Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Rule 971.2NY Regarding Its Complex Customer Best Execution Auction, 9112-9116 [2021-02777]
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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Notices
provisions in the FINRA By-Laws and
reflected the governance structure set
forth in the FINRA By-Laws those
amendments were consistent with the
Exchange Act.32 Similarly, this proposal
will also further conform the FINRA
Regulation By-Laws with the FINRA ByLaws and will also continue to reflect
the previously approved governance
structure of the NAC. As a result, the
Commission believes that this proposal
will continue to help assure the fair
representation of FINRA members in the
administration of FINRA’s affairs and,
therefore, is consistent with Section
15A(b)(4) of the Act.
The Commission further observes that
the NAC acts on behalf of the FINRA
Board in several important capacities,
including presiding over disciplinary
matters that have been appealed to or
called for review by the NAC and acting
on applications in statutory
disqualification and membership
proceeding.33 Given the NAC’s ability to
perform these actions and prepare
written decisions on behalf of the
FINRA Board, and that these decisions
become FINRA’s final action in the vast
majority of cases,34 the Commission
finds that applying the same grounds for
the removal of a NAC member as those
that apply for the removal of a governor
is consistent with the Act. The proposal
will strengthen the FINRA Board’s
oversight of the NAC and further
support the principles outlined in the
NAC’s Conflict of Interest and Bias
Policy, which include independence,
impartiality, integrity, and
accountability.35 In doing so, the
proposal will help protect investors and
further the public interest by expanding
the scope of the FINRA Board’s
authority to remove NAC members that,
in the Board’s view, may be biased or
have actual or apparent conflicts of
interest or otherwise impede the NAC’s
adjudicatory responsibilities.36
In sum, the Commission finds that the
proposal will continue to help assure
the fair representation of FINRA
members in the administration of
FINRA’s affairs. The Commission also
finds that this proposal will help protect
investors and further the public interest
by supporting fair and impartial
adjudicatory processes for, among other
things, FINRA’s disciplinary matters as
well as statutory disqualification and
membership proceedings.
32 See NASD By-Laws Approval Order, 72 FR at
42188.
33 See supra note 7 and accompanying text.
34 See Notice, 85 FR at 71389.
35 See id. at 71388, n.12. See also supra note 20
and accompanying text.
36 See id. at 71388 (citing Article IV, Section
4.14(a) of the FINRA Regulation By-Laws).
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IV. Conclusion
It is therefore ordered pursuant to
Section 19(b)(2) of the Exchange Act 37
that the proposal (SR–FINRA–2020–
037) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–02779 Filed 2–10–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91068; File No. SR–
NYSEAMER–2021–06]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Modify Rule 971.2NY
Regarding Its Complex Customer Best
Execution Auction
February 5, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on January
27, 2021, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify
Rule 971.2NY regarding its Complex
Customer Best Execution (‘‘CUBE’’)
auction to provide optional all-or-none
functionality for larger-sized orders and
to make conforming changes to Rule
971.1NY to clarify existing functionality
of the Single-Leg AON CUBE
functionality. 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.
37 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
38 17
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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 expand its
electronic crossing mechanism—the
CUBE Auction, to provide optional allor-none (‘‘AON’’) 4 functionality for ATP
Holders to execute larger-sized orders
(i.e., at least 500 contracts on the
smallest leg) in the Complex CUBE
Auction and to make conforming
changes to Rule 971.1NY to clarify
existing functionality of the Single-Leg
AON CUBE functionality.5
The proposed rule change would be
consistent with the recently approved
AON CUBE Order functionality for the
Single-Leg CUBE Auction.6 In this
regard, the Exchange seeks to expand
this functionality to the Complex CUBE
Auction, which functionality is also
consistent with similar priceimprovement mechanisms for largersized complex orders already available
on other options exchanges.7 As such,
4 An All-or-None Order or AON Order is a
‘‘Market or Limit Order that is to be executed on
the Exchange in its entirety or not at all.’’ See Rule
900.3NY(d)(4).
5 See proposed Commentary .04 to Rule 971.2NY;
proposed Commentary .05 to Rule 971.1NY.
Capitalized terms have the same meaning as the
defined terms in Rules 971.1NY and 971.2NY.
6 See Commentary .05 to Rule 971.1NY; see also
Securities Exchange Act Release No. 90584
(December 7, 2020), 85 FR 80196 (December 11,
2020) (SR–NYSEAmer–2020–60) (order approving
auction functionality for Single-Leg AON CUBE
Orders of at least 500 contracts). As proposed, AON
Complex CUBE Orders would be processed and
executed in the Complex CUBE Auction in a similar
manner as Single-Leg AON CUBE Orders are
processed and executed in the Single-Leg CUBE
Auction—the differences for Complex relating
primarily to the underlying differences between
simple and complex order processing and execution
(i.e., auction pricing and allocation).
7 See, e.g., Nasdaq ISE LLC (‘‘ISE’’), Options 3,
Section 11(e) (setting forth its Complex Solicited
Order Mechanism which allows an agency complex
order to execute in full against the solicited
complex order—both of which are designated as
AON—at the proposed execution net price so long
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this is a filing that will allow the
Exchange to compete with other options
exchanges for such larger-sized
Complex Orders which would in turn
benefit market participants already
familiar with such price-improvement
mechanisms in that it would provide
another venue to trade their larger-sized
orders.
The Complex CUBE Auction operates
seamlessly with the Consolidated
Book—while still affording Complex
CUBE Orders an opportunity to receive
price improvement.8 In particular, the
Exchange utilizes the concept of a CUBE
BBO, which requires price improvement
over resting interest to initiate a
Complex CUBE Auction.9 Upon entry of
a Complex CUBE Order in the System,
the CUBE BBO is determined to be the
more aggressive of (i) the Complex BBO
improved by $0.01, or (ii) the Derived
BBO improved by: $0.01 multiplied by
the smallest leg of the complex order
strategy.10 A Complex CUBE Auction
begins with an ‘‘initiating price,’’ which
for a Complex CUBE Order is the less
aggressive of the net debit/credit price
of such order or the price that locks the
contra-side CUBE BBO and the ‘‘range
of permissible executions’’ of a Complex
CUBE Order is all prices equal to or
as, at the time of execution such price is not inferior
to interest in the ISE leg markets or ISE’s complex
order book and there are no ISE Priority Customers
equal to the net execution price. If there is Priority
Customer interest at the proposed execution price
and there is sufficient size in the aggregate (i.e.,
Customer interest plus any other quotes, orders, and
responses) to fill the agency complex order, such
agency order will trade first with the Priority
Customer, followed by other interest and the
solicited order is canceled. If, however, in such a
scenario, there is insufficient size of the Priority
Customer and aggregated interest to fill the agency
order, both the agency complex order and solicited
order are canceled). See also Cboe Options Rule
5.40 (Complex Solicitation Auction Mechanism).
8 See Rule 900.2NY(14) (defining Consolidated
Book (or ‘‘Book’’) and providing that all quotes and
orders ‘‘that are entered into the Book will be
ranked and maintained in accordance with the rules
of priority as provided in Rule 964NY’’). Rule
964NY (Display, Priority and Order Allocation—
Trading Systems) dictates the priority of quotes and
orders. The Exchange has integrated the Complex
CUBE Auction into the Complex Matching Engine
(or CME), which ensures that the Complex CUBE
Auction respects the priority of interest in the
Consolidated Book. See Rule 971.2NY(a).
9 See generally Rule 971.2NY and Commentary
.02 (definitions). See also Rule 900.2NY(7)(b),(c)
(defining Complex BBO and Derived BBO). The
‘‘same-side CUBE BBO’’ and ‘‘contra-side CUBE
BBO’’ refer to the CUBE BBO on the same or
opposite side of the market as the Complex CUBE
Order, respectively. See Rule 971.2NY(a)(2).
10 See Rule 971.2NY(a)(2). A complex order
strategy is entered with the ratio expressed in the
fewest number of contracts for each leg of the ratio.
For a complex order strategy with a ratio of 2, 3,
and 6 contracts per leg, the $0.01 figure would be
multiplied by 2 contracts, which represents the
smallest leg. To calculate the CUBE BBO for this
strategy, the Derived BBO would need to be priced
improved by $0.02.
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between the initiating price and the
same-side CUBE BBO.11 As proposed,
the initiation of, and the range of
permissible executions for, an AON
Complex CUBE Order would align with
the protections afforded a standard
(non-AON) Complex CUBE Order.
The proposal to expand the current
Complex CUBE Auction functionality
by providing an additional (optional)
method for market participants to effect
larger-sized orders in the Complex
CUBE Auction would likewise operate
seamlessly with the Consolidated Book.
The Exchange also believes this
proposal would encourage ATP Holders
to compete vigorously to provide the
opportunity for price improvement for
larger-sized orders in a competitive
auction process, which may lead to
enhanced liquidity and tighter markets.
Proposed AON Complex CUBE
Functionality 12
The Exchange proposes to add new
Commentary .04 to Rule 971.2NY to
provide that a Complex CUBE Order
that has at least 500 contracts on the
smallest leg would execute in full at the
single stop price against the Complex
Contra Order, except under specified
circumstances (the ‘‘AON Complex
CUBE Order’’).13 As further proposed, a
Complex Contra Order would not be
permitted to guarantee an AON
Complex CUBE Order for auto-match
limit, which feature is otherwise
available in a Complex CUBE Auction.14
The CUBE BBO for a proposed AON
Complex CUBE Order would be
determined in the same manner as for
a standard Complex CUBE Order.15 An
AON Complex CUBE Order Auction
would also be subject to the same early
end events as a Complex CUBE Order.16
11 See
Rule 971.2NY(a)(2)–(4).
generally Rule 971.2NY (for detailed
description of operation of Complex CUBE
Auction).
13 See also proposed Commentary .04 to Rule
971.2NY. See Rule 971.2NY(b)(1)(A) (setting forth
parameters for single stop price). An AON Complex
CUBE Order would be rejected for the same reasons
as a Complex CUBE Order (see Rule 971.2NY(b)(2)–
(5)).
14 See also proposed Commentary .04 to Rule
971.2NY. See also Rule 971.2NY(b)(1)(B) (regarding
parameters for auto-match limit price).
15 An AON Complex CUBE Order and its paired
Complex Contra Order would be rejected if it failed
to meet the pricing parameters. See Rule
971.2NY(b) (regarding auction eligibility
requirements).
16 See Rule 971.2NY(c)(3) (setting forth the type
of interest that causes the early end to a Complex
CUBE Auction). In particular, to respect priority of
the leg markets, the AON Complex CUBE Auction
would end early if during the Auction the Exchange
receives ‘‘[i]nterest in the leg market that causes the
contra-side CUBE BBO to be better than the stop
price or auto-match limit price.’’ See Rule
971.2NY(c)(3)(F).
12 See
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9113
As proposed, an AON Complex CUBE
Order would execute in full with the
Complex Contra Order at the single stop
price even if there is non-Customer
interest priced better than the stop price
that, either on its own or when
aggregated with other better-priced nonCustomer RFR Responses, is insufficient
to satisfy the full quantity of the AON
Complex CUBE Order.17 In addition, as
proposed, an AON Complex CUBE
Order would not execute with the
Complex Contra Order if the entire AON
Complex CUBE Order can be satisfied in
full by certain eligible contra-side
interest. Specifically, the Exchange
proposes that paragraph (b) to
Commentary .04 to Rule 971.2NY would
provide that:
(b) The Complex Contra Order will not
receive any allocation and will be cancelled
(i) if RFR Responses that are priced better
than the stop price can satisfy the full
quantity of the AON Complex CUBE Order or
(ii) there is contra-side Customer interest at
the stop price or better that on its own, or
when aggregated with RFR Responses equal
to or priced better than the stop price, can
satisfy the full quantity of the AON Complex
CUBE Order. In either such case, the RFR
Responses will be allocated as provided for
in paragraphs (c)(4)(A) and (c)(4)(B)(i) of this
Rule, as applicable.18
Thus, if there is price-improving
contra-side interest that can satisfy the
AON condition of the Auction, the AON
17 See proposed Commentary .04(a) to Rule
971.2NY. The Exchange also proposes to modify
Commentary .05 to Rule 971.1NY to clarify the
handling of AON CUBE Orders in a Single-Leg
CUBE Auction—including by relocating certain text
to a new paragraph (a), which would not alter
existing functionality and mirrors the handling of
AON Complex CUBE Orders in a Complex CUBE
Auction. See proposed Commentary .05(a) to Rule
971.1NY (providing that ‘‘[a]n AON CUBE Order to
buy (sell) will execute in full with the Contra Order
at the single stop price even if there is nonCustomer interest priced higher (lower) than the
stop price that, either on its own or when
aggregated with other non-Customer RFR Responses
at the stop price or better, is insufficient to satisfy
the full quantity of the AON CUBE Order’’). In
addition, the Exchange proposes to make a nonsubstantive change to remove the now extraneous
text ‘‘provided that’’ and to re-number existing
paragraphs (a) and (b) to new paragraphs (b) and (c),
which makes the Rule easier to navigate and would
align with the AON Complex CUBE rule. See
proposed Commentary .05(b), (c) to Rule 971.1NY.
18 See proposed Commentary .04(b) to Rule
971.2NY. The Exchange also proposes to modify
(new) paragraph (b) to Commentary .05 to Rule
971.1NY regarding the Single-Leg CUBE Auction to
make clear that Customer interest ‘‘at the stop price
or better’’ may prevent the Contra Order from
executing, which does not alter existing
functionality and mirrors the handling of AON
Complex CUBE Orders in a Complex CUBE
Auction. See proposed Commentary .05(b) to Rule
971.1NY (emphasis added). In addition, the
Exchange proposes to make a non-substantive
change to capitalize the first sentence of this
paragraph, which makes the Rule easier to navigate
and would align with the AON Complex CUBE rule.
See id.
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Thus, as proposed, if there is contraside Customer interest at the stop price,
but there is not enough size (considering
the Customer interest and all RFR
Responses at the stop price or better) to
satisfy the entire AON Complex CUBE
Order, then both the AON Complex
CUBE Order and the Contra Complex
Order would be cancelled. The
Exchange believes that this proposal is
consistent with the terms of how AONs
function generally without violating the
Exchange’s general priority rules.22
With respect to allocation, the Exchange
notes that the proposed functionality
differs from the allocation of a standard
Complex CUBE Order in that the
Complex Contra Order is not guaranteed
a minimum allocation at the stop price.
Instead, given the AON nature of the
functionality, the Complex Contra Order
either trades with the entire AON
Complex CUBE Order or not at all.23
This proposal is also consistent with the
AON nature of similar mechanisms on
other options exchanges.24
With the exception of differences to
the minimum size and allocation
described in proposed Commentary .04
to Rule 971.2NY, an AON Complex
CUBE auction would be subject to all of
the provisions of Rule 971.2NY.25
Finally, proposed paragraph (d) to
Commentary .04 to Rule 971.2NY would
provide that prior to entering an agency
order (i.e., Complex CUBE Order) on
behalf of a Customer into the Complex
CUBE Auction as an AON Complex
CUBE Order, Initiating Participants
would be required to deliver to the
Customer a written notification
informing the Customer that such order
may be executed using the Complex
CUBE Auction, which notification
would disclose the terms and conditions
of Commentary .04 to Rule 971.2NY and
19 See also Rule 971.2NY (c)(4)(A) (providing
Customer interest first priority to trade with the
Complex CUBE Order, at each price level, pursuant
to the size pro rata algorithm set forth in Rule
964NY(b)(3)) and (c)(4)(B)(i)(a) (providing RFR
Responses priced better than the stop price,
beginning with the most aggressive price within the
range of permissible executions, pursuant to the
size pro rata algorithm set forth in Rule 964NY(b)(3)
at each price point).
20 See, e.g., supra note 7 (regarding Nasdaq ISE’s
Complex Solicited Order Mechanism and Cboe’s
Complex Solicitation Auction Mechanism, both of
which are mechanisms for larger-sized paired
complex orders designated as AON).
21 See proposed Commentary .04(c) to Rule
971.2NY. The Exchange also proposes to modify
(new) paragraph (c) to Commentary .05 to Rule
971.1NY regarding the Single-Leg CUBE Auction to
make clear that Customer interest ‘‘at the stop price
or better’’ would result in cancellation of the AON
CUBE Order and the Contra Order, which would
mirror the AON Complex CUBE functionality. See
proposed Commentary .05(c) to Rule 971.1NY
(emphasis added). In addition, the Exchange
proposes to make a non-substantive change to
capitalize the first sentence of this paragraph,
which makes the Rule easier to navigate and would
align with the AON Complex CUBE rule. See id.
22 See Rule 980NY(b) (‘‘Priority of Electronic
Complex Orders in the Consolidated Book’’). See
also Rule 971.2NY (regarding processing of
Complex CUBE Orders per Rule 980NY).
23 See Rule 971.2NY(c)(4)(B)(i)(b) (providing that,
‘‘[a]t the stop price, if there is sufficient size of the
Complex CUBE Order still available after executing
at prices better than the stop price or against
Customer interest, the Complex Contra Order will
receive an allocation of the greater of 40% of the
original Complex CUBE Order size or one contract
(or the greater of 50% of the original Complex
CUBE Order size or one contract if there is only one
RFR Response)’’).
24 See e.g., supra note 7 (regarding Nasdaq ISE’s
Complex Solicited Order Mechanism and Cboe’s
Complex Solicitation Auction Mechanism, both of
which are mechanisms for larger-sized paired
complex orders designated as AON).
25 See proposed Commentary .04 to Rule
971.2NY. The Exchange also proposes to modify the
text in the last paragraph of Commentary .05 to Rule
971.1NY regarding the Single-Leg CUBE Auction to
clarify that ‘‘[e]xcept as provided in this
Commentary .05, an AON CUBE auction will be
subject to all of the provisions of Rule 971.1NY,’’
which makes the Rule easier to navigate and would
align with the AON Complex CUBE rule. See
proposed Commentary .05 to Rule 971.1NY.
Complex CUBE Order would execute in
full against those price-improving RFR
Responses and the Complex Contra
Order would cancel. Or, absent such
price-improving interest, if there is
contra-side Customer interest equal to
the stop price or better that on its own,
or when combined with equal or betterpriced RFR Responses, can satisfy the
AON condition of the Auction, the AON
Complex CUBE Order would execute in
full against such interest and the
Complex Contra Order would cancel.
Under either scenario, the AON
Complex CUBE Order would be
allocated against contra-side interest at
the best price(s) pursuant to the
Exchange’s priority rules.19 This
proposal is also consistent with the
AON nature of similar mechanisms on
other options exchanges.20
As further proposed, both the AON
CUBE Order and Contra Order would be
cancelled, i.e., the Auction would be
cancelled, if there is contra-side
Customer interest at the stop price and
such interest on its own or when
combined with RFR Responses (at the
stop price or better) is insufficient to
satisfy the entire AON Complex CUBE
Order. To effect this, the Exchange
proposes that paragraph (b) [sic] to
Commentary .04 to Rule 971.2NY would
provide that:
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(c) The AON Complex CUBE Order and
Complex Contra Order will both be cancelled
if there is contra-side Customer interest at the
stop price or better and such interest, either
on its own or when aggregated with RFR
Responses equal to or priced better than the
stop price is insufficient to satisfy the full
quantity of the AON Complex CUBE Order.21
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be in a form approved by the
Exchange.26 This notification
requirement is consistent with the rules
of other options exchanges that offer an
AON paired order auction mechanism
for complex orders.27
Implementation
The Exchange will announce the
implementation date of the proposed
rule change in a Trader Update to be
published no later than 60 days
following the approval of this proposed
rule change. The Exchange has already
notified ATP Holders about the planned
implementation of AON Complex CUBE
functionality, which has provided them
advance time to prepare their systems
for participation in the AON Complex
CUBE Auction once it becomes
available.28
2. Statutory Basis
For the reasons set forth above, the
Exchange believes the proposed rule
change is consistent with Section 6(b) of
the Act in general, and furthers the
objectives of Section 6(b)(5) of the Act,
in that it is designed to promote just and
equitable principles of trade, remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The proposed optional all-or-none
functionality for larger-sized orders,
which is consistent with Exchange’s
recently approved Single-Leg AON
CUBE Order functionality,29 is intended
to benefit investors, because it is
designed to provide investors seeking to
execute larger-sized option orders in the
Complex CUBE Auction with greater
certainty regarding the price at which
the order would be executed. In this
regard, the Exchange seeks to expand
this functionality to the Complex CUBE
Auction, which functionality is also
consistent with similar priceimprovement mechanisms for larger26 See proposed Commentary .04(d) to Rule
971.2NY. The Exchange also proposes to add a
paragraph (d) to Commentary .05 to Rule 971.1NY
regarding the Single-Leg CUBE Auction to adopt a
notice provision identical to that being proposed for
the AON Complex CUBE functionality, which
clarifies the obligations of ATP Holders to their
customers and does not alter existing functionality.
See proposed Commentary .05(d) to Rule 971.1NY.
27 See, e.g., supra note 7, Nasdaq ISE, Options 3,
Section 11(e)(5) and Cboe Options Rule 5.40,
Interpretations and Policies .01 (both setting forth
substantially similar notice requirements for agency
orders handled on behalf of customers).
28 See Trader Update, October 6, 2020, NYSE
American Options: AON CUBE Orders Available for
Testing, available here: https://www.nyse.com/
trader-update/history#110000319620.
29 See supra note 6 (regarding recent approval of
Commentary .05 to Rule 971.1NY).
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sized complex orders already available
on other options exchanges. As such,
this is a filing that will allow the
Exchange to compete with other options
exchanges for such larger-sized
Complex Orders and would benefit
market participants who are already
familiar with such price-improvement
mechanisms.30
This proposal would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would provide ATP Holders that locate
liquidity for their customers’ largersized orders a facility in which to
execute those orders at the agreed-upon
price, while also providing an
opportunity for such orders to be price
improved. In addition, ATP Holders that
opt to utilize this proposed functionality
would have an equal opportunity to
initiate their own or to respond with
their best prices to other AON CUBE
Auctions. The Exchange believes the
proposed functionality would promote
and foster competition and provide
more options contracts with the
opportunity for price improvement.
The Exchange believes that the
proposed functionality would provide
more efficient transactions, reduce
execution risk to ATP Holders, and
afford greater execution opportunities
for larger-sized orders. The proposed
functionality would operate within the
Complex CUBE (including by
integrating Complex CUBE into the
Complex Matching Engine, per Rule
971.2NY(a)) such that the Exchange is
able to assure that the proposed
functionality would continue to respect
the priority of interest, in particular
Customer interest. The proposal ensures
that the AON Complex CUBE Order is
exposed to ATP Holders for the
possibility of price improvement and
that Customer orders on the Exchange
are protected. As noted above, at the
conclusion of an AON Complex CUBE
Auction, the AON Complex CUBE Order
would be executed in full (against the
Complex Contra Order or eligible
contra-side auction interest) or would be
cancelled, together with the Complex
Contra Order.
Further, the proposed functionality is
reasonable and promotes a fair and
orderly market and national market
system, because it is substantially
similar to the price- improvement
mechanisms for larger-sized orders
available on other options exchanges.
The Exchange believes this proposal
30 See supra note 7 (regarding Nasdaq ISE’s
Complex Solicited Order Mechanism and Cboe’s
Complex Solicitation Auction Mechanism, both of
which are mechanisms for larger-sized paired
complex orders designated as AON).
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16:39 Feb 10, 2021
Jkt 253001
may lead to an increase in Exchange
volume and should allow the Exchange
to better compete against other markets
that already offer an all-or-none
electronic solicitation mechanism for
larger-sized orders. The Exchange
believes that its proposal would allow
the Exchange to better compete for
solicited transactions, while providing
an opportunity for price improvement
on the larger-sized orders. In addition,
the proposed functionality should
promote and foster competition and
provide more options contracts with the
opportunity for price improvement,
which should benefit market
participants.
The proposed clarifications to the
Single-Leg CUBE Auction Rule would
protect investors and the public interest
because the proposed changes add
clarity, transparency and internal
consistency to Exchange rules.31
Finally, consistent with other options
exchanges offering similar priceimprovement auctions, the proposed
rule change would require ATP Holders
to provide customers with the terms and
conditions of agency orders that might
be submitted as AON Complex CUBE
Orders on their behalf.32
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. The
Exchange does not believe the proposed
rule change would impose any burden
on intramarket competition, as the
proposed rule change will apply in the
same manner to all orders submitted as
AON Complex Orders to the Complex
CUBE Auction. The Exchange recently
received rule approval for AON CUBE
Order functionality in the Single-Leg
CUBE Auction, which operates in a
substantially similar manner to the
complex functionality, accounting for
differing priority and allocation rules.33
The Exchange is proposing the
functionality for Complex Orders as an
optional market enhancement that, if
utilized, should increase competition
for ATP Holders seeking to execute such
larger-sized orders in an electronic
auction mechanism. ATP Holders that
31 See
supra notes 17, 18, 21 and 26.
Nasdaq ISE, Options 3, Section 11(e)(5) and
Cboe Options Rule 5.40, Interpretations and
Policies .01 (both setting forth substantially similar
notice requirements for agency orders handled on
behalf of customers). See supra note 26 (regarding
the addition of a notice provisions to the Single-Leg
CUBE auction rule).
33 See supra note 6 (regarding recent approval of
Commentary .05 to Rule 971.1NY).
32 See
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
9115
opt to utilize this proposed functionality
would have an equal opportunity to
initiate their own or to respond with
their best prices to other AON CUBE
Auctions. The Exchange notes that other
options exchanges offer electronic
auction mechanisms for larger-sized
orders on an AON basis. The Exchange
believes the proposed functionality
would provide ATP Holders with a
greater choice of exchanges from which
to execute such orders. The proposal is
structured to offer the same
enhancement to all market participants
and would not impose an intra-market
competitive burden on any participant.
The price-improvement functionality for
the AON Complex CUBE Auction is
designed to promote competition for
ATP Holders to compete amongst each
other by responding with not only their
best price, but also the full size for a
particular auction.
The Exchange notes that it operates in
a highly competitive market in which
market participants can readily direct
order flow to competing venues who
offer similar functionality. The
Exchange believes that the proposed
rule change will relieve any burden on,
or otherwise promote, competition. The
Exchange believes this proposed rule
change is necessary to permit fair
competition among the options
exchanges and to establish more
uniform price-improvement auction
rules on the various options exchanges.
The proposed functionality may lead to
an increase in Exchange volume and
should allow the Exchange to better
compete against other markets that
already offer similar price-improvement
mechanisms for larger-sized orders. The
Exchange anticipates that this proposal
will create new opportunities for the
Exchange to attract new business and
compete on equal footing with those
options exchanges that offer auction
AON functionality for larger-sized
Complex Orders and for this reason the
proposal does not create an undue
burden on intermarket competition. By
contrast, not having the proposed
functionality places the Exchange at a
competitive disadvantage vis-a`-vis other
exchanges that offer similar priceimprovement mechanisms for largersized Complex Orders.
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.
E:\FR\FM\11FEN1.SGM
11FEN1
9116
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 34 and Rule
19b–4(f)(6) thereunder.35 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 36 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),37 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing. The Exchange
states that waiver of the operative delay
would allow the Exchange to deploy the
new functionality immediately, which
would help to ease the potential
disruption to floor trading in the event
that the Exchange is required to
temporarily close its trading floor for
reasons related to COVID–19.38 The
Commission believes that waiver of the
operative delay is consistent with the
protection of investors and the public
interest because it will allow the
Exchange to implement the proposed
functionality without delay in the event
that the Exchange must temporarily
close its trading floor. As discussed
above, the proposed AON complex
CUBE auction is substantially similar to
the paired solicited complex order
auctions in place on other options
exchanges and does not raise new or
novel regulatory issues.39 In addition,
khammond on DSKJM1Z7X2PROD with NOTICES
34 15
U.S.C. 78s(b)(3)(A)(iii).
35 17 CFR 240.19b–4(f)(6).
36 17 CFR 240.19b–4(f)(6).
37 17 CFR 240.19b–4(f)(6)(iii).
38 The Exchange notes that it temporarily closed
its trading floor for several months in 2020 and for
the last week of December 2020 for reasons related
to COVID–19. See Trader Update, December 24,
2020, NYSE American Options to Move
Temporarily to All-Electronic Trading on December
28, 2020, available here: https://www.nyse.com/
trader-update/history#110000331853.
39 See, e.g., note 7, supra.
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16:39 Feb 10, 2021
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the proposed changes to the single-leg
AON CUBE provisions in Rule 971.1NY
should help to avoid confusion by
assuring that the descriptions of the
single-leg and the complex AON CUBE
auctions remain consistent.
Accordingly, the Commission hereby
waives the 30-day operative delay and
designates the proposal operative upon
filing.40
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 41 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
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–2021–06, and
should be submitted on or before March
4, 2021.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
J. Matthew DeLesDernier,
Assistant Secretary.
Electronic Comments
[FR Doc. 2021–02777 Filed 2–10–21; 8:45 am]
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEAMER–2021–06 on the subject
line.
BILLING CODE 8011–01–P
Paper Comments
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: 86 FR 8061, February 3,
• 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–2021–06. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
40 For purposed only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
41 15 U.S.C. 78s(b)(2)(B).
PO 00000
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SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting; Cancellation
2021.
PREVIOUSLY ANNOUNCED TIME AND DATE OF
THE MEETING: Tuesday, February 9, 2021
at 5:00 p.m.
The Closed
Meeting scheduled for Tuesday,
February 9, 2021 at 5:00 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 9, 2021.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021–02961 Filed 2–9–21; 4:15 pm]
BILLING CODE 8011–01–P
42 17
E:\FR\FM\11FEN1.SGM
CFR 200.30–3(a)(12).
11FEN1
]]>Agencies
[Federal Register Volume 86, Number 27 (Thursday, February 11, 2021)]
[Notices]
[Pages 9112-9116]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02777]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91068; File No. SR-NYSEAMER-2021-06]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Modify
Rule 971.2NY Regarding Its Complex Customer Best Execution Auction
February 5, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on January 27, 2021, NYSE American LLC (``NYSE American'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify Rule 971.2NY regarding its Complex
Customer Best Execution (``CUBE'') auction to provide optional all-or-
none functionality for larger-sized orders and to make conforming
changes to Rule 971.1NY to clarify existing functionality of the
Single-Leg AON CUBE functionality. 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 Exchange proposes to expand its electronic crossing mechanism--
the CUBE Auction, to provide optional all-or-none (``AON'') \4\
functionality for ATP Holders to execute larger-sized orders (i.e., at
least 500 contracts on the smallest leg) in the Complex CUBE Auction
and to make conforming changes to Rule 971.1NY to clarify existing
functionality of the Single-Leg AON CUBE functionality.\5\
---------------------------------------------------------------------------
\4\ An All-or-None Order or AON Order is a ``Market or Limit
Order that is to be executed on the Exchange in its entirety or not
at all.'' See Rule 900.3NY(d)(4).
\5\ See proposed Commentary .04 to Rule 971.2NY; proposed
Commentary .05 to Rule 971.1NY. Capitalized terms have the same
meaning as the defined terms in Rules 971.1NY and 971.2NY.
---------------------------------------------------------------------------
The proposed rule change would be consistent with the recently
approved AON CUBE Order functionality for the Single-Leg CUBE
Auction.\6\ In this regard, the Exchange seeks to expand this
functionality to the Complex CUBE Auction, which functionality is also
consistent with similar price-improvement mechanisms for larger-sized
complex orders already available on other options exchanges.\7\ As
such,
[[Page 9113]]
this is a filing that will allow the Exchange to compete with other
options exchanges for such larger-sized Complex Orders which would in
turn benefit market participants already familiar with such price-
improvement mechanisms in that it would provide another venue to trade
their larger-sized orders.
---------------------------------------------------------------------------
\6\ See Commentary .05 to Rule 971.1NY; see also Securities
Exchange Act Release No. 90584 (December 7, 2020), 85 FR 80196
(December 11, 2020) (SR-NYSEAmer-2020-60) (order approving auction
functionality for Single-Leg AON CUBE Orders of at least 500
contracts). As proposed, AON Complex CUBE Orders would be processed
and executed in the Complex CUBE Auction in a similar manner as
Single-Leg AON CUBE Orders are processed and executed in the Single-
Leg CUBE Auction--the differences for Complex relating primarily to
the underlying differences between simple and complex order
processing and execution (i.e., auction pricing and allocation).
\7\ See, e.g., Nasdaq ISE LLC (``ISE''), Options 3, Section
11(e) (setting forth its Complex Solicited Order Mechanism which
allows an agency complex order to execute in full against the
solicited complex order--both of which are designated as AON--at the
proposed execution net price so long as, at the time of execution
such price is not inferior to interest in the ISE leg markets or
ISE's complex order book and there are no ISE Priority Customers
equal to the net execution price. If there is Priority Customer
interest at the proposed execution price and there is sufficient
size in the aggregate (i.e., Customer interest plus any other
quotes, orders, and responses) to fill the agency complex order,
such agency order will trade first with the Priority Customer,
followed by other interest and the solicited order is canceled. If,
however, in such a scenario, there is insufficient size of the
Priority Customer and aggregated interest to fill the agency order,
both the agency complex order and solicited order are canceled). See
also Cboe Options Rule 5.40 (Complex Solicitation Auction
Mechanism).
---------------------------------------------------------------------------
The Complex CUBE Auction operates seamlessly with the Consolidated
Book--while still affording Complex CUBE Orders an opportunity to
receive price improvement.\8\ In particular, the Exchange utilizes the
concept of a CUBE BBO, which requires price improvement over resting
interest to initiate a Complex CUBE Auction.\9\ Upon entry of a Complex
CUBE Order in the System, the CUBE BBO is determined to be the more
aggressive of (i) the Complex BBO improved by $0.01, or (ii) the
Derived BBO improved by: $0.01 multiplied by the smallest leg of the
complex order strategy.\10\ A Complex CUBE Auction begins with an
``initiating price,'' which for a Complex CUBE Order is the less
aggressive of the net debit/credit price of such order or the price
that locks the contra-side CUBE BBO and the ``range of permissible
executions'' of a Complex CUBE Order is all prices equal to or between
the initiating price and the same-side CUBE BBO.\11\ As proposed, the
initiation of, and the range of permissible executions for, an AON
Complex CUBE Order would align with the protections afforded a standard
(non-AON) Complex CUBE Order.
---------------------------------------------------------------------------
\8\ See Rule 900.2NY(14) (defining Consolidated Book (or
``Book'') and providing that all quotes and orders ``that are
entered into the Book will be ranked and maintained in accordance
with the rules of priority as provided in Rule 964NY''). Rule 964NY
(Display, Priority and Order Allocation--Trading Systems) dictates
the priority of quotes and orders. The Exchange has integrated the
Complex CUBE Auction into the Complex Matching Engine (or CME),
which ensures that the Complex CUBE Auction respects the priority of
interest in the Consolidated Book. See Rule 971.2NY(a).
\9\ See generally Rule 971.2NY and Commentary .02 (definitions).
See also Rule 900.2NY(7)(b),(c) (defining Complex BBO and Derived
BBO). The ``same-side CUBE BBO'' and ``contra-side CUBE BBO'' refer
to the CUBE BBO on the same or opposite side of the market as the
Complex CUBE Order, respectively. See Rule 971.2NY(a)(2).
\10\ See Rule 971.2NY(a)(2). A complex order strategy is entered
with the ratio expressed in the fewest number of contracts for each
leg of the ratio. For a complex order strategy with a ratio of 2, 3,
and 6 contracts per leg, the $0.01 figure would be multiplied by 2
contracts, which represents the smallest leg. To calculate the CUBE
BBO for this strategy, the Derived BBO would need to be priced
improved by $0.02.
\11\ See Rule 971.2NY(a)(2)-(4).
---------------------------------------------------------------------------
The proposal to expand the current Complex CUBE Auction
functionality by providing an additional (optional) method for market
participants to effect larger-sized orders in the Complex CUBE Auction
would likewise operate seamlessly with the Consolidated Book. The
Exchange also believes this proposal would encourage ATP Holders to
compete vigorously to provide the opportunity for price improvement for
larger-sized orders in a competitive auction process, which may lead to
enhanced liquidity and tighter markets.
Proposed AON Complex CUBE Functionality \12\
---------------------------------------------------------------------------
\12\ See generally Rule 971.2NY (for detailed description of
operation of Complex CUBE Auction).
---------------------------------------------------------------------------
The Exchange proposes to add new Commentary .04 to Rule 971.2NY to
provide that a Complex CUBE Order that has at least 500 contracts on
the smallest leg would execute in full at the single stop price against
the Complex Contra Order, except under specified circumstances (the
``AON Complex CUBE Order'').\13\ As further proposed, a Complex Contra
Order would not be permitted to guarantee an AON Complex CUBE Order for
auto-match limit, which feature is otherwise available in a Complex
CUBE Auction.\14\
---------------------------------------------------------------------------
\13\ See also proposed Commentary .04 to Rule 971.2NY. See Rule
971.2NY(b)(1)(A) (setting forth parameters for single stop price).
An AON Complex CUBE Order would be rejected for the same reasons as
a Complex CUBE Order (see Rule 971.2NY(b)(2)-(5)).
\14\ See also proposed Commentary .04 to Rule 971.2NY. See also
Rule 971.2NY(b)(1)(B) (regarding parameters for auto-match limit
price).
---------------------------------------------------------------------------
The CUBE BBO for a proposed AON Complex CUBE Order would be
determined in the same manner as for a standard Complex CUBE Order.\15\
An AON Complex CUBE Order Auction would also be subject to the same
early end events as a Complex CUBE Order.\16\
---------------------------------------------------------------------------
\15\ An AON Complex CUBE Order and its paired Complex Contra
Order would be rejected if it failed to meet the pricing parameters.
See Rule 971.2NY(b) (regarding auction eligibility requirements).
\16\ See Rule 971.2NY(c)(3) (setting forth the type of interest
that causes the early end to a Complex CUBE Auction). In particular,
to respect priority of the leg markets, the AON Complex CUBE Auction
would end early if during the Auction the Exchange receives
``[i]nterest in the leg market that causes the contra-side CUBE BBO
to be better than the stop price or auto-match limit price.'' See
Rule 971.2NY(c)(3)(F).
---------------------------------------------------------------------------
As proposed, an AON Complex CUBE Order would execute in full with
the Complex Contra Order at the single stop price even if there is non-
Customer interest priced better than the stop price that, either on its
own or when aggregated with other better-priced non-Customer RFR
Responses, is insufficient to satisfy the full quantity of the AON
Complex CUBE Order.\17\ In addition, as proposed, an AON Complex CUBE
Order would not execute with the Complex Contra Order if the entire AON
Complex CUBE Order can be satisfied in full by certain eligible contra-
side interest. Specifically, the Exchange proposes that paragraph (b)
to Commentary .04 to Rule 971.2NY would provide that:
---------------------------------------------------------------------------
\17\ See proposed Commentary .04(a) to Rule 971.2NY. The
Exchange also proposes to modify Commentary .05 to Rule 971.1NY to
clarify the handling of AON CUBE Orders in a Single-Leg CUBE
Auction--including by relocating certain text to a new paragraph
(a), which would not alter existing functionality and mirrors the
handling of AON Complex CUBE Orders in a Complex CUBE Auction. See
proposed Commentary .05(a) to Rule 971.1NY (providing that ``[a]n
AON CUBE Order to buy (sell) will execute in full with the Contra
Order at the single stop price even if there is non-Customer
interest priced higher (lower) than the stop price that, either on
its own or when aggregated with other non-Customer RFR Responses at
the stop price or better, is insufficient to satisfy the full
quantity of the AON CUBE Order''). In addition, the Exchange
proposes to make a non-substantive change to remove the now
extraneous text ``provided that'' and to re-number existing
paragraphs (a) and (b) to new paragraphs (b) and (c), which makes
the Rule easier to navigate and would align with the AON Complex
CUBE rule. See proposed Commentary .05(b), (c) to Rule 971.1NY.
(b) The Complex Contra Order will not receive any allocation and
will be cancelled (i) if RFR Responses that are priced better than
the stop price can satisfy the full quantity of the AON Complex CUBE
Order or (ii) there is contra-side Customer interest at the stop
price or better that on its own, or when aggregated with RFR
Responses equal to or priced better than the stop price, can satisfy
the full quantity of the AON Complex CUBE Order. In either such
case, the RFR Responses will be allocated as provided for in
paragraphs (c)(4)(A) and (c)(4)(B)(i) of this Rule, as
applicable.\18\
---------------------------------------------------------------------------
\18\ See proposed Commentary .04(b) to Rule 971.2NY. The
Exchange also proposes to modify (new) paragraph (b) to Commentary
.05 to Rule 971.1NY regarding the Single-Leg CUBE Auction to make
clear that Customer interest ``at the stop price or better'' may
prevent the Contra Order from executing, which does not alter
existing functionality and mirrors the handling of AON Complex CUBE
Orders in a Complex CUBE Auction. See proposed Commentary .05(b) to
Rule 971.1NY (emphasis added). In addition, the Exchange proposes to
make a non-substantive change to capitalize the first sentence of
this paragraph, which makes the Rule easier to navigate and would
align with the AON Complex CUBE rule. See id.
Thus, if there is price-improving contra-side interest that can
satisfy the AON condition of the Auction, the AON
[[Page 9114]]
Complex CUBE Order would execute in full against those price-improving
RFR Responses and the Complex Contra Order would cancel. Or, absent
such price-improving interest, if there is contra-side Customer
interest equal to the stop price or better that on its own, or when
combined with equal or better-priced RFR Responses, can satisfy the AON
condition of the Auction, the AON Complex CUBE Order would execute in
full against such interest and the Complex Contra Order would cancel.
Under either scenario, the AON Complex CUBE Order would be allocated
against contra-side interest at the best price(s) pursuant to the
Exchange's priority rules.\19\ This proposal is also consistent with
the AON nature of similar mechanisms on other options exchanges.\20\
---------------------------------------------------------------------------
\19\ See also Rule 971.2NY (c)(4)(A) (providing Customer
interest first priority to trade with the Complex CUBE Order, at
each price level, pursuant to the size pro rata algorithm set forth
in Rule 964NY(b)(3)) and (c)(4)(B)(i)(a) (providing RFR Responses
priced better than the stop price, beginning with the most
aggressive price within the range of permissible executions,
pursuant to the size pro rata algorithm set forth in Rule
964NY(b)(3) at each price point).
\20\ See, e.g., supra note 7 (regarding Nasdaq ISE's Complex
Solicited Order Mechanism and Cboe's Complex Solicitation Auction
Mechanism, both of which are mechanisms for larger-sized paired
complex orders designated as AON).
---------------------------------------------------------------------------
As further proposed, both the AON CUBE Order and Contra Order would
be cancelled, i.e., the Auction would be cancelled, if there is contra-
side Customer interest at the stop price and such interest on its own
or when combined with RFR Responses (at the stop price or better) is
insufficient to satisfy the entire AON Complex CUBE Order. To effect
this, the Exchange proposes that paragraph (b) [sic] to Commentary .04
to Rule 971.2NY would provide that:
(c) The AON Complex CUBE Order and Complex Contra Order will
both be cancelled if there is contra-side Customer interest at the
stop price or better and such interest, either on its own or when
aggregated with RFR Responses equal to or priced better than the
stop price is insufficient to satisfy the full quantity of the AON
Complex CUBE Order.\21\
---------------------------------------------------------------------------
\21\ See proposed Commentary .04(c) to Rule 971.2NY. The
Exchange also proposes to modify (new) paragraph (c) to Commentary
.05 to Rule 971.1NY regarding the Single-Leg CUBE Auction to make
clear that Customer interest ``at the stop price or better'' would
result in cancellation of the AON CUBE Order and the Contra Order,
which would mirror the AON Complex CUBE functionality. See proposed
Commentary .05(c) to Rule 971.1NY (emphasis added). In addition, the
Exchange proposes to make a non-substantive change to capitalize the
first sentence of this paragraph, which makes the Rule easier to
navigate and would align with the AON Complex CUBE rule. See id.
Thus, as proposed, if there is contra-side Customer interest at the
stop price, but there is not enough size (considering the Customer
interest and all RFR Responses at the stop price or better) to satisfy
the entire AON Complex CUBE Order, then both the AON Complex CUBE Order
and the Contra Complex Order would be cancelled. The Exchange believes
that this proposal is consistent with the terms of how AONs function
generally without violating the Exchange's general priority rules.\22\
With respect to allocation, the Exchange notes that the proposed
functionality differs from the allocation of a standard Complex CUBE
Order in that the Complex Contra Order is not guaranteed a minimum
allocation at the stop price. Instead, given the AON nature of the
functionality, the Complex Contra Order either trades with the entire
AON Complex CUBE Order or not at all.\23\ This proposal is also
consistent with the AON nature of similar mechanisms on other options
exchanges.\24\
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\22\ See Rule 980NY(b) (``Priority of Electronic Complex Orders
in the Consolidated Book''). See also Rule 971.2NY (regarding
processing of Complex CUBE Orders per Rule 980NY).
\23\ See Rule 971.2NY(c)(4)(B)(i)(b) (providing that, ``[a]t the
stop price, if there is sufficient size of the Complex CUBE Order
still available after executing at prices better than the stop price
or against Customer interest, the Complex Contra Order will receive
an allocation of the greater of 40% of the original Complex CUBE
Order size or one contract (or the greater of 50% of the original
Complex CUBE Order size or one contract if there is only one RFR
Response)'').
\24\ See e.g., supra note 7 (regarding Nasdaq ISE's Complex
Solicited Order Mechanism and Cboe's Complex Solicitation Auction
Mechanism, both of which are mechanisms for larger-sized paired
complex orders designated as AON).
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With the exception of differences to the minimum size and
allocation described in proposed Commentary .04 to Rule 971.2NY, an AON
Complex CUBE auction would be subject to all of the provisions of Rule
971.2NY.\25\
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\25\ See proposed Commentary .04 to Rule 971.2NY. The Exchange
also proposes to modify the text in the last paragraph of Commentary
.05 to Rule 971.1NY regarding the Single-Leg CUBE Auction to clarify
that ``[e]xcept as provided in this Commentary .05, an AON CUBE
auction will be subject to all of the provisions of Rule 971.1NY,''
which makes the Rule easier to navigate and would align with the AON
Complex CUBE rule. See proposed Commentary .05 to Rule 971.1NY.
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Finally, proposed paragraph (d) to Commentary .04 to Rule 971.2NY
would provide that prior to entering an agency order (i.e., Complex
CUBE Order) on behalf of a Customer into the Complex CUBE Auction as an
AON Complex CUBE Order, Initiating Participants would be required to
deliver to the Customer a written notification informing the Customer
that such order may be executed using the Complex CUBE Auction, which
notification would disclose the terms and conditions of Commentary .04
to Rule 971.2NY and be in a form approved by the Exchange.\26\ This
notification requirement is consistent with the rules of other options
exchanges that offer an AON paired order auction mechanism for complex
orders.\27\
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\26\ See proposed Commentary .04(d) to Rule 971.2NY. The
Exchange also proposes to add a paragraph (d) to Commentary .05 to
Rule 971.1NY regarding the Single-Leg CUBE Auction to adopt a notice
provision identical to that being proposed for the AON Complex CUBE
functionality, which clarifies the obligations of ATP Holders to
their customers and does not alter existing functionality. See
proposed Commentary .05(d) to Rule 971.1NY.
\27\ See, e.g., supra note 7, Nasdaq ISE, Options 3, Section
11(e)(5) and Cboe Options Rule 5.40, Interpretations and Policies
.01 (both setting forth substantially similar notice requirements
for agency orders handled on behalf of customers).
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Implementation
The Exchange will announce the implementation date of the proposed
rule change in a Trader Update to be published no later than 60 days
following the approval of this proposed rule change. The Exchange has
already notified ATP Holders about the planned implementation of AON
Complex CUBE functionality, which has provided them advance time to
prepare their systems for participation in the AON Complex CUBE Auction
once it becomes available.\28\
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\28\ See Trader Update, October 6, 2020, NYSE American Options:
AON CUBE Orders Available for Testing, available here: https://www.nyse.com/trader-update/history#110000319620.
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2. Statutory Basis
For the reasons set forth above, the Exchange believes the proposed
rule change is consistent with Section 6(b) of the Act in general, and
furthers the objectives of Section 6(b)(5) of the Act, in that it is
designed to promote just and equitable principles of trade, remove
impediments to and perfect the mechanisms of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
The proposed optional all-or-none functionality for larger-sized
orders, which is consistent with Exchange's recently approved Single-
Leg AON CUBE Order functionality,\29\ is intended to benefit investors,
because it is designed to provide investors seeking to execute larger-
sized option orders in the Complex CUBE Auction with greater certainty
regarding the price at which the order would be executed. In this
regard, the Exchange seeks to expand this functionality to the Complex
CUBE Auction, which functionality is also consistent with similar
price-improvement mechanisms for larger-
[[Page 9115]]
sized complex orders already available on other options exchanges. As
such, this is a filing that will allow the Exchange to compete with
other options exchanges for such larger-sized Complex Orders and would
benefit market participants who are already familiar with such price-
improvement mechanisms.\30\
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\29\ See supra note 6 (regarding recent approval of Commentary
.05 to Rule 971.1NY).
\30\ See supra note 7 (regarding Nasdaq ISE's Complex Solicited
Order Mechanism and Cboe's Complex Solicitation Auction Mechanism,
both of which are mechanisms for larger-sized paired complex orders
designated as AON).
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This proposal would remove impediments to and perfect the mechanism
of a free and open market and a national market system because it would
provide ATP Holders that locate liquidity for their customers' larger-
sized orders a facility in which to execute those orders at the agreed-
upon price, while also providing an opportunity for such orders to be
price improved. In addition, ATP Holders that opt to utilize this
proposed functionality would have an equal opportunity to initiate
their own or to respond with their best prices to other AON CUBE
Auctions. The Exchange believes the proposed functionality would
promote and foster competition and provide more options contracts with
the opportunity for price improvement.
The Exchange believes that the proposed functionality would provide
more efficient transactions, reduce execution risk to ATP Holders, and
afford greater execution opportunities for larger-sized orders. The
proposed functionality would operate within the Complex CUBE (including
by integrating Complex CUBE into the Complex Matching Engine, per Rule
971.2NY(a)) such that the Exchange is able to assure that the proposed
functionality would continue to respect the priority of interest, in
particular Customer interest. The proposal ensures that the AON Complex
CUBE Order is exposed to ATP Holders for the possibility of price
improvement and that Customer orders on the Exchange are protected. As
noted above, at the conclusion of an AON Complex CUBE Auction, the AON
Complex CUBE Order would be executed in full (against the Complex
Contra Order or eligible contra-side auction interest) or would be
cancelled, together with the Complex Contra Order.
Further, the proposed functionality is reasonable and promotes a
fair and orderly market and national market system, because it is
substantially similar to the price- improvement mechanisms for larger-
sized orders available on other options exchanges. The Exchange
believes this proposal may lead to an increase in Exchange volume and
should allow the Exchange to better compete against other markets that
already offer an all-or-none electronic solicitation mechanism for
larger-sized orders. The Exchange believes that its proposal would
allow the Exchange to better compete for solicited transactions, while
providing an opportunity for price improvement on the larger-sized
orders. In addition, the proposed functionality should promote and
foster competition and provide more options contracts with the
opportunity for price improvement, which should benefit market
participants.
The proposed clarifications to the Single-Leg CUBE Auction Rule
would protect investors and the public interest because the proposed
changes add clarity, transparency and internal consistency to Exchange
rules.\31\
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\31\ See supra notes 17, 18, 21 and 26.
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Finally, consistent with other options exchanges offering similar
price- improvement auctions, the proposed rule change would require ATP
Holders to provide customers with the terms and conditions of agency
orders that might be submitted as AON Complex CUBE Orders on their
behalf.\32\
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\32\ See Nasdaq ISE, Options 3, Section 11(e)(5) and Cboe
Options Rule 5.40, Interpretations and Policies .01 (both setting
forth substantially similar notice requirements for agency orders
handled on behalf of customers). See supra note 26 (regarding the
addition of a notice provisions to the Single-Leg CUBE auction
rule).
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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. The Exchange does not
believe the proposed rule change would impose any burden on intramarket
competition, as the proposed rule change will apply in the same manner
to all orders submitted as AON Complex Orders to the Complex CUBE
Auction. The Exchange recently received rule approval for AON CUBE
Order functionality in the Single-Leg CUBE Auction, which operates in a
substantially similar manner to the complex functionality, accounting
for differing priority and allocation rules.\33\
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\33\ See supra note 6 (regarding recent approval of Commentary
.05 to Rule 971.1NY).
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The Exchange is proposing the functionality for Complex Orders as
an optional market enhancement that, if utilized, should increase
competition for ATP Holders seeking to execute such larger-sized orders
in an electronic auction mechanism. ATP Holders that opt to utilize
this proposed functionality would have an equal opportunity to initiate
their own or to respond with their best prices to other AON CUBE
Auctions. The Exchange notes that other options exchanges offer
electronic auction mechanisms for larger-sized orders on an AON basis.
The Exchange believes the proposed functionality would provide ATP
Holders with a greater choice of exchanges from which to execute such
orders. The proposal is structured to offer the same enhancement to all
market participants and would not impose an intra-market competitive
burden on any participant. The price-improvement functionality for the
AON Complex CUBE Auction is designed to promote competition for ATP
Holders to compete amongst each other by responding with not only their
best price, but also the full size for a particular auction.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily direct order flow to competing
venues who offer similar functionality. The Exchange believes that the
proposed rule change will relieve any burden on, or otherwise promote,
competition. The Exchange believes this proposed rule change is
necessary to permit fair competition among the options exchanges and to
establish more uniform price-improvement auction rules on the various
options exchanges. The proposed functionality may lead to an increase
in Exchange volume and should allow the Exchange to better compete
against other markets that already offer similar price-improvement
mechanisms for larger-sized orders. The Exchange anticipates that this
proposal will create new opportunities for the Exchange to attract new
business and compete on equal footing with those options exchanges that
offer auction AON functionality for larger-sized Complex Orders and for
this reason the proposal does not create an undue burden on intermarket
competition. By contrast, not having the proposed functionality places
the Exchange at a competitive disadvantage vis-[agrave]-vis other
exchanges that offer similar price-improvement mechanisms for larger-
sized Complex Orders.
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.
[[Page 9116]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \34\ and Rule 19b-4(f)(6) thereunder.\35\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\34\ 15 U.S.C. 78s(b)(3)(A)(iii).
\35\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \36\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\37\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange states that
waiver of the operative delay would allow the Exchange to deploy the
new functionality immediately, which would help to ease the potential
disruption to floor trading in the event that the Exchange is required
to temporarily close its trading floor for reasons related to COVID-
19.\38\ The Commission believes that waiver of the operative delay is
consistent with the protection of investors and the public interest
because it will allow the Exchange to implement the proposed
functionality without delay in the event that the Exchange must
temporarily close its trading floor. As discussed above, the proposed
AON complex CUBE auction is substantially similar to the paired
solicited complex order auctions in place on other options exchanges
and does not raise new or novel regulatory issues.\39\ In addition, the
proposed changes to the single-leg AON CUBE provisions in Rule 971.1NY
should help to avoid confusion by assuring that the descriptions of the
single-leg and the complex AON CUBE auctions remain consistent.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposal operative upon filing.\40\
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\36\ 17 CFR 240.19b-4(f)(6).
\37\ 17 CFR 240.19b-4(f)(6)(iii).
\38\ The Exchange notes that it temporarily closed its trading
floor for several months in 2020 and for the last week of December
2020 for reasons related to COVID-19. See Trader Update, December
24, 2020, NYSE American Options to Move Temporarily to All-
Electronic Trading on December 28, 2020, available here: https://www.nyse.com/trader-update/history#110000331853.
\39\ See, e.g., note 7, supra.
\40\ For purposed only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \41\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\41\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2021-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAMER-2021-06. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEAMER-2021-06, and should be
submitted on or before March 4, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02777 Filed 2-10-21; 8:45 am]
BILLING CODE 8011-01-P
