Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change New Rule 6.91P-O, 43704-43717 [2021-16967]
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Federal Register / Vol. 86, No. 151 / Tuesday, August 10, 2021 / Notices
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposed rule change may become
operative immediately upon filing. As
noted by the Exchange, correcting the
cross-reference in Rule 3.31(a)(2)(A)(i)
and updating the reference to an
obsolete CE Program in Rule 3.33(a)(3)
would immediately alleviate potential
confusion in connection with the
Exchange’s publicly available rulebook.
The Exchange also states that the
proposed rule changes will help ensure
accuracy and clarity relating to cross
references in its rules and regarding CE
for TPHs. Additionally, the Exchange
notes that the proposed rule change to
Exchange Rule 3.34 is based on a similar
rule change by FINRA that has already
taken effect. Finally, as the Exchange
notes above in regard to its proposed
rule change allowing electronic
signatures to satisfy the signature
requirements of Rule 3.34, the COVID–
19 pandemic amplified the need to
better manage operational challenges
like those that arose during the
pandemic 16 and that may continue to
arise in the future.
For these reasons, the Commission
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, the Commission
hereby waives the 30-day operative
delay and designates the proposal
operative upon filing.17
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
16 See supra note 9 (where FINRA noted the
same). In that filing, FINRA also requested and the
Commission granted a waiver of the 30-day
operative delay. See SR–FINRA–2021–003, 86 FR at
13938–9.
17 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2021–043 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–CBOE–2021–043. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
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
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2021–043 and should be submitted on
or before August 31, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34-92563; File No. SR–
NYSEARCA–2021–68]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change New Rule 6.91P–O
August 4, 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 July 23,
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes new Rule
6.91P–O (Electronic Complex Order
Trading) to reflect the implementation
of the Exchange’s Pillar trading
technology on its options market and to
make conforming amendments to Rule
6.47A–O (Order Exposure
Requirements—OX). 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.
[FR Doc. 2021–16966 Filed 8–9–21; 8:45 am]
BILLING CODE 8011–01–P
15 U.S.C. 78s(b)(1).
15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1
2
18 17
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CFR 200.30–3(a)(12).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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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.
In this regard, the Exchange recently
filed a proposal to add new rules to
reflect how options, particularly singleleg options, would trade on the
Exchange once Pillar is implemented.5
The current proposal sets forth how
Electronic Complex Orders 6 would
trade on the Exchange once Pillar is
implemented. As noted in the SingleLeg Pillar Filing, as the Exchange
transitions to Pillar, certain rules would
continue to be applicable to symbols
trading on the current trading platform,
but would not be applicable to symbols
that have transitioned to trading on
Pillar.7 Consistent with the Single-Leg
Pillar Filing, proposed Rule 6.91P–O
would have the same number as the
current Electronic Complex Order
Trading rule, but with the modifier ‘‘P’’
appended to the rule number. Current
Rule 6.91–O, governing Electronic
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 See Securities Exchange Act Release No. 92304
(June 30, 2021), 86 FR 36440 (July 9, 2021) (SR–
NYSEArca–2021–047) (‘‘Single-Leg Pillar Filing’’).
6 The term ‘‘Electronic Complex Order’’ is
currently defined in the preamble to Rule 6.91–O
to mean any Complex Order, as defined in Rule
6.62–O(e) or any Stock/Option Order or Stock/
Complex Order as defined in Rule 6.62–O(h) that
is entered into the NYSE Arca System (the
‘‘System’’).
7 See Single-Leg Pillar Filing (providing that,
once 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 when symbols are trading on the
Pillar trading platform).
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Complex Order Trading, would remain
unchanged and continue to apply to any
trading in symbols on the current
system. Proposed Rule 6.91P–O would
govern Electronic Complex Orders for
trading in options symbols migrated to
the Pillar platform.
Similar to the Single-Leg Pillar Filing,
proposed Rule 6.91P–O would (1) use
Pillar terminology that is based on
Exchange Rule 7–E Pillar terminology
governing cash equity trading; and (2)
introduce new functionality for
Electronic Complex Order trading.
Finally, as discussed in the Single-Leg
Pillar Filing, the Exchange will
announce by Trader Update when
symbols are trading on the Pillar trading
platform. The Exchange intends to
transition Electronic Complex Order
trading on Pillar at the same time that
single-leg trading is transitioned to
Pillar.
Proposed Rule 6.91P–O: Electronic
Complex Order Trading
Current Rule 6.91–O (Electronic
Complex Order Trading) specifies how
the Exchange processes Electronic
Complex Orders submitted to the
Exchange. The Exchange proposes new
Rule 6.91P–O to establish how such
orders would be processed after the
transition to Pillar. To promote clarity
and transparency, the Exchange
proposes to add a preamble to current
Rule 6.91–O specifying that it would not
be applicable to trading on Pillar.
As discussed in greater detail below,
the Exchange is not proposing
fundamentally different functionality
regarding how Electronic Complex
Orders would trade on Pillar than is
currently available on the Exchange.
However, with Pillar, the Exchange
would introduce certain new or updated
functionality available for options
trading on the Pillar platform and use
Pillar terminology.
Definitions. Proposed Rule 6.91P–O(a)
would set forth the definitions
applicable to trading on Pillar under the
new rule.
• Proposed Rule 6.91P–O(a)(1) would
define the term ‘‘Electronic Complex
Order’’ or ‘‘ECO’’ to mean a Complex
Order as defined in proposed Rule
6.62P–O(f) or a Stock/Option Order or
Stock/Complex Order as defined in
proposed Rule 6.62P–O(h)(6)(A), (B),
respectively, that would be submitted
electronically to the Exchange.8 This
proposed definition is based on the
8 The proposed definitions of Complex Order,
Stock/Option Order and Stock/Complex Order
under Pillar are set forth in proposed Rules 6.62P–
O(f), (h)(6)(A), and (h)(6)(B), as described in the
Single-Leg Pillar Filing, and are substantially
identical to the current definitions.
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preamble to Rule 6.91–O without any
substantive differences, except that
reference to the ‘‘NYSE Arca System’’
would be replaced with the term
‘‘Exchange’’ and cross-references have
been updated to reflect rules proposed
in the Single-Leg Pillar Filing.
• Proposed Rule 6.91P–O(a)(2) would
define the term ‘‘ECO Order
Instruction’’ to mean a request to cancel,
cancel and replace, or modify an ECO.
As described further below, this concept
relates to order processing when a series
opens or reopens for trading and is
based on the term ‘‘order instruction’’ as
used in Rule 7.35–E(g) and proposed to
be used in Rules 6.64P–O(e) and (f),
which (similarly) would define an
‘‘order instruction’’ for options as a
request to cancel, cancel and replace, or
modify an order or quote.9
• Proposed Rule 6.91P–O(a)(3) would
define the term ‘‘leg’’ or ‘‘leg market’’ to
mean each of the component option
series that comprise an ECO. This
definition is consistent with the concept
of leg markets as used in current Rule
6.91–O(a), which defines legs as
individual orders and quotes in the
Consolidated Book. The Exchange
believes the proposed definition would
add clarity regarding how the terms
‘‘leg’’ and ‘‘leg market’’ would be used
in connection with ECO trading on
Pillar.
• Proposed Rule 6.91P–O(a)(4) would
define the term ‘‘Complex NBBO’’ to
mean the derived national best bid and
derived national best offer for a complex
strategy calculated using the NBB and
NBO for each component leg of a
complex strategy. This definition is
based on current Rule 6.1A–O(a)(2)(b),
without any substantive differences.
• Proposed Rule 6.91P–O(a)(5) would
define the term ‘‘Complex strategy’’ to
mean a particular combination of leg
components and their ratios to one
another. The proposed definition would
further provide that new complex
strategies can be created when the
Exchange receives either a request to
create a new complex strategy or an
ECO with a new complex strategy. This
proposed definition is new and is
consistent with how this concept is
defined on other options exchanges and
would promote clarity and
transparency.10
9 See Single-Leg Pillar Filing (describing
proposed opening Auction Process rule per Rule
6.64P–O).
10 See, e.g., Cboe Exchange Inc. (‘‘Cboe’’) Rule
5.33(a) (defining ‘‘complex strategy’’ as ‘‘a
particular combination of components and their
ratios to one another’’ and further providing that
‘‘[n]ew complex strategies can be created as the
result of the receipt of a complex instrument
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• Proposed Rule 6.91P–O(a)(6) would
define the term ‘‘DBBO’’ to address
situations where it is necessary to derive
a (theoretical) bid or offer for a
particular complex strategy. As
proposed, ‘‘DBBO’’ would mean the
derived best bid (‘‘DBB’’) and derived
best offer (‘‘DBO’’) for a complex
strategy calculated using the Exchange
BBO 11 for each leg (or the Away Market
NBBO 12 for a leg if there is no Exchange
BBO), provided that the bid (offer) price
used to calculate the DBBO would never
be lower (higher) than the greater of
$0.05 or 5% below (above) the Away
Market NBB (NBO). The proposed
definition would also provide that the
DBBO would be updated as the
Exchange’s calculation of the Exchange
BBO or Away Market NBBO, as
applicable, is likewise updated.
Proposed Rule 6.91P–O(a)(6)(A)
would provide further detail about how
the DBBO would be derived in the
absence of an Exchange BB (BO) or
Away Market NBB (NBO) for a given
leg. As proposed, in such
circumstances, the bid (offer) price used
to calculate the DBBO would be the
offer (bid) price for that leg minus (plus)
‘‘one collar value,’’ which would be (i)
$0.25 where the best offer (bid) is priced
$1.00 or lower; or (ii) the lower of $2.50
or 25% where the best offer (bid) is
priced above $1.00, provided however
that, per proposed Rule 6.91P–
O(a)(6)(A)(i), if the best offer is equal to
or less than one collar value, the best
bid price used to calculate the DBBO for
that leg would be $0.01.
This proposed definition is new and
is based, in part, on the current
definition of Complex BBO set forth in
Rule 6.1A–O(a)(2)(b), as well as on how
this concept is defined on other options
exchanges, including on NYSE
American.13 The Exchange believes that
creation request or complex order for a complex
strategy that is not currently in the System’’); MIAX
Options Exchange (‘‘MIAX’’) Rule 518(a)(6) (same).
11 The term BBO when used with respect to
options traded on the Exchange would mean ‘‘the
best displayed bid or best displayed offer on the
Exchange.’’ See Single-Leg Pillar Filing (defining
BBO in proposed Rule 1.1, which definition is
substantially identical to the current definition of
BBO in Rule 6.1A–O(a)(2)(a)).
12 In the Single-Leg Pillar Filing, the Exchange
proposes that the (new) term ‘‘Away Market NBBO’’
would refer to a calculation of the NBBO that
excludes the Exchange’s BBO. See Single-Leg Pillar
Filing (defining Away Market NBBO in proposed
Rule 1.1).
13 See, e.g., NYSE American Rule 900.2NY(7)(b)
(providing that the Derived BBO ‘‘is calculated
using the BBO from the Consolidated Book for each
of the options series comprising a given complex
order strategy’’); Cboe Rule 5.33(a) (defining
‘‘Synthetic Bed Bid or Offer and SBBO’’ for
complex orders as ‘‘the best bid and offer on the
Exchange for a complex strategy calculated using’’
the ‘‘BBO for each component (or the NBBO for a
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the additional detail about how the
DBBO would be calculated in the
absence of an Exchange BBO and/or
Away Market NBBO would promote
clarity and transparency. In addition,
the Exchange believes that it is
appropriate to require that the DBBO be
calculated within a certain amount of
the Away Market NBBO as an additional
protection against ECOs being executed
on the Exchange at prices away from the
current market.
Proposed Rule 6.91P–O(a)(7) would
define ‘‘Complex Order Auction’’ or
‘‘COA’’ to mean an auction of an ECO
as set forth in proposed Rule 6.91P–O(f)
(discussed below). This definition is
based on the title of paragraph (c) of
current Rule 6.91–O, which sets forth
the COA Process for ECOs without any
substantive differences. Proposed Rule
6.91P–O(a)(7) would also state that the
terms defined in paragraphs (a)(7)(A)–
(D) would be used for purposes of a
COA.
Proposed Rule 6.91P–O(a)(7)(A)
would define a ‘‘COA Order’’ to mean
an ECO that is designated by the OTP
Holder as eligible to initiate a COA. This
definition is based on the definition of
a ‘‘COA-eligible order’’ as set forth in
current Rule 6.91–O(c)(1) and (c)(1)(i),
with a difference that the proposed
definition would not require that an
option class be designated as COAeligible because all option classes that
trade on Pillar would be COA-eligible.
Proposed Rule 6.91P–O(a)(7)(B)
would define the term ‘‘Request for
Response’’ or ‘‘RFR’’ to refer to the
message disseminated to the Exchange’s
proprietary complex data feed
announcing that the Exchange has
received a COA Order and that a COA
has begun. As further proposed, the
definition would provide that each RFR
message would identify the component
series, the price, and the size and side
of the market of the COA Order. This
definition is based on the description of
RFR in Rule 6.91–O(c)(3) without any
substantive differences. The Exchange
proposes a clarifying difference to make
clear that RFR messages would be sent
over the Exchange’s proprietary
complex data feed, which is based on
current functionality.
Proposed Rule 6.91P–O(a)(7)(C)
would define the term ‘‘RFR Response’’
to mean any ECO received during the
Response Time Interval (defined below)
that is in the same complex strategy, on
the opposite side of the market of the
COA Order that initiated the COA, and
component if the BBO for that component is not
available) of a complex strategy from the Simple
Book’’).
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marketable against the COA Order.14
This definition is based in part on the
description of RFR Responses in Rule
6.91–O(c)(5). However, unlike the
current definition, an RFR Response
would not have a time-in-force
contingency for the duration of the
COA. Instead, the Exchange would
consider any ECOs received during the
Response Time Interval (defined below)
that are marketable against the COA
Order as an RFR Response. As described
below, the Exchange proposes to define
separately the term ‘‘ECO GTX Order,’’
which would be more akin to the
current definition of RFR Response. In
addition, the proposed definition omits
the current rule description that an RFR
Response may be entered in $0.01
increments or that such responses may
be modified or cancelled because these
features are applicable to all ECOs and
therefore not necessary to separately
state in connection with RFR Responses.
Proposed Rule 6.91P–O(a)(7)(D)
would define the term ‘‘Response Time
Interval’’ to mean the period of time
during which RFR Responses for a COA
may be entered and would provide that
the Exchange would determine and
announce by Trader Update the length
of the Response Time Interval;
provided, however, that the duration of
the Response Time Interval would not
be less than 100 milliseconds and
would not exceed one (1) second. This
definition is based in part on the
description of Response Time Interval
in Rule 6.91–O(c)(4), with a difference
that the Exchange proposes to reduce
the minimum time from 500
milliseconds to 100 milliseconds. While
other option exchanges do not establish
a minimum duration for a COA, the
Exchange notes that the proposed 100
milliseconds minimum is consistent the
minimum auction length for electronicpaired auctions on NYSE American.15
Types of ECOs. Proposed Rule 6.91P–
O(b) would set forth the types of ECOs
that would trade on Pillar. Proposed
Rule 6.91P–O(b)(1) would provide that
ECOs may be entered as Limit Orders or
Limit Orders designated as Complex
Only Orders. This proposed text is
based on current Rule 6.91–O(b)(1),
with a difference to provide that the
Exchange would offer Complex Only
Orders on Pillar. Complex Only Orders
14 The term ‘‘marketable’’ is defined in proposed
Rule 1.1 of the Single-Leg Pillar Filing.
15 See e.g., Cboe Rule 5.33(d)(3) (providing that
Cboe ‘‘determines the duration of the Response
Time Interval on a class-by-class basis, which may
not exceed 3000 milliseconds’’); NYSE American
Rule 971.1NY(c)(2)(B) (providing that for a
Customer Best Execution Auction ‘‘[t]he minimum/
maximum parameters for the Response Time
Interval will be no less than 100 milliseconds and
no more than one (1) second’’).
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(as described below) are based in part
on existing functionality for PNP Plus
orders, which likewise may trade only
with other Electronic Complex Orders,
with updated functionality available on
Pillar.16 The Exchange proposes to
rename this order type in a manner
consistent with similar order types
available on other options exchanges
and therefore this proposed order type
is not new or novel.17
• Proposed Rule 6.91P–O(b)(1)(A)
would set forth the details of a Complex
Only Order. As proposed, an ECO
designated as a Complex Only Order
would trade solely with ECOs and
would not trade with the leg markets;
provided that, if there is displayed
Customer interest on all legs of the
Complex Only Order, such order would
not trade below (above) one penny
($0.01) times the smallest leg ratio
inside the DBB (DBO) containing
Customer interest, which requirement
ensures that a Complex Only Order
would price improve at least a portion
of the displayed leg markets. In such
case, a Complex Only Order would
remain on the Consolidated Book until
it can trade with another ECO at this
improved price. As noted above, the
Complex Only Order type is based in
part on existing PNP Plus order
functionality, with updated
functionality based on Pillar.
Specifically, the Exchange would no
longer reprice a resting Complex Only
Order and instead would restrict it from
trading until it can trade at a price at or
inside the DBBO, as described below.
• Proposed Rule 6.91P–O(b)(2) would
set forth the time-in-force contingencies
available to ECOs, which would be Day,
IOC, FOK, or GTC, as those terms are
defined in the Single-Leg Pillar Filing in
proposed Rule 6.62P–O(b), and GTX
(per proposed Rule 6.91P–O(b)(2)(B) as
described below). The proposed text is
based on current Rules 6.91–O(b)(2) and
(3), except that it adds GTX (as
described below). The proposed text
also omits AON because the Exchange
would not offer AONs for ECO trading
on Pillar.
• Proposed Rule 6.91P–O(b)(2)(A)
would provide that an ECO designated
as IOC or FOK would be rejected if
entered during a pre-open state,18 which
16 See Rule 6.62–O(y) (describing PNP Plus orders
as ECOs that may only trade with other ECOs, but
which will continuously be repriced if locking or
crossing the Complex BBO).
17 Other options exchanges likewise offer
Complex Orders that trade only with Complex
Orders. See, e.g., Cboe Rule 5.33(a) (defining
‘‘Complex Only’’ order as an ECO ‘‘designate[ ] to
execute only against complex orders in the COB
and not Leg into the Simple Book’’).
18 The term ‘‘pre-open state’’ is defined in
proposed Rule 6.64P–O(a)(10), as described in the
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is consistent with the time-in-force of
the order (because they could not be
traded when a complex strategy is not
open for trading) as well as with current
functionality.
• Proposed Rule 6.91P–O(b)(2)(B)
would provide that an ECO designated
as GTX would be defined as an ‘‘ECO
GTX Order’’ and would have the
following features: It would not be
displayed; it may be entered only during
the Response Time Interval of a COA; it
must be on the opposite side of the
market as the COA Order; and it must
specify the price, size, and side of the
market. As further proposed, ECO GTX
Orders may be modified or cancelled
during the Response Time Interval and
any remaining size that does not trade
with the COA Order would be cancelled
at the end of the COA. This definition
is based on the description of an RFR
Response in current Rule 6.91–
O(c)(5)(A)—(C), which likewise are not
displayed and expire at the end of the
COA.
Priority and Pricing of ECOs.
Proposed Rule 6.91P–O(c) would set
forth how ECOs would be prioritized
and priced under Pillar. As proposed,
an ECO received by the Exchange that
is not immediately executed (or
cancelled) would be ranked in the
Consolidated Book according to pricetime priority based on the total net price
and the time of entry of the order. This
proposed rule is based on Rule 6.91–
O(a)(1), without any substantive
differences. The Exchange proposes a
non-substantive difference to refer
simply to a ‘‘net price’’ rather than a
‘‘net debit or credit price,’’ which
streamlined terminology is consistent
with the use of the term ‘‘net price’’ on
other options exchanges.19
Proposed Rule 6.91P–O(c) would
further provide that, unless otherwise
specified in this Rule, ECOs would be
processed as follows:
• Proposed Rule 6.91P–O(c)(1) would
provide that when trading with the leg
markets:
Æ An ECO must trade at or within the
greater of $0.05 or 5% higher (lower)
than the Away Market NBO (NBB) (see
proposed Rule 6.91P–O(c)(1)(A)). This
would be new under Pillar and operate
as an additional protection against ECOs
being executed on the Exchange at
prices away from the current market.
Single-Leg Pillar Filing, to mean ‘‘the period before
a series is opened or reopened.’’
19 See, e.g., Cboe Rule 5.33(f)(2) (setting forth
parameters for the ‘‘net price’’ of complex orders
traded on Cboe); Nasdaq ISE, LLC (‘‘Nasdaq ISE’’),
Options 3, Section 14(c) (providing, in relevant
part, that ‘‘[c]omplex strategies will not be executed
at prices inferior to the best net price achievable
from the best ISE bids and offers for the individual
legs’’).
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Æ An ECO would trade at the prices
of the leg markets (see proposed Rule
6.91P–O(c)(1)(B)). This proposed rule
would make clear that when trading
with the leg markets, the components of
the ECO would trade at the prices of the
leg markets, which is consistent with
current functionality. For example, if
there is sell interest in a leg market at
$1.00, and a leg of an ECO to buy could
trade up to $1.05, the ECO would trade
with such leg market at $1.00. This
would result in the ECO receiving price
improvement and is consistent with the
ECO trading as the aggressing order.
• Proposed Rule 6.91P–O(c)(2) would
provide that when trading with another
ECO, an ECO must trade at a price at or
within the DBBO and no leg of an ECO
may trade at a price of zero. This
provision is based in part on current
Rule 6.91–O(a)(2), which provides that
no leg of an ECO will be executed
outside of the Exchange BBO, and adds
detail about other limitations on
executions based on the DBBO. This
proposed rule, which ensures that ECOs
would never trade through interest in
the leg markets, is consistent with
current functionality and adds clarity
and transparency to the proposed Rule.
This proposed rule is also consistent
with how ECOs are processed on other
options exchanges.20
• Proposed Rule 6.91P–O(c)(3) would
provide that an ECO may trade without
consideration of prices of the same
complex strategy available on other
exchanges, which is based on the same
text as contained in current Rule 6.91–
O(a)(2) without any substantive
differences.
• Proposed Rule 6.91P–O(c)(4) would
provide that an ECO may trade in one
cent ($0.01) increments regardless of the
MPV otherwise applicable to any leg of
the complex strategy, which is based on
current Rule 6.91–O, Commentary .01
without any substantive differences.
Execution of ECOs at the Open (or
Reopening after a Trading Halt). Current
Rule 6.91–O(a)(2)(i) sets forth how ECOs
are executed upon opening or reopening
of trading. Proposed Rule 6.91P–O(d)
would set forth details about how ECOs
would be executed at the open or
reopen following a trading halt.
With the transition to Pillar, the
Exchange proposes new functionality
20 See, e.g., Cboe Rule 5.33(f)(2) (setting forth
substantially identical execution parameters for
complex orders executed on Cboe, including that
complex orders may not execute at a net price that
would cause any component of the complex
strategy to be executed at a price of zero, or worse
than or equal to the Cboe SBBO when there is a
Priority Customer at the SBBO, or would cause any
component of the complex strategy to be executed
at a price worse than the individual component
prices on the Simple Book).
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regarding the ‘‘ECO Opening Auction
Process’’ on the Exchange, which would
be applicable both to openings and
reopenings following a trading halt. The
Exchange proposes to incorporate into
the ECO Opening Auction Process
certain functionality currently available
on the Exchange’s cash equity platform,
which the Exchange has similarly
proposed to include in the Auction
Process for single-leg options.21
Accordingly, proposed Rule 6.91P–O(d)
would use Pillar terminology relating to
auctions that is based in part on Pillar
terminology set forth in Rule 7.35–E for
cash equity trading and in part on
proposed Rule 6.64P–O for single-leg
options.
• Proposed Rule 6.91P–O(d)(1) would
set forth the conditions required for the
commencement of an ECO Opening
Auction Process. Specifically, as
proposed, the Exchange would initiate
an ECO Opening Auction Process for a
complex strategy only if all legs of the
complex strategy have opened or
reopened for trading, which text is
based on current Rule 6.91–O(a)(2)(i)(A)
without any substantive differences.
Proposed Rule 6.91P–O(d)(1)(A)–(C)
would set forth conditions that would
prevent the opening of a complex
strategy, as follows:
Æ Any leg of the complex strategy has
no BO or NBO;
Æ The bid and offer prices used to
calculate the DBBO for the complex
strategy are locking or crossing; or
Æ All legs of the complex strategy
include displayed Customer interest and
the width of the DBBO is less than or
equal to one penny ($0.01) times the
smallest leg ratio.
The proposal to detail these
conditions for opening are consistent
with current functionality. The
Exchange believes that this added detail
would add clarity and transparency to
Exchange rules and would promote a
fair and orderly ECO Opening Auction
Process.
• Proposed Rule 6.91P–O(d)(2) would
provide that any ECOs in a complex
strategy with prices that lock or cross
one another would be eligible to trade
in the ECO Opening Auction Process.
This proposed rule is based on current
Rule 6.91–O(a)(2)(i)(B), which provides
than an opening process will be used if
there are ECOs that ‘‘are marketable
against each other.’’ The Exchange
proposes a difference in Pillar not to
require that such ECOs be ‘‘priced
within the Complex NBBO’’ because the
proposed ECO Opening Auction Process
See Single-Leg Pillar Filing (describing
proposed opening Auction Process rule per Rule
6.64P–O).
under Pillar would instead rely on the
DBBO (as described below).
Proposed Rule 6.91P–O(d)(2)(A)
would provide that an ECO received
during a pre-open state would not
participate in the Auction Process for
the leg markets pursuant to proposed
Rule 6.64P–O, which is based on the
same text (in the second sentence) of
current Rule 6.91–O(a)(2)(i)(A) without
any substantive differences.
Proposed Rule 6.91P–O(d)(2)(B)
would provide that a complex strategy
created intra-day when all leg markets
are open would not be subject to an ECO
Opening Auction Process and would
instead trade pursuant to paragraph (e)
of the proposed Rule (discussed below)
regarding the handling of ECOs during
Core Trading Hours.
Proposed Rule 6.91P–O(d)(2)(C)
would provide that the ECO Opening
Auction Process would be used to
reopen trading in ECOs after a trading
halt. This proposed rule is based in part
on current Rule 6.64–O(d) and makes
clear that the ECO Opening Auction
Process would be applicable to
reopenings.
• Proposed Rule 6.91P–O(d)(3) would
describe each aspect of the ECO
Opening Auction Process. First,
proposed Rule 6.91P–O(d)(3)(A) would
describe the ‘‘ECO Auction Collars,’’
which terminology would be new for
ECO trading and is based on the term
‘‘Auction Collars’’ used in Rule 7.35–E
for trading cash equity securities as well
as in proposed Rule 6.64P–O(a)(2) for
single-leg options trading.22
As proposed, the upper (lower) price
of an ECO Auction Collar for a complex
strategy would be the DBO (DBB);
provided, however, that if there is
displayed Customer interest on all legs
of a complex strategy, the upper (lower)
price of an ECO Auction Collar would
be one penny ($0.01) times the smallest
leg ratio inside the DBO (DBB)
containing Customer interest. This new
functionality on Pillar would ensure
that ECOs trade within the DBBO and
thus avoid trading through displayed
Customer interest in the leg markets,
which the Exchange believes is
consistent with fair and orderly markets
and investor protection.
• Next, proposed Rule 6.91P–
O(d)(3)(B) would describe the ‘‘ECO
Auction Price.’’ As proposed, the ECO
Auction Price would be the price at
which the maximum volume of ECOs
can be traded in an ECO Opening
Auction, subject to the proposed ECO
Auction Collar. As further proposed, if
there is more than one price at which
21
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22 See Single-Leg Pillar Filing (defining Auction
Collars in proposed Rule 6.64P–O(a)(2)).
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the maximum volume of ECOs can be
traded within the ECO Auction Collar,
the ECO Auction Price would be the
price closest to the midpoint of the ECO
Auction Collar, or, if the midpoint falls
within such prices, the ECO Auction
Price would be the midpoint, provided
that the ECO Auction Price would not
be lower (higher) than the highest
(lowest) price of an ECO to buy (sell)
that is eligible to trade in the ECO
Opening Auction Process. The concept
of an ECO Auction Price is based in part
on the concept of ‘‘single market
clearing price’’ set forth in current Rule
6.91–O(a)(2)(i)(B). For Pillar, the
Exchange proposes to determine the
ECO Auction Price in a manner that is
based in part on how an Indicative
Match Price is determined for trading of
cash equity securities, as set forth in on
Rule 7.35–E(a)(8)(A), and how the
Exchange proposes to determine the
price for Auctions on Pillar for singleleg options trading.23
Finally, as proposed, if the ECO
Auction Price would be a sub-penny
price, it would be rounded to the
nearest whole penny, which text is
based on current Rule 6.91–O(a)(2)(i)(B),
with a difference that the current rule
refers to the midpoint of the Complex
NBBO (which could be a sub-penny
price) as opposed to referring to the ECO
Auction Price, which would be a new
Pillar term for trading ECOs.
Proposed Rule 6.91P–O(d)(3)(B)(i)
would provide that an ECO to buy (sell)
with a limit price at or above (below)
the upper (lower) ECO Auction Collar
would be included in the ECO Auction
Price calculation at the price of the
upper (lower) ECO Auction Collar, but
ranked for participation in the ECO
Opening (or Reopening) Auction
Process in price-time priority based on
its limit price. This proposed text is
based in part on current Rule 6.91–
O(a)(2)(i)(B). The proposed rule is also
based on how the Exchange processes
auctions for cash equity trading, as
described in Rules 7.35–E(a)(10)(B) and
(a)(6) and how the Exchange proposes to
process Auctions on Pillar for single-leg
options trading.24
Proposed Rule 6.91P–O(d)(3)(B)(ii)
would provide that locking and crossing
ECOs in a complex strategy would trade
at the ECO Auction Price. As further
proposed, if there are no locking or
crossing ECOs in a complex strategy at
or within the ECO Auction Collars, the
Exchange would open the complex
strategy without a trade. This proposed
23 See Single-Leg Pillar Filing (describing
proposed Rule 6.64P–O(a)(7)).
24 See Single-Leg Pillar Filing (describing
proposed Rules 6.64P–O(a)(7)(B)(i) and 6.64P–O(b)).
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text would be new and is based in part
on proposed Rule 6.64P–O(d)(2)(B) for
single-leg options, which describes
when an option series could open
without a trade.25
• Proposed Rule 6.91P–O(d)(4) would
describe the ‘‘ECO Order Processing
during ECO Opening Auction Process.’’
Because the Exchange would be using
the same Pillar auction functionality for
ECO trading that is used for its cash
equity market and that the Exchange is
proposing for single-leg options trading,
the Exchange proposes to apply existing
Pillar auction functionality regarding
how to process ECOs that may be
received during the period when an
ECO Auction Process is ongoing.
Accordingly, as proposed, new ECOs
and ECO Order Instructions (as defined
in proposed Rule 6.91P–O(a)(2),
described above) that are received when
the Exchange is conducting the ECO
Opening Auction Process for the
complex strategy would be accepted but
would not be processed until after the
conclusion of this process. As further
proposed, when the Exchange is
conducting the ECO Opening Auction
Process, ECO Order Instructions would
be processed as follows:
Æ Proposed Rule 6.91P–O(d)(4)(A)
would provide that an ECO Order
Instruction received during the ECO
Opening Auction Process would not be
processed until after this process
concludes if it relates to an ECO that
was received before the process begins
and that any subsequent ECO Order
Instructions relating to such ECO would
be rejected.
Æ Proposed Rule 6.91P–O(d)(4)(B)
would provide that an ECO Order
Instruction received during the ECO
Opening Auction Process would be
processed on arrival if it relates to an
order that was received during this
process.
Proposed Rule 6.91P–O(d)(4) and subparagraphs (A) and (B) are based on
both current Rule 7.35–E(g) and its subparagraphs (1) and (2) and proposed
Rule 6.64P–O(e) and its sub-paragraphs
(1) and (2) (as described in the SingleLeg Pillar Filing) with differences only
to reference the proposed defined term
ECO Order Instruction and to refer to
the ECO Opening Auction Process. The
Exchange believes that the proposed
rule text would provide transparency
regarding how ECO Order Instructions
that arrived during the ECO Opening
Auction Process would be processed.
Proposed Rule 6.91P–O(d)(5) would
describe the ‘‘Transition to continuous
trading’’ after the ECO Opening Auction
25 See Single-Leg Pillar Filing (describing
proposed Rule 6.64P–O(d)(2)(B).
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Process. As proposed, after the ECO
Opening Auction, ECOs would be
subject to ECO Price Protection, per
proposed Rule 6.91P–O(g)(2) (as
described below) and, if eligible to
trade, would trade as follows:
Æ Proposed Rule 6.91P–O(d)(5)(A)
would provide that an ECO received
before the complex strategy was opened
that did not trade in whole in the ECO
Opening Auction Process and that is
locking or crossing other ECOs or leg
markets in the Consolidated Book
would trade pursuant to proposed Rule
6.91P–O(e) (discussed below) regarding
the handling of ECOs during Core
Trading Hours. This provision is based
on the (last sentence) of current Rule
6.91–O(a)(2)(i)(B) and (C), with nonsubstantive differences to use Pillar
terminology.
Æ Proposed Rule 6.91P–O(d)(5)(B)
would provide that any ECO received
during the ECO Opening Auction
Process would be processed in time
sequence relative to one another based
on original entry time. This proposed
rule is based on both current
functionality and how the Exchange
proposes to process orders in an option
series that were received during an
Auction Processing Period, as described
in the Single-Leg Pillar Filing for
proposed Rule 6.64P–O(a)(5).
Execution of ECOs During Core
Trading Hours. Proposed Rule 6.91P–
O(e) would describe how ECOs would
be processed during Core Trading
Hours.
Proposed Rule 6.91P–O(e)(1) would
provide that once a complex strategy is
open for trading, an ECO received by the
Exchange would trade with the bestpriced contra-side interest as follows:
• Proposed Rule 6.91P–O(e)(1)(A)
would provide that if, at a price, the
incoming ECO would be eligible to trade
with the leg markets (e.g., not a
Complex Only Order), the leg markets
would have first priority at that price
and would trade with the incoming ECO
pursuant to proposed Rule 6.76AP–O
before such incoming ECO would trade
with contra-side ECOs resting in the
Consolidated Book at that price. This
proposed text is based on current Rule
6.91–O(a)(2)(ii) without any substantive
differences.
• Proposed Rule 6.91P–O(e)(1)(B)
would provide that an ECO would not
trade with orders in the leg markets
designated as AON or with an MTS
modifier. This proposed text would be
new and is based in part on existing
functionality and reflects the Exchange’s
proposed new MTS modifier for orders
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43709
in the leg markets.26 The Exchange
believes that this proposed rule would
add clarity and transparency that ECOs
would not trade with orders that have
conditional instructions.
• Proposed Rule 6.91P–O(e)(1)(C)
would provide that an ECO (that is not
designated as a Complex Only Order)
would be eligible to trade with the leg
markets (in full or in a permissible
ratio), subject to certain enumerated
exceptions set forth in proposed Rule
6.91P–O(e)(1)(C)(i)–(iii). Specifically,
ECOs with any one of the following
complex strategies would be ineligible
to trade with the leg markets and would
be processed as a Complex Only Order:
Æ A complex strategy with more than
five legs;
Æ a complex strategy with two legs
and both legs are buying or both legs are
selling, and both legs are calls or both
legs are puts; or
Æ a complex strategy with three or
more legs and all legs are buying or all
legs are selling.
The proposal to restrict ECOs with
more than five legs from trading with
the leg markets (and being treated as
Complex Only Orders), per proposed
Rule 6.91P–O(e)(1)(C)(i), would be new
functionality under Pillar and is
designed to help Market Makers manage
risk. The Exchange currently requires
Market Makers to utilize certain risk
controls for quoting to help mitigate risk
particularly during periods of market
volatility, and would require Market
Makers to continue to use risk controls
on Pillar.27 Because the execution of a
multi-legged ECO is a single transaction,
comprising discrete legs that must all
trade simultaneously, allowing ECOs
with more than five legs to trade with
the leg markets may allow a multilegged transaction to occur before a
Market Maker’s risk settings would be
triggered. This proposed limitation is
designed to prevent such multi-legged
transactions, which would help ensure
that Market Makers continue to provide
liquidity and do not trade above their
established risk tolerance levels. The
Exchange notes that this restriction is
consistent with similar limits
26 See Single-Leg Pillar Filing (describing
Minimum Trade Size or MTS Modifier in proposed
Rule 6.62P–O(i)(3)(B)).
27 See Single-Leg Pillar Filing (describing the
activity-based controls with updated functionality
under Pillar that Market Makers would be required
to use to manage risk in connection with their
quotes, per proposed Rule 6.40P–O(a)(3) and (b)(2)).
The proposed Pillar risk controls are substantively
identical to the existing risk controls set forth in
Rules 6.40–O(b)(2), (c)(2) and (d)(2) and
Commentary .04 to Rule 6.40–O.
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established on other options
exchanges.28
Proposed Rule 6.91P–O(e)(1)(C)(ii)–
(iii), which treats ECOs with certain
complex strategies as Complex Only
Orders, is based in part on current Rule
6.91–O(b)(4)(i)–(ii), with a difference
that currently, such so-called
‘‘directional strategies’’ are rejected. The
proposed handling under Pillar would
be less restrictive than the current rule
because such strategies would not be
rejected and is consistent with the
treatment of such complex strategies on
other options exchanges.29 As with the
proposal to restrict ECOs with more
than five legs trading with the leg
markets, this proposed restriction is also
designed to ensure that Market Maker
risk settings would not be bypassed.
Because ECOs with directional
strategies are typically geared towards
an aggressive directional capture of
volatility, such ECOs can represent
significantly more risk than trading any
one of the legs in isolation. As such,
because Market Maker risk settings are
only triggered after the entire ECO
package has traded, the Exchange
believes this proposed rule change
would help ensure fair and orderly
markets by preventing such orders
trading with the leg markets, which
would minimize risk to Market Makers.
Proposed Rule 6.91P–O(e)(2) would
provide that any ECO or portion thereof
that does not trade immediately when it
is received by the Exchange and that is
designated either Day or GTC would be
ranked in the Consolidated Book
pursuant to proposed paragraph (c) of
this Rule (regarding the priority of
ECOs), which is based on current Rule
6.91–O(a)(2)(iii), except that it adds
details regarding the time-in-force
modifier of the ECO, which adds clarity
and transparency to the proposed Rule.
As further proposed, the Exchange
would evaluate trading opportunities for
a resting ECO when the leg markets
comprising a complex strategy update,
provided that during periods of high
message volumes, such evaluation may
be reduced to no less than ten times per
one (1) second. The Exchange believes
that this proposed rule promotes
transparency of the frequency with
which the Exchange would be
evaluating the leg markets for updates.
28 See e.g., Cboe Rule 5.33(g) (providing the ECOs
may be restricted from trading with the leg markets
if such ECO has more than a maximum number of
legs, which maximum the Exchange determines on
a class-by-class basis and may be two, three, or
four).
29 See, e.g., Nasdaq ISE Options 3, Section
14(d)(3)(A)–(B) (proving that ECOs with these
complex strategies may trade only with other
ECOs).
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Proposed Rule 6.91P–O(e)(3) would
provide that ECOs that trade with the
leg markets would be allocated pursuant
to Rule 6.76AP–O. This proposed rule is
based in part on current Rule 6.91–
O(a)(2)(iii) without any substantive
differences.
Execution of ECOs During a COA.
Proposed Rule 6.91P–O(f) would
describe how ECOs would trade during
a COA. The COA Process is currently
described in Rule 6.91–O(c). Under
Pillar, the Exchange proposes to
simplify the COA process, including by
relying on the current DBBO for pricing,
allowing a COA Order to initiate a COA
only on arrival, and streamlining the
rule text describing the circumstances
that would cause an early end to a COA.
As proposed, a COA Order received
when a complex strategy is open for
trading would initiate a COA only on
arrival, subject to proposed Rule 6.91P–
O(f)(1) (described below). As further
proposed, a COA Order would be
rejected if entered during a pre-open
state or if entered during Core Trading
Hours with a time-in-force of FOK or
GTX. This proposed order handling is
based in part on current Rule 6.91–
O(c)(1)(ii), which requires that COA
Orders be submitted during Core
Trading Hours. The proposed rejection
of such orders during a pre-open state
would be new under Pillar and is
consistent with the Exchange’s
proposed functionality that a COA
Order would initiate a COA only on
arrival. In addition, the proposal would
clarify that COA Orders designated as
FOK or GTX would be rejected, even if
submitted during Core Trading Hours, is
based on current functionality and this
addition would add further detail and
clarification to the rule text. Finally, as
further proposed, only one COA may be
conducted at a time in a complex
strategy, which is identical to text in
current Rule 6.91–O(c)(3).
Proposed Rule 6.91P–O(f)(1) would
describe the conditions required for the
‘‘Initiation of a COA.’’ As proposed, to
initiate a COA, the limit price of the
COA Order to buy (sell) must be higher
(lower) than the best-priced, same-side
ECOs resting on the Consolidated Book
and equal to or higher (lower) than the
midpoint of the DBBO. This proposed
text is based in part on current Rule
6.91–O(c)(3)(i), with a difference to add
a new ‘‘midpoint of the DBBO’’
requirement, which is designed to
facilitate price improvement
opportunities for the COA Order. As
further proposed, a COA Order that does
not satisfy these pricing parameters
would not initiate a COA and would be
processed as an ECO. This would be
new under Pillar, as current Rule 6.91–
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O(c)(3) allows an order designated for
COA to reside on the Consolidated Book
unless or until such order meets the
requisite pricing conditions to initiate a
COA. The Exchange believes this
proposed change would simplify the
COA process.
Finally, as proposed, once a COA is
initiated, the Exchange would
disseminate a Request for Response
message, the Response Time Interval
would begin and, during such interval,
the Exchange would accept RFR
Responses, including GTX ECO Orders.
This proposed text is based on current
functionality set forth in Rule 6.91–O(c),
with non-substantive differences to use
Pillar terminology, including using the
new Pillar term for GTX ECO Orders.
Proposed Rule 6.91P–O(f)(2) would
describe the ‘‘Pricing of a COA.’’ As
proposed, a COA Order to buy (sell)
would initiate a COA at its limit price,
unless its limit price locks or crosses the
DBO (DBB), in which case it would
initiate a COA at a price equal to one
penny ($0.01) times the smallest leg
ratio inside the DBO (DBB) (the ‘‘COA
initiation price’’). This proposed
functionality utilizes the new concept of
a DBBO, is consistent with current
functionality (that relies on
substantively similar concept of
Complex BBO), and ensures (consistent
with current functionality) that interest
on the leg markets maintain priority.
• Proposed Rule 6.91P–O(f)(2)(A)
would provide that prior to initiating a
COA, a COA Order to buy (sell) would
trade with any ECO to sell (buy) that is
priced equal to or below (above) one
penny ($0.01) times the smallest leg
ratio inside the DBO (DBB) (i.e., priced
better than the leg markets) and any
unexecuted portion of such COA Order
would initiate a COA. This proposed
rule is based on current Rule 6.91–
O(a)(2) with a difference to use the
Pillar concept of DBBO rather than refer
to the contra-side Complex BBO.
• Proposed Rule 6.91P–O(f)(2)(B)
would provide that a COA Order would
not be eligible to trade with the leg
markets until after the COA ends, which
added detail, while not explicitly stated
in the current rule, is consistent with
current functionality described in Rules
6.91–O(c)(7)(A) and (B) that only RFR
Responses (i.e., GTX orders) and ECOs
will be allocated in a COA and that the
COA Order would not trade with the leg
markets until after the COA allocations.
• Proposed Rule 6.91P–O(f)(3) would
set forth the conditions that would
result in the ‘‘Early End to a COA’’ (i.e.,
a COA ending prior to the expiration of
the Response Time Interval). Currently,
as described in Rule 6.91–O(c)(3), the
Exchange takes a snapshot of the
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Complex BBO at the start of a COA and
uses that snapshot as the basis for
determining whether to end a COA
early. Under Pillar, the Exchange would
no longer use a snapshot of the Complex
BBO as the basis for determining
whether to end a COA early but would
instead rely on the DBBO (not initial
snapshot), which is updated as market
conditions change (including during the
Response Time Interval).30 The
Exchange proposes a COA would end
early under the following conditions:
Æ Proposed Rule 6.91P–O(f)(3)(A)
would provide that a COA would end
early if the Exchange receives an
incoming ECO or COA Order to buy
(sell) in the same complex strategy that
is priced higher (lower) than the
initiating COA Order to buy (sell),
which proposed text is based on current
Rule 6.91–O(c)(6)(B)(i) without any
substantive differences.
Æ Proposed Rule 6.91P–O(f)(3)(B)
would provide that a COA would end
early if the Exchange receives an RFR
Response that crosses the same-side
DBBO, which proposed text is based on
current Rule 6.91–O(c)(6)(A)(i), except
(as noted above) it refers to the DBBO
rather than the ‘‘initial Complex BBO.’’
Æ Proposed Rule 6.91P–O(f)(3)(C)
would provide that a COA would end
early if the leg markets update causing
the same-side DBBO to lock or cross (i)
any RFR Response(s) or (ii) if no RFR
Responses have been received, the bestpriced, contra-side ECOs. This proposed
rule is based in part on current Rule
6.91–O(c)(6)(C)(i), with differences to
use Pillar terminology.
Æ Proposed Rule 6.91P–O(f)(3)(D)
would provide that a COA would end
early if the leg markets update causing
the contra-side DBBO to lock or cross
the COA initiation price. This proposed
rule is based in part on current Rule
6.91–O(c)(6)(C)(ii), except that it would
refer to the DBBO and the COA
initiation price, which would be new
concepts under Pillar.
• Proposed Rule 6.91P–O(f)(4) would
set forth the ‘‘Allocation of COA
Orders’’ after a COA either ends early or
after the expiration of the Response
Time Interval. Current Rule 6.91–
O(c)(7)(A) sets forth that the COAeligible orders are allocated against the
best-priced interest received in the COA
at each price on a ‘‘Size Pro-Rata Basis,’’
as that concept is defined in Rule 6.75–
O(f)(6). Under Pillar, the allocation of
the COA Order would be based on
30 As discussed infra regarding proposed Rule
6.91P–O(a)(6) and the definition of the Derived
BBO, ‘‘the DBBO would be updated as the
Exchange’s calculation of the Exchange BBO or
Away Market NBBO, as applicable, is likewise
updated’’).
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price-time priority, which would align
the allocation of ECOs in a COA with
standard processing of ECOs.
Proposed Rule 6.91P–O(f)(4)(A)
would provide that RFR Responses to
sell (buy) would trade in price-time
priority with a COA Order to buy (sell);
provided, however, that if there is
displayed Customer interest on all legs
of the DBB (DBO), RFR Responses to sell
(buy) would not trade below (above) one
penny ($0.01) times the smallest leg
ratio inside the DBB (DBO). This
proposed rule would ensure that the
COA Order would not trade at a worse
price than the leg markets and would
price improve at least a portion of the
interest in the leg markets. The
proposed text is based in part on current
Rule 6.91–O(c)(7)(A) insofar as it
ensures that the COA Order would trade
with the best-priced RFR Responses
received in the COA and differs
substantively because, as discussed
above, the COA Order would trade with
RFR Responses in price-time priority
(and not Size Pro Rata).
Proposed Rule 6.91P–O(f)(4)(B) would
provide that after COA allocations
pursuant to paragraph (f)(4)(A) of this
proposed Rule, any unexecuted balance
of a COA Order (including COA Orders
designated as IOC) would be eligible to
trade with any contra-side interest,
including the leg markets unless the
COA Order is designated or treated as a
Complex Only Order. This proposed
text is based on existing functionality
and makes explicit that a COA Order
would trade solely with complex
interest (and not the leg markets) during
a COA. This proposed rule is designed
to provide clarity and transparency that
the remaining balance of a COA Order
would be eligible to trade with the leg
markets after the COA ends.
Proposed Rule 6.91P–O(f)(4)(C) would
provide that after a COA Order trades
pursuant to proposed Rule 6.91P–
O(f)(4)(B), any unexecuted balance of a
COA Order would be processed as an
ECO pursuant to paragraph (e) of this
Rule. The proposed text is based on
current Rule 6.91–O(c)(7)(B) without
any substantive differences.
Proposed Rule 6.91P–O(f)(5) would
set forth ‘‘Prohibited Conduct related to
COAs,’’ and is based on current
Commentary .04 to Rule 6.91–O without
any substantive differences, and would
provide that a pattern or practice of
submitting unrelated orders that cause a
COA to conclude early would be
deemed conduct inconsistent with just
and equitable principles of trade and
that dissemination of information
related to COA Orders to third parties
would also be deemed as conduct
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inconsistent with just and equitable
principles of trade.
ECO Risk Checks. Proposed Rule
6.91P–O(g) would describe the ‘‘ECO
Risk Checks,’’ which are designed to
help OTP Holders and OTP Firms to
effectively manage risk when trading
ECOs. Current Commentaries .03, .05,
and .06 of Rule 6.91–O set forth the
existing risk checks for ECOs. With the
transition to Pillar, the Exchange
proposes to modify and enhance its
existing risk checks for ECOs, as
follows:
• Proposed Rule 6.91P–O(g)(1) would
set forth the ‘‘Complex Strategy Limit.’’
As proposed, the Exchange would
establish a limit on the maximum
number of new complex strategies that
may be requested to be created per
MPID, which limit would be announced
by Trader Update.31 As further
proposed, when an MPID reaches the
limit on the maximum number of new
complex strategies, the Exchange would
reject all requests to create new complex
strategies from that MPID for the rest of
the trading day. In addition, and
notwithstanding the established
Complex Strategy Limit, the Exchange
proposes that it may reject a request to
create a new complex strategy from any
MPID whenever the Exchange
determines it is necessary in the
interests of a fair and orderly market.
This is new functionality proposed
under Pillar but is conceptually similar
to the Complex Order Table Cap (the
‘‘Cap’’), set forth in Commentary .03 to
Rule 6.91–O, which Cap (like the
Complex Strategy Limit) is a system
protection tool that enables the
Exchange to limit the number of
complex strategies available on the
Exchange, which in turn improves the
efficiency of the ECO process and helps
maintain a fair and orderly market. The
Exchange also notes that other options
exchanges likewise impose a limit on
new complex order strategies.32
31 The Exchange has proposed to add the
definition of MPID to proposed Rule 1.1, which
would refer 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. An ETP Holder, OTP Holder, or OTP
Firm may obtain multiple MPIDs and each such
MPID may be associated with one or more subidentifiers of that MPID.’’ See Single-Leg Pillar
Filing.
32 See, e.g., Cboe Rule 5.33 (providing, in its
definition of ‘‘complex strategy’’ that Cboe ‘‘may
limit the number of new complex strategies that
may be in the [Cboe] System at a particular time’’)
and MIAX Rule 518(a)(6) (providing, in its
definition of ‘‘complex strategy’’ that MIAX ‘‘may
limit the number of new complex strategies that
may be in the System at a particular time and will
communicate this limitation to Members via
Regulatory Circular’’).
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• Proposed Rule 6.91P–O(g)(2) would
set forth the ECO Price Protection. The
existing ECO ‘‘Price Protection Filter’’ is
set forth in Commentary .05 to current
Rule 6.91–O (the ‘‘ECO Filter’’). The
proposed ‘‘ECO Price Protection’’ on
Pillar would work similarly to how the
current ECO price protection
mechanism functions on the Exchange
because an ECO would be rejected if it
is priced a specified percentage away
from the contra-side Complex NBB or
NBO.33 However, on Pillar, the
Exchange proposes to use new
thresholds and reference prices, which
would not only simplify the existing
price check, but it would also align the
proposed functionality with the
proposed ‘‘Limit Order Price
Protection’’ for single-leg interest, thus
adding uniformity to Exchange rules.34
Proposed Rule 6.91P–O(g)(2)(A)
would provide that each trading day, an
ECO to buy (sell) would be rejected or
cancelled (if resting) if it is priced a
Specified Threshold equal to or above
(below) the Reference Price (as
described below), rounded down to the
nearest penny ($0.01), subject to
proposed paragraphs (g)(2)(A)(i)–(v) of
the Rule as described below. Because
ECO Price Protection would be applied
each trading day, an ECO designated
GTC would be re-evaluated for ECO
Price Protection on each day that it is
eligible to trade and would be cancelled
if the limit price is equal to or 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), and is
consistent with the proposed operation
of the single-leg ‘‘Limit Order Price
Protection’’ functionality for options.35
Æ Proposed Rule 6.91P–O(g)(2)(A)(i)
would provide that an ECO that arrives
when a complex strategy is open for
trading would be evaluated for ECO
Price Protection on arrival. The
Exchange has proposed similar
functionality for single-leg options.36
Æ Proposed Rule 6.91P–O(g)(2)(A)(ii)
would provide that an ECO received
during a pre-open state would be
33 As noted above, the Exchange proposes to
define the Complex NBBO as the derived national
best bid and derived national best offer for a
complex strategy calculated using the NBB and
NBO for each component leg of a complex strategy.
See proposed Rule 6.91P–O(a)(4).
34 See Single-Leg Pillar Filing (proposed Rule
6.62P(a)(3) sets forth the Limit Order Price
Protection Filter applicable to Limit Orders and
quotes).
35 See id.
36 See Single-Leg Pillar Filing (discussion
regarding proposed Rule 6.62P–O(a)(3)(A)(i)).
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evaluated for ECO Price Protection after
the ECO Opening Auction Process
concludes.37 The Exchange has
proposed similar functionality for
single-leg options.38
Æ Proposed Rule 6.91P–O(g)(2)(A)(iii)
would provide that an ECO resting on
the Consolidated Book before a trading
halt would be reevaluated for ECO Price
Protection after the ECO Opening
Auction Process concludes. The
Exchange has proposed similar
functionality for single-leg options.39
Æ Proposed Rule 6.91P–O(g)(2)(A)(iv)
would provide that Cross Orders (per
proposed Rule 6.62P–O(g)) and ECOs
entered on the Trading Floor would not
be subject to ECO Price Protection. The
Exchange has proposed similar
functionality for single-leg options.40
Æ Proposed Rule 6.91P–O(g)(2)(A)(v)
would provide that ECO Price
Protection would not be applied if there
is no Reference Price for an ECO. The
Exchange has proposed similar
functionality for single-leg options.41
Proposed Rule 6.91P–O(g)(2)(B)
would specify the ‘‘Reference Price’’
used in connection with the ECO Price
Protection. As proposed, the Reference
Price for calculating ECO Price
Protection for an ECO to buy (sell)
would be the Complex NBO (NBB),
provided that, immediately following an
ECO Opening Auction Process, the
Reference Price would be the ECO
Auction Price or, if none, the Complex
NBO (NBB). The Exchange believes that
adjusting the Reference Price for ECO
Price Protection immediately following
an ECO Opening Auction would ensure
that the most up-to-date price would be
used to assess whether to cancel an ECO
that was received during a pre-open
state, including during a Trading Halt.
The Exchange notes this functionality is
consistent with the proposed operation
of the Limit Order Price Protection for
single-leg options.42
See discussion infra regarding proposed Rule
6.91P–O(d), which describes the ECO Opening
Auction Process (or Reopening after a Trading Halt)
as well as the concepts of ECO Auction Collars and
ECO Auction Price.
38 See Single-Leg Pillar Filing (discussion
regarding proposed Rule 6.62P–O(a)(3)(A)(ii)).
39 See Single-Leg Pillar Filing (discussion
regarding proposed Rule 6.62P–O(a)(3)(A)(iii)).
40 See Single-Leg Pillar Filing (discussion
regarding proposed Rule 6.62P–O(a)(3)(A)
excluding Cross Orders).
41 See Single-Leg Pillar Filing (discussion
regarding proposed Rule 6.62P–O(a)(3)(A)).
42 See Single-Leg Pillar Filing (discussion
regarding proposed Rule 6.62P–O(a)(3)(A)
describing that the Reference Price for Limit Order
Price Protection would be adjusted 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).
37
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As further proposed, there would be
no Reference Price for an ECO if there
is no NBBO for any leg of such ECO (i.e.,
the Exchange would not calculate a
Complex NBB (NBO)), which text is
based on current Rule 6.91–O,
Commentary .05(c), except that the
proposed rule would not reference
OPRA because, as further proposed, for
purposes of determining a Reference
Price, the Exchange would not use an
adjusted NBBO (i.e., such NBBO is
implicitly reliant on information from
OPRA).43 The Exchange notes that using
an unadjusted NBBO to calculate the
Reference Price 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) and is also consistent with the
proposed operation of the Limit Order
Price Protection for single-leg options.44
Proposed Rule 6.91P–O(g)(2)(C)
would set forth the ‘‘Specified
Threshold’’ used in connection with the
ECO Price Protection. As proposed, the
Specified Threshold for calculating ECO
Price Protection would be $1.00, unless
determined otherwise by the Exchange
and announced to OTP Holders and
OTP Firms by Trader Update.
The Exchange believes that the
proposed Specified Threshold of $1.00
simplifies how the Reference Price
would be calculated as compared to the
calculations currently specified in
Commentary .05 to Rule 6.91–O. In
addition, consistent with Commentary
.05(d), the Exchange proposes that the
Specified Threshold could change,
subject to announcing the changes by
Trader Update. Providing flexibility in
Exchange rules regarding how the
Specified Threshold would be set is
consistent with the rules of other
options exchanges as well as the
proposed functionality for the single-leg
Limit Order Price Protection feature.45
43 See Single-Leg Pillar Filing (discussion
regarding the proposed definition of ‘‘NBBO’’ in
proposed Rule 1.1 describing that the ‘‘NBBO’’ for
purposes of options trading would mean the
national best bid or offer and that ‘‘[u]nless
otherwise specified, 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.’’ The
Exchange further proposes that the term ‘‘Away
Market NBBO’’ refers to a calculation of the NBBO
that excludes the Exchange’s BBO’’).
44 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. See Single-Leg Pillar Filing (describing
use of unadjusted NBBO for single-leg Limit Order
Price Protection in proposed Rule 6.62P–O(a)(3)(B)).
45 See, e.g., Cboe Rule 5.34(b)(6) (describing the
‘‘Drill-Through Protection’’ and that Cboe
‘‘determines a default buffer amount on a class-byclass basis). See Single-Leg Pillar Filing (describing
use of Trader Update to modify Specified
Thresholds in proposed Rule 6.62P–O (a)(3)(C)).
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• Proposed Rule 6.91P–O(g)(3) would
set forth the ‘‘Complex Strategy
Protections.’’ The proposed protections
are based on current Rule 6.91–O,
Commentary .06, which are referred to
as the ‘‘Debit/Credit Reasonability
Checks.’’ The Exchange believes this
name change is appropriate because it
more accurately conveys that the check
applies solely to certain complex
strategies and because (as discussed
above), the Exchange proposes to refer
simply to a ‘‘net price’’ as opposed to
the ‘‘total net debit or credit price.’’ The
proposed Pillar Complex Strategy
Protections would function similarly to
the current Debit/Credit Reasonability
Checks because erroneously priced
incoming ECOs would be rejected.
However, rather than to refer to
specified debit or credit amounts as a
way to determine whether a given
strategy is erroneously priced, the
proposed rule would instead focus on
the expectation of the order sender and
what would result if the ECO were not
rejected.
As proposed, to protect an OTP
Holder or OTP Firm that sends an ECO
(each an ‘‘ECO sender’’) with the
expectation that it would receive (or
pay) a net premium but has priced the
ECO such that the ECO sender would
instead pay (or receive) a net premium,
the Exchange would reject any ECO that
is comprised of the erroneously-priced
complex strategies as set forth in
proposed Rule 6.91P–O(g)(3)(A)–(C) and
described below.
Proposed Rule 6.91P–O(g)(3)(A)
would provide that ‘‘’All buy’ or ‘all
sell’ strategies’’ would be rejected as
erroneously-priced if it is an ECO for a
complex strategy where all legs are to
buy (sell) and it is entered at a price less
than one penny ($0.01) times the sum of
the number of options in the ratio of
each leg of such strategy (e.g., a complex
strategy to buy (sell) 2 calls and buy
(sell) 1 put with a price less than $0.03).
The proposed text is based on Rule
6.91–O, Commentary .06(a)(1), with no
substantive differences, except that the
Exchange has streamlined the text and
set forth the minimum price (i.e., $0.03)
for any ‘‘all buy’’ or ‘‘all sell’’ strategies.
Proposed Rule 6.91P–O(g)(3)(B)
would provide for the rejection of
erroneously-priced ‘‘Vertical spreads,’’
which are defined as complex strategies
that consists of a leg to sell a call (put)
option and a leg to buy a call (put)
option in the same option class with the
same expiration but at different strike
prices. As proposed, the Exchange
would reject as erroneously-priced: (i)
An ECO for a vertical spread to buy a
lower (higher) strike call and sell a
higher (lower) strike call and the ECO
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sender would receive (pay) a net
premium (proposed Rule 6.91P–
O(g)(3)(B)(i)); and (ii) an ECO for a
vertical spread to buy a higher (lower)
strike put and sell a lower (higher) strike
put and the ECO sender would receive
(pay) a net premium (proposed Rule
6.91P–O(g)(3)(B)(ii)). The proposed
strategy protections for vertical spreads
are based on current Rule 6.91–O,
Commentary .06(a)(2), except that, as
noted above, the proposed Rule is
written from the standpoint of the
expectation of the ECO sender as
opposed to reviewing total net debit or
credit price of the strategy.
Proposed Rule 6.91P–O(g)(3)(C)
would provide for the rejection of
erroneously-priced ‘‘Calendar spreads,’’
which are defined as consisting of a leg
to sell a call (put) option and a leg to
buy a call (put) option in the same
option class at the same strike price but
with different expirations. As proposed,
the Exchange would reject as
erroneously-priced: (i) An ECO for a
calendar spread to buy a call leg with a
shorter (longer) expiration while selling
a call leg with a longer (shorter)
expiration and the ECO sender would
pay (receive) a net premium (proposed
Rule 6.91P–O(g)(3)(C)(i)); and (ii) an
ECO for a calendar spread to buy a put
leg with a shorter (longer) expiration
while selling a put leg with a longer
(shorter) expiration and the ECO sender
would pay (receive) a net premium
(proposed Rule 6.91P–O(g)(3)(C)(ii)).
The proposed strategy protections for
calendar spreads are based on current
Rule 6.91–O, Commentary .06(a)(3),
except that, as noted above, the
proposed Rule is written from the
standpoint of the expectation of the ECO
sender as opposed to reviewing the total
net debit or credit price of the strategy.
The Exchange has also not retained
discretion to disable the strategy
protections for calendar spreads (as
contained in Commentary .06(a)(3)(i) of
the current Rule) because since adopting
this provision in 2017, the Exchange has
never exercised this discretion and
therefore has determined that such
discretion is no longer needed.
Proposed Rule 6.91P–O(g)(3)(D)
would provide that any ECO that is not
rejected by the complex strategy
protections would still be subject to the
Price Protection Filter, per paragraph
(g)(2) of this Rule, which proposed text
is based on Rule 6.91–O, Commentary
.06(b) without any substantive
difference.
Rule 6.47A–O: Order Exposure
Requirements—OX
The Exchange also proposes
conforming, non-substantive
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amendments to Rule 6.47A–O, regarding
order exposure, to add a cross-reference
to new Pillar Rule 6.91P–O. This
proposed amendment would extend the
exemption from the order exposure
requirements to COAs on Pillar.46 The
Exchange also proposes to modify the
reference to ‘‘Complex Order Auction
Process (‘COA’)’’ to simply ‘‘Complex
Order Auction (‘COA’)’’ (i.e., removing
the word Process) consistent with how
this concept is defined in proposed Rule
6.91P–O(a)(7).
*
*
*
*
*
As discussed above, because of the
technology changes associated with the
migration to the Pillar trading platform,
subject to approval of the Single-Leg
Pillar Filing as well as 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
Exchange’s current 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’’),47 in general, and furthers the
objectives of Section 6(b)(5),48 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
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 proposed Rule 6.91P–O to support
electronic complex trading on Pillar
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because the proposed rule would
promote transparency in Exchange rules
by using consistent terminology
governing trading on both the
Exchange’s cash equity and options
Pillar trading platforms, thereby
ensuring that members, regulators, and
46 See proposed Rule 6.47A–O(iii). Consistent
with the Single-Leg Pillar Filing, the Exchange also
proposes to replace reference to ‘‘OX’’ with ‘‘the
Exchange.’’ See id. (preamble).
47 15 U.S.C. 78f(b).
48 15 U.S.C. 78f(b)(5).
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the public can more easily navigate the
Exchange’s rulebook and better
understand how options trading is
conducted on the Exchange.
The Exchange believes that adding
new Rule 6.91P–O with the modifier
‘‘P’’ to denote that this rule 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
current Rule 6.91–O stating that it
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.
The Exchange believes that
incorporating Pillar functionality
currently available on the Exchange’s
cash equity market (and recently
proposed for single-leg options),49 for
trading of electronic complex orders on
its options market in proposed Rule
6.91P–O 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 trading of electronic complex orders.
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 (and recently proposed
to be available for single-leg options
trading). For similar reasons, the
Exchange believes that using Pillar
terminology for the proposed new rule
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, Types of ECOs and Priority
and Pricing of ECOs
The Exchange believes that the
proposed definitions in Rule 6.91P–O(a)
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
49
See generally the Single-Leg Pillar Filing.
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transparency by consolidating existing
defined terms related to electronic
complex trading into one section of the
proposed rule. The Exchange believes
that the proposed non-substantive
amendments to those terms currently
defined in Rule 6.91–O would promote
clarity and transparency by using Pillar
terminology. The Exchange further
believes consolidating defined terms in
proposed Rule 6.91P–O(a) would make
the proposed rule more transparent and
easier to navigate.
The Exchange believes that the
proposed new definition of DBBO (and
related terms of DBB and DBO) would
further remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would promote clarity
and transparency to market participants
regarding how the DBBO would be
calculated under Pillar. The proposed
definition is not novel and is based in
part on similarly defined terms used on
NYSE American and Cboe. In addition,
the Exchange believes that setting forth
additional definitions in proposed Rule
6.91P–O(a), including those that are
used on other options exchanges (e.g.,
‘‘complex strategy’’) and clarifying
terms (e.g., ‘‘leg’’ and ‘‘leg markets’’),
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would promote clarity
and transparency to market participants
regarding electronic complex trading
under Pillar. Finally, the proposed
definition of ‘‘ECO Order Instruction’’
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would incorporate for
ECOs existing Pillar order handling
functionality in an auction that is
currently available on the Exchange’s
cash equity platform, as described in
Rule 7.35–E(g) and is proposed for
options trading in proposed Rule 6.64P–
O(e) and its sub-paragraphs (1) and (2)
(as described in the Single-Leg Pillar
Filing). The Exchange similarly
proposes this functionality for the ECO
Opening Auction Process, with nonsubstantive differences only to use an
ECO-specific defined term and to refer
to the ECO Opening Auction Process.
The Exchange believes that the
proposed types of ECOs available per
Rule 6.91P–O(b) would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would describe the ECOs and time-inforce modifiers that would be available
on Pillar, as well as specifying
additional ECO types. The Exchange is
not proposing any new ECO order types
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or time-in-force modifiers on Pillar and
believes that the non-substantive
differences to use Pillar terminology to
describe the available ECO order types
would promote transparency and clarity
in Exchange rules. The Exchange
believes that the proposed Complex
Only Order is not novel because it is
based in part on the existing PNP Plus
order functionality as both order types
only interact with other ECOs. The
proposed functionality on Pillar is also
based on how such orders function on
other options exchanges.50 In addition,
the proposed ECO GTX Order uses
Pillar terminology to describe what is
referred to as an ‘‘RFR Response’’ in the
current rules, and therefore is not novel.
The Exchange believes that proposed
new Rule 6.91P–O(c), and
subparagraphs (2), (3), and (4), would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed rules would set forth a
price-time priority model for Pillar and
pricing requirements for ECO trading
that are substantively the same as the
Exchange’s current price-time priority
model and pricing requirements as set
forth in Rule 6.91–O(a)(1) and
Commentaries .01 and .02(i) to Rule
6.91–O. The Exchange believes that
proposed Rule 6.91P–O(c)(1) and
subparagraphs (A) and (B) would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
they would promote transparency and
clarity in Exchange rules regarding how
ECOs would trade with the leg markets.
Execution of ECOs at the Open (or
Reopening After a Trading Halt)
The Exchange believes that proposed
Rule 6.91P–O(d) regarding the ECO
Opening Auction Process 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
the Exchange currently uses for ECOs,
as described in Rule 6.91–O(a)(2)(i)(B),
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 as well as
proposed for single-leg options in
proposed Rule 6.64P–O. For example,
the Exchange proposes to use Pillar
functionality to determine how to price
an ECO Opening Auction Process, as
described in proposed Rule 6.91P–
50 See supra note 17 (citing Cboe Rule 5.33(a)
regarding similar Complex Only order
functionality).
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O(d)(3), including using proposed ‘‘ECO
Auction Collars’’ and an ‘‘ECO Auction
Price,’’ which would promote
transparency to market participants. The
Exchange also proposes to process ECOs
received during an ECO Opening
Auction Process, as described in
proposed Rule 6.91P–O(d)(4), and
transition to continuous trading
following an ECO Opening Auction
Process, as described in proposed Rule
6.91P–O(d)(5), in a manner similar to
how the Exchange’s cash equity market
processes orders that are received
during an Auction Processing Period
and transitions to continuous trading
following a cash equity Trading Halt
Auction, which the Exchange also
proposes for single-leg options in
proposed Rule 6.64P–O. The Exchange
believes that using similar functionality
for different types of auctions would
promote consistency across the
Exchange’s options and cash equity
trading platforms. Because the Exchange
would be harnessing Pillar technology
to support the ECO Opening Auction
Process for electronic complex options
trading, the Exchange believes that
structuring proposed Rule 6.91P–O(d)
based on Rule 7.35–E and proposed
Rule 6.64P–O would promote
transparency in the Exchange’s trading
rules.
The Exchange further believes that the
proposed Rules 6.91P–O(d)(1) and (2),
which describe when the Exchange
would initiate an ECO Opening Auction
Process and which ECOs would be
eligible to trade in that process, would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
they would provide clarity and
transparency of the conditions required
before the Exchange would initiate an
ECO Opening Auction Process. The
Exchange further believes that those
conditions are not novel and are based
on existing conditions specified in Rule
6.91–O(a)(2)(i)(A) and (B), with
additional specificity designed to
promote clarity and transparency.
Accordingly, the Exchange believes that
the ECO Opening Auction Process for
ECOs trading on Pillar would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed process is based on the
current opening process, including that
orders would be matched based on
price-time priority at a price at which
the maximum volume can be traded.
Execution of ECOs During Core Trading
Hours
The Exchange believes that proposed
Rule 6.91P–O(e), setting forth the
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execution of ECOs during Core Trading
Hours, would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because the proposed
functionality would incorporate the
Exchange’s existing price-time priority
model for trading ECOs, including
providing that the leg markets would
have priority at a price. The Exchange
believes that it would remove
impediments to and perfect the
mechanism of a free and open market
and national market system for ECOs
not to trade with orders in the leg
markets designated AON or with an
MTS modifier (as described in the
Single-Leg Pillar Filing), because both
orders types are conditional. The
Exchange further believes that it would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system for ECOs
to trade as Complex Only Orders (rather
than be rejected as they would under
current rules) if they have a complex
strategy that could result in a Market
Maker breaching their established risk
settings.51 This proposed process is also
consistent with the treatment of similar
ECOs on other options markets.52 The
Exchange further believes that it would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system to specify
the frequency with which the Exchange
would evaluate trading opportunities for
an ECO with the leg markets update
because it would promote clarity and
transparency in Exchange rules.
Execution of ECOs During a COA
The Exchange believes that proposed
Rule 6.91P–O(f), setting forth the
execution of ECOs during a COA, 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 both incorporate
existing functionality to provide that
COA Orders would trade solely with
other ECOs (and not the leg markets)
during the auction and that a COA
Auction would be allocated on pricetime priority, which is consistent with
the Exchange’s priority scheme. The
Exchange believes the proposed rule
would add clarity and transparency to
OTP Holders and OTP Firms utilizing
the COA process.
51 See discussion infra regarding rationale for
proposed Rule 6.91P–O(e) to restrict certain ECOs
from executing as a package and bypassing Market
Maker risk settings.
52 See supra notes 28 and 29 (citing to Cboe Rule
5.33(g) and Nasdaq ISE Options 3, Section
14(d)(3)(A)–(B) regarding similar functionality.
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In addition, the Exchange further
believes that the proposed changes to
the COA process on Pillar that either
differ from current functionality or that
would be new would remove
impediments to and perfect the
mechanism of a free and open market
and national market system because:
• Requiring that a COA Order initiate
a COA on arrival, else [sic] be treated as
a standard ECO, is new under Pillar and
would provide OTP Holders and OTP
Firms with a higher level of
transparency and determinism of when
a COA Order could initiate a COA.
• Making explicit that COA Orders
may only execute with ECOs (and not
the leg markets) until after the COA
ends is designed to make clear that
ECOs have priority during a COA.
• Streamlining the rule text that
would describe the market events that
would cause an early end to a COA
under Pillar would simplify the COA
process and would provide OTP
Holders and OTP Firms with a higher
level of transparency and determinism
regarding the handling of COA Orders.
ECO Risk Checks
The Exchange believes that proposed
Rule 6.91P–O(g), setting forth ECO Risk
Checks, 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
risk controls, without any substantive
differences. The Exchange further
believes that the proposed changes to
ECO Risk Checks on Pillar that either
differ from current functionality or
would be new would remove
impediments to and perfect the
mechanism of a free and open market
and national market system because:
• The Exchange believes that the new
Complex Strategy Limit (which is
conceptually similar to the Complex
Order Table Cap under the current Rule)
would operate as a system protection
tool that enables the Exchange to limit
the number of complex strategies
available on the Exchange, which in
turn would improve the efficiency of the
ECO process and helps maintain a fair
and orderly market. The proposed limits
are not novel and are based on limits
imposed by other options exchanges on
new complex order strategies.53
• The proposed ECO Price Protection
on Pillar would work similarly to how
the current ECO price protection
53 See supra note 32 (citing Cboe Rule 5.33(a) and
MIAX Rule 518(a)(6) regarding each exchange’s
ability to limit the number of new complex
strategies in their systems at any particular time).
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Federal Register / Vol. 86, No. 151 / Tuesday, August 10, 2021 / Notices
mechanism functions on the Exchange
because an ECO would be rejected if it
is priced a specified percentage away
from the contra-side Complex NBB or
NBO.54 The Exchange believes that the
proposed differences on Pillar, to use
new thresholds and reference prices,
would not only simplify the existing
price check, but it would also align the
proposed functionality with the
proposed ‘‘Limit Order Price
Protection’’ for single-leg interest, thus
adding uniformity to Exchange rules.55
• The proposed Pillar Complex
Strategy Protections would function
similarly to the current Debit/Credit
Reasonability Checks because
erroneously priced incoming ECOs
would be rejected. The Exchange
believes that the non-substantive
differences to focus on the expectation
of the ECO sender and what would
result if the ECO were not rejected
rather than refer to specified debit or
credit amounts as a way to determine
whether a given strategy is erroneously
priced would remove impediments to
and perfect the mechanism of a free and
open market system because it would
promote clarity and transparency in
Exchange rules.
Rule 6.47A–O
The Exchange believes that the
proposed non-substantive change to
Rule 6.47A–O to update references to
‘‘COA’’ (versus COA Process) and ‘‘the
Exchange,’’ to delete reference to ‘‘OX,’’
and add the reference to Rule 6.91P–O
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and, in general, protect investors
and the public interest because the
proposed conforming changes would
add clarity, transparency and
consistency to the Exchange’s rules. The
Exchange believes that market
participants would benefit from the
increased clarity, thereby reducing
potential confusion. Similarly, the
Exchange believes that adding a crossreference to proposed Rule 6.91P–O
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would promote clarity
and transparency of which Pillar rules
would be eligible for the exception
specified in that Rule.
As noted above, the Exchange proposes to
define the Complex NBBO as the derived national
best bid and derived national best offer for a
complex strategy calculated using the NBB and
NBO for each component leg of a complex strategy.
See proposed Rule 6.91P–O(a)(4).
55 See Single-Leg Pillar Filing (proposed Rule
6.62P(a)(3) sets forth the Limit Order Price
Protection Filter applicable to Limit Orders and
quotes).
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange operates in a competitive
market and regularly competes with
other options exchanges for order flow.
The Exchange believes that the
transition to Pillar for trading of ECOs
on its options trading platform 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 trading of ECOs 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 the
treatment of ECOs. Rather, the Exchange
believes that the proposed rule changes
would promote consistent use of
terminology to support options (both
single-leg and complex) 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 treatment of ECOs, without
proposing any material 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:
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(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–2021–68 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–2021–68. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEARCA–2021–68, and
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Federal Register / Vol. 86, No. 151 / Tuesday, August 10, 2021 / Notices
should be submitted on or before
August 31, 2021.
DEPARTMENT OF STATE
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.56
J. Matthew DeLesDernier,
Assistant Secretary.
[Public Notice 11493]
[FR Doc. 2021–16967 Filed 8–9–21; 8:45 am]
Bureau of International
Security and Nonproliferation,
Department of State.
ACTION: Notice.
AGENCY:
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
Foreign Affairs Policy Board Charter
Renewal
Notice of renewal of the charter
of the Foreign Affairs Policy Board.
ACTION:
Pursuant to the Federal
Advisory Committee Act, the
Department of State hereby provides
notice of the renewal of the charter of
the Foreign Affairs Policy Board (‘‘the
Board’’). The Foreign Affairs Policy
Board provides the Secretary of State
with advice, feedback, and perspectives
from a diverse array of experts to
advance the Department’s mission and
help root American foreign policy in the
needs and aspirations of the American
people. The Board’s activities are
advisory only.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Designated Federal Officer Jennifer R.
Littlejohn in the Office of Policy
Planning, U.S. Department of State, at
email: LittlejohnJR@state.gov.
The Board
is established under the general
authority of the Secretary of State and
the Department of State as set forth in
Title 22 of the United States Code, in
particular Section 2656 of that Title and
consistent with the Federal Advisory
Committee Act.
Authority: 5 U.S.C. Appendix, 41 CFR
102–3.65.
SUPPLEMENTARY INFORMATION:
Salman Ahmed,
Director, Office of Policy Planning,
Department of State.
[FR Doc. 2021–16987 Filed 8–9–21; 8:45 am]
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BILLING CODE 4710–10–P
CFR 200.30–3(a)(12).
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A determination has been
made that a number of foreign persons
have engaged in activities that warrant
the imposition of measures pursuant to
Section 3 of the Iran, North Korea, and
Syria Nonproliferation Act. The Act
provides for penalties on foreign entities
and individuals for the transfer to or
acquisition from Iran since January 1,
1999; the transfer to or acquisition from
Syria since January 1, 2005; or the
transfer to or acquisition from North
Korea since January 1, 2006, of goods,
services, or technology controlled under
multilateral control lists (Missile
Technology Control Regime, Australia
Group, Chemical Weapons Convention,
Nuclear Suppliers Group, Wassenaar
Arrangement) or otherwise having the
potential to make a material
contribution to the development of
weapons of mass destruction (WMD) or
cruise or ballistic missile systems. The
latter category includes (a) items of the
same kind as those on multilateral lists
but falling below the control list
parameters when it is determined that
such items have the potential of making
a material contribution to WMD or
cruise or ballistic missile systems, (b)
items on U.S. national control lists for
WMD/missile reasons that are not on
multilateral lists, and (c) other items
with the potential of making such a
material contribution when added
through case-by-case decisions.
DATES: July 29, 2021.
FOR FURTHER INFORMATION CONTACT: On
general issues: Pam Durham, Office of
Missile, Biological, and Chemical
Nonproliferation, Bureau of
International Security and
Nonproliferation, Department of State,
Telephone (202) 647–4930. For U.S.
Government procurement ban issues:
Eric Moore, Office of the Procurement
Executive, Department of State,
Telephone: (703) 875–4079.
SUPPLEMENTARY INFORMATION: On July
29, 2021, the U.S. Government applied
the measures authorized in Section 3 of
the Iran, North Korea, and Syria
Nonproliferation Act (Pub. L. 109–353)
against the following foreign persons
SUMMARY:
[Public Notice: 11491]
56 17
Imposition of Nonproliferation
Measures Against Foreign Persons,
Including a Ban on U.S. Government
Procurement
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43717
identified in the report submitted
pursuant to Section 2(a) of the Act:
Asa’ib Ahl al-Haq (AAH) (Iraq) and
any successor, sub-unit, or subsidiary
thereof;
Kata’ib Hezbollah (Iraq) and any
successor, sub-unit, or subsidiary
thereof;
Asia-Invest LLC (Russia) and any
successor, sub-unit, or subsidiary
thereof;
Charter Green Light Moscow (CGLM)
(Russia) and any successor, sub-unit, or
subsidiary thereof;
NPP Pulsar LLC (Russia) and any
successor, sub-unit, or subsidiary
thereof;
Ayman Al Sabbagh Trading (Syria)
and any successor, sub-unit, or
subsidiary thereof;
Lebanese Hizballah (Syria) and any
successor, sub-unit, or subsidiary
thereof;
Wael Issa Trading Establishment
(Syria) and any successor, sub-unit, or
subsidiary thereof.
Accordingly, pursuant to Section 3 of
the Act, the following measures are
imposed on these persons:
1. No department or agency of the
U.S. government may procure or enter
into any contract for the procurement of
any goods, technology, or services from
these foreign persons, except to the
extent that the Secretary of State
otherwise may determine;
2. No department or agency of the
U.S. government may provide any
assistance to these foreign persons, and
these persons shall not be eligible to
participate in any assistance program of
the U.S. government, except to the
extent that the Secretary of State
otherwise may determine;
3. No U.S. government sales to these
foreign persons of any item on the
United States Munitions List are
permitted, and all sales to these persons
of any defense articles, defense services,
or design and construction services
under the Arms Export Control Act are
terminated; and
4. No new individual licenses shall be
granted for the transfer to these foreign
persons of items the export of which is
controlled under the Export Control
Reform Act of 2018 or the Export
Administration Regulations, and any
existing such licenses are suspended.
These measures shall be implemented
by the responsible departments and
agencies of the U.S. government and
will remain in place for two years from
the effective date, except to the extent
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[Federal Register Volume 86, Number 151 (Tuesday, August 10, 2021)]
[Notices]
[Pages 43704-43717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16967]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92563; File No. SR-NYSEARCA-2021-68]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change New Rule 6.91P-O
August 4, 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 July 23, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes new Rule 6.91P-O (Electronic Complex Order
Trading) to reflect the implementation of the Exchange's Pillar trading
technology on its options market and to make conforming amendments to
Rule 6.47A-O (Order Exposure Requirements--OX). 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.
[[Page 43705]]
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.
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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'').
---------------------------------------------------------------------------
In this regard, the Exchange recently filed a proposal to add new
rules to reflect how options, particularly single-leg options, would
trade on the Exchange once Pillar is implemented.\5\ The current
proposal sets forth how Electronic Complex Orders \6\ would trade on
the Exchange once Pillar is implemented. As noted in the Single-Leg
Pillar Filing, as the Exchange transitions to Pillar, certain rules
would continue to be applicable to symbols trading on the current
trading platform, but would not be applicable to symbols that have
transitioned to trading on Pillar.\7\ Consistent with the Single-Leg
Pillar Filing, proposed Rule 6.91P-O would have the same number as the
current Electronic Complex Order Trading rule, but with the modifier
``P'' appended to the rule number. Current Rule 6.91-O, governing
Electronic Complex Order Trading, would remain unchanged and continue
to apply to any trading in symbols on the current system. Proposed Rule
6.91P-O would govern Electronic Complex Orders for trading in options
symbols migrated to the Pillar platform.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 92304 (June 30,
2021), 86 FR 36440 (July 9, 2021) (SR-NYSEArca-2021-047) (``Single-
Leg Pillar Filing'').
\6\ The term ``Electronic Complex Order'' is currently defined
in the preamble to Rule 6.91-O to mean any Complex Order, as defined
in Rule 6.62-O(e) or any Stock/Option Order or Stock/Complex Order
as defined in Rule 6.62-O(h) that is entered into the NYSE Arca
System (the ``System'').
\7\ See Single-Leg Pillar Filing (providing that, once 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
when symbols are trading on the Pillar trading platform).
---------------------------------------------------------------------------
Similar to the Single-Leg Pillar Filing, proposed Rule 6.91P-O
would (1) use Pillar terminology that is based on Exchange Rule 7-E
Pillar terminology governing cash equity trading; and (2) introduce new
functionality for Electronic Complex Order trading.
Finally, as discussed in the Single-Leg Pillar Filing, the Exchange
will announce by Trader Update when symbols are trading on the Pillar
trading platform. The Exchange intends to transition Electronic Complex
Order trading on Pillar at the same time that single-leg trading is
transitioned to Pillar.
Proposed Rule 6.91P-O: Electronic Complex Order Trading
Current Rule 6.91-O (Electronic Complex Order Trading) specifies
how the Exchange processes Electronic Complex Orders submitted to the
Exchange. The Exchange proposes new Rule 6.91P-O to establish how such
orders would be processed after the transition to Pillar. To promote
clarity and transparency, the Exchange proposes to add a preamble to
current Rule 6.91-O specifying that it would not be applicable to
trading on Pillar.
As discussed in greater detail below, the Exchange is not proposing
fundamentally different functionality regarding how Electronic Complex
Orders would trade on Pillar than is currently available on the
Exchange. However, with Pillar, the Exchange would introduce certain
new or updated functionality available for options trading on the
Pillar platform and use Pillar terminology.
Definitions. Proposed Rule 6.91P-O(a) would set forth the
definitions applicable to trading on Pillar under the new rule.
Proposed Rule 6.91P-O(a)(1) would define the term
``Electronic Complex Order'' or ``ECO'' to mean a Complex Order as
defined in proposed Rule 6.62P-O(f) or a Stock/Option Order or Stock/
Complex Order as defined in proposed Rule 6.62P-O(h)(6)(A), (B),
respectively, that would be submitted electronically to the
Exchange.\8\ This proposed definition is based on the preamble to Rule
6.91-O without any substantive differences, except that reference to
the ``NYSE Arca System'' would be replaced with the term ``Exchange''
and cross-references have been updated to reflect rules proposed in the
Single-Leg Pillar Filing.
---------------------------------------------------------------------------
\8\ The proposed definitions of Complex Order, Stock/Option
Order and Stock/Complex Order under Pillar are set forth in proposed
Rules 6.62P-O(f), (h)(6)(A), and (h)(6)(B), as described in the
Single-Leg Pillar Filing, and are substantially identical to the
current definitions.
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(a)(2) would define the term ``ECO
Order Instruction'' to mean a request to cancel, cancel and replace, or
modify an ECO. As described further below, this concept relates to
order processing when a series opens or reopens for trading and is
based on the term ``order instruction'' as used in Rule 7.35-E(g) and
proposed to be used in Rules 6.64P-O(e) and (f), which (similarly)
would define an ``order instruction'' for options as a request to
cancel, cancel and replace, or modify an order or quote.\9\
---------------------------------------------------------------------------
\9\ See Single-Leg Pillar Filing (describing proposed opening
Auction Process rule per Rule 6.64P-O).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(a)(3) would define the term ``leg''
or ``leg market'' to mean each of the component option series that
comprise an ECO. This definition is consistent with the concept of leg
markets as used in current Rule 6.91-O(a), which defines legs as
individual orders and quotes in the Consolidated Book. The Exchange
believes the proposed definition would add clarity regarding how the
terms ``leg'' and ``leg market'' would be used in connection with ECO
trading on Pillar.
Proposed Rule 6.91P-O(a)(4) would define the term
``Complex NBBO'' to mean the derived national best bid and derived
national best offer for a complex strategy calculated using the NBB and
NBO for each component leg of a complex strategy. This definition is
based on current Rule 6.1A-O(a)(2)(b), without any substantive
differences.
Proposed Rule 6.91P-O(a)(5) would define the term
``Complex strategy'' to mean a particular combination of leg components
and their ratios to one another. The proposed definition would further
provide that new complex strategies can be created when the Exchange
receives either a request to create a new complex strategy or an ECO
with a new complex strategy. This proposed definition is new and is
consistent with how this concept is defined on other options exchanges
and would promote clarity and transparency.\10\
---------------------------------------------------------------------------
\10\ See, e.g., Cboe Exchange Inc. (``Cboe'') Rule 5.33(a)
(defining ``complex strategy'' as ``a particular combination of
components and their ratios to one another'' and further providing
that ``[n]ew complex strategies can be created as the result of the
receipt of a complex instrument creation request or complex order
for a complex strategy that is not currently in the System''); MIAX
Options Exchange (``MIAX'') Rule 518(a)(6) (same).
---------------------------------------------------------------------------
[[Page 43706]]
Proposed Rule 6.91P-O(a)(6) would define the term ``DBBO''
to address situations where it is necessary to derive a (theoretical)
bid or offer for a particular complex strategy. As proposed, ``DBBO''
would mean the derived best bid (``DBB'') and derived best offer
(``DBO'') for a complex strategy calculated using the Exchange BBO \11\
for each leg (or the Away Market NBBO \12\ for a leg if there is no
Exchange BBO), provided that the bid (offer) price used to calculate
the DBBO would never be lower (higher) than the greater of $0.05 or 5%
below (above) the Away Market NBB (NBO). The proposed definition would
also provide that the DBBO would be updated as the Exchange's
calculation of the Exchange BBO or Away Market NBBO, as applicable, is
likewise updated.
---------------------------------------------------------------------------
\11\ The term BBO when used with respect to options traded on
the Exchange would mean ``the best displayed bid or best displayed
offer on the Exchange.'' See Single-Leg Pillar Filing (defining BBO
in proposed Rule 1.1, which definition is substantially identical to
the current definition of BBO in Rule 6.1A-O(a)(2)(a)).
\12\ In the Single-Leg Pillar Filing, the Exchange proposes that
the (new) term ``Away Market NBBO'' would refer to a calculation of
the NBBO that excludes the Exchange's BBO. See Single-Leg Pillar
Filing (defining Away Market NBBO in proposed Rule 1.1).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(a)(6)(A) would provide further detail about
how the DBBO would be derived in the absence of an Exchange BB (BO) or
Away Market NBB (NBO) for a given leg. As proposed, in such
circumstances, the bid (offer) price used to calculate the DBBO would
be the offer (bid) price for that leg minus (plus) ``one collar
value,'' which would be (i) $0.25 where the best offer (bid) is priced
$1.00 or lower; or (ii) the lower of $2.50 or 25% where the best offer
(bid) is priced above $1.00, provided however that, per proposed Rule
6.91P-O(a)(6)(A)(i), if the best offer is equal to or less than one
collar value, the best bid price used to calculate the DBBO for that
leg would be $0.01.
This proposed definition is new and is based, in part, on the
current definition of Complex BBO set forth in Rule 6.1A-O(a)(2)(b), as
well as on how this concept is defined on other options exchanges,
including on NYSE American.\13\ The Exchange believes that the
additional detail about how the DBBO would be calculated in the absence
of an Exchange BBO and/or Away Market NBBO would promote clarity and
transparency. In addition, the Exchange believes that it is appropriate
to require that the DBBO be calculated within a certain amount of the
Away Market NBBO as an additional protection against ECOs being
executed on the Exchange at prices away from the current market.
---------------------------------------------------------------------------
\13\ See, e.g., NYSE American Rule 900.2NY(7)(b) (providing that
the Derived BBO ``is calculated using the BBO from the Consolidated
Book for each of the options series comprising a given complex order
strategy''); Cboe Rule 5.33(a) (defining ``Synthetic Bed Bid or
Offer and SBBO'' for complex orders as ``the best bid and offer on
the Exchange for a complex strategy calculated using'' the ``BBO for
each component (or the NBBO for a component if the BBO for that
component is not available) of a complex strategy from the Simple
Book'').
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(a)(7) would define ``Complex Order Auction''
or ``COA'' to mean an auction of an ECO as set forth in proposed Rule
6.91P-O(f) (discussed below). This definition is based on the title of
paragraph (c) of current Rule 6.91-O, which sets forth the COA Process
for ECOs without any substantive differences. Proposed Rule 6.91P-
O(a)(7) would also state that the terms defined in paragraphs
(a)(7)(A)-(D) would be used for purposes of a COA.
Proposed Rule 6.91P-O(a)(7)(A) would define a ``COA Order'' to mean
an ECO that is designated by the OTP Holder as eligible to initiate a
COA. This definition is based on the definition of a ``COA-eligible
order'' as set forth in current Rule 6.91-O(c)(1) and (c)(1)(i), with a
difference that the proposed definition would not require that an
option class be designated as COA-eligible because all option classes
that trade on Pillar would be COA-eligible.
Proposed Rule 6.91P-O(a)(7)(B) would define the term ``Request for
Response'' or ``RFR'' to refer to the message disseminated to the
Exchange's proprietary complex data feed announcing that the Exchange
has received a COA Order and that a COA has begun. As further proposed,
the definition would provide that each RFR message would identify the
component series, the price, and the size and side of the market of the
COA Order. This definition is based on the description of RFR in Rule
6.91-O(c)(3) without any substantive differences. The Exchange proposes
a clarifying difference to make clear that RFR messages would be sent
over the Exchange's proprietary complex data feed, which is based on
current functionality.
Proposed Rule 6.91P-O(a)(7)(C) would define the term ``RFR
Response'' to mean any ECO received during the Response Time Interval
(defined below) that is in the same complex strategy, on the opposite
side of the market of the COA Order that initiated the COA, and
marketable against the COA Order.\14\ This definition is based in part
on the description of RFR Responses in Rule 6.91-O(c)(5). However,
unlike the current definition, an RFR Response would not have a time-
in-force contingency for the duration of the COA. Instead, the Exchange
would consider any ECOs received during the Response Time Interval
(defined below) that are marketable against the COA Order as an RFR
Response. As described below, the Exchange proposes to define
separately the term ``ECO GTX Order,'' which would be more akin to the
current definition of RFR Response. In addition, the proposed
definition omits the current rule description that an RFR Response may
be entered in $0.01 increments or that such responses may be modified
or cancelled because these features are applicable to all ECOs and
therefore not necessary to separately state in connection with RFR
Responses.
---------------------------------------------------------------------------
\14\ The term ``marketable'' is defined in proposed Rule 1.1 of
the Single-Leg Pillar Filing.
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(a)(7)(D) would define the term ``Response
Time Interval'' to mean the period of time during which RFR Responses
for a COA may be entered and would provide that the Exchange would
determine and announce by Trader Update the length of the Response Time
Interval; provided, however, that the duration of the Response Time
Interval would not be less than 100 milliseconds and would not exceed
one (1) second. This definition is based in part on the description of
Response Time Interval in Rule 6.91-O(c)(4), with a difference that the
Exchange proposes to reduce the minimum time from 500 milliseconds to
100 milliseconds. While other option exchanges do not establish a
minimum duration for a COA, the Exchange notes that the proposed 100
milliseconds minimum is consistent the minimum auction length for
electronic-paired auctions on NYSE American.\15\
---------------------------------------------------------------------------
\15\ See e.g., Cboe Rule 5.33(d)(3) (providing that Cboe
``determines the duration of the Response Time Interval on a class-
by-class basis, which may not exceed 3000 milliseconds''); NYSE
American Rule 971.1NY(c)(2)(B) (providing that for a Customer Best
Execution Auction ``[t]he minimum/maximum parameters for the
Response Time Interval will be no less than 100 milliseconds and no
more than one (1) second'').
---------------------------------------------------------------------------
Types of ECOs. Proposed Rule 6.91P-O(b) would set forth the types
of ECOs that would trade on Pillar. Proposed Rule 6.91P-O(b)(1) would
provide that ECOs may be entered as Limit Orders or Limit Orders
designated as Complex Only Orders. This proposed text is based on
current Rule 6.91-O(b)(1), with a difference to provide that the
Exchange would offer Complex Only Orders on Pillar. Complex Only Orders
[[Page 43707]]
(as described below) are based in part on existing functionality for
PNP Plus orders, which likewise may trade only with other Electronic
Complex Orders, with updated functionality available on Pillar.\16\ The
Exchange proposes to rename this order type in a manner consistent with
similar order types available on other options exchanges and therefore
this proposed order type is not new or novel.\17\
---------------------------------------------------------------------------
\16\ See Rule 6.62-O(y) (describing PNP Plus orders as ECOs that
may only trade with other ECOs, but which will continuously be
repriced if locking or crossing the Complex BBO).
\17\ Other options exchanges likewise offer Complex Orders that
trade only with Complex Orders. See, e.g., Cboe Rule 5.33(a)
(defining ``Complex Only'' order as an ECO ``designate[ ] to execute
only against complex orders in the COB and not Leg into the Simple
Book'').
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(b)(1)(A) would set forth the details
of a Complex Only Order. As proposed, an ECO designated as a Complex
Only Order would trade solely with ECOs and would not trade with the
leg markets; provided that, if there is displayed Customer interest on
all legs of the Complex Only Order, such order would not trade below
(above) one penny ($0.01) times the smallest leg ratio inside the DBB
(DBO) containing Customer interest, which requirement ensures that a
Complex Only Order would price improve at least a portion of the
displayed leg markets. In such case, a Complex Only Order would remain
on the Consolidated Book until it can trade with another ECO at this
improved price. As noted above, the Complex Only Order type is based in
part on existing PNP Plus order functionality, with updated
functionality based on Pillar. Specifically, the Exchange would no
longer reprice a resting Complex Only Order and instead would restrict
it from trading until it can trade at a price at or inside the DBBO, as
described below.
Proposed Rule 6.91P-O(b)(2) would set forth the time-in-
force contingencies available to ECOs, which would be Day, IOC, FOK, or
GTC, as those terms are defined in the Single-Leg Pillar Filing in
proposed Rule 6.62P-O(b), and GTX (per proposed Rule 6.91P-O(b)(2)(B)
as described below). The proposed text is based on current Rules 6.91-
O(b)(2) and (3), except that it adds GTX (as described below). The
proposed text also omits AON because the Exchange would not offer AONs
for ECO trading on Pillar.
Proposed Rule 6.91P-O(b)(2)(A) would provide that an ECO
designated as IOC or FOK would be rejected if entered during a pre-open
state,\18\ which is consistent with the time-in-force of the order
(because they could not be traded when a complex strategy is not open
for trading) as well as with current functionality.
---------------------------------------------------------------------------
\18\ The term ``pre-open state'' is defined in proposed Rule
6.64P-O(a)(10), as described in the Single-Leg Pillar Filing, to
mean ``the period before a series is opened or reopened.''
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(b)(2)(B) would provide that an ECO
designated as GTX would be defined as an ``ECO GTX Order'' and would
have the following features: It would not be displayed; it may be
entered only during the Response Time Interval of a COA; it must be on
the opposite side of the market as the COA Order; and it must specify
the price, size, and side of the market. As further proposed, ECO GTX
Orders may be modified or cancelled during the Response Time Interval
and any remaining size that does not trade with the COA Order would be
cancelled at the end of the COA. This definition is based on the
description of an RFR Response in current Rule 6.91-O(c)(5)(A)--(C),
which likewise are not displayed and expire at the end of the COA.
Priority and Pricing of ECOs. Proposed Rule 6.91P-O(c) would set
forth how ECOs would be prioritized and priced under Pillar. As
proposed, an ECO received by the Exchange that is not immediately
executed (or cancelled) would be ranked in the Consolidated Book
according to price-time priority based on the total net price and the
time of entry of the order. This proposed rule is based on Rule 6.91-
O(a)(1), without any substantive differences. The Exchange proposes a
non-substantive difference to refer simply to a ``net price'' rather
than a ``net debit or credit price,'' which streamlined terminology is
consistent with the use of the term ``net price'' on other options
exchanges.\19\
---------------------------------------------------------------------------
\19\ See, e.g., Cboe Rule 5.33(f)(2) (setting forth parameters
for the ``net price'' of complex orders traded on Cboe); Nasdaq ISE,
LLC (``Nasdaq ISE''), Options 3, Section 14(c) (providing, in
relevant part, that ``[c]omplex strategies will not be executed at
prices inferior to the best net price achievable from the best ISE
bids and offers for the individual legs'').
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(c) would further provide that, unless
otherwise specified in this Rule, ECOs would be processed as follows:
Proposed Rule 6.91P-O(c)(1) would provide that when
trading with the leg markets:
[cir] An ECO must trade at or within the greater of $0.05 or 5%
higher (lower) than the Away Market NBO (NBB) (see proposed Rule 6.91P-
O(c)(1)(A)). This would be new under Pillar and operate as an
additional protection against ECOs being executed on the Exchange at
prices away from the current market.
[cir] An ECO would trade at the prices of the leg markets (see
proposed Rule 6.91P-O(c)(1)(B)). This proposed rule would make clear
that when trading with the leg markets, the components of the ECO would
trade at the prices of the leg markets, which is consistent with
current functionality. For example, if there is sell interest in a leg
market at $1.00, and a leg of an ECO to buy could trade up to $1.05,
the ECO would trade with such leg market at $1.00. This would result in
the ECO receiving price improvement and is consistent with the ECO
trading as the aggressing order.
Proposed Rule 6.91P-O(c)(2) would provide that when
trading with another ECO, an ECO must trade at a price at or within the
DBBO and no leg of an ECO may trade at a price of zero. This provision
is based in part on current Rule 6.91-O(a)(2), which provides that no
leg of an ECO will be executed outside of the Exchange BBO, and adds
detail about other limitations on executions based on the DBBO. This
proposed rule, which ensures that ECOs would never trade through
interest in the leg markets, is consistent with current functionality
and adds clarity and transparency to the proposed Rule. This proposed
rule is also consistent with how ECOs are processed on other options
exchanges.\20\
---------------------------------------------------------------------------
\20\ See, e.g., Cboe Rule 5.33(f)(2) (setting forth
substantially identical execution parameters for complex orders
executed on Cboe, including that complex orders may not execute at a
net price that would cause any component of the complex strategy to
be executed at a price of zero, or worse than or equal to the Cboe
SBBO when there is a Priority Customer at the SBBO, or would cause
any component of the complex strategy to be executed at a price
worse than the individual component prices on the Simple Book).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(c)(3) would provide that an ECO may
trade without consideration of prices of the same complex strategy
available on other exchanges, which is based on the same text as
contained in current Rule 6.91-O(a)(2) without any substantive
differences.
Proposed Rule 6.91P-O(c)(4) would provide that an ECO may
trade in one cent ($0.01) increments regardless of the MPV otherwise
applicable to any leg of the complex strategy, which is based on
current Rule 6.91-O, Commentary .01 without any substantive
differences.
Execution of ECOs at the Open (or Reopening after a Trading Halt).
Current Rule 6.91-O(a)(2)(i) sets forth how ECOs are executed upon
opening or reopening of trading. Proposed Rule 6.91P-O(d) would set
forth details about how ECOs would be executed at the open or reopen
following a trading halt.
With the transition to Pillar, the Exchange proposes new
functionality
[[Page 43708]]
regarding the ``ECO Opening Auction Process'' on the Exchange, which
would be applicable both to openings and reopenings following a trading
halt. The Exchange proposes to incorporate into the ECO Opening Auction
Process certain functionality currently available on the Exchange's
cash equity platform, which the Exchange has similarly proposed to
include in the Auction Process for single-leg options.\21\ Accordingly,
proposed Rule 6.91P-O(d) would use Pillar terminology relating to
auctions that is based in part on Pillar terminology set forth in Rule
7.35-E for cash equity trading and in part on proposed Rule 6.64P-O for
single-leg options.
---------------------------------------------------------------------------
\21\ See Single-Leg Pillar Filing (describing proposed opening
Auction Process rule per Rule 6.64P-O).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(d)(1) would set forth the conditions
required for the commencement of an ECO Opening Auction Process.
Specifically, as proposed, the Exchange would initiate an ECO Opening
Auction Process for a complex strategy only if all legs of the complex
strategy have opened or reopened for trading, which text is based on
current Rule 6.91-O(a)(2)(i)(A) without any substantive differences.
Proposed Rule 6.91P-O(d)(1)(A)-(C) would set forth conditions that
would prevent the opening of a complex strategy, as follows:
[cir] Any leg of the complex strategy has no BO or NBO;
[cir] The bid and offer prices used to calculate the DBBO for the
complex strategy are locking or crossing; or
[cir] All legs of the complex strategy include displayed Customer
interest and the width of the DBBO is less than or equal to one penny
($0.01) times the smallest leg ratio.
The proposal to detail these conditions for opening are consistent
with current functionality. The Exchange believes that this added
detail would add clarity and transparency to Exchange rules and would
promote a fair and orderly ECO Opening Auction Process.
Proposed Rule 6.91P-O(d)(2) would provide that any ECOs in
a complex strategy with prices that lock or cross one another would be
eligible to trade in the ECO Opening Auction Process. This proposed
rule is based on current Rule 6.91-O(a)(2)(i)(B), which provides than
an opening process will be used if there are ECOs that ``are marketable
against each other.'' The Exchange proposes a difference in Pillar not
to require that such ECOs be ``priced within the Complex NBBO'' because
the proposed ECO Opening Auction Process under Pillar would instead
rely on the DBBO (as described below).
Proposed Rule 6.91P-O(d)(2)(A) would provide that an ECO received
during a pre-open state would not participate in the Auction Process
for the leg markets pursuant to proposed Rule 6.64P-O, which is based
on the same text (in the second sentence) of current Rule 6.91-
O(a)(2)(i)(A) without any substantive differences.
Proposed Rule 6.91P-O(d)(2)(B) would provide that a complex
strategy created intra-day when all leg markets are open would not be
subject to an ECO Opening Auction Process and would instead trade
pursuant to paragraph (e) of the proposed Rule (discussed below)
regarding the handling of ECOs during Core Trading Hours.
Proposed Rule 6.91P-O(d)(2)(C) would provide that the ECO Opening
Auction Process would be used to reopen trading in ECOs after a trading
halt. This proposed rule is based in part on current Rule 6.64-O(d) and
makes clear that the ECO Opening Auction Process would be applicable to
reopenings.
Proposed Rule 6.91P-O(d)(3) would describe each aspect of
the ECO Opening Auction Process. First, proposed Rule 6.91P-O(d)(3)(A)
would describe the ``ECO Auction Collars,'' which terminology would be
new for ECO trading and is based on the term ``Auction Collars'' used
in Rule 7.35-E for trading cash equity securities as well as in
proposed Rule 6.64P-O(a)(2) for single-leg options trading.\22\
---------------------------------------------------------------------------
\22\ See Single-Leg Pillar Filing (defining Auction Collars in
proposed Rule 6.64P-O(a)(2)).
---------------------------------------------------------------------------
As proposed, the upper (lower) price of an ECO Auction Collar for a
complex strategy would be the DBO (DBB); provided, however, that if
there is displayed Customer interest on all legs of a complex strategy,
the upper (lower) price of an ECO Auction Collar would be one penny
($0.01) times the smallest leg ratio inside the DBO (DBB) containing
Customer interest. This new functionality on Pillar would ensure that
ECOs trade within the DBBO and thus avoid trading through displayed
Customer interest in the leg markets, which the Exchange believes is
consistent with fair and orderly markets and investor protection.
Next, proposed Rule 6.91P-O(d)(3)(B) would describe the
``ECO Auction Price.'' As proposed, the ECO Auction Price would be the
price at which the maximum volume of ECOs can be traded in an ECO
Opening Auction, subject to the proposed ECO Auction Collar. As further
proposed, if there is more than one price at which the maximum volume
of ECOs can be traded within the ECO Auction Collar, the ECO Auction
Price would be the price closest to the midpoint of the ECO Auction
Collar, or, if the midpoint falls within such prices, the ECO Auction
Price would be the midpoint, provided that the ECO Auction Price would
not be lower (higher) than the highest (lowest) price of an ECO to buy
(sell) that is eligible to trade in the ECO Opening Auction Process.
The concept of an ECO Auction Price is based in part on the concept of
``single market clearing price'' set forth in current Rule 6.91-
O(a)(2)(i)(B). For Pillar, the Exchange proposes to determine the ECO
Auction Price in a manner that is based in part on how an Indicative
Match Price is determined for trading of cash equity securities, as set
forth in on Rule 7.35-E(a)(8)(A), and how the Exchange proposes to
determine the price for Auctions on Pillar for single-leg options
trading.\23\
---------------------------------------------------------------------------
\23\ See Single-Leg Pillar Filing (describing proposed Rule
6.64P-O(a)(7)).
---------------------------------------------------------------------------
Finally, as proposed, if the ECO Auction Price would be a sub-penny
price, it would be rounded to the nearest whole penny, which text is
based on current Rule 6.91-O(a)(2)(i)(B), with a difference that the
current rule refers to the midpoint of the Complex NBBO (which could be
a sub-penny price) as opposed to referring to the ECO Auction Price,
which would be a new Pillar term for trading ECOs.
Proposed Rule 6.91P-O(d)(3)(B)(i) would provide that an ECO to buy
(sell) with a limit price at or above (below) the upper (lower) ECO
Auction Collar would be included in the ECO Auction Price calculation
at the price of the upper (lower) ECO Auction Collar, but ranked for
participation in the ECO Opening (or Reopening) Auction Process in
price-time priority based on its limit price. This proposed text is
based in part on current Rule 6.91-O(a)(2)(i)(B). The proposed rule is
also based on how the Exchange processes auctions for cash equity
trading, as described in Rules 7.35-E(a)(10)(B) and (a)(6) and how the
Exchange proposes to process Auctions on Pillar for single-leg options
trading.\24\
---------------------------------------------------------------------------
\24\ See Single-Leg Pillar Filing (describing proposed Rules
6.64P-O(a)(7)(B)(i) and 6.64P-O(b)).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(d)(3)(B)(ii) would provide that locking and
crossing ECOs in a complex strategy would trade at the ECO Auction
Price. As further proposed, if there are no locking or crossing ECOs in
a complex strategy at or within the ECO Auction Collars, the Exchange
would open the complex strategy without a trade. This proposed
[[Page 43709]]
text would be new and is based in part on proposed Rule 6.64P-
O(d)(2)(B) for single-leg options, which describes when an option
series could open without a trade.\25\
---------------------------------------------------------------------------
\25\ See Single-Leg Pillar Filing (describing proposed Rule
6.64P-O(d)(2)(B).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(d)(4) would describe the ``ECO Order
Processing during ECO Opening Auction Process.'' Because the Exchange
would be using the same Pillar auction functionality for ECO trading
that is used for its cash equity market and that the Exchange is
proposing for single-leg options trading, the Exchange proposes to
apply existing Pillar auction functionality regarding how to process
ECOs that may be received during the period when an ECO Auction Process
is ongoing.
Accordingly, as proposed, new ECOs and ECO Order Instructions (as
defined in proposed Rule 6.91P-O(a)(2), described above) that are
received when the Exchange is conducting the ECO Opening Auction
Process for the complex strategy would be accepted but would not be
processed until after the conclusion of this process. As further
proposed, when the Exchange is conducting the ECO Opening Auction
Process, ECO Order Instructions would be processed as follows:
[cir] Proposed Rule 6.91P-O(d)(4)(A) would provide that an ECO
Order Instruction received during the ECO Opening Auction Process would
not be processed until after this process concludes if it relates to an
ECO that was received before the process begins and that any subsequent
ECO Order Instructions relating to such ECO would be rejected.
[cir] Proposed Rule 6.91P-O(d)(4)(B) would provide that an ECO
Order Instruction received during the ECO Opening Auction Process would
be processed on arrival if it relates to an order that was received
during this process.
Proposed Rule 6.91P-O(d)(4) and sub-paragraphs (A) and (B) are
based on both current Rule 7.35-E(g) and its sub-paragraphs (1) and (2)
and proposed Rule 6.64P-O(e) and its sub-paragraphs (1) and (2) (as
described in the Single-Leg Pillar Filing) with differences only to
reference the proposed defined term ECO Order Instruction and to refer
to the ECO Opening Auction Process. The Exchange believes that the
proposed rule text would provide transparency regarding how ECO Order
Instructions that arrived during the ECO Opening Auction Process would
be processed.
Proposed Rule 6.91P-O(d)(5) would describe the ``Transition to
continuous trading'' after the ECO Opening Auction Process. As
proposed, after the ECO Opening Auction, ECOs would be subject to ECO
Price Protection, per proposed Rule 6.91P-O(g)(2) (as described below)
and, if eligible to trade, would trade as follows:
[cir] Proposed Rule 6.91P-O(d)(5)(A) would provide that an ECO
received before the complex strategy was opened that did not trade in
whole in the ECO Opening Auction Process and that is locking or
crossing other ECOs or leg markets in the Consolidated Book would trade
pursuant to proposed Rule 6.91P-O(e) (discussed below) regarding the
handling of ECOs during Core Trading Hours. This provision is based on
the (last sentence) of current Rule 6.91-O(a)(2)(i)(B) and (C), with
non-substantive differences to use Pillar terminology.
[cir] Proposed Rule 6.91P-O(d)(5)(B) would provide that any ECO
received during the ECO Opening Auction Process would be processed in
time sequence relative to one another based on original entry time.
This proposed rule is based on both current functionality and how the
Exchange proposes to process orders in an option series that were
received during an Auction Processing Period, as described in the
Single-Leg Pillar Filing for proposed Rule 6.64P-O(a)(5).
Execution of ECOs During Core Trading Hours. Proposed Rule 6.91P-
O(e) would describe how ECOs would be processed during Core Trading
Hours.
Proposed Rule 6.91P-O(e)(1) would provide that once a complex
strategy is open for trading, an ECO received by the Exchange would
trade with the best-priced contra-side interest as follows:
Proposed Rule 6.91P-O(e)(1)(A) would provide that if, at a
price, the incoming ECO would be eligible to trade with the leg markets
(e.g., not a Complex Only Order), the leg markets would have first
priority at that price and would trade with the incoming ECO pursuant
to proposed Rule 6.76AP-O before such incoming ECO would trade with
contra-side ECOs resting in the Consolidated Book at that price. This
proposed text is based on current Rule 6.91-O(a)(2)(ii) without any
substantive differences.
Proposed Rule 6.91P-O(e)(1)(B) would provide that an ECO
would not trade with orders in the leg markets designated as AON or
with an MTS modifier. This proposed text would be new and is based in
part on existing functionality and reflects the Exchange's proposed new
MTS modifier for orders in the leg markets.\26\ The Exchange believes
that this proposed rule would add clarity and transparency that ECOs
would not trade with orders that have conditional instructions.
---------------------------------------------------------------------------
\26\ See Single-Leg Pillar Filing (describing Minimum Trade Size
or MTS Modifier in proposed Rule 6.62P-O(i)(3)(B)).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(e)(1)(C) would provide that an ECO
(that is not designated as a Complex Only Order) would be eligible to
trade with the leg markets (in full or in a permissible ratio), subject
to certain enumerated exceptions set forth in proposed Rule 6.91P-
O(e)(1)(C)(i)-(iii). Specifically, ECOs with any one of the following
complex strategies would be ineligible to trade with the leg markets
and would be processed as a Complex Only Order:
[cir] A complex strategy with more than five legs;
[cir] a complex strategy with two legs and both legs are buying or
both legs are selling, and both legs are calls or both legs are puts;
or
[cir] a complex strategy with three or more legs and all legs are
buying or all legs are selling.
The proposal to restrict ECOs with more than five legs from trading
with the leg markets (and being treated as Complex Only Orders), per
proposed Rule 6.91P-O(e)(1)(C)(i), would be new functionality under
Pillar and is designed to help Market Makers manage risk. The Exchange
currently requires Market Makers to utilize certain risk controls for
quoting to help mitigate risk particularly during periods of market
volatility, and would require Market Makers to continue to use risk
controls on Pillar.\27\ Because the execution of a multi-legged ECO is
a single transaction, comprising discrete legs that must all trade
simultaneously, allowing ECOs with more than five legs to trade with
the leg markets may allow a multi-legged transaction to occur before a
Market Maker's risk settings would be triggered. This proposed
limitation is designed to prevent such multi-legged transactions, which
would help ensure that Market Makers continue to provide liquidity and
do not trade above their established risk tolerance levels. The
Exchange notes that this restriction is consistent with similar limits
[[Page 43710]]
established on other options exchanges.\28\
---------------------------------------------------------------------------
\27\ See Single-Leg Pillar Filing (describing the activity-based
controls with updated functionality under Pillar that Market Makers
would be required to use to manage risk in connection with their
quotes, per proposed Rule 6.40P-O(a)(3) and (b)(2)). The proposed
Pillar risk controls are substantively identical to the existing
risk controls set forth in Rules 6.40-O(b)(2), (c)(2) and (d)(2) and
Commentary .04 to Rule 6.40-O.
\28\ See e.g., Cboe Rule 5.33(g) (providing the ECOs may be
restricted from trading with the leg markets if such ECO has more
than a maximum number of legs, which maximum the Exchange determines
on a class-by-class basis and may be two, three, or four).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(e)(1)(C)(ii)-(iii), which treats ECOs with
certain complex strategies as Complex Only Orders, is based in part on
current Rule 6.91-O(b)(4)(i)-(ii), with a difference that currently,
such so-called ``directional strategies'' are rejected. The proposed
handling under Pillar would be less restrictive than the current rule
because such strategies would not be rejected and is consistent with
the treatment of such complex strategies on other options
exchanges.\29\ As with the proposal to restrict ECOs with more than
five legs trading with the leg markets, this proposed restriction is
also designed to ensure that Market Maker risk settings would not be
bypassed. Because ECOs with directional strategies are typically geared
towards an aggressive directional capture of volatility, such ECOs can
represent significantly more risk than trading any one of the legs in
isolation. As such, because Market Maker risk settings are only
triggered after the entire ECO package has traded, the Exchange
believes this proposed rule change would help ensure fair and orderly
markets by preventing such orders trading with the leg markets, which
would minimize risk to Market Makers.
---------------------------------------------------------------------------
\29\ See, e.g., Nasdaq ISE Options 3, Section 14(d)(3)(A)-(B)
(proving that ECOs with these complex strategies may trade only with
other ECOs).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(e)(2) would provide that any ECO or portion
thereof that does not trade immediately when it is received by the
Exchange and that is designated either Day or GTC would be ranked in
the Consolidated Book pursuant to proposed paragraph (c) of this Rule
(regarding the priority of ECOs), which is based on current Rule 6.91-
O(a)(2)(iii), except that it adds details regarding the time-in-force
modifier of the ECO, which adds clarity and transparency to the
proposed Rule. As further proposed, the Exchange would evaluate trading
opportunities for a resting ECO when the leg markets comprising a
complex strategy update, provided that during periods of high message
volumes, such evaluation may be reduced to no less than ten times per
one (1) second. The Exchange believes that this proposed rule promotes
transparency of the frequency with which the Exchange would be
evaluating the leg markets for updates.
Proposed Rule 6.91P-O(e)(3) would provide that ECOs that trade with
the leg markets would be allocated pursuant to Rule 6.76AP-O. This
proposed rule is based in part on current Rule 6.91-O(a)(2)(iii)
without any substantive differences.
Execution of ECOs During a COA. Proposed Rule 6.91P-O(f) would
describe how ECOs would trade during a COA. The COA Process is
currently described in Rule 6.91-O(c). Under Pillar, the Exchange
proposes to simplify the COA process, including by relying on the
current DBBO for pricing, allowing a COA Order to initiate a COA only
on arrival, and streamlining the rule text describing the circumstances
that would cause an early end to a COA.
As proposed, a COA Order received when a complex strategy is open
for trading would initiate a COA only on arrival, subject to proposed
Rule 6.91P-O(f)(1) (described below). As further proposed, a COA Order
would be rejected if entered during a pre-open state or if entered
during Core Trading Hours with a time-in-force of FOK or GTX. This
proposed order handling is based in part on current Rule 6.91-
O(c)(1)(ii), which requires that COA Orders be submitted during Core
Trading Hours. The proposed rejection of such orders during a pre-open
state would be new under Pillar and is consistent with the Exchange's
proposed functionality that a COA Order would initiate a COA only on
arrival. In addition, the proposal would clarify that COA Orders
designated as FOK or GTX would be rejected, even if submitted during
Core Trading Hours, is based on current functionality and this addition
would add further detail and clarification to the rule text. Finally,
as further proposed, only one COA may be conducted at a time in a
complex strategy, which is identical to text in current Rule 6.91-
O(c)(3).
Proposed Rule 6.91P-O(f)(1) would describe the conditions required
for the ``Initiation of a COA.'' As proposed, to initiate a COA, the
limit price of the COA Order to buy (sell) must be higher (lower) than
the best-priced, same-side ECOs resting on the Consolidated Book and
equal to or higher (lower) than the midpoint of the DBBO. This proposed
text is based in part on current Rule 6.91-O(c)(3)(i), with a
difference to add a new ``midpoint of the DBBO'' requirement, which is
designed to facilitate price improvement opportunities for the COA
Order. As further proposed, a COA Order that does not satisfy these
pricing parameters would not initiate a COA and would be processed as
an ECO. This would be new under Pillar, as current Rule 6.91-O(c)(3)
allows an order designated for COA to reside on the Consolidated Book
unless or until such order meets the requisite pricing conditions to
initiate a COA. The Exchange believes this proposed change would
simplify the COA process.
Finally, as proposed, once a COA is initiated, the Exchange would
disseminate a Request for Response message, the Response Time Interval
would begin and, during such interval, the Exchange would accept RFR
Responses, including GTX ECO Orders. This proposed text is based on
current functionality set forth in Rule 6.91-O(c), with non-substantive
differences to use Pillar terminology, including using the new Pillar
term for GTX ECO Orders.
Proposed Rule 6.91P-O(f)(2) would describe the ``Pricing of a
COA.'' As proposed, a COA Order to buy (sell) would initiate a COA at
its limit price, unless its limit price locks or crosses the DBO (DBB),
in which case it would initiate a COA at a price equal to one penny
($0.01) times the smallest leg ratio inside the DBO (DBB) (the ``COA
initiation price''). This proposed functionality utilizes the new
concept of a DBBO, is consistent with current functionality (that
relies on substantively similar concept of Complex BBO), and ensures
(consistent with current functionality) that interest on the leg
markets maintain priority.
Proposed Rule 6.91P-O(f)(2)(A) would provide that prior to
initiating a COA, a COA Order to buy (sell) would trade with any ECO to
sell (buy) that is priced equal to or below (above) one penny ($0.01)
times the smallest leg ratio inside the DBO (DBB) (i.e., priced better
than the leg markets) and any unexecuted portion of such COA Order
would initiate a COA. This proposed rule is based on current Rule 6.91-
O(a)(2) with a difference to use the Pillar concept of DBBO rather than
refer to the contra-side Complex BBO.
Proposed Rule 6.91P-O(f)(2)(B) would provide that a COA
Order would not be eligible to trade with the leg markets until after
the COA ends, which added detail, while not explicitly stated in the
current rule, is consistent with current functionality described in
Rules 6.91-O(c)(7)(A) and (B) that only RFR Responses (i.e., GTX
orders) and ECOs will be allocated in a COA and that the COA Order
would not trade with the leg markets until after the COA allocations.
Proposed Rule 6.91P-O(f)(3) would set forth the conditions
that would result in the ``Early End to a COA'' (i.e., a COA ending
prior to the expiration of the Response Time Interval). Currently, as
described in Rule 6.91-O(c)(3), the Exchange takes a snapshot of the
[[Page 43711]]
Complex BBO at the start of a COA and uses that snapshot as the basis
for determining whether to end a COA early. Under Pillar, the Exchange
would no longer use a snapshot of the Complex BBO as the basis for
determining whether to end a COA early but would instead rely on the
DBBO (not initial snapshot), which is updated as market conditions
change (including during the Response Time Interval).\30\ The Exchange
proposes a COA would end early under the following conditions:
---------------------------------------------------------------------------
\30\ As discussed infra regarding proposed Rule 6.91P-O(a)(6)
and the definition of the Derived BBO, ``the DBBO would be updated
as the Exchange's calculation of the Exchange BBO or Away Market
NBBO, as applicable, is likewise updated'').
---------------------------------------------------------------------------
[cir] Proposed Rule 6.91P-O(f)(3)(A) would provide that a COA would
end early if the Exchange receives an incoming ECO or COA Order to buy
(sell) in the same complex strategy that is priced higher (lower) than
the initiating COA Order to buy (sell), which proposed text is based on
current Rule 6.91-O(c)(6)(B)(i) without any substantive differences.
[cir] Proposed Rule 6.91P-O(f)(3)(B) would provide that a COA would
end early if the Exchange receives an RFR Response that crosses the
same-side DBBO, which proposed text is based on current Rule 6.91-
O(c)(6)(A)(i), except (as noted above) it refers to the DBBO rather
than the ``initial Complex BBO.''
[cir] Proposed Rule 6.91P-O(f)(3)(C) would provide that a COA would
end early if the leg markets update causing the same-side DBBO to lock
or cross (i) any RFR Response(s) or (ii) if no RFR Responses have been
received, the best-priced, contra-side ECOs. This proposed rule is
based in part on current Rule 6.91-O(c)(6)(C)(i), with differences to
use Pillar terminology.
[cir] Proposed Rule 6.91P-O(f)(3)(D) would provide that a COA would
end early if the leg markets update causing the contra-side DBBO to
lock or cross the COA initiation price. This proposed rule is based in
part on current Rule 6.91-O(c)(6)(C)(ii), except that it would refer to
the DBBO and the COA initiation price, which would be new concepts
under Pillar.
Proposed Rule 6.91P-O(f)(4) would set forth the
``Allocation of COA Orders'' after a COA either ends early or after the
expiration of the Response Time Interval. Current Rule 6.91-O(c)(7)(A)
sets forth that the COA-eligible orders are allocated against the best-
priced interest received in the COA at each price on a ``Size Pro-Rata
Basis,'' as that concept is defined in Rule 6.75-O(f)(6). Under Pillar,
the allocation of the COA Order would be based on price-time priority,
which would align the allocation of ECOs in a COA with standard
processing of ECOs.
Proposed Rule 6.91P-O(f)(4)(A) would provide that RFR Responses to
sell (buy) would trade in price-time priority with a COA Order to buy
(sell); provided, however, that if there is displayed Customer interest
on all legs of the DBB (DBO), RFR Responses to sell (buy) would not
trade below (above) one penny ($0.01) times the smallest leg ratio
inside the DBB (DBO). This proposed rule would ensure that the COA
Order would not trade at a worse price than the leg markets and would
price improve at least a portion of the interest in the leg markets.
The proposed text is based in part on current Rule 6.91-O(c)(7)(A)
insofar as it ensures that the COA Order would trade with the best-
priced RFR Responses received in the COA and differs substantively
because, as discussed above, the COA Order would trade with RFR
Responses in price-time priority (and not Size Pro Rata).
Proposed Rule 6.91P-O(f)(4)(B) would provide that after COA
allocations pursuant to paragraph (f)(4)(A) of this proposed Rule, any
unexecuted balance of a COA Order (including COA Orders designated as
IOC) would be eligible to trade with any contra-side interest,
including the leg markets unless the COA Order is designated or treated
as a Complex Only Order. This proposed text is based on existing
functionality and makes explicit that a COA Order would trade solely
with complex interest (and not the leg markets) during a COA. This
proposed rule is designed to provide clarity and transparency that the
remaining balance of a COA Order would be eligible to trade with the
leg markets after the COA ends.
Proposed Rule 6.91P-O(f)(4)(C) would provide that after a COA Order
trades pursuant to proposed Rule 6.91P-O(f)(4)(B), any unexecuted
balance of a COA Order would be processed as an ECO pursuant to
paragraph (e) of this Rule. The proposed text is based on current Rule
6.91-O(c)(7)(B) without any substantive differences.
Proposed Rule 6.91P-O(f)(5) would set forth ``Prohibited Conduct
related to COAs,'' and is based on current Commentary .04 to Rule 6.91-
O without any substantive differences, and would provide that a pattern
or practice of submitting unrelated orders that cause a COA to conclude
early would be deemed conduct inconsistent with just and equitable
principles of trade and that dissemination of information related to
COA Orders to third parties would also be deemed as conduct
inconsistent with just and equitable principles of trade.
ECO Risk Checks. Proposed Rule 6.91P-O(g) would describe the ``ECO
Risk Checks,'' which are designed to help OTP Holders and OTP Firms to
effectively manage risk when trading ECOs. Current Commentaries .03,
.05, and .06 of Rule 6.91-O set forth the existing risk checks for
ECOs. With the transition to Pillar, the Exchange proposes to modify
and enhance its existing risk checks for ECOs, as follows:
Proposed Rule 6.91P-O(g)(1) would set forth the ``Complex
Strategy Limit.'' As proposed, the Exchange would establish a limit on
the maximum number of new complex strategies that may be requested to
be created per MPID, which limit would be announced by Trader
Update.\31\ As further proposed, when an MPID reaches the limit on the
maximum number of new complex strategies, the Exchange would reject all
requests to create new complex strategies from that MPID for the rest
of the trading day. In addition, and notwithstanding the established
Complex Strategy Limit, the Exchange proposes that it may reject a
request to create a new complex strategy from any MPID whenever the
Exchange determines it is necessary in the interests of a fair and
orderly market.
---------------------------------------------------------------------------
\31\ The Exchange has proposed to add the definition of MPID to
proposed Rule 1.1, which would refer 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. 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.'' See
Single-Leg Pillar Filing.
---------------------------------------------------------------------------
This is new functionality proposed under Pillar but is conceptually
similar to the Complex Order Table Cap (the ``Cap''), set forth in
Commentary .03 to Rule 6.91-O, which Cap (like the Complex Strategy
Limit) is a system protection tool that enables the Exchange to limit
the number of complex strategies available on the Exchange, which in
turn improves the efficiency of the ECO process and helps maintain a
fair and orderly market. The Exchange also notes that other options
exchanges likewise impose a limit on new complex order strategies.\32\
---------------------------------------------------------------------------
\32\ See, e.g., Cboe Rule 5.33 (providing, in its definition of
``complex strategy'' that Cboe ``may limit the number of new complex
strategies that may be in the [Cboe] System at a particular time'')
and MIAX Rule 518(a)(6) (providing, in its definition of ``complex
strategy'' that MIAX ``may limit the number of new complex
strategies that may be in the System at a particular time and will
communicate this limitation to Members via Regulatory Circular'').
---------------------------------------------------------------------------
[[Page 43712]]
Proposed Rule 6.91P-O(g)(2) would set forth the ECO Price
Protection. The existing ECO ``Price Protection Filter'' is set forth
in Commentary .05 to current Rule 6.91-O (the ``ECO Filter''). The
proposed ``ECO Price Protection'' on Pillar would work similarly to how
the current ECO price protection mechanism functions on the Exchange
because an ECO would be rejected if it is priced a specified percentage
away from the contra-side Complex NBB or NBO.\33\ However, on Pillar,
the Exchange proposes to use new thresholds and reference prices, which
would not only simplify the existing price check, but it would also
align the proposed functionality with the proposed ``Limit Order Price
Protection'' for single-leg interest, thus adding uniformity to
Exchange rules.\34\
---------------------------------------------------------------------------
\33\ As noted above, the Exchange proposes to define the Complex
NBBO as the derived national best bid and derived national best
offer for a complex strategy calculated using the NBB and NBO for
each component leg of a complex strategy. See proposed Rule 6.91P-
O(a)(4).
\34\ See Single-Leg Pillar Filing (proposed Rule 6.62P(a)(3)
sets forth the Limit Order Price Protection Filter applicable to
Limit Orders and quotes).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(g)(2)(A) would provide that each trading day,
an ECO to buy (sell) would be rejected or cancelled (if resting) if it
is priced a Specified Threshold equal to or above (below) the Reference
Price (as described below), rounded down to the nearest penny ($0.01),
subject to proposed paragraphs (g)(2)(A)(i)-(v) of the Rule as
described below. Because ECO Price Protection would be applied each
trading day, an ECO designated GTC would be re-evaluated for ECO Price
Protection on each day that it is eligible to trade and would be
cancelled if the limit price is equal to or 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), and is consistent with the
proposed operation of the single-leg ``Limit Order Price Protection''
functionality for options.\35\
---------------------------------------------------------------------------
\35\ See id.
---------------------------------------------------------------------------
[cir] Proposed Rule 6.91P-O(g)(2)(A)(i) would provide that an ECO
that arrives when a complex strategy is open for trading would be
evaluated for ECO Price Protection on arrival. The Exchange has
proposed similar functionality for single-leg options.\36\
---------------------------------------------------------------------------
\36\ See Single-Leg Pillar Filing (discussion regarding proposed
Rule 6.62P-O(a)(3)(A)(i)).
---------------------------------------------------------------------------
[cir] Proposed Rule 6.91P-O(g)(2)(A)(ii) would provide that an ECO
received during a pre-open state would be evaluated for ECO Price
Protection after the ECO Opening Auction Process concludes.\37\ The
Exchange has proposed similar functionality for single-leg options.\38\
---------------------------------------------------------------------------
\37\ See discussion infra regarding proposed Rule 6.91P-O(d),
which describes the ECO Opening Auction Process (or Reopening after
a Trading Halt) as well as the concepts of ECO Auction Collars and
ECO Auction Price.
\38\ See Single-Leg Pillar Filing (discussion regarding proposed
Rule 6.62P-O(a)(3)(A)(ii)).
---------------------------------------------------------------------------
[cir] Proposed Rule 6.91P-O(g)(2)(A)(iii) would provide that an ECO
resting on the Consolidated Book before a trading halt would be
reevaluated for ECO Price Protection after the ECO Opening Auction
Process concludes. The Exchange has proposed similar functionality for
single-leg options.\39\
---------------------------------------------------------------------------
\39\ See Single-Leg Pillar Filing (discussion regarding proposed
Rule 6.62P-O(a)(3)(A)(iii)).
---------------------------------------------------------------------------
[cir] Proposed Rule 6.91P-O(g)(2)(A)(iv) would provide that Cross
Orders (per proposed Rule 6.62P-O(g)) and ECOs entered on the Trading
Floor would not be subject to ECO Price Protection. The Exchange has
proposed similar functionality for single-leg options.\40\
---------------------------------------------------------------------------
\40\ See Single-Leg Pillar Filing (discussion regarding proposed
Rule 6.62P-O(a)(3)(A) excluding Cross Orders).
---------------------------------------------------------------------------
[cir] Proposed Rule 6.91P-O(g)(2)(A)(v) would provide that ECO
Price Protection would not be applied if there is no Reference Price
for an ECO. The Exchange has proposed similar functionality for single-
leg options.\41\
---------------------------------------------------------------------------
\41\ See Single-Leg Pillar Filing (discussion regarding proposed
Rule 6.62P-O(a)(3)(A)).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(g)(2)(B) would specify the ``Reference
Price'' used in connection with the ECO Price Protection. As proposed,
the Reference Price for calculating ECO Price Protection for an ECO to
buy (sell) would be the Complex NBO (NBB), provided that, immediately
following an ECO Opening Auction Process, the Reference Price would be
the ECO Auction Price or, if none, the Complex NBO (NBB). The Exchange
believes that adjusting the Reference Price for ECO Price Protection
immediately following an ECO Opening Auction would ensure that the most
up-to-date price would be used to assess whether to cancel an ECO that
was received during a pre-open state, including during a Trading Halt.
The Exchange notes this functionality is consistent with the proposed
operation of the Limit Order Price Protection for single-leg
options.\42\
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\42\ See Single-Leg Pillar Filing (discussion regarding proposed
Rule 6.62P-O(a)(3)(A) describing that the Reference Price for Limit
Order Price Protection would be adjusted 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).
---------------------------------------------------------------------------
As further proposed, there would be no Reference Price for an ECO
if there is no NBBO for any leg of such ECO (i.e., the Exchange would
not calculate a Complex NBB (NBO)), which text is based on current Rule
6.91-O, Commentary .05(c), except that the proposed rule would not
reference OPRA because, as further proposed, for purposes of
determining a Reference Price, the Exchange would not use an adjusted
NBBO (i.e., such NBBO is implicitly reliant on information from
OPRA).\43\ The Exchange notes that using an unadjusted NBBO to
calculate the Reference Price 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) and is also consistent with the
proposed operation of the Limit Order Price Protection for single-leg
options.\44\
---------------------------------------------------------------------------
\43\ See Single-Leg Pillar Filing (discussion regarding the
proposed definition of ``NBBO'' in proposed Rule 1.1 describing that
the ``NBBO'' for purposes of options trading would mean the national
best bid or offer and that ``[u]nless otherwise specified, 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.'' The Exchange further proposes that the term ``Away
Market NBBO'' refers to a calculation of the NBBO that excludes the
Exchange's BBO'').
\44\ 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. See Single-Leg Pillar Filing (describing use of
unadjusted NBBO for single-leg Limit Order Price Protection in
proposed Rule 6.62P-O(a)(3)(B)).
---------------------------------------------------------------------------
Proposed Rule 6.91P-O(g)(2)(C) would set forth the ``Specified
Threshold'' used in connection with the ECO Price Protection. As
proposed, the Specified Threshold for calculating ECO Price Protection
would be $1.00, unless determined otherwise by the Exchange and
announced to OTP Holders and OTP Firms by Trader Update.
The Exchange believes that the proposed Specified Threshold of
$1.00 simplifies how the Reference Price would be calculated as
compared to the calculations currently specified in Commentary .05 to
Rule 6.91-O. In addition, consistent with Commentary .05(d), the
Exchange proposes that the Specified Threshold could change, subject to
announcing the changes by Trader Update. Providing flexibility in
Exchange rules regarding how the Specified Threshold would be set is
consistent with the rules of other options exchanges as well as the
proposed functionality for the single-leg Limit Order Price Protection
feature.\45\
---------------------------------------------------------------------------
\45\ See, e.g., Cboe Rule 5.34(b)(6) (describing the ``Drill-
Through Protection'' and that Cboe ``determines a default buffer
amount on a class-by-class basis). See Single-Leg Pillar Filing
(describing use of Trader Update to modify Specified Thresholds in
proposed Rule 6.62P-O (a)(3)(C)).
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[[Page 43713]]
Proposed Rule 6.91P-O(g)(3) would set forth the ``Complex
Strategy Protections.'' The proposed protections are based on current
Rule 6.91-O, Commentary .06, which are referred to as the ``Debit/
Credit Reasonability Checks.'' The Exchange believes this name change
is appropriate because it more accurately conveys that the check
applies solely to certain complex strategies and because (as discussed
above), the Exchange proposes to refer simply to a ``net price'' as
opposed to the ``total net debit or credit price.'' The proposed Pillar
Complex Strategy Protections would function similarly to the current
Debit/Credit Reasonability Checks because erroneously priced incoming
ECOs would be rejected. However, rather than to refer to specified
debit or credit amounts as a way to determine whether a given strategy
is erroneously priced, the proposed rule would instead focus on the
expectation of the order sender and what would result if the ECO were
not rejected.
As proposed, to protect an OTP Holder or OTP Firm that sends an ECO
(each an ``ECO sender'') with the expectation that it would receive (or
pay) a net premium but has priced the ECO such that the ECO sender
would instead pay (or receive) a net premium, the Exchange would reject
any ECO that is comprised of the erroneously-priced complex strategies
as set forth in proposed Rule 6.91P-O(g)(3)(A)-(C) and described below.
Proposed Rule 6.91P-O(g)(3)(A) would provide that ``'All buy' or
`all sell' strategies'' would be rejected as erroneously-priced if it
is an ECO for a complex strategy where all legs are to buy (sell) and
it is entered at a price less than one penny ($0.01) times the sum of
the number of options in the ratio of each leg of such strategy (e.g.,
a complex strategy to buy (sell) 2 calls and buy (sell) 1 put with a
price less than $0.03). The proposed text is based on Rule 6.91-O,
Commentary .06(a)(1), with no substantive differences, except that the
Exchange has streamlined the text and set forth the minimum price
(i.e., $0.03) for any ``all buy'' or ``all sell'' strategies.
Proposed Rule 6.91P-O(g)(3)(B) would provide for the rejection of
erroneously-priced ``Vertical spreads,'' which are defined as complex
strategies that consists of a leg to sell a call (put) option and a leg
to buy a call (put) option in the same option class with the same
expiration but at different strike prices. As proposed, the Exchange
would reject as erroneously-priced: (i) An ECO for a vertical spread to
buy a lower (higher) strike call and sell a higher (lower) strike call
and the ECO sender would receive (pay) a net premium (proposed Rule
6.91P-O(g)(3)(B)(i)); and (ii) an ECO for a vertical spread to buy a
higher (lower) strike put and sell a lower (higher) strike put and the
ECO sender would receive (pay) a net premium (proposed Rule 6.91P-
O(g)(3)(B)(ii)). The proposed strategy protections for vertical spreads
are based on current Rule 6.91-O, Commentary .06(a)(2), except that, as
noted above, the proposed Rule is written from the standpoint of the
expectation of the ECO sender as opposed to reviewing total net debit
or credit price of the strategy.
Proposed Rule 6.91P-O(g)(3)(C) would provide for the rejection of
erroneously-priced ``Calendar spreads,'' which are defined as
consisting of a leg to sell a call (put) option and a leg to buy a call
(put) option in the same option class at the same strike price but with
different expirations. As proposed, the Exchange would reject as
erroneously-priced: (i) An ECO for a calendar spread to buy a call leg
with a shorter (longer) expiration while selling a call leg with a
longer (shorter) expiration and the ECO sender would pay (receive) a
net premium (proposed Rule 6.91P-O(g)(3)(C)(i)); and (ii) an ECO for a
calendar spread to buy a put leg with a shorter (longer) expiration
while selling a put leg with a longer (shorter) expiration and the ECO
sender would pay (receive) a net premium (proposed Rule 6.91P-
O(g)(3)(C)(ii)). The proposed strategy protections for calendar spreads
are based on current Rule 6.91-O, Commentary .06(a)(3), except that, as
noted above, the proposed Rule is written from the standpoint of the
expectation of the ECO sender as opposed to reviewing the total net
debit or credit price of the strategy. The Exchange has also not
retained discretion to disable the strategy protections for calendar
spreads (as contained in Commentary .06(a)(3)(i) of the current Rule)
because since adopting this provision in 2017, the Exchange has never
exercised this discretion and therefore has determined that such
discretion is no longer needed.
Proposed Rule 6.91P-O(g)(3)(D) would provide that any ECO that is
not rejected by the complex strategy protections would still be subject
to the Price Protection Filter, per paragraph (g)(2) of this Rule,
which proposed text is based on Rule 6.91-O, Commentary .06(b) without
any substantive difference.
Rule 6.47A-O: Order Exposure Requirements--OX
The Exchange also proposes conforming, non-substantive amendments
to Rule 6.47A-O, regarding order exposure, to add a cross-reference to
new Pillar Rule 6.91P-O. This proposed amendment would extend the
exemption from the order exposure requirements to COAs on Pillar.\46\
The Exchange also proposes to modify the reference to ``Complex Order
Auction Process (`COA')'' to simply ``Complex Order Auction (`COA')''
(i.e., removing the word Process) consistent with how this concept is
defined in proposed Rule 6.91P-O(a)(7).
---------------------------------------------------------------------------
\46\ See proposed Rule 6.47A-O(iii). Consistent with the Single-
Leg Pillar Filing, the Exchange also proposes to replace reference
to ``OX'' with ``the Exchange.'' See id. (preamble).
---------------------------------------------------------------------------
* * * * *
As discussed above, because of the technology changes associated
with the migration to the Pillar trading platform, subject to approval
of the Single-Leg Pillar Filing as well as 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 Exchange's current 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''),\47\ in general, and
furthers the objectives of Section 6(b)(5),\48\ 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
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 proposed Rule 6.91P-O to support electronic complex
trading on Pillar would remove impediments to and perfect the mechanism
of a free and open market and a national market system because the
proposed rule would promote transparency in Exchange rules by using
consistent terminology governing trading on both the Exchange's cash
equity and options Pillar trading platforms, thereby ensuring that
members, regulators, and
[[Page 43714]]
the public can more easily navigate the Exchange's rulebook and better
understand how options trading is conducted on the Exchange.
---------------------------------------------------------------------------
\47\ 15 U.S.C. 78f(b).
\48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that adding new Rule 6.91P-O with the
modifier ``P'' to denote that this rule 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 current Rule 6.91-O stating that it
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.
The Exchange believes that incorporating Pillar functionality
currently available on the Exchange's cash equity market (and recently
proposed for single-leg options),\49\ for trading of electronic complex
orders on its options market in proposed Rule 6.91P-O 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 trading of electronic
complex orders. 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 (and recently proposed to be available for single-leg
options trading). For similar reasons, the Exchange believes that using
Pillar terminology for the proposed new rule 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.
---------------------------------------------------------------------------
\49\ See generally the Single-Leg Pillar Filing.
---------------------------------------------------------------------------
Definitions, Types of ECOs and Priority and Pricing of ECOs
The Exchange believes that the proposed definitions in Rule 6.91P-
O(a) 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 by
consolidating existing defined terms related to electronic complex
trading into one section of the proposed rule. The Exchange believes
that the proposed non-substantive amendments to those terms currently
defined in Rule 6.91-O would promote clarity and transparency by using
Pillar terminology. The Exchange further believes consolidating defined
terms in proposed Rule 6.91P-O(a) would make the proposed rule more
transparent and easier to navigate.
The Exchange believes that the proposed new definition of DBBO (and
related terms of DBB and DBO) would further remove impediments to and
perfect the mechanism of a free and open market and a national market
system because it would promote clarity and transparency to market
participants regarding how the DBBO would be calculated under Pillar.
The proposed definition is not novel and is based in part on similarly
defined terms used on NYSE American and Cboe. In addition, the Exchange
believes that setting forth additional definitions in proposed Rule
6.91P-O(a), including those that are used on other options exchanges
(e.g., ``complex strategy'') and clarifying terms (e.g., ``leg'' and
``leg markets''), would remove impediments to and perfect the mechanism
of a free and open market and a national market system because it would
promote clarity and transparency to market participants regarding
electronic complex trading under Pillar. Finally, the proposed
definition of ``ECO Order Instruction'' would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because it would incorporate for ECOs existing Pillar order
handling functionality in an auction that is currently available on the
Exchange's cash equity platform, as described in Rule 7.35-E(g) and is
proposed for options trading in proposed Rule 6.64P-O(e) and its sub-
paragraphs (1) and (2) (as described in the Single-Leg Pillar Filing).
The Exchange similarly proposes this functionality for the ECO Opening
Auction Process, with non-substantive differences only to use an ECO-
specific defined term and to refer to the ECO Opening Auction Process.
The Exchange believes that the proposed types of ECOs available per
Rule 6.91P-O(b) would remove impediments to and perfect the mechanism
of a free and open market and a national market system because it would
describe the ECOs and time-in-force modifiers that would be available
on Pillar, as well as specifying additional ECO types. The Exchange is
not proposing any new ECO order types or time-in-force modifiers on
Pillar and believes that the non-substantive differences to use Pillar
terminology to describe the available ECO order types would promote
transparency and clarity in Exchange rules. The Exchange believes that
the proposed Complex Only Order is not novel because it is based in
part on the existing PNP Plus order functionality as both order types
only interact with other ECOs. The proposed functionality on Pillar is
also based on how such orders function on other options exchanges.\50\
In addition, the proposed ECO GTX Order uses Pillar terminology to
describe what is referred to as an ``RFR Response'' in the current
rules, and therefore is not novel.
---------------------------------------------------------------------------
\50\ See supra note 17 (citing Cboe Rule 5.33(a) regarding
similar Complex Only order functionality).
---------------------------------------------------------------------------
The Exchange believes that proposed new Rule 6.91P-O(c), and
subparagraphs (2), (3), and (4), would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because the proposed rules would set forth a price-time priority
model for Pillar and pricing requirements for ECO trading that are
substantively the same as the Exchange's current price-time priority
model and pricing requirements as set forth in Rule 6.91-O(a)(1) and
Commentaries .01 and .02(i) to Rule 6.91-O. The Exchange believes that
proposed Rule 6.91P-O(c)(1) and subparagraphs (A) and (B) would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because they would promote transparency and
clarity in Exchange rules regarding how ECOs would trade with the leg
markets.
Execution of ECOs at the Open (or Reopening After a Trading Halt)
The Exchange believes that proposed Rule 6.91P-O(d) regarding the
ECO Opening Auction Process 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 the Exchange currently uses for ECOs, as described in Rule
6.91-O(a)(2)(i)(B), 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 as
well as proposed for single-leg options in proposed Rule 6.64P-O. For
example, the Exchange proposes to use Pillar functionality to determine
how to price an ECO Opening Auction Process, as described in proposed
Rule 6.91P-
[[Page 43715]]
O(d)(3), including using proposed ``ECO Auction Collars'' and an ``ECO
Auction Price,'' which would promote transparency to market
participants. The Exchange also proposes to process ECOs received
during an ECO Opening Auction Process, as described in proposed Rule
6.91P-O(d)(4), and transition to continuous trading following an ECO
Opening Auction Process, as described in proposed Rule 6.91P-O(d)(5),
in a manner similar to how the Exchange's cash equity market processes
orders that are received during an Auction Processing Period and
transitions to continuous trading following a cash equity Trading Halt
Auction, which the Exchange also proposes for single-leg options in
proposed Rule 6.64P-O. The Exchange believes that using similar
functionality for different types of auctions would promote consistency
across the Exchange's options and cash equity trading platforms.
Because the Exchange would be harnessing Pillar technology to support
the ECO Opening Auction Process for electronic complex options trading,
the Exchange believes that structuring proposed Rule 6.91P-O(d) based
on Rule 7.35-E and proposed Rule 6.64P-O would promote transparency in
the Exchange's trading rules.
The Exchange further believes that the proposed Rules 6.91P-O(d)(1)
and (2), which describe when the Exchange would initiate an ECO Opening
Auction Process and which ECOs would be eligible to trade in that
process, would remove impediments to and perfect the mechanism of a
free and open market and a national market system because they would
provide clarity and transparency of the conditions required before the
Exchange would initiate an ECO Opening Auction Process. The Exchange
further believes that those conditions are not novel and are based on
existing conditions specified in Rule 6.91-O(a)(2)(i)(A) and (B), with
additional specificity designed to promote clarity and transparency.
Accordingly, the Exchange believes that the ECO Opening Auction Process
for ECOs trading on Pillar would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because the proposed process is based on the current opening process,
including that orders would be matched based on price-time priority at
a price at which the maximum volume can be traded.
Execution of ECOs During Core Trading Hours
The Exchange believes that proposed Rule 6.91P-O(e), setting forth
the execution of ECOs during Core Trading Hours, would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because the proposed functionality would
incorporate the Exchange's existing price-time priority model for
trading ECOs, including providing that the leg markets would have
priority at a price. The Exchange believes that it would remove
impediments to and perfect the mechanism of a free and open market and
national market system for ECOs not to trade with orders in the leg
markets designated AON or with an MTS modifier (as described in the
Single-Leg Pillar Filing), because both orders types are conditional.
The Exchange further believes that it would remove impediments to and
perfect the mechanism of a free and open market and a national market
system for ECOs to trade as Complex Only Orders (rather than be
rejected as they would under current rules) if they have a complex
strategy that could result in a Market Maker breaching their
established risk settings.\51\ This proposed process is also consistent
with the treatment of similar ECOs on other options markets.\52\ The
Exchange further believes that it would remove impediments to and
perfect the mechanism of a free and open market and a national market
system to specify the frequency with which the Exchange would evaluate
trading opportunities for an ECO with the leg markets update because it
would promote clarity and transparency in Exchange rules.
---------------------------------------------------------------------------
\51\ See discussion infra regarding rationale for proposed Rule
6.91P-O(e) to restrict certain ECOs from executing as a package and
bypassing Market Maker risk settings.
\52\ See supra notes 28 and 29 (citing to Cboe Rule 5.33(g) and
Nasdaq ISE Options 3, Section 14(d)(3)(A)-(B) regarding similar
functionality.
---------------------------------------------------------------------------
Execution of ECOs During a COA
The Exchange believes that proposed Rule 6.91P-O(f), setting forth
the execution of ECOs during a COA, 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 both incorporate existing functionality to
provide that COA Orders would trade solely with other ECOs (and not the
leg markets) during the auction and that a COA Auction would be
allocated on price-time priority, which is consistent with the
Exchange's priority scheme. The Exchange believes the proposed rule
would add clarity and transparency to OTP Holders and OTP Firms
utilizing the COA process.
In addition, the Exchange further believes that the proposed
changes to the COA process on Pillar that either differ from current
functionality or that would be new would remove impediments to and
perfect the mechanism of a free and open market and national market
system because:
Requiring that a COA Order initiate a COA on arrival, else
[sic] be treated as a standard ECO, is new under Pillar and would
provide OTP Holders and OTP Firms with a higher level of transparency
and determinism of when a COA Order could initiate a COA.
Making explicit that COA Orders may only execute with ECOs
(and not the leg markets) until after the COA ends is designed to make
clear that ECOs have priority during a COA.
Streamlining the rule text that would describe the market
events that would cause an early end to a COA under Pillar would
simplify the COA process and would provide OTP Holders and OTP Firms
with a higher level of transparency and determinism regarding the
handling of COA Orders.
ECO Risk Checks
The Exchange believes that proposed Rule 6.91P-O(g), setting forth
ECO Risk Checks, 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 risk controls, without any substantive
differences. The Exchange further believes that the proposed changes to
ECO Risk Checks on Pillar that either differ from current functionality
or would be new would remove impediments to and perfect the mechanism
of a free and open market and national market system because:
The Exchange believes that the new Complex Strategy Limit
(which is conceptually similar to the Complex Order Table Cap under the
current Rule) would operate as a system protection tool that enables
the Exchange to limit the number of complex strategies available on the
Exchange, which in turn would improve the efficiency of the ECO process
and helps maintain a fair and orderly market. The proposed limits are
not novel and are based on limits imposed by other options exchanges on
new complex order strategies.\53\
---------------------------------------------------------------------------
\53\ See supra note 32 (citing Cboe Rule 5.33(a) and MIAX Rule
518(a)(6) regarding each exchange's ability to limit the number of
new complex strategies in their systems at any particular time).
---------------------------------------------------------------------------
The proposed ECO Price Protection on Pillar would work
similarly to how the current ECO price protection
[[Page 43716]]
mechanism functions on the Exchange because an ECO would be rejected if
it is priced a specified percentage away from the contra-side Complex
NBB or NBO.\54\ The Exchange believes that the proposed differences on
Pillar, to use new thresholds and reference prices, would not only
simplify the existing price check, but it would also align the proposed
functionality with the proposed ``Limit Order Price Protection'' for
single-leg interest, thus adding uniformity to Exchange rules.\55\
---------------------------------------------------------------------------
\54\ As noted above, the Exchange proposes to define the Complex
NBBO as the derived national best bid and derived national best
offer for a complex strategy calculated using the NBB and NBO for
each component leg of a complex strategy. See proposed Rule 6.91P-
O(a)(4).
\55\ See Single-Leg Pillar Filing (proposed Rule 6.62P(a)(3)
sets forth the Limit Order Price Protection Filter applicable to
Limit Orders and quotes).
---------------------------------------------------------------------------
The proposed Pillar Complex Strategy Protections would
function similarly to the current Debit/Credit Reasonability Checks
because erroneously priced incoming ECOs would be rejected. The
Exchange believes that the non-substantive differences to focus on the
expectation of the ECO sender and what would result if the ECO were not
rejected rather than refer to specified debit or credit amounts as a
way to determine whether a given strategy is erroneously priced would
remove impediments to and perfect the mechanism of a free and open
market system because it would promote clarity and transparency in
Exchange rules.
Rule 6.47A-O
The Exchange believes that the proposed non-substantive change to
Rule 6.47A-O to update references to ``COA'' (versus COA Process) and
``the Exchange,'' to delete reference to ``OX,'' and add the reference
to Rule 6.91P-O would remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
protect investors and the public interest because the proposed
conforming changes would add clarity, transparency and consistency to
the Exchange's rules. The Exchange believes that market participants
would benefit from the increased clarity, thereby reducing potential
confusion. Similarly, the Exchange believes that adding a cross-
reference to proposed Rule 6.91P-O would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because it would promote clarity and transparency of which
Pillar rules would be eligible for the exception specified in that
Rule.
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 for
trading of ECOs on its options trading platform 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 trading of ECOs 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 the treatment of ECOs. Rather,
the Exchange believes that the proposed rule changes would promote
consistent use of terminology to support options (both single-leg and
complex) 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 treatment of ECOs, without
proposing any material 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-2021-68 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-2021-68. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEARCA-2021-68, and
[[Page 43717]]
should be submitted on or before August 31, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16967 Filed 8-9-21; 8:45 am]
BILLING CODE 8011-01-P