Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change To Amend Rule 970NY and Rule 970.1NY To Eliminate the Use of Dark Series on the Exchange, 8659-8662 [2021-02465]

Download as PDF Federal Register / Vol. 86, No. 24 / Monday, February 8, 2021 / Notices trigger the identification requirements of the rule. The respondents to the collection of information required by Rule 13h–1 and Form 13H are large traders and registered broker-dealers. The Commission estimates that the total annual time burden associated with Rule 13h–1 and Form 13H is approximately 185,200 hours per year. This burden is comprised of 23,500 hours for initial filings by large traders on Form 13H, 58,500 hours for updates by large traders, 96,000 hours for brokerdealer reporting, and 7,200 hours for broker-dealer monitoring. Compliance with Rule 13h–1 is mandatory. The information collection under proposed Rule 13h–1 is considered confidential subject to the limited exceptions provided by the Freedom of Information Act.4 Written comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s estimates of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549, or send an email to: PRA_ Mailbox@sec.gov. jbell on DSKJLSW7X2PROD with NOTICES Dated: February 3, 2021. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–02505 Filed 2–5–21; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–91039; File No. SR– NYSEAMER–2021–05] Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change To Amend Rule 970NY and Rule 970.1NY To Eliminate the Use of Dark Series on the Exchange February 2, 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 American LLC (‘‘NYSE American’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 970NY (Firm Quotes) and Rule 970.1NY (Quote Mitigation) to eliminate the use of dark series on the Exchange. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 4 See 5 U.S.C. 552 and 15 U.S.C. 78m(h)(7). VerDate Sep<11>2014 20:48 Feb 05, 2021 Jkt 253001 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 8659 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 970NY (Firm Quotes). In addition, the Exchange proposes to delete Rule 970.1NY (Quote Mitigation) in its entirety. Rule 970NY 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 Rule 970.1NY, 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 Rule 970.1NY, the Exchange still accepts quotes from ATP Holders in these series; however, such quotes are not disseminated to OPRA. The Exchange proposes to modify Rule 970NY and to delete Rule 970.1NY to eliminate the use of ‘‘dark’’ series. By way of background, Rules 970NY and 970.1NY were adopted over a decade ago in conformance with the NYSE Arca Rule 6.86–O in connection with the Penny Pilot Program, which has since been made permanent.6 In 2007, when NYSE Arca Rule 6.86–O was adopted, there were five options exchanges and an industry-wide concern about ‘‘capacity issues related 4 See Rule 970.10NY. series may be considered ‘‘active’’ on an intraday basis if: (i) the series trades at any options exchange; (ii) the Exchange receives an order in the series; or (iii) the Exchange receives a request for quote from a Customer in that series.’’ See Rule 970.1NY. 6 See Securities Exchange Act Release Nos. 59142 (December 22, 2008), 73 FR 80494, 80501 (December 31, 2008) (notice citing fact that Rules 970NY and 970.1NY copy the NYSE Arca quote mitigation rule); 59472 (February 29, 2009), 74 FR 9843 (March 6, 2009) (order approving adoption of Rules 970NY and 970.1NY) See also Securities Exchange Act Release Nos. 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); 55162 (January 24, 2007), 72 FR 4738 (February 1, 2007) (SR–Amex–2006–106) (approval of Penny Pilot Program and original quote mitigation strategy). 5A E:\FR\FM\08FEN1.SGM 08FEN1 8660 Federal Register / Vol. 86, No. 24 / Monday, February 8, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES 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 Rule 970.1NY, 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. 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 7 See Securities Exchange Act Release No. 54590 (October 12, 2006), 71 FR 61525, 61527 (October 18, 2006) (SR–NYSEArca–2006–73) (notice regarding adoption of NYSE Arca Rule) (‘‘Arca Notice’’). 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/5ba40927ac 854d8c97bc92d7/5bf419b52de21fff3e88107f_ 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. VerDate Sep<11>2014 20:48 Feb 05, 2021 Jkt 253001 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 Rule 970.1NY, 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 903A.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 903A ‘‘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 9 See Securities Exchange Act Release No. 61978 (April 23, 2010), 75 FR 22886 (April 30, 2010) (SR– NYSEAmex–2010–3). See also OLPP, available at, https://www.theocc.com/clearing/industry-services/ olpp.jsp. 10 Rule 903A 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 903A. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 provisions, subsequently incorporated in Rule 903A, 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 925.1NY, which states that Specialists’ 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 925.1NY, 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 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 970NY to delete references to the ‘‘Quote Mitigation 11 Id., 74 FR at 43174. NYSE Arca 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 7, Arca 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. 65572 (October 14, 2011), 76 FR 65310 (October 20, 2011) (NYSEAmex–2011–61). See also Commentary .01 to Rule 925.1NY. 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 925.1NY. 15 See supra note 13, 76 FR at 65311. 12 When E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 86, No. 24 / Monday, February 8, 2021 / Notices Plan,’’ which refer to the plan set forth in Rule 970.1NY. In addition, the Exchange proposes to delete Rule 970.1NY in its entirety. jbell on DSKJLSW7X2PROD with NOTICES 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 Rule 970.1NY (and references to quote mitigation in Rule 970NY) 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 elimination of Rule 970.1NY 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. 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 16 15 17 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 20:48 Feb 05, 2021 Jkt 253001 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 the NYSE Arca rule that the Exchange copied—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 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 8661 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 American’s quotes would now be visible and included in the calculation of the NBBO. Including all NYSE American quotes in the NBBO (including those in dark series), an options participant will know if an order should be sent to NYSE American to get the best price. Market Makers that use a strategy to ‘‘match’’ the NBBO will now need to factor NYSE American 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 E:\FR\FM\08FEN1.SGM 08FEN1 8662 Federal Register / Vol. 86, No. 24 / Monday, February 8, 2021 / Notices (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– NYSEAMER–2021–05 on the subject line. jbell on DSKJLSW7X2PROD with NOTICES Paper Comments • Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEAMER–2021–05. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEAMER–2021–05 and should be submitted on or before March 1, 2021. VerDate Sep<11>2014 20:48 Feb 05, 2021 Jkt 253001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–02465 Filed 2–5–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting; Cancellation FEDERAL REGISTER CITATION OF PREVIOUS ANNOUNCEMENT: 86 FR 7759, February 1, 2021. PREVIOUSLY ANNOUNCED TIME AND DATE OF THE MEETING: Thursday, February 4, 2021 at 2:00 p.m. The Closed Meeting scheduled for Thursday, February 4, 2021 at 2:00 p.m., has been cancelled. CHANGES IN THE MEETING: CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Dated: February 4, 2021. Vanessa A. Countryman, Secretary. [FR Doc. 2021–02692 Filed 2–4–21; 4:15 pm] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–91044; File No. SR– NYSEARCA–2021–07] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend the NYSE Arca Equities Fees and Charges and the NYSE Arca Options Fees and Charges Related to Co-Location Services February 2, 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 19, 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 18 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 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the NYSE Arca Equities Fees and Charges and the NYSE Arca Options Fees and Charges (together, the ‘‘Fee Schedules’’) related to co-location services to add two Partial Cabinet Solution bundles. 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 Exchange proposes to amend its Fee Schedules related to co-location 4 services to add two Partial Cabinet Solution (‘‘PCS’’) bundles that would be offered to Users.5 4 The Exchange initially filed rule changes relating to its co-location services with the Securities and Exchange Commission (‘‘Commission’’) in 2010. See Securities Exchange Act Release No. 63275 (November 8, 2010), 75 FR 70048 (November 16, 2010) (SR–NYSEArca–2010– 100). 5 For purposes of the Exchange’s co-location services, a ‘‘User’’ means any market participant that requests to receive co-location services directly from the Exchange. See Securities Exchange Act Release No. 76010 (September 29, 2015), 80 FR 60197 (October 5, 2015) (SR–NYSEArca–2015–82). As specified in the Fee Schedules, a User that incurs co-location fees for a particular co-location service pursuant thereto would not be subject to colocation fees for the same co-location service charged by the Exchange’s affiliates New York Stock Exchange LLC, NYSE American LLC, NYSE Chicago, Inc., and NYSE National, Inc. (together, the ‘‘Affiliate SROs’’). See Securities Exchange Act Release No. 70173 (August 13, 2013), 78 FR 50459 (August 19, 2013) (SR–NYSEArca–2013–80). Each Affiliate SRO has submitted substantially the same proposed rule change to propose the changes described herein. See SR–NYSE–2021–05, SR– NYSEAMER–2021–04, SR–NYSECHX–2021–01, and SR–NYSENAT–2021–01. E:\FR\FM\08FEN1.SGM 08FEN1

Agencies

[Federal Register Volume 86, Number 24 (Monday, February 8, 2021)]
[Notices]
[Pages 8659-8662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02465]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91039; File No. SR-NYSEAMER-2021-05]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed Rule Change To Amend Rule 970NY and Rule 970.1NY To 
Eliminate the Use of Dark Series on the Exchange

February 2, 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 American LLC (``NYSE American'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
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.
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    \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 970NY (Firm Quotes) and Rule 
970.1NY (Quote Mitigation) to eliminate the use of dark series on the 
Exchange. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this rule change is to eliminate the exclusion of 
inactive or ``dark'' series (as described below) from the requirements 
of Rule 970NY (Firm Quotes). In addition, the Exchange proposes to 
delete Rule 970.1NY (Quote Mitigation) in its entirety.
    Rule 970NY 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 Rule 970.1NY, 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 Rule 970.1NY, 
the Exchange still accepts quotes from ATP Holders in these series; 
however, such quotes are not disseminated to OPRA. The Exchange 
proposes to modify Rule 970NY and to delete Rule 970.1NY to eliminate 
the use of ``dark'' series.
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    \4\ See Rule 970.10NY.
    \5\ A series may be considered ``active'' on an intraday basis 
if: (i) the series trades at any options exchange; (ii) the Exchange 
receives an order in the series; or (iii) the Exchange receives a 
request for quote from a Customer in that series.'' See Rule 
970.1NY.
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    By way of background, Rules 970NY and 970.1NY were adopted over a 
decade ago in conformance with the NYSE Arca Rule 6.86-O in connection 
with the Penny Pilot Program, which has since been made permanent.\6\ 
In 2007, when NYSE Arca Rule 6.86-O was adopted, there were five 
options exchanges and an industry-wide concern about ``capacity issues 
related

[[Page 8660]]

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 Nos. 59142 (December 22, 
2008), 73 FR 80494, 80501 (December 31, 2008) (notice citing fact 
that Rules 970NY and 970.1NY copy the NYSE Arca quote mitigation 
rule); 59472 (February 29, 2009), 74 FR 9843 (March 6, 2009) (order 
approving adoption of Rules 970NY and 970.1NY) See also Securities 
Exchange Act Release Nos. 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); 55162 
(January 24, 2007), 72 FR 4738 (February 1, 2007) (SR-Amex-2006-106) 
(approval of Penny Pilot Program and original quote mitigation 
strategy).
    \7\ See Securities Exchange Act Release No. 54590 (October 12, 
2006), 71 FR 61525, 61527 (October 18, 2006) (SR-NYSEArca-2006-73) 
(notice regarding adoption of NYSE Arca Rule) (``Arca Notice''). 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 Rule 970.1NY, 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. 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 Rule 970.1NY, 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 903A.\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 903A ``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 
903A, 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\
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    \9\ See Securities Exchange Act Release No. 61978 (April 23, 
2010), 75 FR 22886 (April 30, 2010) (SR-NYSEAmex-2010-3). See also 
OLPP, available at, https://www.theocc.com/clearing/industry-services/olpp.jsp.
    \10\ Rule 903A 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 903A.
    \11\ Id., 74 FR at 43174.
    \12\ When NYSE Arca 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 7, Arca 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 925.1NY, which states that Specialists' 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 925.1NY, 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\
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    \13\ See Securities Exchange Act Release No. 65572 (October 14, 
2011), 76 FR 65310 (October 20, 2011) (NYSEAmex-2011-61). See also 
Commentary .01 to Rule 925.1NY.
    \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 925.1NY.
    \15\ See supra note 13, 76 FR at 65311.

    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 970NY to delete references to the 
``Quote Mitigation

[[Page 8661]]

Plan,'' which refer to the plan set forth in Rule 970.1NY. In addition, 
the Exchange proposes to delete Rule 970.1NY in its entirety.
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 Rule 970.1NY 
(and references to quote mitigation in Rule 970NY) 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 
elimination of Rule 970.1NY 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.
    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 the NYSE Arca rule 
that the Exchange copied--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 
American's quotes would now be visible and included in the calculation 
of the NBBO. Including all NYSE American quotes in the NBBO (including 
those in dark series), an options participant will know if an order 
should be sent to NYSE American to get the best price. Market Makers 
that use a strategy to ``match'' the NBBO will now need to factor NYSE 
American 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

[[Page 8662]]

    (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-NYSEAMER-2021-05 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAMER-2021-05. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEAMER-2021-05 and should be submitted 
on or before March 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02465 Filed 2-5-21; 8:45 am]
BILLING CODE 8011-01-P
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