Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Options Rules To Make Certain Non-Substantive Changes and To Harmonize Certain Rules With Those of Its Affiliate, NYSE American LLC, 47221-47229 [2018-20193]
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Federal Register / Vol. 83, No. 181 / Tuesday, September 18, 2018 / Notices
Rule 1003(b)(3) requires each SCI
entity to submit the report of the SCI
review to the Commission and to its
board of directors or the equivalent of
such board, together with any response
by senior management, within 60
calendar days after its submission to
senior management. These reports are
required to be submitted on Form SCI.
The Commission staff estimates that the
total annual ongoing burden for all
respondents will be, on average, 44
hours (1 hour per respondent × 44
respondents). The Commission staff
estimates that all respondents will
incur, on average, an estimated ongoing
annual internal cost of compliance of
$18,128 ($412 per respondent × 44
respondents).
In addition, the Commission staff
estimates that all respondents will
incur, on average, annual costs of
$2,200,000 ($50,000 × 44 respondents)
for outside legal advice in preparation of
certain notifications required by Rule
1003(b).
Rule 1006 requires each SCI entity,
with a few exceptions, to file any
notification, review, description,
analysis, or report to the Commission
required under Regulation SCI
electronically on Form SCI through the
EFFS. An SCI entity will submit to the
Commission an EAUF to register each
individual at the SCI entity who will
access the EFFS system on behalf of the
SCI entity. The Commission staff
estimates that the total annual initial
burden for 2 new respondents will be
0.6 hours (0.3 hours per respondent × 2
respondents), and the annual ongoing
burden for all respondents will be, on
average, 6.6 hours (0.15 hours per
respondent × 44 respondents). The
Commission staff estimates that the 2
new respondents would incur an initial
internal cost of compliance of $248
($124 per respondent × 2 respondents),
as well as outside costs to obtain a
digital ID of $100 ($50 per respondent
× 2 respondents). In addition, all
respondents will incur, on average, an
estimated ongoing annual internal cost
of compliance of $2,728 ($62 per
respondent × 44 respondents), as well as
outside costs to obtain a digital ID of
$2,200 ($50 per respondent × 44
respondents).
Rule 1002(a) requires each SCI entity,
upon any responsible SCI personnel
having a reasonable basis to conclude
that an SCI event has occurred, to begin
to take appropriate corrective action.
The Commission staff estimates that the
total annual initial recordkeeping
burden for 2 new respondents will be
228 hours (114 hours per respondent ×
2 respondents), and the annual ongoing
recordkeeping burden for all
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respondents will be, on average, 1,716
hours (39 hours per respondent × 44
respondents). The Commission staff
estimates that the 2 new respondents
would incur an initial internal cost of
compliance of $85,056 ($42,528 per
respondent × 2 respondents). In
addition, all respondents will incur, on
average, an estimated ongoing annual
internal cost of compliance of $677,468
($15,397 per respondent × 44
respondents).
Rule 1003(a)(1) requires each SCI
entity to establish reasonable written
criteria for identifying a change to its
SCI systems and the security of indirect
SCI systems as material. The
Commission staff estimates that the total
annual initial recordkeeping burden for
2 new respondents will be 228 hours
(114 hours per respondent × 2
respondents), and the annual ongoing
recordkeeping burden for all
respondents will be, on average, 1,188
hours (27 hours per respondent × 44
respondents). The Commission staff
estimates that the 2 new respondents
would incur an initial internal cost of
compliance of $85,056 ($42,528 per
respondent × 2 respondents). In
addition, all respondents will incur, on
average, an estimated ongoing annual
internal cost of compliance of $507,584
($11,536 per respondent × 44
respondents).
Regulation SCI also requires SCI
entities to identify certain types of
events and systems. The Commission
staff estimates that the total annual
initial recordkeeping burden for 2 new
respondents will be 396 hours (198
hours per respondent × 2 respondents),
and the annual ongoing recordkeeping
burden for all respondents will be, on
average, 1,716 hours (39 hours per
respondent × 44 respondents). The
Commission staff estimates that the 2
new respondents would incur an initial
internal cost of compliance of $139,412
($69,706 per respondent × 2
respondents). In addition, all
respondents will incur, on average, an
estimated ongoing annual internal cost
of compliance of $677,468 ($15,397 per
respondent × 44 respondents).
Rules 1005 and 1007 establish
recordkeeping requirements for SCI
entities other than SROs. The
Commission staff estimates that for a
new respondent that is not an SRO the
average annual initial burden would be
170 hours (170 hours × 1 respondent),
and the annual ongoing burden for all
respondents will be, on average, 275
hours (25 hours × 11 respondents). The
Commission staff estimates that a new
respondent would incur an estimated
internal initial internal cost of
compliance of $11,370, as well as a one-
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47221
time cost of $900 to modify existing
recordkeeping systems. In addition, all
respondents will incur, on average, an
estimated ongoing internal cost of
compliance of $18,975 ($1,725 × 11
respondents).
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
The public may view background
documentation for this information
collection at the following website:
www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
or by sending an email to:
Lindsay.M.Abate@omb.eop.gov; and (ii)
Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or by sending an email to:
PRA_Mailbox@sec.gov. Comments must
be submitted to OMB within 30 days of
this notice.
Dated: September 12, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–20277 Filed 9–17–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84098; File No. SR–
NYSEARCA–2018–65]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Its Options
Rules To Make Certain NonSubstantive Changes and To
Harmonize Certain Rules With Those
of Its Affiliate, NYSE American LLC
September 12, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
31, 2018, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
options rules to make certain nonsubstantive changes and to harmonize
certain rules with those of its affiliate,
NYSE American LLC (‘‘NYSE
American’’), to reduce unnecessary
complexity and promote
standardization. The proposed rule
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
options rules to make certain nonsubstantive changes and to harmonize
certain rules with those of its affiliate,
NYSE American. The proposed
amendments are designed to reduce
unnecessary complexity within the
Exchange’s rules and to promote
standardization and clarity amongst
similar rules of the Exchange and its
affiliate, NYSE American. Specifically,
the Exchange proposes to:
• Make a ministerial, non-substantive
change to Exchange Rule 6.17–O,
Commentary .01.
• harmonize Exchange Rule 6.37–O,
Obligations of Market Makers, with
NYSE American Rule 925NY,
Obligations of Market Makers, and make
related changes to Exchange Rules
6.37A–O, 6.37B–O, and 6.37B–O; 4
4 The Exchange also proposes to update various
cross-references to these rules throughout the
rulebook to reflect the updated rule numbers.
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• delete the text of Exchange Rule
6.41–O, Market Maker Marketing
Reports;
• harmonize Exchange Rule 6.43–O,
Options Floor Broker Defined, with
NYSE American Rule 930NY by
replacing the term ‘‘Professional
Customer’’ with ‘‘Qualified Customer’’; 5
• amend Exchange Rule 6.47–O,
Crossing Orders, to update the
references to the current Order
Protection Rule and harmonize it with
NYSE American Rule 934NY; 6
• harmonize Exchange Rule 6.67–
O(d)(2)(A) with NYSE American Rule
955NY(d)(2)(A) by replacing an
outdated reference to a required
timestamp synchronized to the ‘‘NIST
Clock’’ with a reference to the current
operative Consolidated Audit Trail
(‘‘CAT’’) clock synchronization rule; 7
• harmonize Exchange Rule 6.69–
O(b)(iii) with NYSE American Rule
957NY(b)(iii) by conforming the
Exchange’s rule governing the priority
of complex orders in open outcry to its
rule governing electronic complex
orders; 8 and
• harmonize Exchange Rule 6.75–O,
Priority and Order Allocation
Procedures—Open Outcry, with NYSE
American Rules 963NY(d).9
Each of these proposed changes are
explained in detail below.
Exchange Rule 6.17–O. Verification of
Compared Trades and Reconciliation of
Uncompared Trades
The Exchange proposes to make
ministerial, non-substantive changes to
Exchange Rule 6.17–O, Commentary .01
to remove superfluous language. In
particular, the Exchange proposes to
amend the third paragraph of
Commentary .01 of Exchange Rule 6.17–
O to remove the duplicative phrase ‘‘or
accessible via telephone or email’’. The
proposed deletion of this phrase does
not alter the meaning or application of
Rule 6.17–O.
Exchange Rule 6.37–O, Obligations of
Market Makers, and Exchange Rules
6.37A–O, 6.37B–O, and 6.37C–O
The Exchange proposes to harmonize
the Market Maker quoting obligations
set forth under Exchange Rule 6.37–O,
Obligations of Market Makers, with
5 See Securities Exchange Act Release No. 81670
(September 21, 2017), 82 FR 45095 (September 27,
2017) (SR–NYSEAMER–2017–18) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change To Update and Amend its Options Rules,
as Described Herein, To Reduce Unnecessary
Complexity and To Promote Standardization and
Clarity).
6 Id.
7 Id.
8 Id.
9 Id.
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NYSE American Rule 925NY,
Obligations of Market Makers, and make
related changes to Exchange Rules
6.37A–O, 6.37B–O, and 6.37C–O.
Exchange Rule 6.37–O sets forth the
continuous quoting obligations of
Market Makers for options contracts to
which they are appointed pursuant to
Exchange Rule 6.35–O. The Exchange
proposes to delete the text of Rule 6.37–
O, except for paragraph (a), and replace
it with the relevant text from NYSE
American Rule 925NY.10 The proposed
rule change would not result in an
easing of the quoting obligations in
place on the Exchange. Instead, the
proposed rule change would harmonize
the Market Maker obligations across the
Exchange and its affiliate, NYSE
American, while requiring the same
level of obligations. Harmonized rules
would provide investors, as well as
those that engage in market making
activities on both the Exchange and
NYSE American, with standardized
obligations and consistent rules across
both markets. A description of the
proposed amendments are described
below.
The Exchange notes that current
Exchange Rule 6.37–O sets forth Market
Maker obligations when quoting on the
Trading Floor and Exchange Rule
6.37A–O sets forth Market Maker
obligations when quoting on the NYSE
Arca OX electronic trading system. Like
NYSE American 925NY, the obligations
under amended Exchange Rule 6.37–O
would apply equally to Maker Makers
on the Trading Floor and those quoting
on the Exchange’s electronic trading
system. The Exchange also notes that
the current text of Exchange Rule
6.37A–O is substantially similar to the
text of NYSE American Rule 925NY,
which the Exchange propose to adopt
herein. Nonetheless, the proposed text
would be more detailed than current
Rule 6.37A–O by including detailed bidask differentials under paragraph (b)(4)
as well as provisions governing leaves of
absence under proposed Commentary
.01. Therefore, the Exchange proposes to
delete the text of Exchange Rule 6.37A–
O and renumber Exchange Rules 6.37B–
O as 6.37A–O and 6.37C–O as 6.37B–O.
The Exchange also proposes to update
various cross-references to these rules in
Exchange Rules 6.33–O(a), 6.64–O(b)(D)
and (E), 6.82–O(c)(4), 10.12(h) and (k),
and 10.16(e)(2) to reflect the updated
rule numbers.
Proposed Paragraph (b), Obligations
in Appointed Classes. Paragraph (b) of
Exchange Rule 6.37–O would continue
10 The Exchange notes that paragraph (a) of
Exchange Rule 6.37–O is identical to paragraph (a)
of NYSE American Rule 925NY.
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to impose the continuous quoting
obligations that a Market Maker is
expected to engage, to a reasonable
degree under the existing
circumstances, in dealings for his own
account when there exists, or it is
reasonably anticipated that there will
exist, a lack of price continuity, a
temporary disparity between the supply
of and demand for a particular option
contract, or a temporary distortion of the
price relationships between option
contracts of the same class. Market
Makers would continue to be expected
to perform the following activities in the
course of maintaining a fair and orderly
market.
Proposed paragraphs (1) through (3) of
Exchange Rule 6.37–O(b) would require
Market Makers to: (1) Compete with
other Market Makers to improve the
market in all series of options classes to
which the Market Maker is appointed;
(2) make markets that will be honored
for the number of contracts entered into
the System in all series of options
classes within the Market Maker’s
appointment; and (3) update market
quotations in response to changed
market conditions in all series of
options classes within the Market
Maker’s appointment. Each of these
provisions mirror NYSE American Rule
925NY(b)(1) through (3).
Current paragraphs (b)(1)(A) through
(E) of Rule 6.37–O require that Market
Maker bids and/or offers create
differences of no more than: (A) .25
between the bid and the offer for each
option contract for which the bid is less
than $2, (B) .40 where the bid is $2 or
more but does not exceed $5, (C) .50
where the bid is more than $5 but does
not exceed $10, (D) .80 where the bid is
more than $10 but does not exceed $20,
and (E) $1 when the last bid is $20.01
or more, provided that two Trading
Officials may establish differences other
than the above for one or more series or
classes of options. These provisions
would be set forth under new paragraph
(b)(4)(A) through (E) of Exchange Rule
6.37–O with one proposed change from
the current Exchange rule. Current
paragraph (b)(1)(E) of Rule 6.37–O
requires that Market Maker bids and/or
offers create differences of no more than
$1 when the last bid is $20.01 or more,
provided that two Trading Officials may
establish differences other than the
above for one or more series or classes
of options. Proposed paragraph (b)(4)(E)
of Exchange Rule 6.37–O would allow
for one Trading Official, rather than
two, to establish differences for one or
more series or classes of options. The
Exchange believes that requiring two
Trading Officials to act in this scenario
is unnecessary and allowing a single
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Trading Official to act would allow for
a more efficient process, especially in
cases where a decision must be made
quickly in light of fast moving market
events. The Exchange also notes that
NYSE American Rule 925NY(b)(1)(E),
the rule it seeks to harmonize Exchange
Rule 6.37–O, allows for a single Trading
Official to establish differences for one
or more series or classes of options.
Each of these provisions would mirror
NYSE American Rule 925NY(b)(1)(A)
through (E).
Current paragraph (b)(1)(F) of Rule
6.37–O states that a Trading Official
may, with respect to options trading
with a bid price less than $2, establish
bid-ask differentials that are no more
than $0.50 wide (‘‘double-width’’) when
the primary market for the underlying
security: (a) Reports a trade outside of
its disseminated quote (including any
Liquidity Quote); or (b) disseminates an
inverted quote. The imposition of
double-width relief must automatically
terminate when the condition that
necessitated the double-width relief
(i.e., condition (a) or (b)) is no longer
present. Market Makers that have not
automated this process may not avail
themselves of the relief provided herein
(i.e. they may not manually adjust
prices). The Exchange notes that NYSE
American Rule 925NY does not contain
a similar provision and, therefore, the
Exchange does not propose to carry over
current paragraph (b)(1)(F) of Rule 6.37–
O to the harmonized rule. Furthermore,
the Exchange notes that this provision is
not necessary because a Trading Official
would have the ability to widen
differences for one or more series or
classes of options in such scenario
pursuant to paragraph (b)(4)(E) of
Exchange Rule 6.37–O discussed above.
Current paragraph (b)(1)(G) of Rule
6.37–O states that quotes given in open
outcry may not be quoted with $5
widths and instead must comply with
the legal width requirements specified
in paragraph (b)(1)(A)–(F) of Rule 6.37–
O. This requirement would be moved to
paragraph (b)(5) of Rule 6.37–O and be
rephrased to be harmonized with NYSE
American Rule 925NY(b)(5) and would
require that electronically submitted
quotes to the System during Core
Trading Hours may not have a
difference exceeding $5 between the bid
and offer regardless of the price of the
bid. Paragraph (b)(5) of Rule 6.37–O
would also provide that two Trading
Officials may establish quote width
differences other than as provided in
paragraph (b)(5) of Rule 6.37–O for one
or more option series. This is consistent
with NYSE American Rule 925NY(b)(5).
The Exchange proposes to adopt the
text of NYSE American Rule
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47223
925NY(b)(6) under proposed paragraph
(b)(6) of Exchange Rule 6.37–O and
require that, in response to a call for a
market from a Floor Broker, a Market
Maker may bid no more than $1 lower
and/or offer no more than $1 higher
than the last preceding transaction price
for the particular option contract.
However, this standard would not
ordinarily apply if the price per share
(or other unit of trading) of the
underlying security or Exchange-Traded
Fund Share has changed since the last
preceding transaction for the particular
option contract, in which event a
Market Maker may then bid no lower
than or offer no more than $1 plus the
aggregate change in the price per share
(or other unit of trading) of the
underlying security or Exchange-Traded
Fund Share since the time of the last
preceding transaction for the particular
option contract. This provision would
apply from one day’s close to the next
day’s opening and from one transaction
to the next in intra-day transactions.
With respect to inter-day transactions,
this provision applies if the closing
transaction occurred within one hour of
the close and the opening transaction
occurred within one hour after the
opening. With respect to intra-day
transactions, this provision applies to
transactions occurring within one hour
of one another. A Trading Official may
waive the provisions of this paragraph
in an index option when the primary
underlying securities market for that
index is not trading. Nothing in
paragraph (b)(6) of Exchange Rule 6.37–
O would alter the maximum bid/ask
differentials established by paragraph
(b)(4)–(5) of Rule 6.37–O discussed
above.
Proposed Paragraph (c), Unusual
Conditions—Opening Auction. The
Exchange proposes to adopt the text of
NYSE American Rule 925NY(c) under
proposed paragraph (c) of Exchange
Rule 6.37–O which would govern quote
width differentials where a Trading
Official declares an Unusual Market
Condition during the opening auction.
Current paragraph (b)(4) of Exchange
Rule 6.37–O discusses where a Trading
Official may declare a fast market and
declare wider quote width differentials
and these provisions would be
substantially similar to proposed
paragraph (c) of Exchange Rule 6.37–O.
As proposed, if the Trading Official
finds that it in the interest of
maintaining a fair and orderly market so
requires, he or she may declare that
unusual market conditions exist in a
particular issue and allow Market
Makers in that issue to make auction
bids and offers with spread differentials
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of up to two times, or in exceptional
circumstances, up to three times, the
legal limits permitted under proposed
Exchange Rule 6.37–O. In making such
determinations to allow wider markets,
the Trading Official should consider the
following factors: (A) whether there is
pending news, a news announcement or
other special events; (B) whether the
underlying security or Exchange-Traded
Fund Share is trading outside of the bid
or offer in such security then being
disseminated; (C) whether OTP Holders
and OTP Firms receive no response to
orders placed to buy or sell the
underlying security; and (D) whether a
vendor quote feed is clearly stale or
unreliable.
Paragraph (c)(1) of Exchange Rule
6.37–O would further require that a
Trading Official who declared the
unusual market conditions to file a
report with Exchange Operations setting
forth the relief granted, the time and
duration of such relief and the reasons
behind declaring an unusual market
condition. This provision would mirror
NYSE American Rule 925NY(c)(1).
Proposed Paragraph (d), In Classes of
Option Contracts Other Than Those to
Which Appointed. Current Exchange
Rule 6.37–O(c) governs a Market
Maker’s activities in options classes in
which it has not been assigned pursuant
to Exchange Rule 6.35–O. The Exchange
proposes to renumber paragraph (c) of
Exchange Rule 6.37–O as paragraph (d)
and replace its text with that of NYSE
American Rule 925NY(d). Proposed
paragraph (d) of Exchange Rule 6.37–O
would be substantially similar to
current paragraph (c). As proposed,
Market Makers would continue to be
prohibited from engaging in transactions
for an account in which they have an
interest that are disproportionate in
relation to, or in derogation of, the
performance of their obligations as
specified in Rule 6.37–O with respect to
the classes in their appointment.
Whenever Market Makers enter the
trading crowd for a class of options in
which they do not hold an appointment,
they must fulfill the obligations
established by Exchange Rule 6.37–O. In
addition, when present anywhere on the
Trading Floor, with regard to all
securities traded on the Trading Floor,
Market Makers are expected to
undertake the obligations specified in
paragraph (b) of Exchange Rule 6.37–O
discussed above in response to a
demand therefore from the Trading
Official that the performance of such
obligations by other Market Makers
requires supplementation.
Current paragraphs (c)(2) and (3) also
prohibit Market Makers from
individually or as a group, intentionally
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or unintentionally, dominating the
market in option contracts of a
particular class and effecting purchases
or sales on the floor of the Exchange
except in a reasonable and orderly
manner. These provisions would be
renumbered as paragraphs (d)(1) and (2)
under Exchange Rule 6.37–O and would
mirror NYSE American Rule 925NY(d).
The only difference from the current
text is that paragraph (d)(2) of Exchange
Rule 6.37–O would not specifically
reference the floor of the Exchange as
the rule would apply equally to all
Market Makers, regardless of whether
they are located on the floor of the
Exchange or engage in market making
electronically from a location off the
Exchange floor.
Current paragraphs (c)(1) and (c)(4) of
Exchange Rule 6.37–O would not be
carried over as part of the new rule. The
Exchange notes that these provision are
outdated and are not included in the
current NYSE American Rule 925NY to
which the Exchange seeks to harmonize
its Market Maker obligations. Paragraph
(c)(1) of Exchange Rule 6.37–O currently
prohibits Market Makers from
congregating in a particular class of
option contract. The purpose of this rule
was to prevent Market Makers from
dominating the market for an option
when options were listed and traded
verbally on a single exchange. Today,
options are traded on numerous
exchanges electronically significantly
reducing the ability of a group of Market
Makers on a single exchange from
engaging in manipulative activity.
Further, other Exchange rules address
the manipulation concern that current
paragraph (c)(1) of Rule 6.37–O was
intended to address. For example,
Exchange Rule 11.5 prohibits market
manipulation on the Exchange
generally. Exchange Rule 11.20(a)(1)
also prohibits members, including
Market Makers, from knowingly
managing or financing a manipulative
operation, which would include
congregating in a particular class of
securities to manipulate or dominate the
market.
Paragraph (c)(4) of Exchange Rule
6.37–O states that whenever a Floor
Broker enters a trading crowd and calls
for a market in a particular option
series, each Market Maker present at the
trading post will be obligated to vocalize
a two-sided, legal-width market
(pursuant to former Exchange Rule
6.37–O(b)(1)) for a minimum of 10
contracts. Market Makers would
continue to be required to make legalwide markets in compliance with
proposed Exchange Rule 6.37–O(b).
However, Market Makers would no
longer be required to quote for a least 10
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Sfmt 4703
contracts. The 10 contract requirement
is antiquated and not necessary in a
market environment where options are
traded electronically on multiple
exchanges. Furthermore, the 10 contract
requirement is not included in the rules
of NYSE American Rule 925NY or other
options exchanges.11 Current Exchange
Rule 6.37B–O(b) and (c) (proposed to be
renumbered as Exchange Rule 6.37A–O)
would require that Market Maker
quotations meet the legal quote width
requirements of proposed Exchange
Rule 6.37–O.
Paragraph (c)(4) of Exchange Rule
6.37–O states that its obligation to
provide a legal-width market only
applies to: (A) Market Makers who have
executed a transaction in the issue, but
not those who have been assigned
contracts by the Trading Official
pursuant to Commentary .05, on the day
of the Floor Broker’s call for a market or
on the previous business day; (B) option
issues that are ranked in the 120 most
actively traded equity options based on
the total number of contracts traded
nationally as reported by the Options
Clearing Corporation (for each current
month, the Exchange’s determination of
whether an equity option ranks in the
top 120 most active issues is based on
volume statistics for the one month of
trading activity that occurred two
months prior to the current month); (C)
non-broker-dealer orders; and (D) series
not designated as LEAPS (pursuant to
Exchange Rule 6.4). With respect to (A)
and (B) above, the provision to provide
a legal-width market under proposed
Exchange Rule 6.37–O(b) would apply
to all options to which a Market Maker
is appointed and would not be limited.
With respect to (C) above regarding
providing a quote to non-broker-dealer
orders, paragraph (e) of Exchange Rule
6.37B–O (proposed to be renumbered as
Exchange Rule 6.37A–O) would
continue to state that ‘‘[a] Market Maker
shall be compelled to buy/sell a
specified quantity of option contracts at
the disseminated bid/offer pursuant to
his obligations under Rule 6.86–O.’’
This rule would preclude a Market
Maker from not honoring its quotation
against non-broker-dealer orders.
Therefore, current paragraph (c)(4)(C) is
not necessary to be included in
proposed Rule 6.37–O(c). Lastly, current
paragraph (D) states that the paragraph
(c)(4) would not apply to series
designated as LEAPS. The Exchange
notes that current paragraph (b) and (c)
of Exchange Rule 6.37B–O (proposed to
11 See e.g., Cboe Exchange, Inc. Rule 8.7 and
Nasdaq Options Rules, Chapter VII, Sections 5 and
6 (no including a requirement that a market maker’s
quotation be for at least 10 contracts).
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be renumbered as Exchange Rule
6.37A–O) set forth Market Maker
quoting obligation and Commentary .01
of that rule states that those quoting
obligation ‘‘shall not apply to Market
Makers with respect to adjusted option
series, and series with a time to
expiration of nine months or greater’’,
i.e., LEAPS. Therefore, as amended, the
quoting obligations set forth in proposed
Rule 6.37–O would continue to not
apply to LEAPS.
Deletion of Current Paragraph (d), In
Person Requirements for Market Makers.
The Exchange proposes to remove the
text of current paragraph (d) of
Exchange Rule 6.37–O because no
similar provision is included in NYSE
American Rule 925NY to which the
Exchange seeks to harmonize its Market
Maker obligations. Furthermore, this
provision is unnecessary as it conflicts
with more stringent requirements set
forth in current Exchange Rule 6.35–O
described below. Current Exchange Rule
6.37–O(d) sets forth in-person
requirements for Market Makers and
requires that an adequate number of
Market Makers be available throughout
each trading session. Exchange Rule
6.37–O(d) requires the following
minimum in-person trading
requirements: At least 60% of a Market
Maker’s transactions must be executed
by the Market Maker in-person or
through an approved facility of the
Exchange. Orders executed for a Market
Maker through a Floor Broker will not
be credited toward the 60%
requirement. A failure to comply with
this 60% in-person trading requirement
may result in a fine pursuant to Rule
10.12; however, if aggravating
circumstances are present, formal
disciplinary action may be taken
pursuant to Rule 10.4. Exchange Rule
6.37–O(d) further states that in order to
assure compliance with the spirit and
intent of the 60% requirement, the
Exchange may review each of the
Market Maker’s transactions used to
meet the 60% requirement.
The Exchange does not proposes to
include the text of current paragraph (d)
to Exchange Rule 6.37–O as this
requirement conflicts with Exchange
Rule 6.35–O(i), which sets forth a higher
standard and applies to Market Maker
activity both on the floor and conducted
electronically. Specifically, paragraph
(i) of Exchange Rule 6.35–O requires
that at least 75% of the trading activity
of a Market Maker (measured in terms
of contract volume per quarter) must be
in classes within the Market Maker’s
appointment. Paragraph (j) of Exchange
Rule 6.35–O set forth how the Exchange
would calculate whether the Market
Maker satisfied the requirements of
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paragraph (i) and sets forth the penalties
for non-compliance.
Proposed (e), Prohibited Practices and
Procedures. The Exchange proposes to
retain the text of current paragraph (e)
of Exchange Rule 6.37–O. The Exchange
notes that the text of current Exchange
Rule 6.37(e) is identical to NYSE
American Rule 925NY(e). Any practice
or procedure whereby Market Makers
trading any particular option issue
determine by agreement the spreads or
option prices at which they will trade
that issue would continue to be
prohibited. In addition, any practice or
procedure whereby Market Makers
trading any particular option issue
determine by agreement the allocation
of orders that may be executed in that
issue would also continue to be
prohibited.
Proposed Paragraph (f). Exchange
Rule 6.37–O(f) discusses when members
of a trading crowd may act collectively
in response to a request for a market.
The Exchange proposes to replace the
current text of paragraph (f) to Exchange
Rule 6.37–O with the text of NYSE
American Rule 925NY(f). But for minor
differences explained below, the revised
text is substantially similar to the
existing text of Exchange Rule 6.37–O(f).
The proposed amendment would
harmonize the rule with that of NYSE
American Rule 925NY(f). Current
paragraph (f) of Rule 6.37–O states that
notwithstanding the prohibitions set
forth in Subsection (e), the LMM and
members of the trading crowd are
permitted to act collectively as set forth
below: (1) The obligation of Market
Makers to make competitive markets
does not preclude the LMM and
members of the trading crowd from
making a collective response to a
request for a market, provided the OTP
Holder or OTP Firm representing the
order requests such a response in order
to fill a large order (for purposes of this
rule, a large order is an order for a
number of contracts that is greater than
the eligible order size for automatic
execution pursuant to Rule 6.87) and;
(2) in conjunction with their obligations
as a responsible broker or dealer
pursuant to Exchange Rule 6.86–O and
Rule 602 of Regulation NMS, the Firm
Quote Rule,12 the LMM and Market
Makers in the trading crowd may
collectively agree to the best bid, best
offer and aggregate quotation size
required to be communicated to the
Exchange pursuant to Rule 6.86(c).
Although the language proposed in
Exchange Rule 6.37–O would differ
12 17 CFR 242.602. The Exchange notes that Rule
11Ac1–1 under the Act has been renumbered as
Rule 602 of Regulation NMS.
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47225
from that currently set forth in Rule
6.37–O(f), the application and meaning
of the rule would be the same. Like as
set forth under current paragraph (f)(1)
of Rule 6.37–O, Market Makers in a
trading crowd would continue to be able
to discuss a request for a market that is
greater than the disseminated size for
that option class, for the purpose of
making a single bid (offer) based upon
the aggregate of individual bids (offers)
by members in the trading crowd, but
only when the member representing the
order asks for a single bid (offer). Also,
like as required in current paragraph
(f)(1) of Rule 6.37–O, proposed
paragraph (f) to Rule 6.37–O would
continue to require that such bids or
offers are firm quotes and each member
of the trading crowd participating in the
bid (offer) shall be obligated to fulfill his
portion of the single bid (offer) at the
single price. Such bids and offers
would, therefore, continue to be
required to comply with Exchange Rule
6.86–O, Firm Quotes, and Rule 602 of
Regulation NMS, even though those
rules are not specifically mentioned by
number. Market Maker quotations must
comply with their firm quote obligations
set forth in Exchange Rule 6.86–O and
Rule 602 of Regulations NMS regardless
of whether those rules are specifically
mentioned in proposed Exchange Rule
6.37–O(f). Furthermore, paragraph (e) of
Exchange Rule 6.37B–O (proposed to be
renumbered as Exchange Rule 6.37A–O)
would continue to state that ‘‘[a] Market
Maker shall be compelled to buy/sell a
specified quantity of option contracts at
the disseminated bid/offer pursuant to
his obligations under Rule 6.86–O.’’ The
text of proposed paragraph (f) of Rule
6.37–O would also mirror the text of
NYSE American Rule 925NY(f).
Proposed paragraph (f) of Rule 6.37–
O would state that the obligation of
Market Makers to make competitive
markets does not preclude Market
Makers in a trading crowd from
discussing a request for a market that is
greater than the disseminated size for
that option class, for the purpose of
making a single bid (offer) based upon
the aggregate of individual bids (offers)
by members in the trading crowd, but
only when the member representing the
order asks for a single bid (offer).
Whenever a single bid (offer) pursuant
to this paragraph is made, such bid
(offer) shall be a firm quote and each
member of the trading crowd
participating in the bid (offer) shall be
obligated to fulfill his portion of the
single bid (offer) at the single price.
Commentary. First, the Exchange
proposes to harmonize the leave of
absence requirements under current
Commentary .07 to Exchange Rule 6.37–
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O with that of Commentary .01 to NYSE
American Rule 925NY. Specifically, the
Exchange proposes to adopt the text of
Commentary .01 to NYSE American
Rule 925NY as Commentary .01 to
Exchange Rule 6.37–O. As amended,
like current Commentary .07(a), (b), and
(c) to Exchange Rule 6.37–O,
Commentary .01(a), (b), and (c) would
allow Market Makers to request leaves
of absence when they plan to be away
from the floor or temporarily withdraw
from submitting quotations into the
System for periods in excess of two
weeks during a calendar quarter.
Requests for leaves of absence must
continue to be submitted in writing to
the Exchange prior to the
commencement of the intended leave.
Lastly, while on leave, Market Makers
will continue to not be permitted to
make opening transactions in Exchange
listed options, in their Market Maker
accounts, through the use of a Floor
Brokers, except as provided in Exchange
Rule 6.32–O, Commentary .01. The
Exchange does not proposes to retain
the paragraph (d) of Commentary .07 to
Exchange Rule 6.37–O under new
Commentary .01 as that provision is
outdated and is not part of NYSE
American Rule 925NY to which the
Exchange seeks to harmonize.
Furthermore, the Exchange does not
propose to retain the remaining
provisions, Commentary .01 through .06
and .08 through .09 of the Commentary
to Exchange Rule 6.37–O. These
provisions are outdated for the reasons
discussed below, and not included in
the current NYSE American Rule 925NY
to which the Exchange seeks to
harmonize its Market Maker obligations.
Current Commentary .01 states that
the limitations of Rule 6.37–O(b)(2)
should not be carried over from one day
to the next, and therefore are not
applicable to the Exchange’s opening.
The Exchange notes that current
paragraph (b)(2) to Rule 6.37–O simply
states ‘‘Reserved’’ and, therefore,
includes no limitations that the rule
would need to specify would not be
carried over to the next trading day or
apply to the Exchange’s opening
process. Not retaining this provision in
the amended rule would remove
potentially confusing text referencing an
outdated provision in the Exchange’s
rules, thereby ensuring the Exchange’s
rules are clear and easily understood.
Further, this provisions is not included
in the current NYSE American Rule
925NY to which the Exchange seeks to
harmonize its Market Maker obligations.
Current Commentary .02 states that
the bid-ask differentials as stated in
paragraph (b)(1) of Rule 6.37–O shall
apply to all option series open for
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trading in each option class. This
provision is not necessary as the rule, by
its terms, applies to all Market Makers
appointed in an options class on the
Exchange.13 This provision is also not
included in the current NYSE American
Rule 925NY.
Current Commentary .03 states that
when a Market Maker displays a market
on the screen that is the best market in
that crowd, the Market Maker is
obligated to ensure that its market is
removed from the screen when the
Market Maker leaves the crowd. Current
Commentary .03 is applicable only to
Market Maker activity in a floor-based
market. In addition, Market Makers who
post a quotation, whether in the crowd
or not, are required to comply with their
firm quote obligations under Exchange
Rule 6.86–O and Rule 602(b) of
Regulation NMS. If the Market Maker
leaves the crowd, it is up to them to
remove their quote or to honor any
executions that occur while their quote
remains posted. Further, this provision
is not included in the current NYSE
American Rule 925NY.
Current Commentary .04 states that
the obligations of a Market Maker with
respect to those classes of option
contracts to which he holds an
appointment, pursuant to Rule 6.35–O,
shall take precedence over his other
Market Maker obligations. This
provision is not included in the current
NYSE American Rule 925NY. This
provision is also not necessary as
proposed Rule 6.37–O(b) would include
all of a Market Makers obligations for
options classes for which they are
appointed, and a Market Maker would
be required to satisfy those obligations
regardless of whether that Market Maker
is engaged in other market making
activities. Furthermore, proposed
paragraph (d) to Exchange Rule 6.37–O
states that ‘‘[w]ith respect to classes of
option contracts outside of their
appointment, Market Makers should not
engage in transactions for an account in
which they have an interest that are
disproportionate in relation to, or in
derogation of, the performance of their
obligations as specified in this Rule
with respect to the classes in their
appointment.’’
Current Commentary .05 states that
whenever a Floor Broker enters a
trading crowd and calls for a market in
any class and series at that post, each
Market Maker present at the post where
the option is traded is obligated, at a
minimum, to make a market for one
contract except as provided for in Rule
6.37–O(b)(5) and Rule 6.37–O(c)(4), at
the established price. In addition, the
Exchange may determine that Market
Makers in trading crowds shall increase
the depth of their markets as set forth in
Options Floor Procedure Advice B–12.
In the event a Floor Broker is unable to
satisfy his order from bids and offers
given in the crowd, the Trading Official
may assign one contract to every Market
Maker present within the primary zone
to assist the Floor Broker in satisfying
his order. If a Market Maker at the post
either bids lower or offers higher than
the established market, such Market
Maker shall be obligated to trade one
contract at the price quoted by the
Market Maker. This provision is not
necessary and is not included in the
current NYSE American Rule 925NY.
As amended, proposed Rule 6.37–
O(b)(2) would require a Market Maker to
make markets that will be honored for
the number of contracts entered into the
System in all series of options classes
within the Market Maker’s appointment.
Current Commentary .06 states that
the maintenance of a fair and orderly
market has been determined to be
impaired in instances where a Market
Maker refuses to honor a market
quotation that has just been given, in
response to a request for a market. This
provision is not necessary as the
proposed rule requires Market Makers to
enter two-sided quotations in the
options classes that they are appointed
and to honor those quotations.14 This
provision is also not included in the
current NYSE American Rule 925NY.
Current Commentary .08 states that a
Market Maker may be compelled to buy/
sell a specified quantity of option
contracts at the disseminated bid/offer
pursuant to his obligations under Rule
6.86–O. The Exchange does not
proposes to retain this provision as a
similar provision is not included in the
current NYSE American Rule 925NY. In
addition, the obligation set forth in
Commentary .08 are redundant with
Market Maker’s obligation to not only
comply with the Exchange’s firm quote
obligations set forth under Exchange
Rule 6.86–O, but also their obligations
to comply with Rule 602 of Regulation
NMS. Moreover, a Market Maker’s firm
quote obligations are also discussed in
proposed paragraph (b)(2) to Exchange
Rule 6.37–O which requires Market
Makers to make markets that will be
honored for the number of contracts
entered into the System.
Current Commentary .09 states that
the Exchange or its authorized agent
may calculate bids and asks for various
indices for the sole purpose of
13 See proposed Exchange Rule 6.37–O(b) and
(b)(4).
14 See proposed paragraphs (b) and (f) of
Exchange Rule 6.37–O.
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determining permissible bid/ask
differentials on options on these
indices. These values will be calculated
by determining the weighted average of
the bids and asks for the components of
the corresponding index. These bids
and asks will be disseminated by the
Exchange at least every fifteen (15)
seconds during the trading day solely
for the purpose of determining the
permissible bid/ask differential that
Market Makers may quote on an in-themoney option on the indices. For in-themoney series in index options where the
calculated bid/ask differential is wider
than the applicable differential set out
in subparagraph (b)(1) of Rule 6.37–O,
the bid/ask differential in the index
option series may be as wide as the
calculated bid/ask differential in the
underlying index. The Exchange will
not make a market in the basket of stock
comprising the indices and is not
guaranteeing the accuracy or the
availability of the bid/ask values. This
provision is not necessary as the
Exchange no longer performs the
calculations described in the
Commentary .09. Removing this
provision would, therefore, more
accurately describe the operation of the
system in the Exchange’s rules. A
similar provision is also not included in
the current NYSE American Rule
925NY.
Exchange Rule 6.41–O, Market Maker
Marketing Reports
The Exchange proposes to delete the
text of Exchange Rule 6.41–O, entitled
Market Maker Marketing Reports.
Exchange Rule 6.41–O states that the
Exchange will provide its Market
Makers with statistical reports designed
to measure trading volume and
participation in trading activity in each
option issue traded on the Exchange.
The reports are to provide monthly
trading information that identifies, by
order flow provider, the issue and
number of contracts traded, the Lead
Market Maker post where the issue is
traded, the contra and executing broker
symbols, and whether the trade was
executed through the Exchange’s OX
electronic trading system or manually in
the trading crowd. Under its rules, the
Exchange currently provides other
reports, including reports related to
compared trades.15 However, the
Exchange no longer provides the report
described in Exchange Rule 6.41–O to
Market Makers, no Market Maker has
requested such report, no other rule or
regulation requires the Exchange to
provide such report, and that the rules
15 See
Exchange Rules 6.18–O, 6.19–O, and 6.21–
O.
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of its affiliate, NYSE American, do not
include a similar provision. Therefore,
the Exchange proposes to delete the text
of Exchange Rule 6.41–O to avoid
potential confusion regarding the
specific reports produced by the
Exchange. The Exchange also proposes
to delete a cross-reference to Exchange
Rule 6.41–O in Exchange Rule 11.16,
Books and Records.
Exchange Rule 6.43–O, Options Floor
Broker Defined
The Exchange proposes to amend
6.43–O(b)(1) and (2) to replace the
definition of ‘‘Professional Customer’’
with the single-use term ‘‘Qualified
Customer’’ in connection with the
limited public business that qualified
Floor Brokers and their Floor Clerks
may conduct. Rule 6.43–O(b) defines
both the permissible conduct of a
limited public business and defines the
term ‘‘Professional Customer’’, for
purposes of Rule 6.43–O(b).16 Exchange
Rule 6.1A–O(4A) also defines the term
‘‘Professional Customer’’, but does so
differently.17 To avoid unnecessary
complexity or confusion concerning the
duplicate definitions of ‘‘Professional
Customer’’, the Exchange proposes to
amend 6.43–O(b) to replace the
definition of ‘‘Professional Customer’’
with the single-use term ‘‘Qualified
Customer’’ in connection with the
limited public business, and to limit the
use of ‘‘Qualified Customer’’ to Rule
6.43–O(b). This proposed change would
also harmonize NYSE Arca Rule 6.43–
O(b)(1) and (2) with NYSE American
Rules 930NY(b)(1) and (2).18
16 Exchange Rule 6.43(b)(2) defines ‘‘Professional
Customer’’ as ‘‘a bank; trust company; insurance
company; investment trust; a state or political
subdivision thereof; charitable or nonprofit
educational institution regulated under the laws of
the United States, or any state, or pension or profit
sharing plan subject to ERISA or of any agency of
the United States as of a state or political
subdivision thereof; or any person (other than a
natural person) who has, or who has under
management, net tangible assets of at least sixteen
million dollars.’’
17 The definition of ‘‘Professional Customer’’ in
Rule 6.1A–O(4A), which is broader than the
definition in Rule 6.43–O(b)(2), defines a
‘‘Professional Customer’’ as an individual or
organization that is not a Broker/Dealer in securities
and places more than 390 orders in listed options
per day on average during a calendar month for its
own beneficial account(s). Rule 6.1A–O(4A) also
defines the treatment of a Professional Customer
under various Exchange rules except Rule 6.43–
O(b), and defines how to calculate the number of
Professional Customers orders in connection with
different order types.
18 See Securities Exchange Act Release No. 81670
(September 21, 2017), 82 FR 45095 (September 27,
2017) (SR–NYSEAMER–2017–18) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change To Update and Amend its Options Rules,
as Described Herein, To Reduce Unnecessary
Complexity and To Promote Standardization and
Clarity).
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Exchange Rule 6.47–O, ‘‘Crossing’’
Orders—OX
The Exchange proposes to amend
Rule 6.47–O, its crossing rule, by
replacing outdated references to the
requirement that execution prices ‘‘be
equal to or better than the NBBO’’ with
updated cross-references to the Rule
6.94–O, the current plenary Order
Protection Rule. In addition, in
connection with non-facilitation
(regular way) crosses, facilitation
procedures, crossing of solicited orders,
and customer-to-customer crosses, the
Exchange proposes to delete from Rules
6.47–O(a)(3), (b)(5), (c)(3), and (e)(3) the
sentences that provide that ‘‘[t]he orders
will be cancelled or posted in the Book
if an execution would take place at a
price that is inferior to the NBBO’’.
Exchange Rule 6.94–O governs such
situations, and the orders will not be
cancelled or posted but would trade
through in accord with the exemptions
in Exchange Rule 6.94–O. This
proposed change would also harmonize
NYSE Arca Rule 6.47–O with NYSE
American Rules 934NY.19
Exchange Rule 6.67–O, Order Format
and Entry Requirements
The Exchange proposes to amend
Rule 6.67–O(d)(2)(A) to replace an
outdated reference to require
timestamps be synchronized to the
‘‘NIST Clock’’ with a reference to Rule
11.6820, the current Consolidated Audit
Trail (‘‘CAT’’) clock synchronization
rule. Specifically, in connection with
Rule 6.67–O(d)(2)(A), which governs
contingency reporting procedures when
an exception to the Electronic Order
Capture System (‘‘EOC’’) applies, the
Exchange proposes to delete an
outdated reference to ‘‘(a timestamp
synchronized with the National Institute
of Standards and Technology Atomic
Clock in Boulder Colorado ‘NIST Clock’
will be available at all OTP Holder and
OTP Firm booths and trading posts’’ and
replace it with a requirement that all
order events must conform to the
requirements of Rule 11.6820. For
further clarity, the Exchange also
proposes to delete ‘‘immediately’’ from
the text of the rule because Rule 11.6820
sets the operative standard. This
proposed change would also harmonize
NYSE Arca Rule 6.67–O(d)(2)(A) with
NYSE American Rules
955NY(d)(2)(A).20
Exchange Rule 6.69–O, Reporting Duties
The Exchange proposes to amend
Exchange Rule 6.69–O(b)(iii) to
harmonize it with NYSE American Rule
19 Id.
20 Id.
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957NY(b)(iii). Exchange Rule 6.69–O(b)
governs reporting of transactions on the
options floor and subparagraph (iii) is
specific to Complex Orders. In
particular, subparagraph (b)(iii) of Rule
6.69–O currently states that for Complex
Order transactions, ‘‘between two Floor
Brokers or two Market Makers, the party
responsible for reporting the transaction
shall be the OTP Holder that first
initiated the transaction.’’ The Exchange
proposes to delete this language and
replace it with ‘‘where the transaction is
made up of both buy and sell orders and
priced on a net debit/credit basis, the
seller shall be determined to be the OTP
Holder participating on the ‘debit’ side
of the trade.’’ Doing so would
harmonize the reporting requirements
for Complex Orders under Rule 6.69–
O(b)(iii) with those for complex orders
under NYSE American Rule
957NY(b)(iii),21 thereby providing
consistent reporting obligations across
the Exchange and its affiliate.
Exchange Rule 6.75–O, Priority and
Order Allocation Procedures—Open
Outcry
The Exchange proposes to conform
Rule 6.75–O governing the priority of
Complex Orders 22 in open outcry to its
Rule 6.91–O governing Electronic
Complex Orders.23 Rule 6.91–O(a)(1)
governs the priority of Electronic
Complex Orders 24 in the Consolidated
Book and states that ‘‘Electronic
Complex Orders in the Consolidated
Book shall be ranked according to price/
time priority based on the total or net
debit or credit and the time of entry of
the order’’ (emphasis added).25
Specifically, the Exchange proposes to
conform Rule 6.75–O(g) to Rule 6.91–
O(a)(1) by amending Rule 6.75–O(g) to
provide that a Complex Order and
Stock/Complex Orders may be executed
at a ‘‘total or’’ net debit or credit price.
The proposed change would, therefore,
not result in any change to the manner
in which Complex Orders are handled
under the Exchange’s rules. This
proposed change would also harmonize
Exchange Rule 6.75–O(g) with NYSE
American Rule 963NY(d).26
21 Id.
22 See
NYSE Arca Rule 6.62–O(e).
NYSE Arca Rule 6.91–O.
24 An ‘‘Electronic Complex Order’’ means ‘‘any
Complex Order as defined in Rule 6.62–O(e) or any
Stock/Option Order or Stock/Complex Order as
defined in Rule 6.62–O(h) that is entered into the
NYSE Arca System (the ‘System’).’’ Id.
25 See Exchange Rule 6.91–O(a)(1).
26 Securities Exchange Act Release No. 81670
(September 21, 2017), 82 FR 45095 (September 27,
2017) (SR–NYSEAMER–2017–18) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change To Update and Amend its Options Rules,
as Described Herein, To Reduce Unnecessary
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2. Statutory Basis
The proposed rule changes are
consistent with Section 6(b) 27 of the
Act, in general, and furthers the
objectives of Section 6(b)(5),28 in
particular, in that they are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
Specifically, the Exchange believes
that conforming and harmonizing its
rules to the rules of an affiliated
exchange governing the same subject
matter, updating its rules by
harmonizing its Market Maker
obligation with its affiliate, NYSE
American, deleting outdated and
updating rule cross-references,
eliminating extraneous or redundant
text, and therefore potentially confusing
or ambiguous language, would remove
impediments to and perfect a national
market system by simplifying and
reducing the complexity of its rules and
regulatory requirements. The Exchange
notes that it and its affiliate, NYSE
American, operate in a similar manner
and consistent rules across the
Exchange and NYSE American would
reduce the likelihood of potential
investor confusion. Furthermore, the
proposed rule change would provide for
standardized rules and a consistent set
of obligations for common members as
well as those members that are engaged
in market making activities on both the
Exchange and NYSE American. The
Exchange also believes that these
proposed amendments would be
consistent with the public interest and
the protection of investors because
investors would benefit from the
proposal to harmonize, simplify, update
and clarify the rules discussed herein.
Further, the Exchange believes that the
proposed rule change would benefit
investors by improving the transparency
and clarity of the Exchange’s rules.
In particular, the Exchange believes
that by updating and conforming its
rules governing Market Maker
obligations to the rules of NYSE
American, its affiliated exchange,
removes impediments to and perfects
the mechanism of a free and open
market and a national market system by
providing consistent, standardized rules
governing Market Makers across both
Complexity and To Promote Standardization and
Clarity).
27 15 U.S.C. 78f(b).
28 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
the Exchange and its affiliate. It should
also aid those firms that engage in
market making activity on both the
Exchange and NYSE American with
identical obligations, thereby aiding
those firms in complying with the
Exchange’s rules by providing a
harmonized set of regulatory
obligations.
Furthermore, by removing extraneous
language from Exchange Rule 6.17–O,
Commentary .01, deleting outdated text
under Exchange Rule 6.41–O regarding
a report no longer produced to Market
Makers by the Exchange, replacing the
definition of ‘‘Professional Customer’’
with the single-use term ‘‘Qualified
Customer’’ under Exchange Rule 6.43–O
in connection with the limited public
business that qualified Floor Brokers
and their Floor Clerks may conduct, by
harmonizing Exchange Rule 6.47–O, its
crossing rule, with NYSE American
Rule 934NY by replacing outdated and
potentially ambiguous references to the
NBBO with cross-references to the
current plenary Order Protection Rule,
by updating and clarifying Exchange
Rule 6.67–O governing its order format
and system entry requirements by
replacing an outdated reference with a
reference to the current operative CAT
time synchronization rule, and by
conforming Exchange Rule 6.75–O
governing the priority of complex orders
in open outcry to its rule governing
Electronic Complex Orders, would also
promote just and equitable principles of
trade, would remove impediments to
and perfects the mechanism of a free
and open market and a national market
system, and, in general, would help to
protect investors and the public interest
by providing transparency as to which
rules are operable, and by reducing
potential confusion that may result from
having outdated or redundant rules or
cross-references in the Exchange’s
rulebook. Lastly, the Exchange notes
that the proposed changes to Exchange
Rules 6.37–O, 6.43–O(b), 6.47–O, 6.67–
O(d)(2)(A), 6.69–O(b)(iii), and 6.75–O(g)
are based on the rules of its affiliate,
NYSE American.29 The Exchange
further believes that the proposed rule
changes would remove impediments to
and perfect the mechanism of a free and
open market by ensuring that members,
regulators and the public can more
29 See, e.g., NYSE American Rules 925NY,
930NY, 934NY, 955NY, 957NY, and 936NY. See
also, e.g., Securities Exchange Act Release No.
81670 (September 21, 2017), 82 FR 45095
(September 27, 2017) (SR–NYSEAMER–2017–18)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Update and Amend its
Options Rules, as Described Herein, To Reduce
Unnecessary Complexity and To Promote
Standardization and Clarity).
E:\FR\FM\18SEN1.SGM
18SEN1
Federal Register / Vol. 83, No. 181 / Tuesday, September 18, 2018 / Notices
easily navigate and understand the
Exchange’s rulebook, thereby avoiding
potential confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule changes will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes are not designed to
address any competitive issue or attract
additional order flow to the Exchange.
Rather, these changes would update,
remove, and clarify outdated crossreferences and definitions, and
redundant language, and also conform
the Exchange’s rules and definitions to
the rules of an affiliated exchange,
thereby reducing potential confusion
and making the Exchange’s rules easier
to understand and navigate. The
Exchange notes that it and its affiliate,
NYSE American, operate in a similar
manner and consistent rules across the
Exchange and NYSE American would
reduce the likelihood of potential
investor confusion. Therefore, the
proposed rule change is not intended to
impose a burden on competition but
rather provide for standardized rules
and a consistent set of obligations for
common members as well as those
members that are engaged in market
making activities on both the Exchange
and NYSE American.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
daltland on DSKBBV9HB2PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 30 and Rule
19b–4(f)(6) thereunder.31 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
30 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
31 17
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Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 32 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2018–65 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–NYSEARCA–2018–65. 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
32 15
PO 00000
U.S.C. 78s(b)(2)(B).
Frm 00106
Fmt 4703
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–NYSEARCA–2018–65 and
should be submitted on or before
October 9, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–20193 Filed 9–17–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Regulation 14A (Commission Rules 14a–1
through 14a–21 and Schedule 14A), SEC
File No. 270–056, OMB Control No.
3235–0059
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Section 14(a) of the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’) operates to make it unlawful for
a company with a class of securities
registered pursuant to Section 12 of the
Exchange Act to solicit proxies in
contravention of such rules and
regulations as the Commission has
prescribed as necessary or appropriate
in the public interest or for the
protection of investors. The Commission
33 17
Sfmt 4703
47229
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CFR 200.30–3(a)(12).
18SEN1
]]>Agencies
[Federal Register Volume 83, Number 181 (Tuesday, September 18, 2018)]
[Notices]
[Pages 47221-47229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20193]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84098; File No. SR-NYSEARCA-2018-65]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its
Options Rules To Make Certain Non-Substantive Changes and To Harmonize
Certain Rules With Those of Its Affiliate, NYSE American LLC
September 12, 2018.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 31, 2018, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
[[Page 47222]]
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its options rules to make certain
non-substantive changes and to harmonize certain rules with those of
its affiliate, NYSE American LLC (``NYSE American''), to reduce
unnecessary complexity and promote standardization. The proposed rule
change is available on the Exchange's website at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its options rules to make certain
non-substantive changes and to harmonize certain rules with those of
its affiliate, NYSE American. The proposed amendments are designed to
reduce unnecessary complexity within the Exchange's rules and to
promote standardization and clarity amongst similar rules of the
Exchange and its affiliate, NYSE American. Specifically, the Exchange
proposes to:
Make a ministerial, non-substantive change to Exchange
Rule 6.17-O, Commentary .01.
harmonize Exchange Rule 6.37-O, Obligations of Market
Makers, with NYSE American Rule 925NY, Obligations of Market Makers,
and make related changes to Exchange Rules 6.37A-O, 6.37B-O, and 6.37B-
O; \4\
---------------------------------------------------------------------------
\4\ The Exchange also proposes to update various cross-
references to these rules throughout the rulebook to reflect the
updated rule numbers.
---------------------------------------------------------------------------
delete the text of Exchange Rule 6.41-O, Market Maker
Marketing Reports;
harmonize Exchange Rule 6.43-O, Options Floor Broker
Defined, with NYSE American Rule 930NY by replacing the term
``Professional Customer'' with ``Qualified Customer''; \5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 81670 (September 21,
2017), 82 FR 45095 (September 27, 2017) (SR-NYSEAMER-2017-18)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Update and Amend its Options Rules, as Described Herein,
To Reduce Unnecessary Complexity and To Promote Standardization and
Clarity).
---------------------------------------------------------------------------
amend Exchange Rule 6.47-O, Crossing Orders, to update the
references to the current Order Protection Rule and harmonize it with
NYSE American Rule 934NY; \6\
---------------------------------------------------------------------------
\6\ Id.
---------------------------------------------------------------------------
harmonize Exchange Rule 6.67-O(d)(2)(A) with NYSE American
Rule 955NY(d)(2)(A) by replacing an outdated reference to a required
timestamp synchronized to the ``NIST Clock'' with a reference to the
current operative Consolidated Audit Trail (``CAT'') clock
synchronization rule; \7\
---------------------------------------------------------------------------
\7\ Id.
---------------------------------------------------------------------------
harmonize Exchange Rule 6.69-O(b)(iii) with NYSE American
Rule 957NY(b)(iii) by conforming the Exchange's rule governing the
priority of complex orders in open outcry to its rule governing
electronic complex orders; \8\ and
---------------------------------------------------------------------------
\8\ Id.
---------------------------------------------------------------------------
harmonize Exchange Rule 6.75-O, Priority and Order
Allocation Procedures--Open Outcry, with NYSE American Rules
963NY(d).\9\
---------------------------------------------------------------------------
\9\ Id.
---------------------------------------------------------------------------
Each of these proposed changes are explained in detail below.
Exchange Rule 6.17-O. Verification of Compared Trades and
Reconciliation of Uncompared Trades
The Exchange proposes to make ministerial, non-substantive changes
to Exchange Rule 6.17-O, Commentary .01 to remove superfluous language.
In particular, the Exchange proposes to amend the third paragraph of
Commentary .01 of Exchange Rule 6.17-O to remove the duplicative phrase
``or accessible via telephone or email''. The proposed deletion of this
phrase does not alter the meaning or application of Rule 6.17-O.
Exchange Rule 6.37-O, Obligations of Market Makers, and Exchange Rules
6.37A-O, 6.37B-O, and 6.37C-O
The Exchange proposes to harmonize the Market Maker quoting
obligations set forth under Exchange Rule 6.37-O, Obligations of Market
Makers, with NYSE American Rule 925NY, Obligations of Market Makers,
and make related changes to Exchange Rules 6.37A-O, 6.37B-O, and 6.37C-
O. Exchange Rule 6.37-O sets forth the continuous quoting obligations
of Market Makers for options contracts to which they are appointed
pursuant to Exchange Rule 6.35-O. The Exchange proposes to delete the
text of Rule 6.37-O, except for paragraph (a), and replace it with the
relevant text from NYSE American Rule 925NY.\10\ The proposed rule
change would not result in an easing of the quoting obligations in
place on the Exchange. Instead, the proposed rule change would
harmonize the Market Maker obligations across the Exchange and its
affiliate, NYSE American, while requiring the same level of
obligations. Harmonized rules would provide investors, as well as those
that engage in market making activities on both the Exchange and NYSE
American, with standardized obligations and consistent rules across
both markets. A description of the proposed amendments are described
below.
---------------------------------------------------------------------------
\10\ The Exchange notes that paragraph (a) of Exchange Rule
6.37-O is identical to paragraph (a) of NYSE American Rule 925NY.
---------------------------------------------------------------------------
The Exchange notes that current Exchange Rule 6.37-O sets forth
Market Maker obligations when quoting on the Trading Floor and Exchange
Rule 6.37A-O sets forth Market Maker obligations when quoting on the
NYSE Arca OX electronic trading system. Like NYSE American 925NY, the
obligations under amended Exchange Rule 6.37-O would apply equally to
Maker Makers on the Trading Floor and those quoting on the Exchange's
electronic trading system. The Exchange also notes that the current
text of Exchange Rule 6.37A-O is substantially similar to the text of
NYSE American Rule 925NY, which the Exchange propose to adopt herein.
Nonetheless, the proposed text would be more detailed than current Rule
6.37A-O by including detailed bid-ask differentials under paragraph
(b)(4) as well as provisions governing leaves of absence under proposed
Commentary .01. Therefore, the Exchange proposes to delete the text of
Exchange Rule 6.37A-O and renumber Exchange Rules 6.37B-O as 6.37A-O
and 6.37C-O as 6.37B-O. The Exchange also proposes to update various
cross-references to these rules in Exchange Rules 6.33-O(a), 6.64-
O(b)(D) and (E), 6.82-O(c)(4), 10.12(h) and (k), and 10.16(e)(2) to
reflect the updated rule numbers.
Proposed Paragraph (b), Obligations in Appointed Classes. Paragraph
(b) of Exchange Rule 6.37-O would continue
[[Page 47223]]
to impose the continuous quoting obligations that a Market Maker is
expected to engage, to a reasonable degree under the existing
circumstances, in dealings for his own account when there exists, or it
is reasonably anticipated that there will exist, a lack of price
continuity, a temporary disparity between the supply of and demand for
a particular option contract, or a temporary distortion of the price
relationships between option contracts of the same class. Market Makers
would continue to be expected to perform the following activities in
the course of maintaining a fair and orderly market.
Proposed paragraphs (1) through (3) of Exchange Rule 6.37-O(b)
would require Market Makers to: (1) Compete with other Market Makers to
improve the market in all series of options classes to which the Market
Maker is appointed; (2) make markets that will be honored for the
number of contracts entered into the System in all series of options
classes within the Market Maker's appointment; and (3) update market
quotations in response to changed market conditions in all series of
options classes within the Market Maker's appointment. Each of these
provisions mirror NYSE American Rule 925NY(b)(1) through (3).
Current paragraphs (b)(1)(A) through (E) of Rule 6.37-O require
that Market Maker bids and/or offers create differences of no more
than: (A) .25 between the bid and the offer for each option contract
for which the bid is less than $2, (B) .40 where the bid is $2 or more
but does not exceed $5, (C) .50 where the bid is more than $5 but does
not exceed $10, (D) .80 where the bid is more than $10 but does not
exceed $20, and (E) $1 when the last bid is $20.01 or more, provided
that two Trading Officials may establish differences other than the
above for one or more series or classes of options. These provisions
would be set forth under new paragraph (b)(4)(A) through (E) of
Exchange Rule 6.37-O with one proposed change from the current Exchange
rule. Current paragraph (b)(1)(E) of Rule 6.37-O requires that Market
Maker bids and/or offers create differences of no more than $1 when the
last bid is $20.01 or more, provided that two Trading Officials may
establish differences other than the above for one or more series or
classes of options. Proposed paragraph (b)(4)(E) of Exchange Rule 6.37-
O would allow for one Trading Official, rather than two, to establish
differences for one or more series or classes of options. The Exchange
believes that requiring two Trading Officials to act in this scenario
is unnecessary and allowing a single Trading Official to act would
allow for a more efficient process, especially in cases where a
decision must be made quickly in light of fast moving market events.
The Exchange also notes that NYSE American Rule 925NY(b)(1)(E), the
rule it seeks to harmonize Exchange Rule 6.37-O, allows for a single
Trading Official to establish differences for one or more series or
classes of options. Each of these provisions would mirror NYSE American
Rule 925NY(b)(1)(A) through (E).
Current paragraph (b)(1)(F) of Rule 6.37-O states that a Trading
Official may, with respect to options trading with a bid price less
than $2, establish bid-ask differentials that are no more than $0.50
wide (``double-width'') when the primary market for the underlying
security: (a) Reports a trade outside of its disseminated quote
(including any Liquidity Quote); or (b) disseminates an inverted quote.
The imposition of double-width relief must automatically terminate when
the condition that necessitated the double-width relief (i.e.,
condition (a) or (b)) is no longer present. Market Makers that have not
automated this process may not avail themselves of the relief provided
herein (i.e. they may not manually adjust prices). The Exchange notes
that NYSE American Rule 925NY does not contain a similar provision and,
therefore, the Exchange does not propose to carry over current
paragraph (b)(1)(F) of Rule 6.37-O to the harmonized rule. Furthermore,
the Exchange notes that this provision is not necessary because a
Trading Official would have the ability to widen differences for one or
more series or classes of options in such scenario pursuant to
paragraph (b)(4)(E) of Exchange Rule 6.37-O discussed above.
Current paragraph (b)(1)(G) of Rule 6.37-O states that quotes given
in open outcry may not be quoted with $5 widths and instead must comply
with the legal width requirements specified in paragraph (b)(1)(A)-(F)
of Rule 6.37-O. This requirement would be moved to paragraph (b)(5) of
Rule 6.37-O and be rephrased to be harmonized with NYSE American Rule
925NY(b)(5) and would require that electronically submitted quotes to
the System during Core Trading Hours may not have a difference
exceeding $5 between the bid and offer regardless of the price of the
bid. Paragraph (b)(5) of Rule 6.37-O would also provide that two
Trading Officials may establish quote width differences other than as
provided in paragraph (b)(5) of Rule 6.37-O for one or more option
series. This is consistent with NYSE American Rule 925NY(b)(5).
The Exchange proposes to adopt the text of NYSE American Rule
925NY(b)(6) under proposed paragraph (b)(6) of Exchange Rule 6.37-O and
require that, in response to a call for a market from a Floor Broker, a
Market Maker may bid no more than $1 lower and/or offer no more than $1
higher than the last preceding transaction price for the particular
option contract. However, this standard would not ordinarily apply if
the price per share (or other unit of trading) of the underlying
security or Exchange-Traded Fund Share has changed since the last
preceding transaction for the particular option contract, in which
event a Market Maker may then bid no lower than or offer no more than
$1 plus the aggregate change in the price per share (or other unit of
trading) of the underlying security or Exchange-Traded Fund Share since
the time of the last preceding transaction for the particular option
contract. This provision would apply from one day's close to the next
day's opening and from one transaction to the next in intra-day
transactions. With respect to inter-day transactions, this provision
applies if the closing transaction occurred within one hour of the
close and the opening transaction occurred within one hour after the
opening. With respect to intra-day transactions, this provision applies
to transactions occurring within one hour of one another. A Trading
Official may waive the provisions of this paragraph in an index option
when the primary underlying securities market for that index is not
trading. Nothing in paragraph (b)(6) of Exchange Rule 6.37-O would
alter the maximum bid/ask differentials established by paragraph
(b)(4)-(5) of Rule 6.37-O discussed above.
Proposed Paragraph (c), Unusual Conditions--Opening Auction. The
Exchange proposes to adopt the text of NYSE American Rule 925NY(c)
under proposed paragraph (c) of Exchange Rule 6.37-O which would govern
quote width differentials where a Trading Official declares an Unusual
Market Condition during the opening auction. Current paragraph (b)(4)
of Exchange Rule 6.37-O discusses where a Trading Official may declare
a fast market and declare wider quote width differentials and these
provisions would be substantially similar to proposed paragraph (c) of
Exchange Rule 6.37-O. As proposed, if the Trading Official finds that
it in the interest of maintaining a fair and orderly market so
requires, he or she may declare that unusual market conditions exist in
a particular issue and allow Market Makers in that issue to make
auction bids and offers with spread differentials
[[Page 47224]]
of up to two times, or in exceptional circumstances, up to three times,
the legal limits permitted under proposed Exchange Rule 6.37-O. In
making such determinations to allow wider markets, the Trading Official
should consider the following factors: (A) whether there is pending
news, a news announcement or other special events; (B) whether the
underlying security or Exchange-Traded Fund Share is trading outside of
the bid or offer in such security then being disseminated; (C) whether
OTP Holders and OTP Firms receive no response to orders placed to buy
or sell the underlying security; and (D) whether a vendor quote feed is
clearly stale or unreliable.
Paragraph (c)(1) of Exchange Rule 6.37-O would further require that
a Trading Official who declared the unusual market conditions to file a
report with Exchange Operations setting forth the relief granted, the
time and duration of such relief and the reasons behind declaring an
unusual market condition. This provision would mirror NYSE American
Rule 925NY(c)(1).
Proposed Paragraph (d), In Classes of Option Contracts Other Than
Those to Which Appointed. Current Exchange Rule 6.37-O(c) governs a
Market Maker's activities in options classes in which it has not been
assigned pursuant to Exchange Rule 6.35-O. The Exchange proposes to
renumber paragraph (c) of Exchange Rule 6.37-O as paragraph (d) and
replace its text with that of NYSE American Rule 925NY(d). Proposed
paragraph (d) of Exchange Rule 6.37-O would be substantially similar to
current paragraph (c). As proposed, Market Makers would continue to be
prohibited from engaging in transactions for an account in which they
have an interest that are disproportionate in relation to, or in
derogation of, the performance of their obligations as specified in
Rule 6.37-O with respect to the classes in their appointment. Whenever
Market Makers enter the trading crowd for a class of options in which
they do not hold an appointment, they must fulfill the obligations
established by Exchange Rule 6.37-O. In addition, when present anywhere
on the Trading Floor, with regard to all securities traded on the
Trading Floor, Market Makers are expected to undertake the obligations
specified in paragraph (b) of Exchange Rule 6.37-O discussed above in
response to a demand therefore from the Trading Official that the
performance of such obligations by other Market Makers requires
supplementation.
Current paragraphs (c)(2) and (3) also prohibit Market Makers from
individually or as a group, intentionally or unintentionally,
dominating the market in option contracts of a particular class and
effecting purchases or sales on the floor of the Exchange except in a
reasonable and orderly manner. These provisions would be renumbered as
paragraphs (d)(1) and (2) under Exchange Rule 6.37-O and would mirror
NYSE American Rule 925NY(d). The only difference from the current text
is that paragraph (d)(2) of Exchange Rule 6.37-O would not specifically
reference the floor of the Exchange as the rule would apply equally to
all Market Makers, regardless of whether they are located on the floor
of the Exchange or engage in market making electronically from a
location off the Exchange floor.
Current paragraphs (c)(1) and (c)(4) of Exchange Rule 6.37-O would
not be carried over as part of the new rule. The Exchange notes that
these provision are outdated and are not included in the current NYSE
American Rule 925NY to which the Exchange seeks to harmonize its Market
Maker obligations. Paragraph (c)(1) of Exchange Rule 6.37-O currently
prohibits Market Makers from congregating in a particular class of
option contract. The purpose of this rule was to prevent Market Makers
from dominating the market for an option when options were listed and
traded verbally on a single exchange. Today, options are traded on
numerous exchanges electronically significantly reducing the ability of
a group of Market Makers on a single exchange from engaging in
manipulative activity. Further, other Exchange rules address the
manipulation concern that current paragraph (c)(1) of Rule 6.37-O was
intended to address. For example, Exchange Rule 11.5 prohibits market
manipulation on the Exchange generally. Exchange Rule 11.20(a)(1) also
prohibits members, including Market Makers, from knowingly managing or
financing a manipulative operation, which would include congregating in
a particular class of securities to manipulate or dominate the market.
Paragraph (c)(4) of Exchange Rule 6.37-O states that whenever a
Floor Broker enters a trading crowd and calls for a market in a
particular option series, each Market Maker present at the trading post
will be obligated to vocalize a two-sided, legal-width market (pursuant
to former Exchange Rule 6.37-O(b)(1)) for a minimum of 10 contracts.
Market Makers would continue to be required to make legal-wide markets
in compliance with proposed Exchange Rule 6.37-O(b). However, Market
Makers would no longer be required to quote for a least 10 contracts.
The 10 contract requirement is antiquated and not necessary in a market
environment where options are traded electronically on multiple
exchanges. Furthermore, the 10 contract requirement is not included in
the rules of NYSE American Rule 925NY or other options exchanges.\11\
Current Exchange Rule 6.37B-O(b) and (c) (proposed to be renumbered as
Exchange Rule 6.37A-O) would require that Market Maker quotations meet
the legal quote width requirements of proposed Exchange Rule 6.37-O.
---------------------------------------------------------------------------
\11\ See e.g., Cboe Exchange, Inc. Rule 8.7 and Nasdaq Options
Rules, Chapter VII, Sections 5 and 6 (no including a requirement
that a market maker's quotation be for at least 10 contracts).
---------------------------------------------------------------------------
Paragraph (c)(4) of Exchange Rule 6.37-O states that its obligation
to provide a legal-width market only applies to: (A) Market Makers who
have executed a transaction in the issue, but not those who have been
assigned contracts by the Trading Official pursuant to Commentary .05,
on the day of the Floor Broker's call for a market or on the previous
business day; (B) option issues that are ranked in the 120 most
actively traded equity options based on the total number of contracts
traded nationally as reported by the Options Clearing Corporation (for
each current month, the Exchange's determination of whether an equity
option ranks in the top 120 most active issues is based on volume
statistics for the one month of trading activity that occurred two
months prior to the current month); (C) non-broker-dealer orders; and
(D) series not designated as LEAPS (pursuant to Exchange Rule 6.4).
With respect to (A) and (B) above, the provision to provide a legal-
width market under proposed Exchange Rule 6.37-O(b) would apply to all
options to which a Market Maker is appointed and would not be limited.
With respect to (C) above regarding providing a quote to non-broker-
dealer orders, paragraph (e) of Exchange Rule 6.37B-O (proposed to be
renumbered as Exchange Rule 6.37A-O) would continue to state that ``[a]
Market Maker shall be compelled to buy/sell a specified quantity of
option contracts at the disseminated bid/offer pursuant to his
obligations under Rule 6.86-O.'' This rule would preclude a Market
Maker from not honoring its quotation against non-broker-dealer orders.
Therefore, current paragraph (c)(4)(C) is not necessary to be included
in proposed Rule 6.37-O(c). Lastly, current paragraph (D) states that
the paragraph (c)(4) would not apply to series designated as LEAPS. The
Exchange notes that current paragraph (b) and (c) of Exchange Rule
6.37B-O (proposed to
[[Page 47225]]
be renumbered as Exchange Rule 6.37A-O) set forth Market Maker quoting
obligation and Commentary .01 of that rule states that those quoting
obligation ``shall not apply to Market Makers with respect to adjusted
option series, and series with a time to expiration of nine months or
greater'', i.e., LEAPS. Therefore, as amended, the quoting obligations
set forth in proposed Rule 6.37-O would continue to not apply to LEAPS.
Deletion of Current Paragraph (d), In Person Requirements for
Market Makers. The Exchange proposes to remove the text of current
paragraph (d) of Exchange Rule 6.37-O because no similar provision is
included in NYSE American Rule 925NY to which the Exchange seeks to
harmonize its Market Maker obligations. Furthermore, this provision is
unnecessary as it conflicts with more stringent requirements set forth
in current Exchange Rule 6.35-O described below. Current Exchange Rule
6.37-O(d) sets forth in-person requirements for Market Makers and
requires that an adequate number of Market Makers be available
throughout each trading session. Exchange Rule 6.37-O(d) requires the
following minimum in-person trading requirements: At least 60% of a
Market Maker's transactions must be executed by the Market Maker in-
person or through an approved facility of the Exchange. Orders executed
for a Market Maker through a Floor Broker will not be credited toward
the 60% requirement. A failure to comply with this 60% in-person
trading requirement may result in a fine pursuant to Rule 10.12;
however, if aggravating circumstances are present, formal disciplinary
action may be taken pursuant to Rule 10.4. Exchange Rule 6.37-O(d)
further states that in order to assure compliance with the spirit and
intent of the 60% requirement, the Exchange may review each of the
Market Maker's transactions used to meet the 60% requirement.
The Exchange does not proposes to include the text of current
paragraph (d) to Exchange Rule 6.37-O as this requirement conflicts
with Exchange Rule 6.35-O(i), which sets forth a higher standard and
applies to Market Maker activity both on the floor and conducted
electronically. Specifically, paragraph (i) of Exchange Rule 6.35-O
requires that at least 75% of the trading activity of a Market Maker
(measured in terms of contract volume per quarter) must be in classes
within the Market Maker's appointment. Paragraph (j) of Exchange Rule
6.35-O set forth how the Exchange would calculate whether the Market
Maker satisfied the requirements of paragraph (i) and sets forth the
penalties for non-compliance.
Proposed (e), Prohibited Practices and Procedures. The Exchange
proposes to retain the text of current paragraph (e) of Exchange Rule
6.37-O. The Exchange notes that the text of current Exchange Rule
6.37(e) is identical to NYSE American Rule 925NY(e). Any practice or
procedure whereby Market Makers trading any particular option issue
determine by agreement the spreads or option prices at which they will
trade that issue would continue to be prohibited. In addition, any
practice or procedure whereby Market Makers trading any particular
option issue determine by agreement the allocation of orders that may
be executed in that issue would also continue to be prohibited.
Proposed Paragraph (f). Exchange Rule 6.37-O(f) discusses when
members of a trading crowd may act collectively in response to a
request for a market. The Exchange proposes to replace the current text
of paragraph (f) to Exchange Rule 6.37-O with the text of NYSE American
Rule 925NY(f). But for minor differences explained below, the revised
text is substantially similar to the existing text of Exchange Rule
6.37-O(f). The proposed amendment would harmonize the rule with that of
NYSE American Rule 925NY(f). Current paragraph (f) of Rule 6.37-O
states that notwithstanding the prohibitions set forth in Subsection
(e), the LMM and members of the trading crowd are permitted to act
collectively as set forth below: (1) The obligation of Market Makers to
make competitive markets does not preclude the LMM and members of the
trading crowd from making a collective response to a request for a
market, provided the OTP Holder or OTP Firm representing the order
requests such a response in order to fill a large order (for purposes
of this rule, a large order is an order for a number of contracts that
is greater than the eligible order size for automatic execution
pursuant to Rule 6.87) and; (2) in conjunction with their obligations
as a responsible broker or dealer pursuant to Exchange Rule 6.86-O and
Rule 602 of Regulation NMS, the Firm Quote Rule,\12\ the LMM and Market
Makers in the trading crowd may collectively agree to the best bid,
best offer and aggregate quotation size required to be communicated to
the Exchange pursuant to Rule 6.86(c).
---------------------------------------------------------------------------
\12\ 17 CFR 242.602. The Exchange notes that Rule 11Ac1-1 under
the Act has been renumbered as Rule 602 of Regulation NMS.
---------------------------------------------------------------------------
Although the language proposed in Exchange Rule 6.37-O would differ
from that currently set forth in Rule 6.37-O(f), the application and
meaning of the rule would be the same. Like as set forth under current
paragraph (f)(1) of Rule 6.37-O, Market Makers in a trading crowd would
continue to be able to discuss a request for a market that is greater
than the disseminated size for that option class, for the purpose of
making a single bid (offer) based upon the aggregate of individual bids
(offers) by members in the trading crowd, but only when the member
representing the order asks for a single bid (offer). Also, like as
required in current paragraph (f)(1) of Rule 6.37-O, proposed paragraph
(f) to Rule 6.37-O would continue to require that such bids or offers
are firm quotes and each member of the trading crowd participating in
the bid (offer) shall be obligated to fulfill his portion of the single
bid (offer) at the single price. Such bids and offers would, therefore,
continue to be required to comply with Exchange Rule 6.86-O, Firm
Quotes, and Rule 602 of Regulation NMS, even though those rules are not
specifically mentioned by number. Market Maker quotations must comply
with their firm quote obligations set forth in Exchange Rule 6.86-O and
Rule 602 of Regulations NMS regardless of whether those rules are
specifically mentioned in proposed Exchange Rule 6.37-O(f).
Furthermore, paragraph (e) of Exchange Rule 6.37B-O (proposed to be
renumbered as Exchange Rule 6.37A-O) would continue to state that ``[a]
Market Maker shall be compelled to buy/sell a specified quantity of
option contracts at the disseminated bid/offer pursuant to his
obligations under Rule 6.86-O.'' The text of proposed paragraph (f) of
Rule 6.37-O would also mirror the text of NYSE American Rule 925NY(f).
Proposed paragraph (f) of Rule 6.37-O would state that the
obligation of Market Makers to make competitive markets does not
preclude Market Makers in a trading crowd from discussing a request for
a market that is greater than the disseminated size for that option
class, for the purpose of making a single bid (offer) based upon the
aggregate of individual bids (offers) by members in the trading crowd,
but only when the member representing the order asks for a single bid
(offer). Whenever a single bid (offer) pursuant to this paragraph is
made, such bid (offer) shall be a firm quote and each member of the
trading crowd participating in the bid (offer) shall be obligated to
fulfill his portion of the single bid (offer) at the single price.
Commentary. First, the Exchange proposes to harmonize the leave of
absence requirements under current Commentary .07 to Exchange Rule
6.37-
[[Page 47226]]
O with that of Commentary .01 to NYSE American Rule 925NY.
Specifically, the Exchange proposes to adopt the text of Commentary .01
to NYSE American Rule 925NY as Commentary .01 to Exchange Rule 6.37-O.
As amended, like current Commentary .07(a), (b), and (c) to Exchange
Rule 6.37-O, Commentary .01(a), (b), and (c) would allow Market Makers
to request leaves of absence when they plan to be away from the floor
or temporarily withdraw from submitting quotations into the System for
periods in excess of two weeks during a calendar quarter. Requests for
leaves of absence must continue to be submitted in writing to the
Exchange prior to the commencement of the intended leave. Lastly, while
on leave, Market Makers will continue to not be permitted to make
opening transactions in Exchange listed options, in their Market Maker
accounts, through the use of a Floor Brokers, except as provided in
Exchange Rule 6.32-O, Commentary .01. The Exchange does not proposes to
retain the paragraph (d) of Commentary .07 to Exchange Rule 6.37-O
under new Commentary .01 as that provision is outdated and is not part
of NYSE American Rule 925NY to which the Exchange seeks to harmonize.
Furthermore, the Exchange does not propose to retain the remaining
provisions, Commentary .01 through .06 and .08 through .09 of the
Commentary to Exchange Rule 6.37-O. These provisions are outdated for
the reasons discussed below, and not included in the current NYSE
American Rule 925NY to which the Exchange seeks to harmonize its Market
Maker obligations.
Current Commentary .01 states that the limitations of Rule 6.37-
O(b)(2) should not be carried over from one day to the next, and
therefore are not applicable to the Exchange's opening. The Exchange
notes that current paragraph (b)(2) to Rule 6.37-O simply states
``Reserved'' and, therefore, includes no limitations that the rule
would need to specify would not be carried over to the next trading day
or apply to the Exchange's opening process. Not retaining this
provision in the amended rule would remove potentially confusing text
referencing an outdated provision in the Exchange's rules, thereby
ensuring the Exchange's rules are clear and easily understood. Further,
this provisions is not included in the current NYSE American Rule 925NY
to which the Exchange seeks to harmonize its Market Maker obligations.
Current Commentary .02 states that the bid-ask differentials as
stated in paragraph (b)(1) of Rule 6.37-O shall apply to all option
series open for trading in each option class. This provision is not
necessary as the rule, by its terms, applies to all Market Makers
appointed in an options class on the Exchange.\13\ This provision is
also not included in the current NYSE American Rule 925NY.
---------------------------------------------------------------------------
\13\ See proposed Exchange Rule 6.37-O(b) and (b)(4).
---------------------------------------------------------------------------
Current Commentary .03 states that when a Market Maker displays a
market on the screen that is the best market in that crowd, the Market
Maker is obligated to ensure that its market is removed from the screen
when the Market Maker leaves the crowd. Current Commentary .03 is
applicable only to Market Maker activity in a floor-based market. In
addition, Market Makers who post a quotation, whether in the crowd or
not, are required to comply with their firm quote obligations under
Exchange Rule 6.86-O and Rule 602(b) of Regulation NMS. If the Market
Maker leaves the crowd, it is up to them to remove their quote or to
honor any executions that occur while their quote remains posted.
Further, this provision is not included in the current NYSE American
Rule 925NY.
Current Commentary .04 states that the obligations of a Market
Maker with respect to those classes of option contracts to which he
holds an appointment, pursuant to Rule 6.35-O, shall take precedence
over his other Market Maker obligations. This provision is not included
in the current NYSE American Rule 925NY. This provision is also not
necessary as proposed Rule 6.37-O(b) would include all of a Market
Makers obligations for options classes for which they are appointed,
and a Market Maker would be required to satisfy those obligations
regardless of whether that Market Maker is engaged in other market
making activities. Furthermore, proposed paragraph (d) to Exchange Rule
6.37-O states that ``[w]ith respect to classes of option contracts
outside of their appointment, Market Makers should not engage in
transactions for an account in which they have an interest that are
disproportionate in relation to, or in derogation of, the performance
of their obligations as specified in this Rule with respect to the
classes in their appointment.''
Current Commentary .05 states that whenever a Floor Broker enters a
trading crowd and calls for a market in any class and series at that
post, each Market Maker present at the post where the option is traded
is obligated, at a minimum, to make a market for one contract except as
provided for in Rule 6.37-O(b)(5) and Rule 6.37-O(c)(4), at the
established price. In addition, the Exchange may determine that Market
Makers in trading crowds shall increase the depth of their markets as
set forth in Options Floor Procedure Advice B-12. In the event a Floor
Broker is unable to satisfy his order from bids and offers given in the
crowd, the Trading Official may assign one contract to every Market
Maker present within the primary zone to assist the Floor Broker in
satisfying his order. If a Market Maker at the post either bids lower
or offers higher than the established market, such Market Maker shall
be obligated to trade one contract at the price quoted by the Market
Maker. This provision is not necessary and is not included in the
current NYSE American Rule 925NY. As amended, proposed Rule 6.37-
O(b)(2) would require a Market Maker to make markets that will be
honored for the number of contracts entered into the System in all
series of options classes within the Market Maker's appointment.
Current Commentary .06 states that the maintenance of a fair and
orderly market has been determined to be impaired in instances where a
Market Maker refuses to honor a market quotation that has just been
given, in response to a request for a market. This provision is not
necessary as the proposed rule requires Market Makers to enter two-
sided quotations in the options classes that they are appointed and to
honor those quotations.\14\ This provision is also not included in the
current NYSE American Rule 925NY.
---------------------------------------------------------------------------
\14\ See proposed paragraphs (b) and (f) of Exchange Rule 6.37-
O.
---------------------------------------------------------------------------
Current Commentary .08 states that a Market Maker may be compelled
to buy/sell a specified quantity of option contracts at the
disseminated bid/offer pursuant to his obligations under Rule 6.86-O.
The Exchange does not proposes to retain this provision as a similar
provision is not included in the current NYSE American Rule 925NY. In
addition, the obligation set forth in Commentary .08 are redundant with
Market Maker's obligation to not only comply with the Exchange's firm
quote obligations set forth under Exchange Rule 6.86-O, but also their
obligations to comply with Rule 602 of Regulation NMS. Moreover, a
Market Maker's firm quote obligations are also discussed in proposed
paragraph (b)(2) to Exchange Rule 6.37-O which requires Market Makers
to make markets that will be honored for the number of contracts
entered into the System.
Current Commentary .09 states that the Exchange or its authorized
agent may calculate bids and asks for various indices for the sole
purpose of
[[Page 47227]]
determining permissible bid/ask differentials on options on these
indices. These values will be calculated by determining the weighted
average of the bids and asks for the components of the corresponding
index. These bids and asks will be disseminated by the Exchange at
least every fifteen (15) seconds during the trading day solely for the
purpose of determining the permissible bid/ask differential that Market
Makers may quote on an in-the-money option on the indices. For in-the-
money series in index options where the calculated bid/ask differential
is wider than the applicable differential set out in subparagraph
(b)(1) of Rule 6.37-O, the bid/ask differential in the index option
series may be as wide as the calculated bid/ask differential in the
underlying index. The Exchange will not make a market in the basket of
stock comprising the indices and is not guaranteeing the accuracy or
the availability of the bid/ask values. This provision is not necessary
as the Exchange no longer performs the calculations described in the
Commentary .09. Removing this provision would, therefore, more
accurately describe the operation of the system in the Exchange's
rules. A similar provision is also not included in the current NYSE
American Rule 925NY.
Exchange Rule 6.41-O, Market Maker Marketing Reports
The Exchange proposes to delete the text of Exchange Rule 6.41-O,
entitled Market Maker Marketing Reports. Exchange Rule 6.41-O states
that the Exchange will provide its Market Makers with statistical
reports designed to measure trading volume and participation in trading
activity in each option issue traded on the Exchange. The reports are
to provide monthly trading information that identifies, by order flow
provider, the issue and number of contracts traded, the Lead Market
Maker post where the issue is traded, the contra and executing broker
symbols, and whether the trade was executed through the Exchange's OX
electronic trading system or manually in the trading crowd. Under its
rules, the Exchange currently provides other reports, including reports
related to compared trades.\15\ However, the Exchange no longer
provides the report described in Exchange Rule 6.41-O to Market Makers,
no Market Maker has requested such report, no other rule or regulation
requires the Exchange to provide such report, and that the rules of its
affiliate, NYSE American, do not include a similar provision.
Therefore, the Exchange proposes to delete the text of Exchange Rule
6.41-O to avoid potential confusion regarding the specific reports
produced by the Exchange. The Exchange also proposes to delete a cross-
reference to Exchange Rule 6.41-O in Exchange Rule 11.16, Books and
Records.
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\15\ See Exchange Rules 6.18-O, 6.19-O, and 6.21-O.
---------------------------------------------------------------------------
Exchange Rule 6.43-O, Options Floor Broker Defined
The Exchange proposes to amend 6.43-O(b)(1) and (2) to replace the
definition of ``Professional Customer'' with the single-use term
``Qualified Customer'' in connection with the limited public business
that qualified Floor Brokers and their Floor Clerks may conduct. Rule
6.43-O(b) defines both the permissible conduct of a limited public
business and defines the term ``Professional Customer'', for purposes
of Rule 6.43-O(b).\16\ Exchange Rule 6.1A-O(4A) also defines the term
``Professional Customer'', but does so differently.\17\ To avoid
unnecessary complexity or confusion concerning the duplicate
definitions of ``Professional Customer'', the Exchange proposes to
amend 6.43-O(b) to replace the definition of ``Professional Customer''
with the single-use term ``Qualified Customer'' in connection with the
limited public business, and to limit the use of ``Qualified Customer''
to Rule 6.43-O(b). This proposed change would also harmonize NYSE Arca
Rule 6.43-O(b)(1) and (2) with NYSE American Rules 930NY(b)(1) and
(2).\18\
---------------------------------------------------------------------------
\16\ Exchange Rule 6.43(b)(2) defines ``Professional Customer''
as ``a bank; trust company; insurance company; investment trust; a
state or political subdivision thereof; charitable or nonprofit
educational institution regulated under the laws of the United
States, or any state, or pension or profit sharing plan subject to
ERISA or of any agency of the United States as of a state or
political subdivision thereof; or any person (other than a natural
person) who has, or who has under management, net tangible assets of
at least sixteen million dollars.''
\17\ The definition of ``Professional Customer'' in Rule 6.1A-
O(4A), which is broader than the definition in Rule 6.43-O(b)(2),
defines a ``Professional Customer'' as an individual or organization
that is not a Broker/Dealer in securities and places more than 390
orders in listed options per day on average during a calendar month
for its own beneficial account(s). Rule 6.1A-O(4A) also defines the
treatment of a Professional Customer under various Exchange rules
except Rule 6.43-O(b), and defines how to calculate the number of
Professional Customers orders in connection with different order
types.
\18\ See Securities Exchange Act Release No. 81670 (September
21, 2017), 82 FR 45095 (September 27, 2017) (SR-NYSEAMER-2017-18)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Update and Amend its Options Rules, as Described Herein,
To Reduce Unnecessary Complexity and To Promote Standardization and
Clarity).
---------------------------------------------------------------------------
Exchange Rule 6.47-O, ``Crossing'' Orders--OX
The Exchange proposes to amend Rule 6.47-O, its crossing rule, by
replacing outdated references to the requirement that execution prices
``be equal to or better than the NBBO'' with updated cross-references
to the Rule 6.94-O, the current plenary Order Protection Rule. In
addition, in connection with non-facilitation (regular way) crosses,
facilitation procedures, crossing of solicited orders, and customer-to-
customer crosses, the Exchange proposes to delete from Rules 6.47-
O(a)(3), (b)(5), (c)(3), and (e)(3) the sentences that provide that
``[t]he orders will be cancelled or posted in the Book if an execution
would take place at a price that is inferior to the NBBO''. Exchange
Rule 6.94-O governs such situations, and the orders will not be
cancelled or posted but would trade through in accord with the
exemptions in Exchange Rule 6.94-O. This proposed change would also
harmonize NYSE Arca Rule 6.47-O with NYSE American Rules 934NY.\19\
---------------------------------------------------------------------------
\19\ Id.
---------------------------------------------------------------------------
Exchange Rule 6.67-O, Order Format and Entry Requirements
The Exchange proposes to amend Rule 6.67-O(d)(2)(A) to replace an
outdated reference to require timestamps be synchronized to the ``NIST
Clock'' with a reference to Rule 11.6820, the current Consolidated
Audit Trail (``CAT'') clock synchronization rule. Specifically, in
connection with Rule 6.67-O(d)(2)(A), which governs contingency
reporting procedures when an exception to the Electronic Order Capture
System (``EOC'') applies, the Exchange proposes to delete an outdated
reference to ``(a timestamp synchronized with the National Institute of
Standards and Technology Atomic Clock in Boulder Colorado `NIST Clock'
will be available at all OTP Holder and OTP Firm booths and trading
posts'' and replace it with a requirement that all order events must
conform to the requirements of Rule 11.6820. For further clarity, the
Exchange also proposes to delete ``immediately'' from the text of the
rule because Rule 11.6820 sets the operative standard. This proposed
change would also harmonize NYSE Arca Rule 6.67-O(d)(2)(A) with NYSE
American Rules 955NY(d)(2)(A).\20\
---------------------------------------------------------------------------
\20\ Id.
---------------------------------------------------------------------------
Exchange Rule 6.69-O, Reporting Duties
The Exchange proposes to amend Exchange Rule 6.69-O(b)(iii) to
harmonize it with NYSE American Rule
[[Page 47228]]
957NY(b)(iii). Exchange Rule 6.69-O(b) governs reporting of
transactions on the options floor and subparagraph (iii) is specific to
Complex Orders. In particular, subparagraph (b)(iii) of Rule 6.69-O
currently states that for Complex Order transactions, ``between two
Floor Brokers or two Market Makers, the party responsible for reporting
the transaction shall be the OTP Holder that first initiated the
transaction.'' The Exchange proposes to delete this language and
replace it with ``where the transaction is made up of both buy and sell
orders and priced on a net debit/credit basis, the seller shall be
determined to be the OTP Holder participating on the `debit' side of
the trade.'' Doing so would harmonize the reporting requirements for
Complex Orders under Rule 6.69-O(b)(iii) with those for complex orders
under NYSE American Rule 957NY(b)(iii),\21\ thereby providing
consistent reporting obligations across the Exchange and its affiliate.
---------------------------------------------------------------------------
\21\ Id.
---------------------------------------------------------------------------
Exchange Rule 6.75-O, Priority and Order Allocation Procedures--Open
Outcry
The Exchange proposes to conform Rule 6.75-O governing the priority
of Complex Orders \22\ in open outcry to its Rule 6.91-O governing
Electronic Complex Orders.\23\ Rule 6.91-O(a)(1) governs the priority
of Electronic Complex Orders \24\ in the Consolidated Book and states
that ``Electronic Complex Orders in the Consolidated Book shall be
ranked according to price/time priority based on the total or net debit
or credit and the time of entry of the order'' (emphasis added).\25\
Specifically, the Exchange proposes to conform Rule 6.75-O(g) to Rule
6.91-O(a)(1) by amending Rule 6.75-O(g) to provide that a Complex Order
and Stock/Complex Orders may be executed at a ``total or'' net debit or
credit price. The proposed change would, therefore, not result in any
change to the manner in which Complex Orders are handled under the
Exchange's rules. This proposed change would also harmonize Exchange
Rule 6.75-O(g) with NYSE American Rule 963NY(d).\26\
---------------------------------------------------------------------------
\22\ See NYSE Arca Rule 6.62-O(e).
\23\ See NYSE Arca Rule 6.91-O.
\24\ An ``Electronic Complex Order'' means ``any Complex Order
as defined in Rule 6.62-O(e) or any Stock/Option Order or Stock/
Complex Order as defined in Rule 6.62-O(h) that is entered into the
NYSE Arca System (the `System').'' Id.
\25\ See Exchange Rule 6.91-O(a)(1).
\26\ Securities Exchange Act Release No. 81670 (September 21,
2017), 82 FR 45095 (September 27, 2017) (SR-NYSEAMER-2017-18)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Update and Amend its Options Rules, as Described Herein,
To Reduce Unnecessary Complexity and To Promote Standardization and
Clarity).
---------------------------------------------------------------------------
2. Statutory Basis
The proposed rule changes are consistent with Section 6(b) \27\ of
the Act, in general, and furthers the objectives of Section
6(b)(5),\28\ in particular, in that they are designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that conforming and harmonizing
its rules to the rules of an affiliated exchange governing the same
subject matter, updating its rules by harmonizing its Market Maker
obligation with its affiliate, NYSE American, deleting outdated and
updating rule cross-references, eliminating extraneous or redundant
text, and therefore potentially confusing or ambiguous language, would
remove impediments to and perfect a national market system by
simplifying and reducing the complexity of its rules and regulatory
requirements. The Exchange notes that it and its affiliate, NYSE
American, operate in a similar manner and consistent rules across the
Exchange and NYSE American would reduce the likelihood of potential
investor confusion. Furthermore, the proposed rule change would provide
for standardized rules and a consistent set of obligations for common
members as well as those members that are engaged in market making
activities on both the Exchange and NYSE American. The Exchange also
believes that these proposed amendments would be consistent with the
public interest and the protection of investors because investors would
benefit from the proposal to harmonize, simplify, update and clarify
the rules discussed herein. Further, the Exchange believes that the
proposed rule change would benefit investors by improving the
transparency and clarity of the Exchange's rules.
In particular, the Exchange believes that by updating and
conforming its rules governing Market Maker obligations to the rules of
NYSE American, its affiliated exchange, removes impediments to and
perfects the mechanism of a free and open market and a national market
system by providing consistent, standardized rules governing Market
Makers across both the Exchange and its affiliate. It should also aid
those firms that engage in market making activity on both the Exchange
and NYSE American with identical obligations, thereby aiding those
firms in complying with the Exchange's rules by providing a harmonized
set of regulatory obligations.
Furthermore, by removing extraneous language from Exchange Rule
6.17-O, Commentary .01, deleting outdated text under Exchange Rule
6.41-O regarding a report no longer produced to Market Makers by the
Exchange, replacing the definition of ``Professional Customer'' with
the single-use term ``Qualified Customer'' under Exchange Rule 6.43-O
in connection with the limited public business that qualified Floor
Brokers and their Floor Clerks may conduct, by harmonizing Exchange
Rule 6.47-O, its crossing rule, with NYSE American Rule 934NY by
replacing outdated and potentially ambiguous references to the NBBO
with cross-references to the current plenary Order Protection Rule, by
updating and clarifying Exchange Rule 6.67-O governing its order format
and system entry requirements by replacing an outdated reference with a
reference to the current operative CAT time synchronization rule, and
by conforming Exchange Rule 6.75-O governing the priority of complex
orders in open outcry to its rule governing Electronic Complex Orders,
would also promote just and equitable principles of trade, would remove
impediments to and perfects the mechanism of a free and open market and
a national market system, and, in general, would help to protect
investors and the public interest by providing transparency as to which
rules are operable, and by reducing potential confusion that may result
from having outdated or redundant rules or cross-references in the
Exchange's rulebook. Lastly, the Exchange notes that the proposed
changes to Exchange Rules 6.37-O, 6.43-O(b), 6.47-O, 6.67-O(d)(2)(A),
6.69-O(b)(iii), and 6.75-O(g) are based on the rules of its affiliate,
NYSE American.\29\ The Exchange further believes that the proposed rule
changes would remove impediments to and perfect the mechanism of a free
and open market by ensuring that members, regulators and the public can
more
[[Page 47229]]
easily navigate and understand the Exchange's rulebook, thereby
avoiding potential confusion.
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\29\ See, e.g., NYSE American Rules 925NY, 930NY, 934NY, 955NY,
957NY, and 936NY. See also, e.g., Securities Exchange Act Release
No. 81670 (September 21, 2017), 82 FR 45095 (September 27, 2017)
(SR-NYSEAMER-2017-18) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Update and Amend its Options Rules, as
Described Herein, To Reduce Unnecessary Complexity and To Promote
Standardization and Clarity).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes are not
designed to address any competitive issue or attract additional order
flow to the Exchange. Rather, these changes would update, remove, and
clarify outdated cross-references and definitions, and redundant
language, and also conform the Exchange's rules and definitions to the
rules of an affiliated exchange, thereby reducing potential confusion
and making the Exchange's rules easier to understand and navigate. The
Exchange notes that it and its affiliate, NYSE American, operate in a
similar manner and consistent rules across the Exchange and NYSE
American would reduce the likelihood of potential investor confusion.
Therefore, the proposed rule change is not intended to impose a burden
on competition but rather provide for standardized rules and a
consistent set of obligations for common members as well as those
members that are engaged in market making activities on both the
Exchange and NYSE American.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \30\ and Rule 19b-4(f)(6) thereunder.\31\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\30\ 15 U.S.C. 78s(b)(3)(A)(iii).
\31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \32\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\32\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEARCA-2018-65 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-NYSEARCA-2018-65. 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-NYSEARCA-2018-65 and should be submitted
on or before October 9, 2018.
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\33\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-20193 Filed 9-17-18; 8:45 am]
BILLING CODE 8011-01-P
