Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change for New Rules 6.1P-O, 6.37AP-O, 6.40P-O, 6.41P-O, 6.62P-O, 6.64P-O, 6.76P-O, and 6.76AP-O and Amendments to Rules 1.1, 6.1-O, 6.1A-O, 6.37-O, 6.65A-O and 6.96-O, 36440-36476 [2021-14391]

Download as PDF 36440 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION [Release No. 34–92304; File No. SR– NYSEArca–2021–47] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change for New Rules 6.1P–O, 6.37AP–O, 6.40P–O, 6.41P–O, 6.62P–O, 6.64P–O, 6.76P–O, and 6.76AP–O and Amendments to Rules 1.1, 6.1–O, 6.1A–O, 6.37–O, 6.65A–O and 6.96–O June 30, 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 June 21, 2021, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. jbell on DSKJLSW7X2PROD with NOTICES2 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes new Rules 6.1P–O (Applicability), 6.37AP–O (Market Maker Quotations), 6.40P–O (Pre-Trade and Activity-Based Risk Controls), 6.41P–O (Price Reasonability Checks—Orders and Quotes), 6.62P–O (Orders and Modifiers), 6.64P–O (Auction Process), 6.76P–O (Order Ranking and Display), and 6.76AP–O (Order Execution and Routing) and proposes amendments to Rules 1.1 (Definitions), 6.1–O (Applicability, Definitions and References), 6.1A–O (Definitions and References—OX), 6.37– O (Obligations of Market Makers), 6.65A–O (Limit-Up and Limit-Down During Extraordinary Market Volatility), and 6.96–O (Operation of Routing Broker) to reflect the implementation of the Exchange’s Pillar trading technology on its options market. 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. 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 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 Background The Exchange plans to transition its options trading platform to its Pillar technology platform. The Exchange’s and its national securities exchange affiliates’ 4 (together with the Exchange, the ‘‘NYSE Exchanges’’) cash equity markets are currently operating on Pillar. For this transition, the Exchange proposes to use the same Pillar technology already in operation for its cash equity market. In doing so, the Exchange will be able to offer not only common specifications for connecting to both of its cash equity and equity options markets, but also common trading functions. The Exchange plans to roll out the new technology platform over a period of time based on a range of symbols, anticipated for the fourth quarter of 2021. With this transition, certain rules would continue to be applicable to symbols trading on the current trading platform—the OX system,5 but would 4 The Exchange’s national securities exchange affiliates are the New York Stock Exchange LLC (‘‘NYSE’’), NYSE American LLC (‘‘NYSE American’’), NYSE National, Inc. (‘‘NYSE National’’), and NYSE Chicago, Inc. (‘‘NYSE Chicago’’). 5 ‘‘OX’’ refers to the Exchange’s current electronic order delivery, execution, and reporting system for designated option issues through which orders and quotes of Users are consolidated for execution and/ or display. See Rule 6.1A–O(13). ‘‘OX Book’’ refers to the OX’s electronic file of orders and quotes, which contain all of the orders in each of the Display Order and Working Order processes and all of the Market Makers’ quotes in the Display Order Process. See Rule 6.1A–O(14). With the transition to Pillar, the Exchange would no longer use the terms ‘‘OX’’ or ‘‘OX Book’’ and rules using those terms would not be applicable to trading on Pillar. Once the transition is complete, the Exchange will file a subsequent proposed rule change to delete references to OX and OX Book from the rulebook. PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 not be applicable to symbols that have transitioned to trading on Pillar. Instead, the Exchange proposes new rules to reflect how options would trade on the Exchange once Pillar is implemented. These proposed rule changes will (1) use Pillar terminology that is based on Exchange Rule 7–E Pillar terminology governing cash equity trading; (2) provide for common functionality on both its options and cash equity markets; and (3) introduce new functionality. The Exchange notes that certain of the proposed new Pillar rules concern functionality not currently available on the OX system and that would be unique to how option contracts trade, and therefore would be new rules with no parallel version for the Exchange’s cash equity market. Proposed Use of ‘‘P’’ Modifier As proposed, new rules governing options trading on Pillar would have the same numbering as current rules that address the same functionality, but with the modifier ‘‘P’’ appended to the rule number. For example, Rule 6.76–O, governing Order Ranking and Display— OX, would remain unchanged and continue to apply to any trading in symbols on the OX system. Proposed Rule 6.76P–O would govern Order Ranking and Display for trading in options symbols migrated to the Pillar platform. All other current rules that have not had a version added with a ‘‘P’’ modifier will be applicable to how trading functions on both the OX system and Pillar. Once all options symbols have migrated to the Pillar platform, the Exchange will file a separate rule proposal to delete rules that are no longer operative because they apply only to trading on the OX system. To reflect how the ‘‘P’’ modifier would operate, the Exchange proposes to add rule text immediately following the title ‘‘Rule 6–O Options Trading,’’ and before ‘‘Rules Principally Applicable to Trading of Option Contracts’’ that would provide that rules with a ‘‘P’’ modifier would be operative for symbols that are trading on the Pillar trading platform. As further proposed, if a symbol is trading on the Pillar trading platform, a rule with the same number as a rule with a ‘‘P’’ modifier would no longer be operative for that symbol and the Exchange would announce by Trader Update 6 when symbols are trading on the Pillar trading platform.7 6 Trader Updates are available here: https:// www.nyse.com/trader-update/history. Anyone can subscribe to email updates of Trader Updates, available here: https://www.nyse.com/subscriptions. 7 The Exchange used the same description when it transitioned its cash equity platform to Pillar. See E:\FR\FM\09JYN2.SGM 09JYN2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 The Exchange believes that adding this explanation regarding the ‘‘P’’ modifier in Exchange rules would provide transparency regarding which rules and definitions would be operative during the symbol migration to Pillar. Summary of Proposed Rule Changes In this filing, the Exchange proposes the following new Pillar rules: Rules 6.1P–O (Applicability), 6.37AP–O (Market Maker Quotations), 6.40P–O (Pre-Trade and Activity-Based Risk Controls), 6.41P–O (Price Reasonability Checks—Orders and Quotes), 6.62P–O (Orders and Modifiers), 6.64P–O (Auction Process), 6.76P–O (Order Ranking and Display), and 6.76AP–O (Order Execution and Routing). The Exchange also proposes to amend Rules 1.1 (Definitions), 6.1–O (Applicability, Definitions and References), and 6.1A– O (Definitions and References—OX) to reflect definitions that would be applicable for options trading on Pillar and make conforming amendments to Rules 6.37–O (Obligations of Market Makers), 6.65A–O (Limit-Up and LimitDown During Extraordinary Market Volatility), and 6.96–O (Operation of Routing Broker). These proposed rules would set forth the foundation of the Exchange’s options trading model on Pillar and would use existing Pillar terminology currently in effect for the Exchange’s cash equity platform. Because certain proposed rules have definitions and functions that carry forward to other proposed rules, the Exchange proposes to describe the new rules in the following order (rather than by rule number order): Definitions, applicability, ranking and display, execution and routing, orders and modifiers, market maker quotations, pre-trade and activity-based risk controls, price reasonability checks, and auctions. To promote clarity and transparency, the Exchange further proposes to add a preamble to the following current rules specifying that they would not be applicable to trading on Pillar: Rule 6.1– O (Applicability, Definitions and References), 6.1A–O (Definitions and References—OX), Rule 6.37A–O (Market Maker Quotations), 6.40–O (Risk Limitation Mechanism), 6.60–O (Price Protection—Orders), 6.61–O (Price Protections—Quotes), 6.62–O (Certain Types of Orders Defined), 6.64–O (OX Opening Process), 6.76–O (Order Ranking and Display—OX), 6.76A–O (Order Execution—OX), 6.88–O Securities Exchange Act Release Nos. 75494 (July 20, 2015), 80 FR 44170 (July 24, 2015) (SR– NYSEArca–2015–38) (Approval Order) and 74951 (May 13, 2015), 80 FR 28721 (May 19, 2015) (Notice). VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 (Directed Orders), and 6.90–O (Qualified Contingent Crosses). As discussed in greater detail below, the Exchange is not proposing fundamentally different functionality applicable to options trading on Pillar than on the OX system. However, with Pillar, the Exchange would introduce new terminology, and as applicable, new or updated functionality that would be available for options trading on the Pillar platform. The Exchange notes that new rules relating to electronic complex trading on Pillar will be addressed in separate proposed rule change. Proposed Rule Changes Rule 1.1—Definitions Rule 1.1 sets forth definitions that are applicable to both the Exchange’s cash equity and options markets. Rule 6.1– O(b) sets forth definitions that are applicable to the trading of option contracts on the Exchange. Rule 6.1A– O sets forth definitions that are applicable to trading on the Exchange’s current OX system. In connection with the transition of options trading to Pillar, the Exchange proposes to copy the definitions currently set forth in Rules 6.1–O and 6.1A–O into to Rule 1.1, with changes as described below. This proposed rule change would streamline the Exchange’s rules by consolidating definitions that would be applicable for trading on Pillar into Rule 1.1. Once the transition to Pillar is complete, the Exchange will file a subsequent proposed rule change to delete current Rules 6.1–O and 6.1A–O. In connection with adding definitions to Rule 1.1, the Exchange proposes to delete the sub-paragraph numbering currently set forth in Rule 1.1. The Exchange does not believe that the subparagraph numbering is necessary because the definitions are organized in alphabetical order and would continue to be organized in alphabetical order. In addition, removing the sub-paragraph numbering would make any future amendments to Rule 1.1 easier to process as any new definitions would simply be added in alphabetical order. Certain definitions in Rule 1.1 currently specify that they are only for ‘‘equities’’ trading. With the proposed consolidation of definitions, some of those definitions will become applicable to both options and cash equity trading, and others will continue to be applicable only to cash equity trading. With the proposed consolidation, the Exchange proposes to remove existing language limiting those definitions to ‘‘equities’’ traded on the Exchange if the definition would be equally applicable PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 36441 to options trading. In addition, to the extent that a proposed definition would continue to be applicable only to cash equity trading, the Exchange proposes to make a global change to update references to ‘‘equities’’ traded on the Exchange to ‘‘cash equity securities’’ traded on the Exchange. The Exchange believes these proposed modifications would add clarity and consistency to Exchange rules. The Exchange proposes the following amendments to Rule 1.1. First, definitions set forth in Rule 6.1– O(b) would be added to Rule 1.1 in alphabetical order without any substantive differences.8 To promote clarity, if the definition that is being copied is not specifically about options trading, the Exchange proposes to add an introductory clause to the definition to specify that the term is for options traded on the Exchange. The Exchange does not propose to copy the definition of ‘‘Quote with Size,’’ which is currently defined in Rule 6.1–O(b)(33), to Rule 1.1 because that term would not be used in the Pillar rules, and does not propose to copy the definition of ‘‘Short Term Options Series,’’ because it is duplicative of Commentary .07 to Rule 6.4–O. In addition, the Exchange is not including the definition of ‘‘Foreign Broker/Dealer,’’ which is currently defined in Rule 6.1–O(b)(31), in Rule 1.1, as this term is not used anywhere else in Exchange rules.9 The Exchange also proposes the following clarifying, non-substantive changes to definitions that are being copied from Rule 6.1–O(b) to Rule 1.1: • The Exchange proposes to provide that the term ‘‘class of options’’ or ‘‘class’’ would mean all series of options, both puts and calls, overlying the same underlying security. • The Exchange proposes to streamline the definitions of ‘‘Closing 8 Rule 6.1–O(b) has definitions for: Options Clearing Corporation, Rules of the Options Clearing Corporation, Clearing Member, Participating Exchange, Option Contract, Exchange Option Transaction and Exchange Transaction, Type of Option, Call, Put, Class of Options, Series of Options, Option Issue, Underlying Stock or Underlying Security, Exercise Price, Aggregate Exercise Price, Expiration Month, Expiration Date, Long Position, Short Position, Opening Purchase Transaction, Opening Writing Transaction, Closing Sale Transaction, Closing Purchase Transaction, Covered, Uncovered, Outstanding, Primary Market, Options Trading, Customer, Trading Crowd, Foreign Broker/Dealer, Exchange-Traded Fund Share, Quote with Size, Trading Official, Non-OTP Firm or Non-OTP Holder Market Maker, Firm, Consolidated Book, Crowd Participants, Electronic Order Capture System, Short Term Option Series, and Quarterly Options Series. 9 The Exchange is not proposing to delete the definitions of either ‘‘Quote with Size’’ or ‘‘Foreign Broker/Dealer’’ at this time as such terms would be deleted in the subsequent filing to delete Rule 6.1– O. E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36442 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Purchase Transaction,’’ Closing Sale Transaction,’’ ‘‘Opening Purchase Transaction,’’ and ‘‘Opening Writing Transaction’’ without any substantive differences. • The Exchange proposes to revise the definition of ‘‘Electronic Order Capture System’’ to eliminate reference to the Commission’s order Instituting Public Administrative Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions, which was the initial authority for the Exchange to specify requirements relating to the Electronic Order Capture System. The Exchange will continue to include requirements for the Electronic Order Capture System in its rules and does not believe it is necessary to continue to cite to the original authority for this requirement in Exchange rules. • The Exchange proposes to streamline the definition of ‘‘Expiration Date’’ to eliminate now obsolete language limiting the definition to options expiring before, on, or after February 15, 2015. In addition, the Exchange does not propose to include the following text in the Rule 1.1 definition of ‘‘Expiration Date’’: ‘‘Notwithstanding the foregoing, in the case of certain long-term options expiring on or after February 1, 2015 that the Options Clearing Corporation has designated as grandfathered, the term ‘‘expiration date’’ shall mean the Saturday immediately following the third Friday of the expiration month.’’ This rule text is now obsolete as the Exchange does not have any series trading on the Exchange with such Saturday expiration dates. • The Exchange proposes to add to the definition of ‘‘option contract’’ that option contracts would include within the definition of ‘‘security’’ or ‘‘securities’’ as such terms are used in the Bylaws and Rules of the Exchange. This proposed text is copied from the last sentence of current Rule 6.1–O(a). As described below, proposed Rule 6.1P–O would not include this text. • The Exchange proposes to amend the definition of ‘‘option issue’’ to mean the security underlying a class of options. • The Exchange proposes to streamline the definition of ‘‘outstanding’’ without any substantive differences. • The Exchange proposes to use the term ‘‘underlying security’’ rather than referring separately to an ‘‘underlying stock or Exchange-Traded Fund Share,’’ as an Exchange-Traded Fund Share is a security as that term is defined in Rule 1.1 (and is also an NMS stock). VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Second, definitions set forth in Rule 6.1A–O(a) would be moved and added to Rule 1.1 in alphabetical order without any substantive differences.10 Because certain of these definitions are already set forth in Rule 1.1 for cash equity trading, the Exchange proposes to amend those existing definitions to specify that they would be applicable to options trading, and if applicable, set forth differences for options trading, as described in more detail below. The Exchange does not propose to move the definition of ‘‘Directed Order Market Maker’’ to Rule 1.1 because in Pillar, the Exchange would no longer support Directed Order Market Makers. In addition, the Exchange does not propose to move the definitions of ‘‘Complex BBO’’ or ‘‘Complex NBBO’’ to Rule 1.1, and instead will be proposing to define those terms in a separate proposed rule change relating to electronic complex trading. As noted above, the terms ‘‘OX’’ and ‘‘OX Book’’ will not be used in Pillar rules. Finally, in addition to definitions that are being moved without any substantive changes, the Exchange proposes the following specific changes to Rule 1.1 definitions: 11 • Approved Person: The Exchange proposes a non-substantive amendment to change the word ‘‘a’’ to ‘‘an’’ before ‘‘OTP Firm.’’ • Authorized Trader: The Exchange proposes to amend the Rule 1.1 definition of ‘‘Authorized Trader’’ to remove the limitation to equities trading so that it is applicable to both cash equity securities and options traded on the Exchange, and to add that it can mean a person who may submit orders to the Exchange’s Trading Facilities on behalf of his or her OTP Holder. These proposed amendments combine the definition of Authorized Trader currently set forth in Rule 6.1A–O(a)(1) with the existing Rule 1.1 definition of Authorized Trader without any substantive differences. • Away Market: The Exchange proposes to amend the Rule 1.1 definition of ‘‘Away Market’’ to add how that term would be used for options trading on the Exchange. As proposed, the new text would provide: 10 Rule 6.1A–O(a) has definitions for: Authorized Trader, BBO, Complex BBO, Core Trading Hours, Customer, Professional Customer, Lead Market Maker, Market Center, Marketable, Market Maker, Market Maker Authorized Trader, Minimum Price Variation, NBBO, Complex NBBO, NOW Recipient, OX, OX Book, Routing Broker, Sponsored Participant, Sponsoring OTP Firm, Sponsorship Provisions, User, Directed Order Market Maker, and Order Flow Provider. 11 The Exchange also proposes a non-substantive amendment to the definition of ‘‘Exchange’’ to add a period at the end of the sentence. PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 ‘‘[w]ith respect to options traded on the Exchange, the term ‘‘Away Market’’ means any Trading Center (1) with which the Exchange maintains an electronic linkage, and (2) that provides instantaneous responses to orders routed from the Exchange.’’ This proposed definition is based on the Rule 6.1A–O(a)(12) definition of ‘‘NOW Recipient’’ with only a non-substantive difference to use the Pillar term of ‘‘Away Market’’ instead of the term ‘‘NOW Recipient.’’ The Exchange does not include in this definition reference to designating and publishing to its website certain Away Markets because such markets are by definition those with which the Exchange maintains electronic linkage (i.e., pursuant to the Options Order Protection and Locked/ Crossed Market Plan). • BBO: The Exchange proposes to amend the Rule 1.1 definition of ‘‘BBO’’ to add how that term would be used for options trading on the Exchange. As proposed, with respect to options traded on the Exchange, BBO would mean the best displayed bid or best displayed offer on the Exchange. This definition is based on the Rule 6.1A–O(a)(2)(a) definition of BBO without any substantive differences. • Consolidated Book: The term ‘‘Consolidated Book’’ is currently defined in Rule 6.1–O(b)(37) and the term ‘‘OX Book’’ is currently defined in Rule 6.1A–O(a)(14). For Pillar, the Exchange proposes to define the term ‘‘Consolidated Book’’ based on both of those existing definitions and would provide that for options traded on the Exchange, the term ‘‘Consolidated Book’’ would mean the Exchange’s electronic book of orders and quotes and that all orders and quotes that are entered into the Consolidated Book would be ranked and maintained in accordance with the rules of priority, as provided for in proposed Rule 6.76P–O. This proposed definition is also similar to the existing Rule 1.1 definition of ‘‘NYSE Arca Book,’’ which would be amended to specify that the definition would only be for cash equity securities traded on the Exchange. • Core Trading Hours: The definition of Core Trading Hours would be applicable to both cash equity securities and options trading on the Exchange. Because options trading may extend past 4:00 p.m., the Exchange proposes to amend the Rule 1.1 to provide that for options traded on the Exchange, transactions may be effected on the Exchange for an equity options class until close of trading of the primary market for the securities underlying an options class. This proposed text is E:\FR\FM\09JYN2.SGM 09JYN2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 based on current Rule 6.1A–O(a)(3) without substantive changes.12 • Customer and Professional Customer: The Exchange proposes to amend Rule 1.1 to add the definitions of ‘‘Customer’’ and ‘‘Professional Customer.’’ The proposed definitions are based on the definitions of Customer and Professional Customer set forth in Rule 6.1A–O(a)(4) and (4A) with nonsubstantive differences only to specify that these definitions would be applicable for options traded on the Exchange, eliminate redundant headers, and re-number the sub-paragraphs. The Exchange also proposes to include a cross-reference to the definition of a broker or dealer as defined Sections 3(a)(4) and 3(a)(5) of the Exchange Act and rules thereunder.13 The Exchange believes that this specificity adds clarity and transparency to the proposed definition. • Lead Market Maker: The Exchange proposes to amend the Rule 1.1 definition of ‘‘Lead Market Maker’’ to add how that term would be used for options trading. As proposed, the new text would provide that for options traded on the Exchange, the term ‘‘Lead Market Maker’’ or ‘‘LMM’’ would ‘‘mean a person that has been deemed qualified by the Exchange for the purpose of making transactions on the Exchange in accordance with Rule 6.82–O. Each LMM must be registered with the Exchange as a Market Maker. Any OTP Holder or OTP Firm registered as a Market Maker with the Exchange is eligible to be qualified as an LMM.’’ This proposed definition is based on the Rule 6.1A–O(a)(5) definition of Lead Market Maker without any differences. • Marketable: The Exchange proposes to amend the Rule 1.1 definition of ‘‘Marketable’’ to extend it to address options traded on the Exchange. The current description of the term ‘‘Marketable’’ for purposes of Market Orders is the same in both Rules 1.1 and 6.1A–O(a)(7). With respect to Limit Orders, in Rule 1.1, the term ‘‘Marketable’’ currently means an order that can be immediately executed or routed. The current Rule 6.1A–O(a)(7) definition of the term ‘‘Marketable’’ for Limit Orders means when the price of the order matches or crosses the NBBO on the other side of the market. The current Rule 1.1 definition relating to 12 The Exchange does not propose to include text regarding trading that continues 15 minutes after the regular time set for the normal close of trading in the primary markets with respect to index options classes, as this is already addressed in Rule 5.20–O(a) (Trading Sessions). 13 The Exchange does not propose to carry over the definition of ‘‘Customer’’ that is set forth in Rule 6.1–O(b)(29) as unnecessary. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Limit Orders means substantively the same thing as the Rule 6.1A–O(a)(7) description for Limit Orders, and the Exchange proposes using the existing Rule 1.1 definition of the term ‘‘Marketable’’ for both cash equity and options trading of Limit Orders. The Exchange also proposes a nonsubstantive amendment to add a comma after the phrase, ‘‘the term ‘‘Marketable’’ means’’ and before ‘‘for a Limit Order.’’ • Market Maker: The Exchange proposes to amend the Rule 1.1 definition of ‘‘Market Maker’’ to add how that term would be used for options trading. As proposed, the new text would provide that for options traded on the Exchange, the term ‘‘Market Maker’’ would refer ‘‘to an OTP Holder or OTP Firm that acts as a Market Maker pursuant to Rule 6.32– O.’’ This proposed definition is based on the Rule 6.1A–O(a)(8) definition of Market Maker without any differences. The Exchange also proposes to include in the definition of Market Maker that for purposes of the NYSE Arca rules, the term Market Maker includes Lead Market Makers, unless the context otherwise indicates. This proposed text is based on Rule 6.1–O(c), References, without substantive differences. The Exchange believes this proposed change would streamline and clarify this definition. • Market Maker Authorized Trader: The Exchange proposes to amend the Rule 1.1 definition of ‘‘Market Maker Authorized Trader’’ to add how that term would be used for options trading. As proposed, the new text would provide that for options traded on the Exchange, the term ‘‘Market Maker Authorized Trader’’ or ‘‘MMAT’’ would ‘‘mean an authorized trader who performs market making activities pursuant to Rule 6–O on behalf of an OTP Firm or OTP Holder registered as a Market Maker.’’ This proposed definition is based on the Rule 6.1A– O(a)(9) definition of Market Maker Authorized Trader without any differences. • Market Participant Identifier (‘‘MPID’’): The Exchange proposes to add a new definition to Rule 1.1 for ‘‘Market Participant Identifier (‘MPID’).’’ This term is currently used in Rules 7.19–E and 7.31–E(i)(2). Because this term would also be used for options trading, the Exchange believes that defining this term in Rule 1.1 would promote clarity and transparency. The proposed definition would provide that ‘‘Market Participant Identifier’’ or ‘‘MPID’’ refers to the identification number(s) assigned to the orders and quotes of a single ETP Holder, OTP Holder, or OTP Firm for the execution PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 36443 and clearing of trades on the Exchange by that permit holder. The definition would further provide that an ETP Holder, OTP Holder, or OTP Firm may obtain multiple MPIDs and each such MPID may be associated with one or more sub-identifiers of that MPID. • Minimum Price Variation or MPV: The Exchange proposes to amend Rule 1.1 to add the definition of ‘‘Minimum Price Variation’’ or ‘‘MPV’’ for both cash equity securities and options that are traded on the Exchange. The Exchange proposes that the term ‘‘Minimum Price Variation’’ or ‘‘MPV’’ means the minimum price variations established by the Exchange. The Exchange further proposes that the MPV for quoting cash equity securities traded on the Exchange are set forth in Rule 7.6–E. The Exchange further proposes that the MPV for quoting and trading options traded on the Exchange are set forth in Rule 6.72–O(a). The proposed definition as it relates to options trading is based on the Rule 6.1A–O(a)(10) definition of MPV. • NBBO: The Exchange proposes to amend the Rule 1.1 definition of ‘‘NBBO, Best Protected Bid, Best Protected Offer, Protected Best Bid and Offer (PBBO)’’ to add how the term NBBO would be used for options trading. The Exchange proposes that: ‘‘[w]ith respect to options traded on the Exchange, the term ‘‘NBBO’’ means the national best bid or offer. The terms ‘‘NBB’’ means the national best bid and ‘‘NBO’’ means the national best offer. This proposed definition is based on the Rule 6.1A–O(a)(11)(a) definition of NBBO without any differences. In addition, unless otherwise specified, for options trading, the Exchange may adjust its calculation of the NBBO based on information about orders it sends to Away Markets, execution reports received from those Away Markets, and certain orders received by the Exchange. This proposed text reflects how the Exchange currently calculates the NBBO for options trading and is based on how the PBBO is calculated on the Exchange’s cash equity market, as described in Rule 7.37–E(d)(2).14 The Exchange proposes that it would adjust its calculation of the NBBO for options traded on the Exchange in the same manner that the Exchange calculates the PBBO for cash equity securities traded on the Exchange. The Exchange further notes that there are limited circumstances when the Exchange would not adjust its calculation of the 14 See Securities Exchange Act Release No. 91564 (April 14, 2021), 86 FR 20541 (April 20, 2021) (SR– NYSEArca–2021–21) (Notice of filing and immediate effectiveness of proposed rule change to specify when the Exchange may adjust its calculation of the PBBO). E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36444 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices NBBO, and would determine the NBBO for options in the same way that the Exchange determines the NBBO for cash equity securities traded on the Exchange. As described in detail below, the Exchange will specify in its rules when it would be not be using an adjusted NBBO for purposes of a specific rule. The Exchange further proposes that the term ‘‘Away Market NBBO’’ would refer to a calculation of the NBBO that excludes the Exchange’s BBO. • NYSE Arca Book: The Exchange proposes to amend the Rule 1.1 definition of ‘‘NYSE Arca Book’’ to specify that this term is applicable only for cash equity securities traded on the Exchange. As noted above, the Exchange uses the term ‘‘Consolidated Book’’ for options traded on the Exchange. • NYSE Arca Marketplace: The Exchange proposes to amend the Rule 1.1 definition of ‘‘NYSE Arca Marketplace’’ to specify that this term is applicable only for cash equity securities traded on the Exchange. • Order Flow Provider or OFP: The Exchange proposes to add the definition of ‘‘Order Flow Provider or OFP’’ to Rule 1.1 to mean ‘‘any OTP Holder that submits, as agent, orders to the Exchange.’’ This proposed definition is based on the Rule 6.1A–O(a)(21) definition of ‘‘Order Flow Provider’’ without any differences. • Trading Center: The Exchange proposes to amend the Rule 1.1 definition of ‘‘Trading Center’’ to add how this term would be used for options trading. As proposed: ‘‘[w]ith respect to options traded on the Exchange, for purposes of Rule 6–O, the term ‘‘Trading Center’’ means a national securities exchange that has qualified for participation in the Options Clearing Corporation pursuant to the provisions of the rules of the Options Clearing Corporation.’’ This proposed definition is based on the Rule 6.1A–O(a)(6) definition of ‘‘Market Center’’ with a non-substantive difference to use the term ‘‘Trading Center’’ instead of ‘‘Market Center.’’ • User: The Exchange proposes to amend the Rule 1.1 definition of ‘‘User’’ to add how this term would be used for options trading. As proposed: ‘‘[w]ith respect to options traded on the Exchange, the term ‘User’ shall mean any OTP Holder or OTP Firm who is authorized to obtain access to the Exchange pursuant to Rule 6.2A–O.’’ This proposed definition is based on the Rule 6.1A–O(a)(19) definition of User with non-substantive differences to use Pillar terminology. • User Agreement: The Exchange proposes a non-substantive amendment VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 to the Rule 1.1 definition of ‘‘User Agreement’’ to replace the term ‘‘NYSE Arca, L.L.C’’ with the term the ‘‘Exchange.’’ In addition to proposed amendments to Rule 1.1, the Exchange proposes to amend Rule 6.96–O to add the definition of ‘‘Routing Broker,’’ which is currently defined in Rule 6.1A–O(a)(15). For options trading on Pillar, the Exchange proposes to define the term in Rule 6.96–O (Operation of a Routing Broker) to mean ‘‘the broker-dealer affiliate of NYSE Arca, Inc. and any other non-affiliate that provides services for routing orders submitted to the Exchange to other Trading Facilities for execution whenever such routing is required by NYSE Arca Rules and federal securities laws.’’ 15 The proposed rule text is based on the current definition in Rule 6.1A– O(a)(15), with non-substantive amendments to use Pillar terminology. In connection with the proposed amendments to Rule 1.1, the Exchange proposes to add the following preamble to Rule 6.1A–O: ‘‘This Rule will not be applicable to trading on Pillar.’’ This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.1A–O would not be applicable to trading on Pillar. Proposed Rule 6.1P–O: Applicability Current Rule 6.1–O sets forth the applicability, definitions, and references in connection with options trading. As noted above, the definitions in Rule 6.1– O(b) and reference to LMMs being included in the definition of Market Maker will be copied to proposed Rule 1.1 for purposes of trading on Pillar. The Exchange proposes new Rule 6.1P–O to include only those portions of Rule 6.1–O relating to applicability of Exchange Rules that would continue to be applicable after the transition to Pillar. Proposed Rule 6.1P–O(a) would be based on current Rule 6.1–O(a) with differences that would streamline the proposed rule and reduce duplication of terms defined in Rule 1.1. Proposed Rule 6.1P–O(b) would be based in part on Rule 6.1–O(e) regarding the ‘‘Applicability of Other Exchange Rules,’’ with changes to eliminate obsolete and duplicative text and to clarify the proposed rule to provide that unless stated otherwise, Exchange Rules would be applicable to transactions on the Exchange in option contracts. In connection with proposed Rule 6.1P–O, the Exchange proposes to add 15 The Exchange also proposes non-substantive amendments to Rule 6.96–O to renumber current paragraphs (a), (b), and (c), as paragraphs (b), (c), and (d). PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 the following preamble to Rule 6.1–O: ‘‘This Rule will not be applicable to trading on Pillar.’’ This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.1–O would not be applicable to trading on Pillar. Proposed Rule 6.76P–O: Order Ranking and Display Rule 6.76–O governs order ranking and display for the current Exchange options trading system. Proposed Rule 6.76P–O would address order ranking and display for options trading under Pillar. With the transition to Pillar, the Exchange does not propose any substantive differences to how orders would be ranked and displayed on the Exchange. However, the Exchange proposes to eliminate the terminology relating to the ‘‘Display Order Process’’ and ‘‘Working Order Process’’ and instead use Pillar terminology based on Rule 7.36–E, which governs order ranking and display on the Exchange’s cash equity market. The Exchange proposes a difference between proposed Pillar options rules and the existing cash equity Pillar rules to reflect that, in addition to entering orders, Market Makers enter quotes on the options trading platform. Accordingly, when the cash equity rules refer to ‘‘orders,’’ the proposed options Pillar rules would refer to both ‘‘orders and quotes.’’ As discussed in detail below, the Exchange believes that the proposed new rule text provides transparency with respect to how the Exchange’s price-time priority model would operate through the use of new terminology applicable to all orders and quotes on the Pillar trading platform. Proposed Rule 6.76P–O(a) would set forth definitions for purposes of all of Rule 6–O Options Trading on the Pillar trading platform, including proposed Rule 6.76AP–O (Order Execution and Routing), described below. The proposed definitions are based on Rule 7.36–E(a) definitions for purposes of Rule 7–E cash equity trading, with differences, as noted above, to reference ‘‘orders and quotes’’ throughout proposed Rule 6.76P–O. The Exchange believes that these proposed definitions would provide transparency regarding how the Exchange would operate its options platform on Pillar, and serve as the foundation for how orders and modifiers would be described for options trading on Pillar, as discussed in more detail below. • Proposed Rule 6.76P–O(a)(1) would define the term ‘‘display price’’ to mean the price at which an order or quote ranked Priority 2—Display Orders or E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Market Order is displayed, which may be different from the limit price or working price of the order. This proposed definition is based on Rule 7.36–E(a)(1). The Exchange proposes a non-substantive difference to refer to ‘‘order or quote ranked Priority 2— Display Orders,’’ versus referring to ‘‘Limit Order,’’ as set forth in Rule 7.36– E(a)(1). The term ‘‘Priority 2—Display Orders’’ is described in more detail below. The Exchange also proposes a second difference compared to the Exchange’s cash equity rules to include Market Orders as interest that may have a display price (for example, as described below and consistent with current functionality, a Market Order could be displayed at its Trading Collar). • Proposed Rule 6.76P–O(a)(2) would define the term ‘‘limit price’’ to mean the highest (lowest) specified price at which a Limit Order or quote to buy (sell) is eligible to trade. The limit price is designated by the User. As noted in the proposed definitions of display price and working price, the limit price designated by the User may differ from the price at which the order would be displayed or eligible to trade. This proposed definition is based on Rule 7.36–E(a)(2) without any substantive differences. The Exchange proposes one non-substantive difference to refer to the specified price of a ‘‘Limit Order or quote,’’ versus referring to ‘‘Limit Order,’’ as set forth in Rule 7.36–E(a)(2). • Proposed Rule 6.76P–O(a)(3) would define the term ‘‘working price’’ to mean the price at which an order or quote is eligible to trade at any given time, which may be different from the limit price or display price of an order. This proposed definition is based on Rule 7.36–E(a)(3) without any substantive differences. The Exchange proposes one non-substantive difference to refer to ‘‘order or quote’’ for purposes of determining ranking priority. The Exchange believes that the term ‘‘working price’’ would provide clarity regarding the price at which an order may be executed at any given time. Specifically, the Exchange believes that use of the term ‘‘working’’ denotes that this is a price that is subject to change, depending on the circumstances. The Exchange will be using this term in connection with orders and modifiers, as described in more detail below. • Proposed Rule 6.76P–O(a)(4) would define the term ‘‘working time’’ to mean the effective time sequence assigned to an order or quote for purposes of determining its priority ranking. The Exchange proposes to use the term ‘‘working time’’ in its rules for trading on the Pillar trading platform instead of VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 terms such as ‘‘time sequence’’ or ‘‘time priority,’’ which are used in rules governing trading on the Exchange’s current system. The Exchange believes that use of the term ‘‘working’’ denotes that this is a time assigned to an order for purposes of ranking and is subject to change, depending on circumstances. This proposed definition is based on Rule 7.36–E(a)(4) without any substantive differences. The Exchange proposes one non-substantive difference to refer to an ‘‘order or quote,’’ versus referring solely to ‘‘an order,’’ as set forth in Rule 7.36–E(a)(4). • Proposed Rule 6.76P–O(a)(5) would define an ‘‘Aggressing Order’’ or ‘‘Aggressing Quote’’ to mean a buy (sell) order or quote that is or becomes marketable against sell (buy) interest on the Consolidated Book. The proposed terms would therefore refer to orders or quotes that are marketable against other orders or quotes on the Consolidated Book, such as incoming orders or quotes as well as orders that have returned unexecuted after routing. These terms would also be applicable to resting orders or quotes that become marketable due to one or more events. For the most part, resting orders or quotes will have already traded with contra-side interest against which they are marketable. To maximize the potential for orders or quotes to trade, the Exchange continually evaluates whether resting interest may become marketable. Events that could trigger a resting order to become marketable include updates to the working price of such order or quote, updates to the NBBO, changes to other interest resting on the Consolidated Book, or processing of inbound messages. To address such circumstances, the Exchange proposes to include in proposed Rule 6.76P– O(a)(5) that a resting order or quote may become an Aggressing Order or Aggressing Quote if its working price changes, if the NBBO is updated, because of changes to other orders or quotes on the Consolidated Book, or when processing inbound messages. The proposed definition of an ‘‘Aggressing Order’’ is based on Rule 7.36–E(a)(5) without any substantive differences. The proposed rule includes non-substantive differences to account for options trading, such as including the defined term ‘‘Aggressing Quote’’; referring to an ‘‘order or quote’’ versus ‘‘an order’’; referring to the Consolidated Book rather than NYSE Arca Book; and referring to the NBBO instead of the PBBO, which is not a term used in options trading. The Exchange believes that these proposed definitions would promote transparency in Exchange rules by providing detail regarding PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 36445 circumstances when a resting order or quote may become marketable, and thus would be an Aggressing Order or Aggressing Quote. Proposed Rule 6.76P–O(b) would govern the display of non-marketable Limit Orders and quotes. The proposed Pillar functionality would operate as described in current preamble of Rule 6.76–O and the Display Order Process set forth in Rule 6.76–O(a)(1), without any substantive differences, but will not use the terms ‘‘Display Order Process,’’ ‘‘Working Order Process,’’ or ‘‘OX,’’ because the Exchange is not proposing to use that terminology in Pillar. Throughout proposed paragraph (b) of Rule 6.76P–O, the Exchange proposes to use the term ‘‘will’’ in instead of ‘‘shall.’’ As proposed, the Exchange would display ‘‘all non-marketable Limit Orders or quotes ranked Priority 2—Display Orders unless the order or modifier instruction specifies that all or a portion of the order is not to be displayed,’’ which rule text is substantially identical to the first sentence of the preamble to current Rule 6.76–O except that Pillar ranking terminology would be used. Rule 6.76P–O(b)(1), which is substantially identical to current Rule 6.76–O(b), would provide that except as otherwise permitted in proposed new Rule 6.76AP–O (discussed below), all non-marketable displayed interest would be displayed on an anonymous basis. Proposed Rule 6.76P–O(b)(2) is substantially identical to the second sentence of the preamble to current Rule 6.76–O, and would provide that the Exchange would disseminate current consolidated quotations/last sale information, and such other market information as may be made available from time to time pursuant to agreement between the Exchange and other Market Centers, consistent with the OPRA Plan. Finally, proposed Rule 6.76P–O(b)(3) would provide that if ‘‘an Away Market locks or crosses the Exchange BBO, the Exchange will not change the display price of any Limit Orders or quotes ranked Priority 2—Display Orders and any such orders will be eligible to be displayed as the Exchange’s BBO.’’ This proposed concept, which is based on Rule 7.36–E(b)(4) (but omits the cash equity-related information regarding regulatory halts), ensures that resting displayed interest that did not cause a locked or crossed market condition can stand their ground and maintain priority at the price at which they were originally displayed. This provision is consistent with the treatment of displayed orders on the Exchange’s cash E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36446 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices equity market as described in Rule 7.36– E(b)(4). Proposed Rule 6.76P–O(c) would describe the Exchange’s general process for ranking orders and quotes and would be comparable to Rule 6.76–O(a), without any substantive differences. As proposed, Rule 6.76P–O(c) would provide that all non-marketable orders and quotes would be ranked and maintained in the Consolidated Book according to price-time priority in the following manner: (1) Price; (2) priority category; (3) time; and (4) ranking restrictions applicable to an order/quote or modifier condition. Accordingly, orders and quotes would be first ranked by price. Next, at each price level, orders and quotes would be assigned a priority category. Orders and quotes in each priority category would be required to be exhausted before moving to the next priority category. Within each priority category, orders and quotes would be ranked by time. These general requirements for ranking are applicable to all orders and quotes, unless an order or quote or modifier has a specified exception to this ranking methodology, as described in more detail below. The Exchange is proposing this ranking description instead of using the concepts of a Display Order Process and Working Order Process in Rule 6.76–O. However, substantively there would be no difference in how the Exchange would rank orders and quotes on the Pillar trading platform from how it ranks orders and quotes in the current trading system. For example, a nondisplayed order would always be ranked after a displayed order at the same price, even if the non-displayed order has an earlier working time. In addition, this proposed rule is based on Rule 7.36– E(c). Proposed Rule 6.76P–O(d) would describe how orders and quotes would be ranked based on price. Specifically, as proposed, all orders and quotes would be ranked based on the working price of an order or quote. Orders and quotes to buy would be ranked from highest working price to lowest working price and orders and quotes to sell would be ranked from lowest working price to highest working price. The rule would further provide that if the working price of an order or quote changes, the price priority of an order or quote would change. This price priority is current functionality, but the new rule would use Pillar terminology based on Rule 7.36–E(d). Proposed Rule 6.76P–O(e) would describe the proposed priority categories for ranking purposes. As proposed, at each price, all orders and quotes would be assigned a priority VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 category. If, at a price, there are no orders or quotes in a priority category, the next category would have first priority. The Exchange does not propose to include in Rule 6.76P–O, which sets forth the general rule regarding ranking, specifics about how one or more order or quote types may be ranked and displayed. Instead, as described in more detail below, the Exchange will address separately in new Rule 6.62P–O governing orders and modifiers which priority category correlates to different order types and modifiers. Accordingly, details regarding which proposed priority categories would be assigned to the display and reserve portions of Reserve Orders, which is currently addressed in Rule 6.76–O(a)(1)(B) and (a)(2)(A), will be addressed in proposed Rule 6.62P–O and therefore would not be included in proposed Rule 6.76P–O. The proposed changes are also based on the priority categories for cash equity trading as set forth in Rule 7.36–E(e)(1)– (3), except for the options-specific reference to ‘‘orders and quotes’’ rather than just orders as relates to interest ranked Priority 2 and 3. The proposed priority categories would be: • Proposed Rule 6.76P–O(e)(1) would specify ‘‘Priority 1—Market Orders,’’ which provides that unexecuted Market Orders would have priority over all other same-side orders with the same working price. As described in greater detail below, a Market Order subject to a Trading Collar would be displayed on the Consolidated Book. In such circumstances, the displayed Market Order would have priority over all other resting orders at that price. • Proposed Rule 6.76P–O(e)(2) would specify ‘‘Priority 2—Display Orders.’’ This proposed priority category would replace the ‘‘Display Order Process.’’ As proposed, non-marketable Limit Orders or quotes with a displayed working price would have second priority. For an order or quote that has a display price that differs from the working price of the order or quote, the order or quote would be ranked Priority 3—NonDisplay Orders at the working price. This priority category is based on how Priority 2—Display Orders function on the Exchange’s cash equity market, as described in Rule 7.36–E(e)(2). • Proposed Rule 6.76P–O(e)(3) would specify ‘‘Priority 3—Non-Display Orders.’’ This priority category would be used in Pillar rules instead of reference to the ‘‘Working Order Process.’’ As proposed, non-marketable Limit Orders or quotes for which the working price is not displayed, including the reserve interest of Reserve Orders, would have third priority. This PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 priority category is based on how Priority 3—Non-Display Orders function on the Exchange’s cash equity market, as described in Rule 7.36–E(e)(3). Proposed Rule 6.76P–O(f) would set forth that at each price level within each priority category, orders and quotes would be ranked based on time priority. The proposed changes are based on Pillar terminology in Rule 7.36–E(f)(1) and (3), except for the non-substantive reference to ‘‘orders and quotes’’ rather than just orders. • Proposed Rule 6.76P–O(f)(1) would provide that an order or quote is assigned a working time when it is first added to the Consolidated Book based on the time such order or quote is received by the Exchange. This proposed process of assigning a working time to orders is current functionality and is substantively the same as current references to the ‘‘time of original order entry’’ found in several places in Rule 6.76–O. This proposed rule uses Pillar terminology based on Rule 7.36–E(f)(1) without any substantive differences. To provide transparency in Exchange rules, the Exchange further proposes to include in proposed Rule 6.76P–O(f) how the working time would be determined for orders that are routed. As proposed: Æ Proposed Rule 6.76P–O(f)(1)(A) would specify that an order that is fully routed to an Away Market on arrival, per proposed Rule 6.76AP–O(b)(1), would not be assigned a working time unless and until any unexecuted portion of the order returns to the Consolidated Book. The Exchange notes that this is the current process for assigning a working time to an order and uses Pillar terminology based on Rule 7.36– E(f)(1)(A) without any substantive differences. Æ Proposed Rule 6.76P–O(f)(1)(B) would specify that for an order that, on arrival, is partially routed to an Away Market, the portion that is not routed would be assigned a working time. If any unexecuted portion of the order returns to the Consolidated Book and joins any remaining resting portion of the original order, the returned portion of the order would be assigned the same working time as the resting portion of the order. If the resting portion of the original order has already executed and any unexecuted portion of the order returns to the Consolidated Book, the returned portion of the order would be assigned a new working time. This process for assigning a working time to partially routed orders is the same as currently used by the Exchange and uses Pillar terminology based on Rule 7.36–E(f)(1)(B) without any substantive differences. E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices • Proposed Rule 6.76P–O(f)(2) would provide that an order or quote would be assigned a new working time if: (A) The display price of an order or quote changes, even if the working price does not change, or (B) the working price of an order or quote changes, unless the working price is adjusted to be the same as the display price of an order or quote. This proposed text uses Pillar terminology based in part on Rule 7.36– E(f)(2), which provides that an order is assigned a new working time any time the working price of an order changes. The Exchange is proposing to provide greater specificity when the working time of an order would change as compared to current Rule 7.36–E(f). • Proposed Rule 6.76P–O(f)(3) would provide that an order or quote would be assigned a new working time if the size of an order or quote increases and that an order or quote retains its working time if the size of the order or quote is decreased. This process for assigning a new working time when the size of an order changes is the same as currently used by the Exchange and uses Pillar terminology based on Rule 7.36–E(f)(3) without any substantive differences. Proposed Rule 6.76P–O(g) would specify that the Exchange would apply ranking restrictions applicable to specified order or modifier instructions. These order and modifier instructions would be identified in proposed new Rule 6.62P–O, described below. Proposed Rule 6.76P–O(g) uses Pillar terminology based on Rule 7.36–E(g), without any substantive differences. Current Rule 6.76–O(a)(2)(C)–(E) discuss ranking of certain order types with contingencies, but the Exchange proposes that for Pillar, ranking details regarding orders with contingencies would be described in proposed Rule 6.62P–O. Finally, proposed Rule 6.76P–O(h) would be applicable to ‘‘Orders Executed Manually’’ and would contain the same text as set forth in Rule 6.76– O(d) without any substantive differences except for the nonsubstantive change of capitalizing the defined term Trading Crowd (per proposed Rule 1.1), removing the superfluous clause ‘‘in addition,’’ and updating the cross-reference to reflect the new Pillar rule.16 In connection with proposed Rule 6.76P–O, the Exchange proposes to add the following preamble to Rule 6.76–O: ‘‘This Rule will not be applicable to 16 See proposed Rule 6.76P–O(h)(1) (removing ‘‘in addition’’) (B) (regarding ‘‘Trading Crowd’’) and (D) (updating the cross-reference to new subparagraph (B) in connection with the Section 11(a)(1)(G) of the Exchange Act and Rule 11a1–1(T) thereunder (‘‘G exemption rule’’)). VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 trading on Pillar.’’ This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.76–O would not be applicable to trading on Pillar. Proposed Rule 6.76AP–O: Order Execution and Routing Current Rule 6.76A–O, titled ‘‘Order Execution—OX,’’ governs order execution and routing at the Exchange. The Exchange proposes that Rule 6.76AP–O would set forth the order execution and routing rules for options trading on Pillar. The Exchange proposes that the title for new Rule 6.76AP–O would be ‘‘Order Execution and Routing’’ instead of ‘‘Order Execution—OX’’ because the Exchange does not propose to use the term ‘‘OX’’ in connection with Pillar. The Exchange believes that because proposed Rule 6.76AP–O, like Rule 6.76A–O, would specify the Exchange’s routing procedures, referencing to ‘‘Routing’’ in the rule’s title would provide additional transparency in Exchange rules regarding what topics would be covered in new Rule 6.76AP–O. This proposed rule is based on Rule 7.37–E, which describes the order execution and routing rules for cash equity securities trading on the Pillar platform. Proposed Rule 6.76AP–O(a) and its subparagraphs would set forth the Exchange’s order execution process and would cover the same subject as the preamble to Rule 6.76A–O. However, the proposed rule would use Pillar terminology of ‘‘Aggressing Order’’ and ‘‘Aggressing Quote’’—rather than refer to an ‘‘incoming marketable bid or offer.’’ As proposed, an Aggressing Order or Aggressing Quote would be matched for execution against contraside orders or quotes in the Consolidated Book according to the price-time priority ranking of the resting interest, subject to specified parameters. Proposed Rule 6.76AP–O(a)(1) would set forth the LMM Guarantee, which is substantively the same as the current LMM Guarantee, as described in Rule 6.76A–O(a)(1). The Exchange proposes a substantive difference because on Pillar, the Exchange would no longer support Directed Order Market Makers or Directed Orders. Accordingly, rule text relating to Directed Order Market Makers or Directed Orders will not be included in proposed Rule 6.76AP–O.17 Proposed Rule 6.76AP–O(a)(1) would provide that an LMM would be entitled to an allocation guarantee when the execution price is equal to the NBB Exchange proposes to add a preamble to Rule 6.88–O (Directed Orders) to provide that the Rule would not be applicable to trading on Pillar. PO 00000 17 The Frm 00009 Fmt 4701 Sfmt 4703 36447 (NBO) and there is no displayed Customer interest in time priority at the NBBO in the Consolidated Book. In such cases, the Aggressing Order or Aggressing Quote would be matched against the quote of the LMM for an amount equal to 40% of the Aggressing Order or Aggressing Quote, up to the size of the LMM’s quote (the ‘‘LMM Guarantee’’). With respect to how the LMM Guarantee would function on Pillar, the Exchange does not propose any substantive differences from current Rule 6.76A–O(a)(1). Proposed Rule 6.76AP–O(a)(1)(A) proposes new functionality under Pillar and provides that if an LMM has more than one quote at a price, the LMM Guarantee would be applied among such quotes in time priority, provided there is no displayed Customer interest with time priority at each quote. Proposed Rule 6.76AP–O(a)(1)(B), which is substantively identical to current Rule 6.76A–O(a)(1)(B), would provide that if an LMM is entitled to an LMM Guarantee (pursuant to proposed paragraph (a)(1)) and the Aggressing Order or Aggressing Quote had an original size of five (5) contracts or fewer, then such order or quote would be matched against the quote of the LMM for an amount equal to 100%, up to the size of the LMM’s quote. The Exchange also proposes to add Commentary .01 to the proposed rule (which is substantively identical to Commentary .02 of current Rule 6.76A– O) to make clear that on a quarterly basis, the Exchange would evaluate what percentage of the volume executed on the Exchange comprised of orders for five (5) contracts or fewer that was allocated to LMMs and would reduce the size of the orders included in this provision if such percentage is over 40%.18 Proposed Rule 6.76AP–O(a)(1)(C) would specify that if the result of applying the LMM Guarantee is a fractional allocation of contracts, the LMM Guarantee would be rounded down to the nearest contract and if the result of applying the LMM Guarantee results in less than one contract, the LMM Guarantee would be equal to one contract. The Exchange believes that including this additional detail in the proposed rule would add transparency to Exchange rules. Finally, the Exchange proposes Rule 6.76AP–O(a)(1)(D), which would provide that after applying any LMM Guarantee, the Aggressing Order or 18 See proposed Rule 6.76AP–O, Commentary .01, which will not include cross-reference that appears in the current rule Commentary .02 to Rule 6.76A– O. E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36448 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Aggressing Quote would be allocated pursuant to proposed paragraph (a) of this Rule, i.e., that such orders or quotes would be matched for execution against contra-side interest resting in the Consolidated Book according to pricetime priority. This proposed text is substantively identical to Rule 6.76A– O(a)(1)(C) and uses Pillar terminology. Consistent with the Exchange’s proposed approach to new Rule 6.76P– O, proposed Rule 6.76AP–O would not include references to specific order types and instead would state the Exchange’s general order execution methodology. Any exceptions to such general requirements would be set forth in connection with specific order or modifier definitions in proposed Rule 6.62P–O, described below. Proposed Rule 6.76AP–O(b) would set forth the Exchange’s routing process and is intended to address the same subject as Rule 6.76A–O(c), which is currently referred to as ‘‘Step 3’’ in order processing, without any substantive differences. Proposed Rule 6.76AP–O(b) would provide that, absent an instruction not to route, the Exchange would route marketable orders to Away Market(s) after such orders are matched for execution with any contra-side interest in the Consolidated Book in accordance with proposed paragraph (a) of this Rule regarding Order Execution. Proposed Rule 6.76AP–O(b) also uses Pillar terminology based on current Rule 7.37– E(b), which governs the Exchange’s routing process on the Exchange’s cash equity platform. The proposed rule would then set forth additional details regarding routing: • Proposed Rule 6.76AP–O(b)(1) would provide that an order that cannot meet the pricing parameters of proposed Rule 6.76AP–O(a) may be routed to Away Market(s) before being matched for execution against contra-side interest in the Consolidated Book. The Exchange believes that this proposed rule text provides transparency that an order may be routed before being matched for execution, for example, to prevent locking or crossing or trading through the NBBO. This rule uses Pillar terminology based on Rule 7.37–E(b)(1), with no substantive differences. • Proposed Rule 6.76AP–O(b)(2) would provide that an order with an instruction not to route would be processed as provided for in proposed Rule 6.62P–O. As described in greater detail below, the Exchange proposes to describe how orders and quotes with an instruction not to route would be processed in proposed Rule 6.62P–O(e). VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 • Proposed Rule 6.76AP–O(b)(3) would provide that any order or portion thereof that has been routed would not be eligible to trade on the Consolidated Book, unless all or a portion of the order returns unexecuted. This routing methodology is current functionality and covers that same subject as current Rule 6.76A–O(c)(2) with no substantive differences and is based in part on Pillar terminology used in Rule 7.37–E(b)(6). In contrast to Rule 6.76A–O(c)(2), however, the Exchange proposes that Rule 6.76AP–O(b)(3) would focus on the fact that once routed, an order would not be eligible to trade on the Consolidated Book, rather than stating the obvious that it would be subject to the routing destination’s trading rules once routed. In addition, because, as discussed above, the working time assigned to orders that are routed is being proposed to be addressed in new Rule 6.76P–O(f)(1)(A) and (B), the Exchange believes it would be unnecessary to restate this information in new Rule 6.76AP–O. • Proposed Rule 6.76AP–O(b)(4) would provide that requests to cancel an order that has been routed in whole or part would not be processed unless and until all or a portion of the order returns unexecuted. This proposed rule is based on Pillar terminology used in Rule 7.37– E(b)(7)(A) without any substantive differences. • Finally, proposed Rule 6.76AP–O(c) would provide that after trading with eligible contra-side interest on the Consolidated Book and/or returning unexecuted after routing to Away Market(s), any unexecuted nonmarketable portion of an order would be ranked consistent with new Rule 6.76P– O. This rule represents current functionality and is based on Rule 6.76A–O generally and paragraph (c)(2)(C) as it pertains to orders that were routed away without any substantive differences. This proposed rule is also based on Pillar terminology used in Rule 7.37–E(c) without any substantive differences. The Exchange believes that the specific routing methodologies for an order type or modifier should be included with how the order type is defined, which will be in proposed Rule 6.62P–O. Accordingly, the Exchange does not believe it needs to specify in proposed Rule 6.76AP–O whether an order is eligible to route, and if so, whether there are any specific routing instructions applicable to the order and therefore will not be carrying over such specifics that are currently included in Rule 6.76A–O. In connection with proposed Rule 6.76AP–O, the Exchange proposes to PO 00000 Frm 00010 Fmt 4701 Sfmt 4703 add the following preamble to Rule 6.76A–O: ‘‘This Rule will not be applicable to trading on Pillar.’’ This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.76A–O would not be applicable to trading on Pillar. Proposed Rule 6.62P–O: Orders and Modifiers Current Rule 6.62–O (Certain Types of Orders Defined) defines the order types that are currently available for options trading both on the OX system and for open outcry trading on the Exchange. The Exchange proposes that new Rule 6.62P–O would set forth the order types and modifiers that would be available for options trading both on Pillar (i.e., electronic order entry) and in open outcry trading. The Exchange proposes to specify that Rule 6.62–O would not be applicable to trading on Pillar. Because certain order types and modifiers that would be available for options trading on Pillar are based on, or similar to, order types and modifiers available on the Exchange’s cash equity market, the Exchange proposes to structure proposed Rule 6.62P–O based on Rule 7.31–E and use similar terminology. The Exchange also proposes to title proposed Rule 6.62P– O as ‘‘Orders and Modifiers,’’ which is the title of Rule 7.31–E. Primary Order Types. Proposed Rule 6.62P–O(a) would specify the Exchange’s primary order types, which would be Market Orders and Limit Orders, and is based on Rule 7.31–E(a), which sets forth the Exchange’s cash equity primary order types. Similar to Rule 7.31–E(a), proposed Rule 6.62P– O(a) would also set forth the Exchange’s proposed Limit Order Price Protection functionality and Trading Collars. Market Orders. Proposed Rule 6.62P– O(a)(1) would define a Market Order as an unpriced order message to buy or sell a stated number of option contracts at the best price obtainable, subject to the Trading Collar assigned to the order, and would further specify that unexecuted Market Orders may be designated Day or GTC, which represents current functionality,19 and 19 The ability for a Market Order to be designated Day or GTC is based on current Rules 6.62–O(m) (describing a ‘‘Day Order’’) and 6.62–O(n) (describing a ‘‘Good-til-Cancelled Order’’ or ‘‘GTC Order’’) and Commentary .01 to Rule 6.62–O, which requires all orders to be either ‘‘day,’’ ‘‘immediate or cancel,’’ or ‘‘good ‘til cancelled.’’ As described in more detail below, on Pillar, the time-in-force designation, e.g., Day or GTC, would be a modifier that can be added to an order type and will not be described in the rules as a separate order type. Similar to Rule 7.31–E, the Exchange will specify which time-in-force designations are available for each order type. E:\FR\FM\09JYN2.SGM 09JYN2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 that unexecuted Market Orders would be ranked Priority 1—Market Orders. This proposed rule text uses Pillar terminology similar to Rule 7.31–E(a)(1), but with differences to reflect options trading. Proposed Rule 6.62P–O(a)(1) would further provide that for purposes of processing Market Orders, the Exchange would not use an adjusted NBBO.20 On the Exchange’s cash equity market, the Exchange does not use an adjusted NBBO when processing Market Orders. The Exchange proposes to similarly not use an adjusted NBBO when processing Market Orders on its options market. Proposed Rule 6.62P–O(a)(1)(A) would provide that a Market Order that arrives during continuous trading would be rejected, or that was routed, returns unexecuted, and has no resting quantity to join would be cancelled if it fails the validations specified in proposed Rule 6.62P–O(a)(1)(A)(i)—(iv). This proposed rule is based in part on Rule 6.62–O(a), which specifies circumstances when a Market Order will be rejected during Core Trading Hours, with differences to use Pillar terminology and to modify the circumstances when a Market Order would be rejected. As proposed, a Market Order would be rejected (or cancelled if routed first) if:21 • There is no NBO (proposed Rule 6.62P–O(a)(1)(A)(i)). • There is no NBB and the NBO is higher than $0.50 (for sell Market Orders only). The Exchange further proposes that if there is no NBB and the NBO is $0.50 or below, a Market Order to sell would not be rejected and would have a working price and display price one MPV above zero and would not be subject to a Trading Collar (proposed Rule 6.62P–O(a)(1)(A)(ii)). The proposed rule would further provide that a Market Order to sell would be cancelled if it was assigned a Trading Collar, routed, and when it returns unexecuted, it has no resting portion to join and there is no NBB, regardless of the price of the NBO. Accordingly, in this scenario, if there 20 See discussion supra, regarding the proposed Rule 1.1 definition of ‘‘NBBO.’’ 21 The Exchange will also reject a Market Order if it is entered when the underlying NMS stock is either in a Limit State or a Straddle State, which is current functionality. See Rule 6.65A–O(a)(1). The Exchange proposes a non-substantive amendment to Rule 6.65A–O(a)(1) to add a cross reference to proposed Rule 6.62P–O(a)(1). The Exchange also proposes to amend the second sentence of Rule 6.65A–O(a)(1) to remove references to trading collars, and instead specify that the Exchange would cancel any resting Market Orders if the underlying NMS stock enters a Limit State or a Straddle State and would notify OTP Holders of the reason for such cancellation. This proposed change would describe both how Market Orders function today on the OX system and how they would be processed on Pillar. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 were no NBB and an NBO that is $0.50 or below, the returned, unexecuted Market Order would be cancelled rather than displayed at one MPV above zero. • There are no contra-side Market Maker quotes on the Exchange or contra-side Away Market NBBO, provided that a Market Order to sell would be accepted as provided for in proposed Rule 6.62P–O(a)(1)(A)(ii) (proposed Rule 6.62P–O(a)(1)(A)(iii)). • The NBBO is not locked or crossed and the spread is equal to or greater than a minimum amount based on the midpoint of the NBBO (proposed Rule 6.62P–O(a)(1)(A)(iv)). The proposed ‘‘wide-spread’’ parameter is based in part on Rule 6.87–O(b)(3) with two differences. First, the first bucket would include $2.00, instead of capping at $1.99, and second, the wide-spread calculation would be based off of the midpoint of the NBBO, rather than off of the bid price, as follows: The midpoint of the NBBO $0.00 to $2.00 ...................... Above $2.00 to and including $5.00 ................................. Above $5.00 to and including $10.00 ............................... Above $10.00 to and including $20.00 ......................... Above $20.00 to and including $50.00 ......................... Above $50.00 to and including $100.00 ....................... Above $100.00 ..................... Spread parameter $0.75 1.25 1.50 2.50 3.00 4.50 6.00 Proposed Rule 6.62P–O(a)(1)(B) would provide that an Aggressing Market Order to buy (sell) would trade with all orders or quotes to sell (buy) on the Consolidated Book priced at or below (above) the Trading Collar before routing to Away Market(s) at each price. Proposed Rule 6.62P–O(a)(1)(B) would further provide that after trading or routing, or both, a Market Order would be displayed at the Trading Collar, subject to proposed Rule 6.62P– O(a)(1)(C), which is consistent with current functionality that Market Orders would be displayed at a trading collar, per Rule 6.60–O(a)(5). Proposed Rule 6.62P–O(a)(1)(C) would provide that a Market Order would be cancelled before being displayed if there are no remaining contra-side Market Maker quotes on the Exchange or contra-side Away Market NBBO. Proposed Rule 6.62P–O(a)(1)(D) would provide that a Market Order would be cancelled after being displayed at its Trading Collar if there ceases to be a contra-side NBBO. These proposed cancellation events are based on a subset of the scenarios of when a PO 00000 Frm 00011 Fmt 4701 Sfmt 4703 36449 Market Order would have been rejected on arrival, and the Exchange believes it is appropriate to cancel a Market Order either before it is displayed, or after it is displayed, in these circumstances in order to prevent the potential for such order to be displayed when there is no real market in a series. Finally, proposed Rule 6.62P– O(a)(1)(E) would provide that a resting, displayed Market Order that is locked or crossed by an Away Market would be routed to that Away Market. Because Market Orders are intended to obtain the best price obtainable, the Exchange proposes to route displayed Market Orders if they are locked or crossed by an Away Market.22 Limit Orders. Proposed Rule 6.62P– O(a)(2) would define a Limit Order as an order message to buy or sell a stated number of option contracts at a specified price or better, subject to Limit Order Price Protection and the Trading Collar assigned to the order, and that a Limit Order may be designated Day, IOC, or GTC. In addition, unless otherwise specified, the working price and the display price of a Limit Order would be equal to the limit price of the order, it is eligible to be routed, and it would be ranked Priority 2—Display Orders. This proposed rule text uses Pillar terminology that is based in part on Rule 7.31–E(a)(2). The ability for a Limit Order to be designated Day, IOC, or GTC is based on current Rules 6.62– O(m) and 6.62–O(n). In addition, marketable limit orders are currently subject to trading collars. Proposed Rule 6.62P–O(a)(2)(A) would provide that a marketable Limit Order to buy (sell) received by the Exchange would trade with all orders and quotes to sell (buy) on the Consolidated Book priced at or below (above) the NBO (NBB) before routing to an Away Market NBO (NBB) and may route to prices higher (lower) than the NBO (NBB) only after trading with orders and quotes to sell (buy) on the Consolidated Book at each price point, and once no longer marketable, the Limit Order would be ranked and displayed on the Consolidated Book. This proposed rule text is based on Rule 7.31–E(a)(2)(A), with non-substantive differences to use terminology specific to options trading. Limit Order Price Protection. The Exchange proposes to describe its 22 As described above for proposed Rule 6.76P– O(b)(3), displayed interest other than displayed Market Orders would stand their ground if locked or crossed by an Away Market. The Exchange would provide an option for Limit Orders to instead be routed, see discussion infra, regarding proposed Rule 6.62P–O(i)(1) and the proposed Proactive if Locked/Crossed Modifier. E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36450 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices proposed Limit Order Price Protection functionality in proposed Rule 6.62P– O(a)(3). On the OX system, the concept of ‘‘Limit Order Price Protection’’ for orders is set forth in Rule 6.60–O(b) and is called the ‘‘Limit Order Filter.’’ For quotes, price protection filters are described in Rule 6.61–O. The proposed ‘‘Limit Order Price Protection’’ on Pillar would be applicable to both Limit Orders and quotes and would work similarly to how the current price protection mechanisms function on the OX system in that a Limit Order or quote would be rejected if it is priced a specified percentage away from the contra-side NBB or NBO. However, on Pillar, the Exchange proposes to use new thresholds and reference prices that would be applicable to both orders and quotes. Proposed Rule 6.62P–O(a)(3)(A) would provide that each trading day, a Limit Order or quote to buy (sell) would be rejected or cancelled (if resting) if it is priced at a ‘‘Specified Threshold,’’ described below, above (below) the Reference Price, rounded down to the nearest price within the MPV for the Series (‘‘Limit Order Price Protection’’). In other words, a Limit Order designated GTC would be re-evaluated for Limit Order Price Protection on each day that it is eligible to trade and would be cancelled if the limit price is through the Specified Threshold. In addition, the rounding feature is based on how Limit Order Price Protection is calculated on the Exchange’s cash equity market if it is not within the MPV for the security, as described in the last sentence of Rule 7.31–E(a)(2)(B). The proposed rule would further provide that Cross Orders and Limit-on-Open (‘‘LOO’’) Orders (described below) would not be subject to Limit Order Price Protection and that Limit Order Price Protection would not be applied to a Limit Order or quote if there is no Reference Price. • Proposed Rule 6.62P–O(a)(3)(A)(i) would provide that a Limit Order or quote that arrives when a series is open would be evaluated for Limit Order Price Protection on arrival. • Proposed Rule 6.62P–O(a)(3)(A)(ii) would provide that a Limit Order or quote received during a pre-open state would be evaluated for Limit Order Price Protection after an Auction concludes.23 • Proposed Rule 6.62P–O(a)(3)(A)(iii) would provide that a Limit Order or quote that was resting on the 23 See discussion infra, regarding proposed Rule 6.64P–O(a) and proposed definitions for the terms ‘‘Auction,’’ ‘‘Auction Price,’’ ‘‘Auction Collar,’’ ‘‘pre-open state,’’ and ‘‘Trading Halt Auction.’’ VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 set is consistent with the rules of other options exchanges.25 Trading Collar. Trading Collars on the OX system are currently described in Rule 6.60–O(a). Under the current rules, incoming Market Orders and marketable Limit Orders are limited in having an immediate execution if they would trade at a price greater than one ‘‘Trading Collar.’’ A collared order is displayed at that price and then can be repriced to new collars as the NBBO updates. On Pillar, the Exchange proposes new Trading Collar functionality. Unlike current functionality, which permits a collared order to be repriced, as proposed, a Market Order or Limit Order would be assigned a single Trading Collar that would be applicable to that order until it is fully executed or cancelled. The new proposed Trading Collar would function as a ceiling (for buy orders) or floor (for sell orders) of the price at which such order could be traded, displayed, or routed. The Exchange further proposes that when an order is working at its assigned Trading Collar, it would cancel if not executed within a specified time period. Proposed Rule 6.62P–O(a)(4) would provide that a Market Order or Limit Order to buy (sell) would not trade or route to an Away Market at a price above (below) the Trading Collar assigned to that order. As further proposed, Auction-Only Orders, Limit Orders designated IOC or FOK, Cross Orders, ISOs, and Market Maker quotes would not be subject to Trading Collars, which is consistent with current Specified Reference price functionality.26 In addition, Trading threshold Collars would not be applicable during $0.00 to $1.00 ...................... $0.30 Auctions. $1.01 to $10.00 .................... 50% Proposed Rule 6.62P–O(a)(4)(A) $10.01 to $20.00 .................. 40% would provide that a Trading Collar $20.01 to $50.00 .................. 30% assigned to an order would be $50.01 to $100.00 ................ 20% calculated once per trading day and $100.01 and higher .............. 10% would not be updated. Accordingly, an order designated GTC would receive a The Exchange believes that the new Trading Collar each day, but that proposed thresholds are more granular Trading Collar would not be updated than those currently specified in Rules intraday. The rule would further 6.60–O(b) (for orders) and 6.61– provide that a Market Order or Limit O(a)(1)(A) and (B) (for quotes) and Order that is received during therefore determining whether to reject continuous trading would be assigned a a Limit Order or quote will be more Trading Collar before being processed tailored to the applicable Reference for either trading, repricing, or routing Price. In addition, consistent with Rules 6.60–O(b) and 6.61–O(a)(1), the 25 See, e.g., CBOE Exchange, Inc. (‘‘Cboe’’) Rule Exchange proposes that these thresholds 5.34(a)(4) (describing the ‘‘Drill-Through could change, subject to announcing the Protection’’ and that Cboe ‘‘determines the buffer amount on a class and premium basis’’); and the changes by Trader Update. Providing Nasdaq Stock Market LLC (‘‘Nasdaq’’) Options 3, flexibility in Exchange rules regarding Section 15(a)(1)(B) (specifying that ‘‘Order Price how the Specified Thresholds would be Protection’’ can be a configurable dollar amount Consolidated Book before a trading halt would be evaluated for Limit Order Price Protection again after the Trading Halt Auction concludes. Proposed Rule 6.62P–O(a)(3)(B) would specify that the Reference Price for calculating Limit Order Price Protection for an order or quote to buy (sell) would be the NBO (NBB), provided that, immediately following an Auction, the Reference Price would be the Auction Price, or if none, the upper (lower) Auction Collar price, or, if none, the NBO (NBB). The Exchange believes that adjusting the Reference Price for Limit Order Price Protection immediately following an Auction would ensure that the most up-to-date price would be used to assess whether to cancel a Limit Order that was received during a pre-open state or would be reevaluated after a Trading Halt Auction. The Exchange further proposes that for purposes of calculating Limit Order Price Protection, the Exchange would not use an adjusted NBBO, which is based on how Limit Order Price Protection currently functions on the Exchange’s cash equity market, as described in Rule 7.31– E(a)(2)(B).24 Proposed Rule 6.62P–O(a)(3)(C) would specify the Specified Threshold and would provide that unless determined otherwise by the Exchange and announced to OTP Holders and OTP Firms by Trader Update, the Specified Threshold applicable to Limit Order Price Protection would be: to the NBBO, NBB, and NBO in Rule 7.31–E refer to using a determination of the national best bid and offer that has not been adjusted. PO 00000 24 References Frm 00012 Fmt 4701 Sfmt 4703 specified by Nasdaq and announced via an Options Trader Alert). 26 See Rule 6.60–O(a)(3) (‘‘Trade Collar Protection does not apply to quotes, IOC Orders, AON Orders, FOK Orders, and NOW Orders.’’). E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices and that an order that is routed on arrival and returned unexecuted would use the Trading Collar assigned upon arrival. In addition, a Market Order or Limit Order received during a pre-open state would be assigned a Trading Collar after an Auction concludes. Proposed Rule 6.62P–O(a)(4)(B) would provide that the Reference Price for calculating the Trading Collar for an order to buy (sell) would be the NBO (NBB). The proposed rule would further provide that for Auction-eligible orders to buy (sell) that were received during a pre-open state and are assigned a Trading Collar after the Auction concludes, the Reference Price would be the Auction Price or, if none, the upper (lower) Auction Collar price or, if none, the NBO (NBB). For purposes of calculating a Trading Collar, the Exchange would not use an adjusted NBBO. Proposed Rule 6.62P– O(a)(4)(B)(i) would further provide that a Trading Collar would not be assigned to a Limit Order if there is no Reference Price at the time of calculation. And proposed Rule 6.62P–O(a)(4)(B)(ii) would provide that after an Auction, if a Market Order has not already been assigned a Trading Collar and there is no Reference Price, the order would be cancelled. Proposed Rule 6.62P–O(a)(4)(C) would describe how the Trading Collar would be calculated and would provide that the Trading Collar for an order to buy (sell) would be a specified amount above (below) the Reference Price, as follows: (1) For orders with a Reference Price of $1.00 or lower, $0.25; or (2) for orders with a Reference Price above $1.00, the lower of $2.50 or 25%. Proposed Rule 6.62P–O(a)(4)(C)(i) would further provide that if the calculation of a Trading Collar would not be in the MPV for the series, it would be rounded down to the nearest price within the applicable MPV (this proposed functionality is based on how Trading Collars are calculated on the Exchange’s cash equity market, as described in Rule 7.31–E(a)(1)(B)). Proposed Rule 6.62P–O(a)(4)(C)(ii) would further provide that for orders to sell, if subtracting the Trading Collar from the Reference Price would result in a negative number, the Trading Collar for Limit Orders would be the limit price and the Trading Collar for Market Orders would be one MPV above zero. Proposed Rule 6.62P–O(a)(4)(D) would describe how the Trading Collar would be applied and would provide that if an order to buy (sell) would trade or route above (below) the Trading Collar or would have its working price repriced to a Trading Collar that is below (above) its limit price, the order VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 would be added to the Consolidated Book at the Trading Collar for 500 milliseconds and if not traded within that period, would be cancelled. In addition, once the 500-millisecond timer begins for an order, the order would be cancelled at the end of the timer even if it repriced or has been routed to an Away Market during that period, in which case any portion of the order that is returned unexecuted would be cancelled. The Exchange believes that the proposed Trading Collar functionality is designed to provide a similar type of order protection as is currently available (as described in Rule 6.60–O(a)) because it would limit the price at which a marketable order could be traded, routed, or displayed. The Exchange believes that the proposed differences are designed to simplify the functionality by applying a static ceiling price (for buy orders) or floor price (for sell orders) at which such order could be traded or routed that would be determined at the time of entry, and would be applicable to the order until it is traded or cancelled. The Exchange believes that the proposed functionality would provide greater determinism to an OTP Holder or OTP Firm of the Trading Collar that would be applicable to a Market Order or Limit Order and when such order may be cancelled if it reaches its Trading Collar. Time in Force Modifiers. Proposed Rule 6.62P–O(b) would set forth the time-in-force modifiers that would be available for options trading on Pillar and is based on Rule 7.31–E(b). The Exchange proposes to offer the same time-in-force modifiers that are currently available for options trading on the Exchange and use Pillar terminology to describe the functionality. As noted above, the Exchange proposes to describe the Time in Force Modifiers in proposed Rule 6.62P–O(b), and then specify for each order type which Time in Force Modifiers would be available for such orders or quotes. Day Modifier. Proposed Rule 6.62P– O(b)(1) would provide that any order or quote to buy or sell designated Day, if not traded, would expire at the end of the trading day on which it was entered and that a Day Modifier cannot be combined with any other Time in Force Modifier. This proposed rule text is based on Rule 7.31–E(b)(1) with one difference to reference ‘‘quotes’’ in addition to orders. This proposed functionality would operate no differently than how a ‘‘Day Order,’’ as described in Rule 6.62–O(m), currently functions. PO 00000 Frm 00013 Fmt 4701 Sfmt 4703 36451 Immediate-or-Cancel (‘‘IOC’’) Modifier. Proposed Rule 6.62P–O(b)(2) would provide that a Limit Order may be designated IOC or Routable IOC, as described in proposed Rules 6.62P– O(b)(2)(A) and (B) and that a Limit Order designated IOC would not be eligible to participate in any Auctions. This proposed rule text is based on the first and third sentences of Rule 7.31– E(b)(2) without any differences and is also based on current functionality. The Exchange proposes to use Pillar terminology based on Rule 7.31–E(b)(2) to describe this functionality. Proposed Rule 6.62P–O(b)(2)(A) would define a ‘‘Limit IOC Order’’ as a Limit Order designated IOC that would be traded in whole or in part on the Exchange as soon as such order is received, and the unexecuted quantity would be cancelled and that a Limit IOC Order does not route. This proposed rule text is based on Rule 7.31– E(b)(2)(A) without any substantive differences. The proposed Pillar Limit IOC Order would function the same as an ‘‘Immediate-or-Cancel Order (IOC Order),’’ as currently described in Rule 6.62–O(k), without any differences. Proposed Rule 6.62P–O(b)(2)(B) would define a ‘‘Limit Routable IOC Order’’ as a Limit Order designated Routable IOC that would be traded in whole or in part on the Exchange as soon as such order is received, and the unexecuted quantity routed to Away Market(s) and that any quantity not immediately traded either on the Exchange or an Away Market would be cancelled. This proposed rule text is based on Rule 7.31–E(b)(2)(B) without any substantive differences. The proposed Pillar Limit Routable IOC Order is also based on the ‘‘NOW Order,’’ as currently described in Rule 6.62–O(o) and uses Pillar terminology. Fill-or-Kill (‘‘FOK’’) Modifier. Proposed Rule 6.62P–O(b)(3) would provide that a Limit Order designated FOK would be traded in whole on the Exchange as soon as such order is received, and if not so traded is to be cancelled and that a Limit Order designated FOK does not route and does not participate in any Auctions. The Exchange does not offer the FOK Modifier on its cash equity market, and this proposed rule uses Pillar terminology to offer the same functionality that is currently described in Rule 6.62–O(l) as the ‘‘Fill-or-Kill Order (FOK Order)’’ without any substantive differences. Good-‘Til-Cancelled (‘‘GTC’’) Modifier. Proposed Rule 6.62P–O(b)(4) would provide that a Limit or Market Order designated GTC remains in force until the order is filled, cancelled, the E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36452 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices MPV in the series changes overnight, the option contract expires, or a corporate action results in an adjustment to the terms of the option contract. The Exchange does not offer the GTC Modifier on its cash equity market, and this proposed rule uses Pillar terminology to offer the same functionality that is currently described in Rule 6.62–O(n) as the ‘‘Good-TillCancelled (GTC Order)’’ without any substantive differences. Auction-Only Orders. Proposed Rule 6.62P–O(c) would define an ‘‘AuctionOnly Order’’ as a Limit Order or Market Order that is to be traded only in an Auction pursuant to Rule 6.64P–O,27 which is text based on Rule 7.31–E(c). The proposed rule would further provide that an Auction-Only Order would not be accepted when a series is opened for trading and any portion of an Auction-Only Order that is not traded in a Core Open Auction or Trading Halt Auction would be cancelled. This represents current functionality and is based in part on the last sentence of Rule 7.31–E(c)(1), the last sentence of Rule 7.31–E(c)(2), and the last sentence of Rule 6.62–O(r), which defines an ‘‘Opening Only Order.’’ Proposed Rule 6.62P–O(c)(1) would define a ‘‘Limit-on-Open Order (‘LOO Order’)’’ as a Limit Order that is to be traded only in an Auction. This proposed rule uses Pillar terminology based on Rule 7.31–E(c)(1) to describe functionality that would be no different from current functionality, as described in Rule 6.62–O(r). Proposed Rule 6.62P–O(c)(2) would define a ‘‘Market-on-Open Order (‘MOO Order’)’’ as a Market Order that is to be traded only in an Auction. This proposed rule uses Pillar terminology based on Rule 7.31–E(c)(2) to describe functionality that would be no different from current functionality, as described in Rule 6.62–O(r). Proposed Rule 6.62P–O(c)(3) would define an ‘‘Imbalance Offset Order (‘IO Order’).’’ The Exchange currently offers an IO Order for participation in Trading Halt Auctions on its cash equity market but does not offer this order type for options trading on the OX system. For cash equity trading, the IO Order is a conditional order type that is eligible to participate in a Trading Halt Auction only if it would offset the imbalance. For options trading on Pillar, the Exchange proposes to offer the IO Order for both Core Open Auctions and Trading Halt Auctions. As proposed, the IO Order would function no differently than how an IO 27 See discussion infra, regarding proposed Rule 6.64P and definitions relating to Auctions. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Order currently functions on the Exchange’s cash equity market. Accordingly, proposed Rule 6.62P– O(c)(3) would define an IO Order as a Limit Order that is to be traded only in an Auction, which is based in part on Rule 7.31–E(c)(5). • Proposed Rule 6.62P–O(c)(3)(A) would provide that an IO Order would participate in an Auction only if: (1) There is an Imbalance in the series on the opposite side of the market from the IO Order after taking into account all other orders and quotes eligible to trade at the Indicative Match Price; and (2) the limit price of the IO Order to buy (sell) would be at or above (below) the Indicative Match Price. This proposed text is based on Rule 7.31–E(c)(5)(B) without any substantive differences. • Proposed Rule 6.62P–O(c)(3)(B) would provide that the working price of an IO Order to buy (sell) would be adjusted to be equal to the Indicative Match Price, provided that the working price of an IO Order would not be higher (lower) than its limit price. This proposed text is based on Rule 7.31– E(c)(5)(C) without any differences. Orders with a Conditional or Undisplayed Price and/or Size. Proposed Rule 6.62P–O(d) would set forth the orders with a conditional or undisplayed price and/or size that would be available for options trading on Pillar. On Pillar, the Exchange proposes to offer the same type of orders that are available in the OX system and that are currently described in Rule 6.62–O(d) as a ‘‘Contingency Order or Working Order,’’ with changes as described below. Reserve Order. Reserve Orders are currently defined in Rule 6.62–O(d)(3). The Exchange proposes that for options traded on Pillar, Reserve Orders would function similarly to how Reserve Orders function on its cash equity market, as described in Rule 7.31– E(d)(1). Accordingly, the Exchange proposes that proposed Rule 6.62P– O(d)(1), which would define Reserve Orders for options trading on Pillar, would be based on Rule 7.31–E(d)(1), with differences only to reflect differences in options and cash equity trading. For example, options trading does not have a concept of ‘‘round lot’’ or ‘‘odd lot’’ trading, and therefore the proposed options trading version of the Rule would not include description of behavior that correlates to such functionality. Proposed Rule 6.62P–O(d)(1) would define a Reserve Order as a Limit Order with a quantity of the size displayed and with a reserve quantity of the size (‘‘reserve interest’’) that is not displayed and that the displayed quantity of a PO 00000 Frm 00014 Fmt 4701 Sfmt 4703 Reserve Order is ranked Priority 2— Display Orders and the reserve interest is ranked Priority 3—Non-Display Orders. This proposed rule text is based on Rule 7.31–E(d)(1) without any differences. Proposed Rule 6.62P– O(d)(1) would further provide that both the display quantity and the reserve interest of an arriving marketable Reserve Order would be eligible to trade with resting interest in the Consolidated Book or route to Away Markets, unless designated as a Non-Routable Limit Order, which is based on the third sentence of Rule 7.31–E(d)(1) with a non-substantive difference to add reference to Non-Routable Limit Order. Proposed Rule 6.62P–O(d)(1) would further provide that the working price of the reserve interest of a resting Reserve Order to buy (sell) would be adjusted in the same manner as a Non-Displayed Limit Order, as provided for in paragraph (d)(2)(A) of this Rule, provided that it would never be priced higher (lower) than the working price of the display quantity of the Reserve Order. This proposed rule text is based on the last sentence of Rule 7.31–E(d)(1) with one difference to reference that the reserve interest could never have a working price that is more aggressive than the working price of the display quantity of the Reserve Order, which would be new functionality on Pillar designed to ensure that the reserve interest of a Reserve Order to buy (sell) would never trade at a price higher (lower) than the working price of the display quantity of the Reserve Order.28 • Proposed Rule 6.62P–O(d)(1)(A) would provide that the displayed portion of a Reserve Order would be replenished when the display quantity is decremented to zero and that the replenish quantity would be the minimum display size of the order or the remaining quantity of the reserve interest if it is less than the minimum display quantity. This proposed rule text is based on Rule 7.31–E(d)(1)(A) with differences to reflect that options are not traded in ‘‘round lots’’ or ‘‘odd lots.’’ Accordingly, the Exchange would not replenish a Reserve Order on the options trading platform until the display portion is fully decremented. • Proposed Rule 6.62P–O(d)(1)(B) would provide that each time the 28 For example, as described in more detail below, the proposed Non-Routable Limit Order would be eligible to be repriced only once after it is resting in the Consolidated Book (see proposed Rule 6.62P– O(e)(1)). If the display quantity of a Non-Routable Limit Order that is combined with a Reserve Orders has already been repriced and is no longer eligible to be repriced, and the Away Market NBBO adjusts, the reserve quantity would not adjust to a price that would be more aggressive than the working price of the display quantity of the order. E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices display quantity of a Reserve Order is replenished from reserve interest, a new working time would be assigned to the replenished quantity. This proposed rule text is based in part on Rule 7.31– E(d)(1)(B) with differences to reflect that for options traded on Pillar, there would never be more than one display quantity of a Reserve Order, and therefore the Exchange would not have different ‘‘child’’ display quantities of a Reserve Order with different working times, as could occur for a Reserve Order on the Exchange’s cash equity trading platform. • Proposed Rule 6.62P–O(d)(1)(C) would provide that a Reserve Order may be designated as a Non-Routable Limit Order and if so designated, the reserve interest that replenishes the display quantity would be assigned a display price and working price consistent with the instructions for the order. This proposed rule text is based on Rule 7.31–E(d)(1)(B)(ii) without any substantive differences. • Proposed Rule 6.62P–O(d)(1)(D) would provide that a routable Reserve Order would be evaluated for routing both on arrival and each time the display quantity is replenished. Proposed Rule 6.62P–O(d)(1)(D)(i) would provide that if routing is required, the Exchange would route from reserve interest before publishing the display quantity. And proposed Rule 6.62P–O(d)(1)(D)(ii) would provide that any quantity of a Reserve Order that is returned unexecuted would join the working time of the reserve interest and that if there is no reserve interest to join, the returned quantity would be assigned a new working time. This proposed rule text is based on Rule 7.31–E(d)(1)(D) and subparagraphs (i) and (ii) with differences to reflect that there is no concept of round lots or multiple child display orders for options trading. • Proposed Rule 6.62P–O(d)(1)(E) would provide that a request to reduce the size of a Reserve Order would cancel the reserve interest before cancelling the display quantity. This proposed rule text is based on Rule 7.31–E(d)(1)(E) with differences only to reflect that there would not be more than one child display order for options trading of Reserve Orders on Pillar. • Proposed Rule 6.62P–O(d)(1)(F) would provide that a Reserve Order may be designated Day or GTC, but it may not be designated as an ALO Order. This proposed rule text is based in part on Rule 7.31–E(d)(1)(C), with differences to reflect that the GTC Modifier would be available for Reserve Orders trading on the Pillar options trading platform and that Primary Pegged Orders would not be available for options traded on Pillar. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Non-Displayed Limit Order. The Exchange proposes to offer the NonDisplayed Limit Order for options trading on Pillar, which would be new for options trading and is based on the existing Non-Displayed Limit Order as described in Rule 7.31–E(d)(2).29 Proposed Rule 6.62P–O(d)(2) would define a Non-Displayed Limit Order as a Limit Order that is not displayed, does not route, and is ranked Priority 3— Non-Display Orders; and that a NonDisplayed Limit Order may be designated Day or GTC and would not participate in any Auctions. This proposed rule text is based on Rule 7.31–E(d)(2) with differences to reflect that the GTC Time-in-Force Modifier is available for options trading on Pillar. • Proposed Rule 6.62P–O(d)(2)(A) would provide that the working price of a Non-Displayed Limit Order would be assigned on arrival and adjusted when resting on the Consolidated Book and that the working price of a NonDisplayed Limit Order to buy (sell) would be the lower (higher) of the limit price or the NBO (NBB). This proposed rule text is based on Rule 7.31– E(d)(2)(A) with non-substantive differences to reference the Consolidated Book instead of the NYSE Arca Book and to streamline the rule text without any substantive differences. • Proposed Rule 6.62P–O(d)(2)(B) would provide that a Non-Displayed Limit Order may be designated with a Non-Display Remove Modifier and if so designated, a resting Non-Displayed Limit Order to buy (sell) with a working price equal to the working price of an ALO Order or Day ISO ALO to sell (buy) would trade as the liquidity taker against such order. This functionality would be new for options trading and is based on the Non-Display Remove Modifier functionality available on the cash equity market as described in Rule 7.31–E(d)(2)(B), without any substantive differences. All-or-None (‘‘AON’’) Order. AON Orders are currently defined in Rule 6.62–O(d)(4). AON Orders are not available on the Exchange’s cash equity market, and for options trading on Pillar, would function similarly to how AON Orders currently function because such orders would only execute if they can be satisfied in their entirety. However, unlike the OX system, where AON Orders are not integrated in the 29 The Exchange notes that a Non-Displayed Limit Order would function similarly to a PNP Blind Order that locks or crosses the contra-side NBBO. In such case, a PNP Blind Order would not be displayed, as described in Rule 6.62–O(u) (‘‘if the PNP Blind Order would lock or cross the NBBO, the price and size of the order will not be disseminated’’). PO 00000 Frm 00015 Fmt 4701 Sfmt 4703 36453 Consolidated Book, on Pillar, the Exchange proposes that AON Orders would be ranked in the Consolidated Book and function as conditional orders that would trade only if their condition could be met, similar to how orders with a Minimum Trade Size (‘‘MTS’’) Modifier function on Pillar on the Exchange’s cash equity market. Because of the new functionality that would be available for AON Orders on Pillar, the Exchange proposes to use Pillar terminology to describe this order type. Proposed Rule 6.62P–O(d)(3) would provide that an AON Order is a Limit Order that is to be traded in whole on the Exchange at the same time or not at all, which represents current functionality as described in the first sentence of Rule 6.62–O(d)(4). Proposed Rule 6.62P–O(d)(3) would further provide that an AON Order that does not trade on arrival would be ranked Priority 3—Non-Display Orders and that an AON Order may be designated Day or GTC, does not route, and would not participate in any Auctions. This proposed rule text uses Pillar terminology to describe the proposed new functionality that such orders would be ranked on the Consolidated Book. • Proposed Rule 6.62P–O(d)(3)(A) would provide that the working price of an AON Order would be assigned on arrival and adjusted when resting on the Consolidated Book and that the working price of an AON Order to buy (sell) would be the lower (higher) of the limit price or NBO (NBB). Because an AON Order is non-displayed, the Exchange proposes that its working price should be adjusted in the same manner as the proposed Non-Displayed Limit Order. • Proposed Rule 6.62P–O(d)(3)(B) would provide that an Aggressing AON Order to buy (sell) would trade with sell (buy) orders and quotes that in the aggregate can satisfy the AON Order in its entirety. This proposed rule text is new and promotes clarity in Exchange rules that an Aggressing AON Order (whether on arrival or as a resting order that becomes an Aggressing Order) would be eligible to trade with more than one contra-side order or quote, provided that multiple orders and quotes in the aggregate would satisfy the AON Order in its entirety. • Proposed Rule 6.62P–O(d)(3)(C) would provide that a resting AON Order to buy (sell) would trade with an Aggressing Order or Aggressing Quote to sell (buy) that individually can satisfy the whole AON Order. This is proposed new functionality, because currently, an AON Order can trade only against resting interest in the Consolidated Book. The Exchange believes this E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36454 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices proposed change would provide an AON Order with additional execution opportunities. • Proposed Rule 6.62P–O(d)(3)(C)(i) would provide that if an Aggressing Order or Aggressing Quote to sell (buy) does not satisfy the resting AON Order to buy (sell), that Aggressing Order or Aggressing Quote would not trade with and may trade through such AON Order. Proposed Rule 6.62P– O(d)(3)(C)(ii) would further provide that if a resting non-displayed order to sell (buy) does not satisfy the quantity of a same-priced resting AON Order to buy (sell), a subsequently arriving order or quote to sell (buy) that satisfies the AON Order would trade before such resting non-displayed order or quote to sell (buy) at that price. Both of these proposed rules are consistent with current Rule 6.62–O(d)(4), which provides that an AON Order does not have ‘‘standing in any Order Process in the Consolidated Book,’’ i.e., a resting AON Order can be ignored if its condition is not met. This proposed rule text is also based on how the MTS Modifier functions on the cash equity market, as described in Rule 7.31– E(i)(3)(E)(i) and (ii). • Proposed Rule 6.62P–O(d)(3)(D) would provide that a resting AON Order to buy (sell) would not be eligible to trade against an Aggressing Order or Aggressing Quote to sell (buy): (i) At a price equal to or above (below) any orders or quotes to sell (buy) that are displayed at a price equal to or below (above) the working price of such AON Order; or (ii) at a price above (below) any orders or quotes to sell (buy) that are not displayed and that have a working price below (above) the working price of such AON Order. This proposed rule text is new functionality for AON Orders that is designed to protect the priority of resting orders and quotes and is based on how the MTS Modifier functions on the cash equity market, as described in Rule 7.31– E(i)(3)(C) and its subparagraphs (i) and (ii). • Proposed Rule 6.62P–O(d)(3)(E) would provide that if a resting AON Order to buy (sell) becomes an Aggressing Order it would trade as provided in paragraph (d)(3)(B) of this Rule; however, other resting orders or quotes to buy (sell) ranked Priority 3— Non-Display Orders that become Aggressing Orders or Aggressing Quotes at the same time as the resting AON Order would be processed before the AON Order. This is proposed new functionality and is designed to promote clarity in Exchange rules that if multiple orders ranked Priority 3—Non-Display Orders, including AON and non-AON VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Orders, become Aggressing Orders or Aggressing Quotes at the same time, the AON Order would not be eligible trade until the other orders ranked Priority 3Non-Display Orders have been processed, even if they have later working times. The Exchange believes that it would be consistent with the conditional nature of AON Orders for other same-side non-displayed orders to have a trading opportunity before the AON Order. • Proposed Rule 6.62P–O(d)(3)(F) would provide that an AON Order may be designated with a Non-Display Remove Modifier and if so designated, a resting AON Order to buy (sell) that can trade with an ALO Order or Day ISO ALO Order to sell (buy) would trade as the liquidity-taking order. This proposed functionality would be new for options trading and is based on the Non-Display Remove Modifier available on the cash equity market, as described in Rules 7.31–E(d)(2)(B) and 7.31– E(e)(1)(C). Stop Order. Stop Orders are currently defined in Rule 6.62–O(d)(1). The Exchange proposes to use Pillar terminology to describe Stop Orders in proposed Rule 6.62P–O(d)(4). Proposed Rule 6.62P–O(d)(4) would provide that a Stop Order is an order to buy (sell) a particular option contract that becomes a Market Order (or is ‘‘elected’’) when the Exchange BB (BO) or the most recent consolidated last sale price reported after the order was placed in the Consolidated Book (the ‘‘Consolidated Last Sale’’) (either, the ‘‘trigger’’) is equal to or higher (lower) than the specified ‘‘stop’’ price. Because a Stop Order becomes a Market Order when it is elected, the Exchange proposes that when it is elected, it would be cancelled if it does not meet the validations specified in proposed Rule 6.62P– O(a)(1)(A) and if not cancelled, it would be assigned a Trading Collar. Proposed Rule 6.62P–O(d)(4)(A) would provide that a Stop Order would be assigned a working time when it is received but would not be ranked or displayed in the Consolidated Book until it is elected and that once converted to a Market Order, the order would be assigned a new working time and be ranked Priority 1- Market Orders. The original working time assigned to a Stop Order would be used to rank multiple Stop Orders elected at the same time. Proposed Rule 6.62P–O(d)(4)(B) would specify additional events that are designed to limit when a Stop Order may be elected so that a Market Order does not trade during a period of pricing uncertainty: PO 00000 Frm 00016 Fmt 4701 Sfmt 4703 • Proposed Rule 6.62P–O(d)(4)(B)(i) would provide that if not elected on arrival, a Stop Order that is resting would not be eligible to be elected based on a Consolidated Last Sale unless the Consolidated Last Sale is equal to or in between the NBBO. This proposed rule text provides additional transparency of when a resting Stop Order would be eligible to be elected. • Proposed Rule 6.62P–O(d)(4)(B)(ii) would provide that a Stop Order would not be elected if the NBBO is crossed. • Proposed Rule 6.62P–O(d)(4)(B)(iii) would provide that after a Limit State or Straddle State is lifted, the trigger to elect a Stop Order would be either the Consolidated Last Sale received after such state was lifted or the Exchange BB (BO).30 Stop Limit Order. Stop Limit Orders are currently defined in Rule 6.62– O(d)(2). The Exchange proposes to use Pillar terminology to describe Stop Limit Orders in proposed Rule 6.62P– O(d)(5). Proposed Rule 6.62P–O(d)(5) would provide that a Stop Limit Order is an order to buy (sell) a particular option contract that becomes a Limit Order (or is ‘‘elected’’) when the Exchange BB (BO) or the Consolidated Last Sale (either, the ‘‘trigger’’) is equal to or higher (lower) than the specified ‘‘stop’’ price.31 As further proposed, a Stop Limit Order to buy (sell) would be rejected if the stop price is higher (lower) than its limit price. Because a Stop Limit Order becomes a Limit Order when it is elected, the Exchange proposes that when it is elected, it would be cancelled if it fails Limit Order Price Protection or a Price Reasonability Check and if not cancelled, it would be assigned a Trading Collar.32 Proposed Rule 6.62P–O(d)(5)(A) would provide that a Stop Limit Order would be assigned a working time when it is received but would not be ranked or displayed in the Consolidated Book until it is elected and that once converted to a Limit Order, the order would be assigned a new working time and be ranked Priority 2—Display Orders. Proposed Rule 6.62P–O(d)(5)(B) would specify additional events that are designed to limit when a Stop Limit Order may be elected so that a Limit 30 Rule 6.65A(a)(2) currently provides that the Exchange will not elect Stop Orders when the underlying NMS stock is either in a Limit State or a Straddle State, which would continue to be applicable on Pillar. The Exchange proposes a nonsubstantive amendment to Rule 6.65A(a)(2) to add a cross-reference to proposed Rule 6.62P–O(d)(4). 31 The term ‘‘Consolidated Last Sale’’ is defined in proposed Rule 6.62P–O(d)(4). 32 See discussion infra, regarding proposed Rule 6.41P–O and Price Reasonability Checks. E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Order would not have a possibility of trading or being added to the Consolidated Book during a period of pricing uncertainty. • Proposed Rule 6.62P–O(d)(5)(B)(i) would provide that if not elected on arrival, a Stop Limit Order that is resting would not be eligible to be elected based on a Consolidated Last Sale unless the Consolidated Last Sale is equal to or in between the NBBO. • Proposed Rule 6.62P–O(d)(5)(B)(ii) would provide that a Stop Limit Order would not be elected if the NBBO is crossed. Orders with Instructions Not to Route. Currently, the Exchange defines nonroutable orders in Rule 6.62–O as a PNP Order (which includes a Repricing PNP Order or RPNP) (current Rule 6.62– O(p)), a Liquidity Adding Order (‘‘ALO’’) (which includes a Repricing ALO (‘‘RALO’’) (current Rule 6.62–O(t)); a PNP-Blind Order (current Rule 6.62– O(u)); and a PNP-Light Order (Rule 6.62–O(v)). The Exchange also defines the PNP Plus Order (current Rule 6.62– O(y)), which is available for Electronic Complex Orders, and Intermarket Sweep Orders (current Rule 6.62–O(aa)). The Exchange separately defines nonroutable quotes in Rule 6.37A–O as a Market Maker—Light Only Quotation (‘‘MMLO’’) (current Rule 6.37A– O(a)(3)(A)); a Market Maker—Add Liquidity Only Quotation (‘‘MMALO’’) (current Rule 6.37A–O(a)(3)(B)); and a Market Maker—Repricing Quotation (‘‘MMRP’’) (current Rule 6.37A– O(a)(3)(C)). On Pillar, the Exchange proposes to streamline the non-routable order types and quotes that would be available for options trading, use terminology that is similar to how non-routable orders are described for cash equity trading as described in Rule 7.31–E(e), and describe the functionality that would be applicable to both orders and quotes in proposed Rule 6.62P–O(e). As described in greater detail below, proposed Rule 6.37AP–O governing Market Maker Quotations would no longer define how quotations would function. Instead, that rule would specify that Market Maker quotes must be designated as either a Non-Routable Limit Order or ALO Order. On Pillar, the Exchange would no longer offer functionality based on the PNP-Blind Order, PNP-Light Order, or MMLO. Non-Routable Limit Order. Proposed Rule 6.62P–O(e)(1) would define the Non-Routable Limit Order. This proposed order type incorporates functionality currently available in both the existing PNP and RPNP order types, as defined in Rule 6.62–O, and the existing MMRP quotation type, as VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 defined in Rule 6.37A–O(a)(3)(C), and uses Pillar terminology. Proposed Rule 6.62P–O(e)(1) would provide that a Non-Routable Limit Order is a Limit Order or quote that does not route and may be designated Day or GTC and would further provide that a Non-Routable Limit Order with a working price different from the display price would be ranked Priority 3-NonDisplay Orders and a Non-Routable Limit Order with a working price equal to the display price would be ranked Priority 2-Display Orders. This proposed rule uses Pillar terminology similar to how a Non-Routable Limit Order is described for the Exchange’s cash equity market in Rules 7.31–E(e)(1) and 7.31–E(e)(1)(B). Proposed Rule 6.62P–O(e)(1)(A) would provide that a Non-Routable Limit Order would not be displayed at a price that would lock or cross an Away Market NBBO and that a NonRoutable Limit Order to buy (sell) would trade with orders or quotes to sell (buy) in the Consolidated Book priced at or below (above) the Away Market NBO (NBB). Proposed Rule 6.62P–O(e)(1)(A)(i) would provide that a Non-Routable Limit Order can be designated to be cancelled if it would be displayed at a price other than its limit price. The proposed option to cancel a NonRoutable Limit Order is based on how a PNP Order currently functions. The Exchange proposes a substantive difference that if an OTP Holder or OTP Firm opts to cancel instead of reprice a Non-Routable Limit Order, such order would be cancelled if it could not be displayed at its limit price, which could be because the order would be repriced to display at a price that would not lock or cross an Away Market NBBO or because it would be repriced due to Trading Collars.33 Proposed Rule 6.62P–O(e)(1)(A)(ii) would provide that if not designated to cancel, if the limit price of a NonRoutable Limit Order to buy (sell) would lock or cross an Away Market NBO (NBB), it would be repriced to have a working price equal to the Away Market NBO (NBB) and a display price one MPV below (above) that NBO (NBB). Accordingly, the proposed NonRoutable Limit Order, if not designated to cancel, would reprice in the same 33 Because Trading Collars would be applicable to Non-Routable Limit Orders, the Exchange does not propose to cancel an incoming Non-Routable Limit Order if its price is more than a configurable number of MPVs outside its initial display price, which is how an RPNP currently functions, and therefore would not include functionality based on Rule 6.62–O(p)(1)(B) in the proposed Pillar rules. PO 00000 Frm 00017 Fmt 4701 Sfmt 4703 36455 manner as an RPNP order or MMRP quotation. The Exchange proposes new functionality for the Non-Routable Limit Order as compared to either the RPNP Order or the Non-Routable Limit Order on the Exchange’s cash equity market. Specifically, proposed Rule 6.62P– O(e)(1)(B) would provide that the display price of a resting Non-Routable Limit Order to buy (sell) that has been repriced would be repriced higher (lower) only one additional time.34 If after that repricing, the display price could be repriced higher (lower) again, the order can be designated to either remain at its last working price and display price or be cancelled, provided that a resting Non-Routable Limit Order that is a quote cannot be designated to be cancelled.35 The Exchange notes that this designation to cancel is separate from the designation to cancel if it cannot be displayed at its limit price. If a NonRoutable Limit Order is designated to cancel if it cannot be displayed at its limit price, this second cancellation designation would not be needed as the order would have already been cancelled. Rather, this second cancellation designation is applicable only to a resting Non-Routable Limit Order that has been designated to reprice on arrival and was repriced before it was displayed on the Consolidated Book, and provides OTP Holders and OTP Firms with an option to cancel a resting order if market conditions were such that a resting order could have been repriced again, e.g., the contra-side Away Market NBBO changes. To assist Market Makers in maintaining quotes in their assigned series, the Exchange proposes that this second cancellation designation would not be available to Market Makers for their quotes. Proposed Rule 6.62P–O(e)(1)(B)(i) would provide that if the limit price of the resting Non-Routable Limit Order to 34 For example, on arrival, a Non-Routable Limit Order to buy (sell) with a limit price higher (lower) than the NBO (NBB), would have a display price one MPV below (above) the NBO (NBB) and a working price equal to the NBO (NBB). If the Away Market NBO (NBB) reprices higher (lower), the resting Non-Routable Limit Order to buy (sell) would similarly be repriced higher (lower). If the NBO (NBB) adjusts higher (lower) again, the resting Non-Routable Limit Order would not be adjusted again. 35 The working time of a Non-Routable Limit Order would be adjusted as described in proposed Rule 6.76P–O(f)(2), which would be applicable to any scenario when the working time of an order may change, including a Non-Routable Limit Order. Similar to how the Pillar rules function on the Exchange’s cash equity market, the Exchange does not propose to separately describe how the working time of an order changes in proposed Rule 6.62P– O. E:\FR\FM\09JYN2.SGM 09JYN2 36456 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 buy (sell) that has been repriced no longer locks or crosses the Away Market NBO (NBB), it would be assigned a working price and display price equal to its limit price. This proposed rule text is based on Rule 7.31–E(e)(1)(A)(iv). Proposed Rule 6.62P–O(e)(1)(B)(ii) would provide that the working price of a resting Non-Routable Limit Order to buy (sell) that has been repriced would be adjusted to be equal to its display price if the Away Market NBO (NBB) is equal to or lower (higher) than its display price. This proposed rule is based in part on how an RPNP reprices (as described in Rule 6.62–O(p)(1)(A)(i)) and uses Pillar terminology. The proposed rule would further provide that once the working price and display price of a Non-Routable Limit Order to buy (sell) are the same, the working price would be adjusted higher (lower) only if the display price of the order is adjusted.36 Proposed Rule 6.62P–O(e)(1)(C) would provide that a Non-Routable Limit Order may be designated with a Non-Display Remove Modifier and if so designated, a Non-Routable Limit Order to buy (sell) with a working price, but not display price, equal to the working price of an ALO Order or Day ISO ALO to sell (buy) would trade as the liquidity taker against such order. This functionality is based on the NonDisplay Remove Modifier available for cash equity trading, as described in Rule 7.31–E(e)(1)(C), and would be new for options trading on Pillar. Finally, proposed Rule 6.62P– O(e)(1)(D) would provide that the designation to cancel a Non-Routable Limit Order would not be applicable in an Auction and such order will participate in an Auction at its limit price. This proposed rule text promotes clarity and transparency that a NonRoutable Limit Order would be eligible to participate in an Auction, but that it would be repriced to its limit price for participation in such Auction. ALO Order. Proposed Rule 6.62P– O(e)(2) would define an ALO Order as a Limit Order or quote that is a NonRoutable Limit Order that would not remove liquidity from the Consolidated Book. This proposed order type incorporates functionality similar to both the existing ALO and RALO order 36 For example, if the Away Market NBO is 1.05 and the Exchange receives a Non-Routable Limit Order to buy priced at 1.10, it would be assigned a display price of 1.00 and a working price of 1.05. If the Away Market NBO adjusts to 1.00, the working price of the Non-Routable Limit Order to buy would be adjusted to 1.00 to be equal to its display price. However, if the Away Market NBO moves back to 1.05, the Non-Routable Limit Order’s working price would not adjust again to 1.05 and would stay at 1.00. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 types, as defined in Rule 6.62–O, and the existing MMALO quotation type, as defined in Rule 6.37A–O(a)(3)(B). Unless otherwise specified in proposed Rule 6.62P–O(e)(2), an ALO Order would function as a Non-Routable Limit Order, including that it would participate in an Auction at its limit price. Proposed Rule 6.62P–O(e)(2)(A) would provide that an ALO Order would not be displayed at a price that would lock or cross an Away Market NBBO, would lock or cross displayed interest in the Consolidated Book, or would cross non-displayed interest in the Consolidated Book. Because an ALO Order would never remove liquidity, this proposed rule text ensures that such order would not be displayed at a price that would lock or cross displayed interest either on the Exchange or an Away Market, and would not be displayed at a price that crosses nondisplayed interest in the Consolidated Book. Proposed Rule 6.62P–O(e)(2)(A)(i) would provide that an ALO Order can be designated to be cancelled if it would be displayed at a price other than its limit price. An ALO Order with this designation to cancel would function similarly to a Liquidity Adding Order as defined in Rule 6.62–O(t) and uses Pillar terminology. Proposed Rule 6.62P–O(e)(2)(A)(ii) would provide that an ALO Order to buy (sell) would be displayed at its limit price if it locks non-displayed orders or quotes to sell (buy) on the Consolidated Book. Because an ALO Order would not be repriced in this scenario, this functionality would be the same regardless of whether the order includes a designation to cancel. Proposed Rule 6.62P–O(e)(2)(A)(iii) would provide that an ALO Order to buy (sell) would not consider an AON Order or an order with an MTS Modifier to sell (buy) for purposes of determining whether it needs to be repriced or cancelled. This proposed rule is designed to promote transparency that a resting contra-side order with conditional instructions, i.e., an AON Order or an order with an MTS Modifier, would not have any bearing on whether an Aggressing ALO Order would need to be repriced. Accordingly, an ALO Order would neither trade as the liquidity taker with such orders (even if it could satisfy their size condition) and could be displayed at a price that would lock or cross the price of such orders. Once the ALO Order is resting on the Consolidated Book, the Exchange would reevaluate the orders on the Consolidated Book. For example, if the ALO Order could satisfy the size PO 00000 Frm 00018 Fmt 4701 Sfmt 4703 condition of the resting AON Order, the resting AON Order would become the Aggressing Order and would trade as the liquidity taker with such resting ALO Order. Proposed Rule 6.62P–O(e)(2)(B) would describe how an ALO Order would be processed if it is not designated to cancel, as follows: • If the limit price of an ALO Order to buy (sell) would lock or cross displayed orders or quotes to sell (buy) on the Consolidated Book, it would be repriced to have a working price and display price one MPV below (above) the lowest (highest) priced displayed order or quote to sell (buy) on the Consolidated Book (proposed Rule 6.62P–O(e)(2)(B)(i)); • If the limit price of an ALO Order to buy (sell) would lock or cross an Away Market NBO (NBB), it would be repriced to have a working price equal to the Away Market NBO (NBB) and a display price one MPV below (above) the NBO (NBB) (proposed Rule 6.62P– O(e)(2)(B)(ii)); or • If the limit price of an ALO Order to buy (sell) would cross non-displayed orders or quotes 37 on the Consolidated Book, it would be repriced to have a working price and display price equal to the lowest (highest) priced nondisplayed order or quote to sell (buy) on the Consolidated Book (proposed Rule 6.62P–O(e)(2)(B)(iii). Because an ALO would never be a liquidity-taking order, the abovedescribed repricing scenarios provide clarity and transparency regarding how an ALO Order would be repriced to prevent either trading with interest on the Consolidated Book or routing to an Away Market. The proposed option to reprice is based in part on how a RALO currently functions, as described in Rule 6.62–O(t)(1)(A). Proposed Rule 6.62P–O(e)(2)(C) would provide that the display price of a resting ALO Order to buy (sell) that has been repriced would be repriced higher (lower) only one additional time and that if, after that repricing, the display price could be repriced higher (lower) again, the order can be designated to either remain at its last working price and display price or be cancelled, provided that a resting ALO Order that is a quote cannot be designated to be cancelled. This proposed functionality would be new to Pillar and is based on how the proposed Non-Routable Limit Order would function, as described above. 37 For example, a contra-side Market Maker quote designated as a Non-Routable Limit Order could have a non-displayed working price. E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Proposed Rule 6.62P–O(e)(2)(C)(i) would provide that if the limit price of an ALO Order to buy (sell) that has been repriced no longer locks or crosses displayed orders or quotes in the Consolidated Book, locks or crosses the Away Market NBBO, or crosses nondisplayed orders or quotes in the Consolidated Book, it would be assigned a working price and display price equal to its limit price. This proposed rule text is similar to proposed Rule 6.62P– O(e)(1)(B)(i) for Non-Routable Limit Orders, with differences to reflect the additional circumstances when an ALO Order would be repriced based off of contra-side displayed or non-displayed interest in the Consolidated Book. Proposed Rule 6.62P–O(e)(2)(D) would provide that the working price of a resting ALO Order to buy (sell) that has been repriced would be adjusted to be equal to its display price (and would not be adjusted again unless the display price of the order is adjusted) if: • The Away Market NBO (NBB) reprices to be equal to or lower (higher) than the display price of the resting ALO Order to buy (sell) (proposed Rule 6.62P–O(e)(2)(D)(i)); or an ALO Order or Day ISO ALO to sell (buy) is displayed on the Consolidated Book at a price equal to the working price of the resting ALO Order to buy (sell) (proposed Rule 6.62P– O(e)(2)(D)(ii)). This proposed rule text is similar to proposed Rule 6.62P–O(e)(1)(C) for NonRoutable Limit Orders, with differences to reflect the additional circumstances when an ALO Order would be repriced as a result of contra-side interest on the Consolidated Book. Specifically, the Exchange proposes that for an ALO Order that has been repriced and has a non-displayed working price, if the Exchange receives a contra-side ALO Order (or Day ISO ALO) with a limit price that is equal to or crosses the working price of the resting ALO Order, the working price of the resting ALO Order would be adjusted to be equal to its display price. This proposed functionality would reduce the potential for two contra-side ALO Orders to have working prices that are locked on the Consolidated Book. Proposed Rule 6.62P–O(e)(2)(E) would provide that when the working price and display price of an ALO Order to buy (sell) are the same, the working price would be adjusted higher (lower) only if the display price of the order is adjusted. This proposed functionality would be new for Pillar. Proposed Rule 6.62P–O(e)(2)(F) would provide that the ALO designation would be ignored for ALO Orders that participate in an Auction. This VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 proposed rule is based on Rule 7.31– E(e)(2)(A), which similarly provides that an ALO Order can participate in an auction and that its ALO designation would be ignored. This is also new functionality for options because currently, the Exchange rejects ALOs if entered outside of Core Trading Hours or during a trading halt and if resting, are cancelled during a trading halt. Proposed Rule 6.62P–O(e)(2)(G) would provide that an ALO Order cannot be designated with a NonDisplay Remove Modifier. Because an ALO Order is a type of Non-Routable Limit Order, this proposed rule promotes clarity that the Non-Display Remove Modifier would not be available for an ALO Order. Intermarket Sweep Order (‘‘ISO’’). ISOs are currently defined in Rule 6.62– O as a Limit Order for an options series that instructs the Exchange to execute the order up to the price of its limit, regardless of the Away Market Protected Quotations 38 and that ISOs may only be entered with a time-in-force of IOC, and the entering OTP Holder must comply with the provisions of 6.92–O(a)(8). Proposed Rule 6.62P–O(e)(3) would similarly provide than an ISO is a Limit Order that does not route and meets the requirements of Rule 6.92–O(a)(8). On Pillar, the Exchange will continue to offer the same type of ISO functionality, and proposes to add the ability for an OTP Holder or OTP Firm to designate an ISO with a Day time-inforce designation and designate a Day ISO as ALO, which functionality is available on the Exchange’s cash equity market as described in Rule 7.31– E(e)(3). The Exchange proposes to describe the functionality for each type of ISO separately. • IOC ISO. Proposed Rule 6.62P– O(e)(3)(A) would define an IOC ISO as an ISO designated IOC to buy (sell) that would be immediately traded with orders and quotes to sell (buy) in the Consolidated Book up to its full size and limit price and may trade through Away Market Protected Quotations and any untraded quantity of an IOC ISO will be immediately and automatically cancelled. This proposed rule is based on Rule 7.31–E(e)(3)(B) and uses Pillar terminology to describe functions that are currently available for options trading. 38 The terms ‘‘Protected Bid,’’ ‘‘Protected Offer,’’ and ‘‘Quotation’’ are defined in Rule 6.92–O(a)(15) and (16) and the term ‘‘Away Market’’ is defined in Rule 1.1. Accordingly, Away Market Protected Quotations refer to Protected Bids and Protected Offers that are disseminated pursuant to the OPRA Plan and are the Best Bid and Best Offer displayed by an Eligible Exchange, as those terms are defined in Rule 6.92–O. PO 00000 Frm 00019 Fmt 4701 Sfmt 4703 36457 • Day ISO. Proposed Rule 6.62– O(e)(3)(B) would define a Day ISO as an ISO designated Day to buy (sell) that, if marketable on arrival, would be immediately traded with orders and quotes to sell (buy) in the Consolidated Book up to its full size and limit price and may trade through Away Market Protected Quotations and that any untraded quantity of a Day ISO would be displayed at its limit price and may lock or cross Away Market Protected Quotations at the time the Day ISO is received by the Exchange. This proposed functionality would be new on the Exchange for options trading and is based on the Day ISO functionality available on the Exchange’s cash equity market, as described in Rule 7.31– E(e)(3)(C). However, the availability of the Day time-in-force designation for ISOs would not be new for options trading, as such orders are currently available on other options exchanges.39 The proposed Day ISO is also consistent with current Rule 6.95–O(b)(3), which describes an exception to the prohibition on locking or crossing a Protected Quotation if the Member simultaneously routed an ISO to execute against the full displayed size of any locked or crossed Protected Bid or Protected Offer.40 Although the Exchange has not previously availed itself of this exception, this exception to locking and crossing Protected Bids and Protected Offers would only be needed if an ISO is designated as Day and therefore would be displayed at a price that would lock or cross a Protected 39 See Nasdaq Options 3, Section 7(a)(7) (‘‘ISOs may have any time-in-force designation. . . .’’) and CBOE Rules 5.30(a)(2) and (3). See also Cboe US Options Fix Specifications, dated June 15, 2021, Section 4.4.7, available here: https://cdn.cboe.com/ resources/membership/US_Options_FIX_ Specification.pdf, which references how a Day ISO would be processed under specified circumstances. 40 The Commission has previously stated that the requirements in the Options Linkage Plan relating to Locked and Crossed Markets are ‘‘virtually identical to those applicable to market centers for NMS stock under Regulation NMS.’’ See also Securities Exchange Act Release No. 60405 (July 30, 2009), 74 FR 39362, 39368 (August 6, 2009) (Order approving Options Linkage Plan). Accordingly, guidance relating to the ISO exception for locked and crossed markets for NMS stocks that specifically contemplate use of Day ISOs is also applicable to options trading. See Responses to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS, FAQ 5.02 (‘‘The ISO exception to the SRO lock/cross rules, in contrast, requires that ISOs be routed to execute against all protected quotations with a price that is equal to the display price (i.e., those protected quotations that would be locked by the displayed quotation), as well as all protected quotations with prices that are better than the display price (i.e., those protected quotations that would be crossed by the displayed quotation).’’ Consistent with this guidance, the Exchange implemented Rule 6.95– O(b)(3). See also Cboe Rule 5.67(b)(3), and Nasdaq Options 5, Section 3(b)(3). E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36458 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Quotation; an IOC ISO would never be displayed and therefore this existing exception would not be applicable to such orders. • Day ISO ALO. Proposed Rule 6.62P–O(e)(3)(C) would define a Day ISO ALO as a Day ISO with an ALO modifier. This proposed order type is based in part on the Day ISO ALO currently available on the Exchange’s cash equity market, as described in Rule 7.31–E(e)(3)(D), but with differences to reflect how the order type would function on the Exchange’s options market, as described above. As proposed, on arrival, a Day ISO ALO to buy (sell) may lock or cross Away Market Protected Quotations at the time of arrival of the Day ISO ALO but would not remove liquidity from the Consolidated Book. A Day ISO ALO to buy (sell) can be designated to be cancelled if it would be displayed at a price other than its limit price. Proposed Rule 6.62P–O(e)(3)(C)(i) would provide that if not designated to cancel, a Day ISO ALO that would lock or cross orders and quotes on the Consolidated Book would be repriced as specified in proposed Rule 6.62P–O(e)(2)(B). Proposed Rule 6.62P–O(e)(3)(C)(ii) would provide that once resting, a DAY ISO ALO would be processed as an ALO Order as specified in proposed Rule 6.62P–O(e)(2)(C)–(G). Complex Orders. Complex Orders are defined in Rule 6.62–O(e). The Exchange proposes to define Complex Orders for Pillar in proposed Rule 6.62P–O(f) based on Rule 6.62–O(e) and its sub-paragraphs (1) and (2) without any substantive differences. The Exchange proposes to add clarifying text that the different options series in a Complex Order are also referred to as the ‘‘legs’’ or ‘‘components’’ of the Complex Order. The Exchange also proposes that proposed Rule 6.62P–O(f) would provide that a Complex Order would be any order involving the simultaneous purchase and/or sale of ‘‘two or more options series in the same underlying security,’’ and not use the modifier ‘‘different’’ before the phrase ‘‘more option series.’’ The Exchange believes that the word ‘‘different’’ is redundant and unnecessary in this context. In addition, proposed Rule 6.62P–O(f)(1) and (2) would not reference mini-options contracts, which no longer trade on the Exchange. Cross Orders. Currently, the only electronically-entered cross orders available on the Exchange are Qualified Contingent Cross Orders, which are defined in Rule 6.62–O(bb) and Commentary .02 to Rule 6.62–O. In addition, Rule 6.90–O describes how Qualified Contingent Cross Orders are VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 processed. The Exchange proposes to define the term ‘‘Cross Orders’’ on Pillar in proposed Rule 6.62P–O(g). At this time, the only Cross Orders that would be available on Pillar for electronic entry would be Qualified Contingent Cross (‘‘QCC’’) Orders. As proposed, QCC Orders on Pillar would function identically to how Qualified Contingent Cross Orders function on the OX system, and for purposes of the rules governing trading on Pillar, the Exchange proposes to merge language from two rules relating to QCC Orders into a single rule, proposed Rule 6.62P– O(g), using Pillar terminology. Proposed Rule 6.62P–O(g) and (g)(1) would describe rules generally applicable to electronically-entered Cross Orders, including QCC Orders, and proposed Rule 6.62P–O(g)(2) would address requirements specific to QCC Cross Orders. Proposed Rule 6.62P–O(g) would provide that ‘‘Cross Orders’’ would be two-sided order messages with instructions to match the identified buyside with the identified sell-side at a specified price, which could either be designated as a limit price or at the market (‘‘cross price’’).41 The proposed rule would further provide that a Cross Order that is not rejected per proposed Rule 6.62P–O(g)(1) would immediately trade in full at its cross price, would not route, and may be entered with an MPV of $0.01 regardless of the MPV of the options series and that Cross Orders may be entered by Floor Brokers from the Trading Floor or routed to the Exchange from off-Floor. Proposed Rule 6.62P–O(g)(1) would provide that a Cross Order would be rejected if received when the NBBO is crossed or if it would be traded at a cross price that (i) is at the same price as a displayed Customer order on the Consolidated Book and (ii) is not at or between the NBBO. This proposed rule is based on Rule 6.90–O without any differences. Proposed Rule 6.62P–O(g)(1) would further set forth how a Cross Order designated to trade at the market would be priced. As proposed, a Cross Order with a cross price at the market would execute at the midpoint of the NBBO; provided that: • If there is no NBB, a zero bid would be used (proposed Rule 6.62P– O(g)(1)(A)); • if there is displayed Customer interest priced equal to the NBB, NBO or both, the midpoint would be based 41 The Exchange does not currently offer Cross Orders on its cash equity market. This proposed rule text uses Pillar terminology that is based in part on NYSE Chicago Rule 7.31(g). PO 00000 Frm 00020 Fmt 4701 Sfmt 4703 on the BBO improved by $0.01 for the side(s) containing displayed Customer interest (proposed Rule 6.62P– O(g)(1)(B)); • if there is no NBO, such order would be rejected (proposed Rule 6.62P–O(g)(1)(C)); or • if the midpoint of the NBBO is in sub-pennies, the order would trade at the midpoint of the NBBO rounded down to the MPV for the series (proposed Rule 6.62P–O(g)(1)(D)). This proposed rule text is designed to promote clarity and transparency in Exchange rules regarding how a Cross Order ‘‘at the market’’ would execute in circumstances when there is no NBB or NBO or there is displayed Customer interest equal to the NBBO. Proposed Rule 6.62P–O(g)(2) would define QCC Orders, which would be the only Cross Orders available on Pillar at this time. As proposed, a QCC Order must be comprised of an originating order to buy or sell at least 1,000 contracts that is identified as being part of a qualified contingent trade coupled with a contra-side order or orders totaling an equal number of contracts. This proposed rule text is based on Rule 6.62–O(bb) with a non-substantive difference that the Pillar rule would not reference mini-options contracts, which no longer trade on the Exchange. Proposed Rule 6.62P–O(g)(2)(A) and subparagraphs (i)–(vi) would define a ‘‘qualified contingent trade’’ and is based on Commentary .02 and subparagraphs (a)–(f) to Rule 6.62–O without any substantive differences. Proposed Rule 6.62P–O(g)(2)(B) would specify rules governing QCC Orders entered from the Trading Floor, which can be entered only by Floor Brokers, and is based on Commentary .01 to Rule 6.90–O. The proposed rule would provide that while on the Trading Floor, only Floor Brokers can enter QCC Orders and that Floor Brokers may not enter QCC Orders for their own account, the account of an associated person, or an account with respect to which it or an associated person thereof exercises investment discretion (each a ‘‘prohibited account’’). As further proposed, when executing such orders, Floor Brokers would not be subject to Rule 6.47–O regarding ‘‘Crossing’’ orders. Floor Brokers must maintain books and records demonstrating that each QCC Order entered from the Floor was not entered for a prohibited account. Any QCC Order entered from the Floor that does not have a corresponding record required by this paragraph will be deemed to have been entered for a prohibited account in violation of this Rule. E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Proposed Rule 6.62P–O(g)(2)(C) would specify rules governing QCC Orders entered off-Floor and that OTP Holders must maintain books and records demonstrating that each such order was so routed. This proposed rule is based on Commentary .02 to Rule 6.90–O without any substantive differences. To promote clarity, the Exchange proposes to amend Rule 6.90–O to specify that the rule would not be applicable to trading on Pillar. Orders Available Only in Open Outcry. The Exchange proposes to add to Rule 6.62P–O(h) orders that are available only in open outcry, most of which are currently defined in Rule 6.62–O. First, proposed Rule 6.62P–O(h)(1) would codify an existing order type, the Clear-the-Book (‘‘CTB’’) Order, which is currently only described in a Regulatory Bulletin.42 The proposed definition would describe the CTB Order, which would be an order type available in open outcry that would interface with the Consolidated Book, and therefore with Pillar. As proposed, a CTB Order would be a Limit IOC Order that may be entered only by a Floor Broker, subsequent to executing an order in open outcry, that is approved by a Trading Official (the ‘‘TO Approval’’). The CTB Order would be eligible to trade only with contra-side orders and quotes that were resting in the Consolidated Book prior to the TO Approval. In addition, proposed Rule 6.62P–O(h)(1)(A)–(C) would provide that: • A CTB Order to buy (sell) would trade with contra-side orders and quotes with a display price below (above) the limit price of the CTB Order (proposed Rule 6.62P–O(h)(1)(A)); • A CTB Order to buy (sell) would trade with contra-side orders and quotes that have a display price and working price equal to the limit price of the CTB Order only if there is displayed Customer sell (buy) interest at that price, in which case, the CTB Order to buy (sell) would trade with the displayed Customer interest to sell (buy) and any non-Customer interest to sell (buy) with a working time earlier than the latest-arriving displayed Customer interest to sell (buy) (proposed Rule 6.62P–O(h)(1)(B)); and • Any unexecuted portion of the CTB Order would cancel after trading with all better-priced interest and eligible 42 See NYSE Arca Options RB–16–04, dated February 19, 2016 (Rules of Priority and Order Protection in Open Outcry), available here: https:// www.nyse.com/publicdocs/nyse/markets/arcaoptions/rule-interpretations/2016/ NYSE%20Arca%20Options%20RB%2016-04.pdf. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 same-priced interest on the Consolidated Book (proposed Rule 6.62P–O(h)(1)(C)). Currently, CTB Orders only trade with displayed Customer interest and any same-priced displayed non-Customer interest ranked ahead of such interest in time priority, but do not trade with better-priced displayed non-Customer interest. In Pillar, per Rule 6.62P– O(h)(1)(B), CTB Orders would trade with displayed non-Customer interest priced better than the latest-arriving displayed Customer interest (i.e., a CTB order buying with a $1.00 limit would now trade with any displayed interest offered at $0.99). The Exchange believes that this proposed change would increase execution opportunities and achieve the goal of a CTB Order, which is to clear priority on the Consolidated Book at the time of the TO Approval. In addition, proposed Rule 6.62P– O(h)(1)(D) would codify existing regulatory responsibilities of Floor Brokers utilizing CTB Orders to submit such orders in a timely manner after receiving TO Approval and would also provide that because CTB Orders are non-routable, Floor Brokers would be obligated to route orders to better-priced interest to Away Markets per Rule 6.94– O.43 The Exchange also proposes to include in Rule 6.62P–O additional open outcry order types that are currently defined in Rule 6.62–O: • Proposed Rule 6.62P–O(h)(2) would define ‘‘Facilitation Order’’ and is based on the Rule 6.62–O(j) definition of Facilitation Order without any differences. • Proposed Rule 6.62P–O(h)(3) would define ‘‘Mid-Point Crossing Order’’ and is based on the Rule 6.62–O(q) definition of Mid-Point Crossing Order without any differences. • Proposed Rule 6.62P–O(h)(4) would define ‘‘Not Held Order’’ and is based on the Rule 6.62–O(f) definition of Not Held Order without any differences. • Proposed Rule 6.62P–O(h)(5) would define ‘‘Single Stock Future (‘‘SSF’’)/ Option Order’’ and is based on the Rule 6.62–O(i) definition of Single Stock Future (‘‘SSF’’)/Option Order without any differences. • Proposed Rule 6.62P–O(h)(6)(A) would define a ‘‘Stock/Option Order’’ and is based on the Rule 6.62–O(h)(1) definition of Stock/Option Order without any differences. • Proposed Rule 6.62P–O(h)(6)(B) and subparagraphs (i) and (ii) would define a ‘‘Stock/Complex Order’’ and is based on the Rule 6.62–O(h)(2) definition of 43 See id. at p. 2–3 (describing regulatory responsibilities related to CTB Orders). PO 00000 Frm 00021 Fmt 4701 Sfmt 4703 36459 Stock/Complex Order with its subparagraphs without any differences. The Exchange proposes that after the transition to Pillar, the following open outcry order types, which are currently described in Rule 6.62–O but are not used by Floor Brokers, would not be added to proposed Rule 6.62P–O governing orders and modifiers: One cancels the other (OCO) Order and Stock Contingency Order. Additional Order Instructions and Modifiers. The Exchange proposes to specify the additional order instructions and modifiers that would be available in Pillar in proposed Rule 6.62P–O(i). Proactive if Locked/Crossed Modifier. Proposed Rule 6.62P–O(i)(1) would provide that a Limit Order that is displayed and eligible to route and designated with a Proactive if Locked/ Crossed Modifier would route to an Away Market if the Away Market locks or crosses the display price of the order and that if any quantity of the routed order is returned unexecuted, the order would be displayed in the Consolidated Book. This would be new functionality for options trading on the Exchange and is based on the Proactive if Locked/ Crossed Modifier available on the Exchange’s cash equity platform, as described in Rule 7.31–E(i)(1) without any differences. Self-Trade Prevention (‘‘STP’’) Modifier. Self-Trade Prevention (‘‘STP’’) Modifiers are currently defined in Commentary .01 to Rule 6.76A–O and are available only for Market Maker orders and quotes. On Pillar, the Exchange proposes to expand the availability of STP to all orders and quotes. Because STP Modifiers are an instruction that can be added to an order or quote, the Exchange proposes that for Pillar, STP Modifiers would be described in proposed Rule 6.62P– O(i)(2). This is based on the structure of the Exchange’s cash equity rules, which also describe the STP Modifier in Rule 7.31–E(i). Proposed Rule 6.62P–O(i)(2) would provide that an Aggressing Order or Aggressing Quote to buy (sell) designated with one of the STP modifiers in proposed Rule 6.62P– O(i)(2) would be prevented from trading with a resting order or quote to sell (buy) also designated with an STP modifier from the same MPID, and, if specified, any sub-identifier of that MPID and that the STP modifier on the Aggressing Order or Aggressing Quote would control the interaction between two orders and/or quotes marked with STP modifiers. In addition, STP would not be applicable during an auction or to Cross Orders or when a Complex Order legs out. This proposed rule text E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36460 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices is based on Commentary .01 to Rule 6.76A with non-substantive differences to use Pillar terminology. Proposed Rule 6.62P–O(i)(2) would further provide that if the condition for a Limit Order designated FOK, an AON Order, or an order with an MTS modifier cannot be met because of STP modifiers, such order would either be cancelled or placed on the Consolidated Book, as applicable. This proposed rule text provides clarity that if a condition of an order cannot be met because of STP modifiers, the order would either cancel (i.e., a Limit Order designated FOK), or be added to the Consolidated Book (i.e., an AON Order or an order with an MTS modifier), and then such resting orders would function as described in Rule 6.62P–O. The proposed rule would further provide that Aggressing Orders or Aggressing Quotes would be processed as follows: • Proposed Rule 6.62P–O(i)(2)(A) would describe STP Cancel Newest (‘‘STPN’’) and provide that an Aggressing Order or Aggressing Quote to buy (sell) marked with the STPN modifier would not trade with resting interest to sell (buy) marked with any STP modifier from the same MPID; that the Aggressing Order or Aggressing Quote marked with the STPN modifier would be cancelled; and that the resting order or quote marked with one of the STP modifiers will remain on the Consolidated Book. This proposed rule is based on Commentary .01(a) to Rule 6.76A–O with non-substantive differences to use Pillar terminology. • Proposed Rule 6.62P–O(i)(2)(B) would describe STP Cancel Oldest (‘‘STPO’’) and provide that an Aggressing Order or Aggressing Quote to buy (sell) marked with the STPO modifier would not trade with resting interest to sell (buy) marked with any STP modifier from the same MPID; that the resting order or quote marked with the STP modifier would be cancelled; and that the Aggressing Order or Aggressing Quote marked with the STPO modifier would be placed on the Consolidated Book. This proposed rule is based on Commentary .01(b) to Rule 6.76A–O with non-substantive differences to use Pillar terminology. • Proposed Rule 6.62P–O(i)(2)(C) would describe STP Cancel Both (‘‘STPC’’) and provide that an Aggressing Order or Aggressing Quote to buy (sell) marked with the STPC modifier would not trade with resting interest to sell (buy) marked with any STP modifier from the same MPID and that the entire size of both orders and/ or quotes would be cancelled. This proposed rule is based on Commentary VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 .01(c) to Rule 6.76A–O with nonsubstantive differences to use Pillar terminology. Minimum Trade Size Modifier. The Exchange proposes to add the Minimum Trade Size (‘‘MTS’’) Modifier, which would be new functionality for options trading on Pillar that is based on the same functionality currently available for cash equity securities trading on Pillar, as described in Rule 7.31–E(i)(3). As with the MTS Modifier for cash equity trading, the proposed MTS Modifier for options traded on Pillar would be available only for nondisplayed orders. Accordingly, proposed Rule 6.62P–O(i)(3) would provide that a Limit IOC Order or NonDisplayed Limit Order may be designated with an MTS Modifier.44 Proposed Rule 6.62P–O(i)(3)(A) would provide that the quantity of the MTS Modifier may be less than the order quantity; however, an order would be rejected if it has an MTS Modifier quantity that is larger than the size of the order. This proposed rule is based on Rule 7.31–E(i)(3)(A) with differences only to reflect that the concept of a round lot is not applicable for options trading. Proposed Rule 6.62P–O(i)(3)(B) would provide that one of the following instructions must be specified with respect to whether an order to buy (sell) with an MTS Modifier would trade on arrival with: (i) Orders or quotes to sell (buy) in the Consolidated Book that in the aggregate meet such order’s MTS; or (ii) only individual order(s) or quote(s) to sell (buy) in the Consolidated Book that each meets such order’s MTS. This proposed rule is based on Rule 7.31– E(i)(3)(B) and sub-paragraphs (i) and (ii) with only non-substantive differences to use options trading terminology (e.g., Consolidated Book instead of NYSE Arca Book and reference to quotes). Otherwise, the functionality would be identical on both the options and cash equity trading platforms. Proposed Rule 6.62P–O(i)(3)(C) would provide that an order with an MTS Modifier that is designated Day or GTC that cannot be executed immediately on arrival would not trade and would be ranked in the Consolidated Book. In such case, the order to buy (sell) with an MTS Modifier to buy (sell) that is ranked in the Consolidated Book would not be eligible to trade: (i) At a price equal to or above (below) any orders or quotes to sell (buy) that are displayed at 44 For cash equity trading, the MTS Modifier is also available for an MPL Order or Tracking Order, which are non-displayed order types available on the Exchange’s cash equity trading platform that would not be available for options trading on Pillar. See Rule 7.31–E(i)(3). PO 00000 Frm 00022 Fmt 4701 Sfmt 4703 a price equal to or below (above) the working price of such order with an MTS Modifier; or (ii) at a price above (below) any orders or quotes to sell (buy) that are not displayed and that have a working price below (above) the working price of such order with an MTS Modifier. This proposed rule is based on Rule 7.31–E(i)(3)(C) and subparagraphs (i) and (ii) with only nonsubstantive differences to use options trading terminology and to reflect the availability of the GTC time-in-force modifier for Non-Displayed Limit Orders. Otherwise, the functionality would be identical on both the options and cash equity trading platforms. Proposed Rule 6.62P–O(i)(3)(D) would provide that an order with an MTS Modifier that is designated IOC and cannot be immediately executed would be cancelled. This proposed rule is based on Rule 7.31–E(i)(3)(D) without any differences and the functionality would be identical on both the options and cash equity trading platforms. Proposed Rule 6.62P–O(i)(3)(E) would provide that a resting order to buy (sell) with an MTS Modifier would trade with individual orders and quotes to sell (buy) that each meet the MTS and that (i) if an Aggressing Order or Aggressing Quote to sell (buy) does not meet the MTS of the resting order to buy (sell) with an MTS Modifier, that Aggressing Order or Aggressing Quote would not trade with, and may trade, through such resting order with an MTS Modifier; and (ii) if a resting non-displayed order or quote to sell (buy) did not meet the MTS of a same-priced resting order or quote to buy (sell) with an MTS Modifier, a subsequently arriving order or quote to sell (buy) that meets the MTS would trade before such resting non-displayed order or quote to sell (buy) at that price. This proposed rule is based on Rule 7.31–E(i)(3)(E) and sub-paragraphs (i) and (ii) with only non-substantive differences to use options trading terminology. Otherwise, the functionality would be identical on both the options and cash equity trading platforms. Proposed Rule 6.62P–O(i)(3)(F) would provide that a resting order with an MTS Modifier would be cancelled if it is traded in part or reduced in size and the remaining quantity is less than such order’s MTS. This proposed rule is based on Rule 7.31–E(i)(3)(F) without any differences and the functionality would be identical on both the options and cash equity trading platforms. In connection with proposed Rule 6.62P–O, the Exchange proposes to add the following preamble to Rule 6.62–O: ‘‘This Rule will not be applicable to trading on Pillar.’’ This proposed E:\FR\FM\09JYN2.SGM 09JYN2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.62–O would not be applicable to trading on Pillar. Proposed Rule 6.37AP–O: Market Maker Quotations Current Rule 6.37A–O describes Market Maker quoting obligations, including defining ‘‘quotations’’ and describing the treatment to such quotations. Proposed Rule 6.37AP–O would set forth Market Maker quoting obligations under Pillar. • First, Rule 6.37AP–O(a) would be based on the current rule and would provide that a Market Maker may enter quotations only in the issues included in its appointment. Proposed Rule 6.37AP–O(a)(1) would provide that the term ‘‘quote’’ or ‘‘quotation’’ means ‘‘a bid or offer sent by a Market Maker that is not sent as an order’’ and that ‘‘[o]nce received by the Exchange, a subsequent quotation sent by a Market Maker replaces that Market Maker’s previously displayed same-side quotation.’’ This proposed text adds clarity to the existing definition that a Market Maker quote is distinct from a Market Maker order and that a subsequent quote will cancel an existing quote. • Proposed Rule 6.37AP–O(a)(2) would provide that a Market Maker may designate a quote it sends as either a Non-Routable Limit Order or an ALO Order and such quotes would be processed in the same way as those orders are processed under proposed Rule 6.62P–O. The Exchange notes that these two quote types replace the existing quote types (i.e., MMLO, MMALO and MMRP), which will no longer be offered under Pillar. Because proposed Rule 6.62P–O(e)(1) and (2) would describe the treatment of a quote designated as Non-Routable Limit Order or an ALO Order, the Exchange will not include a section in proposed Rule 6.37AP–O regarding the treatment of such quotes. • Proposed Rule 6.37AP–O(b)—(e) would be substantively identical to current Rule 6.37A–O(b)—(e) with nonsubstantive differences to change the term ‘‘shall’’ to ‘‘will.’’ Proposed Commentary .01 to Rule 6.37AP–O would be substantively identical to Commentary .01 to Rule 6.37A–O, with non-substantive differences to streamline the rule text. The Exchange also proposes a nonsubstantive change to paragraph (b) of Rule 6.65A–O (Limit-Up and LimitDown During Extraordinary Market Volatility) to correct a cross reference to Market Maker quoting obligations as set forth in Rule 6.37AP–O(b) and (c). Current Rule 6.65A(b) erroneously VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 cross-references Rule 6.37B–O(b) and (c). In connection with proposed Rule 6.37AP–O, the Exchange proposes to add the following preamble to Rule 6.37A–O: ‘‘This Rule will not be applicable to trading on Pillar.’’ This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.37A–O would not be applicable to trading on Pillar. Proposed Rule 6.40P–O: Pre-Trade and Activity-Based Risk Controls For the OX system, current Rule 6.40– O sets forth the activity-based Risk Limitation Mechanisms for orders and quotes, which are designed to help OTP Holders and OTP Firms effectively manage risk during periods of increased and significant trading activity. With the transition to Pillar, the Exchange proposes to incorporate new risk control functionality that is based on both existing activity-based risk controls for options and pre-trade risk controls that are available on the Exchange’s cash equity platform. Proposed Rule 6.40P–O would describe the activity-based controls with updated functionality under Pillar and would also describe new optional pre-trade risk controls that are based on pre-trade risk controls available on the Exchange’s cash equity platform, as described in Rule 7.19–E, with proposed differences to reference quotes and proposed new Pillar functionality. Proposed Rule 6.40P–O(a) would set forth the following definitions that would be used for purposes of the Rule: • The term ‘‘Entering Firm’’ would mean an OTP Holder or OTP Firm (including those acting as Market Makers) (proposed Rule 6.40P–O(a)(1)). This proposed definition is based in part on the definition of ‘‘Entering Firm’’ in Rule 7.19–E(a)(1) and the Exchange believes that the addition of this term would add clarity to the proposed rule. • The term ‘‘Pre-Trade Risk Controls’’ would refer to two optional limits that an Entering Firm may utilize with respect to its trading activity on the Exchange (proposed Rule 6.40P– O(a)(2)). These controls would be the ‘‘Single Order Maximum Notional Value Risk Limit’’ and the ‘‘Single Order Maximum Quantity Risk Limit.’’ The proposed Pre-Trade Controls are based on the substantially identical risk controls available on the Exchange’s cash equity market, as described in Rules 7.19–E(a)(3) and (4), respectively, but differ in that the proposed rule would also apply to quotes and specifies the treatment of orders designated GTC. PO 00000 Frm 00023 Fmt 4701 Sfmt 4703 36461 Æ The term ‘‘Single Order Maximum Notional Value Risk Limit’’ would refer to a pre-established maximum dollar amount for a single order or quote to be applied one time (proposed Rule 6.40P– O(a)(2)(A)). This definition would also provide that orders designated GTC would be subject to this pre-trade risk control only once. Æ The term ‘‘Single Order Maximum Quantity Risk Limit’’ would refer to a pre-established maximum number of contracts that may be included in a single order or quote before it can be traded (proposed Rule 6.40P– O(a)(2)(B)). This definition would also provide that orders designated GTC would be subject to this pre-trade risk control only once. • The term ‘‘Activity-Based Risk Controls’’ would refer to three activitybased risk limits that an Entering Firm may apply to its orders and quotes in an options class based on specified thresholds measured over the course of an Interval (to be defined below) (proposed Rule 6.40P–O(a)(3)). The proposed Activity-Based Risk Controls are based on the substantially identical risk controls set forth in current Rule 6.40–O(b)–(d), except that on Pillar, a Market Maker’s orders and quotes would be aggregated and applied towards each risk limit (as opposed to current functionality, where a Market Maker’s orders and quotes are counted separately). Æ The term ‘‘Transaction-Based Risk Limit’’ would refer to a pre-established limit on the number of an Entering Firm’s orders and quotes executed in a specified class of options per Interval (proposed Rule 6.40P–O(a)(3)(A)). This risk control is based on the substantially identical risk control set forth in current Rule 6.40–O(b), except as noted above. Æ The term ‘‘Volume-Based Risk Limit’’ would refer to a pre-established limit on the number of contracts of an Entering Firm’s orders and quotes that could be executed in a specified class of options per Interval (proposed Rule 6.40P–O(a)(3)(B)). This risk control is based on the substantially identical risk control set forth in current Rule 6.40– O(c), except as noted above. Æ The term ‘‘Percentage-Based Risk Limit’’ would refer to a pre-established limit on the percentage of contracts executed in a specified class of options as measured against the full size of such Entering Firm’s orders and quotes executed per Interval (proposed Rule 6.40P–O(a)(3)(C)). The proposed definition would also provide that to determine whether an Entering Firm has breached the specified percentage limit, the Exchange would calculate the percent of each order or quote in a E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36462 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices specified class of option that is executed during an Interval (each, a ‘‘percentage’’), and sum up those percentages. As further proposed this definition would state that this risk limit would be breached if the sum of the percentages exceeds the preestablished limit. This risk control is based on the substantially identical risk control set forth in current Rule 6.40– O(d), except as noted above. • The term ‘‘Global Risk Control’’ would refer to a pre-established limit on the number of times an Entering Firm may breach its Activity-Based Risk Controls per Interval (proposed Rule 6.40P–O(a)(4)). This proposed definition is based on the substantially identical functionality set forth in current Rule 6.40–O(f). • The term ‘‘Interval’’ would refer to the configurable time period during which the Exchange would determine if an Activity-Based Risk Control or the Global Risk Control has been breached (proposed Rule 6.40P–O(a)(5)). This proposed definition is consistent with current Rule 6.40–O, which contains references throughout to a ‘‘time period’’ during which the Exchange will determine whether a breach has occurred. The Exchange believes this proposed definition would add clarity and transparency to Exchange rules. Proposed Rule 6.40P–O(b) would set forth how the Pre-Trade, Activity-Based and Global Risk Controls could be set or adjusted. Proposed Rule 6.40P–O(b)(1) would provide that these risk controls may be set before the beginning of a trading day and may be adjusted during the trading day. Proposed Rule 6.40P– O(b)(2) would provide that Entering Firms may set these risk controls at the MPID level or at one or more sub-IDs associated with that MPID, or both. Proposed Rule 6.40P–O(b) is based on Rule 7.19–E(b)(3)(A)–(B) but differs in that the proposed rule includes Activity-Based and Global Risk Controls in addition to Pre-Trade Risk Controls. Proposed Rule 6.40P–O(c) would set forth the Automated Breach Actions that the Exchange would take if a designated risk limit is breached. Proposed Rule 6.40P–O(c)(1)(A)(i)–(ii) would set forth the automated breach actions for the Pre-Trade Risk Controls. • Proposed Rule 6.40P–O(c)(1)(A)(i) would provide that a Limit Order or quote that breaches the designated limit of either a Single Order Maximum Notional Value Risk Limit or Single Order Maximum Quantity Risk Limit would be rejected. • Proposed Rule 6.40P–O(c)(1)(A)(ii) would provide that a Market Order that breaches the designated limit of a Single Order Maximum Quantity Risk Limit VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 would be rejected. The proposed rule would also provide that a Market Order that breaches the designated limit of a Single Order Notional Value Risk Limit would be rejected if the order arrived during continuous trading or canceled if the order was received during a preopen state and the quantity remaining to trade after an Auction concludes breaches the designated limit. Proposed Rule 6.40P–O(c)(1)(A)(i)–(ii) is based on Rule 7.19–E(c)(2) but differs in that it specifies the treatment of Limit Orders and Market Orders (the latter having different treatment based on when such orders arrive at the Exchange) and expands application of the check to include quotes. Proposed Rule 6.40P–O(c)(2) would set forth the automated breach actions for the Activity-Based Risk Controls. • Proposed Rule 6.40P–O(c)(2)(A) would first specify that an Entering Firm acting as a Market Maker would be required to apply one of the ActivityBased Risk Controls to all of its orders and quotes; whereas an Entering Firm that is not acting as a Market Maker would have the option, but would not be required, to apply one of the Activity-Based Risk Controls to its orders. The requirement that Market Makers utilize Activity-Based Risk Controls for all quotes mirrors the requirements set forth in Rule 6.40–O, Commentary .04(a); however, the proposed rule differs in that it likewise requires Market Makers to apply one of the Activity-Based Risk Controls to all of its orders. The proposed optionality of the Activity-Based Risk controls for orders sent by Entering Firms not acting as Marker Maker mirrors current Rule 6.40–O, Commentary .04(b)). • Proposed Rule 6.40P–O(c)(2)(B) would provide that to determine when an Activity-Based Risk Control has been breached, the Exchange would maintain Trade Counters that would be incremented every time an order or quote trades, including any leg of a Complex Order, and would aggregate the number of contracts traded during each such execution. As further proposed, an Entering Firm may opt to exclude any orders designated IOC or FOK from being considered by a Trade Counter. This is consistent with existing functionality set forth in Rule 6.40–O(a) and Commentary .07, except, as noted above, there would not be separate Trade Counters for a Market Maker’s quotes and orders. Instead, a Market Maker’s quotes and orders in a given option class would be aggregated (i.e., counted together). • Proposed Rule 6.40P–O(c)(2)(C) would provide that each Entering Firm must select one of three Automated PO 00000 Frm 00024 Fmt 4701 Sfmt 4703 Breach Actions for the Exchange to take should the Entering Firm breach an Activity-Based Risk Control. Æ ‘‘Notification Only.’’ As set forth in proposed Rule 6.40P–O(c)(2)(C)(i), if this option is selected, the Exchange would continue to accept new order and quote messages and related instructions and would not cancel any unexecuted orders or quotes in the Consolidated Book. With the ‘‘Notification Only’’ action, the Exchange would provide such notifications, but would not take any other automated actions with respect to new or unexecuted orders. This proposed functionality is not currently available in the event of a breach of current Rule 6.40–O, but is substantially identical to the Notification Only option set forth in Rule 7.19–E(c)(3)(A)(i) for breach of the Gross Credit Risk Limit on the Exchange’s cash equity platform. The Exchange believes this proposed option would provide Entering Firms more control over how Activity-Based Risk Controls are implemented and would add consistency to the risk controls already offered under Pillar on the Exchange’s cash equity platform. Æ ‘‘Block Only.’’ As set forth in proposed Rule 6.40P–O(c)(2)(C)(ii), if this option is selected, the Exchange would reject new order and quote messages and related instructions, provided that the Exchange would continue to process instructions from the Entering Firm to cancel one or more orders or quotes (including AuctionOnly Orders) in full. The proposed rule would also provide that the Exchange would follow any instructions specified in paragraph (e) of the proposed Rule (and described below). This proposed functionality is not currently available under current Rule 6.40–O, but is substantially identical to the Block Only option set forth in Rule 7.19– E(c)(3)(A)(ii) for breach of the Gross Credit Risk Limit on the Exchange’s cash equity platform. The Exchange believes this proposed option would provide Entering Firms more control over how Activity-Based Risk Controls are implemented and would add consistency to the risk controls already offered under Pillar on the Exchange’s cash equity platform. Æ ‘‘Cancel and Block.’’ As set forth in proposed Rule 6.40P–O(c)(2)(C)(iii), if this option is selected, in addition to the Block actions described above, the Exchange would also cancel all unexecuted orders and quotes in the Consolidated Book other than AuctionOnly Orders and orders designated GTC. This proposed Cancel and Block functionality is substantially similar to the automated breach action taken by E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices the Exchange per current Rule 6.40–O(e) and Commentaries .01 and .02 thereto, except that under the current rules, this is default (not optional) functionality. Additionally, this proposed rule is substantially identical to the Cancel and Block option set forth in Rule 7.19– E(c)(3)(A)(iii) for breach of the Gross Credit Risk Limit on the Exchange’s cash equity platform. The Exchange believes this proposed option would provide Entering Firms more control over how Activity-Based Risk Controls are implemented and would add consistency to the risk controls already offered under Pillar on the Exchange’s cash equity platform. • Finally, proposed Rule 6.40P– O(c)(2)(D) would provide that if an Entering Firm breaches an ActivityBased Risk Control, the Automated Breach Action selected would be applied to its orders and quotes in the affected class of options. This proposed action is consistent with current Rule 6.40–O(e) and Commentaries .01 and .02 thereto which provide that, upon a breach, the Exchange will cancel existing and suspend new orders and quotes trading in the affected class. Proposed Rule 6.40P–O(c)(2)(E) would provide that the Exchange would specify by Trader Update any applicable minimum, maximum and/or default settings for the Activity-Based Risk Controls, subject to the following: • For the Transaction-Based Risk Limit, the minimum setting would not be less than one and the maximum setting would not be more than 2,000 (proposed Rule 6.40P–O(c)(2)(E)(i)). • For the Volume-Based Risk Limit, the minimum setting would not be less than one and the maximum setting would not be more than 500,000 (proposed Rule 6.40P–O(c)(2)(E)(ii)). • For the Percentage-Based Risk Limit, the minimum setting would not be less than 50 and the maximum setting would not be more than 200,000 (proposed Rule 6.40P–O(c)(2)(E)(iii)). These proposed settings are identical to the Exchange-determined settings provided under current Rule 6.40–O, Commentary .03. Proposed Rule 6.40P–O(c)(2)(F) would provide that the Exchange would specify by Trader Update the Interval for the Activity-Based Risk Controls, subject to the following: • The Interval would not be less than 100 milliseconds and would not be greater than 300,000 milliseconds, inclusive of the duration of any trading halt occurring within that time (proposed Rule 6.40P–O(c)(2)(F)(i)). • For transactions occurring in the Core Open Auction, per Rule 6.64P–O, the applicable time period would be the VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 lesser of (i) the time between the Core Open Auction of a series and the initial transaction or (ii) the Interval (proposed Rule 6.40P–O(c)(2)(F)(ii)). These proposed settings are identical to the Exchange-specified time periods provided under current Rule 6.40–O, Commentary .03, except that the Exchange has included a maximum allowable time period for the Interval, which adds clarity to the rule. Proposed Rule 6.40P–O(c)(3) would set forth the automated breach actions for the Global Risk Controls set by an Entering Firm. • Proposed Rule 6.40P–O(c)(3)(A) would provide that if the Global Risk Control limit is breached, the Exchange would Cancel and Block, per proposed Rule 6.40P(c)(2)(C)(iii). • Proposed Rule 6.40P–O(c)(3)(B) would provide that if an Entering Firm breaches the Global Risk Control, the Automated Breach Action would be applied to all orders and quotes of the Entering Firm in all classes of options regardless of which class(es) of options caused the underlying breach of Activity-Based Risk Controls. This proposed functionality is consistent with the automated breach action taken in the event of a breach of current Rule 6.40–O(f), per current Rule 6.40–O, Commentaries .01 and .02. • Proposed Rule 6.40P–O(c)(3)(C) would provide that the Exchange would specify by Trader Update any applicable minimum, maximum and/or default settings for the Global Risk Controls, provided that the minimum setting would not be less than 25 and the maximum setting would not be more than 100. These proposed settings are based on the Exchange-determined setting provided under current rule 6.40–O, Commentary .03, except that the current rule allows for a minimum setting of one (1) whereas the proposed rule is increasing that minimum to twenty-five (25), which the Exchange believes is a more appropriate minimum. • Proposed Rule 6.40P–O(c)(3)(D) would provide that the Exchange would specify by Trader Update the Interval for the Global Risk Controls, subject to the following: Æ The Interval would not be less than 100 milliseconds and would not be greater than 300,000 milliseconds, inclusive of the duration of any trading halt occurring within that time, per proposed Rule 6.40P–O(c)(3)(D)(i). Æ For transactions occurring in the Core Open Auction, per Rule 6.64P–O, the applicable time period is the lesser of (i) the time between the Core Open Auction of a series and the initial PO 00000 Frm 00025 Fmt 4701 Sfmt 4703 36463 transaction or (ii) the Interval, per proposed Rule 6.40P–O(c)(3)(D)(ii). Proposed Rule 6.40P–O(d) describes how an Entering Firm’s ability to enter orders, quotes, and related instructions would be reinstated after a ‘‘Block Only’’ or ‘‘Cancel and Block’’ Automated Breach Action has been triggered. In such case, proposed Rule 6.40P–O(d) provides that the Exchange would not reinstate the Entering Firm’s ability to enter orders and quotes and related instructions on the Exchange (other than instructions to cancel one or more orders or quotes (including Auction-Only Orders and orders designated GTC) in full) without the consent of the Entering Firm, which may be provided via automated contact if it was a breach of an Activity-Based Risk Control. As further proposed, an Entering Firm that breaches the Global Risk Control would not be reinstated unless the Entering Firm provides consent via non-automated contact with the Exchange. This proposed functionality is consistent with current Rule 6.40–O, Commentary .02 regarding the need for an Entering Firm to make automated or non-automated contact with the Exchange, as applicable, prior to being reinstated. Proposed Rule 6.40P–O(d) is also consistent with the more granular level of risk control under Pillar functionality available for cash equity trading per Rule 7.19–E(d). Proposed Rule 6.40P–O(e) would set forth new ‘‘kill switch’’ functionality, which would allow an Entering Firm to direct the Exchange to take certain bulk cancel or block actions with respect to orders and quotes. In contrast to the Automated Breach Actions described above, which the Exchange would take automatically after the breach of a risk limit, the Exchange would not take any of the Kill Switch Actions without express direction from an Entering Firm. Proposed Rule 6.40P–O(e) would specify that an Entering Firm could direct the Exchange to take one or more of the following actions with respect to orders and quotes at either an MPID, or if designated, sub-ID Level: (1) Cancel all Auction-Only Orders; (2) Cancel all orders designated GTC; (3) Cancel all unexecuted orders and quotes in the Consolidated Book other than AuctionOnly Orders and orders designated GTC; or (4) Block the entry of any new order and quote messages and related instructions, provided that the Exchange would continue to accept instructions from Entering Firms to cancel one or more orders or quotes (including Auction-Only Orders and orders designated GTC) in full, and later, reverse that block. The proposed posttrade Kill Switch Actions are not E:\FR\FM\09JYN2.SGM 09JYN2 36464 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 currently available per Rule 6.40–O and are substantially identical to the Kill Switch Action available on the Exchange’s cash equity platform pursuant to Rule 7.19–E(e), with a difference to address the handling of orders designated GTC, which are not available on the cash equity platform. The Exchange believes that offering this functionality for options trading under Pillar would give Entering Firms more flexibility in setting risk controls for options trading and add consistency with the Exchange’s risk control functionality available for cash equity trading. Proposed Commentary .01 to Rule 6.40P–O would provide that the PreTrade, Activity-Based, and Global Risk Controls described in the proposed Rule 6.40P–O are meant to supplement, and not replace, the OTP Holder’s or OTP Firm’s own internal systems, monitoring, and procedures related to risk management and are not designed for compliance with Rule 15c3–5 under the Exchange Act.45 Responsibility for compliance with all Exchange and SEC rules remains with the OTP Holder or OTP Firm. This proposed language is not included in existing Rule 6.40–O, and is based on Commentary .01 to Rule 7.19–E. The proposed rule makes clear that use of the proposed controls alone does not constitute compliance with Exchange rules or the Exchange Act. In connection with proposed Rule 6.40P–O, the Exchange proposes to add the following preamble to Rule 6.40–O: ‘‘This Rule will not be applicable to trading on Pillar.’’ This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.40–O would not be applicable to trading on Pillar. Proposed Rule 6.41P–O: Price Reasonability Checks—Orders and Quotes The Exchange proposes to describe its Price Reasonability Checks for orders and quotes in proposed Rule 6.41P–O.46 For the OX system, the concept of ‘‘Price Reasonability Checks’’ for Limit Orders are described in Rule 6.60–O(c) and the concept of price protection filters for quotes are described in Rule 6.61–O. The proposed ‘‘Price Reasonability Checks’’ on Pillar would be applicable to both orders and quotes and would work similarly to how the current price checks for Limit Orders function on the OX system, with updates to functionality consistent with 45 17 CFR 240.15c3–5. Rule 6.41–O is held as Reserved. The Exchange proposes to renumber the proposed rule with the ‘‘P’’ modifier and remove reference to ‘‘Reserved.’’ 46 Current VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Pillar. The Exchange proposes to locate the rule text for the proposed Price Reasonability Checks in Rule 6.41P–O to immediately follow Rule 6.40P–O regarding the Pre-Trade and ActivityBased Controls, as this placement would group the risk controls together and make Exchange rules easier to navigate. Proposed Rule 6.41P–O(a)(1)–(3) would set forth the circumstances under which the proposed Price Reasonability Checks would apply. Proposed Rule 6.41P–O(a) would provide that the Exchange would apply the Price Reasonability Checks, as defined in proposed paragraphs (b) and (c), to all Limit Orders and quotes during continuous trading on each trading day, subject to the following: • Proposed Rule 6.41P–O(a)(1) would provide that a Limit Order or quote received during a pre-open state would be subject to the proposed Price Reasonability Checks after an Auction concludes; that a Limit Order or quote that was resting on the Consolidated Book before a trading halt would be subject to the proposed Price Reasonability Checks again after the Trading Halt Auction; and that a put option message to buy would be subject to the Arbitrage Check regardless of when it arrives. This proposed rule is based in part on current Rule 6.60–O(a), which provides that the Price Reasonability Checks (for orders) are applied when a series opens or reopens for trading. Proposed Rule 6.41P–O(a)(1) adds additional detail and granularity regarding when the proposed Price Reasonability Checks would be applied under Pillar. • Proposed Rule 6.41P–O(a)(2) would provide that if the calculation of the Price Reasonability Check is not consistent with the MPV for the series, it would be rounded down to the nearest price within the applicable MPV, which text adds new details regarding Pillar rounding functionality. • Proposed Rule 6.41P–O(a)(3) would provide that the proposed Price Reasonability Checks would not apply to (i) any options series for which the underlying security has a non-standard cash or stock deliverable as part of a corporate action; (ii) any options series for which the underlying security is identified as over-the-counter (‘‘OTC’’); (iii) any option series on an index; and (iv) any option series for which the Exchange determines it is necessary to exclude underlying securities in the interests of maintaining a fair and orderly market, which the Exchange would announce by Trader Update. Proposed Rule 6.41P–O(a)(3) is based on current Commentary .01 to Rule 6.60–O (orders) and 6.61–O (quotes), with a PO 00000 Frm 00026 Fmt 4701 Sfmt 4703 non-substantive difference that the proposed rule no longer references Binary Return Derivatives (‘‘ByRDs’’) because ByRDs are no longer traded on the Exchange. Proposed Rule 6.41P–O(b) would set forth the ‘‘Arbitrage Checks’’ for buy orders or quotes, which subset of Price Reasonability Checks are based on the principle that an option order is in error and should be rejected (or canceled) when the same result can be achieved on the market for the underlying equity security at a lesser cost. • Proposed Rule 6.41P–O(b)(1) relates to ‘‘puts’’ and would provide that order or quote messages to buy for put options would be rejected if the price of the order or quote is equal to or greater than the strike price of the option, which is substantively identical to current Rule 6.60–O(c)(1)(A) for orders, with a proposed difference that proposed ‘‘Arbitrage Check’’ would also apply to quotes. • Proposed Rule 6.41P–O(b)(2) relates to ‘‘calls’’ and would provide that order or quote messages to buy for call options would be rejected or canceled (if resting) if the price of the order or quote is equal to or greater than the last sale price of the underlying security on the Primary Market, plus a specified dollar amount to be determined by the Exchange and announced by Trader Update. This proposed rule is substantially similar to current Rule 6.60–O(c)(1)(B) for orders, with two differences. First, the proposed ‘‘Arbitrage Checks’’ would also apply to quotes. Second, because the Exchange is monitoring last sales from the Primary Market, the Exchange proposes that the Exchange-specified dollar amount for the Checks would be based on the last sale on the Primary Market rather than on the Consolidated Last Sale. Proposed Rule 6.41P–O(c) would set forth the ‘‘Intrinsic Value Checks’’ for orders or quotes to sell, which are designed to protect sellers of calls and puts from presumptively erroneous executions based on the ‘‘Intrinsic Value’’ of an option. • Proposed Rule 6.41P–O(c)(1)–(2) would set forth how the Intrinsic Value of an option would be determined. Proposed Rule 6.41P–O(c)(1) would provide that the Intrinsic Value for a put option is equal to the strike price minus the last sale price of the underlying security on the Primary Market. Proposed Rule 6.41P–O(c)(2) would provide that the Intrinsic Value for a call option is equal to the last sale price of the underlying security on the Primary Market minus the strike price. Proposed Rule 6.41P–O(c)(1)–(2) is based on how the intrinsic value is E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices calculated in current Rule 6.60–O(c)(2) for orders, with two differences. First, the proposed ‘‘Intrinsic Value Checks’’ would also apply to quotes. Second, the Intrinsic Value of an option would be based on the last sale on the Primary Market rather than on the Consolidated Last Sale. • Proposed Rule 6.41P–O(c)(3) would provide that ISOs to sell would not be subject to the Intrinsic Value Check, which carve out is substantively identical to current Rule 6.60–O(c)(2). • Proposed Rule 6.41P–O(c)(4) would describe the application of the Intrinsic Value Checks to puts and calls to sell. Æ Proposed Rule 6.41P–O(c)(4)(A) would provide that orders or quotes to sell for both puts and calls would be rejected or canceled (if resting) if the price of the order or quote is equal to or lower than its Intrinsic Value, minus a threshold percentage to be determined by the Exchange and announced by Trader Update. Æ Proposed Rule 6.41P–O(c)(4)(B) would provide that the Exchangedetermined threshold percentage (per paragraph (c)(4)(A)) would be based on the NBB, provided that, immediately following an Auction, it would be based on the Auction Price, or, if none, the lower Auction Collar price, or, if none, the NBB. This proposed threshold percentage is similar to how the Reference Price would be determined for Trading Collars, as described above pursuant to proposed Rule 6.62P– O(a)(3). As further proposed, Rule 6.41P–O(c)(4)(B) would provide that for purposes of determining the Intrinsic Value, the Exchange would not use an adjusted NBBO. The Exchange further proposes that the Intrinsic Value Check for sell orders and quotes would not be applied if the Intrinsic Value cannot be calculated. Proposed Rule 6.41P–O(c)(4)(A)–(B) is substantially similar to current Rule 6.60–O(a)(2)(A), which sets forth the Intrinsic Value for orders, except that the proposed rule would also apply to quotes and provides additional detail regarding how the threshold percentage for determining the Intrinsic Value would be applied depending on when such sell order or quote arrives and the potential reference price(s) available to calculate this Price Reasonability Check. Proposed Rule 6.41P–O(d) would provide the Automated Breach Action to be applied when a Market Maker’s order or quote fails one of the Price Reasonability Checks. As proposed, if a Market Maker’s order or quote message is rejected or cancelled (if resting) pursuant to proposed paragraph (b) (Arbitrage Checks) or (c) (Intrinsic Value Checks) of proposed Rule 6.41P–O, the VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Exchange would Cancel and Block orders and quotes in the affected class of options as described in Rule 6.40P– O(c)(2)(C)(iii) (as described above in section ‘‘Proposed Rule 6.40P–O’’). Proposed Rule 6.41P–O(d)(1) would provide that a breach of proposed Rule 6.41P–O(d) would count towards a Market Maker’s Global Risk Control limit per Rule 6.40P–O(a)(4) (as described above in section ‘‘Proposed Rule 6.40P–O’’). Proposed Rule 6.41P–O(d)(2) concerns how a Market Maker would be reinstated following an automated breach action. As proposed, the Exchange would not reinstate the Market Maker’s ability to enter orders and quotes and related instructions on the Exchange in that class of options (other than instructions to cancel one or more orders/quotes (including AuctionOnly Orders and orders designated GTC) in full) without the consent of the Market Maker, which may be provided via automated contact. Rule 6.41P–O(d) is substantially similar to current Rule 6.61–O(b), except that the proposed rule applies to both the orders and quotes of a Market Maker (not just quotes) and provides the additional functionality that a breach of the Price Reasonability Checks would count towards a Market Maker’s Global Risk Control limit under proposed Rule 6.40P–O(c)(3), which functionality would be new under Pillar. In connection with proposed Rule 6.41P–O, the Exchange proposes to add the following preamble to Rules 6.60–O and 6.61–O: ‘‘This Rule will not be applicable to trading on Pillar.’’ This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rules 6.60–O and 6.61–O would not be applicable to trading on Pillar. Proposed Rule 6.64P–O: Auction Process Current Rule 6.64–O, OX Opening Process, sets forth the opening process currently used on the Exchange’s OX system for opening trading in a series each day and reopening trading in a series following a trading halt. The Exchange proposes that new Rule 6.64P–O would set forth the auction process for both opening and reopening trading in a series on the Exchange. The Exchange proposes to specify that Rule 6.64–O would not be applicable to trading on Pillar. With the transition to Pillar, the Exchange proposes new functionality regarding the auction process on the Exchange. In addition, certain functionality available on the Exchange’s cash equity platform will PO 00000 Frm 00027 Fmt 4701 Sfmt 4703 36465 now be available for options trading. Accordingly, the Exchange proposes that proposed Rule 6.64P–O would use Pillar terminology relating to auctions that is based on Pillar terminology set forth in Rule 7.35–E for cash equity trading. Definitions. Proposed Rule 6.64P–O(a) would provide that the Rule would be applicable to all series that trade on the Exchange other than Flex Options.47 Proposed Rule 6.64P–O(a) would further set forth the definitions that would be used for purposes of Rule 6–O Options Trading that would be applicable to trading on Pillar. • Proposed Rule 6.64P–O(a)(1) would define the term ‘‘Auction’’ to mean the opening or reopening of a series for trading either on a trade or a quote. This proposed definition is based in part on current Rule 6.64–O(a), which defines the term ‘‘Trading Auction’’ to be a process by which trading is initiated in a specified options class that may be employed at the opening of the Exchange each business day or to reopen trading after a trading halt. On Pillar, the Exchange proposes that the term ‘‘Auction’’ would refer to the point in the process where the Exchange determines that a series can be opened or reopened either on a trade or a quote. Proposed Rule 6.64P–O(a)(1)(A) would provide that a ‘‘Core Open Auction’’ means the Auction that opens trading after the beginning of Core Trading Hours and proposed Rule 6.64P–O(a)(1)(B) would provide that a ‘‘Trading Halt Auction’’ means the Auction that reopens trading following a trading halt. These are Pillar terms currently used in Rule 7.35–E for the same purposes. • Proposed Rule 6.64P–O(a)(2) would define the term ‘‘Auction Collar’’ to mean the price collar thresholds for the Indicative Match Price for an Auction. As further proposed, the upper Auction Collar would be the offer of the Legal Width Quote (defined below) and the lower Auction Collar would be the bid of the Legal Width Quote, provided that if the bid of the Legal Width Quote is zero, the lower Auction Collar would be one MPV above zero for the series. The proposed rule would further provide that if there is no Legal Width Quote, the Auction Collars would be published 47 With the transition to Pillar, the Exchange is not making any changes to how Flex Options trade. Rule 5.31–O provides that Flex Options transactions may be effected during normal Exchange options trading hours on any business day and there will be no trading rotations in Flex Options. Rule 5.33–O sets forth the procedures for trading Flex Options. The opening process for Electronic Complex Orders is set forth in Rule 6.91– O. E:\FR\FM\09JYN2.SGM 09JYN2 36466 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 in the Auction Imbalance Information (defined below) as zero. The proposed terminology of ‘‘Auction Collars’’ would be new for options trading and is based on the same term used in Rule 7.35–E for trading cash equity securities. However, the concept would not be novel because currently, the Exchange will not open a series if the bid-ask differential is not within the bid-ask differential guidelines established under Rule 6.37– O(b)(4).48 Auction Collars would function similarly to prevent an Auction that results in a trade from being priced outside the Legal Width Quote. • Proposed Rule 6.64P–O(a)(3) would define the term ‘‘Auction Imbalance Information’’ to mean the information that the Exchange disseminates about an Auction via its proprietary data feeds and includes the Auction Collars, Auction Indicator, Book Clearing Price, Far Clearing Price, Indicative Match Price, Matched Volume, Market Imbalance, and Total Imbalance. With Pillar, the Exchange proposes to disseminate Auction Imbalance Information for its options market in the same manner that such information is disseminated for its cash equity market. Accordingly, this proposed definition is based on Rule 7.35–E, with differences to reflect the content that would be included in Auction Imbalance Information for options trading. In addition, the Exchange proposes that the Auction Imbalance Information would reflect the orders and quotes eligible to participate in an Auction and that contribute to price discovery. Accordingly, proposed Rule 6.64P– O(a)(3) would further provide that Auction Imbalance Information would be based on all orders and quotes (including the non-displayed quantity of Reserve Orders) eligible to participate in an Auction, excluding IO Orders.49 Proposed Rule 6.64P–O(a)(3)(A) would define the term ‘‘Auction Indicator’’ to mean the indicator that provides a status update of whether an Auction cannot be conducted because either (i) there is no Legal Width Quote, or (ii) a Market Maker quote has not been received during the Opening MMQ Time Parameter (defined below). The Exchange currently disseminates an Auction Indicator on its cash equity market and proposes similar 48 See Rule 6.64–O(b)(D) and (E). is consistent with the order information included in Auction Imbalance Information for cash equity trading. See Rule 7.35–E(a)(7) and 7.35– E(a)(8). The Exchange proposes to exclude IO Orders because they are conditional offsetting orders that would not contribute to price discovery in the Auction Process. 49 This VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 functionality for options trading on the Exchange.50 Proposed Rule 6.64P–O(a)(3)(B) would define the term ‘‘Book Clearing Price’’ to mean the price at which all contracts could be traded in an Auction if not subject to the Auction Collar and that the Book Clearing Price would be zero if a sell (buy) Imbalance cannot be filled by any buy (sell) interest. The Exchange proposes that the manner that the Book Clearing Price would be calculated for options trading would be the same as how it is calculated for cash equity trading. Accordingly, this proposed definition is based in part on the definition of ‘‘Book Clearing Price’’ set forth in Rule 7.35–E(a)(11), with differences to reflect options trading terminology. Proposed Rule 6.64P–O(a)(3)(C) would define the term ‘‘Far Clearing Price’’ to mean the price at which all Auction-Only Orders could be traded in an Auction within the Auction Collar. The Exchange proposes that the manner that the Far Clearing Price would be calculated for options trading would be the same as how it is calculated for cash equity trading. Accordingly, this proposed definition is based on the definition of ‘‘Far Clearing Price’’ set forth in Rule 7.35–E(a)(12), without any differences. Proposed Rule 6.64P–O(a)(3)(D) would define the term ‘‘Imbalance’’ to mean the number of buy (sell) contracts that cannot be matched with sell (buy) contracts at the Indicative Match Price at any given time. The Exchange proposes that the manner that the Imbalance would be calculated for options trading would be the same as how it is calculated for cash equity trading. Accordingly, this proposed definition is based in part on the definition of ‘‘Imbalance’’ set forth in Rule 7.35–E(a)(7), with differences to reflect options trading terminology. Proposed Rule 6.64P–O(a)(3)(D)(i) would define the term ‘‘Total Imbalance’’ to mean the Imbalance of all buy (sell) contracts at the Indicative Match Price for all orders and quotes eligible to trade in an Auction. The Exchange proposes that the manner that the Total Imbalance would be calculated for options trading would be the same as how it is calculated for cash equity trading. Accordingly, this proposed definition is based in part on the definition of ‘‘Total Imbalance’’ set forth in Rule 7.35–E(a)(7)(A), with differences to reflect options trading terminology. Proposed Rule 6.64P–O(a)(3)(D)(ii) would define the term ‘‘Market Imbalance’’ to mean the Imbalance of PO 00000 50 See Rule 7.35–E(a)(13). Frm 00028 Fmt 4701 Sfmt 4703 any remaining buy (sell) Market Orders and MOO Orders that are not matched for trading in the Auction. The Exchange proposes that the manner that the Market Imbalance would be calculated for options trading would be the same as how it is calculated for cash equity trading. Accordingly, this proposed definition is based in part on the definition of ‘‘Market Imbalance’’ set forth in Rule 7.35–E(a)(7)(B), with differences to reflect options trading terminology. • Proposed Rule 6.64P–O(a)(4) would define the term ‘‘Auction Process’’ to mean the process that begins when the Exchange receives an Auction Trigger (defined below) for a series and ends when the Auction is conducted. This would be a new term and is designed to address all steps in the process that culminates in an Auction, as described in proposed Rule 6.64P–O(d). • Proposed Rule 6.64P–O(a)(5) would define the term ‘‘Auction Processing Period’’ to mean the period during which the Auction is being processed. The Exchange proposes that this term would have the same meaning as the same term on its cash equity market. Accordingly, this proposed definition is based in part on the definition of ‘‘Auction Processing Period’’ set forth in Rule 7.35–E(a)(2), without any differences. • Proposed Rule 6.64P–O(a)(6) would define the term ‘‘Auction Trigger’’ to mean the information disseminated by the Primary Market in the underlying security that triggers the Auction Process for a series to begin. For a Core Open Auction, the Auction Trigger would be when the Primary Market first disseminates at or after 9:30 a.m. Eastern Time both a two-sided quote and a trade of any size that is at or within the quote. For a Trading Halt Auction, the Auction Trigger would be when the Primary Market disseminates at the end of a trading halt or pause a resume message, a two-sided quote, and a trade of any size that is at or within the quote. This proposed functionality is not new and is based on how the Exchange currently opens or reopens a series for trading, as set forth in the last sentence of current Rule 6.64–O(b). The Exchange proposes to use Pillar terminology, including to specify that an odd-lot transaction on the Primary Market could be used as an Auction Trigger, which would be new on Pillar. • Proposed Rule 6.64P–O(a)(7) would define the term ‘‘Indicative Match Price’’ to mean the price at which the maximum number of contracts can be traded in an Auction, including the nondisplayed quantity of Reserve Orders and excluding IO Orders, subject to the E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Auction Collars. This proposed definition is based on Rule 7.35–E(a)(8) with non-substantive differences to reflect options trading terminology (i.e., contracts instead of shares). Proposed Rule 6.64P–O(a)(7) would further provide that if there is no Legal Width Quote, the Indicative Match Price included in the Auction Imbalance Information would be calculated without Auction Collars. This would be a new feature applicable only to options trading and an Indicative Match Price without Auction Collars would be accompanied with an Auction Indicator that the Auction cannot be conducted because there is no Legal Width Quote. Proposed Rule 6.64P–O(a)(7)(A) would provide that if there is more than one price level at which the maximum number of contracts can be traded within the Auction Collars, the Indicative Match Price would be the price closest to the midpoint of the Legal Width Quote, rounded to the nearest MPV for the series, provided that the Indicative Match Price will not be lower (higher) than the highest (lowest) price of a Limit Order to buy (sell) ranked Priority 2—Display Orders that is eligible to participate in the Auction. This proposed rule text is based on Rule 7.31–E(a)(8)(A) with a substantive difference only to reflect that in such circumstances, the Indicative Match Price would be the price closest to the midpoint of the Legal Width Quote rather than the price closest to an auction reference price. Proposed Rule 6.64P–O(a)(7)(B) would provide that an Indicative Match Price that is higher (lower) than the upper (lower) Auction Collar would be adjusted to the upper (lower) Auction Collar and orders eligible to participate in the Auction would trade at the collared Indicative Match Price. Proposed Rule 6.64P–O(a)(7)(B)(i) would provide that Limit Orders to buy (sell) with a limit price above (below) the upper (lower) Auction Collar would be included in the Auction Imbalance Information at the collared Indicative Match Price and would be eligible to trade at the Indicative Match Price. Proposed Rule 6.64P–O(a)(7)(B)(ii) would provide that Limit Orders and quotes to buy (sell) with a limit price below (above) the lower (upper) Auction Collar would not be included in the Auction Imbalance Information and would not participate in an Auction. The Exchange proposes that the manner that orders and quotes priced outside of the Auction Collar would be included in the Indicative Match Price would be the same as how it is determined for cash equity trading. Accordingly, this proposed rule text is based on Rules VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 7.31–E(a)(10)(A), (B), and (C) with a difference only to reflect when the proposed rule would be applicable to quotes. Proposed Rule 6.64P–O(a)(7)(C) would provide that if the Matched Volume (defined below) for an Auction consists of only buy and sell Market Orders, the Indicative Match Price would be the midpoint of the Legal Width Quote, rounded to the MPV for the series, or, if the Legal Width Quote is locked, the locked price. This proposed rule text is based in part on Rule 7.31–E(a)(8)(C), with differences to reflect that options trading is based on a Legal Width Quote. Proposed Rule 6.64P–O(a)(7)(D) would provide that if there is no Matched Volume, including if there are Market Orders on only one side of the Market, the Indicative Match Price and Total Imbalance for the Auction Imbalance Information would be zero. This proposed rule text is based on Rule 7.31–E(a)(8)(D) and (E) with differences to reflect that on options, the Indicative Match Price would be zero in both circumstances. • Proposed Rule 6.64P–O(a)(8) would define the term ‘‘Legal Width Quote’’ to mean the highest bid and lowest offer among all Market Maker quotes and the Away Market NBBO (together, ‘‘Calculated NBBO’’) during the Auction Process. The proposed rule would further provide that the Calculated NBBO can be a Legal Width Quote if it: (A) It is locked, but not crossed; (B) does not contain a zero offer; and (C) has a spread between the Calculated NBBO for each option contract that does not exceed the following differentials, which can be widened as provided for in Rule 6.37–O(c): (i) No more than .25 where the bid not does exceed $2; (ii) no more than .40 where the bid is more than $2 but does not exceed $5; (iii) no more than .50 where the bid is more than $5 but does not exceed $10; (iv) no more than .80 where the bid is more than $10 but does not exceed $20; and (v) no more than $1 where the bid is more than $20, provided that a Trading Official may establish differences other than the above for one or more series or classes of options. Requiring that a bid-ask spread meet specified differentials before an Auction can proceed is based on the current OX Opening Process, which requires the bid-ask differential for a series to be in an acceptable range. The proposed differential spread for the Pillar Auction Process is based on the bid-ask differentials currently set forth in Rule 6.37–O(b)(4) with a difference that for Auctions on Pillar, for option contracts with a bid of $2, the differential will be PO 00000 Frm 00029 Fmt 4701 Sfmt 4703 36467 .25 instead of .40. The Exchange believes that including the proposed bid-ask differential in the rule governing the Auction Process would promote clarity and transparency in Exchange rules regarding which quotes—both Market Maker quotes on the Exchange and the Away Market NBBO—that the Exchange would use to determine if there is a Legal Width Quote. The Exchange also proposes to make a conforming change to Rule 6.37–O(c) to add a cross-reference to proposed Rule 6.64P–O(a)(8). This proposed amendment would ensure that the existing procedures for auctions specified in Rule 6.37–O(c) would continue to be available for option symbols that have transitioned to Pillar. • Proposed Rule 6.64P–O(a)(9) would define the term ‘‘Matched Volume’’ to mean the number of buy and sell contracts that can be matched at the Indicative Match Price, excluding IO Orders. This proposed rule text is based on the definition of ‘‘Matched Volume’’ set forth in Rule 7.31–E(a)(9) with a non-substantive difference to reference contracts instead of shares and to be clear that the Matched Volume would not include IO Orders. • Proposed Rule 6.64P–O(a)(10) would define the term ‘‘pre-open state’’ to mean the period before a series is opened or reopened and that during the pre-open state, the Exchange would accept Auction-Only Orders, quotes, and orders designated Day or GTC, including orders ranked Priority 3— Non-Display Orders that are not eligible to participate in an Auction. The proposed rule would further provide that the pre-open state for the Core Open Auction would begin at 6:00 a.m. Eastern Time and would end when the Auction Processing Period begins and that during the pre-open state before the Core Open Auction, the Exchange would re-enter orders designated GTC. The proposed rule would also provide that pre-open state for a Trading Halt Auction would begin at the beginning of the trading halt and would end when the Auction Processing Period begins. This proposed definition would be new for Pillar and is designed to distinguish from both the Auction Processing Period and the period when a series is opened for trading. As noted above, this proposed definition would also be used in proposed Rules 6.40P–O, 6.41P–O, and 6.62P–O. • Proposed Rule 6.64P–O(a)(11) would define the term ‘‘Rotational Quote’’ to mean the highest Market Maker bid and lowest Market Maker offer on the Exchange when the Auction Process begins and that during the Auction Process, the Exchange would E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36468 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices update the price and size of the Rotational Quote and a Rotational Quote can be locked or crossed. The Exchange further proposes that if there are no Market Maker quotes, the Rotational Quote would be published with a zero price and size. The Exchange notes that it currently publishes a ‘‘rotational quote’’ when it is in the process of opening or reopening a series, i.e., a quote that is comprised only of Market Maker quotes and does not include orders. The Exchange proposes a difference on Pillar because currently, if the Market Maker Quotes are crossed, the Exchange flips the bid and offer prices. In Pillar, the Exchange would publish a Rotational Quote with the actual bid and offer prices, even if crossed. Auction Ranking. Proposed Rule 6.64P–O(b) would describe the ranking for Auctions and would provide that orders and quotes on the side of the Imbalance are not guaranteed to participate in the Auction and would be ranked in price-time priority under proposed Rule 6.76P–O consistent with the priority ranking associated with each order or quote, provided that: (1) Limit Orders, quotes, and LOO Orders would be ranked based on their limit price and not the price at which they would participate in the Auction; (2) MOO Orders would be ranked Priority 1—Market Orders; (3) LOO Orders would be ranked Priority 2—Display Orders; and (4) IO Orders would be ranked based on time among IO Orders, subject to eligibility to participate at the Indicative Match Price based on their limit price. This proposed rule is based on current Rule 6.62–O(b)(B), which provides that orders and quotes in the system will be matched up with one another based on price-time priority. The Exchange proposes a difference in Pillar that orders in the same priority category as quotes would not have priority over Market Maker quotes at the same price, which is current functionality.51 Instead, orders and Market Marker quotes in the same priority category would be ranked based on time, consistent with proposed Rule 6.76P–O. Because the Exchange proposes that orders and quotes in an options Auction would be processed in the same manner as on its cash equity platform, including that orders on the side of the Imbalance would not be guaranteed to participate in an Auction, the remaining rule text is based in part on Rule 7.35–E(a)(6)(A)—(D), with 51 Current Rule 6.64–O(b)(B) provides that ‘‘orders will have priority over Market Maker quotes at the same price.’’ VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 differences to reflect options trading and to be clear that IO Orders would be ranked on working time among IO Orders, subject to such orders’ eligibility to participate at the Indicative Match Price based on their limit price.52 Auction Imbalance Information. Proposed Rule 6.64P–O(c) would provide that Auction Imbalance Information would be updated at least every second until the Auction is conducted, unless there is no change to the information and that the Exchange would begin disseminating Auction Imbalance Information at the following times: (1) Core Open Auction Imbalance Information would begin at 8:00 a.m. Eastern Time; and (2) Trading Halt Auction Imbalance Information would begin at the beginning of the trading halt. Because the Exchange proposes to disseminate Auction Imbalance Information for its options market in the same manner that such information is disseminated for its cash equity market, this proposed rule text is based in part on Rule 7.35–E(a)(4)(A) and (C). Auction Process. Proposed Rule 6.64P–O(d) would set forth the Exchange’s proposed Auction Process on Pillar. Similar to current functionality, a series would not be opened or reopened for trading if there is no Legal Width Quote. The Exchange proposes to add on Pillar that a series should also have Market Maker quotes and the Exchange proposes to provide time for this requirement to be established, and if not established within those time frames, providing for a mechanism to open or reopen a series even if there are no Market Maker quotes. Proposed Rule 6.64P–O(d)(1) would concern the Rotational Quote and would provide that when the Exchange receives the Auction Trigger for a series, the Exchange would send a Rotational Quote to both OPRA and proprietary data feeds indicating that the Exchange is in the process of transitioning from a pre-open state to continuous trading for that series. Proposed Rule 6.64P–O(d)(2) would provide that once a Rotational Quote has been sent, the Exchange would conduct an Auction when there is both a Legal Width Quote and, if applicable, Market Maker quote with a non-zero offer in the series (subject to the Opening MMQ Time Parameter requirements specified in proposed Rule 6.64P–O(d)(3)). The proposed rule would further provide that the Exchange would wait a minimum of two milliseconds after the Rotational Quote 52 See discussion supra, regarding proposed Rule 6.62P–O(c)(3) and how IO Orders would function. PO 00000 Frm 00030 Fmt 4701 Sfmt 4703 has been sent before an Auction can be conducted. This proposed rule text is designed to provide transparency and determinism in Exchange rules of the earliest potential time that a series could be opened after the Exchange receives an Auction Trigger, and subject to the series meeting all other requirements for opening or reopening. Proposed Rule 6.64P–O(d)(2)(A) would provide that if there is Matched Volume that can trade at or within the Auction Collars, the Auction would result in a trade at the Indicative Match Price. Proposed Rule 6.64P–O(d)(2)(B) would provide that if there is no Matched Volume that can trade at or within the Auction Collars, the Exchange would transition to continuous trading as described in proposed Rule 6.64P–O(f) below and the Auction would result in a quote. This proposed rule text is designed to provide transparency of when an Auction would result in a trade or a quote. Proposed Rule 6.64P–O(d)(3) would specify the Opening MMQ Time Parameter. As proposed, once the Auction Process begins, the Exchange would begin a one-minute timer for the Market Maker(s) assigned to a series to submit a quote with a non-zero offer. This one-minute timer would be the Opening MMQ Time Parameter. The Opening MMQ Time Parameter is designed to provide the Market Makers assigned to a series an opportunity to submit a quote, and provide transparency in Exchange rules of the circumstances of when the Exchange would open a series for trading if the assigned Market Maker(s) does not submit a quote within the specified time periods, as follows: • Proposed Rule 6.64P–O(d)(3)(A) would provide that if there are no Market Makers assigned to a series, the Exchange would conduct an Auction in that series based on only a Legal Width Quote, without waiting for the Opening MMQ Time Parameter to end. • Proposed Rule 6.64P–O(d)(3)(B) would provide that if there is only one Market Maker assigned to a series: Æ The Exchange would conduct the Auction, without waiting for the Opening MMQ Time Parameter to end, as soon as there is both a Legal Width Quote and the assigned Market Maker has submitted a quote with a non-zero offer (proposed Rule 6.64P– O(d)(3)(B)(i)). Æ If the Market Maker has not submitted a quote with a non-zero offer by the end of the Opening MMQ Time Parameter and there is a Legal Width Quote, the Exchange would conduct the E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Auction (proposed Rule 6.64P– O(d)(3)(B)(ii)). • Proposed Rule 6.64P–O(d)(3)(C) would provide that if there are two or more Market Makers assigned to a series: Æ The Exchange would conduct the Auction, without waiting for the Opening MMQ Time Parameter to end, as soon as there is both a Legal Width Quote and at least two assigned Market Makers have submitted a quote with a non-zero offer (proposed Rule 6.64P– O(d)(3)(C)(i)). Æ If at least two Market Makers have not submitted a quote with a non-zero offer by the end of the Opening MMQ Time Parameter, the Exchange would begin a second Opening MMQ Time Parameter and that during the second Opening MMQ Time Parameter, the Exchange would conduct the Auction, without waiting for the second Opening MMQ Time Parameter to end, if there is both a Legal Width Quote and at least one Market Maker has submitted a quote with a non-zero offer (proposed Rule 6.64P–O(d)(3)(C)(ii)). Æ If no Market Maker has submitted a quote with a non-zero offer by the end of the second Opening MMQ Time Parameter and there is a Legal Width Quote, the Exchange would conduct the Auction (proposed Rule 6.64P– O(d)(3)(C)(iii). Proposed Rule 6.64P–O(d)(4) would provide that for the first five minutes of the Auction Process, if there is no Legal Width Quote, the Exchange would not conduct an Auction, even if there is Matched Volume. This proposed rule text provides transparency that when there is Matched Volume, the Exchange would not open a series if there is no Legal Width Quote. The Exchange proposes new functionality for Pillar to allow the Exchange to open a series when there is a Calculated NBBO wider than the Legal Width Quote, provided that there is also no Matched Volume. As proposed, five minutes after the Auction Process begins: • Proposed Rule 6.64P–O(d)(4)(A) would provide that if there is no Matched Volume and the Calculated NBBO is wider than the Legal Width Quote, is not crossed, and does not contain a zero offer, the Exchange would transition to continuous trading as described in paragraph (f) of this Rule. As further proposed, in such case, the Auction would result in a quote, provided that there may be an Auction trade even if there is no Legal Width Quote if orders or quotes arrive during the period when the Exchange is evaluating the status of orders and VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 quotes.53 The Exchange believes this proposed rule would provide an opportunity for more series to open for trading when there is a Calculated NBBO in a series that is wider than the Legal Width Quote and is not crossed and does not contain a zero offer. • Proposed Rule 6.64P–O(d)(4)(A)(i) would provide that any time a series is opened or reopened when there is no Legal Width Quote, Market Orders and MOO Orders would not participate in the Auction and would be cancelled before the Exchange transitions to continuous trading. • Proposed Rule 6.64P–O(d)(4)(B) would provide that if the Exchange still cannot conduct an Auction, the Exchange would continue to evaluate both the Calculated NBBO and interest on the Consolidated Book until the earlier of: (i) A Legal Width Quote is established and an Auction can be conducted; (ii) the series can be opened as provided for in proposed Rule 6.64P– O(d)(4)(A); (iii) the series is halted; or (iv) the end of Core Trading Hours. The proposed rule provides transparency that the Exchange would continue to look for an opportunity to open a series based on changes to the Calculated NBBO or orders and quotes on the Consolidated Book. Proposed Rule 6.64P–O(d)(5) would provide that the Exchange may deviate from the standard manner of the Auction Process, including adjusting the timing of the Auction Process in any option series or opening or reopening a series when there is no Legal Width Quote, when it believes it is necessary in the interests of a fair and orderly market. This proposed rule is based on Rule 6.64–O(b)(F) and is designed to provide the Exchange with flexibility to open a series even if there is no Legal Width Quote. For example, a Floor Broker may have a two-sided open outcry order. If the series is not opened, that trade could not be consummated. Accordingly, this proposed rule would allow the Exchange to open a series for trading to facilitate open outcry trading. Order Processing during an Auction Processing Period. As described above, the Auction Processing Period is the abbreviated time period (i.e., generally measured in less than a second) when the Exchange conducts the Auction. For example, if there is a Legal Width 53 The Exchange expects this to be a rare race condition that would result when the Exchange receives orders and quotes at virtually the same time it is evaluating whether it can open a series based on a wide Calculated NBBO and that as a result of that race condition, those new orders or quotes are marketable against contra-side interest at the same time that the Exchange concludes, based on interest that had previously been received, that it can open on a quote. PO 00000 Frm 00031 Fmt 4701 Sfmt 4703 36469 Quote, Market Maker quotes, and Matched Volume, the Auction Processing Period is when that Matched Volume will trade at the Indicative Match Price. New orders and quotes received during the Auction Processing Period would not be eligible to participate in an Auction. Because the Exchange will be using the same Pillar auction functionality for options trading that is used for its cash equity market, the Exchange proposes that proposed Rule 6.64P–O(e) would be based on Rule 7.35–E(g) and sub-paragraphs (1) and (2) with differences only to references quotes in addition to orders. Accordingly, as proposed, during an Auction Processing Period, new order and quote messages received during the Auction Processing Period would be accepted but would not be processed until after the Auction Processing Period. As with Rule 7.35–E(g), for purposes of proposed Rule 6.64P–O(e) and (f), an ‘‘order instruction’’ would refer to a request to cancel, cancel and replace, or modify an order or quote. As proposed, during the Auction Processing Period, order instructions would be processed as follows: • An order instruction that arrives during the Auction Processing Period would not be processed until after the Auction Processing Period if it relates to an order or quote that was received before the Auction Processing Period. Any subsequent order instructions relating to such order would be rejected (proposed Rule 6.64P–O(e)(1)). • An order instruction that arrives during the Auction Processing Period would be processed on arrival if it relates to an order that was received during the Auction Processing Period (proposed Rule 6.64P–O(e)(2)). Transition to Continuous Trading. After the Auction Processing Period concludes, i.e., once the Auction is done, the Exchange transitions to continuous trading. During this transition, the way orders, quotes, and order instructions are processed differs depending on when such messages arrived at the Exchange. Proposed Rule 6.64P–O(f) would describe how the Exchange would transition to continuous trading after the Auction Processing Period concludes, and is based on how the Exchange transitions to continuous trading on its cash equity market following a Trading Halt Auction, as described in Rule 7.35–E(h). The transition to continuous trading would proceed as follows. Proposed Rule 6.64P–O(f)(1) would provide that orders that are no longer eligible to trade would be cancelled. This proposed rule text is based in part on Pillar terminology used in Rule 7.35– E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36470 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices E(h)(1). For options trading, the only orders that would no longer be eligible to trade would be Auction-Only Orders. Proposed Rule 6.64P–O(f)(2) would provide that order instructions would be processed as follows: • An order instruction that arrives during the transition to continuous trading or the Auction Processing Period under paragraph (e)(1) of this Rule would be processed in time sequence with the processing of orders and quotes as specified in paragraphs (f)(3)(A) or (B) of this Rule if it relates to an order or quote that was received before the Auction Processing Period or that has already transitioned to continuous trading and any subsequent order instructions relating to such order or quote would be rejected (proposed Rule 6.64P–O(f)(2)(A)). This proposed rule text is based on Rule 7.35–E(h)(2)(A) without any substantive differences. This proposed rule text provides transparency regarding how order instructions that arrived during the Auction Processing Period would be processed if they relate to order or quotes that were received before the Auction Processing Period. • An order instruction that arrives during the transition to continuous trading would be processed on arrival if it relates to an order or quote that was entered during either the Auction Processing Period or the transition to continuous trading and such order or quote has not yet transitioned to continuous trading (proposed Rule 6.64P–O(f)(2)(B)). This proposed rule text is based on Rule 7.35–E(h)(2)(B) without any substantive differences. Proposed Rule 6.64P–O(f)(3) would set forth how orders and quotes would be processed during the transition to continuous trading following an Auction. The Exchange proposes that it would process Auction-eligible orders and quotes that were received before the Auction Processing Period and orders ranked Priority 3—Non-Display Orders received before a trading halt as follows: • Proposed Rule 6.64P–O(f)(3)(A)(i) would provide that Limit Orders and quotes would be subject to the Limit Order Price Check, Arbitrage Check, and Intrinsic Value Check, as applicable. This proposed rule is new for Pillar, and is consistent with the proposed rule changes, described above, regarding when the Limit Order Price Check, Arbitrage Check, and Intrinsic Value Check would be applied against orders and quotes that were received during a pre-open state. The Exchange proposes to apply these checks to orders and quotes before they become eligible for trading or routing during continuous trading. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 • Proposed Rule 6.64P–O(f)(3)(A)(ii) would provide that Limit Orders that are not cancelled and Market Orders would be subject to the Trading Collar assigned to it. This proposed rule is also consistent with the proposed changes to Trading Collars, described above, that an order received during a pre-open state would be assigned a Trading Collar after an Auction concludes. • Proposed Rule 6.64P–O(f)(3)(A)(iii) would provide that orders eligible to route that are marketable against Away Market Protected Quotations would route based on the ranking of such orders as set forth in Rule 6.76P–O(c). This proposed rule is based on Rule 7.35–E(h)(3)(A)(ii)(b) with nonsubstantive differences to use the term ‘‘Away Market Protected Quotations’’ instead of ‘‘protected quotations on Away Markets.’’ • Proposed Rule 6.64P–O(f)(3)(A)(iv) would provide that after routing eligible orders, orders and quotes not eligible to route that are marketable against Away Market Protected Quotations would cancel. This proposed rule is based on Rule 7.35–E(h)(3)(A)(ii)(b) with nonsubstantive differences to use the term ‘‘Away Market Protected Quotations’’ instead of ‘‘protected quotations on Away Markets.’’ • Proposed Rule 6.64P–O(f)(3)(A)(v) would provide that once there are no more unexecuted orders marketable against Away Market Protected Quotations, orders and quotes that are marketable against other orders and quotes in the Consolidated Book would trade or be repriced. This proposed rule is based on Rule 7.35–E(h)(3)(A)(ii)(c) with a clarifying, non-substantive difference to be clear that an order could be repriced based on this assessment. For example, an ALO Order that would be marketable against a contra-side order or quote on the Consolidated Book would be repriced as provided for in proposed Rule 6.62P–O(e)(2). The Exchange further notes that, similar to the Exchange’s cash equity market, the Exchange could transition to continuous trading without any Matched Volume that trades at the Indicative Match Price, and yet still report a trade to OPRA before its first quote.54 The Exchange would not consider a trade that occurs during the transition to continuous trading to be an Auction trade. • Proposed Rule 6.64P–O(f)(3)(A)(vi) would provide that Market Orders received during a pre-open state would 54 For example, as described in proposed Rule 6.62P–O(d)(4)(A), if there is no Legal Width Quote, after five minutes, the Exchange could open a series for trading if there is no Matched Volume and would transition to continuous trading as described in proposed Rule 6.62P–O(f). PO 00000 Frm 00032 Fmt 4701 Sfmt 4703 be subject to the validation specified in proposed Rule 6.62P–O(a)(1)(C). The Exchange notes that because such Market Orders would have been already received by the Exchange, if they fail one of those validations, they would be cancelled instead of rejected. This would be new rule text as compared to the Exchange’s cash equity rules to reflect the validations that would be applicable to Market Orders for options trading on Pillar. • Proposed Rule 6.64P–O(f)(3)(A)(vii) would provide that the display quantity of Reserve Orders would be replenished. This proposed rule is based on Rule 7.35–E(h)(3)(A)(ii)(d). • Proposed Rule 6.64P– O(f)(3)(A)(viii) would describe the last step in this process, which is that the Exchange would send a quote to OPRA and proprietary data feeds representing the highest-priced bid and lowest-priced offer of any remaining unexecuted Auction-eligible orders and quotes that were received before the Auction Processing Period. This proposed rule is based on current cash equity functionality, as set forth in Rule 7.35– E(h)(3)(a)(ii). Although the functionality would be the same for both markets, for options traded on the Exchange, the Exchange proposes to describe this aspect of the process in sequence, and reference both orders and quotes. The Exchange notes that this quote would be different than the Rotational Quote sent at the beginning of the Auction Process as it could be comprised of both orders and quotes. Proposed Rule 6.64P–O(f)(3)(B) would provide that next, orders ranked Priority 3—Non-Display Orders that were received during a pre-open state would be assigned a new working time in time sequence relative to one another based on original entry time and would be subject to the Limit Order Price Check, Arbitrage Check, and Intrinsic Value Check, as applicable, and if not cancelled, would be traded or repriced. This proposed functionality would be new for Pillar and applicable only for options traded on the Exchange. Even though orders ranked Priority 3—NonDisplay Orders would not be eligible to trade in an Auction (other than the reserve interest of Reserve Orders), the Exchange proposes to accept such orders during a pre-open state. These orders would transition to continuous trading after orders and quotes that were eligible to trade in an Auction would have transitioned to continuous trading, as described above in proposed Rule 6.64P–O(f)(3)(A)(i)–(viii). The Exchange believes that waiting to process nondisplayed orders in this sequence would ensure that there is an NBBO against E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices which such orders could be priced, as described in proposed Rule 6.62P–O(d) above. Proposed Rule 6.64P–O(f)(3)(C) would provide that next, orders and quotes that were received during the Auction Processing Period would be assigned a new working time in time sequence relative to one another based on original entry time and would be subject to the Limit Order Price Check, Pre-Trade Risk Controls, Arbitrage Check, Intrinsic Value Check, and validations specified in proposed Rule 6.62P–O(a)(1)(A), as applicable, and if not cancelled would be processed consistent with the terms of the order or quote. This proposed rule text is designed to reflect that even though orders and quotes were received during the Auction Processing Period, they would not be subjected to these validations until after the Exchange has transitioned to continuous trading, and that if they fail these validations, such orders or quotes would be cancelled instead of rejected. This proposed rule text is based in part on Rule 7.35– E(h)(3)(B) with differences to reflect the validations that would be applicable to orders and quotes for options trading. Proposed Rule 6.64P–O(f)(3)(D) would further provide that when transitioning to continuous trading: • The display price and working price of orders and quotes would be adjusted based on the contra-side interest in the Consolidated Book or Away Market NBBO, as provided for in Rule 6.62P–O (proposed Rule 6.64P– O(f)(3)(D)(i)). This proposed rule is based in part on Rule 7.35–E(h)(3)(C) with differences to reflect that for options trading, the display price or working price of an order may be adjusted based either on contra-side interest on the Consolidated Book or the Away Market NBBO. • The display price and working price of a Day ISO would be adjusted in the same manner as a Non-Routable Limit Order until the Day ISO is either traded in full or displayed at its limit price and the display price and working price of a Day ISO ALO would be adjusted in the same manner as an ALO Order until the Day ISO ALO is either traded in full or displayed at its limit price (proposed Rule 6.64P– O(f)(3)(D)(ii)). This proposed rule is based in part on Rule 7.35–E(h)(3)(D) with differences to reflect how a Day ISO ALO would be processed. Proposed Rule 6.64P–O(g) would describe order processing during a trading halt. The proposed rule is based in part on Rule 7.18–E(c) with differences to reflect how options would trade on Pillar. As proposed, the Exchange would process new and VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 existing orders and quotes in a series during a trading halt as follows: • Maintain any unexecuted portion of orders ranked Priority 3—Non-Display Orders (proposed Rule 6.64P–O(g)(1)). This proposed rule would be unique to options traded on the Exchange because the Exchange cancels non-displayed orders on its cash equity market during a trading halt (see, e.g., Rule 7.18– E(c)(1)). • Cancel any unexecuted quantity of orders displayed at a Trading Collar and Market Maker quotes (proposed Rule 6.64P–O(g)(2)). This proposed rule would be unique for options traded on the Exchange. The Exchange proposes to cancel resting Market Maker quotes during a trading halt, but as noted below, would accept new Market Maker quotes during a trading halt, which would be the basis for the Rotational Quote that would be published for a Trading Halt Auction. The Exchange also proposes to cancel any unexecuted quantity of orders displayed at a Trading Collar because such orders would have already been subject to a 500-millisecond timer, which would have ended during a trading halt. • Re-price all other resting orders on the Consolidated Book to their limit price. The repricing of a Non-Routable Limit Order, ALO Order, or Day ISO ALO to its limit price during a trading halt would not be counted toward the number of times such order may be repriced and any subsequent repricing of such order during the transition to continuous trading would be permitted as the additional repricing event as provided for in Rule 6.62P–O(e)(1)(B) and (e)(2)(C) (proposed Rule 6.64P– O(g)(3)). As described above, once resting, a Non-Routable Limit Order, ALO Order, or Day ISO ALO that was repriced on arrival is eligible to be repriced only one additional time. This proposed rule provides transparency that the repricing of such orders to their limit price during a trading halt would not count towards that ‘‘one’’ additional repricing, but that any subsequent repricing after the Auction concludes would count. • Accept and process all cancellations (proposed Rule 6.64P– O(g)(4)). This proposed rule is based on Rule 7.18–E(c)(4) without any differences. • Reject Incoming Limit Orders designated IOC or FOK (proposed Rule 6.64P–O(g)(5)). This proposed rule is based in part on Rule 7.18–E(c)(5) with a difference to add orders designated FOK and not include non-displayed orders. • Accept all other incoming order and quote messages and instructions until PO 00000 Frm 00033 Fmt 4701 Sfmt 4703 36471 the Auction Processing Period for the Trading Halt Auction, at which point, paragraph (e) of proposed Rule 6.64P–O would govern the entry of incoming orders, quotes, and order instructions (proposed Rule 6.64P–O(g)(6)). This proposed rule is based on Rule 7.18– E(c)(6) with non-substantive differences to cross reference the options rule relating to the transition to continuous trading. • Disseminate a zero bid and zero offer quote to OPRA and proprietary data feeds (proposed Rule 6.64P– O(g)(7)). This proposed rule is based on current functionality and is designed to promote clarity and transparency in Exchange rules that when a trading halt begins, the Exchange will ‘‘zero’’ out the Exchange’s BBO. Finally, proposed Rule 6.64P–O(h) would provide that whenever in the judgment of the Exchange the interests of a fair and orderly market so require, the Exchange may adjust the timing of or suspend the Auctions set forth in this Rule with prior notice to ATP Holders. This proposed rule is based on Rule 7.35–E(i) without any differences. In connection with proposed Rule 6.64P–O, the Exchange proposes to add the following preamble to Rule 6.64–O: ‘‘This Rule will not be applicable to trading on Pillar.’’ This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.64–O would not be applicable to trading on Pillar. As discussed above, because of the technology changes associated with the migration to the Pillar trading platform, subject to approval of this proposed rule change, the Exchange will announce by Trader Update when rules with a ‘‘P’’ modifier will become operative and for which symbols. The Exchange believes that keeping existing rules on the rulebook pending the full migration of Pillar will reduce confusion because it will ensure that the rules governing trading on the OX system will continue to be available pending the full migration to Pillar. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’),55 in general, and furthers the objectives of Section 6(b)(5),56 in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating 55 15 56 15 E:\FR\FM\09JYN2.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36472 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices transactions in securities, 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 rules to support Pillar would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rules would promote transparency in Exchange rules by using consistent terminology governing trading on both the Exchange’s cash equity and options trading platforms, thereby ensuring that members, regulators, and the public can more easily navigate the Exchange’s rulebook and better understand how options trading is conducted on the Exchange. Generally, the Exchange believes that adding new rules with the modifier ‘‘P’’ to denote those rules that would be operative for the Pillar trading platform would remove impediments to and perfect the mechanism of a free and open market and a national market system by providing transparency of which rules would govern trading once a symbol has been migrated to the Pillar platform. The Exchange similarly believes that adding a preamble to those current rules that would not be applicable to trading on Pillar would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote transparency regarding which rules would govern trading on the Exchange during and after the transition to Pillar. In addition, the Exchange believes that incorporating functionality currently available on the Exchange’s cash equity market for options trading would remove impediments to and perfect the mechanism of a free and open market and a national market system because the Exchange would be able to offer consistent functionality across both its options and cash equity trading platforms, adapted as applicable for options trading. Accordingly, with the transition to Pillar, the Exchange will be able to offer additional features to its OTP Holders and OTP Firms that are currently available only on the Exchange’s cash equity platform. For similar reasons, the Exchange believes that using Pillar terminology for the proposed new rules would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote consistency in the Exchange’s rules across both its options and cash equity platforms. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Definitions and Applicability The Exchange believes that the proposed amendments to Rule 1.1, including moving definitions from Rule 6.1–O and Rule 6.1A–O to Rule 1.1, would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed changes are designed to promote clarity and transparency in Exchange rules by consolidating into Rule 1.1 definitions relating to both cash equity and options trading. The Exchange believes that the proposed changes to eliminate obsolete definitions and make non-substantive edits to existing definitions would further remove impediments to and perfect the mechanism of a free and open market and a national market system because it would ensure that the definitions used in Exchange rules are updated and consistent. Finally, the Exchange believes that organizing Rule 1.1 alphabetically and eliminating subparagraph numbering would make the proposed rules easier to navigate. The Exchange further believes that proposed new Rule 6.1P–O relating to applicability would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rule would include those elements of current Rule 6.1–O that would remain applicable and eliminates duplicative text that would no longer be necessary after the transition to Pillar. The Exchange further notes that proposed Rule 6.1P–O is similar to NYSE American Rule 900.1NY. Order Ranking and Display The Exchange believes that proposed new Rule 6.76P–O would remove impediments to and perfect the mechanism of a free and open market and a national market system because the Exchange is not proposing substantive changes to how the Exchange would rank and display orders and quotes on Pillar as compared to the OX system. Rather, the proposed revisions to the Exchange’s options trading rules would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed changes are designed to simplify the structure of the Exchange’s options rules and use consistent Pillar terminology for both cash equity and options trading, without changing the underlying functionality. For example, the Exchange believes the proposed definitions set forth in Rule 6.76P–O, i.e., display price, limit price, working price, working time, and Aggressing PO 00000 Frm 00034 Fmt 4701 Sfmt 4703 Order/Aggressing Quote, would promote transparency in Exchange rules and make them easier to navigate because these proposed definitions would be used in other proposed Pillar options trading rules. The Exchange notes that these proposed definitions are consistent with the definitions set forth in Rule 7.36–E for cash equity trading with differences only as necessary to address functionality associated with options trading that are not applicable to cash equity trading, e.g., reference to quotes. The Exchange further believes that moving descriptions of order type behavior, which are currently set forth in Rule 6.76–O, to proposed Rule 6.62P– O, and therefore not include such detail in proposed Rule 6.76P–O, would make Exchange rules easier to navigate because information regarding how a specific order type would operate would be in a single location in the Exchange’s rulebook. The Exchange notes that this proposed structure is consistent with the Exchange’s cash equity rules, which similarly set forth information relating to an order type’s ranking in Rule 7.31– E. Moreover, the Exchange is not proposing any functional changes to how it would rank and display orders and quotes on Pillar as compared to the OX system. Order Execution and Routing The Exchange believes that proposed new Rule 6.76AP–O would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rule would set forth a price-time priority model for Pillar that is substantively the same as the Exchange’s current price-time priority model as set forth in Rule 6.76A–O. The proposed differences as compared to Rule 6.76A–O are designed to use Pillar terminology that is based in part on Rule 7.37–E, if applicable, without changing the functionality that is currently available for options trading. The Exchange believes that the proposed modifications to the LMM Guarantee would remove impediments to and perfect the mechanism of a free and open market and a national market system because it provides clarity of how multiple quotes from an LMM would be allocated. The Exchange similarly believes that eliminating Directed Order Market Makers and Directed Orders would remove impediments to and perfect the mechanism of a free and open market and a national market system because these features are not currently used on the Exchange, and therefore eliminating Directed Orders and Directed Order E:\FR\FM\09JYN2.SGM 09JYN2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 Market Makers would streamline the Exchange’s rules. The Exchange notes that the remaining differences in proposed Rule 6.76AP–O relating to the LMM Guarantee are designed to promote clarity and transparency in Exchange rules and would not introduce new functionality. The Exchange believes that the structure and content of the rule text in proposed Rule 6.76AP–O promotes transparency by using consistent Pillar terminology. The Exchange also believes that adding more detail regarding current functionality in new Rule 6.76AP–O, as described above, would promote transparency by providing notice of when orders would be executed or routed by the Exchange. Orders and Modifiers The Exchange believes that proposed new Rule 6.62P–O would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would use existing Pillar terminology to describe the order types and modifiers that would be available on the Exchange’s options Pillar trading system. As noted above, the Exchange proposes to offer order types and modifiers that are either based on existing order types available on the OX system as described in Rule 6.62–O, or orders and modifiers available on the Exchange’s cash equity trading platform, as described in Rule 7.31–E. The Exchange believes that structuring proposed Rule 6.62P–O based on the structure of Rule 7.31–E would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote transparency and consistency in the Exchange’s rulebook. In addition to the terminology changes to describe the order types and modifiers that are currently available on the Exchange, the Exchange further believes that the order types and modifiers proposed for options trading on Pillar that either differ from order types and modifiers available on the OX system or that would be new would remove impediments to and perfect the mechanism of a free and open market and national market system because: • Market Orders on Pillar would function similarly to how Market Orders function under current options trading rules, including being subject to Trading Collars, with additional proposed functionality that is designed to ensure that Market Orders do not execute either when there is no prevailing market in a series, or if the displayed prices are too wide to assure a fair and orderly execution of a Market Order. The VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 Exchange believes that the proposed rule describing Market Orders would promote transparency by providing notice of when a Market Order would be subject to such validations. • The Exchange is not proposing any new or different behavior for Limit Orders than is currently available for options trading on the Exchange, other than the application of Limit Order Price Protection and Trading Collars, which would differ on Pillar. The Exchange believes using Pillar terminology based on Rule 7.31–E(a)(2) to describe Limit Orders would promote consistency and clarity in Exchange rules. • The proposed Limit Order Price Protection functionality is based in part on the existing ‘‘Limit Order Filter’’ for orders and price protection filters for quotes because an order or quote would be rejected if it is priced a specified percentage away from the contra-side NBB or NBO. The proposed Limit Order Price Protection functionality is also based in part on the functionality available on the Exchange’s cash equity trading platform, and therefore is not novel. The Exchange believes that using the same mechanism for both orders and quotes would simplify the operation of the Exchange and achieve similar results as the current rules, which is to reject an order or quote that is priced too far away from the prevailing market. The Exchange believes that re-applying Limit Order Price Protection after an Auction concludes would ensure that Limit Orders and quotes continue to be priced consistent with the prevailing market, and that using an Auction Price (if available, and if not available, Auction Collars, and if not available, the NBBO) to assess Limit Orders and quotes after an Auction concludes would ensure that the Exchange would be applying the most recent price in a series in assessing whether such orders or quotes should be cancelled. • The proposed Trading Collar functionality is based in part on how trading collars currently function on the Exchange because the proposed functionality would create a ceiling or floor price at which an order could be traded or routed. The proposed Pillar Trading Collar functionality is designed to simplify the process by applying a static ceiling price (for buy orders) or floor price (for sell orders) at which such order could be traded or routed that would be applicable to the order until it is traded or cancelled. The Exchange believes that the proposed functionality would provide greater determinism to an OTP Holder or OTP Firm of the Trading Collar that would be applicable to its orders and when such PO 00000 Frm 00035 Fmt 4701 Sfmt 4703 36473 orders may be cancelled if it reaches its Trading Collar. • The Exchange is not proposing any new or different Time-in-Force modifiers than are currently available for options trading on the Exchange. The Exchange believes using Pillar terminology based on Rule 7.31–E(b) to describe the time-in-force modifiers would promote consistency and clarity in Exchange rules. • Auction-Only Orders, and specifically, the proposed MOO and LOO Orders, would operate no differently than how ‘‘Opening-Only Orders’’ currently function on the OX system. The Exchange proposes nonsubstantive differences to use Pillar terminology that is based on Rule 7.31– E(c) terminology. The Exchange further believes that offering its IO Order type, which is currently available for Trading Halt Auctions on the Exchange’s cash equity platform, for Auctions on the options trading platform would provide OTP Holders and OTP Firms with new, optional functionality to offset an Imbalance in an Auction. • The Exchange would continue to offer Reserve Orders, AON Orders, Stop Orders, and Stop Limit Orders, which are currently available on the OX system. The proposed differences to Reserve Orders for options trading would harmonize with how Reserve Orders function on the Exchange’s cash equity market, with changes as applicable to address options trading (e.g., no round lot/odd lot concept for options trading). The proposed changes to AON Orders would provide greater execution opportunities for such orders by allowing them to be integrated in the Consolidated Book and once resting, trade with incoming orders and quotes. The changes are also based on how orders with an MTS Modifier, which are also conditional orders, function on the Exchange’s cash equity market. The proposed differences for Stop Orders and Stop Limit Orders are designed to promote transparency by providing clarity of circumstances when either order may be elected. Finally, the Exchange believes that offering NonDisplayed Limit Orders for options trading on Pillar, which are available on the Exchange’s cash equity platform, would provide additional, optional trading functionality for OTP Holders and OTP Firms. The Exchange notes that the proposed Non-Displayed Limit Order would function similarly to how a PNP Blind Order that locks or crosses the contra-side NBBO would be processed because in such circumstances, a PNP Blind Order is not displayed. A Non-Displayed Limit Order would differ from a PNP Blind E:\FR\FM\09JYN2.SGM 09JYN2 jbell on DSKJLSW7X2PROD with NOTICES2 36474 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Order only because it would never be displayed, even if its limit price doesn’t lock or cross the contra-side NBBO. • The Exchange believes that the proposed orders (and quotes) with instructions not to route (i.e., NonRoutable Limit Order, ALO Order, and ISOs) would streamline the offerings available for options trading on the Exchange by making the functionality the same for both orders and quotes and consolidating the description of nonroutable orders and quotes in proposed Rule 6.62P–O(e). The Exchange believes that using Pillar terminology, including order type names, that is based on the terminology used for cash equity trading will promote clarity and consistency across the Exchange’s cash equity and options trading platforms. The Exchange believes that the proposed Non-Routable Limit Order is not novel because it is based on how the PNP, RPNP, and MMRP orders and quotes currently function on the OX system. The Exchange believes that the proposed differences would provide OTP Holders and OTP Firms with greater determinism of when such orders or quotes may be repriced or be cancelled, including providing additional opportunities to cancel such orders. Similarly, the proposed ALO Order is not novel because it is based in part on how the RALO and MMLO orders and quotes currently function on the OX system. Finally, the proposed IOC ISO is not novel for options trading on the Exchange. The proposed DAY ISO and DAY ISO ALO functionality would be new for options trading and are based in part on how such order types function in the Exchange’s cash equity market. In addition, the proposed DAY ISO functionality is consistent with existing Rule 6.95–O(b)(3), which currently provides an exception to locking or crossing an Away Market Protected Quotation if the OTP Holder or OTP Firm simultaneously routed an ISO to execute against the full displayed size of any locked or crossed Protected Bid or Protected Offer. The Exchange notes that this exception is not necessary for IOC ISOs because such orders would never be displayed at a price that would lock or cross a Protected Quotation; they cancel if they cannot trade. Accordingly, this existing exception in the Exchange’s rules contemplates an ISO that would be displayed, which would mean it would need a time-in-force modifier of ‘‘Day.’’ In addition, Day ISOs are available for options trading on other options exchanges, and therefore are not novel.57 57 See supra notes 39, 40. VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 • The Exchange believes that the proposed additional detail defining Complex Orders to define the ‘‘legs’’ and ‘‘components’’ of such orders would promote transparency in Exchange rules. • On Pillar, the only electronicallyentered crossing orders would be QCC Orders, which is consistent with current functionality. The Exchange believes that the proposed non-substantive differences, including using Pillar terminology and consolidating rule text relating to QCC Orders in proposed Rule 6.62P–O, would promote transparency and clarity in Exchange rules. In addition, the Exchange believes that the proposed descriptions of how a QCC Order priced at the market would be traded would provide transparency regarding at which price such orders would trade. • The Exchange believes that moving the descriptions of orders available only in open outcry from Rule 6.62–O to proposed Rule 6.62P–O(h) would ensure that these order types remain in the rulebook after the transition to Pillar is complete. For CTB Orders, the Exchange believes that the proposed substantive difference on Pillar to allow a CTB Order to satisfy any displayed interest (including non-Customer interest) at better prices than the latest-arriving displayed Customer interest would increase execution opportunities and achieve the goal of a CTB Order, which is to clear priority on the Consolidated Book for orders executed in open outcry. The Exchange also believes that codifying this order type and the associated regulatory obligations would add clarity and transparency in Exchange rules. • The proposed Proactive if Locked/ Crossed Modifier, STP Modifier, and MTS Modifier are not novel and are based on the Exchange’s current cash equity modifiers of the same name. The Exchange believes that extending the availability of these existing modifiers to options trading would provide OTP Holders and OTP Firms with additional, optional functionality that is not novel and is based on existing Exchange rules. The Exchange further believes that extending the availability of STP Modifiers to all orders, and not just Market Maker orders and quotes, would provide additional protections for OTP Holders and OTP Firms. Market Maker Quotations The Exchange believes that proposed Rule 6.37AP–O would remove impediments to and perfect the mechanism of a free and open market and a national market system because it is based on current Rule 6.37A–O, with PO 00000 Frm 00036 Fmt 4701 Sfmt 4703 such changes as necessary to use Pillar terminology. The Exchange believes that consolidating functionality for orders and quotes, and cross referencing NonRoutable Limit Orders and ALO Orders in proposed Rule 6.37AP–O, rather than restating how quotations would be processed in proposed Rule 6.37AP–O, would streamline the Exchange’s rules and promote transparency and consistency. Pre-Trade and Activity-Based Risk Controls The Exchange believes that the proposed Rule 6.40P–O, setting forth pre-trade and activity-based risk controls, would remove impediments to and perfect the mechanism of a free and open market and a national market system and promote just and equitable principles of trade because the proposed functionality would incorporate existing activity-based risk controls, without any substantive differences, and augment them with additional pre-trade risk controls and related functionality that are based on the pre-trade risk controls currently available on the Exchange’s cash equity trading platform. The Exchange believes that the proposed differences are designed to provide greater flexibility to OTP Holders and OTP Firms in how to set risk controls for both orders and quotes. In addition, the Exchange believes that aggregating a Market Maker’s quotes and orders for purposes of calculating activity-based risk controls would better reflect the aggregate risk that a Market Maker has with respect to its quotes and orders. The proposed kill switch functionality would also provide OTP Holders and OTP Firms with greater flexibility to provide bulk instructions to the Exchange with respect to cancelling existing orders and quotes and blocking new orders and quotes. Price Reasonability Checks—Orders and Quotes The Exchange believes that the proposed Rule 6.41P–O, setting forth Price Reasonability Checks, would remove impediments to and perfect the mechanism of a free and open market and a national market system because they are based on existing functionality, with differences designed to use Pillar terminology and promote consistency and transparency in Exchange rules. Specifically, on Pillar, the Exchange proposes to apply the same types of Price Reasonability Checks to both orders and quotes, and therefore proposes to describe those checks in a single rule—proposed Rule 6.41P–O. The proposed rule also provides specificity regarding when the Price E:\FR\FM\09JYN2.SGM 09JYN2 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 Reasonability Checks would be applied to an order or quote, which would promote transparency and clarity in Exchange rules. Auction Process The Exchange believes that proposed Rule 6.64P–O would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rule maintains the fundamentals of an auction process that is tailored for options trading while at the same time enhancing the process by incorporating Pillar auction functionality that is currently available on the Exchange’s cash equity platform, as described in Rule 7.35–E. For example, the Exchange proposes to augment the imbalance information that would be disseminated in advance of an Auction to include fields available on the Exchange’s cash equity market (e.g., Book Clearing Price and Far Clearing Price) as well as information specific to options trading (e.g., Auction Collars based on a Legal Width Quote and Auction Indicator). The Exchange believes that the proposed Auction Imbalance Information would promote transparency to market participants in advance of an Auction. The Exchange also proposes to transition to continuous trading following an Auction in a manner similar to how the Exchange’s cash equity market transitions to continuous trading following a cash equity Trading Halt Auction, including how orders and quotes that are received during an Auction Processing Period would be processed, which the Exchange believes would promote consistency across the Exchange’s options and cash equity trading platforms. Because the Exchange would be harnessing Pillar technology to support Auctions for options trading, the Exchange believes that structuring proposed Rule 6.64P–O based on Rule 7.35–E would promote transparency in the Exchange’s trading rules. The Exchange further believes that the proposed Auction Process for options trading on Pillar would remove impediments to and perfect the mechanism of a free and open market and a national market system. The proposed process is based on the current options auction process, including that orders are matched based on price-time priority and that an Auction would not be conducted if the bid-ask differential is not within an acceptable range. As proposed, the Auction Process on Pillar would begin with the proposed Rotational Quote, which would provide notice not only of when the process would begin, but also VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 whether Market Makers on the Exchange have quoted in a series. The Exchange believes that the proposed Opening MMQ Time Parameter would promote transparency in Exchange rules of when the Exchange could open a series, including circumstances of when the Exchange would wait to provide Market Makers time to submit a twosided quotation in a series and when the Exchange would proceed with opening or reopening a series based on a Legal Width Quote even if there are no Market Maker quotes in that series. The proposed rule would also provide transparency of when the Exchange would open or reopen a series for trading when the Calculated NBBO is wider than the Legal Width Quote for the series. The Exchange believes that the proposed process is designed to provide opportunities for a series to open or reopen, while at the same time preserving the existing requirement that a series would not open on a trade if there is no Legal Width Quote. 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 operates in a competitive market and regularly competes with other options exchanges for order flow. The Exchange believes that the transition to Pillar would promote competition among options exchanges by offering a low-latency, deterministic trading platform. The proposed rule changes would support that intermarket competition by allowing the Exchange to offer additional functionality to its OTP Holders and OTP Firms, thereby potentially attracting additional order flow to the Exchange. Otherwise, the proposed changes are not designed to address any competitive issues, but rather to amend the Exchange’s rules relating to options trading to support the transition to Pillar. As discussed in detail above, with this rule filing, the Exchange is not proposing to change its core functionality regarding its price-time priority model, and in particular, how it would rank, display, execute or route orders and quotes. Rather, the Exchange believes that the proposed rule changes would promote consistent use of terminology to support both options and cash equity trading on the Exchange, making the Exchange’s rules easier to navigate. The Exchange does not believe that the proposed rule changes would raise any intra-market competition as the proposed rule changes would be PO 00000 Frm 00037 Fmt 4701 Sfmt 4703 36475 applicable to all OTP Holders and OTP Firms, and reflects the Exchange’s existing price-time priority model, including existing LMM Guarantee, without proposing any substantive changes. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2021–47 on the subject line. Paper Comments • Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2021–47. 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 E:\FR\FM\09JYN2.SGM 09JYN2 36476 Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 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 VerDate Sep<11>2014 20:01 Jul 08, 2021 Jkt 253001 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 PO 00000 Frm 00038 Fmt 4701 Sfmt 9990 Number SR–NYSEArca–2021–47 and should be submitted on or before July 30, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.58 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–14391 Filed 7–8–21; 8:45 am] BILLING CODE 8011–01–P 58 17 E:\FR\FM\09JYN2.SGM CFR 200.30–3(a)(12). 09JYN2

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 129 (Friday, July 9, 2021)]
[Notices]
[Pages 36440-36476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14391]



[[Page 36439]]

Vol. 86

Friday,

No. 129

July 9, 2021

Part III





Securities and Exchange Commission





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Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of 
Proposed Rule Change for New Rules 6.1P-O, 6.37AP-O, 6.40P-O, 6.41P-O, 
6.62P-O, 6.64P-O, 6.76P-O, and 6.76AP-O and Amendments to Rules 1.1, 
6.1-O, 6.1A-O, 6.37-O, 6.65A-O and 6.96-O; Notice

Federal Register / Vol. 86 , No. 129 / Friday, July 9, 2021 / 
Notices

[[Page 36440]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92304; File No. SR-NYSEArca-2021-47]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change for New Rules 6.1P-O, 6.37AP-O, 6.40P-O, 6.41P-
O, 6.62P-O, 6.64P-O, 6.76P-O, and 6.76AP-O and Amendments to Rules 1.1, 
6.1-O, 6.1A-O, 6.37-O, 6.65A-O and 6.96-O

June 30, 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 June 21, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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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 new Rules 6.1P-O (Applicability), 6.37AP-O 
(Market Maker Quotations), 6.40P-O (Pre-Trade and Activity-Based Risk 
Controls), 6.41P-O (Price Reasonability Checks--Orders and Quotes), 
6.62P-O (Orders and Modifiers), 6.64P-O (Auction Process), 6.76P-O 
(Order Ranking and Display), and 6.76AP-O (Order Execution and Routing) 
and proposes amendments to Rules 1.1 (Definitions), 6.1-O 
(Applicability, Definitions and References), 6.1A-O (Definitions and 
References--OX), 6.37-O (Obligations of Market Makers), 6.65A-O (Limit-
Up and Limit-Down During Extraordinary Market Volatility), and 6.96-O 
(Operation of Routing Broker) to reflect the implementation of the 
Exchange's Pillar trading technology on its options market. 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
Background
    The Exchange plans to transition its options trading platform to 
its Pillar technology platform. The Exchange's and its national 
securities exchange affiliates' \4\ (together with the Exchange, the 
``NYSE Exchanges'') cash equity markets are currently operating on 
Pillar. For this transition, the Exchange proposes to use the same 
Pillar technology already in operation for its cash equity market. In 
doing so, the Exchange will be able to offer not only common 
specifications for connecting to both of its cash equity and equity 
options markets, but also common trading functions.
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    \4\ The Exchange's national securities exchange affiliates are 
the New York Stock Exchange LLC (``NYSE''), NYSE American LLC 
(``NYSE American''), NYSE National, Inc. (``NYSE National''), and 
NYSE Chicago, Inc. (``NYSE Chicago'').
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    The Exchange plans to roll out the new technology platform over a 
period of time based on a range of symbols, anticipated for the fourth 
quarter of 2021. With this transition, certain rules would continue to 
be applicable to symbols trading on the current trading platform--the 
OX system,\5\ but would not be applicable to symbols that have 
transitioned to trading on Pillar.
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    \5\ ``OX'' refers to the Exchange's current electronic order 
delivery, execution, and reporting system for designated option 
issues through which orders and quotes of Users are consolidated for 
execution and/or display. See Rule 6.1A-O(13). ``OX Book'' refers to 
the OX's electronic file of orders and quotes, which contain all of 
the orders in each of the Display Order and Working Order processes 
and all of the Market Makers' quotes in the Display Order Process. 
See Rule 6.1A-O(14). With the transition to Pillar, the Exchange 
would no longer use the terms ``OX'' or ``OX Book'' and rules using 
those terms would not be applicable to trading on Pillar. Once the 
transition is complete, the Exchange will file a subsequent proposed 
rule change to delete references to OX and OX Book from the 
rulebook.
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    Instead, the Exchange proposes new rules to reflect how options 
would trade on the Exchange once Pillar is implemented. These proposed 
rule changes will (1) use Pillar terminology that is based on Exchange 
Rule 7-E Pillar terminology governing cash equity trading; (2) provide 
for common functionality on both its options and cash equity markets; 
and (3) introduce new functionality.
    The Exchange notes that certain of the proposed new Pillar rules 
concern functionality not currently available on the OX system and that 
would be unique to how option contracts trade, and therefore would be 
new rules with no parallel version for the Exchange's cash equity 
market.
Proposed Use of ``P'' Modifier
    As proposed, new rules governing options trading on Pillar would 
have the same numbering as current rules that address the same 
functionality, but with the modifier ``P'' appended to the rule number. 
For example, Rule 6.76-O, governing Order Ranking and Display--OX, 
would remain unchanged and continue to apply to any trading in symbols 
on the OX system. Proposed Rule 6.76P-O would govern Order Ranking and 
Display for trading in options symbols migrated to the Pillar platform. 
All other current rules that have not had a version added with a ``P'' 
modifier will be applicable to how trading functions on both the OX 
system and Pillar. Once all options symbols have migrated to the Pillar 
platform, the Exchange will file a separate rule proposal to delete 
rules that are no longer operative because they apply only to trading 
on the OX system.
    To reflect how the ``P'' modifier would operate, the Exchange 
proposes to add rule text immediately following the title ``Rule 6-O 
Options Trading,'' and before ``Rules Principally Applicable to Trading 
of Option Contracts'' that would provide that rules with a ``P'' 
modifier would be operative for symbols that are trading on the Pillar 
trading platform. As further proposed, if a symbol is trading on the 
Pillar trading platform, a rule with the same number as a rule with a 
``P'' modifier would no longer be operative for that symbol and the 
Exchange would announce by Trader Update \6\ when symbols are trading 
on the Pillar trading platform.\7\
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    \6\ Trader Updates are available here: https://www.nyse.com/trader-update/history. Anyone can subscribe to email updates of 
Trader Updates, available here: https://www.nyse.com/subscriptions.
    \7\ The Exchange used the same description when it transitioned 
its cash equity platform to Pillar. See Securities Exchange Act 
Release Nos. 75494 (July 20, 2015), 80 FR 44170 (July 24, 2015) (SR-
NYSEArca-2015-38) (Approval Order) and 74951 (May 13, 2015), 80 FR 
28721 (May 19, 2015) (Notice).

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[[Page 36441]]

    The Exchange believes that adding this explanation regarding the 
``P'' modifier in Exchange rules would provide transparency regarding 
which rules and definitions would be operative during the symbol 
migration to Pillar.
Summary of Proposed Rule Changes
    In this filing, the Exchange proposes the following new Pillar 
rules: Rules 6.1P-O (Applicability), 6.37AP-O (Market Maker 
Quotations), 6.40P-O (Pre-Trade and Activity-Based Risk Controls), 
6.41P-O (Price Reasonability Checks--Orders and Quotes), 6.62P-O 
(Orders and Modifiers), 6.64P-O (Auction Process), 6.76P-O (Order 
Ranking and Display), and 6.76AP-O (Order Execution and Routing). The 
Exchange also proposes to amend Rules 1.1 (Definitions), 6.1-O 
(Applicability, Definitions and References), and 6.1A-O (Definitions 
and References--OX) to reflect definitions that would be applicable for 
options trading on Pillar and make conforming amendments to Rules 6.37-
O (Obligations of Market Makers), 6.65A-O (Limit-Up and Limit-Down 
During Extraordinary Market Volatility), and 6.96-O (Operation of 
Routing Broker). These proposed rules would set forth the foundation of 
the Exchange's options trading model on Pillar and would use existing 
Pillar terminology currently in effect for the Exchange's cash equity 
platform.
    Because certain proposed rules have definitions and functions that 
carry forward to other proposed rules, the Exchange proposes to 
describe the new rules in the following order (rather than by rule 
number order): Definitions, applicability, ranking and display, 
execution and routing, orders and modifiers, market maker quotations, 
pre-trade and activity-based risk controls, price reasonability checks, 
and auctions.
    To promote clarity and transparency, the Exchange further proposes 
to add a preamble to the following current rules specifying that they 
would not be applicable to trading on Pillar: Rule 6.1-O 
(Applicability, Definitions and References), 6.1A-O (Definitions and 
References--OX), Rule 6.37A-O (Market Maker Quotations), 6.40-O (Risk 
Limitation Mechanism), 6.60-O (Price Protection--Orders), 6.61-O (Price 
Protections--Quotes), 6.62-O (Certain Types of Orders Defined), 6.64-O 
(OX Opening Process), 6.76-O (Order Ranking and Display--OX), 6.76A-O 
(Order Execution--OX), 6.88-O (Directed Orders), and 6.90-O (Qualified 
Contingent Crosses).
    As discussed in greater detail below, the Exchange is not proposing 
fundamentally different functionality applicable to options trading on 
Pillar than on the OX system. However, with Pillar, the Exchange would 
introduce new terminology, and as applicable, new or updated 
functionality that would be available for options trading on the Pillar 
platform.
    The Exchange notes that new rules relating to electronic complex 
trading on Pillar will be addressed in separate proposed rule change.
Proposed Rule Changes
Rule 1.1--Definitions
    Rule 1.1 sets forth definitions that are applicable to both the 
Exchange's cash equity and options markets. Rule 6.1-O(b) sets forth 
definitions that are applicable to the trading of option contracts on 
the Exchange. Rule 6.1A-O sets forth definitions that are applicable to 
trading on the Exchange's current OX system. In connection with the 
transition of options trading to Pillar, the Exchange proposes to copy 
the definitions currently set forth in Rules 6.1-O and 6.1A-O into to 
Rule 1.1, with changes as described below. This proposed rule change 
would streamline the Exchange's rules by consolidating definitions that 
would be applicable for trading on Pillar into Rule 1.1. Once the 
transition to Pillar is complete, the Exchange will file a subsequent 
proposed rule change to delete current Rules 6.1-O and 6.1A-O.
    In connection with adding definitions to Rule 1.1, the Exchange 
proposes to delete the sub-paragraph numbering currently set forth in 
Rule 1.1. The Exchange does not believe that the sub-paragraph 
numbering is necessary because the definitions are organized in 
alphabetical order and would continue to be organized in alphabetical 
order. In addition, removing the sub-paragraph numbering would make any 
future amendments to Rule 1.1 easier to process as any new definitions 
would simply be added in alphabetical order.
    Certain definitions in Rule 1.1 currently specify that they are 
only for ``equities'' trading. With the proposed consolidation of 
definitions, some of those definitions will become applicable to both 
options and cash equity trading, and others will continue to be 
applicable only to cash equity trading. With the proposed 
consolidation, the Exchange proposes to remove existing language 
limiting those definitions to ``equities'' traded on the Exchange if 
the definition would be equally applicable to options trading. In 
addition, to the extent that a proposed definition would continue to be 
applicable only to cash equity trading, the Exchange proposes to make a 
global change to update references to ``equities'' traded on the 
Exchange to ``cash equity securities'' traded on the Exchange. The 
Exchange believes these proposed modifications would add clarity and 
consistency to Exchange rules.
    The Exchange proposes the following amendments to Rule 1.1.
    First, definitions set forth in Rule 6.1-O(b) would be added to 
Rule 1.1 in alphabetical order without any substantive differences.\8\ 
To promote clarity, if the definition that is being copied is not 
specifically about options trading, the Exchange proposes to add an 
introductory clause to the definition to specify that the term is for 
options traded on the Exchange. The Exchange does not propose to copy 
the definition of ``Quote with Size,'' which is currently defined in 
Rule 6.1-O(b)(33), to Rule 1.1 because that term would not be used in 
the Pillar rules, and does not propose to copy the definition of 
``Short Term Options Series,'' because it is duplicative of Commentary 
.07 to Rule 6.4-O. In addition, the Exchange is not including the 
definition of ``Foreign Broker/Dealer,'' which is currently defined in 
Rule 6.1-O(b)(31), in Rule 1.1, as this term is not used anywhere else 
in Exchange rules.\9\ The Exchange also proposes the following 
clarifying, non-substantive changes to definitions that are being 
copied from Rule 6.1-O(b) to Rule 1.1:
---------------------------------------------------------------------------

    \8\ Rule 6.1-O(b) has definitions for: Options Clearing 
Corporation, Rules of the Options Clearing Corporation, Clearing 
Member, Participating Exchange, Option Contract, Exchange Option 
Transaction and Exchange Transaction, Type of Option, Call, Put, 
Class of Options, Series of Options, Option Issue, Underlying Stock 
or Underlying Security, Exercise Price, Aggregate Exercise Price, 
Expiration Month, Expiration Date, Long Position, Short Position, 
Opening Purchase Transaction, Opening Writing Transaction, Closing 
Sale Transaction, Closing Purchase Transaction, Covered, Uncovered, 
Outstanding, Primary Market, Options Trading, Customer, Trading 
Crowd, Foreign Broker/Dealer, Exchange-Traded Fund Share, Quote with 
Size, Trading Official, Non-OTP Firm or Non-OTP Holder Market Maker, 
Firm, Consolidated Book, Crowd Participants, Electronic Order 
Capture System, Short Term Option Series, and Quarterly Options 
Series.
    \9\ The Exchange is not proposing to delete the definitions of 
either ``Quote with Size'' or ``Foreign Broker/Dealer'' at this time 
as such terms would be deleted in the subsequent filing to delete 
Rule 6.1-O.
---------------------------------------------------------------------------

     The Exchange proposes to provide that the term ``class of 
options'' or ``class'' would mean all series of options, both puts and 
calls, overlying the same underlying security.
     The Exchange proposes to streamline the definitions of 
``Closing

[[Page 36442]]

Purchase Transaction,'' Closing Sale Transaction,'' ``Opening Purchase 
Transaction,'' and ``Opening Writing Transaction'' without any 
substantive differences.
     The Exchange proposes to revise the definition of 
``Electronic Order Capture System'' to eliminate reference to the 
Commission's order Instituting Public Administrative Proceedings 
Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, 
Making Findings and Imposing Remedial Sanctions, which was the initial 
authority for the Exchange to specify requirements relating to the 
Electronic Order Capture System. The Exchange will continue to include 
requirements for the Electronic Order Capture System in its rules and 
does not believe it is necessary to continue to cite to the original 
authority for this requirement in Exchange rules.
     The Exchange proposes to streamline the definition of 
``Expiration Date'' to eliminate now obsolete language limiting the 
definition to options expiring before, on, or after February 15, 2015. 
In addition, the Exchange does not propose to include the following 
text in the Rule 1.1 definition of ``Expiration Date'': 
``Notwithstanding the foregoing, in the case of certain long-term 
options expiring on or after February 1, 2015 that the Options Clearing 
Corporation has designated as grandfathered, the term ``expiration 
date'' shall mean the Saturday immediately following the third Friday 
of the expiration month.'' This rule text is now obsolete as the 
Exchange does not have any series trading on the Exchange with such 
Saturday expiration dates.
     The Exchange proposes to add to the definition of ``option 
contract'' that option contracts would include within the definition of 
``security'' or ``securities'' as such terms are used in the Bylaws and 
Rules of the Exchange. This proposed text is copied from the last 
sentence of current Rule 6.1-O(a). As described below, proposed Rule 
6.1P-O would not include this text.
     The Exchange proposes to amend the definition of ``option 
issue'' to mean the security underlying a class of options.
     The Exchange proposes to streamline the definition of 
``outstanding'' without any substantive differences.
     The Exchange proposes to use the term ``underlying 
security'' rather than referring separately to an ``underlying stock or 
Exchange-Traded Fund Share,'' as an Exchange-Traded Fund Share is a 
security as that term is defined in Rule 1.1 (and is also an NMS 
stock).
    Second, definitions set forth in Rule 6.1A-O(a) would be moved and 
added to Rule 1.1 in alphabetical order without any substantive 
differences.\10\ Because certain of these definitions are already set 
forth in Rule 1.1 for cash equity trading, the Exchange proposes to 
amend those existing definitions to specify that they would be 
applicable to options trading, and if applicable, set forth differences 
for options trading, as described in more detail below. The Exchange 
does not propose to move the definition of ``Directed Order Market 
Maker'' to Rule 1.1 because in Pillar, the Exchange would no longer 
support Directed Order Market Makers. In addition, the Exchange does 
not propose to move the definitions of ``Complex BBO'' or ``Complex 
NBBO'' to Rule 1.1, and instead will be proposing to define those terms 
in a separate proposed rule change relating to electronic complex 
trading. As noted above, the terms ``OX'' and ``OX Book'' will not be 
used in Pillar rules.
---------------------------------------------------------------------------

    \10\ Rule 6.1A-O(a) has definitions for: Authorized Trader, BBO, 
Complex BBO, Core Trading Hours, Customer, Professional Customer, 
Lead Market Maker, Market Center, Marketable, Market Maker, Market 
Maker Authorized Trader, Minimum Price Variation, NBBO, Complex 
NBBO, NOW Recipient, OX, OX Book, Routing Broker, Sponsored 
Participant, Sponsoring OTP Firm, Sponsorship Provisions, User, 
Directed Order Market Maker, and Order Flow Provider.
---------------------------------------------------------------------------

    Finally, in addition to definitions that are being moved without 
any substantive changes, the Exchange proposes the following specific 
changes to Rule 1.1 definitions: \11\
---------------------------------------------------------------------------

    \11\ The Exchange also proposes a non-substantive amendment to 
the definition of ``Exchange'' to add a period at the end of the 
sentence.
---------------------------------------------------------------------------

     Approved Person: The Exchange proposes a non-substantive 
amendment to change the word ``a'' to ``an'' before ``OTP Firm.''
     Authorized Trader: The Exchange proposes to amend the Rule 
1.1 definition of ``Authorized Trader'' to remove the limitation to 
equities trading so that it is applicable to both cash equity 
securities and options traded on the Exchange, and to add that it can 
mean a person who may submit orders to the Exchange's Trading 
Facilities on behalf of his or her OTP Holder. These proposed 
amendments combine the definition of Authorized Trader currently set 
forth in Rule 6.1A-O(a)(1) with the existing Rule 1.1 definition of 
Authorized Trader without any substantive differences.
     Away Market: The Exchange proposes to amend the Rule 1.1 
definition of ``Away Market'' to add how that term would be used for 
options trading on the Exchange. As proposed, the new text would 
provide: ``[w]ith respect to options traded on the Exchange, the term 
``Away Market'' means any Trading Center (1) with which the Exchange 
maintains an electronic linkage, and (2) that provides instantaneous 
responses to orders routed from the Exchange.'' This proposed 
definition is based on the Rule 6.1A-O(a)(12) definition of ``NOW 
Recipient'' with only a non-substantive difference to use the Pillar 
term of ``Away Market'' instead of the term ``NOW Recipient.'' The 
Exchange does not include in this definition reference to designating 
and publishing to its website certain Away Markets because such markets 
are by definition those with which the Exchange maintains electronic 
linkage (i.e., pursuant to the Options Order Protection and Locked/
Crossed Market Plan).
     BBO: The Exchange proposes to amend the Rule 1.1 
definition of ``BBO'' to add how that term would be used for options 
trading on the Exchange. As proposed, with respect to options traded on 
the Exchange, BBO would mean the best displayed bid or best displayed 
offer on the Exchange. This definition is based on the Rule 6.1A-
O(a)(2)(a) definition of BBO without any substantive differences.
     Consolidated Book: The term ``Consolidated Book'' is 
currently defined in Rule 6.1-O(b)(37) and the term ``OX Book'' is 
currently defined in Rule 6.1A-O(a)(14). For Pillar, the Exchange 
proposes to define the term ``Consolidated Book'' based on both of 
those existing definitions and would provide that for options traded on 
the Exchange, the term ``Consolidated Book'' would mean the Exchange's 
electronic book of orders and quotes and that all orders and quotes 
that are entered into the Consolidated Book would be ranked and 
maintained in accordance with the rules of priority, as provided for in 
proposed Rule 6.76P-O. This proposed definition is also similar to the 
existing Rule 1.1 definition of ``NYSE Arca Book,'' which would be 
amended to specify that the definition would only be for cash equity 
securities traded on the Exchange.
     Core Trading Hours: The definition of Core Trading Hours 
would be applicable to both cash equity securities and options trading 
on the Exchange. Because options trading may extend past 4:00 p.m., the 
Exchange proposes to amend the Rule 1.1 to provide that for options 
traded on the Exchange, transactions may be effected on the Exchange 
for an equity options class until close of trading of the primary 
market for the securities underlying an options class. This proposed 
text is

[[Page 36443]]

based on current Rule 6.1A-O(a)(3) without substantive changes.\12\
---------------------------------------------------------------------------

    \12\ The Exchange does not propose to include text regarding 
trading that continues 15 minutes after the regular time set for the 
normal close of trading in the primary markets with respect to index 
options classes, as this is already addressed in Rule 5.20-O(a) 
(Trading Sessions).
---------------------------------------------------------------------------

     Customer and Professional Customer: The Exchange proposes 
to amend Rule 1.1 to add the definitions of ``Customer'' and 
``Professional Customer.'' The proposed definitions are based on the 
definitions of Customer and Professional Customer set forth in Rule 
6.1A-O(a)(4) and (4A) with non-substantive differences only to specify 
that these definitions would be applicable for options traded on the 
Exchange, eliminate redundant headers, and re-number the sub-
paragraphs. The Exchange also proposes to include a cross-reference to 
the definition of a broker or dealer as defined Sections 3(a)(4) and 
3(a)(5) of the Exchange Act and rules thereunder.\13\ The Exchange 
believes that this specificity adds clarity and transparency to the 
proposed definition.
---------------------------------------------------------------------------

    \13\ The Exchange does not propose to carry over the definition 
of ``Customer'' that is set forth in Rule 6.1-O(b)(29) as 
unnecessary.
---------------------------------------------------------------------------

     Lead Market Maker: The Exchange proposes to amend the Rule 
1.1 definition of ``Lead Market Maker'' to add how that term would be 
used for options trading. As proposed, the new text would provide that 
for options traded on the Exchange, the term ``Lead Market Maker'' or 
``LMM'' would ``mean a person that has been deemed qualified by the 
Exchange for the purpose of making transactions on the Exchange in 
accordance with Rule 6.82-O. Each LMM must be registered with the 
Exchange as a Market Maker. Any OTP Holder or OTP Firm registered as a 
Market Maker with the Exchange is eligible to be qualified as an LMM.'' 
This proposed definition is based on the Rule 6.1A-O(a)(5) definition 
of Lead Market Maker without any differences.
     Marketable: The Exchange proposes to amend the Rule 1.1 
definition of ``Marketable'' to extend it to address options traded on 
the Exchange. The current description of the term ``Marketable'' for 
purposes of Market Orders is the same in both Rules 1.1 and 6.1A-
O(a)(7). With respect to Limit Orders, in Rule 1.1, the term 
``Marketable'' currently means an order that can be immediately 
executed or routed. The current Rule 6.1A-O(a)(7) definition of the 
term ``Marketable'' for Limit Orders means when the price of the order 
matches or crosses the NBBO on the other side of the market. The 
current Rule 1.1 definition relating to Limit Orders means 
substantively the same thing as the Rule 6.1A-O(a)(7) description for 
Limit Orders, and the Exchange proposes using the existing Rule 1.1 
definition of the term ``Marketable'' for both cash equity and options 
trading of Limit Orders. The Exchange also proposes a non-substantive 
amendment to add a comma after the phrase, ``the term ``Marketable'' 
means'' and before ``for a Limit Order.''
     Market Maker: The Exchange proposes to amend the Rule 1.1 
definition of ``Market Maker'' to add how that term would be used for 
options trading. As proposed, the new text would provide that for 
options traded on the Exchange, the term ``Market Maker'' would refer 
``to an OTP Holder or OTP Firm that acts as a Market Maker pursuant to 
Rule 6.32-O.'' This proposed definition is based on the Rule 6.1A-
O(a)(8) definition of Market Maker without any differences. The 
Exchange also proposes to include in the definition of Market Maker 
that for purposes of the NYSE Arca rules, the term Market Maker 
includes Lead Market Makers, unless the context otherwise indicates. 
This proposed text is based on Rule 6.1-O(c), References, without 
substantive differences. The Exchange believes this proposed change 
would streamline and clarify this definition.
     Market Maker Authorized Trader: The Exchange proposes to 
amend the Rule 1.1 definition of ``Market Maker Authorized Trader'' to 
add how that term would be used for options trading. As proposed, the 
new text would provide that for options traded on the Exchange, the 
term ``Market Maker Authorized Trader'' or ``MMAT'' would ``mean an 
authorized trader who performs market making activities pursuant to 
Rule 6-O on behalf of an OTP Firm or OTP Holder registered as a Market 
Maker.'' This proposed definition is based on the Rule 6.1A-O(a)(9) 
definition of Market Maker Authorized Trader without any differences.
     Market Participant Identifier (``MPID''): The Exchange 
proposes to add a new definition to Rule 1.1 for ``Market Participant 
Identifier (`MPID').'' This term is currently used in Rules 7.19-E and 
7.31-E(i)(2). Because this term would also be used for options trading, 
the Exchange believes that defining this term in Rule 1.1 would promote 
clarity and transparency. The proposed definition would provide that 
``Market Participant Identifier'' or ``MPID'' refers to the 
identification number(s) assigned to the orders and quotes of a single 
ETP Holder, OTP Holder, or OTP Firm for the execution and clearing of 
trades on the Exchange by that permit holder. The definition would 
further provide that an ETP Holder, OTP Holder, or OTP Firm may obtain 
multiple MPIDs and each such MPID may be associated with one or more 
sub-identifiers of that MPID.
     Minimum Price Variation or MPV: The Exchange proposes to 
amend Rule 1.1 to add the definition of ``Minimum Price Variation'' or 
``MPV'' for both cash equity securities and options that are traded on 
the Exchange. The Exchange proposes that the term ``Minimum Price 
Variation'' or ``MPV'' means the minimum price variations established 
by the Exchange. The Exchange further proposes that the MPV for quoting 
cash equity securities traded on the Exchange are set forth in Rule 
7.6-E. The Exchange further proposes that the MPV for quoting and 
trading options traded on the Exchange are set forth in Rule 6.72-O(a). 
The proposed definition as it relates to options trading is based on 
the Rule 6.1A-O(a)(10) definition of MPV.
     NBBO: The Exchange proposes to amend the Rule 1.1 
definition of ``NBBO, Best Protected Bid, Best Protected Offer, 
Protected Best Bid and Offer (PBBO)'' to add how the term NBBO would be 
used for options trading. The Exchange proposes that: ``[w]ith respect 
to options traded on the Exchange, the term ``NBBO'' means the national 
best bid or offer. The terms ``NBB'' means the national best bid and 
``NBO'' means the national best offer. This proposed definition is 
based on the Rule 6.1A-O(a)(11)(a) definition of NBBO without any 
differences. In addition, unless otherwise specified, for options 
trading, the Exchange may adjust its calculation of the NBBO based on 
information about orders it sends to Away Markets, execution reports 
received from those Away Markets, and certain orders received by the 
Exchange. This proposed text reflects how the Exchange currently 
calculates the NBBO for options trading and is based on how the PBBO is 
calculated on the Exchange's cash equity market, as described in Rule 
7.37-E(d)(2).\14\ The Exchange proposes that it would adjust its 
calculation of the NBBO for options traded on the Exchange in the same 
manner that the Exchange calculates the PBBO for cash equity securities 
traded on the Exchange. The Exchange further notes that there are 
limited circumstances when the Exchange would not adjust its 
calculation of the

[[Page 36444]]

NBBO, and would determine the NBBO for options in the same way that the 
Exchange determines the NBBO for cash equity securities traded on the 
Exchange. As described in detail below, the Exchange will specify in 
its rules when it would be not be using an adjusted NBBO for purposes 
of a specific rule.
    The Exchange further proposes that the term ``Away Market NBBO'' 
would refer to a calculation of the NBBO that excludes the Exchange's 
BBO.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 91564 (April 14, 
2021), 86 FR 20541 (April 20, 2021) (SR-NYSEArca-2021-21) (Notice of 
filing and immediate effectiveness of proposed rule change to 
specify when the Exchange may adjust its calculation of the PBBO).
---------------------------------------------------------------------------

     NYSE Arca Book: The Exchange proposes to amend the Rule 
1.1 definition of ``NYSE Arca Book'' to specify that this term is 
applicable only for cash equity securities traded on the Exchange. As 
noted above, the Exchange uses the term ``Consolidated Book'' for 
options traded on the Exchange.
     NYSE Arca Marketplace: The Exchange proposes to amend the 
Rule 1.1 definition of ``NYSE Arca Marketplace'' to specify that this 
term is applicable only for cash equity securities traded on the 
Exchange.
     Order Flow Provider or OFP: The Exchange proposes to add 
the definition of ``Order Flow Provider or OFP'' to Rule 1.1 to mean 
``any OTP Holder that submits, as agent, orders to the Exchange.'' This 
proposed definition is based on the Rule 6.1A-O(a)(21) definition of 
``Order Flow Provider'' without any differences.
     Trading Center: The Exchange proposes to amend the Rule 
1.1 definition of ``Trading Center'' to add how this term would be used 
for options trading. As proposed: ``[w]ith respect to options traded on 
the Exchange, for purposes of Rule 6-O, the term ``Trading Center'' 
means a national securities exchange that has qualified for 
participation in the Options Clearing Corporation pursuant to the 
provisions of the rules of the Options Clearing Corporation.'' This 
proposed definition is based on the Rule 6.1A-O(a)(6) definition of 
``Market Center'' with a non-substantive difference to use the term 
``Trading Center'' instead of ``Market Center.''
     User: The Exchange proposes to amend the Rule 1.1 
definition of ``User'' to add how this term would be used for options 
trading. As proposed: ``[w]ith respect to options traded on the 
Exchange, the term `User' shall mean any OTP Holder or OTP Firm who is 
authorized to obtain access to the Exchange pursuant to Rule 6.2A-O.'' 
This proposed definition is based on the Rule 6.1A-O(a)(19) definition 
of User with non-substantive differences to use Pillar terminology.
     User Agreement: The Exchange proposes a non-substantive 
amendment to the Rule 1.1 definition of ``User Agreement'' to replace 
the term ``NYSE Arca, L.L.C'' with the term the ``Exchange.''
    In addition to proposed amendments to Rule 1.1, the Exchange 
proposes to amend Rule 6.96-O to add the definition of ``Routing 
Broker,'' which is currently defined in Rule 6.1A-O(a)(15). For options 
trading on Pillar, the Exchange proposes to define the term in Rule 
6.96-O (Operation of a Routing Broker) to mean ``the broker-dealer 
affiliate of NYSE Arca, Inc. and any other non-affiliate that provides 
services for routing orders submitted to the Exchange to other Trading 
Facilities for execution whenever such routing is required by NYSE Arca 
Rules and federal securities laws.'' \15\ The proposed rule text is 
based on the current definition in Rule 6.1A-O(a)(15), with non-
substantive amendments to use Pillar terminology.
---------------------------------------------------------------------------

    \15\ The Exchange also proposes non-substantive amendments to 
Rule 6.96-O to renumber current paragraphs (a), (b), and (c), as 
paragraphs (b), (c), and (d).
---------------------------------------------------------------------------

    In connection with the proposed amendments to Rule 1.1, the 
Exchange proposes to add the following preamble to Rule 6.1A-O: ``This 
Rule will not be applicable to trading on Pillar.'' This proposed 
preamble is designed to promote clarity and transparency in Exchange 
rules that Rule 6.1A-O would not be applicable to trading on Pillar.
Proposed Rule 6.1P-O: Applicability
    Current Rule 6.1-O sets forth the applicability, definitions, and 
references in connection with options trading. As noted above, the 
definitions in Rule 6.1-O(b) and reference to LMMs being included in 
the definition of Market Maker will be copied to proposed Rule 1.1 for 
purposes of trading on Pillar.
    The Exchange proposes new Rule 6.1P-O to include only those 
portions of Rule 6.1-O relating to applicability of Exchange Rules that 
would continue to be applicable after the transition to Pillar. 
Proposed Rule 6.1P-O(a) would be based on current Rule 6.1-O(a) with 
differences that would streamline the proposed rule and reduce 
duplication of terms defined in Rule 1.1. Proposed Rule 6.1P-O(b) would 
be based in part on Rule 6.1-O(e) regarding the ``Applicability of 
Other Exchange Rules,'' with changes to eliminate obsolete and 
duplicative text and to clarify the proposed rule to provide that 
unless stated otherwise, Exchange Rules would be applicable to 
transactions on the Exchange in option contracts.
    In connection with proposed Rule 6.1P-O, the Exchange proposes to 
add the following preamble to Rule 6.1-O: ``This Rule will not be 
applicable to trading on Pillar.'' This proposed preamble is designed 
to promote clarity and transparency in Exchange rules that Rule 6.1-O 
would not be applicable to trading on Pillar.
Proposed Rule 6.76P-O: Order Ranking and Display
    Rule 6.76-O governs order ranking and display for the current 
Exchange options trading system. Proposed Rule 6.76P-O would address 
order ranking and display for options trading under Pillar.
    With the transition to Pillar, the Exchange does not propose any 
substantive differences to how orders would be ranked and displayed on 
the Exchange. However, the Exchange proposes to eliminate the 
terminology relating to the ``Display Order Process'' and ``Working 
Order Process'' and instead use Pillar terminology based on Rule 7.36-
E, which governs order ranking and display on the Exchange's cash 
equity market. The Exchange proposes a difference between proposed 
Pillar options rules and the existing cash equity Pillar rules to 
reflect that, in addition to entering orders, Market Makers enter 
quotes on the options trading platform. Accordingly, when the cash 
equity rules refer to ``orders,'' the proposed options Pillar rules 
would refer to both ``orders and quotes.''
    As discussed in detail below, the Exchange believes that the 
proposed new rule text provides transparency with respect to how the 
Exchange's price-time priority model would operate through the use of 
new terminology applicable to all orders and quotes on the Pillar 
trading platform.
    Proposed Rule 6.76P-O(a) would set forth definitions for purposes 
of all of Rule 6-O Options Trading on the Pillar trading platform, 
including proposed Rule 6.76AP-O (Order Execution and Routing), 
described below. The proposed definitions are based on Rule 7.36-E(a) 
definitions for purposes of Rule 7-E cash equity trading, with 
differences, as noted above, to reference ``orders and quotes'' 
throughout proposed Rule 6.76P-O. The Exchange believes that these 
proposed definitions would provide transparency regarding how the 
Exchange would operate its options platform on Pillar, and serve as the 
foundation for how orders and modifiers would be described for options 
trading on Pillar, as discussed in more detail below.
     Proposed Rule 6.76P-O(a)(1) would define the term 
``display price'' to mean the price at which an order or quote ranked 
Priority 2--Display Orders or

[[Page 36445]]

Market Order is displayed, which may be different from the limit price 
or working price of the order. This proposed definition is based on 
Rule 7.36-E(a)(1). The Exchange proposes a non-substantive difference 
to refer to ``order or quote ranked Priority 2--Display Orders,'' 
versus referring to ``Limit Order,'' as set forth in Rule 7.36-E(a)(1). 
The term ``Priority 2--Display Orders'' is described in more detail 
below. The Exchange also proposes a second difference compared to the 
Exchange's cash equity rules to include Market Orders as interest that 
may have a display price (for example, as described below and 
consistent with current functionality, a Market Order could be 
displayed at its Trading Collar).
     Proposed Rule 6.76P-O(a)(2) would define the term ``limit 
price'' to mean the highest (lowest) specified price at which a Limit 
Order or quote to buy (sell) is eligible to trade. The limit price is 
designated by the User. As noted in the proposed definitions of display 
price and working price, the limit price designated by the User may 
differ from the price at which the order would be displayed or eligible 
to trade. This proposed definition is based on Rule 7.36-E(a)(2) 
without any substantive differences. The Exchange proposes one non-
substantive difference to refer to the specified price of a ``Limit 
Order or quote,'' versus referring to ``Limit Order,'' as set forth in 
Rule 7.36-E(a)(2).
     Proposed Rule 6.76P-O(a)(3) would define the term 
``working price'' to mean the price at which an order or quote is 
eligible to trade at any given time, which may be different from the 
limit price or display price of an order. This proposed definition is 
based on Rule 7.36-E(a)(3) without any substantive differences. The 
Exchange proposes one non-substantive difference to refer to ``order or 
quote'' for purposes of determining ranking priority. The Exchange 
believes that the term ``working price'' would provide clarity 
regarding the price at which an order may be executed at any given 
time. Specifically, the Exchange believes that use of the term 
``working'' denotes that this is a price that is subject to change, 
depending on the circumstances. The Exchange will be using this term in 
connection with orders and modifiers, as described in more detail 
below.
     Proposed Rule 6.76P-O(a)(4) would define the term 
``working time'' to mean the effective time sequence assigned to an 
order or quote for purposes of determining its priority ranking. The 
Exchange proposes to use the term ``working time'' in its rules for 
trading on the Pillar trading platform instead of terms such as ``time 
sequence'' or ``time priority,'' which are used in rules governing 
trading on the Exchange's current system. The Exchange believes that 
use of the term ``working'' denotes that this is a time assigned to an 
order for purposes of ranking and is subject to change, depending on 
circumstances. This proposed definition is based on Rule 7.36-E(a)(4) 
without any substantive differences. The Exchange proposes one non-
substantive difference to refer to an ``order or quote,'' versus 
referring solely to ``an order,'' as set forth in Rule 7.36-E(a)(4).
     Proposed Rule 6.76P-O(a)(5) would define an ``Aggressing 
Order'' or ``Aggressing Quote'' to mean a buy (sell) order or quote 
that is or becomes marketable against sell (buy) interest on the 
Consolidated Book. The proposed terms would therefore refer to orders 
or quotes that are marketable against other orders or quotes on the 
Consolidated Book, such as incoming orders or quotes as well as orders 
that have returned unexecuted after routing. These terms would also be 
applicable to resting orders or quotes that become marketable due to 
one or more events. For the most part, resting orders or quotes will 
have already traded with contra-side interest against which they are 
marketable. To maximize the potential for orders or quotes to trade, 
the Exchange continually evaluates whether resting interest may become 
marketable. Events that could trigger a resting order to become 
marketable include updates to the working price of such order or quote, 
updates to the NBBO, changes to other interest resting on the 
Consolidated Book, or processing of inbound messages. To address such 
circumstances, the Exchange proposes to include in proposed Rule 6.76P-
O(a)(5) that a resting order or quote may become an Aggressing Order or 
Aggressing Quote if its working price changes, if the NBBO is updated, 
because of changes to other orders or quotes on the Consolidated Book, 
or when processing inbound messages.
    The proposed definition of an ``Aggressing Order'' is based on Rule 
7.36-E(a)(5) without any substantive differences. The proposed rule 
includes non-substantive differences to account for options trading, 
such as including the defined term ``Aggressing Quote''; referring to 
an ``order or quote'' versus ``an order''; referring to the 
Consolidated Book rather than NYSE Arca Book; and referring to the NBBO 
instead of the PBBO, which is not a term used in options trading. The 
Exchange believes that these proposed definitions would promote 
transparency in Exchange rules by providing detail regarding 
circumstances when a resting order or quote may become marketable, and 
thus would be an Aggressing Order or Aggressing Quote.
    Proposed Rule 6.76P-O(b) would govern the display of non-marketable 
Limit Orders and quotes. The proposed Pillar functionality would 
operate as described in current preamble of Rule 6.76-O and the Display 
Order Process set forth in Rule 6.76-O(a)(1), without any substantive 
differences, but will not use the terms ``Display Order Process,'' 
``Working Order Process,'' or ``OX,'' because the Exchange is not 
proposing to use that terminology in Pillar. Throughout proposed 
paragraph (b) of Rule 6.76P-O, the Exchange proposes to use the term 
``will'' in instead of ``shall.'' As proposed, the Exchange would 
display ``all non-marketable Limit Orders or quotes ranked Priority 2--
Display Orders unless the order or modifier instruction specifies that 
all or a portion of the order is not to be displayed,'' which rule text 
is substantially identical to the first sentence of the preamble to 
current Rule 6.76-O except that Pillar ranking terminology would be 
used.
    Rule 6.76P-O(b)(1), which is substantially identical to current 
Rule 6.76-O(b), would provide that except as otherwise permitted in 
proposed new Rule 6.76AP-O (discussed below), all non-marketable 
displayed interest would be displayed on an anonymous basis.
    Proposed Rule 6.76P-O(b)(2) is substantially identical to the 
second sentence of the preamble to current Rule 6.76-O, and would 
provide that the Exchange would disseminate current consolidated 
quotations/last sale information, and such other market information as 
may be made available from time to time pursuant to agreement between 
the Exchange and other Market Centers, consistent with the OPRA Plan.
    Finally, proposed Rule 6.76P-O(b)(3) would provide that if ``an 
Away Market locks or crosses the Exchange BBO, the Exchange will not 
change the display price of any Limit Orders or quotes ranked Priority 
2--Display Orders and any such orders will be eligible to be displayed 
as the Exchange's BBO.'' This proposed concept, which is based on Rule 
7.36-E(b)(4) (but omits the cash equity-related information regarding 
regulatory halts), ensures that resting displayed interest that did not 
cause a locked or crossed market condition can stand their ground and 
maintain priority at the price at which they were originally displayed. 
This provision is consistent with the treatment of displayed orders on 
the Exchange's cash

[[Page 36446]]

equity market as described in Rule 7.36-E(b)(4).
    Proposed Rule 6.76P-O(c) would describe the Exchange's general 
process for ranking orders and quotes and would be comparable to Rule 
6.76-O(a), without any substantive differences. As proposed, Rule 
6.76P-O(c) would provide that all non-marketable orders and quotes 
would be ranked and maintained in the Consolidated Book according to 
price-time priority in the following manner: (1) Price; (2) priority 
category; (3) time; and (4) ranking restrictions applicable to an 
order/quote or modifier condition. Accordingly, orders and quotes would 
be first ranked by price. Next, at each price level, orders and quotes 
would be assigned a priority category. Orders and quotes in each 
priority category would be required to be exhausted before moving to 
the next priority category. Within each priority category, orders and 
quotes would be ranked by time. These general requirements for ranking 
are applicable to all orders and quotes, unless an order or quote or 
modifier has a specified exception to this ranking methodology, as 
described in more detail below. The Exchange is proposing this ranking 
description instead of using the concepts of a Display Order Process 
and Working Order Process in Rule 6.76-O. However, substantively there 
would be no difference in how the Exchange would rank orders and quotes 
on the Pillar trading platform from how it ranks orders and quotes in 
the current trading system. For example, a non-displayed order would 
always be ranked after a displayed order at the same price, even if the 
non-displayed order has an earlier working time. In addition, this 
proposed rule is based on Rule 7.36-E(c).
    Proposed Rule 6.76P-O(d) would describe how orders and quotes would 
be ranked based on price. Specifically, as proposed, all orders and 
quotes would be ranked based on the working price of an order or quote. 
Orders and quotes to buy would be ranked from highest working price to 
lowest working price and orders and quotes to sell would be ranked from 
lowest working price to highest working price. The rule would further 
provide that if the working price of an order or quote changes, the 
price priority of an order or quote would change. This price priority 
is current functionality, but the new rule would use Pillar terminology 
based on Rule 7.36-E(d).
    Proposed Rule 6.76P-O(e) would describe the proposed priority 
categories for ranking purposes. As proposed, at each price, all orders 
and quotes would be assigned a priority category. If, at a price, there 
are no orders or quotes in a priority category, the next category would 
have first priority. The Exchange does not propose to include in Rule 
6.76P-O, which sets forth the general rule regarding ranking, specifics 
about how one or more order or quote types may be ranked and displayed. 
Instead, as described in more detail below, the Exchange will address 
separately in new Rule 6.62P-O governing orders and modifiers which 
priority category correlates to different order types and modifiers. 
Accordingly, details regarding which proposed priority categories would 
be assigned to the display and reserve portions of Reserve Orders, 
which is currently addressed in Rule 6.76-O(a)(1)(B) and (a)(2)(A), 
will be addressed in proposed Rule 6.62P-O and therefore would not be 
included in proposed Rule 6.76P-O.
    The proposed changes are also based on the priority categories for 
cash equity trading as set forth in Rule 7.36-E(e)(1)-(3), except for 
the options-specific reference to ``orders and quotes'' rather than 
just orders as relates to interest ranked Priority 2 and 3.
    The proposed priority categories would be:
     Proposed Rule 6.76P-O(e)(1) would specify ``Priority 1--
Market Orders,'' which provides that unexecuted Market Orders would 
have priority over all other same-side orders with the same working 
price. As described in greater detail below, a Market Order subject to 
a Trading Collar would be displayed on the Consolidated Book. In such 
circumstances, the displayed Market Order would have priority over all 
other resting orders at that price.
     Proposed Rule 6.76P-O(e)(2) would specify ``Priority 2--
Display Orders.'' This proposed priority category would replace the 
``Display Order Process.'' As proposed, non-marketable Limit Orders or 
quotes with a displayed working price would have second priority. For 
an order or quote that has a display price that differs from the 
working price of the order or quote, the order or quote would be ranked 
Priority 3--Non-Display Orders at the working price. This priority 
category is based on how Priority 2--Display Orders function on the 
Exchange's cash equity market, as described in Rule 7.36-E(e)(2).
     Proposed Rule 6.76P-O(e)(3) would specify ``Priority 3--
Non-Display Orders.'' This priority category would be used in Pillar 
rules instead of reference to the ``Working Order Process.'' As 
proposed, non-marketable Limit Orders or quotes for which the working 
price is not displayed, including the reserve interest of Reserve 
Orders, would have third priority. This priority category is based on 
how Priority 3--Non-Display Orders function on the Exchange's cash 
equity market, as described in Rule 7.36-E(e)(3).
    Proposed Rule 6.76P-O(f) would set forth that at each price level 
within each priority category, orders and quotes would be ranked based 
on time priority. The proposed changes are based on Pillar terminology 
in Rule 7.36-E(f)(1) and (3), except for the non-substantive reference 
to ``orders and quotes'' rather than just orders.
     Proposed Rule 6.76P-O(f)(1) would provide that an order or 
quote is assigned a working time when it is first added to the 
Consolidated Book based on the time such order or quote is received by 
the Exchange. This proposed process of assigning a working time to 
orders is current functionality and is substantively the same as 
current references to the ``time of original order entry'' found in 
several places in Rule 6.76-O. This proposed rule uses Pillar 
terminology based on Rule 7.36-E(f)(1) without any substantive 
differences. To provide transparency in Exchange rules, the Exchange 
further proposes to include in proposed Rule 6.76P-O(f) how the working 
time would be determined for orders that are routed. As proposed:
    [cir] Proposed Rule 6.76P-O(f)(1)(A) would specify that an order 
that is fully routed to an Away Market on arrival, per proposed Rule 
6.76AP-O(b)(1), would not be assigned a working time unless and until 
any unexecuted portion of the order returns to the Consolidated Book. 
The Exchange notes that this is the current process for assigning a 
working time to an order and uses Pillar terminology based on Rule 
7.36-E(f)(1)(A) without any substantive differences.
    [cir] Proposed Rule 6.76P-O(f)(1)(B) would specify that for an 
order that, on arrival, is partially routed to an Away Market, the 
portion that is not routed would be assigned a working time. If any 
unexecuted portion of the order returns to the Consolidated Book and 
joins any remaining resting portion of the original order, the returned 
portion of the order would be assigned the same working time as the 
resting portion of the order. If the resting portion of the original 
order has already executed and any unexecuted portion of the order 
returns to the Consolidated Book, the returned portion of the order 
would be assigned a new working time. This process for assigning a 
working time to partially routed orders is the same as currently used 
by the Exchange and uses Pillar terminology based on Rule 7.36-
E(f)(1)(B) without any substantive differences.

[[Page 36447]]

     Proposed Rule 6.76P-O(f)(2) would provide that an order or 
quote would be assigned a new working time if: (A) The display price of 
an order or quote changes, even if the working price does not change, 
or (B) the working price of an order or quote changes, unless the 
working price is adjusted to be the same as the display price of an 
order or quote. This proposed text uses Pillar terminology based in 
part on Rule 7.36-E(f)(2), which provides that an order is assigned a 
new working time any time the working price of an order changes. The 
Exchange is proposing to provide greater specificity when the working 
time of an order would change as compared to current Rule 7.36-E(f).
     Proposed Rule 6.76P-O(f)(3) would provide that an order or 
quote would be assigned a new working time if the size of an order or 
quote increases and that an order or quote retains its working time if 
the size of the order or quote is decreased. This process for assigning 
a new working time when the size of an order changes is the same as 
currently used by the Exchange and uses Pillar terminology based on 
Rule 7.36-E(f)(3) without any substantive differences.
    Proposed Rule 6.76P-O(g) would specify that the Exchange would 
apply ranking restrictions applicable to specified order or modifier 
instructions. These order and modifier instructions would be identified 
in proposed new Rule 6.62P-O, described below. Proposed Rule 6.76P-O(g) 
uses Pillar terminology based on Rule 7.36-E(g), without any 
substantive differences. Current Rule 6.76-O(a)(2)(C)-(E) discuss 
ranking of certain order types with contingencies, but the Exchange 
proposes that for Pillar, ranking details regarding orders with 
contingencies would be described in proposed Rule 6.62P-O.
    Finally, proposed Rule 6.76P-O(h) would be applicable to ``Orders 
Executed Manually'' and would contain the same text as set forth in 
Rule 6.76-O(d) without any substantive differences except for the non-
substantive change of capitalizing the defined term Trading Crowd (per 
proposed Rule 1.1), removing the superfluous clause ``in addition,'' 
and updating the cross-reference to reflect the new Pillar rule.\16\
---------------------------------------------------------------------------

    \16\ See proposed Rule 6.76P-O(h)(1) (removing ``in addition'') 
(B) (regarding ``Trading Crowd'') and (D) (updating the cross-
reference to new subparagraph (B) in connection with the Section 
11(a)(1)(G) of the Exchange Act and Rule 11a1-1(T) thereunder (``G 
exemption rule'')).
---------------------------------------------------------------------------

    In connection with proposed Rule 6.76P-O, the Exchange proposes to 
add the following preamble to Rule 6.76-O: ``This Rule will not be 
applicable to trading on Pillar.'' This proposed preamble is designed 
to promote clarity and transparency in Exchange rules that Rule 6.76-O 
would not be applicable to trading on Pillar.
Proposed Rule 6.76AP-O: Order Execution and Routing
    Current Rule 6.76A-O, titled ``Order Execution--OX,'' governs order 
execution and routing at the Exchange. The Exchange proposes that Rule 
6.76AP-O would set forth the order execution and routing rules for 
options trading on Pillar. The Exchange proposes that the title for new 
Rule 6.76AP-O would be ``Order Execution and Routing'' instead of 
``Order Execution--OX'' because the Exchange does not propose to use 
the term ``OX'' in connection with Pillar. The Exchange believes that 
because proposed Rule 6.76AP-O, like Rule 6.76A-O, would specify the 
Exchange's routing procedures, referencing to ``Routing'' in the rule's 
title would provide additional transparency in Exchange rules regarding 
what topics would be covered in new Rule 6.76AP-O. This proposed rule 
is based on Rule 7.37-E, which describes the order execution and 
routing rules for cash equity securities trading on the Pillar 
platform.
    Proposed Rule 6.76AP-O(a) and its subparagraphs would set forth the 
Exchange's order execution process and would cover the same subject as 
the preamble to Rule 6.76A-O. However, the proposed rule would use 
Pillar terminology of ``Aggressing Order'' and ``Aggressing Quote''--
rather than refer to an ``incoming marketable bid or offer.'' As 
proposed, an Aggressing Order or Aggressing Quote would be matched for 
execution against contra-side orders or quotes in the Consolidated Book 
according to the price-time priority ranking of the resting interest, 
subject to specified parameters.
    Proposed Rule 6.76AP-O(a)(1) would set forth the LMM Guarantee, 
which is substantively the same as the current LMM Guarantee, as 
described in Rule 6.76A-O(a)(1). The Exchange proposes a substantive 
difference because on Pillar, the Exchange would no longer support 
Directed Order Market Makers or Directed Orders. Accordingly, rule text 
relating to Directed Order Market Makers or Directed Orders will not be 
included in proposed Rule 6.76AP-O.\17\
---------------------------------------------------------------------------

    \17\ The Exchange proposes to add a preamble to Rule 6.88-O 
(Directed Orders) to provide that the Rule would not be applicable 
to trading on Pillar.
---------------------------------------------------------------------------

    Proposed Rule 6.76AP-O(a)(1) would provide that an LMM would be 
entitled to an allocation guarantee when the execution price is equal 
to the NBB (NBO) and there is no displayed Customer interest in time 
priority at the NBBO in the Consolidated Book. In such cases, the 
Aggressing Order or Aggressing Quote would be matched against the quote 
of the LMM for an amount equal to 40% of the Aggressing Order or 
Aggressing Quote, up to the size of the LMM's quote (the ``LMM 
Guarantee''). With respect to how the LMM Guarantee would function on 
Pillar, the Exchange does not propose any substantive differences from 
current Rule 6.76A-O(a)(1).
    Proposed Rule 6.76AP-O(a)(1)(A) proposes new functionality under 
Pillar and provides that if an LMM has more than one quote at a price, 
the LMM Guarantee would be applied among such quotes in time priority, 
provided there is no displayed Customer interest with time priority at 
each quote.
    Proposed Rule 6.76AP-O(a)(1)(B), which is substantively identical 
to current Rule 6.76A-O(a)(1)(B), would provide that if an LMM is 
entitled to an LMM Guarantee (pursuant to proposed paragraph (a)(1)) 
and the Aggressing Order or Aggressing Quote had an original size of 
five (5) contracts or fewer, then such order or quote would be matched 
against the quote of the LMM for an amount equal to 100%, up to the 
size of the LMM's quote. The Exchange also proposes to add Commentary 
.01 to the proposed rule (which is substantively identical to 
Commentary .02 of current Rule 6.76A-O) to make clear that on a 
quarterly basis, the Exchange would evaluate what percentage of the 
volume executed on the Exchange comprised of orders for five (5) 
contracts or fewer that was allocated to LMMs and would reduce the size 
of the orders included in this provision if such percentage is over 
40%.\18\
---------------------------------------------------------------------------

    \18\ See proposed Rule 6.76AP-O, Commentary .01, which will not 
include cross-reference that appears in the current rule Commentary 
.02 to Rule 6.76A-O.
---------------------------------------------------------------------------

    Proposed Rule 6.76AP-O(a)(1)(C) would specify that if the result of 
applying the LMM Guarantee is a fractional allocation of contracts, the 
LMM Guarantee would be rounded down to the nearest contract and if the 
result of applying the LMM Guarantee results in less than one contract, 
the LMM Guarantee would be equal to one contract. The Exchange believes 
that including this additional detail in the proposed rule would add 
transparency to Exchange rules.
    Finally, the Exchange proposes Rule 6.76AP-O(a)(1)(D), which would 
provide that after applying any LMM Guarantee, the Aggressing Order or

[[Page 36448]]

Aggressing Quote would be allocated pursuant to proposed paragraph (a) 
of this Rule, i.e., that such orders or quotes would be matched for 
execution against contra-side interest resting in the Consolidated Book 
according to price-time priority. This proposed text is substantively 
identical to Rule 6.76A-O(a)(1)(C) and uses Pillar terminology.
    Consistent with the Exchange's proposed approach to new Rule 6.76P-
O, proposed Rule 6.76AP-O would not include references to specific 
order types and instead would state the Exchange's general order 
execution methodology. Any exceptions to such general requirements 
would be set forth in connection with specific order or modifier 
definitions in proposed Rule 6.62P-O, described below.
    Proposed Rule 6.76AP-O(b) would set forth the Exchange's routing 
process and is intended to address the same subject as Rule 6.76A-O(c), 
which is currently referred to as ``Step 3'' in order processing, 
without any substantive differences.
    Proposed Rule 6.76AP-O(b) would provide that, absent an instruction 
not to route, the Exchange would route marketable orders to Away 
Market(s) after such orders are matched for execution with any contra-
side interest in the Consolidated Book in accordance with proposed 
paragraph (a) of this Rule regarding Order Execution. Proposed Rule 
6.76AP-O(b) also uses Pillar terminology based on current Rule 7.37-
E(b), which governs the Exchange's routing process on the Exchange's 
cash equity platform.
    The proposed rule would then set forth additional details regarding 
routing:
     Proposed Rule 6.76AP-O(b)(1) would provide that an order 
that cannot meet the pricing parameters of proposed Rule 6.76AP-O(a) 
may be routed to Away Market(s) before being matched for execution 
against contra-side interest in the Consolidated Book. The Exchange 
believes that this proposed rule text provides transparency that an 
order may be routed before being matched for execution, for example, to 
prevent locking or crossing or trading through the NBBO. This rule uses 
Pillar terminology based on Rule 7.37-E(b)(1), with no substantive 
differences.
     Proposed Rule 6.76AP-O(b)(2) would provide that an order 
with an instruction not to route would be processed as provided for in 
proposed Rule 6.62P-O. As described in greater detail below, the 
Exchange proposes to describe how orders and quotes with an instruction 
not to route would be processed in proposed Rule 6.62P-O(e).
     Proposed Rule 6.76AP-O(b)(3) would provide that any order 
or portion thereof that has been routed would not be eligible to trade 
on the Consolidated Book, unless all or a portion of the order returns 
unexecuted. This routing methodology is current functionality and 
covers that same subject as current Rule 6.76A-O(c)(2) with no 
substantive differences and is based in part on Pillar terminology used 
in Rule 7.37-E(b)(6). In contrast to Rule 6.76A-O(c)(2), however, the 
Exchange proposes that Rule 6.76AP-O(b)(3) would focus on the fact that 
once routed, an order would not be eligible to trade on the 
Consolidated Book, rather than stating the obvious that it would be 
subject to the routing destination's trading rules once routed. In 
addition, because, as discussed above, the working time assigned to 
orders that are routed is being proposed to be addressed in new Rule 
6.76P-O(f)(1)(A) and (B), the Exchange believes it would be unnecessary 
to restate this information in new Rule 6.76AP-O.
     Proposed Rule 6.76AP-O(b)(4) would provide that requests 
to cancel an order that has been routed in whole or part would not be 
processed unless and until all or a portion of the order returns 
unexecuted. This proposed rule is based on Pillar terminology used in 
Rule 7.37-E(b)(7)(A) without any substantive differences.
     Finally, proposed Rule 6.76AP-O(c) would provide that 
after trading with eligible contra-side interest on the Consolidated 
Book and/or returning unexecuted after routing to Away Market(s), any 
unexecuted non-marketable portion of an order would be ranked 
consistent with new Rule 6.76P-O. This rule represents current 
functionality and is based on Rule 6.76A-O generally and paragraph 
(c)(2)(C) as it pertains to orders that were routed away without any 
substantive differences. This proposed rule is also based on Pillar 
terminology used in Rule 7.37-E(c) without any substantive differences.
    The Exchange believes that the specific routing methodologies for 
an order type or modifier should be included with how the order type is 
defined, which will be in proposed Rule 6.62P-O. Accordingly, the 
Exchange does not believe it needs to specify in proposed Rule 6.76AP-O 
whether an order is eligible to route, and if so, whether there are any 
specific routing instructions applicable to the order and therefore 
will not be carrying over such specifics that are currently included in 
Rule 6.76A-O.
    In connection with proposed Rule 6.76AP-O, the Exchange proposes to 
add the following preamble to Rule 6.76A-O: ``This Rule will not be 
applicable to trading on Pillar.'' This proposed preamble is designed 
to promote clarity and transparency in Exchange rules that Rule 6.76A-O 
would not be applicable to trading on Pillar.
Proposed Rule 6.62P-O: Orders and Modifiers
    Current Rule 6.62-O (Certain Types of Orders Defined) defines the 
order types that are currently available for options trading both on 
the OX system and for open outcry trading on the Exchange. The Exchange 
proposes that new Rule 6.62P-O would set forth the order types and 
modifiers that would be available for options trading both on Pillar 
(i.e., electronic order entry) and in open outcry trading. The Exchange 
proposes to specify that Rule 6.62-O would not be applicable to trading 
on Pillar.
    Because certain order types and modifiers that would be available 
for options trading on Pillar are based on, or similar to, order types 
and modifiers available on the Exchange's cash equity market, the 
Exchange proposes to structure proposed Rule 6.62P-O based on Rule 
7.31-E and use similar terminology. The Exchange also proposes to title 
proposed Rule 6.62P-O as ``Orders and Modifiers,'' which is the title 
of Rule 7.31-E.
    Primary Order Types. Proposed Rule 6.62P-O(a) would specify the 
Exchange's primary order types, which would be Market Orders and Limit 
Orders, and is based on Rule 7.31-E(a), which sets forth the Exchange's 
cash equity primary order types. Similar to Rule 7.31-E(a), proposed 
Rule 6.62P-O(a) would also set forth the Exchange's proposed Limit 
Order Price Protection functionality and Trading Collars.
    Market Orders. Proposed Rule 6.62P-O(a)(1) would define a Market 
Order as an unpriced order message to buy or sell a stated number of 
option contracts at the best price obtainable, subject to the Trading 
Collar assigned to the order, and would further specify that unexecuted 
Market Orders may be designated Day or GTC, which represents current 
functionality,\19\ and

[[Page 36449]]

that unexecuted Market Orders would be ranked Priority 1--Market 
Orders. This proposed rule text uses Pillar terminology similar to Rule 
7.31-E(a)(1), but with differences to reflect options trading.
---------------------------------------------------------------------------

    \19\ The ability for a Market Order to be designated Day or GTC 
is based on current Rules 6.62-O(m) (describing a ``Day Order'') and 
6.62-O(n) (describing a ``Good-til-Cancelled Order'' or ``GTC 
Order'') and Commentary .01 to Rule 6.62-O, which requires all 
orders to be either ``day,'' ``immediate or cancel,'' or ``good `til 
cancelled.'' As described in more detail below, on Pillar, the time-
in-force designation, e.g., Day or GTC, would be a modifier that can 
be added to an order type and will not be described in the rules as 
a separate order type. Similar to Rule 7.31-E, the Exchange will 
specify which time-in-force designations are available for each 
order type.
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(a)(1) would further provide that for purposes 
of processing Market Orders, the Exchange would not use an adjusted 
NBBO.\20\ On the Exchange's cash equity market, the Exchange does not 
use an adjusted NBBO when processing Market Orders. The Exchange 
proposes to similarly not use an adjusted NBBO when processing Market 
Orders on its options market.
---------------------------------------------------------------------------

    \20\ See discussion supra, regarding the proposed Rule 1.1 
definition of ``NBBO.''
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(a)(1)(A) would provide that a Market Order 
that arrives during continuous trading would be rejected, or that was 
routed, returns unexecuted, and has no resting quantity to join would 
be cancelled if it fails the validations specified in proposed Rule 
6.62P-O(a)(1)(A)(i)--(iv). This proposed rule is based in part on Rule 
6.62-O(a), which specifies circumstances when a Market Order will be 
rejected during Core Trading Hours, with differences to use Pillar 
terminology and to modify the circumstances when a Market Order would 
be rejected. As proposed, a Market Order would be rejected (or 
cancelled if routed first) if:\21\
---------------------------------------------------------------------------

    \21\ The Exchange will also reject a Market Order if it is 
entered when the underlying NMS stock is either in a Limit State or 
a Straddle State, which is current functionality. See Rule 6.65A-
O(a)(1). The Exchange proposes a non-substantive amendment to Rule 
6.65A-O(a)(1) to add a cross reference to proposed Rule 6.62P-
O(a)(1). The Exchange also proposes to amend the second sentence of 
Rule 6.65A-O(a)(1) to remove references to trading collars, and 
instead specify that the Exchange would cancel any resting Market 
Orders if the underlying NMS stock enters a Limit State or a 
Straddle State and would notify OTP Holders of the reason for such 
cancellation. This proposed change would describe both how Market 
Orders function today on the OX system and how they would be 
processed on Pillar.
---------------------------------------------------------------------------

     There is no NBO (proposed Rule 6.62P-O(a)(1)(A)(i)).
     There is no NBB and the NBO is higher than $0.50 (for sell 
Market Orders only). The Exchange further proposes that if there is no 
NBB and the NBO is $0.50 or below, a Market Order to sell would not be 
rejected and would have a working price and display price one MPV above 
zero and would not be subject to a Trading Collar (proposed Rule 6.62P-
O(a)(1)(A)(ii)). The proposed rule would further provide that a Market 
Order to sell would be cancelled if it was assigned a Trading Collar, 
routed, and when it returns unexecuted, it has no resting portion to 
join and there is no NBB, regardless of the price of the NBO. 
Accordingly, in this scenario, if there were no NBB and an NBO that is 
$0.50 or below, the returned, unexecuted Market Order would be 
cancelled rather than displayed at one MPV above zero.
     There are no contra-side Market Maker quotes on the 
Exchange or contra-side Away Market NBBO, provided that a Market Order 
to sell would be accepted as provided for in proposed Rule 6.62P-
O(a)(1)(A)(ii) (proposed Rule 6.62P-O(a)(1)(A)(iii)).
     The NBBO is not locked or crossed and the spread is equal 
to or greater than a minimum amount based on the midpoint of the NBBO 
(proposed Rule 6.62P-O(a)(1)(A)(iv)). The proposed ``wide-spread'' 
parameter is based in part on Rule 6.87-O(b)(3) with two differences. 
First, the first bucket would include $2.00, instead of capping at 
$1.99, and second, the wide-spread calculation would be based off of 
the midpoint of the NBBO, rather than off of the bid price, as follows:

------------------------------------------------------------------------
                                                              Spread
                The midpoint of the NBBO                     parameter
------------------------------------------------------------------------
$0.00 to $2.00..........................................           $0.75
Above $2.00 to and including $5.00......................            1.25
Above $5.00 to and including $10.00.....................            1.50
Above $10.00 to and including $20.00....................            2.50
Above $20.00 to and including $50.00....................            3.00
Above $50.00 to and including $100.00...................            4.50
Above $100.00...........................................            6.00
------------------------------------------------------------------------

    Proposed Rule 6.62P-O(a)(1)(B) would provide that an Aggressing 
Market Order to buy (sell) would trade with all orders or quotes to 
sell (buy) on the Consolidated Book priced at or below (above) the 
Trading Collar before routing to Away Market(s) at each price. Proposed 
Rule 6.62P-O(a)(1)(B) would further provide that after trading or 
routing, or both, a Market Order would be displayed at the Trading 
Collar, subject to proposed Rule 6.62P-O(a)(1)(C), which is consistent 
with current functionality that Market Orders would be displayed at a 
trading collar, per Rule 6.60-O(a)(5).
    Proposed Rule 6.62P-O(a)(1)(C) would provide that a Market Order 
would be cancelled before being displayed if there are no remaining 
contra-side Market Maker quotes on the Exchange or contra-side Away 
Market NBBO. Proposed Rule 6.62P-O(a)(1)(D) would provide that a Market 
Order would be cancelled after being displayed at its Trading Collar if 
there ceases to be a contra-side NBBO. These proposed cancellation 
events are based on a subset of the scenarios of when a Market Order 
would have been rejected on arrival, and the Exchange believes it is 
appropriate to cancel a Market Order either before it is displayed, or 
after it is displayed, in these circumstances in order to prevent the 
potential for such order to be displayed when there is no real market 
in a series.
    Finally, proposed Rule 6.62P-O(a)(1)(E) would provide that a 
resting, displayed Market Order that is locked or crossed by an Away 
Market would be routed to that Away Market. Because Market Orders are 
intended to obtain the best price obtainable, the Exchange proposes to 
route displayed Market Orders if they are locked or crossed by an Away 
Market.\22\
---------------------------------------------------------------------------

    \22\ As described above for proposed Rule 6.76P-O(b)(3), 
displayed interest other than displayed Market Orders would stand 
their ground if locked or crossed by an Away Market. The Exchange 
would provide an option for Limit Orders to instead be routed, see 
discussion infra, regarding proposed Rule 6.62P-O(i)(1) and the 
proposed Proactive if Locked/Crossed Modifier.
---------------------------------------------------------------------------

    Limit Orders. Proposed Rule 6.62P-O(a)(2) would define a Limit 
Order as an order message to buy or sell a stated number of option 
contracts at a specified price or better, subject to Limit Order Price 
Protection and the Trading Collar assigned to the order, and that a 
Limit Order may be designated Day, IOC, or GTC. In addition, unless 
otherwise specified, the working price and the display price of a Limit 
Order would be equal to the limit price of the order, it is eligible to 
be routed, and it would be ranked Priority 2--Display Orders. This 
proposed rule text uses Pillar terminology that is based in part on 
Rule 7.31-E(a)(2). The ability for a Limit Order to be designated Day, 
IOC, or GTC is based on current Rules 6.62-O(m) and 6.62-O(n). In 
addition, marketable limit orders are currently subject to trading 
collars.
    Proposed Rule 6.62P-O(a)(2)(A) would provide that a marketable 
Limit Order to buy (sell) received by the Exchange would trade with all 
orders and quotes to sell (buy) on the Consolidated Book priced at or 
below (above) the NBO (NBB) before routing to an Away Market NBO (NBB) 
and may route to prices higher (lower) than the NBO (NBB) only after 
trading with orders and quotes to sell (buy) on the Consolidated Book 
at each price point, and once no longer marketable, the Limit Order 
would be ranked and displayed on the Consolidated Book. This proposed 
rule text is based on Rule 7.31-E(a)(2)(A), with non-substantive 
differences to use terminology specific to options trading.
    Limit Order Price Protection. The Exchange proposes to describe its

[[Page 36450]]

proposed Limit Order Price Protection functionality in proposed Rule 
6.62P-O(a)(3). On the OX system, the concept of ``Limit Order Price 
Protection'' for orders is set forth in Rule 6.60-O(b) and is called 
the ``Limit Order Filter.'' For quotes, price protection filters are 
described in Rule 6.61-O. The proposed ``Limit Order Price Protection'' 
on Pillar would be applicable to both Limit Orders and quotes and would 
work similarly to how the current price protection mechanisms function 
on the OX system in that a Limit Order or quote would be rejected if it 
is priced a specified percentage away from the contra-side NBB or NBO. 
However, on Pillar, the Exchange proposes to use new thresholds and 
reference prices that would be applicable to both orders and quotes.
    Proposed Rule 6.62P-O(a)(3)(A) would provide that each trading day, 
a Limit Order or quote to buy (sell) would be rejected or cancelled (if 
resting) if it is priced at a ``Specified Threshold,'' described below, 
above (below) the Reference Price, rounded down to the nearest price 
within the MPV for the Series (``Limit Order Price Protection''). In 
other words, a Limit Order designated GTC would be re-evaluated for 
Limit Order Price Protection on each day that it is eligible to trade 
and would be cancelled if the limit price is through the Specified 
Threshold. In addition, the rounding feature is based on how Limit 
Order Price Protection is calculated on the Exchange's cash equity 
market if it is not within the MPV for the security, as described in 
the last sentence of Rule 7.31-E(a)(2)(B). The proposed rule would 
further provide that Cross Orders and Limit-on-Open (``LOO'') Orders 
(described below) would not be subject to Limit Order Price Protection 
and that Limit Order Price Protection would not be applied to a Limit 
Order or quote if there is no Reference Price.
     Proposed Rule 6.62P-O(a)(3)(A)(i) would provide that a 
Limit Order or quote that arrives when a series is open would be 
evaluated for Limit Order Price Protection on arrival.
     Proposed Rule 6.62P-O(a)(3)(A)(ii) would provide that a 
Limit Order or quote received during a pre-open state would be 
evaluated for Limit Order Price Protection after an Auction 
concludes.\23\
---------------------------------------------------------------------------

    \23\ See discussion infra, regarding proposed Rule 6.64P-O(a) 
and proposed definitions for the terms ``Auction,'' ``Auction 
Price,'' ``Auction Collar,'' ``pre-open state,'' and ``Trading Halt 
Auction.''
---------------------------------------------------------------------------

     Proposed Rule 6.62P-O(a)(3)(A)(iii) would provide that a 
Limit Order or quote that was resting on the Consolidated Book before a 
trading halt would be evaluated for Limit Order Price Protection again 
after the Trading Halt Auction concludes.
    Proposed Rule 6.62P-O(a)(3)(B) would specify that the Reference 
Price for calculating Limit Order Price Protection for an order or 
quote to buy (sell) would be the NBO (NBB), provided that, immediately 
following an Auction, the Reference Price would be the Auction Price, 
or if none, the upper (lower) Auction Collar price, or, if none, the 
NBO (NBB). The Exchange believes that adjusting the Reference Price for 
Limit Order Price Protection immediately following an Auction would 
ensure that the most up-to-date price would be used to assess whether 
to cancel a Limit Order that was received during a pre-open state or 
would be reevaluated after a Trading Halt Auction. The Exchange further 
proposes that for purposes of calculating Limit Order Price Protection, 
the Exchange would not use an adjusted NBBO, which is based on how 
Limit Order Price Protection currently functions on the Exchange's cash 
equity market, as described in Rule 7.31-E(a)(2)(B).\24\
---------------------------------------------------------------------------

    \24\ References to the NBBO, NBB, and NBO in Rule 7.31-E refer 
to using a determination of the national best bid and offer that has 
not been adjusted.
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(a)(3)(C) would specify the Specified 
Threshold and would provide that unless determined otherwise by the 
Exchange and announced to OTP Holders and OTP Firms by Trader Update, 
the Specified Threshold applicable to Limit Order Price Protection 
would be:

------------------------------------------------------------------------
                                                             Specified
                     Reference price                         threshold
------------------------------------------------------------------------
$0.00 to $1.00..........................................           $0.30
$1.01 to $10.00.........................................             50%
$10.01 to $20.00........................................             40%
$20.01 to $50.00........................................             30%
$50.01 to $100.00.......................................             20%
$100.01 and higher......................................             10%
------------------------------------------------------------------------

    The Exchange believes that the proposed thresholds are more 
granular than those currently specified in Rules 6.60-O(b) (for orders) 
and 6.61-O(a)(1)(A) and (B) (for quotes) and therefore determining 
whether to reject a Limit Order or quote will be more tailored to the 
applicable Reference Price. In addition, consistent with Rules 6.60-
O(b) and 6.61-O(a)(1), the Exchange proposes that these thresholds 
could change, subject to announcing the changes by Trader Update. 
Providing flexibility in Exchange rules regarding how the Specified 
Thresholds would be set is consistent with the rules of other options 
exchanges.\25\
---------------------------------------------------------------------------

    \25\ See, e.g., CBOE Exchange, Inc. (``Cboe'') Rule 5.34(a)(4) 
(describing the ``Drill-Through Protection'' and that Cboe 
``determines the buffer amount on a class and premium basis''); and 
the Nasdaq Stock Market LLC (``Nasdaq'') Options 3, Section 
15(a)(1)(B) (specifying that ``Order Price Protection'' can be a 
configurable dollar amount specified by Nasdaq and announced via an 
Options Trader Alert).
---------------------------------------------------------------------------

    Trading Collar. Trading Collars on the OX system are currently 
described in Rule 6.60-O(a). Under the current rules, incoming Market 
Orders and marketable Limit Orders are limited in having an immediate 
execution if they would trade at a price greater than one ``Trading 
Collar.'' A collared order is displayed at that price and then can be 
repriced to new collars as the NBBO updates. On Pillar, the Exchange 
proposes new Trading Collar functionality.
    Unlike current functionality, which permits a collared order to be 
repriced, as proposed, a Market Order or Limit Order would be assigned 
a single Trading Collar that would be applicable to that order until it 
is fully executed or cancelled. The new proposed Trading Collar would 
function as a ceiling (for buy orders) or floor (for sell orders) of 
the price at which such order could be traded, displayed, or routed. 
The Exchange further proposes that when an order is working at its 
assigned Trading Collar, it would cancel if not executed within a 
specified time period.
    Proposed Rule 6.62P-O(a)(4) would provide that a Market Order or 
Limit Order to buy (sell) would not trade or route to an Away Market at 
a price above (below) the Trading Collar assigned to that order. As 
further proposed, Auction-Only Orders, Limit Orders designated IOC or 
FOK, Cross Orders, ISOs, and Market Maker quotes would not be subject 
to Trading Collars, which is consistent with current functionality.\26\ 
In addition, Trading Collars would not be applicable during Auctions.
---------------------------------------------------------------------------

    \26\ See Rule 6.60-O(a)(3) (``Trade Collar Protection does not 
apply to quotes, IOC Orders, AON Orders, FOK Orders, and NOW 
Orders.'').
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(a)(4)(A) would provide that a Trading Collar 
assigned to an order would be calculated once per trading day and would 
not be updated. Accordingly, an order designated GTC would receive a 
new Trading Collar each day, but that Trading Collar would not be 
updated intraday. The rule would further provide that a Market Order or 
Limit Order that is received during continuous trading would be 
assigned a Trading Collar before being processed for either trading, 
repricing, or routing

[[Page 36451]]

and that an order that is routed on arrival and returned unexecuted 
would use the Trading Collar assigned upon arrival. In addition, a 
Market Order or Limit Order received during a pre-open state would be 
assigned a Trading Collar after an Auction concludes.
    Proposed Rule 6.62P-O(a)(4)(B) would provide that the Reference 
Price for calculating the Trading Collar for an order to buy (sell) 
would be the NBO (NBB). The proposed rule would further provide that 
for Auction-eligible orders to buy (sell) that were received during a 
pre-open state and are assigned a Trading Collar after the Auction 
concludes, the Reference Price would be the Auction Price or, if none, 
the upper (lower) Auction Collar price or, if none, the NBO (NBB). For 
purposes of calculating a Trading Collar, the Exchange would not use an 
adjusted NBBO. Proposed Rule 6.62P-O(a)(4)(B)(i) would further provide 
that a Trading Collar would not be assigned to a Limit Order if there 
is no Reference Price at the time of calculation. And proposed Rule 
6.62P-O(a)(4)(B)(ii) would provide that after an Auction, if a Market 
Order has not already been assigned a Trading Collar and there is no 
Reference Price, the order would be cancelled.
    Proposed Rule 6.62P-O(a)(4)(C) would describe how the Trading 
Collar would be calculated and would provide that the Trading Collar 
for an order to buy (sell) would be a specified amount above (below) 
the Reference Price, as follows: (1) For orders with a Reference Price 
of $1.00 or lower, $0.25; or (2) for orders with a Reference Price 
above $1.00, the lower of $2.50 or 25%. Proposed Rule 6.62P-
O(a)(4)(C)(i) would further provide that if the calculation of a 
Trading Collar would not be in the MPV for the series, it would be 
rounded down to the nearest price within the applicable MPV (this 
proposed functionality is based on how Trading Collars are calculated 
on the Exchange's cash equity market, as described in Rule 7.31-
E(a)(1)(B)). Proposed Rule 6.62P-O(a)(4)(C)(ii) would further provide 
that for orders to sell, if subtracting the Trading Collar from the 
Reference Price would result in a negative number, the Trading Collar 
for Limit Orders would be the limit price and the Trading Collar for 
Market Orders would be one MPV above zero.
    Proposed Rule 6.62P-O(a)(4)(D) would describe how the Trading 
Collar would be applied and would provide that if an order to buy 
(sell) would trade or route above (below) the Trading Collar or would 
have its working price repriced to a Trading Collar that is below 
(above) its limit price, the order would be added to the Consolidated 
Book at the Trading Collar for 500 milliseconds and if not traded 
within that period, would be cancelled. In addition, once the 500-
millisecond timer begins for an order, the order would be cancelled at 
the end of the timer even if it repriced or has been routed to an Away 
Market during that period, in which case any portion of the order that 
is returned unexecuted would be cancelled.
    The Exchange believes that the proposed Trading Collar 
functionality is designed to provide a similar type of order protection 
as is currently available (as described in Rule 6.60-O(a)) because it 
would limit the price at which a marketable order could be traded, 
routed, or displayed. The Exchange believes that the proposed 
differences are designed to simplify the functionality by applying a 
static ceiling price (for buy orders) or floor price (for sell orders) 
at which such order could be traded or routed that would be determined 
at the time of entry, and would be applicable to the order until it is 
traded or cancelled. The Exchange believes that the proposed 
functionality would provide greater determinism to an OTP Holder or OTP 
Firm of the Trading Collar that would be applicable to a Market Order 
or Limit Order and when such order may be cancelled if it reaches its 
Trading Collar.
    Time in Force Modifiers. Proposed Rule 6.62P-O(b) would set forth 
the time-in-force modifiers that would be available for options trading 
on Pillar and is based on Rule 7.31-E(b). The Exchange proposes to 
offer the same time-in-force modifiers that are currently available for 
options trading on the Exchange and use Pillar terminology to describe 
the functionality. As noted above, the Exchange proposes to describe 
the Time in Force Modifiers in proposed Rule 6.62P-O(b), and then 
specify for each order type which Time in Force Modifiers would be 
available for such orders or quotes.
    Day Modifier. Proposed Rule 6.62P-O(b)(1) would provide that any 
order or quote to buy or sell designated Day, if not traded, would 
expire at the end of the trading day on which it was entered and that a 
Day Modifier cannot be combined with any other Time in Force Modifier. 
This proposed rule text is based on Rule 7.31-E(b)(1) with one 
difference to reference ``quotes'' in addition to orders. This proposed 
functionality would operate no differently than how a ``Day Order,'' as 
described in Rule 6.62-O(m), currently functions.
    Immediate-or-Cancel (``IOC'') Modifier. Proposed Rule 6.62P-O(b)(2) 
would provide that a Limit Order may be designated IOC or Routable IOC, 
as described in proposed Rules 6.62P-O(b)(2)(A) and (B) and that a 
Limit Order designated IOC would not be eligible to participate in any 
Auctions. This proposed rule text is based on the first and third 
sentences of Rule 7.31-E(b)(2) without any differences and is also 
based on current functionality. The Exchange proposes to use Pillar 
terminology based on Rule 7.31-E(b)(2) to describe this functionality.
    Proposed Rule 6.62P-O(b)(2)(A) would define a ``Limit IOC Order'' 
as a Limit Order designated IOC that would be traded in whole or in 
part on the Exchange as soon as such order is received, and the 
unexecuted quantity would be cancelled and that a Limit IOC Order does 
not route. This proposed rule text is based on Rule 7.31-E(b)(2)(A) 
without any substantive differences. The proposed Pillar Limit IOC 
Order would function the same as an ``Immediate-or-Cancel Order (IOC 
Order),'' as currently described in Rule 6.62-O(k), without any 
differences.
    Proposed Rule 6.62P-O(b)(2)(B) would define a ``Limit Routable IOC 
Order'' as a Limit Order designated Routable IOC that would be traded 
in whole or in part on the Exchange as soon as such order is received, 
and the unexecuted quantity routed to Away Market(s) and that any 
quantity not immediately traded either on the Exchange or an Away 
Market would be cancelled. This proposed rule text is based on Rule 
7.31-E(b)(2)(B) without any substantive differences. The proposed 
Pillar Limit Routable IOC Order is also based on the ``NOW Order,'' as 
currently described in Rule 6.62-O(o) and uses Pillar terminology.
    Fill-or-Kill (``FOK'') Modifier. Proposed Rule 6.62P-O(b)(3) would 
provide that a Limit Order designated FOK would be traded in whole on 
the Exchange as soon as such order is received, and if not so traded is 
to be cancelled and that a Limit Order designated FOK does not route 
and does not participate in any Auctions. The Exchange does not offer 
the FOK Modifier on its cash equity market, and this proposed rule uses 
Pillar terminology to offer the same functionality that is currently 
described in Rule 6.62-O(l) as the ``Fill-or-Kill Order (FOK Order)'' 
without any substantive differences.
    Good-`Til-Cancelled (``GTC'') Modifier. Proposed Rule 6.62P-O(b)(4) 
would provide that a Limit or Market Order designated GTC remains in 
force until the order is filled, cancelled, the

[[Page 36452]]

MPV in the series changes overnight, the option contract expires, or a 
corporate action results in an adjustment to the terms of the option 
contract. The Exchange does not offer the GTC Modifier on its cash 
equity market, and this proposed rule uses Pillar terminology to offer 
the same functionality that is currently described in Rule 6.62-O(n) as 
the ``Good-Till-Cancelled (GTC Order)'' without any substantive 
differences.
    Auction-Only Orders. Proposed Rule 6.62P-O(c) would define an 
``Auction-Only Order'' as a Limit Order or Market Order that is to be 
traded only in an Auction pursuant to Rule 6.64P-O,\27\ which is text 
based on Rule 7.31-E(c). The proposed rule would further provide that 
an Auction-Only Order would not be accepted when a series is opened for 
trading and any portion of an Auction-Only Order that is not traded in 
a Core Open Auction or Trading Halt Auction would be cancelled. This 
represents current functionality and is based in part on the last 
sentence of Rule 7.31-E(c)(1), the last sentence of Rule 7.31-E(c)(2), 
and the last sentence of Rule 6.62-O(r), which defines an ``Opening 
Only Order.''
---------------------------------------------------------------------------

    \27\ See discussion infra, regarding proposed Rule 6.64P and 
definitions relating to Auctions.
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(c)(1) would define a ``Limit-on-Open Order 
(`LOO Order')'' as a Limit Order that is to be traded only in an 
Auction. This proposed rule uses Pillar terminology based on Rule 7.31-
E(c)(1) to describe functionality that would be no different from 
current functionality, as described in Rule 6.62-O(r).
    Proposed Rule 6.62P-O(c)(2) would define a ``Market-on-Open Order 
(`MOO Order')'' as a Market Order that is to be traded only in an 
Auction. This proposed rule uses Pillar terminology based on Rule 7.31-
E(c)(2) to describe functionality that would be no different from 
current functionality, as described in Rule 6.62-O(r).
    Proposed Rule 6.62P-O(c)(3) would define an ``Imbalance Offset 
Order (`IO Order').'' The Exchange currently offers an IO Order for 
participation in Trading Halt Auctions on its cash equity market but 
does not offer this order type for options trading on the OX system. 
For cash equity trading, the IO Order is a conditional order type that 
is eligible to participate in a Trading Halt Auction only if it would 
offset the imbalance. For options trading on Pillar, the Exchange 
proposes to offer the IO Order for both Core Open Auctions and Trading 
Halt Auctions.
    As proposed, the IO Order would function no differently than how an 
IO Order currently functions on the Exchange's cash equity market. 
Accordingly, proposed Rule 6.62P-O(c)(3) would define an IO Order as a 
Limit Order that is to be traded only in an Auction, which is based in 
part on Rule 7.31-E(c)(5).
     Proposed Rule 6.62P-O(c)(3)(A) would provide that an IO 
Order would participate in an Auction only if: (1) There is an 
Imbalance in the series on the opposite side of the market from the IO 
Order after taking into account all other orders and quotes eligible to 
trade at the Indicative Match Price; and (2) the limit price of the IO 
Order to buy (sell) would be at or above (below) the Indicative Match 
Price. This proposed text is based on Rule 7.31-E(c)(5)(B) without any 
substantive differences.
     Proposed Rule 6.62P-O(c)(3)(B) would provide that the 
working price of an IO Order to buy (sell) would be adjusted to be 
equal to the Indicative Match Price, provided that the working price of 
an IO Order would not be higher (lower) than its limit price. This 
proposed text is based on Rule 7.31-E(c)(5)(C) without any differences.
    Orders with a Conditional or Undisplayed Price and/or Size. 
Proposed Rule 6.62P-O(d) would set forth the orders with a conditional 
or undisplayed price and/or size that would be available for options 
trading on Pillar. On Pillar, the Exchange proposes to offer the same 
type of orders that are available in the OX system and that are 
currently described in Rule 6.62-O(d) as a ``Contingency Order or 
Working Order,'' with changes as described below.
    Reserve Order. Reserve Orders are currently defined in Rule 6.62-
O(d)(3). The Exchange proposes that for options traded on Pillar, 
Reserve Orders would function similarly to how Reserve Orders function 
on its cash equity market, as described in Rule 7.31-E(d)(1). 
Accordingly, the Exchange proposes that proposed Rule 6.62P-O(d)(1), 
which would define Reserve Orders for options trading on Pillar, would 
be based on Rule 7.31-E(d)(1), with differences only to reflect 
differences in options and cash equity trading. For example, options 
trading does not have a concept of ``round lot'' or ``odd lot'' 
trading, and therefore the proposed options trading version of the Rule 
would not include description of behavior that correlates to such 
functionality.
    Proposed Rule 6.62P-O(d)(1) would define a Reserve Order as a Limit 
Order with a quantity of the size displayed and with a reserve quantity 
of the size (``reserve interest'') that is not displayed and that the 
displayed quantity of a Reserve Order is ranked Priority 2--Display 
Orders and the reserve interest is ranked Priority 3--Non-Display 
Orders. This proposed rule text is based on Rule 7.31-E(d)(1) without 
any differences. Proposed Rule 6.62P-O(d)(1) would further provide that 
both the display quantity and the reserve interest of an arriving 
marketable Reserve Order would be eligible to trade with resting 
interest in the Consolidated Book or route to Away Markets, unless 
designated as a Non-Routable Limit Order, which is based on the third 
sentence of Rule 7.31-E(d)(1) with a non-substantive difference to add 
reference to Non-Routable Limit Order.
    Proposed Rule 6.62P-O(d)(1) would further provide that the working 
price of the reserve interest of a resting Reserve Order to buy (sell) 
would be adjusted in the same manner as a Non-Displayed Limit Order, as 
provided for in paragraph (d)(2)(A) of this Rule, provided that it 
would never be priced higher (lower) than the working price of the 
display quantity of the Reserve Order. This proposed rule text is based 
on the last sentence of Rule 7.31-E(d)(1) with one difference to 
reference that the reserve interest could never have a working price 
that is more aggressive than the working price of the display quantity 
of the Reserve Order, which would be new functionality on Pillar 
designed to ensure that the reserve interest of a Reserve Order to buy 
(sell) would never trade at a price higher (lower) than the working 
price of the display quantity of the Reserve Order.\28\
---------------------------------------------------------------------------

    \28\ For example, as described in more detail below, the 
proposed Non-Routable Limit Order would be eligible to be repriced 
only once after it is resting in the Consolidated Book (see proposed 
Rule 6.62P-O(e)(1)). If the display quantity of a Non-Routable Limit 
Order that is combined with a Reserve Orders has already been 
repriced and is no longer eligible to be repriced, and the Away 
Market NBBO adjusts, the reserve quantity would not adjust to a 
price that would be more aggressive than the working price of the 
display quantity of the order.
---------------------------------------------------------------------------

     Proposed Rule 6.62P-O(d)(1)(A) would provide that the 
displayed portion of a Reserve Order would be replenished when the 
display quantity is decremented to zero and that the replenish quantity 
would be the minimum display size of the order or the remaining 
quantity of the reserve interest if it is less than the minimum display 
quantity. This proposed rule text is based on Rule 7.31-E(d)(1)(A) with 
differences to reflect that options are not traded in ``round lots'' or 
``odd lots.'' Accordingly, the Exchange would not replenish a Reserve 
Order on the options trading platform until the display portion is 
fully decremented.
     Proposed Rule 6.62P-O(d)(1)(B) would provide that each 
time the

[[Page 36453]]

display quantity of a Reserve Order is replenished from reserve 
interest, a new working time would be assigned to the replenished 
quantity. This proposed rule text is based in part on Rule 7.31-
E(d)(1)(B) with differences to reflect that for options traded on 
Pillar, there would never be more than one display quantity of a 
Reserve Order, and therefore the Exchange would not have different 
``child'' display quantities of a Reserve Order with different working 
times, as could occur for a Reserve Order on the Exchange's cash equity 
trading platform.
     Proposed Rule 6.62P-O(d)(1)(C) would provide that a 
Reserve Order may be designated as a Non-Routable Limit Order and if so 
designated, the reserve interest that replenishes the display quantity 
would be assigned a display price and working price consistent with the 
instructions for the order. This proposed rule text is based on Rule 
7.31-E(d)(1)(B)(ii) without any substantive differences.
     Proposed Rule 6.62P-O(d)(1)(D) would provide that a 
routable Reserve Order would be evaluated for routing both on arrival 
and each time the display quantity is replenished. Proposed Rule 6.62P-
O(d)(1)(D)(i) would provide that if routing is required, the Exchange 
would route from reserve interest before publishing the display 
quantity. And proposed Rule 6.62P-O(d)(1)(D)(ii) would provide that any 
quantity of a Reserve Order that is returned unexecuted would join the 
working time of the reserve interest and that if there is no reserve 
interest to join, the returned quantity would be assigned a new working 
time. This proposed rule text is based on Rule 7.31-E(d)(1)(D) and 
subparagraphs (i) and (ii) with differences to reflect that there is no 
concept of round lots or multiple child display orders for options 
trading.
     Proposed Rule 6.62P-O(d)(1)(E) would provide that a 
request to reduce the size of a Reserve Order would cancel the reserve 
interest before cancelling the display quantity. This proposed rule 
text is based on Rule 7.31-E(d)(1)(E) with differences only to reflect 
that there would not be more than one child display order for options 
trading of Reserve Orders on Pillar.
     Proposed Rule 6.62P-O(d)(1)(F) would provide that a 
Reserve Order may be designated Day or GTC, but it may not be 
designated as an ALO Order. This proposed rule text is based in part on 
Rule 7.31-E(d)(1)(C), with differences to reflect that the GTC Modifier 
would be available for Reserve Orders trading on the Pillar options 
trading platform and that Primary Pegged Orders would not be available 
for options traded on Pillar.
    Non-Displayed Limit Order. The Exchange proposes to offer the Non-
Displayed Limit Order for options trading on Pillar, which would be new 
for options trading and is based on the existing Non-Displayed Limit 
Order as described in Rule 7.31-E(d)(2).\29\ Proposed Rule 6.62P-
O(d)(2) would define a Non-Displayed Limit Order as a Limit Order that 
is not displayed, does not route, and is ranked Priority 3--Non-Display 
Orders; and that a Non-Displayed Limit Order may be designated Day or 
GTC and would not participate in any Auctions. This proposed rule text 
is based on Rule 7.31-E(d)(2) with differences to reflect that the GTC 
Time-in-Force Modifier is available for options trading on Pillar.
---------------------------------------------------------------------------

    \29\ The Exchange notes that a Non-Displayed Limit Order would 
function similarly to a PNP Blind Order that locks or crosses the 
contra-side NBBO. In such case, a PNP Blind Order would not be 
displayed, as described in Rule 6.62-O(u) (``if the PNP Blind Order 
would lock or cross the NBBO, the price and size of the order will 
not be disseminated'').
---------------------------------------------------------------------------

     Proposed Rule 6.62P-O(d)(2)(A) would provide that the 
working price of a Non-Displayed Limit Order would be assigned on 
arrival and adjusted when resting on the Consolidated Book and that the 
working price of a Non-Displayed Limit Order to buy (sell) would be the 
lower (higher) of the limit price or the NBO (NBB). This proposed rule 
text is based on Rule 7.31-E(d)(2)(A) with non-substantive differences 
to reference the Consolidated Book instead of the NYSE Arca Book and to 
streamline the rule text without any substantive differences.
     Proposed Rule 6.62P-O(d)(2)(B) would provide that a Non-
Displayed Limit Order may be designated with a Non-Display Remove 
Modifier and if so designated, a resting Non-Displayed Limit Order to 
buy (sell) with a working price equal to the working price of an ALO 
Order or Day ISO ALO to sell (buy) would trade as the liquidity taker 
against such order. This functionality would be new for options trading 
and is based on the Non-Display Remove Modifier functionality available 
on the cash equity market as described in Rule 7.31-E(d)(2)(B), without 
any substantive differences.
    All-or-None (``AON'') Order. AON Orders are currently defined in 
Rule 6.62-O(d)(4). AON Orders are not available on the Exchange's cash 
equity market, and for options trading on Pillar, would function 
similarly to how AON Orders currently function because such orders 
would only execute if they can be satisfied in their entirety. However, 
unlike the OX system, where AON Orders are not integrated in the 
Consolidated Book, on Pillar, the Exchange proposes that AON Orders 
would be ranked in the Consolidated Book and function as conditional 
orders that would trade only if their condition could be met, similar 
to how orders with a Minimum Trade Size (``MTS'') Modifier function on 
Pillar on the Exchange's cash equity market. Because of the new 
functionality that would be available for AON Orders on Pillar, the 
Exchange proposes to use Pillar terminology to describe this order 
type.
    Proposed Rule 6.62P-O(d)(3) would provide that an AON Order is a 
Limit Order that is to be traded in whole on the Exchange at the same 
time or not at all, which represents current functionality as described 
in the first sentence of Rule 6.62-O(d)(4). Proposed Rule 6.62P-O(d)(3) 
would further provide that an AON Order that does not trade on arrival 
would be ranked Priority 3--Non-Display Orders and that an AON Order 
may be designated Day or GTC, does not route, and would not participate 
in any Auctions. This proposed rule text uses Pillar terminology to 
describe the proposed new functionality that such orders would be 
ranked on the Consolidated Book.
     Proposed Rule 6.62P-O(d)(3)(A) would provide that the 
working price of an AON Order would be assigned on arrival and adjusted 
when resting on the Consolidated Book and that the working price of an 
AON Order to buy (sell) would be the lower (higher) of the limit price 
or NBO (NBB). Because an AON Order is non-displayed, the Exchange 
proposes that its working price should be adjusted in the same manner 
as the proposed Non-Displayed Limit Order.
     Proposed Rule 6.62P-O(d)(3)(B) would provide that an 
Aggressing AON Order to buy (sell) would trade with sell (buy) orders 
and quotes that in the aggregate can satisfy the AON Order in its 
entirety. This proposed rule text is new and promotes clarity in 
Exchange rules that an Aggressing AON Order (whether on arrival or as a 
resting order that becomes an Aggressing Order) would be eligible to 
trade with more than one contra-side order or quote, provided that 
multiple orders and quotes in the aggregate would satisfy the AON Order 
in its entirety.
     Proposed Rule 6.62P-O(d)(3)(C) would provide that a 
resting AON Order to buy (sell) would trade with an Aggressing Order or 
Aggressing Quote to sell (buy) that individually can satisfy the whole 
AON Order. This is proposed new functionality, because currently, an 
AON Order can trade only against resting interest in the Consolidated 
Book. The Exchange believes this

[[Page 36454]]

proposed change would provide an AON Order with additional execution 
opportunities.
     Proposed Rule 6.62P-O(d)(3)(C)(i) would provide that if an 
Aggressing Order or Aggressing Quote to sell (buy) does not satisfy the 
resting AON Order to buy (sell), that Aggressing Order or Aggressing 
Quote would not trade with and may trade through such AON Order. 
Proposed Rule 6.62P-O(d)(3)(C)(ii) would further provide that if a 
resting non-displayed order to sell (buy) does not satisfy the quantity 
of a same-priced resting AON Order to buy (sell), a subsequently 
arriving order or quote to sell (buy) that satisfies the AON Order 
would trade before such resting non-displayed order or quote to sell 
(buy) at that price. Both of these proposed rules are consistent with 
current Rule 6.62-O(d)(4), which provides that an AON Order does not 
have ``standing in any Order Process in the Consolidated Book,'' i.e., 
a resting AON Order can be ignored if its condition is not met. This 
proposed rule text is also based on how the MTS Modifier functions on 
the cash equity market, as described in Rule 7.31-E(i)(3)(E)(i) and 
(ii).
     Proposed Rule 6.62P-O(d)(3)(D) would provide that a 
resting AON Order to buy (sell) would not be eligible to trade against 
an Aggressing Order or Aggressing Quote to sell (buy): (i) At a price 
equal to or above (below) any orders or quotes to sell (buy) that are 
displayed at a price equal to or below (above) the working price of 
such AON Order; or (ii) at a price above (below) any orders or quotes 
to sell (buy) that are not displayed and that have a working price 
below (above) the working price of such AON Order. This proposed rule 
text is new functionality for AON Orders that is designed to protect 
the priority of resting orders and quotes and is based on how the MTS 
Modifier functions on the cash equity market, as described in Rule 
7.31-E(i)(3)(C) and its subparagraphs (i) and (ii).
     Proposed Rule 6.62P-O(d)(3)(E) would provide that if a 
resting AON Order to buy (sell) becomes an Aggressing Order it would 
trade as provided in paragraph (d)(3)(B) of this Rule; however, other 
resting orders or quotes to buy (sell) ranked Priority 3--Non-Display 
Orders that become Aggressing Orders or Aggressing Quotes at the same 
time as the resting AON Order would be processed before the AON Order. 
This is proposed new functionality and is designed to promote clarity 
in Exchange rules that if multiple orders ranked Priority 3--Non-
Display Orders, including AON and non-AON Orders, become Aggressing 
Orders or Aggressing Quotes at the same time, the AON Order would not 
be eligible trade until the other orders ranked Priority 3- Non-Display 
Orders have been processed, even if they have later working times. The 
Exchange believes that it would be consistent with the conditional 
nature of AON Orders for other same-side non-displayed orders to have a 
trading opportunity before the AON Order.
     Proposed Rule 6.62P-O(d)(3)(F) would provide that an AON 
Order may be designated with a Non-Display Remove Modifier and if so 
designated, a resting AON Order to buy (sell) that can trade with an 
ALO Order or Day ISO ALO Order to sell (buy) would trade as the 
liquidity-taking order. This proposed functionality would be new for 
options trading and is based on the Non-Display Remove Modifier 
available on the cash equity market, as described in Rules 7.31-
E(d)(2)(B) and 7.31-E(e)(1)(C).
    Stop Order. Stop Orders are currently defined in Rule 6.62-O(d)(1). 
The Exchange proposes to use Pillar terminology to describe Stop Orders 
in proposed Rule 6.62P-O(d)(4). Proposed Rule 6.62P-O(d)(4) would 
provide that a Stop Order is an order to buy (sell) a particular option 
contract that becomes a Market Order (or is ``elected'') when the 
Exchange BB (BO) or the most recent consolidated last sale price 
reported after the order was placed in the Consolidated Book (the 
``Consolidated Last Sale'') (either, the ``trigger'') is equal to or 
higher (lower) than the specified ``stop'' price. Because a Stop Order 
becomes a Market Order when it is elected, the Exchange proposes that 
when it is elected, it would be cancelled if it does not meet the 
validations specified in proposed Rule 6.62P-O(a)(1)(A) and if not 
cancelled, it would be assigned a Trading Collar.
    Proposed Rule 6.62P-O(d)(4)(A) would provide that a Stop Order 
would be assigned a working time when it is received but would not be 
ranked or displayed in the Consolidated Book until it is elected and 
that once converted to a Market Order, the order would be assigned a 
new working time and be ranked Priority 1- Market Orders. The original 
working time assigned to a Stop Order would be used to rank multiple 
Stop Orders elected at the same time.
    Proposed Rule 6.62P-O(d)(4)(B) would specify additional events that 
are designed to limit when a Stop Order may be elected so that a Market 
Order does not trade during a period of pricing uncertainty:
     Proposed Rule 6.62P-O(d)(4)(B)(i) would provide that if 
not elected on arrival, a Stop Order that is resting would not be 
eligible to be elected based on a Consolidated Last Sale unless the 
Consolidated Last Sale is equal to or in between the NBBO. This 
proposed rule text provides additional transparency of when a resting 
Stop Order would be eligible to be elected.
     Proposed Rule 6.62P-O(d)(4)(B)(ii) would provide that a 
Stop Order would not be elected if the NBBO is crossed.
     Proposed Rule 6.62P-O(d)(4)(B)(iii) would provide that 
after a Limit State or Straddle State is lifted, the trigger to elect a 
Stop Order would be either the Consolidated Last Sale received after 
such state was lifted or the Exchange BB (BO).\30\
---------------------------------------------------------------------------

    \30\ Rule 6.65A(a)(2) currently provides that the Exchange will 
not elect Stop Orders when the underlying NMS stock is either in a 
Limit State or a Straddle State, which would continue to be 
applicable on Pillar. The Exchange proposes a non-substantive 
amendment to Rule 6.65A(a)(2) to add a cross-reference to proposed 
Rule 6.62P-O(d)(4).
---------------------------------------------------------------------------

    Stop Limit Order. Stop Limit Orders are currently defined in Rule 
6.62-O(d)(2). The Exchange proposes to use Pillar terminology to 
describe Stop Limit Orders in proposed Rule 6.62P-O(d)(5). Proposed 
Rule 6.62P-O(d)(5) would provide that a Stop Limit Order is an order to 
buy (sell) a particular option contract that becomes a Limit Order (or 
is ``elected'') when the Exchange BB (BO) or the Consolidated Last Sale 
(either, the ``trigger'') is equal to or higher (lower) than the 
specified ``stop'' price.\31\ As further proposed, a Stop Limit Order 
to buy (sell) would be rejected if the stop price is higher (lower) 
than its limit price. Because a Stop Limit Order becomes a Limit Order 
when it is elected, the Exchange proposes that when it is elected, it 
would be cancelled if it fails Limit Order Price Protection or a Price 
Reasonability Check and if not cancelled, it would be assigned a 
Trading Collar.\32\
---------------------------------------------------------------------------

    \31\ The term ``Consolidated Last Sale'' is defined in proposed 
Rule 6.62P-O(d)(4).
    \32\ See discussion infra, regarding proposed Rule 6.41P-O and 
Price Reasonability Checks.
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(d)(5)(A) would provide that a Stop Limit 
Order would be assigned a working time when it is received but would 
not be ranked or displayed in the Consolidated Book until it is elected 
and that once converted to a Limit Order, the order would be assigned a 
new working time and be ranked Priority 2--Display Orders.
    Proposed Rule 6.62P-O(d)(5)(B) would specify additional events that 
are designed to limit when a Stop Limit Order may be elected so that a 
Limit

[[Page 36455]]

Order would not have a possibility of trading or being added to the 
Consolidated Book during a period of pricing uncertainty.
     Proposed Rule 6.62P-O(d)(5)(B)(i) would provide that if 
not elected on arrival, a Stop Limit Order that is resting would not be 
eligible to be elected based on a Consolidated Last Sale unless the 
Consolidated Last Sale is equal to or in between the NBBO.
     Proposed Rule 6.62P-O(d)(5)(B)(ii) would provide that a 
Stop Limit Order would not be elected if the NBBO is crossed.
    Orders with Instructions Not to Route. Currently, the Exchange 
defines non-routable orders in Rule 6.62-O as a PNP Order (which 
includes a Repricing PNP Order or RPNP) (current Rule 6.62-O(p)), a 
Liquidity Adding Order (``ALO'') (which includes a Repricing ALO 
(``RALO'') (current Rule 6.62-O(t)); a PNP-Blind Order (current Rule 
6.62-O(u)); and a PNP-Light Order (Rule 6.62-O(v)). The Exchange also 
defines the PNP Plus Order (current Rule 6.62-O(y)), which is available 
for Electronic Complex Orders, and Intermarket Sweep Orders (current 
Rule 6.62-O(aa)).
    The Exchange separately defines non-routable quotes in Rule 6.37A-O 
as a Market Maker--Light Only Quotation (``MMLO'') (current Rule 6.37A-
O(a)(3)(A)); a Market Maker--Add Liquidity Only Quotation (``MMALO'') 
(current Rule 6.37A-O(a)(3)(B)); and a Market Maker--Repricing 
Quotation (``MMRP'') (current Rule 6.37A-O(a)(3)(C)).
    On Pillar, the Exchange proposes to streamline the non-routable 
order types and quotes that would be available for options trading, use 
terminology that is similar to how non-routable orders are described 
for cash equity trading as described in Rule 7.31-E(e), and describe 
the functionality that would be applicable to both orders and quotes in 
proposed Rule 6.62P-O(e). As described in greater detail below, 
proposed Rule 6.37AP-O governing Market Maker Quotations would no 
longer define how quotations would function. Instead, that rule would 
specify that Market Maker quotes must be designated as either a Non-
Routable Limit Order or ALO Order. On Pillar, the Exchange would no 
longer offer functionality based on the PNP-Blind Order, PNP-Light 
Order, or MMLO.
    Non-Routable Limit Order. Proposed Rule 6.62P-O(e)(1) would define 
the Non-Routable Limit Order. This proposed order type incorporates 
functionality currently available in both the existing PNP and RPNP 
order types, as defined in Rule 6.62-O, and the existing MMRP quotation 
type, as defined in Rule 6.37A-O(a)(3)(C), and uses Pillar terminology.
    Proposed Rule 6.62P-O(e)(1) would provide that a Non-Routable Limit 
Order is a Limit Order or quote that does not route and may be 
designated Day or GTC and would further provide that a Non-Routable 
Limit Order with a working price different from the display price would 
be ranked Priority 3-Non-Display Orders and a Non-Routable Limit Order 
with a working price equal to the display price would be ranked 
Priority 2-Display Orders. This proposed rule uses Pillar terminology 
similar to how a Non-Routable Limit Order is described for the 
Exchange's cash equity market in Rules 7.31-E(e)(1) and 7.31-
E(e)(1)(B).
    Proposed Rule 6.62P-O(e)(1)(A) would provide that a Non-Routable 
Limit Order would not be displayed at a price that would lock or cross 
an Away Market NBBO and that a Non-Routable Limit Order to buy (sell) 
would trade with orders or quotes to sell (buy) in the Consolidated 
Book priced at or below (above) the Away Market NBO (NBB).
    Proposed Rule 6.62P-O(e)(1)(A)(i) would provide that a Non-Routable 
Limit Order can be designated to be cancelled if it would be displayed 
at a price other than its limit price. The proposed option to cancel a 
Non-Routable Limit Order is based on how a PNP Order currently 
functions. The Exchange proposes a substantive difference that if an 
OTP Holder or OTP Firm opts to cancel instead of reprice a Non-Routable 
Limit Order, such order would be cancelled if it could not be displayed 
at its limit price, which could be because the order would be repriced 
to display at a price that would not lock or cross an Away Market NBBO 
or because it would be repriced due to Trading Collars.\33\
---------------------------------------------------------------------------

    \33\ Because Trading Collars would be applicable to Non-Routable 
Limit Orders, the Exchange does not propose to cancel an incoming 
Non-Routable Limit Order if its price is more than a configurable 
number of MPVs outside its initial display price, which is how an 
RPNP currently functions, and therefore would not include 
functionality based on Rule 6.62-O(p)(1)(B) in the proposed Pillar 
rules.
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(e)(1)(A)(ii) would provide that if not 
designated to cancel, if the limit price of a Non-Routable Limit Order 
to buy (sell) would lock or cross an Away Market NBO (NBB), it would be 
repriced to have a working price equal to the Away Market NBO (NBB) and 
a display price one MPV below (above) that NBO (NBB). Accordingly, the 
proposed Non-Routable Limit Order, if not designated to cancel, would 
reprice in the same manner as an RPNP order or MMRP quotation.
    The Exchange proposes new functionality for the Non-Routable Limit 
Order as compared to either the RPNP Order or the Non-Routable Limit 
Order on the Exchange's cash equity market. Specifically, proposed Rule 
6.62P-O(e)(1)(B) would provide that the display price of a resting Non-
Routable Limit Order to buy (sell) that has been repriced would be 
repriced higher (lower) only one additional time.\34\ If after that 
repricing, the display price could be repriced higher (lower) again, 
the order can be designated to either remain at its last working price 
and display price or be cancelled, provided that a resting Non-Routable 
Limit Order that is a quote cannot be designated to be cancelled.\35\
---------------------------------------------------------------------------

    \34\ For example, on arrival, a Non-Routable Limit Order to buy 
(sell) with a limit price higher (lower) than the NBO (NBB), would 
have a display price one MPV below (above) the NBO (NBB) and a 
working price equal to the NBO (NBB). If the Away Market NBO (NBB) 
reprices higher (lower), the resting Non-Routable Limit Order to buy 
(sell) would similarly be repriced higher (lower). If the NBO (NBB) 
adjusts higher (lower) again, the resting Non-Routable Limit Order 
would not be adjusted again.
    \35\ The working time of a Non-Routable Limit Order would be 
adjusted as described in proposed Rule 6.76P-O(f)(2), which would be 
applicable to any scenario when the working time of an order may 
change, including a Non-Routable Limit Order. Similar to how the 
Pillar rules function on the Exchange's cash equity market, the 
Exchange does not propose to separately describe how the working 
time of an order changes in proposed Rule 6.62P-O.
---------------------------------------------------------------------------

    The Exchange notes that this designation to cancel is separate from 
the designation to cancel if it cannot be displayed at its limit price. 
If a Non-Routable Limit Order is designated to cancel if it cannot be 
displayed at its limit price, this second cancellation designation 
would not be needed as the order would have already been cancelled. 
Rather, this second cancellation designation is applicable only to a 
resting Non-Routable Limit Order that has been designated to reprice on 
arrival and was repriced before it was displayed on the Consolidated 
Book, and provides OTP Holders and OTP Firms with an option to cancel a 
resting order if market conditions were such that a resting order could 
have been repriced again, e.g., the contra-side Away Market NBBO 
changes. To assist Market Makers in maintaining quotes in their 
assigned series, the Exchange proposes that this second cancellation 
designation would not be available to Market Makers for their quotes.
    Proposed Rule 6.62P-O(e)(1)(B)(i) would provide that if the limit 
price of the resting Non-Routable Limit Order to

[[Page 36456]]

buy (sell) that has been repriced no longer locks or crosses the Away 
Market NBO (NBB), it would be assigned a working price and display 
price equal to its limit price. This proposed rule text is based on 
Rule 7.31-E(e)(1)(A)(iv).
    Proposed Rule 6.62P-O(e)(1)(B)(ii) would provide that the working 
price of a resting Non-Routable Limit Order to buy (sell) that has been 
repriced would be adjusted to be equal to its display price if the Away 
Market NBO (NBB) is equal to or lower (higher) than its display price. 
This proposed rule is based in part on how an RPNP reprices (as 
described in Rule 6.62-O(p)(1)(A)(i)) and uses Pillar terminology. The 
proposed rule would further provide that once the working price and 
display price of a Non-Routable Limit Order to buy (sell) are the same, 
the working price would be adjusted higher (lower) only if the display 
price of the order is adjusted.\36\
---------------------------------------------------------------------------

    \36\ For example, if the Away Market NBO is 1.05 and the 
Exchange receives a Non-Routable Limit Order to buy priced at 1.10, 
it would be assigned a display price of 1.00 and a working price of 
1.05. If the Away Market NBO adjusts to 1.00, the working price of 
the Non-Routable Limit Order to buy would be adjusted to 1.00 to be 
equal to its display price. However, if the Away Market NBO moves 
back to 1.05, the Non-Routable Limit Order's working price would not 
adjust again to 1.05 and would stay at 1.00.
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(e)(1)(C) would provide that a Non-Routable 
Limit Order may be designated with a Non-Display Remove Modifier and if 
so designated, a Non-Routable Limit Order to buy (sell) with a working 
price, but not display price, equal to the working price of an ALO 
Order or Day ISO ALO to sell (buy) would trade as the liquidity taker 
against such order. This functionality is based on the Non-Display 
Remove Modifier available for cash equity trading, as described in Rule 
7.31-E(e)(1)(C), and would be new for options trading on Pillar.
    Finally, proposed Rule 6.62P-O(e)(1)(D) would provide that the 
designation to cancel a Non-Routable Limit Order would not be 
applicable in an Auction and such order will participate in an Auction 
at its limit price. This proposed rule text promotes clarity and 
transparency that a Non-Routable Limit Order would be eligible to 
participate in an Auction, but that it would be repriced to its limit 
price for participation in such Auction.
    ALO Order. Proposed Rule 6.62P-O(e)(2) would define an ALO Order as 
a Limit Order or quote that is a Non-Routable Limit Order that would 
not remove liquidity from the Consolidated Book. This proposed order 
type incorporates functionality similar to both the existing ALO and 
RALO order types, as defined in Rule 6.62-O, and the existing MMALO 
quotation type, as defined in Rule 6.37A-O(a)(3)(B). Unless otherwise 
specified in proposed Rule 6.62P-O(e)(2), an ALO Order would function 
as a Non-Routable Limit Order, including that it would participate in 
an Auction at its limit price.
    Proposed Rule 6.62P-O(e)(2)(A) would provide that an ALO Order 
would not be displayed at a price that would lock or cross an Away 
Market NBBO, would lock or cross displayed interest in the Consolidated 
Book, or would cross non-displayed interest in the Consolidated Book. 
Because an ALO Order would never remove liquidity, this proposed rule 
text ensures that such order would not be displayed at a price that 
would lock or cross displayed interest either on the Exchange or an 
Away Market, and would not be displayed at a price that crosses non-
displayed interest in the Consolidated Book.
    Proposed Rule 6.62P-O(e)(2)(A)(i) would provide that an ALO Order 
can be designated to be cancelled if it would be displayed at a price 
other than its limit price. An ALO Order with this designation to 
cancel would function similarly to a Liquidity Adding Order as defined 
in Rule 6.62-O(t) and uses Pillar terminology.
    Proposed Rule 6.62P-O(e)(2)(A)(ii) would provide that an ALO Order 
to buy (sell) would be displayed at its limit price if it locks non-
displayed orders or quotes to sell (buy) on the Consolidated Book. 
Because an ALO Order would not be repriced in this scenario, this 
functionality would be the same regardless of whether the order 
includes a designation to cancel.
    Proposed Rule 6.62P-O(e)(2)(A)(iii) would provide that an ALO Order 
to buy (sell) would not consider an AON Order or an order with an MTS 
Modifier to sell (buy) for purposes of determining whether it needs to 
be repriced or cancelled. This proposed rule is designed to promote 
transparency that a resting contra-side order with conditional 
instructions, i.e., an AON Order or an order with an MTS Modifier, 
would not have any bearing on whether an Aggressing ALO Order would 
need to be repriced. Accordingly, an ALO Order would neither trade as 
the liquidity taker with such orders (even if it could satisfy their 
size condition) and could be displayed at a price that would lock or 
cross the price of such orders. Once the ALO Order is resting on the 
Consolidated Book, the Exchange would reevaluate the orders on the 
Consolidated Book. For example, if the ALO Order could satisfy the size 
condition of the resting AON Order, the resting AON Order would become 
the Aggressing Order and would trade as the liquidity taker with such 
resting ALO Order.
    Proposed Rule 6.62P-O(e)(2)(B) would describe how an ALO Order 
would be processed if it is not designated to cancel, as follows:
     If the limit price of an ALO Order to buy (sell) would 
lock or cross displayed orders or quotes to sell (buy) on the 
Consolidated Book, it would be repriced to have a working price and 
display price one MPV below (above) the lowest (highest) priced 
displayed order or quote to sell (buy) on the Consolidated Book 
(proposed Rule 6.62P-O(e)(2)(B)(i));
     If the limit price of an ALO Order to buy (sell) would 
lock or cross an Away Market NBO (NBB), it would be repriced to have a 
working price equal to the Away Market NBO (NBB) and a display price 
one MPV below (above) the NBO (NBB) (proposed Rule 6.62P-
O(e)(2)(B)(ii)); or
     If the limit price of an ALO Order to buy (sell) would 
cross non-displayed orders or quotes \37\ on the Consolidated Book, it 
would be repriced to have a working price and display price equal to 
the lowest (highest) priced non-displayed order or quote to sell (buy) 
on the Consolidated Book (proposed Rule 6.62P-O(e)(2)(B)(iii).
---------------------------------------------------------------------------

    \37\ For example, a contra-side Market Maker quote designated as 
a Non-Routable Limit Order could have a non-displayed working price.
---------------------------------------------------------------------------

    Because an ALO would never be a liquidity-taking order, the above-
described repricing scenarios provide clarity and transparency 
regarding how an ALO Order would be repriced to prevent either trading 
with interest on the Consolidated Book or routing to an Away Market. 
The proposed option to reprice is based in part on how a RALO currently 
functions, as described in Rule 6.62-O(t)(1)(A).
    Proposed Rule 6.62P-O(e)(2)(C) would provide that the display price 
of a resting ALO Order to buy (sell) that has been repriced would be 
repriced higher (lower) only one additional time and that if, after 
that repricing, the display price could be repriced higher (lower) 
again, the order can be designated to either remain at its last working 
price and display price or be cancelled, provided that a resting ALO 
Order that is a quote cannot be designated to be cancelled. This 
proposed functionality would be new to Pillar and is based on how the 
proposed Non-Routable Limit Order would function, as described above.

[[Page 36457]]

    Proposed Rule 6.62P-O(e)(2)(C)(i) would provide that if the limit 
price of an ALO Order to buy (sell) that has been repriced no longer 
locks or crosses displayed orders or quotes in the Consolidated Book, 
locks or crosses the Away Market NBBO, or crosses non-displayed orders 
or quotes in the Consolidated Book, it would be assigned a working 
price and display price equal to its limit price. This proposed rule 
text is similar to proposed Rule 6.62P-O(e)(1)(B)(i) for Non-Routable 
Limit Orders, with differences to reflect the additional circumstances 
when an ALO Order would be repriced based off of contra-side displayed 
or non-displayed interest in the Consolidated Book.
    Proposed Rule 6.62P-O(e)(2)(D) would provide that the working price 
of a resting ALO Order to buy (sell) that has been repriced would be 
adjusted to be equal to its display price (and would not be adjusted 
again unless the display price of the order is adjusted) if:
     The Away Market NBO (NBB) re-prices to be equal to or 
lower (higher) than the display price of the resting ALO Order to buy 
(sell) (proposed Rule 6.62P-O(e)(2)(D)(i)); or
    an ALO Order or Day ISO ALO to sell (buy) is displayed on the 
Consolidated Book at a price equal to the working price of the resting 
ALO Order to buy (sell) (proposed Rule 6.62P-O(e)(2)(D)(ii)).
    This proposed rule text is similar to proposed Rule 6.62P-
O(e)(1)(C) for Non-Routable Limit Orders, with differences to reflect 
the additional circumstances when an ALO Order would be repriced as a 
result of contra-side interest on the Consolidated Book. Specifically, 
the Exchange proposes that for an ALO Order that has been repriced and 
has a non-displayed working price, if the Exchange receives a contra-
side ALO Order (or Day ISO ALO) with a limit price that is equal to or 
crosses the working price of the resting ALO Order, the working price 
of the resting ALO Order would be adjusted to be equal to its display 
price. This proposed functionality would reduce the potential for two 
contra-side ALO Orders to have working prices that are locked on the 
Consolidated Book.
    Proposed Rule 6.62P-O(e)(2)(E) would provide that when the working 
price and display price of an ALO Order to buy (sell) are the same, the 
working price would be adjusted higher (lower) only if the display 
price of the order is adjusted. This proposed functionality would be 
new for Pillar.
    Proposed Rule 6.62P-O(e)(2)(F) would provide that the ALO 
designation would be ignored for ALO Orders that participate in an 
Auction. This proposed rule is based on Rule 7.31-E(e)(2)(A), which 
similarly provides that an ALO Order can participate in an auction and 
that its ALO designation would be ignored. This is also new 
functionality for options because currently, the Exchange rejects ALOs 
if entered outside of Core Trading Hours or during a trading halt and 
if resting, are cancelled during a trading halt.
    Proposed Rule 6.62P-O(e)(2)(G) would provide that an ALO Order 
cannot be designated with a Non-Display Remove Modifier. Because an ALO 
Order is a type of Non-Routable Limit Order, this proposed rule 
promotes clarity that the Non-Display Remove Modifier would not be 
available for an ALO Order.
    Intermarket Sweep Order (``ISO''). ISOs are currently defined in 
Rule 6.62-O as a Limit Order for an options series that instructs the 
Exchange to execute the order up to the price of its limit, regardless 
of the Away Market Protected Quotations \38\ and that ISOs may only be 
entered with a time-in-force of IOC, and the entering OTP Holder must 
comply with the provisions of 6.92-O(a)(8). Proposed Rule 6.62P-O(e)(3) 
would similarly provide than an ISO is a Limit Order that does not 
route and meets the requirements of Rule 6.92-O(a)(8).
---------------------------------------------------------------------------

    \38\ The terms ``Protected Bid,'' ``Protected Offer,'' and 
``Quotation'' are defined in Rule 6.92-O(a)(15) and (16) and the 
term ``Away Market'' is defined in Rule 1.1. Accordingly, Away 
Market Protected Quotations refer to Protected Bids and Protected 
Offers that are disseminated pursuant to the OPRA Plan and are the 
Best Bid and Best Offer displayed by an Eligible Exchange, as those 
terms are defined in Rule 6.92-O.
---------------------------------------------------------------------------

    On Pillar, the Exchange will continue to offer the same type of ISO 
functionality, and proposes to add the ability for an OTP Holder or OTP 
Firm to designate an ISO with a Day time-in-force designation and 
designate a Day ISO as ALO, which functionality is available on the 
Exchange's cash equity market as described in Rule 7.31-E(e)(3). The 
Exchange proposes to describe the functionality for each type of ISO 
separately.
     IOC ISO. Proposed Rule 6.62P-O(e)(3)(A) would define an 
IOC ISO as an ISO designated IOC to buy (sell) that would be 
immediately traded with orders and quotes to sell (buy) in the 
Consolidated Book up to its full size and limit price and may trade 
through Away Market Protected Quotations and any untraded quantity of 
an IOC ISO will be immediately and automatically cancelled. This 
proposed rule is based on Rule 7.31-E(e)(3)(B) and uses Pillar 
terminology to describe functions that are currently available for 
options trading.
     Day ISO. Proposed Rule 6.62-O(e)(3)(B) would define a Day 
ISO as an ISO designated Day to buy (sell) that, if marketable on 
arrival, would be immediately traded with orders and quotes to sell 
(buy) in the Consolidated Book up to its full size and limit price and 
may trade through Away Market Protected Quotations and that any 
untraded quantity of a Day ISO would be displayed at its limit price 
and may lock or cross Away Market Protected Quotations at the time the 
Day ISO is received by the Exchange. This proposed functionality would 
be new on the Exchange for options trading and is based on the Day ISO 
functionality available on the Exchange's cash equity market, as 
described in Rule 7.31-E(e)(3)(C). However, the availability of the Day 
time-in-force designation for ISOs would not be new for options 
trading, as such orders are currently available on other options 
exchanges.\39\ The proposed Day ISO is also consistent with current 
Rule 6.95-O(b)(3), which describes an exception to the prohibition on 
locking or crossing a Protected Quotation if the Member simultaneously 
routed an ISO to execute against the full displayed size of any locked 
or crossed Protected Bid or Protected Offer.\40\ Although the Exchange 
has not previously availed itself of this exception, this exception to 
locking and crossing Protected Bids and Protected Offers would only be 
needed if an ISO is designated as Day and therefore would be displayed 
at a price that would lock or cross a Protected

[[Page 36458]]

Quotation; an IOC ISO would never be displayed and therefore this 
existing exception would not be applicable to such orders.
---------------------------------------------------------------------------

    \39\ See Nasdaq Options 3, Section 7(a)(7) (``ISOs may have any 
time-in-force designation. . . .'') and CBOE Rules 5.30(a)(2) and 
(3). See also Cboe US Options Fix Specifications, dated June 15, 
2021, Section 4.4.7, available here: https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf, which references how a 
Day ISO would be processed under specified circumstances.
    \40\ The Commission has previously stated that the requirements 
in the Options Linkage Plan relating to Locked and Crossed Markets 
are ``virtually identical to those applicable to market centers for 
NMS stock under Regulation NMS.'' See also Securities Exchange Act 
Release No. 60405 (July 30, 2009), 74 FR 39362, 39368 (August 6, 
2009) (Order approving Options Linkage Plan). Accordingly, guidance 
relating to the ISO exception for locked and crossed markets for NMS 
stocks that specifically contemplate use of Day ISOs is also 
applicable to options trading. See Responses to Frequently Asked 
Questions Concerning Rule 611 and Rule 610 of Regulation NMS, FAQ 
5.02 (``The ISO exception to the SRO lock/cross rules, in contrast, 
requires that ISOs be routed to execute against all protected 
quotations with a price that is equal to the display price (i.e., 
those protected quotations that would be locked by the displayed 
quotation), as well as all protected quotations with prices that are 
better than the display price (i.e., those protected quotations that 
would be crossed by the displayed quotation).'' Consistent with this 
guidance, the Exchange implemented Rule 6.95-O(b)(3). See also Cboe 
Rule 5.67(b)(3), and Nasdaq Options 5, Section 3(b)(3).
---------------------------------------------------------------------------

     Day ISO ALO. Proposed Rule 6.62P-O(e)(3)(C) would define a 
Day ISO ALO as a Day ISO with an ALO modifier. This proposed order type 
is based in part on the Day ISO ALO currently available on the 
Exchange's cash equity market, as described in Rule 7.31-E(e)(3)(D), 
but with differences to reflect how the order type would function on 
the Exchange's options market, as described above. As proposed, on 
arrival, a Day ISO ALO to buy (sell) may lock or cross Away Market 
Protected Quotations at the time of arrival of the Day ISO ALO but 
would not remove liquidity from the Consolidated Book. A Day ISO ALO to 
buy (sell) can be designated to be cancelled if it would be displayed 
at a price other than its limit price. Proposed Rule 6.62P-
O(e)(3)(C)(i) would provide that if not designated to cancel, a Day ISO 
ALO that would lock or cross orders and quotes on the Consolidated Book 
would be repriced as specified in proposed Rule 6.62P-O(e)(2)(B). 
Proposed Rule 6.62P-O(e)(3)(C)(ii) would provide that once resting, a 
DAY ISO ALO would be processed as an ALO Order as specified in proposed 
Rule 6.62P-O(e)(2)(C)-(G).
    Complex Orders. Complex Orders are defined in Rule 6.62-O(e). The 
Exchange proposes to define Complex Orders for Pillar in proposed Rule 
6.62P-O(f) based on Rule 6.62-O(e) and its sub-paragraphs (1) and (2) 
without any substantive differences. The Exchange proposes to add 
clarifying text that the different options series in a Complex Order 
are also referred to as the ``legs'' or ``components'' of the Complex 
Order. The Exchange also proposes that proposed Rule 6.62P-O(f) would 
provide that a Complex Order would be any order involving the 
simultaneous purchase and/or sale of ``two or more options series in 
the same underlying security,'' and not use the modifier ``different'' 
before the phrase ``more option series.'' The Exchange believes that 
the word ``different'' is redundant and unnecessary in this context. In 
addition, proposed Rule 6.62P-O(f)(1) and (2) would not reference mini-
options contracts, which no longer trade on the Exchange.
    Cross Orders. Currently, the only electronically-entered cross 
orders available on the Exchange are Qualified Contingent Cross Orders, 
which are defined in Rule 6.62-O(bb) and Commentary .02 to Rule 6.62-O. 
In addition, Rule 6.90-O describes how Qualified Contingent Cross 
Orders are processed. The Exchange proposes to define the term ``Cross 
Orders'' on Pillar in proposed Rule 6.62P-O(g). At this time, the only 
Cross Orders that would be available on Pillar for electronic entry 
would be Qualified Contingent Cross (``QCC'') Orders. As proposed, QCC 
Orders on Pillar would function identically to how Qualified Contingent 
Cross Orders function on the OX system, and for purposes of the rules 
governing trading on Pillar, the Exchange proposes to merge language 
from two rules relating to QCC Orders into a single rule, proposed Rule 
6.62P-O(g), using Pillar terminology. Proposed Rule 6.62P-O(g) and 
(g)(1) would describe rules generally applicable to electronically-
entered Cross Orders, including QCC Orders, and proposed Rule 6.62P-
O(g)(2) would address requirements specific to QCC Cross Orders.
    Proposed Rule 6.62P-O(g) would provide that ``Cross Orders'' would 
be two-sided order messages with instructions to match the identified 
buy-side with the identified sell-side at a specified price, which 
could either be designated as a limit price or at the market (``cross 
price'').\41\ The proposed rule would further provide that a Cross 
Order that is not rejected per proposed Rule 6.62P-O(g)(1) would 
immediately trade in full at its cross price, would not route, and may 
be entered with an MPV of $0.01 regardless of the MPV of the options 
series and that Cross Orders may be entered by Floor Brokers from the 
Trading Floor or routed to the Exchange from off-Floor.
---------------------------------------------------------------------------

    \41\ The Exchange does not currently offer Cross Orders on its 
cash equity market. This proposed rule text uses Pillar terminology 
that is based in part on NYSE Chicago Rule 7.31(g).
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(g)(1) would provide that a Cross Order would 
be rejected if received when the NBBO is crossed or if it would be 
traded at a cross price that (i) is at the same price as a displayed 
Customer order on the Consolidated Book and (ii) is not at or between 
the NBBO. This proposed rule is based on Rule 6.90-O without any 
differences.
    Proposed Rule 6.62P-O(g)(1) would further set forth how a Cross 
Order designated to trade at the market would be priced. As proposed, a 
Cross Order with a cross price at the market would execute at the 
midpoint of the NBBO; provided that:
     If there is no NBB, a zero bid would be used (proposed 
Rule 6.62P-O(g)(1)(A));
     if there is displayed Customer interest priced equal to 
the NBB, NBO or both, the midpoint would be based on the BBO improved 
by $0.01 for the side(s) containing displayed Customer interest 
(proposed Rule 6.62P-O(g)(1)(B));
     if there is no NBO, such order would be rejected (proposed 
Rule 6.62P-O(g)(1)(C)); or
     if the midpoint of the NBBO is in sub-pennies, the order 
would trade at the midpoint of the NBBO rounded down to the MPV for the 
series (proposed Rule 6.62P-O(g)(1)(D)).
    This proposed rule text is designed to promote clarity and 
transparency in Exchange rules regarding how a Cross Order ``at the 
market'' would execute in circumstances when there is no NBB or NBO or 
there is displayed Customer interest equal to the NBBO.
    Proposed Rule 6.62P-O(g)(2) would define QCC Orders, which would be 
the only Cross Orders available on Pillar at this time. As proposed, a 
QCC Order must be comprised of an originating order to buy or sell at 
least 1,000 contracts that is identified as being part of a qualified 
contingent trade coupled with a contra-side order or orders totaling an 
equal number of contracts. This proposed rule text is based on Rule 
6.62-O(bb) with a non-substantive difference that the Pillar rule would 
not reference mini-options contracts, which no longer trade on the 
Exchange.
    Proposed Rule 6.62P-O(g)(2)(A) and subparagraphs (i)-(vi) would 
define a ``qualified contingent trade'' and is based on Commentary .02 
and sub-paragraphs (a)-(f) to Rule 6.62-O without any substantive 
differences.
    Proposed Rule 6.62P-O(g)(2)(B) would specify rules governing QCC 
Orders entered from the Trading Floor, which can be entered only by 
Floor Brokers, and is based on Commentary .01 to Rule 6.90-O. The 
proposed rule would provide that while on the Trading Floor, only Floor 
Brokers can enter QCC Orders and that Floor Brokers may not enter QCC 
Orders for their own account, the account of an associated person, or 
an account with respect to which it or an associated person thereof 
exercises investment discretion (each a ``prohibited account''). As 
further proposed, when executing such orders, Floor Brokers would not 
be subject to Rule 6.47-O regarding ``Crossing'' orders. Floor Brokers 
must maintain books and records demonstrating that each QCC Order 
entered from the Floor was not entered for a prohibited account. Any 
QCC Order entered from the Floor that does not have a corresponding 
record required by this paragraph will be deemed to have been entered 
for a prohibited account in violation of this Rule.

[[Page 36459]]

    Proposed Rule 6.62P-O(g)(2)(C) would specify rules governing QCC 
Orders entered off-Floor and that OTP Holders must maintain books and 
records demonstrating that each such order was so routed. This proposed 
rule is based on Commentary .02 to Rule 6.90-O without any substantive 
differences.
    To promote clarity, the Exchange proposes to amend Rule 6.90-O to 
specify that the rule would not be applicable to trading on Pillar.
    Orders Available Only in Open Outcry. The Exchange proposes to add 
to Rule 6.62P-O(h) orders that are available only in open outcry, most 
of which are currently defined in Rule 6.62-O.
    First, proposed Rule 6.62P-O(h)(1) would codify an existing order 
type, the Clear-the-Book (``CTB'') Order, which is currently only 
described in a Regulatory Bulletin.\42\ The proposed definition would 
describe the CTB Order, which would be an order type available in open 
outcry that would interface with the Consolidated Book, and therefore 
with Pillar. As proposed, a CTB Order would be a Limit IOC Order that 
may be entered only by a Floor Broker, subsequent to executing an order 
in open outcry, that is approved by a Trading Official (the ``TO 
Approval''). The CTB Order would be eligible to trade only with contra-
side orders and quotes that were resting in the Consolidated Book prior 
to the TO Approval. In addition, proposed Rule 6.62P-O(h)(1)(A)-(C) 
would provide that:
---------------------------------------------------------------------------

    \42\ See NYSE Arca Options RB-16-04, dated February 19, 2016 
(Rules of Priority and Order Protection in Open Outcry), available 
here: https://www.nyse.com/publicdocs/nyse/markets/arca-options/rule-interpretations/2016/NYSE%20Arca%20Options%20RB%2016-04.pdf.
---------------------------------------------------------------------------

     A CTB Order to buy (sell) would trade with contra-side 
orders and quotes with a display price below (above) the limit price of 
the CTB Order (proposed Rule 6.62P-O(h)(1)(A));
     A CTB Order to buy (sell) would trade with contra-side 
orders and quotes that have a display price and working price equal to 
the limit price of the CTB Order only if there is displayed Customer 
sell (buy) interest at that price, in which case, the CTB Order to buy 
(sell) would trade with the displayed Customer interest to sell (buy) 
and any non-Customer interest to sell (buy) with a working time earlier 
than the latest-arriving displayed Customer interest to sell (buy) 
(proposed Rule 6.62P-O(h)(1)(B)); and
     Any unexecuted portion of the CTB Order would cancel after 
trading with all better-priced interest and eligible same-priced 
interest on the Consolidated Book (proposed Rule 6.62P-O(h)(1)(C)).
    Currently, CTB Orders only trade with displayed Customer interest 
and any same-priced displayed non-Customer interest ranked ahead of 
such interest in time priority, but do not trade with better-priced 
displayed non-Customer interest. In Pillar, per Rule 6.62P-O(h)(1)(B), 
CTB Orders would trade with displayed non-Customer interest priced 
better than the latest-arriving displayed Customer interest (i.e., a 
CTB order buying with a $1.00 limit would now trade with any displayed 
interest offered at $0.99). The Exchange believes that this proposed 
change would increase execution opportunities and achieve the goal of a 
CTB Order, which is to clear priority on the Consolidated Book at the 
time of the TO Approval.
    In addition, proposed Rule 6.62P-O(h)(1)(D) would codify existing 
regulatory responsibilities of Floor Brokers utilizing CTB Orders to 
submit such orders in a timely manner after receiving TO Approval and 
would also provide that because CTB Orders are non-routable, Floor 
Brokers would be obligated to route orders to better-priced interest to 
Away Markets per Rule 6.94-O.\43\
---------------------------------------------------------------------------

    \43\ See id. at p. 2-3 (describing regulatory responsibilities 
related to CTB Orders).
---------------------------------------------------------------------------

    The Exchange also proposes to include in Rule 6.62P-O additional 
open outcry order types that are currently defined in Rule 6.62-O:
     Proposed Rule 6.62P-O(h)(2) would define ``Facilitation 
Order'' and is based on the Rule 6.62-O(j) definition of Facilitation 
Order without any differences.
     Proposed Rule 6.62P-O(h)(3) would define ``Mid-Point 
Crossing Order'' and is based on the Rule 6.62-O(q) definition of Mid-
Point Crossing Order without any differences.
     Proposed Rule 6.62P-O(h)(4) would define ``Not Held 
Order'' and is based on the Rule 6.62-O(f) definition of Not Held Order 
without any differences.
     Proposed Rule 6.62P-O(h)(5) would define ``Single Stock 
Future (``SSF'')/Option Order'' and is based on the Rule 6.62-O(i) 
definition of Single Stock Future (``SSF'')/Option Order without any 
differences.
     Proposed Rule 6.62P-O(h)(6)(A) would define a ``Stock/
Option Order'' and is based on the Rule 6.62-O(h)(1) definition of 
Stock/Option Order without any differences.
     Proposed Rule 6.62P-O(h)(6)(B) and subparagraphs (i) and 
(ii) would define a ``Stock/Complex Order'' and is based on the Rule 
6.62-O(h)(2) definition of Stock/Complex Order with its sub-paragraphs 
without any differences.
    The Exchange proposes that after the transition to Pillar, the 
following open outcry order types, which are currently described in 
Rule 6.62-O but are not used by Floor Brokers, would not be added to 
proposed Rule 6.62P-O governing orders and modifiers: One cancels the 
other (OCO) Order and Stock Contingency Order.
    Additional Order Instructions and Modifiers. The Exchange proposes 
to specify the additional order instructions and modifiers that would 
be available in Pillar in proposed Rule 6.62P-O(i).
    Proactive if Locked/Crossed Modifier. Proposed Rule 6.62P-O(i)(1) 
would provide that a Limit Order that is displayed and eligible to 
route and designated with a Proactive if Locked/Crossed Modifier would 
route to an Away Market if the Away Market locks or crosses the display 
price of the order and that if any quantity of the routed order is 
returned unexecuted, the order would be displayed in the Consolidated 
Book. This would be new functionality for options trading on the 
Exchange and is based on the Proactive if Locked/Crossed Modifier 
available on the Exchange's cash equity platform, as described in Rule 
7.31-E(i)(1) without any differences.
    Self-Trade Prevention (``STP'') Modifier. Self-Trade Prevention 
(``STP'') Modifiers are currently defined in Commentary .01 to Rule 
6.76A-O and are available only for Market Maker orders and quotes. On 
Pillar, the Exchange proposes to expand the availability of STP to all 
orders and quotes. Because STP Modifiers are an instruction that can be 
added to an order or quote, the Exchange proposes that for Pillar, STP 
Modifiers would be described in proposed Rule 6.62P-O(i)(2). This is 
based on the structure of the Exchange's cash equity rules, which also 
describe the STP Modifier in Rule 7.31-E(i).
    Proposed Rule 6.62P-O(i)(2) would provide that an Aggressing Order 
or Aggressing Quote to buy (sell) designated with one of the STP 
modifiers in proposed Rule 6.62P-O(i)(2) would be prevented from 
trading with a resting order or quote to sell (buy) also designated 
with an STP modifier from the same MPID, and, if specified, any sub-
identifier of that MPID and that the STP modifier on the Aggressing 
Order or Aggressing Quote would control the interaction between two 
orders and/or quotes marked with STP modifiers. In addition, STP would 
not be applicable during an auction or to Cross Orders or when a 
Complex Order legs out. This proposed rule text

[[Page 36460]]

is based on Commentary .01 to Rule 6.76A with non-substantive 
differences to use Pillar terminology.
    Proposed Rule 6.62P-O(i)(2) would further provide that if the 
condition for a Limit Order designated FOK, an AON Order, or an order 
with an MTS modifier cannot be met because of STP modifiers, such order 
would either be cancelled or placed on the Consolidated Book, as 
applicable. This proposed rule text provides clarity that if a 
condition of an order cannot be met because of STP modifiers, the order 
would either cancel (i.e., a Limit Order designated FOK), or be added 
to the Consolidated Book (i.e., an AON Order or an order with an MTS 
modifier), and then such resting orders would function as described in 
Rule 6.62P-O.
    The proposed rule would further provide that Aggressing Orders or 
Aggressing Quotes would be processed as follows:
     Proposed Rule 6.62P-O(i)(2)(A) would describe STP Cancel 
Newest (``STPN'') and provide that an Aggressing Order or Aggressing 
Quote to buy (sell) marked with the STPN modifier would not trade with 
resting interest to sell (buy) marked with any STP modifier from the 
same MPID; that the Aggressing Order or Aggressing Quote marked with 
the STPN modifier would be cancelled; and that the resting order or 
quote marked with one of the STP modifiers will remain on the 
Consolidated Book. This proposed rule is based on Commentary .01(a) to 
Rule 6.76A-O with non-substantive differences to use Pillar 
terminology.
     Proposed Rule 6.62P-O(i)(2)(B) would describe STP Cancel 
Oldest (``STPO'') and provide that an Aggressing Order or Aggressing 
Quote to buy (sell) marked with the STPO modifier would not trade with 
resting interest to sell (buy) marked with any STP modifier from the 
same MPID; that the resting order or quote marked with the STP modifier 
would be cancelled; and that the Aggressing Order or Aggressing Quote 
marked with the STPO modifier would be placed on the Consolidated Book. 
This proposed rule is based on Commentary .01(b) to Rule 6.76A-O with 
non-substantive differences to use Pillar terminology.
     Proposed Rule 6.62P-O(i)(2)(C) would describe STP Cancel 
Both (``STPC'') and provide that an Aggressing Order or Aggressing 
Quote to buy (sell) marked with the STPC modifier would not trade with 
resting interest to sell (buy) marked with any STP modifier from the 
same MPID and that the entire size of both orders and/or quotes would 
be cancelled. This proposed rule is based on Commentary .01(c) to Rule 
6.76A-O with non-substantive differences to use Pillar terminology.
    Minimum Trade Size Modifier. The Exchange proposes to add the 
Minimum Trade Size (``MTS'') Modifier, which would be new functionality 
for options trading on Pillar that is based on the same functionality 
currently available for cash equity securities trading on Pillar, as 
described in Rule 7.31-E(i)(3). As with the MTS Modifier for cash 
equity trading, the proposed MTS Modifier for options traded on Pillar 
would be available only for non-displayed orders. Accordingly, proposed 
Rule 6.62P-O(i)(3) would provide that a Limit IOC Order or Non-
Displayed Limit Order may be designated with an MTS Modifier.\44\
---------------------------------------------------------------------------

    \44\ For cash equity trading, the MTS Modifier is also available 
for an MPL Order or Tracking Order, which are non-displayed order 
types available on the Exchange's cash equity trading platform that 
would not be available for options trading on Pillar. See Rule 7.31-
E(i)(3).
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(i)(3)(A) would provide that the quantity of 
the MTS Modifier may be less than the order quantity; however, an order 
would be rejected if it has an MTS Modifier quantity that is larger 
than the size of the order. This proposed rule is based on Rule 7.31-
E(i)(3)(A) with differences only to reflect that the concept of a round 
lot is not applicable for options trading.
    Proposed Rule 6.62P-O(i)(3)(B) would provide that one of the 
following instructions must be specified with respect to whether an 
order to buy (sell) with an MTS Modifier would trade on arrival with: 
(i) Orders or quotes to sell (buy) in the Consolidated Book that in the 
aggregate meet such order's MTS; or (ii) only individual order(s) or 
quote(s) to sell (buy) in the Consolidated Book that each meets such 
order's MTS. This proposed rule is based on Rule 7.31-E(i)(3)(B) and 
sub-paragraphs (i) and (ii) with only non-substantive differences to 
use options trading terminology (e.g., Consolidated Book instead of 
NYSE Arca Book and reference to quotes). Otherwise, the functionality 
would be identical on both the options and cash equity trading 
platforms.
    Proposed Rule 6.62P-O(i)(3)(C) would provide that an order with an 
MTS Modifier that is designated Day or GTC that cannot be executed 
immediately on arrival would not trade and would be ranked in the 
Consolidated Book. In such case, the order to buy (sell) with an MTS 
Modifier to buy (sell) that is ranked in the Consolidated Book would 
not be eligible to trade: (i) At a price equal to or above (below) any 
orders or quotes to sell (buy) that are displayed at a price equal to 
or below (above) the working price of such order with an MTS Modifier; 
or (ii) at a price above (below) any orders or quotes to sell (buy) 
that are not displayed and that have a working price below (above) the 
working price of such order with an MTS Modifier. This proposed rule is 
based on Rule 7.31-E(i)(3)(C) and sub-paragraphs (i) and (ii) with only 
non-substantive differences to use options trading terminology and to 
reflect the availability of the GTC time-in-force modifier for Non-
Displayed Limit Orders. Otherwise, the functionality would be identical 
on both the options and cash equity trading platforms.
    Proposed Rule 6.62P-O(i)(3)(D) would provide that an order with an 
MTS Modifier that is designated IOC and cannot be immediately executed 
would be cancelled. This proposed rule is based on Rule 7.31-E(i)(3)(D) 
without any differences and the functionality would be identical on 
both the options and cash equity trading platforms.
    Proposed Rule 6.62P-O(i)(3)(E) would provide that a resting order 
to buy (sell) with an MTS Modifier would trade with individual orders 
and quotes to sell (buy) that each meet the MTS and that (i) if an 
Aggressing Order or Aggressing Quote to sell (buy) does not meet the 
MTS of the resting order to buy (sell) with an MTS Modifier, that 
Aggressing Order or Aggressing Quote would not trade with, and may 
trade, through such resting order with an MTS Modifier; and (ii) if a 
resting non-displayed order or quote to sell (buy) did not meet the MTS 
of a same-priced resting order or quote to buy (sell) with an MTS 
Modifier, a subsequently arriving order or quote to sell (buy) that 
meets the MTS would trade before such resting non-displayed order or 
quote to sell (buy) at that price. This proposed rule is based on Rule 
7.31-E(i)(3)(E) and sub-paragraphs (i) and (ii) with only non-
substantive differences to use options trading terminology. Otherwise, 
the functionality would be identical on both the options and cash 
equity trading platforms.
    Proposed Rule 6.62P-O(i)(3)(F) would provide that a resting order 
with an MTS Modifier would be cancelled if it is traded in part or 
reduced in size and the remaining quantity is less than such order's 
MTS. This proposed rule is based on Rule 7.31-E(i)(3)(F) without any 
differences and the functionality would be identical on both the 
options and cash equity trading platforms.
    In connection with proposed Rule 6.62P-O, the Exchange proposes to 
add the following preamble to Rule 6.62-O: ``This Rule will not be 
applicable to trading on Pillar.'' This proposed

[[Page 36461]]

preamble is designed to promote clarity and transparency in Exchange 
rules that Rule 6.62-O would not be applicable to trading on Pillar.
Proposed Rule 6.37AP-O: Market Maker Quotations
    Current Rule 6.37A-O describes Market Maker quoting obligations, 
including defining ``quotations'' and describing the treatment to such 
quotations. Proposed Rule 6.37AP-O would set forth Market Maker quoting 
obligations under Pillar.
     First, Rule 6.37AP-O(a) would be based on the current rule 
and would provide that a Market Maker may enter quotations only in the 
issues included in its appointment. Proposed Rule 6.37AP-O(a)(1) would 
provide that the term ``quote'' or ``quotation'' means ``a bid or offer 
sent by a Market Maker that is not sent as an order'' and that ``[o]nce 
received by the Exchange, a subsequent quotation sent by a Market Maker 
replaces that Market Maker's previously displayed same-side 
quotation.'' This proposed text adds clarity to the existing definition 
that a Market Maker quote is distinct from a Market Maker order and 
that a subsequent quote will cancel an existing quote.
     Proposed Rule 6.37AP-O(a)(2) would provide that a Market 
Maker may designate a quote it sends as either a Non-Routable Limit 
Order or an ALO Order and such quotes would be processed in the same 
way as those orders are processed under proposed Rule 6.62P-O. The 
Exchange notes that these two quote types replace the existing quote 
types (i.e., MMLO, MMALO and MMRP), which will no longer be offered 
under Pillar. Because proposed Rule 6.62P-O(e)(1) and (2) would 
describe the treatment of a quote designated as Non-Routable Limit 
Order or an ALO Order, the Exchange will not include a section in 
proposed Rule 6.37AP-O regarding the treatment of such quotes.
     Proposed Rule 6.37AP-O(b)--(e) would be substantively 
identical to current Rule 6.37A-O(b)--(e) with non-substantive 
differences to change the term ``shall'' to ``will.'' Proposed 
Commentary .01 to Rule 6.37AP-O would be substantively identical to 
Commentary .01 to Rule 6.37A-O, with non-substantive differences to 
streamline the rule text.
    The Exchange also proposes a non-substantive change to paragraph 
(b) of Rule 6.65A-O (Limit-Up and Limit-Down During Extraordinary 
Market Volatility) to correct a cross reference to Market Maker quoting 
obligations as set forth in Rule 6.37AP-O(b) and (c). Current Rule 
6.65A(b) erroneously cross-references Rule 6.37B-O(b) and (c).
    In connection with proposed Rule 6.37AP-O, the Exchange proposes to 
add the following preamble to Rule 6.37A-O: ``This Rule will not be 
applicable to trading on Pillar.'' This proposed preamble is designed 
to promote clarity and transparency in Exchange rules that Rule 6.37A-O 
would not be applicable to trading on Pillar.
Proposed Rule 6.40P-O: Pre-Trade and Activity-Based Risk Controls
    For the OX system, current Rule 6.40-O sets forth the activity-
based Risk Limitation Mechanisms for orders and quotes, which are 
designed to help OTP Holders and OTP Firms effectively manage risk 
during periods of increased and significant trading activity. With the 
transition to Pillar, the Exchange proposes to incorporate new risk 
control functionality that is based on both existing activity-based 
risk controls for options and pre-trade risk controls that are 
available on the Exchange's cash equity platform. Proposed Rule 6.40P-O 
would describe the activity-based controls with updated functionality 
under Pillar and would also describe new optional pre-trade risk 
controls that are based on pre-trade risk controls available on the 
Exchange's cash equity platform, as described in Rule 7.19-E, with 
proposed differences to reference quotes and proposed new Pillar 
functionality.
    Proposed Rule 6.40P-O(a) would set forth the following definitions 
that would be used for purposes of the Rule:
     The term ``Entering Firm'' would mean an OTP Holder or OTP 
Firm (including those acting as Market Makers) (proposed Rule 6.40P-
O(a)(1)). This proposed definition is based in part on the definition 
of ``Entering Firm'' in Rule 7.19-E(a)(1) and the Exchange believes 
that the addition of this term would add clarity to the proposed rule.
     The term ``Pre-Trade Risk Controls'' would refer to two 
optional limits that an Entering Firm may utilize with respect to its 
trading activity on the Exchange (proposed Rule 6.40P-O(a)(2)). These 
controls would be the ``Single Order Maximum Notional Value Risk 
Limit'' and the ``Single Order Maximum Quantity Risk Limit.'' The 
proposed Pre-Trade Controls are based on the substantially identical 
risk controls available on the Exchange's cash equity market, as 
described in Rules 7.19-E(a)(3) and (4), respectively, but differ in 
that the proposed rule would also apply to quotes and specifies the 
treatment of orders designated GTC.
    [cir] The term ``Single Order Maximum Notional Value Risk Limit'' 
would refer to a pre-established maximum dollar amount for a single 
order or quote to be applied one time (proposed Rule 6.40P-O(a)(2)(A)). 
This definition would also provide that orders designated GTC would be 
subject to this pre-trade risk control only once.
    [cir] The term ``Single Order Maximum Quantity Risk Limit'' would 
refer to a pre-established maximum number of contracts that may be 
included in a single order or quote before it can be traded (proposed 
Rule 6.40P-O(a)(2)(B)). This definition would also provide that orders 
designated GTC would be subject to this pre-trade risk control only 
once.
     The term ``Activity-Based Risk Controls'' would refer to 
three activity-based risk limits that an Entering Firm may apply to its 
orders and quotes in an options class based on specified thresholds 
measured over the course of an Interval (to be defined below) (proposed 
Rule 6.40P-O(a)(3)). The proposed Activity-Based Risk Controls are 
based on the substantially identical risk controls set forth in current 
Rule 6.40-O(b)-(d), except that on Pillar, a Market Maker's orders and 
quotes would be aggregated and applied towards each risk limit (as 
opposed to current functionality, where a Market Maker's orders and 
quotes are counted separately).
    [cir] The term ``Transaction-Based Risk Limit'' would refer to a 
pre-established limit on the number of an Entering Firm's orders and 
quotes executed in a specified class of options per Interval (proposed 
Rule 6.40P-O(a)(3)(A)). This risk control is based on the substantially 
identical risk control set forth in current Rule 6.40-O(b), except as 
noted above.
    [cir] The term ``Volume-Based Risk Limit'' would refer to a pre-
established limit on the number of contracts of an Entering Firm's 
orders and quotes that could be executed in a specified class of 
options per Interval (proposed Rule 6.40P-O(a)(3)(B)). This risk 
control is based on the substantially identical risk control set forth 
in current Rule 6.40-O(c), except as noted above.
    [cir] The term ``Percentage-Based Risk Limit'' would refer to a 
pre-established limit on the percentage of contracts executed in a 
specified class of options as measured against the full size of such 
Entering Firm's orders and quotes executed per Interval (proposed Rule 
6.40P-O(a)(3)(C)). The proposed definition would also provide that to 
determine whether an Entering Firm has breached the specified 
percentage limit, the Exchange would calculate the percent of each 
order or quote in a

[[Page 36462]]

specified class of option that is executed during an Interval (each, a 
``percentage''), and sum up those percentages. As further proposed this 
definition would state that this risk limit would be breached if the 
sum of the percentages exceeds the pre-established limit. This risk 
control is based on the substantially identical risk control set forth 
in current Rule 6.40-O(d), except as noted above.
     The term ``Global Risk Control'' would refer to a pre-
established limit on the number of times an Entering Firm may breach 
its Activity-Based Risk Controls per Interval (proposed Rule 6.40P-
O(a)(4)). This proposed definition is based on the substantially 
identical functionality set forth in current Rule 6.40-O(f).
     The term ``Interval'' would refer to the configurable time 
period during which the Exchange would determine if an Activity-Based 
Risk Control or the Global Risk Control has been breached (proposed 
Rule 6.40P-O(a)(5)). This proposed definition is consistent with 
current Rule 6.40-O, which contains references throughout to a ``time 
period'' during which the Exchange will determine whether a breach has 
occurred. The Exchange believes this proposed definition would add 
clarity and transparency to Exchange rules.
    Proposed Rule 6.40P-O(b) would set forth how the Pre-Trade, 
Activity-Based and Global Risk Controls could be set or adjusted. 
Proposed Rule 6.40P-O(b)(1) would provide that these risk controls may 
be set before the beginning of a trading day and may be adjusted during 
the trading day. Proposed Rule 6.40P-O(b)(2) would provide that 
Entering Firms may set these risk controls at the MPID level or at one 
or more sub-IDs associated with that MPID, or both. Proposed Rule 
6.40P-O(b) is based on Rule 7.19-E(b)(3)(A)-(B) but differs in that the 
proposed rule includes Activity-Based and Global Risk Controls in 
addition to Pre-Trade Risk Controls.
    Proposed Rule 6.40P-O(c) would set forth the Automated Breach 
Actions that the Exchange would take if a designated risk limit is 
breached. Proposed Rule 6.40P-O(c)(1)(A)(i)-(ii) would set forth the 
automated breach actions for the Pre-Trade Risk Controls.
     Proposed Rule 6.40P-O(c)(1)(A)(i) would provide that a 
Limit Order or quote that breaches the designated limit of either a 
Single Order Maximum Notional Value Risk Limit or Single Order Maximum 
Quantity Risk Limit would be rejected.
     Proposed Rule 6.40P-O(c)(1)(A)(ii) would provide that a 
Market Order that breaches the designated limit of a Single Order 
Maximum Quantity Risk Limit would be rejected. The proposed rule would 
also provide that a Market Order that breaches the designated limit of 
a Single Order Notional Value Risk Limit would be rejected if the order 
arrived during continuous trading or canceled if the order was received 
during a pre-open state and the quantity remaining to trade after an 
Auction concludes breaches the designated limit.
    Proposed Rule 6.40P-O(c)(1)(A)(i)-(ii) is based on Rule 7.19-
E(c)(2) but differs in that it specifies the treatment of Limit Orders 
and Market Orders (the latter having different treatment based on when 
such orders arrive at the Exchange) and expands application of the 
check to include quotes.
    Proposed Rule 6.40P-O(c)(2) would set forth the automated breach 
actions for the Activity-Based Risk Controls.
     Proposed Rule 6.40P-O(c)(2)(A) would first specify that an 
Entering Firm acting as a Market Maker would be required to apply one 
of the Activity-Based Risk Controls to all of its orders and quotes; 
whereas an Entering Firm that is not acting as a Market Maker would 
have the option, but would not be required, to apply one of the 
Activity-Based Risk Controls to its orders. The requirement that Market 
Makers utilize Activity-Based Risk Controls for all quotes mirrors the 
requirements set forth in Rule 6.40-O, Commentary .04(a); however, the 
proposed rule differs in that it likewise requires Market Makers to 
apply one of the Activity-Based Risk Controls to all of its orders. The 
proposed optionality of the Activity-Based Risk controls for orders 
sent by Entering Firms not acting as Marker Maker mirrors current Rule 
6.40-O, Commentary .04(b)).
     Proposed Rule 6.40P-O(c)(2)(B) would provide that to 
determine when an Activity-Based Risk Control has been breached, the 
Exchange would maintain Trade Counters that would be incremented every 
time an order or quote trades, including any leg of a Complex Order, 
and would aggregate the number of contracts traded during each such 
execution. As further proposed, an Entering Firm may opt to exclude any 
orders designated IOC or FOK from being considered by a Trade Counter. 
This is consistent with existing functionality set forth in Rule 6.40-
O(a) and Commentary .07, except, as noted above, there would not be 
separate Trade Counters for a Market Maker's quotes and orders. 
Instead, a Market Maker's quotes and orders in a given option class 
would be aggregated (i.e., counted together).
     Proposed Rule 6.40P-O(c)(2)(C) would provide that each 
Entering Firm must select one of three Automated Breach Actions for the 
Exchange to take should the Entering Firm breach an Activity-Based Risk 
Control.
    [cir] ``Notification Only.'' As set forth in proposed Rule 6.40P-
O(c)(2)(C)(i), if this option is selected, the Exchange would continue 
to accept new order and quote messages and related instructions and 
would not cancel any unexecuted orders or quotes in the Consolidated 
Book. With the ``Notification Only'' action, the Exchange would provide 
such notifications, but would not take any other automated actions with 
respect to new or unexecuted orders. This proposed functionality is not 
currently available in the event of a breach of current Rule 6.40-O, 
but is substantially identical to the Notification Only option set 
forth in Rule 7.19-E(c)(3)(A)(i) for breach of the Gross Credit Risk 
Limit on the Exchange's cash equity platform. The Exchange believes 
this proposed option would provide Entering Firms more control over how 
Activity-Based Risk Controls are implemented and would add consistency 
to the risk controls already offered under Pillar on the Exchange's 
cash equity platform.
    [cir] ``Block Only.'' As set forth in proposed Rule 6.40P-
O(c)(2)(C)(ii), if this option is selected, the Exchange would reject 
new order and quote messages and related instructions, provided that 
the Exchange would continue to process instructions from the Entering 
Firm to cancel one or more orders or quotes (including Auction-Only 
Orders) in full. The proposed rule would also provide that the Exchange 
would follow any instructions specified in paragraph (e) of the 
proposed Rule (and described below). This proposed functionality is not 
currently available under current Rule 6.40-O, but is substantially 
identical to the Block Only option set forth in Rule 7.19-
E(c)(3)(A)(ii) for breach of the Gross Credit Risk Limit on the 
Exchange's cash equity platform. The Exchange believes this proposed 
option would provide Entering Firms more control over how Activity-
Based Risk Controls are implemented and would add consistency to the 
risk controls already offered under Pillar on the Exchange's cash 
equity platform.
    [cir] ``Cancel and Block.'' As set forth in proposed Rule 6.40P-
O(c)(2)(C)(iii), if this option is selected, in addition to the Block 
actions described above, the Exchange would also cancel all unexecuted 
orders and quotes in the Consolidated Book other than Auction-Only 
Orders and orders designated GTC. This proposed Cancel and Block 
functionality is substantially similar to the automated breach action 
taken by

[[Page 36463]]

the Exchange per current Rule 6.40-O(e) and Commentaries .01 and .02 
thereto, except that under the current rules, this is default (not 
optional) functionality. Additionally, this proposed rule is 
substantially identical to the Cancel and Block option set forth in 
Rule 7.19-E(c)(3)(A)(iii) for breach of the Gross Credit Risk Limit on 
the Exchange's cash equity platform. The Exchange believes this 
proposed option would provide Entering Firms more control over how 
Activity-Based Risk Controls are implemented and would add consistency 
to the risk controls already offered under Pillar on the Exchange's 
cash equity platform.
     Finally, proposed Rule 6.40P-O(c)(2)(D) would provide that 
if an Entering Firm breaches an Activity-Based Risk Control, the 
Automated Breach Action selected would be applied to its orders and 
quotes in the affected class of options. This proposed action is 
consistent with current Rule 6.40-O(e) and Commentaries .01 and .02 
thereto which provide that, upon a breach, the Exchange will cancel 
existing and suspend new orders and quotes trading in the affected 
class.
    Proposed Rule 6.40P-O(c)(2)(E) would provide that the Exchange 
would specify by Trader Update any applicable minimum, maximum and/or 
default settings for the Activity-Based Risk Controls, subject to the 
following:
     For the Transaction-Based Risk Limit, the minimum setting 
would not be less than one and the maximum setting would not be more 
than 2,000 (proposed Rule 6.40P-O(c)(2)(E)(i)).
     For the Volume-Based Risk Limit, the minimum setting would 
not be less than one and the maximum setting would not be more than 
500,000 (proposed Rule 6.40P-O(c)(2)(E)(ii)).
     For the Percentage-Based Risk Limit, the minimum setting 
would not be less than 50 and the maximum setting would not be more 
than 200,000 (proposed Rule 6.40P-O(c)(2)(E)(iii)).
    These proposed settings are identical to the Exchange-determined 
settings provided under current Rule 6.40-O, Commentary .03.
    Proposed Rule 6.40P-O(c)(2)(F) would provide that the Exchange 
would specify by Trader Update the Interval for the Activity-Based Risk 
Controls, subject to the following:
     The Interval would not be less than 100 milliseconds and 
would not be greater than 300,000 milliseconds, inclusive of the 
duration of any trading halt occurring within that time (proposed Rule 
6.40P-O(c)(2)(F)(i)).
     For transactions occurring in the Core Open Auction, per 
Rule 6.64P-O, the applicable time period would be the lesser of (i) the 
time between the Core Open Auction of a series and the initial 
transaction or (ii) the Interval (proposed Rule 6.40P-O(c)(2)(F)(ii)).
    These proposed settings are identical to the Exchange-specified 
time periods provided under current Rule 6.40-O, Commentary .03, except 
that the Exchange has included a maximum allowable time period for the 
Interval, which adds clarity to the rule.
    Proposed Rule 6.40P-O(c)(3) would set forth the automated breach 
actions for the Global Risk Controls set by an Entering Firm.
     Proposed Rule 6.40P-O(c)(3)(A) would provide that if the 
Global Risk Control limit is breached, the Exchange would Cancel and 
Block, per proposed Rule 6.40P(c)(2)(C)(iii).
     Proposed Rule 6.40P-O(c)(3)(B) would provide that if an 
Entering Firm breaches the Global Risk Control, the Automated Breach 
Action would be applied to all orders and quotes of the Entering Firm 
in all classes of options regardless of which class(es) of options 
caused the underlying breach of Activity-Based Risk Controls. This 
proposed functionality is consistent with the automated breach action 
taken in the event of a breach of current Rule 6.40-O(f), per current 
Rule 6.40-O, Commentaries .01 and .02.
     Proposed Rule 6.40P-O(c)(3)(C) would provide that the 
Exchange would specify by Trader Update any applicable minimum, maximum 
and/or default settings for the Global Risk Controls, provided that the 
minimum setting would not be less than 25 and the maximum setting would 
not be more than 100. These proposed settings are based on the 
Exchange-determined setting provided under current rule 6.40-O, 
Commentary .03, except that the current rule allows for a minimum 
setting of one (1) whereas the proposed rule is increasing that minimum 
to twenty-five (25), which the Exchange believes is a more appropriate 
minimum.
     Proposed Rule 6.40P-O(c)(3)(D) would provide that the 
Exchange would specify by Trader Update the Interval for the Global 
Risk Controls, subject to the following:
    [cir] The Interval would not be less than 100 milliseconds and 
would not be greater than 300,000 milliseconds, inclusive of the 
duration of any trading halt occurring within that time, per proposed 
Rule 6.40P-O(c)(3)(D)(i).
    [cir] For transactions occurring in the Core Open Auction, per Rule 
6.64P-O, the applicable time period is the lesser of (i) the time 
between the Core Open Auction of a series and the initial transaction 
or (ii) the Interval, per proposed Rule 6.40P-O(c)(3)(D)(ii).
    Proposed Rule 6.40P-O(d) describes how an Entering Firm's ability 
to enter orders, quotes, and related instructions would be reinstated 
after a ``Block Only'' or ``Cancel and Block'' Automated Breach Action 
has been triggered. In such case, proposed Rule 6.40P-O(d) provides 
that the Exchange would not reinstate the Entering Firm's ability to 
enter orders and quotes and related instructions on the Exchange (other 
than instructions to cancel one or more orders or quotes (including 
Auction-Only Orders and orders designated GTC) in full) without the 
consent of the Entering Firm, which may be provided via automated 
contact if it was a breach of an Activity-Based Risk Control. As 
further proposed, an Entering Firm that breaches the Global Risk 
Control would not be reinstated unless the Entering Firm provides 
consent via non-automated contact with the Exchange. This proposed 
functionality is consistent with current Rule 6.40-O, Commentary .02 
regarding the need for an Entering Firm to make automated or non-
automated contact with the Exchange, as applicable, prior to being 
reinstated. Proposed Rule 6.40P-O(d) is also consistent with the more 
granular level of risk control under Pillar functionality available for 
cash equity trading per Rule 7.19-E(d).
    Proposed Rule 6.40P-O(e) would set forth new ``kill switch'' 
functionality, which would allow an Entering Firm to direct the 
Exchange to take certain bulk cancel or block actions with respect to 
orders and quotes. In contrast to the Automated Breach Actions 
described above, which the Exchange would take automatically after the 
breach of a risk limit, the Exchange would not take any of the Kill 
Switch Actions without express direction from an Entering Firm.
    Proposed Rule 6.40P-O(e) would specify that an Entering Firm could 
direct the Exchange to take one or more of the following actions with 
respect to orders and quotes at either an MPID, or if designated, sub-
ID Level: (1) Cancel all Auction-Only Orders; (2) Cancel all orders 
designated GTC; (3) Cancel all unexecuted orders and quotes in the 
Consolidated Book other than Auction-Only Orders and orders designated 
GTC; or (4) Block the entry of any new order and quote messages and 
related instructions, provided that the Exchange would continue to 
accept instructions from Entering Firms to cancel one or more orders or 
quotes (including Auction-Only Orders and orders designated GTC) in 
full, and later, reverse that block. The proposed post-trade Kill 
Switch Actions are not

[[Page 36464]]

currently available per Rule 6.40-O and are substantially identical to 
the Kill Switch Action available on the Exchange's cash equity platform 
pursuant to Rule 7.19-E(e), with a difference to address the handling 
of orders designated GTC, which are not available on the cash equity 
platform. The Exchange believes that offering this functionality for 
options trading under Pillar would give Entering Firms more flexibility 
in setting risk controls for options trading and add consistency with 
the Exchange's risk control functionality available for cash equity 
trading.
    Proposed Commentary .01 to Rule 6.40P-O would provide that the Pre-
Trade, Activity-Based, and Global Risk Controls described in the 
proposed Rule 6.40P-O are meant to supplement, and not replace, the OTP 
Holder's or OTP Firm's own internal systems, monitoring, and procedures 
related to risk management and are not designed for compliance with 
Rule 15c3-5 under the Exchange Act.\45\ Responsibility for compliance 
with all Exchange and SEC rules remains with the OTP Holder or OTP 
Firm. This proposed language is not included in existing Rule 6.40-O, 
and is based on Commentary .01 to Rule 7.19-E. The proposed rule makes 
clear that use of the proposed controls alone does not constitute 
compliance with Exchange rules or the Exchange Act.
---------------------------------------------------------------------------

    \45\ 17 CFR 240.15c3-5.
---------------------------------------------------------------------------

    In connection with proposed Rule 6.40P-O, the Exchange proposes to 
add the following preamble to Rule 6.40-O: ``This Rule will not be 
applicable to trading on Pillar.'' This proposed preamble is designed 
to promote clarity and transparency in Exchange rules that Rule 6.40-O 
would not be applicable to trading on Pillar.
Proposed Rule 6.41P-O: Price Reasonability Checks--Orders and Quotes
    The Exchange proposes to describe its Price Reasonability Checks 
for orders and quotes in proposed Rule 6.41P-O.\46\ For the OX system, 
the concept of ``Price Reasonability Checks'' for Limit Orders are 
described in Rule 6.60-O(c) and the concept of price protection filters 
for quotes are described in Rule 6.61-O. The proposed ``Price 
Reasonability Checks'' on Pillar would be applicable to both orders and 
quotes and would work similarly to how the current price checks for 
Limit Orders function on the OX system, with updates to functionality 
consistent with Pillar. The Exchange proposes to locate the rule text 
for the proposed Price Reasonability Checks in Rule 6.41P-O to 
immediately follow Rule 6.40P-O regarding the Pre-Trade and Activity-
Based Controls, as this placement would group the risk controls 
together and make Exchange rules easier to navigate.
---------------------------------------------------------------------------

    \46\ Current Rule 6.41-O is held as Reserved. The Exchange 
proposes to renumber the proposed rule with the ``P'' modifier and 
remove reference to ``Reserved.''
---------------------------------------------------------------------------

    Proposed Rule 6.41P-O(a)(1)-(3) would set forth the circumstances 
under which the proposed Price Reasonability Checks would apply. 
Proposed Rule 6.41P-O(a) would provide that the Exchange would apply 
the Price Reasonability Checks, as defined in proposed paragraphs (b) 
and (c), to all Limit Orders and quotes during continuous trading on 
each trading day, subject to the following:
     Proposed Rule 6.41P-O(a)(1) would provide that a Limit 
Order or quote received during a pre-open state would be subject to the 
proposed Price Reasonability Checks after an Auction concludes; that a 
Limit Order or quote that was resting on the Consolidated Book before a 
trading halt would be subject to the proposed Price Reasonability 
Checks again after the Trading Halt Auction; and that a put option 
message to buy would be subject to the Arbitrage Check regardless of 
when it arrives. This proposed rule is based in part on current Rule 
6.60-O(a), which provides that the Price Reasonability Checks (for 
orders) are applied when a series opens or reopens for trading. 
Proposed Rule 6.41P-O(a)(1) adds additional detail and granularity 
regarding when the proposed Price Reasonability Checks would be applied 
under Pillar.
     Proposed Rule 6.41P-O(a)(2) would provide that if the 
calculation of the Price Reasonability Check is not consistent with the 
MPV for the series, it would be rounded down to the nearest price 
within the applicable MPV, which text adds new details regarding Pillar 
rounding functionality.
     Proposed Rule 6.41P-O(a)(3) would provide that the 
proposed Price Reasonability Checks would not apply to (i) any options 
series for which the underlying security has a non-standard cash or 
stock deliverable as part of a corporate action; (ii) any options 
series for which the underlying security is identified as over-the-
counter (``OTC''); (iii) any option series on an index; and (iv) any 
option series for which the Exchange determines it is necessary to 
exclude underlying securities in the interests of maintaining a fair 
and orderly market, which the Exchange would announce by Trader Update. 
Proposed Rule 6.41P-O(a)(3) is based on current Commentary .01 to Rule 
6.60-O (orders) and 6.61-O (quotes), with a non-substantive difference 
that the proposed rule no longer references Binary Return Derivatives 
(``ByRDs'') because ByRDs are no longer traded on the Exchange.
    Proposed Rule 6.41P-O(b) would set forth the ``Arbitrage Checks'' 
for buy orders or quotes, which subset of Price Reasonability Checks 
are based on the principle that an option order is in error and should 
be rejected (or canceled) when the same result can be achieved on the 
market for the underlying equity security at a lesser cost.
     Proposed Rule 6.41P-O(b)(1) relates to ``puts'' and would 
provide that order or quote messages to buy for put options would be 
rejected if the price of the order or quote is equal to or greater than 
the strike price of the option, which is substantively identical to 
current Rule 6.60-O(c)(1)(A) for orders, with a proposed difference 
that proposed ``Arbitrage Check'' would also apply to quotes.
     Proposed Rule 6.41P-O(b)(2) relates to ``calls'' and would 
provide that order or quote messages to buy for call options would be 
rejected or canceled (if resting) if the price of the order or quote is 
equal to or greater than the last sale price of the underlying security 
on the Primary Market, plus a specified dollar amount to be determined 
by the Exchange and announced by Trader Update. This proposed rule is 
substantially similar to current Rule 6.60-O(c)(1)(B) for orders, with 
two differences. First, the proposed ``Arbitrage Checks'' would also 
apply to quotes. Second, because the Exchange is monitoring last sales 
from the Primary Market, the Exchange proposes that the Exchange-
specified dollar amount for the Checks would be based on the last sale 
on the Primary Market rather than on the Consolidated Last Sale.
    Proposed Rule 6.41P-O(c) would set forth the ``Intrinsic Value 
Checks'' for orders or quotes to sell, which are designed to protect 
sellers of calls and puts from presumptively erroneous executions based 
on the ``Intrinsic Value'' of an option.
     Proposed Rule 6.41P-O(c)(1)-(2) would set forth how the 
Intrinsic Value of an option would be determined. Proposed Rule 6.41P-
O(c)(1) would provide that the Intrinsic Value for a put option is 
equal to the strike price minus the last sale price of the underlying 
security on the Primary Market. Proposed Rule 6.41P-O(c)(2) would 
provide that the Intrinsic Value for a call option is equal to the last 
sale price of the underlying security on the Primary Market minus the 
strike price. Proposed Rule 6.41P-O(c)(1)-(2) is based on how the 
intrinsic value is

[[Page 36465]]

calculated in current Rule 6.60-O(c)(2) for orders, with two 
differences. First, the proposed ``Intrinsic Value Checks'' would also 
apply to quotes. Second, the Intrinsic Value of an option would be 
based on the last sale on the Primary Market rather than on the 
Consolidated Last Sale.
     Proposed Rule 6.41P-O(c)(3) would provide that ISOs to 
sell would not be subject to the Intrinsic Value Check, which carve out 
is substantively identical to current Rule 6.60-O(c)(2).
     Proposed Rule 6.41P-O(c)(4) would describe the application 
of the Intrinsic Value Checks to puts and calls to sell.
    [cir] Proposed Rule 6.41P-O(c)(4)(A) would provide that orders or 
quotes to sell for both puts and calls would be rejected or canceled 
(if resting) if the price of the order or quote is equal to or lower 
than its Intrinsic Value, minus a threshold percentage to be determined 
by the Exchange and announced by Trader Update.
    [cir] Proposed Rule 6.41P-O(c)(4)(B) would provide that the 
Exchange-determined threshold percentage (per paragraph (c)(4)(A)) 
would be based on the NBB, provided that, immediately following an 
Auction, it would be based on the Auction Price, or, if none, the lower 
Auction Collar price, or, if none, the NBB. This proposed threshold 
percentage is similar to how the Reference Price would be determined 
for Trading Collars, as described above pursuant to proposed Rule 
6.62P-O(a)(3). As further proposed, Rule 6.41P-O(c)(4)(B) would provide 
that for purposes of determining the Intrinsic Value, the Exchange 
would not use an adjusted NBBO. The Exchange further proposes that the 
Intrinsic Value Check for sell orders and quotes would not be applied 
if the Intrinsic Value cannot be calculated.
    Proposed Rule 6.41P-O(c)(4)(A)-(B) is substantially similar to 
current Rule 6.60-O(a)(2)(A), which sets forth the Intrinsic Value for 
orders, except that the proposed rule would also apply to quotes and 
provides additional detail regarding how the threshold percentage for 
determining the Intrinsic Value would be applied depending on when such 
sell order or quote arrives and the potential reference price(s) 
available to calculate this Price Reasonability Check.
    Proposed Rule 6.41P-O(d) would provide the Automated Breach Action 
to be applied when a Market Maker's order or quote fails one of the 
Price Reasonability Checks. As proposed, if a Market Maker's order or 
quote message is rejected or cancelled (if resting) pursuant to 
proposed paragraph (b) (Arbitrage Checks) or (c) (Intrinsic Value 
Checks) of proposed Rule 6.41P-O, the Exchange would Cancel and Block 
orders and quotes in the affected class of options as described in Rule 
6.40P-O(c)(2)(C)(iii) (as described above in section ``Proposed Rule 
6.40P-O'').
    Proposed Rule 6.41P-O(d)(1) would provide that a breach of proposed 
Rule 6.41P-O(d) would count towards a Market Maker's Global Risk 
Control limit per Rule 6.40P-O(a)(4) (as described above in section 
``Proposed Rule 6.40P-O'').
    Proposed Rule 6.41P-O(d)(2) concerns how a Market Maker would be 
reinstated following an automated breach action. As proposed, the 
Exchange would not reinstate the Market Maker's ability to enter orders 
and quotes and related instructions on the Exchange in that class of 
options (other than instructions to cancel one or more orders/quotes 
(including Auction-Only Orders and orders designated GTC) in full) 
without the consent of the Market Maker, which may be provided via 
automated contact.
    Rule 6.41P-O(d) is substantially similar to current Rule 6.61-O(b), 
except that the proposed rule applies to both the orders and quotes of 
a Market Maker (not just quotes) and provides the additional 
functionality that a breach of the Price Reasonability Checks would 
count towards a Market Maker's Global Risk Control limit under proposed 
Rule 6.40P-O(c)(3), which functionality would be new under Pillar.
    In connection with proposed Rule 6.41P-O, the Exchange proposes to 
add the following preamble to Rules 6.60-O and 6.61-O: ``This Rule will 
not be applicable to trading on Pillar.'' This proposed preamble is 
designed to promote clarity and transparency in Exchange rules that 
Rules 6.60-O and 6.61-O would not be applicable to trading on Pillar.
Proposed Rule 6.64P-O: Auction Process
    Current Rule 6.64-O, OX Opening Process, sets forth the opening 
process currently used on the Exchange's OX system for opening trading 
in a series each day and reopening trading in a series following a 
trading halt. The Exchange proposes that new Rule 6.64P-O would set 
forth the auction process for both opening and reopening trading in a 
series on the Exchange. The Exchange proposes to specify that Rule 
6.64-O would not be applicable to trading on Pillar.
    With the transition to Pillar, the Exchange proposes new 
functionality regarding the auction process on the Exchange. In 
addition, certain functionality available on the Exchange's cash equity 
platform will now be available for options trading. Accordingly, the 
Exchange proposes that proposed Rule 6.64P-O would use Pillar 
terminology relating to auctions that is based on Pillar terminology 
set forth in Rule 7.35-E for cash equity trading.
    Definitions. Proposed Rule 6.64P-O(a) would provide that the Rule 
would be applicable to all series that trade on the Exchange other than 
Flex Options.\47\ Proposed Rule 6.64P-O(a) would further set forth the 
definitions that would be used for purposes of Rule 6-O Options Trading 
that would be applicable to trading on Pillar.
---------------------------------------------------------------------------

    \47\ With the transition to Pillar, the Exchange is not making 
any changes to how Flex Options trade. Rule 5.31-O provides that 
Flex Options transactions may be effected during normal Exchange 
options trading hours on any business day and there will be no 
trading rotations in Flex Options. Rule 5.33-O sets forth the 
procedures for trading Flex Options. The opening process for 
Electronic Complex Orders is set forth in Rule 6.91-O.
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(1) would define the term 
``Auction'' to mean the opening or reopening of a series for trading 
either on a trade or a quote. This proposed definition is based in part 
on current Rule 6.64-O(a), which defines the term ``Trading Auction'' 
to be a process by which trading is initiated in a specified options 
class that may be employed at the opening of the Exchange each business 
day or to re-open trading after a trading halt. On Pillar, the Exchange 
proposes that the term ``Auction'' would refer to the point in the 
process where the Exchange determines that a series can be opened or 
reopened either on a trade or a quote.
    Proposed Rule 6.64P-O(a)(1)(A) would provide that a ``Core Open 
Auction'' means the Auction that opens trading after the beginning of 
Core Trading Hours and proposed Rule 6.64P-O(a)(1)(B) would provide 
that a ``Trading Halt Auction'' means the Auction that reopens trading 
following a trading halt. These are Pillar terms currently used in Rule 
7.35-E for the same purposes.
     Proposed Rule 6.64P-O(a)(2) would define the term 
``Auction Collar'' to mean the price collar thresholds for the 
Indicative Match Price for an Auction. As further proposed, the upper 
Auction Collar would be the offer of the Legal Width Quote (defined 
below) and the lower Auction Collar would be the bid of the Legal Width 
Quote, provided that if the bid of the Legal Width Quote is zero, the 
lower Auction Collar would be one MPV above zero for the series. The 
proposed rule would further provide that if there is no Legal Width 
Quote, the Auction Collars would be published

[[Page 36466]]

in the Auction Imbalance Information (defined below) as zero.
    The proposed terminology of ``Auction Collars'' would be new for 
options trading and is based on the same term used in Rule 7.35-E for 
trading cash equity securities. However, the concept would not be novel 
because currently, the Exchange will not open a series if the bid-ask 
differential is not within the bid-ask differential guidelines 
established under Rule 6.37-O(b)(4).\48\ Auction Collars would function 
similarly to prevent an Auction that results in a trade from being 
priced outside the Legal Width Quote.
---------------------------------------------------------------------------

    \48\ See Rule 6.64-O(b)(D) and (E).
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(3) would define the term 
``Auction Imbalance Information'' to mean the information that the 
Exchange disseminates about an Auction via its proprietary data feeds 
and includes the Auction Collars, Auction Indicator, Book Clearing 
Price, Far Clearing Price, Indicative Match Price, Matched Volume, 
Market Imbalance, and Total Imbalance. With Pillar, the Exchange 
proposes to disseminate Auction Imbalance Information for its options 
market in the same manner that such information is disseminated for its 
cash equity market. Accordingly, this proposed definition is based on 
Rule 7.35-E, with differences to reflect the content that would be 
included in Auction Imbalance Information for options trading. In 
addition, the Exchange proposes that the Auction Imbalance Information 
would reflect the orders and quotes eligible to participate in an 
Auction and that contribute to price discovery. Accordingly, proposed 
Rule 6.64P-O(a)(3) would further provide that Auction Imbalance 
Information would be based on all orders and quotes (including the non-
displayed quantity of Reserve Orders) eligible to participate in an 
Auction, excluding IO Orders.\49\
---------------------------------------------------------------------------

    \49\ This is consistent with the order information included in 
Auction Imbalance Information for cash equity trading. See Rule 
7.35-E(a)(7) and 7.35-E(a)(8). The Exchange proposes to exclude IO 
Orders because they are conditional offsetting orders that would not 
contribute to price discovery in the Auction Process.
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(a)(3)(A) would define the term ``Auction 
Indicator'' to mean the indicator that provides a status update of 
whether an Auction cannot be conducted because either (i) there is no 
Legal Width Quote, or (ii) a Market Maker quote has not been received 
during the Opening MMQ Time Parameter (defined below). The Exchange 
currently disseminates an Auction Indicator on its cash equity market 
and proposes similar functionality for options trading on the 
Exchange.\50\
---------------------------------------------------------------------------

    \50\ See Rule 7.35-E(a)(13).
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(a)(3)(B) would define the term ``Book 
Clearing Price'' to mean the price at which all contracts could be 
traded in an Auction if not subject to the Auction Collar and that the 
Book Clearing Price would be zero if a sell (buy) Imbalance cannot be 
filled by any buy (sell) interest. The Exchange proposes that the 
manner that the Book Clearing Price would be calculated for options 
trading would be the same as how it is calculated for cash equity 
trading. Accordingly, this proposed definition is based in part on the 
definition of ``Book Clearing Price'' set forth in Rule 7.35-E(a)(11), 
with differences to reflect options trading terminology.
    Proposed Rule 6.64P-O(a)(3)(C) would define the term ``Far Clearing 
Price'' to mean the price at which all Auction-Only Orders could be 
traded in an Auction within the Auction Collar. The Exchange proposes 
that the manner that the Far Clearing Price would be calculated for 
options trading would be the same as how it is calculated for cash 
equity trading. Accordingly, this proposed definition is based on the 
definition of ``Far Clearing Price'' set forth in Rule 7.35-E(a)(12), 
without any differences.
    Proposed Rule 6.64P-O(a)(3)(D) would define the term ``Imbalance'' 
to mean the number of buy (sell) contracts that cannot be matched with 
sell (buy) contracts at the Indicative Match Price at any given time. 
The Exchange proposes that the manner that the Imbalance would be 
calculated for options trading would be the same as how it is 
calculated for cash equity trading. Accordingly, this proposed 
definition is based in part on the definition of ``Imbalance'' set 
forth in Rule 7.35-E(a)(7), with differences to reflect options trading 
terminology.
    Proposed Rule 6.64P-O(a)(3)(D)(i) would define the term ``Total 
Imbalance'' to mean the Imbalance of all buy (sell) contracts at the 
Indicative Match Price for all orders and quotes eligible to trade in 
an Auction. The Exchange proposes that the manner that the Total 
Imbalance would be calculated for options trading would be the same as 
how it is calculated for cash equity trading. Accordingly, this 
proposed definition is based in part on the definition of ``Total 
Imbalance'' set forth in Rule 7.35-E(a)(7)(A), with differences to 
reflect options trading terminology.
    Proposed Rule 6.64P-O(a)(3)(D)(ii) would define the term ``Market 
Imbalance'' to mean the Imbalance of any remaining buy (sell) Market 
Orders and MOO Orders that are not matched for trading in the Auction. 
The Exchange proposes that the manner that the Market Imbalance would 
be calculated for options trading would be the same as how it is 
calculated for cash equity trading. Accordingly, this proposed 
definition is based in part on the definition of ``Market Imbalance'' 
set forth in Rule 7.35-E(a)(7)(B), with differences to reflect options 
trading terminology.
     Proposed Rule 6.64P-O(a)(4) would define the term 
``Auction Process'' to mean the process that begins when the Exchange 
receives an Auction Trigger (defined below) for a series and ends when 
the Auction is conducted. This would be a new term and is designed to 
address all steps in the process that culminates in an Auction, as 
described in proposed Rule 6.64P-O(d).
     Proposed Rule 6.64P-O(a)(5) would define the term 
``Auction Processing Period'' to mean the period during which the 
Auction is being processed. The Exchange proposes that this term would 
have the same meaning as the same term on its cash equity market. 
Accordingly, this proposed definition is based in part on the 
definition of ``Auction Processing Period'' set forth in Rule 7.35-
E(a)(2), without any differences.
     Proposed Rule 6.64P-O(a)(6) would define the term 
``Auction Trigger'' to mean the information disseminated by the Primary 
Market in the underlying security that triggers the Auction Process for 
a series to begin. For a Core Open Auction, the Auction Trigger would 
be when the Primary Market first disseminates at or after 9:30 a.m. 
Eastern Time both a two-sided quote and a trade of any size that is at 
or within the quote. For a Trading Halt Auction, the Auction Trigger 
would be when the Primary Market disseminates at the end of a trading 
halt or pause a resume message, a two-sided quote, and a trade of any 
size that is at or within the quote. This proposed functionality is not 
new and is based on how the Exchange currently opens or reopens a 
series for trading, as set forth in the last sentence of current Rule 
6.64-O(b). The Exchange proposes to use Pillar terminology, including 
to specify that an odd-lot transaction on the Primary Market could be 
used as an Auction Trigger, which would be new on Pillar.
     Proposed Rule 6.64P-O(a)(7) would define the term 
``Indicative Match Price'' to mean the price at which the maximum 
number of contracts can be traded in an Auction, including the non-
displayed quantity of Reserve Orders and excluding IO Orders, subject 
to the

[[Page 36467]]

Auction Collars. This proposed definition is based on Rule 7.35-E(a)(8) 
with non-substantive differences to reflect options trading terminology 
(i.e., contracts instead of shares). Proposed Rule 6.64P-O(a)(7) would 
further provide that if there is no Legal Width Quote, the Indicative 
Match Price included in the Auction Imbalance Information would be 
calculated without Auction Collars. This would be a new feature 
applicable only to options trading and an Indicative Match Price 
without Auction Collars would be accompanied with an Auction Indicator 
that the Auction cannot be conducted because there is no Legal Width 
Quote.
    Proposed Rule 6.64P-O(a)(7)(A) would provide that if there is more 
than one price level at which the maximum number of contracts can be 
traded within the Auction Collars, the Indicative Match Price would be 
the price closest to the midpoint of the Legal Width Quote, rounded to 
the nearest MPV for the series, provided that the Indicative Match 
Price will not be lower (higher) than the highest (lowest) price of a 
Limit Order to buy (sell) ranked Priority 2--Display Orders that is 
eligible to participate in the Auction. This proposed rule text is 
based on Rule 7.31-E(a)(8)(A) with a substantive difference only to 
reflect that in such circumstances, the Indicative Match Price would be 
the price closest to the midpoint of the Legal Width Quote rather than 
the price closest to an auction reference price.
    Proposed Rule 6.64P-O(a)(7)(B) would provide that an Indicative 
Match Price that is higher (lower) than the upper (lower) Auction 
Collar would be adjusted to the upper (lower) Auction Collar and orders 
eligible to participate in the Auction would trade at the collared 
Indicative Match Price. Proposed Rule 6.64P-O(a)(7)(B)(i) would provide 
that Limit Orders to buy (sell) with a limit price above (below) the 
upper (lower) Auction Collar would be included in the Auction Imbalance 
Information at the collared Indicative Match Price and would be 
eligible to trade at the Indicative Match Price. Proposed Rule 6.64P-
O(a)(7)(B)(ii) would provide that Limit Orders and quotes to buy (sell) 
with a limit price below (above) the lower (upper) Auction Collar would 
not be included in the Auction Imbalance Information and would not 
participate in an Auction. The Exchange proposes that the manner that 
orders and quotes priced outside of the Auction Collar would be 
included in the Indicative Match Price would be the same as how it is 
determined for cash equity trading. Accordingly, this proposed rule 
text is based on Rules 7.31-E(a)(10)(A), (B), and (C) with a difference 
only to reflect when the proposed rule would be applicable to quotes.
    Proposed Rule 6.64P-O(a)(7)(C) would provide that if the Matched 
Volume (defined below) for an Auction consists of only buy and sell 
Market Orders, the Indicative Match Price would be the midpoint of the 
Legal Width Quote, rounded to the MPV for the series, or, if the Legal 
Width Quote is locked, the locked price. This proposed rule text is 
based in part on Rule 7.31-E(a)(8)(C), with differences to reflect that 
options trading is based on a Legal Width Quote.
    Proposed Rule 6.64P-O(a)(7)(D) would provide that if there is no 
Matched Volume, including if there are Market Orders on only one side 
of the Market, the Indicative Match Price and Total Imbalance for the 
Auction Imbalance Information would be zero. This proposed rule text is 
based on Rule 7.31-E(a)(8)(D) and (E) with differences to reflect that 
on options, the Indicative Match Price would be zero in both 
circumstances.
     Proposed Rule 6.64P-O(a)(8) would define the term ``Legal 
Width Quote'' to mean the highest bid and lowest offer among all Market 
Maker quotes and the Away Market NBBO (together, ``Calculated NBBO'') 
during the Auction Process. The proposed rule would further provide 
that the Calculated NBBO can be a Legal Width Quote if it: (A) It is 
locked, but not crossed; (B) does not contain a zero offer; and (C) has 
a spread between the Calculated NBBO for each option contract that does 
not exceed the following differentials, which can be widened as 
provided for in Rule 6.37-O(c): (i) No more than .25 where the bid not 
does exceed $2; (ii) no more than .40 where the bid is more than $2 but 
does not exceed $5; (iii) no more than .50 where the bid is more than 
$5 but does not exceed $10; (iv) no more than .80 where the bid is more 
than $10 but does not exceed $20; and (v) no more than $1 where the bid 
is more than $20, provided that a Trading Official may establish 
differences other than the above for one or more series or classes of 
options.
    Requiring that a bid-ask spread meet specified differentials before 
an Auction can proceed is based on the current OX Opening Process, 
which requires the bid-ask differential for a series to be in an 
acceptable range. The proposed differential spread for the Pillar 
Auction Process is based on the bid-ask differentials currently set 
forth in Rule 6.37-O(b)(4) with a difference that for Auctions on 
Pillar, for option contracts with a bid of $2, the differential will be 
.25 instead of .40. The Exchange believes that including the proposed 
bid-ask differential in the rule governing the Auction Process would 
promote clarity and transparency in Exchange rules regarding which 
quotes--both Market Maker quotes on the Exchange and the Away Market 
NBBO--that the Exchange would use to determine if there is a Legal 
Width Quote. The Exchange also proposes to make a conforming change to 
Rule 6.37-O(c) to add a cross-reference to proposed Rule 6.64P-O(a)(8). 
This proposed amendment would ensure that the existing procedures for 
auctions specified in Rule 6.37-O(c) would continue to be available for 
option symbols that have transitioned to Pillar.
     Proposed Rule 6.64P-O(a)(9) would define the term 
``Matched Volume'' to mean the number of buy and sell contracts that 
can be matched at the Indicative Match Price, excluding IO Orders. This 
proposed rule text is based on the definition of ``Matched Volume'' set 
forth in Rule 7.31-E(a)(9) with a non-substantive difference to 
reference contracts instead of shares and to be clear that the Matched 
Volume would not include IO Orders.
     Proposed Rule 6.64P-O(a)(10) would define the term ``pre-
open state'' to mean the period before a series is opened or reopened 
and that during the pre-open state, the Exchange would accept Auction-
Only Orders, quotes, and orders designated Day or GTC, including orders 
ranked Priority 3--Non-Display Orders that are not eligible to 
participate in an Auction. The proposed rule would further provide that 
the pre-open state for the Core Open Auction would begin at 6:00 a.m. 
Eastern Time and would end when the Auction Processing Period begins 
and that during the pre-open state before the Core Open Auction, the 
Exchange would re-enter orders designated GTC. The proposed rule would 
also provide that pre-open state for a Trading Halt Auction would begin 
at the beginning of the trading halt and would end when the Auction 
Processing Period begins. This proposed definition would be new for 
Pillar and is designed to distinguish from both the Auction Processing 
Period and the period when a series is opened for trading. As noted 
above, this proposed definition would also be used in proposed Rules 
6.40P-O, 6.41P-O, and 6.62P-O.
     Proposed Rule 6.64P-O(a)(11) would define the term 
``Rotational Quote'' to mean the highest Market Maker bid and lowest 
Market Maker offer on the Exchange when the Auction Process begins and 
that during the Auction Process, the Exchange would

[[Page 36468]]

update the price and size of the Rotational Quote and a Rotational 
Quote can be locked or crossed. The Exchange further proposes that if 
there are no Market Maker quotes, the Rotational Quote would be 
published with a zero price and size. The Exchange notes that it 
currently publishes a ``rotational quote'' when it is in the process of 
opening or reopening a series, i.e., a quote that is comprised only of 
Market Maker quotes and does not include orders. The Exchange proposes 
a difference on Pillar because currently, if the Market Maker Quotes 
are crossed, the Exchange flips the bid and offer prices. In Pillar, 
the Exchange would publish a Rotational Quote with the actual bid and 
offer prices, even if crossed.
    Auction Ranking. Proposed Rule 6.64P-O(b) would describe the 
ranking for Auctions and would provide that orders and quotes on the 
side of the Imbalance are not guaranteed to participate in the Auction 
and would be ranked in price-time priority under proposed Rule 6.76P-O 
consistent with the priority ranking associated with each order or 
quote, provided that: (1) Limit Orders, quotes, and LOO Orders would be 
ranked based on their limit price and not the price at which they would 
participate in the Auction; (2) MOO Orders would be ranked Priority 1--
Market Orders; (3) LOO Orders would be ranked Priority 2--Display 
Orders; and (4) IO Orders would be ranked based on time among IO 
Orders, subject to eligibility to participate at the Indicative Match 
Price based on their limit price.
    This proposed rule is based on current Rule 6.62-O(b)(B), which 
provides that orders and quotes in the system will be matched up with 
one another based on price-time priority. The Exchange proposes a 
difference in Pillar that orders in the same priority category as 
quotes would not have priority over Market Maker quotes at the same 
price, which is current functionality.\51\ Instead, orders and Market 
Marker quotes in the same priority category would be ranked based on 
time, consistent with proposed Rule 6.76P-O. Because the Exchange 
proposes that orders and quotes in an options Auction would be 
processed in the same manner as on its cash equity platform, including 
that orders on the side of the Imbalance would not be guaranteed to 
participate in an Auction, the remaining rule text is based in part on 
Rule 7.35-E(a)(6)(A)--(D), with differences to reflect options trading 
and to be clear that IO Orders would be ranked on working time among IO 
Orders, subject to such orders' eligibility to participate at the 
Indicative Match Price based on their limit price.\52\
---------------------------------------------------------------------------

    \51\ Current Rule 6.64-O(b)(B) provides that ``orders will have 
priority over Market Maker quotes at the same price.''
    \52\ See discussion supra, regarding proposed Rule 6.62P-O(c)(3) 
and how IO Orders would function.
---------------------------------------------------------------------------

    Auction Imbalance Information. Proposed Rule 6.64P-O(c) would 
provide that Auction Imbalance Information would be updated at least 
every second until the Auction is conducted, unless there is no change 
to the information and that the Exchange would begin disseminating 
Auction Imbalance Information at the following times: (1) Core Open 
Auction Imbalance Information would begin at 8:00 a.m. Eastern Time; 
and (2) Trading Halt Auction Imbalance Information would begin at the 
beginning of the trading halt. Because the Exchange proposes to 
disseminate Auction Imbalance Information for its options market in the 
same manner that such information is disseminated for its cash equity 
market, this proposed rule text is based in part on Rule 7.35-
E(a)(4)(A) and (C).
    Auction Process. Proposed Rule 6.64P-O(d) would set forth the 
Exchange's proposed Auction Process on Pillar. Similar to current 
functionality, a series would not be opened or reopened for trading if 
there is no Legal Width Quote. The Exchange proposes to add on Pillar 
that a series should also have Market Maker quotes and the Exchange 
proposes to provide time for this requirement to be established, and if 
not established within those time frames, providing for a mechanism to 
open or reopen a series even if there are no Market Maker quotes.
    Proposed Rule 6.64P-O(d)(1) would concern the Rotational Quote and 
would provide that when the Exchange receives the Auction Trigger for a 
series, the Exchange would send a Rotational Quote to both OPRA and 
proprietary data feeds indicating that the Exchange is in the process 
of transitioning from a pre-open state to continuous trading for that 
series.
    Proposed Rule 6.64P-O(d)(2) would provide that once a Rotational 
Quote has been sent, the Exchange would conduct an Auction when there 
is both a Legal Width Quote and, if applicable, Market Maker quote with 
a non-zero offer in the series (subject to the Opening MMQ Time 
Parameter requirements specified in proposed Rule 6.64P-O(d)(3)). The 
proposed rule would further provide that the Exchange would wait a 
minimum of two milliseconds after the Rotational Quote has been sent 
before an Auction can be conducted. This proposed rule text is designed 
to provide transparency and determinism in Exchange rules of the 
earliest potential time that a series could be opened after the 
Exchange receives an Auction Trigger, and subject to the series meeting 
all other requirements for opening or reopening.
    Proposed Rule 6.64P-O(d)(2)(A) would provide that if there is 
Matched Volume that can trade at or within the Auction Collars, the 
Auction would result in a trade at the Indicative Match Price. Proposed 
Rule 6.64P-O(d)(2)(B) would provide that if there is no Matched Volume 
that can trade at or within the Auction Collars, the Exchange would 
transition to continuous trading as described in proposed Rule 6.64P-
O(f) below and the Auction would result in a quote. This proposed rule 
text is designed to provide transparency of when an Auction would 
result in a trade or a quote.
    Proposed Rule 6.64P-O(d)(3) would specify the Opening MMQ Time 
Parameter. As proposed, once the Auction Process begins, the Exchange 
would begin a one-minute timer for the Market Maker(s) assigned to a 
series to submit a quote with a non-zero offer. This one-minute timer 
would be the Opening MMQ Time Parameter. The Opening MMQ Time Parameter 
is designed to provide the Market Makers assigned to a series an 
opportunity to submit a quote, and provide transparency in Exchange 
rules of the circumstances of when the Exchange would open a series for 
trading if the assigned Market Maker(s) does not submit a quote within 
the specified time periods, as follows:
     Proposed Rule 6.64P-O(d)(3)(A) would provide that if there 
are no Market Makers assigned to a series, the Exchange would conduct 
an Auction in that series based on only a Legal Width Quote, without 
waiting for the Opening MMQ Time Parameter to end.
     Proposed Rule 6.64P-O(d)(3)(B) would provide that if there 
is only one Market Maker assigned to a series:
    [cir] The Exchange would conduct the Auction, without waiting for 
the Opening MMQ Time Parameter to end, as soon as there is both a Legal 
Width Quote and the assigned Market Maker has submitted a quote with a 
non-zero offer (proposed Rule 6.64P-O(d)(3)(B)(i)).
    [cir] If the Market Maker has not submitted a quote with a non-zero 
offer by the end of the Opening MMQ Time Parameter and there is a Legal 
Width Quote, the Exchange would conduct the

[[Page 36469]]

Auction (proposed Rule 6.64P-O(d)(3)(B)(ii)).
     Proposed Rule 6.64P-O(d)(3)(C) would provide that if there 
are two or more Market Makers assigned to a series:
    [cir] The Exchange would conduct the Auction, without waiting for 
the Opening MMQ Time Parameter to end, as soon as there is both a Legal 
Width Quote and at least two assigned Market Makers have submitted a 
quote with a non-zero offer (proposed Rule 6.64P-O(d)(3)(C)(i)).
    [cir] If at least two Market Makers have not submitted a quote with 
a non-zero offer by the end of the Opening MMQ Time Parameter, the 
Exchange would begin a second Opening MMQ Time Parameter and that 
during the second Opening MMQ Time Parameter, the Exchange would 
conduct the Auction, without waiting for the second Opening MMQ Time 
Parameter to end, if there is both a Legal Width Quote and at least one 
Market Maker has submitted a quote with a non-zero offer (proposed Rule 
6.64P-O(d)(3)(C)(ii)).
    [cir] If no Market Maker has submitted a quote with a non-zero 
offer by the end of the second Opening MMQ Time Parameter and there is 
a Legal Width Quote, the Exchange would conduct the Auction (proposed 
Rule 6.64P-O(d)(3)(C)(iii).
    Proposed Rule 6.64P-O(d)(4) would provide that for the first five 
minutes of the Auction Process, if there is no Legal Width Quote, the 
Exchange would not conduct an Auction, even if there is Matched Volume. 
This proposed rule text provides transparency that when there is 
Matched Volume, the Exchange would not open a series if there is no 
Legal Width Quote.
    The Exchange proposes new functionality for Pillar to allow the 
Exchange to open a series when there is a Calculated NBBO wider than 
the Legal Width Quote, provided that there is also no Matched Volume. 
As proposed, five minutes after the Auction Process begins:
     Proposed Rule 6.64P-O(d)(4)(A) would provide that if there 
is no Matched Volume and the Calculated NBBO is wider than the Legal 
Width Quote, is not crossed, and does not contain a zero offer, the 
Exchange would transition to continuous trading as described in 
paragraph (f) of this Rule. As further proposed, in such case, the 
Auction would result in a quote, provided that there may be an Auction 
trade even if there is no Legal Width Quote if orders or quotes arrive 
during the period when the Exchange is evaluating the status of orders 
and quotes.\53\ The Exchange believes this proposed rule would provide 
an opportunity for more series to open for trading when there is a 
Calculated NBBO in a series that is wider than the Legal Width Quote 
and is not crossed and does not contain a zero offer.
---------------------------------------------------------------------------

    \53\ The Exchange expects this to be a rare race condition that 
would result when the Exchange receives orders and quotes at 
virtually the same time it is evaluating whether it can open a 
series based on a wide Calculated NBBO and that as a result of that 
race condition, those new orders or quotes are marketable against 
contra-side interest at the same time that the Exchange concludes, 
based on interest that had previously been received, that it can 
open on a quote.
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(d)(4)(A)(i) would provide that any 
time a series is opened or reopened when there is no Legal Width Quote, 
Market Orders and MOO Orders would not participate in the Auction and 
would be cancelled before the Exchange transitions to continuous 
trading.
     Proposed Rule 6.64P-O(d)(4)(B) would provide that if the 
Exchange still cannot conduct an Auction, the Exchange would continue 
to evaluate both the Calculated NBBO and interest on the Consolidated 
Book until the earlier of: (i) A Legal Width Quote is established and 
an Auction can be conducted; (ii) the series can be opened as provided 
for in proposed Rule 6.64P-O(d)(4)(A); (iii) the series is halted; or 
(iv) the end of Core Trading Hours. The proposed rule provides 
transparency that the Exchange would continue to look for an 
opportunity to open a series based on changes to the Calculated NBBO or 
orders and quotes on the Consolidated Book.
    Proposed Rule 6.64P-O(d)(5) would provide that the Exchange may 
deviate from the standard manner of the Auction Process, including 
adjusting the timing of the Auction Process in any option series or 
opening or reopening a series when there is no Legal Width Quote, when 
it believes it is necessary in the interests of a fair and orderly 
market. This proposed rule is based on Rule 6.64-O(b)(F) and is 
designed to provide the Exchange with flexibility to open a series even 
if there is no Legal Width Quote. For example, a Floor Broker may have 
a two-sided open outcry order. If the series is not opened, that trade 
could not be consummated. Accordingly, this proposed rule would allow 
the Exchange to open a series for trading to facilitate open outcry 
trading.
    Order Processing during an Auction Processing Period. As described 
above, the Auction Processing Period is the abbreviated time period 
(i.e., generally measured in less than a second) when the Exchange 
conducts the Auction. For example, if there is a Legal Width Quote, 
Market Maker quotes, and Matched Volume, the Auction Processing Period 
is when that Matched Volume will trade at the Indicative Match Price. 
New orders and quotes received during the Auction Processing Period 
would not be eligible to participate in an Auction. Because the 
Exchange will be using the same Pillar auction functionality for 
options trading that is used for its cash equity market, the Exchange 
proposes that proposed Rule 6.64P-O(e) would be based on Rule 7.35-E(g) 
and sub-paragraphs (1) and (2) with differences only to references 
quotes in addition to orders.
    Accordingly, as proposed, during an Auction Processing Period, new 
order and quote messages received during the Auction Processing Period 
would be accepted but would not be processed until after the Auction 
Processing Period. As with Rule 7.35-E(g), for purposes of proposed 
Rule 6.64P-O(e) and (f), an ``order instruction'' would refer to a 
request to cancel, cancel and replace, or modify an order or quote.
    As proposed, during the Auction Processing Period, order 
instructions would be processed as follows:
     An order instruction that arrives during the Auction 
Processing Period would not be processed until after the Auction 
Processing Period if it relates to an order or quote that was received 
before the Auction Processing Period. Any subsequent order instructions 
relating to such order would be rejected (proposed Rule 6.64P-O(e)(1)).
     An order instruction that arrives during the Auction 
Processing Period would be processed on arrival if it relates to an 
order that was received during the Auction Processing Period (proposed 
Rule 6.64P-O(e)(2)).
    Transition to Continuous Trading. After the Auction Processing 
Period concludes, i.e., once the Auction is done, the Exchange 
transitions to continuous trading. During this transition, the way 
orders, quotes, and order instructions are processed differs depending 
on when such messages arrived at the Exchange. Proposed Rule 6.64P-O(f) 
would describe how the Exchange would transition to continuous trading 
after the Auction Processing Period concludes, and is based on how the 
Exchange transitions to continuous trading on its cash equity market 
following a Trading Halt Auction, as described in Rule 7.35-E(h). The 
transition to continuous trading would proceed as follows.
    Proposed Rule 6.64P-O(f)(1) would provide that orders that are no 
longer eligible to trade would be cancelled. This proposed rule text is 
based in part on Pillar terminology used in Rule 7.35-

[[Page 36470]]

E(h)(1). For options trading, the only orders that would no longer be 
eligible to trade would be Auction-Only Orders.
    Proposed Rule 6.64P-O(f)(2) would provide that order instructions 
would be processed as follows:
     An order instruction that arrives during the transition to 
continuous trading or the Auction Processing Period under paragraph 
(e)(1) of this Rule would be processed in time sequence with the 
processing of orders and quotes as specified in paragraphs (f)(3)(A) or 
(B) of this Rule if it relates to an order or quote that was received 
before the Auction Processing Period or that has already transitioned 
to continuous trading and any subsequent order instructions relating to 
such order or quote would be rejected (proposed Rule 6.64P-O(f)(2)(A)). 
This proposed rule text is based on Rule 7.35-E(h)(2)(A) without any 
substantive differences. This proposed rule text provides transparency 
regarding how order instructions that arrived during the Auction 
Processing Period would be processed if they relate to order or quotes 
that were received before the Auction Processing Period.
     An order instruction that arrives during the transition to 
continuous trading would be processed on arrival if it relates to an 
order or quote that was entered during either the Auction Processing 
Period or the transition to continuous trading and such order or quote 
has not yet transitioned to continuous trading (proposed Rule 6.64P-
O(f)(2)(B)). This proposed rule text is based on Rule 7.35-E(h)(2)(B) 
without any substantive differences.
    Proposed Rule 6.64P-O(f)(3) would set forth how orders and quotes 
would be processed during the transition to continuous trading 
following an Auction. The Exchange proposes that it would process 
Auction-eligible orders and quotes that were received before the 
Auction Processing Period and orders ranked Priority 3--Non-Display 
Orders received before a trading halt as follows:
     Proposed Rule 6.64P-O(f)(3)(A)(i) would provide that Limit 
Orders and quotes would be subject to the Limit Order Price Check, 
Arbitrage Check, and Intrinsic Value Check, as applicable. This 
proposed rule is new for Pillar, and is consistent with the proposed 
rule changes, described above, regarding when the Limit Order Price 
Check, Arbitrage Check, and Intrinsic Value Check would be applied 
against orders and quotes that were received during a pre-open state. 
The Exchange proposes to apply these checks to orders and quotes before 
they become eligible for trading or routing during continuous trading.
     Proposed Rule 6.64P-O(f)(3)(A)(ii) would provide that 
Limit Orders that are not cancelled and Market Orders would be subject 
to the Trading Collar assigned to it. This proposed rule is also 
consistent with the proposed changes to Trading Collars, described 
above, that an order received during a pre-open state would be assigned 
a Trading Collar after an Auction concludes.
     Proposed Rule 6.64P-O(f)(3)(A)(iii) would provide that 
orders eligible to route that are marketable against Away Market 
Protected Quotations would route based on the ranking of such orders as 
set forth in Rule 6.76P-O(c). This proposed rule is based on Rule 7.35-
E(h)(3)(A)(ii)(b) with non-substantive differences to use the term 
``Away Market Protected Quotations'' instead of ``protected quotations 
on Away Markets.''
     Proposed Rule 6.64P-O(f)(3)(A)(iv) would provide that 
after routing eligible orders, orders and quotes not eligible to route 
that are marketable against Away Market Protected Quotations would 
cancel. This proposed rule is based on Rule 7.35-E(h)(3)(A)(ii)(b) with 
non-substantive differences to use the term ``Away Market Protected 
Quotations'' instead of ``protected quotations on Away Markets.''
     Proposed Rule 6.64P-O(f)(3)(A)(v) would provide that once 
there are no more unexecuted orders marketable against Away Market 
Protected Quotations, orders and quotes that are marketable against 
other orders and quotes in the Consolidated Book would trade or be 
repriced. This proposed rule is based on Rule 7.35-E(h)(3)(A)(ii)(c) 
with a clarifying, non-substantive difference to be clear that an order 
could be repriced based on this assessment. For example, an ALO Order 
that would be marketable against a contra-side order or quote on the 
Consolidated Book would be repriced as provided for in proposed Rule 
6.62P-O(e)(2). The Exchange further notes that, similar to the 
Exchange's cash equity market, the Exchange could transition to 
continuous trading without any Matched Volume that trades at the 
Indicative Match Price, and yet still report a trade to OPRA before its 
first quote.\54\ The Exchange would not consider a trade that occurs 
during the transition to continuous trading to be an Auction trade.
---------------------------------------------------------------------------

    \54\ For example, as described in proposed Rule 6.62P-
O(d)(4)(A), if there is no Legal Width Quote, after five minutes, 
the Exchange could open a series for trading if there is no Matched 
Volume and would transition to continuous trading as described in 
proposed Rule 6.62P-O(f).
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(f)(3)(A)(vi) would provide that 
Market Orders received during a pre-open state would be subject to the 
validation specified in proposed Rule 6.62P-O(a)(1)(C). The Exchange 
notes that because such Market Orders would have been already received 
by the Exchange, if they fail one of those validations, they would be 
cancelled instead of rejected. This would be new rule text as compared 
to the Exchange's cash equity rules to reflect the validations that 
would be applicable to Market Orders for options trading on Pillar.
     Proposed Rule 6.64P-O(f)(3)(A)(vii) would provide that the 
display quantity of Reserve Orders would be replenished. This proposed 
rule is based on Rule 7.35-E(h)(3)(A)(ii)(d).
     Proposed Rule 6.64P-O(f)(3)(A)(viii) would describe the 
last step in this process, which is that the Exchange would send a 
quote to OPRA and proprietary data feeds representing the highest-
priced bid and lowest-priced offer of any remaining unexecuted Auction-
eligible orders and quotes that were received before the Auction 
Processing Period. This proposed rule is based on current cash equity 
functionality, as set forth in Rule 7.35-E(h)(3)(a)(ii). Although the 
functionality would be the same for both markets, for options traded on 
the Exchange, the Exchange proposes to describe this aspect of the 
process in sequence, and reference both orders and quotes. The Exchange 
notes that this quote would be different than the Rotational Quote sent 
at the beginning of the Auction Process as it could be comprised of 
both orders and quotes.
    Proposed Rule 6.64P-O(f)(3)(B) would provide that next, orders 
ranked Priority 3--Non-Display Orders that were received during a pre-
open state would be assigned a new working time in time sequence 
relative to one another based on original entry time and would be 
subject to the Limit Order Price Check, Arbitrage Check, and Intrinsic 
Value Check, as applicable, and if not cancelled, would be traded or 
repriced. This proposed functionality would be new for Pillar and 
applicable only for options traded on the Exchange. Even though orders 
ranked Priority 3--Non-Display Orders would not be eligible to trade in 
an Auction (other than the reserve interest of Reserve Orders), the 
Exchange proposes to accept such orders during a pre-open state. These 
orders would transition to continuous trading after orders and quotes 
that were eligible to trade in an Auction would have transitioned to 
continuous trading, as described above in proposed Rule 6.64P-
O(f)(3)(A)(i)-(viii). The Exchange believes that waiting to process 
non-displayed orders in this sequence would ensure that there is an 
NBBO against

[[Page 36471]]

which such orders could be priced, as described in proposed Rule 6.62P-
O(d) above.
    Proposed Rule 6.64P-O(f)(3)(C) would provide that next, orders and 
quotes that were received during the Auction Processing Period would be 
assigned a new working time in time sequence relative to one another 
based on original entry time and would be subject to the Limit Order 
Price Check, Pre-Trade Risk Controls, Arbitrage Check, Intrinsic Value 
Check, and validations specified in proposed Rule 6.62P-O(a)(1)(A), as 
applicable, and if not cancelled would be processed consistent with the 
terms of the order or quote. This proposed rule text is designed to 
reflect that even though orders and quotes were received during the 
Auction Processing Period, they would not be subjected to these 
validations until after the Exchange has transitioned to continuous 
trading, and that if they fail these validations, such orders or quotes 
would be cancelled instead of rejected. This proposed rule text is 
based in part on Rule 7.35-E(h)(3)(B) with differences to reflect the 
validations that would be applicable to orders and quotes for options 
trading.
    Proposed Rule 6.64P-O(f)(3)(D) would further provide that when 
transitioning to continuous trading:
     The display price and working price of orders and quotes 
would be adjusted based on the contra-side interest in the Consolidated 
Book or Away Market NBBO, as provided for in Rule 6.62P-O (proposed 
Rule 6.64P-O(f)(3)(D)(i)). This proposed rule is based in part on Rule 
7.35-E(h)(3)(C) with differences to reflect that for options trading, 
the display price or working price of an order may be adjusted based 
either on contra-side interest on the Consolidated Book or the Away 
Market NBBO.
     The display price and working price of a Day ISO would be 
adjusted in the same manner as a Non-Routable Limit Order until the Day 
ISO is either traded in full or displayed at its limit price and the 
display price and working price of a Day ISO ALO would be adjusted in 
the same manner as an ALO Order until the Day ISO ALO is either traded 
in full or displayed at its limit price (proposed Rule 6.64P-
O(f)(3)(D)(ii)). This proposed rule is based in part on Rule 7.35-
E(h)(3)(D) with differences to reflect how a Day ISO ALO would be 
processed.
    Proposed Rule 6.64P-O(g) would describe order processing during a 
trading halt. The proposed rule is based in part on Rule 7.18-E(c) with 
differences to reflect how options would trade on Pillar. As proposed, 
the Exchange would process new and existing orders and quotes in a 
series during a trading halt as follows:
     Maintain any unexecuted portion of orders ranked Priority 
3--Non-Display Orders (proposed Rule 6.64P-O(g)(1)). This proposed rule 
would be unique to options traded on the Exchange because the Exchange 
cancels non-displayed orders on its cash equity market during a trading 
halt (see, e.g., Rule 7.18-E(c)(1)).
     Cancel any unexecuted quantity of orders displayed at a 
Trading Collar and Market Maker quotes (proposed Rule 6.64P-O(g)(2)). 
This proposed rule would be unique for options traded on the Exchange. 
The Exchange proposes to cancel resting Market Maker quotes during a 
trading halt, but as noted below, would accept new Market Maker quotes 
during a trading halt, which would be the basis for the Rotational 
Quote that would be published for a Trading Halt Auction. The Exchange 
also proposes to cancel any unexecuted quantity of orders displayed at 
a Trading Collar because such orders would have already been subject to 
a 500-millisecond timer, which would have ended during a trading halt.
     Re-price all other resting orders on the Consolidated Book 
to their limit price. The repricing of a Non-Routable Limit Order, ALO 
Order, or Day ISO ALO to its limit price during a trading halt would 
not be counted toward the number of times such order may be repriced 
and any subsequent repricing of such order during the transition to 
continuous trading would be permitted as the additional repricing event 
as provided for in Rule 6.62P-O(e)(1)(B) and (e)(2)(C) (proposed Rule 
6.64P-O(g)(3)). As described above, once resting, a Non-Routable Limit 
Order, ALO Order, or Day ISO ALO that was repriced on arrival is 
eligible to be repriced only one additional time. This proposed rule 
provides transparency that the repricing of such orders to their limit 
price during a trading halt would not count towards that ``one'' 
additional repricing, but that any subsequent repricing after the 
Auction concludes would count.
     Accept and process all cancellations (proposed Rule 6.64P-
O(g)(4)). This proposed rule is based on Rule 7.18-E(c)(4) without any 
differences.
     Reject Incoming Limit Orders designated IOC or FOK 
(proposed Rule 6.64P-O(g)(5)). This proposed rule is based in part on 
Rule 7.18-E(c)(5) with a difference to add orders designated FOK and 
not include non-displayed orders.
     Accept all other incoming order and quote messages and 
instructions until the Auction Processing Period for the Trading Halt 
Auction, at which point, paragraph (e) of proposed Rule 6.64P-O would 
govern the entry of incoming orders, quotes, and order instructions 
(proposed Rule 6.64P-O(g)(6)). This proposed rule is based on Rule 
7.18-E(c)(6) with non-substantive differences to cross reference the 
options rule relating to the transition to continuous trading.
     Disseminate a zero bid and zero offer quote to OPRA and 
proprietary data feeds (proposed Rule 6.64P-O(g)(7)). This proposed 
rule is based on current functionality and is designed to promote 
clarity and transparency in Exchange rules that when a trading halt 
begins, the Exchange will ``zero'' out the Exchange's BBO.
    Finally, proposed Rule 6.64P-O(h) would provide that whenever in 
the judgment of the Exchange the interests of a fair and orderly market 
so require, the Exchange may adjust the timing of or suspend the 
Auctions set forth in this Rule with prior notice to ATP Holders. This 
proposed rule is based on Rule 7.35-E(i) without any differences.
    In connection with proposed Rule 6.64P-O, the Exchange proposes to 
add the following preamble to Rule 6.64-O: ``This Rule will not be 
applicable to trading on Pillar.'' This proposed preamble is designed 
to promote clarity and transparency in Exchange rules that Rule 6.64-O 
would not be applicable to trading on Pillar.
    As discussed above, because of the technology changes associated 
with the migration to the Pillar trading platform, subject to approval 
of this proposed rule change, the Exchange will announce by Trader 
Update when rules with a ``P'' modifier will become operative and for 
which symbols. The Exchange believes that keeping existing rules on the 
rulebook pending the full migration of Pillar will reduce confusion 
because it will ensure that the rules governing trading on the OX 
system will continue to be available pending the full migration to 
Pillar.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\55\ in general, and 
furthers the objectives of Section 6(b)(5),\56\ in particular, because 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating

[[Page 36472]]

transactions in securities, 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 rules to support Pillar would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed rules would promote 
transparency in Exchange rules by using consistent terminology 
governing trading on both the Exchange's cash equity and options 
trading platforms, thereby ensuring that members, regulators, and the 
public can more easily navigate the Exchange's rulebook and better 
understand how options trading is conducted on the Exchange.
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78f(b).
    \56\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Generally, the Exchange believes that adding new rules with the 
modifier ``P'' to denote those rules that would be operative for the 
Pillar trading platform would remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
providing transparency of which rules would govern trading once a 
symbol has been migrated to the Pillar platform. The Exchange similarly 
believes that adding a preamble to those current rules that would not 
be applicable to trading on Pillar would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would promote transparency regarding which rules 
would govern trading on the Exchange during and after the transition to 
Pillar.
    In addition, the Exchange believes that incorporating functionality 
currently available on the Exchange's cash equity market for options 
trading would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because the Exchange would 
be able to offer consistent functionality across both its options and 
cash equity trading platforms, adapted as applicable for options 
trading. Accordingly, with the transition to Pillar, the Exchange will 
be able to offer additional features to its OTP Holders and OTP Firms 
that are currently available only on the Exchange's cash equity 
platform. For similar reasons, the Exchange believes that using Pillar 
terminology for the proposed new rules would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would promote consistency in the Exchange's rules 
across both its options and cash equity platforms.
Definitions and Applicability
    The Exchange believes that the proposed amendments to Rule 1.1, 
including moving definitions from Rule 6.1-O and Rule 6.1A-O to Rule 
1.1, would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because the proposed 
changes are designed to promote clarity and transparency in Exchange 
rules by consolidating into Rule 1.1 definitions relating to both cash 
equity and options trading. The Exchange believes that the proposed 
changes to eliminate obsolete definitions and make non-substantive 
edits to existing definitions would further remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would ensure that the definitions used in Exchange 
rules are updated and consistent. Finally, the Exchange believes that 
organizing Rule 1.1 alphabetically and eliminating sub-paragraph 
numbering would make the proposed rules easier to navigate.
    The Exchange further believes that proposed new Rule 6.1P-O 
relating to applicability would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed rule would include those elements of current Rule 
6.1-O that would remain applicable and eliminates duplicative text that 
would no longer be necessary after the transition to Pillar. The 
Exchange further notes that proposed Rule 6.1P-O is similar to NYSE 
American Rule 900.1NY.
Order Ranking and Display
    The Exchange believes that proposed new Rule 6.76P-O would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the Exchange is not proposing 
substantive changes to how the Exchange would rank and display orders 
and quotes on Pillar as compared to the OX system. Rather, the proposed 
revisions to the Exchange's options trading rules would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed changes are designed to 
simplify the structure of the Exchange's options rules and use 
consistent Pillar terminology for both cash equity and options trading, 
without changing the underlying functionality. For example, the 
Exchange believes the proposed definitions set forth in Rule 6.76P-O, 
i.e., display price, limit price, working price, working time, and 
Aggressing Order/Aggressing Quote, would promote transparency in 
Exchange rules and make them easier to navigate because these proposed 
definitions would be used in other proposed Pillar options trading 
rules. The Exchange notes that these proposed definitions are 
consistent with the definitions set forth in Rule 7.36-E for cash 
equity trading with differences only as necessary to address 
functionality associated with options trading that are not applicable 
to cash equity trading, e.g., reference to quotes.
    The Exchange further believes that moving descriptions of order 
type behavior, which are currently set forth in Rule 6.76-O, to 
proposed Rule 6.62P-O, and therefore not include such detail in 
proposed Rule 6.76P-O, would make Exchange rules easier to navigate 
because information regarding how a specific order type would operate 
would be in a single location in the Exchange's rulebook. The Exchange 
notes that this proposed structure is consistent with the Exchange's 
cash equity rules, which similarly set forth information relating to an 
order type's ranking in Rule 7.31-E. Moreover, the Exchange is not 
proposing any functional changes to how it would rank and display 
orders and quotes on Pillar as compared to the OX system.
Order Execution and Routing
    The Exchange believes that proposed new Rule 6.76AP-O would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed rule would set forth a 
price-time priority model for Pillar that is substantively the same as 
the Exchange's current price-time priority model as set forth in Rule 
6.76A-O. The proposed differences as compared to Rule 6.76A-O are 
designed to use Pillar terminology that is based in part on Rule 7.37-
E, if applicable, without changing the functionality that is currently 
available for options trading.
    The Exchange believes that the proposed modifications to the LMM 
Guarantee would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it provides 
clarity of how multiple quotes from an LMM would be allocated. The 
Exchange similarly believes that eliminating Directed Order Market 
Makers and Directed Orders would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because these features are not currently used on the Exchange, and 
therefore eliminating Directed Orders and Directed Order

[[Page 36473]]

Market Makers would streamline the Exchange's rules. The Exchange notes 
that the remaining differences in proposed Rule 6.76AP-O relating to 
the LMM Guarantee are designed to promote clarity and transparency in 
Exchange rules and would not introduce new functionality.
    The Exchange believes that the structure and content of the rule 
text in proposed Rule 6.76AP-O promotes transparency by using 
consistent Pillar terminology. The Exchange also believes that adding 
more detail regarding current functionality in new Rule 6.76AP-O, as 
described above, would promote transparency by providing notice of when 
orders would be executed or routed by the Exchange.
Orders and Modifiers
    The Exchange believes that proposed new Rule 6.62P-O would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would use existing Pillar 
terminology to describe the order types and modifiers that would be 
available on the Exchange's options Pillar trading system. As noted 
above, the Exchange proposes to offer order types and modifiers that 
are either based on existing order types available on the OX system as 
described in Rule 6.62-O, or orders and modifiers available on the 
Exchange's cash equity trading platform, as described in Rule 7.31-E. 
The Exchange believes that structuring proposed Rule 6.62P-O based on 
the structure of Rule 7.31-E would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because it would promote transparency and consistency in the Exchange's 
rulebook.
    In addition to the terminology changes to describe the order types 
and modifiers that are currently available on the Exchange, the 
Exchange further believes that the order types and modifiers proposed 
for options trading on Pillar that either differ from order types and 
modifiers available on the OX system or that would be new would remove 
impediments to and perfect the mechanism of a free and open market and 
national market system because:
     Market Orders on Pillar would function similarly to how 
Market Orders function under current options trading rules, including 
being subject to Trading Collars, with additional proposed 
functionality that is designed to ensure that Market Orders do not 
execute either when there is no prevailing market in a series, or if 
the displayed prices are too wide to assure a fair and orderly 
execution of a Market Order. The Exchange believes that the proposed 
rule describing Market Orders would promote transparency by providing 
notice of when a Market Order would be subject to such validations.
     The Exchange is not proposing any new or different 
behavior for Limit Orders than is currently available for options 
trading on the Exchange, other than the application of Limit Order 
Price Protection and Trading Collars, which would differ on Pillar. The 
Exchange believes using Pillar terminology based on Rule 7.31-E(a)(2) 
to describe Limit Orders would promote consistency and clarity in 
Exchange rules.
     The proposed Limit Order Price Protection functionality is 
based in part on the existing ``Limit Order Filter'' for orders and 
price protection filters for quotes because an order or quote would be 
rejected if it is priced a specified percentage away from the contra-
side NBB or NBO. The proposed Limit Order Price Protection 
functionality is also based in part on the functionality available on 
the Exchange's cash equity trading platform, and therefore is not 
novel. The Exchange believes that using the same mechanism for both 
orders and quotes would simplify the operation of the Exchange and 
achieve similar results as the current rules, which is to reject an 
order or quote that is priced too far away from the prevailing market. 
The Exchange believes that re-applying Limit Order Price Protection 
after an Auction concludes would ensure that Limit Orders and quotes 
continue to be priced consistent with the prevailing market, and that 
using an Auction Price (if available, and if not available, Auction 
Collars, and if not available, the NBBO) to assess Limit Orders and 
quotes after an Auction concludes would ensure that the Exchange would 
be applying the most recent price in a series in assessing whether such 
orders or quotes should be cancelled.
     The proposed Trading Collar functionality is based in part 
on how trading collars currently function on the Exchange because the 
proposed functionality would create a ceiling or floor price at which 
an order could be traded or routed. The proposed Pillar Trading Collar 
functionality is designed to simplify the process by applying a static 
ceiling price (for buy orders) or floor price (for sell orders) at 
which such order could be traded or routed that would be applicable to 
the order until it is traded or cancelled. The Exchange believes that 
the proposed functionality would provide greater determinism to an OTP 
Holder or OTP Firm of the Trading Collar that would be applicable to 
its orders and when such orders may be cancelled if it reaches its 
Trading Collar.
     The Exchange is not proposing any new or different Time-
in-Force modifiers than are currently available for options trading on 
the Exchange. The Exchange believes using Pillar terminology based on 
Rule 7.31-E(b) to describe the time-in-force modifiers would promote 
consistency and clarity in Exchange rules.
     Auction-Only Orders, and specifically, the proposed MOO 
and LOO Orders, would operate no differently than how ``Opening-Only 
Orders'' currently function on the OX system. The Exchange proposes 
non-substantive differences to use Pillar terminology that is based on 
Rule 7.31-E(c) terminology. The Exchange further believes that offering 
its IO Order type, which is currently available for Trading Halt 
Auctions on the Exchange's cash equity platform, for Auctions on the 
options trading platform would provide OTP Holders and OTP Firms with 
new, optional functionality to offset an Imbalance in an Auction.
     The Exchange would continue to offer Reserve Orders, AON 
Orders, Stop Orders, and Stop Limit Orders, which are currently 
available on the OX system. The proposed differences to Reserve Orders 
for options trading would harmonize with how Reserve Orders function on 
the Exchange's cash equity market, with changes as applicable to 
address options trading (e.g., no round lot/odd lot concept for options 
trading). The proposed changes to AON Orders would provide greater 
execution opportunities for such orders by allowing them to be 
integrated in the Consolidated Book and once resting, trade with 
incoming orders and quotes. The changes are also based on how orders 
with an MTS Modifier, which are also conditional orders, function on 
the Exchange's cash equity market. The proposed differences for Stop 
Orders and Stop Limit Orders are designed to promote transparency by 
providing clarity of circumstances when either order may be elected. 
Finally, the Exchange believes that offering Non-Displayed Limit Orders 
for options trading on Pillar, which are available on the Exchange's 
cash equity platform, would provide additional, optional trading 
functionality for OTP Holders and OTP Firms. The Exchange notes that 
the proposed Non-Displayed Limit Order would function similarly to how 
a PNP Blind Order that locks or crosses the contra-side NBBO would be 
processed because in such circumstances, a PNP Blind Order is not 
displayed. A Non-Displayed Limit Order would differ from a PNP Blind

[[Page 36474]]

Order only because it would never be displayed, even if its limit price 
doesn't lock or cross the contra-side NBBO.
     The Exchange believes that the proposed orders (and 
quotes) with instructions not to route (i.e., Non-Routable Limit Order, 
ALO Order, and ISOs) would streamline the offerings available for 
options trading on the Exchange by making the functionality the same 
for both orders and quotes and consolidating the description of non-
routable orders and quotes in proposed Rule 6.62P-O(e). The Exchange 
believes that using Pillar terminology, including order type names, 
that is based on the terminology used for cash equity trading will 
promote clarity and consistency across the Exchange's cash equity and 
options trading platforms. The Exchange believes that the proposed Non-
Routable Limit Order is not novel because it is based on how the PNP, 
RPNP, and MMRP orders and quotes currently function on the OX system. 
The Exchange believes that the proposed differences would provide OTP 
Holders and OTP Firms with greater determinism of when such orders or 
quotes may be repriced or be cancelled, including providing additional 
opportunities to cancel such orders. Similarly, the proposed ALO Order 
is not novel because it is based in part on how the RALO and MMLO 
orders and quotes currently function on the OX system. Finally, the 
proposed IOC ISO is not novel for options trading on the Exchange. The 
proposed DAY ISO and DAY ISO ALO functionality would be new for options 
trading and are based in part on how such order types function in the 
Exchange's cash equity market. In addition, the proposed DAY ISO 
functionality is consistent with existing Rule 6.95-O(b)(3), which 
currently provides an exception to locking or crossing an Away Market 
Protected Quotation if the OTP Holder or OTP Firm simultaneously routed 
an ISO to execute against the full displayed size of any locked or 
crossed Protected Bid or Protected Offer. The Exchange notes that this 
exception is not necessary for IOC ISOs because such orders would never 
be displayed at a price that would lock or cross a Protected Quotation; 
they cancel if they cannot trade. Accordingly, this existing exception 
in the Exchange's rules contemplates an ISO that would be displayed, 
which would mean it would need a time-in-force modifier of ``Day.'' In 
addition, Day ISOs are available for options trading on other options 
exchanges, and therefore are not novel.\57\
---------------------------------------------------------------------------

    \57\ See supra notes 39, 40.
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     The Exchange believes that the proposed additional detail 
defining Complex Orders to define the ``legs'' and ``components'' of 
such orders would promote transparency in Exchange rules.
     On Pillar, the only electronically-entered crossing orders 
would be QCC Orders, which is consistent with current functionality. 
The Exchange believes that the proposed non-substantive differences, 
including using Pillar terminology and consolidating rule text relating 
to QCC Orders in proposed Rule 6.62P-O, would promote transparency and 
clarity in Exchange rules. In addition, the Exchange believes that the 
proposed descriptions of how a QCC Order priced at the market would be 
traded would provide transparency regarding at which price such orders 
would trade.
     The Exchange believes that moving the descriptions of 
orders available only in open outcry from Rule 6.62-O to proposed Rule 
6.62P-O(h) would ensure that these order types remain in the rulebook 
after the transition to Pillar is complete. For CTB Orders, the 
Exchange believes that the proposed substantive difference on Pillar to 
allow a CTB Order to satisfy any displayed interest (including non-
Customer interest) at better prices than the latest-arriving displayed 
Customer interest would increase execution opportunities and achieve 
the goal of a CTB Order, which is to clear priority on the Consolidated 
Book for orders executed in open outcry. The Exchange also believes 
that codifying this order type and the associated regulatory 
obligations would add clarity and transparency in Exchange rules.
     The proposed Proactive if Locked/Crossed Modifier, STP 
Modifier, and MTS Modifier are not novel and are based on the 
Exchange's current cash equity modifiers of the same name. The Exchange 
believes that extending the availability of these existing modifiers to 
options trading would provide OTP Holders and OTP Firms with 
additional, optional functionality that is not novel and is based on 
existing Exchange rules. The Exchange further believes that extending 
the availability of STP Modifiers to all orders, and not just Market 
Maker orders and quotes, would provide additional protections for OTP 
Holders and OTP Firms.
Market Maker Quotations
    The Exchange believes that proposed Rule 6.37AP-O would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it is based on current Rule 6.37A-O, 
with such changes as necessary to use Pillar terminology. The Exchange 
believes that consolidating functionality for orders and quotes, and 
cross referencing Non-Routable Limit Orders and ALO Orders in proposed 
Rule 6.37AP-O, rather than restating how quotations would be processed 
in proposed Rule 6.37AP-O, would streamline the Exchange's rules and 
promote transparency and consistency.
Pre-Trade and Activity-Based Risk Controls
    The Exchange believes that the proposed Rule 6.40P-O, setting forth 
pre-trade and activity-based risk controls, would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system and promote just and equitable principles of trade 
because the proposed functionality would incorporate existing activity-
based risk controls, without any substantive differences, and augment 
them with additional pre-trade risk controls and related functionality 
that are based on the pre-trade risk controls currently available on 
the Exchange's cash equity trading platform. The Exchange believes that 
the proposed differences are designed to provide greater flexibility to 
OTP Holders and OTP Firms in how to set risk controls for both orders 
and quotes. In addition, the Exchange believes that aggregating a 
Market Maker's quotes and orders for purposes of calculating activity-
based risk controls would better reflect the aggregate risk that a 
Market Maker has with respect to its quotes and orders. The proposed 
kill switch functionality would also provide OTP Holders and OTP Firms 
with greater flexibility to provide bulk instructions to the Exchange 
with respect to cancelling existing orders and quotes and blocking new 
orders and quotes.
Price Reasonability Checks--Orders and Quotes
    The Exchange believes that the proposed Rule 6.41P-O, setting forth 
Price Reasonability Checks, would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because they are based on existing functionality, with differences 
designed to use Pillar terminology and promote consistency and 
transparency in Exchange rules. Specifically, on Pillar, the Exchange 
proposes to apply the same types of Price Reasonability Checks to both 
orders and quotes, and therefore proposes to describe those checks in a 
single rule--proposed Rule 6.41P-O. The proposed rule also provides 
specificity regarding when the Price

[[Page 36475]]

Reasonability Checks would be applied to an order or quote, which would 
promote transparency and clarity in Exchange rules.
Auction Process
    The Exchange believes that proposed Rule 6.64P-O would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed rule maintains the 
fundamentals of an auction process that is tailored for options trading 
while at the same time enhancing the process by incorporating Pillar 
auction functionality that is currently available on the Exchange's 
cash equity platform, as described in Rule 7.35-E. For example, the 
Exchange proposes to augment the imbalance information that would be 
disseminated in advance of an Auction to include fields available on 
the Exchange's cash equity market (e.g., Book Clearing Price and Far 
Clearing Price) as well as information specific to options trading 
(e.g., Auction Collars based on a Legal Width Quote and Auction 
Indicator). The Exchange believes that the proposed Auction Imbalance 
Information would promote transparency to market participants in 
advance of an Auction. The Exchange also proposes to transition to 
continuous trading following an Auction in a manner similar to how the 
Exchange's cash equity market transitions to continuous trading 
following a cash equity Trading Halt Auction, including how orders and 
quotes that are received during an Auction Processing Period would be 
processed, which the Exchange believes would promote consistency across 
the Exchange's options and cash equity trading platforms. Because the 
Exchange would be harnessing Pillar technology to support Auctions for 
options trading, the Exchange believes that structuring proposed Rule 
6.64P-O based on Rule 7.35-E would promote transparency in the 
Exchange's trading rules.
    The Exchange further believes that the proposed Auction Process for 
options trading on Pillar would remove impediments to and perfect the 
mechanism of a free and open market and a national market system. The 
proposed process is based on the current options auction process, 
including that orders are matched based on price-time priority and that 
an Auction would not be conducted if the bid-ask differential is not 
within an acceptable range. As proposed, the Auction Process on Pillar 
would begin with the proposed Rotational Quote, which would provide 
notice not only of when the process would begin, but also whether 
Market Makers on the Exchange have quoted in a series. The Exchange 
believes that the proposed Opening MMQ Time Parameter would promote 
transparency in Exchange rules of when the Exchange could open a 
series, including circumstances of when the Exchange would wait to 
provide Market Makers time to submit a two-sided quotation in a series 
and when the Exchange would proceed with opening or reopening a series 
based on a Legal Width Quote even if there are no Market Maker quotes 
in that series. The proposed rule would also provide transparency of 
when the Exchange would open or reopen a series for trading when the 
Calculated NBBO is wider than the Legal Width Quote for the series. The 
Exchange believes that the proposed process is designed to provide 
opportunities for a series to open or reopen, while at the same time 
preserving the existing requirement that a series would not open on a 
trade if there is no Legal Width Quote.

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 operates in a 
competitive market and regularly competes with other options exchanges 
for order flow. The Exchange believes that the transition to Pillar 
would promote competition among options exchanges by offering a low-
latency, deterministic trading platform. The proposed rule changes 
would support that inter-market competition by allowing the Exchange to 
offer additional functionality to its OTP Holders and OTP Firms, 
thereby potentially attracting additional order flow to the Exchange. 
Otherwise, the proposed changes are not designed to address any 
competitive issues, but rather to amend the Exchange's rules relating 
to options trading to support the transition to Pillar. As discussed in 
detail above, with this rule filing, the Exchange is not proposing to 
change its core functionality regarding its price-time priority model, 
and in particular, how it would rank, display, execute or route orders 
and quotes. Rather, the Exchange believes that the proposed rule 
changes would promote consistent use of terminology to support both 
options and cash equity trading on the Exchange, making the Exchange's 
rules easier to navigate. The Exchange does not believe that the 
proposed rule changes would raise any intra-market competition as the 
proposed rule changes would be applicable to all OTP Holders and OTP 
Firms, and reflects the Exchange's existing price-time priority model, 
including existing LMM Guarantee, without proposing any substantive 
changes.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2021-47 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2021-47. 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

[[Page 36476]]

Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2021-47 and should be submitted 
on or before July 30, 2021.
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    \58\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14391 Filed 7-8-21; 8:45 am]
BILLING CODE 8011-01-P

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