83 FR 43919 - Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31E Relating to Reserve Orders and Re-Name an Order Type
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 167 (August 28, 2018)
Federal Register Volume 83, Issue 167 (August 28, 2018)
| Page Range | 43919-43923 | |
| FR Document | 2018-18570 |
[Federal Register Volume 83, Number 167 (Tuesday, August 28, 2018)] [Notices] [Pages 43919-43923] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-18570] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83898; File No. SR-NYSEAMER-2018-41] Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31E Relating to Reserve Orders and Re-Name an Order Type August 22, 2018. Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that on August 10, 2018, NYSE American LLC (``Exchange'' or ``NYSE American'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 7.31E relating to Reserve Orders and re-name an order type. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its Cash Equities Pillar Platform Rule 7.31E [[Page 43920]] relating to Reserve Orders and re-name an order type. Background Rule 7.31E(d)(1) defines a Reserve Order as a Limit or Inside Limit Order with a quantity of the size displayed and with a reserve quantity of the size (``reserve interest'') that is not displayed. The displayed quantity of a Reserve Order is ranked Priority 2--Display Orders and the reserve interest is ranked Priority 3--Non-Display Orders.\4\ Rule 7.31E(d)(1)(A) provides that on entry, the display quantity of a Reserve Order must be entered in round lots and the displayed portion of a Reserve Order will be replenished following any execution. That rule further provides that the Exchange will display the full size of the Reserve Order when the unfilled quantity is less than the minimum display size for the order. Rule 7.31E(d)(1)(B) provides that each time a Reserve Order is replenished from reserve interest, a new working time is assigned to the replenished quantity of the Reserve Order, while the reserve interest retains the working time of original order entry. Pursuant to Rule 7.31E(d)(1)(C), a Reserve Order must be designated Day and may be combined with a Non-Routable Limit Order. --------------------------------------------------------------------------- \4\ The terms ``Priority 2--Display Orders'' and ``Priority 3-- Non-Display Orders'' are defined in Rule 7.36E(e). --------------------------------------------------------------------------- Proposed Rule Change Relating To Renaming of Order Type The Exchange proposes non-substantive amendments to Rules 7.31E and 7.46E to rename the ``Limit Non-Displayed Order'' as the ``Non- Displayed Limit Order.'' The Exchange believes this proposed rule change would conform the style of this order type with the name of the Non-Routable Limit Order. The Exchange therefore believes that this proposed rule change would promote clarity and consistency in its rules. Proposed Rule Change Relating to Reserve Orders The Exchange proposes to amend Rule 7.31E(d)(1) to change the manner by which the display portion of a Reserve Order would be replenished. As proposed, rather than replenishing the display quantity following any execution, the Exchange proposes to replenish the Reserve Order when the display quantity is decremented to below a round lot. The changes that the Exchange is proposing to Rule 7.31 relating to Reserve Orders are identical to changes that were recently approved for the Exchange's affiliate, New York Stock Exchange LLC (``NYSE'').\5\ In addition, the proposed changes to how Reserve Orders would be replenished are consistent with how Reserve Orders are replenished on other equity exchanges.\6\ --------------------------------------------------------------------------- \5\ See Securities Exchange Act Release No. 83768 (August 3, 2018), 83 FR 39488 (August 9, 2018) (SR-NYSE-2018-26) (Approval Order). \6\ See Cboe BZX Exchange, Inc. (``BZX'') Rule 11.9(c)(1); Nasdaq Stock Market LLC (``Nasdaq'') Rule 7503(h). --------------------------------------------------------------------------- As is currently the case, the replenish quantity would be the minimum display size of the order or the remaining quantity of reserve interest if it is less than the minimum display quantity. To reflect this functionality, the Exchange proposes that Rule 7.31E(d)(1)(A) would be amended as follows (deleted text bracketed; new text underlined): (A) On entry, the display quantity of a Reserve Order must be entered in round lots. The displayed portion of a Reserve Order will be replenished when the display quantity is decremented to below a round lot. The replenish quantity will be the minimum display quantity of the order or the remaining quantity of the reserve interest if it is less than the minimum display quantity [following any execution. The Exchange will display the full size of the Reserve Order when the unfilled quantity is less than the minimum display size for the order]. Under current functionality, because the replenished quantity is assigned a new working time, it is feasible for a single Reserve Order to have multiple replenished quantities with separate working times, each, a ``child'' order. The proposed change to limit when a Reserve Order would be replenished to when the display quantity is decremented to below a round lot only would reduce the number of child orders for a Reserve Order. The Exchange believes that minimizing the number of child orders for a Reserve Order would reduce the potential for market participants to detect that a child order displayed on the Exchange's proprietary market data feeds is associated with a Reserve Order. In most cases, the maximum number of child orders for a Reserve Order would be two. For example, assume a Reserve Order to buy has a display quantity of 100 shares and an additional 200 shares of reserve interest. A sell order of 50 shares would trade with the display quantity of such Reserve Order, which would decrement the display quantity to 50 shares. As proposed, the Exchange would then replenish the Reserve Order with 100 shares from the reserve interest, i.e., the minimum display size for the order. After this second replenishment, the Reserve Order would have two child orders, one for 50 shares, the other for 100 shares, each with different working times. Generally, when there are two child orders, the older child order of less than a round lot will be executed before the second child order. However, there are limited circumstances when a Reserve Order could have two child orders that equal less than a round lot, which, as proposed, would trigger a replenishment. For such circumstance, the Exchange proposes that when a Reserve Order is replenished from reserve interest and already has two child orders that equal less than a round lot, the child order with the later working time would be reassigned the new working time assigned to the next replenished quantity. For example, taking the same Reserve Order as above:If 100 shares of such order (``A'') are routed on arrival, it would have a display quantity of 100 shares (``B'') and 100 shares in reserve interest. While ``A'' is routed, a sell order of 50 shares would trade with ``B,'' decrementing ``B'' to 50 shares and the Reserve Order would be replenished from reserve interest, creating a second child order ``C'' of 100 shares. Next, the Exchange receives a request to reduce the size of the Reserve Order from 300 shares to 230 shares. Because ``A'' is still routed away and there is no reserve interest, and as described in more detail below, this 70 share reduction in size would be applied against the most recent child order of ``C,'' which would be reduced to 30 shares. Together with ``B,'' which would still be 50 shares, the two displayed child orders would equal less than a round lot, but with no quantity in reserve interest. Next, ``A'' is returned unexecuted, and as described below, becomes reserve interest and is evaluated for replenishment. Because the total display quantity (``B'' + ``C'') is less than a round lot, this Reserve Order would be replenished. But because the Reserve Order already has two child orders, the child order with the later working time, ``C,'' would be returned to the reserve interest, which would now have a quantity of 130 shares (``C'' + ``A''), and the Reserve Order would be replenished with 100 shares from the reserve interest with a new working time, which would be a new child order ``D.'' After this replenishment, this Reserve Order would have two child orders of ``B'' for 50 shares and ``D'' for 100 shares, and a reserve interest of 30 shares. To effect these changes, the Exchange proposes to amend current Rule [[Page 43921]] 7.31E(d)(1)(B) to specify that each display quantity of a Reserve Order with a different working time would be referred to as a child order. The Exchange further proposes new Rule 7.31E(d)(1)(B)(i) that would provide that when a Reserve Order is replenished from reserve interest and already has two child orders that equal less than a 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. The Exchange also proposes new Rule 7.31E(d)(1)(B)(ii) to provide that if a Reserve Order is not routable (i.e., is combined with a Non- Routable Limit Order), the replenish quantity would be assigned a display and working price consistent with the instructions for the order, which represents current functionality. For example, for a Non- Routable Limit Reserve Order, if the display price would lock or cross the contra-side PBBO, the replenished quantity would be assigned a display price one MPV worse than the PBBO and a working price equal to the contra-side PBBO, as provided for in Rule 7.31E(e)(1)(A)(i).\7\ The Exchange believes that this proposed rule text would provide transparency and clarity to Exchange rules. --------------------------------------------------------------------------- \7\ The term ``PBBO'' is defined in Rule 1.1E. The term ``MPV'' is defined in Rule 7.6E. --------------------------------------------------------------------------- The Exchange further proposes to add new subsection (D) to Rule 7.31E(d)(1) to describe when a Reserve Order would be routed. As proposed, a routable Reserve Order would be evaluated for routing both on arrival and each time the display quantity is replenished. Proposed Rule 7.31E(d)(1)(D)(i) would provide that if routing is required, the Exchange would route from reserve interest before publishing the display quantity. In addition, if after routing, there is less than a round lot available to display, the Exchange would wait until the routed quantity returns (executed or unexecuted) before publishing the display quantity. In the example described above, the Exchange would have published the display quantity before the routed quantity returned because the display quantity was at least a round lot. If, however, 250 shares of a Reserve Order of 300 shares had been routed on arrival, because the unrouted quantity was less than a round lot (50 shares), the Exchange would wait for the routed quantity to return, either executed or unexecuted, before publishing the display quantity. The Exchange proposes this functionality to reduce the possibility for a Reserve Order to have more than one child order. If the Exchange did not wait, and instead displayed the 50 shares when the balance of the Reserve Order has routed, if the 250 shares returns unexecuted, such Reserve Order would be replenished and would have two child orders--one for the 50 shares that was displayed when the order was entered and a second for the 100 shares that replenished the Reserve Order from the quantity that returned unexecuted. By contrast, by waiting for a report on the routed quantity, if the routed quantity was not executed, the Exchange would display the minimum display quantity as a single child order. If the routed quantity was executed, the Exchange would display the 50 shares, but only because that would be the full remaining quantity of the Reserve Order. Proposed Rule 7.31E(d)(1)(D)(ii) would provide that any quantity of a Reserve Order that is returned unexecuted would join the working time of the reserve interest, which is current functionality. If there is no quantity of reserve interest to join, the returned quantity would be assigned a new working time as reserve interest. As further proposed, in either case, such reserve interest would replenish the display quantity as provided for in Rules 7.31E(d)(1)(A) and (B). The Exchange believes that this proposed rule text would promote transparency and clarity in Exchange rules. The Exchange further believes it is appropriate for a returned quantity of a Reserve Order to join the reserve interest first because the order may not be eligible for a replenishment to the display quantity. Proposed Rule 7.31E(d)(1)(E) would provide that a request to reduce in size a Reserve Order would cancel the reserve interest before canceling the display quantity and if there is more than one child order, the child order with the later working time would be cancelled first. This represents current functionality and the example set forth above demonstrates how this would function. The Exchange believes that canceling reserve interest before a child order would promote the display of liquidity on an exchange. The Exchange further believes that canceling a later-timed child order would respect the time priority of the first child order, and any priority such child order may have for allocations. * * * * * Because of the technology changes associated with the proposed rule changes to Reserve Orders, the Exchange will announce by Trader Update when these changes will be implemented, which the Exchange anticipates will be in the third quarter of 2018. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act''),\8\ in general, and furthers the objectives of Section 6(b)(5),\9\ 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. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78f(b). \9\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed rule change to replenish a Reserve Order only if the display quantity is decremented to below a round lot would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would reduce the number of child orders associated with a single Reserve Order. By reducing the number of child orders, the Exchange believes it would reduce the potential for market participants to detect that a child order is associated with a Reserve Order. The proposed changes to Reserve Orders are identical to recently approved changes to the rules of its affiliated exchange, NYSE, and how a Reserve Order would be replenished is also consistent with how Reserve Orders function on BZX and Nasdaq.\10\ --------------------------------------------------------------------------- \10\ See supra notes 5 and 6. --------------------------------------------------------------------------- For similar reasons, the Exchange believes that if a Reserve Order has two child orders that equal less than a round lot, it would remove impediments to and perfect the mechanism of a free and open market and a national market system to assign a new working time to the later child order so that when such Reserve Order is replenished, it would have a maximum of only two child orders. The Exchange believes that this proposed change would streamline the operation of Reserve Orders and meet the objective to reduce the potential for market participants to be able to identify that a child order is associated with a Reserve Order. The Exchange further believes that the proposed rule change to evaluate a Reserve Order for routing both on arrival and when replenishing would remove impediments to and perfect the [[Page 43922]] mechanism of a free and open market and a national market system because it would reduce the potential for the display quantity of a Reserve Order to lock or cross the PBBO of an away market. The Exchange further believes that routing from reserve interest would promote the display of liquidity on the Exchange, because if there is at least a round lot remaining of a Reserve Order that is not routed, the Exchange would display that quantity. The Exchange also believes that it would remove impediments to and perfect the mechanism of a free and open market and a national market system to wait to display a Reserve Order if there is less than a round lot remaining after routing because it would reduce the potential for such Reserve Order to have more than one child order. Finally, the Exchange believes that joining any quantity of a Reserve Order that is returned unexecuted with reserve interest first would be consistent with the proposed replenishment logic that a Reserve Order would be replenished only if the display quantity is decremented to below a round lot. The Exchange believes that it would remove impediments to and perfect the mechanism of a free and open market and a national market system to apply a request to reduce in size a Reserve Order to the reserve interest first, and then next to the child order with the later working time, because such functionality would promote the display of liquidity on the Exchange and honor the priority of the first child order with the earlier working time. The Exchange believes that including this existing functionality in Rule 7.31E would promote transparency and clarity in Exchange rules. The Exchange believes that the proposed non-substantive amendment to rename the ``Limit Non-Displayed Order'' as the ``Non-Displayed Limit Order'' would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed change would conform to the naming convention of the Exchange's Non-Routable Limit Order and would therefore promote clarity and consistency in Exchange rules. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not designed to address any competitive issues. Rather, the proposed rule change to Reserve Orders is designed to reduce the potential for market participants to identify that a child order is related to a Reserve Order. The additional proposed rule changes are non-substantive and are designed to promote clarity and consistency in Exchange rules. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b- 4(f)(6)(iii) thereunder. --------------------------------------------------------------------------- \11\ 15 U.S.C. 78s(b)(3)(A)(iii). \12\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii),\14\ the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. --------------------------------------------------------------------------- \13\ 17 CFR 240.19b-4(f)(6). \14\ 17 CFR 240.19b-4(f)(6)(iii). --------------------------------------------------------------------------- At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) \15\ of the Act to determine whether the proposed rule change should be approved or disapproved. --------------------------------------------------------------------------- \15\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-NYSEAMER-2018-41 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSEAMER-2018-41. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSEAMER-2018-41 and should be submitted on or before September 18, 2018. --------------------------------------------------------------------------- \16\ 17 CFR 200.30-3(a)(12). [[Page 43923]] --------------------------------------------------------------------------- For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-18570 Filed 8-27-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Notices 43919
2. Analysis ETP 73; the ways in which approval of SECURITIES AND EXCHANGE
The Exchange asserts that approval of the proposal would increase investor COMMISSION
the proposal would enhance confidence 74; the ways in which [Release No. 34–83898; File No. SR–
competition among market participants, promoting the adoption of bitcoin and NYSEAMER–2018–41]
to the benefit of investors.69 One other cryptocurrencies would ease inter-
commenter asserts that approval of the generational tension and wealth Self-Regulatory Organizations; NYSE
proposal will provide greater security, inequality and foster the confidence of American LLC; Notice of Filing and
transparency, and liquidity, as well as younger generations in the economic Immediate Effectiveness of Proposed
safe custody, for investors in system 75; the Commission’s process for Rule Change To Amend Rule 7.31E
cryptocurrencies.70 And one commenter granting Exchange Act exemptive relief Relating to Reserve Orders and Re-
suggests that the Commission should in connection with ETP approval 76; and Name an Order Type
seek to protect investors through the potential impact of Commission August 22, 2018.
disclosure requirements or suitability approval of the proposed ETPs on the Pursuant to Section 19(b)(1) 1 of the
standards, rather than disapproving a price of bitcoin.77 Ultimately, however, Securities Exchange Act of 1934
bitcoin-ETP proposal.71 additional discussion of these tangential (‘‘Act’’) 2 and Rule 19b–4 thereunder,3
The Commission acknowledges that, topics is unnecessary, as they do not notice is hereby given that on August
compared to trading in unregulated bear on the basis for the Commission’s 10, 2018, NYSE American LLC
bitcoin spot markets, trading a bitcoin- decision to disapprove the proposal. (‘‘Exchange’’ or ‘‘NYSE American’’) filed
based ETP on a national securities with the Securities and Exchange
exchange may provide some additional E. Basis for Disapproval Commission (‘‘Commission’’) the
protection to investors, but the proposed rule change as described in
Commission must consider this The record before the Commission
does not provide a basis for the Items I, II, and III below, which Items
potential benefit in the broader context have been prepared by the self-
of whether the proposal meets each of Commission to conclude that the
regulatory organization. The
the applicable requirements of the Exchange has met its burden under the
Commission is publishing this notice to
Exchange Act. Pursuant to Section Exchange Act and the Commission’s
solicit comments on the proposed rule
19(b)(2) of the Exchange Act, the Rules of Practice to demonstrate that its change from interested persons.
Commission must disapprove a proposed rule change is consistent with
proposed rule change filed by a national Exchange Act Section 6(b)(5).78 I. Self-Regulatory Organization’s
securities exchange if it does not find Statement of the Terms of Substance of
IV. Conclusion the Proposed Rule Change
that the proposed rule change is
consistent with the applicable For the reasons set forth above, the The Exchange proposes to amend
requirements of the Exchange Act— Commission does not find, pursuant to Rule 7.31E relating to Reserve Orders
including the requirement under Section 19(b)(2) of the Exchange Act, and re-name an order type. The
Section 6(b)(5) that the rules of a that the proposed rule change is proposed rule change is available on the
national securities exchange be consistent with the requirements of the Exchange’s website at www.nyse.com, at
designed to prevent fraudulent and Exchange Act and the rules and the principal office of the Exchange, and
manipulative acts and practices. regulations thereunder applicable to a at the Commission’s Public Reference
Thus, even if a proposed rule change Room.
national securities exchange, and in
would provide certain benefits to
particular, with Section 6(b)(5) of the II. Self-Regulatory Organization’s
investors and the markets, the proposed
Exchange Act. Statement of the Purpose of, and
rule change may still fail to meet other
It is therefore ordered, pursuant to Statutory Basis for, the Proposed Rule
requirements under the Exchange Act.
Section 19(b)(2) of the Exchange Act, Change
For the reasons discussed above, the
Exchange has not met its burden of that proposed rule change SR– In its filing with the Commission, the
demonstrating an adequate basis in the NYSEArca–2018–02 is disapproved. self-regulatory organization included
record for the Commission to find that statements concerning the purpose of,
For the Commission, by the Division of
the proposal is consistent with and basis for, the proposed rule change
Trading and Markets, pursuant to delegated
Exchange Act Section 6(b)(5), and, and discussed any comments it received
authority.79
accordingly, the Commission must on the proposed rule change. The text
Brent J. Fields, of those statements may be examined at
disapprove the proposal.
Secretary. the places specified in Item IV below.
D. Other Comments [FR Doc. 2018–18577 Filed 8–27–18; 8:45 am] The Exchange has prepared summaries,
Comment letters also addressed the BILLING CODE 8011–01–P set forth in sections A, B, and C below,
intrinsic value of bitcoin 72; the desire of of the most significant parts of such
individuals to invest in a bitcoin-based statements.
73 See Galt Letter, supra note 9; Santos Letter,
supra note 9. A. Self-Regulatory Organization’s
69 See Notice, supra note 3, 83 FR at 3387.
70 See supra note 66 and accompanying text.
74 See David Letter, supra note 9; Santos Letter, Statement of the Purpose of, and the
71 See supra note 68 and accompanying text. The supra note 9. Statutory Basis for, the Proposed Rule
Commission also notes that the Exchange did not 75 See David Letter, supra note 9. Change
daltland on DSKBBV9HB2PROD with NOTICES
respond to questions in the Order Instituting 76 See Williams Letter, supra note 9, at 1.
Proceedings seeking comment on how the Funds’ 77 See Santos Letter, supra note 9.
1. Purpose
striking NAV as of 11:00 a.m. E.T. (five hours before 78 In disapproving the proposed rule change, the The Exchange proposes to amend its
the close of the regular trading session) would affect
arbitrage, and what the potential effect on investors Commission has considered its impact on Cash Equities Pillar Platform Rule 7.31E
would be if the arbitrage mechanism were impaired. efficiency, competition, and capital formation. See
See Order Instituting Proceedings, supra note 7, 83 15 U.S.C. 78c(f). See also supra note 67 and 1 15 U.S.C. 78s(b)(1).
FR at 18605. accompanying text. 2 15 U.S.C. 78a.
72 See Ahn Letter, supra note 9. 79 17 CFR 200.30–3(a)(12). 3 17 CFR 240.19b–4.
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relating to Reserve Orders and re-name for the Exchange’s affiliate, New York Order would have two child orders, one
an order type. Stock Exchange LLC (‘‘NYSE’’).5 In for 50 shares, the other for 100 shares,
addition, the proposed changes to how each with different working times.
Background Generally, when there are two child
Reserve Orders would be replenished
Rule 7.31E(d)(1) defines a Reserve are consistent with how Reserve Orders orders, the older child order of less than
Order as a Limit or Inside Limit Order are replenished on other equity a round lot will be executed before the
with a quantity of the size displayed exchanges.6 second child order. However, there are
and with a reserve quantity of the size As is currently the case, the replenish limited circumstances when a Reserve
(‘‘reserve interest’’) that is not quantity would be the minimum display Order could have two child orders that
displayed. The displayed quantity of a size of the order or the remaining equal less than a round lot, which, as
Reserve Order is ranked Priority 2— quantity of reserve interest if it is less proposed, would trigger a
Display Orders and the reserve interest than the minimum display quantity. To replenishment. For such circumstance,
is ranked Priority 3—Non-Display reflect this functionality, the Exchange the Exchange proposes that when a
Orders.4 Rule 7.31E(d)(1)(A) provides proposes that Rule 7.31E(d)(1)(A) would Reserve Order is replenished from
that on entry, the display quantity of a be amended as follows (deleted text reserve interest and already has two
Reserve Order must be entered in round bracketed; new text underlined): child orders that equal less than a round
lots and the displayed portion of a (A) On entry, the display quantity of a
lot, the child order with the later
Reserve Order will be replenished Reserve Order must be entered in round lots. working time would be reassigned the
following any execution. That rule The displayed portion of a Reserve Order new working time assigned to the next
further provides that the Exchange will will be replenished when the display replenished quantity.
display the full size of the Reserve quantity is decremented to below a round lot. For example, taking the same Reserve
Order when the unfilled quantity is less The replenish quantity will be the minimum Order as above:
than the minimum display size for the display quantity of the order or the remaining • If 100 shares of such order (‘‘A’’) are
quantity of the reserve interest if it is less routed on arrival, it would have a
order. Rule 7.31E(d)(1)(B) provides that than the minimum display quantity
each time a Reserve Order is display quantity of 100 shares (‘‘B’’) and
[following any execution. The Exchange will 100 shares in reserve interest.
replenished from reserve interest, a new display the full size of the Reserve Order
working time is assigned to the • While ‘‘A’’ is routed, a sell order of
when the unfilled quantity is less than the
replenished quantity of the Reserve minimum display size for the order]. 50 shares would trade with ‘‘B,’’
Order, while the reserve interest retains decrementing ‘‘B’’ to 50 shares and the
Under current functionality, because Reserve Order would be replenished
the working time of original order entry. the replenished quantity is assigned a
Pursuant to Rule 7.31E(d)(1)(C), a from reserve interest, creating a second
new working time, it is feasible for a child order ‘‘C’’ of 100 shares.
Reserve Order must be designated Day single Reserve Order to have multiple • Next, the Exchange receives a
and may be combined with a Non- replenished quantities with separate request to reduce the size of the Reserve
Routable Limit Order. working times, each, a ‘‘child’’ order. Order from 300 shares to 230 shares.
Proposed Rule Change Relating To The proposed change to limit when a Because ‘‘A’’ is still routed away and
Renaming of Order Type Reserve Order would be replenished to there is no reserve interest, and as
when the display quantity is described in more detail below, this 70
The Exchange proposes non- decremented to below a round lot only
substantive amendments to Rules 7.31E share reduction in size would be
would reduce the number of child applied against the most recent child
and 7.46E to rename the ‘‘Limit Non- orders for a Reserve Order. The
Displayed Order’’ as the ‘‘Non- order of ‘‘C,’’ which would be reduced
Exchange believes that minimizing the to 30 shares. Together with ‘‘B,’’ which
Displayed Limit Order.’’ The Exchange number of child orders for a Reserve
believes this proposed rule change would still be 50 shares, the two
Order would reduce the potential for displayed child orders would equal less
would conform the style of this order market participants to detect that a child
type with the name of the Non-Routable than a round lot, but with no quantity
order displayed on the Exchange’s in reserve interest.
Limit Order. The Exchange therefore
believes that this proposed rule change
proprietary market data feeds is • Next, ‘‘A’’ is returned unexecuted,
associated with a Reserve Order. and as described below, becomes
would promote clarity and consistency In most cases, the maximum number
in its rules. reserve interest and is evaluated for
of child orders for a Reserve Order replenishment. Because the total display
Proposed Rule Change Relating to would be two. For example, assume a quantity (‘‘B’’ + ‘‘C’’) is less than a
Reserve Orders Reserve Order to buy has a display round lot, this Reserve Order would be
quantity of 100 shares and an additional replenished. But because the Reserve
The Exchange proposes to amend 200 shares of reserve interest. A sell
Rule 7.31E(d)(1) to change the manner Order already has two child orders, the
order of 50 shares would trade with the child order with the later working time,
by which the display portion of a display quantity of such Reserve Order,
Reserve Order would be replenished. As ‘‘C,’’ would be returned to the reserve
which would decrement the display interest, which would now have a
proposed, rather than replenishing the quantity to 50 shares. As proposed, the
display quantity following any quantity of 130 shares (‘‘C’’ + ‘‘A’’), and
Exchange would then replenish the the Reserve Order would be replenished
execution, the Exchange proposes to Reserve Order with 100 shares from the
replenish the Reserve Order when the with 100 shares from the reserve interest
reserve interest, i.e., the minimum with a new working time, which would
display quantity is decremented to display size for the order. After this be a new child order ‘‘D.’’
daltland on DSKBBV9HB2PROD with NOTICES
below a round lot. The changes that the
Exchange is proposing to Rule 7.31
second replenishment, the Reserve • After this replenishment, this
relating to Reserve Orders are identical Reserve Order would have two child
5 See Securities Exchange Act Release No. 83768
to changes that were recently approved orders of ‘‘B’’ for 50 shares and ‘‘D’’ for
(August 3, 2018), 83 FR 39488 (August 9, 2018)
(SR–NYSE–2018–26) (Approval Order).
100 shares, and a reserve interest of 30
4 The terms ‘‘Priority 2—Display Orders’’ and 6 See Cboe BZX Exchange, Inc. (‘‘BZX’’) Rule shares.
‘‘Priority 3—Non-Display Orders’’ are defined in 11.9(c)(1); Nasdaq Stock Market LLC (‘‘Nasdaq’’) To effect these changes, the Exchange
Rule 7.36E(e). Rule 7503(h). proposes to amend current Rule
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![Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Notices 43923
For the Commission, by the Division of period within which to approve the Exchange has offered no record
Trading and Markets, pursuant to delegated proposed rule change, disapprove the evidence to demonstrate that bitcoin
authority.16 proposed rule change, or institute futures markets are ‘‘markets of
Eduardo A. Aleman, proceedings to determine whether to significant size.’’ That failure is critical
Assistant Secretary. approve or disapprove the proposed because, as explained below, the
[FR Doc. 2018–18570 Filed 8–27–18; 8:45 am] rule change.7 On April 5, 2018, the Exchange has failed to establish that
BILLING CODE 8011–01–P Commission instituted proceedings other means to prevent fraudulent and
under Section 19(b)(2)(B) of the manipulative acts and practices will be
Exchange Act 8 to determine whether to sufficient, and therefore surveillance-
SECURITIES AND EXCHANGE approve or disapprove the proposed sharing with a regulated market of
COMMISSION rule change.9 The comment period and significant size related to bitcoin is
[Release No. 34–83913; File No. SR–
rebuttal comment period for the Order necessary to satisfy the statutory
CboeBZX–2018–001] Instituting Proceedings closed on May 1, requirement that the Exchange’s rules be
2018, and May 15, 2018, respectively.10 designed to prevent fraudulent and
Self-Regulatory Organizations; Cboe Finally, on June 28, 2018, the manipulative acts and practices.14
BZX Exchange, Inc.; Order Commission extended the period for
consideration of the proposed rule II. Description of the Proposal
Disapproving a Proposed Rule Change
To List and Trade the Shares of the change to September 15, 2018.11 As of The Exchange proposes to list and
GraniteShares Bitcoin ETF and the August 21, 2018, the Commission had trade the Shares under BZX Rule
GraniteShares Short Bitcoin ETF received 15 comments on the proposed 14.11(f)(4), which governs the listing
rule change.12 and trading of Trust Issued Receipts on
August 22, 2018. This order disapproves the proposed the Exchange.15 Each Fund will be a
I. Introduction rule change. Although the Commission series of the Trust, and the Trust and the
is disapproving this proposed rule Funds will be managed and controlled
On January 5, 2018, Cboe BZX change, the Commission emphasizes by GraniteShares Advisors LLC
Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’) that its disapproval does not rest on an (‘‘Sponsor’’). Bank of New York Mellon
filed with the Securities and Exchange evaluation of whether bitcoin, or will serve as administrator, custodian,
Commission (‘‘Commission’’), pursuant blockchain technology more generally, and transfer agent for the Funds.
to Section 19(b)(1) of the Securities has utility or value as an innovation or Foreside Fund Services, LLC will serve
Exchange Act of 1934 (‘‘Exchange an investment. Rather, the Commission as the distributor of the Shares
Act’’) 1 and Rule 19b–4 thereunder,2 a is disapproving this proposed rule (‘‘Distributor’’). The Trust will offer
proposed rule change to list and trade change because, as discussed below, the Shares of the Funds for sale through the
the shares (‘‘Shares’’) of the Exchange has not met its burden under Distributor in ‘‘Creation Units’’ in
GraniteShares Bitcoin ETF (‘‘Long the Exchange Act and the Commission’s transactions with ‘‘Authorized
Fund’’) and the GraniteShares Short Rules of Practice to demonstrate that its Participants’’ who have entered into
Bitcoin ETF (‘‘Short Fund’’) (each a proposal is consistent with the agreements with the Distributor.16
‘‘Fund’’ and, collectively, ‘‘Funds’’) requirements of the Exchange Act According to the Exchange, the Long
issued by the GraniteShares ETP Trust Section 6(b)(5), in particular the Fund’s investment objective will be to
(‘‘Trust’’) 3 under BZX Rule 14.11(f)(4).4 requirement that a national securities seek results (before fees and expenses)
The proposed rule change was exchange’s rules be designed to prevent that, both for a single day and over time,
published for comment in the Federal fraudulent and manipulative acts and correspond to the performance of lead
Register on January 18, 2018.5 The practices.13 Among other things, the month bitcoin futures contracts listed
comment period for the Notice of
and traded on the Cboe Futures
Proposed Rule Change closed on 7 See Securities Exchange Act Release No. 82759
Exchange, Inc. (‘‘CFE’’) (‘‘Benchmark
February 8, 2018. (Feb. 22, 2018), 83 FR 8719 (Feb. 28, 2018).
Futures Contracts’’). Conversely, the
On February 22, 2018, pursuant to 8 15 U.S.C. 78s(b)(2)(B).
9 See Securities Exchange Act Release No. 82995 Short Fund’s investment objective will
Section 19(b)(2) of the Exchange Act,6
(Apr. 5, 2018), 83 FR 15425 (Apr. 10, 2018) (‘‘Order be to seek results (before fees and
the Commission designated a longer Instituting Proceedings’’). expenses) that, on a daily basis,
10 See id. at 15426.
1 15 U.S.C. 78s(b)(1).
correspond to the inverse (¥1x) of the
11 See Securities Exchange Act Release No. 83548
2 17 CFR 240.19b–4. daily performance of the Benchmark
(June 28, 2018), 83 FR 31246 (July 3, 2018).
3 The Trust filed a registration statement with the 12 See Letters from Anita Desai (Apr. 6, 2018) Futures Contracts for a single day. Each
Commission on December 15, 2017. See (‘‘Desai Letter’’); Ed Kaleda (Apr. 6, 2018) (‘‘Kaleda Fund generally intends to invest
Registration Statement on Form S–1, dated Letter’’); Don Krohn (Apr. 7, 2018) (‘‘Krohn Letter’’); substantially all of its assets in the
December 15, 2017 (File No. 333–222109) Adam Malkin (Apr. 8, 2018) (‘‘Malkin Letter’’);
(‘‘Registration Statement’’). The Registration
Benchmark Futures Contracts and cash
Shravan Kumar (Apr. 11, 2018) (‘‘Kumar Letter’’);
Statement ‘‘will be effective as of the date of any David Barnwell (Apr. 12, 2018) (‘‘Barnwell Letter’’);
and cash equivalents (which would be
offer and sale pursuant to the Registration Louise Fitzgerald (Apr. 18, 2018) (‘‘Fitzgerald used to collateralize the Benchmark
Statement.’’ Notice, infra note 5, 83 FR at 2705 n.7. Letter’’); Sharon Brown-Hruska, Managing Director, Futures Contracts), but may invest in
4 On August 21, 2018, the Exchange filed
and Trevor Wagener, Consultant, NERA Economic other U.S. exchange listed bitcoin
Amendment No. 1 to the proposal, and on August Consulting (May 18, 2018) (‘‘NERA Letter’’); Alex
22, 2018, the Exchange filed Amendment No. 2 to Hales (July 8, 2018) (‘‘Hales Letter’’); Anthony C.
futures contracts, as available (together
the proposal. As discussed below, however, see Otenyi (July 18, 2018) (‘‘Otenyi Letter’’); V.K. Bhat
Section III.E, infra, the Commission views these (July 28, 2018) (‘‘Bhat Letter’’); Sami Santos (Aug. 14 See infra notes 31–33 and accompanying text.
daltland on DSKBBV9HB2PROD with NOTICES
amendments as untimely. Furthermore, even if 7, 2018) (‘‘Santos Letter’’); Arthur Netto (Aug. 9, 15 BZX Rule 14.11(f)(4) applies to Trust Issued
these amendments had been timely filed, they 2018) (‘‘Netto Letter’’); Sam M. Ahn (Aug. 17, 2018) Receipts that invest in ‘‘Financial Instruments.’’
would not alter the Commission’s conclusion that (‘‘Ahn Letter’’); and William Rhind, CEO, The term ‘‘Financial Instruments,’’ as defined in
the Exchange’s proposal is not consistent with the GraniteShares (Aug. 20, 2018) (‘‘GraniteShares BZX Rule 14.11(f)(4)(A)(iv), means any combination
Exchange Act. See id. Letter’’). All comments on the proposed rule change of investments, including cash; securities; options
5 See Securities Exchange Act Release No. 82484 are available on the Commission’s website at: on securities and indices; futures contracts; options
(Jan. 11, 2018), 83 FR 2704 (Jan. 18, 2018) https://www.sec.gov/comments/sr-cboebzx-2018- on futures contracts; forward contracts; equity caps,
(‘‘Notice’’). 001/cboebzx2018001.htm. collars, and floors; and swap agreements.
6 15 U.S.C. 78s(b)(2). 13 See 15 U.S.C. 78f(b)(5). 16 See Notice, supra note 5, 83 FR at 2707.
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Document Created: 2018-08-28 00:23:03
Document Modified: 2018-08-28 00:23:03
| 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 43919 |
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