Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To Amend Rule 6.64P-O, 67972-67980 [2022-24508]
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Federal Register / Vol. 87, No. 217 / Thursday, November 10, 2022 / Notices
proposed extension would provide
regulatory certainty while firms
continue to manage health and safety
concerns, work absences, and the
transition to new workforce
arrangements. FINRA believes that this
limited extension in temporary relief,
together with the requirements for using
the temporary relief in Rule 3110.17,
would not diminish investor protection.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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) of the Act 20 and Rule 19b–
4(f)(6) thereunder.21
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:
Commission, 100 F Street NE,
Washington, DC 20549–1090.
SECURITIES AND EXCHANGE
COMMISSION
All submissions should refer to File
Number SR–FINRA–2022–030. 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
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of
FINRA. 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–FINRA–2022–030
and should be submitted on or before
December 1, 2022.
[Release No. 34–96242; File No. SR–
NYSEARCA–2022–31]
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–24509 Filed 11–9–22; 8:45 am]
BILLING CODE 8011–01–P
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Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
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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 platform, 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 On August 23, 2022, the
Commission instituted proceedings
under Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change.7
On October 25, 2022, the Exchange filed
Amendment No. 1 to the proposed rule
change,8 and on October 27, 2022, the
Exchange filed Amendment No. 2 to the
proposed rule change,9 which replaced
and superseded in their entirety both
the original filing and Amendment No.
1. The Commission has received no
comments on the proposed rule change.
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 94959
(May 23, 2022), 87 FR 32203 (May 27, 2022).
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).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 95581
(Aug. 23, 2022), 87 FR 52827 (Aug. 29, 2022).
8 Amendment No. 1 is available at https://
www.nyse.com/publicdocs/nyse/markets/nyse-arca/
rule-filings/filings/2022/SR-NYSEArca-2022-31_
Am._1.pdf.
9 Amendment No. 2 is available at https://
www.nyse.com/publicdocs/nyse/markets/nyse-arca/
rule-filings/filings/2022/SR-NYSEArca-2022-31_
Am._2.pdf.
2 17
• 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–
FINRA–2022–030 on the subject line.
21 17
November 4, 2022.
1 15
Electronic Comments
20 15
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 2, To Amend Rule
6.64P–O
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Federal Register / Vol. 87, No. 217 / Thursday, November 10, 2022 / Notices
The Commission is publishing this
notice to solicit comments on the
proposed rule change, as modified by
Amendment No. 2, from interested
persons and is approving the proposed
rule change, as modified by Amendment
No. 2, on an accelerated basis.
II. The Exchange’s Description of the
Proposed Rule Change, as Modified by
Amendment No. 2
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to modify
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.10 This
Amendment No. 2 supersedes and
replaces Amendment No. 1 to the
original filing in its entirety.11
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Current Pillar Auction Process
Rule 6.64P–O(d) sets forth the
Auction Process.12 Per Rule 6.64P–
O(d)(1), once the Exchange receives the
Auction Trigger for a series,13 the
10 Rule 6.64P–O (the ‘‘Pillar Rule’’) covers the
opening and reopening of option series, which
process is identical on the Pillar trading platform.
As such, the Exchange will simply refer to the
‘‘opening’’ of a series herein. The Exchange
completed its migration to Pillar on July 28, 2022,
as announced here: https://www.nyse.com/traderupdate/history#110000440092.
11 This Amendment No. 2 updates information
regarding the Exchange’s completed migration to
Pillar and substantively modifies the original filing
as follows: (i) proposing additional discretion for
the Exchange to establish what constitutes a Legal
Width Quote during the Auction Process (ii)
adopting a defined term of ‘‘initial Auction Process
time period’’; (iii) adopting functionality to cancel,
rather than execute in the Auction, certain Limit
Orders after the ‘‘initial Auction Process time
period’’ has elapsed; (iv) providing the Exchange
discretion to modify by Trader Update the timing
for dissemination of Auction Imbalance
Information; and (v) removing the specified values
for time periods that the Exchange has discretion
to modify by Trader Update (i.e., MMQ Opening
Timers).
12 ‘‘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 Rule 6.64P–O(a)(5).
13 ‘‘Auction Trigger’’ refers to the information
disseminated by the Primary Market in the
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Auction Process begins and the
Exchange sends a Rotational Quote 14 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 Rule 6.64P–O(d)(2), once a
Rotational Quote has been sent, the
Exchange conducts an Auction,15
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
Rule 6.64P–O(d)(3).16 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.17 The Calculated NBBO is
comprised of the highest bid and lowest
offer among all Market Maker quotes
and the ABBO during the Auction
Process.18 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.
If the foregoing requirements are met
(i.e., per 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 19 that can trade at
underlying security that triggers the Auction
Process for a series to begin. See Rule 6.64P–O(a)(7).
14 ‘‘Rotational Quote’’ refers to the highest Market
Maker bid and lowest Market Maker offer on the
Exchange when the Auction Process begins and
such Rotational Quote will be updated (for price
and size) during the Auction Process. See Rule
6.64P–O(a)(13).
15 ‘‘Auction’’ refers to the opening or reopening of
a series for trading either with or without a trade.
See Rule 6.64P–O(a)(1).
16 See Rule 6.64P–O(d)(2). Rule 6.64P–O(d)(3)
specifies the parameters of the Opening MMQ
Timers, which 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
would add clarity and internal consistency to the
rule. See proposed Rule 6.64P–O(d)(3).
17 See 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
Rule 6.64P–O(a)(10)(C).
18 See Rule 6.64P–O(a)(8) (defining Calculated
NBBO).
19 ‘‘Matched Volume’’ refers to the number of buy
and sell contracts that can be matched at the
Indicative Match Price, excluding IO Orders. See
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 Rule 6.62P–O(c)(3).
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67973
or within the Auction Collars.20 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.21 However, if there is no
Matched Volume that can trade at or
within the Auction Collars, the Auction
Process will instead result in a quote
and the Exchange transitions to
continuous trading as set forth in Rule
6.64P–O(f).22
Finally, per 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 (hereinafter
referred to as the ‘‘initial Auction
Process time period,’’ as described
further below). After the initial Auction
Process time period, 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 Rule
6.64P–O(f).23 The Exchange, however,
will not open a series and such series
will remain unopened 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) (i.e., there is no
Matched Volume and the Calculated
NBBO is uncrossed and has a non-zero
offer); (iii) the series is halted; or (iv) the
end of Core Trading Hours.24 In other
words, a series that does not meet the
requirements of Rule 6.64P–O(d)(4)(A)
may be delayed in opening until one of
the conditions set forth in Rule 6.64P–
O(d)(4)(B) occur.
20 ‘‘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 Rule 6.64P–O(a)(2).
21 See 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 Rule 6.64P–O(a)(9).
22 See Rule 6.64P–O(d)(2)(B).
23 See Rule 6.64P–O(d)(4)(A).
24 See Rule 6.64P–O(d)(4)(B).
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Federal Register / Vol. 87, No. 217 / Thursday, November 10, 2022 / Notices
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Proposed Change to Auction Process
First, the Exchange proposes to codify
existing rule text (contained in
paragraph (d)(4) of the Rule) into the
defined phrase the ‘‘initial Auction
Process time period’’ in proposed Rule
6.64P–O(a)(5)(i).25 As proposed, the
initial Auction Process time period
would mean, ‘‘an Exchange-determined
time period after the commencement of
the Auction Process as specified by
Trader Update.26 Given that the
Exchange has discretion to modify the
‘‘ninety second’’ time period referenced
in Rule 6.64P–O(d)(4)—and has
modified this time period since
adopting the Pillar Rule—the Exchange
proposes to remove reference to a
specific time period, which would add
clarity and transparency to the Auction
Process.27 Consistent with this change,
the Exchange likewise proposes to
modify Rule 6.64P–O(d)(3), to remove
reference to ‘‘30 seconds’’ which is the
default value for the length of each
MMQ Opening Timer, ‘‘[u]nless
otherwise specified by Trader
Update.’’ 28 Given that the Exchange has
modified this time period since
adopting the Pillar Rule, the Exchange
believes that removing reference to a
specific time period would add clarity
and transparency to the Auction
Process.29
Next, the Exchange proposes to
modify Rule 6.64P–O(a)(10)(C) to clarify
the Exchange’s discretion to determine
the presence of a Legal Width Quote.
Rule 6.64P–O(a)(10)(C) provides that, to
be deemed a Legal Width Quote, the
25 See 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:’’). Consistent with the proposed
defined term of ‘‘initial Auction Process time
period,’’ the Exchange proposes to remove the
references to ninety (90) seconds.
26 See proposed Rule 6.64P–O(a)(5)(i) (defining
‘‘initial Auction Process time period’’).
27 On August 19, 2002 [sic], the Exchange
announced by Trader Update that, effective August
22, 2022, ‘‘the Exchange will reduce the time period
after the start of the Auction Process when the
Exchange may open a series on a quote without
requiring a Legal Width Quote (provided there is no
crossing interest) to 15 seconds, from the current 90
seconds,’’ available here: https://www.nyse.com/
trader-update/history#110000462552 (the ‘‘Opening
Timer Update’’).
28 See proposed Rule 6.64P–O(d)(3) (providing
that ‘‘[e]ach Opening MMQ Timer will be an
Exchange-determined period that is announced by
Trader Update’’).
29 See Opening Timer Trader Update, supra note
27 (announcing that, effective August 22, 2022,
each Opening MMQ Timer will be reduced to 5
seconds, from the current value of 30 seconds). The
Exchange proposes the non-substantive change to
re-organize the existing text for clarity purposes
(i.e., moving the clause ‘‘[e]ach opening MMQ
Timer’’ to the beginning of the proposed rule). See
id.
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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
(herein referred to as the ‘‘Maximum
Calculated NBBO Spread’’).30 The
Exchange proposes to clarify that the
Exchange has authority to modify the
Maximum Calculated NBBO Spread
during the Auction Process and that any
such modifications (like the Exchangedetermined Maximum Calculated NBBO
Spread) would likewise be announced
by Trader Update.31 This proposed
clarification, which is consistent with
its existing authority under Rule 6.64P–
O(a)(10), would add specificity and
transparency to the Auction Process to
the benefit of all market participants.
The Exchange notes that other options
exchanges likewise specify that their
discretion to modify the opening
parameters for each option series
applies during the opening auction
process and likewise includes the
requirement that each such change is
announced to their market
participants.32
The Exchange proposes to modify
Rule 6.64P–O(d)(4) to provide that, after
the initial Auction Process time period
has elapsed, the Exchange may open a
series when the Calculated NBBO is
wider than the Legal Width Quote, is
not crossed, and does not contain a zero
offer (the ‘‘wide Calculated NBBO’’)
provided the Exchange first cancels
certain interest.33 Specifically, before
the Exchange can open a series, with a
quote, and transition to continuous
trading (per Rule 6.64P–O(f)) based on
a wide Calculated NBBO, the Exchange
must first cancel Market Orders, MOO
Orders, and Limit Orders to buy (sell)
30 See
Rule 6.64P–O(a)(10)(C) (which also
provides a Trading Official may establish maximum
differentials for one or more series or classes of
options, which differ from those established by the
Exchange). To qualify as a Legal Width Quote, the
Calculated NBBO must also be uncrossed and must
contain a non-zero offer, which requirements are
not being modified by this rule change. See Rule
6.64P–O(a)(10)(A)–(B).
31 See proposed Rule 6.64P–O(a)(10)(C). See Rule
6.64P–O(a)(10)(A)–(B).
32 See, e.g., Cboe Options Exchange, Inc. (‘‘Cboe’’)
Rule 5.31(a) (definitions of Maximum Composite
Width and Opening Collar, each of which the
exchange ‘‘may modify during the opening auction
process (which modifications the Exchange
disseminates to all subscribers to the Exchange’s
data feeds that deliver opening auction updates)’’);
Cboe EDGX Options Exchange, Inc. (‘‘EDGX’’) Rule
21.7(a) (same); Cboe BZX Options Exchange, Inc.
(‘‘BZX’’) Rule 21.7(a) (definitions of Maximum
Composite Width and Opening Collar); Cboe C2
Exchange Inc. (‘‘C2’’) Rule 6.11(a) (same)).
33 See proposed Rule 6.64P–O(d)(4). Consistent
with the proposed definition of the ‘‘initial Auction
Process time period’’ and its use in the proposed
rule, the Exchange proposes to delete reference to
‘‘ninety seconds’’ regarding the Auction Process.
See id.
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priced equal to or higher (lower) than
the Indicative Match Price.34 The
Exchange believes that the proposed
cancellation of such executable Limit
Orders would help prevent executions
at potentially extreme prices. Consistent
with this change, the Exchange proposes
to add a caveat to Rule 6.64P–
O(d)(2)(A)—which provides for the
trading of certain executable interest at
the Indicative Match Price—to make
clear that the trading behavior set forth
in this provision is subject to proposed
Rule 6.64P–O(d)(4).35 Although the
functionality set forth in Rule 6.64P–
O(d) is designed to allow the affected
series to open on a quote (and not a
trade), the Exchange acknowledges the
possibility that such series may open on
a trade because orders or quotes may
arrive as the Exchange is evaluating
trading interest and whether such
interest qualifies as a Legal Width
Quote.36
The proposed cancellation of Market
Orders and MOO Orders before opening
a series is consistent with the current
Pillar Rule and thus would continue to
protect Market Orders and MOO Orders
from being executed before transitioning
to continuous trading, per paragraph (f)
of the Pillar Rule when there is a wide
Calculated NBBO.37 The proposed
cancellation of Limit Orders to buy (sell)
priced equal to or higher (lower) than
the Indicative Match Price, is new. The
Indicative Match Price refers to the
opening price for a series and represent
the price at which the maximum
number of contracts can be traded in an
Auction. Thus, the proposal to cancel
Limit Orders to buy (sell) priced equal
to or higher (lower) than the Indicative
34 See proposed Rule 6.64P–O(d)(4). The
Exchange proposes to re-locate the text regarding
the potential race condition resulting in a trade
from Rule 6.64P–O(d)(4)(A) to proposed Rule
6.64P–O(d)(4) and to replace reference to ‘‘Auction’’
with ‘‘Auction Process’’ for the sake of clarity as
well as to delete current paragraph (d)(4)(A) of the
Pillar Rule as obsolete because the text describing
the wide Calculated NBBO is contained in proposed
Rule 6.64P–O(d)(4) and the transition to continuous
trading is no longer dependent upon the presence
of Matched Volume under the proposed
functionality. See id.
35 See proposed Rule 6.64P–O(d)(2)(A). As is the
case today—which behavior remains unchanged by
proposed Rule 6.64P–O(d), the Exchange will open
on a quote and transition to continuous trading (per
Rule 6.64P–O(f)) in the absence of executable
interest (i.e., there is no Matched Volume that can
trade at or within the Auction Collars). See Rule
6.64P–O(d)(2)(B).
36 See proposed Rule 6.64P–O(d)(4) (regarding the
potential race condition resulting in a trade).
37 See 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’’). The Exchange
believes this proposed change is non-substantive as
it simply relocates existing text in the more
streamlined proposed rule.
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Match Price when the Calculated NBBO
is wider than the Legal Width Quote
would allow the Exchange to help
ensure that potentially executable Limit
Orders would be cancelled rather than
execute at potentially extreme prices
before the Exchange transitions to
continuous trading.38 The Exchange
believes that this proposed handling
would likewise allow the Exchange to
proceed with a timely opening of each
series—which opening would have
otherwise been delayed until market
conditions changed per the current
Pillar Rule.39
Because the proposed change to Rule
6.64P–O(d)(4) would allow any series
that has not opened by the end of the
initial Auction Process time period the
ability to open on a quote based on a
wide Calculated NBBO, the Exchange
proposes to eliminate as unnecessary
Rule 6.64P–O(d)(4)(B), which paragraph
contemplates a series not being able to
open because the Calculated NBBO is
wider than—and thus does not qualify
as—a Legal Width Quote. The Exchange
believes these proposed conforming
changes are necessary given that the
proposed changes to Rule 6.64P–O(d)(4)
render paragraph (d)(4)(B) of the Rule
unnecessary.
In addition, the Exchange proposes to
modify Rule 6.64P–O(c), which
provides that ‘‘Auction Imbalance
Information is updated at least every
second until the Auction is conducted,
unless there is no change to the
information,’’ to authorize the Exchange
to modify the time within which it
updates this information and to
announce any such changes by Trader
Update.40 Given the proposed change to
allow the Exchange to open certain
series after the initial Auction Process
time period after first cancelling certain
interest, the Exchange anticipates that it
may not be necessary to update the
Auction Imbalance Information at least
every second. The Exchange seeks
flexibility in the frequency for
imbalance publication as it plans to
monitor the impact of the proposed
38 The Exchange notes that ‘‘[i]f there is no Legal
Width Quote, the Indicative Match Price included
in the Auction Imbalance Information will be
calculated without Auction Collars.’’ See Rule
6.64P–O(a)(9).
39 See, e.g., Rule 6.64P–O(d)(4)(A) and (B). The
Exchange notes that any Auction interest that is not
cancelled in series that open per proposed Rule
6.64P–O(d)(4) would be handled in the same
manner as all other Auction interest that is present
when the Exchange transitions from the Auction
Process to continuous trading per Rule 6.64P–
O(f)(1)–(3).
40 See proposed Rule 6.64P–O(c) (providing that
‘‘[u]nless otherwise provided by Trader Update,
Auction Imbalance Information is updated at least
every second until the Auction is conducted, unless
there is no change to the information’’).
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change after which it will be in a
position to better assess the appropriate
frequency for publication of the Auction
Imbalance Information. In addition, this
proposed discretion, which is consistent
with other options exchanges, would
afford the Exchange flexibility,
including to respond to market
conditions.41
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
Rule 6.64P–O(d)(3)(C). Per Rule 6.64P–
O(d)(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 Rule
6.64P–O(d)(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.42
The Exchange believes 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 believes that expanding
the opportunities for each Market Maker
41 See, e.g., Nasdaq Options Market (‘‘NOM’’)
Section 8(b)(3) (providing that ‘‘Nasdaq shall
disseminate by electronic means an Order
Imbalance Indicator every 5 seconds beginning
between 9:20 and 9:28, or a shorter dissemination
interval as established by the Exchange, with the
default being set at 9:25 a.m. The start of
dissemination, and a dissemination interval, shall
be posted by Nasdaq on its website.’’).
42 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 Proposed Rules 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’’).
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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 believes 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
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
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 Rule 6.37–O (Obligations of
Market Makers) regarding ‘‘Unusual
Conditions—Auctions’’ to add an open
parenthesis in the cross reference to
Rule 6.64P–O(a)(10).43 The Exchange
believes 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 Rule
6.62P–O (Orders and Modifiers). The
Exchange proposes to update the
reference in 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.44 The
proposed change would correct an
inadvertent error adding clarity and
transparency to Exchange rules.
Similarly, the Exchange proposes to
update the reference in Rule 6.62P–
O(h)(6)(B) to correctly cross-reference
the defined term Complex Order, which
is set forth in Rule 6.62P–O(f) (rather
than paragraph (e)).45 The proposed
change would correct an inadvertent
error adding clarity and transparency to
Exchange rules.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),46 in general, and furthers the
43 See
proposed Rule 6.37–O(c).
proposed Rule 6.62P–O(e)(3)(C)(ii).
45 See proposed Rule 6.62P–O(h)(6)(B).
46 15 U.S.C. 78f(b).
44 See
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objectives of Section 6(b)(5),47 in
particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
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Proposed Change to Pillar Auction
Process
Overall, the Exchange believes the
proposed changes to its Auction Process
would promote a fair and orderly
market by mitigating the potential for
extreme executions when a series opens
in a wide market and improving the
speed and efficiency of the Exchange’s
opening process without impairing
price discovery. The Exchange believes
the proposed change should result in
better and more consistent prices on
Auction executions and facilitate a fair
and orderly transition to continuous
trading.
The Exchange believes the proposal to
amend Rule 6.64P–O to remove specific
values or time periods when the
Exchange is authorized to change (and
in some cases has changed) such values/
timers by Trader Update would add
clarity and transparency to the rule and
alleviate potential confusion resulting
from stale values remaining in rule text.
As such, this proposed change would
remove impediments to, and perfect the
mechanism of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes the proposed
change to make clear that the
Exchange’s discretion to modify the
Maximum Calculated NBBO Spread that
would qualify as a Legal Width Quote
during the Auction Process would
promote just and equitable principles of
trade to the benefit of investors because
such change would add clarity and
transparency to the rule and help avoid
potential investor confusion. The
proposed change would also align the
Exchange’s rule text with that of Cboe
and its affiliates with regard to the
specific discretion applying during the
Auction Process.48
The Exchange believes the proposal to
amend Rule 6.64P–O(d)(4) to allow the
Exchange to conduct an Auction on a
47 15
U.S.C. 78f(b)(5).
supra note 32 (citing the discretion of Cboe
and its affiliates to modify the opening auction
parameters during the opening process).
48 See
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wide Calculated NBBO once it has
cancelled certain trading interest would
promote just and equitable principles of
trade and remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and protect investors. In
particular, the Exchange believes that
the proposed change would improve the
speed and efficiency of the Exchange’s
opening process without impairing
price discovery, which should result in
better and more consistent prices on
Auction executions. The proposed
cancellation of Market Orders, MOO
Orders, and Limit Orders to buy (sell)
priced equal to or higher (lower) than
the Indicative Match Price, would allow
the Exchange to proceed with a timely
opening of each series while preventing
extreme executions for series opened
based on a wide Calculated NBBO. The
proposal to cancel Limit Orders to buy
(sell) priced equal to or higher (lower)
than the Indicative Match Price when
the Calculated NBBO is wider than the
Legal Width Quote, which functionality
is new, would allow the Exchange to
help ensure that potentially executable
Limit Orders would be cancelled rather
than execute at potentially extreme
prices before the Exchange transitions to
continuous trading (in a wide market).
As such, the Exchange believes that
providing for the cancellation of
potentially executable interest (Market
Orders, MOOs and Limit Orders alike)
would protect investors as it would
continue to limit the risk of execution
of orders at extreme prices.
The Exchange believes its proposed
conforming change to eliminate as
unnecessary Rule 6.64P–O(d)(4)(B)
given the changes to Rule 6.64P–O(d)(4)
(to allow any series that has not opened
by the end of the initial Auction Process
time period the ability to open based on
a wide Calculated NBBO after
cancelling executable interest) would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and
protect investors because it would allow
the Exchange to proceed with a more
timely opening of each series—which
opening may have otherwise been
delayed per the current Pillar Rule until
market conditions changed. Further, the
Exchange believes this conforming
change would add clarity, specificity,
transparency, and internal consistency
to the proposed rule making it easier for
market participants to navigate and
comprehend.
The Exchange proposes to modify
Rule 6.64P–O(c) to authorize the
Exchange to modify the time within
which it updates Auction Imbalance
Information and to announce any such
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changes by Trader Update would
promote just and equitable principles of
trade and remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and protect investors because
the Exchange anticipates that as a result
of its proposed changes to the Auction
Process that updates the Auction
Imbalance Information may not be
required as frequently as is set forth in
the current rule. The Exchange believes
that the flexibility afforded by the
proposed change would enable it to
monitor client feedback and to then
determine the appropriate frequency of
the publication of the Auction
Imbalance Information. In addition,
consistent with the rules of other
options exchanges, it would afford the
Exchange flexibility, including to
respond to market conditions.49
The Exchange believes its proposal to
modify the requirements to open a
series for option series that have two or
more assigned Market Makers would
promote just and equitable principles of
trade and remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and protect investors because it
would continue to provide Market
Makers assigned to such series the
opportunity to submit a quote while
potentially promoting a more timely
opening once at least two quotes (even
if from a single Market Maker) have
been submitted and would add clarity
and transparency to Exchange rules. The
Exchange believes the proposed rule
change would provide more flexibility
in terms of how market depth in the
affected series 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 proposed change
may increase the availability of Legal
Width Quotes in more series and would
add clarity and transparency to
Exchange rules. Improving the validity
of the opening price benefits all market
participants and also benefits the
reputation of the Exchange as being a
venue that provides accurate price
discovery. To the extent that this
proposed rule change results in an
option series opening sooner, which, in
turn would increase the times during
which investors may conduct trading in
these options, this proposed change
would benefit investors and the
investing public.
49 See supra note 41 (regarding NOM’s discretion
to establish intervals for its dissemination of an
Order Imbalance Indicator and to post such
interval(s) to NOM’s website, per Section 8(b)(3)).
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The Exchange believes that the
proposed non-substantive and
conforming changes to Rule 6.64P–O
(including to delete paragraph (d)(4)(B))
would promote just and equitable
principles of trade because such
changes would streamline Rule 6.64P–
O, thus adding clarity to the Auction
Process making it easier to comprehend
and navigate to the benefit of market
participants and would promote
transparency and internal consistency
within Exchange rules making them
easier to comprehend and navigate.
Additional Proposed Non-Substantive
or Clarifying Changes to Exchange Rules
The Exchange believes that the
proposed non-substantive and clarifying
changes that update/correct inaccurate
references would promote transparency
and internal consistency within
Exchange rules making them easier to
comprehend and navigate.50
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange operates in a competitive
market and regularly competes with
other options exchanges for order flow.
The Exchange does not believe that the
proposed rule change would impose any
burden on intra-market competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because all market participants may
trade in any series that opens subject to
the proposed (modified) opening
process.
The Exchange believes that the
proposed change to the Auction Process,
which would allow certain unopened
series to open in a wide market after the
Exchange first cancelled potentially
executable interest, would not impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act
because it is designed to open series on
the Exchange in a fair, orderly and
timely manner while at the same time
mitigating the potential for extreme
executions. Further, the Exchange does
not believe that the proposed rule
change will impose any burden on intramarket competition that is not necessary
or appropriate in furtherance of the
purposes of the Act, as all market
participants that participate in the
opening process may benefit equally
from the proposal, as the rules of the
50 See
supra notes 43–45.
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Exchange apply equally to all market
participants.
The Exchange does not believe that
the proposed change to open those
series with more than one assigned
Market Maker based on two quotes
regardless of the source would result in
an undue burden on competition.
Market Makers are encouraged but not
required to quote in their assigned series
at the open regardless of whether a
Market Maker is one of several assigned
to a series or is the only one. As such,
this proposal would not subject any
Market Maker to additional obligations.
Thus, the Exchange does not believe
this proposed change would result in an
undue burden on intra-market
competition as it would apply equally to
all similarly-situated Market Makers
regarding their assigned series. The
Exchange believes that the proposal to
allow a series with more than one
assigned Market Maker to open based on
two quotes regardless of the source
would continue to encourage
participation of Market Makers at the
open, may increase the availability of
Legal Width Quotes in more series,
thereby allowing more series to open
(sooner). Improving the validity of the
opening price benefits all market
participants and also benefits the
reputation of the Exchange as being a
venue that provides accurate price
discovery. With respect to inter-market
competition, the Exchange notes that
most options exchanges do not require
Market Makers to quote during the
opening.51
Additionally, the non-substantive
changes proposed by the Exchange,
including removing reference to specific
values or time periods where the
Exchange has discretion to modify such
values/timers by Trader Update, provide
additional clarity and detail in the
Exchange’s rules, reduce the potential
for investor confusion, and are not
changes made for any competitive
purpose.
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. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 2, is
consistent with the Act and the rules
and regulations thereunder applicable to
51 See,
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PO 00000
a national securities exchange.52 In
particular, the Commission finds that
the proposed rule change, as modified
by Amendment No. 2, is consistent with
Section 6(b)(5) of the Act,53 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 foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest, and that the rules of a
national securities exchange not be
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
Proposed Change to the Pillar Auction
Process
The Commission believes that the
proposal to define the term ‘‘initial
Auction Process time period’’ 54 is
consistent with the Exchange’s
discretion, under current NYSE Arca
Rule 6.64P–O(d)(4), to modify the
ninety second time period referenced in
NYSE Arca Rule 6.64P–O(d)(4),
provided that any such changes are
announced by Trader Update.55 The
Exchange represents that it has modified
this time period by Trader Update since
adopting the Pillar Rule.56 Similarly, the
proposed change to remove reference to
‘‘30 seconds’’ as the default value for the
length of each MMQ Opening Timer 57
is consistent with the Exchange’s
discretion to modify this value, as
specified by Trader Update, under
current NYSE Arca Rule 6.64P–O(d)(3).
The Exchange represents that it has
modified this time period since
adopting the Pillar Rule.58 The proposed
52 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
53 15 U.S.C. 78f(b)(5).
54 See Proposed NYSE Arca Rule 6.64P–O(a)(5)(i).
55 See NYSE Arca Rule 6.64P–O(d)(4).
56 See supra note 27 and accompanying text
(describing how, on August 19, 2002, the Exchange
announced by Trader Update that, effective August
22, 2022, ‘‘the Exchange will reduce the time period
after the start of the Auction Process when the
Exchange may open a series on a quote without
requiring a Legal Width Quote (provided there is no
crossing interest) to 15 seconds, from the current 90
seconds,’’ available at https://www.nyse.com/
trader-update/history#110000462552.
57 See Proposed NYSE Arca Rule 6.64P–O(d)(3).
58 See supra note 29 and accompanying text
(describing how, on August 19, 2022, the Exchange
announced by Trader Update that effective August
22, 2022, each Opening MMQ Timer will be
e.g., Cboe and its affiliated exchanges.
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changes would thus update and align
Exchange rules with current Exchangespecified time periods under current
NYSE Arca Rule 6.64–P–O(d)(4) and
NYSE Arca Rule 6.64P–O(d)(3), thereby
enhancing transparency to and
promoting a fair and orderly Auction
Process.
The Commission believes that the
proposal to specify that the maximum
allowable spread between the
Calculated NBBO that is determined by
the Exchange for each option contract
on a class basis may be modified by the
Exchange during the Auction Process,
and that such maximum differentials,
including any modifications thereto,
will be announced by Trader Update 59
would, consistent with current NYSE
Arca Rule 6.64P–O(a)(10), clarify that
the Exchange has discretion to modify
such maximum differentials during the
Auction Process, and that any
modifications to such maximum
differentials would be announced by
Trader Update, consistent with the
current NYSE Arca rule.60 The
Commission thus believes that this
proposal would add greater specificity
to the current rule text, thereby
enhancing clarity and transparency for
and to the benefit of all market
participants.61
The Commission believes that the
proposal to provide that the Exchange
may open a series that has not opened
by the end of the initial Auction Process
time period when the spread of the
Calculated NBBO is wider than that
required to constitute a Legal Width
Quote, provided that the Exchange
cancels potentially executable interest
before proceeding to continuous trading
under NYSE Arca Rule 6.64P–O(f),62
would allow the Exchange to timely
open an option series in such instances,
reduced to 5 seconds, from the current value of 30
seconds).
59 See Proposed NYSE Arca Rule 6.64P–
O(a)(10)(C).
60 See NYSE Arca Rule 6.64P–O(a)(10)(C)
(providing that, a ‘‘Legal Width Quote’’ is a
Calculated NBBO that, among other requirements,
has a spread between the Calculated NBBO for each
option contract that does not exceed a maximum
differential that is determined by the Exchange on
a class basis and announced by Trader Update,
provided that a Trading Official may establish
differences other than the above for one or more
series or classes of options).
61 Other options exchange rules specify that the
exchange has discretion to modify the opening
parameters for each option series during the
opening auction process, provided each such
change is announced to market participants. See,
e.g., Cboe Options Exchange, Inc. (‘‘Cboe’’) Rule
5.31(a) (defining the term ‘‘Maximum Composite
Width); Cboe EDGX Options Exchange, Inc.
(‘‘EDGX’’) Rule 21.7(a).
62 See Proposed NYSE Arca Rule 6.64P–O(d)(4).
The proposed rule also requires, among other
things, a Calculated NBBO that is not crossed and
that does not contain a zero offer. See id.
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while protecting such canceled auction
interest from potentially executing at
unexpectedly extreme prices.63
As proposed in Amendment No. 2,
before the Exchange can open a series
with a quote and transition to
continuous trading when the spread of
the Calculated NBBO is wider than the
Legal Width Quote, the Exchange must
first cancel Market Orders, MOO Orders,
and Limit Orders to buy (sell) priced
equal to or higher (lower) than the
Indicative Match Price.64 The
Commission believes that this proposed
measure to cancel potentially executable
interest 65 before the Exchange proceeds
to continuous trading, with the Auction
resulting in a quote, is reasonably
designed to remove impediments to the
timely opening of a series while also
protecting investors and the public
interest by protecting potentially
executable auction interest from
potentially executing at unexpectedly
extreme prices before transitioning to
continuous trading pursuant to NYSE
Arca Rule 6.64P–O(f). Therefore, the
Commission believes that the proposed
rule change, as modified by Amendment
No. 2, is consistent with the Act.
The Commission believes that
proposed conforming changes to delete
63 Consistent with this change, the Exchange
proposes to add a caveat to NYSE Arca Rule 6.64P–
O(d)(2)(A)—which provides for the trading of
certain executable interest at the Indicative Match
Price—to make clear that the trading behavior set
forth in this provision is subject to Proposed NYSE
Arca Rule 6.64P–O(d)(4). The Exchange notes that,
although the functionality set forth in NYSE Arca
Rule 6.64P–O(d) is designed to allow the affected
series to open on a quote (and not a trade), the
Exchange acknowledges the possibility that such
series may open on a trade because orders or quotes
may arrive as the Exchange is evaluating trading
interest and whether such interest qualifies as a
Legal Width Quote. See, e.g., supra Section II;
Proposed NYSE Arca Rules 6.64P–O(d)(2)(A),
6.64P–O(d)(4).
64 See Proposed NYSE Arca Rule 6.64P–O(d)(4).
In a related change, the Exchange is also proposing
to re-locate the text regarding the potential race
condition resulting in a trade from Rule 6.64P–
O(d)(4)(A) to Proposed NYSE Arca Rule 6.64P–
O(d)(4) and to replace reference to ‘‘Auction’’ with
‘‘Auction Process’’ in NYSE Arca Rule 6.64P–
(O)(d)(4) for the sake of clarity. As a conforming
change, the Exchange is also proposing to delete
current paragraph (d)(4)(A) of the Pillar Rule as
obsolete because the text describing the opening
based on a wide Calculated NBBO is contained in
Proposed NYSE Arca Rule 6.64P–O(d)(4), and the
transition to continuous trading is no longer
dependent upon the presence of Matched Volume
under the proposed rules. See, e.g., NYSE Arca Rule
6.65P–O(d)(4)(A); Proposed NYSE Arca Rule
6.64(d)(4).
65 The Exchange represents that, pursuant to
NYSE Arca Rule 6.64P–O(f)(1)–(3), Auction interest
that is not cancelled in the particular series that
open per Proposed NYSE Arca Rule 6.64P–O(d)(4)
would be handled in the same manner as all other
Auction interest that is present when the Exchange
transitions from the Auction Process to continuous
trading under Exchange rules. See supra note 39
and accompanying text.
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NYSE Arca Rule 6.64P–O(d)(4)(B) as
unnecessary would provide greater
clarity and promote internal consistency
among Exchange rules because
proposed changes to NYSE Arca Rule
6.64P–O(d)(4) would render such rule
obsolete.66
The Commission believes that the
related proposed rule change to
authorize the Exchange to modify the
frequency with which it updates
Auction Imbalance Information,
provided such changes are announced
by Trader Update,67 is consistent with
the proposed changes to NYSE Arca
Rule 6.64P–O(d)(4) allowing the
Exchange to open a series on a quote
following the Initial Auction Process
time period after canceling potentially
executable interest. The current rule 68
provides for the publication of Auction
Imbalance Information at least every
second,69 and the Exchange represents
that, given the proposal to cancel
potentially executable interest under
proposed changes to NYSE Arca Rule
6.64P–O(c), it may not be necessary to
update Auction Imbalance Information
with such frequency. The Commission
believes that the proposal thus provides
the Exchange with the flexibility to
monitor the impact of the proposed rule
change so as to better assess the
appropriate frequency for publication of
Auction Imbalance Information that
would continue to provide market
participants with the transparency
necessary to participate in and benefit
from the price discovery that may take
place during the opening auction,
consistent with the interests of market
participants and a fair and orderly
auction process.70
In addition, the Commission believes
that the proposal to modify the
66 See supra Section II (describing how proposed
changes to NYSE Arca Rule 6.64P–O(d)(4), which
would allow any series that has not opened by the
end of the initial Auction Process time period the
ability to open on a quote, provided that the
Exchange cancels potentially executable interest
before proceeding to continuous trading, based on
a wide Calculated NBBO, would render NYSE Arca
Rule 6.64P–O(d)(4)(B) obsolete because it
contemplates a series not being able to open
because the spread of the Calculated NBBO is wider
than, and thus does not qualify as, a Legal Width
Quote).
67 See Proposed NYSE Arca Rule 6.64P–O(c).
68 See NYSE Arca Rule 6.64P–O(c).
69 NYSE Arca Rule 6.64P–O(c) provides that
‘‘Auction Imbalance Information is updated at least
every second until the Auction is conducted, unless
there is no change to the information. The Exchange
will begin disseminating Auction Imbalance
Information at the following times: (1) Core Open
Auction Imbalance Information will begin at 8:00
a.m. Eastern Time. (2) Trading Halt Auction
Imbalance Information will begin at the beginning
of the trading halt.’’
70 Other options market rules provide options
exchanges with similar discretion. See, e.g., Nasdaq
Options Market Section 8(b)(3).
E:\FR\FM\10NON1.SGM
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Federal Register / Vol. 87, No. 217 / Thursday, November 10, 2022 / Notices
requirements to open a series during the
Initial Auction Process time period for
option series with two or more assigned
Market Makers by requiring, among
other things,71 that at least two quotes
with a non-zero offer be submitted by
any single Market Maker, rather than
from two assigned Market Makers, as
under the current rule,72 would
continue to encourage Market Makers to
quote during the opening process, while
also providing additional flexibility
with respect to how market depth in the
affected series is established, thereby
facilitating price discovery consistent
with then current market conditions.
Other Exchange Rules: Proposed NonSubstantive Changes
The Commission believes the
proposed non-substantive changes to
certain Exchange rules 73 do not raise
regulatory issues as they would, among
other things, correct typographical
errors, conform current rules to
proposed changes, and correct or update
certain cross references, thereby
promoting ease of use for market
participants and enhancing the internal
consistency of Exchange rules.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 2, is consistent with Section 6(b)(5)
of the Act 74 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Solicitation of Comments on
Amendment No. 2 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning whether
Amendment No. 2 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–2022–31 on the subject
line.
lotter on DSK11XQN23PROD with NOTICES1
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
71 See Proposed NYSE Arca Rule 6.64P–
O(d)(3)(C).
72 See NYSE Arca Rule 6.64P–O(d)(3)(c).
73 See, e.g., supra Section II; Proposed NYSE Arca
Rules 6.37O, 6.62P–O, 6.64P–O(d)(3)–(4).
74 15 U.S.C. 78f(b)(5).
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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
December 1, 2022.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 2, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 2 in the Federal
Register.
The Commission believes there is
good cause for the Commission to
accelerate effectiveness of the proposed
rule change because, as proposed, the
changes set forth in Amendment No 2,
including the cancellation of potentially
executable interest before proceeding to
continuous trading under Exchange
rules,75 would remove impediments to
and enable the Exchange to proceed
with the timely opening of option series
that have not opened by the end of the
initial Auction Process time period
because the spread of the Calculated
NBBO is wider than that required to
75 See
PO 00000
Proposed NYSE Arca Rule 6.64P–O(d)(4).
Frm 00125
Fmt 4703
Sfmt 4703
67979
qualify as a Legal Width Quote,76 while
also protecting otherwise potentially
executable interest from trading at
prices that are potentially extreme.
In addition, the proposed changes to
specify that the Exchange may modify,
during the Auction Process, the
maximum differential for the spread
between the Calculated NBBO that is
established by the Exchange on a class
by class basis to qualify as a Legal
Width Quote, provided that any such
modification is announced by Trader
Update, as well as the proposed change
to allow the Exchange to modify the
frequency with which Auction
Imbalance Information is updated,
provided that any such change is
announced by Trader Update do not
raise regulatory issues as these
proposals provide greater specificity to
Exchange rules, are not novel, and are,
moreover, consistent with the rules of
other options exchanges,77 The
Commission believes that related
changes in Amendment No. 2, including
the proposal to remove specific values
or time periods when the Exchange is
authorized to change such values or
timers by Trader Update would provide
greater specificity to the Exchange’s
current rules, thereby enhancing
transparency, eliminating stale values,
and aligning the rules with current
Exchange practice, as the Exchange
represents that it has, on at least one
occasion, changed certain values by
Trader Update.78 Similarly, the
proposed non-substantive changes to
certain Exchange rules 79 do not raise
regulatory issues as they would correct
typographical errors, make conforming
changes to, as well as correct and
update certain cross references in
Exchange rules thereby promoting ease
of use for and enhancing the internal
consistency of Exchange rules to the
benefit of market participants.
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Act,80 to approve the proposed
rule change, as modified by Amendment
No. 2, on an accelerated basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,81 that the
proposed rule change (SR–NYSEARCA–
2022–31), as modified by Amendment
76 See Proposed NYSE Arca Rule 6.64P–O(d)(4).
The proposed rule change also requires, among
other things, that the Calculated NBBO is not
crossed and does not contain a zero offer. See id.
77 See supra, notes 32, 41 and accompanying text.
78 See supra notes 26, 29 and accompanying text.
79 See supra note 74 and accompanying text.
80 15 U.S.C. 78s(b)(2).
81 Id.
E:\FR\FM\10NON1.SGM
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67980
Federal Register / Vol. 87, No. 217 / Thursday, November 10, 2022 / Notices
No. 2 be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.82
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–24508 Filed 11–9–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96234; File No. SR–BOX–
2022–28]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fee
Schedule on the BOX Options Market
LLC Facility To Amend Certain Fees
and Rebates for Qualified Contingent
Cross Transactions
November 4, 2022.
lotter on DSK11XQN23PROD with NOTICES1
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
28, 2022, BOX Exchange LLC
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) of the
Act,3 and Rule 19b–4(f)(2) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend the Fee Schedule to amend
the certain fees and rebates for Qualified
Contingent Cross (‘‘QCC’’) transactions
on the BOX Options Market LLC
(‘‘BOX’’) options facility. The text of the
proposed rule change is available from
the principal office of the Exchange, at
the Commission’s Public Reference
Room and also on the Exchange’s
internet website at https://boxexchange.
com.
82 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
VerDate Sep<11>2014
17:43 Nov 09, 2022
Jkt 259001
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule for trading on BOX to
amend the certain fees and rebates for
Qualified Contingent Cross (‘‘QCC’’)
transactions.5 A QCC Order is defined
as an originating order (Agency Order)
to buy or sell at least 1,000 standard
option contracts, or 10,000 mini-option
contracts, that is identified as being part
of a qualified contingent trade, coupled
with a contra side order to buy or sell
an equal number of contracts.6
The Exchange proposes to amend the
transactions fees for all Broker Dealers
and Market Makers for their QCC
transactions on BOX. Specifically, the
Exchange proposes to increase the QCC
fees for Broker Dealers and Market
Makers to $0.20 from $0.17 for both the
Agency Order and the Contra Order.
The Exchange notes that the proposed
fees are identical to another exchange in
the industry.7
The Exchange also proposes to amend
certain rebates for QCC transactions.8
Specifically, the Exchange proposes to
amend the rebates in Tiers 2, 3, and 4,
for both Rebate 1 and Rebate 2 in the
QCC Rebate subsection. In Tier 2, if a
Participant’s QCC Agency Order
Volume on BOX is 1,500,000 to
2,499,999 contracts, the Exchange
proposes to increase Rebate 1 to $0.16
from $0.15 and increase Rebate 2 to
$0.24 from $0.23. In Tier 3, if a
5 BOX was made aware that competing options
exchanges intend to make similar changes to their
respective QCC fees and rebates effective for
October 3, 2022. As such, the Exchange is filing this
proposal so that BOX can remain competitive with
respect to QCC transactions within the options
industry.
6 See BOX Rule 7110(c)(6).
7 See Cboe EDGX Exchange, Inc. (‘‘CboeEDGX’’)
Fee Schedule.
8 The Exchange notes that the order volume
thresholds in Tiers 1 through 4 remain the same.
PO 00000
Frm 00126
Fmt 4703
Sfmt 4703
Participant’s QCC Agency Order
Volume on BOX is 2,500,000 to
3,499,999 contracts, the Exchange
proposes to increase Rebate 1 to $0.16
from $0.15 and increase Rebate 2 to
$0.25 from $0.24. Lastly, in Tier 4, if a
Participant’s QCC Agency Order
Volume on BOX is 3,500,000 contracts
or above, the Exchange proposes to
increase Rebate 1 to $0.17 from $0.15
and increase Rebate 2 to $0.27 from
$0.25. The Exchange notes that the
proposed rebates are in line with (or in
some instances higher than) rebates
currently assessed at another exchange.9
Lastly, the Exchange proposes to
delete the sentence in Section IV.D.1
that states that ‘‘if the Participant
qualifies for both rebates, only the larger
rebate will be applied to the QCC
transaction.’’ The Exchange notes that
under the current fee schedule, a market
participant can only qualify for 1 of the
2 rebates set forth in Section IV.D.1 and
therefore, the Exchange proposes to
remove this sentence.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the Act,
in general, and Section 6(b)(4) and
6(b)(5) of the Act,10 in particular, in that
it provides for the equitable allocation
of reasonable dues, fees, and other
charges among BOX Participants and
other persons using its facilities and
does not unfairly discriminate between
customers, issuers, brokers or dealers.
The Exchange believes that the
proposed changes to the QCC Rebate
structure are reasonable because the
proposed changes provide opportunities
for Participants to receive higher rebates
for increasing the Participant’s Agency
QCC Order volume on BOX. The
Exchange again notes that a volumebased incentive structure with similar
rebates for QCC transactions currently
exists at another exchange and that the
Exchange is filing this proposal so that
BOX can remain competitive with
respect to QCC transactions within the
options industry.11 The Exchange also
believes that the proposed QCC Rebates
are equitable and not unfairly
discriminatory as the proposed rebates
will apply uniformly to the Participants
that reach the applicable tiers. Further,
the Exchange continues to believe that
applying the proposed rebates where at
least one party to the QCC transaction
is a Broker Dealer or Market Maker is
reasonable, equitable, and not unfairly
discriminatory because Public
9 See
10 15
supra note 7.
U.S.C. 78f(b)(4) and (5).
11 Id.
E:\FR\FM\10NON1.SGM
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]]>Agencies
[Federal Register Volume 87, Number 217 (Thursday, November 10, 2022)]
[Notices]
[Pages 67972-67980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24508]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96242; File No. SR-NYSEARCA-2022-31]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 2 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 2, To Amend Rule
6.64P-O
November 4, 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 platform, 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\ On August 23, 2022, the Commission instituted proceedings
under Section 19(b)(2)(B) of the Act \6\ to determine whether to
approve or disapprove the proposed rule change.\7\ On October 25, 2022,
the Exchange filed Amendment No. 1 to the proposed rule change,\8\ and
on October 27, 2022, the Exchange filed Amendment No. 2 to the proposed
rule change,\9\ which replaced and superseded in their entirety both
the original filing and Amendment No. 1. The Commission has received no
comments on the proposed rule change.
[[Page 67973]]
The Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 2, from interested
persons and is approving the proposed rule change, as modified by
Amendment No. 2, on an accelerated basis.
---------------------------------------------------------------------------
\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).
\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).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 95581 (Aug. 23,
2022), 87 FR 52827 (Aug. 29, 2022).
\8\ Amendment No. 1 is available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/rule-filings/filings/2022/SR-NYSEArca-2022-31_Am._1.pdf.
\9\ Amendment No. 2 is available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/rule-filings/filings/2022/SR-NYSEArca-2022-31_Am._2.pdf.
---------------------------------------------------------------------------
II. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 2
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify 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.\10\ This Amendment No. 2
supersedes and replaces Amendment No. 1 to the original filing in its
entirety.\11\
---------------------------------------------------------------------------
\10\ Rule 6.64P-O (the ``Pillar Rule'') covers the opening and
reopening of option series, which process is identical on the Pillar
trading platform. As such, the Exchange will simply refer to the
``opening'' of a series herein. The Exchange completed its migration
to Pillar on July 28, 2022, as announced here: https://www.nyse.com/trader-update/history#110000440092.
\11\ This Amendment No. 2 updates information regarding the
Exchange's completed migration to Pillar and substantively modifies
the original filing as follows: (i) proposing additional discretion
for the Exchange to establish what constitutes a Legal Width Quote
during the Auction Process (ii) adopting a defined term of ``initial
Auction Process time period''; (iii) adopting functionality to
cancel, rather than execute in the Auction, certain Limit Orders
after the ``initial Auction Process time period'' has elapsed; (iv)
providing the Exchange discretion to modify by Trader Update the
timing for dissemination of Auction Imbalance Information; and (v)
removing the specified values for time periods that the Exchange has
discretion to modify by Trader Update (i.e., MMQ Opening Timers).
---------------------------------------------------------------------------
Current Pillar Auction Process
Rule 6.64P-O(d) sets forth the Auction Process.\12\ Per Rule 6.64P-
O(d)(1), once the Exchange receives the Auction Trigger for a
series,\13\ the Auction Process begins and the Exchange sends a
Rotational Quote \14\ 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.
---------------------------------------------------------------------------
\12\ ``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 Rule 6.64P-O(a)(5).
\13\ ``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 Rule 6.64P-O(a)(7).
\14\ ``Rotational Quote'' refers to the highest Market Maker bid
and lowest Market Maker offer on the Exchange when the Auction
Process begins and such Rotational Quote will be updated (for price
and size) during the Auction Process. See Rule 6.64P-O(a)(13).
---------------------------------------------------------------------------
Per Rule 6.64P-O(d)(2), once a Rotational Quote has been sent, the
Exchange conducts an Auction,\15\ 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 Rule 6.64P-
O(d)(3).\16\ 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.\17\ The Calculated NBBO is
comprised of the highest bid and lowest offer among all Market Maker
quotes and the ABBO during the Auction Process.\18\ 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.
---------------------------------------------------------------------------
\15\ ``Auction'' refers to the opening or reopening of a series
for trading either with or without a trade. See Rule 6.64P-O(a)(1).
\16\ See Rule 6.64P-O(d)(2). Rule 6.64P-O(d)(3) specifies the
parameters of the Opening MMQ Timers, which 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 would
add clarity and internal consistency to the rule. See proposed Rule
6.64P-O(d)(3).
\17\ See 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 Rule 6.64P-O(a)(10)(C).
\18\ See Rule 6.64P-O(a)(8) (defining Calculated NBBO).
---------------------------------------------------------------------------
If the foregoing requirements are met (i.e., per 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 \19\ that can trade at or within the Auction
Collars.\20\ 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.\21\ However, if there is no Matched Volume that can trade
at or within the Auction Collars, the Auction Process will instead
result in a quote and the Exchange transitions to continuous trading as
set forth in Rule 6.64P-O(f).\22\
---------------------------------------------------------------------------
\19\ ``Matched Volume'' refers to the number of buy and sell
contracts that can be matched at the Indicative Match Price,
excluding IO Orders. See 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 Rule 6.62P-O(c)(3).
\20\ ``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 Rule 6.64P-
O(a)(2).
\21\ See 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 Rule 6.64P-O(a)(9).
\22\ See Rule 6.64P-O(d)(2)(B).
---------------------------------------------------------------------------
Finally, per 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 (hereinafter
referred to as the ``initial Auction Process time period,'' as
described further below). After the initial Auction Process time
period, 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 Rule
6.64P-O(f).\23\ The Exchange, however, will not open a series and such
series will remain unopened 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) (i.e., there is no
Matched Volume and the Calculated NBBO is uncrossed and has a non-zero
offer); (iii) the series is halted; or (iv) the end of Core Trading
Hours.\24\ In other words, a series that does not meet the requirements
of Rule 6.64P-O(d)(4)(A) may be delayed in opening until one of the
conditions set forth in Rule 6.64P-O(d)(4)(B) occur.
---------------------------------------------------------------------------
\23\ See Rule 6.64P-O(d)(4)(A).
\24\ See Rule 6.64P-O(d)(4)(B).
---------------------------------------------------------------------------
[[Page 67974]]
Proposed Change to Auction Process
First, the Exchange proposes to codify existing rule text
(contained in paragraph (d)(4) of the Rule) into the defined phrase the
``initial Auction Process time period'' in proposed Rule 6.64P-
O(a)(5)(i).\25\ As proposed, the initial Auction Process time period
would mean, ``an Exchange-determined time period after the commencement
of the Auction Process as specified by Trader Update.\26\ Given that
the Exchange has discretion to modify the ``ninety second'' time period
referenced in Rule 6.64P-O(d)(4)--and has modified this time period
since adopting the Pillar Rule--the Exchange proposes to remove
reference to a specific time period, which would add clarity and
transparency to the Auction Process.\27\ Consistent with this change,
the Exchange likewise proposes to modify Rule 6.64P-O(d)(3), to remove
reference to ``30 seconds'' which is the default value for the length
of each MMQ Opening Timer, ``[u]nless otherwise specified by Trader
Update.'' \28\ Given that the Exchange has modified this time period
since adopting the Pillar Rule, the Exchange believes that removing
reference to a specific time period would add clarity and transparency
to the Auction Process.\29\
---------------------------------------------------------------------------
\25\ See 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:''). Consistent with the proposed defined term of
``initial Auction Process time period,'' the Exchange proposes to
remove the references to ninety (90) seconds.
\26\ See proposed Rule 6.64P-O(a)(5)(i) (defining ``initial
Auction Process time period'').
\27\ On August 19, 2002 [sic], the Exchange announced by Trader
Update that, effective August 22, 2022, ``the Exchange will reduce
the time period after the start of the Auction Process when the
Exchange may open a series on a quote without requiring a Legal
Width Quote (provided there is no crossing interest) to 15 seconds,
from the current 90 seconds,'' available here: https://www.nyse.com/trader-update/history#110000462552 (the ``Opening Timer Update'').
\28\ See proposed Rule 6.64P-O(d)(3) (providing that ``[e]ach
Opening MMQ Timer will be an Exchange-determined period that is
announced by Trader Update'').
\29\ See Opening Timer Trader Update, supra note 27 (announcing
that, effective August 22, 2022, each Opening MMQ Timer will be
reduced to 5 seconds, from the current value of 30 seconds). The
Exchange proposes the non-substantive change to re-organize the
existing text for clarity purposes (i.e., moving the clause ``[e]ach
opening MMQ Timer'' to the beginning of the proposed rule). See id.
---------------------------------------------------------------------------
Next, the Exchange proposes to modify Rule 6.64P-O(a)(10)(C) to
clarify the Exchange's discretion to determine the presence of a Legal
Width Quote. 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 (herein referred to as the ``Maximum
Calculated NBBO Spread'').\30\ The Exchange proposes to clarify that
the Exchange has authority to modify the Maximum Calculated NBBO Spread
during the Auction Process and that any such modifications (like the
Exchange-determined Maximum Calculated NBBO Spread) would likewise be
announced by Trader Update.\31\ This proposed clarification, which is
consistent with its existing authority under Rule 6.64P-O(a)(10), would
add specificity and transparency to the Auction Process to the benefit
of all market participants. The Exchange notes that other options
exchanges likewise specify that their discretion to modify the opening
parameters for each option series applies during the opening auction
process and likewise includes the requirement that each such change is
announced to their market participants.\32\
---------------------------------------------------------------------------
\30\ See Rule 6.64P-O(a)(10)(C) (which also provides a Trading
Official may establish maximum differentials for one or more series
or classes of options, which differ from those established by the
Exchange). To qualify as a Legal Width Quote, the Calculated NBBO
must also be uncrossed and must contain a non-zero offer, which
requirements are not being modified by this rule change. See Rule
6.64P-O(a)(10)(A)-(B).
\31\ See proposed Rule 6.64P-O(a)(10)(C). See Rule 6.64P-
O(a)(10)(A)-(B).
\32\ See, e.g., Cboe Options Exchange, Inc. (``Cboe'') Rule
5.31(a) (definitions of Maximum Composite Width and Opening Collar,
each of which the exchange ``may modify during the opening auction
process (which modifications the Exchange disseminates to all
subscribers to the Exchange's data feeds that deliver opening
auction updates)''); Cboe EDGX Options Exchange, Inc. (``EDGX'')
Rule 21.7(a) (same); Cboe BZX Options Exchange, Inc. (``BZX'') Rule
21.7(a) (definitions of Maximum Composite Width and Opening Collar);
Cboe C2 Exchange Inc. (``C2'') Rule 6.11(a) (same)).
---------------------------------------------------------------------------
The Exchange proposes to modify Rule 6.64P-O(d)(4) to provide that,
after the initial Auction Process time period has elapsed, the Exchange
may open a series when the Calculated NBBO is wider than the Legal
Width Quote, is not crossed, and does not contain a zero offer (the
``wide Calculated NBBO'') provided the Exchange first cancels certain
interest.\33\ Specifically, before the Exchange can open a series, with
a quote, and transition to continuous trading (per Rule 6.64P-O(f))
based on a wide Calculated NBBO, the Exchange must first cancel Market
Orders, MOO Orders, and Limit Orders to buy (sell) priced equal to or
higher (lower) than the Indicative Match Price.\34\ The Exchange
believes that the proposed cancellation of such executable Limit Orders
would help prevent executions at potentially extreme prices. Consistent
with this change, the Exchange proposes to add a caveat to Rule 6.64P-
O(d)(2)(A)--which provides for the trading of certain executable
interest at the Indicative Match Price--to make clear that the trading
behavior set forth in this provision is subject to proposed Rule 6.64P-
O(d)(4).\35\ Although the functionality set forth in Rule 6.64P-O(d) is
designed to allow the affected series to open on a quote (and not a
trade), the Exchange acknowledges the possibility that such series may
open on a trade because orders or quotes may arrive as the Exchange is
evaluating trading interest and whether such interest qualifies as a
Legal Width Quote.\36\
---------------------------------------------------------------------------
\33\ See proposed Rule 6.64P-O(d)(4). Consistent with the
proposed definition of the ``initial Auction Process time period''
and its use in the proposed rule, the Exchange proposes to delete
reference to ``ninety seconds'' regarding the Auction Process. See
id.
\34\ See proposed Rule 6.64P-O(d)(4). The Exchange proposes to
re-locate the text regarding the potential race condition resulting
in a trade from Rule 6.64P-O(d)(4)(A) to proposed Rule 6.64P-O(d)(4)
and to replace reference to ``Auction'' with ``Auction Process'' for
the sake of clarity as well as to delete current paragraph (d)(4)(A)
of the Pillar Rule as obsolete because the text describing the wide
Calculated NBBO is contained in proposed Rule 6.64P-O(d)(4) and the
transition to continuous trading is no longer dependent upon the
presence of Matched Volume under the proposed functionality. See id.
\35\ See proposed Rule 6.64P-O(d)(2)(A). As is the case today--
which behavior remains unchanged by proposed Rule 6.64P-O(d), the
Exchange will open on a quote and transition to continuous trading
(per Rule 6.64P-O(f)) in the absence of executable interest (i.e.,
there is no Matched Volume that can trade at or within the Auction
Collars). See Rule 6.64P-O(d)(2)(B).
\36\ See proposed Rule 6.64P-O(d)(4) (regarding the potential
race condition resulting in a trade).
---------------------------------------------------------------------------
The proposed cancellation of Market Orders and MOO Orders before
opening a series is consistent with the current Pillar Rule and thus
would continue to protect Market Orders and MOO Orders from being
executed before transitioning to continuous trading, per paragraph (f)
of the Pillar Rule when there is a wide Calculated NBBO.\37\ The
proposed cancellation of Limit Orders to buy (sell) priced equal to or
higher (lower) than the Indicative Match Price, is new. The Indicative
Match Price refers to the opening price for a series and represent the
price at which the maximum number of contracts can be traded in an
Auction. Thus, the proposal to cancel Limit Orders to buy (sell) priced
equal to or higher (lower) than the Indicative
[[Page 67975]]
Match Price when the Calculated NBBO is wider than the Legal Width
Quote would allow the Exchange to help ensure that potentially
executable Limit Orders would be cancelled rather than execute at
potentially extreme prices before the Exchange transitions to
continuous trading.\38\ The Exchange believes that this proposed
handling would likewise allow the Exchange to proceed with a timely
opening of each series--which opening would have otherwise been delayed
until market conditions changed per the current Pillar Rule.\39\
---------------------------------------------------------------------------
\37\ See 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''). The Exchange
believes this proposed change is non-substantive as it simply
relocates existing text in the more streamlined proposed rule.
\38\ The Exchange notes that ``[i]f there is no Legal Width
Quote, the Indicative Match Price included in the Auction Imbalance
Information will be calculated without Auction Collars.'' See Rule
6.64P-O(a)(9).
\39\ See, e.g., Rule 6.64P-O(d)(4)(A) and (B). The Exchange
notes that any Auction interest that is not cancelled in series that
open per proposed Rule 6.64P-O(d)(4) would be handled in the same
manner as all other Auction interest that is present when the
Exchange transitions from the Auction Process to continuous trading
per Rule 6.64P-O(f)(1)-(3).
---------------------------------------------------------------------------
Because the proposed change to Rule 6.64P-O(d)(4) would allow any
series that has not opened by the end of the initial Auction Process
time period the ability to open on a quote based on a wide Calculated
NBBO, the Exchange proposes to eliminate as unnecessary Rule 6.64P-
O(d)(4)(B), which paragraph contemplates a series not being able to
open because the Calculated NBBO is wider than--and thus does not
qualify as--a Legal Width Quote. The Exchange believes these proposed
conforming changes are necessary given that the proposed changes to
Rule 6.64P-O(d)(4) render paragraph (d)(4)(B) of the Rule unnecessary.
In addition, the Exchange proposes to modify Rule 6.64P-O(c), which
provides that ``Auction Imbalance Information is updated at least every
second until the Auction is conducted, unless there is no change to the
information,'' to authorize the Exchange to modify the time within
which it updates this information and to announce any such changes by
Trader Update.\40\ Given the proposed change to allow the Exchange to
open certain series after the initial Auction Process time period after
first cancelling certain interest, the Exchange anticipates that it may
not be necessary to update the Auction Imbalance Information at least
every second. The Exchange seeks flexibility in the frequency for
imbalance publication as it plans to monitor the impact of the proposed
change after which it will be in a position to better assess the
appropriate frequency for publication of the Auction Imbalance
Information. In addition, this proposed discretion, which is consistent
with other options exchanges, would afford the Exchange flexibility,
including to respond to market conditions.\41\
---------------------------------------------------------------------------
\40\ See proposed Rule 6.64P-O(c) (providing that ``[u]nless
otherwise provided by Trader Update, Auction Imbalance Information
is updated at least every second until the Auction is conducted,
unless there is no change to the information'').
\41\ See, e.g., Nasdaq Options Market (``NOM'') Section 8(b)(3)
(providing that ``Nasdaq shall disseminate by electronic means an
Order Imbalance Indicator every 5 seconds beginning between 9:20 and
9:28, or a shorter dissemination interval as established by the
Exchange, with the default being set at 9:25 a.m. The start of
dissemination, and a dissemination interval, shall be posted by
Nasdaq on its website.'').
---------------------------------------------------------------------------
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 Rule 6.64P-
O(d)(3)(C). Per Rule 6.64P-O(d)(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 Rule 6.64P-
O(d)(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.\42\
---------------------------------------------------------------------------
\42\ 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 Proposed Rules 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'').
---------------------------------------------------------------------------
The Exchange believes 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 believes 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 believes 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 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
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 Rule 6.37-O (Obligations of Market
Makers) regarding ``Unusual Conditions--Auctions'' to add an open
parenthesis in the cross reference to Rule 6.64P-O(a)(10).\43\ The
Exchange believes this proposed change would correct an inadvertent
omission and would add clarity and transparency to Exchange rules.
---------------------------------------------------------------------------
\43\ See proposed Rule 6.37-O(c).
---------------------------------------------------------------------------
Next, the Exchange proposes to correct several cross-references in
Rule 6.62P-O (Orders and Modifiers). The Exchange proposes to update
the reference in 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.\44\ The proposed change would correct an inadvertent
error adding clarity and transparency to Exchange rules. Similarly, the
Exchange proposes to update the reference in Rule 6.62P-O(h)(6)(B) to
correctly cross-reference the defined term Complex Order, which is set
forth in Rule 6.62P-O(f) (rather than paragraph (e)).\45\ The proposed
change would correct an inadvertent error adding clarity and
transparency to Exchange rules.
---------------------------------------------------------------------------
\44\ See proposed Rule 6.62P-O(e)(3)(C)(ii).
\45\ See proposed Rule 6.62P-O(h)(6)(B).
---------------------------------------------------------------------------
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\46\ in general, and
furthers the
[[Page 67976]]
objectives of Section 6(b)(5),\47\ in particular, because it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to, and perfect the mechanism of, a
free and open market and a national market system and, in general, to
protect investors and the public interest.
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78f(b).
\47\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Proposed Change to Pillar Auction Process
Overall, the Exchange believes the proposed changes to its Auction
Process would promote a fair and orderly market by mitigating the
potential for extreme executions when a series opens in a wide market
and improving the speed and efficiency of the Exchange's opening
process without impairing price discovery. The Exchange believes the
proposed change should result in better and more consistent prices on
Auction executions and facilitate a fair and orderly transition to
continuous trading.
The Exchange believes the proposal to amend Rule 6.64P-O to remove
specific values or time periods when the Exchange is authorized to
change (and in some cases has changed) such values/timers by Trader
Update would add clarity and transparency to the rule and alleviate
potential confusion resulting from stale values remaining in rule text.
As such, this proposed change would remove impediments to, and perfect
the mechanism of, a free and open market and a national market system
and, in general, to protect investors and the public interest.
The Exchange believes the proposed change to make clear that the
Exchange's discretion to modify the Maximum Calculated NBBO Spread that
would qualify as a Legal Width Quote during the Auction Process would
promote just and equitable principles of trade to the benefit of
investors because such change would add clarity and transparency to the
rule and help avoid potential investor confusion. The proposed change
would also align the Exchange's rule text with that of Cboe and its
affiliates with regard to the specific discretion applying during the
Auction Process.\48\
---------------------------------------------------------------------------
\48\ See supra note 32 (citing the discretion of Cboe and its
affiliates to modify the opening auction parameters during the
opening process).
---------------------------------------------------------------------------
The Exchange believes the proposal to amend Rule 6.64P-O(d)(4) to
allow the Exchange to conduct an Auction on a wide Calculated NBBO once
it has cancelled certain trading interest would promote just and
equitable principles of trade and remove impediments to and perfect the
mechanism of a free and open market and a national market system and
protect investors. In particular, the Exchange believes that the
proposed change would improve the speed and efficiency of the
Exchange's opening process without impairing price discovery, which
should result in better and more consistent prices on Auction
executions. The proposed cancellation of Market Orders, MOO Orders, and
Limit Orders to buy (sell) priced equal to or higher (lower) than the
Indicative Match Price, would allow the Exchange to proceed with a
timely opening of each series while preventing extreme executions for
series opened based on a wide Calculated NBBO. The proposal to cancel
Limit Orders to buy (sell) priced equal to or higher (lower) than the
Indicative Match Price when the Calculated NBBO is wider than the Legal
Width Quote, which functionality is new, would allow the Exchange to
help ensure that potentially executable Limit Orders would be cancelled
rather than execute at potentially extreme prices before the Exchange
transitions to continuous trading (in a wide market). As such, the
Exchange believes that providing for the cancellation of potentially
executable interest (Market Orders, MOOs and Limit Orders alike) would
protect investors as it would continue to limit the risk of execution
of orders at extreme prices.
The Exchange believes its proposed conforming change to eliminate
as unnecessary Rule 6.64P-O(d)(4)(B) given the changes to Rule 6.64P-
O(d)(4) (to allow any series that has not opened by the end of the
initial Auction Process time period the ability to open based on a wide
Calculated NBBO after cancelling executable interest) would remove
impediments to and perfect the mechanism of a free and open market and
a national market system and protect investors because it would allow
the Exchange to proceed with a more timely opening of each series--
which opening may have otherwise been delayed per the current Pillar
Rule until market conditions changed. Further, the Exchange believes
this conforming change would add clarity, specificity, transparency,
and internal consistency to the proposed rule making it easier for
market participants to navigate and comprehend.
The Exchange proposes to modify Rule 6.64P-O(c) to authorize the
Exchange to modify the time within which it updates Auction Imbalance
Information and to announce any such changes by Trader Update would
promote just and equitable principles of trade and remove impediments
to and perfect the mechanism of a free and open market and a national
market system and protect investors because the Exchange anticipates
that as a result of its proposed changes to the Auction Process that
updates the Auction Imbalance Information may not be required as
frequently as is set forth in the current rule. The Exchange believes
that the flexibility afforded by the proposed change would enable it to
monitor client feedback and to then determine the appropriate frequency
of the publication of the Auction Imbalance Information. In addition,
consistent with the rules of other options exchanges, it would afford
the Exchange flexibility, including to respond to market
conditions.\49\
---------------------------------------------------------------------------
\49\ See supra note 41 (regarding NOM's discretion to establish
intervals for its dissemination of an Order Imbalance Indicator and
to post such interval(s) to NOM's website, per Section 8(b)(3)).
---------------------------------------------------------------------------
The Exchange believes its proposal to modify the requirements to
open a series for option series that have two or more assigned Market
Makers would promote just and equitable principles of trade and remove
impediments to and perfect the mechanism of a free and open market and
a national market system and protect investors because it would
continue to provide Market Makers assigned to such series the
opportunity to submit a quote while potentially promoting a more timely
opening once at least two quotes (even if from a single Market Maker)
have been submitted and would add clarity and transparency to Exchange
rules. The Exchange believes the proposed rule change would provide
more flexibility in terms of how market depth in the affected series 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 proposed change may increase the availability of Legal
Width Quotes in more series and would add clarity and transparency to
Exchange rules. Improving the validity of the opening price benefits
all market participants and also benefits the reputation of the
Exchange as being a venue that provides accurate price discovery. To
the extent that this proposed rule change results in an option series
opening sooner, which, in turn would increase the times during which
investors may conduct trading in these options, this proposed change
would benefit investors and the investing public.
[[Page 67977]]
The Exchange believes that the proposed non-substantive and
conforming changes to Rule 6.64P-O (including to delete paragraph
(d)(4)(B)) would promote just and equitable principles of trade because
such changes would streamline Rule 6.64P-O, thus adding clarity to the
Auction Process making it easier to comprehend and navigate to the
benefit of market participants and would promote transparency and
internal consistency within Exchange rules making them easier to
comprehend and navigate.
Additional Proposed Non-Substantive or Clarifying Changes to Exchange
Rules
The Exchange believes that the proposed non-substantive and
clarifying changes that update/correct inaccurate references would
promote transparency and internal consistency within Exchange rules
making them easier to comprehend and navigate.\50\
---------------------------------------------------------------------------
\50\ See supra notes 43-45.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange operates in a
competitive market and regularly competes with other options exchanges
for order flow. The Exchange does not believe that the proposed rule
change would impose any burden on intra-market competition that is not
necessary or appropriate in furtherance of the purposes of the Act
because all market participants may trade in any series that opens
subject to the proposed (modified) opening process.
The Exchange believes that the proposed change to the Auction
Process, which would allow certain unopened series to open in a wide
market after the Exchange first cancelled potentially executable
interest, would not impose any burden on intermarket competition that
is not necessary or appropriate in furtherance of the purposes of the
Act because it is designed to open series on the Exchange in a fair,
orderly and timely manner while at the same time mitigating the
potential for extreme executions. Further, the Exchange does not
believe that the proposed rule change will impose any burden on intra-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act, as all market participants that participate
in the opening process may benefit equally from the proposal, as the
rules of the Exchange apply equally to all market participants.
The Exchange does not believe that the proposed change to open
those series with more than one assigned Market Maker based on two
quotes regardless of the source would result in an undue burden on
competition. Market Makers are encouraged but not required to quote in
their assigned series at the open regardless of whether a Market Maker
is one of several assigned to a series or is the only one. As such,
this proposal would not subject any Market Maker to additional
obligations. Thus, the Exchange does not believe this proposed change
would result in an undue burden on intra-market competition as it would
apply equally to all similarly-situated Market Makers regarding their
assigned series. The Exchange believes that the proposal to allow a
series with more than one assigned Market Maker to open based on two
quotes regardless of the source would continue to encourage
participation of Market Makers at the open, may increase the
availability of Legal Width Quotes in more series, thereby allowing
more series to open (sooner). Improving the validity of the opening
price benefits all market participants and also benefits the reputation
of the Exchange as being a venue that provides accurate price
discovery. With respect to inter-market competition, the Exchange notes
that most options exchanges do not require Market Makers to quote
during the opening.\51\
---------------------------------------------------------------------------
\51\ See, e.g., Cboe and its affiliated exchanges.
---------------------------------------------------------------------------
Additionally, the non-substantive changes proposed by the Exchange,
including removing reference to specific values or time periods where
the Exchange has discretion to modify such values/timers by Trader
Update, provide additional clarity and detail in the Exchange's rules,
reduce the potential for investor confusion, and are not changes made
for any competitive purpose.
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. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 2, is consistent with the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\52\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment No. 2, is consistent
with Section 6(b)(5) of the Act,\53\ 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 foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest, and that the rules of a
national securities exchange not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\52\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\53\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Proposed Change to the Pillar Auction Process
The Commission believes that the proposal to define the term
``initial Auction Process time period'' \54\ is consistent with the
Exchange's discretion, under current NYSE Arca Rule 6.64P-O(d)(4), to
modify the ninety second time period referenced in NYSE Arca Rule
6.64P-O(d)(4), provided that any such changes are announced by Trader
Update.\55\ The Exchange represents that it has modified this time
period by Trader Update since adopting the Pillar Rule.\56\ Similarly,
the proposed change to remove reference to ``30 seconds'' as the
default value for the length of each MMQ Opening Timer \57\ is
consistent with the Exchange's discretion to modify this value, as
specified by Trader Update, under current NYSE Arca Rule 6.64P-O(d)(3).
The Exchange represents that it has modified this time period since
adopting the Pillar Rule.\58\ The proposed
[[Page 67978]]
changes would thus update and align Exchange rules with current
Exchange-specified time periods under current NYSE Arca Rule 6.64-P-
O(d)(4) and NYSE Arca Rule 6.64P-O(d)(3), thereby enhancing
transparency to and promoting a fair and orderly Auction Process.
---------------------------------------------------------------------------
\54\ See Proposed NYSE Arca Rule 6.64P-O(a)(5)(i).
\55\ See NYSE Arca Rule 6.64P-O(d)(4).
\56\ See supra note 27 and accompanying text (describing how, on
August 19, 2002, the Exchange announced by Trader Update that,
effective August 22, 2022, ``the Exchange will reduce the time
period after the start of the Auction Process when the Exchange may
open a series on a quote without requiring a Legal Width Quote
(provided there is no crossing interest) to 15 seconds, from the
current 90 seconds,'' available at https://www.nyse.com/trader-update/history#110000462552.
\57\ See Proposed NYSE Arca Rule 6.64P-O(d)(3).
\58\ See supra note 29 and accompanying text (describing how, on
August 19, 2022, the Exchange announced by Trader Update that
effective August 22, 2022, each Opening MMQ Timer will be reduced to
5 seconds, from the current value of 30 seconds).
---------------------------------------------------------------------------
The Commission believes that the proposal to specify that the
maximum allowable spread between the Calculated NBBO that is determined
by the Exchange for each option contract on a class basis may be
modified by the Exchange during the Auction Process, and that such
maximum differentials, including any modifications thereto, will be
announced by Trader Update \59\ would, consistent with current NYSE
Arca Rule 6.64P-O(a)(10), clarify that the Exchange has discretion to
modify such maximum differentials during the Auction Process, and that
any modifications to such maximum differentials would be announced by
Trader Update, consistent with the current NYSE Arca rule.\60\ The
Commission thus believes that this proposal would add greater
specificity to the current rule text, thereby enhancing clarity and
transparency for and to the benefit of all market participants.\61\
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\59\ See Proposed NYSE Arca Rule 6.64P-O(a)(10)(C).
\60\ See NYSE Arca Rule 6.64P-O(a)(10)(C) (providing that, a
``Legal Width Quote'' is a Calculated NBBO that, among other
requirements, has a spread between the Calculated NBBO for each
option contract that does not exceed a maximum differential that is
determined by the Exchange on a class basis and announced by Trader
Update, provided that a Trading Official may establish differences
other than the above for one or more series or classes of options).
\61\ Other options exchange rules specify that the exchange has
discretion to modify the opening parameters for each option series
during the opening auction process, provided each such change is
announced to market participants. See, e.g., Cboe Options Exchange,
Inc. (``Cboe'') Rule 5.31(a) (defining the term ``Maximum Composite
Width); Cboe EDGX Options Exchange, Inc. (``EDGX'') Rule 21.7(a).
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The Commission believes that the proposal to provide that the
Exchange may open a series that has not opened by the end of the
initial Auction Process time period when the spread of the Calculated
NBBO is wider than that required to constitute a Legal Width Quote,
provided that the Exchange cancels potentially executable interest
before proceeding to continuous trading under NYSE Arca Rule 6.64P-
O(f),\62\ would allow the Exchange to timely open an option series in
such instances, while protecting such canceled auction interest from
potentially executing at unexpectedly extreme prices.\63\
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\62\ See Proposed NYSE Arca Rule 6.64P-O(d)(4). The proposed
rule also requires, among other things, a Calculated NBBO that is
not crossed and that does not contain a zero offer. See id.
\63\ Consistent with this change, the Exchange proposes to add a
caveat to NYSE Arca Rule 6.64P-O(d)(2)(A)--which provides for the
trading of certain executable interest at the Indicative Match
Price--to make clear that the trading behavior set forth in this
provision is subject to Proposed NYSE Arca Rule 6.64P-O(d)(4). The
Exchange notes that, although the functionality set forth in NYSE
Arca Rule 6.64P-O(d) is designed to allow the affected series to
open on a quote (and not a trade), the Exchange acknowledges the
possibility that such series may open on a trade because orders or
quotes may arrive as the Exchange is evaluating trading interest and
whether such interest qualifies as a Legal Width Quote. See, e.g.,
supra Section II; Proposed NYSE Arca Rules 6.64P-O(d)(2)(A), 6.64P-
O(d)(4).
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As proposed in Amendment No. 2, before the Exchange can open a
series with a quote and transition to continuous trading when the
spread of the Calculated NBBO is wider than the Legal Width Quote, the
Exchange must first cancel Market Orders, MOO Orders, and Limit Orders
to buy (sell) priced equal to or higher (lower) than the Indicative
Match Price.\64\ The Commission believes that this proposed measure to
cancel potentially executable interest \65\ before the Exchange
proceeds to continuous trading, with the Auction resulting in a quote,
is reasonably designed to remove impediments to the timely opening of a
series while also protecting investors and the public interest by
protecting potentially executable auction interest from potentially
executing at unexpectedly extreme prices before transitioning to
continuous trading pursuant to NYSE Arca Rule 6.64P-O(f). Therefore,
the Commission believes that the proposed rule change, as modified by
Amendment No. 2, is consistent with the Act.
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\64\ See Proposed NYSE Arca Rule 6.64P-O(d)(4). In a related
change, the Exchange is also proposing to re-locate the text
regarding the potential race condition resulting in a trade from
Rule 6.64P-O(d)(4)(A) to Proposed NYSE Arca Rule 6.64P-O(d)(4) and
to replace reference to ``Auction'' with ``Auction Process'' in NYSE
Arca Rule 6.64P-(O)(d)(4) for the sake of clarity. As a conforming
change, the Exchange is also proposing to delete current paragraph
(d)(4)(A) of the Pillar Rule as obsolete because the text describing
the opening based on a wide Calculated NBBO is contained in Proposed
NYSE Arca Rule 6.64P-O(d)(4), and the transition to continuous
trading is no longer dependent upon the presence of Matched Volume
under the proposed rules. See, e.g., NYSE Arca Rule 6.65P-
O(d)(4)(A); Proposed NYSE Arca Rule 6.64(d)(4).
\65\ The Exchange represents that, pursuant to NYSE Arca Rule
6.64P-O(f)(1)-(3), Auction interest that is not cancelled in the
particular series that open per Proposed NYSE Arca Rule 6.64P-
O(d)(4) would be handled in the same manner as all other Auction
interest that is present when the Exchange transitions from the
Auction Process to continuous trading under Exchange rules. See
supra note 39 and accompanying text.
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The Commission believes that proposed conforming changes to delete
NYSE Arca Rule 6.64P-O(d)(4)(B) as unnecessary would provide greater
clarity and promote internal consistency among Exchange rules because
proposed changes to NYSE Arca Rule 6.64P-O(d)(4) would render such rule
obsolete.\66\
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\66\ See supra Section II (describing how proposed changes to
NYSE Arca Rule 6.64P-O(d)(4), which would allow any series that has
not opened by the end of the initial Auction Process time period the
ability to open on a quote, provided that the Exchange cancels
potentially executable interest before proceeding to continuous
trading, based on a wide Calculated NBBO, would render NYSE Arca
Rule 6.64P-O(d)(4)(B) obsolete because it contemplates a series not
being able to open because the spread of the Calculated NBBO is
wider than, and thus does not qualify as, a Legal Width Quote).
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The Commission believes that the related proposed rule change to
authorize the Exchange to modify the frequency with which it updates
Auction Imbalance Information, provided such changes are announced by
Trader Update,\67\ is consistent with the proposed changes to NYSE Arca
Rule 6.64P-O(d)(4) allowing the Exchange to open a series on a quote
following the Initial Auction Process time period after canceling
potentially executable interest. The current rule \68\ provides for the
publication of Auction Imbalance Information at least every second,\69\
and the Exchange represents that, given the proposal to cancel
potentially executable interest under proposed changes to NYSE Arca
Rule 6.64P-O(c), it may not be necessary to update Auction Imbalance
Information with such frequency. The Commission believes that the
proposal thus provides the Exchange with the flexibility to monitor the
impact of the proposed rule change so as to better assess the
appropriate frequency for publication of Auction Imbalance Information
that would continue to provide market participants with the
transparency necessary to participate in and benefit from the price
discovery that may take place during the opening auction, consistent
with the interests of market participants and a fair and orderly
auction process.\70\
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\67\ See Proposed NYSE Arca Rule 6.64P-O(c).
\68\ See NYSE Arca Rule 6.64P-O(c).
\69\ NYSE Arca Rule 6.64P-O(c) provides that ``Auction Imbalance
Information is updated at least every second until the Auction is
conducted, unless there is no change to the information. The
Exchange will begin disseminating Auction Imbalance Information at
the following times: (1) Core Open Auction Imbalance Information
will begin at 8:00 a.m. Eastern Time. (2) Trading Halt Auction
Imbalance Information will begin at the beginning of the trading
halt.''
\70\ Other options market rules provide options exchanges with
similar discretion. See, e.g., Nasdaq Options Market Section
8(b)(3).
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In addition, the Commission believes that the proposal to modify
the
[[Page 67979]]
requirements to open a series during the Initial Auction Process time
period for option series with two or more assigned Market Makers by
requiring, among other things,\71\ that at least two quotes with a non-
zero offer be submitted by any single Market Maker, rather than from
two assigned Market Makers, as under the current rule,\72\ would
continue to encourage Market Makers to quote during the opening
process, while also providing additional flexibility with respect to
how market depth in the affected series is established, thereby
facilitating price discovery consistent with then current market
conditions.
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\71\ See Proposed NYSE Arca Rule 6.64P-O(d)(3)(C).
\72\ See NYSE Arca Rule 6.64P-O(d)(3)(c).
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Other Exchange Rules: Proposed Non-Substantive Changes
The Commission believes the proposed non-substantive changes to
certain Exchange rules \73\ do not raise regulatory issues as they
would, among other things, correct typographical errors, conform
current rules to proposed changes, and correct or update certain cross
references, thereby promoting ease of use for market participants and
enhancing the internal consistency of Exchange rules.
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\73\ See, e.g., supra Section II; Proposed NYSE Arca Rules
6.37O, 6.62P-O, 6.64P-O(d)(3)-(4).
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For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 2, is consistent with Section
6(b)(5) of the Act \74\ and the rules and regulations thereunder
applicable to a national securities exchange.
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\74\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 2 is consistent with the
Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEARCA-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 December 1, 2022.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 2, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
2 in the Federal Register.
The Commission believes there is good cause for the Commission to
accelerate effectiveness of the proposed rule change because, as
proposed, the changes set forth in Amendment No 2, including the
cancellation of potentially executable interest before proceeding to
continuous trading under Exchange rules,\75\ would remove impediments
to and enable the Exchange to proceed with the timely opening of option
series that have not opened by the end of the initial Auction Process
time period because the spread of the Calculated NBBO is wider than
that required to qualify as a Legal Width Quote,\76\ while also
protecting otherwise potentially executable interest from trading at
prices that are potentially extreme.
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\75\ See Proposed NYSE Arca Rule 6.64P-O(d)(4).
\76\ See Proposed NYSE Arca Rule 6.64P-O(d)(4). The proposed
rule change also requires, among other things, that the Calculated
NBBO is not crossed and does not contain a zero offer. See id.
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In addition, the proposed changes to specify that the Exchange may
modify, during the Auction Process, the maximum differential for the
spread between the Calculated NBBO that is established by the Exchange
on a class by class basis to qualify as a Legal Width Quote, provided
that any such modification is announced by Trader Update, as well as
the proposed change to allow the Exchange to modify the frequency with
which Auction Imbalance Information is updated, provided that any such
change is announced by Trader Update do not raise regulatory issues as
these proposals provide greater specificity to Exchange rules, are not
novel, and are, moreover, consistent with the rules of other options
exchanges,\77\ The Commission believes that related changes in
Amendment No. 2, including the proposal to remove specific values or
time periods when the Exchange is authorized to change such values or
timers by Trader Update would provide greater specificity to the
Exchange's current rules, thereby enhancing transparency, eliminating
stale values, and aligning the rules with current Exchange practice, as
the Exchange represents that it has, on at least one occasion, changed
certain values by Trader Update.\78\ Similarly, the proposed non-
substantive changes to certain Exchange rules \79\ do not raise
regulatory issues as they would correct typographical errors, make
conforming changes to, as well as correct and update certain cross
references in Exchange rules thereby promoting ease of use for and
enhancing the internal consistency of Exchange rules to the benefit of
market participants. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\80\ to approve the proposed
rule change, as modified by Amendment No. 2, on an accelerated basis.
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\77\ See supra, notes 32, 41 and accompanying text.
\78\ See supra notes 26, 29 and accompanying text.
\79\ See supra note 74 and accompanying text.
\80\ 15 U.S.C. 78s(b)(2).
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