83 FR 39488 - Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1, Amending the Exchange's Rules Relating to Reserve Orders, Primary Pegged Orders, and Setter Priority for UTP Securities Trading on the Exchange's Pillar Platform

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 154 (August 9, 2018)

Page Range		39488-39490
FR Document		2018-17004
Federal Register, Volume 83 Issue 154 (Thursday, August 9, 2018)
[Federal Register Volume 83, Number 154 (Thursday, August 9, 2018)]
[Notices]
[Pages 39488-39490]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-17004]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83768; File No. SR-NYSE-2018-26]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
No. 1, Amending the Exchange's Rules Relating to Reserve Orders, 
Primary Pegged Orders, and Setter Priority for UTP Securities Trading 
on the Exchange's Pillar Platform

August 3, 2018.

I. Introduction

    On June 1, 2018, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend NYSE rules concerning Reserve Orders,\3\ 
Primary Pegged Orders,\4\ and setter priority.\5\ On June 8, 2018, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
replaced and superseded the proposed rule change in its entirety.\6\ 
The proposed rule change, as modified by Amendment No. 1, was published 
for comment in the Federal Register on June 20, 2018.\7\ The Commission 
has received no comments on the proposed rule change. This order 
approves the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See NYSE Rule 7.31(d)(1).
    \4\ See NYSE Rule 7.31(h)(2).
    \5\ See NYSE Rule 7.36(h) for the rules concerning setter 
priority.
    \6\ In Amendment No. 1, among other changes, the Exchange 
revised proposed Section 7.31(d)(1)(B) to clarify that the term 
``child'' order refers to each display quantity with a different 
working time. Amendment No. 1 was reflected in the notice of filing 
of proposed rule change that was published in the Federal Register. 
See infra note 7.
    \7\ See Securities Exchange Act Release No. 83432 (Jun. 14, 
2018), 83 FR 28701 (Jun. 20, 2018) (``Notice'').
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The Exchange proposes several changes to the Reserve Order and the 
Primary Pegged Order, as set forth in NYSE Rule 7.31. The Exchange also 
proposes changes to the setter priority, as set forth in NYSE Rule 
7.36(h).

A. Reserve Orders

    The Exchange proposes several changes to the rules for Reserve 
Orders, in order to reduce the number of child orders associated with 
each Reserve Order, to codify existing functionality, and provide more 
clarity to existing Exchange rules. A ``Reserve Order'' is a limit 
order with a quantity displayed, ranked Priority 2--Display Orders, and 
a non-displayed quantity held in reserve, ranked Priority 3--Non-
Displayed.\8\ Both the display quantity and the reserve interest of an 
arriving marketable Reserve Order are eligible to trade with resting 
interest in the Exchange Book or to route to an Away Market.\9\
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    \8\ See Section II.C. infra for a description of the Exchange's 
setter priority.
    \9\ See NYSE Rule 7.31(d)(1). The term ``Exchange Book'' is 
defined in NYSE Rule 1.1(a) as the Exchange's electronic file of 
orders, containing all orders on the Exchange. The term ``Away 
Market'' is defined in NYSE Rule 1.1(ff) as any exchange, 
alternative trading systems or other broker-dealer with which the 
Exchange maintains an electronic linkage and 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.
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    First, the Exchange proposes to change how the displayed quantity 
is replenished. Currently, the display

[[Page 39489]]

portion is replenished following any execution. Under the proposed rule 
change, the displayed portion of a Reserve Order would be replenished 
only when the display quantity has been decremented to below one round 
lot. The replenish quantity would be the minimum display size of the 
order or the remaining quantity of the reserve interest if it is less 
than the minimum display quantity.\10\ According to the Exchange, this 
proposed change would reduce the number of child orders.\11\ The 
Exchange asserts that minimizing the number of child orders for a 
Reserve Order would reduce the potential for market participants to 
detect that a child order that appears on the Exchange's proprietary 
market data feeds is associated with a Reserve Order,\12\ and the 
Exchange further notes that the proposed change would be consistent 
with the functioning of reserve orders on other national securities 
exchanges.\13\
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    \10\ See Proposed NYSE Rule 7.31(d)(1)(A). This language 
replaces the current text that states ``[t]he Exchange will display 
the full size of the Reserve Order when the unfilled quantity is 
less than the minimum display size for the order,'' which the 
Exchange proposes to delete.
    \11\ See Notice, supra note 7, at 28702. The Exchange proposes 
to define the term ``child order'' in proposed NYSE Rule 
7.31(d)(1)(B). A ``child'' order would be each display quantity of a 
Reserve Order with a different working time.
    \12\ See Notice, supra note 7, at 28702.
    \13\ See Notice, supra note 7, at 28704.
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    Second, the Exchange proposes that when a Reserve Order is 
replenished from reserve interest and already has two child orders 
that, if combined, would equal less than one round lot, the child order 
with the later working time would rejoin the reserve interest and be 
assigned the new working time assigned to the next replenished 
quantity.\14\ According to the Exchange, the proposed addition would 
reduce the potential for market participants to detect that a child 
order is associated with a Reserve Order.\15\
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    \14\ See Proposed NYSE Rule 7.31(d)(1)(B)(i). The Exchange 
proposes to amend NYSE Rule 7.36(h)(3)(C) to treat child orders that 
fall under this provision consistent with the current NYSE rules 
which provide that odd-lot orders that are assigned new working 
times lose Setter Priority. See Proposed NYSE Rule 7.36(h)(3)(C).
    \15\ See Notice, supra note 7, at 28704.
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    Third, the Exchange proposes to amend its rules to reflect that, if 
a Reserve Order is not routable, the replenish quantity will be 
assigned a display and working price consistent with the instructions 
of the order.\16\ The Exchange asserts that the proposed rule text 
represents current functionality and would add transparency and clarity 
to the Exchange's rules.\17\
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    \16\ See Proposed NYSE Rule 7.31(d)(1)(B)(ii).
    \17\ See Notice, supra note 7, at 28702.
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    Fourth, the Exchange proposes new rules concerning routable Reserve 
Orders. Under the proposed rules, the Exchange would evaluate a 
routable Reserve Order for routing both on arrival and each time the 
displayed quantity is replenished.\18\ In cases where an order is 
required to be routed, the Exchange proposes that the routing quantity 
would route from the reserve interest before the display quantity is 
published.\19\ Further, if after routing from the reserve interest, 
less than one round lot remains that is available to display, the 
Exchange proposes to wait until the routed quantity returns (executed 
or unexecuted) before publishing the display quantity.\20\ According to 
the Exchange, this functionality would reduce the possibility of having 
multiple child orders.\21\
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    \18\ See Proposed NYSE Rule 7.31(d)(1)(D).
    \19\ See Proposed NYSE Rule 7.31(d)(1)(D)(i).
    \20\ Id.
    \21\ See Notice, supra note 7, at 28702.
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    Fifth, the Exchange proposes to amend its rules to reflect how it 
currently treats the quantity of a routed Reserve Order that is 
returned unexecuted.\22\ According to the Exchange, such interest joins 
the working time of the existing reserve interest.\23\ If there is no 
reserve interest, the returned quantity is assigned a new working time 
as reserve interest.\24\ The Exchange asserts that this treatment is 
appropriate because at the time the unexecuted routed interest returns 
to the Exchange, the order may not be eligible to replenish the display 
quantity.\25\ In either case, the reserve interest would replenish the 
display quantity under the circumstances described above.\26\
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    \22\ See Notice, supra note 7, at 28703.
    \23\ See Proposed NYSE Rule 7.31(d)(1)(D)(ii).
    \24\ Id.
    \25\ See Notice, supra note 7, at 28703.
    \26\ See Proposed NYSE Rule 7.31(d)(1)(D)(ii).
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    Finally, the Exchange proposes to add rule text specifying that 
requests to reduce the size of a Reserve Order will result in the 
cancellation of the reserve interest before the cancellation of the 
display quantity.\27\ The Exchange also proposed that, if there is more 
than one child order, the child order with the later working time will 
be canceled first.\28\
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    \27\ See Proposed NYSE Rule 7.31(d)(1)(E).
    \28\ Id.
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B. Primary Pegged Order

    A ``Primary Pegged Order'' is a pegged order to buy (sell) with a 
working price that is pegged to the PBB (PBO),\29\ with no offset 
allowed.\30\ These orders are rejected on arrival, or canceled when 
resting, if there is no PBB (PBO) against which to peg. Current NYSE 
Rule 7.31(h)(2)(B) provides that a Primary Pegged Order will be 
rejected when the PBBO is locked or crossed. The Exchange proposes 
that, in addition, if the PBBO is locked or crossed when the display 
quantity of the Primary Pegged Reserve Order is to be replenished, the 
entire order will be canceled.\31\
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    \29\ The terms ``PBB'' and ``PBO'' are defined in NYSE Rule 
1.1(dd) as highest protected bid or best protected bid and lowest 
protected offer or best protected offer, respectively.
    \30\ See NYSE Rule 7.31(h)(2).
    \31\ See Proposed NYSE Rule 7.31(h)(2)(B).
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C. Setter Priority

    On the Exchange, setter priority means that the market participant 
that sets the best bid or offer on the Exchange while either 
establishing a new NBBO \32\ or joining an Away Market NBBO \33\ 
receives priority in the allocation of executions over other interest 
at the same price level.\34\ On the Exchange, only one order is 
eligible for setter priority at each price.\35\ The market participant 
with the setter priority receives 15% of each trade at that price 
(after unexecuted market orders with the same working price have 
executed),\36\ plus its parity share, until the setter's order is 
filled.\37\
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    \32\ See NYSE Rule 1.1(dd). The term ``NBBO'' means the national 
best bid or offer.
    \33\ See id. for definition of ``NBBO.'' See NYSE Rule 1.1(ff) 
for a definition of ``Away Market.''
    \34\ See NYSE Rules 7.36(h) and 7.37(b).
    \35\ See NYSE Rules 7.36(h)
    \36\ See NYSE Rule 7.36(e) (stating that unexecuted market 
orders have first priority (Orders ranked Priority 1--Market 
Orders), non-marketable limit orders with a displayed working price 
have second priority (Orders ranked Priority 2--Display Orders), and 
non-marketable limit orders with no displayed working price have 
third priority (Orders ranked Priority 3--Non-Display Orders). 
Setter priority would be assigned to an order with second priority 
(Priority 2--Display Orders). See NYSE Rule 7.36(h).
    \37\ See NYSE Rule 7.37(b) for order allocation, including, but 
not limited to, the Exchange's allocation wheel, parity allocation, 
and Exchange book participant allocation, and floor broker 
participation.
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    The Exchange proposes to amend the setter priority rule to reflect 
the existing operation of this function, under which an order is not 
eligible for setter priority if there is an odd-lot sized order with 
setter priority at that price.\38\ The Exchange states that this change 
is consistent with current functionality and asserts that the change 
would add transparency and clarity to its rules.\39\
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    \38\ See Proposed NYSE Rule 7.36(h).
    \39\ See Notice, supra note 7, at 28703.
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    The Exchange proposes to add similar language to NYSE Rule 
7.36(h)(1)(D) to specify that, during a Short Sale Period, if an odd-
lot child of a short sale

[[Page 39490]]

Reserve Order has setter priority, and the Permitted Price at which the 
order would be replenished would be a different price, the replenish 
quantity would not be eligible for setter priority.\40\
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    \40\ See Proposed NYSE Rule 7.36(h)(1)(D).
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    The Exchange also proposes to add two circumstances in which an 
order would be evaluated for setter priority. Currently, an order will 
be evaluated for setter priority on arrival (including any portion that 
has been routed and returns unexecuted) and when the order becomes 
eligible to trade for the first time upon transitioning to a new 
trading session.\41\ First, NYSE proposes that an order would be 
evaluated for setter priority when resting and assigned a new display 
price.\42\ If multiple orders reprice at the same time, none of the 
orders would be eligible for setter priority unless one order is equal 
to or greater than a round lot and the sum of the other orders at the 
same price is less than one round lot.\43\ Second, the Exchange 
proposes that an order would be evaluated for setter priority when the 
display quantity of a Reserve Order is replenished.\44\ The Exchange 
asserts that, if a repriced resting or replenished Reserve Order meets 
the conditions for establishing setter priority,\45\ then that order is 
aggressively displaying liquidity on the Exchange, which the Exchange 
seeks to encourage by providing a setter priority allocation.\46\
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    \41\ See NYSE Rule 7.36(h)(1)(A)-(B).
    \42\ See Proposed NYSE Rule 7.36(h)(1)(C).
    \43\ Id.
    \44\ See Proposed NYSE Rule 7.36(h)(1)(D). In connection with 
this proposed change, the Exchange also proposed to delete current 
NYSE Rule 7.36(h)(4)(B), which states that setter priority is not 
available when the reserve quantity replenishes the display quantity 
of a Reserve Order.
    \45\ The requirements for an order to achieve setter priority 
are that it is an order ranked Priority 2--Display Orders with a 
display quantity of at least one round lot, that it establishes a 
new BBO, and that it either establishes a new NBBO or joins an Away 
Market NBBO. See NYSE Rule 7.36(h).
    \46\ See Notice, supra note 7, at 28704-05.
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III. Discussion and Commission Findings

    After careful review of the proposal, as modified by Amendment No. 
1, the Commission finds that the proposed rule change is consistent 
with the requirements of the Act \47\ and the rules and regulations 
thereunder applicable to a national securities exchange.\48\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\49\ which requires that the 
rules of an exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
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    \47\ 15 U.S.C. 78f.
    \48\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \49\ 15 U.S.C. 78f(b)(5).
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    The proposal would alter how UTP Securities trade on the Exchange's 
Pillar trading platform with respect to two order types--reserve orders 
and primary pegged orders--and would also amend the rules that 
determine when orders are eligible for setter priority. The proposed 
changes relating to Reserve Orders would seek to reduce the quantity of 
child orders and the potential for information leakage. The Commission 
believes that the proposal to replenish the displayed quantity when it 
falls below one round lot is consistent with reserve order functioning 
on other national securities exchanges that the Commission has found to 
be consistent with the Exchange Act.\50\ The Commission also believes 
that the proposal is consistent with Section 6(b)(5)--with respect to 
replenishing a Reserve Order that has two existing child orders 
totaling less than one round lot, routing from reserve interest before 
publishing the display quantity, and aligning the Exchange's rule text 
to the existing treatment of Reserve Orders that are not routable and 
of routed Reserve Orders that return unexecuted--because the proposed 
changes are reasonably designed to encourage the provision of liquidity 
on the exchange by reducing the likelihood of adverse selection against 
liquidity providers through information leakage and providing clarity 
to market participants, while not permitting unfair discrimination on 
the exchange.
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    \50\ See Notice, supra note 7, at 28704.
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    The proposed changes relating to Primary Pegged Reserve Orders 
would provide that, if the PBBO is locked or crossed when the display 
quantity of the order is to be replenished, the entire order would be 
canceled. The Commission believes that the proposal is reasonably 
designed to prevent the display of locked or crossed quotations in NMS 
securities.
    The rules relating to the setter priority would change in two ways. 
First, the rules would be amended to reflect that, under existing order 
function, an order is not eligible for setter priority if there is an 
odd-lot sized order with setter priority at that price. Second, orders 
would be evaluated for setter priority under two additional 
circumstances--when an order is resting and assigned a new display 
price, and when the display quantity of a Reserve Order is replenished. 
The Commission believes that these proposed changes are reasonably 
designed to provide incentives for market participants to display 
liquidity on the Exchange.
    Accordingly, the Commission finds that the proposal is consistent 
with the requirements of the Act, and is designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\51\ that the proposed rule change (SR-NYSE-2018-26), as modified 
by Amendment No. 1, be, and hereby is, approved.
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    \51\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
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    \52\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17004 Filed 8-8-18; 8:45 am]
 BILLING CODE 8011-01-P
39488 Federal Register / Vol. 83, No. 154 / Thursday, August 9, 2018 / Notices

information provided in the proposed change that are filed with the concerning Reserve Orders,3 Primary
rule change is consistent with the Commission, and all written Pegged Orders,4 and setter priority.5 On
requirements of Section 6(b)(5) of the communications relating to the June 8, 2018, the Exchange filed
Act. proposed rule change between the Amendment No. 1 to the proposed rule
Commission and any person, other than change, which replaced and superseded
IV. Procedure: Request for Written
those that may be withheld from the the proposed rule change in its
Comments
public in accordance with the entirety.6 The proposed rule change, as
Interested persons are invited to provisions of 5 U.S.C. 552, will be modified by Amendment No. 1, was
submit written views, data, and available for website viewing and published for comment in the Federal
arguments concerning the foregoing, printing in the Commission’s Public Register on June 20, 2018.7 The
including whether the proposed rule Reference Room, 100 F Street NE, Commission has received no comments
change is consistent with Section 6(b)(5) Washington, DC 20549 on official on the proposed rule change. This order
or any other provision of the Act, or the business days between the hours of approves the proposed rule change, as
rules and regulations thereunder. 10:00 a.m. and 3:00 p.m. Copies of the modified by Amendment No. 1.
Although there do not appear to be any filing also will be available for
issues relevant to approval or II. Description of the Proposed Rule
inspection and copying at the principal
disapproval that would be facilitated by Change, as Modified by Amendment
office of the Exchange. All comments
an oral presentation of views, data, and No. 1
received will be posted without change.
arguments, the Commission will Persons submitting comments are The Exchange proposes several
consider, pursuant to Rule 19b–4, any cautioned that we do not redact or edit changes to the Reserve Order and the
request for an opportunity to make an personal identifying information from Primary Pegged Order, as set forth in
oral presentation.20 comment submissions. You should NYSE Rule 7.31. The Exchange also
Interested persons are invited to submit only information that you wish proposes changes to the setter priority,
submit written data, views, and to make available publicly. All as set forth in NYSE Rule 7.36(h).
arguments regarding whether the submissions should refer to File A. Reserve Orders
proposal should be approved or Number SR–CboeBZX–2018–018 and
disapproved by August 30, 2018. Any should be submitted on or before The Exchange proposes several
person who wishes to file a rebuttal to August 30, 2018. Rebuttal comments changes to the rules for Reserve Orders,
any other person’s submission must file should be submitted by September 13, in order to reduce the number of child
that rebuttal by September 13, 2018. 2018. orders associated with each Reserve
Comments may be submitted by any Order, to codify existing functionality,
For the Commission, by the Division of and provide more clarity to existing
of the following methods: Trading and Markets, pursuant to delegated
Exchange rules. A ‘‘Reserve Order’’ is a
Electronic Comments authority.21
limit order with a quantity displayed,
Eduardo A. Aleman,
• Use the Commission’s internet ranked Priority 2—Display Orders, and
Assistant Secretary. a non-displayed quantity held in
comment form (http://www.sec.gov/
rules/sro.shtml); or [FR Doc. 2018–17008 Filed 8–8–18; 8:45 am] reserve, ranked Priority 3—Non-
• Send an email to rule-comments@ BILLING CODE 8011–01–P Displayed.8 Both the display quantity
sec.gov. Please include File Number SR– and the reserve interest of an arriving
CboeBZX–2018–018 on the subject line. marketable Reserve Order are eligible to
SECURITIES AND EXCHANGE trade with resting interest in the
Paper Comments COMMISSION Exchange Book or to route to an Away
• Send paper comments in triplicate [Release No. 34–83768; File No. SR–NYSE– Market.9
to Secretary, Securities and Exchange 2018–26] First, the Exchange proposes to
Commission, 100 F Street NE, change how the displayed quantity is
Washington, DC 20549–1090. Self-Regulatory Organizations; New replenished. Currently, the display
All submissions should refer to File York Stock Exchange LLC; Order
Number SR–CboeBZX–2018–018. This Granting Approval of a Proposed Rule 3 See NYSE Rule 7.31(d)(1).
file number should be included on the Change, as Modified by Amendment 4 See NYSE Rule 7.31(h)(2).
5 See NYSE Rule 7.36(h) for the rules concerning
subject line if email is used. To help the No. 1, Amending the Exchange’s Rules
setter priority.
Commission process and review your Relating to Reserve Orders, Primary 6 In Amendment No. 1, among other changes, the

comments more efficiently, please use Pegged Orders, and Setter Priority for Exchange revised proposed Section 7.31(d)(1)(B) to
only one method. The Commission will UTP Securities Trading on the clarify that the term ‘‘child’’ order refers to each
Exchange’s Pillar Platform display quantity with a different working time.
post all comments on the Commission’s Amendment No. 1 was reflected in the notice of
internet website (http://www.sec.gov/ August 3, 2018. filing of proposed rule change that was published
rules/sro.shtml). Copies of the in the Federal Register. See infra note 7.
submission, all subsequent I. Introduction 7 See Securities Exchange Act Release No. 83432

amendments, all written statements (Jun. 14, 2018), 83 FR 28701 (Jun. 20, 2018)
On June 1, 2018, New York Stock (‘‘Notice’’).
with respect to the proposed rule Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) 8 See Section II.C. infra for a description of the

filed with the Securities and Exchange Exchange’s setter priority.
20 Section 19(b)(2) of the Act, as amended by the 9 See NYSE Rule 7.31(d)(1). The term ‘‘Exchange
Commission (‘‘Commission’’), pursuant
Securities Acts Amendments of 1975, Public Law
sradovich on DSK3GMQ082PROD with NOTICES

Book’’ is defined in NYSE Rule 1.1(a) as the
94–29 (June 4, 1975), grants the Commission to Section 19(b)(1) of the Securities Exchange’s electronic file of orders, containing all
flexibility to determine what type of proceeding— Exchange Act of 1934 (‘‘Act’’) 1 and Rule orders on the Exchange. The term ‘‘Away Market’’
either oral or notice and opportunity for written 19b–4 thereunder,2 a proposed rule is defined in NYSE Rule 1.1(ff) as any exchange,
comments—is appropriate for consideration of a change to amend NYSE rules alternative trading systems or other broker-dealer
particular proposal by a self-regulatory with which the Exchange maintains an electronic
organization. See Securities Acts Amendments of linkage and that provides instantaneous responses
21 17 CFR 200.30–3(a)(57).
1975, Senate Comm. on Banking, Housing & Urban to orders routed from the Exchange. The Exchange
1 15 U.S.C. 78s(b)(1).
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 will designate from time to time those ATSs or
(1975). 2 17 CFR 240.19b–4. other broker-dealers that qualify as Away Markets.

VerDate Sep<11>2014 18:11 Aug 08, 2018 Jkt 244001 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 E:\FR\FM\09AUN1.SGM 09AUN1
39490 Federal Register / Vol. 83, No. 154 / Thursday, August 9, 2018 / Notices

Reserve Order has setter priority, and requires that the rules of an exchange be is an odd-lot sized order with setter
the Permitted Price at which the order designed to prevent fraudulent and priority at that price. Second, orders
would be replenished would be a manipulative acts and practices, to would be evaluated for setter priority
different price, the replenish quantity promote just and equitable principles of under two additional circumstances—
would not be eligible for setter trade, to foster cooperation and when an order is resting and assigned a
priority.40 coordination with persons engaged in new display price, and when the
The Exchange also proposes to add regulating, clearing, settling, processing display quantity of a Reserve Order is
two circumstances in which an order information with respect to, and replenished. The Commission believes
would be evaluated for setter priority. facilitating transactions in securities, to that these proposed changes are
Currently, an order will be evaluated for remove impediments to and perfect the reasonably designed to provide
setter priority on arrival (including any mechanism of a free and open market incentives for market participants to
portion that has been routed and returns and a national market system, and, in display liquidity on the Exchange.
unexecuted) and when the order general, to protect investors and the Accordingly, the Commission finds
becomes eligible to trade for the first public interest. that the proposal is consistent with the
time upon transitioning to a new trading The proposal would alter how UTP requirements of the Act, and is designed
session.41 First, NYSE proposes that an Securities trade on the Exchange’s Pillar to promote just and equitable principles
order would be evaluated for setter trading platform with respect to two of trade, to remove impediments to and
priority when resting and assigned a order types—reserve orders and primary perfect the mechanism of a free and
new display price.42 If multiple orders pegged orders—and would also amend open market and a national market
reprice at the same time, none of the the rules that determine when orders are system, and, in general, to protect
orders would be eligible for setter eligible for setter priority. The proposed investors and the public interest.
priority unless one order is equal to or changes relating to Reserve Orders
greater than a round lot and the sum of would seek to reduce the quantity of IV. Conclusion
the other orders at the same price is less child orders and the potential for
than one round lot.43 Second, the information leakage. The Commission It is therefore ordered, pursuant to
Exchange proposes that an order would believes that the proposal to replenish Section 19(b)(2) of the Act,51 that the
be evaluated for setter priority when the the displayed quantity when it falls proposed rule change (SR–NYSE–2018–
display quantity of a Reserve Order is below one round lot is consistent with 26), as modified by Amendment No. 1,
replenished.44 The Exchange asserts reserve order functioning on other be, and hereby is, approved.
that, if a repriced resting or replenished national securities exchanges that the For the Commission, by the Division of
Reserve Order meets the conditions for Commission has found to be consistent Trading and Markets, pursuant to delegated
establishing setter priority,45 then that with the Exchange Act.50 The authority.52
order is aggressively displaying Commission also believes that the Eduardo A. Aleman,
liquidity on the Exchange, which the proposal is consistent with Section Assistant Secretary.
Exchange seeks to encourage by 6(b)(5)—with respect to replenishing a [FR Doc. 2018–17004 Filed 8–8–18; 8:45 am]
providing a setter priority allocation.46 Reserve Order that has two existing BILLING CODE 8011–01–P
child orders totaling less than one round
III. Discussion and Commission
lot, routing from reserve interest before
Findings
publishing the display quantity, and SECURITIES AND EXCHANGE
After careful review of the proposal, aligning the Exchange’s rule text to the COMMISSION
as modified by Amendment No. 1, the existing treatment of Reserve Orders
Commission finds that the proposed that are not routable and of routed [Release No. 34–83771; File No. SR–
rule change is consistent with the Reserve Orders that return NASDAQ–2018–060]
requirements of the Act 47 and the rules unexecuted—because the proposed
and regulations thereunder applicable to changes are reasonably designed to Self-Regulatory Organizations; The
a national securities exchange.48 In encourage the provision of liquidity on Nasdaq Stock Market LLC; Notice of
particular, the Commission finds that the exchange by reducing the likelihood Filing and Immediate Effectiveness of
the proposed rule change is consistent of adverse selection against liquidity Proposed Rule Change To Amend
with Section 6(b)(5) of the Act,49 which providers through information leakage Certain Terms Under Chapter I, Section
and providing clarity to market 1 of the Options Rules
40 See Proposed NYSE Rule 7.36(h)(1)(D).
41 See
participants, while not permitting unfair
NYSE Rule 7.36(h)(1)(A)–(B). August 3, 2018.
42 See Proposed NYSE Rule 7.36(h)(1)(C).
discrimination on the exchange.
43 Id.
The proposed changes relating to Pursuant to Section 19(b)(1) of the
44 See Proposed NYSE Rule 7.36(h)(1)(D). In Primary Pegged Reserve Orders would Securities Exchange Act of 1934
connection with this proposed change, the provide that, if the PBBO is locked or (‘‘Act’’),1 and Rule 19b–4 thereunder,2
Exchange also proposed to delete current NYSE crossed when the display quantity of the notice is hereby given that on July 20,
Rule 7.36(h)(4)(B), which states that setter priority order is to be replenished, the entire
is not available when the reserve quantity
2018, The Nasdaq Stock Market LLC
replenishes the display quantity of a Reserve Order. order would be canceled. The (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
45 The requirements for an order to achieve setter Commission believes that the proposal Securities and Exchange Commission
priority are that it is an order ranked Priority 2— is reasonably designed to prevent the (‘‘SEC’’ or ‘‘Commission’’) the proposed
Display Orders with a display quantity of at least display of locked or crossed quotations
one round lot, that it establishes a new BBO, and
rule change as described in Items I and
sradovich on DSK3GMQ082PROD with NOTICES

that it either establishes a new NBBO or joins an in NMS securities. II below, which Items have been
Away Market NBBO. See NYSE Rule 7.36(h). The rules relating to the setter priority prepared by the Exchange. The
46 See Notice, supra note 7, at 28704–05. would change in two ways. First, the Commission is publishing this notice to
47 15 U.S.C. 78f.
rules would be amended to reflect that,
48 In approving this proposed rule change, the
under existing order function, an order 51 15 U.S.C. 78s(b)(2).
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital is not eligible for setter priority if there 52 17 CFR 200.30–3(a)(12).
formation. See 15 U.S.C. 78c(f). 1 15 U.S.C. 78s(b)(1).
49 15 U.S.C. 78f(b)(5). 50 See Notice, supra note 7, at 28704. 2 17 CFR 240.19b–4.

VerDate Sep<11>2014 18:11 Aug 08, 2018 Jkt 244001 PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 E:\FR\FM\09AUN1.SGM 09AUN1
Document Created: 2018-08-09 01:10:51
Document Modified: 2018-08-09 01:10:51
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		83 FR 39488