Self-Regulatory Organizations; NYSE American LLC; Order Approving a Proposed Rule Change To Modify Rules 967NY and 953.1NY Regarding the Treatment of Orders Subject To Trade Collar Protection, 56498-56501 [2019-22944]

Download as PDF 56498 Federal Register / Vol. 84, No. 204 / Tuesday, October 22, 2019 / Notices of the October 7, 2019 technology migration. The Exchange also does not believe that the proposed rule change will impose any undue burden on competition because the relocated rule text is exactly the same as the Exchange’s current rules, all of which have all been previously filed with the Commission. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 7 and Rule 19b–4(f)(6) thereunder.8 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and Rule 19b–4(f)(6) thereunder.10 A proposed rule change filed under Rule 19b–4(f)(6) 11 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),12 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposed rule change may become operative immediately. The Exchange notes that the proposed rule change is merely relocating certain rules to its shell rulebook—which includes corresponding updates to rule numbers, cross-references, and other references— in order to conform these rules to the shell rulebook upon the technology migration explained above. The Exchange believes that the proposed rule change will make its rules easier to read and understand for all investors. The Exchange also asserts that the relocation of the rules explained above will not impose any significant burden on competition as the substance of the rules remains unchanged. The Commission agrees that allowing this proposed rule change to become operative upon filing in order to facilitate the Exchange’s technology migration—without changing the substance of these Exchange Rules—is consistent with the protection of investors and the public interest. For this reason, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.13 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 rule-comments@ sec.gov. Please include File Number SR– CBOE–2019–087 on the subject line. Paper Comments 7 15 U.S.C. 78s(b)(3)(A)(iii). 8 17 CFR 240.19b–4(f)(6). 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the Exchange to give the Commission written notice of the Exchange’s intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Commission has waived that requirement in this case. 11 17 CFR 240.19b–4(f)(6). 12 17 CFR 240.19b–4(f)(6)(iii). VerDate Sep<11>2014 17:02 Oct 21, 2019 Jkt 250001 • 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–CBOE–2019–087. This file number should be included on the 13 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 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 offices 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–CBOE–2019–087, and should be submitted on or before November 12, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–22934 Filed 10–21–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87315; File No. SR– NYSEAMER–2019–30] Self-Regulatory Organizations; NYSE American LLC; Order Approving a Proposed Rule Change To Modify Rules 967NY and 953.1NY Regarding the Treatment of Orders Subject To Trade Collar Protection October 16, 2019. I. Introduction On August 21, 2019, NYSE American LLC (‘‘NYSE American’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 14 17 E:\FR\FM\22OCN1.SGM CFR 200.30–3(a)(12), (59). 22OCN1 Federal Register / Vol. 84, No. 204 / Tuesday, October 22, 2019 / Notices 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 a proposed rule change to modify Exchange Rules 967NY and 953.1NY regarding the treatment of orders subject to Trade Collar Protection. The proposed rule change was published for comment in the Federal Register on September 3, 2019.4 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposal The Exchange states that it proposes to modify Rule 967NY to clarify existing functionality and to adopt enhancements to the operation of the Trading Collars.5 The Exchange applies Trade Collar Protection to incoming orders. As described more fully in the Notice, the Exchange states that Trading Collars 6 mitigate the risks associated with orders sweeping through multiple price points (including during extreme market volatility) and resulting in executions at prices that are potentially erroneous.7 According to the Exchange, by applying Trading Collars to incoming orders, the Exchange provides an opportunity to attract additional liquidity at tighter spreads and it ‘‘collars’’ affected orders at successive price points until the bid and offer are equal to the bid-ask differential guideline for that option (i.e., equal to the Trading Collar).8 Similarly, by applying Trading Collars to partially executed orders, the Exchange states that it prevents the balance of such orders from executing away from the prevailing market after exhausting interest at or near the top of book on arrival.9 Current Rule 967NY(a)(1)(i) states that Trade Collar Protection prevents the ‘‘immediate execution’’ of incoming market orders when the difference between the National Best Offer (‘‘NBO’’) and the National Best Bid (‘‘NBB’’) is greater than one Trading Collar. Rule 967NY(a)(1)(i) currently states that Trade Collar Protection would apply to any unexecuted portion 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 4 Securities Exchange Act Release No. 86789 (August 28, 2019), 84 FR 46062 (September 3, 2019) (‘‘Notice’’). 5 See Notice, supra note 4, at 46062. 6 ‘‘Trading Collars’’ are determined by the Exchange on a class-by-class basis and, unless announced otherwise via Trader Update, are the same value as the bid-ask differential guidelines established pursuant to Rule 925NY(b)(4). See Rule 967NY(a)(2). 7 See Notice, supra note 4, at 46062. 8 See id. 9 See id. 2 15 VerDate Sep<11>2014 17:02 Oct 21, 2019 Jkt 250001 of a marketable limit order. The Exchange proposes to modify Rule 967NY(a) to make clear that Trade Collar Protection may also be applied to marketable limit orders on arrival. The Exchange asserts that this proposed change would clarify how Trade Collar Protection currently operates, and that the Exchange would continue to apply Trade Collar Protection to the balance of Marketable Orders 10 consistent with the current rule.11 The Exchange also proposes to modify the current Rule 967NY(a)(3), which currently states that order types that have contingencies, namely, IOC, NOW, AON, and FOK orders, would receive an ‘‘immediate execution.’’ The proposed modifications would clarify that such incoming orders would ‘‘receive an execution, depending upon the availability of an execution pursuant to the terms of those orders.’’ 12 In addition, the Exchange proposes to modify current Rule 967NY(a)(4) to make clear that when Marketable (as opposed to just market) Orders are subject to Trade Collar Protection, the Exchange will limit the ‘‘execution and/ or routing’’ of such orders.13 The Exchange also proposes to make clear that this provision relates to ‘‘incoming’’ Marketable Orders as opposed to the balance thereof.14 Proposed Rule 967NY(a)(4)(A) would provide that ‘‘[a] Market Order to buy (sell) received when there is already a collared order to buy (sell) will join that collared order and be processed consistent with paragraphs (a)(4)(C)— (a)(6),’’ which the Exchange states reflects current functionality.15 The Exchange also proposes Rule 967NY(a)(4)(B) to specify that collared orders will be assigned a ‘‘collar execution price,’’ which price depends upon the order type (market or limit) and whether (when the order arrives) the Exchange is already in receipt of another order being collared.16 Current 10 ‘‘Marketable Orders’’ are defined as incoming market orders and marketable limit orders under the proposed rule. See proposed Rule 967NY(a)(1)(A). 11 See Notice, supra note 4, at 46063. 12 See proposed Rule 967NY(a)(3). The Exchange believes that removing the word ‘‘immediate’’ would more accurately reflect the Exchange’s current functionality in regards to the processing of these contingent order types, insofar as such orders will only ‘‘immediately’’ execute if the contingency is satisfied. See Notice, supra note 4, at 46063. 13 The current rule states that when a market order is subject to Trade Collar Protection, the Exchange does not ‘‘immediately execute or route such orders.’’ 14 See proposed Rule 967NY(a)(4). See also proposed Rule 967NY(a)(1)(A) (making clear that incoming marketable limit orders are subject to Trade Collar Protection). 15 See Notice, supra note 4, at 46063. 16 See proposed Rule 967NY(a)(4). PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 56499 Rule 967NY(a)(4)(A) covers collared market orders to buy (sell), which would not immediately execute or route, but would be ‘‘displayed at a price equal to the NBB (NBO) plus (minus) one Trading Collar.’’ The Exchange proposes to replace ‘‘displayed’’ as used in the current rule with ‘‘assigned a collar execution price’’ because, according to the Exchange, once collared, the order would be eligible to immediately execute against available interest before its price is displayed.17 In addition, the Exchange proposes an exception to the processing of incoming market orders to buy (sell) that arrive when the NBB (NBO) is zero (‘‘Zero NBBO Collar Exception’’). Specifically, as proposed, a market order to buy entered when the NBB is $0.00 would be assigned a collar execution price equal to the NBB (i.e., $0.00) plus one Trading Collar to ensure it is collared to avoid executing at an erroneous price; whereas, a market order to sell entered when the NBO is $0.00 would be rejected as there would be no market for the incoming order.18 In addition, because Rule 967NY(a)(1)(A) has been updated to clarify that incoming marketable limit orders may be collared, the Exchange proposes to further update Rule 967NY(a) to address how such orders would be collared, depending upon whether the Exchange is already in receipt of a collared order.19 Specifically, as proposed, modified Rule 967NY(a)(4)(C) would state that when the incoming collared order is a marketable limit order to buy (sell) and there is no other order already being collared, the order would be ‘‘assigned a collar execution price equal to the NBO (NBB).’’ If, however, a marketable limit order arrives when there is already an order being collared, it would join that collared order and be processed consistent with proposed Rule 967NY(a)(6)(B).20 The Exchange states that this is consistent with current functionality.21 The Exchange also proposes to modify the rule regarding executions of collared orders. The Exchange proposes to clarify that a collared order to buy (sell) would ‘‘trade against any contra-side interest 17 See Notice, supra note 4, at 46063. The Exchange states that this is consistent with its current functionality. See id. 18 See proposed Rule 967NY(a)(4)(B)(i), (ii). The Exchange believes the Zero NBBO Collar Exception would improve the operation of Trading Collars when the prevailing market is zero (indicating market dislocation) at the time an incoming market order arrives. See Notice, supra note 4, at 46063. 19 See id. 20 See proposed Rule 967NY(a)(4)(C). 21 See Notice, supra note 4, at 46063. E:\FR\FM\22OCN1.SGM 22OCN1 56500 Federal Register / Vol. 84, No. 204 / Tuesday, October 22, 2019 / Notices priced equal to its collar execution price or at prices within one Trading Collar above (below) the collar execution price (‘‘Collar Range’’).’’ 22 Consistent with proposed Rule 967NY(a)(4)(B),(C), the Exchange proposes to refer to the ‘‘collar execution price’’ (as opposed to a display price). In addition, the Exchange believes that clarifying that the collared order would execute with contra-side interest priced within a Collar Range (i.e., equal to, and up to one Trading Collar above (below) the collar execution price), provides more specificity than the current language, which states only that such order would execute against interest ‘‘within one Trading Collar’’ of its price.23 In addition, the Exchange proposes to add new paragraph (a)(4)(E) to Rule 967NY to codify existing functionality and make clear that the Exchange would cancel a market order, or the balance thereof, that has been collared pursuant to proposed Rule 967NY(a)(1)(A) or (B) if, after exhausting trading opportunities within the Collar Range, the Exchange determines there are no quotes on the Exchange and/or no interest on another market (‘‘Available Interest’’).24 The Exchange also proposes to modify the rule language describing the treatment of the balance of a Marketable Order that is subject to Trade Collar Protection. Pursuant to new Rule 967NY(a)(5), a market order that does not trade on arrival will be displayed at its collar execution price whereas the display price of the balance of a partially executed Marketable Order collared pursuant to proposed Rule 967NY(a)(1)(B), depends upon eligible contra-side interest.25 Specifically, proposed Rule 967NY(a)(5)(A) would provide that if the collared order has traded against all contra-side interest within the Collar Range, the order would be displayed at the most recent execution price. If, however, there is contra-side interest priced within one Trading Collar of the most recent execution price, proposed Rule 967NY(a)(5)(B) would provide that the order to buy (sell) would be displayed at the higher (lower) of its assigned collar execution price or the best execution price of the order that is both within the Collar Range and at least one 22 See proposed Rule 967NY(a)(4)(D). Notice, supra note 4, at 46064. The Exchange believes these proposed changes, which describe current functionality, would add clarity, transparency, and internal consistency to Exchange rules. See id. 24 See id. According to the Exchange, the absence of Available Interest, such as a market maker quote in the series, means that the Exchange would have no reliable price framework within which to evaluate the market order. See id. 25 See proposed Rule 967NY(a)(5). 23 See VerDate Sep<11>2014 17:02 Oct 21, 2019 Jkt 250001 Trading Collar away from the best priced contra-side trading interest (i.e., lowest sell interest for collared buy orders/highest buy interest for collared sell orders).26 In addition, the Exchange also proposes to add rule text to Rule 967NY(a)(5) to state that collared orders would be displayed at the Minimum Price Variation (‘‘MPV’’) for the option, pursuant to Rule 960NY (Trading Differentials) which rule sets forth the minimum quoting increments for options traded on the Exchange.27 Current Rule 967NY(a)(4)(C) sets forth scenarios that would trigger the ‘‘redisplay’’ of a collared order. The Exchange proposes to state that the Exchange would ‘‘assign a new collar execution price’’ to (as opposed to redisplay) the collared order under each of the listed scenarios, as well as make other changes that conform the rule text with the changes described above.28 In addition, the Exchange proposes to state in Rule 967NY(a)(6)(C) that ‘‘if the collared order is a Market Order to sell that has reached $0.00, it will not reprice but will be posted in the Consolidated Book at its MPV (e.g., $0.01 or $0.05),’’ because an order may never be posted for lower than its MPV, and the alternative to holding the order at the MPV would be to cancel it.29 The Exchange also proposes to clarify current Rule 967NY(a)(6). The Exchange states that because the current rule text does not make clear that collared orders, like non-collared orders, will be processed at each price in time priority, the Exchange proposes to clarify that such orders would be ‘‘processed in accordance with Rule 964NY, Display, Priority and Order Allocation—Trading Systems.’’ 30 The proposed rule change would also make several non-substantive technical and organizational changes to proposed Rule 967NY(a), such as changes to conform the numbering and lettering of the rule, as well as to update crossreferences and terminology in connection with the changes described above. Finally, the Exchange proposes to modify Rule 953.1NY (‘‘Limit-Up and Limit-Down During Extraordinary Market Volatility’’), related to the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS (‘‘LULD’’ or the ‘‘LULD 26 The Exchange believes adding this information to the rule would add transparency, clarity and internal consistency to Exchange rules. See Notice, supra note 4, at 46064. 27 See proposed Rule 967NY(a)(5). 28 See proposed Rule 967NY(a)(6). 29 See Notice, supra note 4, at 46067. 30 See proposed Rule 967NY(a)(8). PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 Rule’’). The Exchange proposes to add rule text to state that the Exchange, under existing functionality, ‘‘will cancel any Market Order that is a collared order pursuant to Rule 967NY(a)’’ if the underlying NMS stock enters an LULD State and ‘‘will notify ATP Holders of the reason for such cancellation.’’ 31 III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.32 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,33 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to 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. The Commission notes that the Exchange believes that the proposed changes that codify existing functionality, including how incoming marketable limit orders are collared and the cancellation of collared market orders in the absence of Available Interest or if an NMS stock enters an LULD state would add clarity, transparency and internal consistency to Exchange rules regarding the handling of orders accepted by the Exchange and make such rules easier for market participants to navigate and comprehend.34 In addition, the Exchange believes that the proposal to codify that the Exchange would cancel a market order or the balance thereof that has been collared once it has exhausted trading opportunities within its collar execution price plus/minus one Trading Collar if there is no Available Interest would protect investors from potentially erroneous executions.35 Further, the Exchange believes that the proposal to codify current functionality regarding a collared order that is a market order to sell that has reached $0.00 such that the Exchange will post the order at its MPV 31 See proposed Rule 953.1NY(a)(1). approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 33 15 U.S.C. 78f(b)(5). 34 See Notice, supra note 4, at 46067. 35 See id. 32 In E:\FR\FM\22OCN1.SGM 22OCN1 Federal Register / Vol. 84, No. 204 / Tuesday, October 22, 2019 / Notices (e.g., $0.01 or $0.05) would promote just and equitable principles of trade and assist with the maintenance of fair and orderly markets because an order may never be posted for lower than its MPV and the alternative to holding the order at the MPV would be to cancel it.36 The Exchange believes the proposed clarification of how such orders are handled provides the collared order an opportunity for an execution (rather than being cancelled) and adds transparency and internal consistency to Exchange rules.37 The Commission notes that the Exchange believes that the Zero NBBO Collar Exception would improve the operation of the Trading Collar when the prevailing market is zero (which the Exchange states indicates market dislocation) at the time an incoming market order arrives.38 The Exchange states that absent the proposed Zero NBBO Collar Exception, a market order to buy (sell) that arrives when the NBB (NBO) is zero would trade based on the last sale price, if any.39 The Exchange notes that if there is no last sale price, the order would trade at the contra-side NBBO which may result in a bad execution price.40 In regards to the proposal to reject (as opposed to collar) incoming sell orders when the NBO is zero, the Exchange believes this change in functionality is necessary because any attempt to collar such an order would result in a negative number. In addition, the Exchange states that it has observed that it is extremely uncommon to have a no (zero) offer situation and believes it could be indicative of unstable market conditions.41 To avoid such orders receiving bad executions in times of market dislocation, the Exchange believes it would be appropriate to reject such orders.42 The Exchange also believes that it is appropriate that the Exchange cancel a market order that is collared when an NMS stock enters an LULD state because when the underlying NMS stock enters an LULD state, there may not be a reliable underlying reference price, there may be a wide bid/ask quotation differential in the option, and there may be less liquidity in the options markets.43 According to the Exchange, allowing a collared Market Order to execute (as opposed to cancel) in such circumstances could lead to 36 See id. id. 38 See id. 39 See id. 40 See id. 41 See id. 42 See id. 43 See id. at 46067–8. 37 See VerDate Sep<11>2014 17:02 Oct 21, 2019 Jkt 250001 executions at unintended prices (i.e., inferior to the NBBO), and could add to volatility in the options markets during times of extraordinary market volatility.44 The Exchange believes that this current treatment of collared market orders provides certainty to the treatment of Market Orders during these times, and the proposal to explicitly state this treatment in the rule text adds clarity and transparency to Exchange rules, thus promoting just and equitable principles of trade and removing impediments to, and perfecting the mechanism of, a free and open market and a national market system.45 The Exchange states that the proposed cancellation of an options order if the underlying NMS security is in an LULD state is not new or novel and is available on other options exchanges that offer similar collar functionality.46 The Exchange believes that the proposed rule changes would add transparency and specificity to Exchange rules.47 The Commission believes that the operation of the Trade Collar Protection mechanism set forth in the proposal is consistent with the Act. In addition, the Commission believes that the revised description of this mechanism should increase transparency with respect to how the mechanism operates and enhance investors’ understanding of how the mechanism may affect their orders in certain market conditions. Accordingly, the Commission believes that the proposal is reasonably designed to help prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,48 that the proposed rule change (SR–NYSEAMER– 2019–30) be, and it hereby is, approved. 44 See id. at 46068. id. 46 The Exchange cites CBOE Rule 6.3A(b)(1) (LULD rule citing Rule 6.2 regarding order handling); CBOE Rule 6.2, Interpretations and Policies .07 and NASDAQ Options Market Ch. V, Sec. 3(d). However, the Exchange notes that it believes that the rules of these other exchanges do not specifically contemplate the underlying security entering an LULD state while a market order is resting on the book, because such orders typically execute on arrival. See Notice, supra note 4, at 46068. 47 See id. 48 15 U.S.C. 78s(b)(2). 49 17 CFR 200.30–3(a)(12). 45 See PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 56501 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.49 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–22944 Filed 10–21–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87320; File No. SR–CBOE– 2019–095] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Relocate Various Exchange Rules From the Currently Effective to the Shell Structure for the Exchange’s Rulebook That Will Become Effective Upon the Migration of the Exchange’s Trading Platform October 16, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 4, 2019, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the 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 Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) proposes to relocate various Exchange Rules from the currently effective Rulebook (‘‘current Rulebook’’) to the shell structure for the Exchange’s Rulebook that will become effective upon the migration of the Exchange’s trading platform to the same system used by the Cboe Affiliated Exchanges (as defined below) (‘‘shell Rulebook’’). The proposed rule change also deletes certain Exchange Rules from the currently effective Rulebook that will no longer be applicable following the migration. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://www.cboe.com/ AboutCBOE/ 1 15 2 17 E:\FR\FM\22OCN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 22OCN1

Agencies

[Federal Register Volume 84, Number 204 (Tuesday, October 22, 2019)]
[Notices]
[Pages 56498-56501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22944]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87315; File No. SR-NYSEAMER-2019-30]


Self-Regulatory Organizations; NYSE American LLC; Order Approving 
a Proposed Rule Change To Modify Rules 967NY and 953.1NY Regarding the 
Treatment of Orders Subject To Trade Collar Protection

October 16, 2019.

I. Introduction

    On August 21, 2019, NYSE American LLC (``NYSE American'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section

[[Page 56499]]

19(b)(1) \1\ of the Securities Exchange Act of 1934 (the ``Act'') \2\ 
and Rule 19b-4 thereunder,\3\ a proposed rule change to modify Exchange 
Rules 967NY and 953.1NY regarding the treatment of orders subject to 
Trade Collar Protection. The proposed rule change was published for 
comment in the Federal Register on September 3, 2019.\4\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Securities Exchange Act Release No. 86789 (August 28, 2019), 
84 FR 46062 (September 3, 2019) (``Notice'').
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II. Description of the Proposal

    The Exchange states that it proposes to modify Rule 967NY to 
clarify existing functionality and to adopt enhancements to the 
operation of the Trading Collars.\5\ The Exchange applies Trade Collar 
Protection to incoming orders. As described more fully in the Notice, 
the Exchange states that Trading Collars \6\ mitigate the risks 
associated with orders sweeping through multiple price points 
(including during extreme market volatility) and resulting in 
executions at prices that are potentially erroneous.\7\ According to 
the Exchange, by applying Trading Collars to incoming orders, the 
Exchange provides an opportunity to attract additional liquidity at 
tighter spreads and it ``collars'' affected orders at successive price 
points until the bid and offer are equal to the bid-ask differential 
guideline for that option (i.e., equal to the Trading Collar).\8\ 
Similarly, by applying Trading Collars to partially executed orders, 
the Exchange states that it prevents the balance of such orders from 
executing away from the prevailing market after exhausting interest at 
or near the top of book on arrival.\9\
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    \5\ See Notice, supra note 4, at 46062.
    \6\ ``Trading Collars'' are determined by the Exchange on a 
class-by-class basis and, unless announced otherwise via Trader 
Update, are the same value as the bid-ask differential guidelines 
established pursuant to Rule 925NY(b)(4). See Rule 967NY(a)(2).
    \7\ See Notice, supra note 4, at 46062.
    \8\ See id.
    \9\ See id.
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    Current Rule 967NY(a)(1)(i) states that Trade Collar Protection 
prevents the ``immediate execution'' of incoming market orders when the 
difference between the National Best Offer (``NBO'') and the National 
Best Bid (``NBB'') is greater than one Trading Collar. Rule 
967NY(a)(1)(i) currently states that Trade Collar Protection would 
apply to any unexecuted portion of a marketable limit order. The 
Exchange proposes to modify Rule 967NY(a) to make clear that Trade 
Collar Protection may also be applied to marketable limit orders on 
arrival. The Exchange asserts that this proposed change would clarify 
how Trade Collar Protection currently operates, and that the Exchange 
would continue to apply Trade Collar Protection to the balance of 
Marketable Orders \10\ consistent with the current rule.\11\
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    \10\ ``Marketable Orders'' are defined as incoming market orders 
and marketable limit orders under the proposed rule. See proposed 
Rule 967NY(a)(1)(A).
    \11\ See Notice, supra note 4, at 46063.
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    The Exchange also proposes to modify the current Rule 967NY(a)(3), 
which currently states that order types that have contingencies, 
namely, IOC, NOW, AON, and FOK orders, would receive an ``immediate 
execution.'' The proposed modifications would clarify that such 
incoming orders would ``receive an execution, depending upon the 
availability of an execution pursuant to the terms of those orders.'' 
\12\
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    \12\ See proposed Rule 967NY(a)(3). The Exchange believes that 
removing the word ``immediate'' would more accurately reflect the 
Exchange's current functionality in regards to the processing of 
these contingent order types, insofar as such orders will only 
``immediately'' execute if the contingency is satisfied. See Notice, 
supra note 4, at 46063.
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    In addition, the Exchange proposes to modify current Rule 
967NY(a)(4) to make clear that when Marketable (as opposed to just 
market) Orders are subject to Trade Collar Protection, the Exchange 
will limit the ``execution and/or routing'' of such orders.\13\ The 
Exchange also proposes to make clear that this provision relates to 
``incoming'' Marketable Orders as opposed to the balance thereof.\14\
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    \13\ The current rule states that when a market order is subject 
to Trade Collar Protection, the Exchange does not ``immediately 
execute or route such orders.''
    \14\ See proposed Rule 967NY(a)(4). See also proposed Rule 
967NY(a)(1)(A) (making clear that incoming marketable limit orders 
are subject to Trade Collar Protection).
---------------------------------------------------------------------------

    Proposed Rule 967NY(a)(4)(A) would provide that ``[a] Market Order 
to buy (sell) received when there is already a collared order to buy 
(sell) will join that collared order and be processed consistent with 
paragraphs (a)(4)(C)--(a)(6),'' which the Exchange states reflects 
current functionality.\15\ The Exchange also proposes Rule 
967NY(a)(4)(B) to specify that collared orders will be assigned a 
``collar execution price,'' which price depends upon the order type 
(market or limit) and whether (when the order arrives) the Exchange is 
already in receipt of another order being collared.\16\ Current Rule 
967NY(a)(4)(A) covers collared market orders to buy (sell), which would 
not immediately execute or route, but would be ``displayed at a price 
equal to the NBB (NBO) plus (minus) one Trading Collar.'' The Exchange 
proposes to replace ``displayed'' as used in the current rule with 
``assigned a collar execution price'' because, according to the 
Exchange, once collared, the order would be eligible to immediately 
execute against available interest before its price is displayed.\17\
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    \15\ See Notice, supra note 4, at 46063.
    \16\ See proposed Rule 967NY(a)(4).
    \17\ See Notice, supra note 4, at 46063. The Exchange states 
that this is consistent with its current functionality. See id.
---------------------------------------------------------------------------

    In addition, the Exchange proposes an exception to the processing 
of incoming market orders to buy (sell) that arrive when the NBB (NBO) 
is zero (``Zero NBBO Collar Exception''). Specifically, as proposed, a 
market order to buy entered when the NBB is $0.00 would be assigned a 
collar execution price equal to the NBB (i.e., $0.00) plus one Trading 
Collar to ensure it is collared to avoid executing at an erroneous 
price; whereas, a market order to sell entered when the NBO is $0.00 
would be rejected as there would be no market for the incoming 
order.\18\
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    \18\ See proposed Rule 967NY(a)(4)(B)(i), (ii). The Exchange 
believes the Zero NBBO Collar Exception would improve the operation 
of Trading Collars when the prevailing market is zero (indicating 
market dislocation) at the time an incoming market order arrives. 
See Notice, supra note 4, at 46063.
---------------------------------------------------------------------------

    In addition, because Rule 967NY(a)(1)(A) has been updated to 
clarify that incoming marketable limit orders may be collared, the 
Exchange proposes to further update Rule 967NY(a) to address how such 
orders would be collared, depending upon whether the Exchange is 
already in receipt of a collared order.\19\ Specifically, as proposed, 
modified Rule 967NY(a)(4)(C) would state that when the incoming 
collared order is a marketable limit order to buy (sell) and there is 
no other order already being collared, the order would be ``assigned a 
collar execution price equal to the NBO (NBB).'' If, however, a 
marketable limit order arrives when there is already an order being 
collared, it would join that collared order and be processed consistent 
with proposed Rule 967NY(a)(6)(B).\20\ The Exchange states that this is 
consistent with current functionality.\21\
---------------------------------------------------------------------------

    \19\ See id.
    \20\ See proposed Rule 967NY(a)(4)(C).
    \21\ See Notice, supra note 4, at 46063.
---------------------------------------------------------------------------

    The Exchange also proposes to modify the rule regarding executions 
of collared orders. The Exchange proposes to clarify that a collared 
order to buy (sell) would ``trade against any contra-side interest

[[Page 56500]]

priced equal to its collar execution price or at prices within one 
Trading Collar above (below) the collar execution price (``Collar 
Range'').'' \22\ Consistent with proposed Rule 967NY(a)(4)(B),(C), the 
Exchange proposes to refer to the ``collar execution price'' (as 
opposed to a display price). In addition, the Exchange believes that 
clarifying that the collared order would execute with contra-side 
interest priced within a Collar Range (i.e., equal to, and up to one 
Trading Collar above (below) the collar execution price), provides more 
specificity than the current language, which states only that such 
order would execute against interest ``within one Trading Collar'' of 
its price.\23\
---------------------------------------------------------------------------

    \22\ See proposed Rule 967NY(a)(4)(D).
    \23\ See Notice, supra note 4, at 46064. The Exchange believes 
these proposed changes, which describe current functionality, would 
add clarity, transparency, and internal consistency to Exchange 
rules. See id.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to add new paragraph (a)(4)(E) 
to Rule 967NY to codify existing functionality and make clear that the 
Exchange would cancel a market order, or the balance thereof, that has 
been collared pursuant to proposed Rule 967NY(a)(1)(A) or (B) if, after 
exhausting trading opportunities within the Collar Range, the Exchange 
determines there are no quotes on the Exchange and/or no interest on 
another market (``Available Interest'').\24\
---------------------------------------------------------------------------

    \24\ See id. According to the Exchange, the absence of Available 
Interest, such as a market maker quote in the series, means that the 
Exchange would have no reliable price framework within which to 
evaluate the market order. See id.
---------------------------------------------------------------------------

    The Exchange also proposes to modify the rule language describing 
the treatment of the balance of a Marketable Order that is subject to 
Trade Collar Protection. Pursuant to new Rule 967NY(a)(5), a market 
order that does not trade on arrival will be displayed at its collar 
execution price whereas the display price of the balance of a partially 
executed Marketable Order collared pursuant to proposed Rule 
967NY(a)(1)(B), depends upon eligible contra-side interest.\25\ 
Specifically, proposed Rule 967NY(a)(5)(A) would provide that if the 
collared order has traded against all contra-side interest within the 
Collar Range, the order would be displayed at the most recent execution 
price. If, however, there is contra-side interest priced within one 
Trading Collar of the most recent execution price, proposed Rule 
967NY(a)(5)(B) would provide that the order to buy (sell) would be 
displayed at the higher (lower) of its assigned collar execution price 
or the best execution price of the order that is both within the Collar 
Range and at least one Trading Collar away from the best priced contra-
side trading interest (i.e., lowest sell interest for collared buy 
orders/highest buy interest for collared sell orders).\26\
---------------------------------------------------------------------------

    \25\ See proposed Rule 967NY(a)(5).
    \26\ The Exchange believes adding this information to the rule 
would add transparency, clarity and internal consistency to Exchange 
rules. See Notice, supra note 4, at 46064.
---------------------------------------------------------------------------

    In addition, the Exchange also proposes to add rule text to Rule 
967NY(a)(5) to state that collared orders would be displayed at the 
Minimum Price Variation (``MPV'') for the option, pursuant to Rule 
960NY (Trading Differentials) which rule sets forth the minimum quoting 
increments for options traded on the Exchange.\27\
---------------------------------------------------------------------------

    \27\ See proposed Rule 967NY(a)(5).
---------------------------------------------------------------------------

    Current Rule 967NY(a)(4)(C) sets forth scenarios that would trigger 
the ``redisplay'' of a collared order. The Exchange proposes to state 
that the Exchange would ``assign a new collar execution price'' to (as 
opposed to redisplay) the collared order under each of the listed 
scenarios, as well as make other changes that conform the rule text 
with the changes described above.\28\ In addition, the Exchange 
proposes to state in Rule 967NY(a)(6)(C) that ``if the collared order 
is a Market Order to sell that has reached $0.00, it will not reprice 
but will be posted in the Consolidated Book at its MPV (e.g., $0.01 or 
$0.05),'' because an order may never be posted for lower than its MPV, 
and the alternative to holding the order at the MPV would be to cancel 
it.\29\
---------------------------------------------------------------------------

    \28\ See proposed Rule 967NY(a)(6).
    \29\ See Notice, supra note 4, at 46067.
---------------------------------------------------------------------------

    The Exchange also proposes to clarify current Rule 967NY(a)(6). The 
Exchange states that because the current rule text does not make clear 
that collared orders, like non-collared orders, will be processed at 
each price in time priority, the Exchange proposes to clarify that such 
orders would be ``processed in accordance with Rule 964NY, Display, 
Priority and Order Allocation--Trading Systems.'' \30\
---------------------------------------------------------------------------

    \30\ See proposed Rule 967NY(a)(8).
---------------------------------------------------------------------------

    The proposed rule change would also make several non-substantive 
technical and organizational changes to proposed Rule 967NY(a), such as 
changes to conform the numbering and lettering of the rule, as well as 
to update cross-references and terminology in connection with the 
changes described above.
    Finally, the Exchange proposes to modify Rule 953.1NY (``Limit-Up 
and Limit-Down During Extraordinary Market Volatility''), related to 
the Plan to Address Extraordinary Market Volatility Pursuant to Rule 
608 of Regulation NMS (``LULD'' or the ``LULD Rule''). The Exchange 
proposes to add rule text to state that the Exchange, under existing 
functionality, ``will cancel any Market Order that is a collared order 
pursuant to Rule 967NY(a)'' if the underlying NMS stock enters an LULD 
State and ``will notify ATP Holders of the reason for such 
cancellation.'' \31\
---------------------------------------------------------------------------

    \31\ See proposed Rule 953.1NY(a)(1).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\32\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\33\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to 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.
---------------------------------------------------------------------------

    \32\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission notes that the Exchange believes that the proposed 
changes that codify existing functionality, including how incoming 
marketable limit orders are collared and the cancellation of collared 
market orders in the absence of Available Interest or if an NMS stock 
enters an LULD state would add clarity, transparency and internal 
consistency to Exchange rules regarding the handling of orders accepted 
by the Exchange and make such rules easier for market participants to 
navigate and comprehend.\34\
---------------------------------------------------------------------------

    \34\ See Notice, supra note 4, at 46067.
---------------------------------------------------------------------------

    In addition, the Exchange believes that the proposal to codify that 
the Exchange would cancel a market order or the balance thereof that 
has been collared once it has exhausted trading opportunities within 
its collar execution price plus/minus one Trading Collar if there is no 
Available Interest would protect investors from potentially erroneous 
executions.\35\ Further, the Exchange believes that the proposal to 
codify current functionality regarding a collared order that is a 
market order to sell that has reached $0.00 such that the Exchange will 
post the order at its MPV

[[Page 56501]]

(e.g., $0.01 or $0.05) would promote just and equitable principles of 
trade and assist with the maintenance of fair and orderly markets 
because an order may never be posted for lower than its MPV and the 
alternative to holding the order at the MPV would be to cancel it.\36\ 
The Exchange believes the proposed clarification of how such orders are 
handled provides the collared order an opportunity for an execution 
(rather than being cancelled) and adds transparency and internal 
consistency to Exchange rules.\37\
---------------------------------------------------------------------------

    \35\ See id.
    \36\ See id.
    \37\ See id.
---------------------------------------------------------------------------

    The Commission notes that the Exchange believes that the Zero NBBO 
Collar Exception would improve the operation of the Trading Collar when 
the prevailing market is zero (which the Exchange states indicates 
market dislocation) at the time an incoming market order arrives.\38\ 
The Exchange states that absent the proposed Zero NBBO Collar 
Exception, a market order to buy (sell) that arrives when the NBB (NBO) 
is zero would trade based on the last sale price, if any.\39\ The 
Exchange notes that if there is no last sale price, the order would 
trade at the contra-side NBBO which may result in a bad execution 
price.\40\ In regards to the proposal to reject (as opposed to collar) 
incoming sell orders when the NBO is zero, the Exchange believes this 
change in functionality is necessary because any attempt to collar such 
an order would result in a negative number. In addition, the Exchange 
states that it has observed that it is extremely uncommon to have a no 
(zero) offer situation and believes it could be indicative of unstable 
market conditions.\41\ To avoid such orders receiving bad executions in 
times of market dislocation, the Exchange believes it would be 
appropriate to reject such orders.\42\
---------------------------------------------------------------------------

    \38\ See id.
    \39\ See id.
    \40\ See id.
    \41\ See id.
    \42\ See id.
---------------------------------------------------------------------------

    The Exchange also believes that it is appropriate that the Exchange 
cancel a market order that is collared when an NMS stock enters an LULD 
state because when the underlying NMS stock enters an LULD state, there 
may not be a reliable underlying reference price, there may be a wide 
bid/ask quotation differential in the option, and there may be less 
liquidity in the options markets.\43\ According to the Exchange, 
allowing a collared Market Order to execute (as opposed to cancel) in 
such circumstances could lead to executions at unintended prices (i.e., 
inferior to the NBBO), and could add to volatility in the options 
markets during times of extraordinary market volatility.\44\ The 
Exchange believes that this current treatment of collared market orders 
provides certainty to the treatment of Market Orders during these 
times, and the proposal to explicitly state this treatment in the rule 
text adds clarity and transparency to Exchange rules, thus promoting 
just and equitable principles of trade and removing impediments to, and 
perfecting the mechanism of, a free and open market and a national 
market system.\45\ The Exchange states that the proposed cancellation 
of an options order if the underlying NMS security is in an LULD state 
is not new or novel and is available on other options exchanges that 
offer similar collar functionality.\46\ The Exchange believes that the 
proposed rule changes would add transparency and specificity to 
Exchange rules.\47\
---------------------------------------------------------------------------

    \43\ See id. at 46067-8.
    \44\ See id. at 46068.
    \45\ See id.
    \46\ The Exchange cites CBOE Rule 6.3A(b)(1) (LULD rule citing 
Rule 6.2 regarding order handling); CBOE Rule 6.2, Interpretations 
and Policies .07 and NASDAQ Options Market Ch. V, Sec. 3(d). 
However, the Exchange notes that it believes that the rules of these 
other exchanges do not specifically contemplate the underlying 
security entering an LULD state while a market order is resting on 
the book, because such orders typically execute on arrival. See 
Notice, supra note 4, at 46068.
    \47\ See id.
---------------------------------------------------------------------------

    The Commission believes that the operation of the Trade Collar 
Protection mechanism set forth in the proposal is consistent with the 
Act. In addition, the Commission believes that the revised description 
of this mechanism should increase transparency with respect to how the 
mechanism operates and enhance investors' understanding of how the 
mechanism may affect their orders in certain market conditions. 
Accordingly, the Commission believes that the proposal is reasonably 
designed to help prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\48\ that the proposed rule change (SR-NYSEAMER-2019-30) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
---------------------------------------------------------------------------

    \49\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22944 Filed 10-21-19; 8:45 am]
BILLING CODE 8011-01-P
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