[Federal Register Volume 83, Number 159 (Thursday, August 16, 2018)]
[Notices]
[Pages 40808-40813]
[FR Doc No: 2018-17630]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83821; File No. SR-NYSE-2018-34]

Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Amend NYSE Rule 104
Governing Transactions by Designated Market Makers

August 10, 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 July 31, 2018, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') 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 Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to consolidate and restructure subsections
(g), (h) and (i) of Rule 104 governing transactions by Designated
Market Makers (``DMM''). 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 consolidate and restructure subsections
(g), (h) and (i) of Rule 104 governing DMM transactions.
Background
    Rule 104 sets forth the obligations of Exchange DMMs. Under Rule
104(a), DMMs registered in one or more securities traded on the
Exchange are required to engage in a course of dealings for their own
account to assist in the maintenance of a fair and orderly market
insofar as reasonably practicable. Rule 104(a) also enumerates the
specific responsibilities and duties of a DMM, including: (1)
Maintenance of a continuous two-sided quote, which

mandates that each DMM maintain a bid or an offer at the National Best
Bid (``NBB'') and National Best Offer (``NBO,'' together the ``NBBO'')
for a certain percentage of the trading day,\4\ and (2) the
facilitation of, among other things, openings, re-openings, and the
close of trading for the DMM's assigned securities, all of which may
include supplying liquidity as needed.\5\ Rule 104(f) imposes an
affirmative obligation on DMMs to maintain, insofar as reasonably
practicable, a fair and orderly market on the Exchange in assigned
securities, including maintaining price continuity with reasonable
depth and trading for the DMM's own account when lack of price
continuity, lack of depth, or disparity between supply and demand
exists or is reasonably to be anticipated.
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    \4\ See Rule 104(a)(1).
    \5\ See Rule 104(a)(2)(3). Rule 104(e) further provides that DMM
units must provide contra-side liquidity as needed for the execution
of odd-lot quantities eligible to be executed as part of the
opening, reopening, and closing transactions but that remain
unpaired after the DMM has paired all other eligible round lot sized
interest.
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    Rule 104(g) provides that transactions on the Exchange by a DMM for
the DMM's account must be effected in a reasonable and orderly manner
in relation to the condition of the general market and the market in
the particular stock. More particularly, Rule 104(g) describes certain
transactions that are permitted to render the DMM's position adequate
to the market's needs, including Neutral and Non-Conditional
Transactions, and certain DMM transactions that are prohibited.
    Rule 104(g)(i)(A)(I) defines Neutral Transactions as a purchase or
sale by which a DMM liquidates or decreases a position. Neutral
Transactions may be made without restriction as to price. However, the
DMM's obligation to maintain a fair and orderly market may require re-
entry on the opposite side of the market trend after effecting one or
more Neutral Transactions. Such re-entry transactions should be in
accordance with the immediate and anticipated needs of the market.
    Rule 104(g)(i)(A)(II) defines Non-Conditional Transactions as a
DMM's bid or purchase and offer or sale that establishes or increases a
position, other than a transaction that reaches across the market to
trade with the Exchange BBO. Non-Conditional Transactions may be made
without restriction as to price in order to (i) match another market's
better bid or offer price; (ii) bring the price of a security into
parity with an underlying or related security or asset; (iii) add size
to an independently established bid or offer on the Exchange; (iv)
purchase at the published bid price on the Exchange; (v) sell at the
published offer price on the Exchange; (vi) purchase or sell at a price
between the Exchange BBO; and (vii) purchase below the published bid or
sell above the published offer on the Exchange. As with Neutral
Transactions, the DMM's obligation to maintain a fair and orderly
market may also require re-entry on the opposite side of the market
trend after effecting one or more Non-Conditional Transactions. Such
re-entry transactions should be commensurate with the size of the Non-
Conditional Transactions and the immediate and anticipated needs of the
market.
    Rule 104(g)(i)(A)(III) provides that, except as otherwise permitted
by Rule 104, during the last ten minutes prior to the close of trading,
a DMM with a long or short position in a security is prohibited from
making a purchase or sale in such security that results in a new high
or low price, respectively, on the Exchange for the day at the time of
the DMM's transaction (``Prohibited Transactions'').\6\
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    \6\ Rule 104(g)(i)(A)(III) contains two exceptions to Prohibited
Transactions: (1) Matching another market's better bid or offer
price, and (2) bringing the price of a security into parity with an
underlying or related security or asset.
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    Finally, Rule 104(h) addresses DMM transactions in securities that
establish or increase the DMM's position. Rule 104(h)(i) defines a
Conditional Transaction as a DMM transaction in a security that
establishes or increases a position and reaches across the market to
trade as the contra-side to the Exchange published bid or offer.\7\
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    \7\ A DMM reaches across the market when the DMM buys from the
NYSE offer or sells to the NYSE bid.
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    Rule 104(h)(ii) permits ``Conditional Transactions'' without
restriction as to price if they are followed by appropriate re-entry on
the opposite side of the market commensurate with the size of the DMM's
transaction. Thus, if a DMM establishes or increases a long position by
buying from the Exchange best offer, or establishes or increases a
short position by selling to the Exchange best bid, such transaction
would be followed by the DMM quoting on the opposite side of the last
transaction in order to dampen the impact of that transaction on the
market.
    The re-entry obligations for Conditional Transactions are set forth
in Rule 104(h)(iii). Under Rule 104(h)(iii)(A), DMMs must re-enter
within certain Exchange issued guidelines, called price participation
points (``PPP''), that identify the price at or before which a DMM is
expected to re-enter the market after effecting a Conditional
Transaction. PPPs are only minimum guidelines and compliance with them
does not guarantee that a DMM is meeting its obligations.
    Notwithstanding that a security may not have reached the PPP, the
DMM may be required to re-enter the market immediately after a
Conditional Transaction based on the price and/or volume of the DMM's
trading in reference to the market in the security at the time of such
trading. In such situations DMMs may or may not rely on the fact and
circumstance that there may have been one or more independent trades
following the DMM's trading to justify a failure to re-enter the
market. As set forth in Rule 104(h)(iii)(C)(I) and (II), immediate re-
entry is required after the following Conditional Transactions:
     A purchase that (1) reaches across the market to trade
with an Exchange published offer that is above the last differently
priced trade on the Exchange and above the last differently priced
published offer on the Exchange, (2) is 10,000 shares or more or has a
market value of $200,000 or more, and (3) exceeds 50% of the published
offer size; and
     a sale that (1) reaches across the market to trade with an
Exchange published bid that is below the last differently priced trade
on the Exchange and below the last differently priced published bid on
the Exchange, (2) is 10,000 shares or more or has a market value of
$200,000 or more, and (3) exceeds 50% of the published bid size.\8\
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    \8\ For purposes of subsections (h)(iii)(C)(I) and
(h)(iii)(C)(II), a Sweep is viewed as a transaction with the
published bid or offer.
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    Rule 104(h)(iv) permits certain other Conditional Transactions
without restriction as to price. Specifically, under subsection
(h)(iv)(A), a DMM's purchase from the Exchange published offer that is
priced above the last differently-priced trade on the Exchange or above
the last differently-priced published offer on the Exchange. Similarly,
under subsection (h)(iv)(B), a DMM's sale to the Exchange published bid
that is priced below the last differently-priced trade on the Exchange
or below the last differently-priced published bid on the Exchange.
    Finally, Rule 104(i) provides that re-entry obligations following
such Conditional Transactions would be the same as the re-entry
obligations for Non-Conditional Transactions pursuant to Rule 104(g).
Proposed Rule Change
    The Exchange proposes to consolidate and restructure current Rules
104(g), (h)

and (i), which would be deleted and incorporated as modified into a new
subsection (g) titled ``Transactions by DMMs.'' The Exchange also
proposes certain technical and conforming changes.\9\
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    \9\ The Exchange proposes the following technical and conforming
changes: (1) Romanettes (i) through (vi) in Rule 104(b) and (i)
through (iv) in Rule 104(f) would be replaced with numbers 1 through
6 and 1 through 4, respectively; (2) current subsection (j) would
become new subsection (h); and (3) current subsection (k) would
become new subsection (i).
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    As discussed below, proposed Rule 104(g) would revise the
requirements for DMM transactions based on the type of trading by the
DMM, rather than by reference to the DMM's position. As restructured,
the proposed rule would replace the four current types of DMM
transactions based on the DMM's position (Neutral, Non-conditional,
Conditional and Prohibited) with a single, enhanced DMM transaction
called an ``Aggressing Transaction'' that would retain existing re-
entry requirements. During the final seconds of trading before the
close of trading, Aggressing Transactions that would result in a new
consolidated high (low) price for a security during that trading day
would be prohibited with one exception discussed below.
Proposed Rule 104(g)(1)
    Proposed Rule 104(g)(1) would be based on current Rule104(g)(i).
Like current Rule 104(g)(i), proposed Rule 104(g)(1) would specify that
transactions on the Exchange by a DMM unit for the DMM unit's account
are to be effected in a reasonable and orderly manner in relation to
the condition of the general market and the market in the particular
stock. Proposed Rule 104(g)(1) would eliminate the definitions of
Neutral and Non-Conditional Transactions \10\ and retain Conditional
Transactions, which would be enhanced and renamed ``Aggressing
Transactions.''
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    \10\ As discussed below, the re-entry obligations for Neutral
and Non-Conditional Transactions would be retained and incorporated
into proposed subsection (g)(2).
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    In proposed Rule 104(g)(1)(A), the Exchange would define an
Aggressing Transaction as a DMM unit transaction that:

    (i) Is a purchase (sale) that reaches across the market to trade
as the contra-side to the Exchange published offer (bid); and
    (ii) is priced above (below) the last differently-priced trade
on the Exchange and above (below) the last differently-priced
published offer (bid) on the Exchange.

    The proposed definition of Aggressing Transaction would be the same
as the current definition of Conditional Transaction in Rule 104(h)(i)
and (ii), except that Aggressing Transaction would not be defined by
reference to whether the transaction increases or decreases the DMM's
position. Accordingly, a DMM unit Aggressing Transaction would be any
trade where the DMM is both reaching across the market and aggressively
moves the price of the security.
Prohibited Transactions
    The Exchange proposes to retain the existing prohibition on certain
DMM transactions at the end of the trading day and to modify Prohibited
Transactions in three ways.\11\
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    \11\ See Rule 104(g)(i)(A)(III) and note 16, infra.
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    First, the Exchange proposes to modify the types of transactions
that would be prohibited. Currently, the rule prohibits transactions by
a DMM that create a new high or low price on the Exchange. The Exchange
proposes instead to prohibit Aggressing Transactions that create a new
consolidated high or low price. The Exchange believes that this
proposed change would allow a DMM to quote aggressively in assigned
securities without the risk of trading at a price that could create a
new Exchange high or low price. For example, if the Exchange bid is
$10.10, the Exchange offer is $10.12 and the last Exchange sale was
$10.10, and the DMM unit is long and is seeking to narrow the spread by
posting a bid at $10.11. Under the Exchange's current rule, if there
were dark sell interest at $10.11, a DMM with a long position would be
prohibited from attempting to post a bid at $10.11 because it could
trade at that price and create a new high price on the Exchange. The
current rule thus thwarts the ability of the DMM to meet their
affirmative obligations to quote aggressively in assigned securities.
    Moreover, the Exchange proposes to permit, consistent with the
current exception in Rule 104(g)(i)(A)(III), Aggressing Transactions in
the final ten seconds that would result in a new consolidated high
(low) price for a security in order to bring the price of that security
into parity with an underlying or related security or asset.\12\
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    \12\ This exception would continue to be appropriate because an
independent party and not the DMM would set the price. See
Securities Exchange Act Release No. 54860 (December 1, 2006), 71 FR
71221, 71229 (December 8, 2006) (SR-NYSE-2006-76) (``Release No.
54860''). The Exchange does not propose to incorporate the other
current exception permitting transactions during the last ten
minutes of trading that result in a new Exchange high or low for the
day in order to match another market's better bid or offer because a
DMM could not create a new consolidated high or low price by
matching a better away bid or offer.
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    Second, the Exchange proposes to eliminate the reliance on the
DMM's position to determine whether to prohibit a transaction. The
Exchange does not believe that the position of the DMM should be the
defining feature of whether a trade is prohibited. Rather, as described
above, the Exchange believes that whether a trade is prohibited should
be based on whether the trade both aggressively takes liquidity and
creates a new consolidated high or low price for the day. By
eliminating reliance on position information, the proposed prohibited
transaction would be more restrictive than the current rule because a
DMM could not reach across the market to liquidate a position. However,
the Exchange believes that this proposed change would support DMMs in
meeting their affirmative obligations while at the same time preventing
DMMs from aggressively taking liquidity and moving prices on the
Exchange immediately before the closing auction.
    Finally, the Exchange proposes to modify the period during which
such transactions are prohibited.\13\ To reflect the increased
transparency regarding closing imbalances leading into the close and
the speed and volume of transactions in today's electronic marketplace,
the Exchange proposes to shorten the period during which certain
transactions are prohibited to the final ten seconds of trading before
the scheduled close of trading. The Exchange believes that limiting the
period for Prohibited Transactions, as amended, is appropriate for a
high-speed trading environment where trade speed is measured in
microseconds and the final ten seconds of trading is an active trading
period.\14\ Moreover, as noted above, the transactions proposed to be
prohibited would include liquidating transactions. Therefore, by
shortening the time period restricting such trading, the DMMs would
have more time to engage in liquidating transactions before the
prohibition begins.\15\
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    \13\ See Rule 104(g)(i)(A)(III).
    \14\ During the first quarter of 2018, the Exchange traded on
average in excess of 1% of the total NYSE daily volume in the last
10 seconds of the trading day.
    \15\ Currently, during the last ten minutes of trading, DMMs are
not prohibited from engaging in transactions that create a new high
or low on the Exchange and are also a liquidating transaction. As
proposed, Aggressing Transactions resulting in a new consolidated
high or low prior to the final ten seconds of trading would be
permitted but would be subject to the re-entry obligations contained
in proposed Rule104(g)(2), discussed below.
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    The current rule prohibiting certain transactions in the last ten
minutes of trading was adopted before the advent of rapid electronic
trading and before the Exchange began disseminating

Order Imbalance Information in its current form, as described in Rule
123C(6).\16\ The Exchange believes that the availability of order
imbalance information before the close of trading provides the public
with updated trading information that was previously available only to
DMMs. As a result, although the public now has significantly greater
imbalance information leading into the close,\17\ there has been no
commensurate modernization of when the period for DMM prohibited
transactions begins. Moreover, there is limited information asymmetry
leading into the close; DMM algorithms only have access to the same
data feeds that are available to the public. While Floor-based DMMs
have access to additional non-public information, there is almost no
manual trading \18\ between 3:50 p.m. and 3:59:50 p.m., and thus
limited opportunity for the Floor-based DMMs to act on that
information. For example, Floor broker crowd interest is not revealed
until 4:00 p.m. Further, DMMs do not determine their level of
participation in the close until all interest has been entered for the
close, including such Floor broker crowd interest, which is after 4:00
p.m. The Exchange accordingly believes that prohibiting transactions
during the last ten seconds of trading would provide the same level of
protection as intended by the current rule prohibiting certain
transactions in the last ten minutes of trading.
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    \16\ The rule on Prohibited Transactions was adopted in 2006.
See note 19, infra. In 2010, the Exchange enhanced the transparency
of its marketplace and improved the quality of the closing auctions
by modifying the dissemination of Order Imbalance Information
pursuant to Rule 123C(6) to commence at 3:45 p.m. and including
indicative closing price information and updated imbalance
information in the pre-closing Order Imbalance data feeds. See
Securities Exchange Act Release No. 61233 (December 23, 2009), 74 FR
69169 (December 30, 2009) (SR-NYSE-2009-111) (Approval Order)
(``Closing Filing''). See also Securities Exchange Act Release No.
61616 (March 1, 2010), 75 FR 10533 (March 8, 2010) (SR-NYSE-2010-12)
(Notice of Filing of Extension of Implementation Date of the Closing
Filing).
    \17\ The Order Imbalance Information data feed provides
automated, streaming information about real-time order imbalances
that accumulate prior to the close of trading on the Exchange, and
also includes the mandatory market-on-close (``MOC'') and limit-on-
close (``LOC'') imbalance information that the Exchange is required
to disseminate under NYSE Rule 123C(5). Order Imbalance Information
is published every five seconds between 3:45 p.m. and 4:00 p.m.
During this period, all market participants have access to the same
imbalance information.
    \18\ For instance, in the first quarter of 2018, there were only
275 manual DMM trades that occurred in the last 9 minutes, 50
seconds of trading, representing just .0001% of the total shares
traded on the NYSE in that time period.
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    To effect these changes, proposed Rule 104(g)(1)(B) would prohibit
any Aggressing Transaction during the final ten seconds of trading
before the scheduled close of trading that would result in a new
consolidated high (low) price for a security during that trading day,
except for Aggressing Transactions that would result in a new
consolidated high (low) price for a security in order to bring the
price of that security into parity with an underlying or related
security or asset. Proposed Rule 104(g)(1)(B) would thus replace the
current rule on Prohibited Transactions, a rule originally designed to
prevent specialists from setting a price in the final ten minutes of
trading in a security in which the specialist had a position.\19\
Finally, the Exchange notes that the proposal is consistent with, and
in no way diminishes or relieves the DMM of, the other obligations
regarding the quality of the markets in securities to which DMMs are
assigned under Rule 104.\20\
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    \19\ See Release No. 54860, 71 FR at 71221. When the prohibition
was adopted in 2006, Prohibited Transactions were set forth in
Supplementary Material .10 of Rule 104. The rationale behind
preventing specialists from setting the price of a security on the
Exchange in the final ten minutes of trading was to prevent
specialists from inappropriately influencing the price of a security
at the close to advantage a specialist's proprietary position. See
id., 71 FR at 71229. The rule was retained in 2008 when the
Exchange's New Market Model transformed specialists into DMMs, who
are no longer agents for the Exchange's limit order book and whose
trading activity on the Exchange is limited to proprietary trading.
See Securities Exchange Act Release No. 58845 (October 24, 2008), 73
FR 64379, 64381 (October 29, 2008) (SR-NYSE-2008-46).
    \20\ In general, as noted above, transactions on the Exchange by
a DMM for the DMM's account must be effected in a reasonable and
orderly manner in relation to the condition of the general market
and the market in the particular stock, and DMMs must refrain from
causing or exacerbating excessive price movements. DMMs have
affirmative obligations under Rule 104(a) to engage in a course of
dealings for their own account to assist in the maintenance of a
fair and orderly market insofar as reasonably practicable.
Specifically, Rule 104(f)(ii) sets forth the DMM's obligation to act
as reasonably necessary to ensure appropriate depth and maintain
reasonable price variations between transactions (also known as
price continuity) and prevent unexpected variations in trading.
Further, under Rule 123D(a), openings and reopenings must be fair
and orderly, reflecting the DMM's professional assessment of market
conditions at the time, and appropriate consideration of the balance
of supply and demand as reflected by orders represented in the
market. The Exchange supplies DMMs with suggested Depth Guidelines
for each security in which a DMM is registered, and DMMs are
expected to quote and trade with reference to the Depth Guidelines.
See Rule 104(f)(iii).
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Proposed Rule 104(g)(2)
    Proposed subsection (g)(2) would set forth the re-entry obligations
for DMM transactions, which would be based on the current rule's re-
entry obligations. Specifically, proposed Rule 104(g)(2) would provide
that a DMM unit's obligation to maintain a fair and orderly market may
require re-entry on the opposite side of the market after effecting one
or more transactions. The proposed rule would provide that such re-
entry should be commensurate with the size of the transaction(s) and
the immediate and anticipated needs of the market, which are the same
re-entry requirements specified in current Rules 104(g)(i)(A)(I)(3) and
104(g)(i)(A)(II)(3) for Neutral and Non-Conditional Transactions,
respectively, as well as the types of Conditional Transactions
referenced in current Rules 104(h)(iv) and 104(i).\21\ Accordingly,
these re-entry obligations would be applicable to DMM transactions
other than Aggressing Transactions.
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    \21\ Current Rule 104(h)(iv) provides that two types of
Conditional Transactions may be made without restriction as to
price: (1) A DMM's purchase from the Exchange published offer that
is priced above the last differently-priced trade on the Exchange or
above the last differently-priced published offer on the Exchange
((h)(iv)(A)); and (2) a DMM's sale to the Exchange published bid
that is priced below the last differently-priced trade on the
Exchange or below the last differently-priced published bid on the
Exchange ((h)(iv)(B)). Current Rule 104(i) provides that the re-
entry obligations following transactions defined in Rule
104(h)(iv)(A) and (h)(iv)(B) are the same as for Non-Conditional
Transactions pursuant to Rule 104(g)(i)(A)(3).
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    Proposed Rule 104(g)(2)(A) and (B) would specify the re-entry
obligations for Aggressing Transactions. Following an Aggressing
Transaction, proposed Rule 104(g)(2)(A) would require the DMM unit to
re-enter the opposite side of the market at or before the applicable
PPP for that security commensurate with the size of the Aggressing
Transaction. The re-entry requirement for Aggressing Transactions set
forth in proposed Rule 104(g)(2)(A) is based on the current re-entry
requirements for certain Conditional Transactions set forth in current
Rule 104(h)(iii).
    Under proposed Rule 104(g)(2)(B), if the Aggressing transaction (i)
is 10,000 shares or more or has a market value of $200,000 or more, and
(ii) exceeds 50% of the published offer (bid) size, immediate re-entry
on the opposite side of the market at or before the applicable PPP for
the security commensurate with the size of the Aggressing Transaction
would be required. The re-entry requirement for block-sized Aggressing
Transactions set forth in proposed Rule 104(g)(2)(B) is based the
current re-entry requirements for block-sized Conditional Transactions
under Rule 104(h)(iii)(C). The Exchange proposes a clarifying amendment
in proposed Rule 104(g)(2)(B), as compared to current Rule
104(h)(iii)(C), to provide that such re-entry must be at or before the
applicable PPP for that security. The Exchange believes that this
proposed change will provide greater detail in the

rule regarding the price at which the re-entry would be required.
Proposed Rule 104(g)(3)
    Finally, proposed Rule 104(g)(3)(A) would provide that the Exchange
would periodically issue PPP Guidelines that identify the price at or
before which a DMM unit is expected to re-enter the market following an
Aggressing Transaction. PPPs are only minimum guidelines and compliance
with them does not guarantee that a DMM unit is meeting its
obligations. This portion of the proposed Rule is based on Rule
104(h)(iii)(A) without any differences.
    Proposed Rule 104(g)(3)(B) would provide that, notwithstanding that
a security may not have reached the PPP, the DMM unit may be required
to re-enter the market immediately after an Aggressing Transaction
based on the price and/or volume of the DMM unit's trading in reference
to the market in the security at the time of such trading. In such
situations, DMM units may or may not rely on the fact and circumstance
that there may have been one or more independent trades following the
DMM unit's trading to justify a failure to re-enter the market.
Subsection (B) of the proposed rule is based on current Rule
104(h)(iii)(B).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\22\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\23\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and protect investors and the public interest.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that revising the requirements
for DMM transactions based on the type of DMM trading rather than the
DMM's position and introducing a new, enhanced DMM transaction called
an ``Aggressing Transaction'' would remove impediments to and perfect
the mechanism of a free and open market and a national market system by
simplifying and streamlining the requirements for DMM transactions. The
proposal would eliminate four separate types of DMM transactions and
introduce a simplified framework whereby all DMM transactions would be
subject to general re-entry requirements based on the current re-entry
obligations for Neutral, Non-Conditional and Conditional transactions,
and specific re-entry requirements for Aggressing Transactions, except
for Aggressing Transactions during the final ten seconds of trading
that result in a new consolidated high or low, which would be
prohibited.
    The Exchange believes that the proposal would not be inconsistent
with the public interest and the protection of investors. As noted, the
proposed rule would carry over the requirement that all DMM
transactions be effected in a reasonable and orderly manner in relation
to the condition of the general market and the market in the particular
stock. Further, DMM Aggressing Transactions would continue to require
re-entry on the opposite side of the market at or before the applicable
PPP for the security as warranted. Aggressing Transactions in the final
ten seconds of trading that result in a new consolidated high (low)
price for a security during that trading day would continue to be
prohibited. These safeguards would reasonably ensure that DMM
transactions bear a reasonable relationship to overall market
conditions and that DMMs cannot destabilize, inappropriately influence
or manipulate a security going into the close. In addition, the
prohibition on Aggressing Transactions that would create a new
consolidated high or low price of the trading day would maintain a
bright-line rule that prohibits DMM transactions that aggressively take
liquidity leading into the close. While the period during which such
Aggressing Transactions would be shorter than under the current rule,
the Exchange believes that the shorter time period reflects today's
faster, more electronic markets, where trades and quotes are measured
in microseconds, not minutes. Further, the proposed prohibition would
be stricter than under current rules because DMMs would be prohibited
from engaging in any Aggressing Transaction that creates a new
consolidated high or low price for the day, even if such trade were a
liquidating transaction.
    Accordingly, the proposed rule change is designed to address the
potential risk of DMM trading destabilizing the market leading into the
close in today's market conditions, while at the same time revising
which transactions would be prohibited to promote DMMs quoting more
aggressively in their assigned securities. The Exchange therefore
believes that the proposed amendments to the types of transactions that
would be prohibited would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because DMMs would now be able to quote more aggressively in their
assigned securities during the period for prohibited transactions.
    Moreover, the numerous obligations currently imposed by Rule 104
would in no way be altered or diminished by the proposal. The Exchange
does not believe that the balance of benefits and obligations under
Rule 104 would be impacted by this proposed rule change. DMMs would
continue to be prohibited from engaging in specified transactions
leading into the close. The Exchange is simply proposing to modernize
this obligation to reflect the realities of today's trading
environment. Moreover, the proposed rule would carry over the
requirement that all DMM transactions be effected in a reasonable and
orderly manner in relation to the condition of the general market and
the market in the particular stock. These safeguards would reasonably
ensure that DMM transactions bear a reasonable relationship to overall
market conditions and that DMMs cannot destabilize, inappropriately
influence or manipulate a security going into the close. For the same
reasons, the proposed prohibition would not alter or disrupt the
balance between DMM benefits and obligations of being an Exchange DMM.
    Finally, revising the requirements for DMM transactions based on
the type of DMM trading rather than the DMM's position would remove
impediments to and perfect the mechanism of a free and open market and
a national market system by simplifying and streamlining the
requirements for DMM transactions.
    For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.

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 Exchange proposes
amendments to the rule governing DMM obligations to simplify and
streamline the requirements for DMM transactions. The Exchange believes
that the proposal would promote competition by allowing DMMs to quote
more aggressively in the final minutes of trading, thereby permitting
DMMs to remain competitive with other traders both on the Exchange and
on other trading venues. Without the proposed change, the Exchange
believes that in the final ten minutes of trading, DMMs are at a
competitive disadvantage because they are restricted

from engaging in quoting activity that does not reach across the
market, but that could result in a transaction that is a new high or
low on the Exchange, but is not a new consolidated high or low price.
The Exchange believes that the proposal is pro-competitive because
revising which transactions would be prohibited would promote DMM
quoting more aggressively in their assigned securities, thereby
enhancing the ability of DMMs to meet their affirmative obligation
under Rule 104. Similarly, shortening the time period restricting DMM
trading, in addition to being more appropriate for the current high-
speed trading environment, would provide DMMs with more time to engage
in liquidating transactions before the prohibition begins, thereby
enhancing DMM market making in the final minutes of trading. The
Exchange further believes that its proposed rules governing DMMs would
not impose any burden on competition that is not necessary or
appropriate because the proposed rules are designed to foster a fair
and orderly marketplace without diminishing the balance of benefits and
obligations under Rule 104 or altering or diminishing the numerous
obligations currently imposed by Rule 104 on DMMs.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-NYSE-2018-34 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-NYSE-2018-34. 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-NYSE-2018-34 and should be submitted on
or before September 6, 2018.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Brent J. Fields,
Secretary.
[FR Doc. 2018-17630 Filed 8-15-18; 8:45 am]
 BILLING CODE 8011-01-P