Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change Amending Rule 980NY (Electronic Complex Order Trading) To Clarify the Priority of Electronic Complex Orders and To Modify Aspects of Its Complex Order Auction Process, 45085-45094 [2017-20628]
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Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Notices
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. In addition, as noted
above, investors will have ready access
to information regarding platinum
pricing.
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 believes the proposed rule
change will enhance competition by
accommodating Exchange trading of an
additional exchange-traded product
relating to physical platinum.
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 within such longer period
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:
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–20627 Filed 9–26–17; 8:45 am]
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• 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–
NYSEArca–2017–110 on the subject
line.
Paper Comments
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[Release No. 34–81676; File No. SR–
NYSEAMER–2017–15]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing of
Proposed Rule Change Amending Rule
980NY (Electronic Complex Order
Trading) To Clarify the Priority of
Electronic Complex Orders and To
Modify Aspects of Its Complex Order
Auction Process
September 21, 2017.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
September 8, 2017, NYSE American
LLC (the ‘‘Exchange’’ or ‘‘NYSE
American’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. 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
Rule 980NY(Electronic Complex Order
Trading) to clarify the priority of
Electronic Complex Orders and to
modify aspects of its Complex Order
Auction Process.
The proposed rule change is available
on the Exchange’s Web site 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.
Electronic Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
SECURITIES AND EXCHANGE
COMMISSION
All submissions should refer to File
Number SR–NYSEArca–2017–110. 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 Web site (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 Web site 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
offices of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2017–110, and should be
submitted on or before October 18,
2017.
BILLING CODE 8011–01–P
45085
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
21 17
PO 00000
CFR 200.30–3(a)(12).
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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
Rule 980NY to clarify the priority of
Electronic Complex Orders (‘‘ECO’’) 4
and to modify aspects of its Complex
Order Auction (‘‘COA’’) Process.5
Rule 980NY sets forth how the
Exchange conducts trading of ECOs in
its Complex Matching Engine (‘‘CME’’).
The Exchange proposes to streamline
the rule text describing the execution of
ECOs during Core Trading Hours 6 to
provide specificity and transparency
regarding such order processing,
without modifying the substance of
such processing. The Exchange also
proposes to amend the rules describing
how ECOs that are eligible for a COA
Process are executed and allocated to
clarify the description of current
functionality and to provide additional
detail regarding order processing. The
Exchange also proposes amendments to
Rule 980NY to clarify and add
transparency to the description of the
COA Process, as described below.
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Execution of ECOs During Core Trading
Hours
The Exchange proposes to streamline
its description of the priority of ECOs
during Core Trading Hours, which the
Exchange believes would add specificity
and transparency to Exchange rules.
Every ECO, upon entry to the System, is
routed to the CME for possible
execution against other ECOs or against
individual quotes and orders residing in
the Consolidated Book (‘‘leg markets’’).7
4 Per Rule 980NY, ‘‘an ‘Electronic Complex Order’
means any Complex Order as defined in Rule
900.3NY(e) that is entered into the System.’’ Rule
900.3NY defines Complex Order as ‘‘any order
involving the simultaneous purchase and/or sale of
two or more different option series in the same
underlying security, for the same account, in a ratio
that is equal to or greater than one-to-three (.333)
and less than or equal to three-to-one (3.00) and for
the purpose of executing a particular investment
strategy.’’
5 The Exchange notes that the proposed
modifications to its COA are materially identical to
changes recently approved on NYSE Arca Inc.
(‘‘NYSE Arca’’), except that the Exchange’s
proposed changes account for the Exchange’s
Customer priority rules, whereas NYSE Arca’s
approved COA rules incorporate NYSE Arca’s
price-time priority rules. See Securities Exchange
Act Release No. 80138 (March 1, 2017), 82 FR
12869 (March 7, 2017) (order granting accelerated
approval of proposed rule change, as modified by
Amendment Nos. 1 and 2, to amend NYSE Arca
Rule 6.91) (the ‘‘NYSE Arca Approval Order’’).
6 Core Trading Hours are the regular trading hours
for business set forth in the rules of the primary
markets underlying those option classes listed on
the Exchange. See Rule 900.2NY(15).
7 See Rule 980NY(a). The Exchange proposes to
define ‘‘leg markets’’ in reference to individual
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In general, the Exchange affords
Customer orders priority over samepriced non-Customer orders received by
the Exchange. The Exchange ranks and
allocates Customer orders at the same
price in time priority and, after all
Customer orders are executed at a price,
non-Customer orders at the same price
are allocated on a pro rata basis.8
Similarly, the Exchange affords
Customer ECOs priority over nonCustomer ECOs with the same total net
debit or credit. The Exchange ranks
Customer ECOs with the same total or
net debit or credit based on the time of
entry of such Customer ECOs, and then
ranks non-Customer ECOs at the same
total net debit or credit based on the
time of entry of such non-Customer
ECOs.9
Paragraph (c) to the Rule sets forth
how ECOs are executed, including that
ECOs submitted to the System may be
executed without consideration of
prices of the same complex order that
might be available on other exchanges.10
The Exchange proposes to specify that
ECOs may be executed without regard to
prices of ‘‘either single-legged or the
same complex order strategy’’ that might
be available on other exchanges, which
adds specificity and transparency to
Exchange rules.11 The Exchange also
proposes to amend Rule 980NY(c) by renumbering the rule text. As described in
more detail below, proposed Rule
980NY(c)(ii) would set forth how ECOs
that are marketable on arrival would be
executed and proposed Rule
980NY(c)(iii) would set forth how ECOs
that are not executed on arrival would
quotes and orders in the Consolidated Book as used
throughout the rule text and also proposes to
capitalize the defined term ‘‘System’’. See proposed
Rule 980NY(a); see also Rule 900.2NY(48) (defining
the term System (or Exchange System) as ‘‘the
Exchange’s electronic order delivery, execution and
reporting system for designated option issues
through which orders and quotes of Users are
consolidated for execution and/or display. Market
Makers must submit quotes to the System in their
appointed classes electronically’’).
8 See Rule 964NY(b)(2)(A) (also providing that ‘‘if
there is more than one highest bid for a Customer
account or more than one lowest offer for a
Customer account, then such bids or offers,
respectively, will be ranked based on time
priority’’); and Rule 964NY(b)(3) (setting forth pro
rata allocation method).
9 See Rule 980NY(b). The Exchange proposes a
non-substantive amendment to add the term
‘‘Electronic’’ so that the rule text would read,
‘‘Priority of Electronic Complex Orders in the
Consolidated Book.’’
10 See Rule 980NY(c). The Rule also provides that
‘‘[n]o leg of a [ECO] will be executed at a price
outside the Exchange’s best bid/offer for that leg.’’
See id.
11 See proposed Rule 980NY(c). Rule 980NY(c)(i)
sets forth how ECOs are executed at the Open. The
Exchange proposes a non-substantive amendment
to add the term ‘‘Electronic’’ so that the rule text
would read, ‘‘Execution of Electronic Complex
Orders at the Open.’’
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be ranked and executed on the
Consolidated Book.
Rule 980NY(c)(ii) sets forth how ECOs
are executed during Core Trading.
Paragraph (c)(ii)(A) currently provides
that the CME will accept an incoming
marketable ECO and will automatically
execute the ECO giving first priority to
ECOs in the Consolidated Book or, if not
marketable against another ECO, the
incoming ECO will trade against
individual orders or quotes residing in
the Consolidated Book, provided it can
be executed in full (or in a permissible
ratio) by the leg markets.12 Because
Customer orders have priority, Rule
980NY(c)(ii)(A) further provides that
‘‘[n]otwithstanding the foregoing, if
individual Customer orders residing in
the Consolidated Book can execute the
incoming [ECO] in full (or in a
permissible ratio) at the same total or
net debit or credit as an [ECO] in the
Consolidated Book, the individual
Customer orders will have priority.’’ 13
In other words, the leg markets have
first priority to trade against the
incoming ECO if (i) there are no better
priced ECOs in the Consolidated Book,
(ii) the leg markets can trade in full or
permissible ratio against an ECO and
(iii) each leg contains Customer interest.
Further, the current rule provides that
leg markets that trade against an ECO,
per Rule 980NY(c)(ii), are allocated
pursuant to Rule 964NY.14
The Exchange proposes to revise the
rule text describing execution of ECOs
during Core Trading Hours in a manner
that the Exchange believes would
promote transparency regarding the
processing of ECOs. The proposed rule
text is not intended to change how the
Exchange currently processes ECOs,
which is described in the current rule,
but rather to specify the order
processing in a more logical manner.
Specifically, the Exchange proposes to
delete current paragraph (c)(ii)(A) of the
Rule and replace it with proposed new
paragraph (c)(ii).
Proposed Rule 980NY(c)(ii) would
provide that the CME would accept an
incoming marketable ECO and
automatically execute it against the bestpriced contra-side interest resting in the
Consolidated Book.15
12 See Rule 980NY(c)(ii)(A). The Exchange notes
that when an ECO trades against individual quotes
and orders in the leg markets this is commonly
referred to as ‘‘legging out.’’
13 Id.
14 Id. See Rule 964NY(b)(2)(A) (Display, Priority
and Order Allocation—Trading Systems) (also
providing that ‘‘if there is more than one highest bid
for a Customer account or more than one lowest
offer for a Customer account, then such bids or
offers, respectively, will be ranked based on time
priority’’).
15 See Rule 980NY(c)(ii)(A).
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The proposed rule text would further
specify that if, at a price, all the leg
markets can trade against an incoming
ECO in full (or in a permissible ratio),
and each leg includes Customer interest,
the leg markets would have first priority
at that price to trade with the incoming
ECO pursuant to Rule 964NY(b), to be
followed by resting ECOs in price/time
priority.16 In this case, both Customer
and non-Customer orders and quotes in
the leg markets at that price would trade
against the incoming ECO.17 This
proposed text, therefore, describes how
an incoming marketable ECO would be
allocated if resting ECOs and leg
markets in the Consolidated Book are at
the same price, i.e., the priority of samepriced interest in the Consolidated
Book.
As is currently the case, following any
executions against the best-priced
resting ECOs and/or against the leg
markets, at a price, the ECO would then
trade with ECOs resting in the
Consolidated Book.18 The Exchange
believes that the proposed rule text
provides clarity regarding processing of
ECOs, and in particular, under what
circumstances the leg markets would
have first priority to execute against an
incoming marketable ECO.
To distinguish the treatment during
Core Trading of incoming marketable
ECOs (that are immediately executed)
from ECOs that are not marketable (and
thus routed to the Consolidated Book),
the Exchange proposes to renumber
current Rule 980NY(c)(ii)(B) and (C), as
proposed Rule 980NY(c)(iii)(A) and (B),
under the new heading ‘‘Electronic
Complex Orders in the Consolidated
Book.’’ The Exchange also proposes
language in Rule 980NY(c)(iii)(A) to
make clear that an ECO, or portion
thereof, that is not executed on arrival
will be ranked in the Consolidated Book
and that any incoming orders and
quotes that can trade with a resting ECO
would execute ‘‘according to (c)(ii)
above.’’ 19 Finally, the Exchange
proposes to clarify that orders that trade
against ECOs in the Consolidated Book
would be allocated pursuant to
paragraph (b) of Rule 964NY (Priority
and Allocation Procedures for Orders
and Quotes with Size).20 The Exchange
believes that the proposed additional
Execution of COA-Eligible Orders,
Initiation of COAs and RFR Responses
Proposed Rule 980NY(e) would
provide that, upon entry into the
System, ECOs may be immediately
executed, in full (or in a permissible
ratio) as provided in proposed
paragraph (c)(ii), or may be subject to a
COA as described in the Rule. This rule
text is based on current Rule 980NY(e),
which provides that COA-eligible
orders, upon entry into the System,
‘‘may be subject to an automated request
for responses (‘‘RFR’’) auction.’’ 22 The
current rule text is silent as to the
factors involved in whether and when
an incoming COA-eligible order may
trigger a COA. As discussed below,
proposed Rules 980NY(e)(2) and (e)(3)
would address when an incoming COAeligible order would trigger a COA.
Proposed Rule 980NY(e)(1) would
define the term ‘‘COA-eligible order’’ to
mean an ECO that is entered in a class
designated by the Exchange and is:
(i) Designated by the ATP Holder as
COA-eligible; and
(ii) received during Core Trading
Hours.23
The proposed definition is based, in
part, on the current Rule, which
provides that whether an order is COAeligible ‘‘would be determined by the
Exchange on a class-by-class basis’’ 24
and that the ATP Holder must provide
direction that an auction be initiated.25
The Exchange believes that explicitly
stating that an ECO would be COAeligible only if received during Core
Trading Hours would add clarity and
transparency. The Exchange proposes to
eliminate from the current definition
(set forth in Rule 980NY(e)(1)) features
of ECOs that are not determinative of
COA eligibility on the Exchange, such
as the ‘‘size, number of series, and
complex order origin types (i.e.,
Customers, broker-dealers that are not
Market-Makers or specialists on an
options exchange, and/or MarketMakers or specialists on an options
exchange).’’ The Exchange is also not
including language from current Rule
980NY(e)(1) that provides that ECOs
‘‘processed through the COA Process
may be executed without consideration
to prices of the same complex orders
that might be available on other
exchanges,’’ as paragraph (c) of the Rule
includes this provision. Finally, the
Exchange proposes to remove an ECO’s
‘‘marketability (defined as a number of
ticks away from the current market)’’ as
a requirement for COA-eligibility and to
instead include this requirement in
proposed paragraph (e)(3) regarding
whether a COA-eligible order would
actually trigger (as opposed to be
eligible to trigger) a COA, as discussed
below.
Proposed Rule 980NY(e)(2) would
add new rule text describing the
‘‘Immediate Execution of COA-eligible
orders.’’ The proposed text would
clearly state that, upon entry of a COAeligible order into the System, it would
trade immediately, in full (or in a
permissible ratio), with any ECOs
resting in the Consolidated Book that
are priced better than the contra-side
Complex BBO and, if not all legs
include Customer interest, with any
ECOs resting in the Consolidated Book
priced equal to the contra-side Complex
BBO.26 The proposed paragraph would
further specify that any portion of the
COA-eligible order that does not trade
immediately upon entry may start a
21 To the extent that the proposed streamlined
rule text mirrors existing language, the Exchange
cites the relevant section of both the proposed and
existing rule. See also NYSE Arca Approval Order,
supra note 5 (the proposed modifications to the
COA mirror recently approved changes on the
NYSE Arca options exchange).
22 The Exchange describes the Request for
Response or ‘‘RFR’’ in connection with a COA in
new paragraph (e)(3) to Rule 980NY.
23 See proposed Rule 980NY(e)(1).
24 See Rule 980NY(e)(1). At this time, the
Exchange allows COA-eligible orders to be entered
in every class.
25 See Rule 980NY(e)(2) (requiring that an ATP
Holder mark an ECO for auction in order for a COA
to be conducted).
26 See Rule 900.2NY(7)(b) (defining Complex BBO
as ‘‘the BBO for a given complex order strategy as
derived from the best bid on OX and best offer on
OX for each individual component series of a
Complex Order’’).
heading and re-numbering of the rule
text provides clarity regarding the
treatment of non-marketable—as
opposed to marketable—ECOs, without
altering the functionality described in
rule.
Proposed Modifications to the
Description of the COA Process
The Exchange proposes to modify its
description of the COA Process and the
execution of COA-eligible orders, which
the Exchange believes would provide
additional specificity and transparency
to Exchange rules.21 The Exchange is
not proposing to modify the
functionality of COA. Because of the
number of modifications that the
Exchange proposes to current paragraph
(e), the Exchange proposes to delete
paragraph (e) of the Rule in its entirety
and replace it with new Rule 980NY(e),
which the Exchange believes more
clearly, accurately and logically
describes the COA Process. Proposed
Rules 980NY(e)(1)–(7) would describe
the COA Process.
16 See
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id. See also Rule 980NY(b).
proposed Rule 980NY(ii) (sic) (also
providing that the allocation of the orders or quotes
in the leg markets would be allocated against the
ECO in accordance with Rule 964NY(b)).
18 See id.
19 See proposed Rule 980NY(c)(iii)(A). Consistent
with the proposed change to define ‘‘leg markets’’
in Rule 980NY(a), the Exchange proposes to replace
‘‘bids and offers in the leg markets’’ with ‘‘leg
markets’’ in the proposed Rule. See id.
20 See proposed Rule 980NY(c)(iii)(B).
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17 See
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COA, subject to the conditions set forth
in proposed paragraph (e)(3).
The Exchange believes that the
proposed rule text promotes
transparency regarding when a COAeligible order would receive an
immediate execution (i.e., when it can
receive price improvement from resting
ECOs) versus being subject to a COA.
The immediate price improvement
opportunity for an incoming COAeligible order from resting ECOs in the
Consolidated Book may obviate the
need to start a COA, which is why
incoming orders first trade against priceimproving interest in the Consolidated
Book before initiating a COA.
Proposed Rule 980NY(e)(3) would
specify the conditions required for the
‘‘Initiation of a COA’’ and, if those
conditions are met, how a COA would
be initiated. As proposed, and
consistent with current functionality,
for any portion of a COA-eligible order
not executed immediately under
proposed Rule 980NY(e)(2), the
Exchange would initiate a COA based
on the limit price of the COA-eligible
order and the ‘‘marketability’’ of the
order as discussed below.
• First, as set forth in proposed Rule
980NY(e)(3)(i), the limit price of the
COA-eligible order to buy (sell) would
have to be higher (lower) than the bestpriced, same-side interest in both the leg
markets and any ECOs resting in the
Consolidated Book. In other words, the
limit price of the COA-eligible order
would have to improve the current
same-side market.
• Second, as set forth in proposed
Rule 980NY(e)(3)(ii), the COA-eligible
order would have to be priced within a
given number of ticks away from the
current, contra-side market, as
determined by the Exchange. This
concept is based on current Rule
980NY(e)(1), which defines the
‘‘marketability’’ of a COA-eligible order
as being ‘‘a number of ticks away from
the current market.’’ Because a COAeligible order may be a certain number
of ticks away from the current market,
a COA could be initiated even if the
limit price of the COA-eligible order is
not at or within the Exchange best bid/
offer for each leg of the order. However,
a COA-eligible order must trade at a
price that is at or within the Exchange
best bid/offer for each leg of the order,
consistent with Rule 980NY(c) regarding
the execution of ECOs in general.
The Exchange also proposes to make
clear that a COA-eligible order would
reside on the Consolidated Book until it
meets the requirements of proposed
paragraph (e)(3)(i)–(ii) and can initiate a
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COA.27 Proposed Rule 980NY(e)(3)
further provides that the Exchange
would initiate a COA by sending a
Request for Response (‘‘RFR’’) message
to all ATP Holders that subscribe to RFR
messages.28 This requirement is based
on the first sentence of current Rule
980NY(e)(2). Proposed Rule 980NY(e)(3)
would further provide that RFR
messages would identify the component
series, the size and side of the market of
the order and any contingencies, which
is based on the second sentence of
current Rule 980NY(e)(2) without any
changes. In addition, proposed Rule
980NY(e)(3) would include new rule
text to specify that only one COA may
be conducted at a time in any given
complex order strategy, which is not
explicitly stated in the current rule.29
Finally, proposed Rule 980NY(e)(3)
would specify that, at the time the COA
is initiated, the Exchange would record
the Complex BBO (the ‘‘initial Complex
BBO’’) for purposes of determining
whether the COA should end early
pursuant to proposed paragraph (e)(6) of
this Rule (discussed below). This is new
rule text that is consistent with current
functionality that ensures the COA
respects the leg markets as well as
principles of price/time priority.30
Proposed Rule 980NY(e)(4) would
define the term Response Time Interval
(‘‘RTI’’) as the period of time during
which responses to the RFR may be
entered. As further proposed, the
Exchange would determine the length of
the RTI; provided, however, that the
duration would not be less than 500
milliseconds and would not exceed one
(1) second. This rule text is based on
current Rule 980NY(e)(3) insofar as it
defines the RTI and the duration of the
RTI, with the non-substantive
modification to replace reference to
‘‘shall’’ with reference to ‘‘will.’’
Proposed Rule 980NY(e)(4) would
also include new rule text providing
that, at the end of the RTI, the COAeligible order would be allocated
pursuant to proposed Rule 980NY(e)(7),
which describes the allocation of COAeligible orders (hereinafter ‘‘COA Order
Allocation’’) (described below). This
proposed new rule text is based in part
on current Rule 980NY(e)(5), which
provides that at the expiration of the
27 See
proposed Rule 980NY(e)(3).
id.
29 The Exchange believes this can be inferred
from the text describing the impact of COA-eligible
orders that arrive during a COA in progress. See,
e.g., Rule 980NY(e)(8). Proposed Rule 980NY(e)(6),
described below, provides specificity of when a
COA may terminate early and when a subsequent
COA may be initiated.
30 See proposed Rule 980NY(c)(ii) (leg markets
have priority at a price).
28 See
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RTI, COA-eligible orders may be
executed, in whole or in part, pursuant
to Rule 980NY(e)(6) (Execution of COAeligible orders). The proposed rule text
refers instead to Rule 980NY(e)(7),
which incorporates the order allocation
concepts currently set forth in Rule
980NY(e)(6). The proposed change is
intended to add clarity and
transparency to the COA Process.
Proposed Rule 980NY(e)(5) would
provide that any ATP Holder may
submit responses to the RFR message
(‘‘RFR Responses’’) during the RTI.31
This rule text is based on the first
sentence of current Rule 980NY(e)(4)
without any changes. Proposed Rule
980NY(e)(5)(A)–(C) would provide
additional specificity regarding RFR
Responses.
• Proposed Rule 980NY(e)(5)(A)
would provide that RFR Responses are
ECOs that have a time-in-force
contingency for the duration of the
COA, must specify the price, size, and
side of the market, and may be
submitted in $0.01 increments. This
rule text is based in part on the first
sentence of Rule 980NY(e)(4), which
provides that RFR Responses may be
submitted in $.01 increments. Proposed
Rule 980NY(e)(5)(A) is based in part on
the second to last sentence of current
Rule 980NY(e)(7), which provides that
RFR Responses expire at the end of the
RTI, which is the same in substance as
saying that an RFR Response has a timein-force condition for the duration of the
COA. The Exchange believes its
proposed rule text is more accurate
because it states that RFR Responses are
valid for the duration of the COA, as
opposed to the RTI, the latter being the
period during which COA interest
(including RFR Responses and incoming
ECOs) is received and the former being
the overall COA Process that allocates
COA-eligible orders with the best-priced
auction interest, including RFR
Responses.
• Proposed Rule 980NY(e)(5)(B)
would provide that RFR Responses must
be on the opposite side of the COAeligible order and any RFR Responses
on the same side of the COA-eligible
order would be rejected. This proposed
rule text is based on the last sentence of
current Rule 980NY(e)(4), which
provides that RFR Responses must be on
the opposite side of the COA-eligible
order and any same-side RFR responses
would be rejected by the Exchange,
without any substantive changes.
• Proposed Rule 980NY(e)(5)(C)
would provide that RFR Responses may
be modified or cancelled during the RTI,
31 ATPs Holders can submit RFR Responses on
behalf of Customers.
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would not be ranked or displayed in the
Consolidated Book, and would expire at
the end of the COA. The proposed text
stating that RFR Responses may be
modified or cancelled during the RTI is
new rule text based in part on current
Rule 980NY(e)(7), which provides that
RFR Responses can be modified but may
not be withdrawn at any time prior to
the end of the RTI. The Exchange
proposes to specify that an RFR
Response may be modified or cancelled
during the RTI, which is current
functionality. The proposed text stating
that RFR Responses expire at the end of
the COA make clear when RFR
Responses are ‘‘firm’’ and thus obviate
the need for current Rule 980NY(e)(7).32
The proposed text of Rule
980NY(e)(5)(C) stating that RFR
Responses would not be ranked or
displayed in the Consolidated Book is
based on the last sentence of current
Rule 980NY(e)(7) without any changes.
The Exchange believes that the
proposed Rules 980NY(e)(5), which
reorganizes information from existing
rule text and adds language to describe
the requisite characteristics and
behavior of an RFR Response, adds
clarity and transparency to Exchange
rules, including that, like all orders, an
RFR Response may be modified or
cancelled prior to the end of the RTI.
The Exchange believes that specifying
that RFR Reponses are good for the
duration of the COA and may trade with
interest received during the COA before
expiring would encourage participation
in the COA and would maximize the
number of contracts traded.
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Impact of ECOs, COA-Eligible Orders
and Updated Leg Markets on COA in
Progress
Proposed Rule 980NY(e)(6) would
describe the impact of ECOs, COAeligible orders, and updates to the leg
markets that arrived during an RTI of a
COA. This proposed rule text would
replace current Rule 980NY(e)(8). The
Exchange believes that, because
proposed Rule 980NY(e)(6) would
establish what happens to a COA (i.e.,
whether it will end early) before the
COA-eligible order is allocated, it would
be more logical to describe these
processes before the rule describes how
COA-eligible orders are allocated, which
would be set forth in proposed Rule
980NY(c)(7). In addition, the Exchange
proposes to add headings (see proposed
Rule 980NY(e)(6)(A)–(C)) to make clear
which type of incoming interest is being
described.
32 Rule 980NY(e)(7) sets forth the Firm Quote
Requirements for COA-eligible orders.
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Proposed Rule 980NY(e)(6)(A) would
describe the impact on a COA of
incoming ECOs or COA-eligible orders
on the opposite-side of the market as the
initiating COA-eligible order. The
current rule addresses the impact of
opposite-side, incoming ECOs on a
COA,33 but does not address the impact
of opposite-side incoming COA-eligible
orders. Accordingly, proposed
paragraph (A) of Rule 980NY(e)(6)
would be new rule text. The Exchange
notes that the impact of an incoming
COA-eligible order mirrors that of an
incoming ECO in the scenarios covered
in proposed Rules 980NY(e)(6)(A)(i)–
(iii) (discussed below), which adds
internal consistency and specificity to
Exchange rules.34
• Proposed Rule 980NY(e)(6)(A)(i)
would provide that incoming ECOs or
COA-eligible orders that lock or cross
the initial Complex BBO would cause
the COA to end early. The concept of
the initial Complex BBO as a benchmark
against which incoming opposite-side
interest would be measured is new rule
text, but is consistent with current
functionality. As noted above (see supra
note 26), the initial Complex BBO is the
BBO for a given complex order strategy
as derived from the Best Bid (‘‘BB’’) and
Best Offer (‘‘BO’’) for each individual
component series of a Complex Order as
recorded at the start of the RTI.
Proposed Rule 980NY(e)(6)(A)(i) would
further provide that if such incoming
ECO or COA-eligible order is also
executable against the limit price of the
initiating COA-eligible order, it would
be ranked with RFR Responses to trade
with the initiating COA-eligible order.
The Exchange believes that addressing
this scenario would better enable market
participants to understand how their
ECOs, including COA-eligible orders,
may be treated, and the proposed
change therefore is designed to add
clarity and transparency to Exchange
rules.
The proposed rule text relating to how
an incoming opposite-side ECO or COAeligible order would be processed is
based on current Rule 980NY(e)(8)(A),
which provides that incoming ECOs
33 See Rule 980NY(e)(8)(A) (providing that
‘‘[i]ncoming Electronic Complex orders received
during the Response Time Interval that are on the
opposite side of the market and marketable against
the limit price of the initiating COA-eligible order
will be ranked and executed in price time with RFR
Responses by account type (as described in (6)
above). Any remaining balance of either the
initiating COA-eligible order or the incoming
Electronic Complex order will be placed in the
Consolidated Book and ranked as described in (b)
above’’).
34 The different treatment of the balance of the
incoming order, depending on whether it is an ECO
or a COA-eligible order is covered in proposed rules
Rule 980NY(e)(6)(A)(iv) and (v), respectively.
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45089
received during the RTI ‘‘that are on the
opposite side of the market and
marketable against the limit price of the
initiating COA-eligible order will be
ranked and executed in price time with
RFR Responses.’’ 35 The proposed rule
text would also include opposite-side
COA-eligible orders.36 The proposed
rule text also does not include reference
to ‘‘account type,’’ or ‘‘price time,’’ as
the COA-eligible order would interact
with the best-priced contra-side interest
received during the RTI, per proposed
paragraph (e)(7) of this Rule.37
• Proposed Rule 980NY(e)(6)(A)(ii)
would provide that incoming ECOs or
COA-eligible orders that are executable
against the limit price of the initiating
COA-eligible order, but do not lock or
cross the initial Complex BBO, would
not cause the COA to end early and
would be ranked with RFR Responses to
trade with the initiating COA-eligible
order. This proposed paragraph
specifies that the COA would continue
uninterrupted by such incoming orders
because such interest does not impact
priority (because the incoming order
isn’t priced better than the leg markets
at the start of the COA). The incoming
order, however, would be eligible to
participate in the COA. This proposed
text would be new rule text, which
reflects current functionality that is
based on the principles set forth in
current Rule 980NY(e)(8)(A).
• Proposed Rule 980NY(e)(6)(A)(iii)
would provide that incoming ECOs or
COA-eligible orders that are either not
executable on arrival against the limit
price of the initiating COA-eligible order
or do not lock or cross the initial
Complex BBO would not cause the COA
to end early. Per this proposed
paragraph, the COA would proceed
uninterrupted as the incoming interest
does not trigger priority concerns (i.e.,
does not lock or cross the initial
Complex BBO) nor can the interest
participate in the COA (i.e., because it
is not executable against the initiating
COA-eligible order). This would be new
rule text, which reflects current
functionality.
• Proposed Rule 980NY(e)(6)(A)(iv)
would provide that any incoming
ECO(s), or the balance thereof, that was
not executed with the initiating COAeligible order or was not executable on
arrival would trade pursuant to
proposed paragraph (c)(ii) or (iii) of this
Rule (i.e., Core Trading Allocation).
This proposed rule text is based on the
last sentence of current Rule
35 See
Rule 980NY(e)(8)(A).
proposed Rule 980NY(e)(6)(A)(i).
37 See id. See proposed Rule 980NY(e)(7). See
also discussion of ‘‘COA Order Allocation’’ below.
36 See
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980NY(e)(8)(A), regarding ECOs, but
provides additional detail regarding the
ability for any balance on the incoming
ECO to trade with the best-priced,
resting contra-side interest before (or
instead of) being ranked in the
Consolidated Book, which is consistent
with the Exchange’s processing of
incoming ECOs.
• Proposed Rule 980NY(e)(6)(A)(v)
would provide that any incoming COAeligible order(s), or the balance thereof,
that was not executed with the initiating
COA-eligible order or was not
executable on arrival would initiate
subsequent COA(s) in price-time
priority. Because the treatment of
opposite-side COA-eligible orders is not
described in the current rule, this would
be new rule text. Unlike the treatment
of incoming opposite-side ECOs—where
any remaining balance of the ECOs
would be subject to Core Trading
Allocation or would be posted to the
Consolidated Book after trading with the
initiating COA-eligible order—any
balance of the incoming contra-side
COA-eligible order that does not trade
with the initiating COA-eligible order
would initiate a new COA.
The Exchange believes that proposed
Rule 980NY(e)(6)(A)(i)–(v) would
provide additional specificity regarding
the impact of opposite-side ECOs or
COA-eligible orders on the COA
Process, which adds transparency to
Exchange rules. Specifically, the
Exchange believes that providing for a
COA to terminate early when an
incoming order locks or crosses the
initial Complex BBO, as proposed,
would allow an initiating COA-eligible
order to trade (ahead of the incoming
order) against any RFR Responses or
ECOs received during the RTI up until
that point, while preserving the priority
of the incoming order to trade with the
resting leg markets. If no RFRs had been
received during the RTI, the initiating
COA-eligible order would trade against
the best-priced, contra side interest,
including the order the caused the COA
to terminate early. The Exchange
believes that early conclusion of the
COA would avoid disturbing priority in
the Consolidated Book and would allow
the Exchange to appropriately handle
incoming orders. The proposed rule text
is consistent with the processing of
ECOs during Core Trading and ensures
that the leg markets respect the COA as
well as principles of price/time
priority.38 Moreover, the Exchange
believes that the proposed impact of
incoming COA-eligible orders aligns
with the treatment of incoming ECOs,
38 See proposed Rule 980NY(c)(ii) (leg markets
have priority at a price).
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which adds internal consistency to
Exchange rules, and affords additional
opportunities for price improvement to
the initiating COA-eligible order, which
may trade with the opposite-side
order(s).
The Exchange proposes to process any
remaining balance of COA-eligible
orders differently from any balance of
the incoming ECO because an ECO
would either trade against resting
interest or be ranked with ECOs in the
Consolidated Book, whereas any
balance of a COA-eligible order would
initiate a new COA. The Exchange
believes that this proposed rule text,
which is consistent with current
functionality, maximizes the execution
opportunities to the incoming order(s),
as these orders may trade with interest
received in the (initiating) COA; and, for
the incoming COA-eligible order, the
potential for additional price
improvement in a subsequent COA.
Proposed Rule 980NY(e)(6)(B) would
describe the impact of incoming ECOs
or COA-eligible orders on the same side
of the market as the initiating COAeligible order on a COA. The current
rule addresses the impact of same-side,
incoming COA-eligible orders on a
COA,39 but does not address the impact
of same-side ECOs. Accordingly, the
inclusion of ECOs in the proposed rule
would be new text. The impact of an
incoming ECO mirrors that of an
incoming COA-eligible order in the
scenarios covered in proposed Rule
(e)(6)(B)(i)–(iv) (discussed below),
which adds internal consistency and
specificity to Exchange rules.40
Proposed Rule 980NY(e)(6)(B) would
make clear that regardless of whether a
COA ends early or at the end of the
(uninterrupted) RTI, the initiating COAeligible order would be executed
pursuant to paragraph (e)(7) of this Rule
ahead of any interest that arrived during
the COA.41
• Proposed Rule 980NY(e)(6)(B)(i)
would provide that incoming ECOs or
COA-eligible orders that are priced
better than the initiating COA-eligible
order would cause the COA to end.42
This proposed rule text is based in part
on current Rule 980NY(e)(8)(D), which
39 See Rule 980NY(e)(8)(B)–(C) (addressing the
impact of same-side incoming COA-eligible orders
on a COA).
40 The Exchange notes that the different treatment
of the balance of the incoming order, depending on
whether it is an ECO or a COA-eligible order, is
covered in proposed paragraphs (v) and (vi),
respectively, of Rule 980NY(e)(6)(B).
41 See proposed Rule 980NY(e)(6)(B).
42 An incoming ECO or COA-eligible order priced
‘‘better than’’ the COA-eligible order means it is
priced higher (lower) than the initiating COAeligible order to buy (sell). See proposed Rule
980NY(e)(6)(B)(ii).
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provides that better-priced incoming
COA-eligible orders that arrive during
the RTI will cause a COA to end.43
• Proposed Rule 980NY(e)(6)(B)(ii)
would provide that an incoming ECO or
COA-eligible order that is priced equal
to or worse than the initiating COAeligible order,44 and also locks or
crosses the contra-side initial Complex
BBO, would cause the COA to end early.
The proposed rule is based in part on
current Rules 980NY(e)(8)(B) and (C),
which describe how the Exchange
processes COA-eligible orders that are
received during a COA that are on the
same side of the market of the initiating
COA and priced equal to or worse than
the initiating COA.45 However, the
current rule does not specify that a COA
would terminate early when an
incoming ECO locks or crosses the
contra-side initial Complex BBO.
Therefore, the inclusion of ECOs would
be new rule text.
• Proposed Rule 980NY(e)(6)(B)(iii)
would provide that incoming ECOs or
COA-eligible orders that are priced
equal to or worse than the initiating
COA-eligible order,46 but do not lock or
cross the contra-side Complex BBO,
would not cause the COA to end early.
Proposed Rule 980NY(e)(6)(B)(i) is
based on current Rules 980NY(e)(8)(B)
and (C), which describe how the
Exchange processes COA-eligible orders
that are received during a COA that are
on the same side of the market as the
initiating COA-eligible order and priced
equal to or worse than the initiating
COA-eligible order. However, the
current rule does not address whether
the incoming orders lock or cross the
contra-side initial Complex BBO. The
Exchange believes the additional detail
promotes internal consistency regarding
how the COA process and how it
intersects with the price/time priority of
the initial Complex BBO.
The Exchange notes that current Rules
980NY(e)(8)(B) and (C) state that an
incoming same-side COA-eligible order
(priced equal to or worse than the
initiating order) joins a COA in progress
and is executed in price/time with the
43 See Rule 980NY(e)(8)(D) (providing, in part,
that ‘‘[i]ncoming COA-eligible orders received
during the Response Time Interval for the original
COA-eligible order that are on the same side of the
market and that are priced better than the initiating
order will cause the auction to end’’).
44 An incoming ECO or COA-eligible order priced
‘‘worse than’’ the COA-eligible order means it is
priced lower (higher) than the initiating COAeligible order to buy (sell). See proposed Rule
980NY(e)(6)(B)(ii).
45 See Rule 980NY(e)(8)(B)–(C), supra note 39.
46 An incoming ECO or COA-eligible order priced
‘‘worse than’’ the COA-eligible order means it is
priced lower (higher) than the initiating COAeligible order to buy (sell). See proposed Rule
980NY(e)(6)(B)(iii).
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COA-eligible order, with any balance
placed in the Consolidated Book
pursuant to paragraph (b).47 The
proposed rule text would clarify how
such incoming COA-eligible orders
would be processed. Specifically, the
Exchange proposes to clarify how such
incoming COA-eligible orders (as well
as ECOs) would be processed, including
any remaining balance thereof, in
proposed paragraphs (e)(6)(B)(iv)–(vi) of
the Rule, discussed below.48
• Proposed Rule 980NY(e)(6)(B)(iv)
would provide that any incoming ECO
or COA-eligible order that caused a COA
to end early, if executable, would trade
against any RFR Responses or ECOs that
did not trade with the initiating COAeligible order. This proposed paragraph
reflects current functionality and is
based on current Rule 980NY(e)(8)(D)
inasmuch as it addresses incoming
same-side COA-eligible orders that
cause the COA to end early.
• Proposed Rule 980NY(e)(6)(B)(v)
would provide that incoming ECOs, or
any remaining balance per proposed
paragraph (iv) above, that do not trade
against any remaining RFR Responses or
ECOs received during the RTI would
trade pursuant to Core Trading
Allocation, pursuant to paragraph (c)(ii)
or (iii) of this Rule. This proposed rule
text is consistent with the treatment of
the balance of incoming same-side ECOs
set forth in current Rule
980NY(e)(8)(A)–(C), with the added
detail that the ECO would first be
subject to Core Trading Allocation
pursuant to proposed Rule 980NY(c)(ii)
before being ranked in the Consolidated
Book.
• Proposed Rule 980NY(e)(6)(B)(vi)
would provide that the remaining
balance of any incoming COA-eligible
order(s) that does not trade against any
remaining RFR Responses or ECOs
received during the RTI would initiate
new COA(s) in price-time priority. This
proposed rule text is based in part on
current Rule 980NY(e)(8)(D), which
provides that any unexecuted portion of
47 See Rule 980NY(e)(8)(B) and (C) (providing, in
part, that ‘‘[i]ncoming COA-eligible orders received
during the [RTI] for the original COA-eligible order
that are on the same side of the market, that are
priced [equal to or worse] than the initiating order,
will join the COA’’).
48 See, e.g., proposed Rule 980NY(e)(6)(B)(iv),(vi)
(providing that, rather than joining the COA, these
incoming COA-eligible orders may trade with RFR
Responses or ECOs that don’t execute in the COA
and, if any balance remains still, would initiate a
new COA—but would not execute during the COA
in progress as the current rule suggests).
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the incoming COA-eligible would
initiate a new COA.49
The Exchange believes that proposed
Rules 980NY(e)(6)(B)(i)–(vi) would
provide greater specificity regarding the
impact of arriving same-side COAeligible orders and ECOs on a COA,
which adds internal consistency, clarity
and transparency to Exchange rules.
Specifically, the Exchange believes that
providing for a COA to terminate early
under the circumstances specified in
proposed Rules 980NY(e)(6)(B)(i) and
(ii) would allow a COA-eligible order to
trade (ahead of the incoming order)
against any RFR Responses or ECOs
received during the RTI up until that
point, while preserving the priority of
the incoming order to trade with the
resting leg markets. The Exchange
believes that early conclusion in this
circumstance would ensure that the
COA interacts seamlessly with the
Consolidated Book so as not to disturb
the priority of orders on the Book.
The proposed rule text is consistent
with the processing of ECOs during Core
Trading and ensures that the COA
respects the leg markets as well as
principles of price/time priority.50 In
addition, the proposed rule would
provide greater specificity that the
incoming COA-eligible order or ECO
would, if executable, trade against any
remaining RFR Responses and/or ECOs
received during the RTI, which allows
the incoming orders opportunities for
price improvement. The proposed rule
would also make clear that any
remaining balance of the incoming
COA-eligible order would then initiate a
new COA. The Exchange believes that
these proposed changes maximize the
execution opportunities to the incoming
order(s), with potential price
improvement, as these orders may trade
with interest received in the (original)
COA; and, for the incoming COAeligible order, the potential for
additional price improvement in a
subsequent COA.
Proposed Rule 980NY(e)(6)(C): Would
describe the impact of new individual
quotes or orders (i.e., updates to the leg
markets) during the RTI on the same or
opposite side of the initiating COA49 See Rule 980NY(e)(8)(D) (providing, in part,
that ‘‘[t]he COA-eligible order that caused the
auction to end will if marketable, initiate another
COA’’). See supra note 47 (noting inaccuracy in
current rule, which provides that incoming COAeligible orders would execute during the COA in
progress).
50 See proposed Rule 980NY(c)(ii) (leg markets
have priority at a price).
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eligible order. In each event described
below, regardless of whether the COA
ends early, the COA-eligible order
would trade pursuant to proposed Rule
980NY(e)(7) (described below). In
addition, consistent with Core Trading
Allocation, the updated leg markets
would trade pursuant to proposed
paragraph (c)(ii) of this Rule.51
• Proposed Rule 980NY(e)(6)(C)(i)
would provide that updates to the leg
markets that would cause the same-side
Complex BBO to lock or cross any RFR
Response(s) and/or ECO(s) received
during the RTI, or any ECOs resting in
the Consolidated Book, would cause the
COA to end early. The Exchange
believes that providing for a COA to
terminate early when the leg markets
update in this manner would allow a
COA-eligible order to trade against any
RFR Responses or ECOs received during
the RTI up until that point, while
preserving the priority of the updated
leg markets to trade with any eligible
contra-side interest, including any ECOs
resting in the Consolidated Book.
• Proposed Rule 980NY(e)(6)(C)(ii)
would provide that updates to the leg
markets that would cause the same-side
Complex BBO to be priced better than
the COA-eligible order,52 but do not
lock or cross any RFR Responses and/
or ECOs received during the RTI or any
ECOs resting in the Consolidated Book
would not cause the COA to end early.
• Proposed Rule 980NY(e)(6)(C)(iii)
would provide that updates to the leg
markets that would cause the contraside Complex BBO to lock or cross the
same-side initial Complex BBO would
cause the COA to end early.
• Proposed Rule 980NY(e)(6)(C)(iv)
would provide that updates to the leg
markets that would cause the contraside Complex BB (BO) to improve (i.e.,
become higher (lower)), but not lock or
cross the same-side initial Complex
BBO, would not cause the COA to end
early.
The Exchange believes that proposed
paragraphs (e)(6)(C)(i)–(iv) of Rule
980NY respect the COA process, while
at the same time ensuring a fair and
orderly market by maintaining the
priority of quotes and orders on the
Consolidated Book as they update. The
proposed rule is based in part on Rule
51 See
proposed Rule 980NY(e)(6)(C).
orders and quotes cause the sameside Complex BBO to be ‘‘better’’ than the COAeligible order if they cause the Complex BBO to be
higher (lower) than the COA-eligible order to buy
(sell). See proposed Rule 980NY(e)(6)(C)(i).
52 Individual
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980NY(e)(9)(A) 53 and (B),54 which
address the impact of updates to the leg
markets on a COA. However, the current
rule text does not specify on which side
of the market the leg markets have
updated. The Exchange proposes to
include this detail in the new rule text
for additional clarity and transparency.
In addition, the current rule text uses
the term ‘‘derived Complex BBO,’’
which is not a defined term. In the
proposed rule, the Exchange proposes to
use the term Complex BBO, which is a
defined term.55 The Exchange further
believes this proposed rule text
promotes transparency and clarity to
Exchange rules.
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COA Order Allocation
Current Rules 980NY(e)(6)(A)–(D) set
forth how a COA-eligible order trades
against same-priced contra-side interest
(i.e., at the same net price) after trading
against any better-priced contra-side
interest. In short, current Rule
980NY(e)(6) provides that COA-eligible
orders will be executed against the best
priced contra-side interest. The rule
further provides that at the same net
price, the order will be allocated as
provided for in Rules 980NY(e)(6)(A)–
(D). Current Rule 980NY(e)(6)(A)
provides that individual orders and
quotes in the leg markets resting in the
Consolidated Book prior to the initiation
of a COA have first priority to trade
against a COA-eligible order, provided
53 See Rule 980NY(e)(9)(A) (providing that
‘‘[i]ndividual orders and quotes that are entered
into the leg markets that cause the derived Complex
Best Bid/Offer to be better than the COA-eligible
order and to cross the best priced RFR Response
will cause the auction to terminate, and individual
orders and quotes in the leg markets will be
allocated pursuant to (c)(i) above and matched
against Electronic Complex Orders and RFR
Responses in price time priority pursuant to (6)
above. The initiating COA-eligible order will be
matched and executed against any remaining
unexecuted Electronic Complex Orders and RFR
Responses pursuant to (6) above’’). The Exchange
also notes that proposed Rule 980NY(e)(6)(C)(i)
clarifies that the Complex BBO in question is the
same-side Complex BBO, as the current rule text is
silent in this regard, which adds clarity and
transparency to Exchange rules.
54 See Rule 980NY(e)(9)(B) (providing that
‘‘[i]ndividual orders and quotes that are entered
into the leg markets that cause the derived Complex
Best Bid/Offer to cross the price of the COA-eligible
order will cause the auction to terminate, and
individual orders and quotes in the leg markets will
be allocated pursuant to (c)(i) above and matched
against Electronic Complex Orders and RFR
Responses in price time priority pursuant to (6)
above.’’). The Exchange also notes that proposed
paragraph (e)(6)(C)(ii) clarifies that the Complex
BBO in question is the contra-side Complex BBO,
as the current rule text is silent in this regard,
which adds clarity and transparency to Exchange
rules.
55 See supra note 26. The Exchange notes that the
word ‘‘derived’’ is no longer needed as it is
encompassed in the definition of Complex BBO.
See id.
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the COA-eligible order can be executed
in full (or in a permissible ratio), on a
price/time basis pursuant to Rule
964NY.56 Current Rules 980NY(e)(6)(B)
and (C) provide that Customer ECOs
resting in the Consolidated Book before,
or that are received during, the RTI, and
Customer RFR Responses shall,
collectively have second priority to
trade against a COA-eligible order
followed by resting non-Customer ECOs,
those received during the RTI, and nonCustomer RFR Responses, which would
have third priority.57 Pursuant to the
current Rule, the allocation of a COAeligible order against these Customer
and non-Customer ECOs and RFR
Responses shall be on a Size Pro Rata
basis as defined in Rule 964NY(b)(3).58
Finally, current Rule 980NY(e)(6)(D)
provides that individual orders and
quotes in the leg markets that cause the
derived Complex BBO to be improved
during the COA and match the best RFR
Response and/or ECOs received during
the RTI will be filled after ECOs and
RFR Responses at the same net price
pursuant to Rule 964NY.59
The Exchange proposes to clarify and
update the rule text describing the
priority and allocation of COA-eligible
orders during the COA process to
remove references to Customer ECO
priority, which is not the Exchange’s
allocation model, and instead reflect the
Exchange’s price-time priority model in
proposed Rule 980NY(e)(7), under the
heading ‘‘Allocation of COA-Eligible
Orders,’’ which would replace current
paragraph (e)(6) in its entirety. Proposed
Rule 980NY(e)(7) would provide that
when a COA ends early, or at the end
of the RTI, a COA-eligible order would
be executed against contra-side interest
received during the COA as provided for
in proposed Rules 980NY(e)(7)(A) and
(B), and any unexecuted portion of the
COA-eligible order would be ranked in
the Consolidated Book pursuant to
proposed Rule 980NY(b).
• Proposed Rule 980NY(e)(7)(A)
would provide that RFR Responses and
ECOs priced better than 60 the initial
Complex BBO would be eligible to trade
first with the COA-eligible order,
beginning with the highest (lowest), at
each price point, on a Size Pro Rata
basis pursuant to Rule 964NY(b)(3).
This proposed rule text is based in part
on current Rule 980NY(e)(6), which
provides that COA-eligible orders would
56 See
Rule 980NY(e)(6)(A).
Rule 980NY(e)(6)(B) and (C).
58 See id.
59 See Rule 980NY(e)(6)(D).
60 To qualify as ‘‘better than,’’ RFR Responses and
ECOs to buy (sell) would need to be priced higher
(lower) than the initial Complex BBO. See proposed
Rule 980NY(e)(7)(A).
be executed against the best priced
contra side interest (which in this case,
would be ECOs and RFR Responses) and
current Rule 980NY(e)(6)(C), which
provides that ECOs and RFR Responses
are allocated on a Size Pro Rata basis.
The Exchange believes this proposed
change streamlines how the allocation
process works, and clarifies that if ECOs
and RFR Responses are the best-priced
interest, they would trade with the
incoming COA-eligible order on a Size
Pro Rata basis.
• Proposed Rule 980NY(e)(7)(B)
provides that after COA allocations
pursuant to paragraph (e)(7)(A) of this
Rule, the COA-eligible order would
trade with the best-priced contra-side
interest pursuant to paragraph (c)(ii) or
(iii) above. In other words, once the
COA-eligible order has traded with any
ECOs or RFR Responses priced better
than the initial Complex BBO (i.e., any
price-improving interest to arrive during
the RTI), the initiating COA-eligible
order would follow regular allocation
rules for an incoming marketable ECO.
The Exchange believes this change
makes clear that a COA-eligible order
would only trade against the leg markets
after any auction allocations have been
made. This rule text is based in part on
current Rule 980NY(e)(6)(A), which
provides that if the COA-eligible order
can be executed in full (or a permissible
ratio) by the orders and quotes in the
Consolidated Book, they will be
allocated pursuant to Rule 964NY.
Because this allocation is identical to
how a regular marketable ECO would be
allocated, the Exchange believes it
would streamline the rule to provide a
cross reference to proposed Rule
980NY(c)(ii) instead of Rule 964NY.
Commentary .02 to Rule 980NY
Finally, consistent with the foregoing
proposed changes regarding priority of
ECOs during Core Trading and during a
COA, the Exchange proposes to modify
Commentary .02 to the Rule, which also
addresses the priority of ECOs. The
current Commentary .02 provides, in
relevant part, that ‘‘when executing an
[ECO] the price of at least one leg of the
order must’’ trade at a better price as
specified in subparagraphs (i) and (ii).
The Exchange proposes to make clear
that requisite price improvement on at
least one leg of the ECO applies ‘‘where
all legs that comprise the complex order
contain Customer interest.’’ 61 Similarly,
57 See
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61 See proposed Commentary .02 to Rule 980NY
(providing, in relevant part, that ‘‘when executing
an [ECO] where all legs that comprise the complex
order contain Customer interest, the price of at least
one leg of the order must . . .’’). The Exchange also
proposes to correct a typo by replacing the semi-
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the Exchange also proposes to modify
sub-paragraph (ii) of Commentary .02 by
replacing ‘‘the’’ with ‘‘all’’ to clarify
that, if the class has been designated as
eligible for COA, an incoming COAeligible order must ‘‘trade at a price that
is better than the corresponding price of
all customer bids or offers in the
Consolidated Book for the same series,
by at least one cent ($.01).’’ 62 The
Exchange believes these changes
regarding the priority of ECOs add
clarity and internal consistency to
Exchange rules.
2. Statutory Basis
asabaliauskas on DSKBBXCHB2PROD with NOTICES
The Exchange believes that its
proposal is consistent with Section
6(b)(5) of the Securities Exchange Act of
1934 (the ‘‘Act’’),63 which requires the
rules of an exchange to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
Overall, the Exchange is proposing
various changes that would promote just
and equitable principles of trade,
because ECOs, including COA-eligible
orders, would be handled in a fair and
orderly manner, as described above. The
various modifications and clarifications,
many of which are consistent with
current functionality are intended to
improve the rule overall by adding more
specificity and transparency. The
Exchange believes that the proposed
rule changes would promote just and
equitable principles of trade as well as
protect investors and the public interest
by making more clear how ECOs and
COA-eligible orders are handled on the
Exchange, both during Core Trading
Hours and when there is a COA in
progress. In particular, the proposed
changes are intended to help ensure a
fair and orderly market by maintaining
price/priority of incoming ECOs
(including COA-eligible orders) and
updated leg markets. Similarly, the
proposed changes are designed to
promote just and equitable principles by
seeking to execute as much interest as
possible at the best possible price(s).
colon that appears at the end of this clause with a
colon.
62 See proposed Commentary .02(ii) to Rule
980NY; see also Commentary .02(i) to Rule 980NY
(which similarly provides that ECOs must ‘‘trade at
a price that is better than the corresponding price
of all customer bids or offers in the Consolidated
Book for the same series, by at least one standard
trading increment as defined in Rule 960NY’’
(emphasis added).
63 15 U.S.C. 78f(b).
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Execution of ECOs During Core Trading
Hours
The Exchange believes that the
proposed rule changes regarding Core
Trading Order Allocation, which do not
alter the substance of the rule but
instead condense and streamline the
rule text, would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because the proposed changes
are designed to protect investors and the
public interest by making the
Exchange’s rules more clear, concise,
transparent and internally consistent,
which enhances the overall
comprehensibility to investors without
altering the operation of the rule.
Specifically, the Exchange believes that,
although it does not alter the substance
of the rule, the proposed rule text
regarding Core Trading Order Allocation
provides additional specificity regarding
processing of ECOs against same-priced
contra-side interest and, in particular,
under what circumstances the leg
markets would have first priority to
execute against an incoming marketable
ECO. The Exchange believes this
additional transparency, which makes
the rule clearer and more complete for
market participants, would encourage
additional ECOs to be directed to the
Exchange.
Proposed Modifications to COA Process
Overall, the Exchange believes that
the proposed changes to the COA
Process maximize execution
opportunities for the initiating COAeligible Order, RFR Responses and ECOs
entered during the COA, and the leg
markets at the best possible price
consistent with the principles of price/
time priority, which would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed changes are designed to
protect investors and the public interest.
Execution of COA-Eligible Orders,
Initiation of COAs and RFR Responses
In particular, the proposed rule text
promotes transparency regarding the
definition of what constitutes a COAeligible order and the circumstances
under which an arriving COA-eligible
order would receive an immediate
execution (i.e., when it can receive price
improvement from resting ECOs) versus
being subject to a COA. The proposed
rule text is not intended to change how
the Exchange currently processes ECOs,
but rather to provide clarity regarding
the processing of COA-eligible orders
and whether such orders are subject to
a COA. Specifically, the proposed
PO 00000
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Fmt 4703
Sfmt 4703
45093
changes would help ensure a fair and
orderly market because this information
adds clarity and transparency to the
COA process and would allow market
participants to be more informed about
the COA process. Moreover, the
proposed change maximizes the
opportunities for price improvement for
the entire COA-eligible order as it
would first trade against any priceimproving interest in the Consolidated
Book, and, if any residual interest
remains, the order would be subject to
a COA. Further, the Exchange believes
that the proposed rule text regarding the
requisite characteristics and behavior of
an RFR Response adds clarity and
transparency to Exchange rules,
including that, like all orders, an RFR
Response may be modified or cancelled
prior to the end of the RTI, which
promotes just and equitable principles
of trade. In addition, the Exchange
believes that specifying that RFR
Reponses are valid for the duration of
the COA would encourage participation
in the COA and would maximize the
number of contracts traded, which
benefits all market participants and
protects investors and the investing
public.
Impact of ECOs, COA-Eligible Orders
and Updated Leg Markets on COA in
Progress
Regarding interest that arrives during
a COA in progress, the Exchange
believes that the proposed rule text
provides clarity regarding the impact of
opposite- and same-side ECOs or COAeligible orders on the COA Process,
which promotes transparency and adds
clarity to Exchange rules. Moreover, the
Exchange notes that because the COA is
intended to operate seamlessly with the
Consolidated Book, the proposed
changes would promote just and
equitable principles of trade by
providing price-improvement
opportunities for COA-eligible orders
while at the same time providing an
opportunity for such orders to interact
with orders or quotes received during
the RTI, including incoming ECOs. In
addition, the Exchange believes that this
practice of honoring the updated leg
markets would help ensure a fair and
orderly market by maintaining the
priority of quotes and orders on the
Consolidated Book as they update. The
Exchange believes that the proposed
changes to the COA would increase the
number of options orders that are
provided with the opportunity to
receive price improvement.
The Exchange also believes that the
proposed modification regarding when
the balance of an initiating (or
incoming) COA-eligible order would
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Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Notices
initiate a new COA (as opposed to being
posted to the Consolidated Book) is
likewise consistent with the Act because
it would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system clarifying the rule text to the
benefit of market participants,
particularly those interested in
submitting COA-eligible orders. In
addition, the proposed changes also
promote additional transparency and
internal consistency in Exchange rules.
The Exchange believes that, as
proposed, COA Order Allocation
maximizes price discovery and liquidity
while employing price priority, which
benefits all market participants.
COA Order Allocation
The Exchange believes that the
proposed rule changes, which clarify
the priority and order allocation and
processing of COA-eligible orders would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed changes are designed to
protect investors and the public interest
by making the Exchange’s rules more
clear, concise, transparent and
internally consistent, which enhances
the overall comprehensibility to
investors without altering the operation
of the rule. For example, the Exchange
believes that the revised rule text
describing the execution of COAEligible orders provides clarity
regarding the allocation of COA-eligible
orders against any RFR Responses or
incoming ECOs and makes clear that a
COA-eligible order would only execute
against the leg markets after any auction
allocations have been made. The
Exchange also believes that the
proposed changes would conform to the
Exchange’s price/time priority model
and reduce the potential for investor
confusion.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Non-Substantive Changes
The Exchange believes that the
proposed non-substantive, technical
changes, including updated cross
references that conform rule text to
proposed changes, promotes just and
equitable principles of trade, fosters
cooperation and coordination among
persons engaged in facilitating securities
transactions, and removes impediments
to and perfects the mechanism of a free
and open market by ensuring that
members, regulators and the public can
more easily navigate the Exchange’s
rulebook and better understand the
defined terms used by the Exchange.
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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. To the
contrary, the Exchange believes that the
proposed changes would encourage
increased submission of ECOs, as well
as increased participation in COAs,
which will add liquidity to the
Exchange to the benefit all market
participants and is therefore procompetitive. The proposal does not
impose an intra-market burden on
competition, because these changes
make the rule clearer and more
complete for all participants. Nor does
the proposal impose a burden on
competition among the options
exchanges, because of the vigorous
competition for order flow among the
options exchanges. To the extent that
market participants disagree with the
particular approach taken by the
Exchange herein, market participants
can easily and readily direct complex
order flow to competing venues.
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:
PO 00000
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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–2017–15 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–2017–15. 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 Web site (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 Web site 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;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEAMER–2017–15 and should be
submitted on or before October 18,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.64
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–20628 Filed 9–26–17; 8:45 am]
BILLING CODE 8011–01–P
64 17
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 82, Number 186 (Wednesday, September 27, 2017)]
[Notices]
[Pages 45085-45094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20628]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81676; File No. SR-NYSEAMER-2017-15]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing of Proposed Rule Change Amending Rule 980NY (Electronic Complex
Order Trading) To Clarify the Priority of Electronic Complex Orders and
To Modify Aspects of Its Complex Order Auction Process
September 21, 2017.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 8, 2017, NYSE American LLC (the ``Exchange''
or ``NYSE American'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by 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 980NY(Electronic Complex Order
Trading) to clarify the priority of Electronic Complex Orders and to
modify aspects of its Complex Order Auction Process.
The proposed rule change is available on the Exchange's Web site 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.
[[Page 45086]]
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 Rule 980NY to clarify the priority
of Electronic Complex Orders (``ECO'') \4\ and to modify aspects of its
Complex Order Auction (``COA'') Process.\5\
---------------------------------------------------------------------------
\4\ Per Rule 980NY, ``an `Electronic Complex Order' means any
Complex Order as defined in Rule 900.3NY(e) that is entered into the
System.'' Rule 900.3NY defines Complex Order as ``any order
involving the simultaneous purchase and/or sale of two or more
different option series in the same underlying security, for the
same account, in a ratio that is equal to or greater than one-to-
three (.333) and less than or equal to three-to-one (3.00) and for
the purpose of executing a particular investment strategy.''
\5\ The Exchange notes that the proposed modifications to its
COA are materially identical to changes recently approved on NYSE
Arca Inc. (``NYSE Arca''), except that the Exchange's proposed
changes account for the Exchange's Customer priority rules, whereas
NYSE Arca's approved COA rules incorporate NYSE Arca's price-time
priority rules. See Securities Exchange Act Release No. 80138 (March
1, 2017), 82 FR 12869 (March 7, 2017) (order granting accelerated
approval of proposed rule change, as modified by Amendment Nos. 1
and 2, to amend NYSE Arca Rule 6.91) (the ``NYSE Arca Approval
Order'').
---------------------------------------------------------------------------
Rule 980NY sets forth how the Exchange conducts trading of ECOs in
its Complex Matching Engine (``CME''). The Exchange proposes to
streamline the rule text describing the execution of ECOs during Core
Trading Hours \6\ to provide specificity and transparency regarding
such order processing, without modifying the substance of such
processing. The Exchange also proposes to amend the rules describing
how ECOs that are eligible for a COA Process are executed and allocated
to clarify the description of current functionality and to provide
additional detail regarding order processing. The Exchange also
proposes amendments to Rule 980NY to clarify and add transparency to
the description of the COA Process, as described below.
---------------------------------------------------------------------------
\6\ Core Trading Hours are the regular trading hours for
business set forth in the rules of the primary markets underlying
those option classes listed on the Exchange. See Rule 900.2NY(15).
---------------------------------------------------------------------------
Execution of ECOs During Core Trading Hours
The Exchange proposes to streamline its description of the priority
of ECOs during Core Trading Hours, which the Exchange believes would
add specificity and transparency to Exchange rules. Every ECO, upon
entry to the System, is routed to the CME for possible execution
against other ECOs or against individual quotes and orders residing in
the Consolidated Book (``leg markets'').\7\ In general, the Exchange
affords Customer orders priority over same-priced non-Customer orders
received by the Exchange. The Exchange ranks and allocates Customer
orders at the same price in time priority and, after all Customer
orders are executed at a price, non-Customer orders at the same price
are allocated on a pro rata basis.\8\ Similarly, the Exchange affords
Customer ECOs priority over non-Customer ECOs with the same total net
debit or credit. The Exchange ranks Customer ECOs with the same total
or net debit or credit based on the time of entry of such Customer
ECOs, and then ranks non-Customer ECOs at the same total net debit or
credit based on the time of entry of such non-Customer ECOs.\9\
---------------------------------------------------------------------------
\7\ See Rule 980NY(a). The Exchange proposes to define ``leg
markets'' in reference to individual quotes and orders in the
Consolidated Book as used throughout the rule text and also proposes
to capitalize the defined term ``System''. See proposed Rule
980NY(a); see also Rule 900.2NY(48) (defining the term System (or
Exchange System) as ``the Exchange's electronic order delivery,
execution and reporting system for designated option issues through
which orders and quotes of Users are consolidated for execution and/
or display. Market Makers must submit quotes to the System in their
appointed classes electronically'').
\8\ See Rule 964NY(b)(2)(A) (also providing that ``if there is
more than one highest bid for a Customer account or more than one
lowest offer for a Customer account, then such bids or offers,
respectively, will be ranked based on time priority''); and Rule
964NY(b)(3) (setting forth pro rata allocation method).
\9\ See Rule 980NY(b). The Exchange proposes a non-substantive
amendment to add the term ``Electronic'' so that the rule text would
read, ``Priority of Electronic Complex Orders in the Consolidated
Book.''
---------------------------------------------------------------------------
Paragraph (c) to the Rule sets forth how ECOs are executed,
including that ECOs submitted to the System may be executed without
consideration of prices of the same complex order that might be
available on other exchanges.\10\ The Exchange proposes to specify that
ECOs may be executed without regard to prices of ``either single-legged
or the same complex order strategy'' that might be available on other
exchanges, which adds specificity and transparency to Exchange
rules.\11\ The Exchange also proposes to amend Rule 980NY(c) by re-
numbering the rule text. As described in more detail below, proposed
Rule 980NY(c)(ii) would set forth how ECOs that are marketable on
arrival would be executed and proposed Rule 980NY(c)(iii) would set
forth how ECOs that are not executed on arrival would be ranked and
executed on the Consolidated Book.
---------------------------------------------------------------------------
\10\ See Rule 980NY(c). The Rule also provides that ``[n]o leg
of a [ECO] will be executed at a price outside the Exchange's best
bid/offer for that leg.'' See id.
\11\ See proposed Rule 980NY(c). Rule 980NY(c)(i) sets forth how
ECOs are executed at the Open. The Exchange proposes a non-
substantive amendment to add the term ``Electronic'' so that the
rule text would read, ``Execution of Electronic Complex Orders at
the Open.''
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Rule 980NY(c)(ii) sets forth how ECOs are executed during Core
Trading. Paragraph (c)(ii)(A) currently provides that the CME will
accept an incoming marketable ECO and will automatically execute the
ECO giving first priority to ECOs in the Consolidated Book or, if not
marketable against another ECO, the incoming ECO will trade against
individual orders or quotes residing in the Consolidated Book, provided
it can be executed in full (or in a permissible ratio) by the leg
markets.\12\ Because Customer orders have priority, Rule
980NY(c)(ii)(A) further provides that ``[n]otwithstanding the
foregoing, if individual Customer orders residing in the Consolidated
Book can execute the incoming [ECO] in full (or in a permissible ratio)
at the same total or net debit or credit as an [ECO] in the
Consolidated Book, the individual Customer orders will have priority.''
\13\ In other words, the leg markets have first priority to trade
against the incoming ECO if (i) there are no better priced ECOs in the
Consolidated Book, (ii) the leg markets can trade in full or
permissible ratio against an ECO and (iii) each leg contains Customer
interest. Further, the current rule provides that leg markets that
trade against an ECO, per Rule 980NY(c)(ii), are allocated pursuant to
Rule 964NY.\14\
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\12\ See Rule 980NY(c)(ii)(A). The Exchange notes that when an
ECO trades against individual quotes and orders in the leg markets
this is commonly referred to as ``legging out.''
\13\ Id.
\14\ Id. See Rule 964NY(b)(2)(A) (Display, Priority and Order
Allocation--Trading Systems) (also providing that ``if there is more
than one highest bid for a Customer account or more than one lowest
offer for a Customer account, then such bids or offers,
respectively, will be ranked based on time priority'').
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The Exchange proposes to revise the rule text describing execution
of ECOs during Core Trading Hours in a manner that the Exchange
believes would promote transparency regarding the processing of ECOs.
The proposed rule text is not intended to change how the Exchange
currently processes ECOs, which is described in the current rule, but
rather to specify the order processing in a more logical manner.
Specifically, the Exchange proposes to delete current paragraph
(c)(ii)(A) of the Rule and replace it with proposed new paragraph
(c)(ii).
Proposed Rule 980NY(c)(ii) would provide that the CME would accept
an incoming marketable ECO and automatically execute it against the
best-priced contra-side interest resting in the Consolidated Book.\15\
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\15\ See Rule 980NY(c)(ii)(A).
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[[Page 45087]]
The proposed rule text would further specify that if, at a price,
all the leg markets can trade against an incoming ECO in full (or in a
permissible ratio), and each leg includes Customer interest, the leg
markets would have first priority at that price to trade with the
incoming ECO pursuant to Rule 964NY(b), to be followed by resting ECOs
in price/time priority.\16\ In this case, both Customer and non-
Customer orders and quotes in the leg markets at that price would trade
against the incoming ECO.\17\ This proposed text, therefore, describes
how an incoming marketable ECO would be allocated if resting ECOs and
leg markets in the Consolidated Book are at the same price, i.e., the
priority of same-priced interest in the Consolidated Book.
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\16\ See id. See also Rule 980NY(b).
\17\ See proposed Rule 980NY(ii) (sic) (also providing that the
allocation of the orders or quotes in the leg markets would be
allocated against the ECO in accordance with Rule 964NY(b)).
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As is currently the case, following any executions against the
best-priced resting ECOs and/or against the leg markets, at a price,
the ECO would then trade with ECOs resting in the Consolidated
Book.\18\ The Exchange believes that the proposed rule text provides
clarity regarding processing of ECOs, and in particular, under what
circumstances the leg markets would have first priority to execute
against an incoming marketable ECO.
---------------------------------------------------------------------------
\18\ See id.
---------------------------------------------------------------------------
To distinguish the treatment during Core Trading of incoming
marketable ECOs (that are immediately executed) from ECOs that are not
marketable (and thus routed to the Consolidated Book), the Exchange
proposes to renumber current Rule 980NY(c)(ii)(B) and (C), as proposed
Rule 980NY(c)(iii)(A) and (B), under the new heading ``Electronic
Complex Orders in the Consolidated Book.'' The Exchange also proposes
language in Rule 980NY(c)(iii)(A) to make clear that an ECO, or portion
thereof, that is not executed on arrival will be ranked in the
Consolidated Book and that any incoming orders and quotes that can
trade with a resting ECO would execute ``according to (c)(ii) above.''
\19\ Finally, the Exchange proposes to clarify that orders that trade
against ECOs in the Consolidated Book would be allocated pursuant to
paragraph (b) of Rule 964NY (Priority and Allocation Procedures for
Orders and Quotes with Size).\20\ The Exchange believes that the
proposed additional heading and re-numbering of the rule text provides
clarity regarding the treatment of non-marketable--as opposed to
marketable--ECOs, without altering the functionality described in rule.
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\19\ See proposed Rule 980NY(c)(iii)(A). Consistent with the
proposed change to define ``leg markets'' in Rule 980NY(a), the
Exchange proposes to replace ``bids and offers in the leg markets''
with ``leg markets'' in the proposed Rule. See id.
\20\ See proposed Rule 980NY(c)(iii)(B).
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Proposed Modifications to the Description of the COA Process
The Exchange proposes to modify its description of the COA Process
and the execution of COA-eligible orders, which the Exchange believes
would provide additional specificity and transparency to Exchange
rules.\21\ The Exchange is not proposing to modify the functionality of
COA. Because of the number of modifications that the Exchange proposes
to current paragraph (e), the Exchange proposes to delete paragraph (e)
of the Rule in its entirety and replace it with new Rule 980NY(e),
which the Exchange believes more clearly, accurately and logically
describes the COA Process. Proposed Rules 980NY(e)(1)-(7) would
describe the COA Process.
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\21\ To the extent that the proposed streamlined rule text
mirrors existing language, the Exchange cites the relevant section
of both the proposed and existing rule. See also NYSE Arca Approval
Order, supra note 5 (the proposed modifications to the COA mirror
recently approved changes on the NYSE Arca options exchange).
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Execution of COA-Eligible Orders, Initiation of COAs and RFR Responses
Proposed Rule 980NY(e) would provide that, upon entry into the
System, ECOs may be immediately executed, in full (or in a permissible
ratio) as provided in proposed paragraph (c)(ii), or may be subject to
a COA as described in the Rule. This rule text is based on current Rule
980NY(e), which provides that COA-eligible orders, upon entry into the
System, ``may be subject to an automated request for responses
(``RFR'') auction.'' \22\ The current rule text is silent as to the
factors involved in whether and when an incoming COA-eligible order may
trigger a COA. As discussed below, proposed Rules 980NY(e)(2) and
(e)(3) would address when an incoming COA-eligible order would trigger
a COA.
---------------------------------------------------------------------------
\22\ The Exchange describes the Request for Response or ``RFR''
in connection with a COA in new paragraph (e)(3) to Rule 980NY.
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(1) would define the term ``COA-eligible
order'' to mean an ECO that is entered in a class designated by the
Exchange and is:
(i) Designated by the ATP Holder as COA-eligible; and
(ii) received during Core Trading Hours.\23\
---------------------------------------------------------------------------
\23\ See proposed Rule 980NY(e)(1).
---------------------------------------------------------------------------
The proposed definition is based, in part, on the current Rule,
which provides that whether an order is COA-eligible ``would be
determined by the Exchange on a class-by-class basis'' \24\ and that
the ATP Holder must provide direction that an auction be initiated.\25\
The Exchange believes that explicitly stating that an ECO would be COA-
eligible only if received during Core Trading Hours would add clarity
and transparency. The Exchange proposes to eliminate from the current
definition (set forth in Rule 980NY(e)(1)) features of ECOs that are
not determinative of COA eligibility on the Exchange, such as the
``size, number of series, and complex order origin types (i.e.,
Customers, broker-dealers that are not Market-Makers or specialists on
an options exchange, and/or Market-Makers or specialists on an options
exchange).'' The Exchange is also not including language from current
Rule 980NY(e)(1) that provides that ECOs ``processed through the COA
Process may be executed without consideration to prices of the same
complex orders that might be available on other exchanges,'' as
paragraph (c) of the Rule includes this provision. Finally, the
Exchange proposes to remove an ECO's ``marketability (defined as a
number of ticks away from the current market)'' as a requirement for
COA-eligibility and to instead include this requirement in proposed
paragraph (e)(3) regarding whether a COA-eligible order would actually
trigger (as opposed to be eligible to trigger) a COA, as discussed
below.
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\24\ See Rule 980NY(e)(1). At this time, the Exchange allows
COA-eligible orders to be entered in every class.
\25\ See Rule 980NY(e)(2) (requiring that an ATP Holder mark an
ECO for auction in order for a COA to be conducted).
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(2) would add new rule text describing the
``Immediate Execution of COA-eligible orders.'' The proposed text would
clearly state that, upon entry of a COA-eligible order into the System,
it would trade immediately, in full (or in a permissible ratio), with
any ECOs resting in the Consolidated Book that are priced better than
the contra-side Complex BBO and, if not all legs include Customer
interest, with any ECOs resting in the Consolidated Book priced equal
to the contra-side Complex BBO.\26\ The proposed paragraph would
further specify that any portion of the COA-eligible order that does
not trade immediately upon entry may start a
[[Page 45088]]
COA, subject to the conditions set forth in proposed paragraph (e)(3).
---------------------------------------------------------------------------
\26\ See Rule 900.2NY(7)(b) (defining Complex BBO as ``the BBO
for a given complex order strategy as derived from the best bid on
OX and best offer on OX for each individual component series of a
Complex Order'').
---------------------------------------------------------------------------
The Exchange believes that the proposed rule text promotes
transparency regarding when a COA-eligible order would receive an
immediate execution (i.e., when it can receive price improvement from
resting ECOs) versus being subject to a COA. The immediate price
improvement opportunity for an incoming COA-eligible order from resting
ECOs in the Consolidated Book may obviate the need to start a COA,
which is why incoming orders first trade against price-improving
interest in the Consolidated Book before initiating a COA.
Proposed Rule 980NY(e)(3) would specify the conditions required for
the ``Initiation of a COA'' and, if those conditions are met, how a COA
would be initiated. As proposed, and consistent with current
functionality, for any portion of a COA-eligible order not executed
immediately under proposed Rule 980NY(e)(2), the Exchange would
initiate a COA based on the limit price of the COA-eligible order and
the ``marketability'' of the order as discussed below.
First, as set forth in proposed Rule 980NY(e)(3)(i), the
limit price of the COA-eligible order to buy (sell) would have to be
higher (lower) than the best-priced, same-side interest in both the leg
markets and any ECOs resting in the Consolidated Book. In other words,
the limit price of the COA-eligible order would have to improve the
current same-side market.
Second, as set forth in proposed Rule 980NY(e)(3)(ii), the
COA-eligible order would have to be priced within a given number of
ticks away from the current, contra-side market, as determined by the
Exchange. This concept is based on current Rule 980NY(e)(1), which
defines the ``marketability'' of a COA-eligible order as being ``a
number of ticks away from the current market.'' Because a COA-eligible
order may be a certain number of ticks away from the current market, a
COA could be initiated even if the limit price of the COA-eligible
order is not at or within the Exchange best bid/offer for each leg of
the order. However, a COA-eligible order must trade at a price that is
at or within the Exchange best bid/offer for each leg of the order,
consistent with Rule 980NY(c) regarding the execution of ECOs in
general.
The Exchange also proposes to make clear that a COA-eligible order
would reside on the Consolidated Book until it meets the requirements
of proposed paragraph (e)(3)(i)-(ii) and can initiate a COA.\27\
Proposed Rule 980NY(e)(3) further provides that the Exchange would
initiate a COA by sending a Request for Response (``RFR'') message to
all ATP Holders that subscribe to RFR messages.\28\ This requirement is
based on the first sentence of current Rule 980NY(e)(2). Proposed Rule
980NY(e)(3) would further provide that RFR messages would identify the
component series, the size and side of the market of the order and any
contingencies, which is based on the second sentence of current Rule
980NY(e)(2) without any changes. In addition, proposed Rule 980NY(e)(3)
would include new rule text to specify that only one COA may be
conducted at a time in any given complex order strategy, which is not
explicitly stated in the current rule.\29\ Finally, proposed Rule
980NY(e)(3) would specify that, at the time the COA is initiated, the
Exchange would record the Complex BBO (the ``initial Complex BBO'') for
purposes of determining whether the COA should end early pursuant to
proposed paragraph (e)(6) of this Rule (discussed below). This is new
rule text that is consistent with current functionality that ensures
the COA respects the leg markets as well as principles of price/time
priority.\30\
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\27\ See proposed Rule 980NY(e)(3).
\28\ See id.
\29\ The Exchange believes this can be inferred from the text
describing the impact of COA-eligible orders that arrive during a
COA in progress. See, e.g., Rule 980NY(e)(8). Proposed Rule
980NY(e)(6), described below, provides specificity of when a COA may
terminate early and when a subsequent COA may be initiated.
\30\ See proposed Rule 980NY(c)(ii) (leg markets have priority
at a price).
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(4) would define the term Response Time
Interval (``RTI'') as the period of time during which responses to the
RFR may be entered. As further proposed, the Exchange would determine
the length of the RTI; provided, however, that the duration would not
be less than 500 milliseconds and would not exceed one (1) second. This
rule text is based on current Rule 980NY(e)(3) insofar as it defines
the RTI and the duration of the RTI, with the non-substantive
modification to replace reference to ``shall'' with reference to
``will.''
Proposed Rule 980NY(e)(4) would also include new rule text
providing that, at the end of the RTI, the COA-eligible order would be
allocated pursuant to proposed Rule 980NY(e)(7), which describes the
allocation of COA-eligible orders (hereinafter ``COA Order
Allocation'') (described below). This proposed new rule text is based
in part on current Rule 980NY(e)(5), which provides that at the
expiration of the RTI, COA-eligible orders may be executed, in whole or
in part, pursuant to Rule 980NY(e)(6) (Execution of COA-eligible
orders). The proposed rule text refers instead to Rule 980NY(e)(7),
which incorporates the order allocation concepts currently set forth in
Rule 980NY(e)(6). The proposed change is intended to add clarity and
transparency to the COA Process.
Proposed Rule 980NY(e)(5) would provide that any ATP Holder may
submit responses to the RFR message (``RFR Responses'') during the
RTI.\31\ This rule text is based on the first sentence of current Rule
980NY(e)(4) without any changes. Proposed Rule 980NY(e)(5)(A)-(C) would
provide additional specificity regarding RFR Responses.
---------------------------------------------------------------------------
\31\ ATPs Holders can submit RFR Responses on behalf of
Customers.
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(5)(A) would provide that RFR
Responses are ECOs that have a time-in-force contingency for the
duration of the COA, must specify the price, size, and side of the
market, and may be submitted in $0.01 increments. This rule text is
based in part on the first sentence of Rule 980NY(e)(4), which provides
that RFR Responses may be submitted in $.01 increments. Proposed Rule
980NY(e)(5)(A) is based in part on the second to last sentence of
current Rule 980NY(e)(7), which provides that RFR Responses expire at
the end of the RTI, which is the same in substance as saying that an
RFR Response has a time-in-force condition for the duration of the COA.
The Exchange believes its proposed rule text is more accurate because
it states that RFR Responses are valid for the duration of the COA, as
opposed to the RTI, the latter being the period during which COA
interest (including RFR Responses and incoming ECOs) is received and
the former being the overall COA Process that allocates COA-eligible
orders with the best-priced auction interest, including RFR Responses.
Proposed Rule 980NY(e)(5)(B) would provide that RFR
Responses must be on the opposite side of the COA-eligible order and
any RFR Responses on the same side of the COA-eligible order would be
rejected. This proposed rule text is based on the last sentence of
current Rule 980NY(e)(4), which provides that RFR Responses must be on
the opposite side of the COA-eligible order and any same-side RFR
responses would be rejected by the Exchange, without any substantive
changes.
Proposed Rule 980NY(e)(5)(C) would provide that RFR
Responses may be modified or cancelled during the RTI,
[[Page 45089]]
would not be ranked or displayed in the Consolidated Book, and would
expire at the end of the COA. The proposed text stating that RFR
Responses may be modified or cancelled during the RTI is new rule text
based in part on current Rule 980NY(e)(7), which provides that RFR
Responses can be modified but may not be withdrawn at any time prior to
the end of the RTI. The Exchange proposes to specify that an RFR
Response may be modified or cancelled during the RTI, which is current
functionality. The proposed text stating that RFR Responses expire at
the end of the COA make clear when RFR Responses are ``firm'' and thus
obviate the need for current Rule 980NY(e)(7).\32\ The proposed text of
Rule 980NY(e)(5)(C) stating that RFR Responses would not be ranked or
displayed in the Consolidated Book is based on the last sentence of
current Rule 980NY(e)(7) without any changes.
---------------------------------------------------------------------------
\32\ Rule 980NY(e)(7) sets forth the Firm Quote Requirements for
COA-eligible orders.
---------------------------------------------------------------------------
The Exchange believes that the proposed Rules 980NY(e)(5), which
reorganizes information from existing rule text and adds language to
describe the requisite characteristics and behavior of an RFR Response,
adds clarity and transparency to Exchange rules, including that, like
all orders, an RFR Response may be modified or cancelled prior to the
end of the RTI. The Exchange believes that specifying that RFR Reponses
are good for the duration of the COA and may trade with interest
received during the COA before expiring would encourage participation
in the COA and would maximize the number of contracts traded.
Impact of ECOs, COA-Eligible Orders and Updated Leg Markets on COA in
Progress
Proposed Rule 980NY(e)(6) would describe the impact of ECOs, COA-
eligible orders, and updates to the leg markets that arrived during an
RTI of a COA. This proposed rule text would replace current Rule
980NY(e)(8). The Exchange believes that, because proposed Rule
980NY(e)(6) would establish what happens to a COA (i.e., whether it
will end early) before the COA-eligible order is allocated, it would be
more logical to describe these processes before the rule describes how
COA-eligible orders are allocated, which would be set forth in proposed
Rule 980NY(c)(7). In addition, the Exchange proposes to add headings
(see proposed Rule 980NY(e)(6)(A)-(C)) to make clear which type of
incoming interest is being described.
Proposed Rule 980NY(e)(6)(A) would describe the impact on a COA of
incoming ECOs or COA-eligible orders on the opposite-side of the market
as the initiating COA-eligible order. The current rule addresses the
impact of opposite-side, incoming ECOs on a COA,\33\ but does not
address the impact of opposite-side incoming COA-eligible orders.
Accordingly, proposed paragraph (A) of Rule 980NY(e)(6) would be new
rule text. The Exchange notes that the impact of an incoming COA-
eligible order mirrors that of an incoming ECO in the scenarios covered
in proposed Rules 980NY(e)(6)(A)(i)-(iii) (discussed below), which adds
internal consistency and specificity to Exchange rules.\34\
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\33\ See Rule 980NY(e)(8)(A) (providing that ``[i]ncoming
Electronic Complex orders received during the Response Time Interval
that are on the opposite side of the market and marketable against
the limit price of the initiating COA-eligible order will be ranked
and executed in price time with RFR Responses by account type (as
described in (6) above). Any remaining balance of either the
initiating COA-eligible order or the incoming Electronic Complex
order will be placed in the Consolidated Book and ranked as
described in (b) above'').
\34\ The different treatment of the balance of the incoming
order, depending on whether it is an ECO or a COA-eligible order is
covered in proposed rules Rule 980NY(e)(6)(A)(iv) and (v),
respectively.
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Proposed Rule 980NY(e)(6)(A)(i) would provide that
incoming ECOs or COA-eligible orders that lock or cross the initial
Complex BBO would cause the COA to end early. The concept of the
initial Complex BBO as a benchmark against which incoming opposite-side
interest would be measured is new rule text, but is consistent with
current functionality. As noted above (see supra note 26), the initial
Complex BBO is the BBO for a given complex order strategy as derived
from the Best Bid (``BB'') and Best Offer (``BO'') for each individual
component series of a Complex Order as recorded at the start of the
RTI. Proposed Rule 980NY(e)(6)(A)(i) would further provide that if such
incoming ECO or COA-eligible order is also executable against the limit
price of the initiating COA-eligible order, it would be ranked with RFR
Responses to trade with the initiating COA-eligible order. The Exchange
believes that addressing this scenario would better enable market
participants to understand how their ECOs, including COA-eligible
orders, may be treated, and the proposed change therefore is designed
to add clarity and transparency to Exchange rules.
The proposed rule text relating to how an incoming opposite-side
ECO or COA-eligible order would be processed is based on current Rule
980NY(e)(8)(A), which provides that incoming ECOs received during the
RTI ``that are on the opposite side of the market and marketable
against the limit price of the initiating COA-eligible order will be
ranked and executed in price time with RFR Responses.'' \35\ The
proposed rule text would also include opposite-side COA-eligible
orders.\36\ The proposed rule text also does not include reference to
``account type,'' or ``price time,'' as the COA-eligible order would
interact with the best-priced contra-side interest received during the
RTI, per proposed paragraph (e)(7) of this Rule.\37\
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\35\ See Rule 980NY(e)(8)(A).
\36\ See proposed Rule 980NY(e)(6)(A)(i).
\37\ See id. See proposed Rule 980NY(e)(7). See also discussion
of ``COA Order Allocation'' below.
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Proposed Rule 980NY(e)(6)(A)(ii) would provide that
incoming ECOs or COA-eligible orders that are executable against the
limit price of the initiating COA-eligible order, but do not lock or
cross the initial Complex BBO, would not cause the COA to end early and
would be ranked with RFR Responses to trade with the initiating COA-
eligible order. This proposed paragraph specifies that the COA would
continue uninterrupted by such incoming orders because such interest
does not impact priority (because the incoming order isn't priced
better than the leg markets at the start of the COA). The incoming
order, however, would be eligible to participate in the COA. This
proposed text would be new rule text, which reflects current
functionality that is based on the principles set forth in current Rule
980NY(e)(8)(A).
Proposed Rule 980NY(e)(6)(A)(iii) would provide that
incoming ECOs or COA-eligible orders that are either not executable on
arrival against the limit price of the initiating COA-eligible order or
do not lock or cross the initial Complex BBO would not cause the COA to
end early. Per this proposed paragraph, the COA would proceed
uninterrupted as the incoming interest does not trigger priority
concerns (i.e., does not lock or cross the initial Complex BBO) nor can
the interest participate in the COA (i.e., because it is not executable
against the initiating COA-eligible order). This would be new rule
text, which reflects current functionality.
Proposed Rule 980NY(e)(6)(A)(iv) would provide that any
incoming ECO(s), or the balance thereof, that was not executed with the
initiating COA-eligible order or was not executable on arrival would
trade pursuant to proposed paragraph (c)(ii) or (iii) of this Rule
(i.e., Core Trading Allocation). This proposed rule text is based on
the last sentence of current Rule
[[Page 45090]]
980NY(e)(8)(A), regarding ECOs, but provides additional detail
regarding the ability for any balance on the incoming ECO to trade with
the best-priced, resting contra-side interest before (or instead of)
being ranked in the Consolidated Book, which is consistent with the
Exchange's processing of incoming ECOs.
Proposed Rule 980NY(e)(6)(A)(v) would provide that any
incoming COA-eligible order(s), or the balance thereof, that was not
executed with the initiating COA-eligible order or was not executable
on arrival would initiate subsequent COA(s) in price-time priority.
Because the treatment of opposite-side COA-eligible orders is not
described in the current rule, this would be new rule text. Unlike the
treatment of incoming opposite-side ECOs--where any remaining balance
of the ECOs would be subject to Core Trading Allocation or would be
posted to the Consolidated Book after trading with the initiating COA-
eligible order--any balance of the incoming contra-side COA-eligible
order that does not trade with the initiating COA-eligible order would
initiate a new COA.
The Exchange believes that proposed Rule 980NY(e)(6)(A)(i)-(v)
would provide additional specificity regarding the impact of opposite-
side ECOs or COA-eligible orders on the COA Process, which adds
transparency to Exchange rules. Specifically, the Exchange believes
that providing for a COA to terminate early when an incoming order
locks or crosses the initial Complex BBO, as proposed, would allow an
initiating COA-eligible order to trade (ahead of the incoming order)
against any RFR Responses or ECOs received during the RTI up until that
point, while preserving the priority of the incoming order to trade
with the resting leg markets. If no RFRs had been received during the
RTI, the initiating COA-eligible order would trade against the best-
priced, contra side interest, including the order the caused the COA to
terminate early. The Exchange believes that early conclusion of the COA
would avoid disturbing priority in the Consolidated Book and would
allow the Exchange to appropriately handle incoming orders. The
proposed rule text is consistent with the processing of ECOs during
Core Trading and ensures that the leg markets respect the COA as well
as principles of price/time priority.\38\ Moreover, the Exchange
believes that the proposed impact of incoming COA-eligible orders
aligns with the treatment of incoming ECOs, which adds internal
consistency to Exchange rules, and affords additional opportunities for
price improvement to the initiating COA-eligible order, which may trade
with the opposite-side order(s).
---------------------------------------------------------------------------
\38\ See proposed Rule 980NY(c)(ii) (leg markets have priority
at a price).
---------------------------------------------------------------------------
The Exchange proposes to process any remaining balance of COA-
eligible orders differently from any balance of the incoming ECO
because an ECO would either trade against resting interest or be ranked
with ECOs in the Consolidated Book, whereas any balance of a COA-
eligible order would initiate a new COA. The Exchange believes that
this proposed rule text, which is consistent with current
functionality, maximizes the execution opportunities to the incoming
order(s), as these orders may trade with interest received in the
(initiating) COA; and, for the incoming COA-eligible order, the
potential for additional price improvement in a subsequent COA.
Proposed Rule 980NY(e)(6)(B) would describe the impact of incoming
ECOs or COA-eligible orders on the same side of the market as the
initiating COA-eligible order on a COA. The current rule addresses the
impact of same-side, incoming COA-eligible orders on a COA,\39\ but
does not address the impact of same-side ECOs. Accordingly, the
inclusion of ECOs in the proposed rule would be new text. The impact of
an incoming ECO mirrors that of an incoming COA-eligible order in the
scenarios covered in proposed Rule (e)(6)(B)(i)-(iv) (discussed below),
which adds internal consistency and specificity to Exchange rules.\40\
Proposed Rule 980NY(e)(6)(B) would make clear that regardless of
whether a COA ends early or at the end of the (uninterrupted) RTI, the
initiating COA-eligible order would be executed pursuant to paragraph
(e)(7) of this Rule ahead of any interest that arrived during the
COA.\41\
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\39\ See Rule 980NY(e)(8)(B)-(C) (addressing the impact of same-
side incoming COA-eligible orders on a COA).
\40\ The Exchange notes that the different treatment of the
balance of the incoming order, depending on whether it is an ECO or
a COA-eligible order, is covered in proposed paragraphs (v) and
(vi), respectively, of Rule 980NY(e)(6)(B).
\41\ See proposed Rule 980NY(e)(6)(B).
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(6)(B)(i) would provide that
incoming ECOs or COA-eligible orders that are priced better than the
initiating COA-eligible order would cause the COA to end.\42\ This
proposed rule text is based in part on current Rule 980NY(e)(8)(D),
which provides that better-priced incoming COA-eligible orders that
arrive during the RTI will cause a COA to end.\43\
---------------------------------------------------------------------------
\42\ An incoming ECO or COA-eligible order priced ``better
than'' the COA-eligible order means it is priced higher (lower) than
the initiating COA-eligible order to buy (sell). See proposed Rule
980NY(e)(6)(B)(ii).
\43\ See Rule 980NY(e)(8)(D) (providing, in part, that
``[i]ncoming COA-eligible orders received during the Response Time
Interval for the original COA-eligible order that are on the same
side of the market and that are priced better than the initiating
order will cause the auction to end'').
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(6)(B)(ii) would provide that an
incoming ECO or COA-eligible order that is priced equal to or worse
than the initiating COA-eligible order,\44\ and also locks or crosses
the contra-side initial Complex BBO, would cause the COA to end early.
The proposed rule is based in part on current Rules 980NY(e)(8)(B) and
(C), which describe how the Exchange processes COA-eligible orders that
are received during a COA that are on the same side of the market of
the initiating COA and priced equal to or worse than the initiating
COA.\45\ However, the current rule does not specify that a COA would
terminate early when an incoming ECO locks or crosses the contra-side
initial Complex BBO. Therefore, the inclusion of ECOs would be new rule
text.
---------------------------------------------------------------------------
\44\ An incoming ECO or COA-eligible order priced ``worse than''
the COA-eligible order means it is priced lower (higher) than the
initiating COA-eligible order to buy (sell). See proposed Rule
980NY(e)(6)(B)(ii).
\45\ See Rule 980NY(e)(8)(B)-(C), supra note 39.
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(6)(B)(iii) would provide that
incoming ECOs or COA-eligible orders that are priced equal to or worse
than the initiating COA-eligible order,\46\ but do not lock or cross
the contra-side Complex BBO, would not cause the COA to end early.
Proposed Rule 980NY(e)(6)(B)(i) is based on current Rules
980NY(e)(8)(B) and (C), which describe how the Exchange processes COA-
eligible orders that are received during a COA that are on the same
side of the market as the initiating COA-eligible order and priced
equal to or worse than the initiating COA-eligible order. However, the
current rule does not address whether the incoming orders lock or cross
the contra-side initial Complex BBO. The Exchange believes the
additional detail promotes internal consistency regarding how the COA
process and how it intersects with the price/time priority of the
initial Complex BBO.
---------------------------------------------------------------------------
\46\ An incoming ECO or COA-eligible order priced ``worse than''
the COA-eligible order means it is priced lower (higher) than the
initiating COA-eligible order to buy (sell). See proposed Rule
980NY(e)(6)(B)(iii).
---------------------------------------------------------------------------
The Exchange notes that current Rules 980NY(e)(8)(B) and (C) state
that an incoming same-side COA-eligible order (priced equal to or worse
than the initiating order) joins a COA in progress and is executed in
price/time with the
[[Page 45091]]
COA-eligible order, with any balance placed in the Consolidated Book
pursuant to paragraph (b).\47\ The proposed rule text would clarify how
such incoming COA-eligible orders would be processed. Specifically, the
Exchange proposes to clarify how such incoming COA-eligible orders (as
well as ECOs) would be processed, including any remaining balance
thereof, in proposed paragraphs (e)(6)(B)(iv)-(vi) of the Rule,
discussed below.\48\
---------------------------------------------------------------------------
\47\ See Rule 980NY(e)(8)(B) and (C) (providing, in part, that
``[i]ncoming COA-eligible orders received during the [RTI] for the
original COA-eligible order that are on the same side of the market,
that are priced [equal to or worse] than the initiating order, will
join the COA'').
\48\ See, e.g., proposed Rule 980NY(e)(6)(B)(iv),(vi) (providing
that, rather than joining the COA, these incoming COA-eligible
orders may trade with RFR Responses or ECOs that don't execute in
the COA and, if any balance remains still, would initiate a new
COA--but would not execute during the COA in progress as the current
rule suggests).
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(6)(B)(iv) would provide that any
incoming ECO or COA-eligible order that caused a COA to end early, if
executable, would trade against any RFR Responses or ECOs that did not
trade with the initiating COA-eligible order. This proposed paragraph
reflects current functionality and is based on current Rule
980NY(e)(8)(D) inasmuch as it addresses incoming same-side COA-eligible
orders that cause the COA to end early.
Proposed Rule 980NY(e)(6)(B)(v) would provide that
incoming ECOs, or any remaining balance per proposed paragraph (iv)
above, that do not trade against any remaining RFR Responses or ECOs
received during the RTI would trade pursuant to Core Trading
Allocation, pursuant to paragraph (c)(ii) or (iii) of this Rule. This
proposed rule text is consistent with the treatment of the balance of
incoming same-side ECOs set forth in current Rule 980NY(e)(8)(A)-(C),
with the added detail that the ECO would first be subject to Core
Trading Allocation pursuant to proposed Rule 980NY(c)(ii) before being
ranked in the Consolidated Book.
Proposed Rule 980NY(e)(6)(B)(vi) would provide that the
remaining balance of any incoming COA-eligible order(s) that does not
trade against any remaining RFR Responses or ECOs received during the
RTI would initiate new COA(s) in price-time priority. This proposed
rule text is based in part on current Rule 980NY(e)(8)(D), which
provides that any unexecuted portion of the incoming COA-eligible would
initiate a new COA.\49\
---------------------------------------------------------------------------
\49\ See Rule 980NY(e)(8)(D) (providing, in part, that ``[t]he
COA-eligible order that caused the auction to end will if
marketable, initiate another COA''). See supra note 47 (noting
inaccuracy in current rule, which provides that incoming COA-
eligible orders would execute during the COA in progress).
---------------------------------------------------------------------------
The Exchange believes that proposed Rules 980NY(e)(6)(B)(i)-(vi)
would provide greater specificity regarding the impact of arriving
same-side COA-eligible orders and ECOs on a COA, which adds internal
consistency, clarity and transparency to Exchange rules. Specifically,
the Exchange believes that providing for a COA to terminate early under
the circumstances specified in proposed Rules 980NY(e)(6)(B)(i) and
(ii) would allow a COA-eligible order to trade (ahead of the incoming
order) against any RFR Responses or ECOs received during the RTI up
until that point, while preserving the priority of the incoming order
to trade with the resting leg markets. The Exchange believes that early
conclusion in this circumstance would ensure that the COA interacts
seamlessly with the Consolidated Book so as not to disturb the priority
of orders on the Book.
The proposed rule text is consistent with the processing of ECOs
during Core Trading and ensures that the COA respects the leg markets
as well as principles of price/time priority.\50\ In addition, the
proposed rule would provide greater specificity that the incoming COA-
eligible order or ECO would, if executable, trade against any remaining
RFR Responses and/or ECOs received during the RTI, which allows the
incoming orders opportunities for price improvement. The proposed rule
would also make clear that any remaining balance of the incoming COA-
eligible order would then initiate a new COA. The Exchange believes
that these proposed changes maximize the execution opportunities to the
incoming order(s), with potential price improvement, as these orders
may trade with interest received in the (original) COA; and, for the
incoming COA-eligible order, the potential for additional price
improvement in a subsequent COA.
---------------------------------------------------------------------------
\50\ See proposed Rule 980NY(c)(ii) (leg markets have priority
at a price).
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(6)(C): Would describe the impact of new
individual quotes or orders (i.e., updates to the leg markets) during
the RTI on the same or opposite side of the initiating COA-eligible
order. In each event described below, regardless of whether the COA
ends early, the COA-eligible order would trade pursuant to proposed
Rule 980NY(e)(7) (described below). In addition, consistent with Core
Trading Allocation, the updated leg markets would trade pursuant to
proposed paragraph (c)(ii) of this Rule.\51\
---------------------------------------------------------------------------
\51\ See proposed Rule 980NY(e)(6)(C).
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(6)(C)(i) would provide that updates
to the leg markets that would cause the same-side Complex BBO to lock
or cross any RFR Response(s) and/or ECO(s) received during the RTI, or
any ECOs resting in the Consolidated Book, would cause the COA to end
early. The Exchange believes that providing for a COA to terminate
early when the leg markets update in this manner would allow a COA-
eligible order to trade against any RFR Responses or ECOs received
during the RTI up until that point, while preserving the priority of
the updated leg markets to trade with any eligible contra-side
interest, including any ECOs resting in the Consolidated Book.
Proposed Rule 980NY(e)(6)(C)(ii) would provide that
updates to the leg markets that would cause the same-side Complex BBO
to be priced better than the COA-eligible order,\52\ but do not lock or
cross any RFR Responses and/or ECOs received during the RTI or any ECOs
resting in the Consolidated Book would not cause the COA to end early.
---------------------------------------------------------------------------
\52\ Individual orders and quotes cause the same-side Complex
BBO to be ``better'' than the COA-eligible order if they cause the
Complex BBO to be higher (lower) than the COA-eligible order to buy
(sell). See proposed Rule 980NY(e)(6)(C)(i).
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(6)(C)(iii) would provide that
updates to the leg markets that would cause the contra-side Complex BBO
to lock or cross the same-side initial Complex BBO would cause the COA
to end early.
Proposed Rule 980NY(e)(6)(C)(iv) would provide that
updates to the leg markets that would cause the contra-side Complex BB
(BO) to improve (i.e., become higher (lower)), but not lock or cross
the same-side initial Complex BBO, would not cause the COA to end
early.
The Exchange believes that proposed paragraphs (e)(6)(C)(i)-(iv) of
Rule 980NY respect the COA process, while at the same time ensuring a
fair and orderly market by maintaining the priority of quotes and
orders on the Consolidated Book as they update. The proposed rule is
based in part on Rule
[[Page 45092]]
980NY(e)(9)(A) \53\ and (B),\54\ which address the impact of updates to
the leg markets on a COA. However, the current rule text does not
specify on which side of the market the leg markets have updated. The
Exchange proposes to include this detail in the new rule text for
additional clarity and transparency. In addition, the current rule text
uses the term ``derived Complex BBO,'' which is not a defined term. In
the proposed rule, the Exchange proposes to use the term Complex BBO,
which is a defined term.\55\ The Exchange further believes this
proposed rule text promotes transparency and clarity to Exchange rules.
---------------------------------------------------------------------------
\53\ See Rule 980NY(e)(9)(A) (providing that ``[i]ndividual
orders and quotes that are entered into the leg markets that cause
the derived Complex Best Bid/Offer to be better than the COA-
eligible order and to cross the best priced RFR Response will cause
the auction to terminate, and individual orders and quotes in the
leg markets will be allocated pursuant to (c)(i) above and matched
against Electronic Complex Orders and RFR Responses in price time
priority pursuant to (6) above. The initiating COA-eligible order
will be matched and executed against any remaining unexecuted
Electronic Complex Orders and RFR Responses pursuant to (6)
above''). The Exchange also notes that proposed Rule
980NY(e)(6)(C)(i) clarifies that the Complex BBO in question is the
same-side Complex BBO, as the current rule text is silent in this
regard, which adds clarity and transparency to Exchange rules.
\54\ See Rule 980NY(e)(9)(B) (providing that ``[i]ndividual
orders and quotes that are entered into the leg markets that cause
the derived Complex Best Bid/Offer to cross the price of the COA-
eligible order will cause the auction to terminate, and individual
orders and quotes in the leg markets will be allocated pursuant to
(c)(i) above and matched against Electronic Complex Orders and RFR
Responses in price time priority pursuant to (6) above.''). The
Exchange also notes that proposed paragraph (e)(6)(C)(ii) clarifies
that the Complex BBO in question is the contra-side Complex BBO, as
the current rule text is silent in this regard, which adds clarity
and transparency to Exchange rules.
\55\ See supra note 26. The Exchange notes that the word
``derived'' is no longer needed as it is encompassed in the
definition of Complex BBO. See id.
---------------------------------------------------------------------------
COA Order Allocation
Current Rules 980NY(e)(6)(A)-(D) set forth how a COA-eligible order
trades against same-priced contra-side interest (i.e., at the same net
price) after trading against any better-priced contra-side interest. In
short, current Rule 980NY(e)(6) provides that COA-eligible orders will
be executed against the best priced contra-side interest. The rule
further provides that at the same net price, the order will be
allocated as provided for in Rules 980NY(e)(6)(A)-(D). Current Rule
980NY(e)(6)(A) provides that individual orders and quotes in the leg
markets resting in the Consolidated Book prior to the initiation of a
COA have first priority to trade against a COA-eligible order, provided
the COA-eligible order can be executed in full (or in a permissible
ratio), on a price/time basis pursuant to Rule 964NY.\56\ Current Rules
980NY(e)(6)(B) and (C) provide that Customer ECOs resting in the
Consolidated Book before, or that are received during, the RTI, and
Customer RFR Responses shall, collectively have second priority to
trade against a COA-eligible order followed by resting non-Customer
ECOs, those received during the RTI, and non-Customer RFR Responses,
which would have third priority.\57\ Pursuant to the current Rule, the
allocation of a COA-eligible order against these Customer and non-
Customer ECOs and RFR Responses shall be on a Size Pro Rata basis as
defined in Rule 964NY(b)(3).\58\ Finally, current Rule 980NY(e)(6)(D)
provides that individual orders and quotes in the leg markets that
cause the derived Complex BBO to be improved during the COA and match
the best RFR Response and/or ECOs received during the RTI will be
filled after ECOs and RFR Responses at the same net price pursuant to
Rule 964NY.\59\
---------------------------------------------------------------------------
\56\ See Rule 980NY(e)(6)(A).
\57\ See Rule 980NY(e)(6)(B) and (C).
\58\ See id.
\59\ See Rule 980NY(e)(6)(D).
---------------------------------------------------------------------------
The Exchange proposes to clarify and update the rule text
describing the priority and allocation of COA-eligible orders during
the COA process to remove references to Customer ECO priority, which is
not the Exchange's allocation model, and instead reflect the Exchange's
price-time priority model in proposed Rule 980NY(e)(7), under the
heading ``Allocation of COA-Eligible Orders,'' which would replace
current paragraph (e)(6) in its entirety. Proposed Rule 980NY(e)(7)
would provide that when a COA ends early, or at the end of the RTI, a
COA-eligible order would be executed against contra-side interest
received during the COA as provided for in proposed Rules
980NY(e)(7)(A) and (B), and any unexecuted portion of the COA-eligible
order would be ranked in the Consolidated Book pursuant to proposed
Rule 980NY(b).
Proposed Rule 980NY(e)(7)(A) would provide that RFR
Responses and ECOs priced better than \60\ the initial Complex BBO
would be eligible to trade first with the COA-eligible order, beginning
with the highest (lowest), at each price point, on a Size Pro Rata
basis pursuant to Rule 964NY(b)(3). This proposed rule text is based in
part on current Rule 980NY(e)(6), which provides that COA-eligible
orders would be executed against the best priced contra side interest
(which in this case, would be ECOs and RFR Responses) and current Rule
980NY(e)(6)(C), which provides that ECOs and RFR Responses are
allocated on a Size Pro Rata basis. The Exchange believes this proposed
change streamlines how the allocation process works, and clarifies that
if ECOs and RFR Responses are the best-priced interest, they would
trade with the incoming COA-eligible order on a Size Pro Rata basis.
---------------------------------------------------------------------------
\60\ To qualify as ``better than,'' RFR Responses and ECOs to
buy (sell) would need to be priced higher (lower) than the initial
Complex BBO. See proposed Rule 980NY(e)(7)(A).
---------------------------------------------------------------------------
Proposed Rule 980NY(e)(7)(B) provides that after COA
allocations pursuant to paragraph (e)(7)(A) of this Rule, the COA-
eligible order would trade with the best-priced contra-side interest
pursuant to paragraph (c)(ii) or (iii) above. In other words, once the
COA-eligible order has traded with any ECOs or RFR Responses priced
better than the initial Complex BBO (i.e., any price-improving interest
to arrive during the RTI), the initiating COA-eligible order would
follow regular allocation rules for an incoming marketable ECO. The
Exchange believes this change makes clear that a COA-eligible order
would only trade against the leg markets after any auction allocations
have been made. This rule text is based in part on current Rule
980NY(e)(6)(A), which provides that if the COA-eligible order can be
executed in full (or a permissible ratio) by the orders and quotes in
the Consolidated Book, they will be allocated pursuant to Rule 964NY.
Because this allocation is identical to how a regular marketable ECO
would be allocated, the Exchange believes it would streamline the rule
to provide a cross reference to proposed Rule 980NY(c)(ii) instead of
Rule 964NY.
Commentary .02 to Rule 980NY
Finally, consistent with the foregoing proposed changes regarding
priority of ECOs during Core Trading and during a COA, the Exchange
proposes to modify Commentary .02 to the Rule, which also addresses the
priority of ECOs. The current Commentary .02 provides, in relevant
part, that ``when executing an [ECO] the price of at least one leg of
the order must'' trade at a better price as specified in subparagraphs
(i) and (ii). The Exchange proposes to make clear that requisite price
improvement on at least one leg of the ECO applies ``where all legs
that comprise the complex order contain Customer interest.'' \61\
Similarly,
[[Page 45093]]
the Exchange also proposes to modify sub-paragraph (ii) of Commentary
.02 by replacing ``the'' with ``all'' to clarify that, if the class has
been designated as eligible for COA, an incoming COA-eligible order
must ``trade at a price that is better than the corresponding price of
all customer bids or offers in the Consolidated Book for the same
series, by at least one cent ($.01).'' \62\ The Exchange believes these
changes regarding the priority of ECOs add clarity and internal
consistency to Exchange rules.
---------------------------------------------------------------------------
\61\ See proposed Commentary .02 to Rule 980NY (providing, in
relevant part, that ``when executing an [ECO] where all legs that
comprise the complex order contain Customer interest, the price of
at least one leg of the order must . . .''). The Exchange also
proposes to correct a typo by replacing the semi-colon that appears
at the end of this clause with a colon.
\62\ See proposed Commentary .02(ii) to Rule 980NY; see also
Commentary .02(i) to Rule 980NY (which similarly provides that ECOs
must ``trade at a price that is better than the corresponding price
of all customer bids or offers in the Consolidated Book for the same
series, by at least one standard trading increment as defined in
Rule 960NY'' (emphasis added).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b)(5) of the Securities Exchange Act of 1934 (the ``Act''),\63\ which
requires the rules of an exchange to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest.
---------------------------------------------------------------------------
\63\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
Overall, the Exchange is proposing various changes that would
promote just and equitable principles of trade, because ECOs, including
COA-eligible orders, would be handled in a fair and orderly manner, as
described above. The various modifications and clarifications, many of
which are consistent with current functionality are intended to improve
the rule overall by adding more specificity and transparency. The
Exchange believes that the proposed rule changes would promote just and
equitable principles of trade as well as protect investors and the
public interest by making more clear how ECOs and COA-eligible orders
are handled on the Exchange, both during Core Trading Hours and when
there is a COA in progress. In particular, the proposed changes are
intended to help ensure a fair and orderly market by maintaining price/
priority of incoming ECOs (including COA-eligible orders) and updated
leg markets. Similarly, the proposed changes are designed to promote
just and equitable principles by seeking to execute as much interest as
possible at the best possible price(s).
Execution of ECOs During Core Trading Hours
The Exchange believes that the proposed rule changes regarding Core
Trading Order Allocation, which do not alter the substance of the rule
but instead condense and streamline the rule text, would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because the proposed changes are designed to
protect investors and the public interest by making the Exchange's
rules more clear, concise, transparent and internally consistent, which
enhances the overall comprehensibility to investors without altering
the operation of the rule. Specifically, the Exchange believes that,
although it does not alter the substance of the rule, the proposed rule
text regarding Core Trading Order Allocation provides additional
specificity regarding processing of ECOs against same-priced contra-
side interest and, in particular, under what circumstances the leg
markets would have first priority to execute against an incoming
marketable ECO. The Exchange believes this additional transparency,
which makes the rule clearer and more complete for market participants,
would encourage additional ECOs to be directed to the Exchange.
Proposed Modifications to COA Process
Overall, the Exchange believes that the proposed changes to the COA
Process maximize execution opportunities for the initiating COA-
eligible Order, RFR Responses and ECOs entered during the COA, and the
leg markets at the best possible price consistent with the principles
of price/time priority, which would remove impediments to and perfect
the mechanism of a free and open market and a national market system
because the proposed changes are designed to protect investors and the
public interest.
Execution of COA-Eligible Orders, Initiation of COAs and RFR Responses
In particular, the proposed rule text promotes transparency
regarding the definition of what constitutes a COA-eligible order and
the circumstances under which an arriving COA-eligible order would
receive an immediate execution (i.e., when it can receive price
improvement from resting ECOs) versus being subject to a COA. The
proposed rule text is not intended to change how the Exchange currently
processes ECOs, but rather to provide clarity regarding the processing
of COA-eligible orders and whether such orders are subject to a COA.
Specifically, the proposed changes would help ensure a fair and orderly
market because this information adds clarity and transparency to the
COA process and would allow market participants to be more informed
about the COA process. Moreover, the proposed change maximizes the
opportunities for price improvement for the entire COA-eligible order
as it would first trade against any price-improving interest in the
Consolidated Book, and, if any residual interest remains, the order
would be subject to a COA. Further, the Exchange believes that the
proposed rule text regarding the requisite characteristics and behavior
of an RFR Response adds clarity and transparency to Exchange rules,
including that, like all orders, an RFR Response may be modified or
cancelled prior to the end of the RTI, which promotes just and
equitable principles of trade. In addition, the Exchange believes that
specifying that RFR Reponses are valid for the duration of the COA
would encourage participation in the COA and would maximize the number
of contracts traded, which benefits all market participants and
protects investors and the investing public.
Impact of ECOs, COA-Eligible Orders and Updated Leg Markets on COA in
Progress
Regarding interest that arrives during a COA in progress, the
Exchange believes that the proposed rule text provides clarity
regarding the impact of opposite- and same-side ECOs or COA-eligible
orders on the COA Process, which promotes transparency and adds clarity
to Exchange rules. Moreover, the Exchange notes that because the COA is
intended to operate seamlessly with the Consolidated Book, the proposed
changes would promote just and equitable principles of trade by
providing price-improvement opportunities for COA-eligible orders while
at the same time providing an opportunity for such orders to interact
with orders or quotes received during the RTI, including incoming ECOs.
In addition, the Exchange believes that this practice of honoring the
updated leg markets would help ensure a fair and orderly market by
maintaining the priority of quotes and orders on the Consolidated Book
as they update. The Exchange believes that the proposed changes to the
COA would increase the number of options orders that are provided with
the opportunity to receive price improvement.
The Exchange also believes that the proposed modification regarding
when the balance of an initiating (or incoming) COA-eligible order
would
[[Page 45094]]
initiate a new COA (as opposed to being posted to the Consolidated
Book) is likewise consistent with the Act because it would remove
impediments to and perfect the mechanism of a free and open market and
a national market system clarifying the rule text to the benefit of
market participants, particularly those interested in submitting COA-
eligible orders. In addition, the proposed changes also promote
additional transparency and internal consistency in Exchange rules. The
Exchange believes that, as proposed, COA Order Allocation maximizes
price discovery and liquidity while employing price priority, which
benefits all market participants.
COA Order Allocation
The Exchange believes that the proposed rule changes, which clarify
the priority and order allocation and processing of COA-eligible orders
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because the proposed changes
are designed to protect investors and the public interest by making the
Exchange's rules more clear, concise, transparent and internally
consistent, which enhances the overall comprehensibility to investors
without altering the operation of the rule. For example, the Exchange
believes that the revised rule text describing the execution of COA-
Eligible orders provides clarity regarding the allocation of COA-
eligible orders against any RFR Responses or incoming ECOs and makes
clear that a COA-eligible order would only execute against the leg
markets after any auction allocations have been made. The Exchange also
believes that the proposed changes would conform to the Exchange's
price/time priority model and reduce the potential for investor
confusion.
Non-Substantive Changes
The Exchange believes that the proposed non-substantive, technical
changes, including updated cross references that conform rule text to
proposed changes, promotes just and equitable principles of trade,
fosters cooperation and coordination among persons engaged in
facilitating securities transactions, and removes impediments to and
perfects the mechanism of a free and open market by ensuring that
members, regulators and the public can more easily navigate the
Exchange's rulebook and better understand the defined terms used by the
Exchange.
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. To the contrary, the
Exchange believes that the proposed changes would encourage increased
submission of ECOs, as well as increased participation in COAs, which
will add liquidity to the Exchange to the benefit all market
participants and is therefore pro-competitive. The proposal does not
impose an intra-market burden on competition, because these changes
make the rule clearer and more complete for all participants. Nor does
the proposal impose a burden on competition among the options
exchanges, because of the vigorous competition for order flow among the
options exchanges. To the extent that market participants disagree with
the particular approach taken by the Exchange herein, market
participants can easily and readily direct complex order flow to
competing venues.
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 rule-comments@sec.gov. Please include
File Number SR-NYSEAMER-2017-15 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-2017-15. 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 Web site (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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEAMER-2017-15 and should
be submitted on or before October 18, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\64\
Eduardo A. Aleman,
Assistant Secretary.
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\64\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-20628 Filed 9-26-17; 8:45 am]
BILLING CODE 8011-01-P
