Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules 900.3NY, 925.1NY, and 971.1NY, 12649-12658 [2019-06308]
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Federal Register / Vol. 84, No. 63 / Tuesday, April 2, 2019 / Notices
diversified portfolio and will mitigate
the risk of manipulation. In addition,
the Fund’s investment in CDOs will be
subject to the Fund’s liquidity
procedures as adopted by the Board,19
and the Adviser does not expect that
investments in CDOs of up to 20% of
the total assets of the Fund will have
any material impact on the liquidity of
the Fund’s investments.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
believes that the proposed rule change
will facilitate listing and trading of
shares of another actively managed ETF
that principally holds fixed income
securities, and that will enhance
competition among market participants,
to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
A. By order approve or disapprove the
proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2019–14 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–85429; File No. SR–
NYSEAMER–2019–06]
• 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–2019–14. 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–2019–14 and
should be submitted on or before April
23, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–06313 Filed 4–1–19; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rules
900.3NY, 925.1NY, and 971.1NY
March 27, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 14,
2019, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
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 to [sic]
amend Rules 900.3NY (Orders Defined)
and 925.1NY (Market Maker Quotes) to
add a new order type and quotation
designation and to make conforming
changes to Rule 971.1NY (Single-Leg
Electronic Cross Transactions). The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
19 See
note 15, supra.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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The purpose of this filing is to modify
Rules 900.3NY and 925.1NY to add a
new order type and quotation
designation as described herein. The
Exchange also proposes to make
conforming changes to these rules, as
well as to Rule 971.1NY regarding the
Customer Best Execution Auction or
CUBE for single-leg options (the ‘‘CUBE
Auction’’ or ‘‘Auction’’), to reflect the
impact of the proposed order type and
quotation designation on the auction
mechanism.
The proposed order type and quote
designation are substantially identical to
those utilized on NYSE Arca, Inc.
(‘‘NYSE Arca’’).4 However, in addition
to addressing the impact of the
proposed changes on the CUBE Auction
(which NYSE Arca does not have), the
proposal differs from the NYSE Arca
rules to reflect the Exchange’s allocation
rules, which differ from NYSE Arca’s
price-time priority allocation scheme.
Pursuant to Rule 964NY (Display,
Priority and Order Allocation—Trading
Systems), at each price point, the
Exchange affords Customer orders
priority over same-priced non-Customer
orders.5 Specifically, the Exchange
ranks and allocates Customer orders at
the same price in time priority and, after
all Customer orders are executed at a
price, non-Customer orders at the same
price are allocated on a size pro rata
basis.6 Aside from the difference in how
4 See Securities Exchange Act Release Nos. 84451
(October 18, 2018), 83 FR 53692 (October 24 2018)
(‘‘NYSE Arca Repricing Notice’’); 84737 (‘‘NYSE
Arca Repricing Approval Order’’) [sic] (December 6,
2018), 83 FR 63919 (December 12, 2018) (SR–
NYSEArca–2018–74) (‘‘NYSE Arca Repricing
Approval Order’’) (approving adoption of MMRP,
per NYSE Arca Rule 6.37A–O(a)(3)(C) and (a)(4)(B),
and RPNP, per NYSE Arca Rule 6.62–O(p)(1)). The
Exchanges notes that the NYSE Arca Repricing
Approval Order also included an order type and
quotation designation that would reprice if it would
remove liquidity (i.e., a RALO and MMALO,
respectively), which are not being proposed by the
Exchange.
5 The term ‘‘non-Customers’’ includes Market
Makers, Firms, Professional Customers and NonATP Holder Market Makers.
6 See Rule 964NY(b)(2)(A) (providing that ‘‘if
there is more than one highest bid for a Customer
account or more than one lowest offer for a
Customer account, then such bids or offers,
respectively, will be ranked based on time
priority’’); and (b)(2)(B)–(D). Per Rule
964NY(b)(2)(D), for example, ‘‘[i]f there is more
than one highest bid or more than one lowest offer
in the Consolidated Book for the account of a nonCustomer, then such bids or offers will be afforded
priority on a ‘size pro rata’ basis, and will comprise
the ‘size pro rata pool’ ’’). See also Rule 964NY(b)(3)
(setting forth size pro rata allocation method) and
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the repricing interest is prioritized and
allocated on the Exchange, the proposed
order type and quotation designation
function the same as on NYSE Arca. The
proposed order type and quote
designation are designed to operate
seamlessly with the CUBE Auction as
well as the Exchange’s Customer and
price-time priority model.
Repricing PNP Order (‘‘RPNP’’)
Rule 900.3NY(p) provides that a PNP
(Post No Preference) Order is eligible to
interact solely with interest on the
Exchange, will not route, and will
cancel if it locks or crosses the NBBO.7
PNP Orders provide market participants
control over how their orders interact
with contra-side liquidity.8
The Exchange proposes to add an
order type—RPNP—that builds on the
existing PNP Order functionality to
allow for repricing (rather than
cancellation) as described below. As
proposed, a RPNP is a PNP Order that
would be repriced instead of cancelled
after trading with interest in the
Consolidated Book 9 if it would lock or
cross the NBBO.10 As proposed, an
RPNP may only be entered as a Day
Order.11 The Exchange also proposes to
(c) (providing for executions of orders and quotes
on the Exchange).
7 See Rule 900.3NY(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 900.2NY(36). See proposed Rule
900.3NY(p).
8 A PNP Order may also be designated as an
Immediate-Or-Cancel Order (‘‘IOC Order’’) and,
when such designation is made, the IOC Order
behavior trumps the PNP Order behavior. In other
words, the portion of a PNP IOC Order that is not
executed immediately will cancel rather than
potentially be ranked in the Consolidated Book. The
Exchange proposes to modify the definition of a
PNP Order to specify the behavior of a PNP IOC
Order. See proposed Rule 900.3NY(p) (providing in
relevant part that, ‘‘[a] PNP Order that is designated
as IOC Order will be treated as an IOC Order (per
Rule 900.3NY(k)), such that any unexecuted portion
shall cancel’’). See also 900.3NY(k) (providing that
an IOC Order ‘‘is a Limit Order that is to be
executed in whole or in part on the Exchange as
soon as such order is received, and the portion not
so executed is to be canceled’’).
9 See Rule 900.2NY(14) (defining the
Consolidated Book (or ‘‘Book’’) as the Exchange’s
electronic book of limit orders for the accounts of
Customers and broker-dealers, and Quotes with
Size, all of which are ranked and maintained in
accordance with the rules of priority as provided in
Rule 964NY).
10 See proposed Rule 900.3NY(p)(1).
11 See proposed Rule 900.3NY(p)(1). This
proposed rule text is based on the last sentence of
NYSE Arca Rule 6.62–O(p)(1) with a substantive
difference not to reference Reserve Orders, which
are not available on the Exchange.
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amend Rule 900.3NY(p) to provide 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. This proposed rule
text is based on the last sentence of
NYSE Arca Rule 6.62–O(p) without any
differences.
Proposed Rule 900.3NY(p)(1)(A)
would provide that a 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). This
proposed rule would further provide
that 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 Proposed
Rule 900.3NY(p)(1)(A)(i) would provide
that 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.13 Proposed
Rule 900.3NY(p)(1)(A)(ii) would further
provide that each time there is an
update to the RPNP’s price, the RPNP
would be ranked with other eligible
interest at that price, and would trade at
each price, to the extent possible,
pursuant to Rule 964NY.14 For example,
at the same price (including an updated
(re)price), a RPNP submitted on behalf
of a Customer would have first priority
over non-Customer orders. The
Exchange believes that this proposed
handling of RPNPs would respect and
preserve the Exchange’s Customer
priority and pro rata allocation model.
To avoid accepting RPNPs priced too
far through the NBBO, the Exchange
proposes to limit the extent to which it
12 This proposed rule text is based on NYSE Arca
Rule 6.62–O(p)(1)(A). The proposed RPNP also
operates in substantially the same manner as the
Non-Routable Limit Order available on the NYSE
Arca’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 NYSE Arca Rule 7.31–
E(e)(1).
13 This proposed rule text is based on NYSE Arca
Rule 6.62–O(p)(1)(A)(i) with a substantive
difference not to reference that such orders would
trade in time priority behind other eligible interest
displayed at that price because the Exchange
operates on a pro rata allocation model.
14 See proposed Rule 900.3NY(p)(1)(A)(ii). This
proposed rule text is based on NYSE Arca Rule
6.62–O(p)(1)(A)(ii) with a substantive difference to
cross reference the Exchange’s allocation model
under Rule 964NY rather than NYSE Arca’s pricetime allocation model.
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would reprice such interest.15 As
proposed, 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) of the
RPNP. The Exchange would determine
the configurable number of MPVs,
which would be announced by Trader
Update.16
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 and how it
would function under the Exchange’s
allocation model.
RPNP Example 1 (the MPV is $0.01)
BOX 20 × 1.15¥1.23 × 20
BD1 B 50 @1.25 RPNP
BD2 B 10 @1.26 RPNP
BD3 B 15 @1.27 RPNP
Specialist 17 30 × 1.24–1.30 ×10 MMRP
BD4 S 15 Mkt
MM 100 × 1.20¥1.25 × 30 MMRP
BD5 S 10 Mkt
Cust6 S 40 Mkt
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Expected Result
BOX NBO @1.23
BD1, 2, 3 and Specialist all display @
1.22 (priced back one MPV from the
NBO) and are eligible to trade @1.23
due to BOX offer @1.23
BD4 sells 15 to BD1 @1.23 (leaving BD1
with 35)
MM 1.25 offer does not trade
(prohibited by BOX offer @1.23)
BD5 sells 10 to BD1 @1.23 (leaving BD1
with 25)
15 See proposed Rule 900.3NY(p)(1)(B). This
proposed rule text is based on NYSE Arca Rule
6.62–O(p)(1)(B) without any differences.
16 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).
17 A Specialist is a Market Maker on the Exchange
that has heightened obligations in exchange for
certain rights and privileges. See Rule 927NY. For
example, Specialists may receive a participation
entitlement, provided they are quoting at the NBBO.
See, e.g., Rule 964NY(b)(2)(C).
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Cust6 sells 25 to BD1 (exhausting BD1),
10 to BD2 (exhausting BD2), 5 to BD3
@1.23 (exhausting Cust6), in pricetime priority because BD1, BD2 and
BD3 are trading at an undisplayed
price (The Specialist, which is eligible
to trade @1.23 but displayed at 1.22,
is not entitled to an allocation
guarantee because it is not quoting
(displayed) at the NBBO) 18
RPNP Example 2 (the MPV is $0.01)
BOX 20 × 1.15¥1.26 × 20
BD1 B 50 @1.25 RPNP
Cust1 B 10 @1.25 RPNP
BD3 B 15 @1.25 RPNP
Specialist 30 × 1.25¥1.30 × 10 MMRP
BD4 S 15 Mkt
BD5 S 10 Mkt
Cust6 S 40 Mkt
Expected Result
BOX NBO @1.26
BD1, Cust1, BD3 and Specialist display
@limit price of 1.25 (no need to
reprice because already one MPV
away from the NBO) and will trade
size pro rata with Cust priority and
Specialist resulting in:
BD4 sells 10 to Cust1, 5 to Specialist @
1.25 (Specialist gets 100% of 5 lots or
smaller) 19
BD5 sells 4 to Specialist @1.25 (i.e.,
40%) 20 and 5 to BD1 and 1 to BD3 @
1.25, pursuant to size pro rata
allocation provided for in Rule
964NY(b)(3)
Cust6 sells 16 to Specialist @1.25 (i.e.,
40%) 21 and 18 to BD1 and 6 to BD3
@1.25, pursuant to size pro rata
allocation provided for in Rule
964NY(b)(3)
Market Maker—Repricing Quotation
(‘‘MMRP’’)
Current Rule 925.1NY(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
925.1NY(a) to add a new quote
designation—MMRP—to provide market
makers with the same functionality for
their quotations as are proposed for
18 See Rule 964NY(b)(2)(C) (regarding Specialist
40% participation guarantee).
19 See Rule 964NY(b)(2)(C)(iv) (providing that
‘‘[f]or all orders of five (5) contracts or fewer, the
Primary Specialist (as defined in Rule 964.2NY(a))
will be allocated the balance after any allocation to
Customers, not to exceed the size of the Primary
Specialist’s quote, provided the Primary Specialist
is quoting at the NBBO, and the order was not
originally allocated to a Directed Order Market
Maker’’).
20 See supra note 18.
21 Id.
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12651
orders entered on the Exchange.22 The
proposed quotation designation is
similar to how the proposed 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.
As proposed, an incoming or resting
quotation designated as MMRP would
never display at a price that locks or
crosses the NBBO.23 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).24 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.25
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 will
trade at its display price.26 Also
consistent with the handling of RPNPs,
the Exchange proposes that each time
there is an update to the MMRP’s price,
the MMRP would be ranked with other
eligible interest at that price, and would
trade at each price, to the extent
possible, pursuant to Rule 964NY.27 The
22 See proposed Rule 925.1NY(a)(3)(B) and
(a)(4)(B). This proposed rule text is based on NYSE
Arca Rule 6.37A–O(a)(3)(B) and (a)(4)(B). The
Exchange proposes to delete reference to MMLO in
current Rule 925.1NY(a)(3), which would be
renumbered as Rule 925.1NY(a)(4), regarding the
‘‘[t]reatment of Market Maker Quotations,’’ as too
restrictive in light of the proposed MMRP; instead,
the Exchange proposes to separately describe the
treatment of each quote type when a series is open
for trading. See proposed Rule 925.1NY(a)(4).
23 See proposed Rule 925.1NY(a)(3)(B) and
(a)(4)(B). The Exchange also proposes to replace
references to ‘‘another Market Center’’ with ‘‘the
NBBO’’ to add clarity and consistency to the Rule.
See proposed Rule 925.1NY(a)(4)(A), (a)(4)(C)(i),
(a)(4)(D)(i)–(ii); see also NYSE Arca Rule 6.37A–
O(a)(4)(C)(i),(D)(i)–(ii).
24 See proposed Rule 925.1NY(a)(4)(B). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(4)(B) without any differences.
25 See id.
26 See proposed Rule 925.1NY(a)(4)(B)(i). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(4)(B)(i) with a substantive difference
not to reference that such orders would trade in
time priority behind other eligible interest
displayed at that price because the Exchange
operates on a pro rata allocation model.
27 See proposed Rule 925.1NY(a)(4)(B)(ii). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(4)(B)(ii) butcross references the
Exchange’s allocation model under Rule 964NY
rather than NYSE Arca’s price-time allocation
model.
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Exchange believes that this handling of
MMRPs (which is consistent with the
proposed handling of RPNPs) would
respect and preserve the Exchange
Customer priority and pro rata
allocation 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.28 Such MMRPs would not be
repriced as an option series may not
open (or re-open) if a quote is locked or
crossed.29
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.30 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.31 The Exchange would
determine the applicable number of
28 See proposed Rule 925.1NY(a)(5). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(5) without any differences. The
Exchange also proposes to make clear that ‘‘[a]ll
resting quotations will be cancelled in the event of
a trading halt.’’ See id.
29 See Rule 952NY(b)(E) (providing in relevant
part, that ‘‘[i]f the System does not open a series
with an Auction Process, the System shall open the
series for trading after receiving notification of an
initial uncrossed NBBO disseminated by OPRA for
the series . . .’’).
30 See proposed Rule 925.1NY(a)(4)(C)(iii). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(4)(C)(iii) without any differences.
31 See proposed Rule 925.1NY(a)(4)(D)(iii). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(4)(D)(iii) without any differences. The
Exchange notes that incoming MMRPs that fail the
MPV check would be rejected while similarlypriced 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. 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 id. This proposed rule change is
also based on NYSE Arca Rule 6.37A–O(a)(4)(D).
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MPVs and announce the configurable by
Trader Update.32
The following trading example
illustrates the operation of an MMRP
under the Exchange’s allocation model.
MMRP Example (the MPV is $0.01)
MM 10 × 1.24¥1.28 × 10
ISE 20 × 1.25¥1.32 × 20
BD2 S 100 @1.23 RPNP
MMRP 70 × 1.22¥1.23 × 70
BD3 S 50 @1.23 RPNP
ISE Update 0 × 0¥1.32 × 20
Expected Result
ISE NBB @1.25
BD2 offer for 100 is eligible to trade @
1.25 and will display @1.26 (priced
back one MPV from the NBB)
MMRP offer for 70 is eligible to trade @
1.25 and will display @1.26 (priced
back one MPV from the NBB)
BD3 offer for 50 is eligible to trade @
1.25 and will display @1.26
ISE bid update to 0 results in the
following size pro rata allocation
(Rule 964NY(b)(3)):
BD2 trades 5 with MM @1.24
MMRP trades 3 with MM @1.24
BD3 trades 2 with MM @1.24
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.33
Thus, the Exchange believes that
affording Market Makers the ability to
designate quotes as MMRP affords
Market Makers more certainty when
32 See proposed Rule 925.1NY (a)(4)(C)(iii). 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 925.1NY (a)(4)(B)(or, as
renumbered, proposed Rule 925.1NY(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’’); see also NYSE Arca
Rule 6.37A–O(a)(4)(C).
33 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
991NY, 992NY.
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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.
In addition to adding new rule text to
describe the function of the proposed
MMRP 34 into existing rule text, the
Exchange also proposes to streamline
Rule 925.1NY, 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,’’ 35 including when the
incoming quotation ‘‘is not designated
as MMRP’’ and locks or crosses the
NBBO and when it is designated as
MMLO and locks or crosses
undisplayed interest.36 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 MMRP’’ and cannot trade with
interest in the Consolidated Book at
prices that do not trade through the
NBBO.37
Further, to accommodate the new
MMRP, the Exchange proposes to reorganize paragraph (a) of Rule 925.1NY,
by re-locating text that a quote will
never route from existing paragraph
(a)(3) 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.38 In addition, as proposed, the
description of the existing quote type
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
34 See proposed Rule 925.1NY(a)(3)(B) and
(a)(4)(B).
35 See proposed Rule 925.1NY(a)(4)(C). This rule
text is based on NYSE Arca Rule 6.37A–O(a)(4)(C)
without any differences.
36 See proposed Rule 925.1NY(a)(4)(C)(i) and (ii).
This proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(4)(C)(i) and (ii) without any differences.
37 See proposed Rule 925.1NY(a)(4)(D)(i). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(4)(D)(i) without any differences.
38 See proposed Rule 925.1NY(a)(2)–(3). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(2)–(3), however it differs from NYSE
Arca in that the Exchange is not adding a Market
Maker—Add Liquidity Only quotation type. See
NYSE Arca Rule 6.37A–O(a)(3)(B).
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eligible to trade with displayed and
undisplayed interest.’’ 39
The Exchange notes that this proposal
does not relieve a Market Maker of its
continuous quoting or firm quote
obligations pursuant to Rules 925.1NY
and 970NY, 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.
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RPNP/MMRP and the CUBE Auction
The Exchange proposes to modify
Rule 971.1NY, regarding the single-leg
CUBE Auction, to reflect current
functionality relating to how the
proposed RPNP/MMRP would
potentially interact with a CUBE
Auction.40 The CUBE Auction is an
electronic cross mechanism through
which an ATP Holder (‘‘Initiating
Participant’’) may initiate a CUBE
Auction by submitting for execution a
limit order it represents as agent on
behalf of a public customer, broker
dealer, or any other entity (the ‘‘CUBE
Order’’). The Initiating Participant,
however, must guarantee the execution
of the CUBE Order by submitting a
contra-side order (‘‘Contra Order’’)
representing principal interest or nonCustomer interest it has solicited to
trade solely with the CUBE Order at a
single ‘‘stop price,’’ or a range of prices
that will either ‘‘auto-match’’ all interest
received during the auction or have a
price limit on the matching (i.e., ‘‘auto
match limit price’’).41 Rule 971.1NY(b)
sets for [sic] the conditions that must
exist for a CUBE Auction to commence,
including the range of permissible
executions and that a CUBE Order will
be rejected if the NBBO is crossed.42
The CUBE Auction is designed to afford
price improvement opportunities to
CUBE Orders while interacting
seamlessly with the Consolidated Book
(i.e., the Auction should not disrupt the
Exchanges’ price-time priority model).
ATP Holders may participate in the
Auction with RFR Responses received
during the Response Time Interval
(‘‘RTI’’).43
39 See proposed Rule 925.1NY(a)(3)(A). This
proposed rule text is based on NYSE Arca Rule
6.37A–O(a)(3)(A) without any differences.
40 The Exchange notes that Rule 971.2NY
describes the Complex CUBE Auction which is not
implicated by this filing.
41 See Rule 971.1NY(a), (c)(1)(A)–(C).
42 The Exchange proposes to modify Rule
971.1NY(b)(9) to reflect current functionality and
make clear that a CUBE Order is today (and will be)
rejected if NBBO is ‘‘locked or crossed’’ (emphasis
added), which adds clarity and transparency to
Exchange rules. See proposed Rule 971.1NY(b)(9).
43 The RTI is subject to a random time period that
is no less than 100 milliseconds and no more than
1 second. See Rule 971.1NY(c)(2)(B).
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Modify Definition of RFR Responses To
Include Resting Interest
Current Rule 971.1NY(c)(2)(C)
provides that RFR Responses include
GTX Orders submitted specifically to
interact with the Auction 44 and
unrelated interest that is on the opposite
side of the CUBE Order and within the
range of permissible executions.45
Regarding the latter categories of RFR
Responses (i.e., unrelated quotes and
orders), the Exchange proposes to clarify
that current CUBE functionality treats
interest ‘‘resting in the Consolidated
Book when the Auction commences’’ as
an RFR Response, provided the interest
is on the opposite site of the CUBE
Order and eligible to participate within
the range of permissible executions
specified in Rule 971.1NY(b)(1).46
This proposed change reflects current
CUBE Auction functionality: Currently,
standard Market Maker quotes as well as
resting PNP Blind Orders (each a
‘‘PNPB’’) which, when undisplayed are
not included in the quoted market, are
considered ‘‘unrelated quotes and
orders’’ for purposes of Rule
971.1NY(b)(2)(C)(ii).47 The proposed
change would also account for the
proposed RPNP/MMRP, which like a
PNPB, may be resting undisplayed on
the Book at the start of a CUBE Auction
at a price with which a CUBE Order
may execute. This proposed amendment
is consistent with existing rule text
regarding how the Exchange handles
Customer interest resting at the start of
an Auction (which could include a PNP
Blind Order or a proposed RPNP).
Specifically, such resting interest, at a
price, gets first priority to trade with the
CUBE Order ahead of Customer interest,
at a price, that arrives during the
44 See Rule 971.1NY(c)(2)(C)(i) (defining GTX
Orders as non-routable order with a time-in-force
contingency for the RTI that will not be displayed
on the Consolidated Book and will cancel after
trading (if at all) in the CUBE Auction).
45 See Rule 971.1NY(c)(2)(C)(ii) (including as RFR
Responses any ‘‘unrelated quotes and orders’’ in the
same series as, and opposite side of, the CUBE
Order that arrive during the RTI and eligible to
participate within the range of permissible
executions specified in Rule 971.1NY (b)(1)).
46 See proposed Rule 971.1NY(c)(2)(C)(ii)
(regarding ‘‘Unrelated quotes and orders’’).
47 See Rule 900.3NY(x) (defining a PNPB (or Post
No Preference Blind) as a Limit Order 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 locks or crosses the NBBO, the price and size
of the order is not disseminated. Once the PNPB no
longer locks or crosses the NBBO, the price and size
will be disseminated). See Rule 971.1NY(b)
(providing that ‘‘[f]or purposes of determining
whether a CUBE Order is eligible to initiate an
Auction,’’ references to the NBBO or BBO ‘‘refer to
the quoted market at the time the Auction is
initiated’’).
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12653
Auction.48 Thus, the Exchange believes
that the proposed change reflects
current functionality and adds clarity,
transparency and internal consistency to
Exchange rules. Moreover, allowing
unrelated quotes and orders resting in
the Consolidated Book at the beginning
of the Auction—including eligible
PNPBs or the proposed RPNP/MMRPs—
to interact with the CUBE Auction
should increase the number of
participants against which the CUBE
Order may be executed, and is
consistent with the primary goal of the
CUBE Auction: To maximize price
improvement opportunities for the
CUBE Order.49
Early End Scenarios
The Exchange also proposes to modify
Rule 971.1NY(c)(4), which specifies
scenarios when a CUBE Auction would
conclude early (i.e., before the end of
the RTI). The purpose of these
provisions is to enable the CUBE
Auction to integrate seamlessly within
the Exchange’s Consolidated Book.
Accordingly, a CUBE Auction will
conclude early as a result of certain
events that would otherwise disrupt the
priority of the Auction within the
Consolidated Book. Early conclusion
allows the Exchange to appropriately
handle unrelated quotes and orders
without the CUBE Auction impacting
that handling, and further allows the
CUBE Order, which has been
guaranteed an execution, to execute
against the best-priced interest in the
Auction.
Current Rule 971.1NY(c)(4)(B)
provides that a CUBE Auction will
conclude early if the Exchange receives
during the RTI ‘‘an unrelated quote or
order that is on the same side of the
market as the CUBE Order, that is
marketable against any RFR Responses
or the NBBO (or the BBO, for a nonroutable order) at the time of arrival.’’
Because PNP Orders, although nonroutable are, by definition, checked
against the NBBO (not the BBO), the
Exchange proposes to modify the rule
text to provide ‘‘or the BBO, for a nonroutable order that is not a PNP
48 See Rule 971.1NY(c)(5)(A) (providing that ‘‘[a]t
each price level, any Customer orders resting on the
Consolidated Book at the start of the CUBE Auction
shall have first priority’’ to trade with the CUBE
Order).
49 The Exchange notes that to the extent that an
order that was resting undisplayed at the start of the
CUBE Order is eligible to trade with the CUBE
Order, that interest would trade behind Customer
and displayed interest, at a price, so as not to
disturb the Exchange’s allocation rules, per
proposed Rule 971.1NY(c)(5), Order Allocation (as
discussed herein).
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Order.’’ 50 The proposed language does
not alter the current operation of this
provision—as a same-side PNP Order
that is marketable against the NBBO
would cause an early end to the
Auction—but merely clarifies that PNP
Orders would differ because they would
be checked against the NBBO, not the
BBO. This carve out of PNP Order
would include the proposed RPNP (and
a PNPB). Also of note regarding this
early end scenario is the modified
definition of RFR Responses to include
eligible interest resting in the
Consolidated Book at the start of an
Auction. This modified definition
clarifies current functionality that an
Auction may end early if incoming
same-side interest is marketable against
interest (i.e., an RFR Response) that may
not have been included in the NBBO or
BBO but was resting undisplayed at the
start of the Auction—which could
include a proposed RPNP/MMRP or a
PNPB. Thus, this provision, as
modified, is consistent with CUBE
functionality and simply updates the
rule text to reflect the operation of PNP
Orders and the interest that may cause
an early end.
Current Rule 971.1NY(c)(4)(B) also
provides that ‘‘[w]hen the Auction
concludes, the CUBE Order will execute
pursuant to paragraph (c)(5) [Order
Allocation] of this Rule’’ and any
unexecuted ‘‘GTX Orders’’ may trade
with the interest that caused the
Auction to end early and then will
cancel. The Exchange proposes to
modify this provision to make clear that
any RFR Response—not just those
marked as GTX Orders—are eligible to
trade with the interest that caused the
Auction to end. As proposed, ‘‘[a]ny
RFR Responses that do not execute in
the CUBE Auction will execute against
the unrelated quote or order that caused
the CUBE Auction to conclude early to
the extent possible and GTX Orders will
then cancel.’’ 51 This proposed change
reflects the current operation of the
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50 See
proposed Rule 971.1NY(c)(4)(B) (‘‘Same
Side Marketable Against RFR Responses or NBBO
(or BBO)’’) (providing, in relevant part, that the
Auction would end early if during the RTI the
Exchange receives a same-side unrelated quote or
order that is marketable against ‘‘any RFR
Responses or the NBBO (or the BBO, for a nonroutable order that is not a PNP Order) at the time
of arrival’’).
51 See id. Consistent with this change, the
Exchange also proposes to modify paragraph
(c)(4)(D), another early end scenario based on sameside interest with similar rule text, to replace ‘‘GTX
Orders’’ with ‘‘RFR Responses’’ in terms of interest
received during the RTI that may trade in the
Auction after the CUBE Order is filled. See
proposed Rule 971.1NY(c)(4)(D) (providing, in
relevant part, that ‘‘[u]nfilled RFR Responses are
eligible to execute against the unrelated interest that
caused the CUBE Auction to conclude early and
GTX Orders will then cancel’’).
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CUBE, thus adding clarity, transparency
and internal consistency to Exchange
rules, and accounts for the modified
definition of RFR Responses (which also
reflects current functionality) to include
interest resting (potentially
undisplayed) at the start of the Auction
such as a PNPB or the proposed RPNP/
MMRP.
Current Rule 971.1NY(c)(4)(C)
provides that a CUBE Auction will
conclude early if the Exchange receives
during the RTI ‘‘any RFR Response that
is marketable against the NBBO (or the
BBO, for a non-routable order) at the
time of arrival.’’ Consistent with the
proposed change to paragraph (c)(4)(B)
regarding same-side interest, the
Exchange proposes to modify the text to
make clear that incoming opposite-side
interest is checked against ‘‘the BBO, for
a non-routable order that is not a PNP
Order,’’ as PNP Orders are checked
against the NBBO.52 As noted above,
this proposed change [sic] not alter the
current operation of this provision, but
merely clarifies that distinct operation
of (non-routable) PNP Orders. This
carve out of PNP Order would include
the proposed RPNP (and a PNPB).
In addition, the Exchange proposes to
modify this provision to include
opposite-side interest that is marketable
against ‘‘any interest resting in the
Consolidated Book.’’ 53 The Exchange
notes that this proposed change reflects
current functionality and clarifies that
an RFR Response may be marketable
against undisplayed interest in the
Book—specifically a PNPB or a RPNP/
MMRP—that is not included in the
quoted BBO resulting in the early end
of an Auction.54 This proposed change
reflects the current operation of the
CUBE (in regards to a PNPB) and also
updates the rule to reflect the proposed
RPNP/MMRP, thus adding clarity,
transparency and internal consistency to
Exchange rules.
Current Rule 971.1NY(c)(4)(D)
provides that a CUBE Auction will
conclude early if the Exchange receives
during the RTI ‘‘an unrelated, nonmarketable quote or limit order that is
52 See
proposed Rule 971.1NY(c)(4)(C).
proposed Rule 971.1NY(c)(4)(C) (Opposite
Side Marketable Against Interest in the
Consolidated Book, the NBBO (or BBO) at the Time
of Arrival) (providing, in relevant part, that the
Auction would end early if during the RTI the
Exchange receives an ‘‘any RFR Response that is
marketable against the any interest resting in the
Consolidated Book, the NBBO (or the BBO, for a
non-routable order that is not a PNP Order) at the
time of arrival’’).
54 See supra note 47 (regarding Rule 971.1NY(b),
providing that ‘‘[f]or purposes of determining
whether a CUBE Order is eligible to initiate an
Auction,’’ references to the NBBO or BBO ‘‘refer to
the quoted market at the time the Auction is
initiated’’).
53 See
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on the same side of the market as the
CUBE Order to buy (sell) and that would
adjust the lower (upper) bound of the
range of permissible executions to be
higher (lower) than the initiating
price.’’ 55 To clarify existing
functionality, the Exchange proposes to
add new paragraph (c)(D)(i) to provide
that a same-side IOC 56 that would
otherwise meet the requirements of
paragraph (c)(4)(D) (i.e., if its limit price
was incorporated into the NBBO, which
it is not) would cause an Auction to end
early, even if the IOC Order cancels
without trading.57 If such an IOC Order
causes a CUBE Auction to end early, the
CUBE Order and other eligible auction
interest would be processed pursuant to
paragraph (c)(4)(D). This proposed
modification reflects existing
functionality based on how the
mechanism is built and would add
clarity and transparency to the CUBE
rule.
Order Allocation
The Exchange also proposes to modify
Rule 971.1NY(c)(5) regarding the
allocation of the CUBE Order with
eligible interest. Current Rule
971.1NY(c)(5)(A) provides that, at each
price level, the CUBE Order will first
trade with resting Customers orders,
followed by Customer orders that
arrived during the Auction. Because a
Customer may submit a PNPB or a
RPNP—either of which may have an
undisplayed price at which it is eligible
to trade, the Exchange proposes to
modify the Rule to make clear that only
the ‘‘displayed’’ Customer interest
benefits from Customer priority,
pursuant to Rule 964NY(c)(2)(A).58 This
proposed change is consistent with the
Exchange’s allocation rules,59 current
CUBE operation and simply updates the
rule to reflect the treatment of PNPB and
the proposed RPNP.
As noted above, the Initiating
Participant may guarantee the execution
55 See supra note 51 (regarding modifications to
last sentence of paragraph (c)(5)(D) regarding
unfilled RFR Responses and GTX Orders).
56 See supra note 8 (defining IOC Order).
57 See proposed Rule 971.1NY(c)(4)(D)(i).
58 See proposed Rule 971.1NY(c)(5)(A)(providing
that, at each price level, displayed Customer
interest on the Book at the start of the Auction have
first priority, followed by displayed Customer
orders that arrived as RFR Responses, pursuant to
Rule 964NY(c)(2)(A), provides that an inbound
order will first be matched against all available
displayed Customer interest in the Book (emphasis
added). See also proposed Rule 971.1NY(c)(5)(B)
(providing that ‘‘[a]fter displayed Customer interest
at a particular price level has been satisfied,
remaining contracts shall be allocated among the
Contra Order and RFR Responses as follows:’’).
59 See Rule 964NY(c)(2)(A) (‘‘the inbound order
will first be matched against all available displayed
Customer interest in the Consolidated Book’’).
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of the CUBE via a single stop price, a
range of prices up/down to match the
best-priced RFR Responses (assuming
size of CUBE Order remains) or a range
of prices matching the best-priced RFR
Responses up/down to an auto-match
limit price. The Exchange proposes to
modify the rules regarding CUBE Order
allocation in these scenarios to clarify
current functionality regarding the
treatment of a PNPB and to account for
the proposed RPNP and MMRP, which
as RFR Responses, may be eligible to
trade in the Auction even if
undisplayed. The current CUBE Order
allocation rule does not address the
priority of RFR Responses that are not
displayed.
First, the Exchange proposes to
modify the Rule regarding the allocation
of a CUBE Order that is guaranteed by
a single stop price. In short, the current
rule provides that the CUBE Order will
trade with any RFR Responses priced
better than the stop price (by size pro
rata), starting with the best-priced RFR
Responses until the stop price is
reached, at which price the Contra
Order is entitled to its allocation
guarantee.60 Regarding the priority of
RFR Responses priced better than the
stop price, the Exchange proposes to
modify the rule to provide that ‘‘[a]t
each price point, the CUBE Order shall
be allocated first to GTX Orders and
displayed RFR Responses pursuant to
the size pro rata algorithm set forth in
Rule 964NY(b)(3), and next to any
undisplayed RFR Responses at that
price in time priority, pursuant to Rule
964NY(c).’’ 61 The Exchange also
proposes to modify the Rule to specify
the priority of RFR Responses at the
stop price (if any portion of the CUBE
Order remains after the Contra Order
receives its allocation guarantee).62 The
modified rule would provide that ‘‘[a]ny
remaining CUBE Order contracts at the
stop price shall be allocated first among
remaining GTX Orders and displayed
RFR Responses pursuant to the size pro
rata algorithm set forth in Rule
964NY(b)(3), and next to any
undisplayed RFR Responses pursuant to
Rule 964NY(c).’’ 63 This proposed
change is consistent with the Rule
964NY and simply updates the rule to
reflect current functionality regarding
the treatment of a PNPB and to account
for the proposed RPNP/MMRP.
Second (and consistent with the
changes to CUBE Orders guaranteed by
a stop price), the Exchange proposes to
60 See Rule 971.1NY(c)(5)(B)(i). Rule 964NY(b)(2)
sets forth priority and order allocation.
61 See proposed Rule 971.1NY(c)(5)(B)(i)(a).
62 See proposed Rule 971.1NY(c)(5)(B)(i)(b).
63 See id.
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modify the Rule regarding the allocation
of a CUBE Order that is guaranteed by
auto match. In short, the current rule
provides that the Contra Order is
‘‘allocated an equal number of contracts
as the aggregate size of all other RFR
Responses at each price level’’ starting
with the best priced RFR Response,
‘‘until a price point is reached where the
balance of the CUBE Order can be fully
executed (the ‘clean-up price’).’’ 64 At
the clean-up price, if the Contra Order
has not yet received its allocation
guarantee, and if sufficient size of the
CUBE Order remains, the Contra Order
will be allocated the requisite additional
contracts.65 Further, under the current
rule, ‘‘[i]f there are other RFR Responses
at the clean-up price, the remaining
CUBE Order contracts will be allocated
to such interest pursuant to the size pro
rata algorithm set forth in Rule
964NY(b)(3).66 The Exchange proposes
to modify the rule to specify the priority
of Responses at the clean-up price (if
any portion of the CUBE Order remains
after the Contra Order receives its
allocation guarantee) to provide that
CUBE Order contracts ‘‘will be allocated
first to GTX Orders and displayed RFR
Responses pursuant to the size pro rata
algorithm set forth in Rule 964NY(b)(3),
and next to any undisplayed RFR
Responses at that price in time priority,
pursuant to Rule 964NY(c).’’ 67 This
proposed change is consistent with the
operation of Rule 964NY and simply
updates the rule to reflect current
functionality regarding the treatment of
a PNPB and to account for the proposed
RPNP/MMRP.
Finally, in a similar vein, the
Exchange proposes to modify the rule to
address how the CUBE Order will be
allocated when auto-match limit is
selected. In short, the current rule
provides that the CUBE Order will trade
with any RFR Responses priced better
than the auto-match limit price (size pro
rata), starting with the best-priced
Responses until the auto-match limit
price is reached.68 At prices equal to or
worse than the auto-match limit price
(assuming sufficient size of CUBE Order
remains), the Contra Order will be
allocated an equal number of contracts
as the aggregate size of all other RFR
Responses and will receive its allocation
64 See
Rule 971.1NY(c)(5)(B)(ii)(a).
Rule 971.1NY(c)(5)(B)(ii)(b).
66 See id. As is the case today, if all RFR
Responses are filled, any remaining portion of
CUBE Order contracts is allocated to the Contra
Order at the initiating price and, in the event there
are no RFR Responses received in a given Auction,
the CUBE Order trades entirely with the Contra
Order at the initiating price. See Rule
971.1NY(c)(5)(B)(ii)(b),(c).
67 See proposed Rule 971.1NY(c)(5)(B)(ii)(b).
68 See Rule 971.1NY(c)(5)(B)(iii)(a).
65 See
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12655
guarantee (if not already met) at the
clean-up price. If CUBE Order contracts
remain after the Contra Order gets its
allocation guarantee, RFR Responses
will trade with the CUBE Order at that
(clean-up) price, pro rata.69 The
Exchange proposes to modify paragraph
(c)(5)(B)(iii)(a), regarding the allocation
of the CUBE Order with the best-priced
Responses, to provide that ‘‘[a]t each
price point, the CUBE Order shall be
allocated first to GTX Orders and
displayed RFR Responses pursuant to
the size pro rata algorithm set forth in
Rule 964NY(b)(3), and next to any
undisplayed RFR Responses at that
price in time priority, pursuant to Rule
964NY(c).’’ 70 Regarding the CUBE
Order trading with RFR Responses at
the clean-up price (if size remains), the
Exchange proposes to modify the rule to
provide such contracts ‘‘will be
allocated first to GTX Orders and
displayed RFR Responses pursuant to
the size pro rata algorithm set forth in
Rule 964NY(b)(3), and next to any
undisplayed RFR Responses at that
price in time priority, pursuant to Rule
964NY(c).’’ 71 This proposed change is
consistent with the operation of the
CUBE and simply updates the rule to
reflect current functionality regarding
the treatment of a PNPB and to account
for the proposed RPNP/MMRP.
The following is an example that
illustrates RPNPs trading in a CUBE
Auction at their undisplayed price in
time priority (behind displayed
interest).
CUBE Example (the MPV is $0.01)
BOX 100 × 1.00¥1.25 × 100
MM 10 × 0.95¥1.30 × 10
Firm1 RPNP B 100 @1.26
Firm2 RPNP B 100 @1.26
CUBE Order S 100 @1.20/Contra Order
Buy guaranteed by automatch
Expected Result
BOX NBO @1.25
Firm1 bid reprices and is eligible to
trade 100 @1.25 and will display @
1.24 (priced back one MPV from the
NBO)
Firm2 bid reprices and is eligible to
trade 100 @1.25 and will display @
1.24 (priced back one MPV from the
NBO)
At the end of the CUBE auction: The
CUBE Order sells 40 to the Contra
Order @1.25 (i.e., 40% participation
guarantee), per Rule
971.1NY(c)(5)(B)(ii)(a), then 60 to
69 See
Rule 971.1NY(c)(5)(B)(iii)(b).
proposed Rule 971.1NY(c)(5)(B)(iii)(a).
71 See proposed Rule 971.1NY(c)(5)(B)(iii)(b).
70 See
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Firm1 @1.25, per Rule
971.1NY(c)(5)(B)(ii)(b))
*
*
*
*
*
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.
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,72 in general, and furthers the
objectives of Section 6(b)(5) of the Act,73
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.
RPNP and MMRP
The proposed RPNP would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
RPNPs 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. The
proposed order type would provide a
means to display such orders at prices
that are designed to maximize their
opportunities for execution.
Specifically, allowing any eligible 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 RPNP with other interest
eligible to trade at a price respects and
preserves principles of Customer, as
well as price-time, priority and therefore
would promote just and equitable
principles of trade. The Exchange notes
that the RPNP is materially the same as
the RPNP order type recently approved
for trading on NYSE Arca, except as
noted herein.74
Similar to the proposed RPNP, the
proposed MMRP quote designation
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
72 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
74 See NYSE Arca Repricing Approval Order,
supra note 4. See also supra note 6 (regarding the
Exchange’s Customer and price-time priority
scheme).
73 15
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system because MMRPs 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 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 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
MMRP is optional and Market Makers
have the choice to utilize this quote type
(or not). The Exchange believes that
ranking the repriced MMRP with other
interest available to trade at a price
respects and preserves principles of
Customer, as well as price-time, 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 the proposed MMRP is materially
the same as the MMRP quote
designation recently approved for
trading on NYSE Arca, except as noted
herein.75 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.
RPNP/MMRP and the CUBE Auction
The Exchange believes that the
proposed changes to the conduct of the
CUBE Auction would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed changes are consistent
with the current operation of the CUBE
75 Id.
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and would avoid disturbing priority in
the Consolidated Book, in accordance
with Rule 964NY, regarding priority of
quotes and orders.
Specifically, the proposal to modify
rule text to make clear that RFR
Responses include interest resting in the
Consolidated Book at the start of the
Auction would align the rule text with
current functionality and add
transparency and internal consistency to
Exchange rules, which in turn, 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. This proposed change aligns
with the treatment of Customer interest
resting at the start of a CUBE Auction 76
and would make clear that the proposed
RPNP/MMRP (and PNPBs) may
participate in the Auction even if resting
undisplayed on the Book at the start of
a CUBE Auction (and not included in
the quoted market).77 The Exchange
believes that allowing eligible unrelated
quotes and orders resting on the
Consolidated Book at the start of an
Auction—including eligible RPNP/
MMRPs (and PNPBs)—to interact with
the CUBE Auction protects investors
and the public interest because this
inclusion of resting interest in the
Auction should increase the number of
participants against which the CUBE
Order may be executed, and is
consistent with the primary goal of the
CUBE Auction: To maximize price
improvement opportunities for the
CUBE Order, while seamlessly
interacting with the Consolidated
Book.78 Similarly, the proposed
modifications to make clear that—in the
event of an early end to the Auction—
all RFR Responses, not solely GTX
Orders, are eligible to trade with interest
received in the Auction, which would
protect investors and the investing
public because it adds clarity,
specificity, and transparency to
Exchange rules.
Further, the proposed modification of
the early end scenarios would remove
76 See Rule 971.1NY(c)(5)(A) (providing that ‘‘[a]t
each price level, any Customer orders resting on the
Consolidated Book at the start of the CUBE Auction
shall have first priority’’ to trade with the CUBE
Order).
77 See Rule 971.1NY(b) (providing that ‘‘[f]or
purposes of determining whether a CUBE Order is
eligible to initiate an Auction,’’ references to the
NBBO or BBO ‘‘refer to the quoted market at the
time the Auction is initiated’’).
78 The Exchange notes that to the extent that an
order that was resting undisplayed at the start of the
CUBE Order is eligible to trade with the CUBE
Order, that interest would trade behind Customer
and displayed interest, at a price, so as not to
disturb the Exchange’s allocation model, per
proposed Rule 971.1NY(c)(5), Order Allocation (as
discussed herein).
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impediments to and perfect the
mechanisms of a free and open market
and a national market system because
the changes would align the rule text
with existing functionality and would
provide clarity and transparency in
Exchange rules of when a CUBE
Auction would conclude early. As noted
above, the rationale for an early
conclusion to an Auction is to allow the
Exchange to appropriately handle
unrelated quotes and orders without the
CUBE Auction impacting that handling,
and further allow a CUBE Order, which
has been guaranteed an execution, to
execute against the Contra Order and
any RFR. The changes to the early end
provisions are designed to ensure
internal consistency (in regards to the
proposed modified definition of RFR
Responses) as well as clarify current
functionality of the early end checks (to
carve out PNP Orders from BBO check
and to make clear that incoming interest
may be checked for marketability
against interest in the Consolidated
Book, not just the BBO) to appropriately
account for the fact that the best-priced
interest in the Book may not be
displayed and thus not included in the
quoted BBO (such as the proposed
RPNP/MMRP). Thus, the Exchange
believes that the proposed changes are
therefore consistent with the protection
of investors and the public interest
because the changes provide specificity
in Exchange rules regarding when an
Auction would conclude early.
In addition, the proposal to specify
that IOC Orders that arrive during an
Auction may cause the Auction to end
early would promote just and equitable
principles of trade and benefit investors
as this clarification regarding how the
CUBE Auction mechanism operates
ensures that investors are aware of the
potential impact of IOC Orders (even
ones that do not trade) on an Auction in
progress.
Finally, the proposal to clarify the
order allocation provision would
promote just and equitable principles of
trade and benefit investors as this
clarification would make clear that the
priority of RFR Responses is consistent
with the Exchange Customer and pricetime priority model and would afford
first priority, at each price point, to
displayed RFR Responses followed by
undisplayed RFR Responses. These
proposed changes are consistent with
the current operation of the CUBE and
would avoid disturbing priority in the
Consolidated Book, in accordance with
Rule 964NY, regarding priority of quotes
and orders.
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Technical Changes
The Exchange notes that the proposed
organizational and non-substantive
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.79 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 notes that it operates in a
highly competitive market in which
market participants can readily direct
order flow to competing venues who
offer similar functionality. The
Exchange believes the proposed rule
change is procompetitive because it
would enable the Exchange to provide
market participants with functionality
that is similar to that of other options
exchanges.80
The Exchange believes the proposed
MMRP would add value to market
making on the Exchange and the
proposed RPNP 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 MMRP/RPNP 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) MMRP and RPNP,
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
79 See,
e.g., supra notes 7, 19, 20, 28.
NYSE Arca Repricing Approval Order,
supra note 4.
80 See
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12657
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
MMRP would be available to all Market
Makers on the Exchange and the
proposed RPNP 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 MMRP, 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 MMRP 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.
The Exchange likewise does not
believe that the proposed clarifications
to the rule text regarding the CUBE
Auction would impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. The rule changes
are not intended to address any
competitive issues. Rather, the
Exchange is proposing to add more
specificity, clarity and transparency
regarding the current operation of the
CUBE Auction, particularly in light of
the proposed MMRP/RPNP.
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
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19(b)(3)(A) of the Act 81 and Rule 19b–
4(f)(6) thereunder.82
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 83 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 84
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
operative upon filing. As noted above,
the proposed order type and quote
designation are substantially identical to
those utilized on NYSE Arca, Inc., and
the differences noted herein do not raise
substantive or novel issues. Waiver of
the operative delay would allow the
Exchange to immediately implement the
proposed functionality in coordination
with the availability of the technology
supporting the proposal, which is
anticipated to be less than 30 days after
the filing of the proposed rule change.
The Commission believes that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposed rule change operative upon
filing.85
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
81 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
83 17 CFR 240.19b–4(f)(6).
84 17 CFR 240.19b–4(f)(6)(iii).
85 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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82 17
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including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.86
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–06308 Filed 4–1–19; 8:45 am]
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEAMER–2019–06 on the subject
line.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85431; File No. SR–
NASDAQ–2019–019]
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEAMER–2019–06. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEAMER–2019–06 and
should be submitted on or before April
23, 2019.
PO 00000
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Delay
Implementation of the Midpoint Trade
Now Functionality
March 27, 2019.
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 March 19,
2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) 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 Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to delay
implementation of the Midpoint Trade
Now functionality until Q2 2019.
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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
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 aspects of such
statements.
86 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 84, Number 63 (Tuesday, April 2, 2019)]
[Notices]
[Pages 12649-12658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06308]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85429; File No. SR-NYSEAMER-2019-06]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rules 900.3NY, 925.1NY, and 971.1NY
March 27, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on March 14, 2019, NYSE American LLC (``NYSE American'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
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 to [sic] amend Rules 900.3NY (Orders
Defined) and 925.1NY (Market Maker Quotes) to add a new order type and
quotation designation and to make conforming changes to Rule 971.1NY
(Single-Leg Electronic Cross Transactions). The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 12650]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to modify Rules 900.3NY and 925.1NY
to add a new order type and quotation designation as described herein.
The Exchange also proposes to make conforming changes to these rules,
as well as to Rule 971.1NY regarding the Customer Best Execution
Auction or CUBE for single-leg options (the ``CUBE Auction'' or
``Auction''), to reflect the impact of the proposed order type and
quotation designation on the auction mechanism.
The proposed order type and quote designation are substantially
identical to those utilized on NYSE Arca, Inc. (``NYSE Arca'').\4\
However, in addition to addressing the impact of the proposed changes
on the CUBE Auction (which NYSE Arca does not have), the proposal
differs from the NYSE Arca rules to reflect the Exchange's allocation
rules, which differ from NYSE Arca's price-time priority allocation
scheme. Pursuant to Rule 964NY (Display, Priority and Order
Allocation--Trading Systems), at each price point, the Exchange affords
Customer orders priority over same-priced non-Customer orders.\5\
Specifically, the Exchange ranks and allocates Customer orders at the
same price in time priority and, after all Customer orders are executed
at a price, non-Customer orders at the same price are allocated on a
size pro rata basis.\6\ Aside from the difference in how the repricing
interest is prioritized and allocated on the Exchange, the proposed
order type and quotation designation function the same as on NYSE Arca.
The proposed order type and quote designation are designed to operate
seamlessly with the CUBE Auction as well as the Exchange's Customer and
price-time priority model.
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\4\ See Securities Exchange Act Release Nos. 84451 (October 18,
2018), 83 FR 53692 (October 24 2018) (``NYSE Arca Repricing
Notice''); 84737 (``NYSE Arca Repricing Approval Order'') [sic]
(December 6, 2018), 83 FR 63919 (December 12, 2018) (SR-NYSEArca-
2018-74) (``NYSE Arca Repricing Approval Order'') (approving
adoption of MMRP, per NYSE Arca Rule 6.37A-O(a)(3)(C) and (a)(4)(B),
and RPNP, per NYSE Arca Rule 6.62-O(p)(1)). The Exchanges notes that
the NYSE Arca Repricing Approval Order also included an order type
and quotation designation that would reprice if it would remove
liquidity (i.e., a RALO and MMALO, respectively), which are not
being proposed by the Exchange.
\5\ The term ``non-Customers'' includes Market Makers, Firms,
Professional Customers and Non-ATP Holder Market Makers.
\6\ See Rule 964NY(b)(2)(A) (providing that ``if there is more
than one highest bid for a Customer account or more than one lowest
offer for a Customer account, then such bids or offers,
respectively, will be ranked based on time priority''); and
(b)(2)(B)-(D). Per Rule 964NY(b)(2)(D), for example, ``[i]f there is
more than one highest bid or more than one lowest offer in the
Consolidated Book for the account of a non-Customer, then such bids
or offers will be afforded priority on a `size pro rata' basis, and
will comprise the `size pro rata pool' ''). See also Rule
964NY(b)(3) (setting forth size pro rata allocation method) and (c)
(providing for executions of orders and quotes on the Exchange).
---------------------------------------------------------------------------
Repricing PNP Order (``RPNP'')
Rule 900.3NY(p) provides that a PNP (Post No Preference) Order is
eligible to interact solely with interest on the Exchange, will not
route, and will cancel if it locks or crosses the NBBO.\7\ PNP Orders
provide market participants control over how their orders interact with
contra-side liquidity.\8\
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\7\ See Rule 900.3NY(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 900.2NY(36). See
proposed Rule 900.3NY(p).
\8\ A PNP Order may also be designated as an Immediate-Or-Cancel
Order (``IOC Order'') and, when such designation is made, the IOC
Order behavior trumps the PNP Order behavior. In other words, the
portion of a PNP IOC Order that is not executed immediately will
cancel rather than potentially be ranked in the Consolidated Book.
The Exchange proposes to modify the definition of a PNP Order to
specify the behavior of a PNP IOC Order. See proposed Rule
900.3NY(p) (providing in relevant part that, ``[a] PNP Order that is
designated as IOC Order will be treated as an IOC Order (per Rule
900.3NY(k)), such that any unexecuted portion shall cancel''). See
also 900.3NY(k) (providing that an IOC Order ``is a Limit Order that
is to be executed in whole or in part on the Exchange as soon as
such order is received, and the portion not so executed is to be
canceled'').
---------------------------------------------------------------------------
The Exchange proposes to add an order type--RPNP--that builds on
the existing PNP Order functionality to allow for repricing (rather
than cancellation) as described below. As proposed, a RPNP is a PNP
Order that would be repriced instead of cancelled after trading with
interest in the Consolidated Book \9\ if it would lock or cross the
NBBO.\10\ As proposed, an RPNP may only be entered as a Day Order.\11\
The Exchange also proposes to amend Rule 900.3NY(p) to provide 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.
This proposed rule text is based on the last sentence of NYSE Arca Rule
6.62-O(p) without any differences.
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\9\ See Rule 900.2NY(14) (defining the Consolidated Book (or
``Book'') as the Exchange's electronic book of limit orders for the
accounts of Customers and broker-dealers, and Quotes with Size, all
of which are ranked and maintained in accordance with the rules of
priority as provided in Rule 964NY).
\10\ See proposed Rule 900.3NY(p)(1).
\11\ See proposed Rule 900.3NY(p)(1). This proposed rule text is
based on the last sentence of NYSE Arca Rule 6.62-O(p)(1) with a
substantive difference not to reference Reserve Orders, which are
not available on the Exchange.
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Proposed Rule 900.3NY(p)(1)(A) would provide that a 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). This proposed rule would
further provide that 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\ Proposed Rule 900.3NY(p)(1)(A)(i) would
provide that 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.\13\ Proposed Rule
900.3NY(p)(1)(A)(ii) would further provide that each time there is an
update to the RPNP's price, the RPNP would be ranked with other
eligible interest at that price, and would trade at each price, to the
extent possible, pursuant to Rule 964NY.\14\ For example, at the same
price (including an updated (re)price), a RPNP submitted on behalf of a
Customer would have first priority over non-Customer orders. The
Exchange believes that this proposed handling of RPNPs would respect
and preserve the Exchange's Customer priority and pro rata allocation
model.
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\12\ This proposed rule text is based on NYSE Arca Rule 6.62-
O(p)(1)(A). The proposed RPNP also operates in substantially the
same manner as the Non-Routable Limit Order available on the NYSE
Arca'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 NYSE Arca Rule 7.31-E(e)(1).
\13\ This proposed rule text is based on NYSE Arca Rule 6.62-
O(p)(1)(A)(i) with a substantive difference not to reference that
such orders would trade in time priority behind other eligible
interest displayed at that price because the Exchange operates on a
pro rata allocation model.
\14\ See proposed Rule 900.3NY(p)(1)(A)(ii). This proposed rule
text is based on NYSE Arca Rule 6.62-O(p)(1)(A)(ii) with a
substantive difference to cross reference the Exchange's allocation
model under Rule 964NY rather than NYSE Arca's price-time allocation
model.
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To avoid accepting RPNPs priced too far through the NBBO, the
Exchange proposes to limit the extent to which it
[[Page 12651]]
would reprice such interest.\15\ As proposed, 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) of the RPNP. The
Exchange would determine the configurable number of MPVs, which would
be announced by Trader Update.\16\
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\15\ See proposed Rule 900.3NY(p)(1)(B). This proposed rule text
is based on NYSE Arca Rule 6.62-O(p)(1)(B) without any differences.
\16\ 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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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 and
how it would function under the Exchange's allocation model.
RPNP Example 1 (the MPV is $0.01)
BOX 20 x 1.15-1.23 x 20
BD1 B 50 @1.25 RPNP
BD2 B 10 @1.26 RPNP
BD3 B 15 @1.27 RPNP
Specialist \17\ 30 x 1.24-1.30 x10 MMRP
---------------------------------------------------------------------------
\17\ A Specialist is a Market Maker on the Exchange that has
heightened obligations in exchange for certain rights and
privileges. See Rule 927NY. For example, Specialists may receive a
participation entitlement, provided they are quoting at the NBBO.
See, e.g., Rule 964NY(b)(2)(C).
---------------------------------------------------------------------------
BD4 S 15 Mkt
MM 100 x 1.20-1.25 x 30 MMRP
BD5 S 10 Mkt
Cust6 S 40 Mkt
Expected Result
BOX NBO @1.23
BD1, 2, 3 and Specialist all display @1.22 (priced back one MPV from
the NBO) and are eligible to trade @1.23 due to BOX offer @1.23
BD4 sells 15 to BD1 @1.23 (leaving BD1 with 35)
MM 1.25 offer does not trade (prohibited by BOX offer @1.23)
BD5 sells 10 to BD1 @1.23 (leaving BD1 with 25)
Cust6 sells 25 to BD1 (exhausting BD1), 10 to BD2 (exhausting BD2), 5
to BD3 @1.23 (exhausting Cust6), in price-time priority because BD1,
BD2 and BD3 are trading at an undisplayed price (The Specialist, which
is eligible to trade @1.23 but displayed at 1.22, is not entitled to an
allocation guarantee because it is not quoting (displayed) at the NBBO)
\18\
---------------------------------------------------------------------------
\18\ See Rule 964NY(b)(2)(C) (regarding Specialist 40%
participation guarantee).
---------------------------------------------------------------------------
RPNP Example 2 (the MPV is $0.01)
BOX 20 x 1.15-1.26 x 20
BD1 B 50 @1.25 RPNP
Cust1 B 10 @1.25 RPNP
BD3 B 15 @1.25 RPNP
Specialist 30 x 1.25-1.30 x 10 MMRP
BD4 S 15 Mkt
BD5 S 10 Mkt
Cust6 S 40 Mkt
Expected Result
BOX NBO @1.26
BD1, Cust1, BD3 and Specialist display @limit price of 1.25 (no need to
reprice because already one MPV away from the NBO) and will trade size
pro rata with Cust priority and Specialist resulting in:
BD4 sells 10 to Cust1, 5 to Specialist @1.25 (Specialist gets 100% of 5
lots or smaller) \19\
---------------------------------------------------------------------------
\19\ See Rule 964NY(b)(2)(C)(iv) (providing that ``[f]or all
orders of five (5) contracts or fewer, the Primary Specialist (as
defined in Rule 964.2NY(a)) will be allocated the balance after any
allocation to Customers, not to exceed the size of the Primary
Specialist's quote, provided the Primary Specialist is quoting at
the NBBO, and the order was not originally allocated to a Directed
Order Market Maker'').
---------------------------------------------------------------------------
BD5 sells 4 to Specialist @1.25 (i.e., 40%) \20\ and 5 to BD1 and 1 to
BD3 @1.25, pursuant to size pro rata allocation provided for in Rule
964NY(b)(3)
Cust6 sells 16 to Specialist @1.25 (i.e., 40%) \21\ and 18 to BD1 and 6
to BD3 @1.25, pursuant to size pro rata allocation provided for in Rule
964NY(b)(3)
---------------------------------------------------------------------------
\20\ See supra note 18.
\21\ Id.
---------------------------------------------------------------------------
Market Maker--Repricing Quotation (``MMRP'')
Current Rule 925.1NY(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 925.1NY(a) to add a new
quote designation--MMRP--to provide market makers with the same
functionality for their quotations as are proposed for orders entered
on the Exchange.\22\ The proposed quotation designation is similar to
how the proposed 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.
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\22\ See proposed Rule 925.1NY(a)(3)(B) and (a)(4)(B). This
proposed rule text is based on NYSE Arca Rule 6.37A-O(a)(3)(B) and
(a)(4)(B). The Exchange proposes to delete reference to MMLO in
current Rule 925.1NY(a)(3), which would be renumbered as Rule
925.1NY(a)(4), regarding the ``[t]reatment of Market Maker
Quotations,'' as too restrictive in light of the proposed MMRP;
instead, the Exchange proposes to separately describe the treatment
of each quote type when a series is open for trading. See proposed
Rule 925.1NY(a)(4).
---------------------------------------------------------------------------
As proposed, an incoming or resting quotation designated as MMRP
would never display at a price that locks or crosses the NBBO.\23\
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).\24\ 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.\25\
---------------------------------------------------------------------------
\23\ See proposed Rule 925.1NY(a)(3)(B) and (a)(4)(B). The
Exchange also proposes to replace references to ``another Market
Center'' with ``the NBBO'' to add clarity and consistency to the
Rule. See proposed Rule 925.1NY(a)(4)(A), (a)(4)(C)(i),
(a)(4)(D)(i)-(ii); see also NYSE Arca Rule 6.37A-
O(a)(4)(C)(i),(D)(i)-(ii).
\24\ See proposed Rule 925.1NY(a)(4)(B). This proposed rule text
is based on NYSE Arca Rule 6.37A-O(a)(4)(B) without any differences.
\25\ See id.
---------------------------------------------------------------------------
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 will trade at its display
price.\26\ Also consistent with the handling of RPNPs, the Exchange
proposes that each time there is an update to the MMRP's price, the
MMRP would be ranked with other eligible interest at that price, and
would trade at each price, to the extent possible, pursuant to Rule
964NY.\27\ The
[[Page 12652]]
Exchange believes that this handling of MMRPs (which is consistent with
the proposed handling of RPNPs) would respect and preserve the Exchange
Customer priority and pro rata allocation model.
---------------------------------------------------------------------------
\26\ See proposed Rule 925.1NY(a)(4)(B)(i). This proposed rule
text is based on NYSE Arca Rule 6.37A-O(a)(4)(B)(i) with a
substantive difference not to reference that such orders would trade
in time priority behind other eligible interest displayed at that
price because the Exchange operates on a pro rata allocation model.
\27\ See proposed Rule 925.1NY(a)(4)(B)(ii). This proposed rule
text is based on NYSE Arca Rule 6.37A-O(a)(4)(B)(ii) butcross
references the Exchange's allocation model under Rule 964NY rather
than NYSE Arca's price-time allocation 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.\28\
Such MMRPs would not be repriced as an option series may not open (or
re-open) if a quote is locked or crossed.\29\
---------------------------------------------------------------------------
\28\ See proposed Rule 925.1NY(a)(5). This proposed rule text is
based on NYSE Arca Rule 6.37A-O(a)(5) without any differences. The
Exchange also proposes to make clear that ``[a]ll resting quotations
will be cancelled in the event of a trading halt.'' See id.
\29\ See Rule 952NY(b)(E) (providing in relevant part, that
``[i]f the System does not open a series with an Auction Process,
the 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.\30\ 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.\31\ The Exchange would
determine the applicable number of MPVs and announce the configurable
by Trader Update.\32\
---------------------------------------------------------------------------
\30\ See proposed Rule 925.1NY(a)(4)(C)(iii). This proposed rule
text is based on NYSE Arca Rule 6.37A-O(a)(4)(C)(iii) without any
differences.
\31\ See proposed Rule 925.1NY(a)(4)(D)(iii). This proposed rule
text is based on NYSE Arca Rule 6.37A-O(a)(4)(D)(iii) without any
differences. The Exchange notes that incoming MMRPs that fail the
MPV check would be 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.
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
id. This proposed rule change is also based on NYSE Arca Rule 6.37A-
O(a)(4)(D).
\32\ See proposed Rule 925.1NY (a)(4)(C)(iii). 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 925.1NY
(a)(4)(B)(or, as renumbered, proposed Rule 925.1NY(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''); see also NYSE Arca
Rule 6.37A-O(a)(4)(C).
---------------------------------------------------------------------------
The following trading example illustrates the operation of an MMRP
under the Exchange's allocation model.
MMRP Example (the MPV is $0.01)
MM 10 x 1.24-1.28 x 10
ISE 20 x 1.25-1.32 x 20
BD2 S 100 @1.23 RPNP
MMRP 70 x 1.22-1.23 x 70
BD3 S 50 @1.23 RPNP
ISE Update 0 x 0-1.32 x 20
Expected Result
ISE NBB @1.25
BD2 offer for 100 is eligible to trade @1.25 and will display @1.26
(priced back one MPV from the NBB)
MMRP offer for 70 is eligible to trade @1.25 and will display @1.26
(priced back one MPV from the NBB)
BD3 offer for 50 is eligible to trade @1.25 and will display @1.26
ISE bid update to 0 results in the following size pro rata allocation
(Rule 964NY(b)(3)):
BD2 trades 5 with MM @1.24
MMRP trades 3 with MM @1.24
BD3 trades 2 with MM @1.24
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.\33\ 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.
---------------------------------------------------------------------------
\33\ 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 991NY, 992NY.
---------------------------------------------------------------------------
In addition to adding new rule text to describe the function of the
proposed MMRP \34\ into existing rule text, the Exchange also proposes
to streamline Rule 925.1NY, 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,'' \35\ including when the incoming
quotation ``is not designated as MMRP'' and locks or crosses the NBBO
and when it is designated as MMLO and locks or crosses undisplayed
interest.\36\ 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 MMRP'' and cannot trade
with interest in the Consolidated Book at prices that do not trade
through the NBBO.\37\
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\34\ See proposed Rule 925.1NY(a)(3)(B) and (a)(4)(B).
\35\ See proposed Rule 925.1NY(a)(4)(C). This rule text is based
on NYSE Arca Rule 6.37A-O(a)(4)(C) without any differences.
\36\ See proposed Rule 925.1NY(a)(4)(C)(i) and (ii). This
proposed rule text is based on NYSE Arca Rule 6.37A-O(a)(4)(C)(i)
and (ii) without any differences.
\37\ See proposed Rule 925.1NY(a)(4)(D)(i). This proposed rule
text is based on NYSE Arca Rule 6.37A-O(a)(4)(D)(i) without any
differences.
---------------------------------------------------------------------------
Further, to accommodate the new MMRP, the Exchange proposes to re-
organize paragraph (a) of Rule 925.1NY, by re-locating text that a
quote will never route from existing paragraph (a)(3) 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.\38\ In addition, as proposed,
the description of the existing quote type 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
[[Page 12653]]
eligible to trade with displayed and undisplayed interest.'' \39\
---------------------------------------------------------------------------
\38\ See proposed Rule 925.1NY(a)(2)-(3). This proposed rule
text is based on NYSE Arca Rule 6.37A-O(a)(2)-(3), however it
differs from NYSE Arca in that the Exchange is not adding a Market
Maker--Add Liquidity Only quotation type. See NYSE Arca Rule 6.37A-
O(a)(3)(B).
\39\ See proposed Rule 925.1NY(a)(3)(A). This proposed rule text
is based on NYSE Arca Rule 6.37A-O(a)(3)(A) without any differences.
---------------------------------------------------------------------------
The Exchange notes that this proposal does not relieve a Market
Maker of its continuous quoting or firm quote obligations pursuant to
Rules 925.1NY and 970NY, 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.
RPNP/MMRP and the CUBE Auction
The Exchange proposes to modify Rule 971.1NY, regarding the single-
leg CUBE Auction, to reflect current functionality relating to how the
proposed RPNP/MMRP would potentially interact with a CUBE Auction.\40\
The CUBE Auction is an electronic cross mechanism through which an ATP
Holder (``Initiating Participant'') may initiate a CUBE Auction by
submitting for execution a limit order it represents as agent on behalf
of a public customer, broker dealer, or any other entity (the ``CUBE
Order''). The Initiating Participant, however, must guarantee the
execution of the CUBE Order by submitting a contra-side order (``Contra
Order'') representing principal interest or non-Customer interest it
has solicited to trade solely with the CUBE Order at a single ``stop
price,'' or a range of prices that will either ``auto-match'' all
interest received during the auction or have a price limit on the
matching (i.e., ``auto match limit price'').\41\ Rule 971.1NY(b) sets
for [sic] the conditions that must exist for a CUBE Auction to
commence, including the range of permissible executions and that a CUBE
Order will be rejected if the NBBO is crossed.\42\ The CUBE Auction is
designed to afford price improvement opportunities to CUBE Orders while
interacting seamlessly with the Consolidated Book (i.e., the Auction
should not disrupt the Exchanges' price-time priority model). ATP
Holders may participate in the Auction with RFR Responses received
during the Response Time Interval (``RTI'').\43\
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\40\ The Exchange notes that Rule 971.2NY describes the Complex
CUBE Auction which is not implicated by this filing.
\41\ See Rule 971.1NY(a), (c)(1)(A)-(C).
\42\ The Exchange proposes to modify Rule 971.1NY(b)(9) to
reflect current functionality and make clear that a CUBE Order is
today (and will be) rejected if NBBO is ``locked or crossed''
(emphasis added), which adds clarity and transparency to Exchange
rules. See proposed Rule 971.1NY(b)(9).
\43\ The RTI is subject to a random time period that is no less
than 100 milliseconds and no more than 1 second. See Rule
971.1NY(c)(2)(B).
---------------------------------------------------------------------------
Modify Definition of RFR Responses To Include Resting Interest
Current Rule 971.1NY(c)(2)(C) provides that RFR Responses include
GTX Orders submitted specifically to interact with the Auction \44\ and
unrelated interest that is on the opposite side of the CUBE Order and
within the range of permissible executions.\45\ Regarding the latter
categories of RFR Responses (i.e., unrelated quotes and orders), the
Exchange proposes to clarify that current CUBE functionality treats
interest ``resting in the Consolidated Book when the Auction
commences'' as an RFR Response, provided the interest is on the
opposite site of the CUBE Order and eligible to participate within the
range of permissible executions specified in Rule 971.1NY(b)(1).\46\
---------------------------------------------------------------------------
\44\ See Rule 971.1NY(c)(2)(C)(i) (defining GTX Orders as non-
routable order with a time-in-force contingency for the RTI that
will not be displayed on the Consolidated Book and will cancel after
trading (if at all) in the CUBE Auction).
\45\ See Rule 971.1NY(c)(2)(C)(ii) (including as RFR Responses
any ``unrelated quotes and orders'' in the same series as, and
opposite side of, the CUBE Order that arrive during the RTI and
eligible to participate within the range of permissible executions
specified in Rule 971.1NY (b)(1)).
\46\ See proposed Rule 971.1NY(c)(2)(C)(ii) (regarding
``Unrelated quotes and orders'').
---------------------------------------------------------------------------
This proposed change reflects current CUBE Auction functionality:
Currently, standard Market Maker quotes as well as resting PNP Blind
Orders (each a ``PNPB'') which, when undisplayed are not included in
the quoted market, are considered ``unrelated quotes and orders'' for
purposes of Rule 971.1NY(b)(2)(C)(ii).\47\ The proposed change would
also account for the proposed RPNP/MMRP, which like a PNPB, may be
resting undisplayed on the Book at the start of a CUBE Auction at a
price with which a CUBE Order may execute. This proposed amendment is
consistent with existing rule text regarding how the Exchange handles
Customer interest resting at the start of an Auction (which could
include a PNP Blind Order or a proposed RPNP). Specifically, such
resting interest, at a price, gets first priority to trade with the
CUBE Order ahead of Customer interest, at a price, that arrives during
the Auction.\48\ Thus, the Exchange believes that the proposed change
reflects current functionality and adds clarity, transparency and
internal consistency to Exchange rules. Moreover, allowing unrelated
quotes and orders resting in the Consolidated Book at the beginning of
the Auction--including eligible PNPBs or the proposed RPNP/MMRPs-- to
interact with the CUBE Auction should increase the number of
participants against which the CUBE Order may be executed, and is
consistent with the primary goal of the CUBE Auction: To maximize price
improvement opportunities for the CUBE Order.\49\
---------------------------------------------------------------------------
\47\ See Rule 900.3NY(x) (defining a PNPB (or Post No Preference
Blind) as a Limit Order 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 locks or crosses the
NBBO, the price and size of the order is not disseminated. Once the
PNPB no longer locks or crosses the NBBO, the price and size will be
disseminated). See Rule 971.1NY(b) (providing that ``[f]or purposes
of determining whether a CUBE Order is eligible to initiate an
Auction,'' references to the NBBO or BBO ``refer to the quoted
market at the time the Auction is initiated'').
\48\ See Rule 971.1NY(c)(5)(A) (providing that ``[a]t each price
level, any Customer orders resting on the Consolidated Book at the
start of the CUBE Auction shall have first priority'' to trade with
the CUBE Order).
\49\ The Exchange notes that to the extent that an order that
was resting undisplayed at the start of the CUBE Order is eligible
to trade with the CUBE Order, that interest would trade behind
Customer and displayed interest, at a price, so as not to disturb
the Exchange's allocation rules, per proposed Rule 971.1NY(c)(5),
Order Allocation (as discussed herein).
---------------------------------------------------------------------------
Early End Scenarios
The Exchange also proposes to modify Rule 971.1NY(c)(4), which
specifies scenarios when a CUBE Auction would conclude early (i.e.,
before the end of the RTI). The purpose of these provisions is to
enable the CUBE Auction to integrate seamlessly within the Exchange's
Consolidated Book. Accordingly, a CUBE Auction will conclude early as a
result of certain events that would otherwise disrupt the priority of
the Auction within the Consolidated Book. Early conclusion allows the
Exchange to appropriately handle unrelated quotes and orders without
the CUBE Auction impacting that handling, and further allows the CUBE
Order, which has been guaranteed an execution, to execute against the
best-priced interest in the Auction.
Current Rule 971.1NY(c)(4)(B) provides that a CUBE Auction will
conclude early if the Exchange receives during the RTI ``an unrelated
quote or order that is on the same side of the market as the CUBE
Order, that is marketable against any RFR Responses or the NBBO (or the
BBO, for a non-routable order) at the time of arrival.'' Because PNP
Orders, although non-routable are, by definition, checked against the
NBBO (not the BBO), the Exchange proposes to modify the rule text to
provide ``or the BBO, for a non-routable order that is not a PNP
[[Page 12654]]
Order.'' \50\ The proposed language does not alter the current
operation of this provision--as a same-side PNP Order that is
marketable against the NBBO would cause an early end to the Auction--
but merely clarifies that PNP Orders would differ because they would be
checked against the NBBO, not the BBO. This carve out of PNP Order
would include the proposed RPNP (and a PNPB). Also of note regarding
this early end scenario is the modified definition of RFR Responses to
include eligible interest resting in the Consolidated Book at the start
of an Auction. This modified definition clarifies current functionality
that an Auction may end early if incoming same-side interest is
marketable against interest (i.e., an RFR Response) that may not have
been included in the NBBO or BBO but was resting undisplayed at the
start of the Auction--which could include a proposed RPNP/MMRP or a
PNPB. Thus, this provision, as modified, is consistent with CUBE
functionality and simply updates the rule text to reflect the operation
of PNP Orders and the interest that may cause an early end.
---------------------------------------------------------------------------
\50\ See proposed Rule 971.1NY(c)(4)(B) (``Same Side Marketable
Against RFR Responses or NBBO (or BBO)'') (providing, in relevant
part, that the Auction would end early if during the RTI the
Exchange receives a same-side unrelated quote or order that is
marketable against ``any RFR Responses or the NBBO (or the BBO, for
a non-routable order that is not a PNP Order) at the time of
arrival'').
---------------------------------------------------------------------------
Current Rule 971.1NY(c)(4)(B) also provides that ``[w]hen the
Auction concludes, the CUBE Order will execute pursuant to paragraph
(c)(5) [Order Allocation] of this Rule'' and any unexecuted ``GTX
Orders'' may trade with the interest that caused the Auction to end
early and then will cancel. The Exchange proposes to modify this
provision to make clear that any RFR Response--not just those marked as
GTX Orders--are eligible to trade with the interest that caused the
Auction to end. As proposed, ``[a]ny RFR Responses that do not execute
in the CUBE Auction will execute against the unrelated quote or order
that caused the CUBE Auction to conclude early to the extent possible
and GTX Orders will then cancel.'' \51\ This proposed change reflects
the current operation of the CUBE, thus adding clarity, transparency
and internal consistency to Exchange rules, and accounts for the
modified definition of RFR Responses (which also reflects current
functionality) to include interest resting (potentially undisplayed) at
the start of the Auction such as a PNPB or the proposed RPNP/MMRP.
---------------------------------------------------------------------------
\51\ See id. Consistent with this change, the Exchange also
proposes to modify paragraph (c)(4)(D), another early end scenario
based on same-side interest with similar rule text, to replace ``GTX
Orders'' with ``RFR Responses'' in terms of interest received during
the RTI that may trade in the Auction after the CUBE Order is
filled. See proposed Rule 971.1NY(c)(4)(D) (providing, in relevant
part, that ``[u]nfilled RFR Responses are eligible to execute
against the unrelated interest that caused the CUBE Auction to
conclude early and GTX Orders will then cancel'').
---------------------------------------------------------------------------
Current Rule 971.1NY(c)(4)(C) provides that a CUBE Auction will
conclude early if the Exchange receives during the RTI ``any RFR
Response that is marketable against the NBBO (or the BBO, for a non-
routable order) at the time of arrival.'' Consistent with the proposed
change to paragraph (c)(4)(B) regarding same-side interest, the
Exchange proposes to modify the text to make clear that incoming
opposite-side interest is checked against ``the BBO, for a non-routable
order that is not a PNP Order,'' as PNP Orders are checked against the
NBBO.\52\ As noted above, this proposed change [sic] not alter the
current operation of this provision, but merely clarifies that distinct
operation of (non-routable) PNP Orders. This carve out of PNP Order
would include the proposed RPNP (and a PNPB).
---------------------------------------------------------------------------
\52\ See proposed Rule 971.1NY(c)(4)(C).
---------------------------------------------------------------------------
In addition, the Exchange proposes to modify this provision to
include opposite-side interest that is marketable against ``any
interest resting in the Consolidated Book.'' \53\ The Exchange notes
that this proposed change reflects current functionality and clarifies
that an RFR Response may be marketable against undisplayed interest in
the Book--specifically a PNPB or a RPNP/MMRP--that is not included in
the quoted BBO resulting in the early end of an Auction.\54\ This
proposed change reflects the current operation of the CUBE (in regards
to a PNPB) and also updates the rule to reflect the proposed RPNP/MMRP,
thus adding clarity, transparency and internal consistency to Exchange
rules.
---------------------------------------------------------------------------
\53\ See proposed Rule 971.1NY(c)(4)(C) (Opposite Side
Marketable Against Interest in the Consolidated Book, the NBBO (or
BBO) at the Time of Arrival) (providing, in relevant part, that the
Auction would end early if during the RTI the Exchange receives an
``any RFR Response that is marketable against the any interest
resting in the Consolidated Book, the NBBO (or the BBO, for a non-
routable order that is not a PNP Order) at the time of arrival'').
\54\ See supra note 47 (regarding Rule 971.1NY(b), providing
that ``[f]or purposes of determining whether a CUBE Order is
eligible to initiate an Auction,'' references to the NBBO or BBO
``refer to the quoted market at the time the Auction is
initiated'').
---------------------------------------------------------------------------
Current Rule 971.1NY(c)(4)(D) provides that a CUBE Auction will
conclude early if the Exchange receives during the RTI ``an unrelated,
non-marketable quote or limit order that is on the same side of the
market as the CUBE Order to buy (sell) and that would adjust the lower
(upper) bound of the range of permissible executions to be higher
(lower) than the initiating price.'' \55\ To clarify existing
functionality, the Exchange proposes to add new paragraph (c)(D)(i) to
provide that a same-side IOC \56\ that would otherwise meet the
requirements of paragraph (c)(4)(D) (i.e., if its limit price was
incorporated into the NBBO, which it is not) would cause an Auction to
end early, even if the IOC Order cancels without trading.\57\ If such
an IOC Order causes a CUBE Auction to end early, the CUBE Order and
other eligible auction interest would be processed pursuant to
paragraph (c)(4)(D). This proposed modification reflects existing
functionality based on how the mechanism is built and would add clarity
and transparency to the CUBE rule.
---------------------------------------------------------------------------
\55\ See supra note 51 (regarding modifications to last sentence
of paragraph (c)(5)(D) regarding unfilled RFR Responses and GTX
Orders).
\56\ See supra note 8 (defining IOC Order).
\57\ See proposed Rule 971.1NY(c)(4)(D)(i).
---------------------------------------------------------------------------
Order Allocation
The Exchange also proposes to modify Rule 971.1NY(c)(5) regarding
the allocation of the CUBE Order with eligible interest. Current Rule
971.1NY(c)(5)(A) provides that, at each price level, the CUBE Order
will first trade with resting Customers orders, followed by Customer
orders that arrived during the Auction. Because a Customer may submit a
PNPB or a RPNP--either of which may have an undisplayed price at which
it is eligible to trade, the Exchange proposes to modify the Rule to
make clear that only the ``displayed'' Customer interest benefits from
Customer priority, pursuant to Rule 964NY(c)(2)(A).\58\ This proposed
change is consistent with the Exchange's allocation rules,\59\ current
CUBE operation and simply updates the rule to reflect the treatment of
PNPB and the proposed RPNP.
---------------------------------------------------------------------------
\58\ See proposed Rule 971.1NY(c)(5)(A)(providing that, at each
price level, displayed Customer interest on the Book at the start of
the Auction have first priority, followed by displayed Customer
orders that arrived as RFR Responses, pursuant to Rule
964NY(c)(2)(A), provides that an inbound order will first be matched
against all available displayed Customer interest in the Book
(emphasis added). See also proposed Rule 971.1NY(c)(5)(B) (providing
that ``[a]fter displayed Customer interest at a particular price
level has been satisfied, remaining contracts shall be allocated
among the Contra Order and RFR Responses as follows:'').
\59\ See Rule 964NY(c)(2)(A) (``the inbound order will first be
matched against all available displayed Customer interest in the
Consolidated Book'').
---------------------------------------------------------------------------
As noted above, the Initiating Participant may guarantee the
execution
[[Page 12655]]
of the CUBE via a single stop price, a range of prices up/down to match
the best-priced RFR Responses (assuming size of CUBE Order remains) or
a range of prices matching the best-priced RFR Responses up/down to an
auto-match limit price. The Exchange proposes to modify the rules
regarding CUBE Order allocation in these scenarios to clarify current
functionality regarding the treatment of a PNPB and to account for the
proposed RPNP and MMRP, which as RFR Responses, may be eligible to
trade in the Auction even if undisplayed. The current CUBE Order
allocation rule does not address the priority of RFR Responses that are
not displayed.
First, the Exchange proposes to modify the Rule regarding the
allocation of a CUBE Order that is guaranteed by a single stop price.
In short, the current rule provides that the CUBE Order will trade with
any RFR Responses priced better than the stop price (by size pro rata),
starting with the best-priced RFR Responses until the stop price is
reached, at which price the Contra Order is entitled to its allocation
guarantee.\60\ Regarding the priority of RFR Responses priced better
than the stop price, the Exchange proposes to modify the rule to
provide that ``[a]t each price point, the CUBE Order shall be allocated
first to GTX Orders and displayed RFR Responses pursuant to the size
pro rata algorithm set forth in Rule 964NY(b)(3), and next to any
undisplayed RFR Responses at that price in time priority, pursuant to
Rule 964NY(c).'' \61\ The Exchange also proposes to modify the Rule to
specify the priority of RFR Responses at the stop price (if any portion
of the CUBE Order remains after the Contra Order receives its
allocation guarantee).\62\ The modified rule would provide that ``[a]ny
remaining CUBE Order contracts at the stop price shall be allocated
first among remaining GTX Orders and displayed RFR Responses pursuant
to the size pro rata algorithm set forth in Rule 964NY(b)(3), and next
to any undisplayed RFR Responses pursuant to Rule 964NY(c).'' \63\ This
proposed change is consistent with the Rule 964NY and simply updates
the rule to reflect current functionality regarding the treatment of a
PNPB and to account for the proposed RPNP/MMRP.
---------------------------------------------------------------------------
\60\ See Rule 971.1NY(c)(5)(B)(i). Rule 964NY(b)(2) sets forth
priority and order allocation.
\61\ See proposed Rule 971.1NY(c)(5)(B)(i)(a).
\62\ See proposed Rule 971.1NY(c)(5)(B)(i)(b).
\63\ See id.
---------------------------------------------------------------------------
Second (and consistent with the changes to CUBE Orders guaranteed
by a stop price), the Exchange proposes to modify the Rule regarding
the allocation of a CUBE Order that is guaranteed by auto match. In
short, the current rule provides that the Contra Order is ``allocated
an equal number of contracts as the aggregate size of all other RFR
Responses at each price level'' starting with the best priced RFR
Response, ``until a price point is reached where the balance of the
CUBE Order can be fully executed (the `clean-up price').'' \64\ At the
clean-up price, if the Contra Order has not yet received its allocation
guarantee, and if sufficient size of the CUBE Order remains, the Contra
Order will be allocated the requisite additional contracts.\65\
Further, under the current rule, ``[i]f there are other RFR Responses
at the clean-up price, the remaining CUBE Order contracts will be
allocated to such interest pursuant to the size pro rata algorithm set
forth in Rule 964NY(b)(3).\66\ The Exchange proposes to modify the rule
to specify the priority of Responses at the clean-up price (if any
portion of the CUBE Order remains after the Contra Order receives its
allocation guarantee) to provide that CUBE Order contracts ``will be
allocated first to GTX Orders and displayed RFR Responses pursuant to
the size pro rata algorithm set forth in Rule 964NY(b)(3), and next to
any undisplayed RFR Responses at that price in time priority, pursuant
to Rule 964NY(c).'' \67\ This proposed change is consistent with the
operation of Rule 964NY and simply updates the rule to reflect current
functionality regarding the treatment of a PNPB and to account for the
proposed RPNP/MMRP.
---------------------------------------------------------------------------
\64\ See Rule 971.1NY(c)(5)(B)(ii)(a).
\65\ See Rule 971.1NY(c)(5)(B)(ii)(b).
\66\ See id. As is the case today, if all RFR Responses are
filled, any remaining portion of CUBE Order contracts is allocated
to the Contra Order at the initiating price and, in the event there
are no RFR Responses received in a given Auction, the CUBE Order
trades entirely with the Contra Order at the initiating price. See
Rule 971.1NY(c)(5)(B)(ii)(b),(c).
\67\ See proposed Rule 971.1NY(c)(5)(B)(ii)(b).
---------------------------------------------------------------------------
Finally, in a similar vein, the Exchange proposes to modify the
rule to address how the CUBE Order will be allocated when auto-match
limit is selected. In short, the current rule provides that the CUBE
Order will trade with any RFR Responses priced better than the auto-
match limit price (size pro rata), starting with the best-priced
Responses until the auto-match limit price is reached.\68\ At prices
equal to or worse than the auto-match limit price (assuming sufficient
size of CUBE Order remains), the Contra Order will be allocated an
equal number of contracts as the aggregate size of all other RFR
Responses and will receive its allocation guarantee (if not already
met) at the clean-up price. If CUBE Order contracts remain after the
Contra Order gets its allocation guarantee, RFR Responses will trade
with the CUBE Order at that (clean-up) price, pro rata.\69\ The
Exchange proposes to modify paragraph (c)(5)(B)(iii)(a), regarding the
allocation of the CUBE Order with the best-priced Responses, to provide
that ``[a]t each price point, the CUBE Order shall be allocated first
to GTX Orders and displayed RFR Responses pursuant to the size pro rata
algorithm set forth in Rule 964NY(b)(3), and next to any undisplayed
RFR Responses at that price in time priority, pursuant to Rule
964NY(c).'' \70\ Regarding the CUBE Order trading with RFR Responses at
the clean-up price (if size remains), the Exchange proposes to modify
the rule to provide such contracts ``will be allocated first to GTX
Orders and displayed RFR Responses pursuant to the size pro rata
algorithm set forth in Rule 964NY(b)(3), and next to any undisplayed
RFR Responses at that price in time priority, pursuant to Rule
964NY(c).'' \71\ This proposed change is consistent with the operation
of the CUBE and simply updates the rule to reflect current
functionality regarding the treatment of a PNPB and to account for the
proposed RPNP/MMRP.
---------------------------------------------------------------------------
\68\ See Rule 971.1NY(c)(5)(B)(iii)(a).
\69\ See Rule 971.1NY(c)(5)(B)(iii)(b).
\70\ See proposed Rule 971.1NY(c)(5)(B)(iii)(a).
\71\ See proposed Rule 971.1NY(c)(5)(B)(iii)(b).
---------------------------------------------------------------------------
The following is an example that illustrates RPNPs trading in a
CUBE Auction at their undisplayed price in time priority (behind
displayed interest).
CUBE Example (the MPV is $0.01)
BOX 100 x 1.00-1.25 x 100
MM 10 x 0.95-1.30 x 10
Firm1 RPNP B 100 @1.26
Firm2 RPNP B 100 @1.26
CUBE Order S 100 @1.20/Contra Order Buy guaranteed by automatch
Expected Result
BOX NBO @1.25
Firm1 bid reprices and is eligible to trade 100 @1.25 and will display
@1.24 (priced back one MPV from the NBO)
Firm2 bid reprices and is eligible to trade 100 @1.25 and will display
@1.24 (priced back one MPV from the NBO)
At the end of the CUBE auction: The CUBE Order sells 40 to the Contra
Order @1.25 (i.e., 40% participation guarantee), per Rule
971.1NY(c)(5)(B)(ii)(a), then 60 to
[[Page 12656]]
Firm1 @1.25, per Rule 971.1NY(c)(5)(B)(ii)(b))
* * * * *
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 Act,\72\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\73\ 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.
---------------------------------------------------------------------------
\72\ 15 U.S.C. 78f(b).
\73\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
RPNP and MMRP
The proposed RPNP would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because RPNPs 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. The proposed order type would provide
a means to display such orders at prices that are designed to maximize
their opportunities for execution. Specifically, allowing any eligible
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 RPNP with other interest eligible to trade at a
price respects and preserves principles of Customer, as well as price-
time, priority and therefore would promote just and equitable
principles of trade. The Exchange notes that the RPNP is materially the
same as the RPNP order type recently approved for trading on NYSE Arca,
except as noted herein.\74\
---------------------------------------------------------------------------
\74\ See NYSE Arca Repricing Approval Order, supra note 4. See
also supra note 6 (regarding the Exchange's Customer and price-time
priority scheme).
---------------------------------------------------------------------------
Similar to the proposed RPNP, the proposed MMRP quote designation
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because MMRPs 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 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 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 MMRP is optional and Market Makers have the choice to
utilize this quote type (or not). The Exchange believes that ranking
the repriced MMRP with other interest available to trade at a price
respects and preserves principles of Customer, as well as price-time,
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 the proposed MMRP is
materially the same as the MMRP quote designation recently approved for
trading on NYSE Arca, except as noted herein.\75\ 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.
---------------------------------------------------------------------------
\75\ Id.
---------------------------------------------------------------------------
RPNP/MMRP and the CUBE Auction
The Exchange believes that the proposed changes to the conduct of
the CUBE Auction would remove impediments to and perfect the mechanism
of a free and open market and a national market system because the
proposed changes are consistent with the current operation of the CUBE
and would avoid disturbing priority in the Consolidated Book, in
accordance with Rule 964NY, regarding priority of quotes and orders.
Specifically, the proposal to modify rule text to make clear that
RFR Responses include interest resting in the Consolidated Book at the
start of the Auction would align the rule text with current
functionality and add transparency and internal consistency to Exchange
rules, which in turn, 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. This proposed change aligns
with the treatment of Customer interest resting at the start of a CUBE
Auction \76\ and would make clear that the proposed RPNP/MMRP (and
PNPBs) may participate in the Auction even if resting undisplayed on
the Book at the start of a CUBE Auction (and not included in the quoted
market).\77\ The Exchange believes that allowing eligible unrelated
quotes and orders resting on the Consolidated Book at the start of an
Auction--including eligible RPNP/MMRPs (and PNPBs)--to interact with
the CUBE Auction protects investors and the public interest because
this inclusion of resting interest in the Auction should increase the
number of participants against which the CUBE Order may be executed,
and is consistent with the primary goal of the CUBE Auction: To
maximize price improvement opportunities for the CUBE Order, while
seamlessly interacting with the Consolidated Book.\78\ Similarly, the
proposed modifications to make clear that--in the event of an early end
to the Auction--all RFR Responses, not solely GTX Orders, are eligible
to trade with interest received in the Auction, which would protect
investors and the investing public because it adds clarity,
specificity, and transparency to Exchange rules.
---------------------------------------------------------------------------
\76\ See Rule 971.1NY(c)(5)(A) (providing that ``[a]t each price
level, any Customer orders resting on the Consolidated Book at the
start of the CUBE Auction shall have first priority'' to trade with
the CUBE Order).
\77\ See Rule 971.1NY(b) (providing that ``[f]or purposes of
determining whether a CUBE Order is eligible to initiate an
Auction,'' references to the NBBO or BBO ``refer to the quoted
market at the time the Auction is initiated'').
\78\ The Exchange notes that to the extent that an order that
was resting undisplayed at the start of the CUBE Order is eligible
to trade with the CUBE Order, that interest would trade behind
Customer and displayed interest, at a price, so as not to disturb
the Exchange's allocation model, per proposed Rule 971.1NY(c)(5),
Order Allocation (as discussed herein).
---------------------------------------------------------------------------
Further, the proposed modification of the early end scenarios would
remove
[[Page 12657]]
impediments to and perfect the mechanisms of a free and open market and
a national market system because the changes would align the rule text
with existing functionality and would provide clarity and transparency
in Exchange rules of when a CUBE Auction would conclude early. As noted
above, the rationale for an early conclusion to an Auction is to allow
the Exchange to appropriately handle unrelated quotes and orders
without the CUBE Auction impacting that handling, and further allow a
CUBE Order, which has been guaranteed an execution, to execute against
the Contra Order and any RFR. The changes to the early end provisions
are designed to ensure internal consistency (in regards to the proposed
modified definition of RFR Responses) as well as clarify current
functionality of the early end checks (to carve out PNP Orders from BBO
check and to make clear that incoming interest may be checked for
marketability against interest in the Consolidated Book, not just the
BBO) to appropriately account for the fact that the best-priced
interest in the Book may not be displayed and thus not included in the
quoted BBO (such as the proposed RPNP/MMRP). Thus, the Exchange
believes that the proposed changes are therefore consistent with the
protection of investors and the public interest because the changes
provide specificity in Exchange rules regarding when an Auction would
conclude early.
In addition, the proposal to specify that IOC Orders that arrive
during an Auction may cause the Auction to end early would promote just
and equitable principles of trade and benefit investors as this
clarification regarding how the CUBE Auction mechanism operates ensures
that investors are aware of the potential impact of IOC Orders (even
ones that do not trade) on an Auction in progress.
Finally, the proposal to clarify the order allocation provision
would promote just and equitable principles of trade and benefit
investors as this clarification would make clear that the priority of
RFR Responses is consistent with the Exchange Customer and price-time
priority model and would afford first priority, at each price point, to
displayed RFR Responses followed by undisplayed RFR Responses. These
proposed changes are consistent with the current operation of the CUBE
and would avoid disturbing priority in the Consolidated Book, in
accordance with Rule 964NY, regarding priority of quotes and orders.
Technical Changes
The Exchange notes that the proposed organizational and non-
substantive 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.\79\
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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\79\ See, e.g., supra notes 7, 19, 20, 28.
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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 notes that it
operates in a highly competitive market in which market participants
can readily direct order flow to competing venues who offer similar
functionality. The Exchange believes the proposed rule change is
procompetitive because it would enable the Exchange to provide market
participants with functionality that is similar to that of other
options exchanges.\80\
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\80\ See NYSE Arca Repricing Approval Order, supra note 4.
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The Exchange believes the proposed MMRP would add value to market
making on the Exchange and the proposed RPNP 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 MMRP/RPNP 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) MMRP and RPNP, 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 MMRP would be available to all Market Makers on the Exchange
and the proposed RPNP 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 MMRP, 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
MMRP 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.
The Exchange likewise does not believe that the proposed
clarifications to the rule text regarding the CUBE Auction would impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The rule changes are not
intended to address any competitive issues. Rather, the Exchange is
proposing to add more specificity, clarity and transparency regarding
the current operation of the CUBE Auction, particularly in light of the
proposed MMRP/RPNP.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section
[[Page 12658]]
19(b)(3)(A) of the Act \81\ and Rule 19b-4(f)(6) thereunder.\82\
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\81\ 15 U.S.C. 78s(b)(3)(A).
\82\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \83\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \84\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative upon filing. As
noted above, the proposed order type and quote designation are
substantially identical to those utilized on NYSE Arca, Inc., and the
differences noted herein do not raise substantive or novel issues.
Waiver of the operative delay would allow the Exchange to immediately
implement the proposed functionality in coordination with the
availability of the technology supporting the proposal, which is
anticipated to be less than 30 days after the filing of the proposed
rule change. The Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Accordingly, the Commission hereby waives the
operative delay and designates the proposed rule change operative upon
filing.\85\
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\83\ 17 CFR 240.19b-4(f)(6).
\84\ 17 CFR 240.19b-4(f)(6)(iii).
\85\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEAMER-2019-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAMER-2019-06. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEAMER-2019-06 and should be submitted
on or before April 23, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\86\
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\86\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06308 Filed 4-1-19; 8:45 am]
BILLING CODE 8011-01-P
