Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Rule 6.64P-O, 52827-52832 [2022-18501]
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Federal Register / Vol. 87, No. 166 / Monday, August 29, 2022 / Notices
regarding the unavailability of an order
type.
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
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 7 and Rule
19b–4(f)(6) thereunder.8 Because the
foregoing proposed rule change does
not: (i) significantly affect the protection
of investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 9 and
subparagraph (f)(6) of Rule 19b–4
thereunder.10
A proposed rule change filed under
Rule 19b–4(f)(6) 11 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),12 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange asked that the
Commission waive the 30 day operative
delay so that the proposal may become
operative immediately upon filing. The
Exchange stated that waiver of the 30day operative delay would permit the
Exchange to promptly provide notice in
its Rules of the unavailability of the
Discretionary Pegged Order and further
evaluate the impact on system
performance. Therefore, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change as operative upon
filing.13
7 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
9 15 U.S.C. 78s(b)(3)(A)(iii).
10 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Commission
has waived the five-day prefiling requirement in
this case.
11 17 CFR 240.19b–4(f)(6).
12 17 CFR 240.19b–4(f)(6)(iii).
13 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
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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
should be approved or 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–2022–54 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–2022–54. 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
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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52827
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–2022–54 and
should be submitted on or before
September 19, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–18502 Filed 8–26–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95581; File No. SR–
NYSEARCA–2022–31]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Amend Rule 6.64P–O
August 23, 2022.
I. Introduction
On May 20, 2022, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to modify NYSE Arca Rule
6.64P–O regarding the automated
process for both opening and reopening
trading in a series on the Exchange’s
Pillar trading technology, as described
below. The proposed rule change was
published for comment in the Federal
Register on May 27, 2012.3 On June 24,
2022, pursuant to Section 19(b)(2) of the
Act,4 the Commission extended the time
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
change.5 The Commission has received
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 94959
(May 23, 2022), 87 FR 32203 (May 27, 2022)
(‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 95150
(Jun. 24, 2022), 87 FR 39141 (Jun. 30, 2022).
1 15
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no comments on the proposed rule
change.
This order institutes proceedings
under Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change.
II. Description of the Proposed Rule
Change
The Exchange proposes to modify
NYSE Arca Rule 6.64P–O regarding the
automated process for both opening and
reopening trading in a series on the
Exchange on Pillar as set forth below.7
Current Pillar Auction Process 8
The Exchange states that NYSE Arca
Rule 6.64P–O(d) sets forth the Auction
Process.9 Per NYSE Arca Rule 6.64P–
O(d)(1), once the Exchange receives the
Auction Trigger for a series,10 the
Auction Process begins and the
Exchange sends a Rotational Quote 11 to
both OPRA and proprietary data feeds
indicating that the Exchange is in the
process of transitioning from a pre-open
state to continuous trading for that
series. Per NYSE Arca Rule 6.64P–
O(d)(2), once a Rotational Quote has
been sent, the Exchange conducts an
Auction,12 provided ‘‘there is both a
Legal Width Quote and, if applicable,
Market Maker quotes with a non-zero
offer in the series’’ within the Opening
Timer(s), per NYSE Arca Rule 6.64P–
O(d)(3).13 The Exchange deems the
6 15
U.S.C. 78s(b)(2)(B).
Arca Rule 6.64P–O (the ‘‘Pillar Rule’’)
covers the opening and reopening of option series,
which process the Exchange states is identical on
the Pillar trading platform. As such, the Exchange
states it will refer to the ‘‘opening’’ of a series
herein. The Exchange completed its migration to
Pillar on July 28, 2022. See NYSE Arca Trader
Update, available at https://www.nyse.com/traderupdate/history#110000440092.
8 See Notice, supra note 3, 87 FR at 32204.
9 ‘‘Auction Process’’ refers to the process that
begins when the Exchange receives an Auction
Trigger for a series and ends when the Auction is
conducted. See NYSE Arca Rule 6.64P–O(a)(5).
10 ‘‘Auction Trigger’’ refers to the information
disseminated by the Primary Market in the
underlying security that triggers the Auction
Process for a series to begin. See NYSE Arca Rule
6.64P–O(a)(7).
11 ‘‘Rotational Quote’’ refers to the highest Market
Maker bid and lowest Market Maker offer on the
Exchange when the Auction Process begins and
such a Rotational Quote will be updated (for price
and size) during the Auction Process. See NYSE
Arca Rule 6.64P–O(a)(13).
12 ‘‘Auction’’ refers to the opening or reopening of
a series for trading either with or without a trade.
See NYSE Arca Rule 6.64P–O(a)(1).
13 See NYSE Arca Rule 6.64P–O(d)(2). NYSE Arca
Rule 6.64P–O(d)(3) specifies the parameters of the
Opening MMQ Timers, which the Exchange states
are designed to encourage (but not require) any
Market Maker(s) assigned to an option series to
submit Legal Width Quotes in connection with the
Auction Process. The Exchange proposes a nonsubstantive change of ‘‘30’’ to ‘‘thirty’’ regarding the
Opening MMQ Timer(s), which the Exchange states
would add clarity and internal consistency to the
Legal Width Quote requirement satisfied
if the Calculated NBBO (described
below) for the series is uncrossed,
contains a non-zero offer, and has a
spread that does not exceed a maximum
differential that is determined by the
Exchange on a class basis and
announced by Trader Update.14 The
Calculated NBBO is comprised of the
highest bid and lowest offer among all
Market Maker quotes and the ABBO
during the Auction Process.15 A
Calculated NBBO does not require both
Market Maker quotes and ABBO to be
present, and may be composed of
Market Maker quotes only, of the ABBO
only, or a combination thereof.
The Exchange states that, if the
foregoing requirements are met (i.e., per
NYSE Arca Rule 6.64P–O(d)(2)), the
Exchange will conduct an Auction that
will either result in a trade or in a quote
depending on whether there is (or is
not) Matched Volume 16 that can trade at
or within the Auction Collars.17 If there
is Matched Volume that can trade at or
within the Auction Collars, the Auction
will result in a trade at the Indicative
Match Price.18 However, if there is no
Matched Volume that can trade at or
within the Auction Collars, the Auction
will instead result in a quote and the
Exchange transitions to continuous
trading as set forth in NYSE Arca Rule
6.64P–O(f).19
Finally, the Exchange states that, per
NYSE Arca Rule 6.64P–O(d)(4), unless
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rule. See Notice, supra note 3, 87 FR at 32004 n.
4.
14 See NYSE Arca Rule 6.64P–O(a)(10)(A)–(C).
The maximum spread differential for a given series
or class of options may be modified by a Trading
Official. See NYSE Arca Rule 6.64P–O(a)(10)(C).
15 See NYSE Arca Rule 6.64P–O(a)(8) (defining
Calculated NBBO).
16 ‘‘Matched Volume’’ refers to the number of buy
and sell contracts that can be matched at the
Indicative Match Price, excluding IO Orders. See
NYSE Arca Rule 6.64P–O(a)(11). An Imbalance
Offset Order (‘‘IO Order’’) is a Limit Order that is
to be traded only in an Auction. See NYSE Arca
Rule 6.62P–O(c)(3).
17 ‘‘Auction Collar’’ refers to the price collar
thresholds for the Indicative Match Price for an
Auction, with the upper Auction Collar being the
offer of the Legal Width Quote and the lower
Auction Collar being the bid of the Legal Width
Quote, provided that if the bid of the Legal Width
Quote is zero, the lower Auction Collar will be one
MPV above zero for the series. And, if there is no
Legal Width Quote, the Auction Collars will be
published in the Auction Imbalance Information as
zero. See NYSE Arca Rule 6.64P–O(a)(2).
18 See NYSE Arca Rule 6.64P–O(d)(2)(A).
‘‘Indicative Match Price’’ refers to the price at
which the maximum number of contracts can be
traded in an Auction, including the non-displayed
quantity of Reserve Orders and excluding IO
Orders, subject to the Auction Collars. If there is no
Legal Width Quote, the Indicative Match Price
included in the Auction Imbalance Information will
be calculated without Auction Collars. See NYSE
Arca Rule 6.64P–O(a)(9).
19 See NYSE Arca Rule 6.64P–O(d)(2)(B).
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otherwise specified by Trader Update,
for the first ninety seconds of the
Auction Process (inclusive of the thirtysecond Opening MMQ Timer(s)), if
there is no Legal Width Quote, the
Exchange will not conduct an Auction,
even if there is Matched Volume, i.e.,
the series will not open. After the first
ninety seconds of the Auction Process,
if there is no Matched Volume and the
Calculated NBBO is wider than the
Legal Width Quote, is not crossed, and
does not contain a zero offer, the
Exchange will first cancel any Market
Orders and MOO Orders and then
transition the option series to
continuous trading per NYSE Arca Rule
6.64P–O(f).20 Thus, per NYSE Arca Rule
6.64P–O(d)(4)(A), if after the first ninety
seconds of the Auction Process there is
Matched Volume but the other elements
of this provision are satisfied, the series
will not open and will remain unopened
and the Exchange will not transition to
continuous trading until the earlier of (i)
a Legal Width Quote is established and
an Auction can be conducted; (ii) the
series can be opened as provided for in
paragraph (d)(4)(A); (iii) the series is
halted; or (iv) the end of Core Trading
Hours.21 The Exchange states that a
series that does not meet the
requirements of NYSE Arca Rule 6.64P–
O(d)(4)(A) may thus be delayed in
opening until one of the conditions set
forth in NYSE Arca Rule 6.64P–
O(d)(4)(B) occur.
Proposed Change to Auction Process 22
The Exchange states that waiting for
market conditions to change before
transitioning to continuous trading per
the current Pillar Rule may result in
missed execution opportunities for
eligible interest submitted to the
Exchange during the pre-open state. The
Exchange further states that this
potential (indefinite) delay is
inconsistent with the Exchange’s
intention of providing a timely and
efficient Auction Process. As such, the
Exchange proposes to modify NYSE
Arca Rule 6.64P–O. In short, the
Exchange proposes that after the first
ninety seconds of the Auction Process,
the Exchange would conduct an
Auction of marketable interest based on
the spread of the then-current market
conditions (i.e., a Calculated NBBO that
is uncrossed with a non-zero offer),
provided that if the Calculated NBBO
exceeds the Legal Width Quote
differential established per NYSE Arca
Rule 6.64P–O(a)(10)(C) the Exchange
would cancel any Market Orders or
20 See
NYSE Arca Rule 6.64P–O(d)(4)(A).
NYSE Arca Rule 6.64P–O(d)(4)(B).
22 See Notice, supra note 3, 87 FR at 32204.
21 See
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MOO Orders before conducting the
Auction.
As further proposed, marketable Limit
Orders would trade in the Auction
bound by the Calculated NBBO (i.e., the
highest bid and lowest offer among all
Market Maker quotes and the ABBO),
which executions may be earlier and
more efficient than afforded under the
current Pillar Rule. If there is no
marketable interest after such
cancelation, the Exchange would open
on a quote.23
The Exchange states that the proposed
change to the Pillar Rule (the details of
which are described below) would
promote competitive liquidity by
allowing series to open at then current
market prices and would promote a fair
and orderly opening process by
improving the speed and efficiency of
the Auction Process without impairing
price discovery.
First, the Exchange proposes to codify
existing rule text into the defined phrase
the ‘‘initial Auction Process time
period’’ in proposed NYSE Arca Rule
6.64P–O(a)(5)(i). As proposed, the initial
Auction Process time period would
mean, ‘‘unless otherwise specified by
Trader Update, the first ninety seconds
after the commencement of the Auction
Process,’’ which definition the Exchange
states simply codifies (and relocates)
identical text that appears in the
preamble of both sentences in NYSE
Arca Rule 6.64P–O(d)(4).24 The
Exchange states that this proposed
change is non-substantive and would
streamline and add clarity to the
existing rule.25
Next, the Exchange proposes to
modify the definition of Legal Width
Quote, including by leveraging the
newly defined ‘‘initial Auction Process
time period.’’ NYSE Arca Rule 6.64P–
O(a)(10)(C) provides that, to be deemed
a Legal Width Quote, the spread of the
Calculated NBBO may not exceed a
maximum differential that is
determined by the Exchange on a class
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23 As
described further below, the Exchange states
that, consistent with NYSE Arca Rule 6.64P–
O(d)(2)(B), an Auction conducted per proposed
NYSE Arca Rule 6.64P–O(d)(4)(A) would open on
a quote if there is no Matched Volume).
24 See proposed NYSE Arca Rule 6.64P–O(a)(5)(I).
See also NYSE Arca Rule 6.64P–O(d)(4) (providing
that ‘‘[u]nless otherwise specified by Trader
Update, for the first ninety seconds of the Auction
Process . . . .’’ and ‘‘[n]inety seconds after the
Auction Process begins:’’).
25 See id. See proposed NYSE Arca Rule 6.64P–
O(d)(4)(A) (replacing reference to the first ninetyseconds after the Auction Process with the
proposed definition of the ‘‘initial Auction Process
time period,’’ which the Exchange states would add
clarity and internal consistency to the Rule, making
it easier to navigate and comprehend).
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basis and announced by Trader
Update.26
The Exchange states that, by rule, the
Exchange has discretion to establish for
each option class the maximum
allowable spread of the Calculated
NBBO within which the Exchange will
conduct an Auction, provided that the
other elements of a Legal Width Quote
are met.27 The Exchange states that
nothing in NYSE Arca Rule 6.64P–
O(a)(10)(C) precludes the Exchange from
establishing one set of Calculated NBBO
spreads for the first ninety seconds of
the Auction Process and a second
(wider) set of Calculated NBBO spreads
for any time after the first ninety
seconds. The Exchange states, however,
that, in the interest of clarity and for the
avoidance of potential confusion, the
Exchange proposes to expand the
definition of Legal Width Quote (rather
than modify by Trader Update) in the
Pillar Rule to provide that ‘‘after the
initial Auction Process time period, the
Exchange will not impose limits for the
maximum differential for the spread
between the Calculated NBBO.’’ 28
The Exchange states that, although
adopting proposed NYSE Arca Rule
6.64P–O(a)(10)(D) is consistent with its
authority under the Pillar Rule to
determine the maximum allowable
Calculated NBBO spread to qualify a
series as having a Legal Width Quote,
the proposed rule change would make
clear that the Exchange would no longer
impose these established spread limits
(as announced by Trader Notice per
NYSE Arca Rule 6.64P–O(a)(10)(C)) after
the initial Auction Process time period.
The Exchange states that this rule
change would add clarity and
transparency to the Auction Process to
the benefit of all market participants.29
The Exchange further states that,
because the Auction Process, including
the Auction Collars, the presence of
Matched Volume, and the determination
of the Indicative Match Price, are
dependent upon a Calculated NBBO
that qualifies as a Legal Width Quote,
26 See NYSE Arca Rule 6.64P–O(a)(10)(C) (which
the Exchanges states provides that a Trading
Official may establish maximum differentials for
one or more series or classes of options, which
differ from those established by the Exchange).
27 To qualify as a Legal Width Quote, the
Calculated NBBO must also be uncrossed and must
contain a non-zero offer, which requirements the
Exchange states are not being modified by this rule
change. See NYSE Arca Rule 6.64P–O(a)(10)(A)–(B).
28 See proposed NYSE Arca Rule 6.64P–
O(a)(10)(D).
29 The Exchange states that, similar to the
Exchange, other options exchanges have rules
granting them broad discretion to modify the
opening parameters for each option series, which
modifications are disseminated or announced to
market participants over data feeds or trader notice.
See Notice, supra note 3, 87 FR at 32205 n. 24.
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the Exchange proposes that any Auction
conducted consistent with proposed
6.64P–O(a)(10)(D) would follow the
current Auction Process except as
described below.30
The Exchange proposes to amend
NYSE Arca Rule 6.64P–O(d)(4)
regarding the conduct of an Auction
after the conclusion of the initial
Auction Process time period (i.e., after
the first ninety seconds).31 The
Exchange states that, as noted herein,
the Pillar functionality (per NYSE Arca
Rule 6.64P–O(d)(4)(A)) permits a series
to open based on a ‘‘wide’’ Calculated
NBBO (that is uncrossed with a nonzero offer), but only if there is no
Matched Volume, which requirement
the Exchange states may delay openings
and result in missed execution
opportunities.32 To address what the
Exchange views as unintended potential
delay, the Exchange proposes that after
the initial Auction Process time period
and consistent with proposed paragraph
(a)(10)(D) of this rule (which removes
the limit on the maximum allowable
Calculated NBBO spread), the Exchange
would conduct an Auction regardless of
Matched Volume as long as the
Calculated NBBO is not crossed, and
does not contain a zero offer.33 The
Exchanges states that this proposed
functionality would allow marketable
Limit Orders to execute in the Auction,
which may result in certain option
series opening earlier than are opened
under the current rule and increase
execution opportunities for Limit
Orders at then-current market prices.34
30 See NYSE Arca Rule 6.64P–O(d)(2)(A)–(B)
(describing the process of opening a series with a
trade or a quote depending on whether there is
Matched Volume).
31 See proposed NYSE Arca Rule 6.64P–O(d)(4)
(which the Exchange states includes the
aforementioned non-substantive change to refer to
the newly defined ‘‘initial Auction Process time
period’’ rather than the first ninety seconds after the
Auction Process). The Exchange states it is not
altering Auction functionality for the initial
Auction Process time period. See Notice, supra note
3, 87 FR at 32205 n. 26.
32 See proposed NYSE Arca Rule 6.64P–
O(d)(4)(B) (setting forth the necessary market
conditions to open a series that has not opened per
paragraph (d)(4) of the Pillar Rule). The Exchange
states that, if the Exchange opens a series per NYSE
Arca Rule 6.64P–O(d)(4)(A), it first cancels any
Market Order or MOO Orders before conducting an
Auction and transitioning to continuous trading.
See Notice, supra note 3, 87 FR at 32005 n. 27.
33 See proposed NYSE Arca Rules 6.64P–
O(d)(4)(A), 6.64P–O(a)(10)(D).
34 See proposed NYSE Arca Rules 6.64P–
O(d)(4)(A), 6.64P–O(a)(10)(D). See also NYSE Arca
Rule 6.64P–0(a)(9)(A) (providing, in relevant part,
that ‘‘the Indicative Match Price would not be lower
(higher) than the highest (lowest) price of a Limit
Order to buy (sell) ranked Priority 2—Display
Orders that is eligible to participate in the
Auction’’). In addition, the Exchange proposes to
remove as inapplicable the text in current NYSE
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The Exchange states that, although
Limit Orders would be eligible to
execute based on this proposed
functionality, whether a Market Order
or MOO Order may participate in the
proposed Auction depends on the width
of the market at the time of the Auction.
Specifically, as proposed, if the
Calculated NBBO spread is wider than
the differential established per
paragraph (a)(10)(C) of this rule, the
Exchange would cancel Market Orders
and MOO Orders before conducting the
Auction, which proposed handling the
Exchange states is consistent with the
current Pillar Rule.35 Conversely, as
proposed, and consistent with the
current Pillar Rule, Market Orders and
MOO Orders are not canceled and will
participate in an Auction that is based
on a Calculated NBBO that is less than
or equal to the Calculated NBBO spread
limit established per NYSE Arca Rule
6.64P–O(a)(10)(C).36 As further
proposed, after the cancelation of any
Market Orders or MOO Orders as
applicable, the Auction Process will
proceed consistent with paragraph
(d)(2)(A)–(B) of this rule and the
Exchange will execute Matched Volume
(if any) to the extent possible before
transitioning to continuous trading.37
The Exchange states that, taken
together, the proposed changes to NYSE
Arca Rules 6.64P–O(a)(10)(D) and (d)(4)
would allow any series that has not
Arca Rule 6.64P–O(d)(4)(A) indicating that the
‘‘Auction is not intended to end with a trade, but
it may result in a trade even if there is no Legal
Width Quote if orders or quotes arrive during the
period when the Exchange is evaluating the status
of orders and quotes’’ as well as text indicating that
the Exchange would ‘‘transition to continuous
trading as described in paragraph (f) of this Rule.’’
See proposed NYSE Arca Rule 6.64P–O(d)(4)(A).
35 See NYSE Arca Rule 6.64P–O(d)(4)(A)(i)
(providing that Market Orders and MOO Orders are
cancelled ‘‘[a]ny time a series is opened or
reopened when there is no Legal Width Quote,’’ i.e.,
when the Calculated NBBO exceeds the maximum
allowable spread limit set forth in NYSE Arca Rule
6.64P–O(a)(10)(C)’’).
36 See id. The Exchange states that, to avoid
potential confusion regarding the distinct handling
of Market Orders and MOO Orders under proposed
NYSE Arca Rule 6.64P–O(d)(4)(A) depending upon
whether an Auction is conducted based on a
Calculated NBBO spread that is in compliance with
NYSE Arca Rule 6.64P–O(a)(10)(C) or with
proposed NYSE Arca Rule 6.64P–O(a)(10)(D), the
Exchange has intentionally avoided reference to the
presence of a Legal Width Quote in the proposed
Rule. See, e.g., proposed NYSE Arca Rule 6.64P–
O(d)(4)(A); Notice, supra note 3, 87 FR at 32206 n.
31.
37 See, e.g., NYSE Arca Rule 6.64P–O(d)(2)(A)–(B)
(providing that ‘‘[i]f there is Matched Volume that
can trade at or within the Auction Collars, the
Auction will result in a trade at the Indicative
Match Price’’ or, ‘‘[i]f there is no Matched Volume
that can trade at or within the Auction Collars,’’ the
Auction will not result in a trade and the Exchange
will transition to continuous trading as described in
paragraph (f) of this Rule and the Auction will
result in a quote’’).
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17:01 Aug 26, 2022
Jkt 256001
opened by the end of the initial Auction
Process time period the ability to open
based on a Legal Width Quote derived
from then-market conditions. As such,
the Exchange proposes to modify NYSE
Arca Rule 6.64P–O(d)(4)(B) to update
the cross-reference from paragraph
(d)(4)(A) to paragraph (d)(4) and to
eliminate as superfluous paragraph
(d)(4)(B)(ii), which refers to waiting
until ‘‘the series can be opened as
provided for in paragraph (d)(4)(A).’’ 38
The Exchange believes these proposed
conforming changes are necessary given
that the proposed changes to 6.64P–
O(a)(10)(D) (removing the limit on the
Calculated NBBO spread to qualify as
Legal Width Quote) and (d)(4)(A)
(addressing the conduct of an Auction
after the initial Auction Process time
period under the expanded definition of
Legal Width Quote) render paragraph
(d)(4)(B)(ii) of the rule unnecessary.
The Exchange states that it is not
making any changes to the requirements
to conduct an Auction during the initial
Auction Process time period, and that
the proposed changes relate solely to
those series that remain unopened after
the conclusion of the initial Auction
Process time period because the
Calculated NBBO spread is too wide.
The Exchange states that the initial
Auction Process time period affords
market participants sufficient
opportunity to absorb available pricing
information, including Market Makers
that are generally responsible for pricing
the market. The Exchange states that, if
the Calculated NBBO remains wide by
the end of the initial Auction Process
time period, the Exchange believes it is
unlikely to tighten if the Exchange were
to further delay the opening of a series.
The Exchange states it has observed that
on a typical trading day, in the current
system, nearly 98% of all series are
opened by 9:32 a.m. Eastern Time. As
such, the Exchange states it anticipates
that the majority of series would be
opened within ninety seconds of the
Auction Process and would not be
impacted by the proposed rule change.
However, for the minority of option
series that have not opened within the
first ninety seconds, the Exchange states
that it is necessary and appropriate to
allow such series to open based on
prices consistent with then-current
market conditions, provided the
Calculated NBBO for the series is not
38 See proposed NYSE Arca Rules 6.64P–
O(d)(4)(A)–(B). The Exchange also proposes
conforming changes to re-number the remaining
paragraphs in light of the proposed deletion, which
the Exchange states would add clarity and internal
consistency to the rule. See Notice, supra note 3,
87 FR at 32006 n. 33.
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
crossed, and does not contain a zero
offer.
The Exchange states that the proposed
modification to the Auction Process
would continue to protect Market
Orders and MOO Orders from being
executed (by cancelling such orders
before conducting the proposed
Auction) when the Calculated NBBO
spread exceeds the spread differential
established per current NYSE Arca Rule
6.64P–O(a)(10)(C) before conducting the
proposed Auction. In addition, the
Exchange states that the proposed
modification would allow any eligible
Limit Orders to be executed in the
proposed Auction, bound by the
Calculated NBBO. According to the
Exchange, the Calculated NBBO (even if
wide) represents the best-priced quotes
by Market Makers (which participants
generally are responsible for pricing the
market) and/or the ABBO, the presence
of which indicates that another market
has opened.39
The Exchange further states that,
consistent with current functionality
(and with the approved Pillar Rule), the
Exchange would not permit any opening
transactions to trade through any betterpriced interest on any Away Market,
even it is permitted to do so.40 Rather,
because interest in the Auction would
not trade outside of the Calculated
NBBO (which defines the then-current
market for the series), any Limit Orders
executed in the proposed Auction
would, bound by Auction collars, would
trade at a price that is equal to or better
than the price(s) available at other
exchanges.41 Per NYSE Arca Rule
39 The Exchanges states that options exchanges
have varying opening processes and have made
separate determinations on what constitutes
individual, reasonable opening market widths. The
Exchange further states that, if other options
exchanges opened a series with a market width, it
is reasonable to open the series for trading on the
Exchange as well (as orders submitted to other
exchanges may be trading at those widths). See
Notice, supra note 3, 87 FR at 32206 n. 34.
40 The Exchange states that, although the
intermarket linkage rules exempt from tradethrough liability trades occurring during the
opening process, the Exchange would continue to
restrict transactions occurring at the open to the
NBBO. See, e.g., NYSE Arca Rule 6.94–O(b)(2)
(exempting from trade-through liability those
transactions that ‘‘traded through a Protected
Quotation being disseminated by an Eligible
Exchange during a trading rotation’’). A ‘‘Protected
Quotation’’ is the Best Bid or Best Offer
disseminated by OPRA and displayed by an Eligible
Exchange. See NYSE Arca Rule 6.92–O(15)–(16).
See also Notice, supra note 3, 87 FR at 32206 n.
35.
41 See, e.g., NYSE Arca Rule 6.64P–O(b)(2)(A) (A)
(providing that, ‘[i]f there is Matched Volume that
can trade at or within the Auction Collars, the
Auction will result in a trade at the Indicative
Match Price); NYSE Arca Rule 6.64–O(a)(3), (9), and
(11) (defining Auction Collars, Indicative Match
Price, and Matched Volume, respectively). See also
Notice, supra note 3, 87 FR at 32206 n. 36.
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khammond on DSKJM1Z7X2PROD with NOTICES
6.64P–O(f)(3)(A), any interest remaining
after such Action is then evaluated for
potential routing prior to being posted
to the Consolidated Book. Further, the
Exchange states that there are other
price protections available to limit the
risk of executions at a wider market
price.42 Thus, the Exchange believes
that the risk of an extreme execution
based on the Calculated NBBO available
after the initial Auction Process time
period may be mitigated for the
aforementioned reasons. The Exchange
believes that, on balance, the benefits to
market participants of having the series
open earlier outweighs this mitigated
risk.
Finally, the Exchange also proposes to
modify the requirements to open a
series during the initial Auction Process
time period for option series with two
or more assigned Market Makers, per
NYSE Arca Rule 6.64P–O(d)(3)(C). The
Exchange states that, per NYSE Arca
Rule 6.64P–O(3)(C)(i), if there are two or
more Market Makers assigned to a
series, the Exchange will conduct the
Auction, without waiting for the
Opening MMQ Timer to end, as soon as
there is both a Legal Width Quote and
at least two assigned Market Makers
have submitted a quote with a non-zero
offer. Per NYSE Arca Rule 6.64P–
O(3)(C)(ii), if at least two Market Makers
assigned to a series have not submitted
a quote with a non-zero offer by the end
of the Opening MMQ Timer, the
Exchange will begin a second Opening
MMQ Timer. The Exchange proposes to
modify these provisions to provide that
the Exchange would require that at least
two quotes with non-zero offers be
submitted during the Opening MMQ
Timer, which quotes may be sent by one
or more Market Makers.43
42 See, e.g., NYSE Arca Rule 6.41P–O(a)(1), (b)
(regarding the Arbitrage Check, which the Exchange
states is applied pre-open). The Exchange states that
the price protection mechanisms it employs during
continuous trading are based on the NBBO, or
Auction Prices as applicable; NYSE Arca Rule
6.41P–O(c)(4)(B) (regarding the Intrinsic Value
Check); NYSE Arca Rule 6.62P–O(a)(4)(A)
(regarding Limit Order Price Protection); and NYSE
Arca Rule 6.62P–O(a)(4)(B) (regarding Trading
Collars). See also Notice, supra note 3, 87 FR at
32207 n. 37.
43 See proposed NYSE Arca Rule 6.64P–O(d)(2)
(providing that ‘‘[o]nce a Rotational Quote has been
sent, the Exchange will conduct an Auction when
there is both a Legal Width Quote and, if applicable,
Market Maker quotes with a non-zero offer in the
series (subject to the Opening MMQ Timer(s)
requirements in paragraph (d)(3) of this Rule’’)) and
NYSE Arca Rule 6.64P–O(d)(3)(C)(i) (providing that
‘‘[t]he Exchange will conduct the Auction, without
waiting for the Opening MMQ Timer to end, as
soon as there is both a Legal Width Quote and at
least two quotes with a non-zero offer submitted by
assigned Market Maker(s)’’) and (d)(3)(C)(ii)
(providing that ‘‘[i]f the Exchange has not received
at least two quotes with a non-zero offer from any
Market Maker(s) assigned to a series by the end of
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18:20 Aug 26, 2022
Jkt 256001
The Exchange states that the proposed
change continues to encourage (but not
require) Market Makers to participate at
the open, which may increase the
availability of Legal Width Quotes in
more series, thereby allowing more
series to open in a timely manner. The
Exchange states that expanding the
opportunities for each Market Maker to
enter the market—whether by each
Market Maker submitting one quote or
a single Market Maker submitting two
quotes—could result in the depth of
liquidity that market participants have
come to expect in options with multiple
assigned Market Makers, and a more
stable trading environment. The
Exchange states that the proposed rule
change would provide more flexibility
in terms of how market depth is
achieved (i.e., based on quotes from a
single Market Maker as opposed to two)
and may result in a more timely and
efficient opening process. Further, the
Exchange states that the proposed
change may increase the availability of
Legal Width Quotes in more series and
would add clarity and transparency to
Exchange rules.
Other Exchange Rules: Proposed NonSubstantive or Clarifying Changes 44
The Exchange also proposes to make
several clarifying or non-substantive
changes to certain of its rules. First, the
Exchange proposes to modify paragraph
(c) of NYSE Arca Rule 6.37–O
(Obligations of Market Makers)
regarding ‘‘Unusual Conditions—
Auctions’’ to add an open parenthesis in
the cross reference to NYSE Arca Rule
6.64P–O(a)(10).45 The Exchange states
that this proposed change would correct
an inadvertent omission and would add
clarity and transparency to Exchange
rules.
Next, the Exchange proposes to
correct several cross-references in NYSE
Arca Rule 6.62P–O (Orders and
Modifiers). The Exchange proposes to
update the reference in NYSE Arca Rule
6.62P–O(e)(3)(C)(ii) regarding Day ISO
ALO Orders to correctly cross-reference
paragraphs (e)(2)(C)–(F) (rather than to
paragraphs (e)(2)(C)–(G)) to cover the
processing of such ALO Orders once
resting.46 The Exchange states that the
proposed change would correct an
inadvertent error adding clarity and
transparency to Exchange rules.
Similarly, the Exchange proposes to
update the reference in NYSE Arca Rule
the Opening MMQ Timer, the Exchange will begin
a second Opening MMQ Timer’’). See also Notice,
supra note 3, 87 FR at 32207 n. 38.
44 See Notice, supra note 3, 87 FR at 15.
45 See proposed NYSE Arca Rule 6.37–O(c).
46 See proposed NYSE Arca Rule 6.62P–
O(e)(3)(C)(ii).
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
52831
6.62P–O(h)(6)(B) to correctly crossreference the defined term Complex
Order, which is set forth in NYSE Arca
Rule 6.62P–O(f) (rather than paragraph
(e)).47 The Exchanges states that the
proposed change would correct an
inadvertent error adding clarity and
transparency to Exchange rules.
III. Proceedings To Determine Whether
To Approve or Disapprove SR–
NYSEARCA–2022–31 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 48 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,49 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act 50 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest and not
be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.51 As
discussed above, the Exchange is
proposing to modify NYSE Arca Rule
6.64P–O regarding the automated
process for both opening and reopening
trading in a series on the Exchange on
Pillar. The Commission has concerns
about whether the auction process, as
currently proposed, raises the potential
risk of the auction resulting in a trade
execution at an extreme price and
whether the Exchange has in place
47 See proposed NYSE Arca Rule 6.62P–
O(h)(6)(B).
48 15 U.S.C. 78s(b)(2)(B).
49 Id.
50 15 U.S.C. 78f(b)(5).
51 See id.
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sufficient measures to protect against or
mitigate the potential execution of
investor orders in the auction at such a
price.
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations thereunder
. . . is on the self-regulatory
organization [‘SRO’] that proposed the
rule change.’’ 52 The description of a
proposed rule change, its purpose and
operation, its effect, and a legal analysis
of its consistency with applicable
requirements must all be sufficiently
detailed and specific to support an
affirmative Commission finding,53 and
any failure of an SRO to provide this
information may result in the
Commission not having sufficient basis
to make an affirmative finding that a
proposed rule change is consistent with
the Exchange Act and the applicable
rule and regulations.54
For these reasons, the Commission
believes it is appropriate to institute
proceedings pursuant to Section
19(b)(2)(B0 of the Exchange Act 55 to
determine whether the proposal should
be approved or disapproved.
IV. Procedure: Request for Written
Comments
khammond on DSKJM1Z7X2PROD with NOTICES
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposed rule change is consistent with
Section 6(b)(5) or any other provision of
the Act, or the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval that would be
facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4 under the Act, any request
for an opportunity to make an oral
presentation.56
52 Rule 700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
53 See id.
54 See id.
55 15 U.S.C. 78s(b)(2)(B).
56 Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of
proceeding—either oral or notice and opportunity
for written comments—is appropriate for
consideration of a particular proposal by an SRO.
See Securities Act Amendments of 1975, Report of
the Senate Committee on Banking, Housing and
Urban Affairs to Accompany S. 249, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
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17:01 Aug 26, 2022
Jkt 256001
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by September
19, 2022. Any person who wishes to file
a rebuttal to any other person’s
submission must file that rebuttal by
October 3, 2022. The Commission asks
that commenters address the sufficiency
of the Exchange’s statements in support
of the proposal, which are set forth in
the Notice,57 and any other issues raised
by the proposed rule change under 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–2022–31 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–2022–31. 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
57 See
PO 00000
supra note 3.
Frm 00096
Fmt 4703
submit only information that you wish
to make available publicly.
All submissions should refer to File
Number SR–NYSEARCA–2022–31 and
should be submitted on or before
September 19, 2022. Rebuttal comments
should be submitted by October 3, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–18501 Filed 8–26–22; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 11841]
Notice of Determinations; Culturally
Significant Objects Being Imported for
Exhibition—Determinations: ‘‘Edward
Hopper’s New York’’ Exhibition
Notice is hereby given of the
following determinations: I hereby
determine that certain objects being
imported from abroad pursuant to
agreements with their foreign owners or
custodians for temporary display in the
exhibition ‘‘Edward Hopper’s New
York’’ at the Whitney Museum of
American Art, New York, New York,
and at possible additional exhibitions or
venues yet to be determined, are of
cultural significance, and, further, that
their temporary exhibition or display
within the United States as
aforementioned is in the national
interest. I have ordered that Public
Notice of these determinations be
published in the Federal Register.
SUMMARY:
Chi
D. Tran, Program Administrator, Office
of the Legal Adviser, U.S. Department of
State (telephone: 202–632–6471; email:
section2459@state.gov). The mailing
address is U.S. Department of State,
L/PD, 2200 C Street NW (SA–5), Suite
5H03, Washington, DC 20522–0505.
FOR FURTHER INFORMATION CONTACT:
The
foregoing determinations were made
pursuant to the authority vested in me
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), Executive Order
12047 of March 27, 1978, the Foreign
Affairs Reform and Restructuring Act of
1998 (112 Stat. 2681, et seq.; 22 U.S.C.
6501 note, et seq.), Delegation of
Authority No. 234 of October 1, 1999,
Delegation of Authority No. 236–3 of
August 28, 2000, and Delegation of
SUPPLEMENTARY INFORMATION:
58 17
Sfmt 4703
E:\FR\FM\29AUN1.SGM
CFR 200.30–3(a)(57).
29AUN1
]]>Agencies
[Federal Register Volume 87, Number 166 (Monday, August 29, 2022)]
[Notices]
[Pages 52827-52832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18501]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95581; File No. SR-NYSEARCA-2022-31]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change To Amend Rule 6.64P-O
August 23, 2022.
I. Introduction
On May 20, 2022, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
modify NYSE Arca Rule 6.64P-O regarding the automated process for both
opening and reopening trading in a series on the Exchange's Pillar
trading technology, as described below. The proposed rule change was
published for comment in the Federal Register on May 27, 2012.\3\ On
June 24, 2022, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission extended the time period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
change.\5\ The Commission has received
[[Page 52828]]
no comments on the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 94959 (May 23,
2022), 87 FR 32203 (May 27, 2022) (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 95150 (Jun. 24,
2022), 87 FR 39141 (Jun. 30, 2022).
---------------------------------------------------------------------------
This order institutes proceedings under Section 19(b)(2)(B) of the
Act \6\ to determine whether to approve or disapprove the proposed rule
change.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to modify NYSE Arca Rule 6.64P-O regarding
the automated process for both opening and reopening trading in a
series on the Exchange on Pillar as set forth below.\7\
---------------------------------------------------------------------------
\7\ NYSE Arca Rule 6.64P-O (the ``Pillar Rule'') covers the
opening and reopening of option series, which process the Exchange
states is identical on the Pillar trading platform. As such, the
Exchange states it will refer to the ``opening'' of a series herein.
The Exchange completed its migration to Pillar on July 28, 2022. See
NYSE Arca Trader Update, available at https://www.nyse.com/trader-update/history#110000440092.
---------------------------------------------------------------------------
Current Pillar Auction Process 8
---------------------------------------------------------------------------
\8\ See Notice, supra note 3, 87 FR at 32204.
---------------------------------------------------------------------------
The Exchange states that NYSE Arca Rule 6.64P-O(d) sets forth the
Auction Process.\9\ Per NYSE Arca Rule 6.64P-O(d)(1), once the Exchange
receives the Auction Trigger for a series,\10\ the Auction Process
begins and the Exchange sends a Rotational Quote \11\ to both OPRA and
proprietary data feeds indicating that the Exchange is in the process
of transitioning from a pre-open state to continuous trading for that
series. Per NYSE Arca Rule 6.64P-O(d)(2), once a Rotational Quote has
been sent, the Exchange conducts an Auction,\12\ provided ``there is
both a Legal Width Quote and, if applicable, Market Maker quotes with a
non-zero offer in the series'' within the Opening Timer(s), per NYSE
Arca Rule 6.64P-O(d)(3).\13\ The Exchange deems the Legal Width Quote
requirement satisfied if the Calculated NBBO (described below) for the
series is uncrossed, contains a non-zero offer, and has a spread that
does not exceed a maximum differential that is determined by the
Exchange on a class basis and announced by Trader Update.\14\ The
Calculated NBBO is comprised of the highest bid and lowest offer among
all Market Maker quotes and the ABBO during the Auction Process.\15\ A
Calculated NBBO does not require both Market Maker quotes and ABBO to
be present, and may be composed of Market Maker quotes only, of the
ABBO only, or a combination thereof.
---------------------------------------------------------------------------
\9\ ``Auction Process'' refers to the process that begins when
the Exchange receives an Auction Trigger for a series and ends when
the Auction is conducted. See NYSE Arca Rule 6.64P-O(a)(5).
\10\ ``Auction Trigger'' refers to the information disseminated
by the Primary Market in the underlying security that triggers the
Auction Process for a series to begin. See NYSE Arca Rule 6.64P-
O(a)(7).
\11\ ``Rotational Quote'' refers to the highest Market Maker bid
and lowest Market Maker offer on the Exchange when the Auction
Process begins and such a Rotational Quote will be updated (for
price and size) during the Auction Process. See NYSE Arca Rule
6.64P-O(a)(13).
\12\ ``Auction'' refers to the opening or reopening of a series
for trading either with or without a trade. See NYSE Arca Rule
6.64P-O(a)(1).
\13\ See NYSE Arca Rule 6.64P-O(d)(2). NYSE Arca Rule 6.64P-
O(d)(3) specifies the parameters of the Opening MMQ Timers, which
the Exchange states are designed to encourage (but not require) any
Market Maker(s) assigned to an option series to submit Legal Width
Quotes in connection with the Auction Process. The Exchange proposes
a non-substantive change of ``30'' to ``thirty'' regarding the
Opening MMQ Timer(s), which the Exchange states would add clarity
and internal consistency to the rule. See Notice, supra note 3, 87
FR at 32004 n. 4.
\14\ See NYSE Arca Rule 6.64P-O(a)(10)(A)-(C). The maximum
spread differential for a given series or class of options may be
modified by a Trading Official. See NYSE Arca Rule 6.64P-
O(a)(10)(C).
\15\ See NYSE Arca Rule 6.64P-O(a)(8) (defining Calculated
NBBO).
---------------------------------------------------------------------------
The Exchange states that, if the foregoing requirements are met
(i.e., per NYSE Arca Rule 6.64P-O(d)(2)), the Exchange will conduct an
Auction that will either result in a trade or in a quote depending on
whether there is (or is not) Matched Volume \16\ that can trade at or
within the Auction Collars.\17\ If there is Matched Volume that can
trade at or within the Auction Collars, the Auction will result in a
trade at the Indicative Match Price.\18\ However, if there is no
Matched Volume that can trade at or within the Auction Collars, the
Auction will instead result in a quote and the Exchange transitions to
continuous trading as set forth in NYSE Arca Rule 6.64P-O(f).\19\
---------------------------------------------------------------------------
\16\ ``Matched Volume'' refers to the number of buy and sell
contracts that can be matched at the Indicative Match Price,
excluding IO Orders. See NYSE Arca Rule 6.64P-O(a)(11). An Imbalance
Offset Order (``IO Order'') is a Limit Order that is to be traded
only in an Auction. See NYSE Arca Rule 6.62P-O(c)(3).
\17\ ``Auction Collar'' refers to the price collar thresholds
for the Indicative Match Price for an Auction, with the upper
Auction Collar being the offer of the Legal Width Quote and the
lower Auction Collar being the bid of the Legal Width Quote,
provided that if the bid of the Legal Width Quote is zero, the lower
Auction Collar will be one MPV above zero for the series. And, if
there is no Legal Width Quote, the Auction Collars will be published
in the Auction Imbalance Information as zero. See NYSE Arca Rule
6.64P-O(a)(2).
\18\ See NYSE Arca Rule 6.64P-O(d)(2)(A). ``Indicative Match
Price'' refers to the price at which the maximum number of contracts
can be traded in an Auction, including the non-displayed quantity of
Reserve Orders and excluding IO Orders, subject to the Auction
Collars. If there is no Legal Width Quote, the Indicative Match
Price included in the Auction Imbalance Information will be
calculated without Auction Collars. See NYSE Arca Rule 6.64P-
O(a)(9).
\19\ See NYSE Arca Rule 6.64P-O(d)(2)(B).
---------------------------------------------------------------------------
Finally, the Exchange states that, per NYSE Arca Rule 6.64P-
O(d)(4), unless otherwise specified by Trader Update, for the first
ninety seconds of the Auction Process (inclusive of the thirty-second
Opening MMQ Timer(s)), if there is no Legal Width Quote, the Exchange
will not conduct an Auction, even if there is Matched Volume, i.e., the
series will not open. After the first ninety seconds of the Auction
Process, if there is no Matched Volume and the Calculated NBBO is wider
than the Legal Width Quote, is not crossed, and does not contain a zero
offer, the Exchange will first cancel any Market Orders and MOO Orders
and then transition the option series to continuous trading per NYSE
Arca Rule 6.64P-O(f).\20\ Thus, per NYSE Arca Rule 6.64P-O(d)(4)(A), if
after the first ninety seconds of the Auction Process there is Matched
Volume but the other elements of this provision are satisfied, the
series will not open and will remain unopened and the Exchange will not
transition to continuous trading until the earlier of (i) a Legal Width
Quote is established and an Auction can be conducted; (ii) the series
can be opened as provided for in paragraph (d)(4)(A); (iii) the series
is halted; or (iv) the end of Core Trading Hours.\21\ The Exchange
states that a series that does not meet the requirements of NYSE Arca
Rule 6.64P-O(d)(4)(A) may thus be delayed in opening until one of the
conditions set forth in NYSE Arca Rule 6.64P-O(d)(4)(B) occur.
---------------------------------------------------------------------------
\20\ See NYSE Arca Rule 6.64P-O(d)(4)(A).
\21\ See NYSE Arca Rule 6.64P-O(d)(4)(B).
---------------------------------------------------------------------------
Proposed Change to Auction Process 22
---------------------------------------------------------------------------
\22\ See Notice, supra note 3, 87 FR at 32204.
---------------------------------------------------------------------------
The Exchange states that waiting for market conditions to change
before transitioning to continuous trading per the current Pillar Rule
may result in missed execution opportunities for eligible interest
submitted to the Exchange during the pre-open state. The Exchange
further states that this potential (indefinite) delay is inconsistent
with the Exchange's intention of providing a timely and efficient
Auction Process. As such, the Exchange proposes to modify NYSE Arca
Rule 6.64P-O. In short, the Exchange proposes that after the first
ninety seconds of the Auction Process, the Exchange would conduct an
Auction of marketable interest based on the spread of the then-current
market conditions (i.e., a Calculated NBBO that is uncrossed with a
non-zero offer), provided that if the Calculated NBBO exceeds the Legal
Width Quote differential established per NYSE Arca Rule 6.64P-
O(a)(10)(C) the Exchange would cancel any Market Orders or
[[Page 52829]]
MOO Orders before conducting the Auction.
As further proposed, marketable Limit Orders would trade in the
Auction bound by the Calculated NBBO (i.e., the highest bid and lowest
offer among all Market Maker quotes and the ABBO), which executions may
be earlier and more efficient than afforded under the current Pillar
Rule. If there is no marketable interest after such cancelation, the
Exchange would open on a quote.\23\
---------------------------------------------------------------------------
\23\ As described further below, the Exchange states that,
consistent with NYSE Arca Rule 6.64P-O(d)(2)(B), an Auction
conducted per proposed NYSE Arca Rule 6.64P-O(d)(4)(A) would open on
a quote if there is no Matched Volume).
---------------------------------------------------------------------------
The Exchange states that the proposed change to the Pillar Rule
(the details of which are described below) would promote competitive
liquidity by allowing series to open at then current market prices and
would promote a fair and orderly opening process by improving the speed
and efficiency of the Auction Process without impairing price
discovery.
First, the Exchange proposes to codify existing rule text into the
defined phrase the ``initial Auction Process time period'' in proposed
NYSE Arca Rule 6.64P-O(a)(5)(i). As proposed, the initial Auction
Process time period would mean, ``unless otherwise specified by Trader
Update, the first ninety seconds after the commencement of the Auction
Process,'' which definition the Exchange states simply codifies (and
relocates) identical text that appears in the preamble of both
sentences in NYSE Arca Rule 6.64P-O(d)(4).\24\ The Exchange states that
this proposed change is non-substantive and would streamline and add
clarity to the existing rule.\25\
---------------------------------------------------------------------------
\24\ See proposed NYSE Arca Rule 6.64P-O(a)(5)(I). See also NYSE
Arca Rule 6.64P-O(d)(4) (providing that ``[u]nless otherwise
specified by Trader Update, for the first ninety seconds of the
Auction Process . . . .'' and ``[n]inety seconds after the Auction
Process begins:'').
\25\ See id. See proposed NYSE Arca Rule 6.64P-O(d)(4)(A)
(replacing reference to the first ninety-seconds after the Auction
Process with the proposed definition of the ``initial Auction
Process time period,'' which the Exchange states would add clarity
and internal consistency to the Rule, making it easier to navigate
and comprehend).
---------------------------------------------------------------------------
Next, the Exchange proposes to modify the definition of Legal Width
Quote, including by leveraging the newly defined ``initial Auction
Process time period.'' NYSE Arca Rule 6.64P-O(a)(10)(C) provides that,
to be deemed a Legal Width Quote, the spread of the Calculated NBBO may
not exceed a maximum differential that is determined by the Exchange on
a class basis and announced by Trader Update.\26\
---------------------------------------------------------------------------
\26\ See NYSE Arca Rule 6.64P-O(a)(10)(C) (which the Exchanges
states provides that a Trading Official may establish maximum
differentials for one or more series or classes of options, which
differ from those established by the Exchange).
---------------------------------------------------------------------------
The Exchange states that, by rule, the Exchange has discretion to
establish for each option class the maximum allowable spread of the
Calculated NBBO within which the Exchange will conduct an Auction,
provided that the other elements of a Legal Width Quote are met.\27\
The Exchange states that nothing in NYSE Arca Rule 6.64P-O(a)(10)(C)
precludes the Exchange from establishing one set of Calculated NBBO
spreads for the first ninety seconds of the Auction Process and a
second (wider) set of Calculated NBBO spreads for any time after the
first ninety seconds. The Exchange states, however, that, in the
interest of clarity and for the avoidance of potential confusion, the
Exchange proposes to expand the definition of Legal Width Quote (rather
than modify by Trader Update) in the Pillar Rule to provide that
``after the initial Auction Process time period, the Exchange will not
impose limits for the maximum differential for the spread between the
Calculated NBBO.'' \28\
---------------------------------------------------------------------------
\27\ To qualify as a Legal Width Quote, the Calculated NBBO must
also be uncrossed and must contain a non-zero offer, which
requirements the Exchange states are not being modified by this rule
change. See NYSE Arca Rule 6.64P-O(a)(10)(A)-(B).
\28\ See proposed NYSE Arca Rule 6.64P-O(a)(10)(D).
---------------------------------------------------------------------------
The Exchange states that, although adopting proposed NYSE Arca Rule
6.64P-O(a)(10)(D) is consistent with its authority under the Pillar
Rule to determine the maximum allowable Calculated NBBO spread to
qualify a series as having a Legal Width Quote, the proposed rule
change would make clear that the Exchange would no longer impose these
established spread limits (as announced by Trader Notice per NYSE Arca
Rule 6.64P-O(a)(10)(C)) after the initial Auction Process time period.
The Exchange states that this rule change would add clarity and
transparency to the Auction Process to the benefit of all market
participants.\29\ The Exchange further states that, because the Auction
Process, including the Auction Collars, the presence of Matched Volume,
and the determination of the Indicative Match Price, are dependent upon
a Calculated NBBO that qualifies as a Legal Width Quote, the Exchange
proposes that any Auction conducted consistent with proposed 6.64P-
O(a)(10)(D) would follow the current Auction Process except as
described below.\30\
---------------------------------------------------------------------------
\29\ The Exchange states that, similar to the Exchange, other
options exchanges have rules granting them broad discretion to
modify the opening parameters for each option series, which
modifications are disseminated or announced to market participants
over data feeds or trader notice. See Notice, supra note 3, 87 FR at
32205 n. 24.
\30\ See NYSE Arca Rule 6.64P-O(d)(2)(A)-(B) (describing the
process of opening a series with a trade or a quote depending on
whether there is Matched Volume).
---------------------------------------------------------------------------
The Exchange proposes to amend NYSE Arca Rule 6.64P-O(d)(4)
regarding the conduct of an Auction after the conclusion of the initial
Auction Process time period (i.e., after the first ninety seconds).\31\
The Exchange states that, as noted herein, the Pillar functionality
(per NYSE Arca Rule 6.64P-O(d)(4)(A)) permits a series to open based on
a ``wide'' Calculated NBBO (that is uncrossed with a non-zero offer),
but only if there is no Matched Volume, which requirement the Exchange
states may delay openings and result in missed execution
opportunities.\32\ To address what the Exchange views as unintended
potential delay, the Exchange proposes that after the initial Auction
Process time period and consistent with proposed paragraph (a)(10)(D)
of this rule (which removes the limit on the maximum allowable
Calculated NBBO spread), the Exchange would conduct an Auction
regardless of Matched Volume as long as the Calculated NBBO is not
crossed, and does not contain a zero offer.\33\ The Exchanges states
that this proposed functionality would allow marketable Limit Orders to
execute in the Auction, which may result in certain option series
opening earlier than are opened under the current rule and increase
execution opportunities for Limit Orders at then-current market
prices.\34\
---------------------------------------------------------------------------
\31\ See proposed NYSE Arca Rule 6.64P-O(d)(4) (which the
Exchange states includes the aforementioned non-substantive change
to refer to the newly defined ``initial Auction Process time
period'' rather than the first ninety seconds after the Auction
Process). The Exchange states it is not altering Auction
functionality for the initial Auction Process time period. See
Notice, supra note 3, 87 FR at 32205 n. 26.
\32\ See proposed NYSE Arca Rule 6.64P-O(d)(4)(B) (setting forth
the necessary market conditions to open a series that has not opened
per paragraph (d)(4) of the Pillar Rule). The Exchange states that,
if the Exchange opens a series per NYSE Arca Rule 6.64P-O(d)(4)(A),
it first cancels any Market Order or MOO Orders before conducting an
Auction and transitioning to continuous trading. See Notice, supra
note 3, 87 FR at 32005 n. 27.
\33\ See proposed NYSE Arca Rules 6.64P-O(d)(4)(A), 6.64P-
O(a)(10)(D).
\34\ See proposed NYSE Arca Rules 6.64P-O(d)(4)(A), 6.64P-
O(a)(10)(D). See also NYSE Arca Rule 6.64P-0(a)(9)(A) (providing, in
relevant part, that ``the Indicative Match Price would not be lower
(higher) than the highest (lowest) price of a Limit Order to buy
(sell) ranked Priority 2--Display Orders that is eligible to
participate in the Auction''). In addition, the Exchange proposes to
remove as inapplicable the text in current NYSE Arca Rule 6.64P-
O(d)(4)(A) indicating that the ``Auction is not intended to end with
a trade, but it may result in a trade even if there is no Legal
Width Quote if orders or quotes arrive during the period when the
Exchange is evaluating the status of orders and quotes'' as well as
text indicating that the Exchange would ``transition to continuous
trading as described in paragraph (f) of this Rule.'' See proposed
NYSE Arca Rule 6.64P-O(d)(4)(A).
---------------------------------------------------------------------------
[[Page 52830]]
The Exchange states that, although Limit Orders would be eligible
to execute based on this proposed functionality, whether a Market Order
or MOO Order may participate in the proposed Auction depends on the
width of the market at the time of the Auction. Specifically, as
proposed, if the Calculated NBBO spread is wider than the differential
established per paragraph (a)(10)(C) of this rule, the Exchange would
cancel Market Orders and MOO Orders before conducting the Auction,
which proposed handling the Exchange states is consistent with the
current Pillar Rule.\35\ Conversely, as proposed, and consistent with
the current Pillar Rule, Market Orders and MOO Orders are not canceled
and will participate in an Auction that is based on a Calculated NBBO
that is less than or equal to the Calculated NBBO spread limit
established per NYSE Arca Rule 6.64P-O(a)(10)(C).\36\ As further
proposed, after the cancelation of any Market Orders or MOO Orders as
applicable, the Auction Process will proceed consistent with paragraph
(d)(2)(A)-(B) of this rule and the Exchange will execute Matched Volume
(if any) to the extent possible before transitioning to continuous
trading.\37\
---------------------------------------------------------------------------
\35\ See NYSE Arca Rule 6.64P-O(d)(4)(A)(i) (providing that
Market Orders and MOO Orders are cancelled ``[a]ny time a series is
opened or reopened when there is no Legal Width Quote,'' i.e., when
the Calculated NBBO exceeds the maximum allowable spread limit set
forth in NYSE Arca Rule 6.64P-O(a)(10)(C)'').
\36\ See id. The Exchange states that, to avoid potential
confusion regarding the distinct handling of Market Orders and MOO
Orders under proposed NYSE Arca Rule 6.64P-O(d)(4)(A) depending upon
whether an Auction is conducted based on a Calculated NBBO spread
that is in compliance with NYSE Arca Rule 6.64P-O(a)(10)(C) or with
proposed NYSE Arca Rule 6.64P-O(a)(10)(D), the Exchange has
intentionally avoided reference to the presence of a Legal Width
Quote in the proposed Rule. See, e.g., proposed NYSE Arca Rule
6.64P-O(d)(4)(A); Notice, supra note 3, 87 FR at 32206 n. 31.
\37\ See, e.g., NYSE Arca Rule 6.64P-O(d)(2)(A)-(B) (providing
that ``[i]f there is Matched Volume that can trade at or within the
Auction Collars, the Auction will result in a trade at the
Indicative Match Price'' or, ``[i]f there is no Matched Volume that
can trade at or within the Auction Collars,'' the Auction will not
result in a trade and the Exchange will transition to continuous
trading as described in paragraph (f) of this Rule and the Auction
will result in a quote'').
---------------------------------------------------------------------------
The Exchange states that, taken together, the proposed changes to
NYSE Arca Rules 6.64P-O(a)(10)(D) and (d)(4) would allow any series
that has not opened by the end of the initial Auction Process time
period the ability to open based on a Legal Width Quote derived from
then-market conditions. As such, the Exchange proposes to modify NYSE
Arca Rule 6.64P-O(d)(4)(B) to update the cross-reference from paragraph
(d)(4)(A) to paragraph (d)(4) and to eliminate as superfluous paragraph
(d)(4)(B)(ii), which refers to waiting until ``the series can be opened
as provided for in paragraph (d)(4)(A).'' \38\ The Exchange believes
these proposed conforming changes are necessary given that the proposed
changes to 6.64P-O(a)(10)(D) (removing the limit on the Calculated NBBO
spread to qualify as Legal Width Quote) and (d)(4)(A) (addressing the
conduct of an Auction after the initial Auction Process time period
under the expanded definition of Legal Width Quote) render paragraph
(d)(4)(B)(ii) of the rule unnecessary.
---------------------------------------------------------------------------
\38\ See proposed NYSE Arca Rules 6.64P-O(d)(4)(A)-(B). The
Exchange also proposes conforming changes to re-number the remaining
paragraphs in light of the proposed deletion, which the Exchange
states would add clarity and internal consistency to the rule. See
Notice, supra note 3, 87 FR at 32006 n. 33.
---------------------------------------------------------------------------
The Exchange states that it is not making any changes to the
requirements to conduct an Auction during the initial Auction Process
time period, and that the proposed changes relate solely to those
series that remain unopened after the conclusion of the initial Auction
Process time period because the Calculated NBBO spread is too wide. The
Exchange states that the initial Auction Process time period affords
market participants sufficient opportunity to absorb available pricing
information, including Market Makers that are generally responsible for
pricing the market. The Exchange states that, if the Calculated NBBO
remains wide by the end of the initial Auction Process time period, the
Exchange believes it is unlikely to tighten if the Exchange were to
further delay the opening of a series. The Exchange states it has
observed that on a typical trading day, in the current system, nearly
98% of all series are opened by 9:32 a.m. Eastern Time. As such, the
Exchange states it anticipates that the majority of series would be
opened within ninety seconds of the Auction Process and would not be
impacted by the proposed rule change. However, for the minority of
option series that have not opened within the first ninety seconds, the
Exchange states that it is necessary and appropriate to allow such
series to open based on prices consistent with then-current market
conditions, provided the Calculated NBBO for the series is not crossed,
and does not contain a zero offer.
The Exchange states that the proposed modification to the Auction
Process would continue to protect Market Orders and MOO Orders from
being executed (by cancelling such orders before conducting the
proposed Auction) when the Calculated NBBO spread exceeds the spread
differential established per current NYSE Arca Rule 6.64P-O(a)(10)(C)
before conducting the proposed Auction. In addition, the Exchange
states that the proposed modification would allow any eligible Limit
Orders to be executed in the proposed Auction, bound by the Calculated
NBBO. According to the Exchange, the Calculated NBBO (even if wide)
represents the best-priced quotes by Market Makers (which participants
generally are responsible for pricing the market) and/or the ABBO, the
presence of which indicates that another market has opened.\39\
---------------------------------------------------------------------------
\39\ The Exchanges states that options exchanges have varying
opening processes and have made separate determinations on what
constitutes individual, reasonable opening market widths. The
Exchange further states that, if other options exchanges opened a
series with a market width, it is reasonable to open the series for
trading on the Exchange as well (as orders submitted to other
exchanges may be trading at those widths). See Notice, supra note 3,
87 FR at 32206 n. 34.
---------------------------------------------------------------------------
The Exchange further states that, consistent with current
functionality (and with the approved Pillar Rule), the Exchange would
not permit any opening transactions to trade through any better-priced
interest on any Away Market, even it is permitted to do so.\40\ Rather,
because interest in the Auction would not trade outside of the
Calculated NBBO (which defines the then-current market for the series),
any Limit Orders executed in the proposed Auction would, bound by
Auction collars, would trade at a price that is equal to or better than
the price(s) available at other exchanges.\41\ Per NYSE Arca Rule
[[Page 52831]]
6.64P-O(f)(3)(A), any interest remaining after such Action is then
evaluated for potential routing prior to being posted to the
Consolidated Book. Further, the Exchange states that there are other
price protections available to limit the risk of executions at a wider
market price.\42\ Thus, the Exchange believes that the risk of an
extreme execution based on the Calculated NBBO available after the
initial Auction Process time period may be mitigated for the
aforementioned reasons. The Exchange believes that, on balance, the
benefits to market participants of having the series open earlier
outweighs this mitigated risk.
---------------------------------------------------------------------------
\40\ The Exchange states that, although the intermarket linkage
rules exempt from trade-through liability trades occurring during
the opening process, the Exchange would continue to restrict
transactions occurring at the open to the NBBO. See, e.g., NYSE Arca
Rule 6.94-O(b)(2) (exempting from trade-through liability those
transactions that ``traded through a Protected Quotation being
disseminated by an Eligible Exchange during a trading rotation''). A
``Protected Quotation'' is the Best Bid or Best Offer disseminated
by OPRA and displayed by an Eligible Exchange. See NYSE Arca Rule
6.92-O(15)-(16). See also Notice, supra note 3, 87 FR at 32206 n.
35.
\41\ See, e.g., NYSE Arca Rule 6.64P-O(b)(2)(A) (A) (providing
that, `[i]f there is Matched Volume that can trade at or within the
Auction Collars, the Auction will result in a trade at the
Indicative Match Price); NYSE Arca Rule 6.64-O(a)(3), (9), and (11)
(defining Auction Collars, Indicative Match Price, and Matched
Volume, respectively). See also Notice, supra note 3, 87 FR at 32206
n. 36.
\42\ See, e.g., NYSE Arca Rule 6.41P-O(a)(1), (b) (regarding the
Arbitrage Check, which the Exchange states is applied pre-open). The
Exchange states that the price protection mechanisms it employs
during continuous trading are based on the NBBO, or Auction Prices
as applicable; NYSE Arca Rule 6.41P-O(c)(4)(B) (regarding the
Intrinsic Value Check); NYSE Arca Rule 6.62P-O(a)(4)(A) (regarding
Limit Order Price Protection); and NYSE Arca Rule 6.62P-O(a)(4)(B)
(regarding Trading Collars). See also Notice, supra note 3, 87 FR at
32207 n. 37.
---------------------------------------------------------------------------
Finally, the Exchange also proposes to modify the requirements to
open a series during the initial Auction Process time period for option
series with two or more assigned Market Makers, per NYSE Arca Rule
6.64P-O(d)(3)(C). The Exchange states that, per NYSE Arca Rule 6.64P-
O(3)(C)(i), if there are two or more Market Makers assigned to a
series, the Exchange will conduct the Auction, without waiting for the
Opening MMQ Timer to end, as soon as there is both a Legal Width Quote
and at least two assigned Market Makers have submitted a quote with a
non-zero offer. Per NYSE Arca Rule 6.64P-O(3)(C)(ii), if at least two
Market Makers assigned to a series have not submitted a quote with a
non-zero offer by the end of the Opening MMQ Timer, the Exchange will
begin a second Opening MMQ Timer. The Exchange proposes to modify these
provisions to provide that the Exchange would require that at least two
quotes with non-zero offers be submitted during the Opening MMQ Timer,
which quotes may be sent by one or more Market Makers.\43\
---------------------------------------------------------------------------
\43\ See proposed NYSE Arca Rule 6.64P-O(d)(2) (providing that
``[o]nce a Rotational Quote has been sent, the Exchange will conduct
an Auction when there is both a Legal Width Quote and, if
applicable, Market Maker quotes with a non-zero offer in the series
(subject to the Opening MMQ Timer(s) requirements in paragraph
(d)(3) of this Rule'')) and NYSE Arca Rule 6.64P-O(d)(3)(C)(i)
(providing that ``[t]he Exchange will conduct the Auction, without
waiting for the Opening MMQ Timer to end, as soon as there is both a
Legal Width Quote and at least two quotes with a non-zero offer
submitted by assigned Market Maker(s)'') and (d)(3)(C)(ii)
(providing that ``[i]f the Exchange has not received at least two
quotes with a non-zero offer from any Market Maker(s) assigned to a
series by the end of the Opening MMQ Timer, the Exchange will begin
a second Opening MMQ Timer''). See also Notice, supra note 3, 87 FR
at 32207 n. 38.
---------------------------------------------------------------------------
The Exchange states that the proposed change continues to encourage
(but not require) Market Makers to participate at the open, which may
increase the availability of Legal Width Quotes in more series, thereby
allowing more series to open in a timely manner. The Exchange states
that expanding the opportunities for each Market Maker to enter the
market--whether by each Market Maker submitting one quote or a single
Market Maker submitting two quotes--could result in the depth of
liquidity that market participants have come to expect in options with
multiple assigned Market Makers, and a more stable trading environment.
The Exchange states that the proposed rule change would provide more
flexibility in terms of how market depth is achieved (i.e., based on
quotes from a single Market Maker as opposed to two) and may result in
a more timely and efficient opening process. Further, the Exchange
states that the proposed change may increase the availability of Legal
Width Quotes in more series and would add clarity and transparency to
Exchange rules.
Other Exchange Rules: Proposed Non-Substantive or Clarifying Changes
44
---------------------------------------------------------------------------
\44\ See Notice, supra note 3, 87 FR at 15.
---------------------------------------------------------------------------
The Exchange also proposes to make several clarifying or non-
substantive changes to certain of its rules. First, the Exchange
proposes to modify paragraph (c) of NYSE Arca Rule 6.37-O (Obligations
of Market Makers) regarding ``Unusual Conditions--Auctions'' to add an
open parenthesis in the cross reference to NYSE Arca Rule 6.64P-
O(a)(10).\45\ The Exchange states that this proposed change would
correct an inadvertent omission and would add clarity and transparency
to Exchange rules.
---------------------------------------------------------------------------
\45\ See proposed NYSE Arca Rule 6.37-O(c).
---------------------------------------------------------------------------
Next, the Exchange proposes to correct several cross-references in
NYSE Arca Rule 6.62P-O (Orders and Modifiers). The Exchange proposes to
update the reference in NYSE Arca Rule 6.62P-O(e)(3)(C)(ii) regarding
Day ISO ALO Orders to correctly cross-reference paragraphs (e)(2)(C)-
(F) (rather than to paragraphs (e)(2)(C)-(G)) to cover the processing
of such ALO Orders once resting.\46\ The Exchange states that the
proposed change would correct an inadvertent error adding clarity and
transparency to Exchange rules. Similarly, the Exchange proposes to
update the reference in NYSE Arca Rule 6.62P-O(h)(6)(B) to correctly
cross-reference the defined term Complex Order, which is set forth in
NYSE Arca Rule 6.62P-O(f) (rather than paragraph (e)).\47\ The
Exchanges states that the proposed change would correct an inadvertent
error adding clarity and transparency to Exchange rules.
---------------------------------------------------------------------------
\46\ See proposed NYSE Arca Rule 6.62P-O(e)(3)(C)(ii).
\47\ See proposed NYSE Arca Rule 6.62P-O(h)(6)(B).
---------------------------------------------------------------------------
III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2022-31 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \48\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\49\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act \50\ which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest and not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.\51\ As discussed above, the Exchange is proposing to modify
NYSE Arca Rule 6.64P-O regarding the automated process for both opening
and reopening trading in a series on the Exchange on Pillar. The
Commission has concerns about whether the auction process, as currently
proposed, raises the potential risk of the auction resulting in a trade
execution at an extreme price and whether the Exchange has in place
[[Page 52832]]
sufficient measures to protect against or mitigate the potential
execution of investor orders in the auction at such a price.
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\49\ Id.
\50\ 15 U.S.C. 78f(b)(5).
\51\ See id.
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations thereunder . . . is on the self-
regulatory organization [`SRO'] that proposed the rule change.'' \52\
The description of a proposed rule change, its purpose and operation,
its effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\53\ and any failure of an SRO to
provide this information may result in the Commission not having
sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rule and
regulations.\54\
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\52\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\53\ See id.
\54\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B0 of the Exchange
Act \55\ to determine whether the proposal should be approved or
disapproved.
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\55\ 15 U.S.C. 78s(b)(2)(B).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with Section 6(b)(5) or any other provision of the Act,
or the rules and regulations thereunder. Although there do not appear
to be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4 under the Act, any
request for an opportunity to make an oral presentation.\56\
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\56\ Section 19(b)(2) of the Act grants the Commission
flexibility to determine what type of proceeding--either oral or
notice and opportunity for written comments--is appropriate for
consideration of a particular proposal by an SRO. See Securities Act
Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by September 19, 2022. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
October 3, 2022. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal,
which are set forth in the Notice,\57\ and any other issues raised by
the proposed rule change under the Act.
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\57\ See supra note 3.
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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-2022-31 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-2022-31. 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-2022-31 and
should be submitted on or before September 19, 2022. Rebuttal comments
should be submitted by October 3, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18501 Filed 8-26-22; 8:45 am]
BILLING CODE 8011-01-P
