed to the primary listing market and would not be entered
on the Exchange Book. The Exchange proposes to accept four types of
Auction-Only Orders that would be routed to the primary listing market:
MOO, LOO, MOC, and LOC Orders. As described in proposed Rules 7.31(f)
and 7.34, such orders would be subject to the rule requirements of the
respective primary listing exchange to which they are routed. In
addition, because the Exchange would only accept and route Auction-Only
Orders, it would not include rule text based on the second sentences of
NYSE Arca Rules 7.31(c)(1) and (2) and would refer to such orders being
traded in ``an opening or re-opening auction'' or ``a closing
auction,'' rather than state that such orders would be traded during
``the Core Open Auction or a Trading Halt Auction'' or ``the Closing
Auction,'' which are defined terms in the NYSE Arca rules.
Third, because the Exchange would not be a listing venue, the
Exchange does not propose to include rule text that provides that ``[a]
Primary Only Order instruction on a security listed on the Exchange
will be ignored'' in proposed Rule 7.31(f)(1). Fourth, at this time,
the Exchange is not proposing to offer a Discretionary Pegged Order
and, therefore, proposes to designate Rule 7.31(h)(3) as ``Reserved''
and will not include a reference to Discretionary Pegged Orders in
proposed Rule 7.34.
Finally, similar to NYSE American Rule 7.31E(e)(1), the Exchange
proposes to refer to the order described in this rule text as a ``Limit
Non-Routable Order.''
Proposed Rule 7.32 (Order Entry) would establish
requirements for order entry size. The proposed rule is based on NYSE
Arca Rule 7.32-E and NYSE American Rule 7.32E without any substantive
differences.
Proposed Rule 7.33 (Capacity Codes) would establish
requirements for capacity code information that ETP Holders must
include with every order. The proposed rule is based on NYSE Arca Rule
7.33-E and NYSE American Rule 7.33E without any substantive
differences.
Proposed Rule 7.34 (Trading Sessions) would specify
trading sessions on the Exchange. Similar to NYSE Arca, the Exchange
proposes that on the Pillar trading platform, it would have Early,
Core, and Late Trading Sessions. However, the Exchange proposes that
the Early Trading Session would begin at 7:00 a.m. Eastern Time, which
is when the NYSE American Early Trading Session begins.\95\ Otherwise,
the Exchange proposes Rule 7.34 based on NYSE Arca Rule 7.34-E with the
following substantive differences to reflect that it would not operate
any auctions:
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\95\ See NYSE American Rule 7.34E(a)(1).
---------------------------------------------------------------------------
To designate Rule 7.34-E(c)(1)(B) as ``Reserved;''
In proposed Rule 7.34(c)(1)(C), to refer to orders being
rejected ``if entered before the Core Trading Session'' instead of
orders being rejected ``if entered before the Auction Processing Period
for the Core Open Auction;''
In proposed Rules 7.34(c)(1)(D), (c)(2)(A), and (c)(2)(B),
to not include phrases referring to ``securities that are not eligible
for an auction on the Exchange'' or ``securities that are not eligible
to [sic] the Core Open Auction'' from NYSE Arca Rules 7.34-E(c)(1)(D),
(c)(2)(A), and (c)(2)(B); and
In proposed Rule 7.34(c)(2)(C), to refer to orders being
rejected ``if entered before the Late Trading Session'' instead of
being rejected ``if entered before the Auction Processing Period for
the Closing Auction.''
Proposed Rule 7.36 (Order Ranking and Display) would
establish requirements for how orders would be ranked and displayed at
the Exchange. The proposed rule is based on NYSE Arca Rule 7.36-E and
NYSE American Rule 7.36E without any substantive differences.
Proposed Rule 7.37 (Order Execution and Routing) would
establish requirements for how orders would execute and route at the
Exchange, the data feeds that the Exchange would use, and Exchange
requirements under the Order Protection Rule and the prohibition on
locking and crossing quotations in NMS Stocks. This proposed rule is
based on NYSE Arca Rule 7.37-E without any substantive differences. The
Exchange proposes a non-substantive difference to proposed Rule 7.37(e)
to reflect the amended names of exchanges in the chart listing market
centers.
Proposed Rule 7.38 (Odd and Mixed Lot) would establish
requirements relating to odd lot and mixed lot trading on the Exchange.
The proposed rule is based on NYSE Arca Rule 7.38-E without any
substantive differences.\96\
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\96\ The Exchange does not propose a rule based on either NYSE
Arca Rule 7.39-E (concerning adjustment of open orders, which
relates to good-til-cancelled orders, which would not be available
on the Exchange) or NYSE American Rule 7.39E (concerning an off-
hours trading facility, which would not be offered on the Exchange)
and will designate Rule 7.39 as ``Reserved.''
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[[Page 11115]]
Proposed Rule 7.40 (Trade Execution and Reporting) would
establish the Exchange's obligation to report trades to an appropriate
consolidated transaction reporting system. The proposed rule is based
on NYSE Arca Rule 7.40-E and NYSE American Rule 7.40E without any
substantive differences.
Proposed Rule 7.41 (Clearance and Settlement) would
establish requirements that all trades be processed for clearance and
settlement on a locked-in and anonymous basis. The proposed rule is
based on NYSE American Rule 7.41E without any differences.
Section 4 of proposed Rule 7 would establish the Operation of a
Routing Broker. Specifically, proposed Rule 7.45 (Operation of a
Routing Broker) would establish the outbound and inbound function of
the Exchange's routing broker and the cancellation of orders and the
Exchange's error account. The proposed rule is based on NYSE Arca Rule
7.45-E and NYSE American Rule 7.45E without any substantive
differences. As noted above, the Exchange's affiliation with
Archipelago Securities LLC would be addressed in proposed Rule 7.45.
The Exchange therefore proposes to delete current Rule 2.10 [sic].
Section 5 of proposed Rule 7 would establish requirements relating
to the Plan to Implement a Tick Size Pilot Program. Proposed Rule 7.46
(Tick Size Pilot Plan) would specify such requirements. The proposed
rule is based on NYSE Arca Rule 7.46-E with a proposed substantive
difference not to include cross references to a Retail Liquidity
Program as the Exchange would not adopt the Retail Liquidity Program on
Pillar. The Exchange also proposes to designate proposed Rules
7.46(f)(4) as ``Reserved'' because the Exchange would not support
Retail Price Improvement Orders on Pillar.
Section 6 of proposed Rule 7 would establish requirements for
contracts in securities.
Proposed Rule 7.60 (Definitions and General Provisions)
would establish definitions used for purposes of Section 6 of Rule 7
and is based on NYSE Arca Rule 7.60-E without any differences.
Proposed Rule 7.61 would provide for requirements relating
to ETP contracts of the Exchange and that such contracts are binding.
This proposed rule is based on NYSE Arca Rule 7.61-E without any
differences.
Proposed Rule 7.62 (Delivery of Securities) would
establish requirements relating to the book entry settlement of
transactions. This proposed rule text is based on NYSE Arca Rule 7.62-
E(b). Because the Exchange is not a listing venue, the Exchange does
not propose rule text based on NYSE Arca Rule 7.62-E(a) or (c) as these
rules relate to requirements for securities listing on an exchange.
Because Rule 7 would set forth all rules relating to trading on the
Exchange, the Exchange proposes to delete the rules in Chapter XI in
their entirety. In addition, because Rule 7 would set forth rules
relating to comparison and settlement, the Exchange proposes to delete
the rules in Chapter XIII (Miscellaneous Provisions) in their entirety.
Finally, because the Exchange would use its affiliate, Archipelago
Securities LLC, as its routing broker, the Exchange also proposes to
delete Rule 2.11 (NSX Securities, LLC).
Rule 10--Disciplinary Proceedings, Other Hearings and Appeals
To facilitate the re-launch of trading on the Exchange and further
facilitate rule harmonization among SROs, the Exchange proposes Rule
10.8000 and Rule 10.9000 Series based on NYSE American Rule 8000 and
Rule 9000 Series of the Office Rules, with certain modifications, as
described below.\97\ NYSE American Rule 8000 and Rule 9000 Series are
disciplinary rules that are, with certain exceptions, substantially the
same as the Rule 8000 Series and Rule 9000 Series of the NYSE and
FINRA.\98\
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\97\ The Exchange notes that all but one of its ETP Holders
before it ceased trading operations in February 2017 were members of
FINRA, and as such were subject to FINRA's Rule 8000 Series and Rule
9000 Series. As a result, virtually all former ETP Holders were
already subject to the proposed rules described herein.
\98\ Securities Exchange Act Release Nos. [sic] 77241 (February
26, 2016), 81 FR 11311 (March 3, 2016) (SR-NYSEMKT-2016-30) (``2016
Notice''). See also Securities Exchange Act Release Nos. [sic] 78959
(September 28, 2016), 81 FR 68481 (October 4, 2016) (SR-NYSEMKT-
2016-71) (Notice). The NYSE American disciplinary rules were
implemented on April 15, 2016. See NYSE American Information
Memorandum 16-02 (March 14, 2016).
---------------------------------------------------------------------------
Unless otherwise specified below, the individual rules in the
proposed Rule 10.8000 and 10.9000 Series are based on the individual
rules of the counterpart NYSE American Rule 8000 and 9000 Series
without any differences, except that the Exchange:
Would use the term ``ETP Holder'' rather than ``member and
member organization'' or ``member organization or ATP Holder'' as is
used by NYSE American, consistent with the Exchange's other proposed
rules;
would use the term ``Associated Person'' or ``Person
Associated with an ETP Holder,'' which are defined terms on the
Exchange, rather than the term ``covered person;''
would not utilize Floor-Based Panelists referenced in NYSE
American Rules 9120(q), 9212(a)(2)(B), 9221(a)(3), 9231(b)(2) and
(c)(2), and 9232(c) because the Exchange will not have a trading floor;
would not adopt NYSE American Rules 8001 and 9001, which
describe the effective date of the NYSE American rules;
would not retain the text of NYSE American's legacy minor
rules; and
proposes non-substantive grammatical differences in
specified rules, described below, which do not change the meaning of
the proposed rule text as compared to the NYSE American version of the
same rule.
Proposed Rule 10.8000 Series
The Proposed Rule 10.8000 Series would address Investigations and
Sanctions. Proposed Rule 10.8100 (General Provisions) would include the
following:
Proposed Rule 10.8120 (Definitions) would provide that
unless otherwise provided, terms used in the Rule 10.8000 Series would
have the meaning as defined in applicable Exchange rules and that the
terms ``Adjudicator'' and ``Exchange'' [sic] would have the meaning in
proposed Rule 10.9120. The Exchange proposes non-substantive
grammatical differences for paragraphs (a) and (b) as compared to NYSE
American Rule 8120(a) and (b).
Proposed Rule 10.8130 (Retention of Jurisdiction) would
set forth retention of jurisdiction provisions that are the same as
NYSE American Rule 8130, except for a non-substantive grammatical
difference in paragraph (b) to add the word ``who'' and the cross-
reference in paragraph (b)(1) that would be conformed to the Exchange's
rules. Under the proposed rule change, the Exchange would retain
jurisdiction to file a complaint against an ETP Holder or Associated
Person for two years after such ETP Holder's or Associated Person's
status is terminated.
Proposed Rule 10.8200 (Investigations) would set forth the
following rules: \99\
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\99\ NYSE American Rules 8212, 8213, and 8312 are marked as
``Reserved.'' To maintain consistency with NYSE American's rule
numbering, the Exchange proposes to designate proposed Rules
10.8212, 10.8213, and 10.8312 as ``Reserved.''
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Proposed Rule 10.8210 (Provisions of Information and
Testimony and
[[Page 11116]]
Inspection and Copying of Books) would set forth procedures for the
provision of information and testimony and inspection and copying books
by the Exchange. In addition to describing requirements relating to the
process for such inspection and copying, this proposed rule would
provide authority for the Exchange to enter into regulatory cooperation
agreements with other SROs and regulators (proposed Rule 10.8210(b)).
The Exchange proposes non-substantive grammatical differences from NYSE
American Rule 8210 in subsection (g) and Commentary .01.
Proposed Rule 10.8211 (Automated Submission of Trading
Data Requested by the Exchange) would set forth the procedures for
electronic blue sheets [sic].
Proposed Rule 10.8300 (Sanctions) would set forth the following
rules:
Proposed Rule 10.8310 (Sanctions for Violations of the
Rules) would set forth the range of sanctions that could be imposed in
connection with disciplinary actions under the proposed rule change.
Proposed Rule 10.8311 (Effect of a Suspension, Revocation,
Cancellation, Bar or Other Disqualification) would provide that if the
Commission or the Exchange imposed a suspension, revocation,
cancellation or bar on an Associated Person, an ETP Holder may not
permit such person to remain associated, and, in the case of a
suspension, may not make any remuneration that results from any
securities transaction.
Proposed Rule 10.8313 (Release of Disciplinary Complaints,
Decisions and Other Information) would provide that the Exchange would
publish all final disciplinary decisions issued under the proposed Rule
9000 [sic] Series, other than minor rule violations, on its website.
Proposed Rule 10.8320 (Payment of Fines, Other Monetary
Sanctions, or Costs; Summary Action for Failure to Pay) would govern
payment of fines and other monetary sanctions or costs and provide for
a summary action for an ETP Holder's failure to pay.\100\ The Exchange
proposes a non-substantive grammatical difference from NYSE American
Rule 8320 in paragraph (b)(1).
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\100\ The Exchange does not propose to adopt NYSE American Rule
8320(d), which addresses transition from its legacy disciplinary
rules. The Exchange does not currently have any pending disciplinary
actions under its current disciplinary rules, and therefore does not
need to retain those rules for a transition period.
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Proposed Rule 10.8330 (Costs of Proceedings) would provide
that a disciplined ETP Holder or Associated Person may be assessed the
costs of a proceeding, which are determined by the Adjudicator.
Proposed Rule 10.9000 Series
Proposed Rule 10.9000 Series sets forth the Exchange's proposed
Code of Procedure.
Proposed Rule 10.9100 Series (Application and Purpose)
Proposed Rule 10.9100 Series (Application and Purpose) would set
forth the following rules:
Proposed Rule 10.9110 (Application) would state the types
of proceedings to which the proposed Rule 10.9000 Series would apply
(each of which is described below) and the rights, duties, and
obligations of ETP Holders and Associated Persons, and would set forth
the defined terms and cross-references. The Exchange proposes a non-
substantive grammatical difference from NYSE American Rule 9110 in
paragraph (c).
Proposed Rule 10.9120 (Definitions) would set forth
definitions that would be applicable to the Rule 10.9000 Series. The
definitions are based on definitions set forth in NYSE American Rule
9120, except that the Exchange would not define the terms ``Board of
Directors,'' ``covered person,'' ``Exchange, and ``Floor-Based
Panelist'' in proposed Rule 10.9120 and would designate paragraphs (b),
(g), (n), and (q) as ``Reserved.'' The terms ``Board of Directors'' and
``Exchange'' would already be defined in proposed Rule 1.1, and
therefore the Exchange does not need to separately define these terms
in proposed Rule 10.9120. The Exchange does not believe that it needs
to define the term ``covered person'' because the Exchange already has
a defined term of ``Person Associated with an ETP Holder'' or
``Associated Person,'' and use of that term would address all persons
subject to Exchange jurisdiction under proposed Rule 10 Series. The
term ``Interested Staff'' in paragraph (t) contains a non-substantive
grammatical difference from the NYSE American version and the
definition of ``Party'' in paragraph (w)(2) includes ``or Associated
Person'' after ``ETP Holder.'' Finally, the Exchange would not include
the term ``Floor-Based Panelist'' because the Exchange would not have a
trading floor.
Proposed Rule 10.9130 (Service; Filing of Papers)
Proposed Rule 10.9130, setting forth proposed Rules 10.9131 through
10.9138, would govern the service of a complaint or other procedural
documents under the Rules.
Proposed Rule 10.9131 would set forth the requirements for serving
a complaint or document initiating a proceeding. Proposed Rule 10.9132
would cover the service of orders, notices, and decisions by an
Adjudicator. Proposed Rule 10.9133 would govern the service of papers
other than complaints, orders, notices, or decisions. Proposed Rule
10.9134 would describe the methods of service and the procedures for
service. Proposed Rule 10.9135 would set forth the procedure for filing
papers with an Adjudicator. Proposed Rule 10.9136 would govern the form
of papers filed in connection with any proceeding under the proposed
Rule 10.9200 and 10.9300 Series. Proposed Rule 10.9137 would state the
requirements for and the effect of a signature in connection with the
filing of papers. Finally, proposed Rule 10.9138 would establish the
computation of time.
Proposed Rule 10.9140 (Proceedings)
Proposed Rules 10.9140, setting forth proposed Rules 10.9141
through 10.9148, would govern the conduct of disciplinary proceedings.
Proposed Rule 10.9141 would govern appearances in a proceeding,
notice of appearances, and representation. Proposed Rule 10.9141 would
permit a Respondent to represent himself or be represented by a bar-
admitted U.S. attorney. The proposed rule also permits a partnership to
be represented by a partner and a corporation, trust, or association to
be represented by an officer of such entity. Proposed Rule 10.9141
requires an attorney or representative to file a notice of appearance.
Proposed Rule 10.9142 would require an attorney or representative to
file a motion to withdraw.
Proposed Rule 10.9143 would set forth requirements relating to ex
parte communications with an Adjudicator or Exchange employee involved
in a proceeding. The Exchange proposes non-substantive grammatical
differences from NYSE American Rule 9143 in paragraphs (c) and (e)(3).
Proposed Rule 10.9144 would establish the separation of functions
for Interested Staff and Adjudicators and provide for waivers.
Proposed Rule 10.9145 would provide that formal rules of evidence
would not apply in any proceeding brought under the proposed Rule
10.9000 Series.
Proposed Rule 10.9146 would govern motions a Party may make and
requirements for responses and formatting. The Exchange proposes non-
substantive grammatical differences
[[Page 11117]]
from NYSE American Rule 9146 in paragraph (b)(2).
Proposed Rule 10.9147 would provide that Adjudicators may rule on
procedural matters.
Finally, proposed Rule 10.9148 would generally prohibit
interlocutory review, except as provided in proposed Rule 10.9280 for
contemptuous conduct.
Proposed Rule 10.9150 (Exclusion From Rule 10.9000 Series Proceeding)
Proposed Rule 10.9150 would provide that a representative can be
excluded by an Adjudicator for improper or unethical conduct. The
Exchange proposes a non-substantive difference to refer to ``improper
conduct'' in paragraph (a) rather than limiting term of ``improper
professional conduct,'' which is in NYSE American Rule 9150.
Proposed Rule 10.9160 (Recusal or Disqualification)
Proposed Rule 10.9160 would provide that no person may act as an
Adjudicator if he or she has a conflict of interest or bias, or
circumstances exist where his or her fairness could reasonably be
questioned. In such case, the person must recuse himself or may be
disqualified. The proposed rule would cover the recusal or
disqualification of an Adjudicator, the Board, or a Director. Proposed
Rules 9160(b) [sic], (c), and (d) are designated as ``Reserved'' to
maintain consistency with NYSE American's rule numbering.
Proposed Rules 10.9200 Series (Disciplinary Proceedings)
Proposed Rule 10.9200 would cover disciplinary proceedings.
Proposed Rule 10.9210 (Complaint and Answer) would set forth the
following rules:
Proposed Rule 10.9211 (Authorization of Complaint) would
permit Enforcement to request the authorization of the Chief Regulatory
Officer (``CRO'') to issue a complaint against an ETP Holder or
Associated Person, thereby commencing a disciplinary proceeding.
Proposed Rule 10.9212 (Complaint Issuance--Requirements,
Service, Amendment, Withdrawal, and Docketing) would set forth the
requirements of the complaint, amendments to the complaint, withdrawal
of the complaint, and service of the complaint. Unlike NYSE American
Rule 9212, because the Exchange would not have a floor, the proposed
rule would not provide for Enforcement to select one Floor-Based
Panelist.
Proposed Rule 10.9213 (Assignment of Hearing Officer and
Appointment of Panelists to Hearing Panel or Extended Hearing Panel)
would provide for the appointment of a Hearing Officer and Panelists by
the Chief Hearing Officer.
Proposed Rule 10.9214 (Consolidation or Severance of
Disciplinary Proceedings) would permit the Chief Hearing Officer to
sever or consolidate two or more disciplinary proceedings under certain
circumstances and permit a Party to move for such action under certain
circumstances. The Exchange proposes non-substantive grammatical
differences from NYSE American Rule 9214 in paragraphs (b) and (e).
Proposed Rule 10.9215 (Answer to Complaint) would set
forth requirements for answering a complaint, including form, service,
notice, content, defenses, amendments, default, and timing.
Proposed Rule 10.9216 (Acceptance, Waiver, and Consent;
Procedure for Imposition of Fines for Minor Violation(s) of Rules)
would establish the acceptance, waiver, and consent (``AWC'')
procedures by which a Respondent, prior to the issuance of a complaint,
may execute a letter accepting a finding of violation, consenting to
the imposition of sanction(s), and agreeing to waive such Respondent's
right to a hearing, appeal, and certain other procedures.\101\ It also
would establish procedures for executing a minor rule violation plan
letter. The Exchange proposes non-substantive grammatical differences
from NYSE American Rule 9216 in paragraph (a).
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\101\ Proposed Rule 10.9270 would address settlement procedures
after the issuance of a complaint.
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Together with proposed Rule 10.9216(b), proposed Rule 10.9217 would
be the Exchange's Minor Rule Violation Plan (``MRVP'') and would set
forth the list of rules under which an ETP Holder or Associated Person
may be subject to a fine under a MRVP as described in proposed Rule
10.9216(b).
The Exchange proposes to adopt the list of rules and associated
fine levels for minor rule violations set forth in NYSE American Rule
9217, which sets forth NYSE American's MRVP. As noted above, the
Exchange does not propose rule text based on the legacy trading rules
contained in NYSE American Rule 9217(c), which are unique to NYSE
American. The Exchange further would not include rule text based on
NYSE American Rule 9217(e), which sets forth NYSE American's legacy
MRVP and includes fines for options-related rules, which are not
applicable on the Exchange. Finally, the Exchange does not propose rule
text based on NYSE American's Rule 9217 ``List of Reports Required to
be Filed with the Exchange by ATP Holders and Filing Deadlines'' as
these relate to fines charged for failure to timely file financial
reports by ETP Holders designated to the Exchange. Because the Exchange
is not currently a designated examining authority (``DEA'') for any ETP
Holders, these fines would be inapplicable to the Exchange.
Proposed Rule 10.9217(a) titled ``Trading Rule Violations'' would
set forth the following eligible trading rule violations:
Short Sale Rules (Rule 7.16).
Failure to maintain continuous, two-sided Q Orders in
those securities in which the Market Maker is registered to trade (Rule
7.23(a)(1)).
Failure to comply with Authorized Trader requirements
(Rule 7.30).
Acting as a Market Maker in a security without being
registered as such as required by Rule 7.20(a).
Proposed Rule 10.9217(b), titled ``Record Keeping and Other Minor
Rule Violations,'' would set forth minor rule violations relating to
recordkeeping. The proposed substantive rule violations are based on
NYSE American Rule 9217(b) with non-substantive differences to cross-
reference the applicable Exchange rule, as follows: \102\
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\102\ See NYSE American Rule 9217(a) (NYSE American Rules 7.16,
7.20, 7.23, 7.30). Proposed Rules 7.16 (Short Sales), 7.20
(Registration of Market Makers) and 7.23 (Obligations of Market
Makers) are based on the NYSE American Rules (which were in turn
based on analogous NYSE Arca rules) with the same numbers without
any substantive differences. See also NYSE American Rule 9217(b)
(NYSE American Rules 2.21E, 2.24E and 6.3E). Proposed NYSE National
Rule 11.5.5 is based on NYSE American Rule 6.3E without any
substantive differences. Proposed NYSE National Rules 2.2
(Obligations of ETP Holders and the Exchange) and 11.4.1 (Books and
Records Requirements) address the same subject matter as NYSE
American Rules 2.21E and 2.24E. Finally, proposed Rule 9217(a) [sic]
would not incorporate an eligible rule based on NYSE American Rule
6.15E prohibiting prearranged trades, which the Exchange is not
adopting.
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Failure to comply with the employee registration or other
requirements of Rule 2.2.
Failure to comply with the books and records requirements
of Rule 11.4.1.
Failure to comply with the requirements for preventing the
misuse of material nonpublic information as set forth in Rule 11.5.5
and its Commentaries.
Proposed Rule 10.9217(c) is based on NYSE American Rule 9217(d)
without any substantive differences and would set forth the fine
schedule that would be applicable to the Exchange's MRVP. Proposed Rule
10.9217(c)(1) would set
[[Page 11118]]
forth the fine levels for trading rule violations as follows:
Violations of Rule 7.16 would be eligible for a $500 first
level fine, a $1,000 second level fine, and a $2,500 third level fine;
Violations of Rule 7.23(a)(1) would be eligible for a $250
first level fine, a $500 second level fine, and a $1,000 third level
fine;
Violations of Rule 7.30 would be eligible for a $1,000
first level fine, a $2,500 second level fine, and a $3,500 third level
fine; and
Violations of Rule 7.20(a) would be eligible for a $250
first level fine, a $500 second level fine, and a $1,000 third level
fine.
Proposed Rule 10.9217(c)(2) would set forth the fine levels for the
record keeping and other minor rule violations as follows:
Violations of Rule 11.5.5 would be eligible for a $2,000
first level fine, a $4,000 second level fine, and a $5,000 third level
fine; \103\
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\103\ The proposed rule would adopt NYSE American's maximum
$5,000 fine for minor rule violations. The Exchange's current
maximum fine for minor rule violations is $2,500. See Rule 8.15(a).
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Violations of Rule 11.4.1 would be eligible for a $2,000
first level fine, a $4,000 second level fine, and a $5,000 third level
fine; and
Violations of Rule 2 would be eligible for a $1,000 first
level fine, a $2,500 second level fine, and a $3,500 third level
fine.\104\
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\104\ The Exchange proposes to add a footnote 1 providing that,
in addition to the specified fines, the Exchange may require a
violator to remit all fees that it should have paid to the Exchange
pursuant to Rule 2.2 [sic]. The proposed footnote would be identical
to footnote 1 in NYSE American Rule 9217(d)(2).
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Proposed Rule 10.9220 (Request for Hearing; Extensions of Time,
Postponements, Adjournments)
Proposed Rules 10.9221 through 10.9222 would describe how a
Respondent can request a hearing, the notice of a hearing, and timing
considerations. Proposed Rule 10.9221 provides that a Hearing Officer
generally must provide at least 28 days' notice of the hearing.
Proposed Rule 10.9230 (Appointment of Hearing Panel, Extended Hearing
Panel)
Proposed Rule 10.9230 would set forth proposed Rules 10.9231
through 10.9235, which would establish how Hearing Panels, Extended
Hearing Panels, Replacement Hearing Officers, Panelists, and
Replacement Panelists are appointed and their composition and criteria
for selection.
Proposed Rule 10.9231 would set forth the role of the
Chief Hearing Officer to appoint a Hearing Panel or an Extended Hearing
Panel.
Proposed Rule 10.9232 would set forth the criteria for the
selection of Panelists and Replacement Panelists. Because the Exchange
would not have a Floor, the Exchange proposes a difference from NYSE
American Rule 9232 by not referring to ``Floor-based Panelists.'' The
proposed rule would also replace the term ``hearing board'' with the
terms ``Business Conduct Committee'' or ``BCC'' to reflect the
Exchange's terminology as compared to NYSE American regarding who may
be a Panelist.
Proposed Rules 10.9233 and 10.9234 would establish the
processes for recusal and disqualification of Hearing Officers, Hearing
Panels, or Extended Hearing Panels.
Proposed Rule 10.9235 would set forth the Hearing
Officer's duties and authority in detail.
Proposed Rule 10.9240 (Pre-hearing Conference and Hearing [sic])
Proposed Rules 10.9241 through 10.9242 would establish the
substantive and procedural requirements for pre-hearing conferences and
pre-hearing submissions.
Proposed Rule 10.9250 (Discovery)
Proposed Rule 10.9250 would set forth proposed Rules 10.9251
through 10.9253, which would address discovery, including the
requirements and limitations relating to the inspection and copy of
documents in the possession of Interested Staff, requests for
information and limitations on such requests, and the production of
witness statements and any harmless error relating to the production of
such witness statements.
Proposed Rule 10.9251 would set forth requirements relating to
inspection and copying of documents prepared or obtained by Interested
Staff in connection with an investigation [sic].
Under proposed Rule 10.9252, a Respondent could request that the
Exchange invoke proposed Rule 10.8210 to compel the production of
Documents or testimony at the hearing if the Respondent can show that
certain standards are met, e.g. [sic], that the information sought is
relevant, material, and non-cumulative.
Under proposed Rule 10.9253, a Respondent could file a motion to
obtain certain witness statements.
Proposed Rule 10.9260 (Hearing and Decision)
Proposed Rule 10.9260 would set forth proposed Rules 10.9261
through 10.9269, which would relate to hearings and decisions.
Proposed Rule 10.9261 would generally require the Parties
to submit a list [sic] of documentary evidence and witnesses no later
than 10 days before the hearing.
Proposed Rule 10.9262 would require persons subject to the
Exchange's jurisdiction to testify under oath or affirmation at a
hearing.
Proposed Rule 10.9263 would authorize the Hearing Officer
to exclude irrelevant, immaterial, or unduly repetitious or prejudicial
evidence and permit a Party to object to the admission of evidence;
excluded evidence would be part of the record.
Proposed Rule 10.9264 would allow Parties to file a motion
for summary disposition under certain circumstances and would describe
the procedures for filing and ruling on such motion.
Proposed Rule 10.9265 would require that the hearing be
recorded by a court reporter, that a transcript be prepared and made
available for purchase, and that a Party be permitted to seek a
correction of the transcript from the Hearing Officer.
Proposed Rule 10.9266 would authorize the Hearing Officer
to require a post-hearing brief or proposed finding of facts and
conclusions of law and would outline the form and timing for such
submissions.
Proposed Rule 10.9267 would detail the required contents
of the hearing record and the treatment of any supplemental documents
attached to the record.
Proposed Rule 10.9268 would set forth the timing and the
contents of a decision of the Hearing Panel or Extended Hearing Panel
and the procedures for a dissenting opinion, service of the decision,
and any requests for review.
Finally, proposed Rule 10.9269 would establish the process
for the issuance and review of default decisions by a Hearing Officer
when a Respondent fails to timely answer a complaint or fails to appear
at a pre-hearing conference or hearing where due notice has been
provided. A Party may, for good cause shown, file a motion to set aside
a default decision.\105\
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\105\ Under the proposed rule change, if a respondent admits the
charges or they are not in dispute, the parties could utilize the
AWC procedure under proposed Rule 10.9216.
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Proposed Rule 10.9270 (Settlement Procedure)
Proposed Rule 10.9270 would provide for a settlement procedure for
a Respondent who has been notified that
[[Page 11119]]
a proceeding has been instituted against him or her. The proposed rule
would set forth requirements relating to both contested and uncontested
offers of settlement.
Proposed Rule 10.9280 (Contemptuous Conduct)
Proposed Rule 10.9280 would set forth sanctions for contemptuous
conduct by a Party or attorney or other representative, which may
include exclusion from a hearing or conference, and sets forth a
process for reviewing such exclusions.
Proposed Rule 10.9290 (Expedited Disciplinary Proceedings)
Under proposed Rule 10.9290, for any disciplinary proceeding, the
subject matter of which also is subject to a temporary cease and desist
proceeding initiated pursuant to proposed Rule 10.9810 or a temporary
cease and desist order, hearings would be required to be held and
decisions rendered at the earliest possible time.
Proposed Rule 10.9291 (Permanent Cease and Desist Orders)
Proposed Rule 10.9291 would set forth the requirements for issuing
a permanent cease and desist order under proposed Rules 10.9268,
10.9269, or 10.9270.
Proposed Rule 10.9300 Series (Review of Disciplinary Proceedings by
Exchange Board of Directors)
Proposed Rule 10.9300 includes proposed Rule 10.9310, which would
set forth the Exchange's Board review process, including the process
for a request for review of any determination or penalty and review by
the Exchange's Board.\106\
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\106\ The Exchange does not trade options and therefore does not
propose to distinguish between appeals panels for equity and options
matters as in NYSE American Rule 9310(b).
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Proposed Rule 10.9500 Series (Other Proceedings)
The proposed Rule 10.9500 Series would set forth all other
proceedings under the Exchange Rules [sic].
Proposed Rule 10.9520 (Eligibility Proceedings) would set forth
proposed Rules 10.9521 through 10.9527, which would govern eligibility
proceedings for persons subject to statutory disqualifications that are
not FINRA members.
Proposed Rule 10.9521 would add certain definitions relating to
eligibility proceedings, including ``Application,'' ``disqualified ETP
Holder,'' ``disqualified person,'' and ``sponsoring ETP Holder.''
Proposed Rule 10.9522 would govern the initiation of an eligibility
proceeding by the Exchange and the obligation for an ETP Holder to file
an application to initiate an eligibility proceeding if it has been
subject to certain disqualifications. Proposed Rule 10.9523 would allow
the Department of Member Regulation to recommend a supervisory plan to
which the disqualified ETP Holder, sponsoring ETP Holder, and/or
disqualified person, as the case may be, may consent and by doing so,
waive the right to hearing or appeal if the plan is accepted and the
right to claim bias or prejudgment, or prohibited ex parte
communications. If such a supervisory plan were rejected, proposed Rule
10.9524 would allow a request for review by the applicant to the Board.
Proposed Rule 10.9527 would provide that a filing of an application for
review would not stay the effectiveness of final action by the Exchange
unless the Commission otherwise ordered. To maintain consistency with
NYSE American's rule numbering, proposed Rules 10.9525 and 10.9526
would be designated ``Reserved.''
Proposed Rule 10.9550 (Expedited Proceedings)
Proposed Rule 10.9550 would set forth proposed Rule 10.9552 through
10.9560 and would govern expedited proceedings.
Proposed Rule 10.9551 would be marked ``Reserved'' because
the Exchange has not adopted a rule analogous to NYSE American Rules
2210--Equities (Communications with the Public).
Proposed Rule 10.9552 would establish procedures and
consequences in the event that an ETP Holder or Associated Person
failed to provide any information, report, material, data, or testimony
requested or required to be filed under the Exchange's rules, or failed
to keep its membership application or supporting documents current.
Proposed Rule 10.9554 \107\ would contain similar
procedures and consequences as proposed Rule 10.9552 relating to a
failure to comply with an arbitration award or related settlement or an
Exchange order of restitution or Exchange settlement agreement
providing for restitution.
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\107\ Proposed Rule 10.9553 would be designated ``Reserved'' to
maintain consistency with NYSE American's rule numbering.
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Proposed Rule 10.9555 would govern the failure to meet the
eligibility or qualification standards or prerequisites for access to
services offered by the Exchange.
Proposed Rule 10.9556 would provide procedures and
consequences for a failure to comply with temporary and permanent cease
and desist orders issued under proposed Rules 10.9200, 10.9300 or
10.9800 Series.
Proposed Rule 10.9557 would allow the Exchange to issue a
notice directing an ETP Holder to comply with the net capital
provisions of Exchange Act Rule 15c3-1.\108\ As noted above, the
Exchange is not currently the DEA for any ETP Holders, but proposes
this rule should it become a DEA.
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\108\ See 17 CFR 240.15c3-1. The Exchange does not have rules
analogous to NYSE American rules 4110--Equities (Capital
Compliance), 4120--Equities (Regulatory Notification and Business
Curtailment), or 4130--Equities (Regulation of Activities of Section
15C Member Organizations Experiencing Financial and/or Operational
Difficulties) referenced in NYSE American's version of proposed Rule
9557 [sic].
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Proposed Rule 10.9558 would allow the Exchange's CRO or
such other senior officer as the CRO may designate to provide written
authorization to the Exchange staff to issue a written notice for a
summary proceeding for an action authorized by Section 6(d)(3) of the
Exchange Act.
Proposed Rule 10.9559 would set forth uniform hearing
procedures for all expedited proceedings under the proposed Rule
10.9550 Series.
Proposed Rule 10.9560 would set forth procedures for
issuing suspension orders, immediately prohibiting a member
organization or Associated Person from conducting continued disruptive
quoting and trading activity on the Exchange in violation of proposed
Rule 11.12.11 (discussed below).
Proposed Rule 10.9600 Series (Procedures for Exemptions)
Proposed Rule 10.9600, setting forth proposed Rules 10.9610 through
10.9630, would describe procedures by which an ETP Holder could seek
exemptive relief from proposed Rule 10.8211 (Automated Submission of
Trading Data [sic]).
Under proposed Rule 10.9610, an ETP Holder seeking exemptive relief
would be required to file a written application with the appropriate
department or staff of the Exchange and provide a copy of the
application to the CRO. Under proposed Rule 10.9620, after considering
the application, the Exchange staff would be required to issue a
written decision setting forth its findings and conclusions. The
decision would be served on the Applicant pursuant to proposed Rules
10.9132 and 10.9134. Proposed Rule 10.9630 would set forth the appeal
process for a
[[Page 11120]]
decision issued under proposed Rule 10.9620.
Proposed Rule 10.9700 Series
Rule 10.9700 would be marked ``Reserved'' to maintain consistency
with NYSE American's rule numbering conventions.
Proposed Rule 10.9800 Series (Temporary Cease and Desist Orders)
Proposed Rule 10.9800, setting forth proposed Rule 10.9810 through
10.9870, would describe procedures for issuing temporary cease and
desist orders.
Proposed Rule 10.9810 would set forth the process for
initiating a temporary cease and desist proceeding with respect to
alleged violations of Section 10(b) of the Act, SEC Rules 10b-5 and
15g-1 through 15g-9, Rule 11.5 (if the alleged violation is
unauthorized trading, or misuse or conversion of customer assets, or is
based on violations of Section 17(a) of the Securities Act of 1933) or
Rule 11.3.1 (Business Conduct of ETP Holders).\109\
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\109\ The Exchange does not have analogous rules to NYSE
American rules 476(a)(5) or Rule 2020--Equities referenced in NYSE
American's version of proposed Rule 10.9810.
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Proposed Rule 10.9820 would govern the appointment of a
Hearing Officer and Panelists for a temporary cease and desist
proceeding.
Proposed Rule 10.9830 would set forth the procedures for a
hearing relating to a temporary cease and desist proceeding.
Proposed Rule 10.9840 would set forth the process for the
Hearing Panel to issue a written decision stating whether a temporary
cease and desist order would be imposed.
Proposed Rule 10.9850 would set forth the process for a
Respondent to apply to the Hearing Panel to have a temporary cease and
desist order modified, set aside, limited, or suspended.
Proposed Rule 10.9860 would authorize the initiation of a
suspension or cancellation of a Respondent's association or membership
under proposed Rule 10.9556 if the Respondent violated a temporary
cease and desist order.
Finally, proposed Rule 10.9870 would provide that
temporary cease and desist orders issued under the proposed Rule 9800
[sic] Series would constitute final and immediately effective
disciplinary sanctions imposed by the Exchange, and that the right to
have any action under this rule series reviewed by the Commission would
be governed by Section 19 of the Exchange Act.
Because Rule 10 would set forth all rules relating to discipline,
suspension of an ETP Holder, and adverse actions, the Exchange proposes
to delete the rules in Chapters VII, VIII and X in their entirety.
Rule 11--Rules of Fair Practice; Books and Records; Supervision;
Extensions of Credit; Trading Practice Rules
The Exchange proposes to maintain current NYSE National rules
regarding rules of fair practice, books and records, supervision,
extensions of credit, and trading practices. These rules are currently
found in Chapters III, IV, V, VI, and XII, respectively, of the
Exchange's rulebook. The Exchange proposes to relocate these rules to
Rule 11 which under the Framework Filing is titled Business Conduct. To
reflect the content of Rule 11, the Exchange proposes to rename Rule 11
as ``Rules of Fair Practice; Books and Records; Supervision; Extensions
of Credit; Trading Practices.'' In moving the rules, the Exchange
proposes non-substantive differences to change references from
``Interpretations and Policies'' to ``Commentary,'' to use a different
sub-paragraph numbering format, and to capitalize the term ``Associated
Person.'' \110\
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\110\ Current Exchange rules use an ``(a)(i)(A)(1)'' sub-
paragraph numbering convention and the Exchange proposes to use an
``(a)(1)(A)(i)'' sub-paragraph numbering convention.
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Because all such rules would be relocated to Rule 11 and to
maintain consistency with the current rulebook, the Exchange proposes
that the sub-numbering of each such rule would be the same as the
existing rule number. For example, current Rule 3.1 would be renumbered
as Rule 11.3.1. By maintaining sub-numbering that aligns with existing
rule numbers, ETP Holders that reference such rules in policies and
procedures would not need to revise such policies and procedures
because the rule requirements would map to the same number. Because the
purpose of such sub-numbering is to align with existing rule numbers,
the Exchange does not propose to designate any rules as ``Reserved.''
Rather, the Exchange proposes to add sub-headings before each section
of Rule 11 to describe which rules would be set forth in each set of
sub-numbered rules.
The Exchange proposes to renumber the rules in Chapter III as
follows and add a subheading before such rules that provides ``Rules of
Fair Practice'':
Rule 3.1 (Business Conduct of ETP Holders) would be
renumbered as Rule 11.3.1 without any changes.
Rule 3.2 (Violations Prohibited) would be renumbered as
Rule 11.3.2 without any substantive changes.
Rule 3.3 (Use of Fraudulent Devices) would be renumbered
as Rule 11.3.3 without any changes.
Rule 3.4 (False Statements) would be renumbered as Rule
11.3.4 without any changes.
Rule 3.5 (Advertising Practices) would be renumbered as
Rule 11.3.5 without any substantive changes.
Rule 3.6 (Fair Dealing with Customers) would be renumbered
as Rule 11.3.6 without any substantive changes.
Rule 3.7 (Recommendations to Customers) would be
renumbered as Rule 11.3.7. The Exchange proposes one substantive
amendment to delete the Interpretation and Policy .01 because it
references a rule that would not be included in the Exchange's proposed
rulebook.
Rule 3.8 (The Prompt Receipt and Delivery of Securities)
would be renumbered as Rule 11.3.8 without any substantive changes.
Rule 3.9 (Charges for Services Performed) would be
renumbered as Rule 11.3.9 without any changes.
Rule 3.10 (Use of Information) would be renumbered as Rule
11.3.10 without any changes.
Rule 3.11 (Publication of Transactions and Quotations)
would be renumbered as Rule 11.3.11 without any changes.
Rule 3.12 (Offers at Stated Prices) would be renumbered as
Rule 11.3.12 without any changes.
Rule 3.13 (Payment Designed to Influence Market Prices,
Other than Paid Advertising) would be renumbered as Rule 11.3.13
without any changes.
Rule 3.14 (Disclosure on Confirmations) would be
renumbered as Rule 11.3.14 without any changes.
Rule 3.15 (Disclosure of Control)--would be renumbered as
Rule 11.3.15 without any changes.
Rule 3.16 (Discretionary Accounts) would be renumbered as
Rule 11.3.16 without any substantive changes.
Rule 3.17 (Customer's Securities or Funds) would be
renumbered as Rule 11.3.17 without any changes.
Rule 3.18 (Prohibition Against Guarantees) would be
renumbered as Rule 11.3.18 without any changes.
Rule 3.19 (Sharing in Accounts; Extent Permissible) would
be renumbered as Rule 11.3.19 without any changes.
Rule 3.20 (Installment or Partial Payment Sales) would be
renumbered as Rule 11.3.20 without any substantive changes.
Rule 3.21 (Telephone Solicitation) would be renumbered as
Rule 11.3.21 without any substantive changes.
The Exchange proposes to renumber the rules in Chapter IV as
follows and
[[Page 11121]]
add a subheading before such rules that provides ``Books and Records'':
Rule 4.1 (Requirements) would be renumbered as Rule 11.4.1
without any changes.
Rule 4.2 (Furnishing of Records) would be renumbered as
Rule 11.4.2 without any substantive changes.
Rule 4.3 (Record of Written Complaints) would be
renumbered as Rule 11.4.3 without any changes.
Rule 4.4 (Disclosure of Financial Condition) would be
renumbered as Rule 11.4.4 without any changes.
The Exchange proposes to replace current Rule 5.5, as described
below, and renumber the rules in Chapter V as follows and add a
subheading before such rules that provides ``Supervision'':
Rule 5.1 (Written Procedures) would be renumbered as Rule
11.5.1 without any changes.
Rule 5.2 (Responsibility of ETP Holders) would be
renumbered as Rule 11.5.2 without any changes.
Rule 5.3 (Records) would be renumbered as Rule 11.5.3
without any changes.
Rule 5.4 (Review of Activities and Annual Inspection)
would be renumbered as Rule 11.5.4 without any changes.
Rule 5.5 (Chinese Wall Procedures) would be replaced with
proposed Rule 11.5.5 (Prevention of the Misuse of Material, Nonpublic
Information), which is based on NYSE Arca Rule 11.3 and NYSE American
Rule 6.3E. The proposed rule would provide for a principles-based
approach to prevent the misuse of material non-public information.
Because the Exchange would not trade options, the Exchange proposes
that Commentary .01 to proposed Rule 11.5.5 would be based on
Commentary .01 to NYSE American Rule 6.3E only. The Exchange's proposed
Rule 5.5 would also include a non-substantive difference from the NYSE
Arca and NYSE American rules on which it is based by not including rule
text based on Commentary .02 to NYSE Arca Rule 11.3 or Commentary .02
to NYSE American Rule 6.3 because the Exchange already has a rule
defining the term ``associated person.'' Finally, Commentary .04 to
proposed Rule 11.5.5 would have a non-substantive differences compared
to NYSE Arca Rule 11.3 and NYSE American Rule 6.3E because it would
refer to ETP Holders acting as a registered market maker in UTP
Exchange Traded Products, rather than refer to securities listed on the
Exchange under Rules 5 and 8. Proposed Rule 11.5.5 would require every
ETP Holder to establish, maintain, and enforce written policies and
procedures reasonably designed to prevent the misuse of material, non-
public information by such ETP Holders. For purposes of this
requirement, the misuse of material, non-public information would
include, without limitation, to [sic] the following:
(a) Trading in any securities issued by a corporation, or in any
related securities or related options or other derivatives securities
while in possession of material, non-public information concerning that
issuer; or
(b) trading in a security or related options or other derivatives
securities, while in possession of material, non-public information
concerning imminent transactions in the security or related securities;
or
(c) disclosing to another person or entity any material, non-public
information involving a corporation whose shares are publicly traded or
an imminent transaction in an underlying security or related securities
for the purpose of facilitating the possible misuse of such material,
non-public information.
Rule 5.6 (Anti-Money Laundering Compliance Program) would
be renumbered as Rule 11.5.6 without any substantive changes.
Rule 5.7 (Annual Certification of Compliance and
Supervisory Processes) would be renumbered as Rule 11.5.7 without any
substantive changes.
The Exchange proposes renumber the rules in Chapter VI as follows
and add a subheading before such rules that provides ``Extensions of
Credit'':
Rule 6.1 (Extensions of Credit--Prohibitions and
Exemptions) would be renumbered as Rule 11.6.1 without any substantive
changes.
Rule 6.2 (Day Trading Margin) would be renumbered as Rule
11.6.2 without any substantive changes. The Exchange proposes to update
internal cross references in the rule to Rule 11.6.1(c) instead of Rule
4.2(c), which rule no longer exists.
The Exchange proposes to replace current Rule 12.6, as described
below, and proposes to renumber the rules in Chapter XII as follows and
add a subheading before such rules that provides ``Trading Practices'':
Rule 12.1 (Market Manipulation) would be renumbered as
Rule 11.12.1 without any changes.
Rule 12.2 (Fictitious Transactions) would be renumbered as
Rule 11.12.2 without any substantive changes.
Rule 12.3 (Excessive Sales by an ETP Holder) would be
renumbered as Rule 11.12.3 without any changes.
Rule 12.4 (Manipulative Transactions) would be renumbered
as Rule 11.12.4 without any changes.
Rule 12.5 (Dissemination of False Information) would be
renumbered as Rule 11.12.5 without any changes.
Current Rule 12.6 (Customer Priority) would be replaced
with proposed Rule 11.12.6 (Prohibition of Trading Ahead of Customer
Orders), which is based on NYSE Arca Rule 9.5320, NYSE American 5320-
Equities, and NYSE Rule 5320. These rules are based on FINRA Rule 5320.
The Exchange believes that replacing current Rule 12.6 with a rule
based on the rules of FINRA, NYSE Arca, NYSE American, and NYSE would
promote cross-market surveillance and enhance FINRA's ability to
conduct surveillance and investigations on behalf of the Exchange under
a regulatory services agreement.
Rule 12.7 (Joint Activity) would be renumbered as Rule
11.12.7 without any changes.
Rule 12.8 (Influencing the Consolidated Tape) would be
renumbered as Rule 11.12.8 without any changes.
Rule 12.9 (Options) would be renumbered as Rule 11.12.9
without any changes.
Rule 12.10 (Best Execution) would be renumbered as Rule
11.12.10 without any substantive changes. The Exchange proposes to
update the internal reference in the rule from Exchange Act Rule 11Ac1-
4, which was the Order Display Rule, to Rule 604 of Regulation NMS,
which is the current Order Display Rule.
The Exchange does not propose to retain current Rules
12.11 or Rule 12.12. Rule 12.11, relating to trading suspensions, would
be superseded by proposed Rule 7.13, which would provide authority for
the Board or Exchange President to suspend trading in securities traded
on the Exchange. Rule 12.12 relating to publication of transactions and
changes, would be superseded by proposed Rule 7.40, as described above.
Because the current rules would be renumbered, the Exchange
proposes to delete Chapters III, IV, V, VI, and XII of the current
rulebook.
Finally, the Exchange proposes new Rule 11.12.11 based on NYSE
American Rule 5220--Equities, NYSE Rule 5220, and NYSE Arca Rule 11.21,
which in turn are modeled on Commentary .03 to FINRA Rule 5210, that
defines and prohibits two types of disruptive quoting and trading
activity on the Exchange. The Exchange proposes to include this rule
under Rule 11.12 sub-numbering because it is a trading practices rule.
Proposed Rule 11.12.11(a) would prohibit ETP Holders and Persons
Associated with an ETP Holder from
[[Page 11122]]
engaging in or facilitating disruptive quoting and trading activity on
the Exchange, as described in proposed Rule 11.12.11(b)(1) and (2),
including acting in concert with other persons to effect such activity.
The Exchange believes that it is necessary to extend the prohibition to
situations when persons are acting in concert to avoid a potential
loophole where disruptive quoting and trading activity is simply split
between several brokers or customers. The Exchange also believes that,
with respect to persons acting in concert perpetrating an abusive
scheme, it is important that the Exchange have authority to act against
the parties perpetrating the abusive scheme, whether it is one person
or multiple persons.
Proposed Rule 11.12.11(c) would provide that, unless otherwise
indicated, the descriptions of disruptive quoting and trading activity
do not require the facts to occur in a specific order in order for the
Rule to apply. For instance, with respect to the pattern defined in
proposed Rule 11.12.11(b)(1)(A)-(D), it is of no consequence whether a
party first enters Displayed Orders and then Contra-side Orders or
vice-versa. However, as proposed, it is required for supply and demand
to change following the entry of the Displayed Orders.
The Exchange believes that the proposed descriptions of disruptive
quoting and trading activity articulated in the rule are consistent
with the activities that have been identified and described in the
client access cases described in the NYSE American notice and with the
rules of other SROs.\111\
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\111\ See, e.g., BZX Rule 12.15; NASDAQ Rule 2170. See also
Securities Exchange Release No. 80804 (May 30, 2017), 82 FR 25887,
25888-25890 (June 5, 2017) (SR-NYSEMKT-2017-25) (Notice of filing
discussing matters involving Biremis Corp. and Hold Brothers On-Line
Investment Services, Inc.).
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Rule 12--Arbitration
The Exchange proposes new Rule 12 (Arbitration) to replace rules
set forth in Chapter IX relating to arbitration. Proposed Rule 12 is
based on NYSE Rule 600A and those portions of NYSE Arca Rule 12 that
are based on NYSE Rule 600A. Because any arbitrations involving ETP
Holders and/or Associated Persons would be arbitrated pursuant to the
FINRA Code of Arbitration Procedures and the Exchange would not
separately run an arbitration program, the Exchange proposes to
simplify its rules on arbitration and eliminate legacy, non-operative
rules.
Proposed Rule 12(a) would set forth an ETP Holder's duty to
arbitrate under the FINRA Code of Arbitration Procedure (i) any
dispute, claim or controversy by or among ETP Holders and/or Associated
Persons; and (ii) any dispute, claim or controversy between a customer
or non-member and an ETP Holder and/or Associated Person arising in
connection with the business of such ETP Holder and/or in connection
with the activities of an Associated Person. Proposed Rule 12(b) would
also provide that if any matter comes to the attention of an arbitrator
during and in connection with the arbitrator's participation in a
proceeding, either from the record of the proceeding or from material
or communications related to the proceeding, that the arbitrator has
reason to believe may constitute a violation of the Exchange's rules or
the federal securities laws, the arbitrator may refer the matter to the
Exchange for disciplinary investigation. Proposed Rule 12(c) would also
provide that any ETP Holder or Associated Person who fails to honor an
award of arbitrators appointed in accordance with proposed Rule 12
would be subject to disciplinary proceedings under the Rule 10.8000 or
10.9000 Series, as applicable. Proposed Rule 12(d) would provide that
the submission of any matter to arbitration would in no way limit or
preclude any right, action or determination by the Exchange that it
would otherwise be authorized to adopt, administer or enforce.
Because Rule 12 would set forth the Exchange's rules relating to
arbitration, the Exchange proposes to delete the rules in Chapter IX in
their entirety.
Rule 13--Liability of Directors and Exchange
Proposed Rule 13 titled ``Liability of Directors and Exchange''
would establish requirements governing liability of directors and of
the Exchange, including the limits on liability for specified
circumstances.\112\ The rules set forth in proposed Rule 13 are based
on the rules set forth in NYSE Arca Rule 14, with non-substantive
differences not to reference ``OTP Holders'' or ``OTP Firms,'' and NYSE
American Rule 13E.
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\112\ The Exchange proposes to delete the current heading of
Rule 13 (``Cancellation, Suspension, and Reinstatement'')
established by the Framework Filing as well as ``Rule 14.'' The
current heading for Rule 14 (``Liability of Directors and
Exchange'') would thus become the heading for proposed Rule 13 and
the Exchange would not have a Rule 14 in its rulebook.
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Proposed Rule 13.1 (Liability of Directors) is based on NYSE Arca
Rule 14.1 without any substantive differences. Proposed Rule 13.2
(Liability of the Exchange) is based on NYSE Arca Rule 14.2 without any
substantive differences.
Proposed Rule 13.3 (Legal Proceedings Against Directors, Officers,
Employees, or Agents) would establish requirements relating to legal
proceedings against directors, officers, employees, agents, or other
officials of the Exchange. The proposed rule is based on NYSE Arca Rule
14.3 and NYSE American Rule 13.3E without any substantive differences.
Proposed Rule 13.4 (Exchange's Costs of Defending Legal
Proceedings) would establish the circumstances regarding who is
responsible for the Exchange's costs in defending a legal proceeding
brought against the Exchange. The proposed rule is based on NYSE Arca
Rule 14.4 and NYSE American Rule 13.4E without any substantive
differences.
4. Section 11(a) of the Act
Section 11(a)(l) of the Act \113\ (``Section 11(a)(1)'') prohibits
a member of a national securities exchange from effecting transactions
on that exchange for its own account, the account of an associated
person, or an account over which it or its associated person exercises
investment discretion (collectively, ``covered accounts'') unless an
exception to the prohibition applies. Rule 11a2-2(T) under the Act
(``Rule 11a2-2(T)''),\114\ known as the ``effect versus execute'' rule,
provides exchange members with an exemption from the Section 11(a)(l)
prohibition. Rule 11a2-2(T) permits an exchange member, subject to
certain conditions, to effect transactions for covered accounts by
arranging for an unaffiliated member to execute the transactions on the
exchange. To comply with Rule 11a2-2(T)'s conditions, a member: (i)
Must transmit the order from off the exchange floor; (ii) may not
participate in the execution of the transaction once it has been
transmitted to the member performing the execution (although the member
may participate in clearing and settling the transaction); (iii) may
not be affiliated with the executing member; and (iv) with respect to
an account over which the member or its associated person has
investment discretion, neither the member nor its associated person may
retain any compensation in connection with effecting the transaction
except as provided in the Rule.
---------------------------------------------------------------------------
\113\ 15 U.S.C. 78k(a)(1).
\114\ 17 CFR 240.11a2-2(T).
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With the proposed re-launch of the Exchange as a fully automated
[[Page 11123]]
electronic trading model that does not have a trading floor, the
Exchange believes that the policy concerns Congress sought to address
in Section 11(a)(1)--i.e., the time and place advantage that members on
exchange trading floors have over non-members off the floor and the
general public--would not be present. Specifically, on the Pillar
trading system, buy and sell interest will be matching in a continuous,
automated fashion. Liquidity will be derived from quotes as well as
orders to buy and orders to sell submitted to the Exchange
electronically by ETP Holders from remote locations. The Exchange
further believes that ETP Holders entering orders into the Exchange
will satisfy the requirements of Rule 11a2-2(T) under the Act, which
provides an exception to Section 11(a)'s general prohibition on
proprietary trading.
The four conditions imposed by the ``effect versus execute'' rule
are designed to put members and non-members of an exchange on the same
footing, to the extent practicable, in light of the purpose of Section
11(a). For the reasons set forth below, the Exchange believes the
structure and characteristics of its proposed Pillar trading system do
not result in disparate treatment of members and non-members and places
them on the ``same footing'' as intended by Rule 11a2-2(T).
1. Off-Floor Transmission. Rule 11a2-2(T) requires orders for a
covered account transaction to be transmitted from off the exchange
floor. The Commission has considered this and other requirements of the
rule in the context of automated trading and electronic order handling
facilities operated by various national securities exchanges in a 1979
Release \115\ as well as more applications of Rule 11a2-2(T) in
connection with the approval of the registrations of national
securities exchanges.\116\ In the context of these automated trading
systems, the Commission has found that the off-floor transmission
requirement is met if an order for a covered account is transmitted
from a remote location directly to an exchange's floor by electronic
means.\117\ Because the Exchange would not have a physical trading
floor when it re-launches trading, and like other all electronic
exchanges, the Exchange's Pillar trading system would receive orders
from ETP Holders electronically through remote terminals or computer-
to-computer interfaces, the Exchange therefore believes that its
trading system satisfies the off-floor transmission requirement.
---------------------------------------------------------------------------
\115\ See Securities Exchange Act Release No. 15533 (January 29,
1979) (regarding the Amex Post Execution Reporting System, the Amex
Switching System, the lntermarket Trading System, the Multiple
Dealer Trading Facility of the Cincinnati Stock Exchange, the PCX's
Communications and Execution System (``COM EX''), and the Phlx's
Automated Communications and Execution System (``PACE'')) (``1979
Release'').
\116\ Securities Exchange Act Release Nos. 53128 (January 13,
2006) 71 FR 3550 (January 23, 2006) (File No. 10-13 1) (order
approving Nasdaq Exchange registration); 58375 (August 18, 2008) 73
FR 49498 (August 21, 2008) (order approving BATS Exchange
registration); 61152 (December 10, 2009) 74 FR 66699 (December 16,
2009) (order approving C2 exchange registration); and 78101 (June
17, 2016), 81 FR 41142, 41164 (June 23, 2016) (order approving
Investors Exchange LLC registration).
\117\ See, e.g., Securities Exchange Act Release Nos. 49068
(January 13, 2004), 69 FR 2775 (January 20, 2004) (order approving
the Boston Options Exchange as an options trading facility of the
Boston Stock Exchange); 44983 (October 25, 2001), 66 FR 55225
(November 1, 2001) (order approving Archipelago Exchange
(``ArcaEx'') as electronic trading facility of the Pacific Exchange
(``PCX'') (``Arca Ex Order'')); 29237 (May 24, 1991), 56 FR 24853
(May 31, 1991) (regarding NYSE's Off-Hours Trading Facility); 15533
(January 29, 1979); and 14563 (March 14, 1978), 43 FR 11542 (March
17, 1978) (regarding the NYSE's Designated Order Turnaround System
(``1978 Release'')).
---------------------------------------------------------------------------
2. Non-Participation in Order Execution. The ``effect versus
execute'' rule further provides that neither the exchange member nor an
associated person of such member participate in the execution of its
order. This requirement was originally intended to prevent members from
using their own brokers on an exchange floor to influence or guide the
execution of their orders.\118\ The rule, however, does not preclude
members from cancelling or modifying orders, or from modifying
instructions for executing orders, after they have been transmitted,
provided such cancellations or modifications are transmitted from off
an exchange floor.\119\ In the 1979 Release discussing both the Pacific
Stock Exchange's COM EX system and the Philadelphia Stock Exchange's
PACE system, the Commission noted that a member relinquishes any
ability to influence or guide the execution of its order at the time
the order is transmitted into the systems, and although the execution
is automatic, the design of such systems ensures that members do not
possess any special or unique trading advantages in handling orders
after transmission to the systems.\120\ The Exchange's Pillar trading
system would at no time following the submission of an order allow an
ETP Holder or an associated person of such member to acquire control or
influence over the result or timing of an order's execution. The
execution of an ETP Holder's order would be determined solely by what
quotes and orders are present in the system at the time the member
submits the order and the order priority based on Exchange rules.
Therefore, the Exchange believes the non-participation requirement
would be met through the submission and execution of orders in the
Exchange's Pillar trading system.
---------------------------------------------------------------------------
\118\ Id. 1978 Release, supra note 117.
\119\ Id.
\120\ 1979 Release, supra note 115.
---------------------------------------------------------------------------
3. Execution Through an Unaffiliated Member. Although Rule 11a2-
2(T) contemplates having an order executed by an exchange member,
unaffiliated with the member initiating the order, the Commission has
recognized the requirement is satisfied where automated exchange
facilities are used as long as the design of these systems ensures that
members do not possess any special or unique trading advantages in
handling their orders after transmitting them to the exchange. In the
1979 Release, the Commission noted that while there is not an
independent executing exchange member, the execution of an order is
automatic once it has been transmitted into the systems. Because the
design of these systems ensures that members do not possess any special
or unique trading advantages in handling their orders after
transmitting them to the exchange, the Commission has stated that
executions obtained through these systems satisfy the independent
execution requirement of Rule 11a2-2(T). Because the design of the
Exchange's Pillar trading system ensures that no ETP Holder has any
special or unique trading advantages over nonmembers in the handling of
its orders after transmitting its orders to the Exchange, the Exchange
believes that its Pillar trading system would satisfy this requirement.
4. Non-Retention of Compensation for Discretionary Accounts.
Finally, Rule 11a2-2(T) states, in the case of a transaction effected
for the account for which the initiating member or its associated
person exercises investment discretion, in general, the member or its
associated person may not retain compensation for effecting the
transaction, unless the person authorized to transact business for the
account has expressly provided otherwise by written contract referring
to both Section 11(a) of the Exchange Act and Rule 11a2-2(T). The
Exchange will advise its membership through the issuance of a
Regulatory Bulletin that those ETP Holders trading for covered accounts
over which they exercise investment discretion must comply with this
condition in order to rely on the exemption in Rule 11a2-2(T) from the
prohibition in Section 11(a) of the Exchange Act.
In conclusion, the Exchange believes that its Pillar trading system
would
[[Page 11124]]
satisfy the four requirements of Rule 11a2-2(T) as well as the general
policy objectives of Section 11(a). The Exchange's proposed Pillar
trading system would place all users, members and non-members, on the
``same footing'' with respect to transactions on the Exchange for
covered accounts as intended by Rule 11a2-2(T). As such, no Exchange
ETP Holder would be able to engage in proprietary trading in a manner
inconsistent with Section 11(a).
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\121\ in general, and
furthers the objectives of Section 6(b)(5),\122\ 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.
---------------------------------------------------------------------------
\121\ 15 U.S.C. 78f(b).
\122\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Generally, the Exchange believes that the proposed rules would
support the re-launch of the Exchange as a fully automated cash
equities trading market with a price-time priority model that is based
on the rules of its affiliated exchanges, NYSE Arca and NYSE American.
The Exchange is not proposing any new or novel rules. The proposed rule
changes relating to trading would therefore remove impediments to and
perfect the mechanism of a free and open market and a national market
system because they are based on the approved rules of other exchanges.
In addition, the Exchange proposes to renumber its current rules
relating to its ETP Holders, including the membership process described
in Chapter II of the current rulebook, rules set forth in Chapters III,
IV, V, VI, and XII of the current rulebook, and the CAT NMS Plan
Compliance Rules, currently set forth in Chapter XIV of the rulebook.
The Exchange believes that retaining such rules would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because ETP Holders would not be required to
change their internal procedures to be reinstated as ETP Holders of the
Exchange, thus supporting the efficient re-launch of the Exchange. The
Exchange further believes that renumbering such rules would remove
impediments to and perfect the mechanism of a national market system
because using the rule numbering framework that is based on the rules
of NYSE Arca and NYSE American would promote transparency in Exchange
rules by using consistent rule numbers with the rules of its affiliated
exchanges that are also operating on the Pillar trading platform. The
Exchange further believes that for proposed Rule 11, retaining sub-
numbering for rules that are in the current rulebook would remove
impediments to and perfect the mechanism of a free and open market for
ETP Holders that have internal procedures that reference current
Exchange rules; the proposed rule numbering would minimize the changes
required by an ETP Holder to such policies and procedures.
Proposed Changes to the Bylaws
The Exchange believes that amending the Bylaws to change the name
of the Appeals Committee to the Committee for Review would remove
impediments to and perfect the mechanism of a free and open market by
aligning the name used for the Exchange's committee that presides over
appeals with the name used by the Exchange's national securities
exchanges for their committees that play a similar role, ensuring that
persons subject to the Exchange's jurisdiction, regulators, and the
investing public can more easily navigate and understand the Bylaws
and, specifically, the role of the Committee for Review.
In addition, the Exchange believes that the proposed changes to the
Bylaws to change the name of the Appeals Committee to the Committee for
Review would contribute to the orderly operation of the Exchange by
aligning the name used for the Exchange's committee that presides over
appeals with the name used by the Exchange's national securities
exchanges for their committees that play a similar role, and therefore
would be consistent with Section 6(b)(1) of the Act.\123\ The change to
the Bylaws would be non-substantive, as the makeup and function of the
Appeals Committee would not change.
---------------------------------------------------------------------------
\123\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
Proposed Rules Based on the Rules of the Exchange's Affiliates
Regulation of the Exchange (Rule 0) and Definitions (Rule 1)
The Exchange believes that proposed Rule 0 would 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 because it would specify the role of FINRA, pursuant to a
Regulatory Services Agreement, to perform certain regulatory functions
of the Exchange on behalf of the Exchange.
The Exchange further believes that proposed Rule 1 would 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 because the proposed definitions are terms that would
be used in the additional rules proposed by the Exchange. Proposed Rule
1 would therefore promote transparency in Exchange rules by providing
for definitional terms that would be used throughout the rulebook.
Administration of the Exchange (Rule 3)
The Exchange believes that proposed Rule 3 would remove impediments
to and perfect the mechanism of a free and open market and a national
market system because it would establish rules relating to the
organization and administration of the Exchange that are based on the
approved rules of NYSE Arca, including rules relating to liability for
non-payment of assessments, dues, or other charges (proposed Rule 3.8),
Exchange relationships with ETP Holders (proposed Rule 3.9),
requirements to notify the Exchange of expulsion or suspension
(proposed Rule 3.10), and requirements for fingerprint-based background
checks of Exchange employees (proposed Rule 3.11).
Trading Securities on an Unlisted Trading Privileges Basis (Rules 5 and
8)
The Exchange believes that proposed Rules 5 and 8 would 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 by providing for the trading of securities, including
UTP Exchange Traded Products, on the Exchange pursuant to UTP, subject
to consistent and reasonable standards. Accordingly, the proposed rule
change would contribute to the protection of investors and the public
interest because it may provide a better trading environment for
investors and, generally, encourage greater competition between
markets.
The proposal is designed to remove impediments to and perfect the
mechanism of a free and open market and a national market system by
adopting rules that will lead ultimately to the trading pursuant to UTP
of the proposed products on the Exchange, just
[[Page 11125]]
as they are currently traded on other exchanges. The proposed changes
do nothing more than match Exchange rules with what is currently
available on other exchanges, and more specifically, NYSE American
Rules 5E and 8E, NYSE Rules 5P and 8P, and NYSE Arca Rules 5 and 8. The
Exchange believes that by conforming its rules and allowing trading
opportunities on the Exchange that are already allowed by rule on
another market, the proposal would offer another venue for trading
Exchange Traded Products and thereby promote broader competition among
exchanges. The Exchange believes that individuals and entities
permitted to make markets on the Exchange in the proposed new products
should enhance competition within the mechanism of a free and open
market and a national market system, and customers and other investors
in the national market system should benefit from more depth and
liquidity in the market for the proposed new products.
The proposed change is not designed to address any competitive
issue, but rather to adopt new rules that are word-for-word identical
to the rules of NYSE American, NYSE, and NYSE Arca (other than with
respect to certain non-substantive and technical amendments described
above), to support the Exchange's new Pillar trading platform. The
Exchange believes that the proposed rule change would promote
consistent use of terminology to support the Pillar trading platform on
both the Exchange and its affiliates, NYSE American, NYSE, and NYSE
Arca, thus making the Exchange's rules easier to navigate.
The Exchange believes the proposed rule change also supports the
principals of Section 11A(a)(1) \124\ of the Act in that it seeks to
ensure the economically efficient execution of securities transactions
and fair competition among brokers and dealers and among exchange
markets. The proposed rule change also supports the principles of
Section 12(f) of the Act, which govern the trading of securities
pursuant to a grant of unlisted trading privileges consistent with the
maintenance of fair and orderly markets, the protection of investors
and the public interest, and the impact of extending the existing
markets for such securities.
---------------------------------------------------------------------------
\124\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is consistent
with these principles. By providing for the trading of securities on
the Exchange on a UTP basis, the Exchange believes its proposal will
lead to the addition of liquidity to the broader market for these
securities and to increased competition among the existing group of
liquidity providers. The Exchange also believes that, by so doing, the
proposed rule change would encourage the additional utilization of, and
interaction with, the exchange market, and provide market participants
with improved price discovery, increased liquidity, more competitive
quotes and greater price improvement for securities traded pursuant to
UTP.
The Exchange further believes that enhancing liquidity by trading
securities on a UTP basis would help raise investors' confidence in the
fairness of the market, generally, and their transactions in
particular. As such, the general UTP trading rule would foster
cooperation and coordination with persons engaged in facilitating
securities transactions, enhance the mechanism of a free and open
market, and promote fair and orderly markets in securities on the
Exchange.
Order Audit Trail Rules (Proposed Rule 6)
The Exchange believes that moving the CAT NMS Plan Compliance
Rules, currently set forth in Chapter XIV, to proposed Rule 6.6800
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would consolidate
all of the Exchange's order audit trail requirements in a single Rule,
without any substantive differences to the Compliance Rules, and
because it would follow the same rule-numbering convention as its
affiliated exchanges and FINRA.
The Exchange believes that proposed Rule 6.6900 relating to
Consolidated Audit Trail--Fee Dispute Resolution would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it would harmonize the Exchange's
rules with the approved rules of other exchanges relating to fee
dispute resolution under the CAT NMS Plan.\125\ The proposed CAT Fee
Dispute Resolution Rule would therefore implement, interpret or clarify
Section 11.5 of the CAT NMS Plan, and is designed to assist the
Exchange and its Industry Members in meeting regulatory obligations
pursuant to the Plan.
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\125\ See Fee Dispute Approval Order, supra note 88.
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Finally, the Exchange believes that the proposed Rule 6.7400
Series, relating to Order Audit Trail System, would remove impediments
to and perfect the mechanism of a free and open market and a national
market system because the proposed rule series is based on the approved
rules of NYSE Arca, which are based on FINRA's OATS rules. The Exchange
further believes that the proposed OATS rules would promote just and
equitable principles of trade as such rules would further promote
cross-market surveillance and enhance FINRA's ability to conduct
surveillance and investigations for the Exchange under a Regulatory
Services Agreement. The Exchange does not believe that adding the OATS
rules to the Exchange would impose a burden on Exchange ETP Holders
because with the exception of one Exchange ETP Holder, all former
Exchange ETP Holders were members of either FINRA, NYSE Arca, or
Nasdaq, and thus are already subject to OATS requirements under the
rules of those SROs. The one ETP Holder that is not currently a member
of FINRA, one of the Exchange's affiliates, or Nasdaq would not be
subject to ongoing reporting requirements under the proposed OATS
rules, and therefore it would not be onerous for such ETP Holder to
comply if OATS information were requested in the course of a regulatory
inquiry.
Equities Trading Rules (Proposed Rule 7)
The Exchange believes that proposed Rule 7 would remove impediments
to and perfect the mechanism of a free and open market and a national
market system because it would establish rules relating to trading on
the Exchange, including post-trade requirements, that would support the
re-launch of Exchange trading as a fully automated trading market with
a price-time priority trading model. The proposed rules are based on
the rules of NYSE Arca and NYSE American, as applicable, and include
rules governing orders and modifiers, ranking and display, execution
and routing, trading sessions, and market makers. The Exchange believes
that because it would not be a listing venue, it would be consistent
with the protection of investors and the public interest not to include
rules relating to auctions or lead or designated market makers. Other
than substantive differences to the proposed rules relating to the
difference that the Exchange would not operate auctions, the Exchange
is not proposing any novel rules in proposed Rule 7.
Disciplinary Rules (Proposed Rule 10)
The Exchange believes that the proposed Rule 10 Series would
provide greater harmonization among SROs resulting in less burdensome
and more efficient regulatory compliance for common members of the
Exchange, the
[[Page 11126]]
Exchange's affiliates, and FINRA. As previously noted, the proposed
rule text is substantially the same as NYSE American's rule text. The
proposed rule change would enhance the Exchange's ability to have a
direct and meaningful impact on the end-to-end quality of its
regulatory program once the Exchange relaunches, from detection and
investigation of potential violations through the efficient initiation
and completion of disciplinary measures where appropriate. As such, the
proposed rule change would foster cooperation and coordination with
persons engaged in facilitating transactions in securities and would
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
The Exchange further believes that the proposed processes for
settling disciplinary matters both before and after the issuance of a
complaint are fair and reasonable and provides adequate procedural
protections to all parties in addition to promoting efficiency.
The Exchange believes that adopting its affiliates' appellate
procedures, which provide for one level of review rather than two
levels of review, would be fair and efficient and create consistency
with its affiliates' practices. The proposed rule change would offer
the members of Board, other than the CEO, the opportunity to call a
case for review. This will provide the Board with authority to exercise
appropriate oversight over disciplinary action taken by the Exchange
and FINRA on the Exchange's behalf.
The Exchange notes that adopting the list of minor rule violations
and associated fine levels based on the rules of its affiliate would
promote fairness and consistency in the marketplace by harmonizing
minor rule plan fines across affiliated exchanges for the same conduct.
The Exchange further believes that adoption of its affiliates' minor
rule violations is consistent with Section 6(b)(6) of the Act,\126\
which provides that members and persons associated with members shall
be appropriately disciplined for violation of the provisions of the
rules of the exchange, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, being suspended
or barred from being associated with a member, or any other fitting
sanction.
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\126\ 15 U.S.C. 78f(b)(6).
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Arbitration (Proposed Rule 12)
The Exchange believes that proposed Rule 12 relating to arbitration
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would update the
Exchange's rules governing arbitration to reflect that any such
arbitrations would be processed by FINRA pursuant to the FINRA Code of
Arbitration Procedures. The proposed rule is not novel as it is based
on NYSE Rule 600A and NYSE Arca Rule 12. In addition, the proposed rule
change would delete obsolete arbitration procedures that are not
supported by the Exchange. The Exchange believes the proposed rule
change fosters uniformity and consistency in arbitration proceedings
and, as a result, would enhance the administration and operation of the
arbitration process, thereby protecting investors and the public
interest. The proposed rule change would therefore promote consistency
among the Exchange and its affiliates and make its rules easier to
navigate for the public, the Commission, and members.
Liability of Directors and Exchange (Proposed Rule 13)
The Exchange believes that proposed Rule 13 would remove
impediments to and perfect the mechanism of a free and open market and
a national market system by harmonizing the Exchange's rules governing
liability of directors, liability of exchange, legal proceedings
against Exchange directors, officers, employees, or agents, and
Exchange's costs of defending legal proceedings with the approved rules
of its affiliated exchanges NYSE Arca and NYSE American. The Exchange
believes that the proposed rules would further promote just and
equitable principles of trade by providing for consistent methodology
relating to liability for trading on affiliated exchanges that would be
using the same trading platform. The proposed rule change would
therefore promote consistency among the Exchange and its affiliates and
make its rules easier to navigate for the public, the Commission, and
ETP Holders.
Proposed Renumbering of Rules in Chapters II, III, IV, V, VI, and XII
The Exchange believes that renumbering rules currently set forth in
Chapters II to Rule 2 and rules currently set forth in Chapters III,
IV, V, VI, and XII to Rule 11 would remove impediments to and perfect
the mechanism of a free and open market because the proposed rule set
would maintain existing rules relating to ETP Holders. The Exchange
believes that relocating existing rules set forth in Chapters II, III,
IV, V, VI, and XII to proposed Rules 2 and 11 would remove impediments
to and perfect the mechanism of a free and open market and a national
market system because using the rule numbering framework that is based
on the rules of NYSE Arca would promote transparency in Exchange rules
by using consistent rule numbers with the equities market of NYSE Arca,
which is the first market that migrated to the Pillar trading platform.
In addition, the Exchange believes that the proposed sub-numbers for
rules set forth in Rule 11, which are identical to the current rule
numbers for such rules, would remove impediments to and perfect the
mechanism of a free and open market and a national market system by
providing current ETP Holders, who are familiar with the current
rulebook, with rule numbers that are consistent with the current
rulebook for rules that are not changing.
The Exchange further believes that updating Exchange rules as
follows would remove impediments to and perfect the mechanism of a free
and open market and a national market system by harmonizing the
Exchange's rules with those of other SROs:
The Exchange believes that the proposed amendment to Rule
2.5 to update proposed Commentary .01 to add the date February 1, 2017
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would facilitate
the efficient reinstatement of Exchange ETP Holders that are in good
standing pursuant to the Exchange's existing rules, which would support
the re-launch of trading on the Exchange.
The Exchange believes that proposed Rule 2.13 (Exchange
Backup Systems and Mandatory Testing) would remove impediments to and
perfect the mechanism of a free and open market because it would
maintain consistency across all exchanges operated by NYSE Group
regarding mandatory participation in the testing of backup systems. The
proposed rule is based on NYSE Arca Rule 2.27 and is not novel.
The Exchange believes that proposed Rule 2.18 (Activity
Assessment Fee) furthers the objectives of Section 6(b)(4) of the
Act,\127\ in particular, because it provides for the equitable
allocation of reasonable dues, fees, and other charges among its
members, issuers, and other persons using its facilities and does not
unfairly discriminate between customers, issuers, brokers, or dealers.
Specifically, proposed Rule 2.18 does not establish a new fee. Rather,
the proposed rule is based on existing provisions of current 16.1
relating to ``Regulatory Transaction
[[Page 11127]]
Fees'' without any substantive differences. The Exchange proposes to
move the rule text to Rule 2.18 to use rule numbering for Pillar that
is consistent with the Framework Filing, with non-substantive
differences to use Pillar terminology, and not move obsolete rule text.
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\127\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that proposed Rule 11.5.5
(Prevention of the Misuse of Material, Nonpublic Information), which is
based on NYSE Arca Rule 11.3 and NYSE American Rule 6.3E and would
replace current Rule 5.5, would remove impediments to and perfect the
mechanism of a free and open market and a national market system by
providing for a principles-based approach to prevent the misuse of
material non-public information. The proposed rule change would
therefore harmonize the Exchange's rules with those of its affiliated
exchanges.