Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Establish an Electronic Price Improvement Auction for Complex Orders, 27061-27068 [2018-12432]
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Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Notices
management fee, for managed accounts
with five or fewer shares.43
Request for Comment
• How are processing fees for Fund
Materials assessed with respect to
managed accounts? Should certain
kinds of accounts, such as separately
managed accounts, where multiple
investors may delegate their investment
decisions to a single investment
manager, be eligible for further different
treatment under the current fee
structure? If so, why and how should
they be treated differently?
• Is the current application of
processing fees for distributions of Fund
Materials to managed account investors
appropriate? Should such distributions
to managed accounts be charged at a
reduced rate as they are in the proxy
distribution context? 44 If so, what rate?
• What services do intermediaries or
fulfillment service providers typically
provide to managed account investors?
daltland on DSKBBV9HB2PROD with NOTICES
F. Other Arrangements Between a Fund
and Intermediary
As discussed above, unlike in the
operating company context, a
‘‘securities intermediary’’ through
which shares are held in street name is
also generally a ‘‘financial
intermediary’’ under Investment
Company Act rule 22c–2. Therefore, a
fund is required to contract with the
financial intermediary to share
information about the submission of
purchase and redemption orders.45 In
some cases, financial intermediaries
may enter into ‘‘sub-transfer agent’’ or
‘‘sub-accounting’’ servicing
arrangements with funds to provide
administrative or shareholder services
to investors whose shares are held in
‘‘omnibus accounts.’’ Many funds also
have ‘‘selling’’ agreements with certain
intermediaries for the distribution of
fund shares.46 An operating company,
43 The preference management fee, which is
otherwise permitted to be up to 32 cents for each
such distribution per ‘‘suppressed’’ account, is 16
cents instead. NYSE rule 451.90(4). The preference
management fee for distributing interim reports,
annual reports mailed separately and other material
is 10 cents irrespective of whether it is being
charged for a regular account or a managed account.
44 See id.
45 See supra note 12. See rule 22c–2 under the
Investment Company Act [17 CFR 270.22c–2]
(permitting certain funds to impose redemption fees
for holders redeeming securities within seven
calendar days after purchase). We understand,
however, that certain funds whose shares are traded
in the secondary market, such as exchange-traded
funds and closed-end funds, may be intermediated
in the same manner as operating companies and
thus do not have the same contractual relationships
with the intermediary that many open-end funds
do.
46 See generally Division of Investment
Management Guidance Update No. 2016–01 (Jan.
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27061
by contrast, may have no direct
relationship with the intermediary.
Some commenters have questioned
whether fund payments under the SRO
rules may be duplicative of payments
made for similar services under
contractual arrangements between a
fund and an intermediary.47
to be considered. In addition to
investors and funds, we welcome
comment from other market participants
and particularly welcome statistical,
empirical, and other data from
commenters that may support their
views or support or refute the views or
issues raised by other commenters.
Request for Comment
• Do funds present facts and
circumstances that merit differentiating
them from other types of issuers as to
appropriate levels of processing fees for
the distribution of Fund Materials to
beneficial owners? How, if at all, are
fund payments to intermediaries
pursuant to plans adopted by funds
pursuant to rule 12b–1 under the
Investment Company Act (‘‘12b–1
plans’’), shareholder service agreements,
or other similar arrangements with
intermediaries relevant considerations
in differentiating Fund Material
distributions from distributions of
operating company materials?
• Does this framework result in
duplicative payments from a fund to an
intermediary for the same services?
Does the presence of any such
arrangement bear on the
appropriateness of the practice of
paying remittances?
• Do operating companies have
arrangements with intermediaries
similar to agreements related to 12b–1
plans?
• How does the presence of subtransfer agent, sub-accounting, or selling
arrangements affect the appropriateness
of the payment of a preference
management fee or notice and access
fees? Are such payments duplicative?
• Would some funds be more
adversely impacted by potential fee
duplication than others?
• Are the costs of distributing
shareholder reports and other materials
to fund investors covered by
administrative services, recordkeeping,
or other similar contractual
arrangements? If the fee schedule did
not apply in such cases, would the costs
of distributing Fund Materials to fund
investors increase or decrease? Why?
By the Commission.
Dated: June 5, 2018.
Brent J. Fields,
Secretary.
IV. General Request for Comment
This request for comment is not
intended to limit the scope of
comments, views, issues, or approaches
2016) (discussing mutual fund distribution and subaccounting fees); rule 12b–1 under the Investment
Company Act [17 CFR 270.12b–1].
47 See, e.g., 2013 ICI Letter, supra note 10
(questioning, ‘‘for example, the extent to which
preference management fees might be duplicative in
light of contractual arrangements between [funds]
and broker-dealers holding street name accounts
that already provide for compensation to the brokerdealer to maintain distribution preferences’’).
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[FR Doc. 2018–12422 Filed 6–8–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83384; File No. SR–
NYSEAMER–2018–05]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, To Establish an
Electronic Price Improvement Auction
for Complex Orders
June 5, 2018.
I. Introduction
On February 15, 2018, NYSE
American LLC (the ‘‘Exchange’’ or
‘‘NYSE American’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
adopt new Exchange Rule 971.2NY to
establish the Complex Customer Best
Execution Auction (‘‘Complex CUBE
Auction’’ or ‘‘Auction’’), a price
improvement auction for Electronic
Complex Orders (referred to herein as
‘‘Complex Orders’’), and to make related
changes to other rules.3 The proposed
rule change was published for comment
in the Federal Register on March 7,
2018.4 On April 18, 2018, pursuant to
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 An Electronic Complex Order is any Complex
Order, as defined in Exchange Rule 900.3NY(e), that
is entered into the Exchange’s electronic order
delivery, execution and reporting System. See
Exchange Rules 980NY and 900.2NY(48). A
Complex Order is ‘‘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.’’ See Exchange Rule 900.3NY(e).
4 See Securities Exchange Act Release No. 82802
(March 2, 2018), 83 FR 9769 (‘‘Notice’’).
2 17
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Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Notices
Section 19(b)(2) of the Act,5 the
Commission extended the time for
Commission action on the proposal
until June 5, 2018.6 The Commission
received no comments regarding the
proposal. On May 15, 2018, the
Exchange filed Amendment No. 1 to the
proposed rule change.7 The Commission
is publishing this notice to solicit
comments on Amendment No. 1 from
interested persons, and is approving the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
I. Description of the Proposal, as
Modified by Amendment No. 1
A. Background
NYSE American currently provides a
CUBE Auction for single-leg option
orders (the ‘‘Single-Leg CUBE’’).8 As
described more fully in the Notice, the
Exchange proposes to adopt new
Exchange Rule 971.2NY, ‘‘Complex
Electronic Cross Transactions,’’ to
establish a Complex CUBE Auction for
Complex Orders that will operate in a
manner that is substantially similar to
the Single-Leg CUBE, with differences
5 15
U.S.C. 78s(b)(2).
Securities Exchange Act Release No. 83061,
83 FR 17869 (April 24, 2018).
7 Amendment No. 1 revises the proposal to: (1)
Add Exchange Rules 971.1NY, Commentary .01,
and 971.2NY, Commentary .03 to specify that a
Single-Leg CUBE Auction for a single series may
occur concurrently with a Complex CUBE Auction
for a Complex Order that includes that series, and
to describe the processing of such concurrent
auctions; (2) add definitions of ‘‘single stop price’’
and ‘‘auto-match limit price,’’ add examples to the
defined terms in proposed Exchange Rule 971.2NY,
Commentary .02, and clarify that in both the SingleLeg and Complex CUBE Auctions, a Contra Order
will trade solely with the CUBE Order; (3) indicate
that after a Complex CUBE Order has been filled,
RFR Responses, including Complex GTX Orders,
may trade with Complex Orders on the same side
of the market as the Complex CUBE Order; (4)
further explain the rationale for not allowing
customer interest on a Contra Order; (5) further
explain the reasons for early Auction terminations
when the same-side CUBE BBO crosses RFR
Responses or a single stop price; (6) provide an
example showing the allocation of a Complex CUBE
Order guaranteed with an auto-match limit price;
(7) modify the description of the proposed changes
to Exchange Rules 980NY(e)(6)(A) and (B); and (8)
provide further support for the Exchange’s
argument that the proposal is consistent with
Section 11(a) of the Act and the rules thereunder.
To promote transparency of its proposed
amendment, when NYSE American filed
Amendment No. 1 with the Commission, it also
submitted Amendment No. 1 as a comment letter
to the file, which the Commission posted on its
website and placed in the public comment file for
SR–NYSEAMER–2018–05 (available at https://
www.sec.gov/comments/sr-nyseamer-2018-05/
nyseamer201805-3649246-162408.pdf). The
Exchange also posted a copy of its Amendment No.
1 on its website (available at https://www.nyse.com/
publicdocs/nyse/markets/nyse-american/rulefilings/filings/2018/NYSEAmer-201805,%20Pt.%20Am.%201.pdf).
8 See Exchange Rule 971.1NY.
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6 See
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to account for the different processing of
and priority rules for Complex Orders.9
NYSE American states that the Complex
CUBE Auction will operate in a manner
consistent with the electronic price
improvement auctions for complex
orders that are available on other
options exchanges.10
B. Initiation of a Complex CUBE
Auction
To initiate a Complex CUBE Auction,
an ATP Holder (the ‘‘Initiating
Participant’’) electronically submits into
the Complex CUBE Auction a Complex
Order that the Initiating Participant
represents as agent on behalf of a public
customer, broker dealer, or other
entity.11 The Initiating Participant
guarantees the execution of the Complex
CUBE Order by submitting a contra-side
order (the ‘‘Complex Contra Order’’)
representing principal interest or nonCustomer interest the Initiating
Participant has solicited to trade solely
with the CUBE Order at either a single
stop price or an auto-match limit price,
as discussed below.12
9 See Notice, 83 FR at 9769. NYSE American
notes that the Complex CUBE Auction follows the
fundamental principles of the Single-Leg CUBE
mechanism but with the priority and allocation
rules used in auctions for Complex Orders. See id.
at 9779 (citing Exchange Rule 980NY(e)).
10 See id. (citing Chicago Board Options
Exchange, Inc. (‘‘CBOE’’) Rule 6.74A; Nasdaq
PHLX, LLC (‘‘Phlx’’) Rule 1087; BOX Options
Exchange LLC (‘‘BOX’’) Rule 7245; Nasdaq ISE, LLC
(‘‘ISE’’) Rule 723; and Miami International
Securities Exchange, LLC (‘‘MIAX’’) Rule 515A,
Interpretation and Policy .12).
11 See proposed Exchange Rule 971.2NY(a). An
‘‘ATP Holder’’ is a natural person, sole
proprietorship, partnership, corporation, limited
liability company or other organization, in good
standing, that has been issued an American Trading
Permit (‘‘ATP’’) issued by the Exchange for effecting
approved securities transactions on the Exchange’s
Trading Facilities. An ATP Holder must be a
registered broker or dealer pursuant to Section 15
of the Act and has status as a ‘‘member’’ of the
Exchange, as defined in Section 3 of the Act. See
Exchange Rules 900.2NY(4) and (5).
12 See proposed Exchange Rule 971.2NY(a)(1).
Requiring the Complex Contra Order to include
only principal interest or non-Customer interest
will preserve the intended allocation methodology
for the Auction. See Amendment No. 1. NYSE
American notes that a Complex Contra Order is
guaranteed to trade with at least 40% of the
Complex CUBE Order if RFR Responses do not
improve the guaranteed price(s). See proposed
Exchange Rules 971.2NY(c)(4)(B)(i)(b) and (ii)(b).
NYSE American also notes that, because Customer
interest on the Exchange is afforded first priority at
a price, allowing Customer interest on the Complex
Contra Order would disrupt the intended allocation
methodology for the Auction because the Complex
Contra Order would be entitled to 100% of the
Complex CUBE Order rather than 40% of the order.
NYSE American further notes that allowing
customer interest on the Complex Contra Order
could reduce competition in the Auction and
undermine its price improvement aim if other
market participants choose not to participate in the
Auction because they believe it is unlikely that they
would receive an allocation in the Auction. See id.
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The Complex CUBE Order must be
priced better than the interest resting on
the Consolidated Book.13 In particular, a
Complex CUBE Order must have a net
debit/credit price that is equal to or
better than the ‘‘CUBE BBO’’ on the
same side of the market as the Complex
CUBE Order (the ‘‘same-side CUBE
BBO’’).14 The CUBE BBO is the more
aggressive of (i) the Complex BBO
improved by $0.01,15 or (ii) the Derived
BBO improved by $0.01 multiplied by
the smallest leg of the complex order
strategy.16 A Complex CUBE Order that
does not meet this requirement will be
rejected, along with the Complex Contra
Order.17 The CUBE BBO may be
updated during the Auction.18 If the
CUBE BBO updates during the Auction
(the ‘‘updated CUBE BBO’’), the range of
permissible executions for the Complex
CUBE Order will adjust in accordance
with the updated CUBE BBO, unless the
NYSE American states that it will file a proposed
rule change if it intends to establish a customer-tocustomer cross mechanism in the future. See id.
The proposal likewise revises the Single-Leg CUBE
rules to indicate that the Contra Order in a SingleLeg CUBE Auction must represent principal or nonCustomer Interest. See Exchange Rule 971.1NY(a)
and Amendment No. 1.
13 See Notice, 83 FR at 9771, and proposed
Exchange Rule 971.2NY(b)(2). The Consolidated
Book (‘‘Book’’) is ‘‘the Exchange’s electronic book
of limit orders for the accounts of Customers and
broker-dealers, and Quotes with Size. All orders
and Quotes with Size that are entered into the Book
will be ranked and maintained in accordance with
the rules of priority as provided in Rule 964NY.’’
See Exchange Rule 900.2NY(14).
14 See proposed Exchange Rule 971.2NY(b)(2).
15 See proposed Exchange Rule 971.2NY(a)(2).
The proposal revises the current definition of
‘‘Complex BBO’’ to define the Complex BBO as the
complex orders with the lowest-priced (i.e., the
most aggressive) net debit/credit price on each side
of the Consolidated Book for the same complex
order strategy. See proposed Exchange Rule
971.2NY(b).
16 The BBO is the best bid or offer in the System.
See Exchange Rule 900.2NY(7)(a). The ‘‘Derived
BBO’’ is calculated using the BBO from the
Consolidated Book for each of the options series
comprising a given complex order strategy. See
proposed Exchange Rule 900.2NY(7)(c). The
definition of Derived BBO, which does not change
the manner in which the Exchange determines what
was formerly referred to as the ‘‘Complex BBO,’’ is
designed to make clear that the Derived BBO is
derived from the BBO of the leg markets. See
Notice, 83 FR at 9771. The proposal makes
conforming amendments to Exchange Rule 980NY
to replace references to the ‘‘Complex BBO’’ with
the ‘‘Derived BBO.’’ See id.
17 See proposed Exchange Rule 971.2NY(b)(2).
NYSE American notes that a Complex CUBE Order
that is not priced equal to or better than the sameside CUBE BBO is not the best-priced interest
available and should not trade ahead of betterpriced interest on the same side of the market. See
Notice, 83 FR at 9773. A Complex CUBE Order and
the Complex Contra Order also will be rejected if
they are submitted before the opening of trading,
during the final second of the trading session in the
component series, or during a trading halt. See
proposed Exchange Rules 971.2NY(b)(3), (4), and
(5).
18 See proposed Exchange Rule 971.2NY(a)(2).
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interest that updated the CUBE BBO
would cause the Auction to conclude
early pursuant to proposed Exchange
Rule 971.2NY(c)(3).19
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C. Auction Process
An Initiating Participant must
guarantee the execution of a Complex
CUBE Order by submitting a Complex
Contra Order with either a single stop
price or an auto-match limit price,
which must be executable against the
initiating price of the Auction.20 If the
single stop price crosses the same-side
CUBE BBO (i.e., would be outside the
range of permissible executions), the
Complex CUBE Order is not eligible to
initiate an Auction and will be rejected
along with the Complex Contra Order.21
A Complex Contra Order with an automatch limit price may trade with the
Complex CUBE Order at prices that are
better than or equal to the initiating
price until trading at the auto-match
limit price.22 If the auto-match limit
price crosses the same-side CUBE BBO,
the Complex Contra Order will be
priced back to lock the same-side CUBE
BBO.23
The time at which the Auction is
initiated will be considered the time of
execution for the Complex CUBE
Order.24 Only one Complex CUBE
Auction may be conducted at a time in
any given complex order strategy and,
once commenced, the Complex CUBE
Order (as well as the Complex Contra
Order) may not be cancelled or
modified. 25
Upon receipt of a Complex CUBE
Order, NYSE American will send a
Request for Responses (‘‘RFR’’)
identifying the complex order strategy,
the side and size of the Complex CUBE
Order, and the initiating price to all
ATP Holders who subscribe to receive
RFR messages.26 ATP Holders may
submit responses to the RFR during the
Response Time Interval, which will last
19 See proposed Exchange Rule 971.2NY(a)(4)(A).
The ‘‘range of permissible executions’’ for a
Complex CUBE Order is all prices equal to or
between the initiating price and the same-side
CUBE BBO. See proposed Exchange Rule
971.2NY(a)(4). The ‘‘initiating price’’ for a Complex
CUBE Order is the less aggressive of the net debit/
credit price of the order or the price that locks the
contra-side CUBE BBO. See proposed Exchange
Rule 971.2NY(a)(3).
20 See proposed Exchange Rules 971.2NY(b)(1)(A)
and (B). A single stop price is the price at which
the Initiating Participant guarantees the Complex
CUBE Order. An auto-match limit price is the most
aggressive price at which the Initiating Participant
is willing to trade with the Complex CUBE Order.
21 See proposed Exchange Rule 971.2NY(b)(1)(A)
and Notice, 83 FR at 9772.
22 See proposed Exchange Rule 971.2NY(b)(1)(B).
23 See id.
24 See proposed Exchange Rule 971.2NY(c).
25 See id.
26 See proposed Exchange Rule 971.2NY(c)(1)(A).
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for a random period of time within
parameters that NYSE American
determines and announces by Trader
Update.27 Any ATP Holder may
respond to the RFR, provided the
response is properly marked specifying
price, size, and side of the market (‘‘RFR
Response’’).28 The Auction will accept
the following RFR Responses: (i) A
Complex GTX Order, defined as an
Electronic Complex Order with a timein-force contingency for the Response
Time Interval, which must specify the
price, size, and side of the market; 29
and (ii) unrelated Complex Orders,
including Complex Order Auction
(‘‘COA’’)-eligible orders, on the opposite
side of the market as the Complex CUBE
Order that are received during the
Response Time Interval, provided the
unrelated orders can participate within
the range of permissible executions
specified pursuant to proposed
Exchange Rule 971.2NY(a)(4).30 NYSE
American believes that considering
unrelated Complex Orders to be RFR
Reponses would increase the number of
orders against which the Complex CUBE
Order could execute and thus should
maximize price improvement
opportunities for the Complex CUBE
Order.31
27 See proposed Exchange Rule 971.2NY(c)(1)(B).
The minimum/maximum parameters for the
Response Time Interval will be no less than 100
milliseconds and no more than one second. See id.
The proposed Response Time Interval provisions
are the same as the Response Time Interval
provisions for the Single-Leg CUBE Auction. See
Exchange Rule 971.1NY(c)(2)(B).
28 See proposed Exchange Rule 971.2NY(c)(1)(C).
29 A Complex GTX Order will not be displayed
on the Consolidated Book or disseminated to any
participants, and a Complex GTX Order that is not
fully executed will be cancelled at the conclusion
of the Auction. Complex GTX Orders with a size
greater than the size of the Complex CUBE Order
will be capped at the size of the Complex CUBE
Order. Complex GTX Orders may be cancelled or
modified, and a Complex GTX Order on the same
side of the market as the CUBE Order will be
rejected. See proposed Exchange Rule
971.2NY(c)(1)(C)(i). NYSE American notes that
because Complex GTX Orders can only trade
against a Complex CUBE Order or an unrelated
order on the same side as the Complex CUBE Order,
same-side Complex GTX Orders are unnecessary to
the Complex CUBE Auction. See Notice, 83 FR at
9774.
30 See proposed Exchange Rule
971.2NY(c)(1)(C)(ii).
31 See Notice, 83 FR at 9775. NYSE American
notes that quotes and orders in the leg markets for
a complex strategy underlying a Complex CUBE
Order will not be eligible to participate in the
Auction, although updates to the leg markets may
cause an Auction to conclude early to preserve the
priority of interest at that price. NYSE American
states that limiting participation in the Complex
CUBE Auction to Complex Orders, but allowing
certain updates to the leg markets to cause an
Auction to conclude early, is consistent with the
manner in which the Exchange treats interest in the
COA process, as described in Exchange Rule
980NY(e)(7)(B). See id.
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27063
D. Early Termination of a Complex
CUBE Auction
An Auction will conclude at the end
of the Response Time Interval unless
there is a trading halt in any component
series of the Complex CUBE Order or an
early conclusion event, as provided in
proposed Exchange Rule
971.2NY(c)(3).32 NYSE American states
that ending the Auction early, as
provided in proposed Exchange Rule
971.2NY(c)(3), will preserve the priority
of incoming interest and allow a
Complex CUBE Auction to operate
seamlessly with the Consolidated
Book.33 Proposed Exchange Rule
971.2NY(c)(3) provides that an Auction
will conclude early if, during the
Response Time Interval:
(A) The Exchange receives a new
Complex CUBE Order in the same
complex order strategy that meets the
conditions of proposed Exchange Rule
971.2NY(b);
(B) the Exchange receives interest that
adjusts the same-side CUBE BBO to be
better than the initiating price;
(C) the Exchange receives interest that
adjusts the same-side CUBE BBO to
cross any RFR Response(s);
(D) the Exchange receives interest that
adjusts the same-side CUBE BBO to
cross the single stop price specified by
the Initiating Participant;
(E) the Exchange receives interest that
crosses the same-side CUBE BBO; or
(F) the Exchange receives interest in
the leg market that causes the contraside CUBE BBO to be better than the
stop price or auto-match limit price.
E. Allocations at the Conclusion of a
Complex CUBE Auction
Proposed Exchange Rule
971.2NY(c)(4) describes the allocation of
trading interest at the conclusion of an
Auction. NYSE American notes that if
RFR Responses can fill the Complex
CUBE Order at a price or prices better
than the stopped price or auto-match
limit price, the Complex CUBE Order
will be matched against the betterpriced RFR Responses to provide the
Complex CUBE Order the maximum
amount of price improvement
possible.34 If there are no RFR
Responses, a Complex Contra Order
with a single stop price will execute
against the Complex CUBE Order at the
stop price, and a Complex Contra Order
with an auto-match limit price will
execute against the Complex CUBE
Order at the initiating price.35 If there
32 See
proposed Exchange Rule 971.2NY(c)(2).
Notice, 83 FR at 9776.
34 See id.
35 See proposed Exchange Rules
971.2NY(c)(4)(B)(i)(c) and (ii)(c).
33 See
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are RFR Responses, any Customer
orders that arrive during an Auction as
RFR Responses will have first priority to
execute at each price level, and they
will be allocated on a size pro rata basis
pursuant to Exchange Rule
964NY(b)(3).36 After Customer interest
at a price level has been satisfied, any
remaining size of a Complex CUBE
Order will be allocated first to RFR
Responses within the permissible range
of executions that are priced better than
the stop price or the auto-match limit
price, as applicable.37 The allocation of
any remaining size of the Complex
CUBE Order varies, depending on
whether the Complex Contra Order has
a single stop price 38 or an auto-match
limit price.39
36 See proposed Exchange Rule 971.2NY(c)(4)(A).
Any RFR Response that exceeds the size of the
Complex CUBE Order will be capped at the
Complex CUBE Order size for purposes of size pro
rata allocation of the Complex CUBE Order. See
proposed Exchange Rule 971.2NY(c)(4). In addition,
a single RFR Response will not be allocated a
volume that is greater than its size. See proposed
Exchange Rule 971.2NY(c)(4)(C).
37 See proposed Exchange Rules
971.2NY(c)(4)(B)(i)(a) and (ii)(a). The Complex
CUBE Order will be allocated among RFR
Responses pursuant to the size pro rata algorithm
in Exchange Rule 964NY(b)(3) at each price point.
See id.
38 For a Complex Contra Order with a single stop
price, the remaining size of the Complex CUBE
Order will execute at the stop price, and the
Complex Contra Order will receive an allocation of
the greater of 40% of the original Complex CUBE
Order size or one contract, or the greater of 50% of
the original Complex CUBE Order size or one
contract if there is only one RFR Response. Any
remaining size of the Complex CUBE Order at the
stop price will be allocated among the remaining
RFR Responses on a size pro rata basis pursuant to
Exchange Rule 964NY(b)(3). If all RFR Responses
are filled, any remaining size of the Complex CUBE
Order will be allocated to the Complex Contra
Order. See proposed Exchange Rule
971.2NY(c)(4)(B)(i)(b).
39 For a Complex Contra Order with an automatch limit price, the remaining size of the
Complex CUBE Order will execute at the Complex
Contra Order’s auto-match limit price and, if
volume remains, at prices worse than the automatch limit price. At each price point equal to or
worse than the auto-match limit price, the Complex
Contra Order will receive an allocation equal to the
aggregate size of all other RFR Responses starting
with the best price at which an execution against
an RFR Response occurs within the range of
permissible executions until a price point is
reached where the balance of the CUBE Order can
be fully executed (the ‘‘clean-up price’’). At the
clean-up price, if there is sufficient size of the
Complex CUBE Order still available after executing
at better prices or against Customer interest, the
Complex Contra Order will be allocated additional
volume required to achieve an allocation of the
greater of 40% of the original Complex CUBE Order
size or one contract or the greater of 50% of the
original Complex CUBE Order size or one contract
if there is only one RFR Response. If the Complex
Contra Order meets its allocation guarantee at a
price better than the clean-up price, it will cease
matching RFR Responses that may be priced worse
than the price at which the Complex Contra Order
received its allocation guarantee. If there are other
RFR Responses at the clean-up price, the remaining
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F. Concurrent Single-Leg and Complex
CUBE Auctions
Although there will be only one
Complex CUBE Auction at a time for a
particular Complex Order strategy, a
Single-Leg CUBE Auction for a series
may occur concurrently with a Complex
CUBE Auction for a strategy that
includes that series, as provided in
proposed Exchange Rules 971.1NY,
Commentary .01, and 971.2NY,
Commentary .03.40 Thus, the Exchange
will accept orders designated for the
CUBE on a single option series when a
Complex CUBE Auction in a Complex
Order strategy that includes that series
is in progress.41 The Exchange will also
accept Complex Orders designated for
the Complex CUBE Auction when a
Single-Leg CUBE Auction in any of the
component series is in progress.42 The
Exchange believes that providing for
these concurrent auctions could reduce
the potential for an Auction to be
terminated early by other incoming
orders designated for CUBE in the same
single options series and that this could,
in turn, reduce order cancelations.43
G. Conduct Inconsistent With Just and
Equitable Principles of Trade
NYSE American also proposes to
adopt rules identifying conduct that
would be considered inconsistent with
just and equitable principles of trade
with respect to a Complex CUBE
Auction to discourage ATP Holders
from attempting to misuse or
manipulate the Auction process.44
size of the Complex CUBE Order will be allocated
to such interest pursuant to the size pro rata
algorithm set forth in Rule 964NY(b)(3). Any
remaining portion of the Complex CUBE Order will
be allocated to the Complex Contra Order at the
initiating price. See proposed Exchange Rule
971.2NY(c)(4)(B)(ii)(b).
40 The proposed rules indicate that to the extent
that Single-Leg and Complex CUBE Auctions
involving the same option series occur
concurrently, each CUBE Auction will be processed
sequentially based on the time each CUBE Auction
commenced. At the time each CUBE Auction
concludes, including when it concludes early, it
will be processed pursuant to Exchange Rule
971.1NY(c)(5) or proposed Exchange Rule
971.2NY(c)(4), as applicable. See proposed
Exchange Rules 971.1NY, Commentary .01, and
971.2NY, Commentary .03.
41 See Notice, 83 FR at 9780.
42 See id.
43 See Amendment No. 1.
44 See proposed Exchange Rule 971.2NY,
Commentary .01, and Notice, 83 FR at 9777.
Proposed Exchange Rule 971.2NY, Commentary .01
provides that the following conduct would be
inconsistent with just and equitable principles of
trade: (a) An ATP Holder entering RFR Responses
to an Auction for which the ATP Holder is the
Initiating Participant; (b) engaging in a pattern and
practice of trading or quoting activity for the
purpose of causing an Auction to conclude before
the end of the Response Time Interval; (c) an
Initiating Participant that breaks up an agency order
into separate Complex CUBE Orders for the purpose
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Sfmt 4703
NYSE American notes that proposed
Exchange Rule 971.2NY, Commentary
.01 is based on Exchange Rule 971.1NY,
Commentary, 02 relating to the SingleLeg CUBE, and is consistent with the
rules of other options exchanges that
offer electronic price improvement
auction mechanisms.45
H. Order Exposure Requirements
Current Exchange Rule 935NY
prohibits Users 46 from executing as
principal any orders they represent as
agent unless (i) agency orders are first
exposed on the Exchange for at least one
second; (ii) the User has been bidding or
offering on the Exchange for at least one
second prior to receiving an agency
order that is executable against such bid
or offer; (iii) the User utilizes the SingleLeg CUBE Auction pursuant to
Exchange Rule 971.1.NY; or (iv) the
User utilizes the COA auction process
pursuant to Exchange Rule 980NY(e).
NYSE American proposes to amend
Exchange Rule 935NY to provide that a
User may execute as principal an order
that the User represents as agent,
provided that the User utilizes the
Complex CUBE Auction process. Such a
Complex CUBE Order would not be
subject to the one-second order
exposure requirement of Exchange Rule
935NY.47 NYSE American believes that
the proposed Response Time Interval,
with a random length of no less than
100 milliseconds and no greater than
one second (as determined and
announced by the Exchange), is of
sufficient length to permit ATP Holders
time to respond to a Complex CUBE
Auction, thereby enhancing
opportunities for competition among
participants and increasing the
likelihood of price improvement for the
Complex CUBE Order.48
I. Changes to the Single-Leg CUBE
Auction and COA Rules
The proposal revises the title of
Exchange Rule 971.1NY to ‘‘Single-Leg
of gaining a higher allocation percentage than the
Initiating Participant would have otherwise
received in accordance with the allocation
procedures contained in proposed Exchange Rule
971.2NY(c)(5); and (d) engaging in a pattern and
practice of sending multiple RFR Responses at the
same price that in the aggregate exceed the size of
the Complex CUBE Order.
45 See id. at 9777 n.47 (citing PHLX Rule 1087(c)–
(e); ISE Rule 723, Supplementary Material .01; and
BOX Rule 7150, IM–7150–2(a) and (b)). NYSE
American also proposes to correct a typographical
error in Exchange Rule 971.1NY, Commentary .02,
by adding the word ‘‘of’’ to the rule text, which was
inadvertently omitted.
46 A User is any ATP Holder that is authorized
to obtain access to the System. See Exchange Rule
900.2NY(87).
47 See Notice, 83 FR at 9778.
48 See id.
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Electronic Cross Transactions,’’ to
distinguish Exchange Rule 971.1NY
from proposed Exchange Rule 971.2NY,
‘‘Complex Electronic Cross
Transactions.’’ The proposal revises also
revises Exchange Rule 971.1NY to
indicate, as discussed above, that an
Initiating Participant that solicits
interest to trade with a Single-Leg CUBE
Order may solicit only non-Customer
interest to be the Contra Order.49 In
addition, the proposal amends Exchange
Rule 971.1NY to clarify that the Contra
Order will trade solely with the CUBE
Order and to indicate that a CUBE Order
and Contra Order submitted during a
trading halt will be rejected.50 The
proposal revises the auto-match
provisions in Exchange Rule
971.1NY(c)(1)(C) to indicate that the
auto-match limit price for a CUBE Order
that is outside of the range of
permissible executions may be repriced
so that it is within the range of
permissible executions.51 The proposal
modifies Exchange Rule
971.1NY(c)(2)(i)(d) to indicate that a
GTX Order may be modified, as well as
cancelled. Finally, as discussed above,
the proposal adds new Commentary .01
to Exchange Rule 971.1NY, which
addresses concurrent CUBE Auctions
for a single option series and for a
Complex Order that includes that series.
The proposal also amends Exchange
Rule 980NY(e)(6)(A) and (B) to indicate
that incoming Complex CUBE Orders
are among the incoming Complex
Orders that could cause a COA Auction
to end early.52 The Exchange notes that
this is consistent with the principle that
the Exchange will conduct only one
49 See Exchange Rule 971.1NY(a). Alternatively,
the Contra Order may represent principal interest.
50 See Exchange Rule 971.1NY(a) and proposed
Exchange Rule 971.1NY(b)(10).
51 In particular, NYSE American proposes to
specify in Exchange Rule 971.1NY(c)(1)(C) that it
would adjust the auto-match limit price to within
the range of permissible executions by adding a
new sentence stating that: ‘‘An auto-match limit
price specified for a CUBE Order to buy (sell) that
is below (above) the lower (upper) bound of the
range of permissible executions will be repriced to
the lower (upper) bound.’’ See Notice, 83 FR at
9773.
52 Exchange Rule 980NY(e)(6)(A)(i), as amended
by the current proposal, will provide that an
incoming Complex Order, including an incoming
Complex CUBE Order, or a COA-eligible order on
the opposite side of the market as the initiating
COA-eligible order, that locks or crosses the initial
Derived BBO will cause the COA to end early.
Exchange Rule 980NY(e)(6)(B)(i), as amended by
the current proposal, will provide that an incoming
Complex Order, including a Complex CUBE Order,
or COA-eligible order that is priced equal to or
lower (higher) than the initiating COA-eligible order
to buy (sell), and also locks or crosses the contraside initial Derived BBO, will cause the COA to end
early. As noted above, the proposal also revises
Exchange Rule 980NY(e)(6) to replace references to
the ‘‘Complex BBO’’ with references to the ‘‘Derived
BBO.’’
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auction in a given Complex Order
strategy at a time, as provided in
proposed Exchange Rule 971.2NY(c)
and Exchange Rule 980NY(e)(3).53
J. Additional Changes
The proposal revises the definition of
‘‘Professional Customer’’ in Exchange
Rule 900.2NY(18A) to add the Complex
CUBE Auction provisions in proposed
Exchange Rule 971.2NY to the existing
list of Exchange rules for which a
Professional Customer will be treated in
the same manner as a Broker/Dealer (or
non-Customer) in securities. NYSE
American notes that this is consistent
with the treatment of Professional
Customer Orders in the Single-Leg
CUBE Auction.54 NYSE American also
proposes to add Commentary .02 to
proposed Exchange Rule 971.2NY to
further explain the defined terms used
in proposed Rule 971.2NY.55 NYSE
American believes that these definitions
will help to clarify how the Auction will
operate.56
K. Implementation
NYSE American will announce the
implementation date of the proposed
rule change in a Trader Update to be
published no later than 60 days
following Commission approval of the
proposal.57 The implementation date
would be no later than 60 days
following publication of the Trader
Update announcing Commission
approval.58 The Exchange believes that
this implementation schedule will
provide ATP Holders with adequate
notice of the Complex CUBE Auction
and allow time for ATP Holders that
intend to participate in Complex CUBE
Auctions to prepare their systems for
participation in the Auctions.59
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 1, is
53 See
Amendment No. 1.
Notice, 83 FR at 9780, and Exchange Rule
900.2NY(18A).
55 Proposed Exchange Rule 971.2NY,
Commentary .02 provides definitions and examples
of ‘‘better-priced’’ and ‘‘more aggressive’’ interest,
and ‘‘worse-priced’’ and ‘‘less aggressive’’ interest;
interest that ‘‘improves the BBO;’’ interest that
‘‘locks’’ contra-side interest; interest that ‘‘crosses’’
contra-side interest; and ‘‘executable’’ interest. The
Exchange notes that the definitions use the term
‘‘interest’’ because they apply to any interest that
could interact with a Complex Order, including
quotes and orders in the leg markets that comprise
the complex order strategy. See Notice, 83 FR at
9771.
56 See id.
57 See id. at 9779.
58 See id.
59 See id.
54 See
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27065
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.60 In particular, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with Section 6(b)(5)
of the Act,61 which requires, among
other things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest; and
not be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Commission notes that NYSE
American’s Complex CUBE Auction
mechanism is similar to rules on other
options exchanges that permit the entry
of complex orders into an electronic
price improvement auction
mechanism.62 In addition, NYSE
American states that the Complex CUBE
Auction will operate in a manner that is
substantially similar to the Single-Leg
CUBE Auction, with differences to
account for the different processing of
and priority rules for Complex Orders.63
The Commission believes that allowing
ATP Holders to enter orders into the
Complex CUBE Auction mechanism
may provide additional opportunities
for Complex Orders to receive price
improvement.
The Commission notes that Initiating
Participant must enter a Complex CUBE
Order with a net debit/credit price that
is equal to or better than the same-side
CUBE BBO (i.e., the more aggressive of
the Complex BBO improved by $0.01 or
the Derived BBO improved by $0.01
multiplied by the smallest leg of the
complex order strategy), and that the
Initiating Participant must submit a
Complex Contra Order for the full size
of the Complex CUBE Order.64 Once the
Complex CUBE Auction begins, the
Complex CUBE Order and the Complex
60 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
61 15 U.S.C. 78f(b)(5).
62 See, e.g., Phlx Rule 1080(n); MIAX Rule 515A,
Interpretation and Policy .12(a); CBOE Rule 6.74A;
BOX Rule 7245; and ISE Rule 723, Supplementary
Material .09.
63 See Notice, 83 FR at 9769.
64 See proposed Exchange Rules 971.2NY(b)(2)
and (a)(1).
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Contra Order may not be cancelled or
modified.65 Therefore, a Complex CUBE
Order submitted to the Complex CUBE
Auction will be guaranteed price
improvement over the Complex BBO or
the Derived BBO at the time the
Complex CUBE Order was entered into
the System, and will be given an
opportunity for further price
improvement by being exposed to ATP
Holders during the Complex CUBE
Auction.
IV. Section 11(a) of the Act
Section 11(a)(1) of the Act 66 prohibits
a member of a national securities
exchange from effecting transactions on
that exchange for its own account, the
account of an associated person, or an
account over which it or its associated
person exercises discretion (collectively,
‘‘covered accounts’’), unless an
exception applies. Section 11(a)(1) and
the rules thereunder contain a number
of exceptions for principal transactions
by members and their associated
persons, including the exceptions set
forth in Rule 11a2–2(T) under the Act.67
The Exchange has represented that it
has analyzed its rule proposed
hereunder, and believes that they are
consistent with the requirements of
Section 11(a) of the Act and rules
thereunder.68 For the reason set forth
below, the Commission believes that the
proposed Complex CUBE Auction rules
are consistent with the requirements of
Section 11(a) of the Act and the rules
thereunder.
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A. Rule 11a2–2(T) Under the Act
(‘‘Effect Versus Execute’’ Rule)
Rule 11a2–2(T) under the Act,69
known as the ‘‘effect versus execute’’
rule, provides exchange members with
an exception from the Section 11(a)(1)
prohibition. Rule 11a2–2(T) permits an
exchange member, subject to certain
conditions, to effect transactions for
covered accounts by arranging for an
unaffiliated member to execute the
transactions on the exchange. To
comply with the conditions of Rule
11a2–2(T), a member: (1) May not be
affiliated with the executing member;
(2) must transmit the order from off the
exchange floor; (3) may not participate
in the execution of the transaction once
it has been transmitted to the member
performing the execution; 70 and (4)
65 See
proposed Exchange Rule 971.2NY(c).
U.S.C. 78k(a)(1).
67 17 CFR 240.11a2–2(T).
68 See Notice, 83 FR at 9778–79, and Amendment
No. 1.
69 Id.
70 The member may, however, participate in
clearing and settling the transaction. See Securities
Exchange Act Release No. 14563 (March 14, 1978),
66 15
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with respect to an account over which
the member has investment discretion,
neither the member nor its associated
person may retain any compensation in
connection with effecting the
transaction except as provided in the
Rule. The Exchange believes that orders
sent by off-floor ATP Holders, for
covered accounts, to the proposed
Complex CUBE Auction would qualify
for this ‘‘effect versus execute’’
exception.71
Rule 11a2–2(T) requires that the order
be executed by an exchange member
who is unaffiliated with the member
initiating the order. The Commission
has stated that the requirement is
satisfied when automated exchange
facilities, such as the Exchange’s
Complex CUBE Auction, are used, as
long as the design of these systems
ensures that members do not possess
any special or unique trading
advantages in handling their orders after
transmitting them to the Exchange.72
The Exchange represents that the design
of the Complex CUBE Auction ensures
that ATP Holders do not have any
special or unique trading advantages in
the handling of their orders after
transmission.73 Based on the Exchange’s
representations, the Commission
believes that the Complex CUBE
Auction’s rules satisfy this requirement.
Second, Rule 11a2–2(T) requires
orders for covered accounts be
transmitted from off the exchange floor.
The Exchange represents that orders for
covered accounts sent to the Complex
CUBE Auction from off-floor ATP
Holders will be transmitted from remote
terminals directly to the Complex CUBE
Auction by electronic means.74 In the
context of other automated trading
systems, the Commission has found that
43 FR 11542 (March 17, 1978) (regarding the
Designated Order Turnaround System of the New
York Stock Exchange (‘‘1978 Release’’)).
71 See Notice, 83 FR at 9778.
72 In considering the operation of automated
execution systems operated by an exchange, the
Commission has noted that, while there is no
independent executing exchange member, the
execution of an order is automatic once it has been
transmitted into each system. Because the design of
these systems ensures that members do not possess
any special or unique trading advantages in
handling their orders after transmitting them to the
exchange, the Commission has stated that
executions obtained through these systems satisfy
the independent execution requirement of Rule
11a2–2(T). See Securities Exchange Act Release No.
15533 (January 29, 1979), 44 FR 6084 (January 31,
1979) (regarding the American Stock Exchange’s
Post Execution Reporting System and Switching
System, the Intermarket Trading System, the
Multiple Dealer Trading Facility of the Cincinnati
Stock Exchange, the PCX Communications and
Execution System, and the Philadelphia Stock
Exchange Automated Communications and
Execution System (‘‘1979 Release’’)).
73 See Notice, 83 FR at 9779.
74 See id. at 9778.
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the off-floor transmission requirement is
met if a covered account order is
transmitted from a remote location
directly to an exchange’s floor by
electronic means.75 With respect to such
orders transmitted electronically from
remote terminals directly to the
Complex CUBE Auction, the
Commission believes that the Complex
CUBE Auction’s rules satisfy the offfloor transmission requirement.76 The
Commission believes that, based on the
foregoing, the proposal satisfies the offfloor transmission requirement for the
purposes of ‘‘effect versus execute’’ rule.
Third, Rule 11a2–2(T) requires that
the member not participate in the
execution of its order once it has been
transmitted to the member performing
the execution. The Exchange represents
that, upon submission to the Complex
CUBE Auction, an order will be
executed automatically pursuant to the
proposed rules set forth for the
Auction.77 The Exchange states that, in
particular, execution of an order sent to
the Auction depends not on the ATP
Holder entering the order, but rather on
what other orders are present and the
priority of those orders. Thus, at no time
following the submission of an order is
an ATP Holder able to acquire control
or influence over the result or timing of
order execution.78 Accordingly, the
Commission believes that an ATP
Holder does not participate in the
execution of an order submitted into the
75 See, e.g., Securities Exchange Act Release Nos.
59154 (December 23, 2008), 73 FR 80468 (December
31, 2008) (SR–BSE–2008–48) (approving, among
other things, the equity rules of the Boston Stock
Exchange (‘‘BSE’’)); 57478 (March 12, 2008), 73 FR
14521 (March 18, 2008) (SR–NASDAQ–2007–004
and SR–NASDAQ–2007–080) (approving rules
governing the trading of options on The NASDAQ
Options Market); 49068 (January 13, 2004), 69 FR
2775 (January 20, 2004) (SR–BSE–2002–15)
(approving the Boston Options Exchange as an
options trading facility of BSE); the 1979 Release;
and the 1978 Release.
76 The Exchange further represents that there may
be instances of orders for a covered account that
may be sent by an off-floor ATP Holder to an
unaffiliated Floor Broker for entry into the Complex
CUBE Auction mechanism. The Exchange
represents that at the current time, Exchangesponsored Floor Broker systems are not enabled to
accept orders into the Complex CUBE Auction
mechanism from Floor Brokers. The Exchange
further represents that, if a Floor Broker were to
gain access to the Complex CUBE Auction
mechanism via a third-party system, that Floor
Broker may not rely on any exceptions found in
Section 11(a) of the Act or rules thereunder to enter
orders for their own covered accounts into the
Auction mechanism from on the floor, or transmit
such orders from on the floor to off of the floor for
entry into the Complex CUBE Auction mechanism.
See Amendment No. 1.
77 See Notice, 83 FR at 9778–79.
78 See Notice, 83 FR at 9779. The Exchange notes
that the Initiating Participant may not cancel or
modify a Complex CUBE Order once a Complex
CUBE Auction has started. See id. at 9779 n.60 and
proposed Exchange Rule 971.2NY(c).
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Complex CUBE Auction. Based on the
Exchange’s representations, the
Commission believes that the proposal
satisfies the non-participation
requirement of Rule 11a2–2(T).
Fourth, in the case of a transaction
effected for an account with respect to
which the initiating member or an
associated person thereof exercises
investment discretion, neither the
initiating member nor any associated
person thereof may retain any
compensation in connection with
effecting the transaction, unless the
person authorized to transact business
for the account has expressly provided
otherwise by written contract referring
to Section 11(a) of the Act and Rule
11a2–2(T).79 The Commission notes that
ATP Holders trading for covered
accounts over which they exercise
investment discretion must comply with
this condition in order to rely on the
rule’s exemption.
V. Solicitation of Comments on
Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning whether
Amendment No. 1 is consistent with the
Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEAMER–2018–05 on the subject
line.
Paper Comments
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• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEAMER–2018–05. This
file number should be included on the
subject line if email is used. To help the
79 17 CFR 240.11a2–2(T)(a)(2)(iv). In addition,
Rule 11a2–2(T)(d) requires a member or associated
person authorized by written contract to retain
compensation, in connection with effecting
transactions for covered accounts over which such
member or associated person thereof exercises
investment discretion, to furnish at least annually
to the person authorized to transact business for the
account a statement setting forth the total amount
of compensation retained by the member in
connection with effecting transactions for the
account during the period covered by the statement.
See 17 CFR 240.11a2–2(T)(d). See also 1978 Release
(stating ‘‘[t]he contractual and disclosure
requirements are designed to assure that accounts
electing to permit transaction-related compensation
do so only after deciding that such arrangements are
suitable to their interests’’).
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Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEAMER–2018–05, and
should be submitted on or before July 2,
2018.
VI. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 1 in the Federal
Register. As discussed above,
Amendment No. 1 revises the proposal
to: (1) Add Exchange Rules 971.1NY,
Commentary .01, and 971.2NY,
Commentary .03 to specify that a SingleLeg CUBE Auction for a single series
may occur concurrently with a Complex
CUBE Auction for a Complex Order that
includes that series, and to describe the
processing of such concurrent auctions;
(2) add definitions of ‘‘single stop price’’
and ‘‘auto-match limit price,’’ add
examples to the defined terms in
proposed Exchange Rule 971.2NY,
Commentary .02, and clarify that in both
the Single-Leg and Complex CUBE
Auctions, a Contra Order will trade
solely with the CUBE Order; (3) indicate
that after the Complex CUBE Order has
been filled, RFR Responses, including
Complex GTX Orders, may trade with
Complex Orders on the same side of the
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
27067
market as the Complex CUBE Order; (4)
further explain the rationale for not
allowing customer interest on a Contra
Order; (5) further explain the reasons for
early Auction terminations when the
same-side CUBE BBO crosses RFR
Responses or a single stop price; (6)
provide an example showing the
allocation of a Complex CUBE Order
guaranteed with an auto-match limit
price; (7) modify the description of the
proposed changes to Exchange Rules
980NY(e)(6)(A) and (B); and (8) provide
further support for the Exchange’s
argument that the proposal is consistent
with Section 11(a) of the Act and the
rules thereunder.
With respect to the processing of
Single-Leg and Complex CUBE
Auctions, NYSE American believes that
the new rule language describing the
sequential processing of these auctions
is consistent with the handling by Cboe
EDGX Exchange, Inc. (‘‘EDGX’’) of
orders executed in concurrent complex
order auctions (‘‘COAs’’) involving the
same complex order strategy.80 Thus,
NYSE American believes that its
proposed rules describing the
processing of Single-Leg and Complex
CUBE Auctions do not raise new or
novel regulatory issues.81 NYSE
American also notes that none of the
proposed changes that provide
additional details regarding the
operation of the Single-Leg and
Complex CUBE Auctions alter the
functionality of the proposed Complex
CUBE mechanism (or Single-Leg CUBE),
as described in the original filing, but
rather, provide additional details
regarding the operation of the
Auctions.82 In addition, the
Commission believes that Amendment
No. 1 provides additional clarity in the
rule text and additional analysis of
several aspects of the proposal, thus
facilitating the Commission’s ability to
make the findings set forth above to
approve the proposal. For these reasons,
the Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,83 to approve the proposed rule
change, as modified by Amendment No.
1, on an accelerated basis.
80 See Amendment No. 1. See also EDGX Rule
21.20, Interpretation and Policy .02. Although the
EDGX COA Auction is distinct from the CUBE
Auctions in that the EDGX COA Auction is not an
auction of paired orders, NYSE American believes
that its proposed rules describing the sequential
processing of Single-Leg and Complex CUBE
Auctions are consistent with the sequential
processing of COAs described in EDGX’s rules. See
Amendment No. 1.
81 See id.
82 See id.
83 15 U.S.C. 78s(b)(2).
E:\FR\FM\11JNN1.SGM
11JNN1
27068
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Notices
VII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,84 that the
proposed rule change (SR–NYSEAMER–
2018–05), as modified by Amendment
No. 1, is approved on an accelerated
basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.85
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–12432 Filed 6–8–18; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 10440]
U.S. National Commission for UNESCO
Notice of Teleconference Meeting
The U.S. National Commission for
UNESCO will hold a conference call on
Thursday, June 28, 2018, from 11:00
a.m. until 12:00 p.m. Eastern Daylight
Time. This will be a teleconference
meeting to consider the
recommendations of the Commission’s
National Committee for the
Intergovernmental Oceanographic
Commission (IOC). The Commission
will accept brief oral comments during
a portion of this conference call. The
public comment period will be limited
to approximately 10 minutes in total,
with two minutes allowed per speaker.
For more information, or to arrange to
participate in the conference call,
individuals must make arrangements
with the Executive Director of the
National Commission by June 26, 2018.
The National Commission may be
contacted via email at DCUNESCO@
state.gov.
DEPARTMENT OF STATE
daltland on DSKBBV9HB2PROD with NOTICES
[Public Notice: 10439]
Notice of Determinations; Culturally
Significant Objects Imported for
Exhibition Determinations: ‘‘The
History of the Bible—in the Beginning’’
Exhibition
Notice is hereby given of the
following determinations: I hereby
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
19:19 Jun 08, 2018
Jkt 244001
BILLING CODE 4710–05–P
Delegation by the Secretary of State to
the Under Secretary for Political Affairs
of Authorities Regarding
Congressional Reporting
BILLING CODE 4710–19–P
85 17
[FR Doc. 2018–12491 Filed 6–8–18; 8:45 am]
[Delegation of Authority No. 280–2]
[FR Doc. 2018–12504 Filed 6–8–18; 8:45 am]
84 Id.
Marie Therese Porter Royce,
Assistant Secretary for Educational and
Cultural Affairs, Department of State.
DEPARTMENT OF STATE
Paul T. Mungai,
Acting Executive Director, U.S. National
Commission for UNESCO, Department of
State.
SUMMARY:
determine that certain objects to be
included in the exhibition ‘‘The History
of the Bible—in the Beginning,’’
imported from abroad for temporary
exhibition within the United States, are
of cultural significance. The objects are
imported pursuant to a loan agreement
with the foreign owner or custodian. I
also determine that the exhibition or
display of the exhibit objects at the
Museum of the Bible, Washington,
District of Columbia, from on or about
June 20, 2018, until on or about June 1,
2019, and at possible additional
exhibitions or venues yet to be
determined, is in the national interest.
I have ordered that Public Notice of
these determinations be published in
the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Elliot Chiu, Attorney-Adviser, Office of
the Legal Adviser, U.S. Department of
State (telephone: 202–632–6471; email:
section2459@state.gov). The mailing
address is U.S. Department of State, L/
PD, SA–5, Suite 5H03, Washington, DC
20522–0505.
SUPPLEMENTARY INFORMATION: The
foregoing determinations were made
pursuant to the authority vested in me
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), E.O. 12047 of
March 27, 1978, the Foreign Affairs
Reform and Restructuring Act of 1998
(112 Stat. 2681, et seq.; 22 U.S.C. 6501
note, et seq.), Delegation of Authority
No. 234 of October 1, 1999, and
Delegation of Authority No. 236–3 of
August 28, 2000.
By virtue of the authority vested in
the Secretary of State by the laws of the
United States, including 22 U.S.C.
2651a, I hereby delegate to the Under
Secretary of State for Political Affairs, to
the extent authorized by law, the
authority to approve submission of
reports to the Congress.
This delegation covers the decision to
submit to the Congress both one-time
reports and recurring reports. However,
this delegation shall not be construed to
authorize the Under Secretary to make
waivers, certifications, determinations,
PO 00000
Frm 00124
Fmt 4703
Sfmt 4703
findings, or other such statutorily
required substantive actions that may be
called for in connection with the
submission of a report. The Under
Secretary shall be responsible for
referring to the Secretary or the Deputy
Secretary any matter on which action
would appropriately be taken by such
official.
Any authority covered by this
delegation may also be exercised by the
Deputy Secretary, to the extent
authorized by law, or by the Secretary
of State. This delegation does not repeal
or amend any other delegation currently
in effect.
This delegation of authority shall be
published in the Federal Register.
Dated: May 17, 2018.
Michael R. Pompeo,
Secretary of State.
[FR Doc. 2018–12450 Filed 6–8–18; 8:45 am]
BILLING CODE 4710–10–P
OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE
[Docket Number USTR–2018–0013]
Dispute Number WT/DS545; WTO
Dispute Settlement Proceeding: United
States—Safeguard Measure on Imports
of Crystalline Silicon Photovoltaic
Products
Office of the United States
Trade Representative.
ACTION: Notice with request for
comments.
AGENCY:
The Office of the United
States Trade Representative (USTR) is
providing notice that on May 14, 2018,
the Government of the Republic of
Korea requested consultations with the
United States under the Marrakesh
Agreement Establishing the World Trade
Organization concerning a safeguard
measure the United States implemented
on imports of crystalline silicon
photovoltaic cells, whether or not
partially or fully assembled into other
products (solar products). That request
is available at www.wto.org in a
document designated as WT/DS545/1.
USTR invites written comments from
the public concerning the issues raised
in this dispute.
DATES: Although USTR will accept any
comments during the course of the
dispute settlement proceedings, you
should submit your comment on or
before July 11, 2018, to be assured of
timely consideration by USTR.
ADDRESSES: USTR strongly prefers
electronic submissions made through
the Federal eRulemaking Portal: https://
SUMMARY:
E:\FR\FM\11JNN1.SGM
11JNN1
]]>Agencies
[Federal Register Volume 83, Number 112 (Monday, June 11, 2018)]
[Notices]
[Pages 27061-27068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12432]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83384; File No. SR-NYSEAMER-2018-05]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Establish an
Electronic Price Improvement Auction for Complex Orders
June 5, 2018.
I. Introduction
On February 15, 2018, NYSE American LLC (the ``Exchange'' or ``NYSE
American'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt new Exchange Rule 971.2NY to establish
the Complex Customer Best Execution Auction (``Complex CUBE Auction''
or ``Auction''), a price improvement auction for Electronic Complex
Orders (referred to herein as ``Complex Orders''), and to make related
changes to other rules.\3\ The proposed rule change was published for
comment in the Federal Register on March 7, 2018.\4\ On April 18, 2018,
pursuant to
[[Page 27062]]
Section 19(b)(2) of the Act,\5\ the Commission extended the time for
Commission action on the proposal until June 5, 2018.\6\ The Commission
received no comments regarding the proposal. On May 15, 2018, the
Exchange filed Amendment No. 1 to the proposed rule change.\7\ The
Commission is publishing this notice to solicit comments on Amendment
No. 1 from interested persons, and is approving the proposed rule
change, as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ An Electronic Complex Order is any Complex Order, as defined
in Exchange Rule 900.3NY(e), that is entered into the Exchange's
electronic order delivery, execution and reporting System. See
Exchange Rules 980NY and 900.2NY(48). A Complex Order is ``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.'' See
Exchange Rule 900.3NY(e).
\4\ See Securities Exchange Act Release No. 82802 (March 2,
2018), 83 FR 9769 (``Notice'').
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 83061, 83 FR 17869
(April 24, 2018).
\7\ Amendment No. 1 revises the proposal to: (1) Add Exchange
Rules 971.1NY, Commentary .01, and 971.2NY, Commentary .03 to
specify that a Single-Leg CUBE Auction for a single series may occur
concurrently with a Complex CUBE Auction for a Complex Order that
includes that series, and to describe the processing of such
concurrent auctions; (2) add definitions of ``single stop price''
and ``auto-match limit price,'' add examples to the defined terms in
proposed Exchange Rule 971.2NY, Commentary .02, and clarify that in
both the Single-Leg and Complex CUBE Auctions, a Contra Order will
trade solely with the CUBE Order; (3) indicate that after a Complex
CUBE Order has been filled, RFR Responses, including Complex GTX
Orders, may trade with Complex Orders on the same side of the market
as the Complex CUBE Order; (4) further explain the rationale for not
allowing customer interest on a Contra Order; (5) further explain
the reasons for early Auction terminations when the same-side CUBE
BBO crosses RFR Responses or a single stop price; (6) provide an
example showing the allocation of a Complex CUBE Order guaranteed
with an auto-match limit price; (7) modify the description of the
proposed changes to Exchange Rules 980NY(e)(6)(A) and (B); and (8)
provide further support for the Exchange's argument that the
proposal is consistent with Section 11(a) of the Act and the rules
thereunder. To promote transparency of its proposed amendment, when
NYSE American filed Amendment No. 1 with the Commission, it also
submitted Amendment No. 1 as a comment letter to the file, which the
Commission posted on its website and placed in the public comment
file for SR-NYSEAMER-2018-05 (available at https://www.sec.gov/comments/sr-nyseamer-2018-05/nyseamer201805-3649246-162408.pdf). The
Exchange also posted a copy of its Amendment No. 1 on its website
(available at https://www.nyse.com/publicdocs/nyse/markets/nyse-american/rule-filings/filings/2018/NYSEAmer-2018-05,%20Pt.%20Am.%201.pdf).
---------------------------------------------------------------------------
I. Description of the Proposal, as Modified by Amendment No. 1
A. Background
NYSE American currently provides a CUBE Auction for single-leg
option orders (the ``Single-Leg CUBE'').\8\ As described more fully in
the Notice, the Exchange proposes to adopt new Exchange Rule 971.2NY,
``Complex Electronic Cross Transactions,'' to establish a Complex CUBE
Auction for Complex Orders that will operate in a manner that is
substantially similar to the Single-Leg CUBE, with differences to
account for the different processing of and priority rules for Complex
Orders.\9\ NYSE American states that the Complex CUBE Auction will
operate in a manner consistent with the electronic price improvement
auctions for complex orders that are available on other options
exchanges.\10\
---------------------------------------------------------------------------
\8\ See Exchange Rule 971.1NY.
\9\ See Notice, 83 FR at 9769. NYSE American notes that the
Complex CUBE Auction follows the fundamental principles of the
Single-Leg CUBE mechanism but with the priority and allocation rules
used in auctions for Complex Orders. See id. at 9779 (citing
Exchange Rule 980NY(e)).
\10\ See id. (citing Chicago Board Options Exchange, Inc.
(``CBOE'') Rule 6.74A; Nasdaq PHLX, LLC (``Phlx'') Rule 1087; BOX
Options Exchange LLC (``BOX'') Rule 7245; Nasdaq ISE, LLC (``ISE'')
Rule 723; and Miami International Securities Exchange, LLC
(``MIAX'') Rule 515A, Interpretation and Policy .12).
---------------------------------------------------------------------------
B. Initiation of a Complex CUBE Auction
To initiate a Complex CUBE Auction, an ATP Holder (the ``Initiating
Participant'') electronically submits into the Complex CUBE Auction a
Complex Order that the Initiating Participant represents as agent on
behalf of a public customer, broker dealer, or other entity.\11\ The
Initiating Participant guarantees the execution of the Complex CUBE
Order by submitting a contra-side order (the ``Complex Contra Order'')
representing principal interest or non-Customer interest the Initiating
Participant has solicited to trade solely with the CUBE Order at either
a single stop price or an auto-match limit price, as discussed
below.\12\
---------------------------------------------------------------------------
\11\ See proposed Exchange Rule 971.2NY(a). An ``ATP Holder'' is
a natural person, sole proprietorship, partnership, corporation,
limited liability company or other organization, in good standing,
that has been issued an American Trading Permit (``ATP'') issued by
the Exchange for effecting approved securities transactions on the
Exchange's Trading Facilities. An ATP Holder must be a registered
broker or dealer pursuant to Section 15 of the Act and has status as
a ``member'' of the Exchange, as defined in Section 3 of the Act.
See Exchange Rules 900.2NY(4) and (5).
\12\ See proposed Exchange Rule 971.2NY(a)(1). Requiring the
Complex Contra Order to include only principal interest or non-
Customer interest will preserve the intended allocation methodology
for the Auction. See Amendment No. 1. NYSE American notes that a
Complex Contra Order is guaranteed to trade with at least 40% of the
Complex CUBE Order if RFR Responses do not improve the guaranteed
price(s). See proposed Exchange Rules 971.2NY(c)(4)(B)(i)(b) and
(ii)(b). NYSE American also notes that, because Customer interest on
the Exchange is afforded first priority at a price, allowing
Customer interest on the Complex Contra Order would disrupt the
intended allocation methodology for the Auction because the Complex
Contra Order would be entitled to 100% of the Complex CUBE Order
rather than 40% of the order. NYSE American further notes that
allowing customer interest on the Complex Contra Order could reduce
competition in the Auction and undermine its price improvement aim
if other market participants choose not to participate in the
Auction because they believe it is unlikely that they would receive
an allocation in the Auction. See id. NYSE American states that it
will file a proposed rule change if it intends to establish a
customer-to-customer cross mechanism in the future. See id. The
proposal likewise revises the Single-Leg CUBE rules to indicate that
the Contra Order in a Single-Leg CUBE Auction must represent
principal or non-Customer Interest. See Exchange Rule 971.1NY(a) and
Amendment No. 1.
---------------------------------------------------------------------------
The Complex CUBE Order must be priced better than the interest
resting on the Consolidated Book.\13\ In particular, a Complex CUBE
Order must have a net debit/credit price that is equal to or better
than the ``CUBE BBO'' on the same side of the market as the Complex
CUBE Order (the ``same-side CUBE BBO'').\14\ The CUBE BBO is the more
aggressive of (i) the Complex BBO improved by $0.01,\15\ or (ii) the
Derived BBO improved by $0.01 multiplied by the smallest leg of the
complex order strategy.\16\ A Complex CUBE Order that does not meet
this requirement will be rejected, along with the Complex Contra
Order.\17\ The CUBE BBO may be updated during the Auction.\18\ If the
CUBE BBO updates during the Auction (the ``updated CUBE BBO''), the
range of permissible executions for the Complex CUBE Order will adjust
in accordance with the updated CUBE BBO, unless the
[[Page 27063]]
interest that updated the CUBE BBO would cause the Auction to conclude
early pursuant to proposed Exchange Rule 971.2NY(c)(3).\19\
---------------------------------------------------------------------------
\13\ See Notice, 83 FR at 9771, and proposed Exchange Rule
971.2NY(b)(2). The Consolidated Book (``Book'') is ``the Exchange's
electronic book of limit orders for the accounts of Customers and
broker-dealers, and Quotes with Size. All orders and Quotes with
Size that are entered into the Book will be ranked and maintained in
accordance with the rules of priority as provided in Rule 964NY.''
See Exchange Rule 900.2NY(14).
\14\ See proposed Exchange Rule 971.2NY(b)(2).
\15\ See proposed Exchange Rule 971.2NY(a)(2). The proposal
revises the current definition of ``Complex BBO'' to define the
Complex BBO as the complex orders with the lowest-priced (i.e., the
most aggressive) net debit/credit price on each side of the
Consolidated Book for the same complex order strategy. See proposed
Exchange Rule 971.2NY(b).
\16\ The BBO is the best bid or offer in the System. See
Exchange Rule 900.2NY(7)(a). The ``Derived BBO'' is calculated using
the BBO from the Consolidated Book for each of the options series
comprising a given complex order strategy. See proposed Exchange
Rule 900.2NY(7)(c). The definition of Derived BBO, which does not
change the manner in which the Exchange determines what was formerly
referred to as the ``Complex BBO,'' is designed to make clear that
the Derived BBO is derived from the BBO of the leg markets. See
Notice, 83 FR at 9771. The proposal makes conforming amendments to
Exchange Rule 980NY to replace references to the ``Complex BBO''
with the ``Derived BBO.'' See id.
\17\ See proposed Exchange Rule 971.2NY(b)(2). NYSE American
notes that a Complex CUBE Order that is not priced equal to or
better than the same-side CUBE BBO is not the best-priced interest
available and should not trade ahead of better-priced interest on
the same side of the market. See Notice, 83 FR at 9773. A Complex
CUBE Order and the Complex Contra Order also will be rejected if
they are submitted before the opening of trading, during the final
second of the trading session in the component series, or during a
trading halt. See proposed Exchange Rules 971.2NY(b)(3), (4), and
(5).
\18\ See proposed Exchange Rule 971.2NY(a)(2).
\19\ See proposed Exchange Rule 971.2NY(a)(4)(A). The ``range of
permissible executions'' for a Complex CUBE Order is all prices
equal to or between the initiating price and the same-side CUBE BBO.
See proposed Exchange Rule 971.2NY(a)(4). The ``initiating price''
for a Complex CUBE Order is the less aggressive of the net debit/
credit price of the order or the price that locks the contra-side
CUBE BBO. See proposed Exchange Rule 971.2NY(a)(3).
---------------------------------------------------------------------------
C. Auction Process
An Initiating Participant must guarantee the execution of a Complex
CUBE Order by submitting a Complex Contra Order with either a single
stop price or an auto-match limit price, which must be executable
against the initiating price of the Auction.\20\ If the single stop
price crosses the same-side CUBE BBO (i.e., would be outside the range
of permissible executions), the Complex CUBE Order is not eligible to
initiate an Auction and will be rejected along with the Complex Contra
Order.\21\ A Complex Contra Order with an auto-match limit price may
trade with the Complex CUBE Order at prices that are better than or
equal to the initiating price until trading at the auto-match limit
price.\22\ If the auto-match limit price crosses the same-side CUBE
BBO, the Complex Contra Order will be priced back to lock the same-side
CUBE BBO.\23\
---------------------------------------------------------------------------
\20\ See proposed Exchange Rules 971.2NY(b)(1)(A) and (B). A
single stop price is the price at which the Initiating Participant
guarantees the Complex CUBE Order. An auto-match limit price is the
most aggressive price at which the Initiating Participant is willing
to trade with the Complex CUBE Order.
\21\ See proposed Exchange Rule 971.2NY(b)(1)(A) and Notice, 83
FR at 9772.
\22\ See proposed Exchange Rule 971.2NY(b)(1)(B).
\23\ See id.
---------------------------------------------------------------------------
The time at which the Auction is initiated will be considered the
time of execution for the Complex CUBE Order.\24\ Only one Complex CUBE
Auction may be conducted at a time in any given complex order strategy
and, once commenced, the Complex CUBE Order (as well as the Complex
Contra Order) may not be cancelled or modified. \25\
---------------------------------------------------------------------------
\24\ See proposed Exchange Rule 971.2NY(c).
\25\ See id.
---------------------------------------------------------------------------
Upon receipt of a Complex CUBE Order, NYSE American will send a
Request for Responses (``RFR'') identifying the complex order strategy,
the side and size of the Complex CUBE Order, and the initiating price
to all ATP Holders who subscribe to receive RFR messages.\26\ ATP
Holders may submit responses to the RFR during the Response Time
Interval, which will last for a random period of time within parameters
that NYSE American determines and announces by Trader Update.\27\ Any
ATP Holder may respond to the RFR, provided the response is properly
marked specifying price, size, and side of the market (``RFR
Response'').\28\ The Auction will accept the following RFR Responses:
(i) A Complex GTX Order, defined as an Electronic Complex Order with a
time-in-force contingency for the Response Time Interval, which must
specify the price, size, and side of the market; \29\ and (ii)
unrelated Complex Orders, including Complex Order Auction (``COA'')-
eligible orders, on the opposite side of the market as the Complex CUBE
Order that are received during the Response Time Interval, provided the
unrelated orders can participate within the range of permissible
executions specified pursuant to proposed Exchange Rule
971.2NY(a)(4).\30\ NYSE American believes that considering unrelated
Complex Orders to be RFR Reponses would increase the number of orders
against which the Complex CUBE Order could execute and thus should
maximize price improvement opportunities for the Complex CUBE
Order.\31\
---------------------------------------------------------------------------
\26\ See proposed Exchange Rule 971.2NY(c)(1)(A).
\27\ See proposed Exchange Rule 971.2NY(c)(1)(B). The minimum/
maximum parameters for the Response Time Interval will be no less
than 100 milliseconds and no more than one second. See id. The
proposed Response Time Interval provisions are the same as the
Response Time Interval provisions for the Single-Leg CUBE Auction.
See Exchange Rule 971.1NY(c)(2)(B).
\28\ See proposed Exchange Rule 971.2NY(c)(1)(C).
\29\ A Complex GTX Order will not be displayed on the
Consolidated Book or disseminated to any participants, and a Complex
GTX Order that is not fully executed will be cancelled at the
conclusion of the Auction. Complex GTX Orders with a size greater
than the size of the Complex CUBE Order will be capped at the size
of the Complex CUBE Order. Complex GTX Orders may be cancelled or
modified, and a Complex GTX Order on the same side of the market as
the CUBE Order will be rejected. See proposed Exchange Rule
971.2NY(c)(1)(C)(i). NYSE American notes that because Complex GTX
Orders can only trade against a Complex CUBE Order or an unrelated
order on the same side as the Complex CUBE Order, same-side Complex
GTX Orders are unnecessary to the Complex CUBE Auction. See Notice,
83 FR at 9774.
\30\ See proposed Exchange Rule 971.2NY(c)(1)(C)(ii).
\31\ See Notice, 83 FR at 9775. NYSE American notes that quotes
and orders in the leg markets for a complex strategy underlying a
Complex CUBE Order will not be eligible to participate in the
Auction, although updates to the leg markets may cause an Auction to
conclude early to preserve the priority of interest at that price.
NYSE American states that limiting participation in the Complex CUBE
Auction to Complex Orders, but allowing certain updates to the leg
markets to cause an Auction to conclude early, is consistent with
the manner in which the Exchange treats interest in the COA process,
as described in Exchange Rule 980NY(e)(7)(B). See id.
---------------------------------------------------------------------------
D. Early Termination of a Complex CUBE Auction
An Auction will conclude at the end of the Response Time Interval
unless there is a trading halt in any component series of the Complex
CUBE Order or an early conclusion event, as provided in proposed
Exchange Rule 971.2NY(c)(3).\32\ NYSE American states that ending the
Auction early, as provided in proposed Exchange Rule 971.2NY(c)(3),
will preserve the priority of incoming interest and allow a Complex
CUBE Auction to operate seamlessly with the Consolidated Book.\33\
Proposed Exchange Rule 971.2NY(c)(3) provides that an Auction will
conclude early if, during the Response Time Interval:
---------------------------------------------------------------------------
\32\ See proposed Exchange Rule 971.2NY(c)(2).
\33\ See Notice, 83 FR at 9776.
---------------------------------------------------------------------------
(A) The Exchange receives a new Complex CUBE Order in the same
complex order strategy that meets the conditions of proposed Exchange
Rule 971.2NY(b);
(B) the Exchange receives interest that adjusts the same-side CUBE
BBO to be better than the initiating price;
(C) the Exchange receives interest that adjusts the same-side CUBE
BBO to cross any RFR Response(s);
(D) the Exchange receives interest that adjusts the same-side CUBE
BBO to cross the single stop price specified by the Initiating
Participant;
(E) the Exchange receives interest that crosses the same-side CUBE
BBO; or
(F) the Exchange receives interest in the leg market that causes
the contra-side CUBE BBO to be better than the stop price or auto-match
limit price.
E. Allocations at the Conclusion of a Complex CUBE Auction
Proposed Exchange Rule 971.2NY(c)(4) describes the allocation of
trading interest at the conclusion of an Auction. NYSE American notes
that if RFR Responses can fill the Complex CUBE Order at a price or
prices better than the stopped price or auto-match limit price, the
Complex CUBE Order will be matched against the better-priced RFR
Responses to provide the Complex CUBE Order the maximum amount of price
improvement possible.\34\ If there are no RFR Responses, a Complex
Contra Order with a single stop price will execute against the Complex
CUBE Order at the stop price, and a Complex Contra Order with an auto-
match limit price will execute against the Complex CUBE Order at the
initiating price.\35\ If there
[[Page 27064]]
are RFR Responses, any Customer orders that arrive during an Auction as
RFR Responses will have first priority to execute at each price level,
and they will be allocated on a size pro rata basis pursuant to
Exchange Rule 964NY(b)(3).\36\ After Customer interest at a price level
has been satisfied, any remaining size of a Complex CUBE Order will be
allocated first to RFR Responses within the permissible range of
executions that are priced better than the stop price or the auto-match
limit price, as applicable.\37\ The allocation of any remaining size of
the Complex CUBE Order varies, depending on whether the Complex Contra
Order has a single stop price \38\ or an auto-match limit price.\39\
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\34\ See id.
\35\ See proposed Exchange Rules 971.2NY(c)(4)(B)(i)(c) and
(ii)(c).
\36\ See proposed Exchange Rule 971.2NY(c)(4)(A). Any RFR
Response that exceeds the size of the Complex CUBE Order will be
capped at the Complex CUBE Order size for purposes of size pro rata
allocation of the Complex CUBE Order. See proposed Exchange Rule
971.2NY(c)(4). In addition, a single RFR Response will not be
allocated a volume that is greater than its size. See proposed
Exchange Rule 971.2NY(c)(4)(C).
\37\ See proposed Exchange Rules 971.2NY(c)(4)(B)(i)(a) and
(ii)(a). The Complex CUBE Order will be allocated among RFR
Responses pursuant to the size pro rata algorithm in Exchange Rule
964NY(b)(3) at each price point. See id.
\38\ For a Complex Contra Order with a single stop price, the
remaining size of the Complex CUBE Order will execute at the stop
price, and the Complex Contra Order will receive an allocation of
the greater of 40% of the original Complex CUBE Order size or one
contract, or the greater of 50% of the original Complex CUBE Order
size or one contract if there is only one RFR Response. Any
remaining size of the Complex CUBE Order at the stop price will be
allocated among the remaining RFR Responses on a size pro rata basis
pursuant to Exchange Rule 964NY(b)(3). If all RFR Responses are
filled, any remaining size of the Complex CUBE Order will be
allocated to the Complex Contra Order. See proposed Exchange Rule
971.2NY(c)(4)(B)(i)(b).
\39\ For a Complex Contra Order with an auto-match limit price,
the remaining size of the Complex CUBE Order will execute at the
Complex Contra Order's auto-match limit price and, if volume
remains, at prices worse than the auto-match limit price. At each
price point equal to or worse than the auto-match limit price, the
Complex Contra Order will receive an allocation equal to the
aggregate size of all other RFR Responses starting with the best
price at which an execution against an RFR Response occurs within
the range of permissible executions until a price point is reached
where the balance of the CUBE Order can be fully executed (the
``clean-up price''). At the clean-up price, if there is sufficient
size of the Complex CUBE Order still available after executing at
better prices or against Customer interest, the Complex Contra Order
will be allocated additional volume required to achieve an
allocation of the greater of 40% of the original Complex CUBE Order
size or one contract or the greater of 50% of the original Complex
CUBE Order size or one contract if there is only one RFR Response.
If the Complex Contra Order meets its allocation guarantee at a
price better than the clean-up price, it will cease matching RFR
Responses that may be priced worse than the price at which the
Complex Contra Order received its allocation guarantee. If there are
other RFR Responses at the clean-up price, the remaining size of the
Complex CUBE Order will be allocated to such interest pursuant to
the size pro rata algorithm set forth in Rule 964NY(b)(3). Any
remaining portion of the Complex CUBE Order will be allocated to the
Complex Contra Order at the initiating price. See proposed Exchange
Rule 971.2NY(c)(4)(B)(ii)(b).
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F. Concurrent Single-Leg and Complex CUBE Auctions
Although there will be only one Complex CUBE Auction at a time for
a particular Complex Order strategy, a Single-Leg CUBE Auction for a
series may occur concurrently with a Complex CUBE Auction for a
strategy that includes that series, as provided in proposed Exchange
Rules 971.1NY, Commentary .01, and 971.2NY, Commentary .03.\40\ Thus,
the Exchange will accept orders designated for the CUBE on a single
option series when a Complex CUBE Auction in a Complex Order strategy
that includes that series is in progress.\41\ The Exchange will also
accept Complex Orders designated for the Complex CUBE Auction when a
Single-Leg CUBE Auction in any of the component series is in
progress.\42\ The Exchange believes that providing for these concurrent
auctions could reduce the potential for an Auction to be terminated
early by other incoming orders designated for CUBE in the same single
options series and that this could, in turn, reduce order
cancelations.\43\
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\40\ The proposed rules indicate that to the extent that Single-
Leg and Complex CUBE Auctions involving the same option series occur
concurrently, each CUBE Auction will be processed sequentially based
on the time each CUBE Auction commenced. At the time each CUBE
Auction concludes, including when it concludes early, it will be
processed pursuant to Exchange Rule 971.1NY(c)(5) or proposed
Exchange Rule 971.2NY(c)(4), as applicable. See proposed Exchange
Rules 971.1NY, Commentary .01, and 971.2NY, Commentary .03.
\41\ See Notice, 83 FR at 9780.
\42\ See id.
\43\ See Amendment No. 1.
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G. Conduct Inconsistent With Just and Equitable Principles of Trade
NYSE American also proposes to adopt rules identifying conduct that
would be considered inconsistent with just and equitable principles of
trade with respect to a Complex CUBE Auction to discourage ATP Holders
from attempting to misuse or manipulate the Auction process.\44\ NYSE
American notes that proposed Exchange Rule 971.2NY, Commentary .01 is
based on Exchange Rule 971.1NY, Commentary, 02 relating to the Single-
Leg CUBE, and is consistent with the rules of other options exchanges
that offer electronic price improvement auction mechanisms.\45\
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\44\ See proposed Exchange Rule 971.2NY, Commentary .01, and
Notice, 83 FR at 9777. Proposed Exchange Rule 971.2NY, Commentary
.01 provides that the following conduct would be inconsistent with
just and equitable principles of trade: (a) An ATP Holder entering
RFR Responses to an Auction for which the ATP Holder is the
Initiating Participant; (b) engaging in a pattern and practice of
trading or quoting activity for the purpose of causing an Auction to
conclude before the end of the Response Time Interval; (c) an
Initiating Participant that breaks up an agency order into separate
Complex CUBE Orders for the purpose of gaining a higher allocation
percentage than the Initiating Participant would have otherwise
received in accordance with the allocation procedures contained in
proposed Exchange Rule 971.2NY(c)(5); and (d) engaging in a pattern
and practice of sending multiple RFR Responses at the same price
that in the aggregate exceed the size of the Complex CUBE Order.
\45\ See id. at 9777 n.47 (citing PHLX Rule 1087(c)-(e); ISE
Rule 723, Supplementary Material .01; and BOX Rule 7150, IM-7150-
2(a) and (b)). NYSE American also proposes to correct a
typographical error in Exchange Rule 971.1NY, Commentary .02, by
adding the word ``of'' to the rule text, which was inadvertently
omitted.
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H. Order Exposure Requirements
Current Exchange Rule 935NY prohibits Users \46\ from executing as
principal any orders they represent as agent unless (i) agency orders
are first exposed on the Exchange for at least one second; (ii) the
User has been bidding or offering on the Exchange for at least one
second prior to receiving an agency order that is executable against
such bid or offer; (iii) the User utilizes the Single-Leg CUBE Auction
pursuant to Exchange Rule 971.1.NY; or (iv) the User utilizes the COA
auction process pursuant to Exchange Rule 980NY(e). NYSE American
proposes to amend Exchange Rule 935NY to provide that a User may
execute as principal an order that the User represents as agent,
provided that the User utilizes the Complex CUBE Auction process. Such
a Complex CUBE Order would not be subject to the one-second order
exposure requirement of Exchange Rule 935NY.\47\ NYSE American believes
that the proposed Response Time Interval, with a random length of no
less than 100 milliseconds and no greater than one second (as
determined and announced by the Exchange), is of sufficient length to
permit ATP Holders time to respond to a Complex CUBE Auction, thereby
enhancing opportunities for competition among participants and
increasing the likelihood of price improvement for the Complex CUBE
Order.\48\
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\46\ A User is any ATP Holder that is authorized to obtain
access to the System. See Exchange Rule 900.2NY(87).
\47\ See Notice, 83 FR at 9778.
\48\ See id.
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I. Changes to the Single-Leg CUBE Auction and COA Rules
The proposal revises the title of Exchange Rule 971.1NY to
``Single-Leg
[[Page 27065]]
Electronic Cross Transactions,'' to distinguish Exchange Rule 971.1NY
from proposed Exchange Rule 971.2NY, ``Complex Electronic Cross
Transactions.'' The proposal revises also revises Exchange Rule 971.1NY
to indicate, as discussed above, that an Initiating Participant that
solicits interest to trade with a Single-Leg CUBE Order may solicit
only non-Customer interest to be the Contra Order.\49\ In addition, the
proposal amends Exchange Rule 971.1NY to clarify that the Contra Order
will trade solely with the CUBE Order and to indicate that a CUBE Order
and Contra Order submitted during a trading halt will be rejected.\50\
The proposal revises the auto-match provisions in Exchange Rule
971.1NY(c)(1)(C) to indicate that the auto-match limit price for a CUBE
Order that is outside of the range of permissible executions may be
repriced so that it is within the range of permissible executions.\51\
The proposal modifies Exchange Rule 971.1NY(c)(2)(i)(d) to indicate
that a GTX Order may be modified, as well as cancelled. Finally, as
discussed above, the proposal adds new Commentary .01 to Exchange Rule
971.1NY, which addresses concurrent CUBE Auctions for a single option
series and for a Complex Order that includes that series.
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\49\ See Exchange Rule 971.1NY(a). Alternatively, the Contra
Order may represent principal interest.
\50\ See Exchange Rule 971.1NY(a) and proposed Exchange Rule
971.1NY(b)(10).
\51\ In particular, NYSE American proposes to specify in
Exchange Rule 971.1NY(c)(1)(C) that it would adjust the auto-match
limit price to within the range of permissible executions by adding
a new sentence stating that: ``An auto-match limit price specified
for a CUBE Order to buy (sell) that is below (above) the lower
(upper) bound of the range of permissible executions will be
repriced to the lower (upper) bound.'' See Notice, 83 FR at 9773.
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The proposal also amends Exchange Rule 980NY(e)(6)(A) and (B) to
indicate that incoming Complex CUBE Orders are among the incoming
Complex Orders that could cause a COA Auction to end early.\52\ The
Exchange notes that this is consistent with the principle that the
Exchange will conduct only one auction in a given Complex Order
strategy at a time, as provided in proposed Exchange Rule 971.2NY(c)
and Exchange Rule 980NY(e)(3).\53\
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\52\ Exchange Rule 980NY(e)(6)(A)(i), as amended by the current
proposal, will provide that an incoming Complex Order, including an
incoming Complex CUBE Order, or a COA-eligible order on the opposite
side of the market as the initiating COA-eligible order, that locks
or crosses the initial Derived BBO will cause the COA to end early.
Exchange Rule 980NY(e)(6)(B)(i), as amended by the current proposal,
will provide that an incoming Complex Order, including a Complex
CUBE Order, or COA-eligible order that is priced equal to or lower
(higher) than the initiating COA-eligible order to buy (sell), and
also locks or crosses the contra-side initial Derived BBO, will
cause the COA to end early. As noted above, the proposal also
revises Exchange Rule 980NY(e)(6) to replace references to the
``Complex BBO'' with references to the ``Derived BBO.''
\53\ See Amendment No. 1.
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J. Additional Changes
The proposal revises the definition of ``Professional Customer'' in
Exchange Rule 900.2NY(18A) to add the Complex CUBE Auction provisions
in proposed Exchange Rule 971.2NY to the existing list of Exchange
rules for which a Professional Customer will be treated in the same
manner as a Broker/Dealer (or non-Customer) in securities. NYSE
American notes that this is consistent with the treatment of
Professional Customer Orders in the Single-Leg CUBE Auction.\54\ NYSE
American also proposes to add Commentary .02 to proposed Exchange Rule
971.2NY to further explain the defined terms used in proposed Rule
971.2NY.\55\ NYSE American believes that these definitions will help to
clarify how the Auction will operate.\56\
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\54\ See Notice, 83 FR at 9780, and Exchange Rule 900.2NY(18A).
\55\ Proposed Exchange Rule 971.2NY, Commentary .02 provides
definitions and examples of ``better-priced'' and ``more
aggressive'' interest, and ``worse-priced'' and ``less aggressive''
interest; interest that ``improves the BBO;'' interest that
``locks'' contra-side interest; interest that ``crosses'' contra-
side interest; and ``executable'' interest. The Exchange notes that
the definitions use the term ``interest'' because they apply to any
interest that could interact with a Complex Order, including quotes
and orders in the leg markets that comprise the complex order
strategy. See Notice, 83 FR at 9771.
\56\ See id.
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K. Implementation
NYSE American will announce the implementation date of the proposed
rule change in a Trader Update to be published no later than 60 days
following Commission approval of the proposal.\57\ The implementation
date would be no later than 60 days following publication of the Trader
Update announcing Commission approval.\58\ The Exchange believes that
this implementation schedule will provide ATP Holders with adequate
notice of the Complex CUBE Auction and allow time for ATP Holders that
intend to participate in Complex CUBE Auctions to prepare their systems
for participation in the Auctions.\59\
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\57\ See id. at 9779.
\58\ See id.
\59\ See id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\60\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\61\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest; and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\60\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\61\ 15 U.S.C. 78f(b)(5).
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The Commission notes that NYSE American's Complex CUBE Auction
mechanism is similar to rules on other options exchanges that permit
the entry of complex orders into an electronic price improvement
auction mechanism.\62\ In addition, NYSE American states that the
Complex CUBE Auction will operate in a manner that is substantially
similar to the Single-Leg CUBE Auction, with differences to account for
the different processing of and priority rules for Complex Orders.\63\
The Commission believes that allowing ATP Holders to enter orders into
the Complex CUBE Auction mechanism may provide additional opportunities
for Complex Orders to receive price improvement.
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\62\ See, e.g., Phlx Rule 1080(n); MIAX Rule 515A,
Interpretation and Policy .12(a); CBOE Rule 6.74A; BOX Rule 7245;
and ISE Rule 723, Supplementary Material .09.
\63\ See Notice, 83 FR at 9769.
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The Commission notes that Initiating Participant must enter a
Complex CUBE Order with a net debit/credit price that is equal to or
better than the same-side CUBE BBO (i.e., the more aggressive of the
Complex BBO improved by $0.01 or the Derived BBO improved by $0.01
multiplied by the smallest leg of the complex order strategy), and that
the Initiating Participant must submit a Complex Contra Order for the
full size of the Complex CUBE Order.\64\ Once the Complex CUBE Auction
begins, the Complex CUBE Order and the Complex
[[Page 27066]]
Contra Order may not be cancelled or modified.\65\ Therefore, a Complex
CUBE Order submitted to the Complex CUBE Auction will be guaranteed
price improvement over the Complex BBO or the Derived BBO at the time
the Complex CUBE Order was entered into the System, and will be given
an opportunity for further price improvement by being exposed to ATP
Holders during the Complex CUBE Auction.
---------------------------------------------------------------------------
\64\ See proposed Exchange Rules 971.2NY(b)(2) and (a)(1).
\65\ See proposed Exchange Rule 971.2NY(c).
---------------------------------------------------------------------------
IV. Section 11(a) of the Act
Section 11(a)(1) of the Act \66\ prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises discretion
(collectively, ``covered accounts''), unless an exception applies.
Section 11(a)(1) and the rules thereunder contain a number of
exceptions for principal transactions by members and their associated
persons, including the exceptions set forth in Rule 11a2-2(T) under the
Act.\67\ The Exchange has represented that it has analyzed its rule
proposed hereunder, and believes that they are consistent with the
requirements of Section 11(a) of the Act and rules thereunder.\68\ For
the reason set forth below, the Commission believes that the proposed
Complex CUBE Auction rules are consistent with the requirements of
Section 11(a) of the Act and the rules thereunder.
---------------------------------------------------------------------------
\66\ 15 U.S.C. 78k(a)(1).
\67\ 17 CFR 240.11a2-2(T).
\68\ See Notice, 83 FR at 9778-79, and Amendment No. 1.
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A. Rule 11a2-2(T) Under the Act (``Effect Versus Execute'' Rule)
Rule 11a2-2(T) under the Act,\69\ known as the ``effect versus
execute'' rule, provides exchange members with an exception from the
Section 11(a)(1) prohibition. Rule 11a2-2(T) permits an exchange
member, subject to certain conditions, to effect transactions for
covered accounts by arranging for an unaffiliated member to execute the
transactions on the exchange. To comply with the conditions of Rule
11a2-2(T), a member: (1) May not be affiliated with the executing
member; (2) must transmit the order from off the exchange floor; (3)
may not participate in the execution of the transaction once it has
been transmitted to the member performing the execution; \70\ and (4)
with respect to an account over which the member has investment
discretion, neither the member nor its associated person may retain any
compensation in connection with effecting the transaction except as
provided in the Rule. The Exchange believes that orders sent by off-
floor ATP Holders, for covered accounts, to the proposed Complex CUBE
Auction would qualify for this ``effect versus execute'' exception.\71\
---------------------------------------------------------------------------
\69\ Id.
\70\ The member may, however, participate in clearing and
settling the transaction. See Securities Exchange Act Release No.
14563 (March 14, 1978), 43 FR 11542 (March 17, 1978) (regarding the
Designated Order Turnaround System of the New York Stock Exchange
(``1978 Release'')).
\71\ See Notice, 83 FR at 9778.
---------------------------------------------------------------------------
Rule 11a2-2(T) requires that the order be executed by an exchange
member who is unaffiliated with the member initiating the order. The
Commission has stated that the requirement is satisfied when automated
exchange facilities, such as the Exchange's Complex CUBE Auction, are
used, as long as the design of these systems ensures that members do
not possess any special or unique trading advantages in handling their
orders after transmitting them to the Exchange.\72\ The Exchange
represents that the design of the Complex CUBE Auction ensures that ATP
Holders do not have any special or unique trading advantages in the
handling of their orders after transmission.\73\ Based on the
Exchange's representations, the Commission believes that the Complex
CUBE Auction's rules satisfy this requirement.
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\72\ In considering the operation of automated execution systems
operated by an exchange, the Commission has noted that, while there
is no independent executing exchange member, the execution of an
order is automatic once it has been transmitted into each system.
Because the design of these systems ensures that members do not
possess any special or unique trading advantages in handling their
orders after transmitting them to the exchange, the Commission has
stated that executions obtained through these systems satisfy the
independent execution requirement of Rule 11a2-2(T). See Securities
Exchange Act Release No. 15533 (January 29, 1979), 44 FR 6084
(January 31, 1979) (regarding the American Stock Exchange's Post
Execution Reporting System and Switching System, the Intermarket
Trading System, the Multiple Dealer Trading Facility of the
Cincinnati Stock Exchange, the PCX Communications and Execution
System, and the Philadelphia Stock Exchange Automated Communications
and Execution System (``1979 Release'')).
\73\ See Notice, 83 FR at 9779.
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Second, Rule 11a2-2(T) requires orders for covered accounts be
transmitted from off the exchange floor. The Exchange represents that
orders for covered accounts sent to the Complex CUBE Auction from off-
floor ATP Holders will be transmitted from remote terminals directly to
the Complex CUBE Auction by electronic means.\74\ In the context of
other automated trading systems, the Commission has found that the off-
floor transmission requirement is met if a covered account order is
transmitted from a remote location directly to an exchange's floor by
electronic means.\75\ With respect to such orders transmitted
electronically from remote terminals directly to the Complex CUBE
Auction, the Commission believes that the Complex CUBE Auction's rules
satisfy the off- floor transmission requirement.\76\ The Commission
believes that, based on the foregoing, the proposal satisfies the off-
floor transmission requirement for the purposes of ``effect versus
execute'' rule.
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\74\ See id. at 9778.
\75\ See, e.g., Securities Exchange Act Release Nos. 59154
(December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-
48) (approving, among other things, the equity rules of the Boston
Stock Exchange (``BSE'')); 57478 (March 12, 2008), 73 FR 14521
(March 18, 2008) (SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080)
(approving rules governing the trading of options on The NASDAQ
Options Market); 49068 (January 13, 2004), 69 FR 2775 (January 20,
2004) (SR-BSE-2002-15) (approving the Boston Options Exchange as an
options trading facility of BSE); the 1979 Release; and the 1978
Release.
\76\ The Exchange further represents that there may be instances
of orders for a covered account that may be sent by an off-floor ATP
Holder to an unaffiliated Floor Broker for entry into the Complex
CUBE Auction mechanism. The Exchange represents that at the current
time, Exchange-sponsored Floor Broker systems are not enabled to
accept orders into the Complex CUBE Auction mechanism from Floor
Brokers. The Exchange further represents that, if a Floor Broker
were to gain access to the Complex CUBE Auction mechanism via a
third-party system, that Floor Broker may not rely on any exceptions
found in Section 11(a) of the Act or rules thereunder to enter
orders for their own covered accounts into the Auction mechanism
from on the floor, or transmit such orders from on the floor to off
of the floor for entry into the Complex CUBE Auction mechanism. See
Amendment No. 1.
---------------------------------------------------------------------------
Third, Rule 11a2-2(T) requires that the member not participate in
the execution of its order once it has been transmitted to the member
performing the execution. The Exchange represents that, upon submission
to the Complex CUBE Auction, an order will be executed automatically
pursuant to the proposed rules set forth for the Auction.\77\ The
Exchange states that, in particular, execution of an order sent to the
Auction depends not on the ATP Holder entering the order, but rather on
what other orders are present and the priority of those orders. Thus,
at no time following the submission of an order is an ATP Holder able
to acquire control or influence over the result or timing of order
execution.\78\ Accordingly, the Commission believes that an ATP Holder
does not participate in the execution of an order submitted into the
[[Page 27067]]
Complex CUBE Auction. Based on the Exchange's representations, the
Commission believes that the proposal satisfies the non-participation
requirement of Rule 11a2-2(T).
---------------------------------------------------------------------------
\77\ See Notice, 83 FR at 9778-79.
\78\ See Notice, 83 FR at 9779. The Exchange notes that the
Initiating Participant may not cancel or modify a Complex CUBE Order
once a Complex CUBE Auction has started. See id. at 9779 n.60 and
proposed Exchange Rule 971.2NY(c).
---------------------------------------------------------------------------
Fourth, in the case of a transaction effected for an account with
respect to which the initiating member or an associated person thereof
exercises investment discretion, neither the initiating member nor any
associated person thereof may retain any compensation in connection
with effecting the transaction, unless the person authorized to
transact business for the account has expressly provided otherwise by
written contract referring to Section 11(a) of the Act and Rule 11a2-
2(T).\79\ The Commission notes that ATP Holders trading for covered
accounts over which they exercise investment discretion must comply
with this condition in order to rely on the rule's exemption.
---------------------------------------------------------------------------
\79\ 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written
contract to retain compensation, in connection with effecting
transactions for covered accounts over which such member or
associated person thereof exercises investment discretion, to
furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member in connection with effecting
transactions for the account during the period covered by the
statement. See 17 CFR 240.11a2-2(T)(d). See also 1978 Release
(stating ``[t]he contractual and disclosure requirements are
designed to assure that accounts electing to permit transaction-
related compensation do so only after deciding that such
arrangements are suitable to their interests'').
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V. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 is consistent with the
Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEAMER-2018-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAMER-2018-05. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEAMER-2018-05, and should be
submitted on or before July 2, 2018.
VI. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. As discussed above, Amendment No. 1 revises
the proposal to: (1) Add Exchange Rules 971.1NY, Commentary .01, and
971.2NY, Commentary .03 to specify that a Single-Leg CUBE Auction for a
single series may occur concurrently with a Complex CUBE Auction for a
Complex Order that includes that series, and to describe the processing
of such concurrent auctions; (2) add definitions of ``single stop
price'' and ``auto-match limit price,'' add examples to the defined
terms in proposed Exchange Rule 971.2NY, Commentary .02, and clarify
that in both the Single-Leg and Complex CUBE Auctions, a Contra Order
will trade solely with the CUBE Order; (3) indicate that after the
Complex CUBE Order has been filled, RFR Responses, including Complex
GTX Orders, may trade with Complex Orders on the same side of the
market as the Complex CUBE Order; (4) further explain the rationale for
not allowing customer interest on a Contra Order; (5) further explain
the reasons for early Auction terminations when the same-side CUBE BBO
crosses RFR Responses or a single stop price; (6) provide an example
showing the allocation of a Complex CUBE Order guaranteed with an auto-
match limit price; (7) modify the description of the proposed changes
to Exchange Rules 980NY(e)(6)(A) and (B); and (8) provide further
support for the Exchange's argument that the proposal is consistent
with Section 11(a) of the Act and the rules thereunder.
With respect to the processing of Single-Leg and Complex CUBE
Auctions, NYSE American believes that the new rule language describing
the sequential processing of these auctions is consistent with the
handling by Cboe EDGX Exchange, Inc. (``EDGX'') of orders executed in
concurrent complex order auctions (``COAs'') involving the same complex
order strategy.\80\ Thus, NYSE American believes that its proposed
rules describing the processing of Single-Leg and Complex CUBE Auctions
do not raise new or novel regulatory issues.\81\ NYSE American also
notes that none of the proposed changes that provide additional details
regarding the operation of the Single-Leg and Complex CUBE Auctions
alter the functionality of the proposed Complex CUBE mechanism (or
Single-Leg CUBE), as described in the original filing, but rather,
provide additional details regarding the operation of the Auctions.\82\
In addition, the Commission believes that Amendment No. 1 provides
additional clarity in the rule text and additional analysis of several
aspects of the proposal, thus facilitating the Commission's ability to
make the findings set forth above to approve the proposal. For these
reasons, the Commission finds good cause, pursuant to Section 19(b)(2)
of the Act,\83\ to approve the proposed rule change, as modified by
Amendment No. 1, on an accelerated basis.
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\80\ See Amendment No. 1. See also EDGX Rule 21.20,
Interpretation and Policy .02. Although the EDGX COA Auction is
distinct from the CUBE Auctions in that the EDGX COA Auction is not
an auction of paired orders, NYSE American believes that its
proposed rules describing the sequential processing of Single-Leg
and Complex CUBE Auctions are consistent with the sequential
processing of COAs described in EDGX's rules. See Amendment No. 1.
\81\ See id.
\82\ See id.
\83\ 15 U.S.C. 78s(b)(2).
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[[Page 27068]]
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\84\ that the proposed rule change (SR-NYSEAMER-2018-05), as
modified by Amendment No. 1, is approved on an accelerated basis.
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\84\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\85\
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\85\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12432 Filed 6-8-18; 8:45 am]
BILLING CODE 8011-01-P
