Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed New Rule 980NYP and Conforming Amendments to Rule 935NY, 16467-16484 [2023-05444]

Download as PDF Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest as the proposed rule change does not raise new or novel issues. Accordingly, the Commission hereby waives the operative delay and designates the proposal operative upon filing.13 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: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BOX–2023–08 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. All submissions should refer to File Number SR–BOX–2023–08. 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 13 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 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–BOX–2023–08, and should be submitted on or before April 7, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–05446 Filed 3–16–23; 8:45 am] BILLING CODE 8011–01–P 16467 on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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 SECURITIES AND EXCHANGE COMMISSION 1. Purpose [Release No. 34–97125; File No. SR– NYSEAMER–2023–17] The Exchange plans to transition its options trading platform to its Pillar technology platform. The Exchange’s affiliated options exchange, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Arca Options’’) is currently operating on Pillar, as are the Exchange’s national securities exchange affiliates’ cash equity markets.3 For this transition, the Exchange proposes to use the same Pillar technology already in operation on Arca Options.4 In doing so, the Exchange will be able to offer not only common specifications for connecting to both of its options markets, but also common trading functions. The Exchange plans to roll out the new technology platform over a period of time based on a range of symbols beginning on October 23, 2023.5 In this regard, the Exchange recently filed a proposal to add new rules to reflect the priority and allocation of Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed New Rule 980NYP and Conforming Amendments to Rule 935NY March 13, 2023. 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 February 28, 2023, NYSE American LLC (‘‘NYSE American’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes new Rule 980NYP (Electronic Complex Order Trading) to reflect the implementation of the Exchange’s Pillar trading technology on its options market and to make conforming amendments to Rule 935NY (Order Exposure Requirements). The proposed rule change is available 14 17 CFR 200.30–3(a)(12), (59). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 Background 3 The Exchange’s national securities exchange affiliates’ cash equity markets include: the New York Stock Exchange LLC, NYSE Arca, Inc., NYSE National, Inc., and NYSE Chicago, Inc. (collectively, the ‘‘NYSE Equities Exchanges’’). 4 See Arca Options Rule 6.91P–O. See also Securities Exchange Act Release No. 92563 (August 4, 2021), 86 FR 43704 (August 10, 2021) (Notice of Filing of Amendment Nos. 1 and 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, to Adopt New Exchange Rule 980NYP, regarding complex order trading on Pillar) (‘‘Arca Options Approval Order’’). 5 See Trader Update, January 30, 2023 (announcing Pillar Migration Launch date of October 23, 2023 for the Exchange), available here, https://www.nyse.com/trader-update/ history#110000530919. E:\FR\FM\17MRN1.SGM 17MRN1 16468 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 options on the Exchange once Pillar is implemented.6 The current proposal sets forth how Electronic Complex Orders 7 would trade on the Exchange once Pillar is implemented. As noted in the American Pillar Priority Filing, as the Exchange transitions to Pillar, certain rules would continue to be applicable to symbols trading on the current trading platform, but would not be applicable to symbols that have transitioned to trading on Pillar.8 Consistent with the American Pillar Priority Filing, proposed Rule 980NYP would have the same number as the current Electronic Complex Order Trading rule, but with the modifier ‘‘P’’ appended to the rule number. Current Rule 980NY, governing Electronic Complex Order Trading, would remain unchanged and continue to apply to any trading in symbols on the current system. Proposed Rule 980NYP would govern Electronic Complex Orders for trading in options symbols migrated to the Pillar platform. Proposed Rule 980NYP would (1) use Pillar terminology; and (2) introduce new functionality for Electronic Complex Order trading (e.g., adopting a DBBO and Away Market Deviation price check as well as enhancing the opening process for ECOs as described below), each of which proposed changes would align the Exchange with both the terminology used, and the functionality described, in Arca Options Rule 6.91P– O. Finally, as discussed in the American Pillar Priority Filing, the Exchange will announce by Trader Update when symbols are trading on the Pillar trading platform. The Exchange intends to transition Electronic Complex Order trading on Pillar at the same time that single-leg trading is transitioned to Pillar. 6 See SR–NYSEAMER–2023–16, filed on February 27, 2023 (proposal to adopt new Rules 964NYP (Order Ranking, Display, and Allocation), 964.1NYP (Directed Orders and DOMM Quoting Obligations), and 964.2NYP (Participation Entitlement of Specialists, e-Specialists, and Primary Specialist) as well as to add or modify Rule 900.2NY (Definitions) to address the migration to Pillar) (referred to herein as the ‘‘American Pillar Priority Filing’’). For avoidance of doubt, references to Rule 964NYP refer to the Exchange’s proposed new priority and allocation rule for trading on Pillar, as described in the American Pillar Priority Filing. 7 The term ‘‘Electronic Complex Order’’ is currently defined in the preamble to Rule 980NY to mean any Complex Order, as defined in Rule 900.3NY(e)(e) that is entered into the System. 8 See American Pillar Priority Filing (providing that, once a symbol is trading on the Pillar trading platform, a rule with the same number as a rule with a ‘‘P’’ modifier would no longer be operative for that symbol and the Exchange would announce by Trader Update when symbols are trading on the Pillar trading platform); see also supra note 5, Arca Options Approval Order (same). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 Proposed Rule 980NYP: Electronic Complex Order Trading Current Rule 980NY (Electronic Complex Order Trading) specifies how the Exchange processes Electronic Complex Orders submitted to the Exchange. The Exchange proposes new Rule 980NYP to establish how such orders would be processed after the transition to Pillar. To promote clarity and transparency, the Exchange proposes to add a preamble to current Rule 980NY specifying that it would not be applicable to trading on Pillar. As discussed in greater detail below and unless otherwise specified herein, the Exchange is not proposing fundamentally different functionality regarding how Electronic Complex Orders would trade on Pillar than is currently available on the Exchange. However, with Pillar, the Exchange would use Pillar terminology to describe functionality that is not changing and also introduce certain new or updated functionality for Electronic Complex Orders (e.g., enhancing the opening auction process, including introducing the ‘‘ECO Auction Collars’’) that will also be available for outright options trading on the Pillar platform. Definitions. Proposed Rule 980NYP(a) would set forth the definitions applicable to trading on Pillar under the new rule. The proposed definitions are identical to how these terms are defined in Arca Options Rule 6.91P–O(a), except that the proposed Rule includes a definition for ‘‘Complex BBO,’’ as described below. • Proposed Rule 980NYP(a)(1) would define the term ‘‘Away Market Deviation’’ as the difference between the Exchange BB (BO) for a series and the ABB (ABO) for that same series when the Exchange BB (BO) is lower (higher) than the ABB (ABO).9 The maximum allowable Away Market Deviation is the greater of $0.05 or 5% below (above) the ABB (ABO) (rounded down to the nearest whole penny). As further proposed, no ECO on the Exchange would execute at a price that would exceed the maximum allowable Away Market Deviation on any component of the complex strategy. The maximum allowable Away Market Deviation is designed to protect market participants from having their complex strategies 9 In the American Pillar Priority Filing, the Exchange proposes to define the (new) term ‘‘Away Market BBO (‘ABBO’)’’ as referring to the best bid(s) or offer(s) disseminated by Away Markets and calculated by the Exchange based on market information the Exchange receives from OPRA and the terms ‘‘ABB’’ and ‘‘ABO’’ as referring to the best Away Market bid and best Away Market offer, respectively. See id. (defining Away Market BBO in proposed Rule 900.2NYP). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 execute at prices that are significantly outside of (and inferior to) the market for the individual legs. The proposed functionality provides the Exchange with flexibility in determining the acceptable execution range by allowing that it be calculated using either a percentage amount or a dollar amount. This proposed risk protection is not new or novel as it is identical to Arca Options Rule 6.91P–O(a)(1) and is also available on other options exchanges.10 As discussed further below, the Exchange proposes that its calculation of the DBBO (for each leg of a complex strategy) as well as trading of ECOs with the leg markets would be bound by the maximum allowable Away Market Deviation as an additional protection against ECOs being executed on the Exchange at prices too far away from the current market. This proposed definition is new and would promote clarity and transparency. • Proposed Rule 980NYP(a)(2) would define the term ‘‘Complex NBBO’’ to mean the derived national best net bid and derived national best net offer for a complex strategy calculated using the NBB and NBO for each component leg of a complex strategy. This definition is based on current Rule 900.2NY, without any substantive differences and is also identical to Arca Options Rule 6.91P– O(a)(2).11 Æ Proposed Rule 980NYP(a)(2)(A) would define the term ‘‘Complex BBO’’ to mean the complex order(s) to buy (sell) with the highest (lowest) net working price (per proposed Rule 964NYP(a)(3)) on each side of the Consolidated Book for the same complex order strategy. This definition is based on current Rule 900.2NY(a), without any substantive differences.12 10 See, e.g., BOX Options Exchange LLC (‘‘BOX’’) Rule 7240(b)(3)(iii)(A) (providing that each leg of a complex strategy trade equal to or better than the ‘‘Extended cNBBO,’’ which has a default setting (per Rule 7240(a)(5)) of 5% of the cNBB or cNBO (per Rule 7240(a)(2) and (4), respectively) as applicable, or $0.05); Nasdaq ISE, LLC (‘‘Nasdaq ISE’’), Options 3, Section 16 (a) (providing that, in regard to ‘‘Price limits for Complex Orders, ‘‘[n]otwithstanding, the System will not permit any leg of a complex strategy to trade through the NBBO for the series or any stock component by a configurable amount calculated as the lesser of (i) an absolute amount not to exceed $0.10, and (ii) a percentage of the NBBO not to exceed 500%, as determined by the [ISE] Exchange on a class, series or underlying basis’’). 11 See Rule 900.2NY (defining Complex NBBO as referring to ‘‘the NBBO for a given complex order strategy as derived from the national best bid and national best offer for each individual component series of a Complex Order’’). 12 See Rule 900.2NY(a) (defining Complex BBO as referring to ‘‘the complex orders with the lowestpriced (i.e., the most aggressive) net debit/credit price on each side of the Consolidated Book for the same complex order strategy’’). E:\FR\FM\17MRN1.SGM 17MRN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices • Proposed Rule 980NYP(a)(3) would define ‘‘Complex Order Auction’’ or ‘‘COA’’ to mean an auction of an ECO as set forth in proposed Rule 980NYP(f) (discussed below). This definition is based on the title of paragraph (e) of current Rule980NY, which sets forth the COA Process for ECOs without any substantive differences. Proposed Rule 980NYP(a)(3) would also state that the terms defined in paragraphs (a)(3)(A)– (D) would be used for purposes of a COA. Proposed Rule 980NYP(a)(3)(A) would define a ‘‘COA Order’’ to mean an ECO that is designated by the ATP Holder as eligible to initiate a COA. This definition is based on the definition of a ‘‘COA-eligible order’’ as set forth in current Rule 980NY(e)(1) and (e)(1)(i), with a difference that the proposed definition would not require that an option class be designated as COAeligible because all option classes that trade on Pillar would be COA-eligible. Proposed Rule 980NYP(a)(3)(B) would define the term ‘‘Request for Response’’ or ‘‘RFR’’ to refer to the message disseminated to the Exchange’s proprietary complex data feed announcing that the Exchange has received a COA Order and that a COA has begun. As further proposed, the definition would provide that each RFR message would identify the component series, the price, the size and side of the market of the COA Order. This definition is based on the description of RFR in Rule 980NY(e)(3) without any substantive differences. The Exchange proposes a clarifying difference to make clear that RFR messages would be sent over the Exchange’s proprietary complex data feed, which is based on current functionality. Proposed Rule 980NYP(a)(3)(C) would define the term ‘‘RFR Response’’ to mean any ECO received during the Response Time Interval (defined below) that is in the same complex strategy, on the opposite side of the market of the COA Order that initiated the COA, and marketable against the COA Order.13 This definition is based in part on the description of RFR Responses in Rule 980NY(e)(5). However, unlike the current definition, an RFR Response would not have a time-in-force contingency for the duration of the COA. Instead, the Exchange would consider any ECOs received during the Response Time Interval (defined below) that are marketable against the COA Order as an RFR Response. As described 13 The term ‘‘marketable’’ is defined in Rule 900.2NY as ‘‘for a Limit Order, the price matches or crosses the NBBO on the other side of the market. Market Orders are always considered marketable.’’ VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 below, the Exchange proposes to define separately the term ‘‘COA GTX Order,’’ which would be more akin to the current definition of RFR Response. In addition, the proposed definition omits the current rule description that an RFR Response may be entered in $0.01 increments or that such responses may be modified or cancelled because these features are applicable to all ECOs and therefore is not necessary to separately state in connection with RFR Responses. Proposed Rule 980NYP(a)(3)(D) would define the term ‘‘Response Time Interval’’ to mean the period of time during which RFR Responses for a COA may be entered and would provide that the Exchange would determine and announce by Trader Update the length of the Response Time Interval; provided, however, that the duration of the Response Time Interval would not be less than 100 milliseconds and would not exceed one (1) second. This definition is based in part on the description of Response Time Interval in Rule 980NY(e)(4), with a difference that the Exchange proposes to reduce the minimum time from 500 milliseconds to 100 milliseconds. The proposal to establish a minimum duration for a COA is identical to the minimum time frame allowed for a COA per Arca Options Rule 6.91P–O(a)(4) and is consistent with the minimum auction length for the Exchange’s electronic-paired auctions (i.e., the CUBE Auction) as well as for auctions on other markets.14 Given the fact that the Exchange has (for years) offered the CUBE Auction with a Response Time Interval of at least 100 milliseconds and the same time interval is applicable to COAs on Arca Options (per Rule 6.91P– O(a)(3)(D)), the Exchange believes that the proposed Response Time Interval of at least this length would provide ATP Holders adequate time to respond to a COA.15 14 See, e.g., Rules 971.1NY(c)(2)(B) (providing that for a Customer Best Execution Auction ‘‘[t]he minimum/maximum parameters for the Response Time Interval will be no less than 100 milliseconds and no more than one (1) second’’) and 971.2NY(c)(1)(B) (same); Cboe Exchange Inc. (‘‘Cboe’’) Rule 5.33(d)(3) (providing that Cboe ‘‘determines the duration of the Response Time Interval on a class-by-class basis, which may not exceed 3000 milliseconds’’). 15 See, e.g., Securities Exchange Act Release Nos. 82498 (January 12, 2018), 83 FR 2823 (January 19, 2018) (SR–NYSEAmer–2017–26) (Notice of filing and immediate effectiveness of proposed rule change to reduce the response time interval for a CUBE Auction to no less than 100 milliseconds); 83384 (June 5, 2018), 83 FR 27061 (June 11, 2018) (SR–NYSEAMER–2018–05) (Order approving Complex CUBE functionality, including Rule 971.2NY(c)(1)(B), providing that ‘‘[t]he minimum/ maximum parameters for the Response Time Interval will be no less than 100 milliseconds and no more than one (1) second’’)). PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 16469 • Proposed Rule 980NYP(a)(4) would define the term ‘‘Complex strategy’’ to mean a particular combination of leg components and their ratios to one another. The proposed definition would further provide that new complex strategies can be created when the Exchange receives either a request to create a new complex strategy or an ECO with a new complex strategy. This proposed definition is new and is identical to how this term is defined in Arca Options Rule 6.91P–O(a)(4). Furthermore, this proposed definition is consistent with how this concept is defined on other options exchanges and would promote clarity and transparency.16 • Proposed Rule 980NYP(a)(5) would define the term ‘‘DBBO’’ to address situations where it is necessary to derive a (theoretical) bid or offer for a particular complex strategy. As proposed, ‘‘DBBO’’ would mean the derived best net bid (‘‘DBB’’) and derived best net offer (‘‘DBO’’) for a complex strategy. The bid (offer) price used to calculate the DBBO on each leg would be the Exchange BB (BO) 17 (if available), bound by the maximum allowable Away Market Deviation (as defined above). If a leg of a complex strategy does not have an Exchange BB (BO), the bid (offer) price used to calculate the DBBO would be the ABB (ABO) for that leg. Thus, the ‘‘bid (offer)’’ prices used to calculate the DBBO would be based on the Exchange BB (BO) for each leg when available, and, absent an Exchange BB (BO) for a given leg, the ABB (ABO). The proposed definition would also provide that the DBBO would be updated as the Exchange BBO or ABBO, as applicable, is updated. Proposed Rule 980NYP(a)(5)(A) would provide further detail about how the DBBO would be derived when, for a leg, there is no Exchange BB (BO) and no ABB (ABO). As proposed, in such circumstances, the bid (offer) price used to calculate the DBBO would be the offer (bid) price for that leg (i.e., Exchange BO (BB), bound by the maximum allowable Away Market Deviation (or the ABO (ABB) for that leg if no Exchange BO (BB) is available)), 16 See, e.g., Cboe Rule 5.33(a) (defining ‘‘complex strategy’’ as ‘‘a particular combination of components and their ratios to one another’’ and further providing that ‘‘[n]ew complex strategies can be created as the result of the receipt of a complex instrument creation request or complex order for a complex strategy that is not currently in the System’’); MIAX Options Exchange (‘‘MIAX’’) Rule 518(a)(6) (same). 17 The term BBO when used with respect to options traded on the Exchange means ‘‘the best displayed bid or best displayed offer on the Exchange.’’ See Rule 900.2NY. E:\FR\FM\17MRN1.SGM 17MRN1 16470 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 minus (plus) ‘‘one collar value,’’ per proposed Rule 900.3NY(a)(4)(C); or (ii) $0.01, if the offer is equal to or less than one collar value.18 The proposed values used to generate a DBBO in the absence of local or Away Market interest would be consistent with the values that the Exchanges proposes to use in the Trading Collars for single-leg orders.19 In addition, such values are within the current parameters for determining whether a trade is an Obvious Error or Catastrophic Error.20 This proposed definition of the DBBO is new and is based, in part, on the current definition of Derived BBO as set forth in Rule 900.2NY.21 Furthermore, this definition is identical to how this term is defined in Arca Options Rule 6.91P–O(a)(4)(C) and is also consistent with how this concept is defined on other options exchanges.22 The Exchange believes that providing an alternative means of calculating the DBBO (i.e., by looking to the contra-side best bid (offer) in the absence of same-side interest) would benefit market participants as it should increase opportunities for trading. For example, absent this proposed functionality, the Exchange would not be able to trade complex strategies when, for at least one leg of such strategy, the Exchange has no displayed interest on one or both sides of such component leg. Allowing the Exchange to look to the ABBO to calculate the DBBO in such circumstances would increase trading opportunities for ECOs to the benefit of all market participants. The Exchange believes that the additional detail about how the DBBO would be calculated in the absence of an 18 Proposed Rule 900.3NYP (Orders and Modifiers) will be described in a separate rule filing regarding the operation of orders and quotes on Pillar (the ‘‘Pillar Order Type’’ filing). Proposed Rule 900.3NYP(a)(4)(C) would describe how Trading Collars are calculated on Pillar. The Exchange represents that this functionality would operate the same way it currently operates per Arca Options Rule 6.62P–O(a)(4)(C) (providing that ‘‘[u]nless announced otherwise via Trader Update, the Trading Collar for an order to buy (sell) will be a specified amount above (below) the Reference Price, as follows’’). 19 See id.; see, e.g., Trader Update, September 9, 2022, NYSE Arca Options: Changes to Trading Collars Effective September 21st, available here, https://www.nyse.com/trader-update/ history#110000475461. 20 See Rules 975NY(c)(1) (thresholds for Obvious Errors) and 975NY (d)(1) (thresholds for Catastrophic Errors). 21 See Rule 900.2NY(b) (defining Derived BBO as being ‘‘calculated using the BBO from the Consolidated Book for each of the options series comprising a given complex order strategy). 22 See, e.g., Cboe Rule 5.33(a) (defining ‘‘Synthetic Bed Bid or Offer and SBBO’’ for complex orders as ‘‘the best bid and offer on the Exchange for a complex strategy calculated using’’ the ‘‘BBO for each component (or the NBBO for a component if the BBO for that component is not available) of a complex strategy from the [Cboe] Simple Book’’). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 Exchange BB (BO) and ABB (ABO), including that it would be rounded down to the nearest whole penny, would promote clarity and transparency. As noted above and herein, the Exchange believes that binding the DBBO (when calculated using the Exchange BBO) to the maximum allowable Away Market Deviation would help prevent ECOs from executing on the Exchange at prices too far away from the current market. Proposed Rule 980NYP(a)(5)(B) would provide that, if for a leg of a complex strategy, there is neither an Exchange BBO nor an ABBO, the Exchange would not allow the complex strategy to trade until, for that leg, there is either an Exchange BB or BO, or an ABB or ABO, on at least one side of the market. The Exchange believes that preventing a complex strategy from trading when, for a leg, there is no reliable pricing indication—either on the Exchange or in Away Markets, would benefit market participants by preventing potentially erroneous executions. Moreover, including this additional detail in the proposed rule about when a complex strategy would not trade would benefit market participants as it would promote clarity and transparency in Exchange rules regarding ECO trading. This functionality is also identical to Arca Options Rule 6.91P–O (a)(5)(B). Proposed Rule 980NYP(a)(5)(C) would provide that if the best bid and offer prices (when not based solely on the Exchange BBO) for a component leg of a complex strategy are locked or crossed, the Exchange would not allow an ECO for that strategy to execute against another ECO until the condition resolves. The Exchange notes that, as described above, the DBBO may be calculated using leg prices derived either exclusively from, or a combination of, the Exchange BBO, the ABBO, or the Exchange BBO as adjusted to be priced within the maximum allowable Away Market Deviation. As such, if the best bid and offer prices (when not based solely on Exchange BBO) for a component leg of a complex strategy are locked or crossed, a DBBO calculated when using those prices could be erroneous.23 Accordingly, the 23 The reliability of the Exchange’s calculated DBBO is essential to ECO trading on the Exchange as this concept permeates all aspects of complex trading, including to determine price parameters at the opening of each series and in determining when, and at what price, a COA Order may initiate a COA as well as market events impacting the DBBO that would result in an early end to a COA. See, e.g., proposed Rule 980NYP(d)(3) (relying on the DBBO to determine ECO Auction Collars for the ECO Opening Auction Process) and 980NYP(f)(2)(A) and (f)(3) (relying on the DBBO to PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 Exchange believes that it is appropriate to not permit an ECO to execute against another ECO under these circumstances until the locked or crossed market resolves. The Exchange believes preventing ECO-to-ECO trading in this circumstance would benefit market participants by preventing potentially erroneous ECO executions. Moreover, including this additional detail in the proposed rule about when an ECO would be prevented from trading with another ECO would benefit market participants as it would promote clarity and transparency in Exchange rules regarding ECO trading. This functionality is also identical to Arca Options Rule 6.91P–O(a)(5)(C). Further, per proposed Rule 980NYP(a)(5)(C), if an Away Market quote updates to lock or cross the current Exchange BB (BO) or ABB (ABO) for a component leg of a complex strategy, the Exchange would allow an ECO for that strategy to execute against leg market interest on the Exchange. Allowing an eligible ECO to execute against leg market interest in these circumstances is consistent with the way single-leg orders trade. This functionality is also identical to Arca Options Rule 6.91P–O(a)(5)(C). In this regard, the Exchange notes that, to the extent that leg prices are locked or crossed as a result of updates to the ABBO, such updates do not prevent resting leg market interest from trading at its resting price with all eligible contra-side interest, which includes incoming ECOs in the same complex strategy.24 Moreover, to the extent that an ECO trades with leg market interest in a complex strategy when interest in the leg markets is crossed, such executions are not deemed as tradethroughs.25 As such, the Exchange believes that allowing an ECO to trade with leg market interest in this circumstance would maximize the execution opportunities of such ECO while respecting price-time priority of the leg markets. • Proposed Rule 980NYP(a)(6) would define the term ‘‘ECO Order both initiate and price a COA Order as well as to terminate a COA early under certain market conditions)). 24 See Arca Options Rule 6.76P–O(b)(3) providing that ‘‘[i]f an Away Market locks or crosses the Exchange BBO, the Exchange will not change the display price of any Limit Orders or quotes ranked Priority 2—Display Orders and any such orders will be eligible to be displayed as the Exchange’s BBO’’). 25 See Rule 991NY(b)(3) (exempting from tradethrough liability transactions that occur ‘‘when there was a Crossed Market’’). See also the Options Order Protection And Locked/Crossed Market Plan, dated April 14, 2009, available here, https:// www.theocc.com/getmedia/7fc629d9-4e54-4b999f11-c0e4db1a2266/options_order_protection_ plan.pdf. E:\FR\FM\17MRN1.SGM 17MRN1 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 Instruction’’ to mean a request to cancel, cancel and replace, or modify an ECO, which definition is identical to how this term is defined in Arca Options Rule 6.91P–O(a)(6). As described further below, this concept relates to order processing when a series opens or reopens for trading and is based on the term ‘‘order instruction’’ as used in Arca Options Rules 6.64P–O(e) and (f), which (similarly) would define an ‘‘order instruction’’ for options as a request to cancel, cancel and replace, or modify an order or quote. • Proposed Rule 980NYP(a)(7) would define the term ‘‘Electronic Complex Order’’ or ‘‘ECO’’ to mean a Complex Order as defined in Rule 900.3NYP(f) that would be submitted electronically to the Exchange.26 This proposed definition is based on the preamble to Rule 980NY, and the Exchange proposes to replace reference to the ‘‘System’’ with the term ‘‘Exchange’’ and to update cross-reference to the definition of a Complex Order as proposed in the American Pillar Priority Filing. • Proposed Rule 980NYP(a)(8) would define the term ‘‘leg’’ or ‘‘leg market’’ to mean each of the component option series that comprise an ECO. This definition is consistent with the concept of leg markets as used in current Rule 980NY(a), which defines legs as individual orders and quotes in the Consolidated Book. The Exchange believes the proposed definition would add clarity regarding how the terms ‘‘leg’’ and ‘‘leg market’’ would be used in connection with ECO trading on Pillar. • Proposed Rule 980NYP(a)(9) would define ‘‘Ratio’’ or ‘‘leg ratio’’ to mean the quantity of each leg of an ECO broken down to the least common denominator such that the ‘‘smallest leg ratio’’ is the portion of the ratio represented by the leg with the fewest contracts. The Exchange believes the proposed definition would add clarity regarding how the terms ‘‘ratio’’ and ‘‘leg ratio’’ would be used in connection with ECOs trading on Pillar, which definition is identical to how this term is defined in Arca Options Rule 6.91P–O(a)(9). This proposed definition is likewise consistent with how this concept is described on other options exchanges.27 26 The proposed definition of Complex Order under Pillar will be included in proposed Rule 900.3NYP, which will be described in the Pillar Order Type Filing. The Exchange represents that the proposed definition of Complex Orders will be substantively the same as this order type is defined in current Rule 900.3NY(e). See also Arca Options Rule 6.62P–O(f) (describing Complex Orders in substantively the same manner as Exchange Rule 900.3NY). 27 See, e.g., Cboe, US Options Complex Book Process, Complex Order Basics, Section 2.1, Ratios, VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 Types of ECOs. Proposed Rule 980NYP(b) would set forth the types of ECOs that would trade on Pillar. Proposed Rule 980NYP(b)(1) would provide that ECOs may be entered as Limit Orders, Limit Orders designated as Complex Only Orders, or as Complex QCCs.28 This proposed text is based on current Rule 980NY(d)(1), with a difference to include reference to (existing) Complex CUBE Orders and to provide that the Exchange would offer Complex Only Orders and Complex QCCs on Pillar. Allowing ECOs to be designated as Complex QCCs is consistent with current functionality not described in the rule and the Exchange believes that this additional specificity to the proposed rule would add clarity and transparency. Complex Only Orders (as described below) would be updated functionality available on Pillar.29 The proposed Types of ECOs are also the same as those offered per Arca Options Rule 6.91P–O(b). • Proposed Rule 980NYP(b)(2) would set forth the time-in-force contingencies available to ECOs, which would be Day, IOC, FOK, or GTC, as those terms will be defined in the subsequent Pillar Order Type Filing in proposed Rule 900.3NYP(b), and GTX (per proposed Rule 980NYP(b)(2)(C) as described below).30 • The proposed text is based on current Rules 980NY(d)(2) and (3), except that it adds GTX (as described below). The proposed text also omits AON because the Exchange would not offer AONs for ECO trading on Pillar. • Proposed Rule 980NYP(b)(2)(A) would provide that an ECO designated as IOC or FOK would be rejected if entered during a pre-open state,31 which available here: https://cdn.batstrading.com/ resources/membership/US-Options-Complex-BookProcess.pdf (providing that ‘‘[t]he quantity of each leg of a complex order broken down to the lowest terms will determine the ratio of the complex order’’). 28 The Exchange plans to adopt the proposed definitions of Limit Orders and Complex QCC Orders in the Pillar Order Type Filing (adopting Rule 900.3NYP, Orders and Modifiers)). The Exchange represents that these proposed order types will function in a manner substantively the same as is described per Arca Options Rule 6.62P– O(a)(2) and (g)(1)(A), (C) and (D), (describing Limit Orders and Complex QCC Orders, respectively). 29 See, infra, for discussion of proposed Rule 980NYP(e)(1)(C) (discussing Complex Only Order functionality). 30 The Exchange plans to adopt the proposed definitions of Day, IOC, FOK, and GTX in the Pillar Order Type Filing (adopting Rule 900.3NYP, Orders and Modifiers). The Exchange represents that these proposed order types will function in a manner substantively the same as is described in current Rule 900.3NY. See also Arca Options Rule 6.62P– O(b). 31 The term ‘‘pre-open state’’ will be defined in Rule 952NYP(a)(12) in a subsequent filing (the ‘‘Pillar Auction Filing’’), to mean ‘‘the period before PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 16471 is consistent with the time-in-force of the order (because they could not be traded when a complex strategy is not open for trading) as well as with current functionality. • Proposed Rule 980NYP(b)(2)(B) would provide that an ECO designated as FOK must also be designated as a Complex Only Order (per proposed Rule 980NYP(b)(1) and described further below). This proposed rule, which is new under Pillar, would simplify the operation of electronic complex order trading and would add clarity and transparency that ECOs designated as FOK (i.e., that have conditional sizerelated instructions) would not be eligible to trade with the leg markets. • Proposed Rule 980NYP(b)(2)(C) would provide that an ECO designated as GTX would be defined as an ‘‘COA GTX Order’’ and would have the following features: it would not be displayed; it may be entered only during the Response Time Interval of a COA; it must be on the opposite side of the market as the COA Order; and it must specify the price, size, and side of the market. As further proposed, COA GTX Orders may be modified or cancelled during the Response Time Interval and any remaining size that does not trade with the COA Order would be cancelled at the end of the COA. This term ‘‘COA GTX Order’’ is new but the definition is based on the description of an RFR Response in current Rule 980NY(e)(5)(A)–(C), which likewise are not displayed and expire at the end of the COA. Priority and Pricing of ECOs. Proposed Rule 980NYP(c) would set forth how ECOs would be prioritized and priced under Pillar. The proposed priority scheme for ECOs under Pillar is consistent with current functionality, with the differences and clarifications noted below. As proposed, an ECO received by the Exchange that is not immediately executed (or cancelled), including an ECO that cannot trade due to conditions described in paragraphs (a)(5)(B)–(C) (above) 32 and (c)(1)–(2) of this proposed Rule (below) or does not initiate a COA per paragraph (f)(1) (below), would be ranked in the Consolidated Book based on total net price, per Rule 964NYP(e)–(f), with Customer orders at a price ranked ahead of same-priced non-Customer orders. This proposed rule adds crossreferences to new rule text (set forth in the American Pillar Priority Filing) but a series is opened or reopened,’’ which definition will be identical to how this concept is described in Arca Options Rule 6.64P–O(a)(12). 32 Proposed Rule 980NYP(a)(5)(B)–(C) describe conditions related to the leg markets when complex strategies will not trade. E:\FR\FM\17MRN1.SGM 17MRN1 16472 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 is otherwise based on Rule 980NY(b), without any substantive differences.33 The Exchange proposes a nonsubstantive difference to refer simply to a ‘‘net price’’ rather than a ‘‘net debit or credit price,’’ which streamlined terminology is consistent with the use of the term ‘‘net price’’ on other options exchanges.34 The proposed rule also incorporates the first sentence of Rule 980NY(c)(iii)(A), regarding the ranking and priority of ECOs not immediately executed, with additional detail regarding the time-in-force modifier of the ECO, which adds clarity and transparency to the proposed Rule.35 Proposed Rule 980NYP(c) would further provide that, unless otherwise specified in this Rule, ECOs would be processed as follows: • Proposed Rule 980NYP(c)(1) would provide that when trading with the leg markets, an ECO would trade at the price(s) of the leg markets provided the leg markets are priced no more than the maximum allowable Away Market Deviation (as defined herein). The proposed rule requiring that when trading with the leg markets, the components of the ECO would trade at the prices of the leg markets is consistent with current functionality, per Rule 980NY(c)(ii); requiring that such prices be bound by the Away Market Deviation for an ECO to trade with the leg markets is new under Pillar, as discussed further below).36 For example, if there is sell interest in a leg market at $1.00, and a leg of an ECO to buy could trade up to $1.05, the ECO would trade with such leg market at $1.00. This would result in the ECO receiving price improvement and is consistent with the ECO trading as the 33 See Rule 980NY(b) (pricing that ECOs in the Consolidated Book will ‘‘be ranked according to price/time priority based on the total or net debit or credit and the time of entry of the order, provided that [ECOs] on behalf of Customers shall be ranked ahead of same price [ECOs] for nonCustomers.’’). 34 See, e.g., Arca Options Rule 6.91P–O(c); Cboe Rule 5.33(f)(2) (setting forth parameters for the ‘‘net price’’ of complex orders traded on Cboe); Nasdaq ISE, Options 3, Section 14 (c) (providing, in relevant part, that ‘‘[c]omplex strategies will not be executed at prices inferior to the best net price achievable from the best ISE bids and offers for the individual legs’’). 35 For example, an ECO designated as IOC that does not immediately execute would cancel rather than be ranked on the Consolidated Book, whereas an ECO designated as Day or GTC that does not immediately execute would be ranked on the Consolidated Book. 36 See Rule 980NY(c)(ii) (providing that ‘‘[i]f, at a price, the leg markets can execute against an incoming [ECO] in full (or in a permissible ratio), the leg markets (Customer and non-Customer interest) will have first priority at that price and will trade with the incoming [ECO] pursuant to Rule 964NY(b) before [ECO] resting in the Consolidated Book can trade at that price’’). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 Aggressing Order.37 The proposed functionality that an ECO would trade with leg markets only if the prices of the leg markets are within (and do not exceed the maximum allowable) Away Market Deviation would be new under Pillar and is designed to operate as an additional protection against ECOs being executed on the Exchange at prices too far away from the current market. • Proposed Rule 980NYP(c)(2) would provide that when trading with another ECO, each component leg of the ECO must trade at a price at or within the Exchange BBO for that series, and no leg of the ECO may trade at a price of zero.38 This provision is based in part on current Rule 980NY(c), which provides that no leg of an ECO will be executed outside of the Exchange BBO.39 This proposed rule, which ensures that ECOs would never trade through interest in the leg markets, is consistent with current functionality and adds clarity and transparency to the proposed Rule. This proposed functionality operates in the same manner per Arca Options Rule 6.91P– O(c)(2) and is also consistent with how ECOs are processed on other options exchanges.40 • Proposed Rule 980NYP(c)(3) would provide that an ECO may trade without consideration of prices of the same complex strategy available on other exchanges, which is based on the same text as contained in current Rule 980NY(c) without any substantive differences. • Proposed Rule 980NYP(c)(4) would provide that an ECO may trade in one 37 The Exchange proposes to define the term ‘‘Aggressing Order’’ in the American Pillar Priority Filing to mean ‘‘a buy (sell) order or quote that is or becomes marketable against sell (buy) interest on the Consolidated Book.’’ See also Arca Options Rule 6.76P–O(a)(5) (same). 38 See, infra, for discussion of proposed Rule 980NYP(e)(1) (discussing ‘‘Execution of ECOs During Core Trading Hours,’’ including the treatment of ECOs that have executed, at a price, to the extent possible with the leg markets and of ECOs designated as Complex Only). 39 As noted herein, no ECO on the Exchange would execute at a price that would exceed the maximum allowable Away Market Deviation on any component of the complex strategy. See proposed Rule 980NYP(a)(1) (defining Away Market Deviation). 40 See, e.g., BOX Rule 7240(b)(3)(ii). See also Securities Exchange Act Release Nos. 69027 (March 4, 2013), 78 FR 15093, 15094 (March 8, 2013) (SR– BOX–2013–01) (providing that ‘‘where two Complex Orders trade against each other, the resulting execution prices will be at a price equal to or better than NBBO and BOX best bid or offer (‘‘BBO’’) for each of the component Legs,’’ per proposed Rule 7240(b)(3)(ii)). See, e.g., Cboe Rule 5.33(f)(2) (providing that complex orders may not execute at a net price that would cause any component of the complex strategy to be executed at a price of zero). PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 cent ($0.01) increments regardless of the MPV otherwise applicable to any leg of the complex strategy, which is based on current Rule 980NY, Commentary .01 without any substantive differences. Execution of ECOs at the Open (or Reopening after a Trading Halt). Current Rule 980NY(c)(i) sets forth how ECOs are executed upon opening or reopening of trading. Proposed Rule 980NYP(d) would set forth details about how ECOs would be executed at the open or reopen following a trading halt. With the transition to Pillar, the Exchange proposes new functionality regarding the ‘‘ECO Opening Auction Process’’ on the Exchange, which would be applicable both to openings and reopenings following a trading halt. The proposed ECO Opening Auction Process would operate in a manner identical to the auction process set forth in Arca Options Rule 6.91P–O(d) as described below.41 • Proposed Rule 980NYP(d)(1) would set forth the conditions required for the commencement of an ECO Opening Auction Process. Specifically, as proposed, the Exchange would initiate an ECO Opening Auction Process for a complex strategy only if all legs of the complex strategy have opened or reopened for trading, which text is based on current Rule 980NY(c)(i)(A) without any substantive differences. Proposed Rule 980NYP(d)(1)(A)–(B) would set forth conditions that would prevent the opening of a complex strategy, as follows: Æ Any leg of the complex strategy has neither an Exchange BO nor an ABO; or Æ The complex strategy cannot trade per proposed Rule 980NYP(a)(5)(B)–(C). The proposal to detail these conditions for opening (and reopening) are consistent with current functionality not set forth in the current rule. The Exchange believes that this added detail would not only add clarity and transparency to Exchange rules but would also protect market participants from potentially erroneous executions when there is a lack of reliable information regarding the price at which a complex strategy should execute, thereby promoting a fair and orderly ECO Opening Auction Process. • Proposed Rule 980NYP(d)(2) would provide that any ECOs in a complex strategy with prices that lock or cross 41 This proposed functionality is also consistent with the opening auction process for single-leg options pursuant to Arca Options Rule 6.64P–O. The Exchange plans to adopt new Rule 952NYP for single-leg opening (and reopening) auctions on Pillar, which rule proposal will be filed separately (the ‘‘Pillar Auction Filing’’), which proposed functionality will operate in substantively the same manner as Arca Options Rule 6.64P–O (Auction Process). E:\FR\FM\17MRN1.SGM 17MRN1 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 one another would be eligible to trade in the ECO Opening Auction Process. This proposed rule is based on current Rule 980NY(c)(i)(B), which provides than an opening process will be used if there are ECOs that ‘‘are marketable against each other.’’ The Exchange proposes a difference in Pillar not to require that such ECOs be ‘‘priced within the Complex NBBO’’ because the proposed ECO Opening Auction Process under Pillar would instead rely on the DBBO (as described below).42 As such, the Exchange may open a series based on the Exchange BBO, bound by the Away Market Deviation (or, the ABBO if the Exchange BBO is not available), which is consistent with ECO handling during Core Trading (per proposed Rule 980NYP(e)). The Exchange believes this proposed change would better align the permissible opening price for a series with the permissible execution price during Core Trading, which adds consistency to ECO order handling to the benefit of investors. Proposed Rule 980NYP(d)(2)(A) would provide that an ECO received during a pre-open state would not participate in the Auction Process for the leg markets pursuant to proposed Rule 952NYP, which is based on the same text (in the second sentence) of current Rule 980NY(c)(i)(A) without any substantive differences. Proposed Rule 980NYP(d)(2)(B) would provide that a complex strategy created intra-day when all leg markets are open would not be subject to an ECO Opening Auction Process and would instead trade pursuant to paragraph (e) of the proposed Rule (discussed below) regarding the handling of ECOs during Core Trading Hours. Proposed Rule 980NYP(d)(2)(C) would provide that the ECO Opening Auction Process would be used to reopen trading in ECOs after a trading halt. This proposed rule is consistent with current Rule 952NY(e) and makes clear that the ECO Opening Auction Process would be applicable to reopenings, which would add internal consistency to Exchange rules and promote a fair and orderly ECO Opening Auction Process following a trading halt. • Proposed Rule 980NYP(d)(3) would describe each aspect of the ECO Opening Auction Process. First, 42 See Rule 980NY(c)(i)(B) (providing that ‘‘[t]he CME will use an opening auction process if there are Electronic Complex Orders in the Consolidated Book that are marketable against each other and priced within the Complex NBBO’’). Per Rule 900.2NY (and proposed Rule 980NYP(a)(2)), the ‘‘Complex NBBO’’ for each complex strategy is derived from the national best bid and national best offer for each leg. VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 proposed Rule 980NYP(d)(3)(A) would describe the ‘‘ECO Auction Collars,’’ which terminology would be new for ECO trading and is based on the term ‘‘Auction Collars’’ used in Arca Options Rule 6.91P–O. As proposed, the upper (lower) price of an ECO Auction Collar for a complex strategy would be the DBO (DBB); provided, however, that if the DBO (DBB) is calculated using the Exchange BBO for all legs of the complex strategy and all such Exchange BBOs have displayed Customer interest, the upper (lower) price of an ECO Auction Collar would be one penny ($0.01) times the smallest leg ratio inside the DBO (DBB). This new functionality on Pillar would ensure that if there is displayed Customer interest on the Exchange on all legs of the strategy, the opening price for the complex strategy would price improve the DBBO, which the Exchange believes is consistent with fair and orderly markets and investor protection. • Next, proposed Rule 980NYP(d)(3)(B) would describe the ‘‘ECO Auction Price.’’ As proposed, the ECO Auction Price would be the price at which the maximum volume of ECOs can be traded in an ECO Opening Auction, subject to the proposed ECO Auction Collar. As further proposed, if there is more than one price at which the maximum volume of ECOs can be traded within the ECO Auction Collar, the ECO Auction Price would be the price closest to the midpoint of the ECO Auction Collar, or, if the midpoint falls within such prices, the ECO Auction Price would be the midpoint, provided that the ECO Auction Price would not be lower (higher) than the highest (lowest) price of an ECO to buy (sell) that is eligible to trade in the ECO Opening (or Reopening) Auction Process. The concept of an ECO Auction Price is consistent with the concept of ‘‘single market clearing price’’ set forth in current Rule 980NY(c)(i)(B). For Pillar, the Exchange proposes to determine the ECO Auction Price in the same manner as is used pursuant to Arca Options Rule 6.91P–O. Finally, as proposed, if the ECO Auction Price would be a sub-penny price, it would be rounded to the nearest whole penny, which text is based on current Rule 980NY(c)(i)(B), with a difference that the current rule refers to the midpoint of the Complex NBBO (which could be a sub-penny price and if so, is rounded down to the nearest penny) as opposed to referring to the ECO Auction Price, which would be a new Pillar term for trading ECOs, which price, if in sub-pennies, would be rounded (up or down) to the nearest MPV. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 16473 Proposed Rule 980NYP(d)(3)(B)(i) would provide that an ECO to buy (sell) with a limit price at or above (below) the upper (lower) ECO Auction Collar would be included in the ECO Auction Price calculation at the price of the upper (lower) ECO Auction Collar, but ranked for participation in the ECO Opening (or Reopening) Auction Process in price-time priority based on its limit price. This proposed text is based in part on current Rule 980NY(c)(i)(B). The proposed rule would operate in the same manner as Arca Options Rule 6.91P–O regarding the ECO Auction Price. Proposed Rule 980NYP(d)(3)(B)(ii) would provide that locking and crossing ECOs in a complex strategy would trade at the ECO Auction Price. As further proposed, if there are no locking or crossing ECOs in a complex strategy at or within the ECO Auction Collars, the Exchange would open the complex strategy without a trade. This proposed text would be new and is identical to Arca Options Rule 6.91P–O(d)(3)(B)(ii). • Proposed Rule 980NYP(d)(4) would describe the ‘‘ECO Order Processing during ECO Opening Auction Process,’’ which processing would be identical to Rule 6.91P–O(d)(4). The Exchange proposes to apply existing Pillar auction functionality regarding how to process ECOs that may be received during the period when an ECO Auction Process is ongoing. Accordingly, as proposed, new ECOs and ECO Order Instructions (as defined in proposed Rule 980NYP(a)(6), described above) that are received when the Exchange is conducting the ECO Opening Auction Process for the complex strategy would be accepted but would not be processed until after the conclusion of this process. As further proposed, when the Exchange is conducting the ECO Opening Auction Process, ECO Order Instructions would be processed as follows: Æ Proposed Rule 980NYP(d)(4)(A) would provide that an ECO Order Instruction received during the ECO Opening Auction Process would not be processed until after this process concludes if it relates to an ECO that was received before the process begins and that any subsequent ECO Order Instruction(s) relating to such ECO would be rejected if received during the ECO Opening Auction Process when a prior ECO Order Instruction is pending. Æ Proposed Rule 980NYP(d)(4)(B) would provide that an ECO Order Instruction received during the ECO Opening Auction Process would be processed on arrival if it relates to an order that was received during this process. E:\FR\FM\17MRN1.SGM 17MRN1 lotter on DSK11XQN23PROD with NOTICES1 16474 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices Proposed Rule 980NYP(d)(4) is identical to Arca Options Rule 6.91P– O(d)(4) and would provide transparency regarding how ECO Order Instructions that arrived during the ECO Opening Auction Process would be processed. • Proposed Rule 980NYP(d)(5) would describe the ‘‘Transition to continuous trading’’ after the ECO Opening Auction Process. As proposed, after the ECO Opening Auction, ECOs would be subject to ECO Price Protection, per proposed Rule 980NYP(g)(2) (as described below) and, if eligible to trade, would trade as follows: Æ Proposed Rule 980NYP(d)(5)(A) would provide that ECOs received before the complex strategy was opened that did not trade in whole in the ECO Opening Auction Process and that lock or cross other ECOs or leg markets in the Consolidated Book would trade pursuant to proposed Rule 980NYP(e) (discussed below) regarding the handling of ECOs during Core Trading Hours; otherwise, such ECOs would be added to the Consolidated Book. This provision is based on the (last sentence) of current Rule 980NY(c)(i)(B) and (C), with non-substantive differences to use Pillar terminology. Æ Proposed Rule 980NYP(d)(5)(B) would provide that ECOs received during the ECO Opening Auction Process would be processed in time sequence relative to one another based on original entry time. This proposed rule is based on both current functionality and is identical to how orders in an option series that were received during an Auction Processing Period are processed per Arca Options Rule 6.91P–O(d)(5)(B). Execution of ECOs During Core Trading Hours. Proposed Rule 980NYP(e) would describe how ECOs would be processed during Core Trading Hours. The proposed handling of ECOs during core trading hours would be identical to how ECOs are handled per Arca Options Rule 6.91P– O(e). Proposed Rule 980NYP(e)(1) would provide that once a complex strategy is open for trading, an ECO would trade with the best-priced contra-side interest as follows: Proposed Rule 980NYP(e)(1)(A) relates to the priority of the leg markets over ECOs at a price. As proposed, if, at a price, the leg markets can trade with an eligible ECO,43 in full or in a permissible ratio, the leg markets would trade first at that price, pursuant to 43 See proposed Rule 980NYP(e)(1)(C) and (D) (for description of ECOs that are not eligible to trade with the leg markets). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 proposed Rule 964NYP,44 until the quantities on the leg markets are insufficient to trade with the ECO. Once the leg market interest, at a price, is exhausted, such ECO would trade with same-priced contra-side ECOs resting in the Consolidated Book, pursuant to Rule 964NYP(j). This functionality is based on Rule 980NY(c)(ii), with the difference that the leg markets always have priority at a price.45 This proposed functionality of affording leg markets priority at a price is identical to Arca Options Rule 6.91(e)(1)(A) and is consistent with functionality available on other options exchanges.46 The Exchange believes that proposed Rule 980NYP(c)(1)(A) would benefit market participants because it is designed to protect the priority of orders on the leg markets by requiring an ECO to execute first against interest on the leg markets at the best price to the extent possible, i.e., in full or in a permissible ratio, and only then permitting an ECO to execute against another ECO at that price. Thus, following the executions against the best-priced interest on the leg markets, an ECO would no longer be executable against interest on the leg markets at the best price because the leg markets would lack sufficient quantity to fill the ECO in a permissible ratio at that price. Absent this provision in Rule 980NYP(c)(1)(A), the Exchange believes that otherwise executable ECOs at the leg market price would lose execution opportunities without any benefit to interest on the leg markets, which is unable to trade with the ECO at that price. Because orders are executable against each other only when both the price and the quantity of the orders match, the Exchange believes it is appropriate (and does not deny leg 44 See American Pillar Priority Filing (describing Rule 964NYP, Order Ranking, Display, and Allocation, which is the substantively identical Pillar version of current Rule 964NY, except that the proposed rule includes Pillar ranking and priority terminology that is identical to Arca Options Rule 6.76P–O). 45 See Rule 980NY(c)(ii) (providing that if, at a price, the leg markets can execute against an incoming ECO in full (or in a permissible ratio), and each leg includes Customer interest, the leg markets will have first priority at that price ahead of samepriced ECOs resting in the Consolidated Book. In contrast to current Rule 980NY(c)(ii), Pillar will afford the leg markets priority without requiring that ‘‘each leg’’ of an incoming ECO contain Customer interest. See, infra, proposed Rule 980NYP(c) (regarding Priority and Pricing of ECOs). 46 See Arca Options Rule 6.91P–O(e)(1)(A). See also supra note 5, Arca Options Approval Order, 86 FR 43704, at 43709 (discussing substantively the same functionality available on BOX Options Exchange wherein certain Complex Orders to trade at the same price as the best-priced interest in the BOX Book after such eligible leg interest has been exhausted and providing trading example of allocation per Rule 6.91P–O(e)(1)(A)). PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 markets priority) to allow ECOs to trade with other ECOs at the leg market price when such eligible leg market interest at that price has been exhausted. • Proposed Rule 980NYP(c)(1)(B) would provide that an ECO would not trade with orders in the leg markets designated as AON, FOK, or with an MTS modifier. This proposed text would be new and is based in part on existing functionality (for AON and FOK) and also reflects the Exchange’s proposed treatment under Pillar of its new MTS modifier for orders in the leg markets.47 Consistent with current functionality, orders with an AON, FOK, or (new) MTS modifier are conditional and, by design, will miss certain execution opportunities. The Exchange believes that this proposed rule would simplify the operation of electronic complex order trading and would add clarity and transparency that ECOs would not trade with orders that have conditional size-related instructions. • Proposed Rule 980NYP(e)(1)(C) would provide that an ECO designated as Complex Only would be eligible to trade solely with another ECO and would not trade with the leg markets. The proposed Complex Only Orders would be new functionality and would operate in the same manner as Complex Only Orders per Arca Options Rule 6.91P–O(e)(1)(C).48 As further proposed, an ECO designated as Complex Only must trade at a price at or within the DBBO; provided that, if the DBB (DBO) is calculated using the Exchange BBO for all legs of the complex strategy and all such Exchange BBOs have displayed Customer interest, the Complex Only Order would not trade below (above) one penny ($0.01) times the smallest leg ratio inside the DBB (DBO), regardless of whether there is sufficient quantity on such leg markets to satisfy the ECO.49 This proposed requirement is designed 47 The Exchange plans to adopt the proposed the Minimum Trade Size or MTS Modifier in the Pillar Order Type Filing (adopting Rule 900.3NYP, Orders and Modifiers). The Exchange represents that these proposed order types will function in a manner substantively the same as is described in current Arca Options Rule 6.62P–O(i)(3)(B)). 48 See proposed Rule 980NYP(e)(1)(C). In addition to Arca Options, other options exchanges likewise offer Complex Orders that trade only with Complex Orders. See, e.g., Cboe Rule 5.33(a) (defining ‘‘Complex Only’’ order as an ECO ‘‘that a [Cboe] Market-Maker may designate to execute only against complex orders in the COB and not Leg into the Simple Book’’). The proposed Complex Only Order (like its predecessor PNP Plus Order) would be available to all market participants. 49 See proposed Rule 980NYP(e)(1)(C). Because Complex Only Orders would never trade with the leg markets, whether or not there is sufficient quantity at the displayed Customer price is irrelevant to the operation of this order type. E:\FR\FM\17MRN1.SGM 17MRN1 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 to ensure that, if there is displayed Customer interest on all legs of the strategy on the Exchange, a Complex Only Order would price improve at least some portion of such interest making up the DBBO. Thus, a Complex Only Order does not get the benefit of the priority treatment set out in proposed Rule 980NYP(e)(1)(A). If a Complex Only Order is unable to trade within the aforementioned price parameters, it would remain on the Consolidated Book until it can trade with another ECO per the requirements of proposed Rule 980NYP(e)(1)(C). The Exchange believes that allowing Complex Only Orders to trade up to the DBBO unless there is displayed Customer interest on all legs of the strategy on the Exchange at the DBBO (as described above), provides market participants additional trading opportunities while still protecting displayed Customer interest on the Exchange. The proposed operation of the Complex Only Order, insofar as it protects displayed Customer interest in the leg markets when an ECO trades with another ECO, is consistent with current functionality.50 The proposed order type would also operate in the same manner as Complex Only Orders available per Arca Options Rule 6.91P– O(e)(1)(C) and is therefore not new or novel. • Proposed Rule 980NYP(e)(1)(D) would provide that ECOs with any one of the following complex strategies would be ineligible to trade with the leg markets and would be processed as a Complex Only Order: Æ a complex strategy with more than five legs; Æ a complex strategy with two legs and both legs are buying or both legs are selling, and both legs are calls or both legs are puts; or Æ a complex strategy with three or more legs and all legs are buying or all legs are selling. The proposal to restrict ECOs with more than five legs from trading with the leg markets (and being treated as Complex Only Orders), per proposed Rule 980NYP(e)(1)(D)(i), would be new functionality under Pillar and is designed to help Market Makers manage risk. The functionality is identical to functionality available per Arca Options Rule 6.91P–O(e)(1)(D)(i). Because the execution of a multi-legged ECO is a 50 See Rule 980NY, Commentary .02(i) (providing that, when executing an ECO, if each leg of the contra-side Derived BBO for the components of the ECO includes Customer interest, the price of at least one leg of the order must trade at a price that is at least one cent ($0.01) better than the corresponding price of all customer bids or offers in the Consolidated Book for the same series). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 single transaction, comprising discrete legs that must all trade simultaneously, allowing ECOs with more than five legs to trade with the leg markets may allow a multi-legged transaction to occur before a Market Maker’s risk settings would be triggered. This proposed limitation is designed to prevent such multi-legged transactions, which would help ensure that Market Makers continue to provide liquidity and do not trade above their established risk tolerance levels. In addition to Arca Options Rule 6.91–O(e)(1)(D)(i), this restriction is also consistent with similar limits established on other options exchanges.51 Proposed Rule 980NYP(e)(1)(D)(ii)– (iii), which treats ECOs with certain complex strategies as Complex Only Orders, is based in part on current Rule 980NY(d)(4)(i)–(ii), with a difference that currently, such so-called ‘‘directional strategies’’ are rejected. The proposed handling under Pillar would be less restrictive than the current rule because such strategies would not be rejected and is consistent with the treatment of such complex strategies on other options exchanges.52 As with the proposal to restrict ECOs with more than five legs trading with the leg markets, this proposed restriction is also designed to ensure that Market Maker risk settings would not be bypassed. Because ECOs with directional strategies are typically geared towards an aggressive directional capture of volatility, such ECOs can represent significantly more risk than trading any one of the legs in isolation. As such, because Market Maker risk settings are only triggered after the entire ECO package has traded, the Exchange believes this proposed rule change would help ensure fair and orderly markets by preventing such orders from trading with the leg markets, which would minimize risk to Market Makers. Proposed Rule 980NYP(e)(2) would provide that the Exchange would evaluate trading opportunities for a resting ECO when the leg markets comprising a complex strategy update, provided that during periods of high message volumes, such evaluation may be done less frequently. The Exchange believes that this proposed rule promotes transparency of the frequency 51 See, e.g., Cboe Rule 5.33(g) (providing the ECOs may be restricted from trading with the leg markets if such ECO has more than a maximum number of legs, which maximum the Exchange determines on a class-by-class basis and may be two, three, or four). 52 See, e.g., Nasdaq ISE Options 3, Section 14 (d)(3)(A)–(B) (providing that ECOs with these complex strategies may trade only with other ECOs). PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 16475 with which the Exchange would be evaluating the leg markets for updates. The Exchange believes the proposed handling of ECOs during Core Trading is reasonably designed to facilitate increased interaction between orders on the leg markets and ECOs, and to do so in such a manner as to ensure a dynamic, real-time trading mechanism that maximizes the opportunity for trade executions for both ECOs and orders on single option series. Execution of ECOs During a COA. Proposed Rule 980NYP(f) would describe how ECOs would trade during a COA. The COA Process is currently described in Rule 980NY(e). Under Pillar, the Exchange proposes to modify the COA process, including by relying on the DBBO (as described above) for pricing, allowing a COA Order to initiate a COA only on arrival, and streamlining the rule text describing the circumstances that would cause an early end to a COA. The proposed COA Process is substantively identical to Arca Options Rule 6.91P–O(f), except as noted here with regard to the allocation of a COA Order. As proposed, a COA Order received when a complex strategy is open for trading and that satisfies the requirements of paragraph (f)(1) of the proposed Rule would initiate a COA only on arrival after trading with eligible interest per proposed Rule 980NYP(f)(2)(A) (described below). As further proposed, a COA Order would be rejected if entered during a pre-open state or if entered during Core Trading Hours with a time-in-force of FOK or GTX. This proposed order handling is based in part on current Rule 980NY(e)(1)(ii), which requires that COA Orders be submitted during Core Trading Hours. The proposed rejection of such orders during a pre-open state would be new under Pillar and is consistent with the Exchange’s proposed functionality that a COA Order would initiate a COA only on arrival. In addition, the proposal would clarify that COA Orders designated as FOK or GTX would be rejected, even if submitted during Core Trading Hours, is based on current functionality and this addition would add further detail and clarification to the rule text. Finally, as further proposed, only one COA may be conducted at a time in a complex strategy, which is identical to text in current Rule 980NY(e)(3). Proposed Rule 980NYP(f)(1), which is identical to Arca Options Rule 6.91P– O(f)(1), would describe the conditions required for the ‘‘Initiation of a COA.’’ As proposed, to initiate a COA, the limit price of the COA Order to buy (sell) must be higher (lower) than the best- E:\FR\FM\17MRN1.SGM 17MRN1 lotter on DSK11XQN23PROD with NOTICES1 16476 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices priced, same-side ECOs resting on the Consolidated Book and equal to or higher (lower) than the midpoint of the DBBO, which is designed to encourage aggressively-priced COA Orders and, in turn, to attract a meaningful number of RFR Responses to potentially provide price improvement of the COA Order’s limit price. This proposed text is based in part on current Rule 980NY(e)(3)(i), with a difference to add a new ‘‘midpoint of the DBBO’’ requirement to reflect this new concept under Pillar. As further proposed, a COA Order that does not satisfy these pricing parameters would not initiate a COA and, unless it is cancelled (i.e., if an IOC), such order would be ranked in Consolidated Book and processed as an ECO, per proposed Rule 980NYP(e) (described above). This would be new under Pillar, as current Rule 980NY(e)(3) allows an order designated for COA to reside on the Consolidated Book unless or until such order meets the requisite pricing conditions to initiate a COA. The Exchange believes this proposed change would simplify the COA process and promote the orderly initiation of COAs, which is essential to maintaining a fair and orderly market for ECOs. Finally, as proposed, once a COA is initiated, the Exchange would disseminate a Request for Response message, the Response Time Interval would begin and, during such interval, the Exchange would accept RFR Responses, including COA GTX Orders. This proposed text is based on current functionality set forth in Rule 980NY(e), with non-substantive differences to use Pillar terminology, including using the new Pillar term for COA GTX Orders. Proposed Rule 980NYP(f)(2), which is identical to Arca Options Rule 6.91P– O(f)(2), would describe the ‘‘Pricing of a COA.’’ As proposed, a COA Order to buy (sell) would initiate a COA at its limit price, unless its limit price locks or crosses the DBO (DBB), in which case it would initiate a COA at a price equal to one penny ($0.01) times the smallest leg ratio inside the DBO (DBB) (the ‘‘COA initiation price’’). This proposed functionality utilizes the new concept of a DBBO, is consistent with current functionality (that relies on substantively similar concept of Complex BBO (per Rule 900.2NY(a)), and ensures (consistent with current functionality) that interest on the leg markets maintain priority. • Proposed Rule 980NYP(f)(2)(A) would provide that prior to initiating a COA, a COA Order to buy (sell) would trade with any ECO to sell (buy) resting in the Consolidated Book that is priced equal to or lower (higher) than the DBO (DBB), unless the DBO (DBB) is VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 calculated using the Exchange BBO for all legs of the complex strategy and all such Exchange BBOs have displayed Customer interest, in which case the COA Order will trade up (down) to one penny ($0.01) times the smallest leg ratio inside the DBO (DBB) (i.e., priced better than the leg markets) and any unexecuted portion of such COA Order would initiate a COA. This proposed rule is based on current Rule 980NY(e)(2) with a difference to use the Pillar concept of DBBO rather than refer to the contra-side Complex BBO and to specify that the COA Order must price improve the DBBO when there is displayed Customer interest on the Exchange leg markets, as noted above. • Proposed Rule 980NYP(f)(2)(B) would provide that a COA Order would not be eligible to trade with the leg markets until after the COA ends, which added detail, while not explicitly stated in the current rule, is consistent with current functionality described in Rules 980NY(e)(7)(A) and (B) that only RFR Responses (i.e., GTX orders) and ECOs will be allocated in a COA and that the COA Order would not trade with the leg markets until after the COA allocations. Proposed Rule 980NYP(f)(3) would set forth the conditions that would result in the ‘‘Early End to a COA’’ (i.e., a COA ending prior to the expiration of the Response Time Interval), which conditions are consistent with current Rule 980NY(e)(6) as described below. Currently, as described in Rule 980NY(e)(3), the Exchange takes a snapshot of the Derived BBO at the start of a COA and uses that snapshot as the basis for determining whether to end a COA early. Under Pillar, the Exchange would no longer use a snapshot of the Derived BBO as the basis for determining whether to end a COA early but would instead rely on the DBBO (calculated per proposed Rule 980NYP(a)(5)), which is updated as market conditions change (including during the Response Time Interval).53 The Exchange believes relying on the DBBO is appropriate and would benefit investors as it would provide real-time trading information that includes an additional layer of price protection for ECO trading as the DBBO is based on Exchange BBOs, when available, or the ABBO. The Exchange proposes a COA would end early under the following conditions: Æ Proposed Rule 980NYP(f)(3)(A) would provide that a COA would end early if the Exchange receives an 53 As discussed infra regarding proposed Rule 980NYP(a)(5) and the definition of the Derived BBO, ‘‘the DBBO will be updated as the Exchange BBO or ABBO, as applicable, is updated’’). PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 incoming ECO or COA Order to buy (sell) in the same complex strategy that is priced higher (lower) than the initiating COA Order to buy (sell), which proposed text is based on current Rule 980NY(e)(6)(B)(i) without any substantive differences. Æ Proposed Rule 980NYP(f)(3)(B) would provide that a COA would end early if the Exchange receives an RFR Response that locks or crosses the DBBO on the same-side as the COA Order, which proposed text is based on current Rule 980NY(e)(6)(A)(i), except (as noted above) it refers to the DBBO rather than the ‘‘initial Derived BBO.’’ Æ Proposed Rule 980NYP(f)(3)(C) would provide that a COA would end early if the leg markets update causing the DBBO on the same-side as the COA Order to lock or cross (i) any RFR Response(s) or (ii) if no RFR Responses have been received, the best-priced, contra-side ECOs. This proposed rule is based in part on current Rule 980NY(e)(6)(C)(i), with differences to use Pillar terminology, including reference to the DBBO. Æ Proposed Rule 980NYP(f)(3)(D) would provide that a COA would end early if the leg markets update causing the contra-side DBBO to lock or cross the COA initiation price. This proposed rule is based in part on current Rule 980NY(e)(6)(C)(ii), except that it would refer to the DBBO and the COA initiation price, which would be new concepts under Pillar. Because the DBBO may be calculated using the ABBO for a given leg, the Exchange notes that it would be new under Pillar to have a COA end early based on (locking or crossing) market conditions outside of the Exchange. The Exchange believes this proposed functionality would benefit market participants by preventing COA Orders from executing at prices too far away from the prevailing market for that complex strategy. In addition, the Exchange believes this proposed functionality would promote internal consistency and benefit market participants because, as proposed, the execution of ECOs on the Exchange, including whether such ECO may initiate a COA as a COA Order, is based on the DBBO. As such, the Exchange believes it is appropriate and to the benefit of market participants that the early termination of a COA likewise be based on the DBBO—regardless of whether the prices used to calculate such DBBO include (or consist entirely of) ABBO prices. Æ Proposed Rule 980NYP(f)(3)(E) would provide that a COA would end early if the Exchange receives a Complex CUBE Order in the same E:\FR\FM\17MRN1.SGM 17MRN1 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 complex strategy as the COA Order, which is consistent with current functionality only insofar as certain Complex CUBE Orders may cause a COA to end early based on price (see, e.g., Rule 980NY(e)(6)(A) and (B)). The proposed functionality is different, however, because any Complex CUBE Order in the same series as a COA will cause the COA to end early regardless of the price, side, or size of the CUBE Order. The Exchange proposes to end a COA early upon receipt of a CUBE Order in the same series so that the Exchange can evaluate whether the CUBE Order is eligible to initiate a Complex CUBE Auction, per Rule 971.2NY. • Proposed Rule 980NYP(f)(4) would set forth the ‘‘Allocation of COA Orders’’ after a COA either ends early or after the expiration of the Response Time Interval. Current Rule 980NY(e)(7)(A) sets forth that the COAeligible orders are allocated against the best-priced interest received in the COA at each price on a ‘‘size pro rata basis,’’ as that concept is defined in Rule 964NY(b)(3).54 Under Pillar, the allocation of the COA Order would continue to be allocated on a size pro rata basis, with new functionality based on the proposed DBBO (per Rule 980NYP(a)(5)) to ensure that Customer interest at a price continues to be afforded priority. Specifically, proposed Rule 980NYP(f)(4)(A) would provide that RFR Responses to sell (buy) that are priced equal to or lower (higher) than a COA Order to buy (sell) would trade up (down) to the DBBO; provided, however, that if all legs of the DBB (DBO) are calculated using Exchange BBOs and all such Exchange BBOs have displayed Customer interest, RFR Responses to sell (buy) would not trade below (above) one penny ($0.01) times the smallest leg ratio inside the DBB (DBO). This proposed rule would ensure that the COA Order would not trade at a worse price than the leg markets and would price improve the DBBO where there is displayed Customer interest on all legs of the complex strategy on the Exchange, which is consistent with current Commentary .02(ii) to Rule 980NY.55 Further, proposed Rule 54 See Rule 980NYP(e)(7)(A) (providing that the COA-Eligible Order will execute against ‘‘RFR Responses and [ECOs] to buy (sell) that are priced higher (lower) than the initial Derived BBO will be eligible to trade first with the COA-eligible order, beginning with the highest (lowest), at each price point, on a Size Pro Rata basis pursuant to Rule 964NY(b)(3), provided that [ECOs] on behalf of Customers will have priority over same priced [ECOs] for non-Customers.’’). 55 See Rule 980NY, Commentary .02(ii) (providing that, when executing an ECO in a class VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 980NYP(f)(4)(A)(i) would specify that ‘‘[a]t each price point, the COA Order will trade first with Customer RFR Responses in time priority, followed by non-Customer RFR Responses on a size pro rata basis pursuant to Rule 964NYP(i)’’ and that ‘‘Non-Customer RFR Responses will be capped at the remaining size of the COA Order for purposes of size pro rata allocation.’’ 56 The proposed text is based in part on current Rule 980NY(e)(7)(A) insofar as it ensures that the COA Order would trade with the best-priced RFR Responses received in the COA, beginning with Customer interest at a price followed by same-priced non-Customer interest. The proposed text would also include the additional detail that non-Customer RFR Responses are capped at the remaining size of the COA Order for purposes of pro rata allocation, which is consistent with current functionality as relates to non-Customer RFR Responses. However, on Pillar, Customer RFR Responses would trade in time and would not be subject to a pro rata allocation, which proposed handling is consistent with the Exchange’s Customer priority model.57 Proposed Rule 980NYP(f)(4)(B) would provide that after COA allocations pursuant to paragraph (f)(4)(A) of this proposed Rule, any unexecuted balance of a COA Order (including COA Orders designated as IOC) would be eligible to trade with any contra-side interest, including the leg markets unless the COA Order is designated or treated as a Complex Only Order. This proposed text is based on existing functionality and makes explicit that a COA Order would trade solely with complex interest (and not the leg markets) during a COA. This proposed rule is designed to provide clarity and transparency that the remaining balance of a COA Order that has been designated as eligible for a COA, if each leg of the contra-side Derived BBO—calculated using the BBO from the Consolidated Book for each of the options series comprising a given complex order strategy per Rule 900.2NY—for the components of the ECO includes Customer interest, the price of at least one leg of the order must ‘‘trade at a price that is better than the corresponding price of all customer bids or offers in the Consolidated Book for the same series, by at least one standard trading increment as defined in Rule 960NY,’’ which minimum trading increment is one cent ($0.01). See Rule 960NY(b). 56 See American Pillar Priority Filing (which includes proposed Rule 964NYP(i), which sets forth a size pro rata allocation formula that is identical to the formula set forth in current Rule 964NY(b)(3)). 57 See, e.g., Rules 964NY(b)(2)(A) (regarding priority of displayed Customer interest based on time) and (b)(2)(D) (providing that non-Customer interest is subjected to pro rata allocation); see also proposed Rule 964NYP(h)(3) (regarding nonCustomers in ‘‘size pro rata pool’’) and (j) (regarding allocation of Customer and non-Customer interest) as described in the American Pillar Priority Filing). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 16477 would be eligible to trade with the leg markets after the COA ends. Proposed Rule 980NYP(f)(4)(C) would provide that after a COA Order trades pursuant to proposed Rule 980NYP(f)(4)(B), any unexecuted balance of a COA Order that is not cancelled (i.e., if an IOC) would be ranked in the Consolidated Book and processed as an ECO pursuant to paragraph (e) of this Rule. The proposed text is based on current Rule 980NY(e)(7)(B) without any substantive differences. Proposed Rule 980NYP(f)(5) would set forth ‘‘Prohibited Conduct related to COAs,’’ and is based on the first sentence of current Commentary .04 to Rule 980NY with one substantive differences: to add reference to quotes, and would provide that a pattern or practice of submitting ‘‘unrelated quotes or orders that cause a COA to conclude early would be deemed conduct inconsistent with just and equitable principles of trade,’’ 58 which addition would broaden the scope of ‘‘Prohibited Conduct’’ to the benefit of market participants and would also add clarity and transparency to Exchange rules. The proposed change is identical to Arca Options Rule 6.91P–O(f)(5). ECO Risk Checks. Proposed Rule 980NYP(g) would describe the ‘‘ECO Risk Checks,’’ which are designed to help ATP Holders to effectively manage risk when trading ECOs. Current Commentaries .03, .05, and .06 of Rule 980NY set forth the existing risk checks for ECOs. The proposed ECO Risk Checks are identical to and would operate in the same manner as set forth in Arca Options Rule 6.91P–O(g). With the transition to Pillar, the Exchange proposes to modify and enhance its existing risk checks for ECOs, as follows: • Proposed Rule 980NYP(g)(1) would set forth the ‘‘Complex Strategy Limit.’’ As proposed, the Exchange would establish a limit on the maximum number of new complex strategies that may be requested to be created per MPID, which limit would be announced by Trader Update.59 As further 58 See proposed Rule 980NYP(f)(5) (emphasis added). In addition, rather than copy into proposed Rule 980NYP the second sentence of current Rule 980NY, Commentary .04, which provides that dissemination of information related to COA Orders to third parties would also be deemed as conduct inconsistent with just and equitable principles of trade, the Exchange proposes to add more expansive language regarding this prohibited conduct to the order exposure rule. See infra for discussion of proposed change to Rule 935NY. 59 The Exchange has proposed to add the definition of MPID to proposed Rule 900.2NY, which would refer to ‘‘the identification number(s) E:\FR\FM\17MRN1.SGM Continued 17MRN1 16478 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 proposed, when an MPID reaches the limit on the maximum number of new complex strategies, the Exchange would reject all requests to create new complex strategies from that MPID for the rest of the trading day. In addition, and notwithstanding the established Complex Strategy Limit, the Exchange proposes that it may reject a request to create a new complex strategy from any MPID whenever the Exchange determines it is necessary in the interests of a fair and orderly market. This is new functionality proposed under Pillar but is conceptually similar to the Complex Order Table Cap (the ‘‘Cap’’), set forth in Commentary .03 to Rule 980NY, which Cap (like the Complex Strategy Limit), would help maintain a fair and orderly market because it would operate as a system protection tool that enables the Exchange to prevent any single MPID from creating more than a limited number of complex strategies during the trading day. This proposed Cap is identical to Arca Options Rule 6.91P– O(g)(1). The Exchange also notes that other options exchanges likewise impose a limit on new complex order strategies.60 • Proposed Rule 980NYP(g)(2) would set forth the ECO Price Protection. The existing ECO ‘‘Price Protection Filter’’ is set forth in Commentary .05 to current Rule 980NY (the ‘‘ECO Filter’’). The proposed ‘‘ECO Price Protection’’ on Pillar would work similarly to how the current ECO price protection mechanism functions on the Exchange because an ECO would be rejected if it is priced a specified percentage away from the contra-side Complex NBB or NBO.61 However, on Pillar, the Exchange proposes to use new thresholds and reference prices, which would simplify the existing price check, but because this functionality is assigned to the orders and quotes of a single ETP Holder, ATP Holder, or OTP Firm for the execution and clearing of trades on the Exchange by that permit holder. An ETP Holder, ATP Holder, or OTP Firm may obtain multiple MPIDs and each such MPID may be associated with one or more subidentifiers of that MPID.’’ See American Priority Pillar Filing. 60 See, e.g., Cboe Rule 5.33(a) (providing, in its definition of ‘‘complex strategy’’ that Cboe ‘‘may limit the number of new complex strategies that may be in the [Cboe] System at a particular time’’) and MIAX Rule 518(a)(6) (providing, in its definition of ‘‘complex strategy’’ that MIAX ‘‘may limit the number of new complex strategies that may be in the System at a particular time and will communicate this limitation to Members via Regulatory Circular’’). 61 As noted above, the Exchange proposes to define the Complex NBBO as the derived national best bid and derived national best offer for a complex strategy calculated using the NBB and NBO for each component leg of a complex strategy. See proposed Rule 980NYP(a)(2). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 identical to Arca Options Rule 6.91P– O(g)(2), this change would also add uniformity to Exchange options platforms. Although the mechanics of the ECO Price Protection would vary slightly from the existing Price Protection Filter, the goal of this feature would remain the same: to prevent the execution of ECOs that are priced too far away from the prevailing market for the same strategy and therefore potentially erroneous. Whereas the Away Market Deviation (vis a vis a DBBO based on an Exchange BBO) is designed to make sure that ECOs do not trade too far away from the prevailing market, the ECO Order Protection as proposed (and as is the case today) is to prevent the execution of ECOs that were potentially (inadvertently) entered at prices too far away from the prevailing market and, as such, this mechanism protects the order sender from itself. Proposed Rule 980NYP(g)(2)(A) would provide that each trading day, an ECO to buy (sell) would be rejected or cancelled (if resting) if it is priced a Specified Threshold amount or more above (below) the Reference Price (as described below), subject to proposed paragraphs (g)(2)(A)(i)–(v) of the Rule as described below. Because ECO Price Protection would be applied each trading day, an ECO designated GTC would be re-evaluated for ECO Price Protection on each day that it is eligible to trade and would be cancelled if the limit price is equal to or through the Specified Threshold.62 This proposed functionality is identical to Arca Options Rule 6.91P–O(g)(2)(A). Æ Proposed Rule 980NYP(g)(2)(A)(i) would provide that an ECO that arrives when a complex strategy is open for trading would be evaluated for ECO Price Protection on arrival. This functionality is identical to Arca Options Rule 6.91P–O(g)(2)(A)(i). Æ Proposed Rule 980NYP(g)(2)(A)(ii) would provide that an ECO received during a pre-open state would be evaluated for ECO Price Protection after the ECO Opening Auction Process concludes.63 This functionality is identical to Arca Options Rule 6.91P– O(g)(2)(A)(ii). Æ Proposed Rule 980NYP(g)(2)(A)(iii) would provide that an ECO resting on the Consolidated Book before a trading halt would be reevaluated for ECO Price 62 As noted here, the Exchange proposes to add GTC Orders in Pillar Order Type Filing, which order type would operate in the same manner as per current Rule 900.3NY. 63 See discussion infra regarding proposed Rule 980NYP(d), which describes the ECO Opening Auction Process (or Reopening after a Trading Halt) as well as the concepts of ECO Auction Collars and ECO Auction Price. PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 Protection after the ECO Opening Auction Process concludes. This functionality is identical to Arca Options Rule 6.91P–O(g)(2)(A)(iii). Æ Proposed Rule 980NYP(g)(2)(A)(iv) would provide that QCC Orders (per Rule 6.62P–O(g)(1)) would not be subject to ECO Price Protection, as the Exchange subjects such paired orders to distinct price validations.64 This functionality is identical to Arca Options Rule 6.91P–O(g)(2)(A)(iv). Æ Proposed Rule 980NYP(g)(2)(A)(v) would provide that ECO Price Protection would not be applied if there is no Reference Price for an ECO. This functionality is identical to Arca Options Rule 6.91P–O(g)(2)(A)(v). Proposed Rule 980NYP(g)(2)(B) would specify the ‘‘Reference Price’’ used in connection with the ECO Price Protection. As proposed, the Reference Price for calculating ECO Price Protection for an ECO to buy (sell) would be the Complex NBO (NBB), provided that, immediately following an ECO Opening Auction Process, the Reference Price would be the ECO Auction Price or, if none, the Complex NBO (NBB). The Exchange believes that adjusting the Reference Price for ECO Price Protection immediately following an ECO Opening Auction would ensure that the most up-to-date price would be used to assess whether to cancel an ECO that was received during a pre-open state, including during a Trading Halt. The Exchange notes this functionality is identical to how this functionality operations per Arca Options Rule 6.91P(g)(2)(B). As further proposed, there would be no Reference Price for an ECO if there is no NBBO for any leg of such ECO (i.e., the Exchange would not calculate a Complex NBB (NBO)), which text is based on current Rule 980NY, Commentary .05(c), except that the proposed rule would not reference OPRA because, as further proposed, for purposes of determining a Reference Price, the Exchange would not use an adjusted NBBO (i.e., such NBBO is implicitly reliant on information from OPRA).65 The Exchange notes that using an unadjusted NBBO to calculate the Reference Price is identical to how this 64 See, e.g., Rules 971.1NY and 971.2NY (regarding price requirements to initiate a CUBE Auction). 65 See American Pillar Priority Filing (discussion regarding the definition of ‘‘NBBO’’ in proposed Rule 900.2NY describing that the ‘‘NBBO’’ for purposes of options trading as referring to the national best bid or offer and that ‘‘[u]nless otherwise specified, the Exchange may adjust its calculation of the NBBO based on information about orders it sends to Away Markets, execution reports received from those Away Markets, and certain orders received by the Exchange’’). E:\FR\FM\17MRN1.SGM 17MRN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices functionality operations per Arca Options Rule 6.91P(g)(2)(B). Proposed Rule 980NYP(g)(2)(C) would set forth the ‘‘Specified Threshold’’ used in connection with the ECO Price Protection. As proposed, the Specified Threshold for calculating ECO Price Protection would be $1.00, unless determined otherwise by the Exchange and announced to ATP Holders by Trader Update. The Exchange believes that the proposed Specified Threshold of $1.00 simplifies how the Reference Price would be calculated as compared to the calculations currently specified in Commentary .05 to Rule 980NY. In addition, consistent with Commentary .05(d), the Exchange proposes that the Specified Threshold could change, subject to announcing the changes by Trader Update. Providing flexibility in Exchange rules regarding how the Specified Threshold would be set is identical functionality available per Arca Options Rule 6.62P–O(a)(3)(C) and is also consistent with the rules of other options exchanges as well as the functionality for the single-leg Limit Order Price Protection feature.66 • Proposed Rule 980NYP(g)(3) would set forth the ‘‘Complex Strategy Protections,’’ which are identical to Arca Options Rule 6.91P–O(g)(3). The proposed protections are based on current Rule 980NY, Commentary .06, which are referred to as the ‘‘Debit/ Credit Reasonability Checks.’’ The Exchange believes this name change is appropriate because it more accurately conveys that the check applies solely to certain complex strategies and because (as discussed above), the Exchange proposes to refer simply to a ‘‘net price’’ as opposed to the ‘‘total net debit or credit price.’’ The proposed Pillar Complex Strategy Protections would function similarly to the current Debit/ Credit Reasonability Checks because potentially erroneously priced incoming ECOs would be rejected. However, rather than to refer to specified debit or credit amounts as a way to determine whether a given strategy is erroneously priced, the proposed rule would instead focus on the expectation of the order sender and what would result if the ECO were not rejected. Consistent with current functionality, the proposed Complex Strategy Protections are designed to prevent the execution of ECOs at prices that are inconsistent with/not aligned with their strategies. 66 See, e.g., Cboe Rule 5.34(b)(6) (describing the ‘‘Drill-Through Protection’’ and that Cboe ‘‘determines a default buffer amount on a class-byclass basis). See Single-Leg Pillar Filing (describing use of Trader Update to modify Specified Thresholds in Rule 6.62P–O (a)(3)(C)). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 As proposed, to protect an ATP Holder that sends an ECO (each an ‘‘ECO sender’’) with the expectation that it would receive (or pay) a net premium but has priced the ECO such that the ECO sender would instead pay (or receive) a net premium, the Exchange would reject any ECO that is comprised of the erroneously-priced complex strategies as set forth in proposed Rule 980NYP(g)(3)(A)–(C) and described below. Proposed Rule 980NYP(g)(3)(A) would provide that ‘‘ ‘All buy’ or ‘all sell’ strategies’’ would be rejected as erroneously-priced if it is an ECO for a complex strategy where all legs are to buy (sell) and it is entered at a price less than one penny ($0.01) times the sum of the number of options in the ratio of each leg of such strategy (e.g., a complex strategy to buy (sell) 2 calls and buy (sell) 1 put with a price less than $0.03). The proposed text is based on Rule 980NY, Commentary .06(a)(1), with no substantive differences, except that the Exchange has streamlined the text and set forth the minimum price (i.e., $0.03) for any ‘‘all buy’’ or ‘‘all sell’’ strategies. Proposed Rule 980NYP(g)(3)(B) would provide for the rejection of erroneouslypriced ‘‘Vertical spreads,’’ which are defined as complex strategies that consists of a leg to sell a call (put) option and a leg to buy a call (put) option in the same option class with the same expiration but at different strike prices. As proposed, the Exchange would reject as erroneously-priced: (i) an ECO for a vertical spread to buy a lower (higher) strike call and sell a higher (lower) strike call and the ECO sender would receive (pay) a net premium (proposed Rule 980NYP(g)(3)(B)(i)); and (ii) an ECO for a vertical spread to buy a higher (lower) strike put and sell a lower (higher) strike put and the ECO sender would receive (pay) a net premium (proposed Rule 980NYP(g)(3)(B)(ii)). The proposed strategy protections for vertical spreads are based on current Rule 980NY, Commentary .06(a)(2), except that, as noted above, the proposed Rule is written from the standpoint of the expectation of the ECO sender as opposed to reviewing total net debit or credit price of the strategy. Proposed Rule 980NYP(g)(3)(C) would provide for the rejection of erroneouslypriced ‘‘Calendar spreads,’’ which are defined as consisting of a leg to sell a call (put) option and a leg to buy a call (put) option in the same option class at the same strike price but with different expirations. As proposed, the Exchange would reject as erroneously-priced: (i) an ECO for a calendar spread to buy a call leg with a shorter (longer) PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 16479 expiration while selling a call leg with a longer (shorter) expiration and the ECO sender would pay (receive) a net premium (proposed Rule 980NYP(g)(3)(C)(i)); and (ii) an ECO for a calendar spread to buy a put leg with a shorter (longer) expiration while selling a put leg with a longer (shorter) expiration and the ECO sender would pay (receive) a net premium (proposed Rule 980NYP(g)(3)(C)(ii)). The proposed strategy protections for calendar spreads are based on current Rule 980NY, Commentary .06(a)(3), except that, as noted above, the proposed Rule is written from the standpoint of the expectation of the ECO sender as opposed to reviewing the total net debit or credit price of the strategy. The Exchange has also not retained discretion to disable the strategy protections for calendar spreads (as contained in Commentary .06(a)(3)(i) of the current Rule) because since adopting this provision in 2017, the Exchange has never exercised this discretion and therefore has determined that such discretion is no longer needed. Proposed Rule 980NYP(g)(3)(D) would provide that any ECO that is not rejected by the complex strategy protections would still be subject to the ECO Price Protection, per paragraph (g)(2) of this Rule, which proposed text is based on Rule 980NY, Commentary .06(b) without any substantive difference. Rule 935NY: Order Exposure Requirements The Exchange also proposes conforming, non-substantive amendments to Rule 935NY, regarding order exposure, to add a cross-reference to new Pillar Rule 980NYP. Current Rule 6.47A–O(iv) exempts orders submitted to the COA Process, (per current Rule 980NY) from its onesecond order exposure requirements. This proposed amendment would extend the exemption from the order exposure requirements to orders submitted to a COA on Pillar.67 The Exchange also proposes to modify the reference to ‘‘Complex Order Auction Process (‘COA’)’’ to simply ‘‘Complex Order Auction (‘COA’)’’ (i.e., removing the word Process) consistent with how this concept is defined in proposed Rule 980NYP(a)(3). As previously stated, the Exchange believes that the proposed Response Time Interval for a COA (with a duration of no less than 100 milliseconds) is of sufficient length to allow ATP Holders time to respond to 67 See proposed Rule 935NY(iv). The Exchange also proposes to replace reference to ‘‘System’’ with ‘‘the Exchange.’’ See id. (preamble). E:\FR\FM\17MRN1.SGM 17MRN1 16480 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices a COA. As such, the proposal is designed to promote timely execution of the COA Order, while ensuring adequate exposure of such orders. Accordingly, the Exchange proposes to amend Rule 935NY (iv) to extend the exemption from the one-second exposure requirement to COA Orders under Pillar, which exemption is substantively identical to NYSE Arca Rule 6.47A–O. Consistent with Rule 935NY, Commentary .01, ATP Holders would only utilize the COA where there is a genuine intention to execute a bona fide transaction.68 * * * * * As discussed above, because of the technology changes associated with the migration to the Pillar trading platform, subject to approval of this proposed rule change, the Exchange will announce by Trader Update when rules with a ‘‘P’’ modifier will become operative and for which symbols. The Exchange believes that keeping existing rules on the rulebook pending the full migration of Pillar will reduce confusion because it will ensure that the rules governing trading on the Exchange’s current system will continue to be available pending the full migration to Pillar. lotter on DSK11XQN23PROD with NOTICES1 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’),69 in general, and furthers the objectives of Section 6(b)(5),70 in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to, and perfect the mechanism of, a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that proposed Rule 980NYP to support electronic complex trading on Pillar would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rule would promote transparency in Exchange rules by using consistent terminology governing trading on both of the 68 See Rule 935NY, Commentary .01 (‘‘Rule 935NY prevents a User from executing agency orders to increase its economic gain from trading against the order without first giving other trading interest on the Exchange an opportunity to either trade with the agency order or to trade at the execution price when the User was already bidding or offering on the book’’). 69 15 U.S.C. 78f(b). 70 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 Exchange’s options platforms, thereby ensuring that members, regulators, and the public can more easily navigate the Exchange’s rulebook and better understand how options trading is conducted on the Exchange. The Exchange believes that adding new Rule 980NYP with the modifier ‘‘P’’ to denote that this rule would be operative for the Pillar trading platform would remove impediments to and perfect the mechanism of a free and open market and a national market system by providing transparency of which rules would govern trading once a symbol has been migrated to the Pillar platform. The Exchange similarly believes that adding a preamble to current Rule 980NY stating that it would not be applicable to trading on Pillar would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote transparency regarding which rules would govern trading on the Exchange during and after the transition to Pillar. The Exchange believes that incorporating Pillar functionality currently available for trading of electronic complex orders on the Exchange’s affiliated options exchange (in Arca Options Rule 6.91P–O) would remove impediments to and perfect the mechanism of a free and open market and a national market system because the Exchange would be able to offer consistent functionality across its options trading platforms for trading of electronic complex orders. As discussed herein, and unless otherwise specified herein, the Exchange is not proposing fundamentally different functionality regarding how ECOs would trade on Pillar than is currently available on the Exchange. Accordingly, with the transition to Pillar, the Exchange would use Pillar terminology to describe functionality that is not changing and also introduce certain new or updated functionality for Electronic Complex Orders (i.e., enhancing the opening auction process, including introducing the ‘‘ECO Auction Collars’’) that will also be available for outright options trading on the Pillar platform. As such, the Exchange believes that using Pillar terminology and incorporating updated functionality for the proposed new rule would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote consistency in the Exchange’s rules across both of its options platforms. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 Definitions, Types of ECOs and Priority and Pricing of ECOs The Exchange believes that the proposed definitions in Rule 980NYP(a) would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed changes are designed to promote clarity and transparency by consolidating existing defined terms related to electronic complex trading into one section of the proposed rule. The Exchange believes that the proposed non-substantive amendments to those terms currently defined in Rule 980NYwould promote clarity and transparency by using Pillar terminology. The Exchange further believes consolidating defined terms in proposed Rule 980NYP(a) (including alphabetizing the proposed terms) would make the proposed rule more transparent and easier to navigate. The Exchange believes that the proposed new definition of Away Market Deviation would further remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote clarity and transparency to market participants regarding how the Exchange would calculate this additional protection against ECOs being executed on the Exchange at prices too far away from the current market. The Exchange believes that the proposed new definition of DBBO (and related terms of DBB and DBO) would further remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote clarity and transparency to market participants regarding how the DBBO would be calculated under Pillar. The proposed definition is not novel and is identical to how Arca Options Rule 6.91P–O(a)(5) defines DBBO and is also consistent with similarly defined terms used on Cboe. The Exchange believes that providing an alternative means of calculating the DBBO (e.g., by looking to the contra-side best bid (offer) in the absence of same-side interest) would remove impediments to and perfect the mechanism of a free and open market and a national market system thereby benefitting as it should increase opportunities for trading. In addition, the Exchange believes that setting forth additional definitions in proposed Rule 980NYP(a), including those that are used on other options exchanges (e.g., ‘‘complex strategy’’ and ‘‘ratio’’) and clarifying terms (e.g., ‘‘leg’’ and ‘‘leg markets’’), would remove impediments to and perfect the E:\FR\FM\17MRN1.SGM 17MRN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices mechanism of a free and open market and a national market system because it would promote clarity and transparency to market participants regarding electronic complex trading under Pillar. Finally, the proposed definition of ‘‘ECO Order Instruction’’ would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would incorporate for ECOs existing Pillar order handling functionality in an auction that substantively identical to Arca Options Rule 6.91P–O(a)(6). The Exchange similarly proposes this functionality for the ECO Opening Auction Process, with non-substantive differences only to use an ECO-specific defined term and to refer to the ECO Opening Auction Process. The Exchange believes that the proposed types of ECOs available per Rule 980NYP(b) would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would describe the ECOs and time-inforce modifiers that would be available on Pillar, as well as specifying additional ECO types. The Exchange believes that the non-substantive differences to use Pillar terminology to describe the available ECO order types would promote transparency and clarity in Exchange rules. The Exchange believes that the proposed Complex Only Order is not novel because it would operate in a manner identical to how such orders function per Arca Options Rule 6.91P–O (i.e., the order type only interact with other ECOs). In addition, the proposed COA GTX Order uses Pillar terminology to describe what is referred to as an ‘‘RFR Response’’ in the current rules, and therefore is not novel. The Exchange believes that proposed new Rule 980NYP(c) would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rules would set forth a Customer priority and size pro rata allocation model for Pillar and pricing requirements for ECO trading that are substantively the same as the Exchange’s current Customer priority model and pricing requirements as set forth in Rule 980NY(b) and Commentaries .01 and .02(i) and (ii) to Rule 980NY. The Exchange proposes certain modified functionality, including the Complex Only Order as noted above, and regarding ECO trading vis a vis the DBBO (and binding such DBBO by the maximum allowable Away Market Deviation when the Exchange BBO is used to calculate the DBBO for a leg), which would benefit market VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 participants as the proposed features would provide additional price protection in ECO trading and would add clarity and transparency to the rules. The Exchange believes that proposed Rule 980NYP(c) would remove impediments to and perfect the mechanism of a free and open market and a national market system because they would promote transparency and clarity in Exchange rules regarding how ECOs would trade with the leg markets and with other ECOs. Execution of ECOs at the Open (or Reopening After a Trading Halt) The Exchange believes that proposed Rule 980NYP(d) regarding the ECO Opening Auction Process would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rule maintains the fundamentals of an auction process that the Exchange currently uses for ECOs, as described in Rule 980NY(c)(i)(B), while at the same time enhancing the process by incorporating Pillar auction functionality that is identical to Arca Options Rule 6.91P–O(d). For example, the Exchange proposes to use Pillar functionality to determine how to price an ECO Opening Auction Process, as described in proposed Rule 980NYP(d)(3), including using proposed ‘‘ECO Auction Collars’’ and an ‘‘ECO Auction Price,’’ which are consistent with the core functionality for opening ECOs, with additional detail that would promote clarity and transparency to market participants regarding this process. The Exchange believes it is appropriate to refrain from opening a series when there is a lack of reliable pricing indication(s) regarding the price at which a complex strategy should execute because doing so would protect market participants from potentially erroneous executions, thereby promoting a fair and orderly ECO Opening Auction Process. Moreover, the Exchange believes that the proposal to use the DBBO (as opposed to the currently used Complex NBBO) for the ECO Opening Process would allow the Exchange to open a series based on the Exchange BBO, bound by the Away Market Deviation (or, the ABBO if the Exchange BBO is not available), which is consistent with ECO handling during Core Trading (per proposed Rule 980NYP(e)). The Exchange believes this proposed change would better align the permissible opening price for a series with the permissible execution price during Core Trading, which adds consistency to ECO order handling (as well as internal consistency to Exchange rules) to the PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 16481 benefit of investors. As such, this proposed change would remove impediments to and perfect the mechanism of a free and open market and a national market system. In addition, the Exchange believes that requiring that the opening price for a complex strategy must improve the DBBO if there is displayed Customer interest on all legs of the strategy on the Exchange would protect displayed Customer interest, and protect investors in general, while ensuring a fair and orderly ECO Opening Process. The Exchange also proposes to process ECOs received during an ECO Opening Auction Process, as described in proposed Rule 980NYP(d)(4), and transition to continuous trading following an ECO Opening Auction Process, as described in proposed Rule 980NYP(d)(5), in a manner that is identical to how ECOs are processed at the open per Arca Options Rule 6.91P– O(d)(4) and (d)(5). The Exchange believes that using similar functionality for ECO auctions would promote consistency across the Exchange’s options trading platforms. The Exchange believes that the additional detail regarding the ECO Opening Auction Process for electronic complex options trading on Pillar would promote transparency in the Exchange’s trading rules. The Exchange further believes that the proposed Rules 980NYP(d)(1) and (2), which describe when the Exchange would initiate an ECO Opening Auction Process and which ECOs would be eligible to trade in that process, would remove impediments to and perfect the mechanism of a free and open market and a national market system because they would provide clarity and transparency of the conditions required before the Exchange would initiate an ECO Opening Auction Process. The Exchange further believes that those conditions are not novel and are based on existing conditions specified in Rule 980NY(c)(i)(A) and (B), with additional specificity designed to promote clarity and transparency. Accordingly, the Exchange believes that the ECO Opening Auction Process for ECOs trading on Pillar would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed process is based on the current opening process, including that orders would be matched based on price-time priority at a price at which the maximum volume can be traded. E:\FR\FM\17MRN1.SGM 17MRN1 lotter on DSK11XQN23PROD with NOTICES1 16482 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices Execution of ECOs During Core Trading Hours The Exchange believes that proposed Rule 980NYP(e), setting forth the execution of ECOs during Core Trading Hours, would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed functionality would incorporate the Exchange’s existing Customer priority and size pro rata allocation model for trading ECOs and would provide that the leg markets would have priority at a price. The Exchange believes that the proposed rule change to add text to specify that an ECO may trade with another ECO at the leg market price if the interest in the leg markets is insufficient to trade at that price (i.e., the leg markets cannot trade at that price in full or in a permissible ratio), would continue to respect the priority of the leg markets at a price, but would also ensure that ECO trading opportunities are maximized after eligible interest in the leg markets is exhausted at that price resulting in more efficient executions. The Exchange notes that this proposed functionality— with the exception of the Exchange’s distinct priority model—is otherwise identical to Arca Options Rule 6.91P– O(e) and is consistent with the rule of another options exchange and is therefore not new or novel.71 In addition, the Exchange believes that allowing Complex Only Orders to trade up to the DBBO unless there is displayed Customer interest on each leg on the Exchange at the DBBO (as described above) would provide market participants additional trading opportunities while still protecting Customer interest on the Exchange, which would, in turn, remove impediments to and perfect the mechanism of a free and open market and national market system. The Exchange believes that it would remove impediments to and perfect the mechanism of a free and open market and national market system to specify that ECOs will not trade with orders in the leg markets designated AON, FOK or with an MTS modifier (consistent with Arca Options Rule 6.91P–O) because it would add clarity and transparency regarding the handling of ECOs vis a vis these single-leg order types that are conditional based on order size. The Exchange further believes that it would remove impediments to and perfect the mechanism of a free and open market and a national market system for ECOs to trade as Complex Only Orders (rather 71 See BOX Rule 7240(b)(2)(ii). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 than be rejected as they would under current rules) if they have a complex strategy that could result in a Market Maker breaching their established risk settings.72 This proposed process is also identical to Arca Options Rule 6.91P– O(e)(1)(D) and is consistent with the treatment of similar ECOs on other options markets.73 The Exchange further believes that it would remove impediments to and perfect the mechanism of a free and open market and a national market system to specify the frequency with which the Exchange would evaluate trading opportunities for an ECO when the leg markets update because it would promote clarity and transparency in Exchange rules. Overall, the Exchange believes the proposal for ECO trading during Core Trading Hours would help maintain a fair and orderly market and would benefit investors by facilitating increased interaction between ECOs (not designated as Complex Only) and leg markets interest. In particular, such ECOs would execute against interest in the leg markets for all of the quantity available at the best price in a permissible ratio until the quantities remaining on such leg markets are insufficient to execute against the ECO while respecting the spread ratio. The Exchange believes that requiring Complex Only Orders to improve at least a portion of the displayed Customer interest on the leg markets when all legs of a complex strategy contain displayed Customer interest would provide market participants with additional trading opportunities while still protecting displayed Customer interest on the Exchange. To the extent that this proposed handling of ECOs on the Exchange during Core Trading Hours results in greater liquidity (because of increased opportunity for order execution) this increased liquidity should, in turn, enhance execution quality. Execution of ECOs During a COA The Exchange believes that proposed Rule 980NYP(f), setting forth the execution of ECOs during a COA, would remove impediments to and perfect the mechanism of a free and open market and a national market system and promote just and equitable principles of trade because the proposed functionality would both incorporate existing functionality to provide that 72 See discussion infra regarding rationale for proposed Rule 980NYP(e) to restrict certain ECOs from executing as a package and bypassing Market Maker risk settings. 73 See supra notes 52 and 53 [sic] (citing to Cboe Rule 5.33(g) and Nasdaq ISE Options 3, Section 14 (d)(3)(A)–(B) regarding similar functionality). PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 COA Orders would trade solely with other ECOs (and not the leg markets) during the auction. The Exchange believes that relying on the proposed DBBO (and binding such DBBO by the maximum allowable Away Market Deviation when the Exchange BBO is used to calculate the DBBO for a leg) would benefit market participants as the proposed operation of the DBBO would provide additional price protection in ECO trading, including during a COA, and would add clarity and transparency to the rules. The Exchange also believes that the proposed text would make clear that the COA Order would trade with the best-priced RFR Responses received in the COA, beginning with Customer interest at a price followed by samepriced non-Customer interest. In addition, the proposed text would also include the additional detail that nonCustomer RFR Responses are capped at the remaining size of the COA Order for purposes of pro rata allocation, which is consistent with current functionality as relates to non-Customer RFR Responses. However, on Pillar, Customer RFR Responses would trade in time and would not be subject to a pro rata allocation, which proposed handling is consistent with the Exchange’s Customer priority model, which change would add clarity, transparency and internal consistency to Exchange rules.74 The Exchange also believes that the proposed change to add reference to quotes (in addition to orders) to Rule 980NYP(f)(5) (Prohibited Conduct) regarding the COA Process, would benefit market participants as it would broaden the scope of such the prohibition. Overall, the Exchange believes the proposed rule, which is substantively identical to Arca Options Rule 6.91P–O(f) except for the difference to account for the Exchange Customer priority/pro rata allocation model, would add clarity and transparency to ATP Holders utilizing the COA process. In addition, the Exchange further believes that the proposed changes to the COA process on Pillar that either differ from current functionality or that would be new would remove impediments to and perfect the mechanism of a free and open market and national market system because: 74 See, e.g., Rules 964NY(b)(2)(A) (regarding priority of displayed Customer interest based on time) and (b)(2)(D) (providing that non-Customer interest is subjected to pro rata allocation); see also proposed Rule 964NYP(h)(3) (regarding nonCustomers in ‘‘size pro rata pool’’) and (j) (regarding allocation of Customer and non-Customer interest) as described in the American Pillar Priority Filing). E:\FR\FM\17MRN1.SGM 17MRN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices • Requiring that a COA Order initiate a COA on arrival, or else be treated as a standard ECO, is new under Pillar as, per the current Rule, a COA Order may sit on the Consolidated Book until market conditions change such that it may initiate a COA. The Exchange believes the proposed change would provide ATP Holders with a higher level of transparency and determinism of when a COA Order could initiate a COA and would also encourage market participants to submit aggressivelypriced orders in order to qualify for initiation of a COA, which better-priced interest benefits all investors and improves market quality. • Making explicit that COA Orders may only execute with ECOs (and not the leg markets) until after the COA ends is consistent with current functionality, per Rule 980NY(e)(2), but is designed to make clear that ECOs have priority during a COA. • Streamlining the rule text that would describe the market events that, under Pillar, would cause an early end to a COA would simplify the COA process and would provide ATP Holders with a higher level of transparency and determinism regarding the handling of COA Orders. • Allowing a COA to end early based on the DBBO, which may be calculated using ABBO leg prices, would benefit market participants and promote internal consistency because, as proposed, such early termination would prevent COA Orders from executing at prices too far away from the prevailing market for that complex strategy. In addition, the DBBO is used to determine the execution of ECOs on the Exchange, including whether such ECO may initiate a COA as a COA Order. As such, the Exchange believes it is appropriate and to the benefit of market participants that the early termination of a COA likewise be based on the DBBO— regardless of whether the prices used to calculate such DBBO include (or consist entirely of) ABBO prices. • Requiring that a COA Order end early upon receipt of a Complex CUBE Order would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would allow the Exchange to simplify technology on Pillar and would allow the Exchange to determine the viability of a CUBE Order (i.e., whether the price of such order meets the pricing requirements to initiate a Complex CUBE Auction per Rule 971.2NY). A COA Order that is subject to the early end of a COA because of the arrival of a Complex CUBE Order would still have the opportunity to trade with the Complex VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 CUBE Order if such COA Order is on the opposite side of the market or with other interest once it is resting on the Consolidated Book. ECO Risk Checks The Exchange believes that proposed Rule 980NYP(g), setting forth ECO Risk Checks, which are identical to those set forth per Arca Options Rule 6.91P–O(g), would remove impediments to and perfect the mechanism of a free and open market and a national market system and promote just and equitable principles of trade because the proposed functionality would incorporate existing risk controls, without any substantive differences. The Exchange further believes that the proposed changes to ECO Risk Checks on Pillar that either differ from current functionality or would be new would remove impediments to and perfect the mechanism of a free and open market and national market system because: • The Exchange believes that the new Complex Strategy Limit (which is conceptually similar to the Complex Order Table Cap under the current Rule) would help maintain a fair and orderly market because it would operate as a system protection tool that enables the Exchange to prevent any single MPID from creating more than a limited number of complex strategies during the trading day. The proposed limits are not novel and are based on limits imposed in Arca Options Rule 6.91P–O(g)(1) as well as by other options exchanges on new complex order strategies.75 • The proposed ECO Price Protection on Pillar would work similarly to how the current ECO price protection mechanism functions on the Exchange because an ECO would be rejected if it is priced a specified percentage away from the contra-side Complex NBB or NBO.76 The Exchange believes that the proposed differences on Pillar, to use new thresholds and reference prices, would not only simplify the existing price check, but it would also align the proposed functionality with Arca Options Rule 6.91P–O, thus adding uniformity across the Exchange’s options platforms. Although the mechanics of the ECO Price Protection would vary slightly from the existing Price Protection Filter, the goal of this feature would remain the same: prevent 75 See supra note 61 [sic] (citing Cboe Rule 5.33(a) and MIAX Rule 518(a)(6) regarding each exchange’s ability to limit the number of new complex strategies in their systems at any particular time). 76 As noted above, the Exchange proposes to define the Complex NBBO as the derived national best bid and derived national best offer for a complex strategy calculated using the NBB and NBO for each component leg of a complex strategy. See proposed Rule 980NYP(a)(2). PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 16483 the execution of ECOs that are priced too far away from the prevailing market for the same strategy and therefore potentially erroneous to be benefit of market participants. • The proposed Pillar Complex Strategy Protections would function similarly to the current Debit/Credit Reasonability Checks because erroneously priced incoming ECOs would be rejected. Consistent with current functionality, the proposed Complex Strategy Protections are designed to prevent the execution of ECOs at prices that are inconsistent with/not aligned with their strategies to the benefit of market participants. The Exchange believes that the nonsubstantive differences to focus on the expectation of the ECO sender and what would result if the ECO were not rejected rather than refer to specified debit or credit amounts as a way to determine whether a given strategy is erroneously priced would remove impediments to and perfect the mechanism of a free and open market system because it would promote clarity and transparency in Exchange rules. Rule 935NY The Exchange believes that the proposed non-substantive change to Rule 935NY to update references to ‘‘COA’’ (versus COA Process) and ‘‘the Exchange,’’ to delete reference to ‘‘System,’’ and add the reference to Rule 980NYP would remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, protect investors and the public interest because the proposed conforming changes would add clarity, transparency and consistency to the Exchange’s rules. The Exchange believes that market participants would benefit from the increased clarity, thereby reducing potential confusion. Similarly, the Exchange believes that adding a crossreference to proposed Rule 980NYP(f) and extending the exemption from the one-second order exposure requirement of Rule 935NY would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote clarity and transparency of which Pillar rules would be eligible for the exception specified in that Rule. As previously stated, the Exchange believes that the proposed Response Time Interval for a COA (i.e., no less than 100 milliseconds) is of sufficient length so as to permit ATP Holders time to respond to a COA. As such, the Exchange believes the proposed rule change would provide the order sender with a timely execution of its COA E:\FR\FM\17MRN1.SGM 17MRN1 16484 Federal Register / Vol. 88, No. 52 / Friday, March 17, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 Order, while ensuring that there is an adequate exposure of such order. Accordingly, the Exchange proposes to amend Rule 935NY(iii) to extend the exemption from the one-second order exposure requirement to COA Orders under Pillar, which exemption is consistent with the treatment of similar orders on other options exchanges.77 Consistent with Rule 935NY, Commentary .01, ATP Holders would only utilize the COA where there is a genuine intention to execute a bona fide transaction.78 * * * * * For the reasons set forth above, the Exchange believes proposed Rule 980NYP, regarding ECO trading, including the priority and execution of such ECOs vis a vis the leg markets, is consistent with the goals of the Act to remove impediments to and to perfect the mechanism of a free and open market and a national market system, and to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange operates in a competitive market and regularly competes with other options exchanges for order flow. The Exchange believes that the transition to Pillar for trading of ECOs on its options trading platform would promote competition among options exchanges by offering a low-latency platform that offers more deterministic outcomes for trading interest, which, in turn, facilities ECO trading on a continuous and real-time basis on the Exchange. The proposed rule changes would support that inter-market competition by allowing the Exchange to offer additional functionality to its ATP Holders, thereby potentially attracting additional order flow to the Exchange. Otherwise, the proposed changes are not designed to address any competitive issues, but rather to amend the Exchange’s rules relating to trading of ECOs to support the transition to Pillar. As discussed in detail above, with this rule filing, the Exchange is not proposing to change its core functionality regarding the treatment of ECOs. Rather, the Exchange believes that the proposed rule changes would 77 See supra note 68 [sic] (regarding Arca Options Rule 6.47A–O (iii)). 78 See supra note 69 [sic] (regarding Rule 935NY, Commentary .01). VerDate Sep<11>2014 17:04 Mar 16, 2023 Jkt 259001 promote consistent use of terminology to support options trading on the Exchange (and to promote uniformity with its affiliated exchange Arca Options), making the Exchange’s rules easier to navigate. The Exchange does not believe that the proposed rule changes would raise any intra-market competition as the proposed rule changes would be applicable to all ATP Holders, and reflects the Exchange’s existing treatment of ECOs, without proposing any material substantive changes. As noted herein, proposed Rule 980NYP is substantively the same as Arca Options Rule 6.91P–O except as noted herein (including to account for the Exchange’s Customer priority/pro rata allocation model). C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. by order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: All submissions should refer to File Number SR–NYSEAMER–2023–17. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEAMER–2023–17, and should be submitted on or before April 7, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.79 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–05444 Filed 3–16–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–97131; File No. SR–MEMX– 2023–02] 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– NYSEAMER–2023–17. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; MEMX LLC; Notice of Withdrawal of a Proposed Rule Change To Amend the Exchange’s Fee Schedule To Adopt Market Data Fees March 13, 2023. On January 17, 2023, MEMX LLC (‘‘MEMX’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the 79 17 CFR 200.30–3(a)(12). E:\FR\FM\17MRN1.SGM 17MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 52 (Friday, March 17, 2023)]
[Notices]
[Pages 16467-16484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05444]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97125; File No. SR-NYSEAMER-2023-17]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed New Rule 980NYP and Conforming Amendments to Rule 
935NY

March 13, 2023.
    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 February 28, 2023, NYSE American LLC (``NYSE American'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes new Rule 980NYP (Electronic Complex Order 
Trading) to reflect the implementation of the Exchange's Pillar trading 
technology on its options market and to make conforming amendments to 
Rule 935NY (Order Exposure Requirements). The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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
Background
    The Exchange plans to transition its options trading platform to 
its Pillar technology platform. The Exchange's affiliated options 
exchange, NYSE Arca, Inc. (``NYSE Arca'' or ``Arca Options'') is 
currently operating on Pillar, as are the Exchange's national 
securities exchange affiliates' cash equity markets.\3\ For this 
transition, the Exchange proposes to use the same Pillar technology 
already in operation on Arca Options.\4\ In doing so, the Exchange will 
be able to offer not only common specifications for connecting to both 
of its options markets, but also common trading functions. The Exchange 
plans to roll out the new technology platform over a period of time 
based on a range of symbols beginning on October 23, 2023.\5\
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    \3\ The Exchange's national securities exchange affiliates' cash 
equity markets include: the New York Stock Exchange LLC, NYSE Arca, 
Inc., NYSE National, Inc., and NYSE Chicago, Inc. (collectively, the 
``NYSE Equities Exchanges'').
    \4\ See Arca Options Rule 6.91P-O. See also Securities Exchange 
Act Release No. 92563 (August 4, 2021), 86 FR 43704 (August 10, 
2021) (Notice of Filing of Amendment Nos. 1 and 2 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2, to Adopt New Exchange Rule 980NYP, regarding 
complex order trading on Pillar) (``Arca Options Approval Order'').
    \5\ See Trader Update, January 30, 2023 (announcing Pillar 
Migration Launch date of October 23, 2023 for the Exchange), 
available here, https://www.nyse.com/trader-update/history#110000530919.
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    In this regard, the Exchange recently filed a proposal to add new 
rules to reflect the priority and allocation of

[[Page 16468]]

options on the Exchange once Pillar is implemented.\6\ The current 
proposal sets forth how Electronic Complex Orders \7\ would trade on 
the Exchange once Pillar is implemented. As noted in the American 
Pillar Priority Filing, as the Exchange transitions to Pillar, certain 
rules would continue to be applicable to symbols trading on the current 
trading platform, but would not be applicable to symbols that have 
transitioned to trading on Pillar.\8\ Consistent with the American 
Pillar Priority Filing, proposed Rule 980NYP would have the same number 
as the current Electronic Complex Order Trading rule, but with the 
modifier ``P'' appended to the rule number. Current Rule 980NY, 
governing Electronic Complex Order Trading, would remain unchanged and 
continue to apply to any trading in symbols on the current system. 
Proposed Rule 980NYP would govern Electronic Complex Orders for trading 
in options symbols migrated to the Pillar platform.
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    \6\ See SR-NYSEAMER-2023-16, filed on February 27, 2023 
(proposal to adopt new Rules 964NYP (Order Ranking, Display, and 
Allocation), 964.1NYP (Directed Orders and DOMM Quoting 
Obligations), and 964.2NYP (Participation Entitlement of 
Specialists, e-Specialists, and Primary Specialist) as well as to 
add or modify Rule 900.2NY (Definitions) to address the migration to 
Pillar) (referred to herein as the ``American Pillar Priority 
Filing''). For avoidance of doubt, references to Rule 964NYP refer 
to the Exchange's proposed new priority and allocation rule for 
trading on Pillar, as described in the American Pillar Priority 
Filing.
    \7\ The term ``Electronic Complex Order'' is currently defined 
in the preamble to Rule 980NY to mean any Complex Order, as defined 
in Rule 900.3NY(e)(e) that is entered into the System.
    \8\ See American Pillar Priority Filing (providing that, once a 
symbol is trading on the Pillar trading platform, a rule with the 
same number as a rule with a ``P'' modifier would no longer be 
operative for that symbol and the Exchange would announce by Trader 
Update when symbols are trading on the Pillar trading platform); see 
also supra note 5, Arca Options Approval Order (same).
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    Proposed Rule 980NYP would (1) use Pillar terminology; and (2) 
introduce new functionality for Electronic Complex Order trading (e.g., 
adopting a DBBO and Away Market Deviation price check as well as 
enhancing the opening process for ECOs as described below), each of 
which proposed changes would align the Exchange with both the 
terminology used, and the functionality described, in Arca Options Rule 
6.91P-O.
    Finally, as discussed in the American Pillar Priority Filing, the 
Exchange will announce by Trader Update when symbols are trading on the 
Pillar trading platform. The Exchange intends to transition Electronic 
Complex Order trading on Pillar at the same time that single-leg 
trading is transitioned to Pillar.
Proposed Rule 980NYP: Electronic Complex Order Trading
    Current Rule 980NY (Electronic Complex Order Trading) specifies how 
the Exchange processes Electronic Complex Orders submitted to the 
Exchange. The Exchange proposes new Rule 980NYP to establish how such 
orders would be processed after the transition to Pillar. To promote 
clarity and transparency, the Exchange proposes to add a preamble to 
current Rule 980NY specifying that it would not be applicable to 
trading on Pillar.
    As discussed in greater detail below and unless otherwise specified 
herein, the Exchange is not proposing fundamentally different 
functionality regarding how Electronic Complex Orders would trade on 
Pillar than is currently available on the Exchange. However, with 
Pillar, the Exchange would use Pillar terminology to describe 
functionality that is not changing and also introduce certain new or 
updated functionality for Electronic Complex Orders (e.g., enhancing 
the opening auction process, including introducing the ``ECO Auction 
Collars'') that will also be available for outright options trading on 
the Pillar platform.
    Definitions. Proposed Rule 980NYP(a) would set forth the 
definitions applicable to trading on Pillar under the new rule. The 
proposed definitions are identical to how these terms are defined in 
Arca Options Rule 6.91P-O(a), except that the proposed Rule includes a 
definition for ``Complex BBO,'' as described below.
     Proposed Rule 980NYP(a)(1) would define the term ``Away 
Market Deviation'' as the difference between the Exchange BB (BO) for a 
series and the ABB (ABO) for that same series when the Exchange BB (BO) 
is lower (higher) than the ABB (ABO).\9\ The maximum allowable Away 
Market Deviation is the greater of $0.05 or 5% below (above) the ABB 
(ABO) (rounded down to the nearest whole penny). As further proposed, 
no ECO on the Exchange would execute at a price that would exceed the 
maximum allowable Away Market Deviation on any component of the complex 
strategy. The maximum allowable Away Market Deviation is designed to 
protect market participants from having their complex strategies 
execute at prices that are significantly outside of (and inferior to) 
the market for the individual legs. The proposed functionality provides 
the Exchange with flexibility in determining the acceptable execution 
range by allowing that it be calculated using either a percentage 
amount or a dollar amount. This proposed risk protection is not new or 
novel as it is identical to Arca Options Rule 6.91P-O(a)(1) and is also 
available on other options exchanges.\10\ As discussed further below, 
the Exchange proposes that its calculation of the DBBO (for each leg of 
a complex strategy) as well as trading of ECOs with the leg markets 
would be bound by the maximum allowable Away Market Deviation as an 
additional protection against ECOs being executed on the Exchange at 
prices too far away from the current market. This proposed definition 
is new and would promote clarity and transparency.
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    \9\ In the American Pillar Priority Filing, the Exchange 
proposes to define the (new) term ``Away Market BBO (`ABBO')'' as 
referring to the best bid(s) or offer(s) disseminated by Away 
Markets and calculated by the Exchange based on market information 
the Exchange receives from OPRA and the terms ``ABB'' and ``ABO'' as 
referring to the best Away Market bid and best Away Market offer, 
respectively. See id. (defining Away Market BBO in proposed Rule 
900.2NYP).
    \10\ See, e.g., BOX Options Exchange LLC (``BOX'') Rule 
7240(b)(3)(iii)(A) (providing that each leg of a complex strategy 
trade equal to or better than the ``Extended cNBBO,'' which has a 
default setting (per Rule 7240(a)(5)) of 5% of the cNBB or cNBO (per 
Rule 7240(a)(2) and (4), respectively) as applicable, or $0.05); 
Nasdaq ISE, LLC (``Nasdaq ISE''), Options 3, Section 16 (a) 
(providing that, in regard to ``Price limits for Complex Orders, 
``[n]otwithstanding, the System will not permit any leg of a complex 
strategy to trade through the NBBO for the series or any stock 
component by a configurable amount calculated as the lesser of (i) 
an absolute amount not to exceed $0.10, and (ii) a percentage of the 
NBBO not to exceed 500%, as determined by the [ISE] Exchange on a 
class, series or underlying basis'').
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     Proposed Rule 980NYP(a)(2) would define the term ``Complex 
NBBO'' to mean the derived national best net bid and derived national 
best net offer for a complex strategy calculated using the NBB and NBO 
for each component leg of a complex strategy. This definition is based 
on current Rule 900.2NY, without any substantive differences and is 
also identical to Arca Options Rule 6.91P-O(a)(2).\11\
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    \11\ See Rule 900.2NY (defining Complex NBBO as referring to 
``the NBBO for a given complex order strategy as derived from the 
national best bid and national best offer for each individual 
component series of a Complex Order'').
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    [cir] Proposed Rule 980NYP(a)(2)(A) would define the term ``Complex 
BBO'' to mean the complex order(s) to buy (sell) with the highest 
(lowest) net working price (per proposed Rule 964NYP(a)(3)) on each 
side of the Consolidated Book for the same complex order strategy. This 
definition is based on current Rule 900.2NY(a), without any substantive 
differences.\12\
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    \12\ See Rule 900.2NY(a) (defining Complex BBO as referring to 
``the complex orders with the lowest-priced (i.e., the most 
aggressive) net debit/credit price on each side of the Consolidated 
Book for the same complex order strategy'').

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[[Page 16469]]

     Proposed Rule 980NYP(a)(3) would define ``Complex Order 
Auction'' or ``COA'' to mean an auction of an ECO as set forth in 
proposed Rule 980NYP(f) (discussed below). This definition is based on 
the title of paragraph (e) of current Rule980NY, which sets forth the 
COA Process for ECOs without any substantive differences. Proposed Rule 
980NYP(a)(3) would also state that the terms defined in paragraphs 
(a)(3)(A)-(D) would be used for purposes of a COA.
    Proposed Rule 980NYP(a)(3)(A) would define a ``COA Order'' to mean 
an ECO that is designated by the ATP Holder as eligible to initiate a 
COA. This definition is based on the definition of a ``COA-eligible 
order'' as set forth in current Rule 980NY(e)(1) and (e)(1)(i), with a 
difference that the proposed definition would not require that an 
option class be designated as COA-eligible because all option classes 
that trade on Pillar would be COA-eligible.
    Proposed Rule 980NYP(a)(3)(B) would define the term ``Request for 
Response'' or ``RFR'' to refer to the message disseminated to the 
Exchange's proprietary complex data feed announcing that the Exchange 
has received a COA Order and that a COA has begun. As further proposed, 
the definition would provide that each RFR message would identify the 
component series, the price, the size and side of the market of the COA 
Order. This definition is based on the description of RFR in Rule 
980NY(e)(3) without any substantive differences. The Exchange proposes 
a clarifying difference to make clear that RFR messages would be sent 
over the Exchange's proprietary complex data feed, which is based on 
current functionality.
    Proposed Rule 980NYP(a)(3)(C) would define the term ``RFR 
Response'' to mean any ECO received during the Response Time Interval 
(defined below) that is in the same complex strategy, on the opposite 
side of the market of the COA Order that initiated the COA, and 
marketable against the COA Order.\13\ This definition is based in part 
on the description of RFR Responses in Rule 980NY(e)(5). However, 
unlike the current definition, an RFR Response would not have a time-
in-force contingency for the duration of the COA. Instead, the Exchange 
would consider any ECOs received during the Response Time Interval 
(defined below) that are marketable against the COA Order as an RFR 
Response. As described below, the Exchange proposes to define 
separately the term ``COA GTX Order,'' which would be more akin to the 
current definition of RFR Response. In addition, the proposed 
definition omits the current rule description that an RFR Response may 
be entered in $0.01 increments or that such responses may be modified 
or cancelled because these features are applicable to all ECOs and 
therefore is not necessary to separately state in connection with RFR 
Responses.
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    \13\ The term ``marketable'' is defined in Rule 900.2NY as ``for 
a Limit Order, the price matches or crosses the NBBO on the other 
side of the market. Market Orders are always considered 
marketable.''
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    Proposed Rule 980NYP(a)(3)(D) would define the term ``Response Time 
Interval'' to mean the period of time during which RFR Responses for a 
COA may be entered and would provide that the Exchange would determine 
and announce by Trader Update the length of the Response Time Interval; 
provided, however, that the duration of the Response Time Interval 
would not be less than 100 milliseconds and would not exceed one (1) 
second. This definition is based in part on the description of Response 
Time Interval in Rule 980NY(e)(4), with a difference that the Exchange 
proposes to reduce the minimum time from 500 milliseconds to 100 
milliseconds. The proposal to establish a minimum duration for a COA is 
identical to the minimum time frame allowed for a COA per Arca Options 
Rule 6.91P-O(a)(4) and is consistent with the minimum auction length 
for the Exchange's electronic-paired auctions (i.e., the CUBE Auction) 
as well as for auctions on other markets.\14\ Given the fact that the 
Exchange has (for years) offered the CUBE Auction with a Response Time 
Interval of at least 100 milliseconds and the same time interval is 
applicable to COAs on Arca Options (per Rule 6.91P-O(a)(3)(D)), the 
Exchange believes that the proposed Response Time Interval of at least 
this length would provide ATP Holders adequate time to respond to a 
COA.\15\
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    \14\ See, e.g., Rules 971.1NY(c)(2)(B) (providing that for a 
Customer Best Execution Auction ``[t]he minimum/maximum parameters 
for the Response Time Interval will be no less than 100 milliseconds 
and no more than one (1) second'') and 971.2NY(c)(1)(B) (same); Cboe 
Exchange Inc. (``Cboe'') Rule 5.33(d)(3) (providing that Cboe 
``determines the duration of the Response Time Interval on a class-
by-class basis, which may not exceed 3000 milliseconds'').
    \15\ See, e.g., Securities Exchange Act Release Nos. 82498 
(January 12, 2018), 83 FR 2823 (January 19, 2018) (SR-NYSEAmer-2017-
26) (Notice of filing and immediate effectiveness of proposed rule 
change to reduce the response time interval for a CUBE Auction to no 
less than 100 milliseconds); 83384 (June 5, 2018), 83 FR 27061 (June 
11, 2018) (SR-NYSEAMER-2018-05) (Order approving Complex CUBE 
functionality, including Rule 971.2NY(c)(1)(B), providing that 
``[t]he minimum/maximum parameters for the Response Time Interval 
will be no less than 100 milliseconds and no more than one (1) 
second'')).
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     Proposed Rule 980NYP(a)(4) would define the term ``Complex 
strategy'' to mean a particular combination of leg components and their 
ratios to one another. The proposed definition would further provide 
that new complex strategies can be created when the Exchange receives 
either a request to create a new complex strategy or an ECO with a new 
complex strategy. This proposed definition is new and is identical to 
how this term is defined in Arca Options Rule 6.91P-O(a)(4). 
Furthermore, this proposed definition is consistent with how this 
concept is defined on other options exchanges and would promote clarity 
and transparency.\16\
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    \16\ See, e.g., Cboe Rule 5.33(a) (defining ``complex strategy'' 
as ``a particular combination of components and their ratios to one 
another'' and further providing that ``[n]ew complex strategies can 
be created as the result of the receipt of a complex instrument 
creation request or complex order for a complex strategy that is not 
currently in the System''); MIAX Options Exchange (``MIAX'') Rule 
518(a)(6) (same).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(a)(5) would define the term ``DBBO'' 
to address situations where it is necessary to derive a (theoretical) 
bid or offer for a particular complex strategy. As proposed, ``DBBO'' 
would mean the derived best net bid (``DBB'') and derived best net 
offer (``DBO'') for a complex strategy. The bid (offer) price used to 
calculate the DBBO on each leg would be the Exchange BB (BO) \17\ (if 
available), bound by the maximum allowable Away Market Deviation (as 
defined above). If a leg of a complex strategy does not have an 
Exchange BB (BO), the bid (offer) price used to calculate the DBBO 
would be the ABB (ABO) for that leg. Thus, the ``bid (offer)'' prices 
used to calculate the DBBO would be based on the Exchange BB (BO) for 
each leg when available, and, absent an Exchange BB (BO) for a given 
leg, the ABB (ABO). The proposed definition would also provide that the 
DBBO would be updated as the Exchange BBO or ABBO, as applicable, is 
updated.
---------------------------------------------------------------------------

    \17\ The term BBO when used with respect to options traded on 
the Exchange means ``the best displayed bid or best displayed offer 
on the Exchange.'' See Rule 900.2NY.
---------------------------------------------------------------------------

    Proposed Rule 980NYP(a)(5)(A) would provide further detail about 
how the DBBO would be derived when, for a leg, there is no Exchange BB 
(BO) and no ABB (ABO). As proposed, in such circumstances, the bid 
(offer) price used to calculate the DBBO would be the offer (bid) price 
for that leg (i.e., Exchange BO (BB), bound by the maximum allowable 
Away Market Deviation (or the ABO (ABB) for that leg if no Exchange BO 
(BB) is available)),

[[Page 16470]]

minus (plus) ``one collar value,'' per proposed Rule 900.3NY(a)(4)(C); 
or (ii) $0.01, if the offer is equal to or less than one collar 
value.\18\ The proposed values used to generate a DBBO in the absence 
of local or Away Market interest would be consistent with the values 
that the Exchanges proposes to use in the Trading Collars for single-
leg orders.\19\ In addition, such values are within the current 
parameters for determining whether a trade is an Obvious Error or 
Catastrophic Error.\20\ This proposed definition of the DBBO is new and 
is based, in part, on the current definition of Derived BBO as set 
forth in Rule 900.2NY.\21\ Furthermore, this definition is identical to 
how this term is defined in Arca Options Rule 6.91P-O(a)(4)(C) and is 
also consistent with how this concept is defined on other options 
exchanges.\22\ The Exchange believes that providing an alternative 
means of calculating the DBBO (i.e., by looking to the contra-side best 
bid (offer) in the absence of same-side interest) would benefit market 
participants as it should increase opportunities for trading. For 
example, absent this proposed functionality, the Exchange would not be 
able to trade complex strategies when, for at least one leg of such 
strategy, the Exchange has no displayed interest on one or both sides 
of such component leg. Allowing the Exchange to look to the ABBO to 
calculate the DBBO in such circumstances would increase trading 
opportunities for ECOs to the benefit of all market participants. The 
Exchange believes that the additional detail about how the DBBO would 
be calculated in the absence of an Exchange BB (BO) and ABB (ABO), 
including that it would be rounded down to the nearest whole penny, 
would promote clarity and transparency. As noted above and herein, the 
Exchange believes that binding the DBBO (when calculated using the 
Exchange BBO) to the maximum allowable Away Market Deviation would help 
prevent ECOs from executing on the Exchange at prices too far away from 
the current market.
---------------------------------------------------------------------------

    \18\ Proposed Rule 900.3NYP (Orders and Modifiers) will be 
described in a separate rule filing regarding the operation of 
orders and quotes on Pillar (the ``Pillar Order Type'' filing). 
Proposed Rule 900.3NYP(a)(4)(C) would describe how Trading Collars 
are calculated on Pillar. The Exchange represents that this 
functionality would operate the same way it currently operates per 
Arca Options Rule 6.62P-O(a)(4)(C) (providing that ``[u]nless 
announced otherwise via Trader Update, the Trading Collar for an 
order to buy (sell) will be a specified amount above (below) the 
Reference Price, as follows'').
    \19\ See id.; see, e.g., Trader Update, September 9, 2022, NYSE 
Arca Options: Changes to Trading Collars Effective September 21st, 
available here, https://www.nyse.com/trader-update/history#110000475461.
    \20\ See Rules 975NY(c)(1) (thresholds for Obvious Errors) and 
975NY (d)(1) (thresholds for Catastrophic Errors).
    \21\ See Rule 900.2NY(b) (defining Derived BBO as being 
``calculated using the BBO from the Consolidated Book for each of 
the options series comprising a given complex order strategy).
    \22\ See, e.g., Cboe Rule 5.33(a) (defining ``Synthetic Bed Bid 
or Offer and SBBO'' for complex orders as ``the best bid and offer 
on the Exchange for a complex strategy calculated using'' the ``BBO 
for each component (or the NBBO for a component if the BBO for that 
component is not available) of a complex strategy from the [Cboe] 
Simple Book'').
---------------------------------------------------------------------------

    Proposed Rule 980NYP(a)(5)(B) would provide that, if for a leg of a 
complex strategy, there is neither an Exchange BBO nor an ABBO, the 
Exchange would not allow the complex strategy to trade until, for that 
leg, there is either an Exchange BB or BO, or an ABB or ABO, on at 
least one side of the market. The Exchange believes that preventing a 
complex strategy from trading when, for a leg, there is no reliable 
pricing indication--either on the Exchange or in Away Markets, would 
benefit market participants by preventing potentially erroneous 
executions. Moreover, including this additional detail in the proposed 
rule about when a complex strategy would not trade would benefit market 
participants as it would promote clarity and transparency in Exchange 
rules regarding ECO trading. This functionality is also identical to 
Arca Options Rule 6.91P-O (a)(5)(B).
    Proposed Rule 980NYP(a)(5)(C) would provide that if the best bid 
and offer prices (when not based solely on the Exchange BBO) for a 
component leg of a complex strategy are locked or crossed, the Exchange 
would not allow an ECO for that strategy to execute against another ECO 
until the condition resolves. The Exchange notes that, as described 
above, the DBBO may be calculated using leg prices derived either 
exclusively from, or a combination of, the Exchange BBO, the ABBO, or 
the Exchange BBO as adjusted to be priced within the maximum allowable 
Away Market Deviation. As such, if the best bid and offer prices (when 
not based solely on Exchange BBO) for a component leg of a complex 
strategy are locked or crossed, a DBBO calculated when using those 
prices could be erroneous.\23\ Accordingly, the Exchange believes that 
it is appropriate to not permit an ECO to execute against another ECO 
under these circumstances until the locked or crossed market resolves. 
The Exchange believes preventing ECO-to-ECO trading in this 
circumstance would benefit market participants by preventing 
potentially erroneous ECO executions. Moreover, including this 
additional detail in the proposed rule about when an ECO would be 
prevented from trading with another ECO would benefit market 
participants as it would promote clarity and transparency in Exchange 
rules regarding ECO trading. This functionality is also identical to 
Arca Options Rule 6.91P-O(a)(5)(C).
---------------------------------------------------------------------------

    \23\ The reliability of the Exchange's calculated DBBO is 
essential to ECO trading on the Exchange as this concept permeates 
all aspects of complex trading, including to determine price 
parameters at the opening of each series and in determining when, 
and at what price, a COA Order may initiate a COA as well as market 
events impacting the DBBO that would result in an early end to a 
COA. See, e.g., proposed Rule 980NYP(d)(3) (relying on the DBBO to 
determine ECO Auction Collars for the ECO Opening Auction Process) 
and 980NYP(f)(2)(A) and (f)(3) (relying on the DBBO to both initiate 
and price a COA Order as well as to terminate a COA early under 
certain market conditions)).
---------------------------------------------------------------------------

    Further, per proposed Rule 980NYP(a)(5)(C), if an Away Market quote 
updates to lock or cross the current Exchange BB (BO) or ABB (ABO) for 
a component leg of a complex strategy, the Exchange would allow an ECO 
for that strategy to execute against leg market interest on the 
Exchange. Allowing an eligible ECO to execute against leg market 
interest in these circumstances is consistent with the way single-leg 
orders trade. This functionality is also identical to Arca Options Rule 
6.91P-O(a)(5)(C). In this regard, the Exchange notes that, to the 
extent that leg prices are locked or crossed as a result of updates to 
the ABBO, such updates do not prevent resting leg market interest from 
trading at its resting price with all eligible contra-side interest, 
which includes incoming ECOs in the same complex strategy.\24\ 
Moreover, to the extent that an ECO trades with leg market interest in 
a complex strategy when interest in the leg markets is crossed, such 
executions are not deemed as trade-throughs.\25\ As such, the Exchange 
believes that allowing an ECO to trade with leg market interest in this 
circumstance would maximize the execution opportunities of such ECO 
while respecting price-time priority of the leg markets.
---------------------------------------------------------------------------

    \24\ See Arca Options Rule 6.76P-O(b)(3) providing that ``[i]f 
an Away Market locks or crosses the Exchange BBO, the Exchange will 
not change the display price of any Limit Orders or quotes ranked 
Priority 2--Display Orders and any such orders will be eligible to 
be displayed as the Exchange's BBO'').
    \25\ See Rule 991NY(b)(3) (exempting from trade-through 
liability transactions that occur ``when there was a Crossed 
Market''). See also the Options Order Protection And Locked/Crossed 
Market Plan, dated April 14, 2009, available here, https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
---------------------------------------------------------------------------

     Proposed Rule 980NYP(a)(6) would define the term ``ECO 
Order

[[Page 16471]]

Instruction'' to mean a request to cancel, cancel and replace, or 
modify an ECO, which definition is identical to how this term is 
defined in Arca Options Rule 6.91P-O(a)(6). As described further below, 
this concept relates to order processing when a series opens or reopens 
for trading and is based on the term ``order instruction'' as used in 
Arca Options Rules 6.64P-O(e) and (f), which (similarly) would define 
an ``order instruction'' for options as a request to cancel, cancel and 
replace, or modify an order or quote.
     Proposed Rule 980NYP(a)(7) would define the term 
``Electronic Complex Order'' or ``ECO'' to mean a Complex Order as 
defined in Rule 900.3NYP(f) that would be submitted electronically to 
the Exchange.\26\ This proposed definition is based on the preamble to 
Rule 980NY, and the Exchange proposes to replace reference to the 
``System'' with the term ``Exchange'' and to update cross-reference to 
the definition of a Complex Order as proposed in the American Pillar 
Priority Filing.
---------------------------------------------------------------------------

    \26\ The proposed definition of Complex Order under Pillar will 
be included in proposed Rule 900.3NYP, which will be described in 
the Pillar Order Type Filing. The Exchange represents that the 
proposed definition of Complex Orders will be substantively the same 
as this order type is defined in current Rule 900.3NY(e). See also 
Arca Options Rule 6.62P-O(f) (describing Complex Orders in 
substantively the same manner as Exchange Rule 900.3NY).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(a)(8) would define the term ``leg'' 
or ``leg market'' to mean each of the component option series that 
comprise an ECO. This definition is consistent with the concept of leg 
markets as used in current Rule 980NY(a), which defines legs as 
individual orders and quotes in the Consolidated Book. The Exchange 
believes the proposed definition would add clarity regarding how the 
terms ``leg'' and ``leg market'' would be used in connection with ECO 
trading on Pillar.
     Proposed Rule 980NYP(a)(9) would define ``Ratio'' or ``leg 
ratio'' to mean the quantity of each leg of an ECO broken down to the 
least common denominator such that the ``smallest leg ratio'' is the 
portion of the ratio represented by the leg with the fewest contracts. 
The Exchange believes the proposed definition would add clarity 
regarding how the terms ``ratio'' and ``leg ratio'' would be used in 
connection with ECOs trading on Pillar, which definition is identical 
to how this term is defined in Arca Options Rule 6.91P-O(a)(9). This 
proposed definition is likewise consistent with how this concept is 
described on other options exchanges.\27\
---------------------------------------------------------------------------

    \27\ See, e.g., Cboe, US Options Complex Book Process, Complex 
Order Basics, Section 2.1, Ratios, available here: https://cdn.batstrading.com/resources/membership/US-Options-Complex-Book-Process.pdf (providing that ``[t]he quantity of each leg of a 
complex order broken down to the lowest terms will determine the 
ratio of the complex order'').
---------------------------------------------------------------------------

    Types of ECOs. Proposed Rule 980NYP(b) would set forth the types of 
ECOs that would trade on Pillar. Proposed Rule 980NYP(b)(1) would 
provide that ECOs may be entered as Limit Orders, Limit Orders 
designated as Complex Only Orders, or as Complex QCCs.\28\ This 
proposed text is based on current Rule 980NY(d)(1), with a difference 
to include reference to (existing) Complex CUBE Orders and to provide 
that the Exchange would offer Complex Only Orders and Complex QCCs on 
Pillar. Allowing ECOs to be designated as Complex QCCs is consistent 
with current functionality not described in the rule and the Exchange 
believes that this additional specificity to the proposed rule would 
add clarity and transparency. Complex Only Orders (as described below) 
would be updated functionality available on Pillar.\29\ The proposed 
Types of ECOs are also the same as those offered per Arca Options Rule 
6.91P-O(b).
---------------------------------------------------------------------------

    \28\ The Exchange plans to adopt the proposed definitions of 
Limit Orders and Complex QCC Orders in the Pillar Order Type Filing 
(adopting Rule 900.3NYP, Orders and Modifiers)). The Exchange 
represents that these proposed order types will function in a manner 
substantively the same as is described per Arca Options Rule 6.62P-
O(a)(2) and (g)(1)(A), (C) and (D), (describing Limit Orders and 
Complex QCC Orders, respectively).
    \29\ See, infra, for discussion of proposed Rule 980NYP(e)(1)(C) 
(discussing Complex Only Order functionality).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(b)(2) would set forth the time-in-
force contingencies available to ECOs, which would be Day, IOC, FOK, or 
GTC, as those terms will be defined in the subsequent Pillar Order Type 
Filing in proposed Rule 900.3NYP(b), and GTX (per proposed Rule 
980NYP(b)(2)(C) as described below).\30\
---------------------------------------------------------------------------

    \30\ The Exchange plans to adopt the proposed definitions of 
Day, IOC, FOK, and GTX in the Pillar Order Type Filing (adopting 
Rule 900.3NYP, Orders and Modifiers). The Exchange represents that 
these proposed order types will function in a manner substantively 
the same as is described in current Rule 900.3NY. See also Arca 
Options Rule 6.62P-O(b).
---------------------------------------------------------------------------

     The proposed text is based on current Rules 980NY(d)(2) 
and (3), except that it adds GTX (as described below). The proposed 
text also omits AON because the Exchange would not offer AONs for ECO 
trading on Pillar.
     Proposed Rule 980NYP(b)(2)(A) would provide that an ECO 
designated as IOC or FOK would be rejected if entered during a pre-open 
state,\31\ which is consistent with the time-in-force of the order 
(because they could not be traded when a complex strategy is not open 
for trading) as well as with current functionality.
---------------------------------------------------------------------------

    \31\ The term ``pre-open state'' will be defined in Rule 
952NYP(a)(12) in a subsequent filing (the ``Pillar Auction 
Filing''), to mean ``the period before a series is opened or 
reopened,'' which definition will be identical to how this concept 
is described in Arca Options Rule 6.64P-O(a)(12).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(b)(2)(B) would provide that an ECO 
designated as FOK must also be designated as a Complex Only Order (per 
proposed Rule 980NYP(b)(1) and described further below). This proposed 
rule, which is new under Pillar, would simplify the operation of 
electronic complex order trading and would add clarity and transparency 
that ECOs designated as FOK (i.e., that have conditional size-related 
instructions) would not be eligible to trade with the leg markets.
     Proposed Rule 980NYP(b)(2)(C) would provide that an ECO 
designated as GTX would be defined as an ``COA GTX Order'' and would 
have the following features: it would not be displayed; it may be 
entered only during the Response Time Interval of a COA; it must be on 
the opposite side of the market as the COA Order; and it must specify 
the price, size, and side of the market. As further proposed, COA GTX 
Orders may be modified or cancelled during the Response Time Interval 
and any remaining size that does not trade with the COA Order would be 
cancelled at the end of the COA. This term ``COA GTX Order'' is new but 
the definition is based on the description of an RFR Response in 
current Rule 980NY(e)(5)(A)-(C), which likewise are not displayed and 
expire at the end of the COA.
    Priority and Pricing of ECOs. Proposed Rule 980NYP(c) would set 
forth how ECOs would be prioritized and priced under Pillar. The 
proposed priority scheme for ECOs under Pillar is consistent with 
current functionality, with the differences and clarifications noted 
below. As proposed, an ECO received by the Exchange that is not 
immediately executed (or cancelled), including an ECO that cannot trade 
due to conditions described in paragraphs (a)(5)(B)-(C) (above) \32\ 
and (c)(1)-(2) of this proposed Rule (below) or does not initiate a COA 
per paragraph (f)(1) (below), would be ranked in the Consolidated Book 
based on total net price, per Rule 964NYP(e)-(f), with Customer orders 
at a price ranked ahead of same-priced non-Customer orders. This 
proposed rule adds cross-references to new rule text (set forth in the 
American Pillar Priority Filing) but

[[Page 16472]]

is otherwise based on Rule 980NY(b), without any substantive 
differences.\33\ The Exchange proposes a non-substantive difference to 
refer simply to a ``net price'' rather than a ``net debit or credit 
price,'' which streamlined terminology is consistent with the use of 
the term ``net price'' on other options exchanges.\34\ The proposed 
rule also incorporates the first sentence of Rule 980NY(c)(iii)(A), 
regarding the ranking and priority of ECOs not immediately executed, 
with additional detail regarding the time-in-force modifier of the ECO, 
which adds clarity and transparency to the proposed Rule.\35\
---------------------------------------------------------------------------

    \32\ Proposed Rule 980NYP(a)(5)(B)-(C) describe conditions 
related to the leg markets when complex strategies will not trade.
    \33\ See Rule 980NY(b) (pricing that ECOs in the Consolidated 
Book will ``be ranked according to price/time priority based on the 
total or net debit or credit and the time of entry of the order, 
provided that [ECOs] on behalf of Customers shall be ranked ahead of 
same price [ECOs] for non-Customers.'').
    \34\ See, e.g., Arca Options Rule 6.91P-O(c); Cboe Rule 
5.33(f)(2) (setting forth parameters for the ``net price'' of 
complex orders traded on Cboe); Nasdaq ISE, Options 3, Section 14 
(c) (providing, in relevant part, that ``[c]omplex strategies will 
not be executed at prices inferior to the best net price achievable 
from the best ISE bids and offers for the individual legs'').
    \35\ For example, an ECO designated as IOC that does not 
immediately execute would cancel rather than be ranked on the 
Consolidated Book, whereas an ECO designated as Day or GTC that does 
not immediately execute would be ranked on the Consolidated Book.
---------------------------------------------------------------------------

    Proposed Rule 980NYP(c) would further provide that, unless 
otherwise specified in this Rule, ECOs would be processed as follows:
     Proposed Rule 980NYP(c)(1) would provide that when trading 
with the leg markets, an ECO would trade at the price(s) of the leg 
markets provided the leg markets are priced no more than the maximum 
allowable Away Market Deviation (as defined herein). The proposed rule 
requiring that when trading with the leg markets, the components of the 
ECO would trade at the prices of the leg markets is consistent with 
current functionality, per Rule 980NY(c)(ii); requiring that such 
prices be bound by the Away Market Deviation for an ECO to trade with 
the leg markets is new under Pillar, as discussed further below).\36\
---------------------------------------------------------------------------

    \36\ See Rule 980NY(c)(ii) (providing that ``[i]f, at a price, 
the leg markets can execute against an incoming [ECO] in full (or in 
a permissible ratio), the leg markets (Customer and non-Customer 
interest) will have first priority at that price and will trade with 
the incoming [ECO] pursuant to Rule 964NY(b) before [ECO] resting in 
the Consolidated Book can trade at that price'').
---------------------------------------------------------------------------

    For example, if there is sell interest in a leg market at $1.00, 
and a leg of an ECO to buy could trade up to $1.05, the ECO would trade 
with such leg market at $1.00. This would result in the ECO receiving 
price improvement and is consistent with the ECO trading as the 
Aggressing Order.\37\ The proposed functionality that an ECO would 
trade with leg markets only if the prices of the leg markets are within 
(and do not exceed the maximum allowable) Away Market Deviation would 
be new under Pillar and is designed to operate as an additional 
protection against ECOs being executed on the Exchange at prices too 
far away from the current market.
---------------------------------------------------------------------------

    \37\ The Exchange proposes to define the term ``Aggressing 
Order'' in the American Pillar Priority Filing to mean ``a buy 
(sell) order or quote that is or becomes marketable against sell 
(buy) interest on the Consolidated Book.'' See also Arca Options 
Rule 6.76P-O(a)(5) (same).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(c)(2) would provide that when trading 
with another ECO, each component leg of the ECO must trade at a price 
at or within the Exchange BBO for that series, and no leg of the ECO 
may trade at a price of zero.\38\ This provision is based in part on 
current Rule 980NY(c), which provides that no leg of an ECO will be 
executed outside of the Exchange BBO.\39\ This proposed rule, which 
ensures that ECOs would never trade through interest in the leg 
markets, is consistent with current functionality and adds clarity and 
transparency to the proposed Rule. This proposed functionality operates 
in the same manner per Arca Options Rule 6.91P-O(c)(2) and is also 
consistent with how ECOs are processed on other options exchanges.\40\
---------------------------------------------------------------------------

    \38\ See, infra, for discussion of proposed Rule 980NYP(e)(1) 
(discussing ``Execution of ECOs During Core Trading Hours,'' 
including the treatment of ECOs that have executed, at a price, to 
the extent possible with the leg markets and of ECOs designated as 
Complex Only).
    \39\ As noted herein, no ECO on the Exchange would execute at a 
price that would exceed the maximum allowable Away Market Deviation 
on any component of the complex strategy. See proposed Rule 
980NYP(a)(1) (defining Away Market Deviation).
    \40\ See, e.g., BOX Rule 7240(b)(3)(ii). See also Securities 
Exchange Act Release Nos. 69027 (March 4, 2013), 78 FR 15093, 15094 
(March 8, 2013) (SR-BOX-2013-01) (providing that ``where two Complex 
Orders trade against each other, the resulting execution prices will 
be at a price equal to or better than NBBO and BOX best bid or offer 
(``BBO'') for each of the component Legs,'' per proposed Rule 
7240(b)(3)(ii)). See, e.g., Cboe Rule 5.33(f)(2) (providing that 
complex orders may not execute at a net price that would cause any 
component of the complex strategy to be executed at a price of 
zero).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(c)(3) would provide that an ECO may 
trade without consideration of prices of the same complex strategy 
available on other exchanges, which is based on the same text as 
contained in current Rule 980NY(c) without any substantive differences.
     Proposed Rule 980NYP(c)(4) would provide that an ECO may 
trade in one cent ($0.01) increments regardless of the MPV otherwise 
applicable to any leg of the complex strategy, which is based on 
current Rule 980NY, Commentary .01 without any substantive differences.
    Execution of ECOs at the Open (or Reopening after a Trading Halt). 
Current Rule 980NY(c)(i) sets forth how ECOs are executed upon opening 
or reopening of trading. Proposed Rule 980NYP(d) would set forth 
details about how ECOs would be executed at the open or reopen 
following a trading halt. With the transition to Pillar, the Exchange 
proposes new functionality regarding the ``ECO Opening Auction 
Process'' on the Exchange, which would be applicable both to openings 
and reopenings following a trading halt. The proposed ECO Opening 
Auction Process would operate in a manner identical to the auction 
process set forth in Arca Options Rule 6.91P-O(d) as described 
below.\41\
---------------------------------------------------------------------------

    \41\ This proposed functionality is also consistent with the 
opening auction process for single-leg options pursuant to Arca 
Options Rule 6.64P-O. The Exchange plans to adopt new Rule 952NYP 
for single-leg opening (and reopening) auctions on Pillar, which 
rule proposal will be filed separately (the ``Pillar Auction 
Filing''), which proposed functionality will operate in 
substantively the same manner as Arca Options Rule 6.64P-O (Auction 
Process).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(d)(1) would set forth the conditions 
required for the commencement of an ECO Opening Auction Process. 
Specifically, as proposed, the Exchange would initiate an ECO Opening 
Auction Process for a complex strategy only if all legs of the complex 
strategy have opened or reopened for trading, which text is based on 
current Rule 980NY(c)(i)(A) without any substantive differences. 
Proposed Rule 980NYP(d)(1)(A)-(B) would set forth conditions that would 
prevent the opening of a complex strategy, as follows:
    [cir] Any leg of the complex strategy has neither an Exchange BO 
nor an ABO; or
    [cir] The complex strategy cannot trade per proposed Rule 
980NYP(a)(5)(B)-(C).
    The proposal to detail these conditions for opening (and reopening) 
are consistent with current functionality not set forth in the current 
rule. The Exchange believes that this added detail would not only add 
clarity and transparency to Exchange rules but would also protect 
market participants from potentially erroneous executions when there is 
a lack of reliable information regarding the price at which a complex 
strategy should execute, thereby promoting a fair and orderly ECO 
Opening Auction Process.
     Proposed Rule 980NYP(d)(2) would provide that any ECOs in 
a complex strategy with prices that lock or cross

[[Page 16473]]

one another would be eligible to trade in the ECO Opening Auction 
Process. This proposed rule is based on current Rule 980NY(c)(i)(B), 
which provides than an opening process will be used if there are ECOs 
that ``are marketable against each other.'' The Exchange proposes a 
difference in Pillar not to require that such ECOs be ``priced within 
the Complex NBBO'' because the proposed ECO Opening Auction Process 
under Pillar would instead rely on the DBBO (as described below).\42\ 
As such, the Exchange may open a series based on the Exchange BBO, 
bound by the Away Market Deviation (or, the ABBO if the Exchange BBO is 
not available), which is consistent with ECO handling during Core 
Trading (per proposed Rule 980NYP(e)). The Exchange believes this 
proposed change would better align the permissible opening price for a 
series with the permissible execution price during Core Trading, which 
adds consistency to ECO order handling to the benefit of investors.
---------------------------------------------------------------------------

    \42\ See Rule 980NY(c)(i)(B) (providing that ``[t]he CME will 
use an opening auction process if there are Electronic Complex 
Orders in the Consolidated Book that are marketable against each 
other and priced within the Complex NBBO''). Per Rule 900.2NY (and 
proposed Rule 980NYP(a)(2)), the ``Complex NBBO'' for each complex 
strategy is derived from the national best bid and national best 
offer for each leg.
---------------------------------------------------------------------------

    Proposed Rule 980NYP(d)(2)(A) would provide that an ECO received 
during a pre-open state would not participate in the Auction Process 
for the leg markets pursuant to proposed Rule 952NYP, which is based on 
the same text (in the second sentence) of current Rule 980NY(c)(i)(A) 
without any substantive differences.
    Proposed Rule 980NYP(d)(2)(B) would provide that a complex strategy 
created intra-day when all leg markets are open would not be subject to 
an ECO Opening Auction Process and would instead trade pursuant to 
paragraph (e) of the proposed Rule (discussed below) regarding the 
handling of ECOs during Core Trading Hours.
    Proposed Rule 980NYP(d)(2)(C) would provide that the ECO Opening 
Auction Process would be used to reopen trading in ECOs after a trading 
halt. This proposed rule is consistent with current Rule 952NY(e) and 
makes clear that the ECO Opening Auction Process would be applicable to 
reopenings, which would add internal consistency to Exchange rules and 
promote a fair and orderly ECO Opening Auction Process following a 
trading halt.
     Proposed Rule 980NYP(d)(3) would describe each aspect of 
the ECO Opening Auction Process. First, proposed Rule 980NYP(d)(3)(A) 
would describe the ``ECO Auction Collars,'' which terminology would be 
new for ECO trading and is based on the term ``Auction Collars'' used 
in Arca Options Rule 6.91P-O.
    As proposed, the upper (lower) price of an ECO Auction Collar for a 
complex strategy would be the DBO (DBB); provided, however, that if the 
DBO (DBB) is calculated using the Exchange BBO for all legs of the 
complex strategy and all such Exchange BBOs have displayed Customer 
interest, the upper (lower) price of an ECO Auction Collar would be one 
penny ($0.01) times the smallest leg ratio inside the DBO (DBB). This 
new functionality on Pillar would ensure that if there is displayed 
Customer interest on the Exchange on all legs of the strategy, the 
opening price for the complex strategy would price improve the DBBO, 
which the Exchange believes is consistent with fair and orderly markets 
and investor protection.
     Next, proposed Rule 980NYP(d)(3)(B) would describe the 
``ECO Auction Price.'' As proposed, the ECO Auction Price would be the 
price at which the maximum volume of ECOs can be traded in an ECO 
Opening Auction, subject to the proposed ECO Auction Collar. As further 
proposed, if there is more than one price at which the maximum volume 
of ECOs can be traded within the ECO Auction Collar, the ECO Auction 
Price would be the price closest to the midpoint of the ECO Auction 
Collar, or, if the midpoint falls within such prices, the ECO Auction 
Price would be the midpoint, provided that the ECO Auction Price would 
not be lower (higher) than the highest (lowest) price of an ECO to buy 
(sell) that is eligible to trade in the ECO Opening (or Reopening) 
Auction Process. The concept of an ECO Auction Price is consistent with 
the concept of ``single market clearing price'' set forth in current 
Rule 980NY(c)(i)(B). For Pillar, the Exchange proposes to determine the 
ECO Auction Price in the same manner as is used pursuant to Arca 
Options Rule 6.91P-O.
    Finally, as proposed, if the ECO Auction Price would be a sub-penny 
price, it would be rounded to the nearest whole penny, which text is 
based on current Rule 980NY(c)(i)(B), with a difference that the 
current rule refers to the midpoint of the Complex NBBO (which could be 
a sub-penny price and if so, is rounded down to the nearest penny) as 
opposed to referring to the ECO Auction Price, which would be a new 
Pillar term for trading ECOs, which price, if in sub-pennies, would be 
rounded (up or down) to the nearest MPV.
    Proposed Rule 980NYP(d)(3)(B)(i) would provide that an ECO to buy 
(sell) with a limit price at or above (below) the upper (lower) ECO 
Auction Collar would be included in the ECO Auction Price calculation 
at the price of the upper (lower) ECO Auction Collar, but ranked for 
participation in the ECO Opening (or Reopening) Auction Process in 
price-time priority based on its limit price. This proposed text is 
based in part on current Rule 980NY(c)(i)(B). The proposed rule would 
operate in the same manner as Arca Options Rule 6.91P-O regarding the 
ECO Auction Price.
    Proposed Rule 980NYP(d)(3)(B)(ii) would provide that locking and 
crossing ECOs in a complex strategy would trade at the ECO Auction 
Price. As further proposed, if there are no locking or crossing ECOs in 
a complex strategy at or within the ECO Auction Collars, the Exchange 
would open the complex strategy without a trade. This proposed text 
would be new and is identical to Arca Options Rule 6.91P-
O(d)(3)(B)(ii).
     Proposed Rule 980NYP(d)(4) would describe the ``ECO Order 
Processing during ECO Opening Auction Process,'' which processing would 
be identical to Rule 6.91P-O(d)(4). The Exchange proposes to apply 
existing Pillar auction functionality regarding how to process ECOs 
that may be received during the period when an ECO Auction Process is 
ongoing.
    Accordingly, as proposed, new ECOs and ECO Order Instructions (as 
defined in proposed Rule 980NYP(a)(6), described above) that are 
received when the Exchange is conducting the ECO Opening Auction 
Process for the complex strategy would be accepted but would not be 
processed until after the conclusion of this process. As further 
proposed, when the Exchange is conducting the ECO Opening Auction 
Process, ECO Order Instructions would be processed as follows:
    [cir] Proposed Rule 980NYP(d)(4)(A) would provide that an ECO Order 
Instruction received during the ECO Opening Auction Process would not 
be processed until after this process concludes if it relates to an ECO 
that was received before the process begins and that any subsequent ECO 
Order Instruction(s) relating to such ECO would be rejected if received 
during the ECO Opening Auction Process when a prior ECO Order 
Instruction is pending.
    [cir] Proposed Rule 980NYP(d)(4)(B) would provide that an ECO Order 
Instruction received during the ECO Opening Auction Process would be 
processed on arrival if it relates to an order that was received during 
this process.

[[Page 16474]]

    Proposed Rule 980NYP(d)(4) is identical to Arca Options Rule 6.91P-
O(d)(4) and would provide transparency regarding how ECO Order 
Instructions that arrived during the ECO Opening Auction Process would 
be processed.
     Proposed Rule 980NYP(d)(5) would describe the ``Transition 
to continuous trading'' after the ECO Opening Auction Process. As 
proposed, after the ECO Opening Auction, ECOs would be subject to ECO 
Price Protection, per proposed Rule 980NYP(g)(2) (as described below) 
and, if eligible to trade, would trade as follows:
    [cir] Proposed Rule 980NYP(d)(5)(A) would provide that ECOs 
received before the complex strategy was opened that did not trade in 
whole in the ECO Opening Auction Process and that lock or cross other 
ECOs or leg markets in the Consolidated Book would trade pursuant to 
proposed Rule 980NYP(e) (discussed below) regarding the handling of 
ECOs during Core Trading Hours; otherwise, such ECOs would be added to 
the Consolidated Book. This provision is based on the (last sentence) 
of current Rule 980NY(c)(i)(B) and (C), with non-substantive 
differences to use Pillar terminology.
    [cir] Proposed Rule 980NYP(d)(5)(B) would provide that ECOs 
received during the ECO Opening Auction Process would be processed in 
time sequence relative to one another based on original entry time. 
This proposed rule is based on both current functionality and is 
identical to how orders in an option series that were received during 
an Auction Processing Period are processed per Arca Options Rule 6.91P-
O(d)(5)(B).
    Execution of ECOs During Core Trading Hours. Proposed Rule 
980NYP(e) would describe how ECOs would be processed during Core 
Trading Hours. The proposed handling of ECOs during core trading hours 
would be identical to how ECOs are handled per Arca Options Rule 6.91P-
O(e).
    Proposed Rule 980NYP(e)(1) would provide that once a complex 
strategy is open for trading, an ECO would trade with the best-priced 
contra-side interest as follows:
    Proposed Rule 980NYP(e)(1)(A) relates to the priority of the leg 
markets over ECOs at a price. As proposed, if, at a price, the leg 
markets can trade with an eligible ECO,\43\ in full or in a permissible 
ratio, the leg markets would trade first at that price, pursuant to 
proposed Rule 964NYP,\44\ until the quantities on the leg markets are 
insufficient to trade with the ECO. Once the leg market interest, at a 
price, is exhausted, such ECO would trade with same-priced contra-side 
ECOs resting in the Consolidated Book, pursuant to Rule 964NYP(j). This 
functionality is based on Rule 980NY(c)(ii), with the difference that 
the leg markets always have priority at a price.\45\ This proposed 
functionality of affording leg markets priority at a price is identical 
to Arca Options Rule 6.91(e)(1)(A) and is consistent with functionality 
available on other options exchanges.\46\
---------------------------------------------------------------------------

    \43\ See proposed Rule 980NYP(e)(1)(C) and (D) (for description 
of ECOs that are not eligible to trade with the leg markets).
    \44\ See American Pillar Priority Filing (describing Rule 
964NYP, Order Ranking, Display, and Allocation, which is the 
substantively identical Pillar version of current Rule 964NY, except 
that the proposed rule includes Pillar ranking and priority 
terminology that is identical to Arca Options Rule 6.76P-O).
    \45\ See Rule 980NY(c)(ii) (providing that if, at a price, the 
leg markets can execute against an incoming ECO in full (or in a 
permissible ratio), and each leg includes Customer interest, the leg 
markets will have first priority at that price ahead of same-priced 
ECOs resting in the Consolidated Book. In contrast to current Rule 
980NY(c)(ii), Pillar will afford the leg markets priority without 
requiring that ``each leg'' of an incoming ECO contain Customer 
interest. See, infra, proposed Rule 980NYP(c) (regarding Priority 
and Pricing of ECOs).
    \46\ See Arca Options Rule 6.91P-O(e)(1)(A). See also supra note 
5, Arca Options Approval Order, 86 FR 43704, at 43709 (discussing 
substantively the same functionality available on BOX Options 
Exchange wherein certain Complex Orders to trade at the same price 
as the best-priced interest in the BOX Book after such eligible leg 
interest has been exhausted and providing trading example of 
allocation per Rule 6.91P-O(e)(1)(A)).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 980NYP(c)(1)(A) would 
benefit market participants because it is designed to protect the 
priority of orders on the leg markets by requiring an ECO to execute 
first against interest on the leg markets at the best price to the 
extent possible, i.e., in full or in a permissible ratio, and only then 
permitting an ECO to execute against another ECO at that price. Thus, 
following the executions against the best-priced interest on the leg 
markets, an ECO would no longer be executable against interest on the 
leg markets at the best price because the leg markets would lack 
sufficient quantity to fill the ECO in a permissible ratio at that 
price. Absent this provision in Rule 980NYP(c)(1)(A), the Exchange 
believes that otherwise executable ECOs at the leg market price would 
lose execution opportunities without any benefit to interest on the leg 
markets, which is unable to trade with the ECO at that price. Because 
orders are executable against each other only when both the price and 
the quantity of the orders match, the Exchange believes it is 
appropriate (and does not deny leg markets priority) to allow ECOs to 
trade with other ECOs at the leg market price when such eligible leg 
market interest at that price has been exhausted.
     Proposed Rule 980NYP(c)(1)(B) would provide that an ECO 
would not trade with orders in the leg markets designated as AON, FOK, 
or with an MTS modifier. This proposed text would be new and is based 
in part on existing functionality (for AON and FOK) and also reflects 
the Exchange's proposed treatment under Pillar of its new MTS modifier 
for orders in the leg markets.\47\ Consistent with current 
functionality, orders with an AON, FOK, or (new) MTS modifier are 
conditional and, by design, will miss certain execution opportunities. 
The Exchange believes that this proposed rule would simplify the 
operation of electronic complex order trading and would add clarity and 
transparency that ECOs would not trade with orders that have 
conditional size-related instructions.
---------------------------------------------------------------------------

    \47\ The Exchange plans to adopt the proposed the Minimum Trade 
Size or MTS Modifier in the Pillar Order Type Filing (adopting Rule 
900.3NYP, Orders and Modifiers). The Exchange represents that these 
proposed order types will function in a manner substantively the 
same as is described in current Arca Options Rule 6.62P-O(i)(3)(B)).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(e)(1)(C) would provide that an ECO 
designated as Complex Only would be eligible to trade solely with 
another ECO and would not trade with the leg markets. The proposed 
Complex Only Orders would be new functionality and would operate in the 
same manner as Complex Only Orders per Arca Options Rule 6.91P-
O(e)(1)(C).\48\
---------------------------------------------------------------------------

    \48\ See proposed Rule 980NYP(e)(1)(C). In addition to Arca 
Options, other options exchanges likewise offer Complex Orders that 
trade only with Complex Orders. See, e.g., Cboe Rule 5.33(a) 
(defining ``Complex Only'' order as an ECO ``that a [Cboe] Market-
Maker may designate to execute only against complex orders in the 
COB and not Leg into the Simple Book''). The proposed Complex Only 
Order (like its predecessor PNP Plus Order) would be available to 
all market participants.
---------------------------------------------------------------------------

    As further proposed, an ECO designated as Complex Only must trade 
at a price at or within the DBBO; provided that, if the DBB (DBO) is 
calculated using the Exchange BBO for all legs of the complex strategy 
and all such Exchange BBOs have displayed Customer interest, the 
Complex Only Order would not trade below (above) one penny ($0.01) 
times the smallest leg ratio inside the DBB (DBO), regardless of 
whether there is sufficient quantity on such leg markets to satisfy the 
ECO.\49\ This proposed requirement is designed

[[Page 16475]]

to ensure that, if there is displayed Customer interest on all legs of 
the strategy on the Exchange, a Complex Only Order would price improve 
at least some portion of such interest making up the DBBO. Thus, a 
Complex Only Order does not get the benefit of the priority treatment 
set out in proposed Rule 980NYP(e)(1)(A). If a Complex Only Order is 
unable to trade within the aforementioned price parameters, it would 
remain on the Consolidated Book until it can trade with another ECO per 
the requirements of proposed Rule 980NYP(e)(1)(C). The Exchange 
believes that allowing Complex Only Orders to trade up to the DBBO 
unless there is displayed Customer interest on all legs of the strategy 
on the Exchange at the DBBO (as described above), provides market 
participants additional trading opportunities while still protecting 
displayed Customer interest on the Exchange.
---------------------------------------------------------------------------

    \49\ See proposed Rule 980NYP(e)(1)(C). Because Complex Only 
Orders would never trade with the leg markets, whether or not there 
is sufficient quantity at the displayed Customer price is irrelevant 
to the operation of this order type.
---------------------------------------------------------------------------

    The proposed operation of the Complex Only Order, insofar as it 
protects displayed Customer interest in the leg markets when an ECO 
trades with another ECO, is consistent with current functionality.\50\ 
The proposed order type would also operate in the same manner as 
Complex Only Orders available per Arca Options Rule 6.91P-O(e)(1)(C) 
and is therefore not new or novel.
---------------------------------------------------------------------------

    \50\ See Rule 980NY, Commentary .02(i) (providing that, when 
executing an ECO, if each leg of the contra-side Derived BBO for the 
components of the ECO includes Customer interest, the price of at 
least one leg of the order must trade at a price that is at least 
one cent ($0.01) better than the corresponding price of all customer 
bids or offers in the Consolidated Book for the same series).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(e)(1)(D) would provide that ECOs with 
any one of the following complex strategies would be ineligible to 
trade with the leg markets and would be processed as a Complex Only 
Order:
    [cir] a complex strategy with more than five legs;
    [cir] a complex strategy with two legs and both legs are buying or 
both legs are selling, and both legs are calls or both legs are puts; 
or
    [cir] a complex strategy with three or more legs and all legs are 
buying or all legs are selling.
    The proposal to restrict ECOs with more than five legs from trading 
with the leg markets (and being treated as Complex Only Orders), per 
proposed Rule 980NYP(e)(1)(D)(i), would be new functionality under 
Pillar and is designed to help Market Makers manage risk. The 
functionality is identical to functionality available per Arca Options 
Rule 6.91P-O(e)(1)(D)(i). Because the execution of a multi-legged ECO 
is a single transaction, comprising discrete legs that must all trade 
simultaneously, allowing ECOs with more than five legs to trade with 
the leg markets may allow a multi-legged transaction to occur before a 
Market Maker's risk settings would be triggered. This proposed 
limitation is designed to prevent such multi-legged transactions, which 
would help ensure that Market Makers continue to provide liquidity and 
do not trade above their established risk tolerance levels. In addition 
to Arca Options Rule 6.91-O(e)(1)(D)(i), this restriction is also 
consistent with similar limits established on other options 
exchanges.\51\
---------------------------------------------------------------------------

    \51\ See, e.g., Cboe Rule 5.33(g) (providing the ECOs may be 
restricted from trading with the leg markets if such ECO has more 
than a maximum number of legs, which maximum the Exchange determines 
on a class-by-class basis and may be two, three, or four).
---------------------------------------------------------------------------

    Proposed Rule 980NYP(e)(1)(D)(ii)-(iii), which treats ECOs with 
certain complex strategies as Complex Only Orders, is based in part on 
current Rule 980NY(d)(4)(i)-(ii), with a difference that currently, 
such so-called ``directional strategies'' are rejected. The proposed 
handling under Pillar would be less restrictive than the current rule 
because such strategies would not be rejected and is consistent with 
the treatment of such complex strategies on other options 
exchanges.\52\ As with the proposal to restrict ECOs with more than 
five legs trading with the leg markets, this proposed restriction is 
also designed to ensure that Market Maker risk settings would not be 
bypassed. Because ECOs with directional strategies are typically geared 
towards an aggressive directional capture of volatility, such ECOs can 
represent significantly more risk than trading any one of the legs in 
isolation. As such, because Market Maker risk settings are only 
triggered after the entire ECO package has traded, the Exchange 
believes this proposed rule change would help ensure fair and orderly 
markets by preventing such orders from trading with the leg markets, 
which would minimize risk to Market Makers.
---------------------------------------------------------------------------

    \52\ See, e.g., Nasdaq ISE Options 3, Section 14 (d)(3)(A)-(B) 
(providing that ECOs with these complex strategies may trade only 
with other ECOs).
---------------------------------------------------------------------------

    Proposed Rule 980NYP(e)(2) would provide that the Exchange would 
evaluate trading opportunities for a resting ECO when the leg markets 
comprising a complex strategy update, provided that during periods of 
high message volumes, such evaluation may be done less frequently. The 
Exchange believes that this proposed rule promotes transparency of the 
frequency with which the Exchange would be evaluating the leg markets 
for updates.
    The Exchange believes the proposed handling of ECOs during Core 
Trading is reasonably designed to facilitate increased interaction 
between orders on the leg markets and ECOs, and to do so in such a 
manner as to ensure a dynamic, real-time trading mechanism that 
maximizes the opportunity for trade executions for both ECOs and orders 
on single option series.
    Execution of ECOs During a COA. Proposed Rule 980NYP(f) would 
describe how ECOs would trade during a COA. The COA Process is 
currently described in Rule 980NY(e). Under Pillar, the Exchange 
proposes to modify the COA process, including by relying on the DBBO 
(as described above) for pricing, allowing a COA Order to initiate a 
COA only on arrival, and streamlining the rule text describing the 
circumstances that would cause an early end to a COA. The proposed COA 
Process is substantively identical to Arca Options Rule 6.91P-O(f), 
except as noted here with regard to the allocation of a COA Order.
    As proposed, a COA Order received when a complex strategy is open 
for trading and that satisfies the requirements of paragraph (f)(1) of 
the proposed Rule would initiate a COA only on arrival after trading 
with eligible interest per proposed Rule 980NYP(f)(2)(A) (described 
below). As further proposed, a COA Order would be rejected if entered 
during a pre-open state or if entered during Core Trading Hours with a 
time-in-force of FOK or GTX. This proposed order handling is based in 
part on current Rule 980NY(e)(1)(ii), which requires that COA Orders be 
submitted during Core Trading Hours. The proposed rejection of such 
orders during a pre-open state would be new under Pillar and is 
consistent with the Exchange's proposed functionality that a COA Order 
would initiate a COA only on arrival. In addition, the proposal would 
clarify that COA Orders designated as FOK or GTX would be rejected, 
even if submitted during Core Trading Hours, is based on current 
functionality and this addition would add further detail and 
clarification to the rule text. Finally, as further proposed, only one 
COA may be conducted at a time in a complex strategy, which is 
identical to text in current Rule 980NY(e)(3).
    Proposed Rule 980NYP(f)(1), which is identical to Arca Options Rule 
6.91P-O(f)(1), would describe the conditions required for the 
``Initiation of a COA.'' As proposed, to initiate a COA, the limit 
price of the COA Order to buy (sell) must be higher (lower) than the 
best-

[[Page 16476]]

priced, same-side ECOs resting on the Consolidated Book and equal to or 
higher (lower) than the midpoint of the DBBO, which is designed to 
encourage aggressively-priced COA Orders and, in turn, to attract a 
meaningful number of RFR Responses to potentially provide price 
improvement of the COA Order's limit price. This proposed text is based 
in part on current Rule 980NY(e)(3)(i), with a difference to add a new 
``midpoint of the DBBO'' requirement to reflect this new concept under 
Pillar. As further proposed, a COA Order that does not satisfy these 
pricing parameters would not initiate a COA and, unless it is cancelled 
(i.e., if an IOC), such order would be ranked in Consolidated Book and 
processed as an ECO, per proposed Rule 980NYP(e) (described above). 
This would be new under Pillar, as current Rule 980NY(e)(3) allows an 
order designated for COA to reside on the Consolidated Book unless or 
until such order meets the requisite pricing conditions to initiate a 
COA. The Exchange believes this proposed change would simplify the COA 
process and promote the orderly initiation of COAs, which is essential 
to maintaining a fair and orderly market for ECOs.
    Finally, as proposed, once a COA is initiated, the Exchange would 
disseminate a Request for Response message, the Response Time Interval 
would begin and, during such interval, the Exchange would accept RFR 
Responses, including COA GTX Orders. This proposed text is based on 
current functionality set forth in Rule 980NY(e), with non-substantive 
differences to use Pillar terminology, including using the new Pillar 
term for COA GTX Orders.
    Proposed Rule 980NYP(f)(2), which is identical to Arca Options Rule 
6.91P-O(f)(2), would describe the ``Pricing of a COA.'' As proposed, a 
COA Order to buy (sell) would initiate a COA at its limit price, unless 
its limit price locks or crosses the DBO (DBB), in which case it would 
initiate a COA at a price equal to one penny ($0.01) times the smallest 
leg ratio inside the DBO (DBB) (the ``COA initiation price''). This 
proposed functionality utilizes the new concept of a DBBO, is 
consistent with current functionality (that relies on substantively 
similar concept of Complex BBO (per Rule 900.2NY(a)), and ensures 
(consistent with current functionality) that interest on the leg 
markets maintain priority.
     Proposed Rule 980NYP(f)(2)(A) would provide that prior to 
initiating a COA, a COA Order to buy (sell) would trade with any ECO to 
sell (buy) resting in the Consolidated Book that is priced equal to or 
lower (higher) than the DBO (DBB), unless the DBO (DBB) is calculated 
using the Exchange BBO for all legs of the complex strategy and all 
such Exchange BBOs have displayed Customer interest, in which case the 
COA Order will trade up (down) to one penny ($0.01) times the smallest 
leg ratio inside the DBO (DBB) (i.e., priced better than the leg 
markets) and any unexecuted portion of such COA Order would initiate a 
COA. This proposed rule is based on current Rule 980NY(e)(2) with a 
difference to use the Pillar concept of DBBO rather than refer to the 
contra-side Complex BBO and to specify that the COA Order must price 
improve the DBBO when there is displayed Customer interest on the 
Exchange leg markets, as noted above.
     Proposed Rule 980NYP(f)(2)(B) would provide that a COA 
Order would not be eligible to trade with the leg markets until after 
the COA ends, which added detail, while not explicitly stated in the 
current rule, is consistent with current functionality described in 
Rules 980NY(e)(7)(A) and (B) that only RFR Responses (i.e., GTX orders) 
and ECOs will be allocated in a COA and that the COA Order would not 
trade with the leg markets until after the COA allocations.
    Proposed Rule 980NYP(f)(3) would set forth the conditions that 
would result in the ``Early End to a COA'' (i.e., a COA ending prior to 
the expiration of the Response Time Interval), which conditions are 
consistent with current Rule 980NY(e)(6) as described below. Currently, 
as described in Rule 980NY(e)(3), the Exchange takes a snapshot of the 
Derived BBO at the start of a COA and uses that snapshot as the basis 
for determining whether to end a COA early.
    Under Pillar, the Exchange would no longer use a snapshot of the 
Derived BBO as the basis for determining whether to end a COA early but 
would instead rely on the DBBO (calculated per proposed Rule 
980NYP(a)(5)), which is updated as market conditions change (including 
during the Response Time Interval).\53\ The Exchange believes relying 
on the DBBO is appropriate and would benefit investors as it would 
provide real-time trading information that includes an additional layer 
of price protection for ECO trading as the DBBO is based on Exchange 
BBOs, when available, or the ABBO. The Exchange proposes a COA would 
end early under the following conditions:
---------------------------------------------------------------------------

    \53\ As discussed infra regarding proposed Rule 980NYP(a)(5) and 
the definition of the Derived BBO, ``the DBBO will be updated as the 
Exchange BBO or ABBO, as applicable, is updated'').
---------------------------------------------------------------------------

    [cir] Proposed Rule 980NYP(f)(3)(A) would provide that a COA would 
end early if the Exchange receives an incoming ECO or COA Order to buy 
(sell) in the same complex strategy that is priced higher (lower) than 
the initiating COA Order to buy (sell), which proposed text is based on 
current Rule 980NY(e)(6)(B)(i) without any substantive differences.
    [cir] Proposed Rule 980NYP(f)(3)(B) would provide that a COA would 
end early if the Exchange receives an RFR Response that locks or 
crosses the DBBO on the same-side as the COA Order, which proposed text 
is based on current Rule 980NY(e)(6)(A)(i), except (as noted above) it 
refers to the DBBO rather than the ``initial Derived BBO.''
    [cir] Proposed Rule 980NYP(f)(3)(C) would provide that a COA would 
end early if the leg markets update causing the DBBO on the same-side 
as the COA Order to lock or cross (i) any RFR Response(s) or (ii) if no 
RFR Responses have been received, the best-priced, contra-side ECOs. 
This proposed rule is based in part on current Rule 980NY(e)(6)(C)(i), 
with differences to use Pillar terminology, including reference to the 
DBBO.
    [cir] Proposed Rule 980NYP(f)(3)(D) would provide that a COA would 
end early if the leg markets update causing the contra-side DBBO to 
lock or cross the COA initiation price. This proposed rule is based in 
part on current Rule 980NY(e)(6)(C)(ii), except that it would refer to 
the DBBO and the COA initiation price, which would be new concepts 
under Pillar.
    Because the DBBO may be calculated using the ABBO for a given leg, 
the Exchange notes that it would be new under Pillar to have a COA end 
early based on (locking or crossing) market conditions outside of the 
Exchange. The Exchange believes this proposed functionality would 
benefit market participants by preventing COA Orders from executing at 
prices too far away from the prevailing market for that complex 
strategy. In addition, the Exchange believes this proposed 
functionality would promote internal consistency and benefit market 
participants because, as proposed, the execution of ECOs on the 
Exchange, including whether such ECO may initiate a COA as a COA Order, 
is based on the DBBO. As such, the Exchange believes it is appropriate 
and to the benefit of market participants that the early termination of 
a COA likewise be based on the DBBO--regardless of whether the prices 
used to calculate such DBBO include (or consist entirely of) ABBO 
prices.
    [cir] Proposed Rule 980NYP(f)(3)(E) would provide that a COA would 
end early if the Exchange receives a Complex CUBE Order in the same

[[Page 16477]]

complex strategy as the COA Order, which is consistent with current 
functionality only insofar as certain Complex CUBE Orders may cause a 
COA to end early based on price (see, e.g., Rule 980NY(e)(6)(A) and 
(B)). The proposed functionality is different, however, because any 
Complex CUBE Order in the same series as a COA will cause the COA to 
end early regardless of the price, side, or size of the CUBE Order. The 
Exchange proposes to end a COA early upon receipt of a CUBE Order in 
the same series so that the Exchange can evaluate whether the CUBE 
Order is eligible to initiate a Complex CUBE Auction, per Rule 971.2NY.
     Proposed Rule 980NYP(f)(4) would set forth the 
``Allocation of COA Orders'' after a COA either ends early or after the 
expiration of the Response Time Interval. Current Rule 980NY(e)(7)(A) 
sets forth that the COA-eligible orders are allocated against the best-
priced interest received in the COA at each price on a ``size pro rata 
basis,'' as that concept is defined in Rule 964NY(b)(3).\54\ Under 
Pillar, the allocation of the COA Order would continue to be allocated 
on a size pro rata basis, with new functionality based on the proposed 
DBBO (per Rule 980NYP(a)(5)) to ensure that Customer interest at a 
price continues to be afforded priority.
---------------------------------------------------------------------------

    \54\ See Rule 980NYP(e)(7)(A) (providing that the COA-Eligible 
Order will execute against ``RFR Responses and [ECOs] to buy (sell) 
that are priced higher (lower) than the initial Derived BBO will be 
eligible to trade first with the COA-eligible order, beginning with 
the highest (lowest), at each price point, on a Size Pro Rata basis 
pursuant to Rule 964NY(b)(3), provided that [ECOs] on behalf of 
Customers will have priority over same priced [ECOs] for non-
Customers.'').
---------------------------------------------------------------------------

    Specifically, proposed Rule 980NYP(f)(4)(A) would provide that RFR 
Responses to sell (buy) that are priced equal to or lower (higher) than 
a COA Order to buy (sell) would trade up (down) to the DBBO; provided, 
however, that if all legs of the DBB (DBO) are calculated using 
Exchange BBOs and all such Exchange BBOs have displayed Customer 
interest, RFR Responses to sell (buy) would not trade below (above) one 
penny ($0.01) times the smallest leg ratio inside the DBB (DBO). This 
proposed rule would ensure that the COA Order would not trade at a 
worse price than the leg markets and would price improve the DBBO where 
there is displayed Customer interest on all legs of the complex 
strategy on the Exchange, which is consistent with current Commentary 
.02(ii) to Rule 980NY.\55\ Further, proposed Rule 980NYP(f)(4)(A)(i) 
would specify that ``[a]t each price point, the COA Order will trade 
first with Customer RFR Responses in time priority, followed by non-
Customer RFR Responses on a size pro rata basis pursuant to Rule 
964NYP(i)'' and that ``Non-Customer RFR Responses will be capped at the 
remaining size of the COA Order for purposes of size pro rata 
allocation.'' \56\ The proposed text is based in part on current Rule 
980NY(e)(7)(A) insofar as it ensures that the COA Order would trade 
with the best-priced RFR Responses received in the COA, beginning with 
Customer interest at a price followed by same-priced non-Customer 
interest. The proposed text would also include the additional detail 
that non-Customer RFR Responses are capped at the remaining size of the 
COA Order for purposes of pro rata allocation, which is consistent with 
current functionality as relates to non-Customer RFR Responses. 
However, on Pillar, Customer RFR Responses would trade in time and 
would not be subject to a pro rata allocation, which proposed handling 
is consistent with the Exchange's Customer priority model.\57\
---------------------------------------------------------------------------

    \55\ See Rule 980NY, Commentary .02(ii) (providing that, when 
executing an ECO in a class that has been designated as eligible for 
a COA, if each leg of the contra-side Derived BBO--calculated using 
the BBO from the Consolidated Book for each of the options series 
comprising a given complex order strategy per Rule 900.2NY--for the 
components of the ECO includes Customer interest, the price of at 
least one leg of the order must ``trade at a price that is better 
than the corresponding price of all customer bids or offers in the 
Consolidated Book for the same series, by at least one standard 
trading increment as defined in Rule 960NY,'' which minimum trading 
increment is one cent ($0.01). See Rule 960NY(b).
    \56\ See American Pillar Priority Filing (which includes 
proposed Rule 964NYP(i), which sets forth a size pro rata allocation 
formula that is identical to the formula set forth in current Rule 
964NY(b)(3)).
    \57\ See, e.g., Rules 964NY(b)(2)(A) (regarding priority of 
displayed Customer interest based on time) and (b)(2)(D) (providing 
that non-Customer interest is subjected to pro rata allocation); see 
also proposed Rule 964NYP(h)(3) (regarding non-Customers in ``size 
pro rata pool'') and (j) (regarding allocation of Customer and non-
Customer interest) as described in the American Pillar Priority 
Filing).
---------------------------------------------------------------------------

    Proposed Rule 980NYP(f)(4)(B) would provide that after COA 
allocations pursuant to paragraph (f)(4)(A) of this proposed Rule, any 
unexecuted balance of a COA Order (including COA Orders designated as 
IOC) would be eligible to trade with any contra-side interest, 
including the leg markets unless the COA Order is designated or treated 
as a Complex Only Order. This proposed text is based on existing 
functionality and makes explicit that a COA Order would trade solely 
with complex interest (and not the leg markets) during a COA. This 
proposed rule is designed to provide clarity and transparency that the 
remaining balance of a COA Order would be eligible to trade with the 
leg markets after the COA ends.
    Proposed Rule 980NYP(f)(4)(C) would provide that after a COA Order 
trades pursuant to proposed Rule 980NYP(f)(4)(B), any unexecuted 
balance of a COA Order that is not cancelled (i.e., if an IOC) would be 
ranked in the Consolidated Book and processed as an ECO pursuant to 
paragraph (e) of this Rule. The proposed text is based on current Rule 
980NY(e)(7)(B) without any substantive differences.
    Proposed Rule 980NYP(f)(5) would set forth ``Prohibited Conduct 
related to COAs,'' and is based on the first sentence of current 
Commentary .04 to Rule 980NY with one substantive differences: to add 
reference to quotes, and would provide that a pattern or practice of 
submitting ``unrelated quotes or orders that cause a COA to conclude 
early would be deemed conduct inconsistent with just and equitable 
principles of trade,'' \58\ which addition would broaden the scope of 
``Prohibited Conduct'' to the benefit of market participants and would 
also add clarity and transparency to Exchange rules. The proposed 
change is identical to Arca Options Rule 6.91P-O(f)(5).
---------------------------------------------------------------------------

    \58\ See proposed Rule 980NYP(f)(5) (emphasis added). In 
addition, rather than copy into proposed Rule 980NYP the second 
sentence of current Rule 980NY, Commentary .04, which provides that 
dissemination of information related to COA Orders to third parties 
would also be deemed as conduct inconsistent with just and equitable 
principles of trade, the Exchange proposes to add more expansive 
language regarding this prohibited conduct to the order exposure 
rule. See infra for discussion of proposed change to Rule 935NY.
---------------------------------------------------------------------------

    ECO Risk Checks. Proposed Rule 980NYP(g) would describe the ``ECO 
Risk Checks,'' which are designed to help ATP Holders to effectively 
manage risk when trading ECOs. Current Commentaries .03, .05, and .06 
of Rule 980NY set forth the existing risk checks for ECOs. The proposed 
ECO Risk Checks are identical to and would operate in the same manner 
as set forth in Arca Options Rule 6.91P-O(g).
    With the transition to Pillar, the Exchange proposes to modify and 
enhance its existing risk checks for ECOs, as follows:
     Proposed Rule 980NYP(g)(1) would set forth the ``Complex 
Strategy Limit.'' As proposed, the Exchange would establish a limit on 
the maximum number of new complex strategies that may be requested to 
be created per MPID, which limit would be announced by Trader 
Update.\59\ As further

[[Page 16478]]

proposed, when an MPID reaches the limit on the maximum number of new 
complex strategies, the Exchange would reject all requests to create 
new complex strategies from that MPID for the rest of the trading day. 
In addition, and notwithstanding the established Complex Strategy 
Limit, the Exchange proposes that it may reject a request to create a 
new complex strategy from any MPID whenever the Exchange determines it 
is necessary in the interests of a fair and orderly market.
---------------------------------------------------------------------------

    \59\ The Exchange has proposed to add the definition of MPID to 
proposed Rule 900.2NY, which would refer to ``the identification 
number(s) assigned to the orders and quotes of a single ETP Holder, 
ATP Holder, or OTP Firm for the execution and clearing of trades on 
the Exchange by that permit holder. An ETP Holder, ATP Holder, or 
OTP Firm may obtain multiple MPIDs and each such MPID may be 
associated with one or more sub-identifiers of that MPID.'' See 
American Priority Pillar Filing.
---------------------------------------------------------------------------

    This is new functionality proposed under Pillar but is conceptually 
similar to the Complex Order Table Cap (the ``Cap''), set forth in 
Commentary .03 to Rule 980NY, which Cap (like the Complex Strategy 
Limit), would help maintain a fair and orderly market because it would 
operate as a system protection tool that enables the Exchange to 
prevent any single MPID from creating more than a limited number of 
complex strategies during the trading day. This proposed Cap is 
identical to Arca Options Rule 6.91P-O(g)(1). The Exchange also notes 
that other options exchanges likewise impose a limit on new complex 
order strategies.\60\
---------------------------------------------------------------------------

    \60\ See, e.g., Cboe Rule 5.33(a) (providing, in its definition 
of ``complex strategy'' that Cboe ``may limit the number of new 
complex strategies that may be in the [Cboe] System at a particular 
time'') and MIAX Rule 518(a)(6) (providing, in its definition of 
``complex strategy'' that MIAX ``may limit the number of new complex 
strategies that may be in the System at a particular time and will 
communicate this limitation to Members via Regulatory Circular'').
---------------------------------------------------------------------------

     Proposed Rule 980NYP(g)(2) would set forth the ECO Price 
Protection. The existing ECO ``Price Protection Filter'' is set forth 
in Commentary .05 to current Rule 980NY (the ``ECO Filter''). The 
proposed ``ECO Price Protection'' on Pillar would work similarly to how 
the current ECO price protection mechanism functions on the Exchange 
because an ECO would be rejected if it is priced a specified percentage 
away from the contra-side Complex NBB or NBO.\61\ However, on Pillar, 
the Exchange proposes to use new thresholds and reference prices, which 
would simplify the existing price check, but because this functionality 
is identical to Arca Options Rule 6.91P-O(g)(2), this change would also 
add uniformity to Exchange options platforms. Although the mechanics of 
the ECO Price Protection would vary slightly from the existing Price 
Protection Filter, the goal of this feature would remain the same: to 
prevent the execution of ECOs that are priced too far away from the 
prevailing market for the same strategy and therefore potentially 
erroneous. Whereas the Away Market Deviation (vis a vis a DBBO based on 
an Exchange BBO) is designed to make sure that ECOs do not trade too 
far away from the prevailing market, the ECO Order Protection as 
proposed (and as is the case today) is to prevent the execution of ECOs 
that were potentially (inadvertently) entered at prices too far away 
from the prevailing market and, as such, this mechanism protects the 
order sender from itself.
---------------------------------------------------------------------------

    \61\ As noted above, the Exchange proposes to define the Complex 
NBBO as the derived national best bid and derived national best 
offer for a complex strategy calculated using the NBB and NBO for 
each component leg of a complex strategy. See proposed Rule 
980NYP(a)(2).
---------------------------------------------------------------------------

    Proposed Rule 980NYP(g)(2)(A) would provide that each trading day, 
an ECO to buy (sell) would be rejected or cancelled (if resting) if it 
is priced a Specified Threshold amount or more above (below) the 
Reference Price (as described below), subject to proposed paragraphs 
(g)(2)(A)(i)-(v) of the Rule as described below. Because ECO Price 
Protection would be applied each trading day, an ECO designated GTC 
would be re-evaluated for ECO Price Protection on each day that it is 
eligible to trade and would be cancelled if the limit price is equal to 
or through the Specified Threshold.\62\ This proposed functionality is 
identical to Arca Options Rule 6.91P-O(g)(2)(A).
---------------------------------------------------------------------------

    \62\ As noted here, the Exchange proposes to add GTC Orders in 
Pillar Order Type Filing, which order type would operate in the same 
manner as per current Rule 900.3NY.
---------------------------------------------------------------------------

    [cir] Proposed Rule 980NYP(g)(2)(A)(i) would provide that an ECO 
that arrives when a complex strategy is open for trading would be 
evaluated for ECO Price Protection on arrival. This functionality is 
identical to Arca Options Rule 6.91P-O(g)(2)(A)(i).
    [cir] Proposed Rule 980NYP(g)(2)(A)(ii) would provide that an ECO 
received during a pre-open state would be evaluated for ECO Price 
Protection after the ECO Opening Auction Process concludes.\63\ This 
functionality is identical to Arca Options Rule 6.91P-O(g)(2)(A)(ii).
---------------------------------------------------------------------------

    \63\ See discussion infra regarding proposed Rule 980NYP(d), 
which describes the ECO Opening Auction Process (or Reopening after 
a Trading Halt) as well as the concepts of ECO Auction Collars and 
ECO Auction Price.
---------------------------------------------------------------------------

    [cir] Proposed Rule 980NYP(g)(2)(A)(iii) would provide that an ECO 
resting on the Consolidated Book before a trading halt would be 
reevaluated for ECO Price Protection after the ECO Opening Auction 
Process concludes. This functionality is identical to Arca Options Rule 
6.91P-O(g)(2)(A)(iii).
    [cir] Proposed Rule 980NYP(g)(2)(A)(iv) would provide that QCC 
Orders (per Rule 6.62P-O(g)(1)) would not be subject to ECO Price 
Protection, as the Exchange subjects such paired orders to distinct 
price validations.\64\ This functionality is identical to Arca Options 
Rule 6.91P-O(g)(2)(A)(iv).
---------------------------------------------------------------------------

    \64\ See, e.g., Rules 971.1NY and 971.2NY (regarding price 
requirements to initiate a CUBE Auction).
---------------------------------------------------------------------------

    [cir] Proposed Rule 980NYP(g)(2)(A)(v) would provide that ECO Price 
Protection would not be applied if there is no Reference Price for an 
ECO. This functionality is identical to Arca Options Rule 6.91P-
O(g)(2)(A)(v).
    Proposed Rule 980NYP(g)(2)(B) would specify the ``Reference Price'' 
used in connection with the ECO Price Protection. As proposed, the 
Reference Price for calculating ECO Price Protection for an ECO to buy 
(sell) would be the Complex NBO (NBB), provided that, immediately 
following an ECO Opening Auction Process, the Reference Price would be 
the ECO Auction Price or, if none, the Complex NBO (NBB). The Exchange 
believes that adjusting the Reference Price for ECO Price Protection 
immediately following an ECO Opening Auction would ensure that the most 
up-to-date price would be used to assess whether to cancel an ECO that 
was received during a pre-open state, including during a Trading Halt. 
The Exchange notes this functionality is identical to how this 
functionality operations per Arca Options Rule 6.91P(g)(2)(B).
    As further proposed, there would be no Reference Price for an ECO 
if there is no NBBO for any leg of such ECO (i.e., the Exchange would 
not calculate a Complex NBB (NBO)), which text is based on current Rule 
980NY, Commentary .05(c), except that the proposed rule would not 
reference OPRA because, as further proposed, for purposes of 
determining a Reference Price, the Exchange would not use an adjusted 
NBBO (i.e., such NBBO is implicitly reliant on information from 
OPRA).\65\ The Exchange notes that using an unadjusted NBBO to 
calculate the Reference Price is identical to how this

[[Page 16479]]

functionality operations per Arca Options Rule 6.91P(g)(2)(B).
---------------------------------------------------------------------------

    \65\ See American Pillar Priority Filing (discussion regarding 
the definition of ``NBBO'' in proposed Rule 900.2NY describing that 
the ``NBBO'' for purposes of options trading as referring to the 
national best bid or offer and that ``[u]nless otherwise specified, 
the Exchange may adjust its calculation of the NBBO based on 
information about orders it sends to Away Markets, execution reports 
received from those Away Markets, and certain orders received by the 
Exchange'').
---------------------------------------------------------------------------

    Proposed Rule 980NYP(g)(2)(C) would set forth the ``Specified 
Threshold'' used in connection with the ECO Price Protection. As 
proposed, the Specified Threshold for calculating ECO Price Protection 
would be $1.00, unless determined otherwise by the Exchange and 
announced to ATP Holders by Trader Update.
    The Exchange believes that the proposed Specified Threshold of 
$1.00 simplifies how the Reference Price would be calculated as 
compared to the calculations currently specified in Commentary .05 to 
Rule 980NY. In addition, consistent with Commentary .05(d), the 
Exchange proposes that the Specified Threshold could change, subject to 
announcing the changes by Trader Update. Providing flexibility in 
Exchange rules regarding how the Specified Threshold would be set is 
identical functionality available per Arca Options Rule 6.62P-
O(a)(3)(C) and is also consistent with the rules of other options 
exchanges as well as the functionality for the single-leg Limit Order 
Price Protection feature.\66\
---------------------------------------------------------------------------

    \66\ See, e.g., Cboe Rule 5.34(b)(6) (describing the ``Drill-
Through Protection'' and that Cboe ``determines a default buffer 
amount on a class-by-class basis). See Single-Leg Pillar Filing 
(describing use of Trader Update to modify Specified Thresholds in 
Rule 6.62P-O (a)(3)(C)).
---------------------------------------------------------------------------

     Proposed Rule 980NYP(g)(3) would set forth the ``Complex 
Strategy Protections,'' which are identical to Arca Options Rule 6.91P-
O(g)(3). The proposed protections are based on current Rule 980NY, 
Commentary .06, which are referred to as the ``Debit/Credit 
Reasonability Checks.'' The Exchange believes this name change is 
appropriate because it more accurately conveys that the check applies 
solely to certain complex strategies and because (as discussed above), 
the Exchange proposes to refer simply to a ``net price'' as opposed to 
the ``total net debit or credit price.'' The proposed Pillar Complex 
Strategy Protections would function similarly to the current Debit/
Credit Reasonability Checks because potentially erroneously priced 
incoming ECOs would be rejected. However, rather than to refer to 
specified debit or credit amounts as a way to determine whether a given 
strategy is erroneously priced, the proposed rule would instead focus 
on the expectation of the order sender and what would result if the ECO 
were not rejected. Consistent with current functionality, the proposed 
Complex Strategy Protections are designed to prevent the execution of 
ECOs at prices that are inconsistent with/not aligned with their 
strategies.
    As proposed, to protect an ATP Holder that sends an ECO (each an 
``ECO sender'') with the expectation that it would receive (or pay) a 
net premium but has priced the ECO such that the ECO sender would 
instead pay (or receive) a net premium, the Exchange would reject any 
ECO that is comprised of the erroneously-priced complex strategies as 
set forth in proposed Rule 980NYP(g)(3)(A)-(C) and described below.
    Proposed Rule 980NYP(g)(3)(A) would provide that `` `All buy' or 
`all sell' strategies'' would be rejected as erroneously-priced if it 
is an ECO for a complex strategy where all legs are to buy (sell) and 
it is entered at a price less than one penny ($0.01) times the sum of 
the number of options in the ratio of each leg of such strategy (e.g., 
a complex strategy to buy (sell) 2 calls and buy (sell) 1 put with a 
price less than $0.03). The proposed text is based on Rule 980NY, 
Commentary .06(a)(1), with no substantive differences, except that the 
Exchange has streamlined the text and set forth the minimum price 
(i.e., $0.03) for any ``all buy'' or ``all sell'' strategies.
    Proposed Rule 980NYP(g)(3)(B) would provide for the rejection of 
erroneously-priced ``Vertical spreads,'' which are defined as complex 
strategies that consists of a leg to sell a call (put) option and a leg 
to buy a call (put) option in the same option class with the same 
expiration but at different strike prices. As proposed, the Exchange 
would reject as erroneously-priced: (i) an ECO for a vertical spread to 
buy a lower (higher) strike call and sell a higher (lower) strike call 
and the ECO sender would receive (pay) a net premium (proposed Rule 
980NYP(g)(3)(B)(i)); and (ii) an ECO for a vertical spread to buy a 
higher (lower) strike put and sell a lower (higher) strike put and the 
ECO sender would receive (pay) a net premium (proposed Rule 
980NYP(g)(3)(B)(ii)). The proposed strategy protections for vertical 
spreads are based on current Rule 980NY, Commentary .06(a)(2), except 
that, as noted above, the proposed Rule is written from the standpoint 
of the expectation of the ECO sender as opposed to reviewing total net 
debit or credit price of the strategy.
    Proposed Rule 980NYP(g)(3)(C) would provide for the rejection of 
erroneously-priced ``Calendar spreads,'' which are defined as 
consisting of a leg to sell a call (put) option and a leg to buy a call 
(put) option in the same option class at the same strike price but with 
different expirations. As proposed, the Exchange would reject as 
erroneously-priced: (i) an ECO for a calendar spread to buy a call leg 
with a shorter (longer) expiration while selling a call leg with a 
longer (shorter) expiration and the ECO sender would pay (receive) a 
net premium (proposed Rule 980NYP(g)(3)(C)(i)); and (ii) an ECO for a 
calendar spread to buy a put leg with a shorter (longer) expiration 
while selling a put leg with a longer (shorter) expiration and the ECO 
sender would pay (receive) a net premium (proposed Rule 
980NYP(g)(3)(C)(ii)). The proposed strategy protections for calendar 
spreads are based on current Rule 980NY, Commentary .06(a)(3), except 
that, as noted above, the proposed Rule is written from the standpoint 
of the expectation of the ECO sender as opposed to reviewing the total 
net debit or credit price of the strategy. The Exchange has also not 
retained discretion to disable the strategy protections for calendar 
spreads (as contained in Commentary .06(a)(3)(i) of the current Rule) 
because since adopting this provision in 2017, the Exchange has never 
exercised this discretion and therefore has determined that such 
discretion is no longer needed.
    Proposed Rule 980NYP(g)(3)(D) would provide that any ECO that is 
not rejected by the complex strategy protections would still be subject 
to the ECO Price Protection, per paragraph (g)(2) of this Rule, which 
proposed text is based on Rule 980NY, Commentary .06(b) without any 
substantive difference.
Rule 935NY: Order Exposure Requirements
    The Exchange also proposes conforming, non-substantive amendments 
to Rule 935NY, regarding order exposure, to add a cross-reference to 
new Pillar Rule 980NYP. Current Rule 6.47A-O(iv) exempts orders 
submitted to the COA Process, (per current Rule 980NY) from its one-
second order exposure requirements. This proposed amendment would 
extend the exemption from the order exposure requirements to orders 
submitted to a COA on Pillar.\67\ The Exchange also proposes to modify 
the reference to ``Complex Order Auction Process (`COA')'' to simply 
``Complex Order Auction (`COA')'' (i.e., removing the word Process) 
consistent with how this concept is defined in proposed Rule 
980NYP(a)(3). As previously stated, the Exchange believes that the 
proposed Response Time Interval for a COA (with a duration of no less 
than 100 milliseconds) is of sufficient length to allow ATP Holders 
time to respond to

[[Page 16480]]

a COA. As such, the proposal is designed to promote timely execution of 
the COA Order, while ensuring adequate exposure of such orders. 
Accordingly, the Exchange proposes to amend Rule 935NY (iv) to extend 
the exemption from the one-second exposure requirement to COA Orders 
under Pillar, which exemption is substantively identical to NYSE Arca 
Rule 6.47A-O. Consistent with Rule 935NY, Commentary .01, ATP Holders 
would only utilize the COA where there is a genuine intention to 
execute a bona fide transaction.\68\
---------------------------------------------------------------------------

    \67\ See proposed Rule 935NY(iv). The Exchange also proposes to 
replace reference to ``System'' with ``the Exchange.'' See id. 
(preamble).
    \68\ See Rule 935NY, Commentary .01 (``Rule 935NY prevents a 
User from executing agency orders to increase its economic gain from 
trading against the order without first giving other trading 
interest on the Exchange an opportunity to either trade with the 
agency order or to trade at the execution price when the User was 
already bidding or offering on the book'').
---------------------------------------------------------------------------

* * * * *
    As discussed above, because of the technology changes associated 
with the migration to the Pillar trading platform, subject to approval 
of this proposed rule change, the Exchange will announce by Trader 
Update when rules with a ``P'' modifier will become operative and for 
which symbols. The Exchange believes that keeping existing rules on the 
rulebook pending the full migration of Pillar will reduce confusion 
because it will ensure that the rules governing trading on the 
Exchange's current system will continue to be available pending the 
full migration to Pillar.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\69\ in general, and 
furthers the objectives of Section 6(b)(5),\70\ in particular, because 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system and, 
in general, to protect investors and the public interest. The Exchange 
believes that proposed Rule 980NYP to support electronic complex 
trading on Pillar would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because the 
proposed rule would promote transparency in Exchange rules by using 
consistent terminology governing trading on both of the Exchange's 
options platforms, thereby ensuring that members, regulators, and the 
public can more easily navigate the Exchange's rulebook and better 
understand how options trading is conducted on the Exchange.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f(b).
    \70\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that adding new Rule 980NYP with the modifier 
``P'' to denote that this rule would be operative for the Pillar 
trading platform would remove impediments to and perfect the mechanism 
of a free and open market and a national market system by providing 
transparency of which rules would govern trading once a symbol has been 
migrated to the Pillar platform. The Exchange similarly believes that 
adding a preamble to current Rule 980NY stating that it would not be 
applicable to trading on Pillar would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because it would promote transparency regarding which rules would 
govern trading on the Exchange during and after the transition to 
Pillar.
    The Exchange believes that incorporating Pillar functionality 
currently available for trading of electronic complex orders on the 
Exchange's affiliated options exchange (in Arca Options Rule 6.91P-O) 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because the Exchange would be 
able to offer consistent functionality across its options trading 
platforms for trading of electronic complex orders. As discussed 
herein, and unless otherwise specified herein, the Exchange is not 
proposing fundamentally different functionality regarding how ECOs 
would trade on Pillar than is currently available on the Exchange. 
Accordingly, with the transition to Pillar, the Exchange would use 
Pillar terminology to describe functionality that is not changing and 
also introduce certain new or updated functionality for Electronic 
Complex Orders (i.e., enhancing the opening auction process, including 
introducing the ``ECO Auction Collars'') that will also be available 
for outright options trading on the Pillar platform. As such, the 
Exchange believes that using Pillar terminology and incorporating 
updated functionality for the proposed new rule would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would promote consistency in the 
Exchange's rules across both of its options platforms.
Definitions, Types of ECOs and Priority and Pricing of ECOs
    The Exchange believes that the proposed definitions in Rule 
980NYP(a) would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because the proposed 
changes are designed to promote clarity and transparency by 
consolidating existing defined terms related to electronic complex 
trading into one section of the proposed rule. The Exchange believes 
that the proposed non-substantive amendments to those terms currently 
defined in Rule 980NYwould promote clarity and transparency by using 
Pillar terminology. The Exchange further believes consolidating defined 
terms in proposed Rule 980NYP(a) (including alphabetizing the proposed 
terms) would make the proposed rule more transparent and easier to 
navigate.
    The Exchange believes that the proposed new definition of Away 
Market Deviation would further remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would promote clarity and transparency to market 
participants regarding how the Exchange would calculate this additional 
protection against ECOs being executed on the Exchange at prices too 
far away from the current market.
    The Exchange believes that the proposed new definition of DBBO (and 
related terms of DBB and DBO) would further remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would promote clarity and transparency to market 
participants regarding how the DBBO would be calculated under Pillar. 
The proposed definition is not novel and is identical to how Arca 
Options Rule 6.91P-O(a)(5) defines DBBO and is also consistent with 
similarly defined terms used on Cboe. The Exchange believes that 
providing an alternative means of calculating the DBBO (e.g., by 
looking to the contra-side best bid (offer) in the absence of same-side 
interest) would remove impediments to and perfect the mechanism of a 
free and open market and a national market system thereby benefitting 
as it should increase opportunities for trading.
    In addition, the Exchange believes that setting forth additional 
definitions in proposed Rule 980NYP(a), including those that are used 
on other options exchanges (e.g., ``complex strategy'' and ``ratio'') 
and clarifying terms (e.g., ``leg'' and ``leg markets''), would remove 
impediments to and perfect the

[[Page 16481]]

mechanism of a free and open market and a national market system 
because it would promote clarity and transparency to market 
participants regarding electronic complex trading under Pillar. 
Finally, the proposed definition of ``ECO Order Instruction'' would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it would incorporate for 
ECOs existing Pillar order handling functionality in an auction that 
substantively identical to Arca Options Rule 6.91P-O(a)(6). The 
Exchange similarly proposes this functionality for the ECO Opening 
Auction Process, with non-substantive differences only to use an ECO-
specific defined term and to refer to the ECO Opening Auction Process.
    The Exchange believes that the proposed types of ECOs available per 
Rule 980NYP(b) would remove impediments to and perfect the mechanism of 
a free and open market and a national market system because it would 
describe the ECOs and time-in-force modifiers that would be available 
on Pillar, as well as specifying additional ECO types. The Exchange 
believes that the non-substantive differences to use Pillar terminology 
to describe the available ECO order types would promote transparency 
and clarity in Exchange rules. The Exchange believes that the proposed 
Complex Only Order is not novel because it would operate in a manner 
identical to how such orders function per Arca Options Rule 6.91P-O 
(i.e., the order type only interact with other ECOs). In addition, the 
proposed COA GTX Order uses Pillar terminology to describe what is 
referred to as an ``RFR Response'' in the current rules, and therefore 
is not novel.
    The Exchange believes that proposed new Rule 980NYP(c) would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed rules would set forth a 
Customer priority and size pro rata allocation model for Pillar and 
pricing requirements for ECO trading that are substantively the same as 
the Exchange's current Customer priority model and pricing requirements 
as set forth in Rule 980NY(b) and Commentaries .01 and .02(i) and (ii) 
to Rule 980NY. The Exchange proposes certain modified functionality, 
including the Complex Only Order as noted above, and regarding ECO 
trading vis a vis the DBBO (and binding such DBBO by the maximum 
allowable Away Market Deviation when the Exchange BBO is used to 
calculate the DBBO for a leg), which would benefit market participants 
as the proposed features would provide additional price protection in 
ECO trading and would add clarity and transparency to the rules. The 
Exchange believes that proposed Rule 980NYP(c) would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because they would promote transparency and clarity in 
Exchange rules regarding how ECOs would trade with the leg markets and 
with other ECOs.
Execution of ECOs at the Open (or Reopening After a Trading Halt)
    The Exchange believes that proposed Rule 980NYP(d) regarding the 
ECO Opening Auction Process would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed rule maintains the fundamentals of an auction 
process that the Exchange currently uses for ECOs, as described in Rule 
980NY(c)(i)(B), while at the same time enhancing the process by 
incorporating Pillar auction functionality that is identical to Arca 
Options Rule 6.91P-O(d). For example, the Exchange proposes to use 
Pillar functionality to determine how to price an ECO Opening Auction 
Process, as described in proposed Rule 980NYP(d)(3), including using 
proposed ``ECO Auction Collars'' and an ``ECO Auction Price,'' which 
are consistent with the core functionality for opening ECOs, with 
additional detail that would promote clarity and transparency to market 
participants regarding this process. The Exchange believes it is 
appropriate to refrain from opening a series when there is a lack of 
reliable pricing indication(s) regarding the price at which a complex 
strategy should execute because doing so would protect market 
participants from potentially erroneous executions, thereby promoting a 
fair and orderly ECO Opening Auction Process.
    Moreover, the Exchange believes that the proposal to use the DBBO 
(as opposed to the currently used Complex NBBO) for the ECO Opening 
Process would allow the Exchange to open a series based on the Exchange 
BBO, bound by the Away Market Deviation (or, the ABBO if the Exchange 
BBO is not available), which is consistent with ECO handling during 
Core Trading (per proposed Rule 980NYP(e)). The Exchange believes this 
proposed change would better align the permissible opening price for a 
series with the permissible execution price during Core Trading, which 
adds consistency to ECO order handling (as well as internal consistency 
to Exchange rules) to the benefit of investors. As such, this proposed 
change would remove impediments to and perfect the mechanism of a free 
and open market and a national market system.
    In addition, the Exchange believes that requiring that the opening 
price for a complex strategy must improve the DBBO if there is 
displayed Customer interest on all legs of the strategy on the Exchange 
would protect displayed Customer interest, and protect investors in 
general, while ensuring a fair and orderly ECO Opening Process.
    The Exchange also proposes to process ECOs received during an ECO 
Opening Auction Process, as described in proposed Rule 980NYP(d)(4), 
and transition to continuous trading following an ECO Opening Auction 
Process, as described in proposed Rule 980NYP(d)(5), in a manner that 
is identical to how ECOs are processed at the open per Arca Options 
Rule 6.91P-O(d)(4) and (d)(5). The Exchange believes that using similar 
functionality for ECO auctions would promote consistency across the 
Exchange's options trading platforms. The Exchange believes that the 
additional detail regarding the ECO Opening Auction Process for 
electronic complex options trading on Pillar would promote transparency 
in the Exchange's trading rules.
    The Exchange further believes that the proposed Rules 980NYP(d)(1) 
and (2), which describe when the Exchange would initiate an ECO Opening 
Auction Process and which ECOs would be eligible to trade in that 
process, would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because they would 
provide clarity and transparency of the conditions required before the 
Exchange would initiate an ECO Opening Auction Process. The Exchange 
further believes that those conditions are not novel and are based on 
existing conditions specified in Rule 980NY(c)(i)(A) and (B), with 
additional specificity designed to promote clarity and transparency. 
Accordingly, the Exchange believes that the ECO Opening Auction Process 
for ECOs trading on Pillar would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed process is based on the current opening process, 
including that orders would be matched based on price-time priority at 
a price at which the maximum volume can be traded.

[[Page 16482]]

Execution of ECOs During Core Trading Hours
    The Exchange believes that proposed Rule 980NYP(e), setting forth 
the execution of ECOs during Core Trading Hours, would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed functionality would 
incorporate the Exchange's existing Customer priority and size pro rata 
allocation model for trading ECOs and would provide that the leg 
markets would have priority at a price. The Exchange believes that the 
proposed rule change to add text to specify that an ECO may trade with 
another ECO at the leg market price if the interest in the leg markets 
is insufficient to trade at that price (i.e., the leg markets cannot 
trade at that price in full or in a permissible ratio), would continue 
to respect the priority of the leg markets at a price, but would also 
ensure that ECO trading opportunities are maximized after eligible 
interest in the leg markets is exhausted at that price resulting in 
more efficient executions. The Exchange notes that this proposed 
functionality--with the exception of the Exchange's distinct priority 
model--is otherwise identical to Arca Options Rule 6.91P-O(e) and is 
consistent with the rule of another options exchange and is therefore 
not new or novel.\71\
---------------------------------------------------------------------------

    \71\ See BOX Rule 7240(b)(2)(ii).
---------------------------------------------------------------------------

    In addition, the Exchange believes that allowing Complex Only 
Orders to trade up to the DBBO unless there is displayed Customer 
interest on each leg on the Exchange at the DBBO (as described above) 
would provide market participants additional trading opportunities 
while still protecting Customer interest on the Exchange, which would, 
in turn, remove impediments to and perfect the mechanism of a free and 
open market and national market system.
    The Exchange believes that it would remove impediments to and 
perfect the mechanism of a free and open market and national market 
system to specify that ECOs will not trade with orders in the leg 
markets designated AON, FOK or with an MTS modifier (consistent with 
Arca Options Rule 6.91P-O) because it would add clarity and 
transparency regarding the handling of ECOs vis a vis these single-leg 
order types that are conditional based on order size. The Exchange 
further believes that it would remove impediments to and perfect the 
mechanism of a free and open market and a national market system for 
ECOs to trade as Complex Only Orders (rather than be rejected as they 
would under current rules) if they have a complex strategy that could 
result in a Market Maker breaching their established risk settings.\72\ 
This proposed process is also identical to Arca Options Rule 6.91P-
O(e)(1)(D) and is consistent with the treatment of similar ECOs on 
other options markets.\73\ The Exchange further believes that it would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system to specify the frequency with which 
the Exchange would evaluate trading opportunities for an ECO when the 
leg markets update because it would promote clarity and transparency in 
Exchange rules.
---------------------------------------------------------------------------

    \72\ See discussion infra regarding rationale for proposed Rule 
980NYP(e) to restrict certain ECOs from executing as a package and 
bypassing Market Maker risk settings.
    \73\ See supra notes 52 and 53 [sic] (citing to Cboe Rule 
5.33(g) and Nasdaq ISE Options 3, Section 14 (d)(3)(A)-(B) regarding 
similar functionality).
---------------------------------------------------------------------------

    Overall, the Exchange believes the proposal for ECO trading during 
Core Trading Hours would help maintain a fair and orderly market and 
would benefit investors by facilitating increased interaction between 
ECOs (not designated as Complex Only) and leg markets interest. In 
particular, such ECOs would execute against interest in the leg markets 
for all of the quantity available at the best price in a permissible 
ratio until the quantities remaining on such leg markets are 
insufficient to execute against the ECO while respecting the spread 
ratio. The Exchange believes that requiring Complex Only Orders to 
improve at least a portion of the displayed Customer interest on the 
leg markets when all legs of a complex strategy contain displayed 
Customer interest would provide market participants with additional 
trading opportunities while still protecting displayed Customer 
interest on the Exchange. To the extent that this proposed handling of 
ECOs on the Exchange during Core Trading Hours results in greater 
liquidity (because of increased opportunity for order execution) this 
increased liquidity should, in turn, enhance execution quality.
Execution of ECOs During a COA
    The Exchange believes that proposed Rule 980NYP(f), setting forth 
the execution of ECOs during a COA, would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and promote just and equitable principles of trade because the 
proposed functionality would both incorporate existing functionality to 
provide that COA Orders would trade solely with other ECOs (and not the 
leg markets) during the auction. The Exchange believes that relying on 
the proposed DBBO (and binding such DBBO by the maximum allowable Away 
Market Deviation when the Exchange BBO is used to calculate the DBBO 
for a leg) would benefit market participants as the proposed operation 
of the DBBO would provide additional price protection in ECO trading, 
including during a COA, and would add clarity and transparency to the 
rules. The Exchange also believes that the proposed text would make 
clear that the COA Order would trade with the best-priced RFR Responses 
received in the COA, beginning with Customer interest at a price 
followed by same-priced non-Customer interest. In addition, the 
proposed text would also include the additional detail that non-
Customer RFR Responses are capped at the remaining size of the COA 
Order for purposes of pro rata allocation, which is consistent with 
current functionality as relates to non-Customer RFR Responses. 
However, on Pillar, Customer RFR Responses would trade in time and 
would not be subject to a pro rata allocation, which proposed handling 
is consistent with the Exchange's Customer priority model, which change 
would add clarity, transparency and internal consistency to Exchange 
rules.\74\
---------------------------------------------------------------------------

    \74\ See, e.g., Rules 964NY(b)(2)(A) (regarding priority of 
displayed Customer interest based on time) and (b)(2)(D) (providing 
that non-Customer interest is subjected to pro rata allocation); see 
also proposed Rule 964NYP(h)(3) (regarding non-Customers in ``size 
pro rata pool'') and (j) (regarding allocation of Customer and non-
Customer interest) as described in the American Pillar Priority 
Filing).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed change to add 
reference to quotes (in addition to orders) to Rule 980NYP(f)(5) 
(Prohibited Conduct) regarding the COA Process, would benefit market 
participants as it would broaden the scope of such the prohibition. 
Overall, the Exchange believes the proposed rule, which is 
substantively identical to Arca Options Rule 6.91P-O(f) except for the 
difference to account for the Exchange Customer priority/pro rata 
allocation model, would add clarity and transparency to ATP Holders 
utilizing the COA process.
    In addition, the Exchange further believes that the proposed 
changes to the COA process on Pillar that either differ from current 
functionality or that would be new would remove impediments to and 
perfect the mechanism of a free and open market and national market 
system because:

[[Page 16483]]

     Requiring that a COA Order initiate a COA on arrival, or 
else be treated as a standard ECO, is new under Pillar as, per the 
current Rule, a COA Order may sit on the Consolidated Book until market 
conditions change such that it may initiate a COA. The Exchange 
believes the proposed change would provide ATP Holders with a higher 
level of transparency and determinism of when a COA Order could 
initiate a COA and would also encourage market participants to submit 
aggressively-priced orders in order to qualify for initiation of a COA, 
which better-priced interest benefits all investors and improves market 
quality.
     Making explicit that COA Orders may only execute with ECOs 
(and not the leg markets) until after the COA ends is consistent with 
current functionality, per Rule 980NY(e)(2), but is designed to make 
clear that ECOs have priority during a COA.
     Streamlining the rule text that would describe the market 
events that, under Pillar, would cause an early end to a COA would 
simplify the COA process and would provide ATP Holders with a higher 
level of transparency and determinism regarding the handling of COA 
Orders.
     Allowing a COA to end early based on the DBBO, which may 
be calculated using ABBO leg prices, would benefit market participants 
and promote internal consistency because, as proposed, such early 
termination would prevent COA Orders from executing at prices too far 
away from the prevailing market for that complex strategy. In addition, 
the DBBO is used to determine the execution of ECOs on the Exchange, 
including whether such ECO may initiate a COA as a COA Order. As such, 
the Exchange believes it is appropriate and to the benefit of market 
participants that the early termination of a COA likewise be based on 
the DBBO--regardless of whether the prices used to calculate such DBBO 
include (or consist entirely of) ABBO prices.
     Requiring that a COA Order end early upon receipt of a 
Complex CUBE Order would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would allow the Exchange to simplify technology on Pillar 
and would allow the Exchange to determine the viability of a CUBE Order 
(i.e., whether the price of such order meets the pricing requirements 
to initiate a Complex CUBE Auction per Rule 971.2NY). A COA Order that 
is subject to the early end of a COA because of the arrival of a 
Complex CUBE Order would still have the opportunity to trade with the 
Complex CUBE Order if such COA Order is on the opposite side of the 
market or with other interest once it is resting on the Consolidated 
Book.
ECO Risk Checks
    The Exchange believes that proposed Rule 980NYP(g), setting forth 
ECO Risk Checks, which are identical to those set forth per Arca 
Options Rule 6.91P-O(g), would remove impediments to and perfect the 
mechanism of a free and open market and a national market system and 
promote just and equitable principles of trade because the proposed 
functionality would incorporate existing risk controls, without any 
substantive differences. The Exchange further believes that the 
proposed changes to ECO Risk Checks on Pillar that either differ from 
current functionality or would be new would remove impediments to and 
perfect the mechanism of a free and open market and national market 
system because:
     The Exchange believes that the new Complex Strategy Limit 
(which is conceptually similar to the Complex Order Table Cap under the 
current Rule) would help maintain a fair and orderly market because it 
would operate as a system protection tool that enables the Exchange to 
prevent any single MPID from creating more than a limited number of 
complex strategies during the trading day. The proposed limits are not 
novel and are based on limits imposed in Arca Options Rule 6.91P-
O(g)(1) as well as by other options exchanges on new complex order 
strategies.\75\
---------------------------------------------------------------------------

    \75\ See supra note 61 [sic] (citing Cboe Rule 5.33(a) and MIAX 
Rule 518(a)(6) regarding each exchange's ability to limit the number 
of new complex strategies in their systems at any particular time).
---------------------------------------------------------------------------

     The proposed ECO Price Protection on Pillar would work 
similarly to how the current ECO price protection mechanism functions 
on the Exchange because an ECO would be rejected if it is priced a 
specified percentage away from the contra-side Complex NBB or NBO.\76\ 
The Exchange believes that the proposed differences on Pillar, to use 
new thresholds and reference prices, would not only simplify the 
existing price check, but it would also align the proposed 
functionality with Arca Options Rule 6.91P-O, thus adding uniformity 
across the Exchange's options platforms. Although the mechanics of the 
ECO Price Protection would vary slightly from the existing Price 
Protection Filter, the goal of this feature would remain the same: 
prevent the execution of ECOs that are priced too far away from the 
prevailing market for the same strategy and therefore potentially 
erroneous to be benefit of market participants.
---------------------------------------------------------------------------

    \76\ As noted above, the Exchange proposes to define the Complex 
NBBO as the derived national best bid and derived national best 
offer for a complex strategy calculated using the NBB and NBO for 
each component leg of a complex strategy. See proposed Rule 
980NYP(a)(2).
---------------------------------------------------------------------------

     The proposed Pillar Complex Strategy Protections would 
function similarly to the current Debit/Credit Reasonability Checks 
because erroneously priced incoming ECOs would be rejected. Consistent 
with current functionality, the proposed Complex Strategy Protections 
are designed to prevent the execution of ECOs at prices that are 
inconsistent with/not aligned with their strategies to the benefit of 
market participants. The Exchange believes that the non-substantive 
differences to focus on the expectation of the ECO sender and what 
would result if the ECO were not rejected rather than refer to 
specified debit or credit amounts as a way to determine whether a given 
strategy is erroneously priced would remove impediments to and perfect 
the mechanism of a free and open market system because it would promote 
clarity and transparency in Exchange rules.
Rule 935NY
    The Exchange believes that the proposed non-substantive change to 
Rule 935NY to update references to ``COA'' (versus COA Process) and 
``the Exchange,'' to delete reference to ``System,'' and add the 
reference to Rule 980NYP would remove impediments to and perfect the 
mechanism of a free and open market and a national market system and, 
in general, protect investors and the public interest because the 
proposed conforming changes would add clarity, transparency and 
consistency to the Exchange's rules. The Exchange believes that market 
participants would benefit from the increased clarity, thereby reducing 
potential confusion. Similarly, the Exchange believes that adding a 
cross-reference to proposed Rule 980NYP(f) and extending the exemption 
from the one-second order exposure requirement of Rule 935NY would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it would promote clarity 
and transparency of which Pillar rules would be eligible for the 
exception specified in that Rule.
    As previously stated, the Exchange believes that the proposed 
Response Time Interval for a COA (i.e., no less than 100 milliseconds) 
is of sufficient length so as to permit ATP Holders time to respond to 
a COA. As such, the Exchange believes the proposed rule change would 
provide the order sender with a timely execution of its COA

[[Page 16484]]

Order, while ensuring that there is an adequate exposure of such order. 
Accordingly, the Exchange proposes to amend Rule 935NY(iii) to extend 
the exemption from the one-second order exposure requirement to COA 
Orders under Pillar, which exemption is consistent with the treatment 
of similar orders on other options exchanges.\77\ Consistent with Rule 
935NY, Commentary .01, ATP Holders would only utilize the COA where 
there is a genuine intention to execute a bona fide transaction.\78\
---------------------------------------------------------------------------

    \77\ See supra note 68 [sic] (regarding Arca Options Rule 6.47A-
O (iii)).
    \78\ See supra note 69 [sic] (regarding Rule 935NY, Commentary 
.01).
---------------------------------------------------------------------------

* * * * *
    For the reasons set forth above, the Exchange believes proposed 
Rule 980NYP, regarding ECO trading, including the priority and 
execution of such ECOs vis a vis the leg markets, is consistent with 
the goals of the Act to remove impediments to and to perfect the 
mechanism of a free and open market and a national market system, and 
to protect investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange operates in a 
competitive market and regularly competes with other options exchanges 
for order flow. The Exchange believes that the transition to Pillar for 
trading of ECOs on its options trading platform would promote 
competition among options exchanges by offering a low-latency platform 
that offers more deterministic outcomes for trading interest, which, in 
turn, facilities ECO trading on a continuous and real-time basis on the 
Exchange.
    The proposed rule changes would support that inter-market 
competition by allowing the Exchange to offer additional functionality 
to its ATP Holders, thereby potentially attracting additional order 
flow to the Exchange. Otherwise, the proposed changes are not designed 
to address any competitive issues, but rather to amend the Exchange's 
rules relating to trading of ECOs to support the transition to Pillar. 
As discussed in detail above, with this rule filing, the Exchange is 
not proposing to change its core functionality regarding the treatment 
of ECOs. Rather, the Exchange believes that the proposed rule changes 
would promote consistent use of terminology to support options trading 
on the Exchange (and to promote uniformity with its affiliated exchange 
Arca Options), making the Exchange's rules easier to navigate. The 
Exchange does not believe that the proposed rule changes would raise 
any intra-market competition as the proposed rule changes would be 
applicable to all ATP Holders, and reflects the Exchange's existing 
treatment of ECOs, without proposing any material substantive changes. 
As noted herein, proposed Rule 980NYP is substantively the same as Arca 
Options Rule 6.91P-O except as noted herein (including to account for 
the Exchange's Customer priority/pro rata allocation model).

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2023-17.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAMER-2023-17. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEAMER-2023-17, and should be 
submitted on or before April 7, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\79\
---------------------------------------------------------------------------

    \79\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05444 Filed 3-16-23; 8:45 am]
BILLING CODE 8011-01-P

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