Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend Rule 6.86-O To Eliminate the Use of Dark Series on the Exchange, 8416-8419 [2021-02410]

Download as PDF 8416 Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Notices 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–2021–008, and should be submitted on or before February 26, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–02396 Filed 2–4–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–91038; File No. SR– NYSEArca–2021–09] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend Rule 6.86–O To Eliminate the Use of Dark Series on the Exchange February 1, 2021. 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 January 26, 2021, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) 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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. jbell on DSKJLSW7X2PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 6.86–O (Firm Quotes) to eliminate the use of dark series on the Exchange. The proposed change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 16 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:53 Feb 04, 2021 Jkt 253001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this rule change is to eliminate the exclusion of inactive or ‘‘dark’’ series (as described below) from the requirements of Rule 6.86–O (Firm Quotes) and to delete in its entirety Commentary .03 to Rule 6.86–O in its entirety. Rule 6.86–O describes the obligations of the Exchange to collect, process and make available to quotation vendors the best bid and best offer for each option series that is a reported security.4 However, under Commentary .03 to Rule 6.86–O, the only quote messages that the Exchange sends to Options Price Reporting Authority (‘‘OPRA’’) are quotes for ‘‘active’’ series, which are defined as any series that: (i) Has traded on any options exchange in the previous 14 calendar days; (ii) is solely listed on the Exchange; (iii) has been trading ten days or less; or (iv) is a series in which the Exchange has an order.5 Any options series that falls outside of the above categories of ‘‘active’’ series are deemed inactive or ‘‘dark’’ series. As such, under the Rule, the Exchange still accepts quotes from OTP Holders in these series; however, such quotes are not disseminated to OPRA. The Exchange proposes to modify Rule 6.86– O and to delete Commentary. 03 to Rule 6.86–O to eliminate the use of ‘‘dark’’ series. By way of background, Commentary .03 to Rule 6.86 was adopted over a decade ago in connection with the 4 See Rule 6.86–O. See also Securities Exchange Act Release No. 55156 (January 23, 2007), 72 FR 4759 (February 21, 2007) (SR–NYSEArca–2006–73) (order approving the Rule). 5 A series may be considered ‘‘active’’ on an intraday basis if: (i) The series trades at any options exchange; (ii) NYSE Arca receives an order in the series; or (iii) NYSE Arca receives a request for quote from a customer in that series.’’ See Commentary .03 to Rule 6.86–O. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 Penny Pilot Program, which has since been made permanent.6 At that time, there were five options exchanges and an industry-wide concern about ‘‘capacity issues related to excessive quoting rates.’’ 7 However, since that time, 11 new exchanges launched, resulting in a total 16 options exchanges. With the increase in the number of exchanges, and associated quote traffic, OPRA capacity has been increased without issue. As discussed further below, the Exchange believes that OPRA has the capacity to accommodate any increase in quote traffic from the Exchange arising from the publication of quotes in ‘‘dark series.’’ As an OPRA participant, the Exchange makes capacity requests to OPRA. Notwithstanding Commentary .03 to Rule 6.86–O, when the Exchange makes capacity requests to OPRA, it has always factored the total quote traffic it receives from Market Makers, including quotes in dark series.8 In other words, the Exchange presumes that all series will be active and therefore requests capacity to accommodate sending quotes for all series to OPRA. As such, the Exchange does not believe the proposed rule change would impact or change its capacity requests to OPRA. Nor would it change the total amount of capacity needed at OPRA to accommodate quotes in dark series from the Exchange because those series have already been factored into the Exchange’s capacity requests to OPRA. 6 See Securities Exchange Act Release No. 54590 (October 12, 2006), 71 FR 61525 (October 18, 2006) (SR–NYSEArca-2006–73) (notice regarding proposed adoption of the Rule) (‘‘Notice’’). See also Securities Exchange Act Release No. 88532 (April 1, 2020), 85 FR 19545 (April 7, 2020) (File No. 4– 443) (order approving Amendment No. 5 to the Plan for the Purpose of Developing and Implementing Procedures to Facilitate the Listing and Trading of Standardized Options). 7 See id., Notice, 71 FR at 61527. For example, in 2006–2007, OPRA had the capacity to process 360,000 message per second and, at its peak message rate, the Exchange accounted for 15% of OPRA capacity, sending 55, 248 message per second for active series. 8 OPRA has delegated certain functions pertaining to planning the capacity of the OPRA System to an Independent System Capacity Advisor (‘‘ISCA’’) that ‘‘may provide less than all of the capacity that has been requested if it determines (a) that the capacity requests of one or more of the parties are unreasonable, or (b) that it is not reasonable to develop or maintain a System that has capacity sufficient to satisfy the requests of the parties.’’ See the OPRA Capacity Guidelines, at p. 1, available here, https://assets.website-files.com/ 5ba40927ac854d8c97bc92d7/ 5bf419b52de21fff3e88107f_capacity_guidelines.pdf. The Exchange has never been informed by the ISCA that the capacity it has requested cannot be met for any reason, including because the ISCA had deemed the request to be unreasonable. Thus, the Exchange believes that any increase in quote traffic that might be sent to OPRA as a result of the current proposal should not impact any other exchange’s capacity at OPRA. E:\FR\FM\05FEN1.SGM 05FEN1 Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Notices Similarly, because OPRA publishes quote capacity information to the market (which already incorporates capacity planning that includes quotes in dark series that would be disseminated to OPRA), market participants (including data vendors and subscribers) have the opportunity to prepare for and make any necessary accommodations for anticipated quote traffic. Accordingly, the elimination of the Exchange’s suppression of quotes in dark series should not impact market participants or downstream users that consume Exchange or OPRA data. Thus, the Exchange believes that this proposal would not impact its capacity requests to OPRA nor would it impact market participants or downstream consumers of OPRA data. The Exchange also believes that the proposed discontinuation of its suppression of quotes in dark series would increase transparency and enhance price discovery. Specifically, as proposed, all Market Maker quotes (including in ‘‘inactive series’’ under the current Rule) would be displayed and reflected in the market to the benefit of all market participants who would be on notice of such liquidity. The Exchange also notes that, over the years, certain market participants have expressed confusion regarding what quotes are being published and which are being suppressed. Therefore, the Exchange believes that the proposal would remove the element of potential confusion among market participants by publishing all quotes (not just those in active series) in the disseminated quote feed. Importantly, since the adoption of Commentary .03 to Rule 6.86–O, the Exchange has implemented the following measures that serve as additional safeguards against excessive quoting: jbell on DSKJLSW7X2PROD with NOTICES Monitoring: The Exchange actively monitors the quotation activity of its Market Makers. When the Exchange detects that a Market Maker is disseminating an unusual number of quotes, the Exchange contacts that Market Maker and alerts it to such activity. Such monitoring may reveal that the Market Maker may have internal system issues or has incorrectly set system parameters that were not immediately apparent. Alerting a Market Maker to the heightened levels of activity will usually result in a change that reduces the number of quotes sent to the Exchange by the Market Maker. —Codification of select provisions of the Options Listing Procedures Plan (‘‘OLPP’’) in Rule 6.4A–O.9 The OLPP is a national market 9 See Securities Exchange Act Release No. 61977 (April 23, 2010), 75 FR 22884 (April 30, 2010) (SR– NYSEArca–2010–30). See also OLPP, available at, https://www.theocc.com/clearing/industry-services/ olpp.jsp. VerDate Sep<11>2014 18:53 Feb 04, 2021 Jkt 253001 system plan that, among other things, sets forth procedures governing the listing of new options series. From the OLPP, the Exchange incorporated in Rule 6.4A–O ‘‘applied uniform standards to the range of options series exercise (or strike) prices available for trading on the [Exchange] as a quote mitigation strategy.’’ 10 In approving the OLPP provisions, subsequently incorporated in Rule 6.4A–O, the Commission indicated that ‘‘adopting uniform standards to the range of options series exercise (or strike) prices available for trading on the [Exchange] should reduce the number of option series available for trading, and thus should reduce increases in the options quote message traffic because market participants will not be submitting quotes in those series.’’ 11 The Exchange believes that adherence to the OLPP standard for strike listings has contributed to the decline of the number of strikes listed, which has in turn, reduced the amount of quotes in ‘‘dark series.’’ that were held back from OPRA.12 —Refined Market Maker Quoting Obligations: One year after adopting select provisions of the OLPP, the Exchange refined the quoting obligations applicable to Market Makers as a quote mitigation strategy.13 Specifically, the Exchange adopted Commentary .01 to Rule 6.37A–O, which states that Lead Market Makers’ and Market Makers’ continuous quoting obligations ‘‘shall not apply to Market Makers with respect to adjusted option series, and series with a time to expiration of nine months or greater, for options on equities and Exchange Traded Fund Shares, and series with a time to expiration of twelve months or greater for Index options.’’ 14 Because there are no Market Maker quoting obligations associated with adjusted options series, there is a reduction in quote traffic that is sent to OPRA. Indeed, in approving the text of Commentary .01 to Rule 6.37A–O, the Commission noted, ‘‘. . . the Exchange’s proposal would reduce the burden on market makers to submit continuous quotes that the Exchange may not submit to OPRA.’’ 15 10 Rule 6.4A–O codified Amendment No. 3 to the OLPP. See Securities Exchange Act Release No. 60531 (August 19, 2009), 74 FR 43173 (File No. 4– 443). See also Rule 6.4A–O. 11 Id., 74 FR at 43174. 12 When the Exchange adopted its quote mitigation rule, which the Exchange copied, it estimated that deployment of the rule would reduce its quote traffic by 20–30%. See supra note 6, Notice, 71 FR at 61527. In actuality, the rule has resulted in a reduction of approximately 10% of quote message traffic to OPRA. The Exchange believes this disparity was a result of the number of ‘‘inactive’’ series being much lower than anticipated because of increased competition and quoting activity as well as limitations on proliferation of unnecessary strikes, per the OLPP. 13 See Securities Exchange Act Release No. 65573 (October 14, 2011), 76 FR 65305 (October 20, 2011) (SR–NYSEArca–2011–59). 14 An ‘‘adjusted series’’ is ‘‘an option series wherein, as a result of a corporate action by the issuer of the underlying security, one option contract in the series represents the delivery of other than 100 shares of underlying stock or Exchange-Traded Fund Shares.’’ See Commentary .01 to Rule 6.37A–O. 15 See supra note 13, 76 FR at 65306. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 8417 The Exchange believes that these quote mitigation strategies would allow the Exchange to continue to effectively mitigate quote message traffic. In connection with the foregoing, the Exchange proposes to amend paragraphs (b)(1) and (b)(2) of Rule 6.86–O to delete references to the ‘‘Quote Mitigation Plan,’’ and to delete in its entirety Commentary .03 to Rule 6.86–O. Implementation The Exchange will announce the implementation date of the proposed rule change in a Trader Update within 60 days of rule approval. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’),16 in general, and furthers the objectives of Section 6(b)(5) of the Act,17 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. The Exchange believes that the proposed elimination of Commentary .03 to Rule 6.86–O (and references to quote mitigation in Rule 6.86–O) would promote just and equitable principles of trade, as well as serve to remove impediments to and perfect the mechanism of a free and open market because the Exchange’s systems capacity is more than sufficient to accommodate any increase in quote traffic to OPRA as a result of the proposed rule change. First, the Exchange believes that the proposed rule change would promote just and equitable principles of trade, as well as serve to remove impediments to and perfect the mechanism of a free and open market because the proposed change would increase transparency and enhance price discovery. Specifically, as proposed, all Market Maker quotes (including those in ‘‘inactive series’’ under the current Rule) would be displayed and reflected in the market to the benefit of all market participants who would be on notice of such liquidity. The Exchange also believes that the proposal would remove the element of potential confusion among market participants by publishing all quotes (not just those in active series) in the disseminated quote feed. 16 15 17 15 E:\FR\FM\05FEN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 05FEN1 jbell on DSKJLSW7X2PROD with NOTICES 8418 Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Notices In addition, the proposed change would promote just and equitable principles of trade, as well as serve to remove impediments to and perfect the mechanism of a free and open market because the Exchange’s capacity requests already presume that all series are active. Hence, the Exchange believes that the existing capacity planning at OPRA already factors in quotes in dark series being lit and therefore does not believe that the elimination of this rule (and any resulting increase in quote traffic) would have a negative impact on capacity. The Exchange further believes that the existing quote mitigation strategies (i.e., monitoring of quoting activity, codification of the OLPP, and refined Market Maker quoting obligations) employed by the Exchange serve to reduce the potential for excessive quoting and therefore reduce quote traffic. Importantly, the circumstances giving rise to Commentary .03 to Rule 6.86– O—industry-wide concern about ‘‘capacity issues related to excessive quoting rates’’—has subsided given that OPRA capacity has increased exponentially over the last decade coincident with the influx of new options exchanges. In addition, the proposed increase in quote traffic as a result of this proposal is minimal and therefore unlikely to adversely impact the flow of message traffic and/or harm downstream consumers of OPRA data. As noted above, the increase in quotes message traffic in dark series is already considered in the Exchange’s capacity requests to OPRA and already published to downstream users of OPRA data. As such, the Exchange believes the proposed change would not impede the protection of investors and the public interest. Thus, the Exchange believes there is sufficient capacity at OPRA to accommodate any additional quote traffic that will result from elimination of dark series. The Exchange therefore believes that its proposal will not impact the protection of investors and the public interest. Finally, as discussed above, the Exchange does not anticipate that its proposal would negatively impact systems capacity. However, to the extent it does, the Exchange has analyzed its capacity and represents that it and the OPRA have the necessary systems capacity to handle any incremental additional traffic associated with this proposed rule change. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose VerDate Sep<11>2014 18:53 Feb 04, 2021 Jkt 253001 any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Specifically, as discussed above, the Exchange believes that any increase in quote traffic that might be sent to OPRA as a result of the proposed rule change would be minimal and should not impact any other exchange’s capacity at OPRA. The Exchange likewise believes that there would be no adverse impact on any downstream consumers of OPRA data given that any increase in quote traffic would be minimal and has already been included in the Exchange’s capacity planning requests to OPRA. Intramarket Competition. The elimination of ‘‘dark series’’ would increase intra market competition and improve quote quality, because prices and sizes of all Exchange quotations would be sent to OPRA to be published and updated. At present, Market Makers cannot ‘‘see’’ the internal best bid and offer in a dark series, nor can they improve upon the displayed market to establish price/time priority. This proposal to publish the quotes in inactive series will enhance intramarket competition because Market Makers will be able to submit more competitive quotes. Intermarket Competition. For reasons similar to those described in the Intramarket Competition section, eliminating the use of dark series and publishing to OPRA the Exchange’s previously unpublished quotes on such series would increase competition between markets, because NYSE Arca’s quotes would now be visible and included in the calculation of the NBBO. Including all of NYSE Arca’s quotes in the NBBO (including those in dark series), an options participant will know if an order should be sent to NYSE Arca to get the best price. Market Makers that use a strategy to ‘‘match’’ the NBBO will now need to factor NYSE Arca quotes into their calculations. 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 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 organization consents, the Commission will: (A) by order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2021–09 on the subject line. Paper Comments • Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2021–09. 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–2021–09 and E:\FR\FM\05FEN1.SGM 05FEN1 Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Notices should be submitted on or before February 26, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–02410 Filed 2–4–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 34184; 812–15166] The Advisors’ Inner Circle Fund and Pathstone Family Office, LLC; Notice of Application February 1, 2021. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice. jbell on DSKJLSW7X2PROD with NOTICES AGENCY: Notice of an application under section 6(c) of the Investment Company Act of 1940 (‘‘Act’’) for an exemption from section 15(a) of the Act and rule 18f–2 under the Act, as well as from certain disclosure requirements in rule 20a–1 under the Act, Item 19(a)(3) of Form N– 1A, Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A under the Securities Exchange Act of 1934, and sections 6–07(2)(a), (b), and (c) of Regulation S–X (‘‘Disclosure Requirements’’). The requested exemption would permit an investment adviser to hire and replace certain subadvisers without shareholder approval and grant relief from the Disclosure Requirements as they relate to fees paid to the sub-advisers. APPLICANTS: The Advisors’ Inner Circle Fund (the ‘‘Trust’’), a Massachusetts business trust registered under the Act as an open-end management investment company that offers the Cornerstone Advisors Core Plus Bond Fund and the Cornerstone Advisors Global Public Equity Fund (the ‘‘Existing Funds’’), and Pathstone Family Office, LLC (the ‘‘Adviser’’), a Delaware limited liability company that is registered as an investment adviser under the Investment Advisers Act of 1940 (collectively with the Trust, the ‘‘Applicants’’). FILING DATES: The application was filed on September 29, 2020, and amended on January 15, 2021. HEARING OR NOTIFICATION OF HEARING: An order granting the application will 18 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:53 Feb 04, 2021 Jkt 253001 be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on February 25, 2021, and should be accompanied by proof of service on the applicants, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0–5 under the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: The Commission: Secretarys-Office@sec.gov. Applicants: the Trust, mbeattie@seic.com, and the Adviser, lwilmott@pathstone.com (with a copy to sean.graber@ morganlewis.com). FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior Counsel, at (202) 551–6879, or Lisa Reid Ragen, Branch Chief, at (202) 551–6825 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s website by searching for the file number, or an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Summary of the Application 1. The Adviser will serve as the investment adviser to each Sub-Advised Fund pursuant to an investment advisory agreement with the Trust (the ‘‘Investment Management Agreement’’).1 Under the terms of each Investment Management Agreement, the Adviser, subject to the supervision of the board of trustees of the Trust (the ‘‘Board’’) will provide continuous investment management of the assets of each Sub-Advised Fund. Consistent 1 Applicants request relief with respect to the named Applicants, including the Existing Funds, as well as to any future series of the Trust and any other registered open-end management investment company or series thereof that: (a) Is advised by the Adviser or any entity controlling, controlled by or under common control with the Adviser or its successors (each, an ‘‘Adviser’’); (b) uses the multimanager structure described in the application; and (c) complies with the terms and conditions set forth in the application (each, a ‘‘Sub-Advised Fund’’). For purposes of the requested order, ‘‘successor’’ is limited to an entity that results from a reorganization into another jurisdiction or a change in the type of business organization. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 8419 with the terms of each Investment Management Agreement, the Adviser may, subject to the approval of the Board, delegate portfolio management responsibilities of all or a portion of the assets of a Sub-Advised Fund to one or more Sub-Advisers.2 The Adviser will continue to have overall responsibility for the management and investment of the assets of each Sub-Advised Fund. The Adviser will evaluate, select and recommend Sub-Advisers to manage the assets of a Sub-Advised Fund and will oversee, monitor, and review the SubAdvisers and their performance and recommend the removal or replacement of Sub-Advisers. 2. Applicants request an order to permit the Adviser, subject to Board approval, to enter into investment subadvisory agreements with the SubAdvisers (each, a ‘‘Sub-Advisory Agreement’’) and materially amend such Sub-Advisory Agreements without obtaining the shareholder approval required under section 15(a) of the Act and rule 18f–2 under the Act.3 Applicants also seek an exemption from the Disclosure Requirements to permit a Sub-Advised Fund to disclose (as both a dollar amount and a percentage of the Sub-Advised Fund’s net assets): (a) The aggregate fees paid to the Adviser and any Wholly-Owned Sub-Adviser; (b) the aggregate fees paid to Non-Affiliated Sub-Advisers; and (c) the fee paid to each Affiliated Sub-Adviser (collectively, ‘‘Aggregate Fee Disclosure’’). 3. Applicants agree that any order granting the requested relief will be subject to the terms and conditions stated in the application. Such terms and conditions provide for, among other safeguards, appropriate disclosure to Sub-Advised Fund shareholders and 2 A ‘‘Sub-Adviser’’ for a Sub-Advised Fund is (1) an indirect or direct ‘‘wholly-owned subsidiary’’ (as such term is defined in the Act) of the Adviser for that Sub-Advised Fund, or (2) a sister company of the Adviser for that Sub-Advised Fund that is an indirect or direct ‘‘wholly-owned subsidiary’’ of the same company that, indirectly or directly, wholly owns the Adviser (each of (1) and (2) a ‘‘WhollyOwned Sub-Adviser’’ and collectively, the ‘‘Wholly-Owned Sub-Advisers’’), or (3) not an ‘‘affiliated person’’ (as such term is defined in section 2(a)(3) of the Act) of the Sub-Advised Fund, the Trust, or the Adviser, except to the extent that an affiliation arises solely because the Sub-Adviser serves as a sub-adviser to a Sub-Advised Fund or as an investment adviser or sub-adviser to any series of the Trust other than the Sub-Advised Funds (‘‘Non-Affiliated Sub-Adviser’’). 3 The requested relief will not extend to any subadviser, other than a Wholly-Owned Sub-Adviser, who is an affiliated person, as defined in section 2(a)(3) of the Act, of the Sub-Advised Fund or of the Adviser, other than by reason of serving as a sub-adviser to one or more of the Sub-Advised Funds or as an investment adviser or sub-adviser to any series of the Trust other than the Sub-Advised Funds (‘‘Affiliated Sub-Adviser’’). E:\FR\FM\05FEN1.SGM 05FEN1

Agencies

[Federal Register Volume 86, Number 23 (Friday, February 5, 2021)]
[Notices]
[Pages 8416-8419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02410]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91038; File No. SR-NYSEArca-2021-09]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Amend Rule 6.86-O To Eliminate the Use of 
Dark Series on the Exchange

February 1, 2021.
    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 January 26, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') 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 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.86-O (Firm Quotes) to 
eliminate the use of dark series on the Exchange. The proposed change 
is available on the Exchange's website at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule change is to eliminate the exclusion of 
inactive or ``dark'' series (as described below) from the requirements 
of Rule 6.86-O (Firm Quotes) and to delete in its entirety Commentary 
.03 to Rule 6.86-O in its entirety.
    Rule 6.86-O describes the obligations of the Exchange to collect, 
process and make available to quotation vendors the best bid and best 
offer for each option series that is a reported security.\4\ However, 
under Commentary .03 to Rule 6.86-O, the only quote messages that the 
Exchange sends to Options Price Reporting Authority (``OPRA'') are 
quotes for ``active'' series, which are defined as any series that: (i) 
Has traded on any options exchange in the previous 14 calendar days; 
(ii) is solely listed on the Exchange; (iii) has been trading ten days 
or less; or (iv) is a series in which the Exchange has an order.\5\ Any 
options series that falls outside of the above categories of ``active'' 
series are deemed inactive or ``dark'' series. As such, under the Rule, 
the Exchange still accepts quotes from OTP Holders in these series; 
however, such quotes are not disseminated to OPRA. The Exchange 
proposes to modify Rule 6.86-O and to delete Commentary. 03 to Rule 
6.86-O to eliminate the use of ``dark'' series.
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    \4\ See Rule 6.86-O. See also Securities Exchange Act Release 
No. 55156 (January 23, 2007), 72 FR 4759 (February 21, 2007) (SR-
NYSEArca-2006-73) (order approving the Rule).
    \5\ A series may be considered ``active'' on an intraday basis 
if: (i) The series trades at any options exchange; (ii) NYSE Arca 
receives an order in the series; or (iii) NYSE Arca receives a 
request for quote from a customer in that series.'' See Commentary 
.03 to Rule 6.86-O.
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    By way of background, Commentary .03 to Rule 6.86 was adopted over 
a decade ago in connection with the Penny Pilot Program, which has 
since been made permanent.\6\ At that time, there were five options 
exchanges and an industry-wide concern about ``capacity issues related 
to excessive quoting rates.'' \7\ However, since that time, 11 new 
exchanges launched, resulting in a total 16 options exchanges. With the 
increase in the number of exchanges, and associated quote traffic, OPRA 
capacity has been increased without issue.
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    \6\ See Securities Exchange Act Release No. 54590 (October 12, 
2006), 71 FR 61525 (October 18, 2006) (SR-NYSEArca-2006-73) (notice 
regarding proposed adoption of the Rule) (``Notice''). See also 
Securities Exchange Act Release No. 88532 (April 1, 2020), 85 FR 
19545 (April 7, 2020) (File No. 4-443) (order approving Amendment 
No. 5 to the Plan for the Purpose of Developing and Implementing 
Procedures to Facilitate the Listing and Trading of Standardized 
Options).
    \7\ See id., Notice, 71 FR at 61527. For example, in 2006-2007, 
OPRA had the capacity to process 360,000 message per second and, at 
its peak message rate, the Exchange accounted for 15% of OPRA 
capacity, sending 55, 248 message per second for active series.
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    As discussed further below, the Exchange believes that OPRA has the 
capacity to accommodate any increase in quote traffic from the Exchange 
arising from the publication of quotes in ``dark series.'' As an OPRA 
participant, the Exchange makes capacity requests to OPRA. 
Notwithstanding Commentary .03 to Rule 6.86-O, when the Exchange makes 
capacity requests to OPRA, it has always factored the total quote 
traffic it receives from Market Makers, including quotes in dark 
series.\8\ In other words, the Exchange presumes that all series will 
be active and therefore requests capacity to accommodate sending quotes 
for all series to OPRA. As such, the Exchange does not believe the 
proposed rule change would impact or change its capacity requests to 
OPRA. Nor would it change the total amount of capacity needed at OPRA 
to accommodate quotes in dark series from the Exchange because those 
series have already been factored into the Exchange's capacity requests 
to OPRA.

[[Page 8417]]

Similarly, because OPRA publishes quote capacity information to the 
market (which already incorporates capacity planning that includes 
quotes in dark series that would be disseminated to OPRA), market 
participants (including data vendors and subscribers) have the 
opportunity to prepare for and make any necessary accommodations for 
anticipated quote traffic. Accordingly, the elimination of the 
Exchange's suppression of quotes in dark series should not impact 
market participants or downstream users that consume Exchange or OPRA 
data. Thus, the Exchange believes that this proposal would not impact 
its capacity requests to OPRA nor would it impact market participants 
or downstream consumers of OPRA data.
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    \8\ OPRA has delegated certain functions pertaining to planning 
the capacity of the OPRA System to an Independent System Capacity 
Advisor (``ISCA'') that ``may provide less than all of the capacity 
that has been requested if it determines (a) that the capacity 
requests of one or more of the parties are unreasonable, or (b) that 
it is not reasonable to develop or maintain a System that has 
capacity sufficient to satisfy the requests of the parties.'' See 
the OPRA Capacity Guidelines, at p. 1, available here, https://assets.website-files.com/5ba40927ac854d8c97bc92d7/5bf419b52de21fff3e88107f_capacity_guidelines.pdf. The Exchange has 
never been informed by the ISCA that the capacity it has requested 
cannot be met for any reason, including because the ISCA had deemed 
the request to be unreasonable. Thus, the Exchange believes that any 
increase in quote traffic that might be sent to OPRA as a result of 
the current proposal should not impact any other exchange's capacity 
at OPRA.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed discontinuation of its 
suppression of quotes in dark series would increase transparency and 
enhance price discovery. Specifically, as proposed, all Market Maker 
quotes (including in ``inactive series'' under the current Rule) would 
be displayed and reflected in the market to the benefit of all market 
participants who would be on notice of such liquidity. The Exchange 
also notes that, over the years, certain market participants have 
expressed confusion regarding what quotes are being published and which 
are being suppressed. Therefore, the Exchange believes that the 
proposal would remove the element of potential confusion among market 
participants by publishing all quotes (not just those in active series) 
in the disseminated quote feed.
    Importantly, since the adoption of Commentary .03 to Rule 6.86-O, 
the Exchange has implemented the following measures that serve as 
additional safeguards against excessive quoting:

    Monitoring: The Exchange actively monitors the quotation 
activity of its Market Makers. When the Exchange detects that a 
Market Maker is disseminating an unusual number of quotes, the 
Exchange contacts that Market Maker and alerts it to such activity. 
Such monitoring may reveal that the Market Maker may have internal 
system issues or has incorrectly set system parameters that were not 
immediately apparent. Alerting a Market Maker to the heightened 
levels of activity will usually result in a change that reduces the 
number of quotes sent to the Exchange by the Market Maker.

--Codification of select provisions of the Options Listing 
Procedures Plan (``OLPP'') in Rule 6.4A-O.\9\ The OLPP is a national 
market system plan that, among other things, sets forth procedures 
governing the listing of new options series. From the OLPP, the 
Exchange incorporated in Rule 6.4A-O ``applied uniform standards to 
the range of options series exercise (or strike) prices available 
for trading on the [Exchange] as a quote mitigation strategy.'' \10\ 
In approving the OLPP provisions, subsequently incorporated in Rule 
6.4A-O, the Commission indicated that ``adopting uniform standards 
to the range of options series exercise (or strike) prices available 
for trading on the [Exchange] should reduce the number of option 
series available for trading, and thus should reduce increases in 
the options quote message traffic because market participants will 
not be submitting quotes in those series.'' \11\ The Exchange 
believes that adherence to the OLPP standard for strike listings has 
contributed to the decline of the number of strikes listed, which 
has in turn, reduced the amount of quotes in ``dark series.'' that 
were held back from OPRA.\12\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 61977 (April 23, 
2010), 75 FR 22884 (April 30, 2010) (SR-NYSEArca-2010-30). See also 
OLPP, available at, https://www.theocc.com/clearing/industry-services/olpp.jsp.
    \10\ Rule 6.4A-O codified Amendment No. 3 to the OLPP. See 
Securities Exchange Act Release No. 60531 (August 19, 2009), 74 FR 
43173 (File No. 4-443). See also Rule 6.4A-O.
    \11\ Id., 74 FR at 43174.
    \12\ When the Exchange adopted its quote mitigation rule, which 
the Exchange copied, it estimated that deployment of the rule would 
reduce its quote traffic by 20-30%. See supra note 6, Notice, 71 FR 
at 61527. In actuality, the rule has resulted in a reduction of 
approximately 10% of quote message traffic to OPRA. The Exchange 
believes this disparity was a result of the number of ``inactive'' 
series being much lower than anticipated because of increased 
competition and quoting activity as well as limitations on 
proliferation of unnecessary strikes, per the OLPP.
---------------------------------------------------------------------------

--Refined Market Maker Quoting Obligations: One year after adopting 
select provisions of the OLPP, the Exchange refined the quoting 
obligations applicable to Market Makers as a quote mitigation 
strategy.\13\ Specifically, the Exchange adopted Commentary .01 to 
Rule 6.37A-O, which states that Lead Market Makers' and Market 
Makers' continuous quoting obligations ``shall not apply to Market 
Makers with respect to adjusted option series, and series with a 
time to expiration of nine months or greater, for options on 
equities and Exchange Traded Fund Shares, and series with a time to 
expiration of twelve months or greater for Index options.'' \14\ 
Because there are no Market Maker quoting obligations associated 
with adjusted options series, there is a reduction in quote traffic 
that is sent to OPRA. Indeed, in approving the text of Commentary 
.01 to Rule 6.37A-O, the Commission noted, ``. . . the Exchange's 
proposal would reduce the burden on market makers to submit 
continuous quotes that the Exchange may not submit to OPRA.'' \15\
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 65573 (October 14, 
2011), 76 FR 65305 (October 20, 2011) (SR-NYSEArca-2011-59).
    \14\ An ``adjusted series'' is ``an option series wherein, as a 
result of a corporate action by the issuer of the underlying 
security, one option contract in the series represents the delivery 
of other than 100 shares of underlying stock or Exchange-Traded Fund 
Shares.'' See Commentary .01 to Rule 6.37A-O.
    \15\ See supra note 13, 76 FR at 65306.

    The Exchange believes that these quote mitigation strategies would 
allow the Exchange to continue to effectively mitigate quote message 
traffic.
    In connection with the foregoing, the Exchange proposes to amend 
paragraphs (b)(1) and (b)(2) of Rule 6.86-O to delete references to the 
``Quote Mitigation Plan,'' and to delete in its entirety Commentary .03 
to Rule 6.86-O.
Implementation
    The Exchange will announce the implementation date of the proposed 
rule change in a Trader Update within 60 days of rule approval.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\16\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\17\ 
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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed elimination of Commentary 
.03 to Rule 6.86-O (and references to quote mitigation in Rule 6.86-O) 
would promote just and equitable principles of trade, as well as serve 
to remove impediments to and perfect the mechanism of a free and open 
market because the Exchange's systems capacity is more than sufficient 
to accommodate any increase in quote traffic to OPRA as a result of the 
proposed rule change. First, the Exchange believes that the proposed 
rule change would promote just and equitable principles of trade, as 
well as serve to remove impediments to and perfect the mechanism of a 
free and open market because the proposed change would increase 
transparency and enhance price discovery. Specifically, as proposed, 
all Market Maker quotes (including those in ``inactive series'' under 
the current Rule) would be displayed and reflected in the market to the 
benefit of all market participants who would be on notice of such 
liquidity. The Exchange also believes that the proposal would remove 
the element of potential confusion among market participants by 
publishing all quotes (not just those in active series) in the 
disseminated quote feed.

[[Page 8418]]

    In addition, the proposed change would promote just and equitable 
principles of trade, as well as serve to remove impediments to and 
perfect the mechanism of a free and open market because the Exchange's 
capacity requests already presume that all series are active. Hence, 
the Exchange believes that the existing capacity planning at OPRA 
already factors in quotes in dark series being lit and therefore does 
not believe that the elimination of this rule (and any resulting 
increase in quote traffic) would have a negative impact on capacity.
    The Exchange further believes that the existing quote mitigation 
strategies (i.e., monitoring of quoting activity, codification of the 
OLPP, and refined Market Maker quoting obligations) employed by the 
Exchange serve to reduce the potential for excessive quoting and 
therefore reduce quote traffic.
    Importantly, the circumstances giving rise to Commentary .03 to 
Rule 6.86-O--industry-wide concern about ``capacity issues related to 
excessive quoting rates''--has subsided given that OPRA capacity has 
increased exponentially over the last decade coincident with the influx 
of new options exchanges. In addition, the proposed increase in quote 
traffic as a result of this proposal is minimal and therefore unlikely 
to adversely impact the flow of message traffic and/or harm downstream 
consumers of OPRA data. As noted above, the increase in quotes message 
traffic in dark series is already considered in the Exchange's capacity 
requests to OPRA and already published to downstream users of OPRA 
data. As such, the Exchange believes the proposed change would not 
impede the protection of investors and the public interest. Thus, the 
Exchange believes there is sufficient capacity at OPRA to accommodate 
any additional quote traffic that will result from elimination of dark 
series. The Exchange therefore believes that its proposal will not 
impact the protection of investors and the public interest.
    Finally, as discussed above, the Exchange does not anticipate that 
its proposal would negatively impact systems capacity. However, to the 
extent it does, the Exchange has analyzed its capacity and represents 
that it and the OPRA have the necessary systems capacity to handle any 
incremental additional traffic associated with this proposed rule 
change.

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 purposes of the Act. Specifically, as discussed 
above, the Exchange believes that any increase in quote traffic that 
might be sent to OPRA as a result of the proposed rule change would be 
minimal and should not impact any other exchange's capacity at OPRA. 
The Exchange likewise believes that there would be no adverse impact on 
any downstream consumers of OPRA data given that any increase in quote 
traffic would be minimal and has already been included in the 
Exchange's capacity planning requests to OPRA.
    Intramarket Competition. The elimination of ``dark series'' would 
increase intra market competition and improve quote quality, because 
prices and sizes of all Exchange quotations would be sent to OPRA to be 
published and updated. At present, Market Makers cannot ``see'' the 
internal best bid and offer in a dark series, nor can they improve upon 
the displayed market to establish price/time priority. This proposal to 
publish the quotes in inactive series will enhance intramarket 
competition because Market Makers will be able to submit more 
competitive quotes.
    Intermarket Competition. For reasons similar to those described in 
the Intramarket Competition section, eliminating the use of dark series 
and publishing to OPRA the Exchange's previously unpublished quotes on 
such series would increase competition between markets, because NYSE 
Arca's quotes would now be visible and included in the calculation of 
the NBBO. Including all of NYSE Arca's quotes in the NBBO (including 
those in dark series), an options participant will know if an order 
should be sent to NYSE Arca to get the best price. Market Makers that 
use a strategy to ``match'' the NBBO will now need to factor NYSE Arca 
quotes into their calculations.

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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2021-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to: Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number SR-NYSEArca-2021-09. 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-2021-09 and

[[Page 8419]]

should be submitted on or before February 26, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.


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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2021-02410 Filed 2-4-21; 8:45 am]
BILLING CODE 8011-01-P
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