Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules 7.16, 7.18, 7.31, 7.34, and 7.38

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on February 21, 2019, NYSE National, Inc. (“NYSE National” or the “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “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.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend Rules 7.16 (Short Sales), 7.18 (Halts), 7.31 (Orders and Modifiers), 7.34 (Trading Session), and 7.38 (Odd and Mixed Lots). 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 Rules 7.16 (Short Sales), 7.18 (Halts), 7.31 (Orders and Modifiers), 7.34 (Trading Session), and 7.38 (Odd and Mixed Lots). The proposed rule changes are intended to provide additional specificity in the Exchange's rules, streamline order processing when a security is halted or paused, and reduce operational complexity when transitioning to continuous trading.

Rule 7.16 (Short Sales)

Rule 7.16 establishes requirements relating to short sales. Rule 7.16(f)(5) sets forth how short sale orders are processed during a Short Sale Period, which is defined in Rule 7.16(f)(4). More specifically, Rule 7.16(f)(5)(B) provides how the Exchange processes sell short Priority 1 and Priority 3 Orders during a Short Sale Period. The current rule provides that such orders, which are not displayed, are re-priced at a Permitted Price and are continuously re-priced at a Permitted Price as the national best bid moves both up and down. Accordingly, under the current rule, during a Short Sale Period, orders ranked Priority 1—Market Orders, are processed in the same manner as orders ranked Priority 3—Non-Display Orders.

With this proposed rule change, the Exchange proposes to extend the functionality currently applicable to how sell short Market Orders on its affiliated exchanges, NYSE Arca, Inc. (“NYSE Arca”) and NYSE American LLC (“NYSE American”) function during an auction to how sell short Market Orders would be processed on the Exchange during continuous trading, i.e., that during a Short Sale Period, sell short Market Orders would be converted into display orders and would be ranked and allocated as a displayed order. To effect this change, the Exchange proposes to delete references to “Priority 1 Orders” and “Market Orders” in current Rule 7.16(f)(5)(B) and add new Rule 7.16(f)(5)(C) that would be applicable only to Market Orders. Orders ranked Priority 3—Non-Display Orders would continue to be processed in the same manner as they are today under Rule 7.16(f)(5)(B).

Proposed new Rule 7.16(f)(5)(C) would provide that, during a Short Sale Period, a sell short Market Order would be ranked Priority 2—Display Orders and would be subject to Trading Collars specified in Rule 7.31(a)(1)(B)(i). As discussed below, when a sell short Market Order is ranked as Priority 2—Display Orders, it would be assigned a limit price of one MPV above $0.00. The Exchange believes that applying Limit Order Price Protection when such orders are ranked as Priority 2—Display Orders would result in all such orders being rejected as being priced too far away from the NBBO. Accordingly, to ensure that there is a mechanism available to prevent such orders from causing significant price dislocation during a Sell Short Period, the Exchange proposes that such orders would continue to be subject to Trading Collars, which are applicable to Market Orders, rather than to Limit Order Price Protection.

To address what would happen when a Short Sale Period is triggered when there is a resting Market Order on the Exchange Book, proposed Rule 7.16(f)(5)(C) would further provide that if a Short Sale Period is triggered when an order ranked Priority 1—Market Orders is resting on the Exchange Book, such resting order would be converted to an order ranked Priority 2—Display Orders. This could happen if there is an unexecuted Market Order that is undisplayed on the Exchange Book pursuant to Rule 7.31(a)(1)(A). In such case, the resting order would be converted to an order ranked Priority 2—Display Orders and would be ranked and allocated for all purposes as a displayed order. If the Short Sale Period ends intraday, such order would be converted back to an order ranked Priority 1—Market Orders.

While a sell short Market Order would be ranked and allocated as Priority 2—Display Orders during a Short Sale Period, not all functionality applicable to displayed orders would be applicable to such Market Orders. As proposed, when ranked as Priority 2—Display Orders, such order would be (1) assigned a limit price of one MPV above $0.00; (2) assigned a working and (during Core Trading Hours) a display price that is the higher of the Permitted Price or one MPV above the lower Trading Collar as determined under Rule 7.31(a)(1)(B)(i); and (3) cancelled if the Permitted Price is or becomes lower than the Lower Price Band, as provided in Rule 7.11(a)(5).

The Exchange believes that assigning a Market Order with a limit price equal to one MPV above $0.00 would provide for a limit price for such order while it is functioning as an order ranked Priority 2—Display Orders. However, as noted above, such limit price would not be used for purposes of Limit Order Price Protection. Rather, the Exchange proposes to continue applying the Trading Collars applicable to Market Orders even if such order converts to displayed interest. Next, the Exchange believes that assigning such order a working and display price (during Core Trading Hours) that is the higher of the Permitted Price or one MPV above the lower Trading Collar is consistent both with how sell short Priority 2—Display Orders are displayed and priced during a Short Sale Period and with the proposal that Trading Collars would continue to be applicable to such orders. Not displaying such orders until Core Trading Hours is also consistent with the continued behavior that such Market Orders are not eligible to trade until the Core Trading Session. Finally, the Exchange proposes to cancel such order if the Permitted Price (i.e., the displayed price of the order) is or becomes lower than the Lower Price Band, which is consistent with how Market Orders are processed pursuant to Rule 7.11(a)(5)(A)(i) if they cannot be traded or routed at prices at or within the Price Bands. In other words, if the Permitted Price would be a price at or below the Lower Price Band, the Exchange proposes to cancel such order rather than repricing it once again to the Lower Price Band, even though the Lower Price Band would be at a price higher than the Permitted Price. Thus, no short sale order would be executed (effected) at or below the NBB during a Short Sale Period.

With the adoption of proposed Rule 7.16(f)(5)(C), the Exchange further proposes to re-number each of current sub-paragraphs (C)—(I) of Rule 7.16(f)(5) as (D)—(J) without making any substantive change to those rules.

Rule 7.18, Halts

Rule 7.18(b) states that the Exchange does not conduct reopening auctions in UTP Securities and sets forth how the Exchange processes new and existing orders during a UTP Regulatory Halt. Rule 7.18(b)(1) states that during a UTP Regulatory Halt, the Exchange will cancel any unexecuted portion of Market Orders and orders not eligible to trade in the current trading session on the Exchange Book. The Exchange proposes to amend this Rule to further provide that orders that are not displayed would also be cancelled during a UTP Regulatory Halt. To reflect this change, the Exchange proposes to amend Rule 7.18(b)(1) to provide that Non-Displayed Limit Orders, Mid-Point Liquidity (“MPL”) Orders, Tracking Orders, and Market Pegged Orders would also be canceled during a UTP Regulatory Halt. The Exchange believes that cancelling these non-displayed orders during a UTP Regulatory Halt would streamline order processing once trading resumes.

Rule 7.31, Orders and Modifiers

The Exchange proposes to make a number of changes to Rule 7.31, each of which are designed to streamline order processing.

Rule 7.31(a)(2)(C) currently describes how the Exchange re-prices resting orders under specified circumstances. Specifically, if a BB (BO) that is locked or crossed by an Away Market PBO (PBB) is cancelled, executed or routed and the next best-priced resting Limit Order(s) on the Exchange Book that would become the new BB (BO) would have a display price that would lock or cross the PBO (PBB), such Limit Order(s) to buy (sell) will be assigned a display price one MPV below (above) the PBO (PBB) and a working price equal to the PBO (PBB). Such Limit Orders are re-priced when the PBBO is updated, including if the Exchange receives a Day ISO that would result in at least a round lot being displayed as the new BBO.

The Exchange proposes to amend this text to provide that the arrival of any-sized Day ISO would result in the re-pricing of such resting orders. The arrival of a Day ISO of any size provides the Exchange with notice that the ETP Holder that has entered such order has met the requirement under Rule 7.31(e)(3)(A)(ii) to simultaneously route one or more additional Limit Orders to trade against the full displayed size of any protected bids (for sell orders) or protected offers (for buy orders) on Away Markets. Accordingly, the Exchange would adjust the PBBO based on the arrival of any-sized Day ISO. Because the PBBO would be adjusted based on the arrival of any-sized Day ISO, the Exchange believes it would no longer be necessary to wait for a round-lot sized Day ISO before repricing orders under Rule 7.31(a)(2)(C). Accordingly, the Exchange proposes to delete the following text in the second sentence of current Rule 7.31(a)(2)(C)—“and would result in at least a round lot being displayed as a new BB (BO)”—and the third and last sentence of current Rule 7.31(a)(2)(C).

The Exchange also proposes to provide additional specificity in Rule 7.31(h)(2)(B) regarding when a Primary Pegged Order's display price and working price would be adjusted when the PBBO is locked or crossed. Specifically, the Exchange proposes to specify that Primary Pegged Orders would be re-priced whenever a Limit Order is re-priced pursuant to Rules 7.31(a)(2)(C). Re-pricing a Primary Pegged Order like a Limit Order pursuant to Rule 7.31(a)(2)(C) ensures that if the PBBO is locked or crossed, a resting Primary Pegged Order would not be re-priced to a locking or crossing price, for example, if the Exchange BBO changes. To effect this change, the Exchange proposes to amend Rule 7.31(h)(2)(B) to specify that if a resting Limit Order on the Exchange Book is assigned a new display price and working price pursuant to Rules 7.31(a)(2)(C) and the PBBO is still locked or crossed, a resting Primary Pegged Order would also be assigned a new display price and working price pursuant to Rule 7.31E(a)(2)(C). The proposed text represents current functionality. The Exchange believes that this proposed rule change would provide clarity and transparency in Exchange rules of when a Primary Pegged Order would be re-priced consistent with Rule 7.31(a)(2)(C).

Rule 7.34, Trading Sessions

Rule 7.34(c)(1) describes order entry during the Early Trading Session. The Exchange proposes to add new subparagraph (F) to Rule 7.34(c)(1) to provide that the following non-displayed orders would be rejected if entered before the Early Trading Session begins: Non-Displayed Limit Orders, MPL Orders, and Tracking Orders. Similar to how the Exchange proposes to cancel non-displayed orders during a halt or pause, the Exchange believes that rejecting these non-displayed orders when the Exchange is not engaged in continuous trading would reduce operational complexity when the Exchange transitions to continuous trading. ETP Holders seeking to enter theses order types may do so once the Early Trading Session begins.

Rule 7.38, Odd and Mixed Lots

The Exchange proposes to amend Rule 7.38 relating to Odd and Mixed Lots. Rule 7.38 sets forth requirements relating to odd lot and mixed lot trading on the Exchange. Rule 7.38(b) further provides that round lot, mixed lot, and odd lot orders are treated in the same manner on the Exchange, provided that the working price of an odd lot order is adjusted both on arrival and when resting on the Exchange Book based on the limit price of the order. Currently, if the limit price of an odd lot order to buy (sell) is at or below (above) the PBO (PBB), the order has a working price equal to the limit price. If the limit price of an odd lot order to buy (sell) is above (below) the PBO (PBB), the order has a working price equal to the PBO (PBB). The rule further provides that if the limit price of an odd lot order to buy (sell) is above (below) the PBO (PBB) and the PBBO is crossed, the order has a working price equal to the PBB (PBO).

Under the current rule, although the working price of an odd lot order is adjusted based on the PBBO, the display price of an odd lot order ranked Priority 2—Display Orders is not adjusted based on the PBBO. Additionally, the rule provides that an odd lot order ranked Priority 2—Display Orders will not be assigned a new working time if its working price is adjusted under the rule. If the display price of an odd lot order to buy (sell) is above (below) its working price, the order is ranked and allocated based on its display price. As a result, an odd lot bid or offer can be displayed on the Exchange's proprietary data feeds at a price that appears to cross the PBBO, even if such order would not be eligible to trade at that price.

The Exchange proposes to amend Rule 7.38(b) to provide that the display price of an odd lot order would be adjusted whenever the working price is adjusted. To effect this change, the Exchange proposes to amend current Rule 7.38(b)(1) to provide that the working and display price of an odd lot order would be adjusted both on arrival and when resting on the Exchange Book. The Exchange further proposes to break current Rule 7.38(b)(1) into subparagraphs (A)—(C) so that the rule provides how odd lot orders are ranked and executed under each of the instances provided in the current rule that are described above.

Proposed Rule 7.38(b)(1)(A) would provide that if the limit price of an odd lot order to buy (sell) is at or below (above) the PBO (PBB), the order would have a working price and display price equal to the limit price of the order. This proposed rule text does not change any functionality, but rather, provides greater specificity of what the display price would be when the limit price of an odd lot order is not through the PBBO.

Proposed Rule 7.38(b)(1)(B) would provide that if the limit price of an odd lot order to buy (sell) is above (below) the PBO (PBB), the order would have a working price and display price equal to the PBO (PBB) unless the order's instruction requires a display price to be different from the PBBO. This proposed rule text represents new functionality that the display price of an odd lot order would be adjusted at the same time as the working price is currently adjusted for such order. This proposed amendment does not change the price at which such odd-lot order would be eligible to trade, only the price at which it is displayed on the Exchange's proprietary data feeds. The proposed rule text includes that the display price would be adjusted to the contra-side PBBO unless the order's instruction requires a display price to be different from the PBBO to account for those order types that, by their terms, do not allow the display price to be equal to a contra-side PBBO. For example, a Non-Routable Limit Order does not have a display price equal to the contra-side PBBO. Accordingly, if an odd lot order were to be a Non-Routable Limit Order, pursuant to that order's instructions, it would have a display price different from the contra-side PBBO.

Proposed Rule 7.38(b)(1)(C) would address what the display price of an odd lot order would be if the PBBO is locked or crossed. The Exchange proposes to expand the current rule text to include locked markets and add that both the display price and working price would be adjusted to the same-side PBBO if the PBBO is locked or crossed. Accordingly, as proposed, if the limit price of an odd lot order to buy (sell) is above (below) the PBO (PBB) and the PBBO is locked or crossed, the order would have a working price and display price equal to the PBB (PBO). The proposed rule would further provide that the working price and the display price of such odd lot order would not be adjusted again until the PBBO unlocks or uncrosses.

Additionally, the Exchange proposes to delete the last two sentences of current Rule 7.38(b)(1) regarding the display price of odd lot orders and their ranking given the changes proposed to the current rule regarding the display price of an odd lot order render this text moot. By deleting this rule text, the general rules governing when a working time is assigned to an order, as specified in Rule 7.36(f)(2), would be applicable to odd lot orders.

Because of the technology changes associated with this proposed rule change, the Exchange will announce the implementation date of this proposed rule change by Trader Update. The Exchange anticipates that the implementation date will be in the second quarter of 2019.

2. Statutory Basis

The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the “Act”), in general, and furthers the objectives of Section 6(b)(5), 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 because it would provide additional specificity in the Exchange's rules, streamline order processing when a security is halted or paused, and reduce operational complexity when transitioning to continuous trading.

Rule 7.16, Short Sales. The Exchange believes that the proposed processing of sell short Market Orders during a Short Sale Period, as proposed in Rule 7.16(f)(5)(C), would remove impediments to and perfect the mechanism of a fair and orderly market because it would use a method of processing of sell short Market Orders that is already in place on auctions on NYSE Arca and NYSE American. As described in Commentary .01(a) to NYSE Arca Rule 7.35-E and Commentary .01(a) to NYSE American Rule 7.35E, during a Short Sale Period, sell short Market Orders are currently processed as Limit Orders ranked Priority 2—Display Orders. 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 this functionality to how sell short Market Orders are processed during continuous trading. The Exchange further believes that because Market Orders would be assigned a limit price of one MPV above $0.00, it would remove impediments to and perfect the mechanism of a free and open market for sell short Market Orders that have been converted to an order ranked Priority 2—Display Orders to continue to be subject to Trading Collars and be cancelled if the Permitted Price is equal to or below the Lower Price Band. The Exchange believes that the proposed changes will provide clarity on the short sale order handling procedures employed by the Exchange so that such orders are handled by the Exchange consistent with Regulation SHO. The Exchange also believes that the proposed functionality related to the processing of short sale orders will assist ETP Holders in executing or displaying their orders consistent with Regulation SHO.

Rule 7.18, Halts. The proposed change to Rule 7.18(b) to cancel certain non-displayed orders in UTP Securities during UTP Regulatory Halt promotes just and equitable principles of trade and removes impediments to, and perfects the mechanism of, a free and open market and a national market system because it would reduce the operational complexity of processing these orders following a halt or pause.

Rule 7.31, Orders and Modifiers. The Exchange believes that the proposed rule change would remove impediments to and perfect the mechanism of a free and open market and a national market system by providing specificity regarding when resting orders would be re-priced due to the arrival of a Day ISO. Specifically, as proposed, because any-sized Day ISO would result in a new PBBO, it is not necessary for an arriving Day ISO to result in a round lot or more being displayed as a new BBO before resting orders would be re-priced under Rule 7.31(a)(2)(C). The Exchange therefore believes that this proposed change would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote the display of orders at their limit price without locking or crossing the PBBO.

Amending Rule 7.31(h)(2)(B) to describe when a resting Primary Pegged Order would be re-priced pursuant to Rule 7.31(a)(2)(C) removes impediments to, and perfects the mechanism of, a free and open market and a national market system because it does not propose new functionality, but rather provides additional specificity in the Exchange's rules regarding the operation of Primary Pegged Orders such that it prevents a resting Primary Pegged Order from being re-priced to peg to a locked or crossed market. This change does not alter the operation of Primary Pegged Orders. Rather, it would further clarify the Exchange's rules regarding when a Primary Pegged Order would be re-priced to avoid pegging to a locked or crossed PBBO.

Rule 7.34, Trading Sessions. The proposed changes to Rule 7.34(c) promote just and equitable principles of trade and remove impediments to, and perfect the mechanism of, a free and open market and a national market system because rejecting Non-Displayed Limit Orders, MPL Orders, and Tracking Orders entered before the Early Trading Session begins would reduce operational complexity when the Exchange transitions to continuous trading. It would also streamline order processing when the Exchange begins continuous trading. ETP Holders seeking to enter these order types may do so once the Early Trading Session begins.

Rule 7.38, Odd and Mixed Lots. The Exchange believes that the proposed processing of odd lot orders would remove impediments to and perfect the mechanism of a fair and orderly market because the proposed change would align the working price and display price of odd lot orders. The proposed change would not alter the price at which an odd lot order would be eligible to trade, but rather, would provide greater transparency regarding what price an odd lot order would trade by aligning the display price of such order with its working price. The Exchange believes that this proposed rule change would further remove impediments to and perfect the mechanism of a free and open market and a national market system by reducing the potential for an odd lot order to appear on the Exchange's proprietary data feeds as though it is locking or crossing the PBBO. The Exchange further believes the proposed rule change, which proposes to assign a display price that is equal to the working price for odd lot orders, would remove impediments to and perfect the mechanism of a fair and orderly market because it would promote transparency in the ranking and execution of such orders. Additionally, the Exchange believes the proposed change to how the working time of an odd lot order would be adjusted would remove impediments to and perfect the mechanism of a free and open market by aligning the processing of odd lot orders with the standard manner by which the working time is assigned to an order, as provided for in Rule 7.36(f)(2).

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 changes to Rules 7.18, 7.31, and 7.34 are designed to provide additional specificity to the Exchange's rules, reduce operational complexity during a halt or pause, and streamline order processing when transitioning to continuous trading when continuous trading begins. The proposed changes to Rules 7.16, 7.31, and 7.38 are also designed to provide additional specificity to the Exchange's rules and reduce operational complexity by (i) aligning the display price of an odd lot order with its working price, (ii) converting sell short Market Orders to displayed interest, (iii) clarifying that Primary Pegged Orders would not be re-priced to a locked or crossed PBBO, and (iv) promoting transparency in the ranking and execution of odd lot orders. These proposed changes should, therefore, promote competition by enhancing the Exchange's rules to provide greater specificity to market participants and improving the efficiency of the Exchange's order handling processes.

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 and Rule 19b-4(f)(6) thereunder. 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.

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) of the Act to determine whether the proposed rule change should be approved or 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 rule-comments@sec.gov. Please include File Number SR-NYSENAT-2019-04 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-NYSENAT-2019-04. 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 a.m. and 3 p.m. Copies of this filing will also 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-NYSENAT-2019-04, and should be submitted on or before April 3, 2019.