Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend Rules 6.62-O and 6.37A-O To Add New Order Types and Quotation Designations, 53692-53699 [2018-23174]
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53692
Federal Register / Vol. 83, No. 206 / Wednesday, October 24, 2018 / Notices
writing within 60 days of this
publication.
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.
Please direct your written comments
to: Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: October 19, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–23209 Filed 10–23–18; 8:45 am]
BILLING CODE 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
amozie on DSK3GDR082PROD with NOTICES1
Extension:
Rule 17Ad–11, SEC File No. 270–261,
OMB Control No. 3235–0274
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 17Ad–11 (17 CFR
240.17Ad–11), under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.). The Commission plans to submit
this existing collection of information to
the Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 17Ad–11 requires every
registered recordkeeping transfer agent
to report to issuers and its appropriate
regulatory agency in the event that the
aggregate market value of an aged record
difference exceeds certain thresholds. A
record difference occurs when an
issuer’s records do not agree with those
of securityholders as indicated, for
instance, on certificates presented to the
transfer agent for purchase, redemption
or transfer. An aged record difference is
a record difference that has existed for
more than 30 calendar days. In addition,
the rule requires every recordkeeping
transfer agent to report to its appropriate
regulatory agency in the event of a
failure to post certificate detail to the
master securityholder file within five
business days of the time required by
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Rule 17Ad–10 (17 CFR 240.17Ad–10).
Also, a transfer agent must maintain a
copy of any report required under Rule
17Ad–11 for a period of not less than
three years following the date of the
report, the first year in an easily
accessible place.
Because the information required by
Rule 17Ad–11 is already available to
transfer agents, any collection burden
for small transfer agents is minimal.
Based on a review of the number of Rule
17Ad–11 reports the Commission, the
Comptroller of the Currency, the Board
of Governors of the Federal Reserve
System, and the Federal Deposit
Insurance Corporation received since
2012, the Commission staff estimates
that 8 respondents will file a total of
approximately 10 reports annually. The
Commission staff estimates that, on
average, each report can be completed
in 30 minutes. Therefore, the total
annual hourly burden to the entire
transfer agent industry is approximately
five hours (30 minutes × 10 reports).
Assuming an average hourly rate of $25
for a transfer agent staff employee, the
average total internal cost of the report
is $12.50. The total annual internal cost
of compliance for the approximate 8
respondents is approximately $125.00
(10 reports × $12.50).
The retention period for the
recordkeeping requirement under Rule
17Ad–11 is three years following the
date of a report prepared pursuant to the
rule. The recordkeeping requirement
under Rule 17Ad–11 is mandatory to
assist the Commission and other
regulatory agencies with monitoring
transfer agents and ensuring compliance
with the rule. This rule does not involve
the collection of confidential
information.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
PO 00000
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under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: October 19, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–23211 Filed 10–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84451; File No. SR–
NYSEArca–2018–74]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To Amend Rules 6.62–O
and 6.37A–O To Add New Order Types
and Quotation Designations
October 18, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on October
5, 2018, NYSE Arca, Inc. (‘‘Exchange’’ or
‘‘NYSE Arca’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rules 6.62–O (Certain Types of Orders
Defined) and 6.37A–O (Market Maker
Quotations) to add new order types and
quotation designations. The proposed
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
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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Federal Register / Vol. 83, No. 206 / Wednesday, October 24, 2018 / Notices
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 purpose of this filing is to modify
Rules 6.62–O and 6.37A–O to add new
order types and quotation designations
as described herein. The Exchange also
proposes to make conforming changes to
these rules to reflect the proposed order
types and quotations designations.
Existing Order Types
amozie on DSK3GDR082PROD with NOTICES1
Current Rule 6.62–O sets forth the
order types available on the Exchange,
including Liquidity Adding Orders
(each an ‘‘ALO’’) and PNP (Post No
Preference) Orders, both of which
provide market participants control over
how their orders interact with contraside liquidity. Specifically, an ALO is a
Limit Order that is rejected if it is
marketable against the NBBO on
arrival.4 A PNP Order is eligible to
interact solely with interest on the
Exchange, will not route, and will
cancel if it locks or crosses the NBBO.5
The Exchange proposes to add order
types that build on the existing ALO
and PNP Order functionality to allow
for repricing (rather than cancellation or
4 See Rule 6.62–O(t) (providing that ‘‘a Liquidity
Adding Order is a Limit Order which is to be
accepted only if it is not executable at the time of
receipt. Orders with the liquidity adding instruction
will not be routed if marketable against the NBBO,
but will be rejected. Liquidity adding orders may
only be entered as a Day Order’’). The Exchange
proposes to modify paragraph (t) of this Rule to
define Liquidity Adding Orders as ALOs and make
conforming changes to the Rule. See proposed Rule
6.62–O(t). The Exchange also proposes to modify
the rule to reflect that ‘‘[a]n ALO or RALO, as
defined in paragraph (t)(1) of this Rule, will be
rejected if entered outside of Core Trading Hours or
during a trading halt or, if resting, will be cancelled
in the event of a trading halt,’’ which is a
functionality update that ensures these rule types
operate as intended. See id.
5 See Rule 6.62–O(p) (providing that a PNP Order
‘‘is a Limit Order to buy or sell that is to be
executed in whole or in part on the Exchange, and
the portion not so executed is to be ranked in the
Consolidated Book, without routing any portion of
the order to another market center; provided,
however, the Exchange shall cancel a PNP Order
that would lock or cross the NBBO’’). The Exchange
proposes to capitalize the ‘‘Market Center’’ as used
in paragraph (p) of the Rule, which is a defined
term in Rule 6.1A–O(6). See proposed Rule 6.62–
O(p).
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rejection of orders) under certain
circumstances.
Repricing ALO (‘‘RALO’’)
The Exchange proposes to allow
market participants the option to send
in ALOs designated as RALO.6 As
proposed, a RALO would be repriced
(rather than be rejected) if it would
either trade as the liquidity taker or
display at a price that locks or crosses
any interest on the Exchange or the
NBBO. Specifically, an incoming RALO
to buy (sell) that would trade with any
displayed or undisplayed sell (buy)
interest on the Consolidated Book
would be displayed at a price one
minimum price variation (‘‘MPV’’)
below (above) such sell (buy) interest.
An incoming RALO to buy (sell) that is
not marketable against interest in the
Consolidated Book but that would lock
or cross the NBO (NBB) would be
displayed at a price that is one MPV
below (above) the NBO (NBB). If the sell
(buy) interest in the Consolidated Book
or NBO (NBB) moves up (down), the
display price of the RALO to buy (sell)
and the undisplayed price at which it is
eligible to trade would be continuously
adjusted, up (down) to the RALO’s limit
price. In other words, to avoid trading
as the liquidity taker, the RALO would
be displayed at a price one MPV away
from the best-priced contra-side interest,
whether on the Exchange or an away
market, and its display price would
continue to be adjusted up to its limit
price.
As proposed, a resting RALO to buy
(sell) that is displayed one MPV below
(above) interest on the Consolidated
Book would be eligible to trade at its
display price. As further proposed, a
resting RALO to buy (sell) that is
displayed at a price one MPV below
(above) the NBO (NBB) would be
eligible to trade at the NBO (NBB);
provided, however, that if the NBO
(NBB) updates to lock or cross the
RALO’s display price, such RALO
would trade at its display price in time
priority behind other eligible interest
already displayed at that price.7 Because
in such circumstances the RALO would
be trading at its display price, which
would be different than the (less
6 See proposed Rule 6.62–O(t)(1). The Exchange
proposes that a RALO that is designated as a
Reserve Order (i.e., with a portion of the order not
displayed) would be rejected because of the
complexity (and potential priority conflict) that
could be introduced if the Exchange allowed a
combination of these two order types. See id.
7 The proposed RALO operates in substantially
the same manner as the ALO Order, available on the
Exchange’s equity market, which, like the RALO,
would not remove liquidity and reprices if it would
lock or cross interest on the Consolidated Book or
the NBBO. See Rule 7.31–E(e)(2).
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53693
aggressive) price it was previously
eligible to trade, the Exchange believes
that principles of price-time priority
dictate that the repriced RALO should
be ranked behind other interest already
displayed at the RALO’s updated
display price.8 Similarly, the Exchange
proposes that each time there is an
update to the RALO’s price, the RALO
would be ranked by time priority
behind other eligible interest already at
that price. And, if multiple RALOs
simultaneously reprice to the same price
at which they are eligible to trade, the
RALOs would be prioritized based on
the time of original order entry. The
Exchange believes that this proposed
handling of RALOs likewise would
respect and preserve the Exchange
price-time priority model.
To avoid accepting RALOs priced too
far through the NBBO, the Exchange
proposes to limit the extent to which it
would reprice such interest.
Specifically, the Exchange would cancel
an incoming RALO that has a limit price
to buy (sell) that is more than a
configurable number of MPVs above
(below) the initial display price (on
arrival) of the RALO.9 The Exchange
would determine the configurable
number of MPVs, which will be
announced by Trader Update.10
The following examples illustrate the
proposed RALO order type.
RALO Example 1
E×change BBO: (100) 1.98 × 2.22 (100)
Away BBO: (50) 1.97 × 2.23 (50)
Order 1: RALO Buy 50 @ 2.25
• The incoming RALO (Order 1) will
reprice to display and be eligible to
trade @2 2.21 (i.e., one MPV below the
NBO, which is also the Exchange BO).
Order 2: Sell 50 @ 2.18
• Order 2 will trade on arrival with
the RALO (Order 1) @ 2.21.
RALO Example 2
Exchange BBO: (100) 2.15 × 2.22 (100)
Away BBO: (50) 2.20 × 2.23 (50)
Order 1: PNPB 11 Sell 50 @ 2.19
8 The proposal to re-rank an order when the price
at which an order is eligible to trade changes is
consistent with how the Exchange’s equity order
types function. See Rule 7.36–E(f)(3) (providing that
an order is assigned a new working time (i.e.,
effective time sequence assigned to an order for
purposes of determining its priority ranking) any
time the working price (i.e., the price at which an
order is eligible to trade) changes).
9 See proposed Rule 6.62[sic](t)(1)(B).
10 For example, in a Penny Pilot issue, if the local
best offer is 0.99 and the away best offer is 1.00 with
a configuration set to 3 MPV, a RALO to buy of 1.02
or greater will cancel on arrival because the initial
display price would be 0.98 which is 4 MPVs away
from its limit price.
11 A PNP-Blind Order (or PNPB) order ‘‘is a Limit
Order to buy or sell that is to be executed in whole
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Federal Register / Vol. 83, No. 206 / Wednesday, October 24, 2018 / Notices
• The PNPB (Order 1) will be eligible
to trade @ 2.20 (but will not be
displayed at this price because it crosses
the NBB).
Order 2: RALO Buy 50 @ 2.25
a. The RALO (Order 2) will reprice to
display and be eligible to trade @ 2.19
(i.e., one MPV below the PNPB (Order
1) @ 2.20, which is the best priced
(undisplayed) contra-side interest in the
Consolidated Book).
Order 3: Sell 100 @ 2.18
b. Order 3 will route 50 to the Away
BB @ 2.20, and trade the remaining 50
with the RALO (Order 2) @ 2.19.
c. The PNPB (Order 1) will then
display (because it is no longer crossing
the NBB) and be eligible to trade @ 2.19.
RALO Example 3
Exchange BBO: (100) 1.98 × 2.22 (10)
Away BBO: (50) 1.97 × 2.25 (50)
Order 1: Sell Limit 10 @ 2.23
Order 2: Sell Limit 10 @ 2.24
Order 3: RALO Buy 50 @ 2.25
• The RALO (Order 3) will reprice to
display and be eligible to trade @ 2.21
(i.e., one MPV below the NBO, which is
also the Exchange BO).
Order 4: Buy Limit 10@ 2.25
• Order 4 will trade with the
Exchange BO @ 2.22.
Update to E×change BBO: (50) 2.21 ×
2.23 (10)
• Order 3 (RALO) will be repriced to
display and be eligible to trade @ 2.22.
Order 5: Sell 50 @ 2.20
• Order 5 will trade with Order 3
(RALO) @ 2.22.
RALO Example 4
amozie on DSK3GDR082PROD with NOTICES1
Exchange BBO: (100) 1.98 × 2.22 (10)
Away BBO: (50) 1.97 × 2.25 (50)
Order 1: RALO Buy 50 @ 2.23
• The RALO (Order 1) will reprice to
display and be eligible to trade @ 2.21
(i.e., one MPV below the NBO, which is
also the Exchange BO).
Order 2: Buy Limit 50 @ 2.23
• Order 2 will trade 10 contracts with
the Exchange BO @ 2.22 and the
remaining 40 contracts of Order 2 will
be added the Consolidated Book at 2.23.
The RALO (Order 1) will reprice to
display and be eligible to trade @ 2.23,
at which time the RALO will get a new
priority timestamp making it eligible to
trade behind Order 2 (already displayed
at this price) in time priority.
or in part on the Exchange, and the portion not so
executed is to be ranked in the Consolidated Book,
without routing any portion of the order to another
market center; however, if the [PNPB] order would
lock or cross the NBBO, the price and size of the
order will not be disseminated. Once the [PNPB]
order no longer locks or crosses the NBBO, the price
and size will be disseminated.’’ See Rule 6.62–O(u).
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Order 3: Sell Limit 10 @ 2.23
• Order 3 will trade with Order 2, as
Order 2 has time priority over the RALO
(Order 1).
Order 4: Sell 10 @ 2.50
New E×change BBO: (80) 2.23 × 2.50
(10)
*
*
*
*
*
The Exchange believes the proposed
RALO would give market participants
more flexibility and control over the
circumstances under which their orders
trade with contra side-interest (i.e., by
ensuring that a RALO would always add
liquidity as maker, rather than remove
liquidity as taker), while ensuring that
RALOs priced too far through the
contra-side NBBO would be rejected.
The Exchange believes the proposed
RALO would assist market participants
in maximizing opportunities for
execution (as such orders would reprice
rather than reject) while encouraging the
provision of greater displayed liquidity
to the market, which would contribute
to public price discovery.
Repricing PNP Order (‘‘RPNP’’)
The Exchange proposes to allow
market participants the option to send
in PNP Orders as RPNP.12 As proposed,
an RPNP is a PNP Order that would be
repriced (rather than be cancelled after
trading with interest in the Consolidated
Book) if it would lock or cross the
NBBO. Specifically, an RPNP to buy
(sell) that would lock or cross the NBO
(NBB) would be displayed at a price one
MPV below (above) the NBO (NBB). If
the NBO (NBB) moves up (down), the
display price of the RPNP to buy (sell)
and the undisplayed price at which it is
eligible to trade would be continuously
adjusted, up (down) to the limit price of
the RPNP.
As proposed, a RPNP to buy (sell) that
is displayed at a price one MPV below
(above) the NBO (NBB) would be
eligible to trade at the NBO (NBB), up
(down) to the limit price of the RPNP;
provided, however, that if the NBO
(NBB) updates to lock or cross the
RPNP’s display price, such RPNP would
trade at its display price in time priority
behind other eligible interest already
12 See proposed Rule 6.62–O(p)(1). The Exchange
proposes that an RPNP received during pre-open or
during a trading halt will be treated as a PNP Order
(i.e., as a Limit Order and will not reprice) for
purposes of participating in opening auctions or reopening auctions. See proposed Rule 6.62–O(p). An
RPNP may only be entered as a Day Order (i.e., that
expires at the end of the trading day). See proposed
Rule 6.62–O(p)(1). The Exchange proposes that an
RPNP that is designated as a Reserve Order (i.e.,
with a portion of the order not displayed) would
be rejected because of the complexity (and potential
priority conflict) that could be introduced if the
Exchange allowed a combination of these two order
types. See id.
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displayed at that price.13 And, if
multiple RPNPs simultaneously reprice
to the same price at which they are
eligible to trade, the RPNPs would be
prioritized based on the time of original
order entry. For the same reason as
described above for the proposed RALO,
the Exchange believes that ranking the
RPNP to buy (sell) behind other interest
already displayed at the RPNP’s
updated display price, and ranking
RPNPs that simultaneously reprice to
the same price based on time of original
order entry, would respect and preserve
principles of priority. Also consistent
with the Exchange’s price-time priority
model, the Exchange proposes that each
time there is an update to the RPNP’s
price, the RPNP would be ranked by
time priority behind other eligible
interest already at that price.
Similar to the proposed RALO, to
avoid accepting RPNPs priced too far
through the NBBO, the Exchange
proposes to limit the extent to which it
would reprice such interest.14 An
incoming RPNP would be cancelled
after trading with eligible interest (if
any) if its limit price to buy (sell) is
more than a configurable number of
MPVs above (below) the initial display
price (on arrival). The Exchange would
determine the configurable number of
MPVs, which would be announced by
Trader Update.15
The Exchange believes the proposed
RPNP would give market participants
more flexibility and control over the
circumstances under which their orders
trade with contra side-interest, while
ensuring that RPNPs priced too far
through the contra-side NBBO would be
rejected. The Exchange believes the
proposed RPNP would assist market
participants in maximizing
opportunities for execution (as such
orders would reprice rather than reject)
while encouraging the provision of
greater liquidity to the market, which
would contribute to public price
discovery.
The following examples illustrate the
proposed RPNP order type.
RPNP Example 1
E×change BBO: (100) 1.98 × 2.22 (100)
13 The proposed RPNP operates in substantially
the same manner as the Non-Routable Limit Order
available on the Exchange’s equities market, which,
like the RPNP, reprices if it would lock or cross a
protected quotation of an Away Market or trade
through a protected quotation. See Rule 7.31–
E(e)(1).
14 See proposed Rule 6.62[sic](p)(1)(B).
15 For example, in a Penny Pilot issue, if the local
best offer is 0.99 and the away best offer is 1.00 with
a configuration set to 3 MPV, a RPNP to buy at 1.03
or greater would trade with the local offer at 0.99
and any remaining interest will be cancelled
(because the initial display price would be 0.99
which is 4 MPVs away from its limit price).
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Federal Register / Vol. 83, No. 206 / Wednesday, October 24, 2018 / Notices
Away BBO: (50) 2.00 × 2.20 (50)
Order 1: RPNP Buy 50 @ 2.25
• The RPNP (Order 1) will display @
2.19 (i.e., one MPV below the NBO) and
will be eligible to trade @ 2.20 (i.e., the
NBO).
Order 2: Sell 50 @ 2.18
• Order 2 will trade on arrival with
the RPNP (Order 1) @ 2.20.
• The RPNP (Order 2) will reprice to
display and (will continue to) be eligible
to trade @ 2.19, but Order 1 will have
priority over Order 2 as it was already
being displayed at this price.
Order 3: Sell 10 @ 2.18
• Order 3 will trade on arrival with
Order 1 @ 2.19.
*
*
*
*
*
RPNP Example 2
E×change BBO: (100) 1.98 × 2.22 (100)
Away BBO: (50) 2.00 × 2.20 (50)
Order 1: PNPB Buy 50 @ 2.22
• The PNPB (Order 1) will be eligible
to trade @ 2.20 (but will not be
displayed at this price because it crosses
the NBO).
Order 2: RPNP Buy 50 @ 2.21
• The RPNP (Order 2) will display @
2.19 (i.e., one MPV below the NBO) and
be eligible to trade @ 2.20 behind Order
1 in time priority.
Order 3: Sell 10 @ 2.18
• Order 3 will trade on arrival with
Order 1 @ 2.20.
Existing Market Maker Quotations
amozie on DSK3GDR082PROD with NOTICES1
RPNP Example 3
E×change BBO: (100) 1.98 × 2.22 (100)
Away BBO: (50) 2.00 × 2.20 (50)
Order 1: PNPB Buy 50 @ 2.21
• The PNPB (Order 1) will be eligible
to trade at 2.20 (but will not be
displayed at this price because it crosses
the NBO).
Order 2: RPNP Buy 50 @ 2.22
• The RPNP (Order 2) will display @
2.19 and will be eligible to trade @2.20
behind Order 1 in time priority.
Away BBO updates to (50) 2.00 × 2.19
(50)
• The updated NBO locks the display
price of the RPNP Buy 50 (Order 2).
• The PNPB (Order 1) and the RPNP
(Order 2) are both eligible to trade @
2.19. The RPNP has priority to trade
ahead of the PNPB because the RPNP
was displayed @ 2.19 before the away
market updated (and the PNPB is still
undisplayed because its limit price is
still crossing the NBO).
Order 3: Sell 10 @ 2.18
• Order 3 will trade on arrival with
the RPNP (Order 2) @ 2.19.
RPNP Example 4
Exchange BBO: (100) 1.98 × 2.22 (100)
Away BBO: (50) 2.00 × 2.20 (50)
Order 1: Limit Buy 50 @ 2.19.
Order 2: RPNP Buy 50 @ 2.22
• The RPNP will display @ 2.19
(because crosses the NBO) and will be
eligible to trade @ 2.20.
Away BBO updates to (50) 2.00 × 2.19
(50)
• NBO now locks the display price of
Order 2 (RPNP).
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Current Rule 6.37A–O(a) defines
Market Maker quotes, including
quotations designated as Market
Maker—Light Only (‘‘MMLO’’), and
specifies how such quotes are processed
when a series is open for trading. The
Exchange proposes to modify Rule
6.37A–O(a) to add two new quote
designations to provide market makers
with the same functionality for their
quotations as are proposed for orders
entered on the Exchange. The proposed
quotation designations are similar to
how the proposed RALO and RPNP
would function and would enable
Market Makers to exert greater control
over how their quotes would interact
with contra-side liquidity, while
affording them more opportunities to
provide liquidity.
Market Maker—Add Liquidity Only
Quotation (‘‘MMALO’’)
The Exchange proposes to allow
Markets Makers the option to designate
quotations as MMALO.16 Similar to how
the proposed RALO would function, as
proposed, an incoming or resting
MMALO would never trade as the
liquidity taker nor would it display at a
price that would lock or cross any
interest on the Exchange or the NBBO.17
Rather than trade, an MMALO would be
repriced based on contra-side interest.18
Specifically, an incoming MMALO to
buy (sell) that would trade with any sell
(buy) interest on the Consolidated Book
would be displayed at a price one
minimum price variation (‘‘MPV’’)
16 See proposed Rule 6.37A–O(a)(3)(B) and
(a)(4)(A)(i). The Exchange proposes to delete
reference to MMLO in paragraph (a)(4), regarding
the ‘‘[t]reatment of Market Maker Quotations,’’ as
too restrictive in light of the proposed quote types;
instead, the Exchange proposes to separately
describe the treatment of the various quote types
when a series is open for trading. See proposed
Rule 6.37A–O(a)(4).
17 Because incoming quotations, other than an
MMALO, would immediately ‘‘trade with contraside interest in the Consolidated Book at prices that
do not trade through interest on another Market
Center,’’ the Exchange proposes to modify the rule
to carve out incoming MMALOs. See proposed Rule
6.37A–O(a)(4)(A). The Exchange also proposes to
replace references to ‘‘another Market Center’’ with
‘‘the NBBO’’ to add clarity and consistency to the
Rule. See id.; see also proposed Rule 6.37A–
O(a)(4)(C)(i),(D)(i)–(ii).
18 See proposed Rule 6.37A–O(a)(4)(A)(i).
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below (above) such sell (buy) interest.
Similarly, an incoming MMALO to buy
(sell) that is not marketable against
interest in the Consolidated Book but
that would lock or cross the NBO (NBB)
would be displayed at a price that is one
MPV below (above) the NBO (NBB). If
the sell (buy) interest in the
Consolidated Book or NBO (NBB) moves
up (down), the display price of the
MMALO to buy (sell) and the
undisplayed price at which it is eligible
to trade would be continuously
adjusted, up (down) to the MMALO’s
limit price. In other words, to avoid
trading as the liquidity taker, the
MMALO would be displayed at a price
one MPV away from the best-priced
contra-side interest, whether on the
Exchange or an away market. The above
trading examples illustrating how a
RALO is processed (RALO Examples 1–
4) apply equally to an MMALO of the
same size and price of the RALO in each
example.
Similar to the proposed RALO, a
resting MMALO to buy (sell) that is
displayed one MPV below (above)
interest on the Consolidated Book
would be eligible to trade at its display
price. Also similar to the proposed
RALO, a resting MMALO to buy (sell)
that is displayed at a price one MPV
below (above) the NBO (NBB) would be
eligible to trade at the NBO (NBB);
provided, however, that if the NBO
(NBB) updates to lock or cross the
MMALO’s display price, such MMALO
would trade at its display price in time
priority behind other eligible interest
already displayed at that price.19 For the
same reasons as described above for the
proposed RALO and RPNP, the
Exchange believes that ranking the
MMALO to buy (sell) behind other
interest already displayed at the
MMALO’s updated display price would
respect and preserve principles of
priority. Also consistent with the
handling of RALOs, the Exchange
proposes that each time there is an
update to the MMALO’s price, the
MMALO would be ranked by time
priority behind other eligible interest
already at that price.20 And, if multiple
MMALOs simultaneously reprice to the
same price at which they are eligible to
trade, the MMALOs would be
prioritized based on the time of original
order entry. The Exchange believes that
this handling of MMALOs (which is
consistent with proposed handling of
RALOs) in the event of a reprice,
including when multiple MMALOs
simultaneously reprice, is consistent
19 See
20 See
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with the Exchange’s price-time priority
model.
To incorporate MMALO (and MMRP
discussed below) into existing rule text,
the Exchange proposes to streamline
Rule 6.37A–O, by re-organizing and renumbering related text regarding the
treatment of untraded incoming
quotations. Specifically, the Exchange
proposes to provide that ‘‘[a]ny
untraded quantity of an incoming
quotation will be added to the
Consolidated Book, except in the
circumstances specified below, which
result in the remaining balance being
cancelled,’’ 21 including when the
incoming quotation ‘‘is not designated
as MMALO or MMRP’’ and locks or
crosses the NBBO and when it is
designated as MMLO and locks or
crosses undisplayed interest.22
Similarly, the Exchange would modify
the rule providing that an incoming
quotation that locks or crosses the
NBBO would be rejected, provided ‘‘it is
not designated as MMALO or MMRP’’
and cannot trade with interest in the
Consolidated Book at prices that do not
trade through the NBBO.23
To avoid accepting MMALOs priced
too far through the NBBO, the Exchange
proposes to limit the extent to which it
would reprice such interest.
Specifically, the Exchange would reject
an incoming quote that is designated as
MMALO that has a limit price to buy
(sell) that is more than a configurable
number of MPVs above (below) the
initial display price of the MMALO.24
The Exchange would determine the
configurable number of MPVs, which
will be announced by Trader Update.25
The Exchange believes the proposed
MMALO would give Market Makers
more flexibility and control over the
circumstances under which their quotes
trade with contra side-interest (i.e., by
21 See
proposed Rule 6.37A–O(a)(4)(C).
proposed Rule 6.37A–O(a)(4)(C)(i) and (ii).
23 See proposed Rule 6.37A–O(a)(4)(D)(i).
24 See proposed Rule 6.37A–O(a)(4)(D)(iii). The
Exchange notes that incoming MMALOs that fail
the MPV check are rejected while similarly-priced
RALOs would be accepted and then cancelled. The
Exchange notes that this is a distinction without a
difference and simply reflects an operational
difference in how the Exchange evaluates these
types of interest. The Exchange also proposes to relocate text that is currently at the end of this
provision to the beginning, such that the Rules
states that ‘‘[a]n incoming quotation will be
rejected, and the Exchange will cancel the Market
Maker’s current quotation on the same side of the
market, if:’’ as the Exchange believes this would
streamline the Rule making it easier to navigate and
understand. See proposed Rule 6.37A–O(a)(4)(D).
25 For example, in a Penny Pilot issue, if the local
best offer is 0.99 and the away best offer is 1.00 with
a configuration set to 3 MPV, a MMALO to buy of
1.02 or greater would be rejected because the initial
display price would be 0.98, which is 4 MPVs away
from its limit price.
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ensuring that an MMALO would always
add liquidity as maker, rather than
remove liquidity as taker), while
ensuring that MMALOs priced too far
through the contra-side NBBO would be
rejected. The Exchange believes the
proposed MMALO would assist Market
Makers in maintaining a fair and orderly
market, as it would encourage Market
Makers to provide displayed liquidity to
the market and thereby contribute to
public price discovery.
Market Maker—Repricing Quotation
(‘‘MMRP’’)
The Exchange also proposes to allow
Markets Makers the option to designate
quotations as MMRP, which is similar to
the proposed RPNP.26 As proposed, an
incoming or resting quotation
designated as MMRP would never
display at a price that locks or crosses
the NBBO. Instead, after trading with
interest in the Consolidated Book, an
incoming MMRP to buy (sell) that locks
or crosses the NBO (NBB) would be
displayed at a price that is one MPV
below (above) the NBO (NBB). If the
NBO (NBB) moves up (down), the
display price of the MMRP to buy (sell)
and the undisplayed price at which it is
eligible to trade would be continuously
adjusted, up (down) to the MMRP’s
limit price.
Similar to the proposed RPNP, an
MMRP to buy (sell) that is displayed at
a price one MPV below (above) the NBO
(NBB) would trade at the NBO (NBB);
provided, however, that if the NBO
(NBB) updates to lock or cross the
MMRP’s display price, such MMRP
would trade at its display price in time
priority behind other eligible interest
already displayed at that price. For the
same reasons described above for the
proposed RALO and RPNP, the
Exchange believes that ranking the
MMRP to buy (sell) behind other
interest already displayed at the
MMRP’s updated display price would
respect and preserve principles of
priority.27 Also consistent with the
handling of RALOs and RPNPs,, [sic]
the Exchange proposes that each time
there is an update to the MMRP’s price,
the MMRP would be ranked by time
priority behind other eligible interest
already at that price.28 And, if multiple
MMRPs simultaneously reprice to the
same price at which they are eligible to
trade, the MMRPs would be prioritized
based on the time of original order
entry. The Exchange believes that this
handling of MMRPs (which is consistent
26 See proposed Rule 6.37A–O(a)(3)(C) and
(a)(4)(B).
27 See proposed Rule 6.37A–O(a)(4)(B)(i).
28 See proposed Rule 6.37A–O(a)(4)(B)(ii).
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with the proposed handling of RALOs
and RPNPs) in the event of a reprice,
including when multiple MMRPs
simultaneously reprice, is consistent
with the Exchange’s price-time priority
model.
The Exchange notes that an MMRP
may be submitted when a series is not
open for trading (i.e., during pre-open or
a trading halt) and such MMRP would
be eligible to participate in the opening
auction and re-opening auction (as
applicable) at the limit price of the
MMRP.29 Such MMRPs would not be
repriced as an option series may not
open (or re-open) if a quote is locked or
crossed.30
To avoid accepting MMRPs priced too
far through the NBBO, the Exchange
proposes to limit the extent to which it
would reprice such interest.
Specifically, an incoming MMRP that
has a limit price more than a
configurable number of MPVs above
(below) the initial display price (on
arrival) would first trade with
marketable interest in the Consolidated
Book up (down) to the NBO (NBB) and
any remaining balance would be
cancelled.31 Similarly, the Exchange
would reject an incoming MMRP that
does not trade (i.e., because there is no
marketable interest in the Consolidated
Book) and has a limit price to buy (sell)
that is more than a configurable number
of MPVs above (below) the initial
display price (on arrival) of the
MMRP.32 The Exchange would
determine the applicable number of
MPVs and announce the configurable by
Trader Update.33 The above trading
29 See proposed Rule 6.37A–O(a)(5). The
Exchange also proposes to make clear that ‘‘[a]ll
resting quotations will be cancelled in the event of
a trading halt.’’ See id.
30 See Rule 6.64–O(b)(E)(providing in relevant
part, that ‘‘[i]f the OX System does not open a series
with an Auction Process, the OX System shall open
the series for trading after receiving notification of
an initial uncrossed NBBO disseminated by OPRA
for the series’’).
31 See proposed Rule 6.37A–O(a)(4)(C)(iii).
32 See proposed Rule 6.37A–O(a)(4)(D). The
Exchange notes that incoming MMRPs that fail the
MPV check are rejected while similarly-priced
RPNPs would be accepted and then cancelled. The
Exchange notes that this is a distinction without a
difference and simply reflects an operational
difference in how the Exchange evaluates these
types of interest.
33 For example, in a Penny Pilot issue, if the local
best offer is 0.99 and the away best offer is 1.00 with
a configuration set to 3 MPV, a MMRP to buy at
1.03 or greater would trade with the local offer at
0.99 and any remaining interest will be cancelled
(because the initial display price would be 0.99
which is 4 MPVs away from its limit price). Because
the MMRP is cancelled, the Exchange would also
cancel the opposite-side quote for that Market
Maker. See Rule 6.37A–O(a)(4)(B)(or, as
renumbered, proposed Rule 6.37A–O(a)(4)(C)
(providing, ‘‘[w]hen such quantity of an incoming
quotation is cancelled, the Exchange will also
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examples illustrating how a RPNP is
processed (RPNP Examples 1–4) apply
equally to an MMRP of the same size
and price of the RPNP in each example.
The Exchange notes that absent the
proposed MMRP, incoming quotes (or
portions thereof) would reject or cancel
if such quotes locked or crossed away
markets, which aligns with the NMS
plan for Options Order Protection And
Locked/Crossed Market Plan (‘‘Plan’’),
to which the Exchange is a party.34
Thus, the Exchange believes that
affording Market Makers the ability to
designate quotes as MMRP affords
Market Makers more certainty when
providing liquidity, while ensuring that
MMRPs priced too far through the
contra-side NBBO would cancel or
reject after trading with any eligible
interest on the Exchange.
To reflect the quote types proposed
herein, the Exchange proposes to reorganize paragraph (a) of Rule 6.37A–O,
by re-locating text that a quote will
never route from existing paragraph
(a)(4) to paragraph (a)(2); adding new
paragraph (a)(3) to provide that ‘‘[a]
Market Maker may designate a quote as
follows’’; and re-numbering the balance
of the paragraph to account for such
changes.35 In addition, as proposed, the
description of a Market Maker—Light
Only Quotation (‘‘MMLO’’) would be renumbered as paragraph (a)(3)(A), and
the text would be streamlined to
provide simply that ‘‘[o]n arrival, a
quotation designated MMLO will trade
with displayed interest in the
Consolidated Book only. Once resting,
the MMLO designation no longer
applies and such quotation is eligible to
trade with displayed and undisplayed
interest.’’ 36
The Exchange notes that this proposal
does not relieve a Market Maker of its
continuous quoting or firm quote
obligations pursuant to Rules 6.37A–O
and 6.86–O, respectively. Further, the
Exchange notes that Market Makers
would still be able to send orders in
(and out of) classes to which they are
cancel the Market Maker’s current quotation on the
opposite side of the market).
34 See Plan, dated April 14, 2009, available here,
https://www.optionsclearing.com/components/docs/
clearing/services/options_order_protection_
plan.pdf. See also Securities Exchange Act Release
No. 60405 (July 30, 2009), 74 FR 39362 (August 6,
2009) (File No. 4–546) (order approving the Plan).
The Plan obligates the participating exchanges to
provide order protection, including addressing
locked and crossed markets and the potential for
trade-throughs in certain options classes. See id.
Consistent with the Plan, the rules of the Exchange
include prohibitions against trade-throughs and a
pattern or practice of displaying certain quotations
that lock or cross away markets. See, e.g., Rules
6.94–O, 6.95–O.
35 See proposed Rule 6.37A–O(a)(2)–(3).
36 See proposed Rule 6.37A–O(a)(3)(A).
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appointed, as orders are not affected by
this proposal.
Implementation
The Exchange will announce by
Trader Update the implementation date
of the proposed rule change within 90
days of the effective date of this rule
filing.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934
(the ‘‘Act’’),37 in general, and furthers
the objectives of Section 6(b)(5) of the
Act,38 in particular, in that it is designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
RALO and RPNP
The proposed RALO and RPNP would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed order types would provide
market participants with greater
flexibility and control over how their
orders interact with liquidity on the
Exchange. The Exchange believes this
proposal allows market participants to
provide and access greater liquidity on
the Exchange, thus benefiting Exchange
members. Both proposed order types
provide a means to display such orders
at prices that are designed to maximize
their opportunities for execution.
Specifically, allowing any eligible
RALO and RPNP to be repriced and
potentially trade at multiple price
points would improve the mechanism of
price discovery. The Exchange believes
that ranking a repriced RALO or
repriced RPNP behind other interest
already eligible to trade at a price, as
well as ranking such orders that
simultaneously reprice to the same price
by time of original order entry, respects
and preserves principles of priority and
therefore would promote just and
equitable principles of trade. The
Exchange notes that similar order types
are offered by other options
exchanges.39 In addition, the Exchange
37 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
39 See, e.g., Nasdaq Options Market (‘‘NOM’’),
Chapter VI Trading Systems, Sec. 1(e)(11)
(providing for a non-routable Post-Only Order that
will reprice upon entry rather than remove liquidity
or lock or cross the NBBO as described herein) and
Nasdaq PHLX LLC (‘‘PHLX’’) Rule 1080(m)(iv)(A)
(providing for a non-routable Do Not Route (‘‘DNR’’)
38 15
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53697
has approved order types that function
similar to the proposed RALO, and
RPNP in its equities market rules.40
Specifically, the proposed RALO is
substantially similar to the Post-Only
Order available on NOM. A NOM PostOnly Order is a non-routable order that
will not remove liquidity from the NOM
System and is ranked and executed on
the exchange or cancelled (at the request
of a market participant), as appropriate,
without routing away to another market.
A RALO, like a NOM Post-Only Order,
is evaluated at the time of entry with
respect to locking or crossing other
orders and if such order would lock or
cross an order on the Exchange, the
order would be repriced to one MPV
below the current best offer (for bids) or
above the current best bid (for offers)
and displayed at one MPV below the
current best offer (for bids) or above the
current best bid (for offers). Also, like
NOM’s Post-Only Order, if a proposed
RALO would not lock or cross an order
on the local book but would lock or
cross the NBBO of another market
center, in violation of the Plan, such
order would be repriced to the current
NBO (for bids) or the current NBB (for
offers) and displayed at one MPV above
(for offers) or below (for bids) the
national best price. Given that an
incoming RALO (like a NOM Post-Only
Order) would need to be evaluated for
potential repricing, it may only be
entered with a time-in-force of Day (i.e.,
like NOM’s Post-Only Order, a RALO
could not be submitted as an
Immediate-or-Cancel (IOC) or Good-tillCancel (GTC)).41 The RALO, however,
will continuously reprice to avoid
locking or crossing once resting, while
the NOM Post-Only Order appears to be
evaluated and repriced only upon entry,
which distinction does not change the
underlying principle to both order
types, which is to avoid locking and
crossing the market.42
Order that that will repeatedly reprice as described
herein).
40 See Rules 7.31–E(e)(1) (describing the ‘‘NonRoutable Limit Order’’, which reprices if it would
lock or cross a protected quotation of an Away
Market or trade through a protected quotation) and
7.31–E(e)(2) (describing the ‘‘ALO Order,’’ which is
an non-routable limit order that would also reprice
if it would remove liquidity from the NYSE Arca
Book).
41 See proposed Rule 6.62–O(t) (providing that an
ALO may only be entered as a Day order) and (t)(1)
(providing that a RALO in an ALO that may be
repriced).
42 The continuous repricing feature of the RALO
is similar to the ‘‘multiple display price sliding’’
available on Cboe BZX Exchange, Inc. for its Post
Only Order; however that order type has certain
differences from the proposed RALO, including that
the BZX Post Only Order allows such orders to
remove liquidity when cost beneficial or cost
neutral to market participants and does not appear
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The Exchange’s ALO and the RALO
combine elements of the NOM PostOnly Order in that NOM market
participants can opt to have their PostOnly Order cancelled back if such order
locks or crosses another market (an ALO
would simply be rejected) and/or if the
Post-Only Order would be posted to the
NOM System at a price other than its
limit price (whereas the RALO is
designed to provide additional
flexibility for a potential executions
until the order reaches its limit price).
The NOM Post-Only Order does not
specify how it interacts, if at all, with
undisplayed interest. The Exchange
notes that NOM does not appear to
provide for the cancellation of PostOnly Orders that have a limit price that
is more than a certain number of MPVs
through the best-priced contra-side
interest. The Exchange notes that this
feature does not alter the repricing
feature of the proposed RALO, but
rather operates as a check for market
participants that may have priced their
RALO erroneously. The Exchange
therefore believes that any differences
between the proposed RALO and the
NOM Post-Only Order are minimal and
do not change the underlying principle
to both order types, which is to avoid
locking and crossing the market (with
the RALO offering additional protection
against erroneous orders).
The RPNP is substantially similar to
PHLX’s ‘‘DNR Order,’’ which is a nonroutable order that, after trading with
eligible interest on PHLX on arrival, is
displayed one MPV ‘‘inferior’’ to the
away best bid/offer’’ and is eligible to
trade with the best-priced contra-side
interest.43 The proposed RPNP, like the
DNR Order, automatically reprices if the
best away market changes, or moves to
an inferior price level, and such orders
are displayed at the NBBO only if the
repriced order locks or crosses the bestpriced local interest. A RPNP (like a
DNR Order) may reprice until it reaches
its limit price, at which time it will
remain at that price until executed or
cancelled. And, for both the RPNP and
a DNR Order, if the best away market
improves its price such that it locks or
crosses its limit price, the exchange
executes the incoming order that is
routed from the away market that locked
or crossed the order’s limit price.
to reprice the Post Only Order based on interest in
the local book. See BZX Rule 11.9(c)(6) and (g).
43 See PHLX Rule 1080(m)(iv)(A). See also
proposed Rule 6.62[sic](p)(1)(A). The Exchange
notes, however, that immediately upon receipt, the
DNR Order is exposed at the NBBO, which differs
from the proposed RPNP. However, the Exchange
believes this is not a material difference as a DNR
Orders (like the proposed RPNP) may not trade at
prices inferior to the NBBO.
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Finally, similar to DNR Orders, any
RPNPs that are submitted outside of
trading hours will be executed to the
extent possible, i.e., at their limit
price.44 The Exchange notes that PHLX
does not appear to provide for the
cancellation of DNR Orders that have a
limit price that is more than a certain
number of MPVs through the bestpriced contra-side interest. The
Exchange notes that this feature does
not alter the repricing feature of the
proposed RPNP, but rather operates as
a check for market participants that may
have priced their RPNP erroneously.
The Exchange believes that such
difference between the proposed RPNP
and PHLX’s DNR Order is minimal and
is designed to protect against erroneous
orders.
MMALO and MMRP
Similar to the proposed RALO and
RPNP, the proposed MMALO and
MMRP quote designations would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
they would provide Market Makers with
increased control over interactions with
contra-side liquidity and would increase
opportunities for such interactions. The
Exchange notes that, absent the
proposed repricing functionality
associated with the MMALO and
MMRP, a Market Maker quote that locks
or crosses interest on the Exchange or an
away market would reject or cancel. In
the case of MMALOs, the proposal
would promote the display of liquidity
because such quotations would be
displayed at the next-best aggressive
price instead of being cancelled. The
proposal would also ensure that an
MMALO would always add liquidity as
maker, rather than remove liquidity as
taker, while ensuring that MMALOs
priced too far through the contra-side
interest on the Exchange or the NBBO
would be rejected. As such, the
proposed MMALO would assist Market
Makers in maintaining a fair and orderly
market, as it would encourage Market
Makers to provide displayed liquidity to
the market and thereby contribute to
public price discovery. In the case of
MMRPs, the proposal would afford
Market Makers more certainty when
providing liquidity, while ensuring that
MMRPs priced too far through the
contra-side NBBO would cancel or
44 See PHLX Rule 1017(k)(C)(6)(providing that
DNR Orders will be executed to ‘‘to the extent
possible’’ if received pre-open). See also proposed
Rule 6.62[sic](p) (providing that an RPNP received
during pre-open or during a trading halt will be
treated as a PNP Order (i.e., as a Limit Order and
will not reprice) for purposes of participating in
opening auctions or re-opening auctions’’).
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reject after trading with any eligible
interest on the Exchange. The Exchange
notes that the proposed MMALO and
MMRP are optional and Market Makers
have the option to utilize these quote
types (or not). The Exchange believes
that ranking the repriced MMALO or
repriced MMRP by time priority behind
other interest already available to trade
at a price respects and preserves
principles of priority and therefore
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system.
Because the options market is quote
driven and Market Makers are vital to
the price discovery process, the
Exchange believes that the proposed
(optional) quote types would provide
Market Makers with a greater level of
determinism, in terms of managing their
exposure, and thus may encourage more
aggressive liquidity provision, resulting
in more trading opportunities and
tighter spreads. This too would help
improve the mechanism of price
discovery. Accordingly, the Exchange
believes that the proposal would
improve overall market quality and
enhance competition on the Exchange to
the benefit of all market participants.
Moreover, the Exchange also notes that
other options exchanges have recently
adopted quote types designed to
strengthen market making.45
Accordingly, the Exchange believes that
the proposal would improve overall
market quality and improve competition
on the Exchange, to the benefit of all
market participants.
Technical Changes
The Exchange notes that the proposed
organizational and non-substantive
45 See, e.g., MIAX Options Exchange (‘‘MIAX’’)
Rule 515(d) (providing that ‘‘[i]f a Market Maker
order or quote could not be executed or could not
be executed in full upon receipt, the System will
continue to execute the Market Maker’s order or
quote at multiple prices until (i) the Market Maker’s
quote has been exhausted or its order has been
completely filled; (ii) the executions have reached
the Market Maker’s limit price; or (iii) further
executions will trade at a price inferior to the ABBO
[Away Best Bid or Offer], whichever occurs first’’).
The Exchange notes that MIAX does not appear to
provide for the rejection of Market Maker quotes
that have a limit price that is more than a certain
number of MPVs through the best-priced contraside interest. The Exchange notes that this feature
does not alter the repricing feature of the proposed
MMALO/MMRP, but rather operates as a check for
market participants that may have priced their
MMALO/MMRP erroneously. See also BOX
Options Exchange LLC (‘‘BOX’’) IM–8050–3
(providing that ‘‘[i]f an incoming quote is
marketable against the BOX Book and will execute
against a resting order or quote, it will be rejected’’).
The Exchange notes that other options exchanges
currently offer repricing functionality that are
substantially similar to the proposed functionality
for quotes. See supra n. 39.
E:\FR\FM\24OCN1.SGM
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Federal Register / Vol. 83, No. 206 / Wednesday, October 24, 2018 / Notices
amozie on DSK3GDR082PROD with NOTICES1
changes to the rule text would provide
clarity and transparency to Exchange
rules and would promote just and
equitable principles of trade and remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system.46 The
proposed rule amendments would also
provide internal consistency within
Exchange rules and operate to protect
investors and the investing public by
making the Exchange rules easier to
navigate and comprehend.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes the proposed quote
designations would add value to market
making on the Exchange and the
proposed order types would provide
market participants the option of
exercising greater control over how
orders interact with contra-side
liquidity both on the Exchange and on
away markets. The proposed quotations
and order types would allow market
participants to exert greater control over
how their quotes and orders interact
with liquidity on the Exchange, thereby
attracting more investors to the
Exchange, which, in turn, leads to
greater price discovery and improves
overall market quality.
The Exchange does not believe the
proposal would impose a burden on
competition among the options
exchanges but instead, because the
Exchange would be offering the
proposed optional quotes and order
types, the proposal would add to the
existing competitive landscape. In this
highly competitive market, the
Exchange would be at a competitive
disadvantage absent this proposal,
which adopts functionality available on
other options exchanges. Permitting the
Exchange to operate on an even playing
field relative to other exchanges that
have similar functionality removes
impediments to and perfects the
mechanism for a free and open market
and a national market system. The
proposal does not impose an undue
burden on intramarket competition
because the proposed quote
designations would be available to all
Market Makers on the Exchange and the
proposed order types would be available
to all market participants. The proposal
is structured to offer the same
enhancement to all Market Makers and/
or market participants, regardless of
46 See,
e.g., supra nn. 4, 5, 16, 17, 24.
VerDate Sep<11>2014
17:43 Oct 23, 2018
Jkt 247001
size, and would not impose a
competitive burden on any participant.
The proposed quote designations,
which provide Market Makers with
enhanced determinism over their
quotes, may contribute to more
aggressive quoting by Market Makers,
resulting in more trading opportunities
and tighter spreads. To the extent this
purpose is achieved, the proposed quote
designations would enhance the market
making function on the Exchange,
which would improve overall market
quality and improve competition on the
Exchange to the benefit of all market
participants.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
53699
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–2018–74 and
should be submitted on or before
November 14, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.47
Eduardo A. Aleman,
Assistant Secretary.
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:
[FR Doc. 2018–23174 Filed 10–23–18; 8:45 am]
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–2018–74 on the subject line.
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Section
(a)(i)(D) of Rule 1012
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-2018–74. This
file number should be included on the
subject line if email is used. To help the
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84449; File No. SR–Phlx–
2018–64]
October 18, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
17, 2018, Nasdaq PHLX LLC
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
47 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\24OCN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 206 (Wednesday, October 24, 2018)]
[Notices]
[Pages 53692-53699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23174]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84451; File No. SR-NYSEArca-2018-74]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Amend Rules 6.62-O and 6.37A-O To Add New
Order Types and Quotation Designations
October 18, 2018.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on October 5, 2018, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rules 6.62-O (Certain Types of
Orders Defined) and 6.37A-O (Market Maker Quotations) to add new order
types and quotation designations. The proposed 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
[[Page 53693]]
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 purpose of this filing is to modify Rules 6.62-O and 6.37A-O to
add new order types and quotation designations as described herein. The
Exchange also proposes to make conforming changes to these rules to
reflect the proposed order types and quotations designations.
Existing Order Types
Current Rule 6.62-O sets forth the order types available on the
Exchange, including Liquidity Adding Orders (each an ``ALO'') and PNP
(Post No Preference) Orders, both of which provide market participants
control over how their orders interact with contra-side liquidity.
Specifically, an ALO is a Limit Order that is rejected if it is
marketable against the NBBO on arrival.\4\ A PNP Order is eligible to
interact solely with interest on the Exchange, will not route, and will
cancel if it locks or crosses the NBBO.\5\ The Exchange proposes to add
order types that build on the existing ALO and PNP Order functionality
to allow for repricing (rather than cancellation or rejection of
orders) under certain circumstances.
---------------------------------------------------------------------------
\4\ See Rule 6.62-O(t) (providing that ``a Liquidity Adding
Order is a Limit Order which is to be accepted only if it is not
executable at the time of receipt. Orders with the liquidity adding
instruction will not be routed if marketable against the NBBO, but
will be rejected. Liquidity adding orders may only be entered as a
Day Order''). The Exchange proposes to modify paragraph (t) of this
Rule to define Liquidity Adding Orders as ALOs and make conforming
changes to the Rule. See proposed Rule 6.62-O(t). The Exchange also
proposes to modify the rule to reflect that ``[a]n ALO or RALO, as
defined in paragraph (t)(1) of this Rule, will be rejected if
entered outside of Core Trading Hours or during a trading halt or,
if resting, will be cancelled in the event of a trading halt,''
which is a functionality update that ensures these rule types
operate as intended. See id.
\5\ See Rule 6.62-O(p) (providing that a PNP Order ``is a Limit
Order to buy or sell that is to be executed in whole or in part on
the Exchange, and the portion not so executed is to be ranked in the
Consolidated Book, without routing any portion of the order to
another market center; provided, however, the Exchange shall cancel
a PNP Order that would lock or cross the NBBO''). The Exchange
proposes to capitalize the ``Market Center'' as used in paragraph
(p) of the Rule, which is a defined term in Rule 6.1A-O(6). See
proposed Rule 6.62-O(p).
---------------------------------------------------------------------------
Repricing ALO (``RALO'')
The Exchange proposes to allow market participants the option to
send in ALOs designated as RALO.\6\ As proposed, a RALO would be
repriced (rather than be rejected) if it would either trade as the
liquidity taker or display at a price that locks or crosses any
interest on the Exchange or the NBBO. Specifically, an incoming RALO to
buy (sell) that would trade with any displayed or undisplayed sell
(buy) interest on the Consolidated Book would be displayed at a price
one minimum price variation (``MPV'') below (above) such sell (buy)
interest. An incoming RALO to buy (sell) that is not marketable against
interest in the Consolidated Book but that would lock or cross the NBO
(NBB) would be displayed at a price that is one MPV below (above) the
NBO (NBB). If the sell (buy) interest in the Consolidated Book or NBO
(NBB) moves up (down), the display price of the RALO to buy (sell) and
the undisplayed price at which it is eligible to trade would be
continuously adjusted, up (down) to the RALO's limit price. In other
words, to avoid trading as the liquidity taker, the RALO would be
displayed at a price one MPV away from the best-priced contra-side
interest, whether on the Exchange or an away market, and its display
price would continue to be adjusted up to its limit price.
---------------------------------------------------------------------------
\6\ See proposed Rule 6.62-O(t)(1). The Exchange proposes that a
RALO that is designated as a Reserve Order (i.e., with a portion of
the order not displayed) would be rejected because of the complexity
(and potential priority conflict) that could be introduced if the
Exchange allowed a combination of these two order types. See id.
---------------------------------------------------------------------------
As proposed, a resting RALO to buy (sell) that is displayed one MPV
below (above) interest on the Consolidated Book would be eligible to
trade at its display price. As further proposed, a resting RALO to buy
(sell) that is displayed at a price one MPV below (above) the NBO (NBB)
would be eligible to trade at the NBO (NBB); provided, however, that if
the NBO (NBB) updates to lock or cross the RALO's display price, such
RALO would trade at its display price in time priority behind other
eligible interest already displayed at that price.\7\ Because in such
circumstances the RALO would be trading at its display price, which
would be different than the (less aggressive) price it was previously
eligible to trade, the Exchange believes that principles of price-time
priority dictate that the repriced RALO should be ranked behind other
interest already displayed at the RALO's updated display price.\8\
Similarly, the Exchange proposes that each time there is an update to
the RALO's price, the RALO would be ranked by time priority behind
other eligible interest already at that price. And, if multiple RALOs
simultaneously reprice to the same price at which they are eligible to
trade, the RALOs would be prioritized based on the time of original
order entry. The Exchange believes that this proposed handling of RALOs
likewise would respect and preserve the Exchange price-time priority
model.
---------------------------------------------------------------------------
\7\ The proposed RALO operates in substantially the same manner
as the ALO Order, available on the Exchange's equity market, which,
like the RALO, would not remove liquidity and reprices if it would
lock or cross interest on the Consolidated Book or the NBBO. See
Rule 7.31-E(e)(2).
\8\ The proposal to re-rank an order when the price at which an
order is eligible to trade changes is consistent with how the
Exchange's equity order types function. See Rule 7.36-E(f)(3)
(providing that an order is assigned a new working time (i.e.,
effective time sequence assigned to an order for purposes of
determining its priority ranking) any time the working price (i.e.,
the price at which an order is eligible to trade) changes).
---------------------------------------------------------------------------
To avoid accepting RALOs priced too far through the NBBO, the
Exchange proposes to limit the extent to which it would reprice such
interest. Specifically, the Exchange would cancel an incoming RALO that
has a limit price to buy (sell) that is more than a configurable number
of MPVs above (below) the initial display price (on arrival) of the
RALO.\9\ The Exchange would determine the configurable number of MPVs,
which will be announced by Trader Update.\10\
---------------------------------------------------------------------------
\9\ See proposed Rule 6.62[sic](t)(1)(B).
\10\ For example, in a Penny Pilot issue, if the local best
offer is 0.99 and the away best offer is 1.00 with a configuration
set to 3 MPV, a RALO to buy of 1.02 or greater will cancel on
arrival because the initial display price would be 0.98 which is 4
MPVs away from its limit price.
---------------------------------------------------------------------------
The following examples illustrate the proposed RALO order type.
RALO Example 1
Exchange BBO: (100) 1.98 x 2.22 (100)
Away BBO: (50) 1.97 x 2.23 (50)
Order 1: RALO Buy 50 @ 2.25
The incoming RALO (Order 1) will reprice to display and be
eligible to trade @ 2.21 (i.e., one MPV below the NBO, which is also
the Exchange BO).
Order 2: Sell 50 @ 2.18
Order 2 will trade on arrival with the RALO (Order 1) @
2.21.
RALO Example 2
Exchange BBO: (100) 2.15 x 2.22 (100)
Away BBO: (50) 2.20 x 2.23 (50)
Order 1: PNPB \11\ Sell 50 @ 2.19
\11\ A PNP-Blind Order (or PNPB) order ``is a Limit Order to buy
or sell that is to be executed in whole or in part on the Exchange,
and the portion not so executed is to be ranked in the Consolidated
Book, without routing any portion of the order to another market
center; however, if the [PNPB] order would lock or cross the NBBO,
the price and size of the order will not be disseminated. Once the
[PNPB] order no longer locks or crosses the NBBO, the price and size
will be disseminated.'' See Rule 6.62-O(u).
---------------------------------------------------------------------------
[[Page 53694]]
The PNPB (Order 1) will be eligible to trade @ 2.20 (but
---------------------------------------------------------------------------
will not be displayed at this price because it crosses the NBB).
Order 2: RALO Buy 50 @ 2.25
a. The RALO (Order 2) will reprice to display and be eligible to
trade @ 2.19 (i.e., one MPV below the PNPB (Order 1) @ 2.20, which is
the best priced (undisplayed) contra-side interest in the Consolidated
Book).
Order 3: Sell 100 @ 2.18
b. Order 3 will route 50 to the Away BB @ 2.20, and trade the
remaining 50 with the RALO (Order 2) @ 2.19.
c. The PNPB (Order 1) will then display (because it is no longer
crossing the NBB) and be eligible to trade @ 2.19.
RALO Example 3
Exchange BBO: (100) 1.98 x 2.22 (10)
Away BBO: (50) 1.97 x 2.25 (50)
Order 1: Sell Limit 10 @ 2.23
Order 2: Sell Limit 10 @ 2.24
Order 3: RALO Buy 50 @ 2.25
The RALO (Order 3) will reprice to display and be eligible
to trade @ 2.21 (i.e., one MPV below the NBO, which is also the
Exchange BO).
Order 4: Buy Limit [email protected] 2.25
Order 4 will trade with the Exchange BO @ 2.22.
Update to Exchange BBO: (50) 2.21 x 2.23 (10)
Order 3 (RALO) will be repriced to display and be eligible
to trade @ 2.22.
Order 5: Sell 50 @ 2.20
Order 5 will trade with Order 3 (RALO) @ 2.22.
RALO Example 4
Exchange BBO: (100) 1.98 x 2.22 (10)
Away BBO: (50) 1.97 x 2.25 (50)
Order 1: RALO Buy 50 @ 2.23
The RALO (Order 1) will reprice to display and be eligible
to trade @ 2.21 (i.e., one MPV below the NBO, which is also the
Exchange BO).
Order 2: Buy Limit 50 @ 2.23
Order 2 will trade 10 contracts with the Exchange BO @
2.22 and the remaining 40 contracts of Order 2 will be added the
Consolidated Book at 2.23. The RALO (Order 1) will reprice to display
and be eligible to trade @ 2.23, at which time the RALO will get a new
priority timestamp making it eligible to trade behind Order 2 (already
displayed at this price) in time priority.
Order 3: Sell Limit 10 @ 2.23
Order 3 will trade with Order 2, as Order 2 has time
priority over the RALO (Order 1).
Order 4: Sell 10 @ 2.50
New Exchange BBO: (80) 2.23 x 2.50 (10)
* * * * *
The Exchange believes the proposed RALO would give market
participants more flexibility and control over the circumstances under
which their orders trade with contra side-interest (i.e., by ensuring
that a RALO would always add liquidity as maker, rather than remove
liquidity as taker), while ensuring that RALOs priced too far through
the contra-side NBBO would be rejected. The Exchange believes the
proposed RALO would assist market participants in maximizing
opportunities for execution (as such orders would reprice rather than
reject) while encouraging the provision of greater displayed liquidity
to the market, which would contribute to public price discovery.
Repricing PNP Order (``RPNP'')
The Exchange proposes to allow market participants the option to
send in PNP Orders as RPNP.\12\ As proposed, an RPNP is a PNP Order
that would be repriced (rather than be cancelled after trading with
interest in the Consolidated Book) if it would lock or cross the NBBO.
Specifically, an RPNP to buy (sell) that would lock or cross the NBO
(NBB) would be displayed at a price one MPV below (above) the NBO
(NBB). If the NBO (NBB) moves up (down), the display price of the RPNP
to buy (sell) and the undisplayed price at which it is eligible to
trade would be continuously adjusted, up (down) to the limit price of
the RPNP.
---------------------------------------------------------------------------
\12\ See proposed Rule 6.62-O(p)(1). The Exchange proposes that
an RPNP received during pre-open or during a trading halt will be
treated as a PNP Order (i.e., as a Limit Order and will not reprice)
for purposes of participating in opening auctions or re-opening
auctions. See proposed Rule 6.62-O(p). An RPNP may only be entered
as a Day Order (i.e., that expires at the end of the trading day).
See proposed Rule 6.62-O(p)(1). The Exchange proposes that an RPNP
that is designated as a Reserve Order (i.e., with a portion of the
order not displayed) would be rejected because of the complexity
(and potential priority conflict) that could be introduced if the
Exchange allowed a combination of these two order types. See id.
---------------------------------------------------------------------------
As proposed, a RPNP to buy (sell) that is displayed at a price one
MPV below (above) the NBO (NBB) would be eligible to trade at the NBO
(NBB), up (down) to the limit price of the RPNP; provided, however,
that if the NBO (NBB) updates to lock or cross the RPNP's display
price, such RPNP would trade at its display price in time priority
behind other eligible interest already displayed at that price.\13\
And, if multiple RPNPs simultaneously reprice to the same price at
which they are eligible to trade, the RPNPs would be prioritized based
on the time of original order entry. For the same reason as described
above for the proposed RALO, the Exchange believes that ranking the
RPNP to buy (sell) behind other interest already displayed at the
RPNP's updated display price, and ranking RPNPs that simultaneously
reprice to the same price based on time of original order entry, would
respect and preserve principles of priority. Also consistent with the
Exchange's price-time priority model, the Exchange proposes that each
time there is an update to the RPNP's price, the RPNP would be ranked
by time priority behind other eligible interest already at that price.
---------------------------------------------------------------------------
\13\ The proposed RPNP operates in substantially the same manner
as the Non-Routable Limit Order available on the Exchange's equities
market, which, like the RPNP, reprices if it would lock or cross a
protected quotation of an Away Market or trade through a protected
quotation. See Rule 7.31-E(e)(1).
---------------------------------------------------------------------------
Similar to the proposed RALO, to avoid accepting RPNPs priced too
far through the NBBO, the Exchange proposes to limit the extent to
which it would reprice such interest.\14\ An incoming RPNP would be
cancelled after trading with eligible interest (if any) if its limit
price to buy (sell) is more than a configurable number of MPVs above
(below) the initial display price (on arrival). The Exchange would
determine the configurable number of MPVs, which would be announced by
Trader Update.\15\
---------------------------------------------------------------------------
\14\ See proposed Rule 6.62[sic](p)(1)(B).
\15\ For example, in a Penny Pilot issue, if the local best
offer is 0.99 and the away best offer is 1.00 with a configuration
set to 3 MPV, a RPNP to buy at 1.03 or greater would trade with the
local offer at 0.99 and any remaining interest will be cancelled
(because the initial display price would be 0.99 which is 4 MPVs
away from its limit price).
---------------------------------------------------------------------------
The Exchange believes the proposed RPNP would give market
participants more flexibility and control over the circumstances under
which their orders trade with contra side-interest, while ensuring that
RPNPs priced too far through the contra-side NBBO would be rejected.
The Exchange believes the proposed RPNP would assist market
participants in maximizing opportunities for execution (as such orders
would reprice rather than reject) while encouraging the provision of
greater liquidity to the market, which would contribute to public price
discovery.
The following examples illustrate the proposed RPNP order type.
RPNP Example 1
Exchange BBO: (100) 1.98 x 2.22 (100)
[[Page 53695]]
Away BBO: (50) 2.00 x 2.20 (50)
Order 1: RPNP Buy 50 @ 2.25
The RPNP (Order 1) will display @ 2.19 (i.e., one MPV
below the NBO) and will be eligible to trade @ 2.20 (i.e., the NBO).
Order 2: Sell 50 @ 2.18
Order 2 will trade on arrival with the RPNP (Order 1) @
2.20.
RPNP Example 2
Exchange BBO: (100) 1.98 x 2.22 (100)
Away BBO: (50) 2.00 x 2.20 (50)
Order 1: PNPB Buy 50 @ 2.22
The PNPB (Order 1) will be eligible to trade @ 2.20 (but
will not be displayed at this price because it crosses the NBO).
Order 2: RPNP Buy 50 @ 2.21
The RPNP (Order 2) will display @ 2.19 (i.e., one MPV
below the NBO) and be eligible to trade @ 2.20 behind Order 1 in time
priority.
Order 3: Sell 10 @ 2.18
Order 3 will trade on arrival with Order 1 @ 2.20.
RPNP Example 3
Exchange BBO: (100) 1.98 x 2.22 (100)
Away BBO: (50) 2.00 x 2.20 (50)
Order 1: PNPB Buy 50 @ 2.21
The PNPB (Order 1) will be eligible to trade at 2.20 (but
will not be displayed at this price because it crosses the NBO).
Order 2: RPNP Buy 50 @ 2.22
The RPNP (Order 2) will display @ 2.19 and will be
eligible to trade @2.20 behind Order 1 in time priority.
Away BBO updates to (50) 2.00 x 2.19 (50)
The updated NBO locks the display price of the RPNP Buy 50
(Order 2).
The PNPB (Order 1) and the RPNP (Order 2) are both
eligible to trade @ 2.19. The RPNP has priority to trade ahead of the
PNPB because the RPNP was displayed @ 2.19 before the away market
updated (and the PNPB is still undisplayed because its limit price is
still crossing the NBO).
Order 3: Sell 10 @ 2.18
Order 3 will trade on arrival with the RPNP (Order 2) @
2.19.
RPNP Example 4
Exchange BBO: (100) 1.98 x 2.22 (100)
Away BBO: (50) 2.00 x 2.20 (50)
Order 1: Limit Buy 50 @ 2.19.
Order 2: RPNP Buy 50 @ 2.22
The RPNP will display @ 2.19 (because crosses the NBO) and
will be eligible to trade @ 2.20.
Away BBO updates to (50) 2.00 x 2.19 (50)
NBO now locks the display price of Order 2 (RPNP).
The RPNP (Order 2) will reprice to display and (will
continue to) be eligible to trade @ 2.19, but Order 1 will have
priority over Order 2 as it was already being displayed at this price.
Order 3: Sell 10 @ 2.18
Order 3 will trade on arrival with Order 1 @ 2.19.
* * * * *
Existing Market Maker Quotations
Current Rule 6.37A-O(a) defines Market Maker quotes, including
quotations designated as Market Maker--Light Only (``MMLO''), and
specifies how such quotes are processed when a series is open for
trading. The Exchange proposes to modify Rule 6.37A-O(a) to add two new
quote designations to provide market makers with the same functionality
for their quotations as are proposed for orders entered on the
Exchange. The proposed quotation designations are similar to how the
proposed RALO and RPNP would function and would enable Market Makers to
exert greater control over how their quotes would interact with contra-
side liquidity, while affording them more opportunities to provide
liquidity.
Market Maker--Add Liquidity Only Quotation (``MMALO'')
The Exchange proposes to allow Markets Makers the option to
designate quotations as MMALO.\16\ Similar to how the proposed RALO
would function, as proposed, an incoming or resting MMALO would never
trade as the liquidity taker nor would it display at a price that would
lock or cross any interest on the Exchange or the NBBO.\17\ Rather than
trade, an MMALO would be repriced based on contra-side interest.\18\
Specifically, an incoming MMALO to buy (sell) that would trade with any
sell (buy) interest on the Consolidated Book would be displayed at a
price one minimum price variation (``MPV'') below (above) such sell
(buy) interest. Similarly, an incoming MMALO to buy (sell) that is not
marketable against interest in the Consolidated Book but that would
lock or cross the NBO (NBB) would be displayed at a price that is one
MPV below (above) the NBO (NBB). If the sell (buy) interest in the
Consolidated Book or NBO (NBB) moves up (down), the display price of
the MMALO to buy (sell) and the undisplayed price at which it is
eligible to trade would be continuously adjusted, up (down) to the
MMALO's limit price. In other words, to avoid trading as the liquidity
taker, the MMALO would be displayed at a price one MPV away from the
best-priced contra-side interest, whether on the Exchange or an away
market. The above trading examples illustrating how a RALO is processed
(RALO Examples 1-4) apply equally to an MMALO of the same size and
price of the RALO in each example.
---------------------------------------------------------------------------
\16\ See proposed Rule 6.37A-O(a)(3)(B) and (a)(4)(A)(i). The
Exchange proposes to delete reference to MMLO in paragraph (a)(4),
regarding the ``[t]reatment of Market Maker Quotations,'' as too
restrictive in light of the proposed quote types; instead, the
Exchange proposes to separately describe the treatment of the
various quote types when a series is open for trading. See proposed
Rule 6.37A-O(a)(4).
\17\ Because incoming quotations, other than an MMALO, would
immediately ``trade with contra-side interest in the Consolidated
Book at prices that do not trade through interest on another Market
Center,'' the Exchange proposes to modify the rule to carve out
incoming MMALOs. See proposed Rule 6.37A-O(a)(4)(A). The Exchange
also proposes to replace references to ``another Market Center''
with ``the NBBO'' to add clarity and consistency to the Rule. See
id.; see also proposed Rule 6.37A-O(a)(4)(C)(i),(D)(i)-(ii).
\18\ See proposed Rule 6.37A-O(a)(4)(A)(i).
---------------------------------------------------------------------------
Similar to the proposed RALO, a resting MMALO to buy (sell) that is
displayed one MPV below (above) interest on the Consolidated Book would
be eligible to trade at its display price. Also similar to the proposed
RALO, a resting MMALO to buy (sell) that is displayed at a price one
MPV below (above) the NBO (NBB) would be eligible to trade at the NBO
(NBB); provided, however, that if the NBO (NBB) updates to lock or
cross the MMALO's display price, such MMALO would trade at its display
price in time priority behind other eligible interest already displayed
at that price.\19\ For the same reasons as described above for the
proposed RALO and RPNP, the Exchange believes that ranking the MMALO to
buy (sell) behind other interest already displayed at the MMALO's
updated display price would respect and preserve principles of
priority. Also consistent with the handling of RALOs, the Exchange
proposes that each time there is an update to the MMALO's price, the
MMALO would be ranked by time priority behind other eligible interest
already at that price.\20\ And, if multiple MMALOs simultaneously
reprice to the same price at which they are eligible to trade, the
MMALOs would be prioritized based on the time of original order entry.
The Exchange believes that this handling of MMALOs (which is consistent
with proposed handling of RALOs) in the event of a reprice, including
when multiple MMALOs simultaneously reprice, is consistent
[[Page 53696]]
with the Exchange's price-time priority model.
---------------------------------------------------------------------------
\19\ See proposed Rule 6.37A-O(a)(4)(A)(i)(b).
\20\ See proposed Rule 6.37A-O(a)(4)(A)(i)(c).
---------------------------------------------------------------------------
To incorporate MMALO (and MMRP discussed below) into existing rule
text, the Exchange proposes to streamline Rule 6.37A-O, by re-
organizing and re-numbering related text regarding the treatment of
untraded incoming quotations. Specifically, the Exchange proposes to
provide that ``[a]ny untraded quantity of an incoming quotation will be
added to the Consolidated Book, except in the circumstances specified
below, which result in the remaining balance being cancelled,'' \21\
including when the incoming quotation ``is not designated as MMALO or
MMRP'' and locks or crosses the NBBO and when it is designated as MMLO
and locks or crosses undisplayed interest.\22\ Similarly, the Exchange
would modify the rule providing that an incoming quotation that locks
or crosses the NBBO would be rejected, provided ``it is not designated
as MMALO or MMRP'' and cannot trade with interest in the Consolidated
Book at prices that do not trade through the NBBO.\23\
---------------------------------------------------------------------------
\21\ See proposed Rule 6.37A-O(a)(4)(C).
\22\ See proposed Rule 6.37A-O(a)(4)(C)(i) and (ii).
\23\ See proposed Rule 6.37A-O(a)(4)(D)(i).
---------------------------------------------------------------------------
To avoid accepting MMALOs priced too far through the NBBO, the
Exchange proposes to limit the extent to which it would reprice such
interest. Specifically, the Exchange would reject an incoming quote
that is designated as MMALO that has a limit price to buy (sell) that
is more than a configurable number of MPVs above (below) the initial
display price of the MMALO.\24\ The Exchange would determine the
configurable number of MPVs, which will be announced by Trader
Update.\25\
---------------------------------------------------------------------------
\24\ See proposed Rule 6.37A-O(a)(4)(D)(iii). The Exchange notes
that incoming MMALOs that fail the MPV check are rejected while
similarly-priced RALOs would be accepted and then cancelled. The
Exchange notes that this is a distinction without a difference and
simply reflects an operational difference in how the Exchange
evaluates these types of interest. The Exchange also proposes to re-
locate text that is currently at the end of this provision to the
beginning, such that the Rules states that ``[a]n incoming quotation
will be rejected, and the Exchange will cancel the Market Maker's
current quotation on the same side of the market, if:'' as the
Exchange believes this would streamline the Rule making it easier to
navigate and understand. See proposed Rule 6.37A-O(a)(4)(D).
\25\ For example, in a Penny Pilot issue, if the local best
offer is 0.99 and the away best offer is 1.00 with a configuration
set to 3 MPV, a MMALO to buy of 1.02 or greater would be rejected
because the initial display price would be 0.98, which is 4 MPVs
away from its limit price.
---------------------------------------------------------------------------
The Exchange believes the proposed MMALO would give Market Makers
more flexibility and control over the circumstances under which their
quotes trade with contra side-interest (i.e., by ensuring that an MMALO
would always add liquidity as maker, rather than remove liquidity as
taker), while ensuring that MMALOs priced too far through the contra-
side NBBO would be rejected. The Exchange believes the proposed MMALO
would assist Market Makers in maintaining a fair and orderly market, as
it would encourage Market Makers to provide displayed liquidity to the
market and thereby contribute to public price discovery.
Market Maker--Repricing Quotation (``MMRP'')
The Exchange also proposes to allow Markets Makers the option to
designate quotations as MMRP, which is similar to the proposed
RPNP.\26\ As proposed, an incoming or resting quotation designated as
MMRP would never display at a price that locks or crosses the NBBO.
Instead, after trading with interest in the Consolidated Book, an
incoming MMRP to buy (sell) that locks or crosses the NBO (NBB) would
be displayed at a price that is one MPV below (above) the NBO (NBB). If
the NBO (NBB) moves up (down), the display price of the MMRP to buy
(sell) and the undisplayed price at which it is eligible to trade would
be continuously adjusted, up (down) to the MMRP's limit price.
---------------------------------------------------------------------------
\26\ See proposed Rule 6.37A-O(a)(3)(C) and (a)(4)(B).
---------------------------------------------------------------------------
Similar to the proposed RPNP, an MMRP to buy (sell) that is
displayed at a price one MPV below (above) the NBO (NBB) would trade at
the NBO (NBB); provided, however, that if the NBO (NBB) updates to lock
or cross the MMRP's display price, such MMRP would trade at its display
price in time priority behind other eligible interest already displayed
at that price. For the same reasons described above for the proposed
RALO and RPNP, the Exchange believes that ranking the MMRP to buy
(sell) behind other interest already displayed at the MMRP's updated
display price would respect and preserve principles of priority.\27\
Also consistent with the handling of RALOs and RPNPs,, [sic] the
Exchange proposes that each time there is an update to the MMRP's
price, the MMRP would be ranked by time priority behind other eligible
interest already at that price.\28\ And, if multiple MMRPs
simultaneously reprice to the same price at which they are eligible to
trade, the MMRPs would be prioritized based on the time of original
order entry. The Exchange believes that this handling of MMRPs (which
is consistent with the proposed handling of RALOs and RPNPs) in the
event of a reprice, including when multiple MMRPs simultaneously
reprice, is consistent with the Exchange's price-time priority model.
---------------------------------------------------------------------------
\27\ See proposed Rule 6.37A-O(a)(4)(B)(i).
\28\ See proposed Rule 6.37A-O(a)(4)(B)(ii).
---------------------------------------------------------------------------
The Exchange notes that an MMRP may be submitted when a series is
not open for trading (i.e., during pre-open or a trading halt) and such
MMRP would be eligible to participate in the opening auction and re-
opening auction (as applicable) at the limit price of the MMRP.\29\
Such MMRPs would not be repriced as an option series may not open (or
re-open) if a quote is locked or crossed.\30\
---------------------------------------------------------------------------
\29\ See proposed Rule 6.37A-O(a)(5). The Exchange also proposes
to make clear that ``[a]ll resting quotations will be cancelled in
the event of a trading halt.'' See id.
\30\ See Rule 6.64-O(b)(E)(providing in relevant part, that
``[i]f the OX System does not open a series with an Auction Process,
the OX System shall open the series for trading after receiving
notification of an initial uncrossed NBBO disseminated by OPRA for
the series'').
---------------------------------------------------------------------------
To avoid accepting MMRPs priced too far through the NBBO, the
Exchange proposes to limit the extent to which it would reprice such
interest. Specifically, an incoming MMRP that has a limit price more
than a configurable number of MPVs above (below) the initial display
price (on arrival) would first trade with marketable interest in the
Consolidated Book up (down) to the NBO (NBB) and any remaining balance
would be cancelled.\31\ Similarly, the Exchange would reject an
incoming MMRP that does not trade (i.e., because there is no marketable
interest in the Consolidated Book) and has a limit price to buy (sell)
that is more than a configurable number of MPVs above (below) the
initial display price (on arrival) of the MMRP.\32\ The Exchange would
determine the applicable number of MPVs and announce the configurable
by Trader Update.\33\ The above trading
[[Page 53697]]
examples illustrating how a RPNP is processed (RPNP Examples 1-4) apply
equally to an MMRP of the same size and price of the RPNP in each
example.
---------------------------------------------------------------------------
\31\ See proposed Rule 6.37A-O(a)(4)(C)(iii).
\32\ See proposed Rule 6.37A-O(a)(4)(D). The Exchange notes that
incoming MMRPs that fail the MPV check are rejected while similarly-
priced RPNPs would be accepted and then cancelled. The Exchange
notes that this is a distinction without a difference and simply
reflects an operational difference in how the Exchange evaluates
these types of interest.
\33\ For example, in a Penny Pilot issue, if the local best
offer is 0.99 and the away best offer is 1.00 with a configuration
set to 3 MPV, a MMRP to buy at 1.03 or greater would trade with the
local offer at 0.99 and any remaining interest will be cancelled
(because the initial display price would be 0.99 which is 4 MPVs
away from its limit price). Because the MMRP is cancelled, the
Exchange would also cancel the opposite-side quote for that Market
Maker. See Rule 6.37A-O(a)(4)(B)(or, as renumbered, proposed Rule
6.37A-O(a)(4)(C) (providing, ``[w]hen such quantity of an incoming
quotation is cancelled, the Exchange will also cancel the Market
Maker's current quotation on the opposite side of the market).
---------------------------------------------------------------------------
The Exchange notes that absent the proposed MMRP, incoming quotes
(or portions thereof) would reject or cancel if such quotes locked or
crossed away markets, which aligns with the NMS plan for Options Order
Protection And Locked/Crossed Market Plan (``Plan''), to which the
Exchange is a party.\34\ Thus, the Exchange believes that affording
Market Makers the ability to designate quotes as MMRP affords Market
Makers more certainty when providing liquidity, while ensuring that
MMRPs priced too far through the contra-side NBBO would cancel or
reject after trading with any eligible interest on the Exchange.
---------------------------------------------------------------------------
\34\ See Plan, dated April 14, 2009, available here, https://www.optionsclearing.com/components/docs/clearing/services/options_order_protection_plan.pdf. See also Securities Exchange Act
Release No. 60405 (July 30, 2009), 74 FR 39362 (August 6, 2009)
(File No. 4-546) (order approving the Plan). The Plan obligates the
participating exchanges to provide order protection, including
addressing locked and crossed markets and the potential for trade-
throughs in certain options classes. See id. Consistent with the
Plan, the rules of the Exchange include prohibitions against trade-
throughs and a pattern or practice of displaying certain quotations
that lock or cross away markets. See, e.g., Rules 6.94-O, 6.95-O.
---------------------------------------------------------------------------
To reflect the quote types proposed herein, the Exchange proposes
to re-organize paragraph (a) of Rule 6.37A-O, by re-locating text that
a quote will never route from existing paragraph (a)(4) to paragraph
(a)(2); adding new paragraph (a)(3) to provide that ``[a] Market Maker
may designate a quote as follows''; and re-numbering the balance of the
paragraph to account for such changes.\35\ In addition, as proposed,
the description of a Market Maker--Light Only Quotation (``MMLO'')
would be re-numbered as paragraph (a)(3)(A), and the text would be
streamlined to provide simply that ``[o]n arrival, a quotation
designated MMLO will trade with displayed interest in the Consolidated
Book only. Once resting, the MMLO designation no longer applies and
such quotation is eligible to trade with displayed and undisplayed
interest.'' \36\
---------------------------------------------------------------------------
\35\ See proposed Rule 6.37A-O(a)(2)-(3).
\36\ See proposed Rule 6.37A-O(a)(3)(A).
---------------------------------------------------------------------------
The Exchange notes that this proposal does not relieve a Market
Maker of its continuous quoting or firm quote obligations pursuant to
Rules 6.37A-O and 6.86-O, respectively. Further, the Exchange notes
that Market Makers would still be able to send orders in (and out of)
classes to which they are appointed, as orders are not affected by this
proposal.
Implementation
The Exchange will announce by Trader Update the implementation date
of the proposed rule change within 90 days of the effective date of
this rule filing.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\37\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\38\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78f(b).
\38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
RALO and RPNP
The proposed RALO and RPNP would remove impediments to and perfect
the mechanism of a free and open market and a national market system
because the proposed order types would provide market participants with
greater flexibility and control over how their orders interact with
liquidity on the Exchange. The Exchange believes this proposal allows
market participants to provide and access greater liquidity on the
Exchange, thus benefiting Exchange members. Both proposed order types
provide a means to display such orders at prices that are designed to
maximize their opportunities for execution. Specifically, allowing any
eligible RALO and RPNP to be repriced and potentially trade at multiple
price points would improve the mechanism of price discovery. The
Exchange believes that ranking a repriced RALO or repriced RPNP behind
other interest already eligible to trade at a price, as well as ranking
such orders that simultaneously reprice to the same price by time of
original order entry, respects and preserves principles of priority and
therefore would promote just and equitable principles of trade. The
Exchange notes that similar order types are offered by other options
exchanges.\39\ In addition, the Exchange has approved order types that
function similar to the proposed RALO, and RPNP in its equities market
rules.\40\
---------------------------------------------------------------------------
\39\ See, e.g., Nasdaq Options Market (``NOM''), Chapter VI
Trading Systems, Sec. 1(e)(11) (providing for a non-routable Post-
Only Order that will reprice upon entry rather than remove liquidity
or lock or cross the NBBO as described herein) and Nasdaq PHLX LLC
(``PHLX'') Rule 1080(m)(iv)(A) (providing for a non-routable Do Not
Route (``DNR'') Order that that will repeatedly reprice as described
herein).
\40\ See Rules 7.31-E(e)(1) (describing the ``Non-Routable Limit
Order'', which reprices if it would lock or cross a protected
quotation of an Away Market or trade through a protected quotation)
and 7.31-E(e)(2) (describing the ``ALO Order,'' which is an non-
routable limit order that would also reprice if it would remove
liquidity from the NYSE Arca Book).
---------------------------------------------------------------------------
Specifically, the proposed RALO is substantially similar to the
Post-Only Order available on NOM. A NOM Post-Only Order is a non-
routable order that will not remove liquidity from the NOM System and
is ranked and executed on the exchange or cancelled (at the request of
a market participant), as appropriate, without routing away to another
market. A RALO, like a NOM Post-Only Order, is evaluated at the time of
entry with respect to locking or crossing other orders and if such
order would lock or cross an order on the Exchange, the order would be
repriced to one MPV below the current best offer (for bids) or above
the current best bid (for offers) and displayed at one MPV below the
current best offer (for bids) or above the current best bid (for
offers). Also, like NOM's Post-Only Order, if a proposed RALO would not
lock or cross an order on the local book but would lock or cross the
NBBO of another market center, in violation of the Plan, such order
would be repriced to the current NBO (for bids) or the current NBB (for
offers) and displayed at one MPV above (for offers) or below (for bids)
the national best price. Given that an incoming RALO (like a NOM Post-
Only Order) would need to be evaluated for potential repricing, it may
only be entered with a time-in-force of Day (i.e., like NOM's Post-Only
Order, a RALO could not be submitted as an Immediate-or-Cancel (IOC) or
Good-till-Cancel (GTC)).\41\ The RALO, however, will continuously
reprice to avoid locking or crossing once resting, while the NOM Post-
Only Order appears to be evaluated and repriced only upon entry, which
distinction does not change the underlying principle to both order
types, which is to avoid locking and crossing the market.\42\
---------------------------------------------------------------------------
\41\ See proposed Rule 6.62-O(t) (providing that an ALO may only
be entered as a Day order) and (t)(1) (providing that a RALO in an
ALO that may be repriced).
\42\ The continuous repricing feature of the RALO is similar to
the ``multiple display price sliding'' available on Cboe BZX
Exchange, Inc. for its Post Only Order; however that order type has
certain differences from the proposed RALO, including that the BZX
Post Only Order allows such orders to remove liquidity when cost
beneficial or cost neutral to market participants and does not
appear to reprice the Post Only Order based on interest in the local
book. See BZX Rule 11.9(c)(6) and (g).
---------------------------------------------------------------------------
[[Page 53698]]
The Exchange's ALO and the RALO combine elements of the NOM Post-
Only Order in that NOM market participants can opt to have their Post-
Only Order cancelled back if such order locks or crosses another market
(an ALO would simply be rejected) and/or if the Post-Only Order would
be posted to the NOM System at a price other than its limit price
(whereas the RALO is designed to provide additional flexibility for a
potential executions until the order reaches its limit price). The NOM
Post-Only Order does not specify how it interacts, if at all, with
undisplayed interest. The Exchange notes that NOM does not appear to
provide for the cancellation of Post-Only Orders that have a limit
price that is more than a certain number of MPVs through the best-
priced contra-side interest. The Exchange notes that this feature does
not alter the repricing feature of the proposed RALO, but rather
operates as a check for market participants that may have priced their
RALO erroneously. The Exchange therefore believes that any differences
between the proposed RALO and the NOM Post-Only Order are minimal and
do not change the underlying principle to both order types, which is to
avoid locking and crossing the market (with the RALO offering
additional protection against erroneous orders).
The RPNP is substantially similar to PHLX's ``DNR Order,'' which is
a non-routable order that, after trading with eligible interest on PHLX
on arrival, is displayed one MPV ``inferior'' to the away best bid/
offer'' and is eligible to trade with the best-priced contra-side
interest.\43\ The proposed RPNP, like the DNR Order, automatically
reprices if the best away market changes, or moves to an inferior price
level, and such orders are displayed at the NBBO only if the repriced
order locks or crosses the best-priced local interest. A RPNP (like a
DNR Order) may reprice until it reaches its limit price, at which time
it will remain at that price until executed or cancelled. And, for both
the RPNP and a DNR Order, if the best away market improves its price
such that it locks or crosses its limit price, the exchange executes
the incoming order that is routed from the away market that locked or
crossed the order's limit price. Finally, similar to DNR Orders, any
RPNPs that are submitted outside of trading hours will be executed to
the extent possible, i.e., at their limit price.\44\ The Exchange notes
that PHLX does not appear to provide for the cancellation of DNR Orders
that have a limit price that is more than a certain number of MPVs
through the best-priced contra-side interest. The Exchange notes that
this feature does not alter the repricing feature of the proposed RPNP,
but rather operates as a check for market participants that may have
priced their RPNP erroneously. The Exchange believes that such
difference between the proposed RPNP and PHLX's DNR Order is minimal
and is designed to protect against erroneous orders.
---------------------------------------------------------------------------
\43\ See PHLX Rule 1080(m)(iv)(A). See also proposed Rule
6.62[sic](p)(1)(A). The Exchange notes, however, that immediately
upon receipt, the DNR Order is exposed at the NBBO, which differs
from the proposed RPNP. However, the Exchange believes this is not a
material difference as a DNR Orders (like the proposed RPNP) may not
trade at prices inferior to the NBBO.
\44\ See PHLX Rule 1017(k)(C)(6)(providing that DNR Orders will
be executed to ``to the extent possible'' if received pre-open). See
also proposed Rule 6.62[sic](p) (providing that an RPNP received
during pre-open or during a trading halt will be treated as a PNP
Order (i.e., as a Limit Order and will not reprice) for purposes of
participating in opening auctions or re-opening auctions'').
---------------------------------------------------------------------------
MMALO and MMRP
Similar to the proposed RALO and RPNP, the proposed MMALO and MMRP
quote designations would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because they would provide Market Makers with increased control over
interactions with contra-side liquidity and would increase
opportunities for such interactions. The Exchange notes that, absent
the proposed repricing functionality associated with the MMALO and
MMRP, a Market Maker quote that locks or crosses interest on the
Exchange or an away market would reject or cancel. In the case of
MMALOs, the proposal would promote the display of liquidity because
such quotations would be displayed at the next-best aggressive price
instead of being cancelled. The proposal would also ensure that an
MMALO would always add liquidity as maker, rather than remove liquidity
as taker, while ensuring that MMALOs priced too far through the contra-
side interest on the Exchange or the NBBO would be rejected. As such,
the proposed MMALO would assist Market Makers in maintaining a fair and
orderly market, as it would encourage Market Makers to provide
displayed liquidity to the market and thereby contribute to public
price discovery. In the case of MMRPs, the proposal would afford Market
Makers more certainty when providing liquidity, while ensuring that
MMRPs priced too far through the contra-side NBBO would cancel or
reject after trading with any eligible interest on the Exchange. The
Exchange notes that the proposed MMALO and MMRP are optional and Market
Makers have the option to utilize these quote types (or not). The
Exchange believes that ranking the repriced MMALO or repriced MMRP by
time priority behind other interest already available to trade at a
price respects and preserves principles of priority and therefore would
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
Because the options market is quote driven and Market Makers are
vital to the price discovery process, the Exchange believes that the
proposed (optional) quote types would provide Market Makers with a
greater level of determinism, in terms of managing their exposure, and
thus may encourage more aggressive liquidity provision, resulting in
more trading opportunities and tighter spreads. This too would help
improve the mechanism of price discovery. Accordingly, the Exchange
believes that the proposal would improve overall market quality and
enhance competition on the Exchange to the benefit of all market
participants. Moreover, the Exchange also notes that other options
exchanges have recently adopted quote types designed to strengthen
market making.\45\ Accordingly, the Exchange believes that the proposal
would improve overall market quality and improve competition on the
Exchange, to the benefit of all market participants.
---------------------------------------------------------------------------
\45\ See, e.g., MIAX Options Exchange (``MIAX'') Rule 515(d)
(providing that ``[i]f a Market Maker order or quote could not be
executed or could not be executed in full upon receipt, the System
will continue to execute the Market Maker's order or quote at
multiple prices until (i) the Market Maker's quote has been
exhausted or its order has been completely filled; (ii) the
executions have reached the Market Maker's limit price; or (iii)
further executions will trade at a price inferior to the ABBO [Away
Best Bid or Offer], whichever occurs first''). The Exchange notes
that MIAX does not appear to provide for the rejection of Market
Maker quotes that have a limit price that is more than a certain
number of MPVs through the best-priced contra-side interest. The
Exchange notes that this feature does not alter the repricing
feature of the proposed MMALO/MMRP, but rather operates as a check
for market participants that may have priced their MMALO/MMRP
erroneously. See also BOX Options Exchange LLC (``BOX'') IM-8050-3
(providing that ``[i]f an incoming quote is marketable against the
BOX Book and will execute against a resting order or quote, it will
be rejected''). The Exchange notes that other options exchanges
currently offer repricing functionality that are substantially
similar to the proposed functionality for quotes. See supra n. 39.
---------------------------------------------------------------------------
Technical Changes
The Exchange notes that the proposed organizational and non-
substantive
[[Page 53699]]
changes to the rule text would provide clarity and transparency to
Exchange rules and would promote just and equitable principles of trade
and remove impediments to, and perfect the mechanism of, a free and
open market and a national market system.\46\ The proposed rule
amendments would also provide internal consistency within Exchange
rules and operate to protect investors and the investing public by
making the Exchange rules easier to navigate and comprehend.
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\46\ See, e.g., supra nn. 4, 5, 16, 17, 24.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes the
proposed quote designations would add value to market making on the
Exchange and the proposed order types would provide market participants
the option of exercising greater control over how orders interact with
contra-side liquidity both on the Exchange and on away markets. The
proposed quotations and order types would allow market participants to
exert greater control over how their quotes and orders interact with
liquidity on the Exchange, thereby attracting more investors to the
Exchange, which, in turn, leads to greater price discovery and improves
overall market quality.
The Exchange does not believe the proposal would impose a burden on
competition among the options exchanges but instead, because the
Exchange would be offering the proposed optional quotes and order
types, the proposal would add to the existing competitive landscape. In
this highly competitive market, the Exchange would be at a competitive
disadvantage absent this proposal, which adopts functionality available
on other options exchanges. Permitting the Exchange to operate on an
even playing field relative to other exchanges that have similar
functionality removes impediments to and perfects the mechanism for a
free and open market and a national market system. The proposal does
not impose an undue burden on intramarket competition because the
proposed quote designations would be available to all Market Makers on
the Exchange and the proposed order types would be available to all
market participants. The proposal is structured to offer the same
enhancement to all Market Makers and/or market participants, regardless
of size, and would not impose a competitive burden on any participant.
The proposed quote designations, which provide Market Makers with
enhanced determinism over their quotes, may contribute to more
aggressive quoting by Market Makers, resulting in more trading
opportunities and tighter spreads. To the extent this purpose is
achieved, the proposed quote designations would enhance the market
making function on the Exchange, which would improve overall market
quality and improve competition on the Exchange to the benefit of all
market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2018-74 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-2018-74. 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-2018-74 and should be submitted
on or before November 14, 2018.
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\47\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23174 Filed 10-23-18; 8:45 am]
BILLING CODE 8011-01-P
